Hot or Not Tears Itself Apart, Reinvents

from TechCrunch by Michael Arrington

When James Hong and Jim Young founded HotorNot in October, 2000, they had no real plans for the service to be anything other than a fun site for a few friends. They turned a free low end computer they received for setting up an etrade account into a web server, launched the site from their house in Mountain View, California, and emailed 40 friends. By the end of the day, 40,000 people had visited the site, which now had 30 second load times.

It wasn’t too long before the service was hosted at RackSpace and the users were flooding in to rate user-uploaded pictures of themselves on a scale of 1-10. In January 2001 they added a dead simple dating site. Instead of reading endless profiles and trying to find a connection, users just say yes or no to a given picture. If it’s a yes, the other person is shown your picture the next time they look through profiles. If they like you as well, a connection is made.

The Money Rolls In

Until last month, HotorNot was free until that last crucial stage when two people wanted to meet each other. At that point, one of the members (usually the man, Hong tells me) must have been a paid subscriber, which costs $6/month. Hong says their conversion rate was extremely high - 15% of active users eventually upgraded to premium accounts.

The premium revenue, plus advertising and fees for virtual flowers, soon topped $600,000 per month. Nearly all of that was profit for the two founders, who reportedly pocketed $20 million or so between them over the years. The company has never raised any outside funding.

Hong says they receive 2-3 emails per day telling them about marriages that resulted from an initial meeting on HotorNot.

In the last year though a few competitors have popped up (see yesnomayb, a copy of the business model) and a number of free dating sites also started to eat away at traffic. Traffic started to drift sideways, and the developers were getting bored at doing little more than site maintenance. Going To A Free Model

That’s when Hong and Young decided to rip apart their business model and remove the requirement for members to have premium accounts to talk to each other. A month ago, the requirement was turned off, and about $500k/month in revenue disappeared overnight. The founders also turned the company into a proper “C” corporation and issued stock options for the first time to all employees.

(I can’t help thinking that if HotorNot took venture financing somewhere along the way, they would not have been able to get their board of directors to agree to this.)

Hong says this lit a fire under the company, which is now running on reserve cash of a few million dollars. So far things look good. Traffic jumped over 60% - 10 million people visited the site in the last month, up from 6 million the month before. Advertising and virtual gift revenue spiked, and the site is now break even even though they killed their largest revenue stream.

Hong and Young aren’t stopping there. They have plans to expand the site greatly and say they will launch new products in the coming weeks.

Whether this works in the long run is yet to be seen. But the company wanted to try something new, and the founders took enough money off the table to be comfortable for life. Entrepreneurs tend to have a screwed up way of measuring risk - the more the better - and these guys are no exception.

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Deal Note: Scribd

from BGSL by umair So Scribd is hot - really hot. If we accept the rumour, at the A-round, Scribd achieved a valuation of >20m. Not bad, given the fact that it hasn't exactly seen exponential growth in terms of attention share. The hypothesis behind investing in Scribd is easy - a global repository of documents will garner an incredible attention share at any reasonable scale. Even at a measly Digg-scale, the revenue potential of a Scribd begins to be significant. And then there's the fact that Scribd ads can be hypertargeted... Now, that's all well and good. In fact, what's really interesting about Scribd isn't the yawner of an investment thesis - but the fact that it's one of the few startups around that really pushes the definition of what media is. Can other people's documents really be a medium? What are the economic of that medium? Very interesting and thought-provoking questions. But back to the IRR. I'm just not so sure of the key assumption behind the investment: that Scribd solves a problem that actually exists. Is there a supply of prosumers with "documents" leaping at the chance to share them? Initial attention share tells us very clearly - not yet. And even if there are, why wouldn't they just start a blog? YouTube had a clear monopoly on online video (at least usable online video). Scribd doesn't have the same clarity of market power. Would I have taken a bet on Scribd anyways? Probably. Good ideas are (very) few and far between these days. And the potential upside of a Scribd is well worth the risk. Let's discuss the sideline of a Scribd as host (essentially) for ripped-off books, magazines, etc. YouTube was in a legal grey area (ie, microchunks). Scribd isn't (which it acknowledges). Can Scribd exert pressure on publishers? Not unless it's in the grey area. But the larger point ist that there are lots of other positionings to be explored - Scribd as Office meets community (which is what a lot of the buzz is about), Scribd as Digg-feeder, etc - which is what offsets the risk of the key and somewhat shaky assumption, and makes Scribd a fairly cool play which will be a lot of fun, if not an obvious game-changer.

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All Steamed Up

Thursday, Apr. 05, 2007 By BRYAN WALSH

The blue lagoon near Reykjavik, Iceland.

Paco Cruz / Digital Press Photos / Newscom

Xianyang, China, was once a great place to live--during the Qin dynasty, anyway, more than 2,000 years ago. Since then, it has gone pretty much downhill. Today Xianyang is one of the most polluted cities in a very polluted country, partly as a result of the air-fouling coal that's burned to generate much of its power. The air in Reykjavík, by contrast, is crystal clear, because nothing is burned there. Iceland's capital gets 100% of its heat and 40% of its electricity from geothermal power. (The rest comes from hydropower.) The same forces that have scattered no fewer than 130 volcanoes across the tiny country bring molten rock relatively close to the surface everywhere. When this encounters underground water, it generates steam, which is tapped to produce clean, renewable electricity.

All of which explains why a group of engineers from the Icelandic power company Enex have left the pure air of Reykjavík behind to work in smoggy Xianyang. The ancient Chinese city might just have the geothermal resources to become the Reykjavík of the East. In December engineers from both countries completed the first stage of a joint venture that could eventually provide geothermal-powered heating to millions of people in Xianyang. If the project is successful, the city will eventually have the biggest such system in the world.

That would be good for everyone. Last year alone, China added 102 gigawatts to its electrical grid--roughly twice the total capacity of California's--and about 90% of that came from carbon-belching coal plants. Geothermal energy can at least make a start on cleaning up this mess. The China Energy Research Society expects 110 gigawatt hours (GWh) to be produced through geothermal power nationally by 2010, out of 2.7 million GWh in total. That's a tiny slice, but energy experts believe China has the potential to do much more. "There are geothermal resources in almost every province in China," says Ingvar Fridleifsson, director of the United Nations University Geothermal Training Program in Reykjavík. Geothermal pumps will even be used to heat and cool some of the venues at the 2008 Olympic Games in Beijing.

It's the Chinese government that has committed the country to tapping its geothermal potential. But as is often the case, it's newly entrepreneurial citizens who are making things happen. One Chinese student who studied geothermal technology in Reykjavík went home to transform what had been a peasant village into a model geothermal development, with housing, pools and a recreation park all heated geothermally. "People can say a lot of things about the Chinese government," says Hans Bragi Bernhardsson, head of China operations for Enex. "But if they decide to do something, they achieve it." In this case, let's hope so.

with reporting by Krista Mahr/Reykjavik

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Participation on Web 2.0 sites remains weak

A tiny 0.16 percent of visits to Google's top video-sharing site, YouTube, are by users seeking to upload video for others to watch

Similarly, only two-tenths of one percent of visits to Flickr, a popular photo-editing site owned by Yahoo Inc., are to upload new photos.

The vast majority of visitors are the Internet equivalent of the television generation's couch potatoes -- voyeurs who like to watch rather than create.

Tue Apr 17, 2007 10:55PM EDT By Eric Auchard (Reuters) SAN FRANCISCO (Reuters) - Web 2.0, a catchphrase for the latest generation of Web sites where users contribute their own text, pictures and video content, is far less participatory than commonly assumed, a study showed on Tuesday. A tiny 0.16 percent of visits to Google's top video-sharing site, YouTube, are by users seeking to upload video for others to watch, according to a study of online surfing data by Bill Tancer, an analyst with Web audience measurement firm Hitwise. Similarly, only two-tenths of one percent of visits to Flickr, a popular photo-editing site owned by Yahoo Inc., are to upload new photos, the Hitwise study found. The vast majority of visitors are the Internet equivalent of the television generation's couch potatoes -- voyeurs who like to watch rather than create, Tancer's statistics show. Wikipedia, the anyone-can-edit online encyclopedia, is the one exception cited in the Hitwise study: 4.6 percent of all visits to Wikipedia pages are to edit entries on the site. But despite relatively low-user involvement, visits to Web 2.0-style sites have spiked 668 percent in two years, Tancer said. "Web 2.0 and participatory sites (are) really gaining traction," he told an audience of roughly 3,000 Internet entrepreneurs, developers and financiers attending the Web 2.0 Expo industry conference in San Francisco this week. Web 2.0, a phrase popularized by conference organizer Tim O'Reilly, refers to the current generation of Web sites that seek to turn viewers into contributors by giving them tools to write, post, comment and upload their own creative work. Besides Wikipedia, other well-known Web 2.0 destinations are social network sites like News Corp.'s MySpace and Facebook and photo-sharing site Photobucket. Visits by Web users to the category of participatory Web 2.0 sites account for 12 percent of U.S. Web activity, up from only 2 percent two years ago, the study showed. Web 2.0 photo-sharing sites now account for 56 percent of visits to all online photo sites. Of that, Photobucket alone accounts for 41 percent of the traffic, Hitwise data shows. An older, first generation of sites, now in the minority, are photo-finishing sites that give users the ability to store, share and print photos.

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Ad Industry Still Virtually Dumb

from PSFK Trend: PSFK by Piers Fawkes

Ok, ok - we all took the mickey out of all those brands that rushed into SecondLife to an audience of no-one but at least we can get the rationale behind what they did there. Those brands built experiences for consumers to interact with. Pretty sensible thinking, no?

So, What does the ad industry do next? Takes a step backwards and introduces spam to SL in the form of video billboards. Adverlab shows us some demo shots of brands like Dove appearing in the virtual world (Yeah, because SL is full of fat birds).

And just another point the developers AMPP might want to consider. Up until now, for residents to watch video they have to click the Play button that appears at the bottom of the screen whenever video content is in the immediate vicinity.

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