Nov 11 2004

RSS:Blog = HTTP:Web = SMTP:Email

I’ve been having this weird conversation lately. Last week, it happened again when I was being interviewed for an article titled Betting on Tools that Power Blogs in Businessweek Online.

During the interview, the writer asked something like “so, why are you investing in this blogging thing where no one knows what the business model is yet.” My pithy reply, among others, was “Anybody in the industry who says people haven’t figured out how to make money on blogging is [are] being ridiculous.” After I hung up the phone, I went and banged my head against the wall a few times, fortunately missing the nail that was sticking out of a stud.

We’ve made three investments in RSS/blog related companies: NewsGator, Technorati, and MessageCast. NewsGator sells software. Technorati is a search engine. MessageCast is a next generation ESP (an email service provider, but for multiple channels such as Instant Messaging.) Another high profile blog investment that we aren’t a part of is Six Apart which – voila – sells software – either on a stand-alone license or a hosted basis. Oh – and they are starting to help bloggers monetize their traffic with paid ads.

Please tell me these are well understood business models. I mean, there are at least 10 (or is it 10,000) software companies in America at this point, even with Oracle’s best efforts to force consolidation. And search – well – even Microsoft is working on a search business. Last time I checked, there were even a number of on-demand (or hosted, or whatever you want to call them software businesses.)

As a VC who does a lot of software deals, I seem go through this every time there’s a new technology standard (or protocol) that catches fire. In the early 1990’s, SMTP enabled a raft of companies that built businesses around all aspects of Internet-based email. Shortly thereafter, HTTP enabled – well – an entire industry. SMTP and HTTP are really simple protocols (and – when they were first created – had a slow initial commercial adoptions that suddently went non-linear and became pervasive.) We are seeing exactly the same thing with RSS – and blogging is simply the first broad-based instantiation.

I’ve looked at a lot of RSS/blog related startups in the past 12 months. They bifurcate into two categories – those with a well-defined, easily understandible business model and those without. The vast majority – with a little effort – can fall into the first category. Now – like with everything – a bunch of the ideas are either stupid, small, or disorganized. But – once you filter these out – you are faced with traditional businesses based on a new emerging protocol. The good news – and the bad news – is we know how the game will play out – so with RSS it’ll just happen faster than with SMTP and HTTP. I expect the victors will be the early birds that have a combination of conviction, compentence, and agility.

Those that come up with “new business models” – please don’t call me.