broadstuff

It would appear that eBay does not actually own the IP for Skype, though the company paid $2.6bn + earnouts (a total of $4.1bn) for - GigaOm:

In March — a month before it announced plans for the Skype IPO — eBay filed a claim against Joltid related to the license in the English High Court of Justice. Joltid responded by terminating the license agreement between the two companies. According to eBay’s claim:

Joltid has alleged that Skype should not possess, use or modify certain software source code and that, by doing so, and by disclosing such code in certain U.S. patent cases pursuant to orders from U.S. courts, Skype has breached the license agreement.

The usual legal snipes ensued, with Joltid alleging in a counterclaim that eBay and Skype were infringing its copyright. Skype, meanwhile, asked the court to declare that it’s not in breach of the licensing agreement. The outcome is unclear, but without a resolution with Joltid the whole dispute won’t go to court until June of next year. That will delay a Skype IPO by months at best and, depending on the outcome, could hurt its chances of ever seeing the light of day.

In the filing, after noting that it’s confident of its legal position, eBay said ominously:

[T]here is the possibility of an adverse result if the matter is not resolved through negotiation. Skype has begun to develop alternative software to that licensed through Joltid. However, such software development may not be successful, may result in loss of functionality or customers even if successful, and will in any event be expensive. If Skype was to lose the right to use the Joltid software as the result of the litigation, and if alternative software was not available, Skype would be severely and adversely affected and the continued operation of Skype’s business as currently conducted would likely not be possible.

Although Skype hasn’t been integrated into eBay’s e-commerce business, as the company hoped it would be when the acquisition was announced, it has been an area of growth for eBay. Skype’s revenue grew 26 percent in the second quarter of 2009 to $145 million as registered users increased by 47 percent to 405 million.

If true, this is corporate incompetence on a breathtaking scale:

- What did they value the business so highly on, if not the IP?
- Why did they not at least secure a non negotiable right to use the IP, so that future strategic plans were safe?
- Who signed off a deal of that importance and size while knowing the IP was not secure - I'd not want them near any other company I was investing in.

Sometimes, you see things that make you think that the protection of "Limited Liability" on boards of directors should be waived!

I am a shareholder of eBay (a very small one, mind) and I am spitting mad! I predict a Class Action........

In our rebuttal of the "Free!" concept of online business models, one of the things we point out is the game theory implications of Free - ie it only gives you market advantage if no-one else is going free, after that it becomes how much are you going to spend or risk to give away the free services vs the next player in the space. (You can see a summary presentation on this over here).

This guest post,written by Marcelo Calbucci, the founder and CTO of Sampa, on TechCrunch lays this dynamic bare - he notes:

Once you offer something for free, all shades of people will try to benefit from your service. You’d think a service like Sampa with a strong family and baby branding would just repel small business, teenagers, criminals, etc. but that’s not the case at all. And I suspect most blogging services; photo-sharing or web-site building solutions face the exact same issue we did.

Also, its apparently dirty little secret that a lot of social media site numbers are based on teenage girls (the ones that used to buy seven singles in the days of Hit Parades:

One time we went to pitch Sampa to a VC in Seattle, and out of the blue he mentions this other startup growing amazingly fast – had nothing to do with our business. After the meeting I went to check the startup website. Their Compete and Alexa growth was just amazing. Their website contained profiles of all users since it was a public social network. So I clicked on the profile of the 20 people featured on their homepage (“most recent users to join”). Of those, about 75% were girls between the age of 9 and 13 – likely the worst demographic to make any revenue from.

Did the startup know about this? Oh, yeah. Did that VC that was looking at investing on them? Likely not.

Or possibly did but was betting that the companies they would hawk it to wouldn't. As the author notes, although there are all sorts of legal issues with young teens and even pre-teens (never mind their unsuitability as an Ad target demographic), most sites do not push their TOC very hard:

Can you force users to comply with your Terms-Of-Service and still be successful on a UGC service? Yes, you can. Facebook manage to be very aggressive on the enforcement of their TOS, and so did Flickr. However, if you look at most Web 2.0 startups, they are not doing that at all. The most prominent case is YouTube, which allowed copyright infringement on their website and can plot a $1.6B exit based on their “turn a blind eye” strategy.

Maybe a tad unfair, but how many sites will really be willing to trawl through and cull their fastest growth segments? And when Sampa sifted through their user profiles they also found:

....criminal websites, from people trying to steal credit-card and passwords to the ugly side of online pedophilia. We had the FBI come over twice to collect evidence.

And let’s not forget link-farms. Although we had CAPTCHA and email confirmation for new websites, every once in a while someone managed to create dozens of websites in a single day all full of links to some bank, real estate agent, mortgage broker, auto dealer, etc. I’m sure the business that were benefiting from it didn’t know they hired a “black-hat” SEO.

As they point out, these issue are highly unlikely to just be unique to their site, pretty much every Social Network-builder, website builder or content sharing site will have the same issues they dealt with. And the hypothesis is that the pressure of the Free! dynamic implies they will by and large take these risks. Because if you don't (as Sampa decided to do), and someone else does, you fall off the "traction" escalator.....

Nice article on TechCrunch today, well worth reading. Its of the "what happens if you were to design a newspaper from scratch today" sort:

The New New York Times, or NNYT, would have a writing staff of say 50 people. These are among the best journalists in the world, and let’s say they wanted to pay themselves $200,000/year, a top salary for a reporter of that stature. That’s just $10 million a year in payroll expenses. Call it $12 million with benefits. Plus, they all have stock options in the new company.

If TechCrunch is any indication, the amount of support staff (developers, office staff, sales people, admin) needed to run the company is at most 20%, or another ten people, particularly if they outsource a lot of that. Put everyone in the cheapest office possible, and you’re looking at additional payroll, benefits and office expenses of another $3-4 million per year.

Now lets just add another 50% on top of that for other expenses and a safety net, and round it up to $25 million per year in total expenses.

That’s $25 million/year to have a well paid staff of the best journalists on the planet. How long before they outstrip those 16 million monthly visitors and 124 million page views? 5 years? Less?

How many private equity funds would kill to put $100 million behind the NNYT to make sure the company had plenty of money until it reached profitability?

The problem you have is that the people who will build this sort of thing are not the existing media behemoths (who will resist till the end), and would probably find it hard to get that initial $10m to get going as they typically have no brand, readers or industry kudos. Which, of course, is why they all start on even lower cost bases, like Gawker, the Huffington Post and even TechCrunch. Take this note on Huffington form CEO Eric Hippeeau, for example:

1) Reporting has a different connotation at Huffington Post. “We expose our community to the best of what’s going on. Our content is what attracts the 20 million unique visitors a month. But what keeps our community coming back is engagement. We get 1.5 million comments per month. People jump onto stories and participate in the debate.”

2) There are 40 people in editorial at the Huffington Post; some of them are reporters, the rest are editors. “We have a unique ability to keep a story going when even mainstream media is silenced. Consider Iran, where after the election, the mainstream media reporters were kicked out of the country. But our citizen contributors communicated with us via Twitter and Facebook and cell phones, allowing Huffington Post to keep the story alive for eight days.” Reporters are also responsive to the “vox populi” by amending story leads or headlines based on feedback from the community.

3) Brands have a big role to play in the future of the site. “Marketing executives need to stop thinking about product campaigns. The question is what is your brand presence? Consumers are considering your brand at all possible times. And corporate reputation has a major influence on brands.”

4) HuffPost is considering some form of social network that allows continuous connection among your public and private conversations. The idea is a network that can be both personal and outward facing. “We see our community as being in the middle of the site, with content on the outside.”

5) Bloggers supply much of the content for the site. “We publish over 200 posts per day. Our community wants to hear from those who are in charge, from government leaders to CEOs. The style should be stream of consciousness with a point of view, not like traditional journalism.”

6) The business model depends on advertising. “I do not see us ever charging for content. We are a particularly efficient ad buy in the influencer category.”

Also, its not clear that quality trumps quantity - AOL's purported 1,500 part time writers may well do a "monkey with typewriter" thing at lower cost than 50 grizzled hacks at $200,000 each.

But as a piece of blank sheet thinking, we salute it!

Two interesting articles on the future of news in the last few days - Umair Haque's paper "The Nichepaper Manifesto" and now the Long Tailed Chris Anderson (as opposed to the TED Chris Anderson) somewhat provocatively proposing the media will be a hobbyists pursuit in future in this Der Spiegel article. Lets start with something Umair wrote - I know this, you know this, but it is starkly presented here:

Journalists didn't make 20th century newspapers profitable — readers did. 20th century newspapers were never supernormally profitable because of what they wrote: it was the natural monopoly dynamics of classifieds that fueled massive margins.

We tend to forget that the reason for profits is unique access to bottleneck resources. In the case of the media it has been production and distribution. The 'Net changed all that of course - production and distribution is now in the hands of anyone with a PC and a 'Net connection. In other words, every hobbyist in town - as Chris Anderson notes:

So now that you don't need this access to a commercial channel to distribute (news), anyone can do it. What we do [he is talking about journalists] is still useful but what other people do is equally useful. I don't think our way is the most important and it is certainly not the only way of conveying information. So this is why we're in a funny phase. It's going to take us a decade or two to figure out what it is we're doing.

Cue then for The Great Media Shakeup - where are the new precious resources, the bottlenecks that add value? Umair: (I've added the scarce respurce implied in brackets)

Knowledge, not news. Newspapers strive to give people the news. Next stop, commodity central. Nichepapers strive to impart meaningful, lasting knowledge instead. (Independent analysis, not churnalism)

Commentage, not commentary. Newspapers dictate to their reader what news and opinion are. Nichepapers co-create knowledge through "commentage." Commentage is the kid sister of reportage: it is the art of curating comments to have a dialogue with the audience — because the audience can fill gaps, plug holes, and thicken the foundations of knowledge. Many newspapers have comments — so what? Almost none are having a dialogue with commenters — who are mostly stuck in a twilight zone where they can only talk to one another. Nichepapers, in contrast, are always having deep dialogues with readers. (Having a collegiate collective of commentators)

Topics, not articles. That's why Nichepapers develop topics — instead of telling quickly-forgotten stories. When Talking Points Memo exposed the Bush administration's series of politically motivated firings, it did so in a series of posts, that let the story develop, surface, thicken, and climax. Stories are for information — topics are for knowledge. (Curation and editing, not churn und drudge)

Scarcity, not circulation. Newspapers strive for circulation, by telling the same stories in the same ways — in slightly different places. Nichepapers strive for scarcity: to develop a perspective, analytical skills, and storytelling capabilities that are inimitable by rivals. (Curation, not churnalism)

Now, not then. Newspapers give you the news then. Nichepapers give you knowledge now. Why have weekly columns and daily articles — that then get lost in the wilderness of a vast archive? It's an arcane, obsolete way to produce content. Nichepapers develop topics of conversation, not individual stories, and let them co-evolve with readers. (Real Time feed + ongoing storylines)

Provocation, not perfection. Newspapers seek perfection: perfect grammar, perfect ledes, perfect headlines. Nichepapers seek provocation instead. Sometimes, yes, that provocation is mere titillation. But more often than not it's authentic provcation: nichepapers provoke us to think; they challenge us; they educate us in ways that newspapers stopped doing long ago. (An argument for the Broadside Ballad style, I don't think there is a sustainable advantage here)

Snowballs, not sell-outs. Newspapers long ago sold out to advertisers, PR flaks, powerful "sources," and lobbyists. When was the last time the WSJ bit the hand that fed it? Why is the Post's editorial page so predictably tepid? Nichepapers haven't sold out — and if their economic promise delivers, they won't have to. They "sell in" instead: they pitch topics and stories to the community, and let the best ones snowball — through contributions like tips, criticisms, and corrections.(Independence)

To me the message is fairly clear - the New Bottlenecks will be Independent Thought, Editing & Curation, and Journalistic Storytelling. The first requires independence from advertising (or at least a new compact minimising interference), the second needs high quality management of the output (requires skill and money) and the last - and the only one that the writer can really influence - is the quality of the story.

This to me is the issue that "HobbyMedia" will face - the "Pro" media will find the new bottlenecks and spend all their time and energy in mastering them (and probably no little bit of effort trying to restrict access, if history is anything to go by). So how will the Hobbyist fare longer term then? Historically there is always a "burgeoning of the small man- from Ham Radio onwards to blogging, and a gradual replacement by businesses.

But that is supply side - Anderson also notes that the demand side, the way we filter media, is shifting:

I read lots of articles from mainstream media but I don't go to mainstream media directly to read it. It comes to me, which is really quite common these days. More and more people are choosing social filters for their news rather than professional filters. We're tuning out television news, we're tuning out newspapers. And we still hear about the important stuff, it's just that it's not like this drumbeat of bad news. It's news that matters. I figure by the time something gets to me it's been vetted by those I trust. So the stupid stuff that doesn't matter is not going to get to me.

There is an implication in there - the "Hobbyist" is that trusted person who is vetting the news. Will the Nichepapers ever take over from them? I suspect not, that in fact they will run in parallel. Anderson also points to two other bottleneck resources:

Attention and reputation are two non-monetary economies. The vast majority of people online write for free. We've tried paying some of our bloggers and they thought it was insulting. They're not doing it for the money, they're doing it for attention and reputation, or just for fun.

Attention of the end audience is a true bottleneck, especially as its now becoming clear that internet usage is commoditising and people are starting to optimise it rather than see it as a gee-whiz. Also, Chris's second point notes that the cost of content production will stay low as there will always be a person coming up trying to make a reputation.

But will they be hobbyists in the longer term? The traditional path of all media past is for the newbies to sell labour for near-free to make a mark, but here again there will be competition as to who can spend the most time in providing the free services. Quantity in this case will have a quality all of its own. Just as Ham Radio, Desktop Publishing and Blogging all promised the rise of the Amateur, only to see it replaced over time by the Pro-Am and then the Pro, we suspect this too will disappoint.

The other point that is often lost in all this is Device Envronment - some devices are just better at receiving and taking in some sorts of news, and/or in some environments, than others. Papers, Sunday and Coffee go together, for example, as do iPhones and trains. Thus we suspect there will also be a segregation by end user experience.

Update - here's how the amateur to pro shift will probably work - professional curation of amateur content mooted as "Social Journalism" by Scott Karp

What’s Social Journalism? It’s what you do when you gather information in social media channels and then report it to your readers. Watching a Twitter #hashtag for posts related to a critical local issue or big event, then publishing them in a roundup or sidebar on your news site? That’s Social Journalism. Scanning YouTube for the latest video from a protest, county fair, or city council meeting? That’s Social Journalism.

Issue will be getting correct economic model (ie keeping costs down far enough, applying curation in high impact areas). I'd suspect most of these will use Umair's "provocation journalism" model.

Blimey - no sooner does one write a post on one SocNet being on the block and 2 others rumoured to be, than a 4th (Friendster) is also put up for sale, notes TechCrunch.

A very interesting issue is the valuation:

One thing we couldn’t gather from the documents, which are embedded below, is the price Friendster is hoping to get. The company is backed by more $45 million in capital venture firms like Battery Ventures, Benchmark Capital, DAG Ventures and Kleiner Perkins Caufield & Byers, along with some early angel investors such as LinkedIn founder Reid Hoffman and Spinner/Grouper founder Josh Felcher.

Our latest model valuing social networks puts Friendster at only $210 million, based on Facebook’s recent valuation of $10 billion. Mostly that is because of the lower spending power of consumers in Southeast Asia, making advertisers value them less differently. That $10 billion Facebook valuation, though, was for preferred shares. If you look at the $6.5B valuation of the most recent sale of common stock, Friendster would be worth only $137M in comparison.

Valuing down from Facebook's current minority share purchases is one approach. A more accurate approach today, however, may be valuing up from the reported revaluation of Friends Reunited, reportedly down c 90% on its purchase price. (Quick back-of-bizcard maths says a 90% discount on Facebook is c $650m - $1bn, and thus Friendster is c $14 - 20m)

Boo, I hear you cry - where is the rigour in that calculation! (Rigour? In Valuations? - hah!). One can only wonder what the new "post sale" valuation of Facebook will be, if all these SocNets get sold at pennies on the original purchase dollar.

Are Social Nets now seen as sinking ships?

Over the last few year there have been a number of increasingly eye wateringly high priced purchases of social networks - Friends Reunited at $280m (£175m), MySpace at $ 580m and then Bebo at $850m. Usually they sell for for cash upfront, so the founders get to run away with the loot and leave the social network to do what come naturally - ie flounder, as each of these things has a limited lifecycle.

Now come the eye wateringly low sales - in true first in, first out mode its Friends Reunited which apparently has an offer in* at £15m. a mere 93% writedown, from Pipex's Peter Dubens:

Serial entrepreneur Peter Dubens snapped up a number of small internet service providers on the cheap when the dotcom bubble burst, including Homecall, set up by former Phones4U owner John Caudwell, and Bulldog, the residential broadband provider jettisoned by Cable & Wireless, and rolled them into his Pipex business. In 2007 he sold Pipex to Tiscali for £210m, now part of Carphone Warehouse's TalkTalk operation.

Aka the smart money.....

The thing that always fascinates me is that these large corporations seem to be able to unerringly buy overvalued assets at the top of the market, despite (because of?) the best consulting and legal and financial advice money can buy.

Anyway, we hear continual rumours of sales for MySpace and Bebo as well, no doubt at fractions of their original values as well. Be interesting to see what their writedowns are as % compared to Friends Reunited. As for buying Facebook or Twitter, best is to pick it off whoever buys it first time round perhaps?

*Guardian piece I linked to notes it is unconfirmed

Picking up from TechCrunch on the Shiny Saga, it seems there is a whole sorry can of worms emerging - from money not appearing, fast pack pre-packs, financial three pot tricks etc etc:

The questions that arise from this affair are innumerable.

Why does Dan Wagner of Brightstation call this an “alleged sale” if Brightstation already owns part of the company that the assets were sold to. Wagner has declined to comment further.

Was Brightstation given the option to buy the assets or to invest further money by Shiny Media prior to is pre-pack sale to Shiny Digital?

How much were the assets sold for?

What attempts were made by the administrators to find another buyer for the assets? Was there any advertising? We’ve called the administrators but they have not returned our calls.

Some freelance Shiny writers say they were still waiting for payments owed prior to Shiny entering administration. Some are owed at least £4,000. This could substantiate the administrator’s view that Shiny Media “was unable to pay its debts”.

Who is this mystery additional shareholder that voted for administration?

Was Brightstation aware of the whole process?

Why our interest? Well, I want to know if the business model doesn't work or whether it was an execution issue. The way this is going right now, it looks like execution had quite a big part to do with it.

There has been a brouhaha going on today, with allegations that SpinVox has been a bit economical with the truth about how it converts speech into text, and its not so much an algorithm system as Mechanical Turk (or in this case, South African or Phillippino), as its using South African and Phillippines call centres to transcribe messages. The BBC story says "claims to the BBC suggest that the majority of messages have been heard and transcribed by call centre staff in South Africa and the Philippines"

Not so, says SpinVox, its all in the technology:

Claims have been made to the BBC, suggesting that the majority of messages have been heard and transcribed by call centre staff in South Africa and the Philippines. These are incorrect.

SpinVox has delivered world-leading breakthroughs in speech recognition and related technologies, developed by its Cambridge–based Advanced Speech Group - a highly qualified team of speech scientists working together with the world’s leading speech academics. This team is considered to be one of the largest commercial speech R&D teams world-wide.

In the past two years, the Cambridge ASG team has applied the latest research to create state-of-the-art techniques that today deliver a system that outperforms any equivalent speech technologies on accuracy, speed, scale, reliability and language range.

Now I must admit I don't use SpinVox, but I have watched the speech to text industry over-promise and under-deliver for 20 years so I would treat the above claims of technology superiority with just a bit of scepticism (I just always assumed they had human intervention on top of the speech to text algorithms). Accents and fast talking usually send these systems into a tailspin. But, if their technology can really do what they claim (ie, the majority of messages are not interpreted by call centre staff*) it is an order of magnitude better than anything else on the market today, so I would be very excited.

Commercially this will be essential, simply because a heavily human based system is far less scalable so the company's growth potential and economic envelope is far more limited. Also, the human method has implications on data protection and privacy for countries where it has no call centre presence .

Best thing for them to do is a public demonstration to clear this up.

* Their blog post is very carefully worded, which makes me wonder.....

Shiny Media went bang yesterday, its one of the media businesses we tracked to understand what economics/technology/business model cocktails work, so the story as it unfolds should be interesting, lots of lessons I am sure. Best of luck for the future to those who sailed in her. All sorts of reasons for collapse are mooted, and there is some confusion as to whether they did or did not receive $4.5m in funding (If they did, there is a whole 'nother post to write....).

Anyway, TechCrunch covered it here, and there are loads of "what went wrong" comments, which the ever vigilant Simone Brummelhuis of TheNextWoman summarised:

Our learning curve goes up from this article, the lessons to be learned on “what can a blog (network) do well and what mistakes should it not make” are:

- make the design not too rough and ready for the casual browser
- be more than a superb, passionate, smart, and hard-working team
- don’t rely as editorial site to much on sales commission (such as from skimlinks)
- move away from a CPM model (only)
- do not to rely too much on traditional banner ads and try out some new revenue models
- Blended and diversified revenue models - including offline revenue streams like events - would tend to make a lot more sense instead.
- don’t use abysmal templates and horrific flash ads
- get a proper sales team together and sell some actual ads
- do audience research and interaction
- maybe try transactional widgets and sell products and collect real sales commission
- you can start with a semi-delusory idea of how to make revenue as long as, when markets turn against you, one is savvy enough to turn things around to survive.
- don’t use VC money for shiny offices [in expensive areas]
- invite the best of the Shiny team to your new venture as one learns from failure!

And I add: Even though online media and events are currently not the most disruptive business models around, and thus not fundable according to many, it seems that all those business and entrepreneurs that run a disruptive business model (and a lot of brands) do need the media and the events.

That point about events is well made, as Gartner notes, the early phase of The Hype Curve more money is made in events that in the actual business area.

That right - the egosystem (the term was flitting round the London Twitterati this morning). The egosystem is that part of Twitter inhabited by those people whose sole purpose on Twitter is to "amplify" themselves. However, given that the poor things are so busy pimping themselves that it must be hard to think of all the ways and means they can do it, we have published this handy guide as a service:

1. Retweet Yourself Redux:
Me: RT @You RT @Me [The drivel I was pimping]

2. I'm So Important part 1:
Me: Lovely [Lunch/Dinner/Breakfast] with @[First Worthy Person], @[slightly less worthy person], @[even less worthy person] and @[oh yeah, they were there too] talking about [incredibly erudite stuff]

3. I'm So Important part 2:
Me: I am at [name exclusive event/place/etc] waiting for @[super-status person] to [take the stage/take the seat near me/take the biscuit]. Bonus Point for I will be [meeting/eating with/sleeping with] them afterwards

4. I've got real access:
Me: Hey I just so happen to be at [big corp's big annual shin-dig] with [BigCorp media hero] and I would like to draw your attention to [some tediously boring bollox]. (courtesy @psd, who spurred this post)

5. I've got the real gen:
Me: Playing with the [must have yet unavailable device] from [groovyCo] thanks @[whoever their "chief evangelist" is] its awesome* (do not, repeat not, disclose that its a freebie for a puff piece - evah!)

6. I've got a secret:
Me: Who else is going to the [Exclusive Party/Wake/Orgy] DM me we should get together beforehand (also known as the fishing for an invite gambit. Even worse is the actual holder of the exclusive event trying to pimp it this way)

7. I've got great friends:
Me: RT [Some big dog]: their utterances from heaven above < thats so [awesome/awesome/awesome*]

8. Hey, did I tell you I've got real access:
Me: Just had a great [conversation/spitting contest/piss in the bogs] with [Some Big Dog] it was a truly [yes, you guessed it*] moment

9. Look at ME!
Me: I've just [finished/started/vomited up] my [best yet/first ever/next in an interminable series ] check out my [video/blog/photo - attach url] its truly a....*

10. I'm so Right On
Me: Check out this [whatever] on [the moral high ground zeitgeist of the day, or default Green Issue] its so [yes, you guessed it again*] it makes me [insert your cringeingly overblown emotional reaction here]

Source Data: Just another normal day on the Twitter Egosystem......

Update - rumbled by @kcorrick: "poss 11th way of using the Twitter Egosystem: writing a list of 10 things abt Twitter in full knowledge it will be RT'd "

*Everything is always Awesome. Or Lovely. There are No Other Adjectives on Twitter. Isn't that Awesome?