The iParanoid Scenario

I’m not through with the iPad. Actually, I’m just warming up. For today’s column, let’s focus on the perils of a closed system.

I live in a country (France) where censorship is a big deal. It comes mostly from greedy celebrities (sorry for the truism); they use a legal system that largely favors them. Often, they find a compassionate judge when it comes to extracting money as compensation for a supposed privacy violation or for some other unauthorized disclosure. Convictions are frequent and expensive; they can lead to the seizure of a magazine or even of a book. France has a long history of such practices. In the early sixties, the country was waging a colonial war in Algeria. Then, for the most avid news readers, the game was to get the weekly magazine l’Express at the kiosk as early as possible before French authorities seized it. (No such risk with today’s Gallic newsmagazines).

Let me reframe this in the context of an upcoming iPad era. An iPad newsmagazine publishes an investigative piece that triggers a legal injunction: remove that from the publication or face a $10,000 penalty per day. No, says the publisher, who has guts and money (proof this is a fiction), we want to fight in court. The plaintiff then turns to Apple. Same talk: face a huge fine, or remove the offending content. Furthermore, says the plaintiff’s attorneys, thanks to your permanent and unique electronic link to your proprietary devices and the fact that the electronic kiosk now resides on the device – yes we can argue that point, they say– , you must extend the deletion to each user’s tablet. C’mon, you keep pushing updates, and various contents bits to these gizmos, you can push a delete instruction code.

What would Apple do? This is a question of balance of power. If the legal action involves some neuron-challenged celebrity, chances are Apple won’t balk. But what if Nicolas Sarkozy or his whispering-singer wife are the plaintiffs? Truth is, given the pattern of legal actions against the press in France, it is more than certain a French judge will be tempted to request an immediate remote deletion of a presumed infringing content. Then we’ll see a replay of what happened last summer in the 1984 case, when Amazon remotely deleted a copy of George Orwell’s novel in the Kindle of buyers for copyrights issues. Amazon’s founder Jeff Bezos apologized profusely for the mishap (plus it involved 1984 not Alice in Wonderland, tough luck). Read More »

Soft Brakes on the Prius

Once upon a time, I took my Wehrmacht staff car to the Palo Alto service shop. As I mentioned a barely perceptible change in the feel of velvety autobox when it shifted gears, Ernesto, the all-knowing, all-seeing tech nodded: ‘Yes, we need to load a new revision of the software in your automatic transmission…’

When I mentioned this to my Monday Note boss, he jumped: ‘Why don’t you write a piece on cars becoming soft, that is an exposé of the total invasion of software in today’s cars?’
We’re both geeks, you see. And, yes, I could sing the praise of Toyota’s PSD (Power Split Device), the clever Continuously Variable Transmission (CVT) used by the Prius. (That type of transmission was invented in the 60s by TRW, Thompson Ramo Wooldridge, a Texas company. The patent has expired.)

But there is more urgent than software-driven transmissions in the news. Toyota is hit (or has hit itself) by one problem after another. After recalling something like 8 million cars because of a combination of pesky floor mats and sticky gas pedals, we now hear Toyota’s crown jewel, the lated model Prius has buggy brakes.
How come?
Software, of course. And the need to score high numbers in the mileage tests.

Here is how the problem builds.

First, brakes.

Once upon a time, brakes were simple: you pushed on the pedal, the pressure was hydraulically transmitted to the brake itself. Assuming a disc brake, the pressure caused calipers to squeeze the disc between two sets of pads, thus slowing the car. For convenience and safety, your foot’s pressure is multiplied by a brake booster.
So far, no microprocessor.

Then we invented anti-locking brakes, ABS. As you know, when wheels lock, the car skids, braking is impaired, stopping distance increases. ABS uses sensors to monitor wheel motion. If the wheel abruptly stops moving, it’s locking. A software program then directs the brakes to lower the pressure on the disc pads, the wheel starts moving again, until it locks again and the unlocking cycle restarts. You can sometimes sense a vibration when the ABS quickly repeats the sequence, trying to keep the car just at the edge of maximum braking without locking the wheels. Nice. Modern implementations have faster actuators, the device that temporarily reduces hydraulic pressure, and smarter software, to better deal with road surfaces with gravel or snow where some amount of wheel lock is the better strategy. There is even newer code that detects a panic stop and forces the kind of maximum pressure normal drivers are reluctant or unable to apply. Read More »

The iPad Media Expectations

For a large part, the Apple tablet was seen as a potential solution for the media industry problem: a digital infrastructure for delivery and transactions encompassing a vast array of media products — instantiated in a device destined to become a de facto standard.

Many blame the media industry for not being able to come up with such an ecosystem. This is an unfair criticism. Building a universal payment system for the web, even at the limited scale of a single country is already complicated. Let alone an interconnected system allowing users to jump from one country to another. Even the music industry — can’t we think of more global product? – couldn’t do it. As for agreeing on a set of specifications for a device, it would have been impossible. Too many views, ideas, concepts, priorities to unify. To say nothing of egos.

Hence the reliance on Steve Jobs’ vision. As the media industry kept unraveling, such reliance mutated into a desperate hope. Can he save us? Can he do for the media business what he did to the music industry with the iPod + iTunes magic combination?

In this respect, the January 27th release of the iPad fell below expectations. The device is great, it has all the attributes of an Apple product: a sleek design and a gorgeous interface. But Steve Job’s presentation was short on contents. We had a glimpse of the New York Times reader apparently crash-coded in three weeks, but no magazine, nor mind-blowing hybrid content (I’ll come to that notion later). Given the hype, maybe Apple could have waited until May or September to roll-out its magic slate fully loaded with ready-to-purchase news contents. Evidently, Apple is hampered by its obsession with secrecy and its habit of making deals on its own terms – a “here-is- our-device-now-here-is-the-deal ” posture.

Granted, the product won’t ship for two or three months, depending on the version (wifi or 3G). Then, let’s give Apple and its partners the benefit of the doubt and let’s move the clock forward to spring 2011 to see what a true news media game changer could look like.

Read More »

iPad Thoughts

Let me start with an important caveat. For this I’ll refer you to a post from my favorite high-tech blogger, David Pogue. “Don’t pass judgment until you’ve tried it!” Wise counsel: three years ago, industry sages “knew” Apple had no business making a phone. Normal humans voted with their wallet.

Customers come in two categories: cats and dogs. Put new cat food before your feline companion, she’ll walk around the dish, indifferent to your entreaties, suspicious, bidding her time. Dogs aren’t that complicated: they jump on the new dog food and greedily scarf it down.
I’m a dog, I’ll try (almost) any new high-tech product. But, as the advertising lore likes to say: Will the dog come back to the dog food? That’s how you know you have a viable product. We’ll see in a couple of months if I keep my new iPad or if our daughter Marie resells it for me on eBay - for a fee, she’s a businesswoman.

In the meantime, five thoughts.

First, we have no idea of what the iTunes App Store will do for the iPad. As usual, the temptation is use derivative thinking: The iPad is like ___ only bigger, or smaller. A bigger iPod Touch is the more common thought. So, yes, most iPhone or iPod Touch apps will scale nicely. But this much bigger XGA (1024 by 768) screen is “more enough” for iPad applications to be genuinely different as opposed to mere derivations of iPhone apps. Apple comes up with their own iWork apps showing but one example of uses that aren’t just an extension of the iPhone world.

Gizmodo has one of the few posts, among the tens of thousands of iPad-related blog entries, focusing on in-app purchases. Last Summer, a new iPhone OS release introduced the ability to make purchases from within an application, without jumping out to a Web site. As a counter-example, look at the current iPhone Kindle app: when you want to buy books you leave the app and go to a dedicated page on Amazon’s site to order the book and direct its digital delivery to your iPhone. Apple offers a simpler mechanism: buy what you need, weapons or lives in a game, virtual reality clothes, furniture or buildings from within the gaming or VR app. Apple smoothes out the transaction, billed to your iTunes account, takes 30% for its services. This is great for some merchant but Amazon doesn’t see it that way.
This is relevant to Frederic’s point about newspapers and magazines in today’s note: the Financial Times could deploy a free FT app on the iPad, complete with teasers for today’s paper or for a special research report. Click and you download the paper, or a magazine. See here what the Swedish group Bonnier thinks of the new possibilities afforded by powerful tablets. The Mag+ demo is very Apple-like, I’ll even say Jon Ive-like, complete with a veddy Briddish accent.
I can’t wait for the things I can’t imagine coming out of the brains and loins of my fellow geeks.

Second, real users, paying customers, as opposed to geeks and braying critics.

I’m going to get in trouble for this, but hear me out.

Read More »

The Numbers Behind the Paywall

Finally! The New York Times is coming out with its paid-for content strategy. A quick summary of the Gray Lady’s paywall plan: a monthly allotment of stories to be read  for free and, above that, a flat fee for full access. Subscribers to the print version (including those who only get the Sunday paper) will have free access. According to the official press release, the new system will be launched in January 2011. For now, that’s all we know.

Why such weird timing? For the biggest online newspaper in the United States, announcing such a move just a week before the likely roll-out of the Apple Tablet is bizarre. OK, we get it, the New York Times won’t join other publishers aboard the Apple bandwagon. As I’m writing this, there are persistent rumors that big players such as Condé Nast, Harper Collins, McGraw Hill, Hachette could sign up — but not Time Inc., according to All Things Digital. Then, either The NYTimes is showing its fierce independence or it is hedging its bets by preparing its own offer, competing with a putative Apple publishing hub. According to New York Magazine, the Times is not joining Journalism Online (see previous Monday Note How to make readers pay for news), nor is it teaming up with the Wall Street Journal in its effort to pressure Google for a better deal. Another question: Why wait so long to deploy the NYT’s paywall? A year to build a digital subscription system sounds quite a long time.

Let’s throw some numbers at the “metered model” – as it is now referred to.

Which part of its audience does the Times actually target? Last November, the Times got 16,5m unique visitors and 2.98 sessions per month, according to Nielsen. As for the number of pages viewed by each visitor, we must rely on a more global figure, again from Nielsen: for the top US newspapers, an average of 43 page views per month (1). Read More »

Mobile Payments

Last week’s note on Apple licensing generated a good flow of comments, all appreciated. I’ll respond, but not before we get Apple earnings and the putative Jesus Tablet out of the way.

I’ll approach today’s topic, mobile payments, using an Apple Store moment.

Some cables keep disappearing. In particular, the ones that connect MacBooks of various vintages to conference room projectors. As much as some of us admire Apple’s minimalist fixation, the parade of video-out connector generations can grate. The world outside of Cupertino is inelegant, imperfect, we know. But that world features one universal projector connector standard: VGA.
In recent years, Apple moved from mini-VGA to DVI to mini-DVI to micro-DVI to mini-DisplayPort, creating the need for a (dis)array of “to VGA” adapter cables - see the links earlier in the sentence. Elegance at a price. Let’s hope the mini DisplayPort will stay blessed for a while.

So… Entrepreneurs come to our office for a presentation; they forgot the VGA adapter for their MacBook, I lend them one from my private stash. You know what happens next, they’re entrepreneurs. I go back to the Apple store for a replacement.
Adapter in hand, I approach an Apple Store employee with a hip-mounted sales terminal, whip out my credit card; a couple of minutes later, we’re done. No bag, receipt by email, life is good.
But, why use a credit card?
I have an iPhone, the Apple sales terminal is an iPhone as well, why can’t I just touch an icon, enter a PIN and be done? That’s what I do when I buy the Inglorious Basterds movie, a Bo Diddley Blues album or the (very buggy) Kayak application via iTunes on my iPhone.

The iPhone (as well as many other devices) contains a micro-SIM, a Smart Card module similar to what you’ll find in many European payment cards. Insert one of those in the payment terminal, key your PIN and you’re done. Why can’t we do this with a smartphone and get rid of credit cards? Simpler transactions, neatly listed on the device, if desired, and in an on-line account, as it’s done today.

The idea isn’t new. Read More »

The Death of Joe Average

Forget Joe Average, he’s dead. Ten or twenty years ago, analyzing audiences was much easier. Medias enjoyed well-defined and relatively unchanging target groups. For television, networks had a precise idea on who was watching what, and specialized cable outlets knew their viewers pretty well. Newspapers had their content structure sliced to fit various audiences by center of interests, age groups and opinions. At the time, contents were bundled together, delivered on a unique platform for a flat fee, on a per copy or subscription basis: the popular sport section, or classifieds did subsidize the expensive but more elitist foreign section, all for a dollar or the equivalent of a euro.

In today’s marketplace, every single piece of information lies the open, naked, stripped of a set value. People don’t buy contents by the bulk, they peck at it, leaving to a third party (the unstable advertising market), the burden of financing it. As the content scatters on the internet, so does the audience. The money has shifted as well, with an expense of $260 per US household per year for digital services (cell phones, cable, broadband, satellite) that didn’t exist a generation ago. (Even the poorest families still spend $180 a year). This, in itself, makes it hard to hope for an extra $20 a month for news content that is widely available for free.

But the real competition is now for time and attention. Last December, in the United States, people spent 64 hours online, but stayed only 57 seconds on each web page, according to Nielsen. OK, it’s an average, and I’m about to kill this very notion in a minute. But still, it points to the time allocation challenge we face. Again, last December, American web users spent 6:24hrs on Facebook, 2:56hrs on Yahoo properties, 2:21hrs on various Google sites and 2:03hrs on Microsoft sites. As for the time spent on newspapers, it remains stable: around 20 minutes a month, whether you look at US or the European markets.

The shift seems to accelerate towards Facebook, which is becoming the absolute internet attractor: the amount of time spent per person on Facebook has tripled in just one year; in the meantime, Google gained only 10% and Yahoo and Microsoft slipped slightly. Interestingly, the Facebook time explosion even occurred at the expense of online video: with 3:13hrs per user last December, it remains quite high but it is down slightly, by 3.4%. And the Facebook effect probably explains why people are visiting a smaller number of web sites: 83 domains visited last month, a surprising 23% drop in just a year.

The advertising spending is shifting as well. In the US market, between August 2008 and August 2009, the amount spent online by brands decreased by 2%, as  the money spent on top social networks and top blogging sites increased by 119%. Unfortunately, this is done on the cheap: based on 2009 revenue estimates, Facebook is grossing about $1.5 per user and per year in ad revenue. Just to put things in an unpleasant perspective, this compares to the $647 a newspaper such as the Washington Post gets from its print advertising for each of its buyers or subscribers. Make that $215 for each of its readers assuming a rate of three readers per copy. (This is based on the full 2008 year).

Coming back to the title of this column, analyzing trends has become more complicated: audiences are no longer monolithic, their breakdowns are hard to ascertain. This uncertainty makes an average a less and less relevant notion. Read More »

The Apple Licensing Myth

Legends die hard. In the pre-Web days, they got printed and reprinted, told and retold and so became official, like spinach being good for you because it held the iron your red cells needed. After decades of the disgusting veggie inflicted upon young kids - I remember, a scientist went back to the bench and found out there was no digestible iron whatsoever in spinach. You don’t get calcium by ingesting chalk, you need a calcium compound that’ll get through the sophisticated filters in the digestive system. Eating spinach gives you as much  digestible iron as sucking nails.

The spread of legends gets worse with the Web. Stories, I’m avoiding the word “information”, travel fast, I’ll sidestep “light-speed”. Yarns bounce around a world-wide echo chamber. If I hear it from five sources, it must be true. Never mind the so-called sources heard it from one another in sequence. Worse indeed, as the Web never forgets, everything gets cached, archived and will be unearthed by search engines.
This creates a need and entrepreneurs pop out of the quantum vacuum ready to fill it: a Google search reveals at least three companies, reputationrestore.org, reputationrestorer.net and restore-reputation.com who promise to clean up your besmirched Web image. Actually, these three look like the same company and, at the risk of unfairly tarnishing their own rep, they look like one of these only too frequent scams purporting to protect you from scams. Ah well…

So it goes for a tenacious legend, the one that Apple “lost” the market because it failed to license the Mac operating system to “everyone” and thus get to own the market instead of losing it to the “obviously inferior” Microsoft product.
A few days ago, no less than über-blogger Henry Blodget, the Internet Bubble repentito now head of Business Insider blog hub fell for it. This industry observer who admitted he never set foot in an Apple Store, not a sin if your territory is the quick oil-change industry, chides Apple for “making the same mistake again”. In Dear Henry’s view, just like in the 80’s, Apple insists “on selling fully integrated hardware and software devices, instead of focusing on low-cost, widely distributed software”. As a result, Apple will lose to the Open Source Android, just like Apple lost to Microsoft.

I know we shouldn’t let facts get in the way of a good story, but let’s take a closer look at today’s as well as yesterday’s data. Read More »

A New Gallic Idea: Taxing Google

The French cultural elite has come up with a bunch of ideas to stimulate the legal consumption of digital goods. The basic principles are stunningly original: subsidize and tax. These creations are detailed in a report ordered by the Président de la République to the Ministry of Culture. This is the way it works here: when a problem plagues the private sector, the executive branch tasks clever, carefully picked-up fellows with writing a report. It involves hearings —about a hundred in that case — held behind closed-door, off-the-record; no one can figure out who is standing for what.

This time, the selected authors of the report titled “Création et Internet(available here) are: Patrick Zelnik, a music producer, Jacques Toubon, a 69 years-old former all-purpose minister (including Culture in1993-1995) and Guillaume Cerutti, the CEO of Sotheby’s France. Not exactly digital front-runners. As a music producer, Zelnik has brilliantly missed the digital train; Toubon has seen more mice in government offices than on his desk and Cerutti is running an auction house where sales are concluded with a hammer blow, not a touchpad click.

One of the most spectacular strokes of inspiration involves the creation of a taxpayer-subsidized “Online Music Card”. It could work like this: a young internet user, compulsive music downloader, buys a card for €20-€25. But the card carries a face value of €50. Then, after a while — expect a few years for roughly a million of young people above 24 — the magic happens: this crowd mutates into legal download addicts and forgets the appeal of illegal Net music (which, in France, is 20 times more important than the legal variety). That’s a hell of a good news for Apple, its iTunes cards could be bought by the bulk using French taxpayers’ money. Bear with me: that’s Christopher Columbus’ Egg. How come we didn’t think of it earlier? Flooding the young addicted-to-free generation with subsidies to reverse the anything goes, culture-copyright-looting tsunami! You know what? Sometimes, I’m proud of my country.

Second idea, my favorite: taxing Google. The concept, so to speak, is the following. Read More »

The Nexus One Puzzle

Let me state it at the outset: I understand the buzz generated by the Google Phone a.k.a Nexus One. But, the more I look into details and their ramifications, the more I’m puzzled. What exactly is Google trying to do? Make Android, their smartphone OS platform the “Windows” of the new era of really personal computers? Or become a dominant handset player to effectively compete with RIM’s Blackberries or Apple’s iPhones? Or, third possibility, dominate the new world of mobile advertising as it does the “old” universe of Web ads for PCs?

Let’s start with the product.

It’s not really a Google Phone. Its real name is Nexus One and it’s made by HTC, the well-regarded Taiwanese handset maker that produced the first G1 and G2 Android phones — as well as their Sidekick ancestor from Danger. Microsoft bought that company but the CEO, Andy Rubin joined Google as head of the Android team.
But, you’ll object, most cell phones and smartphones are made by one company, a manufacturing subcontractor and branded and sold by another. Apple doesn’t make its iPhones, nor does RIM make any of its Blackberries, to use but two well-known examples. Indeed, the Nexus One is sold by Google at www.google.com/phone. If you already have a Google Checkout account, the purchase process can’t be simpler.
Read More »

The 2010 Media Watch List

No predictions, just a few of many hot topics for the newborn year.

Paywalls. 2010 could see a significant number of newspapers jumping into the paid-for option. Among the conditions to be met:

- Grouping around a toll collector. It could be Journalism Online in the US, a big media group in Europe, or even Google — should a truce occur between the search giant and publishers. From the user’s standpoint, the payment intermediary must be friction free, able to operate on any platform (web, mobile) and across brands.
Publishers will have to devise a clever price structure. If a knee-jerk move takes them back to the tired basic-content vs. premium-content duality, they are doomed.
- State-of-the-art web analytics affords much more refined tactics around users, platforms segmentation, etc. In addition, a paid-for system must be able to deal with many sources of income, such as monthly subscriptions, pay by-the-click, metering system based on downloads, time spent, etc.
- Publishers must act in concert. In every market, the biggest players will have to carefully coordinate their move to paid-models: everybody must jump at the same time. This is easier said than done: there is always the risk a rogue player will “cheat”, that is break the pact in order to secure a better market position. Also, too much “coordination” could encourage a disgruntled competitor to sue on anti-trust grounds.Daily newspapers shifting to periodicals. How many dailies in the world will shift from seven or five issues a week to three or two? Undoubtedly, many. This is a better trend than it sounds. For breaking news, print is no longer relevant, but it will remain the medium of choice for long-form pieces. Newspapers publishing a few times a week will gain by becoming more magazine-like in their news coverage; they’ll save their story-breaking capabilities for web versions. In this regard, the mobile web will soon become bigger than the original, PC-based variant.
The “instant web” such as Twitter and its offspring will thrive in 2010. The likeliest offshoot is video-twittering as pocket size camcorders continue to spread (see Gizmodo comparison here). These will be supplemented by an upcoming generation of high-definition devices with Net connectivity through wifi or 3G networks.

Advertising Disintermediation. The media buying side is definitely not the sector to be in for the next decade. First of all, ad spending will continue its adjustment to the actual time spent on various medias. In 2008, print captured 20% of advertising dollars for only 8% of the time spent; in comparison, digital got 29% or our time but 8% of ad spending. Those numbers, those discrepancies tell us the correction is far from over.
Unless they devise smarter ways to analyze web audiences (see below, the audience measurement issue) and, as a result, clearly define the true value of each group of users, there is no longer a need for the media buyers’ costly intermediation. The trend is there: the most agile web sites will go directly to brands and advertisers, they will propose sophisticated integration mechanisms for their sites and mobile platforms. So do social networks such as the 25m users French Skyrock (see our case study).
Anyway, Google will settle the intermediation issue as its boss candidly puts it in Ken Auletta’s books (1): “Google wants to be the agent that sells the ads on all distribution platforms, whether it is print, television, radio or the internet. (…) As our technology gets better, we will be able to replace some of their [large companies] internal captive sales forces”. Media buyers, consider yourself notified: you’re toast.
As for the creative side, we hope advertising agencies will, at last, wake up and think of new ways to integrate their messages in digital media layouts (as in print), rather than trying to divert users away from media sites (see previous Monday Note on the inherent design flaws of the internet). Read More »

The 2010 Tech Watch List

Looking back at last year’s “Things to watch in 2009”, I’ll narrow the field a little bit: no more discussion of the auto industry, electric car markitecture notwithstanding, nor disquisitions of congress shenanigans, too much raw sewage material. Let’s stay with safer and generally cleaner/happier computer industry topics.

Microsoft 2.0 a.k.a. Google.

What is known: In its heyday, Microsoft strived to be all things to all people, from Office applications to Consumer Electronics (Windows CE), to Enterprise Computing (Exchange, Windows Server, SQL and Jet Servers and more), to mobile phones (WIndows Mobile just re-christened Windows Phone), to games (MSX and now the Xbox), to the Internet Explorer, .Net and now various Windows Live offerings and the Bing search product. And even more, such as various attempts at image processing for pros and consumers.
Now, we have Google with a similarly all-embracing land grab on the Web, from books to smartphones, from CAD software (yes, Sketchup) to music, video, “office” applications, collaboration, digital photography, application hosting, a payment system and more.

What is worth watching: When will Google’s “organic” growth start showing its limits? No tree ever reaches the sky. Google’s current strategy is eerily similar to Microsoft’s old “jump on anything that moves”. And, yes, it is smart to make Google a universal destination by using advertising revenue to finance free offerings that, in turn, channel more viewers to Google advertising.
But, eventually, the organism starts drowning in its toxic waste, meaning Google will face management tasks beyond its reach, or advertising revenue wont be able to subsidize everything else for ever, or it will slip and miss an important emerging trend such as social networks, see Facebook below.

Or, Google will become too powerful for the public good, destroying competition only too well and politicians will have their way with the Mountain View company. Unless Google learns, gets the better lobbyists and has its way with us like Wall Street, Big Pharma and Telecom companies, to name the best, do. Read More »

Learning from free Classifieds

What can we learn from classifieds web sites? Are there some features, strategies that could apply to online news media? On Google.fr, one of the most searched terms is “Le bon coin” (the good spot). (1Leboncoin.fr, is a free classifieds site that ranks n°7 on the French market. It generates stunning monthly numbers:

  • 4bn page views (a big news site makes between 100-300m pages views)
  • 9.4m unique visitors
  • 1:10 hour spent per visitor (vs. 16-20 minutes for online newspapers)
  • 38 pages views per visitor
  • for each visit, a viewer will look at 37 pages, and will stay 16 minutes on the site
  • every single day, 300,000 new classifieds are posted by 200,000 users
  • in a single month, more than 2m people will place a classified ad.
  • the site carries an inventory of 9.5m classifieds (vs. 0.8m for ebay.fr).

All of this has been achieved in three years and by a team of 15. Leboncoin is part of a European strategy developed by the Norwegian media group Schibsted ASA: it started with Blocket in Sweden, and expanded to Segundamano in Spain, Subito in Italy, and more recently Custo Justo in Portugal. In France, Leboncoin is a co-owned with Spir Communication (2).

After a careful look at this business and lengthy discussions with Leboncoin’s general manager’s Olivier Aizac, here are some ideas worth considering for news sites. Read More »

Venture Capital Business Model

by Jean-Louis Gassée

As promised last week, let’s dig into a venture fund’s key numbers.

Limited Partners, LP, institutions or individuals put money into the fund. We, the General Partners, GP, make and manage the investments and we split the profits with the LP as the sole compensation for our services.
Over time, the split has varied with the industry’s prosperity and the fund’s reputation, it went as high as 35% of the profits for the GP but, as this WSJ story belatedly explains, is now back to about 20%. In our vernacular, that number is called the Carried Interest or, for short, Carry.
A second number, the Management Fee, needs a bit more elaboration.
As the Carry did, it varied and went up to 2.5% of the fund’s capital; it is now pegged at a fairly standard 2% per year. The Management Fee provides the money needed to run the firm’s operations, pay the rent, associates’ salaries, travel expenses and the like. It also provides fodder for misunderstandings.

The Management Fee is a loan, not a stipend. For the GP to get its 20% of the fund’s profits, both the capital, the money invested by the LP and the Management Fee must be repaid first.
When funds become very large, say a billion dollars or more, the Management Fee gets correspondingly large and can encourage spending habits, thus generating criticism the GP is more interested in the fee than in making money for its investors.
But, you’ll object, the advance must be repaid before profit-sharing kicks in. Yes…, and what happens if the fund doesn’t make money? Are the LP losing money while the VC enjoys a good time, living off the Management Fee? The answer depends upon the way the fund agreement is written. If it contains a Clawback clause, the GP is obligated to return the “unearned” fee. As you can imagine, this leads to interesting exchanges during the fund’s formation and, much later, if it turns out it loses money.

To summarize: profit sharing (Carry) of 20%, a yearly advance of 2% of committed capital (Management Fee), to be repaid before profit sharing kicks in. Read More »

Not on the same page. Ever.

Could Google and Publishers one day understand each other? Frankly, I doubt it. Two weeks ago I was in Hyderabad for the dual assembly of the World Association of Newspapers and the World Editors Forums (1).
There, Google-bashing was the life of the party. As I told in last week’s Monday Note (see The Misdirected Revolt of the Dinosaurs) the climax was the “debate” between WAN’s president Gavin O’Reilly and Google’s top lawyer Dave Drummond. One comes from Alpha Centauri, the other from, say, Pandora. For those who want to get to the bottom of the argument, the publisher’s statement is here and Google’s top lawyer defense is here.

Dave Drummond after his speech (photo FF)

In a nutshell, publishers keep complaining about Google’s relentless copyright violations. Tireless Google robots crawl the internet, indexing and displaying snippets in Google News, without paying a red cent for the content they post. As a result, said Gavin O’Reilly, “Google makes tons of money on our back”.
Dave Drummond’s reply: “We send online news publishers of all types a billion clicks a month from Google News and more than 3 billion additional visits from Search and other Google services. That’s about 100,000 business opportunities - to serve ads or offer subscriptions - every minute. And we don’t charge anything for that!” He added that Google practices were fully compliant with the Fair Use principle.
Fair Use is “A tired rhetoric”, snapped O’Reilly.

At this point the discussion gets technical. And interesting. At stake is this a crucial evolution of copyright, from a binary form (authorized ≠ forbidden) to a more fuzzy concept (use is allowed but restrictions apply). This evolution of copyright is tied to the Creative Commons (coined by Law professor Lawrence Lessig), which define a sort of shape-adjustable notion of intellectual property. Read More »

The Other French Paradox (2) - Jobs

Two weeks ago, I discussed what I called The Other French Paradox, that is how French taxpayers and French companies are at a (curable) disadvantage in Silicon Valley. Last week, I “shared” (we’re in California) my own plans to deal with the twin problems: a venture fund whose profits reverse the flow of money back to France and whose role is to help French high-tech start-ups achieve their full potential by becoming real members of the Silicon Valley ecosystem and, from there, by gaining access to Asian markets.

This week, as promised, I’ll deal with “mere matters of implementation”, questions and objections.

Sadly, I’ll explain the adjective in a moment, the first objection my compadres and I get is one of jobs outsourcing, or délocalisation: “When you transplant these companies to the Valley, French jobs disappear in the process.”
Understandably, if the company’s management team pulls up stakes and move to Mountain View or Palo Alto, there is a sense of loss, they’re gone, their salaries used to feed the local economy.
But, that’s where the “sadly” comes in, there seems to be little faith in the company’s success and in the resulting job creations back in France. Sometimes, I wonder if this lack of faith can’t be summarized thus, using a metaphoric pizza slice: to get a  bigger share, one can worry about its angle, is it 12 degrees or 15 degrees, or one can work to increase the pizza’s radius. Do we prefer a healthy but smaller company, all located in Brittany, or do we want an even healthier, larger enterprise, creating more jobs, both in France and in the US? Posed like this, the rhetorical question fails the “can you disagree” test, it’s framing.
For a way out of the frame, let’s turn to economic interest; in plainer English: making money.
The way we structure our investments in “transplanted” French startups keeps at least 50% of the engineering work, jobs, in France. We don’t do this because we’re nice guys, we want this because it makes economic sense. Let’s review. Read More »

The misdirected revolt of the dinosaurs

The junkies are rebelling against their dealer. The dope is the traffic, and the dealer is Google. For years, the search giant flooded the market with an ideology built on the early 2000’s, ill-fated, get all eyeballs you can, the rest (i.e. monetization) will take care of itself.
Publishers have invested tons of money, energy and brainpower in order to follow The Google Way: designing sites, structures, pages, even setting editorial rules to gain audience. Any kind of audience, by any means necessary. Legions of Search Engines Optimization (SEO) consultants were enrolled to help implementing the new click-to-Grail.  At the same time, the so-called Search Engine Marketing (SEM) made a lot of expensive noise as media organizations were buying keywords to improve their ranking in search results, some of them spending as much as €100,000 a month in this digital heroin. At some point, for many sites, clicks coming from Google thanks to SEO compliance and aggressive SEM were contributing to 40% or 60% of their entire traffic.

Then, the tide reversed.

Publishers soon realized the Google windfall was not as high as expected. As the search giant kept thriving, their own revenue plummeted. Over the last 12 months, newspapers print and digital advertising revenues have melted: -16% in Western Europe, -19% in Central/ Eastern Europe and -21% in North America.  At the same time, Google is still cruising at a 35% operating margin altitude. The economic crisis and the structural problem of web sites (endless inventories inducing low prices) caused CPM (revenue of an ad per thousand viewers) to drop. This convinced publishers the advertising-based free model wasn’t going to fly. They told themselves that sometime, somehow, readers will have to pay, and that Google, with its all-you-can-eat, free-for-all system, was in fact “doing evil” to they dying business.

That was the backdrop for last week’s 62nd Conference of the World Association of Newspapers (WAN) Congress and for the 16th World Editors Forum (WEF) I attended and spoke at, in Hyderabad, India. Read More »

Resolving The French Other Paradox

Last week, we looked at the two components of the “other” French Paradox.

First, the Valley aura helps a tiny Palo Alto start-up sell its technology in France. But it doesn’t work the other way around: a Lyons high-tech company will get a polite reception but no orders from the likes of HP, Google or Oracle. While the Valley does sell in France, to sell in the Valley you need to be of the Valley.
Second, French taxpayers unwittingly subsidize VC-backed Valley startups. Graduates from public universities or grandes écoles such as Polytechnique, Centrale and many others come to the Valley and contribute their skills and energy to the companies we, American venture capitalists, invest in. (In passing, thanks to a reader who reminded me HEC, one of the leading French business schools is a private institution.)

The French speak of “refaire le monde au Café du Commerce”, the phrase refers to a suitably lubricated theorizing of the World As It Ought To Be. In moderation, a healthy way to pass the time with friends and to keep one’s debating skills sharp. With little risk of dealing with the “mere matter of implementation” - the one I’ve decided to address today.

After a quarter century in the Valley, after meeting countless French entrepreneurs, students, executives, elected officials and high-level civil servants; after indulging in more than a few of the Café du Commerce sessions mentioned above, in the Valley and in Paris; after more than seven years inside a Palo Alto venture firm, I finally had an idea, one of those that come with the pleasant sensation of the retroactively obvious.

Here goes: Resolve the paradox, build a venture firm exclusively focused on helping French high-tech companies become full members of the Valley ecosystem. And open the firm, its first venture fund, solely to French investors.
This isn’t theory, I’m doing it. As we speak, my co-founder and I have assembled a team, we’re polishing our pitch and prepare to go “on the road”. In early 2010, we’ll be meeting with potential Limited Partners, LPs, the accepted term for investors in a fund like ours, called ArèsVentures. Read More »

The e-book tractor application

Let’s rejoice: French teachers embrace the internet. Well, calm down. I’m not saying they embrace it the way I would like them to. This week saw two technological breakthroughs at my son’s Parisian high-school. The first one is a decision-support tool on the school’s website: it helps parents decide whether or not to send their kids to school when a protest blocks the gates, something that happens several times a year. Usually, my son whips up his cell phone at 7:30 in the morning : “Hey, dad, this just in: a text-message… gates are jammed by a barricade of trash bins (the kids’ touching expression of solidarity to last week’s teacher union action), I can go back to sleep”. Now, I’ll be able to fact-check the SMS alert on the web. (No webcam, though, I’ll have to rely on teachers’ good faith).

The second breakthrough happens as I immerse myself in the Life Science course for the same text-message freak, Abercrombie-clad kid who happens to be my offspring. Then, an epiphany. His science professor is an internet fan. Don’t get me wrong, here. As 90% of the 1.3m members of L’éducation Nationale (the world’s biggest employer after the erstwhile Red Army or, worse, today’s Wal-Mart), I’m sure the lady loathes the internet. You see: the net flaunts apalling attributes of foreign technology, it is the vector of free market ideology. Sorry, Larry and Sergei. Your Google is definitely evil, down here.

OK, the web can be convenient for educators. Actually, there is ample evidence the science teacher I’m referring to doesn’t understand what she teaches but, at least, she tries. Parts of her course come straight form the net. To the point where kids systematically google (sorry) excerpts to see where they come from. Needless to say, this is a powerful boost to the teacher’s credibility — to be found in one of the trash bins at the school’s gates.

Stay with me please, I’m coming back to this column’s subject: e-books. Last week, as my son and I lose ourselves in the genome’s arcana for an upcoming school-test, I get my own revelation. As I struggle to decipher the absurdly complex definition of amino acid in a textbook totally deprived of any practical example, my son browses the web in search of an explanation designed for normal humans. He googles genetic terms, lands on Wikipedia, which sends him to Inserm, a world-class French medical research lab. There, the lab’s site links to a better definition which, in turn, opens the door to a more detailed explanation, and so on. All the beauty and grandeur of hypertext, whose structure a 15-year-old boy navigates as if he were born in it — which, actually, is the case: the browser was invented about 15 years ago.

The e-book needs its tractor application and textbooks might be the “killer” one. Way better than the press (its time will come, but at a second stage). Still, media could benefit from a switch to the e-book form. Read More »

The Other French Paradox

by Jean-Louis Gassée

Foie gras, crême fraîche, butter, red wine — and lots of it! All these excesses leading to a higher life expectancy, to say nothing of the joys of sinning. That’s the legendary now official French Paradox. Scientists strain to explain the phenomenon: ‘It’s the phenolic compounds in the red wine’, they say. Me, I look at eating habits in my adopted country: restaurant chains like the Cheesecake Factory, “family-style” servings,  food everywhere, everyday, at all times in offices like Google’s.
Methinks there is no paradox just quantity, 360 degrees and 24/7 availability, as the recent but unmistakable widening of French bottoms attests.

No doubt, these must be Thanksgiving hangover-induced thoughts. Let’s turn away from arteries-clogging food and contemplate another set of incongruities.

Silicon Valley VCs (like me) are subsidized by the French taxpayer. Yes, bear with me, no fancy science, no magic involved.
It goes like this: a young kid performs well in high school, s/he is “tagged”, put on the higher education track, prep classes, “grandes écoles”, top-level business, government and engineering schools such as Polytechnique, HEC or ENA and their many local siblings. Such education is essentially free, that is paid by French taxpayers.
The young graduate starts working at one of the big French companies, Thales, France Telecom or Airbus. Soon, an alumnus calls: I’m at Google, or Apple, or Cisco, or this little Silicon Valley VC-funded start-up, come and join the fun. Indeed, graduates from prestigious French higher-education institutions are everywhere in the Valley. VCs have learned long ago to look beyond the “35 hours” and “5 weeks paid holidays” reputation. Actually, we know the “locals” got a little lazy over time, like New York Jewish families wondering why their sons and daughters now lose the Math Prizes to the children of Chines immigrants. First generation immigrants are naturally hungrier than the more prosperous third generation families. The famed Silicon Valley work ethic is too often a pose; new immigrants, in general, and French ones, in particular, are viewed as harder-working than some of the too-cunningly-adapted natives.
Paradoxically, that word again, the constraints, the obstacles of a highly state-regulated culture tend to sharpen creative skills — highly valued ones in our entrepreneurial Valley. In  France, defeating regulations is a national sport, a point of manhood. Read More »