Friday, October 31, 2008
Much like last time around, the most valuable (in investor valuation terms) Internet startups are building user bases first, and businesses second. Now Techcrunch is looking at Facebook's burn rate and recent new forays into the capital markets and concluding that even the half a billion dollars they've raised to date might not be enough to see the company through to profitability.
The real question is, of course: what's the best business model for Facebook? If you look at the Google example, they hit on basically one monetization method. It's not a matter of packaging together a bunch of ideas and putting them all together and reaching profitability that way: it's about hitting on the superior idea that leads to liftoff.
Otherwise, you're just a big property with a lot of potential that loses a ton of money every quarter. You're just a place people enjoy hanging out, that needs to get itself sold pronto... certainly before your evident lack of profit potential becomes persistent to the point of chronic. Facebook: the next Geocities? The next Xoom?
Even the Geocities example is poor because Yahoo doesn't have $1 billion or more to acquire this behemoth at this time. Yahoo is not, itself, worth all that many billions. Part of the reason for that is they have made a lot of overpriced acquisitions over the years. Many of them were of the "eyeballs and we'll monetize with display, or something, we'll figure it out later," variety. Yahoo's whole should have been greater than the sum of the parts, but looking at revenue trends, it sadly has not been.
Leaving Google aside, the real potential acquirer out there (if Facebook is a long term strategic money-losing play that eventually turns into a solid asset) is Microsoft. They already have a stake and are looking to be a big player online. While it might be a disappointing acquisition for Microsoft, it certainly wouldn't be unexptected.
But assuming they'd want to be attractive to anybody else, or just run a business and even go public with it, what business model is best? Back to this, the real question. A lot of clever people are debating it, but let's go through the alternatives:
- User profiling, the social graph, and other detailed consumer information somehow being sold to companies without users throwing a fit at the privacy intrusion. Yes, this has value, but it's hard to point to many businesses of this scale that make a business out of this. You would think that a large company might get a lot out of this by keeping that data internally and using it rather than selling it to outside businesses. Certainly data-centric financial companies like Amex and financial direct marketing whizzes like Capital One approach it this way. This again points away from Facebook being able to make a business out of this inside of 10 years, and towards them being an acquisition target for a firm like Microsoft.
- Targeted display ads are now available on Facebook but it looks like they aren't doing the job revenue wise. Part of the reason is, you can only intrude so much into a personal communications medium - it's why we don't have to listen to ads in our phones and tolerate only light intrusion with text ads in GMail, etc. Advertisers won't get huge, measurable ROI like they get from high-intent areas like search, so the CPM's will remain low. To make this work Facebook needs to either (a) cut its costs dramatically, especially on their money-losing international operations, or (b) get the mother of all sales forces to really push the inventory to the largest corporations looking to move budgets from traditional (even less measurable) media. (b) has some promise, and top quality sales execs are no doubt available today as other companies downsize in this tough economy.
To me, the only thing stopping Facebook from easing into a fee-based environment is a lack of guts. Come on Facebook, grow a pair. Your user base is humongous enough. Go ahead and get x% of them paying at least $15 a year to belong to the club, and get back to me with how much money you raised. (Hint: with 100 million users paying an average of $15/yr. you'll be garnering $1.5 billion in revenues. A good start. And no, you don't have to shut off the ads.)
- Fees. I don't see why this won't work. A structure that allows you to pay $0, $15, $30, or $99 per year for an account with different privileges would not kill the company and might be a solid performer. Personally I am paying for Basecamp, my j2 fax number, an online billing solution, and a number of other things because entry was relatively painless and the service for the premium versions is excellent. I am a huge believer in this (I thought Yahoo in the aggregate could have even diversified their revenues this way -- I wrote about this seven years ago!). If an unknown little telecommunications provider like j2 can run a solid ship and climb out of the economic doldrums to become a $1 billion company, what's stopping Facebook from doing something similar at a much larger scale?
Labels: facebook, techcrunch
Friday, October 24, 2008
...for a long, long while.
I was recommending you dollar-cost-average your way into tech stocks, by buying GOOG and YHOO at bargain prices. Today is another sickening day on the markets, so what better time to get our buying over with and go back to sleep for another five years.
I no longer feel strongly about following up with more YHOO, however. If you like gambling on takeover offers, then take a plunge here at $12.04, much as if you were betting on the Browns to cover at home for the rest of the season. But that isn't rational investing, it's educated roulette. (There is a difference?)
Take your remaining imaginary funds and plow them into GOOG. They have good prospects and this is a relatively safe entry point here at $341. Plus: emoticons in GMail!
If you're a real investor, though, you should probably be finding well run companies that are trading near cash value. Real bargains won't be found in these large tech stocks still trading at multiples much higher than the S&P average.
Edit: did I say $12.04 and $341? I meant $11.86 and $337. I told you this thing isn't for the faint of stomach!
Labels: goog, yhoo
Wednesday, October 22, 2008
Enterprise class web analytics for everyone? Who could argue with that? And who could have predicted this ten years ago?
For this camper anyway, this is the most significant announcement to come out at e-metrics summit here in Washington DC. Advanced reporting that gets closer to the enterprise class feature sets available elsewhere. Talk of a new API is welcome, too. If using third party apps to create multi-source reports for clients, it will be easier to integrate the rich data from GA.
It's all good.
Edit: In the Big-Brains-Take-on-the-News-for-Dummies Dept: On the elevator, I just talked with the co-founder of a leading analytics company and asked what he thought was the most important thing about this announcement. "It's the segmentation," he replied. "Doing it well is so incredibly hard." Peering into interfaces, it's all too easy to think stats are stats and they're easy for software vendors to serve up to you. In reality, with less powerful analytics products, "you can't get that info" is the answer to tough questions a marketer might have. Particularly intriguing is the segment "only visits that converted." It should be dead easy to check out whether most of your sales conversions came from the East Coast, or whether buyers were more or less likely to be using Firefox as their browser. Knowing more about your buyers is vital, but outside the capabilities of garden variety analytics. That, in a bit more than a nutshell, explains the pithy reaction "It's the segmentation."
Or in the words of Avinash Kaushik: "Analyzing data in aggregate is a crime against humanity." For his reaction to the announcement (some of the feature set, he no doubt had significant influence over!), see this post at Occam's Razor.
Labels: google analytics
Sorry for the slow pace of blogging, but with blogging being "dead," you could hardly blame us.
So in our Post-Semel Scorecard here 14 months ago (a followup to the Open Letter to Jerry Yang of 17 months ago), we noted Yahoo hadn't made much progress on any of our wish-list items (or their own, for that matter). We weren't very happy about it then - for Yahoo's many great people, or for the rest of us. Now, it's pretty much too late.
In the interim, an unlikely gift was offered: a $32+ per share total takeover offer from Microsoft. Particularly in search, this might have created a strong #2. It would have precipitated the downsizing needed to forge ahead into high growth areas. And it might have provided the economic stability needed to ride out the storm that is set to torpedo display ad revenues.
But Jerry and the board got cute. In hindsight, it looks really, really bad. Probably because it was. Now, the talking heads on MSNBC et al. are jumping on the ballistic bandwagon, ranting about the board's irresponsibility, merely parroting what T. Boone Pickens already said not-so-subtly about Yahoo management being "pathetic." It's a terrible shame, because it was a great company with great potential.
Now that the trend is clear -- Yahoo is earning barely pennies a share heading into a diving market for display ads -- things couldn't look bleaker. We told you so? Yes, we really did. And we are at a loss as to why virtually none of the correct actions were taken. Let's review the scorecard items.
* We asked Yahoo to consider acquiring a hot search startup like Powerset. They didn't. In June 2008, Microsoft acquired Powerset. Although this technology is unlikely to set the world on fire, Microsoft shows it is at least trying to work on improving its standing in the sector of online behavior that leads to dollars-per-share in profit, not pennies (or losses). To be clear: committing to a search for the next great thing in search would have led to certain acquisitions as "symptoms" of a real commitment to growing in that high-intent navigation area of the consumer online experience. No one symptom should be seen as a cause of growth or success, but if you aren't exhibiting symptoms of trying, you probably aren't committed to it.
* We recommended that Yahoo acquire Yelp to solidify its role in local search with a young-adult demographic. While the Searchmonkey technology is a nice, esoteric way of partnering with great publishers like Yelp, it's mostly a paper exercise for now. Yelp remains independent.
* There's no way that Yahoo could make any type of buyout offer now for a company like GoDaddy. When their stock was trading above $25 they could have not only afforded to make such interesting plays to solidify their reach in consumer and business services, but they could have conceivably gone to market to raise funds for a major acquisition. The good news (and there is little with the stock trading below $14) is that a bunch of smaller plays in these kinds of areas (domains, et al) are going to be selling at fire sale prices. If the shares of companies like Marchex slump further, they could prove to be good value - though they'd need to be integrated and redundant parts eliminated, so the bargain would have to be good. Here, major opportunities were missed, but this is also a time when Yahoo should cut through the doom and gloom and continue to shop for bargains. Remember how cheaply Yahoo and Google bought great brands like Flickr and Blogger? Surely there are popular services out there in a similar vein, such as PlentyofFish.com (1.5 employees and a direct competitor to Yahoo Personals).
* Research in Motion will likely stay independent unless times get really tough. In any case, Yahoo is now officially too small to buy them, and Microsoft probably would be the most serious contender there given the standing offer they are rumored to have in at RIM.
* Now that the company is barely at break-even and all hell is breaking loose, Yahoo is belatedly proceeding with deep job cuts. Along with the bizarre quasi-poison-pill maneuvers intended to foil a Microsoft bid, the protracted dithering about reducing bloat no doubt led to cynicism and drift within the ranks, to say nothing of a whole range of perverse incentive structures. The all-lower-case communiques from the CEO, far from being endearing, just seem to sum up the cavalier approach taken to the turnaround effort (that's what it was supposed to be, wasn't it?) that started when Yang took the helm.
* We recommended a partnership with Microsoft in search, long before the buyout offer came along. We never loved the idea, we just got tired of watching them compete with one another, and felt that platform consolidation was the tidiest solution for all of us. Anyway, not only did no partnership happen, but Yahoo turned down a $32+ per share offer for the whole company. Many observers feel a full acquisition by Microsoft is still a shoo-in. Yahoo will be lucky to get $18 this time, and that's only because the stock price will stay near there on buyout rumors. On sheer financials the stock should be around $9-10, if that.
* We received piecemeal PR communiques about various "tweaks" to the look and feel of the Yahoo home page, etc. But nothing bold was ever done, and the need to recommit to search (the profitable, cool part of the business) kept receding farther and farther into the distance.
All of that, sadly, is the continuation of a very long trend that started long ago. Many times over, since the late 1990's, Yahoo truly could have committed to search, to say nothing of management discipline and geek culture, but it frequently failed to do so. It got off track many times, in spite of many strengths. Too many body blows to recover fully. Let the speculation begin as to what will become of the Yahoo brand going forward.
Friday, October 10, 2008
Continuing where we left off in the bargain bin stock picking vein...
Today would be a great time to move forward and buy your second of three tranches of hypothetical Google (GOOG) shares as we dollar-cost average our way into the market.
But more importantly, take as much as you can muster, and buy your first half of two globs of Yahoo (YHOO) shares. Any serious buyout offer coming in now will have to go over $18-20, which is in itself a huge discount to what Microsoft actually offered awhile back. There is a more than even chance of a 50-100% pop in YHOO over the short term. Go for it.
Disclaimer: I don't recommend stocks. This is a paper exercise. Do your own due diligence.
Labels: goog, yhoo
Yesterday a consulting lead came through and I viewed the company's site on my mobile device. Very illustrative indeed! For whatever reason that showed me a lot of the hidden junk they'd stuffed on the page. I immediately decided against working with them.
Getting back to my laptop and taking more time to view the source code only confirmed my decision. Code like "input type= hidden" and "class=stealth" feels like it's begging to find its way into a Matt Cutts PowerPoint, guaranteed to get laffs at the "what not to do" seminars.
The company also had four more kinds of metadata than necessary in the document head, stuffed full of the exact same kinds of keywords in an overkill type scenario. Looks like something someone sold to someone, telling them it would get them somewhere.
Granted, most of what this prospect was looking for was paid search -- but experience has shown that companies doing so much deceptive stuff are hard to talk to in general. They may say one thing and mean another. Why listen to someone who says "oh yeah, we really want to go legit" when there are plenty of folks out there who say it and mean it?
input type = hidden. LOL! "class type = stealth" -- nothing like naming your CSS styles after sneaky SEO tactics!
In some cases you do have a company that is mortified that their SEO company did all that stuff, and they're looking for someone to genuinely help them go legit. In which case, it shouldn't be all that hard to get off on the right foot: there is plenty of field space in our lead forms over at Page Zero to explain background situations like "hey by the way, we know there is a lot of black hat code on our site right now -- this is not our philosophy at all, and we are seeking to hire you because we know you are reputable and we are looking for a firm that will do things right."
Labels: consulting, seo
Saturday, October 04, 2008
Pretty cool. If you search Google for "flickr," the first result is not only the Flickr site, but offers a nice search box so you can search Flickr right from the Google SERP's page.
Downright even-handed, I must say.
Labels: flickr, google
Thursday, October 02, 2008
Speaking of the link economy, apparently Sergey didn't merit a live hyperlink to himself or his company back when he keynote-fireside-chatted with Danny back in August 2003.
This is a must-read column by Danny Sullivan chronicling his exchange with a morally-challenged "Idiot Link Broker". The relentlessness of the sales pitch aside, you also have to ask - insofar as the sales rep began referring to Danny in the first person - did this idiot not even know who Danny Sullivan is? You're flogging a link scheme and explaining (and distorting) Google's guidelines to Danny like he is a three-year old. Will wonders never cease!?
One part of the story that really stands out for me is the issue of apparent credentials. This lying, cheating "company" is (like thousands by now) "Google AdWords Qualified." This relatively meaningless designation means that someone managed to study for and pass a test. It says zero about true marketing acumen, background, talent, track record, or depth.
The worst companies, from what I've seen, load up on thin credentials. If you're researching a digital marketing company's reputation, see if you can drill down to their *real* reputation. What are the people's names? What have they done? Have they spoken at trade events? Do real clients go to bat for them? How about a photo and evidence of blogging coherently, or some other evidence of depth? Have they been quoted in the press extensively? Do they belong to, or have solid ties with, an established, professional, national level trade association of one form or another (I don't count SEMPO)? Have they been written about? Do they write about others? Would they be willing to talk about a variety of industry trends and strategies with you, without constantly circling back to a high pressure sales pitch for a narrowly-conceived product?
And though I am loath to invoke it: are they the kind of person you'd care to sit down and have a beverage with?
All we can do is keep publishing warnings like Danny's column. That won't stop determined scammers from pursuing their tedious career paths.
P.S.: To Danny: if you send money, I will leave the above link live. For an extra fee, I will change the anchor text.
P.P.S.: To Matt Cutts: you get that I'm kidding right?
Labels: black hat, link farms, linking
As an interim entry for the annals of the Annual Internet Infinite Regression Awards, I note Best News Site Prediction of Its Own Demise (This Week) -- Techmeme on the new Google Blog Search. Will have to check it out. Old Google Blog Search was so bad and so spammy.
Labels: blogs, newspapers, search
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