About Me 0091: Making Money Opportunities

There are probably 10 events equivalent or larger than Le Web throughout the year, as well as smaller events every day. We regularly ran into Robert Scoble and other major blogs, and they were very keen on listening to us. Local event organizers were even eager to help make a Finnish Angry Birds event happen and to introduce us to hundreds of people!

Readjustment of Expectations

These elements fit with each other and form the ground for growth business to happen. The old continent often looks up to the Valley as a sort of Eldorado of IT. Countries such as the UK, Russia and Finland are trying to replicate its ecosystem, to stimulate their local industries. Silicon Valley is a hub. Its value lies in two generations of people with unique know-how that are given all the tools necessary to create growth. No amount of EU or taxpayer money is going to recreate this perfect storm.

Not Businessmen, Entrepreneurs

We Europeans think of entrepreneurs as businessmen. This might be valid for lifestyle, predictable businesses, but the job of a startup entrepreneur is different: to test assumptions, to learn, and to create something new.

A trader on Wall St. can make money circulate without ever creating anything of value. In contrast with a startup such as Kiva, the drive to fix real problems, make and impact and give to the community makes traditional business feel vain, and startups all the more inspiring.

Down to Earth

Hearing and meeting thought leaders such as Eric Schmidt, Paul Buchheit or Steve Blank gave me a lot of food for thought. I have yet to see a Nokia executive at a startup event; these people on the other hand were approachable, down to earth, and relaxed. The pursuit of quality people makes this a meritocracy. Quite the contrast with our local successes who tend to behave like suits. Talent takes precedence over nationality or title, which would explain why Loic Le Meur and Om Malik are so well integrated, and Carol Bartz isn’t.

Cultural Edge

We received better customer service from Taco Bell and the police department than from Stockmann, the top tier department store in Finland! One time, a bus driver was more comfortable at speaking than most startups I’ve heard pitching. It seems they are more comfortable with small talk with the customer.

This tendency to be more outspoken could also be seen in networking and pitching, where there was much less awkwardness than with Europeans. Though it rarely feels genuine, it certainly is more effective.

Bigger is Better

More events, money and startups, means more competition, making it all the more necessary to stand out by hiring outstanding people, being more ambitious, more risk-taking. Unsurprisingly, this seems to weed out the less passionate people, while encouraging others to put in sweat equity in their own ideas.

This is something I feel we Europeans aren’t very good at. It’s compelling to start in your home country rather than aiming big, because it feels safer. The last thing you want when you launch is to tailor to several languages, cultural differences, distribution channels and small blogs and other media. You can easily get complacent when you succeed in your own country, but if we mitigate risk, we place the odds against us from the start.

Access to Finance

The most striking difference was to see a fully fleshed out capital market, where hobbyist and professional angels, superangels, top tier VCs and smaller firms compete for the more attractive deals. This makes for a more fluid deal flow, with more standardized and competitive terms, with more contacts and experience on top.

It wouldn’t surprise me if there were more angels and VCs in the region than on the entire European continent. In 2009, business angels invested 160 times more than their counterparts in continental Europe. It is also unclear whether we have any superangels (e.g. we don’t). Like our startups, our VCs tend to aim locally or regionally. Many of them aren’t reviewed on TheFunded, so there is little track record to refer to. With major exits being few and far between, the amounts of money reinvested as well at the experience offered is less.

Still Insular

At times, the Valley feels like a bubble, its inhabitants sheltered from the real world. Foreign markets seem to be an afterthought, space for local startups and copycats. It is unclear whether foreign companies can realistically raise money from where they're at: though Accel invested in the Lithuanian company GetJar, and more recently Esther Dyson invested in Finnish Valkee, I was also told that some VCs would only invest in startups within a short drive.

U.S. legislation is not on the foreign entrepreneur’s side. For some odd reason, it is easier to get a visa by being hired, than by establishing a U.S. company and creating jobs. Hopefully, the Startup Visa can correct this in the near future. This process should be streamlined, as I believe many European startups have a lot to offer.

3 Choices

Silicon Valley is an unfair advantage for startups. Its ecosystem serves as an accelerator for world-class growth business. In comparison with Europe, lesser teams with lesser technology have access to more resources and will get further, faster. Ambitious European entrepreneurs face three choices: should we aim smaller and within our comfort zone, take greater risks in the Valley, or try the hard way in the old continent?

Photo by luigig

The news that Tapjoy, formerly Offerpal, raised $21 million in funding last week, is not only a feel-good comeback story for a company tainted by the Scamville Facebook case. It also shows there’s a big opportunity to be had by helping the freemium model expand on mobile. In addition to Tapjoy, there are other companies hoping to ride the freemium app boom.

For example, W3i, a longtime web application recommendation service, is looking to help match up advertisers who want to promote their mobile apps with developers who are looking to make money through in-app purchases with a new ad-funded payment platform for iOS. Similar to Tapjoy’s platform play, W3i is looking to exploit the growth in in-app purchases by uniting developers, advertisers and users.

A user who wants to buy virtual currency or goods in an app can choose to install another app in lieu of payment, which the advertiser delivers to the developer upon installation. I talked with the CEOs of both companies about the opportunities in alternative payments for mobile apps and why they feel that they’re on to a big opportunity, helping fuel the in-app purchase economy and taking advantage of its growth.

Mihir Shah, CEO and president of Tapjoy said a year ago, the company began testing out a freemium model for one of its mobile games Tap Defense a year ago and found that within a week, it was making six times more money going freemium than paid with traditional display advertising. Eventually, the game was making 10 times what it was before. The news spread, and other developers came on board with Tapjoy’s virtual currency model. Shah said the market for freemium mobile apps went from about 20 a year ago to about 2,500 today, of which he said 90 percent use Tapjoy. It’s unclear if these numbers are accurate, but as I reported a few months ago, we’ve seen a big spike in the number of freemium apps on the top-grossing rankings of the Apple App Store

Tapjoy employs its platform on iOS primarily and is also on Android. The company’s move to mobile has attracted some 400 developers, who are now partnering with Tapjoy for its in-app currency platform. And big brand names are also lining up with Tapjoy because of its success in helping distribute apps. Companies like Kayak, Fandango, Tapulous and Groupon pay for each user who installs their app in exchange for virtual currency. Shah said it only works with apps that have already been approved by Apple so it helps assure users the downloads are legitimate. He said the messaging is also made clear when users agree to download a paid app in exchange for currency. That has allowed Tapjoy to avoid the problems caused by the earlier Scamville episode, in which Facebook users were encouraged to use offers to pay for virtual currency in Facebook games, sometimes unwittingly buying things or subscriptions.

Shah said alternative payment through offers is still emerging; most iOS users still pay for virtual goods and currency directly. But he said it’s a significant business that will grow over time. He also said while many freemium apps right now are games, the model can work for many other types of programs. Communications app Pinger offer users currency for the service in exchange for app downloads. “The amount of content that is switching to this (freemium) model is astronomical,” said Shah. “And the top of the curve is not leveling off.”

This helps explain W3i’s move into this space. Andy Johnson, CEO of W3i, said its W3i Ad-Funded Payment Platform is trying to create a win-win-win for developers, advertisers and users. He said developers are able to better monetize their apps, a struggle in increasingly crowded app stores. Advertisers can get better distribution of their apps and insight into their marketing efforts while users are able to get something for free, which is overwhelmingly how they like to obtain things.

W3i is just getting started but has a lot of experience in helping distribute desktop apps. The company, which launched in 2000, has built a profitable business out of its InstallIQ app installation manager, which has helped W3i hit 500 million app downloads in its network. Now, W3i believes it can take its learnings to mobile, which Johnson believes can be an even bigger market.

“We see the mobile platform as the dominant platform moving into the future,” Johnson said. “We think this entire application distribution ecosystem is just beginning and there is so much market created each day, we don’t think there is one company that owns it.”

As I wrote about last week, in-app purchase revenue on the iPhone is now basically on par with paid download revenue, according to Distimo, an app analytics firm. With in-app purchases expected to be the dominant revenue driver for mobile apps, it’s smart for Tapjoy, W3i and others to try to take advantage of this momentum.

Related content from GigaOM Pro (sub. req.):

How To Ride The Freemium App Wave To Success

Will Killer Apps Affect Which Handsets Consumers Buy?

How Carriers Can Crack the App Discoverability Nut

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Thursday, January 13, 2011

Making Money Opportunities