Wednesday, November 28. 2007
I posted in September about SCO's attempt to avoid paying Novell by declaring bankruptcy. During that time they have acknowledged that there is a ruling which says they owe money (which they intend to appeal) but that money is all spent, so Novell cannot be considered a creditor. They also tried to sell off the assets and liabilities to a stalking horse private equity firm, which has since been quashed.
SCO has now been told that they must return to Utah to face the music. The lawsuit they raised against Novell was dismissed some time ago, but the countersuit by Novell was found against SCO. The ruling had been given, but the amount had not been decided before a carefully timed bankruptcy filing halted proceedings. SCO was using bankruptcy law to prevent Novell from proceeding to award, and to avoid having to list them as a creditor.
The asset sale they tried to perform was squashed after every interested party in the SCO bankruptcy case objected vehemently, and now the bunkruptcy judge has ruled that the award part of the Utah trial must go ahead so the amount they owe to Novell can be included in discussions there.
This is a killing blow for SCO. Even though they have declared bankruptcy they are solvent. The only reason i can see why they declared was to prevent the Utah courts coming to an award decision in that trial. Their desperate gambit appears to have failed. The award from the Novell trial will likely be greater than their current assets, effectively killing them. Even though they have a chance to appeal the decision, SCO is bleeding money and would be unlikely to last very long.
Once this award has been decided this will all come back to Delaware. I would not be surprised if at that point the administrator doesn't move to close SCO down and for the court to sieze and sell the assets to be returned to debtors. It is highly unlikely that there will be anything left at the end of this to return to shareholders. I don't feel bad for the opportunists who invested in the hope SCO could strong arm IBM into a settlement, but there are people working at SCO who have had nothing to do with this strategy and may be losing money they can't really afford to lose.
The executives of the company will get to walk away without much impact. Even if they do feel the occasional pang of guilt they will believe that they were acting in "the best interests of shareholders". meanwhile many people will have lost their jobs at a company that could have still been operating, or saleable as a going concern. I wonder if anyone is running a book on the last trading day for SCO. I'll take $10 on April 1 just for the potential irony.
Wednesday, November 21. 2007
There are almost as many different views on what a leader is as there are people, and every culture has different ideals that they look for in a leader. There is no set rulebook that can tell you how to be a leader and the amount of contradictory books on leadership can tell you that there are many approaches that can deliver a measure of success.
My attention was brought to this topic from reading a post from Jason Calacanis on his "community CEO" style of managing. This was in response to a poorly thought out piece on CenterNetworks criticizing Jason for this style. Now Allen Stern is not wrong because Jason is right, he is wrong because his argument is poor. He gives two reasons that the community CEO method is bad; The staff and the customers lose faith in the leader. For both he delivers no coherent argument to back up those claims, only conjecture with no factual backing.
If you are the leader of the ship, be the leader. And the CEO is the leader.
This is not true of leadership today. Leadership is not only hard to define, it is constantly evolving as the focus and complexity of business evolves. There are also differences in style dictated by market, product, customer segment and location, to mention just a few factors. One very clear trend for leaders today is that pronouncements from on high delivered with positional authority are becoming less effective and less trusted. Leaders are expected to engage more with their staff, customers and business partners to understand their needs and ideas. Now this is contradictory to the position put forward by Mr Stern, but can be backed up by actual research. In a 5 year research study by CCL, they found some interesting changes in the requirements of leaders.
Asking leaders to focus more energy on creating an environment where others can help them succeed is another important trend. This becomes apparent when comparing the individual skills deemed most important in 2002 with those expected to be important two years in the future. Participative management, building
When examining an organization’s approach to leadership from the past to the future, we see movement from more individual approaches (i.e., leadership as a position) to those that are more collective (i.e., leadership as a process). Specifically,
In this sense, Jason is doing some very clever things in managing his company. In engaging with his customers and his staff he gets more information about what is truly going on in his company. This is invaluable information that he cannot get without asking, and information that helps him to make better decisions if used properly. He also engages people in a dialog about Mahalo. This engenders a feeling of belonging and of goodwill in those who contribute. People like to have people ask their opinion and actually listen.
In the end it is the performance of the leader that will generate trust. While there are positives to engaging staff and customers, there is a balance to be achieved. If taken to excess it can distract a leader and hinder their focus and decision making. A fortune 100 CEO has large teams to interact with customers and staff and summarise the results. As the leader of a smaller company Jason has luxury to perform this interaction personally. I have not worked with Jason, so do not know how good a leader he is. His track record is fairly good though, and there is nothing inherently wrong with how he is conducting himself at Mahalo. I have written about Mahalo before and think there is some definite promise there. Like most things, time will tell.
Wednesday, November 14. 2007
In the second half of his recent posting Robert X. Cringley talks about Google extending the metadata they collect so they can further refine their targetting in advertising, and continuing to increase the platforms they can supply targetted ads for. In a way this is a promising future, we are resigned as a culture to be regularly sold to and an increase in the relevance of the messages we receive makes the imposition easier to take.
I agree with him that this would give Google the potential to be the most valuable company in the world. In my previous article I talked about the flimsy nature of ad dependant revenue models, however this does not apply to Google. Googles business is not ads, it is information and it is that resource which has value. At this time it uses that information to assist advertisers as its predominant source of revenue. The key difference is the level in the chain that they operate, they sell their services to the companies that want to advertise and make those company's spend more effective and cheaper to manage. They offer a product and service that companies wish to pay for. This is radically different from simply offering a billboard location.
This does not mean that Google at this time is worth its share price. Their advertising management business draws revenue, but the valuation of the company is vastly greater than that revenue. In essence many recognise that the value of Google is in the information. While their current business model does not completely exploit that resource, it still has value. It is no revelation that the management of Google are pretty smart and they realise that they need exploit their resources more fully to justify their value. They are doing so in three ways.
1 - They are continually producing new products and looking for ways to derive value from them. With IMAP support and hosted domain email offerings that companies will be willing to pay for, with enterprise search appliances or company website search plugins and with Google Apps potentially becoming a future revenue source. Google are in the enviable position of being able to use their advertising business to supply a revenue stream for these products while they gain a level of acceptance.
2 - Continuing to increase their value by increasing the depth and sophistication of thier metadata. Each new business they enter and each application they create also contribute more information to the pool. Doing so in a controlled way allows Google to further improve their accuracy, and increase the areas in which they can provide relevance.
3 - Using their equity to invest in new business. Even though they do not directly receive money for their value, they can borrow against it, or trade it away for companies or products that can then generate revenue.
Through these methods Google can translate their valuation into value. The strategy is good but the result depends on the execution. Growing competion in the ad provision space threatens their current revenue, sites like facebook looking at managing their own advertising could show others how it can be done. This makes it all the more important that Google can deliver revenue from other products. If Google cannot deliver consistent revenue growth they will lose the enthusiasm from their valuation which will limit their ability to buy. If their revenue declines from advertising or their margins get squeezed it limits their ability to finance their new services through ad revenue. Google's share price is down $100 in the last week(ish). This is partly due to a general tech stock downturn, but the threats to their core revenue's growth plays a part in this.
Back to the increased metadata though, there are two main issues that concern me about Google, or anyone, being able to build a better relevancy filter than they already have. Firstly I have little control over what they use that data for, and current regulations do not offer a level of oversight that increases my confidence. I am happy for the data to exist if it helps people to get me information I might like to have. The flip side is that if the data is not controlled then people have the ability to more effectively spam, con or phish me. Regardless of how good the algrithm is to link ads to terms that are relevant to me, there is little control on who can purchase ads on those terms. The gaurantee of the relevance at this time is to the advertiser not to me. The next big step is relevance both ways, and Google needs to work this out before someone else does.
My second concern is that too much relevance will cause my life to become self refferential. Sometimes ads are useful when they tell you about a product, service or category you hadn't thought of before. I don't go to Digg because they list what I already know about, I go there because they list what other people think is cool. Some of it is not interesting to me, but I find things I would not have come across in my regular travels. Human nature is to defer to what we already know, if we have already solved a problem one way sucessfully, we tend to default to that solution with any problem that even looks the same. Sometimes the unexpected information from left field is what we need to improve. Too much relevance feeds and reinforces our biases. A balance is needed between sorting out the irrelevant and retaining the possibly relevant.
Wednesday, November 7. 2007
The vast majority of new services that have launched in the Web2.0 space depend on advertising fro their revenue. All the major blog sites, social media and services such as Facebook, Digg or Engadget receive no direct revenue from their users. Some services such as SecondLife offer premium content for a subscription, but generally there needs to be a richness of experience or a tangible deliverable to attract direct revenue.
Advertising has long been a stable alternative revenue model. Old media, such as television and radio have been able to survive and thrive purely on this base. This does not directly translate to the Internet medium though. TV and radio advertising has matured over a long period, it knows what it is about, has a good idea of its audience and is relatively expensive. The cost is the most pertinent issue, the expense of a TV spot means that advertising in that medium requires greater thought. This drives both greater quality in the message content, and a greater trust level in the audience.
The difference in price to time slot on television advertising gives a good example of this phenomenon. Take away all factors regarding the product itself and consider the company that is advertising. Are you as a consumer more likely to trust the company with a well produced ad shown in a national prime time slot, or the cheap infomercial playing late at night on the local feed. In the overwhelming majority of cases, the message delivered in the prime time slot will be perceived as more trust worthy. The cost of the spot means that there needs to be a greater return to justify the spend. There becomes a direct correlation between the cost of the ad spot and the chance that the advertiser is reputable.
In the Internet space, ads are cheap and the places to put them are plentiful. Because of the small value per individual impression to a website owner, in most cases it is not feasible to manage advertising contracts directly, this creates the need for the ad buy consolidators. This tactic allows the advertising model to succeed in giving a return to the site hosting the ads, but removes a level of control over what gets shown. This created the vacuum for Google to enter the fray and build a business model on improving the relevance of ads. Using search they are able to link the subject of the ad to the content on the site the advertising appears on, which is better than random.
This does not fix the issue of trust. While there is a greater chance that the product being advertised is related to the viewers interest, there is no accurate method except familiarity to judge the trust of the ad. Even the quality of the ad gives no trust information, a slick ad does not cost much more to produce than a cheap one. There are also techniques to game the system upon which a whole business strategy (SEO) is born. And in the web space the consequences of following an untrustworthy link can be dire, through fraud, trojans and worms, and there is little hope of recourse if you are wronged. If the TV ad is untrustworthy you end up with a crappy product, and the regulators of TV and consumer affairs have power to either address the issue with the supplier or force the ads off the air. If an Internet ad is untrustworthy you could end up with a trojan that records your bank account details and passwords.
The dynamic and unregulated nature of the Internet significantly reduces the chance that any of these issues can be solved. Changing the Internet to reduce this effect is not realistic technically, and would have negative consequences that outweigh the benefits. This leaves an Internet advertising model where ad trust in viewers
- Cannot be enhanced by the brand of the site it appears on
- Only exists where the Brand is already known (which limits the mediums use)
- Is not enhanced by the perceived quality of the ad
- Is further impeded by a potential real cost
Ads from the Digg homepage
This is a screenshot of the ads displayed on the Digg homepage at the time I was writing this article. The context of these ads is probably determined by the stories on the homepage at that stage. I have no reliable method by which to determine if any of these advertisers represent a reliable or trustworthy company. As these ads are all for a similar service, even if I was interested in the product this has actually contributed to my confusion rather than reducing it.
The way in which Internet and TV ads are similar is that it is the content that brings in the viewers, which in turn enables the advertising to be seen. I believe that this creates the illusion that advertising as a business model can be sustained on the Internet.
The whole Internet advertising paradigm appears to be a house of cards. At this stage there is no stable base on which to rely. That does not mean that it is impossible for one to exist, only that it does not exist now. In this environment a company that bases its whole business model on advertising revenue is on shaky ground. To be certain of any future life then there needs to be a direct revenue stream. This direct stream is also required to ensure that there is a stickiness to the site as well, otherwise the fickleness of the average Internet user can see the revenue of a site plummet dramatically. A user is more likely to stay with a service that they are willing to spend their own money for. This has been very evident in Secondlife where dissatisfied users have stayed and complained when Linden Labs have acted outside their desires. The real money they had spent on the site tied them to it in a very real way. It is only zeitgeist that ties me to Digg, and the lack of stickiness makes their future ad revenue uncertain.
Advertisers of quality product and reputable brands recognise this. They are trying to take the same road that old media has taken; towards product placement as a more reliable means of getting the message out. The result is that site owners like my friend Todd at Geek News Central get barraged by email from corporate PR reps trying to get their product mentioned in his blog. Chris Anderson from Wired recently posted a list of PR people that sent him email. And this was only the subset that did not follow his directions of emailing to the relevant sub-editors.
To give me any confidence of their value, web services need to either provide a source of direct revenue, or to have a level of stickiness for their users that would prevent them from leaving. If these do not exist then I consider any revenue they make or claim to be transitory. I would personally value them on a P/E ratio of 1 or less, i.e. their value is equal to their current earnings. Anything greater than that is pure hype.
In trying to research the actual statistics on the effectiveness of web advertising I was unable to penetrate the barrage of SEO promises. I intend to research this in more detail, and maybe create a research project of my own, no promises. There is a huge business opportunity for the company or individual that can fix the problems of web advertising. Whomever cracks it will earn their fortune as it is not an easy problem to fix. In the meantime I will shy away from over optimistic valuations of companies with advertising revenue as their core business model.
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