On Fair Use

Google just announced the expansion of its AdWords system to its Google News search results. While this may seem a natural extension of Google's primary revenue model, several newspapers are likely to raise arms over someone else making ad revenue on their content.

Recall the lawsuit that a Belgian newspaper slapped Google with, claiming the search company unlawfully used excerpts of its content. In particular, the newspaper had issues with excerpts that were kept from articles that had since been removed from its website and moved to the realm of paid archived content.

Google has faced similar scrutiny from critics of its popular image search service. For one, the service requires several clicks before the user can visit the actual web page where the image resides. All the while, the user is able to see the image and remains on the Google website. Some have also had an issue with the mere use of thumbnails in the search results. While most would argue that this falls within the realm of fair use, the debate certainly exists. Just check out this lawsuit threatened by an adult website.

Now that Google has taken the step to monetize its news search results, it invites newspapers to cite the first stated factor in determining violation of fair use:

US CODE: Title 17,107. Limitations on exclusive rights: Fair use

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;
(2) the nature of the copyrighted work;
(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and
(4) the effect of the use upon the potential market for or value of the copyrighted work.

I have no training in the law, but having seen the inconspicuous links on the right-hand side of the news search results, I don't see it as a breach of fair use.

Assuming the news excerpts are short enough, I think Google has the right to display them. (I love it when Google gives me free web traffic, but I respect a media company's right to be forgotten and irrelevant.) If Google has this right, I also think it has the right to make money for providing this service, just so long as the means aren't deceptive, clearly harmful to the market value of the excerpted content, or both.

Again, having seen the innocuous nature of the sponsored links on the right-hand side of the search results page, my initial reaction is to deem this new Google practice as fair.

I welcome anyone else's opinion on this matter.

Good Times for Entrepreneurs?

Entrepreneurship has become attractive...considering the alternatives

Entrepreneurship has been in style for quite some time here in the United States. Ever since the last stock market bubble at the turn of the millennium, people have learned to appreicate the fiery spirit of the agile, small-cap companies. The business atmosphere gave rise to new entrepreneurs, held accountable to provide real business models to support their valuations.

However, in recent years Web 2.0 start-ups had been creating a bubble for the risk capital that is so essential for entrepreneurial firms. Just browse some of the companies on TradeVibes and you get a feel for some of the frivolity that once again characterized the web space. Several millions in VC money were thrown at some also-ran concepts. I mean, how many video sharing websites can the market support? How many x's, v's, and z's do you need in your domain name? (If these entrepreneurs were pushing pills it would be one thing, but people actually have to type these domain names into an address bar.)

So, what happened to the Web 2.0 bubble burst? It was precluded by the credit crisis, making a few goofy VC-backed deals look like child's play. The end result, however, is the same. There's very little capital out there for start-ups. Even some of the most legitimate companies and most enticing deals are met with undue friction, if not all-out rejection. It's a simple supply problem: Trillions of dollars in capital were sucked out of the economy in the matter of a few months!

I have seen the consequences of this firsthand, although in a somewhat contrived format. When I was at the Venture Capital Investment Competition in Boulder last week, I was shocked at the low valuations offered by some of the MBA teams. Even more telling were the reactions by the vast majority of the VC judges. Our team ended up offering the highest pre-money valuation to the entrepreneurs than any other team. While I am limited in what I can say about the company in question due to an NDA, I will say that my instinct (and analysis!) told me that the company was worth much more than what the judges wanted to admit. However, I'm not one to fight the market. If capital is limited, valuations will be depressed. Period. Lesson learned.

To many of you this may be perfectly obvious. Of course, if the economy is doing poorly start-up capital is scarce and the market opportunity for most businesses is dwindling--if existent at all. However, I feel compelled to set the record straight because many people are now attracted to entrepreneurship, some even saying that it's a great opportunity to become an entrepreneur. While this might be the case, it could only be because of a lack of options.

Taking the rose-tinted glasses off for a second, one must realize that entrepreneurship is still about money. Cash flows are the lifeblood of entrepreneurial firms and there's currently very little cash to "flow" around. Start-up capital is minimal, and--perhaps more importantly--consumers have a lot less money to spend. It's true that an entrepreneur might be able to scale down for a few years of austerity and position himself for better times, but not everyone has that luxury. Many businesses are heavy on capital expenditures and hefty overhead costs. On a more personal note, many people have mortgages and dependent children.

Putting the rose-tinted glasses back on, one must also admit that these trying times could present opportunities to the most creative among us who can adapt to the changing times and innovate in product, process, or business model. I have no doubt that entrepreneurs will play a lead role in the turnaround of the (world) economy, creating value through innovative products and services, and creating jobs for the would-be unemployed.

However, it is dangerous to make a blanket statement in praise of the opportunities in entrepreneurship. It might seem attractive because of the recent dramatic decrease in opportunity costs, but the market is tough out there...people aren't getting fired because of a favorable business climate.

So, try your hand as an entrepreneur, but only if you have the huevos or the great fortune to withstand a bumpy ride. If you're doing it for quick money and fanfare, you might want to wait for the turnaround when there's some capital to be had.

The Value of Twitter

Twitter recently signed a term sheet with a VC firm for a reported $20+ million at a $250 million valuation. According to Silicon Alley Insider, the lofty valuation implies that each of the billion or so tweets is worth $0.20. Perhaps more telling is the $40 average attributed to Twitter's 6 million users.

Justified? Maybe, but how? That's the 250-million-dollar question these days. How will Twitter make money?

Twitter probably poses the toughest monetization challenge we've ever seen on the web. For those who would say that Facebook faces similar challenges, let me point out that many of Twitter's most avid users never visit the website. Advertisements would not reach people who text their tweets. Also, factoring in the fickle nature of many Twitter users, you might just alienate too many people with an ad campaign that might not monetize well on a CPM basis, anyway.

What about the data that Twitter provides? That must be valuable, right? Yes, it is of great value to marketers, but who is going to pay for something that is already largely available? There are plenty of web tools out there that can help make sense out of Twitter data, presenting it in all sorts of different ways. Also, big businesses pay top-flight marketing companies like Networked Insights to make sense of the chatter surrounding their brands on websites like Twitter. The information that Twitter provides is already public, open to Google and all sorts of start-ups that offer insight into what happens on the micro-blogging site. What will Twitter do--make information only viewable behind a log-in, preventing Google's spiders from indexing it? This would go against the spirit of Twitter and its millions of users...which is a bad idea.

As for other options, Silicon Alley Insider once again offers some insight with its recent Twitter Business Model Contest. The "Twitter Antenna" program proposed by the contest winner resembles a paid data program, except that it allows companies to have direct correspondence with select groups of "tweeters" about their brands. The Antenna program would be optional, and among the main reasons for people to opt in is the desire to be heard. While few would doubt that this very human desire strikes at the heart of Twitter, it's unclear whether a conscious effort to profit from it will be met with anything but suspicion (to put it lightly). People like to spout off and vent--especially when someone is listening--but most tweeters aren't in it to make (other) companies rich. Case in point: many people refuse to reciprocate a follow from a company, especially if that company appears too self-serving in its tweets.

With that said, many companies do find value in Twitter. Dell attributed millions of dollars worth of sales to Twitter on Super Bowl Sunday. (Check out how Networked Insights ranked Super Bowl advertisers on "social ROI".) By simply shooting out promo codes for computer deals on the DellOutlet micro-blog, Dell was able to generate huge extremely low-cost sales from viral "re-tweet-style" (What is a re-tweet?) marketing.

As it appears, Twitter does create some real value. But for whom? Dell has harnessed the power of Twitter to boost sales. Guy Kawasaki, perhaps the most influential user, seems to be sold on the concept. What about Twitter itself? How do they cash in? We should see the beginning of this answer (if there is one) in 2009.