The Gong Show

I’ve got a dumb question and I’m sure a techie reading this blog can set me straight.

Why don’t developers who build HTML5-based iPhone apps (like the new HTML5 Google Voice app) also syndicate their apps in the App Store? The App Store version would just be an instance of the UIWebView Class on a canvas that displays only the HTML5 app. In other words, the App Store version is just a wrapper for the web version that essentially launches a separate browser just for your app.

It’s a bit hacky, but it allows the accessibility of HTML5 apps without sacrificing the distribution that comes with being listed in the App Store.  So, why don’t we see more developers doing this?

[Note: Jon Steinberg wrote a nice post on this subject. I originally wrote this piece as a comment on that post. It didn’t get answered there, so I’m upgraded it to a post here.]

This is a great set of job openings in SF at a very exciting company.  Disqus is “quantified” so you can their reach and growth quite accurately.  This job is the opportunity to do UX design that will be seen by 86MM people globally per month (and growing).  Small changes can create huge effects with IT leverage of that size.  If you’re a coder/UX-guru in the Bay Area, this is well worth a close look.

danielha:

disqus:

Two weeks ago, I asked, “What features would you like?” We had over 200 great responses with ideas that made us nod in agreement with directions we’re heading in, smile coyly at ideas we’re already working on, and recoil in disgust at ideas we’d never consider (just kidding — somewhat).

As we continue working on these ideas (and our own surprises), we’re now looking to expand the team to help build the future of Disqus. Here are two positions that we’re actively looking to fill:

Director of User Experience / Web Designer: Craft rewarding experiences for users.

Front-end Web Developer: Heavy JavaScript development with the Disqus comment system and upcoming related projects.

You can find all of our available positions on our Jobs page.

Do you know the right people? Please let them know that we’ve been looking for them, and also where have they been all this time?

If you don’t know anyone, you can still help us by discussing below (be sure to spread the word by sharing your comments on Twitter and Facebook)!

Thanks,
Daniel

Apple will announce their new tablet product today, and all the internet is buzzing with gossip and speculations about features, pricing and strategy.

I want to write about this subject, but I also what to steer clear of the hype bubble. I’m not sure that’s possible.

I will make one projection about today… The Apple Tablet will matter for the same reason that the iPhone matters (and is now Apple’s largest source of revenue): Developers care. In the infamous words of Steve Ballmer: “Developers Developers Developers.”

You can feel the buzz of pent up demand amongst hackers to get the Tablet in their hands so they can start building to it. Like an artist craving a canvas to express their ideas, developers are thirsty. VentureBeat has a nice piece that attempts to quantify developers’ demand for the Tablet.

Great developers see their code as an art (assuming they’re proud of it), and they only want to program for platforms that are respectful of their art. “Respect” in this case means two things: an excellent frame and a large audience.  Steve Jobs is building a beautiful frame and attracting a large audience with his grandiose unveiling and continued marketing/branding.*

So, I’m optimistic about Apple’s announcement today. I expect the Tablet to be functional with most existing iPhone apps, come with big-name launch partner applications, and quickly amass a bunch of Tablet-specific apps over the next few months as developers flock to build to it.

* This same phenomenon is at work at Etsy. Most Etsy sellers see their work as a form of art.  Many competitors to Etsy have launched in the wake of their success with more features or better economics, but none of them have been the beautiful frame that Etsy is, and none have attracted a large enough audience.

Fred wrote an interesting post today describing how to use IRR to analyze an investment opportunity.  I thought I’d extend on his work to explain why IRR isn’t not a great way to think about VC funds.

Let’s say the Teachers’ Union of Springfield want to invest their pension fund into venture capital. They would be Limited Partners (LPs) in the fund. Springfield Teachers’ Union needs to be willing to tie up their capital for potentially a long period of time. Most funds are a 10 year commitment.  Venture funds ask their LPs for their capital on an as-needed basis, so LPs don’t contribute all their money at the start of the fund.  Instead, the the money goes in periodically over 10 years.  But, LPs need to have enough liquid assets to contribute capital when requested at any given time.

Ok, given this background, lets look at the performance of two hypothetical venture funds: Montgomery Burns Capital (MBC) and Android’s Dungeon Seed Ventures (ADSV).  Both funds are $30MM funds. MBC invests their money during three different years, and quickly returns the capital for a small profit in the subsequent years.  By contrast, ADSV capital invests the entire fund in the first year and doesn’t return the capital until the tenth year of the fund, but the resulting return is a 3x on original investment. Here’s a table to illustrate the cash flows of the funds and resulting returns.

You can play with this spreadsheet here. Obviously these examples are oversimplified to make a point, but they reflect a very real phenomenon in evaluating venture fund performance

Montgomery Burns Capital returns 1.3x of Springfield’s capital at a higher (30%) IRR and Android’s Dungeon Seed Ventures returns 3x of Springfield’s capital at a lower IRR. So, which fund should Springfield Teachers’ Union invest in?  Most people would say ADSV is the superior performing fund.  LPs enter venture funds with the expectation that most of their capital commitment will be tied up for a long period of time.  So, even though MBC cash flows free up the LPs capital for more time, most LPs would not be expecting this capital to be available and would need to invest it in highly liquid (low return) investments during that duration.

So, looking at IRR alone can be misleading when investing in a venture fund. There’s a very simple expression that sums up the lesson in this post, which a good friend of mine on the LP-side of the game told me: “You can’t eat IRR.”

Amazon announced (in a defensive move to counteract the Apple Tablet hype) that they’re opening up the Kindle for development by third-party developers in an “App Store”-like platform model.

My reaction to this news is mixed.  On the one hand, I think the Kindle has an interesting and diverse userbase.  The fact that many people considered giving Kindles to grandparents as gifts during the holiday season means that there’s a bunch of interesting new users addressable by programming apps for the Kindle marketplace.

But, Kindle’s userbase is still pretty small. Forrester estimates the total number of Kindle’s sold at 3MM. And, Amazon is mum on their sales figures, which is not a good sign. I’m not sure it’s worth learning a new development framework and jumping through the hoops Amazon sets up in order to participate in a marketplace with only 3MM addressable devices.

And, my biggest reservation is the idea of *Yet_Another_App_Store*. When you develop for another company’s proprietary platform you’re forced into: A) accepting their terms and restrictions on functionality B) using their programming language of choice and proprietary libraries C) sharing 30% of your sales revenue and D) being subject to their rejection for any reason.

I’d be much more interested in Amazon’s Kindle Development plan if they announced they were baking a killer browser into the Kindle and supporting HTML 5. Then developers could program for the Kindle in the language of their choice, without restriction, and keep all the revenue. And, Amazon wouldn’t open themselves up to the risk of censorship (for purposes political, decency, or strategic).

Since Amazon is taking the “App Store route to opening up the Kindle, I hope one of the first apps available is an excellent third-party browser.  How about it Google? Chrome for Kindle?

Here’s two quick updates to that post I published this morning about Craigslist.

1. Here’s the source file to the image I made of all the companies carving niches out of craigslist.  I tried doing it in a graphical editor at first, but found PowerPoint to be much quicker.  Feel free to edit, republish, etc… open license.

2. While writing this post, I really wanted to reference Albert’s post on the same subject, but I couldn’t find it via searching.  Here it is now.  A great read on companies carving up Craigslist.

I’m reading The Victorian Internet on the recommendation of Sam Lessin.  What a terrific book. Only 30 pages in, I can tell already that I’ll be blogging about this book a number of times.  So, here’s the first of many.

Samuel Morse invented the concept of an electric telegraph and his system of encoding messages, Morse code, during a 6 week journey across the Atlantic.  When he sketched out the ideas for this invention, he was oblivious to the fact that many European inventors had been working for nearly a century on the idea of sending electric telegraph messages, and all of them failed when it came to testing the concept over large distances.

Morse had no idea how many people had failed before him and the improbability of his idea at the time. He thought he was the first person to come up with this idea.  And, if he had been aware of the wasteland of failed attempts behind him, he likely would have resolved it was impossible and given up himself.

Sometimes ignorance is a great thing to have in entrepreneurial endeavors.  People (myself included) often dismiss an idea or market because “it’s a landscape littered with bodies.” The knowledge of past failures justifies being dismissive about the prospects in a idea/market as the rational choice, but I love the entrepreneurs (like Samuel Morse) who prove that being dismissive is not necessarily the right choice.

One of my favorite bands is/was Final Fantasy.  I say “is/was” because due to a recent copyright complaint, Owen was forced to change the name under which he performs.  So, he released his latest album, Heartland, under the name “Owen Pallett” instead of “Final Fantasy.”

When I buy this album, now I won’t be able to see all the Final Fantasy/Owen Pallett albums all in one place in my iTunes… So, should I edit the metadata to rename all the old Final Fantasy albums to say Artist = Owen Pallett instead? But, then, the data will be wrong. When is it a good thing to mess with album metadata?

It’s audit season, so lately I’ve been doing a bunch of the blocking and tackling side of the VC world.  Updating our records on our companies, determining fair value for our portfolio companies often using a comps-based analysis, and then running hypothetical liquidations to determine the value of our various classes of stock in each company.  If this sounds interesting, I could write a post dedicated to the process (don’t all raise your hands at once!).

But, that setup is just the backstory to explain that I’ve been looking at the revenue and EBITDA multiples of both public companies and recent M&A activity.  In the process, I stumbled on an interesting difference I thought merited a blog post about ad network revenue multiples.

There are two publically traded ad networks that one can use when trying to determine the value of an ad network: ValueClick and InterCLICK.   ValueClick is trading at a 1.34x revenue multiple and InterCLICK is trading at 2.1x multiple (both based on a trailing four quarters of revenue).  I consider ValueClick and InterCLICK to be a minimum baseline for a mature, low-growth ad network… they both largely play in remnant (though InterCLICK supplements their inventory with data from BlueKai) where the economics have been driven down by a race to the bottom amongst the competition. But, it’s a nice baseline to consider nonetheless.

Using data from publicized sale prices and a research report on mobile ad network revenue from IDC, in November ‘09 Google bought AdMob at a 24x revenue multiple and Apple bought Quattro Wireless 13.5x revenue multiple. By comparison to the more generic ad networks above, these two company sale prices are really remarkable.

The takeaway: the large difference in revenue multiples between these two groups of companies shows the value of A) being in a hot market — mobile advertising B) having significant strategic value to multiple bidding acquirers C) having a healthy growth trajectory.

Fred opens his latest blog post by rhetorically asking “Would AT&T or Comcast Have Created Google?“… he then quickly answers his rhetorical question with an unequivocal “no.”

I have a great story I heard Joe Kraus (Founder of Excite and Jotspot) tell which underlines how badly old telcos failed to innovate on the Internet. Joe told this story during Startup School back in 2006 at Stanford and my memory for his story was a little hazy.  Luckily, Brendon Wilson took excellent notes, so I’ll let him tell the story:

Netscape (early on in 1995) put two buttons from its browser (the web search and web directory buttons) up for bid. There were three bidders: Infoseek, MCI, and Excite. Excite had $1M, but bid $3M – the thinking was that if they won, they would figure out how to raise that much money – unfortunately they lost the bid. Instead of packing it in, they continued to pester Netscape, acting as if the negotiations weren’t over. MCI failed to meet their goals 21 days later and Excite won the bid. In the end, the difference between Excite being a $6.7B company, and nothing ended up being 21 days of persistence.

So, not only did MCI have the opportunity to build killer web search, they won the bid to be baked directly into the leading browsers, but failed to execute and lost the opportunity to a startup.

And where is MCI today? Gobbled up by Verizon.