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Mike and Jeff finish breaking down the three key existential threats facing the mattress industry.
This podcast exposes the most insidious and least understood threat of all. Part 2 of 2.
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Full Transcription:
[Jeff Cassidy]
Mike It Up, it’s going to have a whole bunch of different meanings as a verb, to Mike It Up. That’ll evolve over time, I think-
[Mike Magnuson]
What do you think it will mean?
[Jeff Cassidy]
Well obviously, screwing up is obvious. That’s obviously the first one.
[Mike Magnuson]
That’s what it already meant. That’s why we named the podcast-
[Jeff Cassidy]
We’ll see other ones as we go. So let’s jump in here, the third threat everybody’s anxiously awaiting.
[Mike Magnuson]
I know, I know. So top three threats to the industry, if you missed the last episode we covered, why ultra cheap mattresses are threat number one. And why amazon, which is coincidentally or not coincidentally the largest purveyor of ultra cheap mattresses, but for its own reasons is a separate and distinct threat number two. And today we’re going to talk about threat number three, which is a different breed from those last two, it is review sites. Now review sites are, you know people were pretty surprised the first time I came out and said that review sites were a big threat to the industry, partly because they’re thinking well aren’t you guys a review site? And yeah we kind of are. But we’re a different kind of review site, and so far we really have, I mean gosh when I started this 12 years ago… This was all about providing consumers with a really truly trustworthy source of information to help them navigate this category. And separately from that, I believed that by doing that, we could also create a way to help good companies get rewarded for all the good things that they do. Specifically by adding transparency to this industry in the form of independent trustworthy information. I believe that would ultimately reward good companies for those good things. And probably the only way, I still believe, for good companies to be rewarded for making and selling good products and standing behind them. So those two things have been fundamental to our mission from day one, and continue to be fundamental to everything we do today, but along the way I never anticipated that the category we occupy would be joined by a an army of spammy sites that are going to call themselves review sites, or that do call themselves review sites, but do not embody any of those same values to the best I can tell. And specifically, they embody some much more deceptive values that are completely abhorrent to me.
[Jeff Cassidy]
One thing to note there as part of why you started Goodbed, part of that objective third-party information, to help good companies succeed a major piece of that was customer reviews. So the term review site can be confusing, because when you say review site, we are the largest source of customers… largest platform of customer reviews, as it relates to the mattress industry, both products and stores. So we’re very much the only review site in that sense, but the review site that you’re talking about is something different. I think it can be confusing because of that word.
[Mike Magnuson]
When I started Goodbed, consumer reviews were the only thing we did and the only thing we ever envisioned doing, as it relates to reviewing. I had no intention, you know full you had to drag me kicking and screaming, into the idea of reviewing products ourselves. Because I just felt it was not our place to be a gatekeeper, I felt like this is up to the consumer to weigh in. We’re going to provide the best platform the world has ever known for collecting and making reviews useful for consumers in this category. So that’s what we were about, and it wasn’t until our hand was forced by these guys, they came out and provided a bunch of really spammy reviews that were essentially disguised as sales pitches. To me they were very thinly disguised, but to the average consumer, were so well disguised that the consumers had no idea that’s what they were. And so we felt compelled that we had to go into this. And that’s the history there, but I do feel that we’re kind of burying the lead as it relates to review sites being a threat. We got off on this sidebar because I think it is a relevant thing to clarify up front how we distinguish ourselves from those guys. With all that said, why are mattress review sites such a big threat to the mattress industry, and to answer that question we have to first kind of make sure that we’re all on the same page about what these review sites are and how they operate really. And fundamentally, these review sites are just flawed from the beginning, because they are built around the notion of declaring a mattress good or bad, which is fundamentally flawed. As well as creating lists of the best mattresses, which again is fundamentally flawed. Why are those two things fundamentally flawed? well because, as probably most people listening to this podcast know if you’re in the industry, you would know that of course mattresses are highly personal. The best mattress for you can be terrible for me and vice versa. So there’s no one mattress that’s going to be best for everyone, and therefore there’s no way for me to provide a rating of a mattress and say hey this is really good. Good for who? good for me doesn’t mean good for you, so who is it good for? It doesn’t make any sense to give a mattress a universal star rating, likewise this is a list of the best mattresses, best for who? The best for me are different from the best for you, so who is this the best for? it doesn’t make any sense. Even if you try to parse it, based on like best for side sleepers, best for you know couples, best for whatever, that’s not nearly enough level of granularity, as again anyone who’s in the industry doing an earnest job of trying to help consumers find the right mattress for them, already knows. I’m not telling you anything you don’t know, but at the same time this is something that most consumers don’t know.
They come into this category, they’ve not thought about this since 10 years ago, when they last purchased a mattress, they don’t have a rubric for this, they’re not educated about mattresses, and they come into it generally trying to apply a lot of the shopping rubrics that they’ve used successfully in other categories, and one of those increasingly has been searching for the best whatever. And they’re accustomed at this point, to finding lists of those, finding expert reviews of things that will give a product a certain number of star ratings from some sort of “expert”. And they’re accustomed to finding those things very useful, now those types of ratings and best lists in other categories, I have found and you may have found as well, actually can be useful. But they’re only useful in the case of products that are a different kind of product, that are non-personal products. Meaning products where we kind of all want the same thing out of that product. You know when it comes to a wireless router, we kind of all want the same thing, we all want one that’s going to be reliable, it’s going to work all the time, it’s going to have a good range, you know your devices aren’t going to get kicked off of it, whatever, like that it’s going to be easy to set up, these are all things we all want. There’s no there’s no personal preference, it’s not like oh I want a washing machine but I don’t want it to be too fast, or get my clothes too clean, I’m more of like the one who wants the clothes less clean than… We all want the clothes to get clean. So somebody can review consumer reports, can review a washing machine and give it an assessment of how clean the clothes get, that is equally valuable to all of us, it means the same thing, they can then aggregate all these different assessments into an overall rating. And while while some features may be more important to me than they are to you, the overall rating still makes some amount of sense, you know they can kind of tabulate something together that makes sense, and they can put that into a best list, and maybe everyone shouldn’t automatically buy the one that’s number one on their list, because maybe you have slightly different priorities, but certainly choosing from among the ones that are highly rated with a methodology like that, can make some sense.
In mattresses it makes no sense. More than that, because they are oriented around this approach, and because there really is no good way to assess mattresses with that approach given their personal nature, it inevitably leads to these guys ending up becoming pay-to-play recommenders. It’s an inevitable outcome of trying to apply that model to a category for which that model does not apply. And as a result they are basically, not recommending products on any kind of basis, other than hey this product makes us a lot of money. And they are optimizing everything, their economics are optimized for that, for how much money they make. Well guess what that makes them? that makes them a retailer. They’re just selling, they’re telling you to buy the product that makes them the most money, and then the content is going to be optimized to get you to buy it, so that they make the most money possible. They’re a retailer, the only difference is that they are disguised as an “unbiased” review site. That disguise is what gives them a massive and unfair advantage over retailers, and creates a grave threat to retailers, and we are going to talk more about that in some future episodes.
I’ll give you an example of how that creates a grave unfair advantage for them, if two companies, your company as a retailer… Let’s say they, as a review site, are bidding on the same keyword, well they put the word “unbiased” in their ad, that’s going to give them a higher click-through rate on that ad. And Google’s algorithm for ad words is designed to factor in click-through rate, as it relates to how much it costs you for that click, because Google’s algorithm is optimized for their own economics. So Google’s trying to decide which ads to show, and that’s a function of how much they get for a click, and what percentage of people who see that ad click, so if more people see that ad… more of the people who see that ad click on it, they don’t have to pay as much for click for the same position. So their ability to use that word unbiased gives them an unfair advantage in that position in the paid search results. Not only that, they have a huge advantage once they get someone to their site. Because again when someone lands on your site, you say great things, and people go oh well yeah but they’re selling, so of course they’re going to say that. Someone lands on their site, they see great things and they go oh wow and these guys are unbiased, and they say that wow that’s really compelling, and of course they have a higher conversion rate as a result of that. Because of the fact that they have a higher conversion rate, they can actually afford to bid more, even more for that ad click than you can, so they’re getting it both ways. And it all stems from an unfair competitive advantage, an unlevel playing field, that is the reality of the current situation. On top of that, there’s a whole situation for retailers where these guys are you know… their one skill essentially is SEO, they don’t know, I’d argue they don’t know jack about mattresses, most of them they don’t know… literally a lot of them don’t even have the product, but even the ones that do, it’s just a bunch of 20 somethings you know… How do we regurgitate the marketing claims for this product? okay let’s do that, got it. That’s not a skill, their only actual skill is SEO and not only are they skilled at it, but they’re also willing to cut corners, and break rules, deceive customers, and in some cases even do kind of illicit types of things.
[Jeff Cassidy]
What are some examples of that? We are you going to get into that later-
[Mike Magnuson]
Oh well you’re not supposed to buy links with Google, right? Like that’s the cardinal rule of Google, because their whole system of credibility is based on the notion that links infer credibility, right? If someone’s linking to you then that must mean that you are authoritative, and so they aggregate all that link data across all the web, every link passes some amount of authority, so pages that have a lot of links coming into them have a lot of authority to pass, and so if they pass authority to another page, then anyways… that all gets passed around kind of a link juice type of a concept, and the pages with the best link juice rank the highest, all else being equal as it relates to the keywords on the page and everything that matching up with the query that the user entered. But if someone can buy a link, well that just completely undermines the whole foundation on which Google’s algorithm is built, because that doesn’t infer any authority at all, that just means you bought it. So if you buy it on the down low, or if you buy it through some kind of back door, like you acquire a company that had a bunch of links that got them under a totally different pretense than you, like they got them because they’re a non-profit. But you’re a mattress review site for-profit, you know that’s totally different, no one was meaning to link to you a for-profit mattress review site, they meant to link to a non-profit you know doing something very different. But now you own that link, well you essentially bought that link, and that’s a direct violation of Google’s rules, but they’re willing to do that. They’re willing to break those rules, they’re willing to mislead consumers by using .org domains that give consumers the idea that they are in some way a non-profit themselves. They are willing to, I call it like med washing, they’re rinsing their website in like medical terms and medical discussion, to kind of give it this patina of credibility, that comes from this discussion of medical type things, so it gives people the sense that oh these guys must be really authoritative, because they’re speaking about these medical terms and these medical topics. It’s all BS. It’s all just an elaborate sales pitch. But again, they’re doing these things, and by the way that’s also to me that’s unfair, because a truly credible authoritative retailer, or seller, or person, you’re not going to want to do any of those things, and you shouldn’t do any of those things. But they are doing those things, and they’re benefiting from it, and that again is an unfair advantage. So there’s all kinds of unfair advantages.
By the way, going back to the SEO point, this is a critical thing because they are willing to cut these corners, and because they do have a certain skills in this, in this SEO area, they’re outranking web retailers. And they’re making it in a world where people are starting their journey online, and in many cases completing that journey online, without ever visiting a store. They’re making it harder and harder for people to ever even find your store, at the point in time when they need to find it.
[Jeff Cassidy]
And those things that you mentioned they’re reinforcing to each other, right? The more links that I get, the more authority I get, the more Google trusts me, which makes it easier for me to rank high, and with the consumer the higher I rank without appearing as an ad, the more the consumer is predisposed to trust me. I’m getting the benefit of appearing, I’m also getting the benefit of earning more trust and more believability with my unbiased claim. It’s like a double whammy.
[Mike Magnuson]
Yeah and speaking of double whammies, not only are they outranking retailers in search results making retailers then harder to find, but every time a consumer lands on one of these review sites, they become incrementally less likely to ever visit a physical store. I believe because the second they land on one of those sites, they’re getting kind of indoctrinated into this sales pitch without realizing it’s even a sales pitch, that they should be buying one of these products that this site covers, which of course the ones that they cover positively are the only are the only the ones that they make money from, which are the ones that sell online, and they’re getting indoctrinated into this this philosophy that ultimately is designed to dissuade them specifically from going to a store. And specifically, to buy one of these products that this site is touting, which is one of the ones that they can buy online so that this site will make money. Consumers will land on these sites many times, multiple of these sites, and each time they do they’re reinforcing this message that oh you shouldn’t go to a physical store, so that’s another double whammy if you will.
And then I guess the other thing, from the brand standpoint, there’s no end if you have a pay-to-play model. If the model is the brands that are appearing at the top of this list are the ones that make us the most money, and by the way some of these guys will try to use a defense like oh it’s not just the ones… we don’t necessarily rank you the highest if you pay the most commission. It’s a combination of the commission, times what percentage of people who see this list buy that product, that’s actually a defense that some of them have used, publicly even in the press. It’s laughable because well that’s still pay to play. You’re still maximizing your own economics, it’s just that you’re factoring in two criteria that multiply together, to give you your ultimate revenue.
[Jeff Cassidy]
And to be clear, a business maximizing its economics, I mean that’s what a business does. That itself is not bad, it’s doing that in a way that the consumer has no idea that it’s actually in the business of doing the unbiased objective thing the consumer thinks that they’re doing.
[Mike Magnuson]
This is the kind of comment I hear like at a cocktail party, not from someone who’s using our website. At a cocktail party, oh you’re in the mattress space, I want to talk to you about the mattress I just bought. I know it’s so great because it was on the top of the list for like five different websites that I went to. At a cocktail party, mattresses are the last thing I want to talk about, so right off the bat I’m already dreading and hating this conversation. Now I have to break the news to this person that you didn’t find the best mattress, you just found the mattress that pays these sites the most money, and that sucks even worse. So I have to ruin their night, they’ve already ruined my night, now I have to ruin their night, it’s just terrible.
[Jeff Cassidy]
Everybody just goes home-
[Mike Magnuson]
Everyone just goes home all pissed and annoyed, it was a terrible party. Anyways as Jeff pointed out, it’s the disingenuous nature that this is not in any way clear, the consumers are presented saying this is the best mattresses, we’re unbiased, we’ve tested them, we’ve come to this conclusion, trust us, that’s what they’re being presented with.
[Jeff Cassidy]
But also it’s interesting and unfortunate, I mean one of the reasons why online brands took off was because of the negative stereotype of the in-store mattress experience, so the sleazy salesman bias. Where people, because the mattress is hard to know exactly what it is, like you said earlier nobody knows about mattresses because they spend once every 10 years purchasing. So it’s a big unknown and they know the person in the store is a salesperson who’s selling them something, so that led to this big bias, that led to people not trusting the mattress retail experience, and looking for another option. And that was the online option, and now what’s happening is the same exact thing that led the consumers to want another option,it’s just they have no idea.
[Mike Magnuson]
It’s super ironic, that this channel that in some ways grew out of the dynamic you just described, where people were distrusting this what they considered to be like a sleazy sales type of environment. Well, it’s super ironic that the sleaziest thing happening right now in this industry, for sure in my opinion, is these review sites. And by the way, it’s way sleazier than anything that was happening previously. It’s far sleazier, because say what you will about the stereotype of the sleazy mattress salesman, well at least everyone knew that person was a salesman. He didn’t try to hide that fact, this is completely worse than that, no question about it.
I just came back to this point about why pay to play also enhances the threat, well because if they’re optimized for that, where the highest paying is shown at the top of the list. there’s always this opportunity where someone else can pay more, right? Well, that just is a never-ending war of attrition effectively. There’s no brand building left at the end of that, it kind of goes back to the whole like low cost, who can strip the most cost out of the rest of their value chain. In other words, who can disguise their product, put less into the product to make it worse, but still look okay in order to strip as much cost out of the rest of the value chain so that they can leave as much in the value chain for paying these guys. That’s where that leaves us. It’s a terrible destination for the industry, and the more powerful these guys get, the more likely a destination that becomes. This is a huge threat to the industry and by the way, the other thing we should talk about is how this threat has changed in the past year or so, like the just how the threat has grown from these guys, I mean they’re exploding in numbers, there’s now over 140 of these different websites. Can you believe that? 140 mattress reviews websites. That’s just insane.
[Jeff Cassidy]
You’re putting in that bucket Jeff’s mattress review site if I had one? you’re counting all those-
[Mike Magnuson]
I’m counting anyone and everyone that has a website, a domain that is specifically focused on mattresses providing reviews. That’s what I’m counting.
[Jeff Cassidy]
It’s crazy.
[Mike Magnuson]
So the category overall 140 dedicated sites focused on mattress reviews at least, that’s just the ones we’ve tracked and have on our list. So that’s exploding, and it’s just insane. The revenue that these sites are collecting obviously, is exploding. Also we should add that these guys are becoming more and more well-funded, we’ve actually got outside capital coming into the category, which is something new given especially the magnitude of outside capital coming in, and it’s coming in from professional investors, some of the firms that used to be in the same space that I used to work in in fact have come into this. There’s consolidation being funded here, portfolios of these sites, and that in itself is a frightening thought. These guys are trying to say, hey it’s not enough for us to have the number one spot or the number three spot in the Google search, we want to have numbers one, two, three , four and five. And the only way we’re going to do that is to have five different domains, that have effectively the same content, I mean it’s content with the exact same objective, with just different domains that the consumer’s not going to know and Google’s not going to know, are the same company just spinning the content a slightly different way in order to dominate that search page. And that’s their objective, that’s the only objective that one can have in having multiple sites designed to cover the same exact category. I mean there’s literally no other objective you could have. And so they’re doing that, and that’s going to give them even more power to the extent that they are able to succeed with that strategy.
[Jeff Cassidy]
Think about how they consolidate a portfolio of these, imagine that they have 10, and then they become better and better at SEO and all the tricky tactics that you talked about, well now the consumer who’s everybody’s starting their mattress buying research online. They go to Google, they have no idea that they hit best mattress in every one of the 10 things that appear are actually one company, so in the physical world it’s like what these guys are doing are basically taking up every single storefront at that high traffic spot, and pushing your store to where the industrial part of town is where there’s no businesses. They’re taking up, and the consumer is thinking oh these are all different stores, I can check all these different stores and get objective information, they don’t have any idea that it’s all one company.
[Mike Magnuson]
As an interesting aside, if you’re familiar with the media space as I am, there’s a long history in our country of actually regulating media to make sure that there’s adequate number diversity of voices in a market. So that has applied to radio ownership, television ownership, newspaper ownership, it’s not been allowed for radio companies like clear channel to own more than a certain percentage of the listenership, in any given market. Because they wanted to make sure that there wasn’t too much concentration of voice, like if one radio company bought up every radio station and they just wanted to tell people that like this is the truth, well they’d be able to tell people that and in the days of radio and the radio era, that would have been the only information people were getting. So they specifically came up with rules to say, no you can’t do that, we’re going to make sure we have diversity of voice, well the front page of Google is essentially the modern day radio dial. We’re essentially living in a radio era again except for now it’s Google that is the single and sole source of information, at least as it relates to this category, because it is where every consumer starts. That is something that in the past the government has actually consciously regulated, and now it is completely unregulated, and we’re seeing the negative effects of that.
[Jeff Cassidy]
Another thing that surprised me a little, it it doesn’t when you think about the maximizing your returns as a business entity, is that this issue that we’re talking about it’s not just the mattress category, it’s lots of categories, so that professional investment private equity investment and portfolio building, is happening across verticals, across industries, so the same company is replicating that same portfolio concept in lots of different areas.
[Mike Magnuson]
True. It’s worth adding though that I’ve asked every person, almost every person I meet who’s worked in another category and comes into this category, and is familiar with this kind of marketing dynamic in this category today, I asked them the question: How does this compare to other categories you’ve seen? And two in person, I have never heard anyone tell me that they’ve come from, or ever worked in, an industry that is as bad as this category in this particular regard.The bleeding edge of spammy review sites is happening in the mattress industry, congratulations everybody listening. Anyways the point is, we are experiencing this quite possibly worse than any other industry is experiencing this particular regard. The other thing and along those lines, part of what people are answering when they talk about that is they’re talking about the level of deceptiveness that’s happening in this category, it’s not just that there are review sites, it’s the level of deceptiveness of the practices of those sites. And we talked about the black hat stuff, breaking the rules and cutting the corners and all that, we talked about even things like misrepresenting themselves as nonprofits or charities and things like trying to trick you, or the med washing and things like that. But another thing by the way, is the corporate ties, the ties where these review sites in many cases have ties to mattress brands, typically online mattress brands, that are not disclosed or at least not prominently disclosed, as the way they in my opinion absolutely should be. In some cases they aren’t disclosed at all, and that’s a whole other level, I mean that’s almost mind-blowing because anyone looking at that can see how that’s not right. But nonetheless, that is where we are. For all of those reasons it is incumbent on us, we feel, to help the industry see that this is a massive threat and it is truly an existential one to all involved. Like so many of the other things that we identify with, we always see things from the standpoint of both the industry and the consumer, and here again is a case where both sides are injured by this, very much injured. In terms of, by the way, what can be done about this? We’ll talk more about this I imagine in the future, because it’s such a big issue that faces the industry, but we do think ultimately educating consumers about these practices, what’s happening with these sites is super important. We would encourage retailers to help get the word out to consumers about what’s happening, and not only through training your sales people, but also putting information on your website to this effect, to help people understand this. Because for that matter, if you don’t put it on the web, people may never meet your sales people. And even beyond that, PR efforts to help tell this story through the press, I think is going to be needed.
[Jeff Cassidy]
It’s also unfortunate that some of the things that you said, like acquiring non-profits in order to acquire the link juice and domain authority, that anybody with internet access can pretty quickly find that out. If you just do a little digging, Google obviously can figure that out, if any one of us can figure it out. So why haven’t they done something?
[Mike Magnuson]
How there’s not a Google search engineer who has figured this out and just wiped these sites off the face of the internet at this point? I mean if not algorithmically, then through some sort of manual penalty, how that has not happened is beyond me. How the FTC has been completely asleep at the wheel on this, is completely beyond me. It’s long since past time for these key gatekeepers to do their jobs, and to step in here in my opinion.
[Jeff Cassidy]
Yeah it’s not it’s it’s not about hardcore regulation, it’s more to your earlier point, it’s just gone too far and the consumer is really being hurt by it. Like really being-
[Mike Magnuson]
As far as regulation goes, look I’m the last person who wants to invite more rules, and more red tape. But again this is like a game of streetball where some people are just punching people in the face. I mean it’s just, it’s a flagrant violation of the rules, to not disclose some of these things that are not being disclosed for example is crazy. I mean I know what the tests that the FTC says for disclosure about what types of things you need to disclose, and how prominently they need to be disclosed, and in my judgment there’s just no way you could look at these sites and say that standard is being met. So at some point, where is the repercussion of that? Where’s the consequence? Who’s going to hold them accountable to that?
[Jeff Cassidy]
The other piece about what can be done is, to improve the things that we do that are not shady, in order for the traditional industry, traditional retailers, to have a better chance of taking some of those slots on the first page.
[Mike Magnuson]
Absolutely, as a great point that we should add here, deciding to speak up about this has caused us to of course reflect on what we could do to help retailers compete in this environment? What can we do that doesn’t involve sinking to their level? That allows us to continue to maintain integrity here in all of this, and allows retailers to maintain their integrity in all of this, and one of the things that we are going to be doing is helping retailers get reviews from consumers, right? That’s the original third-party validation. Because fundamentally, what these review sites… the gap they’re filling in the market is that consumers want third-party validation, like that’s clear from their search for reviews, they search for ratings, best mattress comparisons, whatever it is they’re searching for, it’s all about third-party validation. It’s hugely valuable in this category, so that’s what gives these guys the opportunity to do the deception that they do, but the original form of third-party validation as we’ve talked about is, consumer reviews. If we can help those retailers get reviews onto their sites, collect reviews from their customers, that’s a way that retailers can compete successfully, with integrity and provide consumers with information that really is helpful to them. That also helps their sites to your point stand out more in Google results and win on that battlefield too. There’s a lot of problems we can help solve for retailers with that, so we are taking our platform and making it available to retailers, and we’re building tools to allow it to be even more useful in those in those ways. and That’s something super exciting that we can’t wait to share with more of you.
And then for that matter too, we should also mention that we’re creating even more ways for retailers to stand out for people who are on Goodbed, we’re creating ways for people, for retailers, for consumers who are shopping on Goodbed. We’re creating more ways for retailers to get discovered in the context of the shopping that they’re doing on our site, so that’s again something that we look forward to talking with more of you about. If you’re not already connected with us and aware of those things, then definitely reach out and we will bring you in the loop, we’ll be rolling out some new things in the first part of this year.
[Jeff Cassidy]
And to the existential threat piece of this, our whole business is based upon integrity, honesty, and trustworthiness. And our personal values, that’s what our personal values are, so we will never do those shady things. Therefore we can’t compete on those shady things, we are completely in the same boat, like with traditional retailers, if it puts traditional retail out of business, it’s also putting Goodbed out of business.
[Mike Magnuson]
We’re all in. Our chips are in the middle of the table there’s no question. We’ve said, hey we’re going to basically get the industries back, and hope that they get ours, and hope that together we pull through this successfully. But yeah if the industry goes down in flames so will we, for sure. We couldn’t be more aligned. There we go, that’s another episode of Mike It Up in the can here.
[Jeff Cassidy]
Although we still need to continue the mag’s invention of podcasting, and I think we were at-
[Mike Magnuson]
Yeah that’s right, so in our last episode we were at the point in the story where I had anticipated podcasting would be something along the lines of podcasting would be coming, kind of short form spoken word audio, that could be consumed asynchronously in some sort of mobile device, that’s what I was looking for. It eventually was invented, named podcasting. I got connected immediately with the people who were kind of at the forefront of that at that time, which was 2003-2004. By early 2005, I had signed a term sheet with the leader at the time in that space, really kind of one of the first companies to be created in this podcasting space, which was co-founded by a guy named Adam Curry an MTV DJ from the 1980s, who had refashioned himself a podcasting guru, and we had signed an exclusive term sheet to fund his business on behalf of the private equity firm I was working for at the time. And that was no small feat, again I talked about this last time but to convince my partners who were kind of more of the old school, they come from you know cable and radio and more traditional media backgrounds, so to convince them that this thing podcasting which 12 months earlier hadn’t even been a word, was going to be like the thing we should invest in, was was no small feat. And yet they got on board with it, they saw the opportunity, so I was pleased as a young guy, I was pleased with that.
At that point in time, it coincided with spring break my family and I went on vacation, but I continued to listen to Adam Curry’s podcast while I’m on vacation, because you know I was deeply invested in the space, and he was the leading podcaster in the space, and I had just signed a term sheet with him to back his company that he was starting and you know, so keeping posted on his on his podcast as well. I’m listening to it a day or two into my vacation, and he is talking about how he’s flying to San Francisco, and he’s going to take some meetings in San Francisco, and then the next day he’s talking about how he’s headed down to Sand Hill road. I mean my ears had already perked up when he said he was flying to San Francisco, but when he said he’s going to Sand Hill road where all the venture capital firms are in the bay area, I thought what the heck is he doing? We’ve got an exclusive term sheet that we’ve signed, there’s no reason to be going to Sand Hill road, the story continues though, he continues this in his podcast, he says yeah so we walk in our first meeting is with kleiner Perkins and we had a great meeting with them, and then we had a meeting with Sequoia that’s another really famous venture capital firm, arguably the two most famous venture capital firms at that time, and those went great. And I’m livid at this point, but I’m also sitting at a pool in Mexico, not exactly well equipped at this time to do something about this, so I’m emailing, I’m calling, I’m trying to get people from my firm to figure out what’s going on while I’m on vacation. Well you know, long story short, I came back from vacation, they went radio silent on us. By the time I get back from my one week vacation, they’ve received a term sheet from Kleiner Perkins and Sequoia together to fund them with even more money at a better valuation.
[Jeff Cassidy]
Couldn’t you-
[Mike Magnuson]
At that point I mean, we had legal recourse but at the same time it was only a term sheet, that’s a rather informal document in the in the world of finance, there is some legal recourse to exclusivity in that regard but it’s not like the remuneration is super high for violating that particular thing. So it was a question of is it worth pursuing that vis-a-vis the costs, not only legally, but like y from the standpoint of whatever business relationship you might have.
[Jeff Cassidy]
Did they give you the opportunity to participate in that deal? together with-
[Mike Magnuson]
They did not. We were completely shut out. In one respect it was hard for me to fault them, in the sense that again these were the two most prestigious private venture capital firms on the planet, and they were giving them better terms than we gave them. But from an integrity standpoint to have signed that with us, and then to go ahead and do that so brazenly was just obviously a very scuzzy thing to do. So I was pretty disappointed.
[Jeff Cassidy]
Yeah I can imagine, well you should feel good about the fact that your instincts were right, but don’t give away any of the rest. We’ll see what happens longer term next time.
[Mike Magnuson]
Fair enough, alright. On that note, we will wrap up this episode of Mike It Up. We thank you for listening as always, and we remind you, if you like what you’re hearing please subscribe. You can subscribe to whatever podcast platform you prefer, as well leave us a review. We’d love it if you could share your feedback as well, it also helps other people find this podcast. Thanks for listening, stay tuned for the next episode, we’re out.
