My attempt to try to figure out where the puck is going and how we can get there two steps at a time. Speculations about the future mixed with a splash of musings and poorly informed critiques of the present.

Tuesday, December 20, 2005

First Base

Bill Burnham, a VC formerly with Mobius, mentioned a few weeks ago that he planned to blog on the impact that Google Base (and Freemont, etc) would have on "Internet Walled Gardens" (read eBay). After a long cruise (yep, its hard being a VC) he just got around to it. Here is a snipet - check out his blog for the full analysis:

"The primary value-add that most paid listings sites offer is that they aggregate, structure, and index similar content into one coherent “site”. Early on in the Internet’s evolution these sites were literally the only place on the web that one could go for this kind of information. The sites that successfully built scale, brand, and network effects usually ended up the “winners” in their respective categories. Once they became winners, they were able to charge a healthy premium and thereby, in most cases, become highly profitable businesses.

What A Difference 10 Years Makes
The problem for these Walled Gardens, is that much like the online services before them, they have been built on a quickly shifting and deeply flawed foundation. The Internet of 2005 is a far different environment than the Internet of 1995. In 1995, the average user couldn’t spell “Internet”, let alone figure out set up and run their own Internet site. Even if they did set up their own site, the lack of any mechanisms for other users to easily find a site made operating one’s own site a pointless exercise as it was like building a billboard on deserted island in the middle of the Pacific.

In 2005, things are a bit different. Not only has the average Internet user become much more sophisticated, but several trends are rapidly coalescing to deliver what could be a “knock out” blow to the Walled Gardens. These trends include:

  1. Self-publishing: Thanks to dramatically lower hosting costs and greatly improved software, today most businesses and a rapidly increasing number of individuals have their own Internet sites. Businesses in particular have quickly taken to publishing all kinds of information on their sites. For example, most companies have a section of their site where they list job openings and in the real estate industry almost every agent has their own web site with detailed descriptions of their current listings. Of critical importance is that none of this content is behind a “wall”. It is typically out there for anyone who happens to stop by to see. The net effect of all this self-publishing is that there is now a ton of openly accessible “primary content” just sitting out there waiting to be indexed and manipulated by anyone who chooses to.
  2. Pervasive Search: Sophisticated index search has become the glue that ties the entire Internet together. With search, no site is an island (or a Walled Garden) unless it chooses to be. Search has in essence leveled the field when it comes to distribution and brand. You can spend $1M on an ad in the Super Bowl, but it won’t change your search results.
  3. RSS: RSS is a content syndication standard which makes it incredibly easy for people to subscribe to content from a particular site. Want to be notified every time someone updates their personal profile on their blog, or every time a company adds a new job opening, or every time a realtor gets a new listing? Subscribe to their RSS feed. What RSS does is that it provides an automated way for the web to “feed” new information directly to interested people and computers."

I think that Bill does a nice job of clearly presenting the threat to the "Walled Gardens," eBay included. I largely concur with his fundamental thesis: "With Google Base fully in place (and ultimately similar services from Yahoo, Microsoft, and Amazon), why in world would anyone pay to have their listings displayed or pay to have to access to a database of listings?"

However, I think Bill underestimates the importance of the statement he makes at the end of that same paragraph, "Perhaps you may even be able to pay a fee to have your particular listing “advertised” in a preferential position." Particularly in a world where creating listings is free and easy, I expect that sellers of products and services will find it very important to pay for exposure. Google's dynamic pricing auction system that they used for keyword advertising today may be better positioned to accomidate this need than the structures established by the "walled gardens," but one way or another sellers will continue to pay to expose their listings to potential buyers. Further, sellers will quickly modify their listing practices such that they are spending their money in the best way to generate the desired exposure for their items.

Which brings us to the point that Bill does not make about Google Base - while an easy, low cost listing solution is nice, Sellers will use the offering that delivers buyers. As slick as Base may be for listing entry and as well designed as their XML schema / database may be, if it doesn't deliver buyers, sellers won't keep listing. Google does not yet have a good track record at delivering anything on the buy side other than clicks on ads included in their search results. Think Froogle. Google is not alone here, everyone on the Internet (with the possible exception of Yahoo) has a very hard time getting users (on the buy side) to try out new offerings.

I recognize that this is a little bit of the chicken and the egg problem - you can't create a nice buy side experience until you have enough listings on the sell side within a particular vertical and it is hard to get enough listings without a buy side experience that works.

So, what is the answer you ask? Believe it or not, I have an opinion. Start with a focus. Don't try to enable recipe listings and auto listings on the same platform from day one. Start with a smaller community with passion and let it grow from there. History points to this answer: eBay - collectibles; Craig's List - Craig's friends in San Francisco; Monster - jobs, etc... What stops SimplyHired from expanding to another vertical? Sound crazy? Think about what LinkedIn is doing...

Existing "Walled Gardens" still have an excellent chance to respond to this threat. Expertise in delivering buyers and facilitating transactions should not be dismissed. However, resting too comfortably on this expertise will enable others to gain traction and expand their offerings.

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