All Things Digital

Spot Runner, the online ad agency, delivered yet another Web 2.0 miracle today, raising another $51 million in funding from a diverse group of investors.

Among other services, Spot Runner makes and places low-cost television and radio ads for small businesses and is trying to bridge the gap between the traditional and online ad market.

In this round, those stepping up to invest in the Los Angeles-based start-up include international media giants Daily Mail and General Trust (DMGT.L) and Grupo Televisa (TV), investment company Legg Mason Capital Management (LM) and, curiously, luxury conglomerate Groupe Arnault/LVMH (MC.PA).

This group, along with existing investors, forked over the $51 million to add to the $60 million already raised. This appears to give it a massive valuation of upward of $500 million.

Well, at least in the land of Web 2.0 it does. In the real world, it still remains to be seen. But that has not stopped the nonstop investment party of late for Web 2.0 start-ups.

Web-based instant messaging company Meebo recently raised another $25 million at a reported $250 million valuation, while widgeteer Slide got $50 million for a $550 million valuation.

Of course, the champ of them all has been the social-networking site Facebook, which now has a $15 billion valuation.

Wheeeeeeeeeeeeeee! Or maybe not so much, but obviously no one in Silicon Valley is listening to BoomTown at this Kool-Aid carnival.

Spot Runner’s previous investors are: Allen & Company, Battery Ventures, Comerica Bank (CMA), Lachlan Murdoch, Vivi Nevo, Capital Research and Management, CBS (CBS), Index Ventures, Interpublic Group, Tudor Investment Corporation and WPP.

So far, this group has invested $60 million in Spot Runner. Its board includes Index’s Danny Rimer and former AOL exec Bob Pittman.

“We want to use the investment to make a real penetration in the market,” said Nick Grouf, chairman and CEO of Spot Runner. “We want to expand both organically and through acquisitions, as well as expand our staff, and these strategic investors will help us do that.”

Spot Runner has already been doing that. For example, it recently bought Weblistic, a local search listings creator, and hired former Microsoft exec Joanne Bradford.

The Daily Mail is a large media company based in the United Kingdom, with newspapers, online and radio assets, while Grupo Televisa is one of the largest media conglomerates in the Spanish-speaking world.

Groupe Arnault/LVMH owns some of the world’s toniest brands, including Moët & Chandon, Hennessy, Louis Vuitton and Givenchy.

Grouf, again along with partner David Waxman, also previously founded PeoplePC and Firefly Networks.

In the spirit of the funding, here’s one of my favorite Kool-Aid commercials:

A stark visual of the situation–courtesy of The Wall Street Journal–with regard to the competitive Internet advertising and stock situation.

These two charts look at the performance of the major players–Microsoft (MSFT), Yahoo (YHOO) and Google (GOOG) (and AOL [TWX] in the ad chart)–from 2004 to 2008.

What more can we say?

So we won’t.

Also, here’s a link to a video of an appearance I made on ABC News last night about the danger of Google getting too powerful. (Naughty ABC does not allow embedding; here also is the text post.)

Please see this disclosure related to me and Google.

This week, I had lunch with one of the nicest young Web entrepreneurs around the scene, WordPress Founder Matt Mullenweg.

We use a custom WordPress.com installation for this site, which has worked out well for us, and the start-up also hosts AllThingsD.com. We also got a very nice hoodie.

In all seriousness, the company started as an open-source blogging software project at WordPress.org with Mullenweg as founding developer, while WordPress.com is for-profit and is run by Mullenweg and others at a start-up called Automattic.

Mullenweg came to San Francisco from his hometown of Houston to work on WordPress and other projects for CNET in 2004. He left a year later to work full-time on the development of WordPress.

It and others like it quickly rode the wave of an ever-growing trend of self-publishing, which has been increasingly embraced by both the single person writing about their cat to the large-scale media companies looking to develop more dynamic properties online.

WordPress and Automattic (which also runs Akismet, an anti-comment and trackback spam software service) has been the frequent target of takeover speculation.

But, while Automattic has reportedly considered those options, as well as hooking up with other companies like Sphere (which was just bought for $35 million in cash by AOL [TWX]), Mullenweg seems just as determined to build out his simple publishing platform, by adding ad networks and all sorts of bells and whistles to the offerings.

In fact, WordPress competitor Six Apart did just that last week with its acquisition of the New York-based ad, design and consulting services firm Apperceptive.

So I will bet Mullenweg probably has some news of his own, when he gives a short speech at the Web 2.0 Expo in San Francisco this morning.

We’ll see, but in this video, Mullenweg talks with BoomTown–after we admit to an obvious man crush on him–about the progress in the blog-publishing arena and where it is all going.

Here’s the video:

Here is a BoomTown video rant on online advertising, which I spewed at a Web 2.0 Expo Web2Open event I did Wednesday.

I am talking quickly since it was a “speed-Q&A” session, where five of us moved from table to table and quickly answered questions shot at us from the people gathered at each.

They were split into like-minded groups–developers, designers, business types.

This video was shot on a Flip camera, the kind BoomTown uses for our own riveting videos, by tech writer David Spark.

Excuse the mysterious Ray-Ban look–the shades are prescription and I left my regular glasses at home. (Also, I was trying to avoid intimacy in this speed Q&A thing!)

Here Spark is asking me about my bête noire in the Web 2.0 space–lack of specifics about monetization.

I always get annoyed by the same stock explanation from entrepreneurs when I ask about it: “Advertising, of course.” But when I then ask for more detail and actual results, that’s where things always get a little fuzzy.

I also talk about the need for Web 2.0 wunderkinds to be scrutinized just the same as any business leader, rather than worshipped by a slavish press.

Hence, my rant:

Calling Dick Tracy! Guess what the U.S. Department of Justice noticed yesterday?

Google is really, really big and powerful.

Thus, the Feds are casting a gimlet eye on an online ad partnership Google (GOOG) is considering with Yahoo (YHOO), which is trying to goose its value in the face of an unwelcome takeover bid from the last century’s monopolist Microsoft (MSFT).

It was widely reported yesterday that the Justice Department was looking into the recent outsourcing ad sales test by the search giant and No. 2 Yahoo, to see if it squares with antitrust law.

According to both Yahoo and Google, they lobbed in a call to regulators in advance of starting the test of a possible partnership, just to give them a heads-up, so this look-see was fully expected.

How nice that the two dominant companies, whose share together closes in on 80% of the market in search, can police themselves.

Is everyone relieved? We thought not.

While BoomTown has now moved on to figuring out if Google will become self-aware in 2012 and begin building Terminators to take out the future leaders of the human race, we would like to reiterate what we noted in a previous post:

And while it might be a long-cherished dream of Google’s to take over Yahoo search–and also get the chance to return to the scene of the crime, since Google got its first big push from doing Yahoo search, before Yahoo wised up too late–there is simply no way this will be allowed by regulators nor should it.

Still, you have to almost admire the chutzpah of the search giant in making this move, if the sheer and unadulterated arrogance of it wasn’t so distracting.

Because, while Google has almost none of the obvious menacing aggression that characterized Microsoft when it thoroughly dominated tech (although all those beach bikes on its campus inexplicably creep me out a little bit), the company still cannot be allowed to have a monopolistic share of the market.

It is bad for advertisers, it is bad for consumers, it is bad for innovation, no matter how well-intentioned Google is.

And no matter how many flashy moves Google and Yahoo make, it is flat-out wrong for one player to so dominate such an important sector.”

And whether the Feds decide if a union between Google and Yahoo is legal or not, let me repeat: It is dangerous and anticompetitive.

Please see this disclosure related to me and Google.

As someone who has been a longtime critic of Microsoft’s (MSFT) historically thuggish tendencies, BoomTown finds it a little hard to believe that Yahoo (YHOO) and Google (GOOG) think that they can get away with any kind of significant search-ad outsourcing deal that would move the needle at Yahoo and, I guess, pressgang the software giant into making a higher bid in its quest to acquire it.

But, as reported in The Wall Street Journal today, the pair are serious about an outsourcing deal in which Google would take over its search-ad business, since Google is able to monetize that traffic with such superiority to Yahoo’s efforts.

Sources at Yahoo tell me that the tests the pair has been conducting recently went much better than expected, with Google’s ad search engine turbocharging Yahoo’s traffic dramatically.

Hello. Of course it did.

In fact, such a deal if struck would add more than $1 billion a year to Yahoo’s cash flow, said the Journal report, which would presumably give Yahoo the argument it needs to prove it is worth more than the $31-per-share unsolicited offer from Microsoft.

Setting aside the point that if this was such a great idea, why didn’t Yahoo do this six months ago (its execs considered and reconsidered it, many sources have told me, but dithered about doing it until this crisis hit), concerning critical issues related to Google’s domination of the important online search arena, The Journal noted:

“The overlap between Google and Yahoo could make it hard to get a deal past regulators, analysts say. But the two are exploring ways to address potential regulatory problems, people familiar with their discussions say. Possibilities include limiting the partnership to specific groups of search queries or regions, for example.”

Specific groups of search queries? Of regions? What is that exactly?

Yahoo’s Sri Lankan users can only ask about cupcake recipes? Or perhaps Yahoo can answer the query, “What is love?,” while Google lets us know who wrote the book of it.

To my mind, this is an example of juvenile game-playing that has seemed to have plagued this deal, which ignores Yahoo shareholders by upping the risk of value destruction significantly.

Although it is good to see such activity and ideas coming out of Yahoo with such force finally, it seems too much, too late.

And while it might be a long-cherished dream of Google’s to take over Yahoo search–and also get the chance to return to the scene of the crime, since Google got its first big push from doing Yahoo search, before Yahoo wised up too late–there is simply no way this will be allowed by regulators nor should it.

Still, you have to almost admire the chutzpah of the search giant in making this move, if the sheer and unadulterated arrogance of it wasn’t so distracting.

Because, while Google has almost none of the obvious menacing aggression that characterized Microsoft when it thoroughly dominated tech (although all those beach bikes on its campus inexplicably creep me out a little bit), the company still cannot be allowed to have a monopolistic share of the market.

It is bad for advertisers, it is bad for consumers, it is bad for innovation, no matter how well-intentioned Google is.

And no matter how many flashy moves Google and Yahoo make, it is flat-out wrong for one player to so dominate such an important sector (and I hope regulators look at the email domination in the case of a Yahoo-Microsoft union with a similar gimlet eye).

As I noted in a post last week about Yahoo and Google doing a search outsourcing deal:

So, any further hook-up between the two seems sure to become the Justice Department Lawyer Employment Act of 2008, the likes of which we have not seen since Microsoft got its turn at being deservedly whacked for being a monopolist back in the last century.

Let’s face it, outside of those who cannot seem to shake the annoying Kumbaya mentality over at Google, a Yahoo-Google partnership is simply fantastical, like some out-of-control Dr. Seuss ditty.

They could not, would not with a goat. They would not, could not on a boat. They will not share an algorithm, they will not, will not, Jerry-I-Am.“

Please see this disclosure related to me and Google.

Here is a great chart from The Wall Street Journal that kind of says it all.

Start stacking them up in your mind like your kid’s Legos and it gets interesting (click on the image to make it larger):

Please see this disclosure related to me and Google.

Former Yahoo Senior Vice President Tim Cadogan will take the CEO job at OpenX, the popular open-source ad server start-up, backed by Index Ventures, Accel Partners and others.

As part of the change, the company will move from its London HQ to Los Angeles. OpenX has about 30 employees, including 10 developers in Poland, but not all will be moving West.

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Finally.

But, I am sorry to say, probably much too late.

Still, it was nice to see a relatively bold statement from Yahoo (YHOO) leadership yesterday about its growth prospects and plans, a clearer statement of purpose it would have been much, much nicer to see a year ago.

And the assessment of Yahoo executives, who filed documents with regulators and will take its show on the road to visit shareholders this week?

No surprises for 2008 off guidance (whew!), strong gains in revenue and cash flow for 2009 and 2010 and a resulting share price closer to $40, $9 above the original $31 a share–the cash-and-stock offer is actually now worth about $29.50–offered by Microsoft (MSFT).

Yahoo had to do this, times being what they are–with the troubled Internet portal with the sterling brand name fighting off efforts by the software giant to buy it in an unsolicited bid. Thus, the prone Yahoo stood up for itself for reasons that look an awful lot like it was prettying itself up for the inevitable sale.

The goal? To justify its initial rejection of Microsoft, signal a decent quarter to deny the software giant a reason to drop its price or even exit and, most of all, to get an even better acquisition price, as prospects for alternatives dwindle.

So far, Microsoft has showed no indication that it would budge on price and some execs there even worry that the decline of Yahoo’s business is more significant than is apparent and Microsoft is paying too much.

Yahoo disagreed yesterday, outlining a blue-sky outlook for its future that is, of course, all about whether the current management could execute to reach very lofty goals. (See this Wall Street Journal chart.)

Looking over its estimates, I would say Yahoo’s glass is half-full in its happy display and video ad estimates and half-empty in its projections in the search arena, where Google (GOOG) dominates with increasing power. And it is all predicated on the fact that Yahoo must also streamline its costs.

An analyst, Mark Mahaney of Citi Investment Research, quoted in a Wall Street Journal article about the Yahoo numbers said it best: “Those are not easy numbers. We think it’s the most likely outcome that Microsoft buys Yahoo, and at a higher price than $31.”

(The Journal article also raises the uphappy prospect that the Alibaba Group, which Yahoo owns a 39% stake in, could use a sale to Microsoft to extricate itself from Yahoo’s arms, taking away one of the more attractive assets of Yahoo from the deal.)

The annual look at the health of journalism by the Project for Excellence in Journalism was just released and the outlook is predictable: Those darn kids love the Internet even more.

In its latest report online, called the State of the News Media 2008, the PEJ cites several continuing trends: news has shifted from being a product to a service (news you can really use!); news Web sites are no longer final destinations (widgetize!); user-generated content is maybe not so valuable (I know–shocker!); newsrooms are becoming the most innovative and experimental parts of the business (by necessity); the news media agenda continues to narrow (by 2016, fyi, it will only cover Britney Spears); and Madison Avenue still has not gotten on board the online express (yet another shocker!).

More interesting, in the online news arena, while the same percentage of people go to the Web for news (71%), the percentage of those who do it on a regular basis has risen.

That might be promising for news sites, except that more of the ad dollars, whose rate of growth is slowing a bit, will be going to–guess who?–Web aggregators, most especially, Google (GOOG).

While I usually give top executives at Yahoo (YHOO) a hard time about their unusually opaque memos and statements that typically say exactly nothing, I liked that clarity in a blog post by President Sue Decker on Yahoo’s Yodel Anecdotal about the appearance she made with CEO Jerry Yang at the Interactive Advertising Bureau’s annual meeting on Monday.

“The challenge is that advertisers and publishers are forced to deal with disparate systems and multiple platforms for buying search, display, video and local ads. That in itself is an inhibitor to achieving that growth,” wrote Decker (well, I hope she wrote it!) “We want to eliminate all the friction and complexity that advertisers, publishers, agencies and exchanges deal with so they can focus on reaching the right audiences and driving greater monetization. … Our approach is as different to current advertising platforms as the DVR was to VCRs.”

I know some at IAB thought Yang and Decker were not specific or substantive enough (and I was not there in person, so I cannot say if their performance was weak or not). But I thought Decker clearly articulated in the blog post the benefit of a strong Yahoo in the online display ad market, which it dominates and where it can push for standards and practices.

And the metaphoric comparison she made was a great one, although there are probably fewer and fewer people who remember what a pain videotapes can be.

Still, it must be said: More Sue Decker out of the cone of silence might be a good thing for Yahoo.

What does it take to imagine a new industry out of orange groves?

A lot more than settling a strike, I would posit.

A lot has been written about the writers’ strike in Hollywood, which is officially over after three acrimonious months with the overwhelming vote by the members of the Writers Guild of America to accept a contract it hammered out with the entertainment studios.

Writers will presumably be back at their keyboards today.

The toll? Hundreds of millions of dollars in lost revenues and no new episodes of “Heroes” (what will evil Sylar do now that his powers have returned?), all over how writers should be paid for content that appears online.

That there is precious little money being made online by anyone does not seem to have mattered, as the struggle metastasized into a symbolic battle over all the wrenching changes that digital technologies have made on the industry and are sure to make even more significantly in the future.

Writers, most of all, understand a dramatic narrative, and this one tells the tale of their work being digitized and downloaded without a lot of reward or control. It is a familiar story to them, of course, as technology after technology has not been kind to them.

In this three-year deal, victory was declared when the writers did get a percentage of the revenue from fees paid to stream their work on the Web.

Sorry to be a downer, but those fees will always and forever be peanuts, even if getting a percentage (rather than a residual) is seen as a win.

That’s because the big bucks in online content must come from advertising, which the writers will not grab a piece of at this point, if ever.

And if you think the creation of original online content is in its nascency, and it is, the robust business models around how to pay for it are even more stillborn.

Of course, there is money here and money there–some from items purchased, some from sponsorships, some from basic CPM economics.

But it is all very tentative and small now and advertisers are still not springing open their wallets with the kind of money they are used to spending on television.

And why should they? It is safe to advertise there, despite dwindling audience, wherein quality online content has so far shown itself to be very uncertain.

While there is an occasional errant hit of the most basic kind (Funny or Die’s “The Landlord” or similar material), there is no systemic or large-scale efforts to establish this industry of original online content in a way that is different from what has come before.

Of course, writers did hightail it up north to Silicon Valley during the strike to try to get some money to create new kinds of online-entertainment production companies.

But it felt like it was out of desperation, rather than a real commitment to change the system they were working in and to pioneer new forms of entertainment based around the Web medium.

The last time writers tried to marry venture capitalists, by the way, was in the last bubble and that was out of pure greed at the sight of the dot-commers all getting rich.

Well, greed did not work then and fear will not now. I would imagine writers will now abandon those efforts now that their old paychecks are back.

That’s too bad, because what’s needed is a whole new class of talent that has very little stake in the old one and who are seeking new ways of creating content, doing business and, most of all, envisioning the future.

Perhaps that is unspecific and not as real as the deal that was hammered out at the Luxe Hotel in the Brentwood section of Los Angeles between union reps and Disney’s Bob Iger and News Corp.’s Peter Chernin.

Now I have stayed at that hotel, in fact, for a conference, held nearby at the Getty Museum on a high hill overlooking Los Angeles. Called the Entertainment Gathering, it touched on the changing nature of the entertainment industry and also on the collision with the digital world it was facing.

Of course, there was a lot of talk about the innovation boom in Silicon Valley and what it meant for the entertainment industry.

At a break, one old entertainment mogul attending wanted to point out to me that Hollywood was like that once. He regaled me with stories of the mostly immigrant entrepreneurs who had left the certainty of the East Coast and had come to California and created a whole new business in the orange groves that once dominated the Los Angeles region.

“Can you imagine that?” he asked me, sweeping his hand over the vista.

Indeed, I could.

With all the noise about Microsoft’s $41 billion offer to buy Yahoo, I dropped the ball on posting about a chat I had about a week ago with Slide’s Max Levchin (pictured here) about the recent $50 million investment that valued the widget maker at an astonishing $500 million.

To say I was dumbstruck by the market value, given that the profitless start-up has only about $10 million to $12 million in annual revenue and a still unproven business plan, would be wrong.

Incredulous, yes. Gobsmacked, indeed. Feeling like I was back in 1999, most definitely. But not dumbstruck!

Thus, I queried the always voluble Levchin, who agreed to talk to me readily (no Jerry-Yang-cave-dwelling behavior for this 32-year-old Web 2.0 serial entrepreneur!) about the investment by two old-line institutional investors–Fidelity and T. Rowe Price–and its implications for Slide.

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Oh dear.

Even more waiting for Yahoo to turn itself around? Until 2009? Really? Another 100 days, and another, and another and then more than half of another?

This is starting to feel very, very familiar.

Too familiar.

Well, it did take seven months to replace Farzad Nazem as CTO at a–um, well–technology-dependent company, so perhaps the glacial pace of non-change change planned for the Internet giant should not come as too much of a surprise.

Still, any surprise or new development from Yahoo might be more welcomed by Wall Street, which decidedly did not like much of what it heard from CEO and Co-Founder Jerry Yang or other Yahoo top execs during their fourth quarter and year-end earnings session yesterday.

After the underwhelming call, which came after the markets had closed, Yahoo shares were off almost 10% in after-hours trading, falling below a dangerous $20 level to $18.89.

Or, as I like to call it, takeover territory. Or even, as many media and tech players I talked to recently have been suggesting more fervently, the land where Yahoo merges with AOL or eBay.

But, really, who knows? Even, it seems, Jerry Yang.

He used the term “head winds” to characterize Yahoo’s sober guidance for the future, even as Yahoo had a sharp drop-off in net profit for the quarter.

Oddly, he did not highlight the much ballyhooed layoffs, which might number about 1,000. Or not–because some laid off can look for other jobs at Yahoo in more promising product areas. Got that?

I don’t and that’s probably the most critical problem Yahoo faces. Still, right after the call, Yang and his top execs went back into the cone of silence they have been living in, which is located in their cozy cave of noncommunication, without further comment.

Incredibly, reporters were asked to email or text any follow-up questions and given no access to anyone in charge.

While Yang and others there often note that they have their heads down–remember, there are scary head winds out there and potential hair-mussing dangers!–and don’t have time for such things, even Punxsutawney Phil knows that the only way winter ends is if you come out of your hole and don’t get scared looking at your own shadow.