(photo: Evil Erin)

Matt Yglesias analyzes the failure of the progressive block strategy, and chalks it up to progressives not picking issues that centrists care about.

He doesn't note his own role in that failure, vilifying the leader of the progressive block Raul Grijalva as the world's greatest monster unless he backs down. (Our own whip effort started to back Grijalva's efforts, which were already underway in the House when we started in June of 2009.)

I've said many times that it's impossible to expect progressive members of Congress to hold together if they don't have the backing of their natural fiscal constituencies the liberal interest groups and the unions. Without that support, they're left to raise money from PACS and other corporate sources to sufficiently fund their campaigns. That's why they take turns championing progressive bills that ultimately fail so they can pretend they do something, and then vote for bad bills that ultimately pass so someone else can be the failed hero. When Tammy Baldwin votes for one PhRMA-friendly bill after another, progressives can say hey, but she's so good on LGBT issues! Which never actually pass either, but the kabuki keeps activists sufficiently docile and donating to large organizations who fundraise off amping up outrage.

But it's also worthy to note that it's hard for them to withstand the assault of liberal pundits who sneeringly derided their efforts as naive, futile and purist. They should be proudly taking credit for their role in delegitimizing progressive opposition to the bill in liberal intellectual circles, much the same role that the same people played during the Iraq war. After all, it's TNR's stock in trade.

I'll leave it to others to analyze how corporate cash was laundered through foundations to underwrite the efforts of various opinion leaders in the health care debate, but it definitely deserves more scrutiny. . .

Monday, June 1, 2009

Kaiser Family Foundation Launches New Non-Profit Health Policy News Service

Menlo Park, CA In the midst of a major federal health reform debate and the ongoing financial turmoil in the media industry, the Kaiser Family Foundation officially launched Kaiser Health News (KHN) today to provide a new source of in-depth reporting on major health issues. KHN is staffed by experienced health policy journalists and editors, and will feature contributions from a wide array of leading health policy commentators and independent journalists.

[]

At the heart of KHN will be in-depth, explanatory stories about complex health policy issues and major developments in Washington, D.C., and around the country in the health care marketplace and health care delivery system. The news service will cover policy stories like health care reform, developments in major public health coverage programs like Medicare and Medicaid, and complicated ongoing policy challenges like the financing of long-term care, and it will examine the nation's health care system from a consumer perspective. KHN will also provide a synthesis of health policy news coverage through a daily health policy report, original programming from Kaiser's broadcast studio, and regular columns from contributing writers and experts. Jonathan Cohn, senior editor of The New Republic, and Howard Gleckman, senior research associate at the Urban Institute and former senior correspondent at Business Week, will be writing bi-weekly columns. Among others who will contribute occasional columns are: Michael Cannon of the Cato Institute, Jim Capretta of the Ethics and Public Policy Center, Judy Feder of the Center for American Progress, and Mark Pauly of the Wharton School at the University of Pennsylvania.

The development of Jonathan Gruber's much-vaunted model, which formed the justification for econo-wonks and politicians alike to support the Senate bill's voodoo claims about the excise tax, was originally paid for by the Kaiser Family Foundation in 1999 according to Gruber. It was given a facelift this year courtesy of the Small Business Majority, whose money comes from foundations including the Blue Cross Blue Shield Foundation. (h/t spanishinquisition)

And recall that Kaiser Permanente was the original sponsor of the Washington Post pay-to-play salons.

You have to wonder if any of that Kaiser cash underwrote other efforts at the Post after the parties fell through.

HCAN's efforts were funded by Atlantic Philanthropies, the Robert Wood Johnson Foundation and George Soros foundations, among others.

So, come on, pundits. Don't let the lameness of progressives in Congress get all the credit for shooting down the public option, rolling back choice, and teeing up constitutional amendments to overturn the health care bill around the country.

Stand proud.

Tags: Blogosphere, Jonathan Gruber, Kaiser Family Foundation, Matt Yglesias, Media, new media, Raul Grijalva, Robert Wood Johnson, The New Republic, TNR, veal pen

Apple Stacks The Deck Against Amazon's Kindle App

Jay Yarow | Feb. 26, 2010, 11:00 AM | 5,634 | 34

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Tags: Gadgets, Amazon, Kindle, Apple, iPad, eBooks, Big Tech, Media

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When Apple's iPad goes on sale in a few weeks, its iBookstore will have a distinct user-experience advantage over e-book competitors like Amazon's Kindle App.

That is, the iBookstore will let you seamlessly buy books from within the iBooks reader app, with the iTunes account it's already aware of.

Meanwhile, rivals like the Kindle app and Barnes & Noble e-reader will require you to boot up their apps, then click a button to boot up the iPad's Web browser, shop for e-books in a Web store, sign in and pay with a non-iTunes account, relaunch the e-reader app, and sync up your new e-book. Not as elegant.

It's not a huge difference, but it's the kind of small simplicity advantage that has helped Apple's iTunes music store maintain a lead over its rivals, including Amazon.

People who use the Kindle app on their iPhones today will know that this isn't a new thing: Since the Kindle iPhone app launched last March, users have had to leave the app to buy e-books.

Amazon didn't built the app this way from the beginning. We have learned that when Amazon first submitted its Kindle application for the iPhone to Apple, Amazon included its own payment system within the app, so customers could just pay for e-books and download them right in the app.

When Apple spotted the payment system, it told Amazon to get rid of it, according to a source familiar with Amazon's operations.

Why? It's a rule Apple smartly instituted at the App Store's beginning, forbidding third-party e-commerce of digital goods within apps.

That is, it's okay to use an iPhone app to buy physical goods -- as you can in Amazon's main iPhone app, or the Fandango app, etc. And developers are welcome to use Apple's in-app purchasing system -- and give a 30% cut of revenue to Apple -- to sell digital goods within apps.

But Amazon, Barnes & Noble, and other vendors are prohibited from using their own e-commerce systems within apps for virtual goods. Thus the trip to the Safari browser to buy books.

It's obviously a rule Apple itself is allowed to break -- it's Apple's iPhone, and it can do whatever it wants, as we've seen recently with Apple's recent raids on thousands of sexy apps. But it does put competitors like Amazon on uneven footing.

Obviously, Amazon is never going to want to give Apple a 30% cut of e-book sales, so it's not going to implement Apple's in-app purchasing system. So it's indefinitely stuck sending its customers into the browser to make purchases. (Meanwhile, on the new BlackBerry Kindle app, you can buy e-books directly within the app.)

Assuming the iBooks app and the iBookstore have similar selection, pricing, and e-reader features, this one simple step could give Apple a substantial advantage over Amazon.

See Also: 10 Burning Questions About Apple's iPad

Scherillo v. Dun & Bradstreet, Inc., 2010 WL 537805 (E.D.N.Y. Feb. 17, 2010)

I teach my Cyberspace Law students that the most effective online contract formation process is a "mandatory non-leaky clickthrough agreement":

* mandatory = the user cannot proceed to the destination without going through a screen soliciting their consent to the user agreement.
* non-leaky = there are no alternative ways the user can reach the destination. I realize this is redundant with "mandatory," but I remind students that a seemingly mandatory process can have leaks. For example, if customer support representatives will manually set up user accounts occasionally, the mandatory online process has become leaky because now a few users reached the destination without consenting to the agreement.
* clickthrough = the user manifests assent to the contract by clicking, and the user is told that the click signifies assent.

There are other ways to form online contracts (e.g., email exchanges), but if executed properly, the mandatory non-leaky clickthrough process should do very well against contract formation challenges. But even this description leaves open a number of user interaction judgments. Does likelihood of contract formation vary if:

* the agreement terms are presented on the clickthrough page itself or are only available for review by hyperlink?
* the agreement terms are presented in a scrollbox? If a scrollbox is used, must the user be forced to scroll through the scrollbox?
* the user is asked to check an additional box, such as a certification that the user has read the agreement?

In all of these cases, I believe the contract should be properly formed whether the answer to these questions is yes or no. However, I'm now a fan of adding a bonus mandatory checkbox as part of the formation process after reading today's opinion. A user mounts a sophisticated challenge to a mandatory non-leaky clickthrough process, and the bonus mandatory checkbox helps squelch the challenge. I think the court would have enforced it without the checkbox, but it sure put the user in an awkward/untenable position.

Scherillo bought a financial report about a company from Dun & Bradstreet's Small Business Solutions website. Scherillo alleges that the report painted an overly rosy picture of the company, leading him to make bad investment decisions that cost him money when the company tanked. Scherillo wants D&B to cover his investment losses.

Scherillo is almost certain to lose on the merits. Indeed, this case brought to mind one of the earliest cyberlaw cases, Daniel v. Dow Jones, 520 N.Y.S. 2d 334 (N.Y.C. Civ. Ct. Spec. Term 1987). (This case is a fun read--see how the court discusses electronic networked communications almost a quarter-century ago). That case involved Dow Jones' publication of an ambiguous report via a dial-up online service that led the plaintiff to make a bad investment decision. The court said that any tort claim for publishing inaccurate information required the plaintiff to show that it had a "special relationship" (analogous to a fiduciary relationship) with the information vendor, and an ordinary customer-vendor relationship did not qualify as a special relationship.

Interestingly, D&B would rather hear the case in NJ rather than keep it in NY and hope to benefit from substantive NY law that surely would doom Scherillo's case. (Perhaps NJ has a similar law). To move the case to NJ, D&B invoked the venue selection clause in its user agreement. Let's look at the online contract formation process. The court says:

"since 2007, the SBS website has included a page that requires users to register before purchasing a Dun and Bradstreet product ("the registration page"). On the registration page, users input information, including their e-mail address and name. The bottom quarter to third of the page contains a scrollable text box with the title "Terms and Conditions" [which contained a mandatory venue selection clause designating NJ]. Directly below this text box there is more text that reads: "I have read and AGREE to the terms and conditions shown above." Immediately adjacent to this text is a much smaller, empty box ("the terms and conditions check box"). Also at the bottom of the page is another box containing the phrase "Complete Registration" ("the Complete Registration box"). Clicking on this box completes the user's registration. McDonald testified that if a user clicks on the Complete Registration box without checking the terms and conditions check box, the user is unable to complete registration and is returned to the registration page."

Check out the page yourself as I saw it in Google Chrome on Feb. 18 (with cropping). The formation process looks pretty standard to me.

Scherillo attacked the formation process by saying he never consented to the agreement because "it was possible for him to unknowingly and involuntarily 'check' the terms and conditions check box." Not only that, he lined up Sean Chumura, "a cyberwarfare and computer forensics expert" who is also [LINK NSFW] helping Perfect 10 in its lawsuit against Google, to testify that "it was possible for plaintiff, while 'tabbing' through the registration page, to inadvertently hit the space bar and thereby 'check' the terms and conditions box."

[Snarky paragraph alert] First, this may prove the adage that you can find an expert to testify about ANYTHING. Second, Scherillo alleged $75k of investment losses. For a low-value lawsuit like that, he needs a cyberwarfare expert??? Third, I believe Chumura has a MySpace page. Really...? I wonder if he uses an AOL.com email address too. The MySpace page also reveals that its author appeared to attend the Dan Quayle school of spelling.

OK, back to the case. The judge was no more tolerant of this nonsense than I am. He resolves the factual dispute by saying:

even under plaintiff's theory--that, while "tabbing" through the fields on the registration page, he accidentally hit the space bar key and thereby "checked" the terms and conditions box--plaintiff would have seen the check mark appear in the box and then still would have had to hit the "return" key (or clicked the "complete registration" box with the mouse) to complete the registration and advance to the next screen. Plaintiff would have had an opportunity to see that he checked the box inadvertently before he then hit the return key on the "complete registration" box. Thus, to accept plaintiff's theory, the Court would have to find that plaintiff hit two keys accidentally-the space bar and the return key-and that he was then involuntarily and unexpectedly sent to the next screen where he nonetheless proceeded to enter his credit card information and complete the purchase of the report. This alleged chain of events is simply not credible.

Therefore, Scherillo's click on the "Complete Registration" box manifested Scherillo's assent to the terms, even if Scherillo chose not to review them. The court says that the fact that the terms were in a scrollbox is immaterial, and the fact that some sites require the user to scroll through the scrollbox before proceeding doesn't affect the effectiveness of D&B's implementation.

I believe this court would have upheld the formation process even without the bonus checkbox, but you can see how the checkbox defused the withering assault of a cyberwarfare expert. Thus, you might consider implementing the bonus checkbox to discourage similar silly attacks against your contract formation process in the future.

But that doesn't mean we can't learn something from how China is reacting to the recession with quick and massive stimulus that is succeeding in creating jobs and growth.

The world's largest human migration the annual crush of Chinese traveling home to celebrate the Lunar New Year, which is this Sunday is going a little faster this time thanks to a new high-speed rail line.

The Chinese bullet train, which has the world's fastest average speed, connects Guangzhou, the southern coastal manufacturing center, to Wuhan, deep in the interior. In a little more than three hours, it travels 664 miles, comparable to the distance from Boston to southern Virginia. That is less time than Amtrak's fastest train, the Acela, takes to go from Boston just to New York.

Even more impressive, the Guangzhou to Wuhan train is just one of 42 high-speed lines recently opened or set to open by 2012 in China. By comparison, the United States hopes to build its first high-speed rail line by 2014, an 84-mile route linking Tampa and Orlando, Fla.

China spent $88 billion dollars on high-speed rail investment in 2009 alone, a substantial increase from previous years. It rivals the construction of the interstate highway system in America in the 1950s for its audaciousness and use of public monies to spur jobs and growth. And it's working:

As China upgrades and expands its rail system, it creates the economies of large-scale production for another big export industry. The sheer volume of equipment that they will require, and the technology that will have to be developed, will simply catapult them into a leadership position, said Stephen Gardner, Amtrak's vice president for policy and development [...]

Officials drafted a plan to move much of the nation's passenger traffic onto high-speed routes by 2020, freeing existing tracks for more freight. Then the global financial crisis hit in late 2008. Faced with mass layoffs at export factories, China ordered that the new rail system be completed by 2012 instead of 2020, throwing more than $100 billion in stimulus at the projects.

Administrators mobilized armies of laborers 110,000 just for the 820-mile route from Beijing to Shanghai, which will cut travel time there to five hours, from 12, when it opens next year.

You can do this far more quickly in a command economy, of course. But it's the priority order that is striking. China needed economic stimulus, and rapidly accelerated public investment. The US (which actually has added more in stimulus than most countries in Europe) took a balanced approach based more on tax cuts. Aside from the question of what approach works better in terms of economic activity, look at the end result practically all of China will be served by high-speed rail within a matter of years.

It's not perfect. Some Chinese have complained about the fare costs. And again, a single decision-maker rather than a phalanx of competing interests makes decision-making that much easier. But there's something that can be learned here. If you want to create jobs, rather than the Rube Goldberg approach of tax breaks and nudges toward private investment, just go ahead and create the jobs. In the long run you'll have higher growth and a better quality of life for the nation.

Nemet Chevrolet Ltd. v. ConsumerAffairs.com, Inc., No. 08-2097 (4th Cir. Dec. 29, 2009)

Introduction

Citing 47 USC 230, today the Fourth Circuit upheld a 12(b)(6) dismissal of defamation and related claims against a consumer review website. This case is noteworthy because the court rejected some common allegations that plaintiffs make to evade 230, so this case may help defendants get 12(b)(6) motions to dismiss more easily.

ConsumerAffairs.com is a consumer review website with a twist: it works in conjunction with a law firm that mines the submitted complaints for potential class action lawsuits. In June 2008, I blogged about the district court's 12(b)(6) dismissal of the case.

Development of the Reviews

Nemet tried two tactics in its complaint to draft around 230. First, it alleged that ConsumerAffairs.com partially developed 20 reviews. Nemet pled:

Upon information and belief, Defendant participated in the preparation of this complaint by soliciting the complaint, steering the complaint into a specific category designed to attract attention by consumer class action lawyers, contacting the consumer to ask questions about the complaint and to help her draft or revise her complaint, and promising the consumer that she could obtain some financial recovery by joining a class action lawsuit. Defendant is therefore responsible, in whole or in part, for developing the substance and content of the false complaint . . . about the Plaintiffs.

These allegations do not survive a 12(b)(6) motion to dismiss.

* the website "structure and design" argument fails, despite Nemet's attempt to invoke Roommates.com, because ConsumerAffairs' structure was not illegal. To me, the court's discussion reinforces that Roommates.com' real holding is If you don't encourage illegal content, or design your website to require users to input illegal content, you will be immune. Chalk this case up as yet another citation of Roommates.com for the defense.

* Asking users questions about their posts does not qualify as development.

* The unsupported assertion that ConsumerAffairs edited posts did not pass the Iqbal standard. Plus, as Zeran indicated, 230 protects editorial decisions, so the allegations needed to assert some editing beyond this protected zone.

Review Fabrication

Second, Nemet alleged that ConsumerAffairs fabricated 8 reviews. Nemet pled:

Because Plaintiffs cannot confirm that the [customer] complaint . . . was even created by a Nemet Motors Customer based on the date, model of car, and first name, Plaintiffs believe that the complaint. . . was fabricated by the Defendant for the purpose of attracting other consumer complaints. By authoring the complaint . . . the Defendant was therefore responsible for the substance and content of the complaint.

This allegation has an obvious (and IMO embarrassing) logic flaw. Even if Nemet can't use its records to validate the facts in a consumer review, ConsumerAffairs.com's fabrication of the post is only one of many possible explanations. The court notes some other possible explanations: "the post could be anonymous, falsified by the consumer, or simply missed by Nemet." (I would also add the possibility of weak recordkeeping by Nemet). To try to get around this logical deficiency, Nemet marshals up some additional allegations:

(1) that Nemet has an excellent professional reputation, (2) none of the consumer complaints at issue have been reported to or acted upon by the New York City Department of Consumer Affairs, (3) Consumeraffairs.com's sole source of income is advertising and this advertising is tied to its webpage content, and (4) some of the posts on Consumeraffairs.com's website appeared online after their listed creation date

But all of these facts are non-sequiturs; none of them show that ConsumerAffairs fabricated the posts, and post-Iqbal these allegations are not enough to state a claim. The dissent disagreed with this conclusion (about the alleged fabrication) and would have allowed those claims to proceed.

230 as an Immunity Redux

In FN 4, the court notes that the Seventh Circuit questioned if 230(c)(1) was just a definitional section. Citing Zeran, which addressed this issue explicitly, the court says "Of whatever academic interest that distinction may be, our Circuit clearly views the 230 provision as an immunity:" As a result, the court "aim[s] to resolve the question of 230 immunity at the earliest possible stage of the case because that immunity protects websites not only from 'ultimate liability,' but also from 'having to fight costly and protracted legal battles.'" It looks like there could be a brewing catfight between circuits over whether 230(c)(1) is an immunity, an affirmative defense, a definitional section or something else.

Conclusion

Given that this court was bound by the Zeran precedent, it's perhaps not surprising that the court found 230 protection for a consumer review website. Nevertheless, by rejecting another plaintiff's attempt to make hay from Roommates.com and rejecting weakly supported allegations of fabrication, this court gave defendants even more support to fend off claims that are, at their core, based on third party content.

The updated census of Roommates.com citations:

Roommates.com Cited for Defense (11 cases): GW Equity v. Xcentric, Best Western v. Furber, Goddard v. Google (and second ruling) Joyner v. Lazzareschi, Atlantic Records v. Project Playlist, Barnes v. Yahoo (note: although the case was a partial loss for the defendant, the Roommates.com discussion came in the defense-favorable part), Doe IX v. MySpace, Doe II v. MySpace, Dart v. Craigslist, Shiamili v. Real Estate Group, Nemet v. ConsumerAffairs

Roommates.com Cited for Plaintiff (2 cases): NPS v. StubHub, FTC v. Accusearch

Yes, really. Rupert Murdoch's crusade to blame Google for the failing newspaper business model continues today, as it emerges that News Corp has conducted talks with Microsoft about de-indexing the company's sites from Google and (presumably) being paid to include them in Bing instead.

The concept makes sense only if you buy Murdoch's claims that Google is stealing content rather than simply helping people find it.

The revelation comes from the Financial Times, which has a strong track record for accurate reportage this is unlikely to be a fluffy rumor. The piece reads, in part:

Microsoft has had discussions with News Corp over a plan that would involve the media company's being paid to de-index its news websites from Google, setting the scene for a search engine battle that could offer a ray of light to the newspaper industry.

The impetus for the discussions came from News Corp, owner of newspapers ranging from the Wall Street Journal of the US to The Sun of the UK, said a person familiar with the situation, who warned that talks were at an early stage.

However, the Financial Times has learnt that Microsoft has also approached other big online publishers to persuade them to remove their sites from Google's search engine.

News Corp and Microsoft, which owns the rival Bing search engine, declined to comment.

I say go for it. So, I'm sure, do all the other web publishers who see that removing many of the major news sites from Google will provide even more traffic for the upstarts. News Corp is merrily making itself irrelevant to web consumers, while continuing to use Google as its punch bag rather than addressing the radical transition of media into the online world.

Fifteen years ago I listened to James Burke at a symposium deliver a speech titled, Axe Makers of the 21st Century. It was the precursor to his writing of The Axemaker's Gift. A book that dealt with the problem that Burke was working through in his head before the internet exploded.

Axe Makers was a syllogistic study of mankind's ability to restructure society based on how the internet age would create a diaspora of talented workers. These workers in turn would be able to lead a nomadic lifestyle based on their connectivity to the internet as information workers. At this time, part of his hypothesis was that these workers would then raise the standard of living for local inhabitants.

Some components of Burke's look into the future have come true. A connected information worker can now perform their duties from anywhere they choose as long as their employer has signed off on it. Another was his correct assumption that the ubiquity of near real-time information would change global culture.

His book, The Axmaker's Gift, was an attempt to reconcile this new culture shift with cultures of the past. Burke was concerned that technology was and would strip away our humanity. That our future needed to have a moderated technological lust passion interest. In the book he advocates for the simplicity of life and a continued movement toward small communities but not through technology.

What really got me going down this path today thinking about James Burke was my experience at another small conference here in New York. As an information worker in one of America's largest cities, I find myself more connected to a community of like people than ever before.

For the last three years I was one of the diaspora working from remotely from home for businesses that at their closest proximity to me were 900 miles away. An opportunity that Burke described in detail. But in this space I was isolated. I had a few friends that could identify with my work life and worked in similar ways. However, most of the people that I was in contact with on a daily basis I couldn't connect with. We existed in two separate realities.

What Burke didn't account for was this loss of community due to the lack of commonality in the experience that nomadic workers have with the locals they take up residence with. In New York I am able to continually find common experiences with other people, workers that have similar experiences to mine.

The proximity of information workers even in this large city is due to the multitude of businesses that need our services. Many of them in media and others in financial or advertising benefit from the central location of talent. What makes this talent even more valuable is its ability to connect to one another and flow through these businesses to keep culture and ideas fresh.

The ability to capitalize on common experience, talent and proximity is what has made certain locations on our planet the centers for varying industries. Information workers, like Burke described, should be considered skilled tradespeople that for the better should be concentrated into spaces so that they can produce their best work.

DISCLOSURE OF MATERIAL CONNECTION: http://cmp.ly/4

Proximity: The Power of Space is a post from: TechStartups.com

Last week we had a search come in for what happens in a startup merger? A brilliant question that is most likely being asked at the worst time the merger.

This question might have been asked by an employee of the startup, but let's for this instance suppose that it came from the lucky founder of a startup that found an exit well before the business has matured. This merger allows them financial compensation and just how much is at stake.

What appears to be missing from this founders startup experience and vocabulary is a very important term and process due diligence.

One of the best, if not the best, resources for helping this startup founder would be the Technology Due Diligence (TechDD) written by Mike Dunn (@glemak). Mike's current role is CTO of Hearst Interactive Media. He's a tech veteran with stripes pre and post bubble that guides Hearst's technology investments like Brightcove, BuzzFeed and UGO.

Dunn's document is a view behind the curtain of venture capital. It gives a startup a view that a potential investor or a more experienced merging company has of the process that is about to unfold and seeks to make it as smooth as possible.

Dunn describes his open source TechDD as:

The goal of this due diligence process is to allow us to fully understand the technology practice of your company, including how you are staffed, your tactical and strategic utilization of technology and the processes that allow them all to work together to produce what you do for your company. We would like to be able to understand this for both your current state and your roadmap. So where relevant to your business, please be prepared to discuss and provide written answers for the following scoping questions

And scoping they are.

The documentation is broken down into three sections:

1. Technical Staffing
2. Infrastructure and Architecture
3. Workflows and Processes

Each with a keen focus on extracting the most information that will allow outsiders to understand the inner workings of the startup. If these questions are answered truthfully by a startup before being approached by a potential investor the process of a merger wouldn't cause anxiety but provide for a source of relief that from the very beginning the building of the business was transparent.

The Technology Due Diligence documentation that Dunn has created isn't designed to trip up an entrepreneur. It is written in the spirit of the open source community to be a transparent and genuine glimpse into what is often the most fear inducing a process and unprepared startup can find itself in.

The document is a comprehensive primer for any tech startup to integrate with their business plan. It clears the way for building a business that is investment or acquisition ready at any time.

DISCLOSURE OF MATERIAL CONNECTION: http://cmp.ly/0

Tech Startup Due Diligence is a post from: TechStartups.com

Are you a VIP? Did you pay for access?

These are the questions that will drive the next web, the version beyond 2.0. A trend towards exclusivity is one that appears to be gaining momentum as business models are coming apart at the seams.

The most prominent of these business models, revenue by CPM from advertising dollars, was the first to begin unraveling over last few years. As the economy tanked many sites relying on this revenue stream couldn't afford to keep the lights on.

Those that have survived are looking to premium content to supplement their income or even stay afloat. Premium meaning exclusive pay for content. And as the great Janis Joplin sang, Exclusive's just another word for nothing left to lose.

That's close right?

Don't take my tone the wrong way. I am bullish about the next web and view exclusivity as a viable method to generate revenue that can sustain a business. Many publishers, for years, played the hunch that simply building audience would lead to revenue. Much in the form of advertising dollars and we can see where that has put them. They're ready to earn.

I recently spoke with Tim Bourquin, the founder of New Media Expo. Tim was a leader in creating a community from the diaspora of global podcasters. But as Tim found out, along with others, there was no sustainable revenue stream to produce your own content. If someone wanted to make money in the medium they would need to produce shows for other people.

This is the category that I fall into. For the last 5 years I have been podcasting a free show at the rate on average of 2 episodes a week. We've done over 500 episodes and are the proud owners of an artist page in iTunes. Over that time, all but one month, I paid $200 for the server to host the show. Simple math will put my costs of production over $10,000. And that doesn't include the time to produce the shows, gear or facility (though it was my home).

We were never able to monetize our show with an audience of over 2,500 regular listeners. We looked at advertising, sponsorships and pitching our show for television. None of them were viable as our audience was too small. It was filled with the right people, just not enough of them. The only money that I have made from podcasting came from performing contract work for advertising agencies.

Bourquin is now charging for his content and building a community from and exclusive set listeners that are paying him with their attentions as well. It does change the dynamic as a publisher to have a financial obligation to an audience. In this model, every player has a vested interest in the content having value.

Exclusive purple ropes are a coming necessity for online businesses to grow from the passions of artists, publishers and regular folks. The next web will be filled with independent publishers mixing their content with that of today's mainstream media.

The difference will be that it will be paid for. Think exclusivity through micropayments and the bundling of content like a cable television provider under the umbrella of larger publishers. Both of these models rely on the new web's ability to syndicate and track content effectively.

DISCLOSURE OF MATERIAL CONNECTION: http://cmp.ly/4

Post from: TechStartups.com

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Getting started with the site is quite easy, because Outright has recently partnered with a number of financial services: you can import invoices from Freshbooks, receipts from Shoeboxed, your PayPal transaction history, as well as your credit card transactions through a deal with Expensify, which supports 94% of US credit cards. You only have to do this once once you've linked your account, they'll keep automatically updating until you unlink them.

Once you're done with the initial setup, everything on Outright is fairly self-explanatory (which is sort of the idea). The home screen presents you with a chart pitting your costs against your income to give you an at-a-glance look at your business's health. At the top of the screen you'll see tabs for Income, Expenses, Taxes, and Reports, where you can hone in on the transactions you're looking for. Transactions are automatically sorted into different categories (for example, the site knows that your airline's tickets belong under the Travel' category), and you can also generate reports on a per-customer basis, which would be helpful for eBay sellers. Beyond that the application helps with taxes by offering reminders when a deadline is coming up and an estimated amount that you'll have to pay.

Outright isn't as robust as some other financial services out there, but if you're looking to keep things simple it's certainly worth a look. The company was formerly called GoBoostrap.com, but changed its name in conjunction with news of its $2 million funding in February.

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Beverly Stayart searched her own name and didn't like the results. She got links to pornographic websites, online pharmacies promoting sexual dysfunction drugs, and an adult-oriented online dating service. She sued Yahoo! and other defendants, including the operator of AdultFriendFinder, for false endorsement under the Lanham Act and state-law privacy violations. The court dismissed the Lanham Act claim and surrendered jurisdiction over the state law claims.

Stayart lives in Wisconsin and was previously employed by several major financial institutions in Chicago, attaining the position of Vice President. She's involved in animal protection and genealogy research throughout the world. This includes an internet presence; her periodic posts on one genealogical website have generated almost 17,000 hits during the past three years. (Okay, I'm sorry, but: on the internet as a whole, that's tiny. My stats look more impressive than thatif you've never seen any others.) And two of her poems appear on two Danish websites (they support the preservation of baby seals).

Stayart alleged that she was the only Beverly/Bev Stayart on the internet, and that she had never engaged in a promiscuous lifestyle, or other overt sexual activities, which are repugnant to her and her community. She alleged that her name had commercial value because of her humanitarian endeavors, positive and wholesome image, and the popularity of her scholarly posts on the Internet. The search engine defendants, she alleged, knowingly used her name on false snippets in results by (1) repeatedly linking Plaintiff to the advertising of Cialis by an online pharmacy; (2) repeatedly linking Plaintiff to six separate websites playing pornographic videos containing computer spy ware; and (3) repeatedly linking Plaintiff to a website captioned Free Streaming Porn--HOTTEST DAILY PORN' displaying 27 hardcore pornographic photos. She asked Yahoo! to stop linking her name to these search results. Yahoo! replied: We do not aim to judge web content for appropriateness or censor materials that we find offensive or inappropriate. Instead, we present information as it is reflected on the Web, allowing you to draw your own informed conclusions about what you see.

Stayart also alleged that Various (which operates AdultFriendFinder) used her name on a website advertising its service. She typed her name into altavista.com and got, among the results, jewellery-makin-doorway.orge.pl/bev-stayart.html. This went to an Under Construction site that stated Meet AdultFriendFinder members near Janesville [Wisconsin]-- Over 20 Million Members and displayed five graphic images of fully or partially nude women, accompanied by the age, nickname and city of residence of the women.

Under Iqbal, though a court must accept all well-pleaded facts as true, the claim must still have facial plausibility. And a plaintiff can plead herself out of court, which was what the court determined had occurred here.

False endorsement means that consumers are likely to be misled about a person's sponsorship or approval of a product or service.

In order to have prudential standing under the Lanham Act, Stayart needed to allege at least an existing intent to commercialize her identity. This she didn't do. Though she alleged that her name has commercial value, her complaint is really about distasteful associations. That emotional desire to prevent others from using her name doesn't create Lanham Act standing. Her correspondence with Yahoo!, attached to the complaint, further indicates that her concerns are with privacy and reputation, defamation and demeaning associations. But the Lanham Act does not create a false light tort claim, absent commercialization.

Stayart relied on Doe v. Friendfinder, which refused to dismiss a false endorsement claim against AdultFriendFinder. But Doe didn't address prudential standing in its decision.

The court went on to reach an independent ground for dismissal, lack of likely confusion as a matter of law. [A] commonsense reading of the complaint demonstrates that there could be no likelihood of confusion. The complaint explicitly disavows any association with pornographic materials, sexual dysfunction drugs, or sexually-oriented dating services. This contravenes likelihood of confusion, so Stayart pleaded herself out of court. (Query: before 1999, would Bob Dole have had a claim? He'd never previously been associated with sexual dysfunction drugs, so wouldn't it have been just as implausible that he'd be a pitchman for them?) No one who accessed these links could reasonably conclude that Bev Stayart endorsed the products at issue.

Stayart argued initial interest confusion against AdultFriendFinder. But on the internet, initial interest confusion depends on relatedness of goods and a consumer's level of care. Given that Stayart's identity is completely unrelated to AdultFriendFinder's services, initial confusion won't facilitate free riding on another mark's goodwill. Without a meaningful effect on the market, confusion is of little or no consequence under the Lanham Act. The type of person looking for information about Bev Stayart would not be fooled into using an online adult-oriented dating website. (I'd add in to find her at the end of that; the court might be surprised to find outjust as Stayart might bethe non-Stayart-related interests of the type of people looking for information about Stayart. I'd be willing to bet that even genealogists and animal rescuers sometimes like to meet adult friends!)

Next, a puzzling CDA discussion. The court commented that if Stayart successfully stated a false endorsement claim under the Lanham Act, it would probably fall under the CDA's intellectual property exclusion. But, it continued, one of the fatal flaws of that claim is that Yahoo! didn't use Stayart's name in connection with its own goods or services. It just included snippets from third-party websites and didn't create the content of which Stayart complained. So the proper analysis is vicarious liability/contributory infringement under the Lanham Act.

Under settled doctrine, Yahoo! can't be held liable for failing to remove the search results even after Stayart complained. It didn't control the third-party websites, which fact defeated both contributory and vicarious liability. (That's a shortcut on contributory liability analysis, but not particularly troubling under the circumstances.) The only way Yahoo! could control the results would be to change its algorithm, which goes to the heart of Yahoo!'s role as an interactive computer service. Because ordinary search engines play no part in developing any unlawful searches, Yahoo! should be entitled to immunity because it acted as an interactive computer service, even though Stayart's claims are nominal intellectual property claims. Immunizing Yahoo! doesn't contravene the CDA's IP exclusion because Stayart doesn't have a valid IP claim.

Comment: oh, my. Look, I like CDA immunity generally. But what's weird here is not the court's willingness to use CDA reasoning on an IP claim despite the IP exclusion; what's weird is the court's failure to notice that IP secondary liability doctrine itself incorporates the tech-promoting rationales underlying the CDA. Well, trademark does much more than copyright, these daysbut it's trademark doctrine that's at issue here! There's no need to bring in the CDA! And that last bitthis analysis only applies because Stayart doesn't have a valid IP claimmakes this whole excursion even more obviously useless.

The court then said that matters were less clear with respect to AdultFriendFinder. The site is in some ways interactive, but Stayart's complaint relates to the banner ad associated with the bev-stayart.html URL. AdultFriendFinder's role in the creation of the banner ad content was unclear, so the court couldn't grant it immunity at this stage.

The only claims that remained were state-law claims. Given that the dismissal was on the pleadings, ordinarily a federal court should relinquish jurisdiction, unless it is so obvious how the claims should be decided that the plaintiff should be put out of her misery rather than involving state-court resources. Defendants argued that Wisconsin requires a name to have commercial value in order to maintain a right of publicity claim. But some variations of the appropriation tort, which Wisconsin may recognize, require only commercial use plus bruised feelings. (Doesn't Yahoo! get out of this even if AdultFriendFinder has to proceed in state court? Under what theory is Yahoo!'s use commercial? If it's using snippets from other sites, how can it possibly be distinguished from the New York Times using Stayart's name in a story?)

The distinction between appropriation and the right to publicity (based on commercial damage) is also relevant to CDA immunity. The latter is an IP claim. (Implicit holding: to the extent Stayart is bringing an appropriation claim, Yahoo! is immune.) Plus there's the Perfect 10 versus Friendfinder split over whether state IP claims are preempted by the CDA. Since this is an unsettled issue of federal law, the court couldn't conclude that there was an obvious resolution of the state law claims. Even though the Court already held that Yahoo! was entitled to CDA immunity, the Court cannot say with certainty that a potential right to publicity claim under Wisconsin law is without merit, meaning that the intellectual property exception could save Stayart's claims. Also, AdultFriendFinder's CDA status is unclear, leaving it potentially vulnerable under either a misappropriation or right of publicity claim.

Jammie Thomas-Rasset

Much of Jammie Thomas-Rasset's legal arguments following this summer's $1.92 million Recording Industry Association of America file sharing jury verdict against her don't have much weight or precedent.

Clearly, that a jury in June ordered her to pay $80,000 for each of the 24 music tracks she infringed on Kazaa is outrageous and shocks the conscience and there's no rational relationship between the amount of harm suffered by the recording industry and the award granted.

Thomas-Rasset wass the nation's first sharing defendant to go before a jury. The RIAA has filed more than 30,000 lawsuits targeting individuals, and most have settled out of court.

That said, in their latest court papers, (.pdf) Thomas-Rasset's legal team again is sticking to the argument that the whopping jury award is a due process violation all in a bid perhaps to secure a third trial. (The first ended in a $222,000 judgment against the Minnesota woman, but a mistrial was declared after the judge conceded he gave faulty jury instructions)

Still, it is true that the U.S. Supreme Court and the lower courts have repeatedly reduced lofty jury awards based on so-called due process breached. But those were punitive damages awards, not statutory damages awards.

Those punitive damage reductions, including the Exxon Valdez oil spill disaster, do not apply to Thomas-Rasset's case although Thomas-Rasset's defense team suggests there's always a first.

Punitive damages are the amount a jury awards to punish conduct of an offender. Up until recently, there generally has been no limit. But the Supreme Court has suggested that punitive damages should be limited to about no more than 10 times the amount of actual damages a jury awards.

Higher ratios, the courts have said, are due process breaches because defendants have no notice ahead of time about the lofty financial consequences of their actions.

But the law is crystal clear when it comes to the Copyright Act, the law under which the RIAA sued Thomas-Rasset. Juries can award up to $150,000 per violation. Punitive damages do not fall under the Copyright Act.

One of the only points in Thomas-Rasset's brief that makes a compelling argument is that the Copyright Act, when amended in 1999, didn't conceive of non-commercial cases the RIAA has been bringing the past six years.

The notion that Congress decided that the award of statutory damages in this case was somehow appropriate or tailored to ensure deterrence is a fiction that the plaintiffs would have this court adopt. The Congress that enacted the statutory-damages provision of the Copyright Act could not have had the kinds of illegal but non-commercial music downloading here at issue in mind, defense attorney K.A.D. Camara argues in recent briefs.

It's true: There's no doubt that a $1.92 judgment over $24 worth of music provides the clearest example yet of the abuses made possible by the 1976 Copyright Act, which Congress modified in 1999, at the behest of Hollywood and the recording industry, to carry a maximum penalty for a single infringement of up to $150,000.

That statutory penalty was intended to bankrupt large-scale commercial pirating operations, like organized DVD and CD bootleggers not to put individuals like Thomas-Rasset in debt for the rest of their lives.

Still, the RIAA is crying foul.

After Thomas-Rasset refused to settle out of court, the industry is now demanding that Thomas-Rasset pay up. The RIAA is also seeking U.S. District Judge Michael Davis to issue an injunction barring her from future file sharing.

Plaintiffs' evidence showed that defendant knew what she was doing was wrong, that she did it anyway, and then lied about it for years. Through two trials, defendant still shows no remorse whatsoever for her actions and has made it clear that she has no intention of ever satisfying any portion of the judgment against her, Timothy Reynolds, the RIAA's attorney, wrote (.pdf) Davis.

Judge Davis of Minnesota could rule on the retrial and injunction issue any time.

See Also:

• Jury in RIAA Trial Slaps $2 Million Fine on Jammie Thomas
• Feds Support $1.92 Million RIAA File Sharing Verdict
• Will File-Sharing Case Spawn a Copyright Reform Movement?
• Thomas Seeks New RIAA Trial; Says $1.92 Million Verdict Monstrous
• File Sharing Lawsuits at a Crossroads, After 5 Years of RIAA
• Jury Dings File Sharer $675000, RIAA Prevails Update

The US Securities and Exchange Commission is considering a ban on a stock market practice known as "flash trading," where supercomputers get access to information milliseconds before other traders and can rapidly buy and sell in ways that are argued to influence the market unfairly - thus discouraging mere mortals from participating.

Many bleeding-edge trends in the consumer web play out writ large in financial markets; as all of us look at the growing prominence of real-time information on the web, the debate over flash stock trading raises issues worth considering outside the stock markets as well.

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If the real time web at large grows up open and democratic, then we're likely to see innovation, understanding and growth. If it's priced out of reach to all but marketing and state interests, then an experience analogous to that of small-time stock traders today could become what the web at large looks like.

It's easy for technologists to say that this is progress and rejecting the advantages technology brings would demand a return to time before the abacus. It's not so easy to explain why we have to take an all-or-nothing approach to judging technologies and their implications - why not look at them one at a time and evaluate them intelligently?

Here's how the introduction of real time information is being debated regarding financial markets, followed by some thoughts about the analogous transformation going on around the web.

This isn't just a story about robot stock traders and the SEC; it's also a story about Twitter, Facebook and the Pushbutton Web.

Robots in Financial Markets

Last month the New York Times' Charles Duhigg wrote a high-profile story about the practice of high frequency trading, including this juicy description of the practice:

Powerful algorithms -- "algos," in industry parlance -- execute millions of orders a second and scan dozens of public and private marketplaces simultaneously. They can spot trends before other investors can blink, changing orders and strategies within milliseconds.

High-frequency traders often confound other investors by issuing and then canceling orders almost simultaneously. Loopholes in market rules give high-speed investors an early glance at how others are trading. And their computers can essentially bully slower investors into giving up profits -- and then disappear before anyone even knows they were there.

Rich Miller, writing at Data Center Knowledge, a blog that tracks the powerful computers that high frequency traders (among many other industries) use, called the article one-sided and inconsiderate of the argument that "this activity provides liquidity to execute trades that would otherwise not be possible, making the market more efficient." He also said the press was widening the debate over the practice by bringing it into the mainstream.

Now U.S. Senator Charles E. Schumer (D-NY) has sent a letter to the SEC this week, calling for action to be taken against the practice of flash trading in particular, the act of selling for a fee access to trading information milliseconds before it is otherwise available. He argues that the practice "creates a two-tiered system where a privileged group of insiders receives preferential treatment, depriving others of a fair price for their transactions. If allowed to continue, these practices will undermine the confidence of ordinary investors, and drive them away from our capital markets."

Schumer focuses on the early access to information, but always in the context of the computer-driven trading that occurs based on it.

Trader John Hempton writes that critics over-estimate the financial impact of flash traded stock, needlessly complicating a situation that he describes with the following, fascinating, story:

We trade electronically at our fund. We were recently trading in a stock with a large spread. I have changed the numbers so as not to identify the stock - but the ratios are about right. The bid was about 129.50, offer was about 131.50. We did not want to cross the spread - so when we bid for the stock we bid $129.55. Within a second a computer (possibly at our own broker but it makes no difference which broker) bid $129.60 for a few hundred shares. We fiddled for a while changing our bid and watching the bot change theirs. We would have loved to think we were frustrating the computer - but alas it was just a machine - and we were people up late at night.

Actually obtaining the stock required that we paid up - and when we did so it was probably a computer that sold the stock to us.

...It is always there - even when buying defaulted debt that trades once per month. We simply ALWAYS find the bot.

What About Real-time Robots on the Web?

Could the real time web give some people such an unfair advantage over everyone else that non-early adopters of new technologies or people outside of marketing firms could be left out in the cold? Presuming we're talking about important, actionable information online and not just real-time chat and fun - it's possible. The question is: will the most important parts of the real time web be open and democratized, or proprietary and shared only with those who can pay a high price for access? That question hasn't been answered yet.

If you were among the people who purchased the new Breaking News Online (BNO) iPhone app (released an eternity ago, yesterday!) then today you probably found out about the two US journalists being freed from North Korea and the shooting in Pennsylvania at least 45 minutes before almost anyone else did. (CNN posted a link to local PA news 45 minutes after the BNO network published.) That notification system costs $1.99 to purchase and $1 per month to stay subscribed.

If you've visited Yahoo's social-bookmarking turned real-time news service Delicious since this morning, you've seen that hot news links are now found not just by vote counting, but with a new method augmented by tracking the open, rapid conversations on Twitter.

These are innovations built out of elbow grease and publicly available feeds of data. Yahoo might be, but the scrappy guys at Breaking News Online definitely aren't, using software something like IBM's new stream processing software, for which it will charge "at least" hundreds of thousands of dollars.

No, this real-time public web is very low cost and increasingly both open sourced and decentralized. It's akin to what Anil Dash calls the pushbutton web.

Pushbutton is a name for what I believe will be an upgrade for the web, where any site or application can deliver realtime messages to a web-scale audience, using free and open technologies at low cost and without relying on any single company like Twitter or Facebook. The pieces of this platform have just come together to enable a whole set of new features and applications that would have been nearly impossible for an average web developer to build in the past.

As long as it's open and low cost, real time information on the web should be as democratic and fair as computer use is. It's not perfect, but it's no longer the David and Goliath-on-steroids fight that critics of high frequency stock trading say that market has become because of real time stock data.

The Risk: Facebook

The real time web is a shimmering mass of conversation and data, but there's no guarantee that it's going to stay open, free and democratic forever. Already, in fact, there's no bigger river of the real time social web than Facebook. Facebook is simply huge, it holds huge sums of information and so far it allows aggregate access to no one. As far as we know.

If Facebook, or some other equally important site of the real time web, began offering access to its data but pricing mere mortals out of that market - then we could have a situation where individual software developers and social scientists were like grandpa reading the stock pages in the newspaper and huge marketing firms and government agencies had the kind of advantage that high frequency traders are alleged to have in financial markets.

Anil Dash puts it this way:

Pushbutton technologies are not just free and open, they're decentralized, which is a serious threat to the "lobster trap" model of social software. We can expect serious competition from the centralized networks that are currently building these sorts of systems. If a threat arises to Pushbutton's adoption, this is the most likely source. Worry? Definitely.

In addition to development concerns, there are also analysis concerns. If stock trading equals liquidity and knowledge is the new currency, then open access to aggregate data could be the equivalent of high-powered stock-trading tools for all instead of for just the already-richest few.

Some research has already been performed on the connection between communication on social networks and real-world events. The Information and Language Processing Systems Informatics Institute at the University of Amsterdam, for example, correlated mood messages on LiveJournal closely with world events. ("Mass increase in the level of worriedness around major weather phenomena, such as hurricane Katrina on August 29, 2005 - Excitedness around global media and culture events, such as the release of a new Harry Potter book on July 15, 2005 - Mass increase in the level of distress and sadness after terror attacks, as witnessed by the response to the London bombings on July 7, 2005.")

Analysis of real time mass communication could lead to a world of innovation and understanding - if that communication is an open fire hose of data and not shared only with deep pocketed commercial partners.

Everything is Complicated, Some Can Afford to Ponder It

Is high frequency, low latency, computer executed, "flash" trading unfair? It must feel that way to individual and small investors who can't afford killer number-crunching robots - but it's also pretty awesome technology and is said to provide liquidity that the markets depend on.

Could the real time consumer web be made undemocratic by being priced out of reach for edge-case developers and social scientists outside of government and the corporate world? That could happen.

As we speak, though, there's a lot of innovation going on in the real time web that's open, based on standards and available to all of us. Let's hope it stays that way

This is one post/chapter in a serialized book called Startup 101. For the introduction and table of contents, please click here.

There comes a time for every venture when the owners have to decide whether hockey-stick-like growth is feasible or not. In your initial plan, you indicated a sudden surge in revenue at a certain point in time, i.e. where the hockey stick shows up. You have now reached that point. You may have a great business, but will it hit the big time?

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You need to make an honest, clear-eyed assessment at this stage. You might spend money in the hope of achieving that growth and end up losing everything, which would be a big shame if your business was profitable and growing at normal rates (and therefore valuable). On the other hand, forgoing a chance at the big time just because you are too nervous would be equally unfortunate. How do you navigate this complex decision?

Understand Your Investor's Agenda

If you go for growth and miss your numbers and have to raise more money, your investor will get hurt a bit and you will get hurt a lot. The investor can put in more money, and they will do it on harsh terms if they have to because you have missed your numbers. You may end up with nothing at the end of the day while the investor will get their money back plus some.

If you don't know how that works, look up and understand Liquidation Preference. Your contract with the VC will have a Liquidation Preference clause. It is a perfectly reasonable term (although there are egregious variants), but it can really hurt you under certain circumstances. Basically, your view of risk and your VC's view of risk are different.

Let's look at a simple case. Let's say your VC invested $3 million for a 30% equity share and has a 5% Liquidation Preference (quite reasonable -- not one of those egregious variants) and that your business sells five years later for $3.8 million. What will you and your team get? Because you and your partners and team own 70% of the shares, you would get 70% of $3.8 million, right?

Wrong. You get zip. Nada. Nothing. Just do the compound interest calculation to see why. The fact that you own 70% of the common shares means nothing in this case. The VC gets their money back with interest, which is not a good result but not a disaster either.

If your venture does reasonably well and sells for $50 million, you and your VC will do just fine. The VC will get $3.8 million, and you will divide up $46.2 million (i.e. $50 - $3.8 million) according to the ratio of shares owned. (That works out to over $30 million for you and your 70%-owning team.)

If you hit the ball out of the park and sell for $500 million, the Liquidation Preference becomes essentially a rounding error of interest only to accountants. If your venture misses its numbers and sells for $3.8 million, you will get nothing, which is quite reasonable: the VC bought into a dream and a team, and if you do not deliver, you shouldn't get anything.

Even if the whole business goes kaput without any realizable value, your venture is still just one among many companies in the VC's portfolio. VCs don't like losing ventures, but as they say, "This will hurt you a lot more than it hurts me." This is akin to the chicken and pig contributing to the eggs-and-bacon breakfast: the chicken may be involved, but the pig is "committed."

Just understand that your interests may not be aligned and that your and their views of risk may be different.

Raise More and Go for It?

Let's say you raised $3 million, and you are now gaining traction and everyone is telling you to raise more and really go for it. The VCs are ready to write a big check. It's a no-brainer, right? Wrong. This is when you need to think hard.

Suppose you raise a second round. It's a nice big one for $10 million, and the headline valuation is triple that of your first round. You and your team are giving each other high fives. Perhaps you don't look too hard at the Liquidation Preference. This time, the terms may actually be egregious, but the thought of that $10 million and the headline valuation number cause you to overlook that.

For example, Mark Zuckerberg should be a billionaire because he owns a ton of founding stock in Facebook? Well, Facebook has raised $640 million and some of it a long time ago. There would almost certainly be Liquidation Preference. If Facebook sold for around $1 billion today, Mark Zuckerberg would probably walk away with nothing but a lot of experience and memories. But Facebook would never sell for as little as that, so not to worry, right?

Entrepreneurs are optimistic by nature. They have to be if they are going to get out of bed every morning and work against the odds as passionately as they do. VCs don't have to be optimistic: their downside is pretty well covered.

Run the numbers -- all of them, not just the rosy projections -- and see where you end up. Then make sure your interests and the VC's really are aligned.

And how do you align interests? Five ways.

1. Align Around Facts

Facts are hard to come by in a startup. There is a ton of unknowns. So separate fact from forecast: you can take facts to the bank, but you run sensitivity analysis on forecasts. If that sounds intangible, here is the simple version. Take your forecast and...

1. Double the cost,
2. Halve the revenue,
3. Double the time it takes to do everything in the forecast.

First, do you have enough capital for this scenario?

Secondly, look at what the business would be valued at in such a scenario... not what you hope it will be valued at, but rather what other companies in a similar position are being valued at.

2. Focus on Server Costs

In the Web 2.0 era, we achieved control over the costs that bedeviled the 1.0 era:

• R&D costs have shrunk through a mix of open source, new development tools and offshore resources.
• Marketing costs have shrunk, thanks social media and viral marketing.

Hearing the proud claim that "Our major costs are now only our servers" has become common. For some businesses, that is no longer a proud refrain but a business problem. If you hit that magic viral moment when user traffic takes off, you had better have some of these three things:

1. An incredibly low cost per user as a result of some really smart performance optimization,
2. A revenue model that kicks in right after traffic grows,
3. Enough capital to sustain you until #1 or 2 is figured out.

Ideally, you would have all bases covered, but two out of three is fine. Look at Google. It had #1 and 2. Twitter and Facebook have #3. I would prefer to own Google.

Even if revenue growth is lower than forecast, if the server costs are under control and user growth is booming, you will get more VC money on good terms.

So, don't skimp on that software performance design and coding early in the game. Leaving it as an afterthought was okay for a venture starting out in 2004, not for one starting out in 2009.

3. Control the Business Planning Process

This means you will need a process. If that goes against your grain (because, say, you are a creative type, a great hacker, or a sharp sales guy), then find someone on your team who can really run the numbers and unite everyone around a common planning process.

The type of process will depend on the type of business. At a high level, they all address these questions:

1. Where are we now?
2. Where do we want to get to?
3. How do we get there?

As the entrepreneur/CEO, though, you need to own this process and drive it. The worst thing you could do is let a junior member do this for you. They don't truly understand your business and certainly don't care about it as much as you do, and their interests won't be the same as yours.

The process must be dynamic and based on a financial model. This means you should be able to adjust each variable and re-plan efficiently as circumstances change. Your VC may use earlier plans to beat you up a bit, but those plans are irrelevant; all that matters is the current one (and your VC knows that).

4. Talk to Your Independent Adviser

This is when you will find it valuable to have an independent adviser on your board (see Building an Advisory Board). Being independent means that the adviser was not nominated by the VC. Having someone like that on the board (as opposed to their being merely a friendly mentor) is important because they will then know the numbers and character of the VC better. When you need critical advice in a hurry, it is vital that your adviser knows these things.

5. Do a Deal That Aligns Your Interests

This is possible. If you have a good VC, a good board, and some good advisers, having an honest dialogue to get everyone's interests aligned is quite easy. If you have a lousy VC and a toxic board, you will have a nasty fight on your hands. Don't shirk that fight.

The simplest way to align interests is for the VC to buy some stock from you and your founding team. But the right amount: not so much that they will be afraid (justifiably) that you will walk away to play golf or start another venture, but enough that your family feels secure and personal finances are not a worry. Too much stress is not productive. In other words, you and your VC should be in the same boat and view the world and your risk with the same perspective.

When your business finally gains traction and VCs want to invest more money because they see the big pot of gold at the end of the rainbow, your negotiating position will be strong. At this stage, they need you more than you need them. But don't abuse this position of strength: just use it to get what you and your team reasonably need, and then march on together to build the big dream.

Photo credit: jurvetson.

Manhattan-based Art Capital Group says Leibovitz borrowed the money last year because she was in dire financial straits due to unpaid bills, mortgage payments and tax liens.

The breach of contract lawsuit, filed Wednesday in Manhattan state Supreme Court, says that in return Leibovitz granted Art Capital the right to sell all of her photographs, plus her homes in Manhattan and upstate New York.

The lawsuit says Leibovitz and her associates are now trying to ignore their obligations.

A spokesman for Leibovitz denies the allegations.

Matthew Hiltzik says the suit is part of Art Capital's "continued harassment."

Today, I thought it might be beneficial to look beyond the methods and techniques, and really think about what keeps a debt reducer motivated.

What Works For Me - Debt Reduction Mindset

I like to keep things simple, so I like to focus on one debt at a time. After listing my debts, and paying minimums to all creditors, I then spend my time trying to reduce the balance of the first account on my list. As soon as I eliminate the first account, I'm pumped to move to the second account. Focusing really helps.

I think it's important to build community around a goal. I like for my wife and I to be on the same team, and of one mind. In fact, it would have been impossible for us to get out of debt, if my wife and I had not learned to communicate and work together. We also surrounded ourselves with positive people and friends who would not cause us to stumble.

I find that I need to set an example of restraint and frugality. It's relatively easy to create a budget. It's a far more difficult thing to stick to a budget. As a parent, I know that my kids are looking to me for advice, encouragement, and wisdom. The sacrifices that I make today will pay big dividends in the future.

I have learned to eliminate the noise and listen to just a few, trusted voices. Instead of trying fifteen different debt reduction techniques, or looking for a quick fix to my debt problem, I sat down, created a plan, and followed the plan. I never pay attention to gimmicks and get-out-of-debt quick schemes. Instead, I focus on paying the bills that I owe and following the plan that I have created.

I celebrate every success, big or small. My wife and I have learned to celebrate our financial successes - without spending a lot of money. We enjoy a date night or take the kids out for a day at the park. I make a big deal out of our goals - and an even bigger deal when we achieve them.

I admit that I am human. Here's the reality. Even though thousands of people visit my site each month (which blows my mind), I'm still prone to the occasional mistake. When dealing with a setback, it's important that I regroup, remember why I started the process in the first place, and move forward. Even when I missed my original debt reduction goal date, I kept going.

What About You? -

I'd love to hear from you, my awesome readers. What keeps you motivated? What steps have you taken to keep your mind in the game? Have you slacked off, but decided to get going as of today? Leave comments here and / or connect with me via Twitter.

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What Works For Me - Debt Reduction Mindset

If you haven't done so, feel free to follow my tweets, and say Hello.

Today's Twitter Finds And Friends -

Finds -

Do you like bean bag chairs? Do you like personal finance forums? Then, you'll love Moolanomy's current giveaway. Register for the new Moolanomy Answers and you could win a Sumo Bean Bag Chair. (Tweeted by @moolanomy)

We recently spent an entire week removing clutter from our home and organizing our stuff. I'm totally digging Being Frugal's post - Why The Minimalist Lifestyle Appeals To Me. (Tweeted by @Zen_Habits)

Friends -

I am a big fan of @flexo from Consumerism Commentary.

I really enjoy @SunFinancial from The Sun's Financial Diary.

I learn a lot from @mymoneyblog from My Money Blog.

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The application aggregates live streaming and recorded radio broadcasts from across the US, displays their current and planned content schedules and now offers a search function that stretches across all those different types of content: live streams, podcasts and text show descriptions. It's a free app and the the organization that makes it hosts almost nothing on its own servers. The end result is a remarkable user experience that ought to be an inspiration for old media of every kind. It isn't perfect, but it's getting better fast.

The app was made by a non-profit organization called Public Radio Exchange (PRX). PRX was founded and is run by Jake Shapiro, a man who used to be an associate director at Harvard's Berkman Center for Internet and Society. Shapiro used to produce an NPR radio show with Christopher Lyndon and before that he was one of the first tinkerers with web distribution of music for his band Two Ton Shoe.

Two Ton Shoe didn't find a lot of success in the United States, but thanks to the long tail of the web Shapiro says they somehow found a big fan base in Korea. The band toured there and Korean bands have covered some of their songs. "I'm a Korean rock star," Shapiro says, "and I believe there's a 'Korea' out there for everybody."

About a year ago Shapiro says he called around all the major players in public radio and argued that they had a unique opportunity in the iPhone platform if they could collaborate and create a really strong offering. An organization called American Public Media decided to contribute the work they had done so far on their own iPhone app to Shapiro's project and NPR and Public Radio International agreed to lend their support to what would become the Public Radio Tuner, today renamed the Public Radio Player.

Funding Local Radio on the iPhone

Public Radio Player could facilitate that long tail experience for obscure local public radio content by making it far more available on the iPhone. But PaidContent's Rafat Ali worries that by freeing radio listeners all the more from their local radio station, the Player could sever the loyalty and fund raising connections that keep public radio alive.

To that concern Shapiro has two interesting responses. First, he says that survey data shows most users prefer listening to their local stations on the app, along with a variety of favorites from elsewhere.

Even more interesting is the project's collaboration with Cluetrain Manifesto co-author Doc Searls. Searls is at Harvard's Berkman Center now, developing a framework for what's being called Vendor Relationship Management (VRM) - a customer-based response to the business paradigm of Customer Relationship Management (CRM). The VRM project and Shapiro's PRX are developing ways for Public Radio Player users to track what they listen to on the player and make financial contributions to the radio stations they've consumed from the most.

Shapiro says that part of the project faces a major roadblock from Apple. Though Apple introduced in-application payments last month, the feature is only available to paid apps (Public Radio Player is free) and charitable contributions through the iPhone are strictly prohibited. They can't even be talked about, Shapiro says, because Apple doesn't want to deal with the possibility of charity scams, there's tax complications, the platform's standard 30% fee for payments isn't tenable in a non-profit context and Apple has no financial incentive to solve this sticky complex of problems.

For now the app is funded by a grant from the Corporation for Public Broadcasting. That funding is up for renewal this summer. Shapiro says that a second round of funding would be used to create "showcase apps that would break new ground and create new technology." He says the company is particularly interested in technologies that represent a hybrid of digital and broadcast. "With radio," he says, "there is still a tremendous amount of reach that you don't want to give up on when you move into the digital space."

Fixing the App

That hybrid paradigm is very well represented by the new version of the Public Radio Player. The previous version, called Public Radio Tuner, was one of the most popular free apps in the iPhone store but it didn't really work that well. Radio streams got dropped a lot. That's no longer a big problem with version 2.0.

The new version of the app tackles the problem of dropped streams by making the buffering settings much more sophisticated. Remember, the App doesn't host any of the audio, it just points to the live streams or podcasts stored on public radio stations' own servers. Project manager Matt MacDonald says the app now determines what kind of bandwidth the receiving phone has, then buffers the inbound stream accordingly before serving it up to listeners. The end result is a radically more usable radio app on wifi, 3G or Edge connections.

It's still not perfect; this like every app is at the mercy of AT&T's wireless network, but dropped streams appear to be much, much less frequent than they used to be. The interface sometimes hangs when loading menus, but Shapiro says that with the new release today bug fixes are a top priority and though crash reports are appearing infrequently, they are being closely watched. "Just shake the phone," he jokes. "Then it will work better."

More Than One Kind of Content

The new app brings a whole lot more radio to your iPhone. In addition to pointing to hundreds of radio streams, PRX has co-ordinated a number of different sources to pull show schedules down to be stored locally on your phone. "Scheduling data has been a big effort," Shapiro says. "It never existed in one place and is still a moving target."

A company called Public Interactive (recently acquired by NPR from Public Radio International) has a metadata tool that originally captured music playlists but now publishes radio show schedules as well. NPR and many radio stations also display schedules on their own websites. PRX aggregates all that data, stores it on your phone, syncs it with the radio stream links and then checks for changes each time you launch the Public Radio Player app.

Having the particular show that's playing displayed along with a station name makes a very big difference in the user experience.

The 2.0 version of the app also includes support for "on demand" or podcast listening. Hundreds of podcasts are navigable by featured shows, category or alphabetically. Podcasts are integrated into some of the show schedules as well. When listening to a streaming station, you can view the rest of the day's schedule and see what other shows will be broadcast later. Then you can choose to listen to previous recorded editions of those shows. It's a pretty seamless experience.

Search is No Small Matter

The new search functionality integrates all of the above, letting you search for keywords or topics and finding both recorded and currently live shows that match your search. MacDonald says the company used an open source program called ThinkingSphynx on the back end, worked closely with the NPR API team and is still working on teaching local radio stations about the importance of standards-based content titling. Listening to streams and podcasts on iTunes or an iPod may not have been so difficult with incomplete file names, but show a radio station how broken its content looks in a dynamic iPhone directory and the message comes through loud and clear.

There have been other efforts to index all the public radio streams online; Public Radio Fan is the most notable and is more international, but is less sophisticated and is based on the desktop and browser. (After listening to some international broadcasts via Public Radio Fan it's hard not to be a little disappointed with even Public Radio Player's extensive but exclusively US menu.)

As a media technology, Public Radio Player offers a unique blend of content aggregation, focus on both real time and recorded content and extensive data integration on the back end. All on the iPhone. Its design and performance continue to improve. It's a very impressive offering in terms of content delivery; if it can find a way to use the new platform it's on to transcend the public radio paradigm of on-air pledge drives, that would really be remarkable, wouldn't it?

Jake Shapiro says that offering Public Radio Player on other platforms, including a web interface, is a logical next step. You can follow the project's progress on the Public Radio Player blog and download the application here.

Here's a pic of the playhouse, as it stands today -

Don't you love the bright blue! My kids picked it out. The color definitely makes the playhouse easy to find in our backyard. As you can see, there's a piece of trim up top that still needs painting, and, tomorrow, an electrician is coming to run some electricity to the playhouse, so that the kids can have some lights and run a fan.

I also have a new playhouse. Actually, I have a new shed / workshop. I purchased it last week, and I got a really good deal on it. I've been looking for a shed for almost a year, but I never really found one that I liked (at a price we could afford). Two weeks ago, I was driving by a local dealership that sells prefabricated sheds, and I noticed that there were three slightly older-looking sheds near the back of the dealership. I pulled in and asked the guy who was running the dealership about the three sheds in the back. Lucky for me, they were returns - and I was able to buy a 2007 model for several hundred dollars less than the 2009 model.

Here are a few pictures of my shed / workshop -

I spent some time today wiring the shed with an overhead light and two receptacles. I've also added some pegboards, and I even re-purposed an old shelving unit that I found at the dump. I simply cut off it's back two legs, slid it in-between two studs, and the screwed it into place. Now, I have a nice little place to store various things for my lawnmower. Oh, the shed is at just the right height. All I have to do is put down two car ramps, and I can easily back the lawnmower in or out of the shed.

When he gets here tomorrow, I'll also have the electrician run power to the shed. Now, I have a (much-needed) place to store our stuff, and a place to work on future projects. I'm super-happy with my purchase.

I realize that this post has very little to do about personal finance, but after a week away with a kidney stone, I really missed you guys. I hope that you are all doing well, that you are living on budget, and that you are moving forward with your debt reduction!

I was just about to hit publish and then I had a thought. Tomorrow, I'll write about the financial side of my purchase, and let you guys in on my thought-process- how I decided between buying/building a shed, whether to purchase new/used, and what other financial impact the new shed might have. Stay Tuned!

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The New Shed And The Playhouse

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After examining the companies and their social media activity levels, the brands were ranked on an "engagement scale" where scores ranged from a high of 127 to a low of 1. Those brands that were the most engaged saw their revenue grow over the past year by 18% while the least engaged brands saw losses of negative 6%.

Four "Engagement Profiles"

The study grouped the brands into one of four engagement profiles that related to the number of channels they're involved in and how deep that involvement is. At the top of the list are "mavens," the brands heavily engaged in seven or more social media channels - like Starbucks and Dell, for instance. "Butterflies" are like wannabe "mavens," and are also engaged in seven or more channels but are spread too thin, investing in some channels more so than others. "Selectives" focus on six or fewer channels but engage customers deeply in the ones they've chosen. Finally, there are "wallflowers," or brands engaged in six or fewer channels with below-average engagement; these include companies like McDonalds and BP.

Out of the top 10 brands engaged in social media, the mavens dominate the list. All of the top 10 are mavens and have seen financial success even in a down economy:

1. Starbucks (127)
2. Dell (123)
3. eBay (115)
4. Google (105)
5. Microsoft (103)
6. Thomson Reuters (101)
7. Nike (100)
8. Amazon (88)
9. SAP (86)
10. Tie - Yahoo!/Intel (85)

$$$ Does Social Media Pay? $$$

Of course what everyone really wants to know is whether or not social media actually pays off in terms of dollars and cents. This study seems to show that it does. The most-engaged brands are significantly outperforming their peers across numerous industries in both revenue and profit performance. They have even sustained strong revenue and margin growth in spite of the economy, notes the report.

Whether this correlation is actually a causation cannot be proven with the data on hand, it can only make the implication. Given the large number of companies analyzed and the consistent findings, it seems probable that social media has had a major impact on the companies' financial success.

It's also worth noting that the level of engagement appears to be a factor, too. The companies deeply engaged in fewer channels ("selectives") delivered higher gross and net margins than those only lightly engaged in more channels ("butterflies"). It other words, as the report says, "it's not about doing it all, but doing it right."

The ENGAGEMENTdb Web Site

Along with the complete study, available here, an accompanying web site has also been launched at www.engagementdb.com. On the site, companies can compare their social media efforts with the top 100 cited in the report. They can also opt to detail their social media efforts for inclusion in the online database at the site for future research and study.

AdvertisingAge got more details from the company about its research, which pegs the total free media coverage given to Twitter the past month to be worth $48 million. As AdAge points out, that's about half of what Microsoft plans to spend marketing Bing.

Online, Twitter received 2.73 billion impressions, undoubtedly some of them thanks to TechCrunch. Television contributed to 57% of the PR value, newspapers 37% and magazines 5%, according to VMS. As the monitoring company's CEO Peter Wengryn explains, the total coverage may be much higher than what the firm could possibly monitor, since it doesn't take into account mentions in smaller newspapers in the United States and media coverage in the rest of the world.

Either way, it's a LOT of coverage, acknowledges Gary Getto, VP-integrated media intelligence at VMS:

This is huge. It's very, very high. In fact, we looked at online coverage of Twitter vs. Google. Twitter is running significantly higher than Google and I didn't think anything was more popular than Google.

How long will Twitter continue to be the social media darling in the media? Long enough to eventually reach 1 billion users and become the pulse of the planet?

And more importantly, when will it start turning the mountains of attention, traffic and users it is getting into cold, hard cash?

(Image via MaximumPC)

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Andy Borowitz: Goldman Sachs in Talks to Acquire Treasury Department

In what some on Wall Street are calling the biggest blockbuster deal in the history of the financial sector, Goldman Sachs confirmed today that it was in talks to acquire the U.S. Department of the Treasury. . . .

"The Goldman spokesman said that the merger would create efficiencies for both entities: "We already have so many employees and so much money flowing back and forth, this would just streamline things."

Mr. Hestron said the only challenge facing Goldman in completing the merger "is trying to figure out which parts of the Treasury Dept. we don't already own."

Goldman recently celebrated record earnings by roasting a suckling pig over a bonfire of hundred-dollar bills.

One VC firm, YL Ventures, believes that it can. And they've seen it in action, so we'll just have to take their word for it, for now. We spoke with Yoav Andrew Leitersdorf, managing parter at YL, and he tells us that the different between the regular web versus a site optimized with FasterWeb, is pretty staggering. And that's why his firm had no hesitation in pouring an undisclosed amount of money into the Israeli-based venture.

So how does FasterWeb claim to work? Leitersdorf wouldn't go into the details, saying that's the company's secret, but he would say that it uses 45 different techniques to optimize the web. He also said that this is done either on the end of the content provider or the ISP. In other words, the end user doesn't have to do a thing to experience the increase in web speed. And FasterWeb will work across all the major web browsers, starting with Internet Explorer and Firefox immediately, and expanding to the rest, including Opera, Chrome and Safari, when it's ready for its widespread release next year.

But some sites won't have to wait until next year to get the speed boost. Over the next several weeks, the first sites optimized with FasterWeb will begin hitting our browsers, Leitersdorf says. He would not say which ones, but notes that some will be known entities in the U.S. and worldwide.

And all of this will work for the mobile web too. That's one of the biggest opportunities here, Leitersdorf says. He went on to note that they're thinking a lot about mobile ISPs in particular.

Obviously, a two to ten fold increase in speed is a big difference, but Leitersdorf notes that the more complex a page is, the higher the magnitude of optimization will be. This optimization occurs across HTTP, HTML, JavaScript, CSS and images on a page, to achieve the results.

The business model for the project seems sound as well. FasterWeb has a multi-pronged approach depending on the situation of the website or ISP. That means it can either charge a one-time fee, or do a revenue sharing model. What we found out as a VC fund going into this business is that by selling this to websites, it's going to increase their revenues. And these sites are willing to spend 20-30% of their increase in revenues on our solution, Leitersdorf says.

He also notes that in their research, YL only found two companies even come close to doing what these guys are doing. But Leitersdorf declined to name them. Seeing as this is all on the backend, and requires nothing from the consumers, it seems safe to assume this will be significantly better than something like the Google Web Accelerator toolbar.

Naturally, all of this sounds great, but it will be another thing to deliver on a massive scale across much of the web. We've talked to the customers, they're excited. But FasterWeb wants to make sure they're ready, according to Leitersdorf. And that's why we won't see wide-scale deployment until next year.

The Israel-based FasterWeb was started by Ofer Gadish, Gil Shai, Ofir Ehrlich and Leonid Fainberg.

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I am genuinely baffled by the journalistic ethics debate over TechCrunch's decision to publish Twitter corporate documents that were apparently obtained through "hacking" and then forwarded to the Silicon Valley business blog.

TechCrunch appears to have played no role whatsoever in the alleged hacking. According to TechCrunch, it was simply sent 310 documents, unsolicited. It then decided to print "financial projections, product plans and notes from executive strategy meetings," as well as "the original pitch document for the Twitter TV show that hit the news in May." Why? "[M]ostly because it's awesome." TechCrunch voluntarily refrained from publishing other information contained in the documents, including "floorplans and security passcodes to get into the Twitter offices." According to the NY Times, TechCrunch's founder Michael Arrington (a fellow OMM alum) "is working closely with Twitter as it determines which pieces of information to publish," though "[h]e is protecting the identity of his source."

Here's what I don't get: why the ethical hand-wringing here? Why was TechCrunch's decision to publish some of the hacked documents any different from what mainstream publications like the Times and Wall Street Journal do countless times every day: print information and documents leaked from employees to reporters, without company permission? Every company I've ever heard of prefers to keep its business information confidential. Often, they have formal confidentiality policies, or even require employees (and contractors) to enter into strict nondisclosure agreements. Of course business reporters know this. And yet, without giving it a second thought, they ask employees to violate their duties to their employers, and leak confidential documents and spill the beans on company secrets. And their editors don't wring their hands; they praise their reporters for their scoops.

In some ways, what typical reporters do in soliciting confidential documents is ethically worse than what TechCrunch did. Reporters typically ask sources to give them confidential documents knowing full well that the employee is breaking company policy, and possibly civil or even criminal laws (e.g., conversion or theft of trade secrets). But TechCrunch did no such thing; by its account, the hacked documents just showed up unsolicited in its inbox. And assuming that's accurate, I think TechCrunch faces no significant legal risk from publishing the material. See Bartnicki v. Vopper, 532 U.S. 514 (2001) (radio host not liable under wiretapping statutes for broadcasting illegally intercepted conversations, where he played no role in illegal interception).

The hand-wringers can't have it both ways. Either TechCrunch's decision to print was perfectly legitimate journalism or what business reporters do every single day is even more unethical. Am I missing some distinction?

The agents -- already there for more than six months -- say the chore is so daunting, they need to stay in the Manhattan skyscraper at least another year.

And by the way: They intend to hang on to the copy machine.

The former headquarters of Bernard Madoff are a home away from home for the FBI and, as of July 1, a leasing opportunity for any potential tenant who can stomach its status as ground zero of the largest securities swindle in history.

"Some people may see a stigma associated with it," building manager Russell Freeman said on a recent tour of the piece of the three-floor firm that's been put on the market. "But he's out of there. His bad karma has gone with him. ... Space is space."

Space once used by Madoff himself -- a fishbowl corner office with partial views of the East River -- has been emptied of most furniture and paperwork, like the rest of the 19th floor. Only a pair of built-in cabinets and a wall-mounted television, easily 10 years old, remain.

Across the room is a matching corner office where Madoff's brother Peter worked. Two smaller glass offices were for Madoff sons Andrew and Mark. Two filing cabinet drawers still bear stickers with the name "Andy Madoff."

The three men, whose names remain on an automated directory in the building lobby, oversaw a trading floor for Bernard L. Madoff Investment Securities that's now a ghost town, dead silent except for the hiss of an air conditioner.

The color theme throughout -- from the refrigerator in a galley kitchen to the trading floor desks to the many conference rooms -- is the minimalist black and ash gray favored by the 71-year-old former Nasdaq chairman, one of the original tenants when the building opened in the mid-1980s.

Floors 17 through 19 became part of a crime scene later last year when the once-prominent money manager confessed that his secretive investment advisory group actually was a massive Ponzi scheme that wiped out thousands of investors. He was sentenced to 150 years in prison last month and on Thursday decided not to appeal the sentence.

The disgraced financier has claimed he alone conned clients by recycling their money to create phantom wealth. But investigators have said they suspect members of Madoff insiders were involved and have been camped out on the 17th floor searching for evidence of a wider conspiracy.

Many of the records were paper or on microfilm and date back decades. Authorities say the firm relied on an old IBM computer to churn out statements that were fictitious.

When the scandal broke, news crews and burned investors flocked to the 34-story skyscraper -- shaped like an open lipstick tube -- to measure the financial wreckage. They didn't get far: Madoff's firm had been sealed off from the public by an army of FBI agents, federal regulators and a trustee appointed to liquidate the business assets.

Since then, the trustee has sold one of Madoff's legitimate trading operations to a new broker-dealer firm that took over the 18th floor. A staircase connecting the 18th and 19th floors will be removed, Freeman said.

As for the 17th floor, trustee Irving Picard wrote in court papers that the FBI "has advised me that they will require access to the space until, at least, approximately July of 2010." It also wanted to continue using a leased Xerox copying machine there. The cost will be covered by an industry group that compensates victims of securities fraud.

Sharing the 17th floor in separate office space is a discount brokerage headed by Wall Street veteran Muriel Siebert, the first woman to buy a seat on the New York Stock Exchange in 1967 and the only tenant allowed a dog. Siebert had a sublet with Madoff and is now paying rent to the trustee.

What remains is the 16,182-square-foot 19th floor. A bankruptcy judge recently authorized the trustee to cancel the Madoff lease there through 2012 with landlord Metropolitan Real Estate Investors, creating the vacancy in a sagging commerical real estate market.

Freeman wouldn't say what Madoff paid in rent, adding that no price has been set for the floor. There have been some feelers, but no firm offers.

Any takers who don't remodel, he said, "will certainly have to like dark colors."

Apparently all print subscribers haven't been asked (this by way of a full disclosure), but the New York Times is asking its dead tree readers whether they'd be willing to pay to access the paper's content online.

The numbers being floated are $2.50 a month for subscribers, and $5 a month for everyone else, according to Bloomberg.com.

Nytimes.com is currently free, and a previous attempt to put some their columnists behind a paywall, Times Select, ended with great fanfare nearly two years ago with the slogan: Now, everyone is entitled to our opinions.

But that was then: Way before the global recession, when the New York Times Co was worth four times what it is today, wasn't selling assets and cutting its payroll, the advertising market hadn't gone into freefall (the industry has lost more than $11 billion in ad sales since 2005) and Google wasn't the enemy.

The notion of beginning to charge for content that has always been free is extremely controversial. Some media observers simply think it cannot work and some industry professionals think it must absolutely happen.

Nobody can say it will work, and the risk of trying and failing could do serious permanent damage to a news brand to say nothing of being utterly demoralizing to everyone else who might have thought it was the last, best hope.

There have been some newspaper attempts to start asking readers to pay for what had been free content (like Times Select) but no major player has ever tried charging customers directly with any gusto the digital equivalent of giving no part of the print paper away for free. The Wall Street Journal and Financial Times have always charged online, so there was no need to re-condition their readers to go from paying zero to something. The Seattle Post-Intelligencer had to shut down its newspaper to try to survive purely in digital form, and the Christian Science Monitor curtailed print editions.

But those publications, with all due respect, are not the likes of the New York Times. Were the Gray Lady to draw a line in the sand, a lot of theory would be put to the test right quick.

It might be time for some paper to stop the threats and just do it, and an iconic brand like the Times may be the best one to try.

New York Times Considers $5 Monthly Web-Access Fee Update1 - Bloomberg.com.

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The Interview and PDF

The interview is about 20 minutes, a good listen. If you want to do justice to this subject, read the PDF first as background, and then listen to the MP3. For the super-busy skimmer, we attempt to distill the essence below.

Download the MP3.

The Return on Asset Bombshell

This is what caught our attention in the email -- and is the reason we wanted to do this interview:

"U.S. companies' return-on-assets (ROA) have progressively dropped 75 percent from their 1965 levels despite rising labor productivity."

That is dramatic. If you had to select a single measure by which to judge the value delivered by a CEO, board, or management team, it would be return on assets. To quote from the Wikipedia entry:

"The return on assets (ROA) percentage shows how profitable a company's assets are in generating revenue. This number tells you what the company can do with what it has, i.e. how many dollars of earnings they derive from each dollar of assets they control."

And here is the bit that matters:

"Return on assets is an indicator of how profitable a company is before leverage."

If you want to understand the financial meltdown that happened at the end of 2008, just think leverage, i.e. debt. Companies juiced up their earnings using leverage. They have been doing this more and more in the last 30 years.

What happens when you take that away? You get the return on asset bombshell that the Shift Index reveals. It is like taking steroids away from an athlete and then saying, "Now, how fast can you run 100 meters?"

Only a US and BigCo Problem?

The massive ROA drop was measured across all public companies in the US since 1965.

It would be very interesting to see the results for Europe and Asia. Would they be different? Has anyone run those numbers?

Public companies tend to be large. We were interested in knowing whether this was simply a BigCo problem. Here at ReadWriteWeb, we report on startups and small companies. Our assumption for some time has been that an historic shift in power is taking place from BigCo to SmallCo, which can be explained by Coase's Theorem.

Now that we've seen huge companies, household names such as Lehman and GM, crumble before our eyes, thinking that BigCos are in serious trouble is no longer a radical idea. And as nature and economies abhor a vacuum, this must create opportunities for others. The question is whether this shift will be simply from some BigCos to others, as they out-compete each other, or a more fundamental shift from BigCos to SmallCos.

We asked John Hagel about this, and he told us his view that the shift in power to smaller companies, even to free-agent individuals, is a short-term trend and that bigger companies will return to dominance once they figure out how to operate in this new environment. He told us that BigCos face a great challenge in part because:

"They grew up and became successful in a different environment, where scalable efficiency was the way to generate and sustain economic value."

He goes on to explain that money follows talent and that large companies are having a hard time articulating to the most talented and creative individuals why they would be able to grow and prosper more within large institutions than as free agents or in small ventures. He believes that large companies will be able to make that transition. Clearly, given his role with Deloitte, which provides management consulting to large companies, he has to take that view. But he has also voted with his feet on this issue, by even joining a large company like Deloitte in the first place, when he was already a successful free-agent author and consultant.

His fundamental message is that BigCos need to offer a rationale other than just scalable efficiency. This is consistent with Coase's Theorem. His view is that this rationale will be "scalable learning." Scalable learning sounds like it could become an over-used buzzword, but when you listen to him describe how companies build networks of partnerships that learn from each other, it comes alive.

It certainly will resonate with anyone who has worked at a startup.

The question is whether BigCos can learn to work like agile startups again. In other words, is it possible to teach elephants to dance?

How Can Enterprise 2.0 Vendors Articulate Their Value in This Context?

I asked John if he saw a day when more CTOs and CIOs would become CEOs, because really understanding systems and technology has become so essential for leaders. He was skeptical. In fact, John views the risk-averse nature of most CIOs as a big stumbling block.

John pointed out that most companies have "only skimmed the surface" of opportunities to use social media to build richer knowledge networks that cross the firewall and connect with partners and customers. Indeed, he talked about the problem of how "most CIOs are tending to become extremely risk-averse." He pointed out that CIO turn-over is increasing, and that the reason CIOs get fired is often because of some big operational blow-up. So, they avoid anything that puts current operations at risk. In doing so, they may be creating even bigger issues, as large companies miss opportunities to leverage social media to create new value.

John's advice to Enterprise 2.0 vendors is to become a lot better at articulating how their technology can build value and competitive advantage at scale. That is obviously easier said than done. But doing it is essential. The CIO will be motivated to look at operational risks only if the CEO tells him or her that the risks of ignoring them are greater.

The Interview and PDF

Download the MP3 and PDF.