Fotolog, lessons learnt

The week before last I packed up my office and formally ended my tenure as CEO of Fotolog. I will miss Fotolog and the team, we had an amazing and exhilarating year, what follows is a handful of thoughts on what mattered, what didn't and what I learnt running Fotolog.

#What we accomplished In the space of 12 months we took Fotolog's membership from 5.8 Million members to 14 Million, we grew engagement in terms of time on the site and features, we moved up into the top tier of Alexa's and Comscore's rankings (Alexa ranked us as #13 worldwide last week ), we turned the site into a business and we completed a sale to one Europe's largest advertising and micropayment networks. It was a busy year. When I think about how we accomplished this — the first and last thought I have on the subject are the people.

AdamS AdamL AndrewC AndrewL Andrey Angelo Anna Brian Cynthia Dan Danielle Elke Frank Jason Joseph Linh Luis Mathias Meghan Melissa Michael Olu Rachel Rodrigo Scott Thomas Tom Toshimitsu Warren 'n' Yossi made it happen, it was a privilege to work with you all. The team grew through the year — we lost some and we added a handful — and we figured out how to work as a team, how to set and deliver priorities. When I came on board the company was in a position that was on one hand typical of a start up and on the other unusual. The typical included a somewhat overwhelming list of things to get done with few agreed upon ways to prioritize or assess what should get done when and why. The unusual included the fact that Fotolog was a small team running a hugely popular web site with an audience that was predominantly international. The first job was about prioritization and focussing on scaling the site and reducing latency. We worked to establish a common set of priorities and then establish a process to execute against those priorities. We then shifted attention to monetization, cleaned up some odd contracts, tested partnering with some exotic non US companies and then drove monetization with the ad networks, and the partnership we struck with Google. We worked through up's and downs: outages, breaking 10M member threshold, a membership strike, massive growth in Europe, drowned servers, visits from the FBI, and a good deal of member love. Throughout getting the team to work together as a team was I think our biggest accomplishment — our successes flowed from that. My thanks.

#Active angel, advisor, board member, get a job… My relationship with Fotolog started as an angel investor in 2003. Then in late 2006 Scott Heiferman, Fotolog co-founder and board member, raised the possibility of my coming on board as CEO. I had known Fotolog as an investor for years — but coming in as CEO offered a wholly different perspective of the operational challenges. Thorough the experience, I learnt that you can be as active as you want as an investor, be an advisor, sit on the board, help with product or business development but you wont really have a clear idea about what's going on within a company unless you actually work at the company. You need to be in the flow of everyday decisions, you need to understand workflow, process and — most evidently what are the real challenges a company faces — not the one's they think or you think they face. The lesson here as an early stage investor is to balance the time you spend with companies — it's tempting to think you can help solve operating issues from the outside — but unless you are willing to jump in and take a job much of your backseat driving is as useful as backseat driving.

#Balancing capital raises with audience growth and monetization One of the things the Fotolog team did right since the first day the site was launched was managing the cost base of the company in a way that was appropriate to the audience, monetization and funding. At no point did the Adam, Fotolog's co-founder, misjudge the balance between these drivers. This is hard to do particularly if VC's are offering funding based primarily on audience metrics. There are sites who have audiences growth comparable to Fotolog with 4x or more the headcount. In 2008, I think, striking this balance will be as important as ever — in particular re: businesses who are building audience on the back of platforms like Facebook or Twitter — eg: indirect vs. a direct (non mediated) form end user interaction.

#Fresh matters There is a tremendous amount of value that accrues to coming into a situation fresh and seeing things without the encumbrances or assumptions you inevitably make after been in a role for a while. The Fotolog team had all the answers to the paths we ended up taking there right in front of them, it is just hard to see those paths after you have been in a role for a while. Keeping perspective is always hard to do in life, and the formation pain of becoming an entrepreneur makes it especially hard. Back at AOL, a long time back, Steve Case and Ted Leonsis used to talk about periodically firing one another — in order to keep perspective. The lesson here is that as an entrepreneur you need to flip between fervent passionate belief in your ideas and objective reassessment of your position — those perspectives usually sit at either end of a spectrum — making that flip is hard to do, very hard. Sometimes an outsider can help, sometimes getting away helps. In Fotolog's case, Adam Seifer, gets credit for making those flips. Adam and I had known each other for a long time — going back to the mid/late 90's and six degrees / Total New York — as a co-founder of Fotolog he was open to re-invention and an objective assessment of what we were doing right and what we weren't. Hard to do, not always easy, but necessary.

#Positioning matters When I started at Fotolog one of the early set of discussions we had was about positioning — what is Fotolog? what does the brand represent to our members and what is the relationship our members have to the experience? Fotolog had for a long time been considered as an international version of Flickr. Yet when we looked at the usage data it was radically different to Flickr. Yesterday, to take a random data point — 6% of all the people who ever signed up to Fotolog uploaded a photo to the site, thats a degree of engagement beyond Flickr and many other photo sites (870k pictures, one picture per member, 13.9M members — translates into 6.3% of the total membership). Last month comscore tracked Fotolog users as spending 26 min on the site, per day, Flickr's numbers are less than a quarter of that number. By digging into usage data we concluded that the Fotolog experience was social, social media. Understanding this helped us orientate our positioning for our members, our advertisers and ourselves. The rituals associated with digital images are slowly taking form — and operating from within the perspective of a mature analog market (aka the US) tends to disort one's view of what how digital imagery is going to be used online. The web as a distinct medium is developing indigenous means of interactions. We figured out the positioning, summarized it in a short phrase (share you world with the world), put together a banner with 1.. 3 steps to get going on Fotolog and got to work. Clear positioning helped us, and helped our partners figure out what we were and what we weren't.

#Scalling, speed matters Fotolog is a huge bazaar of user generated content, displayed on a small number of page layouts. The importance of rendering those pages as fast as possible cant be understated. It's always easy to put more things on a page but rendering a page quickly and giving the user what they came for has to remain the top priority. As we go into 2008 Fotolog has steamed passed the 150M daily pageview threshold, we are heading towards 5BN monthly pageviews, we now have more than 350M photos that we host, guest book messages per photo now average almost 12, an increase of more than 30% over the past year, and Alexa ranked us at #10 in the world last wednesday, #10?!@ (the average for last week was 13). This past Christmas period saw records of uploads, pageviews, November to December saw month over month growth of over 10% — a big shift since in past years the holidays have been downtimes for our membership. Its hard to determine what has changed, I think its a combination of the relative growth in Europe (where uploads and activity has continued to grow through the holidays) and the fact that the internet and Fotolog are becoming more and more threaded into people's personal lives, and media experiences. Maybe its also a little bit about Florkey — Fotolog continues to make people feel special — its microfame of a form that Warhol could never have anticipated.

#Saying no is hard It is hard for young organizations to say no. No to possible partnerships, no to business development inquires, no to investors who think they understand your business. Yet saying no is what many small companies need to learn how to do. When you are still figuring out what you do and how you make money opening those questions to third parties can either grind you to a halt (partnerships are complicated), distract you into retrofitting a model that your partner understands but may not be right for you or just confuse you. Bob Pittman taught me how easily a mass of small projects that you leave unfinished or undecided can drown out the one's that matter. When I arrived at Fotolog one of the first thing we did was shut down many of the business development conversations the previous CEO had opened up. We might have missed a gem but shutting them down gave us the space to figure out what we needed to do. What we didn't have a chance to do at Fotolog was the automate the business development process. Once you get to a scale and can standardize your contracts along with your API's you can scale partnerships in a manner that doesn't require saying no to partnerships — everything becomes a test and trial.

#Integrating publishing and distribution into a seamless experience Fotolog taught me the power of melding a publishing capability with distribution. This is what Facebook did when they added the news/mini feed — all of a sudden your updates, activity on site was pushed to your friends — its an important lesson that many other user generated content sites could learn from. Media companies often separate these functions — which in turn skews value towards distribution. Social media networks are using a distributed audience to categorize and rank what is valuable and most interesting. Fotolog started doing this over five years ago — the form that Fotolog uses is simple but effective. When you publish a photo it appears on your page and in thumbnail form on all the pages of your friends. Since the average Fotolog user has 51 friends — each photo you publish is distributed through to 51 people, they in turn re-distribute it. Facebook introduced the news and minifeed structure a year and a half ago as a means to drive and distribute information accross the socialmap they were building. In 2007 the newsfeed became such an important part of the service that people are exploring Newsfeed optimization since only an estimated 0.2% of all submitted items get published into the newsfeed. Fotolog's approach was simple but it was and continues to be groundbreaking and in my opinion a core piece of innovation that is now spreading to the web as a whole.

#Working with an investment bank Several people asked me whether it made sense for Fotolog to engage and work with an investment bank. At Fotolog working with a bank, in our case UBS, was necessary. Interest in Fotolog spanned four industry categories (media, internet, cell phone and traditional photo companies) and three geographies (US, Europe and South America) — organizing inquiries from the matrix of companies that fit into these boxes was complicated to say the least. The UBS team did a fantastic job of putting out a broad net and pulling it in quickly to find out where the legitimate inquires were coming from — they worked tirelessly on our behalf. The transaction we ended up doing was technically a sale but it was also part merger, part recap. Fotolog had been through three meaningful rounds of funding and the cap table was more mature than the business was. The business needed both a direct ad sales capability and a micropayment partner in Europe — Hi Media gave us both. UBS worked with us to navigate our options, mindful of the stage of growth the business was in. Key investors — including myself — continue to hold stock in the acquiring company, not because of a lock up (there was none) but because we believe in the combined value.

# Working with an international audience is challenging This shouldn't be the case, for years the leading web companies in the US have talked about international growth, international commitments but in pretty much all cases international audiences are an afterthought for US companies. I think this is a mistake. The web offers means to reach and monetize audience outside of the US in ways that couldn't have been imagined ten years ago. Think about building a US based company that garners one of the larger audiences online that is pretty much all outside of the US and marketing and monetization are all executed within the platform, nothing needs to be local. Its pretty astounding. Looking forward as global GDP growth outpaces US GDP growth (3.9 percent versus 2.2 percent in 2007), as broadband continues to be available faster and cheaper outside of the US as innovation starts to happen outside of the US (vs. replication which is much of what has happened to date) — as all these things begin to come together international growth has to become a meaningful part of US companies growth.

#Google's scale and reach is astounding … Mid summer '07 we signed a deal for Fotolog with Google to add search to the Fotolog's member pages. The deal had many benefits — among them access to search services and greater transparency into Ad Sense — offering greater control over our our inventory. We learnt a lot doing the deal with Google and we learnt a lot executing on the deal. In doing the deal we learnt how far ahead Google is vis its rivals — I cant offer much more detail but when you dig into it their scale and footprint is astounding. In executing the deal we learnt that despite the improvements in transparency that we gained by entering into a direct relationship the Google platform is still hard to manage as a publisher, it's closed or maybe translucent is a better word — you get the impression that you know what is going on and why, but often its an illusion. This is a problem — as CEO I bet our strategy on Google's platform, applying it to our international audience to get us to break-even and beyond without having to scale up and ad sales team. In hindsight Fotolog needs to have a direct ad-sales capability to complement the networks — the Hi-Media deal gives us that capability in one fell swoop. The deal we did compliments our network capability in a way that we would have had to build if we hadn't decided to work with Hi-Media.

#The future of advertising & social media networks … Is still very much in its infancy. Yet there are indications that display advertising matched with technology that offers adequate cross network targeting could un-tap the value of user generated content sites. Targeting and conversion are real challenges for advertising on social media networks — the more engaged the audience, the more fluid the conversations, the less likely that on page targeting is going to work effectively. Yet companies like Lotame and Lookery are starting to use the data inherent in the structure of the social network to improve targeting and relevancy and hopefully conversion. It is early days but I believe there is promise here — so much so that betaworks has invested in both these companies). Let me offer a detailed example. If you look at Fotolog's PC gaming group over one month in 2007 the group received 500k pageviews. Yet it you look at the "virtual group or channel" — if you target gaming ad's to all the people who visited the gaming group in that past month — even when they are on other areas of the site the reach is extended to 100M pageviews. As Andrew Cohen likes to say "pictures of Aunt Edna might not be so easy to monetize but if you know all the places that people have been who are looking at Aunt Edna you might be able to influence and target where they might want to go next". I believe this holds promise.

Looking to 2008 there is much to do at Fotolog. Integration with Hi-Media is done — we started that back in August and completed much of it before we closed — and the fruits of integration are now coming forth. The team at Fotolog is pretty much as it was — Erik-Marie Bion and Andrew Cohen have taken over leadership (Erik Marie in Paris as CEO and Andrew in NY as the GM). Cyril, Emirik, David and the Hi Media team have been a pleasure to work with, truly. And now they have another great asset on their hands, I am excited to see what they and the team here in NY do. Thank you once again — I learnt a lot from you all.