SOPHISTICATED FINANCE

A New Fashion Company

I almost always recommend that early stage companies have a blog, for three reasons:

1. It raises your profile, especially on Google
2. It gives existing and potential customers an easy way to interact with you
3. It documents how you think about the business for angels, VCs and other investors

Some very nice ladies have a startup blog, Inside Scoop, about their new online retail venture. Some of their previous experience includes building a blog with 50,000 readers, a noteworthy accomplishment. Given that the founder is Australian and moved all the way to NYC to start her new business, it should be both entertaining and educational to follow the trials and tribulations of this startup. Check it out!!!

The Digital Savvy--Key to Viral Marketing

The current rage in Web 2.0 is to use viral marketing to launch the site/network/widget/wiki. Few entrepreneurs ever articulate clearly how they are going to successfully initiate this miraculous series of events. Despite the popularity of the concept of viral marketing, I have seen little detailed guidance on the Web about how to achieve success with this marketing technique.

One thing I am sure of is that for most Web 2.0 businesses to achieve success with viral marketing, they must appeal to the early adopters--what some call the digital savvy. Scarborough Research has just released a report entitled Understanding the Digital Savvy Consumer: An Analysis of the Country's Most High Tech Consumers. The report states that only six percent of the population are digital savvy. A few interesting findings from the report about the digital savvy:

1. 55% are 25-44 years old, which is an older demographic than I would have expected
2. 36% earn over $100,000 per year, which suggests that competition to get their attention is fierce
3. A disproportionate percentage are Asians and U.S. born Latins, market segments that one does not see much discussed on the blogs
4. A preference for upscale, niche products that enhance their image, which suggests that exclusivity may be a good strategy to attract new users and why closed beta tests may have more benefits than originally believed
5. Costco is the most popular store amongst the digital savvy (wonder if Costco knows), which suggests that quality combined with value is a necessary product characteristic and that more sites and services could charge a fee if they provided the necessary quality of service
6. The digital savvy are big time fans of professional sports, which may explain all those Super Bowl ads.
7. Weather and news are the two most popular online information topics

The data also suggests to me that the digital savvy is really two distinct groups, but you should read the report yourself and decide. I have noticed that the readers of this blog find these excerpt posts on research studies to be one of the most popular categories that I write about. I have also noticed that few people click through to read the underlying studies. If you are an aspiring Web 2.0 entrepreneur or have an operating site, you should really read the full study.

I found the Scarborough report through a post by Dan Rua at Florida Venture Blog.

Random Thoughts

My muse appears to be on vacation this week. Yes--I know this is getting to be a recurring theme, but preparing those SEC documents shuts down the desire to write about anything else. A few quick thoughts follow:

1. Microsoft pulled out of its negotiations with Yahoo because Balmer always had reservations about the deal and used the price difference as the excuse to "gracefully" exit. Nobody walks away from a deal that size over $1-2 per share. No--Steve Ballmer did not call and tell me this, but my explanation is the only logical explanation for the deal collapsing or Microsoft not going hostile. Why did Ballmer start down this road and then change his mind, consider that he and his CFO are a relatively new team that may still be finding their way.  My previous posts on this deal are here and here.
2. Warren Buffet has come out and recommended investment in Europe due to the comparative strength of the Euro versus the US Dollar in the medium term. My thoughts on the subject were here.
3. UBS has reportedly sold a $5 billion portfolio of sub-prime mortgages to a U.S. hedge fund at a discount of only 25 percent. This comparatively minor discount would support claims last week from the Bank of England that banks had over reacted in writing down the value of their sub-prime portfolios.
4. Data has been circulating on the Internet this week that shows the most popular apps on Facebook are for "fun". And all along, I thought Facebook was going to solve world hunger. Everyone building apps for Facebook may want to reconsider their business plans.

Quick Way to Do Due Diligence

Over the last few months I have been working with several new clients and I have noticed an interesting correlation. The tighter the company's restrictions for access to the Internet, the more poorly managed the company. (Note:companies that do not allow any network access to outsiders do not come under this finding.)

With almost every client I use their on premise network, which is usually a security enabled wireless network. The longer it takes for me to re-configure my computer to work on the network is the first indication that management is not paying attention to IT. The number of people that have to be consulted for me to get access to the network is another leading indicator of management issues (3 is my all time high number). The third key piece of data comes when you see what sites are blocked by the client. When you can not access your email account you know there are management issues. When you see LinkedIn or Facebook blocked you have further proof of management issues.

I had all of this happen with one client recently. When I asked a senior executive at the company who made all these restrictive decisions he told me he did not know who was responsible for IT. True story. I think it proves my point.

So, if you have to do due diligence on a company, just try to log on to their network and see what you can access. If access takes 30 minutes to be arranged or is highly restrictive, and the company is not Wal-Mart or an NSA sub-contractor, you know that you have a company with senior management that does not pay attention to IT. If senior management does not pay attention to IT, you have learned a valuable piece of information--probably senior management does not understand IT and therefore can not properly supervise IT subordinates or senior management does not care about IT.

One might argue, in this day and age, that you have just finished your due diligence with the discovery that there is no senior management of IT. Another partner, acquisition, licensee or merger candidate should probably be your recommendation.

Sophisticated Finance Excel

In a temporary period of delusion, I actually thought about starting a second blog--Sophisticated Finance Excel. Hundreds of people have visited this blog through Google searches for "startup model", "excel model", "debt schedule" and "headcount plan". My post Startup Excel Model is the second most popular post ever on this blog. Based on my students, I imagine that a lot of people need practical guidance to build financial models. (Did I mention my workshop this Friday that will cover building financial plans in Excel? ;)

A post on The Extreme Presentation Blog saved me from the foolish idea of starting a second blog. The Extreme Presentation Blog is an excellent blog I read regularly on presentation and design. Their post Presentation Wisdom-Search Engine talks about a new feature from Google--custom search. Custom search allows anybody to create their own search engine that only searches the websites and blogs you include in the searchable sites list. The folks at Extreme Presentation created a custom search engine called Presentation Wisdom that searches only ten very good sites on presentation and design.

I am now pleased to announce the Sophisticated Finance Excel custom search engine. This search engine is devoted to Excel and financial modeling. Today it searches only three blogs. The other two blogs I have mentioned here several times before--Juice Analytics and Microsoft Excel. I can add additional blogs and websites to the searchable site list. If you have a good site for Excel or financial modeling send me an email and I will consider adding it. On the home page for Sophisticated Finance Excel Google provides the code to embed this search engine in other blogs. A directory of Google custom search engines is here. The number of custom search engines is small today but it will grow quickly.

Yesterday I discussed ad widgets. Today I have a branded search engine. Next I'll be thinking about starting the Sophisticated Finance social network on Ning.com. (Hmmm, maybe that delusional state is returning.) Quite amazing the number of branding opportunities available through Web 2.0.

Note: Sophisticated Finance Excel has Google ads which I can not eliminate without paying Google an annual fee or claiming to be a university or government agency. My apologies for helping Google to cover the very high marginal cost of hosting my custom search engine, which must be about two cents per month. I do not endorse any company or person that may be cited in an ad.

Widget Statistics

One of the blogs that I enjoy reading is IT Facts, a daily compilation of new research related to IT and Web 2.0. Usually just reading the headlines provides the most useful information in the post. Part of the value in reading the site is to see the new developments they are following and the related statistics. If you want to know the most popular websites in France or the number of Americans that use the web to research medical questions, this is one site to try.

Yesterday IT Facts posted Widget and Social App Ad Spending to Reach $40 million in 2008. I believe this post is their first covering the growth in widgets. In one of my earliest posts on this blog I talked about why I thought ad-based widgets were going to catch on. According to eMarketer, who did the research for the story in IT Facts, U.S. ad revenue from widgets will reach $40 million in 2008. What struck me as interesting is that somebody, eMarketer, is tracking the growth in ad widgets. It's gonna be a big market!

A follow-on story from Business Week about ad widgets is here. They seem to think ad widgets are a fad. I think they are wrong because widgets are a cheap, quick way to reach a target market, are typically easy for consumers to use and attract more attention than banner ads because of distinctive design elements. The Lijit search widget in the right column of this blog is an example of an ad widget which is also functional--if you want to search this blog.

Outsource IT-Amazon Web Services

Any new business should review its business model and look for ways to replace fixed costs with marginal costs. One way to achieve this is to outsource as many functions as possible, which allows you to convert upfront investment into pay as you go monthly charges. Examples of available outsourced services include the online version of QuickBooks, the enterprise version of Gmail, salesforce.com and ADP payroll services, to name just a few.  All of these services eliminate the investment in people, overhead, IT and computer support. I think concerns about the security and privacy of data stored on the web are overrated. Most of these companies referenced know more about data security than anybody you are likely to hire. Also, I assume the U.S. government is capturing every voice and data communication in the U.S. (if not the world), so concerns about privacy are somewhat mute.

At this point you are probably thinking that Hacker's outsource model may work for a small business, but not for a fast growing business such as an Internet application or social network. To achieve fast growth, typically the biggest challenge is learning to scale the business whether it be adding stores for a retailer, adding data storage for a website, training staff for a call center or addings POPs for a telecom company. Only 1.7% of startups achieve sales in excess of $5 million by the fifth year. A large part of the reason is that the entrepreneurs can not manage scaling the business.

Increasingly, the inability to manage IT and the related services is becoming a primary reason for the failure to successfully scale. Large customers expect their smaller suppliers to be fully integrated electronically. Customers expect their sales person to have complete information about their order, complaints, disputes, etc. 24/7/365. On top of all this, employees are finding better, free applications on the Internet than their employers make available and are surreptitiously introducing them into the corporate IT environment.

The good news is that Amazon is providing a solution to some of these issues through its Amazon Web Services (AWS) offering which began in 2006. I have been following AWS for awhile and a couple of weeks ago I read in a blog that AWS uses more broadband capacity than the Amazon website for books and merchandise. To use this much broadband capacity, AWS must already be serving a large customer base with large data requirements. Today in a blog called Amazon Web Services they describe a project by AWS for the New York Times. Through AWS the NYT processed "4TB of raw image TIFF data (stored in S3) into 1.1 million finished PDFs in the space of 24 hours at a computation cost of just $240". (TB are terabytes or 1024 gigabytes; huge amounts of data.) I believe this may be part of the recently announced project where the NYT converted its entire historical archive into a searchable, web-accessed database. For AWS to have handled this project, we are talking about serious outsourcing resources.

AWS includes three major services--EC2,S3 and Hadoop (maybe these names make sense to someone more geeky than me :)).

• EC2 provides resizable computing capacity or more specifically "EC2 presents a true virtual computing environment, allowing you to use web service interfaces to requisition machines for use, load them with your custom application environment, manage your network's access permissions, and run your image using as many or few systems as you desire".
• S3 is expandable online storage or more specifically "S3 provides any developer access to the same highly scalable, reliable, fast, inexpensive data storage infrastructure that Amazon uses to run its own global network of web sites".
• Hadoop provides distributed data processing (on a large scale) or more specifically "Hadoop distributes the data and processing across clusters of commonly available computers" for parallel processing.

In summary, through AWS one now can dynamically resize the data, applications and processing resources of their company and pay only the marginal cost for the resources used. Effectively, everything but applications development can be outsourced. Very, very cool!

There is one other important point about strategy that should be noted from the AWS example. In developing a strategy one should focus on using the company's core competencies. Many companies do not do this and many more do not even know what their core competencies are. Amazon ran a large distributed IT infrastructure for many years to support its books and merchandise business. Very few organizations run a bigger infrastructure--maybe Google, NSA and a few others. AWS grew out of Amazon's recognition that they had a core competency in distributed IT infrastructure on a very large scale and there were few potential competitors. Build your business by focusing on your core competencies and when the competency is unique you have something special.

Note: I think AWS is going to be a special company that we should all follow (think Google) and an easy way to do it may be to read their blog.

 

Start a New Web Business?

Many people tell me that they want to leave their jobs and start a new business, and, of course, a web-based business is a frequent choice. There were two good posts recently on starting a web business, but before I discuss them I need to set the stage.

Two important facts need to be kept in mind:

• 55 percent of new businesses do not survive the first five years
• There is about a 1.7 percent chance that your business will achieve revenues in excess of $5 million by the fifth year

The key factors to overcome the odds and succeed in a new business are:

1. Pick the right industry. Ever wonder why venture capitalists do not back restaurants and retail concepts and strongly prefer computer related businesses. Restaurants and retail have an over 70 percent likelihood of failure and computer related businesses have the highest likelihood of success.
2. Use mentors and advisors. Chosen well, they can help you avoid the fatal mistakes. An investment group in Latin America uses world class mentors for each company they invest in, and 87 percent of their companies have revenues over $5 million and are still in business after 7 years. (The investments are startups and early stage companies in emerging markets, which in many ways is even more challenging than the U.S.)
3. Have adequate capital. We have talked about adequate capital here so many times I will not repeat myself, but I would like to remind you that web-based businesses are comparatively capital efficient. See this post to read more on capital efficiency.

(Note: I have not listed the size of the market opportunity as a key factor. This is not a post on raising venture capital (although the three success factors above sound like an advertisement for venture capital funding). A lot of people start new businesses as a means to be able to work for themselves and have no intention of building the next Google. Makes no sense to me to put all that effort in to build a small business, but a lot of people do it.)

Now to the two posts, which I thought were very helpful to the aspiring entrepreneur. Paul Buchheit built Gmail for Google and then left to start FriendFeed, which is a site that allows you to follow the content of your friends on their blogs, delicious, flickr, etc. Suffice it to say, the man knows his technology and how to write code. In a recent post he basically makes two points:

1. It is more important to get your product in the market and get feedback from customers than it is to perfect the technology. He cites as two example of so-so technology and commercial success YouTube and Facebook.
2. Do not get hung up on perfecting the design of the website. His examples of commercial success with so-so design are Myspace and Google.

Buchheit believes the market is moving so fast that you need to stake out your space (application) before somebody with so-so technology and design becomes the market leader (and it is too late). The full post is well worth reading, except for the part about models not being important :).

To summarize so far, we have chosen to start a web-based business in part because it is a capital efficient model, found an excellent mentor and we are not spending all our time perfecting website design and technology. So where should we be spending our time? Dan Rua, Managing Partner at the venture capital firm Inflexion Partners (based in Florida), provides a good answer.

In a post titled "Nice idea, but how will you get visitors?", Dan talks about all the web investment opportunities he sees where the founders have given inadequate attention to developing website visitors (which makes it nearly impossible to believe there will be a commercial success). Rather than just stopping at the point where he tells you to focus on sales (a VC mantra), Dan goes on to list the seven ways to develop visitors for a website. I should force you to read Dan's full post (by not providing the list), which is well worth reading, but here are Dan's seven ways to build traffic:

1. organic search
2. sponsored search
3. viral adoption
4. referral tools
5. affiliate marketing
6. display advertising
7. distribution relationships

Dan closes the post by saying that the key point is to show how the traffic building strategy matches the target customer's behavior toward the website. For example, people looking for research on a topic may  not be likely to respond to viral marketing techniques.

If you do not fully understand Dan's closing point, you may not be ready to start investing in code. If you fully understand Dan's point, remember what Buchheit said. Perfect technology and design is not the objective. Traffic and customer feedback is the first goal. Which brings us back to Dan's advice.

After you get the traffic, then you need to monetize the visitors, but that's a whole new subject for another post.

Web 3.0

When I wrote my most popular blog post ever (1100 readers), Microsoft Yahoo Makes Little Sense, I struggled with how to describe Yahoo's failing strategy. Finally it came to me. Yahoo failed to realize the change in the Internet to where people now "live on the web". No longer is the Internet about portals, static content and pushing information to readers. Today the Internet is the place where people have their social, intellectual and professional lives on display, in large part through content they produce.

As I consider the future of the Internet, a point my wife (who is much smarter than I am) always makes guides my thinking. She always says, "the computer is just a tool". Thinking about the future of the Internet, the Internet is just a tool to create and collect information. More sophisticated ways to create and collect information, not the technology, will drive the future direction of the web. As Sramana Mitra (another woman) at ReadWriteWeb said, "Web 3.0 will be about feeding you the information that you want, when you want it in the proper context".

Two recent developments support my view:

1. Reuters, the international news conglomerate, launched Calais. Basically, Calais automatically generates metadata (subject) tags from any XML document using artificial intelligence. Tags are generated automatically about event, company, organization, person, country, city and people. Producing the tags permits the document to be more easily discovered through a search. Now every Reuters story, and any document that uses Calais, will be much easier to find. Reuters obviously supported the development of Calais in order to facilitate the discovery of more of their proprietary information, but Calais can be used by anyone.
2. Google now offers the ability to translate any web page into any one of 13 major languages, but the really useful feature is that I can enter a Spanish search term, search Spanish language web pages and receive the pages translated into English, French, Russian.... Next time you need to research a foreign country or company, you are no longer limited to the English language pages (or whatever language you prefer).

A recent post on Research Recap, an excellent blog for new research on a wide range of subjects, highlights another interesting development. According to Forrester Research, 64% of consumers prefer to read user reviews of products (rather than manufacturer specs). This finding makes clear to me that we have more confidence in each others content than in content from companies, the media or the government. This is why blogging is so popular :), del.icio.us bookmarks has so many users and Ning's growth has been fueled by specialized subject social networks. There is a social component to all these examples, but I believe that it is the user generated content that is driving their popularity. A newly launched site, Docstoc.com, is another example that user generated content is the future. Docstoc allows users to upload and share a wide range of documents on subjects ranging from business and legal to creative and educational. Next time you need a sample contract try Docstoc.

What I expect to see in the near future is the following:

1. The ability to subscribe to a particular search on Google or any other search engine and receive updates via RSS as the search results are added to or change. This would be particularly useful to people interested in SEO, search engine optimization, or staying updated on a particular subject. I think it would be easier than saving a Google search or relying on a clipping service to collect pages on a particular subject.
2. While much is made of vertical market search engines, I think that a better alternative may be for several users with a common interest to be able to collectively post their bookmarks on a subject. Rather than having to view the hundreds of low quality subject tags on delicious, you could go to a specialized search engine that, for example, utilizes the bookmarks from four professors at MIT that are subject matter experts (sort of a Ning for search engines).
3. Another search option that I think will be coming is the ability to direct the search engine to certain particular databases that may not show in results frequently. For example, the Social Science Research Network is an excellent source of academic articles on a wide range of subjects, but I rarely see links there from a business topic search on Google.
4. I think there is a big opportunity to develop expert answers, similar to the questions feature on LinkedIn. Almost every question on LinkedIn has a rating of the best answer, yet these responses are only available to LinkedIn users. The other difference between LinkedIn and, for example Yahoo Answers, is the quality of the respondents (very high on LinkedIn). I think there is a business model based on a subject matter website where real experts (not hacks) answer questions and revenue comes from advertising.

Enough user generated content for today. Have to go check the Google searches that brought readers to this blog.

Microsoft Yahoo Makes Little Sense

Much has already been written about the Microsoft's acquisition proposal for Yahoo, so I will not bore you by repeating the financial terms, posting Steve Balmer's letter to the Yahoo Board or speculating on the private equity firms considering to bid against Microsoft.

I do not think that the deal makes sense strategically for Microsoft. Despite the fact that the acquisition would be a significant departure from Microsoft's organic growth strategy, which is always a loud warning bell (see this post), I have other concerns:

1. The Internet Issue
2. Strategic Complexity
3. Advertising is like Expedia

The Internet
Do you ever wonder why you dislike your phone company. The answer is that almost all these companies evolved from monopolies where there was little concern for either product innovation or customer service and great attention was paid to legal issues and regulators. Because of its dominant position in operating systems, Microsoft behaves in a similar way with limited product innovation, minimal concern for customer service and first class legal talent. (Yes--Microsoft has some of the best programming minds in the world, but what they produce rarely delivers a great product experience for the consumer or the enterprise (although a lot of people like .net, their server software and their "geeky" stuff.)

Now we turn to the turnaround of Yahoo--great lawyers and great programmers from Microsoft will not be the key. Synergies between the two companies in online advertising will not be a panacea. Yahoo's problem is that they offer no compelling proposition to the customer. Almost nothing that Yahoo offers is a market leader, almost everything they innovate is quickly surpassed by a competitor (not always Google) and they no longer understand their target customer (if they even know who that is). What Yahoo needs is leadership that understands the current Internet and the customers that "live" there. At an accelerating pace, the Internet is becoming the infrastructure for our social, intellectual and professional lives. Yahoo missed the change from portal visitors to people who "live" on the Internet. Microsoft almost missed the Internet (until Windows Explorer) and still has not made much of an inroad in the current Internet of Web 2.0. When it comes to the Internet, one company is almost blind and the other can only see with one eye.

Strategic Complexity

Microsoft faces a major strategic issue. Given the growth and popularity of web-based applications and SAAS (software as a service), how do they position Windows Office. Office is a major revenue and profit generator, but the market (both consumer and enterprise) is moving away from desktop applications. Yahoo, on the other hand desperately needs a web-based service similar to Google Docs in order to offer a  more complete service package to this new user that lives on the Internet. With the acquisition of Yahoo, Microsoft not only has to consider how to address their own strategic dilemma but now they must also consider how the decisions may affect their $40+ billion acquisition.  Or conversely, any success Yahoo may have with an online Office-like offering comes at Microsoft's expense. As a friend of mine used to say, "there is no technology that has yet been invented that can measure the complexity of these kinds of decisions".

Advertising is Like Expedia

Microsoft launched one of the first travel sites-Expedia-and subsequently sold it off. They sold it because travel sites require the ability to package travel offerings and this was not part of the Microsoft skill set. Programming, Microsoft's strongest competency, was not critical to succeeding in the travel business. Roll forward to today and we see Microsoft proposing to acquire Yahoo to improve its position in online advertising distribution. Programming is becoming less and less important to the success of online advertising. With the proliferation of Web 2.0 offerings, attracting the customer is becoming more important than the underlying programming. Good programming is necessary, but customer acquisition (and the related traffic) is becoming the critical skill. Since the days when Microsoft established its near monopoly in operating systems for PCs, the company has shown little expertise in acquiring consumer customers in market leading numbers (with the possible exception of Office and that may be debatable).

To clarify, I am not a Microsoft basher. I think their ability to establish a monopoly in PC operating systems will probably go down as one of the greatest accomplishments in business history. I just think that the acquisition of Yahoo does not make strategic sense. It is also very disturbing that Microsoft is so significantly moving away from a strategy of organic growth. I don't know which issue bothers me more, but I know that great companies grow organically.

Now, who should buy Yahoo? Very tough question, if you eliminate Google for anti-trust reasons (and I am sure that Microsoft's crack legal team would do all the staff work to show why such a merger is anti-competitive). Let's look at who has the leadership to turnaround Yahoo. Who understands this new Internet consumer who lives on the Internet? Who in the Internet space has the record to warrant a $40 billion investment? Very few candidates come to mind.

Jeff Bezos and Amazon might be a candidate. Amazon stock has basically tripled since 2002, the Kindle reader looks like a great success and their web service infrastructure business is roaring (broadband traffic for the infrastructure business exceeded the traffic for Amazon's website in 4th quarter 2006). Now if a private equity firm were to approach Amazon for a "joint" bid for Yahoo that would be interesting. Only problem is I think Bezos is too smart to divert from his own organic growth strategy.

What I think is more likely is that Yahoo will merge with a Web 2.0 company that is valued at over $10 billion dollars as a defensive move to thwart Microsoft (which may not work given Microsoft's market cap of about $280 billion) or the pressure from potential shareholder lawsuits will force the Board of Yahoo to do the Microsoft deal.

Wonder what Rupert Murdoch is doing this weekend?

Public Intellectualism--A New Business Opportunity

Much is made of the proliferation of information due to Web 2.0 technology and user generated content. However, this trend may be part of  a larger trend which defines our era. Lee Siegel, a critic for the New Republic, reviewed Peter Gay's new book Modernism in The New York Times Book Review last Sunday and said in conclusion:

"We have exhausted Romantic individualism, and we have twisted the uniquely individual modernist escape from the self into "self expression". Expression is everywhere nowadays, but true art has grown indistinct and indefinable. We seem now to be living in a world where everyone has artistic temperament--emotive and touchy, cold and self-obsessed--yet few people have the artistic gift.

What Siegel is saying, in part, is that Web 2.0 is another manifestation of Modernism, that period in intellectual history (art, literature, music, architecture, etc.) which began in the late 19th century. However, Modernism has lost sight of true art and the quality associated with it. (There is a business point here, but you will have to be patient.) I would go a step further and say we have also lost sight of the value of public intellectualism.

Public intellectualism, which I would define as the public interest and support for new ideas and contributions in the arts and sciences, has been lost in part due to our addiction for fast, easy to understand cable news snippets and our willingness to accept unqualified  pundits as satisfactory commentators regardless of the gravity of the matter. Part of this abandonment of public intellectualism is attributable to the declining market share of newspapers. Rather than attributing this decline to the growth of the Internet, I believe that the newspapers erroneous decision to compete with cable news has been their undoing. Newspapers historically succeeded because they provided information not easily found elsewhere, albeit somewhat esoteric, such as coverage of chess tournaments, architecture or new scientific discoveries. With an increasing part of their budget devoted to generating instant news, newspaper coverage was reduced for the specialized information that actually attracted readers.

Another example of the decline of public intellectualism is the low respect we give intellectuals today compared with previous periods in history. For example, Charles Dickens and H.L. Mencken were icons in their period, but we have opted to idolize movie stars, professional athletes and the likes of Pat Buchanan and Larry King.

Perhaps the third example of the decline of public intellectualism is the lack of a robust, public debate as Washington rolled back our civil liberties in the last few years. Perhaps it happened because of what Siegel calls our self-obsession, and the 2008 elections may in part be a referendum on the acts of the current administration, but the depth of debate on civil liberties has been shockingly thin.

Two news items may suggest a subtle reversal in the abandonment of public intellectualism, and therein lies the new business opportunity:

1. Insidehighered.com ran a recent story on the American-Statesman, an Austin, TX newspaper, which is launching a column to review university-press titles by academics. Few publications review academic texts and Austin is the home of several universities including the University of Texas
2. The New York Times reviewed Lapham's Quarterly, a new publication edited by Lewis H. Lapham, the former Editor of Harper's Magazine. This publication devotes each issue to a single subject, but in an interesting approach they provide both historical writings and current thoughts on the subject (think Plato, David Hume and Thurgood Marshall on democracy).

What these two examples may portend is a subtle strengthening in public intellectualism and a move back toward the quality and art that Siegel finds currently missing. Public intellectualism and its inherent art and quality can not be abandoned, for if so, we forego critical thinking which is the foundation of democracy, capitalism and the arts.

Providing a quality, intellectual experience may now be an under served need and the basis for a new business. While information is proliferating, little has been done to organize it where quality is the selection criterion or where analysis puts it in a larger intellectual context. Imagine an RSS feed reader that provided posts of your favorite writers but only on subjects where you think the writer is qualified and relevant. Another example is perhaps a search engine that includes historical references on the searched subject (search for democracy and find an easy to use link to David Hume's writings).

A third example comes from the New York Times on Monday. The NYT reviewed a beta site called Big Think, which targets "thinking people" and looks to generate debate between its users and experts in the fields of academia, business, politics, science and art. Your participation in the debate can take the form of video, audio, slide shows or text.

Marc Andreessen's recent post on the number of Ning networks dedicated to education and the arts is possibly another example or at least supporting evidence. Public intellectualism will rebound and quality in the arts will return and this will provide new opportunities to start businesses.

If this post prompts you to do a little more research on this topic or any other, you may want to check out Zotero. Zotero is del.icio.us on steroids and designed for serious online researchers. (It only works with Firefox).

 

Condo.com Expands in Distressed Real Estate

Condo.com, the on-line marketplace for condominiums, has expanded its services in the sale of condo projects. Through an alliance with CB Richard Ellis, one of the leading corporate real estate brokerages, the two companies will work together for the bulk sale of distressed  condominium projects. The website now has a special section for investors to support this expansion in services.

I like this move by early stage Condo.com to react to a market opportunity and expand its range of services in its core competency--online sale of condominiums. I also like that they are partnering with a first class company, which only increases their credibility and prestige. Condo.com has financial backing from the Swerdlow Group, a leading Florida real estate developer, and this depth of industry expertise is helping to craft a well developed strategy.

My first post on Condo.com is here.

Personalized Games--Kickplay

Personal content has reached a new level!!

Kendall Kunz, who I have mentioned before in this blog, has taken the cover off his new startup--Kickplay. Kickplay is Kendall's third game startup and his experience in the gaming field shows. Kickplay let's the player customize a game with their own images and sounds and share it on the Web--all with no programming. There is a wide selection of popular games and the plan is to add new games monthly. You can also play games created by others. All free.

 

A game featuring yours truly is available here and shown below.

I will buy lunch for the best game submitted by a reader and will post it on this blog.

Private Equity Firms Shopping for Condos

Friday I had lunch with John Menezes, one of the senior executives at Condo.com. Condo.com offers the largest selection of condominium properties for sale in the U.S. and is rapidly expanding its international offering. John explained all the new features that are being added to the site and the technology behind the features. One feature that is particularly attractive is that for any property that comes back in a search you can compare the price per square foot of the selected condo to the average of the market you are interested in.

While this feature was designed to aid the consumer, John said that the feature has generated a lot of interest from private equity firms. PE firms are buying up a lot of distressed properties or enough units in a condominium to control the board of the condominium. The average price feature on Condo.com makes it easier for the PE firms to spot the distressed properties and determine an offer price.

You never know when a whole new group of customers may want to use the information on your website in a way that you did not originally anticipate. 

Web 2.0 Changes the Context

One of my more thoughtful (as in thinks deeply) readers sent me an email after my post on creativity. Kendall Kunz, who blogs here, is an inveterate entrepreneur with 3 or 4 successful startups to his credit. He is now working on a new startup, but I can't talk about it yet because I am a sworn to secrecy, official alpha tester. I will not publish Kendall's email but his point was that basically Web 2.0 is changing context and promoting creativity. That idea got me thinking about why Web 2.0 is changing context. 

As a refresher, context is our background and preconceived ideas. In a previous post I talked about Israel Kirzner's theory of entrepreneurship. Kirzner defined the entrepreneur as having a unique, in depth understanding of the opportunity, an asymetry of information. Web 2.0 is a powerful set of tools that provides information in greater quantities than most of us have ever seen. Given that most of the information is user generated, the variety of information is unparalleled. The user generated variety is what is leading in part to a finer and finer market segmentation. With finer and finer segmentation the opportunity for an asymetry of information increases. As the likelihood of asymetry increases, the opportunity for a change in context also increases, thereby generating the creativity.

Much of what we have seen so far is the powerful new tools made possible by Web 2.0. The next big wave in creativity  will be the uses of the information generated by the tools, wherein lies another huge opportunity for entrepreneurs. For example, all of the web pages tagged in delicious represents the opportunity to develop a search engine based on user tagged pages rather than an algorithm such as Google uses. (This example came from the Parallax blog.)

There is a conference--Defrag-- coming up on how Web 2.0 tools create layers of knowledge.

Your Personal Brand

If you are reading this, you obviously read blogs. Many blog readers also post comments (but not on this blog for some reason). Did you know that Google now captures your blog comments and produces them as search results for your name? I think blog comments started appearing in Google search results about one month ago. Congratulations--now you can worry about blog comments as well as Facebook, MySpace and Twitter postings (to name a few).

On a more serious note, all of your user generated content is actually creating a brand for you. All of your postings, writings and photos on the Web create an image much like advertising for Coca Cola. Collecting all the content from the Web on a person  gives one (or a prospective employer, client or mate) the opportunity to profoundly understand how that person thinks, what their values are and what they do 24/7. If you think about how carefully, for example, Coca Cola guards their brand image, you may need to start acting accordingly. Your brand image is being created and you can manage it or not.

It is still not easy to gather all the web-based content about a person, but Lijit.com is a big step in that direction. Yesterday on A VC, a technology/venture capital blog that I like a lot, the author posted about the "One Way Nature of Blogs". At the end of the post he commented that he wished every blog commenter had a page on the web where all their comments from any blog were collected. I think that's a great new business idea (perhaps already funded by this VC) and definitely a step closer to making it easy for me to check out your brand.

Florida Web 2.0

In the late 1990s I was the CFO of an Internet startup in Florida. At that time Miami was abuzz with countless new startups all trying to mine the Internet space. Few succeeded but many tried. Today, with Web 2.0 creating a frenzy similar to the late 1990s, I find many fewer entrepreneurs in South Florida trying to participate. Perhaps the more sophisticated technology now required is a barrier to entry or perhaps we lack sufficient programmers and developers, as some people say. (Personally, I would look to Latin America if human resources were the issue.)

The lack of South Florida participants in Web 2.0 is particularly surprising given that the capital required for a Web 2.0 startup is probably only 10-20 percent of the costs of an Internet startup in 1999. Facebook announced yesterday the formation of the fbFund to provide $25,000-$250,000 of capital to developers building applications on Facebook. Facebook is also reportedly considering to host these applications, which reduces the infrastructure risk in scaling and the related requirement for larger amounts of capital.

Accel Partners (investors in Facebook) and Founders Fund (managed by the founders of PayPal) are reportedly providing the initial fund capital of $10 million. While seed investing by venture capital funds has been largely out of favor for several years, I see the Accel involvement as further evidence that the larger funds are once again looking at ways to do seed investing. (Founders specializes in seed stage investing.) Secondly, I expect more of the large social networking sites to follow Facebook's example and start funds to support applications developers. (I hope LinkedIn creates a fund because they desperately need some new apps/features to insure continued subscriber interest.) Lastly, the fact that the fund is only $10 million just demonstrates the comparatively small amounts of capital required for a Web 2.0 startup.

Will fbFund do anything to support startups in Florida.....probably not. Will Accel's involvement at the seed stage do anything to increase the capital directed to startups by the venture capital industry......let's hope so. Will any of this do anything to help Florida Web 2.0 startups.......no! However, I am making progress on that front and will be reporting back to my readers shortly.

New Business Ideas-II

I recently received a business plan for a new networking site for business people. It offered no compelling reasons to abandon LinkedIn, Xing or Facebook, all of which I use. Managing three networking sites is about my limit and two more than I would like to manage. Consequently, as social network sites sort themselves out competitively, I need a very good reason to add a new networking site.

Last week a little noticed news item mentioned that Wachovia is developing an internal social networking site using Microsoft technology. (Hint: When the Web 2.0 technology is Microsoft there is definitely a business opportunity.) This morning Read/Write Web posted on two Forrester Research reports on Web 2.0 in the enterprise. My interpretation of the graphic below from Forrester suggests that Web 2.0 as a corporate application(s) has barely penetrated companies with more than 500 employees and significant opportunity still exists.

 

(Click on graphic to see full image)

Marc Andreessen, the developer of Netscape, posted today about the three types of web platforms. Not surprisingly he advocates the type of platform he is currently developing at Ning. (Ning provides a platform so that anybody can create a social networking site and hosts a reported almost 100,000 networks.) Andreessen's recommended platform is a runtime environment.  In such a platform third party applications code actually runs inside the platform, as opposed to third party Facebook apps which run outside on their own infrastructure. (As a big fan of salesforce.com, another runtime platform, I think Andreessen is correct about the best type of platform.It is not for the technologically challenged as he points out.)

At this point it may not yet be apparent where I am going......patience.

I think a big opportunity exists to provide corporate social networking sites, a combination of the functionality of Facebook and LinkedIn, to large enterprises. The product would be offered on a software as a services model but would offer a runtime environment so third party developers could develop apps and be compensated. Effectively, one would have salesforce.com for corporate social networks. Security concerns could be met by the apps the corporation selected to offer employees.

Some pundits have pointed out that corporations are restricting access to Facebook during business hours. Ten years ago companies were concerned about the employee productivity loss from Internet "surfing". Social networks within corporations should be a big business and there is always room for a number 2... after Microsoft :)

Supporting South Florida Entrepreneurs

Recently I have met with several people in their late twenties and early thirties who are involved with technology startups in South Florida. These men and women all either grew up or went to school in the northeast and universally lament the lack of an organized support network for entrepreneurs in South Florida. I would agree that we have to improve the support network for entrepreneurs, but we do have the resources to create a meaningful support structure, such as:

1. HIG Capital, the largest venture capital fund in Florida
2. Pino Entrepreneurship Center at FIU
3. University of Miami Medical School
4. Several families that have consistently invested significant monies in startups
5. Several large, local companies that are involved in technology, such as Brightstar
6. Next Miami and Refresh Miami, both relatively new social networks for entrepreneurs

What we lack are events that consistently bring together these resources and others for meaningful support of startups and early stage companies. With the exception of the Florida Venture Forum's annual event, which targets companies statewide, I do not know of an event that tries to bring together capital and other resources for early stage companies in South Florida.

The time has come for South Florida to create its own formal organization in support of local entrepreneurs. If enough people respond positively to this post, I will take the initiative to make something happen.

Tags

If you use the Web to improve your productivity, blog or for social networking you are frequently usings tags. Sites such as delicious, Technorati, Clipmarks, Facebook and many others work best with tags. For example, if you found a good image or graphic that you wanted to post to your blog, save in delicious and publish in Clipmarks, you would need to enter the same tags three times (hint:Technorati tags for the blog post).

I hope somebody is coding away to produce the first "tag generator" that let's you tag multiple sites and then update all those sites. This free, new business idea is brought to you by the "Hacker Wants an Easier Life" Foundation" :)