At 6:14 PM -0400 6/13/00, Declan McCullagh wrote:
>At 09:23 6/13/2000 -0700, Tim May wrote:
>>If ZKS crashes and burns with an investment pool of several tens of
>>millions of dollars--someone told me they'd raised more than
>>US$75M, but I haven't looked closely--then "educated investors"
>>will likely avoid this type of market.
>
>At CFP, ZKS told me they had 200 employees and were growing fast,
>were about to open a bay area office. Let's say they're at 250 now,
>and each employee costs them $100,000 a year (hardly inconceivable,
>including benefits, overhead, salary).\
This is the estimate I used as well, of course. It could be low by a
factor of 2. (Loaded rate depends on benefits, taxes due, office
costs, etc. Programmers in the Bay Area are averaging $70-120K in W-2
pay, so their loaded rate is probably $120-200K. Lower in Canada.
Lower for other types of workers. Stock options can suppress pay
somewhat. Still, "200 employees and growing fast" means they'd better
be hauling in some mighty good revenues mighty soon, before they
light the afterburners one last time.)
>
>ZKS said in Sep 99 they had raised $12 million in a first round, and
>in Jan 2000 $25 million. Let's call it $40 million.
>(http://www.zeroknowledge.com/media/pressrel.asp)
>
>Their burn rate, however, has to be something like 250 employees *
>$100,000 = $25 million/year. So since they've been around for a few
>years now (albeit with a smaller number of employees in 1999),
>they'd probably have at most a year's worth of cash on hand.
>
>Offsetting that, as an income stream, would be the deals with ISPs
>and a probably relatively small revenue stream from individual
>subscribers. I don't see either as generating tens of millions of
>dollars. In a pinch, they could raise more cash in a hurry, but that
>would be at terms disfavorable to ZKS founders and first-round
>investors and would mean ceding control of the company.
And my rough calculations didn't include the cost of the network
bandwith, nodes, etc. The kickbacks to those who host traffic of
course comes out of the per-seat revenue ZKS takes in.
Try as I do, I can't see how enough users will sign up to pay the
overhead we're talking about here, let alone to pay back the
investors (in the usual means).
If deals are being worked out with ISPs, the revenues per user
clearly will be lower than $50 each. For example, AOL might offer
Freedom to its users for some discounted price. Unlikely that ZKS
would realize anything close to $50 per seat, certainly not for all
of AOL's tens of millions of customers.
(I'd venture that 10% of all AOL users might be willing to pay as
much as $2 a month extra for the Freedom services. Do the math. And
then there's the issue of liability and subpoenas for AOL. They've
shown a willingness in the past to eagerly help prosecutors,
investigators, etc. Will AOL really be happy having Freedom nyms
posting untraceably?)
--Tim May
--
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Timothy C. May | Crypto Anarchy: encryption, digital money,
ComSec 3DES: 831-728-0152 | anonymous networks, digital pseudonyms, zero
W.A.S.T.E.: Corralitos, CA | knowledge, reputations, information markets,
"Cyphernomicon" | black markets, collapse of governments.
