Category Archives: internet

Venture Capital: Fred rules but his 3x rule is too optimistic! ?

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Fred Wilson’s got a fascinating post about his history of investments over at Union Square Ventures.   Of course he’s got every reason to post his results, which appear to be exceptional although he has left out a key factor in his little analysis, which is time.  I note over there:

Fred, these are impressive results and to my understanding much better than average VC returns, which are negative, right? Don Dodge posted min-analysis some time ago where he wound up concluding there was a lot more VC failure than is normally thought.

There are elite guys like you and Jeff Clavier who “beat the averages”, but isn’t “making money” with startups an unrealistic expectation, since those VCs and companies that succeed are still around to talk, but those who fail are not blogging about the burgers they now flip to pay the bills?

I’m also noting that without “time” as a factor the return is not meaningful. 3x is easy….if you use a 15 year horizon!

At a very modest annual return of 7.33% one would expect to triple an investment in 15 years.     A 10% return will leave you with 4.5x your initial investment in that same time frame.    More dramatically, if time is not a factor then I’m happy to guarantee you a return of, say, a million percent.  It’ll just take a while.

This isn’t to suggest Fred isn’t a great investor because I think he is the exception to the normal rule in Venture Capital, which are low returns.   After I wrote about Don Dodge’s suggestion that average VC returns appear to be negative  Jeff Clavier also suggested in a blog comment here that only the top 25% of VC firms are averaging positive returns, and this really shook up my understanding of things.

Berners-Lee: More study of WWW needed

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Tim Berners-Lee, the closest thing we have to an “inventor” of the web as we know it today, is calling for more integrated, broad studies of the internet rather than the mostly piecemeal academic work being done now.     He’s right.   The internet is arguablly the most profound change in human communication in history, and it’s just getting started.    As social networking explodes into the dominant socializing mechanism for humans we are experiencing many new opportunities and many challenges, especially as the online environments create new relationships between people, generations, and cultures.

Universities would be well advised to heed this call from Berners-Lee and offer more “web centric” courses, but more importantly academics should be spending a lot more time studying the complex, changing structure of the web.  The technical aspects of the internet are fairly well studied in commercial circles.   The sociological side is  poorly/rarely studied in academia and the commercial sector is still struggling to understand the implications of the massive shift of human activity online.   

The Social Graph

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ReadWriteWeb has an excellent summary of the idea that online relationships between people can be described in terms of a “Social Graph” that defines and to some extent dictates those relationships.

I guess I’m OK with a lot of the faux complexity that Social GraphOlogy is going to bring the table, though it would sure be nice if Tech folks and academics could just talk about things in the simple terms they deserve.   All this stuff, and most of the internet, is about the intersection of information with *human relationships*.  We are talking about basic sociology here, and I’m not sure it’s going to be  helpful to redifine things with new terminology when it’s not really needed.   The Social Graph recognizes and defines online human relationships.   Couldn’t we just talk about this in the same way we talk about other things and preface everything with “online”?     Probably not, because that won’t socially graph well enough.

Kindle – market mini-analysis

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OK, I just got it. The Kindle does have a market. Bezos is correct of course that the reason books persist in the digital world is their ergonomic appeal. With the Kindle he’s working to maintain that book advantage while adding the digital improvements modern technology can offer – that is a library of Alexandria at your fingertips.

Yet the obvious challenge here is what I’ve noted before – laptop users won’t switch to a device that offers ergonomic improvements but less functionality and more cost, and non-tech people won’t adopt tech approaches this quickly. So, who does that leave in the Kindle market? Jeff Bezos is one person, and I think he’ll buy one. I’d probably buy one if I had money to burn on a redundant but somewhat better device for my reading.

So the Kindle market will be heavy duty book readers who *also* like technology *and* have a fairly high threshold of disposable income. This is not a trivial number of people, though it’s probably only in the neighborhood of about 1-2% of the US population. Let’s assume that the number of people who are heavy readers and would like a Kindle and can afford a Kindle are 2% of the US population. That’s a potential market of 6 million people, which does not seem all that problematic. If they can penetrate 10% of this market and sell 600,000 devices along with the many books people will buy at 9.99 maybe it won’t lose money, and perhaps even could evolve into a device with broader appeal.

But I wouldn’t bet on this.

Blodget: Microsoft implying they may be poised to buy Yahoo

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Henry Blodget’s got an interesting take on the recent UBS talk by Microsoft where they suggested a plan to capture “30-40%” of the search market over the next several years.  Although the literal reading of this does not seem to suggest a Yahoo buyout, Blodget is correct that it is simply absurd, even given the normal Microsoft bluster factor, for Microsoft to think they can capture this much of the market in a short time …. unless they buy Yahoo, which as Blodget points out gives them all this, and more, instantly.  

Given Yahoo’s modest capitalization of some 30 billion, and Yahoo’s huge online prospects (they have similar traffic to Google but with far poorer monetization of traffic), it would not be prohibitive for Microsoft to nab them.

I’ve noted before this would be an excellent move for Microsoft.  It still is.

Disclaimer: I’ve got some Yahoo shares.   Not that they are doing me much good right now.    But they’d probably jump in value if Microsoft bought them.   Did this influence me writing about this?   I don’t think so, but since money is the root of all evil you can’t really trust me on Yahoo analyses, disclaimers or not.   Also important is that nobody can predict the market swings with any forward looking reliability.   So there. 

Rethinking Privacy

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Hey, it’s nice when you agree with the Government’s interpretation of how the future is going to shake out. 

Donald Kerr is the USA’s Dept. of Intelligence Deputy Director and noted correctly:

Protecting anonymity isn’t a fight that can be won. Anyone that’s typed in their name on Google understands that. 
… Our job now is to engage in a productive debate, which focuses on privacy as a component of appropriate levels of security and public safety,”

Wait a minute….maybe the Government is just (finally) coming around to agreeing with me as I’ve been noting for about two years now that online privacy is an oxymoron.  Hey, here’s another online privacy is a mirage post!  

We don’t (actually, cannot) know where many of our pictures and data and writing and comments and email is stored, we don’t know who misquotes us, scrapes our content, has our credit card data and medical records, reads our email, or even know if we own what we write (many reviews sites will claim they own *your* reviews). 

It’s actually *not* as big a deal as one might think.  This is the brave new world of onliners and the benefits of the information explosion easily and dramatically trump the handful of privacy pitfalls.    If this were not the case we’d have seen a *lot* more trouble by now.

CNN Reports

Print Media Future – so dim, you won’t need to wear shades.

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Two articles today suggest how tough it’s becoming to turn a buck in the print media world.   Jeff Jarvis at BuzzMachine and founder of eWeek, notes in “Whither Mags”, that major print efforts require a huge capital outlay before they can even hope to be profitable, and that the current high risk associated with print publications means we probably won’t see nearly as many new big magazine efforts.   

Even more ominous is the New York Times report today showing circulation declines almost across the board for US Newspapers.  The  NYT Article “More Readers Trading Newspapers for Websites” has a great graphic showing how circulation has fallen at most newspapers since last year with an average drop of 2.4%.    Given the relatively thin profit margins at many papers and the fact many costs are fixed this does not bode well at all for the future of newspapers.   The future of news?   That is a far more complex question and I think the answer is not knowable at this time.    Blogs are picking up some of the journalistic slack, but I’m not convinced they can pick up all of it. 

The Social Network Reality Show: High stakes, big money, false rumors.

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The game is social networks.  The stakes are very high, and the news and rumors are flying fast, furiously, and inaccurately.   Here is the latest in the saga of Google’s Social Networking entry which, with Myspace’s participation, is the new Social Networking juggernaut (though it remains to be seen how all the participants will use it). 

More on the Open Social vs Facebook battle for the hearts and minds of developers and, far more importantly, users:

1)  After a 240,000,000 partnership with Microsoft the blogs (including here) lit up soon after suggesting that Facebook recieved another 500 million from two other private groups.   This was false.   It is very conspicuous in my view that the rumor rose and spread so fast, and that Facebook did nothing to quell that rumor.  This news is still shaking out over at TechCrunch which reported the rumor of the 500 million and now reports it was false.   Another example of how news at the speed of real time may not be news at all.

2) Google says Open Social is open to Facebook and all are welcome (I believe them).

3) Facebook says Google was not keeping them in the loop on Open Social (I believe that as well)

4) Facebook says they may join the Open Social movement, but suggest they have their own great stuff coming shortly.    I’m skeptical they can “out open” Google, though they probably could come up with some great new social networking applications quickly.  

However on balance I think Facebook really is in big trouble here.     Much of the recent hype – which was overdone anyway – assumed that Facebook would be the key beneficiary of the boom in social networking.   The reasoning suggested that although Myspace is  bigger than Facebook it was a “closed” environment, favored by a demographic that has far less value to advertisers.    Facebook, that thinking went, will continue to grow explosively, open up gradually, target advertising very directly, and become the dominant social networking platform. 

Then there was Facebook’s refusal to sell to Yahoo for a reported 1+ billion.  This was followed by big negotiations with many key players, culminating a (much overhyped) 240 million deal with Microsoft to cooperate, run MS Live searches, and drive some MS and Facebook advertising.    Then came the false rumor of 500,000,000 more in capital which for many seemed to solidify Facebook’s valuation of 15 billion – a somewhat sloppy projection of the Microsoft partnership price.

So, what is Facebook worth in an Open Social world where even Myspace is a Google partner?   No, the answer is not 15 billion.

Social media frenzy may kill high quality content. Somebody fix this!

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The news last month that Microsoft may wind up offering Facebook $500,000,000 for a 5% stake is great news … for the tiny number of Facebook insiders who stand to gain from this move which would effectively value the social media giant at about $10,000,000,000.    For the millions of Facebook folks like me who provide the content and faces that drive Facebook it means … um … more advertising.   

Gee, thanks Facebook.   

When people wake up they may start to realize that we’ve got a potential crisis as small numbers of “info intermediators” like Google and Facebook scoop up the lion’s share of the online ocean of cash while the “info creators” are distinctly second class citizens in the big show.   Small time web publishers and mom and pops are in this group.  So are major newspapers like the New York Times and Washington Post and most other print outlets who tend to make relatively little online despite offering much of the web’s best content to date, especially now that the foolish paywalls of some newspaper outlets like NYT are coming down.   Having no paywall will allow them to make more, but it’s not clear to me they’ll make enough to keep all that high quality content coming.  

Print and newspapers are  hurting and that is going to continue.   That’s OK as long as websites and blogs continue to provide great insight and breaking news, but it’s about time the big players in the online world start working *a lot harder* to feed the hands that are feeding them.  It’s about time they realize that the best web ecosystem encourages high quality content and not just socializing for the sake of hanging online with friends.

Yes, it is true that revenue sharing programs like Google adsense give publishers a nice share of revenues that come directly from activity at their websites.  However lost in this debate is the fact that *most* of Google’s money  (and virtually all of Myspaces), goes into the pocket of Google and Fox (owners of Myspace).   This is because most of the cash comes from searches done at Google.com rather than publishing affiliate sites, and Google keeps all that despite the fact it’s generated *indirectly* from the ocean of content Google has categorized.  Sure Google should make *a lot* from categorizing *your content* so effectively, but should they make 100%?   You can argue this arrangement is fine if the big players turn around and do things with that money that make the internet ecosystem thrive and grow in ways it could not without their involvement.  I think that argument was far more valid a few years ago than it is now.  Literally thousands of  startups are dying off as the Youtubes and Facebooks – built squarely on the shoulders of other people’s content  – scoop up the super gigantic big money.    It is not a problem that startups die – in fact it’s a good part of the ruthless evolution of things – but it’s problematic when the lion’s share of online resources from the work of so many are redistributed to so few.    Not because this is “unfair”,  but because this type of  inequity does not lead to optimal system efficiency and growth.

Social media in all its various and sundry forms is a wonderful development.  Finally we see clearly that people, not computers, will be at the heart of future online developments – probably for some time into the future.    Facebook users are now leading the innovation in this area, though Alice at NYT thinks this could lead to unintended consequences.

To protect this new socially charged online environment from the ravages of our silly, stupid and prurient human interests we’ll need better incentives than the big players currently offer to quality content producers.   Those incentives will ultimately shape the quality of online content for years to come.

.travel domains – beware your expirations!

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Attention .Travel domain owners!   

If you own a .travel domain you’ll want to make sure you renew it.   Many are coming up for renewal about now due to the auction format that was used to distribute the .travels two years ago.    

It’s still not clear to me if this format is worth the usurous $99 annual registration fee  (compared to about $8 per year for .com, .net, .org, .info, .biz).   However as things shake out one of the ways search engines may determine site legitimacy will be using new barriers to cheap spammy entries, and one of these could be specialized domain names for special niches.  

In any case, if you have a .travel I’d recommend you contact your registrar ASAP.   I use Stargate for my only .travel domain:   “highways.travel”, and their system is making it very hard to renew the .travel even after emails and phone calls and account logins that show no activity pending.