Moses Kagan's Aurora Borealis

E&P has a summary of a new D-Bank analyst report arguing that newspapers in the Yahoo employment classifieds alliance may soon hit the inflection point where the decline in traditional recruitment classifieds revenue is outweighed by the increase in online recruitment revenue.

I've been banging on and on about the need for scale in classifieds sites - specifically, in terms of listings - for a while now. In an age where talent is searching for absolutely the best job available and willing to move to get it, no one newspaper is going to succeed in the recruitment classifieds market by itself.

Instead, papers need to contribute to, and benefit from, a national (or international!) network.

Labels: classifieds, internet, newspapers, recruitment

Just like everyone else, I love (and use) the site. However...

Facebook is only ever going to be Yahoo 2.0.

Like Yahoo, Facebook:

1. Has an enormous audience with diverse interests
2. Has an audience composed of people who do not come to the site in search of specific goods / services / information

Therefore, Facebook is only ever going to be a display advertising business, one which generates such a high volume of impressions that supply will always outstrip demand. Sure, on the margins, Facebook will come up with innovative campaigns, improved targeting, etc. But fundamentally, its audience is not sitting there with mouse in one hand and credit card in the other. Therefore, it ain't Google.

How about comparing Yahoo and Facebook in terms of revenue:

In 2007, Yahoo is going to do between $6.5b and $7b in revenue, leading the market to value it at $35b and change.

In 2007, Facebook is going to do $150-200 MILLION in revenue off of 45m users. Incidentally, 50% of this is coming from one (probably money-losing) deal with Microsoft.

To reach Yahoo's revenue figures, Facebook is going to have to increase its top line by 30-35x.

And, if it reaches that magical milestone with margins similar to Yahoo's, Facebook will be making $1.5-2b in cash from operations per year. Which is considerably less than half of what Google made last year.

In short, we're watching the rise of Yahoo 2.0, not some paradigm shifting behemoth. So everyone should calm down.

Labels: facebook, Google, Yahoo

Various outlets, including the NY Times and Techrunch are reporting that Microsoft and Google are competing to buy a 5% stake in Facebook at a price which would value the hot social network at north of $10b.

It's pretty clear why the big boys are making their moves. Microsoft and Google are clearly maneuvering to block each other from buying the company outright. It's less clear why Facebook would consider taking the cash from either company, rather than from a consortium of private equity firms, for two reasons.

The first reason is that taking a minority investment from either Microsoft or Google would presumably limit Facebook's ability to negotiate the best terms for an advertising sales deal once its current deal with Microsoft expires. If Microsoft is a 5% owner of Facebook, Google is unlikely to go the extra mile to win the deal, meaning that Facebook will be unable to squeeze the optimal deal out of Microsoft. Same goes for Google as a 5% owner.

The other, more important reason for avoiding selling a stake to a strategic investor is to avoid restricting exit options. Taking the cash from Microsoft or Google would mean that the Facebook shareholders' options are restricted to sale to the minority investor or IPO. Taking cash from financial investors (e.g. private equity) would mean that the shareholders would be able to run a dual-track process, including an auction among the various strategics (Microsoft, Google, others) pitted against an IPO.

You don't need an MBA to know that having two or more deep-pocketed strategics competing with the public (via an IPO) to buy the company is likely mean that shareholders will maximize value.

If you'd like to read my blog regularly, I'd suggest clicking this link and signing up to subscribe.

Thanks for reading!

Labels: RSS feed, subscribe

For those that don't know, Ashley Madison is a dating service for people looking to have extra-marital affairs.

To the three of my readers who did not click the link above and are still reading this: Thanks!

OK, now that everyone is back, let's talk about Ashley Madison's marketing campaign. The picture above is of a billboard they have posted on Sunset Blvd in West Hollywood. I am not particularly religious, nor do I generally approve of people trying to impose their own versions of morality on others. That said...

Ashley Madison makes money by facilitating affairs. Most marriages result in children. Sociologists on the left and right agree that children do best in families with two parents. If we take as given that an affair increases the likelihood of divorce, it's pretty obvious that Ashley Madison is profiting by encouraging a social dynamic that harms children and, thereby, society.

This is a perfect example of a company making a (relatively) small amount of money but doing a (relatively) large amount of harm to society. I hope the investors / executives are proud of themselves.

Rant over.

Labels: Ashley Madison, billboards, externalities

The NY Times has NBC Universal's announcement of a new plan to offer free downloads of its popular programs. NBC plans to make money in two ways: 1. Through sales of ads to be inserted in the downloads (which you can't fast-forward), and 2. Through sales of no-ads versions. NBC has also pulled out of its deal with Apple to host its content on iTunes (though this is possibly a negotiating ploy).

The major problem with this concept, which the other networks will be watching / preparing to duplicate, is that it fragments the marketplace for consumers. If each network adopts the view that the only place to get their shows will be their own, proprietary sites, they are asking customers to go through the arduous process of finding / downloading their favorite shows from different sites (with different interfaces, logins, etc.)

There is NO WAY that this will become the status quo. Instead, some techies are going to cook up a meta-search site that allows consumers to create a list of their favorite shows and then automatically goes through the process of finding / downloading them from the network sites, thereby removing the effort / pain in the ass from the process. And, incidentally, defeating the networks in their efforts to use their proprietary content to drive traffic to their proprietary sites.

Labels: internet, iTunes, NBC Universal, television

Ecstatic reports today about the NY Times finally dropping Times Select, the paid subscription wall hiding the NY Times Op-Ed content. Paidcontent has the numbers.

And, according to Alleyinsider, Murdoch is going to go in the same direction, trading the subs revenue from 1m online readers for ad sales revenue on an audience of 10-15m.

Everyone will, of course, be writing about how this is a big victory for the Internet, openness, blah blah blah. But what about reports that CPMs are trending down, at least at AOL? What happens when the newspapers, attempting to recoup the lost subs revenue, walk right into a (potentially) declining ad market with more volume to sell?

Not sure I'd like to own NY Times Co. stock right around when earnings reports next come out.

Labels: advertising, internet, newspapers, ny times

Techrunch is live-blogging the Techcrunch 40 conference. So far, I like TripIt best.

TripIt creates an easy-to-use travel itinerary for you when you send them the confirmation emails you receive from airlines, hotels, car rental companies and the various online travel websites. TripIt automatically adds maps and weather forecasts to the itinerary. Then, you can add notes, more destinations, etc.

The problems I see are:
1. Getting people to use TripIt. I can't see how you get people to remember to use the service. It's the kind of thing that travel junkies might use, but I can't see regular travelers thinking, "Aha! I'll just forward my confirmation email to TripIt". I guess one possibility would be to do deals with the airlines so that the airlines build TripIt into the confirmation process - maybe with an opt-in from the customer.

2. More importantly, I don't see the business model. I assume TripIt is looking to monetize the service via a combination of display ads and lead gen for airlines. Either way, I don't see how the volume gets high enough to make this exciting, except possibly as a feature set for a larger travel site. So, to me, this looks like a build-and-flip.

Overall, a nice feature set but I'm not sure it's much of a business. Which is a little surprising, because the founding team is really impressive.

B / B+

Labels: grades, travel, TripIt

The New York Times has a superficial review of Yahoo's new Mash social network here.

I feel like I've had this conversation before. Oh, wait, I did - with David Carpe when he suggested Google was trying to do the same thing.

The point remains the same: big companies don't make cool social networks. Viacom's MTV has failed at it at least once (Flux). Google's Orkut failed (except among Brazilian cocaine dealers). Yahoo 360 failed. MSN Spaces failed.

Social networks need to be tied very closely to a community, so much so that they appear to be an organic extension of that community. No one is going to use a network imposed from above and [in horrible little nerd voice, while rubbing hands together] linking all of Yahoo's internet properties together into one world domination machine to finally destroy those lucky, pre-IPO jerks over at Facebook!

Honestly, just because it sounds good in a meeting doesn't mean people will use it. It would have a better chance of survival if they stripped the Yahoo brand off it entirely.

Labels: Mash, social-networking, Yahoo

Blodget's got two long posts on the economics of online video: here and here.

He argues, rightly, that the long-term margins in the space are likely to be in the 10-20% range for the winners, as opposed to the 30-40% range achieved by traditional, text-based internet media. He is estimating long-term CPMs at $15 and assuming that only a fraction of videos on the main sites will be monetizable (30% for YouTube).

I think Blodget is underestimating the CPM levels achievable via a video site. What's critical is the attention the site draws - and it's entirely possible to monetize this attention in ways that traditional pre / post roll ads don't. Break.com, for example, does tons of custom, agency-like work that is probably generating considerably higher effective CPMs than Blodgett is forecasting - thereby probably blowing through Blodget's profitability boundaries.

Somewhat embarrassingly, I read Grisham's King of Torts over the past few days and I've got a new business idea.

First, some background. The class-action lawsuit game works like this: Someone figures out that a company has done something wrong that effects a large number of people. A lawyer gets involved. He files a suit and begins trying to sign up as clients people who have been effected by the company's misbehaviour. When a settlement is eventually negotiated, the lawyer takes 30% of the settlement due to each of the clients he has signed-up. So, a mistake by a company which results in a settlement of $1,000 per effected customer would result in fees for the lawyer of $1,000 x 30% x number of clients effected. This is a big money game!

As you can see, being a good class-action lawyer is about signing up clients - which is really a marketing problem.

I therefore propose the following business model:
1. Buy a domain like "classactionclaims.com"
2. Hire one or more bloggers to write blogs about 10-20 of the most promising class action cases - these should be set up as sub-domains
3. Promote the network by sourcing links from prominent class-action firms in exchange for write-ups
4. Insert Google adsense
5. Profit as free traffic starts rolling in and clicking on (very high CPC) ads

Labels: adsense, advertising, blog, Google

From Arrington, a review of Hotswap. Following my trashing of Rentmineonline, thought I'd comment on a classifieds business with a good business model.

Hotswap is focused on one high-value vertical: autos. Sure, there is plenty of competition (eBay motors being to 800 pound gorilla). However, Hotswap are offering an innovative feature - namely, short videos of the cars being sold. Hotswap have also signed a deal with Red McCombs to feature all of the used cars in his (large) inventory, meaning that the notorious chicken / egg problem with classifieds sites is some ways to being solved.

The next step for Hotswap is to create a simple tool for used car dealers that (1) adds value to the dealership, and (2) makes posting videos of used cars in the dealers' inventories on Hotswap easy. If I were conculting for Hotswap, I would suggest creating a "custom minisite" feature, which would allow used car dealers to create a branded minisite linking to their own sites and making use of Hotswap's video functionality. Uploading to the minisite would automatically upload to the main site. This would improve the dealers' own sites while adding inventory to the main Hotswa site.

(Another possibility is to offer an ASP inventory management service to auto dealers - this would be more work but would offer more lock-in. These systems exist already but an ASP version for smaller, less well-organized dealers might gain traction.)

Anyway - great idea and hopefully they will run hard at it.

Labels: autos, classifieds, hotswap

New feature: Grade the business model.

Techrunch has the winners of Seedcamp, the Euro incubator challenge.

One, in particular, takes the cake for worst idea I've seen in a good long while: Rentmineonline.com ("RMO").

First, the back-story: The founder has been set on doing a company for years. He moved to Silicon Valley, worked in VC, went to b-school, moved to Amsterdam, bought a boat to house the business, and launched RMO. So this isn't some rookie coming into the game.

What we have here is an attempt to create an "eBay for rentals". But what do most people rent? The high gross merchandise classifieds verticals (where a classifieds / marketplace business makes most of its money) are: homes, cars and jobs.

Homes - A highly competitive market with specialized businesses, including Rent.com (an eBay subsidiary), competing with traditional classifieds platforms.

Cars - The insurance issues alone would stop anyone from being able to rent out their personal car to strangers. A personal car rental site would require serious, specialized tools to make this work. [Come to think of it - this might be a pretty good business idea itself. Many people who own cars in cities would be happy to give their cars up for 2-3 days per month to cover 1/3-1/2 of their car payment. And you could under-cut the big rental companies.]

Jobs - I guess you could imagine a site where people rent themselves out for odd jobs. However, no one is going to get rich taking a 5% transaction fee on three hours at $8 per hour. Plus, the kind of people who make a living in this way are not exactly spending their time on the internet. Finally, you would run into insurance / background check issues pretty quickly. So - another vertical which would require considerable effort / specialization to do well.

For RMO to have a chance, it will need to focus on one vertical and try to out-compete existing players. However, its generalist branding, late entry into the market and relative lack of capital place it at a major disadvantage.

I can't believe this is one of the six best companies Seedcamp could find to fund.

Grade: C- / D+

Labels: C-, D+, grades, Ratemineonline.com, Seedcamp

Zhang Yin, the richest woman in the world, made all her money by turning an astute observation into a business model. She saw goods being shipped to China in paper packages. And she saw the ships coming back to China empty. And she thought, "Why don't we load the used paper back on the ships, bring it back to China, and recycle it to make new packaging?" That was a $3.4b idea for her (personally).

Why do I mention Zhang? Because I believe that there is a resource on the internet every bit as undervalued as the rubbish paper and empty ships that Zhang saw: banner ads.

Right now, anyone can go onto Google, Advetising.com or any of the other advertising networks and purchase the right to show banner ads across the internet. Prices are as low as $0.25 per 1,000 impressions. And, you can target the impressions, so that they are shown on sites with whichever demographic profile you desire.

This is an amazing opportunity!!! You can show your ads 1,000 times for $0.25. Imagine a product selling for $100, with a gross margin of 80%. Each time a product sells, you make $80 in gross profit. So, you would be willing to spend (in the real world), at least $50-75 on advertising. That's 200,000-300,000 ad impressions. Which means that if you convert 0.0003-0.0005% of the impressions into sales, you have a great business.

This has to be one of the best arbitrage opportunities on the internet - and one that you only need some flash skills and a credit card to take advantage of.

Labels: advertising, banner ads, display, internet

Just added the Live Traffic Feed widget from Feedjit. Check out the box in the right margin - it shows who has landed on the blog and where they're from. It's cool to realize that people are reading. Thanks!

Labels: feedjit

A journalist friend, let's call him "Eben", recently asked me for career advice. Having risen quickly up the totem-pole, Eben is now a reporter for Time magazine, which is, by any standard, a pretty big accomplishment for a 27 year-old.

Eben's question was: Which part of the print journalism landscape is likely to be safe from the on-going business model disruption currently afflicting newspapers and (some) magazines? Put another way: What is the print media landscape of the future going to look like?

Any prediction for the future of print media needs to start by acknowledging the impact of the internet. Starting a website is easy. Getting people to look at your website is more difficult - but clearly not too difficult (you're reading this!). Making (some) revenue from selling ads around your website is very easy - Google will do it for you instantly.

Sites like MySpace and Facebook generate billions of page impressions at very little cost, allowing them to serve ads at ridiculously low prices to advertisers. Right now, I can get Google to show pretty much any ad I want 1,000 times for less than $1, because there is so much inventory available.

What does this mean for newspapers and magazines? It means that, with the exception of some high-prestige titles, it will be very difficult to sustain ad pricing levels at a level high enough to support expensive news gathering organizations.

I expect that we are entering a world in which (1) most news is reported by networks like the AP and syndicated across the entire web; and (2) a small group of prestigious publications charge high cover prices / online subscriptions for high-quality investigative reporting.

Not a particularly pretty picture for those of us who believe that high-quality investigative journalism widely-read is critical for the health of democracies, but you can't fight the market forever.

Labels: future, internet, magazines, media, newspapers