Why are some start-ups remarkably MORE successful than others?  Nisan Gabbay can answer that question and does so every week at Startup-Review.com, one of the hottest new Web sites to enter the business blogging scene.

Listen in on my brief interview with Nisan to find out what makes this remarkable blog tick.

RUNNING TIME: 12 minutes

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AUDIO TRANSCRIPT
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Jeff Molander:  Hello, this is Jeff Molander. I recently had the pleasure of chatting with Nisan Gabbay, formerly of Sierra Ventures, where he focused on consumer online services, web advertising, and mobile applications. Since we recorded the interview, he announced his departure from Sierra to a new, yet to be named web startup.

Nisan’s blog, ”Startup Review.com,” is taking off in a pretty big way, attracting the attention of analysts, investors, and entrepreneurs alike. How? Well, he has chosen to perform in depth research on successful companies of all sorts, using interviews with key management team players, venture capitalists, and employees as a means to access and piece together information information that describes behind the scenes paths to the remarkable success of each company.

Well thanks for joining us, Nisan. Why don’t we start with how you got the idea for Startup Review?

Nisan Gabbay:  The content for the blog was really something we were already doing internally. That is a large part of my role, is to do diligence on potential investments in the online area. So it is natural that questions come up. For example, if we are looking at a company that is trying to get into online classifieds, the question is, “Well, what did Craigslist do that was successful? Where are the strengths and weaknesses of Craigslist? Can a company compete in that area?”

So we would put together these mini case studies as we are evaluating opportunities, so it was something that we had already done, so had that content.

The second question, around what is our goal with the blog, is really a two part question: one, why the blog for Sierra, and why did I personally decide to take on this endeavor?

In answer to the “Why Sierra?” part of the question, the managing directors at Sierra have come from an enterprise software background, having founded and run successful startups in the enterprise area, and we have been traditionally more known for investing in enterprise oriented companies. Over the last three years we have made quite a number of investments in consumer oriented technology, an area of very heavy focus for us, particularly on the Internet.

So what we wanted to do is raise the awareness to both entrepreneurs and other VCs that we are actively investing in early stage Internet companies, both through consumer and online advertising, and that we want to be part of the conversation that is going on in the blogosphere. So that was kind of the main goal for Sierra. It obviously helps in other area such as diligence on potential investments, sourcing of new potential investments, as well as bringing more people into our network.

So those are the main reasons for why Sierra decided to do this.

Second me, personally I think the overriding factor is that I enjoy it and find it interesting. I like thinking about what makes companies successful. I enjoy doing that part of the research.

And I really enjoy talking to people, talking to former entrepreneurs, people involved with these companies, and really hear from them what the story was, and what were the lessons that they learned throughout their experience with those companies. It makes for a great way to meet people and to network.

I think having the blog itself kind of puts your feet to the fire a little bit to produce content on a regular, consistent basis; and I think that is a good thing because it really forces you to do it. I kind of liken it to having a dog in some respects: if you want to get exercise, and you want to walk twice a day, then get a dog and that will make sure you do it. So this is a way that keeps me regularly talking to people, and so it has been good in that regard.

Jeff:  It looks like you are dedicating yourself to producing a good number it looks like about one per week of stories on the site, and creating compelling content that keeps readers coming back for more is always a challenge.

One thing that I have found unique about Startup Review is its ability to keep my interest based on seriously valuable insights, quite frankly insights provided by those who you are interviewing, many times, who seem to be opening up quite a bit, sharing information with you rather liberally.

Nisan:  Yeah, I think that is one of the advantages. I think that we have a venture capital firm, so we have a pretty strong network of people that we can tap into. This is part of what we do on a daily basis, so it is things that we are thinking about, and that does come up in regular conversation. A lot of the insights are collected from multiple data points, whether that be the founders, customers, competitors, investors in the company. That is what is nice about being in this position, to be able to do that.

Then secondly, in the interviews, yes, I have been very pleased with how forthright people have been, and really thought through and answered most of the questions that I have had for them, so that has been nice.

In terms of the content itself, you are right. We launched this; we wanted to do something that was differentiated from other things that were out there. There clearly are a lot of venture capital bloggers already. We did not want this to be just another site where a venture capitalist is giving their thoughts. We wanted to provide some real value to the community in terms of, you are going to get a detailed case study based on real research and our network of contacts. That has been the goal, and I think it has done well in that regard.

Jeff:  Again, the reason people subscribe to the RSS feed or listen to a podcast like Gilmore Gang over and over is quality. I listen to the Gilmore Gang for that very reason; for that only reason. Obviously you have got quality working in your favor. Given that, what results have you seen so far in terms of payoffs for all this good content that you have been putting out there?

Nisan:  I think we have been pleased with the initial early attraction, in terms of people are subscribing and viewing the content, having over 700 RSS subscribers in three weeks. So I have been pleased with that result. The first case study Craigslist got picked up by a couple of bloggers, and it has had over 5000 views in that time. I think, obviously, the blogosphere is so interconnected, and it is fairly easy to have the content, for people to pick it up. So I think in that regard it has done well.

Then secondly, from a networking perspective, it has been a great way to meet people and to speak to people about what makes certain companies successful. So I think it has really helped on the networking side as well. For example, Jeff, obviously I would not be talking to you if it were not for this, so that is a big bonus for us.

Jeff:  Yes. Indeed, that is how we met, while you were working on reviewing Linkshare Corporation, a former competitor of mine while I was helping start up what is now Performics, which is a division of Doubleclick today.

So anyway, what kind of companies are you focusing on in terms of reviews at this point?

Nisan:  Just to be clear, the companies that we are profiling are not companies that Sierra has been invested in. These are really just what have been the true successes in the Internet area. So there is no bias whatsoever in terms of choosing something that we have been involved with or looked at in the past.

The real criteria that I have looked for to select these companies is to really focus on those companies that have truly been a success, and I define a success as being, did they achieve a successful exit for their founders or their investors? If they have not yet achieved a successful exit, have they established a strong business model meaning they have significant revenue, probably $40 million plus a year revenue? Or thirdly, in the case of something like a Craigslist, have they established an exceptionally well known Internet brand, which I think Craigslist has done, even though they have not exited and they have not had significant revenue?

So I think those are the three things that I look for. Definitely not looking to profile on the site early stage companies that are just getting launched. I think there are plenty of Web 2.0 oriented blogs that are covering those companies, so we really wanted to look at it from more of a kind of post success, pre success basis, and that is what we are targeted on.

In terms of how do we choose the specific companies, it is based on a couple of things. One, do they fill the specific criteria stated above, as I said before, for being a successful company? And then it is really, “Well, who do we have access to at those companies,” not creating a case study unless we are able to speak with somebody who has been involved with the company at an early stage.

So that is really dependent on people that I can get to most easily. For example, there are a couple of companies that I would love to profile, like Neopets for example, or Bitpipe. I do not personally happen to know anyone who is involved with those companies, so I have not yet been able to create a case study on them. But I am hoping that as we build readership that people will also help me and contribute, and suggest potential contacts that they have that they can put me in touch with, in order to be able to do those stories on those companies.

So I will put a little plug in here that on the blog there is a section called “Contribute,” where people can mention certain contacts that they may be willing to offer up that I could contact and interview for a post.

Jeff:  So it sounds like you are fairly open minded regarding who you are reviewing here. They do not need to be a Web 2.0 company, they can be somebody like Craigslist, or…

Nisan:  Yeah, I mean, we are trying to look both at those types of companies, and we are also profiling successful companies in the online advertising side people who have done well in lead generation, for example, or affiliate marketing. Some of the upcoming case studies, I plan to do one on Linkshare, one on Adteractive.

So it is not only on the consumer focused companies, it is a mix of both. It is just smaller companies, companies that have had exits, for example, in the $20 to $100 million range, that may not have been very high profile in the media but were very successful exits for the entrepreneurs. I think those stories are worth highlighting as well.

Jeff:  Well thanks again, Nisan. I should probably let you get back to researching and writing more interesting reviews. Be sure to check out Nisan Gabbay’s Startup Review.com if you are interested in tapping into unique insights on how trailblazing companies are built from the ground up to succeed.

Nisan:  Thanks Jeff.

Jeff:  This has been Jeff Molander reporting.

Nothing escapes Jay Weintraub.  Jay reports on a relatively tiny but very significant shift in Google’s (NasdaqGS:GOOG) legalese—changes in terms and conditions that govern its relationships with advertisers.  I believe the re-wording to be no accident.  This is a defensive move… a sign of weakness that could give additional hope to class action lawsuits currently underway against Google.  This news on the heels of a new, more dangerious click (syndication) fraud tactic launched by what’s being called the Kmeth Worm… again, aimed at Google and receiving relatively no coverage in industry or traditional media.

Says Weintraub about the updates…

- Previously, the language said “Ads may be placed on (y) any content or property provided by Google ("Google Property"), and unless opted-out by Customer (z) any other content or property provided by a third party ("Partner") upon which Google places ads ("Partner Property").

- Now, the language says “Customer understands and agrees that ads may be placed...” and “unless Customer opts out of such placement in the manner specified by Google...” As well as “Customer authorizes and consents to all such placements.”

With regard to Google’s Limitation of Liability…

i) - Previously, “Google disclaims all guarantees regarding positioning or the levels or timing of:”
- Now, “Google disclaims all guarantees regarding positioning, levels, quality, or timing of:”

ii) Brand new, “Customer understands that third parties may generate impressions or clicks on Customer’s ads for prohibited or improper purposes, and Customer accepts the risk of any such impressions and clicks. Customer’s exclusive remedy, and Google’s exclusive liability, for suspected invalid impressions or clicks is for Customer to make a claim for a refund in the form of advertising credits for Google Properties within the time period required...”

Don’t miss the words “exclusive remedy” folks.  Jay didn’t emphasize it but I sure will.  This is “nothing earth shattering” according to Weintraub, who I greatly respect, but given his strategic business interests I’d expect him to downplay this change.  This IS, in fact, very, very important and I have yet to see anyone report on it.  Advertisers need to understand.

Already under fire from the likes of Ben Edelman and others Google, like Yahoo, has been sending lower quality traffic to advertisers for years and often at inflated cost, according to Edelman and others throughout the industry.  The changes noted above are clearly motivated by these swirling questions which have largely gone un-noticed by advertisers.  Who’s noticed?  Affiliates have because they (in whole, having more experience in paid search than advertisers) have more to lose.

Stanly Wong suggests…

“This type of Syndication Fraud is running rampant across the web particularly among parked pages (where domain speculators purchase domain names for the sole purpose of monetizing the natural traffic on them) and dynamic doorway pages (dynamically generated pages are created to fool search engines so they can show up on natural/organic search results).”

“I believe that Yahoo! (& Google) has a contractual responsibility to deliver what was promised to their advertising customers. I feel shortchanged!”

Well… consider that Google contract changed!

K-What?
In related news (that advertisers don’t seem to pay attention to), famed spyware warriors Wayne Porter and Chris Boyd of Facetime Communications recently unearthed the latest version of syndication fraud brought to us by what the company has dubbed the Kmeth Worm.  In effect the company’s research team has discovered a new, never-before executed means to conduct syndication fraud—this one aimed at Google.  If you’ve NOT heard of botnets by now you’ve been living on the moon and this Kmeth Worm provides fraudsters with all the benefits of botnets (namely high volume clicking of high-priced ads on sites they own) with an added bonus—it’s nearly impossible for Google’s network quality team to catch… or Yahoo’s team for that matter.

According to Boyd, “Effectively, we have a Botnet without bots, and the potential for financial fraud is in some ways more severe, because of the ease with which this particular attack spreads.”

He concludes, “Typically, financially-driven malware tactics use botnets to fraudulently increase traffic to specific online advertisements. In this case, the hackers have very cleverly borrowed tactics from botnet-creators to create a bot-less network of hijacked PC users to drive traffic to sites populated with these specific Google AdSense advertisements.”

For more insight in layman’s terms I encourage giving the Spyware Warriors: The Digital Underground audio series a listen.

Google (NasdaqGS:GOOG) is serious about its new Checkout service.  How serious?  Serious enough to invest in it via participating merchants.  This time it’s not just advertising credit or low shopcart fees for merchants (a standard they’ve already set), Google is helping retailers pass along deep discounts to consumers (on products and services they offer). 

Example below.

Considering the predicted focus consumers will have on discounting this holiday season, merchants should enjoy the added promotion.  Google’s bet is that it will help merchants adopt the Checkout shopcart even faster.

Momentum: Distributors
Surprisingly, Google is also securing serious traction with its advertising distributors.  A closer look at how Web merchants and their distributors (affiliates) are using Checkout provides more insight.

Established affiliates and distributors (i.e. comparison shopping engines) show strong signs of embracing (not fearing) Google Checkout as a serious conversion (turning browsers into buyers) enhancer through use of that same exclusive, deep discount.  Distribution partners of Web merchants, like Shopping.com/Dealtime (see below), are wasting little time in pointing consumers at the cash incentives offered by Checkout.

Why is this a surprise?  Not all affiliates provide “native visitors”… many, rather, provide arbitraged visitors (via paid search media) which retailers are, themselves, increasingly getting better at netting.  Established affiliates, however, rely less on use of paid search advertising to attract shoppers.  These affiliates are not threatened by Google’s interest in offering merchants a very attractive, self-funding direct-to-consumer advertising solution like Checkout. They’re embracing it!

Does Google risk driving away its once cherished affiliate advertisers?  Perhaps but Google has managed to reduce inventory, improve ad quality overall and raise prices quite well in 2006.  In fact it’s taken a fairly anti-affiliate stance in many cases… weathering the storm very well as it weans itself off of affiliate dollars and moves to “go direct” to advertisers.  Affiliates and distributors who in the past relied on search to garner visitors are increasingly turning to other forms of Web selling such as drop shipping.

Momentum: Retailers
Will advertisers continue to tolerate the higher click prices?  Time will tell. 

Consider Google’s heavy courtship of National Retail Federation (via Shop.org) members this week in NYC.  Consider the quantity of large, medium and small advertisers jumping on board and the rate at which Google is signing them up since rolling out the service just a few months ago. 

Finally, consider Shopping.com’s bold move into Google’s turf (using both a shop cart and cost-per-acquisition approach).  It would appear that the company (one troubled by its merchant partners’ disdain for their bidding on brand names/performing arbitrage in search engines) smells blood as does eBay who bans the use of Checkout among its merchants.

Momentum: Partnerships
Google hasn’t waited long to strike up some interesting partnerships such as a promotion with Citibank credit & debit cards that rewards shoppers who sign up for both services.  They’ve even got a merchant referral (affiliate!) program.

What other partnerships has Google stricken to enhance the growth of Checkout and what are advertisers themselves saying about Checkout so far?  Will Shopping.com be the first shopping comparison engine (SCE) to go “back to the future” by returning to (don’t forget this is how all SCE’s were born) a cost-per-acquisition fee model?

Web retailers have always been frustrated with pay-per-click comparison shopping engines (CSE’s) but Seattle-based Mercent may have part of the answer.  The power of of SKU level performance information and bidding capabilities is not to be understated in a world where retailers must hunt-and-gather performance data in order to approach the CSE marketing channel with a modest level of ROI sophistication.  In short, CSE’s have been reluctant to provide performance tracking data (as other performance advertising companies like Google and Yahoo Search do).

According to Mercent (who already provides centralized Web marketing/advertising performance tracking) their new solution allows Web retailers to submit customized product data across multiple CSE and affiliate channels in an automated fashion.

“Utilizing Mercent Retail for online content management, we can optimize the descriptions of individual product SKUs across online marketing channels, without having to pick up the phone to call IT or an outside vendor,” said David R. Williams, who manages VWR Education’s Science Education Affiliate Network (SEAN).

“Now, we have the ability to test offers across multiple channels and see which offers convert at the highest level, ensuring that we’re getting the best placements for our product promotions.”

This positions companies like Doubleclick’s Performics search and affiliate division in an interesting light—moving forward offering retailers a centralized product data feed service without the means to automate and streamline IT processes.

"When a stranger promises ‘you can trust me,’ most people know to be extra vigilant.  What conclusion should users draw when a Web site touts a seal proclaiming its trustworthiness?  Some sites that are widely regarded as extremely trustworthy present such seals.  But those same seals feature prominently on sites that seek to scam users—whether through spyware infections, spam, or other unsavory practices,” says Harvard Ph.D. candidate and leading spyware/adware expert.

Sure to send ripples throughout the blogosphere, media and perhaps corporate boardrooms, Edelman has released a new paper (summary here) entitled Adverse Selection in Online “Trust” Authorities.  The paper demonstrates how TRUSTe (the hands-down authority in trustworthiness) has sold out to the most un-trustworthy of companies—those operating various “Internet pollution” type of operations; largely adware and spyware firms that pummel consumers and corporate user computers into oblivion. 

TRUSTe calls itself “an independent, nonprofit enabling trust based on privacy for personal information on the Internet.” They “certify and monitor Web site privacy and email policies, monitor practices, and resolve thousands of consumer privacy problems every year.”

I call it yet another failed attempt for industry to self-police itself.

Featured guests include Direct-Revenue.com, Funwebproducts.com, Maxmoolah.com, Webhancer.com. 

In a bold move, AOL’s Advertising.com unit re-structured its publisher terms and conditions.  Publishers must now gain written permission from the company if they want to engage in:

- Incentive-oriented campaigns
- ANY form of search engine arbitrage

Stiff e-mail provisions are also enacted with ‘per occurrence’ penalties set at $10,000.  Search marketing offenses start at $1,000 per “occurence” (notably, not defined in the T&C’s themselves).  If you’re a publisher and do business with Advertising.com you, thereby, agree that these liquidated damage amounts are not only in force but “reasonable.” In other words get caught and you’re not going to weasel out.  Not only can the network withhold all monies due you’re going to pay dearly for offenses (offenses are 100% definable by the network and broadly defined in many cases).

Example:

Without the prior written approval of Advertising.com, Publisher may not purchase keywords from search engine service providers in order to drive traffic to Creatives or Landing pages, including, but not limited to purchasing keywords that include the trademark, service mark, or brand name of the advertising client to which the applicable Creative relates, or any derivative of any such trademark, service mark, or brand name ("Advertiser Marks"), or purchasing online advertising inventory for purposes of running advertisements that include Advertiser Marks on Web Sites or within emails.