Umair Haque should charge admission for his thoughts, but I disagree with a recent post where he takes a solid left and sanctified right on venture capital. Charlie O’Donnell has a shorter response than mine. Umair implies that vcs are ignoring risky business plans. Either that or he is suggesting the impossible - for venture capitalists to wait for the plans that create new industries. Don’t invest otherwise. Be even more selective and boycott today’s entrepreneurs.

Why are venture investors failing to seed new industries and markets? … Where one pioneer invests, a slew of imitators follow, and so tremendous amounts of cash are poured into the same business design or market space - ad exchanges, social networks, and blogging/vlogging platforms to name just a few recent fads. Why does President-elect Obama have to invest a likely trillion dollars to renew, well, pretty much the entire industrial base of the economy - to seed new auto, energy healthcare, education, finance, and agricultural industries (to name just a few)? Because today’s crop of apathetic, risk-averse venture investors didn’t.

Umair’s logic implies venture capitalists are choosing an investment over another because it has less market risk. Venture investors don’t accumulate 20 or so deals and then at year’s end choose the less risky ten. More business plans are rejected due to small addressable market and too much competition rather than big idea PowerPoint risks. Vcs have immense faith in the powers of sales and marketing.

Vcs are investing in incremental innovation for a reason; it’s produced strong returns. It is tough to doubt incremental innovation when you see transistor per chip count move from 5k to 700M+. People thought vcs were doomed in the early 90s, but what followed was strong vintage returns. Some people are looking at the massive amount of commercial success that fed off the transistor and concluding there is nothing out there now which could fuel comparable change. The R&D of the internet started before we got the c in vc in ’79. Note, most industry creation has come from military R&D which is considerably smaller these days. Solar cells could be the next wave and should not be discounted just because they are taking longer than the transistor to reach commercial viability.  Terahertz imaging, human-computer interaction/design and nanotechnology are other examples. I think Umair is remarkable-tizing recent return history. All innovation is incremental to some degree. You cannot generalize across this stuff on a two-times-two-equals-four basis.

Looking at vintage returns since ’98, vcs are assuming significant risk and some taking their humble pie with it. IT and biotech took awhile to gain profitability momentum and still have room for significant improvement. Biotech is 30 years old and monoclonal antibodies only started recently delivering and 99/250 public biotech companies currently have less than six months cash on hand.

Big idea bplans are scarce. Vcs are moving to later stage investing not for risk averse reasons, but because they have more assets under management. It’s unreasonable to expect A rounds calling for $20M+. Most ideas cannot put this much capital to work that quickly, and the dilution would be unsuitable to management. However, many entrepreneurs believe they can do more with less and so don’t forecast needing much extra financing past a first round.  Follow on rounds need to forecasted more effectively. This financing mentality is an expectations gap, otherwise being referred to as a funding gap. Refining this model would encourage entrepreneurs to think big.

Vcs need to put more dollars to work per investment to effectively manage portfolio companies, which has orientated some vcs to more capital intensive (riskier) business models. If there is capital intensity, better it be tied to first mover risk versus capital intensity relying on product substitution. The magnitude of product variance is directly proportional to consumer willingness to change habits. There could be new industries and markets that have been funded but are under Teflon. Pioneers are more apt to go stealth.

Vcs have a responsibility to put their investors’ money to work real time. Vcs are not market experts and so build social capital in order to identify opportunities. Many vcs come from the biotech and IT which defines their trusted deal flow to those industries. There is proactive company building, take Book Byers at Kleiner talking about their new bi-defense and pandemic fund. “If large companies are working on part of the problem and doing it well, then we don’t do that. We may do a couple of startups where we just can’t find anyone working in one of these areas.” Yes, there are lemmings out there and an increase in risk reducing strategies, for example on the biotech side investors who invest in drugs for market validated targets. However, even for those of us guilty of  making lemming investments, this is not a portfolio level strategy.

What is the systematic cause for shortage of radical bplans? Production became so expensive and complex that it muted optimism to try to build big new things. Large companies have become intimidating super powers. Companies’ standard setting induced people to fall into formation. Culture has come from commerce.

Social networks and blogging tools will not get us out of the recession, but they are a platform to create a more informed consumer. Empowered, disciplined, balanced, and informed consumers could have saved us from the current mess. Reinventing news media from these new voices will go a long way to convincing the public that many Americans do care about issues.

The venture economy is failing investors, entrepreneurs, the economy, and society.

Umair is belittling the physics of other people’s money. Vcs are responsible to create returns for their investors (limited partners). Limited partners’ shareholders and customers are the public. All interconnected, all boiling down to personal responsibility. Creative destruction resulting in unprofitable companies is only valuable to consumers.

The comments on buy side issues are a much larger post.

Yet, the trailblazers of making radical responsibility economically viable are non-profits and social businesses - not venture funds, who have been deeply reluctant to explore the economic possibilities of responsibly powered business models.

I agree. A lot of the world’s problems are avoided by geography, involve commons such as water and lack demand due to poverty. We need to capitalize new asset classes and link foundations, private investors and nonprofits.

That striking homogeneity reflects an almost total lack of strategic imagination by venture players

Innovation is associated with overlooked or underestimated value / cost drivers that make proposed alternatives unattractive. Most really breakthrough stuff is not obvious. A lot of smart people got a free look at the Google deal at a price tag of $1M. Vcs cannot tell an entrepreneur what business to start. The great businesses are started from passion and imagination. Credit belongs to those who are in the arena.

Blake Ross of Firefox said, “The next big thing is whatever made the last big thing more usable”. Innovation has been going at the same rate the last 50 years while we have entered an unimaginative era. The blog (a memoir)  is the leading art form. Problems are easier to identify these days. Entrepreneurs don’t need to think long and hard to find something to be passionate about fixing. Look at most technology out there, it usually has to do with what a product can do versus what it should do. The product is more about having one more feature than the competition. Another factor that has tied us to incremental innovation is that the technology involved in processor, computer, software, and internet has all been layered in shared design, people and most importantly geography. PR’s focus on Silicon Valley could be impairing Umair’s assessment. The industrial revolution didn’t happen overnight.

Homogeneity; you can argue that all the companies are eventually in the same bucket. There are scale and employee incentive economics that limit one company’s ability to dominate more than a niche market. Granted, fortune 100 companies have 50 industry business lines on average, but that is a different equation than startup economics.

Venture investors have been free to take hidden action that maximizes their own near term returns - underinvesting in radical innovation.

The scapegoat is startup execution. It’s not necessarily failure in big idea investing. Execution needs a stew of creativity to enable refinement of a business model and supports hiring needs. This comes from a local mix of media, design, film, international relations, fashion, health, etc. We need more diverse entrepreneurial friendly ecosystems like NYC. There are too many startup black holes across the country.

Most vcs accept the orthodoxy that sources of advantage are fixed - and that’s the single biggest mistake they make… Brands are losing relevance; cost advantage is often an illusion; differentiation is too often simply skin-deep; and market dominance stifles innovation and creativity - to name just a few. Yet, tomorrow’s sources of advantage remain largely unexplored - because vcs have been systematically underinvesting in discovering them.

Vcs and entrepreneur often start a business in an underperforming industry, because they think they can do better. Vcs are no different than industry actors who align to the rewards of their system and don’t take countermeasures until the model breaks. This is easier mental calisthenics than recreating business advantages. Vcs have refined the model; gone vc gone are the tourist (investing abroad without local infrastructure) or drive by (investing without business model) vcs.

New sources of advantages such as creativity, continuous innovation, execution, collaboration and sustainability are needed. I also agree that some old sources of competitive advantage are less significant. Distribution channels are a less powerful source of advantages, forcing companies to seek other ways of reducing customer power, threat of substitutes and threat of new entrants. However, this does not mean that all tried and true advantages aren’t still rewarding such as cost (iTunes) and reputation, differentiation (iPod).

People argue choice paralysis and perfect information is killing branding.  Increased search costs and noise actually increase the value of branding. Branding is more accountable for the relation between message and product. The act of conveying expected value is still a representative, albeit less compressed, experience. It is increasing if you define brand as the level of engagement with consumer. It is getting better if you agree that advertisers have to convey unique value with less space (320 x 178 banner ad).

Commoditization of investment philosophies since the 1990s has generated technologies that can best be described as sexy-cool rather than disruptive and meaningful (with a few exceptions). It paved the way for get-rich-quick entrepreneurs that are skilled in feeding the dogs the dog-food, rather than support the real entrepreneurs that have a dissenting view of the world.

Sites like TheFunded are bringing transparency to the industry and encourage vcs to be less detached.  It would be great to see a vc do a Bob Swanson and collaborate with academia, government or corporate America to create new industry.

It’s great that Umair makes spirited points for innovation. Hopefully my response reads as optimistic, constructive passion versus self serving, get too much from my job description. Pessimism is the new black; it seems can-do USA is gone and there is significant uncertainty. However, with recent events, participatory culture should only continue to grow. We need to improve education and generate more leaders.

To quote actor Wendell Pierce from “The Wire”,

“I hope that people will look at ‘The Wire’ and look at the humanity in it, as harsh as the show can be, and understand that there is humanity and that there is shared experience. No matter how far your life may be from these characters’ lives, it’s a shared experience. There’s hopes, there’s dreams, there’s inadequacies, there’s strengths, just like with every human experience. To tap into that (is) to understand the wealth of knowledge we’re denying ourselves and our community (by allowing) such an underclass to continue and thrive. I think about that every time I pass a cancer center. Man, we’re sitting here struggling with cancer, and just think about the generations of great minds who’d probably have the cure for it (but) never got on that right track, were never given the right track. The cure for cancer may be on the corner of Rampart and Ursulines. Some character hanging out there, right there in the Lafitte project behind the cemetery.”

“Indeeeeeeeeeed”, to quote a character from “The Wire”.

Finding talent. Sometimes you can use a recruiter and sometimes talent shows up in the unlikeliest of places — as the video below demonstrates.

Why don’t more recruiters work with startups? The most obvious answer is startups have a DIY, bootstrapping attitude out of necessity and cannot afford a recruiter (especially retained) which as a fee can range from 30-50% of salary. That is probably not the explanation though because people are the main ingredient to start-ups and so companies should spend the shillings for a recruiter service.

John Frager blogged about why large companies use recruiters and startups do not, a topic he had previously discussed with Charlie O’Donnell (Founder of an exciting startup in the undergrad career/recruiting space). John writes “the marginal productivity of a particular employee is far less than that of the corporate executive“, and,

Lets assume a key executive at a large and hierarchical company quits. The projects and peopled managed by that executive will quickly lose their direction and leadership. They might be able to function independently, but they will certainly be less effective. In a large organization, and for a high level executive, this may amount to significant declines in productivity for the entire company. Thus, the cost of leaving that position open is very high. Here, a headhunter, “Executive Search Firm”, steps in and uses its contacts, specialized experience, and familiarity with the industry to quickly fill that position. They garner a large commission for providing a very valuable service by minimizing that costly leadership gap.

His argument is that a large corporation, and not startups, pay recruiter market making rates becuase largecos have a significant time cost of hiring.  I think this is a good point, because the new hire’s P&L responsibilities make it an obvious hard cost decision to get someone running that P&L ASAP. Evidenced by the fact that the replacment hire (for executives) starts the same day the predecessor leaves at a large company. Most large company executives are on the 6 month notice plan, not the 2 week notice, because public markets would eat companies alive for suddent announcements without the replacement in tow.

There are additional reasons why recruiters work more often with largecos. Fist off, law of large numbers as there are more jobs to fill, and largecos represent higher probabilities of recurring business for a headhunter. Managers want to protect their budgets and grow them at the same time = proactive hiring. Large companies also have internal recruiters who can make 3rd party recruiters out to be the scapegoat of fills, time to fill, cost per hire, bad hires, turnover. This actually leads to more demand for external recruiters from largecos. Recruiters can command higher fees as there is more time value than a largeco hire, because the hires are less of a flight risk and there is less probability of the company folding. I am also speculating that headhunters focus on fewer clients as the increasing talent war and demands of a particular company (e.g. de-centralized workforce and globalization requiring more travel from a recruiter have made a hire a more time consuming process. Also, recruiters are specialized and look for a package to sell, and the profile of a startup employee takes longer for a recruiter to analyze. It is less of a resume hire at a startup; with more emphasis on entrepreneurial characteristics, team fit and that hire’s network. Management team needs to sell the role.  Finally, recruiters would like to earn repeat business not just from you but from other companies in your space (with your company serving as a set of references in the market they are addressing).

There are a few reasons startups might avoid recruiters. First, it is harder to forecast the value of a hire at a startup and there is more volatility in performance than compard to small companies.. It is tough to put emhpasis on new hire ROI with all the startup unknowns. Also, there is a startup tenet  to mind cash and not hire VPs until certain milestones are hit. Startup salary/financial package negotiation is less vanilla than your at typical largeco. It is typically going to be the job candidate, not recruiter, who is better prepared to judge a startup’s quality of revenue, product, company competitive forces and team…not to mention collect performance to date and funding history. This judgement impacts how the candidate values stock options (which have greater risk/reward at a startup). The many unknowns about the startup’s future make it tough to derive a recruiter’s value.  Also, startups prefer to hire through their network even more so than largecos. Team fit is much more critical at the startup level where the innovation cycle requires frequent and significant decision making. Financial package negotiation is a process that should not be outsourced to a recruiter because these conversations help entrepreneurs decide if they can work together.

At this point, it might seem I don’t think headhunters and startups should go swinging in the tree   The opportunity cost of a bad hire may be bigger in absolute dollars at a largeco but it is felt more at startup level, because incremental change has significant impact to a startup’s bottom line. This in turn affects pricing, margins, market share, and dilution.  As the startup grows from toddler to adolescent stage, the company profile changes quickly and so does the target hire. Basically, there is little margin for error, a company grows outside a founder’s network, and there is urgency for hire. These are some reasons why startups need to work with recruiters.  I am aware of venture capital firms that maintain relationships with 100+ recruiting firms in order to find talent outside of their network for portfolio company hiring (also others that form partnerships with help of headhunters). One hidden benefit of a recruiter is that they can assess the current team and identify the holes that everyone else might have missed. When you run a company, you live inside its problems and sometimes cannot see them clearly.

The net has also enabled recruiters to thrive. Although, we still have a long way to go from today’s resume database, corporate web site, ATS information overload scene — future innovation for sure will include data portability, open source, RSS, social networks, meta and deep search. I blogged more about current and future state of job boards here. That said, I am a believer in peer recruiting as the best vehicle and referral hire stats back this up. LinkedIn revenues are growing nicely. I think many people realize that broadcasting a search to 200 of your professional contacts can be an effective recruiting method. H3 , Yorz believe that once employers start offering serious money to non professional recruiters that can find them the talent their looking for, it hardly makes any sense for them to take solely rely on the relatively monolithic approach of using single professional recruiter. H3 should open up searches to the general public (versus the current invite model) and partner with a experts network like a Gerson Lehrman.

Broadly speaking recruiting, the education system and government have especially tough situations. Schools have 65% retention and a 30% transfer rate that equals $8M in extra annual costs. $3M is spent by the average school for starting new students; in total $70B or 20% of revenues. The massive competition from the 6k+ schools have led to a focus on sales and a drop in quality in counseling. At the same time,  FFELP loans are not even being backed by institutional investors; despite the government guarantee (my guess is that orginators, guarantors have private loan lines as well which spook the investors). Apparently 40% of students choose their school based on whichever school first returns the approved loan estimate package. Government has a workforce with an average age of 47 with 70% eligible to retire. Areas of further reading and listening relevant to recruiting:

• Civic Ventures pdf- “How Boomers Can Help Our Government Meet Its Talent Need”
• HBR Ideacast podcast - “What Make Gen Xers tick”
• Businessweek, Cover Stories podcast - “Youthquake”

Excerpt on Gen Y from the Businessweek podcast with Michelle Conlin

They had a schizophrenic coming of age…they were the children of the rising Dow and it was unbridled prosperity and it was a boom time and things looked so rosy. And then after the crash came terrorism, war with Iraq, it’s their friends that are dying in Iraq , it’s their planet that is given rise to sunbathing in January and so they are a generation formed by epic uncertainty, nowhere does that play out in a greater way than their economic prospects, they have more debt, federal loans for schools are dwindling, tuition is rising, price of affordable house with neighborhood in school district bid up astronomically, and they are the inheritors of the great risk shift, the shifting on to soldiers of individuals health care and retirement - things that government and employers once took care of…the system needs an update and they have faith they can shape that update…when they graduate college, they enter this global discount labor bizarre, competing against counterparts for pennies on the dollar in china and India.

Raj Bala wrote an excellent blog on enterprise IT so I followed him closely when he went to launch his startup, BigSwerve. BigSwerve indexed millions of blog comments and had front end tools for browsing the commentosphere. It had promise of being the best method to find new blogs. The BigSwerve tool that I frequently used was a search interface that would accept a blog URL and then return the URLs left by commentors on that blog. You could also do the inverse with the API — in other words where does a given person comment. Actually they were indexing all the commentor data, not just the URL, measuring the extroverted nature and engagement level of people — sort of the inverse of PageRank. Relevant people to your interests, versus the traditional algorithm of grading by inbound links. They were also launching a widget that would increase comments using the intelligence from their comment database. For good reasons, BigSwerve was acquired by Lijit. The tools I just described are no longer available from Lijit, but Lijit does have a fun tool to find other blogs. Check out Lijit because they also have a great search engine (increases page views and conversion) that is customizable, easy to setup and to add to your site. So what are we left with now to find new blogs?

ReadWriteWeb covers various approaches for finding new blogs. In my opinion, the best approach is the time spendy one of following link trails from your favorite blogs’ blogrolls, comments. Weeding though google on keywords of interest is still one of the most effective approaches to find new blogs. These fairly manual best practices guarantee long nights of browsing and signal an opportunity for a technology company to give us a superior product. The commenting companies (e.g. Disqus) or ratings (e.g OutBrain) seem like obvious candidates to develop blog search similar to BigSwerve, but I don’t think they have a head start over any other company because it is not obvious their technology can index blogs outside of where their code is embedded.

Providing a standard presentation of blog characteristics once you find a blog is another needed solution. For example, a technology that generates an organized landing page that shows me blogroll, list of commentors, mybloglog community, linkedin contacts, friendfeed stuff, posting stats, bio and other blog stats.

The SXSW hallway experience motivated me to start using Twitter…the conference adrenaline lives daily on Twitter, and now I was looking for a “lighter” way to stay in touch with these new friends.

Over the weekend, I turned up the dial on my addiction to Twitter…I asked a coder to develop an application that finds the profile URLs (field circled in red below) of all my 2nd and 3rd degree Twitter contacts. Operating definition of 2nd degree is the people who are being followed by the people you are following.

Introducing Twitter , there are already enough cutey cutey named Twitter apps out there (still open to name suggestions though).  Take the results of the app and put them in column A in the excel file below. Run the excel macro which will open x number of links (you have to set the range in the VB code) as tabs in firefox.

At the time I ran the application, I was following 121 people who in turn were following 2,660 people of whom 1,912 had URLs in the ‘web’ field on their Twitter About page.

VortexDNA has some great points including the one below in a post about Twitter,

…one of the parallels I’m seeing between the digital universe and the human quest for enlightenment is a growing appreciation that the individual is only a tiny part of an interconnected whole.

This is true in the physical world, but the illusion of disconnection is powerful. Online, people involved in Wikipedia and other crowd-sourcing efforts have the very real experience of being a tiny yet vital component of a larger organism. Increased connectivity drives this awareness further, as the great ocean of information heaving around us becomes more visible.

Reason #1001 startups rock. The team from Connected Ventures, who run Vimeo, uploaded a video of their excellent lip-synching performance in early ‘07. The video was just nominated on VH1 for 9th place of the Internet’s Most Inspirational Videos. The fun was part of an after work happy hour. They advertised open positions at Connected Ventures on the same page as the video. Supreme recruiting goodness.

Apparently, more and more companies are developing in-house media operations (e.g. BudTV). I have heard from agencies who say companies are increasing revenue budgets for media advertisements towards current and future employees (not just calculated, reactive ads like those from Walmart and McD who were trying to fix perception issues). This seems to support an incoming wave of recruiting vidoes. Outsourcing risks leading to an artificial veneer. The best template of authentic, employee generated has risks too such as a vapid result. Ypulse, here and Brazen Careerist blogs are good starting points to find arbiters of tips for recruiting to GenY. There are also a few Youtube examples of corporate happy hour videos gone bad PR.

Vimeo is up to 350k members, 4k daily uploads and 57M videos.

Freelance sites today include RentACoder, Experts-Exchange, and Elance. Digg was built from a freelancer from one of these sites. RentaCoder does $2M in revenue from 85k projects by charging the seller 15%. This $150 average is less than the ecommerce average ticket of $200 - a good price for buyers and the repeat buyers are 50% higher than software industry averages. There are over 200k providers on the site and 100k buyers. Elance raised $80M and probably has a similar amount of revenue. Both sites have traffic that has been flat since ‘04. Experts Exchange has acquired a knowledgebase of 2M IT solutions in 1k technical zones and currently has 11k experts. Their traffic is also flat since ‘04. These sites are should not be waived from venture investors radar because they participate in the transaction.

oDesk was recently funded and seems to be growing fast and has 70k freelancers alrady, but I question market size for the business. In April ‘07, $10M was spent on oDesk, that is up to $25M less than a year later. 67,541k jobs posted at this point with an average size of 212 hours; seems like average job is around $1k. Some problems for the site have been that larger projects happen off oDesk and the real talent is essentially using this as a job board…Not a ding but a comparison - small, talented web shops get business from corporate clients at $25k. Also, I don’t buy the value proposition of transparency as implemented on oDesk and think there are better project management tools out there. Another problem with freelancers is that some have a day job and are not very reliable and serious about this work. I am curious what percent gives the site credibility issues, but don’t think it has to be that significant. There are less freelancers out there with general education trends, workforce (decentralized, more effective job boards) and outsourcing trends including rates, currency (most buyers are US), and offshore industry becoming more organized/dominated by a few firms.

ITtoolbox had a good approach of building a Q&A community integrated with enterprise2.0 tools (e.g. meta-blogging) and connecting not freelancers, but IT professionals and consultants. This is a much higher prized demographic as evidenced by last year’s acquistion by Corporate Executive Board for $60M. ITtoolbox supposedly had $10M in revenue (already had been in the sponsored survey biz) and is a great platform for CEB to collect survey data . Initially, the community was built on five knowledge bases (SAP, Oracle, PeopleSoft, Baan, and ERP) and powered by discussion forums. The ITtoolbox platform now incorporates a professional network, 28 knowledge bases, more than 200 blogs, 650 discussion groups and a wiki to facilitate targeted community interaction in which IT advertisers can participate through a proprietary contextual matching system. 1.3m registered users and 250K uniques which has doubled since the acquisition.

ITtoolbox successfully links knowledge workers from different companies. I once worked with Peoplesoft consultants who had a similar knowledge network, but participation in the discussion/knowledge base was limited to employees. Workstreamr is working on a parallel concept, but advancing this idea to an unforseen level and preparing to launch a socialprise clinic as their team exercises visionary license the way most of us exercise our lungs.

Syndication of work, content (in particular Helium) might be a working model for freelance sites to help their sellers and increase revenue. Syndication can work as an effective promotional tool for certain categories of freelance, perhaps the freelance site get also negotiate volume deals. Candidate partnerships are domaining companies like Demand Media, CMS companies, content platforms such as BricaBox, EV0 Landing, and syndicators such as BrightCove, NewsMarket and Newstex.

Follow up on my Q&A post with a Q!

Has anyone seen a slideshow that can be built dynamically; specifically a script that accepts URLs ending in X.jpg, where X = from 1 to 50? Also, when clicked, the slideshow should load that dynamic page. Slide used to provide a bulk loader tool but did away with it. Now, I have to add 40 images one by one in order to build a slideshow. You can click the image below to see the Slide functionality currently implemented on my mom’s site. It becomes readily apparent there needs to be something better for a web business. The slideshow is out-of-date with any change in inventory.

Got ? There are many sites to answer your question; full list here. Traffic is decent across many of those sites, however insufficient to receive answers outside of the top 5 sites. Overall traffic to Q&A sites has gone up 900% over the past two years. The leader is Yahoo which has 25M US uniques and 75% of the market. 50% of Yahoo traffic is returning visitors. That is very high churn (not much growth over same period) if this number is more reflection of a site not delivering to the ‘question economy’. Yahoo is only driving 15% of total traffic to their Answers site. Answers.com has equal US uniques (43M global) but is more of an aggregator of original content and licensed content, but they acquired WikiAnswers for $2M in ‘06 and that has quickly (grown 100% since summer) become #2 with 20% of the market. WikiAnswers had $700k of Q4 revenue from 6.5M monthly uniques.

Telling is that the average page views per visitor is 2.4 on Yahoo! Answers. It takes 4 pages to post a question, so it seems most visitors are only doing a search for already answered questions. Back to the search engine model, but without pagerank..actually lacking any obvious ranking algo (2nd result is half as old as the first result and the person answering the 2nd result has more answer cred than the person answering the first question). The more stuff that’s searchable, the harder it is to find anything useful.

A core problem with Q&A sites is that you are expending a lot of energy for an answer. You could probably wade through 30 Google search engine results and still be under the 9 minutes spent per visitor on Yahoo! Answers. This is not a large time sink, but perhaps what is more relevant is that we perceive it to be one. Clicking search engine results burns less brain cells than posting an articulate question. That counts for something among today’s LOL demographic. We also need to worry about time spent screening quality of experts on the site and T&Cs when we pay for a service. There is a long term time savings involved, but most people are not thinking that way and interests are changing quickly meaning you are probably dealing with a different expert next time.

Some sites have experts who you can connect to through IM or phone. Examples include Bitwine, Attendi, Ether and Qunu. All have very small traffic. This model was pioneered many years by Keen for all the 900 type services. Kasamba does not seem to be growing but is at 1M uniques, $12M in revenues and was recently acquired for $25M. The reason it never worked is there is not a large market of advice from experts for hobbies. Gerson charges $400 per hour and that is worth it for experts to nightlance, Brokers Group brings higher pricing to the table with aconsultant network, and another expert network charges a lot more for access to innovation experts. A consumer is willing to pay fraction of these prices for advice on something like sewing.

If you are lucky enough to find the right expert, the next problem is scheduling. I tried Keen out of curiosity today, their featured expert of the day was not even available. It has been 4 hours, still waiting for her to call me back to get my horoscope for $6.99. This does not fit the instant demands of today’s consumers and equates to the ‘post and wait’ model of typical Q&A sites. inQ, DoublePositive and LivePerson are doing interesting solutions to the scheduling conflict (for another post).

Blogs, socialnetworks, lifestreaming sites all cater to the twinsumer trend. Q&A sites must partner up. Q&A sites would do well to take a page from ThisNext (previously blogged), Polyvore (post coming), Behance. These are sites that seem to execute well on providing functionality that lets the expert develop relationships with their customers. Attendi gives a higher rating the more people talk to you. Q&A sites have a lot of potential to help experts gain credibility.

Get Satisfaction has some good buzz but seems like it will have the same problems as most other sites in the space, and it is not evolving the Q&A business model. It has buzz rightly so for the great team behind it, for creating web2.0 feature set, and for focusing on the company and product category. I think this site is lacking for consumers as it is the post and wait model, and it is not holistic from a brand’s perspective. Companies need to monitor the whole web, not just one web site (see sentiment tracking companies here). Brands also need back-end real-time reporting tools to manage this flow of information and cannot be expected to follow the forum. There are tools such as PowerReviews, BazaarVoice, iPerceptions and KickApps that help brands collect key attitudinal data from prospects and customers and display it on the brand’s own site. Read this Internet Retailer article on more about how brands are integrating on-site reviews into the ecommerce process. Right Now has strong products and penetration in the customer feedback space. Some Q&A sites such as Fixya are doing very well.

Fixya has raised additional capital and has grown traffic over 100% in the last year. Fixya aggregates all post-sale information (Manuals, User guides, FAQ’s Troubleshooting, Drivers, etc.) of consumer products from other web sites. OwnerIQ seems to be doing something similar with user manuals. In addition, Fixya is a Q&A site. The large amount of technical support content seems to be what got them past the Q&A chicken and egg problem. Wisely, they also focused on one niche, consumer electronics which is around 25% of all ecommerce. What also works in their favor is that consumer manufacturers do not "own" the web for their own products, mass merchants have 40% of ecommerce and mfgs have 15%. This makes it easier for a site like Fixya to own the post sales process and become a technical support savior. ‘Wii’ should be a term they cater to as it had 1.8M searches in Nov ‘07 compared to #2 for retail which was ‘xbox 360′ at .5M searches. They have nice community tools and I like their Content Syndication Partner Solution which is another SEO building play. I previously blogged about Fixya suggesting they aggregate Q&A from other sites including unaswered questions and sending comments back to the source. It does not look like they have moved on this concept at this point.

What would be great is a service that finds an expert for me. I submit my question to the service and they submit my question to all Q&A sites as well as handle all ensuing conversations. Essentially, be my Q&A freelancer. One company that got somewhat close to this idea is ChaCha, but they stopped short of being an effective site (more here). Freelance sites are tough to scale so I do am not sure if there is a business model for Q&A.

Remote help (installation and break-fix) is one way for Q&A sites to provide better service and increase revenue. This would fit right in Fixya’s strike zone and it is a channel friendly model. Average blended service fees for on-site and remote average $100. Remote help is only 1% of the 6M or so break-fix housecalls nationwide but is growing quickly thanks to technology such as Logmein. The relevant services/outsourcing category trades between 2-7X revenue, with an average of 3.5X. At least a few years ago, Geek Squad brings $70M to the bottomline for Best Buy and is doing $1.5B in revenue recently. Remote help also offers incredible up-sell and cross-sell opportunities. Supporting growth in remote help is huge growth in home networks and more technology is being bought online versus the store. Pay the geek trend continues to rise as devices become much more than just the functionality from that one device but part of a home network, or multi-vendor integration. Consumers have multi-vendor solutions and manufacturers cannot solve those issues. How many times have you been on the phone with them and they point fingers at the other vendor?! Consumers embracing environmental concerns would prefer to fix versus buy new computers, but effective anti-spam, online storage, technology cycles and lower prices are heavy counters trends for buying new. The consumer remote tech support market is $2B even though broadband penetration still has a ways to go and this number does not include warranty. Also as Consumerist points out, there is a large opportunity to better prices of today’s level of on-site service. Dell has been offering remote support for a year, and 25% of DellConnect help session customers now use this form of diagnosis. Over 100k of Cablevision customers have downloaded Peak8’s self-help product. Staples and telco getting into this game, there is an opportunity for some strong partnerships with major brands and technology companies (maybe even a media sponsorship with NBC Chuck). Edison has an investment in the remote space in PlumChoice (Firedog).

Other ideas for Q&A sites are to introduce more gaming into the experience. FunAdvice, Answerology (acquired by Hearst), Girls Ask Guys are close. Wis.dm closer. Sites like Polldaddy (different post) have great potential . Quizilla drew an audience base of 4.7 million unique visitors and was bought by Viacom. Developing the Q&A into more of a job board also works… TopCoder runs competitions for coders that are sponsored by companies looking to attract programming talent. Topcoder did $15M in ‘06 revenue. Experts-Exchange is also a bit of a status symbol for job hunters but it has not monetized or motivated the made the answer seeking. LinkedIn Answers seems to be doing well because they are integrating networking into the equation with a focus on business questions. The AnswerBag API seems interesting. Twitter, Twine, Pownce, FriendFeed and social networks have the potential to introduce your trusted network into the Q&A process. What is missing is a solution that enables me to quickly scan my contacts on all my accounts and invite them to answer my question as part of a group discussion (perhaps delivered as comments, perhaps as something else). Cubeless, Klotsu, Grouply could possibly do something along these lines. AskABlogR is close, however I want one interface that gives me the ability to quickly send a question out to more than one blog at a time and aggregation of this Q&A in one location (my blog, FriendFeed with link love for answers) as well as on their blogs..

These opportunities also exist for the DIY sites such as Instructables, VideoJug (raised $30M).

I am hoping some of my favorite sites get a little more of algorithmic competence in 2008. Many content sites have an area for discovery of new content. This can be presented in the form of charts, recommendations of content similar to your indicated tastes, or recommendations driven from your transactional history on the site. I would like to avoid or have the option to avoid the recommendation engine making recommendations already made to me in the past. For example, while browsing the charts on Ourstage for best music of January, give me the option to avoid songs that I already came across in the December charts.

I have not seen a site offering this type of personalization. It’s not like these sites think that I will slowly and incrementally warm to a recycled recommendation (although it could be true in music where my less than intelligent ear sometimes needs to hear a song a few times to appreciate it). I think it has just been overlooked up to this point or more likely there are larger fish to fry for the business models. Speaking of business models.. I have always wondered why Netflix, the king of monetizing recommendation technology, chose 5 stars out of 10. Some of us are not born movie critics and need more stars!

This additional personalization function is an additional feature opportunity for a company like AdaptiveBlue to index images, metadata and work across multiple sites. Perhaps technology companies like Aggregate Knowledge and CleverSet already have this as built-in functionality for their publishers to offer to their traffic (with additional features such as archival of recommendations). Perhaps not though, because they operate on the agreement of anonymity of the web traffic. I read that Aggregate Knowledge allows clients to add in-site rules to the recommendation engine which would get around privacy concerns.

Personalization is also a growing business in education technology. I wonder if the assessment companies are as plagued with this recycling scenario when creating the personalized pop-quiz format that is delivered to students. Same goes for online tutoring companies which the NY Times recently covered.

Niche music is taking off. Last year, 75k indie records were released, double the amount three years ago.Every year, over $15B exchanges hands between promoters and bands in the U.S. alone, with only 9% attributed to the top 500 touring artists. Consistent with the long tail phenomenon in recorded music; festivals, and music conferences are becoming an increasingly important element of the market. A breakdown of the US music market ticket sales: Clubs/Bars: $3.5B, Weddings: $2B, Concerts: $1.5B, Festivals: $0.75B, Colleges: $0.4B.

Fred Wilson recently posted on a related topic here and I agree with the points but would change the last sentence, “Online distribution provides two functions, marketing and fulfillment. If you don’t need the first, then you don’t need Amazon and iTunes.”

I would rewrite this to “Online distribution provides two functions, marketing and fulfillment. Neither Amazon or iTunes  provide much in the way of the first and both are a raw deal on the latter, but you should still use both.”

I think the pot of gold for artists is ticket sales (up 16% in ‘06) and not the sale of recorded music. This is a highly debated topic with industry experts on both sides of it. Most experts concur that traditional record label business of banking on top 40 artists is in decline. In fact, one senior music industry analyst quoted in June 2007 Rolling Stone said “we have a [recorded] industry that’s dying. There won’t be any major labels pretty soon.”

I heard that an artist using a leading CD ecommerce site (CDBaby) pays around 30% of gross sales. iTunes is similar in rate card. That is pre-label rake. The growing importance of ticket sales = a trend towards a loss leader strategy for recorded music. Plenty of artists give away their music as free downloads on many of the music sites. Fans are searching for music across many mediums and sites, and so an artist should get their music everywhere a fan might be searching for it including Amazon and iTunes. The people that hunt for free music are not the same people who pay for the quick experience of iTunes. Probably an opportunity for a company to segment itself as the premium destination for music+.

Amazon and iTunes are weak at marketing niche music (although Amazon does provide SEO value). Music discovery is currently owned by social networks and other music sites. Fred mentions there are alternatives for distribution; there are many - I have a list here and that does not include the blog channel. One example, Snocap allows labels or indie artists to charge for music (snocap will take a cut ranging from 0% - 2.5% of the fee charged by the labels). EMI partnered with Snocap and distos through Myspace. Another very promising one is Tunecore which enables indie musicians to get onto major download services with a simple flat fee model - it charges a modest one time up front fee (usually about $30) for world wide digital distribution into iTunes, Amazon and more.  It takes no backend/transactional cut.  Its customers have 24/7 access to their money and can withdraw their earnings at any time. Tunecore can improve artist productivity and also avoid reduplication of efforts/delay associated with 4-6 week lags in syndication time that arise when submissions (from other Tunecore competitors termed aggregators or even labels) to iTunes are not in the correct data format. Tunecore enables re-direction of artist time to further build the offline brand. A M&A success story in distribution is Pump Audio.

Edison recently made an investment in this space in a company named Sonicbids. Very exciting company, check them out…especially if you’re in the music trade.

This post would be a music faux-paux without suggesting a source for great music, check out the jukebox on 20ltd. Also, here is a list of online music experts -