Archive for May, 2008
It seems that Hillary Clinton wants to tax big oil, but only on their record profits. She would do this to make up the revenue lost while putting the federal gas tax on hold for a while. While I'm sure this is more of a ploy to pander to voters due to her faltering campaign, the whole thing is incredibly superficial for a couple of reasons.
The first is that taxing big oil is only going to shift the cost to consumers. While you might see a temporary drop in prices at the pump, businesses typically shift such burdens on to the consumers. Doing this only makes sense for their bottom line. Beyond this, it will cause an increase in demand, causing prices to rise naturally. But then, Hillary apparently doesn't care what economists think.
Secondly, there's the temporary nature of the repeal. Reinstating the tax after it's been rolled back for a while will be unpopular on an epic scale, but I suppose Hillary is mostly going for a short-term boost to get her through to the November elections. Naturally, I've heard nothing about rolling back the tax on big oil's profits once the federal gas tax would go back into effect. That means that the consumer is going to be doubly hurt in the end anyway.
This leaves big oil's profits right where they're at now. Taxing big oil's profits isn't the answer — and neither is breaking up the oil monopolies. (Though the latter might not be a bad first step.)
The real problem is that demand has exceeded supply. This is a result of the American way of life. We depend on oil for literally everything: we are a spread out nation of roads where a child's first thought of freedom = getting their drivers' license, and whose development has, for generations, been driven by cheap oil. Every aspect of our lives is controlled by the road: everything from our food to our consumer goods arrives via truck. Auto companies have been complicit as well, and in some cases actively undermined attempts to create efficient mass transit systems that were a direct threat to their business model.
This isn't a problem that can be fixed overnight, nor is it a problem that will be cheap or easy to fix. Comparisons to European nations and Japan with their comprehensive mass transit systems are inherently flawed because of the US's relatively low population density and sheer size of our country. While effective, efficient mass transit is certainly the answer in urban and larger suburban areas, those systems do not scale well in more rural areas.
In that respect, we will always be a nation of cars — or other personal transport devices. The mantra that we need freedom from foreign oil is trite, and it misses part of the point: we need freedom from petroleum in general, inasmuch as that is economically and techonologically possible. We will always be somewhat dependent on combustible fuels so long as the internal combustion engine is our primary mode of getting from Point A to Point B. (And really, aside from bicycles and our feet, there's nothing out there that's as efficient from top to bottom as a modern internal combustion engine.)
So in that respect, even if Hillary's plan had a prayer of a chance of long-term success, and if she had any ability to get it passed — which she doesn't because it's an idea for this summer, not after January — it would be like prescribing a pain med instead of removing the thorn from one's foot.
The proposal is just astonishingly dumb on every conceivable level.
I do have some related thoughts about the next ten years…
1) We'll see a small resurgence of the railroad industry. Rail travel is more efficient than air travel, and solves some of the mass transport problems presented by our spread-out nation. This will resemble the current hub-and-spoke airline system in the short term. Business travelers won't mind taking the train as much due to the ubiquity of wireless internet access and the fact that you can use cellphones while on a train. Trains don't have to be slow, either. So while you won't be taking the train from NYC to LA for a one-day affair, you might well take it from Boston to Washington DC for the same.
2) More effective car-pooling systems. Thanks to the Internet, it's easier to more effectively carpool with folks headed in your direction. This could be supplemented by mass transit systems — buses in the beginning, and trains later on — where people gather at smaller, de-centralized staging areas for a trip into the city. Many suburban areas already have these systems, but there are many, many larger cities that don't.
3) More and better research into biofuels as a replacement for traditional petroleum. This goes beyond corn-based ethanol which was a failure of epic proportions, as it resulted in increased food prices and is energy-intensive to produce. The graphic below (click for larger) demonstrates some of the more promising alternatives, particularly algae and switch grass.
I think America is getting to the point where they're ready to think about letting go of their precious four-wheeled transportation. Drive by a used car dealership, and you're likely to see quite a few gas guzzlers sitting on the lot. This alone is anecdotal evidence that the PED of gasoline isn't zero. A more formal study finds that when the price of fuel goes up and stays up by 10%, the process of adjustment is dynamic and far reaching:
- The volume of traffic will go down by roundly 1% within about a year, building up to a reduction of about 3% in the longer run (about five years or so).
- The volume of fuel consumed will go down by about 2.5% within a year, building up to a reduction of over 6% in the longer run.
The reason why fuel consumed goes down by more than the volume of traffic, is probably because price increases trigger more efficient use of fuel (by a combination of technical improvements to vehicles, more fuel conserving driving styles, and driving in easier traffic conditions). So further consequences of the same price increase are:
- Efficiency of use of fuel goes up by about 1.5% within a year, and around 4% in the longer run.
- The total number of vehicles owned goes down by less than 1% in the short run, and 2.5% in the longer run.
Prices have certainly gone up by more than 10% in the last 12 months, and the snowballing effect of this phenomenon is that many people of my generation have gotten rid of their cars where and whenever possible, and instead opt for healthier, less expensive modes of transportation: walking or biking. When they need to travel a longer distance, they rent a Zipcar.
I certainly would if it were realistic.
 I could see motorbikes becoming more popular, as they are in the UK, as gasoline prices continue to rise. For Americans who have not been to the UK, it is not uncommon to see motorcycles and scooters out and about, even in the rain.
I chuckle every now and again when I see the MSM reporting on blogs. The usual suspects almost always turn up: TechCrunch, the HuffPo, GigaOM, BuzzMachine — as well as a smattering of the hot blogs du jour. This time it was Steve Rubel's MicroPersuasion and Passive Aggressive Notes.
I must confess some incredulity, because I have never seen Ars Technica mentioned in a story that focuses specifically on blogs. This despite being relegated to merely a "blog" (albeit acknowledged as an influential one) most of the time by the mainstream media when they reference a story that Ars breaks.
It makes me wonder why these particular blogs are chosen. Is it because the stories about blogs are by their nature more noise than substance? Indeed these stories are often widely hyped when they hit and will make their way around the 'sphere several times before disappearing like yesterday's newspaper. (The blogosphere echochamber at its finest.) Ars seems to be anti-hype most of the time. It's been known to take a somewhat dim and sometimes even contrarian view to what's hot in the blogosphere this week — "The Cloud!", death by blogging! — if indeed what the blogosphere is focusing on this week is even worth talking about at all. (Usually it's not.)
So here are some sites that Business Week may want to think about including, because these sites are the real movers and shakers in the Internet publishing world. This list is by no means comprehensive, and I make no comments about their content or quality of the sites, only their size. This list isn't sorted in any meaningful way:
- High-Def digest: ~7.23M
- Destructoid: ~4.25M
- Gamersyde: ~5.17M
- SB Nation: ~8.76M
- Celebrity Baby Blog: ~8.64M
- Confessions of a Pioneer Woman: ~6.05M
- Fark: ~37.09M
- BoingBoing: ~6.93M
- SeriousWheels: ~9.05M
For comparison, TechCrunch sits at ~7.5M pageviews per month, and Ars Technica sits at ~30M.
So the hot news in the blogosphere this week has been the acquisition of Ars Technica by Condé Nast. TechCrunch broke the story on Friday, but there was no official word from Ars until yesterday due to an embargo. Anyway, in that time, there has been quite a lot of discussion on the valuation of "blogs" — or the overvaluation thereof, as the thinking in the blogosphere seems to be.
Ars' 8-person news operation will be folded into Wired Digital, which is run by CondéNet.
This is almost, but not quite, correct. Ars will remain its own brand, and will retain its own staffing. Ars will not be "folded" into Wired, though they will continue to exist under the Wired Digital umbrella (which is turn is owned by CN). In a very real sense, they will be friendly competitors. This is not unlike two newspapers owned by a larger parent company competing with one another in overlapping geographic territories. (A common practice in traditional print media.)
I guess I'm a little bit stuck on calling Ars a "blog", however. Ars is a news site with real, investigative reporting and thoughtful analysis, longer, multi-page in-depth investigative and explanatory pieces and guides, and has been around since before people had even heard the word "blog". If anything Ars is a news site and a focused blog network all rolled into a single brand. (As opposed to the old Weblogs, Inc. model where each blog was separate and had its own flavor.) The journals section of the site combines six different journals under one umbrella — each of which has a large enough audience on their own to be considered very successful. Particularly Infinite Loop and Opposable Thumbs.
On the $25 million
There was a collective gasp in the blogosphere over the price commanded by Ars. Frankly, I'm not really sure why. When I first heard the number, I thought it was low, given the amount of traffic that Ars gets, which is different than the traffic that sources that measure such things think.
The usual suspects like Comscore and Alexa are referenced as though they're absolutes. The truth is that Alexa is horribly inaccurate, as anyone who runs a website with a tech-savvy audience will tell you. (Who do you know that uses the Alexa toolbar?) Nonetheless, these same sites will turn around and quote the stats as though they're somehow magically more meaningful for another web property. It doesn't really make a lot of sense if you stop and think about it.
Some key stats:
- Purchase Price $25,000,000
- Monthly Unique Visitors: 1,500,000
- Monthly Pageviews: 4,000,000
Okay, let's have some fun. Let's assume that this acquisition helps set the market price for the internet blog pure play. What it this acquisition telling us?
- Value of the Monthly Unique User: $16.65/unique
- Value of the Monthly Pageview: $6.25/pageview
Unfortunately, these numbers aren't correct, no matter what TechCrunch would have you believe, but to be fair to Chris, Ken hadn't posted the official word until yesterday. As far as TechCrunch is concerned, more diligent reporting would have led to Federated Media's information page on Ars for potential advertisers — so they should know better.
Here's the official word on the acquisition, straight from the horse's mouth:
We have an amazing community, both in terms of its size (5+ million readers, as tracked privately by Quantcast) and in terms of its contributions (12 million posts, thousands upon thousands of news tips, recommendations, and corrections). Our community is unparalleled, in my not so humble opinion, and it's a big reason why this year we're serving more than 30 million page views each month. (I've seen lots of folks citing Comscore numbers… they're horribly, horribly wrong).
Now you might think that the $25 million isn't so unreasonable. Taking a look at the old Federated Media advertising numbers, you can see that Ars commands about $38 per thousand pageviews.
30,000,000 / 1,000 * $38 * 3 ads on each page = $3,420,000
That's $3.42M per month in advertising revenue that Ars is generating. Yes, FM takes a cut of that, but Ars has other, smaller revenue sources, such as affiliate referal dollars and Ars-branded merchandise for sale, so we'll call the difference a wash.
Now that's revenue, not profit. There're 8 full-time employees, as well as webhosting for the main site, the cost of the CDN (they've been using CacheFly to serve all static content), the cost of the discussion forums (currently a hosted solution: groupee's eve product) as well as several ICs that do web development, CMS development and other technical work for them.
A typical business acquisition is 3-5x annual profit, so that means the four main founders (Ken, Jon, Ben Rota, and Panders) were taking in an annual profit of ~$6.25M per year split however they were splitting it.
I often wonder why such blatantly incorrect numbers are often bandied about when the truth is usually freely available if you look for it. It's no secret just how many pageviews Ars has been doing: they're posted on Federated Media's website for anyone who wants to advertise there. And you can bet your shiny metal ass that they're accurate — and more likely (*gasp*) conservative. When millions of dollars are changing hands on a monthly basis, there are very accurate accounting measures going to be built in so buyers can have faith that they're getting what they pay for.
And for those wondering whether Ars is or is not going to jump the shark, I have two thoughts for you:
First, this isn't the first time Ars Technica has been part of an online network. Early readers of Ars may recall that Ars was once part of the now-defunct Maximum PC network. Then, as now, the larger and more focused you are, the more you command in CPM rates.
Second, having known Jon and Ken since 2000, I can say with a great deal of personal conviction that Ars isn't going anywhere, and that thing most certainly will change, but they will change because that's what the guys steering the ship (Ken, Jon, and possibly Eric) want — not because it's what Condé Nast wants. So if you see something change in the future, you can feel free to continue pointing the finger at the founders, not at Condé Nast.
I've linked to a screenshot because the original FM link will inevitably disappear in the near future as Ars Technica will no longer be outsourcing their advertising to Federated Media.
This will obviously change depending on your industry.