We are very excited today to announce our investment in Bamboom Labs (now Aereo). This opportunity brings together all things one could ask for in a venture investment – a great team, a big, disruptive idea, a large market, and a cool web site.
Bamboom was started by Chet Kanojia, an entrepreneur I had the great fortune to invest in and get to know for many years at Navic Networks. Navic was an outstanding company bought by Microsoft in 2008 in a very successful outcome. They were one of the few positive, large exits in the interactive television space, and Chet’s leadership was a big part of that. Chet’s last round of capital came just after the bubble burst in 2001, and he managed it brilliantly until our ultimate exit. Joining Chet at Bamboom as CTO is Joe Lipowski. Joe is a brilliant technologist and RF engineer we’ve known for a long time as well. We backed the spin out of Celiant from Lucent, and Joe was the CTO at Celiant (acquired by Andrew for $470MM). When Chet began to talk to us about his idea, it was a no-brainer to put the two together. The team around these guys is equally talented and truly best in class.
The idea is quite simple yet technically complex and brilliant. Bamboom wants to enable customers to experience broadcast TV, over the Internet, to any device, without all of the headaches associated with accessing it today. They have combined brilliant RF engineering with wonderful software design to create an incredible consumer experience. More details will emerge as we roll out of closed beta, but suffice to say it looks fantastic. This is what a next generation television experience should look like. Fully integrated, portable, native social integration, rich interactivity. As consumers shift television consumption online, we will see new content, commerce and advertising opportunities that we can only begin to imagine.
We are delighted to partner with Chet and our co-investors on the journey!Read Full Post | Make a Comment ( None so far )
One big theme that we continue to see unfold is the pressure on the distribution part of the value chain. The whole value proposition of the Internet is that it allows you to connect with all of the customers you care about instantly, assuming you know where to find them or they know where to find you. That assumption, of course, does not hold for many and leads to many successful intermediaries. But we are seeing a ton of examples of people in the middle getting squeezed across industries:
- FOX withholding rights to content from Cablevision is a great (but not unique) example in the content arena. After getting killed in the advertising and market meltdown of 2008, many of the content producers now want to be a part of that lovely predictable subscription revenue stream. After a game of chicken, FOX got its deal. The recent Netflix deals are a great example from the opposite end of the spectrum.
- Online e-tailers versus brick and mortar retailers. The explosive growth of companies like Gilt Groupe, Bonobos, J. Hilburn, ModCloth and others are great examples of people choosing to either design directly to a captive audience base or bypassing the traditional fulfillment hubs. Reducing or eliminating distribution at large retailers who require their markups allows much better pricing as margin savings can be passed on and therefore value to end customers.
- American Airlines in its recent dispute with Orbitz as they push AA Direct Connect instead of going through traditional GDS systems. Initially, the aggregators and online pricing engines had better deals than airlines did at their own sites. Quickly, the airlines moved to low price guarantees for their own sites. And now this is the first salvo stepping into the traditional supplier link setup.
A number of people wind up benefitting from this trend. Many companies have grown on the backs of helping brands and retailers find those customers online. Fulfillment and logistics for physical items winds up being far more important, as the idea of buying and sending back gets ingrained in the psyche. As we continue down the path, however, we’ll continue to see increasing pressure on people who solely sit in the middle.Read Full Post | Make a Comment ( 1 so far )
TimeWarner Cable made a lot of news over the last few weeks when they introduced their tiered pricing strategy for high speed data services. The plans ranged from $15 to $150/month depending on the amount of bandwidth consumed. Their argument was that: 1) as a facilities based provider, the growth in network usage is forcing their costs to go up, which they need to recoup; and 2) this should reduce the bill for the many customers that don’t use even the lowest level of usage (so the poor user saves) and affect the super users who extract massive benefits for the network (and the rich user pays). From TWC’s COO, “When you go to lunch with a friend, do you split the bill in half if he gets steak and you have a salad?” I’m not opposed to the rationale in concept, but I do think there are several issues with it.
Plenty of people have talked about how the magic of photonics over fiber based plant has reduced the marginal cost of adding bandwidth fairly significantly. Bandwidth has an advantage over Moore’s law, in that it has two dimensions which can demonstrate improvement: concurrency of streams (number of waves sent over a medium) and rate of modulation/encoding of those streams (10Gb/s, 40 Gb/s, 100 Gb/s, etc). That multiplication creates huge drops in the cost of providing an incremental bit.
More telling to me is how vehemently the Cable industry fought a-la-carte pricing for television. This was the idea of forcing the MSOs to allow consumers to pick the channels they wanted to subscribe to and only pay for those a-la-carte, rather than the current model of buying a monolithic stack of hundreds of channels, where the vast majority are never consumed. In the interest of philosophical consistency, wouldn’t the a-la-carte argument be just as eligible for the “consumption based pricing” label as the data plan argument? I tend to think so, and can only reason that it’s simply not in their economic interest to offer that argument.
Clearly, the industry has no interest in shooting its cash cow in the foot. It is only natural to fight the mandated a-la-carte pricing. But the industry can also not be blind to outside threats. The availability of premium shows online in high quality over the Internet, the rise of on demand time and place shifted viewing, and the high broadband penetration rate has created a competitor to the proprietary, linear world of COAX. I tell many people that if ESPN360.com were not blocked by TimeWarner, I would have little reason to pay the $160/month I currently pay for cable television and high speed data. I’d be able to watch live streaming sports via ESPN360 or CBSSports for March Madness, and I’d watch the 5-7 shows I DVR online at HULU, Boxee, or some other destination. All of a sudden, my $160/month bill would be compressed to just over $40 for unlimited data access.
I’m sure the executives at the various cable companies have also done that math. And I believe they see customers doing it at a much more rapid pace. What better way to ensure one’s revenues are not cannibalized, and in fact be allowed to thrive, than to introduce consumption based pricing for data. In order to stream a few HD shows a few times a month would automatically push one into the $150-200/month category group of consumer. At that price point, the MSOs are absolutely indifferent to whether I watch my shows over their proprietary network or over the Internet on my data pipe. You can go a-la-carte but pay them just as much. In fact, they probably are incented to switch me over for revenue generation and cost efficiency gains – it’s way more profitable for them!
The path ahead will be tricky. TimeWarner has already rescinded plans for testing of tiered pricing, because of the consumer fury it has set off. If they move too quickly, they risk net neutrality legislation being thrust upon them. Better to let consumers think they won and come out with another plan, lest their hands get tied. But I think we are crazy to think tiers won’t be introduced somehow in the future. The MSOs are too smart to let their analog dollars get turned into digital quarters.
What do you think? Am I being too skeptical?Read Full Post | Make a Comment ( 3 so far )