How Roger McNamee Coaches Companies Through Mid-life-crises

SAN FRANCISCO (MarketWatch) -- Roger McNamee isn't the sort of man you would find on the sidelines of any event.

Yet the well-respected investor -- typically center stage as he espouses his investment views or sings in his rock band -- finds that he's very comfortable in a role coaching middle-aged men in a game against agile teens.

"We're like coaches on the field," said McNamee, in a recent interview. "We're not passive investors."

McNamee is the founder of Elevation Partners, a three-year-old private equity firm with a focus on nurturing media and entertainment content companies that are well beyond the pubescent stage, peak-earning years, in a state of emotional anxiety and doubt, and most burdened with an unyielding desire to feel young.

This is the mid-life crisis of a company, the time at which McNamee sees his coaching services could very well pay off.

"I'm investing in mid-life venture capital," said McNamee. "These are companies whose worlds have been turned on their heads."

As anyone can imagine, the "mid-life-crisis" period is where most mature media and content companies currently find themselves today, thanks to the Internet's fragmenting effects.

Elevation spent more than $200 million for a more-than 40% stake in 90-year-old Forbes last year.

Elevation also invested some $100 million for a more-than 50% stake in real estate site Move.com, formerly Homestore.com. The online realtor rose and fell with the Internet bubble at the turn of the millennium.

McNamee is on the board of both companies, and sees his coaching tenure for both teams as a five to 10-year stint before seeing a return on investment. "Our time horizon is as long as it takes," he said.

"Does that mean you have no returns today?" I asked.

"No returns," he said. "Our investors hired us to produce great returns over a long period of time. They're supportive."

Despite Forbes brand name, expanding its reach offline will be a challenge, as advertisers flock to the Web.

Overall magazine revenue in the U.S. is estimated to grow at a compounded annual rate of 3.7% in the next five years to $42.8 billion by 2010, according to PriceWaterHouseCoopers. By comparison, Internet advertising is estimated to grow at a compounded rate of 8.4% in the U.S.

While Forbes is a leading magazine with total circulation of 926,000 in 2006, according to A.B.C. (Audit Bureau of Circulations) and MPA (Magazine Publishers of America), its circulation has fallen twice in the last four years.

The action is on the Web, where Forbes ranks in the top 10.

Yahoo's Yahoo Finance, with 13.7 million unique visitors and 596 million pageviews leads all finance news sites. Yahoo is followed by Microsoft's MSN Money, Time Warners's AOL Money, CNNMoney, Dow Jones' Dow Jones Online, Reuters, and then Forbes.com. Forbes.com saw 5 million unique visitors in February, down 24% from a year ago, according to Nielsen//NetRatings.

"I'm not going to say much now [about Forbes]," said McNamee. "I'll only say that our audience needs not only breadth of insight, it needs depth... The Internet needs to allow people to go deep quickly."

Spoken like a true coach.

Last week, coach McNamee was part of my column on Google being Web 1.0. I also said in that column that I would elaborate further on his outlook for investing. .

For the rest of our interview, here it is, with modest edits.

Me: Where are you concentrating your bets?

: We're going to make eight to 10 investments over the next six years. We'll invest about $250 million in each. It's not going to be a public portfolio. I believe the conversion of traditional media with the Internet creates the opportunity for Elevation. We want to work with established, traditional media brands who need help with the Web. I'd also love to be involved in systems with consumer products. That's where we arn't today. These 'systems' are analogous to Xbox or iPod. I'm really into this notion of saving people's time. In the consumer market, to save people time is to package things together.

Me: You're a product-cycle investor. Are there any product cycles of major significance coming up in the tech world that investors could ride (i.e. Microsoft Vista, Apple's Apple iPhone/TV? Nintendo's Wii for video games?)

It's more of a thematic-cycle trend rather than a product-cycle trend. That trend is helping people to make better use of their time. Research In Motion's Blackberries and [Apple's] iPods are excellent examples of integrated systems that helped people make better use of their time. Personal computers come at a tremendous cost of time commitment that people have to give to both learning how to use them, and how to maintain them.

With regards to Microsoft's Vista, it should be very real. Vista is a significant enhancement to the operating system. But the PC is almost becoming a utility. As a result, my impression is that not many people are standing in line to buy an operating system. It wouldn't shock me if Windows Vista wasn't a product cycle. It might spread out over three or four years. It is just an operating system. Its biggest functionality was that it fixed what was wrong before.

As for Apple iPhone, it's humongous. I think it will create a new way of looking at mobile devices. You're going to look at this and ask, 'What are my choices?'" AppleTV is too early to know.

As for the video-game cycle, it's very interesting. Video games will run into the same retail problem that CDs had. The value of the product isn't high enough to support the location of a retail location.

The whole active entertainment area, the notion of bands putting stuff on MySpace, is creating product cycles for devices (i.e. digital cameras) that allow people to be creative.

Me: What's the next disruptive technology?

: Web 1.0 is still incredibly disruptive. The media business is still being disrupted because of Web 1.0. And, Web 2.0 is going to disrupt 1.0. Google's YouTube is Web 1.5. It doesn't have a [social] network. Web 2.0 hasn't started disrupting. I also think mobility is incredibly disruptive. I have no idea how that's going to look. Everything that matters will come on my person. That's the thing that disrupts the PC market. The one-sized-fits-all-PC model is broken. Eventually, PCs will produce shrinkage of demand for PCs in the developed world. Apple's iPhone is part of the mobile disruption, but a small part. The disruptive stuff isn't one thrust. It'll come in small parts, like getting nibbled to death by ducks.

Sound-off: What are your top 10 trends for this year? Answer on my blog at

Sign up for Bambi Francisco's newsletters.

By Bambi Francisco