I love this stuff; the persistence part is the part that I like. It’s actually not fun when it’s happening, but you know it makes a difference because 99.9 percent of the people give up. And Vinod gave me that lesson in spades. I think I would have given up with Netscape. I wouldn’t have known what to do. I wouldn’t have had the chutzpah to just say, “No, we haven’t lost, we’re still negotiating, aren’t we?” And treating it as if I didn’t hear their “no.” It was very unfamiliar to me originally.

Livingston: Web-based email was one of those big ideas that was waiting right under people’s noses. Why did you and Jack come up with the idea first?

Bhatia: I don’t know why. Let me tell you one other thing about the Internet: there are thousands of such ideas under our noses even as we speak. Why things happen, I just don’t know. Maybe somebody has a need and, in our case, we had a need. That’s what triggered the idea. Sometimes ideas are born out of necessity: you solve a problem for yourself, and you hopefully solve it for a number of other people too.

*What I’m about to propose is very hypothetical and what would mean a major text book seller would have the vision and the balls to change the way they do business and possibly make less money via the experiment.

I would love to see a major text book publisher have the vision to move all their text books to the iPad and charge a subscription for usage.  Apple will wave their 30% cut of all revenues because this announcement would help Apple get an iPad on every student’s desks.  The major text book publisher (TBP) would charge a yearly subscription based on the number and length of access to books so something like ($50 for 1, $90 for 2, $130 for 3, $200 for unlimited) for 6 months access.

I remember spending $700-$1,000 on books a year in college so collecting only $400 over the same period of time is a losing proposition for TBP?

Not necessarily.  If TBP can build a truly innovative and collaborative eBooks platform that’s closed off to only their own books, they can corner a huge market, reduce the overall size of the pie but become the largest slice.  Here’s how they can be more profitable with this business model:

• Create a collaborative platform where users can comment on the margins, add links to other sources (like wikipedia, youtube, 5min video, etc.), and even make suggestions for editing in future editions.  Create a near open source text book experience would help TBP create the best multimedia text books in the market.
• First mover advantage on a closed but editable platform will create a stickiness factor to TBP’s text books.  For the most part, I find text books largely the same, with the teachers making the most difference in my education.  If TBP has a larger community of collaborators on their text books, I would be more likely to be apart of the the community and stay with TBP.
• Cut print and distribution costs while an active community makes edits for you for each edition.  TBP will still be able to sell print editions but editions will be community edited so content should be better and more up to date.
• I may have spent $700-$1000 on text books in a year but maybe only $200-$400 was from the same publisher.  Under the subscription model, teachers and students would both be more likely to opt for the cheaper option, not to mention the better product.  Your unsuspecting competition will be cut down at the knees.

It’s definitely a risky move for TBP but I think it would be worth it.  There are definitely more concerns that I’m missing but that’s the idea in a nutshell.  The funny thing is, the major roadblock to this type of innovation is Apple itself.  They are so concerned about controlling the eCommerce that occurs on its platform that I think it will come a time where it will stifle game changing innovation that would otherwise help grow the iPhone and iPad platform.

Mobile eCommerce

Josh Kopelman of FRC has recently written some thoughts about innovation in eCommerce.  In summary, Josh talked about how 10 years ago, most of the most highly trafficked Internet sites did not exist, however, of the top 15 most highly trafficked eCommerce sites, only 1 of them (NewEgg) is a new comer.

There has been a lot of interest in companies like Gilt and Groupon changing the eCommerce ecosystem by discovering alternative high growth eCommerce business models.  I think there are even larger opportunities for companies like them to use the mobile platform to drive a higher adoption and purchase rate.

The report goes into greater detail than I care with this post but I’d like to review some of the main inherant advantages of mobile eCommerce.

- Push notification – with smart phones, there is no longer a moment in my life where I am not connected, which is the way I like it.  The Push-notification feature allows for incumbent companies like eBay, Gilt, Amazon of offers I may be interested in or tracking.  I’ve also blogged extensively on the potential for new companies to use this feature, combined with Location-based services to push relevant, location-based offline offers.

- Location-based services – Don’t want to be redundant here so in a nutshell, convergence of digital and offline identities and offers.

- Content delivery – With the MLB.tv iPhone app, I will now never miss a Red Sox game.  With slingbox I can watch all my favorite TV shows on my mobile phone while in transit.  It’s going to be real interesting to see how the content game will change as people consume more and more media on their phones.  Will the industry be more open to allowing people to pay, a-la cart to consume content on their mobile devices?  It will be interesting to see how it will force the hardware of our phones and infrastructure of the carriers to innovate to keep up.

Increase Transparency – This could really crush brick and mortar retailers but consumers can now check prices real time to see how offline retailers compare with eRetailers.

Mobile Apps

Right now, mobile apps are all the rage and it seems like the winner of the app store battle will win the mobile platform war.  I do have to wonder though, the mobile browser still has a lot of room to grow.  As mobile standards improve and innovation occurs with browsers and language, will we still need/want to download apps in the future?  I could be wrong about this but I have to believe in the trend of democratization on the Internet platform.  I think that mobile apps will be come less important as our mobile Internet browsing platforms become more sophisticated and UI friendly.

Mobile Enterprise

There’s a huge opportunity here for a SaaS cloud player to develop some game changing mobile applications.  The iPad provides a great platform to test this opportunity, giving developers more to work with.  Not sure what verticals to address or what the real life application is but one area I have in mind is the medical field; replacing paper charts with interactive iPads that can retrieve a lot more patient information.

As mobile devices become a more frequent and efficient access point to cloud based services, consumers will be more able to work on the go, further freeing them from their desk and desktop.  SalesForce has already developed mobile tools to address this premise and I’ll be interested in following their product development.

Gaming

Mobile gaming is one of the areas where I’m most excited about.  The business model has been proven with companies like Zynga using the Facebook platform to build highly profitable and addicting games.  The same principles can be applied to mobile only apps.  The potential for the iPad to become a game changing game delivery platform is all but certain in my mind.  The inherent advantages of the mobile platform can be leveraged to increase engagement for Internet games (push notification, constant connection).  Online gaming is not really my domain expertise but is an area where I am actively learning more about.

In short, Brad noticed that his personal CTR on Facebook emails declaring that he was tagged in a photo was at or near 100%.  My experience has been similar.

Why are the Click Throughs so high on emails like this?  2 reasons:

• Information is relevant – Of course it is!  If there’s a picture of me floating around the Internet I want to see it to see if I need to find out how to permanently destroy it.  If my friends have tagged me in a message or other media content, I would have to reasonably believe that I would be interest in it.
• Information is incomplete – I am only told that I’ve been tagged and by whom.  The call to action is simple: click to see what you’ve been tagged in.  I’ve only been told enough to pique my curiosity.

Clearly this has been incredibly effective for Facebook, so it got me thinking, how can other existing businesses use this model?

Q&A Forums & Blog Discussions

For as interested as I am in technology companies, I can be quite tech illiterate with the various toys I network together (PS3, laptop, desktop hooked up to the LCD).  I’m constantly looking for answers online on Q&A forums to optimize my setup.  Often times I see questions posted but no answers yet.  It would be great if I could make 1 click to anonymously “follow” the thread in case someone does come along with the answer or if there were new updates to an answer posted previously.  Often times, if there is an email notification mechanism, the only way to opt-in would be to comment in the thread.  If this “follow” feature was implemented, websites could see a lot more repeat traffic to their site.  I would receive an email with the title of the question or thread and a link to read the new post.

The same concept applies to blogs and content sites.  I enjoy reading a lot of blogs and the discussion that takes place in the ecosystem.  However, I find it frustrating sometimes to have to check-in every once in a while to follow the discussion and each time I check-in there are an overwhelming number of different threads to read.  I would participate more fully if I could anonymously “follow” a few select threads, then receive emails throughout the day with a call to action to revisit the website to re-engage in the discussion.  At my convenience, I could revisit the select threads I wanted to read more or comment on.

I do like that Disqus sends me a notification email on the responses to my comments but here’s where they can learn from Facebook.  They currently send me the entire message via email.  If they just notified me that the reply was made, my CTR would increase as I would be curious to read the response.

In 2009, Amazon sold somewhere around 550K Kindles and analysts predict that they will sell another 2 million units in 2010.  The iPad sold 120K units the FIRST DAY of presale and is expected to sell a few million units this year.  I’m excited to see what type of new applications will grow on these new mobile computing platforms and how the they will disrupt the current antiquated book publishing business model.  I think that iPad like devices will be a huge opportunity for the gaming and advertising industries.

After Todd shot down the first trend I was passionate about, I mentioned Location Based Services (LBS).  He said it was interesting and something that Firstmark looked into but thought it was still too nascent and didn’t see an investment opportunity there.  A year later, I see foursquare making headlines with 500,000 users who collectively check in 300,000 times a day.  I see companies like yelp and facebook entering this arena as well.  I think mobile location based services will be HUGE in the future as mobile hardware catches up with what we would love to do with the software.  I mean… I did blog about it a year ago.

It’s easy to say “I told you so” a year later so I’ll expand on my LBS thesis to go into what it will become next year.  A year from now, we will see location based services move beyond twitter like updates and data collection to actual monetizing the user using performance marketing techniques we already use on the Internet.

One idea I have for converging LBS and performance marketing is to push location-based special offers from local vendors to consumers.  Here’s the use case:

As a consumer, I download the app on my iphone and sign up to receive offers from food and beverage vendors (one could conceivably receive offers from retail vendors, auto services, beauty service, etc.).  I can choose to receive pushed offers from within a distance… so for this example, within 5 blocks from my GPS location.  Now on weekends, when I walk along Lincoln Road on South Beach, I can see which restaurants are offering the most attractive deals.

From the advertiser’s point of view, they can create an advertising account online and in real time push offers to highly targeted audiences to drive offline traffic and sales.  A compelling example might be that from 3-5pm, I have to staff my restaurant as if it’s 11am-1pm but business is not as busy as during the lunch time rush.  These employees represent a fixed cost that I could offset by placing an offer for the next 2 hours that will generate incremental sales for my restaurant.  Advertisers could pay on a cost per “click” or cost per transaction basis.  The proper allocation of advertising dollars to the platform might be tricky but it’s something that can be worked out with enough thought.

Google is already doing location-based PPC ads on their maps.  I saw this when searching for the location of a retailer and saw the location for American Apparel along with my search results.  I’m not saying that example will be exactly where mobile performance marketing will go but I use it as an example of what I think can be possible in the coming year as this category explodes.

*EDIT

I started this entry Sunday night.  I swear I didn’t see this news till just now

Placecast, a platform for location-based marketing, just announced that it has added $3 million to its recent series B funding, bringing the round to a total of $8 million.The funds come from existing investors Quatrex Capital, ONSET Ventures, and Voyager Capital, and will be used to expand the company’s network.

Placecast’s service pushes offers from participating brands to users who venture close enough to a relevant retail outlet. The company’s clients include The North Face, SONIC Drive-in, and American Eagle.

But just how profitable are these health insurance companies?  Let’s take a look:

2009 Net Profit Margin of Healthcare Insurers

• Aetna: 3.7%
• Wellpoint: 7.3%
• Cigna: 7.1%
• United Health: 3.7%
• Humana: 3.4%
• Healthnet: -0.3%
• Healthspring: 5.0%
• Coventry Health Care: 2.3%
• Molina Healthcare: 0.8%
• United American Corp: 2.7%
• Unum Group: 8.4%
• Median: 3.7

Those margins look pretty modest to me.  I think the problem with health care is a misalignment of incentives.  The public needs to realize that health care is a business.  When I go to the hospital with an ailment, the doctor is providing a service for me but I am not the customer.  The party that pays for this service is the customer and in this case it would be my insurance company.  The insurance company is not concerned with the quality of my care, they just pay the bill.  If I’m unhappy with the quality of care, I’m out of luck.

So imagine a world where we didn’t have insurance (except only for the most extreme and unexpected medical cases).  I would get paid 15-20% more since my employer won’t need to pay for my insurance.  If I need an xray for a broken arm, I could go to the a yelp.com equivalent to look up the best doctor for my price point and the cheapest x-ray.  Doctors would have to provide a value proposition (best mid-price or most affordable, etc.).  The patient is the paying customer now, using John Smith’s almighty “invisible hand” (free market capitalism) to drive quality up and prices down.

This seems like a pipe dream and it probably is, but the first thing we need in our health care system is more transparency.  How much does an xray cost?  Does anyone know?  Has anyone ever tried calling a hospital and asking them?  I bet they won’t tell you.  This is why I’m a fan of Ventana.  It doesn’t do enough in my opinion but it’s a move in the right direction.

Ventana is developing a web application that provides consumers with unprecedented clarity around their healthcare costs, usage, coverage, and choices. Using proprietary technology, we enable provider and service unit-level price transparency, which is combined with consumer-specific benefit information to deliver clear, personalized estimates of out-of-pocket costs before receiving care. Layering in other information needed to evaluate provider alternatives, Ventana enables people to make smarter choices, lowering costs for both employers and employees. Ventana is currently in pilot with several visionary companies in the U.S.

Having a Scoreboard

As an analyst, I used to find out how well I was doing my job during reviews, which occurred only twice a year.  I would receive a score a score (1-3 or 1-5, I forget) on a number of key skillsets/characteristics.  This would be backed up by some anecdotal data points (both good and bad) from the senior bankers.  As you might imagine, there’s a lot of subjectivity when it comes to your review and imbetween reviews, the perception of your performance is not always transparent.

As a manager of a division, I have a daily scoreboard.  I know how much money we are making the company every hour, day, week and month.  We have monthly revenue goals to hit.  Beyond those metrics, we have other supporting metrics to measure such as how many leads we are contacting, how many opportunities are we converting, etc.  There is rarely any doubt regarding how well we are performing and it’s not subjective.  Every member of the team has their own business development style and the only thing that matters is performance.

When I first started, our division’s P&L was in the red and having this daily scoreboard put tremendous pressure on me.  Banking was a lot of pressure in that you had a lot to get done sometimes and felt like there weren’t enough hours in the day to get it done.  The pressure I felt at HC.com was different.  I felt like we had to perform and the whole company was depending on it.  It was a hard adjustment but now that we are killing it, it’s exhilarating and an hourly, daily, monthly source or pride.

Becoming a Ninja (vs. Being a Robot)

To be a good investment banking analyst, one needs to become very good at following directions and perfect a few tasks/projects that you will have to perform thousands of times during the program.  When you start, there are other analysts, a year senior to you, who can show you the ropes and you just follow their model for success.

When I started here, there was no model for success.  Howard Yeh, then VP of Corporate Development was promptly promoted to COO and my principle responsibility was to take over the responsibility of recruiting new affiliates and managing other business development team members.  Howard had some ideas on what might work but he didn’t have a proven model yet either.  We worked as a team to come up with new ad products that would enable us to partner with different affiliates in various capacities.  It was and still continues to be a struggle at times but the freedom and responsibility can be hugely rewarding.

The reason why I used the word “ninja” to describe my role is because I’ve heard it used a lot among startup communities when people talk about the type of people they want to hire or work with.  I think it’s relevant for our team because we were giving a mission to accomplish: to hit certain revenue goals.  We were given the tools/weapons to accomplish this but we weren’t told which ones to use or how to go about accomplishing our mission.  It took a lot phone calls, emails and product iterations to get to our current growth profile.  Being a ninja means figuring out a way to get results.

Hiring and Working with Ninjas

Hiring and managing other people was something I was least prepared to do when entering this job and it’s still a skill set with which I struggle.  When I was an analyst, I was the bottom of the totem pole.  The only other people I had the opportunity to manage were analysts junior to me, who I could pass on the work I didn’t want to do.

When I first started at HC.com, I still had an analyst mentality.  I wanted to run half a dozen weekly reports that would analyze the affiliates we signed, the affiliates we had to implement, the delta in our revenues by affiliates, what the reason for this delta was, etc.  This took up half of my day every Friday.  I also wanted to review emails that the other business development managers were sending, and periodically be on calls with them.  Basically, I was spending a lot of time micro-managing and not trusting the people I was working with, but sometimes it was necessary to make sure we were performing.

We recently moved a colleague from the SEO department to my department and I’ve realized the importance of hiring the right people.  She reminds me of Mark Pincus’ interview with the NYTimes, where Mark challenges each of employees to be a CEO of something.  Julia has really taken the initiative to learn as much as she can about how to become an effective recruiter of affiliates and has really become our CEO of recruiting medicare and life insurance affiliates.  I’m really proud of the work she’s done for us and it will turn into a lot of revenue for us very soon.  Her contribution moves beyond just making money for us; the fact that I don’t have to micro-manage her makes my life easier.

Not having other ninjas working for you takes time away from tasks that you should be focused on.  It diminishes your ability to be the CEO of your responsibilities.

Before moving on, I wanted to share something that I’ve learned from Julia.  Being fearless and aggressive when pursuing affiliates.  Here are some highlighted examples of some successful emails (emails that elicit positive responses) she’s sent that I would have never sent:

1.) Subj: I think I haven’t heard from you on this..

Email Copy:  Hi, just a quick follow-up to see if you received my email last week, I want to make sure it didn’t end up in your junk/spam folder.

Responses vary =) from “your email got into spam” to “I was on a vacation and just got back to office”, etc.

2.) Subj.: do you own this domain?

Email Copy: Hi Jason, do you still own this domain – domain  name?

They usually respond very quickly, confirming that they own it. And I try to respond immediately till they are warm.

3) Subj.: did you implement the codes?

Works very well with the guys who sign and do not implement immediately.

4) Killer Email: Use with caution

Hi ____,

I don’t want to be annoying, I called and emailed several times to discuss the potential partnership, are you too busy to respond or simply not interested?

If for some reason you don’t think we are a good fit for you, are you okay with telling us No?

I would be most grateful if you would say NO as early as possible so we are not wasting each others time =)

Thanks,

Julia

Limited Resources

“Resources” can refer to a lot of things when talking about business.  It could refer to capital, the available time of people who work for you, your own available time.  For the purposes of this section, when talking about “resources” I’m referring to time.

As an investment banking analyst, you are the resource and you’re a near limitless resource.  All possible financial models, analysis, presentations, graphs, charts, etc. are deemed necessary to win and service the client.  If the resource hits a “limit” as in, there’s not 25 hrs in the day, your associate (1 level above analyst) who is staffed on the deal will be forced to help out.  Sometimes, investment banking felt like a series of sprints and with each spring, a late night or an all-nighter.

Going from being the resource to having resources has been a nice change, however there has been a culture adjustment.  I had to learn that not everything that we could do to sign and service an affiliate was necessary.  I used to bend over backwards to sign and keep every affiliate but I eventually learned a valuable lesson that I’ve read from Steve Blank‘s blog and book before.  The majority of the revenue (for us probably 80%) will come from a small percentage of your customers (~10 affiliates).  Small affiliates have been just as hard and time consuming to sign but they are usually more of a pain in the ass to service.  I now spend 90% of my energy and resources on a larger opportunities who can really move the needle for us.

Having limited resources has helped me prioritize tasks against the revenue potential.  It’s helped our team stay focused on opportunities that will help us get to our goals.  It has even helped us prioritize our internal development queue as we invest in our platform.

I created this blog on wordpress as a platform to share my passion: early stage technology companies, and I encouraged my friends to do the same.  They started blogging with Tumblr about their passion: music, fashion, and art.

Now I always envied how stylish their blogs looked but I was happy with what I have on wordpress and I invested a lot of time in the learning curve.  However, yesterday I was feeling spontaneous and wanted to start blogging about music that I like.  I was going to do some research on how to add a SoundCloud widget onto my WordPress but I thought this would be a perfect chance for me to check out Tumblr.

My God, was it easy to set up.  It was so easy to set up that I accidentally set up 2 domains and couldn’t be bothered to figure out how to delete one of them since I was at work.  The domains are www.jeffreylu.tumblr.com and www.jefflu.tumblr.com and I can’t decide which one I want to keep yet because both of them have music content on it already.  Admittedly, the design isn’t great right now but it literally took me 5 minutes to set up both sites.

To me, Tumblr is like a cross between WordPress and Twitter.  It takes me less than a minute to load songs and videos up.  I have to give the Tumblr team credit in building  a product that’s both extremely stylish and relatively customizable but extremely intuitive and easy to use.  The combination of style and function makes it a very sticky product.  It’s been 2 days and I think I made over over 10 posts already.  Even their landing pages are awesome.  I try to keep these lessons in mind when creating landing pages and calls to action for consumers.

Anyways, I learned this morning from one of Tumblr’s investors that they hit a few major milestones this past month, one being 1 billion page views.  I wrote in an earlier entry, questioning whether a company should focus on building great products first without a business model and try to scale, or build a product with a proven business model and then try to scale.  Tumblr and Twitter are examples where if you focus on scale and succeed, you are inevitably going to hit a home run.

Congrats to hitting these milestones

*Edit* I had an after-thought in terms of monetization. Why doesn’t Tumblr add a “buy” function to their music player and partner with a vendor like Amazon or iTunes? Just a thought.

Some impressive stats on Picnik at the time of acquisition:

• Over a billion images have been edited on the site
• No institutional capital, bootstrapped with $1M of total funds raised
• Feb 2010 Unique Visitors: 16.8M, Feb 2009 Unique Visitors: 8.8M
• Profitable since we started working with them last year around March or April

When I met the team last year, I was struck by how the personality of the team really shone through the product.  Jon is incredibly stylish and his background prior to Picnik was with Microsoft, managing the only team that was allowed to work off-site of the main campuses in a hip office in Pike’s Place Market.  Jon, Darrin and Mike’s background has been with game development and consumer facing applications.  This definitely explains why Picnik is so fun and damn easy to use.

I really love this article from TechFlash, reporting on the email that spawned Picnik.  It’s a very thorough and well thought out business plan but an email like this is probably sent thousands of times a day.  It’s extraordinary to see the execution of that plan and finally the fruition of all the years of blood sweat and tears manifest itself in the form of a successful exit.