Posts from February 2008

comScore, a company that I am on the board of, has published a lengthy blog post about the paid click data that drove down GOOG earlier this week. I think its well worth a read for anyone interested in this issue.

Their conclusion is:

While we do not claim that these concerns are unwarranted, we believe a
careful analysis of our search data does not lend them direct support.
More specifically, the evidence suggests that the softness in Google’s
paid click metrics is primarily a result of Google’s own quality
initiatives that result in a reduction in the number of paid listings
and, therefore, the opportunity for paid clicks to occur.

Soul Patch is a blues/rock band out of Boulder Colorado featuring two VCs, Ryan McIntyre and Jason Mendelson, both of Foundry Group.

As many of you know, I am a big fan of the team at Foundry, mostly because they are great investors who I love working with. But now I get to enjoy their music too. That’s pretty sweet.

I’ve been listening to Soul Patch’s record, Sooner or Later, a bunch this week. I posted my favorite track, called Big Time, on my tumblog this morning. Give it a listen.

Jeff Jarvis asks:

So now the hedge funds pushing New York Times Company management own about as much
as the Sulzberger family. I don’t know whether they’ll win their effort
to elect directors to the board, but I do think this has reached a
critical mass and that the family and management will be forced to make
strategic changes. So I’m curious: what would you change? The hedge
funds are urging the company to divest some assets and concentrate on
the Times, investing in digital. What do you suggest? (And please
refrain from the obvious Times-bashing. There’s plenty of opportunity
for that in the post below about the McCain scandal. This is about the
business of news and media.)

I’d spin off The NY Times (paper and online) into a separate company and bring in new management to run it. I’d liquidate the rest of the assets, possibly including About.com.

I’d make the NY Times all about their audience. Let the people who read the paper have a much larger role in the content that gets published, both online and offline.

The best thing about the NY Times is their readers. The only way they can fix their problems is by leveraging them as the other half of their newsroom.

> I’d like to acknowledge my friend Dave Morgan for helping me frame my thoughts on this.

One thing I never liked about the home page of tumblr.com is that I thought it was wasting the attention that the front page of a web service normally gets. Well David and Marco sure fixed that with the launch yesterday of Tumblr Radar, the new tumblr front page. Part digg, part delicious/popular, part flickr’s interestingness, and all tumblr. It’s awesome. Check it out. (in case you don’t know, USV is an investor in tumblr).

I ran into an old friend last night and we got to talking about the traits of a great investor. He said he thought the number one trait of great investors is discipline. I agreed that was key. But I added that conviction was also critical.

Conviction and discipline are two sides of the same coin. I think you need to start with conviction. When Brad and I started Union Square Ventures back in 2003, we spent six months outlining an investment thesis. We asked ourselves and others a bunch of fundamental questions. Did VC make sense in the new world of IT where commodity infrastructure and open source software made starting web apps and services very cheap? Did intellectual property still play a role in defensibility of technology? What would the architecture of business on the web look like in a world of interconnected web services? We must have written down twenty or thirty questions like this. And we spent months going through them, working out in our minds what was going to work and what was not. And at the end of that process, we wrote an offering memorandum and went out and raised our first fund.

The benefit of that process of building an investment thesis is that when we closed the fund and started investing we had conviction. We knew exactly what we were going to invest in and what we were not going to invest in. We’ve evolved our investment thesis over the past five years, mostly tightening it up and narrowing it even further to be honest. But the basis tenets of it have not changed much. We’ve blogged quite a bit about our thesis on the Union Square Ventures weblog and here are a series of posts by Brad on this topic.

But conviction isn’t worth anything if you don’t pair it with discipline. Once you have a thesis, you need to stick to it. There are all kinds of temptations that come along to invest outside of the core investment thesis. You have to resist them. Discipline is about sticking to what you know and what you believe in totally and completely.

It helps to have partners, not many, but a few, to impose the discipline. I know that at my heart I am a deal doer. I like to make investments. I like to find and work with new companies. Left to my own devices, I could pull the trigger on a new investment every month, maybe even more frequently than that. But my partners remind me all the time that we have to pick our shots carefully. They make sure we run each and every investment opportunity through the lens of our investment thesis and evaluate them in that way.

The result of our conviction about what we want to do and our discipline in doing exactly that and not anything else has resulted in the creation of a portfolio that I am very proud of. We will be announcing several new investments shortly which I am equally proud of. Is this the best portfolio out there? No, of course not. But it is certainly the best portfolio we could construct given our view of the world we are operating in and that’s exactly what we want to be doing.

On Monday, I bought some more GOOG (and some more AAPL). I explained my rationale for both trades in this twitter post. I went into even more detail on the Google purchase in this covestor post.

I was busy yesterday and not paying attention to techmeme, the stock market, or my portfolio (always a bad idea), and saw this twitter post by Christopher Finke.

   
      Being glad that I didn’t buy GOOG like @fredwilson did.  Down 36 points so far today.

Down 36 day one, ugh. Typical trade for me. The way to make money in the stock market is to sell to me or buy from me. I am not kidding.

So last night, while watching the debate, I spent some time on techmeme making sense of the google news. Turns out comscore, a company I am on the board of, released some numbers on google’s paid click growth, or lack thereof. Comscore data shows that the number of paid clicks on google’s network was flat december to january. For a company that has been growing like a weed for years, a flat month is never good news.

So am I concerned? DId I just buy a stock that is going to be cut in half in the coming months as someone suggested (I can’t remember who or I’d link to them)?

Who knows? The market is going to do what it’s going to do. But I stick by my covestor post. I like to think of stocks as proxies for buying companies. If someone was willing to hand you all of Google in return for paying them the next 10 years of it’s cash flow, would you do that? I would, for sure. [that’s a theoretical exercise of course, not many people can just show up with $150bn]

I did a back of the envelope calculation that says if Google grows its operating cash flow at 15% per year for the next 10 years, then at today’s price, you can own the company for the next 10 years of cash flow.

Well what if paid search doesn’t grow any more? First, I don’t think paid search has suddenly stopped growing. It’s growth is slowing for sure, driven by multiple factors. I don’t think a slowing economy is one of them because in a tough economy marketers move marketing dollars to high ROI channels like paid search. I do think many keywords have been bid up to a price that it’s hard to get an ROI on them. And I do think google is cracking down on click fraud which is showing up in the total number of paid clicks. And that’s a very good thing in the long run.

But the bigger story on Google is that it has been a one trick pony for years. Everything that Google does is paid for by its paid search business. In the fourth quarter, Google generated $2.9bn of gross profit (gross margin) and $1.7bn of operating cash flow. That means it spent $1.2bn on operating expenses. I bet that only $200-300mm of those operating expenses had anything to do with paid search. So if that’s true, and it’s a wild eyed guess, then Google is spending close to a billion dollars a quarter on stuff that is not producing revenue right now.

Do you think that stuff will never produce revenue for Google? Maps and other local services are going to be a huge revenue stream at some point for Google. Same with Google Apps which is slowly but surely becoming a better alternative to Microsoft Office, a franchise that spits out billions of dollars of cash flow to Microsoft right now. I could name a bunch more lines of business at Google that today are total cost centers but will not always be.

It’s hard to figure out how to value these opportunities so wall street doesn’t. But that doesn’t mean we shouldn’t. If Google drops in half from today’s prices, I’ll be buying it all the way down.

I was making my way through my tumblr dashboard this morning and came across this post from Anthony of the Hype Machine.

I have been waiting and wanting this feature since the day I started using the Hype Machine two years ago. Thanks Anthony and Taylor.

It’s quite simple, just go to your settings in the Hype Machine and click on the last.fm tab. You’ll get this screen.

Connecting two of my favorite music services makes them both a lot better. Since the hype machine is already connected to twitter, that means that three of my favorite web services are now connected. Awesome.

Sure it’s an outrage and whomever did this is a sleazy hack. But I for one am happy we are getting this crap out of the way now

If the dems don’t do this to obama, the other side surely will

We need to know how susceptible he is to this stuff, no matter how sleazy it is

If he can win in texas and ohio after taking cheap shots like this, then he’s more bulletproof in the fall

So the bottom line for me is its sad and pathetic that people stoop that low but better that it happens now

On Sunday night, our family sat down to watch the Oscars. Out of the six of us, four had laptops. Jess was doing her spanish homework. Emily was Facebooking and IM’ing. Josh was playing facebook and miniclips games. And I was twittering the Oscars.

I had the following tabs open; IMDB, twitter, and three or four tweetscan tabs. I was following my own twitter stream on twitterific.

I’ve been using twitter a lot lately to follow events, usually when I am watching them on TV. I’ve done that for several of the democrat debates. And I did that for the super bowl. But the Oscars were the best event so far. The banter about the various outfits, monologues, and speeches was very entertaining.

I’ve been thinking that there’s a better way to do this going forward and I am hoping someone will build this for me and everyone else who likes to hang out in twitter for these kinds of events.

Tweetscan does a great job of surfacing up interesting conversations about a certain keyword. Here’s the tweetscan result for Jon Stewart. Here’s the tweetscan result for Oscars. Here’s the tweetscan result for Diablo Cody. All of those tweetscan pages are interesting, but not nearly as interesting as they were during the Oscars.

Here’s what I want. Give me a twitterific style desktop client that I can type keywords into. For the Oscars, those keywords would be jon stewart, oscars, diablo cody, javier bardem, etc, etc. When I told Andrew this idea yesterday, he suggested that you call these collection of keywords "events" and you let one person build them and many people subscribe to them. Exactly.

Then you sit back and watch the conversation happen. When you want to wade in, you can post or reply. It’s as simple as that.

On top of everything else that it is, Twitter is a humongous chat room that you can subscribe to slices of through various interfaces. You can follow a certain group of people. That’s the primary use case. You can  track all of the conversations about certain keywords using the twitter track function. And increasingly, you can create other slices. Tweetscan has really opened my eyes to the value of slicing into and out of twitter discussion.

When an event goes down, I don’t want to just follow my established group on twitter. I want to follow the event in its entirety. Via a firehose of twitter chatter. That I can participate in when I want. Someone is going to build this. And I am going to love it.