Renting User Information: Hooked on Phonics and Amazon

Hooked on Phonics just agreed to forfeit $4,600 it earned from renting customer information that it had obtained under a Privacy Policy that did not allow it to rent customer information without giving existing customers a chance to opt out.

Interesting timing on this. I have been ordering books from Amazon for several years now under the name “Paul Amazon Allen.” I did this, of course, to track Amazon’s use of my customer information.

Yesterday, for the first time ever, I received a direct mail piece from a consumer electronics company addressed to “Paul Amazon Allen.” I haven’t read the Amazon privacy policy, and I’m guessing that they are covered and have the ability to rent my physical mailing address to whomever they want. With all the data about my past purchases, they can make a small fortune renting targeted mailing lists to non-competiting merchants. I’ll have to see if their latest SEC filings talk about mailing list rental income. This could be a very lucrative business for Amazon.

I like companies that find new revenue streams from existing assets. I was impressed when

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Eliminating Poverty Through Social Entrepreneurship

Kudos to Patrick Bryne, visionary founder of Overstock.com and Worldstock.com, for providing employment to more than 1,400 artisans and craftsmen in Afghanistan. According to the Afghanistan Ministry of Commerce, Worldstock is the largest single employer in the entire nation of Afghanistan, population 28 million.

This is social entrepreneurship at its best.

God bless you Patrick. And may He help you extend your vision into other developing nations (including Iraq) so that poverty can be reduced worldwide and that God’s children in every nation can be lifted up.

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Interchange Files for IPO

Interchange, a small search engine marketing company similar to FindWhat.com and Enhance Interactive (formerly Ah-ha.com), has filed to go public, on 2003 sales of $8.7 million and profits of $60,000. It feels like 1999.

Years Ended Three Months Ended
December 31, March 31,


2002 2003 2003 2004




(unaudited)
(in thousands)
Statement of Operations Data:
Revenue
$ 3,588 $ 8,784 $ 1,687 $ 3,462




Operating expenses:
Search serving
1,776 3,816 800 1,744
Sales and marketing
1,501 1,978 377 712
General and administrative
1,383 1,466 346 473
Research and development
987 708 193 199
Non-cash equity based expense
28 103 69 8




Total operating expenses
5,675 8,071 1,785 3,136




Operating income (loss)
(2,087 ) 713 (98 ) 326
Interest and other income (expense)
(403 ) (636 ) (88 ) (300 )




Income (loss) before income taxes
(2,490 ) 77 (186 ) 26
Provision for income taxes
1 17

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It’s Easy to Go Public!

Remember the DotComGuy from Texas who changed his name and lived inside his house entirely off purchases he made online for an entire year to prove to the world that eCommerce was for real?

Well, now meet SearchGuy, or actually SearchGuy.com.

SearchGuy.com is not the name of a person, but it is a company that recently went public through a reverse merger with a public shell. The company is located in Mountain View, CA. The CEO is Leonard Ratchinsky.

Leonard is fond of writing press releases. I think he writes them himself. You can read his latest press releases at Yahoo! Finance.

Here’s a guy who founded his company in 2001 and takes it public in May 2004. His “Letter to Shareholders Regarding IPO” claims that the company has low overhead and no debt. I can’t find any mention of how many employees SearchGuy.com has, or how much revenue, if any. The company timeline indicates that in 2004 the company “took on a full-time development team” (I’m guessing that means at least 2 people).

From the historic chart at Yahoo you can see that SearchGuy.com stock has been a roller coaster. On June 9th the stock was priced at $0.75 per share. On June 10th it fell to $0.02 per share. And on July 2nd, it was back up at $0.70 per share.

Yahoo Finance doesn’t show me the average daily share volume and total outstanding shares so I can’t calculate the market cap of SearchGuy.com. I also don’t know what percentage of the company Leonard owns.

Leonard is now the CEO of a publicly traded search engine company. If people don’t look too closely into this company and blindly take the advice of message board posts like this one that call SearchGuy.com a great search engine company and a good investment, then SearchGuy.com might have a very bright future.

Or, if Leonard really knows how to execute on a business model that has been good to so many large and small search engine companies before him, he could build a real company here.

While I wouldn’t invest in this kind of a startup until I can see revenue growth and profits, I actually really like the maverick approach Leonard is trying. It’s the same approach Iomega founder David Bailey used to take Ceristar public in 2003. I like the reasons David gave for doing it this way, even though it doesn’t seem to have panned out based on Ceristar’s latest stock chart.

Leonard is pursuing the American Dream. He is running a publicly traded search engine company in the heart of Silicon Valley. Rather than seeking angel funding or venture capital (or maybe he sought it but couldn’t get it) he goes public with a very immature company through a reverse merger with a public shell, and now he’s in business. In the last few days, according to Alexa, his site has actually gotten a good deal of traffic.

A recent Deseret News article discussed the fact that many companies that go public through reverse mergers fail to report and therefore get in trouble with the SEC, and that the SEC is trying to make it more difficult through regulations for small private companies to go public in this fashion.

I’m going to keep my eye on SearchGuy.com. If it can work for Leonard, perhaps it can work for other entrepreneurs as well, as long as the SEC doesn’t make it too hard to pull this off.

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iCount

I’m working with a team on an experimental political web site called iCount.com. We’ve done a soft launch and are getting some traffic from Google. There are big plans for this site (inspired by the Dean campaign, Meetup.com, MoveOn.org, and other cool and effective political sites) and motivated by a love for the greatest democratic nation in the history of the world, and a hope to keep it that way. (Our voter turnout is horrendous–13% in our recent Utah Republican primary, and politics has become a top-down raise-money-and-spend-it-on-tv-ads game that is sickening to watch.) Many Americans just don’t care and don’t think they can make a difference. Our long term goal is to help individuals organize themselves effectively and make a difference on issues that matter most to them.

View my political profile at iCount.com where ONE makes a difference

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Best Way to Create a Billion Dollar Company

I had lunch yesterday with a close friend, Jim Ericson, who was my first marketing employee at Ancestry.com, back in 1998, just after he got his MBA from BYU. Everything Jim does works, and he has had success wherever he goes. We’re hoping to work together again very soon.

For several years he and I built the Ancestry.com marketing machine together. We watched the industry and tried everything that everyone else was trying. We did keyword buys (back in the Infoseek/Yahoo/Altavista days), link exchanges, banner ads, email advertising, pay-per-click (in the Goto.com era), search engine optimization, and most importantly, we launched Ancestry.com’s affiliate program together. Our small team was responsible for external traffic, repeat visitors (fueled by email notifications to registered users), and conversion rate. Our engineers wrote web tracking systems that measured everything, so that we could improve and optimize all our campaigns. The whole experience was incredible, to watch the company go from 20,000 subscribers when Jim joined to 50k to 100k to 200k, and so forth. I’m guessing that sometime in the next year or two the company will pass the million unique subscriber mark.

We talked yesterday about how much we both love the subscription business model. Once you get a customer signed up, and the product is good enough to keep them happy, you generate revenue for months or years. So your marketing pays off long-term.

I have concluded that the best and fastest way to build another billion dollar company (assuming, of course, that MyFamily.com gets a billion dollar market cap someday) is to create a subscription product that one million people will eventually pay $10-20 per month to use. A million customers paying $15 per month would generate $180 million in revenue. If the company had a profit margin of 25% and a P/E ratio of 20, the company’s market cap would be $900 million.

Netflix just passed 2 million subscribers and is worth $1.86 billion.

XM Satellite Radio reached 1 million subscribers last October, less than two years after its launch. They are projecting 2.8 million by the end of this year. Market cap: $5.2 billion.

RealNetworks reached 1 million subscribers to its content service by April 2003. Market cap: $1.1 billion.

Classmates.com had 1.6 million subscribers two years ago. (It’s privately held).

American Greetings, I believe, got a million subscribers (to its $11.95 per year greeting cards subscription) in less than one year.

There are many more examples of successful subscription services. The question is, is it possible to create new ones that have the potential to generate a million subscribers, or have all the good ideas already been taken?

I’m working with two startup teams on two pretty exciting ideas, both completely unique, that might eventually generate a million customers each. (Especially if Jim Ericson gets involved!)

Others may argue that another great way to build a billion dollar company is to create and sell products using a network marketing approach. I blogged about hugely successful network marketing companies in Utah a few months ago. Problem is, I have no experience with this business model.

So I’m gunning for the million subscriber thing.

Wish me luck.

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India Unbound

If you think your company might someday consider outsourcing certain job functions to India, or if you might someday sell products internationally, please read India Unbound. I read it last week and couldn’t put it down.

The book covers India’s socialist system from independence (1947) to the economic reforms of 1991 that refueled the entrepreneurial spirit in India. The author Gurchuran Das is brilliant. He was head of Proctor & Gamble India for many years. Was educated at Harvard. Was involved in a large venture fund in India. He is incredibly qualified to write an economic history of India and to suggest how bright a future that country might have.

I think his intent in writing the book was to “sell India” to the world, to convert us to give it a try as an outsourcing partner and business market. He wants us to believe in its potential. He definitely worked his magic on me. I have four friends who are doing business in India now. I’ll be talking with all of them soon and trying to find my own path to this amazing country.

The book was written in 2000, with a brief 2002 update, but it still feels timely. Outsourcing is in the news almost every day. Plus, one of the key figures that Das profiles in the book, who instigated all the major economic reforms in 1991 that led to India’s incredible economic growth, was just elected prime minister a few weeks ago.

Read “India Unbound.” It’s highly recommended.

Now I’m trying to find an equivalent book about entrepreneurship in China and Russia.

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