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SupersonicAds Building Virtual Currency Monetization Platform for European App Developers

Posted by Mort Greenberg on April 28, 2009

ssalogo

As the number of social apps and games making money through virtual currency continues to grow, the number of companies helping those developers monetize their apps continues to increase as well. Today, Inside Facebook has the exclusive first look at a new company focused on helping European social app and game developers monetize through virtual currency.

New startup SupersonicAds is coming out of stealth mode for the first time today. The company, based outside Tel Aviv, Israel, is focusing its efforts exclusively on the European social app and game developer market, founder and CEO Gil Shoham tells Inside Facebook.

Shoham, most recently a VP at AdsMarket, started SupersonicAds late last year with many former teammates from video sharing site Metacafe, where he served as general manager and head of international sales for several years. Arik Czerniak, a co-founder of Metacafe, is also a partner in SupersonicAds.

“Over the last couple of years, people have discovered that CPM performs pretty poorly in social media,” Shoham says. “But if you integrate the advertising in the right way for the right audience, it works well.”

Shoham says the company chose to focus on Europe because that is where it has experience working with advertisers and publishers. It has spent the last few months developing and scaling its technology infrastructure, putting tracking and customer service functions into place, and optimizing performance.

In addition, Shoham says the company has localized its service for every language in Europe, including French, German, Spanish, Italian, and Dutch.

SupersonicAds is now live on Honesty Box on Facebook, whose lead developer Dan Peguine is also coming on board as a strategic partner for the company, as well as on Save An Alien, a popular virtual pet website.

While SupersonicAds is open to any and all advertisers, Shoham said he expects offers related to mobile content, gaming, and dating will work well for European users. The company plans to add a mobile payment option as well, but hasn’t finalized its choice of SMS partners yet.

For now, the company is focused on building out its core platform. It is self funded, but may raise money later this year, according to Shoham.

As virtual currency monetization space continues to grow, we’ll have all the details for you here on IF and ISG.

http://www.insidefacebook.com/2009/04/22/supersonicads-building-virtual-currency-monetization-platform-for-european-app-developers/

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Posted in Ad/Behaviroral Targeting, Marketplace Trends, Social Media, Start-Ups, Start-Ups & Venture Capital, Video Games, Widgets/Distributed Content | Leave a Comment »

Reid Hoffman: My Rule of Three for Investing

Posted by Mort Greenberg on April 20, 2009

Article Link: Tech Crunch- Reid Hoffman Rules

Article Author: Guest Author

Article Date: 20-Apr-09

From the Article :

“The formula is to build an audience with a great product – then secure enough funding to figure out how to make it pay. With these three elements in place – mass audience, unique value, stable funding – a startup has time to discover where it can make money. Few business plans ever pan out like their owners intend. PayPal started as a plan to beam payments between Palm Pilots. Google raised funds with a vision to capitalize on enterprise search and ended up in advertising.”

Posted in Marketplace Trends, Resources, Site Development, Start-Ups, Start-Ups & Venture Capital | Leave a Comment »

Ad network Collective Media raises $20M more, targets the big three

Posted by Michael Hoydich on April 13, 2009

Article Source: http://venturebeat.com/

Article Link: http://venturebeat.com/2009/04/12/ad-network-collective-media-raises-20m-more-targets-the-big-three/

Article Author: Matt Marshall

Article Date: 12-Apr-09

“Collective Media, an ad network you probably haven’t heard of, has been slowly rising through the ranks of ad networks. It is the 19th largest ad network, according to the most recent Comscore data (February), up from 21st last year.

It has just raised $20 million more in a financing round led by Accel Partners, with iNovia Capital participating.”

Posted in Ad Networks, Ad Products, Ad/Behaviroral Targeting, Start-Ups & Venture Capital | Leave a Comment »

Mobile Banner Ads Generate TV-Level Brand Recall

Posted by Mort Greenberg on May 18, 2008

Article Source: http://mediabuyerplanner.com

Article Link: http://www.mediabuyerplanner.com/2008/05/15/mobile-banner-ads-generate-tv-level-brand-recall/

Small banner ads on mobile devices result in the same level of brand recall as a :30 spot on TV, said mobile advertising leader for Verizon Wireless Stephanie Bauer Marshall.

The data, which Marshall said came from a commissioned study by IAG, also showed that mobile banner ads produce clickthrough rates exponentially higher – at 2 percent – than online banner ads, where clickthrough rates have fallen to about 0.3 percent (via MediaPost).
The U.S. lags behind other parts of the world in terms of mobile advertising. 20 percent of U.S. mobile users get SMS marketing messages at least once a month, while that figure stands at 75 percent in Europe, said Dag Olav Norem, senior analyst with M:Metrics, during the Mobile Advertising Degree conference in Los Angeles yesterday (Wednesday). On the other hand, he says, 4.9 percent of Europeans receiving SMS marketing messages respond, while 12.4 percent in the U.S. do.

Marshall pointed out that there is still confusion surrounding mobile advertising pricing. CPMs for mobile are higher, because of the higher level of engagement. “Over time, the market’s going to find out where the balance is.”

Currently, CPMs hover between $20 and $30, but “around $20 or so is probably reasonable,” she said.

U.S. mobile ad spending is projected to reach nearly $1.7 billion in 2008, up some 89 percent from $878 million in 2007, and will surpass $6.5 billion in 2012.

Posted in Ad Spending, Data & Metrics, Mobile, Multi-Channel, Start-Ups & Venture Capital, Traditional to Online | Leave a Comment »

EconSM Video: Getting Real: Grown-Up Start Ups

Posted by Mort Greenberg on May 11, 2008

Article Source: http://paidcontent.org

 http://link.brightcove.com/services/link/bcpid1529573284/bclid1527680758/bctid1532920759

By Amanda Natividad – Sat 10 May 2008 05:05 PM PST

In our second video from EconSM 2008, Social Approach’s CEO Shawn Gold moderated Getting Real: Grown-Up Start Ups with Dalton Caldwell, imeem’s founder and CEO, Seth Goldstein, SocialMedia Networks’ co-founder and CEO, Keith Richman Break.com’s co-founder and CEO, and Toni Schneider, Automattic’s CEO. In this panel covering the topic of moving start ups past the early adopters phase and finding a lucrative exit, Caldwell pointed out the importance of taking time to “suck” in order to learn from mistakes. Meanwhile, Goldstein revealed his own motto to be to “hire slow and fire fast,” getting out the employees who just don’t work out, and not being afraid to hire under-experienced people with “a lot of hustle.” Check out our coverage of this panel and watch the video (RSS readers will have to click through). All of our EconSM 2008 videos will be posted here.

 

Posted in Marketplace Trends, Multi-Channel, News Highlights, Online Video News, Research, Resources, Site Development, Social Media, Start-Ups & Venture Capital, Television & Video, Traditional to Online, UGC, Uncategorized, Widgets/Distributed Content | Leave a Comment »

SEO Strategies for Large Websites – Link Building

Posted by Mort Greenberg on May 10, 2008

Article Source:  http://seo-space.blogspot.com

Tuesday, January 15, 2008

Earlier today I attended a Search Marketing Now Webcast on SEO Strategies for Large Web Sites: Using Content to Build Links and to Drive Traffic. Featured speakers were Vanessa Fox, Features Editor, Search Engine Land and Rupali Shah, Senior SEO Consultant, 24/7 Real Media.

Vanessa spoke about link building and viral marketing and how you can use the content on your site to promote your site. She discussed traditional link building vs. viral link building. She mentioned that when link building anchor text is crucial. Authoritative links are definitely more valuable and relevant links are most useful.

Traditional link building consists of directories, press releases and such. Viral link building is more community based (consider sites like DIGG and such). A great strategy is to do both. Viral link building has lots of potential but it tends to convert at a lower rate and is cyclical.

Viral Link Building

  • Social media sites (DIGG, HUGG)
  • Social Networking (communities)
  • Viral Marketing (word of mouth, people emailing around links and information exchange)

Viral Marketing Steps

  1. Start with your audience (your actual target audience who you may be marketing to as well as the influencers who can reach your target audience)
  2. Pinpoint social media and social networking sites that are specific to your audience. A-class bloggers can influence your actual target audience.
  3. Create content that is of interest and relevant to your audience.
  4. Create “hooks” back to your site. Calls to action to your site.

Examples of viral content includes things such as Top 10 Lists, How To’s, Videos, Quizzes, easlily scannable text, topical events. Ensure that this content is easily accessible. Vanessa mentioned to think beyond page views, create content that entices “web stickiness” and increases the time spent on your site.

With regards to social networking try to become an expert in a community, be sure to comment in the forums and such. Participation is important. Using Facebook news feeds for posting blog links is an example of how you can leverage social networking.

Rupali went on to discuss link baiting. She illustrated examples that they have used for clients with success. She mentioned that link bait content is content that is used to improve the quality of the content on your site. It should be useful, important, newsworthy, topical and can at times be humorous or controversial.

Some types of link bait to consider using include:

  • Tools
  • How To’s
  • Top 10 Lists
  • Videos
  • Topical Articles
  • Analytical Reports
  • White Papers
  • Announcements

When planning out and developing your link bait content, Rupali suggested that you should brainstorm the concept for the content. Your industry knowledge may provide a competitive advantage for you. Look for information gaps in your industry. Be the first to address these gaps. Thought leadership is a great way to create linkbait.

So where can you find ideas for linkbait content? Use Google Suggest to search for a topic. Type in something like “how to choose”, “how to improve”, or industry specific terms. In addition, look at industry news sites to see what the current buzz is about. Using MSN adCenter Labs you can also use the keyword funnel to find link topics. People who search for mortgage rates may in fact be looking for mortgage calculators. Calculators are great forms of linkbait.

The key to linkbaiting is to ensure that your content is informative and relevant. The quality of your content will determine the success of your link bait. Strive to provide value.

Marketing Your Linkbait

  • Make your content easy to share – DIGG, reddit. del.ico.us, YouTube, nice sites, niche directories.
  • Communicate Your Linkbait to your existing network – newsletters, email signitures etc.
  • Publish a Press Release to announce important content/information
  • Incorporate Offline Marketing – brochures, ads, events to communicate your online tools, calculators etc. Add links to the linkbait.
  • Provide Support and Content Details – people may have feedback to share on your linkbait.
  • Keep Your Content Alive – leave the linkbait content on your site. Make it easy for users to access. There is nothing worse than a broken link to linkbait content.

Rupali went on to discuss a case study as to how they used video tutorials as linkbait content for an online education site. They promoted the video through YouTube, press releases, newsletters and a video sitemap. The goal was not only to generate more links to the site, but also to use as a lead gen tool via registration process to view some of the content. The results were that the link popularity shot up by 1000 links. Organic traffic to the site shot up and memberships increased.

Issues with Link Baiting for Large Corporate Business

  • Website Structure / CMS Restrictions
  • Time and Resources
  • Bottom line vs. creative strategy
  • Convincing Upper Management

Solutions

  • Create a sub-site, sub-domain or microsite
  • Hire an SEO and PR form
  • Brainstorm with SEO consultant or manager
  • Collect examples of successful campaigns / case studies

Vanessa addressed a question about content behind a login. Search engines will not index this content and will most likely abandon at the login page. Links to this content are pretty much irrelevant. At least make some of this content available outside of the password. At least 25% or you will risk high abandonment rates.

I posed a question with regards to blended search results in terms of whether links to items such as video or blogs carry more weight than links to traditional webpages. I did not receive a response to this. It poses an interesting scenario though doesn’t it? Is a link to a webpage the same as a link to a video?

Overall it was an interesting webcast that dealt with some of the fundamentals of link building that truly can be used for any size of busainess not just large corporations.

The end of the presentation mentioned a couple of upcoming Search Related Conferences that you may want to check out: SMX West in Santa Clara in February and SMX Social Media in Long Beach California in April.

Posted in Ad/Behaviroral Targeting, Data & Metrics, Demos & Audiences, Marketplace Trends, Research, Resources, Search Marketing, Site Development, Start-Ups & Venture Capital | Leave a Comment »

Building Scalable Websites

Posted by Mort Greenberg on May 10, 2008

Article Source: http://poorbuthappy.com/

 

Peter Van Dijck’s weblog (Very cool blog with lots of good info on building large, scalable sites, worth a read, or to book mark to read later when you have more time) This article goes back to April 2007 but still worth the read…

 

By Peter Van Dijsk

I always love to read scaling discussions, especially about popular web apps, and there are loads of them out there. Here’s my overview of the best. By the way, the best book on scaling apps I’ve ever read is Building Scalable Websites, by Cal Henderson (the Flickr guy).

 

 

It’s dog-eared on my desk, and taught me about sharding (which I used extensively for mefeedia). Sharding is when you cut a really big table into pieces, so you can put those on separate servers. It means you have to make changes to your code, and your database isn’t so database-y anymore, but it works. For example, online games use sharding to grow their virtual worlds, because there’s no way they could serve all that information from 1 db cluster.

Scaling Twitter with Ruby. Twitter is hot today, and they ran into some serious scaling problems, although the app itself is quite simple. It consists of messages of maximum 140 characters. Lessons are the same as most apps: Memcache like crazy, and optimize the database (the biggest bottleneck most of the time).    Also, Ruby on Rails scales pretty much the same way as PHP and other similar languages: shared nothing architecture. Shared nothing means that there is no 1 thing that is shared by all servers, since that would become a bottleneck.   PHP, for example, has shared nothing architecture out of the box, except perhaps for sessions, but that’s easily solved by storing sessions in a db (which then has it’s own scaling approach) and not in the filesystem. Here’s a talk by Rasmus Lerdorf that explain scaling with PHP5. ( Here’s the mp3 audio recorded by Niall Kennedy).

Blain Cook made this presentation:

VIEW PRESENTATION http://www.slideshare.net/Blaine/scaling-twitter

 

Scaling Flickr.  Cal Henderson wrote the above book, and also has a good presentation: Scaling Flickr slides as PDF’s.  One of the problems you get into when scaling something like Flickr where you store LOTS of stuff, is that you can’t just store that on a harddrive anymore: it’s not big enough. Apart from just using Amazon’s S3 service (which rocks – I used it for mefeedia and I know lots of startups who use it), there are other solutions. A good presentation of that by Cal is this one:

VIEW PRESENTATION http://www.slideshare.net/techdude/beyond-the-file-system-designing-largescale-file-storage-and-serving 

Cal (he’s a busy dude) also made this presenation about scaling web apps, generally:

VIEW PRESENTATION http://www.slideshare.net/techdude/scalable-web-architectures-common-patterns-and-approaches 

John Allspaw (flickr plumbr) also has a good presentation about scaling Flickr:

VIEW PRESENTATION http://www.slideshare.net/akshat/1scaling-phpmysqlpresentation-from-flickr
 

Scaling LiveJournal.  LiveJournal was one of the first social networks, before that word meant anything, and they’ve partly invented how to scale standard php/mysql/apache apps. They developed memcached, which is now used by almost anyone who wants to scale their site.  Brad Fitzpatrick has a good set of slides on how they evolved the service, here’s a PDF version. And here’s the slideshow embedded:

VIEW PRESENTATION http://www.slideshare.net/vishnu/livejournals-backend-a-history-of-scaling

 Kevin Rose mentioned this was “the bible for scaling Digg” – and I think quite a few other web apps are based on this.  

Six Apart.  The livejournal guys with all their scaling expertise were acquired by Six Apart, and they soon launched Vox. And of course, here’s a presentation on making Vox scalable:

VIEW PRESENTATION http://www.slideshare.net/miyagawa/how-we-build-vox

 Bloglines.  Bloglines’ scaling problems where slightly different from your average web app, since they are an aggregator of feeds. That means they have billions of blogposts they have to keep and serve to users, and that creates its own scaling problems. The Bloglines approach was to, instead of using a database, just store all that stuff in a special filesystem. Today it’d be easier to do this since there are a few filesystems that do that, or you could just go with S3 again. Mark Fletcher (who also sold Onelist to Yahoo which is now Yahoo Groups) has given a few talks on scaling Onelist and Bloglines: here’s  the mp3 audio version, and here’s the PDF of that talk. And a text transcript.

 Last.fm  Last.fm is one of the aggregation-type apps: they gather a lot of data about what music you listen to. Similarly to Bloglines, that causes it’s own scaling problems:

VIEW PRESENTATION http://www.slideshare.net/coolstuff/lessons-from-building-worlds-largest-social-music-platform 

 

All the slides in this post are hosted by Slideshare, an incredible service by my fellow information architect Rashmi Sinha and team. When I found out about the project, I emailed her: “brilliant and so obvious once you think of it”. Like many startups, they use S3 to serve their content, and they have the obligatory yet interesting slides to explain how:

VIEW PRESENTATION http://www.slideshare.net/jboutelle/scalable-web-architectures-w-ruby-and-amazon-s3

 I haven’t linked to lots of good thinking about scaling, or to technical resources and stuff. But the presentations should get you going in the world of memcached, perlbal, nothing shared and federation 🙂 Enjoy!

PS: See also How I Unexpectedly Found Myself Doing Consulting For Startups (this is a post on my “professional” site. I haven’t been able to figure out when to post here or there, any tips on that?).

Finally, Dan Pritchett has a good presentation on scaling eBay (PDF). 26 Billion SQL queries per day! 300+ new features per quarter! 4 architecture versions since 1998 and some pretty crazy scaling of the search.

New: presentation on how Facebook uses PHP APC cache (PDF).

A talk on Youtube scalability: “In the summer of 2006, they grew from 30 million pages per day to 100 million pages per day, in a 4 month period. Thumbnails turn out to be surprisingly hard to serve efficiently. (I ran into this with mefeedia too, luckily Amazon S3 came to the rescue by then.)” Youtube uses Python, Apache, MySQL, Memcached.

NEW: Front end scaling is important too, and often ignored. Here’s a good presentation from the Yahoo guys:

Posted in Content, Marketplace Trends, Research, Resources, Site Development, Start-Ups & Venture Capital | Leave a Comment »

Is the Breakdown of Stage6 the Beginning of DivX’s End?

Posted by Mort Greenberg on March 6, 2008

Source: Seeking Alpha, http://seekingalpha.com

Is the Breakdown of Stage6 the Beginning of DivX’s End?

by Davis Freeberg
 

Over the past week, I?셶e spent a lot of time thinking about DivX?셲 (DIVX) decision to close down Stage6. When I first heard the news, I wasn?셳 sure how to feel about the decision. On one hand, I believe strongly in the free market system and when DivX chose to go public, they took on an obligation to look after their shareholder interests.

By turning to the public, DivX was able to raise more than $140 million in cash from investors who believed in the future of the company. Having access to this kind of capital opened a lot of doors for DivX, but it also came with strings attached. While it?셲 easy to blame DivX?셲 insiders for pulling the plug, without their initial support, DivX never would have been able to create Stage6 to begin with. I disagree with the final decision to shut the site down, but I can at least understand the economic realities that drove the decision to remove Stage6 from the core business.

On another hand, I was a fan of DivX long before their IPO and a loyal member of the Stage6 community. Without DivX?셲 community, they never would have succeeded in the first place and to abandon their fans over corporate profits speaks volumes about the priorities behind the decision makers at the helm of the company. While the cold hearted capitalist in me has no moral high ground to stand on, the fan in me can?셳 help but be heartbroken by the realization that DivX may have lost their soul in the course of going public.

I?셶e been using Stage6 from the very beginning and while it has always had its fair share of eccentricities, I?셶e found that it?셲 gotten better and better as the site has developed.

Over the last year and a half, I?셶e been able to watch ?쐗eb??videos on my 60??television, I?셶e been able to discover high quality original content that is more relevant to me than anything on cable, and I?셶e even been able to connect directly with the artists whom I?셶e admired. When the history of Stage6 is finally written, it will be easy to be distracted by Stage6?셲 problems with piracy or the politics at the corporate level, but to see those independent artists lose this platform is the real tragedy behind the Stage6 story.

Seeing DivX shut down Stage6 has been tough, but watching the fallout from it has been even more depressing. Initial reports blamed lack of traffic as the reason behind Stage6?셲 failure. Silicon Valley Insider?셲 headline on the story read ??span class=”yshortcuts” id=”lw_1204808193_16″>YouTube Kills Another Rival.??In Gizmodo?셲 coverage of the news, they write, ?쏽ou may only be vaguely aware of DivX?셲 Stage 6 video site (which probably explains why it wasn?셳 successful).??/p>

The problem with this theory is that Stage6?셲 traffic was actually quite impressive. If anything, Stage6 was a victim of its own popularity. From the get go, DivX tried to rein in the growth of the site, but in the end, high quality downloadable video proved too compelling to stop the explosion in their traffic.

DivX first launched Stage6 in August 2006. Initially, it was intended to be a modest experiment where DivX could showcase their technology. After two months and very little marketing, traffic to the site was already in the ?쐆undreds of thousands user range.??On DivX?셲 first conference call with investors, Jordan Greenhall told analysts that ?쐇n 2007 we have specifically modeled Stage6 to spend no more than $5 million, until and unless we specifically decide to do otherwise.??

Had Stage6 remained underground, DivX would likely have treated the site as a minor marketing expense, but as word about the site leaked out, it created momentum that DivX was powerless to stop.

At the time, $5 million in budgeting seemed appropriate, but even Greenhall couldn?셳 have anticipated how popular Stage6 would turn out to be and by the end of 2006, Stage6?셲 traffic was clocking in at 2.4 million unique visitors per month. By February of 07??Stage6 hit 3 million uniques and 2 months later, traffic was at 4.3 million visitors.

By July Stage6 traffic hit 10 million visitors and it was clear that DivX had tapped into something very powerful. In the first six months of 2007, Stage6 had already burned through the $5 million that they had budgeted and expenses were continuing to climb. In order to better capitalize on their Stage6 asset, DivX announced plans to divest the business and Jordan Greenhall agreed to step down as CEO, under the guise that he would take control of the new Stage6 entity.

By the 3rd quarter of 07?? DivX was spending $4 million a quarter with about 2/3rds of the expense going towards bandwidth. To help control these costs, DivX started an aggressive campaign to remove porn and copyrighted content from their servers, but their efforts were of limited success. When they updated their web player to block certain sites from playing Stage6 content, the pirates were quick to point out that users could get around this restriction by installing older versions of the software. When they started to aggressively remove copyrighted content, people built automated uploading tools that where able to overwhelm the Stage6 staff. Their efforts did help to slow down the growth rate at the site, but by October traffic had still risen to 11.4 million visitors.

With traffic continuing to rise, DivX warned investors that they were budgeting another $6.5 – $10 million in Stage6 expenses for the 4th quarter/second half of 2008. When DivX finally pulled the plug on Stage6, they had likely spent $17 – $20 million on the ?쐃xperiment??and had over 19 million unique visitors to show for it.

To help put this growth into perspective, 19 million uniques is roughly two thirds the number of US visitors that YouTube was getting when they were acquired by Google (GOOG) for $1.6 billion in stock.

With DivX facing the prospect of having to fund another $20 million in 08??just to keep Stage6 running, I?셫 not surprised that the traffic eventually proved too bitter a pill for shareholders to swallow. From the outside, it’s easy to blame YouTube for Stage6?셲 demise, but in reality, the site was far more popular than most observers realize.

Given the growth trajectory and the size of the Stage6 community, I had expected that Stage6 would have no difficulty in raising capital to fund the venture, but in December DivX unexpectedly announced Greenhall?셲 resignation from the board of directors and warned that the Stage6 divestiture would not take place in the time frame given to investors.

At the time, I had a lot of trouble making heads or tails of this announcement and it wasn?셳 until Michael Arrington leaked the sordid details behind the breakdown of Stage6, that I realized the significance of Greenhall?셲 departure. According to Arrington, DivX had raised commitments for $27 million in capital at a $90 million valuation. Given that my own internal valuation had pegged the site at $85 million, it would appear to me that this was a fair valuation for both DivX shareholders as well as Stage6 investors. Why this deal broke down isn?셳 exactly clear and the devil really is in the details, but Arrington pins the blame on massive egos getting in the way of shareholder interests.

At a meeting in late November the DivX board was asked to approve the spinoff and venture financing. But at the last minute the board decided to cancel the spinoff and retain control of Stage6. It?셲 not clear why they did this – perhaps they were surprised at the valuation and wanted to keep control of the assets. Or perhaps the revenue from Stage6 was too material for them to let it go over the long run. From what we hear a massive battle of egos ultimately killed the deal. But when the decision was made, the key Stage6 founders resigned.

Arrington speculates as to why DivX?셲 board turned down the offer, but the reasons he cites don?셳 really mesh with what the company was trying to do from a financial perspective. It could be that DivX?셲 board simply didn?셳 like the terms of the deal or that the financing was never really in place to begin with, but my own conspiracy theory is far more insidious.

I think that the board wanted out of DivX and engineered a coup to take over control of the company.

Greenhall always had grand visions for DivX and clearly wasn?셳 afraid to take risks. Starting Stage6 was both a brilliant and stupid move on his part. In a very short period of time, he created a valuable asset for the company, but its cost structure punished shareholders who didn?셳 buy into his long term vision. The very reckless nature that was crucial to his success as an entrepreneur, understandably made Wall St. more than a little nervous.

Knowing that Greenhall would never willingly cede control, the board tempted him by offering him control over the Stage6 spinoff. Stage6 was Greenhall?셲 brainchild to begin with and the bait proved more than he could resist, so in July 2007, he stepped aside as CEO to begin raising funds for the venture. Initially, I don?셳 think that the board planned on shutting down Stage6, but when financing failed to materialize, they ran out of patience and began to dismantle the team behind the community. When Greenhall found out about their plans, his emotions likely got the better of him and after cornering himself into an ultimatum, he was tricked into giving up the little remaining control that he had left.

While there is no way to know the exact details behind what really happened amidst the backdrop of the Stage6 revolt, there were two noteworthy public filings that hinted of the trouble brewing in Shangri La.

The first was the revelation that Insight Venture Partners had unloaded their shares on the open market. The second was an amendment adopted by the board that provides significant financial incentives for management to engineer a sale of the company.

At the time, I had trouble reconciling these two filings because if DivX?셲 board was trying to shop the company, then it wouldn?셳 have made sense for Insight Ventures to bail out of the stock. Given what we now know about the Stage6 implosion, it doesn?셳 surprise me that Insight Ventures took the quick exit on this one.

One of the more interesting clauses buried in the change in control agreement is a provision that limits the rights of shareholders to elect new leadership at the board level. If a majority of the incumbent directors are replaced within an 18-month period, it triggers a provision that would cost DivX shareholders dearly. With 3 of the original board members having now resigned, it doesn?셳 surprise me that the board backdated the agreement prior to Greenhall leaving, so that Hell?셲 appointment to the board would count against this limit.

It?셲 easy to overlook this fine print as business as usual, but I think the board implemented these measures to ensure that they would remain in control, in the event that DivX?셲 long term shareholders objected to their short sighted decisions.

No one enjoys having their dirty laundry aired publicly and it?셲 easy to get distracted by the drama surrounding the closure of Stage6, but I think it?셲 important for investors to look past the soap opera and focus on what these decisions tell you about the priorities of DivX management. It?셲 hard to know the exact details behind Stage6?셲 failure, but there are a few facts that you can verify.

Whether intentionally or by accident, the DivX board removed Greenhall as CEO. In December DivX saw a mass exodus of their founders. Why they left may be open to interpretation, but the fact that they left together underscores how significant of an event this is. Given its traffic and growth, Stage6 had real value to the right investor, yet DivX?셲 board wasn?셳 willing to take the short term earnings hit, in order to maximize the value of the asset. During the time that Stage6 was falling apart, the board adopted an executive compensation plan that encourages management to sell the company even if it means sacrificing DivX?셲 long term future.

Now it?셲 entirely possible that I?셫 reading too much significance into the rift between the board and the Stage6 founders, but the only justification that I can see for the board leaving this kind of money on the table would be if they were trying to dress DivX up for an acquisition. For as much as Stage6 was potentially worth, it was just as much of a liability. Spinning off the site would have allowed DivX to maximize their investment in Stage6, but it would have involved a long legal fight that would have certainly scared off potential suitors.

Figuring out a way to monetize all that traffic would have been the best solution for Divx?셲 long term strategic positioning, but by closing the site, DivX chose to manipulate two important financial levers instead. Not only do Stage6?셲 expenses now translate directly into net income for the company, but DivX has decided to use the $20 million it would have cost to keep Stage6 running to boost the price of their stock through a share buyback program.

Normally I would be a fan of these sorts of shareholder friendly initiatives, but as a growth company, I think that DivX owes more to their investors. The company is in the middle of one of the hottest sectors of the new economy and to see them use their cash to buy back stock is a startling admission of how little conviction they have in the long term potential of their business. If DivX?셲 management really believes the company is undervalued, then why has there only been one insider purchase over the last six months? DivX may cite maximizing shareholder value as the rationale behind these moves, but closing down Stage6 to buy back their stock reeks of desperation. I may be misjudging the board?셲 motivation, but I can?셳 help but be suspicious that the real purpose behind the buyback announcement is to boost their stock price, so that their insiders can try to unload the business.

9 times out of 10, I?셝 argue that having the founders leave a company is a bad sign for investors, but in the case of DivX, I don?셳 think that it’s true. The people who really cared about the future have abandoned ship and Wall St. now controls DivX?셲 destiny. For investors to react to these events by selling off the stock 25% makes very little sense.

It?셲 hard to know what DivX would be worth to the right buyer, but I think that their recent sell off leaves them vulnerable to a low ball offer. If you strip out DivX?셲 cash, they are currently trading at an enterprise value of less than $200 million, their trailing 12 month P/E is at 18.50 and they are now trading at slightly more than 2 times book. For a company bringing in $80 million a year at 90%+ gross margins, this seem ridiculously undervalued in my opinion.

Whether DivX wasted money on Stage6 or not, their current valuation completely ignores the impact that the Stage6 savings will have on their earnings and certainly doesn?셳 reflect the potential that DivX?셲 board may be open to selling to the highest bidder. When you compare DivX?셲 current valuation to potential suitors, it?셲 easy to understand why DivX?셲 trojan horse would be worth a premium to the right strategic investor.

I hope that I?셫 wrong and that DivX?셲 attempts to maximize shareholder value only represents a temporary set back for their community, but when I connect the dots I see a board that is more interested in engineering short term profitability than in making the tough decisions necessary to ensure the long term success of the business. If the board was really in DivX for the long haul, it would have been easy for them to overlook DivX?셲 short term valuation while they tried to find a buyer for Stage6. If their goal was really to sell the company, then it was to their benefit to sacrifice Stage6.

Hopefully, I?셫 wrong about their plans and DivX will refocus on bringing innovative products to the market. Still, I can?셳 help but fear that the breakdown of Stage6 really represents the beginning of the end for a brand that I?셶e come to love. I?셫 in no position to pass judgment on DivX for thinking exclusively of their investors, but as a member of their community, it?셲 painful to lose one of my favorite web destinations over corporate profits.

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