Redeye VC

Josh Kopelman

Managing Director of First Round Capital.

espite being coastally challenged (currently living in Philadelphia), Josh has been an active entrepreneur and investor in the Internet industry since its commercialization. In 1992, while he was a student at the Wharton School of the University of Pennsylvania, Josh co-founded Infonautics Corporation – an Internet information company. In 1996, Infonautics went public on the NASDAQ stock exchange.

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53,651

53651One of the few benefits to being a technology investor based outside of Silicon Valley is that I don’t spend all my time in the valley.  While I'm out in California every few weeks, I get to spend most of my time in the "real world."


Over the last several weeks, I’ve been on several phone pitches from west-coast companies that are looking to be the “flickr of XXXX” or “like del.icio.us but YYYY” or “the Digg killer”.  It got me thinking – how many people outside of the valley have ever heard of these companies?  I asked a bunch of local (Philly-area) acquaintances and the answer came back loud and clear: none – nada - zip.  People here have barely heard of Myspace and Craigslist – let alone any of the “hot” Web 2.0 companies. 

 
As more and more entrepreneurs start building what Fred Wilson referred to as second derivative companies, I think they run a big risk of designing a product/service that is targeted at too small of an audience. 
Too many companies are targeting an audience of 53,651.  That’s how many people subscribe to Michael Arrington’s TechCrunch blog feed.  I’m a big fan of Techcrunch – and read it every day.  However, the Techcrunch audience is NOT a mainstream America audience. 

 
A good review in Techcrunch can get a company their first 5-25K beta users very quickly.  However, I’d strongly caution entrepreneurs from taking their initial consumer adoption metrics and extrapolating them too far into the future.  I believe startups will find it difficult to cross the “Techcrunch chasm” between the Web 2.0 geeks and Mainstreet USA. 


If we could get access to the usage logs of the top 10 Web 2.0 properties, I would bet that their 10,000 most active users would all be the same. 

 
As I evaluate new startups these days I’m finding it harder and harder to see the big ideas that will appeal to a large, non-geek consumer audience.  Thoughts?

Comments

Fraser

Nice rant. I completely agree.

I've said it before and I'll say it again - "the thing that will keep Web 2.0 plays from being successful is the very thing that made them what they are today: geeks."

In my rants I've been calling the challenge faced during the commercialization stage of Web 2.0 companies their inability to down-geek.

The biggest problem is that a successful review on Techcrunch gets the company "their first 5-25K beta users very quickly". Not only do the companies extrapolate this growth for future forecasts etc. but they also fall into what I've been calling the "geek trap"

--- they listen to these early adopters wrt feedback and continue down a product development path that is far too geeky for mainstream consumption.

The challenge lies in that down-geeking their product at this stage would alienate their existing user base! Which, needless to say, is a difficult challenge and one that requires a sound strategic vision.

Unfortunately I think that many Web 2.0 companies are missing this vision.

Marcus

For promoting services to youth culture, the local media properties (alt-weeklies, college radio, venues, etc) are in a better position than even a VC-backed company, because they have what most every other start-up is missing: a built-in audience, brand, and fanbase.

They're just going to have to have people to hold their hand and walk them through the technology. But open source platforms can help them compete with the TechCrunchies.

Ryan

Great point. What also is interesting is that the two web companies you mentioned that have acheived some level of market acceptance, Craigslist and Myspace, have user interfaces that are far from Web 2.0ish. In fact, I would describe them as cluttered, unattrative, and often cumbersome. What does this mean for those of us developing web companies? In order to gain a user base in the hundreds of millions, move away from clean UI, rounded charaters, AJAX? I think the more important lesson is, which you point out, is that functionality trumps form, and that that functionality better appeal to more than just the tech savvy.

JT

Yes...Silicon Valley is not the center of the universe. There is a world out there that few insulated venture/tech-addled Califorians understand. Now I see how W. got two terms...

Dave Rosenheim

Being in the thick of it, I tend to agree with you, Josh. Even from my office at the epicenter- SOMA San Francisco, it's difficult to keep up with proliferation of first and second derivitive companies.

If you haven't seen it already, there is a handy blog traffic ranking tracker at http://truthlaidbear.com/TrafficRanking.php.

I disagree to some extent with Marcus' comment. There are some very credible, fan driven sites with local-targeted content. These include Daily Candy, Flavor Pill and JamBase.com (if I do say so myself). I firmly believe that sites like these are far more effective at marketing to local youth-oriented markets than your run of the mill arts weeklies. And they have the CPMs to prove it.

Dave Fortino

Hey Josh,

Your post is spot on. I could not agree more seeing that I work for a Valley company but have the luxury of being located in the Philly area as well.

The valley is extremely focused on itself and the self preservation of their story. Unfortunately, main stream America could care less about the valley or even realize that this so-called "valley" exists.

Buried in all this web 2.0 mess are some solid companies with great talent and even better products. It's up to them, people like you, and the end user to make them rise above. Without a connection to the end-user, web 2.0 will become nothing more than another chapter in the book we already read the first time around.

Keep up the fight
-Fortino

Scott Rafer

Your critique of "Silicon Valley as sole audience" is why I like MyBlogLog.com, which got to critical mass with USA Today's blogs and has a large gossip segment -- probably 15% of the 4 million pages and 1.5 million clicks we track every weekday (People read lots of gossip at work). The valley folks use us, but it's a minority by far.

Saurier

"If we could get access to the usage logs of the top 10 Web 2.0 properties, I would bet that their 10,000 most active users would all be the same." - I'd guess that if you define a top Web 2.0 property in terms of user adoption that's not the case. The TechCrunch aware crowd might sign up the very first day a service launches but then quickly moves on without becoming an active user - just check alexaholic two weeks after a tc-review (it's just not possible to microchunk yourself into a few hundred pieces.)

gse

I refer you to the grim meathook future: http://www.zenarchery.com/2005/09/22/full-text-of-the-grim-meathook-future-thing/

Yakov

It never profiled us but we get to 100k mark in few months. I wonder if it did :)

Dave Sanford

Josh,
Totally agree. I've been struggling with the same observation based on a much smaller, but nonetheless interesting, sample size. When I talk to my friends at colleges outside the Valley, including those in southern california and in seattle, most have no idea what I'm talking about when I mention del.icio.us, "web 2.0," flickr, etc. My friends in L.A. know about the hottest new music months before I do, but just being a 20-something doesn't mean they know about the latest Internet technologies/companies. Even my brother here in Miami recently quipped, "I don't GET blogs..."

Andrew J. Borislow

Dead on.
The technobabble world gets entrenched in discussion about Web 2.0 and other regurgitated blends of social/search/blogging/t.ag.gi.ng/RSS.Wiki.Geo/collaboration Web sites and ignore critical mass usage (as opposed to registration). Now, as big money corporations like AOL, Yahoo and Google, tackle similar technology with a hellbent slant, watch how fickle audiences (often one core demographic) unknowingly make founders and investors wave goodbye to high valuations. Josh is fortunate to live where he lives and open his door to the real world versus the silicon, self-praising, world each day. Great technology doesn't make a great business (it used to!) - revenue and profit make a great business.

Steve Goldstein

There used to be a saying, "You can sell 14 of anything. If you sell the 15th you may actually have a product." But even with an enormous number of beta subscribers, you still don't know if beat users are fooling around or actually adopting the service. I have signed up for two dozen betas based upon a TechCrunch or other recommendation and there's only one service I use regularly (Netvibes) and they don't seem to have a business model.

Matt Wyndowe

Two questions leap to mind about this segment labeled "53,651":

1. Is 53,651 growing rapidly rapidly? (ie, today's 53,651 site will be tomorrow's 53,651,651 site as the segment grows)

2. Is 53,651 an attractive segment? (ie, can you monetize it)

Greg Linden

Right. Most of these Web 2.0 products seem to target geeks, not grandma. They get a brief buzz with early adopters, but are a dud with the mainstream.

The key feature for the mainstream is saving people time. These Web 2.0 startups are banging out shiny AJAX tricks that are merely toys for geeks. They are building time wasters, not time savers.

Ted Shelton

While the general observation is right, the analysis ends before the interesting question is asked -- how do things migrate from the geekosphere into the mainstream? And is there a repeatable pattern or different ways for different times or just lots of different paths? Just about every consumer tech thing has started out as a geek toy - take your pick. MS-DOS? Jerry's list (original Yahoo)? Television? The warning is a good one though. Don't design your product for the silicon valley elite. And sometimes that also means, ignore the critique of the silicon valley elite. On this same thread -- you don't have to be in Silicon Valley (or even in technology) to make the mistake of building a product for yourself vs. for your target customer. Make sure you have decided who your customer is likely to be and what that customer wants before you lock in the features and user experience.

Dave

i tend to use my relativesin west virginia as a real-world check on any insane ideas i come up with / hear about. that usually keeps the Silicon Valley tunnelvision / tinnitis under control.

On the other hand, i do think we've begun to learn the lesson a *little* bit... the latest successful startups all seem to be about real-world interests that joe six-pack has a sense for:
- YouTube (videos)
- Flickr (photos)
- FaceBook / MySpace (my friends / hot chicks & guys / music / gossip)
- Digg (gossip / trends)

not all of these services are household names yet, but at least in design they're straightforward.

i'm sure for every 1 of those there are 100 obscure and geek-centric startups, but it's not *all* narrow-band minutiae.

at the same time, i don't think it's bad to consider a business with tens of thousands of users as modestly successful -- it's just that tens of thousands of *FREE* users ain't so impressive. but if you told me you had 50K users each paying you $20 per year, i'd say that's a great $1M cashflow business that gives you an opportunity to get a lot bigger once you're covering your costs.

in fact, great example of this is LinkedIn -- after 3 years, they're cashflow positive at i'm guessing somewhere north of $5M / year. i wouldn't say they've figured out their mature business yet, nor have they tapped out on growth, but it's great to be making $5M per year and paying the bills while you figure out how to grow your customer base another order of magnitude.

"crossing the chasm" is just as much a challenge as it ever was... altho the distribution costs for viral marketing are as low as ever too.

- dmc

Richard Ziade

I'd venture even further to say that much of this stuff isn't actually very useful or practical and that most will fade away because the world really isn't that interested in them. I talked at lenghth about this on a recent post on my blog:

http://www.basement.org/archives/2006/03/reality_check_20.html

siobhan

Josh,
This is a great post. It articulates a big issue for Web 2.0.

I use a set of people to determine how far along an idea / technology is. If my oldest sister has heard of it, its gone mass adoption. If my teenage niece has heard of it then I know its at an entirely different stage.

siobhan

Raghu Srinivasan

You make a good point: not every site with 50K signups is guaranteed to become Yahoo or Google.

OTOH, I've heard both Joshua and Caternia speak about del.icio.us and Flickr. It cost them relatively little to build. Even if Y did not pay Flickr $25M, they were making decent money with 200K users.

More at my blog: http://www.raghusrinivasan.com/blog

Mr. K.

Spot on. Even a huge tech success like the iPod is huge only in urban centers. I've had looks of confusion from people in other states as if it's alien technology, while in SF I swear 1/3 of the pedestrians have one.

There is a big digital divide and some of it is related to security fears. Many internet users are still afraid of banking online and writing too many emails, because of "spam" and "viruses". How can we realistically convince them that it'd be cool to put all your digital photos online?

A lot of advances have been made but unfortunately Web 2.0 is a movie being shown in a particular gallery that many people don't know the directions to because the directions are only available on Google Maps.

Dan Cornish

I agree and disagree. For FREE consumer facing app you need a large audience. For enterprise app, you only need a few hundred customers. The trick is to build something of value people will pay you for. Then 50,000 people paying $10/month is a good business.

anonymous

And what of the iPod? Without the poisonous geeks, it would never have become as popular as it is now.

G.D. Sanders

Excellent post and commentary. While I completely agree with your analysis of the current web property market, I also view this period as the nascent experimentation phase of the extensible web and one ripe with opportunity: the creation of a simple services which appeal to audiences that are global in nature.

Dimitar Vesselinov

Google Trends: youtube, flickr, myspace, digg, web 2.0
http://www.google.com/trends?q=youtube%2C+flickr%2C+myspace%2C+digg%2C+web+2.0&ctab=1&geo=all&date=all

Scott Meade

I agree with the sentiment of your observation, yet feel your desired market to be too narrow.

Why do you desire a " a large, non-geek consumer audience"? Why the focus on consumer? Why not a large, non-geek business audience? Or large, non-geek educator, salesman, realtor, banker, middle-manager, scientist, business-owner, accountant, or landlord market?

South bay

Josh

You seem tobe a bright guy, The valley, I mean silicon valley starts at Mountain view and ends in Gilroy. The valley you are referring is from Palo Alto to SF. Founders in south bay generally engineers by trade as you go north you will see less of those. General observation and nothing more.

Stephanie Quilao

From a woman's perspective, I think many web 2.0 companies would have a better chance of crossing the chasm to mainstream if they thought more Oprah than Geek. How does your 2.0 creation help me live my best life? I find that many of the web 2.0ers focus on the tools and capabilities, but not the life context. Think IKEA. Not only do they give you endless furniture choices, but they show you multiple ways you can make your livingroom, bedroom, or kitchen look cool with their stuff. Stirs the imagination, and makes you wanna decorate.

Randy Charles Morin

I'll take the bet. Clearly MySpace and del.icio.us have different user bases, or are you suggesting that it's a punch of teenagers tagging the world in del.icio.us?

Randy Charles Morin

Further, I doubt most all of the top 10k MySpace, YouTube or Flickr users have ever read TechCrunch.

Fez

That's exactly why my next startup is going straight for the pop culture jugular.

http://ummyeah.com/

Who needs VC when you've got a few long weekends of coding in Ruby on Rails? =)

Andrew Fife

Yes, but these early-adopters provide value in two key ways that are being vastly underestimated in my opinion.

First, early-adopters are willing to build out the user generated content that so many of these startups rely on to provide value to main stream users later on.

Second, while VCs may not be ready to make series A investments in web 2.0 startups with fewer than 25K users, these early-adopters provide a key metric for raising friends/family and seed rounds. While it is definitely less costly to build a web 2.0 company than an enterprise software company there are server, rack space, power and bandwidth costs, which are beyond the means of many entrepreneurs.

Parv

Gaining traction in blogosphere is still essential to any new venture – and it’s free! Blog readers are the ones using the internet everyday which makes the probability of them adopting a new online service much higher than “regular users”. I work for a start-up which could eventually appeal to the masses. The biggest challenge to date has been building awareness in mainstream America.

With minuscule marketing budgets, how do new companies gain mainstream traction?

david

I actually think the Web 2.0 thing is no different from 1.0, except that it takes less money to launch a business. There will be many companies that fail to meet the needs of a sufficient number of users, but there will be 3-5 companies (maybe more)that fundamentally change the Web. I genuinely believe another Google will emerge.

David

Zach Chandler

Too soon to judge.

I believe that we are riding a wave that is still taking shape. All these new services, while amazing in what they offer, are still too new to accurately reflect what is happening on a macro-level. I think we will have reached Web 2.0 only when Tim Berners Lee's vision for the Semantic Web comes to fruition. There are multiple projects currently under development that we aren't even aware of yet, and the market isn't the only benchmark of progress.

noomerikal

I believe your observations are accurate on one hand but how do we know that these 2.0 companies are not being built to flip to a larger entity (yahoo, google, etc)? It's not completely necessary to gain mainstream traction to achieve that form of success.

alienjazzcat

blah blah blah..
write some damn code.. all this BLAHGING creeps thing along in so clumsy a fashion

Chris Saad

Manual Trackback!
http://www.touchstonegadget.com/blog/2006/05/audience-of-53651.html

David Dalka

Great post that reminds us of the importance of true customers and looking past your inner circle!

Pau Lowell

Hey Josh,
you said it! As one of your first investors in Infonautics (wasn't that pre-www?) and one who is sheparding a pc/mobile consumer app to market now(netomat), complexity and confusing GUI's really discourages users. I might also add, that standards e.g., J2ME and MIDP 2.0 aren't standards at all unless everyone implements them as defined. maybe we need more programmers with backgrounds in gaming and not enterprise software!

J

I totally disagree about Myspace.
Everyone and there mother is on it. Facebook is another. You don't get to 80 million without everyone knowing. Myspace is in the news, on reality tv shows, on talk shows, always on the radio, etc..

I just hope people enjoy playing our Backgammon software. It seems like all these websites which land funding are rather strange investments. There only hope of generating a ROI is getting picked up by google, yahoo or another large internet company. But hey, it's worked so far for them, there the ones with the billion dollar funds...

Best
-J

iKarma

Getting reviewed by TechCrunch may not be a reason to start test driving Lamborghini's, but the free advice and constructive criticism you get from TechCrunch readers after a review can be invaluable to your success. After iKarma.com was reviewed ( http://www.techcrunch.com/2005/10/03/ikarma-has-potential-to-be-huge/ ) I got hundreds of emails with suggestions that have helped us make iKarma.com a more valuable service. If I had to pay for the time each writer spent checking and reviewing our service, it might not buy a Lamborghini, but it would easily buy a VW.

Brian Solis

Truly this Web 2.0 phenomenon has spiraled into several camps. There's the dotcom 2.0 and then there's Web 2.0 as the idea of evolving beyond static to interactive design; implementing all of the available new tools and philosophies to more effectively engage visitors/customers and communicate with them.

Truthfully the Techcrunch crowd is the lunatic fringe, but they can help any start-up gain momentum for interacting in the realworld. If you're marketing a site/solution, remember who your ultimate audience is and reach out to them through "their" channels of influence.

Narendra

I think you are stating the obvious. Techcrunch is simply a marketing vehicle useful for startups in much the same way a software development firm would have wanted their product reviewed in PC Magazine.

Most people don't even have a clue what gmail is.

Todd

On one side I want to say "yeah but... yahoo and google were once techie/geek products, too"

And the other side agrees because I can't for the life of me get my friends to switch to Flickr. I try over and over, post all my pics there,,, and yet after every weekend I get links to Snapfish. Makes me wanna puke.

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Marcus Stock

Great perspective. We just posted a blog about the same topic (www.tekfobia.wordpress.com) and someone immediately emailed me yours. We've been looking at this phenomenon for the past several months, and had heard the number of 300,000. Either way, it seems clear that there is an "inside the Beltway" attitude in technology. While it seems most concentrated in the Valley, this state of mind has disciples from Redmond to India...

Juan Zamoro

It's great to find something different from SV in the USA. It is the first step to think in web business coming up outside american boundaries... What do you think/know about foreign start ups?


Someone said not all services with 50K users will become Google or Yahoo companies...

What minimal base do you think is necessary to go on with the business? What about percentage of payment users? (if proceed)

Larry Chiang

Josh,

Hey, what's TechCrunch?!

Kidding aside-It's really not one or the other but BOTH. Attracting both the 53,460 and middle America.

Appeal to only the mall crowd and Silicon Valley shuns you. Get the "wow" cool response from a VC who never watches TV and you're bound to confuse a non M.S. of Engineering pedigreed user of Duck9.

It's a balance I wish I knew how to achieve.

Larry

Nora McCauley

Web 2.0 is all about apps. With the exception of the audience much-discussed already, people don't care about apps. People care about themselves, their families, their lives. Remember Compuserve? An app. Appealed to early adopters. Why would you question having an assigned, hard-to-remember number as your email address? You wouldn't, until AOL came along and let you pick your own email address. And what did people pick? Their names, nicknames, pets' names, things that they (and friends, and family members) could relate to. But AOL wasn't the "real" internet, the geeks said, it would never take off. Hm. AOL ended up buying Compuserve. Why did it win? Because it worked hard at being relevant to people's lives. You can run a successful small business; there's nothing wrong with that. You can develop a business with the intent to sell it to a larger company; nothing wrong with that either. But if you truly want to be a mass-market, mainstream company, you can't think "app." You have to think "people."

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