The best and the brightest: Private vs public sector (rianjs.net (Hanser)) by Rian

The Portfolio article that I linked in my last piece made reference several times how people involved in both regulatory affairs and investment banking weren't "smart enough" to understand the toxic investments they were buying, selling, and (supposed to be) rating. That got me wondering whether there is a correlation between employee intelligence in the private sector vs the public sector for finance types and economists. Theoretically, the private sector should attract the best and the brightest because it pays the most.

The highest paid government official in the United States is the President himself, who makes a salary of $400,000 a year, not counting ancillary benefits.

While it's never been easy to make this kind of money in the private sector, it's certainly possible. Ben Bernanke's salary as chairman of the Fed is just over $191,000. Henry Paulson as CEO of Goldman Sachs made $16.4 million according to Forbes. There's two orders of magnitude difference there. Obviously there are other benefits associated with being a highly-ranked government official, but those benefits are generally in the future when one leaves the public sector for the private. I won't get into discount rates and net present values, but generally this road can be profitable, though probably not profit-maximizing.

Another common trend is for an individual to make his or her fortune in the private sector and then move to the public sector. Henry Paulson is probably the epitome is this type of individual. I think this road is probably the more profit-maximizing of the two possible pathways thanks to compound interest.

But there are many people who don't migrate from one to the other, and is there a correlation with relative intelligence of one sector over the other? Firms are profit maximizing, and people are theoretically utility-maximizing, with money being the most fungible obvious resource for maximizing that utility. That suggests that the private sector should, on the whole, be able to "outwit" the public sector much of the time because they're able to cherry-pick the best and the brightest with the leftovers going into the public sector, all other things being equal.

Finding public sector work more rewarding than private sector profit maximization will always play a role in determining which jobs people take. If a person gets greater utility from the fulfillment doing work in the name of public service or teaching than they would get from a greater salary in the private sector, they won't migrate. On the other hand, I find it very hard to believe that compensation plays no role whatsoever in an individual's choice of employment.

Thoughts?

Posted in: business , compensation , economics , happiness , utility

On fear, entrepreneurship, and wealth: Felix Dennis (rianjs.net (Hanser)) by Rian

Felix Dennis who comes from humble beginnings:

An art college drop out, Dennis left home before his sixteenth birthday, and lived in a number of bedsits. Dennis started his career in publishing with Oz magazine, the Sixties counterculture magazine, initially as a successful seller, through which editor Richard Neville realized Dennis' potential business acumen. Dennis had earlier contributed to a television discussion on the counterculture, which Oz reprinted; the first magazines Dennis sold had been Neville's only available means of compensating him for using this material.

Oz was prosecuted for obscenity in 1971. All three editors were found guilty of corrupting children, and given jail terms with hard labour, although Dennis himself was given a shorter sentence because the judge, Justice Michael Argyle, considered Dennis "very much less intelligent" — and therefore less responsible — than his co-accused. It was such a cutting remark that it allegedly drove Dennis to create a business empire to prove the judge wrong.

Revenge empire? Interesting, if true.

Some quotes from this article, which somehow manages to be simultaneously annoying, enlightening, and heartening. Probably quite a bit like Dennis himself, if his writing is a window into who he is as a person.

The key, I think, is confidence. Confidence and an unshakeable belief it can be done and that you are the one to do it.

Tunnel vision helps. Being a bit of a shit helps. A thick skin helps. Stamina is crucial, as is a capacity to work so hard that your best friends mock you, your lovers despair and the rest of your acquaintances watch furtively from the sidelines, half in awe and half in contempt.

[...]

If you wish to be rich, however, you must grow a carapace. A mental armour. Not so thick as to blind you to well-constructed criticism and advice, especially from those you trust. Nor so thick as to cut you off from friends and family. But thick enough to shrug off the inevitable sniggering and malicious mockery that will follow your inevitable failures. Not to mention the poorly hidden envy that will accompany your eventual success.

Consider carefully this shortlist:

• If you are unwilling to fail, sometimes publicly, and even catastrophically, you stand little chance of ever getting rich.
• If you care what the neighbours think, you will never get rich.
• If you cannot bear the thought of causing worry to your family, spouse or lover while you plough a lonely, dangerous road rather than taking the safe option of a regular job, you will never get rich.
• If you have artistic inclinations and fear that the search for wealth will coarsen such talents, you will never get rich. (Because your fear, in this instance, is well justified.)
• If you are not prepared to work longer hours than almost anyone you know, despite the jibes of colleagues and friends, you are unlikely to get rich.
• If you cannot convince yourself that you are "good enough" to be rich, you will never get rich.
• If you cannot treat your quest to get rich as a game, you will never be rich.
• If you cannot face up to your fear of failure, you will never be rich.

Posted in: business , entrepreneurship , felix dennis , reading , risk , wealth

On risk: Ann Winblad (rianjs.net (Hanser)) by Rian

Ann is the co-founder of Hummer Winblad Venture Partners which opened its doors in 1989. It was the first VC firm to focus exclusively on software. Since that time, 45 of its portfolio companies have been acquired or gone public. She began her career as a systems programmer at the Federal Reserve Bank. In 1976 Ann co-founded Open Systems, Inc., a top selling accounting software company, with a $500 investment. She operated Open Systems profitably for six years and then sold it for over $15 million.

$15 million in 1982 dollars is worth approximately $50 million today using GPD per capita measure, which is the appropriate metric for this kind of thing.

From page 299 of Founders at Work: Stories of Startups' Early Days:

When I went there, it was the first real business experience I had — although I had had part time jobs. I'd never been in a corporation, and it felt so glamorous to have a cubicle. Minneapolis is a bright city. There's the Nicollet Mall and you were right downtown in the city. It's like getting a job in San Francisco.

But it just wasn't inspiring. No one was chomping at the bit. I actually can't remember — I knew I was going to quit, but I can't remember the moment where I thought, "I'll quit and start a company." I still felt very empowered, like, "This isn't this hard a job. This is a big job and I've already gotten promoted once in the first 3 months and I know I can earn money. I can always come back to this, so why don't I break out?" So the three guys from the Federal Reserve that started the company with me — one guy did quit his job and the other two took a year sabbatical, just in case this didn't work. They held on to the safety ring.

There were not a bunch of people saying, "Start a company, start a company. Let's do this. Let's build something from scratch." It's so long ago now that I just remember the general feeling that there was very little to risk. I was somehow already fully trained for anything that might confront me. Of course, all that is false; there's a lot of risk and you are never fully equipped to… you just have to be very adaptable. It turned out that I was adaptable. I didn't know that until I did that, but it was just a feeling of fearlessness. "What's the risk? What will I have to lose? I'm sure I can do this." It was not cockiness, just that moment you feel in your youthfulness that you are sort of empowered to achieve.

I think what does separate some entrepreneurs from other entrepreneurs is we're not handwringers. We don't worry about the unknown. We don't really worry about the risk points ahead. As you get older and you get more experience, you train yourself to think ahead about the risk points versus just to take the next hill. But non-risk-takers and non-entrepreneurs would have really big headaches about this. They would need some level of comfort and safety.

That's something that we look for in entrepreneurs — that they have the courage to do the job. That they'll have the ability to judge the business situation. They'll have the ability to lead people. They'll have the ability to interact with the marketplace and to really build confidence into strategy.

Posted in: business , entrepreneurship , reading , risk

On risk (rianjs.net (Hanser)) by Rian

I've been doing a lot of reading lately, and today I was reading "Hiring is obsolete" by Paul Graham. I loved it, and the section on risk really stood out to me, and I'd like to highlight some specific bits.

So what you should invest in depends on how soon you need the money. If you're young, you should take the riskiest investments you can find.

All this talk about investing may seem very theoretical. Most undergrads probably have more debts than assets. They may feel they have nothing to invest. But that's not true: they have their time to invest, and the same rule about risk applies there. Your early twenties are exactly the time to take insane career risks.

The reason risk is always proportionate to reward is that market forces make it so. People will pay extra for stability. So if you choose stability– by buying bonds, or by going to work for a big company– it's going to cost you.

Riskier career moves pay better on average, because there is less demand for them. Extreme choices like starting a startup are so frightening that most people won't even try. So you don't end up having as much competition as you might expect, considering the prizes at stake.

…

But it's not necessarily a mistake to try something that has a 90% chance of failing, if you can afford the risk. Failing at 40, when you have a family to support, could be serious. But if you fail at 22, so what? If you try to start a startup right out of college and it tanks, you'll end up at 23 broke and a lot smarter. Which, if you think about it, is roughly what you hope to get from a graduate program.

Even if your startup does tank, you won't harm your prospects with employers. To make sure I asked some friends who work for big companies. I asked managers at Yahoo, Google, Amazon, Cisco and Microsoft how they'd feel about two candidates, both 24, with equal ability, one who'd tried to start a startup that tanked, and another who'd spent the two years since college working as a developer at a big company. Every one responded that they'd prefer the guy who'd tried to start his own company. Zod Nazem, who's in charge of engineering at Yahoo, said:

I actually put more value on the guy with the failed startup. And you can quote me!

So there you have it. Want to get hired by Yahoo? Start your own company.

The entire essay is absolutely worth reading for anyone interested in starting their own business.

Posted in: business , entrepreneurship , risk

A burnt child dreads the fire (Kilala.nl (Cailin Coilleach)) by Cailin Coilleach

A few years ago I learnt a hard lesson, a very hard one, which led me to the following principle: do not do business with friends or relatives. (I'm surprised I didn't list it in my list of beliefs) If anything should ever go wrong, it can only end in tears and heartbreak, which is not something I particularly enjoy.

To take the earlier proverb to an extreme: Who has been scalded with hot soup blows on cold water.

These days this principle's grown into a caricature of its original form. I've grown so weary of making deals with loved and trusted ones that it took me a few days to ask my father for a loan (which happened a few months back).

Tonight though, I'm being put to a test. My friend Dirk has made me an offer which is good. Very good. But in spite of that, a very large part of my reason is saying that it's too risky, even though there is no real risk to us. I will have to mull over this for a while... Maybe sleep will bring the answer.

Posted in: business , friends , price , principles , relatives

I’ve Come to Hate the Tech Industry (or: Technology as a Lifestyle vs. Technology as a Business) (Tiny Screenfuls (JoshB)) by Josh Bancroft

I’ve been trying to make time, at least once a week, to sit down and write something substantial. Something more than excited gadget/software lust, more than a collection of 140 character microposts. I’m really enjoying it. I’m learning a lot about myself, my goals, and my motivations. I try to go to a place where there’s no internet connectivity to minimize distractions - I’m easily led afield by my feed reader - and do some reading before I write (which always stirs up ideas). So far, so good.

Yesterday, I was in Mountain View, California, at Research@Intel Day. I was there to shoot video and otherwise cover interesting stuff for my group, Intel Software Network, and our developer community. Research@Intel Day is Intel’s annual public science fair, where the researchers and groups in CTG (the Corporate Technology Group) get to show off the stuff they’ve been working on to the press. Most of it is future freaky science fiction-type stuff - a biological microprocessor, dynamic physical rendering, etc. I’ll have some videos, photos, and blog posts up soon about what I saw there this year.

As I was on the plane at the San Jose airport, coming home to Portland, I reflected on the culture of Silicon Valley. It is the heart of the technology industry - hardware and software, startups and ancient tech companies like Intel, side by side. Their names are all over the buildings you pass on the freeways. You can’t swing a dead cat without hitting a technology company. Usually more than one. There’s Yahoo, next to EMC, next to McAfee, next to Sun, next to Intel. And oh, look - there’s Moffett Field, where the Google guys park their private 767.

The airports, hotels, restaurants, and roads are crammed full of people who obviously work in tech. Tan slacks, polo shirt with a company name or name of some conference they attended on the sleeve, maybe a sport jacket if they’re really important. Bluetooth headset stuck to the side of their head, BlackBerry in hand, or doing that weird walk-around-with-their-open-laptop-perched-on-their-forearm thing. There’s no mistaking them. They’re everywhere. Doing business. Talking about business. Exuding business.

You’d think I’d feel right at home there, among “my people”.

But I don’t. I feel like an alien every time I go there. A vague, uneasy feeling like I don’t really fit in. It’s not just an “Oregonian in California” thing, or because I actively thumb my nose at fashion, walking around in orange Crocs, cargo pants, and a faded black geeky t-shirt from Penny Arcade or O’Reilly or ThinkGeek. I’ve got my uniform just like they have theirs. So what’s the difference? What keeps me from feeling like the Valley is my homeland, and making plans to move there (besides the insane real estate prices)? I’d never really given it much thought before, but sitting in the airplane yesterday, waiting to take off (my eyes being involuntarily drawn to the laptop screen of the Boeing guy in front of me, who was broadcasting how important he was by looking at some obviously confidential spreadsheet long after the crew told us to turn off and stow our electronic devices), I had sort of an epiphany.

I’ve come to hate the technology industry.

Hate is probably too strong a word, and that statement doesn’t mean what you might think it means at first, so let me explain.

I love technology. I was born practically surrounded by it, and grew up as a citizen of that world. It was clear that I am 100% geek by about age 5 (and remember, this was before it was cool to be a geek!). Every job I’ve ever had has been in the technology industry. Web development, support, QA testing, community building, and teaching. It pays my bills, buys me gadgets, and I’m not really suited to do much else. So how can I say that I hate the technology industry?

It’s because I make a distinction between technology as a business, and technology as a lifestyle.

Silicon Valley, and it’s culture, is all about technology as a business - all about the money. And that is what I realized I hate. I don’t think it’s wrong for people to be in the technology business - in fact, I depend on them. I need them, like you do, to keep churning out the improvements, upgrades, and new stuff that makes our lives easier, more efficient, and more fun. And I’m not blind to the fact that this industry pays my paycheck, and always has. In fact, I absolutely love my job. Does that make me a hypocrite?

I don’t think so. And here’s why. I have no problem with the fact that the business-centric tech industry culture exists. It’s a good thing. I wish it huge success, and I’m willing to work to make that happen. It’s just not who I am, or where I’m going. People for whom technology is a business go home after work, and become who they really are. I am a geek 100% of the time. I couldn’t turn it off if I wanted to. And I don’t want to. I choose to find my culture, the things I care about deeply, and obsess over, and do in my free time, elsewhere. I would like to think of myself as “in the tech industry, but not of it”.

So what culture DO I feel like I belong to? The one where technology is a lifestyle, not just a business. The culture of geeks, and people who use technology in new and useful ways because they can, because they see it as a challenge. The culture of makers and hackers and people who read science fiction not just for entertainment and diversion, but for inspiration. The culture of people for whom reputation, and whuffie, and being recognized for contributing something useful or clever is its own reward, and not just a way to make more money. People who learn programming languages for fun, and for what can be learned through the experience. In my culture, technology can be a business, but it’s often SO much more than that.

I devour books by my favorite sci-fi authors - Cory Doctorow, Charlie Stross, Vernor Vinge, etc. - and I yearn for the easy, natural way that people use technology in their stories. Wearable computers, data-enhanced visual overlays, subvocal communication and silent messaging. Direct, fast, effortless connection to information and other people. I look forward to a time when the exponential growth in technology eliminates more and more of the mundane, cruel, painful, tedious problems that affect us as meat creatures. A post-scarcity economy when we’ve finally found way to get rid of poverty, and disease, and death. The natural extensions of our increasingly connected world.

Now, I’m not a Utopian. Or even really a Singulatarian. No matter how often I half-jokingly say I’ll be first in line as soon as they figure out how to do a direct brain-to-Internet connection, there are things outside the world of technology that I care about even more. My relationship with my wife and children. Being a good person and serving others. Right and wrong. You could take away all of my technology and it’s accompanying culture, and as long as I had those things, I would be fulfilled and happy. I recognize and am grateful for the luxury of having time, and money, and access to all of these technological artifacts that I talk so breathlessly about. I recognize that it’s all “extra”.

This was my epiphany - this distinction, in my mind, between technology as a business, and technology as a lifestyle. It helps me make sense of the conflicts and irritation I sometimes feel when I see practically the entire world around me start talking about “social media”, and “Web 2.0″. Things that were once the sole domain of geeks. For a long time now, listening to non-geeks expound upon these topics twisted my stomach - even though it was the stuff I love, and have been promoting and teaching and evangelizing, I felt resentment as more and more people around me (remember, I’m surrounded by the “industry”) started picking up these tools. Until now, I couldn’t put my finger on why, but I think I’ve figured it out. It’s when they’re rooted in the business culture, different from mine, and eyeballing things in my world that they want to use for their own ends, that my hackles go up.

Want to hear something strange? Now that I’ve figured that out, I don’t care any more. It doesn’t bother me, now that I understand my feelings about why it ever did. I can’t explain why, except perhaps to say that now I know better who I am, and how to reconcile the two cultures. Now, when I think of the marketing department (of any company, not just mine) trying to “leverage” some social tool, like Twitter or blogs or podcasting, instead of feeling defensive (”They’re marketers! They don’t really “get” it! They’re going to screw it all up!”), I see it for what it is. And I’m happy to try to help them do it right. To impart cluefulness to anyone willing to listen (those who AREN’T willing to listen still make me mad). Business is important, too, and they’re just trying to do the best they can at fitting in with this rapidly-changing world. That’s a GOOD thing, one that I’m willing to work towards.

Now, instead of wondering if I really am an arrogant hypocrite for getting defensive when marketing catches up to something that was heretofore the realm of geeks, I can accept it, because I understand why they’re doing it. The internet, as a whole, is better off for having been adopted by business. Sure, it has its annoyances: spam, intrusive ads, threats to privacy, etc. But there are ways to deal with them. Would we REALLY prefer to have stayed with a wholly non-commercial internet, a throwback to the days where there was no free webmail with gigabytes of storage, comprehensive lightning fast search engines, and almost-ubiquitous connectivity, because no one could figure out how to pay for it all? I, for one, welcome will tolerate and coexist with the internet’s new corporate overlords.

See? I told you that hate was too strong a word.

Posted in: blog , business , hate , industry , lifestyle , scifi , tech , technology

Hillary's superficial plan to "fix" gas prices (rianjs.net (Hanser)) by Rian

It seems that Hillary Clinton wants to tax big oil, but only on their record profits. She would do this to make up the revenue lost while putting the federal gas tax on hold for a while. While I'm sure this is more of a ploy to pander to voters due to her faltering campaign, the whole thing is incredibly superficial for a couple of reasons.

The first is that taxing big oil is only going to shift the cost to consumers. While you might see a temporary drop in prices at the pump, businesses typically shift such burdens on to the consumers. Doing this only makes sense for their bottom line. Beyond this, it will cause an increase in demand, causing prices to rise naturally. But then, Hillary apparently doesn't care what economists think.

Secondly, there's the temporary nature of the repeal. Reinstating the tax after it's been rolled back for a while will be unpopular on an epic scale, but I suppose Hillary is mostly going for a short-term boost to get her through to the November elections. Naturally, I've heard nothing about rolling back the tax on big oil's profits once the federal gas tax would go back into effect. That means that the consumer is going to be doubly hurt in the end anyway.

This leaves big oil's profits right where they're at now. Taxing big oil's profits isn't the answer — and neither is breaking up the oil monopolies. (Though the latter might not be a bad first step.)

The real problem is that demand has exceeded supply. This is a result of the American way of life. We depend on oil for literally everything: we are a spread out nation of roads where a child's first thought of freedom = getting their drivers' license, and whose development has, for generations, been driven by cheap oil. Every aspect of our lives is controlled by the road: everything from our food to our consumer goods arrives via truck. Auto companies have been complicit as well, and in some cases actively undermined attempts to create efficient mass transit systems that were a direct threat to their business model.

This isn't a problem that can be fixed overnight, nor is it a problem that will be cheap or easy to fix. Comparisons to European nations and Japan with their comprehensive mass transit systems are inherently flawed because of the US's relatively low population density and sheer size of our country. While effective, efficient mass transit is certainly the answer in urban and larger suburban areas, those systems do not scale well in more rural areas.

In that respect, we will always be a nation of cars — or other personal transport devices[1]. The mantra that we need freedom from foreign oil is trite, and it misses part of the point: we need freedom from petroleum in general, inasmuch as that is economically and techonologically possible. We will always be somewhat dependent on combustible fuels so long as the internal combustion engine is our primary mode of getting from Point A to Point B. (And really, aside from bicycles and our feet, there's nothing out there that's as efficient from top to bottom as a modern internal combustion engine.)

So in that respect, even if Hillary's plan had a prayer of a chance of long-term success, and if she had any ability to get it passed — which she doesn't because it's an idea for this summer, not after January — it would be like prescribing a pain med instead of removing the thorn from one's foot.

The proposal is just astonishingly dumb on every conceivable level.

I do have some related thoughts about the next ten years…

1) We'll see a small resurgence of the railroad industry. Rail travel is more efficient than air travel, and solves some of the mass transport problems presented by our spread-out nation. This will resemble the current hub-and-spoke airline system in the short term. Business travelers won't mind taking the train as much due to the ubiquity of wireless internet access and the fact that you can use cellphones while on a train. Trains don't have to be slow, either. So while you won't be taking the train from NYC to LA for a one-day affair, you might well take it from Boston to Washington DC for the same.

2) More effective car-pooling systems. Thanks to the Internet, it's easier to more effectively carpool with folks headed in your direction. This could be supplemented by mass transit systems — buses in the beginning, and trains later on — where people gather at smaller, de-centralized staging areas for a trip into the city. Many suburban areas already have these systems, but there are many, many larger cities that don't.

3) More and better research into biofuels as a replacement for traditional petroleum. This goes beyond corn-based ethanol which was a failure of epic proportions, as it resulted in increased food prices and is energy-intensive to produce. The graphic below (click for larger) demonstrates some of the more promising alternatives, particularly algae and switch grass.

(Preserved against link-rot from this article.)

I think America is getting to the point where they're ready to think about letting go of their precious four-wheeled transportation. Drive by a used car dealership, and you're likely to see quite a few gas guzzlers sitting on the lot. This alone is anecdotal evidence that the PED of gasoline isn't zero. A more formal study finds that when the price of fuel goes up and stays up by 10%, the process of adjustment is dynamic and far reaching:

• The volume of traffic will go down by roundly 1% within about a year, building up to a reduction of about 3% in the longer run (about five years or so).
• The volume of fuel consumed will go down by about 2.5% within a year, building up to a reduction of over 6% in the longer run.

The reason why fuel consumed goes down by more than the volume of traffic, is probably because price increases trigger more efficient use of fuel (by a combination of technical improvements to vehicles, more fuel conserving driving styles, and driving in easier traffic conditions). So further consequences of the same price increase are:

• Efficiency of use of fuel goes up by about 1.5% within a year, and around 4% in the longer run.
• The total number of vehicles owned goes down by less than 1% in the short run, and 2.5% in the longer run.

Prices have certainly gone up by more than 10% in the last 12 months, and the snowballing effect of this phenomenon is that many people of my generation have gotten rid of their cars where and whenever possible, and instead opt for healthier, less expensive modes of transportation: walking or biking. When they need to travel a longer distance, they rent a Zipcar.

I certainly would if it were realistic.

[1] I could see motorbikes becoming more popular, as they are in the UK, as gasoline prices continue to rise. For Americans who have not been to the UK, it is not uncommon to see motorcycles and scooters out and about, even in the rain.

Posted in: 2008 election , business , cars , culture , economics , fuel , gas , hillary clinton , politics

Quietly influential (rianjs.net (Hanser)) by Rian

I chuckle every now and again when I see the MSM reporting on blogs. The usual suspects almost always turn up: TechCrunch, the HuffPo, GigaOM, BuzzMachine — as well as a smattering of the hot blogs du jour. This time it was Steve Rubel's MicroPersuasion and Passive Aggressive Notes.

I must confess some incredulity, because I have never seen Ars Technica mentioned in a story that focuses specifically on blogs. This despite being relegated to merely a "blog" (albeit acknowledged as an influential one) most of the time by the mainstream media when they reference a story that Ars breaks.

Now, the HuffPo is a huge website. Probably a little bigger than Ars with 5.7M unique readers per month. TechCrunch is markedly smaller, and GigaOM is smaller still (1.37M pageviews/month or so).

It makes me wonder why these particular blogs are chosen. Is it because the stories about blogs are by their nature more noise than substance? Indeed these stories are often widely hyped when they hit and will make their way around the 'sphere several times before disappearing like yesterday's newspaper. (The blogosphere echochamber at its finest.) Ars seems to be anti-hype most of the time. It's been known to take a somewhat dim and sometimes even contrarian view to what's hot in the blogosphere this week — "The Cloud!", death by blogging! — if indeed what the blogosphere is focusing on this week is even worth talking about at all. (Usually it's not.)

So here are some sites that Business Week may want to think about including, because these sites are the real movers and shakers in the Internet publishing world. This list is by no means comprehensive, and I make no comments about their content or quality of the sites, only their size. This list isn't sorted in any meaningful way:

• High-Def digest: ~7.23M
• Destructoid: ~4.25M
• Gamersyde: ~5.17M
• SB Nation: ~8.76M
• Celebrity Baby Blog: ~8.64M
• Confessions of a Pioneer Woman: ~6.05M
• Fark: ~37.09M
• BoingBoing: ~6.93M
• SeriousWheels: ~9.05M

For comparison, TechCrunch sits at ~7.5M pageviews per month, and Ars Technica sits at ~30M.

Posted in: ars technica , blogging , blogs , business , culture , new media , technology , writing

On the Condé Nast Ars Technica acquisition (rianjs.net (Hanser)) by Rian

So the hot news in the blogosphere this week has been the acquisition of Ars Technica by Condé Nast. TechCrunch broke the story on Friday, but there was no official word from Ars until yesterday due to an embargo. Anyway, in that time, there has been quite a lot of discussion on the valuation of "blogs" — or the overvaluation thereof, as the thinking in the blogosphere seems to be.

Silicon Valley Insider:

Ars' 8-person news operation will be folded into Wired Digital, which is run by CondéNet.

This is almost, but not quite, correct. Ars will remain its own brand, and will retain its own staffing. Ars will not be "folded" into Wired, though they will continue to exist under the Wired Digital umbrella (which is turn is owned by CN). In a very real sense, they will be friendly competitors. This is not unlike two newspapers owned by a larger parent company competing with one another in overlapping geographic territories. (A common practice in traditional print media.)

I guess I'm a little bit stuck on calling Ars a "blog", however. Ars is a news site with real, investigative reporting and thoughtful analysis, longer, multi-page in-depth investigative and explanatory pieces and guides, and has been around since before people had even heard the word "blog". If anything Ars is a news site and a focused blog network all rolled into a single brand. (As opposed to the old Weblogs, Inc. model where each blog was separate and had its own flavor.) The journals section of the site combines six different journals under one umbrella — each of which has a large enough audience on their own to be considered very successful. Particularly Infinite Loop and Opposable Thumbs.

On the $25 million

There was a collective gasp in the blogosphere over the price commanded by Ars. Frankly, I'm not really sure why. When I first heard the number, I thought it was low, given the amount of traffic that Ars gets, which is different than the traffic that sources that measure such things think.

The usual suspects like Comscore and Alexa are referenced as though they're absolutes. The truth is that Alexa is horribly inaccurate, as anyone who runs a website with a tech-savvy audience will tell you. (Who do you know that uses the Alexa toolbar?) Nonetheless, these same sites will turn around and quote the stats as though they're somehow magically more meaningful for another web property. It doesn't really make a lot of sense if you stop and think about it.

Maroon Ventures:

Some key stats:

• Purchase Price $25,000,000
• Monthly Unique Visitors: 1,500,000
• Monthly Pageviews: 4,000,000

Okay, let's have some fun. Let's assume that this acquisition helps set the market price for the internet blog pure play. What it this acquisition telling us?

• Value of the Monthly Unique User: $16.65/unique
• Value of the Monthly Pageview: $6.25/pageview

Unfortunately, these numbers aren't correct, no matter what TechCrunch would have you believe, but to be fair to Chris, Ken hadn't posted the official word until yesterday. As far as TechCrunch is concerned, more diligent reporting would have led to Federated Media's information page on Ars for potential advertisers — so they should know better.

Here's the official word on the acquisition, straight from the horse's mouth:

We have an amazing community, both in terms of its size (5+ million readers, as tracked privately by Quantcast) and in terms of its contributions (12 million posts, thousands upon thousands of news tips, recommendations, and corrections). Our community is unparalleled, in my not so humble opinion, and it's a big reason why this year we're serving more than 30 million page views each month. (I've seen lots of folks citing Comscore numbers… they're horribly, horribly wrong).

Now you might think that the $25 million isn't so unreasonable. Taking a look at the old Federated Media advertising numbers^[1], you can see that Ars commands about $38 per thousand pageviews.

30,000,000 / 1,000 * $38 * 3 ads on each page = $3,420,000

That's $3.42M per month in advertising revenue that Ars is generating. Yes, FM takes a cut of that, but Ars has other, smaller revenue sources, such as affiliate referal dollars and Ars-branded merchandise for sale, so we'll call the difference a wash.

Now that's revenue, not profit. There're 8 full-time employees, as well as webhosting for the main site, the cost of the CDN (they've been using CacheFly to serve all static content), the cost of the discussion forums (currently a hosted solution: groupee's eve product) as well as several ICs that do web development, CMS development and other technical work for them.

A typical business acquisition is 3-5x annual profit^[2], so that means the four main founders (Ken, Jon, Ben Rota, and Panders) were taking in an annual profit of ~$6.25M per year split however they were splitting it.

Final thoughts

I often wonder why such blatantly incorrect numbers are often bandied about when the truth is usually freely available if you look for it. It's no secret just how many pageviews Ars has been doing: they're posted on Federated Media's website for anyone who wants to advertise there. And you can bet your shiny metal ass that they're accurate — and more likely (*gasp*) conservative. When millions of dollars are changing hands on a monthly basis, there are very accurate accounting measures going to be built in so buyers can have faith that they're getting what they pay for.

And for those wondering whether Ars is or is not going to jump the shark, I have two thoughts for you:

First, this isn't the first time Ars Technica has been part of an online network. Early readers of Ars may recall that Ars was once part of the now-defunct Maximum PC network. Then, as now, the larger and more focused you are, the more you command in CPM rates.

Second, having known Jon and Ken since 2000, I can say with a great deal of personal conviction that Ars isn't going anywhere, and that thing most certainly will change, but they will change because that's what the guys steering the ship (Ken, Jon, and possibly Eric) want — not because it's what Condé Nast wants. So if you see something change in the future, you can feel free to continue pointing the finger at the founders, not at Condé Nast.

Footnotes:
[1]I've linked to a screenshot because the original FM link will inevitably disappear in the near future as Ars Technica will no longer be outsourcing their advertising to Federated Media.

[2]This will obviously change depending on your industry.

Posted in: ars , ars technica , arstechnica , business , conde nast , technology

Eulogy for CompUSA (Martin Gordon's Blog (cptncelchu)) by Martin

Word came last Friday that all CompUSA stores will be closing. While some have some horror stories about their experiences at CompUSA, I've never had any bad experiences. Looking back, however, CompUSA was the place where I had my first experiences with Macs.

The only place to really play with Macs back in 2001 was at CompUSA. At the time, there were few Apple Stores and the only one in South Florida was at The Falls, about an hour drive from me. So CompUSA was the first place I laid hands on an iMac, the G4 Cube, and others. It was the first time I played with OS X - I was amazed with it even though it was in it's terrible Public Beta/10.0 stage. I bought my first Mac at CompUSA - a 700 MHz G3 iBook, and my first iPod - an open-box 1st Generation 10gb iPod. Since then, Apple Stores have sprung up and I've only made smaller purchases at CompUSA, a memory card here, a hard drive there. I have memories dating back even further - I remember buying a 4mb stick of RAM and a 14.4 modem for our 386.

Despite being one of the recent contributors to CompUSA's demise, it will still be sad to see it go. I have a MicroCenter fairly close by, but Best Buy and Circuit City don't have anything on our dear old CompUSA.

Goodbye.

Technorati Tags: CompUSA, Mac, Apple, stores, out of business, closing

Posted in: business , me , news , thoughts

Wall Street 2.0 (Gilgamesh) by Eric Hutchins

I wanted to pass along the news from TechCrunch (who got it from News.com) that Michael Douglas has agreed to reprise his role as everyones’ favorite corporate raider in a sequel to one of the best movies of the 1980s, Wall Street.

This time, Gekko is apparently working at a hedge fund.  I’m already willing to fork over my nine bucks at the box office to see this.  Oliver Stone isn’t along for the ride on this one, but I’m sure that the script is filled with anti-corporate, pro-union/worker plotlines.  On that note, I’d love to see a Wall Street-esque feature film whose antihero is a Gordon Gekko union leader — perhaps president of one of America’s most recklessly anti-capitalist (and dare I say evil) unions, the UAW?

Somehow I think I’ll be waiting a while for that movie.

Posted in: automobilia , business

On associate satisfaction and firm management (Gilgamesh) by Eric Hutchins

John Steele recently focused his attention on recent works portraying the bleak life of associates in biglaw firms. I’d like to build on that by comparing the Clifford Chance memo to Execupundit’s note from boss to employees. I’ll address a few items from Michael Wade’s fantastic list by pointing out the failures revealed by the memo:

Wade: “Don’t let all of my talk about meeting goals and producing results lead you into unethical behavior. You always have my permission to be ethical.“

Clifford Chance: “Associates stated that the [2420 billable hours] requirement is profoundly unrealistic, particularly in slow areas of the firm. Moreover, associates found the stress on billable hours dehumanizing and verging on an abdication of our professional responsibilities insofar as the requirement ignores pro bono work and encourages ‘padding’ of hours, inefficient work, repetition of tasks, and other problems.“

Solution: Make the billable hours requirement more realistic, and permit associates to count pro bono towards their billable goals, within reason. Redesign your bonus program to reward associates who bill in excess of the minimum while maintaining high quality of work product. If your firm’s profitability relies upon draconian billing requirements, your business model is ultimately doomed to failure.

Wade: “If either of us has a problem with the other’s performance, let’s talk about it.”

Clifford Chance: “The associates believe the firm has zero interest in reviewing their performance and, hence, making them better lawyers.”

Solution: Make the review process more transparent. Tell the associates what is expected of them, and inform them about the metrics against which their performance will be measured. The obvious metrics are billable hours and quality of work product, but there’s more to it than that, and associates who are aware of the firm’s expectations will be more ready to meet them. In addition, make sure that reviews are done in a timely fashion and on a regular basis. Finally, make sure that the review always ends with constructive advice for the associate, as well as an opportunity for the associate to communicate his or her concerns back to the firm without fear of reprimand. If an associate is telling you that his or her performance is being hindered by incompatibilities with a co-worker, then enable that associate to improve performance by resolving the incompatibility through more active management or reallocation of staff. Fix the problem.

Wade: “I don’t like unpleasant surprises. Let me in on bad news as soon as possible. (Things that you believe are obvious may not be that clear to me. On the other hand, you’d be surprised at how quickly the latest gossip reaches my ears.)”

Clifford Chance: “Complaints over poor communications from partners to associates were widespread. Associates felt unsure of what the firm expected of them that year or over the course of their careers, or what the firm even expected of itself. They felt it was unclear if they would be fired unexpectedly. They felt unnecessarily kept in the dark about where the firm was going (both metaphorically and literally), or, in many instances, where the matter they were working on was going.”

Solution: More transparency. Trust your associates, because they’re the future of your firm. It’s not only important to let associates know what’s expected of them; it’s vital to make associates feel like important and valued members of the organization. This doesn’t just mean more lucrative compensation, it means keeping associates informed about the goals and big-picture strategies that the partnership has in mind for the firm.

What incentive does the partnership have to keep associates in the dark? Tell the associates about both short and long-term concerns that management sees coming (and accept feedback from associates about problems that they perceive might trouble the firm in the future): Give associates regular updates — once per quarter — on RPL and PPP numbers, but also communicate other important strategic concerns to the associates. Is the firm entertaining a merger (pay attention, Dewey and Orrick)? Is the firm thinking of opening new offices? Is management thinking of expanding into new practice areas?

Inform associates about their career path: What are the firm’s specific criteria when evaluating an associate for partnership? What is the procedure for this evaluation? What’s the average tenure of an associate before making partner at this firm? If an associate is deemed ineligible for partnership, is a position such as Of Counsel normally made available?

The bottom line: Law firms would benefit greatly by recognizing the need for transparent management and constructive communication with associates. At some point, it ceases to be about the money — indeed, at the Simpson Thatcher pay scale it’s definitely not about the money — what it’s about is a need to feel invested in the organization. Give your associates that sense of kinship and community, along with the other necessary tools, and they will move mountains for your firm.

Posted in: business , law

New Office (Stonetable) by Adam

I’ve had my office in the basement for as long as we’ve lived in our current house. It’s been pleasant to have a consistent place to sit since I started working at home. The problem is environmental. During these cold midwest winters it becomes unbearable to spend more than a few minutes in the basement.

Dena and I debated the pros and cons of getting an office outside the home but in the end we came up with a great alternative. We decided to usurp the guest bedroom. It only gets used a handful of times a year. By moving some furniture around and putting the bed in the corner we were able to free up quite a bit of space. We made the trek to Ikea and spent less on office furniture what I would have spent on one months rent for a small office elsewhere.

I finally have a proper office area to work again. My Mac Mini on the left desk and a PC on the right, with various laptops and other sundry scattered around. I now have a comfort zone to work or write, without the need for slippers, a blanket, or snow suit.

Posted in: business

Ford puts the wrong kid up for adoption (Gilgamesh) by Eric Hutchins

Much of the motoring press is lauding Ford’s showing at the Detroit Motor Show, and its stock price has shown modest gains as well. The company has worked with the unions to remedy long-standing pension and health-care problems, and is making efforts to scale back its capacity to solve oversupply issues. Despite these financial improvements, however, Ford still isn’t on my winners list. They still don’t get the big picture. An example of their short-sightedness is their offer for sale of Aston Martin and failure to sell the toothless Jaguar.

Cash injections at the cost of selling prestige marques isn’t necessarily a wise decision. Aston Martin is one of the only two Ford brands (Land Rover being the other) that is really on the cutting edge of product design. Although not a significant percentage of Ford’s customer base, Aston Martin has brought itself back from near-death to compete with Porsche and Ferrari in the high-end sports car arena.

The new V8 Vantage is the best looking thing on the big screen in the latest Bond flick, Casino Royale. It’s more buff than Daniel Craig and sexier than Eva Green. So of course Ford says, “this branding triumph is unacceptable, let’s sell it off, and quick.”

Instead of putting it on the auction block, Ford ought to be learning from Aston how to reinvigorate its other brands. Ford refuses to kill of Mercury and sell Volvo and Jaguar, yet none of these brands have shown genuine innovation. Mercury sells tarted up Fords, Volvo relies increasingly on its outdated reputation for safety while refusing to perk up bland product offerings, and Jaguar is an anchor around Ford’s neck. Jaguar’s only decent offering, the XK, relies on the second-hand bin at Aston, while occupying a market space where Aston’s truly innovative V8 Vantage ought to be competing. Finally, Ford’s “luxury” marque, Lincoln, is being diluted with SUVs and trucks just like GM did with Cadillac. Ford’s actions demonstrate that they lack a genuine understanding of their competitors and their customers. They lack any coherent vision for their brands, and instead continue to burn extra capacity with needless product overlap and badge engineering.

Listen, Ford. Ford is the “peoples’ car” and truck brand, with strong products like the Focus, Escape, and F-series pickup. Lincoln is the luxury car brand. Land Rover makes luxury SUVs, and Aston makes your sports cars. Contrast these winners with your losers: Mercury offers upscale interiors that ought to be standard on Ford models at Ford price points. Volvo’s sole asset is a safety reputation, whereas all of your products ought to strive for five-star safety ratings. Jaguar’s sedans compete in the market where Lincoln belongs, and its XK coupe is, and will always be, Aston Martin’s slightly less pretty, slightly cheaper to date little sister. Don’t you get it?

Stopping the cash bleed is one thing. A plan to innovate and make cars people actually want to buy is another problem entirely. Toyota and other foreign automakers will continue to humiliate Ford in this regard until the company is run by gear heads instead of bean counters.

Posted in: automobilia , business

LinkedIn — Hey, it’s not MySpace (Gilgamesh) by Eric Hutchins

Following Oleg’s post about his travails in social networking, I decided to mention that I’m on LinkedIn as well. I’m always looking to gain contacts not only in the legal profession, but also in engineering and science.

As an IP litigator in the Silicon Valley, there are times when I am in need of an engineer or scientist to provide technical expertise in a case, and there are opportunities for me to recommend someone to a client or an acquaintance for potential business ventures. Those of you who read me on PlanetCOSI should consider signing up.

Of course, I’m interested in meeting lawyers as well — it’s just that geeks are typically more interesting. :)

Posted in: business , general

Refund, please. (Stonetable) by Adam

A lot of stores offer price guarantees. If the price drops within 30 days, they will credit you the difference. The trick is that you have to request the credit. It’s a little easier now, if that vendor is Amazon.com, thanks to RefundPlease.com. Register your purchases with them and they will monitor Amazon for price fluctuations and notify you if there is a change in your favor (they will even include the direct link to requesting a credit).

I think it sucks that someone had to build a system to automatically watch for money due to the consumer when businesses themselves should be doing it. I think it makes good business sense for more businesses to be proactive about putting money back into the consumer’s pocket instead of playing lip service and playing the odds to increase their margin (only a third of shoppers actually send in rebate forms, I would guess much fewer are applying for price protection credit) .

Kudos to RefundPlease for coming up with a great service.

Posted in: business

Dear Banks (Gilgamesh) by Eric Hutchins

I use Quicken.  Rather than being forced to manually input individual transactions into my Quicken portfolio, I would like to simply use the automatic update tools in the program to grab my recent account activity from your banking websites.  American Express allows me to do this with perfect transparency and zero difficulty.  MBNA used to do this before it merged with Bank of America.  Why don’t you offer this functionality, Bank of America?  First Republic Bank?

This isn’t cutting-edge stuff, it’s functionality that Intuit has provided for years.  Your customers should be able to use Quicken and MS Money to download all of their transaction information from within the Quicken application, i.e. without having to visit your individual online-banking websites.  More and more banking is being done online, and those banks whose online banking tools offer seemless interaction with Quicken will win over a lot of consumers, even if your interest rates and grace periods still stink.  You need to offer customers the ability to purchase a copy of Quicken, install it, enter their online banking user ids and passwords, and use Quicken to download their information.  These customers shouldn’t have to call you or wait for letters in the mail with special user ids or such nonsense.  It should just work.  Identity theft concerns cannot be used as an excuse to permit you to cripple the customers’ ability to use their preferred personal finance software.
If you don’t correct this oversight, I will leave for other more Internet-enlightened banks, and other customers like me will eventually leave too.  This is not a difficult problem.  Fix it.

Sincerely,

A Valuable Customer

Posted in: business , computing , unsent letters

Zudeo and a Commentary on Web 2.0 Business Models (Gilgamesh) by Eric Hutchins

When Azureus announced their new YouTube competitor, Zudeo, I didn’t think much of it.  Even though Zudeo touts high-resolution content, YouTube has the momentum of viral-meme marketing and the backing of Google.  Moreover, while YouTube has not completely escaped the wrath of the RIAA/MPAA monster with regard to potential copyright violations, Azureus’ affiliation with bittorrent distribution gave it the mark of Cain.  Nonetheless, I now see a window of opportunity for the upstart Zudeo.

Zudeo has inked a deal with BBC Worldwide, in which the Beeb will make available hundreds of episodes of popular programs such as Fawlty Towers, Doctor Who, and Red Dwarf.  The titles will be DRM’ed, but so long as the protections are not too onerous and don’t deprive users of the ability to view the content on multiple devices such as desktops, laptops, and iPods, it shouldn’t be too much of a problem.  Zudeo and the BBC would benefit even more if newer content, such as the hit automotive program Top Gear, were made available on the Zudeo service.  However, I think that Zudeo is, to my knowledge, missing something that I think a lot of Web 2.0 startups are not saavy to: cross-merchandising.

Sure, Zudeo might gain a humble but respectable revenue stream by simply charging a per-download fee for content.  But why stop there?  At least with the BBC content, largely composed of cult hits, Azureus could tap into another revenue stream by advertising licensed merchandise on its service.  When I open the Zudeo client or visit their website, I should be able to purchase a Doctor Who tee shirt along with a season’s worth of episodes.  Furthermore, expand this cross-merchandising into videos of live concerts: how many fans who download concert videos and music videos would also buy a tee-shirt, a hat, a signed photo or poster, a copy of the artist’s latest album, or a copy of the artist’s tell-all book?

Then take this sales technique one step further, and start cross-merchandising Web 2.0 products with other Web 2.0 products.  In addition to selling the traditional add-ons with the new digital content, market subscriptions to the leading fansites and fanblogs on the services as well.  Charge a micropayment for the advertising of the feeds, since the sites will make up for the cost with ad revenue from markedly increased traffic.  Then, on top of that, institute a Digg-style user-rating system for all products, both digital content and add-on merchandise: this enables your customers to spread positive word-of-mouth advertising about your successful products, and it gives the content provider accurate and instantaneous metrics on the sales performance of the products, so that the company can respond to product-quality issues, and allocate resources to take advantage of spontaneous changes in user demand.

Here’s how Zudeo should work: If I like, for example, Beyoncé Knowles, I should be able to log onto Zudeo, download the latest Beyoncé videos and movies in which she’s starred, purchase her latest album, buy tickets to her next concert, grab a signed movie poster from her latest Hollywood picture, buy a Beyoncé tee shirt, and grab the RSS feeds for her official website and the leading Beyoncé fansites, to keep up with all things Beyoncé.  As I receive the content and the add-on merchandise, I “Digg” them if I like them, and other Zudeo users see my Diggs and purchase some of the same products.  Wash, rinse, repeat.

See, I’m paying for each product along the way, but I’m never paying twice for the same content, and I’m free to use the digital content on all of my devices, so I’m a happy customer.

That’s how this is supposed to work.  Are you listening, RIAA?  MPAA?  Apple may argue that iTunes sales aren’t really declining, but even if iTunes remains popular, Apple is completely missing the Web 2.0 “one-stop shopping” boat because they aren’t tying the content to other relevant merchandise in an effective, easy-to-digest way.  Someone needs to put all the eggs in one basket, and provide that to the customer, rather than expecting the customer to pay for the same egg over and over again.

See, this is the largely untapped strength of the new Web 2.0 business models: Not only can content creators work with content providers to deliver virtually-instantaneous new content, but both the creators and providers can symbiotically benefit from the simultaneous marketing of add-on merchandise with the new content.  This requires a leap of creativity and solid web-marketing and presentation skills, but it has the virtue of giving the consumer what he or she wants, rather than abusing and misusing copyright and other intellectual property law protections to force customers into paying for the same content multiple times. 

The model I’ve described will come to pass, because consumer demand ultimately drives the marketplace — and content companies who don’t understand how to embrace this new model will doom themselves to failure, regardless of the strength of their copyright portfolio.

Posted in: business , computing

DreamHost Gives Free Webhosting to Non-Profits (Martin Gordon's Blog (cptncelchu)) by Martin

My webhost of almost two years, Dreamhost, is offering free hosting to non-profits, forever. This isn't a cheapo 10MB plan either, it's their Strictly Business plan, which offers 500GB of storage and 5TB of bandwidth a month and costs $80/month.

Technorati Tags: Dreamhost, hosting, webhost, nonprofit, free, business, bandwidth

Posted in: business , free , nonprofit