Announcing Our Investment in Ground Truth

I’m thrilled to announce that Emergence has led Ground Truth’s Series B financing.

As consumers spend more time on mobile devices, there is an increasing need to understand their mobile data usage.  However, advertisers, mobile publishers, and carriers currently have limited visibility into consumers’ mobile usage patterns.  As was the case with the fixed Internet, we believe that this type of usage information will be necessary for mobile to grow into a medium that attracts significant ad dollars.

By collecting actual usage data across millions of mobile subscribers, Ground Truth is able to provide unparalleled visibility into what consumers are doing on their mobile devices.  For a variety of reasons, Nielsen and comScore’s panel and meter-based approaches don’t work well in mobile.  Ground Truth has a truly innovative solution to a real problem facing the mobile market today.

One of the things that got us excited about Ground Truth, beyond the market opportunity ahead of the company, is their amazing team.  Sterling Wilson, Luni Libes, and the rest of the Ground Truth crew have tremendous experience in the mobile and digital media markets.  I am thrilled to be joining Sterling and Luni, as well as Steamboat Ventures, Voyager Capital, and SeaPoint Ventures on Ground Truth’s board of directors.  Also participating in the financing is OPENAIR Ventures – a venture firm focused on the mobile space that is led by a number of former Sprint executives. 

Ground Truth represents the latest of what I expect will be many more mobile investments for Emergence.  The shift from tethered computing devices to powerful mobile computing devices is just beginning.  In our view, this shift will create a level of entrepreneurial opportunity that hasn’t been seen since the advent of desktop Internet.  To wit:

The mobile Internet is outpacing desktop Internet adoption.  The current number of mobile Internet subscribers is 40% higher than the number of desktop Internet subscribers at the same point in desktop Internet’s life.

In the very near future, mobile Internet users will represent a significant portion of total Internet users.  Three years from now, there will be nearly 1 billion mobile Internet users worldwide.  This will represent nearly half of the total number of Internet users (mobile and fixed) worldwide.

The number of connected non-phone devices will grow rapidly over the next several years.  It would be impossible to write a post on mobile without a hat-tip to the iPad.  There will be nearly 400 million connected tablets, gaming devices, e-readers, netbooks, etc. in use worldwide in the near future.

We believe that, as with many other significant market shifts, entrepreneurs will be better-suited to capitalize on this sea change than incumbents.  The unique attributes of mobile devices (location awareness, portability, always-on connectivity) will enable many fundamentally new business opportunities.  As was the case with the fixed Internet, we believe that startups will be better-positioned to capitalize on this opportunity than existing players.

Emergence’s focus on technology-enabled services companies is a perfect fit for the burgeoning mobile opportunity.  After all, almost everything surrounding mobile today is a technology-enabled service of one kind or another.  Just look at several of the areas in mobile where entrepreneurs are focusing their energy today:  mobile advertising, mobile applications, and mobile payments.  Each one of these relies on a technology-enabled service business model.

In closing, I’d like to extend my congratulations to Ground Truth on closing their Series B.  Here’s to the opportunity ahead!

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My Quest for a “Personal CRM” System

As a VC, I’m confronted with a never-ending list of things to do.  Between sourcing new investments, doing diligence on opportunities that are interesting, and working our portfolio companies, there’s seemingly little time for one of the key things I have to do as an investor:  maintaining my network.

I’m not talking about growing my network.  Adding new contacts to my Rolodex happens almost automatically in this business.  Maintaining my network is different.  The task of staying in regular contact with the people I already know is a tough one.  And, the bigger my Rolodex has become, the more challenging this is getting.

As an investor, one of the key value-adds that my CEOs seek from me is access to a broader network of potential hires, potential customers, service providers, etc.  You can’t claim to have a good network, though, unless the right people are willing to return your calls.  This requires regular contact and an effort to provide value to others in advance of asking for something in return.  So, I’ve concluded that I need a system for keeping my network strong.

At the beginning of this year, I began searching for tools and best practices in “personal CRM.”  My friend Andy Mowat suggested I check out his personal CRM strategy (which he outlines at Nine Networking).  I then spent time playing around with a few personal CRM tools such as Gist and Network Hippo.  In the end, I decided to adopt many of the methods that Andy suggests.  I’m also using a combination of Gist (to stay on top of key happenings within my network) and Zoho CRM (to track my networking activity and to schedule my next contact with each person in my network).

So far, my new system seems to be working well.  It does require some effort each day, but it’s not too much of a time sink.  I’ll share some thoughts later in the year as to whether this is bearing fruit.

Are there any “personal CRM” tips, tricks, or tools that you have found to be effective?  I’d love to hear your thoughts in the comments.

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Turning a Channel Partnership into a Great Exit: 5 Rules to Follow

Mark Suster wrote an excellent post on why startups should be wary of channel partners.  He correctly states that channel relationships are often not all they’re cracked up to be, even though they can be powerful accelerators for a business when they are managed properly.

One thing Mark touches on is the idea that a channel partner is often a company’s best potential acquirer.  I agree with this completely – and want to spend some additional time on this topic.

In between being an entrepreneur and joining the venture world, I spent several years doing acquisitions at large technology companies (Microsoft and Electronic Arts).  I have seen first hand what channel relationships can do to catalyze an acquisition.  I have also seen channel relationships mitigate the potential of an attractive acquisition.

So, in addition to the items Mark mentions on crafting successful channel deals, here are some thoughts on things to consider in order to increase the chances that your channel relationship will blossom into an attractive exit:

Avoid exclusives.  This is an obvious rule, but it’s one that I’ve seen young companies break many times.  Partners that see what you’re doing as being particularly strategic will often ask for an exclusive distribution deal.  Note what I just said:  partners that are most interested in what you’re doing will often try to get you to sign an exclusive.  Hence, they’re often willing to give this up.  Regardless of how innocuous you think an exclusive might be (“we’ll never sell our products in Europe in the next two years” or “the partner’s list of competitors isn’t going to be a problem because we’ll never work with these companies anyway”) signing an exclusive will often come back to bite you.  Your exclusive partner will likely feel that they have one of the key benefits of acquiring you without having to do so.  Further, other potential acquirers won’t be able to get full value from buying you.

If you rely on channel partners in a significant way, never have just one.  A young company I’ve been watching for a while has a single major partnership that has allowed their business to grow at triple-digit rates over the last five years.  Without question, this partnership has been very successful.  The downside?  The company is now almost completely beholden to this partner.  Besides the fact that there’s a lot of risk that this partner could leave and kill the company’s top line, this partner is never likely to pay up in an acquisition. When valuing a company, an acquirer always thinks about how much leverage it has in the negotiation.  In this case, the partner has plenty.  Again, an obvious rule, but one that I’ve seen plenty of companies violate.

But … don’t partner with everyone.  Envy is often a fantastic motivator.   Believe me, few things would motivate Microsoft more than to acquire a company that is of strategic value to Google and that already has a (nonexclusive) channel arrangement with Google.  Sometimes, it’s OK to break this rule (if you’re Twitter, for example, you can get away with partnering with Microsoft, Google, and Yahoo), but generally I’ve found that keeping at least one potential acquirer at arms length can help bid up a company’s value in an acquisition.  The other reason for not partnering with everyone is that your partners will know your company’s warts better than others.  Outsiders don’t have this level of visibility and aren’t as likely to penalize you for your flaws in the form of a lower acquisition offer.

Don’t give acquirer benefits to a partner.  As I’ve already mentioned, one key benefit a partner will get if they acquire you is exclusivity.  However, there are other things that partners want from the companies they buy.  If you’re doing a great job for your channel partner, you will invariably get pressured to do things that can harm your company’s value.  For example, you might be asked to add product features that are valuable only to your channel partner in exchange for a sizeable development fee.  Or, you might be invited to contribute to strategic roadmaps for the partners’ other product lines.  As tempting as it might seem, don’t do these things.  These are benefits that a company that acquires you should get.  If your partner feels that they already have these benefits, they’re less likely to buy you.

Deliver on your present commitments, but also sell futures.  It goes without saying that one of the best ways to get a partner to buy you at a healthy price is to do what you promise to do.  However, acquirers sometimes get more excited about the things you’re planning to do in the future than what you’re doing today.  Perhaps there’s a new, sexy market your product can be easily modified to address.  Or, there’s a brand new technology you’re planning to develop that will radically change the game in the market you’re currently in.  Ensure that you find time to give your partners visibility into these roadmaps regardless of how far in the future they might extend.  I’ve personally been involved in several acquisitions where a company’s future plans raised valuations by 2-3x.

So, by all means, do channel deals when they make sense.  They can be very beneficial when crafted and managed correctly.  But, be conscious of these rules as they may dictate how much value you and your shareholders ultimately realize.

What do you think?  Is there a rule I’ve missed here?  Let me know in the comments.

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Entrepreneurs: There’s Opportunity in Google Buzz

There have been a lot of complaints about Google Buzz since its launch last week.  Believe me, I understand the frustration.  I’ve yet to figure out why I should care enough about Buzz to integrate it into my (already hectic) social media workload.

However, as I’ve gotten to think about Buzz some more, I’ve come to believe that there are some legitimate opportunities for entrepreneurs to leverage the Buzz platform.  Where you might ask?  Not in consumer-facing social applications, but rather in business-centric tools that integrate with Gmail.

Gmail represents the “sharp point of the arrow” in getting businesses large and small to adopt Google Apps — Google’s next billion dollar opportunity according to Eric Schmidt.  The key reason businesses are switching from Microsoft Exchange and Lotus Notes to Gmail today is lower total cost of ownership.  However, Google recognizes that lower TCO will only go so far in allowing it to overtake Microsoft and IBM in the battle for business email.  Today, Google controls a very small percentage of business email boxes.  Google needs something truly compelling to drive businesses to adopt Gmail en masse.

Enter Google’s impending announcement that it will launch a marketplace for 3rd-party applications that integrate with Google Apps.  What Google needs in its app marketplace is not a bunch of Outlook plugin clones, but rather a whole new set of applications that showcase how Gmail for business can drive a tremendous amount of productivity-related value beyond traditional email.

This is where Buzz comes in.  Buzz represents a straightforward way to integrate social activity streams into Gmail.  As the likes of LinkedIn, Xobni and Gist have proven, a lot of business value can be created when social platforms are connected to email.  However, making these integrations work with Exchange and Lotus has been technically challenging.  Buzz makes such integrations with Gmail trivial.

As a result, the Gmail ecosystem is destined to experience more innovation than we’ve seen so far at the intersection of the social graph and business communication.  Some of the applications that I could envision being created include:

gNetwork.  Search functionality that allows me to see who in my company has the strongest connection with a sales or business development prospect (using Twitter, Facebook, and LinkedIn data).

gExpert.  Yammer-like microblogging integrated into Gmail.  As you compose an email, the context of the message is analyzed.  In real time, the app recommends co-workers who may be able to help with what you’re working on (based on their microblogging activity).

gSUL.  A list of Twitter users one should follow and LinkedIn connections one should have based upon one’s company, job title, and the context of one’s emails.

So, entrepreneurs, get working!  There’s a real opportunity here.  And, best of all, the users of these apps will be businesses with budgets for productivity-enhancing solutions.

Thoughts on the above?  Are there other applications that you’d like to see built that leverage Google Buzz?  Let me know in the comments.

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SAP: Get Customer Centric or Get Disrupted

SAP AG

Leo Apotheker’s departure from SAP doesn’t come as a surprise.  SAP’s revenues dropped nearly 8% in 2009 and are expected to decline again this year.  The company’s fall from once-spectacular heights is indicative of a business that has lost touch with the market and customers it serves.

In the 1990s, the golden age of enterprise software, businesses began to recognize the value that applications such as SAP’s could bring.  They were happy to pay dearly for software that they believed would help them grow their businesses.  This drove incredible prosperity for SAP and its competitors.  From 1993 through 1999, SAP’s revenue grew at a compound annual growth rate of over 40%.

Through the following decade, many businesses began to feel that their major technology needs had been met.  This isn’t to say that companies completely lost interest in technology.  They just became more thoughtful in their purchasing behavior.  SAP and other enterprise software companies continued to grow, albeit at a slower rate.   From 2000 through 2009, SAP’s compound annual revenue growth was just above 10%.

So why has SAP’s business recently entered negative growth territory?  Over the last several years, there have been fundamental shifts in businesses’ expectations of software – shifts which SAP has not adequately addressed.

Expectation 1:  Software should be easy to implement and use. The proliferation of easy-to-use consumer Internet applications has created a new standard for how software should work.  Consumers (many of whom obviously use software at work) have begun to wonder why offerings from SAP and other enterprise software vendors aren’t as easy to use as applications like Twitter or Facebook.  Emerging cloud-based businesses have recognized this and have focused on great user experience design.

Expectation 2:  Software should be open.  Businesses have tired of proprietary data formats and programming interfaces that make implementation costly, make integration with other vendors’ applications difficult, and make it challenging to switch to another vendor.  The emergence of standards-based APIs, utilized by nearly all cloud-based business application vendors, has created demand for open application architectures.

Expectation 3:  Software should be affordable.  Over the last ten years, open source software has become widespread.  Further, cloud-based applications typically have a lower price point (not to mention lower cost of implementation, operations, and maintenance) than their on-premise alternatives.  Moves such as SAP’s in 2008 to increase maintenance costs fly in the face of the general trend toward lower prices in the software industry.

SAP’s experiments with cloud-based software haven’t met these expectations.  It’s not enough to call a product “on demand” and to deliver it via a browser.  SAP must fundamentally change its business philosophy in order to deliver easier-to-use, more open, lower cost solutions.

At Emergence, we recognized long ago that this change was going to be difficult for SAP and other traditional enterprise software vendors.  We invested early in leading cloud application companies such as Salesforce.com, SuccessFactors, Lithium, and Intacct because we saw the potential of young businesses that were more in touch with businesses’ needs.  The growth of the cloud application companies in our portfolio, and the corresponding decline of SAP’s revenue, is proof that a customer-centric approach is the winning one.

Can SAP’s new leadership transition the company to a more customer-centric organization?  Let me know your thoughts in the comments.

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Venture Chat SXSW

I’ll be attending SXSW Interactive this year.  It’s been years since I’ve been back to Austin (where I went to college).  I’m looking forward to seeing old friends and meeting many new ones.

At SXSW, I’ll be dedicating part of my schedule to meeting entrepreneurs who would like to chat with a venture investor.  Like most in the VC industry, one of the things I love about my job is helping entrepreneurs.  If there’s something you want to discuss with me when I’m at SXSW, let’s get some time on the calendar!

I’m open to having a conversation about anything relevant to your company, entrepreneurship in general, or the venture industry in general.  You don’t need to be in fundraising mode to request a meeting.  In fact, I find that many entrepreneurs enjoy getting a venture investor’s insight before they actually begin raising money.

To request a meeting at SXSW, fill out this form.  I’ll be in touch shortly after receiving your request to schedule a time to meet.

I’m looking forward to seeing you at SXSW!

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Raising The Bar for Tech Support (The Genius Bar, That Is)

Regardless of what you think of the iPad, you have to admit that Apple has a knack for innovation.  Time and time again, Jobs and his team have shown the world what can happen when beautiful, functional hardware is combined with an easy-to-use software experience.

One area of innovation that Apple doesn’t get as much credit for is technical support.  I’m specifically referring to the Genius Bar.  For those who are unfamiliar with the Genius Bar, it’s a station inside every Apple Retail Store, the purpose of which is to offer support for Apple products.  Help provided by Genius Bar staff is free, though one does have to pay for non-warranty repairs.

Each time I’ve walked away from a Genius Bar encounter, I’ve felt an extra sense of joy about having purchased an Apple product.  Believe me, I have never had such a feeling after dealing with the support staff for any other technology product I’ve ever owned.  In fact, the feeling has typically been the opposite.

In part due to the success of the Genius Bar, other consumer technology vendors and retailers are coming to the conclusion that they need to offer a great support experience.  As many parts of the consumer technology landscape become commoditized, and margins shrink accordingly, support is increasingly becoming a means to differentiate from the competition.

The most prominent example of this trend is Best Buy.  Best Buy saw this coming long ago when it acquired Geek Squad.  Today, despite the fact that many products available in Best Buy can be purchased for less online, many people return to Best Buy because they know they can get help setting up and maintaining their technology – all from the same place that they buy their new gadgets.

I believe this trend toward a richer support experience in consumer technology is going to grow significantly over the coming years.  This was a driving force behind Emergence’s recent investment in SupportSpace.

SupportSpace enables technology vendors and retailers to deliver a high-quality 24/7 remote support experience to their customers.  Instead of visiting a Genius Bar, a customer simply visits a retailer’s or vendor’s website to be connected with a well-trained onshore support agent.  The agent answers the customer’s questions, and can even log into the customer’s computer to solve problems when necessary.  SupportSpace works with leading brands such as Best Buy’s Geek Squad, Trend Micro, Webroot, and AVG.  Best of all, SupportSpace uses a crowdsourcing model to deliver support.  This delivery model dramatically improves the economics of delivering this service (which benefits both SupportSpace and its customers).

So, Apple, thanks for the innovation you drive across all parts of your business.  By raising the bar for tech support, you are encouraging others in the consumer technology world to follow suit.

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The iPad Is A Tablet — And That’s Enough

I will admit feeling a sense of disappointment after viewing today’s iPad unveiling.  At first blush, it seemed to be nothing more than many had speculated:  an iPod Touch with a bigger screen and 3G connectivity.

What I was hoping for was something akin to what I experienced with the unveiling of the original iPhone.  I longed for the equivalent of what I felt when I first saw Jobs demo multitouch and when he unveiled the App Store.  Both of these were truly revolutionary in the mobile world and I speculated that the iPad might sport similarly jaw-dropping features.

This obviously didn’t happen.  John Gruber has said that the most important aspect of today’s announcement was Apple’s A4 processor (which apparently makes the iPad screaming fast).  Walt Mossberg believes that the $499 entry-level price point is revolutionary (at least for Apple).

However, as I’ve thought about it more, the real innovation we witnessed today was something that unfortunately wasn’t a surprise by the time of the announcement:  the fact that Apple’s new product was a tablet.  Period.

The idea of a tablet PC has been around since the late 1960’s when Xerox PARC’s Alan Kay came up with the concept of the “Dynabook,” the original tablet PC concept.  In the three decades since, the tablet idea has never truly reached scale.  The estimates I’ve seen peg last year’s Windows-powered tablet PC sales (arguably the most-successful tablet effort to date) at less than 1% of all PCs sold.

What the iPad’s predecessors have in common is that none have capitalized on the consumer opportunity in a tablet computing device.  Nearly all tablet products before today have focused on business users.  I used a Windows-powered tablet for a couple of years while at Microsoft and never found a truly consumer-centric application for it (and, frankly, even its value as a business tool was questionable).

So, thirty years after the tablet concept first arose, Apple is now set to reinvent the category by simply doing the thing it does best: bringing it to consumers.  Pause for a moment and think about what happened when Apple did the same thing to the PC market.  Now that was pretty innovative, wasn’t it?

OK.  So maybe I’m not so disappointed after all.

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Content Discovery is King

I’ve been a fan of music discovery solutions for a while.  Last.fm is one of my long time favorites as is Pandora.  Lately, I’ve been spending a lot of time with services such as TheSixtyOne and We Are Hunted.  Bijan Sabet at Spark Capital and I seem to be on the same wavelength.  He mentioned both of these services in a recent post.

Music discovery services have completely displaced radio as my mechanism of choice for finding new artists.  In fact, the music I discover using these destinations is often more interesting than anything I would ever hear on either broadcast or satellite radio.  There are two things these services do well.  First, they give me a granular ability to decide what I listen to.  Second, they expose me to artists that I would have never encountered on traditional radio.

Broadcast radio should be worried.  Music discovery is one of the key value propositions that radio provides. As next-generation music discovery solutions become more pervasive (i.e. in cars and on more mobile devices) I strongly believe that they will overtake broadcast and satellite radio as the primary way that people consume music.  And, as a result, I believe we’ll see radio become slowly disrupted in the same way that newspapers have been.

Similarly, video content discovery is one of the most important functions of broadcast and cable television networks.  As more quality video content makes its way to the Internet, and as it becomes easier to consume this content in one’s living room (using services such as Boxee), traditional video content distributors are likely to meet the same fate.

Are there other interesting companies in the content discovery space that I’ve missed here?  Let me know in the comments.

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Five Application Design Principles (Inspired by My Annual Battle with Quicken)

This time of year, my wife and I perform our annual financial review.  How well did our investments do?  How did our spending track to budget during the prior year?  What should we change in the coming twelve months?  Actually, my wife does this – and I get a very detailed report thereafter (thank you, honey).

We, like many other families use Quicken to help manage this task.  We don’t really have much of a choice.  We’ve had all of our financial data in Quicken for years.  Switching to something else is virtually impossible at this point.

Every year, we encounter the same frustrations with Quicken.  It’s hard to navigate the dozens of features in the application (even for two technically-savvy people), difficult to coax into providing the right type of reporting, and is prone to throwing out obscure error codes if you do one tiny thing that it doesn’t like.  I’m confident that Intuit is aware of these problems.  They recently spent $170 million to acquire Mint in large part, I suspect, to improve upon the application experience they deliver to Quicken users.

However, the problems I see with Quicken are not unique.  Many consumer and business applications deliver a horrible user experience.   In this day and age, expectations around application ease-of-use are increasing rapidly.  Credit elegant consumer-facing applications such as Gmail and Hulu for elevating our desire for sleek, uncomplicated, and sometimes genuinely fun to use apps.

I am not an expert in application design, but I use enough apps and work with enough enterprise and consumer application providers at Emergence, to have a point of view on what leads to a good user experience.  So, allow me to suggest five application design principles that I’ve seen work – and that Intuit and other app developers should consider following:

1.  Less is more.  Leonardo da Vinci said “Simplicity is the ultimate sophistication.”  Application designers would do well to heed these words by being relentless about reducing features to those that are truly necessary.  I recognize that some (including Don Norman and Joel Spolsky) disagree with this notion, but I believe the days are gone when people decide to use an application simply based on the number of features it has.  I have never heard anyone rave about Quicken because it has so many features, but I have heard scores of people sing Mint’s praises for its ability to elegantly provide a better view of their finances.

2.  Instrument for feedback.  If you’re limiting features to deliver a better user experience, how do you decide which features to include?  Initially, you probably don’t (especially if the application is going after a new market).  However, given that most new applications are cloud-based, the ability to observe aggregated user behavior exists like never before.  Use this data to tell you what features you should consider adding.  In addition, make it easy for users to share their product desires with you via feedback forms and customer forums.  Quicken does neither of these things.  Most of the companies we invest in at Emergence do both.

3.  Trust but verify.  Relying on the data you collect from users (principle #2) is sometimes not enough.  Remember, you need to be relentless in keeping your featureset lean.  Sometimes, users may think they want something – and then may never use it.  Further, adding a feature that caters to some users’ requests may have unintended consequences for others.  From the start, engineer your application in such a way that you have the ability to test new features with a subset of users before a broader launch.  In today’s world, where most new applications are cloud-based, this is easy to do.

4.  Observe others’ mistakes.  There are many simple user interface blunders that I see again and again in applications.  Inconsistent UIs from screen to screen.  Confusing error messages that leave the user wondering what went wrong (Quicken does this like you wouldn’t believe).  These little slip-ups can cause significant problems for users.  Keep track of the obvious problems you see in other applications and vow never to make these mistakes yourself.  As a starting point, Jakob Nielsen, a leading expert in website and application design, has a nice list of the top 10 application design mistakes he’s observed over the years.

5.  Enlist a guru.  There are many basic application design principles that you are probably not aware of – and that your engineering and product teams may not understand themselves.  Trust me, though, there are people out there who live and breathe application design and who can make a world of difference in your application’s user experience.  Hire one of them (either full-time or as a consultant).   They will pay for themselves in the form of happier users.

I’m guessing Aaron Patzer, who founded Mint and is now running the Quicken business at Intuit, lives by these (or a similar set) of rules.  Hopefully, he’ll improve Quicken by this time next year and, as a result, make my 2011 New Year’s weekend a bit more peaceful.

What are your thoughts on application design?  Is there a key principle that I haven’t included in my list?

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