During the internet bubble, Alan Greenspan famously fretted that "irrational
exuberance" was clouding the market's better judgment. Notwithstanding his
ultimate foresight, at the time I remember thinking, would he prefer "rational
exuberance", or would even this type of optimism be too giddy for his taste?
Rational exuberance is a good frame-of-mind for the growing group of both
entrepreneurs and larger companies developing applications purely for broadband-connected
consumers.
First of all - hooray for these initiatives! They mirror the creativity that
accompanied the start of the internet itself and are critical to continuing
to fuel the economic growth that the internet has created. After a few gloomy
years, the spirit of innovation is again alive and well...
History's Lessons
However, I think one critical difference between the approach of the original
group of successful internet entrepreneurs and the current group of broadband
application enthusiasts relates to their distribution strategies.
The original group choose not to pursue big distribution partners initially
or maybe ever, instead relying on organic growth or clever, low-cost marketing
tactics. This original group would simply build their web sites or applications
and put them up on the net. If they were compelling, they would be quickly
discovered and passed on by their newly enamored users. It's hard to remember
back that far, but that is how today's most prominent sites: Yahoo, Google,
Ebay, Amazon and others got started. If you're thinking "yeah, that worked
then, but it won't work now..", the reality is there are many web sites and
applications that have followed the exact same logic and steadily built their
audiences, just in the last few years.
At some point in the late '90s, this strategy gave way to a "we must get big
as fast as we can" mantra. Well-financed dot coms came to believe that big-time
distribution deals were the key to their success from day one. They gave millions
of dollars to big distributors like AOL and others, often for lousy deal terms
such as payments up front, meager performance efforts, and chunks of free equity.
Getting Back to the 'Net's Roots
I detect some vestiges of this "big-time-distribution-from-day-one-is-the-key-to-my-business-plan-succeeding" attitude
among broadband developers whom I've met with in the last six months. Often
they believe that landing big MSOs broadband as distribution partners is a
key early success factor. I think this is a highly risky strategy that will
yield questionable results.
My advice is to remember how the original group thought about distribution,
and stay close to the same path. So how does a rationally exuberant broadband
application developer proceed successfully, using the lessons of the successful
early internet entrepreneurs?
Here are 5 guidelines for broadband applications developers to keep in mind:
- Launch your application - your target users can get it directly
The greatest thing about the internet remains its "frictionless nature" - there's
no gatekeeper standing between developers and their target audience. Get yourself
a URL and you're in business: more than 25 million broadband homes, plus millions
of business and campus users out there who can instantly get access to what
you've created especially for them.
- Optimize your product and refine your business model
Version 1 of internet applications tended to be pretty shoddy compared to what
they ultimately grew into. The key is to get user feedback and focus resources
on refining the product. This feedback includes allowing your community of
users to comment on how you propose to monetize your efforts. This is valuable
info for how to structure the big-time distribution deals when the time is
right.
- Creatively build your initial audience
Seek out low cost ways of getting the word out. Maybe it's search terms that
are underutilized and therefore inexpensive. Or maybe promotional deals with
smaller, but hungry partners who value what your application brings to their
audience and will accept reasonable financial terms. Or maybe community-of-interest
tools like blogs, social-networking or online forums that reach your target
user. Remember the famous "I want my MTV" community outcry of the 1980s.
Be creative!
- Generate evidence to back your story
Hard data always trumps Powerpoint presentations, no matter how elegant they
are. Real-world usage information guides your continued product development
efforts, and is invaluable in proving the value of your application, so it's
clear you're not the only one who has drunk the Kool-Aid.
- Finance the plan adequately and keep the cash burn rate low This is tougher
to do than ever for both startups and internally financed initiatives. The
first four steps will all make your case stronger and give you much needed
breathing room if results stray from forecasts. Financial strength is critical
in any negotiation, but particularly when you're dealing with a multi-billion
dollar entity.
When these steps are executed properly, they set the stage for timely and
advantageous distribution deals with MSOs and other broadband service providers.
If a developer's pitch for MSO distribution relies on nothing but its own speculation
(enthusiastic as it may be) for how the MSO would benefit from distributing
the application, a deal is unlikely to get too far. In fact, you actually run
the risk of hurting yourself, because you may have used up scarce political
capital in the form of personal and professional relationships to even get
the meeting in the first place. Getting the next meeting when you have more
to show may not be as easy.
When MSOs are presented with real-world experiences and data derived from
following the above steps, they should be able to clearly understand the benefits
they'll derive from a deal. As always, well understood self-interest is a strong
motivator in helping make a deal happen. Remember, someone in the MSO organization
has to become a personal champion for why the deal makes sense. The better
they're armed with your evidence, the more likely they'll be willing to go
to bat for you and get the deal approved.
I think this is a rationally exuberant approach that Mr. Greenspan would like!
