Billsdue on Eachnet . . . Billsdue on Sina

First EachNet

There have been rumors going around for a bit that Ebay has been trying to do a transformative deal in China. Apparently they were also trying for Alibaba last year but lost out to Yahoo.

Now there are reports that Ebay is going to sell Eachnet, its Ebay China operations, to Tom Online in a deal broadly similar to the Yahoo-Alibaba deal. The Eachnet CEO denies this report, but the guys on the ground are usually the last to know.

If you can read chinese, here is the article

then Sina

The speculation today (English, Chinese) is that Tom Online will buy out Shanda’s 19.5% stake in Sina, plus shares held by the recently departed Jiang Fengnian.

This deal would make a lot more sense the rumored Tom-Ebay deal, but the rumors that with this 20%ish stake Tom’s CEO Wang Leilei will take over Sina don’t make any sense. Tom would end up with 1-2 board seats, unless of course they decide to buy the whole company.

I believe that Shanda is willing to sell its stake in Sina, but not for less than $30 per share, still 10%+ above Sina’s current stock price. Tom is one of the few companies that could both afford to buy that stake and would be acceptable to the Chinese government. Sina is the number two news outlet in China after CCTV, and it is highly unlikely that the government would allow a foreign company to own that much of Sina.

in Chinese again . . . here . . . no idea what so ever if these rumors are true but Tom.com seems well positioned to straddle China and the West.

Bad news, the chasm is getting bigger. Good news, the “early adopter” market is more “targetable” than ever. Bad news again, the early adopter market is really not that big.

Here is the typical web 2.0 launch strategy. . . write a blog, trackback to bunch of A-list bloggers. Get readership, build some credit. Quietly work on your startup on the side. And finally when almost ready, create a landing page to collect emails. Announce on your blog prominently your new project. Build some buzz with a series of posts that reveals more and more. Finally launch. . . get 50K users. . . then. . . nothing! . . . (. . . rinse repeat. . . )

Unfortunately this marketing strategy is going the ways of super bowl commercials. The main problem with dot-com super bowl commercials wasnt that it was a waste of money . . . for the first guy that did it, it was worth many many times over the price. The real problem was that there were eventually way too many dot-com super bowl commercials targeting the same old audience flooding the market with noise, driving ad prices up, increase the cost of entry, and finally driving customer acquisition cost to the stratosphere . . . consumers/users only have so much “attention” limited by their time and thier brain size. Flooding the market with the same old message and through the same old channel creates significant decreasing marginal returns. There is really nothing wrong with Super Bowl commercials when you are the only one doing it (case in point, GoDaddy), the problem is marketing requires contrarian thinking just like investing.

The formulaic web 2.0 launch strategy is going the ways of 2000 super bowl commercials. . . way too much noise, not enough attention.

The good news is that this particular early adopter market is easily reachable, actionable, and identifiable. Adding the fact that it is east to build a product . . . getting to launch and some user base is easier than ever. The problem is that this particular base of users usually have ADD. . . they’ll visit any website mentioned on Techcrunch and perhaps register . .. but they’ll forget about you just as quick. Furthermore, the insularity of the blogosphere has created a sub culture that is decidedly different from main street users driving your product marketing requirements down the wrong path for crossing the chasm. (huge huge huge problem!)

How big is this early adopter market? Let’s do some quick calculation. . . Techcrunch is a must read for the blogosphere . . . 35K RSS subscribers. . . aggressively assuming the same # of email subscribers and same # of good ole typed in traffic. . . we get to around 100K people that actually CARE about all the random startups. . . Another proxy . . . Delicious has about 300K users. . and it is by far the largest web 2.0 company. . . So at best the tech blogosphere is probably around 250K users. . .

I would venture to guess that the chasm for web 2.0 plays is bewteen 100K to 500K users. If I was VC’s I would not even touch a company until I see a clear trajectory to 500K users and beyond. There are way too many web 2.0 companies stuck at 20-50K users hoping to cross the chasm when their userbase hit a wall.

I know I’ll get flamed for this. . . but I’m going to suggest startups to follow the dot-com marketing strategy (but not the hubris, lack of focus, or the disrespect for the end user). Build a product for the mass market. Raise a SIZABLE amount of money so you can afford a nice offline ad campaign (maybe even US weekly!). There doesnt seem to be many web 2.0 companies marketing in those channels. Perhaps if you have the right product and messaging it will even be heard . . . at least it beats kissing up to Arrington and going to parties where the male/females ratio is in the double digits. . . just kidding

Writing about VAST a whole week after it launched . . . am I slow or what? . . . actually I wanted to play with it for a while before write something. Furthermore, this is obviously not a news blog so I dont feel the pressure to type up something cursory just to get on memorandum .. Working at eBay means that I track this space pretty closely so I am vested in digging around . . .

Vast is a classified search engine Google would have been proud to create. (wish is more like it given the mess that is googlebase) Edgeio is a classified search engine Yahoo would have been proud to create. And there lies the fundamental problem with Edgeio . . . its a worklow engine that relies soley on listings from the “edge” but the algorithm is still “core” focused. . . in the end, it is still a destination site that relies on its community to filter results, rank results, and filter spam. That is all nice a good for Craigslist who for some miracle (or first mover advantage) built a passionate community (I can say the same for eBay). Betting on that once again is hard to do . . . In the end, you either go edge all the way (like VAST) or focus on building core advantages and raise huge/thick walls to keep people like VAST out of your nicely manicured lawns (again like Craig). Doing it half way doesnt seem strategically consistent to me.

Vast on the other hand, truely aggregates from the edge, and its algorithm for relevancy takes into consideration data/content/link structure that is outside of its core data set. The incredible (and coolest) part is its stated ability to capture name:value attribute pairs as it crawl rather than as people submit listings like GoogleBase. Furthermore, reading Naval’s comment on VAST around the blogosphere, they seemed to have built somesort of machine learning/training scheme to use humans to train algorithms to recognize and build histograms of attribute pairs (or tag pairs). Some what like what MySimon did back in the days.

I had always wondered why Google didnt go this route like VAST, instead of relying on critical mass on its core platform to build its taxonomy universe, they should have aggregated from the edge (it from the entire web). The quick answer is that the GoogleBase team are mostly ex-eBay people who only had experience in building walled gardens . . . but I suspect that is not the only reason. I think GoogleBase tried to be too broad by trying to chew off the superset of problems (commerce, content, search for aliens, artificial intelligence, etc). This very hubris created an opportunity for VAST to creat a set of vertical commerce search engines that out performed GoogleBase. . .

I wonder what would happen if VAST was given the opportunity to crawl Gbase’s content with out the GBase specific attribute pairs exposed. Would it be smart enough to extract the majority of the tag pairs? If so . . . Google should be thinking about buying them just about now. . .

Last week a guy with the same name as me joined eBay in the Taiwan office. Then all hell broke lose . . .

On Thursday I started to notice my usual email/minute throughput rate had dropped significantly. At first I thought I had become more efficient in communicating my thoughts thus people had stop sending me thier usual questions in responce to my cryptic stream of consciousness emails. Even before I started to pat myself for a job well done . . . a few guys dropped my cube and told me that I had missed a few meetings because their emails were being routed to some guy in Taiwan utterly confused by the meeting request, deck revisions, and model edits . . . (imagine its only his first day at work)

No big deal I thought. . . I’ll just email this William character and demand to get my name back . . . no such luck . . . its his name as much as it is mine. . . just cause I have “seniority” doesnt really mean anything. I tried to get him to put his middle initial in the corporate directory but that didnt fly. Despite a full semester in a negotiating class taught by a former NFL agent, I wasn’t able to make any progress. In the end, we compromised. . . he will forever be know as “William Hsu (Taiwan)”, and I’m “Will Hsu (NABU)” . . . yes. . . just like Star Wars . . . you know, like Queen Amidala of Naboo. . . So for as long as I’m at eBay. . . that will be my name. . . blah blah blah of NABU . . . or until I travel to Asia, begin my quest, vanquish my nemesis, and reclaim what is rightfully mine!

(Adding insult to injury, for the sequel, this morning IT had me completely erased from the company Outlook directory . . . my whole row was cracking up while I tried to explain to the help desk what had happened . . . “eh. . . I cant email to myself “. . .” why do you need to email yourself?” . . . “I mean other people cant email me” )

Building network effects is hard . . . but once a startup has gathered traction, network effects can also reverse itself pretty quickly. Its not all rosey, sit back, and collect the money. . . Case in point. . . Miva networks.

The company generated 219 million paid clickthroughs during the quarter. That’s a 13% reduction from what it produced a year earlier, despite growing its base of advertisers by 20%. This isn’t a mixed bag — it’s just bad. Revenues falling faster than clicks means that the company is generating less money per click.

Found it on Motley Fool this morning while checking on my portfolio. . .

These guys was one of the pioneers of the PPC ad network model. However somewhere along the way, “bad” sites got into their network and they are caught in a situation where they are unable to sacrifice critical mass for quality. And thus, the downward spiral begins. . .

1) bad sites join network
2) low quality traffic click through ads
3) low conversion for advertiser
4) bids for words goes lower
5) high quality sites leaves cause they can get higher monetization somewhere else
.. . 1) more bad sites join network that got kicked out of google/overture

So even though partners are increased at 20% word pricing droped significantly more . . . this is a cautionary tale for all the web 2.0 plays out there. . . if you attract the wrong kind of community initially, you are building the wrong kind of network effects that could quickly deterioate. . . . for example, if Digg attracted spammers when it was initially launched, they would not have become what it is today. . . if craigslist was over-ran by best-buy when it first launched, no one would go there . . . chose carefully where you launch your site. . . not all traffic is good. . .

Multi-step strategies are scary (the company has multiple points of failure that could potentially compound) . . . but that is what the web is built on. . . Google is a perfect example, so is Meebo . . . any company that tries to aggregate traffic first and figure out how to monetize that traffic later is in a multi-step strategy game. . . VC’s and entrepreneurs calls it “Vision” . . .

Anselm’s startup finally launched today (or atlease PR wise). I barely got to know the guy before he left to do it, but I did get the name of the company out of him before he left. Anyways, LaLa got alot of PR today from SFChronicle, Mercury News (Silicon Beat) , and more. . .. As with the grumpy blogosphere these days, people are quick to judge and diss on an idea . . . over at TechDirt the flames are definitely flowing. . .

So here is what I got.. . . PeerFlix for CD’s are not that big of a deal . . . its pretty cool . . . but its not gonna make Anselm rich like joining Google (go read the WSJ article) . . . bartering sites are cool too, but thats about it. . .

No, Lala is trying to be more than PeerFlix for CD (copying a bad idea is a sure way to fail ). . . the nugget is in this. . .

For the $1 it charges a user to receive a CD, La la gives 20 cents to the artist.

Why the hell would the WhiteStripes care about 20cents from Lala? they wouldnt. . . this whole peerflix thing is just an excuse/trojan horse to build a community and social network . . . on top of which they are building a bunch of recommendation algorithms (Anselm didnt spent 9 month coding the front end). THEN once they reach critical mass of users (more importantly preferrences informaton & social network data) create a record label/publication/distribution network for garage bands. . . .

Its MySpace 2.0 . . . what myspace is trying to become. . . a way for garage bands to get build a fan base, distribute music, and GET PAID!!!!. . . 20 cents is actually NOT BAD for independent bands/musicians . . . $9M raised means ~$18M pre-money . . . you dont get that valuation by pretending to be PeerFlix for CD’s. . .

Think of all the tapes and CD’s you’ve recieved at parties from random bands at random parties. . . Lala is trying to create organization and structure around that process and community. . . nothing really creates loyalty and “branding” like cool album covers. . . so physical distribution is actually pretty important. . . and ofcourse it would cost next to nothing to move to digital distribution of music for independent music and keep majors as a physical trade. . .

So yes. . . multi-step strategies are scary and hard. . . but thats how you take on goliaths as a startup. . . by being clever and out flanking the competition. . . I hate all the flaming thats going on in the blogosphere. . . lame ass people without imagination and startup experience trying to critisize the actually “do-ers” . . . anyways. . . I’m not biased at all, I havent even spoken to the Lala guys since Anselm left. . .

Mashups: who’s really in control? . . .

To put it bluntly, data owners hold the balance of power in this new world of Web mashups. Some data owners, like Google and Yahoo, provide formal APIs and are careful to explicitly define restrictions on what external developers may do with their data. Some data owners, like craigslist, don’t provide APIs and are more implicit and arbitrary about whom they allow to use their data.

Either way the fact remains that data owners can easily block off the air supply for mashups, either with a business decision (as in the craigslist-Oodle case), a policy update for an API, or by simply changing the data or technical rules around it.

So true. . . so true. . . another rarely mentioned point is that SEARCH ENGINES THEMSELVES ARE MASHUPS!. Search engines aggregate data (and meta data) around multiple sources to present information to users in an aggregated and controled manner. Take a look at froogle, its aggregating REVIEWS (how is that not data) from multiple sources and presenting it and manipulating it to the end user. So why are the search engines in control even if they dont own the data? Cause they own the traffic/attention. . . data owners can not stop the search engine from mashing up their data because they need the traffic. . . I’m sure everything Craig said was true, but he probably stopped Oodle because it was starting to send TOO MUCH traffic to craigslist that he need to stop it before the balance of power shifts from content owner to attention aggregator. . . when that happens, he could no longer shut them down without damaging Craiglist. . ..