Alexa vs. Alexaholic/Statsaholic.
Google Maps vs. Platial, Frappr, Flagr.
Expect more of these folks.
The only thing that is different between now (2005-present) and then (1994-2001) is that then, the business models were unsustainable because the money supporting it all originated with venture capital, which converted into advertising, with it all being justified by a public offering exit. Of course, when the Nasdaq market crashed from 5,000 to 1,500 in a matter of months, the public’s appetite for Crap.com fizzled, so VCs stopped investing in advertising online. It was that simple: a domino effect that made the house built on sand crash down on its own weight.
Today, what’s changed is the cheap hardware, open software and turn key advertising. Truth is that the turn key advertising models only generate revenue with scale. The hardware is cheap, sure, but due to the low barriers to entry and the open source software en masse, whatever you are thinking of doing, someone else has done. And yet, no one has a clue how to monetize it, because Ad Sense sucks unless you have decent traffic.
The companies’ API - be it Amazon’s, Yahoo!’s or Google - only added to the fuel in the sense that in the event you had traffic, they would squeeze you out. Case in point: Alexaholic. Amazon.com bought Alexa and forgot about it, someone came along and added some really cool features to it, and Amazon.com did what any sane company would do: erase it from the Web’s memory. Hope your 15 seconds were fun. Please don’t misinterpret me: whomever was the bloke behind Alexaholic was smart, but he was wasting his time, energy and money (as measured by opportunity cost).
In other words, much the same way that in the pre-bubble days companies financed an idea from concept to IPO in days, let alone months or years, today entrepreneurs are suckered by large publicly traded corporations passing themselves off as socialist entities to do their dirty work, thinking that “if we build it, the large companies will come… with their check books.”
What Alexaholic, Fraxlk, Crappo and Deflinger have proven is that only a delusional sucker would build an application on a publicly traded corporation’s API and expect to reap commercial success. In other words, if and when you wish to use a company’s API, understand that it’s a short-lived, double-edged solution. It’s a hobby. If you don’t see that from Day 1, get out of the business landscape because you will regret the time and energy you spent on your project.
When we built MetaMojo.com in the spring of 2005, it was a hobby of mine because I was bored at work and needed a challenge. MetaMojo.com was a domain-specific vertical search engine. To keep costs down and prove the concept, we used Yahoo!’s API. Google subsequently opened its API, too. But I was convinced that Google would steal the idea, so I went with Yahoo!, knowing that Yahoo! was slow and disorganized. I was proven right, sort of. More on that below.
But, the fact is, for months I had to contact and convince Yahoo! - namely Toni Schneider, who landed at Yahoo! after it bought Oddpost, and who has since left Yahoo! and is now at True Ventures - to turn our project into a commercial license, because we hit the daily limit of 5,000 queries pretty much from Day 1. Eventually, Toni was a gentleman and scholar and granted us the license.
Problem? I spent months convincing him of the value of vertical search. Essentially: give us the right to build a business on your platform, because it’s lucrative, potentially. Result: “Sure, sucker, build it, and if we see results we like, we’ll steal the idea.”
They did:
Eighteen months after we launched MetaMojo.com, Google launched Go-op.
Twenty-four months after we launched MetaMojo.com on Yahoo!’s API, Yahoo! launched Alpha.
In the fall of 2006, we swapped out Yahoo! for a proprietary index and crawler. Truth is, it’s not 100% ours, we used Nutch. But I rather trust an open source software than a publicly traded firm’s API any day.
The point of the story is that between Mashable, Tech Crunch (all great sites, mind you) encouraging mashups, celebrating and glorifying this orgy of entrepreneurship with no safety net, they fail to properly relay that these are not businesses, but applications that are hobbies.
When MySpace comes out and blocks widgets, people are surprised. Are you crazy? Wake up and smell Rupert, it’s his space, not yours. He paid $580M for it, after all.
Folks, for the love of all things holy, get off the Web 2.0 nonsense and go start actual companies!
What’s really rewarding for me, personally, was a discussion I had in December 2005 with a successful VC right after I left my old company and made the decision to invest a substantial sum to develop our own index and crawler for MetaMojo.com. It was substantial for an individual, if Yahoo! and Google knew what we spend on it, they would be ashamed. Ask.com would literally be ran out of town.
Regardless, I was told by the VC: “keep using Yahoo!’s API, work on functionality.” It made no sense to me. We have not added bells and whistles because we want to grow the WatchMojo.com network (uniques, pageviews, searches, video streams) before adding some of the things we have added to MetaMojo.com… but the one thing that was imperative was NOT to rely on Yahoo!
That was obvious. Apparently, what is obvious to some is not to all. We’re back in a very dangerous time where we chuck any and all common sense pertaining to business fundamentals. Fundamental #1: it’s a business, and if you think another company will let you build something of considerable value on their backs with no repercussions, you are a tool.
Around the Web here, here, here and here.
Disclosure: I own shares of Yahoo!
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WatchMojo NewsletterCompete.com does a good job of unearthing some of the traffic breakdown on Craigslist.org. The conclusion: sex sells.
A deeper digging suggests that the site is used by men seeking men.
Not that there’s anything wrong with that, of course, especially when you consider that gay men represent a very good demographic, usually two high wage earning folks with [usually] no kids, so a high discretionary income, traveling a lot, spending plenty of fashion, accessors and grooming products, and [insert more stereotypes here].
Check out the analysis here.
For our previous posts on Craigslist:
:: Privately Held Companies, What are they Worth?
:: Craigslist.org: the Reluctant Billion Dollar Company?
:: 13 Most Explosive Startups of All Time
:: Craig’s Achilles Heel?
Just a few months ago, we put Apple in the Top 10 High Tech/Web Stocks of Past, Present and Future. Today we’re asking, could Apple’s golden era be over?
Let’s see.
Apple’s iPhone lasts a mere 40 minutes?
Apple TV loses out to XBOX 360?
Apple customer service reminiscent of Dell, Seagate, HP customer service? Yep, maybe even worst.
If there’s one thing I know, it’s service. I spent 18 months (and one day!) doing customer service at the nation’s largest credit card issuer. I’ll spare you the war stories, but when I left, my index score was 149. You can always measure a company’s success in the marketplace by how on or off the ball their service is, and how their employees handle themselves.
I’ve never been a Mac guy. I’ve used a PC for basic office use, our editors at WatchMojo.com use Macs, “naturally.” I am even toying with the notion of “upgrading” to a Mac soon. Not so, not anymore.
While Dell and HP know that they create and ship boxes and don’t kid themselves, Apple tries to sell an image, a brand, a feeling, so when their CSRs drop the ball and the company fumbles, it hurts them twice as much, shattering the facade.
It’s one thing for John Dvorak to say that someone told him the iPhone lasts a mere 40 minutes, it’s another thing for an AP writer to say that the Apple TV is no XBOX 360 (Bill Gates just named his next son Sven, so he can shout “Sven, son”). All right, that was lame.
But not as lame as Apple’s CSR.
We ordered an Apple Airport Extreme Base Station. Extremely crap, I might add. When we wanted a more robust router, my colleague - the Mac fiend - suggested Apple’s product.
Frankly, my initial thought was: music players? Ok. Phones? Maybe. TVs? Sure, why not.
But routers that double up as hard drives and quasi-servers? Give me a break. Isn’t Apple stretching itself a little too thin? What happened to Steve Jobs’ razor-sharp focus? Did greed and hubris soften that edge?
I indulged him, we got one, it was a disaster. Judging by the feedback on the Apple site, it’s a hit or miss: people love it or hate it. Judging by the ultimate feedback, I think Apple had some quality issues with a batch, because eventually when I gave my serial number to someone, they acknowledged it was, well, crappy. But more on that later…
After spending some time setting it up, the thing would crash, and when it would not crash, the laptops (PC or Macs) could not read the hard drive. But everyone could print. Yippie!
I’d spare Apple, frankly, but then today came the last straw. A call to customer service to a) replace or b) get a refund.
I made the mistake of calling the number provided on Apple’s invoice. I spoke to &$%^#$%#%^*&. No, that’s not a swear word, I could not make out the agent’s name. I figured, no worry, I am sure Apple will leave me happy as a clam.
But &$%^#$%#%^*& needed a case number, so I was referred to another line. Note that everytime I was transferred, I felt deeper into a shell and the voice on the other line grew weaker and weaker (does something really grow weaker? Yes, Apple, like all companies that suffer from hubris as they expand, but more on that).
From &$%^#$%#%^*& I was transferred to Andrew. Andrew was kind enough to forward me to someone else: Rebecca, who then sent me to Jerri. From Jerri it was Wendy. Wendy sent me to Steven. Steven, or Stephen, or St&$%^#$%#%^*&en told me that I needed a case number… and to get one he would have to - “STOP!” I shouted, adding: “I know, I need a case number, but the good news is that &$%^#$%#%^*& referred me to Andrew, who in turn referred me to Rebecca, who then sent me to see Jerri, then Wendy, now you, so let’s try to make this the last phase of this circus of disservice insanity.”
Steven, to his credit, finally spoke to a member of management, came back to tell me I’d have to wait some more, and then managed to come back telling me that indeed, based on the serial number, they had sold me a crapbox, and that I could send it back in the next couple of days for a refund.
It’s a good thing, cause I would hate to have to say negative things about Apple. Of course, between now and the next 48 hours, a lot of things can happen before they send me an email. Who knows. Hopefully nothing bad will happen.
But what’s the lesson here?
1. When I called, I have every intention of asking for a replacement. But the fact that I was a hot potato and Apple failed at First Call Problem Resolution (something, by the way, I pitched to my bosses in 1998 as a lowly CSR at the nation’s largest financial institution) means that I never want to have anything to do with them. We’ll keep the Macs for editors, but trust me, I’ll find something other than a HP or Dell or Apple to buy next for myself, and for our growing company.
2. Apple has begun its long delayed descent. It’s nothing personal. It’s just the way that it is. Apple’s stock says a lot:
December, 2000: $8.50
April, 2003: $7.10
February, 2005: $45
April, 2007: $94
In other words, in 7 years, the company’s stock has grown tenfold on the strength of their computer sales and their digital music players, the wildly successful iPods. But much the same way that MSFT had Windows and Office (two trick pony), Google had search and advertising (two trick pony) I think that deep down inside, the real and fake Steve Jobs know full well that it will take a massive hit to keep that stock rolling.
MSFT could not do it. Google, it does not look like, could do it. Both are monopolies to varying degrees (let’s toss in “allegedly” to make our lawyers happy).
I don’t think Apple will be able to do it. John Dvorak and Peter Svensson say that they won’t do it. I don’t really know or care if they are right, but what I do know is that due to Apple’s hubris and thinking that they can launch any product in any market and win any client, they put out a clunker and then added insult to injury by refusing to help me ship back their crapbox… translation: no Apple TV or iPhone for me, and going forward, no Mac or iPod.
Judging by the tone and handling by their service team, I’d assume I’m not alone. The shield has been broken. Apple is on the descent.
How you like them Apples, Steve?
Private equity, angel investors, deep pocketed media and IT firms are putting a squeeze on VCs, or so says the headline. Is any of this true?
It’s no secret, the venture capital landscape is changing: VCs like Fred Wilson offer a daily glimpse into how so and how much every day on their blogs (small is beautiful), while other venerable funds try to adapt and change with the times (Charles River offering debt financing).
The boom, bust and boom again in technology and new media circles has led to an influx of wealthy individuals acting like angel investors, with the ability to pony up six if not seven digit-sized investments.
Cheap debt translates to private equity firms scooping in and buying up assets at a torrid pace.
And, of course, IT and new media companies are flush with cash, boast high P/E multiples and can entice entrepreneurs to pursue the building of their dreams within their organization. While entrepreneurs and investors won’t say it in public, selling out to Yahoo!, Microsoft, Google, IAC - and increasingly the old media types News Corp., Viacom, Time Warner, etc. - is always an exit option.
Any way you dice it, venture capital is being attacked from all corners. Of course, VCs are not going away, either. For one, angels invest mainly in those they are close to - literally and figuratively - and have an affinity with. Tech firms and new media companies tend to invest in companies that offer them something unique and strategic, and tend to reduce the freedom and options of the smaller company down the road. And, private equity investing, while enormous, is generally limited to investing in publicly traded companies, meaning that startups can’t turn to them. While other hedge funds take positions in everything from stock, currencies and derivatives, they seldom - if ever - plunk down money in a startup.
So the fact remains that all of this talk about VCs being threatened is, well, simply untrue. If anything, we think that this is partially emanating from VCs who have a lot of capital under management but little places to invest it in. In other words, the more we look at the landscape, the more we think VCs are trying to step on PE firms’ toes.
Private equity, of course, is a growing business. A recent article in Business Week’s April 2nd 2007 issue had some interesting stats. John K. Castle, chairman and CEO of Castle Harlan, a private equity firm, broke down some numbers in an attempt to calm the concern over an ever-growing private equity appetite:
- US private equity firms raised $215.4 billion in 2006, according to the Dow Jones Private Equity Analyst.
- Private equity investors, mainly pension funds, endowments, other institutional investors, have committed $555 billion, with $322 billion remaining to be invested, according to Wachovia Securities.
Clearly, these are big numbers, but Mr. Kastle, who admittedly is biased, does a very good job to put them into perspective. How so? Read on.
- The $322 billion in private equity is slightly more than the market capitalization of MSFT ($302B) but less than that of Exxon Mobil ($425B) or GE ($$379B). The problem of course is that private equity leverages its bets with a lot of debt, so the $322 billion is actually much more, while Mr. Kastle says that it represents $800 billion purchasing power (or a ratio of 2.4, many hedge funds and private equity funds tend to be far more levered than that. At the extreme, former Salomon Bros. trader’s John Meriwhether’s infamous Long Term Capital Management was levered to the tune of 40 to 1.
Mr. Kastle goes on to argue that the $322B in private equity left to be invested is in fact representative of:
- 1.6% of the $20.1 trillion in total equity of all of the companies traded on the main US exchanges.
- the tiny $54.1 trillion net worth of US households and non-profit organizations (the organizations and individuals that own all financial, real estate and other assets).
Right or wrong, the point he is trying to make is that private equity is small in comparison to all of the money that is out there.
Of course, while VCs are sitting on a lot of money, the bottom line is that only a tiny fraction of that capital is invested:
Let’s take a look at the VC industry, mainly in the US.
According to the National Venture Capital Association, as of December 2005,
- the venture capital industry was managing approximately $259 billion.
- there are approximately 866 venture capital firms in the United States.
- the average venture fund size was $299.5 million.
- venture capitalists invested approximately $22 billion into 2,527 companies.
Simple math translates that only $22B of $259B was invested in 2005. If you break down the $22B by 866 VC firms, this means that each VC invested approximately $25M that year. In fact, considering that over 2,500 companies got VC money, this means that each investment was in the $8.7M range.
Last year, 2006, saw a rise in activity, but even then, VCs invested some $6.2 billion in 797 deals in U.S. during the third quarter of 2006, according to the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association based on data by Thomson Financial.
In other words, even when you forget the fact that 9 out of 10 VC investments fail, the ones that succeed tend to have very little impact on a VC’s return on equity, because so little of it is actually invested. But indeed because so many traditional VC investments are speculative, that the next trend is for VCs to move progressively more and more towards areas that private equity companies currently invest in. Sure, a lot of VCs are embracing smaller deals, but that might be because it involves someone they have worked with previously or it presents an opportunity they really believe in. In other words, the numbers do not really seem to justify remaining in new ventures, the smart money has been following larger deals and VCs have seen the light.
The challenge is the massive amounts of capital under management combined with a risk/return profile that suggests that they are better off buying up established, less risky companies, spruce them up and then unload them at a profit.
Doubleclick was acquired by a private equity firm for $1.1B, they unloaded $535M in assets and now want to fetch $2B in a sale in less than one year. Say what you want about the plausibility of that happening, like we have here and here, the fact is: it’s a less risky proposition with much higher and certain absolute returns than the potential relative returns of pure play startups.
