I’ve been hearing frequently that the best business model you can have is to be a marketplace. I heard it on this podcast from a16z “The Marketplace Rules” and again today when i read the HBS article called “What Airbnb, Uber, and Alibaba Have in Common“
The article states that there are 4 types of businesses in the world:
- Asset Builders: These companies build, develop, and lease physical assets to make, market, distribute, and sell physical things. Examples include Ford, Wal-Mart, and FedEx.
- Service Providers: These companies hire employees who provide services to customers or produce billable hours for which they charge. Examples include United Healthcare, Accenture, and JP Morgan.
- Technology Creators: These companies develop and sell intellectual property such as software, analytics, pharmaceuticals, and biotechnology. Examples include Microsoft, Oracle, and Amgen.
- Network Orchestrators. These companies create a network of peers in which the participants interact and share in the value creation. They may sell products or services, build relationships, share advice, give reviews, collaborate, co-create and more. Examples include eBay, Red Hat, and Visa, Uber, Tripadvisor, and Alibaba.
And of those four, the Network Orchestrators are rewarded the most in the market:
Because they actually generate better business numbers:
It makes sense as these businesses can scale faster and more efficiently than any traditional business. I’m always a bit amazed that eBay isn’t more recognized as the leader and pioneer in this category. What they did 15 years ago is what many of the marketplaces are trying to replicate today. Kudos to them.
That’s it. Just wanted to share the article…
Yesterday, Kapost announced that it closed another $10 million dollars, some of it from Salesforce. Salesforce is the arguably the biggest and most badass B2B company on the planet so to get an investment and endorsement from them is huge.
This is a great accomplishment for the team. It’s never easy raising money and this round took around 4 months to put together (maybe more)
Also, Megan over at Techstars shot a video of us in the office and just pushed it out. Here it is:
This is post #8 about the Qloud experience. The previous post was about about running out of money and pivoting.
The year is 2007 and Toby and I have a great idea to build a comprehensive music service. There were no web streaming services at the time. Some of the players were:
- eMusic – a service for indie artists where you could download mp3’s.
- PressPlay – a Sony sponsored music service that has only 2 labels and also required a download
- Rhapsody – a pretty good service that required a player download and costs $20 a month
We started building the service and went around to all the music labels and providers we could find to license the actual tracks so we could serve up the songs to our users. Turns out that’s not easily done in 2007. To get music you have to strike individual deals with each individual label. Those deals require time (which we didn’t have) and money for upfront payments (which we didn’t have). Hmmm.
Luckily we figured out a nice loophole. Google bought YouTube in 2006. Right before that acquisition YouTube gave equity to the music labels. In exchange for this equity, they struck a deal that forbid the labels from suing YouTube for 2-3 years (I’m not sure of the length). This was a little-known fact, but it was true.
It is also true that almost every music track in existence is available on YouTube. This was pre-Vevo. So, we decided that our backend streaming service will actually be powered by YouTube. Nobody had every tried this, but it allowed us to (a) serve all our music for free; (b) be legal; (c) embed our music right into a browser without asking uses to download a player.
We did one other smart thing. Turns out there are many many videos for each song. Some are correct and some aren’t. We didn’t have time to go through millions of tracks, so we build into the service the ability for users to mark which YouTube video is correct for that track. They could play up to 10 different videos and vote for their favorite. By default, we play the video with the most votes. This tuned out to work really well. Once we launched our users would spend hours voting on videos and helping us curate our library.
We build the service in 4-5 months. Now we just needed to launch. Read about how that went in the next post…
This is post #7 about the Qloud experience. The previous post was about about our massive product pivot.
We launched our initial product and the public reaction was terrible. The usage was low. See what happened and how we felt in the bog post: Launching the World’s First Real Music Search Engine.
It’s now the Spring of 2007. We’ve been doing the company for a little over a year and we were running out of money. We had rounds of funding spelled out in our deal with Revolution, but for the next round they could fund us or not at their discretion. When we brought up the subject to them, they decided to not fund us.
This is post #6 about the Qloud experience. The previous post was about Developing our service in Romania.
We had launched the world’s first music search service that searched on tags and usage. It was revolutionary. The problem was that nobody cared. The amount of use we had was small. Granted, we didn’t iterate on it much and maybe over time usage would have increased, but out of the gates it was DOA.
The few thousand customers we had we talked to and grabbed feedback from. They wanted more. Just a list of songs wasn’t enough. They wanted everything. Specifically:
- On-demand music. They see a track, they want to click and play it right then and right there (in the browser)
- Major label music – all the popular stuff for the 4 major music labels
- Indie label music – all the niche stuff from the dozens of indie labels
- Unlimited music – they wanted no limit to what they could do (unlike radio stations)
- Free. They didn’t want to pay because the alternative at the time (Kazaa, Bit Torrent, etc.) were all free
So, we decided to focus on delivering a full-featured music streaming service instead of a music search service. It was a bold move, but desperate times call for desperate measures.
It turns out we were right. This was the right direction as you’ll see in a later post. However, it created different problems such as:
- How do you build a business around free music? (answer: you can’t)
- How do you make the record labels happy if you’re not charging? (answer: you can’t)
- Technically, how do you get the music to serve to the users? We’ll address in a later post.
I learned a valuable lesson here in that you shouldn’t be afraid to drastically change your service if your usage is low. Don’t hang on to past work just because of the sunk costs. I’ll credit Toby for being super bold. Toby is not one to do things half-assed. He likes to pick a direction and go full steam in that direction. It’s tough to make a decision to throw away a year’s worth of work.
This would come in handy later when we did something similar at Kapost.
This is post #5 about the Qloud experience. The previous post was about launching our first product – a music search engine.
When we started building Qloud we found some developers in Romania. This wasn’t just Bucharest, this was a town 8 hours NW of Bucharest in the mountains of Transylvania. We started with 3 or 4 developers and they fit our budget nicely ($15/hr back then). The early guys were Luci (team lead), Sergiu, Mitza, Dragos and Szaby. The owner of the company was Dan Masca.
Dan is a fatastic guy. He also sort of runs the town. It seems that he employs about 1.5x more people than he needs to just because he wants them to have jobs. He also buys computers for many of the local business and schools. Walking the streets with Dan, you get the idea that he’s something of a saint in that town.
The developers were also great. We talked with them every morning at 8am EST for about 2-4 hours about what we were building. There was no language barrier. In fact, when we started Kapost in 2009 we started it with Szaby and Mitza. Those two are studs. Mitza left Kapost after 4 years to start his own company and Szaby is still with us and one of our most trusted and senior developers.
In 2006, once we raised money, we thought it’d be good for the team if we all met in person and got to know each other. Thus, Toby and I flew to Romania to see them. We flew into Bucharest and then took a train to Targu Mures.
This is post #4 about the Qloud experience. The previous post was about our getting funding from Steve Case.
Qloud’s initial product was a music search engine. It was based on a few assumptions.
- Consumers have unlimited music at their fingertips
- With this amount of supply, they are overwhelmed and not sure what to listen to
- There is no way to easily find music. Almost all discovery is social and person-to-person
Our solutions was to provide a music search engine. All existing music search engines then (and today) are based on song title and artist name. So, if you search for “dance” you’ll get Steve Miller’s “Dance Dance Dance” which isn’t actually a dance song.
So, how were we going to do this? We were going to capture demographic, play counts, and tag data from users from an iTunes plugin. Then with that data, we’d allow people to search for music. You do a search like “What is the most played song tagged ‘dance’ by 24 year olds?” and we’d display the results. It was pretty damn cool. You could find lots of good music and really see the different music being played by different groups.
We launch in the fall of 2006 and we were excited to see what happened. Ultimately, like many startups, we thought it was cooler than everyone else. We got thousands of users but none of them stuck or were passionate about it. Why? There was one problem – the users wanted to play the songs that we delivered. We just listed the songs and provided a 30-second preview. That wasn’t even close to being enough.
Back in 2006, you couldn’t easily license full tracks of music to be played in the browser. There were a few companies (like Muse) who had 30-sec clips but nobody had full tracks. That’s what people wanted. Eventually we gave it to them, but that’s a later post.
Ultimately, it was a disappointing launch and our investors started to lose faith in us and our vision. I think we were victims of not thinking large enough. We set out to solve a problem, but that problem wasn’t big enough. Providing a good music search was cool, but what people wanted was a more complete solution. We were a bit naive.
This is post #3 about the Qloud experience. The previous post was about our initial fundraising experience in Silicon Valley and DC.
Seven months into the Qloud process we secured financing from Steve Case’s fund called Revolution. We were psyched and pushed ahead on the product.
A couple of cool things happened with this such as we got to work in Revolution’s office. The office was right in Dupont Circle (walkable for me) and was really beautiful. Super pimped out. We worked on the same floor as Case and the Revolution team. Other people on that floor were folks running Club Med, Fannie Mae, and Carly Fiorina who had just left HP.
I thought at the time that signing on a big name like Steve Case would help in our product adoption and marketing (“New Music Service from Steve Case!”), but it didn’t work that way at all. We weren’t allowed to use his name as PR. Similar to how VC’s don’t want to invest/help until you show traction and growth, Revolution didn’t want to associate themselves with us until we had some success. It’s funny how that works. Only once you’re loved will others express their love of you. Read the rest of this entry »
This is post #2 about the Qloud experience. The previous post was about jumping ship and starting the company.
Once we started Qloud, we started building the product and also started fundraising. From day one, looking at our finances, we knew that we had 6 months to get the company to a place where we could raise outside capital. Not only did we need to get the product built and working but we needed to hone our pitch. We came up with what we thought was a compelling vision and set out to talk to investors.
Our pitch was that what we learned at Ruckus was that music discovery was a huge problem. Talking to students it was clear that all discovery was word-of-mouth. Qloud was going to be a way to allow people to find new music without having to ask your friend down the hall. We were going to do that in 2 ways:
- we would offer a music search engine where you could search by tags and by demographic. For instance, i want all the music tagged “happy” that is being listened to the most by men age 18-20 who live in Los Angeles. This would return a list of songs that you could then sample.
- we would allow people to tag music inside their iTunes. By creating a tag cloud, we would enable on-demand playlists for “happy” or “summer” or “breakup” inside the player. This tagging and information from the iTunes would power the search capability provided in step 1.
This is the first of some posts about the story of Qloud. It’s now been over 8 years so I should start sharing the stories. This first post is about how Toby and I made the leap to quick our jobs and start Qloud.
Ruckus, a music startup, was failing as a startup. Mostly because music subscriptions weren’t something that University students wanted. They wanted music for their iPod. We were giving them free music that didn’t work with their iPod. So, it was time for a pivot as a business. Toby and I did some research and found that music discovery was a big missing element in these student’s lives. With unlimited music, they didn’t know what to download. They couldn’t think of anything. So, we wanted to give that to them. And we wanted to do it on our own. The fact that we came up with this idea while at Ruckus led to them trying to sue us later, but that’s another blog post.
I had started a company in college (HanoverDelivers.com) but i was a student then and starting it carried no risk. I was now a 29-years old and leaving Ruckus meant leaving a good salary and a good job in a VC-backed startup. I debated it for a while. Ultimately, I ended jumping because it was a challenge that I wanted to take on. Naively, it seemed like fun.
So, I jumped. Toby and I started Qloud on Jan 1, 2006. We had no office, no revenue and no product. I had to reduce my expenses so I sub-letted my apartment and moved into Toby’s basement.
Toby lived in the ‘burbs and had two young kids (age 3 and 5). Every day, I would wake up early, work all day in the basement with Toby, come up for dinner with the entire family, play around for a little while and then retire to the basement to read, work more or just sleep. I quickly became uncle Mike to the girls. It was a really enjoyable time even though I was single and lacked any good dating prospects.
We started right away. We built some wireframes, did a deck (that’s what AOL taught us to do) and hired a few Romanian developers (Luci, Sergiu and Mitza). One thing I noticed right away once we were focused on our new company is that I never, ever, thought that I should have stayed at Ruckus longer. If you ask anyone who has quit their job and started a company they never will say that they left too early.
I also am grateful that I was single and in my twenties. I had no expenses. I had no expectations of money. I could take major risks in my life. I could focus all my energy on the company. I think about my life now – with wife, kids, house, etc. – and while I’m much better at the startup game, I’m less likely to take risks like that. My advice to anyone who is thinking of starting a company is to do it as soon as you can. You won’t learn what it’s like without doing it. You just won’t. So start as soon as you can.