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August 31, 2007

FeedBlitz, Stage II

Founder and CEO Phil Hollows of FeedBlitz (in which I’m an investor and of which I’m a board member) announced that the company will make all its features available free to publishers who permit the placement of small ads at the bottom of the emails sent to subscribers. Publishers who prefer not to run ads pay FeedBlitz for its services according to their readership. This is similar to the way that Google licenses search for use on a company website: it’s free if you let Google run ads and you pay for it if you don’t want Google ads.

Formerly FeedBlitz had a free version with limited features and earned revenue from upgrades - another respectable Internet model. This was a choice born of necessity for a startup – you can’t get advertiser attention  for a tiny circulation. But, with over 2.5 million subscriptions served, some advertisers are investing resources in figuring out how to use FeedBlitz.

Note that this is very different from the well-known business of sending ads as email (SPAM if you’re not interested in the product or service being offered). These small ads are attached to the bottom of emails which have content that readers subscribed to (and verified that they subscribed to). No additional emails are generated for advertisers. The advertisers don’t have access to the readers’ email addresses. These are analogous to the ads which appear in paper subscription products and help pay keep the costs of newspapers and magazines down. They may turn out to be more effective than plain web ads as advertisers learn how to use them since they are attached to valued content but advertisers needed a large enough potential audience to justify learning.

FeedBlitz will discontinue its feature-poor version next month and upgrade all publishers using it to the full-featured model with ad support unless they’d rather pay for service directly (or elect to take their subscribers and leave).

When to seek revenue from the user base and how are tough questions for any web service company. If you don’t have a critical mass of users, you don’t have a business. If you charge users who, themselves, are not directly making money by using your service, you’re likely not to have very many users. Professional users of FeedBlitz paid (happily, I think) for the features they needed. Non-professional users, with some exceptions, were reluctant to pay for service out of their non-existent blog revenue.

Some services simply grow their user base without revenue until somebody buys the service for the users and that somebody – Google or Yahoo, for example – already has an inventory of ads and tries to figure out how to serve them as part of the newly acquired service. In fact, that hasn’t been a bad strategy for some although monetizing the acquisitions is often more difficult for the acquirer than it expected.

Our guess as the FeedBlitz board was that the market for email (and Twitter and SMS and IM etc.) distribution of content is still in its infancy. We think growing with that market’ll be exciting.

Many more small blogs and small websites are about to spring into existence to serve existing groups which, up to now, couldn’t use the web as the basis of member communication because broadband penetration among members was too low. The cost of sending an e-newsletter is much, much less than a physical one even if you don’t put a price on the time spent stuffing and stamping envelopes. An e-newsletter, particularly if it actually is generated by posts to a website, is also more timely and more accessible than its physical equivalent. And readers don’t have to worry about  putting it in the physical recycle bin or suddenly needing it after it left on the recycling truck.

Some of these new blogs will want (we think) to pay for FeedBlitz service and be ad-free or run their own ads.  Others will be glad to have FeedBlitz provide them with the capabilities they need and obtain advertising which small blogs wouldn’t be able to obtain on their own to pay the cost of the service.

Watching companies you invest in come of age and make choices is almost (but not quite) as scary as watching children grow up. In both cases you get to give advice but you can’t determine the outcome or even be sure your advice is right. 

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