Month: January 2006

From Dan: A Letter to the Bayosphere Community | Bayosphere I have to say that I never could quite get my arms around Bayosphere. I visited a few times, followed what Dan said a little bit, but never quite got how it was supposed to work or what it was doing. Now Dan’s calling it quits.

“I learned some things last year, about media, about citizens, about myself. Although citizen media, broadly defined, was taking the world by storm, the experiment with Bayosphere didn’t turn out the way I had hoped. Many fewer citizens participated, they were less interested in collaborating with one another, and the response to our initiatives was underwhelming. I would do things differently if I was starting over.”

It’s difficult. In some ways it could be as little as the site design. Maybe I never got it because of how it was laid out or because it lacked certain features that I found compelling.

Although I’d never contributed to Bayosphere, I do very much like the idea of citizen journalism. For me though it works best when it is built around site concepts and basic design that you can understand. For instance, a number of times last year when I found newsworthy things around San Francisco I shot them over to Jackson West at SFist. This, to me, was citizen journalism. Whether taking photos of striking hotel workers or bomb threats on Market Street or whatever, it was local news covered (or at least photographed by me) and sent to what I consider a citizen news publication in some respects.

I’d publish my same photos from San Francisco events at Flickr and create sets for them, Prince Charles’ Visit to San Francisco, The Icer Air Ski Jump Thing, Ron English’s Son of Pop Show, Robots on Market Street, whatever. This too to me is citizen journalism.

And then of course there are things like Digg, where my expose on PriceRitePhoto got a lot of attention last year.

The thing these things all had in common was that they were sites and concepts that as a citizen journalist I could grasp quickly and easily.

We increasingly have short attention spans. I couldn’t figure delicious out for a long time, and now I get it. It wasn’t that it was so hard to figure out it’s just that I’d never give it more than about 45 seconds before saying screw it and moving on to something else. Citizen journalism sites can be built but I think they need to have some powerful concept or feature like Digg’s voting methadology, or delicious’ tagging functionality, or whatever, but at the same time they need to be simple to grasp and easy to use. The more intuitive the better.

Perhaps had Bayosphere had different designers this may have worked. Perhaps if it had some unique wrinkle or feature it might have worked. Who knows. But I wouldn’t give up on citizen journalism yet. It is here to stay and someone else will come along with the next reiteration of a Bayosphere type site and it very well may take next time.

By Davis Freeberg

Davis Freeberg is both a current shareholder and customer of Netflix. This post should not be construed as financial advice.

Netflix reported strong Q4 2005 earnings today and continued to show impressive subscriber growth for their DVD by mail business. During the 4th quarter they increased their revenue to $195 million, generated $38.1 million in income, and finished the year with 4.2 million subscribers. They expect to have almost $1 billion in revenue for 2006 and are predicting that they will hit at least 5.95 million subscribers by the end of this year. They finished the year at the top of their guidance in subscriber numbers and the .57 cents per share they reported, easily topped analysts expectations of .15 cents a share. During the conference call following their announcement, they commented on HDTV, VOD and on managing growth.

In an earlier press release Netflix stated that they planned on offering both HD-DVD and Bluray to their subscriber base. In their conference call Netflix CEO Reed Hastings went on to add, “We will offer all HDTV titles the day they launch at no extra cost.” When pressed for more details about the costs of HDTV DVDs during the Q&A; session, Hastings commented that as far as the short term costs go, “we don’t see any, it will be the same content cost as we’re planning to spend so there is no impact in this year and probably for several years out.”

This is a little surprising to me. I had always assumed that the studios would use HDTV as a way to increase DVD prices, but it appears that in the short term they’d rather sacrifice price increases for consumer acceptance of the new formats. This is great news for consumers who want HDTV DVDs, but are concerned about the costs of making the digital evolution.

Last week Glen Reid, an analyst with Bear Stearns, downgraded Netflix over fears that the company will face an increasingly competitive market for VOD content. During the call, Hastings argued that the VOD market is tied up by long term exclusive agreements and directly addressed Reid’s comments by arguing that the market is big enough to support both VOD and DVD rentals.

“The same studio, Fox that’s being innovative and aggressive on VOD is predicting that the DVD market, rental and sale, will grow from $24 billion last year 2005 to over $30 billion by 2010 and what you have to watch out for is this sort of zero sum assumption problem. If you assume that the growth of any entertainment channel is at the expense of another, then you do get into that zero sum logic, but if you think about the 25 year history of the movie business. 25 years ago there was only the movie theater, there was no HBO, no video, no DVD and so it was about a $6 billion dollar business and it’s grown as new channels have developed to be close to a $40 billion dollar business 25 years later, so while there are new channels such as VOD that have consumer interest and I think will be financially successful, that doesn’t inherently take away from DVD.”

With DVD being the cash cow of the movie industry, it’s hard for me to imagine that the studios are going to do anything that would threaten that revenue. Sure they were forced to offer digital downloads for mp3s, but only after Napster and Kazaa forced their hand. Even today, we’ve yet to see a serious VOD movie service launched. The studios are instead focusing on licensing television out of fear that TiVo and other PVRs will destroy the economics of the broadcast business.

With Netflix seeing a 60% increase in subscribers over the last 12 months, it’s becoming increasingly important for them to effectively manage their growth. During the conference call, they announced that during the 4th quarter, their content acquisition costs went down and that they planned on spending about 20% more on new DVD purchases then they did during Q1 of last year. This is good news for frustrated fans who have had trouble getting new releases as the service has grown. With the increase in spending during the first quarter, we should begin to see some relief from the long wait times on new releases.

The company also commented extensively on their future plans to use additional profits to help fuel subscriber acquisition costs. With SAC coming in at $40.65 some of the analysts questioned the logic of increasing spending on growth initiatives. Hastings responded with a clear message that the company wasn’t interested in profits, but cared more about growth. Their logic for any price cut or increase in marketing spending would be to further drive video stores out of business.

“If in Q1 we reduced total marketing expense, which we are not thinking of, but for example hypothetically only spent $30 or $40 million dollars, you would find us hugely efficient in SAC. If we have enough gross margin that we were able to beat our earnings target or meet or beat our earnings target and spend a huge number, lets call it $100 million in marketing you would see the average SAC climb. Any of those scenarios I think make sense for the business again because we are at $40.65, so far below the total lifetime value, so think about it as the more we invest in marketing, we are pushing the market and what we’re willing to do is push it hard as long as we meet our earnings target. Now why are we in such a hurry, why are we trying to push the market so hard? Because the prize that’s out there is making video stores uneconomical and triggering the tipping point for mass closures of video stores.”

While Hastings and Barry McCarthy both insisted that they haven’t made a decision to cut prices yet, this rhetoric will not be good for Blockbuster. With 4.2 million subscribers a price cut of $1 would cost Netflix about $50 million in lost revenue. This would leave them with an additional $50 million that they could spend on advertising. With $200 million in cash, the company has the financial clout to engage in a long and heated price war, if it ultimately can cause video stores to go out of business and if it forces customers online then the price war would be worth it. In the call, Hastings said that they are running a lot of tests right now, but refused to disclose early results. He was very clear that they have not made a decision to decrease prices, but that it’s a possibility if the data supports it and if they can continue to deliver $50 million in earnings with a 50% increase in earnings growth over the next several years.

With another impressive quarter of growth, Netflix continues to solidify their lead on the online dvd market. While the company may not be trying to squeeze as much money out of their subscribers in the short term, in the long term this strategy will result in destroying Blockbuster’s business model and will create tremendous wealth opportunities for the company. As more customers make the transition online, the company is positioned well to benefit from Blockbuster’s misfortune.

*Update – In response to yesterday’s earnings, Wedbush Morgan analyst Michael Pachter updated his 12 month price target for Netflix from $6.50 to $10.00 a share. He currently rates the company as a sell, but does have a buy rating on Blockbuster with
the same $10.00 target price. Blockbuster currently has about twice as many shares floating on the open market. If he is correct, we should see Blockbuster’s market cap represent twice or what Netflix’s market cap will be twelve months from now.

Smoother Surfing – Newsweek: International Editions – MSNBC.com MSNBC/Newsweek out on this new ajaxy Asynchronous JavaScript+CSS+DOM+ XMLHttpRequest full fangled contraption type thingy.

“I don’t think Flickr would have caught on in the same way it did without the capabilities Ajax provides,” says Stewart Butterfield, Flickr’s founder and CEO. Ajax makes the site “not just faster, but cooler, more intuitive.”

Alan Meckler: Jupiterimages And The Stock Photo Micropayment Business JupiterMedia CEO Alan Meckler is out today with more news on a significant investment made by JupiterImages in the micropayment area of the stock photography business.

The company announced a 49.7% equity investement in the company HAAP media who maintains both Stock.xchng and Stockxpert.com. JupiterImage subscription brands will be advertised exclusively on their sites which boast over 25 million page views monthly nad over 500,000 registerd users.

The micropayment world has been a growing area of the stock photography trade where photos are both bought and sold very inexpensively.

Caterina.net: Blathering in the Blogosphere Well as I maintained earlier today, it is the valuable social search properties that personally I believe can pull Yahoo! out of the search hole that they’ve found themselves in and it is great to see Caternia Fake (who is closer to what’s going on with social search at Yahoo! than perhaps anyone), come out today and call the blathering bullshit (a strong word that she notes herself that she rarely uses in blogging).

“Quotes taken out of context by company executives do not an overarching business strategy make.”

I probably do agree with this. I wasn’t entirely comfortable with reporter Jonathan Thaw’s choice of words when he said that Yahoo! “capitulated” to Google. This word has a particularly strong connotation and I think it was more literary license than perhaps appropriate given the comment. Particularly, if as Caterina makes reference, the comment was taken out of context, then the word choice is particularly suspect in my opinion.

Caterina adds, “I really think people should be paying more attention to what’s said by people working in Yahoo! Search. Amr Awadallah, who sits near me at Yahoo!, is typical of the many people who should always be paid attention to at Yahoo! — he’s one of the smartest guys around.

Anyways, I do think Yahoo! has assembled one of the best lineups of social search companies of anyone (but of course they still can add a few more gems) and do expect that you see them integrate these properties more firmly into their algorithm in the future. Although I wouldn’t hold your breath for Yahoo! to overtake Google anytime soon, I do think that the influence of these social search teams at Yahoo! will be felt and that the relevency at Yahoo! (and thus search market share) will most likely improve in the future.

Henry Blodget does also seem to agree with Danny Sullivan’s view that I reported earlier that the quote also could have been more directed at the analyst community with the idea of lowering the bar to better shine next time. On a comment on John Battelle’s blog Henry adds: “Sue Decker is about as smart as they come, so I doubt this was a slip-up. The Street has been all over Yahoo about its relative search incompetence, and Yahoo has spent the last year promising to “fix the algorithm” and give Google a run for its money. I suspect the new communications strategy, at least with respect to the Street, is to try to set the bar low and then clear it easily.”

Ask Jeeves Launches Proprietary Image Search Technology And no sooner does Yahoo! “capitulate” on search then Ask Jeeves redoubles their efforts (at least in one area) in Image Search. Ask Jeeves announced today the launch of its first proprietary image search technology. You can try it out here.

I do feel that Ask Jeeves is better than Yahoo and Google Image Search but not better than Flickr. Flickr still has (in my opinion) the best image rank out there.

Want another idea for image search? Tap the photoblogging market. You could do this a couple of ways. The first way is to work with Brandon Stone who runs the excellent photoblogs.org. Brandon’s site currently boasts a directory of 14,932 photoblogs. People vote on them and Brandon’s got a rank. For your image search, continue to use your spider but amplify exponentially all search results from top photoblogs generally and the higher the ranking the more rank juice you give it.

Photobloggers are oftentimes professionals or talented amateurs and produce stunning images. Why not serve their great work up, it’s win win, you get better stronger images and they get more search traffic.

Ask Jeeves, at least, could also consider mining Bloglines. Which photoblogs have the most subscribers at Bloglines? Lots of Bloglines subscriptions? Bump their rank up in image search.

Of course you have to be careful, because lots of photobloggers might not want the extra search traffic (expensive bandwidth cost to serve up high res photos), but you could always allow those photoblogs the ability to opt out if so desired.

Thanks, Alexander!

So every morning one of the first sites that I visit is Memeorandum. I won’t try to over-hype Memeorandum here, as we’re all pretty familar with it at this point, but for those of you who have been hiding in the desert under a rock for the past two years check it out. It’s a great place to monitor the pulse of what’s going on in the tech world each day. And what is going on today? The top story: “Yahoo! Gives Up Quest for Search Dominance.” Say it ain’t so Jerry Yang, or at least say it’s part of a secret trick double secret agent plan to make everyone *think* this is in fact the case while you knock Google off their game with the old keep your eye on the birdy punch.

Yahoo! give up on search? You’ve got to be joking. From the Seattle PI: “We don’t think it’s reasonable to assume we’re going to gain a lot of share from Google,” Chief Financial Officer Susan Decker said in an interview. “It’s not our goal to be No. 1 in Internet search. We would be very happy to maintain our market share.” Or as the author of the article for Bloomberg Jonathan Thaw put it: “Yahoo! Inc., one of the first Internet search companies, has capitulated to Google Inc. in the battle for market dominance.” Capitulated. Interesting choice of words there.

Equally pointing to Yahoo’s demise is a stat from ComScore Networks pointing to their lack of success over the last year in search: “Yahoo! handled 19 percent of global Internet searches in November, a drop from 27 percent a year earlier.”

Steve Rubel broke the news in the blogosphere first and wrote, “that’s it, I am no longer using Yahoo Search. I have no interest in using a product that the company doesn’t aspire to make best of breed.”

Ok, It was a rough 2nd inning but we still have 7 innings left to play and here is how Yahoo! can and hopefully will regain it’s footing in search.

1. Combine the Flickr/Yahoo! Image Search algorithms into one. AND DO THIS NOW! Actually, you can keep two algorithms but just give anything that has any decent rank at Flickr priority over anything the Yahoo! Image Search algorithm will fetch for you. I’ve written on this a number of times in the past. Flickr’s search by most interesting produces *vastly* superior results to either Google or Yahoo! Image Search. It boggles my mind that this still has not been done and the only plausible reason in my mind why it hasn’t is that Flickr has been growing so fast and focusing on their infrastructure and getting this in tune before taking this next step. Step it up. Give Flickr the resources to handle the additional traffic and turn on the switch.

The superiority of Flickr’s images is just so plain to see. Try this example. Google Image Search for San Diego, Yahoo! Image Search for San Diego (not a single Flickr image on the entire first page results), heck just for fun I’ll throw in Ask Jeeves Image Search for San Diego (suprisingly better than both Google and Yahoo), and now look at Flickr. Amazing how much superior. There is a single reason why this is the case. Image quality is hard to distill based on text and Flickr relies on an algorithm with mass human input and review — get it, social search? Flickr is just the start.

2. Buy Digg, again, NOW. Obviously it’s not that easy and it’s easy to armchair quarterback these things when A. I don’t know any of the underlying details or issues and B. It’s not my money. Still, Digg can be to news search what Flickr is to image search. Although Digg has not implemented an interestingness or news rank feature similar to Flickr’s interestingness it would be *very simple to do so*. And when Digg does and you go searching for a news story on TiVo and you compare what Digg fetches with what Google News fetches, it will not even be close. Yahoo will most likely need to pony up $30 million to buy Digg but they can not afford not to. Digg is only going to get more expensive as they broaden their news beyond tech and if you don’t hurry up, CNET or Microsoft (I seriously doubt it), or even Google is going to beat you to the punch. Yahoo! try this for an experiment. You can track your incoming links. Start testing some Yahoo! news and see how relevancy looks when ranked by incoming Digg hits to those stories. You will find the relevancy high.

3. Integrate Del.icio.us (I hate putting all those periods in there, it’s so much easier to just say delicious), into the web search, news search, etc. algorithm. If something’s got 50 bookmarks it’s probably good. It probably should get a higher rank in your algorithm. 50 people like it, bump it’s relevancy up. This is easy enough to tweak.

4. And here comes the most controversial part. Assemble a team of 25 editors right now to begin fixing highly rated items in the background now. What do I mean by this? I’ll use a fairly easy example (and my apologies for the self promotion here). Do an image search on Flickr for San Francisco. Ok, far better than Google or Yahoo, right? Technically speaking even at the most basic levels the photos are technically much superior. Now the problem with this search is that some things come up for a San Francisco search that shouldn’t because we’ve mistagged them. The Merlin Mann photo while very interesting from a historical web perspective, is not very interesting in a San Francisco perspective. Similarly, my highly rated photo of a snake. Damn good photo of a snake if I don’t say so myself, but not of San Francisco. I just happened to take the photo in San Francisco at the Academy of Sciences. A human editor needs to go through the most searched image, news and web searches and modify these tags. You don’t kill them, you leave them on, but you neutralize their rank for San Francisco (and you make sure it’s tagged snake). The problem is that this will cost lots of money to manually do this. It doesn’t matter. To start you only need to do this with your most popular searches and you will begin seeing an effect immediately.

Look, Yahoo! lost how much in market cap on this announcement per the Seattle PI? 13 percent? Excuse the over simplification that this 13% drop was entirely due to failing so badly in the search contest but that’s how much money lost in a single day? Isn’t that about 7.4 *billion* dollars? I think that they can afford to put 25 editors on the case to start and at least try this idea. The editors shouldn’t be expensive but they should be bright. Recent college grads would make the best candidates and you could start them off at $50,000 per year. Some would shine, excel and move to other areas in Yahoo!, others would drop out after a year or two of it, but you’d always be hiring.

5. Buy TiVo. Someone please tell me why no one will buy TiVo. Is there too much potential liability with ad skipping? I mean Microsoft’s doing it with Media
Center and it seems to be firmly entrenched in the general view that it’s fair use and just a VCR on steroids. Are folks just hoping for the company to fail and buy the IP in bankruptcy court? What am I missing here? This, by the way as an aside, would give their new Go TV initiative a needed boost for a lacking feature PVR/TV.

Integrate television into web and news search. You can’t give the content but you can give the description. If I’m doing a search for Lyle Lovett on the internet, there’s no reason why one of the first results back should not be a link letting me know that he will be on David Letterman tonight and oh, by the way, just right click here to tell my TiVo to record it for me. Even more ambitious of course will be an attempt to get all closed captioned text indexed and then use this with TiVo to track to shows and have TV transcripts show up in search. Yes, there are all kinds of copyright problems with this and you’re going to have to fight Hollywood, etc. etc., but if that’s not what Terry Semel is there for then why did you hire the guy. Be the first to integrate TV listings into search.

This is a vast untapped archive of information just waiting to give some needy search company and advantage and a leg up.

6. Similar to boosting rank for image search, bookmark search, news search and TV search that rank high by social networks, use your latest acquisition of Upcoming.org to do it with events. If I I’m searching for Jeff Tweedy, this should definitely come up. I’m probably a fan and would want to know about this concert and oh yeah, Yahoo! already owns Upcoming.org where this info is coming from. Put another way, if I type a search in Yahoo for “Jeff Tweedy” Chicago. Then this should *definitely* be coming up. Why does this not come up at all even when Yahoo! owns upcoming.org? Why instead do I get a link to some lame generic page with a short bio on Jeff Tweedy? Why doesn’t the upcoming.org page (a highly relevant page about a concert by the band I’m searching for in the city I’m searching for who happen to be playing *tomorrow* night) even show up anywhere on the first page results? I mean, come on, Yahoo! bought upcoming.org for a reason. If I’m searching for a band in a city that is listed on upcoming.org this should be my top choice. It would be as simple as automatically increasing page rank for popular items on upcoming.org. Oh, and also, keep your eye on Eventful.

Look, Yahoo!’s got all the pieces (well all the pieces except TiVo and Digg yet). There is no way that they should capitulate to anyone — especially Google. Search is a billion dollar game, Yahoo! just needs someone there with some power, vision and authority to tie it all together.

The only thing that I can possibly speculate on why it isn’t being done today is that they lack the corporate visionary to use the chess pieces that they have in play. The rook is sitting over there in the corner and not being used. Whether because of internal politics or Yahoo! fiefdoms or whatever all of their best pieces are not being played. That hot new player that you just paid way too much money for is sitting on the bench while the coach plays the tired old veteran player who is no longer on his game.

Whatever the analogy, Yahoo! needs a strong visionary in place who can tie all of the pieces of social search together, make a few more acquisitions, and turn this ship around. They need to be empowered from the top to make changes where necessary and they can in fact get back into the search game.

Winning the search game is largely about relevancy. Google beat Yahoo! because they produced and still produce more relevant results. Once Yahoo! integrates the various social search pieces into their algorithm, they need to begin an aggressive marketing campaign to prove to people that their results are in fact better. Bloggers, the press, blind taste test type marketing stations at places like CES, etc. should all be employed. They can in fact not only hold their ground in search but take some back if done right. If they continue to lag though and under-utilize their finest tools then they will not only not regain lost ground in search, but they will continue to lose more.

Update: I just received an email back from Danny Sullivan (certainly an expert) from Search Engine Watch and he made the following good points: “I suspect you’ve got Decker trying to respond to investors who want to see Yahoo’s share of searches oust Google — and that’s a huge challenge. If she says they aren’t trying to do that,they reset their expectations and perhaps don’t drive the stock down.

It’s also one thing to say you don’t expect to be tops in search share and another to say you don’t want to be tops in search at all. I don’t read directly her comments to say Yahoo’s giving up on search — just that they don’t think they can bump Google for search mindshare.”

I’d have to agree with him on that and as is usual for me I let the technology blind my view on the business realities of the situation. Irrespective of how Yahoo! does with search going forward, by lowering expectations, they set themselves up with analysts not to take a pounding the next time. The wind is already out of their stock sails so to speak, move guidance down and then if you come in ahead of it next time you get a bump up in the stock. I also did not read that they were not interested in search. The “capitulate” word may be a little strong for the writer to have used in my opinion.