Category Archives: investments

C’mon Yahoo, C’mon Yang! This investor is still optimistic!

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WSJ’s recent Yahoo story does not sound very optimistic about Yahoo’s potential to recapture the former glory Yahoo enjoyed in terms of stock price. The gist is that new CEO Yang is not going to “overhaul” the company, especially in the area of advertising sales where Yahoo clearly has enormous potential for bigger profits, and even a shot at eventually co-dominating the online advertising landscape.

It is this potential that interests me as a YHOO investor. Google’s done a fine job of monetizing internet activity in the search space, and GOOG’s capitalization of some 160 billion dollars reflects this fact. Yahoo was arguably too early to the PPC game with the purchase of Overture – the early leader in the PPC space. My assumption is that this kept Yahoo from innovating aggressively and allowed Google to sweep in with their contextual matching brilliancy and eat Yahoo’s PPC profit lunch. This feast continues despite the fact that Yahoo retains a significant portion of total online search activity and also remains in a position to monetize a large amount of other types of internet traffic.

Also, Yahoo’s making great strides in the Web 2.0 space thanks to a kick-ass developer team. Yahoo’s Flickr remains the best photo sharing application with a huge community. If Yahoo could use their 2.0 cleverness to crack the nut of better monetizing the traffic spawned by Flickr and even other non-Yahoo online communities like Myspace or Facebook it would be helpful to the bottom line.

Yahoo remains capitalized at a small fraction of Google – about 20%. This is consistent with the pessimism expressed in the WSJ article but does not seem consistent with Yahoo’s profit potential in the exploding world of online advertising.

There used to be a game where Yahoo employees would sneak into the Google lunch room to eat a free and delicious Google lunch. Jerry Yang, how about providing a free lunch at Yahoo and then focusing the employee’s attention on taking back all those free and delicious PPC profits?

Less glibly I’d suggest you focus on the Yahoo Publisher Network evangelism and monetization. So far Yahoo has failed – fairly dramatically – to gain publisher interest and loyalty in this lucrative sector of online advertising. Google adsense publishers are ripe for change and innovation in this space. Make it so!

Powerball? Think again.

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Here’s a great summary of the expected return on a Powerball ticket *even when a big jackpot is in play*. I have not checked the math but assume he’s done his homework to note that it’s not a good idea to buy tickets even when, as is the case at this moment, a huge jackpot is in play (unless the lottery has proportionate entertainment value for you).

Note that the before tax returns might actually be positive in extraordinary cases (as I think exist right now), but after Uncle Sam nabs his chunk of huge winnings you’ll be down on this “investment”.

Pligg for sale, Searchmob, and Arabian Horse Breeding

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TechCrunch reports that Pligg is up for sale.   The clone of the Digg project was a great way to easily and effectively set up a user community where people could submit, review, and rank articles.    John Battelle used it nicely over at SearchMob  in an attempt to enhance his excellent search news coverage at Search Blog.

Unfortunately at SearchMob it seemed to me that the reviews became more of a breeding ground for SEO tactics than a clearinghouse for quality search news.    Several participants would primarily list stories at their own sites that were referencing *other* source stories.   This is not necessarily bad but I found at SearchMob that only a fraction of the stories were “high quality”.    That said I’m not a big fan of Digg either because my interests still don’t seem to match the normal onliner demographic very well.

Pligg may not be the best example of how to make money on Web 2.0 because it was an open project and an advanced concept used by tech-savvy folks more than mainstream people.   Mainstream is where the numbers are and therefore, usually, where the money is.   Still, Pligg had buzz, traffic, and a community.   This should be enough to do well enough to keep building the project.   It’s possible the owners really *could* keep running the site and quit their jobs but want to try for a big payoff now while VC money is still flowing briskly into startups.   In fact this makes a lot of sense and if true it means my analysis here is probably flawed – ie they are selling at opportune time rather than for the stated reasons of “too busy to run it”.

Pligg’s founders suggest that they are selling because they have real jobs and don’t have time to manage the growing and thriving Pligg community.    I find this very interesting because they clearly have done Web 2.0 “right” – they created a useful service, got lots of people actively involved and developing for it, and have a powerful community of users.   So why can’t they quit their jobs and just work on Pligg and rake in lots of money?    Don Dodge’s mini-analysis of some time ago has part of the answer.   Even most VC funded startups don’t appear to return enough for the average VC to break even on the investment.    If true this is a really provocative notion – rich people are funding companies and losing money.   Like Arabian Horse breeding or Casino gambling it may be that playing the startup game is so enjoyable – and the potential deceptive enough for many wealthy folks that they continue to fund companies that, on average, will only return a portion of their investment over time.   Are Startups , on average, a bad investment?

Yang, Yahoo, Yippee!

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This Yahoo shareholder is thrilled to see Jerry Yang back at the head of the company he and David Filo founded 12 years ago. Yahoo is a fantastic company with a huge cadre of brilliant developers that have been languishing in no small part because senior management has failed to inspire, reward, and take advantage of the amazing 2.0 stuff that has become the lifeblood of Yahoo’s development efforts for the past several years.

Google has crushed MS and handily beat Yahoo in online profits and search viewership because they 1) still have somewhat better search routines and 2) have taken simple paths and provided user friendly, simple solutions to common problems. Yang knows this and he knows how to fix it. I’m not sure Terry Semel even understood the significance of search and advertising driven computing, and probably did not grasp the significance of social computing which even Google is failing to fully grasp (but is profiting from because of their brilliant contextual matching programs so social networks can display relevant ads). Yahoo’s panama can do this as well if Yang gets *competitive* and does the smart stuff like offer publishers higher revenue shares than Google.

Age before beauty before entrepreneurial chances of success?

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Venture Capitalist and blogger Fred is in trouble with the online geriatric crowd because he seemed to suggest only young people come up with great online biz ideas.    I don’t think he meant that though.  e.g. His VC Fund is invested in plenty of middle aged peeps),  but Techmeme is abuzz with critics.

I noted at his blog that:

Reconciling the partial truth of what you have noted with the dissenting views is easy and you’ve started to do it in the final post:

* There are *many* more young people engaging in online biz ideas than there are older startup founders.

* Therefore if you look at successful online biz you’ll see more young people in charge of those companies.

However:

Age probably has no predictive power vis a vis successful internet business.

Because:

If you looked at all startups along with age of founders you would (probably) see that age is not correlated with success even though you’d find *more* winners and more losers in the young age category because there are so many more young founders.

Now, I have not done the research here but it seems like you could do a quick study by randomly selecting 50 or so startups and then looking at the age of the founders and seeing if age mattered in terms of success or failure of the startup.

Venture Capital A B Cs from Marc. Startups are like Arabian Horses?

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Marc Andreessen’s got a wonderful 3 part series on Venture Capital over at Marc’s new blog. Most interesting to me was his explanation of why VC investment remains so robust despite what he said appear to be horrible average returns over the past 6 years. This seems to relate to new asset allocation theories for big players who place a small percentage of their staggering assets into VC funds to diversify their positions.

My quick reaction is that it looks like VC investment is something like raising Arabian horses – a fun hobby for the rich but not a good way to turn a buck.

AppleGate

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Here in Southern Oregon, Applegate is the charming valley and river that was named after early settlers. For Silicon Valley the new term “AppleGate” refers to the top tech blog Engadget’s posting of a fake email suggesting that Apple’s iPhone would be delayed. The report led to an almost immediate sell off of Apple stock and a 4 billion dollar decline in Apple’s market capitalization, though the stock rebounded quickly when it became clear the email was a fake.

This appears to be a *superb* example of how information is reflected by the stock market and how quickly. I get the idea the (bogus) iPhone delay rumor affected the price of APPL almost immediately but have not checked the timing.

Mike at TechCrunch has a nice play by play and graph of AppleGate, and the Engadget post AppleGate post is here.

Forever stamps “investment”? Probably not a good idea.

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The question on the table is simple: How many of the new USPS ” forever stamps ” should you buy? To simplify I’m not taking into account convenience factors. Obviously you do not go down to the post office to buy a stamp each time you need one – you buy extra to have them on hand. Below I just want to get a sense of whether the forever stamps are a good investment or bad.

Seems to me that if postage cost increases are going to exceed your expected return on *other investments* then the answer is to buy a lifetime supply of stamps the day before the forever program ends. However, since US postage is subsidized by tax money (I think to the tune of 3 billion for next year!), and for political reasons, it seems likely that postage price increase will be *less than* what you can reasonably expect from alternative investments of your stamp dollars.

In this case you should buy a convenient number of forever stamps to refresh your current supply, and then just absorb the increased postal cost. Invest the money you would have put into forever stamps in a long term CD, or (often better) pay off loans or other debt that is at a higher post tax rate than CD yields.

Let’s see – assuming you can get a guaranteed CD 5% on your money, then how much would stamps need to go up to match this? The answer is 5% per year which is just over .02 next year, increasing slightly with each stamp cost change (ie 5% of a greater number will get bigger over time). So, since political pressure and public displeasure with the inefficiencies of the USPS keeps the stamp increases to a minimum it seems like the answer is:

Forever stamps are a poor investment.  They’ll return less to you than alternatives.   Wait until the next increase and then buy enough to get you through the following increase.

Note:  A different issue from “how many should you buy” is that the Forever stamps are a good idea in terms of solving the “remnant postage stamp” problem since their price will change over time but you can keep using the forevers regardless of rates.   This solves the problem when rates increase and you have to buy a bunch of .02 stamps and then you run out of the .37 stamps before you run out of the .02 stamps so you have a drawer full of .02s and look funny when you plaster them on an envelope.

The rumors of the death of Web 2.0 have been greatly exaggerated

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The always insightful Venture Capitalists Peter Rip and and Jeff Clavier are speculating about what’s up with Web 2.0. Peter’s suggesting that there’s a lot more sizzle than steak in the whole Web 2.0 equation while I get the idea from Jeff’s writing and some of his excellent presentations at Mashup Camps that he thinks there is a lot of life left in the new web world.

However the most striking item along these lines was Don Dodge’s recent mini-investigation that suggested the average VC may be losing money based on the fact that it appears more is going into the new web than is coming out of it. I hope Peter and Jeff shine some light on this eventually.

Fixed mindset vs Growth mindset = Microsoft mindset vs Google mindset?

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Google’s legendary success, especially in light of Microsoft’s lackluster performance, leads one to wonder about the differences at these two techno behemoths.

Stanford Magazine has a nice feature on the work of Carol Dweck on personal achievement. Here is a summary of the work in a single diagram.

Perhaps the big difference between Google and Microsoft is that the Google culture inspires what Dweck calls a “Growth Mindset”, which the MS culture inspires the “fixed mindset”.

Supporting this model is the idea that where MS seems to ignore criticism Google often embraces it. Also, Google remains open to change – flexible – while Microsoft seems to resist change or even force square pegs into round holes with bloated or “bad fit” applications. For Google, the modifications to the world view are reflected in Google products. This leads to the simpler, more friendly technologies Google is known for.

Meanwhile the MS products rely more on their virtual OS monopoly, big businesses reluctance to change, and their sheer size which allows them to move the market.

Where does Yahoo fit in all this? (disclaimer – I have Yahoo stock) . I think they are the sleeper here, with a culture and people that have the potential to adopt the growth mindset but are currently stymied by market forces and the Google glow.

Related:  Scoble today bashes his ex, Microsoft, for talking BS before action.