Ready, Fire, Aim! - Mihail's Public Blog

From a couple of days back, a Fortune story on Google facing some tough growing problems:

Those close to Google say that the company has begun to more closely resemble a madhouse than any kind of serene dot-com dream. It's a tough place to work, and a tough place to do business with.

....Aversion to bureaucracy is turning out to be better in theory than in practice. People who work at or do business with Google worry that the company has outgrown that style. Ed Gilles, the CFO at storage software company Veritas, was in the running to become CFO at Google last year; he bowed out because he found the place too chaotic. (Onetime Sun CFO George Reyes now holds the job.) And in October, Sun co-founder Bill Joy and former Sun technology executive Mike Clary—both of whom know Schmidt from his days at Sun—kicked the tires at Google, only to walk away, telling others they were bewildered by how out-of-control things seemed. Gilles and Clary won't comment on their negotiations. Joy will say only that he talked to Google about working there and that the talks never reached a conclusion.

Nielsen analysis of Friendster traffic is interesting. They've found that the average visitor spends almost two hours on the site or twice as long as the top personals sites which still attract three or four times as much traffic. Thanks to Danah Boyd's blog:

"The member community format is quickly becoming a popular social network on the web," said Lauren Taub, Internet analyst, Nielsen/NetRatings. "Friendster's growth is impressive, but it is too early to tell if its early success is explained by unique functionality or the fact that it is currently a free service."

Danah Boyd, a grad student at Berkeley (you can read her blogs Connected Selves and Zephoria) is featured in this New York Times story (registration required) on this Friendster/social networking expert with some interesting things to say about this phenomenon based on Lawrence Lessig's language.

Her irrepressible observations have made her a social-network guru for the programmers and venture capitalists who swarm around Friendster and its competitors....

Ms. Boyd explained Friendster this way: "It allows you to purposely say who the people in your world are and to allow them to see each other, through a connection of you." An individual registered at Friendster has a home page with photos, a brief profile and photos of people to whom they have agreed to link. That person can then browse his or her network or search it for dates or activity partners.

A very iteresting HBS Working Knowledge article by David Gergen on what kind of leader Geroge W. Bush is:

We have seen this kind of tough, decisive leadership before—in Jack Welch at General Electric, George Patton on the battlefield, Bobby Knight on the basketball court. But we don't often see this brand of leadership in the presidency, and it very much runs against the grain of current leadership studies. Bill Clinton, for example, was studiously non-hierarchical and would look at every problem from a multitude of perspectives before slowly and painstakingly arriving at a policy position; George H.W. Bush consulted widely on international problems, relied upon old friendships, built up coalitions—and only then acted. George W. Bush, by contrast, is in some respects more similar to Franklin Roosevelt, as journalist Jonathan Rauch recently wrote in a widely noted National Journal piece. FDR was also a big risk taker, liked bold, dramatic policies that shook up the landscape, and was often accused of public deception. But FDR was also much more of a public educator than Bush, talking people carefully through the challenges and choices the nation faced, cultivating public opinion, building up a sturdy foundation of support before he acted. As he showed during the lead-up to World War II, he would never charge as far in front of his followers as Bush. If anything, Bush more closely resembles Teddy Roosevelt: TR would have loved the Koerner painting and instantly seen in Bush another rough rider. Still, it is worth remembering that TR was also an intensely curious man of immense learning, who read as much as a book a day in the White House.

The command-and-control approach was still in vogue for CEOs when Bush studied at the Harvard Business School in the mid-1970s, and there is little doubt that as the first MBA president, he reflects his training. But in much of leadership studies today, that style is distinctly retro. The consensus in the field now holds that the person at the top should engage in consensual, collaborative leadership. Don't issue orders or fiats, but persuade and gently bring others around to your point of view. Since no one has a monopoly on wisdom—indeed, reality itself may be socially constructed by the most powerful in society—a public leader, more than leaders in any other arenas, should seek multiple perspectives, inviting voices of dissent. Let wisdom rise to the top instead of sending orders down. Deliberate, negotiate, collaborate, and then collaborate some more. Perhaps this is a caricature, but if you thumb through the pages of the many new books on leadership, you will find those precepts. Indeed, I have taught them myself. But with a nonchalant wave of the hand, Bush goes his own way. He's very much his own man.

Amusing snippet from the Monopoly story in the Harvard Business School Working Knowledge. "In a bet-the-company strategy in 1935, Parker Brothers decided to put everything it had behind its new game, Monopoly. Good move. An excerpt from The Game Makers."

Demand climbed to 35,000 games a week. George continued to encourage Barton, Phelps, Jelly, and Haskell to fill the demand, despite a growing sense of desperation. Instead of looking for printing jobs, they were seeking out printers, assemblers, box makers, and token manufacturers. All of Salem was mobilized to help. So great was the need for production that Barton paid a visit to Father Zubcyk of Saint John's Church in Salem and asked for his support in requesting the State of Massachusetts for permission to work on Sundays. (Parker Brothers' workers were mainly Roman Catholic.) Barton offered one concession. "I'll limit the shifts to seven hours, so your people will have time to attend Mass." Father Zubcyk declined, retorting, "I will only say yes if you run three eight-hour shifts. My people need all the money they can get, and the church needs their contributions. I'll hold Mass around your shifts." Barton smiled and shook Zubcyk's hand. The request to the Commonwealth of Massachusetts was approved.21

Some good news on the eonomic front according to this New York Times story (registration required). FYI, consumer spending counts for two-thirds of economic activity.

The economy grew at an 8.2 percent annual rate in the third quarter, the government reported this morning, a much more torrid pace than the 7.2 percent that was the initial estimate.

It is the fastest pace of growth since the first three months of 1984. While welcome, economists said growth at that level is not sustainable. Indeed, most expect the rate of growth is slowing in the current quarter.

According to this New York Times Magazine story on online personals (registration required):

In the first half of 2003, Americans spent $214.3 million on personals and dating sites -- almost triple what they spent in all of 2001. Online dating is the most lucrative form of legal paid online content. According to comScore Networks, which monitors consumer behavior on the Internet, 40 million Americans visited at least one online dating site in August -- 27 percent of all Internet users for that month. The sites they visited range from behemoths like Yahoo! Personals and Match.com, which boasts 12 million users worldwide, to smaller niche sites catering to ethnic and religious groups and to devotees of such things as pets, horoscopes and fitness. In between are midsize companies like Spring Street Networks, which pools the personals ads for some 200 publications nationwide, including Salon.com, the Onion and Boston Magazine, and sites like Emode and eHarmony, which specialize in personality tests and algorithms for matching people. A recent entrant, Friendster, conceived of as a site for dating and meeting new people through mutual friends, has become a raging fad among the younger set and now claims more than three million members.

Although online retail sales account for only 1.5% of total retail sales, they increased faster than offline sales this past quarter according to this Dow Jones story in the Wall Street Journal (subscription required):

U.S. consumers continued to shop online in the third quarter, racking up sales of $13.3 billion, a 6.6% increase from the prior quarter, the Commerce Department said Friday.

E-commerce sales rose at a faster pace during the quarter than overall retail sales, which rose 1.6%.

Netflix is the Amazon of DVD-rentals in its successful handling of logistics and customer service: 1.5 million transactions a week, each valued at about $4, with revenue in the last quarter up 77% to $72.2 million, and the number of subscribers up by 75%. However, there are questions about Netflix's viability and the onslaught of competition according to this Wall Street Journal story (subscription required):

The offer of unlimited movies forces the company into a precarious balancing act. People who rent very few films are the most profitable, but aren't likely to stick around because the service is uneconomical. People who rent lots of movies can be money losers for Netflix, but they are generally satisfied customers who stick around a long time and spread the word about the service.

Netflix has opted to keep those customers happy, figuring they will be profitable in the long run. As a result of the strategy, customer turnover is down, but monthly disk usage per average paid subscriber has risen 18% to 5.9 movies this year. Netflix won't say at what point a customer becomes a money loser, but if the rental trend continues it could hurt profits.

I especially don't buy their eBay-like argument that because the average customer like myself has rated 100+ movies I'm going to stick around as a Netflix customer. Rating those movies was easy and has yet to deliver really good recommendations a la Amazon. No, I'm going to stick around because they're the best deal in town and have good service. But if someone else was to come along with better search and a larger catalog of movies, I think I'd be saying goodbye to Netflix.

The success of TiVo and DVDs is causing the networks to reinvent how they reach the audiences they've been losing recently according to this Wall Street Journal story (subscription required):

Among big advertisers, "there is a pent-up demand for alternative approaches" to reach viewers, says Nick Brien, president of corporate business development at Starcom Mediavest Group, the Publicis Groupe unit which buys TV advertising time for such clients as Procter & Gamble Co., Coca-Cola Co., and Kellogg Co. "We either face the onslaught of TiVo and DVD ... paralyzed with an inability to evolve. Or we learn it, we test it, we apply it, and we evolve." He points out that the music industry ignored the threat of technological change, the new services that let people get music free, and now is reeling financially.

TV studios are also moving more quickly to take advantage of DVDs, whose introduction in 1997 proved a goldmine for the film industry. In part, because DVDs of new movies sell for only about $20, households are buying on average more than 15 discs a year, almost three times the number of videotapes that were purchased at the peak of the video revolution, according to Adams Media Research. The number of DVDs sold annually has jumped to 490.9 million last year from virtually nothing in 1997, according to Adams.

I didn't realize this was also going to be possible. That you could convert your regular home number into your cellphone number at the same time as the law changed which now allows you to take your cellphone number with you when you change your cellphone provider. According to this Wall Street Journal story (subscription required):

A trade group representing local telephone companies sued Friday to block a new rule that will allow customers to transfer their landline numbers to cellphones.

The United States Telecom Association said the rule, which takes effect Monday, gives an unfair boost to the wireless industry. The trade group had unsuccessfully lobbied the Federal Communications Commission to delay implementation of the new rule, and on Friday asked the U.S. Court of Appeals for the District of Columbia for an emergency motion stopping the rule.

As broadband access continues to become more and more expensive in many markets, tiered pricing based on your usage level is headed your way according to this Wall Street Journal story (subscription required). Hopefully, that means a price break for most of us who're not heavy users of bandwidth since we're not exchanging large files like music and videos.

Cox said it has rolled out this plan in a few select markets, with further expansion in 2004. The premium version costs $79.95 to $89.95, while the low-cost choice goes for $24.95 to $29.95.

People who hog up Internet bandwidth have been a growing problem for the industry since the emergence of peer-to-peer file sharing services. According to industry data, up to 60% of the Internet's total bandwidth is used by 5% of the users entrenched in file swapping on sites like Kazaa or Grokster -- services that allow people to trade media files through the Web.

The dot bust continues according to this AP story in the WSJ (subscription required):

About 12% of the nation's high-tech jobs have evaporated during the past two years, but the meltdown appears to be in its final stages, according to an industry report released Wednesday.

After wiping out 540,000 jobs in 2002, high-tech employers are on pace to lay off another 234,000 workers this year, based on figures compiled by the AeA, a trade group formerly known as the American Electronics Association.

Steve Jobs recently told investors that it's very successful iTunes music site is not, and may never be, a money maker according to this very interesting Wall Street Journal story (subscription required).

Selling song downloads turns out to be a low-profit-margin business. Of the 99 cents Apple and other sites charge for a song, the companies pay anywhere from 65 cents to 79 cents in wholesale costs to music companies, analysts and industry executives say. Credit-card processing fees, bandwidth charges and costs related to customer service can, in some cases, eat up whatever profit is left over.

"The margins are very low and quickly become negative," says Mr. Ryan of RealNetworks.

Consequently, many of the online music competitors seem to have ulterior motives for chasing the business. Apple executives say the strategy behind iTunes Music Store is to sell more iPods, the pocket-size gadgets that let users carry up to 10,000 songs. The company has sold more than 1.4 million of the devices, which start at $299 and carry profit margins of about 20%, according to analyst estimates. Although iTunes users can listen to music on any desktop computer, the iPod is currently the only portable music player that works with the Apple site.

Since profit margins are slim for individual songs some of the new competitors to Apple are hoping to lure music listeners into signing up for monthly subscriptions where the margins are much higher.

Apple rivals including Roxio, RealNetworks and Musicmatch -- a software company best known for its music software for PCs -- concede that the profit margins from selling song downloads are slim. But they say their objective is to persuade as many of their users as possible to pay for subscription services, which can have profit margins of around 50%.Apple rivals including Roxio, RealNetworks and Musicmatch -- a software company best known for its music software for PCs -- concede that the profit margins from selling song downloads are slim. But they say their objective is to persuade as many of their users as possible to pay for subscription services, which can have profit margins of around 50%.

My problem with eBay has always been this: I'm not as trusting when it comes to strangers online even though many sites have all kinds of ratings systems. I'm totally trusting in the real world. But online? That's hard for me. Which is why I've been a big fan of buying directly from Amazon. Although increasingly I'm also buying books from Amazon's third-party merchants and that's worked out pretty well so far except for one experience where the merchant was sellling an older version of a book without stating that. So I had to send my purchase back.

I suppose that'll always be a problem. Lack of quality control if you're buying thru someone else via Amazon but it would make sense for Amazon to try harder in making its merchants adhere to certain listing standards. Anyway, I finally took the eBay plunge this month. I managed to find a brand new copy of a watch that had been discontinued, and which I had been looking for for months unsuccessfully. I could have only found it on eBay! And the transaction was flawless.

But then, twice in a row, I was sold the wrong version of Microsoft software. I got my money back both times but the hassle made me livid. And wasted a couple of weeks. The good news is that eBay is on top of making sure that there are fewer scams on its platform and the Justice Department announced that it has made 125 arrests since October 1, 2003 for cybercrimes according to this Wall Street Journal story (subscription required):

Investigators from federal, state and international law-enforcement agencies have uncovered more than 125,000 victims with estimated losses of more than $100 million as part of a crackdown known as "Operation Cyber Sweep," Attorney General John Ashcroft told reporters Thursday. Offenses targeted include identity theft, investment fraud and software piracy.

One crime involved the creation of a fraudulent Web-auction escrow site purported to ensure sellers of high-value items on the eBay Inc. auction site that payment had been received. But sellers of diamonds, rubies and other valuable items were never paid after sending the items.

8 days since my last post. Been meaning to write but things have been hectic here at BN. Lots going on! And lots of people wanting to get together to talk about our experience with blogging. Which means my personal blogging has suffered.

All the major VC funds who've bet on large Web-based businesses in the past have now made bets in the social networking space. Is is an incestous space with the founders of Tribe.net and LinkedIn, Marc Pincus and Reid Hoffman respectively now becoming both competitors and original investors in Friendster. According to this interesting News.com story:

As Friendster was hammering out details of its most recent cash infusion--a $13 million Series D investment led by Benchmark Capital and Kleiner Perkins Caufield and Byers--Pincus and Hoffman formed a limited partnership without Abrams, in order to purchase the so-called "Six Degrees" patent for $700,000....

"I didn't involve Jonathan because I thought Kleiner and Benchmark would try to bid me out," Hoffman said. "It's better to be safe than sorry." Hoffman described the Six Degrees patent as "central to this field."

Interesting event last night at the Mountain View offices of Silicon Valley law firm, Fenwick & West. It was the Rafe Needleman moderated shootout between LinkedIn (SV darling that just announced an investment form Sequoia), Spoke, Visible Path and ZeroDegrees. LinkedIn seemed to have its act together by far and I personally use and adore the service, and won the VC Panel Award for most likely to succeed. Spoke won the audience award but the voting was allegedly stacked in their favor.

And this is amusing -- "the ultimate inane in-joke quiz for people normally above this kind of thing." Well-said! What kind of social software am I? Thanks to MollyB's blog. My score says "You are the blogosphere...and you just want to be linked." There are 12 possible results (!) according to the people behind it.

MIT Review has launched a market game where participants receive 10,000 game dollars which can be used to buy contracts that represent bets on various topics. They'll avoid subjects like future terrorist attacks (which former Admiral Poindexter was setting up at the Pentagon) according to this New York Times story (registration required):

The Technology Review marketplace, called Innovation Futures, began operating a month ago but was not announced publicly until last week. It is free to users and lets players bet on propositions like when Google will go public and which month, if ever, Boeing will commit to building the 7E7, its next-generation commercial jet. The most successful traders have a shot at winning a plasma-screen television or other prizes.

...Such trading systems work because they present a continuously updated consensus view of a large number of interested, informed people making their best guesses. Innovation Futures (http://trif.technology review.com/bk/index.html) uses technology from NewsFutures, a three-year-old electronic markets company.

Yes! Sarah McLachlan is back with Afterglow according to this New York Times story (registration required):

It has been six years since her last studio album (an eternity in the music industry), but Ms. McLachlan has finally returned with one, "Afterglow," a collection of moody, low-key songs that, despite the time lag, seamlessly picks up where Ms. McLachlan left off with her multiplatinum "Surfacing" in 1997. Though much in her personal life changed while she was away from the spotlight — she married, lost her mother and became one herself — her style remains decidedly the same: atmospheric folk-pop that invites listeners to sway, not stomp