Great Idea? Wow!

Off to San Diego

2006-04-08T04:24:00.000-04:00

I am off to San Diego to see where my future lies...here?

Calling Dr. Kuhn

2006-02-28T19:04:00.000-05:00

Is this the start of something new?

Company Earnings Manipulation

2006-01-13T16:20:00.000-05:00

Jeff Matthews, a hedge fund manager who blogs at Jeff Matthews Is Not Making This Up notes in a recent post that IBM dramatically lowered their Q1 earnings per share (EPS) estimate last April to 90 cents from $1.04. In actually, IBM earned 84 cents that quarter, net of 10 cents worth of options and stock-based compensation. Shortly, thereafter the stock fell ten dollars.

Because public company executives are trained to do everything to keep Wall St. happy, which typically means delivering ever higher earnings with no surprises, is it any wonder that the EPS number is ripe for manipulation? Since companies have the power to create and destroy stock pretty much at will through new stock and option issuances and buybacks of existing shares respectively, the PER SHARE earnings number does not necessarily accurately forecast the outlook for a company.

For example, if Company X with 100 million outstanding shares earned $100 million this past quarter, you can figure out that the firm earned $1.00 per share. If the company forecasts its EPS will rise year over year (YoY) to $1.25 it can meet this in two ways. The better way would be to earn an additional $25 million over the existing $100 million of current earnings to get to $125 million for the quarter or $1.25 of earnings per share. The worse way would be to buyback 20 million shares, "retire" them, and off a new 80 million share base report that while gross earnings were unchanged at $100 million, the EPS number still rose to $1.25.

While the two outcomes may be for accounting purposes similar, the second result clearly indicates a worse off situation than the first result. This is because not only did the company report in the latter example that gross earnings were unchanged YoY despite the higher EPS number, the company drained its cash reserves buying back stock to keep the EPS forecast on target. Current stockholders shouldn't shrug off this development just because their current shares now are worth more as a percent of the company (the stock base reduced from 100 million to 80 million) because as Jeff Matthews points out the granting of restricted stock and options is hardly a non-reoccurring expense to a major corporation like IBM. There is every likelihood of future dilution due to new stock being issued and 80 million shares can expand back to 100 million shares so that the EPS is no longer $1.25 but shrinks back to $1.00 EPS. What once was heralded as a sign of growth now becomes a realization of stagnation.

Guy's Let the Good Times Roll

2006-01-05T14:34:00.000-05:00

Former Apple evangelist and current VC at Garage, Guy Kawasaki has a blog, Let the Good Times Roll. I'm looking forward to how he dishes out advice on entrepreneurship and the VC business with the best of the VC bloggers like Fred Wilson and Paul Kedrosky.

Hespos and Jaffe

2005-12-31T16:44:00.000-05:00

Tom Hespos is going to guest host on Across the Sound, a podcast started by Joseph Jaffe and Steve Rubel, who retired from the program due to his recent promotion at Cooper Katz. I'll be looking forward to his commentary as I know Tom is one of the brightest guys in marketing today, advocating new ideas on how to navigate within the interactive digital marketplace.

The online publishing conundrum

2005-11-29T21:16:00.000-05:00

Fred Wilson, a venture capitalist, offers up a familiar complaint to anyone who is a heavy consumer of online content. Publishers too often inconvenience their audience by forcing upon them articles which needlessly span several pages in order to generate additional pageviews. This is done solely to raise the advertising to content ratio as each separate page viewed increases the number of ad impressions per user visit.

Their need to do this online shatters the offline notion that publishers can disregard how much content readers actually consume but still price ad space on the assumption that it will be viewed. Most readers don't read the contents of a publication cover to cover, yet advertisers pay based on the circulation numbers from the publisher. If a reader only reads a few articles, the ads that are not adjacent to those article pages won't be seen, much less inspected. Since online articles that are not clicked on don't generate pageviews, publishers have to come up with a way of creating extra ad impressions. Breaking the content up is one way to do that.

Unless publishers can find a way to raise their CPM rates, readers are stuck for the time being with this annoying practice because online, advertisers only pay for an actual impression, not an extrapolated guess about readership interest.

Fix on Free

2005-11-15T23:17:00.000-05:00

What does AOL Instant Messenger, Google, and The New York Times (pre-TimesSelect) have in common? In order to generate significant early traffic and attention, the people behind these properties decided to offer their products for free to consumers. Even as they found success, the products remained free to use, both to keep their growth rates high as well as to stymie competitors who wanted to charge for their alternative offerings. As a result, they have become among the most prominent and well-trafficked properties online which most hip, technologically savvy consumers cannot do without.

What they have done is to addict consumers to the notion in order to gain their attention, information better be free. Now, for providers of information goods this is a conundrum. The production of the information certainly isn't costless, yet consumers expect it to be free. While the exact prescription may remain elusive, I predict the winners will be firms who keep consumers fixed on free.

Can you solve the Chaos Scenario?

2005-10-20T03:51:00.000-04:00

Bob Garfield's Chaos Scenario portends a period in the near future as we move from a broadcast analog media to narrowcast (i.e, Long Tail) digital media will be fraught with confusion and peril because we have not yet devised a robust method of paying for content in an age where information wants to be free. While media moguls fret about their content being pirated by college students, advertisers worry how their messages will reach consumers in a user directed, on-demand world.

Although the Internet and the Web have been commercialized for a decade, there has yet to develop a technology or platform that can effectively absorb the billions of dollars spent currently on network and cable TV and in Print. With just over 6 percent of ad dollars spent online, consumers are already bombarded by pop-ups, spam, spyware/adware, and ads that takeover screens and obscure content. Is it any wonder that consumers have installed pop-up blockers, spam filters, and antispyware software in droves. Unless something is done to mediate the interests of advertisers, publishers, and consumers amicably, pouring more dollars into Internet advertising will just frustrate consumers as advertisers try even more intrusive ad tactics to offset falling clickthrough rates.

What the RIAA wants

2005-10-01T04:02:00.000-04:00

Although Apple's iTunes has been a success in creating a market for digital downloads, it has not really popularized it to the masses. More than 500 million tracks have been sold on iTunes since its launch in the Spring of 2003, but that works out to about 25 downloads per iPod. The recording industry's annual revenues are over $10 billion and the bulk of that comes from sales of CDs.

What the RIAA member companies want as I see it from their attempts to shut down p2p file sharing sites, suing college students, and overall look like the heavy is to have their cake and eat it too when it comes to transitioning away from physical analog products like CDs and tapes to virtual digital products like music files. They want to have the capacity of controlling distribution and pricing while reaping the benefits of shipping a product with no marginal costs.

I believe their current strategy of embracing DRM is flawed because it assumes that the value of the content cannot be separated from the transmission vehicle--the music file. I believe it can and there is precedent elsewhere. I won't say more except to state that should a successful division occur it will go a long way to solve the problem of paying for digital media while retaining value of the product.

Why not raise what is considered passing?

2005-09-18T16:25:00.000-04:00

The Los Angeles Times in an editorial today urged Gov. Arnold Schwarzenegger to veto an public education bill that has passed the California Legislature. The bill, backed by Assemblywoman Karen Bass (D-Los Angeles), would allow students who flunked the required high school exit exam to still get their diploma if they cobbled together a substitute in the form of a special project or portfolio of work. As noted in the piece, determining basic subject mastery could lead to abuse by students who may cheat without adequate supervision and by school districts who would look for an easy way to boost their graduation rates. Moreover, the exit exam itself is not that hard to pass.

Criticism of the federal education reform No Child Left Behind Act of 2001 is that it imposes on school districts requirements such as annual testing and adequate yearly progress metrics which lead to teachers and school administrators "teaching to the test" instead of planning assignments to meet the needs of each and every student. Often the complaints center around students who may do poorly on timed tests without taking into account a more complete picture of that student's academic performance in the classroom.

One alternative and simple idea to mandating more end-of-year tests or exit exams is to raise the bar at which a passing grade is accepted as credit for a particular course or in determining eligbility for a diploma. Most schools will deem a course successfully passed if a student receive a letter grade as low as a "D" or numerical grade as low as 65. If schools required students to earn at least a "C" or numerical grade of at least 75, then there would be less pressure on educators and politicians to need year end or exit exams to determine whether students are ready for the next grade, college or the workforce.

What a Gap!

2005-09-12T14:16:00.000-04:00

Gap Inc., the apparel company, shut down its online stores--Gap.com, BananaRepublic.com, and OldNavy.com--this past August in an effort to improve the functionality of the websites. Although praised in a New York Times article, demonstrating how the number of clicks required to navigate around the stores are reduced through innovations such as a "quick look" link popup and opening a smaller separate window for checkout items, Gap left off two features that are SOP for an online merchant.

They did not include a search box and failed to provide a way for customers to filter their purchases globally. Amazon.com, the standard in online retailing, has allowed users to keyword search and filter their choices by price, description, date, etc., for the longest time now. I cannot believe that when Tony Lenk, president of Gap Inc. Direct, who overseas its catalog and online divsions, approved of the redesign he overlooked two of the most important and useful functions that must be included in an online store.

Notice to the PFF

2005-08-15T02:52:00.000-04:00

Just e-mailed this to James DeLong at the Progress & Freedom Foundation:

James,

I enjoy the tussle you and you colleagues at the PFF have with the folks over at the EFF over the issue of IP, and copyright in particular, in the digital age. One aspect of the issue you keep harping at is that both for moral and economic reasons property rights should be defended against those who might use another's property without their permission. You argue that this should apply to intellectual property as well even though it is a non-rivalrous good.

However, as you know, the right to use one's own property can and has been circumscribed by law and statue. Although you may be able to own a gun that does not give you the right to bring it into a school. Although you may own a car, you must obey speed limits. Although a man's house is his castle, he cannot blast loud music all night long.

What I am getting at is the principle that communities have the right and obligation to set up rules on how one can use one's property even if it conflicts with the wishes of the property owner and even if it causes the value of the property to fall or be unrealized. Of course, the laws and regulations set forth can always be influenced by property owners, but property owners do not get a carte blanche say in creating the rules without input from the public or their representatives.

So for instance, I am sure you have heard that the MPAA is laying out to electronics manufacturers what types of DRM and other restrictions need to be in the new HD DVD technologies in order to gain the approval of Hollywood. As you also know, consumer groups or Congress have not been consulted in this process. Now, if you feel that they have no business mettling in what private groups do together, then I guess you'd also have to agree that your local town council has no business restricting what a private developer can do with the property he bought next to your cul de sac should he wish to install a noisy, polluting factory.

But of course developers can't just willy nilly build anything on THEIR land, that is what zoning laws are for. Zoning laws were enacted to give local communities a strong say or even outright veto in shaping what kinds of uses are appropriate for a particular property because it is important to uphold their values in how it impacts their environment and sensibilities. Even if it causes extreme economic hardship, a developer cannot build a fast food joint on land zoned as residential. He must find land elsewhere, possibly in a more isolated part of town that costs more, that is appropriately zoned for the establishment he wants to erect.

What I am getting at is that I believe there needs to be enacted zoning laws for intellectual property that explicity describe what kinds of restrictions the government--as a proxy for the community--can IMPOSE on intellectual property owners. This would go beyond fair use, which is only a defensive mechanism to a lawsuit, and spell out where the interests of the public lie versus the property owner. Moreover, there would be specific prohibitions, just as in zoning ordinances, on what an owner could do with his property unless it was properly zoned. I am not laying out any specifics on how the law would be shaped, but I'd give consumers a prominent seat at the table whenever issues affecting their downstream use (as opposed to the creators) of intellectual property came up.

Smart Optical Illusion

2005-08-15T01:03:00.000-04:00

via MarginalRevolution

IP Needs Zoning Laws Meme

2005-08-01T02:15:00.000-04:00

I hope to spread the meme of "IP needs zoning laws" to everyone on both sides of the copyfight debate.

You can buy pins and t-shirts here.

Copyfighters are...

2005-08-01T01:03:00.000-04:00

Donna Wentworth over at Copyfight tries to define what "copyfighting" is and who "copyfighters" are and what is their agenda vis a vi intellectual property law. As she puts it: "the 'copyfight' is the battle to keep intellectual property tethered to its purpose, understanding that when IP rights are pushed too far, they can end up doing exactly the opposite of what they're intended to do." She links to Cory Doctorow, who defines copyfighters as those who are "fighting for reforms to intellectual property" because as he sees it global organizations like the World Intellectual Property Organization (WIPO) advocate ever greater IP rights, benefiting developed nations, which have more mature IP industries, over less well developed nations. Unfortunately, neither definition satisfies me.

Wentworth doesn't explain what she means by intellectual property's "purpose" except to caution proponents of tougher IP laws that their efforts can backfire against them if the public feels the laws enacted are too draconian. Note to Hollywood: "be careful of what you wish for." The declining music sales over the past five years in the face of well publicized legal battles over Napster and its successors by the RIAA can be seen as testament of this logic.

Doctorow with the EFF and other groups like Creative Commons do a good job of explaining what IP reforms they'd like to see, but a poor job of putting it in terms that a layman would understand. This leads to confusion and conflict between them and those who take the other side of the debate such as The Progress & Freedom Foundation. The copyfighters blame rights-maximalists for stifling technological progress and hurting the poor in Third World countries due to restrictive licensing of pharmaceutical patents and IP defenders accuse "copylefties" of being anti-capitalist and supporting widescale piracy of IP goods as typified by services like Kazaa.

To rectify this confusion it would be better to think of copyfighters as the "zoning boards" of intellectual property. Zoning boards overseeing real property evaluate and decide whether a particular use of a property by an owner is appropriate for that community in accordance with that jurisdiction's zoning ordinances. Zoning laws and building codes limit what an owner can do with his property and in effect reduce its potential value without restrictions. While an owner might want to build a factory in a residential cul de sac most zoning laws forbid it because it conflicts with the structure and values of the community. The US Supreme Court recognized in Euclid v. Ambler Realty Company (1926) and reaffirmed in Nectow v. Cambridge (1928) that zoning laws must benefit the community if property rights are to be restricted.

If zoning laws can be enacted and be accepted as a part of the bargain of owning real property, then copyfighters theorize: "Why can't IP zoning laws be enacted and be accepted as a part of the bargain of owning intellectual property?" Fair use as it is currently constituted is a vague and weak shield against an infringement claim by IP owners. While there are exceptions that allow unauthorized uses such as criticism and time-shifting, defending one's fair use rights is not cheap. As Larry Lessig, Stanford Law professor and author of "Free Culture," puts it: "fair use is the right to hire a lawyer."

If IP laws going forward are enacted with the same sort of consideration of the community impact versus the property owner's rights as zoning laws are then most copyfighters would feel that their David v. Goliath struggle is worth it.

Educational Investments? Hah!

2005-07-26T05:52:00.000-04:00

Although taxpayer support for public schools is supposedly investing in our children's future, the funds spent on our public educational system go mostly toward staff salaries and current expenditures. Major projects like building additional facilities require bond issuances which are subject to voter approval. There is not a pool of reserve money with which to experiment on new long-term initiatives. School boards would be under political pressure not to accumulate large reserves if it meant taxes could be lowered instead.

What school districts need is the ability to form endowment funds to be used in support of experiments and new ideas whether they be new teaching techniques or charter schools without having to get voter approval to do so each and every time. What separates public schools from top private secondary schools and colleges and universities is the ability many of the latter institutions to raise and support large endowments that are often several times the size of their annual budgets. In fact, one of the selling points that attract talented students and faculty to a school is the size of its endowment. It is no coincidence that the Ivy League schools, lead by Harvard, each have multi-billion dollar endowments and are also among the most prestigious and sought after centers of higher learning in the nation.

Instead of the obligatory coin toss...

2005-06-08T13:44:00.000-04:00

why not use Rock, Paper, Scissors? According to an article in Fortune (via Dvorak Uncensored) RPS is gaining more respect in the West as a way of use in breaking ties. Although in Asia, where it originated, its use is not just a kids' game. Winning RPS, unlike a coin toss, is not just random chance. To break out of the tedium of the coin toss to determine kickoffs and overtime, if the NFL were to ever to implement RPS instead it would be an extraordinary media event that I am sure ESPN would bring in a Mel Kiper-like analyst to break down the various strategies of the game.

The End is Nigh

2005-05-20T01:48:00.000-04:00

If consumers were ever given the ability to reallocate the dollars advertisers spend on newspapers, I would fear for every publisher and short every newspaper stock.

Creating media franchises

2005-04-25T17:24:00.000-04:00

Before investing in the next media franchise creation, you should consider how its licensing opportunities will fare. If the property does not demonstrate its attractiveness against a checklist of potential license suitors, then you should reevaluate whether to invest. Well-run franchises have multiple and diverse income streams that extend their brands into several complimentary markets, enriching the consumer experience. This allows franchise owners to maximize revenues while the property is still hot and of interest to the market. Sometimes properties become so well known that they can perpetuate their value indefinitely, such as Disney's Mickey Mouse and Sanio's Hello Kitty.

The checklist of potential license extensions include:

1) film/tv/video (live-action or animation)
2) video games
3) books/magazines
4) comics/graphic novels
5) action figures and other toys
6) trading cards
7) apparel
8) promotions and tie-ins
9) snacks
10) tchotchkes

Most successful franchises can license their creations to at least four of the above outlets. George Lucas can say he licenses Star Wars to all of them and more.

Oops..there goes the neighborhood

2005-04-22T13:47:00.000-04:00

Both Jeff Jarvis and Alan Mutter link to an article in AdAge that forecasts newspapers could lose $4 billion of classified revenues by 2007, 9 percent of the $46.6 billion of total newspaper ad revenue, because of internet sites like eBay, Monster.com and craigslist are providing greater value than traditional newspaper classifieds. What newspaper companies need to do, both to help themselves and listers, is to fund a rival to eBay.

I know that every attempt to crack eBay's monopoly has met with failure, but that is because the competition did not have the money or expertise like newspaper industry does. The venture could allow buyers and sellers to locate the site either from its own web address or through the newspapers' own sites. eBay has gross margins upwards of 60 percent and I think that another competitior can steal some business away from it and give listers another venue to place ads.

Pounding a cube into a circular hole

2005-04-14T15:42:00.000-04:00

The NY Times Magazine has a fascinating article this week about how rating companies are trying to find out what people are watching on TV by using ever more sophisticated technologies. Instead of just measuring a person's recollection of what he watched on TV during the week through the use of diaries, technology has allowed companies like Nielsen and Arbitron to record what shows are being watched or heard as they happen. They then use this data to assign ratings which are the currency used to set advertising rates that underwrite the programs. Advertisers then know what programs attract which audiences in how large a number.

Jon Gertner, the writer of the piece, explains how even newer technologies are being developed to track individuals outside the home and respond to any audible broadcast of programming and advertising. As we are bombarded with marketing pitches 24/7 these devices will be able to precisely know when, where, and how frequently a message is received by that person. I fear that instead of reducing the amount of advertising in our lives, these technologies will encourage companies to inundate us with pitches that we cannot easily retreat from.

I do not think that the Holy Grail rests in marketers finding the right audience for their product, but rather the Holy Grail allows technology to help consumers find the best marketer selling right product.

Why merit pay for teachers is flawed

2005-04-12T04:13:00.000-04:00

Proposing merit pay in secondary education will get you in trouble with the teachers unions. Reformers say that the public school system needs to look to the private sector as a model for educator compensation. Paying for performance it is said gives teachers and administrators incentives to improve student performance and reward teaching excellence.

However, reformers overlook a fatal flaw in comparing schools to businesses. Firms choose who is hired and can readily fire mediocre performers, replacing them with better motivated workers. Public schools have to take all comers and cannot easily rid themselves of students who are lazy or disruptive. Moreover, as long as students receive marginal grades they are permitted to hang around to graduate even if some of them drag down the overall class grade.

Instead of incentivizing teachers to improve their students' grades, why not go directly to students and figure out a way to reward them for high achievement beyond the ubiquitous gold star stickers?

We need cheap IP

2005-04-10T02:37:00.000-04:00

What developers need is a cheap source of IP that originates from a medium which is consumed by a significant proportion of the target market. Also, the cheap IP should come from a lower cost base than the developed project unless it is an extension to an already successful line of products. George Lucas can license his Star Wars property for toys and games, but a maker of toys or games should license IP from an animated blockbuster movie at their own peril because Disney will extract a significant license fee for the privilege.

UPDATE: Hollywood gets this model right. There is a fierce competition by screenwriters and authors of successful books to get their ideas translated into film. Sometimes studios pay a large amount for a script but it usually represents no more than a small fraction of the overall production budget. However, there is enough cache attached to the project to get big name stars on board who then lure their fan base to see the movie.

Video game production lacks this essential aspect of creativity. Publishers rarely look for lower forms of IP, but instead attach themselves to high-profile licenses which cost them an arm and a leg. If they looked beneath themselves, instead of up, more ideas could be developed and greater profits achieved.

Nashing for money

2005-04-10T02:19:00.000-04:00

Greg Costikan, a respect veteran game maker, delivered an incredible rant at the Game Developer Conference in which he complained of how the game industry is killing itself, despite record revenues since the home game console was introduced more than a quarter century years ago. He vents that publishers have become too cautious and risk-averse to seek out new ideas that are the engine of any creative process. With rising costs associated with new platforms and technology, publishers seek out only the safest and most secure projects, which often means licensing deals from Hollywood or major professional sports leagues and associations. What the industry needs, says Costikan, are a few courageous publishers or other investors to fund independent developers that will try out new kinds of game projects.

However, where Costikan fails is that he asks the wrong question. Not, why aren't risky projects funded more often, but rather where is there a source of cheap, market proven ideas to test out new games? Here is where most companies go astray and do not follow the independent film model. Most publishers pay through the nose for a license whether that be a Harry Potter or the NFL. This is akin to a studio paying Bruce Willis to star in another Die Hard movie, rather than recruiting him to star in the independent Pulp Fiction. Yet, the producers of Pulp fiction did not have to pay Willis millions of dollars to land him for there picture. Rather for stars like him they might negotiate a percentage of the gross, making the film affordable to produce for the type of movie it is.

Video games are rarely able to negotiate such an agreement because most of their costs are tied up in developing the game itself, not paying an exorbitant amount to any one person. Therefore publishers and developers have to find sources of cheap IP to exploit. Unfortunately modern American culture has few sources of ideas that can be had for a song and yet attract a dedicated following of fans who are in the market for games. When something does become popular like Harry Potter the license often becomes too expensive for an independent game company to make a bid. What is left is a hodgepodge of ideas which have an itinerant fan base and that often have no angle to be developed into games.

Should we look to the land of the rising sun for inspiration? Perhaps.

The future of TV

2005-04-03T18:09:00.000-04:00

Is there one competent, implementable vision of the future of digital TV?