There are more important things than getting press

Yesterday, TechCrunch reported that ProFounder, a fundraising platform for startups, has shut down. According to the company's founders, securities regulations prohibited them from offering all the services that they wanted to, and led in large part to the company's failure. However, I don't want to dwell on the reasons for the company's failure, and instead examine the importance of one particular factor: Getting press.

If you look at the ProFounder home page (or the former home page, if it's no longer there), you'll see this near the bottom:




ProFounder, like many startups, worked hard to get press coverage; they believed that the press gave them credibility with customers and investors, and to an extent, that was true. However, startups often go to ridiculous lengths to get press coverage...even when their website is nothing more than a placeholder.

Press coverage can motivate people to visit your website...once. If you're not ready for the traffic or you can't do anything productive with it, getting press coverage is not only a waste of your time, it's actually counterproductive. Consider some of the mistakes commonly made by startups: Using your home page primarily to collect email addresses usually results in a low-quality mailing list. Collecting email addresses but not doing anything with them for months results in frustrated visitors. if your website is poorly designed, most visitors won't take the time to figure it out--they'll simply leave. If it's hard to sign up for your service, or either the sign up process or your service itself doesn't work, they'll leave. Even worse, once they leave they probably won't come back.

Press coverage that comes as a result of running a successful business is far more valuable than coverage pursued in the hopes that it will make your business successful. And, you have much more leverage over how your story is reported when the press is pursuing you, rather than the reverse. In the earliest stages of your business, social media is far more effective than press coverage for reaching potential customers.

Inkling and Vook: Is B-to-C to B-to-B really B-to D(isaster)?

Let me explain that title: If a company moves from selling to consumers (B-to-C) to selling to businesses (B-to-B), are they setting themselves up for failure? Recently, a couple of well-known electronic publishing names have changed their focuses from selling eBooks to consumers to selling eBook creation tools to writers and publishers. Vook had a highly-publicized launch in 2009 as a publisher of enhanced eBooks, which included audio and video along with text. In the second half of last year, the company changed direction ("pivoted", in the current vernacular), and focused on selling its enhanced eBook production tools to other publishers. Vook's toolset remains in beta, but the company is hinting about "major announcements soon", suggesting that they're getting close to general availability for their software.

Earlier this week, Inkling, an eTextbook publisher focusing on the iPad, announced a similar shift in strategy. Even though Inkling has been in business for about 18 months and has deals to reformat textbooks from a number of major publishers, it's only released about 200 titles so far, just a tiny fraction of the number needed to be truly competitive in the eTextbook market. In order to stimulate production of additional titles, Inkling announced that it would 1) Deliver its eTextbooks in HTML5 format that will work in many browsers, and 2) Release an eBook authoring and production service called Habitat. Habitat, which is in an early closed beta, will be licensed to publishers at no cost.

Like Apple's iBooks Author application for OS X, eBooks created with Habitat can be distributed anywhere for free. However, eBooks created with Habitat for sale must be offered through Inkling's own website and iPad app. In the case of sales through the website, Inkling takes a 30% commission. They also take a 30% commission from sales through their iPad app, but Apple takes another 30%, leaving only 40% for the publisher. Unlike Apple, which limits sales of titles created with iBooks Author to its own iBookstore, Inkling allows Habitat-based eBooks to be sold through other outlets. However, publishers have to plan for the probability that most of the sales will go through Inkling's own channel, with as little as 40% of the sales price coming back to the publisher.

Both Vook and Inkling are moving from B-to-C to B-to-B. In Inkling's case, it's using Habitat in part to increase the number of titles available in its format, but Vook is now out of the B-to-C business. Both companies are hoping to find a successful business model, but history suggests that this kind of pivot is rarely successful. In the early days of online video, many companies launched advertising-supported streaming video sites. Other than YouTube, only a handful of those sites have been successful, and a good number of the unsuccessful ones pivoted to sell the technology they had developed for running their sites to other businesses. In some cases, they sold what's now termed  "white-label online video platforms" for uploading, compressing, storing and displaying video content, while other startups sold technology for video ads. Most of the companies that pivoted to B-to-B were no more successful than they were when they were focusing on consumers. One of the few that pivoted successfully was Brightcove, which just went public today. However, even though they launched in 2004, the company has never been profitable.

Selling to businesses is very different than selling to consumers:

• You actually have to collect revenue from your customers when you sell to businesses, which means that your product or service has to have real value and be positively differentiated from competitors.
• You need a sales force, whether in-house or reps, to call on potential customers.
• The sales cycle (the amount of time needed to close a sale) can be very long, and many people are likely to have input into the purchasing decision. It may take six months or more for the customer to evaluate your solution and decide whether or not to purchase.
• Business customers demand a high level of customer and technical support. You may need to have support engineers available on call 24/7.

I've seen startups use this pivot enough times that it often seems more like a desperation move than a successful strategy. If a company wasn't successful using its tools, why is it likely that anyone else is going to be more successful using those same tools? The tools might solve a problem that doesn't exist, or provide features that the vast majority of customers don't want or need. They might be too difficult to use or too slow, which will lead businesses to try and then abandon them. Or, they might not be differentiated from other products and services already in the market.

I'm not saying that Vook's or Inkling's tools are bad, or that the companies' efforts to pivot will fail. (I've not been able to test either Vook's or Inkling's software.) However, both companies have a steep uphill climb, as does any company that tries a B-to-C to B-to-B pivot.

Aereo: Another "cable killer"?

Companies have been trying for years to offer cable television-like services over the Internet, without having to either get permission from broadcasters or pay them to retransmit their shows. FilmOn and Ivi are two companies that tried last year, but are both currently "off the air" as the result of court injunctions. Aereo, a New York-based company, is the latest to try. The company launched its service today in New York City. According to the company, Aereo is designed specifically to get around the legal limitations that shut both FilmOn and Ivi down.

Aereo will stream the signals from 20 New York City-area broadcast stations to its subscribers for $12/month, and will include a network-based DVR service that was upheld as legal by the U.S. Supreme Court last year in a case against Cablevision. All the major broadcast networks, including ABC, CBS, Fox, NBC and PBS, will be included, but cable-only networks such as USA, TNT and CNN won't be. That's one big difference between Aereo's service and those of FilmOn and Ivi, both of which offered a selection of basic cable networks. In addition, Aereo will initially only be available in New York City, and Aereo will only carry signals from local television stations--another difference from its predecessors, which made signals from stations in Los Angeles and New York available to subscribers around the U.S.

Aereo is doing one more thing that it hopes will make its service ligitation-proof: For every subscriber, Aereo will install a tiny, thumb-sized antenna in an undisclosed location in New York City. (Correction, February 15, 2012: Aereo is going to allocate each subscriber their own antenna from a pool of antennas while they're using the service, not install a dedicated antenna for every subscriber.) The idea is that each subscriber will receive the signal from their own antenna, not from a "community" antenna, and therefore, Aereo isn't a cable system and isn't bound by cable retransmission rules. It's an interesting way to try to get around the regulations, but whether the courts will agree is an open question.

Aereo has one more card to play: One of its investors is IAC, and company Chairman Barry Diller will join Aereo's Board of Directors. Diller is a former VP of development at ABC Television, former Chairman and CEO of Paramount Pictures and former Chairman and CEO of Fox, where he founded the Fox Television Network. At one time he owned USA Network. Diller is one of the best-connected executives in the media industry, and he has the experience in running and working with television networks and movie studios that neither FilmOn nor Ivi had. However, it's unclear if that's going to be of any help if the New York television stations go to court against Aereo.

Update, March 1, 2012: The Hollywood Reporter reports that not one, but two, lawsuits were filed against Aereo today to stop it from launching on March 14th. The first lawsuit, asking for a permanent injunction and statutory damages, was filed by Fox, Telemundo and PBS and their New York affiliates. The second lawsuit, asking for pretty much the same thing, was filed by CBS, NBC and ABC and their local affiliates. The Hollywood Reporter says that the two lawsuits are likely to be consolidated.

If you live in New York, have poor television reception and don't care about cable networks (or can get what you want from Netflix), it may be worth considering Aereo as an alternative to cable. If you live outside New York, don't hold your breath--Aereo's unlikely to spread to other cities until the courts determine whether or not its service is legal.

Signs of the iPadcalypse: $70 discount on iPad 2s at Meijer

Parts are flying off the iPad rumor mill. According to All Things D, the iPad 3, or 2S, or HD, will be announced by Apple at an event in San Francisco the first week of March. However, for all the sources that ATD said that it had for the story, it's still a rumor. Yesterday, however, I got another possible confirmation. While shopping at a Meijer store outside Chicago, I learned that the store is selling iPad 2s for $70 off. iPads are rarely discounted unless they're refurbished, so a significant discount at retail suggests that Meijer is trying to sell off excess inventory ahead of a new product announcement.

Meijer might not have any solid information, and may simply be doing this to keep from being stuck with inventory in case Apple discontinues the iPad 2. However, it does suggest that there's a new iPad coming from Apple soon.

Attention Joe Clayton: Can you call off your comment spammers?

Anyone who's followed the consumer electronics industry knows Joe Clayton. He was a vice-president at RCA in Indianapolis for years, helped to set up and then ran DirecTV, moved into the telecom industry to run Frontier and Global Crossing, came back into media as the head of XM Satellite Radio, and was appointed the president and CEO of DISH Network last June. Joe's very well respected in the industry, but something that DISH is doing is causing me to lose respect for the company, and he can stop it with a single email.

Whenever I post a story about any player in the home video business, such as Netflix, Redbox or Blockbuster, I get comments on the post that are very similar in tone and style, although they're always posted by different people, or at least, people using different identities. My most recent post, on Redbox's latest announcements, got this reply, from someone named "gman":

I agree that “they” have a lot to do in the meantime, but they seem confident that it can be accomplished in the next 6-10 months. Critics aren’t as confident they will be as successful compared to Netflix who has been butting heads with people like HBO and Starz. I do not intend to cut the cord anytime soon, mostly because I get my programming from my employer, Dish, but now that I get the Blockbuster @Home for $10 a month with my TV service AND it includes over 100,000 titles streaming and for disc rental I know that I have something special. The combining of these services is what pleases the distribution companies and I benefit from current TV programs, so win-win.

Notice how the comment starts as a legitimate input but turns into an ad for Blockbuster @Home. Notice also the mention of DISH as the commenter's employer. All of the suspect comments say that the commenter works for DISH, which as you may know, owns Blockbuster. However, the comments never directly acknowledge that DISH and Blockbuster are the same company. Given the similar wording and contents of the comments, there's no way that they're not being written either by DISH or by contractors working for DISH.

If DISH wants to buy advertising space on this blog, I'd be happy to sell it to them, but they'd rather get it for free. I review every comment before it's posted, and I've caught and deleted all of the promotional DISH comments before they've gone live. I'll continue to do so. As far as I'm concerned, it's cheap and sleazy, and puts DISH at the same level as spammers selling fake Viagra. None of DISH's competitors do the same thing, at least to my blog.

Update, February 12, 2012: Apparently, this post really pissed off the DISH spammers who I called out. They didn't have the courage to actually respond to my charges, but they rated the post "one star", hoping that it would deflect potential readers. So, I touched a nerve. I expect to touch a few more in the coming weeks.

Redbox partners with Verizon for video streaming, buys NCR's video rental kiosk business

Coinstar, the owner of the Redbox service that operates 29,000 video rental kiosks in retail locations in the U.S. and Canada, made two big announcements today:

• A joint venture with Verizon to enter the video streaming market, and
• A deal with NCR to acquire its video rental kiosk business

First, the joint venture with Verizon to enter the streaming video market. This deal has been rumored for months, but Verizon and Coinstar made it official today. Verizon will own 65% of the business, and Coinstar will own the remaining 35%. The service will compete directly with Netflix, and will launch in the U.S. in the second half of 2012. Coinstar and Verizon offered very few details about the service, but it will be available to all consumers with broadband Internet service, not just Verizon's subscribers.

Next, Coinstar will pay up to $100 million to acquire NCR's entertainment business, as well as pay NCR $25 million for goods and services over the next five years. NCR's entertainment business primarily consists of video rental kiosks operated under the Blockbuster Express brand; NCR licensed the brand name from Blockbuster. It's not clear whether Coinstar will convert the NCR kiosks to the Redbox brand, or will replace the NCR kiosks with its own devices.

How does all of this add up? Redbox was already the top video renter in the U.S. with 30 million customers, and the acquisition of NCR's business will both give the company even more locations and eliminate a competitor. The net result is that Redbox's video rental business, which is profitable and growing, will get even bigger and be better positioned to take business away from Netflix.

As for the streaming service, Coinstar's approach appears be the reverse of Netflix's, which is deemphasizing its video rental business in favor of streaming. Redbox appears to be betting that its kiosk rental business will remain strong while using Verizon's capital and infrastructure to stake a position in the streaming business. Verizon and Coinstar have released no details about their new service, so it's currently the equivalent of a "Watch This Space" sign. However, they have a lot of work to do before they launch, including:

• Signing licensing and distribution deals with content providers
• Building infrastructure to support video streaming across the U.S., not just on Verizon's own network
• Writing video clients for PCs, Macintoshes, iPhones, iPads, Android devices, Roku, Google TV, etc.

We'll know far more about how competitive the Verizon/Redbox service will be in the next six months.

Update, February 22, 2011: I just noticed that those pesky DISH spammers voted this post "one star" as well. If you're going to "p---" on the people who cover your industry because they refuse to give you free advertising, it most definitely will come back to bite you. At the very least, it opens questions about the financial condition of a company that has to rely on spammers instead of paying for advertising. But, I understand that DISH may be cash-poor after being forced by the courts to pay TiVo $500 million for stealing its technology.

The problem(s) with eTextbooks

The eBook market is growing dramatically, especially in the U.S., but eTextbook usage in colleges and universities is growing at a much slower pace. There are no good statistics on eTextbooks' share of overall textbook usage, so surveys and anecdotal reports are taking the place of hard facts. Kno, a distributor of eTextbooks, released a survey last week that said that, of 400 students at four California community colleges who used the Kno eTextbook application with an open source textbook, 95% found it very useful and plan to use it again. However, an article yesterday in the University of Rochester's Campus Times quoted the manager of the school's bookstore as saying that in most cases, students rent or purchase eTextbooks only when the bookstore is sold out of the print versions. (The bookstore has sold eTextbooks since 2004.)

The Kno study focused on a pilot program that used a free textbook, so as much as they may like Kno's app, it's impossible to draw any conclusions as to whether or not students would be willing to purchase eTextbooks from Kno. The Campus Times article says nothing about students who use and like eTextbooks--and there have to be some out there. There have been other stories and surveys, with equally conflicting results.

Given what I've seen in the market, I believe that there are two fundamental reasons why eTextbooks haven't taken off: Price and selection. In general, eTextbooks are priced much less than new print textbooks when purchased, but they're more expensive than used textbooks. What's more, eTextbooks can't be resold, so the student can't recover any of the purchase price. eTextbooks are also more expensive to rent than used print textbooks. Students are very price-conscious, and any usability advantages of eTextbooks (such as the ability to keep an entire semester's worth on a single tablet) are outweighed by their increased cost.

Selection is the other issue. The number of available eTextbooks is increasing all the time, but many print textbooks are still unavailable in eTextbook versions. If the textbooks required for a course aren't available in digital versions, students have no choice but to buy or rent them in print.

The Campus Times article also points out another potential roadblock: Some vendors only make their eTextbooks available for use on personal computers, while many students prefer to use them on tablets. For example, Barnes & Noble's Nook Study eReader software, which is designed specifically for eTextbooks, only works on PCs and Macs. Since most vendors either use proprietary formats or attach DRM that makes it impossible to use their eTextbooks in other eReaders, students are limited to the capabilities provided by the vendor's software.

Apple's eTextbook initiative addresses the price issue, with all textbooks priced at $14.99, but as of this writing there are only ten titles available, and they're all for K-12 students, not college students. No one has managed to address both the price and selection problems, but it's not clear that the publishers, which control both price and availability, really care. Publishers are primarily interested in using eTextbooks to kill the used textbook business, which has been a thorn in their sides for decades. However, they're not willing to accept lower profit margins over the course of several years in order to do so. eTextbook resellers don't want to take the margin hit either, so it's likely that eTextbooks will remain a niche business for the indefinite future.

eyeIO: New compression technology company signs up Netflix as its first customer

It's not unusual for developers to claim that they've improved the efficiency of video compression algorithms, but they usually result in one of two outcomes:

1. The changes result in a new compression scheme that's not accepted as a standard, or
2. The changes don't result in the savings claimed by the developers.

A Palo Alto-based startup is claiming that its new compression algorithms result in bandwidth savings of 20 to 50 percent with better quality, and that the output is 100% compatible with H.264, meaning that it can be supported without changes by tens of millions of existing devices. The correct response to such an announcement would usually be "I'll believe it when I see it", but the company, eyeIO, has signed up Netflix as its first customer.

FierceOnlineVideo reports that Rodolfo Vargas, Microsoft's former Senior Program Manager for Video, CTO of three startups and the former co-chair of Video Streaming and Internet Interactivity at the DVD Forum, approached Netflix with a rough version of the algorithms in September 2010. Netflix tested the prototype with a variety of content, and suggested that Vargas start a company to develop the technology. EyeIO started working with Netflix formally last June, but the companies' partnership was only announced today.

Vargas brought in Charles Steinberg, who's well-known in broadcasting electronics circles from his time as CEO of Ampex and President of Sony's Business and Professional Product division, and Robert Hagerty, the former Chairman and CEO of Polycom, to partner with him. EyeIO's market targets are fairly obvious from the backgrounds of the founders: PC and mobile video, broadcasting and videoconferencing. In addition, there's likely to be strong interest from cable and IPTV operators; eyeIO claims that a single 1TB 7200rpm hard disk can serve more than 400 simultaneous 1080p streams, which would have a big impact on VOD systems.

Netflix won't disclose how much content it has compressed using eyeIO; Vargas will only say that it's "a humongous amount". For its part, eyeIO didn't announce any products or services today, so it's not clear how the company plans to distribute its technology. Will it license its algorithms to hardware and software video compressor vendors, or will it sell its own hardware and software? Will it license its technology to cloud compression service providers? All of that remains to be seen.

I'm very curious to see how well eyeIO's technology actually works in third-party testing, which may come in a few months. For now, all we have is the fact that Netflix is using it--but given that company's bandwidth and storage demands, Netflix's endorsement carries a lot of weight.