Lawyers rescue YouTube – and start cutting costs

Here’s the text of the new YouTube license…

"...by submitting the User Submissions to YouTube, you hereby grant YouTube a worldwide, non-exclusive, royalty-free, sublicenseable and transferable license to use, reproduce, distribute, prepare derivative works of, display, and perform the User Submissions in connection with the YouTube Website and YouTube's (and its successor's) business...in any media formats and through any media channels."

What does this mean in simple terms – YouTube owns your content and they can do whatever they want with it.

Wow…

So how is this going to save YouTube money? Well apparently a lot of the videos uploaded to the site (guestimates place the number between 40% - 60%) are commercial advertisements like the ones done by Budweiser. I can just imagine the corporate lawyers agreeing that YouTube now owns that content. What this means is that someone is going to need to review all of the content and remove the offending items. This should cut down on bandwidth and server costs.

Here’s the other side of the coin… YouTube’s single biggest problem is “revenue” – they don’t have any. I think they are planning to either IPO or sell. To sell the company the purchaser is going to want all of the copyright issues to disappear. This new license solves that problem or does it. I can’t imagine anyone suing YouTube simply because they don’t have any money. Of course if someone with deep pockets buys them out then watch the lawsuits fly.

The hardest thing in the world is to monetize a free business model. The general rule of thumb is that you will garner 1% of the user base. To put this in perspective lets take a quick peek at Skype… close to 300 million downloads and roughly 5 million users “on-line” at anyone time. Skype doesn’t make money from the 5 million users. It makes money on the Skype In/Out minutes. Using the 1% number that puts roughly 50,000 people online with Skype In/Out minutes at anyone time.

Apply that 1% number to YouTube and you can start to figure out what the company’s worth. Free is free, people love free, once they are used to it it’s hard to get them to switch. Which means that what you’ve built isn’t very meaningful because if it was people would pay for it.

We shall see. Good luck to the YouTube lawyers enforcing that new license.

$400 million reasons that Mobile walled gardens don’t work

This morning I spent a couple of minutes on Ampd’s and ESPN’s mobile web site. From press reports Ampd has received $260 million in funding and ESPN Mobile has had $135 million, which comes to $395 million or so.

I must admit I haven’t paid any attention to either of these two companies while developing our own desktop – mobile – web server solution. However with so much money being pumped into these two companies I decided it was time to take a look and see what all the fuss was about.

Wow – I’m blown away. I logged onto Ampd with a desktop browser and it took me all of a nano-second to see what the model is – a carrier controlled walled garden. What are they thinking? Maybe they are trying to replicate the success of NTT DoCoMo’s i-mode service in Japan?

Years ago NTT (a phone company) put together about 1,500 content providers and told them to build content for a mobile phone. They would get 80% of any revenue that site generated in turn for access to the NTT’s mobile customer base. NTT then created the phone with i-mode and something called CHTML (these are both public domain specs). I know about CHTML or compact hypertext mark up language because back when NTT were bringing it out I was trying to get a trademark on CHTML for compressed hypertext markup language.

NTT has been a roaring success in Japan with over 40 million subscribers. Why? Because at the time there were virtually no websites in Japan, the Internet was just getting going and NTT simply copied AOL’s model except for mobile. And then they executed in the marketplace with cheap phones and inexpensive content plans.

Now fast forward to 2006 and we have the NTT equivalent in Ampd and Mobile ESPN. Only one little problem – Ampd supposedly has 26,000 users and ESPN only has 35,000 users. So if the press statements are accurate $400 million dollars and change has been invested and to date has resulted in only 61,000 customers or about $6,500 per customer acquisition. The cost of the phone ranges from $49 - $99 with different plans plus whatever accessories you need.

What’s wrong with this model? Walled gardens that’s what’s wrong.

10 years ago with no content on the web it worked. Now with 85 million web sites pumping out all kinds of content it’s no longer an issue. Content is NOT king anymore! The future of the web is how we connect to it and how it remembers us.

Here’s what I want to do – I have a PocketPC phone. I want a similar experience to my desktop when I connect to the web. XHTML was invented to bridge the gap between HTML and WML (wireless markup language) allowing content providers to simply use one markup language rather than two (this saves developer costs). I want the web site to recognize that I’m on a mobile and customize content on the fly for me and above all else I want the experience to be fast and I don’t want to have to type in anything other than the web address. Oh yes, one more thing, I want to be able to go anywhere I please on the web i.e. NO carrier controlled walled content garden.

Just for grins this morning I logged onto Ampd with my PocketPC… I’ll give them a C- for effort. They are using XHTML so it adapts on the fly to “almost” fit my screen size (it, i.e. the web server still has no idea what screen size my mobile device is) however because they use so much flash I’m asked to download Flash 7. Of course Flash 7 is for desktops and doesn’t work for mobile devices. Also none of their JavaScript buttons work correctly on mobile. Again if the server “knew” what kind of device I was accessing the site with they would adjust the content on the fly.

So what does all of this tell me. If I want “special” content I have to buy into a carrier controlled environment. I don’t get access to the latest phones and I’m unable to access their content from any other type of phone. Net-Net they better have some VERY compelling content for me to sign up. Sorry, music and sports don’t cut it. What about someone who wants information on bees. Oops he’s not a customer for this service. In the old days (10 years ago) when there was no content walled garden models were the way to go. In 2006 and beyond there is no future in this approach because the web is simply too diverse with too much content all vying for users attention.

Ampd has had (reportedly) $260 million dollars of investment. It has (reportedly) 26,000 customers for a customer acquisition cost of $10,000 each. They have to drive that down to under $400 and then retain the customer for 4 years. That’s a tough road to travel. For those who invested, well they have to see at least a 5x return and would like a 10x return on their money. That means the eventual “buyer” of Ampd is going to need to come up with at least $1.3 billion or more. That’s a stretch – especially given the time frame for execution has to be less than 5 years because by then you’ll be able to buy a PocketPC for less than $100 and get access to any content anywhere at anytime for just the cost of a data plan.

Walled gardens are just so 1999.

Mobile Must Have’s Part II - Consistency

This is a follow up to my previous post on the “Mobile Must have”. In the post I discussed how we need to reduce the friction i.e. the number of actions a user has to take when using a mobile phone before arriving at what he/she set out to achieve.

The second post covers “consistency”. Right now there is no consistency between what I see on my desktop browser vs. what I see in my mobile browser. After years and years of effort the consumer is now used to something called a “browser”. They have figured out how to type in a web address and are used to getting their content delivered and formatted correctly.

Awesome – the content suppliers have solved the “content” problem – NOT!

Now lets take a look at the phone situation. I started looking at these 10 years ago. My partner and I got to play with the first incarnations of BREW and Windows CE 1.0 To say that they were primitive was an understatement. In fact it was a trip back in time – virtually no real bandwidth and certainly no content. However we could see that one in the future these devices would be everywhere. Now fast forward to today – BREW devices are everywhere, Blackberry is the choice of email road warriors and Opera now has a cool mobile browser for Windows CE. The Telco’s have given us flat rated “all you can eat” high bandwidth connections and the PocketPC actually has a workable TCP/IP stack for connecting to the Internet.

So what’s missing? Why aren’t people rushing to the store and buying these devices?

Well for one they are still pretty expensive however that will change over time and we’ll be able to purchase these phones (PocketPC’s) for under $150 within the next two years. The second problem is much harder to solve – when I connect to a web page on my desktop device I get one experience – when I do the same on my PocketPC – Smartphone I get something entirely different. Invariably the page is all messed up, cool little JavaScript buttons which work on the desktop fail on the PocketPC and obviously the whole advertising/flash model is totally hosed.

What’s the problem? At first blush it appears that Java isn’t ready for prime time, Flash is still a work in progress and the web page needs a complete re-work. To me that’s just part of the problem – it’s actually a lot deeper than that.

It’s obvious to me that the web server delivering the content simply has no idea what device it’s talking to. Now read that last point again – the web server (85 million and counting) has NO idea of the device and terminal capabilities of the target device it’s connecting with. Wow – you mean to tell me that in the last ten years no one has figured this out. I can hear the purists already screaming at me that they can do it, and I’ve been in meetings where they say that they can use something called “user_agent” to figure it out. I of course immediately whip out my trusty PocketPC and log on to their web site. Of course the experience is horrible. What gives?

Werner Von Braun said it best, “you can recover from a production flaw, but never from a design flaw”. The Web has a design flaw. When Tim Berners Lee invented it he “knew” what device he was going to be talking to i.e. a PC with a monitor. The entire spec has revolved around that ever since. Neither the HTTP 1.1 protocol or the RFC 2616 spec which govern the web have anything in them to support NEW devices and their capabilities.

Hard to believe that in a few years we’re going to IPV6 which will give us access to 256 to the power 6 combinations of web addresses. (281,474,976,710,656) – there not all going to be for web servers, they’re going to be for the myriad of new devices that we connect to the web with. Remember that the web is client server – and the server is going to need to know who it’s talking to and what the device capabilities are.

But I digress – back to the issue at hand – consistency for mobile users.

Lets start with what the content providers “NEED” to achieve…

1. The ability to create a more sophisticated model of customer behavior
2. The ability to create more detailed and customized segmentation of offers and combinations of their products and services
3. The ability to design new products and services to meet the discovered needs of their customers

How do they achieve that – they need new tools and one of the benefits of those tools has to be (MUST HAVE) the ability to deliver a consistent experience to the end user. To do that in a mobile environment they have to know what type of device they are talking to and the capabilities of said device. Right now they don’t have that information.

As the old saying goes – “if you think knowledge is expensive – see how much ignorance costs you”. The content providers cannot deliver a consistent user experience without more knowledge around what’s connecting to their web site. If they could they could start to deliver on items 1 -3 above. Until then they are leaving money on the table and will be waiting for the W3C to fix their design flaw.

Building a Culture of Accountability in your startup

Another lesson from 16 years in the trenches…

During one of my startups I was fortunate enough to meet a gentlemen from Baker Capital. It wasn’t one of the Principals, just one of the resident entrepreneurs. This person had a built a company from 30 people to 2,000 and a several billion dollar market cap. At the end of the meeting as he was leaving he turned to me and said – “if you’re serious about building a company then you need a set of core values”. With no further explanation he was gone. I took the information to heart and started working on my own set of corporate values. After several years I now have 7 values that really work well for any startup. Here they are with some short explanations.

7 Core Values – Producing business results for your employer

1. Respect for everyone Mutual respect for mutual benefit
2. Honesty Tell the truth – even if in doubt
3. Integrity What we say, and who we appear to be, need to be in alignment
4. The ability to listen and remain objective The ability to listen and remain objective enables us to learn
5. A Willingness to Learn & Adapt Confront reality - Plan, Do, Check, Act
6. Stakeholder loyalty Accountability and Responsibility
7. Commitment Focus & Execution on a common plan under one leader

Core value test:

If the circumstances changed and penalized us for holding this core value, would we still keep it?

Items 1 and 2 are pretty straightforward and set the tone for accountability. Integrity is critical because it begins the process of alignment (which will be subject of another post). I cannot tell you how important alignment is. Ignore it at your peril.

Items 4 & 5 are the ones that catch most people out. Entrepreneurs love to sell and seldom stop to listen, especially if they are smarter than the average bear. Listening is an art and one I work on everyday. Item 5 is another critical core value and goes hand in hand with listening. I'll never forget doing the last VC road trip. We went up the East and down the West coasts. Without exception all the VC’s gave us the same advice. It was very good advice. They were all in alignment – however I could not convince the rest of my team and the Board that we should make the recommended changes to our plans. After months of trying and updating the strategy I ended up leaving the company because we couldn't achieve alignment. (Fortunately they made the changes 6 months later). Sometimes it’s hard to hear things you don’t want to hear. This time the VC’s were right, and funny enough even the customers we were talking to gave us the same advice. Not listening can cost you a lot of shareholder value. Not acting on that advice can cost you the company.

Item 6, accountability – almost a no brainer. However if you’re not following 1 – 5 and 7 then you have a different agenda. Either way don’t deceive the shareholders. They love good news, they can deal with bad news, however they hate surprises.

Finally item 7. Confront reality, focus and execution on a common plan under one leader. Every day you have to look in the mirror, you have to have milestones you adhere too, and you must, must, must execute on the plan. At my latest startup we are following everyone of these core values and even I am amazed at how well they work when you are all in alignment. We build our 90 day goals, we agree to them, we commit to them and then we execute the heck out of them. Is it tough – yes, especially when there are so many distractions out there. (We call them SIC’s – i.e. sure it could do that). So far we’ve hit every milestone and everyone is amped and focused on the next step and as you can see from my last post, everyone who has seen the product has validated the need for it.

The Mobile Must Have?

Three little words – reduce the friction.

What does this mean? It means you have to make life easy for the customer, by either saving him time or saving him money. Since starting a new company in January I’ve talked to a lot of mobile users. They all complain about how hard it is to do anything with the device except make a phone call. Data entry is a nightmare (unless you’re a teenager and texting) and for those people using PocketPC/Smart Phones, the keyboards are still too small and for those web sites which require you to enter data it’s still very difficult to get things right.

In the last week or so our team has been demoing our mobile solution. I can’t go into many details at the moment however I’ve never seen such a positive response to a piece of software in my life. We’ve tested in front of Mothers, Fathers, Grandparents, Kids and businessmen and women. Every single of one of them without exception has been able to grasp the concept in less than 60 seconds and wanted it.

After 16 years of working with data compression technologies (included in our new product), security products (also included in our new product) this has to be the simplest solution I’ve ever had to demo. It takes no more than three minutes to show someone the power of the solution and it can be demonstrated anywhere in the world there is GSM -cell phone coverage.

I never forget several years ago I hired a new sales guy. I was excitedly telling him about our technology. After a few minutes he simply looked at me and said, “I could care less, tell me how it saves me time or saves me money?” he was right. Technology is an enabler for people to simplify their lives by saving time and money. That’s exactly what our new software application does. It’s so simple and it’s all about “You”.

Expect more on these theme soon.