Frank Huber recently tackled my post about Monetization in his Blog

http://blog.firstmedia.de/?p=763 (in German)

and contradicted my views of the subject based on 2 reasons: in his opinion, YouTube has shown that “size does matter” and sevenload hasn’t followed my recommended strategy at all. Here’s my reply to his post:

1) It’s undeniable that the “natural market leader”, who’s the one that goes for reach first, is the one who can win the rat race for size. I did point this out myself in my own post. However, it would be wrong to believe that the YouTube strategy and more specifically the YouTube exit is something that can be replicated. Ex post, Google’s investment in YouTube makes a lot of sense for a company that gave up a fraction of it’s shares. But there is exactly one buyer fitting that profile, and that is Google. There’s always exactly one worldwide or www-wide dominant company per segment that can be successful with a sheer “reach” priorization and with such an Exit strategy – so it’s hardly good advice for startups to emulate that model unless the startup is entirely sure of being the first one in its category.

My argument wasn’t that reach or the number of users/clients won is irrelevant- in fact, it’s the opposite. I just think that it is healthier to achieve this reach or customer base with a working and efficient business model than without one. And XING is a good example of this: From its first day back in 2003, Lars Hinrichs (Founder of XING) was already charging 5- € in monthly membership fees, even though at the time subscription models were still widely perceived as unfeasable in the German internet market.

2) sevenload’s strategy is NOT that of gaining a gross increase in our reach at all costs. We’re following an approach of pure, organic growth (up to now we haven’t spent a single € for advertising) which allows us to best offer a differentiated platform and cover the “Long Tail” of content. This allows us to offer advertisers rates that are up to a factor of 10 greater than those of normal video portals – and of most most conventional internet portals as well. Because of this difference, we are the market leader as measured in:

- Unique Visitors (> 10 Mil real unique visitors per month),
- active registered users (> 300,000),
- average visit duration (> 25 min. per visit and registered users > 45 min),
- content volume and
- revenue (we will be the Web 2.0 company with the highest turnover in Germany this year and most likely the only one that will be profitable). We achieve all this thanks to a revolutionary advertising model that is highly effective for advertisers.

Interestingly, though gross reach was not a primary target, this strategy has led to an sustained increase in precisely our gross reach and has put us in second place in the German market in terms of gross reach, right ahead of Clipfish, despite Clipfish’s massive cross-media subsidisation by the leading German TV Channel, RTL, and a full integration in DSDS, Germany’s “American Idol” Format.

In my opinion this once again proves the wisdom of Al Ries’s main marketing theorem:

Create a new category, then dominate it

My post on monetization does nothing more than offer a methodic approach to defining the category a startup strives to dominate in business model terms rather than in media terms.

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In seinem Media-Blog greift Frank Huber meinen Post zum Thema Monetarisierung auf.

http://blog.firstmedia.de/?p=763

und widerspricht meinen Ansichten mit zwei Begründungen: YouTube habe gezeigt, “size does matter” und sevenload verfolge ja nicht einmal die von mir empfohlene Strategie. Inhaltlich habe ich folgende Antworten:

1) Es ist zweifellos richtig, dass für den “natürlichen Marktführer”, der als erster auf Reichweite setzt, das Spiel aufgehen kann. Auf den Fall YouTube gehe ich ja selbst in meinem Post ein. Ich warne nur davor, die Transaktion von YouTube, die tatsächlich ex post durch die Marktmacht von Google zu einem sinnvollen Investment noch werden kann, als replizierbare Strategie zu beschreiben. Es gibt immer weltweit oder www-weit genau ein Unternehmen pro segment, dem dies als Exit gelingt. Hardly good general advice for startups.

Mein Argument war ja auch nicht, dass Reichweite oder die Anzahl an Nutzern oder Kunden, die man gewinnt, unerheblich sind – im Gegenteil. Ich denke nur, das es gesünder ist, diese Reichweite oder Kundenbasis mit einerm funktionierenden Business Modell zu erreichen als ohne. Ein gutes Beispiel Dafür ist übrigens XING. Lars hat schon am ersten Tag in 2003 5,- € monatliche Mitgliedschaftsgebühr verlangt, als Abo-Modelle noch in verruf waren.

2) Unsere Strategie bei sevenload ist genau nicht die einer Brutto-Reichweitensteigerung um jeden Preis. Wir verfolgen den Ansatz, aus rein organischem Wachstum (bislang nicht ein € für Werbung) die am besten differenzierte Plattform zu bieten und den “Long Tail” of content abzudecken. Dies führt dazu, dass wir für Werbekunden um einen Faktor 10 wertvoller sind als alle anderen videoportale und sogar als die meisten herkömmlichen Internet-Portale – gemessen an unseren Werbepreisen. Mit dieser Differenzierung sind wir heute Marktführer nach Unique Visitors (> 10 Mio echte Uniques pro Monat), aktiven registrierten Nutzern (> 300.000), Verweildauern (> 25 Min pro visit, bei registrierten Nutzern > 45 Min), Content-Menge und Einnahmen (wir werden das umsatzstärkste Web 2.0 Unternehmen in Deutschland in diesem Jahr und voraussichtlich das einzige, das profitabel ist. Wir erreichen dies durch ein Werbemodell, das überdurchschnittlich wirksam ist.

Interessanterweise hat diese Strategie zu einer nachhaltigen Steigerung unserer Brutto-Reichweite geführt, so dass wir inzwischen Platz zwei der deutschen Plattformen noch vor Clipfish belegen.

Ich würde also wagen zu behaupten, dass im Gegensatz zu dem Eindruck, den wir zumindest hier zu erwecken scheinen, der Lehrsatz von Al Ries:

Create a new category, then dominate it

immer noch der beste Rat ist. Mein Post sollte einen kleinen Beitrag zu einer Methode hierzu leisten.

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Technical, economic and social developments, which are only inadequately described by IPTV, Web TV, Digital Special Interest Channels, and Web 2.0, are leading a fundamental structural change in the relationship between consumers/viewers and providers.

Until now, the value creation of television was geared towards offering content in order to gain the highest viewer attention percentage possible and to market a portion of this attention through advertising formats (e.g. TV commercials). As long as there were only a few TV stations available, this was a successful business model.

Today however, the viewer has the power to decide when and which media content he “consumes”. He/she can actively suppress advertising, zap or click to any media environment he prefers. At the same time, technology enables active navigation of media content, empowering the user even more:

- search,

- On-Demand streaming and download,

- and interactivity of content

These navigation tools offer viewers and consumers a completely new dimension of content relevance. The future belongs to

“Long Tail” specific, on-demand offerings, with context-relevant services and interactive ad formats that are targeted and relevant

These enhanced “program formats” are increasingly determined and – even outside the context of User Generated Content – “coproduced” by the users in increasingly differentiated clusters. This is the priciple that unifies the various new approaches from YouTube to Joost to sevenload.

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These past months have, in a way that I would not have thought possible, created a start-up market situation closely resembling a certain period in time that we had in 1999. A number of new start-ups have sprung up that stem from what I call “feature-itis”, that is: their main business idea is not the creation of a value that addresses a particular market in a way that is commercially feasible, but much more the “hey- wouldn’t it be cool if it were possible to do this or that on the web” impulse.

If you sift through the business history of the first and second wave of the internet and try to analyze which companies ended up being successful, which companies were moped up as additional features to Yahoo! and bought out, and which companies simply failed, you find out that at the end of the day it’s not at all about a new economy, it’s about very old principles of

– servicing viable markets
- with a viable market proposition/value proposition
- and at an affordable price

in the widest sense of price, that is: convenience, access, time, budget and eventually price in dollars.

If we now look at what I like to call Web 3.0, that is, the commercial maturity of the social phenomena that we are observing with Web 2.0, then remembering that business history and applying the method of identifying customers for a market that are prepared to pay a given price, is a healthy mental exercise.

You’ll allow me to refer to myself and my earlier Blog entry about the distinction between Web 1.0, Web 2.0 and Web 3.0 and briefly describe Web 2.0 as the discovery that the internet is not only a repository for information and data, and a network through which e-mail and chat communication can happen, but has become a medium where

the human source of information

and human source of opinion and entertainment becomes as accessible as the data that he/she has created, that is at the core of the Web 2.0 social revolution. And as any revolution, it creates a whole new set of social behavioural changes, business opportunities, political implications and essentially an entirely new medium- which incidentally is not only confined to the Blog or Social Network phenomenon.

Stating these now commonplace insights into Web 2.0 leads me to reflect upon the Web 3.0 phenomenon, that is the commercial viability of all of these changes. As described in my Blog entry, I believe strongly that this will be the era where the source of data and information, and essentially this means the

human individual as a source of expertise,

can more and more market that expertise in many different ways- either

- by being accessible as an expert or
- by offering more in depth information or
- services related to the information
- transactions / products related to the information

for any kind of currency (this may be a social reward or a commercial reward/payment) in a variety of models that can range from subscription to micro-payments or even other forms of transaction that we may not yet even imagine (my informed hunch is “subscription” will mean many different rental models that are being imagined right now). As of now, the main focus of business endeavour in the Web 2.0 to Web 3.0 transition era, is to create and monetize exactly these kinds of platforms- much in the way that sevenload is doing for the video world.

In the future, business focus will be to harness the technologies, communication methods and social behaviour of Web 3.0 to create new value and new markets, thereby disrupting existing business structures. Increasingly, this will be achieved by individuals and small companies rather than larger companies.

The challenge is to identify these markets beyond advertising. If we look at what is happening right now in the Web 2.0 sphere, it is essentially one giant cannibalization of the editorial market, trying to supplement old media and replace them with “Facebook-”, “MySpace-”, and “YouTube-” (new) models of broad- and selfcasting and interaction with the user. That will, of course, be successful, but it is hardly imaginable that more than a productivity or effiency increase of more than 25-35% (maybe even 40% or 50% through better targeting) with relation to the advertising market can be sustained.

Even more market volume may be created by opening the advertising market to new segments that, until now, had a high cost barrier towards advertising, for example in the Long Tail of smaller and mid-sized companies, or in niche markets which had to rely on direct marketing because there was no medium for them to address at sales efficient cost on a large scale.

This disruption of the advertising marjet is of course fueled by the radically changed cost-dynamics of Web 2.0 platforms and the possibility to address the long-tail of content and offering highly specific audiences to as specific advertisers.

This opening of niche markets for advertising may one day – probably soon to come – come as far as user groups and communities centered around exotic topics such as the nuts and bolts of drilling joints (or something similar).

But by and all, if advertising is the only focus of what is happening right now, there will inevitably be a crunch at the moment of realization that there is just not enough money in these markets to create hundreds of new billion dollar companies. Even though a return to the Nuclear Winter of The Internet of 2001-2003 seems unlikely, it is highly probable that we will have a structurally similar shake-down and that just one or two more Yahoo!(s) or Google(s) will crop up, having found the holy grail of

on-demand fully trackable horizontal niche long tail CPA advertising

By the way, addressing that advertising market will also have to overcome a formidable opponent which is very well positioned to address the long-tail of advertising, and that is Google.

My point in this Blog post is that there have to be, and there will be business models beyond advertising and they are starting to emerge. Essentially these will be transaction based and will be centered either around the handling of goods in an e-commerce sense (that is already being seen in a number of start-ups) for example, by itravel, but there will also more and more be transaction platforms centered around services, much in the sourcing logic mentioned above.

The sum of these developments is what I call “viral social commerce”. It is viral in the sense that its dynamics of growth/expansion are very much word-of-mouth and very much based on the social phenomena of Web 2.0.

*I might add, that these phenomena are not new, word-of-mouth has always been the most powerful marketing instrument, it’s just that technology has enabled it to travel at light-speed, where before it was at a horse carriage pace.

It is social in the sense that, not only communication, but also increasingly parts of the production process and the definition of the product/service offered will be defined not by an entity that is producing it, but rather by a group of people or a community that adds a significant part of the value that is being created. An example for that is again itravel, where the travel community creates a lot of the product knowledge and even product sourcing that is necessary to create its catalogue of once-in-a-lifetime-experiences. Another example is ChariTees, where the community sources not only the designs, but also decides which designs will appear on t-shirts and also decides which institution would benefit from that part of the proceeds of ChariTees that is being spent on charity.

The commerce part of the “viral social commerce” idiom, reflects on what I was describing at the beginning of my post, namely that this is more than a social communication phenomenon and it is also more than pure interaction, it is in essence a whole new commercial dimension to what happens in our increasingly web-enabled society.

Viral social commerce is, for me, the essence of what will happen with Web 3.0. In my next post, I will describe how companies can confront this development and attain competitive advantages by harnessing them.

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As the winter of discontent of content owners and YouTube begins, a certain rumbling is growing. If you look back at the first Blog posts describing the Web 2.0 phenomenon, they often called it an illusion, overrated or a bubble. Very often it is pointed out that while YouTube was sold for $1.6 Billion, it in effect only had $15 Million in revenue last year and now a host of other problems (if you count all litigation issues and tech issues, the costs of YouTube may well be above $1 Billion or so). That is assuming, of course, that Viacom and Co. will manage to convince the courts of their point of view.

However exaggerated this view may be – it has, on a fundamental level, one merit. The YouTube Business Model, as far as it is now established, is based on an unjust usage of copyright and the equity of copyright.

Now I would be the first proponent of the theory that the internet, as John Perry Barlow put it, is “the end of copyright”. In the sense that transmitting, copying and distributing knowledge and information has become so easy through the internet that an author who wants to earn the fruits of his labor is well advised to find new ways of establishing himself as a person and establishing derivative business models off the content he produces, rather than relying on licensing fees alone. Nevertheless, YouTube does not even give that to content producers and content owners. It is like a giant attention lottery, where the very few motivate the very many, through their success stories of 15 minute world fame, to copy their endeavour and try to achieve that kind of world wide recognition. However, who of those authors, even of those who have achieved that kind of short-lived fame, has actually managed to earn money off it?

That is why YouTube lacks the value chain one needs for a viable business model. That is not to say that YouTube did not achieve something very important. It created a platform for ubiquity of video content and facilitated the exchange, commenting and sharing of that kind of content. It taught users an important lesson- that broadcasting is not the prerogative of a few publishers. From there, to a viable business model is a different step.

Google may use the YouTube technology to create Google video ads and to create a platform for viral marketing (which actually may be a sound business from the position that Google has) but, anyone trying to copy the YouTube model must fail if he does not devise a value chain, a sound and profitable value argumentation, and defines what his market is.

In essence, the markets the emerging video platforms target is the advertising market or the market for sharing and licensing content- the latter being a very difficult one. The key to monetizing that kind of tool and achieving success in that kind of market will be to define the value chain and to make it track-able, so as to be able to calculate an operating margin and to devise ways of building a business.

None of the me too(s) and copycat models of YouTube has achieved that yet.

None, except one- sevenload.

sevenload is one of the most exciting business ventures I have ever been a part of, by defining a value chain which, because of its self-reinforcing nature, we call the “value mill”. By devising a technology to track not only usage of content, but also the revenue generated by the individual video stream and by devising a way to create specific audiences that add a lot to the advertising value that a video can have, sevenload has in effect solved the 3 main problems of any video business model.

For now I don’t want to describe, in too much detail, what sevenload does as we still have to establish our market leadership. But stay tuned to see how the first viable video business model on the net will continue to be established.

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After having gone underground with a series of negotiations, I’m back withe the facts and some insights:

- Sevenload (http://www.sevenload.com) got a Financing from Burda Digital Ventures, the venture subsidiary of Burda group, a leading German Media Group

- Oneview (http://www.oneview.com) got a financing from a leading Media group as well, but that is still somewhat in stealth mode.

This introduces an exciting new phase in both ventures. Sevenload has reached new highs in usage. While competitors benefit from integration in TV channels, tend to trick somewhat on their figures, and basically are positioned as “videos generate traffic, traffic generates advertising impressions, ad impressions generate revenue”, sevenload is going for the Long Tail of content, creating a series of specialised audiences and trying to create advertising value there.

We have negotiated for months on the financing deal with a series of Venture Capitalists and strategic investors. We opted for Burda because it gave us a combination of media competence on their part and independence to pursue our own entrepreneurial course.

We closed the deal more than three weeks ago but wanted to gain some time before communicating it. We had carefully crafted a press release – only to discover that an early talk and its misinterpretation has led, a day before the release, to the faulty and undesired headline that we had been acquired. While this certainly serves the purpose of strengthening the positioning of Burda as a digital innovation leader, it is important for us to stress that we remain entirely independent and this is a pure venture financing. Lesson learned: remain on top of any and all first contacts to the press and lock in the main media with exclusives.

The other surprise was that the news generated so much response. The video market remains a very hot spot.

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These are exciting times indeed… Last week saw me (us) at DLD with a fascinating charge of speakers and attendees – and a historic moment.

Conference host Hubert Burda, Owner of Burda Group, one of Germany’s largest Media Houses, jumped up on stage and delivered a smashing and spontaneuous speech in praise of entrepreneurial creativity, citing “companies such as sevenload and Alexander Straub” that revolutionize markets.

I also noticed that denkwerk has great recognition as the factory of ideas that is its name-giving founding idea. Great recognition on that even from competitor Regine Haschka of ID-Media, and from Paulus Neef, Founder of Pixelpark. We shared war stories on Wildpark back in the 90s. I bonded with Christiane zu Salm, said Alexander Straub and Martin Varsavsky (once more) as well.

Highlights were also David de Rothschild, fiercely engaged in educating children to ecology, and James Murdoch, who portrayed some really smart strategies to neutralize CO2 emission at BSkyB and earn money at the same time. His key was the climate opportunity as opposed to the climate change.

I will tell more soon…

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Exciting conference! Loic le Meur at his best. The Usual Suspects turned up, a definite Highlight was Martin Varsavsky. But they even had Simon Peres come and the inevitable – at least if it’s campaign time in France and it’s Loics home turf – Sarkozy, who delivered a remarkably expectable speech in French to 50% international audience.

We boostrocketed as http://www.sevenload.com because we grabbed the microphone a couple of times, and I was positively surprised to see that sevenload and denkwerk and qype

http://www.qype.de

already had quite a reputation, even outside Germany. I enjoyed what happened off the panels, in the lounges, and in restaurant back rooms most – can’t say too much about it now, but Digital Life is bound to be exciting the next couple of months.

Another interesting encounter was a SEC-enforced very tacit Lars Hinrichs on the OpenBC/XING IPO, there’s one man who knows the pitfalls of Stock Market Law and will not put himself in a spot. We did end up however, musing about Greed and Selfishness as human traits that like to rear their ugly heads as soon as the opportunity arises…

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I just spent an exhilarating and exhausting 2 days @ SIME

http://www.sime.nu

invited as a speaker by my friend Ola Ahlvarsson, Co-Founder of Boxman, Founder of result:

http://www.result.com

[btw the first time I see a company with a beta blog as only company representation on the web]

It was exciting to meet and talk to Loic Le Meur (sixapart), Martin Varsavsky (skype, Fon), Tariq Karim (netvibes), the inevitable Andreas Weigend (former CTO of Amazon and feature conference showmaster), Nico Lumma (mabber), and Bob Stumpel (advertising guru from holland). Microsoft was there to present its new Windows Live and how it sees the future of advertising.

A number of new startups out there, and many discussions about the individual gaining the means to become an economic entity on the web.

I had a slot with Tariq and Nico about Everything 2.0. I started off with a video about how

http://www.sevenload.com

was creating new opportunities for the Digital Boheme – in the person of jobless actors – to present themselves, having now, through sevenload, secured a job to present the leading dating platform neu.de as actors in advertising.

Link: sevenload.com

I then tracked the success of sevenload back to its appeal for a broad, real-world audience, fulfilling real (everyday) needs.

All this is gradually – and at a fast pace – changing the was we do business, and more importantly, the way our society works.

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As a Founder and Board Member of denkwerk Group, I have been involved in marketing, media, the internet, and start-ups for the past 15 years. I have seen the New Economy come and go (and come back again). At denkwerk, we started the world’s first bookmarking and tagging startup, oneview, in 1998, and rolled it out to in 16 countries and 10 languages. denkwerk has always endeavoured to make innovation happen and attract some of the brightest talents (and start-ups) in our industry.

At the same time, I am an active Board Member of the company shaping the future of travel commerce, itravel, and a Board member of the exciting local search and rating company, Qype. As an investor in armedangels, I support an endeavor to make the world a better place.

In December 2005, I met Ibrahim “Ibo” Evsan and Tom Bachem. They had just developed a ground-breaking technology for an online Video Player. With seed funding from denkwerk we incorporated in April 2006, and in Summer 2006  I became CEO of sevenload!. In 2007 Andreas Heyden, the RTL in-house Founder of our main competitor, clipfish, left RTL group to join us as COO, and Andreas and I developed a licensing and business model that will help shape the future of TV and internet media, while Ibo and Tom turned their technology sights to Social Gaming when they left sevenload step by step between late 2008 and Summer 2009. Today sevenload is headed by a brilliant management team which I find exciting and rewarding to work with and learn from.

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