Jeff Clavier's Software Only

"Dream Mergers" Candidates

Ross has made a call for participation in an interesting Dream Mergers contest of sorts. Since the wiki's "recent changes" do not list the name of who added each contribution, I thought I would go on the record with mine, just to be able to look (now and/or later).

So here we go, note that this is pure imagination, and not the result of anything "I would have heard". And let's not get too serious on this one, OK ?

• Google hires Jimmy Wales to run Wikimedia "from within" (or at least tries to)
• SixApart acquires FeedBurner
• Sun acquires SocialText and Wordpress, Inc and bundles them with Solaris 10 as a ready-to-deploy publishing solution
• Sun acquires JBoss and MySQL, and becomes the professional Open Source company
• Google picks up Kayak.com
• IBM acquires JotSpot, connects its back-end to Lotus Notes, and makes it its entry level collaboration platform
• Yahoo brings in Eric Rice (AudioBlog), Google retaliates and buy Evan Williams again, now for Odeo
• Microsoft buys Expedia

Agree/disagree ? Feel free to comment, or add your ideas to the wiki.

Yahoo!360 is out of the oven

And my first impression is that Y!360 is not bad - at all, very MSN Spaces like, with a cool integration of Yahoo services. A bit challenging to setup though, I have to agree with Dave Winer on this one.

One question now: who is this service targetting, and who is planning to use it ? Is it like MSN Spaces, i.e getting Yahoo and Yahoo SBC users into blogging ? Deploying an alternative service to Blogger (which given the instability of the service nowadays might be feasible) ? Need feed syndication, trackbacks, pings, stats, referral lists, etc. though. Any timeframe for that ?

Here is my 360 home page. And my initial rant feedback on the service, cross-posted from my 360 blog:

It is a bit overwhelming to setup all the elements of the Y!360 account, as I do consider myself quite familiar with all these blogging, SNs, photoblogging capabilities.

  A few things:
- WHY ON EARTH CAN'T I ENTER MORE THAN TWO LINES IN MY PROFILE ? At least tell me how much words or characters I can enter, as opposed to telling me that my text is too long.
- Lots of fields are displayed even if they are empty (like locations for current jobs).
- The caption of pictures should be displayed instead of the filename.
- I want to put links in my profile to point to the companies I worked for, etc.
- Navigation is sometimes confusing because you keep on switching between edit mode and view mode.
- If I put HTML links into apost, I want these to be usable in the "My Page" syndicated view.
- Will be great to import OPML files as opposed to re-enter the blogroll.
- It would be great to be able to do "bulk invites" in the list of people who are already on the service, but I suppose that this would lead to abuse.
- The multi-layered privacy/visibility is great, but I am wondering whether it is bit too complex to grasp for "casual" users.
- I tried to edit this post in HTML (clicking "View HTML Source") and my CPU went 100% for 3 minutes, until I turned the option off. I am using Firefox. Actually this happens in regular Edit Mode as well.
- The integration of multiple Yahoo services is great, but their settings should eventually be accessible through the 360 "portal", at least the basic ones. The navigation from 360 into another service back to 360 needs to be figured out.
- The People search needs to include filters like "people who have joined since you last logged in", like LinkedIn basically.
- The "Beta Feedback" should be implemented as a forum so that we can see what others report, and get information about fixes and changes. I am particularly annoyed that I got an automatic message stating that my feedback would *not* be answered to.

Oh, and it is great that you do not get any email confirming the sign-up of people you have invited. LinkedIn should do the same :-).

Update: And as usual Chris Allen is doing a fantastic job at testing all the features, and finding quite of a few issues. Hopefully the good Yahoo folks will get to read them.

Some more:
- The blog editing panel is too small. Should have a way to increase its size (at least double).
- The moblogging functionality expects blog posts to be sent from an email address phone_number@carrier_url which is too limiting. The usual email validation + secret keyword should be used instead, or as a complement.
- There is a bug in the search functionality where the 3rd (or nth ?) result page can't be displayed ?
- Boy, I want that Outlook address book import , and I want to see who is already in Y!360.

And finally:

1. Allow me to edit a review I have entered (I know it is Yahoo local)
2. The top message bar at the top of My Page is cute, but I should be able to review previous messages (of the day ?)
3. Is there a blog for 360 support, feedback, announcements ?
4. Figuring out who is inviting you is sometimes very tricky if one does not disclose his/her lastname or email address (See Esther's comment).

I am happy to invite people to the service, but here is the catch: like for LinkedIn, we need to have met in the "real world" for me to invite you. Send me an email or leave a comment below if you are interested.

Back to work now. Spent about two four hours on this thing today.

Hey, it sounds like you can get emoticons in TypePad by copying them from Y!360 and pasting them into your post. Must be a feature of the WYSIWYG control that has been turned off. Cool!  These are simply gifs loaded from the Yahoo web site.

Activity UP, Valuations UP, Due diligence DOWN, Competition UP = VC overdrive ?

This SiliconBeat piece caught my attention because of the following quote:

Looks like deals are flying at every level. Here's our story today about how buyout action is likely to continue in Silicon Valley. The pace of venture deals isn't too shabby, either. Bob Kagle, venture capitalist at Benchmark and an early backer of eBay, recently told us: "Venture industry activity has really picked up over the last few months. Decision cycles are speeding up, valuation levels are going up, and due diligence is going down." Here's why.

Add another elements, such as $54B in US venture capital overhang (VentureWire, sub req), the much published "built to flip" alternate model, and the fact that many funds have fresh capital to invest (about $18B, to be precise).

The result ? A potentially risky environment where funds compete to get in "hot" deals, not doing a proper job to due diligence all aspects of the business/market/team/technology/products/... because someone else might get the guns out more quickly and take the deal off the table. Therefore funding companies that might not warrant it, from a venture capital perspective.

I find price competition less of an issue (I am working on the side of entrepreneurs these days, you can see it :-) provided that it remains reasonable. I heard that SugarCRM's Series B was a dog fight between top funds, and therefore they got a great deal for their $5.75M. Good for them. And if the company is successful, will it matter that investors got 25 or 20% for their money ? Not really.

What would be most worrying, would be to see well funded FlourCRM and EggCRM popping up in the next few months, based on similar concepts, with a twist or two (of course, you need the twists to invoke the mighty differentation factor). This would mean that we're back to "me too's" funding at scale. And that does not help anybody.
And yes, Google is the perfect counter-example, where KP and Sequoia plunked $25M at $50M pre- in an overcrowded space, figured out a killer business model, and got $B out of it. But how many Google's are out there ?

So, no "me too's" please.

PS: Fred Wilson has a similar spin: drink responsibly.

United Online picks up PhotoSite for $10M

One more! This time FC Now reports on the acquisition by United Online (UNTD) of "certain assets" of PhotoSite, a division of HomeStead Technologies, for $10M in cash and a licensing agreement with the former parent. HomeStead is this web site building company that was named "DEMO God" at Demo@15 after a memorable presentation.

The press release says the following:

PhotoSite is a premier photo-sharing service that enables anyone - from casual to amateur to professional photographers - to quickly and easily display photos on their own personal photo website. With both free and subscription packages available, PhotoSite includes custom albums and photoblogs, full-screen slideshows, online print ordering and much more. [...]

[...] we also intend to integrate it into our existing services - including Classmates.com, NetZero and Juno, and our consumer Web-hosting businesses - enabling us to enhance our current offerings while reaching out to the more than 45 million registered users across our numerous services. [...]

PhotoSite is a "traditional" photo sharing site, allowing users to organize their pictures in albums with themed templates, print them, etc. There does not seem to be a concept of rich community, tags/folksonomies, syndication, blog import, etc. that characterize Flickr or Buzznet.
The press release says it all I guess: United Online has 45 million users, who for a large percentage might not change the homepage "conveniently chosen for them" upon installation of their Internet service. Since photosharing and photoprinting have become so popular, United Online  must have looked at striking a deal with one of the market players to offer this feature to their ISP and community site users. Looking at the proposals they got, they ultimately decided to build a "walled garden", or a differentiation, around their own, acquired, photo property as opposed to helping a 3rd party build a strong position and eventually seeing it bought by a competitor.

David Lidsky in the aforementioned piece complains:

Frankly, I'm a little depressed. With the emergence of Flickr (and a far inferior PhotoSite, among others), I thought we'd moved away from the idea of photo-sharing as a secondary or tertiary feature in a portfolio of photo-related commerce. Photo sharing as loss leader or afterthought. I thought photo sharing, which had been revived as a business within the last year, was going to be another example of a dot-com boom era idea that failed only for poor execution, not because it wasn't sustainable as a business.

Fact is, we don't know the answer to that and maybe we never will. Rumor has it that the cofounding couple behind Flickr were exhausted from the startup grind and that's why they sold out. Homestead cashing out a division is a bit of a mystery to me at the moment. The price tag was $10 million in cash and a licensing deal. Chump change, in the scheme of things. Snapfish had already sold itself once, so what's one more time?

What this feels like is a return to the "build a feature, not a business" days of 1999 and early 2000, the same built to flip mentality that Jim Collins wrote about in Fast Company five years ago at the peak of the bubble. Read the Collins piece and tell me what you think. Has this latest resurgence in tech again fallen victim to a bout of the get-rich-quicks? What's the next exciting development in tech that will become a boring land grab for the Internet blue chips? Or is this picture not fully developed?

The main difference with the 1999 incarnation of "built to flip" are:

• Back in those days, companies were raising mega-bucks at astronomical valuations, were spending a lot of it on marketing, and were flipping to the public market or M&A suitors whose stocks was also overinflated, on the basis of "next generation" multiples (earnings before marketing expenses, etc.).
  Now a company is built on "Macaroni & Cheese" and word of mouths, and founders can elect to sell off or go the VC route once they have started to prove their value.
• Established Internet companies have also learnt their lessons from the bubble, and the corporate development teams at YHOO, GOOG, MSFT, AOL, and other vertical players (travel, jobs,...) are very well plugged in the early stage market. And when they see a company they like, with talent, ideas and some level of technology assets, they might try and make a move.
  In that case, buying early means that there is a chance to influence the underlying back-end infrastructure that the startup is going to build upon. Otherwise they'll end up rewriting a lot, if not most, of the code anyway, to make it fit their overall architecture. And they will tell you frankly that if they can make a deal which makes sense for founders and employees, and leave VCs out of the equation, they'll be quite happy. Note that I am not making one of these "VCs suck" kind of rant, that I always find over-generalized (or weird).
• A company needs to build a very large footprint in order to be sustainable on the basis of a typical Internet "eyeballs" business model: subscription, e-commerce, and mostly advertising. It is very hard work to reach "escape velocity" and become a major player in a given vertical, and I don't see a take-out a la Bloglines or Flickr as anything to be ashamed of. In this particular case, I have no clue as to the number of users of PhotoSite, or the size of their photo archive, but $10M in cash does not strike me as ridiculous.

As to whether it is possible to build a sustainable business around photo sharing, given the growth in usage of camera phones and digital camera, broadband penetration, and the fact that photoblogging is *SO* much easier to engage into than text blogging, I would say YES. One trick is to add other sources of revenues to the "traditional " Internet mix, and execute on it with scale. But that will be the subject of future posts.

Fotolog going the funding route: $2.4M led by BV Capital

Fotolog has just announced their recent financing (via CNET News.com), which closed a few weeks ago (if my information is correct): a $2.4M investment led by BV Capital, a cross atlantic fund with offices in San Francisco and Hamburg, Germany. No details or announcements regarding the deal and other co-investors yet.

Fotolog is one of the largest photo-sharing sites, with 1,116,294 registered users (with roughly 1% paying subs - the US conversion being 2.4%), and an archive of 38M photos (as I typed this). They are especially popular in South America, as the chart below shows (quickly compiled from these data).

Congratulations from all of us at Buzznet to Adam Seifer and his team. Adam has an interesting blog (on which he posts some of his meals). He also had this amusing poster up at ETech, claiming: Fotolog: 1.1M users and NO CTO.

PS: I too would like to know what is the "Neutral Zone", from where 9,000+ users seem to have registered.

Become.com = Booooooo.com ?

OK, the title is a bit unfair (Become.com may not be evil after all) but you've got to love the blogosphere, and how quickly things can (potentially) get out of control.

SiliconBeat published this story: The Larry and Sergey test in the afternoon, talking about Become.com (new shopping engine started by the founders of MySimon) and their hiring practice of asking   programming job seekers to develop and hand over some code improving the PageRank algorithm in lieu of customary programming tests. Clever, and appropriate, for a search engine company. The piece goes further saying: "About 100 of the applicants took the challenge, which required about 40 hours of coding. Yang says that many of the concepts that came out of that process ended up in the Become.com algorithm".

Reading this, I go "Whaaattt ?" and leave a comment about the potential "borderline" effects of that policy (having led an organization of 150+ developers  in the past, the defense of the coder is "close to my heart") .  Then Om and Tony jump in, a bit more "forceful", respectively: Will write search code for food? and  4000 hours of development for $75 (we enjoy these catchy titles, don't we :-). With Om's level of readership (no offense to Tony, Matt & Michael - I just know how much traffic Om delivers when he sends some link love), you can feel a PR disaster in the making for Become.com.

Fortunately for Become.com, Michael Yang, its CEO, spotted the post within a couple of hours and left two comments:

I would like to make two clarifications on this posting.
One, it is true that we ask candidates to take a programming test as a screening mechanism. One of the questions requires the candidate to demonstrate an understanding of hypertext link analysis algorithms such as PageRank.
Two, we do not use any of the submitted code for our internal development purposes.

and (since Tony kept on poking):

We have never used any code or ideas from the programming test. The programming test is focused on candidate's programming proficiency rather than new ideas or inventions.

Matt Michael Bazeley and Om subsequently updated their stories, making due reference to Michael Yang's comments, though it is still not clear why Matt Michael quoted Yang saying that "that many of the concepts that came out of that process ended up ..." but that does not really matter. (See Michael Bazeley's comment below, and yes I mistakenly referred to Matt Marshall as the one having written this SiliconBeat piece, he wrote the original post about Become.com).

Good catch Michael Yang (worth a post on your own blog maybe ?). PR disaster avoided. The post has not been slashdotted. You will still be able to find developers for your open positions. And get busy on finding a VP of Corporate Communications and a PR Manager. You're doing their job right now :-).

What is interesting (wink to Paul Kedrosky) clear in this story is that PR professionals have to stay on top of all these rumors, quotes (and misquotes) in realtime in order to fix these kinds of situations as they pop up, and before too much negative spinning has gone around - even if facts are rectified afterwards. Like when Scoble hinted that the SmartTags guy, who had just moved from Microsoft to Google, was working on Autolink. Double evil!

Steve Rubel, Renee Blodgett and the fellow PR bloggers (or blog PR specialists) are going to keep busy for a while with all this. And Thank God for Feedster, Pubsub and Technorati.

Topix.net - The After Maths

I quite liked the coverage of PaidContent on the Topix.net deal, particularly their final summary: Topix.net The Morning After. The deal itself is interesting, and as such has been largely covered. However I found quite intriguing the way the news rolled through blog posts and news stories, and the level of confusion around what exactly happened and at what valuation.

The deal was initially described as an acquisition by Tony Gentile and the list of posts that commented on it. Straightforward buyout, 3 parties pay a certain amount of cash to acquire 75% of Topix.net's shares, founders keep 25% and reap returns of their three year of efforts living on the "Macaroni and Cheese" diet during which they reportedly did not pay themselves. Great deal, everybody happy for them, they're rich and famous. Super.

At that point, I write a post highlighting the interesting nature of the deal, yet another take-out without VC funding, etc.

Then comes the "original" piece from Bambi Francisco, where she refers to an investment of less than $5M from the three newspapers "and that the capital will be used to build the technology and allow founders to pay themselves a salary". OK, now we're talking about a straightforward investment of less than $5M providing working capital. That means that the Topix.net guys got diluted 75%  for less than $5M, on the basis of a low single digit pre-money. Not so cool, but at least they can pay themselves.

In effect, the transaction has not changed, since the equity is likely the same, but the optics are quite different (because of the valuation).

Then comes a post from Susan, where she makes a reference to the same piece from Bambi, but clarifies that the valuation of the company is potentially much higher than Bloglines' (placed by the rumor around $15M). As I pointed to Susan by email that "the maths did not work" - you can't invest less than $5M to buy 75% of a co, and give it a valuation over $15M - and suggested that the deal must have been a partial buyout, combined with a cash investment. I then saw that Bambi had also edited her piece, particularly this paragraph:

Topix.net would not disclose the terms of the deal, only to say that the funding was less than $5 million. Separately, the three newspapers bought 75 percent of the company for a market valuation below $100 million, but north of what venture capitalists valued Friendster, according to someone close to the deal. Friendster was a fast-growing social-networking start-up that received a market valuation of $50-plus million in the fall of 2003.

So we have confirmation that a large part of the consideration went to the  shareholders of the company - allowing them to partially cash out, and a small portion went to the bank as operating cashflow. Great deal (somewhat similar to the MySpace financing where the original owner partially cashed out, and the co got some cash). Back to the original feeling of delight for these guys, etc.

However the valuation seems... rich.

Friendster's post-money was reportedly $53M. Typical content/aggregation deals are priced at a multiple of 3 to 4 times revenues, even when there is an advertising component in the revenue mix. Topix.net being a 9 person company with founders not paying themselves, hints at a revenue figure of a few hundred thousand dollars tops. This AP piece has Rich Skrenta on the record that "Topix.net became profitable this past December and has ``about'' $1 million in annual revenues, mostly from advertising". Even with a Google or Yahoo like multiple (12x and 15x), it is certainly "challenging" to get into the $50 to $100M range.

Though it is becoming a bit more palatable thanks to these updates:

• Tony chimes in with additional information from someone in the know (but not in the deal :-):

It sounds like there are significant, multi-year earn-outs. This makes sense to me, as it allows the newspapers to make a small upfront investment ($5MM split 3 ways), and pay the rest based on performance. It's also nice for the Topix crew, as it gets them working capital now, upside down the line (without an additional exit event) and clarifies upfront what resources the papers will commit to helping Topix succeed.

• Another "someone in the know" volunteered:

KRT-Gannet-Tribune were very interested in Topix  algorithm for improving the relevancy of paid search advertising, as much as the Topix aggregation service. It runs on top  of Adsense, and reportedly doubles its effectiveness.

Is it important ? Kind of. There are enough whispers of the return of a bubble in the RSS/new media world to try and figure out whether this was a $5M or a $50M deal (see, I am not the only one wondering).

Another lesson: I'd wish RSS aggregators (at least the one I use NewsGator - Greg Reinacker, can you hear me :-) offered the ability to compare different versions of a post, just to see what has been changed - a word swapped for another, half a sentence removed, one word added ("separately" in this case) changes a lot. Likewise it would have been great if Bambi had indicated that she had updated her piece regarding the valuation - and actually the structure of the deal. But I am not blaming her, since I have done the same, reposting with a slightly different spin as more information became available.

In any case, it is still a great deal for Topix founders, and congrats to them.

"Old Media" invests in "Hi-tech News Aggregation"

I am going to start a "Deal of the Day" topic if deals keep on happening at this pace...

Tony Gentile, Susan Mernit and John Battelle are  buzzing about the partial buyout of Topix.net by Knight Ridder, Gannett, and Tribune. Each media house is buying a 25% stake in the Palo Alto-based startup, with management retaining a 25% ownership (and not relinquishing control). Like Moreover Technologies (Disclosure: an investment of RVC, my previous firm), Topix.net is extracting news from 10,000 sources, categorizes them and publishes them through RSS feeds for partners and clients to syndicate. A unique feature of Topix is its ability to deliverv very granular local news. The three acquirers operate 140 newspaper websites, serving 30M unique readers. Combine this audience with the ability to deliver highky targeted news, advertising and other content (user generated text or pictures, like Buzznet-powered Ventura County Star ?), and you might get a new mix of highly targeted content.

Topix.net has been self-funded by its founders, without any VC involvement. I know that the company did go up and down Sand Hill Road at some point, so this corporate investment might either be a strategic choice, or a fallback. Typical content deals are done at a 3 to 4x revenue multiple these days, but it is not clear what was priced here: technology, enabling new business models, improving the relevance of advertising,...
Update: Bambi Francisco (sub req) is reporting that the investment was less than $5M, and that the capital will be used to build the technology and allow founders to pay themselves a salary.
Update of the update: the maths are more challenging than they seemed.

What is interesting is that Topix is yet another Internet startup to develop a meaningful presence without any VC financing, and end up being taken out - at least partially. These exits would not make sense for "traditional" VCs that need to deploy at least $5 to $10M per deals, and need to generate at a bare minimum 3X to 5X on that capital. But it makes sense for angels and founders - and people helping them develop the shop like yours truly, who have to accept to live for some time on "Macaroni and Cheese". Alternate model ? Hmmm.
Note: This is nothing new, per Om's piece from October 2004. With the dramatic reduction of bootstrapping costs (cheap bandwith, hardware, LAMP stack, etc.), it makes it easier to sustain small "feature companies" that might end up become dominant in their sector. Tim Oren had a great post on the topic last January. More thoughts on this, in a later post.

Congratulations to Rich Skrenta and the team!

More: NY Times, PaidContent.org, SiliconBeat, CNET, CBS MarketWatch

Firefox Linked(In)

No reason to hang onto Internet Explorer any longer: the other toolbar I was using most, beyond the Yahoo Companion, is now available to Firefox users! Two LinkedIn search addins can be downloaded here: one for profiles, and one for jobs - on Windows and MacOSX.

PS: Don't remove Internet Explorer from your system just yet. There are still a large number of sites that are not compatible with Firefox.

Friendster's Monetization: A Movie ?!?!?

I have written quite a bit about social networking monetization in the past. I therefore felt compelled to read (and comment) on this Engadget post: Friendster the Movie - Starring Topher Grace and cameraphones. Much has been written about the rise and fall of Friendster, and I recommend the recent post of buddy Bill Burnham on the subject Earth to Friendster: We Have A Problem.

Last February KP's John Doerr, a Friendster investor and director (with an otherwise hyper-impressive track record - can't always be right in VC, it is part of the game), said that "said they would announce a partnership deal in February and reach profitability within the next 90 days". March saw the launch of Friendster Blogs, a while-labeled version of TypePad, which features a free entry level  offering and the usual TypePad three-tier premium memberships. Both companies have done a good job at designing a compelling free service that might draw users away from blogger, but it is not clear how much conversion they will get. Then comes the Movie "deal". With ex-TV wunderkid Scott Sassa as CEO, this could be expected - that or a reality show. Hmmm....

Sustaining their audience in providing a rich and useful "value experience" is Friendster's challenge, one which MySpace seems to be executing on much better (comScore ranked it the 7th largest Web domain in page views, at 4.6B). Their core focus: music and entertainment, and a community of tens of thousands of bands and artists, attracting 9M unique visitors and 65,000 new daily registrations.

Social networking is now "just" part of the fabric of online services: LinkedIn focusing squarely on the job market, MySpace on music and entertainment, Tribe.net (reportedly raising their Series B) on classifieds,...

Update: SiliconBeat reports the launch of a Friendster classifieds web site in Manilla. Sounds like they will be trying to slice and dice their 15 million members in chunks that they can target and monetize through these kinds of products/services.

In the same vein, Plaxo just announced the launch of additional premium services, aiming at tripling their user base to 15M and bringing their arpu from $1 to $2 (Bambi Francisco interview here).