1) Losing my shirt on GOOG stocks (actually not that much but still hurts) . . . mostly just re-evaluating my investment thesis

2) On the positive note, GOOG is trading suprisingly strong in the after market. After losing 20% in the first hour of trading it is now back in the -10% area. Given after hour trading are mostly hedge funds and professional money managers, it bodes well for GOOG . Its like the Teflon stock. . . most high flier that misses will usually lose 20-30% (eBay) but GOOG might be able to buck the trend. Of course, retail investors probably are not looking at after hour trades when they put in their MARKET sell orders overnight, so GOOG will definitely drop from the 380 range again at the bell and MAYBE slowly climb back to 380 by the end of the day tomorrow. . . we’ll see how GOOG does. . . no views/calls this time

3) Perry Wu of China Tech News writes Google Is Destined To Fail In China . . .

Yahoo (YHOO) tried many times to adapt. As far back as 1998 (or Web 0.98 Beta) when its then-VP, Heather Killen, made high-profile visits to China, the Western Internet company tried to sit at the Chinese banquet table. But Yahoo finally gave up last year when it bought a billion dollar stake in China’s Alibaba.com and then gave Alibaba the rights to run Yahoo! China. There was not even a whimper from the company as its Chinese portal was torn down and replaced with a simple search engine. Sohu (SOHU), Sina (SINA), and Netease (NTES) had finally beaten the foreign interloper.

Lycos tried too. It bought firms like Myrice.com. Netscape tried, via AOL. MSN has also been bobbling along with a few victories here and a few setbacks there–nothing much to be proud of.

All of these companies have one thing in common: they entered China to win, but left only remnants of their power after a few years’ struggle. Chinese history is filled with tales of foreigners coming to the Middle Kingdom with money, but leaving the country poor, confused and embarrassed. Ask Chris Patten.

Perry’s analysis is actually not that rigorous, BUT his attitude/tone towards GOOG is actually very indicative of the general population in China. IE. . . GOOG is not a Chinese company and there for it will not win . . . not for another other reason than they fact that “made in China” creates a higher preferrence for the end user. I’m not sure American understand how “nationalistic” the Chinese can be (sometimes to a fault), but this is certainly a marketing strategy for native companies competing with American bohemoths. GOOG conquered US purely base on its PR story (wicked smart founder, immigrants chasing the american dream, underdogs taking on giants) and a great great product (not unlike David and Jerry). The second part (product advantage) doesnt really exists anymore in China. The first part, the Chinese companies has a better story and Google is no longer the underdog that it was when Larry and Sergei first got started. . . it is just another American MNC trying to make money off the goldmine that is the Chinese economy. . . certainly not that noble and not that interesting. . . In short, in China, Google is the antagonist and not the protagonist of the story in the struggle for Chinese internet dominance.

Gary Flake recently announced the founding of MSFT Live Labs. I found his manifesto (via Richard McManus) for Live Labs to be an interesting departure to most “labs” or “skunkworx” groups within large corporatopns.

Philosophy & Strategy Ostensibly, the charter of Live Labs suggests a dilemma: How can we simultaneously be small and agile but also influential enough to have a meaningful impact? Indeed, this is a dilemma that all organizations face as they grow and mature. Our answer is embarrassingly simple: We are a perpetual startup within Microsoft, which carries three important implications.

First, we will deliberately not do many things that are already well-established within Microsoft. Instead we will seek to connect complements or to fill existing voids, so as to maximize impact for effort. Our bias will be to focus at intersections: between science and engineering, tactical and strategic, users and businesses, vertical and horizontal, short-term and long-term, internal and external, but above all - between problems and solutions. Like a startup, we seek to create entirely new value by making new combinations.

Second, all of our teams will be small, but with sufficient resources to make a modest level of success something that is completely within their own control (which implies minimizing some dependencies).

Third, when appropriate, we will opportunistically partner with other Microsoft groups to amplify their efforts as well as our own. We aspire to being positive agents of change across the company, helping to break down barriers, and expediting innovations - but on a scale that can only be realized by multiple teams with Microsoft working in concert.

Most labs takes the “northeast” approach to innovation . . . riskier, more disruptive innovation, and longer time horizon than typical product develpoment/management innovation process. As a result, the lab/skunkwork unit is usually as far away from core products & business as possible (without losing context/vision) in order to be able to innovate independently without the baggage of corporate scared cows. Distance from the mothership, in many ways, is hugely desired for both political and innovation sake.

Gary, however, is using a more strategic approach to innovation. . . 1) identify stakeholders, technology, strategies, and products, 2) Map all variables within a vector space (geek speak) 3) identify “whitespaces” 4) create solutions to fill in whitespace 5) add value by creating synergies.

For anyone that have taken an MBA course on innovation and read Innovator’s Dilemma, this is hugely sacriligious. For those that adhere to the Michael Porter’s idea of “strategy = trade-offs on the efficient frontier” this is also very disconcerting. Academics do not believe someone should be able to pull this off. To be able to innovate significantly while PARTNERING with existing legacy business units is close to impossible. Many have tried and gotten dragged back to the daily grind of politics, meeting earning estimates, and managing cannibalization.

BUT if you really think about it . . . this is the ONLY way to innovate relevantly. Too many innovation groups end up creating solutions to non-existant problems (nano blah?) OR solutions mis-understood by the mothership (Xerox’s anything in the 70’s). This is a very brave approach to innovation. . . to ensure relevancy while leaping toward step function changes . . . I wonder if this can work. . . I’m sure there are a few projects that does fit the definition . . . better ad serving algorithms, better presonalization, recommendation . . . anything that focuses on optimization of an existing business or product function could all possibly work . . . the key question than is: in the long run will these advantages remain “strategic” and sustainable. . . or algorithmic superiority will go the way of TQM - price of entry but not “strategic” as defined by Porter and eventually get competed away . . .

Do you think Total Quality Management was strategic when it was developed?

Not strategic in the sense that I use the word strategic.

“Strategic” is a word that gets used promiscuously—some people use it to mean anything important. Total quality management was a very important development, and provided an enormous advantage for Japanese companies initially. It is one of the reasons why they were able to produce products with such few defects. U.S. companies used to pride themselves on having good repair networks. Japanese companies came out with products that didn’t need to be repaired.

Total Quality thinking really was a breakthrough, but it is what I call operational effectiveness. It is a “best practice,” or something that every company should do.

“Strategy” is a term I reserve for choices—things a company does to set itself apart from others. So a strategic choice would be, “What customers does the company choose to serve?” A company that is not strategic serves whatever customer appears, or whatever need presents itself.

This notion of operational effectiveness vs. strategic positioning, is, I believe, fundamental to thinking about management. Companies must distinguish these two very different agendas, which present different organizational challenges.

Forget search . . . browse is the new search . . . ie attention aggregator . . . according to Ash Patel, CPO of Yahoo . . . (via om)

My.Yahoo.Com is no longer a portal page, but instead an “attention page” which can be and should be leveraged to become the aggregator site for complicated digital life. Ash, who spent a lot of time on that particular page - building it I mean - agreed.

AV in Battelle’s comment section also has a good note . .

Its amazing why people miss Terry Semel’s - and Sue Weber’s - repeated assertions that Search is not really the biggest piece of yahoo. Yahoo keeps putting the ‘my’ in search, music, messenger, syndicating content. There are many non-geeks who don’t know RSS but use my.yahoo’s RSS syndication. These are the same folks who use my.yahoo.com for checking local cinema listings, temperatures and stocks

A few month ago, I felt that browse is making a comeback against search and its coming true via various “my page” incarnations. Furthermore, last night a buddy of mine told me of the rising popularity of “link portals/directories” in China. Because typing in Chinese is harder than English (but people are not English literate) and all URL’s is in English, search engine growth is being tempered by “attention” sites that create link structures to allow people to navigate the web not by search but by browse . . . just amazing how cultural difference can amplify a trend. . .

Of course for the trend to actually be monetizable for Yahoo, they need to match or exceed Google’s content ad serving technology . . . which is highly technical and data mining/machine learning based . . . This does not bode well for Yahoo because they lost the search game precisely because they didnt have the technical talent to build better search algorithms . . . maybe they can use the Mechanical Turk to serve targeted ads?

One of the oldest business phenomenon is the continued atomization of the value chain from one integrated entity into loosely coupled federation of value added participants. Outsourcing of non-core business processes is one example.

The same thing is starting to happen on the internet especially to the so called “Walled Gardens.” It might seem from what I am about to write that I think these walled gardens are screwed, I actually would argue for the opposite (unlike most people). That for a subset of walled garden internet companies that have created many-to-many relationships between its participants; the future is still quite bright.

First generation Attention Aggregators are search engines that have developed significant edge competencies that enabled them to quickly and effortlessly aggregate value (be it content, services, products, or anything else) from the “edge” of the internet and the so called walled gardens to create comprehensiveness and increasing economies of scale. These edge companies (whatever the next incarnation might be) are here to stay and have carved out a valuable slice of the value chain as the ultimate arbiter of relevancy, interestingness, not to mention comprehensiveness. Their role in the internet economy is attention aggregation (where I go to look for stuff first) and traffic switching (tell me where do I go next). This is an incredibly important function and deservedly so they will and is extracting value for providing this service.

Too many people belittle the importance of what I called Presence Aggregators . . . they believe value will flow to the edge and the long-tail will eventually help Attention Aggregators extract all the value. I disagree, Presence Aggregators, in a very simple sense, are “websites” that Attention Aggregators sent traffic to. More specifically Presence Aggregators are the “containers” of value (again - content, services, or products). It is a “symbiotic relationship.” Whether the so called Presence Aggregators are walled gardens or not is really a semantics discussion.

The difference between MySpace (what most would call Walled Garden?) versus TypePad is almost minimal . . sub domain vs. sub directory vs. own domain name. . . RSS enabled vs. not . . . . customizability . . . etc . . . My point is that there are functional differences but not structural ones where a subset of walled garden companies could become more open via improvements to the software/site/business model. Yes, I do agree that one sided Presence Aggregators (such as cnn.com) are in for a round of value destruction and the transition will be much harder. But those that have created many-to-many relationships will have an easier time (relatively) managing the encroachment of Attention Aggregators.

Traditionally true walled gardens have acted both as Attention Aggregators and Presence Aggregators . . . aggregating value, traffic, and users in one swoop hoping to keep all the pieces together in an infinite loop. Those days are over. Walled Gardens must make the transition to being value containers instead. . . Presence Aggregators must focus their attention on aggregating the long-tail be it facebook, myspace, wordpress.com, or even a web hosting company. Attention Aggregators, by definition can not and should not get into the business of aggregation through “ownership”. . . they need to continue to improve on their edge value extraction/indexing competencies. Gather.com has gotten a lot of crap lately for being a “walled garden” . . . I don’t think that is what they are trying to do . . . (there are functional issues with the site for sure. . . but being a walled garden is not one of them). GoogleBase is Google’s strategy towards long tail presence aggregation. . . which is NOT dependent on (but complementary to) their search business.

Will Attention Aggregators eventually dominate the entire internet landscape? I don’t believe so . . . a lot of people believe so by pointing to Google’s incredible growth, margin, & size . . . I would attribute that to Google’s virtual monopoly in search. Given fragmentation of Attention Aggregators (say in a particular vertical), their ability to extract value from Presence Aggregators will decrease as well. I look at the hard good distribution business as an example (imperfect example because hard goods distribution lacks edge competencies, and exponential economies of scale). Aggregation is great but it is also a commodity (anyone can index websites or buy products) . . . it is through merchandizing and branding (same function as relevancy and interestingness!!!!) that aggregators scale and grow . . . Thus if a distributor has a virtual monopoly (Walmart) the value creators or containers (P&G) will be in an much inferior negotiating position. . . but that could easily flip (such as movie studios vs. movie theater chains) based on simple capacity and fragmentation dynamics.

In the end, the value of walled gardens WILL diminish no doubt because an additional industry has risen to dis-intermediate it from its end users. That, however, doesnt mean all walled gardens are screwed. Those that focus on aggregating the long-tail, providing valuable service to value creators, and (very important) encourage framentation of attentiona aggregators in their space will be able to hold on to most of their value.

Why the boring title? cause I dont want to gather the collective wrath of of eBay’s PR department with something titillating and controversial Actually I just wanted to try to answer a question that Rob and Pete asked . . . “why the collective yawn and silence in the blogosphere regarding Express?”

First before I rant on . . . I want to congratulate Chung and Adam for a job well done with Express and that I’ve learned much from both (esp Chung since I sit in the same row) watching them navigate the maze that is eBay to get their vision out the door. They are really the driving forces and the unsung heros behind express and deserves some time in the limelight (even if that means it is in this lightly trafficted blog )

For sure, eBay Express cannot be called a category disruptor at first glance. eBay Express is not a “web 2.0″ product which anticipates an user need 2-3 years from now for its target users. It is not innovating ahead of the market. It is not DICTATING to users what they need to do OR who they need to be to be accepted as the leading edge adoptors. IE . . .it aint that sexy and as such, the blogosphere could care less. That however, doesnt mean that eBay Express will not be a category killer or an innovation with deep consequences for the online e-tail industry.

eBay Express is more like the iPod . Certainly not the first mover and certainly not that sexy if you just look at the specs and a press release. (remember half.com which was Amazon before Amazon became Amazon). What it is . . . is months of market research, segmentation analysis, and usability testing combined with a deep intuitive understanding of why and how people shop. It is an innovation not for the sake of innovation but FOR a segment of users. Too few technology companies do that today. . .too few have learned not to talk down to its user base but instead to listen, respond, create, position every single piece of its product for users who was intended to consume it. This is how P&G, Gillette, 3M and other non-tech consumer companies survived for tens if not hundreds of years as leaders in their industry. Identify an underserved and large segment and relentlessly create a new product to serve that segment’s need and preferrences. . . and let innovation come as part of that process. (sneak peak . . .Express finding engine has more “edge” characteristics than even people here would like to admit)

And finally, Pete, I am confident you’ll like the pretty pictures & logo we have in the works for Express

Last year in march, Celsius Capital was formed to arbitrage innovation diffusion between U.S. and China. At the time it made somewhat of a sense. eBay was started in 1996 and EachNet was founded 3 years later in 1999 (I could be off a little bit) with almost exactly the same look and feel/functionality. Carlos Bhola of Celsius was an investor in EachNet so he obviously have a lot of experience with these type of investments.

However, like all arbitrage opportunities, this particular gap is closing in fast. Celsius has given up the arbitrage play (I assume atleast from China to the U.S.) with Burnham departing and is focusing exclusively on China. Private Equity Week has more. (wish them luck as I know one of the guys personally and worked with others)

The technology diffusion cycle between the U.S. and China is getting faster and faster. Almost any of the web2.0 plays have a equivalent “sister” company in China. Nothing was more clear to me than when I saw China Web2.0 Review’s coverage of OPML.CN in december. It used to be that people in China would wait until an IPO (eachNet) or series A (facebook/Xiaonei.com) to start producing similar plays but an OPML manager!!!! I haven’t even started using one and there is one in China already . . . my god . . . is this good or bad? I dont know. . .

Broadcast advertising is a dying business . . . as would most of the blogosphere would like to posit. Driven by

1. rise of performance based advertising models
2. legitimatizing of direct marketing (highly correlated with pt 1)
3. shift of eyeballs from TV to Internet
4. TiVo
5. IPTV and associated convergence (brightcove, Google Video, Media Center etc)

I ran across Spot Runner’s press release and Silicon Beat’s coverage the other day but didnt think too much about it until a VC friend mentioned it to me again yesterday. So I took a deeper look at the company, below is an except from the press release

Spot Runner’s web-based service allows businesses to air personalized, high-quality television ads in their local markets. Spot Runner offers a full-service package – commercial production, media planning and ad time – for a fraction of the cost and time of traditional broadcast advertising. A complete campaign can be purchased for as little as $500. In contrast, traditional methods can take weeks and cost tens of thousand of dollars to produce a commercial of comparable quality.

The entire process is automated online, making it cost effective for even the smallest of businesses to use.

My first reaction was “what the hell is a startup doing in broadcast advertising?, a dying business for sure.” The second thought was that coffee has been a declining business since the mid 80’s (and still is) but we all know how Starbucks has performed during that time. As long as the market is big enough, and the idea revolutionary enough, the vision broad enough, declining market is not an issue. Companies with huge business momentum can eventually “jump the curve” and redefine its market as Starbucks has been able to transform itself to be much much more than just a coffee shop (its Cheers for the rest of us). (as Google is trying to do from its search beach head).

SpotRunner is going to be a huge . . . just incredibly huge. . . IF they are able to make a couple of these curve jumps . . .

Fred and Marc Pincus had a debate last week directly related to Spot Runner. In a world where value containing objects are “microchunked” to the nth degree, commoditization might not be inevitable, but PERCIEVED commoditization will be. Consumer will have to rely on BRAND again as an ultimate arbiter of quality since most portion the value creation stack will be similar if not the same. (Brad Burnham has more, as does Umair )

The “success” of search marketing will eventually force the pendulum backwards. I talked about this before here. Jacob Nielson too has highlighted a growing trend to view dependence on search engine as an the only advertising channel as unhealthy. (He uses a much harsher word ). In such a world, creating a brand will be incredibly important, but up until now there hasnt been a channel that allows SME to do so effectively until SpotRunner.

SpotRunner is bringing the best of google adwords/adsense to the brand world.

1. Self service
2. Menu(or auction) pricing (all negotiation does is slow down transactional velocity & scalability)
2. Mico-chuncked (buy as much or as little airtime as you want)
3. Integrated production (even john q public can create a adsense ad)

Spot Runner will become an incredible complement (and competition) to any direct marketing efforts. (Read search advertising). Whether Spot Runner will become just another advertising agency or a huge game changer will be dependent on their ability to . . .

1. Move from broadcast advertising towards brand advertising across all channels - IPTV, Internet Video, TiVo etc
2. Add components of whats good about direct marketing - performance, accountability, trackability, and measurement
3. Automate ad targeting and datamining - which includes getting some demographic & behavioral data on their audience

Some of these will only happen if structural changes to madison avenue take place, with Google breathing down its throat, it might just happen. . .

Adding more . . .

Did anyone see this . . .Google Agrees to Buy Radio Ad Company. A spotRunner for radio ads? Worth $1.2B . . . these guys are getting into the podcasting advertising game for sure. . . now they just need an video play. . . see the comment section of John Battelle’s blog (esp Henry Blodget)

Oh my god. . . this is hilarious. . .

Commenting on the results, Bill Burnham, Chief Blogger of Burnham’s Beat explains “This quarter’s results continue to demonstrate that blogging is a complete waste time. While we did not achieve our previously forecasted results of 100 billion page views and ‘Google-style cash, Baby!’, we remain hopeful that people forgot about those projections. There are several reasons for missing our projections including an outage of our hosting provider in late Q4 which cost us a least $1.00, the continued poor quality of the writing on the site, high oil prices, several deals that slipped to next quarter, and uncertainty created by the war in Iraq. ”

On a serious note, reading between the lines (not too hard actually) .. . Yahoo has higher ASP on their keywords (cause they yet to have an full blown ad network to drive down keyword prices like Google), but still need to work on their content/behavioural ad serving algorithm. (BTW, I thought both contract prohibits showing adds from another ad network on the same page?). For Google, the increase in take rate (and corresponding decrease in Traffic Acq. Cost) could mean that Google is struggling to hit revenue targets? (you know, raising prices is the first thing companies do before missing earnings! . . . )

We added an additional search advertising partner in Q4 and were generally disappointed with the results. While revenue per click is higher at this partner, overall click through rates are much lower. In terms of our main advertising ‘partner’ we have seen a clear pattern throughout the year of them reducing the revenue share they pay to their blog-related ‘partners’. Apparently they aren’t making enough money as it is and need to stick it to the little man.”

Remember back in 1998 when all we have to do is add an “e” or a “.com” behind any business model to raise a few million dollar in venture capital? Pets.com, fork.com, drugs.com, grocery.com, etoys.com, eDiamonds, etc etc . . . well, 7 years later with almost all things already “e-enabled”, VC’s are being inundated with the same old business plans again with the only difference being the appending of “@ the edge”. (kinda like adding “in bed” to all the fortune cookie inserts)

So now we get reviews @ the edge, classified @ the edge, e-tail @ the edge (pet @ the edge? groceries @ the edge?), payment @ the edge, auctions @ the edge, video distribution @ the edge , VOIP @ the edge . . . ok you get the point. . .

Don’t get me wrong, the .com trend was/is certainly a game changing event (Amazon, eBay) for many industry as well as creating many incredibly profitable small businesses (yes! selling pet supplies does work online ). “@ the edge” has just as much merit because the web is getting flatter (ie the tail is getting longer) and the walled gardened models has serious structural flaws. But as is everything, true innovation doesn’t come from following a macro-trend.

Everyone is already wise to the structural shift to the edge taking place. For every “@ the edge” idea, there are 30 teams, 10 business plans, and 5 VC/angel financed startups looking to enter the space. If your only competitive advantage is speed of execution, you are kinda screwed . . .

I think both Paul Kedrosky and Nick Carr is right . . . that Google Pack is the pet project of Larry and Sergey and that Google Pack is a trojan horse attempt at disintermediating MSFT. (Michael Parekh have the best summary/analysis of the Gpack)

The software industry has consolidated so much that “publishers” don’t really play a huge role in the space as they did in the early 80’s. Today, Microsoft has essentially become the defacto publisher and producer of software through its “extend & embrace” strategy. However, the last 6 month has made it exceeding clear that there exist a huge demand for the long tail of software which had previously been under monetized due to Microsoft’s dominance. The current “tails” are inefficiently monetized because the lack of an efficient distribution and marketing channel which in turn force many tail-focused software developers to seek out the public domain or shareware infrastructure as an alternative.

One huge huge software market that remained fragmented with traditional publishers holding the power is in games. When the GooglePack anouncement first came out I couldnt help but think of Half-Life. Being a certified geek, I’ve spent a good portion of my mid twenties dedicated to the art of Half-Life Counter Strike. I suspect (:)) Larry and Sergey did too, and that Half-Life is their inspiration for GooglePack. Let me explain, Half-Life’s developer, Valve, launched Steam in 2002 as a method to distribute games directly from developer and gamers. Steam was so successful (after some hicups) that Valve’s traditional game publisher (Sierra/Vivendi) felt neccessary to sue Valve. ( More here on independent developers’ reaction).

Steam has evolved beyond just pure “pipes” to a full grown community with instant messaging, thirdparty software aggregation, and perhaps in the near future . . . a currency system and markplace for virtual goods. The obvious potential of having a direct to end user distribution channel is HUGE (not to mention anti-piracy implications). Furthermore, with SaaS being the hot trend, having such a “pipe” to and from the desktop is a prerequisite for building a metering and billing infrastructure for subscription based business models.

Steam got there because the first application which it was bundled with (Counter Strike) was “indispensable” - atleast to a particular segment of users. I’m not quite sure google pack as it currently exists fits that criteria, but Larry is sure trying. I wouldnt mind if the Valve guys start thinking a little bigger and create a sister system of Steam to take on Google. . . if there is a company that has more credibility with geeks/early adopters than Google it is Valve . . .