Monday, December 29, 2008

Reconciling Living with Strangers

I've been re-reading David Foster Wallace, both as a way of grieving him and as an escape from other, more pressing, grief. Wallace was the complicated inhabitant of his own writing, the uncertain outsider unable to accept the loving embrace of his community. He was an odd jester, exposing shibboleths but also using the mundane to uncover things much deeper.

In footnote 38 to the title essay of A Supposedly Fun Thing I'll Never Do Again, he says

This is the reason why even a really beautiful, ingenious ad (of which there are a lot) can never be any kind of real art: an ad has no status as gift, i.e. it's never really for the person it's directed at.
In The Gift--a book that deeply influenced Wallace--Lewis Hyde says "unless the work is the realization of the artist's gift and unless we, the audience, can feel the gift it carries, there is no art." It is a difficult truth, I suppose, having spent a career in the industry. But it is a wonderful thing to realize that the art that surrounds us is more than words and images. It's more than ideas and meaning. In his introduction to Art of Colonial Latin America, Gauvin Alexander Bailey warns not to use art as anthropology: attempting to see art as a product of a time, a culture or even an idea obscures the fact that art is the product of an individual and that as individuals we all transcend our times, our culture and even our ideas.

The Mario Cravo Neto at the top of this post hangs in my living room. My brother told me a couple of weeks ago that he thought the image was "not me." Perhaps. But it is also, in a way, not Cravo Neto: I look at it and wonder what of him is in it, different than what he has given to his other work. Re-reading Wallace, I am sensitive to what he has left of himself in the work, of the gifts he has left, unique to him as an individual and far apart from the story that he sold and the book that I bought.

And then I look around at the other books, at the poems, at the pictures, and especially at the drawings my children have made me and I think about how I am surrounded by gifts, freely and lovingly given, not just in this season and not just in this too-trying year, but always.

Happy new year.

Wednesday, December 3, 2008

And I Suggest Using the Linux Kernel Next Time

The Economist had an article on disease causing genes in a recent issue.

Common sense tells us that

... the older a gene is, the more likely it is to be part of the irreducible structure of being alive... Another reason for expecting that disease-related genes would be recently evolved is that the older a gene is, the more likely it is that errors and weaknesses that could lead to disease will have been eliminated by natural selection.
But the research the article describes finds that these genes are, in fact, very old.
...the researchers found that the majority of disease-causing genes were present in single-celled organisms and that most of the rest arose when multicellular creatures began to evolve. Genes specific to mammals, by contrast, barely ever carry diseases.

[The researchers] do not have an explanation for why genetic diseases seem to be caused so disproportionately by old genes, but their discovery does suggest that such diseases are an inescapable component of life which even evolution cannot get rid of.
Sounds like a legacy system issue. Very difficult to resolve. I would suggest to evolution that rebuilding from scratch may be the only way to proceed.

Thursday, November 20, 2008

Whip Deflation Now!

Everybody's talking about deflation all of a sudden. I was a month and a half early, I guess. (Okay, okay, it was a footnote, but still.) What I said then was, we won't allow deflation. And we have the means at hand to prevent it.

Of course, monetizing the debt only goes so far when the government keeps making more.

Tuesday, November 11, 2008

Reckless, Booming Anarchy

"Reckless, booming anarchy," in short, produced fundamental progress. It was not a stable system, racked as it was by bank failures and collapsed business ventures, outrageous speculation and defaulted loans. Yet it was also energetic and inventive, creating permanent economic growth that endured after the froth was blown away.
This is Greider describing the 1830's.
Those who gambled on the future rise of the public lands in the West... were madmen only in the short-run business sense--only in thinking that future prospects could be realized all at once by means of an infinitely expansible credit system--and not in their basic sense of direction. The whirlwind creation of credit, wasteful as it was, had the effect of transferring purchasing power from the passive elements in the economy to the activists.
The classic tradeoff between entrepreneurism and stability.

Thursday, November 6, 2008


Surowiecki has an interesting take on the obvious up on his New Yorker blog. And I don't mean that in a bad way: it seems economists could usefully spend much of their time reviewing the obvious and why it doesn't fit our overly simplistic economic models.

He notes the fact that when stock prices go down, demand doesn't necessarily increase, it often decreases. The supply and demand curves change based on price changes. He cites Warren Buffet as one person who is mystified by this.

I took a bankruptcy class with Altman (of Altman's-Z fame) once a long time ago. I was surprised to see, when he presented the non-proprietary version of his bankruptcy prediction formula, that one of the terms was the stock price. This felt like cheating to me. But noone can argue against the fact that the price contains information and is predictive.

So it's not surprising that the value of a financial instrument is dependent not only on it's price but on it's change in price. Supply and demand curves should change as the product changes, and what you buy when you buy a share of stock is continuously changing.

Surowiecki concludes by saying

...Investors should be much happier buying when stocks are down... but it seems clear that this is not how most investors are psychologically built. Instead, we like to buy when stocks are rising, and we feel the need to sell when they’re falling. The impulse to do this is very hard to resist, and it is one of the biggest reasons why people, whether they’re investing in individual stocks or mutual funds, find it so hard to make money in the market.
Ah, yes, everybody in the market is irrational. That's a useful insight. Why not, instead, when the data does not agree with your theory, accept that it's the theory that's wrong, not the data.

Thursday, October 30, 2008

Low Probability Catastrophes

I was basically writing this exact same thing: economics as a science is a poor excuse for science (hat tip to Kedrosky... again.)

Economics is fascinating, because no one knows anything. Greider, in his excellent Secrets of the Temple said, in 1987:

The ultimate test for soundness for any science was the ability of its rules and theories to predict outcomes, and by that standard, economics was a crude and underdeveloped discipline.
Twenty years later, still as true as it was then. Why are economics and medicine, where our ignorance daily cause huge hardship and lost lives, still relatively medieval in their development while physics and chemistry have been so dynamic? Why can we put people on the moon but we can't cure cancer? Why can we make fabrics that are breathable and waterproof but we can't mitigate the business cycle?

Economics has this virtue over medicine regarding the scientific method: there is a huge amount of experimental data being generated all the time. While it occasionally shows the theory to be correct (for example, Zimbabwe), it usually shows the theory to be completely wrong (for example, the, um, economy.)

The question is, why is this so? Inventing a better economic theory would provide much more in the nature of public or private rewards than, say, inventing a better explanation for why the universe is expanding at the rate it is. Discovering the Higgs boson may win you the Nobel prize, but being able to reliably predict the fluctuations of our GDP would give you some nifty trading profits.

In fact, you don't need to predict GDP very well, you just need to predict it better than the other guys. So, why doesn't somebody? "Cargo cults" aside, I can think of only one reason: we're just not smart enough. Or, same thing, it's just not possible. One thing's for sure: we need to admit how much we don't know. The essence of crisis management is minimizing the damage from low probability catastrophes. As we bounce from one of these to another, we should think about admitting that more than leaping without looking, we're actually blind. Building some slack into the system seems the least we can do.

Tuesday, October 14, 2008

A Bet on Red

Okay, last post for a while on the economy. Macroeconomics fascinates me, mainly because I think it's about as well-developed as psychohistory, so Monday morning quarterbacking is possible as in no other discipline. But other commentators comment better; if you're really interested, you've found them. This post is simply a long rant aimed at getting it all out of my system so I can go back to prognosticating on marketing.

I have been told there are four virtues: compassion, joy, friendliness and equinamity. Of these, I suppose only equinamity comes naturally to me. Maybe that's why finger-pointing over the current mess seems so completely uninteresting.

If Wall Street borrowed too much and made too risky bets with their money, then they committed the same sins that Main Street does. Complaining that they were well paid to make these mistakes merely points out their customers rewarded those who made these common errors--something that can hardly be blamed on the bankers themselves. Saying, on the other hand, that they were professionals and should have known better shows, in my opinion, a certain lack of self-awareness.

I think Wall Street should have known better. I think everyone should know better. I think anyone who handles money at any point in their life should be taught this:

There's No Free Lunch.

1. If you're borrowing money, you have come under the watchful eye of someone who but for the sake of the law would break your knees as an object lesson, or just for fun. Borrowing money--including using (or even applying for) a credit card or getting a mortgage or a student loan--is a big deal. A BIG deal. You would think that as a movie-going nation we would understand the dire consequences of falling behind on paying off a debt (Get Shorty, American Gangster, The Big Lebowski... need I go on?). Borrowing money is a bad idea. But borrowing money is also a good idea. Buying a car or home or college degree costs more than almost anyone can afford to pay all at once. And, since you use your purchase over the course of time, paying for it over the course of time makes sense. So, good idea, bad idea, what to do? Approach borrowing with the same legal firepower and accounting self-knowledge that you would when making a deal with the devil. And the same expectation that, even if you've thoroughly done the legal and accounting thing, you're probably about to be totally screwed in a completely unforeseen way. (If you haven't done the legal and accounting thing, you'll be totally screwed in a completely mundane way.)

2. I referenced a graph last week showing the growth in per-capita GDP. It's 1.8% a year; not year-in, year-out, but over any medium-term period of time. If you're investing money and expect to earn more than 1.8% a year before tax, ask yourself why you deserve that. Why do you deserve it? What did you do to earn it? You're probably investing in the US economy, which grows at 1.8% per year per person. Why would your investment grow more than that? If you're thinking of buying shares of some stock, are you going to earn more than 1.8% because you are smarter than the scores of people who spend 147 hours a week, 51 weeks a year relentlessly investigating and modelling nothing but that particular stock? Or are you planning to contribute your brainpower and sweat to making the recipient of your investment more successful? If not, then why do you deserve a better return than 1.8% per year, before tax? You know what you do to deserve it? You take a chance. You take some risk. This is a good thing... a wonderful thing. It could be viewed as a joyousness about humanity's potential, a friendliness to your fellow strivers, or compassion for someone trying to lift themselves up. But it shouldn't be. It should be viewed as a bet on red. So next time black comes up, please don't whine.

Thursday, October 9, 2008

Aieeee! Redux

I read today that the market is at its lowest level since 2003. As a percentage of GDP (which calculation has the benefits of automatically adjusting for inflation and actual economic growth) it's at its lowest level since 1995. I've updated the graph to show today's change as well as focus in on 1982 to today. At end of Q2-1982 total stock market cap was 37%, its lowest level that I have data for (so, since at least 1952.) It reached 210% end of Q1-2000, went to 107% Q1-2003 and I now estimate it at 94%, a level last seen Q2-1995.

If we return to 37%, the Dow would be at... wait, you do the math: I don't want to know.

Tuesday, October 7, 2008

Investing in the Real Economy?

I thought this was going to be more comforting than it turned out to be. Although, I have to say that it's a lot more comforting now that I've added today's market close.

GDP and Total Stock Market Capitalization in Real Billions of Dollars

This is a lot less comforting.

Total Stock Market Capitalization as % of GDP
Total market cap as a percent of GDP has reached its lowest level since 1995. But 1995 seems to mark the beginning of some different valuation paradigm. Why? What changed? Is it a real change, or the beginning of what's now ending?

GDP data from the BEA, total stock market capitalization is from the US Census Bureau, except for today's number which I extrapolated from the end of Q2-08 amount using the change in the Wilshire 5000 index.

Saturday, October 4, 2008

The Fundamental Impossibility of Banking

I was just reading Nassim Taleb's claim that

with ... the costs of the 2007-2008 subprime crisis, the banking system seems to have lost more on risk taking (from the failures of quantitative risk management) than every penny banks ever earned taking risks.
And it occurred to me that due to the no arbitrage condition of modern finance, borrowing short at market rates and lending long at market rates while entirely managing risk away is axiomatically an unprofitable business. Since banking is in fact profitable, then it must be that every dollar of profit and every dollar of every bankers salary that is not paid for by reduced rates to depositors or increased rates to borrowers will be paid for by the taxpayers.

There's no free lunch: a safe, free-market bank is impossible.

(Aren't my Saturday nights exciting?)

Friday, October 3, 2008

Start a Company. Now.

My fundamental strength as a venture investor is having a clear view of what the future will look like (at least as regards my little niche of the industry.) My fundamental weakness has always been not being entirely sure how we get from where we are today to that future. I suppose there's a name for that, my type of goal-oriented thinking.

I am thinking about that today because Niki Scevak over at Bronte Media uses the other type of prediction (path oriented thinking?) to predict an entirely different future for startup financing than I do. He makes a convincing argument that the inevitable deleveraging at the major financial institutions and the resulting (relative) scarcity of credit will trickle down to a freeze in VC investment over the next 12-18 months.

As mentioned, I don't have truck with this type of argument. Partly because I don't think that way, but also because I'm not sure it leads to accurate end-states. As one of my smarter mentors once said to me--regarding financial modelling--"if you make 100 assumptions, and each is 99% likely to be true, you have a very convincing argument for something that's almost certainly wrong."

Populist probability calculations aside, I think it's clearly true that errors compound at each step in the path, making the resulting end-state much less likely than a naive reading of the path implies. I prefer to gauge the economic desirability and stability of the various potential end-states and assume that we eventually end up in the best of them.

But, while I assume that all of my predictions will come to pass, I am still waiting for some of them. The most valuable lesson I've learned in the past 15 years as an investor is that if you invest in real, economically substantial change, you'd better be pretty damn patient. The healthcare industry comes to mind.

Back to venture funding: I am more optimistic than Niki.

I believe--with Warren Buffet--that the deleveraging at the banks has to be balanced by money creation elsewhere*. I also believe that the "easy" money to be made in derivatives has crowded out investment in productive assets, such as businesses. As proof, I'll point to the change in the marginal product of capital. (The following relies on a blog post by Casey Mulligan; if anyone knows where to find the underlying data Mulligan used, please let me know.)

The marginal product of capital is a measure of how much profit a unit of capital returns. In the non-financial sector of the US economy, the marginal product of capital has averaged between 7% and 8% a year since World War II. The rate just before the 2001 dot com bubble popped was below this. The rate in late 2007 and early 2008 was about 10%. 10%! 10% is huge. I suggest (without any proof) that investors were buying MBSs and CDOs and the like instead of investing in non-financial businesses. Lack of demand for equity in non-financial businesses caused prices to drop/returns to rise.

If these two propositions are true--that (1) there will still be large amounts of investable capital, and (2) that the returns to be had by investing in non-financial businesses are much higher than average--then I expect investors to find, en masse, new glamor in putting money to work in equities.

Maybe I'm just an optimist, but I predict the return of good old company building as the primary fascination of our financiers over the next two years.

(Hat tip for the Casey Mulligan link to Greg Mankiw.)

* Buffet said that the deleveraging is not possible without someone else levering up, and that someone else has to be the government. I don't assume the mechanism, I just note that bank lending is where the vast majority of our money supply comes from and that if money is not created somehow to offset the disappearance of bank lending, then we will suffer a massive deflation. This would be disastrous, and won't be allowed. Since the government can reinflate the money supply in various ways--including firing up the printing presses and buying back government debt with trillion dollar bills (we could put George Bush's face on it!) if need be--they will.

Friday, August 1, 2008

Spectrum Wants to be Free

You need to read today's NYTimes Op-Ed by Tim Wu.

AMERICANS today spend almost as much on bandwidth — the capacity to move information — as we do on energy. A family of four likely spends several hundred dollars a month on cellphones, cable television and Internet connections, which is about what we spend on gas and heating oil...

Like energy, bandwidth is an essential economic input. You can’t run an engine without gas, or a cellphone without bandwidth. Both are also resources controlled by a tight group of producers, whether oil companies and Middle Eastern nations or communications companies like AT&T, Comcast and Vodafone. That’s why, as with energy, we need to develop alternative sources of bandwidth.
If there's any industry that seems ripe for disruption, it's the bandwidth providers. Can someone get on that? I'm ready.

Thursday, July 31, 2008

Thoughts on Corporate Venture Capital

Was it almost a year ago that I wrote about Google getting into corporate VC? Well, here they come.

Reaction among the blogs I follow has been negative. Fred Wilson has the most cogent take, as usual.

I worked in corporate venture capital for years. I was skeptical when I was interviewing for the job so I looked into the academic literature on CVC performance. The research basically showed that corporate venture capital has historically underperformed institutional venture capital, but not in all cases. (Josh Lerner's and Paul Gomper's writings, for instance.) After some thought, I asked the corporate management two questions:

  1. Would I be told to invest when the market was frothy and told to sell when the market was panicky? and
  2. Could I invest in businesses that competed with or disrupted my employer's core business?
They answered No and Yes and I took the job.

Number one is the classic corporate "buy high, sell low." Corporations tend to set up venture capital arms when they see high returns from institutional VCs. But this means, of course, that the investments garnering such high returns were made years ago and that the corporation is late to the party. And then when times turn hard, like in 2001 - 2003, all the corporations shut down their venture arms and sell the investments at fire-sale prices. We see this every cycle. It's understandable, but just dumb.

Number two is harder. The potential edge a corporate venture capitalist has over an institutional venture capitalist is understanding the market and customer better. But the CVC only understands the market and customer better if they are investing in the business that the corporation is already in. CVCs need to invest in companies that disrupt their parent's business. This is the only way to get returns comparable to institional VCs. But the operational units of the corporation will kick and scream to prevent that. Convincing upper management that if you don't fund the disruptive technology, someone else will is always tough.

Corporate VCs have other advantages over institutional VCs: the partners don't have to spend half their time raising the next fund, they are not commited to investing a specific amount of money, they are not tied to a ten year fund life (and thus a three-five year investment holding period), there is large and immediate qualified deal flow (especially for post-revenue companies), etc. And they have some weaknesses: if the management is successful, they leave to start their own fund, the corporate parent has a different agenda than the managers, etc.

In general, though, I know that CVC can work if set up correctly. I also know (from watching my competitors back then) that it usually isn't.

Tuesday, July 1, 2008

On Eating Your Own Cooking

Valleywag has an post implying ad agencies don't practice what they preach: that they don't spend on search ads for themselves like they do for their clients. I have no doubt this is true. I just searched for "advertising agency" on Google. The paid results are almost all very small agencies.

Ad agencies spend very little on advertising for themselves in any media. Not because they don't believe in advertising, because their target customers can't be found via advertising. Think about it: the person hired by Fortune500Co to spend $100 million on an ad campaign had better know who the agencies she's going to review for the gig are before she starts. If she's Googling for names, then she's probably the wrong person for the job.

Certain types of large professional services firms (ad agencies, accounting firms, investment banks, law firms, consulting firms, etc.) don't benefit from advertising, and certainly not mass-market advertising. They may put an occasional ad in a trade publication, but even those are probably not efficient. That's because a DDB, a Deloitte & Touche, a Goldman Sachs, a Jones Day, a McKinsey don't need brand awareness among their target audience. And they generally don't care about brand awareness among other than their target audience.

All of these firms need to manage their target audience's opinion of them relative to their competition. That's why you see McKinsey partners being quoted in news articles, articles in the trade press being placed by PR people, announcements of deals done being advertised in magazines, books being written by marketing gurus, and all sorts of client services people appearing on conference panels and talking-heads TV.

So, it shouldn't surprise anyone that ad agencies don't use mass market ads for themselves. What surprises me is when client services firms do advertise, like Accenture has done for years in airports. I can't even imagine how low the ROI of that campaign is.

Sunday, June 22, 2008

"I Would Give It Eleventy-Million Stars If I Could, And So Would You"

Okay, I'm sure everyone has already seen this, but it made me laugh out loud sitting here alone in the kitchen.

The scathingly funny Amazon reviews for the Denon AKDL1 Link Cable, a $500 ethernet cable "made of high-purity copper wire" to "get the purest signal from multi-channel DVD and CD playback." Yes, a $500 ethernet cable so that your digital music will sound better.

Via BoingBoing gadgets.

(If you're a marketing person or just a normal friend of mine... Ethernet protocol involves lots of making-sure-the-digits-are-right stuff. Unless you've crafted your ethernet cable out of coat-hangers, your music is not going to sound any different on the $2 cable you took home from the office than on this $500 cable.)

Saturday, June 21, 2008

Expressly. You Keep Using That Word. I Don't Think It Means What You Think It Means.

I've been way too busy to post lately. Sorry. But yesterday an email from Forbes landed in my inbox and I had to share. It starts:

Forbes is committed to protecting the privacy of its readers... However, Forbes does make available its list of readers who have expressly provided us with their permission to receive information...
I almost stopped reading there. It was an invitation to opt-in, to "expressly provide permission." I wasn't interested, so no need to do anything. But I kept reading anyway, to this:
If you would like to receive information and special offers from us and our business partners, you do not have to respond to this email. However, if you would not like to receive these messages, please use this link.
Wait, what? It's opt-out? So, by not opting-out I've expressly provided permission?

I guess it's naive of me to expect more from a place like Forbes.

Thursday, June 5, 2008

Dumb Money

The juxtaposition in my RSS reader of Kedrosky's Venture Capital is an Attractive Nuisance, II and Organizations and Markets' Against Government Subsidized VC seems like a sign for me to comment on something I was striving to ignore.

Bloomberg announces a taxpayer subsidized venture capital fund just after the NBER publishes a paper on what a bad idea it is for the government to get involved in venture investing. Coincidence, of course, but shouldn't it be obvious to everyone that this is a bad idea?

I really don't understand why the bureaucrats think they can do better than the dozens of private venture capitalists and the hundreds of active angel investors in the city. We need more great startups in the city, not more investors vying to fund the few there are.

The best thing the city could do to encourage startup formation here is to make it easier to live here on a reasonable salary--startups can't afford to pay programmers like the banks can, at least not in the short-term. The City should encourage improvement of the physical infrastructure (mass transit, housing, office space, etc.) and let the invisible hand take care of the market.

Yes, Brands Work

Kara Swisher over at All Things Digital approvingly quotes NeoAtOgilvy COO Greg Smith: “No one wants a relationship with their mustard."

But, then, why do people buy the mustard they buy? Why do people persist in buying French's, Gulden's and Grey Poupon? Not price: store brands are cheaper. Not quality: no more than a tiny minority of people are going to notice the difference between French's Deli Brown and the equivalent store brand once it's slathered on a hotdog. But people persist in spending more for equivalent quality mustard, even though most people have had some opportunity to try store-brand mustards. Why?

Marketing. People have an attachment to brands. The attachment may be economically irrational, but there is no denying it. When I walk into a grocery store and stare at the hundreds of different mustards, I choose one. The one I choose makes me feel something; safe, perhaps, or the warm glow of family cookouts past. Swisher may be uncomfortable calling this a relationship, but that's what it is.

Swisher goes on to say

This odd but spot-on observation was about why big packaged goods advertisers–who are the really big spenders of the ad business–might be less than interested leveraging social media advertising and its promise of deep engagement with consumer... No one wants to interact over mustard or mayo or ketchup or most products that pay the rent up and down Madison Avenue.
She's right: no one wants to interact. But ads don't ask people to interact with the product, they get people to engage with the brand. And maybe no one wants to engage with mustard brands. But they do. They deeply engage with ads primarily because they are deeply engaged with the surrounding content. The promise of social media marketing is to reach consumers in an environment where they are already receptive and deeply engaged and then take advantage of that existing frame of mind to reinforce a brand relationship.

TV is still the master of brand advertising. Social media is the closest the web has come to TV in creating a receptive frame of mind and engagement. No one has found the secret to marketing brands online yet, but the reason is not, as Swisher implies, that brands don't work.

Wednesday, June 4, 2008

One Small Bug; Centuries of Notoriety

Everybody's blogging about Vanity Fair's How the Web Was Won. I found it both boring and too short. Probably because I'm old. The best quote was:

I’d rather not talk about it—sorry.
From Robert Tappan Morris.

Thursday, May 29, 2008

Pinch Media Launches

Sometimes things just fall into place. When my friend Greg Yardley gave me a call a couple of months ago and said he had an idea for a new company, Pinch Media, it took me about thirty seconds to make the decision to invest.

There's an old venture capital saying about the things you look for in a company, the four P's. But, to tell you the truth, I can only remember the first one: People. Investing in the right people makes all the difference. The speed with which Greg brought on a stellar cast of investors (Union Square Ventures, First Round Capital, Dave Morgan, Mike Yavonditte and Tina Sharkey/Seth Goldstein) shows I'm not the only one who thinks that way.

Greg's got an excellent developer in Jesse Rohland, backers with all the right contacts and he knows the business inside out from his time at Right Media. Having a great product set in a growing and exciting market is just icing on the cake.

Congrats, Greg!

Other coverage: Silicon Alley Insider, TechCrunch.

Tuesday, April 29, 2008

Meet Our Self-Replicating Robot Overlords

This is clearly the coolest thing I have seen this month: RepRap. (via Overcoming Bias.)

Social Business

Jeff Dachis announced his new venture on Monday: building and consulting on social software for corporations. I worked with Jeff from the mid-90s to 2001 or so when my firm backed Razorfish as it grew from ten people in a single office to 2,000+ in multiple offices around the world. When Austin Ventures asked me about Jeff as part of their due diligence, I was happy to give an enthusiastic thumbs up.

And I like the concept. Certainly more than Fred Wilson. Fred says "when you think of terms like 'open APIs', 'customizable', and 'upload data/media', the enterprise with its need for security and control doesn't really come to mind." And later, "most enterprises don't want their employees to be active members of a community that it can't control, monitor, and moderate."

Fred is wrong. In the 'social' parts of a business, the parts where people interact with other people to get things done, it's not about control, it's about accountability. And that's an entirely different, but tractable, problem.

A good friend of mine spent the last year and a half using open-source collaboration and social networking tools to build bridges among her organization's dozens of international offices. Her effort has already allowed people to share knowledge (about best practices and successful local products that might work elsewhere), create new connections between employees and help maintain these new connections more easily. She had to find, evaluate, interconnect and teach a bunch of tools. Integrated enterprise social software would have been a huge head start.

This is a big opportunity. There are some intrinsic problems with knowledge sharing, etc., that I've blogged about, and these need to be addressed. But good entrepreneurs help create markets, and Jeff's a great entrepreneur.

Tuesday, April 8, 2008

Why did Google Apps choose Django and not TurboGears?

Anyone? I mean, after teaching myself TurboGears. Sigh.

Thursday, April 3, 2008

Kids on the Internet

This is completely off-topic, so I'll keep it short.

A friend just sent me a copy of the "Shannon" email that's been circulating for the last many years. The email talks about the dangers of kids being online, how offering any identifying information at all can make them a target for assault or murder.

My nine year old daughter uses the internet so I am very sensitive to the threat. I've given her the talking to about giving out personal information so many times she now recites it along with me. But in an effort to avoid substituting ineffective worrying for actual parenting, I offer this article, Online "Predators" and Their Victims, from the Crimes Against Children Research Center. Just published under the auspices of the American Psychological Association, it's a meta-study that offers guidance to the real dangers to kids online and what we can do about them.

Required reading, if you have kids.

Wednesday, April 2, 2008

I own a lot of cookbooks; A couple I even own for the recipes

The Times has an interesting internet-killed-old-media article, Internet book piracy will drive authors to stop writing. I'm almost old enough to remember when The Times was called The Daily Universal Register, so take it with a grain of salt when I say that these types of articles always strike me as intentionally hyperbolic. The death of TV, the death of music, the death of newspapers (and even Mark Cuban's dadaist proclamation of the death of the internet) all make good copy, it's true. But even now, ten years after print was declared dead for the first time within my earshot, it still accounts for almost a third of advertising revenue (look at the Jack Myers numbers I referenced yesterday.)

We like to talk about growth, positive or negative, as if the world were all straight lines. Maybe because so much of our business news is investment oriented--where future growth is the primary driver of changes in company value--while the real impact of business on our everyday life is pretty much everything except stock prices.

The best quote in the article, from Tracy Chevalier, author and chair of the Society of Authors (proving, btw, that US journalists are not the only ones too lazy to try to find unbiased sources):

It’s hitting hardest the writers who write books that you dip in and out of: poetry, cookbooks, travel guides, short stories – books where you don’t have to read the whole thing.

Although people still buy [books by] Nigella and Jamie Oliver and Delia it is because of their celebrity. Cookbook authors are really struggling. I do it myself – if I want a recipe I go online and get it for free.

For a while it will be great for readers because they will pay less and less but in the long run it’s going to ruin the information. People will stop writing. There’s a lot of ‘wait and see what the technology brings’ but the trouble is if you wait and see too long then it’s gone. That’s what happened to the music industry.

I look up recipes on the internet all the time. When I want to make something, I usually look up four or five and compare them. So, why do I still buy cookbooks?

Chevalier is confusing two issues: medium and packaging. While it may be true that we no longer care so much about which medium our information comes through, we still care deeply about the packaging. Information may want to be free, but nobody buys media for the information.

My favorite cookbook right now is David Rosengarten's It's All American Food. Rosengarten collects a ton of disparate recipes, each easily the best in its class: I trust this cookbook; when I don't know which recipe to use, I use Rosengarten's. I'm sure I could find recipes as good as Rosengarten's on the internet. But how would I know when I did? I need someone I trust to help me choose, someone who has actually tried the many recipes and has taste similar to mine. I've found that person, and I bought his cookbook (and given it as a present to family members.)

It's simply more efficient to pay $25 for a cookbook with hundreds of well-chosen recipes than to spend an hour online sorting through recipes every time I want to try something new.

Tuesday, April 1, 2008

Ad Spend Numbers

ReveNews links to Jack Myers' 2006-2009 media spend estimates. Jack's got a great breakdown of media spend by category. Nothing surprising, but it's always nice to look at numbers.

The big growers in 2009? Mobile ads (120% growth from 2008), videogame ads (60%), satellite radio ads (35%), and branded entertainment/product placement (30%) are the top four.

The internet wheezes in at number five, with 28.5% growth over 2008. How so very old media of it.

Friday, March 28, 2008

Handipoints Launches

Viva Chu, a colleague at my last startup, has finally launched Handipoints, his chore tracker/virtual world for kids. He also snagged a nice review in TechCrunch.

Handipoints is a site where parents can create printable chore charts and setup an allowance program that is tied to teaching responsible habits. Kids earn points from doing their chores, homework, and staying healthy. They use their points to buy rewards from their parents or to play games, watch cartoons, and adopt and dress up a cartoon cat in HandiLand.

Congrats, Viva, I look forward to trying it out with my kids.

Wednesday, March 26, 2008

And then We'll Teach the Saudis How to Farm

While the rest of us are trying to figure out how to make internet brand ads ($5 CPMs, if you're lucky) as engaging as TV ads ($50 CPMs), TechCrunch is trying to figure out how to bring internet style ads to TV.

I'm sort of at a loss for words on this one.

'Pimp' is an Uglier Word

Henrik Torstensson points out an article on BubbleGeneration called Companies Are Not Pimps. Their beef? LBS was holding a conference called Monetizing Social Networks.

Here's BubbleGeneration's take:

MBAs come to B-school wanting to do cool things - and they get crushed into thinking business is about "product" and "monetization"... It was, at least a little bit - in the industrial era... But that was yesterday... If there's one single lesson you apply at the edge, let it be this: business models happen... What that really means is: we don't "monetize" resources. We co-create and co-produce value... Monetize is an ugly word.
Well, this is just dumb. Okay, monetize is an ugly word, in the sense that it means turn into money. You don't want to turn your users into money, Mr. Midas, you want them to compensate you for the value you are providing to them. There is nothing wrong with this. In fact, it seems sort of fair.

So: (1) create value, (2) get your customers to pay you. [Furiously trying not to bring up South Park Gnomes... failed.]

It's amazing the value you can create if you don't need to make any money. But unless you're going to set up as a non-profit and get kind-hearted people to give you cash, you probably can't create value for very long. While I believe people who are willing to create tons of value and not get paid for it are the secular equivalents of saints, I doubt that's what BubbleGeneration meant.

Creating value is not enough. As the Economist notes,
A great paradox of the internet... is that a next big thing—web-mail then, social networking now—can indeed quickly become something that consumers expect from their favourite web portal. The non sequitur is to assume that the new service will be a revenue-generating business in its own right... Web-mail has certainly not become a business... Social networking appears to be similar.
Webmail and social networks create a ton of value. While it may be too soon to tell with social networks, webmail has certainly proved to not be especially "monetizable." But, so what? It makes a little money, it's incredibly useful, it's great. But it shows that you can't map value to money. The belief that value and money are inherently interchangeable is one of the great lies of our capitalist society.

I don't believe that companies should be started with making money foremost in mind. They should be started with some way of solving a problem, making peoples' lives better, resolving an inefficiency: some way of creating value. But after deciding to make the world a better place, the next question company founders need to ask themselves is "how will we make enough money to pay our developers, pay for our overhead, and provide a decent return to our investors for being foolish enough to believe in us?"

If you're not creating value, well then you shouldn't be in business. But if you don't intend to monetize then what you're doing wasn't a business in the first place.

Monday, March 24, 2008

The Feed Kludge

I'm not a huge fan of blog comments. Sure, I appreciate the friendly "Amen, brother", but if you've really got something to say then start your own blog and start saying it. And, of course, link it to my blog. Comments are inherently a speaker-audience metaphor: the blogger is up on the stage talking and the peanut gallery chimes in now and again. I don't like that; I don't want an audience, I want an invisible college.

A network of citations is the best way to organize and discover relevant information, better even than the oft-yearned-for semantic web. From a systems point of view, writing a blog post and linking to mine creates a useful connection. It says that your set of ideas and my set of ideas are related. It means that highly connected subsets of the web could be mechanically discovered; that someday I could ask to read opinions on, say, the Future of Advertising, and some system could reliably set me up with feeds of sites that talk about that. And it could do it in a way that more closely emulates the editorial function than the search function. And the editorial function is what is sorely missing in today's web. That's why I often spend half an hour weeding out the direct marketing pitches from the useful content after a Google search: what are my other options? Go to Not likely.

Sarah Perez writes that the Conversation Has Left the Blogosphere over at ReadWriteWeb. The article is a list of kludgey ways to track ideas and comments popping up in unlinked settings: Twitter posts, Digg comments, Facebook feeds. The bigger issue for me is that these new sources of ideas aren't integrated. One strength of the web, linking, is being superseded by another, ease of communication.

Maybe I'm just an optimist, but there has to be a way to create more communication while maintaining some way to keep the information organized. I'm not saying we should roll back progress, I would never say that. The internet community has always been great at synthesizing great features into true progress. That is definitely what's needed here.

Wednesday, March 12, 2008

Don't Do Me Any Favors

Louise Story had a decent article in the NY Times on Monday about internet ad targeting. But the article, like every article on ad targeting ever written in a publication dependent on placating their obviously non-objective sources, said this:

...executives from the largest Web companies say ... the data is a boon to consumers, because it makes the ads they see more relevant... “What is targeting in the long term?” said Michael Galgon, Microsoft’s chief advertising strategist. “You’re getting content about things and messaging about things that are spot-on to who you are.”

Now, let's keep this between us internet marketing wonks, but the truth is targeting isn't a boon to consumers. We're not doing them any favors. Moreover, nobody I know who is in the marketing industry (as opposed to the media or ad-tech industry) says that consumers want advertising. Consumers put up with advertising, because they know they can't get content without it.

Don't agree? Here's a simple test. If you're doing the consumers such a favor with targeting, ask them to give you something back for it. Money, maybe. Or maybe just putting up with inferior content. That seems fair, doesn't it? Convince me that consumers are willing to give up something for more relevant ads, or stop saying it.

The only thing consumers give up to see more relevant ads is their personal data, and while that data's very valuable, they are giving it up only because they don't know they are.

David Verklin, of Carat, in the same article:
"Everyone feels that if we can get more data, we could put ads in front of people who are interested in them,” he said. “That’s the whole idea here: put dog food ads in front of people who have dogs."
Note that by "everyone" he means everyone in the marketing, media and technology world. He is paid to sell more dog food, and targeting lets him do that. If a salesman showed up in my office and said he came calling because I fit the profile of buyers of his product, I would say he's just doing his job; if he claimed, in addition, that he was actually doing me a favor by not showing up trying to sell me something I didn't want, I would think he was an idiot. Verklin does not claim to be doing anyone any favors, he claims to be doing his job. That is how marketing professionals think, and how the better ones admit to thinking.

I make my living in the marketing industry. I'm not going to bite the hand that feeds me. But the idea that we're doing consumers a favor is so transparently ludicrous that it sounds exactly like intentional misdirection or defensive rationalization.

Please, everybody, stop saying targeting is a boon to consumers. Seeing ads are the price consumers pay for media. Anyone arguing that slightly lowering that cost by showing more relevant ads (without acknowledging that they are increasing the costs by nosing around in the consumers' private affairs) is not doing anyone any favors, especially not the marketing industry.

Tuesday, March 11, 2008

A Dollar's Worth of Wine, and Three Dollars' Worth of Bubbles

I had this New Yorker cartoon on my desk in 2002. I felt for that guy. Wait, I was that guy.

I totally missed out on the real estate bubble. Well, I bought a house in 2003, so I guess I played a bit role. Eric Janszen has a great article in Harper's about the dot com bubble and the real estate bubble. While I disagree with about half of what he says, that's a pretty good percentage for me, so I recommend reading it.

He makes a case that the next bubble is starting to inflate now. He also lays out the timing and size of the next bubble by looking at the characteristics of past bubbles. It's a bit simplistic, but it's fun reading. If he's right, then knowing what the next bubble is, investing in it now and selling anywhere near the future peak he has identified would be a nice way to get rich without needing to be a super-genius, a hard worker or anything other than a huge risk-taker (and, of course, somewhat wealthy already.)

So, what's the next bubble? He thinks alternative energy. That doesn't seem right to me: creating that type of company requires actual deep technical expertise-- unlike creating a dot com or buying a house--so I don't see how enough investable companies are created. Any other ideas?

All I know is, I'm going way short in 2013.

Tuesday, March 4, 2008

Shoemaker's Child

I should be using this blog as a marketing vehicle, not for the money, but for the learning.

This company, YouCast, is doing something pretty interesting around branding on the internet. Can't say too much, but this Snapple widget is part of it.

Sanpple on Myspace
Meez female
Meez Male

Wednesday, February 20, 2008

The Sky is Falling! Onto the Moon!

Paul Kedrosky, whose blog I love to read, lends credence to a misleading MSNBC article "Mortgage Application Volume Plummets" by pointing to it. See below, a graph of the stat that "plummeted," through 2/15/2008.

I mean, there's something wacky going on with that volatility, but it's not a disappearance of mortgage applications. Looks to me like there's a lot of opportunistic demand.

Data from the Mortgage Bankers Association.

Monday, February 18, 2008

Advertising in a Downturn: Case Study

The common wisdom, the man on the street, the wiseacre in the crowd and their various ilk at the major media outlets say: in a recession, advertising spend goes down. I've been arguing for six months that certain sectors of the advertising market won't, even though their industries are troubled: mortgages and cars have been my examples. Today the New York Times grudgingly reports that mortgage lenders have continued to advertise.

The mortgage market may be in a historic upheaval, but mortgage companies continue to pump out upbeat advertisements... Despite rising foreclosures, defaults, lawsuits and investigations by state and federal regulators, the mortgage industry has not reduced its ad spending... Mortgage experts say spending will be strong into the spring.

"There's been huge scrutiny on these companies, but they are continuing to advertise... many of these companies are bleeding, and these ads are a way to get more money into the door."
But advertising spend is related to GDP growth. So, why is mortgage advertising immune? Why do I think car advertising (especially on the internet) will be immune? My thesis is that brand advertising and sales/transactional advertising react very differently to near-term microeconomic factors.

Brand advertisers (consumer packaged goods, car manufacturers, etc.) can cut back their advertising spend in the short-term and not suffer too much from it. Brand advertising is an investment in the future: brand advertising today has a long tail, so a cutback today doesn't mean that sales suffer tomorrow. But transactional advertisers (mortgages, car dealers) advertise today for a sale tomorrow. There is no long view. So if a transactional advertiser stops advertising, sales stop. (Of course, everybody is a bit brand advertiser and a bit transactional advertiser, it's not black and white, but most are more one than the other.)

My prediction: transactional advertisers will continue to advertise through a downturn. Brand advertisers will slow. The internet is primarily transactional advertising, so should weather a downturn better than other media. Network television is primarily branded advertising, so should suffer more.

Friday, February 1, 2008

The Google: Inflection Point

Google continued growing rapidly, albeit a tad less rapidly, and said they saw no weakness in the online advertising market from the oft-predicted recession. But they also said that they were going to focus more on display advertising to diversify away from their core CPC business. That’s exactly what I said to expect.

This will continue until people are feeling ebullient again. Long-term, Google's real problem in garnering a much larger share of the advertising market is something else: Google can't do brand advertising. They're great for sales advertising, but that's only--at most--half of advertising budgets.

Sales advertising is when the ad tells you to go to the car dealer this weekend and buy the car. Buy now. Only five left on the lot. Financing available.

Brand advertising is when the rugged man and the adoring woman drive through the verdant forest for thirty seconds while the Pats are taking a timeout from their pummeling by the Giants.

Brand advertising is a better investment, but it takes time, money and faith. Sales advertising gets you a measurable, but smaller, return tomorrow. When it's go go go, you do sales advertising. When its build build build you do brand advertising.

Brand advertising requires the consumer to pay attention, identify with the message, and engage long enough to remember the brand. And it requires that this happens several times (although not too many times) every week. It's both an art and a science, but mainly an art.

Internet advertising as it is currently practiced is incredibly poorly suited for brand advertising. Banner ads: you don't see them, you don't pay attention to them. If you do pay attention to one, you are certainly not engaging with it, unless you happen to be in the immediate market for the product. This is great for sales ads, but not for brand ads.

My agency friends are trying to figure it out: brands want to be on the internet, they need to be on the internet. But the techniques that worked when selling mortgages don't work when selling soda. It's not a question of display ads versus search ads. None of the current online advertising stuff works, nothing scalable works. Yet.

The internet could be a better medium for brand advertising than any other. The internet is built on communication, engagement and relationship. To harness this, an entirely new way of advertising needs to be invented, where attention and trust are paramount. This requires the consumer to be in charge, not the media.

There are a lot of companies trying to crack this code right now. And despite the highly visible mistakes, we're getting closer every day. But Google is not one of them. Google is not in a position to be a leader in brand advertising on the internet, and this is the fatal flaw in the model of all of the Google bulls.

Tuesday, January 29, 2008

Customer Rotation

Paul Kedrosky takes a quick look at a graph of advertising growth and GDP growth since 1983 and says, essentially, "See, they're correlated." Well, yeah. But he's not answering his own question: how does this affect Google/Yahoo?

Ad spending growth is highly correlated to GDP growth. About 52% correlation since the end of World War II, according to my data. And, from a quick peek at my graph, it looks like the other 48% is often an exaggeration of the GDP movement.

Note, though, that there have only been three times since WWII that ad spending has not grown (in nominal terms): 1961, 1991 and 2001. Couple this with the fact that even if ad spending is flat, money is moving from offline to online, so online will continue to grow. Kedrosky just isn't making the point he thinks he's making.

But I have some reservations about Google myself. While Google is a good proxy for online advertising in one sense, since it's so large a piece of the online advertising spend, there are some limits. Online ad spending is not all one thing, and one type of online ad spending can come at the expense of another type.

So, here's what's been bugging me: (a) I recently spoke to a good company that sold online mortgage leads to brokers that has had to shut down because their customers stopped buying, and (b) Niki Scevak points out that LowerMyBills just cut their affiliate payment from $40 to $6. This suggests that mortgage lead gen is hurting.

Okay, no need to snicker at me. Here's the puzzling part: take a look at the Mortgage Banker's Association's data on mortgage originations applications.

Look at the graph for last year and the beginning of this year: mortgage applications are doing just fine, while mortgage lead generators are hitting the skids. How to explain this?

Here's my hypothesis: advertisers are fleeing to a different type of "quality." They're moving to display ads, they're trying to figure out social media marketing, they're building widgets.

Normally in a downturn, there's an increase in spend in measured media, the more measurable the better. Downturns feed direct response. But this downturn, if it is one, is different. It's not driven by fundamental weakness in the economy, it's driven by a rotation of customers. Mortgage lenders still have plenty of customers to choose from, but they've completely reversed course on who they want as customers. A year ago, subprime borrowers were the most profitable; now a lender wouldn't touch one with a ten foot pole. When you're trying to bring in subprime you use Google, you use email, you use targetted, transactional, response-driven ads. Lead generators are the kings of this kind of marketing. But when you want more of the everyday, safe but low-margin customers, you don't need targetting. You need reach and frequency and all that. This may be bad news for Google (relative to its past growth) but is probably good news for some of the more mundane but more established online media.

Wednesday, January 16, 2008

Another Opinion on Financial Services Advertising

AdAge has a roundup of what various marketing professionals think will happen to advertising spend in 2008. Of the ten people they quote, only one is a relatively impartial observer: TNS' Jon Swallen. What does he say?

"The lesson to be learned from the past few recessions is that it obviously impacts different categories differently. Automotive ... is already pretty grim, and budgets have already been pruned across the board. Retail is traditionally the most economically sensitive category when you have a downturn in GDP. We're already seeing a flattening in spending by department stores, restaurants and a host of categories related to housing (including hardware, home furnishing and appliances). ... What's kind of interesting is that financial services -- which is sort of in the center of the storm -- has actually been quite robust. In the short term, at least, these guys are battling for a share of a shrinking pie."
The last two sentences sound familiar.

But I have to admit that I'm surprised by his take on automotive advertising. His opinion does not seem supported by the data. I tend to side with the--admittedly impartial--CMO of Harley, who says "Our belief is that spending through a market downturn creates competitive advantage for the market upturn."

Sunday, January 6, 2008

The New Universal Identifier

Josh commented on my last post that privacy requires control over both (a) personal data and (b) the platform on which the data is used. My gut instinct is that our expectation of privacy is only the former.

Privacy is a moral issue but, as with most moral issues, the ideal compromises with practicality in our reasonable expectations. We can reasonably expect that personal data under our control will be kept private. We can reasonably expect that if we give personal data to someone else and they promise to keep it private, that it will be kept private. But I don't think we can reasonably expect that if we give personal data to someone else and all they promise is that they will make it kind of hard to get to that it will be private.

We've discovered this over and over: with real estate records, campaign donations, Google Street View. The probabilistic idea of public actions being effectively private by being lost in a sea of noise, being alone in the crowd, has been confronted with technological reality (although, as with most erosions of privacy, we have been slow to notice or meager in protest.)

I don't think this is a good thing, I just think that the expectation of this sort of privacy is so unrealistic that it's not worth complaining about. There are ways to use technology to counteract the loss of privacy from technology, and that's what we should be asking for. In this case--where our email addresses are used as universal identifiers, the new social security number--we should complain about any service allowing someone to see our email address at all. Given the way things are going, it won't be many years before you can register for a driver's license with just your email address as ID. Email addresses have become our new true names, and we shouldn't let anyone but our trusted friends have them.

Friday, January 4, 2008

Drawing the Privacy Line

Greg is bothered by Plaxo scraping your friends' email addresses from Facebook. But I think he's less bothered about the automated downloading of them from Gmail and other services. Paul Buchheit points out that the latter is just as much a violation of Gmail's TOS as the former is of Facebook's.

Why is doing it the hard way more of a violation of privacy than doing it the easy way? Just because Gmail has an API for it and Facebook tries to hoard the data for itself, is there a difference?

The way I see it, if your friends are making their email addresses available to you through Facebook, then trying to put those email addresses into a place where they are easier to use isn't a violation of privacy. It would be a violation of privacy if Plaxo made your friends' email addresses available to anyone else, of course.

Am I missing something?