Chris Caposella on your TV again, this time on his own terms.

The last time you saw my good friend Chris Caposella, it was the infamous Windows 98 beta demonstration with Bill Gates, below.   He had two minutes of literally worldwide fame, with the video appearing on CNN, ABCNews, CBS, NBC, BBC and many more networks. 

Say what you will about Microsoft; I’m obviously a pretty biased observer.

Chris himself is one of the brightest, funniest, most capable, yet sincerely modest guys I’ve ever had the pleasure of knowing.  He and I worked together for a couple years in the relational database group (Access, FoxPro) at Microsoft, and it was a real pleasure.  Smart guy; many laughs.  I think we even started at Microsoft in the exact same month and year (July of ’91).  I left Microsoft in 1997; he didn’t, and he’s now running the Office group at Microsoft as Corporate VP.  Here he is again with some great insights on business, with his usual modest aplomb, in a recent hour-long interview on the University of Washington’s TV channel. 

Google releases Pay-Per-Action!

Google just released Pay Per Action, a major addition to their previous "Pay per click" model. 

PPA could have some significant, and positive applications for us at, and, much more so than pay-per-click (PPC).  Though I’ve not yet tried it, in theory, this finally lets us bid much closer to our marginal profit for various actions, rather than just a lesser sum for a substantially lower-qualified audience. 

Queue, stage-right: precision.  Finally.  More on this later.

An Insider’s View of’s Rise and Sale

My friend Dave Chase has posted a great recap of’s rise and fall.  If you are interested in the Internet, Microsoft, or entrepreneurship in general, it’s well worth a read. 

On reflection, it’s fascinating to me how a company that is ostensibly very analytical in its decisionmaking (Microsoft) often ultimately makes major decisions based on product champions and forces of personality. (Or, regrettably sometimes, lack thereof.)

The Coming Demise of Vertical Online Classified Directories

A very popular (and heretofore viable) business model for the web from 1995 through today has been the "Classified Advertising" style model.  Here are the basic steps:

  • Pick a vertical where the search experience isn’t good, complete, or rich enough.  Ideally, it’s a niche where the things the Web does well add considerable value over offline substitutes.  (For instance, photos, ratings, sharing, audio, video, community, broad geographic reach, 24×7 access, dynamic pricing, interactivity — if these attributes add significant value to the experience, so much the better.)   Second, ideally, it’s a niche where the advertisers/sellers are willing to pay to get exposure.  Third, ideally, it’s a niche that has a very poor search experience due to fragmentation.
  • Create a data-driven website that welcomes all listers in your directory
  • Let them search by various criteria
  • Implement a pay-per-month or pay-per-year subscription model, perhaps a freemium model, to build out a directory.
  • Work feverishly on search engine presence.  It’s probably your bread and butter.
  • Build a brand to drive consumers to your slice of the market.  Be remarkable enough that current customers remember you as a better search experience and spread the word to others.

This is a perfectly fine business model if you started in the years 1995-2006.  In fact, I started such a business,, that did very well using this exact approach.

Started in my second bedroom in 1997 with just $250,000 in initial capital, we focused on building the world’s most complete vertical directory of vacation rentals — villas, condos, cabins, etc.  Our primary source of revenue was in selling monthly and annual listings to property owners and managers.  Our secondary source of revenue was booking services, through proprietary reservation systems we were building for clients.

We acquired five companies, raised $13 million and sold the company to Expedia just three years later for about $90 million in Expedia stock.  Now, had about $11 million in the bank at the time it was sold, and it was roughly breakeven on the classified advertising part of the business, while the transaction side of the business was still very much in "investment mode".  Expedia went on to more-than quintuple its stock price over the ensuing five years, providing a solid positive return to all investors, and an astonishing 2000%+ ROI for the earliest investors over a 7 year period, thanks largely to Expedia’s meteoric market-cap growth from around $900 million in 2000 to over $8 billion in adjusted market cap by 2007.   

Times have changed… somewhat.  If you’re in 2007, and you’ve got a relatively static classified-ad-driven business that is dependent upon search engine presence and annual listing fees, consider ringing the cash register now.  Because the game that you’ve optimized your business for is about to change.

The good news is that it’s not too late to sell.  Venture investors are still forking over great sums for classified-ad-style businesses, ones that I consider to be far easier to create (and far more sensitive to the whims of search engine giants) than supplier-technology plays like Escapia and Adventure Central (Fair disclosure — I’m Chairman of the former, Director of the latter.)

At, we were working on both types of projects — the consumer-facing classified-style directory and the back-end software.  Time and time again, we saw outside investors relating to what consumers see, and what was generating our current revenue — the listings site — and downplaying or ignoring the far harder, but far-more-strategically-important (IMO) back-end reservation platform that was underway.  In 1997, most of our property managers used dialup at best to reach the Internet, and we were handicapped greatly by this lack of broadband penetration.  And quite frankly, our technology solution just wasn’t as robust, complete, or high-quality as we needed to fully satisfy in that area — it required dual entry of reservations, since it served as an adjunct to their reservation desk.  It was an "Extranet", and often fell out of synch with the true state of the world.

In 2007, there are still many classified players out there building presently-strong businesses with this model:,, and RentClicks are just a few of them.  They have nice cashflow, (apparently) nice repeat listing business, and growing search engine presence.  What’s not to like?

In fact, was the single largest venture deal done in 2006.  HomeAway is 2.0 — it’s a rollup of several classified advertising directories in the vacation rental space, offering marketing/listing/search-engine-presence services largely for the rent-by-owner market.  HomeAway’s most recent financing was on an eye-popping valuation north of $300 million.  Sure, the classified advertising has historically generated nice cashflow, and you can talk yourself into that business recurring well into the future.  But consider what happens whent the search engines change the game.   And they will. 

Another tact here — compare the $18 billion spent by consumers renting vacation homes every year with the estimated 5-10% of that which is spent advertising vacation homes.  Which is likely to grow faster — advertising spend on the Internet, or vacation rental bookings on the Internet?  I believe the first dollars to move to the Internet were the ad dollars, and transaction dollars are now following.

Most scarily for the classified ad players, the search engine players are working feverishly to structure their underlying data, and structure the search.  In other words, they are prepping today to pick off the classified categories, vertical-by-vertical.

Consider this:  Google, Yahoo, MSN and others are reaching the end of their first-generation approach, and the next generation will include support for increasingly structured searches.  In v1.0, search engines intelligently analyze the world’s HTML pages, the pages that link to them, the relative quality of linking, etc. to come up with terrific URL’s for you to look at when you type in various text in the search box. 

But I think what people really want when they go to Google and type in, say, "Maui condo for rent" is actually a list of Maui condos to look at, with narrow-down tools that ask the major-filter questions like "When do you want to go?", "How much do you want to spend?", and "A/C?  Pool?  Beachside?"  etc., together with photos and relevant listings in-situ.  The search engines are structuring data and structuring search in search’s next generation.  You can see it today on Google when you type in "San Francisco real estate", or "Seattle rental home". 

Where does that leave the classified advertising players, whose business models are predicated upon the fact that they provide a better search experience because they are domain-specific?

In the travel category, the reason I’m involved with companies like Seattle’s Escapia Inc. and Adventure Central Inc. is that I firmly believe that the future bodes well for those infrastructure providers that can accurately answer the questions:

  • "What is available that meets my criteria for the following date range?"
  • "How much is it?"

The classifed-advertising players are ultimately on Google, Google Base, Craigslist, Yahoo, and MSN’s railroad tracks.

I’ll leave you with this exercise:

  • Take any city pair, let’s say "Boston Seattle", and type it into Google
  • Notice what you get on the page that Google returns.
  • In your mind, fast-forward the videotape 3 years.
  • What do you get?  Where does the data come from that shows up on your "optimal result page" for searches like "spring break Maui condo"?  Who owns the most valuable asset in that future world — is it the classified advertising players, or the suppliers who can truly answer the question from an original-source standpoint?

Further reading:  "Google’s Structured Data Play" – A Social Network About Food

Recipearchiveb3 is a growing recipe sharing network that I’ve been building up brick-by-brick. 

At present, the product portfolio includes award-winning recipe software for Windows, – a massive online recipe archive (160,000+ recipes), and free mobile companions for Palm and Windows Mobile.  All the products work together, to try to solve the "What to make for dinner tonight?" problem easier to answer for home cooks.

BigOven integrates seamless access to the archive with (optional) Windows desktop software.  You can search recipes by ingredient (e.g., use up those chicken breasts in your fridge).  You can drag and drop the recipe cards you want onto a shopping list, and boom! — a sorted grocery list is generated for you.  Or, if you’d like, you can drag recipes onto an Outlook-style calendar and plans meals in advance.

BigOven is profitable, and growing.  It’s also been a terrific sandbox for me to experiment around with various social networking concepts, such as peer-produced content, tagging, and more.  At this writing, we’ve got about 50,000 members, and have sold a great deal of desktop recipe software.