SpiralFrog: Too Much Management

Fred Wilson wrote a post about Universal offering their entire music catalogue free, but with DRM, through a new startup called SpiralFrog. Mr. Wilson thinks the idea sucks because he would rather pay for media without DRM than get it free with licensing restrictions.

SpiralFrog's is using an ad supported model and if they are not too restrictive with the DRM or too over-the-top with advertising, I think the idea could be quite popular. As a Napster subscriber, I know that I would seriously consider switching if the DRM let me keep songs on at least two devices, but then again I'm not exactly a prosumer. I don't know how they are planning on implementing the advertising and my guess is that it may be audio inserted ads. If so that could get pretty annoying very quickly.

Nonetheless, I was curious about SpiralFrog so I checked out their website and noticed one of the most top heavy management teams I have ever seen. For a startup that doesn't launch until December of this year, they already have a CEO, CTO, COO, Chief Strategy Officer and Chief Sales & Marketing Officer. I'd like to echo Ed Sim and ask what all of these people are doing for the company? Just how big is SpiralFrog? Are they really a 100+ person company that hasn't released a product? Alternatively, is SpiralFrog a 10 person company with 5 C-level officers? Neither option seems to make sense unless each officer is really a co-founding software developer that actually spends their days coding.

On a separate note, I find the titles of Chief Sales Officer, Chief Marketing Officer and Chief Strategy Officer to be ridiculous.

Kiko Sells for $258K

The Ebay auction for Kiko the online calendar has ended with a final selling price of $258,100. This is by no means a big exit, but frankly it is much bigger than I was expecting. When I checked in on the auction a couple of days ago it looked like they were going to struggle to even get their asking bid of $50k. It certainly isn't what the team was aiming for but at $258K it looks like their investors will even make a little bit of money on the deal.

Pincus Back at Tribe + Orkut Growing Like YouTube?

Mark Pincus is returning as CEO to Tribe.net. I don't know Mark personally but I have been reading his blog for about 10 months now and I really enjoy it so I'm happy that he seems to be happily back doing something that he loves. That said, I didn't really pay much attention to social networking until 2005 when I registered with LinkedIn. Tribe's zenith seemed to have occurred before I was paying any attention to it and the recent news perked my curiosity so I decided to check out Tribe's historical Alexa stats.

The Alexa stats show that Tribe's pageviews grew steadily from 2003 through 2005 but then began declining earlier this year. Hopefully Mark can reverse this trend. The slope of the growth looked impressive but it wasn't that meaningful without any other data to compare it to. Thus, I decided to see how Tribe stacked up against one of the other early social networking stars, Friendster.

In comparison to Friendster, Tribe's growth seemed less impressive. Given Frienster's recent recaptialization I was curious to see how their growth stacked against the second generation of social networking sites like Facebook, MySpace, and Orkut.

MySpace's tremendous growth was no surprise but I couldn't believe Orkut's recent jump. Orkut is routinely sited having done little or nothing since Google's acquisition but according to Alexa's pageview stats it looks like they are really starting to take off. Also interesting to note is how benign Facebook's pageviews are. Sure their growth is fantastic but Alexa stats suggest that they have no business being mentioned in the same breath as MySpace, YouTube or even... Orkut?

(Note that I swapped YouTube in red for Friendster in the above graph) So while I appreciate that Alexa's stats are just estimates if Orkut is experiencing growth anywhere near Youtube, why isn't anyone talking about it?

Lake Tahoe

I drove up to Tahoe for a couple of days late last night and I'm staying at Stanford Sierra Camp on Fallen Leaf Lake. I think Tahoe is one of the most beautiful places on Earth. I honestly can't decide whether I love it more in the Winter for skiing or more in the Summer for cycling and hiking. Its a big dilemma in my life right now. :)

Where to Learn About Entrepreneurship

Yesterday I posted on 3 great events over the next 10 days. However, in Silicon Valley there are many great organizations that host events designed to teach entrepreneurship, how to build great businesses and raise capital. These events occur almost every day of the week and virtually every topic an entrepreneur could face is covered at some point. Here is a list of several that I've found to be especially helpful.

SDForum - Software Development Forum
SVASE - Silicon Valley Association of Startup Entrepreneurs
eBig - East Bay IT Group

SVASE, eBig and SDForum are the largest startup focused organizations in the Bay Area. They all host many events each month on all sorts of topics ranging from raising capital to product management. Also, these groups often feature VCs and angel investors as subject matter experts.

Stirr - Founders' Table
Stirr has become well know for their popular mixer events, like the one occurring tonight. However, they also host a second event called Founders Table. Founders Table sits 6 first time entrepreneurs with 2 experienced entrepreneurs at a table over dinner. I attended the inaugural Founders Table and can attest that it was a great learning experience and a lot of fun.

TVC - Technology Ventures Corporation
TVC is a amazing federally funded organization that provides free startup consulting services. I was a client of TVC at Cryptine Networks and found them to be incredibly helpful. I've written more praise about TVC here. TVC holds two identical seminars on startup issues each month in Mountain View and Livermore. The seminars are free and open to the public.

Pillsbury Winthrop - Back Stage Pass
Chad Lynch of Pillsbury Winthrop puts on an excellent series of events for entrepreneurs featuring top startup CEOs and venture capitalists explaining pertinent issues like board management. I don't have a link for the Back Stage Pass series but those interested should contact Mr. Lynch at Pillsbury Winthrop directly if they would like to attend.

VC TaskForce
VC TaskForce holds events for both VCs and Entrepreneurs. Among their more popular session are their Entrepreneurs Gathering events where anyone with an elevator pitch can have 60 seconds to present to a panel of 5 investors.

BASN - Bay Area Startup Network
BASN regularly hosts VC breakfast where entrepreneurs have the opportunity to discuss their startup ideas with a VC for 10 minutes.

Churchill Club
The Churchill Club hosts a wide variety of intellectually interesting events. The scope is wider than startups and entrepreneurship but many of the events do focus on these areas. In fact there is a great event next week titled Startup Success 2006. Regardless of the topic, the Churchill Club always draws an interesting crowd so it is a great place to network and meet people.

TiE - The Indus Exchange
TiE hosts numerous events each month and the famous TiEcon event annually. Despite its name TiE events are open to all and they welcome people of non-Indian backgrounds.

SVAMA - Silicon Valley American Marketing Association
NorCal PDMA - Northern California Product Development & Management Association

SVAMA and NorCal PDMA are local chapters of national organizations focused on improving their respective functional areas. Neither organization is specifically focused on startups but they help build valuable skills in product management and marketing that are necessary to build a great business.

3 Great Events over the Next 10 Days

Over the next 10 days there are 3 great events taking place in Silicon Valley that anyone interested in entrepreneurship should consider attending.

Tomorrow night (Wednesday, August 9th) is the 5th Stirr Mixer. The Stirr Mixers are highly social events that take place at the Blue Chalk Cafe in downtown Palo Alto. They bring together lots of entrepreneurs and investors in a friendly atmosphere. The events also feature 60 second elevator pitches from several preselected startups. I've attended all of the previous Stirr Mixers and had lots of fun each time but unfortunately I can't make this one.

Next Thursday (August 17th) Churchill Club is putting what looks to be a great event at the Palo Alto Hills Country Club in Palo Alto titled Startup Success 2006. The event is moderated by Guy Kawasaki of Garage Technology Ventures and features an all star lineup of Startup CEOs:

• Lauren Elliott,Founder, Third Rock Mining
• Reid Hoffman,Co-Founder and CEO, LinkedIn
• Joe Kraus,Co-Founder and CEO, JotSpot
• Daniel Mattes,Co-Founder and CTO, Jajah
• Alex Welch,Co-Founder and CEO, Photobucket

Next Friday (August 18th) is the TechCrunch Party that is being hosted by August Capital in Menlo Park. I haven't been to any of the previous TechCrunch parties but with 711 attendees signed up, it looks to be quite an interesting event.

65 VC Blogs OPML File

Ken King recently created an OPML file for all the blog that I pointed to in my post on 65 VC and Angel Investor blogs. He also uploaded it to Share Your OPML. I hope Ken's OPML file helps anyone who's interested in entrepreneurship follow all of these investor blogs. Thanks Ken!

Jason Calcanis on How to Walk Away (via Rick Segal)

Rick Segal points to a very good 2 minute section of Dave Winer's podcast with Jason Calcanis and others. Jason talks about what to do when a business doesn't work out and I think he makes a lot of sense. As someone who's startup recently failed, I can attest that there are some situations, especially between founders, where emotions run too high to make a rational decision. Rather than getting involved in a debate that will only get nastier, walking away, auctioning the assets and splitting the proceeds is the best way to move forward. Channeling one's energy towards his/her next project is much more effective than using it to aggravate and/or burn bridges with former business partners. Of course, the hard parts are keeping your own emotions out of the decision and then knowing where your walk away point really is.

Motorcycles & The Environment

Matt Elke, a friend of mine, recently started what I suspect will be an interesting blog about his two passions, motorcycles & the environment. Matt is a grad student at UCSB School of Environmental Management and he is currently working on a watershed project in Chiapas, Mexico.

Matt likes to do things his own way, which seems to provide him with his fair share of adventure. For instance, check out this post about riding to Mexico on his motorcycle. While riding through the Arizona desert in the middle of the night his bike broke down so he decided to unroll his sleeping bag and catch some sleep on the side of the road. Ultimately, he wound up hitch hiking to El Paso, TX and then taking a 28 hour bus ride to Mexico City.

Matt's blog is also sure to contain random political and societal rants as well. For example, check out the last two paragraphs of this post regarding national energy usage and farm subsidies. Matt is smart and well read so his ranting is usually interesting but at times he can get so caught up in a moral or philosophical line of thought that he loses sight of practical realities... but it always makes for a good argument and the two of us have enjoyed plenty of them.

So for anyone who likes motorcycles, the environment or politics I would definitely recommend tuning in to Matt's blog.

Identity Theft: Michael Arrington vs. Seth Godin?

So there is a lot of mention about the use of identity theft related to malware and financial account fraud. There is no question that this is a big problem, but there are some precautions that one can take to lessen the risk. However, as I read the spat between Michael Arrington and Seth Godin that appears in the comments (#11 & #15) of a recent TechCrunch article, it dawned on me that it would be incredibly easy to hijack someone's identity in the blogsphere. How do we know that the comment left by "Seth Godin" actually comes from the famous author and not some mischievous troll? I doubt there is much money in it but it certainly could be used as a vehicle to ruin someone's reputation and as far as I can tell there is nothing stopping someone other than myself from commenting elsewhere under my name and linking back to this blog.

As a we all build out our blogs, personal websites, MySpace, LinkedIn, etc., web presence becomes increasingly important to our reputations. Whether its researching someone prior to a meeting or applying for a job, the importance of personal web presence seems to be growing rapidly and this could become a major problem.

Thinking About the Giants in 2007

I sent the text below to a handful of friends who are SF Giants fans. One of them wrote back that it would make a good blog post. Its not so much that the Giants are out of playoff contention this year (because the NL West is sooo bad) as much as the Giants have a huge offseason coming up. 5 of the Giants 8 starting position players and their number one pither are free agents. Furthermore, of the 3 returning starters, Mike Matheny's career maybe over due to the concusion he suffered earlier this season. So for anyone who is a baseball fan here is my original email on the move's I'd like to see the Giants make this off season.

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Dear All:

So based on the salaries here:

http://www.cbs.sportsline.com/mlb/teams/roster/SF

I wouldn't resign any of the veterans on the Giants roster other than vizquel, winn or morris. Fortunately, these guys are not free agents. The two free agents that scare me the most are shea hillenbrand and pedro feliz. They are both worth about what they are making right now at $4M and $5.8M but I suspect Sabean may wind up signing them both to long term deals in the $7-8M per year range. I am really tired of having guys that hit .270 and under 25 HRs. In baseball I think you either need 8 batters with speed that hit for average and play defense to "manufacture" runs or a handful of guys that can smash the ball to protect each other. Given where the Giants are now, I say Go get 3-4 mashers and then fill the rest of the positions with minor leaguers that play great defense and make the league minimum.

If the Giants are able to resign Bonds for $10M and they dump Schmidt, Durham, Feliz, Hillenbrand, Alou and Finley, who are all free agents, they should have $51.7M to spend on new players this year. I don't really know what Bonds will ask for but a combination of his ego, crappy production and marketing value makes me think that $10M is about right. I think Bonds has a better year next year. My guess is that he hits .270 with 25-30 HRs with healthier knees and more protection.

Based on this list of 2007 Free Agents:

http://www.mlbtraderumors.com/2007_mlb_free_agents/index.html

The one guy who I avoid is Torii Hunter. I know that Tony loves him but his defense and hitting stats really aren't that much better than Randy Winn's. His career batting average is .268, he's only hit over 100 RBIs once (102) and he's never hit more than 30 HRs (29). Hunter is already making $10.75M and will get a big raise.

Here is the batting order that I put together based on how I spend the $51.7M:

2B: Soriano (5-6 years fo $75-90M)
3B: Garciapara (3 years $20-24M)
LF or 1B: Bonds (Resign 1 year $10M)
RF: Sheffield (3 years $30M)
LF or 1B: Carlos Lee (4-5 years $40-50M)
SS: Vizquel
CF: Winn
C: Alfonzo

There is definitely a risk of injury with this line up but I believe that it is strong enough to have 1 or even 2 players out and still be solid. Also, with Soriano’s ability to play the outfield and Garciapara’s ability to play any infield position the line up is fairly versatile. I don't know whether or not signing these players for the contracts I am suggesting is realistic but here are my thoughts on each of them.

Consensus seems to be that Soriano is going to get $15M per year, which is all I'm going off of here. I'm not 100% convinced that Soriano is worth $15M. If the Yankees drive the price up too high, I go with Kevin Franzden at 2B, batt Nomar 1st and move up Vizquel to 2nd in the line up. I'd sit on the $15M for next year to sign the best player available when Bonds retires.

Sheffield is making $10.7M this year and the Yankees have a $13M option for next year. I figure at age 38, and having picked up Abreu and his $16M next year the Yankees won't take the option on Sheffield. Sheffield is old and that is a risk but despite his injury this year his numbers have been very consistent since 1998. When healthy Sheffield is one of the best hitters in the game and I would definitely risk the $10M on him but I don't think many other teams will. If another team does offer him more than $10M per year, I resign Alou to 2 years for $10M. I'd drop Alou to 5th and push Lee up to hit clean up.

Carlos Lee is 30 and making $8.5M this year. He is on pace to hit .285 and 40 HRs but I don't put him quite in the elite category so I think that $10M per season over 4-5 years is reasonable. Lee is an outfielder but I assume that either he or Bonds would be willing to play 1B. If we can't get Carlos Lee to play 1B, I sign Craig Wilson to 4-5 years for $28-40M and keep him batting 5th. Wilson can play 1B, Catcher or OF.

Garciapara is obviously very injury prone but he plays great defense and hits for average and OBP every year. Also, he can play every infield position. He is 32 only making $6M in a one year deal this year. I can't see anyone giving him more than 3 years and $24M because age and injury but I would take this risk. If we don't get Nomar, I sign Joe Randa to a 1-2 year deal for $4-5M per season. W/o Garciapara, I'd batt Vizquel 2nd and Randa 6th. I would also consider resigning Feliz at $4M per year, but no more because as the KNBR guy said last year his brain is mush, he strikes out too much and his OBP sucks. It isn't worth $6M+ to wait for Feliz to learn how to hit at age 31. One 3B that I wouldn't touch is Aubrey Huff, who is making $6.9M and rumor has it he may get a big raise in the off season.

At the high end of these contract estimates Soriano, Garciapara, Sheffield and Lee cost $43M next year, which leaves $8.7M to account for increasing salary of existing contracts and bringing up a couple of minor leaguers and/or signing veteran backups. Also, most competitive teams raise their payroll by $3-5 million each year so it is possible that there maybe room to sign another Matt Morris type SP if the extra $8.7M is used sparingly. Given his age, I wonder if it would be possible to sign Mike Mussina to a 2 year deal worth $15M or less.

If so the Giants Starting Pitchers might look like this:

Matt Morris
Mike Mussina
Noah Lowry
Matt Cain
Brad Hennessey

If that is the case, I think the team SP era would have a solid chance of being below 4.00.

There might be a problem in the bullpen but having a great closer is the last piece of the puzzle in my mind and there is always a chance that Benetiz might get his act together. If the Giants could make all of the moves that I'm suggesting I would definitely be satisfied not making any changes to the bullpen because I think the offense would score enough runs to take off a lot of the pressure.

-Fife

Pricing: Value not Cost

Last week I bought tickets to a baseball game through the Oakland A's website. I found the tickets that I wanted, which were $30 each. I clicked through to buy and was informed of a $5 per ticket convenience charge. I clicked again to continue and was informed of a $3.75 order processing fee. Finally, I got to the checkout where I was informed that printing out the tickets at home would cost an additional $2.50, which I did. The actual cost of my $30 tickets had risen 27% to $38.18. I was frustrated that A's were charging me such a high premium to buy tickets online when it cost them next to nothing to facilitate the transaction. In fact, in the case of printing my tickets at home, I was saving them the cost of printing, yet, they were charging me for the privilege. If A's priced online ticket sales based on cost there likely would be no convenience fees at all. Yet, the A's priced their various fees based on value. It was simply much more convenient for me to pay the fees than to drive to the Oakland Coliseum days before the game or wait in line and risk not getting the seats I wanted at game time. While, paying the extra $8 per ticket was annoying, it does demonstrate a key lesson about product pricing.

As a startup developing a new product, pricing is often difficult to gauge. How much will customers pay and how much can I get away with charging them? The balances is between not wanting to leave revenue on the table and not wanting to scare off prospective customers with high prices. One common mistake is to price a product on its cost of manufacturing and delivery. However, this often leads to under (or worse yet, over) pricing. The best way to price a product is emulate the Oakland A's and price based on value proposition to the customer.

Pricing based on cost rarely if ever makes sense. Consider software licensing, where it costs the vendor almost nothing to issue another copy. If Microsoft based their pricing on costs, they would be giving away copies of Windows and Office by now because the costs of licensing another copy are very low. Sometimes pricing based on cost can lead to a product that is too expensive, which is the kiss of death. If the cost of production is higher than the value delivered than the product is really in trouble, which is why attempting to understand the value proposition is so important prior to creating the product.

Value proposition is the most efficient way to price a product while minimizing revenue left on the table. Value proposition is typically based on a cost savings or productivity increases perceived by customers. Cost savings might be related to reduced labor, risk, electricity or some other raw material. Increased productivity is typically related to better access to information or increased sales. In some cases the value proposition can be made but it is still hard to determine a price. While it does require a degree of finesse asking beta partners or prospective customers what they would be willing pay can provide a ball park idea of how to price.

Pricing based on value proposition gets easier when a startup is building "a better mouse trap" as an alternative to existing competition. For example, if the startup is building a new chip that delivers the same performance as existing competition but requires far less electricity, the price of the new chip should be a premium on the old chip based on the electricity savings. The pricing premium cannot reflect the entire electricity cost savings otherwise the customer won't receive any benefit* and they won't have any more incentive to purchase the more efficient chip. Thus, an effective price based on value proposition rewards the vendor but still allows the customer reap significant benefits.

Brand and discounting also play a significant role in pricing based on value proposition. Simply put, many customers perceive brand to a part of a product's value proposition. The mentality of "nobody ever got fired for buying IBM" demonstrates that many individuals and organizations want the stability of a large company backing the product. Thus, many startup products that objectively offer more benefits are often priced below established competitors because the customer's decision-making individuals need an incentive to justify taking on the additional "risks" associated with purchasing a product from a small company.

Lastly, many products value propositions are not perceived equally across the market. It is common for the same product to be "need to have" to one customer, while only "nice to have" to another. This is where the game of discounting comes in because discounting allows a vendor to hide the fact that one customer paid more for the same product than another. Discounting is essentially price discrimination based on a negotiation between how badly the vendor wants to close the sale and how value the customer perceives in the product. Furthermore, It is much easier to lower an established price than it is to raise and established price, which is why it is so common for IT products to regularly sell at significant discounts.

Price = Value + Brand - Discount

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*Excluding reduced carbon emissions

Really Pissed at Amazon

Wow, I'm really angry with Amazon. I signed up as an Amazon affiliate in order to promote Guy Kawasaki's "The Art of the Start," because I believe every entrepreneur should read it before attempting to raise capital. I'm not a big fan of advertising on blogs and I put the link up because I believed that it would be helpful to readers looking to learn more about entrepreneurship. However, I noticed earlier this morning that the Art of the Start had been replaced with an ad for Amazon its self. I certainly do not want to be serving Amazon's banner ads. It is possible that I inadvertently agreed to this in some fine print that I never actually read. However, this is definitely not what I intended and I will be removing Amazon from my template and discontinuing my affiliate account because Amazon has violated my trust.