George Favvas

There’s a debate brewing on the state of startup funding in Canada.

This got me wondering how many startup entrepreneurs think their bottleneck is a lack of financing when in actuality it’s not (or doesn’t have to be). I was reminded of this Business 2.0 article from 2005 in which entrepreneur Joe Kraus compared the costs involved in launching Excite in 1995 with what it cost to launch Jotspot exactly a decade later.

It took $3 million to take Excite from concept to launch, versus $100k for Jotspot exactly one decade later. I thought it would be interesting to extract some of his comments and see what has changed just three years later:

1. Hardware has become insanely cheap. As Kraus recalls, Excite ran on Sun servers that cost as much as $60,000 a pop. “Today JotSpot runs on commodity hardware–Intel chips inside boxes with no corporate logo, made by companies no one’s heard of.” And instead of $60,000, those anonymous boxes cost $1,000 each.

2008 Update: Even cheaper today with Amazon S3.

2. Infrastructure software is even cheaper. Excite paid a vast amount of money to companies such as Oracle just to license the software needed to build its service. “We must have spent $250,000 before we’d written a line of code,” Kraus says. But now open-source–Apache, Linux, MySQL, Tomcat, and so on–has reduced that cost to zero.

2008 Update: Zero is still zero, although the tools you can get for that price have improved.

3. The labor market has gone global. In the 1990s, only monster companies like IBM had tapped into offshoring. Today JotSpot, using Elance and RentACoder, has programmers on the payroll in Germany, India, Romania, and Russia–at a fraction of what they’d cost in the Valley.

2008 Update: Still holds true as ever. If you’re still at the stage where your concept is not yet proven in the marketplace and you’re raising money to hire a bunch of local developers, you probably don’t get it.

4. Search has rewritten the rules of marketing. Before Google, advertising on the Web was all about big marketers paying big bucks to reach as many eyeballs as possible. “But now,” Kraus says, “pay-per-click advertising, placed in an automated fashion, with no money spent on creative, lets me reach small or medium-size markets incredibly efficiently.”

2008 Update: Search Engine Marketing is no longer the panacea. In fact, in can be downright dangerous to rely on it exclusively as competition for your keywords and even Adwords’ algorithm itself are out of your control and can have a significant effect on your campaigns. Today’s successful startups are ones that harness communities, and hence thrive on the fact that their very own customers refer others to the site.

$100k is still a chunk of money, but it’s arguably within the reach of entrepreneurs with a bit of creativity.

Venture Capital still does and always will have a role to play. But I’ve seen entrepreneurs spend a year trying unsuccessfully to raise capital for a new concept, time they may have been able to better spend getting much further along their product roadmap before seeking out external funding. (OK, I’ve been that entrepreneur.)

What do you think? Post your feedback in the comments below.

Google’s at it (again). An ominous warning on the Inside AdWords tells us Google is on the verge of implenting its use of “quality score” to set minimum bids on web sites in its content network. The post reads in part: 

In the next few days, we will be making two changes to how AdWords evaluates landing page quality. First, we’ll begin incorporating landing page quality into the Quality Score for your contextually-targeted ads, using the same evaluation process as we do for ads showing on Google.com and the search network. Advertisers who may be providing a poor experience on their site will notice that their traffic across the content network decreases as a result of this change. Second, we’re improving our algorithm for evaluating landing page quality and incorporating landing page content retrieved by the AdWords system.

Last July, Google wreaked havoc on search marketers by setting new minimum bids for advertisers whose landing pages it deemed to be of low quality. Though the notorious Made For AdSense sites and friends deserved, in my view, what they had coming, Google’s actions didn’t pass the smell test.

For one, the timing was suspicious as it came on the heels of Google’s testing of a cost per action model, to the detriment of many of the affiliate marketers their update was squeezing out of the market.  And if Google was really concerned about landing page quality then why allow these advertisers to pay a ransom and have their ads remain active? And why deactivate the offenders on Google’s site only but allow the ads to be syndicated across Google’s network of third party content sites?

This week’s upcoming update addressed at least the last point, by treating ads on both networks in the same manner. How you been affected by the quality score update? What, if any, changes did you make to your site as a result?

Heather Paulson today reports, with screenshots, on a preview of Yahoo!’s new search marketing platform.

For the better part of the last five years, tools made available to search marketers have been focused around the concept of managing bids and budgets.

But marketers are more concerned with goal-oriented metrics: What is my customer acquisition cost? What’s my return on investment? And what’s the volume of customers I can acquire at a given commitment level?

Yahoo!’s search marketing functionality had been sorely lagging its competition’s – they have announced they will finally start factoring ad quality into as ranking in 2007. This puts them back in the game. Expect Google and MSN to follow suit with similar functionality sooner rather than later.

In the rush to jump onto the Web 2.0 badwagon, some of the most effective uses of AJAX are still the simplest. Google suggest — which refines your query with up to ten suggestions as you type — tops my list. I’ve experimented with it as my browser default page for the past week and, despite causing the occasional IE crash, am finding it to be a remarkable time saver. Not to mention a good source for keyword variations for seach engine marketing purposes.

MARY: Thank you for calling Enterprise, the company that picks you up.
ME: Hi Mary. Can you pick me up? I’m at the DoubleTree.
MARY: Ummm, we don’t have anyone available to do that right now.
ME: But you said you could pick me up when you answered the phone.
MARY: Ummm, yeah. We ummm, hold on one moment, sir.
HOLD MESSAGE: (Music) Thank you for your patience. A representative will be with you shortly. (Music) At Enterprise, we pick you up.

The CJU 2006 conference was winding down, and I decided to take advatage of a lunchtime lull before the final CJ Performer event to organize for a rental car to drive us back to LAX. You’d think that at a minimum, the person on the other end of the line would have adapted her greeting to the situation. There’s no easier way to lose (captive) customers than to fail to meet expectations you yourself have set.

While the above real-world example may be the extreme, the web is full of marketing campaigns where everything from the ad copy and creative, to landing pages, to the checkout process have been carefully thought out — but where time-sensitive variables are thrown out the window. Does your site sell a product or service whose quantity is limited? Do you use the pay per click engines’ API’s to pause your campaigns when you run out of the product, or are you spending money to acquire disatisfied customers?

As for the car rental, the Hertz counter in the conference hotel lobby took care of us.