Henry Blodget is again at the center of controversy but his news blog is among the fastest growing.
(Credit: Silicon Alley Insider)Words like "scumbag," "fraud," and "crook" once trailed after Henry Blodget's name anytime it came up in Silicon Valley. The budding Web-publishing mogul, who was once a superstar tech analyst before being accused of securities fraud, has spent the past five years trying to recover his credibility. Last week, his efforts may have suffered a setback.
This interview began in August, when I sent Blodget the questions. He e-mailed his answers on Wednesday, two days before Silicon Alley Insider, the technology news blog Blodget co-founded, wrote itself into a controversy. A member of the public posted a false report to CNN's user-generated news site, iReport, that claimed Apple CEO Steve Jobs had suffered a heart attack. SAI followed up with a story that clearly informed readers the rumor was unverified. Nonetheless, SAI appears to have helped fuel the investor panic that led to a 9 percent drop in Apple's stock.
Blodget and I corresponded again on Friday and he said if ever in a similar situation he would play it the same way. He wrote: "We described exactly what the report was, said we didn't know whether it was true or not, and said we were investigating."
Blodget isn't the kind to shy away from the spotlight, regardless of how hot it may be. He became famous a decade ago after he accurately predicted Amazon.com's stock price would double to $400. At Merrill Lynch, Blodget was a cheerleader for tech stocks in the late 1990s. After the dot-com bubble burst, Eliot Spitzer, the former New York State Attorney General, himself since disgraced, accused Blodget of fraud and he was banished from the securities industry for life. Since then, Blodget has launched a journalism career and helped turn SAI into one of the fastest growing tech-news blogs. The insights from this former Wall Street insider have been praised by publications, such as BusinessWeek.
Why journalism? After what you've been through, why didn't you turn your back on Wall Street, on technology, on predicting anything other than the weather?
Well, you've ruled out a lot of professions there--and, thankfully, I only got kicked out of one. What journalists do has a lot in common with what analysts do. After spending a decade learning some lessons the hard way, I didn't want to just throw all that experience in the trash.
I liked your story on The New York Times, when you sort of offered to buy the paper's digital unit. What's the best piece of journalism you've produced?
Yes, we'd love to buy NYT Digital. We're sorry we haven't heard back from Janet (Robinson, CEO of The Times) and Arthur (Sulzberger Jr., publisher) yet. The best thing I've written--or at least the longest--is probably a book called The Wall Street Self-Defense Manual: A Consumer's Guide to Intelligent Investing. An alternate title could have been, "I made all the dumb-ass mistakes, so now you don't have to."
You've hired two old-media types in Michael Learmonth (Variety) and Peter Kafka (Forbes). Doesn't that differ from what Michael Arrington and Om Malik are doing by hiring mostly young writers? How do you intend to grow Silicon Alley Insider?
Yes, Michael and Peter are pros. TechCrunch has a couple of pros, too, and Om's been a pro forever. This business is getting professionalized in a hurry, and strong reporting, writing, and editing skills are going to be increasingly important. (Sadly, Peter and Mike have both moved on, but we've hired new pros).
I think the growth opportunities for Silicon Alley Insider, TechCrunch, et. al., are similar to those of CNN in cable's early days, or broadcast news in the early years of TV and radio. This is a new form of news production, and you can't just jam a square old-media peg in a round hole. As an industry, we're still at the beginning of figuring out what is possible, and our hope is that will drive a lot of opportunity down the road.
Give me an example of how journalism can be rewarding.
It's great fun. I was complaining the other day about the ridiculous hours, and my wife said any job in which she can hear me laughing downstairs at 5 a.m. is fine with her.
What led you to put the $400 price on Amazon.com? Did you really see it coming or were you out to make a splashy prediction?
Are you serious? That was a decade ago. But, yes, I thought it was going to $400 ($67 in the current share-split). You humiliate yourself enough in that business without making predictions you don't actually believe. Clients do prefer clear, bold calls to mush-mouthed equivocation, but I wouldn't have made the call if hadn't thought the stock would get there.
Some people strongly believe that your punishment didn't go far
enough. What does it mean when someone bans you from your chosen profession for life?
If that's the case, I'm sorry to hear it. The allegations were devastating to me. Over the course of the late 1990s, I had the privilege of earning the respect and trust of millions of people, and a few minutes after Spitzer's press conference everyone decided I was a scumbag. Fortunately, in the years since, a lot of folks have been willing to give me a chance to earn back that trust, and I will forever be grateful for that.
What do you say to investors who took your advice and lost?
The same thing I said at the time: I'm very sorry I missed the market top. I did get the big picture right--that the late-'90s boom was a bubble--and I'm glad I recommended that even aggressive investors only put a fraction of their portfolios in the Internet sector. But I got caught in the typical bubble trap, which was not wanting to miss further upside, and I'll always regret that. (For what it's worth, I also followed my own advice--and lost a boatload of money.)
What's most misunderstood about your career as an analyst?
I think the most important thing to understand about stock analysts--still true today--is that they're not investment advisers. Analysts actually play a limited role in the overall investment process, which starts with asset allocation. Analysts come into play at the end of this process (and then only if the recommended portfolio includes an allocation to the analyst's sector). Internet stocks were great additions to aggressive portfolios for most of the 1990s, but they were never appropriate for conservative investors.
Eliot Spitzer. What do you think of how he handled your case? What is your opinion of what happened to him?
I actually have a lot of respect for Eliot Spitzer. I disagreed with many of his conclusions and tactics, but I admire much of what he was trying to do. I was as shocked as everyone else by his fall.
Much of the coverage about you in the past several years has been positive. What do you say to pundits who argue that you're trying to redeem yourself?
If the coverage really has been positive, I'm grateful. It was horrible there for a while. With regard to trying to redeem myself: Hell yes. As I said, I'm grateful to everyone who gives me the chance.
TechCrunch's Arrington criticized you for predicting Google would hit $2,000. Is it hard to make big predictions when critics are always going to make comparisons to your analyst days and accuse you of being dishonest?
Any time you stick your neck out, someone's going to hit you in the head with a two-by-four. But if there's one thing I've learned over the last couple of decades it's that if someone's not shrieking, you haven't said anything interesting.
Google $2,000 was a 10-year scenario. Last fall, when I wrote that post, Google was trading around $700 and $2,000 in 10 years would have produced a 6 percent annual return. Part of my point was that anyone who didn't believe the stock was going to $2,000 should dump it immediately. For what it's worth, I stand by that target. I just hope the stock drops to, say, $300 in the meantime, so the return justifies the risk.
Make another bold prediction. What company or sector has you most excited?
The Dow's going below 10,000, probably way below. But if you want to invest intelligently, ignore that prediction (not because it's wrong--because it's a prediction). Just keep making regular contributions to a globally diversified portfolio of low-cost index funds, and, in the long run, you'll come out OK.
Finally, what's the smartest thing you've done in the past year?
Not buying newspaper stocks.
"Unedited. Unfiltered. News."
That's the slogan CNN chose for its user-generated news site, iReport.com, a place designed to tap into the citizen journalism craze. At iReport, any member of the public is allowed to post stories, ostensibly as part of the cable network's news operation, simply by providing an e-mail address. CNN and citizen journalism are being criticized after someone used the site on Friday to spread the false report that Apple CEO Steve Jobs had suffered a serious heart attack.
Apple CEO Steve Jobs
(Credit: James Martin/CNET News)The bogus story sparked a minor panic on Wall Street before Apple had a chance to deny the rumor. Trading in Apple's stock skyrocketed, and the share price briefly fell about 10 percent before rebounding later in the day.
How is it possible that a single fraudulent Internet report can wipe away millions or even billions of dollars of market value from one of the world's most powerful technology companies? That's the big question if you're one of Apple's investors. If you're an investigator for the Securities and Exchange Commission you're interested in who did it and why. According to CNN, SEC investigators are looking for the person who posted the fictional story to iReport.
Some of the other questions being asked are why mainstream news services didn't discredit the report before any damage was done? And who was minding the store for CNN? Surely, one of the country's most trusted news sources wouldn't allow just anyone to post a story under its banner without vetting it.
Also at the center of the controversy is Silicon Alley Insider, a New York-based technology and financial news blog that has earned enormous respect and popularity in a brief amount of time. SAI and CNN could see their reputations tarnished if they're found to be at fault, but I venture to say that in the wake of the controversy, everyone involved in online journalism is doing some self reflection.
This is a time of intense competition in tech journalism. A decade ago, newspapers used to write today's news for tomorrow's paper. Not anymore. Reporters are increasingly under pressure to publish news to the Web minutes after events occur. People who have been in the business for a while know what's often lost with this need-for-speed mentality is thoughtful writing and careful reporting. Following the phony Jobs story, many pundits placed the blame at the feet of CNN and citizen journalism. But the facts of the case raise questions about whether professional journalists behaved responsibly in their handling of the story.
"Severe chest pains"
The incident began when someone posted a report on CNN's iReport shortly before 4 a.m. PDT. "Steve Jobs was rushed to the ER just a few hours ago after suffering a major heart attack,"the post at iReport read. "I have an insider who tells me that paramedics were called after Steve claimed to be suffering from severe chest pains and shortness of breath. My source has opted to remain anonymous, but he is quite reliable."
What hasn't been widely circulated yet is that iReport was not the first place the fake story was sent. Arnold Kim, who operates the blog, MacRumors.com, wrote Friday that someone submitted the same rumor to his site using an anonymous IP address. Kim did some research on the rumor and decided it was a fake. Later, he tracked the report and found it being circulated by members of online message board 4chan. Kim also discovered the item was circulating on Digg, a popular news aggregation site. Digg users, however, voted the story down, meaning they also were skeptical.
The next place Kim saw the rumor was at SAI.
At about 6:25 a.m. PDT, SAI published this headline: "Apple's Steve Jobs Rushed To ER After Heart Attack, Says CNN Citizen Journalist." Within the blog, SAI informed readers that the report hadn't been substantiated but reporters were checking it out. To that point, no other mainstream media outlet had published anything about Jobs' health, according to Henry Blodget, SAI's founder and a former well-known tech analyst.
Blodget told CNET News that his staff tried to contact Apple and CNN representatives to confirm the story prior to publishing but were unable to reach them. SAI decided to post the item--with all the disclosures about it being unconfirmed--anyway.
At 6:41 a.m. PDT, Apple's stock price began to plummet.
At 6:52 a.m. PDT, SAI updated its story to report that an Apple representative had denied the iReport story, Blodget said. A few minutes after that, Apple's stock began to recover.
Blodget defends his site's story
Kim from MacRumors argues that it was SAI's post that gave the rumor credibility and spooked Wall Street. "The (iReport) story has been picked up by numerous sites as a failure of citizen journalism," Kim wrote. "It's nothing of the sort. The real reason it gained traction is the reporting of it on mainstream blog sites."
I asked Blodget whether SAI should have waited to confirm the information before posting. After all, the blog was dealing with a potential life-and-death report about one of technology's most influential leaders. Blodget said he has no regrets about going with the story when he did.
"The Steve Jobs report was the lead story on a site operated by CNN," Blodget said by e-mail. "It was highly relevant to anyone who cares about Steve or Apple...It was already getting notice when we heard about it. We never know how long it will take to confirm or reject information like that, and we knew our readers would want to evaluate it themselves. So we described exactly what the report was, said we didn't know whether it was true or not, and said we were investigating. Twenty minutes later we broke the news that the report was false."
CNN responded to this by saying that while iReport is relatively new, the company has been involved in user-generated content since August 2006 and this is the first time that any mainstream news site has mistaken some of its user-generated content for CNN-vetted material. Jennifer Martin, a CNN spokeswoman, said that though CNN owns and operates iReport, it is very clear that the information on the site is, like the slogan says, unedited and unfiltered. In iReport's "About" section is written this statement: "CNN makes no guarantees about the content or the coverage on iReport.com."
That may be true but a visit to iReport reveals there is little to distinguish user-generated reports from those filed by professionals. CNN often does fact-check some of the user-generated stories. If they're accurate, the network will use them on TV broadcasts or CNN-branded Web sites. Martin said these vetted reports are clearly identified with the label "Now on CNN."
What are the lessons?
As for Silicon Alley Insider's part in this mess, Blodget suggests that CNN's ownership of iReport gave credibility to the false Jobs story. But some Apple investors might say the same thing about SAI's report. The former analyst was once a Wall Street insider and his staff has been loaded with seasoned reporters from publications such as Forbes and Variety. Even if SAI prominently noted that the iReport story was unconfirmed, the fact that SAI had written about it and was checking it out may have given the report some credibility.
This isn't the first time that a respected blog has found itself answering questions about why it reported on a bogus tip. In May 2007, Engadget received what appeared to be an internal Apple memo that indicated the launch of the iPhone was going to be delayed. The memo was a fake and after the gadget blog reported the false rumor, Apple's market cap lost $4 billion. Engadget, like SAI, did not confirm the story first with Apple before publishing.
There's no doubt that both CNN and SAI will move forward and continue to produce important and accurate news stories. Maybe CNN will take a closer look at how it displays its user-generated reports. As for journalists, citizen and professional, maybe the takeaway for us is to slow down just long enough to make one more phone call, talk to one more source.
The public is less interested in us getting the story first as it is in us getting the story right.
MySpace Music is having some trouble getting out the door it appears.
Sources told me months ago that overseers of the new music service, formed by News Corp. and the three largest music labels, were shooting for a September 15 launch date.
The blog Silicon Alley Insider wrote recently that the launch date had been moved back to September 18. Now Peter Kafka of SAI, citing music industry sources, is reporting the launch date may get pushed back a week.
Kafka, a former writer for Forbes magazine, reports that there are two obvious possibilities. On Monday, CNET News reported that EMI, the smallest of the four top recording companies, was close to finalizing an agreement to join the other labels in backing MySpace Music.
My sources said the deal was still held up by a few obstacles but that the parties were working to get something done in time for launch.
The other possibility is that MySpace Music is waiting to find a chief before rolling out the music service, which will offer downloads, free streaming music, and concert tickets.
The Los Angeles Times reported Saturday that the candidates have been reduced to two: Owen Van Natta, the former Facebook chief operating officer, and Andy Schuon, a longtime music industry executive.
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