Issues in Website Entrepreneurship
by Eric Schlachter, Esq.
Cooley Godward Castro Huddleson & Tatum
1. Raising Money.
* Develop a business plan
* IPO market remains hot (Netscape, Yahoo) but not for everyone (Excite, CompuServe)
* Venture capital remains hot but requires multiples
* Corporate partners are rare
* Angel money and bootstrapping; Dilution v. time-to-market
* Watch state securities laws
2. Identifying Revenue Streams.
* Internet access
* Web hosting
* Software/enabling technology
* Subscription services
* Advertising
* Marketing presence
* Data mining
* Commissions
* Sale of ancillary goods/services
3. Internet Access.
* Not really a web-based business
* Like a utility
* Competition
* Netcom, PSI, UUNet
* Commercial Online Services and local BBSs
* Major telcos (MCI, AT&T)
* Conclusion: commodity market means high initial investments, bounded ROI
4. Web Hosting.
* Fragmented market
* Tends to be priced per hour
* Can be entree to other forms of consulting services
* Conclusion: good for small entrepreneurs, but limited upside
5. Software.
* Categories: browser, browser plug-ins, database management, page creation, server software, server enhancements (search engines, chat engines, etc.), Java
* Be careful of markets where software given free!
* Intellectual property protection issues
* Market timing
* Conclusion: exploding market, many players, high multiples
6. Subscription Services.
* How much of online service revenues are going to internet access?
* Much content is being made available freely
* Always will be high value specialty publications with limited distribution
* Conclusion: few serious business plans are predicated on this
7. Advertising.
* How does this differ from web hosting?
* Opportunity for narrowcasting–user demographics key
* Page impressions is common metric, but what about caching?
* Enhanced revenues for identifying desired consumers
* Conclusion: expect a shakeout, but still a winning approach
8. Marketing Presence.
* Cater to your own customers
* Opportunities to know your customer better
* Your customers are valuable–sell your links and advertising!
* Conclusion: most businesses are finding this part of the cost of doing business
9. Data Mining.
* Technological barriers to knowing your users
* Registration, surveys, etc.
* JavaScript and user tracking
* Demographic data highly valuable
* Privacy restrictions may be more a question of ethics than laws
* Conclusion: valuable but use cautiously
10. Commissions.
* Pay-to-play: base payments on producing results
* Potential to make existing markets more efficient
* Potential for enormous returns by taking a cut of every transaction
* Watch out for legal problems!
* Conclusion: high risk but high reward
11. Sale of Ancillary Goods/Services.
* Use cheap distribution costs of Net to build customer base/brand name
* Examples: Doom, Netscape, consulting services
* Beware–a diagonal competitor might use this on you!
* Conclusion: the wave of the future
12. Issues in Site Development.
* Organization is important
* Content is king. Dead sites are death.
* Beware the frills–watch for incompatible browsers, bandwidth hogs
* Server response time
* Outsourcing: IP issues, what happens after termination?
13. Fun Legal Issues.
* Trademarks and domain names
* Contract formation and disclaimers
* User-to-User interactivity and sysop liability
* Communications Decency Act
* Export control
About the speaker: Eric Schlachter is an attorney practicing in cyberspace law with the Silicon Valley firm of Cooley Godward Castro Huddleson & Tatum. He has a law degree and an MBA in entrepreneurial finance from UCLA. He is an adjunct professor of Cyberspace Law at the University of San Francisco School of Law. He can be reached at schlachtere@cooley.com or (415) 843-5154.