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Archive for April 18th, 2008

Blogging Is So Like Over Dude! Whatever…

Posted by Bob Warfield on April 18, 2008

Sorry, but I live in Santa Cruz and hear this “dude” stuff constantly and now Umair Haque has me doing it.

Just saw a fascinating post from Fred Wilson.  He shows the chart of total unique visitors for both Facebook and WordPress and notes how close they are even in terms of growth while at the same time there is a nearly $15B valuation gap in the two. 

If blogging is over, its over for the punters more so than the readers.

Fred goes out on a limb with a wonderful quote:

But trust me on this one. The blogging revolution is the adult social network whereas Facebook style social networking is for teens and college kids. This gap will narrow.

Dude, I am so out on that limb with you because you are so right!

Also, blogging, Facebook, Twitter, video, and a whole lot more are under the heading of those learning style things I write about.  Learning styles matter a lot.

Posted in saas | 2 Comments »

Umair, Dude, Uh, What? (On Fixing VC)

Posted by Bob Warfield on April 18, 2008

Umair Haque responds to the conversation surrounding his original posting on fixing venture capital.  It’s a good post.  Umair wants to stick to his guns, so it’s a refutation post rather than a deepending of the conversation.  Let’s take a look at what he’s saying, because I think he’s weakened his case more than he’s helped it.  Recall that his original thesis is that the reason VC is in trouble is that there aren’t enough Googles, and that the reason for that is people simply are selling out too soon.  They lack commitment.

First, RE Paul Graham’s response that Google wanted to sell out but didn’t get a high enough offer, Haque says Graham has missed the “strategic richness” of the story.  He admits Google shopped Page Rank for offers in the millions range, but then suggests they changed their minds and stuck to their guns as proven by their refusal to take offers in the $3B-5B range in 2002.

I’m don’t see how Haque really refutes Graham’s point with that.  I guess he’s saying that anyone motivated by money would have taken such an offer, and so Google’s founders clearly were motivated by a desire to change the world. 

I’ve no doubt they do want to change the world and are doing so, though I do wonder slightly how that reconciles with having shopped their deal early on.   The shopping business sure sounds more like what Graham was saying about a value disconnect.  Just out of curiousity, let’s play the numbers the way the iBankers would be presenting them to Google and their investors. 

Haque says there were $3-5B offers in 2002.  Google’s numbers for 2002 were $347M in revenue (4x what they were the year before), and the earnings were $186M (17x what they were the year before).  Most investors suggest that a PEG ratio (PE/Growth) of 1:1 represents a good buy.  So a “good buy” for Google’s 2002 earnings would be 1 x 17 x 186M = $3B.  In other words, $3B would have been a bargain for that business.  Clearly they also had to know pretty clearly that Google was hugely more successful than the vast majority of startups in terms of dollars, not just hype, and so deserved more than a bargain price.  Whether you’re motivated by money and financial sensibilities or changing the world, I can’t see why they’d spend much time on a $3B offer.   

By comparison, as I write this, Yahoo is trading at a 3x PEG which doesn’t even reflect Microsoft’s full offer value.  That would imply that back in 2002, for Google to be valued as Yahoo is today, it should have been valued at 3 x 17 x 186M or over $9B.  That’s almost 2x the $5B Haque says was at the high end.  And recall Google would’ve looked a lot hotter then than Yahoo does today in term’s of its potential.

Dude, Umair, it looks to me like Google didn’t get an offer that a cold blooded iBanker would have told them was what they were worth.  I gotta think the advice was to let it ride, we can triple the business again and go public at a better valuation.  Graham called this one right: blame the acquirers for being arrogant enough not to value Google properly.  Imagine if Microsoft had paid $10B then for Google instead of $42B for Yahoo today.  Of course Google probably wouldn’t have survived the assimilation.

BTW, the wonderful thing is that everyone’s interests would’ve been aligned–the money men would’ve held out for more, and the world changers would get to keep building an even bigger agent of change.  It’s a beautiful thing, and it has spawned one of the world’s greatest companies.

Next up, very little seed capital available, also credited to Paul Graham, and my major refrain here.  See for example, Where Did All the Software Seed Money Go?.  There’s a lot of transactions available, but very small dollar amounts.  Haque takes the VC’s to task on this, and that’s what I’ve been saying as well.

On to his response to Ashkan, who said basically Google had an unbelievable string of lucky market breaks.  Umair says basically, sure, but 2001, when Google was climbing rapidly, was an even tougher economy than today.  I think Haque’s perspective that firms influence and shape their environments is worthwhile.  To that, I would add the piling on effect of success.  People want to be associated with success.  Ashkan talks about those “exogenous factors” like they were all just luck.  Some were, but others were a function of folks wanting to align with the new new thing, which Google clearly was in 2001 giving their financial traction.  We see this time and again where one minute we can’t get people to return calls, and then they hear about success and suddenly its us not returning our calls.  We’re in agreement.

SmoothSpan is next up, which I’m flattered by, as Umair responds to my remarks on the subject.  Thanks for the link love, bro!  And if others are wondering what all the “Dude” talk is, I picked that up from Umair’s remarks when he characterizes my post as, “Dude, the IPO window’s been closed, by SmoothSpan.”  There’s something else there about NINJA loans and how the whole world could do IPO’s so why not VC’s?  BTW, those NINJA home loan guys have liquidity issues too, not sure they’re the best refutational role model.  But, dude, Umair, maybe its just me who thought the window closed, or maybe the business world also thought the IPO window was pretty tenuous during those years.  People like, um, BusinessWeek?

Heck, I may not know too much, I only just went through the core of that period at one of the few tech companies that did have an IPO back then (2nd guy on the left, yay!).  I might have heard a thing or two about how iBankers and VC’s think of the IPO market, but I probably just misinterpreted it.  NOT!

But it’s okay, Haque essentially goes on to say just what I said in my post, with, “the IPO window remained closed because venture guys weren’t investing seriously in meaningful new business models and markets – just in features and add-ons.”  We’re on the same page in the sense that this is what my post was all about. 

But, I think we view the way we got there differently.  I get the impression Umair thinks they just aren’t smart enough to invest in something besides features and add-ons.  In my experience, most VC’s are very smart people.  Many have extensive experience outside VC, have built companies on their own, and know many many entrepreneurs who they’ll be the first to admit they’ve learned from.  The trouble is, they’re sold on a model that says they can’t accurately predict what will succeed early on.  Who can blame them?  Seeing enough good ideas fail and going through economic hard times can do that.  So, they came up with the plan to invest later, after the world at large had validated the idea, and just pay for a higher valuation.  Again, this is not a dumb move.  It’s the Wisdom of Crowds at its best.

The trouble is, it is a good idea for an individual firm and a bad idea for an ecosystem.  If every firm goes that route, the seed money dries up.  How you gonna build much but features and add-ins for $250K in angel money?  Google had friggin’ $25M before they made a dime!  That’s why I say the problem is in the beginning, not in the middle with conviction (ala Umair), and not in the end with liquidity (ala Fred Wilson).  I’m all about the IPO window closure being somewhat temporary and said so in my post.  Sounds like we’re close to what an old friend used to call “violent agreement.”  We just came at it from different angles.

Umair muddies the waters a bit by bringing up Mixi and Megastudy, which apparently went public overseas.  He says my criteria (stable earnings, >$100M revenues, yada, yada) are bogus and there is an existence proof in these two companies of that.  Now mind you, Google way exceeded my criteria before they went public, and I thought that’s what we were talking about, but let’s look at Mixi and Megastudy and see if we can learn.

Mixi is out on the Tokyo Exchange listed at $50M in revenues with $10.7M in profit and trading at a $1B market cap.  How is this a counter-example, Umair?  These guys track Google pretty well.  If anything, I’d wonder why they needed to “sell out” in your terms so soon instead of following Google’s track?  After all, they’re profitable on $50M in revenue.  These guys fit my profile exactly for being able to IPO in the US in a year. 

How about Megastudy?  They’re on the Korean exchange.   They are doing $163M in revenue, $46M in profit, and a market cap of $2.3B.  Again, they have scale, they’re growing, they’re profitable, how is this different than what I’m suggesting for US markets?  Why are these guys so revolutionary and why are these other markets so much shrewder?

I don’t see these two as, “an existence proof that’s not the case.”  You don’t have to look too closely at the numbers to see that it’s quite the opposite.  Both are on a very Google-like track, could have followed my criteria, and IPO’d on the US markets, but they “sold out” to use Umair’s words and went public overseas, perhaps a bit sooner. 

Haque concludes by saying:

Dude, it was obvious that Google was, well, special – a general refrain. I think it was far from obvious: in 2002, Yahoo’s revenues were more than double those of Google. Google’s hypergrowth was dependent on the continuing success of AdWords, etc – and though it seems certain to us today, the very real story is that Google took massive risks to make AdWords truly revolutionary – while Yahoo evaded risk, and continued to buy and sell media exactly as it been bought and sold for the last century.

No Umair, I think it really was obvious that Google was special.  They were breaking all the records for startups of their size.  It’s one thing when this happens with your first $10M in revenue, and quite another when you are a $300M plus company.  Yahoo did evade risk, and to their downfall.  OTOH, perhaps it wasn’t even so much evading risk as it was in not having any deeper insight in what to do next.  A lack of vision in other words.  They are certainly not demonstrating any risk evasion in their Microsoft dealings today (they’re taking a high risk road to keep going on alone), and it’s the same decision makers. 

I love the passion Umair communicates: it’s good to get all fiery and romantic.  Startups need that to sustain them through thin times.  There are startups that sell too soon.  There are startups and VC’s that sell too late.  But a lack of passion and commitment is not the problem with the industry.  I meet tons of great passionate entrepreneurs with fascinating ideas.  Let’s get started building some new stuff besides features and add-ons.  No more feed aggregators, ways to Twit, Twitch, or Tweet on 27 different lifestreaming services, or other Inane 2.0 innovations. 

Let’s change the world.  On that I bet we can agree.

Posted in business, strategy, venture | 1 Comment »

Google: Oh Ye Of Little Faith!

Posted by Bob Warfield on April 18, 2008

By now you must have heard about Google’s results

As I wrote right before they announced, quality matters.  It’s why they’re winning the ad wars.  They have an unfair advantage:

– They are often the last thing you look at before you go to the place you’ll make your purchase.

– You’ve told them what you want to purchase before they show you the ads.

– They know more than any other business on the planet about inferring meaning from words and links.  That’s what they do.  It’s their business.

They transfer that advantage to their advertisers who transfer to them profits.  Lots and lots of profits.

What’s your unfair advantage?

Posted in Marketing, Web 2.0 | Leave a Comment »

Ray Ozzie On Microsoft’s Expensive Rift With the Web…

Posted by Bob Warfield on April 18, 2008

No, of course Ray Ozzie isn’t admitting or even suggesting Microsoft has an “expensive rift with the web.”  That’s what I called it in my original post about their us-vs-them situation.  Despite the fact that Microsoft Loyalists take me to task for bringing this stuff up, I’m not the only one who notices it.  Coté over at RedMonk has described it very clearly too.  As he puts it:

Microsoft frameworks are plagued by lock-in fears. That is, you’re either a 100% Microsoft coder or a 0% Microsoft coder.

Now what Ozzie did do is remove all doubt (what’s that saying about opening your mouth and removing all doubt?) by saying this about Open Source:

My position toward open source generally is that it’s a part of the environment. It’s very useful for developers to be able to get the source code to certain things, to modify them. Microsoft fundamentally, as a whole, has changed dramatically as a result of open-source as people have been using it more and more. The nature of interoperability between our systems and other systems has increased. I can tell you from an inside perspective … when you build a new product, immediately you start thinking, how shall this product expose its APIs. … 

Open source is a reality. We have a software business that is based on proprietary software. We tactically or strategically, depending on how you look at it, will take certain aspects of what we do and we will open-source them where we believe there is a real benefit to the community and to the nature of the growth of that technology in open-sourcing it. … The bottom line is we believe very much in the quality of Microsoft products and we are an (intellectual-property) based business. But we live in a world together with open-source, and we have to make it possible for you to build solutions, or customers to build solutions, that incorporate aspects of that.

Can you make any sense of that? Doesn’t it seem so totally Microsoft?

I got this via the excellent Patrick Logan who had me laughing out loud at his post:


Ray Ozzie speaks, and he speaks about Open Source Software. I don’t even know what to quote from his statement. They’re just not in the right ballpark. The only thing Ozzie communicates here is that he just does not understand the open source community, which _is_ the community for building out the internets.

There’s more about Groove and Microsoft in general.  Go read it.  Patrick sees the Expensive Rift clearly.  This goes so well with the crazy video debacle, Yahoo, and the rest of what’s happening with the company. 
That link in the Patrick Logan quote, BTW, is on Techmeme right now.  It says no more than what I quoted.  Tells you lots of people see the Rift.  That’s part of what makes it an Expensive Rift.

Posted in Marketing, strategy | 2 Comments »

So This is Twitter? It’s Annoying!

Posted by Bob Warfield on April 18, 2008

Stowe Boyd’s blog lately has become a stream of Twits, er Tweets, or whatever the heck they’re called:

jkatt @stoweboyd See OpenACircle at W2X 10:30am Tue: Facebook + WebEx + Skype + free + killer video = Collabotool for the rest of us. Coming?

BJ @stoweboyd – feedback management platform meets community collaboration with a business model 😉

kwatson49 @stoweboyd Elastra enables companies to launch clustered database applications on-demand (i.e. Amazon Web Services).

That’s the 3 most recent “blog posts” from Stowe, and each one shows up with a banner ad bigger than the post in Google Reader.  I guess this is the new new thing and all, but it’s annoying.  Sorry Stowe, but I’m used to your much more interesting and richer “normal” blog posts.  I hope this isn’t the wave of the future, LOL!

Seriously though, this is an example of learning style dissonance.  I felt the same when Scoble suddenly started dumping tons of video and quit doing real blogging for a period.  Oddly enough it was around the same time that I became aware of the love-hate reactions I was seeing towards Twitter.

These observations led me to pen my theories about Learning Styles and the Web.  This is therefore a good time to recap the theory, which is best expressed as a Myers-Briggs style diagram on the web:

Web 2.0 Personalities 

The idea behind this is that different people have affinities for different squares, just as the learning styles from Myers-Briggs help us to understand how people like to communicate in social situations.  In this case, a Twitter lover is an Interrupt-Text-Structured-Participator.  A Blog reader is more of a Deferred-Text-Structured-Watcher.  A single person may enjoy both styles or they may not.  But it is jarring to present one style in a context where another is expected.

Lest you think I insist on one style, I think it’s valuable for people and businesses to experiment with offering content in all the boxes and letting their readers self-select what they may like.  Play with it a bit.  You may like the results.  Just be careful not to cut off the channel and style your loyal readers have come to prefer you for.  The idea is to provide “additional” to expand your reach, not “instead of”.

Towards that end following me on Twitter will keep you posted automatically when this blog updates.

Related Articles

Sarah Perez loved these “TwitPitches” and there was a method to Stowe’s madness.  I suppose it was a way to popularize the notion, but I’m glad they stopped coming and hope no other Twitter feed appears in one of my blog streams. 

Maybe this is the next step of bad news: less seed capital, good news:  shorter pitches.  Enter your TwitPitch here and you may actually get $29.95 in seed money in exchange for 30% of your company.

Posted in Web 2.0 | 3 Comments »

Amazon Rolls Out Better Service: The Cloud Wars Continue

Posted by Bob Warfield on April 18, 2008

The good stuff just keeps right on coming in the Cloud Computing world.  No sooner do we get the Intuit QuickBase announcement than Amazon is piping up with news that they now have Gold and Silver Premium Support Plans

The rates on these plans are pretty comparable to what I’m used to from the Enterprise Software (e.g. the bad old perpetual license) world:  10% for Silver of your monthly Amazon fees and 20% for Gold.  What you get is:

Both plans include fast and predictable response times, an unlimited number of support cases, and personalized support from our team of developer support engineers. Because it can be tricky to figure out exactly where a problem resides, developers with AWS Premium Support also have access to a set of client-side diagnostic tools.

The Gold plan also includes round the clock (24 hours per day 7 days per week 365 days per year) coverage, telephone support, and 1 hour maximum response time for issues designated as urgent.

I have to say that while I can see the premium support is valuable for those who view Amazon as Mission Critical, something about it just doesn’t feel right to me.  I guess it’s just that it’s a holdover from the old days, and costs about the same in terms of being a percentage of what you paid for the software/service.  It feels wrong to me because SaaS is a Service, so why do I need to pay for Service? 

It also doesn’t feel right that it costs about the same as my old perpetual license maintenance contracts.  SaaS is supposed to be cheaper, and it’s supposed to be demand-driven.  I’d expect to have fewer incidents too, so given all that, I would have felt better about a by-incident fee.  In other words, Tech Support On Demand.  Don MacAskill at SmugMug apparently feels the same way.   Commenters on SmugMug also bring up another way of looking at the, “Didn’t I already pay for the Service?” issue when they say that the SLA situation has still not been adequately addressed.  Likewise, the comments over on TechCrunch have others echoing, “Why must I pay more when I already bought a service I just want to have work?”

Perhaps this is just a temporary bout of cognitive dissonance.  The fact is, you’re paying for additional service and this is a practice that other SaaS companies follow.  It should also be a fact that you will need it a lot less from a SaaS vendor but you’ll probably still want to have it if you view the service as mission critical.  Unfortunately, you pay the same regardless of how much you use it, which is decidedly not-SaaS.  In general, the service ought to just run. 

Amazon is in an odd position too since they deal with your code in their cloud.  That’s going to create more opportunity for cases where the experts in Tech Support are needed to help you figure out what’s happening and how to fix it.

This is a good move for Amazon, and it also signals we’re starting to move out of the Platform-as-a-Service as an experiment stage and into the PaaS as a production business reality stage.  As others have commented, it’s a natural stage of maturation.

Phil Wainewright suggests that this about Amazon getting serious towards the Enterprise.  Stacey Higginbotham and Josh Catone echo much the same sentiments.  It’s a step, but there is so much more that Enterprise IT hits you with when you want to sell to them that I have a hard time seeing it as a big push, but it’s a step.  Everyone, of course, says they’re serious about the Enterprise, but there is a lot entailed.  That’ll be the topic for a blog post here at some point. 

I think Phil’s most telling insight is that Enterprises want to be able to ask their support questions in private so nobody can see their dirty laundry.  That’s worth paying a little bit for. 


Posted in platforms, saas | 1 Comment »

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