Too Many Investors, or Too Many Powerful Investors?
GroupMe’s founder argues that more investors mean more time spent arguing with investors. That makes intuitive sense when you move from one investor to two. But it doesn’t seem to follow during an IPO, when a company moves from a dozen investors to thousands. The difference: pretty much anyone who invests in an angel or VC round is in part a strategic investor, so there’s a reason to defer to them. Post-IPO, a company’s major shareholders will be asset allocators rather than strategics, and their loyalty will matter far less. Transaction costs are also a factor: it’s expensive to exit an investment like GroupMe; now that GroupMe is owned by Skype, which is owned by Microsoft, the exit cost is measured in basis points.
One side effect of this dynamic is that the rise of secondary markets should weaken investors further. If exits are cheaper, they have less of an incentive to tell management what to do (which management is certainly aware of).
- And on the topic of private stock sales, TechCrunch argues that early Twitter employees are leaving because Twitter restricts employee stock sales, but not ex-employee stock sales.
BuzzFeed Hires Politico’s Ben Smith
BuzzFeed is an example of horizontal integration on the web: in every vertical, they’ve learned how to predict and corral the next click. Now they’re going horizontal, by increasing the number of sites that a) can earn that next click, but b) that they own. Hiring star Politico reported Ben Smith is part of that strategy. The great thing about Smith is that he appeals to political junkies—the kinds of people who share the stories that everyone else ends up reading. Within the field of political news, Smith has access to an audience with a high built-in viral coefficient.
(A less charitable explanation is that Smith is a way to increase Buzzfeed’s perceived class, both for advertisers and for potential readers. As Stephen King once pointed out about Playboy, they can afford some pretty expensive fig leaves.)
- And indirect competitor Outbrain has raised $35mm to continue building its in-site recommendation engine.
Local SEO Updates
- Yext is solving that other local information problem: running mass updates on local listing sites. The fact that this is a business opportunity implies that the listing site themselves are in trouble: for their business to succeed, things need to consolidate around a few key players. Perhaps Yext is subsidizing the industry’s fragmentation as a strategic move.
- Query Deserves Freshness strikes again! A TechCrunch piece notes that if you run a long-tail query, search results get rapidly less relevant after the first few. In part, that’s deliberate; showing you fifty different pages that all serve the same need is a pretty bad user experience. That’s obvious when you run a query on a head term (try “chicago bulls”), but not so obvious on more obscure queries.
- Google Advisor will be back in a few months, but not quite in its original form. It’s still available in a handful of states.
- Google has played a big role in changing the way browsers and sites interact, in a way that upsets the simple models we’re used to.
- Matt McGee notes that Google video search is comically gameable.
- Google now reports impressions and clicks for authors in Webmaster tools. That’s another signal that they’re moving from domain trust to author trust.
The Volatility Paradox
Rick Bookstaber addresses one of the fundamental paradoxes of finance: low measured volatility leads to high actual volatility. And this extends beyond financial products: every industry naturally adopts metrics such that incumbents’ measured returns peak just about when their demise becomes inevitable. Within finance, the thesis is broader, too: to the extent that any probability can be underestimated, and this underestimation leads to leveraged bets, the probability of the event transpiring will approach 1.
Facebook is Commoditizing Sharing
Mike Loukides at O’Reilly Radar laments the devaluation of sharing, citing Facebook’s ‘ticker’ feature as an example. But that’s deliberate. Facebook wants to give you the same information firehouse Twitter offers, but in a format that demonstrates how trivial the information really is. If the Facebook Ticker had genuinely interesting information, to the point that users would scroll back in their ticker to catch up with their friends’ doings and sharings, it would mean that the affirmative-sharing model of Facebook was broken.
Facebook’s goal is not to destroy the Twitter model, but to relegate it to the same status as RSS. Right now, people don’t use RSS as a user interface; they use it as a way to efficiently scrape data so they can present it more appealingly.
Is Long-Form Writing Dead?
ReadItLater released a dataset that shows that people mostly save short-form articles for offline reading. That’s actually part of how RSS readers have been used for a while, now: people aggressively sign up to feeds, then cull 90% of the stories that show up based on headlines, and read the rest. A more interesting dataset would be the average length of stories saved, weighted by word count. If 100-word stories are 5X as likely to be saved as 1,000-word stories, the 1,000-word stories still get more reader-minutes.
The Case for Liquidating Research in Motion
Aswath Damodaran lays out the case for cutting RIMM’s research spending and running the company for cash flow. The iPhone is entrenched, Android’s strategic value to Google encourages competition at below cost, cheap phones have been commoditized, and other strategic players (like Facebook) are ready to make a move. Liquidating RIMM until Microsoft or a PE firm makes a bid is the only rational choice.
Yes, GoDaddy is Using Link Spam
SEO blooger Joost de Valk reveals that GoDaddy is sneakily adding spammy anchor text to sites it builds. GoDaddy already uses some bare-knuckles marketing tactics, but this is particularly brazen. Expect Google to take quick action.
TripAdvisor (Partially) Spun Off
The largest pure-play SEO company is nearly free to trade. It’s an interesting situation for search-sensitive investors; expect more on this in coming weeks.
Fab.com Raises $40mm on Analytics
The irrepressible Jason Goldberg is back with another piece on Fab.com’s journey from niche social network to fast-growing e-commerce play. This time, the topic is fundraising through metrics. The money quote:
The big thing we did differently was to send each of the potential investors a login to our RJ Metrics Dashboard before we agreed to meet with them. We requested that each potential investor login and review our RJ data and decide for themselves if they wanted to learn more about Fab.
An Awkward Defense of the Postal Service
Alexis Madrigal posts an eloquent defense of the US Postal Service, asking us to:
Think of all the problems that the USPS has had to solve to become and remain this massive country’s only completely inclusive point-to-point network. And they did it under all kinds of different regimes. Horse and carriage? No problem. Railways? Sure. Exploding suburbs and road mileage? Great. This is an agency that saw the introduction of all kinds of competing communications systems: the telegraph, the telephone, radio, television, UPS, and fax machines.
This is all much easier with a partial monopoly and a cost of capital pegged at zero, of course.
The baseline trend has shifted beneath the Postal Service, and like many 20th-century institutions, it has to shift its top priority from speed to resilience.
That seems to be the problem. When you can measure return on capital, it’s easy to say that a given company produces a positive return too low to justify the amount invested in it. When the positive return is a hazily-approximated externality, it’s hard to know when you’re tying up lots of capital in something that isn’t societally useful; you have to guess what pricing signals would tell you. Here’s a good guess: the postal service is a subsidy on nuisance industries, mostly junk mail; there’s nothing it can do that email, Fedex, and UPS can’t do.
Examiner.com Proves that Content Farms Are Still Alive
A few weeks ago, Demand Media explained that they prefer the economics of posting their own content on third-party sites. Now, Examiner.com is putting that thesis into practice by providing stories for local CBS affiliates. This is actually close to the original argument in favor of content farms; that long-tail topics only justify the efforts of long-tail (i.e. specialized but not popular) writers. It’s a testament to the ongoing vitality of the search industry that recent algorithm updates have forced the content farming industry to do something with general positive externalities.
Glam Media may IPO in Q2 2012
Glam Media, the ad network turned blog network, may go public later next year. So far, the blog industry seems to favor smart dealmakers over any other category: since everything a blog does is necessarily public, and anything journalistic a blog does is likely to be way behind print and other media forms, dealmaking is the only real way for blog networks to distinguish themselves.
- On a related note, ReadWriteWeb has been bought by SAY Media, which is hiring Dan Frommer as lead editor. In the tech news space, RWW is a nice prestige property—like hiring Ben Smith, it’s a good way to artificially anchor ad rates higher.
- Fortune makes some sane arguments for why Facebook should use a Dutch auction. A few reasons they shouldn’t: shareholders will probably be overoptimistic anyway; they don’t need the money; and it will help their large-scale M&A efforts in the future if they get Wall Street on their side by vastly overpaying for an IPO. But overall, a Dutch Auction looks like a far superior way to run an IPO.
- Facebook has ways to flag suicidal behavior among users. This is likely the right thing to do, but it’s also the same dynamic Google has when they automatically flag AdWare-laden sites; when you capture enough of the growth in a given industry, altruistic behavior ends up being net beneficial.
- ReadWriteWeb argues that “Zynga is now a publicly traded subsidiary of Facebook.”
- Facebook is offering “action-optimized campaigns” (i.e. campaigns where the bid is automatically adjusted based on costs per conversion).
- Facebook has released its top news stories of 2011 (just in time to miss the death of Kim Jong Il).
Patch Revenue Disappoints
Business Insider has some inside dope on AOL’s Patch revenue. Based on their estimates, Patch is bringing in about $25mm per year in revenue, compared to an annual cost of $160mm. That’s particularly horrific in light of the macro situation in local marketing: Groupon owns a big part of the top of the market with its automatically performance-based coupon offers. And Foursquare owns the bottom of the market by being cheap (or free) for many merchants. Patch is a media property squeezed between two well-funded products. There isn’t a lot of profit available there.
Digital Due Diligence Weekly