Bronte Media

While anything I say is likely to have incredible bias (I went to University with Mike and Scott, lived with Mike and Mike is an investor in Homethinking), Atlassian is an incredible story of success.

They haven’t raised a dime of capital, angel or venture and have been able to grow to a US$20m-$30m a year company (in the video, Australian financial years end in June) within five years. And not only that they have Microsoft like profitability.

They started out as a support company for an Java application server called Orion in 2002. The video says the company was started with a $1k loan but - at least in my memory - the company was really jump-started when Scott worked in a fat consulting engagement at a Dutch telecom firm on a troubled Java project that helped them fund JIRA, a project management app, and keep the lights on in their first year.

They also develop Confluence, an enterprise Wiki that nearly every large firm who uses an enterprise Wiki has. Jotspot and Socialtext may have won the press war but Atlassian has clearly won the customer and product war. I’d say Atlassian is worth - in a financial sense - ten times what Jotspot and Socialtext combined is worth (even if Google paid $50m for Jotspot).

Happy 5th Birthday Atlassian and here’s to another five years!

Based on user feedback, I have upgraded the site layout to feature the ’silly hat and beer photo’ on not just the front page, but also article pages now too.

As you were.

Zillow has a few jobs open but none for an inhouse SEO manager. Perhaps they should?

Trulia, who optimize their pages fantastically well - from both the user and search engine point of view - may very well catch them. Here’s the compete graph:

The two are not in the same league yet perhaps but they are close.

I’d wager Trulia gets the majority of traffic from Google. The first step to getting organic page referrals is to have your content indexed. Here’s how many pages Trulia has in Google:

And here’s Zillow:

I have no idea how much traffic Zillow is getting from Google’s organic results but I’d also wager they are probably missing out on 1m uniques a month.

Homegain gets millions of people from Google organic results a month. Folks like ZipRealty are the same. To have a site like Zillow only have its homepage included in the main Google index is baffling.

I couldn’t imagine they would have any spam penalties and their pagerank for their one page in the index is very strong (7/10). Which would lead me to believe that they could gain a million people a month by spending $10k to optimize their on page content and site structure to make it more easily crawlable. Baffling that they haven’t already.

Congrats to the guys at Hitwise for a great financial outcome in being sold to Experian for $240m.

Hitwise are one of only a few successful venture backed startups to come out of Australia, and one of the only truly innovative ones. There have been a few successful ideas but they begged for players (e.g. local classifieds sites in recruitment, auto and real estate) and Radiata, a 802.11a wireless pioneer that was bought by Cisco a few years back (although whether you might call the company a success since 802.11a didn’t gain meaningful traction as a standard) but Hitwise did something truly unique - syndicating ISP data feeds to build an audience measurement business and then further specializing in search marketing intelligence when paid search started its meteoric rise.

They were canned (and probably will always be) for their methodology countless times (a byproduct of being in the audience measurement business, I guess) and it took real resolve for them to keep going.

I remember when they started out as top100.com.au, a site that tried to rank traffic in Australia and was given away for free. They then decided to charge $2k/year for it, and then later $20-40k year. They were able to get extremely favorable terms when raising their first venture money from Allen & Buckeridge, who now also help run a DFJ Australian affiliate fund.

I also remember attending one of Allen and Buckeridge’s investor days in 2001 where Hitwise reported they were losing something like $1m/mo (my memory may be hazy) for a company who’d raised about $7m in total. That to me seemed like brass balls.

Anyway, it will be interesting to see in a few years the companies and entrepreneurs that sprout out of the liquidity event.

Congrats to all.

Bill Tancer over at Hitwise has down some excellent research around the participation rate of certain sites: that is, how many people actually upload videos to Youtube, contribute to Wikipedia and add photos to Flickr.

The coverage has thus far been pretty uniform in saying that less than 1% - or 5% in the case of Wikipedia - is weak. That’s a pretty disappointing conclusion to me.

The fact that in online communities 1% percent do a huge amount of the work, 19% contribute lightly and 80% are completely passive has been around for quite some time and isn’t likely to change.

In other mass media where interactivity is harder to pull off you have a .001 - 0 - 99.999 split between contributors and passive audience members.

People should celebrate that 1% are now contributing because that is a huge leap from what it was. And not only that, I think the most amazing change is the fact that someone with talent can get noticed and to the 1% in a lot more non-corrupt, micro-stepped and transparent fashion.

Businessweek had an excellent profile of click fraud networks that incentivized Indian house-wives to click on ads a while back. The article focused on the manual face of click fraud.

A few Google employees have just released a paper that provides a stunning insight into the presumably more common form of automated click-fraud networks. I printed off the 14 page article and read it on the subway home. I’d recommend everybody who reads this to do the same.

Beside from the “we just want to make sure to reiterate that Google has caught every fraudulent click”, “Seriously”, “Did I mention that Google caught every one of the fraudulent clicks?” tone of the article it provides a brilliant portrait of exactly how click fraud networks work.

Basically, a small piece of spyware is distributed through screensavers or downloaded games. Once the spyware has been activated (the article also makes clear hardly any anti-virus software picks up the spyware and also that users don’t really care because it doesn’t affect the performance of their PC and the software itself is perishable), it registers to a central command center.

The central command center is usually a hacked ISP account and if it is discovered and/or removed it can reappear elsewhere on the net in another hacked ISP account in a relatively short amount of time.

The central command center basically farms out instructions based upon a keyword dictionary it knows about. No spyware client clicks more often than 15 minutes at a time, and doesn’t click more than 20 times (in the bot net example). In addition, the clicks are spread out of a wide variety of sites and ad networks. In addition to what you’d expect in search they also click on porn links.

The low noise of the network (i.e. across many networks, relatively few clicks, across a huge network of normal people’s computers and over a non-concentrated time period) is fairly sophisticated. As is the distributed and redundant nature of the operation. And as the paper notes, the software was at a fairly beta stage (v. 0.007).

The network washes the clicks through a doorway page that masks the referrer to the advertising network and sub-publishers.

To me, the problem seems to stem from the sub-distributor relationships Yahoo and Google have with other firms. I.e. Firms that sign up publishers to be in Yahoo’s and Google’s network. There is also the tougher example where search firms have affiliate programs that bring in traffic. In both there are legitimate examples of relationships but it seems to me there should be greater auditing and accountability (i.e. analytics on the affiliate pages or search pages themselves that originated the click).

The second thing that struck me was the sophistication of the networks themselves. The redundancy and distributed nature of the networks is fascinating and many of the principles can be applied to legitimate web applications and data processing. Like anything, technology can be used for good or bad.

Either way, bravo to Google for a great paper and go and read it yourself.

Is banner advertising back? Did Google pay too much? Does it matter that Microsoft didn’t win?

To me the most interesting question was why Google decided to plunk down such a significant amount of money chasing a low margin market and content on being a second class citizen in the media value chain.

The law of online advertising is that if you own the consumer you get 80% of the advertising and if you sell the advertising you get the remaining 20%. If you are an important publisher like AOL and ASK you can get even more than the 80%. Google makes nearly all of its money through consumers searching on Google.com.

The footnote to that is if you don’t own the advertiser relationship or the consumer relationship and rather simply offer a technology service that greases the relationship between them, you get an ever decreasing percentage of the pie as online advertising gains scale. And not only that, you have to find increasing ways to differentiate yourself because if you stand still, like any technology company, you’ll soon become irrelevant.

Basic ad serving is a commodity. Most behavioral players give it away in order to have their behavioral algorithms trained. Or give it away so that their advertisers have a way of being run on the publisher.

The newest twist to online ad serving is to give it away to allow every publisher to have advertisers bid upon their inventory and create a more efficient marketplace (works when advertisers measure spending off a direct response basis and less so when the aim is branding).

Almost any piece of the online advertising industry is a good business when compared to the wider media landscape. That’s because the online advertising as a whole is growing.

But that won’t last forever. I loved the Youtube acquisition. Google basically gets a truckload of proprietary traffic that they can figure out how to monetize over time. I love the AOL investment. AOL has proven that you don’t even need to work out how to grow monetization: there is a long list of suitors who will do it for you and give you most of the gains.

I don’t like the Doubleclick acquisition, just as I didn’t like the dMarc acquisition and anything to do with trying to monetize Television (unless they start their own TV channels).

Google’s incremental effort seems to be majorly geared toward being an ‘advertising operating system’ or pseudo-marketplace. But they’re not so much marketplaces as collectives of advertisers and publishers. And most importantly, there is a third variable: audiences. Because audiences tend to flock to a small subset of publishers, the publishers have all the power and marketplaces don’t get eBay like margins and economics. They get 20% and even less for the larger players.

Don’t get me wrong. Doubleclick is a healthy growing business. It was a healthy growing business in 2005 when public shareholders were stupid enough to sell it to private equity firms for $1.1 billion.

There was a reason shareholders fell out of love with the stock and to me that hasn’t changed. I would never think to say this, but if I was GOOG shareholder I’d much rather money being spent acquiring MySpace or Facebook.

From one of the Twitter developers, whose app is peaking 11,000 requests per second at the moment:

“If you’re looking to deploy a big web application and you’re language-agnostic, realize that the same operation in Ruby will take less time in Python. All of us working on Twitter are big Ruby fans, but I think it’s worth being frank that this isn’t one of those relativistic language issues. Ruby is slow.”

I’ll leave the ethics of whether MySpace should have blocked Photobucket Videos that served ads to another day. Moving on to more interesting questions: will there be much left if MySpace continues to block Photobucket? And the answer is a clear yes.

Techcrunch has the best wrap but basically the firm hopes to do $32m in revenue this year. That’s mainly from advertising on their site, and also some premium accounts revenue.

The CEO says that half of video views are on their site (notice he didn’t say half of all views, of media of any kind).

The way I would think of it is those distributing your widget on other pages are in effect a trial version of your experience. It’s an expensive one in the case of video but the flipside is that you are having one of the largest audiences on the web use your stuff (ergo you’ll always find a way to make money, and I’m not just talking about a sale of the company).

By virtue of Photbucket trying to sell itself we can get another peak into a business whose marketing strategy was built mainly on the distribution of a single uncompensated partner. And the end result is again a pretty good one. Youtube may have rose on the coatails of MySpace but they quickly built that situation into a sustainable one and converted into one of the largest communities on the web. Even though Youtube did $13m in revenue last year, their inventory is fairly valued (in today’s world) at $100-$200m/year with some fairly basic monetization.

Photobucket seems to building a similar situation on a smaller scale. Compete.com says they had about 25m unique visitors to the photobucket.com domain. So $30m this year in revenue isn’t a stretch.

The future may not be looking as rosy for Photobucket as it once was, but in any case it’s certainly not an all or nothing proposition with MySpace and they’ll have a nice little business without it. Whether that means the company is worth $300m is another question, however.

I think that regardless of whatever Sam Zell does with Tribune, history will reveal the absolute bargain he got for the company.

How successful Tribune becomes obviously matters. So far, I am lukewarm.

There was this Zinger:

“If all of the newspapers in America did not allow Google to steal their content, how profitable would Google be?” Zell said during the question period after his speech. “Not very.”

If he had left it as a rhetorical question, any rational financial analyst would answer with “still as spectacularly profitable as ever”.

That said, in another interviewhe did single out Careerbuilder as a gem, and for that the man has my heart. Careerbuilder itself is worth $8bn.

So he’s batting .500 in my book.