I attended tonight a wide-ranging, sometimes esoteric but always fascinating talk at the National Archives, The Third Annual William G. McGowan Forum on Communications, Technology and Government. The two panelists were Vint Cerf, now Chief Internet Evangelist for Google and Robert Kahn, CEO of the Corporation for Research Initiatives. And, oh yeah, these two guys invented the Internet.
Moderated by Tom Wheeler, Chairman of the Foundation of the National Archives, and a long-lost friend and former boss of mine, the discussion was illuminating, ranging from when and how, precisely, Kahn and Cerf achieved the breakthroughs that created the Internet to what lies ahead for the Internet.
Like any pioneers, Kahn and Cerf ran against conventional wisdom to make the Internet happen. The first step they took was to band together large computers "at a time when anybody on the communications side of the world thought that this was a crazy notion," Kahn said.
One pivotal month in the creation of the Internet was November 1977 when "we managed to get all three Arpanet networks (satellite, wireless and landline) working together," Cerf said. Another pivotal month, January 1983, was when 400 engineers mostly (Kahn had to do clean-up for six months afterwards, he said) managed to get their work done on creating TCP/IP.
The year 1988 was another big turning point, when some companies were permitted to start commercial applications on the NSFNet. Congressman Rick Boucher (D-VA) fueled things even faster in 1993 when he moved a bill that allowed the NSFNet to be used for commercial purposes.
And the rest is, of course, history. Kahn and Cerf were there every step of the way overseeing the development of this phenomenal, world-changing global system.
The two long-time colleagues and rarefied geniuses at one point almost broke out into an argument in front of the packed room. When asked by Wheeler what mistakes were made in designing this sophisticated system, Kahn answered that it was a mistake to allow for only 32-bit IP addresses, a limitation that will soon be corrected -- or else the world will quickly run out of IP addresses.
Cerf, who clearly was in charge of this aspect of the Internet's design, took umbrage at the notion that the 32-bit system was a "mistake." At the time, IP addresses were an experiment, and the 32-bit system was designed to yield 4.6 billion IP addresses, he said. "I thought for an experiment that that was enough." To which Kahn replied that some computer scientist published a paper in the journal of the IEEE at the time which warned about the 32-bit system.
The theme of the evening was supposed to be about "who controls the Internet," and ultimately the discussion got around to this issue. Typically "Internet governance" is a shorthand phrase for U.S.-based ICANN's control over Internet domains, something that other nations believe gives the U.S. too much power.
Kahn said that, really, the Internet cannot be governed and the ICANN domain issue is a red herring. "A lot of people looked at that and said 'that's got to be the control center' because there is nothing else." Some of the most important things in the world can't be controlled, and the Internet is one of them.
"Who's in charge of the global economy? Who's in charge of the weather? You just deal with it," he said.
Governance of the Internet, Cerf said, actually encompasses a lot more difficult issues than the ICANN matter (Cerf is currently the ICANN chair). People are concerned about the content of the Internet, about controlling damaging things such as viruses. "The governance issue raises questions about what's acceptable and what's not acceptable."
Posted by Cynthia Brumfield at 10:17 PM | Print | Comments (0)
Anne Broache has this item today that discusses NBC-U CEO Jeff Zucker's position on content piracy, which is nothing new. But, speaking at the U.S. Chamber of Commerce, Zucker called on everybody, at every level of government to stop piracy.
Not only that, but he also wants "Internet service providers, university network operators, user-generated content sites, search engines, auction Web sites and even consumer electronics and home networking device manufacturers to install filtering technologies designed to detect and block unauthorized copyright content." Moreover, credit card companies should just simply shut off anybody suspected of transmitting unauthorized content.
In other words, Zucker wants everybody and his brother to pitch in and help NBC-U police content. A kind of greedy request that foists NBC-U's job onto the whole world.
Worse, he likens NBC-U's plan to the cable industry's efforts to snuff out piracy by encrypting video feeds. But unlike what Zucker is talking about, cable's encryption efforts don't force anybody to do anything. In fact, the cable industry has fought long and hard to keep its encryption technology out of the hands of TV set makers and certain set-top box makers (and probably PC manufacturers, although I'm not that sure of the history on this.)
Cable operators aren't forcing anybody else to "filter" content or shut down service or jump when a user or viewer is suspected of watching something they don't have a right to watch. Cable handles it all without imposing its economic dictates on every other industry involved in the TV business.
Why can't NBC-U do that?
Posted by Cynthia Brumfield at 4:32 PM | Print | Comments (0)
OK, so I've been perhaps overly focused lately on the blogging business and how it has morphed into big lucrative sell-out prospects for all the successful bloggers out there. But, I sense a change, a tipping-point if you will, in whether the big bloggers themselves are ready to cash in their chips. It's not just CNET and TechCrunch (a totally manufactured rumor). As sure I'm sitting here I know that talks are underway by dozens of bloggers to sell their sites to big Internet or traditional media companies.
The blogging business has matured to the point that GigaOm, TechCrunch, Techdirt, Paidcontent.org, Ars Technica, Seeking Alpha and maybe a dozen other blogs are undoubtedly beginning to field offers from mainstream publishers who are still mystified about how to jumpstart growth on the Internet and seek to annex the wisdom or luster of these sites.
As a public service to all those soon-to-be-multi-millionaires among these ranks, I have drawn up five rules that you should follow before you sign on the dotted line. I sincerely hope to impart any wisdom I can to help you avoid the anguish, anxiety and, well, bitterness, that might come to dominate your day-to-day lives if you don't heed my words.
Most of these rules are common sense, or should be to anybody who isn't a babe-in-the-woods. But they bear reiteration because in the courtship that surrounds acquisition talks, it's easy to kind of fall in love with your acquirer, no matter how many hard-bitten VCs or attorneys you rely on for advice. Love, as they say, is fleeting. Remorse, however, can last a lifetime.
Rule Number One - Get All the Cash Upfront
This almost goes without saying, but be forewarned. Publishers in particular are adept at pushing the pay-out model of compensation. Let's say you've negotiated a sale price of, I don't know, $100 million, and Big Acme Media Group offers you $25 million upfront and a payout of the rest over three years.
Chances are that Big Acme Media Group will attach conditions to the payout that leave them with many ways to stiff you on the balance. And chances are that Big Acme Media has on retainer a fleet of big Acme Law Firm attorneys whose sole jobs are to figure out how to stiff you.
Even if you have an airtight contract and Big Acme Media wouldn't stand a chance in court, huge legal bills are chump change to Big Acme Media, so go ahead and sue them. You'll just end up saddled with heart-stopping legal expenses and will probably settle for something less than what they owe you anyway just to end the hideous expense and mind-numbing nightmare of litigation.
Rule Number Two - Seriously Avoid Working for Your Acquirer
Chances are that any acquirer will attempt to make a condition of the sale an agreement that you become an employee. They'll say "What good is GigaOm without Om Malik (or TechCrunch without Michael Arrington, and so on)," or "We're making this acquisition because we need exactly the kind of entrepreneurial spirit you would bring to the company" or "You can just keep doing what you're doing and leave all the headaches to us" or, most deceptively of all, "We'll stay hands-off and let you do your thing."
Some publishers really mean this when they say it, only to later realize that, no, entrepreneurs don't fit in with the company or that they'd actually prefer you do things differently or that they'd wish you handle the headaches or that they simply don't like you. On the other hand, some publishers don't mean a word of what they say when they say it -- they just want you on board for a limited period of time to teach their people the ropes. After that, you're useless to them.
Whatever they promise before you sign the contract, after the deal is done you're just an employee. They own you. You'll have bosses, most of whom could never in a million years do what you do or have done. You have to deal with the dysfunctions that every corporate culture bears.
All this is actually fine. Most people are owned by their employers and most people have less-than-competent bosses and most people deal with corporate pathologies. But, Big Acme Media promised you something different and you might slowly (or suddenly) realize that they lied to you. That's just hard to handle.
Rule Number Three - If You Do Become an Employee, Don't Sign a Non-Compete
If you're in California, as most of the desirable bloggers are, and your acquirer is headquartered or primarily located in California, you're probably golden. California doesn't recognize non-competes and for good reason: they're despicable.
Otherwise, you're screwed if you sign away your rights to work again. No matter how many safety clauses you build into the non-compete provisions of your contract (you agree not to do this particular thing but are free to do that other thing), when push comes to shove your employer will interpret any non-compete covenants as utterly binding and totally comprehensive. They own you, remember.
It does no good that most judges, most courts, hate non-compete provisions as much as you do, and your employer stands little chance of enforcing the restrictions. Big Acme Media has on retainer Big Acme Law Firm attorneys whose sole jobs are to sue you if you do anything after (voluntarily or involuntarily) leaving the company unless it's to become a barrista at Starbucks.
The scythe of a non-compete swings faster and harder if you've managed to make your living as a writer, journalist or analyst. Big Acme will consider any form of writing, reporting or analysis off-limits to you for the length of the non-compete period. Unless you feel capable of performing skilled manual labor, or can become a salesperson, or possibly a venture capitalist, or can get a job that requires only oral discussion, you're unemployed for the duration. A bad situation made even worse if Big Acme happened to have also stiffed you on your payout and you blew the upfront cash on a private jet or something.
Rule Number Four - Make Doubly Sure Your Acquirer Isn't Secretly in Turmoil
Sure, Big Acme Media needs you because they can't figure out this Web 2.0 or blogging stuff on their own. And yes, they're starting to show signs of strain, but they're basically giant cash mountains that will never crumble.
That's what Big Acme Media would have you believe. And your own investigations (checking out the 10-Ks, conducting Google searches, reviewing requested financial statements) might reinforce that idea.
Go the extra mile and talk to everybody you can about the health of the company. Have they lost any big contracts lately, something that hasn't yet shown up on the financial statements? Are any big advertisers getting ready to bail? Are rumors afoot that the CEO will step down?
Nobody will be more vulnerable than you are if Big Acme Media is about to suffer a serious downturn, or if a management crisis kicks in or a corporate reorganization occurs. If you're an employee, you're the new guy on the block and chances are you're pretty expensive relative to the other employees. Someone will inevitably ask why, amid all the trouble and disarray, you're raking in the dough and calling the shots over your little piece of the business.
If you managed to avoid becoming an employee, then it's obvious: they'll find some way to stiff you of what they owe you (see rule number one).
Rule Number Five - Make Doubly Sure That Your Patron in the Company Isn't On the Way Out
As was the case with Rule Number Four, do your homework and make sure that the man/woman/team within the company responsible for buying your blog and possibly bringing you on board will be there for a while. If his/her/their status in the company is shaky, so are you.
If he/she/they are booted out of the company, you'd better believe that his/her/their successors will view you as either an expensive mistake (and you won't get your payout) or part of the old regime or, even worse, a threat, in which case your life will become miserable and you'll possibly get fired. A situation made all the worse if they stiff you on the payout, you blew your upfront money by taking everybody you know to Paris for a week and they sue you for violating your non-compete when you do try to work again.
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I know what you're thinking. These rules, while reflecting nothing more than common sense, are also a little bit alarmist. Granted, some of these dire outcomes could conceivably happen, but won't, in all realistic probability, occur.
Well, they have occurred to many people, not only in the publishing world, although I am most knowledgeable of instances where these kinds of horror tales came true in the publishing world. You just don't hear too much about them because nasty outcomes are usually settled by legal agreements that bear non-disclosure clauses.
You might also think you're too smart, or too important (watch out for that attitude!) to get enmeshed in a bad deal. Think again. No matter how good the deal looks on paper, enforcing the deal, or defending against bad interpretations of the deal's provisions, requires attorneys. Big Acme Media is more than willing to spend millions with Big Acme Law Firm to get their way. Are you willing to spend millions in legal fees just to get what you were promised?
The bottom line, of course, is not to let any dazzling big-bucks offer blind you to the possible horribleness that selling your blog might trigger. If you follow the rules, you should be fine.
Posted by Cynthia Brumfield at 1:00 PM | Print | Comments (0)No sooner did I suggest that the blogging phenonmenon was merely a waystation on the road to becoming big media publishing companies for a handful of A-list "bloggers" such as Mike Arrington, Om Malik and others, than Henry Blodget comes out with the idea that CNET should buy TechCrunch. For $100+ million.
He gets this figure from Doug McIntyre, who actually floats the $100+ million figure as the price tag that The Washington Post or New York Times might pay for the Huffington Post. And McIntyre appears to pull this figure out of thin air.
But that doesn't stop Blodget from speculating -- only in the headline weirdly enough -- that TechCrunch must therefore be worth "$100+" million to CNET. Even weirder: this post comes mere hours after TechCrunch's Arrington wildly and inexpertly (at least from a financial analysis perspective) attacked Blodget for a presumably tongue-in-check post that suggested Google might be worth $2,000 a share.
Arrington said that Blodget, a former analyst who was charged with securities fraud and banned from the securities industry for life back in 2003 for inflating his stock price predictions, should be "muzzled" for touting his "essentially bullshit predictive models." I wonder what Arrington has to say now about this even more bullshit number about his own company, which is based on nothing at all. Not even a bullshit model.
But that's not the point. The point is that what once were individual blogging sites are now big deal media companies. TechCrunch and Huffington Post and all the others took advantage of cheap and easy-to-use blogging software to build major web publishing empires. Or as Blodget writes "these companies have filled a niche that appeared when traditional media began cracking apart--and they've taken full advantage of it."
Coupled with the rise of traditional newspaper blogs, "this will soon make it tougher (but not impossible) for start-up blog networks to gain traction." I agree with that.
Whether TechCrunch or any other major "blog" is worth $100 million is not really subject to any kind of rational analysis. It's possible that the site could fetch that much or more from an ailing but cash-rich publisher such as CNET, which might be desperate to gain a short-term jolt of momentum at the cost of long-term financial viability.
But using a multiple of 1X or 2X revenue, not uncommon valuation benchmarks in the publishing world, TechCrunch should be generating $50 million to $100 million in annual revenue today to justify Blodget's price tag. It's hard to say for sure, but my guess is that TechCrunch is generating less than $10 million in annual revenue now and, at most, would likely only double or triple that next year.
That's outstanding no matter how you look at it, particularly for a company started by one guy two short years ago, but that $100 million acquisition price would be 3X or 5X revenues, a very expensive proposition indeed for any rational publisher. However, rationality is often thrown by the wayside in dealmaking. Just look at what happened to eBay in its deal to buy Skype, and the current craziness surrounding the value of Facebook ($15 billion, $20 billion, who knows.)
Update: No need to wonder what Arrington now thinks of Blodget. He says that "So first of all I owe Blodget a big apology. The guy is bright, insightful and dead on with his valuation predictions."
Posted by Cynthia Brumfield at 7:40 AM | Print | Comments (1)
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