Posts from December 2008

We all knew this would happen but right now its playing out the way I thought it might

I read an analyst report on the flight out tonight that suggests the near term price target for $goog is $350, down from $450 because google’s revenues next year are likely to grow in the single digits. They predict 6-7pcnt growth next year down from 15pcnt

But they also believe google will take $500mm out of projected operating costs next year and will still deliver over $10.8bn of ebitda

At 10x EBITDA, an attractive multiple for a franchise like google’s, that’s $108bn of enterprise value. If you add their cash, you get a market value of $130bn which translates to about $400/share.

I am not saying google’s going to $400 any time soon. There’s too much selling still going on. Tax loss selling will certainly be taking a toll on stocks for the remainder of the year

But when investors start looking at places to put money back to work in 2009, I wouldn’t be surprised to see google get some attention

With just one significant revenue stream, its forecasted to generate over $10bn of cash flow

And with services like YouTube, Maps/local, productivity (docs, calendar, mail), and android, none of which have been run like real businesses yet, I think it should get back to $500/share within a couple years assuming no real change in market multiples

I bought the stock aggressively on its way down and made most of my purchases between $320 and $275 and went in with a big slug at $280 around three weeks ago

I think we’ve seen the bottom in google. We may retest it one or more times (which should be buying opptys if it happens), but I don’t think we’ll see the stock go below $200 under any scenario

I also think we’ve seen the bottoms in $aapl and $amzn, two other stocks I’ve been aggressively buying on the way down

Of course time will tell whether we are heading into a ‘lost decade’

With billions going up in vapor every time I open up the paper (tarp, autos, madoff, hedge fund collapses, etc) we are certainly living a much poorer world and its reasonable to expect that stock prices will reflect lower overall amounts of investable capital.

But you’ve got to put money to work if you want to make some of that lost capital back and I think the titans of web tech are one good place to do that starting in early 2009

When I logged into typepad last night, I noticed that I had written 4,423 posts here on AVC since starting this blog in September of 2003. That got me thinking about how many posts I’d written on Twitter and Tumblr since starting on those "microblogging" platforms in 2007. And then I started doing a series of twitter posts on the topic. And I got a bunch of interesting replies. So I figured I’d do a longer post on the topic.

Here are the stats:

Typepad/AVC – 64 months – 4,423 posts – 2.3 posts per day
Tumblr/fredwilson.vc – 17 months – 3,364 posts – 6.6 posts per day
Twitter/fredwilson – 22 months – 4,009 posts – 6.1 posts per day

My initial instinct was that "microblogging" is easier so it would naturally produce more posts. And of course that is true. I used to do a little "off the cuff" posting on AVC and that’s how I generated an average of more than two posts per day. Now I do very little of that on AVC (it’s moved to twitter and tumblr), and I’d bet that my average posts per day since I started twittering are a lot closer to one than two.

My tumblr post count is a bit overstated because I used to import a lot of things, like links to AVC and Flickr. I cut that out at least a year ago and I’d bet that since then my post frequency is closer to four or five than six. But the quality of the tumblog has gone way up.

And as anyone who has hit their stride on twitter knows, the post frequency rises over time as you build a larger network and start building twitter into your daily routine. But it turns out that was true for quite a while with me, but no so much recently. It seems, like the other blogging platforms I use, I’ve leveled out at a "sustainable" rate of about 200-225 posts per month (6-7 per day).

After using all three blogging platforms for enough time to figure them out, here’s where I come out.

Typepad (and wordpress, blogger, etc) are great for long form posts but it’s really hard to generate more than one or two posts a day on a true blogging platform.

Tumblr is great for reblogging and that’s mostly what I do there. I don’t tumblog a lot from my phone, although I do at times. I am sure that the majority of my tumblog posts are generated via the "share on tumblr" bookmarklet as I browse the web. What I am really doing on tumblr is a visual version of what I did on delicious four years ago plus mp3 blogging.

And twitter is the easiest of the lot and I do more posting from my phone than anywhere else. That’s how I can generate 6-7 posts per day.

Valdiskrebs replied in that series of twitter posts last night:

that is a lifetime of posts!  what do you do in your "free time" Fred?

It’s a fair question. One of the answers is that I post in my free time; on the treadmill, on the train, and on the plane. Blogging has become easier over the years and my post frequency has gone up. I suspect it will get easier still and with that will come even more content. Maybe not from me, but from the rest of you. Because my vision of social media remains simple:

every single human being posting their thoughts and experiences in any number of ways to the Internet

There’s been a lot of talk recently that search and other forms of "performance" or "direct" online marketing will continue to grow in the downturn while display and other forms of "brand" marketing will struggle. I think that’s likely to be true at some level but it doesn’t mean that display advertising doesn’t work.

In fact, a recent comScore white paper that was presented last week at the Empirical Generalizations In Advertising Conference at the Wharton School is very enlightening. You can get a copy of the white paper by asking for it here.

comScore operates a panel of over 2mm internet users worldwide and they examined 139 banner ad campaigns and compared a test group that was exposed the the campaign versus a control group that were not exposed to the campaign but are similar in other important ways to the test group.

Specifically, they found the following:

It’s clear that display advertising, despite a lack of clicks, can have a significant positive impact on:
– Visitation to the advertiser’s Web site (lift of at least 46% over a four week period)
– The likelihood of consumers conducting a search query using the advertiser’s branded terms  (a lift of at least 38% over a four week period)
– Consumers’ likelihood of buying the advertised brand online (an average 27% lift in online sales) 
– Consumers’ likelihood of buying at the advertiser’s retail store (an average lift of 17%)

The basic insight from the report is that display advertising does not normally result in an immediate click. That makes sense because the ad is not being presented in a moment of purchase intent, like a search ad is. But the ad does create interest in the product or service which is realized at some later date in the form of a site visit, a search query, and possibly on online or offline purchase.

Here are some charts from the report which illustrate the above findings:

The chart above shows that a display campaign significantly increases site visits for up to four weeks after the ad has been viewed.

And this chart above shows that search queries on the advertiser’s brand or trademark increase significantly for up to four weeks after the display ad is viewed.

One of the most interesting findings is the following:

The impact of search ads alone on consumers’ buying behavior was found to be clearly greater than that of display ads alone. This is true both in terms of the ads’ impact on online buying as well as the impact on offline sales. This is not surprising because consumers responding to search ads are much more likely to be “in the market” for buying the advertised product. However, it must be remembered that the reach of display ads is typically much higher than that of search ads. For example, in the studies conducted by comScore, approximately 81% of the consumers who saw an ad received only a display ad, while a much lower 8% received only a search ad. When the lift factors are weighted by the reach of the ad, display ads typically emerge as being able to generate a higher total lift in sales.   

Conventional wisdom says that media works best when multiple programs are used together, and we do indeed see clear synergies between search and display. Both in terms of the impact on buyer penetration and dollar sales (per thousand consumers exposed), it’s clear that the combination of search and display together is greater than the sum of the impact of display and search ads separately. The synergy is notable.

So this means that the best approach is a mix of display and search. That is what most marketers are doing and they should continue to do it even in the downturn. However, this study does not determine what the right price for display advertising is. Search is measurable by virtue of the cost per click and display is not. And if click thru isn’t the right measure, then display has an issue. Not every campaign can be compared in a controlled test as comScore did in this study. But comScore could make their panel available to advertisers to measure performance of display campaigns. I am no longer involved with the company (I was on the board for almost 10 years), but I expect that they’ll do something like that. And it will be a great help to the display market. Particularly in tough times when every ad dollar spent needs to count.

I remember the first time I saw a venture firm discuss a bridge loan for a portfolio company that was struggling. I was 26 at the time and I had recently joined Euclid Partners and Bliss McCrum, one of the two founding partners, was arguing that the firm should not put more money into the company unless we extracted some commitments from management to change the way the company was being run. He said to the assembled partnership, all four of us, "you can’t get different results doing the same thing." He was right, we forced some cost cuts, some management changes, and we did the bridge. I honestly don’t know if that bridge worked out or not, it was 21 years ago now, but I remember the conversation vividly, like it happened yesterday.

That lesson has never left me and whenever we do bridge financings, it comes right back to the front of my brain and the tip of my toungue.

So when I was reading today that the Bush administration is going to bridge the auto companies to the next administration and the next congress, I thought, "ok, but what committments are they going to extract from the companies and the union?"

In the front page story on the auto bailout in today’s NY Times, I learned the following:

Mr. Corker said Republican senators were also insisting on steep
cuts in wages and benefits that would bring the American automakers in
line with United States-based employees of Toyota, Nissan and Honda. And he said that the Republicans wanted a firm deadline, sometime in 2009, for the automakers to carry out those cuts.

It
was over that point that the talks deadlocked, with the union pushing
for those cuts to take place after its current contract expires in 2011.

Alan
Reuther, the chief lobbyist for the union, said labor leaders back in
Detroit were astonished at what Mr. Corker was attempting to accomplish
— a virtual rewriting of the U.A.W. contract, which typically takes the
better part of a year to negotiate. “That’s one thing that our folks in
Detroit were just amazed at,” Mr. Reuther said. “Does Senator Corker
really think he can do a restructuring of the industry in six hours?”

If I am not mistaken, a bankruptcy filing would invalidate the contract with the union anyway, so I’m with Corker and the republicans on this one. GM is losing $4.4bn per month!! That’s a boatload of money and everyone involved, including the unions, are going to have to make some sacrifices to get GM back in the black. And I personally don’t think that parity with US-based employees of asian auto companies is asking that much.

And most of all, I don’t think the White House and congress, whether it be the lame ducks in power now or the incoming crew, should be loaning taxpayer money to the auto industry without extracting exactly the kind of concessions that the republicans in congress are asking for.

It’s one thing to be pro-union (I am at times) but it’s another thing completely to be using taxpayer money to protect an unsustainable cost structure that is partially based on above market labor costs. I really don’t know why it takes a year to negotiate a union contract, but if they want to auto industry to survive, the union leaders ought to be prepared to rip up their current contract and negotiate a new one over the weekend. That’s how things are done when you are on the verge of going out of business and losing $4.4bn per month.

I’m all for a bridge and a bailout of some sort (I think doing it via DIP financing in a managed bankruptcy would be best), but most of all I hope everyone remembers that you can’t get different results doing the same thing. And you can’t invest new money until you rectify that situation. And it can’t take a year to do it.

I’ve been reading Steven Johnson’s Invention Of Air and I’ve got images of Joseph Priestley‘s tubes and pumps in my head. Priestley’s experiments with mice and plants in the tubes led to the discovery of oxygen and the realization that plants made oxygen and animals consumed it.

So with that dancing in my head, I read Peter Kafka’s description of our portfolio company Tumblr as ‘the kind of company that should be gasping for air’ with some amusement.

If cash is the oxygen of the startup world (and it is for cash burning startups), then it makes sense that with less cash available for investment, money losing startups would be gasping for air.

But there’s a couple things wrong with that characterization. First, I’ve seen a number of indications in recent weeks that there is still a lot of money out there looking to get invested in venture deals. The news that Accel raised a billion dollars in two separate funds is an example of what I am talking about. And I’ve been fielding calls and emails from late stage VCs looking to meet with some of our portfolio companies in the past couple weeks. Contrary to the popular wisdom, there’s plenty of money out there for high quality venture opportunities.

The other issue with suggesting that Tumblr would be gasping for air is that Tumblr has six employees and a very low burn rate. Any company that can figure out how to get over a half a million rabid users/bloggers on it platform and reach 15mm unique visitors a month with just six people, three of which have just joined, isn’t going to be suffering from asphyxiation any time soon.

These two truths about web services; that there is still a lot of capital looking to invest in them and that they can be incredibly efficient to operate is what many people are missing.

When the market melted down, the tech blogs started talking about a rash of company failures. And yet we’ve not seen that many. We’ll certainly see a bunch but I bet its a lot less than most people think. And I think it will be mostly limited to services, like pownce, that never managed to get much usage. For those web services with real usage and a manageable burn rate, I think there will be plenty of oxygen in the air.

Related Links:

Bijan’s Post On The Tumblr Financing

On the stage at Le Web on Tuesday, I said that we were announcing a new investment in europe that day. I was wrong by two days. Today, we are excited to announce that we have invested in AMEE, a ‘headless web service’ for energy and carbon measurement and analytics applications. AMEE is based in London but has customers in the US and europe..

I’m writing this on my blackberry so forgive the lack of links. My partner Albert will be joining AMEE’s board and he has a wonderful post on the Union Square Ventures blog that explains what AMEE does and why we are so excited about it.

If you are interested in how the web can impact the environment and energy, you should click thru and read Albert’s post.

One of the big changes on this blog in the past year is the departure of music posts. I moved my music posts to my tumblog in late 2007, where I post a new song everyday. You can experience them here by clicking on the "radio" link in the upper nav links or by clicking on the black banner at the bottom of the page. I haven’t stopped blogging about music, in fact I am doing it more than ever, but I have changed the way I do it. I like it better and I hope you do too.

Every year since I started this blog, I have listed my top 10 records of the year on this blog and this year will be no different. But I am not going to generate a new post every day for ten days like I’ve done in the past. I’ve actually been doing that on my tumblog for the past two weeks and if you are an active reader of that or an active listener of fredwilson.fm, then you already know what is on the list.

This year, I’ll do a single blog post with all the selections in it. So without further ado, here’s the list:

1) The Stand-Ins – Okkervil River. This record is the back end of a two part effort that started with The Stage Names last year. Many people feel they should have released them both as a double album. You might ask,"why is this your number one record this year and yet The Stage Names didn’t even make your list last year?" Well like Kings Of Leon last year, this band snuck up on me and I got into them a bit late. I like both records equally but this is a 2008 release and so it gets on the list. Okkervil is the band of the year for me and this is the record of the year even though my personal favorite of everything they’ve done is the Golden Opportunities Mixtape that they’ve never really even released commercially. If you don’t get this band, you are like I was until this year, you just aren’t trying hard enough.

2). Oracular Spectacular – MGMT. From the opening of Time To Pretend to the line 15 seconds later about going to paris shooting heroin and fucking stars, you know this is going to be a fun ride. And it is. This record got more play in our family than any other this year. I am not sure who loves it most, but its likely to be my younger daughter or my son. Its not a family record by any means, its not even age appropriate for my son. But that has never gotten in the way of appreciating art in our family and this record is art, created by two young kids just out of Wesleyan. Listening to it makes me feel their age and that’s a good thing.

3) Here’s To Being Here – Jason Collett. The first of two solo projects on this list. Jason’s from Broken Social Scene, a personal favorite of mine, but honestly this record is better than anything they’ve ever done. Jason’s put out something that sounds like what a late 60s/early 70s folk-rock record would sound like if it was made today. I listened to this record non-stop this summer. Its not in heavy rotation anymore but when I do put it back on, I can sing along to the entire record and I probably always will be able to do that. Its a fun, easy, rocking record and its great.

4) For Emma Forever Ago – Bon Iver. If Jason Collett got me through the summer, Bon Iver got me through last winter. This record was made in a cabin in the northern woods the previous winter and it sounds like its still coming from there. Its getting cold again in NYC, and its time to make a hot cup of tea, curl up on the couch under a blanket, and put Bon Iver on.

5) We Brave Bee Stings And All – Thao. I discovered Thao as I was coming out of my Bon Iver phase and she literally pulled me out of it. Thao is a young asian woman with a wonderful voice and light quirky songs. The Gotham Gal bought into Thao bigtime and this record was a constant in our family room/kitchen for most of this year.

6) Little Joy – Little Joy. The second solo project on my top 10 list. This comes from Fabrizio Moretti, the Strokes’ drummer. I haven’t really loved anything the Strokes have done since their first record but I sure do love this record. It is a little joy. And its not as much a solo project as a collaboration between three friends. I can imagine them sitting around the porch playing these songs and deciding to record them. It reminds me a lot of Ry Cooder’s Paradise and Lunch and David Lindley’s El Rayo Ex, two other little joys of mine

7) Vampire Weekend – Vampire Weekend. I remember late last year my oldest daughter played me a few Vampire Weekend tracks she’d found on hype machine. She said ‘this is my new favorite band’. And so it was and it became our family’s favorite band for a good while. One of the musical highlights of the year was going with the whole family to see Vampire Weekend at an outdoor music festival in Paris this summer. We knew all the songs and could sing all the words. So did all the parisian kids too

8) Only By The Night – Kings Of Leon. Another musical highlight from our time in Paris was the KOL show we saw at Le Zenith. MGMT opened but I got everyone on the wrong metro train and we ended up only seeing KOL. Oh well. I think I’ve finally lived that down. They were playing a few songs from the new record this summer but I didn’t hear it in its full incarnation until this fall. This record has been trashed by Pitchfork and others as a sellout. Its clearly an attempt to reach a mainstream audience and inherit U2’s throne at the top of anthem rock. I don’t like it as much as Aha Shake Heartbreak but then I don’t think any record made this decade beats Aha Shake Heartbreak. Only By The Night features the best singing of Caleb’s short but brilliant career and the songs are catchy and good. It may be mainstream but I still like it better than most of what I heard this year.

9) Volume One – She and Him. M Ward is one of my favorite musicians working today. When I heard he’d teamed up with the beautiful and sweet Zoe Deschanel to make a record, I was curious and a bit baffled. But the result came out great. The gruff Matt and the sweet Zoe made a perfect pairing and like Jack White did a few years back with Loretta Lynn, M Ward made sure the songs came out great. This one’s a real gem.

10) Med Sud I Eyrum Vid Spilum Endalaust – Sigur Ros. This was a late bloomer for me. The record came out late summer but I didn’t get into it until the past month. Sigur Ros is mood music and I guess I needed to get into the right mood. I did and this record delivered more Sigur Ros wonderfulness. If you like them, get this record.

There are six other records that I seriously considered for the top 10. So here’s the Honorable Mention list:

Conor Oberst – Conor Oberst. Really tough call. Deserved to be on the top 10 list but couldn’t figure out who to cut to get it there.

Fleet Foxes – Fleet Foxes Will absolutely be on Gotham Gal’s list. It would easily be on our "most listens in our family room/kitchen list". Great record.

Konk – Kooks. My son’s favorite band. I am very partial to them too. This one has great songs but isn’t as good as their debut. The lead singer Luke is one of the most talented songwriters out there right now.

Consolers Of The Lonely – Raconteurs. Three or four great songs. If it were more consistent, it would have made top 10. Jack White is a guitar god.

Hometowns – The Rural Alberta Advantage. This one was suggested to me by a fellow tumbler who saw I was putting a top 10 list together last week. I bought the record that very day (on emusic, not on Amazon yet) and have been obsessed with it since. If I had more time with it, it might have made the list. My oldest daughter describes them as Decemberists meet Neutral Milk Hotel. I describe them as awesome.

That’s it. I hope you like the list and I also hope that you click on those links and buy some music. And if you’d like to listen first, go to fredwilson.fm. I’ve been posting nothing but songs from these records for the past week and a half and you can listen to this list there. I just did while I was posting this and it’s great.

Yesterday, on the VC panel at LeWeb, Ouriel asked all of us "how should an entrepreneur pitch you?"

I replied, "they should send me a link to their web service and if I like it, I’ll follow up and meet with them"

That has happened so many times and I am convinced its the best way to get my attention.

Back when I launched fredwilson.fm, I got an email from an entrepreneur asking me to put a soundcloud drop box on it so emerging artists could send me music to consider for my personal internet radio station. I thought "good idea" and put it up. You can see the soundcloud drop box if you visit fredwilson.fm.

Since I put up the soundcloud drop box, I’ve gotten 14 submissions. A few of them are very good and I plan on posting at least one or two of them to tumblr/fredwilson.fm before year end.

This experience opened my eyes to what soundcloud represents. It’s a new way to get music out there. Bands and artists are using it (roughly 40,000 so far I’ve heard) to share music among themselves in rough form while they work on the final product, and then they use it to submit their music to various record labels, music bloggers, and other promotional outlets.

The company is based in Berlin and from what I can tell much of the user base is european to date. But music is a global experience and there is no reason why soundcloud can’t take off in the US and other parts of the world.

Just to be clear, soundcloud is not for sharing licensed music. Of course, it can be used for that, but the company is working on tools like audio fingerprinting so they can police the service and make sure it’s used by real musicians to share their work, not by fans looking to share music with friends.

After using soundcloud for a couple months, I finally got the opportunity to meet the founders yesterday at Le Web. We only had about 20 minutes, but we got right into the opportunity and they didn’t have to spend most of the meeting explaining what soundcloud is. Because I’m already a user and a fan. That’s the way to do it.

Of course, just because I like the service and enjoyed meeting the founders, it doesn’t mean our firm wil invest. But we certainly are going to pay attention to what they are doing. By blogging about them, I’ll get more feedback. I’d love it if all of you who are into music would check it out and let me know what you think.

As Eric Archambeau of Wellington Partners said on the panel yesterday, "the first step is I’ve got to like it, but I can’t make an investment just because I like it. I’ve got to make sure that the market at large is going to like it too" [that’s a paraphrase not a quote].

So please check out soundcloud and let me know what you think.

It snowed in Paris today and the cold was air was felt in the large spacious and beatiful event space in the 19th arrondisement where Le Web is being held.

Apparently the wifi didn’t work very well in the event space either. But neither issue got in my way as I managed to have about a dozen ‘meetings’ with entrepreneurs and a few investors between 9am and 5:15pm when the venture capital panel started

Spending a day at Le Web bouncing from meeting to meeting is a great way to take the temperature of the european web startup world. The temperature was cold in the building and people tell me the funding environment is even colder

That’s a shame (and an opportunity) because there are a lot of good companies working on building web businesses in europe.

There are some areas where europe has advantages over the US.

Linquistics/semantics is one possible area of advantage. Europeans have been living in a world with many languages and I believe they have a more native understanding of language structure and analysis

Energy and the environment is another. The ‘green’ movement has been alive and well in europe for a long time now and the european economies have been working on reducing their reliance on expensive carbon based energy for longer than the US has

Mobile is another area where the european consumer is ahead of the US consumer and where the carriers are more open to new technologies and business models

I am sure there are areas other than these but my point is that the european startup scene is not simply a poor cousin to what’s going on in the US. Its a lot like the NYC startup scene except that its distributed across a big geography

And that’s why Le Web is so great. It brought this startup scene together for a couple days in cold and snowy Paris. And I am happy that I could be there to catch the snow falling and re-open a lot of conversations I started this summer.