Sisyph.us - Erik's personal blogs

A friend of mine from Google let me play with his pre-release Motorola Droid (running on VZW) for about half an hour on Saturday. It's a tremendous device. I said it before, 2010 will be the year of Android.

I'm on the ferry to the Nantucket Conference. There seems to be free wifi on the ferry!

The Nantucket Conference is a small entrepreneurship and technology conference. I'm looking forward to a lot of great conversation and networking this weekend.

Foneshow is featured in an article in BusinessWeek today focusing on competitors to Sirius.

Another option: Foneshow lets any phone with text messaging capabilities to catch custom talk radio programming, like Bill Press and Thom Hartmann. Whenever a new show segment becomes available, your phone receives a short text message with a link. You hit "Send," and your phone starts streaming audio, which you can pause, skip or forward to a friend. Foneshow sells advertising, unlike Sirius.

We're honored to be included with other great companies like Pandora, Stitcher and Slacker.

Google is bailing on radio.

I predicted this in this blog post a few weeks back.

I actually predicted Google would fail with CPM based radio ads exactly two years ago.

Satellite radio is in deep trouble. XM Sirius, after finally merging, has just filed for bankruptcy protection.

I'm here at the Radio Ink Convergence conference, the response to the news was a cheer.

A few thoughts...

Debt is what killed XM. Anything that involves spaceships to get up and running has some serious capital expenses.

But debt is what's killing terrestrial radio too, so terrestrial shouldn't get too smug.

Both of them have decent cash flow.

Audio media in trouble is bad for all audio media.

These are just my first thoughts. I'll write more later.

Foneshow got a pretty big mention in Scott Kirsner's article today on the changing media space and how entrepreneurs are trying to find new ways to create and monetize an audience.

I suppose I should go find a hard copy of the paper.

There's and article in the Times today about the state of Venture Capital. The gist is the economy is tight and things are bleak. They see a shakeout coming in the VC industry and amongst startups.

There's no question that times are challenging.

I can't even describe the roller coaster week we've had and it's only Wednesday.

But bad times can build great companies that build value for investors. Buy low/sell high is far more lucrative and less risky than buy high/sell higher.

I started in the technology business in 1989. 1989 was a bleak time in the sector, you had to love what you were doing and believe in your product to work for a start up then. Jump forward until the late 1990s, I'm working at Yahoo! in the epicenter of the internet revolution. A different kind of person came to came to work at Y! in '98 and '99. They came not because they believed in what we were doing, but to stick around long enough to vest, flip their shares and cash out a million or two. The same thing happened in the VC industry, in a bubble all kinds of new VC firms show up to try to ride the wave. Most of them fail.

I do a little surfing (funny I write that as we're getting another foot of snow). To get on a wave you need to paddle before the wave starts to break, once a wave is breaking, it's too late to ride.

If you're for real, now is the best time to do a start up. It's a lousy time for wannabes to do a start up. It's also a lousy time for wannabe VCs and investors (and there are as many of them as there are wannabe startups).

This is not the time for a quick flip. This is the time to identify a business problem and solve it. This is a time for patient founders and investors to build important companies.

Google is giving up their newspaper and magazine print ad sales business. Will google be abandoning their terrestrial radio ad sales experiment next?

When I spoke at Radio Ink Forecast last year one of the mantras of the executive leadership of the industry was "well at least we're not as bad off as the newspapers". Truly, as bad as things are for radio, (Clear Channel fired 10% of their work force yesterday) the newspaper industry is in worse shape. The question really boils down to whether radio in on a different road than newspapers or the same road, just not quite as far along.

Newspapers and radio have very similar problems, neither on of them have any real accountability of the efficacy of the ads they run for their advertisers. This is the fundamental mismatch between google and both the newspaper and radio industries. The reason people advertise using google adwords is because you know precisely how effective your campaign is. I wrote about this nearly two years ago.

Both newspapers and radio have another similar problem. Both are distribution channels that are fundamentally becoming obsolete (the newspaper guys understand this better than the radio guys, there are a lot of tower huggers in the radio business). Both are in process of switching to new distribution channels (newspapers faster than radio). Both have a big mismatch between the cost structures and business models of the old channel compared to the new. Both have been hurt by an abysmal understanding of their traffic (or in their parlance, their cume/circulation). Both have been hurt by expanded expectations of both their audience and their advertisers.

The newspaper industry understands that the "dead tree" distribution channel is coming to an end. They have done a good job of leveraging their core competence (writing and photography) to the web. They have lots of web traffic. Their problem is monetization.

To understand newspaper's monetization problem we have to look at why print newspaper ads are seen and online newspaper display ads seem invisible. The answers are mainly templates and search. How do you find something interesting to read in a print newspaper? You turn pages and scan headlines, when one catches your eye, you stop and read it. Interspersed in an irregular pattern are advertisements. Your eye is forced to see those ads because of the page layout. Since they're not always in the same location you scan the whole page because you can't predict where the ads will be and it becomes harder to train yourself to ignore them. The behavior is very different reading an online newspaper. First of all, you tend to use search to find what you're looking for. You're not leafing through pages and scanning headlines. But the real problem comes from the templated nature of web design. If the ad units is always in the same places on the page it becomes easy for your eye to ignore them. This is the problem that the newspaper industry needs to solve to become viable online.

The lesson there is monetization techniques do not always transfer from one channel to another. It's easy to end up with a meatball sundae.

In many ways the radio industry is not learning the lessons of the newspaper industry. They are far behind the newspapers in leveraging their core competence to a new distribution channel. Sadly many people in radio see their industry in a temporary downturn rather than a fundamental paradigm shift (kind of like the newspaper execs myopia 5-10 years ago). It is not merely an issue of radio moving to a narrowcast model but how to monetize the audience once they get there. Listeners are moving online and to mobile, but the types of ad units that are effective in a linear broadcasting environment are not effective in an interactive narrowcast world.

These are the challenges that radio must solve or they will end up hanging out with newsreels, town criers, and print newspapers in the dustbin of obsolete media.

Text messaging is a core part of the Foneshow experience. Text message notification of new programming and leveraging that as a menuing system is key to how Foneshow works and is better than our competitors (it's also where we have our patents). To use the short code system in the US the cellular carriers insist that you have to adhere to some very specific rules about sending messages as far as verifying users and not sending unsolicited texts. We spend a lot of time and energy jumping through hoops that the cellular carriers put up to protect their subscribers from SMS spam.

So yesterday when I read that AT&T sent unsolicited text messages to a "significant number" of it's 75 million mobile subscribers reminding them that American Idol (a show that AT&T sponsors) I was pretty surprised. The previous Idol voters who got texts I understand, I'm sure that in the fine print of Idol voting you opted in for those. But AT&T also sent Idol texts to "heavy texters" who had never participated in American Idol. That is simply spam.

AT&T claims the fact that they don't charge for the text and that you can then opt out means it's not spam. That's bullshit.

If we we started sending unsolicited texts to users who had not opted in they'd shut us down so fast it would make your head spin.

I was on a really terrific panel at Forecast 09 in New York last week (I snarfed the picture from Eric Rhodes' Radio Ink site). My fellow panelists and I had a spirited conversation about how new media fits in with the radio industry.

Thanks to Eric Rhodes for organizing the conference and my fellow panelists; Gerrit Meier (COO, Clear Channel Online Music & Radio), Deborah Esayian (Co-President, Emmis Interactive), Bruce Falck (Director, Google Audio Ads), and John Rosso (Senior VP/Digital Media, Citadel Broadcasting).

More pics here

I've heard quite a few very senior radio execs talk recently about retail music sales being a way for radio to generate additional revenue. They want to put a transaction "button" on radios that allow for upstream communication to enable a listener to buy a song that is currently playing. This is real "out of the frying pan and into the fire" thinking. The music business is one of the few industries more messed up than radio.

Let me share a quote from Phil Schiller, SVP at Apple...

"The iPod makes money. The iTunes Music Store doesn't,"

Apple and their music store are currently dominating the music industry. Apple runs ITMS at break even so they can sell iPods at 50% gross margin.

Music is a loss leader for Apple. Copying the loss leader product of another industry to save your industry is not going to fly.

I tend to not blog much here recently about the larger technology industry but the recent developments at Yahoo! compel me to write.

YHOO gave its investors a tremendous return (and if you bought YHOO on the day of the IPO you're still looking at a nearly 10X return, in fact if you bought $1000 worth of YHOO on the day it went public and $1000 worth of GOOG on the day they went public, your YHOO shares are still worth a lot more than your GOOG shares).

There was a time in the late 1990s when Yahoo! was the most respected brand on the internet. It built tremendous products. Its communications products, its finance products, its news products, its entertainment products (which I had something to do with) were industry leaders (many of them still are).

The one thing that YHOO never did well in house was search.

Search was outsourced to Alta Vista (~1997)

Search was outsourced to Inktomi (~1998-9)

Search was outsourced to Google. (~2001)

Search was not a core competence of YHOO. They were NEVER going to beat Google at search.

Earlier this year Microsoft tried to buy YHOO. That fell apart. Then Microsoft tried to buy YHOO's search business. That fell apart.

YHOO tried to fight back, but frankly Jerry is too nice (I knew Jerry quite well 10 years ago, he is very nice). YHOO has a ton of dead wood and Jer doesn't want to be the guy to fire folks, but that's what Y! needed.

Now MSFT has expressed interest in buying the search business again. Please, for the love of everything purple; please SELL SEARCH!. Let Google kick MSFT's ass in search not yours. Focus on verticals. Focus on mobile. Pocket MSFT's money for the search business and watch them fail.

Fight the battles you can win, not the battles you will lose.

I'll tell you what's in the Daily News...

Foneshow is in the New York Daily News. Read all about it here.

I talked with David Hinkley a few weeks back about the state of the radio business. Here's a quote:

But in the bigger picture, says Erik Schwartz, radio is moving too slowly and too often in the wrong direction.
Specifically, he says, "Radio has to stop thinking it is in the broadcasting business and realize it's the content business."
That's not a small distinction. He means that despite the fact companies often paid hundreds of millions of dollars for transmitters, those transmitters "are getting less valuable by the day."
Because every day, more of the audience gets radio info some way - the Internet, cell phones, whatever - that doesn't require a broadcast signal.
But, he adds, that's also the good news. "People still want audio content, which means there will always be an audience for a good radio station," he says. "That may mean more talk and sports because those are unique to your station. If you play music, you can't just play songs. An iPod does that. You need personality."

PS: Apologies for the slightly obscure Guys and Dolls reference, I played Nathan Detroit back in high school and never quite got over it.

Yesterday I participated in a speed venture summit, it's like speed dating but it's companies and VCs. You fill out a form online to get accepted. The organizers hook up companies (about 75 are accepted) and investors (about 30 VCs and angels groups) by investment philosophy and company stage.

When you get there you get a dance card, each company has 6 or so meetings. All meetings are 13 minutes long and take place in a big room with one investor per table. There are no slide decks, there's no internet, you just pitch and demo best you can. At the end of the event the 5 top ranked companies by the investors nominated as finalists. The 5 finalists do a live one minute pitch in front of the entire audience. The audience then chooses the top two companies.

I thought our pitches went well. One of the firms was clearly a much later stage investor. Two of them went very well. Two others it was hard to tell. But I guess it went better than I thought, we were chosen as one of the top 5 to do a 1 minute live pitch.

A 1 minute pitch is tough. You need to define a market, a problem and a solution, and hopefully in the case of mobile leave enough time for a 20 second demo.

Foneshow came in second. The company that won had this really cool facial recognition software for the iPhone (I would have voted for them too).

But even second place has its rewards. I won schwag. A Peek email device and a Flip video camera.

I'll be speaking on the Radio's Battle for Relevance in a New Media World panel at Radio Ink's Forecast Summit in New York City on December 2nd. The attendance is quite limited (it's at the Harvard Club) so if you want to go, sign up soon.

Yesterday Verizon Wireless said they were going to charge .03 "tax" on content providers sending messages.

Today they realized that by charging 3 cents a message to content providers they would be losing 15 cents per message they charge the subscriber.

So they hedged and seem to have walked it back a bit.

Just came across this old picture from Convergence 2008 out in San Jose.

As bad as the broadcast side of radio is (ignoring the naivete and pandering of some) it could be worse.

Just look at the land line phone business (from the New York Times today).

"The young, hip, cool people have cellphones only, and that is bad news for traditional phone providers. In a survey of Internet users, JupiterResearch found that 12 percent “do not subscribe to fixed voice service, and nearly two-thirds of them are ages 18 to 34.”"

But the future looks worse

“12 percent of online users indicate their intent to replace home phone service with exclusive cellphone use during the next 12 months,”

Of course this could never happen to radio broadcasting. Ha, sure it couldn't. An industry must be driven by its customers. Media consumption habits and needs are changing, radio must change to meet those needs.

My pre-NAB posting has elicited a tremendous response and a whole inbox of really positive feedback. It has also been picked up by the radio trades here, here, here, and here. There are a few questions I've received a number of times so I thought I'd do a follow up post to clarify a few things.

36 months. -- I'm not saying radio will be gone in 36 months. I'm saying there is a window in which to leverage the current radio audience onto a new platform which better fits their changing consumption habits. It will take far longer for that for radio to go away. 36 months is the window for the tipping point.

Radio has survived everything, it will never lose popularity. -- Right, because people still watch newsreels.

FM radios in cell phones. -- Everyone who you're trying to reach by putting an FM radio in a cell phone already own multiple radios. They are not listening not because they can't access the programming but because they expect different things from the listening experience than they used to. The NAB would be doing much more for the radio industry by insisting radio manufacturers put 8.0211 chips, RJ-45 jacks and a TCP-IP stack in radios than cell phone manufacturers put FM radios in phones.

Michael Harrison of Talkers Magazine put it very well today; The real problem is the NAB is not a trade organization for the radio industry, the NAB is a trade organization for the owners of FCC licenses. The true value in the radio industry is people who make programming, not corporations that overpaid for spectrum.

Pandering to the status quo will in the long run be counterproductive.

The radio industry will gather in Austin, Texas this week for the annual NAB radio conference. The radio business is in deep weeds right now. Listenership is down. Revenues are off. The audience is trending older and young people aren't listening. The future's looking grim.

What's broken? It's not that people don't like audio programming anymore. It's that the audience has changed in ways that radio does not understand. People don't consume media the way they did 5 years ago. Want to see the future of media consumption? Look at your TiVo. Look at YouTube. People want a user-controllable experience. They want media to be on-demand, in discrete single microchunks, sharable and re-usable as they wish. They need fresh content. They find out about new programming from their friends. They're quick to try something new, but quick to drop it if it doesn't fit their needs.

What's radio's answer to this? Mostly denial. David Rehr, head of the NAB, will inevitably give another one of his "it's not so bad" speeches in Austin this week. Enormous sums of money have been spent on the awkwardly-named "HD Radio" initiative (HD stands for "Hybrid Digital," not High Definition). HD Radio is a way of cramming more stations into the existing radio spectrum. More stations don't address the problem of the changing consumption habits of the audience. NAB is trying to get cell phone manufacturers to put FM radios into cell phones. As if the problem is a lack of radios.

So is radio going the way of the dinosaurs? Not yet. The industry need to realize that they're in the content business, not the broadcasting business. They need to understand that their primary competitive asset is the people who use their voices and minds to influence, entertain, and educate -- not the transmitters, towers and FCC licenses for which they paid so dearly. They need to embrace their local footprint and knowledge as a competitive advantage over internet radio and other sources of audience fragmentation.

Fundamentally, the distribution channel must change from a centrally-controlled broadcast model to a narrowcast model, where the consumer has more control. Radio can embrace new technologies. They need to understand how listeners consume the media.

Programming will change. Talk, news, and sports will become more dominant. Music radio can't just be music; iPods do that just fine. Music radio will need personality. They're in the audio content business -- it should not matter how that audio is distributed.

Revenue models will change. Advertisers too have a different set of expectations in the internet age. New technologies like podcasting, internet streaming, and cell-phone narrowcasting must be embraced as equal distribution channels to the broadcast channel.

The radio industry has a brief window of time standing open right now. I estimate it's about 36 months. They will either embrace change and understand what they are, or they will settle into the dustbin of industries that have failed to adapt to the changing needs of the audience. The time is now.