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A rock’n'roll Super Bowl in which Google is miscast

The combination of The Who at halftime followed by an onside kick to start the second half could not have been planned any better. While Pete Townsend’s version of a Janet Jackson trick will not have the same newsstand impact and will probably not ban the aging mod guitarist from English pubs anytime soon, and although Roger Daltrey seemed to be lipsynching at times – but that may have been my digital cable system doing its magical leading-edge thing – the act was a reminder of what rock’n'roll used to be: full of passion, full of humor, full of attitude, and the occasional slip… in short, the equivalent of a football onside kick at the completely unexpected and almost shockingly inappropriate time. And because an onside kick is after all the very epitome of surprise, or so it is meant, its execution at the completely unexpected moment is perfect. That for almost ten minutes after the fact a number of separate brawls ensued on the field, while the pile of human bodies had to be scraped off the artificial turf by spectacularly helpless referees with the microphones still turned on, that was a true rock’n'roll moment. I loved it. The confusion! The roughness! The high notes! The high opera! The slang!

So what a downer it was, with a nearly disorienting effect, seeing a commercial for Google’s search functionality (of all things) a short while later, in which some dude is trying to find ways to impress a French girl by searching for ideas online. Now doesn’t that just bring us back down to earth with a big resounding thud. It speaks to us also, in a sense, of other directions in popular culture, which have at least in the rock’n'roll sense gone farther and farther away from the street-smart majesty of The Who and gravitated instead towards the milquetoasty, though somehow still condescending, garble of Radiohead and Wilco and the like, whose message, I believe, is something along the following lines… paraphrasing, please correct if wrong: “I have a headache/the world is grey/I need an Advil®/my sweater has a hole.” [It was impossible to convey in writing, but I took a few minutes off from typing just now in order to suppress a series of yawns and wipe the mist off my eyeglasses. Now I'm back.] Alas… where was I? Yes, but luckily, indie music dude, you can find ways to impress an unsuspecting future girlfriend (poor soul) on Google! At times like these, I tend to sympathize with China.

But kidding aside, at times like these, I tend to sympathize with Apple. Going with the variety of analogies in this article, you have to give credit to Steve Jobs for showing spirit, for opting for the onside kick to start the second half, for taking a risk and doing the unexpected, thinking well beyond convention and taking on many established norms. This, I believe, is the essence of entrepreneurship, and should serve as inspiration for entrepreneurs everywhere, and others. I leave you with a playlist to further illustrate the point.

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By Dan Ramsden – February 8, 2010

Facebook and the challenges of perpetuity

Some of you will find the first part of this article basic and a repetition of old lessons learned, but please bear with me because there is a point that, I believe, is worth considering in a new context. From the first days of finance class all the way through to investment bubbles that grow and pop, it is established beyond reasonable doubt that the purest and most effective way to estimate the value of an asset is through discounted cash flow analysis. Even other valuation methods that are more easily and freely used and are standard in discussions – such as multiples of earnings or revenues or some other metric – relate back to discounted cash flow and have their equivalency in this tried and true approach. “Because,” the saying goes, “an asset is only worth the cash that it will generate.” This is true of any asset on some level: a statue sold at auction, or a business like Twitter. These will eventually produce cash, even if remotely up ahead where we can’t see. Sentiment aside, therefore, financial value is the present equivalent of such future proceeds, discounting these for risk and passing time.

Now, future cash takes two forms. There is the kind that is generated by the ongoing operation of a business, and there is the kind that is produced by the future sale of the asset to another party. The statue, in the previous example, will only produce the latter kind, while a normal business, such as [Twitter], will [theoretically] produce both, because eventually its operations will generate profit, and eventually the business will be sold. This last element in discounted cash flow analysis is called the asset’s “terminal” value, which in practice may represent more than half of the total valuation, and usually much more than that.

This “terminal” value is a misnomer. Its suggestion of finality is in actuality anything but. In fact, terminal value is predicated on the notion that, at some point in the future, somebody will conduct a discounted cash flow analysis and determine that the asset, at that point in time, will have a certain value going forward. And since this discounted cash flow method applied at that time will also incorporate a terminal value, by definition based on a hypothetical event even farther out, we see how the exercise implicitly extends onward and upward forever. In other words, terminal value is loosely associated with perpetuity, with infinity, rather than finality, (as long as we are not talking about a depleting asset such as a gold mine or a cup of coffee, which would exceed the scope of our discussion.)

Perpetuity is not an easy concept to accept. On its very surface, perpetuity seems like such an enormous word, covering such a very long time and symbolizing an endless economic model. When an asset that is being valued is a fundamentally repeatable business, such as farming, manufacturing, real estate, and the such, perpetuity can be imagined and the concept could make some sense. Yes, prices may vary with time, but this possibility can be factored in the risk adjustment (i.e. the discount rate) applied to the cash stream of our analysis.

What if, however, we are dealing with assets, with businesses, the economic models of which are prone to change within the foreseeable future, and change into something that nobody can predict? In such situations, what does perpetuity mean? And by extension, how should we consider such assets’ terminal values, which, I repeat, constitute the great majority of discounted cash flow valuation?

According to new statistics, Facebook is becoming a hugely popular news interface alongside RSS feeds such as Google Reader. According to Facebook, its new email and search functionalities will rival those of Google. According to Google, its android phone may displace Apple’s iPhone as the market leader. According to Apple, its iPad tablet will make Amazon’s Kindle obsolete, and will push Apple to the forefront of E-commerce. In all of these situations, can we predict with any precision, ten years from now, which will be the search engine, the consumer electronics company , the media outlet, the retailer? In light of the corporate updates cited, and the fact that ten years ago Google hardly existed, this is not a small question. And perpetuity, once again, is a pretty large word.

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By Dan Ramsden – February 6, 2010

Save the starving content

The New York author, David Markson, in his later years grew tired of long paragraphs and would mistrust conventional narrative. He wrote his later “novels” as a series of blurbs. These blurbs rarely exceed a couple of short lines and are assembled in seemingly random order. Reading one of these books the other day – Vanishing Point, which among other subjects deals with the miserable existence of writers and other artists over the past millennia – I had a bit of fun imagining the narrative as an an extended Twitter feed. If only! One doesn’t come across such exquisite short-form messaging – wherein even the most mundane anecdotage is elegant, thought provoking, often ironic – not even from marketers. One may think of these Markson novels as professionally crafted and premium-priced tweets, for which we should be thrilled to pay.

This led me to consider – and a glance through my actual Twitter stream pushed me well along in my musings – the misfortune we would suffer if professionally crafted content were to be wholly displaced by amateur product. For a long time, the open and fragmented Internet, the free web, has taken us in that direction. Although we are not all the way there yet, and although there is still plenty of premium-quality content in the marketplace, the proportions are skewing against it, and the economics are increasingly challenging.

So what, you may ask, does this have to do with the iPad? The answer is, a lot. We have all heard the case for the open web, or if any of you have not, visit the Google homepage, type any term to search, and you will get the idea. With the iPad, and for that matter most Apple consumer products, openness is of lesser priority than design and, as it were, quality control. In the open web, even I have a platform. So the iPad, frankly, has its appeal.

If it is indeed the case, as many observers believe, that the iPad will become a home-entertainment unit through which we will access books, magazine articles, videos, games, and music, all delivered through iTunes or a similar system of subscription-based consumption, this could go a long way to check the content value free-fall that has occurred with growing fragmentation on the Internet. This would provide professional creators with a mass-market platform through which to distribute their wares presentably, with less clutter, and for payment received. If premium content, in the long term, has any chance at all against the onslaught of free web-delivered media, then it will take a well-designed and hugely popular consumer alternative, such as the iPad, to save it… so long as this alternative is predicated on paid (rather than free) service… so long as this alternative is hugely popular.

As David Markson’s book reminded me, we should prize quality content more than we have perhaps come to do, and we should be wary of a future dominated by amateur production. Whether this takes the form of thousands of YouTube videos or millions of daily amateur messages, long or short, we should be rooting for professional content creators to continue offering a quality alternative. Advertising revenue, as we have seen, may not suffice to pay. With the iPad not yet available, and as nobody really knows exactly when and how it will be received by popular opinion, let us in the meanwhile keep doing our share to feed the starving content. There is a side-table towards the back of the main aisle at the Strand Bookstore on Broadway and 12th Street, on which stacks of David Markson novels are offered at a discount.

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By Dan Ramsden – February 2, 2010

A promising beginning

It’s been a while since I have done this: I read parts of the Sunday paper the old-fashioned way this morning. Which is to say, on a Sunday morning, holding the actual paper, with ink stains on my hands and everything. The works. A real throwback, and an act of rebellion perhaps, reacting to the excessive E-Reader talk and all of that. Next thing you know, I will be baking fresh muffins and playing chamber music cassettes on the stereo. (No, not really, that would be going too far.) But in this frame of mind I came across the New York Times review of Patti Smith’s memoir about her days with Robert Mapplethorpe some 40 years ago, in the thriving downtown scene of Max’s, CBGB’s, the Chelsea Hotel, which were giving rise to what would later prove to be among the pillars of 20th century culture. With hindsight, the late-60s through the mid-70s may have been to the arts a last hurrah – but at the time this was perhaps more of an inflection point. It could have gone either way, and I wonder if we are in a similar era now, with respect to other things.

The modernists among us will undoubtedly give me grief for saying what I just did about the 60s and 70s inflection point, and the direction thereafter, but let’s be serious: you can’t compare Avatar to The Godfather. I’m being unfair to make my case, but consider the perspective. A span of some six or seven years around the referenced period produced Blood on the Tracks, Exile on Main Street, Martin Scorsese, Thomas Pynchon, Roy Lichtenstein, even the Knicks were good. Don’t scoff, around this part of the world Madison Square Garden is also a cultural center. The list could go on extensively, but I don’t want to get boring and we all have our own memories and preferences. The point is anyway not the 60s and 70s but the contrast to what would follow. It could have gone either way, like I said.

Fast forward to 2010. We have just emerged from an extended period of economic boom, checked in the past year by a massive correction. In the concurrent period, technical innovation has reached unprecedented heights, which in the past year has seemed to gravitate towards a symbolic concentration of contrasting elements: the openness of Google’s web vision, the closeness of Apple’s design product. On the economic front, technical innovation has had a direct impact on capital markets and information flow. On the technical front, both the economic boom and the assortment of busts throughout have given rise to a generation of entrepreneurs with potentially far greater skill and sophistication than ever. In short, the global economy and the explosion of technology have been intertwined and co-existent in the past couple of decades to a far greater and more direct extent than at any time in the industrial era, and have led us to a place, today, that may with hindsight, one day, be seen as something of an inflection point.

It is not only a question of Google’s openness or Apple’s closed design, the efficiency of markets in an era of increasingly perfect information, or the spirit of entrepreneurship that is manifested across multiple sectors and demographics, but more importantly, the question is one of what each of these constituencies will do with their respective resources. The arts have many things to teach us, but in the matter at hand we can look at the direction in which the arts have evolved since the period previously described, and we can hope that other trends and issues touched on in this article don’t follow a similar pattern: which is to say, a tendency to fluff rather than substance, to the immediate thrill rather than long term value. It could go either way, like I said.

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By Dan Ramsden – January 31, 2010

One day later, and we need a break

I don’t really feel like writing about the iPad, and I don’t feel like reading about it anymore. Everyone is writing about it and that’s all I’ve been reading about since yesterday afternoon. I’m already so sick of the iPad, truth be told, that if someone handed me an iPad right now I think I might smash it to bits and possibly get into a tussle with the gift bearer. Perhaps I am not alone.

I think one of the reasons I feel this way, in addition to the weeks of hype that seemed meek in comparison to the crescendo at around 1:30PM yesterday, is a feeling that we’re being played. It isn’t that the product should be more than it is, but that it could have been and wasn’t. I feel as though there is vast imperfection, obvious incompletion, by design, because there will be similar roll-out events, and similar hype, in months and years to come; because Apple would like to milk this thing for what it’s worth, and I find the approach annoying on account of obviousness. I am already tired in advance. But that’s just me.

I am also cranky, I suppose, because much more than features I was expecting rich new content, and that didn’t come, and thus the media revival or redefinition I was looking forward to, having been sucked into the hype machine for all these months is at the very least on hold. Maybe this comes later, and maybe this is also part of Apple’s choreography: to slowly phase everything in, announce new reasons to buy this product every month, or every quarter, with hardware upgrades every year. Perhaps.

For now, what we seem to have in this new Apple product is not only a relative repetition of previous Apple products, but a relative repetition of what is already available from other sources, and a sort of hodgepodge at that. Whether you see this product as a big iPod Touch, a little lap top, a smartphone that’s not really a phone, a portable device that doesn’t fit in your pocket, an entertainment device without the entertainment, an eReader without free wireless access, an iBook store with lots of missing titles, or all of the above rolled into one unit, the product is certainly not a breakthrough in the same sense that the iPhone was a breakthrough, or that the iPod itself was a breakthrough back in the day. Even the name is not particularly new. Not iPod, but iPad. Oh.

The one universally uncontested positive, that is without dispute applauded by all sides – west coast gadget hobbyists, east coast media connoisseurs, the traders on StockTwits – is the price tag of $499. But this too is deceptive, and a little messy. Because the price quickly increases if you would like this device to have capabilities. There are capabilities, after all, which we have come to expect from a portable device, such as a wireless connection for example. I won’t get into the whole list of features that exit or don’t, but there’s some critical missing stuff, at any price, and there’s some good stuff too. Like I said, a hodgepodge. Here’s a link.

In the last analysis, that this innovative company is offering nothing particularly innovative, is in fact holding back, while billing its product as a major step forward, is for Apple a sort of step back. I wouldn’t say I’m disappointed, because that would suggest a deeper level of caring than would be honest to claim, but if anything I feel a little tired of the subject after being sucked into nothing much. At least for now. Maybe the content comes later, maybe the media redefinition is a Spring event, maybe the hype will start anew in a couple of months as this addition to consumerism actually hits the shelves. For now, I leave the subject with this soundtrack to clear the air, and transition us all into new ideas.

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By Dan Ramsden – January 28, 2010

Still too much baggage for the trip

Hypothetical scenario: Say, 15 years ago, an investor group looks to widgets as a high growth opportunity, sees widgets taking off, and allocates $10 to a variety of widget startups. As the industry grows and opportunities multiply, this investor base increases its annual allocations to $30, $40, or more, until one day, 15 years later, the group realizes that $30, $40 per year has been too much, that the widget boom was great but didn’t justify this level of infusion for so many years, and that an adequate return can’t possibly be realized at this pace. In short, the investor base had overextended itself. This group, therefore, retreats to an annual clip of $20, which it considers to be a more defensible target in the realm of widgets, as manifested in the 15-year period ended. And then, the context changes: the tremendous widget inventiveness and disruption declines, not due to less capital, but just so.

There were mixed news in the latest PWC “Money Tree” report on venture capital investing for 2009, which showed a pull-back of some 50% from recent norms. Concerned entrepreneurs and many venture capitalists, who would like to see more money in the system, voiced displeasure over the deterioration. By historical standards, they argued, $17 billion for the year is a pittance, although the optimists were quick to point to a pick-up in 4th quarter activity that would have brought the aggregate to a $20 billion annualized amount.

Then there was the flip-side of the case, put forth in this blog by Fred Wilson, who made note that $17 billion is a move in the right direction for a segment in which capital invested and returns on investment are in inverse relation, and who saw the late-year pick-up as negative. This argument ties back to Fred’s original post about the VC math problem in early 2009, to which I have referred in this space before. By this calculation, in which certain assumptions were made about transaction amounts and net VC proceeds at the time of exit, a sustainable venture capital rate of investment in any given year should be around $15 billion. This presupposes a future exit valuation environment of $100 billion per year, so that the money invested can create adequate return.

Now, this analysis was based on historical experience during a time of enormous innovation. This was the time when the Internet was born and its enabling technologies blossomed. There is no need to list out specifics because we all remember the worlds of 15 years ago and again the past decade, and the extent to which these have led us to today. Suffice to say that Google did not exist at this time in 1998, and exists all over the place now. The question is this, and it is a question with repercussions on many economic levels: Was the historically unprecedented environment of disruption sustainable? And if the VC industry has been overcapitalized based on that same level of activity that gave rise to Google, where does the industry really stand if this rate should (perhaps substantially) decline?

As I tried to argue in a post a few weeks back, the coming era may prove more evolutionary than revolutionary, the Apple tablet notwithstanding, and we are more apt to see the likes of Lala being acquired for millions of dollars in order to add to a technical portfolio and staff, than a new platform emerging from nowhere to become the next Google. If this sweeping generalization proves true – and it will not necessarily be negated by Facebook’s $10 billion valuation or Twitter’s $1 billion, the home-runs du jour – then even $15 billion is no longer reasonable as an annual level for venture capital investing.

Then again, entrepreneurs don’t need that much these days to be successful, and the widgets they create don’t have to be sold for billions to produce a good investment return.

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By Dan Ramsden – January 26, 2010

The possibility of an island

The French author, Michel Houellebecq, published a novel a few years ago – at a time when Facebook had not been the international sensation it has become, when Twitter did not exist, and when the social web was still new enough and at the same time intriguing enough to loom with mystery and possibilities – and in this novel, The Possibility of an Island, a future society is depicted in which generations of clones live their lives in complete individual isolation, communicating with each other from stationary and remote locations through computers only. All human interaction, in this fictional future, occurs digitally, and I confess that I did not find the scenario in the least bit implausible, or even particularly ominous, seeing the Facebook phenomenon give rise to 350 million “friends” and Twitter to legions of “followers.” Nevertheless, I have not tuned out the predictions made in this novel, and I have ever since kept a sort of watch, out of the corner of my eye, for trends in media that would take us further and further in the direction described. With this by way of background, I really like what some of the new “check-in” location-based mobile services, such as Foursquare and others, are doing.

I had read up about Foursquare and GoWalla in industry blogs, but I did not see the point at all. Another stupid little game, another app to pass the time with, I thought, and without a revenue model. As GoWalla is only available on the iPhone, and as Foursquare was until recently more or less the same way, I was a Blackberry outsider and all I could do was read about the experience. This changed a few days ago when Foursquare launched its Blackberry mobile app to the broad market, and I was for the first time able to see for myself what the excitement is all about. And I tell you, I like it. I like it very much.

I’m sure there are aspects of the Foursquare experience that I may not ever take seriously, such as the badges and mayorships of a game that is simple and silly. Until couponing or other e-commerce opportunities are widely introduced, there is only the game’s incentive to pay attention to such stuff. What I like about the Foursquare platform, what I find sort of touching, is the idea of checking into physical locations, with physical addresses – from diners to office buildings to drugstores to museums, it doesn’t matter – in a way that on one level resembles web browsing, and the premise of a web service that encourages its users to be, as much as possible, outside.

Now, twenty years ago, Foursquare would have been pointless. “Just go outside,” we would have argued, why do you need to “have an app for that?” But we are the Internet generation, the social web generation, with apps for everything, and in this context Foursquare not only makes sense but is a welcome addition. Each time we check into a locale, our visit is catalogued, much like an online browsing history is a catalogue of all the virtual places we visit. And when we do this checking in – here is an added touch that I really love – the service prompts us to contact our friends to let them know we have arrived, which is called to shout – not to tweet, like some frail bird in a forest, as is suggested by that other communication platform – but shout, like a person to other people. We should expect to hear a whole mess of shouting as Foursquare’s user base grows.

It is said that the Foursquare platform is addictive, and since I’ve only been on it for two days or so, I can’t clinically vouch. I kind of hope that it is, and I hope that its popularity takes off. If you have read Houellebecq, you will understand why I say this. If you have not read Houellebecq, go ahead, it won’t kill you.

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By Dan Ramsden – January 24, 2010

A vision of beauty

I feel like I’ve been posting way too continuously and too much about Apple, but it may be a while until the next time we bear witness to history in the making, and there will be plenty of opportunity later to write about all those other subjects that are piling up in the vault. Being keenly aware of the vault’s sealed contents, I promise you, you’re better off as long as I stick with Apple. Besides, the subject is incredibly interesting. When the company unveils whatever it is that will be unveiled next week, there is a good possibility that the media industry will become forever different. The iPod, the iPhone, both revolutionary and disruptive, will be seen as mere stepping stones if Apple is about to do what some anticipate.

Now, I have on occasion expressed a perhaps unpopular perspective around these parts, that much or most or maybe almost all of the great technological disruption in media has already occurred, and we will for the foreseeable future be primarily presented with features and products that smooth around the edges and polish the surfaces of prior iterations: evolution rather than revolution. I do not retract this. In fact, the anticipated Apple tablet will according to reports be based on iPod Touch architecture, but larger, and maybe with a couple of additional features thrown in. This will not be a technical shakeup, or at least not to the same extent that the iPhone was at its initial launch.

Precisely because this product is technically likely to be old hat, however, is what sets the stage for massive repercussions. Apple took time to get us used to touch-screen technology, we are by now accustomed to the iTunes system of entertainment distribution, Amazon prepped the market with eReaders and eBooks, YouTube and Netflix and others have showed us the charm of streaming web video, we know how to surf the web thanks to Google, and some of us are always still falling in love with the functionality and design of Apple’s suite of Mac products. Now, take all of these things, currently available in different forms from different vendors, and combine them into one sleek unit: a self-contained all-entertainment all-information portable device that can be shared. And the consumer does not have to accept a new system, because the innovation is not the product per se, but the content that will be made available on such a product, for the first time in one bundle.

In a sense, the innovation of this product will be its grand-scale business development and legal complexities: strategic deals and content packages from across the full spectrum of media. According to accounts, Apple has been in discussions with television networks, book publishers, magazines, game producers and other content providers, so that, like the iPod’s link to the iTunes platform (which will also be added to the current mix), the new system will not be merely a piece of hardware but a new (well, why not say it) lifestyle. According to accounts, Apple is working with at least one of the wireless networks on a consumer subsidy structure, which means that wireless network access and all that such functionality implies, will be an important component of the service.

For a while now I have argued that Apple’s important January announcement will not be the tablet but a content offering, which I supposed was going to be television related. It looks like I was on the right track, but was still thinking too small. If what I’ve described here comes to pass, Apple will not only reshape the way we consider pay television service, but may well be on the verge of redefining consumer media. True to form, Apple has in a tasteful way made revolution evolutionary, so that we hardly notice the shakeup. Please bear with me while I can’t make myself look away from the beautiful design.

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By Dan Ramsden – January 22, 2010

Beyond good and evil

This article about the practical limitations on web-based à la carte television reminds me about a debate I recently had with a friend of mine, who is as passionate an observer of media as I am. Like in this article, the argument was made that for all the glitz of the Apple TV dream, or any dream associated with the reduction of our cable bill that is superhuman, in which we are charged pointlessly for more or less 990 out of 1000 channels that we never watch, for all the grand hope of this dream, it will never in reality yield what we would like. I took the other side… and lost on account of a bad cell phone connection. Allegedly.

In summary, the argument was that a packaged content offering, such as we currently take for granted with our traditional cable subscription, will necessarily be less expensive than an à la carte offering, because with a package you get package pricing. Disney, for example, may offer ESPN Classic – if aggregated with two or three other ESPN channels plus ABC and Disney Channel – at a reduced price, which would not be offered if ESPN Classic were acquired alone. And so, the argument goes, be careful what you wish, because you won’t pay less, but more.

Makes sense, although not quite! Because I would not purchase the full suite of cable channels one by one, nobody would. Of course that would be more expensive than a package purchase; but the point of à la carte is that, out of all the Disney offerings which are extensive, I would only take ESPN Classic, and nothing else. No plausible volume discount could make it worth my while to take the package.

Anyway, this post isn’t to continue a tired argument, which is infinitely more nuanced and complicated than presented here. The market will always settle such arguments conclusively, and we shall see. I still believe that Apple will entertain us next week with more than a touch-screen netbook, and there will be something television related in the mix. That Microsoft displayed its tablet at CES and is now working on an Xbox television deal are both in my opinion signals of what’s to come from the one that matters. But back to the original subject:

What this debate highlights for me, is that we tend to project our own views absolutely, and we arrive at flawed conclusions as a result. I stand guilty. We think in terms of all or nothing, yes or no, new or old, square or hip, good and evil, and we are prone to overlook the degrees of variation into which reality invariably ends up falling. Philosophies, more than any truth, reflect the philosopher’s biography, or words to that effect according to Nietzsche.

More and more, this notion resonates as I keep up with the latest industry reviews and economic commentary.

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By Dan Ramsden – January 20, 2010

A new model for a new era

We need a new model. I am referring to the banking and finance segment of which I am a part. The old model, still largely the norm, is based on scale: scale of resources, scale of balance sheet, scale of operations, scale of transactions. The bigger firms do the bigger deals, the middle firms cover the middle, and the small firms gather up the rest. This is a model in which the transaction world, proceeding at a steady pace, is naturally ranked and prioritized by capital allocations and risk profile, with these two characteristics in inverse correlation. This world is changing. Size and risk are no longer so clearly opposed, and a model based on scale is outdated and suboptimal. A new model should (and probably will) emerge in the banking segment, reflecting an environment in which expertise – although as important as ever, or even more so – must now share top billing with flexibility, versatility, and nimbleness. My firm is of a new breed in this manner, and while this article may appear self-serving, the underlying assumptions hold and the logic stands.

My perspective is shaped not only by recent Wall Street experience but also by the digital media industry in which my colleagues and I participate. The headlines about record Wall Street earnings are deceptive, because these cover up a very different reality underneath the trading profits and finance activities propped up by an artificial government-set capital cost. While the largest issuers of equity and debt may be seeing some benefit from such cheap capital, there is a huge middle segment that is not benefitting in the least. There is a credit market that is still freezing smaller borrowers out, there is a private equity community that is challenged to find attractive returns, and a venture capital sector that is investing at roughly the same levels last seen in the early-90s, (i.e., when for all intents and purposes there was no venture capital industry). The headlines about the Comcast acquisition of NBC-Universal and all that this media giant will do to introduce new consumer offerings, in some ways underscore and in other ways disguise a sector reality in which the advertising market is still unsure about its future, and the consumer media outlets are still struggling to keep up with changes that seem unceasing and that few completely understand.

With so much of Wall Street, Madison Avenue, and for that matter Main Street, in a state of transition and volatility, we see a great deal of inefficiency in the investment markets. On the other side, we see business executives and entrepreneurs who require creativity, and an ability to do more with less, to a greater extent than ever before. An investor’s or advisor’s ability to be responsive in such an environment is not only a function of expertise but nimbleness and flexibility, and scale sometimes stands in the way of this. As counterintuitive as the statement may seem, it is a current reality… because scale is a function of cost, and high cost limits one’s ability to maneuver.

The new firm, the firm designed precisely for this environment, has to combine expertise and low cost. This firm has strong access to resources, as needed, without the baggage of resources when these are only weight. This firm is in a position to work on transactions and structures in response to circumstance, rather than set policy. This firm is not held back by liabilities or by legacy infrastructure. In short, the model for this new firm approaches – within reason – the virtual.

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By Dan Ramsden – January 17, 2010