Growing as a startup

I’ve been on vacation this week, wandering around San Diego (where I grew up) with my wife who had never been there. It was great – we went to Sea World, a Padres game, Balboa Park, the beach, Roberto’s (twice), Pipes, Pizza Port, downtown, Seaport Village, Old Town, Tijuana, and everywhere else. It was spectacular. Now we’re in Chicago, getting ready to drive to a wedding in Iowa.

One of the great things about this vacation is how Clickshift continued to execute in a big way this week. In the early life of a company, little happens when a founder is away. It’s extremely gratifying to reach the point in a startup’s life where it moves forward whether a founder is there or not. It’s a real company now. I’d like to think I still have some impact when I’m not on vacation, but the reality is that we’ll never be able to scale to the size we want to be if my daily presence makes a big difference. I’m thrilled that we have such a strong team in place.

We announced that team on Monday:

“ClickShift, an emerging leader in online advertising optimization, today announced the addition of Eddie Smith, Jeff Goodman, and John Pacholski to the company's management team. Mr. Smith joins as Vice President of Marketing, Mr. Goodman as Vice President of Sales, and Mr. Pacholski as Vice President of Finance. All three gentlemen are seasoned industry executives who join CEO John Rodkin and CTO Leo Chang, ClickShift's co-founders, in leading and managing the company's explosive growth.”

The rest of the press release on how our team is adding the discipline of search engine marketing to online marketing generally is available here

Related Tags: startups, entrepreneurship

Murdoch Underpaid for MySpace (II)

I’ve said before that Murdoch underpaid for MySpace. Wow, he really underpaid. Roughly a year after he buys it for $580M, he signs a deal worth at least $900M through 2010 just for its search traffic! Plus he’s still signing plenty of other deals involving MySpace. Based just on these deals, Fox is going to get a 40%+ IRR on the deal, and that’s pretty far above its historical 5-10% return on capital. What a great acquisition!

I think this search deal will have a variety of giant implications in the internet world. My quick thoughts:

1. MySpace has shown a business model to all the other social networks and random content sites out there. If you get enough traffic, you can get paid. YouTube and Facebook must be really excited and everyone else is trying to figure out how to grow their traffic and make their users do lots of searches. Of course, this money gives MySpace enough of a war chest to attack all of those sites directly, so they may have a shrinking window to cash in. I would have taken the $750M.

2. Google paid a lot of money for users who were going to Google to search anyway. Google locks up these users, and more importantly, Yahoo and Microsoft are locked out from this traffic (and from AOL’s). That prevents those two from getting a spike in volume that will drive more advertisers. More advertisers means higher keyword prices, so Google can afford to give the largest payouts in absolute dollars while also keeping a large slice of very high margin revenue for themselves. $900M seems like a small price to pay to protect that business, but Microsoft (and Yahoo to a lesser extent) has very deep pockets. If they’re willing to take a loss for several years to get in the game in a big way (like they did with Xbox), I’m not sure this affects their plan of attack very much. Microsoft is still making more per user off most of the MySpace users than Google, after all. It could be a very long, expensive war, and the content holders will be the winners during the battle. See point #1.

3. Yahoo’s miss on their new platform is even more expensive than Stu says. Google has the money to lock up the traffic now. Yahoo doesn’t - Google has 4x as much on its balance sheet, a higher market cap with which to do equity offerings, and more cash flow. The miss makes it harder for Yahoo to buy its way into the war. At this pace, by the time the MySpace contract renews, Yahoo won’t be able to bid. Maybe Merrill Lynch is right and Microsoft and Yahoo should combine.

All in all, Google seems to be most focused on winning the search war in a big way as quickly as possible. Given they are already dominant and getting more so, their aggressive deals should scare the heck out of Yahoo and Microsoft. They need to get in the game. Or at least pretend like they are while keeping their power dry to get some of these deals later – but then it might be too late.

Finally, I’m not sure this is a good deal for MySpace. It is financially now, but the renewal terms could be much worse for two reasons: (1) The longer the search war goes on, the more money content sites will capture. They shouldn’t hasten the ending of the battle, as this 4 year deal might; and (2) The insidious piece of search engine deals is the engines ability to mine the search traffic to develop new products, and Google already has something competitive (sort of). MySpace will be pretty unhappy if this deal allows Google to breathe new life into Orkut.

Related Tags: MySpace, Google, Rupert Murdoch

Greed vs. Principles

I’ve been having a lively email discussion with John Krystynak comparing Microsoft in its heyday and Google now. Both are tremendously successful (near?) monopolies that dominate their industry, make tons of money, and change the landscape far beyond their own business. JK and I agree that their motivations feel different – when we dealt with Microsoft in the 90’s, it seemed to care about winning and about making money, but it changed the world while it was doing that. Google today seems to care more about changing the world, although they win and make a whole lot of money along the way.

Which motivation is better? It’s hard to argue that greed and paranoia are better in the moral sense than Google’s goofy idealism. When Microsoft was trying to buy flyswat (a toolbar that added hyperlinks to pages on the web, much like IntelliTXT or Kontera today (only better!)), they told me “We’re getting sued for antitrust because we’ve used our dominant OS to gain control of the browser market. People wonder why we haven’t used our dominant browser share to gain control of the internet. With your software integrated in IE, we can.” That’s pretty scary.

At least I knew where I stood, though. If Microsoft was interested in the business and could steal it for less money than they could buy it, they’d steal it. So to work near them, you had to understand what they valued and how you could create value in a way that made it difficult to steal. That was very clear, and it’s a common case in capitalism.

Google, on the other hand, is trying to “do no evil.” “Evil” can be a subjective standard, though, and it’s tough to apply consistently when you’re determining what it is from first principles. We know killing people is wrong, even from first principles. Is violating a dead author’s copyright evil? We know it’s illegal, but is it evil? Less clear. The subjective standard has led to Google Law. With regular law, you get a whole court system that allows appeals and generally develops some consistent reading and application of the law. You know where you stand and how to behave so that you stay on the right side of the law. A fair and independent legal system is a major foundation for capitalism because it’s tough to build a business if you don’t know which side of the law it will be on next year. Sometimes, that instability is the situation Google Law creates (as the AdSense arbitrageurs are learning with the Quality Score updates).

If I had to pick, I’d rather work for Google today than Microsoft in the 90’s. Their heart seems to be in the right place. That said, I think building a company near Microsoft’s space in the 90’s might have been less risky than building one near Google’s today.

Related Tags: google, microsoft, google law