Tim Oren's Due Diligence

Yahoo Tries To Pick A Fight It Can Win

So now Carol Bartz, Yahoo CEO, says "we didn't care about search anyway". That may be retrospective sour grapes, but the truth is that Yahoo has acted as if search was not strategic, all the way back to 2000 when it effectively outsourced it to the then-small Google. Meanwhile, content-head CEO Terry Semel put out the word that Yahoo was to become a media company. The wisdom of those decisions is now obvious, but they are a done deal, and trying to evade the outcome has taken Yahoo nowhere. I've written here before suggesting that the company had better find a new positioning taking the reality into account.

So what's the new position? To, err, be a media company, it seems. From the NYT article:

"Its Sports section..., has reporters producing top-notch original material ranging from scoopy news items and blogs to long-form analysis pieces.... According to Ms. Bartz, the majority of Yahoo’s sites will go the way of Sports. In particular, Yahoo will throw investments behind its entertainment, finance and news operations. Ms. Bartz noted that there are plenty of unemployed journalists out there to pick up."

Interestingly, there have been similar strategic noises emanating from another fallen star, AOL, saying:

"...we are a low-cost producer of high-quality content at scale.... we have none of the legacy costs associated with producing print publications, for example. We don’t own printing presses, or fleets of delivery trucks. We don’t have the elaborate editorial structures geared to producing products over a printing press."

The linked article further notes that AOL has hired 1,500 journalists, most as freelancers, and intends to double or triple that number in the next year. AOL has developed a stable of vertical sites, e.g., EnGadget, that most readers don't recognize as part of the parent company or brand.

If there's wisdom in the Yahoo and AOL positions, it may simply be in picking a target they can beat with their existing capabilities. Both of the companies have figured out how to live within the economics of Internet advertising revenue. They are going up against an industry whose print business lies in financial ruins, that is getting ready to drive away its Internet readers with pay walls, and indulging in delusions that some form of DRM wrapper will let it start charging for goods that are no longer scarce.

Yahoo and AOL may not be able to beat Google's 21st century management style, or slug it out with Microsoft's multi-headed technology hydra, but if they can't beat the likes of the AP, the Tribune or Pinch Sulzberger's NY Times, they deserve to go under. The outcome may not be as lucrative as winning the search wars and making the market in attention, but becoming the heirs to a large chunk of the news and entertainment industries is not a bad consolation prize. (And someone with more patience than myself should line up the various strengths and weaknesses of AOL and Yahoo and see if they are natural competitors, or would be stronger together once Time Warner cuts loose the AOL assets.)

The biggest note of caution in these plans is all those aforementioned journalists. A major factor in the decline of the legacy media has been the exposure of the degree to which cant and attitude had replaced research and knowledge of their beat among reporters. Sloppy editing due to ideological bias and financial constraints has compounded the problems, which have been made glaringly obvious by the rise of citizens media. AOL and Yahoo both propose to take on large numbers of employees and stringers who have grown up in that environment. Some number of them are on the streets because they and their organizations ceased adding value; their new employers are going to have to figure out how to organize and manage them so they don't end up with similar product.

They are good reasons to think that both AOL and Yahoo might be equal to the job, for differing reasons. AOL has a deep history of organizing itself around communities of interest. Online Old Farts like myself will recall that AOL (née QuantumLink) got its start by pursuing and supporting the senior and gay and lesbian communities, among others, before it went to a horizontal consumer strategy. Those organizational genetics for getting close to virtual or physical communities may still exist. In spite of grossly wasting its community assets for years, Yahoo still has an impressive collection of virtual communities under its groups umbrella, many of which could be exploited as source, channel, or quality control on related reportage or analysis. Many of Yahoo's focal content areas - I'll mention finance in particular - correspond to vibrant blogging communities that might be brought into alignment with a true new media strategy. This will be interesting to watch.

(Update: See this follow-on post.)

The Roving Eye: Correct Diagnosis, Cussing Is Good For You, Artifacts Of The Week

DRM moribund. Nearly five years ago, I wrote about digital rights management as a (negative) business diagnostic. It always creates user disvalue, so your only analytical task is to figure out whose business model is in the process of failing. Now it seems that the RIAA finally gets it, too. Now perhaps they can spend some time figuring out how they are going to build something that will actually add value. Not that I was feeling bad about it to begin with, but I regard this as final vindication for all of the so-clever DRM business plans that I've consigned to the circular file or bit bucket over the years.

A wart on Jupiter. How cool is this? An amateur Aussie astronomer noticed a new black spot on Jupiter over the weekend, which may have been caused by a meteor or comet impact (like Shoemaker-Levy in 1994) that escaped other's notice. More discussion here. Observations and analysis still coming in. Update: Confirmed.

Construction workers and mechanics have always known this. But now some scientists think they've proved it: Expletives reduce pain. The English researcher says: ""I would advise people, if they hurt themselves, to swear." Having pulled a back muscle during a volunteer trail build project this weekend, I should be cussing the proverbial blue streak, but unfortunately the positive effects seem to be transient.

Not Photoshop. From the Pink Tentacle blog, Japanese rice paddy art. Apparently by planting rice with variously colored foliage. Some of these should show up on Google Earth. Coords, anyone? And in case you need some recon capability to check it out, here's the Blackbird flying again, sort of. Awesome job!

The Roving Eye: Missing Billy Mays, When Customers Attack, 802.11RV meltdown

A surprise to my younger self. I'd never have guessed I'd be so saddened by the death of an aging TV huckster. But a couple months ago I caught an episode of the Discovery Channel's 'Pitchmen' show - simply because it followed our household favorite, MythBusters. Since my measure of television 'reality' portrayals of entrepreneurship had been set by the execrable, mean-spirited Donald Trump offerings, my expectations were pretty low. I was therefore pleasantly surprised to find Billy Mays and his co-star/partner Anthony 'Sully' Sullivan obviously respecting and honoring the would-be inventors and entrepreneurs who came their way, even when their proposals didn't come close to matching their criteria. I never became a regular viewer, but I did take in several more Pitchmen shows thereafter. For clarity about their needs, criteria and process, direct and honest feedback to proposers, and real respect for the entrepreneur, the venture capital world could do far worse than emulate Billy and Sully. I'll miss ya.

Sony brand down. Jeff "Buzzmachine" Jarvis has long talked about harnessing the creativity of customers and fans to help design ads and marketing campaigns. But what happens when they turn on you? Something like this:

Ouch, that's gonna leave a mark! (Hat tip to Cobb.)

Those backhaul blues. Four years ago, I was writing up observations from another camping vacation, regarding the spread of 802.11 'WiFi' to the RVing market and those who serve it. Perhaps unsurprisingly, that trend has pretty much reached completion, with now only the lowest tier or most distant destination campgrounds not having WiFi on offer, usually free. What's gotten worse in the last year, and rapidly so, is the actual usefulness of these systems. Most offer decent throughput only during very late or early hours, or sometimes in the mid-afternoon when most campers are out on excursions. It's the old backhaul provisioning problem, come back to bite campground proprietors who didn't know they were in the ISP business. It bears a lot of resemblance to the trend I saw overtake network planning at CompuServe and other old online services back in the mid-90s. Not only are many if not most RVers showing up with laptops - even the retiree crowd has it figured out - but expectations of continuous bandwidth and duty cycle have once again shifted with the explosion of YouTube and other online video sources as a means of news gathering and entertainment. A campground that's provisioned with a single T-1, or a business DSL or cable modem, is finding its router and resources overwhelmed.

(I also note that many RVing WiFi users haven't thought things through. At a large campground in Salt Lake City, I fired up my laptop and was soon able to see the shared, toplevel directories of an even dozen users who probably didn't realize they were bridged to every other user on the WLAN. No I didn't peek, I'm not that kind of guy, but it's close to an attractive nuisance for wannabe crackers.)

The Roving Eye: Ember the Mini-Bot, P. J. O'Rourke Nails It, Newspapers On Notice

How much? Thats my question about iRobot's new mini-warbot, developed for DARPA. Not only is it cute, but equip it with open hardware interfaces and/or programming environment and it should have serious potential for the hobbyist market, as well as repurposing to other applications.

The truth about suburbs. I've been a P.J. O'Rourke fan since his National Lampoon days. In a WSJ piece nominally about cars, he unloads this:

We’re way the heck out here in Valley Bottom Heights and Trout Antler Estates because we were at war with the cities. We fought rotten public schools, idiot municipal bureaucracies, corrupt political machines, rampant criminality and the pointy-headed busybodies. Cars gave us our dragoons and hussars, lent us speed and mobility, let us scout the terrain and probe the enemy’s lines. And thanks to our cars, when we lost the cities we weren’t forced to surrender, we were able to retreat.

Yes. He's defined part of the the battle-line of today's political cold war. Those 'futurists' who think that increasing fuel prices will bring suburbanites back to live in central city tenements are out in la-la-land. Instead the jobs may just follow the productive; Detroit gives a preview of that outcome.

A failed state. California's state expenditures have increased 35% since the 'tax cutting' Governator took office in 2003. As Matt Welch asks:

What, exactly, has been the return on this added investment? If spending under Gov. Arnold Schwarzenegger increased 6.75 percent a year during mostly good times, surely there must be, say, a 3 percent increase in the quantity or quality of...something? Crickets.

If we had back that 35% increase, the California budget would be in surplus. Instead of considering rolling back the spending, we're asked for more taxes and budget gimmicks. When the electorate wisely refuses them, the political class once again threatens to shoot their hostages - public safety and parks - while protecting the public employees' unions. What is there about layoffs and salary and benefit cuts that they don't understand? The private sector gets to deal with this in every downturn, while our betters in the political class skate through. Needless to say, this contributes greatly to the business climate in California.

A relic of the 20th century. Just what the newspapers need, more advertisers headed for the exits. Local fish-wrappers have long been the vehicles for required public notices of events such as mortgage foreclosures, public meetings and business name registrations, which creates an effective subsidy to their businesses. This requirement dates back to when the town rag was in fact read by most of those who would need notice of such events. With the readership shrinking, that's no longer a good bet, and some government entities are starting to take notice. It's pretty hard to argue that publication on dead trees is more useful than a combination of appropriate RSS feeds and a searchable archive would be. As the linked article points out, there are issues regarding reliable and trusted implementation, but it shouldn't be hard to beat the status quo. A business opportunity out there for someone - Google? Iron Mountain? Maybe even archive.org, if they'd like an actual revenue stream.

The Roving Eye: Facebook's Down Round, Print Cartel?, Rants of the Week, Government Or Mob?

Did MSFT get a ratchet? After peddling shares to Microsoft at a $15b valuation, the growing but still money-losing Facebook needs more funding to keep the boilers stoked. Problem is, the best valuation they're being offered is $2 billion.

Party like it's 1978. Newspaper employment of reporters is back down to 1978 levels, another way in which we've returned to the Carter years. (HT: American Digest) Meanwhile, a bunch of the MSM's best and brightest have founded Journalism Online, yet another attempt to wring micro-payments from the Web, this time by getting the press to move all of their content behind one pay wall. As I recall from econ, that's called a cartel, and it's got a few known problems with defections when there's an actual surplus of the commodity in question. OTOH, having publicly called for the extinction of the propagandizing MSM by market forces, I applaud this latest effort. You go!

Tell us what you really think Dept. Presented without further comment: Bill Whittle. Nick Gillespie. And this older rant from Andrew Klavan has become a catchphrase around our household as we've watched the MSM and political class react to the Tea Parties. Shut up!

Chilling effects? And speaking of our beloved media, last week featured CNN 'reporter' Susan Roesgen debating and insulting Tea Party protesters in Chicago, in a performance captured by both the network's own cameras and those of the 'Founding Bloggers' crew. It was of course YouTube'd immediately, and became the subject of derision and embarrassment to both the reporter and the network. Their reply: Shut up! Err, actually it was to to issue DMCA takedown notices against the clips. Having blatantly dropped its pose of 'reporting' on the story, and become part of it, CNN has little grounds to claim that their material is not subject to fair use as part of the debate. Patterico's article challenges CNN to sue him - that could be an interesting case if a reasonable judge doesn't throw it out immediately.

Welcome to the Family. A bit back I suggested that banks repaying TARP money would be a good thing. Not so fast! You have to have a talk with Guido Tim Geithner first. It becomes more and more obvious that this is about government power, not saving the banks. I loved this comment in response to a post I wrote at Wind of Change about what's missing from the Tea Parties:

"...i'd love to see the WF [Wells Fargo] chairman call a press conference and just turn it into a huge check signing ceremony. Thank the government (thanks for nothin) and announce it a big victory on the road to economic recovery. Then make a little aside saying the cynics believe the government might not want the money back and might use audits as a punishment, but he doesn't believe it and will happily keep the public informed of how business is going."

Any bank with the cojones to do that will make me a customer for life.

The Roving Eye: Buh-Bye SGI, Giving Back, Life Among The Ruins, Tea and New Media

A Victim of Moore's Law. To no one's surprise, SGI declared Chapter 11 and its assets were purchased by Rackable Systems. Yet another object lesson on the fate of those who end up making specialty computing hardware. SGI was of course formerly Silicon Graphics, king of CGI before that was swallowed up by renderfarms of commodity hardware. It made a stab at transitioning to a server company in the mid-90s (their brochures were awesome!), but didn't have the well-tested software platform of Sun. If open source had been as powerful then as now, the story might have ended differently, but SGI ended up slowly squeezed into a high-performance niche selling to government agencies among others, and then out entirely. SGI leaves a legacy of graphics pioneering, and some pretty nice office buildings north of 101.

Out from under the TARP. Unsurprisingly, good banks that took bailout money from the government have started giving it back, now that the strings attached are apparent. If you're an investor, not a borrower, that's good news as it's now obvious that TARP banks are not run for the benefit of depositors, or stock or bond holders, but for polticians and their mob appeal. Let's hope this sets a trend.

Political Legacies. Zimbabwe: Grubbing for gold to survive. Detroit: 50% illiteracy. Urban prairies. Human-built cages for the human spirit. Just the saddest thing in the world.

It's the revolutionaries that need the new media. Mapping the Tax Day Tea Parties. Simon & Garfunkel meet the Founding Fathers. (HT: Michelle Malkin)

Requiem for an Industry

On a day when the Seattle paper closed down its presses for good, I may as well link the already justly noted Clay Shirky post that sums up the media and market movements behind the industry's ongoing demise. While there are tactical reasons for the downfall, such as biased reporting and over-leveraged balance sheets in the midst of a credit crunch, we are living through a moment as transformative as the coming of the book, and Shirky takes this head on:

When someone demands to know how we are going to replace newspapers, they are really demanding to be told that we are not living through a revolution. They are demanding to be told that old systems won’t break before new systems are in place. They are demanding to be told that ancient social bargains aren’t in peril, that core institutions will be spared, that new methods of spreading information will improve previous practice rather than upending it. They are demanding to be lied to.

There might have once been a chance for the industry to migrate piece-meal to some new business and media model, but the complacency and folly of the newspapers - both management and editorial - let that time go by. While there may be some survivals among those with strong brands and management (WSJ comes to mind), we are largely going to see market transformation by the 'urban renewal method' - waiting to see what goes up on the landscape opened as incumbent structures come crashing down.

The Roving Eye: New Media and The War, Buying A Silicon Valley?, Sic transit gloria Wired

The military weighs in. With the Iraq campaign winding down, and Afghanistan ratcheting up again, the Small Wars Journal put out a call for lessons learned on the influence of Intenet media on the Surge in particular, and war fighting in general. You can follow links from the cited post for opinions from serving military, veterans, strategists and others, or grab this PDF to read it all in one place. Fascinating and thoughtful stuff, relevant for anyone with an interest in military affairs, foreign policy or new media. If you follow just one link from this post, read this.

Times are changing. Y Combinator's Paul Graham asks an intriguing question: Can a city outside of Silicon Valley buy its way into the high tech ventures game? That used to be a dumb question, though often ignored by wannabe politicians and Chambers of Commerce, both in the US and elsewhere. The talent and capital pools of the Valley, combined with decades of network formation and institutional memory, gave it a regional advantage nearly impossible to duplicate. Doing so would be a 20 year slog, well beyond the attention span of politicians. Those who tried ended up with empty 'venture incubators' and busted portfolios of local champions crushed when they left their home court.

That could be changing. The Valley isn't what it once was, between the business killing antics of the California government and the outsourcing of most junior 'farm team' technology jobs to elsewhere. Still, the capital lives here, and often startups find it necessary to be local to access it. That's Paul's line of attack, that there needs to be funding for the whole life cycle available in any wannabe locale. And not controlled by politicians, but by investors who've earned their stripes as entrepreneurs or angels. He suggests how to piggyback the Valley's network of angels as talent scouts.

He could be onto something, though there's one thing he's not saying: The future of the early stage specialist investor looks dim. With two severe downturns within one decade, not having funds to follow a company through its whole life-cycle is a recipe for being crammed down and washed out, an additional burden to the IRR forecast on top of the normal vicissitudes of early stage venture. That is a second indicator that non-Valley venues should have funds for the whole life cycle. That would also indicate that any locales wanting to try Paul's idea will focus on software and services, whose falling capital requirements have made them increasingly difficult to fit into the Valley model.

Just another MSM rag. Once upon a day, it was worth dealing with the eye-bashing layouts and colors of Wired for the nuggets of pithy observation and cogent analysis buried in there. It's been quite a while though, and as it morphed into yet another fashion magazine, I dropped my sub and stopped following it. Now it's apparently fallen to the level of the common media - if you can't find enough stories, make something up. Chris Anderson, call your office.

Walter Isaacson Surrenders

Now comes Walter Isaacson, doyen emeritus of the main stream media, proclaiming that the newspapers' salvation will be found in micropayments. Saying "...further rounds of cost-cutting will not stave off the hangman.", he instead urges that readers be charged a few digital cents in order to read the day's paper, or a story, or pass them along. After all, if iTunes is getting away with it, why not the papers?

It's not going to work. Micropayment businesses have failed so many times that they're now on my "That Never Works" list. I posted about some of my reasoning here, but instead you should read Clay Shirky's magisterial rebuttal to Isaacson's flight of fancy. Go read it, but here's the punch line that matters for my purposes:

The lesson of iTunes et al (indeed, the only real lesson of small payment systems generally) is that if you want something that doesn’t survive contact with the market, you can’t let it have contact with the market.

iTunes and other examples of working examples of small (not micro) payments exist within closed distribution systems. The papers and magazines lost that luxury long ago, and it's not coming back.

So far that makes Isaacson's proposal into a fantasy, not a surrender. Why do I claim that he's run up the white flag without acknowledging it? Just this: While professing admiration for the WSJ's ability to extract subscription revenues online, Isaacson abandons that model, and is staking the newspapers' future on selling single digital copies or "an interesting article". The newspaper business model has been built around the economic notion of bundling, of many articles into the daily edition, and of many editions into a subscription over time. The brand associated with that bundle - the masthead - has been claimed as the largest intangible asset associated with newspapers. If Isaacson is ready to walk away from the bundling strategy that's been the core of the model for centuries, then you know the newspaper (and magazine) brands are but one step from the grave.

The Roving Eye: Best of the 'Bots, Flipping Newspapers, Dry California, Inaugural

Bots in review 2008: Here's a collection of vids of some of the most interesting robotic work of the past year. The Japanese are still on the humanoid path, but the diversity of forms from elsewhere is intriguing. If you haven't seen the Big Dog DARPA project, be sure to check it out - it's apparent mannerisms range from gigantic bug to strangely human. The USC reconfigurable components projects is also of interest; up to now robotics hasn't had much 'platformness' - they are all pretty much tailored to single functions.

How to become a newspaper millionaire. Start with a billion. (Rimshot.) The last week has brought us a Russian oligarch buying up the Evening Standard of London, for assumption of debts and one UK pound, and Mexican billionaire Carlos Slim putting $250m of senior debt into the New York Times, helping the Grey Lady keep the wolf from the door, and further diluting the Sulzbergers. Slim's track record when away from his telco and media monopolies is quite mixed. He managed to buy Prodigy just as the Internet was swamping the proprietary online services, and CompUSA as the computer specialty retail channel imploded. Update: More on Slim and the NYT.

It's official. La Niña is back. The reverse of the better-known El Niño Pacific Ocean climate pattern that brings floods to California, La Niña instead brings us drought. With last year already being short of rain, we could well be looking at water rationing and an even more intense fire season this year. This to go with California's economic woes, both micro and macro.

Good luck to President Obama. I didn't vote for him, but I wish him well. May he do better than I have feared. That doesn't mean the political bent here will change. I'll take my stand with Perry de Havilland:

So now is not the time for 'unity' and 'bipartisanship', which is just a genteel way of demanding surrender, it is the time for resistance and the renewal of purpose by those who see the liberty and prosperity that comes from constitutionally limited government as a prize worth any price to defend.

Hopefully, dissent is still patriotic post January 20th.