Wednesday, October 15, 2008

Think Content Out

As a Venture Capitalist who spends a lot of time in Southern California, I have noticed that the region naturally lends itself to entrepreneurs who are able to think in a sophisticated fashion about the value and syndication of content. At Clearstone, we are calling this "content out" and some of those models stand in stark contrast to the "eyeballs in" model so prevalent in web startups. Many of these companies rely on their content to differentiate themselves from other players in their industry, and each is finding that they need to become masters of the content of their industry. When I look at the risk profile of these businesses, I get pretty excited for several reasons.

1. Content distribution is far superior than an ad network as it provides a greater value to publishers, especially when that content comes with its monetization. This comes through with great margins -- where ad networks typically have lower margins.

2. The web is really about content. Our initial web experiences were web page, url based. However, people dont want web pages, they want information to make decisions. Initially the content of the web was organized around pages and sites, but those bonds are breaking in lots of ways and I believe industry content will play a more up front role going forward.

3. The risk profile of the business changes for the positive. Creating "eyeballs in" business, that is portals and sites that measure their world in terms of SEO, SEM, cost of customer acquistion, CPM and lifetime value of customer, is a lottery style business risk. When I walked the floor at one of the recent tech conferences every company was effectively saying "invest in me, I am going to be the next web brand/url phenomenon!" Again the rewards are lottery style for getting this correct, but I think it is lottery math as well. The infrastructure "content out" business has a better chance of creating an enterprise value worth hundreds of millions of dollars (lets say getting to $10MM a month in revenue), but has to prove the challenging case of why the enterprise value will be worthy of instutional investment. I like this style of risk (!) and these types of investments as I believe content will emerge as a powerful investment theme.