Web Services As TV Shows

One thing I've been thinking about in the past year is the growing faddish nature of the web. The Time Magazine Top 50 got me thinking about this again. They have three lists; the 50 "Best" websites, the 25 websites "we can't live without", and 5 websites to avoid.

When you get on the Top 50 list, your goal is to move up to the "can't live without" list like digg, delicious, Flickr, YouTube, and Facebook did. But it can also go the other way, like MySpace did, from hot to not in a year's time.

I read a post on IP Democracy last fall that compared web sites to TV shows, they launch, they get popular, they have a run, and then they are over. That's a scary notion if you are investing in a venture deal. I guess there are some TV shows that produced venture scale returns. And I don't know enough about the economics of the TV business to be intelligent about this comparison, but it just seems like VC is the wrong economic model if web sites are in fact TV shows.

Now the "can't live without list" has some properties on it like Google, Cragislist, Amazon, Facebook, Wikipedia, etc which are not at all like TV shows. There are clearly web services that have staying power.

But surely there are many more that don't. There are a number of services on the Top 50 list that I am a big fan of, some of which we've invested in and many more that we haven't. Services like last.fm, Etsy, Twitter, Tumblr, and LinkedIn are on my personal "cant' live without" list. Will they move up and on to permanence? Or will they fall back and end up as TV shows we loved and moved on from?

And the Facebook apps situation is even worse in this regard. How many Facebook apps will come and go versus how many will stick around for the long haul?

The cause and effect of this trend is clear. It costs a lot less to build a web app these days. So thousands get built every month. Most don't even develop an audience at all. Some build an audience for a while. Very few build an audience that lasts for the long haul, whatever that is.

Those of us who invest in the consumer internet need to pay attention to the reasons that some services are "TV shows" and others are not. This post is too long to get into the factors that differentiate the two but I have my thoughts on that and will address them in another post.

Comments

[Don Dodge]

Fred, Excellent thought. The trick is how to predict which new hot web app will have staying power.

Most new TV shows run a season or two. Hit TV shows usually run for 5 years max, some of the truly great ones will stay on for 8 to 10 years. When you are "inside the tornado" it feels like it will last forever. It doesn't. Maybe it is better to be a second round investor in these hot web apps even though the returns are lower.

It seems to me that web apps that build a social community, and bring lasting value to that community, will have a good long run. These would be good candidates for seed/first round investments.

It is obviously not as easy to identify winners as it sounds.

Don Dodge

[David Lapeze]

"...reasons that some services are "TV shows" and others are not..." can be found in your statement "...it can also go the other way, like MySpace did, from hot to not in a year's time."

Popularity is a social construct that carries the value TV shows, bands, books, websites and all other pure content plays up and down. MySpace is still the dominate player in it's space but it's perceived popularity is waning because of statements like the one you made above and from the many other pundits in this space. (PS I have not ties to MySpace or Facebook).

These popularity waves are what happens to pure content plays. Every now and then TV shows, music, movies and books catch lighting in a bottle (CSI, The Baha Men, Pirates of the Carribean, Harry Potter). The same laws of popularity will help the big winners and hurt the current kings of the hill. Tastemakers are a powerful force and you will hate them and to love them depending on how they affect the bottom line of your investments.

[Charlie Gower]

Interesting points gentlemen.
I would like to propose (ironically) that it has something to do with investment, in terms in personal investment - building something.
If you live in a house and pay a mortgage you will keep adding small things to the house to make it nicer / more valuable (Facebook).
You like the house but could sell it at any point. If on the other hand you are building a house (Delicious) you simply cannot walk away. Of course the clever thing about delicious is that the house will never be built. I am looking for things to build.

[Chris]

The idea that the rise and fall of web properties has some dire consequences from the point of view of the customer, no? Imagine the people who invested the time and effort to build out their profile on MySpace, and while it's not dead (at the moment), they may feel a bit of envy/lust to switch to FaceBook. And then what happens when FaceBook starts to decline (assuming an heir apparent)?

If more of these rises and falls occur, will people become more hesitant to invest their time and effort in building out their content, which in turn makes future web apps/social media less likely to see explosive growth? (sorta like hesitation about switching home movie media formats 8mm > vhs > vcd/laserdisc > dvd > blue-ray/hidef > ? )

No point to this post I guess. But what if somebody built a content repository site/app? Then members direct their content and data out to whichever outlet becomes popular via feeds or widgets? A kind of central location for your content (videos, blogs, photos, etc).

Swtiching from MySpace to Facebook would take a couple of clicks (assuming the capability is there) and your content is fed from your storage location, into (or just referenced by) FaceBook...

Bah, no social media company would go for allowing that... why build in an easy mechanism for users to leave your site?

Rambling at this point.. apologies.

[Robert Seidmanr]

David L. is certainly correct if you put any stock at all into Nielsen//NetRatings new rankings based on "minutes of usage". MySpace was still on fire in May according to this.

Based on this metric, they have Fox Interactive (which is 96% made up of MySpace in terms of minutes of usage) ahead of Google though this doesn't include YouTube, which would place Google back ahead.

YouTube was #10 on the list for may with 2.1 BILLION minutes. Facebook: not in the top 10.

By these metrics AOL is #1 again. It seems like old times.

You can see the release at:
http://www.netratings.com/pr/pr_070710.pdf

[Tim Peter]

Fred,
How many of these folks are building a website vs. how many are actually building a business? Drucker liked to say the main function of a business is to create a customer. Some sites on the Time list, like eBay, Amazon, BBC, Google, (hell, even del.icio.us), address fundamental needs for customers and continue to improve their offering.

Some (MiiStation comes immediately to mind) don't seem to offer customers anything compelling in the long-term. Sure, it might be a hit show this season, but I'm pretty comfortable that it will be gone down the road.

The middle ground (Facebook, MySpace, etc.) are tough to call - which I think is part of the point you're trying to make - because they've yet to demonstrate their ability to create a customer. I'd argue that social networks don't create customers. Their customers do. Ebay probably set the stage for this, while Yahoo Auctions demonstrates, if not outright failure, certainly what happens when you don't win the top spot. The one or two social networks that will capture that top tier will be the one that provides the best platform for their customers, luring others to follow. Facebook's apps provide it the early lead. But this race is far from over. The DIY set, like Ning, may be the horse to bet on.

[Jo Schlegel]

Since work has become modular, granular, and even disposable, then of course org shouldn't be far behind.

TV is about syndication. So is social Web.

VCTV has to be about the lineup, not the show. How else can you manage that volume of deal flow?

If VC isn't the right model for the open-source world, then what would open-source VC look like? Could regular people have a piece of it?

[William Ryall]

Interesting post. Although I don't necessarily agree that you have to find those with staying power to turn a profit.

You just need to be able to identify which companies are TV shows and which aren't, that way you can sell the shows at their peak and keep the ones with true staying power.

But I guess it's a nicer feeling to pick a long term winner than sell off a company you know will be a dud.

[Tim Peter]

William,
You could just as easily buy every combination of lottery numbers, hoping that the big winner covers your costs. What you're suggesting isn't investing. It's gambling.

The companies that haven't achieved staying power probably haven't achieved profits in the short run either. Selling off the "shows" at their peak assumes that their peak equals profits. Many failures of the dot-com bust never generated enough revenue to cover their investment costs.

[jackson]

Services that actually provide a service, like Google and Amazon, will last because they have a value beyond simple amusement. YouTube, Flikr, ect are prone to the whim of pop culture, and thusly their popularity is more difficult to sustain.

[P4aC]

I think facebook plug-ins will be a story of basic evolution, similar to the sites that have staying power. In its initial stage people will be trying new things, and there will be an abundance of them. But as time goes by, the apps will evolve and eventually some of these applications will die out. For example slide intially got popular on myspace, and evolved a little and now has staying power. The weaker ones that have proved to be a little unnecessary have died off. It's almost like forming a dynasty. With only, the "dynasty" timeline is shorter, bcause of the nature of online. But eventually as time goes on, Google, facebook, and certain facebook apps. will have "Price Is Right" type dynasties and will stick around for a long time.

[Crawford]

Welcome to the world of Fashion.
Another real world data point re: MySpace vs Facebook. I just returned from a morning orientation on the country's largest college campus. The first morning session included a live survey of social site usage among all students in the audience. 61% use FB; 3% use MS. That's among incoming freshmen. As of this morning.
Have a good weekend.

[Steve Kane]

Two comments:

1) VC is and has always been and always will be exactly like TV, or show business -- a hit driven business almost entirely driven by luck and guessing, with a small (tiny) minority who either thru magic or skill or DNA seem to defy the odds (Kleiner Perkins, Roger Mcnamee, Steven Spielberg, Aaron Spelling).

A portfolio of startups is just that -- a portfolio -- and is managed as such (by smart investors anyway), just like smart TV and movie execs and top talent manage portfolios of films, Tv shows, etc.

And the results are remarkably the same: less than 20% of investments/shows succeed, but the successes can and often are big enough that the failures are an acceptble cost of doing business.

2) The web is, has always been, and always will be about creating "hits" and milking them while one can before they inevitably fade.

Fred, I'll wager that in 10 years -- no 5, no 3, no 2 -- some or even most of the names on your list of seemingly unassailable properties (Google, Cragislist, Amazon, Facebook, Wikipedia) will be gone and forgotten. Just like the names from a ew short years ago that at the ime seemed so unassailable:

Excite@Home
GeoCities
Tripod
SonyStation
Microsoft Sidewalk
Lycos
Tripod
NBCi
Go.com
Sportsline
etc...........

BTW, this is cause for celebration -- unlike previous eras, in which huge entrenched interests with oligarchical like control over media channels and the like could dictate what we got and when, in this era the forces of "creative destruction" seem truly unleashed. of course, those huge oligarchs are still mostly immune -- the same companies dominate our media now as did before the web, e.g. News, Sony, Microsoft, NBC, TimeWarner, Nintendo, EA, Comcast, Verizon, Goldman Sachs, Allen & Co, etc -- but hopefully the beginning of the process of the eventual erosion of their total dominance is at hand.