John Borthwick, who heads up the Betaworks incubator/"business acceleration platform" (investments in Twitter, Tumblr, someecards, etc.) sent out his own memo out to his portfolio companies Saturday afternoon. The following is an abbreviated version (John suggested we use the art to the right):

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Out east, a downturn has been evident for a while, and most of you have already started to make adjustments to your plan. But two things did change this week:

(a) The credit crisis and the crisis of confidence in our markets got way worse.
(b) Silicon Valley woke up to the fact that something had changed.

The first point is the one to focus on. The second is a distraction.

You need to think about things differently. Things have changed and your priorities should change. I broke up our thinking into two blocks. The first is what you should be thinking about in terms of your business. The second outlines some thoughts on what this means for the market.

#1. Priorities for you and your business:

Things look ugly, but with distress comes opportunities. Scarcity drives innovation. Always has, always will. Do more with less: A trite one liner that you need to make part of your companies DNA.

There will be more emphasis on user value, more ways to make money from that value. We will finally fess up to the fact that many of the ad models of web 2.0 don't yield results, and we will invent ones that do. All around there will be more innovation.

It's counterintuitive, but during an up cycle people accept conventional wisdom, and during a down cycle people challenge it. That's good. Very good. And the cycle will winnow competition.

Follow the money
Many of you are running your businesses very cheaply right now and break-even is within reach. Get there.

One of the headline shifts that is taking place is that people (partners, investors, the market) are going to shift focus from audience + revenue to just revenue. This happened in the last downturn and a lot of entrepreneurs didn't adapt to the shift till it was too late. Cash is king. Cash gives you flexibility and options. Once you get to break-even the whole world will look different.

Making money, like everything you do, takes work, time and attention. It will take longer than you expect and it happens in ways you can't plan. Start working on it now. If you have just raised money or are raising, get it closed. The cost of capital is going up. Think runway, cash and revenue.

Watch your spend, make necessary cuts now
If you think a piece of your product needs two developers to build it, do it with one. Be excessively creative in thinking about revenues and trying those ideas. Rethink *all* your projections, looking at how reductions in cost and accelerations in revenue strategies affect the numbers. Then redo them again. You'll be stronger.

Face reality as it is, not as you wish it was. Change the mix of sales and performance-based employees. Think about what you can outsource -- and how you can distribute your costs. It's hard and it requires different workflow, but when it works it can change your whole business makeup.

And if you need to make cuts, make them now. Don't cut 10% now and then another 10% early next year -- make the change in one fell swoop. Piecemealing your way through change kills momentum, hurts culture and the team and is a chickenshit way to run a business. Figure out what your runway looks like and do more with less. Figure out how to extend your runway till you get to break-even.

Know your data
You have heard me rant about this before, but you have to know what's going on. Know your data really really well. Financial data, your burn, your cash flow, revenues, runway and site usage data. There are a lot of things you can do to improve everything from burn to traffic. But first you need to know where you stand. So every week you have a picture of your position. Make this a habit.

I used to hate to do this, but once you make it a habit it becomes a tool. During an up cycle you can follow instinct, and usually your raw instinct is what you should follow. But during a down cycle your instinct can lead you far astray.

Compete
Take the offensive. Many of your competitors are not as well positioned as you. This is an opportunity to take share. These points are in order of priority -- once you know where you stand, where you are making money, what your burn is -- think aggressively about growth and market share.

This is my favorite slide from the Sequoia deck (link to the deck is below):

#2. Big, broad changes.
With the economy heading into the worst setback most of you -- most of us -- have ever seen, it's time to think about big, broad changes. It's been a long week, but let me try to anticipate a few.

Momentum and change
Some of our business is based on momentum. That's taken a turn for the worse. You have to adjust fast -- that's your job. As humans we accept change as something that someone else needs to adapt to. But that's not true for your business: You have to change, not someone else. And remember a Welsch maxim: Control your own destiny or someone else will. Change before you have to.

Cost of capital
The cost of capital has gone way up. Don't panic, just make sure you realize the rules have changed.

Advertising
There will be a flight to quality; this always happens. But this time I think it's going to be more than that. For TV and print this has been an unusual year: The shift to online has been stemmed first by the Olympics and second by the election. But year-over-year growth in ad spend has been down across the board (see slide 32 of the sequoia deck, linked below). Expect the next year to be ugly and different. I think spend will move online, very fast, and print may right downhill. And people will look for ROI -- real measurable results. Monetizing social media is hard. Much to do here, much money/share to make/take.

Beyond advertising
Much of Web 2.0 was about advertising to the tail -- the wonders of Google and AdSense. The truth that most people haven't spoken up much about is that (a) neither Google or Yahoo did a great job of monetizing much outside of search and (b) the Google business is still mostly in the head of the curve, not the tail.

The scale focus on auction-based ad buying has distracted us from other business models. This week I had a bite with the CEO of Hi Media (who bought Fotolog): They are an ad network, but they are now making a lot of money on payments. And a significant chunk is via "microfame" payments -- Fotolog users voting each other up in popularity based boards. In September, some users spent more than $2k each voting on these boards. Many of our companies are experimenting with payment models -- Tipjoy, Ideeli, IILWY, Covestor, SomeEcards ... there is money to be made here -- from payments to item sales to t shirts. Businesses to be built.

The elephants will dance
Pieces are going to move on the chess board. Big pieces. This shouldn't be your focus, but things are going to have change around your business, and they might affect you. Yahoo is going to be sold or bought. Ebay will either be sold or bought or broken up. Facebook is going to have to change (cut spending, focus on revenue) or it will be bought. Same for Linked in. Microsoft, News Corp. TWX and other media companies will be buyers. What does Google do in this cycle -- freeze or be bold? The newspapers -- do they act out of fear or freeze up? Telco's and cell cos; cable cos -- do they jump upstream?

Why should you care? Because as these pieces move around the chess board, they may well affect your future. So watch carefully. If Paypal -- which by some estimates is now 50% of the value of Ebay -- gets spun out of ebay, then they will accelerate services beyond advertising. Etc. etc. So consider the moves the elephants make. The equation for them, public or private, has changed.

Openness
I think this cycle is going to drive another significant shift in how open and interconnected the Web is. This is good news for you, and this is bad news for the Facebooks of the world, who tried to replicate the walled garden strategy of Web 1.0.

Think about what happened through the last cycle. Start with AWS. In the 1990s, Internet companies had to own everything top to tail. Today you can use Amazon and other services to pop up a new box for hundreds of dollars, if that. Thats a huge shift, and it's also a shift towards interdependency.

We are all now dependent on the Amazon's of the world for parts of our infrastructure. I think this turn of the cycle is going to drive a lot more openness. This in turn ties to the market figuring out how to rapidly establish bottoms-up standards. This is about working with others and figuring out how to do things without having to do all the work.

betaday

Next week at betaday [Betaworks' portfolio companies presenting to investors] will be a great opportunity to present your companies to many potential business partners. These partners now more than ever will want to know how your business scales, earns revenues and profits. Take this opportunity to have clear responses to these questions. There will be a greater emphasis now on this, so be prepared to specifically and persuasively answer these questions -- before they get asked. Think about your burn, how you can do more with less. Think three years out, not six months.

The case comes out of a blog post at the Portland Mercury about a local politician named Sho Dozono. A commenter identified only as "Ronald" wrote an angry rant in the comments:

Now that Sho Dozano has severed all business ties with Terry Beard (cantakerous obnoxious dishonest new money pig self proclaimed god) of Beard Frame Shops and of TheBigBidet.com, oops, I mean Thebigday.com, I will vote for him. Many business leaders in Portland feel the same way. He really did himself a serious diservice when he decided to trust someone like Terry Beard.

"Ronald" left a similar comment at another local paper. Beard demanded the two papers give him Ronald's IP address, which could be used to track down which computer Ronald used to post the comments, and presumably, Ronald's identity. The papers refused.

In court, Judge James E. Redman sided with the two papers. Sort of. The papers don't have to give Beard anything, he rules, but with the caveat:

if the comment had been totally unrelated to the blog post, then the argument could be made that the Portland Mercury did not receive it in the 'course of gathering, receiving, or processing information for any medium of communication to the public.'

It's a weird ruling: in the original post where "Ronald" slams Beard, Beard wasn't mentioned by the reporter at all.

To us, the real issue isn't anonymous commenters as journalistic sources, it's the chilling effect on the blogosphere's give-and-take if Web sites can be compelled to give up their commenters' info, even when their commenters are jerks. But while this new ruling in Oregon is limited, the judge did side with the Internet content publishers. A similar case in Montana came to much the same conclusion last month.

Seems like the law is trying to catch up with technology -- we expect more cases like this in the future until the case law is settled. But at least the wind is blowing in the right direction.

See also: Are Web Sites Responsible For Their Commenters? No, Thank God

The Town Hall event scheduled for next Tuesday, is invitation-only, meaning that not everyone would be welcomed. But you can be rest assured that Sizlopedia would be on the case. It is expected that Apple may be unveiling a new product on this event. But which one is it going to be?

There had been a lot of rumors lately, of different Apple products coming into existence. It all started off with some mock-ups of an expected MacBook touch, a multi-touch tabled based on the Mac platform. While no such confirmation came from Steve’s Co., a new set of rumors surfaced about a product code-named ‘brick’, which was later believed to be a manufacturing process rather than a new product.

The third set of rumors were about the new Macbook Pro, with some really convincing images. While the images still look pretty much authentic, nothing can be said for sure until Apple itself gives the official word. Apple did surprise us last month with the new line of iPod Touch, so we can expect similar surprises from them this time on.

One new rumor that has popped up is that a lower priced version of the MacBooks would be unvieled with some sources even claiming it to be as low as $800. With Apple’s stock dropping 40% in the last month, they badly need a move like to get back in the game. Until the event, nothing can be said for sure, but you can rely on us to keep you updated every step of the way.

© 2008 Sizlopedia All Rights Reserved

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In an interview the following day with German newspaper Frankfurter Allgemeine Zeitung, Zuckerberg suggested that monetization is still not a core focus at Facebook. Why? Well aside from the fact that the company has millions of dollars in the bank it just isn’t important to them currently. According to Zuckerberg, “In three years from now we have to figure out what the optimum model is. But that is not our primary focus today.”

One other interesting note that Zuckerberg makes is that he believes social networks could cannibalize e-mail. This only leads me to wonder why on earth the company hasn’t come up with a better messaging system. I receive an increasing number of messages on Facebook and it only becomes more challenging to respond to. Ultimately I think they’ll resolve this problem eventually but I surely hope it comes sooner rather than later.

One final interesting component of Zuckerberg’s interview with the German newspaper was in response to a question regarding his business relationship with Sheryl Sandberg. He states, “She is an excellent manager. She is very good in building our international organization. I’m focused on the direction of the company, especially of the product development, and the overall strategy.”

Many interpreted that to be an insult to Sandberg. Others claim that it was a poorly translated statement. I’m not quite sure how you can screw up the translation when the interview was in English. Anyways, I’ll leave readers to judge what Zuckerberg meant by this statement. For the time being, don’t expect Facebook to announce any revolutionary monetization services … they’re focused on growth.

The company, which is winnowing down its properties to improve its financial performance, published a notice last week that it's closing its AOL Journals blog site as well as its Hometown/FTP site for hosting Web pages on October 31. And now it's begun sending users notices that it's time to move.

AOL set up a partnership with Google's Blogger.com so that people can migrate their blogs, and Jack Krupansky is one user who made the move successfully. "It was mostly painless since I already have a Google account and a number of Blogger blogs," he said in a blog posting. He did have to manually republish all the old blogs, though.

Krupansky also quoted a reminder letter AOL sent him:

Dear AOL Journals user,

As we wrote in an e-mail on Sept. 30, AOL(R) Journals will permanently shut down on Oct. 31. It's never an easy decision to shut down a feature, especially one like AOL Journals that some of our members have used for a long time. But with a decline in Journals usage, we have to look carefully at all of AOL's features to make sure we're providing as much value to our members as possible.

Though we know this might be an inconvenience, the good news is that we've partnered with Blogger.com to provide a smooth transition for your journal. Blogger is a free service from Google that makes it easy to share your thoughts with friends and the world. Blogger supports most of the features you've come to expect from AOL Journals, and it's easy to get started. If you wish to transfer your journal to Blogger, they will move your posts, comments and photos to your new blog on their service. When you're ready, go to this link to get started.

Remember, it's very important to save your Journals content before Oct. 31. If you choose not to move to Blogger, you'll need to save your information manually (for example, by copying and pasting its contents into a word processor).

Again, we appreciate your patience and understanding as we make this transition, and we hope you enjoy using Blogger.com.

Sincerely,

The AOL Journals Team

AOL didn't arrange such a smooth transition for the Hometown service. "Unfortunately, we're not able to offer a replacement Web hosting option at this time. If you go to AOL Search and search for "Web Hosting," you will find reviews of different services and viable options," the company said, and members need to manually download their files stored at the site.

Microsoft's Live Labs team has just released a new way to track political discourse on the Web. Called Political Streams, the tool tracks news stories on both blogs and traditional-news sites, and ranks it based on velocity and overall coverage.

What's really neat is that it also keeps track of mentioned names and places in each story, to show how much coverage that person or part of the world has received within the last 30 days.

Each item can be drilled down into a little further, which is where you can see a small one-paragraph summary and the two charts for the coverage of people and places. Each of these places and names also gets its own page that lists related news, which makes it a very topical experience. The information itself comes from Freebase, the Wikipedia-like open-database project.

Political Streams tracks popular political headlines and tracks their mentions in both traditional media and blog sources.

(Credit: CNET Networks)

Much like Google's recent Blog Search page efforts, Live Labs' Political Streams also keeps track of a very important number--how long a story has continued to get play. This number stems from the first time it began getting tracked through the service's crawling engine, which doesn't necessarily dictate where it sits on the list of top stories.

One interesting thing I noticed is that the top stories on the blog side were less than half the age of those on the traditional-news side. That, of course, is bound to change, depending on the day's news.

Political Streams is the first site of its kind from the Live Labs team. I expect that we'll see additional "streams" pages for tech, world, sports, and celebrity news after the presidential election.

See also: Memeorandum and Blogrunner.

Caught this over at Mary Jo Foleys All About Microsoft Blog. It seems that Microsoft has gotten a mouthful on the security feature UAC in Vista (which actually had a lot of good intentions). So the folks on the Windows Team are working to make it a more palatable experience in the next release, Windows 7. The focus is to make it more informative and less repetitive. I think these are good points, because a lot of prompts don’t give a clear understanding why a location requires permission before proceeding. The concept of UAC is that when an Application triggers it, that means it wants access to critical part of the system that needs to be written to. Here is a quote from my ActiveWin.com Windows Vista Review:

Quote:

“The new account setup only allows users with Administrative privileges or a limited account to all operate as a Standard user with a set of specific requirements and a deeper awareness of the actions a user takes while performing task throughout the operating system, Microsoft recommends this account for daily use “finally”! You might wonder what the deeper awareness is; well it’s a new improvement to the security model

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