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

Maybe it is a zero sum game. The early media and Internet darling, Friendster has stalled at about a million visitors, while other sites like MySpace and Facebook have led the increase in traffic on social networking sites. As this Media Life story puts it, a social networking site is only as good as your network of friends on it, and teenagers (and some of us who're older) can change their preference overnight as one site becomes hot while another gets boring to them.

Maybe the Facebook guys who were hanging out outside their Palo Alto office some months ago, when they asked me about my Audi Blogit license plate, should have taken the supposed $750M offer while the going's good for them. Since the barrier to entry is so low.

Facebook had 10.5 million unique visitors in the U.S. in February, up from 2.8 million in February 2005, an increase of 271 percent, according to comScore Media Metrix.

MySpace has grown even faster in the U.S., clocking 37.3 million unique visitors in February from just under 9 million in February 2005, a growth of 318 percent, according to comScore Media Metrix.

“That’s a boatload,” says Bob Ivins, managing director at comScore Europe. “It is great to see a site like this just take off because it talks to me about the huge opportunity that still exists on the web.”

While I have started using Amazon's A9 search engine more often than Google, according to this CNET News.com story Google has continued to increase its market share of search:

Google's domestic market share rose to 42.3 percent in February, up from 36.3 percent a year earlier, ComScore said.

Yahoo's search market share in the United States fell to 27.6 percent from 31.1 percent a year ago, while Microsoft's MSN fell to 13.5 percent from 16.3 percent and Time Warner's America Online fell to 8 percent from 8.9 percent.

IAC Search & Media's Ask.com, which unveiled a new brand and interface last month, rose to 6 percent from 5.3 percent.

There are finally some sensible articles being written about Google in the business press rather than just the group love we were seeing. Until Google's latest quarterly earnings missed projections by a significant chunk of change and shaved off tens of billions off its market cap. As I'd written previously, Google has been cruising for a bruising (as my college roommate would have put it). According to this Washington Post story:

Since Google reported its earnings, analysts have finally started taking a harder look at the company's numbers. Google blamed the disappointing profit on income taxes, saying it wound up paying a higher tax rate than expected.

Devitt rejected that explanation immediately, saying that even without paying more taxes, Google would not have hit its profit target. By Friday, the Wall Street Journal was talking up the same theory, calculating that taxes accounted for only half the disappointment, and quoting Devitt.

Wall Street also is likely to start listening to some of Devitt's other concerns.

He thinks Google advertising is infected with "click fraud," a term that covers a variety of ways that advertisers, their competitors and others can game the system and manipulate the number of "hits" that online advertising attracts. He thinks Google's advertising rates are headed for a fall because advertisers aren't getting the results they want. And he thinks the simultaneous fallbacks of Google, Amazon and Yahoo could turn investors off to all Internet stocks.

A 24-year old Bush White House appointee to NASA has resigned after being caught lying on his resume according to this New York Times story:

Mr. Deutsch's educational record was first challenged on Monday by Nick Anthis, who graduated from Texas A&M last year with a biochemistry degree and has been writing a Web log on science policy, scientificactivist.blogspot.com.

...A copy of Mr. Deutsch's résumé was provided to The Times by someone working in NASA headquarters who, along with many other NASA employees, said Mr. Deutsch played a small but significant role in an intensifying effort at the agency to exert political control over the flow of information to the public.

Such complaints came to the fore starting in late January, when James E. Hansen, the climate scientist, and several midlevel public affairs officers told The Times that political appointees, including Mr. Deutsch, were pressing to limit Dr. Hansen's speaking and interviews on the threats posed by global warming.

According to this New York Times story (registration required), a Silicon Valley company, Goodmail is going to help a few companies charge to deliver email to their email account holders:

Companies will soon have to buy the electronic equivalent of a postage stamp if they want to be certain that their e-mail will be delivered to many of their customers.

America Online and Yahoo, two of the world's largest providers of e-mail accounts, are about to start using a system that gives preferential treatment to messages from companies that pay from 1/4 of a cent to a penny each to have them delivered. The senders must promise to contact only people who have agreed to receive their messages, or risk being blocked entirely.

The Internet companies say that this will help them identify legitimate mail and cut down on junk e-mail, identity-theft scams and other scourges that plague users of their services. They also stand to earn millions of dollars a year from the system if it is widely adopted.

According to this WSJ story (subscription required), Amazon and Coinstar have teamed up to give consumers 100% of their coins back as an Amazon gift certificate for its full value. I converted some $500 in change collected over the last few years a few months ago so the 8.9% commission wasn't too bad considering I got almost $450 in cash at the end but I may have thought twice if I were converting only $50 in coins.

So while most technology pundits are "scratching their heads" and going on and on about how eBay has made a huge $4.1B mistake (uh, guys, first of all it is a $2.6B purchase...with additional payments only in 2008 or 2009 (3 to 4 years after today!).

And the earnout is only if Skype meets certain performance goals. Well you know what, if the Skype guys are meeting those goals then that means Skype is meeting its potential and generating significant revenue and/or benefits for eBay. So fine they'll be getting more of the money they've helped eBay make. How is that a bad thing? Good for eBay to put some incentive in there. Since when was capitalism a bad thing?

So all of you who're punditing about this deal, please go get a Peet's latte and then try to get a grip on your narrow perceptions of Skype and eBay and think about how strategic and smart this is.

Just because eBay is not giving tours of the "factory" and doling out beach towels or something, suddenly all we hear about is how its business is maturing and the end is near. And then when they go out and do something big on the scale of the Paypal acquisition that too becomes proof that their business is maturing and the end is near. Sheesh. I'm wondering if these pundits the same guys who didn't get the Paypal acquisition at $1.5B?

If I remember correctly, eBay was supposed to have overpaid for that one as well. But do you guys think that today? Paypal now has almost 79M accounts. When it was bought by eBay it was barely making money, I believe, and under investigation with only 17.8M accounts in the quarter that ended just before the acquisition (according to Paypal's SEC filing). So eBay paid approx. $80 per user for Paypal.

From the July 8, 2002 eBay press release about the Paypal acquisition:

“eBay and PayPal have complementary missions. We both empower people to buy and sell online,” said Meg Whitman, President and CEO of eBay. “Together we can improve the user experience and make online trading more compelling. We can also capture greater value from the e-commerce opportunities occurring both on and off our site.”

eBay is a marketplace. Selling and buying requires communication between people: the buyers and sellers (have any of you even sold something on eBay or Amazon ever?). Skype brings very, very cool technology that enables that very effectively. It enables cross-border communication -- its software is available in 27 languages (including translation, ability to send documents, voicemail etc.). It brings a significant complimentary business that can go beyond eBay (in fact, already does). And it brings new users into the eBay and Paypal folds.

According to Skype, it has 54M registered users and over 46% of the North American Internet telephony traffic. That comes to an acquisition cost of less than $50 per registered user. Right now as I'm writing this there are over 3.5M users online on Skype. Here's what eBay had to say in its announcement this morning:

"Communications is at the heart of ecommerce and community," said Meg Whitman, President and Chief Executive Officer of eBay. "By combining the two leading ecommerce franchises, eBay and PayPal, with the leader in Internet voice communications, we will create an extraordinarily powerful environment for business on the Net."

Welcome to a new world. And make sure you go drink that latte. Here's a link to the eBay presentation of what it means to put eBay, Paypal and Skype together. Enjoy!

With Yahoo! adding new search features, the online email wars continue. Some interesting stats from this WSJ story (subscription required) that show how far Gmail has to go to catch up. Most people I know, who really wanted a Gmail account, have reverted back to using their regular Hotmail or Yahoo or AOL account since it is such a hassle to have to tell everyone that you've got a new email address. Until companies make that very easy for the masses (not just the early adopters who're using Plaxo), Gmail may have a ways to go:

Yahoo, Sunnyvale, Calif., has a strong lead in email with a 30% market share and 64 million users in June, according to research firm comScore Media Metrix. That compares with a 25% market share for Microsoft Corp.'s Hotmail and MSN services and a 23.4% market share for Time Warner Inc.'s America Online. Gmail, a relative newcomer that is still officially in testing mode, is No. 8 with a 1.8% market share.

Unlike Gmail, Yahoo Mail will be able to run keyword searches that look inside email attachments. Both Gmail and Yahoo Mail allow rapid keyword searches within old messages' sender names, subject lines and message texts.

According to this WSJ story (subscription required), newspapers are among the associated sectors that are handily benefiting from the real estate bubble thanks to a growing share of the shrinking offline classifieds market:

Real-estate ads accounted for about one-fourth of the $16.6 billion in classified-ad revenue collected by newspapers last year, according to the Newspaper Association of America. That represents a growing share of a shrinking market in general. Total classified-ad revenue was $19.6 billion in 2000, with real-estate ads making up 16%.

But online real-estate sites are steadily gaining a bigger slice of the business. Online sites captured an estimated 11% of the $12 billion real-estate ad market last year, according to the Realtors' association, with big players like Yahoo Inc. and Google Inc. making major moves into the segment. This year's online real-estate ad sales will total about $1.8 billion, or about 15.7% of the total, Borrell estimates. Most of these online ads are placed by real-estate brokers, not individual sellers, the Realtors' group says.

A great column by the novelist E. L. Doctorow -- a resident of Sag Harbor -- from the East Hampton Star. Coincidentally I'm in the midst of reading Philistines at the Hedgerow: Passion and Property in the Hamptons, an entertaining history of the area.

But this president does not know what death is. He hasn't the mind for it. You see him joking with the press, peering under the table for the weapons of mass destruction he can't seem to find, you see him at rallies strutting up to the stage in shirt sleeves to the roar of the carefully screened crowd, smiling and waving, triumphal, a he-man.

He does not mourn. He doesn't understand why he should mourn. He is satisfied during the course of a speech written for him to look solemn for a moment and speak of the brave young Americans who made the ultimate sacrifice for their country.

...They come to his desk not as youngsters with mothers and fathers or wives and children who will suffer to the end of their days a terribly torn fabric of familial relationships and the inconsolable remembrance of aborted life . . . they come to his desk as a political liability, which is why the press is not permitted to photograph the arrival of their coffins from Iraq.  

According to this BusinessWeek story:

But while many entrepreneurial artists such as Parker are exuberant at the possibilities, the virtual avalanche of art now available online has skeptics ....questioning whether or not the Web can work for anyone but the most established of artists. "It's like going to Reno and playing the slots," says Alan Bramberger, an art consultant and author of The Art of Buying Art. "You have a 1-in-10,000 chance they'll even land on your art to begin with. That's pretty dismal odds."

...But even on eBay, art sales are starting to take off. Each day the online-auction site sells more than 920 pieces in the "Affordable Art" section, which is just one of the eBay's 12 art categories. Sales in the "Self-Representing Artists" section increased 67% from 2003 to 2004, with 460 pieces now sold daily. And Costco (COST ), a somewhat unlikely outlet for art, recently sold a crayon-on-paper original Picasso online for almost $40,000.

So it seems, venture capitalists have been increasingly investing in the Chinese version of garage startups, according to this WSJ story (subscription required):

The total number of U.S. venture-capital deals in China in 2004 soared to the highest level in 10 years, according to the Arlington, Va.-based National Venture Capital Association. The 43 Chinese deals dwarfed the 24 investments made by U.S. venture capitalists last year in India, a country better known for its high-tech prowess.

Although the $557 million that U.S. venture firms invested in China last year was less than the $725 million invested in 2003, total venture-capital investment in China last year -- including non-U.S. firms tracked by Beijing-based research concern Zero2IPO Ltd. -- hit $1.27 billion, up 28% from 2003. Indeed, Doll Capital Management co-founder David Chao, at a venture-capital conference in Beijing this month, raised the possibility of a "bubble" in the market, particularly for mid- to late-stage investments in China.

The rumors related to Google hiring tactics seem to be coming to a head in this Microsoft vs Google public fight over the hiring by Google of one (of hundreds?) of Vice Presidents at Microsoft (albeit a key one who was close to Bill Gates). According to this Wall Street Journal story (subscription required):

The rivalry between Google Inc. and Microsoft Corp. emerged further into public view this week as Google filed court documents accusing Microsoft of using scare tactics to stop Google from hiring its employees.

...In court documents filed late Tuesday, Google accused Microsoft of "a shocking display of hubris" and called its suit a "charade" intended to "scare other Microsoft employees into remaining at the company."

With incomes rising only 10% between 2000 and 2004 but average condo and co-op prices rising over 40% in New York, your windfall won't buy you a better home, according to this New York Times story (registration required). Unless of course you move to an area that's much cheaper usually in the middle of the country rather than the coasts.

"You often think, 'Geez, I have this huge windfall,' but your neighbors and the people in the building next door have the same windfall," said Christopher J. Mayer, a professor of real estate at the Columbia Business School in New York. "There are a lot of people who want to trade up, so that's really the problem they are facing."

In some places prices of bigger homes are hitting records, putting them out of the reach of even those who, on paper at least, have accumulated considerable wealth. In Manhattan the average price of a two-bedroom apartment is now $1.5 million, according to Miller Samuel, a New York real estate appraiser, while three-bedrooms average $3.6 million. In Cupertino, Calif., the average price of a four-bedroom house is nearly $1.1 million, according to the Silicon Valley Association of Realtors.

According to this BusinessWeek column by John Hagel and John Seely Brown, authors of The Only Sustainable Edge:

We have been struck by the fact that within about 30 minutes of any conversation with a Chinese or Indian executive, we inevitably hear a similar statement -- the urgency is palpable. There's a sense of energy that has been dammed up for decades suddenly being released and pouring forth, trying to make up for lost time.

Contrast that with a similar conversation we had with the executive of a large tech concern in Silicon Valley a few months ago. As we were discussing the rapid growth of offshoring businesses in China and India, the executive sat back in his chair, relaxed and smiling, as he said confidently: "You know, innovation is our birthright here in the U.S. We will always stay ahead of companies in China and India."

This should be worrying compared to what the National Semiconductor CEO had to say a few months ago at a lunch I attended.

According to this Wall Street Journal story (subscription required):

Sales related to third-party merchants, or retailers who sell through Amazon's site, have been an increasing part of Amazon's business for a couple of years. The company, which charges merchants a commission on their sales and, in some cases, "rent" for selling on its site, says it needs merchants to help it offer the broadest selection of products possible. Amazon said 28% of its unit sales in the second quarter came from independent merchants, up from 24% a year ago.

It'll be interesting to see how eBay's entry into this space with its ProStores offering impacts Amazon's numbers in a few quarters.

According to this Frank Rich column in the New York Times about the now-famous Plame memo seen in the hands of Colin Powell on Air Force One:

That memo may have been the genesis of an orchestrated assault on the Wilsons. That the administration was then cocky enough and enraged enough to go after its presumed enemies so systematically can be found in a similar, now forgotten attack that was hatched on July 15, the day after the publication of Mr. Novak's column portraying Mr. Wilson as a girlie man dependent on his wife for employment.

On that evening's broadcast of ABC's "World News Tonight," American soldiers in Falluja spoke angrily of how their tour of duty had been extended yet again, only a week after Donald Rumsfeld told them they were going home. Soon the Drudge Report announced that ABC's correspondent, Jeffrey Kofman, was gay. Matt Drudge told Lloyd Grove of The Washington Post at the time that "someone from the White House communications shop" had given him that information.

Mr. McClellan denied White House involvement with any Kofman revelation, a denial now worth as much as his denials of White House involvement with the trashing of the Wilsons. Identifying someone as gay isn't a crime in any event, but the "outing" of Mr. Kofman (who turned out to be openly gay) almost simultaneously with the outing of Ms. Plame points to a pervasive culture of revenge in the White House and offers a clue as to who might be driving it. As Joshua Green reported in detail in The Atlantic Monthly last year, a recurring feature of Mr. Rove's political campaigns throughout his career has been the questioning of an "opponent's sexual orientation."

According to this San Francisco Chronicle story, Google's 2Q revenue nearly doubled to $1.38B as compared to the previous year with $490M (or 35.5%) going to its partner sites as payments:

For now, Google leads by a wide margin with 6.1 billion search queries during the second quarter, a 47 percent market share, according to a study released Thursday by Nielsen/NetRatings MegaView Search.

Yahoo came in second with 2.8 billion searches, a 22 percent market share, the study found.

This BusinessWeek statement about Google not meeting expectations, and thus its stock dropping by 5% or so, makes me wonder how long Google can hold out not providing any guidance to the Street:

Google had blown past profit estimates by an average of 28% in its first three quarters as a public company, making its second-quarter shortfall all the more surprising. Jefferies & Co. analyst Youssef Squali, for instance, had expected Google to beat profit estimates by 5% to 10%.

According to this New York Times story (registration required) titled "Bad News," the numbers speak for themselves. A combination of Karl Rove discrediting the messengers, several missteps on the part of the media companies themselves and the rise of self-publishing on the Web?

...In a recent poll conducted by the Annenberg Public Policy Center, 65 percent of the respondents thought that most news organizations, if they discover they've made a mistake, try to ignore it or cover it up, and 79 percent opined that a media company would hesitate to carry negative stories about a corporation from which it received substantial advertising revenues.

The audience decline is potentially fatal for newspapers. Not only has their daily readership dropped from 52.6 percent of adults in 1990 to 37.5 percent in 2000, but the drop is much steeper in the 20-to-49-year-old cohort, a generation that is, and as it ages will remain, much more comfortable with electronic media in general and the Web in particular than the current elderly are.

From a BusinessWeek story on Ebony magazine and its publisher:

According to a 2003 study commissioned by Riotto's organization LIMA and conducted by researchers at the Yale School of Management and Harvard Business School, more than 5.8 billion in royalty income was generated from licensed products. About 45 million was generated from publishing alone, with the strongest showings coming from entertainment/character licenses (about 43 percent share of market), and trademarks/brands and fashion a close second and third (18 percent and 14 percent respectively).

And recently Kleiner Perkins invested in Zazzle that allows you to create your own personalized t-shirts etc. using licensed products.