Sachin Rekhi

The imeem Mafia

Last night I read Sarah Lacy's excellent post entitled Inside the DNA of the Facebook Mafia. If you haven't read it yet, you should. It not only catalogues many of the excellent startups that have come out of Facebook, but the emerging patterns amongst the bunch.

It got me thinking about my own experience at my previous startup, imeem. When I think back on imeem, I always felt that we had an incredible group of fascinating, talented, and ambitious people. While we never achieved our ultimate goals at imeem, I was sure many of these same folks would move on to something great afterwards. I told myself to keep a lookout as I was sure many would likely start their own ventures.

And sure enough, about a year since imeem's acquisition by MySpace, more than ten new exciting startups have been founded by the original imeem crew. I thought I'd take a moment to showcase some of them.

The most well known of the bunch is obviously Mixed Media Labs, the creator of the popular iPhone and Android photo sharing app, picplz. It's well known not only for it's impressive traction thus far, but because it was started by imeem's founder Dalton Caldwell and his right-hand man Bryan Berg. In addition, they have brought together many from the original crew including Tim DeGraw, Allan Hsu, and even Ali Aydar as a director. They've raised funding from Andreessen Horowitz and are a strong contender in the now heated mobile photo sharing space.

Mobile has become a popular space for many of the imeem alumni. One of our top mobile developers at imeem, Ty Amell, teamed up with our search guy, Will Palmeri, to start Stackmob, an application platform to ease the development of mobile apps. They even convinced one of the back-end rockstars at imeem, Keith Dreibelbis, to join them. Similarly, imeem's CMO and Head of Biz Dev Steve Jang went on to start Schematic Labs, which is also focusing on the mobile space. He's roped in former imeem designer Alex Katzen into the mix as well.

Some took imeem's sucess in the entertainment space and propelled it into their own incarnation of an entertainment property. Our COO Ali Aydar went on to be CEO of Sporcle, a gaming site with endlessly entertaining quizzes and more. VP of Sales David Wade went on to start Popdust, a music news, reviews, and gossip site.

Still others have gone in completely different directions, following their passions wherever they lead them. For example, Sameer Alsakran, who managed imeem's entire big data infrastructure, including our large Hadoop cluster, is continuing his work in the Hadoop space with his latest venture White Label Labs. Raj Irukulla and Gina Olsen, two folks who were always passionate about great food, went on to start their own startups in the space. Raj founded FoodPair, which helps you find recipes to make with whatever ingredient you choose. Gina started Mothergood, which produces wholesome snacks for expectant mothers.

As many of you know, I got to imeem myself because my own startup, Anywhere.FM, was acquired by imeem. As I fully expected, the three co-founders of Anywhere.FM, have now gone on to start their own new ventures as well. Anson Tsai is already having amazing success with Cardpool, the easiest way to buy and sell gift cards. Lux Chen is following his dream of getting into gaming with an upcoming iPhone\iPad game. I myself have started Connected, a personal relationship manager that brings all your contacts and conversations together in one place.

Though it's too early to tell which will ultimately be successful, I've continued to be impressed with what the imeem crew has gone on to do. Maybe one day we'll even see a post on TechCrunch about the imeem Mafia instead of the already popular Paypal or Facebook Mafias ;)

Designing and Testing an Ad Product: 5 Lessons Learned From imeem's Audio Ads

Andrew Chen asked me to write a guest post on his blog Futuristic Play about some of my experiences monetizing music at imeem. I wanted to link it here, as I imagine many of you will enjoy reading it as well.

Make sure to check out his other posts, as his blog is definitely full of very interesting insights and on my must read list for any internet entrepreneur:

Designing and Testing an Ad Product: 5 Lessons Learned From imeem's Audio Ads

Protect Yourself with the Corporate Veil

While I am a big believer that entrepreneurs should spend the majority of their time focusing on getting a quality product to market, one piece of overhead that should never be overlooked is incorporating or forming an LLC prior to product launch. To some this is obvious. Of course you setup your corporate structure before anything else. But to hackers and hobby programmers this may not be their first instinct. Sometimes you have a hobby website that just starts taking off and you never planned on it being a real business. But then it starts to become one and you may not have the protections incorporation affords.

Take a look at this recent case, EMI vs. Seeqpod. This case has received a lot of press lately not only for the fact that EMI has joined Warner in suing Seeqpod, but EMI went so far as to sue Ryan Sit, creator of Favtape, for simply using the Seeqpod API. This case has huge implications for mashups across the web because it then potentially holds all mashup developers liable for potential infringement due to their use of third party APIs.



Many saw this case as particularly nasty of EMI because they sued Ryan Sit, the developer of Favtape, himself. Since Ryan Sit was named directly as a defendant, all his personal assets are now potentially at stake in this law suit. It's an unfortunate turn of events given that Ryan built Favtape simply as a side project outside of his day job. But what isn't evident from the press is whether Ryan ever incorporated or formed an LLC around Favtape in the first place. The site nor the parent company Freestyle Labs show any indication on their sites of being incorporated, which could suggest the company may likely be simply a Sole Proprietorship.

Regardless of what the specifics of the Favtape case end up being, the point is that it is important for every entrepreneur to protect himself by forming either a corporation or an LLC, which affords limited liability protection to the entrepreneur. While sole proprietorships and partnerships are the easiest corporate structures to form, I would highly discourage them since they provide no such protections.

Even among the corporate structures that do provide limited liability protection, one must still decide between forming an LLC, C-Corp, or S-Corp. Out of the three, an LLC is the easiest and cheapest to form. It simply requires an $80 filing fee, a few corporate documents, and paying the annual $800 minimum tax. You can even use services like MyCorporation to come up with and file the documents for you for a nominal fee. So I would suggest that at the very least, you do this.

However, there are many cases where a C-Corp or S-Corp is a much better fit. If you intend to take any outside money at all, you will very likely be required to form a corporation and thus its better to directly incorporate (though you can convert an LLC to a corporation when required). Incorporation is more involved, requires more organizational maintenance, and is more expensive. It can run anywhere from hundreds to upwards of ten thousand dollars to setup everything correctly and maintain it. It is best to work with an experienced corporate lawyer to ensure it is set up appropriately.

I am by no means a lawyer and am not qualified to recommend a specific corporate structure. All I am suggesting though is that you please protect yourself and make sure to incorporate or form an LLC prior to launching your product to ensure that you are not one of the victims in this highly litigious country of ours!

Lessons Learned from imeem

Before moving on to a new phase in my career, I always like to reflect on the previous experience and put together key takeaways that I can leverage in the next opportunity.

It's that time again as this past Wednesday was my last day at imeem. As some of you know, imeem acquired Anywhere.FM at the end of 2007. Since then I've helped to migrate Anywhere.FM, develop the imeem Media Platform, and contribute to a variety of monetization projects. But now I'm eager to move on to the next adventure :)

Since I have a blog this time around, I thought I would share my lessons learned from imeem with all of you.

Content Matters. Having interesting or exclusive content is a great source of traffic. imeem's decision to allow user uploaded content has definitely helped it obtain valuable SEO for hard to find tracks. People who really want access to a specific song will go wherever they need to in order to find it. imeem's ability to get exclusive content like the Britney Spears' Circus pre-release album definitely resulted in a nice bump in traffic as well.

Creating a Community. While many people would say developing a web 2.0 UGC site is easy because users contribute significant content, it's actually a lot of work to harvest the desired community. It requires staff to police user-contributed content, answer questions\moderate forums, contribute\manage editorial content, encourage appropriate behavior, and so on. In order to scale, it's important to automate as much as possible and allow users to help manage the community themselves.

Conversion Funnel Optimization. Don't underestimate drop-off rates resulting from adding an extra click in a flow. There are lots of flows that can be optimized simply by removing extraneous pages or reducing non-essential exit paths. It's worth re-looking at all your important conversion funnels to see if you can further optimize (sign up, contributing UGC, sharing, purchase events, premium account sign up, etc).

A/B Testing. Everyone knows that A/B testing is a good idea and they should do it. Yet still so few people do. And why is that? It's because A/B testing is hard and the tools often used to perform it are limited. However, if you take the time to either build or use an existing great A/B testing framework, the cost of A/B testing goes down significantly and becomes easier to do on a regular basis. Investing in A/B testing tools is hugely useful, especially for optimizing monetization for sites where small gains have huge effects due to volume. (There's likely a startup opportunity to provide better A/B testing tools that let you look at the full effect of variations over time).

Widgets. While allowing widgets to be embedded on third party sites significantly extends your reach and can be a huge opportunity for building your brand, the amount of traffic that converts to destination site users is often minimal and the ability to monetize widget traffic is still dismal. When developing widgets, one needs to think very carefully about the actual benefits for the site and exactly how much functionality to expose in the widgets versus reserving for only the destination site.

Using an API Internally. Building an external API is a great discipline for even improving the quality of internal API methods. It forces you to think through good design, re-usability, and creating common usage metaphors. All things you should be thinking about for internal APIs. Speed to market for imeem's own apps has significantly increased with the creation of our external APIs. The audio and video flash players, the imeem Uploader, the VIP player, MySpace\Hi5 apps, and the mobile app were all built on top of these APIs.

Evangelizing a Platform. While getting large well-known companies to use your developer platform provides great case studies that will help you convince other developers to jump on board, you have to trade this off with the fact that large companies take a long time to decide whether to engage as well as a long time to build. For each large integration, you could probably get 3-5 small integrations up and running.

Focus on Monetization. Very few music startups have focused on monetization. There is still a lot of novel business models that should be tried in the music space. Instead startups have focused on building compelling products without much care to the business model. There is room for innovation in the music space if people are willing to tinker with music business models as well.

Competing with Free. It's very difficult to compete with free. Users have come to expect free music streaming from the days of Napster and BitTorrent. And now there are plenty of free music streaming services (either illegal or legally ad-supported) and continue to propel user's expectation to pay nothing for music consumption. It's very difficult to aggressively advertise or charge users without fear of user's flocking to the competition, which just gives it all away. The one nice thing about the recession is that it has forced imeem's competitors to more aggressively monetize in order to stay afloat\get funding and therefore allows imeem to follow suit without fear of losing traffic.

Media and Entertainment Monetization. It's tough to monetize media and entertainment properties through advertising, lead gen, or affiliate revenue. This is because users are there for socializing and consuming content and have very little purchase intent. While they do share a vertical interest in music, associated music commerce opportunities are limited either because of the small margin the publisher gets working with partners for digital downloads and ringtones or because the providers for concert tickets and merchandise are still not aggregated well or lack established affiliate programs. (There's likely another startup opportunity in an aggregated music merchandise storefront and affiliate program).

Direct Sales. Having a direct sales team is expensive. Not only do you need sales reps, but you need sales planning support, post sales production support, and trafficking support. It may make more sense to outsource direct sales to rep firms in the early days of a startup's life.

International Monetization. It's very difficult to monetize traffic outside of the US and a few key markets (UK, Canada, etc). Ad spend in most other countries is still very low since their online ad markets are still nascent. Oftentimes it is probably a better use of time trying to improve US monetization or trying to attract additional US traffic as opposed to trying to optimize international monetization. (I smell a startup opportunity for anyone who can crack international monetization).

Users Willingness to Pay. I was surprised that users are actually willing to pay for online services. Obviously conversion rates are very very low. But it was surprising to me to learn that people were willing to pay at all - anywhere from $3/mo - $100/year for imeem's VIP subscription service. The features were really around convenience. Not even access to content. People will pay for quality products.

Online Audio Ads. Online audio ads are a promising area for innovation and monetization. There is still $21B being spent on offline audio ads and there is clearly an opportunity to move some of those dollars online. No one is aggressively innovating with the right ad unit. Most are simply re-purposing offline audio ads online.

Incentivized CPA Offers. Incentivized CPA offers can be used to monetize a variety of digital goods even outside of the social gaming space. However, the highest eCPMs seen thus far are still in their use in social gaming.

Music Licensing. It's very difficult to get on-demand streaming deals done with all four major labels. And this doesn't even include indie content. Even if you get the deals, you are looking at a large upfront payment to each label, giving up equity, plus a rev share or per-stream fee. The labels have not been looking to give the deals to everyone either, instead focusing on making some large bets.

Value of Data. Every site of any interesting size has a wealth of data. It's important to know exactly what data is tracked and available and to mine it wherever appropriate. All too often this valuable data goes unleveraged. On the other extreme, many believe that the ultimate business model lies in selling data. For those who believe this though, I think it's tougher than one thinks to monetize data itself. But there are many valuable insights that can be gained by mining it for product improvements and getting a better insight into your audience.

Don't Believe Everything You Read. It's interesting being on the inside of a large web property with many eyes watching it. Since I had the inside scoop, I knew that many times imeem was written about, the reporters simply got it wrong. Either because of misinformation, not really understanding the service, or some rumor that someone else started. Because of this, I've become much more critical of what I read online in the tech press and look much more closely at their stated sources of information.

Monetize Online Music with Audio Ads

Despite the over 200 music startups that launched in 2008, I am disappointed with the lack of startup innovation in the space. While many of them definitely nailed building something people want, most failed to make something people will buy. When developing a startup, figuring out a viable business model is as important as producing a compelling product. And unfortunately there was little in the way of innovation in business models in the music space.

This is an even more pronounced issue in music, where content licenses are owned by an oligopoly of four highly litigious record labels. The labels have been eager to shut down or sue a variety of music startups, including Muxtape, Songbeat, Seeqpod, Project Playlist, and others. Yet what the labels are struggling most with is recouping lost revenue from the 45% drop in CD sales since their peak in 2000. What they are most desperate for is not a large settlement, but a new sustainable revenue stream. What they need are startup partners seeking to help them generate new commercial value with their content and through relationships between artists and fans.

There are a few notable exceptions who did focus on business model innovation. LaLa, for one, introduced a new a la carte on-demand streaming pricing model, charging users 10 cents per track for unlimited on-demand streaming. Sure one could argue that there are already too many free alternatives for on-demand streaming and thus there is a significant uphill battle for LaLa to gain traction. But LaLa is focusing on trying to build a compelling enough user experience with a clean playback experience that would be worth paying for. And at the same time, it's still to be seen whether the existing fully ad-supported music streaming services are going to be profitable businesses. To be sure, LaLa is far from a success, but at least it went out on a limb and tried something new.

However, the most interesting potential bright spot in online music monetization is monetizing time spent listening through online audio ads. While the online audio ad market is still nascent, the offline radio advertising market is still a $21B industry. The time is now for these dollars to move online in a meaningful away.

There have been various attempts at developing the online audio advertising space to date. Unfortunately early attempts were limited in success. Some have tried to bring the same offline radio ad spots from broadcast radio to online music streaming services. These are your typical 30-60 second national brand ads, like Geico car insurance ads. The attractiveness of this format is that it is much easier to convince ad agencies to take their existing audio creative and do a test buy online. For broadcast agencies, it is exciting to finally have access to actual impression data. To them it is a novel concept to actually know exactly how many people viewed their ad spots, since in the offline world much of the metrics are based on sampling. Yet this traditional radio ad format is completely inappropriate to the web world, where oftentimes users choose to move to online music services to get away from these long obnoxious ads.

What is needed in the online music space is an entirely new audio ad format that is appropriate for the medium. Just as how the online video space has developed its own unique format - the video ticker overlay ad unit - a similar new ad format needs to be developed to adjust to user behavior and expectations regarding online music.

And that's exactly what we are finally starting to see happen. imeem, for one, is serving a unique 5-8 second audio ad spot at a low frequency with a companion medium rectangle (300x250) banner that takes over the player during ad playback. Pandora just introduced 15 second audio ad spots with an initial frequency of one spot every 2 hours. TrueAnthem has developed an 8 second audio spot with a companion banner played at a frequency of once per session. Jingle Networks, which provides a free 411 voice service, has been serving 10-12 second audio spots from both national advertisers and geo-targeted local advertisers. They have had no trouble filling their inventory and have even launched a complete voice ad network to allow the insertion of in-call audio ads for other services.

There are several existing online audio ad networks already out there, including Ronning Lipset Radio and TargetSpot, which recently merged to create the largest online audio network. Unfortunately a lot of the units they carry tend to be the longer more traditional 30 second ads. This month Google announced that they would be shutting down their broadcast radio advertising business that Google has pursued since its acquisition of dMarc Broadcasting in 2006. While many picked up on that news, I think the most interesting piece is that Google also said that they are going to now actively pursue online streaming audio ads. I'm excited to see Google enter this space and I hope they bring with them advertisers willing to try shorter and more innovative formats, even if it means Google or someone else taking on the challenge of producing this new custom audio creative. This is exactly what VideoEgg had to do in the early days to get advertisers to embrace the video ticker overlay.

Early data suggests that in-stream audio ads have higher CTRs and greater brand recall than traditional online banner ads and can be minimally detrimental to site usage when done tastefully with shorter audio spots at low frequencies. Instead of seeing yet another slick AJAX interface for creating and sharing music playlists, we need more entrepreneurs to optimize the audio ad format to figure out the right set of parameters to make this work. Whoever does that may be able save the music industry and line their pockets all at once.

5 Music Startups to Watch in 2009

It's that time of year that everyone is putting together their predictions for 2009 and so I decided to do one of my own.

Over the past year I've had the opportunity to work with a variety of music startups. Not only with the two music startups I've been directly involved with (Anywhere.FM and imeem), but also countless music startups looking to leverage the imeem Media Platform APIs I manage at imeem. Based on what I've seen, there are three music verticals that I am bullish about and 5 exciting startups that have started to pursue them in 2008 and expect to see much more from them in the new year.

Music Gaming
Music gaming has benefited from renewed traction in recent years. The current explosion can be attributed to the tremendous success of both Guitar Hero (2005) and Rock Band (2007), but we can't forget the earlier successes of Dance Dance Revolution (1998) and even further back with Parappa the Rapper (1996). What's most exciting about it this time is the size of the opportunity. The Guitar Hero franchise alone has seen over 14M units sold generating $1B in sales in North America. On top of that they have seen over 5M song purchases. And for the first time ever Beatles music is actually available digitally through Rock Band (even though the Beatles have classically refused to make their music available on iTunes, music streaming services, etc).

In 2008 we started to see what the next generation of music gaming will look like.

JamLegend



JamLegend is best described as a web based version of Guitar Hero. Not only have they done a great job of recreating the fun of Guitar Hero on the web and your computer, but they've opened up the opportunity for very interesting web-based additions. One exciting opportunity for them is continuing to build out their massively multi-player capabilities, tournaments, and leaderboards. At the same time the ability to eventually crowd-source all the tracks and build the largest library of playable content will be key. JamLegend could become the newest form of music promotion for artists and both indie and major label artists will be looking to take advantage of this latest phenomenon.

Ocarina



Ocarina is by far the most clever music game I've seen to date. Ocarina is the first true musical instrument created for the iPhone. Simply blow into the microphone, press down on the four keys, and you're playing beautifully sounding music through your Ocarina. And the social experience is great as well, since you can click on the world map and see who else is currently playing their Ocarina across the globe and tune in to enjoy their music. I'm excited to see these guys expand to actually hosting concerts, recorded videos, and even more instruments.

Rock Legends!



Rock Legends is the latest social game from Serious Business, the startup that created the Friends for Sale social game on Facebook. This time around a user starts a rock band, picks what kind of rocker they want to be, and recruits others to join their band. It's a social experience complete with playing gigs, battle of the bands, and more. I would be excited to see Rock Legends integrate JamLegend style playback into their game to tie the best of music gaming together.

Live Events
Another space in music that continues to be attractive is live events. Unlike the ongoing decline in CD sales and the slim margins of digital downloads, concert tickets sales continue to enjoy high margins and make real money for the artist. Yet there continues to be unsold seats at the majority of events. There clearly continues to be an opportunity in 2009 to more efficiently bring fans to see their favorite artists at live events.

SongKick



While there are a lot of players trying to tackle this space, I'm most excited by the work SongKick has done. In a little over a year they have built a comprehensive concert listings engine and database. It's no easy task as very few clean feeds exist out there from venues and ticket providers. Most recently they've been doing a lot to build out their website experience to make it easy for fans to find when their favorite artists are coming to their area and even recommend artists you may enjoy. With a new round of funding, it will be interesting to watch how they expand in the new year.

Dis-intermediating the Major Labels
What I am most passionate about are those out there seeking to dis-intermediate the major record labels. The major labels have been unable to come up with any significant revenue stream to offset their losses in CDs and unfortunately it hasn't been due to lack of technology innovation. They have for the most part failed to support the most creative entrepreneurs out there by making it very difficult for them to get access to legally licensed content. As many have recognized, its time to move beyond them and seek to establish relationships directly with artists and their fans and either create the next generation record labels or remove the need for labels entirely.

Topspin Media



Topspin Media is the most promising startup in this space. Topspin focuses on providing tools to artists to make it easy for them to communicate directly with their fans through a web presence, email distribution, and more. Topspin has started by smartly focusing on super-fans who are willing to devote time and money to engaging with their favorite bands through premium purchases, subscriptions, etc. I hope to see Topspin unveil additional products in the coming year and expect both its artist and fan footprint to grow substantially.