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From student hacker to start-up mogul – an audience with Jonathan Teo

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“The man with the Midas touch…”

Jonathan Teo, tech VC with a Midas touch, has been back in Australia recently, and found time to stop by Lean Startup Melbourne for a Q&A with Michelle Bourke in front of an audience of 350 members of the local startup scene.

With a track record that includes Twitter, Instagram and Snapchat in his portfolio of start-up investments, Teo is obviously someone who deserves to be taken seriously, but the candour and humility with which he talked about his experience made for a very down-to-earth evening with such a high-profile investor.

As usual, the event was hosted by Inspire9, with generous support from Kussowski Brothers, Startup Victoria, Products Are Hard, BlueChilli, Investors’ Organisation, Startup Weekend and National Australia Bank.

Teo’s backstory has been told elsewhere (childhood in Singapore, college in Sydney, post-grad at Stanford, Google engineer, venture capitalist…) but the combination of having a great mentor, working in the (then) emerging technology of cloud computing, and some “right time, right place” good fortune has provided him with a powerful platform from which to join the upper echelons of silicon valley VCs.

“The Secrets of My Success”

Naturally, people wanted to know the key to his investing success. Rather than referring to some “special sauce”, Teo pointed to some simple principles:

  • Relationships – strong relationships are essential, both within the founding team, and across the right networks and insiders
  • Self awareness – many founders don’t see their own capability gaps, and therefore can overlook inherent weaknesses in their business
  • Key metrics – know what run-rates the business needs to achieve to meet its performance goals (cash burn rate, retention levels, acquisition costs, daily and consecutive customer usage)

In particular, Teo stressed that new distribution models form the lens for assessing new investment opportunities.

“Show me the money!”

During a discussion about bringing in investors, Teo was pretty sanguine – what works for some start-ups, won’t work for others. If you can self-fund, then do so; if you do need to tap external funding, start with friends and family (who will generally be more patient than professional investors); and if you have to bring in VC’s, make sure you know the trade-offs. He also suggested that crowdfunding is great for consumer plays, but ultimately valuations are determined by demand.

“New Thang”

When asked where “the next big thing” was going to come from, Teo was understandably coy (or simply discreet), and politely suggested it could emerge from somewhere in the audience. What he did offer were some thoughts on emerging trends that will influence future start-ups:

  • Fewer mass-market consumer products – according to Teo, “only China can support a purely domestic consumer play”
  • Less focus on patents, more emphasis on survival – not that IP isn’t important, just that the cost and effort of securing patents mustn’t outweigh the need to generate revenue in the early stages
  • Content niches – unique content is key to attracting advertisers and subscribers, and when combined with rich user data makes for compelling communication and network apps
  • The human touch – products that bring a more human digital experience will gain traction

Finally, Teo predicted the growth of disposable hardware – not sure I agree with this one, but I understand what he is getting at. Personally, I’d be more interested in recyclable hardware, and greater user-serviceable and customisable components.

Declaration: Thanks to the hosts and sponsors, I along with everyone else enjoyed the bounteous gift of free pizza laid on by the organisers.

Has web-traffic analysis just got better or worse thanks to Google search encryption?

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Last month, WordPress informed its customers that Google has expanded search encryption to cover any search except for clicks on ads. The impact will mean less detail about which keyword searches are driving traffic to your website. Debate among industry observers suggested that this was done either in response to security-related issues, or simply to maximise ad revenue.

I’ll leave you to decide what the real motive is, and to determine what your own response should be around SEO strategies. My sense is that content owners and social marketers will sharpen their use of keywords, and devise new tactics to maximise the value of web traffic analytics. As one commentator has observed, Google has a near monopoly on search – but in the end, it’s their platform and they’ll do what they want with it.

From my own analysis here at Content in Context, the number of “unknown search terms” far outweighs precise keyword or search strings, but thanks to the WordPress stats, I am still able to get a reasonably informed sense of what drives traffic to this blog:

  • Social networks (Twitter, LinkedIn, Facebook, etc.) account for about half of all referrals to Content in Context (including 10% from Reddit, even though I do not actively participate on that platform)
  • Search engines comprise about one-third of referrals (with Google Search accounting for over 90%)
  • Meetup is an increasingly important source of referrals
  • Embedded links (used selectively) can also be a useful source of referrals

I have found some interesting citations to my blog (including undergraduate study forums), and I figure I must be doing something right when third parties approach me to write about their products or to include advertorial content in my blog – and of course, I would declare any such interest when it arises!

Even though I do not pay for Google ad words, or undertake any paid-for SEO, this blog comes up 2nd (after paid results) when using Google search for “Content in Context”.

One outcome from Google search encryption will undoubtedly be a renewed focus on providers offering contextual search solutions, because keyword search relies primarily on frequency, proximity and assumed relevance of search terms, rather than actual contextual meaning.

So, in some ways Google’s decision to encrypt all search will make everyone else lift their game, which can only be positive.

Has digital killed the music industry?

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Or, more specifically, has disintermediation broken the business model?

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Ever since the invention of compact cassettes in the 1960s and the arrival of the Walkman in the 1970s, pundits have been predicting the end of the music business (remember those “Home Taping Is Killing Music” campaign logos of the 1980s?) – a theory that look set to come true in the 1990s with the launch of mp3 players and peer-to-peer file sharing. Yet, rather like Mark Twain, the death of the record industry appears to be greatly exaggerated.

Most debate about the demise of the music industry is predicated on the impact of technology that facilitates music piracy, whereas in reality the business model has been broken as a consequence of digital disintermediation.

For most of its history, the recording industry was a model of vertical integration. The major record labels owned the content, the means of production (recording and manufacture), the publishing and licensing activities, the distribution channels – and in some cases, they even manufactured the hardware, owned the retail stores and promoted live concerts.

The 1970s began a rapid process of horizontal integration, as the major record labels merged with one another at such a rate that by the late 1990s there were really only four global companies – Sony, Warner, Universal and EMI. At various times, each of these companies has also been affiliated to substantial film, electronics and publishing interests – further proof of the vertical and horizontal integration.

The “Big Four” have now been reduced to just three with the sale of EMI to Universal. European Union Competition rules resulted in parts of the EMI group of labels being divested to Warner, and the music publishing division being sold to Sony/ATV Music Publishing.

EMI was probably the epitome of vertical integration – but over the years, it was forced to sell or close assets like its UK manufacturing plant and the HMV retail chain, and came close to selling off London’s Abbey Road Studios (a decision that was reversed following public outcry and reinforced by a heritage listing). Some observers blame poor business decisions and weak digital strategies for EMI’s demise, but I would argue that the highly integrated model has been found wanting, and EMI was a dinosaur that could no longer survive in its current form. For example, despite some errors of judgement (such as putting “Copy Control” software on their CD’s which affected their ability to play on personal computers), in many ways EMI was something of a pioneer in digital music – being one of the first major labels to remove DRM from its downloads, and licensing its content for streaming services.

Despite the rampant corporate contraction, the growth of digital download platforms and the expansion of music streaming services, it’s clear that record labels still have a role to play in developing and distributing new content. Independent labels, distributors and retailers continue to wax and wane according to the fortunes of the wider industry, and technology makes it even easier for artists to self-release their recordings direct to the customer – but record labels provide the financial and marketing support that are critical to commercial success, and other intermediaries (publishers, distributors, licensees, retailers, promoters, etc.) continue to add value to the supply chain.

In fact, just this week, Billboard has been running a poll on whether Universal and Sony should break away from their parent entertainment conglomerates – the theory being that the music labels represent greater value on their own, especially when unencumbered by ailing electronics and movie businesses. Results so far suggest that ownership does not matter so much as having the best strategies for, and access to, the means of content creation and distribution.

At the same time, the music industry is going through another round of vertical and horizontal integration and disintermediation, driven by new technology, new distribution platforms and new business models linked to the way we access and consume content. So, while Apple’s iTunes platform has been accused of anti-competitive practices in its dealings with content owners, it also faces competition from music streaming services like Spotify, Rdio and Pandora, and new content platforms like Twitter’s #music and Vine. And if sales of new CD’s (and even mp3 downloads) are reportedly declining, there is still healthy demand for live music events especially those linked to the marketing of established back catalogue titles, which is where record labels come into their own as curators of re-released and re-packaged content.

In conclusion, here are some random reasons why I think the music industry is actually in good health:

Whose content is it anyway?

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Faust 2.0

Every social media and digital publishing platform is engaged in a continuous battle to acquire content, in order to attract audiences and bolster advertising revenues.

Content ownership is becoming increasingly contentious, and I wonder if we truly appreciate the near-Faustian pact we have entered into as we willingly contribute original material and our personal data in return for continued “free” access to Facebook, YouTube, Google, Flickr, LinkedIn, Pinterest, Twitter, MySpace, etc.

Even if we knowingly surrender legal rights over our own content because this is the acceptable price to pay for using social media, are we actually getting a fair deal in return? The fact is that more users and more content means more advertisers – but are we being adequately compensated for the privilege of posting our stuff on-line? Even if we are prepared to go along with the deal, are our rights being adequately protected and respected?

In late 2012, Instagram faced intense public backlash against suggestions it would embark upon the commercial exploitation of users’ photographs. While appearing to backtrack, and conceding that users retain copyright in their photographs, there is nothing to say that Instagram and others won’t seek to amend their end-user license agreements in future to claim certain rights over contributed content. For example, while users might retain copyright in their individual content, social media platforms may assert other intellectual property rights over derived content (e.g., compiling directories of aggregated data, licensing the metadata associated with user content, or controlling the embedded design features associated with the way content is rendered and arranged).

Even if a social media site is “free” to use (and as we all know, we “pay” for it by allowing ourselves to be used as advertising and marketing bait), I would still expect to retain full ownership, control and use of my own content – otherwise, in some ways it’s rather like a typesetter or printer trying to claim ownership of an author’s work….

The Instagram issue has resurfaced in recent months, with the UK’s Enterprise and Regulatory Reform Act. The Act amends UK copyright law in a number of ways, most contentiously around the treatment of “orphan” works (i.e., copyright content – photos, recordings, text – where the original author or owner cannot be identified). The stated intent of the Act is to bring orphan works into a formal copyright administration system, and similar reforms are under consideration in Australia.

Under the new UK legislation, a licensing and collection regime will be established to enable the commercial exploitation of orphan works, provided that the publisher has made a “diligent” effort to locate the copyright holder, and agrees to pay an appropriate license fee once permission to publish has been granted by the scheme’s administrator.

Such has been the outcry (especially among photographers), that the legislation has been referred to as “the Instagram Act”, and the UK government’s own Intellectual Property Office was moved to issue a clarification factsheet to mollify public concerns. However, those concerns continue to surface: in particular, the definition of “diligent” in this context; and the practice of some social media platforms to remove metadata from photos, making it harder to identify the owner or the original source.

Meanwhile, the long-running Google book scanning copyright lawsuit has taken another unexpected twist in the US courts. From the outset, Google tried to suggest it was providing some sort of public service in making long-out-of-print books available in the digital age. Others claim that it was part of a strategy to challenge Amazon.

Despite an earlier unfavourable ruling, a recent appeal has helped Google’s case in two ways: first, the previous decision to establish a class action comprising disgruntled authors and publishers has been set aside (on what looks like a technicality); second, the courts must now consider whether Google can claim its scanning activities (involving an estimated 20 million titles) constitute “fair use”, one of the few defences to allegations of breach of copyright.

Personally, I don’t think the “fair use” provisions were designed to cater for mass commercialization on the scale of Google, despite the latter saying it will restrict the amount of free content from each book that will be displayed in search results – ultimately, Google wants to generate a new revenue stream from 3rd party content that it neither owns nor originated, so let’s call it for what it is and if authors and publishers wish to grant Google permission to digitize their content, let them negotiate equitable licensing terms and royalties.

Finally, the upcoming release of Apple’s iOS7 has created consternation of its own. Certain developers with access to the beta version are concerned that Apple will force mobile device users to install app upgrades automatically. If this is true, then basically Apple is telling its customers they now have even less control over the devices and content that they pay for.