Did a quick podcast last night to talk about how I'm feeling. I've got a bad cold, so excuse my coughing/hacking.

CalacanisCast Beta Four... MP3 file.

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http://podcast.calacanis.com/rss.xml

Lest there be no question, we are now in a full-blown bubble. What on earth Podshow is going to do with almost $25M in funding is anyone's guess, but it's not going to end well I can tell you that. To raise this money they must have had a $35-60M pre-money valuation. That means the VCs are going to look for a $300-500M exit at the very least, and that means they need to get to $30-50M in revenue. Not sure I see that happening.

The entire concept is that this is niche media--you don't need a lot of money. Weblogs, Inc. raised low six figures (from Mark Cuban) and we never spent it--we made money.

Unless Podshow is looking to do a rollup (which is what Ron and Adam were involved in during the last bubble) this is gonna end badly. I'd love to believe a podcasting business could grow to a billion dollars--but I just don't.

My VC pal Fred Wilson is trying to figure out what Om and Rafat are raising venture capital since the whole discussion over the past couple of years has been that media companies don't need a lot of capital.

Important to note that these are all < $1M (and $1m) investments. These are seed deals done by VCs (which Fred is doing a lot of I understand).

Fred mentions that Nick Denton didn't need seed, but that's because Nick was a millionare already and he seeded Gawker himself. Om and Rafat (who worked for me at Silicon Alley Reorter) don't have the capital to do what Nick did. Mark Cuban (and I) seeded Weblogs Inc, so that's not a good comparision either(although, it's important to note that we never spent the Cuban investment--not a nickle of it since we quickly became profitable).

Rafat and Om want to scale their businesses and that takes capital.

They already "make a living" blogging.

Here is the new model:

1. Start a blog with adsense and make spare change.
2. Scale a blog to 250k to 1M pages a month and become big enough for Federated Media, AdBrite, and Blogads to care about you (i.e. sell your inventory)--now you're making a living.
3. Scale over 1M pages a month and become big enough that you can afford your own sales group and fire Federated Media for taking 40% of your money because your cost of sales will be 15-20% as a stand alone business.

This is exactly what happened at the start of the Internet. DoubleClick used to do ad sales just like Battelle is doing at Federated Media. They got out of that business because the reward for helping a client to phase three was that they fired you--it sucks as a business (I still can't understand why John got into it... I think he actually wants to help authors, which is noble, but I think as a business it doesn't scale).

You see, Battelle's model is predicated on Rafat and Om deciding to stay in phase two or keep their relationship with Federated in phase three--which they are obviously not willing to do. That's why we canned the Federated Media /BlogAds model when we started Weblogs, Inc. We started out with the reveune share/repping model and Brian and I quickly decided that owning the IP/brands was a much better play.

Another problem for Battlelle is that Google is quickly moving into the repping business and selling display ads. So, Federated Media is stuck between Google coming into their business and their best clients leaving to hire their own sales force--horrible place to be. The margin pressure and cost of signing up clients is gonna be insurmountable I think. Batelle will wind up owning his own portal pages/distribution I think.

The bottom line is that "real" businesses--as opposed to "lifestyle" businesses--own the relationship with their clients (in this case advertisers). No real business is going to give their client relationship to AdBrite, BlogAds, or Federated Media. Maybe for the bottom 20% of their inventory they will keep people around, but that is the .50 to $1.50 crummy inventory business and it really sucks to be in--it's the Classmates and LowerMyBills market (no offense to those companies, it's just a bad businesses for publishers to go after).

You have three stages of media companies, and these two guys are now in the third phase, and that is where it gets very interesting. Phases one anyone can do. Phase two is also pretty easy--half the people can do it. Only 1% of people make it to phase three and only 10% of those scale to a $10M a year business. Rafat and Om are the one out of a hundred, and it's gonna be amazing to see if they can be the 1 out of 1,000.

Bottom line: There is a huge difference between making a living and making a business. Om and Rafat are making businesses, not a living.

• On the heals of YouTube cleaning up its act, MySpace will delete 200,000 objectionable profiles. Ross comments on making the Space more advertiser friendly--very, very smart move.
  
• The PVR is the network--wow.
• Apple *desktop* marketshare has been cut in half since Jobs became CEO... misleading headline since Apple is doing better than ever in terms of the overall health of the company. In related note, how would you like to be the CEO of Disney and have Steve Jobs show up at the next board meeting?!?! Oh to be a fly on that wall.
  
• John Battelle begs the founders of Facebook to take the money--spoken like a true vet who got hit hard when the bubbles popped. JBAT was at WIRED which had an IPO killed twice, and at the Industry Standard which he says turned down a similar offer (so that means the Standard got a ~1B offer and they didn't take it.... ouch!). I hear ya buddy... I've had three phone calls with entrepreneurs who've been offered 5-30M for their startups in the past month. My advice to all of them: sell now, Internet winter is coming. Here is how the conversation went with one of my friends:
  

Me: "Have you ever sold a company?"

Friend with offer: "No."

Me: "Do you TKTK million in you bank account right now?"

FWO: "No."

Me: "Are your parents going to put TKTK million in your bank account any time soon? Do you have a trust fund?"

FWO: "Uhhh... no."

Me: "Take the money."

FWO: "But what if I sell to early?"

Me: "Then you've done your job. You have three options in life: sell too early, sell exactly at the right moment, or sell too late. You want to be part of the first two groups--not the last group. And, history is the only thing that can tell you if you're in group 1 or 2. Trust me, I spent my life in group 3, now I'm part of group 1, and maybe some day I'll be able to join Mark Cuban in group 2. Heck, folks may look back at the blogging movement and say that we were in group #2. It's a process, and if you're a first time entrepreneur you take the money and hope the distance between group 1 and 2 isn't that big. Risk, reward."

Me (still going): "Trust me, get one under your belt--it changes everything. I get 10 calls a week from VCs asking me to invest in my next company... it's like the movie business: once you've made one movie your chances of doing a second movie go up exponentially."

[ Note: Mark had a solid sale before he had Broadcast.com, so when Microsoft offered him ~$100 for Broadcast.com he could walk away from it. That's the position you want to be in. Having a win under your belt changes *everything.* ]