This is the press release that’s hitting the wires Thursday - read some of the initial coverage below

Technology Veterans Establish LaunchBox Digital

Launch Platform For Web and Mobile Entrepreneurs Combines Seed Capital With Guidance From Industry Pros

WASHINGTON, D.C. – November 15, 2007 – With today’s introduction of LaunchBox Digital, start-up businesses now have a new way of gaining critical early financial support, along with advice and practical guidance on how to bring their ideas to market. Founded by three technology industry veterans, and supported by a roster of advisors who have built successful digital businesses, LaunchBox Digital is a new early stage investment firm based in Washington, D.C. and dedicated to helping entrepreneurs overcome obstacles to success.

With an initial focus on web and mobile businesses, LaunchBox Digital offers a competitive application process by which entrepreneurs may be considered for an intensive, accelerator program, “LaunchBox08.” Successful applicants will receive funding, mentoring, and infrastructure support in order to take their big ideas from concept to market.

Between six and 10 successful applicants will receive seed investment and help in incorporation. During 12 intensive weeks in Washington, D.C., they will gain from the advice and experiences offered by the firm’s founders and advisors, as they develop a prototype or demo and craft their business plans. At the end of the program, they will be given an opportunity to present their businesses to venture capital firms and other investors, strategic partners, bloggers, and the media on the East and West Coasts. Applications for “LaunchBox08” are being accepted now. For more information on the application process, see: http://www.launchboxdigital.com/how_it_works.html.

The founders of LaunchBox Digital are Julius Genachowski, who was Chief of Business Operations and a member of the Office of the Chairman at IAC/InterActive Corp; Sean Greene, who was Founder and CEO of The Away Network; and John McKinley, who was President of Digital Services and CTO of AOL, and previously CTO and Head of Global Technology and Operations at Merrill Lynch.

“There’s never been a better time to build a technology company,” said Julius Genachowski. “Costs are decreasing, new revenue models are solidifying, and we’re seeing the proliferation of digital platforms, including Facebook, Google’s Open Social and Open Handset Alliance, the iPhone, and more. Yet entrepreneurs still face obstacles in making their vision a reality. LaunchBox Digital fills a real need at a moment of great opportunity.”

LaunchBox Digital’s advisors include key people behind some of the most successful technology companies of the past decade. It includes founders who started with ideas and turned them into companies sold for hundreds of millions of dollars, key operating executives at multi-billion dollar digital media and commerce companies, and two former chairmen of the Federal Communications Commission. Companies represented on LaunchBox Digital’s advisor group include: Advertising.com, AOL, Daily Candy, Feedburner, Fox Interactive, FreeWebs, glu mobile, Hillcrest Labs, Millenial Media, The Motley Fool, Object Video, Overture, Proxicom, Washington Post-Newsweek Interactive, WildSeed, Xfire and others. The complete roster of advisors is below.

“The advice and counsel of people who’ve helped launch and run businesses can be invaluable,” said Sean Greene. “What we’re trying to do with LaunchBox Digital is not simply provide early stage investments, but enable entrepreneurs to refine their ideas with the help of world-class mentors who are willing to offer the benefit of their experience in a disciplined, collaborative process.”

“Earlier incubators believed the secret to success was offering people cubicles and servers, which in many cases proved to be the wrong focus,” said John McKinley. “Instead, what is really needed is advice and guidance, on everything from the product, to marketing, to technical assistance. That’s our focus at LaunchBox Digital, and with our team of advisors and mentors, we offer first-time entrepreneurs a great chance to fulfill their dreams.”

LaunchBox Digital is also accepting proposals from early stage business for immediate seed or angel investment, on a selective basis.

Some Initial Coverage:

Reuters

Silicon Alley Insider

GigaOM 

CNET

Washington Post

Washington Business Journal

The Register (UK)

Read/Write Web

We’re Ready to Help

We are open for business. If you have an immediate opportunity, contact us at newco@launchboxdigital.com

If you’d like to apply to LaunchBox08, our 12 week summer incubator program, click here to learn more.

Thanks

Here’s a quick thank you to our great investors, our advisors, and other friends of the firm, who helped shape the concept and agreed to help our entrepreneurs navigate that difficult first 12 to 18 months - we owe you!

In mid-August, I wrote a post that mentioned that the softening in the US ad market was going to force me to start burying Krugerrands in my backyard. The reference to burying gold was only partially in jest - the state of the US economy has become more and more fragile, and it seems to me to be trending in all the wrong directions. The question is what we, as consumers, can do to protect ourselves. Fortunately for me, for the past 6 months, I have had the chance to interact with some of the biggest brains in financial services over the last 20 years, and each time I get the chance, I ask one simple question: “What is the best way to hedge my risk against the dollar declining in value?”

The answers I got were surprising: Most folk felt that a devalued dollar would make US imports all the more attractive, and that since 45+% of revenue of the S&P companies comes from customers outside the United States, all would work out in the end. To me that seemed, in the face of record trade deficits and a massive federal deficit, a pretty optimistic view of the US economy.

Some folk, however, fell into the “super-bear” camp, and painted compelling reasons that the US had yet to see the full impact of its irresponsible fiscal policies. They also felt that the shock that would be felt, when it came, would be pretty profound. Now, I am usually an optimist myself, but over the last year, the level of economic angst I felt grew pretty materially, so I found myself moving closer and closer to the bears.

What were some of the major angst creators for me?

The war budget: A projection that, in the end, our folly in Iraq will wind up costing us $2.5 trillion dollars - that’s a mind-blowing $8,000 per man, woman and child across the entire US for something that at best has neutral strategic economic contribution to the US, and, some might say, has had material negative consequence, due to its destabilizing effect on light crude supplies.

No forward headway in addressing our economic relationship with China: With an artificially low Yuan creating a tactically compelling reason to drive most manufacturing to China, and the “creeping peg” plan to try to get the Yuan to a fair market value over time against the dollar a disaster, we are in a position of a profound shock to the system when the eventual true-up of the the dollar/yuan exchange rate becomes a reality.

Our failure to develop a viable alternate energy program: The dialog on nuclear power in the US has become a third-rail topic for politicians, even though it is the only proven, scalable, economically viable, least carbon dioxide-generating solution that has a shot at making a material impact on our alternate energy supplies over the next 10-15 years. The problem is that no one, including Al Gore (who certainly deserved his Nobel Prize for awareness building on our climate crisis), has the fortitude to talk about it as a strategic imperative. I think about nuclear power in the content of the Iraq spending. The entire nuclear buildout in France, who now obtains 75% of its electricity from nuclear power, cost them less that half of the Bush administration’s proposed 2008 war budget for Iraq (2008 proposal: $250B) - that’s a mind-blowing misallocation of resources by the US.

Our complete lack of a concrete program to address the other crisis of this century, our global water shortfall: If you look at the trend line, it is manifest destiny that, even with proactive carbon reduction steps in the US, the global global warming picture will result in a three plus degree temperature increase globally this century, and that will serve to exacerbate the global fresh water supply situation. The WHO estimates by 2050, up to 4 billion people will face a fresh water shortfall. You are starting to see leading indicators of this issue even in the US. Towns in the Southeast are having to truck in water to keep operating. Atlanta is on the verge of a major water crisis (Lake Lanier is at a 20 year low). In the face of all this, we have a water bill targeting $23B in projects that involve bringing no net new water supplies online. Just a $10B incremental investment in desalination plants would potentially bring 500 million gallons a day of desalinized water online. Instead, we are spending money on water initiatives that generate the best 20 second sound bites for TV, and that’s just plain irresponsible. This is a two party issue - neither Democrats nor Republicans are showing any leadership here. How bad can things get? Some experts believe one of the fundamental causes of the genocide in Darfur was related to their water crisis.

Spending money we don’t have: Just understanding the US annual Federal deficit is a challenge. Let’s look at 2005. The government reported a $318B deficit, but if you followed the reporting of the GAO, and followed standard accounting practices, the number was $760B. If you do the right thing and also include the impact of Medicare and Social Security, the number is $3.5 trillion - over $11,000 per man, woman and child in the US! How we continue to allow the dialog on our deficit to use these two sets of books (one for safe public dialog, and the real books) is beyond me.

What has been the real impact of US fiscal policy? I think the best context for this dialog rests on an understanding of the global purchasing power of the US dollar, ignoring the artificial lift of an undervalued Yuan. To me, that can be done in understanding the trends relating to two constrained-supply commodities: Gold and Oil.

If you look at gold, you see a 30+% price increase since mid-August (from $652/ounce to $850/ounce as of 11/7/2007)

The story for light crude oil is very similar. During the same 3 month period, we has a 32+% price increase.

The question to ask is whether or not we have now seen the bottom. In simple terms, no. The tough love journey to create a strong dollar, in terms of a truly balanced budget using the real GAO figures, a fair but aggressive trade policy, and the strategic investments require over the next 20 years to implement viable alternate energy and fresh water programs are things we will make no progress on during this election cycle (not with AARP lobbying pieces already hitting the airways, etc.). That means 18-24 months ahead of us with the same market dynamics.

To my friends, I recommend you start shorting the USD by being long oil and gold, investing in foreign equity markets, and perhaps consider other currency hedging / commodity strategies (titanium, etc.). We haven’t seen the bottom here - we’re not even close. If you need to borrow my shovel to start burying your own coins, give me a call…

This has been a pretty wild and woolly couple of weeks in the advertising and social networking space:

On the Facebook-can’t-be-stopped front, the social advertising play Facebook outlined (Beacon, Social Ads, corporate ad pages, et al) is a really well thought-out means of making their entrance as a principal into the whole ad ecosystem not just a simple vertical integration of their inventory (how I would typify moves like MySpace’s, before their hyper-targeting announcement), but a front-on attack on the first generation behavioral targeting players and search principals.

On the Privacy-is-an-illusion front, AOL is trying to get out in front of the anticipated consumer backlash around behavioral targeting by announcing their plan to allow an opt-out capability.  Consumers, you can find that opt-out at “www.reallyobscureurlthatwehopeyouneverdiscovery.com”

On the Don’t-forget-your-old-friend-Tom front, MySpace announced two steps to address the intellectual high ground gap they have with Facebook:  They agreed to be part of the OpenSocial consortium with Google, in the hopes of getting the same developer community mojo that Facebook is riding, and they announced their “hyper-targeting” capabilities for advertisers, leveraging the profile information of their members.

And finally, lest they be forgotten, on the $1000-per-share-freight-train front, Google made a great first step in addressing the assault by Facebook with their OpenSocial play.  Without MySpace, it would have been irrelevant.  With MySpace as a part, they are starting escalating the pressure on Facebook on opening access their social graph data.  I don’t see Facebook blinking anytime soon, but each journey begins with a single step, and OpenSocial is off to a good start.  Its long-term success will be determined if and when they show consumers a powerful call-to-action, in terms of a compelling value proposition that resonates with the social networking demographic (that hasn’t happened as of yet - it is still just a standards dialog/battle among the tech principals). I found the fact that it was hacked in its first week of existence to be a serious warning to all that openness relating to consumer data, without the appropriate design and software quality rigour, is a train wreck - hopefully they will learn from their first bloody nose here.

This past week, for me, was all about the privacy entitlements individuals are owed, and how they might effectively administered to the broad base of online consumers.   I see no scenario where consumers’ voices aren’t heard on this issue - it’s too rich of a topic for Washington not to opine on.   Given the initial dialogs on the topic, I see 5 major paths this privacy dialog takes;

Option 1: The FTC implements some form of “do not call registry” for web users.  One challenge:  In the phone world, the issues of identity was easy - it is my phone number.  How on earth do they intend to do it for my web activities?  Today, I roam from site to site without a common identity.  If I now have a privacy policy I want uniformly enforced, I see no easy way to do it, short of a cookie the FTC places on my PC that sites all need to respect/use to understand my “rules”, and I see multiple issues here:

How do you know a site is respecting the policy?

How does that approach work in my multiple PC/kiosks/mobile world?

How long will it take for the FTC to design and implement the solution?

Option 2: The FCC wins its proposal to enforce “anti-spyware” efforts, defines web tracking as a potential “spyware in the cloud” model, and intervenes. If this is like the approach to SPAM fighting, it will take the form of a reactive mechanism to prosecute offenders - not a real solution in my eyes.

Option 3: The industry proposed a solution (led by the majors).  Certainly, this is a proactive approach to the pending backlash, but each player is really conflicted here (hence all the leading with opt-out vs. opt-in proposals).  Nothing other than point solutions by individual players has arisen, and that’s a non-starter for me.

Option 4: Grass roots solutions, in the form of third-party browser extensions, arise.  There are a number of IE and Firefox add-ons that are starts at trying to address the security and privacy issues, but no solution reflects the needs of today’s consumer, who is now facing the increased use of behavioral targeting by each of the majors and the new social network profile-accessing ad schemes relatively unarmed.

Option 5:  The browser manufacturers incorporate more robust privacy controls in the core shipping product that is well beyond the controls they offer today.

To me, the best answer is Option 5: the major browser “manufacturers”: Microsoft, Mozilla, Apple, Opera all need to ship as part of their standard offering (not as add-ons), a simple process to allow consumers to select, in simple terms, the level of personal information they are willing to disclose to web sites / ad networks.

Today, the core browser-based options available to consumers are really blunt instruments:

Enabling/Disabling cookie support - a hugely bad consumer experience here, in terms of ease-of-use of their popular sites

Periodic cookie sweeping - again, a bad experience rarely done by the average consumer

Site-specific cookie blocking - a rarely used feature

Blocking all third-party cookies - again, a buried option rarely used, and one that treats all third party cookies as equals as privacy offenders, which is not the case

Ad blocking tools, an economically unjust solution, in my eyes.

My rationale for developing and shipping enhanced privacy controls in the core browser at the best approach?

1. The current principals in the publishing and networking space are just way too conflicted to come up with the right solution.  All the talk today centers around opt-out schemes, and that is really an intentionally weak scheme - Opt out studies have shown only 15% or less folk elect to opt out, when presented with a default opt in selection.

Past action also indicates future intent.  Look at how Facebook addressed public profiles - it shows they are going to be aggressive in their data usage tactics.  Beacon is just another step (and certainly not their last) in their advertising journey.

MySpace is not much better, just a few chapter behind - hyper-targeting on profile info is just a first step by them.

It’s not like Google is immune from similar criticism.  It started with their archiving of web search history, to their terms of service for Gmail, and will extend to their own plans for targeting in the display ad and mobile space.

I just don’t see any thoughtful answer arising from the monetization players.

2. The browser presents a tool that can implement a near-100% privacy compliance scheme (you still have the issues of multiple PCs and mobile to wrestle with here as well, I’ll acknowledge).  I’d prefer some form of white-list scheme as part of the solution to eliminate the threat of new bad actors - if you haven’t passed the test of respecting my privacy policy, your cookie gets wacked (passing through Newark NJ on the train as I now type, hence the Sopranos term

3. You have a solid means for getting the vast majority of consumers easy access to the control mechanism.  This means the solution can’t be buried in detailed options rarely used - it should be part of the install/upgrade dialog.

4.  You have a possible practical middle ground for consumers and publishers.  The solution might even include an option to share an anonymous ”mini-profile” I am willing to expose (e.g., age/sex/location).

5. It’s a solution that could be developed and broadly deployed quickly (e.g., 6-9 months).

I think this (browser-based control) should be on a short-list of options to consider as we go forward.  The biggest challenge for me (and a reality check)?  The fact that the browser manufacturers themselves are conflicted in coming up with the best answer.  IE’s owner, Microsoft, has made major investments in its ad business, and any approach that dilutes their efforts will get major pushback.

I even worry about Firefox - the income that the Google relationship brings into Mozilla Foundation is addictive - but hopefully the community will rule here and perhaps make privacy an “A list” initiative.  Firefox is the shipping vehicle that I hold out the most hope for - if they do this, and it further helps their install momentum, it can get Microsoft to the table.

I do think there is a practical answer that works for consumers and businesses - I just don’t think I need to trade this much privacy away so quickly.  I wait with baited breath to here the first real pro forma answer to emerge.  It is way too critical a topic for us to let age much more than it already has…

We have seen a glimpse of the future of productivity apps this week, ranging from:

• Adobe’s smart acquisition of Virtual Ubiquity, authors of the RIA word processor, Buzzword, to

• Zoho’s release of a personal database tool, Zoho DB, blurring the lines between spreadsheets and databases even further, to

• Microsoft’s first moves to position its desktop tools as a service, instead of a product, with the release of its “storage in the cloud” model for documents, Microsoft Office Live Workspace, to

• Google’s external positioning for the enterprise mail business with the incorporation of Postini into the overall Google Apps bundle.

If you add these recent moves to the earlier announcements by IBM to join the Open Office cause (a lower impact move on the landscape), continued evolution of additional web-based and RIA productivity tools by smaller players (Empressr et al), it makes the case that what we once willingly paid $300+ for is now quite rapidly becoming the new analog to the email battlefront of the late 1990’s, where consumers benefited by efforts of Yahoo, Hotmail, and others: a disruptive free value proposition to earn/retain your attention/PVs.

The idea of productivity tools as features versus businesses has real impact only on one player of scale: Microsoft. As such, there has been much written about Microsoft’s upcoming demise. To me, the death of Microsoft is greatly exaggerated, but certainly, not all is well in the kingdom of Redmond. It’s worth more analysis to understand the full state of affairs.

At the highest level, Microsoft’s three profit franchises are the OS (the client division), the desktop tool suite (the business division), and the enterprise offerings (the server and tools division). The rest of the businesses are a portfolio of strategic investments (some quite massive, but none profitable), imho.

If you look at each of these three major earners individually, you see different threat horizons:

On the OS front, Windows has become less of a consumer visible and valued product, and much more of a utilitarian service. The stark contrast between the $500+MM Vista marketing launch, where you saw the total void of any consumer-supported momentum once the big initial marketing push ended, versus the Halo 3 launch, where you could feel the excitement of gamers as the release date approached, signaled the end of an era, in terms of OS-led and OS-dependent innovation. Is there a tremendous cash cow in the Windows franchise? Yes, but in some sense, it is due in large part to the extended ecosystem of hardware manufacturers that Windows fostered in its heyday. Disturbing early warning signs of the transformation include the share shift in domestic laptop sales between Apple and the Windows-powered competitors. If you look at the next five years, with the introduction of things like Linux-based Ultra-portable internet devices (led by Nokia and Asus, but soon to be joined by others - Mozilla, ARM and Samsung, to name a few), and more day to day use of web-based and RIA applications becoming the norm, consumers will operate at further levels of abstraction from the operating system than ever before, and as such, care less and less about it. Overall health of the business for Microsoft: Fair - it will continue to put lots of food on the table, and help fund their loss-leader efforts in gaming, IPTV, and mobile, but it will start feeling much more material pricing compression from OEMs in the 4-6 year event horizon.

The desktop tool suite is another strong earner for Microsoft, and we’ve trained multiple professional generations to operate in the Word/Excel/Powerpoint universe we know and love. The tools have evolved to be by far the best-in-class offerings out there. The challenge for Microsoft is the diminishing impact of new feature/functionality development. One of the issues Microsoft has historically had was balancing feature development (to continue to justify aggressive upgrade cycles in its corporate client base) with the fact that they had long since gone past the base needs of the average consumer (I think the soundbite at one point was the fact that the vast majority of folk used only 7% of the feature set of Office, and efforts like the beloved Clippy and others to expose more functionality didn’t move a dial here). Maybe the new ribbon and its contextual functionality it exposes in Office has had an impact, but if the documents I receive daily are a good proxy for functionality utilized, it sure doesn’t feel like it. This Office toolset is clearly under attack by Google, and having Adobe cast their hat in the ring has to also be disturbing, given their own reach (97+% of global PCs). I am bullish on the ability of new entrants to have a real impact, especially in the word processor and spreadsheet segments. They aren’t bringing two decades of baggage to the table, and are incorporating collaboration tools from the beginning. Overall health of the business for Microsoft: Weakening - unlike the OS, which has more legs to it, I think you’ll start seeing the pricing compression for Office begin in the 18-24 month event horizon - it’s becoming a fungible service. I know that in my old CTO roles, I would be using Google apps as a stalking horse in my next Microsoft renegotiation.

The enterprise product segment is a nice success story for Microsoft. Its growth has allowed Microsoft to add a third material profit piston to the MSFT earnings engine, and tools like Exchange have become de facto business standards. The development tools and runtime environments are good, and sometimes great. I know first-hand how productive .NET development shops can be, and I like how MSFT has managed to take its solution sets up to enterprise scale over the last seven years. If I look to threats here, they come from two directions. The first is the continued push by businesses to use the open source LAMP stack. I don’t see massive share shift between the Linux and Microsoft camps anytime soon. I think this will be a long, drawn out battle, with Microsoft continuing to be a major player. Selected products (most notably Exchange) will, however, feel more heat in the 3-5 year event horizon, through efforts by both Google and Yahoo (with its Zimbra acquisition) to get access to the prosumer through aggressively priced enterprise mail offerings. Overall health of the business for Microsoft: Good - The enterprise mail market is a tough one to penetrate, and the love/muscle memory for Outlook and Exchange are very substantial. The other products will survive and thrive.

Let’s not kid ourselves. The company did post $50B in revenue and $14B in earnings in 2007 - they aren’t going anywhere soon. Microsoft’s free cash flow is so substantial, there is always the opportunity for them to make a disruptive acquisition or offer a disruptively priced offering, something that can never be under-estimated.

Microsoft seems incredibly focused on the consumer sector right now.  Are there opportunities for them here?  Yes.  When I think about where they could take TellMe as a hybrid voice/data portal in mobile, and how they could use their multiple consumer touchpoints for great behavioral targeting, I see multiple opportunities for material growth in the consumer segment by them. I just think that they have the problem of legacy consumer product successes still driving the vast majority of earnings (one that AOL faced for years, and took too long to navigate away from), and no matter what you say, it continues to shape their decision processes. They also have an enemy (Google) who has several of their key consumer-centric earners (desktop productivity tools and email) in their gunsights, and can and will be disruptive in their pricing strategy, which certainly is one reason they are so focused on acquisitions here.

I just see conflicting moves on the consumer front that seem at odds with its perceived importance.  When I see somewhat lackluster things like the launch of Live SkyDrive as a 500MB free offering (a tenth of competing free offerings), I worry - moves like that will never turn a dial and change the current consumer market dynamics. We are at a moment of truth, in terms of momentum. It’s time for change.  I think some real soul seaching is needed.  Chasing Google and obsessing so much on advertising (symptom of obsession: the premium paid for aQuantive) and the consumer segment seems to me to be playing someone else’s game.   You’ll never win a game where someone with that broad of a distribution channel can afford to attack so many of your historical consumer offerings with ad-supported alternatives - it will all be about fighting a rear guard action to maintain your share and margin structure for as long as you can.  Use your financial might to fight another fight.

For me, it’s about playing to your strengths.  Microsoft has some great and unique assets in its salesforce and its enterprise penetration - focus on continued leverage of them. Microsoft should consider making some material acquisitions in the enterprise space that can generate real earnings (e.g., acquiring SAP), instead of A) the current excessive focus on the search and ad space, and B) dividending so much cash back to shareholders (something that didn’t really achieve a material impact anyway). It’s time to add another piston in the MSFT engine - let’s make a bolder enterprise play!

This past week, I had the pleasure to attend the Techcrunch40 event.  The opportunity to see 140 companies in a two day period was both great and, at times, overwhelming.  For every great thinng I saw, I also paid the tax of 2-3 less-than-stellar ideas, but some of the stuff was really well done (like the Korean-based Musicshake).  During the event, a really exciting thing happened: the news of Yahoo’s acquisition of Zimbra broke.  I thought that was a really creative move by Yahoo.  I am a big fan of the platform.  It is nimble and extensible, and has some nice content parsing and widget constructs built into it.  If you want to get a sense of the flexibility, check out the work done by two engineers to do a GMail knockoff, or the work done in a few days to do a nice iPhone implementation.

While conjecture has it that this acquisition was done to create a compelling solution for the SMB market and the university environment (certainly logical), I hope they give it broader consideration as a platform to allow testing of more radical email experiences to the core consumer base they have (the ability to do quick A/B testing for mail would be unique among the majors).

Rarely does a company have a chance for a greenfield solution for something as important as email.  All of us have solutions that we have evolved over the years, which brings with it some amount of legacy baggage.  This acquisition (which will benefit hugely on your knowledge of making things cost-effectively scale) has a chance to really move a dial for you at a critical moment.  Here’s hoping we see you take it to a whole new (and open) level.

Now that the Zimbra acquisition is done, the next expected shoe to drop is that Yahoo will now need to acquire a web word processor and spreadsheet solution (with Zoho being the leading candidate) to expand their solution set to go head to head with Google Apps.  To me, the move to expand the solution set is almost mandatory, given Yahoo’s email leadership position, but the acquisition of Zoho would miss consideration of an opportunity to take web-based productivity tools to a whole new level.

A little background:  The whole office-apps-on-demand space began 6 years ago with ThinkFree, a JAVA-based toolset that was designed (with some foresight) to deliver a RIA (rich internet application) experience both online and offline.  At the time, no one else was pushing the envelop, in terms of desktop JAVA-based consumer offering.  To me, it was a really bold science experiment.  It delivered a message that perhaps the mass market didn’t need as robust of a desktop tool as where Word and Excel has gotten to, and that a ground-up approach to focus on the 10% of the functionality most folk used might be the basis for a compelling offering.

Unfortunately, the whole install process (both time-to-first-use and the actual install dialog itself) was not a great one for the early adopters, the use of desktop JAVA became a bad horse to ride technically (in terms of being at odds with the industry, who jumped on the AJAX and Flash bandwagons), and the solution itself languished.

Over the next few years, you saw some new AJAX-based word processing solutions emerge.  Now the market has a number of interesting offering, ranging from Zoho, to Writeboard, to Glide Write, to the leader, in terms of market awareness, Google and its Writely-based solution.

We’ve also seen the solution set expand to include spreadsheet tools (decent) and presentation tools (uniformly weak).  Most of these web-based solutions have some common attributes:

Import from and save to Microsoft Office formats

Lightweight footprints (fast startup)

Simple functionality exposed in a pre-Office 2007-ribbon toolbar layout

Basic formatting controls (bullets, numbering, indenting, bolding/italics, etc.) and formula support

Minimal offline operations support (e.g., Zoho’s use of Gears to allow viewing, but not editing, of documents)

Limited font options.

Are they useful?  You bet!  For basic word processing and spreadsheet needs, I find they hit the mark 60+% of the time.  The challenge is that not one of them really breaks out of the pack, and the presentation tools are not even close to being useful on a day-to-day basis.

Given the state of the market, and a hypothesis that Yahoo is interested in having a competitive offering here, what makes the most sense?

One path is the acquisition of Zoho, which would indeed give them a Google Apps competitor in short order.  That certainly is where the smart money is betting, but does this represent a lost opportunity?  To me, the answer is yes.

I think that a new generation of consumer web-based productivity tools are starting to emerge from the great work being done in Flash 9 and AIR (FYI, Kevin Lynch is one of my heroes).  I offer two great early stage companies as examples:

The first is Buzzword, a new word processing solution from Virtual Ubiquity.  Using the product, I found myself really believing that it could be the basis for a robust online and offline word processor I could use day to day.  The team has done a really nice job of surfacing detailed formatting ability, table manipulation and other features (floating photo support, etc.) in a very intuitive, not all Microsoft-derivative manner.  The solution is both similar and different from my Office experience, and I give them credit for taking risks with the user interface - it rocks for a beta product!

Here are a few screenshots (none of which do justice to some of the nice mouseover events they incorporate):

The second tool is Empressr, a presentation tool from Fusebox.  The most recent beta they showed me at Techcrunch gets the fact that, in our rich-media focused world, our presentation tools need to embrace easy access and incorporation of video, animation, etc., and not ignore it like the AJAX solutions seem to do (due to its complexity).  Unlike last week’s release by Google of Presently, which seemed to have less functionality that their word processor, this was a tool that I could see myself using to develop really visually compelling presentations.

But here is the rub, if you are Yahoo:  Do you go with the flow, and adopt a solution suite that makes due with the best that AJAX can deliver today, or do you take a risk and leap into the RIA experience head-first with an Adobe technology-based solution?  (If you did want to go down another technology path, you might make the case to build the productivity tools in Microsoft’s Silverlight, but given the fact you would need to wait till release 1.1 in 2008 to get offline support, and I don’t see emerging office tools there, I am not sure you could spare the time.)   I think this is a key decision point for Yahoo, as it looks for opportunities for differentiation.

Maybe the world doesn’t need to be so binary (I find binary discussion of options to be more provocative, so I beg forgiveness).  I do think we all need to form our own opinions here on online/offline RIAs and their potential acceptance/adoption by a broad base of consumers.  I would just suggest that you get hands-on access to both Buzzword and Empressr (the newest beta) as you each shape your own worldview on how quickly the landscape of RIA is evolving.  It’s well worth the time - this is only one battlefront for RIAs - you’ll see the same battle emerge in the CRM space, the media player space, and other sectors over the next 12 months.

Net net, the promise of free, robust on-demand offline-capable office tools is already becoming a reality, probable sooner than many of the principals thought.  Each player needs to craft its own gameplan here sooner vs. later.  Given all the moves we have seen and will see in the next several months, I am not sure how Microsoft’s Office-on-Demand offering can find a comfortable, profitable place in this changing landscape, but, as consumers, we all stand to benefit…

We are in the midst of an important moment of truth - email as we know it is under attack, and the major firms are not moving fast enough to prevent it from becoming more of a niche form of communications in the next 5 years. The email experience of today is being threatened on multiple fronts by a variety of new forms of communication:

Twitter/short-form blogging

Asynchronous messaging in social networks (e.g., the Facebook Wall)

IM experiences now supporting queuing of messages to offline buddies

Away message/Status message utilization in instant messaging

SMS adoption (late to come to the US, but now pervasive)

Wikis and other new collaboration platforms

Comments (MySpace comments, Blog comments, et al)

Casual communication forms (the nudge, the wink)

New sharing experiences (Flickr, et al)

Email aggregators (e.g., I use Gmail to aggregate all of my AOL, Yahoo, and POP3 accounts. These other companies still bear all the cost of hosting my email accounts, but now get none of the pageviews.)

Email and IM integration into social networks (the new entrant risk).

People have more compelling, more contextual, more effective, and more convenient options to share and interact than ever before, and incumbent forms of communications will be the losers here.

The risk is as follows: the major internet incumbents rely tremendously on having a robust base of consumer email account relationships to feed their ad/search businesses. Having that email inbox relationship can yield 2x the monthly page views, when compared with non-email-account consumers. In a world where just protecting your pageview base has become a challenge, some firms view email a bit like they do search: “We can’t risk material changes to the email experience - the downside could be huge!” To me, that kind of thinking is a huge mistake. The email franchises of the majors have been already under attack for several years, and major demographic segments (segments very attractive to advertisers) view it as an increasing arcane/niche form of communication.

A re-think of the email experience is long overdue. Think about how dated the email metaphor is. I remember (in the coal-fired world of my past), using MSG on the ARPANET as a kid almost three decades ago, and while the look and feel of email certainly has advanced since then, the limited metadata we had available back then to dream up new capabilities is, with little exception (tags and folders) the same as what we are operating with today (Date, time, sender, attachment data, routing data, etc.). In addition, the UI of email has effectively settled into the Outlook-derivative 3 pane design.

Is there innovation? Yes. I do see some interesting nuances between each experience out there (e.g., Yahoo’s seamless melding of mail and IM in their new beta, Google’s still-unique threads and tags, etc.), but to me, it is all incrementalism. No one will break out of the pack without bolder gameplans.

Let’s look at Yahoo and their own journey of change, which I give them lots of credit for accelerating over the last 18 months. Earlier this year, they launched their Mail APIs, and encouraged people to develop applications that took advantage of them. I think that was a great step, but there are a number of challenges to the implementation:

New applications are only available to the premium mail users, which means, for me as a developer, I am fishing in a smaller pond

The core UI of the mail experience is basically untouched and non-extensible

The amount of data exposed is certainly enhanced, but nothing major was done to add value derived from the contents of the message itself

It seems to be focused only on asynchronous communication - the new melded IM capabilities exposed in the beta are not yet reflected/accessible in their API.

Good, but not nearly enough. Facebook has shown the world the exponential value of an innovation program done right (e.g., supporting a more flexible UI construct, implementing some great API thinking (FQL, etc.), offering developers access to their entire customer base, etc.). But, as successful as their developer strategy has been, their AOL-analogous walled garden approach created its own imperfect consumer experiences (Two nagging examples: 1. Surfacing contact data as images, instead of text (a competitive move to prevent web scraping) prevents any cut and paste operation. 2. Their new-mail notification alerts always forcing me back into the very limited native Facebook email experience). We need to learn and mimic winning elements of the Facebook playbook, but go well beyond it as we craft our mail gameplans. As always, in situations like this, you want to remember to offer the consumer choice - there are lots of folk quite comfortable in their three pane world. That said, change here is long overdue.

Let’s take the best of email innovation (e.g., Gmail’s free aggregation of accounts, Yahoo’s melding of email and instant messaging, Plaxo 3.0’s “softswitch” for calendar and contact data), combine it with the relevant elements of Facebook’s thinking, figure out the right interop with the emerging forms of communication I highlighted above, and create a step function shift in email.

Are there real innovators in the email space to watch? Yes. One of them is Xoopit, which the world will start to know more about soon (full disclosure:  I am an advisor).

30+ years later, the latent potential of email and the inbox is still huge. I still LOVE the metaphor of the inbox - it was the first real attention-based information architecture, in my opinion. It’s just grown dated in its implementation. Read Lifehacker and see all the interesting things people have done to use Gmail as a broader organization/life management tool, and you get a glimpse of its potential. The challenge will be who, of the majors, is willing to step up and lead consumers to a new and better place: Inbox 2.0.

So I get done my post on municipal WiFi, and I start thinking more about the breaking news that Apple may enter the spectrum auction for 700 Mhz, and I think: Here is PR mastery at work! Last week’s disastrous handling of the iPhone price cut (and the firestorm from all those passionate Apple fans) was something a firm like Apple had to respond to (well beyond the $100 store credit).

What better move than to leak work of Apple’s potential participation in the upcoming 700 Mhz auction? Think of all of the Day 2 stories:

“WiMax iPhone on the horizon?”

“Apple and Google in talks on joint spectrum bid”

“Apple and the open development model: Carrier 2.0?”

Next steps:

1. Look like you are ramping up efforts around DC (the FCC, et al)
2. Leave business cards on the floor at Google’s HQ, and pose for cameraphone photos in Mountainview (ducking into the car)
3. Issue the standard non-committal responses to the press (but keep slipping in how you sold 1 million iPhones a month earlier than forecast, and how consumers have spoken that they want a next gen experience).

This is a wonderful story that can have legs for the rest of the week - run with it, baby! All it will do is make you look like an innovator and a disrupter - brand attributes anyone would kill for. Do I really think Apple wants to be a legitimate contender?  No way, but it’s stuff like this that makes our industry such a blast!

It is sad to see the coincidental announcements and raft of articles over the last month regarding the fate of city WiFi systems that were to be deployed in cities both big (San Francisco, Philadelphia) and small. The storied history of municipal WiFi systems goes back several years, and if there is one takeaway, it is this: this is a dead-end approach to our broadband issues in the US, and deserves a lot less public focus than it has garnered.

Let’s start with some background. The first (and most successful) WiFi-based systems in the US were the numerous WiFi networks built to serve rural and resort communities, who were struggling to find an alternative to either the poor man’s internet (dial-up), or the high priced satellite-based internet connections, who offered “midband” download links, complemented by a dial-up backhaul. Now, there was lots of hard work to bring these satellite solutions to market (we had one at GE Americom that we later sold to Gilat), but the customer premise equipment (CPE) costs were close to a thousand dollars, and the ongoing charges of $80-$120/month made it a really expensive solution to broadband-enable underserved markets. As such, it has remained a niche solution.

Stepping into this void were a number of local entrepreneurs using a combination of homebrewed and commercial gear to establish their own wireless networks, using the unlicensed spectrum that WiFi employs (2.4Ghz), and antenna technology that allowed long distance point-to-point communications. This is a critical design element to highlight: distance was achieved through focused signals, which was possible since the endpoints were well known (e.g., Farmer Smith’s antenna). It was an incredible grass roots success story, with 5,000+ WISPs (Wireless Internet Service Providers) created in a four year timeframe.

Entrepreneurs looked to see if the same leverage of the free 2.4GHz spectrum could be applied in more densely populated suburban and metropolitan locations. A number of companies sprang up. These included hardware companies like Tropos, Strix Systems, and BelAir Networks, as well as larger-scale WISPs like Clearwire Communications (started by Craig McCaw’s team).

Most of the solutions deployed used a technology called mesh networking, which allows for smart routing across a number of nodes to the best “backhaul” node (which was often connected to a high-speed terrestrial link to the WISP’s central node). This mesh technology was attractive on a number of levels. It allowed:

• Lower costs means for aggregating the traffic from different houses
• Simpler field installation
• Simpler topological design (remember, radio is a black art in some ways)
• Most importantly, ability to use “free” unlicensed spectrum for large portions of the network.

We looked at the technology closely at AOL. Could this allow us to offer cost-competitive broadband service to the US metropolitan markets? We installed test beds from two manufacturers to give us a first-hand view of the promise versus reality of the technology. We found that the performance of the connected homes was really not the right basis for a competitive broadband offering, both in terms of overall throughput (best classified as “midband”) as well as the day-to-day variance of throughput (no-one would want a connection where their performance varied 50+% from best to worst day).

So what are the real killers of municipal WiFi efforts in the US? There are 5 big factors that make these efforts a non-starter:

Rain, Snow, and Leaves

The unlicensed spectrum was a great catalyst for innovation (props to the FCC on that one), but it is innovation best applied to a select class of problems (in-premise communication and point-to-point non-urban communications). The 2.4Ghz spectrum is more prone to signal issues outdoors, where its biggest enemies are foliage, rain, and snow. This may be fine if you live in Vegas, but for all of the other big markets, it creates a service that isn’t competitive to cable or DSL (or even dial-up), from a quality of service perspective.

FYI, one reason the upcoming 700Mhz spectrum auction is so exciting is that because it is lower frequency spectrum, it is a great outdoor-friendly data solution. Best of luck to Google (and maybe Apple ;)) in the upcoming auction - I love to see non-traditional entrants!

Who owns the telephone and light poles?

In planning these efforts, you run into complexity upon complexity. One thing we ran into in pursuing one of these muni WiFi efforts was the issue (and pricetag) of getting access to streetlights and telephone poles to mount and power our mesh transceivers. This was just symptomatic of a larger issue. Everywhere we turned, someone had their hand out, making the costs creep up month after month, and increasing the logistical complexity of a fast rollout.

The cost and hassle of dealing with CPE costs and installation

The in-house equipment requirement included (at a minimum) a more sensitive antenna to be installed in the best location in a house/apartment to “talk” to the nearest mesh node, and, in addition, most vendor solutions also had their own higher-powered access points they required. Now you had the recouping of a material CPE expense to work into the overall economics, as well as the actual installation expense. It was also a real crapshoot in estimating how many actual truckrolls you would require per 100 houses in a large urban deployment, given the issue of getting the most out of the low power transmitters the FCC allowed in the 2.4 Ghz spectrum.

Incumbent pushback

In each major city, the incumbent phone company (ILEC) and cable company (MSO) are usually material local employers. In addition, each spend ungodly sums as part of their annual lobbying efforts. Any new entrant looking to establish an overlay network in their markets using “free” spectrum got these giants’ hackles up in a major way, and the back and forth negotiations with the involved city involved, at a minimum, lots of time, and sometimes, onerous terms and conditions imposed on the winning WISP.

Too little bandwidth, too late to matter

Ultimately, the use of these mesh WiFi solutions was the wrong tool for the job. A midband solution isn’t that compelling an offering, in our YouTube-obsessed world. Couple that with coverage and quality of service issues, and it just isn’t the right thing for cities to focus on as a tool to bridge the digital divide.

With unlimited data plans on 3G networks approaching the $20-30 range, and promotional DSL and cable data plans sub-$20, whatever cost advantage these networks envision just isn’t a reality.

Do we have a need to form a more competitive broadband strategy for the US? Yes, but it seems like there are much better paths (WiMax, etc.) for us to focus upon. It is time for the major cities to tone down the PR on these dead-end solutions, and work to come up with a new playbook that can bring broadband to the widest segment of their constituency at the right price.

Love the IT Crowd! 

With all the dialog about the GPhone effort, starting with a “launching in two weeks” post 3 days ago until now, I though it made sense to see what facts existed to-date (”pretty sparse” would be an understatement), and what people were forecasting about platform, positioning and timing.  

I think the article in the Wall Street Journal was, in this world of uncertainty, the most reasonable conjecture about Google’s overall approach and timing regarding the Gphone (and Google’s mobile aspirations).  The article highlights were as follows:

• Google is focused on developing the software stack for the mobile phone, using Linux as its foundation
• HTC working on multiple form factors for consideration
• Launch timing is a potential 1H08 event
• T-Mobile is potentially the lead US carrier partner, with a desire by Google to also partner with Sprint’s 4G Xohm effort
• The strategic rationale is to extend their PC franchise leadership into the mobile search and advertising arenas
• The efforts so far are viewed as lacking the sizzle of the iPhone.

No real surprises here.  Google is smart enough to recognize that working on a reference design and getting multiple manufacturers behind the effort is the only way for a company with no consumer hardware gene-code to succeed in this brutal market (they are avoiding the fatal flaw of Amp’d here).

There is no way for Google to match up head to head with Apple’s iPhone - that’s just not a winning playbook.  I wouldn’t attempt to compete based on the device’s cachet/PMP capabilities.  Think of all of the roadkill who tried that and failed (Creative, Microsoft, et al).

So where are the veins to mine to position the GPhone as a game-changer?  Here are my thoughts on building a great value proposition:

Bring phone-based value-added GPS to the masses.  Google’s first efforts to GPS-enable Google Maps are nice, but the real opportunity is to be the first person to bring a Telenav-like experience to the mass market as part of my data “entitlement”.  I have been using the Telenav solution on my Blackberry 8800 for about 2 months, and I ditched my Garmin and use it exclusively now.  If you want a transformative platform to drive new thinking in local search and advertising, is there a better starting point?  I don’t think so…

Give me a browser that works well in both rich bandwidth and limited bandwidth environments - Opera is a great choice here, and their proxy approach will give you more intelligence/insight.  I love the iPhone browser, especially when I am wifi-connected, but I want a solid performance in lower bandwidth settings, and Opera has the thought leadership here.

Learn from 7+ years of Blackberry history and fix your rich email client.  Biggest thing that bug me:  You have way too  much dependency on the concept of a session.  I can’t stand getting the re-authentication requirement when I go in and out of coverage.  Blackberry championed the concept of spoofing the concept of a persistent session, not requiring it - steal shamelessly here and fix you bits.  Other things to fix (speaking from my context as a user of your Blackberry client):  enable click-to-call when you see a phone number in my email, support blackberry cut and paste functions, and give me a credible mobile calendar interface (it’s way too buggy).

Make the wifi handoff experience as seamless as the iPhone - maybe even give me full session mobility when it makes sense (especially in a voice-related session).  I loved the pico-POP idea T-Mobile is championing (turning my wifi access point into a pico-POP in their network, if I have a dual mode handset).  Help them make that a broadly implemented reality.

Statement of the obvious: Widgetize the phone experience - have both you and, most importantly, your carrier partner encourage supported platform extensions - T-mobile is a great potential partner, given their current US market share.  Apple may drag AT&T across the finish line on this topic eventually (the latest news about AT&T’s crackdown on iPhone unlocking isn’t encouraging), but you still can be the first mover.

Make my mobile search experience yield a “great first choice” result - the 10 blue link model fails miserably, translated to mobile.  Yahoo’s mobile search is beating you here today.

Deliver a great IM experience that integrates AIM (at a minimum) - leverage the AOL interop deal and deliver on the AIM community interface - Gtalk alone will fail to impress.

Proactively support VoIP - if it is a truly global product, give me Skype support Day 1.

Learn from the mistakes of others in your mobile advertising plans - a few targeted messages a day can get you 10x click-through - don’t use the current web ad models as your frame of reference.  Mobile advertising, done well, can deliver real consumer value - I’ve see it done.

Give me better sharing between my mobile and PC experiences (Yahoo remembers mapping locations I use on my PC when I am mobile - you don’t). 

Most importantly, sex sells - don’t ship a pedestrian form factor - the iPhone has set the bar pretty high, and people’s expectations of you, even managed, will still be pretty high.

Should be simple ;)  I can’t wait to see what comes out of Google’s effort over the next six months (Both the results of the 700 Mhz auction and the Gphone launch).  We need catalysts to drive change.  The iPhone is a great start, but at its current price point and with a carrier partner still undecided on the degree of openness to support, we need the power of the Google brand to drive the whole mobile ecosystem to a new level.

Having returned from vacation, and getting my game face on for a busy week, I spent time catching up on the major technology threads, and was wondering what I was going to write about this week. Then I ran into this video of a young Fred Rogers (of Mr. Roger’s Neighborhood fame), and it had a pretty profound impact on my thinking this Sunday evening.

When I am working with smaller companies, one thing I always stress is a belief in having “Google-esque” aspirations - having a bold vision of what you are trying to accomplish. Google’s “Organize the world’s information” is as perfect an example of a simple, bold vision to center an organization around as I have ever encountered.

In Google, you have 12,000+ employees trying to change the world. But how many times is someone going to have that same scale and talent level to attack a problem?

Take a look at the video below, and see another extreme. You see a young Fred Rogers helping make the case for federal funding for PBS in 1969 (they are pitching for an annual budget of $20MM dollars, with Nixon wanting to cut the funding in half). Listen to him, and you can’t help but be moved. He talks about his own funding ($6,000 annually) to produce his show, but the real story is his vision for what he is trying to accomplish, one child at a time. It is a simple message of hope and love, and is incredibly moving.

You CAN change the world, whether you have billions in assets, or $30 (Fred’s starting budget 15 years earlier). All it takes is passion. I think I am going to change my own vernacular going forwards: we all should have “Rogers-esque” aspirations.

The latest report covering the KKR buyout of First Data is disturbing at several levels.  It is a clear demonstration that the buyout model of the last 2-3 years is over – the debt markets have dried up for this sort of lower quality paper. Does this mean buyouts will disappear?  No - I just think you will see a return to the model championed by Silverlake and others in less buoyant times: Buy what you think are solid-fundamentals quality firms with growth potential (e.g., Seagate), then help get them the operational talent they need to take their game to a new level. We saw a number of marginal buyouts happen over the last two years (I am not trying to paint First Data with this brush) – that’s over for the foreseeable future. The major banks are, as mentioned in the WSJ article, caught in-flight with a commitment of their balance sheets to some of the major buy-out firms, with little or no chance of placing that paper without a SERIOUS haircut.

With the drying up of liquidity, the future for AOL is now made much more complex. There were lots of folk betting on a private equity consortium stepping in to take AOL of TWX’s books. That path now has little or no chance of succeeding in this environment.

What next then for AOL? I am not sure. Under the assumption that the aggregate AOL entity moves into a model of flat to low single digits growth, I am not sure TWX can afford to continue to have it roll up into the aggregate numbers. It makes TWX’s ability to position itself as a 10+% annual growth business a real challenge. If we assume that some structural move is in AOL’s future, what are left as options? Most of the prior musing about AOL has its future going down one of five paths:

1. Acquisition by Microsoft

2. Acquisition by Yahoo

3. Acquisition by Google

4. Standalone spinout as public entity

5. Sale to private equity player.

I think all of these options have way too much hair on them. Buying all of AOL brings a lot of financial baggage with it. To begin the dialog, let me give you my view on AOL and its composite parts. AOL is essentially composed of three major segments (this is not how things are necessarily organized, but is the best way to discuss its valuation):

AccessCo – this is the remnant primarily-dial-up access business. It is a great source of free cash, now that the marketing spend has been dialed back to practically zero, but as the last quarter showed, it is on a pretty fast decline (10% subscriber declines in the quarter), and should be modeled and valued appropriately. To me, on a discounted cash flow basis, maybe it is worth $3.5B-$4B (this is a rough justice estimate, given analyst views on sub profitability and an extrapolation of subscriber trends), assuming there is some tail of folk who will stay customers till the end (like what we saw with Compuserve).

PublishCo – these are all the properties that generate the viewership traffic for AOL to monetize. This is a collection of a lot of disparate assets, ranging from things like AIM and MapQuest to the AOL 9.0 user base. Most of PublishCo is best described as Web 1.0 in nature (no franchise model), with the exception of businesses like Userplane. Valuing PublishCo is difficult – The aggregate US pageviews and engagement metrics are pretty huge, but the trajectory is relatively flat, and even with an optimistic lens, it is most probably a low single digits growth business.

AdCo – these are the operations for monetizing the traffic of both PublishCo and third party inventory. I am putting the search operations in here as well. The centerpieces for AdCo are Advertising.com and AOL’s ad sales force. AdCo has been expanded over the last year through acquisitions like Lightningcast, Third Screen Media, Tacoda, and AdTech AG. Performance of elements of AdCo are pretty stunning. On last quarter’s earnings call, Dick Parsons mentioned sales on third party inventory (versus PublishCo’s) were up 32% year over year. This is driven in large part by the performance at Advertising.com. Valuing AdCo is probably the heart of matter in determining AOL’s future. If you focus on the display ad sales business, solving for a combination of sales within AOL’s own properties and sales on third party sites, you can craft a business of 20+% annual growth, with decent, if not exceptional margins. Adding the AOL search business into the mix gives you a lower growth top line story (the 16% year-over-year growth highlighted in last quarter’s financials), but dramatically improved margins, given the sweet economics of the deal with Google. The structural thinking here is the biggest leverage point in any AOL valuation dialog. It’s well worth the effort - if we use the Microsoft acquisition of aQuantive for $6B earlier this year as a comp, some permutation of AdCo (Advertising.com, the search business, a multiyear commitment by TWX to rep the inventory of PublishCo) could be valued at $10+B, assuming the parts hit the magic 20+% annual growth bogey.

So if these are the pieces and parts, what do you do as the parent?

Cowboy up and stick to the script of giving AOL runway to validate its strategy? I think we are rolling down the runway at 220 mph and have about 1000 feet left. Given the lukewarm feedback to the announcement of the $5B in additional stock buyback and the increase in dividend (the TWX stock closed today at 18.66), time is running out for management to remain masters of their own domain. The harsh words by Pali analyst Rich Greenfield are a shot across the bow – the buy side is losing patience. The only question is who is going to play the role of Carl Icahn this time around.

Sell the aggregate entity? I just don’t think that is something that will attract lots of attention. The three majors (Google, Microsoft and Yahoo) wouldn’t want the mass of no-growth components that the aggregate entity brings with it. How many acquisitions bring with them an immediate establishment of a sizable discontinued operations (AccessCo)? Maybe you could see a three party transaction, where the acquirer immediately lays off the declining cash cow to a private equity player…

Sell/spin AdCo? I think this is an attractive path. TWX retains AccessCo in its discontinued operations segment, and uses the free cash generated for more strategic purposes. AdCo is either sold to one of the majors (let’s add Murdoch and Diller to this list), or spun out to create a growth multiple currency to continue to roll up properties. AdCo is a really complementary acquisition by almost every major player out there (unlike what buying the assets of PublishCo would mean to a Yahoo or Microsoft). It also can survive and thrive in a world of disaggregation of traffic (i.e., it’s not a Web 1.0 bet on portals).

What about PublishCo? There are interesting properties (MapQuest, AIM, etc.) that are worth decent valuations. I just think dealing with PublishCo in the same time horizon as AdCo is a tough act. Perhaps Day 1, PublishCo might be combined with other web properties in the TWX family and given a longer event horizon to determine its course. The other option might be a separate aggregate sale to a player with greater web aspirations (e.g., Comcast). I struggle here on an elegant solution for this, but I think PublishCo’s valuation isn’t the big dial to turn in an AOL discussion – it just doesn’t have legs as part of a growth story. You do need the commitment from PublishCo for AdCo to run its inventory (and its search traffic) for 5 years to make the story all hold together, but I think that’s about the full extent you’d want the operational interop between AdCio and PublishCo.

I am a TWX stockholder, and the retreat to 18.66 pains me. I just don’t see an organic path to material success (i.e., 10+% annual growth) for AOL in its existing form, given current course and speed. In this world of inflated valuations and TWX’s commitments to stock buybacks consuming the available cash for acquisitions, too many deals will trade away that would help AdCo continue its forward momentum. With all the talk about arming AOL with its own currency over the last few years, it’s time to make it a reality – it just needs to take another form – AdCo currency.