michael arrington @ fowa feb 07

The Magic Formula

Michael Arrington

February 2007

Topics

• Market Timing

• Key Factors

• Areas of Opportunity

Looking Back At 2006

Was 2006 a “healthy” year for the web, orwas it the beginning of Bubble 2.0?

$600 million in venture capitalwas invested in “Web 2.0”

startups in 2006.

…Bubble?

However, a single acquisitionwas completed for $1.65 billion,

paid for in cold, hard Googlestock.

Nearly 3x the total amount invested by venture capitalists

Not Yet

Facebook was almost acquiredby Yahoo for $1.62 billion.

MySpace generates $25 millionper month in advertising

revenue.

My Point Is…

We’re just getting started.There is nobubble. And the best Internet apps arestill to come.

What To Focus On

1. Have a good idea!• Invent a market• Destroy a market• Remove Friction

2. Have a business plan3. Have a revenue model4. Build it cheap, test the waters5. Avoid high burn rate

However

1. Threw away their original businessplan and one founder bailed out.

2. Flaunted international copyright law.

3. Had no revenue stream.

4. Was spending $1m/month inbandwidth.

It worked because…

1. They removed friction by providing amuch needed service - IPTV (not usergenerated video clips).

2. First to market.

3. So much growth that money poured into cover burn rate.

Case Study: MyBlogLog

1. Launched October 19, 2006

2. Acquired January 8, 2007

3. Never raised a venture round

Case Study: Amie Street

1. Launched mid 2006

2. Three university students

3. No capital raised

4. Can do to music industry what Diggdid to news industry

Case Study: Jingle Networks

1. Free business information (411)

2. Has taken 3+% of U.S. market

3. Forced AT&T to compete

4. UK opportunity?

Shared Attributes of Winners

• Passion for what they are doing

• Doing Something Extraordinary

• Removing Serious Friction

• Great Founder Dynamics

• Never Raised Big Money, or Raised It After They Won

• Perfect Revenue Model Not Required

• Had a lot of buzz about their product early on (free marketing)

Shared Attributes of Losers

• Poor Founder/Team Choices

• Lifestyle/Ego Entrepreneurs

• Raised Too Much Money

• Spent Too Much Money

• Over Business-Planned

• Forgot About Scaling (Don’t be Friendster)

• Had to try too hard at marketing

The Buzz Factor

To be successful you must create buzz aboutyour product:

• Solve a real problem• Do not be the 200th video sharing platform

– Instead, be Aniboom

• If you don’t have a blog, start one now• If buzz isn’t happening, seriously rethink your

product (not your marketing)

Areas of Opportunity

1. Offline/Online• Apollo• Firefox 3.0• File system + html/flash/ajax

2. DRM and Music/Movies/TV3. Data and service portability (teqlo, ning,

pipes)4. Mobile

Discussion