Sachin Rekhi

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.

Andrew Chen asked me to write a guest post on his blog about some of my experiences monetizing music at imeem. I wanted to share it here as well.

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Introduction
In its search to find the most effective way to monetize user’s time spent listening to music, imeem has become one of the early innovators in the nascent online audio advertising space.

From the process of designing, testing, and iterating on imeem’s unique audio ad product, I wanted to highlight 5 key lessons learned that are applicable not only in developing imeem’s ad offering, but in general to designing any innovative ad product.

Lesson 1: Align the ad product with your site’s user experience
Lesson 2: The easy way is often not the best
Lesson 3: Pick the right metrics to optimize
Lesson 4: Make sure to look at qualitative feedback
Lesson 5: Iterate on the sell in addition to the ad product

1. Align the ad product with your site’s user experience
imeem had classically employed a variety of advertising strategies to monetize users, including display ad inventory that was filled by our direct sales team through high impact brand campaigns as well as dozens of ad networks we used to fill our glut of remnant inventory. Yet we knew with our audio consumption experience, we were creating a new kind of available ad inventory which could be much more effective at reaching our users than display ads since audio-based advertising better aligned with the activity users were most engaged with on the site. With terrestrial radio ads still generating $21B in revenue, there was clearly an opportunity to shift some of those dollars online and provide a better experience for both users and advertisers.

2. The easy way is often not the best
Online audio ads are not a new concept. They have been used by a variety of major online streaming outlets, including AOL Radio, CBS Radio, Live 365, and Yahoo LaunchCast. However, the initial incarnation of audio ads took the easy way out. They typically ran 30 second audio ad spots which they obtained from ad agencies that re-purposed their terrestrial radio creative for online audio ads. This made it very easy for agencies to get their feet wet with online audio advertising with no additional creative costs. While this may work for traditional online streaming services, the new generation of music streamers like imeem, Last.FM, and Pandora would not be willing to run such long audio ads out of fear of losing their user base.

So what was needed was an audio ad unit custom tailored for personalized streaming services. And that’s what we ended up creating at imeem. We came up with an 8 second audio ad spot that would advertise a national brand and show a standard IAB medium rectangle (300×250) banner on top of the player during the audio ad playback. The user could click-through the medium rectangle to the advertiser’s landing page like classic banner ads. We started with a very low frequency of a maximum of 2 ads per user per hour. However, this was far from easy, as it required imeem to develop in-house production capabilities for the 8 second audio creative, as agencies never had existing creative and were rarely willing to develop another set of creative themselves. While this was an undertaking, it is often necessary to bear the cost of innovation to deliver the right ad product to your audience.

3. Pick the right metrics to optimize
In order to understand the effectiveness of any ad unit, it’s important to systematically test it. The first step in designing a successful experiment was determining what were the metrics that we were testing. We knew that we were trying to satisfy two customer segments with this ad product: advertisers and users. For advertisers, there were a variety of ad-related performance metrics that we could measure. However, we decided to start by measuring the advertiser metrics that ad agencies had classically been most interested in. We wanted to determine whether we could make advertisers happy through the performance of these classic metrics, since trying to educate ad agencies on the importance of new metrics is an uphill battle that would significantly decrease your ability to sell the unit. Thus the initial advertiser metrics we tracked were click-through rate of the tethered medium rectangle banner as well as aided and un-aided brand recall as measured through quantitative surveys administered by our research partner Dynamic Logic.

For users, what we wanted to understand was whether introducing audio ads onto our site would decrease the amount they used the site. While we tracked page views, visits, session length, etc, we focused on number of songs played per user during the life of the experiment as the most important proxy for site usage.

4. Make sure to look at qualitative feedback
In addition to measuring quantitative metrics, it’s equally important to collect qualitative feedback from real users. The iModerate online focus groups we conducted ended up being very enlightening and allowed us to derive interesting insights of consumer motivations and behaviors that looking at the quantitative data alone wouldn’t provide.

For example, though initially we were significantly worried that the introduction of audio ads would cause users to flock to our ad-free competitors, we learned through interviews that many of our young users had developed a strong affinity with imeem, understood the need for imeem to monetize, and were eager to suggest ad verticals they would be most interested in hearing to improve the product.

5. Iterate on the sell in addition to the ad product
An area that’s as important to iterate on as the ad product itself is how you sell or position this offering in the marketplace. Selling innovative ad products is actually the greatest challenge in the process. Anytime you introduce a new ad unit, significant education is required for brand marketers and agencies to help them to understand the importance, effectiveness, and promise of this new medium.

Our sales planning team iterated many times on the pitch to advertisers for the audio ad product as well as how we reported on ad unit performance at the end of each campaign. This was regularly refined based on feedback we elicited from our advertising partners.

Conclusion
While many have claimed the death of online advertising in light of the recession, its important to remind ourselves that ad dollars are still being spent online. Now is an opportunity to innovate on the ad products that we offer advertisers to show greater value, brand awareness, and performance. We must keep in mind that ad agencies are eager to find better ways to spend ad dollars, as they are equally interested in showing results to their brand clients to hold on to their ad budgets. We should partner with our advertisers and users to find the most efficient way to leverage online advertising to monetize our sites.

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.

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.

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.

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.