On microfinance and subprime

There are rare days when you glimpse the World beginning to change. When you see something that only previously existed in your
imagination become reality. Yesterday Kiva began lending in the US and microfinance came to the West.

This is not the first time an innovation had debuted in the developing world only for the West to follow later. The idea for flash memory based low-power PCs began with One Laptop Per Child trying to come up with a computer for poor children. Someone at ASUS realised it was a good idea for everyone and the Eee PC was born.

We are now seeing something similar in finance. The credit crunch has led to the drying up of finance and has particularly affected small businesses. Governments have tried to help but the tools at the state’s disposal are macroeconomic and as such relatively blunt. Interest rate cuts and quantitative easing get money to the right people by flooding the economy with money. This seems to me rather haphazard, by contrast microfinance relies on the judgment of people to get money to the right people.

Kiva is using the same model as it does for entrepreneurs in the developing world. Relatively small amounts are lent through a field partner at 0% interest. Their bios go up on the Kiva website and lenders decide who to lend to. My choice was a cobbler in Manhattan. But Kiva is not the only innovator, Zopa is a commercial p2p lending site based in the UK. It is a great service and slightly different from Kiva in that interest is charged and it is a for profit commercial entity. Zopa is also more focused on personal loans.

What makes microfinance great is not just the money but the thought people give it. In the Kiva model there is a field partner who will deal face to face with the borrower and after that each individual lender is given enough information to exercise their own judgment on who to lend to. This approach is the opposite to the subprime model in which a salesman pushed loans on behalf of a distant monolithic lender who then packaged up the loans with disastrous consequences. The essential problem was that nobody really paid much attention or cared, the loans were cranked out and sold on without any judgment being exercised. For all the pain that has been caused it may be worth it if that model is cleared away so something better can take its place.

On posting from email

I’m posting this via email just to see if the new wordpress feature is working. Who knows? This may get me blogging again.

On a year on

I missed my one year anniversary on 8 May. It is just over a year since I wrote my first blog post On Yahoo. My blogging has waned in recent weeks, primarily down to the amount of things I have had on since the start of the year. Now however my flat is finally redecorated after the flood and our startup is edging towards launch.

It may be that I don’t have the time to blog as much or at all after we launch. What I found interesting about blogging was that it allowed me to think about areas outside what we were then working on (music and p2p). It was the early posts I wrote a year ago which led me to think more about advertising and what was wrong with it online.

My basic thesis was, Google apart, nobody was doing anything different from old media. Grab enough attention then try to cram ads in as many nooks and crannies as possible. Nobody really seemed to be thinking differently about showing people advertising when they found it useful and in a useful context. Everything was geared towards a bait and switch with he who had the most traffic winning.

What is interesting to me is not how many impressions you can show but showing people commercial information in a helpful way. Volume becomes far less important if you can show ads in a way that people actually find helpful. I always thought why interrupt someone when they are trying to do something else? Far better to capture their attention in the moment when they are looking for something. That is what Google does he best and the reason it is so successful.

Even though we were initially not interested in advertising at all blogging allowed me to pursue some interesting thoughts and ultimately led me to the idea which we are now working on as our main project. So, even if I never write another post, writing this blog has been hugely important for me.

On Marines and Twitter

Image via CrunchBase

I’ve been reading a book about maneuver warfare as practised by the US Marines. This is based on principles such as focus, surprise, flexibility, tempo and boldness. In each chapter examples are given and what I have found interesting is they give examples on either side. On the face of it one may think that boldness would emphasise taking action over not doing so.

Applied to the current rumours of Google buying Twitter it may seem like the bold move is to go ahead and buy, but it is not. The bold move is to pass. There is no question that Twitter is the hot startup at the moment. It gets the Daily Show mentions, the celebrity tweets and the avalanche of tech blogosphere coverage. People urge Google into doing the deed and that $1bn is nothing against the cost of missing out. It is true that Google needs another giant revenue stream to continue its growth and that it hasn’t really diversified away from its original idea despite many attempts. The problem is that Twitter is not yet a business. And Google has already been burnt spending 10 figures on another not to be missed startup when it bought YouTube.

If the bold move is to pass the really bold move is to buy delicious from Yahoo. I noticed that Google has added a ‘bookmark this’ button. It is hardly well publicised and I suspect nobody uses it. Unlike Twitter whose value is in the immediacy of its content, delicious has quietly built an alternative index of the web. It doesn’t matter that it is far smaller than Google’s robot built index, its value is that it was built by humans. I only bookmark a few pages each day, on a good day, but those I do have far greater value than something indexed by a robot because I can understand the content of the page far better.

Each page I bookmark links me to a group of likeminded individuals and I am always interested to see what they have bookmarked under the same heading. This is in embryo a ‘PageRank for web users’ rather than links. It has the potential to be a powerful search engine but delicious is not hot any more. It got swallowed by Yahoo and left to rot.

The bold move? Pass on Twitter and buy delicious. They already have Schachter, might as well rescue his creation.

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On local

Cover via Amazon

I have been spending a lot of time thinking about the death of newspapers. I’m not too worried about the loss of the paper based medium itself but I am concerned about the loss of quality journalism.

I have just finished reading Paul Collier’s book, The Bottom Billion. The book is about the problems faced by the poorest countries and what can be done about them. Collier refers to four ‘traps’, one of which is the natural resources traps. I have often thought that more often than not abundant natural resources is more of a curse than a blessing. This has proven so in poor countries because bad governments loot the money. Collier found that the element of democracy most likely to restrain a bad government from wasting the revenues from natural resources was a free press.

Professional journalists are an important part of any democratic society and I don’t think they are adequately replaced by citizen journalists. There are some bloggers who do original reporting but speaking from my own experience as a blogger I generally react to original reporting done by others. David Simon wrote:

There is a lot of talk nowadays about what will replace the dinosaur that is the daily newspaper. So-called citizen journalists and bloggers and media pundits have lined up to tell us that newspapers are dying but that the news business will endure, that this moment is less tragic than it is transformational.

Well, sorry, but I didn’t trip over any blogger trying to find out McKissick’s identity and performance history. Nor were any citizen journalists at the City Council hearing in January when police officials inflated the nature and severity of the threats against officers. And there wasn’t anyone working sources in the police department to counterbalance all of the spin or omission.

I agree with him, we need good journalists. Without them official action goes unscrutinised and officials start to get the idea they can do anything which is corrosive to good government.

One of the reasons that local papers are dying is that they are competing with the whole of the internet. On global stories a reporter has no advantage over a blogger as they have access to the same source. They do have a massive advantage where they have access to information not already on the internet.  And that means local. Mike Elgan writes:

Local media must focus all resources on the coverage of local events. People in Lodi don’t want to pay the local paper for the coverage of national news also covered in thousands of stories available on their cell phones and Internet-connected PCs.

It’s time the so-called local media opened its eyes to the new reality: Nothing is local anymore. And it’s a huge opportunity. The new mantra should be: Cover local events exclusively, but for a global audience.

The problem at the moment is that the business model is not there. The technology exists to produce local news with a far lower overhead but to retain a staff of reporters on decent salaries there needs to be a far better model than CPM banners and Adsense.

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On Blogged

Image via CrunchBase

It’s official! This blog is ‘very good’. See my widget for confirmation. My suspicious side thought this was a scam when I got the email – you know ‘click here to claim your free mini cooper’ type – but I looked up Blogged on TC and it is kosher so I am happy to present my new button, see left.

They rate your blog on design, writing style and frequency of updates. This may inspire me to revisit my glory days of last summer when I was cranking out five posts a week.

On too much money

Fred Wilson says there has been too much money in VC and I agree with him. The truth is that there have been no grand slam businesses in the last generation of web companies. None have worked out a business model and become standalone, profitable businesses in the same way Amazon, eBay, Yahoo, Google and PayPal did in the previous generation. And between those there have only been two business model innovations: online auctions (eBay) and search marketing (Overture/Yahoo/Google).

The reason is that there has been no business model innovation in this generation is that there has been no pressure to come up with one. Companies which had built a large userbase would always be able to raise more capital, removing any pressure to come up with a reliable revenue stream. It is possible that the glut of VC money sustaining unprofitable businesses has actually retarded the growth of innovative business models.

However now there is reason to think this is changing. A severe recession increases the pressure to innovate your way to a reliable revenue stream rather than a cool new feature. The value of companies with such innovation will rise relative to companies with many eyeballs and no money. The collapse of CPM rates underlines the diminishing value of traffic.

Traffic is still important but it needs much better ways of being converted into cash. There is a theory that in the Internet age nobody will pay for anything any more. I disagree. If you create something valuable people will pay. And now the money is drying up we’ll have no choice but to work out what that is.

Pic:  Cobalt123

On water leaks

There hasn’t been a blog post in a while. One reason is that we are busy reworking Zoiads ready for the official launch. We did a limited release to our friends back in November and we are working through the bugs they found and new developments we came up with.

As well as that when I came back from my Christmas break I had water coming through my ceiling. Last summer my block of flats had its water pipes replaced. Each flat had to take care of our own internal connections and luckily my upstairs neighbour decided not to use a plumber to do the work. Instead he used the person who tiled his beloved marble floor with the result that my flat was flooded twice. The picture above is of the fungus growing in my bathroom as the result of water leaking through for over two weeks. Fortunately now repairs have been carried out upstairs and the water has stopped leaking.  Next up: insurance.

On predictions

It’s that time of year, here’s mine:

1. Kiva will break $100m in loans
2. Microsoft will buy Facebook
3. Google will buy Delicious
4. Microsoft will buy what’s left of Yahoo
5. Jerry Yang will leave Yahoo for good
6. Steve Jobs will step down as Apple CEO
7. Social networking will crack its business model
8. Google’s share of online advertising dollars will fall

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On Carol Bartz

Carol Bartz is Yahoo’s new CEO, and its last. To remain as an independent company Yahoo needs not only a great leader but a great innovator. By appointing Bartz the Yahoo board has signaled it is getting ready for a sale once the market picks back up. I can’t see a 60-year old wanting to hang around too long so Bartz will whip Y into shape, sell it and retire.

To my mind Bartz comes into the ‘manage decline more efficiently’ category of CEO. There is no suggestion in her background that she is a great innovator, her qualification for the job seems to be that she whipped a chaotic Autodesk into shape. Yahoo is certainly chaotic but I suspect Bartz’s job is to bring order in readiness for a sale rather than put it back on its feet, a task which is close to impossible. Charles Arthur picked up on the key phrase in her remarks “I believe there is now an extraordinary opportunity to create value for our shareholders”.

Fairly early on she will start to rationalise the business, getting in cash for valuable yet peripheral assets and selling off a lot of Yahoo’s startup acquisitions. Flickr could go and it would not surprise me to see Yahoo lose Delicious in this fire sale and with Joshua Schachter now at Google that is its most likely destination. She is certainly decisive to carry this off in short order, Bartz was not shy in applying the boot to Sue Decker’s behind. Despite Jerry Yang’s protestations I expect he will formally depart as ‘Chief Yahoo’ once he realises Bartz’s objective is to gut the company ready to be sold.

Arthur points out that Yahoo made “$660m on revenues of $6.97bn”. I wonder how many of its 15,000 contribute to that seven billion dollars. Bartz will not take long to find out and it would not surprise me to see that number cut in half inside a year. That should deliver a short term boost to profits enough to attract a buyer. Once that process is complete Yahoo will go looking for a buyer. The most likely candidate is still Microsoft and they will be attracted by a lower price and willing suitor this time round. An additional benefit to MS is that that can sit back while Bartz does all the dirty work then be seen as the benign saviour rather than moustache twirling villain.

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