Technik

Wedding Season

It shouldn't be a surprise that when your kids get to a certain age, they and their single cousins begin to drop like flies and get married. This creates a second Marriage Season in one's life. (The first Wedding Season was when we got married - we also seemed to have scores of friends from college getting married at the same time, too.) We have three coming up in rapid succession this summer. The first is a niece, then our son, who has set up a wedding web site for all his friends to share the experience, then another niece. For the Dad, a nice time; for the Mom, a flurry of activity that seems endless. 

It is also interesting to see how religion has changed - or stayed the same - in wedding fashion. All three have different styles: 

• one is a destination wedding, at the college where they met, with all the trappings of a religious wedding including the Gothic Catherdral, but little actual religion
• another is a HIgh Wedding, very formal, with the Latin Mass and strict requirements for attendees - strict enough it put off some relatives, who will decline attending! Amazing
• the third is more of an elopement, and to yet well-planned, but I expect it to become more of a religious wedding as the  day approaches

For many in a secular society, religion is met at weddings & funerals, and a bit in between (Easter! Christmas! Passover!). Weddings are often approached casually, as if it is no different than living together. What I found, and I think our children and their cousins & spouses will find, is that marriage is different in kind not just degree - the commitment is real and changes the couple to much more future-oriented as well as more tolerant of foibles and quirks. This commitment may be essential to go through the long time together, building a family and retirement, with all of its costs and compromises. 

Religion serves a critical role in weddings, to add solemnity, purpose and tradition to the ceremony, and by doing so reframe the couple from a new way of living together to a new way of life together. 

CES: 3 Things to Know About 3DTV

Everywhere you looked at CES this year was filled with the promise of 3D. Sony made a huge commitment to 3D, betting the company it seems. I think they will lose the bet. 3DTV is not ready for primetime: 

The experience is sketchy

The glasses are a big obstacle. What if you have only two or three at home, and you want a gang to see a football game? Much of the content at CES was repurposed 2D. It looked simply awful. I saw a demo by JVC touted as the first 4K HD experience. It was terrible, with blurs and artifacts. I saw Avatar at IMAX 3D before the show, and even there it took 30 mins into the movie for the mind to calm down and engage with the 3D experience. People with minor eye problems will probably get headaches. The TV experience required real 3D content and new polarized glasses with internal fast switching, and even that was not enough. I agree with this review of Samsung's demo:

Samsung’s glasses-ridden, 50-inch 3D LED LCD HDTV display did not impress us to the least bit. If you can imagine wavy and blurry vertical 3D lines popping at you and inflicting instant nausea and headaches, then you will understand the effect of the display. It was simply too harsh on the eyes and the image changed 3D perspective as the viewer walked left and right. Overall, the image was not natural but was rather cartoonish and definitely not ready for commercial use. 

The content is not here

I saw at least four demos (I lost count). They repeated much of the same content - an Avatar trailer, a Monsters vs Aliens trailer, a Brazilian soccer game, some ancient Kyoto buildings, and some underseas stuff. I had seen Coraline at home in 3D (using the old fashioned red/green glasses) and it was fine. We have had a few other cartoons - Polar Express, Up, Monsters vs Aliens. Hardly enough to fill a Sunday evening, let alone a 24/7 channel. 

Discovery Network announced such a channel, and DirecTv announced they would showcase 3D content, but I see it as a land grab. Early on in HD the inimitable Mark Cuban launched HDNet and grabbed a very valauble cable slot. Discovery need not have that many viewers to create a lot of value, if the 3D content eventually comes. So their announcement does not mean scads of new content.  

When HD launched, there was a lot of content: movies. In contrast there is very little 3D content. It will take years to build. Repurposed 2D movies do not look great. There is a lot of interest in trying this, especially for blockbusters like Lord of the Rings and Star Wars, but it is questionable how good the experience will be. Hollywood is enamored with 3D since they can charge higher ticket prices, and undoubtedly (for a while) higher DVD prices, so we will see some more 3D movies, but it will take a while to fill the library enough for a decent set of 3D channels.

ESPN announced a 3D feed for sporting events. This is more interesting, as football drove color TV and HD. We shall have to see what it looks like, and how much they can afford to broadcast. 

The fix is not that far away

There is a way to get 3D on TV without the funky glasses: use a type of fast phase shift to create the illusion of 3D depth by changing viewing angles. It works with a narrow viewing field today. One way to accomplish this is to shift the angle of backlighting quickly. You can see an example of this effect in the flashing picture, courtesy Jim Gasperini. 

In my conversations I found that it needs 9 fast-shifted views to encompass the broad field of viewing of a typical family room or bar. I suppose this can be thought of as a center view and then four slightly distorted views on each side. The distorted views do the same sort of thing that 'panorama' mode does to stretch 4:3 content across a 16:9 screen. The 9 views allows the off-angle viewing to maintain proper proportions in the center. 

I was told this is 5-7 years away. Apparently the speed needs to increase from (today) 240 fps to over 1080 fps (9 x 120). Or something like that. 

The HDTV industry had been peddling LED as the next big thing. These LED backlit LCD sets are remarkably brighter and thinner, and allow LCD to rival Plasma in much the same way a more efficient speaker sounds better (louder just sounds better; brighter just looks better). Apparently the TV makers got impatient in a bad market; or maybe Sony's big move to bet on 3D pushed the rest of them to join the party. 

I think they will soon have a bad hangover. The rush to start a new buying cycle with 3D is premature. Too many issues come up with the glasses. What do you do when they break? Keep buying more? Are you going to casually sit there in the family room wearing goofy glasses and staring at the Toob rather than socializing? Nah. You will throw the glasses in the gadget bin and go back to normal viewing. 

Marketing to Millennials

Boomers:        Just Do It
Gen Xers:        Why Do It?
Millennials:      Just Did It

We Boomers have ruled to roost since the '60s.  For 40 years, style, fashion, products, politics have been Boomer led.  Youth culture in the '60s; sexual revolution in the '70s; 'greed is good' in the '80s; and Soccer Moms in the '90s.  Yet MySpace, Facebook, YouTube and Skype are not Boomer phenomenon.  Boomers are in power in venture capital, technology, media; and for many years have reaped benefits of marketing to themselves.  Now they must market to their kids.  Do they see this?  Has the mantle been passed to a new generation?

Springtime for Venture - Are IPOs Back?

Paul Kedrosky at the blog Infectious Greed has been expounding a thesis that the tech IPO is about to return.  Today he notes that three recent IPOs have done well:

Company	Pricing	First-day close
DivX	Above range	+16.0%
Riverbed	Above range	+47%
CommVault	Above range	+6.0%

 

MySpace Math Does Not Compute

The New York Times ran a piece on MySpace generating $200M revenues this year (an estimate from an outside analyst) with 1B page views a day at a "slightly over" 10c CPM.  Now, 10c CPM * 1B page views * 365 days = $36.5M, not $200M.  So a better current estimate of MySpace revenues is $40M annualized, based on 'slightly over' 10c CPM.   Ross Levinsohn thinks he may be able to double the CPM, and MySpace looks to double over the year in members, and page views may grow faster than members, so perhaps at year-end they could be at a $200M run rate.  No way would their year be $200M.  And even the $200M run rate seems a stretch.  The 10c CPM is a lot lower than even the normal remnant ad rates of 50c on the web, and as members increase there may be more a regression to the mean (fewer page views per member) than the other way around.  A phenomenal success, certainly, but not yet the money engine of Google. 

The Flickrs For Video - Why YouTube?

YouTube has been in the press recently.  It has taken off in the last three months to take a commanding lead in the Flickr For Video sites, including catching up to Google Video.  Flickr itself set off the Web 2.0 craze, encouraging a legion of other Flippr companies, designed to get bought.  YouTube was able to grab Web 2.0 frothy values in its funding.   It has spawned its own legions of video Flipprs.   And they keep coming.  What was it about YouTube that led it to take off?

Web 2.0 Is Over - Did You Miss It?

For many of you, Web 2.0 never really hit your awareness, but out here in Silicon Valley, it has been all the rage.  As reported six months ago, it led to frothy valuations from eager investors.  The dream was that a few engineers, a set of cheap servers, a viral customer-acquisition model, and a clever use of mashing together web services, could lead to rapid riches!  Sounds like the dot-com bubble?  This was even better, since it required so little capital to get going! 

The poster child was Flickr, which got sold to Yahoo for $25M plus an earnout of another 50% on around $1M invested capital. Soon dozens then hundreds of Flipprs got started.  Their model: advertising!

Flickr as a flip was followed by Fox buying MySpace for $580M, and (although not part of Web 2.0) Skype selling to eBay for $2.6B with a $1.5B earn out. Now we're talking real money!  With a deal-or-no-deal mentality, and visions of Skype dancing in their heads, Facebook.com turned down $750M, and is holding out for $2B exit, even in the face of flattening traffic.   Check out the chart: is Facebook worth more than MySpace?

But now the hangover is setting in.  The problem:  the ad models don't hold together.  These little frothy companies are in the bargain basement of remnant ads, and the numbers don't work.  Venture capitalists are pulling back from a momentary irrational enthusiasm.  Now they are investing in either traffic or technology.  Sic transit gloria 2.0.

(Of course, hope springs eternal.  The latest phenom is YouTube, a Flickr for Video. which popped into popular awareness in the last three months, and now has a MySpacian trajectory of growth.  Watch this space for developments .. video at 11 pm.)

The News in 2014 - Google Enters The Matrix

Google merges with Amazon. Old Media is consumed by 'bots. Is this how it ends?

Bill Gates Web 2.0 Memo ... The Wolf is Back!

Ten years ago, in a day that will live in infamy, at least for Netscape, Bill Gates switched Microsoft from his AOL killer, Blackbird, to embrace and extend the Internet.  And we are all better for it.  His memo on the switch circulated the Web 1.0 world and lit a fire in the belly of the great northern Wolf.  (They always do best with an enemy in sight.)  Now, with Google Envy turning into Fear of Google, he has done it again.  Dave Winer, the Ur-blogger, and now a Fellow at Harvard, has published what he believes to be BillG's Web 2.0 email and the Ray Ozzie call to action. 

The wolf is a much feared but misunderstand animal, that when allowed to hunt, improves the ecosystem.  In one decade, the wolves in Yellowstone have removed the voracious herbivores (Elk) from the lower rivers, restored the willows and beech trees that shade the rivers and streams, cooled the waters and enabled many more trout, beaver and other river animals to thrive, and thereby improved the whole park, in a remarkably short period.  Similarly, Microsoft has become the IBM of our days, hobbled by government antitrust and filled with people who do 'stuff' rather than move the needle forward in the company's fortunes.  The wolf has become a lapdog.  It is about time to unleash the animal spirits in that company.

Web 2.0 Podcast

For those of you who would like to experience the new phenomenon of podcasting (broadcasting to an iPod - actually download and play, but the name stuck), here is an interview I did with a Web 2.0 maven, on venture investing in Web 2.0.  The reporter (repoder?) is Chris Law, former head of product marketing at Tribe, one of the first social networks; and now working on his next Web 2.0 venture.  In between he is podcasting for fun and profit.  Enjoy!

You Know It's Web 2.0 When ...

... you start getting silly video versions of jokes.  Remember all those jokes that went around and around during Web 1.0?  Until you told the source to get a life?  It's baaaack!  Here is a Web 2.0 Dilbert.  Here is Microsoft Abu Ghraib.  And my favorite, a parody of the hype around Web 0.9, aka The Information Superhighway.  Enjoy.  And when you watch the overhyped Info Superhighway video, ponder the growing hype around Web 2.0.

More on Disintermediation of Venture Capital

MIT's Technology Reviewe weighed in on Web 2.0 companies disdaining venture capital. They note that "through trial and error ... it's possible to build and launch a Web-based product for a fraction of what it would have cost only a few years ago. Open-source software, virtual work environments (i.e., no rent or overhead), and cheap and plentiful server capacity have helped keep down costs." They think this to will pass. ... As a result, many Web 2.0 entrepreneurs have been able to roll out compelling services without becoming involved in the culture of venture funding." They think this too will pass, once Web 2.0 companies begin to find sustainable business models. Getting launched should not be confused with having a business. Then again, they did not deal with the threat to VCs from Google and Yahoo.

Is Google Disintermediating Venture Capital?

Google is going through that glorious period where It Can Do No Wrong. Sergey and Larry can buy a 767 and still do no evil.  Google can take on the phone companies with free WiFi.  It can take out the libraries by digitizing books.  It can align with Sun and take on Microsoft!  Fear of Google is causing odd business mashups like Yahoo IM + MSN IM, or MSN + AOL.  So maybe Google can also overturn the venture business? 

'Froth' in the Venture Market

Web 2.0 has re-energized the entrepreneurial community.  (Whatever Web 2.0 means.)  Stories are coming in of competition for deals and a surge in A round valuations. Here is a flavor. A couple of Stanford sophomores got $5M on $8M pre-money. A deal turned down by one name partner got picked up by another at a leading fund. One of the hot deals from DemoMobile claims to have three term sheets, ranging from $7-10M on $12-15M pre-money. The list goes on.  What gives? Have the VCs once again lost their good sense?  And so soon after the last bubble?

The Cellphone as the Next PC

Or maybe not.

There has been a search for the Next PC since the first PC. In the late '80s, John Doerr thought it was pen-based computing, and invested in Eo and Go, later merged into what a long-forgotten wit called Ego. Now Ego is long forgotten. In the early '90s, John Sculley thought it was PDAs, and he began his long slide from tech fame after his infamous proclamation that the Newton would win a major part of a "Trillion Dollar Market." In the mid-'90s, Jeff Hawkins said handwriting recognition was not possible on a small device, and then he went on to prove himself wrong a year later by founding Palm. He left Palm and innovated a second time by adding cellphone capability to a PDA , calling it the Treo; but by then was destined to lose out to the RIM and its addictive Blackberry, called the Crackberry among the Digerati. Why he lost is very instructive - more on this below.

In the 'Oughts we now believe that the Cellphone is the Next PC. And what a PC it is! The PC is a mature product with annual sales around 200M units, while the cellphone has rocketed past those volumes towards 1B units per year. Features in the cellphone either get adopted at massive scale, or dropped. Cellcams made the cut. Music is now being tried. Microdrives may be next. And keyboards. And so on.  Is it the next PC?  Let's take a closer look. 

Rule of N Investment Strategies

The question of when to jump in to digital media investments is only partly answered by the Double Bubble analysis.  The way to play these opportunities is also related to the market structure and to the venture's leverage or market power.  Laid out in this post is one model that is a shorthand for the relative power of the industry structure vs. any particular venture.   The various industry types can be simplified to a Rule of N, meaning how many likely winners emerge after the war of attrition in the early going.  Like all such models, exceptions abound, but it does provide guidance for when to jump into a new venture based on likely resulting industry structure.

To summarize investment strategies:
Rule of 1 ventures: invest early, before the leader emerges.  Use marketing to create the leader.
Rule of 2 ventures: invest late, often very late.  Pick the leader.
Rule of 3 ventures: invest late.  Pick #1 or #2, or get out. 
Rule of 5 ventures: invest early, based on IP/hits and distribution scope. 
Rule of 8 ventures: don't bother

Double Bubble

The three rules of real estate are widely known: location, location, location.

The four rules of venture capital remain a mystery to most: too early, too early, too early, too late.

Case in point: digital media.  A number of funds were formed to do digital media deals a decade ago during the Info Superhighway craze that led to Big Telcos romancing Hollywood. As they say, a shotgun wedding. It ended badly, and these funds performed poorly. One wants to invest when the trend is clear, but before the herd drives value up.

Are we there yet with digital media?  The answer seems to be yes.  It will be seen as the second Internet Bubble, and should be fast and furious once underway, perhaps as soon as 2007-8.  To understand why, consider the Double Bubble phenomenon of technology innovations. 

Chilling Resonance of Grokster Down-Under

This is a guest-blog from The Jamster on a related decision in the land of Oz, which imposes liability on the carrier in the middle that seems to go beyond the liability in Grokster for the direct infringer, an odd and disturbing result:

Yelnick's description of the "search for intent" in the Grokster decision as "chilling" has a strong resonance, especially for ISPs, with the decision last week of the Australian Federal Court in Universal Music Australia v Cooper.

Grokking Grokster

The Grokster decision held that Grokster and Streamcast were not protected by the Betamax decision and were potentially liable as having blatantly induced copyright infringement. The initial view held that Hollywood won, but that view has given way to a belief that the Betamax decision was reaffirmed and even expanded. The truth is in between. The Betamax decision was expanded by finding that instead of imputing intent to infringe from infringing use, a higher standard of actual inducement was necessary. But - there is always a but - the new inducement test may create a chilling effect for a period of time until it becomes clear (after other cases) that a fairly high standard of intent is required.

In Betamax, the Court borrowed from patent law on contributory infringement to create the "substantial noninfringing use" defense. In Grokster, the Court borrowed from patent law to create a new test of inducement to infringe. Inducement is a subjective question of intent, and can be shown from internal emails not just external marketing messages. So copyright now evolves from an objective, strict liability doctrine to a subjective, search-for-evidence area of law.

The concurring opinions appear to expand Betamax by allowing fairly minimal legitimate use to offset infringing use. And they make it clear that merely knowing of substantial unlawful use does not take one out of the Betamax safe harbor. What takes the technology provider out is the intent to induce infringement.

Often the stated principle of a case is less important than the footnotes. Grokster has footnote 12, which says "in absence of other evidence of intent, a court would be unable to find contributory infringement merely based on failure to take affirmative steps to prevent infringement, if the device otherwise was capable of substantial noninfringing uses." Fair enough. But what if copyright holders ask the technology provider to modify the tech to limit infringement? Lack of response might be construed as evidence of intent to induce infringement.

The search for intent is rather chilling. The post-bubble ritual punishment of bad CEOs hung people such as Frank Quattrone on as little as one ambiguous email. Could a new technology be shut down due to an overzealous middle manager's emails? The Court uses words like "purposeful" and "clear" to describe the level of intent that rises to unlawful inducement. This is a high bar. Let's hope the lower courts apply the higher test and reduce the chill. But that will take some time and a few cases.

The net net is yet another set of prophylactic procedures, to dumb down marketing messages and get marketing managers off email (IM anyone?). Copyright holders will try the 'please modify' letter to create a trail of intent where none may have existed. Google has already backed off its video service a bit due to complaints from content companies. And the use of "-ster" in the name will go away - the very name Grokster, riffing on Napster, was evidence of intent.

Best advice is not to ask what users are doing, and not to sell them on aggressive use

Or: don't ask, don't sell.

Liberate From Sarbanes-Oxley!

Liberate Technologies, a one-time developer of interactive TV software and current clean-up project, announced today that it plans to go private in a reverse stock split. This is a technique recently perfected by thinly-traded Canadian stocks that has now taken hold in the US. The way it works is to reverse so massively - Liberate is doing a 250,000:1 reverse - that almost all shareholders are reduced to below one share of stock. Then corporate laws allow the company to pay the value of one share (now 250,000 times higher!), lower the number of shareholders, and take the company private.  (Companies with fewer than 300 shareholders need not comply with public reporting laws.) In this case, Liberate shareholders with fewer than 250,000 shares will be shrunk below one share, and receive about $4 million.

Why do this? Sarbanes-Oxley, which roughly doubles the cost of being a public company.

Those who think SOx is a good idea should take note. We always over-react to a stock market panic, and the cure is often worse than the illness. It took 60 years to repeal the bad laws after the 1929 crash. Senator Oxley himself thinks his law has been taken too far. Next we will see venture-backed companies going public overseas to avoid SOx. We hear the Tokyo exchange is particularly friendly!

Brian Roberts Comes to Sand Hill Road

The general view in the venture community is that it is very difficult to make money on cable technologies.  Brian Roberts, CEO of Comcast and son of its founder, came to the center of the venture capital business on Sand Hill Road to inspire venture investment in cable.  Brian is a very accomplished person and has managed Comcast to king of the cable hill.  The cable industry was created by true cowboys, a colorful lot who wheeled and dealed, bluffed and stuffed their way to sizable franchises.   Brian was the only guy in the room with a tie, which shows how the industry has matured.  He was quite engaging, albeit in some cases he gave with one hand then pulled back with the other.  His core message is that competition and consolidation have changed the prior dynamics of dealing with the cable cowboys.  Did he make his case? 

Blogging the Under the Radar event

The Under the Radar events are a reality show for entrepreneurs - MIT venture forum meets American Idol.  Entrepreneurs pitch their new venture to a panel of VCs.  They get 3 slides in 5 minutes or they get gonged.  The venture panel asks questions, then the audience, then the winner is picked. The venture panel gets to explain their reasoning, and on a good day can really have fun with the venture contestants. GONG!

This event was an all day affair with four sets of companies: search, social software, mobile apps and digital entertainment.  More info and notes are here. I was on a panel for the mobile apps sessions.

Stanford Symposium (4): Home Media Networking

Here are some further notes from today's Stanford Symposium on new networks and content models.  The Symposium was broken into four panels.  This is panel 4. 

Home Media Networking: The Battle for the Living Room

Bernd Girad of Stanford notes that the entire Netflix archive is 400TB, or 200TB compressed in mpeg4.  Since disk drives increase 10x in capacity every 4 year's (Shugart's Law is steeper than Moore's Law, except no disk company got an architectural lock, so the drive business is a doggie race to the bottom), a  normal $65 drive will be in that range within 10 years. Maybe then Tivo has a business model.

Moshe Lichtman of MSTV tried to explain why the company which lost $4B on xbox so far and invested $12B in cable/telco and lost at least half of that could make it up in volume. At least he spoke loudly. He was animated! He thinks IPTV will be big, really big! ... as big as b+w to color, radio to TV, as big as TV itself! And MS can make it better, by for example making the channel switch from 2 seconds (satellite) to under one second, or by giving access to new content like Bollywood movies. He demoed MSTV and the demo worked! He was able to switch instantaneously, which was pretty cool until he explained in a quieter voice that this was just for DVR content. But he did show some cool features, such as watching 4 baseball games at once, although his demo just showed four different skiing videos. Did he answer the initial question, how to make it up on volume? Usually the explanation for Microsoft's losing billions in set top boxes is to win the set top OS business and replicate the architectural lock of Windows on the PC.  His answer instead is that MSTV will move the center of gravity from STB back into the network. Huh?

Tony Aoki of Sony talked of the need for a STB standard - like an OS! Solving incompatibilities between file formats, DRM, carrier networks, and other devices. That was it from Sony. Clearly they lack any sense of what to do anymore.

Reed Hastings of Netflix framed this as a 20 year fight for who has control. If TV wins, we get subsidized set tops, and with it faster channel switching (applause), but they control what we see. New media will develop on the web, as the forces of freedom will spend more time on the PC. The alternative is an open platform where the laptop or equivalent is the remote, and you can chat etc. watching TV. Ironically, the champion of the open world is - Microsoft! They never have charged for access to their world. In the open world, the long tail is a proven model - that is Netflix's business. He gave an example of a new movie called Hustle filmed cheaply with $3000 HD cameras from Sony and marketed by Netflix. He proposes we stop calling broadband a dumb pipe, instead call it a profitable pipe! They could make an even higher profit charging $40 for the pipe and letting the forces of freedom offer content. He sat down to the wildest applause of the day.

Dan Rosenweig of Yahoo says he is for freedom, but he is part of the forces for the market. Originally access had premium pricing, but now it is commoditizing. Devices are commoditized and subsidized. Only the consumer cannot be commoditized. He noted that 68 billion photos are stuck on cellphones and can't get off since the forces of control are trying to force the consumer to go through their services. (How did he come up with that number?). But technology will find a way around the gatekeepers. In this new world content takes on a new meaning.  Search will let you find it without you having to remember where you put it.  Flickr started as your photos on the web, then your photos available to others, then communities forming around them, and finally communities enhancing your photos. Thus search, user-generated content, communities, and personalization is what new media is about.

Q&A: Moshe of Microsoft unintentionally dissed his telco partners by blaming their hunt for control as the reason the US is the most backward DSL country in the world. Reed defended crap long tail content by asking whether blogs have value? There is a market for both mass content and micro-market content. Dan made an impassioned case for why the open world will solve problems such as tying Flickr to Desperate Housewives whereas the control world would never bother to figure it out. He gave an example of a Yahoo user who found a way to tie Yahoo News to Flickr. Tony of Sony reiterated how CA/DRM is an impediment to mix and matching content in the home. Bernd of Stanford wondered whether wireless broadband may arrive before the home wireless problems are solved. Moshe was asked about DRM in MSTV - since MSTV was moving the center of gravity away from the STB to the network, would he support Sony's goal of third-party DRM in the STB?  Moshe tried to duck the question by saying MS supported interoperable DRM, but he left the clear implication that he is opposed to third party DRM. No surprise there, same old Microsoft I guess.  Too bad.  Moshe added that MS is working on a $15 chip about two years out which allows multiple services to a generic STB.  Reed explained why that is not the same as having multiple broadband providers, all open.  Moshe was pounded with more questions - if the center of gravity is moving into the network, where will it?  Seattle?  Naw, it will be in the super headend. 

Stanford Symposium (3): Mobile Media

Here are some further notes from today's Stanford Symposium on new networks and content models.  The Symposium was broken into four panels.  This is panel 3. 

Mobile Media: Can You Hear And See Me Now?

Bill Wolfe of Openwave opened with the operator view: voice is maturing, prices are eroding, how to make mobile media both higher ARPU and lower churn (sticky). Answer lies in customized handset ie. carrier defined UI, and services. On services, he misapplied an analogy to the Rule of 3, and his example lost the audience, but in essence said the goal is to offer voice+two other services to make it sticky, services that are not out of core industry, such as voice+banking or voice+media. Noted that VZ is about voice, Cingular and tmobile about cheaper voice+data, Sextel is advanced data, and DoCoMo is voice+advanced data+media. Says OpenWave is about mobile marketing+data/voice/video communication. If y'all are confused about how this fits together, so was the audience - coughing and rustling was beginning to drown out the speaker. He seems to be saying OpenWave is trying to do social networking on cellphones as a way to market content. His one example was multiplayer games.

Next Dr. Hara of TeliaSonera gave the carrier view direct from the source. With the restless audience and his pronounced accent the biggest challenge was following his argument. The audience quieted down and strained to hear his words, or tuned out and worked on their laptops. He said voice and messaging are dropping in revenues and the future is services and content. The examples were vertical apps - medical and similar. No killer app. Just multiple services. Not Hollywood - too bandwidth intensive until we get (a) cellular broadcast, which is coming, and (b) bigger screens, such as the rollable epaper from Philips. Bandwidth will be solved by WiFi and WiMAX for rich content. In the future you won't know or care about the access technology. I guess 4G won't be CDMA. Time to short Qualcomm? He also complained of "terminal diversity," which creates a challenge to ensure consistent service delivery across different types of mobile devices. He dissed open platforms for content as lacking sufficient assurance of consistent service quality.

Andrea Goldsmith, Stanford EE Prof, gave a talk on 'can you see me now?', nice riff on the VZ tagline. She just flew in from Korea (and as the joke goes, boy are her arms tired) and speculated that going the way we are going with 3G and 4G cell networks and WLANs, we might never get to where we want to be - like Korea I suppose.  Her answer: cross layer networks. Now, she noted the great advantage of the Internet was it separated the transport from the app layers, allowing parallel innovation. Now she wants to break that progress for mobile media over wireless networks, and go back to the future. Too much kimchee? Maybe.  Her first example is MIMO, which is not cross layer but within the link layer. Her next example is mesh networks. No argument there, but it can be done at link layer or MAC layer, or at the network layer, not cross layer. Her main point turns out to be to define app types like video vs voice and optimize the lower layers around the app.  Good idea - wireless MPLS?  A mesh can be designed with multiple states around which to optimize - latency, jitter, caching, battery drain, etc. - depending on the traffic. She ended by extolling cognitive radios to optimize cross spectrum.  She got her point a-cross. 

Greg Ballard of mobile game company Sorrent did his best to save this panel from terminal inanity.  Core problem of mobile media - how to merchandise on an extremely limited screen. Compare that to retail, where you are inundated with info, samples, etc and can be sold new items. Hence he believes the future of mobile media is to market it via multiple channels: cellphone/carrier, web, retail, handset OEMs. Will go from 95% carrier to 50% carrier.  (Already in Europe mobile content is sold 50% 'on deck' and 50% 'off deck', so likely he will be proven correct.) 

Every platform has been driven by a killer game that exploited the core improvements of the platform. Pong/Atari. Super Mario Bros/Nintendo. Sonic/Sega. Halo/Xbox.  Resident Evil/Playstation.  (Is he kidding? Better choices would have been Tekken or Ridge Racer on the PS1, Grand Theft Auto on PS2.  Sony may be an exception to his rule; the playstation won due to incredible 3D graphics rather than any one game.  Steve Race who set up the launch in the US made sure he had at least two 3D games in each of the five major game categories.)  We have not seen that killer game yet on mobile. He does not know what it will be. It is not from the consoles - been there, flopped. Not Snake. Not Pac-Man. Not Jamdat Bowling.  It will use unique aspects of the phone - Camera? Messaging? Mobility? Location-based?  Interesting is that the most obvious aspect, connectivity, he dismisses - he does not believe in multiplayer games.  Maybe short Sorrent on IPO.

Q&A: will the US ever catch the Koreans/Japanese? Inane answer by Bill from OpenWave that we drive more here.  General agreement that mobile media is not linear content - will be short snippets.  Greg gave insightful comment that we wouldn't play those vaunted Korean mobi games over here not because of culture but because the graphics suck. Implication is we already are eclipsing them. (When everything is built in China, we will still have Hollywood!). Greg got on a roll, dissed a long-tail new mobi media company emerging, dissed multiplayer games, and didn't really need a faster better network. Q&A ended with an MIT prof challenging the Stanford Prof on power consumption over UWB vs. WiFi vs.WiMAX. What this had to do about mobi media was completely lost, but the right coast prof was so animated he even moved seats to get his killer question in. Ah, the risks inherent in an academically-sponsored conference.

Stanford Symposium (2): New Media

Here are some further notes from today's Stanford Symposium on new networks and content models.  The Symposium was broken into four panels.  This is panel 2. 

New Media: Is Content Still King?

Rob Glaser of Real Networks pitched his new Rhapsody 25 service - 25 free samples of music per month. Cute. His demo failed. DRM, perhaps?

David Weinberg of Universal Music painted a good strategy for a music label - just 5 years too late!  He supports digital music everywhere, as long as he gets paid.  Seems that music is done for now, meaning the models are now largely known.

Best so far is Bob Greene of Starz. He pounded home how Starz and HBO own the VOD + payTV + basic/broadcast windows - they own the title from month 3 to year 10. So back off all ye little video bypass ventures! He also showed how subscription is worth much more than a pay-per-view model due to larger user base and recurring revenue model.  He also sees the value of the Long Tail, hence is trying to own the library for longer periods of time.  New initiatives: Starz on PC (looks pretty useful, done with Real, has 300 top run titles - remember he owns the rights!), and the biggee, Starz on PSPs and other portable devices. Lots of interest in the new personal media players.

Jeremy Allaire, CEO of Brightcove, one of the first of the budding group of "Flickr for Video" companies, pitched an open TV platform he calls Internet TV. The IPTV panel made a point that IPTV is not Internet TV. Right they are - Internet TV wants to bypass the distribution control by cable and telco, IPTV is the way they maintain control and yet adopt to the Internet.  He also calls it Long Tail TV but he defines the long tail differently than Starz.  Starz's Long Tail means the library of first run content; Brightcove's Long Tail means all the small or foreign stuff that is hard to find.  Maybe best to call the first one the long tail, and the second the broad tail, since is not focused on library but breadth.  Many obstacles to an Internet TV business model, including getting content rights and being dependent on the very broadband providers it is trying to bypass. It is conceivable that an open STB or equivalent could make this feasible, but better would be a third pipe into the home or into portable media players

Sean Parker, formerly of Napster and most recently of Plaxo, has founded a sleeper social network company, thefacebook.com.  Facebook is coming up the tailpipe of the leader in social networking, MySpace.  (Friendster has faded.)  Has 2.8M active registered users with 65% returning per day, 85% per week and 95% per months.  Billions of monthly page views.  Real names not fakesters due to tie in to colleges: 45% list their cellphone & even more post their real picture. Consequently, the Facebook social network matches the real world network, and the usage is for real world events and interactions.  Is this the next paypal? Or will users drop it after graduation? Enquiring minds wish to know.

His opening point: old media eats up margins - too much to cable, too much to labels/studios, etc. New media can have free content (generated by users), free distribution (piggyback on broadband) and cheap marketing (viral). He is on to something - he defines the long tail as user-generated content.  We could call this the How-to-get Tail, given the prime use of social networks, or maybe the Tail Tail, but perhaps better is to call this the Free Tail. We should not underestimate the value of user-generated content, as the interpersonal communications market (telephony) is much larger than the content market. The cost of delivering new media on the web is so cheap it can use an ad-supported model, including self-service ads (online ad placements, bought not sold).  The sleeper in here is the localization angle - local pizza ads for college kids, or Craig's List, as examples.

Q&A: is content still king? Rob makes the outstanding first point that the bypass models like mp3.com failed in music due lack of the social interaction required to promote new acts (touring, cross-promotion, taste-making by influencers). David agrees, and notes that the Internet is more useful for established acts. Labels are venture capital for artists, and the Internet does not substitute for it. Then the Starz guy began piling on new media.  He commented that crap is crap so having more content is not the answer, free or not.  Now the panel was getting interesting! The new media guys sat like couch potatoes when they should have grabbed the mike and asking the Starz guy what leads him to believe that the vast wasteland of TV is peddling anything beyond crap? Crap sells! 

They all agreed mobile content would be a big winner. Bono at a recent concert called for people to hold up their cellphones rather than lighters to call for an encore.

Blogging the Stanford / Accel Network Technology Symposium

Here are some notes from today's Stanford Symposium on new networks and content models.  The Symposium was broken into four panels, with come pretty impressive speakers and fairly robust Q&A sessions.  Overall, it came out to a bit of draw between the Forces of Freedom and the Forces of Control. 

IPTV: Will The Triple Play Be A Home Run?

Balan Nair, the CTO of Qwest, kicked things off with the business case as to why telcos need to build out a video capability to the home - video spreads the cost of fiber build.   (Seems a bit of a tautology, put like that ...) He thinks he can get 20% of cable fast by picking up those disgruntled with cable, and even if he loses the 20% of disgruntled voice customers to cable, he thinks he got the higher ARPU out of the swap.  What if they are the same 20% (disgruntled with both)?  They go to satellite and Vonage I suppose, and his business case begins to weaken.  Well, we all want them to *finally* build out, whatever the reason, so no one played spoiler and asked any tough questions. 

John Cioffi, a well-known Stanford Prof, lays out how DSL can get to gigabit speeds through MIMO and other techniques.  This means besides FTTP (fiber to the premise), FTTN (fiber to the neighborhood with DSL over copper to the premise) can also result in broadband with speeds over 100 mbps .  His techniques are based on bandwidth management across copper pairs to optimize throughput. 

Kenny Frank, CTO of Alcatel North America, sees the US bandwidth need at 20 mbps down / 1 mbps back.  Assumes 1 HD and 2 SD simultaneous unicasts. Requires more capable QOS in the switches than now for data networks. Video is multicast deep into network before switching off into unicast streams.  Lots of network elements need to work together, means what keeps the telco guys like Jeff Weber of SBC awake at night is integration. I wonder what Alcatel does?  Ah, he described Alcatel as SBC's preferred integrator, and MS as a partner for middleware due to their enhanced EPG experience for consumer. Lists 2wire, Thomson, Pace, Samsung as CPE brands.

Adam Tom, CEO of RGB Networks, who is a very clever guy (he was at GI when they set up their digicipher system for satellite distribution of encrypted video & at Imedia when they developed a multicast multiplexing algorithm for satellite that created a frenzy of interest), has invented a new network element: a switched digital video processor, which combines GigE switch with video processing such as grooming, encryption, splitting from multicast to unicast.

Q&A: most panelists believe telcos can win because switched video is more personal than broadcast, and breaks the need for the content aggregator. The lone pro-cable guy says they will push new content to on-demand tier and take it to broadcast if it becomes popular - point being the personalized MyChannel sounds great but promoting new shows and building an audience are still major needs- in other words, telcos don't understand video. Also their rollout is going to be slow - Qwest estimated only 10% of lines across all ILECs would be upgraded to 20 mbps+ speeds by end of 2006.

Funny moment: question about BitTorrent (which is now 35% or higher of all Internet traffic) and the panelists didn't seem to have heard of it.  Don't they keep up with the bloggers?

VCs Invade China

These days one finds more US venture capitalists in Shanghai hotels than on Sand Hill Road. Is it buy low, sell high? Or a new mania? Looking at how the public investors view the prospects for China going forward, this better be buy low, sell high ... this is worse performance than our Nasdaq post the bubble.

(Chart courtesy of EWI.)

Venture Overhang 2004

VentureOne reports that the VC overhang left over from the bubble era funds (1999 and 2000) and not yet invested or given back is is $54B. More than half, $33B, is earmarked for new ventures; the balance is reserved to support existing investments. New capital inflows into venture are much smaller: $8B in 2003 and $16B in 2004. New funds are also generally smaller than the bubble era gigabuck funds, and yet the amount required before an IPO or exit has been climbing since 2000. Most of the funds have gone Back to the Future, meaning back to doing early-stage investments, with both their new funds and their overhang funds. The result is a gap in mid-stage funding between early-stage who haven't yet hit their stride but have sucked much of the early-stage capacity to invest, and late-stage who are on the ramp towards IPO and find many bidders to get in.

Historically those ventures that require substantial capital to grow their franchises have fallen between the cracks unless some innovative funding mechanism hits the Street. Before they got into the takeover game, Drexel Burnham used junk bonds to fund cable and telecom companies (notably TCI, now part of Comcast, and MCI, soon to be part of Verizon; maybe the CI means capital intensive). Covad and other bubble-era telecom companies also were funded by high-yield debt; and many of the dot-coms were funded with rapid IPO's and secondaries. Today the funding vehicle for these capital-intensive high-fliers is uncertain. The world may be awash in liquidity but a class of ventures falls between the back-to-the-future venture funds and the risk-averse late-stage funds.

Watch closely if the emerging "CI" ventures such as Vonage can snag major private funding to continue their growth. Like TCI and MCI before them, Vonage is suffering massive losses to pay for subscriber growth. Unlike them, when the dust settles they will not have built out a physical plant, but a consumer brand in a rapidly commoditizing market with substantial competitors (Comcast, SBC). Is that enough to gain the confidence of investors?

Do We All Remember to Backup?

Take a Break, Check out the Comet

This being the time of the new moon, it makes for good night viewing.  Take a look to the right of The Pleiades and you will see a small smudge in the sky.  With binoculars, it is clearer.  This is the comet Machholz.  Below is a picture courtesy of NASA.   

For those of you not used to the southern sky in winter, first find Orion and its belt.  Pointing downward to the left, you will find Sirius.  Upwards and to the right, you will find the Pleiades: a cluster of stars, seven of which are visible to the naked eye.  The comet is just to the right, and heading northwest from the Pleiades every night.  (For those of you in the southern hemisphere, Orion is upside down - I don't want to hear an argument, as his sword hangs down from his belt from our view and up in your view - explain that! The comet is heading down to the left, and will soon be below the horizon.)

Did the Google IPO Fail?

Google has done very well in the after market, but there is still discussion and analysis of their IPO. They got out, but in the end it took more of the 'Frank Quatronne' bookbuilding process than one would have expected with a Dutch auction. Did their IPO then fail to achieve its goals, and what does this suggest to others considering auctions?

VC Buzz believes that if they had followed the normal bookbuilding process, they would have come out at a higher price. Their argument is that the bookbuilding process lowers information risk to the investors. Even though it reaches a clearing price, the auction process does not lower info risk. In the Google case, there was a fairly wide spread of views and expectations of the offering - even though there was a fairly deep knowledge of Google itself. In other words, the info risk is over the stock price and potential after-market behavior, not the company itself - in other words, how do you value its prospects? While the auction process reaches a clearing price, it might very well be lower then it would have been in the bookbuilding process.

Most of the complaints of bookbuilding vs. auctions were from rapid stock pops, which seem to benefit the early investors over the company. If auctions come in a bit too low, they will similarly not reward the company, and could also result in similar pops - as Google did. If auctions come in too low and do not pop, the company then risks a loss of interest in their stock, which can be a real disaster for an emerging growth company - many got orphaned after the boom. Some of the complaints of the Frank Quatronne process were that it tended to favor the same firms, the ones that support IPOs, whereas the auctions are more democratic. But this argument is a mixed bag - a decent economic function is performed by those firms which participate in IPOs. Sometimes they do not pop, and the same investors are left holding the bag.

Conclusion: the auction process has not yet proven itself.

The 1954 PC

You gotta love the steering wheel - better than a mouse!

(This picture is of course a hoax.  But a good one!)

The Demise of AT&T, or, The Importance of Being Accountant

Mark Twain said that "there are liars, damned liars and statistics" - with Sarbanes-Oxley, there are 'liars, damned liars and accountants.'

During a boom, all sort of excesses come out. People in leadership cut corners, behave badly, downright cheat - because everyone else seems to be doing it. In the bust that follows, there is a witchhunt to put the most visible fallen leaders in jail. A remarkable legacy of this psychology is with what was once THE premier company in the world - AT&T. During the boom, Worldcom (their biggest competitor) was cooking the books. The Worldcom leader is one of those CEOs who deserves to be spending time in a little gray cell, maybe with a big bad biker dude as a cellmate. During the boom AT&T was constantly criticized for not being able to run the business as efficiently as Worldcom. As a consequence, the CEO was unable to get capital cheaply enough to execute his plan, which was otherwise strategically sound. After the bust, Worldcom restated its results, and lo and behold, AT&T was actually MORE efficient during that period. But the damage had been done - AT&T broke itself into four pieces and is a shadow of its former glory. All due to bad accounting and crooked competition!

It does matter very much that accountants perform with integrity and our business leaders exemplify the values that adhere to leadership at such a level - honesty, hard work, virtue. The capitalist system is based on three legs - free people (democracy), free markets (capitalism), and civic virtue (morality in business). We should not forget the fundamental importance of the third leg.

Fixed Wireless: Back From the Dead?

The fixed broadband wireless space is littered with wreckage. The leaders at the turn of the Millennium - Winstar, Teligent, Metricom - lie in the dustbin of venture history. Their demise took down many equipment companies, and crippled the remainder. The current 'leaders' are the survivors, and are being challenged by new technologies. The battle lines are forming around unlicensed vs. licensed bands. Much of the growth in fixed wireless is coming in unlicensed bands. The licensed band holders are mostly sitting on their spectrum (Sprint, XO) or in bankruptcy (Teligent).

The hope, or hype, surrounds WiMAX, an attempt by Intel to repeat the magic of WiFi. The industry dynamics are quite different. WiMAX is to WiFi what ATM was to Ethernet - an attempt to create a more robust networking foundation that simply failed to gain enough market traction. The Ethernet ecosystem drove costs down and crept into available niches faster than ATM could gain a foothold. It also improved performance beyond the dreams of ATM. Gigabit Ethernet is not your father's Ethernet. Similarly, WiFi is well established and is pushing limits well before WiMAX gets started. The techniques of WiMAX can be incorporated into WiFi systems - and already have (check out SkyPilot Network). The advanced modulation of WiMAX can also be incorporated into WiFi silicon, as a next generation upgrade. WiFi is also pushing technology beyond where WiMAX wishes to be - for example, with the 802.11n standards effort, that could lead to MIMO and other advanced signal processing techniques on a piece of $5 silicon.

Nevertheless, WIMAX has been good to the fixed wireless industry, of raising hope for a Third Pipe based on fixed wireless to challenge DSL and cable. How should we evaluate the current state of the market?

VOIP Will Do What Regulation Failed To Do - Restructure The Phone Industry

AT&T spends $11B per year on local access. With VOIP, they can reduce that at least in half - access is paid at both ends of a call, and their VOIP customer will be one end or the other - and beyond as both ends become VOIP. As long as the broadband pipe is deregulated as an information service (no access fees) but constrained to allow third-party VOIP to flow over the DSL or cable modem service, AT&T can achieve much faster and cheaper what they once spent $99B on (and sold for $50B) when they bought cable assets - bypassing the local phone companies to reach the customer. Their VOIP service is the first step towards a potentially massive restructuring of the phone industry.

VOIP could succeed where Congress and the FCC failed: create a truly competitive phone industry.

Yelnick's Law - The Law of the Attention Economy

We decry our ADD age, the age of Attention Deficit Disorder. Michael Goldhaber has been explaining for a decade that in the age of information overload, our attention becomes the most valuable commodity. His brother Nat went off to found CyberGold, a dot-com designed to take advantage of this insight, by paying people to watch ads online. (Nat also was the first Jewish vice-presidential candidate of a major party, in 2000, but that is a different story.) CyberGold went the way of many dot-coms, by being merged into MyPoints, another online points company, and later being swallowed at the peak of the mania by an Old Economy company, in this case United Airlines, which promptly went bankrupt after 9/11. It never got the attention it deserved, being overwhelmed with so many other similar ventures.

What is the underlying phenomenon? it isn't just about attention being valuable. It is about attention span getting shorter. Yelnick's Law is: the more information we are inundated with, the less time we can spend on any one item. Mathematically:

A = 1 / I

Why Microsoft Needs Sun (And Apple)

Most of the commentary around the Microsoft settlement with Sun focuses on Silicon Valley making peace. This perspective made the front page of the Sunday New York Times. It is certainly to the credit of Sun (and Apple before them) to make their needs the center of the universe even while Microsoft dominates their markets. The more interesting question is why Microsoft paid so much. It is not very insightful to say 'because they can afford it.' Microsoft has been reaching out to the Valley through the efforts of Dan'l Lewin among others for the past three years, for purposes well beyond settling lawsuits.

Part of the reason may be in Steve Jobs' long-time perspective that Microsoft does not innovate, it copies. (As he put it, good artists copy; great artists steal. Steve puts himself in the latter category, Microsoft in the former.) Microsoft spends incredible amounts on R&D with much less to show for it than the cauldron of innovation driven by the venture capital industry. Hence watching that cauldron closely makes sense. But this is unlikely to be the whole story.

Microsoft is much more threatened by the EU antitrust commission, and the US Government before them, than Apple or Sun. Indeed, having made those companies little more than sideshows in the market, it finds itself in the position where their continued existence is of more importance than their competitive threat. Simply put, it gives Microsoft antitrust air cover to show alternatives in the market, however marginalized they may be. Hence the payment to Apple of several years ago, and this reapproachment with Sun.

View From the Tranches: Milestone Investing

Red Herring has been running a series on the venture capital overhang and how it might be affecting the current venture valuations. This series is really more a look at how the venture business has matured. An old VC hand (started in 1969) explains that companies which used to require $2-3M then require more than $20M today. The venture business has commensurately evolved from a cozy club to a competitive cauldron. With it have evolved the deal structures.

Springtime for Venture IV: Overhang or Hangover?

There has been a fair amount of analysis of the so-called venture capital overhang. CBSMarketwatch has its own 'springtime for entrepreneurs' analysis, that the overhang from 1999-2000 funds is leading to rapidly increasing deal pace, as the funds wish to invest quickly so they can raise their next fund when the gettin' is good. The commentary includes the obligatory cautionary note: "I am concerned that we may see a return of the trendy vanguard armed with inflated egos and misguided motives in pursuit of an IPO, even though others don't see it." Red Herring has run a series on the overhang, with interviews of many VCs. Interesting, the VC opinions run across the map. Tim Draper weighs in with the there-is-no-overhang opinion. Nevertheless, valuations are 'going crazy' as one VC notes, meaning overhang or not, the Venture Bubble Echo continues.

Springtime for Venture III: Venture Bubble Echo

The evidence of a bubble echo in venture capital continues to pile in. Initally it was driven by a few hot new categories, such as the Friendster frenzy in social networking. More recently it has been driven by the scarcity of properties for IPO Consequently, it has become fairly widely known that late-stage valuations have spiked up. Now it seems to be expanding to mid-stage deals ;, where it has gotten noticably easier to raise capital and where valuations are beginning to pick up.

Springtime for Venture II: Valuations A' Bloomin'

A veritable plethora of stories have noted the swing in venture activity, some even calling this 'springtime for venture'  (although without the theme song of Yelnick's post ...).  ZDNet reports the venture market as "blistering hot," noting that "the first two months of 2004 have brought with them more tech companies looking for venture capital, and more venture capitalists looking to invest, than any time since the dot-com bubble burst in 2000."  Corante reports that that 48% of VC firms are currently in the process of raising new funds.   At the Innovation Summit in London, Joe Schoendorf of Accel Partners said he was seeing "another gold rush now in its very earliest stages," expecting venture capitalists to be more willing to invest in speculative start-ups now than at any time in the past 24 months.  At the Asia Business Conference sponsored by Harvard Business School, a VC panelist noted that: "Asia's growth in population and spending is attracting VC interest from all over the world—even from die-hard California firms that once invested only in Silicon Valley companies."

The other 'springtime for venture' post reported from fund managers that the "stronger pulse" in the VC industry may be due to "compelling valuations in the venture capital asset class,"  as valuations today are similar to those during 1984-1985 and 1992-1993, approximately two times forward estimated pre-money revenues.  These valuations are beginning to move upwards, particularly at later stages.  Yelnick is aware of some recent deals floating around (several not yet announced) with private values around $400M, a number not seen since the end of the bubble.   The expectation with them is a fairly rapid IPO. 

If sounds as if, if this continues, it will soon be 'summer for venture' with valuation temperatures rising enough to set this bubble echo 'a boilin'.  Several items have suggested that there is still a venture overhang  including a recent McKinsey study.  The implication is the excess money will chase deals, driving values up somewhat foolishly.  ("What do you get when you cross a sheep and a lemming? A venture capitalist.”)

Overall, however, the pundits are getting ahead of the market.  Valuations are picking up, as is competition for deals, but it is still relatively selective compared to the 'real' bubble.

Springtime for Venture?

With apologies to Mel Brooks:

Springtime for venture and IPOs
Winter for cram-downs and RIFs
We're investing at a faster run
Lookout, here comes the billion-dollar fund!

During this Nuclear Winter for venture, many of the megafunds said they were going back to basics and downsizing their funds.  Now the billion-dollar fund is back.  NEA just closed $1.1B Other venture firms have been raising their first new funds since 2000, albeit still smaller than the bubble funds, and often with fewer general partners.   Kleiner Perkins for example is finishing up a $500M fund  (or  a$400M fund, accounts differ), albeit with some confusion about general partner roles, perhaps befitting the Bubble Echo psychology, since they appear to have raised the capital despite some of their premier partners taking a reduced role in the new fund.   Nevertheless, a massive turnaround from 2002, when the VC industry gave back over $5B of capital.  Is this renewed venture optimism a bullish sign?  Perhaps smart money truly believes the bull is back?

Disney Does Digital

The flurry of attention on Disney seems to be missing the fundamental problem: it appears Disney does not 'get' Gen D, the digital generation. The Pixar digital movies have all done better than the best recent features of the vaunted Disney animation studios. This is not a situation which can be fixed by Roy Disney's appeal to go back to traditional Disney ways. Nor by Comcast, which is known by its efficiency (and deal timing) not its creativity. Nor it appears by Eisner, who has been quite good at seeking efficiencies and synergies across the Disney businesses, but seems unable to maintain supremely talented executives. He correctly attributes Pixar's success to the vision and story telling of John Lasseter, who does get Gen D. Without a John Lasseter, can Disney duplicate Pixar and appeal to Gen D?

Tivo Wins!

The biggest winner out of the Boob Bowl was .. Tivo! Record number of replays for that incident, plus the commercials. Twice as many watched the incident as watched the game.

Boob Tube

One of the most competitive and entertaining Super Bowl games is being overshadowed by a cheap marketing stunt for selling CDs. Lost in the debate over the bare breast is the accomplishment of the losing quarterback, who set two Super Bowl records, and the winning quarterback, who never lost his cool and methodically marched to the win in the final seconds.

Tha battle lines have been drawn in that cauldron of the true voice of the people, talk radio. Rush Limbaugh insists it could not have been an accident, as otherwise why would she be wearing a pasty? Howard Stern counters that he got a good look, and it is not a pasty but protection for a body piercing. Michael Savage complains that this gratuitous titillation plus all the Animal House ads is grist for the mill of Osama bin Laden and his demonizing of America.

Not to be outdone, the new voice of the people, the blogsphere, scooped talk radio. The Drudge Report hinted that the stunt had been planned, but a 'wardrobe malfunction' had exposed more than was intended. Somehow the racy red bra came off, too. Does this somehow make it all right?

The FCC is weighing in to start an investigation. Not sure if this is another signpost on the road to a police state, but the effectiveness of the FCC in regulating morality has been a bust, so to speak. As FCC Commissioner Michael J. Copps noted: "Nothing this commission has done so far has accomplished anything to slow down Big Media's race to the bottom." Or race to be the breast that it can be. The Boob Tube lives down to its name.

Ironically, the more they react, the more they prove her point - the stunt worked. The music industry has always been about rebellion, pushing the limits. The more she gets in trouble, the more CDs she should sell. And just before the Grammies, too ... Her career has been a bit of a bust until now.

The biggest boob in this whole affair may turn out to be the Prez. While the whole town was a flutter over what to do, The Leader Of The Free World said he had fallen asleep watching the first half (well, it was a bit of a 'defensive struggle') and didn't see the incident. Shades of his behavior on 9/11, where he seemed strangely out of touch for the critical first few hours, finally emerging after having flown around on Air Force One all morning. Not knowing what to do, and not wishing to offend, he abdicates leadership. But he is gathering new intelligence reports on her weapons-of-mass destruction. Maybe he will need to pre-emptively invade Hollywood.

Best Use of Tivo: Record the Commercials, Skip the Super Bowl

My daughter has come up with the best use of Tivo yet. She is recording the pre-game and game so we can later go back and see the best commercials. We'll fast forward thru the show and watch the ads.

Venture Yield Curve

The bond market has an oft-watched concept of a Yield Curve - the relationship of short term rates to long term rates. Steep curves (long term bonds more than the 'normal' 3% premium over short term notes) signal growth ahead, as the bond market is anticipating a rise in rates due to demand for capital plus coming inflation; flat curves (long bonds about the same as short rates) signal a downturn, as the bond market is anticipating a drop in rates to get the economy going again.

The venture market has a similar but little recognized concept in the shape of valuations across stages of investing, seed to late stage. Early stage valuations are somewhat insentivitive to overall market conditions, as the founders get a certain amount for intellectual property plus incentives for the team and the rest goes to the investor, almost regardless of amount invested. In contrast, later stage deals are highly sensitive to overall market conditions, and in particular the IPO market.

In times such as now, the venture curve has been very flat. There is little valuation premium being paid for later stage deals. Between rounds of finance, the value is still not going up much, and there are still a number of companies who either should be mercy-killed or restructured back to early-stage valuations, even after tens of millions have been invested. In such a climate, it makes sense for venture investors to focus on later stage opportunities rather than take the considerable risk of early stage investing without the commensurate reward of a kick up in valuations.

The curve is beginning to steepen, signaling a return to normalcy. The public markets have been fairly robust for 10 months, and the IPO window is reopening. Investment bankers are combing later stage deals for potential properties to take public. Certain categories of ventures, such as VoIP, have seen valuation kickups more than other categories.

Yet we are not yet back to normal. The bankers have little visibility past this coming summer, and are concerned this IPO window may be a brief one. The economic growth of our bounce since Oct02 is not as robust as one would have expected, perhaps because the recession following the bubble was not as severe as most, perhaps because it has been cushioned by robust consumer borrowing to sustain lifestyles. We are nearing the peak of the four-year stock market cycle, the most predictable of all modern stock cycles, driven as it is by manipulation of the economy based on Presidential elections. (No surprise that the bottoms in the past 40 years have been as follows: 62, 67, 70, 74, 78, 82, 87, 91, 94, 98, and 02, and the peaks have fallen in between). Given all the pump-priming in the past few years, it wouldn't be a surprise if '05 was a bit of a downer, and maybe even '06. But '07 and '08 should be killers! And the venture curve should steepen drmatically into those years.

It Budgets Flat - Merrill

Amid all the hoopla over improving business conditions comes this downer of a report by Mother Merrill - that they anticipate IT budgets to be flat to down in 2004.

Macrovision v. InterTrust

Macrovision is involved in an interference with InterTrust on a patent Macrovision acquired from MediaDNA, one of the many small DRM companies on the dot-com era. Reuters article on the dispute indicated that the mediaDNA patent was filed a mere 12 days before the InterTrust patent in dispute. In the US, this is not dispositive - the issue who was first to invent. Outside the US, in most jurisdictions, the first to file has a priority.

Who could be behind the curtain? InterTrust has sued Microsoft for infringement on many of the same patents, so a resolution of their validity could have a major impact on Microsoft. Reuters reports that Macrovision and Microsoft are working together on other issues, implying a connection. Normally, however, a company with an IP portfolio like Macrovision would be loathe to fall on its sword for a third party. Indeed, if Macrovision were to win, according to DRM Watch, it could turn around and sue Microsoft. More likely, this reflects the complex world of DRM patents, where the major players have been acquiring little companies for their patents, not their technology, and have begun to litigate the validity of their IP as another weapon in the ongoing battle for supremacy in the coming world of video on demand.

mMode = Prodigy

The proponents of 3G for data have some convincing to do. In Japan, iMode was all the rage, but it appears that the peculiar passions of teenage girls in Tokyo do not translate to business elsewhere. In the US, ATTW mMode is being pushed hard. In my experience, too hard. When I switched to GSM from TDMA, around $17 of extra charges magically appeared on my bill for mMode services I cared a whit about. Took a few calls to remove them and get credit. Worse, my daughter had earlier switched to GSM, and she too had the magic charges. She had no clue what they were for. At first ATTW would only stop billing them, not give a credit for past bills, even though there was no usage of these services at all. After a few more calls, this got fixed. Then I got one of those evening-time ATT phone calls that are so constantly annoying. In this case, it was a satisfaction survey of my mMode experience. This was a survey I participated in, although I am unsure how well to hapless college student on the other end survived it.

Carriers in Europe and Asia have been able to offer point services that appeal - ringtones, SMS, cellcams. But the broader opportunity for a World Wide Wireless Web is eluding their grasp. In the US the Blackberry (aka Crackberry) is another point solution, albeit operating largely off the 2.5G networks. T-Mobile has offered the Danger device (a Blackberry for tweens) on their GPRS network, but to very underwhelming success.

Why aren't the dogs eating this dogfood?