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VCs investing in RSS - June 24, 2004

So, yesterday NewsGator announced they had closed a "round of funding" with Mobius Venture Capital. They're using the money (no telling how much) to "expand their product set and market position in both consumer and enterprise content aggregation." Other companies with a foot in the RSS world, notably Technorati and Feed Burner, have also received a bit of venture funding. Again, I'm not sure how much, but I'd be willing to bet that none received upwards of $5 million. Update: according to Red Herring, NewsGator received seven figures in funding - wow, that's a lot of $5 per month accounts.

There was a lot of buzz about the funding. Ross Mayfield mentioned that the investment activity is on the "fringes of RSS" and predicts more announcements in July. Jeremy Zawodny ballyhoed the "potential" of RSS technologies, and commented that the VCs, who need to put their money somewhere, are making "one of the better bets this year" on RSS. Jeremy took up the RSS banner after reading rtwodtwo's skeptical post, where he wondered about the exit strategies and revenue potential of RSS technologies.

Oddly enough, I have a lot of ideas about this ;). With Jyte, we've thought about going after VC money - you can't rule it out, as a startup - and spent plenty of time mulling the revenue potential. I have a couple of Wiki pages on revenue ideas. I think the smart money isn't placing any long-term planning on selling to consumers at $20 or $30 a pop - there are too many great free RSS readers available. Nor do I think that aggregators will make billions on enterprise software.

You want to know what I really think? First, I think the Newsgator investment is pure exit strategy - it's an Outlook plugin, why not sell to Microsoft? It was my first thought (my first question is always, "what's the exit here?") when I came across the software. I'm sure the folks at Mobius Ventures have at least considered it.

Second, I think that the money will come with a number of things. Good aggregators can be the ultimate medium for targeted marketing. No, we don't have marketing yet, and no, I don't think adds in RSS feeds are a good idea. Not in the feeds. In the aggregators. Unobtrusive, anti-popup, without spyware - just good associative marketing. I have visions of little scrolling text ads for local political candidates when you view your local news feeds, the day before the election. And I have visions of aggregators that let you view article summaries from premium providers and then pay a few cents each to purchase the article. Or how about aggregators that let you create your own personal feed with articles from all over the web - combining news and blog posts, like a link blog but with far less work on the part of the creator.

Of course, any good business plan has at least a little revenue coming from enterprise sales. There will be a great deal of competition here, and nearly as many different takes on monetization as with customer service software two years ago, or auction services today and in 1999. It will run the gamut from selling a way to help communicate with employees to selling publication services for press releases, targeted advertisements and warranty information to existing customers, and niche news publications to the heady and vague McKinsey-style "knowledge management."

And then, there is blogging. How many aggregators will include a Comment API and other important blogging tools? Many, I'm sure, as most current aggregator customers discovered RSS and Atom while blogging. There is money in blogging, I predict, lots of money - way more than ever was in creating small business web sites.

Will RSS itself be the next big thing in venture capital? Probably not, but a lot of companies that have a toe dipped in the RSS pool will be making money, and I hope, no, I expect, that ours will be chief among them.