Warfield eViews: Briefings, musings and rantings o

In Memoriam: Arthur (Otts) E. Davis, III

2007-12-10T22:22:00.000-05:00

My fond encounters over the years with Otts Davis were both public and private. He was a quiet man, a gentleman, yet passionate about the things he loved; and those were many.

Co-Owner since 1967 of Chase, Fitzgerald & Co., Inc., and Industry Member of the Maryland Real Estate Commission, Otts was the consummate professional. His ubiquitous charm and gift of discretion could deflect any angst usually related to a real estate transaction. His mantra from his web site read, “It’s not work if it’s what you love to do”.

Otts was a passionate supporter (class of “61) of Gilman School in Baltimore. A popular member at the Elkridge Club, Otts was an avid golfer and familiar face in the dining room with his wife and high school sweetheart, Melinda.

Otts loved Baltimore. He had a public persona which came to the forefront with his early commitment to the resurrection of The Baltimore City Chamber of Commerce. His diplomacy and steadfast commitment to the ideals of the chamber were profound.

Otts Davis, the public and the private, will be memorialized by his many friends and associates in Baltimore.

Local iBank Signal Hill Goes “Local”

2007-10-28T10:17:00.000-05:00

The Alex. Brown alum ibank, Signal Hill, has decided to carve out the local domain of the World Wide Web. Spearheading the research team is Maurice McKenzie who previously was an analyst at FBR & Co. covering publishing and broadcasting. According to a recent McKenzie report “… (we) expect local search advertising to represent one of the fastest growing internet ad opportunities over the next couple of years, as local merchants follow consumers online.”

Is Signal Hill climbing the right hill?

Mid 90s projections by Jupiter Research forcast local advertising to represent 70% of the internet by 2003. Jupiter’s meteoric prognostications were off by a galaxy and a decade. After a $200+ market cap IPO, Jupiter Research was delisted from NASDAQ by 2002. The firm remains in the market research and analysis business, but a search of their website found no research on the local internet, perhaps a testament to the dangers of the local World Wide Web even in the land of prognostications.

The local build-out of the World Wide Web has taken over a decade to jumpstart. The analog metaphor may be that the distance between Main Street and Wall Street parallels the distance between the local and World Wide Web.

Signal Hill’s primary investment thesis is that “the local market remains under-penetrated.” Citing a Commerce Department estimate that 97% of retail sales occur offline, the Signal Hill view is that this "bodes well for local merchants, and local search, in our view.”

Signal Hill’s coverage in the local arena include: Marchex, Inc <(MCHX) Rating Buy: Online Search Specialist Connects Merchants and Buyers in Expanding Market>, Local.com <(LOCM) Rating Hold: Accretive Acquisition Expands Private Label Search Footprint> and R. H. Donnelley <(RHD) Visibility and Solid Cash Flow Drive Value> whose recent purchase of business.com will position them strongly in the local B2B market .

If craigslist remains the poster child for the ultimate local classified newspaper juggernaut, the local space continues to provide a continuous stream of casualties. Last week, Judy’s Book whose model had morphed from a review-centric local social search to one based on local shopping and search service entered the "dead pool".

Even the Mid-Atlantic’s Midas Touch VC extraordinaire, Frank Bonsal, lost an angel’s penny with the Virginia based, community focused, citizen journalist site BackFence, which closed down back in July. The company had closed a $3 million financing in October 2005 from SAS Investors and eBay founder The Omidyar Network.

Is there a lesson to be learned here - a role model or a business model?

The King of Local is Craig Newmark who built the ultimate local C2C machine with 450 cities, 30 million monthly users and only 25 employees... and without venture capital.

The other lesson: Craig spends most of his time on customer service; which is why Craig lives on Main Street with little concern for the other C Capital. As an example, I have personally emailed Craig Newmark 4 or 5 times, and have been answered by Mr. Newmark himself within the hour.

Where there are opportunities there can often be question marks, but Signal Hill’s commitment provides a positive signal to this opportunity.

WILL THE BALTIMORE SUN ELIMINATE THE BUSINESS SECTION?

2007-10-21T12:07:00.000-05:00

Business sections of local newspapers across the country are being dropped. The Winston-Salem Journal and The Akron Beacon Journal have both eliminated their business sections in the last couple of months.

Friday’s Baltimore Sun business section had 2 bylines and no advertisers. There was a half-page house ad for the Bee Movie which read:"Honey Just Got Funny".

Assuming that the Tribune sale gets through the FCC déjà vu fight over media ownership and is granted a temporary waiver to lift the "cross ownership" ban, the next issue will be managing the 8X+ EBITDA debt burden piled on top by Sam “the Gravedigger” Zell. A no-revenue section gobbling up newsprint seems destined for the morgue.

Prior to Zell’s extreme ESOP play, the business sections have faced the usual challenges – stock tables made irrelevant by online, 15 minute-delayed stock quotes, Craigslist's decimation of newspaper classifieds, changing news consumption habit, etc.

Some could argue that the death of the business section occurred in October 2005 when Bill Atkinson left the 4th estate for the web of Weber Shandwick. Atkinson’s was a trusted and analytical byline replaced by Bloomberg, AP and wire copy.

In most markets, the business journals will assume the monopoly mantle.But crabtown has nothing to worry about even if Sam nukes the business section. There is still The Daily Record, The Baltimore Business Journal, The Examiner, Smart CEO and citybizlist. Baltimore remains the most competitive local business news market outside of Manhattan.

5 Questions for Sean Fenlon – CEO of DoublePositive Marketing Group, Inc.

2007-05-03T07:07:00.000-05:00

1) Double Positive Marketing Group, inc. is the first to market in the “live” leads space. How does this company differ from your last company TheLoanPage.com which was also a leads company?

TheLoanPage.com was an Internet lead company that sold leads (in the form of data) to mortgage companies. The business model was similar to that of Lending Tree – a consumer was promised four free competing quotes if they filled out a simple form on the web. The company would then sell the consumer’s form submission as a lead to mortgage companies. TheLoanPage.com was sold to Battery Ventures at the end of 2003.

DoublePositive was founded in 2004 and also sells leads. Unlike TheLoanPage.com, however, DoublePositive sells LIVE leads. We call our LIVE leads Hot Transfers and we are currently a leader in the live leads and hot transfers space.

1a) So, What is a Hot Transfer?

A Hot Transfer is a LIVE genuinely-interested and qualified consumer looking to speak with a sales professional for a free price quote. Our patent-pending doubleCONFIRM™ process begins similar to TheLoanPage.com – a consumer submits a form online requesting a free quote. However, rather than selling this consumer-submitted data as a lead, we have our call center instantly contact, qualify, and then transfer the live call to one of our buyers (sales professionals).

Not surprisingly, our most significant vertical is the mortgage industry, however, we have launched and experienced success in the consumer debt and the online education verticals as well. LIVE Hot Transfers from DoublePositive are typically the most expensive option for lead buyers, but they are also the best value.

2) Does your company remain the only company in the “live” leads business? Is there competition? Do you consider True Advantage to be a competitor? Are there any other verticals that you plan on starting?

The “LIVE” lead category is becoming broader each day. At this point in time, certainly Pay-per-Call companies such as Ingenio and Verizon Superpages.com are companies in the “LIVE” lead space. However, we see very few if no direct competitors to what we do at this time. There are companies such as LeadQual with a philosophically different approach. There are also thousands of call centers and Internet Lead Aggregators that effectively function as competitors, but virtually no other companies do what we do and absolutely no other companies do it as well as we do, but of course, I’m biased. ;-)

TrueAdvantage is not a competitor as they are 100% focused on the sales of B2B leads. DoublePositive is focused 100% on the sales of B2C leads.

3) In September, DoublePositive closed a $2.7 million Series B including the advertising.com founders Ferbers Inner Harbor Brothers LLC. What have you done with this funding? Are you planning another round?

The Series-B round was led by The Grosvenor Funds (DC), and all the Series-A investors also chose to participate. We intend to raise our third and final round of financing in 2007.

4) Your last company TheLoanPage.com was sold to Battery Ventures in 2003. Is there an exit strategy for DoublePositive? If an exit is not on the horizon, what is your growth strategy? Any potential acquisitions?

Venture-backed companies always need an exit strategy, but the “when” is almost always dictated by growth and momentum. At this point in the company’s lifecycle, the company is enjoying incredibly hyper-growth and enjoyable momentum, thus “when” remains difficult to predict. However, there are no plans for acquisitions at this time.

5) Your educational background with music degrees from Towson University and The Peabody Institute is unique. Are there any lessons or insights that were garnered from your education that prepared you to be an internet entrepreneur?

Yup. The folks that work the longest and practice the hardest always play the best! 

Baltimore Sun Resurrection

2007-04-24T11:49:00.000-05:00

My intentions as a “gnat” publisher (Michael Olesker’s description of me in 1990) would be to preserve the First Amendment in Maryland and its role as the Blue State’s Forth Estate, rather than preserving The Baltimore Sun simply because it is a Baltimore institution. However, The Sun's relentless coverage of the BGE and FPL attempted merger, and its hard hitting exposé on ground rents had significant impacts on these important issues. That said, I feel the need to share some insights for whatever they are worth.

My sale of The Daily Record in 1994 was predicated on the premature paranoia that the internet would wreak havoc on legal and classified advertising. That premonition has come to pass. Craigslist, The Examiner, eBay, and the Facebook/My Space consumers are just a few of the challenges facing The Baltimore Sun.

Requests for an interview with Ted Venetoulis were either ignored or lost in digital oblivion; so this reluctant blogger decided to provide some gratuitous suggestions for survival of The Baltimore Sun.

UNION COOPERATION

Sam Zell purchased Tribune for a cash value of 4% of its public market value - chump change relative to his net worth of +/- $8 billion. He knew full well that radical surgery would be required to turn the company around. Without union buy-in at The Baltimore Sun, the turnaround will be stillborn. To provide an example, the survival of The Daily Record depended on my giving 24 employees of the Baltimore Typographical Union lifetime guarantees in exchange for direct input of content in 1984, which facilitated a financial turnaround. The newspaper unions are resistant to change. The Baltimore Sun does not have decades to get them on board. Union cooperation from the start is critical.

CAPITAL STRUCTURE

Steve Rattner left his job as a reporter at The New York Times to become an investment banker. In a Wall Street Journal article entitled “Red All Over – Is there any hope for the future of newspapers?”, he leads with the declaration that “the news about newspapers could hardly be more dismal: falling circulation, repeated rounds of layoffs, disappearing ads and a chain of bad earnings reports”. He addresses the notion that the public markets have no appetite for a declining business and that the “mogul-in-chief brings its own complications”. With this doomsday picture, he does offer one suggestion that may be relevant to the buyout of The Baltimore Sun. He suggests a not-for-profit status. Baltimore is blessed with numerous foundations including The Abell Foundation. If saving The Baltimore Sun is in the public interest of Baltimore, why not include a preferred level of funding that includes non-profit funds such as the Annie Casey Foundation which has $3.3 billion in assets – a twist on Rattner’s recommendation.

eEDITIONS

I serve on the advisory board of NewsStand, Inc. – a digital delivery company backed by the New York Times, Adams Capital, Noro-Moseley with $45 million in paid-on capital. Last week, NewsStand signed a contract with The Baltimore Sun to start a digital edition - basically a glorified PDF that replicates the actual newspaper. The business model for eEditions has taken a random walk. Originally viewed as a paid subscription model, few consumers have been willing to pay for their e Editions. It appears that its real value may be the cost savings associated with the elimination of educational and international hard copies.

DIGITAL REVENUE

If there is hope in this world for newspapers, France’s Le Monde may show the newspaper world a survival template with digital revenue. Le Monde had a few tortured years. After a 15% fall in circulation and the loss of their classifieds, Le Monde had significant operating losses in 2002. By 2004, 100 employee jobs had been cut. Yet Le Monde is expected to make a profit this year. Why? Its digital revenues are growing by 20 to 50% depending on the web site. A digital strategy will require an editorial staff that writes both for the web and the newspaper.

HYPERLOCAL

Last Monday, The Tampa Tribune laid off 70 of their employees. At the same time, they announced plans to start 15 hyperlocal sites. All of their zone/weekly reporters have reorganized their priorities – online first, print second. It is the online metaphor of zoning. Ted Venetoulis knows about zoning; he started the Owings Mills Times. The success of hyperlocal sites is based on the fact that they are less expensive to publish and can be even more local than print editions.

INVESTORS EMERITUS

Most of this deal’s investors are probably older (and still attached to consuming news via newspapers) than the new demographic that needs to be reached. To achieve a desired turnaround time that beats that of, say, cleaning up the Bay, diversification is key. Smart senior capital is acceptable by just keeping them in an emeritus role. The only way to salvage this institution is with radical, younger agents of change.

A Week in the Life of Governor O’Malley – To Do or Not To Do

2007-04-21T15:26:00.000-05:00

Wall Street Journal columnist, citybizlist blogger, City Paper founder, economic conservative, social libertarian Russ Smith wrote an editorial in the The Wall Street Journal and citybizlist last week entitled “Maryland’s Do Nothing-Left” regarding the slow start of the O’Malley administration.

Smith wrote, “Could this be a new model for the Democrats? Lots of talk aimed at the party’s base, only to be followed by very little substantive action once handed the responsibilities of governing?”

eViews wanted to bring some third party objectivity to Russ Smith’s editorial. Press releases were used as the data points. A comparison with Pennsylvania Governor Rendell provides an interesting reference.

In just one day of press releases, Governor Rendell exhibits a broad swath of initiatives and responses related to economic development, agriculture, the environment, flood recovery, housing, youth and taxes.

Can someone show me anything at all that O’Malley has done since he started his term in January? Smith states that “He’s looking to get a sense of the national mood before committing himself to policy.” He continues “ … the media are letting the governor get away with doing nothing.”

Russ Smith’s conclusion was “Sometime even doing nothing has its risks.”

If political expediency is O’Malley’s modus operandi , here’s one that piggybacks on Blue and Red. On Friday, Barack Obama unveiled his plan for a National Low Carbon Fuel Standard (NLCFS). In January 2007, Governor Schwarzenegger of California established a low carbon fuel standard for transportation fuels sold in his state. Obama’s proposal would create a National Low Carbon Fuel Standard (NLCFS) based on the California proposal. Republicans and democrats are coming together for the good of all.

Perhaps it’s time for less touring, signing, congratulating and applauding, and more time for “making government work again” as was the title of O’Malley’s April 10th press release.

“Politics is the art of postponing decisions until they are no longer relevant.”

Henri Queuille

_________________________________________

Governor O’Malley’s April

April 11 – Governor O’Malley Tours Green School in Montgomery County

April 10 – Governor O’Malley Signs Legislation to Make Government Work Again

April 9 – Governor O’Malley Congratulates General Assembly on Successful Session

April 3 – Governor O’Malley Applauds Creation of The Maryland Life Sciences Advisory Board
_________________________________________

Governor Rendell’s April 18th

April 18th – Governor Rendell Responds To Court Ruling Regarding Willow Grove

April 18th
Governor Rendell Announces $927,000 Investment To Help PA Businesses Increase Use of Recyclable Materials in Finished Products

April 18th

DCNR Explores Innovative Soil Solutions To Boost Survival Of Urban Trees

April 18th

DEP Releases Third Round of Test Results From Environmental Assessment in Selinsgrove

April 18th
Earth Day Celebration Brings Agriculture To Urban Philadelphia Students

April 18th
Governor Rendell Proclains April 22-28 Energy Conservation Week

April 18th
Governor Rendell Say Luzerne County Receiving Additional $650,000 To Create Jobs Fund Flood Recovery Efforts

April 18th
Governor’s Advisory Commission on Asian American Affairs Comments on VA Tech Tragedy

April 18th
Latest State Investment For Wilkes-Barre Housing Project To Create New Opportunities for City’s Young Adults

April 18th
Pennsylvania Gives Storm Victims Additional Time To File Income Taxes

Mayo Shattuck’s “Green” Payday

2007-04-18T11:46:00.000-05:00

Friday the 13th of April was a green day for Mayo Shattuck. His 2006 payday of $20 million in compensation was reported by The Daily Record, The Baltimore Sun and The Baltimore Business Journal.

Let’s discuss a different type of “green” and a merger from which we could really benefit. In Sunday’s New York Times, the author of “The World Is Flat”, Thomas Friedman, wrote a seminal piece entitled “The Power of Green”. He starts with a prognostication that America post George W will “want to get its groove back”. He writes, “We will need to find a way to reknit America at home, reconnect America abroad and restore America to its natural place in the global order….I have an idea. It’s called ‘green’.”

Maryland could have benefited if the FPL merger had gone through and Shattuck had
been influenced by FPL so that we could have had a utility/power production company in Maryland that gets green. With the FPL merger in the rear view mirror, perhaps Mayo Shattuck should learn from Friedman and focus on the other “green”.

In regard to the upcoming presidential election, Friedman writes,”We don’t just need the first black President. We need the first green president”. Until then, more CEO’s of energy based companies need to join the green initiative.

Shattuck has done a masterful job of turning Constellation Energy into what Enron could have achieved had not greed overtaken green with collusion among the investment bankers, lawyers, and the boys. However, it is time to show a new leadership – a green leadership.

Other CEOs of Fortune 500 companies have committed themselves to the green revolution. Lewis Hay III, CEO of FPL, suggests that the Federal government put fees on corporations for carbon emissions. FPL is the number one producer of wind power in the US and has investments in concentrating solar plants. It is the big leader among large utility companies for renewables as part of a power production portfolio that also includes the emitting fuels.

Under CEO Jeffrey Immelt’s direction, GE's Ecomagination initiatives for environmental technologies are perhaps the most high-profile example of a growing boom in alternative energies and so-called green technologies. Mayo Shattuck and Constellation have missed the boat to be leaders but it isn't too late to be an influential follower.

Friedman defines the monumentality of the task ahead, “Most people have no clue – no clue how huge an industrial project is required to blunt climate change. Here are two people who do…” Robert Socolow, an engineering professor, and Stephen Pacala, an ecology professor, head the Carbon Mitigation Initiative at Princeton, a consortium focused on solutions for the climate issue. Through a combination of clean power technology and conservation, Pacala states that, “we have to get rid of 175 billion tons of carbon over the next 50 years – and still keep growing”. Pacaal and Socolow have come up with a pie chart of 15 wedges that if phased in over a 50 year period would avoid 175 billion tons of carbon.

Indulge me as I isolate several of those wedges that Constellation Energy Group and Mayo Shattuck could impact with the following actions:

• Replace 1,400 large coal-fired plants with gas-fired plants
• Add twice today’s nuclear output to displace coal
• Increase solar power 700-fold to displace coal
• Cut electricity use in homes, offices and stores by 25%
• Install carbon capture at 800 large coal-fired plants

In 2007, Maryland will join the Regional Greenhouse Gas Initiative, a regional consortium with a goal of reducing carbon dioxide emissions by 10% in 2019. The green initiatives coming out of the Maryland Assembly this past session are a promising portent of more to come: The Clean Cars Act, the increased support for the solar industry, to name two.

It is time for Constellation Energy’s lack of initiative towards environmental stewardship to come to an end. Their opposition to the Healthy Air Act in Maryland was reprehensible.

And for a really green idea, how about tying Mayo Shattuck’s options to carbon reduction - $10 million for every billion tons in carbon avoided…and a 50 year vesting schedule….that’s a green payday and an honorable legacy.

Gruner and the JMI Equity Gang Make “A Killing” on Sale of DoubleClick to Google for $3.1 B

2007-04-14T09:47:00.000-05:00

Friday the 13th brought some headline grabbing news to the Cross Keys venture gang of Harry Gruner and JMI Equity who purchased DoubleClick with Hellman & Friedman for $1.1 billion less than 2 years ago. The Wall Street Journal described the transaction in the rarified language as a “stunning change in valuation for the company”; another reference called it “a killing.”

Google decided to come in with a preemptive $3.1 billion bid for DoubleClick– a billion north of Gruner and Gang’s expectations just a month ago - 10x trailing revenues of $300 mililion for the financial aficionados. Microsoft was left deal-less in Seattle and, once again, thwarted in their efforts to enter the search and advertising arena dominated by Google.

Last December, the financial alchemy started with DoubleClick’s sale of its transaction processing services provider to Alliance Data Systems for $435 million. This isolated deal covered the original equity of $330 million put in 18 months earlier.

Hellman and Friedman’s Phillip Hammarskjöld described the DoubleClick deal, “This was heavy-duty business building that private equity does enormously well”.

So out of the carnage of the dot com IPO tech blowup, a Baltimore venture capitalist cum market timer has beat the herd on Wall Street in the public-to-private to where’s-the-exit stampede. Gruner and Gang’s next fund should easily add another comma, joining the league of New Enterprise Associates as another Baltimore billion dollar venture firm.

"I made my money by selling too soon."
Bernard Baruch (1870-1965) financier & economist

A TRIBUTE TO THE HONORABLE J. CARTER BEESE, JR.

2007-04-12T14:15:00.000-05:00

The premature death of The Honorable J. Carter Beese, Jr. earlier this week left many Marylanders stunned, saddened, and ultimately puzzled.

In the annals of charmed lives, the Honorable J. Carter Beese had made an improbable and Algeresque journey from son of an FBI agent in New Jersey to the rarified halls of government and business. From afar, his life seemed miraculously blessed. The road to Alex Brown in the early 80s had three typical entry points: Gilman, Griswold or The Harvard Business School, rather than his New Jersey and Rollins College roots.

Yet Mr. Beese swam with the sharks and Captain Krongard, rising with the tide to become Vice-Chairman of Alex Brown before uniquely taking the road less traveled by other former Brownies - government service with the SEC and OPIC.

Perhaps his passing will give us time to reflect. A quote from another New Jersey native comes to mind:

“When things are bad, we take comfort in the thought that they could always get worse. And when they are, we find hope in the thought that things are so bad they have to get better.”
Malcolm Forbes

His life was honorable, and we will remember it.

A Fetching, Baltimore-based Web 2.0 Company

2007-04-05T16:05:00.000-05:00

One of the more dramatic, grandiose dot-com implosions was Webvan -the online grocer that delivered. With 3,500 employees at its peak and a 25-city presence, Webvan boasted a roster of powerful backers including Borders Group Founder Louis Borders and former Andersen Consulting Chief George Shaheen. On its first day as an IPO, it jumped from $15 to $26. But in 2000, a $347 million loss presaged that within the next year, Chapter 11 would prevent its last delivery.

In Baltimore, there is a related seedling of a company named www.fetchfood.com.

Fetchfood is delivering fast food instead of groceries. Unlike Webvan, www.fetchfood.com may have a scalable model.

Founder Avery Boyce describes herself as “a woman with a vision - - of hungry time-starved urbanites, pulling their favorite carry-out menu online, ripping through a customized order screen, handily paying by credit card and receiving their food in short order.”

Prior to launching Fetchfood in October 2004, Avery was working for the Kennedy Krieger Institute doing MRI research. Her inspiration came while searching for a place to eat in College Park with friends after an evening class. “If I can buy an automobile online, why can’t I buy lunch?”

Conceived by Boyce and two professional acquaintances, Fetchfood was initially financed with $30,000 from her family. She recently bought out her two partners.
With 40 restaurants on board, a Round 2 Communications marketing campaign, and an off the record Web 2.0 stealth strategy, Avery is starting out to raise an angel round.

I met Avery last week and feel that she understands the scaling challenges of such a startup. She just might accomplish what the Webvan team was unable to do.

The next time you’re thinking about what’s for dinner, visit www.fetchfood.com.