It’s been a busy old week here at Syntagma Towers.

We’ve been refurbishing the office with new laptops, installing a giant HD screen with digital television, and throwing out a pile of junk.

We’ve also been optimizing our sites for the new PR Crunch era, and working on our latest projects for specialized information products.

It never ends. Blink and the world moves on without you.

But would we have it any other way? Never! Mind you, a good night’s sleep would be very nice.

Friday, and it’s the first cold day of the season. Heavy morning frost on the rooftops and a biting wind. Central heating full on, and winter woollies at the ready. It could be a cold one this year here in our northern latitudes.

Do we care? Not a jot or a tittle! Business is too good for that. Here’s what we’ll be thinking of :

Brigitte Bardot in her prime

The sun, I mean.

Mind how you go.

I’ve never really thought that Warren Buffett (pictured left) would want to invest in Syntagma Media, but an entrepreneur can dream.

Buffett, CEO of Berkshire Hathaway, and one of the top two or three richest people on the planet — heck, he even owns a hedge fund, is known for making shrewd investments. Where Warren burrows, others follow — like rabbits.

Like all good business folk he’s noticed that the dollar has been on the slide for quite a while, agonizingly compensating for America’s huge foreign trade deficit. Meanwhile, the poor old pound sterling is about to hit the starry heights of $2.10, making the greenback worth all of 47 pence (45 on PayPal).

For those of us paid in Uncle Sam’s Monopoly money that’s quite a hit we’re taking over here in the UK and Europe. We’ll be reduced to Dickensian conditions by year end, mark my words. We may even apply for Marshall Aid.

Anyway, back to Warren Buffett. He’s now announced he is NOT investing in any business whose income is designated in dollars.

Shrewd? Yes.

Scrooge? You said it. That’s why I say Buffett has rejected Syntagma Media.

On top of all that we have the credit crunch? Is that a new breakfast cereal? It’s the result of American banks giving mortgages to the trailer-park poor who couldn’t afford to repay them. They then sliced, diced and packaged them into “collateral debt obligations” and sold these to banks around the world.

Now banks don’t trust other banks — or their own balance sheets — so lending short-term funds to other financial institutions is at a standstill. Result? The world suddenly has an acute shortage of liquidity.

The U.S. used to be good at banking. What happened?

If you want to begin to understand the way Google is reconfiguring its pack of algorithms — much to the despair of its smaller commercial customers — you could do a lot worse than read I, Cringley’s latest article on PBS. It portrays the Mountain View operation as a giant can of worms.

[A] problem at Google right now is algorithmic optimization gone mad with the probable result that many of Google’s smaller AdWords customers will go broke this Christmas. Killing longtime customers is not a good corporate policy.

The upshot seems to be that Google is subject to the Law of Unforeseen Consequences, a well-known byproduct of increasing complexity. Worse, Google does not address these problems directly for fear of crashing its already wobbly customer service system. Now there’s a real bind.

We’re used to governments getting into hot waters like this, but they are operated by rather stupid people. Google is run by whizz kids with Stanford PhDs and brains the size of a minor moon of Jupiter.

What’s really going on here? “Algorithms — the smarter the better — are at the heart of Google’s success. But Google’s major failing nearly always comes down to confusing algorithmic efficiency with moral, ethical, or even business correctness. Sometimes good algorithms do bad things and the tendency at Google is to simply not care: it was the ALGORITHM’s fault.”

I’ve always suspected that Algy the Algorithm was a thoroughly nasty cartoon character. Like all such characters, he’s completely indestructible. Even if you flatten him to the floor he just pops up again worse than ever.

As Cringely puts it : “… recently Google started messing with AdWords, modifying algorithms and launching new programs that make the company look good to Wall Street, which is always seeking at least the appearance of improvement, but not to Google’s AdWords customers.”

At $700 a share it may be easy to break with its original customer base, but with the U.S. and world economies going sharply south, even Google may need the support of anyone it can get … maybe even those small-scale, under-capitalized guys who built their businesses alongside its growing infrastructure.

I’ve been writing about my interest in the economics of the retail sector for a year without very much happening. Now the long-gestated project is beginning to come to life thanks to our contacts with a number of specialist retail analysts.

One of the reasons I moved into the content business online was because of a long-term plan to create specialist information products for high-worth niches, published privately or behind subscription walls.

The idea goes back to my initial training in information science at the Central Office of Information in London. The COI is part of the Foreign Office, for which I also produced specialist information packages for Britain’s Embassies abroad. These were mainly product and technology based.

Now, working with a small team of retail analysts, we’ve hatched the first of these new projects aimed at large retail corporations. The project will have its own corporality separate from Syntagma Media, which will own a share of the business.

Given Google’s sudden froideur towards digital networks, this will provide much-needed diversification away from our reliance on Google traffic and rankings.

The retail product will be followed by others of a similar nature. They won’t be visible to a general audience, although some of the knowledge-base may trickle down into Syntagma sites.

The quality of the product is everything, of course. High-worth clients are not going to pay real money for information generally available in the press. Expertise and relevance are essential. I believe our team has that, and coupled with Syntagma’s in-house information skills, the result will be a killer product for the industry.

Year 3 of the Syntagma odyssey begins with a bang.

You always knew it would.

Steve Rubel has some pertinent views on the whole Web 2.0 bubble and the crazy valuations and hype being bandied around right now.

Last week’s Google strike on the company’s advertising competitors — which may have put a lot of small internet operators out of business — illustrates how quickly the weather can change.

Rubel doesn’t beat about the bush, “This is a sad time for the web. It’s as almost somber as the time just before the last bubble burst in 2000. I was working in PR with dot-com startups at the time and the way I feel now is how I did back then.”

Regular readers of Syntagma will recognize the sentiments he expresses, especially in this passage, “… over the last year my thinking has evolved dramatically. I have become less interested in every new shiny object and more engrossed in the social changes it, slowly, effects. This is in part a byproduct of the tech blogosphere getting drunk on its own Kool-Aid.”

No more first fine careless rapture then.

The picture of the internet I see right now is of steady progress, both in the underlying technologies and also the growing professionalism of many quietly working away under its wing.

Overarching all that is the froth and hyperactivity of a new bubble-in-the-making. From the outside, however, only the nonsense is visible. People are being sucked in with promises, only to be swept aside as technical parameters are changed without notice and the marshals overwhelmed by the cowboys and injuns. It really is a Wild West out there.

That the fundamentals are gradually being put in place is great news for those of us who retain our enthusiasm for the web and will continue to use it as the base for professional and commercial activities.

Are we then approaching another collapse in internet values? We are not immune from the wider economy :

* Oil is nearly $100 a barrel
* Gold is approaching $1000 an ounce
* Housing markets in the US, Britain and Europe are heading south
* Stockmarkets are wobbling tortuously
* The credit crunch has yet to peak
* Inter-bank lending is at a standstill
* Inflation is ominously poised for a comeback.

These are all strong indicators of trouble ahead for everyone.

I’ve long believed that it’s a mistake to follow the crowd. The herd will always produce a glut in the end and the subsequent fall in values will put most out of business.

It’s only those who dig their own distinctive furrows and apply basic cash-flow techniques in the time-honoured manner who will survive the deluge.

And “deluge” seems the only appropriate term for the time ahead.

In this era of the worldwide credit crunch caused by rogue lenders sluicing off the debt of America’s trailer-park poor, it’s good to have some positve news for a change.

Once again, advertising on the internet is roaring ahead, up 27 percent in the first half of 2007.

Let’s not beat about the bush, here’s a big chunk of the press release from the Interactive Advertising Bureau :

NEW YORK, October 4, 2007 – The Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers (PwC) today released the IAB Internet Advertising Revenue Report covering the second quarter and the first six months of 2007. Internet advertising revenues (U.S.) for the first six months of 2007 were nearly $10 billion, setting yet another new record and representing a nearly 27 percent increase over the first half of 2006. Internet advertising revenue totaled nearly $5.1 billion for the second quarter of 2007, exceeding the $5 billion mark for the first time in a quarter, a 25.4 percent increase over the same period in 2006.

“The torrid growth of interactive advertising revenue persists and these results are really no surprise but very welcome news,” said Randall Rothenberg, president and CEO of the Interactive Advertising Bureau. “More and more marketers have embraced the reality that interactive is the fulcrum on which their brand strategies need to be based and we expect robust growth to continue.”

“The first six months of 2007 has continued the trend over the past several years of strong sequential growth,” said David Silverman, partner, Entertainment, Media & Communications Practice, PricewaterhouseCoopers. “The growth, which was led by strong increases in the consumer advertising sector, continues to point to the mainstream acceptance of the medium and advertisers’ continuing reliance on it.”

“The Internet is well established as a key media distribution channel for driving advertising,” said Pete Petrusky, Director, Entertainment, Media & Communications Practice, PricewaterhouseCoopers. “The recent results demonstrate that advertisers recognize the continued growth in the online audience and the growing opportunity to target and monetize that audience.”

This is very good news for those of us who earn part of our income by providing ad space online. Long may it continue to flourish.

This is the third and final segment of a recent interview I gave to Gerry Reynolds, a retail analyst, and which is published in Syntagma with permission. Read the other two parts here : #

Gerry : I’d like now to look in more detail at the essence of the business, its income, i.e. advertising. What are the main parameters of online advertising?

John : Online advertising is relatively new, so it still has more than a shade of the Wild West about it. It’s improving all the time, though, and growing very fast.

For small publishers, the breakthrough was Google’s Adsense, which is a text-based system aimed at generating clickthroughs, which in turn produce income linked to the market price of certain keywords sold by auction as “Adwords”. You can see examples of Adsense at the foot of each of the first three posts on any of our sites.

If that sounds complicated, it boils down to “pay-per-click” instead of pay-per-sale. The pay you get per click varies from a few cents to more than $10, depending on the product or service involved.

If you think of Adsense as plain old classified ads with an electronic counter attached, you’ll get the point.

Gerry : But Adsense is going out of favour now, isn’t it?

John : You do need high trafficked sites for it to work, which is why it’s the darling of the Google gamers, the SEO wizards who seed their sites with high-priced keywords to generate traffic and clickthroughs.

Most decent blogs will have traffic of between 10,000 and 50,000 page views a month. That’s not enough to make useful gains from Adsense. Significantly, though, it’s enough to generate hundreds of dollars a month from “text-link ads” which are paid for in advance by actual advertisers. There are now agencies which sell the ads for you and take a 50 percent cut for their pains.

Gerry : Does Syntagma use these agencies?

John : We do, but we also sell our own text-links off our inventory. They tend to give better value to the advertisers because we can be flexible with discounts, especially where a lot of space is available.

Gerry : So text links are the most important form of advertising for you?

John : In our first two years, they have been. The cumulative income from hundreds of text links over 40 to 50 sites, can be very impressive indeed, especially compared with affiliate shareouts, which depend on sales, and CPM ads which give small sums for each ad impression.

Gerry : What other systems have you tried?

John : I’ve tried them all. On high traffic sites, Adsense and affiliate links do well, because they are a numbers game. But the bulk of sites will be below, say, 100,000 page views a month. These need to be monetized in a different way to bring home the bacon. However, if these sites are in the right topic areas, they can generate good monthly incomes from text links.

Gerry : What are the right topic areas?

John : Click through our inventory contents list in the sidebar of Syntagma and you’ll see those that sell out on text link ads positioned below the header.

Gerry : So anyone can do this?

John : In theory, but not quite. Many “blog” networks have closed because the owners didn’t have the stamina to see the job through. Syntagma has a good reputation in the space, which we’ve earned over two years, and is seen as a mature player. That attracts advertisers to us.

In our first year, income was sparse and I funded the operation from my credit card. In the second year, when I had learned the lessons of profilgacy, oneupmanship and other money-draining practices, I slimmed the whole shebang down to an optimum size and reach, which now makes money.

I don’t want to beat my own drum, but it does take tenacity and a great deal of shrewdness to stay in the game when you’re losing funds every day. The secret is to stay in the mainstream in terms of market niches, but to do it differently from everybody else, so you stay ahead of the crowd.

Gerry : You don’t mind giving your secrets away?

John : I’m always glad to help anyone who’s starting out or who is currently not succeeding. There’s enough money in online business for everyone who wants to claim it. Each success story expands the envelope. It’s not a finite pot. It’s a very dynamic marketplace, and we’re all pioneers here.

Gerry : What are the other forms of advertising that you may use in your third year?

John : I’m always experimenting, sometimes below the radar and on sites not part of our list.

Sponsorship of sites by substantial corporations is a possibility, and I’ve had talks with a few such players. Also, Google is developing an ad network with the aim of filling neglected inventory all around the internet with their ads. It’s a great concept, especially if it gets away from the necessity of hosting dedicated ad serving software, which is a nightmare for relatively small operations. That’s the Next Big Thing in the space, and all the other majors are following suit right now.

Gerry : You seem to have an aversion to spending one penny more than you have to on anything.

John : I operate a “blood from stone” policy. In a low margin business, you need to find the sweet spot where profits are generated from minimum costs. So far, I’ve been successful in this. I don’t intend to overreach the limits imposed by basic cash-flow techniques, nor make assumptions that I can’t nail down.

Syntagma’s motto is Dr Johnson’s phrase : “Example is more efficacious than precept”. Which can be translated as “successful actions speak louder than words”, or “A warehouse full of bacon is a better investment than a forestful of wild boar”.

Gerry : What about subscription models of funding?

John : They have been tried, mostly on crack information sites, and usually with disastrous results. The New York Times is coming off a part-sub model right now, and so are many other newspaper titles.

People expect their online experience to be free, for the simple reason that when they click away from a page there’s nothing left, unlike with a newspaper or magazine. It’s fairly simple psychology. That’s why we sell the fleeting use of their eyeballs. There’s nothing else to sell online that has real value.

Gerry : I love that, “the fleeting use of their eyeballs”. Are people aware of what you’re doing to them?

John : Good God, no. Everyone’s very protective of their eyeballs. If they thought we were renting them out, they’d shoot us.

Gerry : And so on to year three.

John : From October 20, yes.

Gerry : Is it going to be a good ‘un?

John : The best so far, undoubtedly, but the words “chickens” and “hatched” loom large in my consciousness.

Gerry : As ever!

John : As ever and a day.

I don’t know about you but I always find it hard to slip back into full working mode in early September. Here in England we often get the best weather of the year — as we have now — and a load of neglected problems from July and August are piled up before you.

On the positive side, it’s more like starting afresh than in January, a month when immersion in work is something of a relief. Couple that with our projected move and there is a definite air of anticipation here at Syntagma Towers.

All that is to say, if you are waiting for something from us, or are wondering why Phi and LifeTimes magazines were down over the weekend, put it all down to the season. We’re picking up a bit of pace now and will soon be back to normal cruising speed.

It also helps if you can write a post about nothing much at all. Hey ho.

Mind how you go.

I’ve been writing about venture capital here for some time. While I recognize it’s an important driver of innovation, I often wonder if it truly serves the purpose of many entrepreneurs and other business operators in creating companies that work for them.

The problem is, companies backed by VCs are no longer dedicated to the best interests of business creators. So what are the basic rules of the game when dealing with these slick intermediaries between private investors and startup hopefuls?

Paul Graham has written an excellent post on this rather arcane subject. #

If a venture capitalist offers you a certain sum of money in exchange for a shareholding in your startup, what are the rules governing these deals and how much of your business should you part with?

According to Graham’s analysis, the answer is : 1/(1 - n)

Whenever you’re trading stock in your company for anything … the test for whether to do it is the same. You should give up n percent of your company if what you trade it for improves your average outcome enough that the (100 - n) percent you have left is worth more than the whole company was before. For example, if an investor wants to buy half your company, how much does that investment have to improve your average outcome for you to break even? Obviously it has to double: if you trade half your company for something that more than doubles the company’s average outcome, you’re net ahead. You have half as big a share of something worth more than twice as much.

If you were in this scenario, you would already have jumped through a lot of hoops to get there. You should bear in mind from the outset that a VC company like Sequoia, for instance, gets about 6000 business plans a year and funds around 20 of them.

Face it, you’re going to have to be good to get the cash, so you are entitled to drive a hard bargain. According to Graham, Sequoia will allow you to do so.

There are many other options available. Whether VC funding is for you is just a little simpler to answer after reading Graham’s interesting piece.