Bronte Media

Internet ad growth to be 7.6% this year? Maybe it’s time to look at updating that methodology guys.

Bill Burnham spends some time brilliantally dissecting SEC filings to see how much Kleiner Perkins and Sequoia made on their $12.5m investment in Google. The answer? About $5bn a piece. Even more interesting is that John Doerr of Kleiner Perkins was personally paid $200m more than Mike Moritz of Sequoia via their respective shares of the carry. This even though Sequoia, by carefully distributing shares, made $200m more on their identical initial investment than did Kleiner.

$200m here, $200m there and soon it starts to add up.

With mind-numbingly stupid quotes like this, from Newspaper ‘consultant’ John Morton: "A business model that depends on making money with newspapers on
newsprint and giving away a lot of the same information for free on the
Internet in the long-run isn’t going to work."

Newspapers have never made money on circulation. Never in their history. There is nothing wrong with relying on advertising. The nominal price on the front goes mainly to the newstands and scrapes back a slice of the money needed to buy and print on paper. I am talking miniscule when compared to the total cost of paper.

In fact if you divided technology and hosting costs / paid content you would get about the same ratio as paper & printing / subscription prices.

There is absolutely no sense in charging for news.  If that is the best idea that newspapers can come up with to get themselves out of the turmoil they are now in, then the fat lady may as well start warming her vocal chords.

Excellent post by Mark Fletcher of Bloglines fame arguing against a startup being in stealth mode.

I wrote and deleted a few paragraphs just then, but realized I had not one single original thought. He really does hit the nail on the head. So go and read the post.

In his most recent ClickZ column the great Gary Stein wrote about Vertical Search. He also posted a follow up to his blog pointing to the Vertical Leap event and also making a slight correction (I don’t profess to be the first person to make the cable tv analogy and if Danny said he said it first then he probably did. That said, to poorly paraphrase Adam Smith, the inventor of our understanding of capitalism, who said that anything big will spawn more focused niche pieces. So Adam had us both beat by a few hundred years.)

Gary’s piece is an excellent overview of the logic behind vertical search but one point triggered my thoughts of those out there crapping on about search arbitrage, as if there is such a thing.

This is the point Gary makes:

Imagine that
fishing site buying AdWords and using AdSense. Assumedly, the site
owner would serve ads from the same pool he buys from. Suddenly, you
have a closed-loop economy. Even if the site owner negotiated a 99
percent revenue share with Google, it would mean he’d lose a penny on
every transaction (at best — remember, not everyone’s going to click).

This idea is something that is getting more and more traction and it is a very dangerous one. Vertical search sites don’t simply re-route traffic from Google and Yahoo. Rather they further qualify a buyer of a product or service and then hand this more-qualified buyer on to a merchant.

Here is a metaphor. Vertical search sites take the barley, hops and yeast from Yahoo and Google, mix them together and nurture them along, and then serve up beer at the end.

If they just re-route the basic ingredients, and were able to do so at a higher price, then that would be arbitrage. But they are not. They are moving somewhat qualified consumers (the raw ingredients) and pushing them down the purchase funnel so that at the end there is a highly qualified prospective buyer (the beer). That’s vertical search.

A highly qualified buyer is worth more than a somewhat qualified buyer. That’s why vertical search sites can afford to buy the person from Google, profitably jump them through some qualifying hoops and pass them on to a merchant at a higher price. There are many levers that need to work in the middle, but they are more than achievable, as vertical search sites of any industry are proving.

Last week my Apple laptop bit the dust. The motherboard died and with it any economical way of repairing the 1 month out of warranty computer.

My photos are zapped which is a real bummer but my email isn’t. That is because of Gmail and one huge and underestimated feature: Shadow sending. I used Thunderbird (Mozilla’s answer to Outlook) but every message I sent and received with my GMail account (which I use for my primary work account now) was synched with the web and kept even after my Apple died.

A lot of email servers can shadow your received mail but even then, usually you have to configure it in a certain way and storage is an issue. Having a shadow index of your sent items is hugely valuable because if you think about the documents you create (ppt, xls, doc etc.) nearly all of them were created to be emailed to someone. All of the important work that died with my laptop (save for one thing that was created the day it died and was a work in progress) could be safely restored from GMail within minutes.

In that respect, GMail is more than an email client and is almost a backup utility (with the signal that you would email a doc/xls/ppt to someone being the quality filter).

When Mark of Kanoodle told me about the business of putting search ads on <keyword>.com domains, I laughed a little. But then my opinion turned pretty quickly. Those who were able to see the thirst for more search traffic by marketers and matching that to the dramatically declining price of domain names should be respected on some level. It has some undesirable consequences, but in the end I couldn’t but think there was something cool about the obscure business.

I recently caught up with MarchEx who are starting to do some interesting things around the space. For instance, go check out videocamera.com. As well as the search ads they are now mashing them with product feeds. On the example is one from Best Buy. They call the space Direct Navigation.

In my opinion, there is very little creativity or innovation but it is a neat little niche direct marketing business that has me fascinated.

First eBay with Shopping.com and now Scripps is buying Shopzilla for $525m. I especially like a TV company taking this much foresight.

Now is a good time to buy a retail vertical search engine. A lot of people are down on their prospects, primarily because of their reliance on the broad based search engines, which provide roughly two-fifths of their traffic (I firmly believe that Google/Yahoo rely just as much on good quality decision making content as vice versa).

There are also the misguided few that believe what shopzilla and shopping.com are doing is arbitrage, which cannot be further from the truth. Time will show these acquisitions to be good ones.

Bill Burnham, a former Wall Street analyst, provides a thoughtful rundown on the conflicts that exist at industry analyst firms. Bill’s former industry was regulated into disclosure by Elliot Spitzer but many of the same conclusions can be applied to the likes of Gartner, Forrester and Jupiter. The paradoxical problem is that on Wall Street greater transparency actually led to a lower quality of research because eliminating the conflict of interest between banking and research meant that the analysts pay dropped dramatically. If only mums and dads knew that ‘hold’ means ’sell’.

Whoops.

In other Google News, the search firm announces content blocker.