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Why Topix Is Different: Toward A Sustainable Model For Net Media Companies

By - March 29, 2004

richsLast Friday I had a chance to stop by the Palo Alto offices of Topix, in many ways a classic internet start up – Valley-based, run by a serial entrepreneur, good buzz – but it didn’t take long for me to sense that something was different this time. Before I get into that, let me first give you a few thoughts on the service itself, and the broader role it plays in the search business.

Background: Topix was founded by six guys, four of whom went to high school together in Pittsburgh. No, I’m not making that up. Most of them are IT/Valley vets, CEO Rich Skrenta founded NewHoo and sold it to Netscape a mere six months afterwards, then morphed it into the now famous Open Directory Project. But Netscape was sold to AOL, and after a while Rich got bored (I assume) and left with the intent of starting a company he could “work into my 40s on.” I like the sound of that.

Topix is an internet media play. More specifically, it’s a local advertising media play. The service takes a crawl-and-index approach to a vast array of internet news sources, then runs the resultant stew through a metadata engine which tags every news story with location and subject data. Topix then builds more than 150,000 topic- and location-specific pages, pages that live comfortably between the great gunky mass of search results, on the one hand, and the impersonal morass of most news sites on the other.

Skrenta likes to call Topix a “150,000-facet diamond,” at least one facet of which should appeal to most news consumers. But step back a few thousand feet and look at Topix’s approach, and you start to see something else at work, something instructive to anyone interested in next-generation approaches to search.

At the risk of getting mired in academic debate, one could argue that Topix is a proof point in the semantic web. Topix is not interested in every web result that might be rendered for a search “news kentfield,” for example. Instead, it searches a limited set of web pages – in this case thousands of news sites – and then annotates the content of those pages with semantic tags – latitude and longitude, for example. It then machine-generates something of an “encyclopedia page” for Kentfield, cobbling together news, weather, advertising, police blotters – a local newspaper in real time (Skrenta pointed out that Topix utilizes a newspaper-like layout on the site, because… it seems to work for the reader. Imagine that, we don’t have to throw out everything we learned over the past 200 years). Topix also creates pages by subject; Skrenta argues that in fact many of their industry-related pages – Wireless, for example, or Search Engines, are among the best sources of business information in the free web.

If you take this approach to the web – mediating SERPs with subject-related “landing pages” – you could imagine a broad scale search engine which manages a machine-created ontology of subject pages. WebFountain comes to mind, orthogonally. In fact, such an approach has been attempted by any number of companies, I have heard that Excite was working on such a project before it fell apart in 2001. (There are others, readers, can you chime in?).

Skrenta does not shy from the semantic tag, in fact, he is one of many I’ve spoken with over the course of reporting the book who agree that the web is failing to scale, and well-documented “neighborhoods” of semantic order will help bring the web back into focus. “Whole cataegories are dead on Google now,” Skrenta told me, referring to the ongoing arms race between relevance and search spam. He’s right, of course. But here’s where the story turns to Topix’s distinction.

The inevitable next question for Rich, is, “Sure, OK, broad web search engines like Google are starting to fail under the sheer weight and scale of the web. But Google, Yahoo, MSN, AOL – they’re all hard at work on this problem. Even more, all three have news products already, and are very focused on integrating local search. What makes you think a small startup like you can make it in the face of such pressure?”

A Valley entrepreneur will usually respond with one of two answers: 1. Don’t Worry, I’ll Sell While Small, Make A Good Sum, And Get A Good Job at An Established Company (as Rich did with NewHoo; Blogger and Kaltix also come to mind), or 2. I’ll Take VC Money, Take the Execution Risk, Sell Later And Get Silly Rich (the current path of, say Friendster). In other words, when the market is dominated by large, entrenched competitors, your best shot at succeeding as a startup is to sell, either at the beginning of your life (when the LargeCo is basically buying the talent and nascent market opportunity), or after you’ve scaled to the point of inflection on the build/buy curve. It costs money to get to that scale, which is where the VCs come in.

I found it wonderful to hear that Rich didn’t want to take either of these options. Instead, his goal was to simply start a neat service, get to the point of self-sustaining revenue (with six employees and an office over a trophy shop, that won’t take long), and grow it slowly. In other words, no VC money, no dreams of world domination. Rich just wants to build a nice media business, without having to either sell it or sell out. Rich met with the VCs about Topix, he told me. “After five minutes, every one of them would tell me their vision of what I had to do to win in the market,” he said. “If you take their money, you have to buy that vision.” Better to fund it small, with angels and friends, and let it grow to its own place in the sun. Could it be that the post-bubble web, version 2.0, will allow for such companies to succeed?

I certainly hope so. May a thousand such flowers bloom – and I see them springing up, over at Nick’s Gawker Media, for example, or the grandaddy of them all, craigslist. I’ve heard pretty much the exact same philosophy from both Nick and Craig: I want to run my little media company, VCs and exit strategies be dammed. Welcome to the club, Rich. May you work into your forties at Topix.

UPDATE: Rich emailed me as I posted this with this news:

“I wanted to let you know that, as of this morning, is
now crawling over 6,000 news sources, up from 3,600. Here is an
approximate breakdown of the kinds of sources we are crawling:

24% Daily newspapers
19% AM & FM news radio stations
15% Weekly newspapers
15% B2B and consumer magazines
12% TV stations
9% College newspapers
5% Government websites
1% Weblogs

We have also enhanced our news crawler to navigate through javascript
and frames, which has increased the yield and coverage of our news

We’re also including the news source name on the attribution line,
instead of just the domain name as we were previously.”

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Semel Gets His Fortune Profile

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semelLong profile of Yahoo CEO Terry Semel with integrated Yahoo back story and prediction that Yahoo will make it to the Fortune 500 list in five years or less. One intersting note: Yahoo used to be driven by the engineers, but has outgrown that approach. Sound familiar?

I believe the article may be behind a sub wall, if so, here are a few excerpts:

“Everyone talks about what he did with movies and entertainment,” Yang says, “but what he really did was pioneer how to take a piece of content and get it out there. He has a distribution mentality, which at the end of the day is what Yahoo does on the Internet. And so when we started talking about Yahoo generically as a distribution company, we both just went, ‘Gosh, this is going to be really cool.’ “…

Indeed, one attraction of the Yahoo job, Semel says, is that in spirit Yahoo reminded him of Warner Bros. in the 1970s: “It had a great brand and great people, but its business was broken.” Meanwhile, the way Yahoo made money—through advertising—was as old as the entertainment business. “The idea of being CEO didn’t scare me because I felt like I had been there before.”…

Semel, who at 58 was twice as old as the average Yahoo employee, had so much to learn that even some of his senior staff worried he would not get up to speed fast enough to lead effectively. “He’d say some things where you’d just go, ‘Oh, my God, he doesn’t know,’ ” says Jeff Mallett, Yahoo’s former president and now a co-owner of the San Francisco Giants. “We’d be talking to him about buddy lists and Yahoo’s server protocols [the standards the company’s thousands of computers used to communicate], and he’d say, ‘What’s a buddy list? What’s a server? What’s a protocol?’ He didn’t know that you could log on to AOL from the Internet instead of using AOL client software.”…

The way Yahoo was structured, it looked like a deal with way too many points. “The company had 44 business units when I got there,” he says. “I’m not sure if GE has 44 business units.” After methodically meeting with every one of Yahoo’s divisions, he slimmed the organization to five, then four, groups—media and entertainment, communications, premium services, and search. He also created what has come to be known as the product council. Before Semel arrived, new products grew out of the brains of engineers. But there was little coordination or planning across divisions. The product council’s goal is to ensure that every division head knows about every major product in the pipeline….

The search deals are classic examples of how Semel thinks, manages, and cuts deals that work. Eighteen months ago Yahoo wasn’t even a player in search. It relied on partners: Google for search results, Overture Services for search-related advertising. Now, after buying Overture and Inktomi, Yahoo has its own offering and is Google’s biggest competitor. AOL and MSN, the other two Internet portals, would love to be the greatest threat to Google but can’t make that claim yet. “I can’t tell you how many times in meetings someone said, ‘Google is too far ahead. We can’t catch them,’ and Terry said, ‘We have to,’ ” says a former Yahoo executive. Yet once the deals were done, he refused to rush a product to market, despite intense internal pressure to do so. Instead, he had Yahoo’s engineers rebuild its acquired search technology almost from scratch. Now, even though Google still gets all the buzz, Yahoo’s search is actually better in features like local search and shopping. “We didn’t get into search to do what everyone else is doing. We got into search to change the game,” Semel says.

Google Says: Check Under Our Hood (Personalized Search, et al)

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google_kaltix_resultsGoogle’s got a refined look, and it’s rolling out a Labs approach to personalized search. The approach is distinct, it requires a lot of input from the user. It’s the result, I believe, of an integration with the Kaltix technology Google bought last year. The company, in a press release, calls their personalized search “revolutionary.” We’ll see. The Labs implementation walks you through a step by step process which uses categories to refine and personalize your search, and uses a search for “Stanford” in the health category as the example. I changed it to “Berkeley” and got a message that “Personalized results not available for this query.” But I’m not *from* Stanford…

Google also released the ability to receive search results via email (called Google Web Alerts, a lot like Google News Alerts), and made a host of tweaks to its interface, most notably on the home page (the “tabs” are now links, check out the “more” link, and also the search box seems bigger, and there’s a line imploring you to “get more from Google” ); in Froogle, which now has it’s own spot on the home page and gets a redesign (new tagline, but it’s still in beta); and in news (incorporates thumbnails).

My first take: This is Google saying “Hey, folks, there’s a lot more to us than meets the eye. Come take a look, and get into a relationship with us.” More when I get back from morning rounds.

BTW, the Google Directory lost its place on the home page….

(full release in extended entry)

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New 2.0 Column: Mike Ramsay, TiVo

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I enjoyed my conversation with Mike, since this interview, TiVo has announced new advertising products along the lines of what we discussed.

When the Network Meets the Net
TiVo’s Mike Ramsay wants to plug viewers into more than cable and satellite — and bets his digital video recorder can make the connection.

By John Battelle, April 2004 Issue

TiVo (TIVO) is under siege. From Hollywood to Madison Avenue, the word itself is almost a curse. And those who aren’t muttering it are copying it. In the latter camp are most of the cable and satellite companies, which are mimicking TiVo’s groundbreaking digital video recorder — the Internet-era successor to the VCR that finds the TV programming you want, when you want it. Some 830,000 Time Warner (TWX), Comcast (CMCSK), and other cable subscribers now use cheap DVRs from Scientific-Atlanta (SFA), which has orders for hundreds of thousands more.

You’d think all of this would spook CEO Mike Ramsay. But Ramsay, a veteran of Silicon Graphics, is ready for the fight; he cheerfully mentions that TiVo has already battled Microsoft (MSFT) and won (Microsoft canceled UltimateTV, a competing DVR, in 2002). He’s bolstered TiVo’s subscriber ranks to 1.3 million with the help of DirecTV; half of them now come through the satellite-TV company. And he’s suing EchoStar, the other major satellite provider, for patent infringement.

Ramsay’s offensive plan is even more interesting. He’s trying to make friends on Madison Avenue by putting tiny video commercials, similar to movie trailers, in TiVo’s programming guide. (Fox and BMW are among the advertisers that have tried the new format.) Nielsen is adding TiVo viewers to its ratings panels. Despite the common wisdom that TiVo was toast, the little company based in Alviso, Calif., has thrived: Its stock has soared from a low of $4.50 a year ago to nearly $12 today.

In January, TiVo raised $74 million from big investors, and in February it cut prices on its entire DVR line. But Ramsay can’t outspend his cable competitors; he knows he’ll have to out-innovate them. In February he purchased secretive networking startups Strangeberry, whose engineers are working to take the DVR a step beyond, making its user-friendly interface the window into content downloaded over any wire, whether coaxial cable or high-speed Internet. Can Ramsay hook up broadcast and broadband? Expect TiVo to generate new business models, new forms of video content, new regulation, and a lot more controversy in the coming years. However it ends, we’ll be replaying this episode for years to come.

Janet Jackson’s wardrobe malfunction was the latest in a string of high-profile “TiVo moments.” So why aren’t there more TiVos in the world? Are you the next Macintosh, with Comcast as Windows?

We have been conditioned over the last five years with the Internet that if something’s hot, it gets into millions of homes overnight. But until recently TiVo’s been expensive. It’s also a brand-new idea — and history tells us it takes time for the average consumer to get used to a new idea. It’s sort of like when the PC first came out.

TiVo is a hard-to-explain thing. When you first describe TiVo, people say, “Well, all right, that’s great, but isn’t that just like a VCR?” And you go, “Well, no, actually it’s not.” Then there’s a five-minute conversation. You can’t describe TiVo in 30 seconds. You need TiVo to describe TiVo. In the past we’ve gotten a lot of mileage and effectiveness out of PR and product placement, generating word of mouth. Today there’s a whole lot more elasticity. Bring the price down, sales go up. Get the word out, do more promotions, sales go up. In February we unveiled a $50 rebate. And you’ll see more of that going forward.

To protect their advertising and pay-per-view business, won’t cable companies create “TiVo lite” — DVRs that they control, in essence?

Yes, but they are motivated by satellite — they are scared that satellite is taking business away from them. And to the extent that satellite has embraced DVRs, they have to respond.

Is the 30-second spot dead, and is TiVo responsible?
(more via link below)

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By - March 26, 2004

Sorry for the light posting day. I spent all day in meetings, and then an hour on an NPR program. There is lots to get caught up on, in time, I will. I met this morning with Rajeev Motwani, one of the professors who mentored Larry and Sergey during their Stanford days. I then had lunch with a source who wishes to remain anonymous, but who shed a lot of light on the ongoing search and ecommerce wars. Then on to meet Rich Skrenta, whose latest creation is Topix. More on that in an upcoming post. Then the NPR show, “On Point,” which was, as one might expect, obsessed with Google obsession.

Lots of news over the past 24 hours, expect posts on that as well. And if you want the weekly newsletter, a reminder to sign up in the box at left.

Have a great weekend.