It Was Bound to Happen Eventually

April 6, 2009

Really, we should have seen it coming. The NYT totally misses the true story behind the story on the (likely temporary) Sun/IBM breakup. The real scuttlebut is that between them, the two sides depleted the Strategic Lawyer Reserve to dangerous levels, and the Department of Justice stepped in and made them call off the deal.

Of course, all the securities, IP, and anti-trust lawyers were already booked a couple of weeks ago, even after doubling their rates and resuming first-class travel, all-day Spectravision, and Nobu delivery. But Attorney General Holder was tipped off to the true severity of the situation this afternoon, when an alarming number of family law hearings scheduled for Monday were cancelled. It seems that even all the divorce lawyers are now working for one side or the other. And American taxpayers positively freak out at the prospect of not being able to serve their spouses-so to speak-at the drop of a hat.

The Times did nail one piece of the story, however:

“There’s lots of testosterone going back and forth,” said a third person familiar with the discussions.”

Nooooooooooooooooooooo. Ya think? That’s like saying that there might be some juice flowing if Bruce Wayne Enterprises made a run at Joker Holdings.


Why Online Advertising Will (Largely) Fail

April 2, 2009

On TechCrunch, Eric Clemons explains in articulate detail what most of us have been feeling in our bones for some time: that the web and advertising as we know it are inimical to one another. First, he proposes an operational definition of advertising:

Advertising is using sponsored commercial messages to build a brand and paying to locate these messages where they will be observed by potential customers performing other activities; these messages describe a product or service, its price or fundamental attributes, where it can be found, its explicit advantages, or the implicit benefits from its use.

He goes on to explain what I’ve always assumed that the authors of The Cluetrain Manifesto meant when they offered their Thesis 74: “We are immune to advertising. Just forget it.” Even though the authors have recently disavowed the sweep of their claim, it’s consonant with Clemons’ view:

It is frequently argued that the advertising industry will provide sufficient innovation to replace the loss of traditional ads on traditional mass media. Again, my basic premise rejects this, suggesting that simple commercial messages, pushed through whatever medium, in order to reach a potential customer who is in the middle of doing something else, will fail. It’s not that we no longer need information to initiate or to complete a transaction; rather, we will no longer need advertising to obtain that information. We will see the information we want, when we want it, from sources that we trust more than paid advertising. We will find out what we need to know, when we want to make a commercial transaction of any kind.

Think of the new world Clemons describes as being bound by 2 axes: proximity of the user to the transaction on one, and value added by the information in the message on the other. This is why lead gen businesses have worked and branding hasn’t. It’s also why paid search currently rules the world, although Clemons argues (less persuasively, I think) that it’s fundamentally a form of “misdirection” which will become less valuable.

In any case, it’s clear why online newspapers are so screwed in this scenario: they are mired in the southwest corner of the matrix described above, whereas “transactional businesses” such as classified were their cash cows in print. And even as branding goes, the good stuff-national advertisers-will be touched by so many intermediaries by the time they land in a local daily online that the cpm will be measured in pennies. So local dailies are left with branding for local businesses. Good luck funding a serious newsroom with that.


What Am I Missing?

March 20, 2009

If employees of AIG violated civil statutes, the should pay money damages. If they committed crimes, they should go to jail. Congress should have nothing to do with any of it, at least not in their legislative capacity. They had their shot, which would have been to pin a ransom note to any bonus payment that preceded a nickel of TARP money changing hands. They didn’t do that, and do-overs are for children under five.

As Chris Dodd straightened his tie for the cameras with increasingly obvious haplessness, Treasury raised knotty questions. “Geithner here. I know I don’t have any..uh…staff or anything, but I think what you guys are proposing may be illegal. I have a catalytic converter supplier on Line 2, so I’ll have to get back to you.”

And so this truth-however inconveniently- defied its vanishing pont: a confiscatory tax which is purely an ass-covering and “signal sending” legislative gesture is almost certainly illegal. And shameful. And positively spineless. Why not just burn a symbolic derivatives trader at the stake? While the pain (and the stench) would be more concentrated, the spectacle would be mercifully shorter and roughly as productive.

It is tempting to identify as the “bigger issue” that our government has already focused far too much psychic energy on a level of lucre that is inconsequential in the grand scheme, and that the AIG bonuses are simply a vestige of financial deregulation run amok during the Bush regime. It is also tempting to utter the following heresies: that the bonus recipients at AIG were, quaintly, “ doing their jobs;” that they likely didn’t get out of bed in the morning hell-bent on destroying anything; and that at least a number of them were not hiding the Mark of the Beast beneath their $200 haircuts.

It’s tempting, because it’s all true. But this would miss the point. Because the bigger issue is actually, well , bigger: if we live in a nation where Congress can take money from people because Congresspeople are embarrassed, none of us should feel very safe. Because whether or not there is, there should be a lot of Congressional embarrassment to go around.

It is of course too obvious to point out that all Congressional salaries are “public money.” What say that anyone who voted in the majority on the 90% tax bill has his or her pay docked for that day?

Don’t bitch, Congresspeople. You’re getting off easy. And you might think twice before spending your paychecks. I have my eye on you.


Musing on GM’s Annual Report

March 5, 2009

The following just landed in my in-box:

NEWS ALERT
from The Wall Street Journal
March 5, 2009

GM says in its annual report that its auditors have raised substantial doubts about its ability to continue as a going concern, citing recurring losses from operations, stockholders’ deficit and an inability to generate enough cash to meet its obligations.

GM has received $13.4 billion in federal loans, and the company is seeking a total of $30 billion from the government. During the past three years it has piled up $82 billion in losses, including $30.9 billion in 2008

Apparently because I needed more sad irony with my coffee, my next few clicks brought me this from the NYT:

A “going concern” letter can be a bargaining tool for a company in discussions with its unions and other stakeholders who may resist concessions without proof of a company’s distress.

Ok, let’s start from the bottom.

First, let’s all agree that we have sufficient proof of GM’s distress. If fundamental weakness equates to negotiating strength, let’s rename them Goliath Motors.

Second, let’s pause for a refresh of the admittedly simplistic math we did back in early and late December. At the time, my point was that the $17.4 billion loan to Big Auto was a bridge to nowhere, and that-even if there were 3 million jobs in the balance-such a vast sum would be better spent on retraining those workers. Now, GM alone seeks another $30 billion-with absolutely no more believable plan to prove viability than it had three months ago. The backward-looking math is sad: shareholders and the public have spent $95 billion over the last three years, or over $30,000 per job, even if you pin all the jobs on GM. The taxpayers are being asked to spend another $10k per job.

Think about where those workers would be if there had been spent $40k apiece in retraining them? Well, it’s hard to think about, because you literally couldn’t spend that much without giving them more durable job skills-like wholesale PhD’s in English literature.

This has to be the time to stop the madness.

And finally, about the GM annual report. If the company actually did one of those dead-tree pieces of marcom, please-nobody tell me.


12 Tasks of the Real Entrepreneur

March 3, 2009

I generally loathe entrepreneurial meta-wisdom, larded as it usually is with the author’s veiled self-congratulation (”I may have lost all my investors’ money in 90 days, but I stayed true to myself”) and the obligatory “VC’S ARE DOUCHEBAGS WHO HAVE NEVER MET A PAYROLL” rants. I get enough abuse just walking down the street. Why would I voluntarily back up my rss reader to dump more poo on my head? I mean, even douchebags have feelings.

But this bit via a dear friend from Jason Calcanis made me smile. The bad news is, he’s not exaggerating:

Here is a really easy way to figure out if you can deal with the mess
in front of you. How many of the following can you deal with:

1. Laying off half your staff.
2. Laying off half your staff again three months later.
3. Spending 20 hours a week on the phone being yelled at and
threatened while trying to renegotiate a dozen contracts-like your
T1, phone system, rent, equipment leases, etc.
4. Having an investor scream at you and tell you that they will ruin
you, your career and that “you’ll never raise money again, you mother
f-er.”
5. Laying off half your staff for a third time.
6. Getting served a half-dozen lawsuits, courtesy of the folks who you
tried to renegotiate with in point number three who wouldn’t deal.
7. Having one of the people you’re renegotiating with come to your
office every week and ask for their check in person.
8. Having the same media outlet that once claimed you were the next
Barry Diller write that you’re a fraud.
9. Not getting a good night’s sleep for six months.
10. Having dozens of paying clients default on their bills.
11. Having staffers who you really need to double down and focus walk
out the door after you helped make their careers.
12. Have the people who begged you for a meeting at the peak not even
return your emails or phone calls.

If you can’t deal with these 12 situations, then you’re out. It’s time
to refresh your resume, tell your board you resign, sublet your place
and go to Thailand. Go sit on the beach and lick your wounds for $40 a
day (all-in) like the fauxtrepreneur you are. You suck. I hate you.
You’re smart enough to cut your loses in a way I could never
understand.

All of this ties in nicely with what I call my “mashed potato” rule. When someone says to me, “I’m thinking about starting a company,” the tone of his voice is often just as if he had said, “I’m thinking about taking Marge and the kids to visit Niagara Falls.” I say, “if you’re thinking, you’re still not ready. This is not like planning a vacation. Lie down until it goes away.”

If my friend comes back and says, “no, really, I want to do this,” I ask simply, “are you playing with your food yet?” If my friend looks at me quizzically (99% likelihood), I verbally reconstruct the scene in Close Encounters of the Third Kind, wherein Richard Dreyfus’s character Roy is building Encounter mounds in his mashed potatoes. He can think of nothing else, the mounds haunt him so.

If you’re not yet playing with your food, you’re not ready. If you’re not yet playing with your food, you won’t make it through #2 on Calcanis’s list.

Which brings me to my daily devotion: ”Thank God for entrepreneurs who play with their food. Without them, there’d damn sure be no need for clowns like me.”


Richard Florida in The Atlantic

February 15, 2009

Austin has always loved Richard Florida, largely because in The Rise of the Creative Class, he had so much sugar for us. He told us what we were already telling any Fortune reporter with a notebook. Namely, that our city’s particular economic kismet (?) was nearly inevitable when software geeks and film hipsters are allowed the graze each other like so many molecules in a petri dish. I took no issue with Florida’s conclusions. It was just that the book seemed like it wanted to be a magazine article.

I have a precisely inverted reaction to Florida’s recent Atlantic cover story, “How the Crash Will Reshape America.” In it, we the molecules are back, and 40 or so worldwide “mega-regions” are and will remain the most productive places for us to crash into one another. And although none of his conclusions is a shocker (e.g. home ownership in America has been over-encouraged; the Rust Belt will continue to rust; New York will come out of the financial mess just fine while the Inland Empire will not), together they suggest increasingly dystopic patterns of economic development . With themes of this size, Florida is almost certainly is planning a book to “show his work.” I’ll bite.

Oh, and while I was on the Atlantic site (truly one of the best in the serious journalism business) I was reminded of Christopher Leinberger’s eerily prescient article from March 2008 about the coming slummification of many suburbs.

Double oh. Check out the interactive map that goes with the Florida piece. This is the journalistic stuff that brings a tear to my eye and a song to my heart.


Looking in the Mirror

January 25, 2009

I have to agree with Frank Rich that it’s time to move on:

We can’t keep blaming 43 for everything, especially now that we don’t have him to kick around anymore. On Tuesday the new president pointedly widened his indictment beyond the sins of his predecessor. He spoke of those at the economic pinnacle who embraced greed and irresponsibility as well as the rest of us who collaborated in our “collective failure to make hard choices.” He branded as sub-American those who “prefer leisure over work or seek only the pleasures of riches and fame.” And he wasn’t just asking Paris Hilton “to set aside childish things.” As Linda Hirshman astutely pointed out on The New Republic’s Web site, even Obama’s opening salutation — “My fellow citizens,” not “fellow Americans” — invoked the civic responsibilities we’ve misplaced en masse.

I also fervently hope that President Obama will continue to remind us all-each and every one of us-not only of our civic responsibilities going forward, but also our complicity in all that our elected officials have recently screwed up. I can’t help but think of Bobby Kennedy, who would answer questions of the “whose fault is it?” genre by pointing at the questioner and saying emphatically, “Yours. and yours, and yours , and yours,” pointing around the crowd.

I’d join with Peggy Noonan, who so poignantly asks our leaders “not to forget what time it is.” And at such a time, blame for the past and responsibility for the future have at least this much in common: there’s plenty of each to go around.


Ten Questions for the Car Czar

January 24, 2009

From the WSJ and via a heads up from my friend Rob Snyder, the most comprehensive piece yet on the complicated truths surrounding an automotive bailout.


President Obama and a Collective Fiscal Conscience

January 22, 2009

I had little concern that the Wall Street Journal editorial page would go early into the tank for President Obama. Whether it would lend its voice to loyal opposition of long-term fiscal irresponsibility-or merely to screechy petulance born of recently turned political tables-remained another matter. Today, Holman Jenkins planted his first post-inaugural editorial flag in a hopefully helpful spot, although he led off rather curiously:

Barack Obama thus far has treated politics as a business of mobilization, not persuasion. That will now have to change.

I say “curiously” because I think Jenkins may have it backward. Not only is it difficult to imagine a movement sufficiently tectonic to produce a victory the size of President Obama’s without an enormously persuasive prime mover. But also, while the impressive “mobilization” of which Jenkins speaks largely ended on election day, Obama has since moved from 62% to 82% favorability ratings in the polls. He may have mobilized his way to victory, but he has earned a mandate-sized store of political capital by persuading the public of his competence during the transition.

Now, it’s back to mobilization for the President—and he should make it snappy if he is to make most effective use of that capital. Members of Congress know in their heart of hearts the difference between fiscal roads high and low. On the former, they make difficult choices which do not entirely alleviate the short-term pain of all their constituents. Of course, Mr. Obama’s own party tends to be less than rock-ribbed in this regard. But as Jenkins points out:

And yet, Mr. Obama’s goals are perfectly amenable to a genuinely reforming approach….End the tax preference for employer-provided health care. Make it up to workers with an income or payroll tax cut. This one step would move the economy towards consuming health care efficiently and designing insurance policies that actually insure rather than channel the privileged class’s health spending through a tax loophole….Nothing else would do more to improve the country’s fiscal prospects, or do more to lend practicality to Mr. Obama’s goal of universal coverage….

There’s a lesson here. Real reform is often deceptively simple, leading naturally to changes in behavior that are more far-reaching than any detailed government prescription could hope to achieve….

Mr. Obama has been handed an opportunity. He will put the welfare state on a path to solvency or he won’t….His stimulus spending plans will blow up in his face unless the bond markets (which will be called upon to finance them) are convinced the dollar will remain sound and the spending under control.

There’s obviously a lot in there for anyone to mull. But Jenkins’s point remains both simple and age-old: the low road of “avoid the pain, damn the consequences” is easy. The high road is hard, because it requires of a President both the conscience to explain economic tradeoffs honestly to the public, and the leadership to lean on legislators to do what they already know is right. Obama seems to have made some shrewd choices as his internal fiscal conscience keepers: Orszag proved his just-the-facts cred at CBO. Former Hamilton Project Director Furman learned at the feet of Bob Rubin who—despite his recent fall to earth—was the last public servant to act successfully as a President’s fiscal conscience. Summers has no problem speaking his mind, whether anyone asks or not. And even if Team Obama completely whiffs on its fiscal choices, Volcker’s status as an eco-tough legend seems secure.

But even with those fellas hanging about, a loyal opposition in the economic policy press is welcome and necessary. Hopefully, Holman Jenkins will continue to be a leader in fulfilling that role.


Eric Schmidt’s Crocodile Tears for Newspapers

January 11, 2009

I never was that big a fan of the tv show Friends. But for some reason, I’ve always remembered this line from Lisa Kudrow’s character, Phoebe: “I really wish I could help….It’s just that I don’t want to.”

That’s Eric Schmidt’s stand-in a nutshell-on the current plight of the newspaper biz:

The good news is we could purchase them. We have the cash. But I don’t think our purchasing a newspaper would solve the business problems. It would help solidify the ownership structure, but it doesn’t solve the underlying problem in the business. Until we can answer that question we’re in this uncomfortable conversation.

Full Fortune interview here.