Aggregate Knowledge plans to own “discovery”
Filed under: B2B, Business, Entrepreneurship, Trends, Venture capital, Web 2.0, Web 3.0 |
Comments(2) I wrote about Aggregate Knowledge (AK) last week after they raised a $20M round of financing. Chris Law–an AK founder–gave some background on why they decided to raise capital versus grow it organically. I agree with his analysis and have several additional points.
First, he points out that AK was wrong in its estimation that discovery services would not come into the limelight until 2008. On the heels of rumors that AK boosted Overstock.com sales by $100M last year, 2007 begins to look like more of a coming-out year. Raising a large second round allows AK to cement its position. The size of the round serves a barrier to entry to potential startups–going up against an established venture with non-trivial funding now looks much less attractive.
Second, the financing allows AK to expand its sales and marketing in its two verticals. They currently target two sectors: (1) Discovery for Retail and (2) Discovery for Media. What I see here is the beginning of a successful segmentation strategy. By slicing up the market vertically, AK can demonstrate success in a particular niche. By being the experts in Retail and Media discovery, AK can get the big deals. This compares to one-size-fits-all providers with generic solutions. The biggest enterprise customers want a solution that meets their exact needs. They demand specialized (and proven) solutions to justify large expenditures. Look for AK to not only expand in these two verticals but to also replicate their success in new niches.
Third, AK needs to finance infrastructure and capex. AK’s Collective Discovery Network (CDN) is currently in beta testing. The CDN correlates data across seemingly unrelated sites. According to AK, their technology is built on a “sophisticated, super computing architecture.” The complexity of the AK system is daunting–they’re aggregating and correlating billions of data points across multiple sites. The computational requirements make my head spin. AK would be smart to invest a healthy portion of this latest round into their data center(s). Look at Google–their competitive advantage in large part stems from the massive economies of scale they leverage.
Fourth, AK is expanding its product portfolio and stretching its platform. AK offers two supplemental services: (1) Discovery for Email and (2) Discovery for Mobile. Personalized emails were popularized by companies like Amazon. The Discovery for Mobile interests me a lot more. Mobile is a platform that no one owns yet. There are a lot of companies doing interesting stuff in the space, that’s for sure. But no one has found the right formula. Someone is going to break mobile open, will AK be the platform that makes that happen? Google did it with text ads, targeted mobile ads are the next step.
Finally, I read an interesting post at VC Ratings about Web 3.0’s fast approach. According to the article, Randy Komisar, a general partner at Kleiner Perkins Caufield & Byers (an AK investor) “dismissively defined Web 2.0 startups as those that rely on an advertising business model to build their business.” That statement is one of the reasons I started writing this blog. I see too many consumer-facing, advertising-driven startups without any serious business model. Some types of sites, like media, entertainment or very targeted content, fit well with this model. But advertising isn’t applicable, viable or sustainable in many cases. Great ideas aren’t necessarily great business models. Until you generate cash flows or someone writes you a check (either funding or acquisition), the value of your venture is $0. KPCB (or at least Mr. Komisar) seem to understand that. Actions speak louder than words and this recent round of financing is another vote of confidence for AK.
