Revolution talks LivingSocial, ZipCar, Steve Case & those GroupOn Super Bowl Ads

Posted on Feb 13, 2011 | 12 comments


The venture capital industry is so heavily skewed to Northern California, which the remains spilled over Boston, New York & Southern California. There are of course other outposts like Austin and Seattle.

So it was wonderful to hear from a leading venture capital firm based in Washington DC. Revolution is a “stage agnostic” fund (means they invest early or late) funded entirely by Steve Case, the founder of AOL and co-founded by two other individuals, Tige Savage (yes, pronounced like the golfer, minus the “r”) and Donn Davis.

They are a national practice but “it would be hard to see a local media success that Revolution isn’t part of”.

Today’s interview was with Tige (interesting to follow on Twitter), who has been involved with funded and/or sitting on the boards of Revolution Money, Living Social, Flexcar (now ZipCar) and UberMedia.

We got to discuss a wide range of issues including: why the AOL / TimeWarner merger didn’t work and whether we will see similar impact on the Comcast / NBC merger (Tige believes these mergers are very different), what advantages LivingSocial & GroupOn have over the rest of the market, whether the AOL acquisition of HuffPo was a good idea, why ZipCar is an interesting market, what Startup America is all about. And we also talked about what it’s like to work with Steve Case.

I think you’ll enjoy the video of This Week in VC with Tige Savage if you have some time, but if you’re busy have a read of the transcript & main points below.

A big thank you to my friend Josh Webb who provided the transcription.

1. Revolution, what is it?
We are a venture capital growth equity fund in Washington DC with about $500m invested. Our approach is a little unusual in that we try to back a team early, then continue to invest along the lifecycle of the company. Instead of picking a stage, say seed rounds and A rounds, and investing in a variety of companies as they pass through that stage, we take companies that we like and support them through each of those rounds.

In that way, you could say that we are stage agnostic. I run Revolution’s VC investments. We will invest pre-revenue and even pre-product if we have discovered the right team in the right kind of market. We look at huge markets where there are large incumbents that might not be incented to innovate or react to what they perceive as an insurgent.

Revolution is essentially Steve Case’s original money from AOL. It is very unique to have a single source of a fund that size. When Steve left AOL he wanted to be very involved with the next generation of entrepreneurs. Revolution, and the people behind it, are his way of institutionalizing that effort. It allows him the opportunity to do what he does best, finding and motivating entrepreneurs then thinking through market strategy. One of the benefits of investing our own capital is that we are not on a rigid investment schedule. We can be opportunistic and put money to work at whatever pace we want.

2. You had a very interesting perspective on the AOL/Time Warner merger. Can you talk about it?
Both AOL and Time Warner had existing VC operations. When the companies merged, those operations also merged. I was brought in as an outsider to run some of that organization. Much of our investment was around the market strategy of trying to defend the cable companies from the increased market presence of satellite providers.

That was a very interesting time for me, I was in a unique position of getting a chance to witness a merger (that I still believe was a good idea) go horribly wrong. At the time, half of all online traffic was going through their servers. They had the foresight to understand the trend of content moving online. With this strategic position, and their prescient understanding of where the industry was going, it is hard to argue with the concept of the merger.

Whether it was the execution of the merger or something else, the fact is that it went awry. Fundamentally, I think the potential was there. The last decade has seen our almost every aspect of our lifestyle move online. In a way, this merger predicted that shift and put the organization in a position to take advantage of it.

To understand the scale of this deal in today’s terms, AOL was as big and infallible-seeming at Facebook is today. To think about these gigantic forces (AOL and Time Warner) combining bordered on monopoly. In hindsight, the concept of this failed merger being monopolistic sounds almost ludicrous. Where exactly it missed the mark is hard to say. AOL had assets that could have evolved into the next big thing. AOL Instant Messenger for example; it could have been Twitter.

It had the audience, the people, the network, everything! One flaw could have been AOL acting like a big company. Big companies just don’t seem to innovate the same way. They had a hugely profitable business and had a hard time giving that up to move forward.

A contemporary analog to this type of vertical integration is Comcast/NBC-U. This potential merger is another example of media companies getting together in what seems like a monopolistic way that still might find itself as prey for market innovation of the future; like Hulu for example. Tige and I discuss an excellent blog post written by the CEO of Hulu (Jason Kilar) on the future of advertising

3. One thing that is abundantly clear is that we are consuming media in new, and changing, ways.
Monetizing content is going to be a moving target. The networks seem to be emphatic about monetization for the present. This focus on “right now” might run contrary to their best interests in the future. Netflix is a great example. The networks must be bewildered by the fact that one of their main competitors is a company that started with a mail-based DVD service. At the same time, they license the DVD rights over so they can have money “right now”.

The traditional 22-minute, ad-supported scheduled timeslot may not be able to stay around forever. People want more for free and people want to have more preference in how they are marketed to. Some people have more money than time and are willing to pay for the right to have interruption-free programming. Others have more time than money, and use services like SVnetwork to subject themselves to specific advertising to get access to the content they want.

4. Let’s talk about Revolution’s operation.
Revolution is looking to invest in companies that look to fundamentally change industries rather than incremental improvements. That’s why Revolution was so supportive of Revolution Money, which sought to break up the troika that controls consumer finance.

It’s also why we got involved in the model of “car rental as a service” that has become ZipCar. You look at an industry dominated by a few big rental car companies that haven’t innovated in years and we saw a market ripe for disruption.  Zip car operates as a club and if you are a member you can rent a car by the hour. It operates well in urban environments and college towns. (ZipCar is discussed around minute 23:00).

We also spent some time talking about Steve Case’s (the founder of AOL) involvement. If you’re interested in heard about this check out minute 28:00.

5: LivingSocial is an example of the recent trend into group buying. Can you talk about it?
Revolution was the first investor in LivingSocial (30:00).  It was founded by four guys we knew and had worked with. When Facebook was opening up their platform, these guys thought that it was an interesting way to do user acquisition and preference acquisition of individuals and that they would be able find a way to monetize it in commerce-oriented verticals.

We knew the guys and we liked how they were planning to use a social strategy to drive commerce. LivingSocial and Groupon are the two entities that seems to stand out in today’s group buying noise. We talk about barriers to entry, scale, and the social element as they pertain to evolution of group buying.

LivingSocial supported the largest social buying event yet. The “Amazon deal”  was so large that, according to another Revolution portfolio company Clearspring , it materially changed sharing on the web that day. When a deal is good or when a story is special, “social” is what spreads it.

A critique of group buying is that it can generate non-loyal, and often non-profitable, customers for merchants that attempt to use it. They will come in for a big deal and quickly overwhelm a small company then, just as quickly, leave before the merchant has recouped those costs or retain them as continued customers. While I think that has taken place in the past, I think LivingSocial is doing a great job educating merchants on the nature of these deals, what they can do differently, and what to expect.

We have been very pleased with the way that merchants have come back for additional deals.

6. Tige and I have a conversation about controversial advertising (38:50) We discuss Groupon’s Super Bowl ad and GoDaddy’s historical success with extreme ads of this sort.

Tige was reluctant to say too much about GroupOn’s controversial Super Bowl ads. I surmised that the strategy very well may have been intentional despite the negative press.  The amount of free media that one gets following being the most talked about Super Bowl ad is invaluable and they are able to recover by talking about all the money they are going to donate to these causes. I believe this because I had just heard the president of GoDaddy talking about the efficacy of their Super Bowl ads – specifically taking their market share from 16% to 25% of the domain hosting market directly correlated from their first ad.

In the rest of the chat, we discuss:
-Another Revolution investment, UberMedia (who just acquired TweetDeck)
-Facebook use cases and audience vs. Twitter
-Startup America, an Obama administration initiative headed up by Steve Case
-The Case Foundation
-The Startup Visa movement
-The recent, and highly publicized, AOL purchase of The Huffington Post
-A market trend in the VC and Angel world where valuations seem to have come a little unhinged compared to valuations in the past

  • http://www.stealthmode.com hardaway

    I disagree about the ads, Mark. I don't think they understood their ads would be so controversial. Bob Parsons is a different type of guy from Andrew.

  • http://www.ChannelStack.com/mychannelstack/RVTV RamVaz

    Re: GroupOn ads – It is possible. They seemed to have a well thought out response fairly quickly. It extended the conversation and gave them the chance to explain their brand and donation efforts. Personally it didn't make me any more likely/unlikely to use their product.

  • http://bothsidesofthetable.com msuster

    Maybe. But to build a brand you have to become well known to the nation the way that GoDaddy has become. An aggressive advertising agency might have persuaded them that to build out the brand they had to be aggressive. Having heard the GoDaddy president speak it became more plausible in my own mind.

    Plus, they were pretty rapid on their response when they came under pressure. Felt like they had a game plan. Just sayin'

  • http://bothsidesofthetable.com msuster

    Exactly.

  • http://twitter.com/viewsaskew Eric Blair

    I, too, respectfully disagree about the ads. Christopher Guest (husband of Jamie Lee Curtis) directed the spots and neither of them would want to be known for callous views on Tibet. Selling “sexy” (a la GoDaddy) is one thing, selling “callous” is another. I doubt many will remember GroupOn's response, just the negativeness of the ad. Besides, GroupOn already has a very large brand from both customers and the Google bid (not to mention countless articles in MSM like NY Times). Marketing 101 is to protect your brand once the word is out on it. Sometimes a cigar is just a cigar. I think they goofed.

  • Hamilton Chan

    Great interview, Mark! Regarding group buying, I can speak directly to this, as our e-commerce stationery arm, Paperspring.com, was featured 2 weeks ago on The Today Show for an 80% off offer. The response was predictably insane. I was surprised by the empathy of buyers, who knew we were getting swamped with orders (roughly 1 order every 10 seconds for 24 straight hours). I would absolutely do it again, because the customer acquisition cost is ultimately less than what we spend on AdWords, and you get a huge swath at once.

    Lookin' forward to catching up with you re: QR codes and Paperlinks whenever you get a chance!

  • http://bothsidesofthetable.com msuster

    “neither of them would want to be known for callous views on Tibet” … that's pretty hard to believe having seen the commercial! Did you see it? Really still think that? It was intentionally mocking and “callous” is a word that would come to mind.

  • http://bothsidesofthetable.com msuster

    That's great feedback, Hamilton. Thanks!

  • http://twitter.com/andyhunn Andy Hunn

    Mark – Thanks for this – on the heels of a NYT article about 'Potomac Valley' picking up steam as we begin to get some respect for the northern virginia/DC-based startup community. Having been at it here for a long while, we're just now getting a more steady uptick in new startups that are not only from telecom/internet infrastructure roots, long the anchor for DC area, but are now seeing digital media, social media, mobile, alt energy here as well. We convinced Greycroft to wade into this market, hopefully we see others start to kick tires in DC as well.

  • http://twitter.com/viewsaskew Eric Blair

    Yes, Mark, of course, I saw it. I wouldn't have made the comment otherwise. Humor is a hard thing to define and mistakes are often made by comedians for exactly this type of thing. Or as a line in SPINAL TAP (another Christopher Guest film) goes: “Such a fine line between clever and stupid.” Sometimes when you get edgy you fall off the edge. At some point in our cynical culture there is such a thing as bad publicity.

  • F Higgins

    Marketing 101 is wrong. Too many brands use the “protecting the brand” excuse not to do things that are entertaining/risky/needed. I'm glad there are companies like Godaddy and Groupon. If the company fundamentals are solid, brands can withstand some risk. Push the limits and it'll pay off big. After-all, we're still talking about Groupon and I guarantee their new sign-ups FAR outweight their user departures.

  • http://americandelusion.blogspot.com/ patrick Mahoney

    The GroupOn ads were an epic fail. Any dissemblance is just that. And they indicate much deeper issues for folks looking for $15 Billion in in IPO stock.

    The back tracking on 'going over the line' won't erase the very real fact that they only pissed people off. “All press is good press,” or “all buzz is good buz” is both passe and simplistic.
    If they manufactured computer chips that went inside something else, then people would forget….as their boycott power is negligible. But when your business is based on consumer purchases and trust?? Bad news.

    Then, there is the China, INC. issue. I wouldn't put my money into a firm that says they are going to take over Asia, then make profound mistakes all along the way. That market requires special knowledge, and sensitivity…..not frat house humor. China hides their shame of Tibet, by pretending it doesn't exist (Google had to exclude words like Tibet & Dalai Lama from their search engine before they were even allowed in; and look how well their posable morals helped them in there ;-)

    And finally, the hypocrisy angle (as they have raised only a couple thousand dollars for the charities they hide behind. And their 'origins' are weak ;-)

    They have a short window to recover….and words won't cut it.
    1) Publicly (in TV ad/news release) apologize
    2) Do something tangible to validate the words in #1 (i.e. a $1M immediate donation to the couses they used to create buzz)

    By becoming what they pretended to be, with solid demonstrable actions; they will do two things.

    1) Flip the bad to tons of goodwill, & establish sincerity.
    2) Be showing the kind of savvy management that is able to leverage equity funds into something very profitable.

    Otherwise? All fuzz….and, eventually, fizzle out…..

    Time to “walk the talk.” That is the marketing message in this fiasco. The “JackAss The Movie” mentality has finally met its end. Time for boys to grow up.