My friend Darren Herman helped me think about this post. He sent me this deck along with some thoughts. This slide from Darren’s deck is a good place to start this discussion:

It is true that the vast majority of consumer web apps have been and continue to be monetized with advertising. On mobile that is less true, but becoming more true every day.

There are all sorts of ways to generate advertising revenue online. Here are the entries under the advertising category in our revenue model hackpad:

This list is most certainly not exhaustive but it does cover the most common advertising approaches and you can see how many there are on the Internet. There has been a lot of innovation in this sector in the past 18 years since the first banner ads were created and sold.

The famous Luma Partners slide shows just how complex the online ad market has become over time.

And this market map is by no means exhaustive either. Online advertising is a big and complicated business.

I would break up advertising into two big buckets; ads that are sold and ads that are bought. The first is a relationship business, requires a direct salesforce or a salesforce that you can tap into, and will bring a higher revenue per impression in most cases. The latter is a data business, automated by machines and software, is a volume game and will bring a lower revenue per impression in most cases. Much of the online advertising market is moving inexorably toward the latter category, for good and bad.

The reaction to this move away from high value “brand” advertising to commoditized and programmatic advertising is native ad formats and advertising models. I have written about native advertising at AVC before and am a big fan of this approach. Examples of native advertising are promoted tweets on twitter and radar and spotlight on tumblr. In both examples, the ad unit is the same atomic unit of content as the users create in the service. I think we will see more and more of this as the value of the impression is driven lower and lower in the programmatic model.

When you think about an advertising revenue model, you need to think about one of two things; scale or niche. Scale means hundreds of millions of impressions a month or more. Niche means a valuable audience that advertisers will pay a premium for. But even if you are going for the niche approach, you will still need to have a lot of impressions. Here is why:

Advertising is sold many ways, including:

CPM: Cost per thousand impressions

CPE: Cost per engagement

CPA: Cost per acquisition

CPC: Cost per click

Sponsorship: Fixed cost for a fixed program

[thanks to Darren for that list. I took it directly from his email to me]

With the possible exception of Sponsorship, all of these methods will converge to the same number. For example if you sell a click for $1/click, and one out of every hundred page views turns into a click then you are selling a page view for $1/100 (1 cent), and that turns into a $10 CPM (10/1000).

CPMs have been in decline for years on the Internet. That’s because the Internet keeps on creating more and more inventory. There is no scarcity. And as a result the supply/demand clearing price just keeps going lower and lower. Ten years ago, a $10 CPM was acheivable. Today, you will be lucky to get a $1 CPM. A $1 CPM means that 10 million impressions will generate $10,000. That’s enough revenue to sustain a one or possibly two person business but not much more. You will need at least 100 million impressions and ideally more than 1bn impressions per month to have an interesting advertising supported business at scale. 1bn impressions is a lot of users using your service a lot.

Niche will work at slightly less scale. If you have a unique and valuable audience, you might be able to get a $5 to $10 CPM. So you will need 100 million impressions per month instead of 1bn impressions. That’s still a lot of super valuable users engaging a lot.

If you are going with a scale model and you have a service that has that level of inventory to sell, then you have the choice of building a sales force inside your company or using a third party to sell your inventory. You don’t need just one third party. You can use many of them. That’s where the Luma slide (above) comes into effect. There is an entire industry built to take the inventory you give to a third party and put it through endless machines and algorithms before it is shown to an end user. I will not get into this in more detail here but Darren’s slide deck, which I linked to above, has some good information on that. When you use a third party to sell your advertising you can give away anywhere from 50% of ad revenue to 20% of ad revenue. Most commonly it is somewhere in between.

If you are going with the niche or native approach, you will need your own sales force and you will need to hire a leader for that sales force (a VP Sales or Chief Revenue Officer) who can build and lead that team. The sales leader is a critical hire. There are people who do this for a living, who really understand how to put a team together and generate advertising revenue predictably and reliably, and they are highly compensated and are worth every penny. Do not skimp on this if you are building your own sales force. You may choose to build your own sales force if you are going with a scale model, but you don’t need to do that right away.

In the interest of keeping this post a reasonable length, I will end here. I highly recommend diving into the comments where we will discuss and debate this post. I will conclude by saying that an advertising model is a viable revenue model option if you are building a service that has a lot of scale. But if you don’t have millions of users a month, you should think hard before going in this direction. There is a limited amount of ad dollars out there (except CPA budgets which are in theory infinite) and more and more services trying to tap into them every day which is why advertising rates on the Internet seem to be in permanent and systemic decline.

The post Online Advertising Explained appeared first on The Faster Times.

The folks at Turntable aren’t calling it 2.0, but it sure feels like a massive upgrade to me so that’s what I call it when I talk about the new UI and big rooms concept that Turntable quietly launched yesterday without much fanfare.

Full disclosure, USV is an investor in Turntable and I am on the board.

Turntable.fm, for those that don’t know, is a live social music experience. Anyone can start a room in the service and a room features up to five users who jump up on stage and take turns DJing, and then the rest of the folks in the room listen, rate the songs, and chat. It is the most social music experience I have ever experienced online. I spend most mornings between 5am and 7am eastern hanging out in Turntable. Like most social online services, I have friends there who I have never met in person. I get better music discovery at Turntable from people I have never met than I get from anywhere else.

It makes sense if you think about it. Folks who are so passionate about music that they get up on stage and DJ live in front of everyone else will also likely have spent countless hours finding music that nobody else knows about yet. That’s how music has always worked and how it will always work.

Turntable’s achilles heel has always been that the rooms didn’t scale. In version 1.0, when a room got to 200 people, it closed up to new entrants. So if you showed up looking to get into your favorite room you could often be out of luck. That is not and never was a good user experience.

Worse is that when a musician, artist, or celebrity showed up in one of the rooms, only 200 of their fans could get in to hear what they were up to. So the whole viral nature of an artist with hundreds of thousands or even millions of fans tweeting out that they are in a room in Turntable was mostly wasted in version 1.0.

All of that has been fixed in Turntable 2.0. The rooms scale up as more users show up. The UI changes in real time. A room starts out feeling like a tiny club and could end up feeling like an arena concert. Here’s an example of a “big room” in action:

It’s a real work of UI art and kudos go out to Billy and Byron for their work in building the new Turntable UI.

They’ve also made a bunch of smaller changes, cleaned some things up, moved some things around, speeded it up considerably, and made the service easier to join and get into quickly. I’ve been watching this new version emerge over the past few months and am so excited as a user to be able to experience it myself now.

If you want to see a big room in action, you can log into Turntable today at 3pm eastern to catch the electropop act Passion Pit playing some of their songs in Turntable. I expect that room will fill up nicely. I am going to try to get in and check it out myself in between running around SF between meetings. I hope to see you there.

The post Turntable.fm Gets an Upgrade appeared first on The Faster Times.

Due to the fact that we are homeless in NYC on account of Sandy, the Gotham Gal decided to take her Thanksgiving on the road this year, out to our beach house on the east end of long island. It was a great idea and starting on wednesday afternoon, our entire family and some friends made the pilgrimage out east to celebrate Thanksgiving at the beach.

But when we arrived wednesday evening we found at that Sandy had an impact on our beach house too, specifically the DirecTV satellite dish was out of whack. I guess I should have thought about that but I didn’t. Of course, getting a DirecTV technician out to our beach house on Thanksgiving day was not going to happen. But Thanksgiving without football? That is downright unamerican!

So I went for plan B. Time to hack the NFL. Here’s how I did it with the help of Boxee’s new Boxee TV product.

I have a Boxee TV in my USV office which gets all the broadcast channels in NYC in HD. Via the Boxee TV’s cloud service, I can get all of those channels on my laptop anywhere I am. So I was able to get the three football games yesterday on my laptop.

We also happen to have an AppleTV in our beach house. So with airplay mirroring from my laptop to the AppleTV, I was able to get the games from my laptop to the big screen in our family room at the beach.

Here’s how it looked from the warmth and comfort of the family room couch yesterday afternoon as the Gotham Gal and her sister Susan were cooking up a storm in the kitchen:

This all worked out great until the Jets played the Patriots last night. That was awful to watch. I turned it off at halftime. I am embarassed to be a Jet fan this morning.

The post Why I Love Boxee TV appeared first on The Faster Times.

I ended yesterday’s post with this:

Hurricane Sandy looks to be coming through NYC at that time and I don’t know what that may cause me and my family to be doing at that time. We live right on the Hudson, at the border of Zone A. So I’ve got a few things on my mind today that fit right into this Sustainability theme….

Stay safe everyone on the east coast today. Let’s hope the hype is overblown. And let’s prepare as if it isn’t.

On my way back from a business breakfast, I saw folks in Hudson River Park looking at the Hudson River so I walked over and recorded this video of the Hudson breaching its banks around 10am eastern.

That was the moment I knew that our street would turn into a lake. I just felt it in my gut. Around that time my partner Albert posted this on his tumblr. We traded a few comments and he led me to this page on NOAA’s website. This was the chart I was tracking all day yesterday:

At the time I took that video the water height on this chart was around eight feet. You can see that it peaked at about 14.5 feet. That’s 6.5 feet higher than the time of my video.

After our monday team meeting (which we did on Google Hangouts with great success), I went downstairs and explained to the Gotham Gal and Josh that we should evacuate. I got a little pushback from both but mostly from Josh who thought we could ride out the storm in our apartment.

I was adamant that we should leave. I told them that our street was going to become a lake (or worse a river) and that we would lose power and things would be a mess. I finally won them over and we headed out around 4pm. We went uptown to stay at a friend’s house on higher ground. Before we left, the Gotham Gal and I went to the basement storage room and removed all family heirlooms and anything we couldn’t replace easily and took them upstairs to our apartment. But we forgot to empty the ice makers in our apartment (which caused me to wake up in the middle of the night last night with an “oh shit” moment).

We spent the rest of the day following events on Twitter and TV. The Mayor’s regular updates on TV were helpful, but by far the best coverage of Sandy was on Twitter, with links out to blogs and Instagram. That led me to tweet this out yesterday night.

@fredwilson

Twitter owns times like this. Images, important news, quotes, videos, and lots of humor #sandy

Our street in the west village did in fact become a lake with somewhere around 5 feet of water at the height of the storm surge. Our building’s basement was submerged and our ground floor apartment which houses the Gotham Gal’s office took many feet of water. The building lost power and I suspect it won’t have it back for a while. It was a disaster from which we will be impacted for months I suspect.

But as bad as our street and building had it, much of NYC had it worse. Lower Manhattan and parts of Brooklyn were flooded way worse than the west village. The subway system took the most severe flooding of anytime in its history. Many of the subway tunnels between Manhattan and Bronx, Queens, and Brooklyn are flooded. And some of the automobile tunnels are flooded too. There have been power plant explosions, fires, and all sorts of other Sandy related calamaties.

It was a big storm and it wreaked much damage on NYC last night. But the loss of life was relatively low and from what I can tell, city officials and the first responders in the fire and police department did their usual heroic job. We will get through this the same way we have gotten through other disasters.

I may take the week off. I have a lot to tend to on the home front and NYC is not going to be the easiest place to live and work this week. My son’s school is almost certainly closed for the next few days.

But I’ll likely keep blogging. It helps to be able to talk about this stuff, to get it out, and to discuss it. So we can start doing that while my family and I start digging out.

The post Hurricane Sandy: When My Street Turned Into a Lake appeared first on The Faster Times.

A year ago, the iPad accounted for 81% of tablets in circulation. That has fallen to 52%, with Android-based tablets grabbing a 48% share of the market. Amazon’s Kindle Fire accounts for far and away the largest slice of those: half of the Android tablets in use are Kindle Fires, and they represent 21% of the overall tablet market.

If that’s true, that is a big deal. Our family has moved from iPads to Nexus 7s in our home but I didn’t think the rest of the world had moved to Android tablets too.

I am curious if others are surprised by this. I honestly had no idea that Android had made such a big move in tablets. I realize Kindle Fire is hardly Android. More like a third tablet OS. So it’s really like iPad 52%, Android 27%, Kindle Fire 21%. But even so, this is a big deal and I am surprised.

The post Will Android Tablets Overtake the iPad? appeared first on The Faster Times.

Android is fragmented and geting more so. This is a challenge for those that develop on it for sure and has been often cited as a big negative for the Android ecosystem. But it also a big plus.

I have a Kindle Fire on my bedstand. I use it primarily to read on in bed having moved to a Nexus 7 as my primary tablet device. The Kindle Fire uses Android as its OS and then puts a Kindle shell on top which makes it look and feel like something other than an Android. But almost every app that I have on my Nexus 7 is also on my Kindle Fire. The reality is that if you build for Android, you are also building for Kindle Fire.

When Amazon launches a phone, it would be my expectation that the experience will be a lot like Kindle Fire. Meaning it will be running Android with a Amazon designed shell on top.

And then there is Facebook. I have to believe that Facebook will build a phone in the same way. Start with Android and then put its own wrapper and apps on top. If that happens, I would imagine I would be able to run all my favorite Android apps on the Facebook phone.

So imagine a world in which three of the top four consumer tech companies have phones running Android. Does that sound like a fragmented world for Android? Yes. Does that sound like a recipe for having a massive number of Android devices out there to build to? Yes.

In my view, we are in a two OS world for mobile and I think we are going to stay there. I think Apple will own the high end with the best and most integrated experience. And I think Android and its many variants will own the rest of the market. I think everyone else is playing for crumbs in terms of market share and would be better off joining the Android variant parade.

What does this mean for developers? It means build for iOS and Android and ignore everything else. And I think it increasingly means you have to be on both iOS and Android as soon as you can. I have advocated for building for Android first and iOS second. I think that strategy will start making more and more sense for apps that aren’t looking to be paid.

Fragmentation cuts both ways. It’s bad and it’s good. Long term, I think it is a big plus for Android.

The post Amazon and Facebook Phones on Android? appeared first on The Faster Times.

There is a lot of sturm und drang out there in the worlds of social media, finacial media, and just plain media about all the lockups coming off and all the insider selling going on in some big internet stocks. As someone who has played this game a few times, I thought I’d post some thoughts about this.

First and foremost, this post has nothing to do with what USV has done, might do, or is thinking about doing with specific stocks we might own or not. That’s a disclaimer for those who aren’t familiar with one.

When a venture backed company goes public and is worth billions (or even hundreds of millions), the investors who provided the early capital to that company are going to be sitting on a lot of stock. They can easily own 15-20% or more of these companies. But even if they own less than 10% (as Accel Partners does in Facebook), they can be looking at billions of dollars of value.

It is an investors job to return capital. I will say that again. It is an investors job to return capital. That is how we are measured. Paper gains are fine. But at the end of the day, an investor will be measured by the amount of cash or liquid stock they return divided by the amount of cash that was invested in their fund. A multiple of three is good for a venture capital fund. A multiple of five is great. A multiple of ten is once a decade.

When an investor is looking at a single holding being worth three, five, or possibly ten times their entire fund, you can be sure they are looking to lock in that gain. That’s a recipe for fantastic performance and the downside of not locking that in is a lot bigger than the upside of another one or two times their fund size.

And then there’s the question of whether venture capital firms are good public market investors and whether they should be managing/holding public stocks. I don’t have any hard data here, but my anecdotal data says that we are terrible public market investors. That is why many VC firms have a policy of moving the public stocks out of their portfolios as quickly as they can.

I think that is a good policy. Venture capital is about capturing the value between the startup phase and the public company phase. Others should be focused on capturing the value post the public offering.

So let’s go back to the expiration of lockups and the waves of insider selling that result. This is to be expected and in fact is expected by the public markets. Look at all of the short positions that get built up in the locked up newly minted public companies in the weeks before the lockups come off. Investors know that a ton of stock is going to hit the markets and they make bets that it will impact the stock price and in most cases it does impact the stock price. As JLM likes to say “this generation did not invent sex.” This has been going on since I got into the venture capital business in the mid 80s and I expect its been going on for a lot longer than that.

So to all the folks out there who are shocked and outraged at all the insider selling going on, I would suggest they park their outrage at the door of capitalism. Those who took the risk of losing all the capital they bet on 20 year old Mark Zuckerberg are entitled to their return. And they will get it. And anyone who thinks otherwise has their head in the sand.

The post In Defense of the Facebook Sell-Off appeared first on The Faster Times.

I’ve thought Airplay was the winning model because Apple is pushing it hard and integrating it into their product line across the board. Plus Airplay supports higher bandwidth applications like video and covers greater distances.

But an experience I had this week makes me take pause on that assumption. Our newest car has excellent bluetooth audio capabilities. Everyone’s phones are paired to it and anytime anyone wants to take control of the car audio with their phone (iPhone or Android), they can play any audio app they want on their phone and the music plays in our car. This is true of most of the cars coming off the factory floors these days.

My son is particularly fond of taking control of the audio in the car and DJing. Yesterday he asked me why he couldn’t do the same thing with our home entertainment system, which is built on Sonos. We have an airport express in the line-in on the Sonos and we can Airplay from iTunes. But that doesn’t support Android phones and not all third party mobile apps support Airplay. Airplay is not ubiquitous in the way that Bluetooth is.

So I just bought this logitech bluetooth audio adapter and am going to swap out the airport express for this bluetooth adapter and see how my family reacts to that. I am betting that by replicating the experience they have in the car in our home, they will take control of our home music system with their phones in the same way they do in our car.

This shows the power of an open protocol like Bluetooth vs a proprietary protocol like Airplay. Airplay is a superior technology but it’s lack of ubiquity may mean that it doesn’t win the market in the end. We will see.

The post Using Bluetooth at Home appeared first on The Faster Times.

Mitt Romney is taking some flack for continuing to have ongoing involvement in Bain Capital well after he supposedly left the firm for good in 1999. I am not supporting Romney for President as I can’t get comfortable with his party’s views on social issues that matter a lot to me. But I have a fair bit of empathy for him on this specific issue.

I am still technically a partner in a venture capital firm (Euclid Partners) that I left in early 1996. I still get K1s from them as there remain a few illiquid investments in the last fund I was a partner in.

We stopped investing at Flatiron Partners in the summer of 2000, twelve years ago. I still sit on several boards from that portfolio. One of my partners sits on another board. We have three funds that remain active. We send out annual reports and K1s on all of them. I sign things all the time for Flatiron. And I haven’t been “active” in that business for a decade.

Venture Capital and Private Equity are “long latency” businesses. You can leave a firm, you can start a new career, a new business, or go into politics. But you aren’t going to be completely done with the investments you made and the partnerships you set up or were partners in for a long time.

I suppose there are ways to have a clean break, but they would not be simple to accomplish. You would need to be bought out and who is going to establish fair value for highly illiquid investments? Who is going to put up the money to buy you out? And getting all the investors to sign off on these changes is another hurdle. And allocating your equity to others is another challenge. That’s why I am still a partner in two businesses that I have not been active in for a long time. It’s a lot easier to just let things run off and have a departed partner be a “silent partner” with no operating role or responsibility. But even if you are a silent partner, you still need to sign stuff from time to time.

I think the Obama team is beating up Romney for something that makes great headlines and might look bad to an unsophisticated voter. But to me this looks petty and cheap. I don’t like petty and cheap. I wish the Obama team would talk about important stuff instead of beating up a guy over nonsense.

The post Why Romney Didn’t Have a Clean Break From Bain Capital appeared first on The Faster Times.

I am socially liberal. I was thrilled when Obama recognized a gay couple’s right to marriage.

I am fiscally conservative. Obamacare scares me.

I am not really comfortable in any political party. The social views of the Republican party are more frightening to me than the economic views of the Democratic party. So I hold my nose and vote Democratic most of the time. But that is less and less satisfying every day.

Living in NYC for the past ten years has been a joy. We have a mayor who is not hostage to any orthodoxy. A mayor who simply makes the most pragmatic and practical decision at the time given his various options. We have a mayor who epitomizes the values of the Far Center Party.

I believe Bloomberg would run for President if he thought he could win. And I believe he has done the math and the analysis and has concluded that he cannot. That has everything to do with how our two political parties control congress and the electoral college.

I was hopeful that something like Americans Elect would work. It did not.

Our country is hostage to the two political parties who control our electoral process. Those of us in the Far Center Party should figure out how to change that.

The post The Far Center Party appeared first on The Faster Times.