Tech, Startups, Capital, Ideas.

We’re seeing announcements of a number of traditional media outlets facing challenges. One big reason for that is because BR is the new PR.

PR = Press Relations
BR = Blog Relations

A press release or story carried in the mainstream press is going to take you far. But to build business and drive traffic now, BR is a must. It’s not sufficient to post a few links here and there. You really have to invest and dedicate time and effort to blog relations. Not only is this important to drive traffic and users but it’s also important because it connects you in with your community.

Fail to do BR and not only are you not current on how to do marketing today, but you’re simply not connecting with your community.

As Doc Searls pointed out long ago, “Markets are conversations… that consist of human beings, not demographic sectors.”

PR was a one-way broadcast. BR is a conversation.

The CommunityNext event last Saturday was great. I had a blast and met a ton of interesting people. It’s easy to moderate a panel when you have entrepreneurs who have such immense knowledge about what they are doing. Plus I got to meet Eric Nakagawa from icanhascheezburger. You should check out his wonderful site if you haven’t already.

Some takeaways from the conference and follow up meetings this week:

• User acquisition is engineered. Just the way great products are engineered, user acquisition is engineered. It is not left to change, it does not “just happen.” It takes a lot of work to create viral, organic growth.
• What is one key difference between true viral acquisition and seemingly viral acquisition? Not that it necessarily matters in terms of eventual business outcome, but true viral costs next to nothing for user acquisition . Seemingly viral costs something. You are paying to pick up users. One can argue it makes sense to get to some critical mass - say 1M users, if you have the capital to go do that. But true viral means your user/customer acquisition costs are about zero. The rest, after the operating costs of your people and servers, is all upside.
• It’s a tough hiring environment right now. One of the best strategies for finding developers is to contact the engineers behind your favorite widget/app/etc. and see if they want to come work with you full time.

Everyone is eagerly awaiting the launch of the iPhone at 6pm on June 29. This isn’t just marketing. It’s a revolution. Here’s why.

Other large phone manufacturers have been at this for years. What could Apple possibly know about delivering a better cell phone experience?

Everything.

The iPhone changes the playing field because Apple has three distinct advantages:

• Internet software. Pure-play hardware companies don’t fully understand how to deliver great Internet software. Software today doesn’t just mean MP3 players and snapshot capabilities, nor is it just about calendar and email. It means making the Internet accessible and easy to use: built-in PDF support; Safari browser; and Youtube. Of course that leads to…
• Integrated design. Because Apple controls the end to end experience, it is delivering a device and software that consumers actually want to use. An ultra-open platform that relies on OEM specifications works well when processor, memory, and power are unlimited. But when these items are at a premium, integrated delivery is the only way to go. There’s another reason Apple is so good at optimizing for a constrained environment and that’s because it uses…
• Startup approach. Apple appears to think and act as if it is a startup, even though it’s a big company. The other companies may have hundreds or thousands of people hard at work on their next generation mobile offerings. But unlike social media, which thrives on the consensus of the many, great design is the result of the wisdom of the few. There are probably a lot of people working on the iPhone project, but only a few who really control and influence the core design.

Today’s consumers are demanding. They have ultra-high expectations about the content they consume and the experience they receive. They live in a market where they can quickly test out an experience, be it a web site or a device, and pass judgment even more quickly.

It’s hard to live up to the incredible hype surrounding the launch of a new mass-market consumer product. But it’s all too easy to underestimate nimble entrepreneurs who understand today’s demanding consumer. Don’t ” they change everything.

Super Happy Dev House, PBWiki, David Weekly, Matt Rubens, and Sven Strohband received a nice mention in the San Jose Mercury News. The “Bay Area’s premier monthly hack-a-thon event” is not only fun but also a great place to meet really smart developers and engineers.

It’s been fun getting questions on why I’m building widgets (especially after Widget Companies: Fool’s Gold). It’s been even more fun building them. I’ve learned a lot: most critically, that Flash has become what Java wanted to be.

Java was meant to be the language that made platform irrelevant. It was so high profile, some would argue, that the Common Language Runtime (CLR) evolved in response to it. What happened?

When Java was created, implementation led and design followed. Today, design leads and implementation follows. Acquiring users is the name of the game. That puts sites, widgets, and applications that are easy to use and look great at a premium.

That doesn’t mean design complexity — in fact, just the opposite. Less is more. Clean lines, plain backgrounds, and easy uploads win. Flash won because it carried the day on design. It grew from a simple drawing tool into an animation product and from there into a complete authoring environment.

Coupling moving visuals with actions has always been powerful. But with more than 500,000 developers and 325 million Web users of the Flash player, Flash is more than an environment. It’s a platform that’s everywhere.

To be clear, Java has become a platform in the enterprise. Talk to today’s CIO and Java is everywhere in the server room and in some places on the desktop: legacy application integration for example.

What happened? Java got the C programmers, but Flash won the hearts and minds of the designers. Flash made it easy to create good looking animations and ultimately videos viewable by anyone. It wasn’t about delivering the highest quality — it was about fast and easy.

Talk to today’s entrepreneurs and you’ll hear that one of the most in-demand skillsets, if not the most in-demand skillset around, is the ability to do great design work. People who have a natural talent for design are at a premium. Those who can couple great design with fast implementation even more so. Flash is the catalyst that makes that possible.

Java took fair share in the enterprise. But Flash won the consumer. Java can read 10 million user records from a database and expose them on a web page. But Flash can make you look good doing it.

Java may be a thousand words, but Flash is the picture. And as we all know…

Guy Kawasaki had a great post on how much it cost him to build Truemors. Whether or not you are a fan of Truemors,  this is a very clueful read on what you can do on little $ today.

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It’s easy to monetize through advertising. But it’s hard to make a lot of money monetizing through advertising. You need to be high value, high volume, or both. Here’s a chart that helps illustrate why.

The numbers are rough, but the model is a useful one. (I’d welcome feedback on the numbers and the model.)

The (somewhat dated) estimates of YouTube’s revenues, for example, range from the high ($15+ RPM) to the possibly under-valued ($0.50 RPM). (RPM = Revenue per Thousand Impressions, whether CPM, CPC, or CPA based.)

It’s also helpful to consider this model when painting a vision of your startup, regardless of whether you are the ultimate monetizer or volume driver, or someone else is.

High Volume

Sites with high volume recognize that they need to monetize better. This is one reason for Yahoo’s acquisition of RightMedia, and Fox Interactive Media (FIM)’s acquisition of Strategic Data.

One more MySpace user or a few more impressions doesn’t do much for MySpace revenues. But better monetization works across the entire user-base. By monetizing a little better, for example, MySpace could go from say $200M a year in revenue to $400M. That’s by “just” adding 10 or 20 cents per thousand impressions.

A high volume site would love to become a high value site. There’s more than one way to make this happen. Keep reading to find out how.

High Value

In contrast, sites with high value (such as those related to finance, IT, health; and lead generation - mortgages, debt consolidation, etc.) focus on increasing their user-base. Adding a few cents to their RPM won’t matter much. But adding more users really matters a lot. That’s because these sites are already doing a good job monetizing.

High value sites do a good job monetizing because they are serving some kind of highly valued niche. A niche by its very nature has a smaller number of users. It’s vertical, rather than horizontal.

High Value AND High Volume
Nirvana would be a site that is both high value and high volume.

Adding another monetization mechanism could also really change the game for high volume sites. That’s because additional monetization applied across a huge user base really matters. High volume sites are primarily third party – paid today. That means the sites and its users interact, but the site makes money from advertisers: the traditional media model.

But if a high volume site can get its millions of users to take out their credit cards, cell phones, check books, or cash, they can add a large amount of revenue. Such a site can move from being ad-supported only to user (customer) supported. Users might pay for a wide variety of things, from virtual or digital goods, access to additional features, or even products.

It’s not just the high volume sites that can try to get there. High value sites can too.

High value sites can broaden their user base through a variety of mechanisms. They can add more capabilities to their site to make it more broadly appealing. They can add more sites and create a network, then try to get their users to cross-over between sites.

Or they can simply do more marketing, advertising, and lead generation activities to drive more users. The risk is churn: many coming in, but few sticking around or monetizing.

Conclusion
This volume-value equation is not a new one. Enterprise IT die hards and old line media companies have understood it for years. The infrastructure — broadband adoption, technology building blocks, low cost of entry, monetization methods — has changed. But the model hasn’t.

What kind of company are you building?

When I ask, “what kind of traction do you have,” that’s short for a larger set of questions. Here’s what I’m really asking. (More about the picture below in a moment.)

• Is your product/web site in market? If not, how long till it is? What does it take to get there in terms of people, time, and money?
• Do users come to your site or is your traffic really part of someone else’s site? Are you a destination, a widget, or a hybrid?
• What are your stats?
  What’s the split in your traffic between paid and organic?
  What’s the month over month growth?
  How many uniques per month?
  How many impressions?
  How many registered users? Active users?
  What kind of online marketing do you do (SEO? Paid ads? Nothing?)
  Relative to your competitors, how are you doing?
  What’s the domestic/international split in traffic?
• Are you a sticky site or a transaction site? Do you try to get users to come back over and over or do you try to complete a one-time transaction?
• What does success look like for you? If you’re about driving page views, what’s your goal this year, order of magnitude. 10M/Mo.? 100M/Mo.? 1B/Mo? 1B/Day?
• If you’re thinking about or currently monetizing your site, what form does that take? If advertising, what kind of RPMs? If other forms of monetization, what are they?
• What’s your strategy for growing the business? (This can be simple - get users to refer their friends… keep doing no marketing… etc.)

In case you’re wondering… that’s a 1910 traction engine, which according to wikipedia is “a wheeled steam engine used to move heavy loads, plough ground or to provide power at a chosen location…. Traction engines tend to be large, robust, and powerful, but extremely heavy, slow and poorly maneuverable.”

That sounds pretty apt… except for the last part of course!

A lot of asking questions as an investor is about evaluating the how of someone’s answer more than the what. A lot of what I look for is the non-answer. The non-answer is dangerous because it fails to articulate and quantify risk.

Venture capitalists evaluate risk. The discussion of a company can cover a lot of ground. When we get the discussion right, it really boils down to our ability to articulate the risks associated with a deal and evaluate them.

The key to successfully identifying and evaluating risk is frank discussion with an entrepreneur. If you can’t talk about the risks of a business with the person driving the business, who can you talk with them about?

That’s why I dislike the non-answer.

In the answer to the question, “what kind of traction do you have,” the how of the answer is as important as the what. An Internet entrepreneur who dodges this question worries me. It means that either the traction isn’t there, they don’t know the answer, or there’s something to hide.

Same with, “with the customer base you have, how do you scale?”

While I can evaluate someone’s approach to scaling given my technical background, I am not the best person to do so. That’s why I try to evaluate the how. A brush-off or a lack of directness in answering this question worries me.

“But I’m afraid to talk about the risks to my business, because the investors might not like them…”

The good investor, the investor you want to work with, will identify many of the risks to your business with or without you. The best entrepreneurs identify the risks to their business themselves, think about them, and discuss them with their potential investors.

They seek help. They say “I don’t know” when that’s the case. They surround themselves with people who remove risk.

It takes a lot of guts to have that discussion. But since we’re in the business of evaluating risk, it’s a productive discussion that we like to have.

Beware the non-answer. It doesn’t remove risk. It creates it.