Disruption, Web 2.0 Style
Dear Quantum Investor Reader:
It's time to dump GoFish (GOFH:OTC-BB). Dump it and forget about it.
Here's the deal . . .
The company's management recently announced a $10.3 million private placement to fund operations.
But the financing agreement is toxic to shareholder value.
Here's the clause that has everybody angry . . .
"The notes will be due three years from the date of issuance and convertible at any time into GoFish common stock at a conversion price of $1.60 per share, including full-ratchet anti-dilution protection."
Let me interpret this.
Ratchet down clause: When the debt is converted into shares, it's at $1.60, or the average market price over a specified number of days, whichever is lower. This means the financiers have a big incentive to actively drive the shares lower, which they'll do
The anti-dilution clause means these sharks have their teeth into the company if it ever issues more stock. See, that would be dilutive, so in order to protect their interests, they get more paper if Gofish ever issues more stock for financing, acquisitions, you name it.
So you've got a group that has set themselves up to make money as the company's share price goes down. So what do you think they'll do?
That's right, actively short the stock, and do whatever they can to drive the price lower.
Bottom line: There's no floor to this stock.
Now, it's never been my policy to apologize for management. Especially stupid management.
And I'm not going to do so here.
They blind-sided me like they did everybody else.
I mean, this company is in one of the hottest tech spaces on the Internet. And it's one of the only publicly-traded online video companies available to investors.
And they blew it. Blew it, big time. Lesson learned. Mea culpa.
--Brian Hicks, Publisher
Disruption, Web 2.0 Style
By Steve Christ
As Web 2.0 wave continues to evolve, a falling housing market has become the least of every realtor's nightly worries. Buried beneath the surface is something potentially more disruptive than any quiet open house could ever be.
It's called Redfin, and in many ways it is the real-estate industry's worst nightmare.
That's because Redfin has picked up where Web 1.0 left off, by offering consumers access to the types of information that realtors have traditionally tried to keep to themselves. In particular, Redfin allows buyers to access the same types of tools that realtors themselves use to find and research homes for sale.
The result is that buyers can now do their own research online and find homes to purchase as easily as they might if they were buying something on eBay.
Redfin's licensed agents even handle all of the details of the purchase. And more than that, they rebate as much as two thirds of their commissions to the buyer. The average amount reimbursed to the buyer is about $10,000.
It's an intriguing and aggressive business model that hasn't earned the newfound company many friends within the real-estate industry.
But with what's at stake, that's hardly surprising. Real estate generates some $60 billion in commissions annually.
Undeterred by his lack of friends in the industry, Glenn Kelman, Redfin's CEO, only adds more fuel to the fire. "Real estate is by far the most screwed up industry in America," says the former software executive turned entrepreneur.
"Agents fear us the same way stockbrokers feared E-Trade," says Kelman.
What makes realtors nervous, of course, is Kelman's endgame: completely removing real-estate agents and brokers from at least half of a home sale.
And to some extent, he is practically there.
In fact, according to statistics compiled by the National Association of Realtors (NAR), almost 80 percent of all home buyers currently use the Web to search for properties before they ever hook up with a realtor.
That means that data-rich and service-oriented firms like Redfin can easily position themselves as an alternative to the traditional services of a realtor, especially in an age when nearly everyone has become Internet savvy.
Of course, you could be forgiven if you still have your doubts. After all, Web 1.0 never really did manage to disrupt the business world in the ways so many observers predicted it would only ten years ago--including in real estate.
But as with other web-related things, quite a bit has changed over the last ten years. Simply put, it's just different this time around.
Or at least that what Stefan believes. He's the author of the annual Swanepoel TRENDS Report, published by RealSure and RISMedia.
His work discusses in detail the growth of industry as an information-based service and how brokers and agents were previously the exclusive holders of all of the "home for sale" data. You know, the applecart that Redfin is more than to happy to upset.
"Web 2.0 is a different kind of Internet as a result of ubiquitous broadband, cheap hardware and open-source software," says Swanepoel in his report
"Don't be caught off guard again and think that Internet companies will again fizzle and not impact your business," he warns. "This time around the Internet is going to finish what it started a decade ago and the new breed of business models, many Internet based, will collectively re-engineer the home buying and home selling process," Swanepoel said.
These same beliefs, of course, extend into a wide variety of businesses.
That's what makes Web 2.0 not only potentially disruptive but seductive, because in its many forms it promises to deliver where the one-way communication of the first version failed.
Web 2.0 is allowing consumers to make an end run around various industry gatekeepers as free flow of opinion and information tears down the traditional walls that so many businesses have put between themselves and their audiences.
Realtors won't be the only ones that will have their industry transformed by the power of the Web's second act.
Giving consumers more power, after all, has its consequences. Just ask the NAR.
In a future issue we'll take a look at some of the companies helping to give consumers all of this power.
Wishing you happiness, health, and wealth,
Steve Christ, Editor