What The Web Is Talking About Right Now

When Vertical Search Died and No One Cared

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 EIRs. (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 ).

RapLeaf + UpScoop + TrustFuse

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 Jasmin live 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.

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 don't 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?

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 adult cams 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.

Whats An (Open Source) Community Worth?

Pligg is for sale on sedo.com of all places. I didnt even know you can actually sell an open source project/community. What if Linus decides one day to sell Linux? Can he even do that? This selling of an open source project is NOT a good trend to start but I do understand that someone (who?) deserves to make some money from the value generated from Pligg. Maybe there should be otherways to get to the same objective?

Before I jump in, a little background on pligg. Pligg is a popular open source software project that allows anyone to create a clone to Digg. John Battelle's SearchMob is an good example of what Pligg is capable of. Its highly popular and I would estimate that over 5K websites run a version of Pligg.

Sedo seems like such a wierd place to sale a website/company/project too but, if I think about it; the main asset for sale is really just the domain & its associated website more than anything else. According to the listing, the following assets are for sell

- Domain name, Pligg.com

- Website sofware on Pligg.com (not the source code)

- Users on Pligg.com (around 10K)

- Admin Account to Pligg's Sourceforge project area

Whats not for sale

- The source code

- The trademark Pligg

Which begs the following questions

- Who is actually selling these Pligg related assets?

- Whose pocket is this going to?

- Does the contributors to the open source project deserve to get some of that cash?

- How about the contributors to the forum?

- Can Pligg the non-profit org sue the owner of Pligg.com for trademark infringement in the future?

- Does the new owner get to keep the donations coming to the site? (see the donate link on Pligg.com)

- Will the contributing community sit idlely while this new owner mucks with Pligg.com and try to make an extra buck? (more ads? consulting services? commercial version?)

- Will there be a showdown between those that made off with the dough and those who did not?

- Is this even legally possible? (ie sure those assets are sellable but can it be debundled? )

- How is this different than some user from Digg selling his or her account?

- Can the community block the sell? Esp with regard to the source forge account? (just like Digg can block a sell of an username)

In the end, the bigger question is. . . what is an open source community really worth? Who (which individual) has the right to sell an opensource community? If this becomes popular, one day, will Linus sell his position as the ultimate arbiter of Linux releases to Novell? Why wouldn't someone like MSFT go out and just buy up an open source community to either control it or to kill it through random muddling thus forcing the code and community to splinter and fork?

I don't have the answers, but I don't see this ending up well if this trend moves beyond Pligg (which in the grand theme of things, is not that important of a open source project).

P.S. Lets not forget Source Forge is run by a for profit company while lots of open source projects are really controlled by private enterprises. So maybe this is not that out of the norm?

Lots of questions, but no answers . . .

Not Your Father's Ad Network

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 https://www.jasminelive.online 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.

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 destinations 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! . . .

Dangers of Being Too Good Looking . . .

Being too good looking means that no one will take you seriously plus everyone will only either want to be your friend or sleep with you. . . life will be so hard cause some regular looking people that you might like will automatically not approach you cause you are too hot . . . . So goes Jeremy Liew's argument against entrepreneurs raising cash at too high of an valuation.

Jeremy spent yesterday trying to convince the world of Asymmetric risk and the dangers of too high a valuation. I have to take a step back to say that Jeremy has one of the most practical and useful blogs out there for entrepreneurs, but this time I would have to disagree.

There is such a things as too much of a good thing. Raising too much money means that entrepreneurs might have a huge liquidation preference to deal with and the investors will have an incentive to push the entrepreneur towards taking bigger and bigger risks in order to justify the return on the huge investment. This, however, has nothing to do with too high of a valuation.

Down rounds happen when the companies current value (when the entrepreneur is looking for financing) is lower than the last time he/she raised money. Usually this happens for a few reasons:

1) multiples compression of the entire industry - such as a NASDAQ crash

2) business prospects turned south for the company (revenue flat or even worse, decreases)

3) Series R+1 investor values the company at a valuation lower than Series R investor (a rare idocyncratic issue thats not really systematic)

Jeremy is talking about (3) but the solution for entrepreneurs caught in this situation is NOT to seek a lower valuation to protect one self but actually raise more money with the higher valuation.

The solution in this case, where the entrepreneur raised $1.5m at a $30m valuation, the entrepreneur should have raised around $10M instead. Thus he/she would have enough cash to run and grow the business for a while (atleast 18-24 month) to hit the next milestone (adoption, new features, revenue etc) so that the company can catch up and pass the original $30M valuation (or post money $40M) which is admitedly a little high for the stage. Granted, sources that can put together that amount will most likely be VC's who would not have put the valuation at $30M so the valuation will naturally compress a little bit but atleast not because the entrepreneur decides to throw money away.

Maybe the better advice (which Jeremy might actually mean to say) is that entrepreneurs should not jump at an investor simply because of superior valuation, there are other financial terms within the investment that might be equally or more important (liquidation preference for one, implied exit multiple for another).

My general theory on raising captial goes something like this. . .

1) go for highest valuation

2) but dont be afraid of dilution, raise a much as you can

3) keep liquidation preference at no more than 1.5x - reduce round size if you have to to get this number down

4) make sure you are raising enough money to hit the next financialy projectable milestone in your projections + 6 month

If you do all 4, the final result would be that dilution would naturally be reasonable while maximizing the success rate of the company (ie there is already so much operating risk, you want to take the financial risks to zero as much as possible as long as your founders equity is protected). Also there are other sneaky terms you have to be careful about but thats outside the scope of this post.