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Silicon Valley Home Prices, Stock Prices & Bitcoin (2021)

/ Adam Nash

A little less than four years ago, I wrote a post about home prices in Silicon Valley and how they relate to stock prices and Bitcoin. It was one of the most popular posts on my blog from 2017.

The original compared housing prices in Palo Alto to a few of the largest technology companies in Silicon Valley, with Bitcoin added just for fun. Given the incredible rise in technology stock prices and Bitcoin in the past few years, it seemed worthwhile to update the data in the original post.

Talking about home prices in Silicon Valley is always a sensitive topic, because the lack of affordable housing continues to be a both difficult and heavily political topic. As someone who grew up here, it seems painfully obvious that the primary problem is the overwhelming resistance of local city councils to approve housing unit construction that meets ever increasing demand.

This post isn’t about that issue.

Instead, this is an attempt to look at the housing market through another lens. Most financial estimates of housing cost tend to compare the price of housing to incomes, which makes sense since for most people in most places, the affordability of a home is directly related to the size of the mortgage that they can obtain for that home. In general, houses are purchased based on income, not assets.

In Silicon Valley, of course, income looks a bit different since many people in Silicon Valley work for technology companies, and most technology companies compensate their employees with equity.

Palo Alto Home Prices

I chose Palo Alto as a proxy for Silicon Valley home prices because it is historically “ground zero” for Silicon Valley tech companies, and it has relatively close proximity to all of the massive tech giants (Apple, Google, Facebook).

The original post started the data sets in June 2012, since this was roughly when Facebook became a public company. For this post, I’ve extended the data sets all the way to March 2021.

All housing prices have been sourced from Zillow. All stock prices have been sourced from Yahoo Finance, and reflect the price adjusted for dividends. All Bitcoin prices have been sourced from Investing.com.

This is what Zillow looks like today for Palo Alto:

As you can see, in June 2012, the average Palo Alto home cost $1.44M. Roughly five years later, in June 2017, that average price was up 84.6% to $2.55M. Now, in March 2021, that price has risen a total of 117.9% to $3.15M.

That’s certainly a much faster increase than any normal measure of inflation, whether looking at changes in prices or wages. But what happens if we look at those increases in comparison to the stocks of some of the largest technology employers in Silicon Valley?

Apple ($AAPL)

Apple is the most valuable public company in the world right now, measured by market capitalization ($2.023 Trillion as of March 18, 2021), and second most profitable ($55.256B in 2020). Thanks to their exceptional financial performance, Apple stock ($AAPL) has increased significantly since June 2012, rising (split-adjusted) from $18.79 per share to $124.76 in March 2021. That’s a gain of over 565.8%.

Wow. 😳

Let’s look at Palo Alto home prices as measured in dollars, and then let’s look at them in comparison priced in shares of $AAPL.

This chart tells a very different story than the one from 2017.

In the five years from June 2012 to June 2017, Apple stock was volatile, but over the entire time period almost exactly matched the growth in Palo Alto home prices. However, the run up since 2017 has been incredible.

Split-adjusted, it took 76,839 shares of $AAPL to purchase the average home in Palo Alto. By March of 2021, that number had dropped to only 25,216 shares.

This isn’t surprising, since Palo Alto home prices are only up 117.9% over that time period, and Apple shares are up 564%. But what this means from a practical viewpoint is that for people converting one asset (Apple stock) into another (Palo Alto housing), it has become easier, not harder, to purchase the average home.

Google ($GOOGL)

Google tells a similar story to Apple in 2021, even though that wasn’t the case in the original post. Since 2017, Apple stock has clearly outperformed Google, leaving them with almost identical price increases from June 2012. (By itself, that’s somewhat of an amazing fact given the relative ages of the two companies).

As of March 2021, Google has a market capitalization of $1.37 Trillion, significant less than Apple’s. However, they have seen price appreciation of 557.3% since June 2012, rising from a split-adjusted $316.80 per share to an amazing $2,082.22 per share in March 2021.

Let’s look at Palo Alto home prices as measured in dollars, and then let’s look at them in comparison priced in shares of $GOOGL.

If you compare this chart to the one for Apple, it tells a different story but has a similar ending. Google shares are clearly more volatile than Palo Alto housing, but they have fairly consistently appreciated over the past decade.

In June of 2012, it would have taken 4,557 shares of Google stock to purchase the average home in Palo Alto. By March 2021, that number had dropped to only 1,511 shares.

So while Palo Alto home price appreciation has been tremendous by any historical measure, Palo Alto housing has become cheaper in the past decade for people holding Google stock, and more expensive for people holding dollars.

Facebook ($FB)

Facebook, the youngest of the massive tech giants, already has one of the largest market capitalizations in the world. As of today, Facebook is valued at $793.4 Billion. Facebook stock has risen an incredible 1208.2% since June of 2012, from a price of $21.71 per share to a price of $284.01 in March 2021.

At this point, you know how this story goes. With growth of over 1200%, Facebook stock goes a lot further in 2021 than it did in 2012, even against daunting Palo Alto housing prices.

In June of 2012, it would have taken 66,500 share of Facebook to purchase the average home in Palo Alto. By March of 2021, that number was down to just 11,077 shares. Quite incredible.

Bitcoin ($BTC)

While I realize that Bitcoin isn’t a large employer in Silicon Valley, nor is it a stock, the original idea for this post came from a joke I made on Twitter back in 2017.

Most of you likely already know the story here. Bitcoin price appreciation in the past 12 months has been unbelievably high, so looking back to June 2012 is going to be somewhat jarring.

In June of 2012, the price of Bitcoin was about $9.40. By March of 2021, it had risen to $57,326.20. That’s a gain of over 609,753%.

The growth rate in Bitcoin prices, as measured in US dollars, has been so incredible, this chart is almost impossible to read in recent years.

For context, in June of 2012, it took about 153,586.2 Bitcoin to purchase the average home in Palo Alto. By March of 2021, that number had dropped to just 54.9 Bitcoin.

This, of course, has a number of dramatic implications. As measured in US dollars, or in real assets like Palo Alto real estate, the wealth of Bitcoin holders has increased dramatically. As measured in US dollars, the average price of a house in Palo Alto has increased by 117.9% in less than 10 years. However, as measured in Bitcoin, the average price of a house in Palo Alto has decreased by 99.96%.

There aren’t many people who invested in Bitcoin back in 2012, but a disproportionate number of them were in Silicon Valley. However, even based on recent numbers, the story is similar.

In March of 2019, you could have purchased the average house in Palo Alto for 702.0 Bitcoin. Just two years later, in March 2021, the average house in Palo sold for 54.9 Bitcoin. That means the average home in Palo Alto, as measured in Bitcoin, has decrease by 92.2% in just the past two years alone.

Silicon Valley Is Seeing Significant Asset Inflation

These charts are not meant to imply direct causality, but in many ways they confirm several economic facts about Silicon Valley that may not be obvious when looking at nationwide statistics.

Because technology employers in Silicon Valley compensate most employees with equity, it is very likely that asset inflation in stock (and crypto) markets has some impact on the housing market. This is likely exacerbated by the lack of new housing construction in Silicon Valley.

The fact is, if you are fortunate enough to have equity in one of the tech giants, or if you have been an investor in Bitcoin, houses might actually look cheaper in 2021 than they did in 2012, or even in 2020.

What is most surprising about the data refresh is the apparent detachment of equity and crypto prices from the prices of Palo Alto real estate. There are a number of potential reasons why this might have happened. One theory is that real estate markets move relatively slowly compared to equities and crypto, and so the rapid price increases of 2020 have not yet worked their way into the market. A second theory is that large technology company compensation has been shifting away from stock options to RSUs, leading employees to hold less stock as they convert their shares to cash on vesting. A third theory is that we’re seeing complicated effects from COVID, as windfall money from equity and crypto markets may be flowing into other places rather than local real estate.

(Before the San Francisco crowd gets too rowdy, there is absolutely no evidence yet that more money is flowing into San Francisco real estate instead of Palo Alto this cycle.)

In any case, whatever the reasons may be, it is always worth checking the actual data to see whether it confirms or contradicts our intuition.

Let’s check back in another four years.

 

Silicon Valley Home Prices, Stock Prices & Bitcoin

/ Adam Nash / 3 Comments

I’m writing this post with a bit of trepidation, because talking about Silicon Valley home prices these days is a bit dicey. The surge of the last five years has been shocking, and almost no one I know feels good about how difficult it is for people to buy a new home in Silicon Valley in 2017. Some houses are pretty bad but others arae actually at a reasonable price, because they come with furniture and some even come with shutters from plantation shutters installation Sydney. They are actually really good quality.

So if you need a trigger warning, this is it. Stop reading now.

The truth is, as shocking as the rise in Silicon Valley home prices has been, there has also been an asset boom in other dimensions as well. Total compensation for engineers is up considerably and stock prices at the big tech companies continue to rise.

To visualize this, I thought I’d put together a few charts based on real market data. As a proxy for Silicon Valley, I pulled the last 5 years of home prices from Zillow, and monthly stock price data from Yahoo.

Palo Alto Home Prices

Two days ago, the Mercury News reported that a home in Palo Alto sold for $30 million.  A quick check on Zillow seems to confirm this.

I chose Palo Alto as a proxy for Silicon Valley home prices because it is historically “ground zero” for Silicon Valley tech companies, and it has relatively close proximity to all of the massive tech giants (Apple, Google, Facebook).

I picked June 2012 – June 2017, not only because it is roughly five years, but also it also happens to mirror the time that Facebook has spent as a public company. For many in the local real estate market or online sites as SafeguardProperty.com, correctly or incorrectly, the Facebook IPO still looms as a transformational event.

As you can see, in June 2012 the average Palo Alto home cost $1.38 million. Five years later, the estimate for June 2017 is up 84.6% to $2.55 million.

Apple (AAPL)

Apple is the most valuable company in the world, as measured either by market capitalization ($810B as of 6/7/2017) or by profitability ($45.7B in 2016).  Thanks in part to this exception financial performance, Apple stock (AAPL) has risen 84.5% in the last five years, from $83.43 per share to $153.93 per share.

84.5%? Where have I heard that number before?

That’s right, the increase in Apple stock over the last five years is almost exactly the same increase as the average home price in Palo Alto over the same time period.

In June 2012, it took 16,555 shares of Apple stock to purchase the average Palo Alto home. In June 2017, it took 16,566 shares. (Of course, with dividends, you’re actually doing a little better if you are a shareholder.)

If you look at the chart, the pink line shows clearly the large rise in price for the average Palo Alto home. The blue line is the number of AAPL shares it would take to by the average Palo Alto home in that month. As you can see, AAPL stock is volatile, but five years later, that ratio has ended up in almost the exact same place.

Alphabet / Google (GOOG)

Alphabet, the company formerly known as Google, may not be as large as Apple in market capitalization ($686B), but it has seen far more share appreciation in the past five years. Since June 2012, Alphabet has seen its stock price rise 240.4%, from $288.95 in June 2012 to $983.66 per share.

What does this mean? Well, it means that if you have been fortunate enough to hold Google equity, the rise in Palo Alto home prices doesn’t look as ominous. It took 4,780 shares of Google to purchase the average Palo Alto home in June 2012, but it only took 2,592 to purchase the average Palo Alto home in June 2017.

Facebook (FB)

Facebook, the youngest of the massive tech giants, already has one of the largest market capitalizations in the world. As of today, Facebook is valued at $443B. Facebook stock has risen 394% in the past five years, from $31.10 in June 2012 to $153.63 in June 2017.

To state the obvious, it has been a good five years for owners of Facebook stock. Not many assets could make owning Palo Alto real estate look slow, but 394% growth in five years is unbelievable. In June 2012, you would have needed 44,412 shares to buy the average Palo Alto home. In June 2017, that number had dropped significantly to just 16,598 shares.

Bitcoin (BTC)

While I realize that Bitcoin is not a stock, the original idea for this post came from a joke I made on Twitter recently given all of the buzz about Bitcoin, Ethereum and ICOs over the past few weeks.

I couldn’t resist running the numbers.

For the small number of readers of this blog that haven’t been following the price of Bitcoin, the increase in value over the past five years has been unbelievable.The total value of all Bitcoin outstanding is currently about $44.5B. Since June 2012, Bitcoin has risen approximately 4,257%, from $6.70 per Bitcoin to a current value of $2,858.90.

You can see why there has been so much buzz.

In June of 2012, it would have taken 260,149 Bitcoin to buy the average home in Palo Alto. In June of 2017, that number is now down to 892.

Needless to say, anyone who sold Bitcoin to buy a house in 2012 is likely not loving these numbers. But to people who have held Bitcoin for the past five years, Palo Alto is looking cheaper by the day.

Silicon Valley Is Seeing Significant Asset Inflation

To be clear, I’m not attempting to attribute causality to these charts. I believe the real driver of home prices in Silicon Valley is the lack of sufficient building of new supply at pace with the economy, combined with a significant increase in compensation for technology employees and historically low interest rates.

But the fact is, if you are fortunate enough to have equity in one of the tech giants (or in Bitcoin), houses might actually be looking cheaper now relatively than they did five years ago.

I always find it enlightening to look at real data and compare it to intuition. Hope you find this data and these charts as interesting as I did.

Google vs. The Teamsters

/ Adam Nash / 15 Comments

Yesterday, Google launched Chromecast, a streaming solution for integrating mobile devices with TV, part of another salvo against Apple.  Google vs. Apple has been the hot story now in Silicon Valley for a couple of years.  Before that, Google vs. Facebook.  Before that, Google vs. Microsoft.  Technology loves narrative, and setting up a battle of titans always gets the crowd worked up.

Lately, I’ve been thinking about the next fight Google might be inadvertently setting up, and wondering whether they are ready for it.

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Self-Driving Cars or Self-Driving Trucks

It turns out I’m not the only one who noticed that Google’s incredible push for self-driving cars actually has more likely applications around trucking.  Yesterday, the Wall Street Journal wrote an excellent piece about Catepillar’s experiments using self-driving mining trucks in remote areas of Australia.  It had the provocative headline:

Daddy, What Was a Truck Driver?

This is the first piece in the mainstream media that I’ve seen connecting the dots from self-driving cars to trucking, even with a lightweight reference to the Teamsters at the end.

Ubiquitous, autonomous trucks are “close to inevitable,” says Ted Scott, director of engineering and safety policy for the American Trucking Associations. “We are going to have a driverless truck because there will be money in it,” adds James Barrett, president of 105-rig Road Scholar Transport Inc. in Scranton, Pa.

The International Brotherhood of Teamsters haven’t noticed yet, or at least, all searches I performed on their site for keywords like “self driving”, “computer driving”, “automated driving”, or even just “Google” revealed nothing relevant about the topic.  But they will.

Massive Economic Value

The statistics are astonishing.  A few key insights:

  • Approximately 5.7 million Americans are licensed as professional drivers, driving everything from delivery vans to tractor-trailers.
  • Roughly speaking, a full-time driver with benefits will cost $65,000 to $100,000 or more a year.
  •  In 2011, the U.S. trucking industry hauled 67 percent of the total volume of freight transported in the United States. More than 26 million trucks of all classes, including 2.4 million typical Class 8 trucks operated by more than 1.2 million interstate motor carriers. (via American Trucking Association)
  • Currently, there is a shortage of qualified drivers. Estimated at 20,000+ now, growing to over 100,000 in the next few years. (via American Trucking Association)

Let’s see.  We have a staffing problem around an already fairly expensive role that is the backbone of a majority of freight transport in the United States.  That’s just about all the right ingredients for experimentation, development and eventual mass deployment of self-driving trucks.

Rise of the Machines

In 2011, Andy McAfee & Erik Brynjolfsson published the book “Race Against the Machine“, where they describe both the evidence and projection of how computers & artificial intelligence will rapidly displace roles and work previously assumed to be best done by humans.  (Andy’s excellent TED 2013 talk is now online.)

The fact is, self-driving long haul trucking addresses a lot of the issues with using human drivers.  Computers don’t need to sleep.  That alone might double their productivity.  They can remotely be audited and controlled in emergency situations.  They are predictable, and can execute high efficiency coordination (like road trains).  They will no doubt be more fuel efficient, and will likely end up having better safety records than human drivers.

Please don’t get me wrong – I am positive there will be a large number of situations where human drivers will be advantageous.  But it will certainly no longer be 100%, and the situations where self-driving trucks make sense will only expand with time.

Google & Unions

Google has made self-driving cars one of the hallmarks of their new brand, thinking about long term problems and futuristic technology.  This, unfortunately, is one of the risks that goes with brand association around a technology that may be massively disruptive both socially & politically.

Like most technology companies in Silicon Valley, Google is not a union shop.  It has advocated in the past on issues like education reform.  It wouldn’t be hard, politically, to paint Google as either ambivalent or even hostile to organized labor.

Challenges of the Next Decade

The next ten years are likely to look very different for technology than the past ten.  We’re going to start to see large number of jobs previously thought to be safe from computerization be displaced.  It’s at best naive to think that these developments won’t end up politically charged.

Large companies, in particular, are vulnerable to political action, as they are large targets.  Amazon actually may have been the first consumer tech company to stumble onto this issue, with the outcry around the loss of the independent bookstore.  (Interesting, Netflix did not invoke the same reaction to the loss of the video rental store.)  Google, however, has touched an issue that affects millions of jobs, and one that historically has been aggressively organized both socially & politically.  The Teamsters alone have 1.3 million members (as of 2011).

Silicon Valley was late to lobbying and political influence, but this goes beyond influence.  We’re now getting to a level of social impact where companies need to proactively envision and advocate for the future that they are creating.  Google may think they are safe by focusing on the most unlikely first implementation of their vision (self-driving cars), but it is very likely they’ll be associated with the concept of self-driving vehicles.

I’m a huge fan of Google, so maybe I’m just worried we may see a future of news broadcasts with people taking bats to self-driving cars in the Google parking lot.  And I don’t think anyone is ready for that.

User Acquisition: Mobile Applications and the Mobile Web

/ Adam Nash / 8 Comments

This is the third post in a three post series on user acquisition.

In the first two posts in this series, we covered the basics of the five sources of traffic to a web-based product and the fundamentals of viral factors.  This final post covers applying these insights to the current edge of product innovation: mobile applications and the mobile web.

Bar Fight: Native Apps vs. Mobile Web

For the last few years, the debate between building native applications vs. mobile web sites has raged.  (In Silicon Valley, bar fights break out over things like this.) Developers love the web as a platform.  As a community, we have spent the last fifteen years on standards, technologies, environments and processes to produce great web-based software.  A vast majority of developers don’t want to go back to the days of desktop application development.

Makes you wonder why we have more than a million native applications out there across platforms.

Native Apps Work

If you are religious about the web as a platform, the most upsetting thing about native applications is that they work.  The fact is, in almost every case, the product manager who pushes to launch a native application is rewarded with metrics that go up and to the right.  As long as that fact is true, we’re going to continue to see a growing number of native applications.

But why do they work?

There are actually quite a few aspects to the native application ecoystem that make it explosively more effective than the desktop application ecosystem of the 1990s.  Covering them all would be a blog post in itself.  But in the context of user acquisition, I’ll posit a dominant, simple insight:

Native applications generate organic traffic, at scale.

Yes, I know this sounds like a contradiction.  In my first blog post on the five sources of traffic, I wrote:

The problem with organic traffic is that no one really knows how to generate more of it.  Put a product manager in charge of “moving organic traffic up” and you’ll see the fear in their eyes.

That was true… until recently.  On the web, no one knows how to grow organic traffic in an effective, measurable way.  However, launch a native application, and suddenly you start seeing a large number of organic visits.  Organic traffic is often the most engaged traffic.  Organic traffic has strong intent.  On the web, they typed in your domain for a reason.  They want you to give them something to do.  They are open to suggestions.  They care about your service enough to engage voluntarily.  It’s not completely apples-to-apples, but from a metrics standpoint, the usage you get when someone taps your application icon behaves like organic traffic.

Giving a great product designer organic traffic on tap is like giving a hamster a little pedal that delivers pure bliss.  And the metrics don’t lie.

Revenge of the Web: Viral Distribution

OK. So despite fifteen years of innovation, we as a greater web community failed to deliver a mechanism that reliably generates the most engaged and valuable source of traffic to an application.  No need to despair and pack up quite yet, because the web community has delivered on something equally (if not more) valuable.

Viral distribution favors the web.

Web pages can be optimized across all screens – desktop, tablet, phone.  When there are viral loops that include the television, you can bet the web will work there too.

We describe content using URLs, and universally, when you open a URL they go to the web.  We know how to carry metadata in links, allowing experiences to be optimized based on the content, the mechanism that it was shared, who shared it, and who received it.  We can multivariate test it in ways that border on the supernatural.

To be honest, after years of conversations with different mobile platform providers, I’m still somewhat shocked that in 2012 the user experience for designing a seamless way for URLs to appropriately resolve to either the web or a native application are as poor as they are.  (Ironically, Apple solved this issue in 2007 for Youtube and Google Maps, and yet for some reason has failed to open up that registry of domains to the developer community.)  Facebook is taking the best crack at solving this problem today, but it’s limited to their channel.

The simple truth is that the people out there that you need to grow do not have your application.  They have the web.  That’s how you’re going to reach them at scale.

Focus on Experience, Not Technology

In the last blog post on viral factors, I pointed out that growth is based on features that let a user of your product reach out and connect with a non-user.

In the mobile world of 2012, that may largely look like highly engaged organic users (app) pushing content out that leads to a mobile web experience (links).

As a product designer, you need to think carefully about the end-to-end experience across your native application and the mobile web.  Most likely, a potential user’s first experience with your product or service will be a transactional web page, delivered through a viral channel.  They may open that URL on a desktop computer, a tablet, or a phone.  That will be your opportunity not only to convert them over to an engaged user, in many cases by encouraging them to download your native application.

You need to design a delightful and optimized experience across that entire flow if you want to see maximized self-distribution of your product and service.

Think carefully about how Instagram exploded in such a short time period, and you can see the power of even just one optimized experience that cuts across a native application and a web-based vector.

Now go build a billion dollar company.

In Defense of Repricing Stock Options

/ Adam Nash / 4 Comments

This is actually news from last week, but Google announced that they are repricing their employee stock options.

John Batelle has fairly representative coverage on his blog.  His post cites coverage from Adam Lashinsky at Fortune (a personal favorite as a journalist) with a fairly typical dig on the issue.  Here’s the actual quote:

One last item of note. Google is offering employees the opportunity to exchange underwater stock options for newly priced options due to the stock price having been hammered. (The only catch in the exchange is that employees will have to wait an additional 12 months before selling re-priced options.) The stock price is  currently around $300, compared with $700 in late 2007. The number of shares eligible for exchange is about 3% of the shares outstanding, and the exchange will result in a charge to earnings of $460 million over a five-year period.

One must re-phrase this last bit in English: Google is transferring almost half a billion dollars in wealth from shareholders to employees, and for what ….? Motivation and retention, says Google. This a well known farce, as old as the Valley, which tells itself first that it offers generous stock options as a form of incentive and then, when share prices plummet, moves the ball so its employees, whose incentives apparently didn’t work (as if the stock price were under their control) can be re-incentivized. Retention? Would someone please tell me where the average Google employee is going to go right now?

To be clear, there have always been people who have a significant problem with employee stock option repricing, and with good reason.  Theoretically, options are supposed to align employee interests with shareholders.  In an ideal world, the employee wins if the shareholders win.   Repricing, therefore, breaks this model, because, after all, no one reprices the shares purchased by outside shareholders when the stock tanks.

Somewhere in the post-2000 bubble hangover, this criticism went from being a common argument to conventional wisdom.  Accounting standards were changed to require the expensing of employee stock options, and stock option repricing became largely verboten.

I rarely see anyone in the financial press explaining anymore why, in fact, there are very good arguments for stock option repricing.  So, I’m going to take a quick crack at it here.  Even if you disagree, it does a disservice to not reflect both sides of the argument fairly.

First, and foremost, it’s important to note that, while options are intended to help align employee interests with shareholders, stock options, in fact, do not do this in all situations.  The problem is the inflection point in the curve.

picture-11

This is a simple chart that shows the intrinsic value to an employee of a stock option with a strike price of 50 at different stock prices.  Notice the blue line, which is stock, actually reflects a 1:1 ratio of value.  If the stock is worth $10, the employee gets $10, etc.  For the stock option, however, there is a “break” in the line.  Below $50, the employee gets $0.  Above $50, the employee gets $1 for every $1 of stock price increase.

In general, employee stock options are granted at the strike price of the stock roughly on the date that they join.  So, the assumption is, this aligns the employee with gains after they join.  In theory, it’s even better than stock, because if the stock drops, they get no value for gains made before the date of their join.

This sounds good in theory, but we know that it has real problems, on both the upside and the downside.

On the upside, most stocks go up every year.  (Yes, I know.  In 2009, it’s hard to remember that.)  If the stock market itself goes up 7% every year, then an employee will see real returns on their stock options for just “matching the average”.  In fact, they can actually see real material gains over long periods even by underperforming their benchmark index.

However, since shareholders also enjoy that benefit, it tends to only get complaints when you see incredible gains by executives with huge option packages.   No one likes to see an outsized pay package for undersized performance.

On the downside, however, the problem is much more severe.  Let’s say our stock example from above drops to $25, a price that the company hasn’t been at for 3 years.  The good news is that shareholder alignment works, to a point, as advertised.  Not only are shareholder gains for the last 3 years wiped out, but so are the option grants for employees who joined in the last 3 years, and even any other employees who received grants in the past 3 years.

That part seems fine… at first.

Where does the company go from here?  Now we need to talk about the principle of sunk cost.  Sunk costs are costs that cannot be recovered, and therefore should be ignored when making future investment decisions.  (More rigorous explanation on Wikipedia).  For stocks, it’s important to remember the stock market does not care what you paid for a stock.  It has no memory.  The question for a shareholder (barring external effects like taxes, etc) is purely where you think the stock will go from here.

But now we see that the employee is no longer aligned with the shareholder!  From $25, most shareholders would love to see a gain of 20%, which would take the stock to $30.  But for employees, a $30 share price and a $25 share price mean the same thing:  $0.

Worse, if employees leave the company, and get a job at a new company, they will get option prices at today’s stock price.  In fact, if the employee quits the company, and then is rehired back, they would actually get their options priced at today’s stock price.

In a world of at-will employment, this is a big problem.  True, as Adam Lashinsky pokes at, most employees won’t be able to find a new job so fast.  But many of the good ones can.  And they will.  Because your competitor can actually come in with in a simple, fair market offer for the employee, and beat your implicit offer of zero.  Even if they don’t do it today, these problems tend to persist for long periods of time, and employees have long memories.  You may find that your best talent starts leaving, and then you get snowball effects because great talent is hyper-aware when other talent leaves.

So what is a company to do?

In a perfect world, the company would have a very tight and accurate evaluation of their best talent, and would target “retention compensation” proportionally to their people based on their value.  This would both minimize the risk of flight, and would also help “re-align incentives” for the gains going forward.

Unfortunately, the mechanics and accounting of repricing makes this fairly prohibitive.   As a result, it tends to be an all-or-nothing option.

The truth is, repricing stock options can be one of the best things to realign employee incentives going forward.  It resets the vesting period, basically treating employees like new employees.  The employees do not get to go back in time and recover their equity compensation for the past three years.  The new vesting period basically wipes out the history.  They literally no longer own the rights to the shares – they have to re-earn them.  In fact, if the employee quits the next day, they will take no stock with them, even if they worked for the company for three years.

As a result, stock option repricing actually re-aligns employees more closely with shareholders than nay-sayers give credit for.

Last thoughts

While I am explaining the reasons why repricing stock options makes sense, there is still the significant problem of “repeat abuse”.  If employees believe all options will be repriced for all drops, then you end up with a moral hazard, where you might actually want to drive down the price, get your options repriced, and then recover easy gains.  True, the market is fairly hostile to repricing due to the accounting charge, so it’s unlikely this would happen, but it’s still a real concern.

As a result, my recommendation would actually be that companies faced with this situation actually use the opportunity to not reprice stock options, but move to actual stock-based compensation.  Both have an accounting charge, but actual stock-based compensation serves three purposes:

  • The new stock grants can be better targeted to employees based on performance and value
  • The new stock grants have immediate value, serving as a kind of retention bonus
  • The new stock grants align the employee with shareholders going forward in both up and down markets

So while I do believe that repricing stock options gets a “bum wrap” in the financial media, I also believe that there may be potentially better compensation alternatives, particularly for public companies.

Google Superstar Joins LinkedIn

/ Adam Nash / 1 Comment

Can’t get much better press than that, right?  The title is copied verbatim from a blog post on the announcement.

From Finance Geek:

A Google (GOOG) rock star defects: Dipchand “Deep” Nishar, who helped kickstart Google’s mobile business, is moving to LinkedIn.

WSJ: Mr. Nishar, 40, in January will become vice president of product strategy for the social-network that is focused on professionals. He will lead LinkedIn’s efforts to develop new products and services on top of its social-networking site. LinkedIn chairman Reid Hoffman, who had previously filled the senior product role, will remain at the company and shift his focus on broader strategy issues…

Mr. Nishar held a range of jobs at Google, including building the back-end infrastructure for Google’s monetization systems, starting its mobile initiatives and, more recently, overseeing product development for the Asia-Pacific region. He worked closely with Jonathan Rosenberg, Google’s senior vice president of product management, and was the recipient of a rare and lucrative accolade given to employees who have made extraordinary contributions to the company, known as the Google Founders Award.

The original Wall Street Journal article is here.  My favorite quote from Deep:

His departure comes as the recession has made a move from a mature company to a start-up more risky. But LinkedIn, which has 32 million registered users, is better positioned than many… “I don’t view LinkedIn as risky by any means,” said Mr. Nishar.

Very excited to have Deep join the team in 2009.  His LinkedIn profile is here for more detail on his professional achievements.

Adam Nash: The Fight for the Google Top 10

/ Adam Nash / 1 Comment

Owning your own personal brand is harder than you might think.

It’s neck-and-neck for the domination of the “Adam Nash” top 10 search results on Google.  It used to be just a two-way battle between me, and some child born in Colorado for the express purpose of donating stem cells to his sibling.  Now, there are a three contenders, and it’s getting tight.

Right now, the score is:

  • Yours truly, with links 1, 2, 5, and 6.
  • Adam Nash (aka Adam Ramona) from Melbourne, Australia has links 3 & 4 & 7  He’s using Blogspot and Ning for pagerank.  Has his own domain, YamanakaNash.net.
  • Adam Nash, the baby born from Lisa & Jack Nash in Colorado, rounds out the bottom 10 with 8, 9, 10.  Old news links.

Part of this is my fault.  I left adamnash.blogspot.com open, and Adam Ramona took it.  I’m usually quite good about locking up the name space.  He also took nashadam at Ning, but he couldn’t get adamnash because I had that locked up.

In any case, I’m lucky right now because I have the holy trinity of personal page rank working for me:

Plus, for whatever reason, Stanford continues to have amazing page rank for my old Computer Science department page which has been pointing to adamnash.com for the last 10 years.

Still, I’m worried I’m going to lose the top spot if the pace of news coverage on my doppelganger in Australia is any indication.  One thing he’s doing, which is smart, is creating a web page that indexes every article about him, tied to his domain.  Maybe I should do the same thing with the heavy news coverage of LinkedIn product launches with my name in it.

Hmmmm.

Using Google Spreadsheets as a Lightweight Database

/ Adam Nash / 3 Comments

Yes, I have nostalgic feelings for good, old Filemaker.  There, I said it.

I caught this post on the Google Docs blog last week, and thought I’d comment here about it, since it’s such a useful feature enhancement.

The enhancement?  The ability to create short web-forms that you can email out to people, without requiring login.  As users enter the data, it auto-populates the spreadsheet on the back-end.   Check out this explanation from the blog post:

We’re really excited to bring you forms! Create a form in a Google Docs spreadsheet and send it out to anyone with an email address. They won’t need to sign in, and they can respond directly from the email message or from an automatically generated web page. Creating the form is easy: start with a spreadsheet to get the form, or start by creating the form and you’ll get the spreadsheet automatically.

Responses are automatically added to your spreadsheet. You can even keep a closer eye on them by adding the Google Docs forms gadget to your iGoogle homepage, created by software engineers Valerie Blechar and Sarah Beth Eisinger (in her first month at Google!).

I’m not a big iGoogle user, but I could easily see embedding this type of gadget on my LinkedIn homepage.  There are so many simple workplace applications that still come down to the need for a very simple database (not even relational!) and a form-based front-end for users.  In the 1990s, Filemaker Pro was my weapon of choice for that type of problem.  I’ve looked into Quickbase a bit, but the pay-per-seat model through me off a bit.

Check it out, and let me know what you think.

Also, if you know of a good “Filemaker Pro meets Web 2.0” free web service that you like,  let me know.  I’ve got to believe there are dozens of them, since every other great desktop application class has made it to the web.

Campfire One Video is Live (Open Social Launch)

/ Adam Nash

The video from Campfire One, the launch event for Open Social last night at the Google campus is now live.

The demo that Elliot & I give for LinkedIn is about 38:30 into the video (or 18:55 from the end, if you have the timer set up to run backwards). It’s a good thing there was a rehearsal – I’m pretty sure my demos are always better the second time. 🙂

The event was fun to do – it was really a campfire set up in the middle of Google campus. Yes, there were real fires. In fact, the smoke was a real hazard to the speakers – if the wind went the wrong way, all of sudden you’d be blinded and unable to speak. I think Marc Andreessen got the worst of it in rehearsal.

The Google site for the OpenSocial APIs is live now. The LinkedIn blog post on the topic is here.

My previous blog post on Open Social is here.

LinkedIn & Open Social. Two Great Tastes That Taste Great Together.

/ Adam Nash / 3 Comments

I think you can tell from the title why the marketing team at LinkedIn keeps a close eye on me. 🙂

This week has been extremely busy… a lot of press attention already to the LinkedIn partnership with Google on the new Open Social APIs.

Since this is my personal blog, I thought I’d just flag a few articles and posts around the web in case you are interested. The big demo is tomorrow night, and it looks like I will actually get a chance to take the stage with Elliot Shmukler to give it. Let’s hope the demo gods are kind.

It’s really wonderful to be able to talk to our community about Open Social, and about the LinkedIn platform. There are absolutely amazing people at LinkedIn working on making all of this possible, and it’s a joy to get out there and help people understand and appreciate their great work.

So, before the big event, here are a few interesting posts:

More to come on this topic, I’m sure.

My (Relatively) New Patent Applications & One Old Nash Patent

/ Adam Nash / 3 Comments

One of the great things about working for eBay was the support of the legal team for the creation and filing of patents.  Over the course of my four years at eBay, I filed several patent applications, starting with my first in last 2004.

When I was growing up, I used to always hear about the patents filed by my grandfather (in the food business).  They were always a symbol of success, intelligence and pride in my family.

What patent is this, you might ask?  Well, with great thanks to Google for their new, searchable patent database, I have now for the first time had a chance to read it for myself.   It is patent #3108882, dated January 29, 1963, and is titled “Method of Preparing an Edible Fish Product“.  To translate from the legalese: it is the method of preparing & packing gefilte fish in glass jars with jelly.  Yes, you now know where that came from.

I know there are significant problems with the patent system as it stands today, particularly around software.  However, I can’t help feeling proud of the patents that I worked on at eBay, and grateful for their support shepherding them through the legal hurdles.

Patent applications only display on the US Patent Office website 18 months after the application is filed, so right now only two of the applications are showing up.  The rest will likely become visible over the next year or so.

Here is the link to my patent applications on the USPTO website.    Note the most recent one to show up, for “seller and item filters”, the backbone of the eBay Express website.

Life at Google: The Microsoftie Perspective

/ Adam Nash

I, like everyone else, am enjoying reading this post of pseudo-Q&A with an engineer who worked for Microsoft, then joined a startup that got acquired by Google. Not sure how legitimate it is, but everything in it rings true. Lots of insights into the Google culture, as well as some of the innovations they have made to really prioritize employee efficiency.

Here is one of my favorites, a description of Google Tech Stops:

Google has the concept of “Tech Stops.” Each floor of each building has one. They handle all of the IT stuff for employees in the building including troubleshooting networks, machines, etc. If you’re having a problem you just walk into a Tech Stop and someone will fix it. They also have a variety of keyboards, mice, cables, etc. They’re the ones who order equipment, etc. In many ways the Tech Stop does some of what our admins do. If your laptop breaks you bring it to a Tech Stop and they fix it or give you another one (they move your data for you). If one of your test machines is old and crusty you bring it to the Tech Stop and they give you a new one. They track everything by swiping your ID when you “check out” an item. If you need more equipment than your job description allows, your manager just needs to approve the action. The Tech Stop idea is genius because:

1. You establish a relationship with your IT guy so technical problems stop being a big deal – you don’t waste a couple of hours trying to fix something before calling IT to find out it wasn’t your fault. You just drop in and say, “My network is down.”

2. Most IT problems are trivial when you’re in a room together (“oh that Ethernet cable is in the wrong port”)

3. The model of repair or replace within an hour is incredible for productivity.

4. It encourages a more flexible model for employees to define their OWN equipment needs. E.g. a “Developer” gets a workstation, a second workstation or a laptop, and a test machine. You’re free to visit the Tech Stop to swap any of the machines for any of the others in those categories. For example, I could stop by and swap my second workstation for a laptop because I’m working remotely a lot more now. In the Tech Stop system, this takes 5 minutes to walk down and tell the Tech Stop guy. If a machine is available, I get it right away. Otherwise they order it and drop it off when it arrives. In our current set up, I have to go convince my manager that I need a laptop, he needs to budget for it because it’s an additional machine, an admin has to order it, and in the end developers always end up with a growing collection of mostly useless “old” machines instead of a steady state of about 3 mostly up-to-date machines.

This struck a chord with me, particularly as I reflect on time working at two large companies (Apple, eBay), a startup (Preview Systems), and a venture capital firm (Atlas Venture). In every environment, IT was optimized not around the convenience or efficiency of the employees, but around minimizing overhead & cost, and occasionally security.

You have to wonder how expensive the overhead is for the Google Tech Stops, and how much benefit they reap from it in productivity and employee morale. I can tell you one thing, having to fuss with IT about updating hardware is one thing that can really sap the energy of an employee in seconds.

New Feature: What I’m Reading (Shared Google Reader Feed)

/ Adam Nash

I’m trying out a new idea, borrowed from My Blog Utopia, Randy Smythe’s blog.

A couple months ago, I realized that I was accumulating far too many blogs to read through the My Yahoo interface.  Over 100 at last count.  I needed a blog reader, and based on popularity of the blog readers hitting this site, I went with Google Reader.

Google Reader has been fun, especially with the Firefox modification to make it look and feel more like Mac OS X.

Well, on Randy’s blog I saw that he had a widget that showed the blog articles that he was reading.  I have seen this type of “clipping feed” on several other blogs, but WordPress doesn’t seem to have that feature.

Then I noticed it was generated by Google Reader, and I thought, “Maybe there is a way to get Google Reader to spit out an RSS feed, and then I could put it into a sidebar widget on WordPress.com”

Turns out, it just works.  I figured out how to flag a blog post as “Shared” on Google Reader, and now, on the left-hand column of this blog, you’ll see the last 10 blog articles that I have flagged.  Should be fun, since it saves me from just posting “read this” type of articles.  I can focus just on areas where I have more significant commentary.

So check it out… it’s on the left side, under the header “What I’m Reading”

Let me know what you think.

Finding Adam Nash: Google, ZoomInfo, LinkedIn

/ Adam Nash / 2 Comments

I’ve been thinking a bit about how people find people online.  To sample, I tried three different services: Google, ZoomInfo, and LinkedIn.  I wanted to get a sense of three different approaches to online people search.

Let’s start with web search!  Google doesn’t really focus on people as a first-class entity, so it basically just aggregates web pages based on its algorithms for content relevance.

When I search for Adam Nash on Google, I get the following:

The results are pretty good… for me, at least.  4 of the top 5 links are actually my pages.  The top two are this blog.  The fourth is my old homepage at Stanford, and the fifth is my current personal home page.

Of course, none of these pages would give you excellent data about me, really, but they all contain pointers to good, deep information.

Next up, ZoomInfo, and the magic of web scraping & aggregation.  I did the search and was surprised to find 52 reconds for Adam Nash.  Even more surprising, 6 of them look like they are pieces of my history, but in a mish-mash that combine strange pieces of data.  In some cases, my data is mixed with someone elses.

Here are the 6 versions of Adam Nash in ZoomInfo that I can verify should really be one version: me.

What a mess.  It’s not that the information there isn’t partially correct, it is (or was), and it’s interesting to see some of the articles scraped together.  But the fragmentation is terrible, and I’m almost offended to see my picture on top of information for someone else.  Certainly, anyone looking for me on ZoomInfo would have a very hard time figuring out who I was, or what I was doing with any accuracy.

Now, of course, our user-generated content site, LinkedIn.  Here is the search I get back when I’m logged onto the site:

Ok, Ok, that’s cheating 🙂  But that’s close to what anyone in my broad network would see (over 1.4M members).  The data is correct and up-to-date.

How about a public search on LinkedIn, with no LinkedIn account at all?  Also good:

The first link there is mine.  Clean results, correct information.  You can’t beat my public profile for accurate and relevant professional information.

Not surprisingly, I think this indicates the strengths of the different mechanisms for finding people online today.  Google, representing natural search, does a decent job focusing on existing content.  LinkedIn, representing user-generated content, does a fantastic job of accuracy and relevancy.  ZoomInfo, representing aggregated web scraping, seems to have a ways to go before it will a trustworthy directory.

As always, your mileage may vary.

Google Reader, Meet the Mac OS X Look & Feel

/ Adam Nash / 2 Comments

Now this one is a lot of fun…

I moved my blog reading from My Yahoo to Google Reader about 6 weeks ago.  It has been tough to adjust to the new habit – my instinct is to always go to My Yahoo.  But My Yahoo just wasn’t scaling for the number of blogs I like to keep tabs on (now over 100),  and I noticed that a majority of the people reading my blog were now using Google.

Thankfully, Firefox has made this easier.  The ability to quickly change the behavior of “adding a feed” to Google from My Yahoo made the transition simple for new feeds.

For exporting my old feeds from My Yahoo to Google, I found a nifty tip online on how to export an OPML file from My Yahoo and import into Google Reader.  Just spent a few minutes categorizing all my feeds, and I was ready to go.

Well, today I discovered a new trick.

This post shows you how to skin Google Reader using CSS to look like Mac OS X.  It’s really neat, although it’s a little weird that the author’s name is Adam Pash.

On Firefox, you basically want to go here and download Stylish.  Stylish is an add-on that lets you customize the CSS for any website.

Then, go here to download the Mac OS X theme for Google Reader.

Once you unzip, open the CSS in a text editor, and copy & paste it into Stylish.  On Mac OS X, I had to do this manually by opening the Add-Ons dialog, and open the Stylish preferences, but I got it to work.

It’s pretty neat, and I like the new look & feel of Google Reader.  It’s also pretty neat to see CSS as a form of “lightweight plug-in” for websites.  I’ve got to show this to some of the front-end folks on eBay Express – we use CSS heavily, and I bet you could come up with some pretty neat skins for the site using Stylish.