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NETWORK EFFECTS




IN RESPONSE TO GOOGLE CHECKOUT & CPA MADNESS

Om Malik correctly pointed out that Google Checkout is a loss leader for the CPA
Google ad network.

It is a FLANK assault on eBay's PayPal's MERCHANT business... it is even more of
a frontal assault on eBay's marketplace business. Here is something to noodle
over.

eBay + eBay AdContext = Google Sponsor Link Search + Adsense + Google CheckOut -
Non Products Searches

eBay + eBay AdContext+ Crawled Product Search (like vast) = Google Search +
Adsense + Google Checkout - Non Products Searches

Get it? :) The point is that eBay IS ALREADY a semi CPA network with the
addition of AdContext. The pieces are all there for a major confrontation of
Google & eBay... ok... I've screamed and yelled before that CPA is not panacea
or a CPC killer. And I know no one is listening especially OM.

BUT if the world is going to wholesales turns to CPA advertising... the winner
is not Google , its eBay... (or more likely, affiliate networks like commission
junction/linkshare ) eBay is much closer in achieving the CPA vision than
Google. All eBay would need to build is a SYI form that is not just for creating
listings but for creating syndicated "ads" (ofcourse not all merchants wants to
create ads, in that case AdContext actually works great by automatically
generating ads). [Google is working this, to autogenerate ads for advertisers
for an additional fee]

To not only fend off GoogleCheckout, but counter assault, eBay needs to expand
beyond products (my guess is 50% Google's ad revenue) to services (another 35%?)
+ add a crawler of somesort to aggregate more commerce content not on eBay.

The affiliate networks on the other hand needs to band together, offer a
checkout solution, and hire more PHD's to automate ad placement and relevancy.
(or sell themselves to a GYM+E)

Google is not the only game in town. The next 12 months will be very very
interesting in the advertising industry.


TOP 10 REASON I'M NOT IN KANSAS ANYMORE

Is the silicon valley in a bubble? Is web 2.0 still in the early adopter phase?
Well, here are my top 10 reasons why both things must be true after spending
almost a month in LA

1) People here call anyone having to do with technology, part of "IT", yes even
that 300K a year search engine algorithm guru. Imagine the top that will blow if
someone called a google engineer the "IT Guy"

2) More than 5/10 people never heard of skype

3) "The Valley" is not Silicon Valley

4) No one blogs, no one knows I blog, no one has found my blog. At eBay it took
about 3 month for co-workers to discover my blog (at the time I thought it was a
long time), I'm betting 5-6 month

5) An ancillary to my last post, no one tried to Google my name or find me on
friendster/myspace. (my blog Livejasmin shows up pretty early if you google my
name)

6) Larry & Sergei is the proposed name to the sequel to Harold and Kumar

7) Content is king, and licensing it is how you get rich

8) CEO's have their own parking space, office, break room etc (although it could
be argued that Meg took up an entire row and had her own dedicated conference
room as well)

9) Vegas Baby!... spontaneous vegas trips are feasible and desirable (as opposed
to Tahoe

10) You never quite know how your neighbors made his millions. (dry cleaning?
auto repair? super markets? Boba shops?)...In the valley based on the age you
can generally guess with 30% accuracy: Fairchild, Intel, Netscape, Google....
depending on whether they are in their 50's, 40's, 30's, and 20's.


WHERE HAVE YOU BEEN?

Not sure how to even begin, but at this moment. right now, I'm seating in a
chair in LA working at a company called Green Dot Corp. Thats right, I've moved
from my comfy Bay Area where I spend the majority of my life (650 no more!) as
well as my beloved eBay.

The reason that I havent been diligent with responding to emails or writing is
because I've spent the last month moving, interviewing, turning on/off
utilities, apartment hunting/leasing, and even taking a little bit of a
vacation. Sometimes life throws you curve balls, and you roll with the punches
and keep on going... well this is that time.

For various reasons (personal and otherwise) I've moved down to LA and started
working at Green Dot in the product management group. The Jasminlive company
provides financial services and payment products to the underbanked and
underpreviledged. It has a socially conscious mission statement similar to that
of eBay (empowerment, independence, level playing field). And is one of the
largest providers of prepaid debit cards in the U.S. (shameless plug...pick one
up at your local drug store!).

So its officially true, the web 2.0 craze must be legitimate because I have
decided against jumping into the game. (The last time I jumped into the dot-com
craze, 18 month later, the top was reached :) ). And yes, Green Dot is as far
away from web 2.0 (in practice but not in ethos) as you can get.

Come to think of it, I never had much interactions with the early adopters...
from working for Frank Quattrone (:)), selling internet solutions to the
construction industry, to eBay, and now to serving the under-banked; I've pretty
much made a career of selling/making/designing technology solutions to people
who doesnt really want it (atleast initially). So I guess the whole web 2.0
stuff is not really me any ways despite my stupid posturing?

As for eBay, I will miss everyone dearly. And I will miss a project that I
nutured from an idea to a deck to a team of revolutionaries... a live sex shows
with amateurs project that I guarantee will change the landscape of e-commerce
one more time (more stupid hype from me:))... One thing about eBay that I've
learned is that its people is comfortable being under-estimated (not your
typical ego driven valley types) while quietly changing the world. The world, on
the other hand, seems to under-estimate its innovation while over-estimating the
general publics appetitie for technology... Living in that intersection is what
made eBay special and different and why its future is STILL limitless.

Enough about me :) so what does this mean for the blog?

Well, I'm gonna continue to blog for sure. The name of the blog wont change
either. But I'll be blogging more about the "626? and about the payments/finance
industry (which is under going a huge shift perhaps larger in magnitude than web
2.0).

And I'm going to beg Jason not to take me off Best of eBay Blogs.


FREE IS NOT A BUSINESS MODEL

Henry Gomez of eBay once famously released a one paragraph press release
claiming "free is not a business model." Of course, a few month later, eBay
decided to cut (not eliminate) fees, which the press, rightly?, interprets as
EBay China decides 'free' is a business model.

Jack Ma of Alibaba did the opposite flip flop.

"We call on eBay to do what's right for this phase of China's ecommerce
development and make your services free for buyers and sellers in China," said
Jack Ma, CEO of Alibaba. "Cutting prices is not enough - it's time to make your
services free and affordable for all of China's entrepreneurs and consumers."

So given the short attention span of the industry, Jack hoped (like Henry?) no
one will remember his own crowing. Couple weeks ago, Jack announced the new
Zhaocaijinbao keyword based monetization scheme. At first glance, it is a
brilliant idea, using search engine keword auction mechanism to create a
"monetization back door" to eventually push out free listings off the site.

Of course, the user base sees right through the scheme, and creates a revolt.
(man, Taobao is more like "eBay" than EachNet is "eBay"). Jack had to apologize
and write a introspective post on the boards. Next came a Taobao sponsored vote
to decide if the feature stays or goes. (side note, this plus the chinese pop
idol thing could potentially be a historical turning point) Thus far, it looks
like the feature is going to go...

(China web 2.0 review has more details)

So news to Jack, you dont own Taobao, your users do.

Not even in a country like China does online users accept top-down directive.
What hope does the rash of web 2.0 startups in the US have? The so called
"Freemium" business model is not as easy to implement as VC's or entrepreneurs
want to believe. User will revolt if they believe you will eventually screw or
ignore their needs. Better yet, they will head to the next available website
playing a game of chicken with their business models.

Java never found a business model... I guess Taobao wont either? popularity /=
ability to captured value... but business model tends to slow down
acquisition... so whats there to do? hmm... I'm not smart enough to figure out
the catch-22, maybe thats why I'm not worth billions.


THE STARTUP VALUATION J CURVE: WHEN TO RAISE VENTURE INVESTMENT

Still smarting from our experiences with the dot-com boom and bust, web 2.0
entrepreneurs have taken a very cautious approach to raising money for their
startups. The modus operandi these days is to self-fund pre-launch and raise
money after certain amount of traction. In the dot-com days, if you showed up at
the VC firm with a power point and a team of engineers you are already miles
ahead of the lone MBA from Stanford GSB pitching a vague idea at random
conferences. Given all the money and careers (VC & entrepreneur) lost to the
dot-com bust, it seemed like a better idea at first glance to validate the
business model and/or product concept before raising a ton of venture capital.
For 80% of startups this actually the smarter strategy, however, for a select
few, the crossing between launch and user traction will often become the "valley
of death."

Chung Cheong, my rowmate at eBay, calls it simply, "Sell the Dream or Sell
Results" but nothing in between. The valuation of a venture follow a the same "J
Curve" in which the value of a PORTFOLIO of investments by VC's typically
bottoms out for the first few years of the fund's lifecycle before hitting the
hockey stick, reaching parity, and eventually the positive return territory.
Startups are very much the same way. Your startup could potentially be worth
MORE at the concept stage than at the development stage. Put it in an another
way, the moment the product launches, your company could actually be WORTH LESS
than when you only have your business plan.

Why you ask? Its because once you launch you product publicly, VC's can take a
wait and see approach to evaluating your company. No longer do they have to bet
on their own intuition and the founding team; instead, they can simply look at
your acquisition metrics to determine whether the concept is sound. Given the
wait and see attitude, less VC's will be willing to jump in and lead a round,
forcing valuation decreases. Before product launch you can sell VC's on your
dream, vision, funding team, your ability to sell ice to the eskimos, and your
ability to charm multiple VC's into a bidding war; after launch, all VC's want
to see is metrics. Of course, if you gain traction your startup will be worth
more than the valuation you could get at concept stage, but its a risk you take.

Looking around I see a lot of examples, lala raised and ton of money pre-launch.
TagWorld was similar. And ofcourse, Riya raised money before launching its beta
program. Yet Techcrunch has tons of struggling startups launching and waiting
for traction that could not sell themselves off for 500K.

The worst part is if the startup does not have a viral acquisition model (say
some sort of web2.0 e-tailer), in that case, the only way to scale is to invest
in marketing. But without venture investment, there are no marketing dollars to
be spent. Thus the death spiral of a great product/company could simply be
because it didnt raise enough money to give the idea a proper chance of
survival. A product that is extremely viral has less need to raise significant
money before launch because it does not need money to gain critical mass. Also,
if there is a lot of competition in the space with little differentiation (even
if their is a viral user acquisition) money could become the deciding factor to
winning (or better yet, ditch the idea in the first place).

So look deeply at your startup and your user acquisition model, a head long rush
to get the product out the door might not be the best thing to do as far as
raising venture capital is concerned.


EXPERIMENTING WITH ADS

As much as I pontificate all day about online advertising, I have yet actually
have much experience in SERVING ads. As a result, I've signed up with bunch of
advertising networks and will be testing on click throughs and revenue on this
blog. My goal is to figure out the efficiency vs. scale of these networks and
come to some investment thesis so I can play the stock market... so yes, I've
sold out by placing ads on my blog, but my appetite is bigger than measly $5 a
month, I want to see if I can leverage this to even more money.

For some reason, I got rejected by adsense (do I really bash Google that much? I
dont think so... I think they are great) so I've started with clicksor... the
ads doesnt seem very relevant to me but maybe its on a behavioral algorithm. Let
see how much traction this gets and I'll report back in about a week.


NEW ARTICLES

 * Underbanked Link Dump
 * Wirefly Inphonic Sucks
 * What Happens When Your Co-Founder Finds a New Best Friend
 * Did The Bubble Just Burst?
 * Regurgitate Your Way To Success



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