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July 20, 2005
Snap.com raises $10M in VC Funding, led by Mayfield
Mayfield and Snap announced this week that Mayfield led a $10M venture
capital investment round in Snap.com. I am proud to report that I helped to make this
deal happen. My partner at Mayfield, Allen Morgan, will go on the Snap board of directors.
It might seem puzzling why you would invest in a general
search company (perhaps as opposed to
vertical search companies that might have more specific focus and could be
acquired and merged into offerings by the incumbents), in the presence of so many giants. The
represents an good investment, without any need that they become the new #1 or #2 general search engine. Below are my thoughts about the general search landscape and some major themes that Snap addresses. (Disclaimer: I
am currently an Entrepreur in Residence at Mayfield and have a personal
interest in Snap; the thoughts below are my own and should not be taken to
represent the thoughts of Mayfield or Snap).
Online advertising is today a massive market that continues to grow
rapidly. The U.S. paid search component of this market was $4B in 2004 and
is predicted to grow to $6B by ’06, with a worldwide paid search market
growing to $23B by 2010. The paid search market comprises both search
portals (e.g. Google Adwords), where users go specifically to search, and
contextual advertising, where users are exposed to ads in the context of
viewing publisher’s websites (e.g. Google Adsense ads on NYT.com). The
contextual advertising market is growing even faster than search portals (a
desktop client advertising market is also growing quickly, but represents a
much smaller portion of the market).
While the business (in both these categories) is dominated by GOOG and YHOO,
there is room in the market for new entrants. Users, Advertisers, and
Publishers are willing to try multiple solutions. Users regularly use
multiple search engines – both broad and focused. For searches with
commercial intent (40-60% of all searches), search engine marketing tricks
are making organic result rankings increasingly less effective. In addition,
users still have to do a lot of searching among today’s unstructured results
to make purchasing decisions, which is leading to an emphasis on focused
search with new UIs and added structure for different verticals (e.g. jobs,
shopping). Advertisers are frustrated with lack of transparency and control
and the difficulty of budgeting and managing pay-per-click campaigns.
Publishers want the greatest revenue per page and transparency into their
advertiser and user behavior, and they routinely experiment with different
advertising networks.
While current leaders are innovative and aware of these issues, there are a
variety of “innovator’s dilemmas” they face in responding to new entrants
and resulting market shifts. New payment models, such as a shift to
cost-per-action (CPA), along with increased transparency, will be hard to
address initially without losing revenue. This pattern was observed in
previous shifts from cost-per-impression to cost-per-click, where rates hit
a new floor and gradually built up as the market matured. New user
interfaces and emphasis on market segments with commercial intent pose
similar challenges for incumbents. While a new player can offer a different
interface and attract users that value it, an incumbent must conduct careful
experiments off the home page and only adopt changes that suit their
existing broad user base.
This combination of (1) major industry shift to CPA, (2) opportunity for UI
innovation, (3) focus on searches with commercial intent, (4) ease of
switching, (5) PR and word-of-mouth momentum for standout products, and (6)
innovators dilemmas for incumbents to address these issues has opened up a
significant white space of opportunity for new search entrants to find a
path to rapid growth. Even a small share of this profitable market, in the
presence of fierce competition among incumbents, promises high exit
valuations.
Snap plays to all of these themes with a team who has done it
before, a promising initial product, encouraging user adoption and
testimonials, and an attractive valuation. While it is certainly high risk
to enter a place with such strong competitors, the rewards are equally high.
The discussion above is not even comprehensive of the innovations visible
already today in Snap (with more to come, of course!). I encourage everyone
to try out Snap with at least the following:
- search for “digital camera”. Note you get both query completion, and then
are taken to a nice vertical search results page. - search for “tools”. Check out the result for Craftsman Tools, that lets you
select from pull-down list of the type of tools you want to browse, then
takes you directly to that section of the site. - search for “ebay”. Note the results page includes most popular links within
ebay; a screen shot of the homepage; a company snapshot (including stock
chart); news headlines; popular searches related to ebay; ebay-specific
offers like downloads and discounts; and even a summary of important
auctions on ebay right now. This looks nothing like what you find on
existing search engines and points to how much room there is for
innovation in search user experience. - search for “hybrid cars”. Note the logos in the listings, which helps you
figure out which ones are real and which are spam. Note that none of them
are spam… - search the news (click on the link at the top right corner of the snap
homepage). Try out the refine-as-fast-as-you-type search (similar to X1 for
desktop search). You can search for articles with a word, and then search
within those articles restricting by date/time, headline, and source.
Lastly, go download Snap Ultrasearch (promoted on the homepage), and try it
out. You won’t be sorry! I’ll write more tomorrow about what I like about
this new Ultrasearch product. But needless to say, it definitely shows Snap is thinking outside the search box.
Posted by barney at July 20, 2005 9:18 pm
This entry was posted in Ecommerce, Search, Venture Capital
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