For those who really still don’t get the movement, you owe it to yourself to watch this video. It is a bit long, but be patient – the payoff is worth it. This is done in the style of Lessig and Dick Hardt. Click the video clip below to play it.

Thanks to Michael Wesch, Assistant Professor of Cultural Anthropology at Kansas State University for putting this gem together.

Cheers.

I came across an old proposal that I received from a vendor years ago (in the 1.0 days), and got a good laugh out of it.

We all know that things are cheaper to build these days, but I thought it might be interesting to put together a post illustrating the actual dollar differences in hardware, software, services, and labor costs. And yes, this is my last official post for 2006 – so happy new year in advance (4 hours from now!).

Preface

Note: I am using the phrases “Web 1.0″ and “Web 2.0″ to simply represent the passing of time.

The numbers that I am using to represent the Web 1.0 days are taken from a series of documents from a startup I was working with at the time. I am going to show those vendor dollars (and time components, where possible), and compare them to what my estimate would be if I were building that same system today. The focus, of course, will be on dollars, time, and trends.

The exact specifications of the proposed system are not important. For the purposes of this post, consider the proposed system to be a “typical” B2B/ASP procurement system. The only important criteria here at this point is that there should be a suitable “stage” environment, which would run parallel to the production environment.

These numbers only reflect hardware, software, and outsourced labor costs – they do not reflect internal IT spend (laptops, mobile fees, etc.), and do not reflect salaries of FTEs or other business-related expenses. I think it is safe to say that there were more than a few companies back then spending money on frivilous non-essential items.

Enterprise Software Costs
The original system was built on a stack comprised of ATG’s Dynamo web application server (with the personalization license add-on), and Netscape’s Enterprise Web Server. The backend was facilitated by an high-end Oracle database.

On the application side of things, we were building upon Oracle Exchange, which was Oracle’s attempt at fighting Commerce One and Ariba. It was *supposed* to provide a big pile of transactional and catalog management capabilities – it turned out to be a vaporous pile of ****, but that’s probably a post best left for another day.

Interwoven was the content management system (CMS) of choice, and Verity was selected to provide “search” capabilities.

We implemented a very high-end CRM solution built around Silknet’s product and Aspect’s ACD (call center) solution.

Component	Qty	Unit Price	Total
Oracle Database	1	120K	120K
ATG Dynamo	4	10K	40K
ATG Personalization License	4	20K	80K
ATG Development Seats	5	10K	50K
ATG Staging Licenses	4	5K	20K
Netscape Enterprise Server	2	1K	2K
Silknet	1	170K	170K
Silknet Maintenance (1st year)	1	34K	34K
Aspect ACD	1	250K	250K
Aspect Maintenance (1st year)	1	41K	41K
Oracle Exchange	1	825K	825K
Interwoven Bundle	1	90K	90K
Verity Bundle	1	120K	120K
			$1,842,000

The discussion was lively, and carried over into lunch. The group really got into what we we’re doing at HiddenMarket, and where we’re going with it all. We got some good questions, too. Nothing beats getting out there in front of users and doing “show and tell.” If you want honest feedback, and suggestions from the trenches, you can’t get the full picture by sitting at your desk. Ya gotta get out there and beat the pavement a bit.

My big takeaways were:

1. Everyone agrees that there is a “dilution of trust” in many existing social networks.
2. Preservation of “trust” will be a critical area moving forward.
3. It is time for social networks to move beyond their current state if they are going to add real value in the business community.

Fortunately for us, they also were pleased with our approach to addressing these and other issues, which was both refreshing and validating. Especially coming from this group. The level of social capital in the room was simply enormous. We are definitely thrilled to have Kettering as one of our beta groups.

A quick shout out to Craig Larson, a brilliant man, a co-founder of VuBotics and a good friend. Craig was kind enough to record my presentation on his handheld digital video recorder (where I was able to snag a couple of stills for this post.)

I also want to thank Steve Walden and Armando Cuevas, two of our advisory board members, for attending and showing their support. Same for Gregg, Lee, and Josh from the Gang of 5, our entrepreneurial roundtable. Fun!

Cheers.

The quote from Fred that keeps sticking with me is this:

Friendship has been defined on most social networks as the people who get their faces on your profile. But as these social networks start to add real applications/utility on top of the relationship maps it’s going to create issues. Friendship is not a monolithic thing. It’s a nuanced thing.

What we have seen from talking with literally hundreds of users of professional social networks is what we’re calling a “dilution of trust” among users. Many people only “know” a small fraction of the people in their immediate online network. If everyone had played by the rules, and only “connected” with people that they actually knew, then we would likely be having a different conversation here.

Current social networks have largely become a “numbers game.” The quality factor has been largely supplanted by one of quantity. Instead of saying “wow, look at this nice, tight collection of strong contacts that I can leverage”, it has become a “Wow, honey, look! I now have 25,000 friends, and am connected to everyone in the free world!” The dilution of trust.

And as Fred points out, when “real applications” start appearing (or trying to appear) on top of those relationships, the problems become pretty apparent. Apples and oranges. Square peg, round hole. Whoops.

The social model we’ve implemented with HiddenMarket was born out of our realization that it was time for the a new iteration in social networking (at least on the B2B or professional side, where we sit.) It is refreshing (and validating) to see someone like Fred speaking out on this issue.

Cheers.

My thoughts, in no particular order:

1. A web 2.0 play is still a business. Peel back the fancy fonts and the minimal 2-color palettes and what do you have? The answer: servers, storage, office space, payroll, expenses, etc. Granted, it is becoming increasingly more cost-effective to bootstrap these types of plays, but at the end of the day, it is still a business. If you aren’t viewing your play as a business, then you are trying to monetize a hobby. Different animal. In that case, you don’t need a business plan, you need a day job.

2. It helps to frame your thinking for investors, new employees, etc. Fairly self-explanatory. By reading your business plan, a new employee can “get vertical” very quickly. If you are considering taking on investors, then having a business plan allows a potential investor to go “beyond the pitch”, and really ascertain your level of understanding of your industry, your competitors, your assumptions, etc.

3. It helps you iterate your business. By going through the motions of writing a business plan, you will simultaneously “iterate” your business as you write it. You will come up with additional revenue streams, identify previously unforeseen threats and opportunities, etc. There truly is something magical about putting pen to paper, or hands to keys, as it were. I promise you that your idea will take on new meaning when you’ve written a business plan for it. Just as “no plan survives first contact”, “no idea survives first planning” … I promise you it will evolve.

4. It helps YOU get down to the nuts and bolts. The act of writing a business plan affords the entrepreneur the opportunity to get very “hands-on” with the business model and the strategies behind it. If you are preparing to raise capital, this is a very important exercise, as you will get the tough questions sooner or later.

5. It doesn’t need to be the Grapes of Wrath Part II. I think many people shy away from creating a business plan because they think “why should I put all of this effort into writing a 100 page document when I could be pushing code instead?” Great logic, but a poor assumption. A good Web 2.0 business plan can be written in less than 20 pages. For that matter, a good “non-Web 2.0″ business plan can be written in less than 20 pages. The best business plan I’ve ever laid eyes on was actually only one page long. ONE PAGE!

6. It shouldn’t take 6 months to write. To go along with #4 above, business plans shouldn’t take that long to write, and I know that many entrepreneurs are anxious to jump right in and start bootstrapping. However, most competent entrepreneurs can shell out a plan in less than two weeks. If it takes you 6 months to write a business plan for a Web 2.0 startup, you should seriously consider another career field.

7. It serves as a roadmap and a validator. As I’ve stated on this blog before – no plan ever survives first contact. Agility is a critical skill these days. However, having a business plan in place allows you to have a firm idea of where you were initially headed when you signed that term sheet. It also serves as a validator for you …. how close were we to the plan? We deviated, yes … but are we straying too far from where our vision is/was?

8. It is a valuable learning experience. For all of the reasons listed above, as well as some others. You will be a better entrepreneur because of it. The same could be said about pitching, financial modeling, etc.

9. It sends the right signals. Contrary to what some would have you believe, there are still investors who will insist on a business plan. Sure, there may be some that will open their wallets for a slick pitch, but their confidence in you as the jockey will go considerably if they know you’ve got a handle on things. And having a business plan in place certainly allows you to get a handle on things. Remember, having a “handle on things” doesn’t just take into account what you’ve done and what you’re doing currently, but also what is to come.

10. The odds are in your favor. Most businesses fail. Most of those businesses don’t have well-thought-out business plans behind them. Gee.

Can you start a business without a plan? Yes.

Can you be successful without a business plan in place? Yes.

Can you fail even with a business plan in place? Yes.

However …

Are your chances of success greatly magnified with a plan in place? Without a doubt.

Cheers.

You can read Alex’s post here, but I will offer a few thoughts to go along with what he (and Fred Wilson and Paul Kedrosky) are saying.

First, to have a “bubble”, there has to exist something to exert upward pressure, generally around pricing, cost, valuation, etc. I see nothing doing this, for all of the reasons pointed out in Alex’s post. VCs are active, but they are certainly not investing at the levels we saw before. There are certainly “pockets” of heavy investment, but nothing on the scale preceeding the stupidity-parade of the late 1990s.

Another point I’d like to make is that the bursting of ye olde digital bubble in the late 1990s affected most major markets. Atlanta, for instance, was one of the heaviest hit areas back then. The investments back then were fast, furious, and all over the map.

That simply isn’t the case now. Believe me, there is no Web 2.0 bubble here in the southeast. Most investors here couldn’t tell you the first thing about Web 2.0. They are still largely continuing to lick their wounds.

The key point, to me at least, in Alex’ post was his statement regarding the lack of copy-cat investments. This is a HUGE distinction from the 1990s. If one online dog food company secured a round of $5M, three more received $10M, with a fifth startup receiving the $50M warchest. That is not the case now; with a few exceptions – such as the rush to solve the world’s “video file sharing problem.”

What we see now are lots of bootstrapped startups, with the VCs letting a “clear” winner rise to the top, and then infusing capital into that player to bolster their postion. Instead of investing in lots of copy-cat plays, VCs are now searching for those plays that complement those other portfolio investments. In other words – taking previous investments to the next level. Big difference.

And has been pointed out by everyone already, the deal sizes are not at pre-bubble levels, which in effect reduces the impact of failures.

I’d be more worried about the housing/real estate bubble.

Cheers.

I stumbled across this post today from Mark Christian Doerschlag:

Pete Cashmore over at Mashable! just wrote about iBloks and I just can’t keep quiet on this one. This got both angel and VC funding. What. The. Heck. I am at a loss for words.

This new desktop application is being called a “3D multimedia slideshow tool” – it allows you to combine photos, videos and music into an odd media mashup that you can send to your friends.

Each iBlok starts with a “mod” – a basic element that you can customize. For example, you can begin with an animated “dancing man” figure made from a number of gray squares. You can then drag photos and videos from a library and drop them on to the squares – if you drag a video, it will play repeatedly on the surface of the square. You can also add music to the mod, and make the character dance. Other mods include a sudoku game, TicTacToe and an animated loveheart. To confuse things even further, they’ve thrown in Mix Master, a music mixing tool.

The question is: why? Why the heck would anyone want to create these things in the first place? And why would I want to download yet another piece of software that has virtually no utility? The fact that it’s nigh impossible to explain the concept is also a concern: how do you sell someone on your product if you can’t even communicate what it does?

First, let’s look at the angel round of $500K. Any monkey with a Powerpoint deck can raise angel money. What is angel money anyway? Some guy (or gal) that has more money than the entrepreneur who is willing to roll the dice on something that is “different”, “desired”, and/or something that addresses a problem. The world is full of such people.

As far as the $3M institutional round goes, again, I go back to the business plan. Maveron was one of the investors in e-Bay. Maveron’s Howard Schultz is the current Chairman of Starbuck’s, and formerly served on the board of e-Bay as well. Maveron’s portfolio also appears pretty balanced. These aren’t trust fund babies with an itch to get on the train. This is big boy football.

Not all investments are going to pan out – we all know this. iBloks could very well turn out to be a bust. Perhaps their technology is outmoded. Perhaps their market projections or assumptions are out of whack. Who knows? But unless I’ve seen the business plan for iBloks, and am able to conduct due diligence, I can’t feasibly criticize the components or structure of the deal.

Remember – the goal of most investors is not to “change the world” or “make the world a better place.” Most of them simply want to get a 7x to 10x return on their capital. This can come in a variety of ways. You don’t have to invest in a company because you “believe in their product.” You can choose to invest in them because you simply see the opportunity to achieve that desired multiple. Perhaps such an opportunity was identified with iBloks. Again, who knows?

History is rife with “dumb ideas” that produced significant wealth generation.

If I told you in 1993 that I wanted you to invest in a “web site” (assuming you even knew what a web site was in 1993), and that this web site was going to have a name that was nebulous and not indicative of its purpose, and that its mission was to sell books to people online, you probably would have bounced me out on my ass.

A side note (but somewhat related): As fellow military veteran and entrepreneur/investor Alex Muse shared recently (by way of Diane Mulcahy), here is Jeff Bezos’ path to capital success with Amazon:

• 3rd Quarter 1994: Jeff scraped together $10K of his own cash and borrowed $44K more.
• 2nd Quarter 1995: Jeff’s parents invest $246K
• 4th Quarter 1995: Two angels invest $54K
• 1st Quarter 1996: 20 angels invest $47K each ($937K total)
• 2nd Quarter 1996: Jeff’s siblings invest $20K
• 2nd Quarter 1996 Two Venture firms invest $8MM total
• IPO 2nd Quarter 1997 – 3MM shares sold raising $49MM

In 1996, if I approached investors with a “virtual pet” idea (Tamagotchi), again, I would likely found myself quickly lying face down on the asphalt in front the VC’s office building. However, within a year of launch, they were available in 30 countries, and on nearly 400 different licensed products (t-shirts, hats, etc.) Over 11M units were sold in Japan and the United States. This spawned an entirely new industry segment, populated by players such as Nintendo and Tiger Electronics.

In 1975, if I approached investors with the idea of taking a uniformly rounded, smooth gray stone, wrapping it up, sticking it in a cardboard carrying case, and selling it as a low-maintenance “pet”, I would have been the recipient of a swift boot in my behind. However, Gary Dahl went on to sell over 1M units of his “Pet Rock”, at a unit price of $3.95 each.

My own grandfather bought a boatload of swamp land in Florida. Everyone thought he was nuts, and rightfully so. Imagine the greed-inspired smile on his face the day he sold it to Walt Disney for the expansion of the theme park in Orlando. Again, the presence of an opportunity, rather than a valuable product or service.

Finally, in his post about iBloks, Mark goes on to say:

Here I am trying to grow a services business in a viable market, going at it alone, but everywhere I go it seems I read more about half-baked software product ideas with zero-utility that get millions in funding. There is something wrong with this picture. This is proof that there are investors out there who have the money, but have perhaps been brainwashed into thinking that crap like this is worth funding. I seriously need to consider taking my case on the road to find people who want to invest in something that has a stable future.

Note: this piece is not a knock on Pete or Mark. I don’t know them at all. I’m just sharing my thoughts on this one. I will even go so far as to say that I understand their frustration (especially Mark’s).

Cheers.

I want to point out a couple of things on this front, though.

First and foremost, I want to point out that this isn’t a knock on Fruitcast, or their team. It seemed like a great service (I even used it myself.) However, I am always of the belief that if you can learn something from the failures of others, the better. If I’m gonna fail, I’d rather fail by committing my own, unique, blunderous errors, rather than falling prey to “common pitfalls.”

Next, I want to talk about the “seven P’s”. You may remember the “4 P’s” from your Marketing 101 class in college (Product, Price, Place, Promotion). Well, the “seven P’s” of which I speak are not related to those “4 P’s” from Marketing 101. They are different.

What are the “seven P’s”? With a nod to Dick Marcincko, former U.S. Navy SEAL, who introduced me to the phrase years ago:

Proper Prior Planning Prevents Piss Poor Performance.

Fruitcast clearly did not secure enough capital and resources to move their plan forward. I am also reminded of the quote from German Field Marshall Helmuth von Moltke:

Kein Plan überlebt Kontakt mit dem Feind.

No plan survives first contact with the enemy.

Their email (full text below) provides a litany of issues describing why they are having to take a “hiatus.” However, many of the stated issues could have (should have) easily been addressed in the planning stages of their business (bandwidth, server downtime, lack of customers).

One of my favorite lines is where the Fruitcast guys inform us that they are “going to put Fruitcast on a brief hiatus, so we can work on it without annoying our member podcasters in the meantime.” Hmm. Call me crazy, but I would call shutting your service down for the summer “annoying to your members.” Probably even more so. A proper development plan would have provided an environment for handling such an event. The current service could have been continued while work progressed on the “2.0″ version. Just my two cents.

Bootstrapping isn’t for every business, and it isn’t for everyone. I believe you can bootstrap your way into relative obscurity if you aren’t careful. At some point, if you want to go big, you need capital, be it from the inside (founders, organic revenue growth, etc.) or from the outside (investors).

Finally, I will leave you pondering these questions:

• Fruitcast has stated that they are going to “be back soon.” But have they worn out their welcome?
• Users have high expectations these days, as do sponsors (their customer segment). What are the chances of a comeback?
• Will adoption be there this time?
• If they re-emerge with a solid business plan and adequate resources, will the market view this favorably, or will they forever be viewed as a “could-have-been?”
• Given the increasing number of “podcast advertising” plays popping up on the radar, have they missed their window of opportunity to be a player in this space?

I certainly wish the Fruitcast team nothing but success. I think the core of their idea is still a solid one.

Here is the original Fruitcast email, if you’d like to read it:

Dearest Fruitcasters,

We’re not going to beat around the bush — Fruitcast needs a lot of work. As one of the podcasters who has signed up for our service, you’ve experienced our ups and downs, server moves, service outages, etc., and most of you have been wonderfully patient with us while we try to figure all these things out. Now it’s time to make some things right.

-= OUR MAJOR ISSUES =-

Here are the biggest problems we’ve been facing:

1. LACK OF ADVERTISERS. We’re working on educating the ad industry, but it’s going to take some time before we have enough advertisers to satisfy even a fraction of the podcasters who are wanting to run ads. We’re now working on some exciting new ways to make it even *easier* for smaller advertisers to run campaigns on podcasts.

2. BANDWIDTH. If we were a VC-funded firm with heaps of money to throw around, we could easy take care of this — but we’re not. We’re running on a relatively efficient budget, and we’ve had to try to find a good balance between power and cost. Our current hosting solution just isn’t cutting it (as you may have noticed), and we’re working on some potential relationships with hosting/bandwidth providers to get the kind of solution that Fruitcast really needs.

3. SERVER DOWNTIME. It’s totally unacceptable for a middle-man solution like Fruitcast to go down as often as it does. There are a combination of issues, including the hosting platform, code quirks, less-than-adequate handling of non-standard feeds, etc., that are causing some of these problems. In addition to seeking a more stable platform, we’re also building a number of monitoring tools that will help the Fruitcast system react and self-adjust as necessary to ensure uptime.

-= HOW WE’RE GONNA FIX IT =-

You guys, the podcasters, have been bearing the brunt of these issues. Because we’re a genuinely podcaster-oriented company, this has been an acutely painful truth for us. We could continue to tweak and hope that you guys put up with these issues until we could finish them, but we simply can’t tolerate the downtime and other issues that you’ve been facing. We’re not going to get between you and your listeners until we can promise consistent uptime and high-quality service.

So, we’re going to take some drastic measures:

1. FRUITCAST IS OUT FOR SUMMER: We’re going to put Fruitcast on a brief hiatus, so we can work on it without annoying our member podcasters in the meantime.

2. REVAMPED PLATFORM: We’re going to completely rewrite our ad serving platform to incorporate the many fun, fascinating, and occasionally painful lessons we’ve learned over the past several months.

3. MORE FLEXIBLE OPTIONS: Long ads, short ads, live reads, sponsorship spots, radio spots. We’ve listened to your feedback, and you’ve indicated that you’re quite comfortable with offering a variety of options to advertisers. We’re going to give it to them.

4. MORE PODCASTER CONTROL: You should have the ability to approve or reject every advertiser who wants to put a spot on your podcast. We’ll give you that ability.

5. MORE PROMOTION: Our new system will give allow you to recruit potential advertisers right from your own website. (We’ve also got a number of other clever ideas up our sleeve.)

6. QUALITY CONTROL: We’ve allowed every podcaster who signed up to be listed in our directory, and it doesn’t seem like that’s fair to the advertisers, or to podcasters who are putting a ton of effort into their work. We’re not going to tell you what to podcast about, but we will have certain requirements for feed integrity, hosting consistency, audio quality, etc.

-= WHAT THIS MEANS FOR YOU =-

The most important thing for you to do right now is to CHANGE YOUR FEED to use your base url instead of your Fruitcast url. For most of you, this should be as simple as changing the url in Feedburner, but some of you may have used the actual Fruitcast url as your primary feed, and you’ll have to let your subscribers know that it’s changing. (Sorry!)

We’ll do everything we can, including manually redirecting every feed, to make this as smooth a transition as possible. However, the sooner you can get your listeners back onto your base feed url, the easier the transition will be.

-= THIS IS THE BEGINNING =-

We’re going to bust our behinds and come out with Fruitcast v2.0 as soon as possible. We genuinely appreciate you, the members, for standing by us through the rough times of an early startup. This isn’t goodbye — it’s more like a trip to the supermarket. We’ll be back, and we’ll be bringing ice cream with us.

(More updates will come soon…feel free to reply with any questions you might have.)

Good night, and good luck!

The Fruitcast Crew

Cheers.

10. Is it a drop-in replacement upgrade for Web 1.0? I must have missed the announcement on Web 1.5, so I guess I am still running the old version. What is the easiest upgrade path?

9. Is there a scalable, extensible, “enterprise” version available? I’d like to be able to run it at the office. Also, are the licenses sold on a per-seat basis?

8. Is it open-source, and available under the GPL? Further, how does it fit into my LAMP stack? Does it replace Apache?

7. Where can I get the best price on Web 2.0? I’ve tried CompUSA and New Egg, but they can’t seem to keep it in stock. Amazon doesn’t yet have it listed, for some strange reason. Also, can I pre-order it on DVD, or is it only available on CD? Also, will there be there a commemorative collector’s edition or box set?

6. How secure is it? Can I get a virus if I click on it? Am I going to land on more spam mailing lists if I upgrade?

5. Is there a beta program available? I’d like to sign up to help beta test Web 2.5b when it becomes available.

4. What is the support policy? If I have trouble installing it, or running it, who do I call, the manufacturer, the OEM, or the reseller?

3. What are the minimum system requirements? I have not yet updated my XP install to SP2, and my Linux box is still running the 2.4 kernel. I heard in some early reports that Web 2.0 was a memory hog – should I bump up the RAM in my system?

2. Will there be a multiplayer version available? Also, are there any addons or expansion packs planned?

1. What is the exchange policy? If I don’t like it, can I get a refund within 30 days, provided I have the original packaging and a receipt?

Of course, if you are content with what Web 1.0 is giving you now, then you could always save yourself the hassle, and take advantage of Moore’s Law. Skip this upgrade, and wait for Web 3.0, which will probably be available by the time you are getting comfortable with Web 2.0! :D

What Web 2.0 questions would you like to ask!?

Cheers.

I concur wholeheartedly with his sentiment:

People are eagerly embracing the next wave of the internet and the self-expression it brings. However, they are also crying out for better solutions to help them find what they want, when they want it. There are going to be significant opportunities for companies that can bring intelligence and relevance back to the search process. It looks like Pandora’s Box has been opened.

The problem is the “time” component. It can often take a substantial amount of time in order for content to either bubble up or fall off the edges. While their infrastructure is apparently propped up with bailing wire and bubble gun, I do like the way Technorati’s rankings are designed, at least in theory. The downside to having a focus on what is “happening now” is that the user can sometimes lose visibility into value-added content that is only a few weeks or months old.

Nevertheless, his point remains. Niche search plays are beginning to garner a lot of attention from investors, and with good cause.

Matt mentions a couple of interesting plays in his post (Pandora and Riya). Another great play on the horizon is podscope.com – they offer the ability to search for spoken words through the universe of podcasts (both audio and video). Not fully indexed yet, but it has promise.

As with many of these niche search plays (including deep web searches), the exit strategy for investors most often involves Google … not sure if that is good or bad, but it seems to be the reality of things.

Link to Matt’s post: http://www.vcconfidential.com/2006/03/pandoras_box.html

Cheers.

- Scott Burkett