Entrepreneur Farhad Mohit is hardly resting on his laurels, although he could. In 1996, he launched BizRate, a consumer rating site, and then in 2004, Shopzilla, a shopping search engine. His latest venture is DotSpots, a service that lets people update the news in real-time with dots, or distributed objects of thought. These could include mini-blog posts containing text, videos, images, documents, perspectives from the blogosphere or eye-witness accounts from the scene. Mohit talked with Knowledge at Wharton about DotSpots, the publishing industry, the wisdom of crowds, what he learned from his previous successes and the importance of finding the right team, among other topics. 

An edited transcript of the conversation follows.

Knowledge at Wharton: Could you start out by telling us a little bit about DotSpots?

Farhad Mohit: Sure. DotSpots is a platform to allow ordinary people, or what we call the “wisdom of crowds,” to bring content that’s being created — “user generated content” we call it — and apply it to the mainstream news. So that’s its core essence. I can tell you why we’re doing that later, but that’s what it is.

Knowledge at Wharton: Can you give an example?

Mohit: Yes. The plane that landed in the Hudson River [on January 15, 2009]. I don’t know if you call it landing, but whatever, it landed in the Hudson River. The news was actually broken by Twitter. Flickr had tons of eyewitness videos. There are a billion and a half people with Internet access and a cell phone. So they are able to be everywhere and break the news. The problem is that the mainstream news doesn’t have a very good way of integrating that into their systems right now. They have to get reporters out to the scene and things like that. They don’t have the money to do it. They don’t have the time to do it. But it’s happening. So our idea is that we should let people just be able to attach their content right into the mainstream news, right as that story’s breaking, because the story kind of frames the issue. “Plane Landed in Hudson River” — then photographs can come right from the blogosphere and right from the Flickr and YouTube people loading the real videos. So you can immediately get multiple perspectives, eye witness videos right into the mainstream news as it is developing.

Knowledge at Wharton: Is there some way that those are organized?

Mohit: Yes, it’s the same way that Wikipedia is organized. That’s where the wisdom of crowds comes into play. You basically have people loading in a bunch of stuff. And then you have consumers of the information looking at it and saying, “Is this useful? Is it not useful?” This is my background from BizRate, one of these rating companies, so I’m pretty experienced in building systems that take a bunch of feedback and filter up what’s useful and filter out what’s junk, because yes, there will be a lot of junk as well.

Knowledge at Wharton: I understand your website uses something called the semantic annotation system. I presume that’s the system you use to filter out the junk. Could you explain that?

Mohit: Yes, it’s not actually the system we use…. The system we use for the junk is people’s votes. But the semantic nature of the business is the following: It’s that when the news gets created right now, a copy gets created. Usually, like I said, it’s a framing device. [News organizations] don’t do a lot of investigative reporting anymore. They don’t have a lot of live presence because they are running the news as a business and those are very expensive things to do, right? So they kind of frame it. And usually they frame it from an institutional point of view. So they say, “According to the White House,” and then whatever the White House has given them, they run that. And not only that, but then other places pick it up. The Associated Press, [for] example, syndicates to 1,500 outlets. And then other places start talking about that. So copies of the story get made, and then out of those copies pieces get made. 

Now [say] you want to talk about this quote [from] the President, and you have some information you want to add to it, a video that might disprove what he says or challenge it, or a blog [that might offer] a different perspective. What we need to do is … find all the relevant or semantically equivalent relevant copies out there so that you can attach [them] to your local news… The President said something, you attach it. We distribute it all over the place, to copy in China as well as to … The New York Times and Fox News…. So you, as one node on the net, now can attach something to your local copy, and we distribute it everywhere. But you have to find all the semantically equivalent pieces of text.

Knowledge at Wharton: So is this something that you think publishers should welcome or should they be afraid of this?

Mohit: I think that publishers should welcome it. The end result, if we’re able to build this platform out correctly, is that in almost real time, live eyewitness footage starts coming in, commentary from the blogosphere covering this from multiple angles and in depth [reports] scrutinizing the statements of our officials, etc. And we’re able to bubble up the high quality stuff. This becomes high quality user-generated editorial content that, for free, the publisher can add onto the frame that it has built for the story. So it makes their stories more engaging. The content appears in context, on the page, and so it keeps people on the pages longer and near the advertisements. And you know, at the end of the day, that’s why [publishers] are in business.

Knowledge at Wharton: Can publishers control this?

Mohit: Absolutely. We’re a publisher-friendly system. We gave a bunch of controls to the publishers so that they can control how [the content] will appear on the site. It’s very much a system in development, so we’re building the systems right now, but the first step for us is to go to publishers and say, “How can we make this useful to you? We know that you are hurting on the content side and on the cost side. We’re able to gather this stuff for free, and we want to put it into your system for free. But we know you’re also worried a little bit about the quality.” So we are going to build tools for them to be able to do that.

Knowledge at Wharton: So where does the balance of power lie, with the publisher or with the wisdom of the crowds?

Mohit: I think the natural thing that will come out of this is that the publisher is very much interested. I don’t think the publisher has an agenda per se. I heard that Fox News is always accused of being conservative. And I heard the guy speak. He’s like, “I’m a lifelong Democrat. I run a business for Mr. Murdoch. And the fact is, we have an audience and that audience is pretty loyal to us and we try to meet their needs and it makes us money, right, to do that.” And so I think if we can show that DotSpots brings more content, a variety of voices, engages customers, their users, and makes you more money, the publishers will embrace it. That’s the point of it.

Knowledge at Wharton: Is this focus mainly on breaking news, hard news or other kinds of events?

Mohit: Every kind. The breaking news is where the sensational things — like eyewitness videos — come in. So there’s an aspect of that when you’re adding multimedia; the currency of the information is much more important. But there are three functions that the press is supposed to perform. One of them is framing issues, the second one is a live presence, showing what’s happening, and the third one is investigative reporting — deep analysis, scrutiny from multiple angles of the corridors of power and asking questions, hard questions. That’s happening in the blogosphere. That’s more of the reflective stuff, the stuff that happens in the weeks after a story comes. A lot of times the blogosphere is responsible for [much] of the actual investigative reporting. It’s just not a very efficient mechanism right now. We should be doing the questioning; the people should be seeing the questioning and answering right as it’s happening, not weeks later.

Knowledge at Wharton: How are you making money from this?

Mohit: It’s an interesting question. The short answer is that we have a two-step process. First, you have to get ubiquity. There’s only three ways to make money on the Internet. One is sell subscriptions. We’re not selling subscriptions. Two is sell software. We’re not selling software. Three is some form of selling advertisements. Today we’re not selling advertisements. You know why? We don’t have anybody using the damn system. So if we never get anyone to use the system, it’s pointless for me to sit here and explain to you how we make money from it. If we have ubiquity, which is what our goal is right now, our social value is starting, it plays itself out, and then we can start to talk about it. It would be one form or another of either helping someone sell better ads or serving some types of ads ourselves. Nothing to worry about today.

Knowledge at Wharton: You have a track record with BizRate and Shopzilla. Are there any lessons for those experiences that could tie into how you could build this up to scale? But before you answer that, could you explain what BizRate and Shopzilla are?

Mohit: We started BizRate in 1996 out of Wharton as a class project. BizRate was a rating system that allowed customers to rate their experience with vendors and share it with other customers. So it’s a feedback system. It’s grown to be the 20th-25th biggest site in the world, or something like that right now. So it’s functioning and doing really well. Shopzilla was a natural extension of that idea, which is now we have all these people rating businesses, why don’t we have the prices of the products as well and do a full fledged search engine so you can buy products based on price and the attributes of the retailer. Would they deliver it on time, etc. That’s the 50th biggest site, I think, in the world. So they have both had some good success.

The lessons out of that for DotSpots: Well, you know, it was an 11-year process doing those two things. We made some decisions. For instance, we raised about $77 million of capital. I think that was, in hindsight, pretty stupid. We are doing it completely the opposite way. So at the end, we raised a lot of capital. We had a lot of high paying salaries on board. We brought a lot of people on that we didn’t need because we thought we needed to do that. We were high on the hog and everybody [had] good paychecks. But then when we sold the company in June of 2005, there were all these fat cat investors who were celebrating and pretending they were part of the team, and they shouldn’t have been. It should have been really the company and the employees.

So one of the things we’re doing with DotSpots that’s quite different is that we’re trying to keep our burn rate as low as possible, trying to keep the ownership in the hands of our employees. We basically are a fully distributed company as a result. Everybody works from home.

Knowledge at Wharton: I believe everybody works from home and the company pays a part of the mortgage, is that right?

Mohit: That’s right. It wasn’t that everybody works at home because we want to save money on offices. It’s because it’s a smarter way to get productivity out of our folks, and people love it. The idea of paying a part of the mortgage is more of a token, because at the end of the day what we say to our folks is, “Look, this is a business. What we’re trying to do is this. Keep your burn rate as low as possible, but be able to pay your bills so you’re not looking over your shoulder. From that point on, what we’d like to do is compensate you in stock, because if you want a higher salary, we can do that. But then we have to sell stock to do that. And so you can make that decision. But now is a bad time to be selling stock back to DotSpots. You want to keep your stock. So keep your pay low; you’re not going to get rich today. Right? Or maybe in the next three, four years, but we’re building towards a great product and a great company that whenever there is an exit or a liquidity event, the employees and the people who put their blood, sweat and tears into this thing are the ones who are celebrating, not a bunch of money people who tricked us into selling our stock too early.” Also known as venture capitalists.

Knowledge at Wharton: Spoken from experience.

Mohit: Yes.

Knowledge at Wharton: So you have a pretty small team right now, is that correct?

Mohit: Yes, we are seven people today, and we have four who are kind of in trial mode. One of the cool things about having a distributed company is that people can start pitching in from remotely even before they hit the payroll. You get to feel them out. They get to feel you out. It’s an efficient model for figuring out if somebody should come on board or not. No risk to them; they are on some other payroll and they are pitching in on their off time. So that’s another benefit of the model. But we’re still a small team, 11 people. 

Knowledge at Wharton: So the sort of financial meltdown that we’re in actually could be beneficial to you, to this idea?

Mohit: Everyone asks if it’s a good time to start a business. [My response is]: Are you curious about something? Are you interested in solving a problem? Do you have the drive to dedicate maybe five or 10 years of your life to this particular problem? If so, it’s a good time to start a business. If not, then you’re just looking for financial engineering or timing something or flipping something. That is not an entrepreneur to me. So I don’t care about the business climate. That’s somewhat irrelevant to what we’re trying to do. We’re trying to solve a problem. We have to figure out how to do that properly. There’s a lot of work to be done. It’s fun because we are passionate about the problem itself. And we have enough runway for a year. I can fund this thing forever. That’s the fortunate position that I am in. The general entrepreneur, if they have enough runway for a year, should just concentrate on running their business and then figuring out how to extend that runway, to always be about a year in front of them, right? So that is the way I look at it.

Knowledge at Wharton: I was thinking it might be beneficial because publishers would see this as a way to help them actually cut costs…

Mohit: Publishers have been in a financial decline for a long time. So I don’t think we needed this added boost. I’m worried that The New York Times is not going to be around when we launch our software. But overall I don’t think it’s that important of an issue. You know, if the business model works, it’ll work in any environment.

Knowledge at Wharton: Your site also says that companies that have figured out these issues have grown as big as Google and Wikipedia. Do you think that is somewhere in DotSpots’ future? If so, how?

Mohit: Yes, but to correct the quote and put it in context, I said that the wisdom of crowds concept and the large information kind of hub concepts are ones that do quite well on the Internet, right? Google and Wikipedia are two examples of such things. It’s way too early to say if DotSpots can make a scratch on that. So it’s quite presumptuous. On the website we’re allowed to be a little like that, but it would be stupid of me to say that to your audience. Let’s start with our first few people on board before we make too many big, grandiose claims.

Knowledge at Wharton: What’s your biggest fear about this venture, besides the obvious fear of failure…

Mohit: I think we have some significant challenges. [One is] the technology, the idea of matching these blocks of text properly so that when you attach content and we distribute it to 500 places, it doesn’t come up in an irrelevant place. The core technologies are a challenge…. Are we going to be able to present this content in a compelling enough way for people to be able to digest it? Is it going to be intrusive to them or not? So that’s one of the fears we have. And then finally, I think if today, people said, “Are you worried about spam?” I [would reply], “Today, where we’re sitting we’d be lucky — we’re not worthy of spam.” So but one day, if we’re successful and lots of people are using the service, then we have all sorts of issues around spam coming into the system. People trying to sell stuff. People trying to whatever. So that’s an issue — execution. All of it is execution. I mean the idea is a good one. If we don’t do it, someone else will. [The question is], can we execute on these hurdles and get to critical mass, which is what the main goal is.

Knowledge at Wharton: If people are evaluating new ideas for the Internet or some other space, what advice would you give them?

Mohit: On the internet in particular, there’s certain things to keep in mind that are important for an idea. I think information-based ideas are very good; the Internet is an information medium. Does it have an increasing-returns-to-scale type dynamic involved? That’s to say more begets more. So in our case, the more people load content into DotSpots, the more publishers will want this content and it will be useful to them. The more publishers start publishing the content, readers become exposed to it and then the activist bloggers and people who are on the content side will be more excited about putting it in. And then the next thing. So more begetting more is very good. And then the idea of erecting a barrier to entry as it goes. You know, the good businesses; as more begets more, there’s only one of them that’s necessary. So if you’re thinking about us as an annotation layer on the news, there’s not going to be 10 different annotation layers on the news. The content providers want one system. The publishers want one system. So being a first mover in something that has increasing returns to scale and is about information — those are very cool things. But that’s on the idea side.

Now if you want to go out and do something, the most important thing is some introspection to see what your skills are and what your core competencies are. And then putting together a team that complements you, not by saying, “You’re such a stud,” but by saying, “You’re an idiot.” [For example], a good tech partner was essential for me. The team that’s coming together for DotSpots is phenomenal. It’s unbelievable the kind of people who are joining. I think that with a decent idea that has these dynamics and with a good team, you’ll do wonders.

Knowledge at Wharton: Farhad, thanks so much for talking with us.