Seems kinda weird at first glance . . . no? middle of a major down recessions, with swanky restaurants in major metro areas closing left and right (anyone remember how dead SoMa was in 2002?) and off goes Open Table to the public markets. Techcrunch actually asks some good questions . . .

The valuation of the company is probably no more than $300M (give trailing 2008 rev is probably around 60M with a 5x rev multiple) . So why go public?

1. At that valuation, a mezz round from hedge funds or crossover funds makes a lot more sense . . . but I’m guessing no private investors showed any interested given they are still trying to clean up the mess in their portfolio - so an IPO became the only way to raise more money. Since Allen & Co. is part of the IPO underwriting team and they typically do private placement deals, it supports the thesis that Allen was out trying to raise a private round for Open Table but was not able to - so they brought in Merrill to provide trading support & retail distribution for the IPO. Allen & Co doesn’t have the trading operations or retail distribution capabilities to support an IPO so you rarely see them on an IPO underwriting team. In this case, their inclusion in the IPO prospectus probably reflects the fact they did all the positioning/marketing work for Open Table (and is on a retainer already) for the private placement before Merrill came into the picture (otherwise, they don’t really offer that much value for an ipo). (side note, I wonder if goldman or morgan stanley passed on the deal)

2. Typical life of a venture fund is about 10 years, so Benchmark and other VC’s firms that invested in Open Table back almost 10 years ago need to cash out of this investment and return money to their LP’s

3. Despite the fact that the revenue ramp had been slow for Open Table, it actually has been pretty steady - no down year in the past 5 years. I’ll buy the argument that given the restaurant acquisition life cycle & barrier to entry in this space, the current ramp rate is actually not a bad thing. However, 2009 WILL NO DOUBT be a down year revenue wise compared to 2008. And remember, for any IPO, the most important story to build, is to project a “growth” story around the company - in order to get as high multiple on its revenue / EBITDA as possible. It is possible to do so with the historical financials for Open Table given its steady growth (TODAY), but if 2009 is a down year, Open Table will have to wait until they capture their old growth trajectory before going public - 2010 at the earlier. And of course, I don’t think anyone in the company or on the board have the appetite to ride out TWO downturns.

So will I buy into this deal? Yes. . .but I’ll wait till these guys announce their first earnings after going public (and probably miss) to buy the stock. I believe in the long term story(I’m a loyal user/ fan boy) I just believe I can eventual buy into the company at a cheaper price than the $300M I expect it to price at.

Was looking for a new car insurance carrier the other day and noticed the following ad on Google.

On the bottom right corner is an SideStep paid search ad. If its a little small, you can go to google and search for “all state car” and see for yourself (if its still up).

When I clicked over this is what i saw.

I would not even have noticed if not for the Kayak-SideStep merger news that came out a few weeks back.

So what the hell is SideStep doing buying “all state car” insurance key words? What the hell is SideStep doing having ad blocks TWICE the size of its input fields? Apparently SideStep is joining the growing rank of companies making good money in the click arbitrage business. How big is this revenue source for SideStep? I have no idea. Is this a systematic strategy or a side effect of a automated keyword buying algorithm? I cant be sure.

But I do know this. If SideStep-Kayak plans to go public, they better break out this revenue source as a separate line item. In banking speak, this is a classic “non-core” revenue stream which should be given a much lower (or even none at all) valuation multiple than its travel related revenue streams. I have no problem with arbitrage of any kind (I used to be in finance) but when you sell your stock to the general public as a “travel search engine” you better be making atleast 95% of your revenues from “travel” rather than arbitraging click prices for a bunch of tail keywords. If I want to buy into that business I can wait for the NameMedia or DemandMedia IPO instead.

Here is what I pulled out from the venturebeat post

Both companies are generating large amounts of cash through CPM (where advertisers pay per thousand advertising views), CPA (where advertisers pay when a user actually buys a fare or ticket) and CPC advertising (where advertisers pay when a user clicks through to their site), according to Marshall. The Techcrunch article reports Kayak is doing roughly $50 million in annual revenues, while SideStep does $35 million.

Emphasis/bold is mine. I have a strong hunch that “CPC advertising” is an euphemism for click arbitrage revenue. And if I had to guess, this is probably contributing about $10M a year to its bottom line. I could be wrong. . . this is certainly a lot of inferences from a few datapoints. All I know is that I, for one, wont be participating in their IPO - if they do end up going public.

Ok, Albert’s succinct and brilliant 5 words commentary is probably all you really need to read, but what the hell, if you prefer the long winded, convoluted, overly analyzed version, read on! (this shows exactly why I’m never dreamed of publishing anything my whole life, not even in my high school yearbook - and which Asian kid didn’t write for their yearbook? well atleast I played the violin)

In 2005, vertical search engines reached almost the epic hype proportion of B2B . Everywhere you turn, a vertical search engine was launched. . . one for video, another for blog, some for code snippets, others for medical information, others for houses. (I wont stump on their graves by linking to them).

Back then, I called bullshit on the whole thing for a slightly different reason than Tom Evlin . . . but both of us agree that the majority of them will fail. Which was highly controversial given that many heavy weights (Fred, Danny, and Jupiter) believed in its promise.

Well, the majority of vertical search engines followed the trajectory of the once mighty technorati blog search engine - vanquished by Google in one effortless scoop . . . killed by Google’s increasing indexing speed, ever expanding indexing capabilities (size & scope). . . and not the least of which, the quickly unbuzz worthy but hugely successful “OneBox.”

One of the main short comings of the Google machine was the speed in which it picks up new content . . . it used to be close to 2 weeks before any given page would be indexed. Today, for some content it could be in hours if not shorter. Google added new hardware and tied its indexing frequency algorithm to something like a pagerank. Many vertical search engines had hoped to win by focusing on categories where content relevancy is closely tied to timeliness . . . it turned out to be a dead end.

Other search engines tried to go “semantic” on Google by extracting meta data out of webpages and offering additional filtering and attributing functionalities. As it turned out, users only wanted to type once and click on the results. No one wanted to spend more than 2 minutes fiddling with drop downs and other filtering options.

Furthermore, despite, its public stance against the semantic web (perhaps simply a strategic posturing to stay ahead of competition), Google brilliantly used OneBox to extract information from webpages and presented in context of its more traditional search results. Video results is a great example. It used to be only only “oneboxed” with a few lines on the top of the search results and now its fully integrated into the SERP. (I wanted to throw in a Lord of a Ring reference here but decided against it)

Not all vertical search engines have failed though. Those that does not rely on web based data for its index has done pretty well (house hunting sites) - however they have turned into more of a traditional database + portal than a classic search engine. Others have relied on crawling the “deep web” where google bots do not/cannot visit to differentiate itself. One such category is travel search engines (where a lot of news came out last week). I’m, however, very very skeptical of the financial results of Kayak and SideStep - I have reasons to believe that a significant portion of their revenue have nothing to do with travel or search. (I’ll write about it later when I have time to do some screen caps).

So whats the final take away? Give the Google PM and the engineering team responsible for OneBox a huge raise and promotion. These guys fended off the biggest threat to Google’s paid search golden goose since Goto.com+Inktomi and didn’t even get enough respect to be poached by Benchmark to be “EIR’s”. (ok, maybe there hasn’t been many legitimate threats to Google so maybe its not that big of a deal . . . oh ya, and no, Facebook is not a threat to Google . . . yet )

“…There are these small bands of people who are trying to take over the world, This is so much more fun than working at a hedge fund or an investment bank.” Pinky said to The Brain.

“…If those interests include not . . . that is too bad, There is no opting out . . . ” Said the Borg to Picard.

Actually,

Pinky = Gideon Yu
The Borg = Mark Z

Both of Facebook . . . quote SLIGHTLY modified for effect

(read the entire article here)

Found via The Bubble Generation

I miss the days of do no evil . . . where are thou my dear G?

For more Facebook bashing read Tech Beat

Ok this is getting kinda sad. . . I was just doing some research on the payment industry on Google and came across the most blatant abuse of search engine spam by a venture funded company EVER . . . especially one with as high of profile as OboPay. Other companies have done much more, but this really takes the award for being tactless and stupid.

Check these links out (I wont hyperlink them for obvious reasons) . . .

https://www.obopay.com/resource/household-mastercard.html

https://www.obopay.com/resource/student-credit-card-visa.html

and look at all the links on the footer too . . .

Obviously made for search engine pages . . . with absolutely useless content stuffed with keywords for search engines. Even worse, they are violating other banks (HSBC’s Household division) copyright just to get some traffic.

The sad part is that these guys are obvious SEO amateurs . . . if they do some homework, it could have been done a lot more subtly . . . and not get caught by me.

When a company has multiple subsidiaries/company names and they have less than 100 employees . . . a red flag should go up. When a company spends way too much time trying to incorporate any combination of the words: “no evil” , “ethical” , “privacy” , “trust” into any portion of their name, tagline, or mission statement - its time to ask some hard questions . . .

These TrustFuse guys (dont even know which name call them) are begging for it . . . I was reading “At Rapleaf, your personals are public” and it made me speechless.

First reaction - brilliant business model and concept

Second reaction - please stay as far away from me as possible

We should not forget that Abacus was a legal business and so was DoubleClick . . . but the combination of the two was completely toxic (and thus the merger was canceled) . . . the velocity with which personal information can travel in the digital world very much re-define the moral responsibility of the company holding such an information.

Sites like Rapleaf are also trying to be social networks, urging people to become members and claim their identities across multiple networks so they can manage their reputation and privacy. In fact, Hoffman says Rapleaf is designed to help people protect their privacy.

“We’re helping you manage your privacy. You might not even know there’s all these things about you out there. We’re learning all this stuff about you. And now you can manage all this information,” Hoffman said.

Let me get this straight . . . you gather all this information about me, put it at one location so that credit card marketers can find easily . . . and for the privilege of not being spammed, I need to give into the blackmail, sign up on your system and opt out. How about this, why dont you NOT share this information by default. And if I happen to change my mind, I’ll go sign up and let people contact me . . . in return . . . I get a cut of what ever money you made off me? Sounds more fair?

One big question about Rapleaf is how it obtains access to people’s social-networking profiles, considering that sites like Facebook, MySpace and LinkedIn don’t publish their members’ e-mail addresses as a matter of policy. When asked, representatives from these social networks said that they do not have partnerships with Rapleaf, nor other search engines, to provide access to e-mail addresses.

Rapleaf’s Hoffman said that the company finds profiles through the e-mail search at certain sites, including MySpace, LinkedIn, Facebook and Amazon. MySpace, for example, lets visitors find a profile by e-mail address or first and last name. But for other sites, Rapleaf employs a “secret sauce,” according to Hoffman. It’s not always easy either. Hoffman said the company hasn’t figured out how to crack into accessing members on Digg, for example, even though it would like to.

Eh . . . so you guys violated the terms of service at a social networking site, used a functional loop hole to get my personal information (such as my email address) - which I explicitly told the social network not to share to anyone outside of my friends . . . . Sounds brilliant to me, definitely worth a patent - “Method and System to Circumvent Privacy Policy of Websites to Gather Private Personal Information.” The chief privacy officer dude at Myspace is just about to freak out envisioning all the lawsuits he is going to get for the security breach.

Being serious for a second. RapLeaf’s argument that these are already publicly available information is certainly valid. The point that they need to re-examine is the fact “with great powers data comes great responsibilities” I.E. . . the aggregation of the data and the ease with which they made the data searchable IS the defining difference which re-assigns the responsibility of privacy away from the end user onto the company.

I’m not going to rag on Glam.com . . . I actually admire companies that take some chances, break some rules in the search for new business models and opportunities. So instead, I spent a better half of a sunday morning a few weeks back, when the news broke about their crazy round, doing some link analysis of all the affiliates in their “advertising network” trying to find out their secret sauce. (mental note: Allen & Co is THE place to go if you ever need to raise some money and don’t want to spend too much time begging VC’s). What I found was fascinating . . . (ok, maybe only to me)

Before I jump in, Jeremy Liew’s post about synthetic channels is an important piece on the vertical-ization of ad networks. Synthetics channels are the re-incarnation of private equity roll-ups which arbitrage between two ends of several spectrum around scale, focus/scope, and cost leverage.

Synthetic channels, like the channels on the big portals, have an advantage in this respect. By guaranteeing that all sites in their network are about a single topic, they can aggregate a critical mass in traffic while still enjoying endemic site RPMs. This is, in a sense, a “hack” to true contextual targeting, but it has the advantage of being simple to understand and hence simple to sell to advertisers.

While this is certainly interesting, what is even more amazing is what Glam (and other vertical ad networks) don’t explicitly tell you HOW they work as an ad network. Glam doesnt just syndicate advertising banners . . . they syndicate content as well as links.

Huh? you might ask? Glam serves up banner ads across their network of site. They also serve up content/posts from one affiliate to another. Often they embed advertising along with that content which they syndicate. Even more importantly, links within that content is also syndicated to its network participants.

Why is this such a big deal . . . ?

Ostensibly, the ability to guarantee the surrounding content of an ad unit helps increase CPM and reduces advertiser resistance/reluctance (rememeber that facebook UK debacle about advertisers and white supremacy groups?).

More sinister clever are the links that are syndicated across the network. . . . . Its all about SEO.

Many of these links points back to Glam.com, thus hugely increasing the main destination’s page rank, since from a search engine’s perspective, it looks like another domain is linking to Glam.com (Google has no idea that the link is being syndicated).

These links also cross pollinate across the entire network which give many new publishers/web site owners a good reason to join Glam . . . it raises their page rank significantly from the inflood of links from rest of the network. Due to a deficiency (?) of many search engines’ algorithm, these reciprocal links create a sort of “page rank network effects” that improve the rankings of the ENTIRE network each time a new site signs on.

Adding fuel to the fire, due to the freshness of the content being published constantly each day through out the network, these links are being built in a dynamic and consistent manner which is something search engine LOVES. The fact that all these sites are clustered around the same general topic also help search engines over-weight these links compared to other sources.

Blackhat or not, I gotta give these guys props for “inventing” something so insidious and executing it to perfection! . . .

During the dot-com crash, IAC built a internet media conglomerate by rolling/buying up the leading web properties for each major categories it could get its hands on. As the web long tail grew and as more traffic funnels to niche sites (away from leading web properties) a second generation of internet conglomerates has been building (or rolling up) up properties in the background with significantly more scale and reach.

One of these companies has been CarsDirect (a dot-com era hold over) who re-invented its business model and became Internet Brands. On Friday, the company filed to go public (S-1 here) with annual run rate of about $80M a year. The company spend about $106M acquiring 45 websites between 2004 and 2007. (Not a bad return considering the valuation is probably around $400M).

This is the first high profile IPO for the domain name industry lead by a leading investment bank. Previously, acquisitions (Marchex) and pink sheet transactions where the main exit strategies for this companies, but now the IPO door might have been opened. Unlike, IAC, a quick look at the s-1 and you’ll quickly realize that the company is very much in the domain name business first and web development business second.

In fact, one of th risk factors cited by the underwriter is domain squatting:

In addition, certain of our domain names for our automotive enthusiast websites include trademarks or trade names of automotive manufacturers, with which we currently have no formal licensing arrangements. For example, we received a letter from an automotive manufacturer informing us of its need to police the use of its trademark and its willingness to enter into a royalty-free, limited-duration license which would cover our ongoing use of the mark in certain of our automotive enthusiast website domain names. We are currently in discussions with the auto manufacturer regarding the terms of the license. Though this particular license may ultimately be on favorable terms to the Company, we cannot guarantee that we will be able to continue to use trademarks owned by others in our domain names on favorable terms. The receipt of a notice alleging infringement may require, in some situations, that a costly opinion of counsel be obtained to prevent a successful claim of intentional infringement.

I expect the transaction to have major impact on the domain and niche website industry.

-It will give additional liquidity and exit strategy for smaller roll ups as Internet Brands intends to use the money it raised in the IPO for additional acquisitions.

-Currently publicaly traded domain related companies such as Communicate.com (CMNN.ob) and Marchex (MCHX) might see a multiple expansion due to investor’s increasing familiarity with the industry through the Internet Brand roadshow.

-The trickle down effect might also increase valuation of individual web properties current being traded at a significant discount to “venture startups” and publically traded internet companies (ofcourse dirven by illiquidity and scale discount)

-Additional roll ups will either appear or those already in operations will quickly file to go public in response.

-The domain name industry might also get out from under the stigma which it currently gets from traditional sillicon valley types.

-I’m waiting on a crazy roll ups of Yahoo!Store merchants to go public within the next 2 years.

-Lastly, the most valuable property for these guys might be vBulletin forum software (I always wondered if they were owned by a major company) which probably powers over 60% of forums on the web today.

More analysis from Domain Name Wire and Frank Schilling.

Great story on the founding (and funding) of Ooma. The truth is that every startup has their version of this story . . . love gain, lost, and sometime returned. The startup life is never simple . . . reading between the lines of this story you can gather the disappointment, betrayal, even now-faded anger for everyone involved. Sometimes its easy to jump to conclusion on who’s right and who’s wrong . . . but unless you’ve ever tried to start a company youself, you’ll never understand that there is no sides, no morality, no truths . . .

The herculean act of starting company is a miracle in of itself; enjoy it, revel in the experience, appreciate the people that once (and maybe still) believed in the impossibility with you. And finally learn to let “it” go . . . all the drama, conflicts, and rumors.

Thats the best advice I wished I had received almost 10 years ago. . .

Lost in the hype that is Facebook platform launch seems to be the immense implication of the platform on the evolution of the “widget” economy/ecosystem. In the past, widgets are mostly written once, and deploy everywhere applications. They are simple applications which does little data sharing with the host system . . . the integration is mostly at the user interface level (and also defined by the end user). What this architecture lacks in sophistication it makes up in its openness and simplicity which inturn drives it proliferation.

The Facebook platform (I refuse to call it an OS) is only similar to the last generation of widgets in spirit but not in practice. In fact, it is really an entirely different animal. (It has its own markup & query language! ). What facebook has built is a somewhat closed a platform. (Yes, it is more open than other websites in that anyone can get access to the facebook user base, but from a platform perspective no one has every called Windows “open” for let allowing developers to write an app without getting their permission) Developers must now choose to develop for facebook consciously and allocate resources accordingly. (Not disimilar to developers choosing windows over mac, and game developers choosing PS2 over gamecube). Given the lock-in Facebook will likely create, other social networking ( I mean “utility” ) sites will be forced to walk down a similar path and create proprietary API’s for deeply integrating platform specific widgets onto their own website. . . . and thus the ecosystem will likely become closed and the battle for platform lock-in begins.

You can certainly infer from my tone that I’m somewhat ambivalent about the the Facebook platform. Deep integration is certainly good thing. Proprietary is not. If I were Facebook, this is exactly the path I would have taken. Cisco, MSFT, and most recently, Apple all created huge businesses executing toward this strategy. (and ofcourse enabled many beneficial applications for the end user.) I have incredible admiration for the facebook platform from a technological AND business perspective. But as an end user and sometimes participant in the ecosystem, I’m highly aware of the long term cost of facebook’s eventual (inevitible?) domination.

Do I see somesort of redemption? Of course! I would love to see Facebook open source the api’s and create an inclusive standards body to manage the canonicalization of how widgets can be deployed and integrated into a host application. BUT, I’m not naive. To gain competitive advantages, each social network WILL create additional proprietary API’s to leverage the uniqueness of its platform as well as create differentiated user experience. For very good business reasons, I would not expect them to do anything but exactly that. And thus, forking and divergence will be inevitable . . .

Edit: Actually found someone that somewhat agrees with me! scott heiferman and Ash (who BTW made a hugely precient call on aQuantive + MSFT)