Seth Goldstein

John Markoff of the New York Times just reported that Google will release free email on Thursday:

See my comment from last week that suggested this was in the works.

About three years ago, in March 2001, after living through the incredibly sudden collapse of the first .com bubble, I was in a lot of pain and quite bitter about the whole modern digital capitalist enterprise. Rather than consider continuing to work as an investor, or start another company, I decided to channel all my energies into a great modern masterpiece- a high tech cyber thriller screenplay! It was called Datacost and it was about an evil hacker who was taking over people’s genetic privacy in a systematic, fascist fashion, and his nemesis, a talented young cryptographer who had invented the first biological sexually transmitted virus to scramble one’s DNA.

Suffice it to say that I never managed to get even half-way through the script. The more I thought about the logical implications of the future costs of data, the more I tweaked the plot beyond anything vaguely coherent. A few months later, the terrorists destroyed the World Trade Center and my spiffy conspiracy theory about foreign cyber terror no longer seemed so urgent.

A few weeks ago as I was reviewing the latest financial model for Majestic Research, I noticed that one of our key line items was Data Costs, which included all of the licensing fees and software development costs related to our acquisition of proprietary data for our research products. Seeing the words made me think back to the premise of Datacost.

I looked through my old files and came across the most recent draft. It starts with a description of the world as of 2007.

March 7,2001:

2007. At the end of another failed U.S. administration. W. lasted 4 years, characterized by escalating U.S.-Foreign antagonism around the globe, and increasingly desperate economic policies. In attempting to bolster the private sector, W. and his administration continually cut Federal interest rates and removed as much oversight as possible from the commercial technology sector. Starting in late 2003, trying anything to prop up his ailing economy for a successful reelection, W. stopped the government and the states from persecuting antitrust cases. Working with his Treasury Secretary, he also removed all restrictions on the financial services sector, extending the repeal of the Glass-Steagel act far further than anybody would have imagined possible. Suddenly, banks, brokerage houses, insurance companies, pension funds, hedge funds, all start cooperating to market riskier and riskier securities to the American public. Consumers borrow more to pay for these sweepstakes, racking up more debt in the process.

U.S. companies outsource programming to foreign communities—China, Russia, Cuba—willing to work at a fraction of the domestic cost.

Companies begin regularly exporting advanced security software overseas to foreign governments with questionable motives.

The economy tries but cannot recover from its millennial crash. Oil prices skyrocket. Layoffs abound. Peace erodes in the Mideast. China begins exerting its popular power. India starts siphoning off tech value from the US. Taliban factions strike random physical terror among foreign US targets. Former U.S.S.R. succumbs to mafia control: ecstasy manufacturing, data hijacking, copyright violation. Republics of Estonia, Rumania and Yugoslavia find common ground in advanced network warfare technology.

After reading it just now, my first reaction was: “duh, if I only I had put on those trades on in mid 2001 I would have made a fortune!” My second reaction is more nuanced. More to the effect of, “What really is the value of private information for commercial use in this day and age?” Among his many dubious accomplishments, Bush has fostered a vital debate on the value of private information:

* Poindexter got it hard from the public before getting pulled backstage.
* The administration uses the classification and declassification of official documents as one of their primary levers of power.
* The intelligence about WMD in Iraq and Al Qaeda threats pre-9/11 have become central to the debate on whether Bush should get reelected.

In this context, how can we evaluate data costs, and the market value of personal and aggregate sets of human identity and behavior? Compared to a libertarian administration (remember how Gore invented the Internet?) or one religiously aligned with the consumer (take Germany), ours has seriously deflated the value of individual privacy. It doesnt take very much to buy a consumer’s willingness to opt in to share vital personal information. The silly low interest rates is giving us so many occassions to type in our personal information and credit history so that we may qualify for ever increasing flavors of cheap money. Yes, we are saving a lot of cash flow pressures by putting off full purchasing to a later and later date, but the costs of constant electronic legislation (application forms, bills, payments, etc) take the form of increased payments of personal information. Financial services firms and insurance firms want to “get to know you” to better service you, which also means that you are required to open up more and more of your unique individual behavior to their electronic systems. The web has been able to grow so incredibly functional, for free, because it leverages personal information to create more effective advertising mechanisms for marketers.

To the extent to which this blog is concerned with a central theme, it is the intersection of data, research, investments, and executions. As you probably know, I am really interested in the ways in which these elements are becoming bundled together as traditional Wall Street Research is giving way to new forms of Independent Research. Full disclosure: I am 100% biased towards the relative value of Independent Research compared with traditional sell-side research. I recognize that Independent Research is as much an approach to investment research as any explicit set of firms. Nevertheless, despite the best intentions of the incumbent Wall Street franchises, I really cannot see how they will be able to continue to add value to Investors in a world where Regulation Fair Disclosure has eliminated any competitive advantage of name-brand analysts and where the economics of proprietary trading desks and hedge funds continue to suck the premium talent away from sell side research departments.

Of course I have a vested interest in the success of Majestic Research to recognize and address these challenges before the competition does. And while I am tempted here to lay out all of the strategies we are employing to apply our unique research development process against more and more stocks and sectors, it would probably come at a cost.

More thinking soon about how the sales trading cash register can be used to compensate for the personal disclosure of historical behavior.

Trip back from pc forum.

All about google and search and social networks and identity management. They all intersect in transaction driven classified advertising. Google has by far the best distribution pipe although yahoo is making progress opening up their brand to search driven revenues.

The prospect that google will offer email remains perhaps the single most disruptive possibility for the current portal landscape (ie yahoo, aol, msn/hotmail, etc). Somebody credible suggested that she had seen a version of googlemail that is “delicious, perfect, clean, just what you would expect from google.”

Eric schmidt the ceo of google said he couldn’t comment on future production developments when I asked him about this.

Somebody else said that google would have to solve the spam problem in a particularly satisfying manner. This seems possible, given googles trackrecord of solving tough problems with elegant solutions (search,
adwords, adsense, popup blocker). But it has also produced its share of questionable killer apps (froogle, googlenews for instance).

As to the question of whether consumers would enmasse give up their yahoo aol or hotmail email address, one of the elder product statesmen at aol told me that in the end consumers will have their own email names devoid of the service partner. I should add that this same person was the one who invented the buddy list as a means of expressing one’s live presence within aol in 1995 and then created aim shortly thereafter.
His vision that we will all be easily accessible with a single name across wired and wireless networks, across email, im and voice suggests that the switching costs for choosing google, for example, as the primary email interface instead of yahoo would be minimal.

Now when you factor that roughly 50% of the time spent on yhoo is email related, and that 50% of their advertising revenue is equal to over $400M per year, then its clear what the economic stakes could be.

The other pressure being brought to bear on the current internet/business market is the value of trusted relationships. Linkedin is by far the furthest along in terms of establishing a transparent interface into ones existing business relationships. Friendster has done the same for social relationships (albeit for a younger market).

Linkedin’s ceo reid hoffman told me how linkedin is a broad platform of open trust that he will leverage against a variety of applications over time, including jobs, professional services, etc. He was admant about not doing anything that smelled of selling members out or of allowing untrusted contact of any kind.

Between search, email, social networks and ecommerce engines, there aint much more to it.

Google, iaci, yhoo, amzn, and ebay are driving the evolution of the internet. Microsoft has a special priviliged position but continues to keep up with the jones. Aol is its own independent republic trying desparately to become annexed by the web at large.

I am trying hard to relate this back to the earlier conversation about trading commissions. Not an obvious connection. Brokers do rely similarly upon sources of trusted information and a clean interface between buyer and seller.

As it relates to majestic, our value is marked to market on a regular basis. This is primarily driven by the predictability of our data analysis to highlight trends before they are reported by companies. This is essentially the quality of our products to help our customers figure out what they are trying to solve in terms of equity research.

It might be obvious to you, but I just realized that the word “research” actually contains “search” within it. Duh. Maybe it isn’t such a stretch after all.

Majestic’s unique opportunity is to become the preferred information search engine for institutional investors.

One could argue that gerson lehrman represents the ebay of investment research, in so far as it brings together buyers and sellers of domain expertise. The social dynamics that it touches upon are also at work in such stand alone social apps as meetup.com and linkedin.

regarding search, googles breakthrough was a couple of key steps:

-invent a better way of finding relevant links
- provide advertisers a simple way of reaching people
- provide publishers a simple way of generating ad revenue

In between was tremendous consumer adoption that let to all sorts of scale advantages.