October 21, 2005

SMALL is back in the US…and “potatoes” are hot in China

Filed under: Start-up First Aid,Video/Film,Web 2.0 — Administrator @ 2:58 pm

I was working for a hedge fund in New York City in 1998 when the theGlobe.com (TGLO) listed on NASDAQ and posted a record-setting 600 per cent first-day-gain…

…I also remember watching CNBC interview the two teenage co-founders and laughing my ass off with the reset of the world…as everyone tried to figure out what the hell the company’s business model was…

…later that week, after theGlobe’s listing, I understood that theGlobe’s value proposition was not a 360 degree business but rather it was a feature, a single service, a revenue stream…at the period in history it was apparent the Street was willing to pay a premium for a feature…not business…and so, in a word, the trend was to invest in “SMALL”

We all know what happened next…by 2001/2002 SMALL was out and BIG was back…so why talk about it now? Is SMALL back?

Funny enough…I think it is…and this time around, at least in the US, I think we are starting to see that SMALL has a bit of bite to it…that SMALL has substance beyond the first day bounce…for example, Flickr and Weblogs Inc have shown that a rich community, relevant technology (no bells and whistles), and a clean UI = BANK!

Jeff Jarvis coined the phrase, “Small is the new big” back on June 6, 2005. Jeff writes:

I wondered whether small was just a trend or a new organizing principle for the business world. I now think it could be the latter. Small won’t replace big, of course, but small will add up to considerable new competition. And that is because small can now succeed. The economies of scale must compete with the economies of small.

Based on the number of business plans I receive each week…the trend is definitely favoring SMALL…the problem is China-based entrepreneurs are not getting it…they are making the same mistakes as their pals in the late 1990s and early 2000s did in the United States and Europe. I’m seeing feature after feature after feature but what I want to see are features backstopped not only by a sustainable business model, but a vision and a technology/business road map.

For example, there is a company that has developed “the next generation” mobile browser targeted at local handset manufacturers. The game plan is to preload the browser at the manufacturer level (i.e. sell software license to OEMs) and then…

…but very few can give you an answer for the “and then…”

The theme “SMALL is the new big” is definitely the predominant trend in Web2.0 companies…in China, I’m seeing a lot of “one hit wonders” looking to cash in on “community” and “digital sharing”…but what these guys are overlooking is a defensible business model…

…for example, it might be nice to have the ability to resize your photo online and perhaps print it out…but I could do this five-years ago…what I really want answers to are questions like:

1. Why are people going to make your site their home, their one destination? Howare you going to maintain your competitive edge?
2. How are you going to make money beyond printing photos?
3. What does your technology platform look like? How does it improve upon what is out there already? What do your customers think of the UI? How are you going to evolve the UI over time as you add new features? What does your roadmap look like? How do you plan on getting creative with RSS feeds, tagging, etc?
4. What demographics are you targetting and how does your customer acquistion strategy play into this? Does anyone on your team have interactive marketing experience?
5. How do you plan on spending my money? Why are you spending money on these things?

There is at least one China based company attempting to live up to its SMALL pedigree and it is called Toodou.com (which means “potato” in Chinese). Tooduo is China’s leading podcasting site founded by Gary Wang. Today, the New York Times ran an Op-Ed piece by columnist Thomas Friedman about Tooduo…we can’t show the whole article but here is a peek:

“We already have 13,000 channels on our site and about 5,000 of them are updated regularly,” said Gary Wang, 32, the Fuzhou-born and U.S.- and French-educated Chinese engineer who founded Toodou. Any Chinese can create his or her own channel of video or audio content on Toodou (which means “potato”), and other individuals sign up to get that channel’s new uploads. Eventually Toodou will charge a monthly subscription fee. “I want to create hundreds of thousands of different channels, maintained by just average people, where other people can access them and download the material,” Mr. Wang added. There are almost no barriers to entry.

Toodou’s goal, Mr. Wang said, “will be to connect [Chinese] people to their tastes and to their potential collaborators. We will have a huge content database, and we will share the revenue with content providers.” Mr. Wang first heard of podcasting only 13 months ago. Today he has the most popular podcasting site in China, with 100,000 registered users, 8 employees, 40 volunteers and a U.S. venture-capital backer.

As one reader noted, there are a host of regulatory issues that Toodou will face if it decides to experiment beyond entertainment…it will certainly be interesting to not only watch Wang navigate those implied landmines but also watch Toodou’s investors position the company for an exit.

Throughout it all, one thing we must keep in mind is that Web 2.0 is simply the collaboration and synchronization of open source platforms offering various services and functionalities; the very nature of these platforms allow users to hack, mash, customize and expand their utility in directions that might not have been the intentions of the developers of these applications. In a sense we are talking about a paradigm shift…this is an opportunity to reboot the way companies, users and developers interact and communicate…maybe this is the fourth dimension?


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