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Hardcloud.com, Jim Kempton's wild ride...

It had all looked so promising....Create a surf/skate/snowboard website seeking revenue through e commerce, banner sales etc., etc. And as late as August of this year, everything seemed to be going as planned. The San Francisco Chronicle was pumping start-ups Swell.com, Hardcloud.com, and Bluetorch.com as board sport enthusiasts were embracing Web technology in ever greater numbers. But by mid-September, over the span of eight days, Hardcloud and Bluetorch handed out 129 pink slips. Bill Sharp's "End of the Innocence" in SurfNews dissects Bluetorch's crash and burn with clinical precision.... Questions remain. How could these deep pockets, super sites fail? Was it for lack of vision? an audience? Techno-lag? weak industry support? hubris? In the case of Hardcloud, it wasn't for lack of talent or nerve. But when the venture capital ran out and none of the sites had been able to partner with each other or with the industry print powerhouses, their fate was sealed. And so it ends, an amazing chapter in surfing history.Proexchange interviewed one of the key players, Hardcloud's Editor-in-chief Jim Kempton to try to find out what might be instructive to future surf/action sport website developers.

BC: Jim, you were a longtime editor of Surfer Magazine, correct?
JK: I was the editor and then publisher of Surfer for eight years.

BC: How did you find the transition from print to dot com ?
JK: It's pretty interesting. One of the mistakes or one of the big changes that has happened in the last couple of years is that people have realized how important to be able to communicate to an audience is..and not just be able to technically hook them up. So I think more and more you/re seeing real editorial people, real audience gurus come in and present content that has more of a focus on a specific audience. And certainly from an editorial side, you find out HOW much more complicated producing "E" editorial is to print editorial.

BC: How so?
JK: If I could give you an analogy...its kind of like going in and realizing that not only do you have to RUN the printing press but you have to BUILD IT before you can run it.

BC: And there are MULTImedia aspects to it...
JK: Certainly. You're doing video, you're doing audio, you're doing print material, you're doing live streaming, you've got real time considerations AND...the deadline is always NOW. Because, there IS no excuse for not having material. Its not like you're waiting for a print deadline and you can't get the news magazine out or the newspaper out because you wouldn't have been able to make them put it on the press. Now it's a race against real time.

BC: How did the name Hardcloud come about?
JK: There's two versions, which one would you like?

BC: Yours.
JK: The story is a "Hardcloud" is a term they use when you look out on the ocean and you see the real distant kind of atmospheric clouds that are real billowing and they have a "hard" bottom to them? They are kind of like just a straight edged bottom? What they are indicative of is atmospheric CHANGE.

BC: ....A conceptual name...
JK: Yeah..now that was decided upon after every other names we wanted was ALREADY taken.

BC: But some new developments have happened...Would you care to talk about that?
JK: Hardcloud has shut down... and the reason was PURELY financial.....And I kind of want to emphasize that only because there were allot of really talented people from a variety of different kind of.... pools that came to work at Hardcloud...from the tech end of the business to the Internet strategy end of the business to the content side of the business. And they ALL succeeded....I think...exceptionally well. The team that brought in the content was in my opinion THE BEST group of content providers that this industry has ever had in any media.....But unfortunately we were building something on a very, very large scale.....We were looking to scale up and be a MAJOR player in a very, very short period of time so we had a huge run rate, a huge burn rate and we were in need of having huge, huge financing within a relatively short time. And we had the unfortunate timing of the February BLACK Monday...and we were not able to secure CRV financing for the group in time before we eventually ran out of money.

BC: Are there any names that you would like to single out for special commendation?
JK: Well, just about EVERYONE. There were so many, its really hard to pick. But certainly on the tech side Mosado. On the content side we had Andy Lundberg and June Morrison and Michael Martinson. All were really outstanding editors in various department in surf, skate and snow. We just had a fabulous team. They all came from the top of their fields. They were pros..This allowed the company to virtually gear up an be operational in a matter of a couple of months and in relative terms it was like building a magazine from scratch but producing six or seven issues at once That's what the level of the talent was. All I can say is that the level at the technical and marketing end of our company was equally as strong.

BC: Do you think the site was just ahead of its time?
JK: What I think it is right now is just a huge resistance in the market place in the VC community to invest in anything that doesn't have immediate profitability. Anything long term, I think they are really scared away. Particularly by sites that don't have a very visible income.

BC: Yet just recently Hardcloud and Swell.com were acquireing allot of smaller surf websites. In fact I interviewed Ted Deits, the cyber kahuna from Surfcheck.com a few moments after he sold the site to Hardcloud. I'm curious how much was paid for Surfcheck?
JK: I actually don't know the details on that. I know that it was in the seven figure range.

BC: Did Surfcheck bring the anticipated eyeball traffic to the Hardcloud site?
JK: ....It did...Again as I say, one of the sad things is that we were growing...We were doubling every month in terms of unique visits and no sigh of letting up on that. We were on pace to do 350,000 unique visits in the month it was shut down. So this was not about a failure in the popularity of the site, of the quality of the site or on account of the personnel. It was strictly a case of running out of money.

BC: Did you feel that this "immediate return" criteria that the VC's are using is a barrier to developement of site's like yours.
JK: Probably. But with understandible reasons. You know the VC community in my opinion, has been unbelievably naive about throwing their money at the Internet. 90% of the sites that have GONE PUBLIC, dealing with that community, are no longer in existance. And the end result is that you see dozens of sites shutting down. And many of them are simply because they don't have any income stream at all...or even that profit was not even part of the business plan. On top of that I think you could take the kind of talent, the kind of money, the kind of investment that was put on the Internet, you could send a man to Mars and start a whole space colony. So any time you take that much talent and that much investment, you're going to have allot of progress...but PROFIT is another thing...

BC: How do you think this profitability problem can be worked out?
JK: One of the things that people are going to have to recognize is that the world is not as ready for a full scale assault that the Internet can try to put as everyone necesarily thought. One of the problems with a site like ours is the technology lag...very few people have the kind of broadband capability that allow them to utilize it. I mean we're around the corner from it, maybe that's what you meant when you said we were just a little bit premature. The corner from being a truly wired world. But right now? most of the people don't have the "track" to run the big beautiful "train cars" that are being built. They don't have the broadband to run it. So were sitting on a lot of wonderful things, but there isn't necesarilly a large enough audience. And secondly, and this is on a larger scale of what I think about the web and that is, everyone on the web is information business, its a communications business and anyone who is building vast amounts of increadibly complex and terribly expensive information FOR FREE on the assumption that some day they are going to make money at it. And my position on it, is that it is just like the phone system, you're not really going to be able to make money on that information until you can charge for it. And the reason that you can't charge for it right now is 1) cause everyone else is producing it for FREE and 2) there is no AT&T system of billing so that you can go in and say, "We had a million hits a month and we're getting a dime for each one ot them" we would have had $100,000 worth of income. Would that have been a barrier to people comming to us? I don't think so at all. I think they would have paid it out gladly to get on the site.... but the fact that we didn't have a way of doing that....nor a kind of standard and unified method of billing for that means that you're really producing the stuff for free. And hoping that we were going to get enough e commerce, which everyone in the world is doing. So its like pumping some gas and hoping that the candy inside the AM/PM is going to pay the cost of the gas bill people are stopping to get. Right now they're just not sure...maybe we can build a supermarket next to your gas station. That might work. But really what you've have to do is tho get somebody to pay for the gas. Get them to pay what they are comming for and then let the market be the arbitrator of what they are willing to pay. If you call Italy, you don't mind paying a dollar but if you are calling next door you expect it to be free. I'm sure with information it's going to be the same way The really complex information, you're gonna be willing to pay for. and that which is ubiquitous, you're gonna still expect for free. But usually what that will do is finance the ability for people who build information systems and communicating systems on the web at a potential profit...to get the people to come and to look in.

BC: E commerce was the goal of the Hardcloud site?
JK: E commerce was where we were going with it, yeah.

BC: Odviously that didn't pan out to the volume you had hoped.
JK: Well, no that really wasn't it. Again, it was just a case of strictly needing time. We only had e commerce up for a matter of weeks. Again I want to emphasize that this is not a case of not enough people comming to your site, it's simply a question of, we scaled this thing needing x number of dollars to run this thing until all that started happening and we didn't raise that amount of money to stay in business long enough to see it all through.

BC: How do you feel about the people who put up the venture capital?
JK: I think they were great. I think the ones who put up the money were fine. We just needed another set and we didn't get it. E Companies are the guys that put in the money and they and I both I think had thought it a very viable program. But they also saw that we were scaled larger than we were financed to do at the time, and we needed to get that second round, and it just didn't happen. I had been frustrated that our program had been on such a grand scale. Knowing, what we know now..we could have probably done it on a smaller scale and been a survivor. In fact, what I feel is that those are going to be the people who are gonna be the winners in this game. One of the big misperceptions of the Internet is that it has, in and of itself as a medium, suddenly created a parallel universe of some sort. People don't remember it's a business which makes a profit which allows you to do any enterprise requires certain sets of rules that hasn't changed since the Babylonians were writing on tablets. If you decifer Babylonian tablets, you know what they say? Keystone! It's not any different. And to think that you're suddenly going to be able to create businesses online that don't have the same kind of, start with one "hamburger stand" and expand to the next. What the people in the Internet business are doing is saying , "If we build 800 franchises around the country, then McDonald's will buy it." That's the big theory of most Internet activities rather than, "Let's cook a really great hamburger, get a local following and expand to two to four to eight to sixteen to two hundred to eight thousand..." That's not to knock our particular investors or our particular leaders at all, that's just the way the Internet, until recently, was developing...That's when everybody knew that there were so many winners...There were so many companies out there that were snapping up those 800 hamburger stands, that everyone thought that everybody could do that...There's only so many hamburger stands you can build and only so many freeway exits where they can go. And what happens is, when everybody does it, you're bound to have allot of failures.

BC: I saw Hardcloud's double truck ad in this month's issue of Surfer, it was really impressive.
JK: Oh yeah...Again our marketing guys were outstanding. Every single person that worked on that site was terrific. There was allot of great stuff, there was allot of great momentum, there was allot of enthusiasm out in the audience sector.

BC: So now Swell.com is the "survivor" ...
JK: Well they are the current survivor (laughing)...They have their own work cut out for them. But they're certainly a talented group of people and I wish them well. I like Swell. There just kind of openning it now..but the few things they've done have been nice. But I think they're gonna redo their site in a month or so. They've bumped it back six or eight times....so its hard to say, yeah, I really love their site, cause it isn't up yet. But I like the people, and I think they have talent and I think that they, like all of us are just finding out how intense the business is. They are finding out that knowing how to make a magazine is different than knowing how to build a printing press, and then operate it perfectly from day one.

BC: From your perspective as an online editor, do you think demand for imagery and video and visual content is going to continue to increase.
JK: I think it is going to be important. I think information is the great demand. I think though, if your talking about cameras, I think that what's going to have to happen is that the people are going to have to get broadband and go beyond T1 or DSL and have real ability to download quickly. Once you have web TV then, yeah, I think there will be allot more demand. But I don't think it's gonna be now because the people who are using the net are not patient enough for downloads.

BC: Those little postage stamp sized video clips just don't quite cut it?
JK: No, they don't. And especially when you have to compress them so hard that they're practically out of focus when you get to em.

BC: Do you think that surfers are ready for these surf websites?
JK: There's a large enough contingency that are net savvy, but again, you have to separate information from entertainment. The big draw is "surfcheck" type of material. You don't have allot of entertainment. The really significant sites fall into two catagories; they fall into sites that have really, really compelling information for a particular audience...lets say, stock market results. You have millions of people checking in on those. You have surf reports or condition reports-like what's the status of buying a ticket to London. Those kinds of things. Straight informational things. Huge blocks of information you can access quickly, there's allot of demand for that.There's also allot of demand for people watching a video of surfing ...and not just because it's fabulous stuff, but just because the technology isn't there on most people's machines and the interest level isn't on a daily basis for that much material. E-commerce wouldn't be the solution to that, the solution to that would be to charge a dime for a million hits, then you'ld b a he getting a hundred grand a month, and it would be worthwhile. And if people didn't want to pay a dime, it might drop, but if it dropped to five they'ld be making fifty thousand, you know it wouldn't cost that much to put the site together. Thats where the profit position is premature, it isn't ready yet. There's no standardization.in the industry like a phone system where you can deliver a service and have people pay because they can call you.

BC: That's interesting. If somebody could come up with a mechanism that could do that...that would be a solution.
JK: Exactly. And that's why I'm saying there's two or three massive technological permutations that have to happen; One is, you've got to get literally, the line plugged into every household. The second one is, DSL, fast modem service so that everybody can get the information quickly, at television speed and quality. The third thing is you have to have ve a standardized billing mechanism where a site can go up, connect to big service mechanism, like a Pacific Bell or whatever you're local phone system is. And lets say this is what it is, for one whole page on my site is free, page two is a dime and anything after page ten is a buck.

BC: People must be working on this problem, wouldn't you think?
JK: I can't believe that that isn't happening. Cause what's funny about it is that the phone system could make a fortune doing this if they tried. I just don't think that people have figured out that's the way you're really going to be able to pay for the cost of running a website. Runnning a website is like running a magazine and not charging for it...you know?? There's just not many magazines that make money that don't have a cover price. And advertising has proven time and time again that there just isn't enough advertising...and people see that even more truly on the web because it's linear. You can't just eye it like a magazine.

BC: That's interesting. I interviewed Les Walker who (along with Bill Sharp) started up Surf News. They are doing pretty well I think. Its completely driven by advertising. A freeby, giveaway, that's really thick with tons of ads.
JK: But it's not a dot com. Surf News is a great publication and they're gonna make money on that. There what you've done is; you've reduced your costs. The thing about print when you go to newsprint like that is your production cost is negligeable. The problem with the web is there's no way to create an inexpensive website that has all the kinds of information that you need. You've got to build a fairly big engine just to scale. You've got to buy a $100K server...you've got to invest some dough. To start a little publication like that (Surf News), the costs are minimal.

BC: Well I understand that you are now working on a new website?
JK: Well I'm scoping on a number of different projects. I'm actually working with the SIMA group the Surf Industry Manufacturers Association trying to build a B to B marketplace for the surf industry. I don't know when its going up but it's pretty exciting.

BC: Congratulations. That's a great idea. Thanks for your time Jim.