Posts from internet

Back in the early days of comScore, the founders thought that the data they were collecting from their megapanel would be useful to Wall Street. They built a product and developed some sales channels, including one called Majestic Research which was co-founded by my friend Seth Goldstein. Seth and his partner Tony built Majestic into a significant business and sold it a year or two ago. comScore had less success selling to Wall Street. I think they were too early.

A week or so ago, a top Internet analyst from Wall Street was in our office. He mentioned that the AppData numbers on Zynga foretold a difficult second quarter and the Yipit report on Groupon predicted trouble in that name as well. Both turned out to be fairly accurate and investable.

I have always told the companies that we invest in that you can't hide from analysts. If you do business on the web or mobile, your data is out there in the public whether you like it or not. Don't try to hide the bad news, because it isn't hidden.

But this is true for way more than Internet businesses and Wall Street.

Let's take the selection of Paul Ryan as Romney's VP. I read this (originally from here) on the web a couple weeks ago and reblogged it on Tumblr.

Sarah Palin's Wikipedia page was updated at least 68 times the day before John McCain announced her selection, with another 54 changes made in the five previous days previous. Tim Pawlenty, another leading contender for McCain's favor, had 54 edits on Aug. 28, with just 12 in the five previous days. By contrast, the other likely picks — Romney, Kay Bailey Hutchison — saw far fewer changes. The same burst of last-minute editing appeared on Joe Biden's Wikipedia page, Terry Gudaitis of Cyveillance, told The Washington Post.

None of Wikipedia entries for the current candidates being bandied about by Romney-watchers — Rob Portman, Marco Rubio, Paul Ryan, Bobby Jindal, Chris Christie, Kelly Ayotte or Pawlenty — are currently showing anything like the spike in edits that Cyveillance spotted on Palin and Biden's pages in 2008. But most of those came in the 24 hours prior to the official announcement. That said, if Wikipedia changes offer any hint of what's coming, then today might be a good day to bet on Ryan.

A few days later my friend Rich asked me who I thought the VP pick was going to be. I confidently responded Ryan. He was surprised. I wasn't.

Everything is out there on the web. You just need to know where to look to find it. And if you think you are hiding something, you are wrong. So don't hide anything.

I was having lunch with a veteran of the entertainment and the video game business this past week. It was an interesting and wide ranging chat. One of the things we discussed that stuck in my mind was the thought that web and mobile apps might behave more like TV shows than traditional software applications.

I've watched my kids go from myspace to facebook to instagram over the past seven years. And who knows what social app will be their "go to app" in five years. This has always been the case in videogames. Farmville to Cityville to something else. Words With Friends to Draw Something to something else.

This round trip from nothing to everything to nothing again is also true at some level with many tech companies. Digtal Equipment Corporation was founded in 1957 and shuttered in 1998. RIM was founded in 1984 and in all liklihood will be gone before the end of this decade. Same with Sun Microsystems, Silicon Graphics, and many more iconic tech companies.

This concern or observation depending on where you sit has wide ranging implications for valuations, returns, and many other aspects of the startup economy. Companies are worth the net present value of their future cash flows. Said another way, if you knew that a company was going to earn $1mm a year for the next ten years and then be shut down, there is no way you'd pay more than $10mm for that company and certainly you'd pay something a bit less than that.

There are web and mobile applications that seem more immune to the "here today gone tomorrow" concern. Utilities like search, email, calendar, document store, etc feel less likely to be subject to this issue. YouTube also feels fairly secure. But purely social apps, the ones that depend on having your friends on them, seem quite vulnerable to a mass exodus. RIM's demise among my kids' generation had more to do wtih everyone leaving BBM than anything else. For as long as all of their friends were on BBM, they all wanted to be on it too.

Network effects are powerful in both directions. They can help you grow exponentially. But when they are going against you, they work just as fast. Myspace's decline was mind blowingly quick. RIM's has been as well. Who is next?

I am not writing this post to pour cold water on the internet sector. There are so many amazing things happenning right now. We are investing actively and agressively and are not the least bit bearish.

But it is important to understand the entire life cycle of what you are investing in. If you are playing a game of musical chairs, you have to know that's what you are playing. Or you will be the one left standing with nowhere to sit. And that sucks.