For those interested, this article from Fortune is probably the best explanation of the recent meltdown in the subprime mortgage market I’ve seen. It’s a little technical and the case used is extreme, but it thoroughly explains how the mortgage securitization market works and why investors got slammed with subprime securties.

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I just heard Vinod Kohslod (former founder/CEO of Sun and former partner of Kleiner Perkins) talk about alternative energy – and it really seems like we are all barking up the wrong tree. I think alternative energy is where the internet was around 1997 – way overvalued, probably funding companies that don’t deserve it, but on the brink of unleashing the next wave of Googles.

Think about it this way, building internet apps is easy at this point, no one is talking about the technical difficulties needed to be overcome…those issues were solved 5 to 15 years ago. Anything and everything that is created on the internet can be replicated in a matter of months (except for a networked effect??? – please, consumers are fickle and some marketing dollars can get any new service the initial traction needed)…aside from a very limited number of areas (video distribution, and maybe contextual search) everything is a matter of coming up with an idea and putting it out there with three off-shore developers and $5k. Vinod said something super fascinating – that he would rather invest/bet on technical risk than on market risk…and I think he is right. The true value added innovations that can be turned into sustainable businesses need to win on the technical side…it just doesn’t make sense to invest on market risks (which is what every single app being developed now is doing – do you doubt that a facebook app might not work? Of course not, the questions whether the market will adopt it…). Everything happening on the internet is valuation / faddish bullshit. No real business will come of it, just features to be bought or copied by the big guys…

In order to really make it big, to change the world, to create the next Microsoft, Sun, SAP, Google, RIM, Apple you need to tackle the complex technical problems that no one else can solve. Every interview I hear, book I read, or article I see about innovators, it was always about how to solve a technically difficult problem that no one else knew how…I am officially off the web 2.0/3.0 bandwagon and onto finding really difficult problems out there that need to be solved. I don’t want to create the next del.icio.us and have a 3% chance of selling to yahoo for 30mill…it’s a terrible value proposition.

Do you guys think I am totally off here?

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Have you heard that business school students are the best predictors of impending cycle busts? Wherever bschoolers flock, you can be sure the peak has already passed. We love to follow the money, but unfortunately, the money never stays in one place long enough for MBA students to find it. Think technology bust in the late 90’s –that’s where all the smart kids were going from about the summer of 98 to 2000. Remember the real estate bubble of a couple of years past? Funny, that was the hottest career goals for bschooler students.

Why do I bring this all up? Because a couple of weeks ago Harvard Business School had a presentation on Private Equity and about 700 out of 900 first years showed up. I am not exaggerating, the place was packed. Yes, PE has been a huge money machine the past few years, but I figured that MBA students would realize that past performance isn’t an indicator for the future…but I guess, we don’t learn from our mistakes, because there I was sitting in the 7^th row among 699 others eating up every word.

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Note: as usual, I’m here writing about some online business issues that should be of interest to most b-schoolers. If you’re not a tech person, give it a read anyway - I think there’s a good lesson here for all.

On May 16th of this year, Amazon boldly declared that they would be opening an all mp3 music download store and that store quietly launched recently.

The power of mp3 is that it involves no DRM (the digital rights management systems that means you can’t do what you want with songs you’ve bought). It also makes it the only major store other than iTunes that sells a la carte downloads that you can use on the world’s #1 mp3 player, the iPod.

Of course, this flies in the face of what the 4 major music labels have demanded from online sales. They want DRM in order to help ensure that illegal copies of the music don’t float around. Of course, the absurdity of that system is that these same labels prefer to push CDs, which offer no such protection against pirating. The bottom line is whatever the record companies do, pirating is out there.

So Amazon took a stand. “Our MP3-only strategy means all the music that customers buy on Amazon is always DRM-free and plays on any device,” CEO Jeff Bezos said at the time, and clearly that is important. It is an mp3 only store and they won’t work with any record companies that won’t play by their rules.

So far the catalogs of EMI and Universal are available on this new service. EMI was the first on board, as they were with Itunes DRM free music. But ITunes DRM free is still not actually mp3 and so still won’t play on some “mp3 players.” Universal is the big gain here because they’re the biggest label and thus usually the slowest to experiment, in stark contrast to EMI’s willingness to try new angles (at least as of recently). Also, Universal is now threatening to not renew with iTunes, so Amazon may become THE store for most of the world’s biggest artists (it’s already the only place to find Radiohead).

Empowered by this bold stance and the success Amazon had getting the labels on board, Yahoo! looks ready to take a stand too. Yahoo! Music VP of product development Ian Rogers recently gave a line in the sand presentation to some top level music execs. He gives a written version of that presentation online at fistfulayen (Rogers’ own blog).

I’ve pulled together a truncated version here:

“Amazon’s finally done what was clearly the right solution in 1999. Music in the format that people actually want it in, with a Web-based experience that’s simple and works with any device . . .

“Inconvenient experiences don’t have Web-scale potential, and platforms which monetize the gigantic scale of the Web is the only way to compete with the control you’ve lost, the only way to reclaim value in the music industry. If your consultants are telling you anything else, they are wrong.

“Yahoo! Music demonstrates this scale discrepancy perfectly. Yahoo! is the world’s #1 Internet destination . . . Between 10 and 20 million people watch music videos on Yahoo! Music every month. Between 5 and 10 million people listen to radio on Yahoo! Music every month. But the ENTIRE subscription music market (including Rhapsody, Napster, and Yahoo!) is in the low millions (sorry, we don’t release subscriber numbers, but the aggregate number proves the point), even after years of marketing by all three companies. When you compare the experiences on Yahoo! Music, the order of magnitude difference in opportunity shouldn’t be a surprise: Want radio? No problem. Click play, get radio. Want video? Awesome. Click play, get video. Want a track on-demand? Oh have we got a deal for you! If you’re on Windows XP or Vista, and you’re in North America, just download this 20MB application, go through these seven install screens, reboot your computer, go through these five setup screens, these six credit card screens, give us $160 dollars and POW! Now you can hear that song you wanted to hear…if you’re still with us. Yahoo! didn’t want to go through all these steps. The licensing dictated it. It’s a slippery slope from “a little control” to consumer unfriendliness and non-Web-scale products and services . . .

“I’m here to tell you today that I for one am no longer going to fall into this trap. If the licensing labels offer their content to Yahoo! put more barriers in front of the users, I’m not interested. Do what you feel you need to do for your business, I’ll be polite, say thank you, and decline to sign. I won’t let Yahoo! invest any more money in consumer inconvenience. I will tell Yahoo! to give the money they were going to give me to build awesome media applications to Yahoo! Mail or Answers or some other deserving endeavor. I personally don’t have any more time to give and can’t bear to see any more money spent on pathetic attempts for control instead of building consumer value. Life’s too short. I want to delight consumers, not bum them out.

“If, on the other hand, you’ve seen the light too, there’s a very fun road ahead for us all.”

Yahoo! is clearly feeling empowered by Amazon. At the end of the day, with Urge folding in favor of Rhapsody, there are basically only 5 major players in online music. Real (Rhapsody), Apple (Itunes), Yahoo!, AOL, and Microsoft. You really only need one of those major 5 to make online music truly work. But you need all 4 music labels to make that one venture a true success. If all 5 online players band together, maybe the labels’ hands will be forced and the right decisions will be made for them.

Is Amazon’s new mp3 store the answer? Probably not. But its a huge step. As Rogers says, “there’s a very fun road ahead for us all.” The entrepreneurial spirit can win over if the labels will only let it.

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A friend of mine sent me this very interesting email chain conversation he had with some of his buddies regarding the issues they are grappling with as they decide whether or not to attend business school. I imagine this discussion is very relevant to lots of bschooler readers. (Please note we have removed all of the participant names and instead use WWWWW, XXXXX, YYYYY, and ZZZZZ to represent the four people involved in this chain).

For additional reading on this topic, check out these other relevant bschooler postings:
The MBA, is it really worth it ; How worthwhile is an MBA

The Email Chain:

On 10/4/07, XXXXX <XXXXX@yahoo.com > wrote:

so whats up with us taking a class?

On 10/4/07, YYYYY <YYYYY@yahoo.com > wrote:

I am game. But I was actually talking to WWWWW about it, because he wants to take it with us - maybe we should wait until Jan or so, because with all the holidays (TG, x-mas, etc) coming up I don’t want to miss any classes….

Your thoughts?

On 10/4/07, XXXXX < XXXXX@yahoo.com > wrote:

works fine for me. love all these articles, i was getting mentally prepared to do the mba thing now am totally unsure again. uggh. might as well take the test though

On 10/4/07, YYYYY < YYYYY@gmail.com> wrote:

Yea that’s how i feel. But notice how are the articles are all $ centric… if your only goal is to make a ton of $ then MBA may not be right thing…But hopefully if you get into a good school then education and networking should mean something, right?

On 10/4/07, ZZZZZ <ZZZZZ@yahoo.com > wrote:

YYYYY, while I agree a lot of these are $ centric, I am not 100% convinced that an MBA is the only route even for networking. It’s just food for thought… it will certainly be one of the best times of your life. I’m in the same position as you guys, don’t get me wrong… might as well try, but might also try to get a gig that will lead me to the gig i’d have out of school as well. Food for thought… everyone has differing opinions. You can always take a work sabbatical as well… I have to think it through just like ya’ll

On 10/4/07, WWWWW <WWWWW@wwww.com> wrote:

You need to figure that getting an MBA and not getting paid at work probably costs almost half a million dollars depending on your job.

It’s a touch choice to leave that much money on the table for a degree that might not help you that much. I know that people I work with are tending to skip it.

If you are good and the market is good – you get promoted…and once you are promoted its almost pointless to go for the MBA

On 10/4/07, YYYYY < YYYYY@gmail.com> wrote:

Don’t disagree with you… However, I think for those like myself who are not 100% convinced that a career in high finance is what I ultimately want, an MBA can give you the opportunity to step back, try out different things, get different people’s perspectives, and then make a calculated decision about where you want to end up.

I think if you want to stay in finance then the CFA is probably the way to go. Unless, like me again, you’d rather drink beer on the weekend then study your ass off for 3 years!

What’s key is that some of these articles assume that everyone wants to stay put on their current career track - what they fail to mention is that most people don’t have a fuckin clue about what makes them tick… That’s where the real value of going back to school is in my opinion - because we all work too hard to do any real thinking about career goals and all that shit.

On 10/4/07, ZZZZZ <ZZZZZ@yahoo.com > wrote:

WWWWW, speaking of which, I owe you a resume… coming soon.

YYYYY - good point. We aren’t educated enough about what each career entails. What happens is you start a job and then you’re like, this isn’t what I wanted. If they held seminars and we can really see what it’s like (which b-school provides) that is very valuable in the long-term. However, you can probably find this out even without b-school (network and eat out with people), and also meet people without the degree.

Also, once in b-school, what I hear is that you have a few weeks to make a decision about where you want to intern, and then you ultimately receive that full time offer the next year. I doubt you’d have a clue within a few weeks what you want to do…

On 10/4/07, XXXXX <XXXXX@yahoo.com > wrote:

mmmmm beer. do you need an mba to become gm of the yankees? thats the only thing i know id like to do.

On 10/4/07, WWWWW <WWWWW@yahoo.com > wrote:

I’m going to try and convince my company to buy them when Steinbrenner sells…

I’ll see what I can do for you

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Check out this great posting and response that apeared on Craigslist.

What am I doing wrong?

Okay, I’m tired of beating around the bush. I’m a beautiful
(spectacularly beautiful) 25 year old girl. I’m articulate and classy.
I’m not from New York. I’m looking to get married to a guy who makes at
least half a million a year. I know how that sounds, but keep in mind
that a million a year is middle class in New York City, so I don’t think
I’m overreaching at all.

Are there any guys who make 500K or more on this board? Any wives? Could
you send me some tips? I dated a business man who makes average around
200 - 250. But that’s where I seem to hit a roadblock. 250,000 won’t get
me to central park west. I know a woman in my yoga class who was married
to an investment banker and lives in Tribeca, and she’s not as pretty as
I am, nor is she a great genius. So what is she doing right? How do I
get to her level?

Here are my questions specifically:

- Where do you single rich men hang out? Give me specifics- bars,
restaurants, gyms

-What are you looking for in a mate? Be honest guys, you won’t hurt my
feelings

-Is there an age range I should be targeting (I’m 25)?

- Why are some of the women living lavish lifestyles on the upper east
side so plain? I’ve seen really ‘plain jane’ boring types who have
nothing to offer married to incredibly wealthy guys. I’ve seen drop dead
gorgeous girls in singles bars in the east village. What’s the story
there?

- Jobs I should look out for? Everyone knows - lawyer, investment
banker, doctor. How much do those guys really make? And where do they
hang out? Where do the hedge fund guys hang out?

- How you decide marriage vs. just a girlfriend? I am looking for
MARRIAGE ONLY

Please hold your insults - I’m putting myself out there in an honest
way. Most beautiful women are superficial; at least I’m being up front
about it. I wouldn’t be searching for these kind of guys if I wasn’t
able to match them - in looks, culture, sophistication, and keeping a
nice home and hearth.

it’s NOT ok to contact this poster with services or other commercial
interests Craig’s List PostingID:

THE ANSWER
Dear Pers-:

I read your posting with great interest and have thought meaningfully
about your dilemma. I offer the following analysis of your predicament.
Firstly, I’m not wasting your time, I qualify as a guy who fits your
bill; that is I make more than $500K per year. That said here’s how I
see it.

Your offer, from the prospective of a guy like me, is plain and simple a
crappy business deal. Here’s why. Cutting through all the B.S., what you
suggest is a simple trade: you bring your looks to the party and I bring
my money. Fine, simple. But here’s the rub, your looks will fade and my
money will likely continue into perpetuity…in fact, it is very likely
that my income increases but it is an absolute certainty that you won’t
be getting any more beautiful!

So, in economic terms you are a depreciating asset and I am an earning
asset. Not only are you a depreciating asset, your depreciation
accelerates! Let me explain, you’re 25 now and will likely stay pretty
hot for the next 5 years, but less so each year. Then the fade begins in
earnest. By 35 stick a fork in you!

So in Wall Street terms, we would call you a trading position, not a buy
and hold…hence the rub…marriage. It doesn’t make good business sense
to “buy you” (which is what you’re asking) so I’d rather lease. In case
you think I’m being cruel, I would say the following. If my money were
to go away, so would you, so when your beauty fades I need an out. It’s
as simple as that. So a deal that makes sense is dating, not marriage.

Separately, I was taught early in my career about efficient markets. So,
I wonder why a girl as “articulate, classy and spectacularly beautiful”
as you has been unable to find your sugar daddy. I find it hard to
believe that if you are as gorgeous as you say you are that the $500K
hasn’t found you, if not only for a tryout.

By the way, you could always find a way to make your own money and then
we wouldn’t need to have this difficult conversation.

With all that said, I must say you’re going about it the right way.
Classic “pump and dump.”
I hope this is helpful, and if you want to enter into some sort of
lease, let me know.

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Check out this very insightful blog posting on Guy Kawasaki’s blog detailing the projected and actual costs associated with launching the startup company Redfin. This is critical reading for any tech entrepreneur.

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