Internet Entrepreneurs Blog

Since for many families Friday is movie night I thought I’d talk about one of my favorite internet-enabled companies: Netflix. Netflix delivers movies to customers through the mail under ongoing subscription plans starting at just $10 a month for one movie at a time. There are no late fees meaning customers can keep movies as long as they like and return shipping is included with each movie delivery.

Like most folks I used to rent movies from the local video store but I found the process frustrating - but not for the reasons you might think. In terms of convenience the video store can’t be beat: my last two homes were less than a mile from at least 3 or 4 Blockbuster franchise locations. I don’t watch a lot of movies (maybe two or three a month) so the cost of renting videos wasn’t an issue - I’m paying about the same amount with my subscription plan. Availability at the big video rental chains was generally good, especially following the innovative video lease agreements pioneered by Rentrak in the 1990s. But I digress..

Nope, for me the issue has always been FINDING good movies at the video store. Like most folks I would cruise the outer wall for looking for new releases and often leave with nothing when I didn’t see any familiar titles. Finding specific movies was even more difficult - is Indiana Jones in the adventure or comedy section? And when would the newest Indiana Jones movie make the switch from the new releases wall to its proper category section? (it seemed some movies were new releases for more than a year).

The point of all this is to say that Netflix has revolutionized the way I find and rent movies (though the finding is the real killer app for me). Finding a particular film is as easy as using the search box on the site and sorting movies by highest rated (rather than alphabetical) is a great way to find new releases you may have overlooked. The recommendation functions at Netflix are even more revolutionary since each movie recommendation is based on what Netflix thinks I might like rather than on a pimple-faced teenage worker’s recommendation at Blockbuster.

Of course online video rentals will be (are) the next big thing but it doesn’t really matter. Netflix used the power of the internet to transform an industry using existing technology (mail, plastic DVDs) rather than wasting money on pioneering the next technology. Sure, streaming video technology is coming along and broadband penetration is finally at a point where this starts to makes sense - but today it’s a lot cheaper and easier to do that it would have been just a couple years ago. In the meantime Netflix has built a huge user base and honed its recommendation engine to work well no matter the delivery medium.

Sometimes entrepreneurs need to take short-cuts to get to the ultimate goal; other times existing technologies still haven’t been fully utilized and optimized. Either way, we’re talking opportunity - the fuel of entrepreneurial dreams!

One website I look at virtually every day is Digg, a social news aggregator that allows members to recommend (or “dig”) content from all around the internet. Each day the Digg algorithm selects the top stories based on member recommendations and displays links to the articles on the homepage. Members can also comment on the recommended articles and oftentimes the comments are just as interesting as the content itself.

Digg started out as a site used mostly by internet ‘geeks’ and as such the top stories tend to reflect the tastes of the members (which is perhaps why I like it so much). It’s not uncommon to see articles on Apple, web design, and the latest XBox games make it to the front page, though as the user based becomes more diverse these types of articles are becoming less popular on the site. Still, Digg is dominated by a specific demographic that tends to recommend articles that are not necessarily ‘mainstream’ and those users continue to fight for their voices to be heard on the site.

The whole idea of a user-generated ‘news’ site is a great one but it still hasn’t really hit the mainstream like Facebook or even YouTube. Unlike Facebook or YouTube, where I argued niche version of the sites are counterproductive, a niche version of Digg could make sense for certain user groups. Take politics for instance: It’s safe to say the majority of Digg users are left-leaning and as such the top news on the site is chock full of articles sympathetic to the Democratic cause. But what if you’re a Republican? Where do you go to find the best articles on John McCain (other than Fox News )? You need like-minded members to help you find the articles that fit your interests and unfortunately, Digg is not the place. Digg is working on integrating social features to help solve this problem but it’s still a long way from working the way it should.

I suspect that some news sites like CNN.com are already employing ideas gleaned from Digg like using news item popularity to populate the home page. For instance, an article on Brittany Spears may start near the bottom of the page but after CNN editors see the story is receiving more views than ‘hard hitting’ news stories they may decide to ‘promote’ the article.

Is there a large demographic that’s being ignored by Digg that should have its own social news aggregator?

A friend recently asked my opinion on building an online version of her company’s print magazine - a virtual “flip book” or “e-magazine” that would look just like the print version. Of course I told her it was a bad idea for all these reasons:

• People read magazines because they sometimes prefer a more portable, tactile experience than what is available online. At other times people prefer the online experience because it’s fast, interactive, and ultra current. Trying to bring one experience to the other medium is a losing battle - and don’t think folks haven’t tried to go the other way as well. Anyone remember Business 2.0 magazine? Shortly after they redesigned the print edition to look more like a web 2.0 site the magazine folded.
• Most online magazine / catalog implementations are simply scans of printed pages meaning rich text content is locked away from search engines in big image files. Without search engines reading your content it’s unlikely anyone else will ever find it.
• Some digital magazine / catalog implementations require a browser plug-in just to view them meaning you’ll be limiting your audience right away. A PDF version is probably the most innocuous (though still annoying) but we’ve even seen some e-magazines that require a special browser plug-in that no one has ever heard of. Internet browsers weren’t meant to act as magazine readers - though perhaps the Kindle will one day fulfill that need. Until then, build the online version of your magazine using web standards.
• The most successful print publications that have added digital distribution (NY Times, Wired) are good examples of what an online magazine should look like. For digital catalogs just consider this - what is an e-commerce site other than an interactive, digital catalog? Check out Amazon.com just to get an idea of the possiblities!

In 2008 the whole idea of a digitized version of a print magazine or catalog is pretty laughable. The internet is here to stay and the existing base of web standards is amazingly flexible for doing pretty much anything you can imagine. Don’t waste time making a literal translation of your offline publication for the web - embrace the medium and watch your business grow!

Just thought I’d follow up my first post about Cuil by adding more fuil to the fire (get it, fuel?). TechCrunch is reporting that some webmasters are experiencing crippling web traffic from the Cuil spider. We haven’t noticed anything on our sites yet but we have had problems with poorly crafted web spiders in the past.

Last year it was the Limelight Networks spider that was causing problems with our analytics, logging unique visits hundreds of times each day and only viewing a single page at a time. This went on for weeks (if not months) before we caught on and we contacted the company to fix their spider. Of course this didn’t happen and we eventually just filtered it from our analytics while the spider continued to suck server resources.

Anyway, sounds like it’s one more nail in the Cuil coffin - who needs a new Google anyway?

Along the same lines of social network ghettos I wrote about a couple years ago, there are still thousands of  websites trying to be the YouTube for fill in the blank. “The blank” could be adrenaline sports (BroadbandSports.com) or Christian values (GodTube.com) and everything in between. Heck, there’s even a pornographic YouTube that’s actually one of the few successful incarnations but that’s another story

In this analysis I’ll stick to discussing BroadbandSports.com since it’s the video site I’m most familiar with but the lessons here are applicable to all the YouTube wannabes. The idea behind these sites is that niche audiences want their own place to share videos with like-minded viewers, something that isn’t possible with YouTube. Or is it?

YouTube already allows members to tag, rate, and comment on videos, making it easy for anyone to find what they’re looking for. For example, a mountain biker doesn’t need to go to BroadbandSports.com to find mountain biking videos - just type in ‘mountain biking’ and you’ll see YouTube has more than 39,000 videos (compared to a lower but respectable 800 videos on BBSports). Of course there is also a social aspect to sharing videos and YouTube has that covered as well with channels and groups which help segment viewers and videos into niche specific mini-sites.

BBSports faces an uphill challenge on the technical side as well. Processing and distributing online video isn’t trivial and the associated bandwidth costs can be excessive. The latest press releases from BBSports tout new features that allow folks to embed BBSports videos on MySpace and other social networks - a feature YouTube has included since its beginning years ago!

On the business side online video is still a fairly new concept and advertisers are still trying to figure out how to reach video consumers effectively. Even YouTube, owned by the internet advertising Goliath Google, isn’t a profitable endeavor on its own - not to mention the fact that it’s practically a lawsuit magnet for copyright holders. It seems the best finanical outcome for sites like BBSports is that someday they will be purchased by YouTube since all the money is in acquisition these days rather than in meaningful ad revenue.

For me video, like pure social networking, is an opportunity that is quickly vanishing for smaller internet players. While it’s still possible to start up a blog or a rich online community for your niche, I’d say stay away from video unless you’re prepared to slog it out with the big boys or you have a killer technological innovation up your sleeves.

Every entrepreneur needs a few good sources of new ideas and one of the websites we use is Springwise.com. At Springwise you’ll find dispatches on the latest ideas from around the world to stoke your imagination and creativity. The authors do a good job letting you in on new business ideas before they’re mainstream which often means huge growth potential for new entrants (imitation is the best flattery after all ) I subscribe to the weekly email newsletter but you can also get daily updates from the blog-style website.

Springwise has a sister website called Trendwatching that distills the overarching trends that connect many of the latest business ideas into a meme-rich monthly digest. I have to say I prefer Springwise since it leaves room for my own trend interpretations but Trendwatching is definitely a nice way to make sure you don’t miss the next big thing.

Last week I wrote about finding websites for sale and if you’re in the market, it’s important to understand the value of what you’re buying (or selling). Fortunately there are some online tools out there to give you an idea of a website’s value.

Most website valuation calculators use a combination of factors to evaluate a website’s worth: Google pagerank, daily visits, pageviews, domain length (shorter is better), # of backlinks, Alexa ranking, Quantcast ranking, etc. It often seems the more factors these sites take into account, the better the estimate. Still, these sites generally miss the mark since they fail to take into consideration factors they can’t measure (like e-commerce sales, subscriptions, email list size, etc.). One site we looked at gave Google an estimated value of $1.5B whereas Wall Street tends to value the site at $150B (100X greater!). Oddly, the same calculator said Yahoo! was worth $2.6B and one of our sites only $136 (we usually earn more than that on ads in a single day). Of the sites we tested one of the better ones was cubestat.com but your results may vary.

Still, perhaps the most reliable way to value any company (internet or not) is to use the cash flows the business generates to calculate the net present value (NPV). If the website earned (profit, not revenue) $10,000 last year and is growing 5% per year you can get a good estimate of the value of those cash flows over the next 5 years (roughly $40,000 at a 12% discount rate). No need for new math here just because we’re talking Internet businesses - good old NPV works just fine.

All of this is to say it’s important to do as much due dilligence as possible before buying ANY business, online or offline. Dig into the financials and you can come up with a good estimate for the value of any website!

It was all over the news last week - ex-Googlers launched a “Google-killer” search engine that was going to blow away the competition. Morning news shows picked up the story and curious netizens (myself included) flocked to the site causing it to overload in the surge. Co-workers at companies around the country stated “we need to optimize for Cuil” (seriously). So what’s the deal?

From a marketing and online traffic perspective Cuil is mostly a disaster (see the visitor estimate chart from Alexa above). Cuil did a great job generated buzz and PR but clearly people came, they saw, and they never returned. Surely the folks at Cuil expected the launch to kick start their site’s growth but when your product isn’t quite ready for prime time this strategy can backfire.

So what did Cuil do wrong? Here’s are my thoughts:

• Over-promised and under-delivered. The promise was the Cuil answered search queries better, faster, and more thoroughly than existing search engines. Based on my (and others’) tests it failed on all three fronts. Some searches returned zero results where other search engines return thousands; other queries returned strange and irrelevant listings at the top for simple keywords. On top of it all, Cuil was painfully SLOOOOW on launch day.
• Unprepared for launch. Clearly Cuil wasn’t prepared for the curious users who flocked to the site on the first day and this meant the site was slow or unable to load entirely. Bad first impression for customers who may never return.
• Terrible name. Come on - if you can’t afford “cool.com” then pick another name. I won’t remember how to spell your brand, I’m not sure how to say it, and I don’t understand what it even means. Seriously horrible branding.
• Unconventional layout. Yep, there’s a reason search engine listings aren’t laid out “magazine-style.” When folks are searching they’re usually in a hurry to get somewhere else and they’re not interested in curling up on the couch and perusing the listings before going to an actual website. Give users the relevant information with a minimal amount of scrolling and eye movement and they’ll appreciate your service (and perhaps return). The thumbnail photos are terrible as well and most don’t always come from the website that’s being listed. The WORST search engine user experience I’ve seen yet.

Those are the big problems, each one pretty much a company-killer in its own right. Of course time will tell if I’m right to pronounce Cuil dead on arrival - anyone want to take bets on how long it takes?

If you’re a webmaster who makes a living (or a part time living) through your website, imagine this for a moment: what if Google disappeared? How would it affect your business? As an MBA student at Duke we learned in business strategy classes that over-reliance on a single supplier or partner can be a risky proposition but on the internet in 2008, do we have much of a choice?

Don’t get me wrong, Google is great and I firmly believe the company tries to make good on its promise to “do no evil.” But consider this: What if Google stopped the AdSense program due to ongoing problems with click fraud - how would you monetize your website? Or what if Google started charging the market rate for Google Analytics - say $100 a month? Could you afford to keep using the service?

Even more frightening, consider the power the Google search engine has to direct traffic and customers to your website. We had a bit of a scare with one of our sites just last month when our traffic dropped from around 6,000 visits per day to just over 1,000. Sure enough many of our important keywords had dropped from page 1 to page 7 or worse. If things had stayed that way our business would have been ruined for sure - luckily everything was back to normal after about a day and a half.

E-commerce operators use Google’s Base service to upload products for Google’s product comparison shopping engine; companies and individuals rely on Gmail for critical email communications; Google’s AdWords program drives paid search traffic to millions of websites (though since this is such a money maker for Google I doubt we’ll see this go away any time soon).

The point of all this is to say it’s important to diversify your online partners and suppliers to maximize your business’s flexibility and ability to weather competitive threats. For us this has meant diversifying our ad placement beyond AdSense by partnering with vertical ad networks and shifting paid advertisements to Facebook and other platforms. Google still provides the bulk of our traffic and customers and we love all the free tools they provide - but it’s important to be cautious when relying on such a powerful market leader (as many eBay sellers can attest).

Rather than giving you a list of things to consider when choosing a web hosting service, I’ll keep this very simple: get a recommendation from someone you trust. Sure it’s easy to compare storage space, bandwidth, price, features, etc. among dozens of online hosting providers but you can’t quantify customer service and reliability which are arguably the most important things to consider.

We’ve been using the same hosting service, American Hosting, since 1999 (!) for our sites and we couldn’t be happier. American Hosting doesn’t have a super slick website, they aren’t the cheapest (though prices are reasonable), they don’t offer the most storage (but enough for most folks), and they certainly aren’t a big operation - and that’s why we like them. You can talk to them on the phone when you have an issue and unlike other services they don’t seem to have major turnover in support techs. We’ve recommended American Internet to all our clients and they have been extremely pleased as well.

Many years ago we decided to try out another hosting service (a Yahoo! branded option) and let’s just say it was a little too basic (and expensive) for our needs. If you’ve never built or managed a website you may want to stick with an option like Yahoo! but for most folks I don’t recommend it.

Anyway, this all comes back to my original point: get a recommendation, and not just from someone on a random internet forum. Find someone who knows what you’re capable of doing and what your needs are and let them help you find the right host. Everyone has different hosting needs and it pays to ask around until you find the web host that’s right for you.