Episode 55 - John Battelle on Google’s Mathmatical Equation, Acting Like a Media Company, Video Search and Having Lots of Dry Powder Part 2 of 2

Transcript

Narrator: This program is brought to you by personallifemedia.com.

[music]

Narrator: This is part two of a two part pod cast. If you would like part one you will find it at personallifemedia.com

Susan: Welcome to Dishy Mix. I am your host Susan Bratton And you are going to hear John Battelle in my two part series this week. John is the founder, chairman, CEO of Federated Media Publishing. He is also one of the producers of the Web 2.0 summit and he has also launched a new Conversational Marketing event.

On last weeks show we started out discussing conversational marketing and Web 2.0. We were right in the middle of talking to John more about the things he touches on in his SearchBlog which he has been doing for a number of years. We left off last week talking about what Microsoft should do to counter the threat by Google. And the next question up, we will bring John on the show to talk about Google, something that he knows an awful lot about.

John: When you try to boil as many oceans as Google is currently attempting to boil, it is hard to surprise the world. The company was built on magic. The magic being that you put something into this box and you hit return and you got what you wanted. And that was a magic moment for millions of people that created the brand that is Google today.

They will hit a cycle there and they also will hit a cycle when they realize that in order to be a media company you need to act like one. And that means that you have to be in the media business.

It is very hard to make money in Mobile. And it is very hard to figure out from a marketer's standpoint how to get return on investment.

I think the biggest problem with video is demand. And I know that people are saying "God, look at how many videos are being watched on Yahoo or MSNBC, or CNN." There is a ton of video being consumed. There is no question about it. But is it being consumed in a way that is being driven by our habit of search? And I think the answer of that is no.

I have gotten reasonably good at it in terms of making it all fit together. I think that is an expression of the work I did on the books, on the work I do on the blog, the insights I gained from producing Web 2.0 and working with great people like Tim O'Reilly. And I think it all kind of comes together.

Susan: Let's welcome John to the show. Hey John, how are you?

John: I'm good, thank you.

Susan: Good. Hey thanks so much for doing a two part series with me. I had so many emails from DishyMix listeners that they wanted me to ask you that...literally as I was walking into the studio I could hear my emails coming in to my inbox: "Bing! Bing! Bing! Bing!". I thought "Oh God! What am I going to do!" Everybody has questions for you.
So thank you for giving us the time to do a two part series. You are the only other two part series I have done since my interview with Woz. So it's great to have you here and the pithy comments you gave us last week were unbelievable. There's so much good content there that I am excited to have you on again to talk in more depth about what's happening in the world of Web 2.0.

We're going to talk about Blogvertising. We're going to talk about Rock N Roll running and all kinds of fun things too. So this is the "dishiest mix" part as we get through it we will get to know more about you.

So when we left off last week, the question from Steve Bustin, who is an Internet Advertising Consultant, was "What surprises, excites, and disappoints you most about Google's current market strategy?"

John: You know, maybe the surprise and the disappointment are about the same, which is, my expectations are probably too high for the company. So I am to the point that I'm not surprised more I guess is the way to put it. When you try to boil as many oceans as Google is currently attempting to boil, it is hard to surprise the world. The company was built on magic. The magic being that you put something into this box and you hit return and you got what you wanted. And that was a magic moment for millions of people that created the brand that is Google today.

I don't think the company has created anything even close to that since and it is still...98% of it is mojo. Now, it has done some amazing things like Google Maps and Earth and so on, but it is trying to reinvent the mobile platform. You know, God speed. I hope they do, but that's a hard thing to pull off. It's trying to reinvent energy by trying to get a replacement for coal through its Google.org philanthropy. And again, God speed. But my biggest concern is that you can't boil four oceans at once no matter how many smart people you have. And I'm not sure that the model supports that. At some point, distraction comes home to roost.

Susan: Do you think they are already doing so many things that they will lose sight of the golden egg?

John: I am almost convinced from what knowledge I have of how the folks at Google think, particularly at the top, that they have a mathematical equation for exactly when that moment is going to come and they already have a plan to get around it.

[laughter]

Susan: So what would you do and what wouldn't you do if you were running Google? What would you lop? I mean, are you really going to lop Google.org and the solution for energy?

John: No, no. Of course not because that is sort of hived away in the....it's all about where the leader's focus their energy and their time. I think at the end of the day that there are a number of things that they are trying to do in the enterprise market. Basically they are trying to reinvent the entire IT stack, right? We are talking about Microsoft Windows, Microsoft Office, Microsoft Outlook, ok? Multi tens of billions of dollars of revenue quarterly. Not annually, quarterly. They are going after that. That is not a market you are going to win quickly. It's maybe not a market you are ever going to win. I think that the beauty of the thesis is still there. They are right. This is all going to the crowd. They are right. There is going to be a different approach to servicing that market. I am not convinced that they are going to be able to do it.

I think the largest charlie horse in Google's business market actually has to do with the word “media.” They are a media company. All their revenues are advertising.

Susan: And we know the cyclical nature of the media world. They might have had a sea change in bringing those dollars in with better revenue quarter over quarter to date, but they will hit a down cycle.

John: They will hit a cycle there and they will also hit a cycle when they realize that in order to be a media company you need to act like one. And that means that you have to be in the media business. And I think that is the greatest struggle inside the company which is "How do we be in the media business with an engineering mentality?"

Susan: There is no possible way that culture can support a media mentality.

John: And so I think the question is “does the media mentality move more towards the engineering technology mentality and they can meet in the middle or does it run out of runway before that can happen?” If you look at, and there is a very good example of this, Microsoft is an engineering driven DNA company,I mean Bill Gates, you can't get more engineering driven in DNA than that, trying to be a media company since 1994. They built Red West and they created MSN and they started going after media. Where they have been successful is where they have really firewalled off a business, the X-Box, and done something completely radically different and given them free reign to do it and haven't told them "Hey go sell me more copies of Windows." Right? And so Google could learn from that and I am sure they have. They are great students of Microsoft.

Susan: So this is a question from another listener that kind of segues into the intersection of technology and media from a slightly different perspective. Shea Park is the found of a company called Adspark.com and she is talking about the information overload situation. Blogs, social networking, articles, emails, media outlets. She wants to know if you see any major technological or software advances coming from the media world that would allow consumers to consolidate their information sources and quiet the noise.

John: Oh I certainly hope so.

Susan: Do you see any? Do you know any? What are you doing?

John: Yah, well all I am doing is Twittering, right? I am just causing more problems. Boy, I just wish you asked me this question three years ago when I could have said "Hey, have you heard about RSS readers?"

Susan: Right. That is the only thing I could come up with and I think they are still clunky as hell.

John: Yah they are. And you have to be of a certain mind for RSS readers to actually be useful for you. And not everyone is of that mind. Thank God that's why people like us exist.

Susan: To net it all out.

John: Publishers, editors, what I call curators, I think have high job stability in the coming years. The idea of a trusted brand that you turn to for a filter on the world is never going away. Never. Now its going away in terms that it has been packaged in the past, but I think it's only a more valuable skill, not a less valuable skill. I genuinely believe that you cannot replace that function with machines. You can only enhance that function with machines. So you know, the best news editors, the best reporters, the best curators of oddities on the web are those that know how to leverage the machine. But so far we still haven't figured out a way for the machine to take over that function completely and I for one am happy about that.

Susan: A quick segue into mobile marketing and advertising. Is that something that you track much? I mean it's another distribution channel for our media content. I'm not sure that's going to solve Shea Parks problem or ours. But Brian Cowley at Ad Infuse, he is the CEO there, he wants to know if you are tracking mobile at all.

John: Very lightly. And the reason is simply this: there is no economic incentive. From the point of view of a publisher, unless you have access to some very valuable content that you have complete control and license over and you can spit the baby with the carriers in the United States, it's very hard to make money in mobile. And it is very hard to figure out from a marketer's standpoint how to get return on investment. An open standard for mobile, which Google and others are pursuing, I think could change that game dramatically. I think the iPhone already has in a way by basically taking over the idea of an open web. The first thing people do when they get an iPhone is search on Google. And that behavior, which we've all learned from the web, once translated completely to mobile devices, and I am not saying its going to be one for one, but it will translate, will allow for new models that are exciting to start to flourish. But we are, to use a word in its original definition, retarded when it comes to how to execute interesting and innovative models on the web.

Susan: So here's something that I know you are tracking quite a bit. Steve Buston, Internet revenue consultant, wants to know your take on video search; what's missing and where does the industry go over the next two years. And I'd like you to add on is, new ad models you are thinking might pan out from a revenue perspective for content producers in the area of video advertising. So video search, video advertising, kinda hand in glove. We've got to find the stuff to consume it. How do we monetize it?

John: We were very...and again I think I've said this three times now over these two interviews. We are very early in this part of the ballgame. I think the biggest problem with video is demand. I know that people are saying "God, look at how many videos are being watched on Yahoo, or MSNBC, or CNN." There's a ton of video being consumed. There is no question about it. But is it being consumed in a way that is driven by our habit of search? And I think the answer to that is no. I think it is being consumed because we discover it in other ways. It is right there on the Yahoo home page or on our finance page or wherever we happen to be.

Video search, I don't want to say it's a solution in search of a problem, but I don't think we have yet gotten to the point where as a culture we expect to find what we are looking for in search when it comes to video. And I don't think we have yet come to the point where we are asking questions and expecting a video response. And that's coming, but we are still a very text driven culture when it comes to search and when it comes to what we expect back from search. And so there is a trend in search which is called the universal search of folding in video results. And everybody is doing it. Google of course is doing it with You Tube in particular. I think we are getting there. I think You Tube has taught a generation how to search contextually within You Tube. But across the web, we are not there yet.

Susan: Alright, so we are going to go to a break and when we come back we are going to talk about Federated Media. A lot of people had a lot of questions about how you are doing business, how you are making money, how they can engage, how they can buy from you. So this will be a lot of fun. And before we go, Michael Crosson, the SVP of advertising for Insweb wants to know when you are relaunching the Industry Standard and buying Technorati?

John: [laughter] I am going to have to say no comment on both of those.

Susan: Ahhhh..Come on! I thought that was pretty good too. He is a funny one isn't he. Alright, good. Well we'll go to a break to thank my sponsors. Thank you sponsors! I really appreciate you giving me the opportunity to have this much fun with John Battelle. I am your host Susan Bratton. We will be back in just a second. Stay tuned for part two of two.

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Susan: We are back. I am Susan and we are with John Battelle of Federated Media. And we are going to talk about Federated Media. We are almost done. We are coming up to the close of the two part series and this is part two. John, just give us a level set on Federated right now. How many sites, how many employees? Give us the numbers.

John: Sure. We are in four cities now. 75 people. The bulk of our people are here in Sausalito. Beautiful Sausalito, north of the Golden Gate Bridge.

Susan: You must be hiring.

John. We are hiring. Please let everyone know we have a lot of open positions. We just completed a very large financing round and as a matter of fact we are expanding. We have about 15 people in New York and a couple people in Chicago and Los Angeles and some relationships internationally that we have been developing. This has something I have seen before. We did a similar kind of growth trajectory at Wired and Industry Standard. More linear with Federated. Hopefully I have learned a few lessons and not hired as dramatically and as quickly as before but on a more judicious path.

Susan: How many sites are in your network now?

John: About 170.

Susan: That's good. In my mind, Federated Media is a Rep Firm. You are very similar to my company, Personal Life Media. You and I have always thought very similarly about the world of publishing and media. I have 25 shows in my network now. We co-created some of those shows. Some of those shows were people who were solo or on another network and came to join our network. But we are not the content producers. We might have helped to co-create and put someone into their own show. They own the content. It's their business. We sell the advertising and support the technology and the infrastructure for them. As I understand it, that's also the federated model.

John: That is. You know I think that they idea of a rep network has a lot of baggage which is unfortunate...

Susan: People confuse it with ad networks, which are a totally different thing.

John: It is a different thing. The idea of representation I think is a pretty robust idea. It is based in a very, very simple observation which is that content creation is decoupled from traditional media companies. People can create a really good content experience that is engaging for a community and they don't need to work for Viacom or Time Inc. or the LA Times.

Susan: And also, if they did, a lot of times that content is top down creation rather than bottoms up creation, which is where all the juicy, good stuff is.

John: It's a model that is driven by the cost and capital resources of distribution, aggregation and all that means of production stuff that informed the media model for the last 100 years. But the problem is, the great thing is, once you decouple from traditional media models while you can grade Boing Boing. But the downside is you have Boing Boing but you don't have any business around it. You don't have the publishing, the ad serving, the marketing, the business development, the operations, the finance, all that stuff you need. That's what FM is for our partners. You know, it's a spectrum. Some people say "Hey, they do a great job selling ads." Other people, you know, we do a lot more than that for them. So it is a spectrum. The difference between us and what you might consider a traditional rep firm is traditional rep firms tend to be solutions for publishers who have inventory that they don't want to monetize themselves. They have their own sales force and they don't have that office in Atlanta so they get a rep firm in Atlanta or they get a rep firm in the UK or whatever. We represent the whole enchilada. We are all the inventory and all the potential monetization. Outside of some deals or some offers where they take care of endemic sponsorships that aren't national brands.

Susan: And that's exactly what I do and the model works well because you can fully support that content creator and take away all the business headaches, monetize it for them. Usually the people who create can't sell their own stuff and it feels funny to them. Steven Comfort, the VP of sales at YuMe, who was formerly at Tickle, which is one of my favorite lovely companies says....

John: And formerly at Wired.

Susan: Oh yes! Oh I forgot about that. Absolutely, so you know him. So Steven wanted to know what the non-obvious real costs are that big bloggers incur that you at Federated Media help them offset. So video streaming or hosting or what are some of those things that you do that you can help them with?

John: That's a good question. One of the beauties of these businesses is that they don't have huge operating expenses. And if they did, FM would probably would not be in business. I remember when Boing Boing came to me and said "God Damnit our hosting costs are $250 a month." How many uniques do you have? "Oh, half a million." This was five years ago. And I said, "You know what? Half a million uniques, $250 a month, pretty good deal."

Susan: We can work with that.

John: But as these businesses grow, they do accumulate some operating costs. Whether it's legal or accounting....you know, some of the stuff that they may want to do themselves that we can provide but they may want to control themselves. There aren't really any hidden ones when you go to video. When you get to video, and we were talking about video previously, this is a model that has not yet been squared. Where the costs of hosting the video need to be born by ad sales. The technology...

Susan: The money is not there yet.

John: The money is not there yet necessarily and also the technology to do reliable reporting and insertion of ads in real time against various important metrics whether it be time or demographics or whatever. We haven't yet found a perfect solution. We are working with a number of great companies to deliver what we do deliver but it is not yet there. There is a lot of venture-backed companies pushing at that space. So I feel pretty good about solutions coming.

Susan: Well, our mutual friend Rob Ried, who produces Webb Alert who is carried on your network is ecstatically happy with the service that you give him. So I'll give you a little plug there.

John: Well thank you. Rob was in my office yesterday.

Susan: Oh, no way. I want to go back to the VC world. You've recently taken the series C from Oak Investment Partners. That was $50 million on a  $200 million pre. Awesome. Great job. What I understand about that deal, and there isn't a ton written about it, so let me tell you what I think it was and then you can correct me if that makes sense.

You had raised about what, seven, seven and a half million in Angel Series A, series B, and then you went and took quite a bit of money after you grew the business to profitability. And then you also, as I understand it through scuttlebutt and rumors and people, maybe sold some of your options into that particular deal. Instead of diluting your partners you sold some money and took some of the cash out of that investment for yourself. I love that. I think the way you did that if I have figured it right, you are terribly smart about how you ran your business for a very low amount of money and they brought in your investors and got yourself, as the founder, a little bit of cash out of that.

John: Well, I'll tell you, what I can say about this is that I can't say anything specific. We can let that hang there and I can't confirm or deny any of the details. But my philosophy with FM was very much informed by what happened at the Industry Standard and Wired before that. At the Industry Standard we did a financing of about, and I might get the specifics wrong, but might be around 20 or 30 million on a 120 pre. And it was very difficult because I had a majority investor who had complete control in IDT .

Susan: Was that Pat McGovern?

John: Yes, Pat McGovern.

Susan: Know him well.

John: Times came along where there were opportunities to sell and I wasn't allowed to. So not only could I not get anything out of the work I did for four years, nor could any of my employees, nor could any of the investors who had come in. That was frustrating for everybody. Pat had his own reasons and they were valid. I realized that I needed to give up as little as possible to get to the business started. And with what I had noticed, a whole raft of entrepreneurs had done in sort of the Web 2 time frame, in the post crash, which was you don't need that much money. When it came time to accelerate the business, we saw the opportunity; we had proven the model, now it was time to really go do something big; why you needed to go do something big. We went with a backer who has a sterling record and an awful lot of capital.

Susan: Oak Investment Partners.

John: Right.

Susan: They have done a lot of deals.

John: They've done a lot of deals and so we knew that if we wanted to go do something really big, these guys would align right behind us and we would march arm in arm. So we are looking at that. We are looking at a lot of things right now and it's exciting. It's an exciting time. We have a lot of dry powder and we are eager to put it to work. I am still the single largest shareholder in the company but when you do an event that big, clearly I made the decision that it was time to share power and not be the only deciding voice in the company anymore. And that's ok. When you make that decision you do it at a time you are ready to do it and I was ready to do it.

Susan: Well, and now you have some capital and a partner to help you move that forward. And at the same time you got to make a little money yourself because you worked your ass off with Wired. You worked your ass of with Industry Standard. You are a massive booster for the Internet economy. You helped move it forward through all the analysis and the people that you hired and you didn't get anything from that. And so finally, I'm hoping, you got plenty for it.

John: I can't confirm or deny that.

Susan: I understand.

John: I can say I am very pleased with the way the deal went and I try not to talk about my personal finances because I've got three kids. I don't need the world to think that maybe I am worth perhaps more than I am.

Susan: Whatever you got I am happy for you.

John: Well thank you.

Susan: I applaud it.

John: I am just very very pleased to be in charge of a company that has been valued so highly and has such a bright future.

Susan: Absolutely. You've got a hell of a sales team there too.

John: Oh, we sure do.

Susan: So I want to get to, in our remaining minutes....and I know we are going over and thank you so much for your time. I want to just do the day in the life of John Battelle. You Twitter, you have a search blog, you have a blog on Federated Media, you do multiple conferences, you run Federated Media, you have three children, a beautiful wife. What's your secret? What's your coping mechanism for managing all this? What are you doing it?

John: I've just been doing it for 20 years. I swear to God, I think it's habit. From a very young age I had to work and pay my way through school. I was in the Navy for the first couple of years and I decided I didn't like that at school so I dropped out and my family was like "
Well, you know. That's nice. Now what are you going to do?" I have always felt it imperative work. And I think now that I don't know how to not work and I work pretty hard. I've gotten reasonably good at it in terms of making it all fit together. I think FM is an expression of the work I did on the book, on the work I did on the blog, the insights I gained from producing Web 2.0 and working with great people like Tim O'Reilly. And I think it all kind of comes together. If I were to stop paying attention, stop having conversations with people like you, stop engaging with the world through Twitter and blogging and so on, I wouldn't be able to do the job that at Federated or produce the hopefully valuable stuff we produce at Web 2.0.

So it all kind of fits hand in glove. There are certainly days when I wish I could stop doing email at 10 o'clock at night. I am very very focused on trying to keep a balance in life and do some things outside of work life to keep my fed like Yoga and running and spending time with my family.

Susan: So I wanted to hear about Bonnaroo. We are running out of time. Just tell us about the crowd fire thing that you are doing with Outside Lands that is a result of Bonnaroo. Tell everybody what those words mean and then what your Crowd Fire concept is because that's neat.

John: Bonnaroo is a festival in the middle of the farmlands of Tennessee that has an incredible lineup of acts for three days. People all go there and camp. Hundreds of thousands of people.

Susan: Yah. It's a music festival.

John: And it is an incredible experience. It was at Bonnaroo last year when I started to understand the way music was shifting and how people were consuming the way music was shifting. Of course, it's just like everything else. I noticed also when you go to a concert, people hold up their cell phones and their cameras more than they hold up lighters,right? And they are creating an experience; their own experience of the production. It struck me that while the music industry is very good at making productions that push out music at people, no one is really producing what the people's experiences are and bringing that into the world. So Crowd Fire is something we are doing with the producers of Bonnaroo at Outside Lands which is sort of Bonnaroo West in San Fransisco August 22-24.

Susan: Yah, that overlaps Burning Man. So if you are not going to Burning Man....

John: Burning man is the weekend before isn't it?

Susan: You know you are right...if you go early to Burning Man....

John: You can be very tired if you do both. That's for sure. Basically we are creating a software platform where people can take those images and their Tweets and their Flickr streams and their You Tube videos and whatever else they think is interesting as a media object and throw it into what we call the Crowd Fire. Kinda like a digital campfire. It will become a stream of objects that people can edit and create anything they want from. The idea is, don't just produce the music, produce the crowd. Let the crowd produce the crowd. So we are very very pleased that we are in partnership to create the Crowd Fire. It is just a brainstorm that kind of came out of "When you hang your brain up and stop thinking about work, what happens? You come up with great ideas!"

Susan: The better ones. Yah, you come up with the better ones. It is a fun idea and it is a great name. Hope you got Crowdfire.com.

John: We got .net for sure. I think someone is squatting .com but I am not sure.

Susan: I hate the squatting. Alright, so last thing. If you have listened to Dishy Mix in the past a lot of times I like to ask people at the very end of the show to either leave us with an aspirational thought or....sometimes I have been doing more visualizations and what I was hoping that you could do today is to just take us, in our minds, to Mt. Thames and your run. And give us as much visual description as you can and why you go there and what it's like and how it feels and just....take us....

John: What a great question. I never even thought of that. It is a very important part of my existence I guess. It happens once or twice a week. I exercise everyday, but once or twice a week I just have to go to the bottom of Mt. Tam and run up it. It's almost like there is a certain amount of toxins in the body and when you start running up hill you have to push through that. And there is a point where you do push through, and because I have been doing it a long time, it is usually when you hit the ridge. And then you are up on the ridge and you've got a view. And you can run the ridge for a while and it is so rewarding to sort of push through that first 20 minutes of hard uphill and then bang, you are up above Mill Valley, above Corte Madera, you are on the ridge and you can see, if it is a nice day, you can see Mt. Diablo and the city and everything. And it just gives you a perspective and you've got your breath, and you are in your breathe, and you are just going. And you feel like you could go forever if you didn't have to go pick up your kids or whatever it is you have to next. But you get that moment where you have cleansed. You have pushed out the bad or the toxins and you are sort of at peace in your inner rhythm. And I always have a mix going in my ears that helps. I have been doing this since I was an undergrad at Berkeley. I lived at the foot at the East Bay Hills and I ran up those almost every single day. Now my aching old body will only let me pound about 6-10 miles a day as opposed to 20-30. But it is just sort of a ritual that I really really enjoy and it keeps me sane.

Susan: Nice. Well, that is the place to end. We are all enjoying the run with you John.

John: Thank you. If it weren't for the fact that people are interested in what we do and the work we do that I have been involved in over the 20 years I am not sure what I would be doing. So it is always a pleasure to have a chance to talk with folks.

Susan: Well you have given so much to all of us and thank so much for giving the time that you gave us over these last two interviews. I will let you get back to your life. I hope you have a run today....

John: I actually do. I am really looking forward to it.

Susan: Good! So are we now that we have had the little experience with it. Thanks John. It was great to have you.

John: Alright, take care.

Susan: Alright, bye bye. I am your host, Susan Bratton. You have gotten to know quite a bit about John Battelle and everything he thinks about. I hope you will join my Dishy Mix Facebook Fan Club. And forward this episode to a friend. I am focused. I have intention on doubling my "Dishy Mix" listener base between now and the end of the year. And I can't do it without your help. So if you have enjoyed this show, would you think about someone who you know who might also enjoy it and would you send it to them. Send them a link, forward it in iTunes, whatever works for you. Thanks for sending out vibes to the universe for me. I really appreciate you listening. It's your host, Susan Bratton. Have a great day. Bye Bye.

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