Jerry Yang is no longer “Chief Yahoo.”  He left Yahoo after 17 years.

That’s the news most people read or hear. Most people don’t know Jerry or his approach.

Let me share a personal story.

In 1995 I first met Jerry at Yahoo. This was before the company was
public and before anyone really cared much at all about “the Internet”.

First thing I noticed were the purple chairs in the lobby. They looked
like something from a kids TV show set. Fun and different.

Jerry met me in the lobby and took me on a brief tour. Brief because
Yahoo was maybe 50 people then. Maybe. Everyone worked on one floor in a
rectangle-shaped area with Jerry in the middle.

He had the worst desk in the building in terms of placement. No window
view. In a hall. He said he liked to be in the middle of the action and
it made sense to me. Yahoo wasn’t about show or flash.

He walked me around to meet employees and I was pleasantly surprised
when a tall, lanky, rail-thin kid (about 6′ 4″) stood up and said
“Steve!” I did a double take and it was Mike Foster, a guy that went to
my high school in Southern California. Mike was a band geek in high
school and the last guy I would expect to see at Yahoo. And yet he was a
fit, Yahoo geeky cool.

Across from Jerry’s desk was a cubicle with scattered magazines, soda
cans, and more that looked like a college dorm had been crammed into it.

“David’s not here right now but that’s his desk”, Jerry said and pointed
to the genius clutter of his co-founder, David Filo. “He usually comes
to work barefoot”.

I thought to myself “great, it’s not about suits and ties and phony
image”.

Jerry led me to a conference room and went to get “the guys”. A few
minutes later CEO Tim Koogle and CFO Gary Valenzuela walked in with
Jerry.

We all sat down and talked about this new-fangled medium called the
Internet and discussed business models, the ad industry, if advertisers
would show up in this new medium. I talked about the cable TV, broadcast
and other mediums, how their mix of ads and subscriptions could
eventually be the Internet model.

Those were the days when there was no video, no audio, no advertising on
the Web and when few people at all were online. Those that were online
did so via Prodigy, Compuserve, or the new kid AOL. Those were NOT the
Internet, they were closed online services that required their own
software to sign on and deliver content.

After about an hour Jerry asked me to get some lunch with him. We exited
to the parking lot and I expected to see him march towards a fancy
sports car. He walked over to a beat up old Dodge Ram truck with a cab
on it.

“That’s mine,” he said. As I got in he mentioned not to worry about the
dog hair on the seat, that his dog (a Husky as I recall) often rode with
him. The dog wasn’t there that day but the hair and dog smell were. The
more I saw Jerry the more I thought he had something special. No flash
or gimmicks.

As we left the parking lot we passed a Taco Bell.

“That’s the unofficial company cafeteria,” Jerry said. “But today we’ll
go to a deli that’s a bit better. Besides, Marc Andreessen (Netscape
founder) also may be there, maybe we can say hello”.

My first impression of Jerry was he was not in it “for the money”, that
Yahoo was “something special” in tech, a creative, fun place to work, a
company leading the way into the untapped world of the Web as a
business.

A few months later I put together a conference in Los Angeles and
invited 12 CEOS of Internet companies to come and talk. I asked 12
figuring that maybe half would not show. They all did.

11 CEOs of the top Internet companies were sat around a fold out picnic
table, sitting on unforgiving metal foldout chairs. It was like the UN
of the Web. Between all of them lived the new industry.

Where was Jerry?

We waited a few minutes to start the conference and Jerry walked in,
smiling like a kid who just got an ice cream cone. He pulled up a chair
as the other CEOs made room.

“Sorry I was late, my plane was late”. Jerry had flown coach from San
Jose to LA, despite having put the first of a few million in the bank.

I asked every CEO at the table what they were focused on. All gave good
answers for the audience. Jerry said the most memorable:

“As I flew down here I was thinking the whole time how Yahoo can make
the user experience better”. I thought Yahoo at the time was already
light years ahead vs. the boring “home pages” done by others. Again, I
thought, this guy is pushing the edge, not satisfied. Good.

He was the only one who mentioned this, of the 12.

My immediate thought was “this guy gets it. He’s tuned in. He’s also not
arrogant but humble.” I knew then that Yahoo would go on to be a huge
success.

It did. Brand, financial and otherwise. That focus gave Yahoo the edge
to beat Excite, Infoseek, Lycos, Hotbot and many more search and
directory sites.

Yahoo crushed them on number of users, revenue, brand, growth, etc.

Why?

Jerry.

Since then the “user experience” has been the key ingredient of the Web.
Other companies picked up the mantle, even as Yahoo lost it.

Google.

eBay.

Amazon.

Friendster/MySpace/Facebook.

Twitter.

Alas…

Pundits can and will dissect what Yahoo has done wrong. Armchair
quarterbacking is easy. People who never knew the seed from the tree.

The one thing I know is Jerry Yang was the force at Yahoo before it got
haywire and Yahoo lost its role at the center of the Web experience.

It’s not about billions of dollars, etc.

It’s about a guy who had a dream and with a college buddy (David
Filo) did something that — for a time (even a long time in Internet
years) — was the world’s most-inspiring and original Internet company.

My hat’s off to Jerry and David. The Internet wouldn’t be the same
without their quirky vision.

-Steve

follow your heart

—

sh

Some interesting math is emerging now that Alibaba has closed a round of finance with DST, Silver Lake and others that valued Alibaba at $32 billion.

The interesting part is Yahoo (YHOO), which owns 43% of Alibaba and some other valuable stuff. Read on.

I ran some calculations and to me it shows Yahoo trading at under $2 billion enterprise value.

Here’s the math, in billions $:

$32.00   Alibaba latest financing with DST and Silver Lake (Yahoo owns 43% of Alibaba)

$13.76   Yahoo’s Alibaba stake value

$0.62    Value of Yahoo’s 35% stake in Yahoo Japan

$18.36   YHOO market cap as of Sept. 27, 2011 close

$4.60    YHOO market cap LESS Alibaba stake

$3.98    YHOO market cap LESS Yahoo Japan stake

$2.55    YHOO cash MRQ

$1.43    YHOO market cap – offbalance sheet assets + cash

$0.04    YHOO debt MRQ

———————————–

$1.47 BILLION   YHOO core enterprise value

WTF, over? $1.47 billion core enterprise value for a global Internet brand and over 500 million users.

Sure, Yahoo has problems. Yes, it has no CEO. But the way the last one performed that’s maybe a good thing.

With private company valuations for Twitter, Zynga and others soaring passed the $7 billion range EACH, it makes zero sense to me that Yahoo with its cash, brand, goodwill and off balance sheet assets is valued at $1.47 billion effectively.

If I was Steve Ballmer I’d be on a plane to Sunnyvale, CA tonight and get this deal done.

Or AOL’s CEO Tim Armstrong. He ought to be camping out at Yahooville and do a stock deal, roll this up ASAP.

I don’t see Silver Lake or DST continuing to let Yahoo control such a big piece of Alibaba. That’s the spark here. The fire is on.

Steve Harmon

————

(Observations from an Internet veteran, who’s been a VC, entrepreneur, corporate executive, analyst and more)

Walking into this year’s Techcrunch Disrupt technology conference was like a scene out of a Jay Z video. But let me start the soundtrack first…

Uhh, uh uh uh

It’s big pimpin baby..

It’s big pimpin, spendin G’s

Feel me.. uh-huh uhh, uh-huh..

Ge-ge-geyeah, geyeah

Ge-ge-geyeah, geyeah..

Here’s the scene: Sweaty palms bridled with hormone-raging enthusiasm. The smell of greasepaint, the hype of the crowd. Dance moves and suave smiles masking fear and anxiety of a thousand entrepreneurs hitting the exhibit floor trying to get attention here. Bust a move.

The encore is an interview with John Doerr, who wrote the foreword for my book and I’m looking forward to hearing. But that’s later. Good to see John back in the Internet mix again.

Now it’s about the entrepreneurs hustling.

The scene inside didn’t contrast that much from outside the venue where a homeless guy draws his version of Picasso, oblivious to the artists and onlookers crowding into the San Francisco Design Center. You see it’s all about channeling your inner entrepreneur.

Near the entrance, two girls hired to hold onto mini hot air balloons hold on to them for dear life as the wind picks up, threatening to re-enact a scene from the movie “Up”. I thought that would have made the demo rock. But they stayed grounded, even as the balloons whacked a few people sideways.

Right next to the balloon girls, rental car newbie Getaround hawks its cars, getting attention with a red Tesla roadster that you can rent for “just $75 an hour”. I ask if they rent Ferraris and am told the insurance won’t cover anything over 300 horsepower.

Somehow it’s perfect, the mix of chaos, dreams and unbridled capitalism (or drunken greed). If only San Francisco 1971 could see San Francisco 2011. Whatever turns you on, baby.

Inside the cavernous Design Center hall where the conference and exhibit is taking place about 750 people coagulate around various startups lined up end to end like a red-light district in Amsterdam. Oh yes, the pimping is on. Each wants to be the “one”, the one that everyone picks as best.

Two exhibitors stand next to their booth, arms crossed. Trying desperately to catch passersby. Maybe they’re casting Napoleon Dynamite 2. A woman hired to wear a geisha outfit gets more attention at the booth nearby. She ain’t a coder but she is herding attendees into the booth area. Marketing 101.

So who’s exhibiting here in Startup Alley, the rows of startups who paid to showcase their offerings? A quick stroll reveals lots of companies trying to figure out how to exploit the “social graph”. I don’t know but the term “social graph” sounded cool in 2008 and now sounds like a social scientist thesis. I prefer “people interests”.

Another few dozen want to bring “gamification” to everything. Get a badge for saying hello. Shakespeare had it so fucking wrong. Life is not a stage, it’s a game. Mark Pincus (an old friend of mine and the founder of Zynga) is the new game master. Fittingly, Zynga is headquartered right next to the design center.

Now let’s you and I continue our stroll through the hall and I’ll just tell you who I meet.

Looking like a linebacker for the Chicago Bears (where he hails from) Mike Fogarty has a dream. He’s standing near his exhibit, looking out at the crowd. I have no idea what Mike’s venture is about, the monitor is hidden and something about “Mantle”. So I ask. Mike’s dream is to have friends share their DVD collection on Facebook. He’s pitched investors. I offer Mike some advice: find a way for businesses to use this, video shops perhaps. Uploading DVD titles is a pain in the ass. Give people a reason: fun or profits.

Just a few tables down, all of 4 feet 10 or so, Charlotte Hu (from China) shows off the new iPad browser her company made, the Dolphin browser. She uses her finger to write a gesture on the iPad screen, the shape of a “T” and the twitter home page loads. No typing. No URL. Just a gesture. I like it. As we move more and more into touch screen interfaces it makes sense to me to have gestures rather than boring typing keyboards. I show Charlotte my blog in Chinese and ask her what it says (I cannot read Chinese). I’m hoping it’s my name at the top…and it is. I give her a homework assignment, read my blog in Chinese.

I bump into Denis Harscoat and his venture Did This. What’s it do? It’s about doing stuff. OK. Bottom line: you ask your friends to cheer you on as you do stuff. Doing is better than not doing so I kind of like it. Sort a. But I’m also burned out on asking friends to follow my morning corn flakes consumption. I’m going to keep an eye on it since actions do speak louder than words.

At another table…there are photo apps proliferating like Kardashians on cable TV. So I stop at Snapette to see what the fuss is about. Co-founder and CEO Sarah Paiji walks me through the app. It’s photos of fashion: shoes, handbags. I ask if they’re for sale. No, these are just photos of things women have taken snap shots of with their mobile phone. I suggest it may be cool to allow people to buy the items. Or maybe let a user create a wish list and anyone can tap and buy it. Wedding registries and birthdays, holidays seem a perfect way to turn this into buying. As for me? looking at ladies shoes photos doesn’t quite cut it but I appreciate that many people may enjoy that. I am not a Kardashian.

Two fellows hawking a weather map looking app catch my attention. Yaron Reich tells me how his app works: it predicts the weather, when it will rain anywhere in the world. OK, I ask, when will it rain next in the Sahara? Without missing a beat Yaron says “never”. On the PC monitor screen a map with clouds appears and he asks me pick a place. I spout out Riverside, California, where I grew up. I know how many days it rains there (about 3 a year). He moves some clouds around on the screen with his finger. Hmmm, I don’t get this. But if you can indeed predict the weather then hikers, bikers, outdoor types and farmers, would love it. And weathercasters would be unemployed. Yaron is also in the Israeli army and I ask him to say hello to a friend I have in Tel Aviv.

Across the aisle, two quiet Japanese guys dressed in white shirts and ties that look all of 18 invite me to see their demo. 5 Second video. They hail from Tokyo. What gets me super excited is that I recall that not even a decade ago there weren’t many entrepreneurs outside the US and Silicon Valley. I was in Tokyo in the 1990s and nothing. It is truly more global now. Anyway, what 5 Second video does is let you post…yes, 5 seconds of video online. They describe it as the “twitter for video”. Now I don’t know if you’ve ever been to Japan but to me this idea is very Japanese. High cool factor. I think it could catch on over there. I even kind of like it. This is the fruit fly attention span era we all live in. Twitter reduced the world to 140k. I’m saying let’s take it even further: no words, just facial expressions. Upload and express. 5 Seconds is about right. And I really think it’ll be a hit in Japan. Ryuji and Shinnosuke are the founders.

As I make my way for the exit, near the door a woman slaps a postcard into my hand, inviting me to an RV from one of the sponsors parked out front. A couple of attendees pass me and spring into the Winnebago in search of free beer. After one or two of them the karaoke begins, a Billy Joel song: ‘My Life’ echoes through the outdoor air, out of place anywhere but SF. The guy can actually sing. I’m waiting for the chorus and yep, nailed it.

I prefer the Jay Z exit.

Uhh.. smokin out, throwin up, keepin lean up in my cup

All my car got leather and wood, in my hood we call it buck

Buck? Yeah. Entrepreneur pimpin and all.

I’m out.

Steve

—-

p.s.

share this with friends, casual acquaintances, BFFs, friends without benefits, and others…the social web is here

—-

This summer is turning into a love fest so far for Internet stocks.
Maybe it’s the blockbuster movies or the digital generation sighing a
collective “duh?” as the world revolves more and more around being
connected.

Between the Hangover 2, Transformers, Green Hornet and Thor it’s been a
super hero summer (I’m counting the monkey in Hangover 2 as the super
one). Ditto for Internet.

First we has Yandex go public. If you haven’t heard of them it’s natural
because they’re a Russian-based Internet company. Some say Yandex is the
‘Google’ of Russia. (Don’t confuse them with Spandex).

Then there was Pandora, the popular iPhone music service. It had a nice
debut, rose above offering price, dipped below and then crept back up.
To me the uncertainty with Pandora is what impact popular European-based
music leader Spotify will have when (if) it debuts in the U.S. Rumors
have a Spotify-Facebook teamup possible. Not surprising since Marc
Andreessen is on Facebook’s board and a big Spotify fan.

LinkedIn also went public. The resume and co-worker comment network
popped out the gate and has continued the climb. The major risk I see is
that Facebook app maker Branchout (which lets you share your resume on
Facebook) seems to be picking up steam. LinkedIn’s best move would be to
acquire Branchout and seal the market. Remember what happened to MySpace
when it let Facebook run? Or Friendster when MySpace ran? Acquire and
add the rocket fuel to your effort.

Deal slasher Groupon also filed to go public, as did Zynga, the
Facebook-heavy social gamer…in no time I expect to see Facebook file
its own offering.

Have we seen this movie before?

In 1994 when I first got into the Internet “industry” my belief was that
this new commercialized medium would become ubiquitous. In 1999 when I
was in China and Europe looking at movement in the Internet there was
little. China had nobody online then and today has over 400 million.

Nowadays in many ways the early vision and promise is being fulfilled as
the world depends on the Internet for global commerce and
communications. Whether it’s on a PC, tablet, device or mobile phone the
inter-connectedness is 24/7/365.

Like Google’s IPO several years ago many thought it was priced high. And
then the revenue skyrocketed and the valuation came inline quickly with
strong cash flow and earnings.

In 1997 a few people thought Amazon was overvalued at its IPO…back
then I recommended it at a split-adjusted $1.50 per share, calling it
the “Walmart of the Web” when it only sold books. Amazon stock is $218
now. In fact, I still think Amazon has a ways to go.

Which brings about the question: are the valuations of these
newly-public firms out of whack? For some I would say “yes” and others I
would say “no”.

The underlying driver of value to me is beyond just saving people time
and money…it’s bringing them information or entertainment that makes their
time and money more enjoyable. More fun. More worthwhile.

There are 10 holes in Apple’s future. First let’s go back to the future…

Back in the good old MS-DOS days I used to lug my Mac to work, plug it in and plunder away in the world of a windows GUI while my colleagues toiled with keyboard commands using green font on a black CRT.

I eventually succumbed to MS-DOS since the floppies we used to transfer work on — the 5.25″ ones that really were ‘floppy’ — were lingua franca in the office.

Eventually I enjoyed the fact that I spoke two computer languages – Mac and MS-DOS.
And before that, as a teen I sold all sorts of computers, from Macs to Zenith to Amigas.

I say all this because I was one of the real Mac and PC evangelists from the beginning of the personal computer era, out there on the front lines selling these contraptions when fewer than 1 in 100 homes even had a computer.

Now with the iPad starring in a global tour it’s interesting to see what Apple has done to get to the #1 spot with consumers. Now, computers are “cool”. And basically everyone’s got one of some sort, from a phone to a desktop, laptop, tablet.

Yet with all the fanfare and finesse that has brought Apple to this magical spot, there are still holes in its solutions, in its products for consumers and businesses.

Here they are:

1) NO UNIVERSAL SEARCH

Why it matters: As long as Google owns this piece then Apple cannot deliver a full range of services to its users. Why? People will start with Google and Google will feed them its own solutions.

2) ITUNES DOESN’T STREAM DIRECT

Why it matters: The world of media is moving into the cloud. Apple’s iTunes ‘store’ requires you to purchase and download movies, TV shows, audio, etc. Downloading a movie is not practical unless you want to buy a movie to watch tomorrow. Contrast that with Amazon’s Instant Video solution that streams to multiple devices and allows download if you want. The key is the user has the choice and streaming is a “now” method. Click and watch.

3) APP ECOSYSTEM DOESN’T INTEROPERATE

Why it matters: The Web grew dramatically from the beginning since developers could build a page, process or data and have it interoperate with other Web pages, processes or data. The whole idea of “hypertext markup language (HTML) is to link to each other. Meanwhile, Apple’s apps are self contained and have no interaction with each other or the Web — at least on a level that the Web does. Open an app on your iPhone or iPad and that app is not aware of a world larger than itself. Users have to launch each app one by one.

4) THE MARKETING MAGIC

At some point the idea that everything Apple makes is revolutionary will wear off. iPod, iPhone and iPad are revolutionary. But not each upgrade of these systems is. Upgrades are evolutionary. The problem is the media promotes everything Apple does as revolutionary. This can hurt the company over time. Save the “revolutionary” tag for breakthroughs.

5) DEPLOYMENT TIMES

Apple acquired mobile app maker Siri last Spring and the technology hasn’t yet been mainstreamed into Apple’s mobile solutions. Siri is a revolutionary product that allows users to navigate the world quite well. This could answer point #1 above since Siri is a more natural way to search than Google.

6) CONTROL

Like many other tech companies, Apple wants to funnel the world’s information through its systems. This is what Microsoft, Google, and Sony, among others, are trying to do. If we flip the idea over, having your information on any system ensures user adoption. The analogy is a movie shown in any theater vs. just a few. The challenge is balance. The walled garden of a great experience and then the access to the universe of information and content outside it.

7) STEVE

Steve Jobs makes Apple cool. He did that in 1977 and 1997 and 2007, and today. Without Jobs Apple would be a footnote, the Amiga of its day. The good thing is Steve has imbibed coolness into Apple’s culture. They need to continue to keep design and cool at the forefront. Having lived through the Performa debacle this is no small thing. Steve’s coolness is Apple and it is bigger than Steve now, like a genie out of the bottle. No more Gil Amelios or the Pepsi guy, John Sculley. They were good at other companies but not right for Apple.

TOO COOL TO FAIL

That said, the other side of “cool” is thinking you’re foolproof. That everything you do automatically is bestowed with the mantle of cool. The problem is that that kind of ego eventually backfires. It only takes one lousy product to dampen a lot of coolness.

9) PAYMENTS

Consumers want easy payments without having to enter laborious and archaic credit card data every time they buy something. Visa and Mastercard have built a business on plastic that’s not needed. PayPal proved them wrong. Amazon did it even better. Today, Amazon has “pay phrase” where you can enter any words you like and pay using your Amazon account. Apple has iTunes with credit card data but it’s not convenient or leading edge. And iTunes has way too many “agreements” when you long on to the app store or iTunes store, agree to 46 pages before you can buy an app? Amazon has never done that. Apple needs to learn from Amazon a few things about payments. PayPal too.

10) DESIGN

The most valuable thing Apple has is design sense.  Its why the iPhone looks and feels “better” than any other smartphone. It’s why a MacBook beats a Dell or HP laptop. It’s why an iPad beats other tablets. One of the most under-rated things in technology is the value of the user experience. A lot of computer companies promote chip speed, graphic chips, etc., but these are only useful if the user experience is superior. A fast chip is wasted with a bad GUI or clumsy interface. Apple needs more ways to get inside its services other than iTunes. Apple should be design-centric and available across a myriad of access methods without having to load software. Bottom line: Apple has to work in a super magical cloud rather than clients like iTunes and iOS.
All this said, Apple is the one to beat. Right now no other company comes close to engaging the imagination of consumers on any level.
—
Your thoughts? send ‘em to:
steve <at> steveharmon.com

If you like tech and geeky stuff read on. If not, pop a cold one and chill out. Otherwise, continue on…

Since the dawn of time there’s been more data than brains. It’s taken human kind umpteen cycles of sun and moon to invent computers and try and filter the peanut butter of life through computers to try and extract meaning.

And we end up with more nuts than butter.

To put this in geek speak we have more data than humans can filter or use. Data about data and data about the data’s data. That’s largely why many of us have given the halo effect to search engines and anything that can take the geyser and make something useful from it.

In Silicon Valley the term for what’s happening is “big data.” The Holy Grail of techdom is to take this effluent and turn it into Fiji water, pure and clean, safe to drink.

For example, with all the personal data shared on social networks and status streams, forums and blogs there’s a lot of data being created every second. Most of it is the banal kind: I like Pepsi. Charlie Sheen sucks (or doesn’t). Etc.

Over half of facebook users log in daily, about 200 million. Most of what they do is share photos and links from the Web. Maybe a personal tidbit. The ether of life.

Over 140 million tweets are sent daily. Voices that want to be heard, followed.

I share, therefore I am.

It is this “digital persona” that’s driving big data, like silkworms on nzt (see the movie ‘limitless’ for the reference).

This big data movement is behind the growth and valuations of the companies that are glueing together our digital lives into something organized and, therefore, meaningful. Facebook valued at $85 billion is an example. Twitter, Zynga and others also command healthy valuations.

There are numerous new startups attacking big data in many ways. Many ways to process and filter: government, military, consumer, retail, manufacturing, healthcare, real estate and more. They are not household names. They probably never will be as larger enterprise giants gobble them up over the next decade.

In a way, the Web itself was born of big data. Netscape, GNN, Architext, Yahoo, Inktomi, eBay, Google, Expedia…and many more. The premise is the same: organize data and make it meaningful.

Analyzing, extracting, finding the gems in the ebb and flow of information. It’s not panning for gold as much as it is turning mined
ore into gold. Or trying to.

In your pocket you may have a “smart phone”. I do. But the truth is, despite that phone having some cool finger controls and nice shiny screen, it’s not smart at all. Insert a GPS chip and it’s still not smart, just location aware.

The challenge for big data is that data itself is mostly old-fashioned data, cro-magnon data. Its structure is wrong for much of what we want to do with data. Data now is sort of like the awkward teen dancing out of rhythm with two left feet and braces.

Data itself has dimension but our tools are flat, 1D. That’s why a general search engine like Google is losing relevancy in every query.
It’s displaying the equivalent of a painting of data but not the data itself.

Let me use another analogy. Paintings in the Middle Ages were without perspective. There was no depth. They were flat, sort of like comic strips are drawn today. It wasn’t until the Renaissance that perspective showed up in paintings, the lines going off into the distance that showed shadow, that reflected life. Photography owes a lot to this, as does architecture and many things today.

Two things need to happen to make data more valuable to us.

1) data needs to be better made (more descriptive, complete with attributes, context, awareness, commerce, relationships, more like DNA)

2) the way we interact with data needs to evolve beyond read-write, client-server. More like an organism lives and adapts to circumstance.

In this scenario, we wouldn’t have a “search engine” or even a “social network”, we’d have data find us, data work for us, data help us. Data would be connecting and disconnecting all the time by means of its own DNA configured to our taste/need/vocation/activity/life.

Right now we’re doing all the work. Data isn’t.

$10,000 is spent every second in the United States to try and get your attention. 24 hours a day, 7 days a week. Heck, 8 of those hours you’re sleeping and if they could find a way to interrupt that they would. (Don’t be surprised to find ads on your pillow case soon).

Of that $10,000 spent every second how much actually generates a return on investment to the advertiser? 1/10^th of 1%. A quick tally shows $10 bucks. Just 10. So, for every $10,000 spent trying to convince you to pay attention to an advertisement, only $10 worth actually makes your brain pause.

The rest makes your brain freeze (and not the good kind like a Slurpee). How about a big picture breakdown of the numbers:

I ran a little test to put this experiment in the real world. Both in print and online.  In print I used a large newspaper in Southern California and bought both a display ad (a graphic ad) in the paper and an online ad. The online ad was targeted to one city where the readers/users would recognize the business being advertised.

Results from the newspaper ad? 3 clicks out of at least 12,500 impressions served.

A similar text ad was placed in Google Ad words. In one week Google Ad Words delivered a whopping 16 impressions (and no clicks). Tells me two things 1) Google isn’t as widespread as it appears and 2) Google cannot deliver a hyper-local ad unit effectively.

Of course a lot of the click through and impressions depend on the ad itself. But this experiment is about the general adoption and reaction to an attractive ad.

The experiment confirms my theory that advertising is dead. Beyond dead, petrified.  And the sad part is that so-called “interactive” advertising is not really interactive at all. Just because a banner can be clicked doesn’t make it interactive. Just because the ad expands on mouseover doesn’t make it better.

And a new flavor of ad has appeared: re-targeting. This is where the advertiser places a cookie (a tracker) on your computer and tracks the sites and things you do. It then starts delivering ads based on your clickstream, all without you knowing it’s snooping you. In fact, these aren’t ads, they’re “snoops”.

Another bad idea from the advertising world.

Heaven forbid you stumble into YouTube now and see the overlay ads they show on videos. Yet another old-fashioned idea foisted on the user. How friendly is that? In the rush to monetize they’ve thrown user-friendliness out the door.

Ditto for Twitter. Promoted Tweets.  Just call it an ad. That’s what it is. “Here’s an ad designed to look like a tweet”.  Perhaps a better approach would be to actually offer users something valuable rather than just another ad. There are many other ways to monetize this vs. ads as tweets.

And last week Facebook got into the movie streaming business via a deal with Warner Bros. It’s actually one of the better ways to monetize Facebook vs. showing banner ads or a friend’s photo alongside a jar of Skippy peanut butter.

At its heart Google tries to match search terms with an ad. However, Google Ad Words allows advertisers to include keywords in their ads, even if they don’t have the item. This happened to me on several experimental searches where the sponsored ads included the product name. But, when clicked, the ad took me to the home page of the site. Even after re-typing the product on the site, they didn’t have the item.

So, you see, it doesn’t work. Advertisers are spamming and gaming the system at Google. And Google gives them the tools to do that by allowing search keywords to be included dynamically in the ads. Google could/should crosscheck the terms with landing pages at the sites but they don’t. Again, poor user experience.

The world of spam and carpet-bombing advertisement (which is 100% of it now) is dying. How fast it dies depends on the tolerance level of everyone to endure being spat on with messages nobody wants to hear.

We will have a world where there isn’t any advertising. What will replace it will be something far more effective and relevant to everyone personally.  People are ready for it. Technology is able to do it. It’s the advertisers that aren’t willing, they’re caught in the past.

If it took you 3 minutes or so to read this then another $1.7 million was spent trying to get your attention by the advertisers. What could you have done with that money?

I was scanning the news and saw that Google wanted to acquire daily deal site Groupon for about $6 billion. Apparently the two sides had been chatting over movies and popcorn before Groupon got up mid-way through the movie and left the cinema.

A further scan of the landscape reveals something that the media and venture capital guys just don’t see.

It’s there in your gut, your intuitive sense of what works and what doesn’t.

The reality is that advertising is dead. All ads. Like a big beached whale.

TV, radio, banner ads online, print and any other kind.  There’s $300 billion spent on advertising in the U.S. every year to try and convince all of us to buy a product.

It’s done in clever ways with funny stories, skits, online soap operas, etc. Companies huddle with agencies and try and dream up fantastic stories about how to get consumers to buy something. We end up laughing at the commercial and forgetting the product.

And none of it works.

When was the last time you saw an ad in ANY medium and responded to it? Bought the item based on the ad?

Next to never. Let’s look at the stats:

The click through rate for online ads is about 0.2% (way less than 1%). If we were measuring that in flea lengths then that’s fine. 2 clicks for every 1,000 banner ads served. On social networks like Facebook the click through is subterranean, about 400 clicks for every 1 million views.

It’s because advertising doesn’t work. It’s the big dead elephant in the room of every media company.

The U.S. Postal Service delivered more than 6 billion pieces of direct mail in the first quarter of this year. Of those direct mail pieces most ended up in the landfill or recycle bin. That’s a lot of printing, postage, handling, trucking, gasoline used, and boxing for something to end up in the trash or returned to a recycle plant.

When was the last time you received a direct mail piece and bought an item from it?

Now YouTube has ads. Overlays and Pre-roll. In fact, many online video have ads now, following in the footsteps of how TV ads are done. Which is to say, show as many ads as possible and hope someone notices. But are they clicking?

DoubleClick (part of Google) serves billions of video ads every year and reported that click through rates for online video ads are between 0.4 percent to 0.74 percent.

Like banner ads, nobody is clicking video ads. I don’t. I close the window anytime a video site wants me to endure their ad. I just don’t have time for that broadcast TV-era game any more.

The holy grail is supposed to be mobile ads. That’s why Google bought AdMob and Apple bought the company that became iAds. If you’ve used an iPhone or gPhone (Android) then you’ve seen these ads. They are similar to any Web banner ad. That is to say, most are general and have nothing to do with your intent, location or much else. The same folks that convinced the TV networks to create an ad for Axe about clean balls also sold them on the mobile ad.

And, you’ve likely ignored these ads also.

Let’s put this all in dollar terms.

If $300 billion is spent on ads every year and 0.5 percent are actually “hitting the target” then it’s safe to say advertising doesn’t work. $300 billion spent but only $1.5 billion (0.5 percent) was effective.

Let’s use some analogies to better understand this.

If you asked a rifle marksman how many times he hit a bullseye and he said 1 time for every 200 attempts you’d say he wasn’t a marksman and should find a day job.

If a restaurant had 2 paying customers for every 400 that walked into the door it would be out of business.

It’s like Hollywood generating 250,000 in ticket sales for a $50 million budget movie. Ticket sales @ $10 each would yield $2.5 million. Not enough to pay Angelina Jolie’s makeup and wardrobe bill.

If any other industry in the world generated as poor of returns as advertising then they wouldn’t exist.

The problem with advertising is that it operates according to the way it has for centuries: mass market. One size fits all. Even newer ways like “retargeting” which tracks your behavior over sites to make ads more effective are just building on that model. Bombard and submit.

Google opened the door to performance advertising with Ad Words and Ad Sense (of which I was an investor before Google acquired it). While those results are better “relative” to banner ads and other mediums they are still in single percentages in terms of effectiveness.

Now a company like Groupon exists precisely because other forms of advertising are so poor. Businesses desperate to bring in customers have given Groupon up to 50% of the sale because their advertising in other venues was not effective.

But giving away that much margin isn’t sustainable for any business over time. The fact is that if other mediums were delivering customers cheaply and reliably through advertising then Groupon wouldn’t even exist. And even Groupon isn’t the perfect ad model.

The question I ask is “what if advertising was flipped around, if click through rates were 99.5%?” What if every ad was welcome to the user in ways no ad is today? What if there wasn’t an “ad” at all?

As an analyst with more than 20 years in media, and as an entrepreneur and investor, I’ve debated taking in ad revenue for my venture Taleee from banner ads/text ads vs. aiming for a superior experience that will benefit users. I don’t want to go for the old game of 0.5% click through by bombarding 100 million users with ads they don’t want and have no value to them.

Said another way, the entire $300 billion advertising industry is up for grabs since today’s advertising just doesn’t work.  It is my belief that a huge opportunity exists here – and one we’re working on – to give users something better than ads.

Beyond advertising.

steve <at> steveharmon.com