Google+ is the New Bar in the Neighborhood

The more time I spend with Google+, the more I’m convinced XKCD got it exactly right:  it’s Facebook that’s not Facebook.

Many Google+ reviewers focus on “Circles” and “Hangouts”, which are great features.  I also think they’re relatively easy to copy:  Facebook has had friend lists for a long time, with the ability to limit visibility of status updates.  It’s not as cleanly presented as Circles, but that’s fixable with some UI work.  Hangouts should also be relatively easy enough to copy.

I think Google+’s rapid uptake is less about feature advantages, and is much more about being the “new bar in the neighborhood”.  Bars are defined somewhat by their decor and menus, but also by their “crowd” — the regular patrons and the way they behave.

Social networks are no different, and I’m guessing the initial burst of interest is coming from those seeking a new “crowd”.  I’ve seen a few Facebook-resisting friends jump on immediately.  Many of us joined Facebook initially for friend/personal reasons, then tried to figure out how to appropriately add in a professional layer (some are still struggling with this).  Google+ is a clean slate, a way to start over.

My hunch:  Facebook and Google+ will track similar features over time, but will diverge based on the “crowd”.  Facebook will be “fun, party, games, joking with friends”, while Google+ will be “drinks after work with colleagues”.

Video Chat is Now a Feature, Not a Product

I tried out the new Facebook Video chat.  It worked great — there was a small download/install, but after that, it was click-and-go.

I’m really wondering what Skype gets out of this.  Facebook’s chat is not integrated with Skype at all, and you only briefly see a Skype logo when the video chat starts.  How is Skype worth N billion when video chat is now a Facebook feature?  I know Skype has some good technology (esp. with firewall traversal), but how hard is it this days to implement robust video chat?

UPDATE:  Skype has a nice blog post on how the integration works.

Finally, I really wish Facebook would invest more in their mobile apps:  getting them current with video calling, and rolling out an iPad app (please!).

When Facebook brings multi-user video chat to the iPad, it’s “game over”!

 

How Will Demand Media Make This Work?

As I often tell my friends, it’s more fun to run other people’s businesses.  In that spirit, SEC filings are a great source of entrepreneurial case studies, and recently I’ve been reading about Demand Media.

Demand Media has a mix of businesses, including a domain name registrar.  The most visible property is eHow (acquired in 2006), which you’ve likely seen in search results. For eHow, Demand Media pays authors small amounts (~$15 and up) to write focused topic articles, then decorates those articles with ads.  As you’d expect for these price points, articles are relatively low quality (see how to roast a chicken).

Their risk for Google search algorithm changes has been well-reported.  Google has gone on record they are going after low-quality content, and recent algorithm updates appear to have hit eHow hard.  Demand Media has downplayed the impact, saying:

… the Company currently expects that its year-over-year page view growth across its owned and operated Content & Media properties in the second quarter of 2011 will be comparable to, or greater than, the year-over-year page view growth achieved in the second quarter of 2010.

This will likely be true, because they’ve added lots of new article content in the past year.

But it avoids the real question:  how do Google’s updates affect the per-article ROI?   Can Demand Media make a $20 article fee back in some reasonable period of time?

On this issue, what’s most interesting is Demand Media’s accounting treatment of the article fee. Instead of treating it as an expense (as a newspaper would do with journalist salaries), Demand Media argues their articles are a capital asset, with the creation cost depreciated over 5 years.  This method makes them look more profitable (or less unprofitable) than they would otherwise:  instead of a $20 article expense in the first year, they only expense $4.

Depreciation makes sense for assets that have a relatively predictable lifespan and value:  telephones, furniture, servers, tools, machinery, etc.   In this case, it’s a stretch application of the concept.  First, things change, and 5 years is forever in Internet time.  Second,  the content’s value-over-time is heavily influenced by external factors that they can’t control:  the search rankings (which are trending the wrong way), and the emergence of competitive content.

My bet:  their per-article ROI was already on the cusp, and Google’s updates are pushing it in the wrong direction.  Their content’s asset values will decline far faster than the depreciation model reflects, and they’ll be stuck holding the remaining depreciation expense.

What am I missing?

Massachusetts Sales Tax “Fairness”

In case you missed it, H.1731 and S.1554 are winding their way through the Massachusetts legislature.  These bills attempt to make large vendors like Amazon subject to state tax, by arguing that MA-based affiliates create an in-state presence.

I’ll concede that the US Constitution has made our in-state/out-of-state sales tax system a bit quirky.   But I object to these bills because they put Massachusetts at a competitive disadvantage in the emerging Internet economy, at a time when more entrepreneurs are eyeing NY and CA for new companies, instead of MA.

It’s also not clear there’s any material revenue benefit:  in other states, Amazon (and other vendors) have responded by canceling their affiliate programs in those states.

These bills are being pushed by Wal-Mart, other multi-national retailers, and the Retailers Association of Massachusetts (RAM), who argues:

Our local small businesses operate at a significant 6.25% price disadvantage to out-of-state, online businesses, leading to fewer sales at brick-and-mortar establishments who contribute so much to our community.

This highlights my real objection:  these bills are about protecting the status quo, without taking a rational and realistic view of the future.  Any MA-based retailer facing out-of-state mail-order competition should be considering the future of commerce.   There are 49 other states where that retailer can sell tax free!  That’s hardly a “disadvantage”.

Like many issues, it’s always helpful to understand the deeper issue.  This is really about Wal-Mart pushing around Amazon.  I can only hope that the MA legislature doesn’t rise to the bait.

Which Way is Your Idea Pointed?

Occasionally, I meet an entrepreneur that’s got an interesting idea, but is oriented in the totally wrong direction for the market.

For example, consider ideas around DVDs:  they’re still very popular, but their future seems clear.  With bandwidth and storage advances, movies will be like music is today:  downloaded on demand.

These kinds of ideas aren’t necessarily bad, but they require a shrewd assessment of how big the window of opportunity really is.  Trying to build a company is hard enough; doing it while the market is moving in the other direction is virtually impossible.

But at least you should know going in:  is your idea oriented in the “right” direction?  Do you have enough time?

The CEO Job Sucks, Mostly

How can you tell if someone’s never been CEO?  They say something like, “I really want to be CEO”  I never seem to see former CEOs saying that.

A few days ago, Ben Horowitz wrote one of the best blog posts I’ve ever read, all about CEO psychology:

By far the most difficult skill for me to learn as CEO was the ability to manage my own psychology.  …  Over the years, I’ve spoken to hundreds of CEOs all with the same experience. Nonetheless, very few people talk about it, and I have never read anything on the topic. It’s like the fight club of management: The first rule of the CEO psychological meltdown is don’t talk about the psychological meltdown.

This blog post is a must-read for all CEOs and boards; it’s very good stuff.

Being CEO was the toughest job I’ve ever had, no question.  It was an intense and extreme range of emotions:  I never laughed so hard, or cried so hard.  I went between periods of pure optimism, to periods of deep anxiety with many, many sleepless nights (in both cases).  I formed some new, lifelong friendships, all while feeling I let down all of my friends when things didn’t go as planned.  CEOs attract more blame than credit; it is the most demanding job in the world.

I’m glad so Ben wrote this, because the “leader” personality type tends to avoid signs of personal weakness.  CEOs talk about “managing to the metrics” or “rallying the troops”, but you never hear “I’m depressed”, “I’m tired”, “I need help”, or “the team is pulling me in three different directions and I can’t choose”.

There’s a reason my friend calls the job “CPO” — Chief Psychological Officer.  That “other stuff” is usually the Real Stuff.

How Are You Acquiring Customers?

I know that “how are you acquiring customers?” is now part of a VC joke, but the question is no joke.

Across the companies I work with, there’s a very strong correlation between those that found a new twist on acquiring customers early on, with success in the business.  In contrast, those companies that ended up acquiring customers in more traditional ways (e.g. Google AdWords, display ads, etc.) have struggled much more and grown more slowly.

Taking this even further, I think differentiation for many companies resides not with the product idea itself, but with customer acquisition methods.  For the Web and mobile, ideas are plentiful, often easily copyable, and increasingly narrow (because it’s gotten so crowded).  With the ever-growing app/Web-site/messaging bombardment, it’s impossible to get new user attention.

This viewpoint is heresy for many product-oriented entrepreneurs, but I think it’s more right than wrong.  I frequently meet entrepreneurs that have 10 slides on product/service, but only 1 on customer acquisition.  That ratio of attention is completely backwards.

And taking this to the extreme, I’ll share advice I recently gave a friend.  He’s a very creative product guy, working on a bunch of new product ideas.   I suggested he invert things:  stop working on products, and start working on customer acquisition opportunities.  Then, figure out the apps that will engage those customers.

Twitter’s Ecosystem Woes

In case you missed it, Twitter recently updated their Terms of Service, asking developers (effectively) not to build any more Twitter clients.  Now that they have their own apps, they don’t want developers to compete with them.  This announcement was followed, of course, by the expected uproar.

The whole situation highlights several interesting issues.

First, platform companies are always looking at emerging compliments for growth.  Ecosystems are great experimental “test tubes” for the platforms, and ecosystem developers always run the risk of being subsumed.

But this highlights a much deeper issue, unique to Twitter.  In spite of phenomenal usage growth, Twitter’s still struggling with monetization.  The real problem is that they’re stuck in utility-level value. They’re much like AOL’s Instant Messenger:  widely used, but beyond display ads embedded in the Windows client, a very very tough app to make any money from.

Given this, I’m not surprised to see them attempting to take more control — they don’t have any choice.

Word of the Day: Yellitocracy

I can now cross “invent a word” off my bucket list.  According to Google, “yellitocracy” is a brand new word.

What does it mean?  A yellitocracy is an organization where “he who yells the loudest, wins“.   These can sometimes occur when you gather a group of smart, hardworking, passionate, opinionated and competitive people.

Passion is a good thing, especially in startups, but sometimes the culture can become less than constructive.  I’ve seen groups that devolved into “debate club”, where ideas are judged on how well (and loudly) they’re argued, not on the merits of the ideas themselves.

Often, the best ideas aren’t screamed — they’re mal-formed (initially) & stated very quietly.  If you’re not listening carefully, you’ll miss them.  Worse, you may lose some smart & competent people because they don’t feel they fit in to the culture.

Do you have a yellitocracy?

My Net Neutrality Experience: Frontier Hijacking Searches

While home in West Virginia for the holidays, I had an interesting Internet experience.

I noticed when I Googled “Amazon” from my browser search bar, I got the Amazon home page, not the Google search results page I expected.

After some digging, I found that the ISP (Frontier Communications) was hijacking all traffic to www.google.com, and (in at least this case) inserting their own results.  For my search, they were redirecting to Amazon.com with their affiliate code, presumably to scrape some commission dollars.

The technical details are documented here.

I know ISPs have been hijacking DNS for a while for typo-traffic, but I’d never seen a case where they were directly hijacking Google searches.  It seems egregious to me, and I’m paying more attention to the net neutrality debate.  Assuming Frontier has standard Amazon affiliate terms, why should Amazon be paying Frontier merely for a subscriber who Googles “amazon”?  (And we all end up paying in the end, with higher product prices).

I ended up writing letters about this to Amazon (Jeff Bezos) and Frontier’s CEO.   We’ll see if anything comes back.

UPDATE:  I heard back immediately from Maggie Wilderotter, Frontier’s CEO.   They’ve investigated, found a vendor doing this in violation of Fronter’s business rules, and have shut it down.