Fall in love with a problem, not a product

by Peter Rojas


I haven't been an investor for very long, but even in that short time there's one mistake I've seen more than a few founders make, and that's to fall in love with the product they're building. I know what you're thinking: how can that possibly be a bad thing? Don't investors want people who love what they're working on? Well, not exactly. You want to back founders who are passionate about their products -- in fact, it's odd when they aren't -- but there's a critical difference between being passionate about what you're building and being in love with it.

That may seem like a narrow gap, but it all comes down to motivation. What investors want is someone whose animating purpose is to solve a particular problem (especially one that people don't realize yet that they even have!) or fix something they think is broken. The product is just a means to that end, not an end in itself. To put it another way, you want someone who is more in love with fixing a problem than with the product itself.

What often happens is that a founder puts so much time, effort, and/or money into what they've built that they become blind to its shortcomings. Or, you'll see a founder become so enchanted by how clever or original they believe their product is that they don't want to listen to feedback they're getting from the market that there's no demand for it. This has nothing to do with the effort put into creating it or even how "good" it is -- I'm not talking about situations where the product itself is shoddy. Almost every product that's pitched to me is well-made. Quality is rarely the issue. What's wrong is that these are products which excel in every area except the one that matters most: being something that people want to use.

It doesn't help that the message a lot of founders hear when they encounter a roadblock like this is that they need to ignore the haters and just keep pushing and pushing until they make it, as if sheer perseverance alone can turn a failing product into a successful one. They have such a strong vision of what the product is supposed to be that they're not willing to change course and make significant changes to it. They'll convince themselves that the problem isn't with what they've built, it's that the rest of the world doesn't get it yet -- or worse, they haven't gotten the right people (i.e. bloggers or "influencers" on Twitter or Product Hunt, etc) to pay attention to it. So, they keep repositioning the product and what it's for, trying to find different problems for it to solve.

That's why you want someone who is in love with a problem, who cares more about solving that problem than anything else. A founder like that fixates on that problem and then keeps trying over and over until they figure it out. Part of that means being willing to make whatever changes are needed to the product to make it work, up to and including jettisoning what they've already built and starting over with something entirely new.

It's not always easy to tell the difference between being in love with a product and being in love with a problem, especially when you're in the middle of building a company. There will be days when you don't care at all about solving the problem you set out to solve. Other times you stumble onto something which solves a problem you weren't even aware of, but it is one you end up caring deeply about anyway. In the early days it can be difficult to know whether your product is working or not, and it's natural to want to give it time in the market. But unless you're lucky enough to have one of those products which connects right away and just takes off, sooner or later you have to confront where you're at and figure out whether you're building something which solves the problem you're tackling. When those hard days come, confronting the shortcomings in your product is a lot easier when your overriding drive is finding a solution to that problem.


Eight questions about Virtual Reality in 2016 (and beyond)

by Peter Rojas


Anyone who has spent time with me lately has probably noticed that I can't stop talking about VR. It's the one area of technology that I'm most enthusiastic about these days -- I own a Gear VR and just pre-ordered the Oculus Rift (and will probably pick up the HTC Vive as well). What's especially exciting about all this is that we don't yet know how all this is going to unfold. It feels like we're on the cusp of an entirely new world of immersive computing, but VR as an industry is still completely wide open in a way which more established markets like mobile and desktop computing are not. Here are a few of the questions I have about VR in 2016 (and beyond):

How big will the market for VR be a year from now?

In a way, the size of the VR market a year from now won't matter any more than the size of the smartphone market in 2006 meant about the size of that market now. What we really care about is how big the market can ultimately get and how long it will take to get there. But that said, after plenty of false starts, 2016 is supposed to be the year in which VR finally starts to catch on and become a real thing. So, the number of people who actually start using it will be meaningful, particularly since this will be the first year when regular people (i.e. non-developers) will be able to get their hands on top-notch headsets like the Oculus Rift, HTC Vive, and Sony's PlayStation VR.

As bullish as I am on VR, even if adoption is strong, the number of active VR users at the end of 2016 is still going to be minuscule compared with the number of people using smartphones. My best guess is that we're looking at somewhere around 10 million or so active users. Now, 10 million is not a bad number at all, but it will mean a relatively small addressable market for a lot of the apps, games, and experiences which will be out there. That might be enough if you're selling a game title you're planning on charging $60 for, but if you're building something which is going to make money via advertising, you are going to have a very tough time amassing a sizable enough audience to make any money. There's also the inevitable boom/bust hype cycle which surrounds every new technology, and there will be plenty of VR skeptics out there who will pounce on these relatively low numbers to pronounce that VR has once again flopped.

Will headsets be a commodity or a source of competitive advantage?

Will VR headsets end up being more like dumb glass (like TVs and monitors, which have largely become interchangeable commodities)? Or will they end up more like game consoles (which tightly lock users into an ecosystem of games, apps, and content)? Or somewhere in between? Certainly if you're Oculus, you want value to accrue to you and for there to be enough defensible value in your headset that consumers can't easily substitute it with another. Whereas, if you're Valve, you probably have an interest in there being multiple headset vendors driving the price down as quickly as possible, fueling adoption and expanding the universe of potential customers for their SteamVR platform. I'm ignoring the really low-end of the market, since headsets like Google Cardboard are already essentially a commodity (they're being given away for free, if that's any indication). I don't know how this one will play out, but if history is any guide, VR headsets will end up coming down in price quickly and profits from selling them will be few and far between.

Speaking of hardware, what will the relationship be between high-end and low-end VR?

In 2016 there will be two VR markets: a higher-quality experience which involves a dedicated headset tethered to a PC or game console (i.e. Oculus Rift, PlayStation VR, and HTC Vive) and a lower-quality experience which involves using popping a smartphone into a headset and using that for a display (i.e the Gear VR, Google Cardboard, Zeiss VR One, etc). We talk about VR as this monolithic thing, but anyone who has tried both the HTC Vive and Google Cardboard can tell you that there is a huge gulf between the two in terms of immersiveness and level of realism. Will developers try to build apps, games, and experiences which work across both tethered and mobile VR, or will they end up focusing on one end of the market or the other? Will users get a taste of VR on Google Cardboard and then "graduate" to tethered VR, or will mobile VR remain the domain of casual users for enjoying 360 degree videos and experiences while the higher end of the market appeals primarily to hardcore gamers?

Will regular people create and share VR content? If so, how? 

It stands to reason that people will want to create and share their own 360 photos and videos -- we're starting to see a bit of that already -- but will a new social platform or app emerge for that or will it mainly happen on existing platforms? Facebook and YouTube already support 360 videos, for example, but I have yet to see a truly great "VR-native" experience for sharing and consuming other people's VR creations. Hard to imagine that Facebook or Google aren't working on something, but there could be an opportunity for a startup that's just focused on VR to do something awesome here. 

Will there be an app which drives mainstream adoption?

VR gaming is going to be amazing, but given that most people aren't interested in console gaming there's no reason to believe that adding a VR headset to the mix is going to change things--sales of game consoles and gaming PCs are not especially robust, particularly compared to sales of smartphones. Immersive TV and movies will probably find a wider audience, but no one has any idea whether there will be an app for VR which convinces regular people that they need to go out and get a headset. If you're building something for VR which you think will do that, get in touch.

What will be the user experience paradigms which define VR?

I've written about this one before, but I still don't think we're anywhere close to figuring out what a native UX for VR looks like. I have a few ideas about how it might evolve which I'll post at a later date, but I'd love to hear what others are thinking here.  

What will Microsoft end up doing?

Sony has its VR headset for the PlayStation 4, but as far as I know Microsoft has no plans for a headset of its own for the Xbox One. It's possible they have something in the works, (perhaps that they'll announce at E3) but I haven't heard a single thing about it. So far the extent of their strategy for VR seems primarily to partner with Oculus. Given that Windows 10 will be the platform of choice for most Oculus Rift users, and the Rift will ship with an Xbox One controller, that may not be such a bad plan. However, it doesn't do much for all of the Xbox One owners out there who would be interested in having a VR gaming experience like the one Sony is going to offer with PSVR.

Wait, but doesn't Microsoft have a headset? Yes, they have introduced the HoloLens, but that's an augmented reality headset, not a VR headset. It's tempting to lump AR and VR in together, but they're fundamentally different products offering fundamentally different experiences. AR headsets involve taking a view of what you're actually looking at (i.e. actual reality) and overlaying graphics within that field of view. By comparison VR headsets are fully immersive and completely take over the user's entire sensory experience. While there will definitely be a market for AR gaming, it will pale in comparison with the demand for VR gaming, at least early on. In the meantime, Microsoft's VR strategy is a big question mark.

What will Apple end up doing?

I don't think anyone is holding their breath waiting for an Apple VR headset anytime soon. It's not Apple's style to be part of the first wave of a new, relatively untested new technology. Typically they like to hang back and introduce a product when they feel the market is finally ready. Assuming that Apple does eventually end up doing something -- and they have made a couple of relevant acquisitions -- the question is whether it will be more like the high-end tethered headsets we're seeing from Oculus, HTC, and Sony, or will it be more like the Gear VR and be something you pop your iPhone into? It's easy to see the attraction of the latter -- the installed base of iPhones is enormous, so a headset which piggybacked off of that would probably sell like crazy. However, a tethered headset would also offer a markedly better VR experience, and it's possible that Apple would opt to offer consumers a premium experience (at a premium price, naturally) rather than what it felt would be a second-class offering. Then again, Apple is so oriented around mobile that something akin to the Gear VR seems like a better fit. It's not hard to see smartphones being powerful enough and having high enough pixel density in a few years to offer a VR experience that's not that much worse than what you could get from a tethered headset. Either way, whatever Apple ends up doing will shake up the market and I'm sure execs at Sony, Samsung, HTC, and Oculus feeling like they're going to have to race to establish a foothold before Cupertino jumps in.

What do you think?

I'd love to know what questions you have about where VR is going.


Why Publishers Don't Care (Yet) that the Mobile Web is so Awful

by Peter Rojas


There has been a lot of (justifiable) complaining lately about just how awful browsing the web on a mobile device has become. The main culprit? Page sizes, which have grown rapidly in recent years. HTTP Access reports that the average site today is now double the size of the average site from just three years. Bigger page sizes mean increased page load times, a problem which is especially noticeable when browsing on the smaller screen and slower connection of a mobile device. 

You can guess why it's gotten worse. As phones have gotten more powerful and mobile networks have gotten faster, publishers have felt less inhibited when it comes to increasing page sizes than they did at the dawn of the mobile era. These days they're loading up their sites with not just banner ads, overlays, and video players, but all manner of ad network trackers and beacons. More people consuming content on mobile devices means advertising dollars and ad networks, giving publishers opportunities to make money off of their mobile traffic that didn't have just a few years ago. But the real reason why publishers have become so comfortable with making the reading experience on mobile miserable is because they can get away with it. The reality is that they don't care if you hate them. 

It sounds crazy, since you'd think that most websites would care a whole lot about keeping their audience happy, but the rise of social -- and really we're mainly talking about Facebook -- as an enormous driver of traffic has changed the nature of the relationship between websites and their readers. Why? Because Facebook has become the primary interface for hundreds of millions of people for experiencing the web. We don't usually think of it in this way, but the News Feed breaks that direct relationship between websites and readers by unbundling sites into their individual components (i.e. articles and videos) and then re-aggregating them into a largely undifferentiated stream that's algorithmically customized for each user. In a lot of ways this is great for users -- they get to see stuff tailored to their interests without having to put any effort into going out and finding it. It's not entirely bad for publishers either, since Facebook's huge user base offers them a way to grow the audience for their content. 

However, there's a big difference between someone choosing to go to a site because they enter the URL into their browser, click a bookmark, or subscribe to their newsletter, and someone who ends up at a site because they clicked a link which someone shared on Facebook. That difference is the depth of the relationship that the user has to the site. Quite simply, you probably care a lot about the sites you choose to go to directly, and you go back because you know you'll get a quality experience. You don't have that relationship with sites you click on in Facebook. You go because someone you know shared it, and you may not even pay all that much attention to what the name of the site is before you click the back button a few seconds later. In fact, the person who shared it might not have even read it themselves. A study by Chartbeat of 10,000 socially shared pieces of content found that, "There is no relationship whatsoever between the amount a piece of content is shared and the amount of attention an average reader will give that content." 

In the early 2000's the realization that Google was driving tons of traffic led to SEO-obsessed content farms focused on gaming search engine result pages. Similarly, social sharing has changed the dynamics of web publishing and led to a whole host of sites which are focused on creating content they hope will go viral on Facebook. Some of them, like Buzzfeed and the Huffington Post, have done phenomenally well and grown into big businesses, while many older sites have reoriented their traffic acquisition strategies around Facebook in order to keep up. You can see it in how headlines have changed. When the key to driving traffic is getting people to click through on Facebook, you end up with the kind of clickbaity headlines that Upworthy and Buzzfeed pioneered. 

When you break that direct relationship between readers and publishers, you also take away a powerful incentive for publishers to offer those readers a high-quality experience. If there is going to be little or no reputational hit to the brand -- or if the brand doesn't even matter all that much anyway -- someone coming to your page and being exposed to a ton of advertising isn't a bad thing at all. Given the unlikelihood that the publisher will convert them into a direct visitor later on, it's entirely rational for them to optimize for short-term gain, and that means trying to get that visitor to like the page (to drive more traffic) and to be exposed to as many ads as possible (to drive as much revenue as possible). Users might be a bit annoyed by the load time (which they may blame on their phone's connection rather than the site), the preponderance of ads, or the number of pages they have to click through to get to the "actual" content, but as long as the publisher can continue to craft headlines which generate clicks there is little reason for them to change what they're doing. You can see this same dynamic at work in those "Suggested Links" modules powered by Outbrain and Taboola at the bottom of articles. Have you ever noticed how obscure many of those sites are and how determined they are to get you to click on as many pages as possible to read the whole article? 

Sites which rely on their audience to make a conscious decision to go and visit them have the opposite incentive. They want your visit to be pleasant, so they avoid the pop-ups and click-throughs. This sacrifices the short-term value of all that potential advertising revenue they might have made on that one visit for the long-term value of keeping you as a regular reader. I don't have any data on this, but my hunch is that that there is an inverse relationship between how much of a site's traffic comes from direct visitors and how much intrusive advertising and other crap visitors have to deal with when they go there. However, it's easy to advise publishers to make the strategic sacrifice -- to have fewer ads in order to build a brand that some users will want to visit directly or for longer -- but for most of them this would be suicidal.

No one much likes advertising, but it's how most online publishers pay the bills, so it's unlikely that this will change anytime soon. Unless, of course, Apple and Facebook find a way to upend all of this. Facebook's new Instant Articles is such a big deal because it attempts to solve the mobile web experience problem by essentially deprecating the web itself. With Instant Articles publishers host their content within Facebook itself, so instead of clicking out to a web page users stay within the Facebook app and get a faster loading, cleaner version of the same article. (In Facebook's post announcing Instant Articles they pointed out that the average article has an unacceptably long load time of eight seconds on mobile.) Facebook is allowing publishers to keep 100% of the revenue of ads they sell themselves (at least for now), though whether publishers will be able to make as much money hosting their articles on Facebook rather than on their own sites is an open question. The point is that it's not hard to see Facebook's algorithm prioritizing Instant Articles because of how quickly they load (just like how Google has made page load time a factor in how it calculates search results), which would essentially force publishers to choose between either improving their own mobile websites (by reducing both the number of ads and their intrusiveness) or giving in and just publishing to Instant Articles. 

Without much fanfare, Apple has decided to allow developers to build ad blockers for mobile Safari in iOS 9. It's hard to tell right now exactly how big of a deal this is going to be for publishers. Reactions range from "this is an impending apocalypse" to "everything will be just fine." Very few publishers are unconcerned about the effect on mobile ad revenue. Given the precarious position most publishers are already in, even a small decrease in income can be extremely painful. I can tell you from my time at AOL that desktop ad blockers had a material impact on revenue for several properties and it's hard to imagine mobile ad blockers not doing at least some damage. But, I also know from the user's perspective why mobile ad blockers would be so attractive -- they'll go a long way towards making the web usable again on your phone. Apple, which makes hardly any money from mobile advertising, probably cares very little if Google, which dominates the mobile ad market, suffers. As far as for publishers, it's probably not at all surprising that Apple has its own Instant Articles-like solution for them called Apple News which purports to fix everything that's wrong with reading the news on the mobile web. It's not clear yet what Apple's long-term plans are for Apple News, but if publishers are losing significant amounts of money because of mobile ad blockers, they're likely to be a lot more receptive to whatever solution Cupertino offers to help mitigate the situation.   

However things turn out, in the short-term publishers are going to find themselves in an increasingly tough position. It's already become a lot tougher to rely on Facebook for traffic. The competition for eyeballs keeps ramping up as more and more publishers figure out how social works. Simultaneously, Facebook keeps tweaking the News Feed algorithm in ways which make it harder and harder to reach audiences -- unless of course you want to pay for the privilege. It'd be one thing if there were some other source of traffic on the scale of Facebook or Google on the horizon, but as far as I can tell there isn't. (Side note: if you want to build a $250 billion business, just figure out how to drive as much traffic to the web as Facebook and Google do. If you are working on this, please get in touch.) In the meantime most news sites are going to do exactly what they're incentivized to do right now, and unfortunately for us, that means optimizing for ad revenue, not a great mobile web experience.


What I'm doing as an Entrepreneur-in-Residence

by Peter Rojas


I promised a few weeks ago in my post about leaving AOL that I'd have another one up soon detailing my new role at betaworks. I'm not sure where the past few weeks have gone, but jumping into a new job at the same time as moving from New York to San Francisco pretty much destroyed all of my free time and so I'm only getting to this now.

"Entrepreneur-in-residence" can be sort of a murky job title; it certainly has come to mean different things for different people at different places. (Side note: does anyone know the first time it was used?) For me being an EIR means working with betaworks' investing team to find early stage startups to invest in, as well as advising and supporting portfolio companies based here in the Bay Area. I knew I wanted to move into investing after I left AOL and this was the perfect way to learn the ropes from some amazing people while figuring out what comes next.

The funny thing is that I even though began my career in technology as a journalist writing about venture capital and startups for Red Herring, it never occurred to me at the time that I would  become an investor myself. I was never much interested in finance and it really wasn't until I started my own company and went through the fundraising process that it began to see early stage investing as something that I might want to do. 

What I found is that early stage investing is  different from other kinds of investing. It's more subjective, for starters. Products and companies are so young that you rarely have much hard data upon which to base a decision, and because of that the process is driven more by intuition and relationships than financial models and analytics. You're essentially making a guess about the quality of a company's product (and its potential to grow), the future size of the market it's going after, and the drive and capabilities of its founders. It's about looking out over the horizon and making a bet on how technology is going to change the world.

In one way or another, pretty much my entire career has been focused on finding that next exciting thing in tech. Editing Gizmodo and Engadget was exhausting -- and something I never want to do again -- but it was exhausting because I was fixated on chronicling every single exciting new product or development in the world of personal technology. I don't blog much anymore, but I still love playing with new gadgets and apps and I'm just as obsessed as ever with trying to figure out what the next wave of innovation is going to be. If you're passionate about new technology and love being around the people working on it there are probably few jobs as well-suited to fueling that passion as being an early stage investor, which is why it seemed like a natural next step for me after being an entrepreneur.

I know that I have a lot of work to do if I want to be any good at this. One of the biggest challenges is going to be finding new opportunities early, so if you are working on something I might be interested in checking out or even just want feedback on what you're building, please get in touch. I'm especially interested in chatting with anyone who has had a hard time getting in front of investors because they don't have the right connections. I know how difficult it can be to get investors' attention, so I highly recommend taking advantage of the fact that I'm new to this!