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Cuban Was Right: Google Has a $200M Slush Fund for YouTube Copyright Issues

Some vindication for Mark Cuban. A couple of weeks ago, he publicized a rumor that Google had set aside $500 million of their deal to buy YouTube as a fund to deal with the copyright issues the video-sharing service raised.

While onstage at the Web 2.0 Summit, Google CEO Eric Schmidt dismissed the idea.

Late yesterday, according to the Associated Press, this little fact emerged:

Google Inc. has set aside more than $200 million in its just-completed takeover of YouTube Inc. as a financial cushion to cover losses or possible legal bills for the frequent copyright violations on YouTube's video-sharing site.

Without elaborating in a late Monday statement, Google said it is withholding 12.5 percent of the stock owed to YouTube for one year "to secure certain indemnification obligations."

The Mountain View-based company disclosed the escrow account in an announcement commemorating the completion of its much-anticipated YouTube acquisition. As of Tuesday afternoon, Google representatives hadn't responded to requests for more details about the escrow account.

So, it's not $500 million, and Google's statement doesn't explicitly say the cash is for settling copyright issues with Big Content, but what other liabilities would YouTube have? They wrote their business plan with pirated copies of Office?

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More Advice for Entrepreneurs: Get Big Cheap

Picking up on the theme of Joey's last post, Bessemer Venture Partners' VC David Cowan has put together his own advice for entrepreneurs today. After listing some of the factors affecting the marketplace he concludes:

And so the winning recipe today for aspiring entrepreneurs is GET BIG CHEAP. Don’t waste expensive development on untested ideas, and don’t let a fat marketing budget mask a weak value proposition. If instead you tinker your way to scalable organic growth, you’ll have a valuable business on your hands. Don’t worry about how long it takes—just make sure your burn rate is low enough to accommodate several cycles of iteration.

But today, entrepreneurs have the opportunity to launch web sites so rapidly into a market that adopts technology so quickly, that with some iterative tweaking and feedback from users they can test their ideas in months, and on a shoestring budget. Without the need for capital, they needn’t sport a proven track record of success, and so many many more ideas can be tested, and the winners can come out of nowhere, from anywhere on earth. With the right user experience, the best innovations can attract 50 million users in their first year of general availability, as proven by Skype, Firefox, Wikipedia, YouTube and MySpace.

To which I'd add that a lot of the infrastructure you need to scale to 50 million users is much cheaper today than it was even five years ago; everything from bandwidth to CPU to storage. And innovative services like Amazon.com EC2 and S3 (for computing and storage) are letting companies avoid tedious tasks like integrating and managing platforms, and the expense of buying 50 million users-worth of infrastructure when you're only starting out.

Just take a look at how SmugMug's taken advantage of the S3 storage service to save and scale, all at the same time:

  • Total amount NOT spent over the last 7 months: $423,686
  • Total amount spent on S3: $84,255.25
  • Total savings: $339,430.75
  • That works out to $48,490 / month, which is $581,881 per year. Remember, though, our rate of growth is high, so over the remaining 5 months, the monthly savings will be even greater.
  • These are real, hard numbers after using S3 for 7 months, not our projections. They closely match (but are actually slightly better) than our projections.

I expect our savings from Amazon S3 to be well over $1M in 2007, maybe as high as $2M.

It's a great environment for entrepreneurs (and a challenging one for large VC funds).

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Paul Tyma's Tips for Startups

Paul Tyma, a senior engineer at Google, has written a two-part series of articles (here's part 1, here's part 2) with points to help you evaluate your startup ideas. Tyma advises that these ideas are for the canonical one- or two-person startup; as he says, “if you have 8 million in VC, there's a lot of other magic you can do.”

  • If there's no business model, it's just a hobby. “There's nothing wrong with hobbies, as long as you know what they are.”
  • The best ideas make your customers money. “If your idea can say 'If a customer uses our product, they will make X% more money' (where X is a positive number, even if quite small) – you have won the game.” Note that he said make money, not save money.
  • B2B2C is the best place to be. “That is, you want to be a business that serves businesses that serve consumers.” Another reason to be happy that I'm one of the most visible guys at Tucows.
  • If you're going B2C, look for revenue models that don't come right from the consumer. “If you can get the eyeballs, you can sell them. Just try to do that instead of charging them directly. They'll be ornery about it and demand support.”
  • Revisit every bad idea every once in a while. Sometimes ideas are bad because of current technological limitations or circumstance. Consider Ajax, which has been possible since 1997, but at the time was limited to IE (which still had serious comptetition in Netscape), a lack of broadband adoption and even a lack of internet adoption. Keep checking on those bad ideas every now and again; their time might be now.
  • Do your best to create a system of recurring revenue. That's what Microsoft is doing when they change Word's formats, what HP is doing with printers and ink and what “software as a service” is all about.
  • Let ideas gestate. Mull over an idea for 3 days first, and see if it's still good. “Ideas always look better the fresher they are. You're looking for ones that look good even when not fresh.”
  • Consider the size of your market. You'd better have a big market, because you're going to be able to get only a sliver of it.
  • “Building a business around a new developer tool” is wrong on so many levels. Developers love to build developer tools, so many think that they can build a business around one they've built. The problem is that sp many developer tools are gratis — think Eclipse and Rails. You may have an option if the tools you're developing are for an ecosystem where there's a you-must-pay culture, such as Microsoft development.
  • Ideas really aren't worth all you think they are. As Grandpa Simpson said, “The fax machine is nothing but a waffle iron with a phone attached.” Very few ideas are truly novel; they often arise as technologies converge. Execution is more important.
  • Competition is good. “If you don't have competition, you don't have an idea. Competition tells you and investors that your idea isn't wacky.”

Link to part one | Link to part two

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Zune, Meet Vista; Vista, Meet Zune…

Seems improbable but it appears to be true: Microsoft's Zune software doesn't work with Microsoft's Windows Vista operating system:

[O]n November 14, Microsoft rolled out the Zune player, which doesn't work with Vista. And so far, the Softies haven't provided any public info (that I've heard/seen) about when the company will introduce a patch or update enabling the Zune to work with Vista.

Yeah, I know. Vista's beta, and I'm sure this incompatibility was mentione somewhere in the documentation, but come on! How hard would it have been to foresee someone trying to install Zune software on their beta copy of Vista? Would some public information about an upgrade plan have killed Microsoft?

Incidentally, has anyone tried installing an iTunes on Vista and syncing an iPod (I'm looking at you, Joey)?

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Zune Clearance Sale: All Links Must Go

A few more Zune links to end your day (or to begin your day after—I'm not picky).

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iPod Joins the Mile High Club

I'd really hate to be a Zune marketer this
week
.

In addition to having to deal with reviews of
Microsoft's MP3 player that run the gamut from bad to ho-hum, there's
now the news that Air
France, Continental, Delta, Emirates, KLM and United are going to offer
“seamless integration” between passengers' iPods and their in-flight
entertainment systems beginning in mid-2007
.
By “integration”, they mean that passenger seats
will have iPod-compatible connections that will charge their iPods and
allow those with video iPods to watch their iPod videos on their
seat-back entertainment systems.

Now if only the airlines could get provide more power sockets and WiFi at reasonable rates…

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Rural Broadband

At ISPCON Fall 2006, the ISP/hosting/VOIP conference where I led a discussion panel on Web 2.0 last week, the tables tables in the dining area each had a sign with a different topic on it, such as “marketing”, “VOIP”, “wireless”, “Web 2.0” and so on. The idea was that you anyone who wanted to talk with people about a specific topic would sit at the table with a sign for that topic.

I got into a conversation with a couple of people at the buffet and in continuing the conversation, ended up at the “finance” table, a topic clearly outside my area of expertise. However, I did end up enjoying chatting with some very interesting guys, a number of whom sported a fine Southern drawl and provided access in rural areas.

“I work outside the footprints of the dinosaurs,” said one of them. “The Verizons, the Comcasts, the what-have-yous, they got your urban areas locked up tighter'n' Fort Knox, an' they ignore the small-town folk, who are still surfin' at 56K and watchin' TV with their rabbit ears. They want the same access you get in the big cities, and I could argue that they might need broadband even more than big city people do.”

He's probably right. After all, living in cities like New York and Toronto like George and I do, we're both a few blocks away from places where we can walk to and pick up some books, a new suit and some khakis, a wide-screen TV, renew our drivers' licenses and engage in hundreds of distractions of the sort that big cities offer. In rural areas where the distance to your neighbor's doorstep could be measured in miles, broadband makes big-city amenities a little more reachable, whether they're vendors, customers, supplies or distractions.

My lunch buddy was in the business of providing access by attaching receivers to customers' external TV antennas; he even talked about getting a better “cherry picker” van for the job. He then pointed to a guy in a cowboy hat, the only such person at the conference. I'd seen him earlier and for some reason had mentally given him the codename “Walker, Telco Ranger”. It turns out I wasn't too far off: he was also in the business of providing rural connectivity and claimed to be laying five miles of fiber every day.

These guys are onto something that the “dinosaurs” have missed. At the Spring ISPCON in Baltimore, someone mentioned that 40% of U.S. ISP customers are still getting online via dial-up; most of these are rural customers in underserved areas. As long as the dinosaurs remain uninterested in their markets — and it seems that it's going to be that way — these guys are going to do quite well for themselves.

So it's with interest that I read this article in the New York Times
With a Dish, Broadband Goes Rural
, which looks at how some rural customers are getting broadband with the help of satellite access providers.

(A little disclosure: one of the companies mentioned in the article in Hughes Network Systems, who are customers of the company for whom I work, Tucows.)

Link