Month: September 2010

In late 2006 – early 2007, I outlined an unpublished research monograph for the Smart Internet Technology CRC about Google. This was my first foray into an indepth company study and using mosaic theory to develop a model of the firm. I relied on David Vise and John Battelle‘s books, Fortune journalistic profiles, basic security analysis, and frameworks taken from entrepreneurship, innovation, business strategy, valuation, neurolinguistic programming, and other sources. The research monograph’s topics included: the firm’s genesis, innovation culture, leadership pipeline, looming battles with China, ‘at a distance’ profiling of co-founders Sergey Brin and Larry Page, and search futures (note the multiple futures being considered rather than a ‘single point’ forecast or stance). The project’s internal presentations got positive feedback from CRC industry partners who could see its pragmatic roots in business and competitive analysis.

Often research projects turn into something else not specified in the initial proposal. I realised this as the research monograph outline unfolded. What I was really trying to do was something different: to develop and test a set of analytical tools, informed by other contexts. Google was the perfect case study because it had a lot of publicly available information and was acceptable to a corporate audience. I also drew on personal experiences as an internet site editor and my knowledge of the 1995-2000 speculative bubble in dotcom era stocks. In retrospect I really needed a co-author who was familiar with corporate finance, private equity and value creation models. I found those areas had the conceptual frameworks and the analytical rigour needed yet I didn’t have the subject matter expertise. My immediate team didn’t have those people and their attention lay elsewhere with their own projects. The people who had these skills and who I had tried to build positive working relationships with soon left the CRC. The project was never finished and not ever publicly released.

Here is some of what I learned around Google+9 for the  benefit of readers intrigued by Google+12:

1. Google is shrouded in ‘origin’ myths. Brin and Page benefited from a university environment which gave them the ‘10% time’ rule for individual projects, and had initiatives such as the Stanford Technology Ventures Program (STVP). Some of my team members took this as an argument that universities were vital in the innovation process. They were — yet just as important was how such programs were run and micro-level details such as access to resources. For example, STVP as an exemplar program has a strong alumni network and close links with Sandhill Road investment firms. Stanford’s Office of Technology Licensing dealt with crucial patent issues. These university-market mechanisms enabled Brin and Page — who pragmatically developed a ‘working’ prototype of their BackRub/PageRank algorithms — to meet with VCs from Kleiner Perkins Caulfield & Byers, Sequoia Capital, and other firms. Ron Conway and Ram Shiriram were Google’s ‘angel’ investors’, whilst John Doerr and Michael Moritz were first round investors, respectively. Even then, Brin and Page’s original options for ‘harvesting’ Google included plans to sell the fledgling start-up to a competitor, to develop a new advertising model, or to sign a technology licensing contract.

I knew that a lot of the ‘hype’ was retrospective narrative-building — because that’s what I did as a web site editor with our readership.

2. The ‘echo chamber’ of experts, pundits and search mavens overlooked the basics. Talk to most people and you’ll hear about Google’s university-like culture and its over 200 unique algorithm, metrics and usability innovations. At the time, this ‘chatter’ drove blog discussions and media reports. It’s what feeds a romanticised view of Web 2.0 based on shallow interpretations of Amitai Etzioni’s communitarian, Peter Russell’s ‘global brain’ and Pierre Teilhard de Chardin’s ‘noosphere’ philosophies, or ‘swarm’-like metaphors. This is also why Google hired ‘talent’ like information economist Hal Varian and complexity specialist Shona Brown, whose research you should definitely read.

Yet when I looked closer, I realised that although these are strategic core competencies and knowledge processes that were difficult to copy, those same competencies and processes were founded on things that any ‘corporate raider’ could understand: capex control, decision rights, organisational design, simple rules for productivity, rapid innovation via end-to-end processes, and strategic expecution. This led to subtly divergent views on the same subject. For example, my  team members and some others looked to Google Labs as the vindication of the university structure that they were in. To me, however, it was also clear from industry experience that Brin and Page had modelled Google Labs on their Stanford experience as a ‘bolt on’ capability that they could take from one context and apply in another for competitive advantage. This was one proven way to attract and retain passionate people, and to accelerate Google’s ideation-to-market innovation processes in order to outwit their more mature competitors.

This became even clearer when I compared Google to three different cohorts. The first were a bunch of ‘first wave’ search engines who had more market share and power when Google arose: AltaVista, Excite, Inktomi, Netscape and others. The second were companies such as Apple, Microsoft and Nokia who  had received similar media accolades during their ‘go go’ years. The third were emerging ‘challengers’ like Cha-Cha, Hakia Powerset, and Snap: search engines that contended they had different core competencies and capabilities yet that did not have the strategic execution skills above. Today, I would do a comparative analysis using a company universe and develop custom ‘screening’ tools for cost of capital, investment analysis, market design, and resource allocation. One of the benefits of such practices is to keep the analyst ‘grounded’  rather than to accept blog and media sound-bites.

3. A knowledge base and theory-building can inform analytical rigour and decision-making. I ran into two major problems during team discussions about the draft research monograph.

People had a particular image of Google: they often accepted Brin and Page’s narrative at face value. This meant they potentially fell into the traps of the anchoring and representativeness heuristics: they accepted aspects which fitted their self-narrative (such as the role of universities in the innovation process rather than how this was done) and downplayed the role of chance, luck, timing, and alternative explanations (such as the internal politics of Digital’s Western Labs and the departure of AltaVista’s lead engineer Louis Monier; or reaping the public relations benefits of the DoJ v Microsoft lawsuit). I learned to summarise this in a couple of minutes yet the CRC’s 5-minute presentation style lacked the kind of exploratory Q&A that I got elsewhere from a good strategist or venture capitalist, or from the CRC’s industry partners in a one-on-one meeting.

I could see certain things due to a personal knowledge base and life experiences. Yet I did not convey this well to others, and it was often dismissed as ‘just theory’ or insights that needed to be ‘dumbed down’ for CRC industry partners (who did not feel the same way in face-to-face discussions – in the rare instances when they could actually happen). Six months before it became a major news story, I knew Google was in serious trouble with its Google.cn platform due to just taking Masters level courses on international relations theory and China’s geo-economic re-emergence. Beyond Google’s mantra of ‘Don’t Be Evil’ lay some complex issues about the media’s ‘issues attention’ cycle, how senior managers respond to crises, offshoring and internationalisation processes, and how investors react to firm-specific and  ‘reputational’ risks. I also saw case study parallels with Baring’s, Long-Term Capital Management, Royal Dutch Shell and other companies.

Masters level training in strategic foresight meant I could see a range of potential futures beyond ‘challenger’ firms for Google – including the search engine’s ‘collision course’ with innovations in biotechnology, genomics, and computer science. Likewise, I quickly grasped how their Montessori education, family dynamics and parents’ careers provided early ‘shaping’ experiences for Brin and Page on how to conceptualise higher-order systems; the institutional influence of Stanford, NASA and Wolfram Research on science and technology; and building a leadership team where Page’s cost-cutting and deal-maker skills matched Brin’s contemplative, big picture outlook.

To me, these were issues worth exploring — perhaps in a ‘hypotheticals’ or seminar format — and in capability-building for researchers. Perhaps these are the kinds of ‘soft factors’ that Shiriram, Moritz and other investors saw in Brin and Page. They lie in the dynamic interaction of individual human development and the work environment. I found a similar attention to analytical rigour and decision-making in the day-to-day operations and structure of certain endowment, portfolio and investment funds, regardless of the manager’s style.

I soon left Smart Internet Technology CRC for different reasons. I now build on these reflections and other unpublished work in different contexts.

Australian cultural policy maven Ben Eltham and I have a new academic article in Media International Australia #136 (A-ranked ERA 2010 journal).

We examine Australian screen policy and suggest that structural factors not often considered in the literature — trade exposure, currency fluctuations, tax arbitrage, cross-border competition, and the asset allocative decisions of producers — have affected the local film industry. You can read the abstract here and download a pre-publication version submitted to ‘special issue’ editor Mark David Ryan (PDF).

The article concentrates on the aftermath of the 10BA speculative bubble (circa 1981-84) and the portfolio ‘track record’ of the Film Finance Corporation (FFC) a body established in the mid-1980s to fund Australian films. I learned several things:

(1) Whilst researching the article, Eltham and I were lucky to have some email ‘trialogues’ with David Court, the policymaker who conceived the FFC and who now spearheads the Centre for Screen Business at the Australian Film, Television, and Radio School. It is these kinds of exchanges that can make journalism and collaborative team research so worthwhile. Court clarified his policy process, some of our misunderstandings, clarified what earlier scholars may have misread or misinterpreted, and kindly allowed us to see some of his PhD research and other papers. Likewise, Eltham pointed out from his PhD research that the Australian film industry is one cultural and creative industries sector where there is a wealth of historical data, government reports, and other policy-related information. In both cases, Eltham and Court ‘contested’ my assumptions: the result is hopefully both a better article and a more rigorous and robust analytical framework.

(2) During the literature review, I found a high school final year paper I had written in 1991 about the FFC’s promise. Although we didn’t use the material, I had a moment of self-reflection on the different judgments made about the same subject — the FFC’s investment approach — over an almost 20-year period difference. This involved several variables: difference in lifespan development, subject matter expertise, and ‘closeness’ to the subject under investigation.

(3) The article’s ‘structural factors’ hypothesis emerged from our initial, exploratory discussions. Eltham and I then found and revisited a ‘body of work’ by other scholars who had either reached similar conclusions or used a similar level of analysis. We made a decision not to use certain researchers or work because they illustrated a tendency of descriptive prose that we felt lacked analytical rigour in their conclusions. The article focussed on testing an hypothesis rather than theory-driven arguments between different ‘schools of thought’.

I then realised that some of the cultural and creative industries scholars were missing two dimensions: (a) they had not necessarily worked in the industries that they studied and wrote about, and (b) U.S. producers used and were aware of frameworks from corporate finance, modern portfolio theory and investment management, such as in the contracts they used, how they negotiated access to state-based studio facilities and labour, and the structured investment vehicles created for specific film productions. For (3)(b) we found some scholarly literature and several Harvard MBA case studies on this specific topic.

The pathway from (1) to (3) illustrates one way to uncover a ‘knowledge gap’; to have some conversations over coffee and email with people you might not usually talk with; and how ‘iterative’ cycles of theory-building, theory-testing and evaluative discussions can lead to new insights (even if they appear ‘obvious’ to others). Sometimes the journal article is just the final artifact of personal and collaborative team/group learning processes.

Exercise: For practical lessons on enactment, search for: Carpenter, Corman, Coppola (multiple), Davis (multiple), Geertz, Gilmour-Waters, Goldsmith, Jay-Z, Milken, QPrime, RJR Nabisco, Scorsese, Stone (multiple), Spielberg, Sun Ra, Swensen, Tarantino, Tarkovsky, U2, Wu Tang Clan, and [add your suggestions here]. Pick one and immerse yourselves in their work for a month.

Why is their work meaningful for you (or: what periods and creative artifacts)? What challenges, issues and problems did they face, and how did they overcome them or, alternatively, learn from their failure? What ‘life lessons’ do they offer you and others?

Write up a short, condensed 100-200 word paragraph on what you have learned. Email it to a bunch of friends, blog it, and/or pass along your online and offline social networks. If the above journal article and exercise is personally useful to you then include Eltham and myself on the email distribution list. ‘Iterate’ this exercise for whenever you want and for the rest of your life.

The stockmarket crash on 14th April 2000 ended the dotcom era: a speculative bubble in technology and early internet stocks from 1995-2000.  During the crash and its fallout I edited the New York-based news and subculture site Disinformation (archives of site version three or four) which the dotcom consulting firm Razorfish had acquired in late 1999 for its Razorfish Subnetwork of web artistic properties run by co-founders Jeff Dachis and Craig Kanarick.

It became very common to keep a ‘deathwatch’ on companies that market analysts expected would either implode, run out of cash, or be acquired for bargain basement prices. I later wrote a Masters essay (PDF) on the dotcom era that reviewed this ‘deathwatch’ frenzy and the memoirs of companies that had over-expanded from their initial public offerings.

The internet publisher Salon Media (SLNM) was one company where analysts had consensus that it would probably fail. However, Salon survived: a different management team, launching a site subscription model, dropping ‘big name’ yet expensive writers, broadening its freelancer network, and other survival strategies. The ‘deathwatch’ pundits were wrong.

Salon’s latest 10-Q filing on 13th August 2010 have some eye-opening sections. Deutsche Bank Securities provided short-term financing throughout 2007-09. Convertible promissory notes to investment banker Bill Hambrecht, Adobe Systems co-founder and current chairman John Warnock, original founder David Talbot, and other investors have kept the site operational.  Editor-in-Chief Joan Walsh has cut production, content and administrative expenses whilst boosting sales and marketing costs to enhance revenues. However, quarterly results are affected by outstanding accounts receivables, interest payment expenses and funding the short-term financing, and continued though lower operational losses. SLNM’s trade as an ‘over the counter’-listed stock is negligible (Google Finance). At least the 10Q has an extensive list of Salon’s exposure to operational, information technology, creative, finance and market risks.

Things will get interesting for Salon Media when the convertible promissory notes ‘mature’ in March and October 2012 and may need to be repaid. Will the dotcom era ‘deathwatch’ resume?

Wall Street analysts don’t appear to uphold ‘freedom of speech’ or a ‘boys on the bus’ mentality in the face of financial institutional lawsuits.

Andrew Martin and Louise Story at The New York Times have an insightful story on Richard Bove who Florida’s BankAtlantic sued after Bove warned the bank’s holding company faced collapse during the 2007-09 global financial crisis, although the bank was well securitised. BankAtlantic’s chairman and chief executive officer Alan B. Levan sued Bove for defamation and reputational damage to the financial institution.

Although the case was settled Bove paid over US$800,000 in legal fees. Some financial industry analysts and other institutions now view Levan’s decision as a strategic lawsuit against public participation designed — unsucessfully — to silence Bove. The unnamed BankAtlantic source has some very revealing observations about how Levan’s personality can trigger conflict: he can be combatative, dislikes personal criticism, “has a tendency to continue battles for too long”, and reacts to analysts’ “dissenting views” as chairman and chief executive officer.

BankAtlantic’s lawsuit offers Bove and other analysts several uncomfortable lessons. Professional societies for analysts refused to comment on the case nor to protect him. Bove claims that BankAtlantic either misunderstood or misframed his report’s title and subtitle. He was attacked despite the fact that the report valued BankAtlantic’s holding company rather than the bank. Levan may have targeted Bove due to the analyst’s visible media profile. A U.S. federal judge, hedge fund managers with expertise in debt securitisation, and other investors have also challenged Levan’s decision-making, track record, and feuds with other companies.

The NYT article also has a very interesting discussion of BankAtlantic’s corporate governance record, its holding structure and voting shares. BankAtlantic v. Bove case documents will be a ‘treasure trove’ for researchers who are interested in conflicts between C-level executives, financial analysts, and the specialist media outlets like Bloomberg and CNBC who cover them.