As Seen On TV

Last week provided an interesting window into the future of advertising, on the Internet, TV and everything in between. At this years Upfronts, the annual ritual when advertisers sign-up for large blocks of advertising for the upcoming year, the decision by Johnson and Johnson and Coke not to participate sent waves of angst through the traditional media industry. According to J&J, the decision was driven by an interest in moving away from broadcast year budgeting to the calendar year budgeting, which, in theory, aligns with their business budgeting cycles. Regardless of the reasoning, the move is the first step in away from traditional TV advertising as the primary venue to promote big brands. As significant as this omission was to the TV advertising industry, Interpublic’s announcement that they would be committing ‘multi-millions’ of dollars to TIVO on behalf of clients--including none other than J&J--was equally as significant. The most interesting detail on the announcement, though, was the lack of detail, with Interpublic reps saying only that they would target ‘customized advertising opportunities’ to include ‘broadband and commerce capabilities’. Whatever the shape of the final campaign, its nothing that old fashion TV can compete with today. The reality that consumer-brand conglomerates, not exactly a risk-loving group, would forgo prime-time for the amorphous promise of ‘broadband and commerce capabilities’ must be deflating to networks and their ad execs.

Yet, despite the bad week, help may be on the way. Two companies in particular, Delivery Agent (DA) and Entertainment Media Works (EMW), are trying to bridge the gap between commerce and television. Both companies focus on integrating e-commerce and TV and do so by collecting a list of products from stylists and set designers for specific shows, which they then make available for sale on a branded website. Today, most of the selling is happening on stand-alone sites such as The Seen-On shopping guide, which DA launched with ABC in February. Seen-On has a microsite for most of ABC’s primetime lineup, some of which include fairly mundane fare such as the Dancing with the Stars box set. However, for some shows, the product offering is a bit more portentous with the likes of Gabrielle's Juicy Couture terry tracksuit worn on the April 30th Desperate Housewives. Sold for $164 through Neiman Marcus Online, ABC takes a cut each time one is purchased through Seen On. As it exists today, the arrangement sounds very much like an old-fashioned affiliate marketing model, and for networks, such convergence, albeit crude, is certainly a step in the right direction. When Interactive TV becomes a reality, we may see even more lucrative arrangement like CPC, in addition to what amounts to a CPA model today.

With $15mm of fresh capital from Bessemer, vendors like DA have their sites set even higher. In addition to their branded microsites, DA also offers something called ‘production agent’, which allows ‘on-set cataloging’ for all products worn or used on a show. The hook for producers is that it saves time and relieves them from what was previously a manual, paper-based process. During this cataloging, DA is also building up a database of all the products used on shows they work with. If things go according to plan, rather than just delivering marginal ROI as a time-saver, DA has the potential to become the ebay of product placement; a place where producers list all of their sets and scenes before shooting starts and where retailers bid to have their products included in the hottest shows. If they are successful, this technology has the potential to change how advertisers think about TV. Rather than wondering which 50% of their ad spend was wasted in the latest fall season, such a system could provide more detailed metrics on the correlation between product placement and sales. This ability to track the link between a dollar spent and a dollar earned is a large driver behind Online advertising's recent growth. If DA and EMW are successfull, in ten years time, the Upfronts may be more like bidding for a pair tickets online than the vaudville production they resemble today.

TV Advertising Marketplace Gains Momentum

Yesterday’s announcement of plans for a Nasdaq-like trading system to buy and sell broadcast media is an interesting concept that’s time has likely arrived. To date, the world of media buying has not played by the rules of transparency that reins in, say, the securities industry. However, even as Association of National Advertisers' National Television Advertising Committee (ANA) is in discussions with vendors like eBay and Google about managing the exchange’s infrastructure, there are already several vendors taking an exchange-like approach to the buying and selling of media in the online world.

Of these, Manhattan-based Right Media is most prominent and has come up with a model that allows them to sell software to networks and publishers who are interested in aggregating their inventory, while also taking a cut of each buy that is made through their exchange. Other vendors like Adbrite, Hyperbidder and Experclick have similar models. Experclick uses their SpotPrice real-time auction and pricing platform to break the fixed-price media sales model. Despite the inevitable naysayers, such an approach, whether for online or offline media, benefits both buyer and seller. Buyers only pay what they feel media is worth and sellers can theoretically reduce ‘house’ ads that generate no revenue. In the hyper-segmented world of the Internet, such a strategy works because it frees sellers from the burden of setting arbitrary prices, which, in reality, buyers are much more qualified to define. After all, how can a web publisher ever truly know what inventory on the Birdwatchers page in the Outdoor section of their site is worth?

Historically, television hasn’t faced these segmentation issues and the price for a 30-second spot on cable or a major network was something that you could pretty much take to the bank. However, in an era of time shifting, place shifting, and a deluge of channels and alternative media outlets, the value of a TV spot is very much in flux. The proposed ANA trading system, which is now slated to launch next fall with a test budget of $50 million, should help set objective value for TV media based on something both buyers and sellers can agree on: an open and free marketplace.

Microsoft Gets Behind the Numbers With Assetmetrix Deal

While Microsoft's acquisition of a small Canadian company called Assetmetrix (http://www.assetmetrix.com) is likely to fly under the radar of most industry analysts, it may be one of the more interesting and revealing purchases made by the Redmond giant in recent memory.

Assetmetrix provides on-demand IT asset management software that helps organizations inventory their hardware and software assets. The company will do somewhere around $5 million in revenue this year. Asssetmetrix provides several IT-management benefits to organizations including: Costs Analysis, which allows IT managers to ‘identify, harvest and redeploy’ software licenses that have been paid for but are not being used; Productivity, which is delivered through their library of over 300,000 software titles that can help identify malicious applications such as malware and p-to-p; and License Management, which allows a company to view all of their licenses and make sure they are in compliance with licensing agreements.

According to MSFT, Assetmetrix will be integrated into their existing tools, such as Systems Management Server (SMS) 2003 and offered for free to SMS customers to provide a ‘more comprehensive asset and license management solution for customers of all sizes.’ While this is certainly a magnamonious gesture by MSFT and a bad sign for other asset management vendors, MSFT did not pay $20 million to make their SMS customers a little happier. Rather, the Assetmetrix hook that pulled in the Redmond giant was the AssetMetrix Research Labs (AMRL), the company’s research arm that collects generic data about software usage within the enterprise.

Despite the company’s relatively small size, AMRL has become a reputable third party information resource on what kinds of software companies are using on their desktops and in their datacenters. Often quoted in sources like the New York Times, Wall Street Journal, and eWeek, a typical AMRL report will, as an example, discuss the decline of windows 2000 installations in enterprise environments over the last two years (52% to 48% in case you were wondering). Not exactly headline grabbing stuff, unless you an IT geek or a major shareholder in Microsoft.

Today, AMRL pulls data from roughly 750,000 computers that run Office. By distributing Assetmetrix free to some portion of their customer base, Microsoft will collect a tremendous volume of valuable data on the state of the corporate software world that makes the $20 million price tag worthwhile 10 times over. For a company that is struggling to convince the street that there is growth left in their story, the data Microsoft collects through AMRL may help them separate the noise in the marketplace from the reality in the workplace, more strategically prioritize development initiatives, and, if not help them grow, at least help them stave off the endless line of competitors looking to chip away at their numerous market shares.

As for AMRL, ‘impartial’ and ’third party’ no longer apply, and it will be interesting to see how Microsoft uses their data within the technology press.

The World is Fat...and Well Cared For

The recent IPO of Baltimore-based Visicu was the first significant healthcare IT related IPO in the last few months, and public appetite for the offering was strong, with first day prices rising almost 25%.

Visicu offers remote monitoring capabilities to hospital Intensive Care Units (ICUs) by providing software that streams video, audio and data feeds for specific patients to remote intensivists or cirtical care nurses who can monitor patients for adverse events. The company’s Smart Alert system can also monitor for changes that, based on the company’s proprietary decision support rules, can trigger alerts based on certain changes of condition. Using the system, one intensivist and two ICU nurses making virtual rounds can effectively monitor up to 100 ICU patients, almost a 10x increase over what the same group can do on their own.

While an encouraging sign of life in the Healthcare IT market that has publicly been fairly stagnant since the days of WebMD, Visicu’s success and appeal is more driven by the lack of certified healthcare resources in the U.S. than by some untapped new frontier in e-health. According to the company’s S-1, there are approximately 6,000 board certified intensivists in the United States, an estimated one-quarter of the number needed to cover all ICU beds in the country. Visicu’s solution is appealing because it allows for scale in a previously unscalable activity, lowers costs, increases bed turnover, and, most importantly, saves lives. According to the company, use of their systems can reduce mortality rates by up to 30%, a percentage that translates into 54,000 lives annually. While former starts-ups like Google and others have undoubtedly had an impact on how we live, even on their best day, there are few technology companies that can lay claim as to whether we live.

On the flip side of this karmic technology tale is Bronco Communications a California-based call center technology solutions provider that has gotten some ink lately as the result of their roll-out of a beta program with local area McDonalds to move drive-thru order taking out of McDonalds and into their 50 seat call center facility. Since going live in January, Bronco has used their VOIP-based system to take over 150,000 orders, charging McDonalds .28 cents per transaction.

Much like Visicu, Bronco provides scalability in a process that previously lacked scalability. During peak hours, each Bronco agent can take up to 95 orders; a significant increase over manual levels. Additionally, like Visicu, Bronco touts the benefits of increased customer satisfaction and corporate compliance as their agents properly greet customers and more effectively manage corporate process and procedure, ie, letting patron’s know that they must ask for condiments, rather than assuming. Unlike Visicu, though, the market opportunity that Bronco is trying to carve out is not the result of limited resources. Bronco’s agent profile is that of a typical call center employee—minimum wage, no health benefits, and abundant supply.

Regardless of the profile and level of training required by the human’s being scaled by Bronco and Visicu respectively, both companies represent business models facilitated by the ability to transmit large amounts of data over the Web with a high degree of reliability. In Visicu’s case, it is literally a matter of life and death, whereas in the case of Bronco, it may just be a matter of extreme obesity. Both instances, though, are noteworthy realizations of the Flat World as coined by Tom Friedman where human resources can use technology to do things more efficiently than previously imaginable in places we never thought they would.

India's New Old Thing

While Bessemer’s $23mm investment in Indian construction and engineering management company Shiriram (http://www.shriramepc.com/) may seem like an anomaly given the IT focus typically associated with the firm, it really is a bet on the long-term growth of Inida’s IT industry.

As anyone who has been to India knows, the infrastructure there is reliably unreliable. Even in the swankiest of five-star hotels like the Leela Palace, power outages are an accepted part of doing business. To date, the large outsourcers that have defined the first wave of Indian growth, have gotten around this reality by building their own walled cities, equipped with self-contained power generators and buses to ship their employees to and from work each day. However, as India becomes more of a market unto itself, start-ups like travel site Cleartrip and other Web 1.0 business models, are beginning to attract serious financing from U.S. based venture capitalists. Amidst this growth, demand for old-school infrastructure like power and metallurgical plants, two of Shiram’s core competencies, will likely outpace even the most outlandish revenue projections of India’s next New New thing.

As one of a growing number of VCs having committed to ‘India’ as a strategy, through their investment in Shiriram, Bessemer is hoping to shore up the foundation for web 1.0 and 2.0 start-ups that can’t afford their own walled city just yet. In the meantime, they are getting 33% of a company that is projecting $345 million in 2006 revenue and whose growth prospects are about to bolstered by a swarm of return-hungry U.S. VC money--their own included.

Elizabeth in Winter

I know we are about to move into spring, but I would be remiss if I didn't include one picture of my daughter Elizabeth during the Winter. It was her first winter and my most enjoyable to date. As you can see, this picture is also the source of my profile picture.

Based on her relentless pursuit of my cellphone, laptop, blackberry, and the TV remote, she seems to have an early interest in technology, at least technology that she's not supposed to get her hands on. Updates to come...

A Hungry Public?

Local Matters is an interesting IPO data point in the local search and online advertising space.

In looking through their s-1 (http://www.sec.gov) the company only shows $8mm in 2005 revenue with a loss of over $18mm in their core business of licensing software that helps phone directories move their listing online and monetize through local advertising. They made a couple acquisitions, which brings pro-forma revenue to just above $20mm, but still seems like a pretty low IPO bar.

While I continue to hear about how hard it is to get liquid in the U.S. public markets, several companies like Local Matters have had successful IPOs, including on-demand software vendor Vocus, who went out with just over $20mm in annual revenue.

For VCs, this is great news, and offers some hope that the public appetite for software companies in the right markets may be growing.

Deal or No Deal

I have lately begun to watch NBC's 2nd best show (behind the Office), Deal or No Deal. Hosted by Howie Mandel, formerly of inflatable plastic rubber gloves, the show involves 24 models holding cases each with dollar amounts ranging from $.05 to $2,000,000. The contestant determines his or her prize by choosing which cases to 'take off the board'. The goal is to choose the cases with the lowest dollar amount and be left with one case containing the highest dollar amount. As cases come off the board, a 'Banker', who is shrouded in the shadows of an office above the game floor, intermittently offers the contestant a dollar amount to walk away from the game. Theoretically, that amount should equal some risk adjusted value for walking away from the chance to win the biggest amount left on the board.

'Deal or No Deal' is a good analogy for the VC world and lately it seems like all the cases coming off the board are small numbers and the 'Banker' is delivering valuations that are higher and higher. Often times the risk/reward equation makes sense, as there are some legitimate and good companies out there today with huge market opportunities. However, amidst all the large numbers, some less than impressive business are soliciting offers from VCs where the risk does not offer adequate reward. While some of these inflated valuations are being generated by companies playing in white hot sectors like online advertising and e-commerce, others are simply the result of bloated capital structures where previous VCs are looking to protect legacy investments. Neverthless, lots of these companies are getting funded.

While deal-hungry VCs are happy to find a place to store their capital for now, the long term effect on IRRs will not be pretty for undisciplined investors. In a few years, it may be the LPs that are saying 'no deal' when the vintage '04, '05 and '06 funds go out to raise capital with less than impressive results.