Michael Arrington of TechCrunch has decided to start angel investing again…

In 2009 the accusations of conflicts of interest by our competitors became somewhat distracting, and for a couple of years I discontinued investing in startups completely.

That policy has now changed. Over the last several months I have begun investing actively again. We’ve noted these investments in Shawn Fanning’s new startup and in Kevin Rose’snew startup.

I have also become a limited partner in two venture funds, Benchmark Capital and SoftTech VC. I am considering investments in a few other venture funds and a couple of startups as well, but have nothing further to announce yet.

and people are making a big deal out of it…

Arrington says "I think that this will all be fine," because he plans to disclose everything. But his conflicts have already illustrated how reporting financial tech news tends to be in fundamental opposition to participating in tech finance: Rather than reporting on Napster creator Shawn Fanning's new startup "Yo" when he heard about it, Arrington jumped in as an investor. Only when one of his reporters uncovered the story independently, as Arrington describes it, did TechCrunch publish the news that the site's own editor had known for some time. And that is the flaw with trying to mitigate conflicts with disclosure: You can't disclose when you're sitting on information; otherwise you are, by definition, not sitting on the information. Likewise, it's hard to see how TechCrunch is going to disclose when it doesn'tcover a competitor of one of Arrington's companies (Twitter, maybe?).

The problem with isolating financial gain as a serious conflict of interest is it ignores all the other conflicts that are just as likely to cause a bias.

The most obvious of these is personal relationships.  The valley you read about in blogs is really just a series of relationships between the media and those founders who are lucky enough to interact with them.  There are tons of other startups that will never personally meet a TechCrunch author and as a consequence will be lumped into the thousands of startups begging for coverage by e-mail (and getting none). 

Even where a personal relationship isn’t present things like location play a huge factor in coverage.  Is there anyone reading this who honestly thinks a startup in Chicago would get as much coverage as one on Market Street?  If so you’re fooling yourself.

In fact I’d argue financial bias is the least of all biases.  Because people acknowledge it’s wrong so they actively resist it.  That’s not true of other biases.

You’d never see someone like Mike Arrington write a post disclosing his friendship with Loic Le Meur because as a society we don’t see anything wrong with “helping a friend”.   Yet the second he invests in Seesmic he feels the need to disclose it. 

But isn’t a personal relationship just as likely to cause a someone to view a startup favorably? 

So all the talk about Arrington’s investments hurting TechCrunch is much ado about nothing.  In the end a media outlet’s only guard against bias is to actively resist it from where ever it comes and the only factor a reader should consider is whether they believe that outlet is capable of resisting it. 

From ReadWriteWeb…

After mixed reviews detailing the unfinished state, not to mention the bugs and quirks that comprise RIM's new 7-inch tablet computer, the BlackBerry PlayBook, few expected yesterday's launch to be anything short of failure. But as it turns out, the tablet did better than expected - at least according to analysts. Early reports estimate that Research in Motion (RIM) moved around 50,000 units on day one of the PlayBook's commercial availability. There are even some reports of the tablet selling out at major retailers.

Of course, 50,000 is a drop in the bucket when compared with Apple's booming tablet business. For comparison's sake, Apple sold 300,000 iPads on day one last April - a launch that defined the tablet market itself.

An important point here.  The iPad launched in the  U.S. on April 3rd and in the rest of the world a month later.    So that 300,000 number is just the U.S.  The same is true of the Motorola Xoom which was released in the U.S. on March 27th but didn’t make it to Canada until April 8th.

The Playbook on the other hand released to the U.S. and Canada at the same time.  To compare Apple sold 1 iPad for every 1030 people it was available to while the playbook sold 1 for every 6,900 people it was available to. 

Also keep in mind Canada has always been RIM’s best market (RIM is a Canadian company).  The company itself employs 17,500 Canadians (who I suspect make up a large portion of the 20,000 pre-orders). 

Oh and one more thing.  This is all based on analysis from the Royal Bank of Canada’s Mike Abramsky who has continued to list RIM as a “Top Pick” even as other analysts have downgraded it.    In fact he has been laughably optimistic about the Playbook.  From allthingsd.com…

Strong buying intentions are developing around Research In Motion’s BlackBerry PlayBook ahead of its presumed March launch. Extrapolating from a post-CES consumer survey, RBC* analyst Mike Abramsky concludes the device could sell four million units this calendar year and in excess of six million units in its first full year at market.

“The data shows PlayBook appealing to early adopters and power users, given its differentiation from iPad,” Abramsky told clients, noting that six percent of the survey group said they were “likely” to buy a PlayBook. Of those, one percent were “very likely” and the remaining five percent “somewhat likely.”

This is funny given Mr. Abramsky’s pessimism about RIM’s competitors in the past. 

Bottom Line: The whole thing doesn’t smell right. 

In a post entitled “Time for Google to Cut Up Its Credit Card?” Mike Elgan takes Google to task for spending too much (both in the last quarter and in their future plans).  Here’s the core of his argument…

The company is still growing -- net income grew 27 percent to $8.58 billion for the first quarter (compared with the same quarter last year). That's strong growth, but slightly slower earnings-per-share than Wall Street predicted. Google's stock price fell 5.2 percent.

The real problem is the long-term prospects for Google's continued dominance.

Google faces a volatility imbalance between income and spending. Google is an advertising company. Some 99 percent of its revenues come from ads. The trouble is, ad revenue is fragile, and tends to rise and fall with the economy, and changes in the ad market. But costs tend to be more persistent, and tend to rise, rise and rise.

While 27 percent revenue growth sounds good, consider also that spending is growing much faster. In the past year, for example, Google's research costs have increased by 50 percent. Sales and marketing costs have risen 69 percent.

Google announced recently that it's hiring 6,000 new employees this year -- a 23 percent increase in staff. And Google is paying more for the people they've already got.

I don’t think he’s right here and to illustrate that I want to look at what lies ahead for Google.  Google has two possible futures right now. 

The first is stagnation.  In this future they remain dominant in the advertising space but never achieve huge success in other markets.  Then, as time goes by, their core business starts to erode and they become a company dedicated to maintaining their monopoly at all cost.

The second possibility is they thrive.  To do this they need several successful businesses.  Because the biggest part of thriving is hiring and maintaining quality employees.  To do that you need to be able to pay well and create an environment that’s enjoyable.  That can’t be done with a single product no matter how successful that product might be. 

Once you see those two basic possibilities you can properly frame Google’s situation.  Right now Google is in a negative feedback loop.  It goes like this…

…The company has trouble innovating

…That leads to a bland employee experience

…The bland experience causes quality employees to leave

…Less Talent means more trouble innovating

…And the cycle repeats itself

This is a path to stagnation.  If Google allows this trend to continue they’ll be a company dedicated to maintaining a slowly eroding advertising monopoly within five years. That is not something they want.

So the question becomes “How does Google reverse this trend?”

The only part of the above cycle that is within Google's power to fix is the employee exodus.  That’s where the spending comes in. 

Spending money on additional salary perks and pouring money into innovative products helps retain quality employees and recruit new ones.  This gives Google its best shot at avoiding stagnation. 

So not only is Google right to spend money they’d be dooming themselves if they didn’t.