Wednesday, March 21, 2007

Open Data Anyone?

I presented at the OpenData conference last week in New York. The event was sponsored by Reuters and organized by Seth Goldstein. This was one of the better events I have ever attended in terms of two way communication and idea generation. In attendance where a veritable who's who in the attention economy space including the seminal author, Michael Goldhaber.

The immense amount of exhaust information generated by the creation and consumption of social media offers big opportunities for companies capable of mining that information for commercial purposes.

The mining of clickstream data provided for some fairly contentious conversations. The data is mostly gathered clandestinely through browser widgets or purchasing clickstream data from ISP's. I say clandestinely because even though disclosure is probably provided in the EULAs from the service or widget vendors, these are rarely read through (For instance, I sample, reading through probably 1/100). This data is then mined for a variety of purposes, some innocuous, others could be considered invasive. There is actually an organization set up that describes sort of a bill of rights for the end user called Attention Trust. I particularly liked the quote in Wandering Stan's blog from the conference:

Chris Law (Aggregate Knowledge): I wish AttentionTrust compliance was widespread...we don't want to surprise people.
Steve Gilmore: This is bullshit. Have you signed/endorsed the AttentionTrust principles?
Chris Law: No, we're looking into it.
There were a few companies mining media (social or otherwise) as well as closed data (proprietary data sets) and delivering this information to the financial service sector. This was labeled "Information Arbitrage". Other companies in this space (besides Collective Intellect) at the conference included Majestic Research, Gerson Lehrman Group, and Monitor110

A lot of innovation is going on in this area, bringing together the fields of text analytics, data mining, social psychology, and finance. The sleeping giants of media are beginning to awake. It should be an interesting few years.

Thursday, March 15, 2007

Economics of Attention

I just finished reading The Economics of Attention by Richard Lanham. The book is so-so but makes some good points in the first couple of chapters. In the first chapter Lanham describes how the world has refocused value from objects to information about objects. He calls this stuff vs fluff. Marketing wins out in this world where brand recognition is more important than product value. One example he brings up is the importance of designers in web applications.

The most obvious new group of attention economists may be the computer-human interface designers. This branch of information design subsumes all the efforts at Web site design, amateur and professional, which we encounter on our daily voyages through cyberspace. The Internet constitutes the pure case of an attention economy, "Eyeballs" constitute the coin of the realm. If as one sometimes reads, Internet companies spend 75 percent of their money on marketing, this only makes sense in a world where stuff has given way to fluff. It should not surprise us that the dominant discipline, the economics that matters in this new theater, is design.
I mostly agree with this statement, but only on the surface ;) I think design is something that initially captures attention, but the attention will quickly dissipate if there is no "stuff" to back it up. Design is extremely important in an information rich world to refocus our attention. Value is what will keep us there for the medium term. And back to design, "ease of use" will keep us around for the long term.

He also talks about the notion of centripetal attention structures

Modern mass communications have created centripetal attention structures that bottle celebrity, and celebrities, for sale. Centripetal attention structures like these emerge so spontaneously from our behavior that they must be an inherited primate behavior pattern, part of our attention capital. So onward to our adoration of princesses, movie stars, and basketball players. These structures focus attention efficiently but on a very few people. They create machine-made fame.
I think this is very true and is an interesting human trait. I hadn't thought about this before and wonder if it's due to our natural tendency to organize information hierarchically. Or is it a Wisdom of Crowds behavior where we will predominantly pay attention to stuff other people are paying attention to? I think Surowiecki talks about an experiment in his WoC book where when one person was pointing up to the sky hardly any passers by stopped to look, but when a bunch of people were pointing then most passers by would stop to look. This causes the focus of our attention to land mostly on a few spots. Blog reading behavior is an interesting example of this. Even though there are millions of bloggers out there a small minority receive a majority of the traffic. We make celebrities of our top bloggers: TechCrunch, DailyKos, Engadget, etc.

In chapter two Lanham talks about economists of attention and holds out Andy Warhol as a prime example. Andy was all about maintaining attention on himself and capitalizing on that attention. Here are the rules of attention economy art as Andy Warhol practiced them:

  • Build attention traps. Create value by manipulating the ruling attention structures. Judo, not brute force, gets the best results.
  • Understand the logic of the centripetal gaze and how to profit from it
  • Draw your inspiration from your audience and not your muse. And keep in touch with that audience. The customer is always right.
  • Turn the masterpiece psychology of conventional art upside down:
    • mass production not skilled handwork
    • mass audience not connoisseurship
    • trendiness, not timelessness
    • repitition not rarity
  • Objects do matter ... Create stuff you can sell
  • Live in the present. That's where the value is added.

Sunday, March 11, 2007

Entrepreneurs Foundation of Colorado

When Brad Feld first approached my co-founder and I with the idea of Collective Intellect giving shares to EFCO, I thought it was great. I mean, finding a way to give back to the community where we grow our company, and setting up all the details beforehand – It just makes so much sense, similar to estate planning, to pre-meditate a giving strategy, and EFCO provides an outlet to some very meaningful local organizations supporting the arts, education, and the environment.

The last time around, when we sold our company, Dante Software, there was just this onslaught of people wanting to either manage my money or trying to get me to donate to their organizations. I'm certain most, if not all of these non-profits do good things, but its hard to come up with your giving philosophy and make those kind of decisions when your company is getting sold. Who should I give to? How much should I give to each group? When can I possibly sit down and think about this right now?

Deciding to be a part of EFCO helps make these decisions in advance of any liquidity event, so that everything is thought through and figured out – the only thing that happens later is the transfer of funds. It makes me feel good about what we are doing, because we have this great way to contribute back to Boulder. It links our company’s success to the community, where we and our staff live and work.

Over Age

Kelly and I went to see the band My Chemical Romance last week while Kelly's mom was out watching the kids. It was an awesome show, part rock opera, part Green Day, pyrotechnics, the works. On the way there we talked about how long we could continue going to shows like this, given I'm 43 and Kelly is 39. The funny thing was a friend of mine, was also bringing her 12 year old son, and when we got to the show there were people from ages 5-60. So, question answered. By the way, I was carded at the show while getting a beer. :)

Saturday, March 10, 2007

Term Sheet Terms: Dividends

I'm not certain if this is a fairly recent term added to the term sheets post-bubble or was there all along, but remember some people being surprised when they saw there was a dividend attached to the term sheet we received in 2002. It was for 10%. When included, I've seen them range from 5% to 10%. I was doing a bit of research and came across BF's post from a couple of years ago and he puts the range at 5-15%.

Some example language from a recent term sheet states:

Non-cumulative dividends will be paid on the Series B Preferred at the rate of 8% of the Original Purchase Price per annum, payable when, if and as declared by the Board of Directors, and prior and in preference to any declaration or payment of dividends to holders of the Series A or Common Stock. For any other dividends or similar distributions, the Series B Preferred will participate with the Series A Preferred and Common Stock on an as-converted basis.

So what does all this mean?

Non-cumulative dividends, as Mr. Feld says are benign, since they only kick in when declared, as opposed to their stick-it-to-you cumulative dividend brother which assumes a yearly dividend. Reportedly, the non-cumulative rarely get declared by the board. So, if the VC is foisting cumulative dividends, you should push back if possible.

Original Purchase Price is just the price per share that was paid in the investment round.

When and if as declared by the Board of Directors - This is an important point, since it only takes effect if the Board votes to issue a dividend, and makes the most sense for the company

Bottom line - A dividend normally gets included in today's term sheets and are innocuous if non-cumulative and only when declared by the Board.

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