Hubpages

The San Francisco Chronicle ran a great story in Sunday's paper on start-ups that live together in order to maximize productivity, cost savings, and culture building. The article profiles our most recent investment, Hubpages. Hubpages plans to open their site up for public beta in the coming week. Please check it out.

In short, Hubpages helps experts bring their knowledge online to share it with people searching the internet for information. HubPages offers a platform that combines easy-to-use tools for creating rich webpages, integrated affiliate programs to make it easier than ever before for publishers to earn money and auto editorial technology for promoting the best and most relevant content on the HubPages network.

All published content on the HubPages platform is made available at http://hubpages.com, optimized for search engines, and made available for syndication.

Open Source - What is the Model?

I flew to Portland really looking forward to learning more about open source business model and execution best practices. OSCON’s Executive Briefing included panelists from Red Hat, MySQL, Digium, and other leading open source companies. I looked forward to discussing optimal open source licenses, download to sale conversion ratios, best practices with respect to support, community development, and sales models… Unfortunately, the day largely centered on very high-level discussions about the relevance of Web 2.0 to open source and failed to satisfy the widespread interest in diving into meatier issues.

Like many conferences, the highlights were not panel-based conversations but rather the opportunity to meet and speak with the leaders in the field – CEOs and executives from a broad cross section of open source companies. At lunch, over coffee, and at dinner, we were able to get into the nuts and bolts of open source business models and compare notes with various teams with respect to license strategies, how to build support organizations, what download to sales conversion ratios one can expect, and how/if to bifurcate the product between free and commercial.

Despite conventional wisdom that open source models allow for pull-based selling, where telesales teams reach out to pre-qualified customers who have downloaded and tested the product and ping the company to inquire about orders, leveraged development, where community developers do the lions share of the work, support processes where developers should do both development and support etc, I left struck by the lack of consensus on the optimal operating model. Conversations with various teams certainly begged the question if download driven models are more fiction than fact.

It appeared that conversion ratios on downloads were very low (1 in 10,000), that many teams were discovering the need to hire direct sales forces that made outbound calls rather than simply taking ordersJ, and that providing scalable 24x7 support that met enterprise customer scrutiny would demand more than asking developers to code 50% of the time and then get on the phone to fix a customer bug or deployment issue.

Some executives observed that they expect that at scale open source companies may look not too different from traditional software companies with respect to sales and marketing and development expenses. The argument was made that rather than a permanent shift in models (with respect to expense ratios –marketing and sales/revenue), open source really served as an on-ramp strategy that greatly reduced the capital required to reach customers and material revenue rate rates. Capital efficiency is still a great benefit but I sensed a lack of confidence that a permanent shift in operating leverage would be possible.

Another common view was that dual-license models are the optimal approach. The dual-license model – like MySQL – is premised on a single product that is common independent of license (GPL or commercial). Other approaches involve offering two products – a stripped down open source version and a commercial version with full bells and whistles. Many executives I spoke with view the latter as inconsistent with the open source value proposition and prefer a reciprocal relationship whereby users either pay with contributions back into the project (GPL) or with money (enterprise).

While the conference in many ways failed to address core business model issues it did provide a common forum for start-ups to discuss the evolving state of the open source industry and operational best practices.

Finally, despite the evolving nature of open source models one thing is clear – incumbent vendors are failing their customers with extremely expensive, difficult to deploy, and often legacy technologies. The pricing umbrella available to companies in sector after sector – system management, integration, database, app server, business intelligence – remains truly amazing. Customers are seeing 80-90% cost savings, plus access to great technology. The benefits to the enterprise of moving to open source are legion and while on the margin some questions of strategy remain unanswered, one leaves OSCON more convinced than ever that the alignment of customer interest and value/cost ratio that open source allows will continue to roil the software markets for years to come.

Tim O'Reilly's Big Ideas

Tim O'Reilly opened OSCON 2006 with a list of big ideas. A core theme of the conference is how to think through the future meaning of open source and how the concepts of open source apply to web applications.

While many of Tim's ideas are well understood, they are interesting to think through and apply to the changing nature of opensource - which as a concept is moving away from solely source code to also include hosted applications and/or user-driven phenomena such as Flickr, Youtube, etc. that involve invoking publicly defined APIs independent of access to source.

The core ideas follow.

• architecture of participation
• design systems that are designed for user contribution
• well-defined APIs
• asymmetric competition whereby community contributions leverage the company/project
• for example, craigslist, internet rank = 7, employees = 22
• versus yahoo internet rank = 1, employees 9,000
• youtube is another great example of massive page view growth uncorrelated to headcount growth
• change in meaning of openness
• as applications are increasingly delivered as a service versus installed applications some of the licensing issues become moot
• with internet applications the concept of openness moves away from GPL-like licenses to discussions regarding the openness of APIs and degree to which data is portable
• what should developers expect wrt apis, api support for certain versions, etc
• should there be a GPL-like licenses for APIs?
• operations as advantage
• as applications move to the network, competitive advantage will be increasingly center on APIs, SLAs, and datacenter operations
• Amazon's S3 is an example of the rise of services as a product offering
• Craigslist, for example, manages to a key metric which is page views per kilowatt hour
• open data
• is data portable?
• who owns data stored in flickr, Amazon, etc?
• will the industry support microformats to standardize data representation and make data portable
• Tim highlighted movemydata.org - which is making the case to ensure access to user data
• Tim sees data as the Intel-inside equivalent of Internet applications. Given the tremendous value of data, issues relating to user access, ability of users to move data from one service to another, etc will become important to think through

As I mentioned in a prior post, Innovation Happens Elsewhere, the axiom of distributed innovation is premised on the fact that one can never employ, pay, or manage all the smart people in the world. Nor can one monopolize innovative ideas. Accordingly, companies need to be architected to leverage the innovation of others and find means of allowing third parties to see benefit and value in using your APIs, content, data centers, etc to add mutually beneficial value.

OSCON

I will be at OSCON in Portland starting tonight through Wednesday.

Matt Asay is leading a great day tomorrow, and I look forward to a good discussion regarding business models, licensing strategies, and best practices for building open source companies. Some of Matt's thoughts on secrets of successful open source companies can be found here.

If you will be at the show, please ping me. I will write more on the conference later this week.

Krillion

In a prior post, I wrote about the rise of vertical search engines and business models. The search engine market continues to grow with query volumes up 29% y-o-y, from 4.967 bn queries to day to 6.407bn queries. Google, Yahoo, and MSN own 86% of the search market, with Google at 44.7%, Yahoo at 28.5%, and MSN at 12.8%, respectively.

The search engine business model is also well understood: Revenue = Users * Queries/User * Ads/Query * Clicks/Ads * Revenue/Click

The race is on to aggregate queries, increase ad/query coverage, increase relevancy and hence clicks, and drive revenue per click opportunities. The focus on vertical search allows for greater query volumes and new opportunities for monetization. For example, local search will create a broader universe of possible searches (Palo Alto Best Buy) and local ads (coupon or pay per call) will allow for incremental revenue opportunities. Hummer Winblad is excited to have recently led an investment in Krillion.

Krillion will be launching a brand new service that makes it easy to find key products in the best stores in your local neighborhood. Krillion brings together millions of unbiased and comprehensive listings sources in one easy-to-use website. More details will be announced when the company launches. The company boasts a great team, with senior leadership coming from Yahoo!, AOL, Ariba and other leading companies.

The opportunity to increase the revenue/query ratio is driving innovation and opportunity. Krillion offers retailers, advertisers, and search engines a great vehicle for leveraging the continued growth and verticalization of search.

Age and Entrepreneurship

A Silicon Valley axiom equates entrepreneurship with youth - think of Jobs, Dell, Gates, Yang, and many other founders who built industry-changing companies in their twenties. I once heard a Valley veteran remark that if you were either A) over thirty or B) had children the odds of you starting a company were close to nill.

While working 24x7, living on Red Bull, and a low personal burn rate may all be traits of young founders, is it true that entrepreneurship is inversely proportional to age?

I once asked a 30 year veteran of entrepreneurship at GSB, Chuck Holloway, that very question. He answered unequivocally no. He maintained that there are two natural age peaks correlated to entrepreneurship - late twenties and mid-forties.

Today, I read in Wired magazine an article that argued that creativity comes in two distinct types - quick and dramatic and careful and quiet. David Galenson, an economist at the University of Chicago, analyzed the creative output of leading artists. He plotted the relationship between an artist's age and the value of their paintings. He quickly realized the artists clustered into two distinct groups - conceptualists, who did their breakthrough work early in life and then declined and experimentalists - who developed slowly, experimented and iterated, and peaked later in life. In the former camp are artists such as Mozart (age 30), Andy Warhol (33), Picasso (26), F. Scott Fitzgerald (29), and in the latter camp are figures such as Twain (50), Cezzanne (64), and Beethoven (54).

Conceputalists rewrite the rule book and in their extreme creativity revolutionize their area of focus and specialty. Experimentalists innovate more incrementally and while not as radical do infact generate great creativity over much longer periods of time. It is fascinating to apply the two mental constructs to the high-tech industry.

I look forward to reading more of Galenson's work and perhaps he will turn his analytical attentions away from artists and to business entrepreneurs. For those of you with kids and over thirty, it may not be too late after all!

Board Meeting Management

Start-up boards typically meet once a month. The market, product, competition, customers, team, etc are moving and changing quickly and frequent board meetings to discuss resource allocation, trade-offs, strategy, financial position, etc are critical.

Too often, however, I find board meetings are a status update. The frenetic pace of start-up life often leaves a CEO incapable of doing more than simply report state - cash position, sales pipeline, product development, customers.... The cliche about the forest and trees is apt to describe the board meeting where problems are simply listed independent of an incremental layer of analysis and insight that provides pro forma scenario analysis with respect to the tradeoffs at hand and a declarative management team strawman.

Great board meetings not only provide a succint update on the condition of the business but lay out in clear detail the challenges at hand and the optimal remedies. Scenario analysis help the board understand the trade-offs being considered (ie hiring more reps to serve demand or other decisions that involve accelerating/delaying spending given current opportunities) and their impact on pro forma cash, revenue, and expenses. Importantly, by demonstrating to the board the CEO and team are aware of the challenges, modeled various remedies, and have a strawman on the table for the best path forward the board is left with a sense of the thoughtful, competent process the team has in place for choosing the best path forward. Confidence soars.

Independent of a strawman and answers to the financial implications of the decisions that need to be made, the board may lose confidence in the team's ability to thoughtfully manage the company and, I have seen too often, the board feels it needs to micro-manage and fill the vacuum left by managers who fail to see the forest for the trees and put forward trailing facts rather than prospective strategy for consideration.