Earlier this week, the Wall Street Journal reported that Go Daddy Group has hired investment bank Qatalyst Partners to facilitate a sale of the company. According to the always anonymous “sources familiar with the matter,” Go Daddy’s 2009 revenues were approximately $800 million, and the company is expected to fetch over $1 billion at auction. So the immediate follow up question becomes – who’s the buyer?

In addition to their 43 million domains under management, Go Daddy also has a very large shared hosting business. Accordingly, they may attract bids from some of the large shared hosting companies – The Planet, HostGator, 1and1, and others. Yahoo may bid as well, given that they already have a significant shared hosting and domain registration presence. I don’t expect much interest from the likes of RackSpace, Equinix, or Savvis due to their concentration on enterprise customers. Besides the obvious interest Go Daddy will receive from private equity firms (perhaps in partnership with any of the above), I want to propose an alternate, dark horse scenario – what would it look like if Google bought Go Daddy? I think it breaks down like this:

Google Immediately Controls Nearly 50% of Domains on the Internet

As mentioned above, Go Daddy currently has 43 million domains under management. There are only about 100 million domains on the internet in total, meaning that Go Daddy controls nearly 50% of the entire market. If Google acquired Go Daddy, the combined company would wield significant power and control over the domain name system, in addition to the considerable influence Google already has over the internet in general. This would allow Google to exert control over the direction of the internet infrastructure as it evolves, which could be interesting as far as inserting contextual ads into error pages, guiding the creation of new top level domains, and generally steering the evolution of the internet to be more search-focused overall.

Google’s Search Algorithm Gets a Lot Smarter by Leveraging Go Daddy Domain Ownership Data

Go Daddy already owns a patent describing “a method for presenting search engine results based on domain name related reputation data”. Imagine a spammer that owns a ring of 1,000 domains that all link to each other and distribute spam emails. Google is now able to recognize the common ownership and modify their search algorithm accordingly – search rankings for spam sites drop like rocks. Similarly, Google is able to examine domain billing data from Go Daddy and allow domains registered to legitimate businesses to rise to the top. Powerful stuff.

Google Gains a Killer “Business in a Box” Product Set

The combination of Go Daddy’s hosting and domain registration businesses with Google’s core search and SaaS products (GMail, Google Docs, etc) raises some interesting possibilities. Suppose Google offered a bundle that included a domain, basic shared hosting, Google Apps for Your Domain (GMail, Calendar, Docs, etc), a Google Voice phone number, and Google Checkout e-commerce. This is a step beyond their existing Google Sites product in that it offers a fully capable hosting environment with applications, rather than just basic WYSIWYG web design. It’s a business in a box, run entirely on Google’s infrastructure.

Google Leverages the Google Apps Suite to Create a New Paradigm – Applications as a Service

Now let’s take it one step farther. Imagine that Google exposed a robust Google Apps API to all of their hosted customers. So from your company’s hosting account, you could have a mailing list that is sent out through GMail, release a presentation for download through Google Docs, and expose a video for streaming on YouTube – all programmatically. You could do all of this without running any kind of mail server, file server, or video streaming server in your own environment. Everything would all be handled via API on an “as a service” basis, with capacity spun up and down as requested. This is similar to the scalable “cloud” hosting model that becoming so prevalent today (see VMWare, Amazon EC2, etc) – except that the scaling occurs at the application level (GMail) rather than the infrastructure level (the hosting account). Call it the next evolution after software as a service (SaaS) — applications as a service (AaaS). A customer’s hosting infrastructure hosts only the “brain”, everything else is run, scaled, and maintained as a separate application.

So suddenly, by coupling cheap/free hosting with its robust and scalable Apps universe, Google has created shared hosting on steroids. Each hosting account needs only to be powerful enough to serve pages, not run applications. It’s scalable, cloud-enabled IT infrastructure in a box, with all the heavy lifting abstracted away – a killer product. If the platform were easy to deploy and seamlessly scalable, it would send shock waves through the hosting and IT industries.

Go Daddy’s Parked Domains Are an Excellent Platform for AdSense

People often forget that at the end of the day, Google is an advertising company. Almost 90% of Google’s revenue comes from CPC ads on Google.com and AdSense partner sites across the web. Many of Go Daddy’s millions of parked domains are currently monetized through their CashParking program, though Google does offer AdSense for Domains. There may be opportunities for Google to increase revenue by consolidating the two programs and making AdSense installation a one-click process for parked domains.

Summary

Of course all of the above are no cakewalk to pull off, and there are 101 other reasons that Go Daddy is a tough pill for Google to swallow. However, if Google does come out of left field to snatch up Go Daddy, I think there are some extremely interesting ways to productize domains and basic web hosting in combination with Google Apps. I believe there’s a lot of power in offering the entire internet “stack” (domain, DNS, infrastructure, software, applications) in a neat package tied with a bow. Go Daddy would also further increase Google’s already broad influence over the structure and direction of the internet in general. Combined with increased reach for AdSense and the enhancements domain ownership data could bring to the search algorithm, Go Daddy starts to look like a very strategic acquisition for Google. I’m not saying it’s likely or even probable, but you read it here first.

Note: All of the views and opinion in this post are entirely my own and in no way reflect the views of my employer Hosting.com, our investors at Pamlico Capital, or any inside information of any kind. The above is purely speculation. Hat tips to Scott Taylor, Erik Vanthilt, Mike MacMillan, Andrew Forrest, and Will Nathan for batting this idea around with me.

My younger brother just graduated from college this year and is getting settled into a new job, life on his own, and financial independence. Along with his first paycheck, he’s also been bombarded with a lot of new financial choices and a lot of acronyms (IRA, 401k, etc). Everyone knows they should be saving money, but the reality is that nobody ever tells you exactly how to go about it short of stuffing cash under your mattress. This post isn’t going to be an in depth discussion of what stocks to buy or how much of your net worth to put in bonds – rather, I want to focus on the mechanics of how to organize your finances as a single, newly independent young adult in order to set yourself up for prosperity and success.

The 401k

Ah, the first decision you’re going to have to make – how much of your paycheck do you want to allocate into your 401k? The most important thing to know about a 401k is that any money you contribute is “pre-tax”, meaning that it is taken out of your paycheck before taxes are calculated. This is the first way a 401k gives you “free” money – you’re able to sock it away before the government takes a cut. The second way a 401k gives you free money is an employer match. Policies vary among companies, but most offer a match of some kind, up to a certain percentage of your salary. Always, always contribute enough to your 401k to receive the full matching amount that your employer offers – this is literally money in your pocket as an incentive to save. After you’ve received the full employer match, it’s my advice that you don’t contribute anything further to your 401k right now. I’ll explain why in a minute.

Once you’ve got some money in your 401k, you’ll be asked what type of fund you wish to invest it in. You’ll have a lot of options, but your best bet is to select a “target retirement fund”. Add 40 years to the current date, and that’s roughly the year you should hope to retire. These target retirement funds will automatically keep you in equities while you’re young for maximum return, while gradually shifting to bonds for income and protection as you age. Set it and forget it. One thing to be sure of: make sure your 401k is invested in a broad-based fund, not exclusively in the stock of your employer. That’s a lot of eggs in one basket – just ask anyone that spent their career at Wachovia or Bear Stearns.

The Roth IRA

So now you’ve saved a few percent of your paycheck in your 401k (just enough to receive your employer match), but you still have some extra cash remaining that you can afford to lock away for retirement. Your next option is an account called a Roth IRA. Contributions to a Roth IRA are “post-tax”, meaning they come out of your wallet after you’ve already paid income taxes to the government. However, the big benefit to a Roth IRA is that once you’ve contributed, your money grows tax free, forever. That means when you retire, you can withdraw the full amount without paying a dime of taxes on the money you contributed OR on your capital gains. That means you never pay any taxes on all the compounded interest your money made you over the years. And after 40 years of compounding, that’s significant.

You can open a Roth IRA with nearly any investment company (Fidelity, Charles Schwab, TradeKing, and many more), though it may be easiest to use whichever company your employer uses to administer your 401k. There are two major rules regarding Roth IRAs – 1.) You may contribute a maximum of $5,000 each year. You can do this all at once or over the course of the year, but your total contributions may not exceed $5,000. And 2.) You may only contribute to a Roth IRA if you make less than $105,000/year. While this may not be an issue for you now, it hopefully will be in the future, so get those contributions in while you can so they can grow tax-free over the course of your career.

In order to contribute to your Roth IRA, write yourself a check and mail it to your investment company; they will deposit it in an account in your name. The best way to do this is to mail in a check for $416.66 each month ($5,000/12). This will help you in your budgeting, and also keep you disciplined.

Your Checking Account

Speaking of writing checks, now that you’ve contributed to your 401k and Roth IRA, it’s time to make sure you have some “walking around money”. For that, you’ll need a checking account. A checking account provides you with quick, easy access to your money through ATMs, checks, and a debit card. This is the money you’ll use to pay your rent, cover your tab at happy hour, and buy that electric guitar you’ve always wanted.

You can get a checking account from any bank in the country, but far and away the best choice is Charles Schwab Investor Checking. Their two most attractive account features are 0.5% interest (compared with 0% at most banks) and unlimited, free use of any ATM in the world. I can’t stress this second point enough – no more wandering around town to find a specific bank’s ATM, no more paying a $3 “convenience fee” at the gas station. It’s all free, anywhere, all the time. I want mention that I’m not paid by Schwab and that’s not a referral link. I just think they’re awesome (and have been a customer for 4 years myself).

Once you’ve got your checking account open, set up direct deposit with your employer. They’ll drop your paychecks directly into your checking account, and you won’t need to worry about cashing checks every 2 weeks.

So now that the money is streaming in, should you just let it pile up in your checking account? My advice is to keep about $5,000 in your checking account for day-to-day use and personal spending, and get the rest out of there so it’s mentally earmarked for saving or a rainy day. So where should you put any left over money after your 401k and Roth IRA are maxed out, and you have $5,000 in your checking account?

Investing in Mutual Funds and Stocks

If you still have money left over, it’s time to think about investing in individual stocks or mutual funds. Lots of people that are smarter than me (and many who are not) have written miles of text on which stocks and funds you should and shouldn’t buy (caveat investor), so I’ll avoid telling you what to buy and focus on how you buy it.

You’ll need a brokerage account. As with your checking account, there are countless firms that can give you what you need here, but be aware of fees. If you’re only investing a few thousand dollars, commissions can significantly eat into your profits. That’s why I want to make another recommendation – use TradeKing as your broker. Commissions are only $4.95 per trade (the lowest I’ve found anywhere), and they’ll let you trade stocks, options, and mutual funds. Again, they’re not paying me a dime – I just genuinely think they’re the best option.

Once you transfer some money into your brokerage account, it’s time to buy some stocks. Pick up the Wall Street Journal, read the news, and educate yourself – this is a good chance for you to start to learn about investing while the stakes are relatively low. Think long term – remember, you’re investing not trading. Be aware of capital gains tax laws – any profits from a position you hold for under 1 year are taxed as normal income at your normal tax rate (which could be as high as 30%). But if you hold a position for longer than a year, you pay only the long term capital gains rate of between 0% and 15% (depending on your tax bracket). So keep that in mind when you’re tempted to trade quickly in and out of stocks.

If you don’t have the time, knowledge, or inclination to pick individual stocks, you can use your TradeKing account to purchase nearly any of Vanguard’s 100+ index funds – all you need are their tickers, which you can find and research on Vanguard’s site here. While everyone’s investment objectives are different, if you want a set it and forget it index fund, take a look at VEIPX, VDEQX, VWINX, or VGSTX.

In Summary

So there you have it – a complete blueprint to getting organized financially in the real world. Let’s sum up the structure we’ve set up for you:

• 401k Contribution — Enough to receive your full employer match, no more (every paycheck)
• Roth IRA — $5,000 per year (one $416.66 contribution each month)
• Checking Account — Consistent $5,000 balance for every day expenses, direct deposit, free ATM use
• Brokerage Account — Any additional savings are invested in stocks or mutual funds for the long term

If you’re able to follow the blueprint I’ve laid out above, you will not only be able to sleep well at night knowing you’re doing the right things with your money, but also will have set yourself up with a framework to save responsibly over time and build wealth in the long term.

Note: I also cross-posted this guide last week over at Punch Debt in the Face, a great blog about personal finance and budgeting with awesome stick figure illustrations.

I used to use an RSS reader. Then I discovered Twitter and found a ton of new and interesting people to follow. Interesting people that posted interesting content. I quickly adopted Twitter as a way to find new content and began checking my feed reader less and less. Twitter’s RSS feeds are far too frequently updated to make sense in a feed reader, so I gradually abandoned RSS entirely and relied solely on Twitter to follow my friends and discover new content. Trouble was, if you weren’t on Twitter or weren’t tweeting your blog posts, it was hard for me to keep up with your content.

I also follow several Tumblr blogs, and occasionally publish some content of my own (shorter form than this blog, more thought out than Twitter). I really enjoy Tumblr because it makes publishing quick, easy, and beautiful. As a whole, Tumblr is a very slick way to publish and interact with other people’s content, but it’s a walled garden. Essentially, the Tumblr dashboard is a really pretty, social RSS reader – that only allows me to subscribe to a certain subset of blogs. There is no way to follow non-Tumblr blogs inside of Tumblr, so it only works as a centralized content hub if everyone publishes their content on Tumblr. Sure, each Tumblr blog has an RSS feed available, but Tumblr’s dashboard provides enough nifty social features and UI polish that I enjoy reading Tumblr blogs far more in the dashboard than in an RSS reader. So I continue to login to Tumblr – both to publish content and follow my friends.

And now we come to Facebook. Probably the most widely used sharing platform of all, my Facebook stream is chock full of status updates, vacation photos, relationship changes, and shared links from all the people I actually know in real life. This stream is obviously very valuable and very personal, so a quick check to Facebook is definitely a part of my daily routine.

So now I’m in trouble – I have three separate “streams” that I need to check to follow my friends (Twitter, Tumblr, Facebook) and I still have no way to follow anyone that creates using other platforms like WordPress, Blogger, or Posterous. So if you’re on one of those platforms, my only option is to stick your RSS feed into Google Reader. Before I know it, I’ve got a Google Reader account that is just as populated as my other streams.

So now, I have a stream of people on Twitter, a separate subset on Tumblr, my friends on Facebook, and I’m back to using Google Reader for everything else. I have to check 4 different places to follow all the content that is produced by my friends. Having to check all these separate streams is really asinine. Isn’t this the problem RSS was designed to fix?

I recently made a personal commitment to read more books, so I turned to the lengthy “Saved Items” cart on Amazon that I had been filling with friends’ recommendations for the past 18 months and ordered several titles. The first to arrive was Dr. Robert Cialdini’s fascinating and bestselling book “Influence: The Psychology of Persuasion”, which had been recommended to me by several friends, acquaintances, and subject matter experts, including Tim Ferriss, Guy Kawasaki, and Noah Kagan.

In is book, Cialdini (formerly a nationally renowned professor of marketing at Arizona State University) describes Six Principles of Influence which encompass every negotiation tactic and act of persuasion utilized in board rooms, living rooms and farmers markets the world over. That is to say, these are the six “puppet strings” that all of us tug at to gain compliance from those around us. They are vastly and widely applicable, from business negotiations to marketing to disagreements with your spouse. If you look closely, you’ll notice that all of us employ them every day to achieve our goals and influence those around us. Many of them are particularly applicable to entrepreneurs, so I’ve attempted to crystallize the essence of the six principles and share them below.

Cialdini’s Six Principles of Influence

1. Reciprocity

   The concept of reciprocation is pervasive in our society. It’s one of our established social rules – if someone does us a favor, we do them one in return. If someone invites us to a party, we put them on the list for our next gathering. It is a fundamental principle that has been ingrained in all of us since the earliest days of human society. It is the concept of reciprocity that allowed our ancestors to freely share food, skills, and protection with confidence that the resources would be returned in kind. The shared web of interdependency and obligation allowed for the division of labor and specialization of skills – reciprocity was truly an evolutionary advantage.

   Accordingly, it’s no surprise that our modern culture has socialized us all to carry a sense of indebtedness to those that help us first – the “Golden Rule”, Karma, and “Pay It Forward” are all reciprocal social concepts that are instilled in all of us from a very young age. We assign harshly negative labels to those that do not follow the cultural norm – mooch, freeloader, leech. It is no wonder that whenever another person does us a favor, we feel obligated to respond in kind. And so, our natural reactions can become a powerful influencer when exploited. Let me give an example.

   I experienced the reciprocity principle first hand this winter on a ski trop to Breckenridge. Our group pulled into the parking lot and began to unpack our equipment. As we did, a man approached and made a show of welcoming us to the mountain and complimenting our gear. He then handed out “free” Breckenridge wool hats to each one of us. After receiving our thanks, he quickly followed up the gifts with a request for a $10 donation to a charity he was representing. Three of the five in our group immediately ponied up, and the man went on to the next unsuspecting car. I later asked my friend what charity the man was representing. His response – “No idea, but hey – free hat!”

   The above is a perfect example of reciprocity in action – my friends felt compelled to donate to the man’s charity because they had first received the “free” hats, regardless of the nature of the charity’s work or whether they even needed or wanted a hat.

2. Consistency

   The consistency principle states that “Once we have made a choice or taken a stand, we will encounter personal and interpersonal pressures to behave consistently with that commitment. Those pressures will cause us to respond in ways that justify our earlier decision.” In layman’s terms, this means that once we have made a small commitment or statement (especially publicly), it becomes part of our self-identity. For example, if I can get you to make the statement “I love discovering new music” (and who doesn’t), you’ll be more than twice as likely to pull out your wallet when I then ask if you’ll buy my band’s CD. Because not buying the CD would be inconsistent with your previous assertion that you enjoy new music (a feeling known as cognitive dissonance), you feel compelled to purchase the album.

3. Social Proof

   Of all the six principles, I believe we experience and are influenced by social proof most strongly and most often. Social proof refers to the phenomenon that we are far more likely to do or believe something if we have seen others like us do or believe it first. Cialdini cities several studies in the book, including one that analyzed reclusive pre-school children. Researchers showed each reclusive child videos of other children their age observing a social activity, then actively joining into the activity. At recess the next day, the formerly isolated children immediately began to interact with their peers at a level equal to that of normal children in their schools. The principle of social proof illustrates that we often copy behaviors simply because if many others are doing something, we believe it must be the correct thing to do. The children in the experiment perceived that being social was the “normal” thing to do, and which gave them the courage to alter their own behavior. The principle of social proof is applicable to far more than elementary school behavior, and there are further examples in the book that examine social proof as an explanation for buying decisions, mass suicide, and traffic jams.

   Entrepreneurs also run head-long into the social proof principle when raising capital for the first time. Many venture firms are reluctant to invest until they hear that others have invested as well. If you’re able to secure a commitment from a big name VC firm like Sequoia or Khosla, you’ll probably not have much difficulty filling out the rest of your funding round. This is due to the principle of social proof – if others are willing to invest, it must be a good deal. Similarly, when you go to raise a second round of capital, any new investors will want to see participation from the firms that initially invested in your Series A. After all, if your original investors are unwilling to commit further capital, why should anyone new invest? This is often called “The VC Signaling Effect”, and has been discussed in depth by both Chris Dixon and Mark Suster.

4. Authority

   This one is fairly self explanatory – if someone in a position of authority commands you to perform a task, you are likely to comply. This was proved out in the now infamous and controversial Milgram Experiment. You can read the link for further detail, but essentially Milgram proved that despite moral objections and severe emotional distress, subjects were still willing to administer what they thought to be lethal electric shocks to others when commanded by someone in a position of authority. Milgram used his studies to explain the brutal actions of certain German soldiers during the Holocaust, committed despite stated strong moral objection by the soldiers themselves.

5. Liking

   This one seems obvious, but it’s very true – we tend to comply with requests from people who we like (friends, family, etc). Tupperware Corporation has exploited the liking principle to great success; each day thousands of people invite their friends over for tea and finger food, only to eventually ask them to purchase some Tupperware at the end of the party. By relying on the obligation we all feel toward those we like, Tupperware has built one of the largest direct sales organizations in history. In fact, Tupperware no longer sells in retail stores at all, relying almost solely on parties and the liking principle to generate over $2 billion in revenue each year.

   However, it’s not only your friends and relatives that can exploit the liking principle. The liking principle also encompasses arguably the most powerful persuasion method of all – attraction. An attractive, flirty stranger can create the same persuasive “liking” effect that your best childhood friends enjoy. That’s the reason nearly every pitchman, model, and TV commercial family is good looking, and all those Bud Light commercials feature women in bikinis. The more attractive the person trying to gain our compliance is, the stronger “liking” that they create, and better chance they have of persuading us. “Liking” is the principle that explains what Hollywood has known to be true for years – sex sells.

6. Scarcity

   “Hurry, supplies are limited! This deal won’t last! Call now!”

   How many times have you seen slogans like those above plastered on store windows or shouted by TV infomercial salesmen? Probably more than you can count, and it’s because of the scarcity principle. We are far more likely to agree to a request if we believe (falsely or correctly) that we will not have another chance in the future. Fear of losing an opportunity can be a very powerful motivator. It is generally true that things which are difficult to obtain are better than things which are easy to obtain – thus we are subconsciously conditioned to use scarcity as a proxy for higher value. Cialdini mentions a used car salesman that always made sure more than one interested buyer was present whenever he was selling a car. The competition increased anxiety in both buyers and made the car seem that much more attractive, which without fail increased the price the salesman got for the car.

Cialdini’s book provides far more detail on the above principles than I have included here, including numerous studies and examples ripped straight from current events that illustrate each principle in action. I’d recommend Cialdini’s book to any entrepreneur, product manager, or marketer, as well as anyone looking to be more persuasive in general. It’s an absolutely fascinating read.

I have begun to think and write about China more and more lately; there is such an incredible opportunity across the Pacific that seems largely unobserved by a majority of Americans. The Chinese economy and population base is so large and modernizing so rapidly, and has transformed from 3rd world to 1st world in a matter of decades (that same evolution took us hundreds of years here in America). As you can see in this chart from Google, China’s internet adoption has blown past the United States, both in terms of growth rate and sheer number of users. And they’re still at only 20% internet penetration. Mobile phone penetration is actually higher than internet penetration, approaching 60% depending on what study you read – that’s over 500 million mobile phones. This in itself is an interesting dynamic, as it seems that in China the mobile phone (rather than the PC) is the primary method of internet use and communication. As I understand it, this is a result of the relative difficulty and expense of getting a computer and home internet line installed – particularly in rural China, which does not yet have the widespread and developed communications infrastructure that we enjoy in the United States. Coupled with pervasive and cheap mobile phone service and a proliferation of advanced smart phones, the mobile internet has become the single point of connectivity for millions of Chinese. However you measure China’s growth, it doesn’t take an economist or venture capitalist to see that the pace of technological change, adoption, and transformation in China is unlike anything experienced in America or anywhere else.

I saw a statistic the other day that by the end of 2010 China will have more mobile internet users than there will be people in the United States. That’s staggering. There are countless companies with tons of VC hype and astronomical valuations climbing all over each other to try to capture even a sliver of the ~90mm user U.S. mobile internet market. And yet there is a Chinese market that is orders of magnitude larger and remains relatively unaddressed by America’s top online properties.

For example – Facebook has experienced tremendous user growth outside of the United States, adding almost 10 million global users in March 2010 alone. Below you’ll see a top 10 table of Facebook’s growth by country in March – millions of users were added in Asian countries like Indonesia and the Philippines, and according to Facebook nearly all of those new users access the service exclusively on mobile devices (wow). And yet despite the obvious resonance with Asian consumers, Facebook remains conspicuously absent from China due to a near total blockage by the Chinese government.

Not to say there aren’t very significant and well established Chinese social networking players (including Tencent Inc., which is debatably the largest social network in the world) but I just find the under representation and seeming indifference of so many American Web 2.0 properties to be surprising. So many of today’s startups seem laser focused on attacking the United States mobile market, and are at the same time so haphazard in their Chinese strategy.

I do understand that there are significant regulatory and cultural hurdles to clear when moving a U.S.-based service into the Chinese market. In addition to censorship and restrictions on foreign business ownership, there is no guarantee that a product that has been successful in the United States will resonate with Chinese consumers. Many of today’s social media and self publishing centric products and services simply aren’t workable in a country that does not allow the free flow of information or exchange of ideas that we enjoy here in America.

It seems that the swell of Chinese internet users (on mobile devices especially) are like a tsunami being held back by poor access to broadband and isolated by the dam of government censorship. Though there are millions of users already climbing over and around the dam (with things like proxy servers and other methods of circumventing the “Great Firewall of China”), I expect that the real wave will come over the next several years as the government finds it increasingly difficult to censor its citizens, and increased broadband penetration plugs more and more Chinese into the web. As China comes online in a bigger and bigger way, it’s going to be harder than ever for American startups and social media players to compete without confronting the tsunami head on.