FOWA Notes: The Magic formula - Mike Arrington

The future of startups and web companies
The Magic formula
Mike Arrington

I'm scared of addressing brits due to TC uk, I want to say sorry for that.

I want to talk about the difficulties European start-ups have.

What's the right formula for a web start-up
I'm a tech journo, I've expressed opinions and people have literally built start-ups form those opinions.


Market Timing
Key factors
Areas of opportunity - Adobe are helping people build apps, anyone who doesn't take advantage of that should.

Looking back at 2006
Was 2006 a healthy year for the web or was it the beginning of Bubble 2.0?

Not many companies going public. Sarbanes-Oxley is a hurdle to becoming public.

$600 million was invested in Web 2.0 in 2006


However a single acquisition was made for $1.65 billion paid for in cold hard stock.

Facebook was almost bought by Yahoo!

Myspace make $25 million in advertising.

We're just getting started, there is no bubble. And the best apps are still to come.
Digg youtube flicr are not the epitome of what we're going to see.

What to focus on?

  1. Have a good idea
    invent a market
    destroy a market
    remove friction

If you have a problem you want to solve it help. This was the case for Joshua Schacter with

  1. Have a business plan - Some of the best start-ups don't have a business plan, not that I would advise that.
  2. Have a revenue model - People were saying You tube were going to fold. Copyright issues + costs.
  3. Build it cheap, test the waters. - don't spend $4-5 million on a full-scale product and hope customers will come.
  4. Avoid high burn rate. Watch your budget. It's easy to get carried away with spending.

However YouTube...

  1. Threw away their original business plan 1 founder bailed
  2. Flaunted international copyright law
  3. ??
  4. spending $1 million a month.

It worked because:

  1. They removed friction by providing a much needed services
  2. First to market
  3. So much growth, money poured in to cover burn rate.


  1. Launched oct 19 2006
  2. Acquired jan 8 2007
  3. Never raised a venture round

Grew from nothing to..

Bradley Horovitz: lots!

Case Study Amie Street

  1. Launched mid 2006
  2. Three university students
  3. No capital raised
  4. Can do the music industry what Digg did to news industry


  1. free business info
  2. has taken 3+% of US market

their business model is around supplying ads before you get the info that you asked for. Ads are targetted based on what you ask for.

Forced AT&T to compete.

Shared Attributes of Winners

  • Passion for what they are doing.
  • Doing something extraordinary
  • Remove friction

Shared attributes of losers

Poor Founder team choices
Lifestyle/ego Entrepreneurs
Raised too much money
Spent too much
Over business planned
forgot about scaling
Had to try too hard at marketing

To be successful, you must create buzz about your product

Solve a real problem
Do not be the 200th vid sharing platform
You need a blog
If buzz isn't happening rethink your product.

Areas of opportunity

  1. Offline/online
  • Apollo
  • Firefox 3.0
  • Filesystem + html/flash/ajax

You want a mail app that works on and offline. Photos too.

  1. DRM and Music/Movies/TV

If you can figure out a way in this market to get around all of the issues and get a product out that you're happy with then this market is just sitting here.

  1. Data and service protability (teqlo, ning and pipes)
    Frees user data, no-ones figured a way to make money out of this yet. But they will

  2. Mobile.

GPS + Google maps

Shows screenshot of Apollp Tunes.


Q: Whats too much money
A: When you're not worried about money any more it's too much money. If you are struggling it sucks but you are probably getting the best work done that you ever will. Everyone can talk about youtube and be starstruck but the interesting point was before they were bought. When they were literally screaming at each other.

Q: Can you expand on the difficulties in Europe
A: The biggest issue for me is that in the US if you are VP of AT&T and you quit to start something else everyone will see you as a hero. Here being a start-up entrepreneur is totally different. It's psychologically a lot harder to do.

Q: What do you think about opportunities in content business instead of apps.
A: Early there was a lot of territory grab, so it's harder now. Now you don't have to convince anyone top publish your stuff. The barriers are lower.

Q: What does it mean to remove friction?
A: Skype removed friction from making calls, made it significantly easier. If you can find a way to provide a service for free without going out of business then that's removing friction. Gmail is free but Yahoo mail is free but cost money for certain features.

Q: Why do you think that Apollo is so important for online/offline.
A: With apollo you can take your web-app and it will run the same both online and offline. I like the speed that apps can be devloped.

Q: What's the future of web based ads. If you are making $200 a day. Should you consider giving up your day job.
A: No not on google ad revenue. But if you are getting that many people in your site there'll be other ways to make more money.
Qcont: But wha't the future
A: The more targetted ads are the better they are. Panama from Yahoo will force more competition and there will need to be more of a share given to those hosting the ads.

Q: We sold Scribefire is a blogging tool for firefox. I am interesting in ideas about monetising apps that run in firefox. O/S apps in general.
A: Not many people use Scribefire but those that do love it.
Qcont: We've had 1/2 million downloads.
Acont: There will probably be some way to monetise it.

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