New York VC

Could Twitter be the next Pointcast?

Today's news that Facebook has acquired FriendFeed has me wondering whether Twitter could be the next Pointcast.  My guess is almost every Twitter user has a Facebook account already and assuming Facebook executes well (big assumption), FriendFeed affords them an opportunity to develop new features and functionality and tighter integration over time that could eat away at Twitter's user base.   

Some of you may recall Pointcast, the immensely popular and incredibly hyped push technology for news and content.  I'm notgoing to get into Pointcast's entire history but if you're interested read the Wikipedia profile here http://en.wikipedia.org/wiki/PointCast_(dotcom).  In summary, the following happened:

- Pointcast's push technology was all the rage and a user base developed that on a relative basis is larger than Twitter has today

- The media elevated Pointcast beyond the reality of what it had achieved in its short life - similar to Twitter

- An offer was made by News Corp. to acquire PointCast at a similar price to the rumored offer by Facebook for Twitter and promptly turned down (to be fair Twitter was rumored to be offered stock only)

- Pointcast started having technical issues keeping the service functional and tired out its user base over time; Twitter continues to be plagued with similar issues

- After numerous missteps Pointcast essentially disappeared as more relevant offerings came to market to provide the content users craved

The big question of the day is did Twitter peak too early?  Should they have sold at the height of the buzz?  Over the last 2-3 months I've had several agency execs tell me the Twitter craze is dying down with brand marketers and they're advising clients to not spend much of their marketing dollars around the Twitter ecosystem.  

There are many differences between Pointcast and Twitter (too many to name) that could lead to a better result for Twitter but I can't get Pointcast out of my head every time I think of Twitter. 

Who knows what will happen from here but I'm very interested to see things play out as a bystander. 

NOTE: AS I PUBLISHED THIS POST ON TYPEPAD I RECEIVED THE FOLLOWING MESSAGE:

Attention: Recent attacks to Twitter are affecting the performance of our 'Share this Post' feature. TypePad is working with Twitter to remedy this issue. Thank you for your patience.

COINCIDENCE OF THE DAY!

Build a Company, Not a Product or Cool Feature

Over the last 18 months at Greenhill SAVP we've seen an alarming increase in the number of business plans claiming to be the next big thing in web 2.0, social media, mobile (fill in your own "hot" space here).  It's really beginning to remind me of the last time this happened in our industry - 1999. 

It's always a bad sign in our business when entrepreneurs are:

1.  pitching unproven products or platforms they're planning to build in order to leverage other unproven products or platforms. 

2.  pitching businesses that really only offer a product feature that should be part of an existing product at an existing company. 

To cite a general example without calling out any specific companies - online video has seen tremendous growth with YouTube as the clear market leader so far in terms of usage.  Despite YouTube's impressive usage Google is still trying to figure out how to monetize the platform and hasn't gotten very far to date.  Many other video sites have seen good usage rates but have little revenue to show for it so far.  Users (eyeballs in 1999 vernacular) are not enough to make a real business.  Having a better video player, a different method to package ads or a viewing feature that's new doesn't make a great company or investment opportunity.  Sure 2-3 of these companies may see successful exits to larger companies in a frothy, bull market but that's not a formula for success. 

We like to call these momentum plays in our shop.  Google, Yahoo and others have made a number of small acquisitions of companies that I would call momentum plays.  When the market is hot and stock prices are rising that's what happens.  Luck and timing become the most important factor for success during these periods.  Some VC funds are masters at taking advantage of momentum and buzz to create value but this isn't a sustainable model for our industry and will end up hurting entrepreneurs and the VC industry in the long run (I'll save the reasons why for another post).  In normal markets (70-80% of the time) companies create value by growing revenues rapidly and producing significant cash flow or having a clear path to producing significant cash flow (see Microsoft, Google, eBay, Amazon, Cisco, etc.).  This applies to every industry - not just technology.  At the end of the day, a business is a business and it must produce sales growth and real cash flow to have lasting value.  Companies that can't do both over time are non-profits or hobbies. 

I know this post will likely upset a few people because it's more fun to write and talk about how every new company is going to revolutionize their market.  The media enjoys writing about new company buzz because its more sexy and they make more money reporting about it.  Some VCs and some entrepreneurs use this buzz to create quick "hype value" for their companies in order to sustain funding, perceived momentum or to create exits for otherwise unsustainable businesses.  Congrats to those who get lucky and hit the lottery or time the market right, but the odds are against you if this is your planned path to success.  Instead I would offer the following advice....   

Before you start a company really ask yourself a few important questions:

1.  Does what I'm creating really matter and why?

2.  Can what I'm creating be a REAL business or should it just be a feature in someone else's product? 

3.  Can I really monetize what I'm creating by producing sustainable and increasing revenue and cash flow over time?

4.  Am I offering a unique solution that solves a problem or fills a true need, want or gap in the marketplace?

If you're building a great company and need a true financial and strategic partner that can help you achieve your vision our door is open and we're ready to help.  Shoot me an email or give me a call.   

If you're looking to make a quick buck off of market buzz and momentum then I wish you the best of luck - you'll need it.