This post is not really about politics. Sure the presidential campaign continues marching towards an exciting conclusion. Sure a sudden bevy of vocal, cynical, and amateurish political observers and bloggers are loudly decrying the two presidential candidates as basically undifferentiated “clowns.” There are major differences between the two parties and the two candidates – would we really be so divided as a nation and would our political debates be as heated if they are essentially the same? Please people, let’s be respectful of our diverse differences and acknowledge that there are a mosaic of opinions on how best to govern this country. Often, these opinions diverge widely.

The Left vs. Right Phenomenon
This post is actually about the dichotomy of “right-brained” people who think intuitively and creatively vs. “left-brained” people who think analytically and logically. There are proponents on both sides who contend that their side is better (not unlike our political pundits). Books such as A Whole New Mind: Why Right-Brainers Will Rule the Future and The Rise of the Creative Class make a forceful case for the right-brainers. Other books such as Building Left-Brain Power and Being Logical make an equally convincing case for the left-brainers.

We are Divided
In my work at Design Engine Lab, I interact with designers who believe that creativity and art reign supreme. They dismiss “soulless” businesspeople and “middle-managers” who think logically. When I interact with businesspeople in the venture capital or private equity worlds, they pay little attention to “frivolous” artists who speak in soft language and cannot deliver against measurable hard metrics and milestones. Both sides contain some truth but they are more wrong than right.

Connecting the Dots
The fervent advocacy of the different hemispheres of thinking by their respective fanatics threatens to create a shortage of generalists or whole-brainers. In this increasingly competitive world, we need generalists who can traverse both sides of the fence with aplomb and deft agility. The ability to communicate and “connect the dots” or weave multi-disciplinary fields of knowledge will emerge as the premium skills of this century. Effective communication has always been a desired skill but we will increasingly need leaders who can communicate with engineers and financial analysts on the left side along with artists and storytellers on the right side. Leaders will need to tell compelling stories and extract critical analytic insight from a swamp of data with equal mastery.

Mental Agility
This video makes a quick and fun exercise to explore whether you are right-brained or left-brained. How does the figure rotate? Do you see it rotating clockwise or counter-clockwise? I can make it spin either way in my vision.

I’ve tried all my life to expose myself to a myriad of wide-ranging experiences. If you look at my diverse background of life and career experiences, you’ll find it very difficult to typecast me in any single role. My goal is to be able to add value and lead whether I’m in a crowd of industrial designers or a crowd of database programmers.

The ability to synthesize disparate fields of knowledge leads to innovative thinking and innovative breakthroughs. Innovation arises strongest as a result of the combination of logical and intuitive thinking models. Thus, engineers can think innovatively, think creatively, and make beautiful things. Artists can use logic to create works of art that are beautiful and structured at the same time. The ultimate goal is innovation, not the singular domination of left or right brain modes of thinking.

To conclude, enjoy this painting by Georges Seurat. A Sunday Afternoon on the Island of La Grande Jatte was painted entirely in dots, what is known as pointillism or divisionism. This was a drastic departure from the tradition of painting in strokes. Today, the pixels in our computer screens follow Seurat’s original insight.

Georges Seurat – A Sunday Afternoon on the Island of La Grande Jatte

These recent events highlight the lucrative nature of infrastructure investments and the persistent and controversial trend of foreign companies and sovereign wealth funds acquiring huge infrastructure assets in the United States. The political environment grows increasingly hostile as national and local politicians, including the presidential candidates, look to explain Americans’ economic struggles with a cornucopia of reasons including free trade agreements like NAFTA, a “corrupt sitting president,” and globalization generally.

This issue of foreign investment in public infrastructure has been on my radar since late 2006. Below is an essay I wrote for an investment newsletter published in January 2007 distributed to high net worth clients.

Public Infrastructure Sales: Samurais, Jihadists, and Masters of the Universe

“The Japanese are coming!” Remember when modern-day Paul Reveres shouted this refrain in the 1980s? Honda (HMC), and Toyota (TM) earnestly began their conquest of the American driver and, resultantly, Detroit’s mammoth metal benders. Would-be samurais from a nation of diminutive conformists threatened our towering sense of American exceptionalism by snatching up national treasures from our private sector like Pebble Beach, Columbia Pictures, Universal Studios, and Rockefeller Center. Although the apocalyptic visions of Japanese dominance and American indentureship have faded, the “buying of America” continues today.

Only now, the purchasers hail from different shores and their acquisition targets are of a more public flavor. In January 2006, a plan to privatize the Indiana Toll Road came to fruition when the State of Indiana entered into an agreement with Cintra (a Spanish construction firm) and Macquarie Bank (an Australian bank). The Spanish-Australian partnership paid the Indiana State Government $3.85 billion for a 75-year lease to operate and maintain the toll road. The same consortium recently entered into a $1.83 billion lease to operate the Chicago Skyway Toll Bridge. As these foreign entities begin to exact payments from beleaguered commuters, resistance to foreign ownership of public infrastructure grows.

Free trade and free markets be damned. Early this year, public sentiment derailed the proposed Dubai Ports World acquisition of U.S. ports facilities in New York, New Jersey, Philadelphia, Baltimore, New Orleans, and Miami. In a cacophonic display of bipartisan zealousness, Republican and Democratic members of Congress questioned the wisdom of selling strategic infrastructure assets to not only a foreign country, but one which two members of the 9/11 hijackers called home. The overall tone could be summed up by the mordant one-sentence letter Representative Sue Myrick (R-NC) sent to President Bush that read, “Dear Mr. President: In regards to selling American ports to the United Arab Emirates, not just NO – but HELL NO!”

Being neither knee-jerk nationalists nor adherents to Ricardian economic orthodoxy, the editors of this publication acknowledge the merits of both the free market argument and the argument for excluding strategic infrastructure from the free market. One of the tenets of free trade asserts that private industry is more efficient at delivering services than government, and experience has confirmed that theory. But, when does that precious efficiency bump up against national sovereignty and security? Pragmatic protectionists should point out that ports and roads are different species in the genus of public infrastructure; that roads are strategic but ports are more strategic.

Do we as a nation make distinctions between domestic private players and foreign entities? How do we respond to foreign companies that are not entirely private, being controlled by foreign governments? In the case of Dubai Ports World, the United Arab Emirates government owns a stake in the port operator. How do our reactions at home affect the ability of our own private companies to venture abroad and invest in and own foreign assets?

Through all this brouhaha, the editors of this publication see an opportunity for the many domestic leveraged buyout firms within our own borders. With over $175 billion raised in 2006 alone, the industry is flush with liquidity. At the risk of sounding cliché, we echo the industry’s mantra that there is “too much capital chasing too few deals.” With all the largest funds finding themselves in highly contested auction environments for companies suitable for buyouts, even the most sanguine investors admit that future returns will lag past performance. Public infrastructure as an asset class represents a potential opportunity to deploy some of that excess liquidity and to diversify LBO or private equity portfolios.Some questions beg consideration. This asset class will no doubt offer lower returns than traditional private equity investments; does the stability of returns compensate for that shortfall? What are the reasonable exit opportunities? What consequences might arise from shifting concepts of private and public property? How can the public be safeguarded from the specter of crony capitalism?

Questions notwithstanding, infrastructure investments with their super-stable revenue and profit streams offer the possibility of smoothing out the volatility of returns in portfolios otherwise dependent on the ever shifting environment for initial public offerings, mergers, and acquisitions. The promise of stable returns is causing some financial masters-of-the-universe to contemplate establishing investment pools to capture this opportunity. Goldman Sachs (GS), the Carlyle Group and other top institutions are all rumored to be pitching this idea to limited investors. We’re quite sure that hedge funds will want to get into this game too.We suspect there might even be an inefficiency here for domestic buyout firms to exploit. Public sentiment against encroachment by foreign firms might allow for lowball bids by domestic buyout firms. This compromise between public and private could placate the citizenry. The Golden Gate Bridge anyone?

Steve Ballmer, CEO of Microsoft (MSFT) puts on his best poker face with this letter to the Yahoo! (YHOO) board of directors. Ballmer isn’t known all over the world as an innovator, but as a former lawyer and one of the architects of Microsoft’s monopolistic business tactics, I’m sure he can hold his own at the negotiation table. Of course, that hasn’t been the case lately with the outlandish premiums he paid for aQuantive and Facebook. So maybe he’ll back off of this hard stance:

Dear Members of the Board:

It has now been more than two months since we made our proposal to acquire Yahoo! at a 62% premium to its closing price on January 31, 2008, the day prior to our announcement. Our goal in making such a generous offer was to create the basis for a speedy and ultimately friendly transaction. Despite this, the pace of the last two months has been anything but speedy.

While there has been some limited interaction between management of our two companies, there has been no meaningful negotiation to conclude an agreement. We understand that you have been meeting to consider and assess your alternatives, including alternative transactions with others in the industry, but we’ve seen no indication that you have authorized Yahoo! management to negotiate with Microsoft. This is despite the fact that our proposal is the only alternative put forward that offers your shareholders full and fair value for their shares, gives every shareholder a vote on the future of the company, and enhances choice for content creators, advertisers, and consumers.

During these two months of inactivity, the Internet has continued to march on, while the public equity markets and overall economic conditions have weakened considerably, both in general and for other Internet-focused companies in particular. At the same time, public indicators suggest that Yahoo!’s search and page view shares have declined. Finally, you have adopted new plans at the company that have made any change of control more costly.

By any fair measure, the large premium we offered in January is even more significant today. We believe that the majority of your shareholders share this assessment, even after reviewing your public disclosures relating to your future prospects.

Given these developments, we believe now is the time for our respective companies to authorize teams to sit down and negotiate a definitive agreement on a combination of our companies that will deliver superior value to our respective shareholders, creating a more efficient and competitive company that will provide greater value and service to our customers. If we have not concluded an agreement within the next three weeks, we will be compelled to take our case directly to your shareholders, including the initiation of a proxy contest to elect an alternative slate of directors for the Yahoo! board. The substantial premium reflected in our initial proposal anticipated a friendly transaction with you. If we are forced to take an offer directly to your shareholders, that action will have an undesirable impact on the value of your company from our perspective which will be reflected in the terms of our proposal.

It is unfortunate that by choosing not to enter into substantive negotiations with us, you have failed to give due consideration to a transaction that has tremendous benefits for Yahoo!’s shareholders and employees. We think it is critically important not to let this window of opportunity pass.

Sincerely,

Steven A. Ballmer
Chief Executive Office
Microsoft Corp.

Some of the larger institutional holders of Yahoo! include mutual fund giants Legg Mason (LM), Capital Group, Vanguard, State Street Corporation (STT), and Janus Capital Group (JNS). Hedge funds or private investment partnerships holding sizable positions include Sands Capital Management, Lee Ainslie’s Maverick Capital, TCS Capital Management, Geode Capital Management, quant shop Tykhe Capital, and Raj Rajaratnam’s Galleon Management.

Shareholders of Yahoo! should welcome a proxy fight. There are very few other companies capable of acquiring the Internet pioneer based in Sunnyvale, California. With the economy in a recessionary state, other potential acquirers will guard their cash until the business cycle turns. Even large buyout funds with an appetite for technology companies will be gun shy because of the evaporation of credit. Yahoo! directors should come to the table and attempt to get a better offer, but failure to accept a bid from Microsoft will result in a plummeting stock.

On a lighter note, can you imagine Yahoo! and its employees toiling under the Microsoft banner? Their cultures are so different. Enjoy the accompanying video of Ballmer during a Microsoft love fest. Replace “developers, developers, developers” with “web developers, web developers, web developers.”

Since my current work is in new media and social networking, I am keenly interested in the turbulence facing the newspaper industry. Clients, ranging from Fortune 2000 companies to small innovative startups, come to my team at SocialOptimize to gain an understanding of the new media landscape and to develop an actionable strategy for building a meaningful presence in social networks. They ask about their traditional marketing budgets and I tell them that we will see the disappearance of many old model newspaper, radio, and television companies as they struggle and fail to adapt to the reality of new media on the Web. Consumers are spending less time watching television, listening to radio, and reading newspapers. Instead, they are spending more and more time on the Internet for their news and entertainment needs. Very few traditional media companies will emerge stronger from this “dislocation” but the opportunity exists for several to transform themselves into new media leaders.

As an investor, I train my eyes on public companies that report the news who are also making headlines themselves. During periods of disruption, large sums of value get destroyed but great opportunities arise at the same time. Thus my ears perked up when I learned that Harbinger Capital, playing the role of activist investor, initiated a proxy fight by nominating four candidates for the New York Times (NYT) board of directors. The New York Times, being one of the leaders and most important assets in traditional media, has been causing great anxiety and nervousness in shareholders. Newspaper subscriptions and newspaper advertising revenue, the old metrics of success, are steadily declining and this has caused a panic in investors. I argue that newspaper subscriptions can no longer be relevant in the evaluation of this company. While advertising revenue of course remains the lifeblood of media companies, revenue from the printed page should diminish in priority. The company needs a dramatic rethinking of what it means to be relevant and influential and how to reconfigure its revenue base. Harbinger seems to be on the same page as it calls for “bold action” in the form of selling off business units and increasing investments in online efforts.

If Harbinger succeeds in placing its nominees on the board, I think it will have its greatest impact by helping the company allocate capital in a more logical manner. The company should start by deemphasizing or changing its editorial makeup. Americans perceive mainstream media outlets like the New York Times as “out of touch” and severely biased in favor of liberal policies and politicians. Whether this bias is true or not matters little, one can only respond to the marketplace with logic and logic dictates that the customer is always right. This presents an opportunity to drastically cut the expensive editorial staff and balance it with editors of more conservative leanings. In no way am I advocating for a government mandated Fairness Doctrine. I’m pushing for a market-mandated, self-regulated, fairness regime that satisfies what consumers and readers are asking for. This will go a long way in maintaining relevance and influence while generating substantial cost savings at the same time.

As for overhauling its revenue base, I think that the New York Times has taken good steps towards improving its online efforts. Only Rupert Murdoch’s News Corporation (NWS-A) has arguably done a better job at shifting revenue streams online. It doesn’t get a lot of press for its investments in the Internet, but some of the companies it has invested in are very compelling. As with all new businesses, patience is required for a few of these to work out and become substantive revenue generators. Many of these have ambiguous business models to begin with and it will take some time to adjust to the market and settle on a viable strategy. I expect some of these will not gain traction and will fail, but that is the perilous, creative, and destructive nature of our evolving online business environment. Here are some of the company’s more notable recent investments in a portfolio style overview:

Earlier this year, NYT co-invested with a few venture capital funds in San Francisco-based Automattic. Automattic’s primary product is the blogging platform known as WordPress. WordPress software can be downloaded for free and hosted on private servers. WordPress.com is a hosted blogging solution that many major media outlets are turning to as a cost-effective solution for serving blogs and other content. Large media companies such as CNN, Fortune, and Fox are paying for the company’s WordPress.com services to host their blog content. WordPress is one of the leading content serving platforms on the Internet and continues to grow in popularity. I think Automattic will carefully find other ways to monetize the technology including serving advertising.

The Internet is a medium that is conducive to the convergence of different types of media such as text, video, and audio. The clean divisions between newspapers, radio stations, and broadcast television that existed before the rise of the Web no longer apply. In early 2007, the New York Times joined with other media companies such as Time Warner (TWX), GE Global Media & Communications (GE), Hearst Interactive Media, and IAC/InterActiveCorp (IACI) to fund Brightcove, a developer of IP video technology. Brightcove technology hosts and serves content published by professional media businesses. Brightcove has emerged as one of the more successful alternatives to YouTube for consumers of video content.

Just earlier last month, NYT partnered with Sam Zell’s Tribune Company, Gannett (GCI), and Hearst to form a joint venture called quadrantONE. Yet another in a long line of advertising networks, quadrantONE will sell localized online advertisements, primarily display or banner ads. Given that this network will include many regional and national newspaper organizations, it stands a reasonable chance of achieving success. The challenge will be to educate smaller, more localized marketers about this differentiating factor. Many small marketers are still only aware of Google’s (GOOG) advertising platforms. The real opportunity here belongs to the regional and local metro papers. Consumers will return to demanding more quality localized news and content. If the local news agencies can meet that demand, they can create the inventory necessary to make a localized ad network like quadrantONE a viable competitor online.

NYT has also invested in Federated Media, an ad network for blogs. There will always be a place in this world for professionally produced news content. I certainly don’t want an amateur giving me the scoop on a tightly guarded political scandal. Most amateurs don’t write well enough to convey the juiciness of the drama. And if an amateur suddenly stumbles upon a juicy scoop and is capable of writing cogently about it, that person immediately becomes a professional. Such has happened in the world of blogging. The new world certainly has space for an army of amateurs sharing their opinions regarding everything under the sun. This distributed rather than centralized model of content creation opens up opportunities for a talented few to break into the ranks of influential professionals. The good ones generate a relatively large following. Federated Media helps this top tier of bloggers monetize their audience and content. A recent rumor has management at Federated Media rejecting a $100 million buyout offer.

The rise of Craigslist, partially owned by eBay (EBAY) has devastated the classifieds advertising market for newspapers. Job listings revenue, usually the most lucrative segment in classifieds advertising, has fallen way down. The migration of job listings off news pages to online job boards such as Monster (MNST) only worsens the situation. The New York Times hopes its investment in Indeed, a search engine for jobs, will help it recapture some of those lost revenues. Indeed promises to give job hunters access to millions of job listings aggregated from online job boards, corporate websites, and newspapers.

I did not know there was a New York Times Research & Development Group. I hope the boys at Harbinger don’t look at this little skunk works team as a waste of scarce capital. Innovation and breakthrough business models take time and freedom to develop. I already look upon corporate-directed incubators with skepticism but when the parent company accepts that it is in crises mode, there might just be a chance for the mad scientists and geeks to make an impact. Shifd is a new mobile Web application that allows users to share content between their desktop computers and mobile devices. Shifd, pardon the pun, is a paradigm-shifting idea. It makes possible a future in which we don’t have discreet devices separate from each other. All our information lives on the Web and is available to us from any device and custom-configured to our needs. Your cell phone and your desktop computer will have roughly the same utility and functional profile.

Daylife calls itself a “news site and distribution platform.” It is a different take on the aggregation of related news items and competes against the likes of Digg and Reddit. Instead of relying solely on a community of users to vote news stories up popularity rankings, the company appears to utilize its own search technology and algorithms to organize related news articles. Daylife also offers Web widgets that help other publishers expand their news content. The New York Times invested in this startup in late 2006. If I had to short one of these startups, Daylife would be the one. I love their user interface design; these guys are definitely in tune with the modern aesthetic. However, the competitive landscape for news aggregation is simply too crowded and the company does not offer anything so different and compelling to suggest that it can take users from Digg, Reddit, or even Google News.

WideOrbit provides software systems that automate and manage the sales, traffic, and billing of advertising. It sells its products to radio stations, television broadcasters, cable networks, and data centers. This sounds like a wonderful product as I am sure that relatively few people are putting their minds to solving the billing management needs of content publishers. Most entrepreneurs are focused on the deservedly hyped Web 2.0 space. This may not seem core to the business of the New York Times, but any model that puts the company in the middle of revenue flows will create value. Non-core businesses such as Federated Media and WideOrbit may create value for the company as they are sold off at rich multiples and for handsome returns. But in this uncertain time, who really understands what is core and what is non-core?

Again, Harbinger Capital is spot on with its call for a dramatic rethinking of the New York Times’ business model. Much capital can be allocated away from traditional business activities to online efforts that can significantly change the structure of the company. New profit centers will arise and the company’s recent investments in Web startups give it a good chance to navigate the future. What the New York Times needs right now is a stable of patient investors.

Update 3/17/08 – The New York Times came to a compromise with activist hedge funds Harbinger Capital and Firebrand Partners by expanding board seats by two outside directors. Scott Galloway of Firebrand and James Kohlberg of Kohlberg & Company are the two outside nominees slated to join the board of directors.