Posts from VC & Technology

We hosted one of our regular monthly sandwich lunches in our office yesterday. We pick an industry that we think is ripe for disruption and invite a bunch of smart people who work in that industry to come have sandwiches and talk. There’s no agenda, no moderator, and the food isn’t even that good. But the conversations are always fascinating.

Yesterday we talked about what happens when TV content becomes available and addressable the way web content is today. We talked about Video On Demand (VOD), TV delivered over phone lines (IP TV), Video on the Internet (Streaming), and Downloadable Video (Bit Torrent).

Of the ten or so people that attended, I suspect that each and everyone has a different view of how this will ulimately play out. Some were big fans of VOD and that’s a real market that is developing quickly with the support of Comcast and Time Warner.

Some were big fans of streaming content over the Interent. Apparently advertisers are lining up to sponsor such programming and there is way more demand for streaming ads than supply right now.

There weren’t too many fans of IP TV. The prevailing wisdom is that the content owners won’t piss off the cable MSOs by making their channels available to Verizon and others.

The Bit Torrent crowd grew larger as the lunch went on. I am in this crowd. I believe “digital television” will play out largely like digital music. At first the content owners (like the musicians) will be held back out of loyalties to the cable MSOs (like the record labels). Content owners will not make their content available for download legally. But consumers will want to get their TV truly “on demand” and they will use Bit Torrent or whatever other technology becomes available just like Napster, Morpheus, and Kazaa were used to get music on demand.

I think the advent of the media-centric PC will cause this trend to accelerate. If my family room is driven by a PC with a DVR, set top box, and web browser built into it, connected to cable for both programming and high speed data, and then connected to a nice big flat panel display, the option to watch a show via live TV, VOD, DVR, or Bit Torrent is just a click of the remote. And when its that easy, why will my girl’s choose to watch One Tree Hill via DVR when they can just as easily get it via Bit Torrent?

Then there’s the issue of what you didn’t record. Take the whole Jon Stewart Crossfire thing. I didn’t DVR that show. I don’t Tivo Crossfire. I don’t watch Crossfire. But I love Jon Stewart and when I heard he slammed those guys live, I went to Bit Torrent and downloaded the show and watched it. Apparently a lot of other people watched it that way too.

So I believe we are going the way of downloaded TV over the long run. What should the content owners do about this? I think they should recognize that the ad sponsored content model can work in a downloaded world. They should cut ad avails into their programming, hard wire an IP address into those ad avails to pull an advertisment off of their servers, and then let the programming go wherever it will go. In an always on world, they’ll get the ad impressions they always got, and probably a lot more.

Who is going to build out the infrastructure for this new world of exploding TV? I am not sure, but I do hope they stop by our offices and tell us what they are doing. Because we want to invest in this trend.

AN ASIDE: We also talked about the new U2 iPod ad. That’s an amazing piece of marketing at work.

So I rebooted my laptop and desktop search is working again.

But it is still indexing my hard drive, three days after I installed it.

That’s not a great introductory experience.

Everyone tells me to get Lookout and forget about Google’s desktop search.

But I want to be able to search my entire desktop, not just Outlook.

I tried X1 and hated it.

So I, like everyone else it seems, downloaded Google Desktop Search late last week.

First it took about a day to index my hard drive. It was a bit of a nuisance and got in the way of some other applications I use that need to scan my hard drive on a regular basis.

But after all that work, something isn’t working right.

It worked fine yesterday.

Whenever I try to do a desktop search today, it get an error message that the browser can’t connect to 127.0.0.1:4664.

If anyone has any ideas what’s wrong, I’d love to hear them.

Frank Barnako, who I read daily and usually agree with, said something on Friday that really irritates me.

He said, “almost nobody reads blogs“.

Well I must beg to differ.

Frank – somewhere around 5,000 to 10,000 people per month read my blog. And its just my personal experiment with transparency.

Wonkette got 140,000 visits last wednesday. That’s one woman doing that. I seriously doubt the Washington Post, the paper Frank compared blogs to, gets 140,000 visits per day for every journalist it has on staff.

And how about that for transparency? Nick Denton posts the sitemeter stats for his blogs for the world to see. I am not aware of any “traditional media” company that does that.

Instapundit did over 8 million (yes MILLON) pages views last month.

If these stats read “nobody to you” Frank then I am missing something.

Frank – please tell us how many people subscribe to your daily column. I’ll wager its less than many blogs daily visitor stats.

I listened to a very successful email marketer give a presentation yesterday. She runs a large ecommerce business that is doing very well.

She said her return on email was 40 to 1, meaning she got $40 in business for every $1 she spent on email. Wow!

She said her return on paid search was 8 to 1.

And paid search is a $3bn business. And email marketing is probably less than $1bn.

So what gives?

Well, she went on to say that she views email as a “finite” opportunity. She believes she is limited to mailing to her “house file” and she is limited in the frequncy she mails to it so that she doesn’t “burn it out”. I totally agree with the “burn out” comment, but not entirely with the “house file” comment and I don’t think email is a “finite” opportunity.

But regardless, $40 of business for $1 spent is a huge return. And there’s an arbitrage opportunity in the difference between 8 to 1 and 40 to 1 for marketers to play with. Email is the single most profitable marketing channel that I’ve ever seen. And so it’s going to grow. Possibly at the same rates as paid search going forward.

I posted a picture of an IPO Prospectus on my blog back in July. It was for our portfolio company PlanetOut. Well it took quite a while, but PlanetOut is a public company this morning. They went effective last night at $9/share and will be trading this morning under the ticker symbol LGBT. I think there are quiet period obligations so I won’t say much more about the Company, but its a great company, with great management, and I expect it will be a great stock over time.

And in the category of “when it rains, it shines”, we had another public offering in our portfolio this week. On Tuesday night, Gurunet went public at $5/share and is trading under the ticker symbol GRU. For those of you who don’t know GuruNet, go check out the service at Answers.com. It’s a great service and we hope it will be a great stock too.

Congratulations to Lowell Selvin and his team at PlanetOut and to Bob Rosenschein and his team at Gurunet. It’s great to have the IPO market back.

It’s October again. I remember back in the 80s and early 90s, October earnings season was always a time to be defensive. Tech companies usually had weak third quarters and the news was normally bad in October. In addition, public stock managers who had good years didn’t need to take big risks and tended to lighten up in October heading into year end.

As the technology business continues to morph from lumpy licensing oriented businesses into more stable recurring revenue oriented businesses, we are seeing less of this. The hardware companies still have this issue and some of the big software companies still have licensing revenue streams that are lumpy and impacted by the summer slowdown.

But the definition of a technology business is changing. Saleforce.com is the future, Peoplesoft is the past. Google is the future, Microsoft is the past. Red Hat is the future, Sun is the past. These are provocative statements and are meant to be taken that way. I may be off in the specfics, but not in the direction of where technology is headed.

The other thing that is changing is research. It used to be that analysts would talk to the company, the customers, and the channel to figure out how the quarter was. Regulation FD stopped the companies from talking. And talking to the customers and the channel was always an exercise in guesswork. An analyst could rarely compile a sampleof customers large enough to truly be predictive.

The Internet is changing all of that. As technology businesses become “web enabled”, so do their revenue streams. And its now possible to track some of this stuff precisely. We are just at the beginning of this trend, but its happening today and is going to happen in even bigger ways over the next five to ten years. Companies that do business and deliver to their customers over the Internet will become a lot more transparent to Wall Street.

A case in point is Majestic Research, started by my former colleague Seth Goldstein and his partner Tony Berkman. Over the past several weeks, I have been getting research reports from Majestic that have reported on the third quarter activity at Yahoo!, Google, eBay, CarMax, Auto Nation, Mandalay Bay Casino, Ceasar’s Entertainment, WebMethods, RSA Security, and many more companies. All of these reports predicted some important aspect of the third quarter results. And all of them came out well before the earnings are reported.

I’ve been watching a bit as the earnings come in to see how they are doing. In mid-september, Majestic started “pounding the tables” with their research on Yahoo! and Google, saying that paid search results were likely to be up very significantly and predicting that revenues would come in at the high end of the range. Yahoo! reported on Tuesday and in fact did report a blowout quarter with revenues well above management and “street” estimates. We’ll have to wait until Oct 21st to see if Majestic is right about Google too.

But regardless of whether Majestic gets Yahoo! or Mandalay Bay right, the point is that we are seeing business activity become more transparent, more measurable, and more predictable. This is going to impact the way wall street trades stocks. Earnings seasons will bring less surprises because the bad news or good news will be known well before the announcement.

That may make for a better October for everyone involved.

About two months ago, I posted on my search for a combo phone/email device. I’ve been carrying around a blackberry handheld for over five years now and still have my Motorola V60 flip phone. It’s time for a change, but I don’t know to what.

A blueberry phone? – I don’t like the form factor.
A Treo? – I don’t like the form factor and I’ve heard quality concerns.
A Sidekick? – Friends love it, but the outlook integration isn’t great.

So I’ve procrastinated.

Recently a couple friends got the new Blackberry 7100t. It’s a phone, not a PDA. That’s a good start. It has great email, web browsing, and PDA features.

The key for me is the keypad. Will I like two letters per key? Will I be able to type fast enough on it? I don’t know, but I think I am going to give it a try. And I’ll probably keep my Blackberry handheld for longer mobile emails as a backup.

If any of you have thoughts – pro or con – on this decision, please speak now in the comments section. I plan to get it in the next week.

UPDATE: Om Malik loves the keypad – my biggest concern – and hates the network – Tmobile. I already use Tmobile and hate it. But that is not going to stop me from getting this phone.

Defamer says that Viacom might buy Sirius to get Howard Stern back.

I have a hard time seeing how that would happen. Viacom’s worth $60bn. It has almost $30bn in revenues and almost $5bn of EBITDA. Sirius, as valuable as it is with Stern in the fold, is trading at $4.6bn, on revenues of $30mm and EBITDA losses of ($386mm).

Those numbers don’t spell acquisition to me.