J. Bryan Scott

It appears that Plaxo, the online service once notorious for spam, still irks quite a few users - so much that their top support article is "How do I delete my Plaxo account?"

It seems odd that a company would display their customers’ dissatisfaction so prominently. I’m not sure whether this is by neglect or design, but either way it’s ironic given the company’s checkered history as a spammer. Perhaps Plaxo figures it’s best to give customers a fast and clear route to remove their account in order to avoid getting trashed on Twitter and the blogosphere.

Deleting my account was easy and fast, and although I dislike Plaxo, I won’t actively go around trashing it.

I was discussing Revenue per Employee with some colleagues this week and noticed a lack of published ratios on the web. So I wrote a simple script to screen scrape revenue per employee data for the NASDAQ-100 from Google Finance. Note: I usually prefer Yahoo Finance because it is much more thorough, but I chose Google Finance for this application since it conveniently lists both revenue and employees on the page, making screen scraping easier.

Revenue per Employee is commonly used to compare productivity between companies in the same industry.

Revenue listed below is from each company’s latest full fiscal year as of February 6, 2009. Employee count comes from the latest quarter. Note that revenue for non-US companies (ADRs) is not in USD.

You can sort the table by clicking on each column heading. Sorting javascript from kryogenix.org.

So far, most news I’ve seen on OpenTable’s IPO fails to analyze the company, instead myopically focusing on the boldness of going public in this market.

But this is a fair point. It’s very peculiar that a company needing only $40 million would file for IPO during a credit crunch. Further, OpenTable is backed by three venture firms including the top-tier Benchmark Capital (partner: Bill Gurley), and the company is running at break-even. Life-support capital seems an unlikely motive. Dare I say this might be a sustainable company?

Digging deeper, I found a killer platform currently disguised as a service. OpenTable has installed its touchscreen reservation system in 8,788 restaurants in North America (nearly 1-in-3 of the 30,000 addressable) with a YOY growth rate of 29%. The system is a proprietary hardware+software device that interfaces in real time with OpenTable’s website. From the site, diners reserve tables at no additional charge. The restaurant guarantees a customer, and the diner guarantees a place to eat. It’s a win-win.

OpenTable lists pen & paper reservation systems as its primary competitor. Remember the word processor vs. typewriter? We know that ending. Consumer-facing applications aside, OpenTable alleviates a major pain point among restaurants (through the Electronic Reservation Book or ERB) and sells a proprietary product with a wide and growing moat. Better yet: restaurateurs are highly self-referencing, meaning that local markets develop like wildfire through word-of-mouth.

And at an average cost per diner seated of $0.69 (see table below), restaurant owners can easily gauge ROI. This may be the most riskless, cost effective, and predictable CPA advertising available to restaurants today. After all, how much closer to revenue can you get than a customer sitting at a table in your restaurant? This is brilliant, and only OpenTable can do it.

But I see reservations as just the first of many applications to be built on this unique restaurant platform. Check history, billing, and standardized menus are just a few that come to mind. Verified (the reviewer actually ate there) restaurant reviews already launched last year. Deep, seamless integration with the platform makes these applications far better than any set of strung-together, third-party services. Each of these applications will either generate revenue or augment the customer experience.

OpenTable should dominate the reservation-taking restaurant vertical for a long time to come. Similar to Microsoft, they can reap the rewards of being an entrenched platform, albeit serving a much smaller market. More cautiously, it’s not inconceivable that OpenTable could expand with similar success into similar verticals. I’ll be watching OpenTable closely. As an investor, I dream of companies like this. Pending an attractive valuation, I’m a buyer of OpenTable at IPO (at reasonable valuation, of course).

More points that get me excited about OpenTable:
-Great management with experience managing restaurants + internet co’s
-Average price points seem very compelling (see table below)
-SaaS model that customers and Wall Street favor (higher Price/Sales)
-Both Subscription and Reservation Revenue growth outpaced installed restaurant growth

Disclaimer: This is my personal opinion and should not be construed as investment advice. Always consult an investment advisor before making investment decisions.

This morning, Ashley Burnett sent me a gift on Facebook. This resulted in the news feed item below:

Strangely, HTML appeared in the rendered page. I thought this might be the product of output sanitization, such as by calling htmlspecialchars or equivalent function with HTML unintentionally in the argument.

But upon inspecting the page with FireBug, I found the following code:

According to FireBug, appropriate HTML is outputted. I suspect there is some JavaScript trickery in the background. This page appears with HTML in the rendered output on Chrome 0.2.149.29 and Firefox 3.0.4.

Does anybody know why? What conditions would cause a browser not to render HTML?

This seems like an interesting bug if you are an engineer at Facebook.

Background

It was recently my birthday and I received a massive number of wall posts on my Facebook profile. This Birthday Effect is propagated when Facebook advertises a user’s birthday to a user’s friends on the Home page via a profile link. I call this hyperlink the Birthday Link. The effect occurs for virtually every one of my Facebook friends - even those who are not active on the site. I’ve casually observed this effect for years , but this year I decided to analyze it.

Raw Numbers

My Birthday Effect resulted in 68 posts from 68 unique friends. I have 1,209 registered friends, yielding a conversion rate of 5.62%.

Extrapolated Conversion Rates

Since the Birthday Link only appears on the Home page (and not email, e.g. Plaxo), it makes sense to look only at users who would typically view the site. That is to say, users didn’t visit Facebook on my birthday simply because they knew it was my birthday.

Assuming 60% of my friends login daily, total impressions of my Birthday Link on the Home page were 725, yielding a capture rate of 9.37%. That’s over 262 times more frequent than Facebook’s average display advertising CTR (click-through rate) of 0.04%. Statistically, birthdays on Facebook are a big deal.

How Facebook Can Monetize

Friends care about one another’s birthdays, and they are expressing this through Facebook. I think Facebook can monetize this action-driven traffic from Birthday Link to Wall Post. Someeecards would be hilarious a good start, but the bigger opportunity is to provide a gift-buying advertisement. Gift advertisements could be targeted by a friend’s interests, music, books, movies, and other profile data. Imagine seeing a list of the 10 most popular related books on Amazon given your friend’s “Favorite Books” list on Facebook. Overnight shipping would be a popular option. This is a rare opportunity for advertising to solve an immediate, real problem and augment user experience.

Big Money

CPA (cost per action) agencies like Commission Junction pay 10% to 50% of transaction value to publishers. Assume that Facebook could contract a similar arrangement with an e-tailer such as Amazon for just 10% of transaction value. Let’s do the numbers:

U.S. Facebook Users 36,000,000
* = 90% list birthdays     32,400,000
* = 1 birthday per year     32,400,000
* = 10 clicks on each Birthday Link     324,000,000
* = 5% conversion to gift purchase     16,200,000
* = Average purchase price $25     $405,000,000
* = Facebook gets 10% of revenue     40,500,000
= Incremental Revenue to Facebook     $40,500,000

Facebook 2008 Revenue Estimate 350,000,000
Incremental Revenue to Facebook as % of Estimate     11.57%

Amazon 2007 Revenue Actual 14,835,000,000
Incremental Revenue to Amazon as % of 2007     2.18%

Conclusion

Facebook can generate an incremental $40.5 million (11.57%) in annual revenue by prompting users to buy gifts for their friends on their birthdays. Advertising must be carefully targeted to users who actually care about that friend. This can be assessed by clicks on the Birthday Link. Statistically, birthdays on Facebook attract huge attention from users. Facebook is poised to add value to this phenomenon while extracting gains for itself. As Facebook looks for new ways to monetize without compromising user privacy, these Birthday Ads seem like a great fit.

Disclaimers & Assumptions

- I believe the numbers related to my Birthday Effect are standard for college students on Facebook, but above average for all Facebook users. The extent of this is very difficult to quantify and could only be accurately measured in-house at Facebook. I believe I have adequately offset this in my calculation by assuming only 10 clicks on each Birthday Link (as opposed to my projected 68).

- I assume that my Facebook friends only see the Home page once per day. Using an actual average would lower conversion estimates and give a less favorable comparison versus the cited CTR for Facebook. This would push my Birthday Link conversion rate lower, but it would be at least partially offset by CTRs with no conversion (i.e. someone clicks the Birthday Link but does not post on my Wall).

- I ignore users outside of the U.S. because these markets are notoriously more difficult to monetize. Addition of international markets would increase revenue estimates, albeit at lower rates and purchase prices.

After years of writing only impromptu articles, I’ve decided to take the leap and write on a routine basis via this blog.

Why a Blog
A blog is a powerful, thought-provoking medium of discussion. Blogging gives me the opportunity to explore my ideas with a wider audience. Tangentially, I seek deeper understanding of the topics that interest me. I believe writing (especially blogging) is a great way to do this.

Why Now
I finally had time to setup my platform. WordPress only takes five minutes to install, but customization, theme development, and distribution setup are not so fast. Plus, school is winding down and routine, quality writing will be easy for the next several weeks.

What I’ll Write
The tagline of this blog is “technology, investing & related business.” These are three areas I have always found passionately captivating. Naturally, I’ll focus on web technology and early-stage investment. But I’ll frequently take a step back to look at the bigger picture (i.e. the technology sector and public equity markets, respectively). I’ll examine the businesses of both major players and soon-to-be disruptors.

How Often
I estimate 1-3 posts per week.

Succinct & Lucid
I value my time. Likewise, I’ll strive not to waste yours.

The Deal
If this content sounds appealing, please subscribe - either by RSS or email. I look forward to conversing.