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The newspaper industry’s family affair

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The Tribune Company bankruptcy is a sad thing, but it cannot be said to be a surprising thing. Sam Zell’s purchase of the company was a heavily leveraged deal — that means he borrowed a ton of money to pay the previous owners/shareholders and figured he’d pay off the debt with the profits of the newspapers. Only now those profits are tanking (although in fact we’re told that every single Tribune paper is still in the black for the moment) and the credit markets, as you may have heard, are suddenly much less, er, forgiving.

Of course, as some are speculating, Zell may have figured all along he’d end up needing to take this route, and he may not view it with horror. One of the things he can presumably do in Chapter 11 is renegotiate all the painful labor deals that newspaper owners have always chafed at. Bankruptcy can deal you a “get out of contracts free” card.

Still, it’s a mess, and one that can’t really be laid at the feet of the new-media iceberg that the entire newspaper industry is cruising towards, except in the broadest of ways. If you trace the lines of responsibility for this train-wreck you find they all point back to that sacred cow of the newspaper industry — the Caretaker Family.

In the newspaper biz there is a lot of mythology around family ownership. The idea is that the proprietors’ descendants understand the sacred trust that is journalism and will serve as a strong protection for both newspaper employees and the public that depends on quality news sources.

The problem is that these families are just normal human beings who like to earn money. Over the past decades many or most of them decided — accurately, at least in the short term — that they could make a lot more money by selling shares to the public than by running their firms as private companies. Many newspapers created a dual ownership structure, so that even though the public was buying shares, the families retained effective control of the companies through preferred stock with special voting privileges. That’s how, for instance, the families that owned both the New York Times and the Wall Street Journal set up their stock structures. But control turns out to be effective only when the money’s rolling in. When it slows or stops, the family members get restive.

The Bancrofts, who owned the Journal, sold out to Rupert Murdoch with barely a whimper the moment it looked like the Journal was no longer going to line their pockets. They proved faithless protectors of tradition. Of course, sometimes a family will make a smart (or lucky) move. Consider that, as I understand it, the Washington Post owes its relative financial stability to its purchase, in 1984, of the Stanley Kaplan SAT testing outfit, which — unlike the reporting of world and national news — turns out to be a pretty lucrative line of business.

In the case of Tribune, I don’t know how much of the company the family still owned by the time Zell acquired it. But if they weren’t directly responsible for selling to him, then they had bailed some time before. Either way, they hardly protected anything.

I took a look at the company’s proud corporate history here and found an account of an upward march of progress and profits under the wise stewardship of various McCormicks and Medills. Then in 1983 the company goes public and begins aggressive expansion, acquiring a bunch more broadcast outlets and boosting revenue to new heights. In 2000 Tribune acquires Times Mirror (another newspaper empire abandoned by another clan, the Chandlers). By 2002 Tribune has become a true Goliath, with more than $5 billion in revenue. Only here, strangely, the history goes nearly blank. A bland “Tribune returned to private ownership in December of 2007” is the only mention of the firm’s recent troubles; its new private owner is not even named. Where were those McCormicks and Medills now?

Newspapers, as a business, are simply a huge mess today. For a long time they blamed TV, and now of course they blame the Web. Let us also not forget to blame the families.

I worked for an exemplar of those families myself once, and saw the good and the bad. Our publisher at the old Examiner was Will Hearst, scion of the Hearst clan. He was responsible for a wavering but heartfelt effort to shake some life into the old paper in the 1980s, when I joined it. But after a decade he’d had enough, and moved on (to Silicon Valley). Once he left, I knew it was time to jump ship too. The iceberg was visible enough then. So was the evidence that families were never going to save the newspaper industry.

Carr diagnoses the economy: How irrational are we?

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A couple weeks ago, Peggy Noonan had a hilarious column in which she noted the strange (to her) disconnect between the depressing economic information in the news and the apparently unchanged commercial bustle of her Upper East Side neighborhood, where “nothing looks different.” My friend Andrew Leonard eviscerated her for her “let ’em eat cake” obliviousness.

There’s a slightly different species of cluelessness at work in the premise behind David Carr’s New York Times column this morning, in which Carr muddily hypothesizes that the speed of new-media information transmission has accelerated the current economic downturn.

The piece is the sort of chin-scratcher that never sums up its thesis because it doesn’t quite have one. But the heart of it seems to be something like this: Things are bad, but even people who haven’t been directly hurt by the recession are cutting back on spending because they’re being bombarded by bad news in new, faster, more enveloping ways. “This recession got deeper faster,” Carr says, “because we knew more bad stuff quickly.” He describes the result as a sort of “emotional contagion” or “neurosis” that is fueling further economic slowdown.

I had my eyes glued to the screen during the last recession at the start of this decade, which was centered on my industry, the Internet. So the idea that there’s something new going on seems hard for me to buy. But the more significant mistake Carr makes is to suggest that the choices people are making to scrimp and scrub their budgets are “emotional,” “neurotic” — irrational. And that’s dead wrong.

What does it take to feel that a recession is real? Carr, like Noonan, seems to be waiting for the appearance of Hoovervilles. There are millions of lost jobs, and many more whom the labor statisticians miss whose hours have been cut back involuntarily. One in ten U.S. mortgage holders is a month or more behind in their payments. Any rational person ought to look at this situation and feel that things have indeed changed.

Yet the question keeps arising: For people who haven’t actually been laid off, “nothing has changed,” so why are they going all Scrooge-like on the economy?

What has changed, for everyone, is our picture of the future. For years we made our economic choices based on one set of assumptions. Even those of us who didn’t take on loads of credit card debt or leverage our homes or otherwise turn ourselves into family-sized debtor nations made assumptions when we looked at our financial plan for the next year or decade or retirement: our homes would grow in value, our 401(k)s would appreciate at a certain rate, we could send our kids to college if things kept going the way they were.

And of course now they are not. So any rational person is having those hard family conversations and scrubbing the personal budget. This is not acting on fear. It is neither “emotional” nor “neurotic.” It is acting rationally, the way economists expect us to act. Much as I am a lifelong skeptic of the classical economists’ hyperrational model of human behavior, in this case, the real world behavior fits the model pretty perfectly.

That it is deepening the recession is to be expected, not the fault of some new-media dynamic of hyperactive blogging but a sign that the signals we are receiving about the economy are strong enough today to shock us back into the “rational actor” mode. Carr implies that the Web jumped the gun on the recession: “The recession was actually not officially declared until last week, but the psychology that drives it had already been e-mailed, blogged and broadcast for months.” But the official declaration noted that the recession actually began a year ago. Of course we have all been talking about it for a year: We weren’t premature, we were reflecting the real-time event. It was the officials who lagged.

Watching your spending? Cutting out what you can? You aren’t being neurotic or irrational. The irrational behavior, it turns out, was what so many Americans were doing previously in this decade — cruising along obliviously and piling up debt while Wall Street concocted escalatingly baroque financial engineering schemes that exponentially inflated the risk at the root of our economy until the whole thing went bust. If a scary market has shocked such irrationality out of our system, let’s hope the effect is long-lasting.

The Gift keeps on giving

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I read the recent New York Times magazine profile of Lewis Hyde with some interest. As it happened, I wrote a review of Hyde’s 1983 book The Gift just about 25 years ago as one of my early assignments at the Boston Phoenix. My editor at the time, Kit Rachlis, thought I might find Hyde’s uncategorizable mixture of literary criticism, sociology and anthropology intriguing, and he was right. (As the profession of editing moves into eclipse, let’s not forget that this matching of writer and subject is one of the subtle arts that we do not yet know how to automate.)

At the time, Hyde’s effort to establish a language of value separate from the financial marketplace spoke hauntingly to me — as a disaffected young liberal stunned by the Reaganite rise of free-market, anti-government ideology. The book’s themes feel somehow timely again today, at the end of the arc of history that began a quarter-century ago, as we scrabble through the ruins that said ideology has left of our economy and try to imagine rebuilding along different lines.

I was fascinated to learn from the Times piece that in the years since, The Gift has become a volume of almost totemic stature to writers like David Foster Wallace, Jonathan Lethem and others whom I admire. I’d written that Hyde’s book would “probably be most read and appreciated by those who already grasp its lessons, the visionary writers and artists from whom Hyde draws so many examples.” It appears I was right. But I’m glad to know that the book has had such perennial success — and that Hyde, now a fellow at the Berkman center, has moved on to studying the concept of the “commons,” newly relevant in the Web era. I’ll look forward to his work on that topic.

In the meantime, if you want to read more, I’ve reposted that 1983 review of The Gift, which holds up pretty well, I think (though today I’d write a less involuted lead!).

Andreessen’s newspaper advice echoes Grove’s, a decade ago

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We’re moving into the endgame for newspapers today, though the industry hasn’t quite reached the Kubler-Rossian stage of acceptance.

Yesterday the venerable Christian Science Monitor announced it was abandoning daily print publication. In Portfolio, Marc Andreessen proposes that other newspapers follow suit and finally give up on print:

If you were running the New York Times, what would you do?

Shut off the print edition right now. You’ve got to play offense. You’ve got to do what Intel did in ’85 when it was getting killed by the Japanese in memory chips, which was its dominant business. And it famously killed the business — shut it off and focused on its much smaller business, microprocessors, because that was going to be the market of the future. And the minute Intel got out of playing defense and into playing offense, its future was secure. The newspaper companies have to do exactly the same thing.

The financial markets have discounted forward to the terminal conclusion for newspapers, which is basically bankruptcy. So at this point, if you’re one of these major newspapers and you shut off the printing press, your stock price would probably go up, despite the fact that you would lose 90 percent of your revenue. Then you play offense. And guess what? You’re an internet company.

The Intel reference here is an oblique reference to Andy Grove’s famous comment to the ASNE that the newspaper industry had three years to adapt or die.

That was in 1999.

Andreessen’s advice makes total sense in many ways — it would be fascinating and worthwhile for at least one major newspaper publisher to try it. This sort of turn-your-company-on-a-dime idea is part of the Silicon Valley ethos. But I just don’t see it happening.

Hard though it no doubt was, it’s still a lot easier for a hardware company like Intel to retool its fabs and its engineers to produce a different kind of chip than for a newspaper company to retool its reporters and editors to produce a different kind of media product.

Shutting off the presses at the New York Times, or any other major newspaper publisher, would make the company an “internet-only company.” But it wouldn’t make it an Internet Company, in the larger sense. You’d still have a newsroom full of people used to doing things a certain way, proud, with good reason, of that way, and suspicious of change. It’s much easier to build a new company from scratch than to transform an existing one into something new.

But the bigger problem isn’t psychological, it’s financial. I base my views on a decade of experience at Salon, trying to support an online-only newsroom with online-only revenues. It turns out that the hardest part of this massive and inevitable industrial transition is not reconstituting high-quality journalism in a new media environment. That’s only mildly hard. Top-notch journalists will always seek to do top-notch work.

The really tough part — the part that to this day remains unsolved — is figuring out how to support those top-notch journalists with the salaries and benefits they are accustomed to, and often deserve. (That’s not even taking into account the loss of jobs on the printing and distribution side. But they are disappearing eventually no matter what.) The problem today is not much easier than it was when we started Salon in 1995: Look at Politico — an online success d’estime that still earns 90 percent of its revenue from a niche print product.

Newspaper companies are clinging to their dwindling print profits because they can’t yet see a way to keep anything close to their current pay scale and benefits in an online-only world. And the hardest pill for the industry to swallow is that there may not be any way to do that.

Internet companies pay top dollar to their engineers, not their “content producers.” There is no shortage of reasonably high quality content on the Web, much of it produced for free or little pay. Of course blogs and “user generated content” can’t replace the collective output of the nation’s journalism professionals today. But they offer plenty of alternatives, and enough occasions on which they surpass the pros (or expose the pros’ failings) to keep readers occupied, and sometimes satisfied.

As Bruce Reed wrote in Slate last year during the Hollywood writer’s strike, “There is no such thing as a writer’s market. With or without subsidy, words are always in surplus, and it’s always a reader’s market.”

No amount of handwringing will change that. If newspapers are really going to take the leap Andreessen proposes, they will have to do it while simultaneously restructuring their deals with their employees and mandating painful cuts that nobody wants to accept. Which is why I don’t think they will do it at all.

Ironically, of course, those jobs will vanish anyway. As I wrote in June, I think the newspaper-company ships are doomed to sink, and individual journalists will have to find their own individual lifeboats and routes to shore. The sooner they start, the better.

ELSEWHERE: Mark Potts thinks “Newspapers haven’t even scratched the surface on potential online advertising revenue” and an exclusively online operation could rake in more money. I don’t know; I’ve been there, done that, and it’s not so easy. Alan Mutter says the magic multiple is 3 — newspapers would have to triple their current online revenue to break even.

Noonan: maybe economic crisis will “fade”

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New Yorker writer (and blogger) George Packer’s series of “end of an era” posts — he begins here, and follows up in three subsequent posts (as of now) — puts a clear and explicit name to the twin convulsion the United States is going through.

Over the past month we have seen the collapse of an entire economic philosophy that has driven our nation for decades. In parallel to this ideological failure, we are experiencing the political failure of the Republican right that has dominated American politics since 1980. These are cataclysmic changes, like nothing we’ve seen in at least 30 years.

Thursday Alan Greenspan sat before Congress and said he had “found a flaw” in his worldview. Indeed! Or as they say in the ‘sphere thes days, EPIC FAIL. It was as if he took a look at the whole foundational edifice of the global economic system he engineered and, morphing into Gilda Radner’s Emily Litella, let out a whimpering “Never mind.” Meanwhile, the GOP isn’t waiting for Election Day to begin the customary circular-firing-squad behavior of the losing party, a ritual that most of us under a certain age have only seen executed on the Democratic side of the aisle.

Yet there are holdouts in the punditocracy who don’t seem to have taken full measure of just how much things have changed in the past month. I hate to pick on Peggy Noonan again — hey, some people think she deserves a Pulitzer! But in her column today, headlined “43 percent isn’t nothing,” she engages in precisely the kind of reality-denial that her fans insist she is immune to.

The “43 percent” are the people who are still voting Republican this year. (Time was, not long ago, that the GOP was touted as having built a “permanent majority,” so 43 percent might seem like a real comedown. Then again, President Bush didn’t actually win a majority in 2000, either, did he?) Noonan, ignoring her own candid conclusion six weeks ago that “It’s over,” wants to look at ways McCain might still pull out a victory.

How might McCain still win an upset? Noonan asks, “What if…the financial crisis seems to fade?” (Noonan implies that this is part of an argument in a Boston Phoenix column, but if you read the source, there’s nothing in it about financial crises fading.)

It boggles the mind that any journalist could get such words past a sentient editor. Imagine someone, four weeks after 9/11, asking, “What if the terrorism crisis seems to fade?” Memo to Ms. Noonan: even if the Dow skyrockets next week, the financial crisis isn’t fading any time before November 4. We will be lucky if it has faded before November, 2012. It is a world-historical event. It will be reshaping our economic lives for many years to come, even in the best of scenarios.

Later in her piece, Noonan contemplates the unthinkable — what if Obama does win? — and offers the standard-issue columnist boilerplate advice: he’d better govern from the center! Or else! Then she lets loose this doozy:

if he goes left — if it comes to seem as if the attractive, dark-haired man has torn open his shirt to reveal a huge S, not for Superman but for Socialist, if he jumps toward reforms such as a speech-limiting new Fairness Doctrine, that won’t yield success.

I do believe that we need, not perhaps a new Fairness Doctrine, but a special new Rhetorical Honesty Act — or, I guess, a constitutional amendment, to get the rule past the First Amendment — banning any Republican from trying to spook a Democrat with the “Socialist” label ever again. Because we already have a “socialist” president. His name is George W. Bush, and he is, as I write this, nationalizing the banks and presiding over the greatest expansion of government meddling in private industry that the U.S. has ever seen.

“Stick to the center” is a natural fall-back for the losing party in a presidential election. Winners are free to embrace it or reject it as they choose. I recall that the conservative punditry never offered this advice to George W. Bush in 2000. Once he took office after the most hotly disputed election resolution in American history, he took an unearned “mandate” to radically reshape much of American government and foreign policy.

But if, as seems quite possible, Obama wins a sweep and the Democrats wind up with a strong majority in both houses of Congress, you will hear a loud chorus from the right and center-right press: President Obama, they’ll say, don’t “go left” — you have no mandate. In fact, in that scenario he will indeed have a mandate, and I imagine he will use it. But I also think he will govern toward the center — not because of what Noonan or anyone else says, but because it seems to be his nature.

UPDATE: More “S”: This hysterical piece from Mark Levin at NRO’s The Corner paints Obama as a “hardened ideologue” and “charismatic demagogue” who will wreck America with “the soft authoritarianism of socialism.”

Financial meltdown blame game: Fannie/Freddie or derivatives?

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The big political argument over the financial meltdown basically goes like this. Democrats point to the rise of incredibly complex financial instruments, in particular the species of derivatives called credit default swaps (CDSes), as ground zero for the disaster. Republicans prefer to point their fingers at Fannie Mae and Freddie Mac for making it too easy for people to get mortgages.

It’s easy to see how these preferences arise. Democrats can argue that CDSes became a problem because the Republican Congress (with limited Democratic help) chose not to regulate them, in keeping with the party’s decades-long deregulation fever. Republicans can argue that subprime mortgages backed by Fannie and Freddie became a problem because Democrats pushed to make home ownership more widely available to people who couldn’t really afford it.

These arguments have become a political shorthand, but responsible voters should take some time to sort them out. A couple of places to start: this point-counterpoint style debate between two pundits lays out some of thepolitical faultlines. This news analysis from McClatchy offers some factual background.

My take: Sure, Fannie and Freddie became a big mess, and you can’t let them off the hook. But the subprime mortgages were mostly originated by private banks, not F&F. And if the financial system’s only problem were subprime mortgages, you could simply buy up the worst of them for a few hundred billion and call it a day. That’s not why the banks got into trouble. It was the CDS market that took those mortgages and turned them into something “toxic.” By securitizing the risk involved in the mortgages and transforming it into a market theoretically worth tens of trillions of dollars but actually worth, well, who knows?, the CDS peddlers and purchasers pushed the entire financial world into the unknown. Specifically, they now have no idea what their credit-default swaps are worth.

That is why the banks stopped trusting each other. It’s the uncertainty over how to value these CDSes that seems to have caused the credit freeze that is the heart of today’s crisis. (That’s why Paulson originally wanted a bailout that would buy them — he trhought he could resolve the uncertainty — but that approach apparently proved unworkable.)

The uncertainty over subprime mortgages is old-fashioned and reasonably known: some percent of mortgage holders will pay up, some others won’t. Banks and insurance companies know how to handle that kind of risk. It was the effort to engineer new kinds of securities based on that risk that pushed us over the edge. The CDSes were supposed to reduce risk, and they ended up magnifying it inconceivably instead. And here we are, wishing that someone had had the forethought to regulate this marketplace, instead of keeping hands off, as Alan Greenspan and Phil Gramm wanted.

I can’t see how either candidate would be able or willing to go this far into the weeds during tonight’s debate (and it isn’t even that far!). But this is what voters really need to understand.

Review of Randall Stross’s Google book

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I will poke my head up ever so briefly from my labors to note that I have a book review up at Salon today of Randall Stross’s new “Planet Google.”

Here’s a couple passages:

“Planet Google” further reinforces the picture we now have of Google as the Mr. Spock of Internet companies: intellectually supreme, agile and engaged with the world, but prone to respond to the unpredictable behavior of its customers by cocking an eyebrow and exclaiming, “Highly irrational!”

Is there a Bones McCoy anywhere in the company who can provide a humanist counterweight to all that calculation? Maybe — but you’re not likely to learn who it is from Stross’ research. “Planet Google” is solid and informative, and Stross, refreshingly, avoids the frothier sort of Google hype sometimes heard from the tech-punditry choir. But the book is hardly the insider’s-eye view of Google that it has been painted to be.

Also:

If Google is going to falter over the coming decade, it is likely to be the result of avidly pursuing its “organize the world’s information” goal even as the evidence mounts that its Spock-like principles and engineering-first culture may not get the company to its destination. Stross’ account provides several case studies — including accounts of the oddly neglected Orkut social networking site and the ill-fated Google Answers service — in which innovative Google ventures foundered because of the company’s clumsiness at managing human interaction.

McCain blames “greed” for Wall St. woes. Huh?

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It is a strange thing to hear a Republican candidate attribute problems in our economic system to “greed, excess and corruption.” But I suppose we should get used to strange things between now and November.

The problem with John McCain’s new feisty populist talking point is that it’s aimed entirely in the wrong direction. It suggests that Wall Street’s implosion is the result of some moral fault in the individuals who run our financial institutions. They are, doubtless, no angels; but what we’re watching this week is the result of a systemic failure — a failure of government, and not just individuals.

The thing is, the financial marketplace that is at the heart of this week’s meltdown runs on greed. Greed is the whole point. It’s supposed to be that way: you got money, you seek a higher return on investment. Isn’t that, like, capitalism? Take the greed out of Wall Street and what do you have left?

As for corruption: Were there bribes on Wall Street? If so, let’s put somebody in jail. But McCain’s charge is the first suggestion I’m aware of that the collapse of so many financial institutions is the result of outright wrongdoing rather than incompetence and colossally imprudent risktaking.

I’m a liberal Democrat; I know from complaints about corporate greed. But really, McCain’s charges are head-scratchers. Because most of us expect Wall Street bankers to be greedy. Comes with the territory. And when we put money in one of their investment accounts, we usually expect them to get us the best return, too.

The problem is, we expect that investment to take place in an environment where there’s a reasonable guarantee of good information and fair dealing. We expect the brokers and bankers to have a good grasp on the nature of their financial instruments, and to give us good advice on the risks we’re taking when we choose one over the other. What’s evident in the collapse of Lehman Brothers and the other continuing shockwaves from the subprime mortgage mess is that, for a long time, the system suffered from a shortage of information and transparency and an excess of risky, blind betting.

We had a decade-long experiment in putting our economy’s assets largely in the hands of entirely unregulated institutions and managers. (Phil Gramm, who was one of McCain’s chief financial advisers until his impolitic comments about our “nation of whiners,” was one of the people who shot the starter pistol for this decade of excess when he served as chairman of the Senate Banking committee.) Now the experiment has proven a disastrous, costly failure. There’s no doubt that we will return to a more cautious, fairer, better-regulated system; we have no choice in that. The only real choice we have is who to trust to execute that re-regulation.

One party has always stood for kicking away safeguards and regulations in the name of the free market driven by — what? — oh, right, greed. The other has a long tradition of believing that responsible government oversight can keep markets fair and open. McCain and his party have a long record of opposition to the very sort of regulation that might have helped avoid, or minimize, the collapse of our financial institutions. The candidate’s eleventh-hour spasm of “eat the rich” rhetoric — however entertaining, in its topsy-turvy-world way — is far too insincere to occlude that record.

Sarah Lacy’s Once You’re Lucky: Money doesn’t change everything

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I’ve just finished Sarah Lacy’s book Once You’re Lucky, Twice You’re Good: The Rebirth of Silicon Valley and the Rise of Web 2.0, and I’m feeling a little…green. Lacy’s portrait of this decade’s Web industry is so relentlessly shaped by the yardstick of cash — how much money this entrepreneur made, how many millions that startup is valued at — that by the end of the book, you can’t help having absorbed a little of that world view.

As I put down the volume, I found myself thinking, gee, why didn’t I start a company in my dorm room and pocket tens of millions before I turned 30? Then I slapped myself in the face a couple of times and reminded myself that the last time I lived in a dorm room, the Web didn’t even exist — and that when I set out to become a writer the idea wasn’t, how can I make millions, but rather, is it possible to support myself doing what I love? (I was lucky enough to have the world answer “yes!”)

To be fair, Lacy’s a business reporter; she’s written a business book; business is all about money. She paints a colorful and absorbing portrait of the world of Silicon Valley’s latest wave of smart kids to strike it rich. On the other hand, I can’t accept that her account offers an accurate portrait of “the rise of Web 2.0.” Because, in a way, I feel like I was there, too, at least in the earlier phases, talking with many of the same people and companies that Lacy writes about, showing up at many of the same conferences, witnessing the same phenomena. And it just looked, and felt, different to me: at the start, it was much less about retaining control of one’s company and much more about giving control to one’s users.

First, the good stuff about Once You’re Lucky: It’s full of amusing anecdotes, some of them illuminating, and it offers some valuable insights into the motivation of many of today’s young Web entrepreneurs and the complexity of their relationships with their financiers. It gives a great tour of how the startup and venture capital games have changed over the past decade, as the cost of launching a company has dwindled, reducing the need for big upfront investments that dilute founders’ stakes, even as the prospect of everybody-gets-rich IPOs has grown rarer.

I fault the book in a few areas. In tracing the emergence of the Web 2.0 era’s emphasis on social networking and user contributions, Once You’re Lucky is neglectful of the long history of these phenomena that predates the Web 2.0 era. From Amazon book reviews to the Mining Company (later About.com) to the AOL “guides” and on and on, the so-called “Web 1.0” era was actually full of content created by “the crowd.” Its most overinflated and notoriously flaky IPO, in fact, that of TheGlobe.com, was entirely a “community play” (though in a way that betrayed the best possibilities of online community). The Web of the day just wasn’t as efficient as the later generation of companies at organizing the material contributed by users, and there weren’t nearly as many contributors, and Google hadn’t come along yet to help the rest of the Web find the contributions (and to help the companies profit from them).

My biggest beef with Lacy’s book is that its choice of which companies to focus on seems capricious. Maybe it was just based on who she got access to. Plainly, Lacy got lots of great material from one of her central figures, Paypal cofounder Max Levchin, and she paints a thorough profile of the driven entrepreneur. But, his company, Slide, just isn’t all that interesting or innovative. After reading several chapters about it I still can’t tell you exactly what the company’s driving idea is. It does slideshows on MySpace! It’s big on widgets! It out-Facebooks Facebook with apps like Super Poke! But, you know, if you were stuck in the proverbial elevator with Levchin, could he actually tell you what Slide is all about?

There are other stories in the book whose inclusion makes more immediate sense. Few today would argue against Facebook’s significance, and it’s worth the time Lacy spends on it (though one might look for a little more skepticism). Ning may or may not prove important, but Marc Andreessen’s story is valuable in itself. What’s most interesting about Digg is its model for group editing (which, again, is based on “Web 1.0” roots via Slashdot), not its so-far-unfulfilled quest to sell itself.

Lacy might have delivered a more comprehensive portrait of Web 2.0 by offering more than cursory mentions of the companies that, in my book, really created the template for that phenomenon: Flickr, Delicious, the short-lived Oddpost (which got absorbed into Yahoo Mail). These small startups, growing like mushrooms out of the mulch of dead dotcom treetrunks, pioneered virtually all of the tools and technologies we now think of as “Web 2.0”: easy sharing of media creations; tagging of content to create user-generated “folksonomies”; Ajax techniques for inside-the-browser applications; and so on.

It seems that even though these services and companies were at the heart of the invention of Web 2.0, they don’t figure prominently in Lacy’s narrative because, by the financial yardstick, they were relatively small potatoes (all three were acquired relatively early by Yahoo for amounts rumored to be in the low tens of millions). Levchin is a lot richer than the founders and creators of these companies, but in my view, their work was far more significant.

As someone in the middle of writing a book on a related topic that is inevitably going to face similar criticism (how could you write about this blogger and not that one?), I know that Lacy couldn’t possibly cover every significant company. It’s just not clear what criteria she used to make her choices beyond the will-o’-the-wisp that is market valuation (especially wispy when your company is not actually traded on the market).

So this is where I say: the importance of a company does not lie in how rich it makes its founders, but rather in how widely its ideas spread. The business reporter who is too easily mesmerized by the number of zeroes in a company’s valuation is like the political reporter who is only interested in the horse race.

By themselves, numbers are dull. To me, the fluctuations of a company’s market value, like the ebb and flow of a politician’s polling numbers, is only of interest as part of a larger picture: How is that company, or politician, influencing our world?

[The book’s site is here, and here’s Lacy’s blog. Katie Hafner’s critical review is here. The SF Chronicle review by Marcus Banks is here.]

Keep saying “Phil Gramm is right” — Democrats will love it

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Amity Shlaes, in the Post, says that Phil Gramm was right: we are a nation of whiners. There is no recession. It’s all in our minds. Suck it up, America!

Economists define recession statistically, so in the world of economic stastistics it’s possible to say “there is no recession” with a straight face because the GDP has apparently not shrunk for two consecutive quarters.

But most Americans think “recession” means hard times. With painful food and energy inflation, significant declines in the housing market, tight credit and a financial system that keeps finding new ways to break, it takes more than guts to step in front of a turned-on microphone and say that times are not hard. It takes sheer stupidity, which I think defines Gramm’s statement last week.

What I find interesting about the treatment of Gramm by the right is that the conservatives seem to have forgotten how they used to view politicians who told Americans that the fault lay in their minds. Jimmy Carter’s famous speech in 1979, during the last huge energy crisis, told voters that there was a crisis of spirit, and that they were part of the problem: “In a nation that was proud of hard work, strong families, close-knit communities, and our faith in God, too many of us now tend to worship self-indulgence and consumption.” However right Carter was about a lot of what he said, it was a political misstep that Ronald Reagan rode into the White House — and that right-wingers have mercilessly mocked for three decades.

But now, it’s one of their own who has pointed a finger of blame at the general population — and suddenly, the conservative media is willing to give him some slack.

Watching the right squirm around on this one is sheer fun. Still, truthfully, we would be a lot better off if less media time were devoted to Gramm’s relatively trivial gaffe than to the painful fact that McCain’s chief economic adviser was one of the central figures behind the broad deregulation of the financial industry in the late ’90s — a deregulation that led directly to the multiple failures of the credit and mortgage markets that have been so ruinous over the last two years.

I would love to see a Democratic ad that simply explained this to voters, and said, “If you liked what’s been happening lately in real estate and on Wall Street, Phil Gramm is your man, and he’s shaping John McCain’s policy.”