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Summary:

We tell you about our picks and pans from DEMO 2008.

After spending two days at DEMO and catching most of the presentations, I’m slightly disappointed. The number of passionate entrepreneurs who are thrilled to be here are inspiring and fun to be around, but some of the products being launched make me want to scream in frustration. First, I’d like to point out for the umpteenth time that Google AdWords isn’t a business model.

Second, think about your startup and what you are trying to do with your particular mashup. There are several startups here trying to pull aspects of sites together to make information consumption easier. However, how long will the owners of such sites let another site or service make money pulling their content out of context and serving ads against it? Ironically, it’s a similar disruption that TiVo or Slingbox brought to television, now being perpetrated against online content providers. This should be an interesting battle to watch, if such mashups gain in popularity.

Finally, a bunch of the services being launched are features rather than businesses (this includes all of the wicked cool tool bars I’ve seen.) I don’t want to be a pessimist, however, because there were some some products and startups that really stood out. These are some of the booths I rushed to after the presentations:

  • Fusion I/O– Basically this company is adding a controller and software to commodity Flash to make really fast and big storage for servers. They’ve added a PCI Express slot that allows for 10 Gigabit Ethernet transport of data between the storage and the servers, and HP is designing it into servers, while IBM is designing it into storage products. This product could be a key attribute for pushing content delivery and cloud computing as close to real time as possible.
  • Plastic Logic– Everyone loves this thin (see photo) plastic reader, and the company says it has a factory opening next week ready to churn out the plastic electronics on which this reader is built. They also say that the plastic is 40 percent cheaper than building electronics displays in silicon. But they don’t plan to license the technology to other partners. Seriously? Unless the reader is sub-$100, I can’t figure out why you would waste such cool technology and build and entire factory for one, high-end device. It’s like inventing chocolate and restricting it for use in chocolate chips, or wanting to control chocolate forever.
  • Arsenal Interactive — A fellow blogger called it useless, but this Ribbit-like platform connects the telephone to the web using robo-calling and software. I found the HeyCosmo applications, which allow me to set a question or task and then give me answers in a minute or so, pretty useful. It’s also ripe for advertising, and the CEO showed me some emails he received from small businesses who received the robotic calls and wanted to talk about advertising. The difficulty will be establishing rating systems for the services displayed and figuring out how to sell what is essentially local advertising without employing too many people.
  • Infovell– As a journalist, I spend a lot of time researching things and know that I pay for access to quality information. If Infovell’s technology can really scan the web that’s left uncrawled by Google’s algorithms and provide more than the current medical, technology and law databases, then there is a market for the service.
  • Awind (mobiShow)– I know there are a million devices attempting to bridge the web and the PC, but Awind’s home entertainment box connects my PC to the TV via a Wi-Fi connection and offers watchable web content today. The box contains software that improves the resolution of the web content when blown up on the television. I still found it a bit fuzzy, but that could be the crappy monitor they brought to the show.
  1. “I’d like to point out for the umpteenth time that Google AdWords isn’t a business model.”

    I love this statement, and would love to see an entire dedicated to just this. Several people come up to me with start up ideas where the only source of revenue is ads. I can’t seem to convince them the difficulty in sustaining operations based off of ads – especially in sites with constantly changing data.

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  2. Depends what you mean by business model… if you mean VC backed… I agree. But for a small company – AdWords can pay the bills.

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  3. Adwords may not be a business model, but Adsense is (Adwords is a platform for advertisers, not publishers).

    But seriously, you can make money (and exit) on Adsense.

    Take a look at the sites being bought up by Demand Media, IAC, Internet Brands, Specific Media, and AtomicOnline. A lot of these sites make the majority of their money from Adsense.

    The key is the you have to get a ton of traffic and content for free, otherwise the cost side of the equation doesn’t work. Your options: SEO and UGC.

    Also, it helps to be in a niche market, ideally where the site deals with some sort of commerce activity or a really specific demographic and the avg CPMs are $5+ (not the sub $1 world Facebook/Myspace/Youtube live in).

    So yes, Adsense + high startup costs/cost structure is a broken model. However, Niche+Commerce+Adsense+SEO+UGC = valid business model. Unfortunately, it’s not one that investors should put money in until some/all of those pieces are proven (and of course by that point, why do you even need investors?!).

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  4. Fusion I/O is awesome and blazingly fast. But it’s not plug and play, nor can you jam a box full of ‘em, yet. You need to be using a journaled filesystem and a well-tuned application.

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  5. Plastic Logic looks brilliant! Agree that they shouldn’t restrict themselves to the plastic reader model – at an OEM or module level it could become the next LCD display (old, monochrome, 4 lines).

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  6. “I love this statement, and would love to see an entire dedicated to just this.”

    Tom Evslin puts it well:
    Should Your New Web Business be Ad-Supported?
    http://blog.tomevslin.com/2008/08/should-your-new.html

    “…Google is consuming most of the free oxygen in the ad-supported cave.”

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  7. Stacey Higginbotham Wednesday, September 10, 2008

    David, good point and Jeremy nice catch. You’re right about AdSense providing a decent living for a small company or one person, but I’m thinking about building businesses that will grow to employ other people. I have a lot of thoughts on this type of business and how it relates to the rest of the startup world that I should probably try to articulate.

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  8. Hmm, Stacey, we’ll have to disagree on this one.

    I don’t think Adsense automatically means the business can only “provide a decent living for a small company or one person.” There are a decent number of SEO-UGC-Adsense sites that could support 50+ employees (though they usually don’t need to staff at that level).

    Also, you seem to be using Adsense as a proxy for a general ad-based model. Doesn’t GigaOM operate the same way?

    Look, I’m not saying an ad-based model makes sense in 99% of cases. But under certain circumstances like SEO+UGC, it works beautifully.

    And of course, depending on the niche, you’ll cap out, so then you have to turn it into a horizontally-scaling model which is what co’s like Internet Brands and Demand Media are doing. I can give you more insight sometime if you’re interested (I’ll be at the High Tech Happy Hour if you want to chat).

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  9. I agree with Jeremy. 7 of the 20 India specific Social Networks rely on AdSense. I know a couple more startups who are getting substantial revenue out of it to run operations. I have been a Webmaster for a portal whose earning was in six figures in INR every month. AdSense also makes sense if you are planning to test the water and don’t want to burn a deep hole in your pocket.

    AdSense also happens to be the best advertising platform. Is there any other Context Sensitive Advertising platform as effective as AdSense ?

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  10. There’s a big distinction between Adsense and an ad-supported model.

    Adsense is something anyone can use. There are no barriers to using it. An ad-supported model that involves direct advertisers, like GigaOm, is very different.

    For the vast majority of businesses, “Adsense” is not a viable business model. It’s basically saying “we hope to get a lot of page views and make a few bucks per CPM”. It’s a cop-out.

    I make plenty of money from Adsense, but I’d never tell anyone my business model was Adsense. As soon as you get any level of traffic our clout, especially for a niche topic, it makes sense to go with direct advertising.

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