Monday, July 30, 2007

Locker Room Stock Market Geniuses

What was the most commonly heard question in the locker room this morning? Did you sell your stock portfolio before the last week. I heard at least 3 of those conversations this morning. inevitably, the person asking the question unloaded his entire portfolio in the weeks or days leading up the selloff last Thursday and Friday. I heard one guy apologetically say that he only sold half of his portfolio on Thursday and could not get the rest off. Another one emphatically stated that he sold most of his portfolio 2 months ago because he saw this bubble bursting way in advance. he insisted that he only held on to a piece of his portfolio as a small hedge in case he was wrong. Then came my favorite line from the main questioner: "I told you so." (obviously referencing some cocktail conversation of 2 years ago that nobody remembers).

What is remarkable about this conversation is that if the stock market rebounds over this week that same guy will have bought back all his positions before the market opens this week, perfectly timing his sales and purchases to take advantage of the dip. What is it about people that they feel the need to believe they can call the market. And if they can, why are they builders and high tech guys and not stock pickers.

Well, I can tell you that I did not sell a share in the last two weeks, nor did I sell any today. Maybe I am a stock-picking idiot? Or at least I am the dumbest guy in the locker room.

Thursday, July 26, 2007

FaceBook Vs. LinkedIn

In my next couple of posts will be quick observations on web properties based on some of the social networking experimenting I have been doing. First observation is that Facebook is a huge threat to LinkedIn. I would never have expected this 4 weeks ago. LinkedIn is billed as a business social network. It has even monetized well around that.

However, my own anecdotal evidence suggests that the cream of my business relationships are on Facebook. I launched a Facebook account a few weeks ago. I reached out to only 2 friends (one family member) and one business colleague. I have since received many inbound invitations to link up as friends. Remarkably, they are almost all business relationships that I neither went to college with nor were in college when Facebook started. Even more remarkably, they are CEOs and senior level management people. Conversely, on LinkedIn, I am linked to far fewer of these senior people.

That was an Aha! moment for me. LinkedIn is valuable and connects me to many entrepreneurs and potential recruits but, anecdotally, the "senior staff" is hanging out on Facebook and searching for contacts! That means that Facebook has penetrated the business network in a big way (or that I am a fringe case whose business contacts like hanging out with college kids:) ).

Sunday, July 22, 2007

Social Networking Invitations Take 2


One of my colleagues sent me a linkedin invitation on July 8th (screen shot below). It arrived today. I was wondering why social networks would delay the release of an invitation. The thoughts below come from my colleague Danielle. What say you?

1) Strategic Issue. The key to LinkedIn is user retention/engagement. They have thousands of users who’ve created profiles – but there is limited stickiness to the site. So I think they try to figure out ways to remain in daily/weekly contact with their user base and draw them back into the site to get more page views, etc. If I’ve already invited several people to connect to me that day/week or I’ve been invited by many people - I think they hold off on sending out additional invites.

a. Once a user accepts my invite I get an email from linkedin to the effect of “congrats…now you and ABC are connected” in attempt to draw me back into the site, see my new friend’s contact list, see how many people I am now connected to, etc. If I get 20 of those emails a day I will ignore them….but if I get one every 24, 26, 72 hours I am more likely to come back to the site, check out that one friend… rather than just delete the emails.

b. When a user goes to linkedin they see how many new connections their colleagues have added. They need to keep this list “alive” and create a “competition” for users to keep adding new contacts. So they won’t say Michael Eisenberg added 23 new connections at one time. Each day they’ll tell me you added 1 – 3 connections so I go to your page, look at your connections, see if I know those people, etc…..again it is the user engagement issue. I need to keep adding connections because I see that everyday people are adding connections….

2) Technology Issue (nothing to do with strategy). Something with how the invites are batched/sent to invitees.

Tuesday, July 17, 2007

Why Answers.com is Not Completely Crazy


I am going out on a limb here. Answers.com (where I served on the board at the time of the IPO and where I was a venture investor from my previous firm Israel Seed Partners.) announced last night that it was acquiring Dictionary.com for $100 million in cash. Aside for the obviously salient question of where a company with $12 million on its balance sheet will find $100 million in cash, I think i see the strategic rationale for this deal and can explain why it is not expensive if you are a current holder of Answers.com's stock.

Answers.com currently trades at a pretty rich price to revenue multiple of about 10 and a fairly infinite P/E multiple. That means if you own this stock you are betting that the company will deliver some pretty leveraged growth over the long term or will become a strategic asset that is an attractive acquisition target. Here is why acquiring dictionary.com both reduces the risk in Answers.com and increases the long term upside.

1. Google dependence. All investors in Answers.com should have been aware that the company was overly dependent on the definitions link on Google search results for its traffic . Dictionary.com has incredible organic traffic (by the way, they had the definitions link on Google before Answers.com replaced them). This will make the preponderance of answers.com traffic organic (maybe as much as 70%) and reduce the dependency on Google.

2. Increased monetization. I buy Answers.com claim that Dictionary.com's monetizes its pages at 1/3 the rate that Answers does because I see the leap Answers has made in that area in the last couple of years. Monetization optimization requires discipline and expertise. if you believe that Answers can simply double Dictionary.com's EBITDA, that would begin to put the Company's PE multiple in a reasonable range (still high but more reasonable) for a high growth company since almost every dollar will drop to the bottom line (I am sure there are enough tax losses at Answers to keep the taxes reasonable).

3. Scale is Valuable in ad sales. Becoming a top 30 web site is nothing to sneeze at. It is easier to increase CPMs and get a higher share of ad dollars as you move up the rankings. You are buying 3X the traffic and a catapult to top 30 site status for approximately 40% of market cap. This is not eyeballs economics; it is advertising economics where scale matters. Answers also becomes the #2 reference site after Wikipedia which is a good place to be since Wikipedia is essentially not for profit.

Neither the stock or the deal is without risks. How Answers raises funding is a big question mark and could be very dilutive to current shareholders. This is a very bold move that will likely have short term negative consequences but could put the company on more solid long term footing. Those that have been quick to drive the stock down in the aftermarket may want to think twice.

Friday, July 13, 2007

Gizmoz and Taco Bell - Not Kosher But Very Cool

I do not eat in Taco Bell (not kosher) and I do not watch MTV (no TV) but Gizmoz' (Benchmark company) new promotion with Taco Bell and the MTV Music Awards was too much fun not to post. So if you have not seen it, here it is below


Hi

This is your chance to star in a T.V commercial*
that will air on the 2007 M.T.V Video Music Awards.

Use your Gizmoz characters to audition today!
Rap, sing, act - whatever shows your talent.
Let Taco Bell's judges decide if you're the next star.


Hurry up, the contest ends on 7.22.2007





Good luck from all of us here at Gizmoz!
Kate
.



*Participation in the contest is subject to the terms & conditions listed on the
contest website (
http://tacobell.gizmoz.com/)

Wednesday, July 11, 2007

Social Networking Invitations

We have all faced the conundrum of what to do about the deluge of social networking requests to link or friend that inundate our inboxes.
  • Do I link to everybody so I do not insult anyone?
  • Do I link to nobody so as not to insult anyone?
  • Can I selectively link so I create a high quality network?
  • Should I create a broader network because you never know who you might find out there?
I do not know what the right answer is to this question but would argue that this may be the cause for a proliferation of social networks a la Ning rather than a winner takes all market that many pundits will have you believe is where Facebook is headed (oh, and that is what they all said about MySpace 12 months ago).

The truth is that in our real life we all have many circles of friends and acquaintances. I have a circle of family and a circle of close friends. Most often these do not mix. I have the people I hang out with at Yankee games and those whose children I coach for little league games. There are some people/colleagues that I work with and those that I will never work with (but they are still my friends) or who I prefer to meet after work. There are those I talk Israeli Politics or citizen journalism with and others who one studies Talmud with. In real life, I connect differently to each of these constituencies.

Social networks should be no different. I treat my Linkedin account differently than my Facebook account which I treat differently than my Israeli Politics Ning social network (2 days old). If you are not selective in each circle, you can spend your entire day responding to linking requests in your email box. While that might work for people in high school and college, when you "get a life", it gets a lot harder.

We are all still trying to figure out the correct etiquette in this highly transparent online world.
There may be some ruffled feathers in the process but I think that applying the lessons of real life to the online world might be a good model for good social relations.

Monday, July 09, 2007

Social Networking Experiment

I am working on a couple of posts on social networking so I have been running the gamut of social networking activities and opening accounts everywhere and playing with other tools. Much of this is an outgrowth of my work on Gigya and their incredible growth. In the meantime, to test another platform, I have created my own very crude social network on Israeli Politics. It is in English because Ning does not support Hebrew. Feel free to populate it with your whims, thoughts, videos etc. I hope (I can't believe I am saying this) that there will be an election soon in Israel and hope that this can become an important forum for it. The social network is at www.israelelections.ning.com

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Best Blogger for Entrepreneurs

I have really been enjoying Marc Andreesen's new blog. He has a really engaging writing style and is spot on target about many things facing entrepreneurs and VCs. I highly encourage entrepreneurs and VCs to read his 6 part guide to start ups (first post is here). And, for a bonus, read his guide to big companies and the rest of the posts.

Thursday, July 05, 2007

Rot at the Top

After yesterday's reshuffle of the Israeli cabinet, we now have 27 ministers obviously chosen for their vast experience in the areas their ministry covers. They are now struggling with a really serious challenge though: how to fit those 27 ministers around the government table fit for 18 ministers (which was the law by the way). The girth of the government and the ministers (eating borekas all day can be fattening) is causing Knesset architects a belly ache to the point where they may need to add a table to the government table in the Knesset (not that all of them turn up all the time anyway). We now have one minister (and his attendant staff, car and driver) for every 4 members of Knesset and every 3 members of the government coalition. Does anyone work around here?

What is driving this other than dirty rotten politics? Fear. fear of losing their seats, fear of losing an election and fear of Bibi Netanyahu, the once and future upstart.

Fear is the same thing that motivates the journalistic elites in our country to resort to name calling in an attempt to stem the inevitable tsunami coming from the Internet and citizen journalism. Gad Lior, senior journalist at Yediot Achronot, Israel's largest newspaper called my beloved scoop a Chaltura (loosely translated as a pejorative form of not-serious, amateurish ) and over-run by hobbyists. Fortunately, Scoop is a far more accurate medium than Yediot due to our zealous and wonderful community and Scoop's humility. So at Scoop we check our sources and correct our mistakes without batting an eyelash.

Let the rot continue because the public sure does not seem to be raising a loud public stink about it,

Wednesday, July 04, 2007

False Messiahs

Last week the Wall Street Journal carried a front page article entitled "As Israel Prospers, Some Fear Its Defenses May Grow Soft." The basic thesis of the article by Peter Waldman is that increasing wealth and prosperity in Israel has led to a combination of draft dodging and deterioration of the pioneering Zionist spirit upon which the Jewish State was built. This in turn has led to military softness and materialistic decadence that is inconsistent with Israel's heritage.

The makeover shows how Israel has flourished beyond the wildest dreams of the ardent socialists who founded the Jewish state. Powered by high-tech exports, the Israeli economy grew 6.3% in the first quarter this year, with a 28% jump in personal consumption of durable goods, such as cars and refrigerators. Sales of Porsches doubled in 2006 from 2004, and last year Lexus opened shop in the Jewish state.

Yet prosperity has not brought security. As Israelis begin another summer fraught with regional instability, some are pondering a troubling question: Is the idea of an advanced consumer society, with its attendant individualism, compatible with the solidarity and focus required to defend a small state bordered by hostile neighbors? And could the growing gap between poor and wealthy Israelis undermine its national drive to protect itself?

Such concerns have grown particularly stark in recent months, as Israel has grappled with a crisis of confidence. Last summer's military stalemate with Hezbollah in Lebanon and Hamas's recent conquest of the Gaza Strip over rival Palestinians have reinforced Israeli worries that it takes more than a high-tech army to address the terror and missile threats it faces from enemies on its borders. Later this summer, the independent Winograd Commission, appointed by Prime Minister Ehud Olmert, will release its review of last summer's war. The commission's harsh preliminary report suggests it will recommend an overhaul of Israel's national-security system, and possibly the resignation of Mr. Olmert himself.

One lesson from last summer's war: Even the world's best precision-guided weapons, fired from the most advanced military aircraft, can't quell a committed guerrilla force on the ground without support from trained and tested combat troops. Now the question is whether Israelis, like citizens in many developed countries, are losing the stomach for that sort of slog."


Frankly, I think Waldman has his eyes on the wrong point and cause. His focus on "rich and poor" as a primary cause of a soft belly or draft dodging does not cohere with my first-hand impressions nor does he present more than cricumstantial statistics to buttress the argument. In fact, there have always been wealthy Israelis. That never stopped anyone from serving in the military.

The money quote in the article in my opinion (which I think Waldman missed) is this one.
"When my father and grandfather fought in wars, they each believed their children would one day live in peace. But now I have more experience," says Mr. Gazit, 33. "Every 10 years there's a clash, and every 10 years it's more extreme.""

Messianic movements, or, should I say false messianic movements, bring behind them waves of despair. For 2000 years, Jews lived in exile, praying for the messiah to bring us back to our homeland. Over the generations, there have been numerous false messiahs from Bar Kochba to Shabtai Tzvi. In their wake, there were mass conversions away from Judaism or despair leading to the loss of life.

Modern Zionism has created its own messiahs. Fringes of the national religious Zionist movement have become very messianic and part of that led to the denial that the Gaza disengagement two summers ago would happen and the despair that ensued. It also caused some of its harder-core elements to shun army service because of disillusionment with the Zionist enterprise and their feeling that the secular Zionist government had lost its way on the path of redemption.

Similarly, and much more ominously, the bourgeois left, which is also the center of the Labor Party is currently disillusioned by the unmasking of their own false messiah, the Peace Messiah. Reared on the assumption that full peace would come in their lifetime and fooled by the promises of a "New Middle East" in the wake of the Oslo Accords, the "fat belly" of Israel's Labor Party and left wing Meretz Party have woken up to the morning after. It turns out that you cannot reform a lifetime terrorist by simply giving him money, weapons and territory. It turns out that all of our victims of suicide bombings brought about by Arafat's martyrs and the minions of the terrorists in Iran and Syria were not sacrifices for peace as now-President Shimon Peres and former Prime Minister Yitzhak Rabin (z"l) insisted, but rather just another step in the war for the homefront.

No. Oslo was a false Messiah. The New Middle East is a false Messiah and so were the promises and promisers of this Middle Eastern faux Garden of Eden.

Peace is a very important goal and one we all need to strive for every moment of the day. It just turns out that you cannot microwave peace in the way we expect instant gratification in every other facet of our life today from food, to VOD and day trading. Setting expectations of a long slog is critical to maintaining an even keel and staying true to all goals, including Zionist goals. (See also this speactaular WSJ Op/ed by Bret Stephens entitled "Who Killed Palestine?")

More than wealth or consumerism, post-messianic disillusionment of the peace-hungry bourgeois left of Tel Aviv is responsible for Waldman's "soft belly" of Israeli society and other ills such as draft dodging and faked psychoses. And it is the false messiahs of Oslo, Geneva and other microwaved peace initiatives that are the root cause of decline in the will to fight.

It is also the reason that this decline in the will to fight is neither long term nor fatal to Israel. It is both passing and a fringe phenomenon. You see, the Jewish world has seen its false messiahs and has always rebounded from them. We wake up quickly to reality and the same will happen again. Already, as Waldman wrote, the religious Zionist movement is quickly filling the vacuum in the army since they were never fooled by the false Peace Messiah. They are highly motivated and very loyal soldiers who still run on the original Zionist fuel. Other Zionists from around the country from wealthy Raanana to some of the poorer development towns continue to fill the Israeli Army, Navy and Air Force ranks with pride and honor. That is still our majority and it is a tribute to the amazing youth from all walks of our society.

And, when the relatively small contingent of draft dodgers realizes that peace will be built here between people, personal connection by personal connection, brick by brick and factory by factory, rather than in glorious ceremonies, pompous declarations and civil-rights free weaponry, then they will all come back to fight for the peace we all hope and pray for.

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