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April 2008 Archives

April 2, 2008

Google: Conflict of Interest....This Time

Now that the dust has settled on the Google - Doubleclick acquisition, most of the buzz is around the upcoming layoffs. Those aren't surprising in my mind though. Rather the more interesting fallout is Google's decision to sell off the SEO/SEM division of DoubleClick, Performics. For the uninitiated, SEM shops like Performics are companies that manage third parties marketing spend with respect to search engine advertsing/keyword buys. Very often this involves a tangential business of optimizing organic search results as well. Performics did both.

From Google's recent announcement:

It’s clear to us that we do not want to be in the search engine marketing business. Maintaining objectivity in both search and advertising is paramount to Google’s mission and core to the trust we ask from our users. For this reason, we plan to sell the Performics search marketing business to a third party. We believe this will allow us to maintain objectivity and the search marketing business to continue to grow and innovate and serve its customers.

OK, so Google sees a conflict of interest in owning an SEM/ SEO shop. Fair enough. But where's the conflict? With its users? Can't be. When did Google users start caring whether their was objectivity in its advertising business?

People go to Google to find information. For the most part, most of us don't care whether someone paid Google to have their linked clicked or not, as long as we find it. Just like radio listeners never really cared about radio station payola, search engine users don't care about on-line payola like Adwords. Besides Google already has a host of tools available to advertisers to manage their keyword buys, i.e. kinda like what SEM shops do.

Everyone knows that the trust Google has with its users is in the organic results, not the ads. So that must be where the conflict is then, on the SEO side. Google doesn't want to appear non-objective there. OK. Hmmmmm. Wait. Actually that can't be the case either. Google mucks with its organic results all the times.

Take for instance, the various one boxes that appear at the top of reference-like searches, promoting certain data sets to the top of pages. Those aren't organic results - and their presence certainly denies traffic to non-proprietary organic results. That's not compromising SEO? And when Knol results start showing up at the top of Google results? That's not compromising SEO? Oh, wait, that's SEO for Google's stuff, not anyone else's. Right. I see. Users don't care about that I guess.

Bottom line is that the only new conflict of interest created if Google kept Performics is that Google would be openly competing with the cottage industry it created. A cottage industry that is a hugely successful marketing channel for them. That can't happen.

So fine, sell off Performics. But don't tell us the old politician trick and tell me its for the children user. Be honest and say its to keep your channel healthy because in most other places the "no conflict, no interest" seems to apply.

April 7, 2008

Does Microsoft Really Want to Buy Yahoo?

A couple of months (!) ago, when Microsoft sent Yahoo's board a bear hug letter it looked like one of two things would happen: 1) there would be a good public shareholder fight over whether this deal should happen or 2) we would get to witness the calamity that will result in such a deal actually happening. Instead, we've got a big fat nothing.

Well, almost nothing anyway. Yahoo is actually doing the right things. They don't like Microsoft so they look for another buyer or strategic alternative (ex. outsourcing search monetization to Google). When nothing emerges, they fall back on broad promises to shareholders to increase revenue. Fine, all well and good. Stall, stammer and delay is the right strategy for them.

But what about Microsoft? The way they're acting I'm not sure they really want to buy this company. Isn't the whole point of the bear hug letter to give the company notice that they have a well-defined time period to negotiate and if nothing happens the case goes right to the shareholders? After three months we should have had a war on all fronts. We should have seen them:

  • acquire the 5% of Yahoo's stock allowed before the 13D gets filed;
  • file the lawsuits in Delaware challenging the business judgment of the board and management and the poison pill;
  • go forward with the tender offer/ offer to purchase;
  • call for the special meeting of shareholders;
  • nominate the new slate of directors;
  • file more lawsuits challenging any attempts to stagger the company's board or delay the special meeting.

And that's just the logistics. Don't forget the PR front. Microsoft should have been taking its case to the press every day. We should have seen a constant flow of articles discussing Yahoo's weak performance, management blunders, etc. And by the way, where are the institutional players in all this? Why aren't they weighing in? We live in a world where Barry Diller does a company re-org for IAC and a shareholder is so pissed that it takes a case against him all the way to verdict but no institutional shareholder has an opinion on a 60% premium bid on Yahoo? In this economy? Why is no one from Microsoft forcing this issue either?

Why is Microsoft's next step was a second strongly worded letter with a second ultimatum? Isn't a second ultimatum an oxymoron?

By the way, this isn't to say that while all this was going on, they shouldn't have also tried to negotiate a deal directly with the company. Of course you reach out with the olive branch while you are repeatedly clubbing them. But don't stop clubbing. Your leverage increases more with each step.

As a result I'm dazed and confused. I can't figure what's driving this half-in/ half-out hostile takeover. When you decide to go swimming you can't just get a little wet and when you decide to go hostile you can't be nice about it.

April 10, 2008

The Road to Liquidity

Lots of buzz today about Fred Wilson's post calling for "A New Path to Liquidity." Fred is describing, in broad terms, how he and many other VC's are faced with a dilemma with respect to their portfolio companies. Many of these companies are not strong enough financially to withstand the scrutiny of the public markets so the only monetization alternative for investors is to sell out to larger companies. These big companies, shockingly, tend not to be such good stewards. As a result, often the product denigrates in their hands.

There are plenty of obvious responses that you could make to this post. For instance, the easiest response would be, so why don't you focus your investments on companies that do make money? Or you could ask why, if you loved the product so much, did you sell it? You know how once you sell your car you kind of lose all rights to complain about whether the new owner keeps it clean? The same goes here. You might also comment on the issue of whether all businesses need to be big businesses. Perhaps some of these companies aren't destined to be huge money earners and as a result aren't good early stage capital investments (kinda like a dry cleaner or a deli - good small businesses, but not a VC profile investment). Those are easy and legitimate questions.

But, in my best passive aggressive manner I will ignore those and focus on the real issue: why aren't these businesses profitable? As anyone who reads this blog knows, for many ad supported Web 2.0 companies its because the CPM rate for ads pretty much blows for everyone other than search companies. Don't believe me? Go ask the newspaper companies.

The white knight that everyone seems to be banking on to fix this dilemma are brand advertisers, who because of increase and web usage and decrease of other media, will be shifting their budget online. But they're not here yet and, as I wrote the other day, I wouldn't be surprised if they never fully made the transition. My argument is that the web does not provide a contextual experience for brand ads. TV is an entertainment experience - is it a shocker that most effective brand ads on TV are also entertaining? The web, on the other hand, is an information experience. So is it a shocker that the only ads that actually work online are informational, i.e. search ads? So how do you move one to the other?

A commenter to that post correctly added this insight:

[T]he real challenge in terms of contextualizing for the web is for ad supported destinations (and the ad networks that power many of them) to get more creative about how to do promotion beyond simple IAB-standard units.

He's 100% right. Online publishing needs something to sell that actually allows people to pay the bills if it is going to survive as a stand-alone business (as opposed to a hobby). In my mind, this is real opportunity: find and fund that model. Yes, its harder than coming up with a new Facebook application that can be pumped out in a weekend of coding, but that's why it will be so rewarding if you can figure it out.

My advice to Fred and other VC's who want to both make money and a difference for lots of people, focus on cracking the nut of the publishing ad model. If your successful, we won't need to ask for a new path to liquidity.

April 11, 2008

Pulitzers Are The New Tony

In case you missed it, and I did, this week the winners of the Pulitzer Prize were announced. Not that I ever followed particularly closely, but I do remember a time when people actually cared about the Pulitzers. Their Pulitzer award the Washington Post won in 1973 for Woodward and Bernstein's Watergate work was notable. This year the Washington Post won six Pulitzers and sadly no one seems to have noticed.

Industry awards, while handed out under the guise of critical merit, actually serve the primary function of building buzz about the underlying product. In other words, its all about increasing commercial appeal - a/k/a sales. It is certainly why the movie industry spends so much time promoting the importance of the Oscars - if a studio wins one, the picture is pretty much guaranteed to be a hit commercially. Sure they have to throw off some of those winnings to the actors/ directors, but by then, who cares? There's plenty to go around.

The Grammy's used to be important too and heavily promoted by the industry too. But then something happened - the music industry stopped making money. Even if an album/ CD won a Grammy, it wouldn't sell more because, well, no one buys any albums or cds any more, Grammy winning or not. No commercial boost = no one cares about the award. As a result, the industry (and everyone else) stopped caring about the Grammy's.

So back to the Pulitzer. There used to be a time when distribution capabilities of content were limited. That barrier to entry to news and media kept the playing field small and let newspapers make tons of dough. Awards like the Pulitzers mattered in that they were good promotional devices for the newspaper brand, thereby increasing distribution and ad rates. Journalists never figured out how to cash in on them like actors did on the Oscars, but that was even more reason for the papers to promote it.

No more though. Distributing content is open season - it's cheap and easy. Since no one buys the print paper or goes to the newspaper web site, nobody is buying the ads they sell. As a result, the industry's revenue is in a free fall. These days having "Pulitzer Award winning" on the by-line adds exactly zero value. As a result, no one bothers spending any money promoting the award. Just another victim of the problems of the news industry.

To this end, the Pulitzers look a lot more like the Grammy's, the Tony's and probably pretty soon the Emmy's, than the Oscars.

April 14, 2008

The Future of the LA Times - In Mural Form


A clear, concise vision is always helpful. (via LAObserved)

April 15, 2008

Look out Newspapers, Make Room Down There for Magazines

Everyone knows that newspapers are dying off, and it isn't a shocker that magazines are heading in the same direction:
Ad pages for BusinessWeek, which just went through its third round of cuts in three years, tumbled 19.4 percent in the quarter to 429.5 ad pages while rival Forbes dipped 13.2 percent to 504.8 ad pages, according to the latest figures reported to the Publishers Information Bureau.

Fortune looked like the best of the lot, with only a 1 percent drop in the quarter to 429.4.

The newsweeklies are also taking it hard. Newsweek, which recently unveiled plans to downsize 111 people, saw ad pages drop 13.9 percent to 339.

Ad pages for Time, which also continues to prune staffers, skidded 17.8 percent to 371.

U.S News & World Report dropped even further, with its ad pages tumbling 37.5 percent to 229.46 pages.

The only time I buy magazines anymore is we travel - they make good plane reading - and the choice is usually one of the news weeklies, Sports Illustrated or the gossip rags. I'm actually always amazed that anyone buys one of the big, full page glossy ads in any of them. The common characteristic of 99.9% of these ads is that they disappear in the readers hands - no one notices them. Correct me if I'm wrong, but that seems to me to be a bad ad purchase then....

Now with that, there are still some viable magazine ads. Women's magazines on fashion and clothes - those seem like reasonable ad buys. Women buy them to learn about the latest styles and trends - seems like a perfect opportunity for those who make the latest styles and trends to advertise. Lucky magazine is the top of this format - it consists entirely of ads. Its 300 plus pages every month and has no articles, just ads. This is a good business. Same with the verticals. Skiiing magazine is probably a great place to advertise skis, ski wear, etc. Not sure its a huge business, but its a reasonable ad platform.

The rest of the magazine rack - the general purpose weeklies - they seem like they're in trouble. They sell an ineffective product in a shrinking market. Not good. Now, if only they had a plan....

April 16, 2008

7 People You Hope You Don't Meet At Your Start-Up

When I moved out to the bay area in June of 2000, I didn't know too much about working for a start-up. 8 years later and I am on number 3. If you read Hacker news or any of the VC/ entrepreneur blogs, there are plenty of folks who talk about start-ups, the lifestyle, the dos and do-nots. All helpful stuff. I'm going to try to add to that list by providing actual examples of good and bad that I've seen in my three start-ups and gives some rules to live by. So, the first of many parts....

Marksonland Start-Up Rule #1: You Can Choose Your Family

Unlike growing up where you parents admonished that you can choose your friends but not your family, in the start-up world you actually do get to choose your family - they're your co-founders and co-workers. They're the ones you'll be laughing, crying, criticizing, celebrating, fighting, teasing, annoying, complementing, brainstorming, traveling, pitching, failing, succeeding, eating, etc. with during your tenure at your company.

Take another look at that list again carefully - take it from me, you will be doing all of that stuff with these people. So when choosing your family, choose carefully. Pick people you think you will be comfortable doing every one of those things with. Everyone has their quirks, but there are certain types of people that you can be on the look out for that, in my experience, are deleterious to a small company. If you see any of these folks, run:

Mr. Big Company: Beware of the person who has spent most of his career working thriving in the modern day bureaucracy known as the big company. Making decisions quickly and decisively is not his forte. (Spending his entire day going from internal meeting to internal meeting is, I think).

This is not to say that anyone who has spent time working in big companies is not a good start-up guy - that's not true. I'm saying stay away from those with big company mentality. Every decision requires a committee and consensus, covering your tracks is more important that moving forward. These folks are bad news for a start-up that has to hunt and kill every day in order to eat.

The Empire Builder: Often going hand in hand with Mr. Big Company, Mr. Empire Builder makes his mark with in the company predominantly by having an ever increasing reporting staff, regardless of need. If he does sales, he'll want to hire lots of territory sales people to manage - even if you have nothing to sell yet (got to pre-sell you know...). If he's in marketing, he'll want to hire lots of marketing minions - even if your in development and there's nothing to promote. He'll make weird claims like marketing should really own facilities since the facilities are.....Creating and owning a large organization is the goal - unfortunately, it's at the cost of the company.

Mr. Gone Native: Every company, big and small, loves to sell to a start-up - especially those flush with VC cash. Vendors will be coming in and out of the office all day trying to close deals. And sales people use all sorts of dirty tricks (they're heartless I tell you!) to do so - fancy dinners, baseball tickets, etc. The whole idea is to get into a personal relationship with the decision maker, because saying no to someone you have a relationship with becomes that much harder. Mr. Gone Native is a sucker for this every time. He mistakes the sales pitch for friendship and then fights hard for his friend come decision time - even at the expense of the Company.

Mr. Insecure: One of the best parts about working at a start-up is that everything is new. As a result, most of the time you get to make decisions that are above your pay-grade, because no one else is there to make them. But don't mistake doing a job with knowing everything about a job. They're very different things. One of the key characteristics of a successful entrepreneur is knowing when you don't know something and not being afraid to ask for help.

Mr. Insecure does not do this. He views asking questions and seeking help as signs of weakness. He'd rather make a bad decision on his own than a good one with help. Obviously, this is not a good thing. The tough part about Mr. Insecure is that he's at times tough to spot. Since he doesn't want people to know his weaknesses (and we all have them) he's very adept at talking out of his you know what. It takes time to sift through the BS and figure out what's happening. Hopefully, by the time you do it, it's not to late.

Mr. Loyalty: Is it better ot be loyal to your co-workers or the company? Say you recruited someone in from another job - they've been working with you for a while and its just clear that they're not working out for any number of reasons? Firing them or demoting them to a proper level is the right answer for the company - easy one, right? Not for Mr. Loyalty. He is loyal to the person, not the organization and thus lets the weak link bring everyone down. Cold-heartedness is a trait of a successful entrepreneur.

Fonzie: That's right. Arthur Fonzarelli. The Fonz. No, no - it's not what you're thinking. Folks who ride motorcycles and wear leather jackets are fine. (And bonus points if they can turn on a juke box with a quick smack.) Fonzie is not welcome in a start-up because he was/ is incapable of uttering the following sentence: I was wrong. (I was wrrrr.....was all the fonz could muster).

All start-ups have one think in common - mistakes are made. Identifying them, owning up to them and moving on is what separates many of the successful ones from many of the failures. The Fonz can't do this. He'd rather bring down the entire organization that admit he made a mistake. So stay away from Fonzie - Ralph and Potsie too, but that's another blog post.

Mr. Needs A Hug. A smooth running start-up is like a well oiled machine - lots of parts moving simultaneously, independently and interdependently. Everyone within the company needs to be able to rely on the other to do his or her job. There is an expectation of competence. Now with that, not every job is going to garner the limelight. If engineering is releases a kick ass product, everyone in the company celebrates. When finance successfully closes the books for the month - usually no champagne.

Mr. Need a Hug's role, while important, is usually in the non-celebratory camp. Thus prompting Mr. Need A hug to, well, need a hug. Or at least a pat on the back. The majority of his or her day is spent making sure everyone in the company knows how important their job is, how good they do it - and, unfortunately, usually how they succeed at it in spite of (as opposed to because of) their co-workers. The real problem with Mr. Need a Hug is that one hug won't do it - they need lots of hugs. Regularly. It's never ending and they never seem happy.

So there you have it - 7 people to try to avoid when you are choosing your new family. There are plenty of others - Mr. Micromanager, Mr. Platitude, Mr. Lie on his Resume, etc., etc. but we all know to stay away from those folks.

Next time I'll post on some folks you DO want in your start-up.

April 23, 2008

Start-Up Rule #2: When Pitching, Bring Your Guy

The second entry (first is here) in what I hope is a continuing series....

You know how when you go to a foreign country, where English is not the native language, how general living becomes simultaneously adventurous and uneasy. This is especially true when you go to buy something. Usually the store owner speaks “some” English, so you can get through the transaction, but you end up getting less information than you would at home. The result of this is that often times you feel like you got ripped off. This is because often times you have been ripped off.

Now same situation, but this time your old college roommate happens to live in the country your visiting. He’s not a native, but he speaks the language fluently and knows the area well. When he comes with you into the store, he brokers the transaction – i.e. he does the talking. When you walk out of the store this time, you feel just like you did at home. Much better.

What’s this have to do with start-ups? This is exactly the dynamic of the funding process. Think of the conference room at the VC’s office as the store in the foreign country. There are people in their selling stuff (money). You are not fluent in the language they speak. You are not a native. You do not know the local customs. Be smart, bring your local guy to broker the deal.

Not sure this is a good idea? Well, look at the other side of the table. VC’s ALWAYS bring their guy. The VC knows that he or she doesn’t speak the same language as you. You’re a coder, an operator, not an investor. You speak in cryptic terms that they’ve heard of, but aren’t really sure about. But they want what your selling, maybe. So they bring their guy every time to broker the deal.

If you’re wondering who is who in the meeting, the VC’s guy is the one who has some experience in your area, is somewhat fluent in your language and asks you a lot of questions about your actual business. This opposed to questions about cap table, burn rate, etc. – the VC’s ask those things. They call this whole process due diligence, but this is just a fancy term for bringing your guy.

So who’s your guy? Could be lots of folks – a lawyer you retain, a business partner who’s been through the funding process before, an advisor who does this type of thing for a living. Could be anyone. But bring him. Don’t wait for the term sheet. Lots is said (implicitly or explicitly) in these meetings that will be used against you later in the process. One of your guy’s main jobs is to make sure this doesn’t happen.

But wait you say – I know start-ups. I worked for one. I know about venture capital. I don’t need to bring anyone. Uh huh. You also had three years of high school French. Let me know how things worked out when you bought that vase at the antique shop in Paris…

April 24, 2008

Not Switching to Guns, Goose

Another day, another on-board video of a Georgian drone being shot down by a Russian MiG-29.

Do I even need to say that the drone should have hit the brakes and watched the MiG fly right by?

April 29, 2008

The 500 Series

Another day, another video of a self re-assembling robot.

At some point, we'll look back at these robots nostalgically. By then, the 600 Series - you know the easy one to spot with the rubber skin - will be obsolete too. Let's just hope he never finds that Plasma rifle in the 40 watt range.

About April 2008

This page contains all entries posted to Marksonland in April 2008. They are listed from oldest to newest.

March 2008 is the previous archive.

May 2008 is the next archive.

Many more can be found on the main index page or by looking through the archives.

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