Bill Solominsky

I’d like to wish myself a warm welcome back to my blog. To my loyal readers… make that reader, I’ve neglected writing because I’ve been doing work for a local web startup. However, with SXSW in full swing, I figured there is no better time to get back in the swing of things.

There are plenty of other sources that can give you in-depth details of all of the panels and parties at SXSW. I’m going to give you my brief take-aways from the panels that I attended.

Program or Be Programmed: Ten Commandments for a Digital Age Doug Rushkoff

My thoughts were a featured speaker would be a great way to get into SXSW, especially since I was having trouble deciding which panels to attend. I lasted about 20 minutes and did not follow any of this talk. I knew I was in trouble when I did not get his analogy of tripping on acid at an ACDC concert in the parking lot with… whatever he was comparing it to.

Organizational Pitfalls on the Path to Multichannel Experience

I would have gotten much more out of this had I not spent the first half in the other panel. Seemed to be some good discussion, although hard to hear in the back of the room, about communication among different departments within an organization, and how they relate to customers. Also a tinge of Managerial Accounting in the question of which department, online or offline, can claim the sale.

Chasing Virtual Good in the Real World

The co-founder and CEO of Gowalla, Josh Williams, gave this panel. I was excited for this because 1) Gowalla is local to Austin, 2) I’m highly interested in Location Based Services (have been since long before the wide use of GPS), and 3) I was lucky enough to check in and win an Oktomat camera! The Oktomat icon that I found was the first one, so I now have a #1 item in my Gowalla vault.

The talk had parts of ones that Josh has done before, describing his path to Gowalla, but there was one comment that stood out. He’s seen that where there is a number, people want it to go up. Basically saying that competition and game play is innate in many people. Examples included RSS subscribers, Facebook likes, Twitter followers… any number that can be increased, the owner will try to increase it.

Pay TV vs. Internet: The Battle for Your TV Mark Cuban, Avner Ronen

This debate was interrupted a few minutes in with a false fire alarm that emptied the Austin Convention Center. Once it resumed, it was as spirited as I had hoped. I went to this session because I grew up in Pittsburgh, as did Cuban, and I wanted to hear him speak. Hopefully one day he’ll be able to buy the Pirates and put a winning product on the field, but that was not the topic of this session. Mark’s theme that kept coming up was that on the internet, you are one of basically infinite options. Marketing becomes prohibitively expensive in this situation to stand out.

I’m in the process of forming a partnership for one of the businesses that I am involved in, and it struck me while discussing this how easy small business partnerships are to form. When I was younger, I always pictured business agreements involving lawyers and tons of paperwork, not to mention a lengthy, time consuming negotiation process. This is probably the case of multi-million dollar deals (of which I haven’t been a part of yet), but for small businesses, common sense and trust is basically all you need.

The easiest deals are ones where no money changes hands; you and your partner work together to cross promote your items. One of my first experiences with this was working with cleaning companies. For my event rental site, I contacted local cleaning companies and asked if they’d be willing to offer my customers a discount. Most of them were very receptive of this, being a win-win situation. I got a different marketing strategy and an item that could boost my product without costing me more. The cleaning companies got advertising on my site and additional customers.

You can consider early adopters of your product as forming a partnership with your customers, but it becomes tricky once you ask that customer to pay for your product. If you let some beta testers try your product for free, both sides win. The company gets valuable feedback and more extensive testing, the user gets to try neat new technology or services. However, if you ask that same person to pay, they probably will re-evaluate their end of the deal, and think twice about the value that they get from this product. The customer wants to ensure that their money is being well spent, and now you are competing for their dollar, not just their time.

Obviously the goal with any partnership is to make a profit eventually, but profit does not have to take the form of cash from the start. My experience has been to be as creative as possible, and it may be easier and more valuable to work with partners when dollars are not discussed.

Yesterday I attended the McCombs Entrepreneur Society’s inaugural Start Up Meet Up. It was a one day event at the UT alumni center with 2 keynote speakers, Brett Hurt, CEO and Founder of Bazaarvoice, and Ingrid Vanderveldt and Kenneth Losch with Advanced Green Innovations.  There were also 4 panel sessions, Market Validation, Entrepreneurial Law, Marketing in the Digital Arena, and Capitalizing a Start Up. McCombs professors led the panelists in discussions before opening it up for questions. The audience consisted of about 200 people, 75% were McCombs students and 25% were professionals.

I attended the Market Validation and Marketing in the Digital Arena panels. The Market Validation panel discussed their experiences with launching products and companies both performing validation the correct way and wrong way. The takeaway was that the steps for doing the validation are straightforward, but they require a lot of hard work that most people don’t like to do. It is recommended to talk in person to at least 100 people, not friends and family, that would be potential customers. This does not mean email, either, but phone or face-to-face conversations. Another great tip was to end every conversation by asking who else you can talk to. If they don’t give you any names, that speaks volumes for what they really think of your product.

In the Marketing in the Digital Arena panel, the big takeaway was to be authentic. The panel mostly discussed rating and reviews and other user generated community involvement. When communicating with users and customers, be truthful and up front about the product and their concerns. Don’t just ignore or delete negative comments, since users can tell if comments and genuine or not.

Brett Hurt’s keynote speech was very inspiring. He discussed his history and attention to culture. The main theme I felt was to aim big with your goals and be passionate about them. In the second keynote, Kenneth Losch described his green energy business and how he looks for cones, pitfalls, and waves. Cones are the selling opportunities, pitfalls are the cost savings opportunities, and waves are the current industry environment. A great bit of advice that I took away was that for any goal or project, ask yourself 10 reasons why this will fail. Once you work out a solution to each of those 10 reasons, the project will not fail.

Overall, it was a very great day. Thanks to the McCombs Entrepreneur Society for the hard work in putting this on.

I am watching the Capital Factory Demo Day via Ustream this morning. Congrats and good luck to the 5 inaugural companies. Below I listed the company, a brief description of what they do based on their presentation and my best guess, and my thoughts.

Cubit Planning

Cubit Planning creates software to automate data finding processes for engineers. Their first product is for NEPA documents for city planners, and helps save between 4 and 40 hours of engineering work. The software pulls data from environmental studies and automatically fills out the standard NEPA form in the necessary format.

I think this company can make a big splash in the B2B market, but because they are not consumer oriented, many people will not hear of them. They have targeted the first bowling pin in their market, and perfecting that will lead to more adjacent market sales.

There was a comment regarding targeting the cities to buy the software instead of the engineers. If I were with this company, I would study the government contract bidding process closely in each city, and find out all minute details of the contracts that have been won. Government bidding gets tricky, with cost-plus, no-compete, and other types of contracts, to where the advantages and the buyer of the software might be on different sides of the table in different industries.

FamiGo

FamiGo is focused on providing simple, family oriented games with the hopes of bringing families closer together. Two test games, Dots and Hot Potato, were tested on the Iphone. There were issues of whether they were intending to be a game developer or a platform for distribution.

I don’t think the idea that in selling to a family they’ll automatically sell 3-5 games at a time; families would want a packaged deal available to all their platforms. Also, the barriers to entry are not huge, if they even exist. The founder mentioned that the Iphone app store has over 100,000 developers. If FamiGo gets noticed, there are lots of other competitors. I agree with the commenter that said they’ll need to have one big hit, and that is going to have to be an original game, not an updated game we played as kids.

PetsMD

The WebMD for pets. PetsMD is the go to place for information on pets, with a symptom tracker, medical advice, veterinarian information and appointments, and pharmacy store. Simple idea, not much more to explain.

The comments centered on the idea that the site is not focused. They need to target one customer and revenue stream. I disagree. In the early stage, I’d throw every possible revenue idea out there and see what sticks. The rub is that it all has to be done well, but not necessarily perfect. Once the high revenue sources are discovered, then focus on those. If only one revenue stream is tried, it could be the wrong one, wasting a lot of energy and resources.

Hourville

Hourville is an online marketplace for service providers that charge by the hour. If you provide an hourly service, you can list, manage your calendar, and take payments through Hourville. They have widgets that you can put on sites such as Craigslist that will point customers back to the Hourville site.

This company has been in the Rice business competition, SXSW accelorator, and now Capital Factory. At the SXSW presentation, the panel of judges were not too kind with Hourville, mostly harping on their marketing strategy. They didn’t see a clear goal of breadth vs depth. The final 2 panelists addressed this issue today, but it still is not clear how they plan to attract and retain service providers. I would take the geographic approach, starting in Austin and looking at all types of services. Being in Austin, there is an eclectic mix of services, so the company would get depth and more importantly, learn what it takes to attract each of these different services. That info can scale to other cities, and they could then take on more cities faster. If they just throw their company out there all over the country, they won’t know what it takes to market to bagpipe teachers or belly dance teachers in each city.

Sparefoot (audience choice award winner)

Sparefoot provides a site that allows for search, comparison, and booking of storage space. They have integrated with self storage management software to allow owners to quickly integrate their inventory into Sparefoot’s site. This is vastly different from their original plan of peer-to-peer storage (but they still have this as part of their business model).

I have never searched for storage, but I can imagine the frustration if you can’t quickly comparison shop on price and location. The engine for this will be good, but I do agree with the panelists in that competitors can quickly come into this market and offer the same service. Building a tangible defense is key.

Overall, its interesting to note that potentially 4 out of the 5 companies are building a marketplace, not just creating a product to sell to end users (I don’t include FamiGo because they are not settled on their model yet). When you look at this crop of companies, and other funded start-ups, it seems the shift is moving from, “I can create a cool product that I can sell,” to, “I’m going to be the middle man and make a market more efficient.” It seems as if business has spent many years trying to eliminate the middle man, but in the past few years web 2.0 companies are bringing it back. If they truly do offer efficiencies, then they can work. Companies that use these services will still have to stand out on these platforms, which in time will bring new companies and services (think SEO and SEM for Google rankings).

I am into my 3rd year of being involved in the Vacation Rental industry through my web site, National Event Rental. I recently relaunched the site with a revamped business model, made after studying some upstart sites and their revenue sources. This post is intended to explain the major types of vacation rental business models, and the positives and negatives of each.

1. Listing Fee

First is the classic, traditional “home owner pays an upfront advertising/listing fee.” This was the original method, used by the HomeAway family of sites, Expedia’s Flipkey, and many of the other sites, both worldwide and in niche markets. The good thing is that this is the established, safe model for revenue. The home owner pays an annual or monthly fee to have their home listed, and the site is supposed help increase the exposure of that property. The company gets its money upfront, and they can show the home owners an ROI with just a couple of inquiries and rentals through them. Additional revenue typically comes from add-ons like extra photo fees or features listings. Potential renters are free to browse and contact the owners without paying a fee.

There are a few downsides. The first is that for popular sites and home owners in competitive markets, their listing could get pushed down low in the results. Often this requires the home owner to put in a lot of extra effort to make their listing stand out among their competitors. This can be done through professional and updated photos, carefully written descriptions and titles for SEO rankings, or aggressive pricing. Next, with no charge for renters to contact the owners, there is a higher potential for spam and scams. The owners need to use their own judgement on whether the lead is quality or not, and listing on popular sites can often increase the frequency of this unwanted correspondence. Another downside is that revenue growth depends solely on increasing the listing fees or increasing the number of listings. Depending on the cost per acquisition of each subscriber, the VR site will need to ensure repeat customers just to maintain their revenue levels.

2. Renter fees

A relatively new business model has gained in popularity over the past 2 years: Allowing the owner to list for free, but charging the renter a “booking fee”, taken as a percentage of the rent paid to the owner, typically around 10%. Sites such as AirBnB, Roomorama, and IStopOver all use this model. The greatest advantage is that by not charging owners to list, these companies can gain lots of inventory of properties in a relatively short time. At no cost, there is no financial risk to the owners, and they get their full asking price since the renter is paying a percent above the listed rent. Also, these sites have payment systems set up that allows them to collect the rent and pay the owner after the stay is completed. This money is considered the “float”, because the companies can invest, or float, this money however they want before they need to pay it back. Depending on the amount handled and the time frame, this can be extremely lucrative if invested correctly. The model has a very high growth potential since revenue comes from additional bookings, not directly from additional listings. Plus, when owners increase their charge, the companies gain more revenue.

As with the first business model, this one has pitfalls, too. If the float is invested poorly, whether into the company or through external strategies, the company could find itself short of cash when time to pay the owner. Also, renters may balk at paying an additional fee on top of the rent and circumvent the site’s payment system. This is probably not an issue for lower priced stays, maybe under $100/night, but a 10% charge on a $1000/night place would significantly increase the cost for the renter. Even if the owner takes this into account and lowers their fee, the renter has no way of knowing this and psychologically will be taken aback by this charge. Another drawback is the potential liability if these companies do not hold real estate licenses. Most states require that any party that handles monetary transactions between a renter and owner of property not their own be licensed in that state. Since this model charges a percent of rent, and has a hand in the money transfer, the risk for legal issues is vastly increased.

3. Third party fees

The final business model that I’m going to cover is the third party fee system. In this method, renters and owners can use the site for free, and the company makes money through third parties, such as advertising or selling other services. Craigslist is a good example, where they only charge select cities and select categories fees for listing. Vast is another example of a VR site that uses this model, gaining the majority of their revenue through advertising.

This model’s main advantages are that inventory can quickly build and renters will not be scared off by a booking fee. The biggest drawback is that if the revenue is coming from a source besides the vacation rental listings, the company has to be extremely good at 2 products, the revenue source and the VR listings. If little effort is spent on the VR listings, owners and renters will not find the site useful and move elsewhere (especially given the free price, which can create a lack of loyalty). Likewise, if the revenue source is lacking in effort, users will not use it and hence, no revenue.

Conclusion

It may appear that revenue model 3 is the worst of the bunch, but my opinion is that is the best model if done correctly, and where the vacation rental industry is headed. Chris Anderson’s recent book, “Free”, theorizes that prices of products eventually fall to the marginal cost when there is competition. Therefore, products with zero marginal cost, meaning that there is zero cost to create an additional unit, will eventually be free. Internet sites have zero marginal cost due to additional memory being virtually free. Vacation rental sites fall in this category, since each additional listing costs nothing in terms of additional production. There are already a handful of sites that offer free listings, and now FlipKey, an Expedia company, is offering monthly listings at $1.99 through the end of 2009. Their revenue can clearly be made on Expedia’s family of products, such as flights and car rentals. Other companies can get commissions off of ticket sales to concerts or sporting events. There are also time savers that can be created around the VR industry for owners and renters that they would be willing to pay for. This is the approach that National Event Rental is taking; we are working on some products that will help users save time and effort when putting their home up for rent.

Overall, each business model has some staying power, especially with the great resources behind some of the sites. I personally feel that the listing fee model will evolve into a third party fee model, due to increased competition and lack of lock in. If an owner can get the same amount of inquiries for half the price, they will move their listing. A listing fee company can use compelling back end software for the users to create lock in, but then the users are really paying for that software and its convenient features, not for the listing. The renter fee model is great for a low end disruption, but I don’t believe it can catch on with higher priced rentals, or stays of more than a couple days, due to the additional fees the renters would pay. The “third party fee” system, on the other hand, opens up the possibilities to be creative with additional products and services. People travel and rent out private homes for many reasons, and tying in time savers, information, and ancillary products could be where the most opportunity lies in the vacation rental industry.