How often do you find a cross-over story about three notable Left Coast industries: venture capital, media, and -- err -- sex?
It seems that noted San Francisco sex writer Violet Blue did some checking on what the SF Chron and sfgate.com were doing with her content (NSFW WARNING) and didn't like what she found. Her past columns had been copied to another domain, all outbound links (and some punctuation) stripped, the articles split into multiple pages, the pages stuffed with keywords - some inappropriate, and festooned with pay-per-click ads. And it emerged that multiple domains had also been aliased to these dead-end copies. Now where have we seen that kind of behavior before?
Here I should mention that sfgate.com is apparently - by admission of the author - within the letter of her contract by making this use of her work. That relationship, now terminated, was based on a level of trust that she feels has been abused, and made no explicit stipulations on how the content can be reused. The interest here is what this occurrence may say about the ongoing behavior of the MSM online, and its implications for the industry's business model.
This incident is not a one-off.
So over a hundred thousand protesters turned out, many more spectators and passersby learned that there is a resistance movement, few provocateurs were spotted, and a good time was had by most.
Now what?
Historically, the Tea Party movement is a misnomer. The 1773 Boston Tea Party was an act of civil insurrection, of violence against property following the then British Empire's attempt to force the colonists to drink imported and taxed tea. Yesterday, there was no violence and no insurrection, instead a civilized protest, the fevered imaginings of the left notwithstanding.
The other element missing, however, gives a clue as to where to go next. The original Tea Party followed a widespread colonial boycott of taxed tea, and resistance to other coercive acts imposed by a distant and unrepresentative Parliament. Since the revenue of the royally chartered East India Company was on the line, these were actions that had more impact in London than street protests.
Boycott is the logical next step for today's Tea Partiers. While bureaucrats and elite of both parties do the "na-na-na-we-can't-hear-you" routine, something that takes money out of their pockets, or from companies that have become codependent on an overweening government, isn't going to be missed. If half the population are sufficiently fed up with nannyism, income redistribution, and financial fecklessness to change their buying habits, it will rock their world. The citizenry, at least for now, controls most discretionary funds in the economy, and should act accordingly.
Gresham's Law hasn't been repealed, but it's taking on new forms in Washington these days.
Having put 'bad' money - printed by fiat or 'secured' by loans against taxpayers yet unborn - into the banking system in the first round of bailouts, the Feds now presume to rewrite not only future but existing loans. The consequences were on exhibit in Washington last week as financial genius Barney Frank and other politicians "...managed to demand more loans for consumers while simultaneously giving lenders new cause to wonder if they'll ever be repaid." They and other congress critters want to make it legal for bankruptcy judges to forcibly abrogate the terms of existing mortgages.
As pointed out in this WSJ article, most of the lending side of the credit market does not come from banks: "Most investors who lend in these markets are not recipients of financial bailout money, so Congress can't simply browbeat them into making another big bet on the American consumer. " These lenders have 'good' money that is still subject to the reality check of the market, rather than political expediency. But a move to retroactively rewrite credit contracts by government fiat will affect them as well.
The result? First, to make the world of collateralized mortgage debt tremble once again. While the consequences of foreclosures fall on the junior tranches of packaged debt - now mostly written off - in many case the results of forcible, retroactive modification of a contract's conditions would fall pro rata across all tranches, causing the value of those that are still standing to slide as well. Yet more fear to hang over new as well as existing mortgage backed securities. Second, and not too surprisingly, the 'good money' investors want no part of this game.
The “real money” investors didn’t want to invest alongside the government. Their concern is that if things go south, the government will take 100% of the value left in the bank or whatever and leave private investors, including recent ones, with nothing. This is precisely what happened to recent investors in Fannie Mae.See here for further pithy quotes from a recent financiers' conference, where the attendees were brutal to government officials wishing the good old days would come back.
Not if the government has much to do with it, at least in housing. Consider the calculation a 'good money' lender must now make to decide on a hurdle rate for putting funds into originating US mortgage loans, or buying securitized mortgages:
By the time you get done, a rational lender might well be demanding a rate usually associated with scary early stage venture debt. Meanwhile, the Feds are trying to drive effective rates into the low single digits.
There's no way to resolve the rates on offer from the 'bad money' with those needed by rational, market driven 'good money' investors. The result is the good money will stay home. Home, in this case, mostly being China or the Middle East. The fraction of federally originated loans, already at 35 percent, is going to keep on rising, and it will done with more fiat money cranked out by the Feds.
The politicians are trying to reinflate the housing market. Their irresponsible behavior is instead likely to leave that market deflated by driving out the good money, while debasing the currency and piling up debt for the productive and future generations.
So the stimulus - or porkulus, depending on your point of view - bill is signed. What do the assembled multitudes think will result? Discuss amongst yourselves...
The ad network portion of Pajamas Media is closing up shop as of April 1. Some members of the network are taking it better than others. The bottom line, according to Roger Simon, was red - the network was a steady money loser, with the bloggers getting more than the advertisers were paying. Here's a bit of comment from a venture capitalist's perspective:
I was one of the early readers of what became the PJ Media business plan, due to my friendship with Marc "Armed Liberal" Danziger, who was part of the team at that point. My own fund's prospectus specifically said we would not invest in content, so I wasn't a potential funding source, but I did offer advice and a few introductions to other funds that might have taken an interest in the plan.
My strongest suggestion to the team was to simplify the plan. When I saw it, it included three business ideas:
In the event, PJM found a single source to provide their financing. While having a sole investor inevitably gives up some control, it also lets a team get off the road and on with building the business. At about the same time, the third bullet point above removed itself when Marc left the Pajamas team. That still left two business concepts under one roof, competing for resources.
This week's announcement is just the dénouement of that situation. Anyone who's paid attention knows that the effective CPM for both click-through and exposure ads on blogs s***s. I mean really s***s - like up to an order of magnitude less than run-of-site ads on big, topically diffuse web properties. Gadget, finance or technology blogs can rise above the crowd, but political and opinion blogs tend to be the worst. When readers are focused on a potentially stressing discourse, they don't tend to notice or click on ads. Fancy that! And what did the PJM ad network's stable consist of?
The market has rendered its opinion on the two PJM business propositions, and the ad network came up the shortest. My guess is the combination of the end of election cycle advertising and the recession-driven fall off in general advertising were the last straws. Somebody may figure out how to make blog advertising economic, but it won't be PJM. The company has retrenched into the destination site play, and is trying expand it into the TV-via-Internet market. That's certainly no guaranteed success, but it's also rather axiomatic than a venture investor under duress will plunk on the opportunity that appears to align with a growing market. Is there a play for talking-heads-on-demand? Watch and find out.
As it turns out, they could get worse, and quite suddenly. Like the housing bubble and the financial crash, the signs are already there, and visible to those paying attention. It could be the credit crunch that puts the capper on the trends above and drives an entire industry sector over the brink. It couldn't happen to a more deserving bunch.
To understand why and how, a brief detour into the financial model of newspapers is necessary.
[Edited by Nort with permission of the author]
A few weeks back I ran a survey related to the notion of a 'Cold Civil War' on this site. When I reported the results of the survey, I mentioned that I was also going to do some analysis with more powerful tools and report if I had found anything else interesting. Well, I did and I have.
Really short form: The Big Sort (see below) is likely onto something. I have some modest statistical evidence that WoC denizens are behaving in the way Bishop (the author of The Big Sort) suggests, and those who think Bush stole 2000 are somewhat more likely to 'sort' themselves out.
I detest when the MSM trots out "the study showed" and gives no idea how the conclusion was reached. So here are the details: first my impression of "The Big Sort" hypothesis, and then my detailed description of what I think I am seeing in the survey data and why.
In the discussion of the survey, a commenter suggested a relationship to a just-published book called The Big Sort, by Bill Bishop (reviewed by the WSJ here). I haven't read the book yet - it's on order from Amazon - but the thesis is easily described: "Like-minded people increasingly tend to live near like-minded people, thus amplifying the beliefs people hold." The author has an overview website, and here's a set of slides (PDF) from a presentation of his material (found here), that provides the basic talking points. One of the most important is that Bishop is not just regurgitating the Red vs. Blue state themes of the MSM, but looking at a finer geographical grain: "Not red and blue states, he is quick to insist; he calls that cliché an illusion. The reality is red and blue wards and precincts, suburbs and counties."
The 'Big Sort' is about the country turning into a collection of echo chambers, about networks becoming more disjoint over time. Not only was that shift in networks the logic behind the experimental design of my own survey, I'd asked a question about moving for political reason in the original survey. Bishop's hypothesis came my way just as I was trying to make sense of the further analysis of the survey. Explaining the intersection takes some further (and unfortunately lengthy) description of the process:
I started by importing the survey results into the R statistical system. This is a freeware analytics program cloned from a famous Bell Labs package. I described the whole process at my home blog for those curious. (R is perhaps overkill for an experiment of this size, but learning my way around it was an additional goal beyond political curiosity.)
The test I used on the survey results is called correspondence analysis. Fortunately for me, two of the best known experts in this procedure had provided code to implement it in R. Correspondence analysis is a form of factors analysis suited for use with categorical data, like survey answers. If that didn't make any sense, think of it as a type of data mining, attempting to find relationships among variables by analyzing a large number of samples.
What you're looking for in such a study are covariance patterns, ways in which some observations (survey responses in this case) correlate to and might predict other responses or characteristics. I obviously believed there would be such correlations and some particular underlying themes, or I wouldn't have named the survey after the hypothetical Cold Civil War, and based the questions on the notion of a breaking of personal networks as being diagnostic of its existence. It turns out such patterns do exist, and they shed some light on the notion of a Big Sort.
This post refers to a survey you can find here if you haven't already seen it. It received fewer responses than I had hoped, 149 before it scrolled off the front page, but the results were consistent enough across that sample to provide some insights. The shortage of numbers does pose some limits in determining statistical significance, as we'll see.
The hypothesis of this survey was that a sign of a Cold Civil War would be deliberate breaking of social and other networks along political alignments, reducing the strength of civil society and segregating what might become parties to a conflict. I have resorted the questions in decreasing order of occurrence of the behavior.
One caution on interpretation: These questions attempt to measure change in social networks for the self-selected respondents. They do not necessarily reflect starting or ending state of those networks in terms of political homogeneity. Put another way: Saying 'no' to a question says the respondent made no changes in that regard in the period from 2000-8. However, it does not distinguish whether that's because the individual didn't care about political issues that strongly, or whether the individual had already segregated his or her personal network by political beliefs before 2000. And so to the results:
Alejandro looked over his knees. “Carlito said there is a war in America.”“A war?”
“A civil war.”
“There is no war, Alejandro, in America.”
“When grandfather helped found the DGI, in Havana, were the Americans at war with the Russians?”
“That was the ‘cold war’.”
Alejandro nodded, his hands coming up to grip his knees. “A cold civil war.”
You may recognize the quote from William Gibson's Spook Country. That notion of a Cold Civil War (henceforth, the CCW) in America percolated in a few lower-profile blogs, then broke out more widely in October, 2007 with high visibility articles from the left and the right.
While looking to see how one of those early posts could predate Spook Country's publication in August, 2007, I found that Gibson had sampled out that very passage on the net in January, 2006. Interesting in itself, but the search also turned up an even earlier, but quite precise formulation of the meme, this in October, 2005:
It's been somewhat of a commonplace, among those who worry about such things, that the increase in the power and complexity of human civilization and culture has reduced the forces of evolution on the species. After all, so one argument goes, we now enable diabetics and others afflicted with genetically-linked physical or mental illnesses to survive and reproduce, where they would have perished back before we came down from the trees. Darwin might have been right, but had become steadily less relevant to our future.
Turns out Darwin is still very much relevant. A just released paper (PDF, of highly technical nature) details a study suggesting that mutations have been accumulating in the collective human genome at a rate that has increased since the 'cultural phase' of the species began. The senior author, John Hawks, is a blogger and has a more approachable summary here.
Wretchard's famous 3 Conjectures post has long been a topic of discussion on Winds. His original hypothesis of catastrophic and genocidal escalation due to terrorism's reduced threshold of resort to WMDs was framed in terms of nuclear weapons. Certainly current events in Pakistan and Iran show nukes to be the most pressing WMD threat. But being somewhat of a futurist frame of mind, I have kept an eye on events that will eventually and inevitably lead to the feasibility of precision targetable bioweapons being produced by organizations or even individuals equipped with the levels of sophistication and funding already displayed by Islamist terrorists. When that happens, the bell rings and time is out on the Conjectures (if not before). We will find whether they are true, or whether in the intervening time we have collectively learned that "we must love one another or die".
Horizoning
A fast way to get a start on forecasting is to look around for a relevant experience curve. In its original formulation, an experience curve related the decrease in production costs of a good to cumulative units of production. As now used informally, it often links drops in unit costs to elapsing time. The most famous experience curve in this sense is Moore's Law of progress in computing. which now has 40+ years of successful forecasting to its name.
Moore's is of course no law of nature. It's actually a statement about collective human behavior. By substituting time for units in its formulation, such an experience curve elides the technological and market systems behind production. But doing this successfully is actually a very strong statement. It shows that an exponential feedback loop of user demand, capital investment and technical progress is so strongly established that it may be taken as constant. In fact, such a 'law' may become a self-reinforcing vision, as it sets an implicit schedule for the next steps to be taken by each involved party.
The closest analog in genomics are the so-called Carlson Curves, first described (but not named) by Rob Carlson of the University of Washington. These show the experience curves for the costs of sequencing (analysis) and creation of genetic bases assembled into DNA, the raw material of genes. While the Carlson curves do not have the longevity of Moore's Law, the longest running curve is now up to twenty years experience, and the recent rate of advance is notably faster than in semiconductors.
Carlson himself is cautious about interpretation, pointing out that his observations relate to "improvements in productivity in the lab" rather than "multi-billion dollar integrated circuit fabs" and eschewing any "quantitative prediction of the future". Nonetheless, a stable experience curve running for this period inevitably indicates that the demand, finance and innovation cycle is well established. Carlson further points out that biology "is cheap, and change should come much faster".
The Game Is Changing
There is a problem with Carlson's curves, though. While suggestive of overall rates of progress, they measure the wrong thing.
Marc Andreessen has taken the occasion of the Hollywood writers' strike to meditate on the folly of the entertainment industry, and the odds for revamping it in the image of Silicon Valley. When he says 'entertainment' he's really talking about the flix, both the big screen and the small screen. (For today we'll ignore the recorded music industry, over there in the corner being nibbled to death by ducks.)
If you're not in the Valley scene, the provocative nature of Marc's assertion that we can rebuild Hollywood may not be clear. In normal times, the Valley (that nebulous aggregate of entrepreneurs, funders, engineers and management) hates 'content' of all kinds. Pick your reason: We're notoriously bad at forecasting consumer tastes. We don't have the experience base. We've lost money every time we tried it. It just feels wrong. They're all partially correct over time, and collectively they mean that anyone touting the current generation's version of 'Sillywood' is going to suffer with a lot of people rolling their eyes behind his or her back.
And yet. We are all about disruption, and it's in the air. The advent of YouTube and its clones heralds that the 'visual arts' are within reach of assault, just as the coming of MP3 did for the music biz. And besides, those folks down South are more or less leaning over with a sign on their backs that says 'Kick Me'. So maybe it's time to risk the eye-rolling and have a go.
