Nick Denton laid off a bunch of people at Gawker today, and reshuffled a few more, and hired a few more. Most interesting about it, though, was his commentary about the layoffs he made in an email to the employees. Definitely refreshing in its honesty and candor, but I think it’s interesting, too, that Denton is wrestling with a few things I wrestle with a lot: how to make money on the internet, and how he’s coming to terms with the fact that it’s not just ad networks and content. I’ve been thinking about this for a while – how everyone is obsessed with what I’ve been calling “the algorithm.” Companies like Google and, to a lesser extant Flickr, and Livejournal and Digg make money magically, really, without lots of hard work. You’re considered a “hit” on the internet only if you find some way to make lots of money by doing less work. I’ve never really gotten this. It’s as if the financial world only placed value on Quants, and everything else was uninteresting. Anyway, it’s interesting seeing someone so nominally successful, with a payroll roughly equivalent to ours, I’ll wager, wrestling with these same issues.

I give mad props to their transparency, too. The layoffs were heavily covered by all the Gawker properties, and he gave permission to leak the letter.

Took a pass at trying to sum up the economic situation for the employees last night. It was a two parter, part one talking about the company and the economy (short short version: annoying but not catastrophic), and part two was my pass at trying to cogently explain what’s going on and how we got here to the layperson. There are things I skipped, like shorts, naked shorts, risk mitigation departments, credit ratings agencies and foreign exchanges, but I think it’s a nice summary. Check it out!

Okay, that last post was a little bit cranky, sorry about that. I suppose I should take the time to show you the positive side. To show you how we do things, how we work with our clients who are building online communities and products, and how it can be done right. This will also, conveniently, help explain to my mother what I do all day.

Let’s say that you are, in fact, the world’s leading authority on, say, orchids. Like you go to conferences and stuff, and thousands of people seek out your wisdom regarding orchids. Let’s then say that you, along with a friend, realize that there’s a substantial number of orchid aficionados out there and that, say, 90% of them use the internet. Let’s say you learned this at first anecdotally, but then, because your friend happened to be a bit of a research buff, you actually confirmed this with some research. Let’s say it transpires that there are 4 million orchid buffs out there on the web, and they happen to have a high disposable income, a predilection for spending time on the internet, and a genuine hunger for more wisdom, discussion, insight, learnings, entertainment, and, in short, content about orchids. And you are fully capable of providing this content because you’re one of an elite band of orchid experts, and they are already sending you weird postcards and stuff asking you questions, and then one day you started a blog and it was so weird because all of the sudden like 50,000 orchid lovers were reading it and you didn’t even put that much effort into it.

So then let’s say you and your friend write up a business plan explaining your vision for a new orchid lovers community site. You’ve done your research and your homework, and you’ve established that THE WORLD IS DYING FOR AN ORCHID COMMUNITY SITE. And you’ve figured out that you need about $3 million dollars to start this orchid community – and you’ve got all your costs worked out: site build, admin/CMS, editorial content and plan, maintenance and continued development, staffing plan, ad sales plan, ad operations plan, etc. And it just so happens that your friend’s college roommate is a VC at some firm on Sand Hill Road and he looks over your plan, and makes modifications here and there but generally is on board with the plan because they’d been doing some research too and realized that this is a golden market – affluent, niche, hard-to-reach, etc. And you have another orchid lover friend who works at a media agency and is like “yes! we’ve got like 15 clients that would love to reach this demographic and I know my friend sally at MediaVest has the same problems.”

So you all shake hands and start a company and the VC writes a check for $3 million and it’s time to go. LET’S DO THIS. WE ARE GOING TO MAKE A DIFFERENCE. WE’RE GOING TO REVOLUTIONIZE THE WORLD OF ORCHID GROWING.

What now?

Well, this is what you do. You find a CTO. Then you hire some developers or an agency to build your site. Then you hire another firm to handle the information architecture and user experience. And maybe you hire one of those two firms, or another firm, to handle the site design. And of course this needs to be tied into the branding, so then you gotta hire a branding firm to develop your site’s branding. And then you have to figure out a marketing plan for when you actually launch the site. Oh, and along the way you need to hire someone to develop a content strategy, and someone else to figure out the editorial calendar, and probably someone to sell the ads, and someone else to deploy all those banner ads to the site and manage the inventory. And you need to choose an analytics package. And an ad operations package. And maybe you have some e-commerce and need a fulfillment partner. And what about mobile? You’ll end up with probably 3-4 hires, and then something like 4 firms all working on your site. Because you want the best. Who’s the best development firm? Okay, let’s get them. Who’s the best User Experience firm? We sent RFPs to Molecular and Adaptive Path and a few others. Who’s the best design firms? Sent out RFPs to Pentagram (wait do they do interactive?) and those cool kids up in Canada that did Digg and 37 Signals. Wait are they designers or UX? We sent RFPs to Ogilvy and Landor and a few specialized one-person shops for the branding, and we’re definitely gonna call the Barbarians for the marketing. Because they did that Subservient Chicken thing and it was awesome.

So now you have something like 5 different firms and 4 different people working on this, and they all sort of want some part of the other firms’ business, but not others, cuz they all do one or two things and have these mandates to grow their business with additional work from their pre-existing clients. It’s like their business plan or something.

And each of these firms is on a different engagement timeline, with different deliverables, and none of the deliverables are making you the greatest possible product and successfully launching it through an integrated strategy that coordinates content, editorial, pre and post-launch development, user experience and marketing. And there’s no coordination, really, except for the CTO on the technical side (if you’ve been lucky enough to find one yet), and the content editor you hired and your friend from the media company you lured away with some equity. And you. The orchid lover

It is, in short, like herding cats. And, worse, it is painfully sequential, or “waterfall.” The branding firm needs to finish the branding before the design firm can get started. The design firm can’t get started until the UX team has really dug in, and the tech guys can’t do much until you’ve hired your CTO and chosen a platform and some basic requirements have been identified and maybe a few wireframes have been built. And all of this will completely distract you from the marketing of your new site once it’s launched, and you’re still not sure who you’re going to hire to keep developing on the site once its launched, because let’s face it, there aren’t a lot of developers out there who also love orchids and there’s only so much equity to go around and don’t all developers really just want to work at Facebook?

You could, of course, hire all of these people internally. Give ‘em equity in the company, and try and instill a spirit of camaraderie in them. Or you could find one development partner, get the thing built, hope it takes off and then build the business around it (this seems to be the logic of the young turks on the New York scene: Tumblr, Muxtape, Iminlikewithyou, etc).

But wouldn’t it be cool if there was one company you could hire to do all of that for you? That you could work out a deal with to be your partner, before and after launch, and got the right team together from all of these disciplines, and all worked in tandem, in an agile, responsive, nimble manner, with all disciplines working in tandem for a common goal? You handle the internet, I’ll handle the orchids Wouldn’t it be cool if they chose the tech based on not just what’s best for the job but based on what made it easiest to help you in your CTO search? So you could get going even before you found them? Wouldn’t it be cool if some great marketing idea could influence the user experience? Wouldn’t it be cool if the UX guys had an awesome idea they knew exactly whether the development gals could handle it and what the process was for getting this unexpected brainstorm done, because doing it will make the product better? Because everyone wants the product to be better?

This is, in short, the service we have been growing to offer to these people now. All things in the service to interactive marketing. 20 developers. Dozens of creatives. Marketers. Planners. A fast-growing, talented and battle-hardened user experience department, all of whom have embraced agile methodologies and have extensive experience on real sites and real communities. Designers who love to iterate. Even the client service gang is in on the mix, acting as your Scrum-certfied product owner, translating your business decisions into concrete tasks for the team. UX people who understand that it’s not just about usability but emotion and marketing and users becoming wed to your site. And marketing people who haven’t gotten jaded because they know they have a stake in the actual product they’re marketing, and knowing that if their genius marketing idea is that oh-so-common idea of make the product better that they could actually make it happen.

I don’t think we’re 100% there yet: bringing Noah on board was a key element in reinforcing the strategy and planning angle of it. And we’re taking agile development into places that it was never really intended to go: who, for the love of god, has ever actually attempted agile branding? But I do believe that we’re on to something, and I think our clients are pretty into it as well. I can’t wait until this fall when we start having things to show to put our money where our mouth is on this front. But I definitely believe in it. And I have faith enough that I’m talking about it now. Because, really, it’s all I talk about anymore. ;)

(oh, and it’s not just for startups. We work this way with tech companies offering new products. With consumer product companies wanting to extend their brand onto the web in a truly connecting way via branded utilities, communities or content. But this metaphor is a good time so I’m gonna roll with it).

I see so many sites being launched that are awesome technological demos. They have pretty solid PR too (and, as an aside, it’s almost an embarrassment for the ad world that the PR world seems to have figured out this whole internet thing more quickly than them). They get their awesome product and they do some awesome PR and they get a mention on Tech Crunch and they get a nice spike in traffic the first week and then… What? Things stall. Why don’t they do any marketing then? Why doesn’t Dopplr market? Why doesn’t Vimeo? Who doesn’t Hulu? That’s a really interesting one. Basically they all seem to be hoping that the launch push will take hold and and turn into a Twitter-like network effect. And if it doesn’t? Well, they seem to toss it out and move on. Fair enough, I suppose. If you’re looking to score an online hit no matter what the content or product. But if you’re invested in a certain topic – be it your future as an orchid expert or your brand’s very reason to exist in the 21st century – you need to succeed this time, in this field. So, if you’re in it for the long haul, why not market?

I believe our brains, bruised from the web 1.0 world and embracing of the web 2.0’s ethos of fail “fast, fail cheap” have caused us to develop a few subconscious mores and taboos. Why don’t more startups market anymore? Partially because the people behind the startup are not committed to its success – they can move on if it fails. But I believe it’s also because of all the profligate spending during the Web 1.0 world, and because Web 2.0 is about staying cheap to achieve rapid profitability. Fair enough. But Web 2.0 brought other trends to bear along with staying cheap. Viral marketing. Word of Mouth. Gimmicky little games. The tactics have changed, but marketing can still work. Marketing can still drive traffic to your site. And if your site is good enough, that traffic can expand exponentially.

Web 2.0 showed us something else, too: user experience is marketing. Your feature set is marketing. Think Google maps. Why did it win? Because of an amazing new feature set (ie., AJAX). The lines are blurring a bit. It gets tricky. It can be argued that Google Maps won because it was a superior product offering, simple as that. Facebook could say the same. I would absolutely agree with that. But I would also say that this implies that a unique, improved user interface can drive traffic far beyond just the individuals who discover it. When people are pleasantly surprised by an amazing product on the web, they tell their friends about it. Marketing. And, once you’ve got this superior product, driving traffic to it using other marketing tactics – viral marketing, advergaming, etc – just like you do with your PR can be a huge advantage. It doesn’t have to be a super bowl ad. It doesn’t even have to be an online media buy. But marketing is a tool to be used here, especially when it’s done in perfect synchronicity to the dev and the UX, and you don’t have ‘the marketing guys’ sitting in the corner not grasping your product. When you have marketing peeps who were there every step of the way. Who are as invested as you are in the product’s success.

Today’s rant: RFPs that are secretly RPBs, or Request For Business Plan. Seriously. I can’t begin to tell you how many RFPs I’ve gotten that basically are asking us to start their business for them. They want to build the next Facebook or Flickr, and want to pay us something like $50,000 to build it for them. I am at a complete loss how anyone could really think this is reasonable.

Ooo oo – and the sister project: the traditional agency driving a new online product for the client, mainly driven by the agency’s desire to appear to understand the interactive realm, insert themselves into the conversation and come out of the whole thing with a case study in their online thought leadership. Except it’s abundantly clear from day one that they really don’t have an idea of what goes into building a successful online community. This is turning into the modern equivalent of the “let’s produce a spot to win awards” syndrome.

First off, if we knew how to build the next Facebook for $50,000, don’t you think we probably would have scraped together $50,000 and built it? Secondly, do you know how much it costs to build Facebook? And maintain it? Dude Facebook spent many million dollars just on servers in the last year. Just the boxes! Most of these RFPs have no idea how on earth they’re going to maintain and grow their site – and get appalled when we imply they may need to spend more than $10,000 a month on growing their site.

And revenue. Man, I know I’m an ‘ad guy,’ but I come from the world of economics and it never ceases to amaze me how many people want to build something without any clear idea how they’re going to make any money, aside from “advertising.” It’s no surprise, of course, that few of these people have actually worked in advertising, much less the media buying & planning side of it, so they have almost no insight into how ad agencies actually decide where they’re going to place an ad. I’ll clue you in – they place them on sites with a large, engaged user base of a specific demographic. Which means you need to obtain a large user base of a specific demographic. Which takes time. Which takes money.

And I know I haven’t coded anything in a good 3 years now (though, man, my textile skills are smokin’ now), but it would probably help if someone on your team new how to write a line of code.

Here’s an important point, which hopefully makes this curmudgeonly post slightly useful: just because you’re building a website for a brand doesn’t mean the business case shouldn’t be thought through. You will be presumably competing with highly-organized companies in whatever realm you are considering dipping your (or your client’s) toes into. They are highly organized, probably have more money than you and probably have a great experienced, highly-dedicated team that are all entrepreneurially aligned to make sure their site kicks your site’s ass. You need to think of it like a business, even if it’s a branding exercise. Because a failed community (ahem, Bud.tv) will not only not help your brand, it could well hurt it.

This isn’t to say some of them aren’t a good idea – we are working with 4 different organizations right now on startup sites that have been vetted by intelligent financial individuals, and have CEOs or Presidents or Founders who bring something significant and unique to the table. And we’re in talks with 2-3 more including one that is driven by an agency – a smart traditional agency that knows what it brings to the table, knows what its strengths and limitations are and knows to partner with people, align everyone, and run the project like what it is: a new product offering from their client.

Oh, and all of them are willing to engage with us to become team members and partners in their success. I find it interesting that the RBPs that are usually least thought out are the ones that are also least amenable to sharing the success.

God, I love my clients. Thank you. This fall is shaping up to be a good time.

I posted this comment over at TechCrunch, but I thought it was worth mentioning here, along with my extended rant:

So, Terry Semel’s gonna try and get Time Warner and the United Arab Emirates to buy him IMG. That is awesome. It completely gives validity to my plan to convince Oman to buy me CAA and a pony. I am psyched.

In other news, Adobe is adding video to PDF which is pretty cool, because now my plan to add braile to night clubs is totally validated as well.

This was interesting. It’s interesting to me how IV are indifferent to which of their ventures are successful, which bear fruit. I’m often that way in meetings, and people are always so disappointed. They want to see me, or us, excited, or passionate about one of the ideas. And I’m interested in seeing which one they’re most passionate about.

I know it’s a bit too soon to speak, but is 24, 25 really a “black friday” for Yahoo!? 5 point premium over the start of this whole debacle?

And I, for one, think Jerry did the right thing. I know, I know, fiduciary duty, shareholder value, blah blah. He made his bed with shareholders and he has to live with it. But in my mind, Kenji summed it up pretty nicely yesterday when I said I was against the merger: “why because Microsoft makes things that are broken and confusing and no one wants, and Yahoo! makes cool shit that does useful things and are well made?”

Yeah. That.

Yahoo!’s a better company. It builds better stuff.

That being said, of course, it’s stock is woefully pathetic for how awesome the company is, and there’s no one to blame but the leadership. Maybe it’s time for someone else to take the reins. Of course, they tried that before and where did they get? And who would run it? Ideas?