• A raccoon of my own: Lauren Slater writing for new entrant into the world of words, Aeon magazine, shares her efforts to try and tame a raccoon at the age of 15.
• The most spectacular mutation in recent human history: Well, we were drinking milk into our adult age and we were not supposed to. But then a genetic mutation happened and boosted our lactose tolerance.
• Lewis Lapham’s Antidote to the age of BuzzFeed: Ron Rosebaum writing for Smithsonian magazine extols the virtues of the legendary Harper editor’s Lapham’s Quarterly. I am a subscriber and a damn happy one. It educates, informs, and most importantly, stimulates the mind in a way most modern media doesn’t.
• Mourning Glory: a sad story about the baseball, two deaths and a dream. It is a must-read if you are missing baseball like I am.
• A hard landing down under: Andy Xie writing for The Big Picture blog outlines the mining bubble in Australia, its intimate relationship with the Chinese bubble, and how it is all about to end. Frankly, I never read about this part of the world and was quite educated by this article.
• Broken BRICs: Ruchir Sharma writes about the problems facing Brazil, Russia, India and China, the countries that represented the rise of the rest.
• Avoiding financial armageddon at the post office: Jeff Jordan is one of my favorite Internet people. He was the CEO of Open Table during the hard times and now he invests in startups. However, his sharp thinking is still the same, as evidenced by this brilliant piece on the U.S. Post Office and its many challenges.

Facts are lazy and facts are late

Facts all come with points of view

Facts don’t do what I want them to

—From “Crosseyed and Painless” by Talking Heads (written by Brian Eno and David Byrne)

Business growth at established companies tends to decline relentlessly over time in the absence of inspired innovation, an impact I affectionately refer to as “gravity.” If CEOs want to fight this gravity and improve the long-term growth trajectory of their businesses, they need to take proactive, concrete steps to make it happen.

As CEO of OpenTable, I was always trying to develop and test a portfolio of potential new initiatives, targeted at both optimizing the core business and adding new layers of growth (see my last post on this topic, “Adding Layers to the Cake”). I wanted to identify completely new initiatives that would boost business growth — things we weren’t already doing. Things you are already doing are largely yesterday’s news, and their impact on future growth tends to wane over time. Implementing completely new innovations can help your business fight gravity.

At OpenTable, one of the most highly leveraged examples of an innovation to optimize our core business was developing a rigorous methodology to pursue and assess potential site improvements. A while after I became CEO, my predecessor Thomas Layton (who did a spectacular job positioning OpenTable for long-term success) sent me a fascinating video of Ron Kohavi (previously the director of data mining and personalization at Amazon) talking about Amazon’s approach to something Kohavi called data-driven product development. Here’s a link to one of his presentations:
http://videolectures.net/kdd07_kohavi_pctce/
. (FYI, it only works sporadically.)

The video details how Amazon rigorously deployed A/B testing to optimize website efficiency. Kohavi starts the presentation by showing a number of different executions of the same feature that they had tested over time. He then asks the audience to vote on which they thought had performed better. The folks in the audience — all website geeks — were unable to consistently pick the winning execution. That was mildly surprising. But what was astonishing was the delta between the results driven by different executions of the same feature: what often appeared to be a subtle change could drive huge improvements in performance.

In the video, Kohavi also talks about the impact of the “HiPPO” (Highest Paid Person’s Opinion) in the product development process. Not surprisingly, most HiPPOs believe they know intuitively what will work best (spoken by the former HiPPO at OpenTable). But pretty much none of us have the product instincts of a Steve Jobs, and Kohavi makes a very compelling case for letting the data and not the HiPPO make the decision.

So we resolved to test data-driven product development as one of OpenTable’s potential core business optimization initiatives. We tasked a talented product manager, Julie Hall, to lead the effort, and we procured the necessary tools. For the art side, we found the low-cost and highly efficacious UserTesting.com service, which enabled us to get qualitative user feedback literally overnight to inform what we planned to test. And for the science side, we bought the overpriced but also highly effective Test&Target system from Omniture, which enabled robust quantitative measurement of a number of simultaneous A/B tests.

These two tools worked together marvelously. One time, we stumbled upon a big “improvement opportunity” (aka a nasty usability problem on the site). We used usertesting.com to task a handful of unregistered users with making a reservation. Then we watched in horror as a significant minority of the test users got trapped in our “Sign-In” functionality and couldn’t complete their online reservation. In the real world, they probably would have gotten pissed off and simply picked up the phone (OpenTable’s biggest competitor for consumers) and called the restaurant, a disaster for our user acquisition, brand affinity and OpenTable economics.

Here is the offending page:

The problem we encountered was that non-registered users would set the radio button that said “I am a new OpenTable customer” and then fill in their email address and select a password, which sat under the “I am an OpenTable member” section. This combination caused the page to return an error message.

In response, we developed alternative treatments of our sign-in functionality and tested them via Test & Target. The winning executions presented non-cookied users with a form tailored directly to new users, with clear visibility of a link for existing members to sign in:

After the user hit the “Complete Free Registration” button, we then presented them with a popup that prompted them to register to become an OpenTable member:

These simple changes boosted our reservation success rate by 10 percent over the prior implementation. And a 10 percent improvement in the revenue stream that comprised well over half of the company’s total business due to one simple change was a monster win for the business.

Over time, the data-driven product development methodology at OpenTable matured into a highly disciplined testing regimen. Hundreds of tests have been run in the past few years. Not all were home runs like the change above, but lots of singles and doubles supplemented the occasional home run to have a highly material impact on the business. I can’t recommend a rigorous data-driven product development process enough to managers of website businesses — it’s extremely low-hanging fruit in the pursuit of growth.

Other examples of core business optimization initiatives that helped OpenTable boost growth include:

• Developing a new version of our enterprise software used by restaurants that improved search-to-reservation conversion by having the software better mimic the decision-making process of the person at the host stand
• Redesigning key pages of the site to improve their efficiency, such as a complete overhaul of our search-results pages (tested thoroughly through A/B testing)
• Focusing dedicated resources on optimizing the percentage of OpenTable restaurant owners who had “make an online reservation” links on their own websites, as well as improving the visibility of those links
• Applying concerted product and engineering efforts to boost our ranking in search engine results
• Hiring a lot more sales people to accelerate the acquisition of restaurants using OpenTable (not a product change, but highly effective)

The key takeaway here is that all of the above were new, concrete initiatives that were not yet part of the company’s arsenal. Their successful deployment helped fight off the impact of gravity and led to accelerated growth for the company.

Jeff Jordan is a general partner at Andreessen Horowitz. Previously, he was president and CEO of OpenTable, president of PayPal and senior vice president/general manager of eBay North America. He blogs at 
http://jeff.a16z.com/
.

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The “it” is Yahoo’s very public auction of itself to the highest private equity bidder. In case you were hiding under a rock, here is a recap of rumors around Yahoo’s possible sale:

• Silver Lake Partners wants to buy a minority stake in Yahoo for about $16.60 a share (valuing Yahoo at $20.6 billion or about 6 percent higher than yesterday’s closing price.) Silver Lake is working with Microsoft and Andreessen Horowitz.
• The transaction is going to use PIPEs, private investment in public equity — a type of transaction long reserved for somewhat dubious companies.
• Jerry Yang will stay on the board, but the investors will get three seats on the board, reports say.
• Some folks believe that Jeff Jordan, former CEO of OpenTable, will become the chief executive of Yahoo and VC Marc Andreessen will become the chairman.
• TPG Capital is considering offering a $1 per share more — aka $17.60/share.
• Others are also eyeing the company including KKR and Blackstone Group.
• Thomas H. Lee Partners is thinking about a bid.
• Alibaba Group wants to buy Yahoo. Yahoo owns 40 percent of the Chinese company. Kara Swisher says they are thinking about teaming up with Softbank and Blackstone for their own bid.

600 million

Last time I wrote about Yahoo and its dismal and disastrous board of directors, I pointed out that 600 million users make up Yahoo’s biggest asset (and biggest stumbling block) and that company needed to clean house and then go shopping. Most of the people in comments disagreed and said that no self-respecting startup would want to be part of Yahoo.

Instead, most felt that the company should clean house and focus on a few pockets of growth inside the company — communications and shopping for example. I am betting buyers will be thinking along those lines, but will that be enough?

Whatever comes of these moves, the question is, can Yahoo be saved, and if yes, what is the value that can be retrieved? More importantly, will these private equity investors meet their own tech Waterloo in the fallen Internet star?

Dead Fish

As far as I am concerned, Yahoo is pretty far gone and is essentially a hollow shell of its former self. Its board – probably the single worst group in business – has managed to drip every last drop out of its body. There are few bright spots — Flickr, Yahoo Mail and Yahoo Shopping — but they cannot make up for the singular reality that the Internet that helped Yahoo thrive is no longer the Internet most people use.

Behavioral shifts in the Internet are so strong that Yahoo has no chance. The average U.S. Facebook user is spending over six hours a month day on the social network, Twitter is becoming the new news network and photos are thriving on mobile platforms.

The Internet of today is one of many screens. Yahoo, despite its mobile products and wonderful experiments with Yahoo TV, is still a one trick pony — online advertising.  More accurately, the classic CPM-style advertising depends on large audiences, lots of page views and well, you get it, an old-fashioned way of thinking. When I think of Yahoo, I am reminded of a salmon farmed on carcinogens that is trying to move upstream in order to find growth.

Smart guys, but…

The consortium that is making a push for Yahoo is the same group that went out and bought Skype from eBay and turned around and flipped it to Microsoft, and in the process they made a lot of money.

However, this is not the same case. Skype was and still is on the right side of history. Usage behavior favors Skype, which continues to grow despite the company having ruined a great user experience. Skype is thriving despite all the meddling from the previous owners. Microsoft can’t do anything because Skype provides value.

What does Yahoo do that you and I can’t live without?

That’s right … nothing!

I have a lot of respect for Jeff Jordan (who would actually be one of my choices to run Yahoo), but I am sorry even he cannot do the impossible. Yahoo’s brain drain is legendary and it continues. There are more resumes going out of Yahoo than there are folks lining up to work for Yahoo.  Unless there is a tech/broad economy collapse, that situation isn’t going to change.

Frankly, if you were a smart engineer or a product guy, why would you go work for a company, which is going to be owned by buyout guys who essentially nickel-and-dime your creativity to death? Why not go and work for a startup, where the chances of an upside, however remote they might be, are still there.

Or better yet, take a flyer and start your own company. Hell, if you need a job, these days even Google is pretty lax about hiring. The fact is that the buyout philosophy might work on old industrial-age companies, but I am not sure it would translate to Internet companies.

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Frankly, today’s new announcement is just an affirmation of what has been reported in the past, ad nauseam. Sarah Lacy of TechCrunch had first reported of the likely investment on May 30, 2011, and speculated that the company was valued at close to a billion dollars. We have heard similar valuation metrics as well. As we previously reported, the company is on track to take in $25 million of net revenues during the current year and is also said to be doing flow-through revenues of around half a billion. The company itself says that two million nights have been booked using the system. The company is experiencing rapid growth in overseas markets. The New York Times  reports that the company is racking up about 10,000 guests a night.

AirBnB is an amazing story of enterprenurial grit. More importantly the company is at the leading edge of what I have described as a new peer-to-peer (or person-to-person) economy. This p2p economy is an area of much interest to me. Here is a video interview with AirBnB CEO Brian Chesky, who shared his story with me a few months ago. In addition, Colleen Taylor interviewed his co-founder, Joe Gebbia, and I have embedded that interview as well.

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The startup’s founder, Daniel Carroll, who’s traded stocks since he was 15 years old, said the site provides people with a cheaper and more transparent alternative to putting their money in mutual funds. For example, people can make a minimum investment of $3,000 on the site. Carroll said Fairview Capital, for instance, generally doesn’t take investments less than $1 million, but it does so on kaChing. kaChing investors, who range from amateurs to investment management firms, are assigned an “Investing IQ” score that’s based on similar factors used by Ivy League endowment managers, such as risk adjusted returns and the quality of the rationale behind their trades. Investors who receive a score of 140 or higher are classified as a “Genius,” of which there are currently 12 on the site.

People who want to invest according to the trades of their selected kaChing investors have to pay a management fee to them kaChing, which averages around 1 percent. kaChing takes a 25 percent cut of that fee and gives 75 percent of it back to the investor. Once people set up an account, they can follow their investments in real-time on a dashboard, and the site sends email updates if an investor makes any unexpected moves. The site faces competition from Covestor, which also lets people track investors.

kaChing is a 12-person team. Carroll said it has raised around $3 million from angel investors. And he has big plans for the company, setting his sights on an IPO. “Hopefully, you’ll see our ticker on the New York Stock Exchange” five to ten years down the road, he said.

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