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Why Obama’s Tax Policy is Not Socialist

Conservatives allege that Obama’s “we need to spread the wealth around” statement, his statements about “fairness”, and his proposed tax increase for those who earn more than “$250k” (though it’s really $600k, as you’ll see below), represent a socialist view that threatens our capitalist society.

Here’s a newsflash to those with that view: the more income a person earns, the more taxes they already pay - it’s called a tax bracket!  Right now for ‘08, those who earn under $8k are in the 10% bracket, while those who earn $356k are in the 35% bracket.  We’re already a “tax the wealthy” society.  The fact that Obama wants to modify the bracket to shift a bit more burden to the wealthy is not an Earth shattering change for tax payers.

What’s more, according to a Washington Post analysis of the actual Obama and McCain tax plans, those who earn between $250k and $600k won’t even see a tax increase.  It’s not until you earn $600k to $2.87M, that you’d see an increase.  Make under $250k, and you’ll see a decrease of 1.8% to 5.5%.

Personally, I’d like to see the ultra-wealthy: those billionaires out there paying 15% capital gains taxes, pay a bit more.  That’s not a socialist view, it’s a view that once you reach a certain point of accumulated wealth, you will not feel any difference between having $1.5B or $1.4B, for instance, but that $100M in tax revenue could save $5,000/year in taxes for 20,000 families.  I don’t, however, think that those earning $250k, $1M etc, should bear that same burden as billionaires, because $250k-$1M is still in the realm of the small business owner who is creating jobs and powering our society.

Ideally, the tax system needs to be designed to minimize the financial “pain” and burden that each person has to endure to support the country, while also still incentivizing people to achieve success without penalizing them for having done so, and incentivizing investments as well.  Regardless though, I don’t believe that Obama’s tax plan is significantly different than how our tax system already works.

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Google Earth Captures Maui Mega Tsunami: FAIL

I thought this was hilarious. Look out Maui!

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Digg Revenue Tripled, But “Not Profitable Yet”

I read a Fortune story yesterday about how Digg has raised $28.7M in funding, putting its total money raised at $40 million.  According to the article, “Adelson says revenue from the ad-supported service tripled this year. While it is not profitable yet, it was on the path toward cash-flow break even, Adelson says. “It’s not that this round of funding was critical to getting to profitability,” he says. “Before this round we were fully-funded.”

Wow.  For a wholly user-driven content, automated site, to have 224M page views a month, have triple the revenues this year over last (whatever that number is, no one knows for sure), to not be profitable, and to continue borrowing money, is absolutely insane.  For as popular as Digg is, as a business, it makes our industry look bad and reminds people of the cash-burning Web 1.0 days.  Even at a $1 CPM which is NOTHING, Digg would be earning $224,000/month.  At a $15 CPM and a 15% sell-through rate, which is a reasonable example, they’d earn $500,000/month.   On our sites, we have many pages monetized at $20, $30 and higher eCPMs.  Surely Digg does as well, on at least part of their inventory.

So where is Digg spending money?  On people?  On marketing?  On servers/bandwidth?   I doubt that they’re spending much money on marketing because they are very well known and viral.  Servers are a decent cost, but surely not more than $30,000/month (the cost of 100 decent dedicated boxes).  If they need more server power than that, then for all their database savvy, they should be doing more caching and serving less dynamic content with server-intensive database hits.

So where is the cost going, to people?  People who are doing what?  Development, design, moderating posts and other admin work, server administration? Still, 20 people earning $75,000/year (totalling $125,000/mo) should really be sufficient to operate a site that’s driven by the users.  Again, if it takes more than this, something is wrong with the organization itself.  There is an inefficiency somewhere.

When a dot com has that much traffic, its site is automated/user-generated, and it isn’t raking in profits, something is fundamentally wrong about how the company is being operated.  Our sites receive 2.5M unique visitors per month and close to 7M page views, and we are profitable and have never borrowed a dime.   If we can do it on a small scale, and our sites are very similar to Digg in terms of what drives them (users, dynamic pages, user generated content), then Digg should be able to do it on a larger scale.

As traffic increases to a site, server costs will increase, admin costs will increase to deal with any content/user issues, and development costs (new features, fixing problems) will increase, but those costs should scale in proportion to traffic.  If the company started out on a solid foundation of profitability with a solid profit margin, which obviously Kevin Rose didn’t do (or perhaps he was profitable early on, but then added expenses at a higher rate than he was adding revenues), then that profit margin should have been maintained and should have scaled as well for this type of business.

Kevin Rose needs to return to his roots, when he launched Digg by hiring a coder for $2,000.  Somewhere along the line, all of the VC’s and corporate folks got their hands on the business and turned it into a money pit that thinks well inside the box.  Unnecessary complexity and costs must have been added that could likely be pruned.  If Rose or Adelson can’t clear out the garbage, then they should bring someone in to optimize and streamline the whole business - Digg can and should be making tons of money for its employees and founder.  They need to stop thinking about getting bought, and start acting like a real company.

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Absolute Power Corrupts Absolutely

From the Huffington Post, on  the proposed language for the $700B bailout:

“Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”

In short, the so-called “mother of all bailouts,” which will transfer $700 billion taxpayer dollars to purchase the distressed assets of several failed financial institutions, will be conducted in a manner unchallengeable by courts and ungovernable by the People’s duly sworn representatives. All decision-making power will be consolidated into the Executive Branch - who, we remind you, will have the incentive to act upon this privilege as quickly as possible, before they leave office. The measure will run up the budget deficit by a significant amount, with no guarantee of recouping the outlay, and no fundamental means of holding those who fail to do so accountable.

This is outrageous.  Our system depends on checks and balances.  We are not a monarchy.  The current administration is using the financial crisis to sidestep the constitution and none of us should stand for this.

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Powerful Lessons on Buy-and-Hold Investing

You’ve heard it a thousand times: diversify and invest for the long term.  When you have money in the market, stocks, mutual funds, 401k’s, that’s easier said than done when you see banks like Lehman Brother’s failing, and the market falling by more than 500 points in a day.  The knee-jerk reaction is “oh God, the market is crashing, I better get out now!”  So, the market falls 500 points, you sell, and the next day, the market is up again.  Not only do you now owe capital gains taxes on the sale of your equities, but you just sold low, and will inevitably be buying high (or above where you sold), which is the reverse of what you should be doing.

Good investors take advantage of panic selling.  They see Monday’s 500 point panic selloff as an opportunity, hence the buying that occurred Tuesday, and again with the 450 point drop on Wednesday, and the 450 point increase today.  Buy low, see the drop as a good opportunity to get in low.  This may not be the bottom, but with value cost averaging where you increase your stock positions as the market falls, you’ll be buying in a bargain market.

I guarantee you that there are tons of average-joe investors that are crying right now because they got out of the market on Monday or Wednesday in a knee-jerk reaction, and missed today’s recovery, plus they’re possibly paying capital gains on any profits after they sold.

If you’re young and have time on your side, ride it out.   If you’re older, limit your exposure to equities.  Avoid knee-jerk emotional decisions.  Look for index funds and diversify your investments across U.S. large cap, U.S. small cap, and foreign stocks, 60%/20%/20%, respectively.

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I’m in Forbes today!

Sramana Mitra published an article today at Forbes.com, and included a huge write-up about me.  Years ago I was mentioned in the Wall Street Journal, but this is the biggest publication I’ve been in otherwise and it’s an honor to receive the recognition.

The article talks about self-funding a business, without taking on venture capital or other debt, and mentions my opinion on the issue:

“What surprises him still is how much money he sees sloshing around in start-ups. “I look at some of these sites that have received $10 million in funding and I wonder what they are doing with all of that money. I don’t need it. I do it slower. For me, being an entrepreneur is so much trial and error that I would rather make the mistakes in the lower dollar range than at the Super Bowl advertising level.” (Read my interview with Scott Wainner here.) …

…Both Wainner and Yalamanchi have created great businesses–great for their customers, their employees and for the economy. The world needs these kinds of boostrappers. Let’s hope the next U.S. president knows how much we need them, too.”

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6 Things Google Won’t Tell You

Part of being a successful business owner and running five large sites means that I don’t  blog for a living, hence the infrequent posts, though I do enjoy sharing what I’ve learned and hearing from you all as well.  Stay subscribed and every now and then I’ll try to make it worth your while!

1) Embedding adsense ads within a content list on a page is a no-no (but often a profitable no-no). If you’re doing it, stop doing it and play nice if they give you a wrist slap.  Don’t make Google mad.

2) Chitika Premium ad units might outperform Adsense, so test them.

3) Matt Cutts has no poker face and answers questions with his facial expressions.  Go to conferences and ask him anything; he’s very nice and approachable.  He won’t give you an answer verbally, but you’ll still get a decent answer nonetheless.  Don’t get me wrong, Matt is a great guy, but us Internet entrepreneurs have to latch onto any helpful tidbits we can get!

4) Adsense placements with pretty, colorful backgrounds don’t work!  They look too much like annoying banner ads! #0000FF links, #FFFFFF backgrounds, no borders, people!  A/B test red links though.

5) There are out of the box ways to implement great SEO techniques without paying expensive consultants or trying to keep up with all the latest SEO techniques yourself. vBSEO is a great SEO product for vbulletin forums.  After implementing it at TechIMO.com, our traffic doubled within 3 months and continues to grow rapidly.  Also implement their Google sitemap tool.

6) Google.com’s new search suggestion is a great SEO keyword research tool.  Type a keyword, and a box will appear with suggestions - the keywords are ranked from most to least searched.

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U.S. Lagging World in Highspeed Rail

I’m in France this week, and took the TGV train from Paris to Lyon today. That’s a distance of 290 miles, covered in 2 hours, at an average speed of 144 mph. If you want to see what it’s like to go 144 mph in a train, check out my video below. It’s so smooth, you can’t even feel the train start and stop and it feels like you are riding on a cushion of air. It’s extremely quiet, and you can sleep like a baby - the only thing that will wake you is the conductor announcing, “tickets please”. I think if more Americans experienced this, we’d all demand that the TGV be brought to the U.S. and soon. Being able to hop on a rocket between cities without hassling with the airlines is oh so refreshing.

Since 1981, the TGV has carried 1.8 Billion people without a single fatality.

TGV Paris to Lyon, 144+mph (note the cars doing 70+ on the highway):

As a business traveler, I want to get from A to B cheaply and quickly. Flying from San Francisco to Los Angeles takes about 2 hours when you factor in airport delays. Now, if you dropped France’s TGV into California, it would take 2.5 hours, probably cost less, pollute far less / less energy / cost less to operate (the TGV is electric!), I wouldn’t have to deal with major security/weather/ATC delays, and I’d be able to work from the train with my laptop and EVDO Internet access. I still can’t believe that in 2008, we can’t get Internet access on airlines (though it has been tried on a small scale).

Highspeed rail has been tried on the east coast with Amtrak’s Acela, but that train has had its share of problems, plus it’s slow (75mph-150mph) compared to Europe trains like the TGV (200mph+). The engineers of Acela botched the design, creating the trains too wide, limiting their top speed. California is planning high speed rail and finalized a high speed route this month, but again, they’re planning to design the system from scratch. Why reinvent the wheel and create a buggy new system (e.g. like Acela) when a tried and true design exists in Europe that carries thousands of daily commuters around Europe, on-time, and very efficiently?

With gas prices being what they are, airlines raising prices and having financial troubles, and climate change at its worst, it’s time to look at this energy efficient alternative that other countries have embraced for years.

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However Tempting, Don’t Burn Your Bridge

Building a new business into a success takes time, effort, and dedication.  Those words, by themselves, don’t begin do justice to the level of hardship that nearly all successful entrepreneurs must endure along the way (including myself).  There are setbacks, people do say “no”, and you run into a lot of roadblocks along the way, all of which can leave you frustrated.  But what you definitely don’t want to ever do is to vent those frustrations onto your peers or onto those people who could end up being business allies and partners some day.

I received an email tonight from James Wilcox of portfolio.wilcox-studios.com, asking me to donate a prize for a contest on his blog.  Being the open minded guy that I am, I thought I’d check out his blog and consider sponsoring his contest.  Lo and behold, the first post on his blog talks about how he wrote the “biggest bloggers on the planet” asking them to donate prizes which “amounts to little more than peanuts in their pocketbook”.

He goes on to say, “In short, these Mega Bloggers both said they didn’t have it in their budget to donate anything. I mean nothing. Not an ad spot on their blog…nada…zip. I guess the 14,000 visits from 4230 unique visitors isn’t worth the time of day for these guys (one who’s real name I still don’t know, even though he sent me $400 paypal for my iPod Touch, which Incidentally wasn’t Free…I had to pay $99 USD for.) I never mentioned that to him, but since he is now apparently too cheap to donate any kind of prize, I felt obliged to mention.”

And my favorite, “I don’t think there is any credence to what either of these blogging juggernauts has to say anymore because, unless I am serving their interest, they could care less about me or any other fledgling blogger. They do what they do because it continues to make them money. For the most part it’s the same tired song and dance every day and I just don’t buy it anymore.”

I’m not sure if he didn’t think “these blogging juggernauts” would bother to read his post or what, but I did, and I think I’ll pass.  First off, James, your concept of wealth is warped and you have an inflated sense of self importance.  If someone like John Chow who earns six figures from their blog declines to sponsor you, thank them for their time and walk away.  Don’t (publicly or otherwise) blast them as being cheap, or as being too dumb to see what a great opportunity sponsoring your blog would have been.  They’re not dumb, or they wouldn’t be earning six figures, so clearly they had the good sense to analyze the opportunity and decided to pass.  As for the donation “amounting to little more than peanuts in their pocketbook”, that’s not a call for you to make.  Every entrepreneur, successful or not, has to decide where to spend money and how much to spend.  If they spent all their money, they’d have nothing left.  If they gave money to every guy like yourself who asked for it 24/7, they’d have nothing left.  They have to make choices.

This may be a bold example, but I see this kind of thing all the time where someone will be angry, they’ll blast someone out of frustration, and then end up burning their bridge with that person forever! Some day, John Chow might read an interesting post on James’ blog and consider linking to it, but then he’ll think back, “oh that was the guy that called me cheap - forget him”. The key to success is to bite your tongue and don’t assume that you won’t ever need anything from that person again in the future.

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Web Hosting Fees Drop Over Time, Take Advantage

If you started leasing a dedicated server a year or more ago and have just been paying the bill at the same monthly rate, you’re overpaying.   Your server is now based on old technology, and I virtually guarantee you that your host charges less per month now for that same hardware than it did when you began leasing the server.  The trick here is simple: ask your host to adjust your monthly rate down to the current fee!  I have done this dozens of times and it always works.  Most hosts would rather keep you as a customer at a lower rate, than have you leave to find a cheaper solution.  Plus, they realize that you could always just cancel your current server, sign up with a new server, and move your data over, to take advantage of the new lower rates.

If your host doesn’t comply with this request, consider a different host.  The Planet has always been good about this and they are a solid host.

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