Archive: metrics

The Future of (web) TV

Reflecting on the current discussions, last at the Delphi Executive conference in Bonn, and at CeBIT which I both attended as a speaker, I recalled the very lively panel at DLD 09 around online video and social media. If you are interested in the topic, the video gives you insights with Brightcove, Endemol, sevenload and Termor Media and a great moderator, David Kirkpatrick from Fortune Magazine.

About the specifics of how we perceive the value of recurring WebTV Content, please check my Interview at ETRE in Stockholm:

ETRE 2008: Axel Schmiegelow describes the sevenload community and “The Future of TV” from curtis newton gmbh on Vimeo.

TV still the lead medium?

In a recent post, emarketer quoted a study by Deloitte stating that TV was still the lead influencer of purchasing decisions by consumers, even in the US.

I beg to differ.

Studies on the share of TV in media consumption do not differentiate enough as to the level of attention that the medium is consumed with. So many households have TV running virtually all day with a minimum of attention as opposed to an online usage that is still predominantly active, targeted (in the sense of the user pursuing a search or e-commerce activity), or socially interactive, that the two types of consumption cannot be equated – it’s comparing apples and pears.

The is all the more true if we consider the demographics, with a larger portion of low-income households letting the TV running indiscriminately. Besides, if you discount the number of TVs running 12 hours a day in Bars and Restaurants, I would wager that in terms of full attention media consumption, online has already overtaken TV.

We lack a study that compares – from the vantage point of an advertiser – conversion rates on campaigns running on TV and non-display-ads online.

The trend will increase with the further roll-out of online video.

Reps and Warranties in Venture Capital Deals

This weekend a friend of mine called me up, as he was completing – as a leading seed investor – the first round (series A) of a company that I have a minority stake in. He told me that the round being negotiated was just short of Signing, as all main deal elements had been agreed with the investor (a large and well-known VC Fund), but there was one last point of contention left, and – big surprise! – that was Reps and Warranties.

That made me think once again about the peculiar habit of venture capitalists to turn Reps and Warranties almost as much a difficult topic as in M&A. If you think about the term “Venture Capital”, the whole concept is that you venture into something and there is no precisely NO guarantee of success.

Of course it makes full sense to commit founders to proper representation of the state the company is in and to also make them liable for the so-called Title Guarantees, in effect making sure that the shares being transferred to the investor are free of third party rights, are indeed constituted legally and are not subject to any limitations. However, I do not understand why these Reps and Warranties so often go to the core of the risks of the business model, thereby in effect giving the venture capital investment more the character of debt financing, disguised in the Reps and Warranties clause.

Why do I say this?

Because if a founder signs up for – say – a 3 Mil. Euro investment and the company fails due to an event that is at the core of the typical risk of the business model, this may create a warranty case that in the worst of all contract agreements may include full damage to be paid by the founder. This then means that the investor may get up to the total sum of that investment in damages from the founder because of an event that constituted the essence of the typical venture risk.

So put very bluntly, by enforcing Reps & Warranties covering business risks, the investor covered his venture risk by making the founder liable for failure of exactly that risk.

We all know that founders who may be otherwise admirable do not like to focus on legal details and may have bad luck in a choice of their attorneys.

That can be a deadly mistake.

When founders find themselves in such a contract situation, it is not just a reflection of poor negotiation skills on the side of the founders, who – one might argue a bit unfairly – therefore would not deserve anything better.

Such contract clauses are also always a case of misguided priorities on the side of the investor.

While as an investor I have full sympathy for contractual rules that prevent an irresponsible founder from walking away, as in the old adage “with my time and your money to waste, we have nothing to lose”.

However, it is equally unfair to put the investor of a venture in a position where his investment becomes more a case of debt with higher returns and higher default risk than of real venture investment. Moreover, discussions and probable litigation about business risk damage retribution by the founder can divert vital energy from surviving the damaging event, since both the founder and the investor will bes spending considerable time hedging their risks or enforcing their rights. THat can ultimately be much more damaging than the damaging event itself.

Here is my advice to founders in any negotiation about Reps and Warranties:

1) Before negotiation of deal terms, identify the natural risk of your business model

2) Prepare to describe and argue to the investor what the typical risk of the venture is and make it clear from the outset that that risk cannot will not be carried by the founder(s).

3) Make the investor acknowledge these risks early in the process of negotiating the terms

4) At term sheet level make sure that the basic principles guiding an equal distribution of reps and warranties rights between founder and investor include the following

a. Liability of founders is limited to willful behavior and gross negligence

b. There must be a cap of a certain percentage of the investment, in my opinion not more than 50% of the investment sum.

c. For all cases of non-willfull behavior the warranty term should be at most 12 months

d. Each founder is only liable for the fraction of the cap that corresponds to his fraction of shares in the entire company, so a co-founder who has 20 % of shares in a company shall only be liable up to 20% of the cap.

e. All shareholder managers with shares smaller than 7% should be exempt from any liability unless there is a specific reason for that.

f. Damages should be paid only to the extent that the Founder / Manager liable had best knowledge of the Warranty issue.

g. Retribution of damage should be limited to the damage that is incurred directly by the damaging event, confirmed by court ruling and could be reasonably expected. There should be no damage retribution for a loss of valuation of the company, which should be explicitly excluded. Valuation loss is usually covered by downround protection clauses.

h. Retribution of damage should be limited to such damages as cannot be corrected or “repaired”.

i. No damage retribution should be given for damages that are incurred due to lack of cooperation on side of the investor. This could include anything ranging from late payment of investment funds, lack of cooperation in litigation cases, failure of the board members dispatched by the investor to agree in litigating to avoid the damage, and so forth.

k. The most important advice that can be given to any founder signing Reps and Warranties is to put a large amount of energy into the due diligence and disclosure process and the documentation of that due diligence and disclosure process. THis is where attention to detail is a very necessary evil. The contract must include a clause that no events or fact about the company that were or could reasonable have been expected to be known to the investor at the time of the investment can lead to a claim of the investor against the founder. Thus claims are excluded if the the facts that led to the damage were known to the investor.

l. Negotiate all these points, then focus on disclosing well all risks that are part of the business model or lie within the company.


Often investors will present the founders with tough Reps and Warranties basically to incentivize them to puta significant amount of energy in thinking through the risks of the company and the development stage the company is at.

However, founders should rate their investors on the basis on their willingness to accept clauses that correspond with or at least resemble what I advise.

Good Luck!


Viral Social Commerce for Companies

In my previous post, I tried to describe what I call viral social commerce as the commercial dimension to Web 2.0. This Blog entry will focus on the opportunities and strategic demands that viral social commerce presents to existing companies- especially such companies that have a dominant position in their market. If viral social commerce describes an increasingly commercial nature to the interaction presented by users on the web, then this has deep implications for a relationship between companies and their customers.

On the communication level, much has already been written about the need for companies to go from a broadcast model to an interactive/interaction model, and many companies have already experimented with blogging, viral marketing and other forms of “Web 2.0 marketing”. So far, these endeavors have been met with mixed success. This has a number of reasons- which I will try to sum up in 3 axioms:

1) A day still has only 24 hrs, and our wallets have not gotten fatter.

What this means, is that for all the novelty and increased value in communication that Web 2.0 methods can create in their relationship between customers and companies, engaging in these for more than a fleeting moment of curiosity will require any customer to make a sacrifice of both time and effort to the detriment of something else they’d rather be doing. What this means is that you need axiom number 2.

2) Real people seek real value.

Axiom number 2 is probably the central answer to any strategic or implementation question connected to any type of new technology. Technologies do not usually fail because of technical questions, in fact, the success of technologies is often independent of the quality of the technology involved or its implementation- in other words, abject products are sometimes more successful than perfect technologies (the old, if not entirely true, Microsoft – Apple adage).

Technologies do fail however, when they do not meet a market in a way that creates significant value for a significant value for a significant segment of potential customers. This is the Holy Grail of start-up and business success and it has often been described and is easily worded, but hard to execute.

So cutting back on Web 2.0 technology by seeking not a mash-up of all the functionalities that happen to be the talk of the town and instead looking for ways to create real value with Web 2.0 technologies requires, first, an analysis not of Web 2.0, of these technologies or even of the Web 2.0 early adopter crowd. Much rather, it requires a thorough analysis of the existing market, existing distribution communication channels in those markets and existing or potential customer segments. Then and only then, but then with the strongest impact, can the potential, use and value of a specific Web 2.0 technology be found. This is where competitive advantages are born. This leads me to axiom number 3.

3) Innovation begins with a thorough understanding of the existing weaknesses of the existing market.

This attitude best summarized and methodized in the book Blue Ocean Strategy by Chan Kim and Renee Mauborgne. This approach is at the core of most technological successes and I am more than certain that in the existing wave of new start-ups, those start-ups will succeed which have best understood this lesson.

For companies in existing markets, this means that hunting for the weaknesses of their own methods of communication, of production and sourcing, and of other interaction (for example, service interaction with their customers) and then hunting for solutions to these weaknesses which were before impossible, but can now be enabled by Web 2.0 technologies, is the key to success.

You may find that direct communication with customers or sourcing in of product or feature feedback from customers was, until now, on a snail mail or even E-mail or call center paradigm, impossible to manage efficiently and to link back to the production and design process for some products. In the environment of a web 2.0 community and / or user to user communication interface, this sourcing process, suddenly becomes manageable because of the combination of ratings, feedback and systematic analysis in a technology-enabled low-cost framework. At the very least, such a platform will bind your most active customers.

The task of sifting through all the feedback and identifying the most valuable feedback from customers now does not have to be preformed by the organization alone, but can be delegated at least in part to the community- and this can apply to almost any market.

In the following model, I’ve tried to sum up the paradigm shift that this entails for companies in existing markets. Until now, you had the classic paradigm of production and product identification followed by (retail) marketing and distribution, and the cherry on the top was communicating to customers through combined PR and advertising.

Viral Social Commerce Model

On all levels of that process, a redefinition can now take place by including interaction with customers. At the very least, the communication/advertising end of the classic model of value creation within the business organization can undergo a paradigm shift from communication to interaction that links back into the organization. This is exemplified in the drawing below- and creates a whole new set of requirements for the company including, for example, new tracking tools, new analysis tools and a new mindset in marketing. Marketing then becomes not just a communication task but becomes much more a framework for the company’s role as the

host of a community of customers.

These are the concepts that we’ve been working on for years now at denkwerk and which we try to reflect in our everyday work for our clients, such as Nokia, Obi and other retail giants. This paradigm shift leads to surprising successes each time the department of the company we are working with and we are mandated to not only think, but also act in a radically different way.

“Quo diata Diferenta”??- as Guy Kawasaki puts it.

Is the Tide turning?

Exit phantasies, commercialisation discussion, is blogging worth the trouble – there are many signs that euphoria and passion, the web 2.0 sense of mission etc.. are giving way to the same kind of frenetic and less frenetic division of the spoils that we had in 2000.

That holds an important lesson for all entrepreneurs, especially since this time around, there will be no big bust – just failures and successes distributed along the bell curve.

Lesson #1:
Even if everyone is focussing on other metrics, make sure you’re earning money. It’s better to be smaller and profitable, i.e. independent, than growing and growing and going nowhere in terms of being a viable business.

MIT’s secret formula for success is CFIMITYM (Cash Flow is More Important Than Your Mother) – brutal, but to the point.

Lesson #2:
Focus on proving the business model, or, more likely, finding it in the first place. chances are, that gets you more and stickier users than pure play community building. Business Models tend to evolve where there is long term value.

Lesson #3:
Try to identify the basic need you are adressing – the more basic it is, the more chances you have. Poeple have eaten, slept, mated, vyed for attention and recognition, thirsted for knowledge etc.. for centuries… that’s where the money is.

Lesson #4
Look for the right people. Rotten Ideas have made it because of world class teams. And be honest to yourself about your won ability. Your abilities do not expand as you grow older, they diminish and gnarl like old roots. That makes you experienced and savvy in your field of expertise – and less and less of a generalist in others. Get Good people. Kennedy did (“A good manager hires better staff than he is”).

When the going gets tough, the tough get going…

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