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Arc of a golden child

The Guardian has a short piece on the passing of MySpace as the golden child of the internet.

"From humble origins in 2003, the site led the so-called 'Web 2.0' revolution in which users could create their own profile pages and share content with friends. Murdoch's purchase of MySpace for $580m was seen as a masterstroke as membership continued to soar, with celebrities and politicians joining the craze.

But then came Facebook...."

Thankfully for entrepreneurs and VCs, the internet has churned and burned through its golden children with regularity. Facebook just gained its status over MySpace and already the Facebook is too big stories have started. Conventional wisdom next golden child is, of course, Twitter but they've still got a long way to go to catch up in scale.

More interesting to me is the lesser known fact that former golden children rarely die quick deaths. In fact, they tend to do pretty well. Friendster is one of the 20 largest sites in the world, Orkut is the largest website in Brazil and even Geocities still ranks in the top 200. The fun begins when former leaders start to realize it's time to be scrappy again (think Yahoo circa 2002). Fox just hired Jon Miller to take over digital operations including MySpace, expect much interestingness over the next year as a result.

News and paper

There's all sorts of journalism about journalism being written these days as the news paper industry falls apart around us. I think it's relevant to start separating "news" from "paper" when we describe that industry as the two words become increasingly unlinked. Last week the Seattle Post-Intelligencer became the most recent news paper to lose the paper. Lots of interesting stories and analysis of the trend, here's some of the notable.

• Clay Shirky:  Newspapers and Thinking the Unthinkable - "When someone demands to know how we are going to replace newspapers, they are really demanding to be told that we are not living through a revolution. They are demanding to be told that old systems won’t break before new systems are in place. They are demanding to be told that ancient social bargains aren’t in peril, that core institutions will be spared, that new methods of spreading information will improve previous practice rather than upending it. They are demanding to be lied to. There are fewer and fewer people who can convincingly tell such a lie."
• Steven Johnson: Old Growth Media and the Future of News - "I think that steady transformation from desert to jungle may be the single most important trend we should be looking at when we talk about the future of news. Not the future of the news industry, or the print newspaper business: the future of news itself. Because there are really two worst case scenarios that we’re concerned about right now, and it's important to distinguish between them. There is panic that newspapers are going to disappear as businesses. And then there’s panic that crucial information is going to disappear with them, that we’re going to suffer as culture because newspapers will no long be able to afford to generate the information we’ve relied on for so many years."
• Sonia Arrison: Why It's OK for Newspapers to Die - "Resource limitations make it difficult for a single newspaper in Los Angeles or New York to cover every relevant story of local interest. When the Web takes over, however, there can be multiple blogs and companies competing to provide coverage, and the information becomes much broader and richer. This transition from a top-down method of news reporting to a more distributed system won't be easy at first -- and, like the horse-and-buggy drivers of 100 years ago, many old-school journalists will find themselves looking for a new job. Yet this change, a clear form of creative destruction, will create a more responsive and richer world of media with more stories and more ways of organizing and validating those stories than ever before."
• Jennifer Saba: Newspaper Sites See Big Gains in Uniques - "More than half of the top 30 newspaper Web sites gained double-digit percentages of visitors in February, according to new data from Nielsen Online."
• Richard Perez-Pena: Buyout Firm Acquires San Diego Paper - "A private equity firm has bought The San Diego Union-Tribune, the two sides said Wednesday, ending eight decades of Copley family dominance of that city’s news media. Copley Press and Platinum Equity, based in Beverly Hills, declined to say how much Platinum was paying, but a person briefed on the deal called the price 'very low,' and said Platinum was the only serious bidder. The sale will close in the second quarter."

The entrepreneurial society

The Economist has a great package in this week's issue on entrepreneurialism, I highly recommend reading it for a number of reasons, not the least of which is the stats. While the package goes to great lengths to show how the entrepreneurial spirit has reached beyond the US, it's still very apparent how far ahead America is in creating meaningful new start-ups:

"Janez Potocnik, the EU commissioner for science and research, points out that only 5% of European companies created from scratch since 1980 have made it into the list of the 1,000 biggest EU companies by market capitalisation. The equivalent figure for America is 22%."

When people talk about start-up culture in the US, they often reference the surplus of VCs looking to fund companies, the ease (for the most part) with which the stock market accepts new companies and a business culture that accepts failure as a normal part of doing business. Turns out, we can thank America's consumption culture too:

"Amar Bhidé, of Columbia University, suggests a fourth reason for America’s entrepreneurial success—'venturesome consumers'. Americans are unusually willing to try new products of all sorts, even if it means teaching themselves new skills and eating into their savings; they are also unusually willing to pester manufacturers to improve their products. Apple sold half a million iPhones in its first weekend."

There's a lot to quote from the various stories, but the one that most starkly demonstrated the effect of start-ups on American business was this one:

"Back in 1960 the composition of the Fortune 500 was so stable that it took 20 years for a third of the constitutent companies to change. Now it takes only four years."

Creative destruction indeed.

Dead cat bounce

Because it's fun (and because my flashlight piece was so popular), I'm going to blatantly rip off Wired's Jargon Watch as an occasional feature of Quid Pro. Bankers and traders have great sayings. I start with one of my favorites.

Dead cat bounce

From Reuters yesterday:

"As with nearly every bounce seen since the stock market fell from its October 2007 peak and entered a brutal bear market, there is skepticism the latest gains will have staying power.

'This is a dead-cat bounce,' said Todd Leone, head of listed trading at Cowen & Co in New York, using Wall Street parlance for a fleeting recovery after a long sell-off."

Stop looking!

Investors Dealers Digest magazine has an interesting article (free for a couple of weeks via NY Times Dealbook) where they suggest that the next few months will add yet another problem to our economic meltdown: the need for companies to file year end reports with their accountants deciding who is and who isn't a going concern.

"...[A]uditors are required to offer their perspective on the companies' health in what is known as a going-concern opinion. Companies whose auditors question their financial health could end up breaching covenants with lenders and this, in turn, could put them on the path to bankruptcy.

'It is clearly an issue that is looming larger [than in previous years]. Was it always a potential issue? Yes. Today it is more of an issue,' says Jeff Werbalowsky, co-chief executive of Houlihan Lokey.

'There will be an upswing in March [bankruptcy filings],' says Greg Milmoe, a partner at Skadden, Arps, Slate, Meagher & Flom and co-head of the firm's bankruptcy practice. 'This will shake out a lot of companies that are close to the edge. Some will go over the edge.'"

Accounting tries to be an exacting profession, removing ambiguity as it outlines in black and white a moment-in-time snapshot of a business. Of course, the past year has been littered with now bankrupt or nationalized companies (Fannie Mae, Freddie Mac, AIG, Lehman Brothers all come to mind) where the numbers didn't quite tell the story. The reality is, like perl there's always more than one way to do it. Assets can be valued a few different ways, based on both the type of asset and the type of company holding that asset. For instance, mark to market accounting requires assets to be revalued to current value, whereas book value accounting is based more on an asset's original cost.

Big differences in today's markets. And given the fragility of our economic situation, perception has become the number one factor in understanding a company's health, not accounting treatment. Which of course creates a circular logic where you're worth what you're worth, your assets are valued based on your ability to not go bankrupt and dump a bunch of them on the market. AIG's inability to remain a going concern undermined the markets it served and now the losses keep piling up.

Fred WIlson asked last week if there is any such thing as a blue chip stock. There is no more specificity in the definition of a blue chip than there is in a going concern — both are about the market's perception of a company — and these days everyone from GE to GM can live in a world where one day they're a blue chip and the next they may not be a going concern. As permitted under the laws of quantum physics, companies can exist simultaneously in two states and the only thing which forces them into one or the other is trying to look.

So let's just all agree to stop looking for awhile.