The Downside

Social Q&A site Yedda (competitor to my own site Answerbag), sent me an interesting email today. For some reason, “based on the information in my profile,” they think I know something about “that smell.”

I always wonder why people copy business models that haven’t taken off. If you’re going to improve upon the model, that’s cool, but if the existing model isn’t exactly a hit, why copy it with the exact same model?

Amazon apparently looked at barely-recognized mobile Q&A service AskMeNow and said to their collective selves, hey let’s do the same thing! And let’s give it a dumb name! So, now Mr. Bezos and company are rolling out Nownow.com (currently in invite-only beta.) It may be mobile, but it isn’t social. It isn’t Web 2.0. It isn’t a hip new technology. It’s a crew of people in a sweatshop in India or the Philippines who can make a living from Americans who will spend a quarter to find out who won the World Series in 1946.

If no one has heard of AskMeNow, and no one uses Google Answers (same business model, but not mobile), why does Jeff think this is a good idea? How does this help him sell books? Or anything else, for that matter?

Ever have a loved one die, but think that a boring old wood coffin just doesn’t do them justice? Well, your prayers have been answered. Thank you Oxford Coffins for giving us Colored Coffins. Here are a few of my favorites:

And for all your death and dying needs, be sure to check out Funeral Depot - it’s like Home Depot, but for dead people. When you go to the link, be sure to use Internet Explorer and turn your speakers on - their opening audio is not to be missed.

According to the Wall Street Journal, Yahoo is rumored to be buying Facebook for 1 billion dollars. That’s right, 1 billion. (Full disclosure: I own stock in Yahoo.) Bambi Francisco confirms the rumor, but says a deal is still a ways off.

Why, one may ask, would Yahoo need Facebook? Perhaps they are admitting the failure of Yahoo 360. 360 was very successful in duplicating the basic features of MySpace and Facebook, but it just has no spirit, no personality of its own. Perhaps it’s because Yahoo has become so staid and stodgy and vanilla, so the trendsetters, the opinion-leaders go somewhere else to express themselves.

Further, Yahoo is trying to block out competitors. FB is rumored to be talking to MSN as well, and Yahoo certainly wouldn’t want Billy Gates to get his hands on Facebook. If Facebook is shopping itself around to the major portals, Yahoo has no choice but to throw their hat in the ring and try to place the highest bid, whether they really want Facebook or not.

I think Yahoo will showcase Facebook in an attempt to regain their sense of cool. They will leave 360 up to cater to the grandmas and Yahoos that have adopted it. If you’re on 360 now, don’t count on too many new features being added if and when this deal goes through.

What worries me is that I don’t understand is how Yahoo will ever turn a profit on FB. As a business, it would have to bring in 100 million in operating earnings (not revenue) just for Yahoo to see a 10% annual return on their investment. Can Yahoo make money on this deal, or are Bubble 2.0 economics going to their heads?

Six years ago, those of us in the Internet industry saw a massive collapse. It was created by a huge influx of money into any company with a .com in its name as VCs hoped to take companies public based on their number of users and brand awareness rather than their basic business fundamentals. This was the Bubble.

The Bubble, of course, burst in 2000, as the companies that weren’t lucky enough to IPO were abandoned by their respective VCs, so they could no longer make payroll and had to lay off thousands of tech workers, mostly in the San Francisco Bay Area.

And now, six years later, we’re in Bubble 2.0. The VCs are back, the money is back, the jobs are back, and the baseless valuations are back. How do I know it’s here?  10 simple reasons:

1. There are 50 video sharing sites. How many do you need?
   
2. Venture capital investing is at its highest level (in dollars and number of deals) since 2002. In Bubble 1.0, this was exactly what happened. The VCs poured as much money as they could into companies to make them grow, so they could try to take them public, cash out, and move on. Companies back then were valued by the number of users they had, so any site with a lot of users could go public, whether they made money or not. (Webvan.com, Kozmo.com, etc.) The big difference this time around is that VCs aren’t trying to take companies public because the public and investors are still gun-shy after having been burned in 2000, so now the VCs are just trying to sell the companies they create to larger companies. Not a bad plan, as long as you can find a larger company that thinks you’re worth it.
3. Wikipedia claims there are 89 social networking sites “of note.” I’d argue that less than half of these sites are really notable, but my bet is that at best 20 of these will still be in business 3 years from now, when the VC dollars dry up and the popular ones have all been purchased by bigger companies. The vast majority of these sites just aren’t making money.
4. This site.
5. A site that is a fraction of the size of MySpace thinks it’s worth 3 times more.
6. Industry pundits are valuing sites by the number of users again rather than their ability to earn money
7. Youtube. As Mark Cuban notes, they’re giving stuff away for free, in this instance, server space and bandwidth. Further, much of their popularity rests on the illegal sharing of copyrighted content which is, in large part, what you’ll find on YouTube. At some point, perhaps after YouTube turns a profit, the RIAA and MPAA are going to go after YT the same way they cracked down on Napster. And what I consider the final nail in their eventual coffin is the fact that they’re a commodity. Anyone with some storage and some bandwidth can provide the exact same service as YouTube - the YT user experience just isn’t enough to differentiate them from any other video sharing service. Is there much reason to keep using YouTube now that MySpace, Google, Yahoo, AOL, MSN, and dozens of other sites all offer the same service? If YouTube is lucky, they’ll pull a Hotmail and sell before people realize this. If Hotmail had stayed independent, do you think they could have kept paying their email hosting bills? Who would know more about how little real value exists in a site that provides a commodity service for below cost than Mark Cuban himself?
8. Shopping aggregators (and other aggregators) will help people find the best prices across sites, and users will become increasingly loyal to the aggregators and not to individual shopping sites, be they for tickets, travel, or any other non-niche items. This consolidation will push many e-tailers out of business, contributing to the bursting of the bubble. Mind you, this is a good thing. It’s capitalism at its best - the businesses that can’t compete will fall by the wayside.
9. Napster still can’t get it together.
10. Netscape.com is back. It’s user-driven. It still sucks.

With Microsoft’s release of the Zune today, we are that much closer to my orgasmic scenario of having our media accessible anywhere, any time. While it has some neat forward-looking features like wireless filesharing, some marketing genius decided to release the Zune in white, black, and brown…way to counter those geek vs. cool-guy Apple commercials, guys.

While I’m not convinced that MS will steal much market share from the iPod (partly thanks to their unimaginative color options), I am glad to see someone pushing Apple to finally go wireless with the iPod. They’ve been cruising with incremental improvements for the past few years, racking up the profits, so they needed a little kick in the ass to get them to move their technology forward.

We’ll see if MS or Apple is the first to release a unit that acts as a phone as well and can access media from your home PC. That’s when I jump in with both feet.

The new Tivo Series 3 debuted yesterday, finally offering HD recording, lagging behind previous offerings from DirecTV and Sony. On the surface this is great news, but the downside is that this beast will run you $800. (In all fairness, the products from DirecTV and Sony are in the same price range.)

Clearly this is not a mass-market price point, and I will certainly be waiting to pick one up until they come way down in price. What I don’t understand is why current Tivos won’t at least support the passing through of HD signals; I don’t care so much if I can record in HD, but it’s a real pain that I have to take my Tivo out of the loop just to watch HD channels. Why not just pass those signals through, giving me a DVI, HDMI, or component out, so I can still enjoy my HD without bypassing the Tivo entirely? Would it be that expensive to just offer a Tivo Series 2 with an HDMI out? Maybe I’m missing something…

In my browsing of Yahoo! News in the morning, I have come across this ad several times. What in blue blazes is going on in this picture, and why does it make me want to apply for mortgage? Someone needs to have a little talk with the ad designers over at Lowermybills.

Here’s the tally:

• Launch delayed
• $500 price point at launch (while Xbox 360s will likely be going for $350 by then)
• 400,000 units for US Launch, 100,000 for Japanese launch due to difficulties in producing BluRay drives
• BluRay games will load slower than HD-DVD (Source: A cross-platform game developer)
• And perhaps worst of all, Sony can’t produce BluRay discs fast enough, so the launch titles will all have very low shipping volumes - even the top-tier licenses will only have 50,000 to 100,000 copies available this year. That’s right, even if you do want to spend $500 on the PS3, you may not be able to find games for it. When you consider that most of the sales for any console game happen within the first two months, any developer slated to release a PS3 launch title is in bad shape right now, and they’re certainly not happy with Sony. (Source: cross-platform game developer at an A-level publisher.)

Now, I do wish Sony the best, but I really don’t know how this launch could be shaping up to be any worse…