Archive: bubble

Andreessen warns: don’t burn cash, or you’ll turn to ash

Cash Burn

Don’t burn cash, says Marc Andreessen. In a retweet of Fred Wilson’s Post on burning cash, losing money. Marc Andreessen warns that hyper valuations should be used by entrepreneurs to stash up on cash, not to have delusions of grandeur and spend it all until you have nothing left to spend.

 

This is an interesting and important point. Says Marc, we are not in a bubble unless the spending behaviour of entrepreneurs make it a bubble. Their companies can well create the value implied in high valuations, as has been proven by the many spectacular success cases of disruptive players from Facebook to Uber. But startups need to stay focused and not spend because they have.

 

As my early mentor Ken Morse was wont to say: the laws of gravity have not been repealed.

 

 

Marketing on a tight budget during a recession

The “Gretchenfrage” most discussed in the advertising industry right now is whether we will have a full-fledged downturn in advertising spending across all media, or whether there are niches and segments of the advertising /media industry that could even benefit from the recession. This being the 2nd downturn that I have experienced in my career, I am firmly convinced that the latter will happen.

I make this assumption based on several factors:

  1. A new generation of marketing decision makers now has control over most large budgets. This generation understands the power of digital communication- even though in the past years it has underestimated the potential impact of Web 2.0 and has continued allocating a disproportionate amount of money to traditional media without measuring that performance.
  2. Cutbacks in marketing and sales budgets are rather absurd when the real problem is crumbling sales, but this happens in every recession and it will happen this time around again. Since at the same time marketing performance will be measured more and more in terms of contribution to sales, marketing decision makers will focus on campaign tools and media that either directly or indirectly increase sales performance. Gone are the expensive TV commercials with bikini clad, young beauties on a tropical island, and in comes unsexy sales-driven below the line marketing. The past 2 ½ years have proven, however, that marketing in a Web 2.0 world need not be dreary at all even while contributing directly to sales lead generation.
  3. Web 2.0 advertising formats and communication models have reached a level of maturity and a critical mass among users that allow them to have a measurable impact on brand communication and sales lead generation.

The coming year will see providers of Web 2.0 campaign solutions and media ad placements achieving disproportionate success considering the downturn and cutbacks of media budgets. This will happen for precisely the reason that in the past 1 ½ years many showcases of Social Marketing have been started that have proven or will prove to have been successful to an unexpected degree. After the Beacon disaster these showcases will turn the tide, much in the way keyword advertising established itself in 2002 – 2004.

Our best reference is http://bmw-web.tv, which generated considerable brand awareness for our client BMW. BMW itself doubled that success by creating, at the same time, a national web TV project that was equally successful called BMW TV which greatly enhanced traction to its own site. For confidentiality reasons I cannot give you figures, but trust me the impact was measurable.

Advertisers of the old school often argue that performance marketing or traditional lead generation marketing does not help the brand gain emotional traction and awareness. That dichotomy is of the past. Social relevance, rich media and video formats allow the digital sphere to create a branding experience that is as emotionally compelling as television and as measurably successful as search engine marketing. That has always been the holy grail of advertising, and we seem to have found it.

If you want more information or need help achieving that success, contact me.

When do I Invest? – Video Interview [German]

Recently I had the nice experience of being interviewed by the blogger / founder of http://www.easn.de or Everything A Startup Needs. He asked me to relate:

- how dw capital grew out of denkwerk

- what makes our positioning unique

- what are my criteria for investment

- and how much idealism a Founder can sustain

Of course, an [edited] video interview cannot convey all the things and remarkable people that shaped the rich history of 10 years of denkwerk, but maybe the interview gives anyone interested an impression of the philosophy behind our seed venture unit, dw capital. So, here goes:

Video Interview of Axel Schmiegelow

For the record, and because I also have an agency background:

I do believe in Branding, but I don’t believe Branding should be an excuse for bad conversion of a media campaign.

What is Web 3.0 ? (revisited)

As always, that’s a difficult discussion. First of all it’s important to remember that “Versioning” the web is initially a marketing trick, albeit a powerful and a valid one. It does make sense to try to assess the pace and scope of change in and through the Digital Revolution. In our internal discussions at http://www.denkwerk.com we differentiate the technical, the social and the business levels of analysis. Our very broad clusters are as follows:

Web 1.0:
It is particularly inexact to retroactively dub the pre-2004 era as „Web 1.0“, since that is a rather vast period of time which underwent different phases in itself. When did it start? With Tim Berners-Lee & the appearance of Mozilla in 1993? With the first Social Network (sic!), the Well, in the 1980s?, With the ARPANET in 1968?

Tim O’Reilly coined “Web 2.0” as a call to reconsider the then ruling technical paradigms and the generalized underestimation of the social and economic impact of the internet in post-bubble headache times. But the 90s, the bubble, and 2001 – 2003 constitute a wild rollercoaster of different developments. In our view in short:

Technology:
The first simple websites evolved to more and more interactive, from static to dynamically generated, from handcrafted to cms-driven, from pure media to more and more transactive, and these vast increases in value remained through independently of the vast hyperbole of expectations that the New Economy and Irrational Exuberance engendered. In software paradigms though, simple web development and early script-based architectures and languages were supplanted by Enterprise Application thinking, the advent of web services, and the JAVA Revolution. After 2001, you were a wimp if you stuck to PHP.

Social:
Mostly Early Adopters went from discovering the web and portals as sources of information to accepting shopping, then dating and other increasingly interactive services and transactions.
The Internet, however, was never “lean-back”, a prerogative of TV.

Business:
The only really working business models (at high volumes) were
a) lead generation for existing brick and mortar business (“click and mortar”)
b) Online Advertising (mostly banner, after 2002 more and more search engine marketing)
c) E-Commerce (online sales, B2C or B2B )

BTW: Many ideas that now resurface in Web 2.0 were imagined just then, but failed because user behaviour and markets weren’t there yet. We founded http://www.oneview.com as a very early precursor of deli.cio.us, for example.

Web 2.0:
Somewhere around 2003, disgruntled entrepreneurs, the aforementioned PHP Wimps, the Linuxites, and others started reforming and having Galilean Moments („eppure si muove“ – “and the Earth does rotate”). That is what O’Reilly picked up at his conference in Fall 2004 when he coined Web 2.0.

Technology:
On the technology side, Web 2.0 can be oversimplified by describing it as a set of new or renewed technical paradigms:

a) the return of scripting and DHTML.
b) AJAX and the transformation of websites into dynamic applications
c) much faster development speed, prototyping
d) APIs and total interoperability of all digital services (mashups, microformats etc..), the rebirth of standards
e) the end of the concept of “the site”, with functionalities spreading across converging media (web, mobile, TV) instead

Social:
a) You Are Not Alone:
If “Web 1.0” was all about discovering the potential of interactive services, then Web 2.0 is the discovery of the Fellow Users, of the immense potential of finding online people that you can share interests and needs with.

b) You Can Do Things Together / User Generated Content:
New Web 2.0 tools let the vision of the web as a collaborative platform slowly become true: every type of content can be shared, discussed, rated, and messaging allows constant and instant, but also deferred and intermittent interlocution with other users (networking, messaging, Blogging, co-shopping etc…).

c) Mashup Everything / User Generated Functionalities:
The combination of different services, information, and functionalities that the technical paradigm shift of web 2.0 makes possible opens a whole new set of possibilities for networked and collaborative behaviour on the web that creates value from the wisdom of crowds and the knowledge of the few.

Business:
a) Businesses are under pressure and with the opportunity of adapting to the fact that the consumer / customer has an increasingly wide, reliable, and truthful range of sources of information and first-hand experiences with any given product.
b) Creating customer communities becomes increasingly relevant as a business factor. This increases the demand on long-term accountability and trustworthiness of business institutions
c) In the same vein, Business and Media monopolies on information and broadcasting power are dwindling with the advent of increasingly differentiated access to the opinions and knowledge of customers and the creation of increasingly valuable User Generated Content and Community-Based or Collaborative Functionalities. This doesn’t mean a perfect world of truthfulness, but it certainly shifts power to the customer.
d) an open question is by whom and how is this information power, the interlinking of customers, and the long tail of business, going to be aggregated, thus creating the next Googles?
e) On the long tail of business, even the most absurd niche markets can network worldwide, thus creating market volume until now completely untapped.

Web 3.0:
We don’t really need a new term – but it is clear that versioning will somehow be inflationary, since it is such a nifty marketing tool. So we might as well tackle the definition now (and secure some mind share early on, hehe).

In our view, Web 3.0 describes where the different patterns and revolutions might lead to. Think “minority report”, “Neuromancer”, “Matrix”, for early paradigms (not literally of course, we’re between 30 and 1000 years away from that). It is hard to describe and open for discussion, but we see the following trends:

Technology:
a) Interoperability and total convergence of all media and networks to form the Evernet
b) The End of The Site: Functionalities can be used by any user on any device in any network.
c) Everything is mashed or modular or snippeted or microformatted, so that a search on your handheld will deliver a topical article, four experts, seven alternative topical products to be ordered along with their ratings and reviews, three according services and information about what your friends or respected contacts think about the topic, all in one fell swoop.

Social:
a) The rise of the „Digital Boheme“ – in a No Man’s Land between employment, freelance and artistic lifestyle, everyone on the web can “market” whatever talents he has, whenever and however much he wants.
b) Thus, “virtual environments” will play a much bigger role in determining the social status of an individual much more than his geographic environment used to. In other words, the lost liberal hippie tech geek living in, say, Oklahoma suddenly gets a life and recognition – that’s one of the reasons for the hype about Second Life.
c) Thus a) and b) become more and more determining for the identity of the individual – with all due consequences
d) Technology and the networking of individuals and their expertise will lead to an increasingly efficient tapping of the Deep Web (that has been building up since 1974), thus creating a “semantic and human web”, where searching and finding delivers increasingly complex results, ranging from data / documents to Evernet functionalities and sites, to experts and interest groups and events.

Business – we call it VIRAL SOCIAL COMMERCE
In the virtual worlds of the web 3.0 or Evernet, every individual will get a much fairer share of his or her social and economic status. If until now, the consumer was an object of the economy, he increasingly becomes a an active element in every one of his areas of expertise and interests. (Someone who is into handmade puppets from the Münsterland [a region of Northern Germany] can connect to fans of handmade puppets worldwide an be recognized as an expert and set up business selling access, expertise, or even the puppets themselves – if he chooses to do so).

We could call it the Ebaying of life – but the differences to the Ebay model are:

a) it expands virally along social network lines
b) it is not focused on price, and probably not even profit-oriented, but is a blend of social and economic rewards that triggers individual behaviour
c) it is in an elementary sense democratic, with almost any space for very individual definitions of success and lifestyles.
d) thriving in such environments will require new business, communication, and marketing models in almost any industry.

In Science Fiction, the various visions of the emergence of a web interlinking society almost invariably include that web become a determining factor of social and economic status in the real world. We aren’t that far away from that, even if reality always tends to be mundane. What is almost certain is that already today, the web liberates the individual even from very difficult forms of seclusion, allowing him to overcome niche market intransparency and increase his social and economic impact in society.

What we are doing at sevenload (http://www.sevenload.com), itravel (http://www.itravel,de), oneview (http://www.oneview.com) and Qype (http://www.qype.com) is working toward that vision.

Join us, discuss, hire in, let’s create the tools of this evolution step by step!

next10years ?

Last thursday saw a big event in Hamburg: 450 – 500 would-be netphiles converged on SinnerSchrader’s (one of the biggest new media agencies in Germany) to acclaim and discuss the virtues of web 2.0, mashups, social networks, long tail commerce, etc.

http://www.next10years.de/

20 or so nervous VCs were imitating Dilberts Vijay (the World most Desperate VC), but I liked the rather cynical We’ll-Fan-The-Hype-And-Take-The-Money-But-Do-It-Right-This-Time entrepeneurs. My Favorite was Lukas Gadowski, founder of spreadshirt.net, who founded his 120-poeple company with 0$ VC money. that’s right, 0$. Cool guy. He urged “all the consultants and bankers in the room” to “do it again and found a startup, because you’ll get VC money now…” Hilarious, I keep thinking about the old adage of B2C and B2B meaning “back to consulting” and “back to banking” after going bust…. I now it’s really bubble 1.0-ish, but hey, I’m a veteran.

On a more serious note, while valuations are going up, it is true that there are four major differences between then and now:

1) development costs on more mature and open source technologies are a 10% fraction of the cost of 5 years ago
2) (viral, search, performance, affiliate) marketing costs are a factor of 100 cheaper now
3) there are 5-6 times more users with a wide range of needs and much higher affinity to web and mobile (adding up to 13 Mil. in Germany alone)
4) founders, even inexperienced, aren’t half as naive (though some ar getting giddy with the valuation thing).

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Cheers!

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