New Work City (NWC) is one of the most important hubs of the NYC technology scene.

Why?  New Work City houses ~50 amazing tech freelancers and entrepreneurs running a dozen or so fledgling startups such as Perpetually, Loosecubes, Urban Pregame, Homingcloud and TouchGraph.  Creating a home for independent workers and early stage entrepreneurs creates the fertile soil needed to seed innovation and birth new companies. NWC is that home. In short, New Work City is a home for the homeless and a desk for the deskless, individuals otherwise relegated to working from coffee shops or trapped in the depressing isolation of their own apartments.

If you’re thinking “desks for rent” you’re missing the bigger picture.  It’s all about the people. NWC is people getting together because working in a stimulating environment surrounded by friendly passionate people who love what they do is f***ing awesome. It’s productive, it’s fun, and it’s deeply satisfying.

On September 1, a mere ten days from today, NWC opens its new home:  a brand new 5,000sq space at Canal St and Broadway. The NEW New Work City will support a larger community and will be amazing. As an independent space, New Work City is self-sustained by paying members of the community — people like me. There’s no sugardaddy bankrolling it and no VC firm backing the space.  It’s run as a break-even business and it’s entirely volunteer run — truly a space for us and by us.

In ten days, the dream for NYC to have a dedicated coworking space will be realized. It’s a dream that initially took shape back in the summer of 2007 as part of an East Village coffee shop (CafeBricolage).  Many of the same people are still at the helms.

Having an awesome home to independent workers and entrepreneurs is crucial to New York City’s goal to become a major technology hub.  However, NWC needs your financial support to make this happen. We need about $100,000 total for the new space, and are attempting to raise $15,000 through Kickstarter.  Please donate to our KickStarter fund and be generous (let’s smash through this goal!)

Also, please seriously consider whether your company or organization could benefit from a partnership/sponsorship opportunity with NWC.  If so, please get in touch with me and I’ll happily put you in touch with “mayor” Tony.

By supporting NWC, you’re supporting NYC as a healthy place for startups.  On behalf of me and all New Work City members, thank you for your support,
Jonathan Wegener

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Early this morning Muckrack began selling “one line press releases” (1lpr anyone?) — twitter-style short form press announcements.  Muckrack.com is a site that aggregates and categorizes the tweets of hundreds of journalists.  Among its loyal visitors are journalists using the site to keep tabs on their colleagues.  By purchasing a 1lpr, you essentially get your message in front of journalists in a form they’ll actually read.

In its current implementation, these are basically sponsored advertisements.  However I see today’s product as part of the first move in a series that will forever change the world of PR.

I first took an interest in PR trying to learn how best to do the press outreach effort for Exit Strategy NYC.  I attended Internet Week’s PR for Startups event and quickly got it:  journalists are drowning with information overload.  As Allen Stern said that night, journalists get pitched hundreds of times each day.  The vast majority of the pitches are misguided and border on spam.  To the startup struggling to get their announcement noticed, relationships are golden.  Second best is identifying the exact journalists who cover your niche and then writing them short, personally tailored emails which are easily scannable.

A few weeks later, I saw a company called MatchPoint present at New York Tech Meetup.  The audience couldn’t have cared less about this product.  But to the people who *got it* and understood the core problem that MatchPoint is attempting to solve – PR professionals struggling to identify the right journalists, and journalists struggling with the information overload caused by mismatched PR pitches — the presentation was revolutionary.  MatchPoint is a communications tool designed for the PR Professional to “help identify and interact with the journalists and bloggers who may actually care about what you have to say.”  Given a press release or several keywords, the software engine produces a list of journalists, ranked by relevance based on a large database of their past news sources.

What I find fascinating and revolutionary about both Muck Rack and Matchpoint is they’re two different solutions to the same signal-to-noise issue plaguing the world of press releases.  Matchpoint solves it with a smarter matching engine.  Muck Rack solves it with bite sized pitches (reinforced by their pricing model: $1 per character with a $50 minimum) — ie constraint and smart pricing.

Right now, both companies are only halfway there in their attempts to solve information overload.  Their products currently give PR professionals a better way to get their message out.  But the real value will come from getting the journalists on board too.  When journalists start trusting these services as reliable sources of personally relevant information, they will become extremely valuable. Once the journalists get on board, there’s a nice network effect and lock-in that will make these services worth millions.

Silicon Alley Insider calls 1lprs the “smartest development in public relations since the canned quote.”  I couldn’t agree more.

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Exit Strategy NYC is an iPhone, Blackberry, and Android app that answers the quintessential New Yorker’s question: “Where should I stand on the subway platform?” After months of full-time subway riding, we’ve created detailed diagrams for hundreds of NYC stations, eliminating the guesswork and frustration from subway riding. 

The project launched with an article from the New York Times and quickly got covered by Wired Magazine, NY Post, NY Mag etc (full list of press here).

The locations of the subway exits and transfer points have never before been collected on a large scale in NYC. Similar projects have been done in Toronto and Tokyo. We’re extremely excited to introduce this to New York City.

Soon i’ll be writing more about the thinking behind this app and the experience developing across three different mobile platforms.  But for now, buy it and let us know what you think…we hope you love it!

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To say that Apple’s App Store is thriving would be an understatement.  There have been 800 million downloads across Apple’s 30 million iPhones and iPod Touches — meaning on average each device has downloaded 27 apps.  The App Store now has over 25,000 apps and 250+ are added every day.

In such a crowded marketplace, how can an app possibly get noticed?

As developers know all too well, the key to being noticed is getting the app into the top-selling lists. Pinch Media’s data shows that “appearing on a top 100 list increases daily new users by an average of 2.3x” and appearing in the top 10 or top 25 list can mean an order of magnitude gain.

App developers have told me they’d do anything short of cutting their toes off to get into the top 10, top 50, whatever. That often includes lowering the price of their app.
-Dan Frommer, Silicon Alley Insider

So let’s say you have an app that’s selling for $1.99.  Sales are ok, but you want to make more money.  So you cut your price to 99c in an attempt to get on the best-selling list.  It’s perfectly logical after all:  the variable cost per unit is zero.  If you can increase sales 2.3x but earn half as much on each sale, you’ll come out a winner.

So obviously there’s a strong incentive for developers to cut their prices and concentrate on doing whatever it takes to get into that top 100 list.  And therein lies developers’ biggest complaint: the app store calculates popularity by unit downloads — without taking price into consideration. This structure has created immense competition and downward pricing pressure.  In February, the average top-50 app sold for $2.39 which is down 34% from $3.63 only two months prior.

Many have called on Apple to sort the list by total revenue rather than unit downloads. For example consider one purchase of a $10 app equivalent to ten purchases of a $1 app for ranking purposes.  This would highlight the apps creating the most value rather than the most downloads and it would help app developers sustain higher pricing.

But let’s talk about Apple’s dirty little secret: they want apps to be cheap.  The cheaper the apps, the more downloads — and the more value the user gets from the device.  This helps sell more devices, and although lower app prices does mean less app store revenue (Apple takes a 30% cut of app sales), that money is peanuts compared to Apple’s $425 profit/phone. In fact, Apple has said publicly that the app store is being run as a break-even service:

We’re thinking about the App Store in the same way that we think about the iTunes store. While it will generate some revenues, it will be a small profit generator, and just as with the iTunes store making iPods more attractive, we think the App Store will make the iPhone and iPod Touch more attractive to customers. We’ll hopefully see an indirect return by selling more iPhones and iPod Touches.
-Peter Oppenheimer, Apple’s CFO and SVP

The download pricing pressure caused by the per-unit ranking method is seriously hurting developers.  Is this a sustainable model?  No.  Developers will get fed up and leave eventually.  But right now it’s a one horse race: no other mobile platform has achieved much traction.  The most money for developers still lies in writing software for the iPhone.  And until Apple’s hand is forced by competition making significant inroads, a la Amazon forcing Apple to make iTunes DRM free, Apple won’t change a thing.  Everything is perfectly aligned in their favor.

One last point:  The upcoming iPhone 3.0 software supports a subscription pricing model for apps.  To be 100% clear, the new software will support in-app purchasing which asks the user to pay each month to continue using the application (rather than an automatic recurring subscription payment system like many people envisioned — the difference is subtle but important).  Some have reacted negatively to the subscription pricing announcement, fearing that apps will suddenly turn into crippleware and try to charge for every feature that was previously free.  This may be true at first, but ultimately it’s a free market and the problems will sort themselves out.  The simple truth is that the lack of a subscription pricing model was leaving money on the table.  It’s nice to see that being remedied.

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Online restaurant reservations company OpenTable filed for an IPO on Friday, revealing their finances for the world to see.  The SEC filing contains all the financial figures you would expect: revenue, expenses breakdown, details of the public offering, and also operational data. 

Brett Emerson wrote a fantastic blog post a few months ago (Behind the Curtain: Open Table) which gives a thorough evaluation of OpenTable from a restaurateur’s point of view.  Emerson is in the process of opening Contigo, a new restaurant in San Francisco and he lays out the pros and cons of OpenTable and shares his cost and volume expectations from the service.  Viewed from a restaurant’s pespective, the operational data in OpenTable’s finances gives an amazing amount of insight into the OpenTable system, especially when some analysis and number crunching is applied.

OpenTable Web Traffic and User Behavior

OpenTable makes their money from restaurants that pay a one-time installation fee for reservation software/hardware, a monthly subscription fee, and a fee for each restaurant guest seated through the service.

It’s public knowledge that OpenTable charges $0.25/diner booked via the restaurant’s website and $1/diner booked directly through opentable.com (the higher charge reflects opentable.com’s value as a customer referral tool).  The SEC filing tells us that these fees resulted in $17M of reservation revenue from 25M diners.  Pulling out my trusty TI-83 and solving this linear equation  ( 1*a+ .25*b = $17M  and  a + b = 25M diners) leads to the conclusion that 57% of diners book via opentable.com, and the remaining 43% book via the restaurant website. This tells us about the value of OpenTable as a marketing tool: being part of the OpenTable network yields roughly twice as many online reservations as a stand-alone solution.

Per-Restaurant Data

Excluding one-time installation revenues, total North American revenues for the first nine months of ’08 were $37.5M across 8,090 member restaurants, so the average restaurant pays OpenTable $515 each month (N.B. 8,090 restaurants is the midpoint figure across the reporting period: OpenTable began 2008 with 7,391 restaurants and grew to 8,788 restaurants.  I assume linear growth).  Broken down, this $515 consists of $281 in monthly subscriptions charges and $234 in monthly reservation booking fees.

For the reporting period, one-time installation revenues were $1.7M and there were 1,397 new restaurants.  Each new restaurant therefore pays an average of $1,240 in installation fees (this assumes no churn, that all growth is from new customers).

Does OpenTable deliver?

OpenTable seated 25M diners across 8,090 restaurants in the reporting period which means for the average restaurant, OpenTable fills 345 seats monthly or 14 daily (assuming the restaurant is open six days a week).

One of Emerson’s main concerns is the high cost of reservation fees:

Let’s assume most of the other two thirds of the restaurant’s guests book through Open Table. If successful, a 60-seat restaurant like Contigo could easily pay $1,000-1,500 a month to Open Table in cover charges.

Let’s examine this concern in detail.  Contigo has 60 seats.  Assuming tables can be flipped twice, 120 diners can be served each night.  We know OpenTable on average fills 14 seats a day, so OpenTable would be filling about 12% of the restaurant.  Earlier it was calculated that the average restaurant pays $234 in reservation fees.  Emerson’s figures (66% fill rate, $1000+ monthly fee) therefore probably overestimates OpenTable’s ability to fill tables.

International Figures

OpenTable has mainly concentrated their international efforts in Germany, Japan and the United Kingdom and so far international business represents a mere 5% of total revenues.  For the reporting period, an average of 696 restaurants were signed up, producing $1.7M in subscription revenue, $282K in reservation revenue, and a mere $76K in installation revenue.

Dividing the installation revenues across the 451 added restaurants shows an average installation fee of $155 which is significantly lower than the $1,240 that domestic restaurants pay.  This likely signifies that OpenTable heavily subsidizes equipment and installation costs in an attempt to gain traction overseas.

The monthly subscription charge that each restaurant pays is comparable ($270 internationally versus $281 domestically), but as you might expect given the early stage of international adoption, monthly reservation charges are significantly lower ($45 versus $234) and fewer diners are seated through the service (60 diners per month versus 345 diners.)

When both subscription and reservation charges are factored in, it’s revealed that although the average international restaurant spends less with OpenTable per month ($315 versus $515), they pay substantially more for each customer ($5.29 versus $1.49).

OpenTable has emerged as the leader in the US market, surviving the first dot-com bubble, gaining traction with restaurants, and beating out the competition (DinnerBroker.com, Foodline.com, Ireserve.com, iSeatz.com, and RestaurantRow.com and others).  It should be noted that OpenTable operates very profitably within the US — $6.7M profit on $39M revenue, a 17% margin.

Is another victory in the cards?  It’s certainly going to be a tough fight.  OpenTable lacks the first-mover advantage and faces intense competition.  There’s also a strong network effect working against them.  Already OpenTable has conceded Spain and France, closing their offices which had only recently opened in 2007.  OpenTable appears to be pouring every dollar they can into their international expansion and heavily subsidizing equipment costs which is the reason why the company as a whole appears to be unprofitable (and I suspect is the reason for filing for an IPO — to raise more money for their international push).  Looking at their international business, OpenTable posted losses of $6.5M on $2M revenue in the first nine months of 2008.  OpenTable, I wish you luck!

Market Sizing and Market Saturation

OpenTable includes some interesting estimates about the size of their market:

We believe based on our internal estimates that there are approximately 30,000 reservation-taking restaurants in North America that seat approximately 600 million diners through reservations annually.

Considering that OpenTable has signed up close to 10,000 restaurants, they have captured roughly 1/3 of the possible restaurant market — pretty impressive!

Extrapolating through the end of 2008, OpenTable seated 33.5M diners which means that 6% of all restaurant reservations are made through OpenTable — also really impressive!

Quantifying OpenTable’s Marketing Power

Advertising a restaurant in an effective manner is a difficult task.  Press, buzz, and word of mouth recommendations are great, but these aren’t something a restaurant can control.  Besides buying ads on Citysearch or Yelp, there’s not much to be done online (although Russ & Daughters did recently join Twitter!).  Unfortunately launching a search marketing campaign around the keyword “restaurant” doesn’t work too well.  OpenTable clearly realizes the tough position that restaurants are in:

Cost-effective marketing opportunities are limited. Typically, restaurants promote themselves through magazines and newspapers as well as online dining guides and directories. However, restaurants generally do not have the ability to track the number of people who ultimately dine in response to their advertisements, nor are the costs of these advertisements tied to the number of diners they attract. Therefore, restaurants usually are unable to measure or compare the effectiveness of these marketing channels.

Is OpenTable’s $1/diner fee fair?  Emerson suggests that it’s too high:

When a diner pays $40 to eat at Contigo, that dollar [fee per diner] equals about 2.5% of the cost of the meal. That’s significant in an industry where the average profit margin is less than 5%.

Interesting point.  But if you bought a $300 newspaper advertisement which caused 300 new customers to walk into your restaurant, wouldn’t you consider that a phenomenal return on your advertising spend?

The average restaurant spends $515 with OpenTable and gets 345 diners each month, so when all is said and done the true cost of the service is closer to $1.50/diner.  But keep in mind that 43% of the OpenTable bookings come through the website of the restaurant — these 148 diners have already decided to eat at the restaurant!  These customers exist regardless of whether the restaurant is subscribed to OpenTable.  The real value that OpenTable delivers, therefore, is the 197 NEW customers generated due to the marketing exposure on opentable.com.  Restaurants are really paying $515 to gain 197 new customers, which comes to $2.61 per customer.

Concluding his blog post, Emerson writes:

In my mind, the question of whether or not to sign up for Open Table boils down to whether or not I feel Contigo needs to take advantage of Open Table’s substantial marketing power.

The question restaurant owners should therefore ask themselves is this: Is acquiring customers at $2.61 per head a worthwhile investment?  And is there another method that can acquire customers for less?

Well there you have it!  A fascinating look at the business of online restaurant referrals and the insights derived from very basic operational data.

I’ll leave you now with this amusing quote from the SEC Filing about OpenTable’s competition: “Currently, our primary competitors in North America are the pen-and-paper reservation book used by most restaurants and the phone used by diners.”

As always, readers, I’d love to hear your comments and thoughts!

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A cross between a local business review site and a social networking site, Yelp encourages user transparency and discourages anonymity.  Like Amazon’s “Real Name” Badge, Yelp profiles are expected to have real names, real personal information, and real user photos — a requirement, in fact, to become Yelp elite.  Transparency makes it easy to distinguish trustworthy reviews (those written by active users with completed profiles and dozens of reviews under their belts) and untrustworthy reviews (those written by new users with few reviews and a question mark for their profile picture).

From the beginning, Yelp has attracted attention for mixing business and pleasure to build their brand among young people (see: business paradigm shifts and free tequila shots).  Yelp has created a grassroots movement, attracting thousands of reviewers and it has galvanized that userbase to write millions of reviews of local businesses.

Yelp hit a chord, creating a vibrant online community unlike any other I have ever seen — a community worthy of an entire NYTimes article!  I love Yelp because it’s one of a kind — how many online communities do you know in which the users regularly take their conversations offline, autonomously organizing events and meetups in the real world? (excluding the obvious exception of meetup.com where organizing meetups in the real world is the main objective)

Yelp is a phenomenon which may never occur again — online communities this active are unheard of, and twenty years from now I’m sure I’ll reminisce about how some website brought me together with complete strangers.  I’ll also look back on the good ol’ days when Yelp would spend their VC money on open bars at trendy clubs (a practice eerily reminiscent of the first dotcom bubble).

The profile page shows how many votes and compliments a user has received.

“OMG, it was total choco-gasm!” — the NYTimes points to this as representative of the crude reviews on Yelp.  But Yelp succeeds precisely because of witty quips like this.  They’re fun to read, and they’re fun to write.  Yelp gives its users a chance to exercise and develop their unique voice. Yelp is Xanga/Blogger for the 21st century.

Yelp is a form of self-expression (and also justification for trying new restaurants or ordering that extra dessert which sounds oh so good).  But users don’t want to write in a vacuum.  People want to be acknowledged for their contributions.  People want to know they’re making a difference in the lives of others.  And Yelp makes this happen with votes and compliments. As Becca S. notes,  “People tell you you’re cool, you’re funny, you’re a good writer.” The key to the Yelp equation is the successful gift economy centered around positive reinforcement from other users.

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The real truth can be found via Amazon.com’s Meters which are tracking the sales of presidential face masks!

Obama is ahead right now, 56% to 44%.

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