So i was thinking, what is the true brilliance of revolutionary thinkers? They can dress a dog up, make it look like a pony, show you its a dog and get you to offer the price of 3 bulls for it.

I'd like to share a story about someone I who came up in conversation yesterday and I respect more than he possibly knows.

This gentleman, we will call Mike W. Mike W built a company around a product that worked well enough (but not quite good) and sold it to a big company, let's call it Yahoo for a price that makes me say 'holy shit'. Now let me explain why I say this:

The product did work, however and I didn't realize this until this morning, eating a bowl of cereal that the product worked but it was built not to actually work properly but it was built so Mr Mike could get other people to give him a piece of their lunch and thank him for it.

Before we study the problem, some back-story. I met Mike W once and was a customer on his ad exchange. My network failed (actually it's still around but I left and will likely never see a dime from it) because I started it out of the wrong motivations - greed - though i had the publishers, advertisers and tech, it wasn't a smart company to start. I was a greedy asshole. Worse still the deck was stacked against me because Mike W would have eaten my lunch had i kept at the company anyway. I met Mike W once. I met him because I couldn't get his sales people to call me back (they were arrogant - this is my one complaint - there is NEVER a justification for arrogance - confidence is fine, arrogance NO. I've been an arrogant prick - i should know. So I had a buddy of mine go over the salesguy's head and introduce me to Mike. (as most of you know, I don't stand for bullshit and go right to the top) so what did Mike W think of me? I'm willing to the following: Young, arrogant, greedy, asshole that's at least somewhat full of shit. I was all of those things at the time. So with that back story I give him a compliment: Mike W is a crazy entrepreneur & a master manipulator (my 2 greatest compliments).


Let's study the problem:

This great product is called Right Media Exchange. Right Media started as an ad server Mike built for ad networks - because most ad networks were on old systems and overpaying. In fact Mike lost money on the product initially (same concept as giving a free trial in direct marketing - Mike worked in the DR division at DoubleClick so he clearly understood this) and once you have them, they ain't going anywhere so he didn't need to make any money.

The product was smarter than that - first it was confusing so no one really ever figured it all out, second it didn't work quite right so everyone was always complaining about the product - yet Mike was eating their lunch. It's like complaining somestole your brown paper lunch bag then they really stole your lunch. Now, i'm sure this wasn't intentional - I'm sure they wanted the product to work properly - it just didn't. It was built on old technology (just like the ad servers he claimed he was replacing - do you start to see the brilliance now?)

Better than that, he linked up all the networks in exchange but NOT automatically. They had to connect to one another. So he created false barriers. How do you take advantage of false barriers when you control the whole network? You build your own ad network so a good chunk of all action goes through you. Remix Media was born by 2 guys with limited online advertising experience but they had a stacked deck. All business went through them. Remix made a fortune. It did not matter if the technology was great because Right Media's valuation was through the roof because of a) revenue b) positive cash flow. = he did not need money so he can wait for offers to come in. Meanwhile, all he was doing was taking a big cut of money out of the pockets of the ad networks he was serving and they thanked him for it - because he gave them "cheap" technology and they "appeared" to earn more money from the exchange even though Mike W was eating their lunch. This is manipulation people - eating someone's lunch and they thank you for it.

He did one better though. He could have kept RMX going and made a cash flow killing. However, he did better. The concept of ad exchanges (which Right Media Exchange is not btw) was getting hot and all the portals wanted a piece. First off, RMX was not and is not a true exchange - it is a closed marketplace where the exchange is its own market maker and doesn't allow other market makers in nor does it allow true transparency. But it was called an exchange and no one knew any better so thus it was an exchange. It was like a more rigged version of the NYSE - which is NOT an exchange either. It's a trading floor.

Now Mike W got yahoo interested. They always love to make dumb acquisitions. The king Crazy Entrepreneur & Master Manipulator is Mark Cuban of course (www.MarkCubanRocks.com) who sold a dog for billions of dollars. But Mike W deserves to be in the Manipulator Hall of Fame (a good thing -shows his brilliance) for this one. First he had minions of loyal subjects, second the company line was "even our founder doesn't know where the industry is going to be in a year" when I hear that i think "gee this is a sharp founder trying to play me for a fool" - which he succeeded at. Because it didn't matter where the industry was going, he was 5 chess moves ahead - he was playing for an exit not an industry.

So he got Yahoo to pump in like $22MM for 20% of the company (something like that) - which is great. Yahoo got their toe hold. What was brilliant is that they actually bought the whole company six months later for $680MM.

In theory it was a great acquisition because yahoo got an "exchange" and cash flow. Mike W got a g-dawful amount of cash. Everyone wins? Not quite. This is why Yahoo is either dumb or was trying to falsely inflate share price.

RMX will never be integrated into the Yahoo Publisher Network / Panama. The technologies don't match. RMX's tech was essentially a house of cards and Yahoo's tech just isn't very good. Together it's a piece of poop and will be kept separate. Without integration - Yahoo will NEVER earn its acquisition price back. Together it is a smart acquisition. The other issue is the architect of RMX left and Yahoo is a revolving door where no one actually cares because they all want out and have been earning so much money they got lazy.

So this shows me one of a few things. Mike W never actually showed Yahoo the underlying architecture even though they invested $20MM+ - which is amazing or it shows me that Yahoo knew it wouldn't work and bought the company for Window Dressing. Either way, Mike W is one of the most intelligent people in the world and Yahoo is a fool.

So what can we learn from this story: Always think 5 steps ahead. There is always a guppy at the table - unless you both are transparent and working together - if you are both transparent that is truly powerful - don't be the fucking Guppy!