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Archive for February, 2009

Why Do Big Software Companies Run So Fast Without Moving Forward Further?

Posted by Bob Warfield on February 26, 2009

Vinnie Mirchandani has a question:

Why hasn’t the $75B in software maintenance fees Oracle collected over the last 5 years resulted in more innovation?

He’s created quite a discussion spanning several blogs and writers, which is neatly summarized here.  Even a couple of Oracle spokepersons have gotten involved.

I’m not exactly sure why Oracle is singled out, because you could say the same of pretty much any large software company: SAP, Microsoft, whomever.  I don’t propose to debate that here.  I did point out that Oracle’s strategy of acquisition is an innovation by itself relative to most of its peers.  Vinnie countered that it doesn’t produce the kind of innovation that Intel, Apple, and Cisco have going on.  And so I respond thusly:

Cisco innovates by acquisition.  That’s why they’re on your list, Vinnie.  In fact, they’ve created a thriving ecosystem where an entrepreneur can be acquired more than once by Cisco. 

Personally, I think this is the best route for really large companies to innovate, but it takes a certain culture.  Not sure when your execs are investment bankers whether you think that way.  More likely you think about whether you can get a higher multiple on the revenue stream you acquire, and of course that’s just what they’ve done. 

But there are only so many Big Co’s for them to acquire left.  I think Tom’s note about Ellision’s SaaS investing is pertinent.  Perhaps he views SaaS as the farm team for a future round of acquisitions.  If so, he’s got his own ecosystem, and we just haven’t seen it unfold yet.  Most of those companies aren’t big enough to matter to the Mother Ship.

Vinnie asks a sub-question that I do want to explore here, because it is interesting and doesn’t get talked about much.  In the comments of the post I refer to, he says:

Why should stability require a continued premium? should not SLAs evolve in line with SaaS SLA, quality with CMM and Six sigma advances etc, help desk costs decline with automation and offshoring?

Therein lies an interesting story. 

It turns out the On-premises companies deal with a host of issues that SaaS companies seldom do, and it is these issues that account for a lot of the costs.  I’ve compared notes with a number of CTO’s, and our rough estimate is that something on the order of 40-50% of the engineering budget is consumed by:

–  Patching old versions.  With on-premises, many times customers refuse to move forward to the latest releases.  As a result, vendors are stuck providing patches that can be applied without installing a new release.  This is an extremely time consuming activity.  In the worst case, it requires every bug you’ve fixed in a later release to be individually re-engineered, re-tested, and re-packaged, for each of the older releases.  Just the thought of it is enough to give an organization pause when contemplating any major architecture work because that means the bug might have to be fixed in two completely different ways on either side of the architecture change.  SaaS companies are effectively immune to this because they update releases much more frequently and push the updates to every single customer as soon as they are ready.  I surveyed Customer Service departments for on-prem software companies one time and asked how many of the problems being reported were fixed in the most recent release.  The answers that came back ranged from a low of 40% to a high of 80%.  That’s another way to quantify the tremendous waste that preparing and supporting these patches brings.  Most SaaS customers simply never see the problems because they’re fixed transparently behind the scenes as soon as even one customer has a problem.

–  Supporting multiple platforms:  This is another painful cost.  There is an Unholy Matrix of Testing that is multi-dimensional.  Each dimension is a platform component:  OS, Application Server, and Database Server would be the least number of dimensions to consider.  Add to that various kinds of inter-application integration and any other dependency between two pieces of software.  Now drag out the data sheets for all the versions of a piece of software that are currently being supported.  Mark off every single release of each one of those platform components in a row of the dimension.  It’s a combinatorial explosion.  Yet, if you support all of those combinations and permutations, you are warranting to customers they can choose whatever they’d like and it will work.  Reality is that no vendor tests them all, they test the most common ones.  So there are exceptions that creep in that result in more patches (which per the above get applied to lots of releases that many different customers are using), and that through the magic of continuous process improvement add more steps to doing new releases so they can be avoided in future.   BTW, even for Oracle, this is not under their control.  They bought into all sorts of support commitments.  Peoplesoft and Siebel certainly didn’t only support the Oracle RDBMS, for example.  Also, the platform vendors unilaterally do all kinds of things to mess up your game plan.  They quit supporting versions.  So now you have to certify some new version on one of your old releases so an important customer doesn’t have to go through the expense of upgrading.  How do SaaS companies avoid this?  They only support one canonical platform because its all happening behind their firewall, not yours.  They can keep it as the latest platform and keep every customer on the same one.  Huge savings there.

Is it fair to pass those costs back to customers through lack of innovation for maintenance?  I think so.  After all, much of it is motivated by customer desires.  The desire not to have to upgrade.  The desire to use a particular platform combination. 

There ain’t no such thing as a free lunch!

And, yes Virginia, there are real reasons why SaaS is better and cheaper.  It isn’t just smoke and mirrors.

PS  Vinnie mentions outsourcing.  Oracle had been famous for this, or more properly for offshoring.  Used to be that when you lost someone on the team, you could get 2 replacement reqs instead of 1 as long as the 2 were offshore.  Last news I heard from a formal Oracle dev manager was that this hadn’t worked out so well for productivity and they were backing away from it.  Given today’s economy and the availability of onshore resources more cheaply, I should hope so.  Offshoring makes innovation MUCH harder.  Now I’ll wait for the chorus of responses to that one.

PPS Just heard Vinnie was referred to by none other than Marc Benioff in his earnings call!

Posted in business, strategy | 6 Comments »

Kindle: Seth Godin Gets It. Roy Blount Jr and Others Don’t

Posted by Bob Warfield on February 25, 2009

Two great Kindle articles awaited me in my feed reader this morning.  First up was a Techmeme with a NY Times post by Roy Bount Jr called, “The Kindle Swindle?”

Roy is up in arms over Kindle’s ability to read the text of a book aloud:

Every title is an e-book and an audio book rolled into one. And whereas e-books have yet to win mainstream enthusiasm, audio books are a billion-dollar market, and growing. Audio rights are not generally packaged with e-book rights. They are more valuable than e-book rights. Income from audio books helps not inconsiderably to keep authors, and publishers, afloat.

The essence of his concern is more sharply focused by this line:

People who want to keep on doing creative things for a living must be duly vigilant about any new means of transmitting their work.

Oh boy.  Amazon is stealing these guys blind with the Kindle Swindle.  You can practically read the Kindle envy dripping from Blount’s words.  As is typical of Content Creators and Providers, they don’t think anyone should be allowed to make a dime more than is absolutely necessary off the sweat of their typewriters, cameras, or whatever.  

Just a few little problems with Blount’s logic.  First, he needs to speak to his publishers that signed up the books for Kindle.  Take them back off again.  It only accounts for 10% of Amazon’s book sales, so no big loss, right?  Oops, 10% is quite a bit.  I wonder how much of what Blount wants to eliminate from the Kindle experience might be a factor in that 10%?  That brings me to my next point.  Blount assumes he’s being robbed because every single person who buys a Kindle will listen to every single book on audio and every single one of those people would have purchased the audio book version and so he has lost a gillion dollars in audio books sales. 

Come on Roy, didn’t you see how the record industry completely flubbed this over the years?  Are you kidding me?  Embrace the new medium for what it can do for you, don’t fight it for what you think it is taking away.  It can do a lot more than it will ever take away, besides which, resistance is futile anyway.  I’m not even going to get into the arguments about how the audio helps people with disabilities and so on.  People buy Kindle for the Kindle Experience.  That includes the audio. 

Don’t take the Kindle royalty gleefully and then demand more on top.  It ain’t gonna happen.  Read the many postings on the web about how content is not the value it once was and be glad you have yet another way to monetize yours.  Realize that the web has shifted the balance of power away from Content Creators and Providers and towards the Attention Economy.  Figure out how to use the new media to gain more attention.

This brings me to Seth Godin.  Seth gets the Kindle.  He is not demanding more royalties because you can hear his books read aloud.  Seth is suggesting more ways the new medium can be even better leveraged.  I love his suggestions because he is showing how to harness the new medium to do things that are hard to do with wood pulp to make your content more viral.  Here are just a few of the ideas he mentions in his blog post:

1. Give publishers the ability to insert passalong credit with a book so the buyer has the right to pass along a limited number of copies to other people who also have Kindles.

2. Let me spread books to other Kindle owners via Facebook (or other Social Networks).

3. What happens when Malcolm Gladwell sends a note to all his readers recommending a new book?  (This would those endorsements on the book jacket come alive!)

4. Anytime I send someone a book (see #1) or recommend a book, let me (with the other person’s consent) see the comments they write in the margins of the book as they read it.

Brilliant as usual, Seth! 

Isn’t it interesting how everything Seth wants to do is to give more?  More free copies?  More access?  It’s all positive energy flowing into a book.  Meanwhile everything Blount wants to do is negative.  Take away access to audio.  Take more royalties.

You can make the pie a lot bigger for everyone, or you can fight over the scraps.  One of these two understands how to make a market for their books.  The other is a great writer who happens to have a market they have no idea how they got.

I’m pretty clear which one of these guys is doing something I like a lot as a reader.  How about you?

P.S.  Seth is also the guy that understands which is more important:  trackbacks or comments.  He only does trackbacks at a time when many large blogs are minimizing or eliminating trackbacks.  It’s for the same reason he has the strategies he does for the Kindle.  You’re nuts if you don’t make trackbacks prominent on your blog.  Just ask Seth.

Related Articles

Larry Dignan says he can hardly stand to listen to Kindle’s robotic voice for very long.  Hey, maybe it’ll actually sell more audio books by making it more obvious why a more pleasurable human reader is worth paying for.  BTW, great job on Trackbacks, Larry and ZDNet!

Like Larry, Silicon Valley Insider talks about the reasons to prefer hearing a human “act out the book.”  I confess, this was my first reaction to Blount’s criticism too.  I like audio books, and the right actor can really add depth.  Sorry, didn’t see a Trackback.   

Crunchgear, of the Techcrunch empire, also sides against Blount.  There is the feeling Blount and his Guild buddies are positively Luddite in their outlook.  Techcrunch still does Trackbacks, but they are so hard to find, and harder in the latest version of their layout.  Look for it in the fine print next to the comment box at the very bottom.

RWWeb says, “Sadly, instead of lauding Amazon for bringing the book into a new era (or at least trying to do so), the Authors Guild has decided to focus its efforts on arguing about what is essentially a non-issue.”  How true!  PS RWWeb gets it right on Trackbacks.

Score one for the boneheaded Author’s Guild:  Kindle will make text to speech optional at the publisher’s discretion.  If you’re displeased, you can vote with your pocketbook by not buying titles that lack the feature.  From the comments, people are obviously very unimpressed with Amazon’s move, calling it “spineless.”

Posted in business, Marketing, strategy | 2 Comments »

The Best Thing That Can Happen to a Startup Just Happened to Mint

Posted by Bob Warfield on February 24, 2009

I’ve written before that the best thing that can happen to a startup is competition.  Like so many things, there are levels of success associate with this.  Personal finance software company Mint hit the jackpot.  Not only do they have a competitor in the form of Intuit’s Quicken, but said competitor responded foolishly by sending Mint a legal letter demanding that they substantiate their customer growth claims by a certain date or else.  Of course Mint saw to it that this letter became very very public.  In short order Intuit was faced with a fairly serious PR disaster.  The blogosphere saw the letter clearly for what it was: 

–  At best Intuit looks like a bunch of clueless corporate types throwing their legal department’s weight around against the Little Guy.  We love the Little Guys in this country and especially on the Web!

–  At worst, Intuit showed the world their Naked Fear of Mint by Intuit.  That added tremendously to Mint’s credibility and damaged the credibility of Intuit. 

It’s reached the point where the WSJ is talking about it on top of all the blog activity. 

Score:  Mint 1, Intuit -1 (worse than zero, they’ve hurt their position with this unforced error)

Handle smaller competitors like porcupines.  They’re unlikely to kill you, but they sure can sting.

Posted in business, Marketing | Leave a Comment »

A Stimulus Plan for Silicon Valley Is Needed

Posted by Bob Warfield on February 23, 2009

A stimulus plan for Silicon Valley is needed, despite what Sarah Lacy and Fred Wilson may think, but it isn’t in the form of the $20B author Thomas Friedman writes for the NY Times.  It’s much cheaper and simpler than that.  Change Sarbanes Oxley so small companies can afford to go public again.  That’s all it takes.  Simple, straightforward, and to the point.  I’ve already proposed this, so I won’t belabor it further here, but it is worth another mention.  Sarah and Fred think there is already too much money chasing too few deals, but that isn’t the problem.  The problem is liquidity is scarce because SOX has made it too hard to IPO deals.  Look at the exits for the VC’s and entrepreneurs.  Drying up capital is not going to change the problems of liquidity and lack of vibrant IPO markets.  If the VC’s want an industry that boils down to selling companies for $20M to $100M and forgetting about IPO’s, it isn’t going to be much of an innovation engine and most of the VC firms will die.  As Don Dodge points out, VC’s are chasing wealth, not job creation.  Wealth is an interesting proxy to job creation, but it isn’t the same thing.  Opening up the IPO markets again lets market forces drive job and wealth creation in tandem.

Posted in business, venture | Leave a Comment »

Why You Want to Eliminate Middlemen in the Cloud

Posted by Bob Warfield on February 20, 2009

Hulu’s decision to cut off Boxee from being able to display Hulu content is driving some consternation in the blogosphere.

Fred Wilson, an investor in Boxee, thinks people just don’t understand and that Hulu should come back to the table.  Understandably its a blow for Boxee that is tough to take early on when momentum is everything.  Fred has long been a lover of streaming media and predicts the ultimate demise of owning your own media.  He and I have gone back and forth on this issue in the past, and what’s happening to Boxee is a bit ironic, because it proves my point.

Meanwhile CBS is going to go after Hulu for shutting off which is ironic given the Boxee situation.

Techcrunch writes an amusing post entitled Free Fred Wilson.  Fred needs “freeing” because he is caught between the rights of a user to view content the way they want to and the rights of the content owner to control how that content will be displayed.

What does all of this have to do with Middlemen in the Cloud?

O’Reilly Radar comes closest to my thinking with this quote:

The real insult, though, is calling the people who made them cut Boxee off “content providers.” They might as well have told the studios they are the moral equivalent of the guy schlepping reels around the projector booth.

Did you catch it?  Hulu and Boxee are the Middlemen.  They have no power, no control.  You can think you’re buying something from them, but the real power is with the Content Providers, and you don’t have a deal with them.  Unless you bought the media.

This applies to other types of virtual goods and service available through the Cloud.  If you go to some organization that’s trying to arbitrage Cloud Computing resources, but doesn’t actually own any computers, they’re just Middlemen.  They are resellers.  Their margins are thin and the value they can add is limited.  Worse, if the owner of the real value add, the guys like Amazon that have the servers, want to change the deal, they can do so.

To be sure, you can make a deal with the Content Providers or original owners of the physical goods such as servers and still get into trouble, but at least you only have to wade through the terms of one deal.  When dealing with Middlemen, you usually have no idea what deal they have with the ones really creating the value.  You have no idea whether they can deliver on the deal you think you have with them.  There is a cutout that allows the Originators of Value to do as they please.  BTW, Hulu is an instrument of the Content Providers.  Read that O’Reilly article to see more detail.

The other problem at work here, and vaguely implied in the O’Reilly article, is that ever since William H. Gates III got the better of IBM, big companies have been afraid the nerds would steal their treasure and make them look foolish.  They work overtime on Draconian Measures to prevent that.  They’re certainly not about to let both a Middleman and a Nerd get hold of an actual Golden Goose, or likely even a whole Golden Egg.  If there is one thing Content Providers can never ever let happen, it’s being made to look foolish.

Hmmm.  I wonder what the content providers think about the idea that the URL for O’Reilly is radar.oreilly?  One of my startups hired Radar O’Reilly one time to help us promote a service called PriceRadar.  He was very clear that he couldn’t even call himself Radar because he was just a Middleman for his own character.

Hate when that happens!

Posted in cloud, strategy | 1 Comment »

Coghead Shuttered: Another in a Long Line of Non-Developer Developer Tools

Posted by Bob Warfield on February 20, 2009

Coghead has shut down.  Techcrunch has a copy of the letter sent to customers announcing the shutdown.  Customers will be able to run their apps without support until April.

Meanwhile, SAP of all places has acquired the technology.  I can’t imagine anything further removed from SAP than a tool for non-developers to use to create low end database and form apps.  After all, SAP is known for unbelievably flexible but costly to implement and extremely complex high end enterprise apps.  But, I assume a Grand Plan will be revealed in the fullness of time.  Maybe they just wanted to hire the developers as a team.  Intuit Quickbase have extended an offer to try to bring Coghead’s customers over.  It’s a generous offer, but transitions like this are not easy.  Coghead was a proprietary tool as most of these are and so the apps will have to be rewritten.  Still, presumably there are folks dependent on those apps who will have to do something.

The market for tools for non-developers to build software with is littered with interesting remnants.  They range from things like BASIC (still successful, but not clear VB is as simple as the original BASIC people were using to write Lunar Lander games with) to dBase/MS Access to the brief Renaissance of 4GL tools from companies like Powersoft that marked the early part of the Client Server era.  Many of these tools have vanished without a trace, or at least gone off to niches where they’re much loved but seldom heard about.  Lots of fancy names have been bandied about for this breed.  Coghead calls itself a “declarative application” for example.

In general, these tools are really difficult to get right.  Developers are expensive, and there is often a need for a little app that doesn’t warrant the expense of hiring the developers.  It seems so tantalizing to many that an app can be created that suddenly makes it possible for non-developers who understand their business problem to crank out the apps like crazy.  Alas, mostly it doesn’t happen so easily.  The products demo well, but programming in the end is, well, programming.  It ain’t easy if you’re not really a programmer at heart.  Probably the best example of a successful product for non-programmers is the spreadsheet.  But look at why it succeeds: 

–  They completely broke the mold.  There was nothing remotely like spreadsheets before Visicalc arrived on the scene.

–  They limited themselves to a particular domain–accounting and financial statements.  And that domain gave them a ton of elbow room because there were a lot of “apps” (spreadsheets) that needed creating there, and they were all highly custom.

–  The availability of this new invention intersected and rode on the back of a major paradigm shift that was underway:  the PC.  Spreadsheets, together with Word Processing, were the “killer apps” that made PC’s important to business.

This other genre of products doesn’t benefit from any of those qualities.  They mostly don’t break the mold enough to really make programming easier.  Instead they borrow ideas from lots of places and wind up complex grab bags of ideas.  Their domain, simple apps that need forms and databases, often just don’t have enough compelling apps to sell.  And lastly, that paradigm shift hasn’t been there to help much.  In a world where you had a choice of BASIC or dBase to build a custom accounting system, life was easy.  Today you could use so many different choices, and all the existing accounting systems are so much more customizable, that it’s hard to argue for this class.  Coghead was at least SaaS, some called it a Platform as a Service, but I just don’t think the paradigm shift was favorable enough given other available choices.  I also agree with Sinclair Schuller that the highly proprietary nature of a lot of these tools makes adoption a lot harder.

An adjacent space that I think is much more viable would be the easy-to-use “P” languages:  Pearl, Python, and PHP.  Ruby on Rails counts too, even though it doesn’t start with “P” and may be a little more cerebral than the other 3.  I’ve seen non-programmers do some pretty amazing things with these tools.  They have huge communities, and the languages are amenable to the sort of copying-and-pasting-of-examples-barely-understood.  At least they’re not proprietary and its easy to get lots of help, whether in the form of books available everywhere, online help, lots of finished examples, or even meeting someone pretty easily who is an “expert.”  Another I would throw into this category is Adobe’s Flex, which lets you do some very cool things indeed, though it is a touch more proprietary.

Other players still standing in this space:  Caspio, Bungee, Longjump, and probably others I have missed.  Best of luck to you guys!

Posted in cloud, user interface | 19 Comments »

How Government Can Stop Killing Innovation and Start Encouraging It

Posted by Bob Warfield on February 16, 2009

The US prides itself on being the world’s innovator, but the US government has been working overtime in recent years to kill innovation.   Consider things like Sarbanes Oxley or the way our patent system works.  Both are set up to work against innovation.

Sarbanes Oxley was created in the wake of the Enron disaster to protect investors from similar kinds of problems involving malfeasance by company management.  It’s called the Public Company Accounting and Protection Act of 2002.  There’s just one little problem with SOX: it makes it dramatically harder for companies to go public.  The average newly public or about-to-be public company spends $6 million getting itself in shape for SOX and another $3 to $4 million each year thereafter.  For a company that’s barely making a profit, that’s a lot of money.  It delays profitability until substantially later, forcing companies to grow much larger before they can go public.  How does this impact innovation?  Going public is a liquidity event, one of the driving reasons investors put up venture capital for new ideas.  Without the possibility of IPO, many companies have to look to already public companies to acquire them.  As a result, VC James Patricof recently moved from a $30B fund to a $75M fund.  He’s accepted that the landscape has changed, and that startups need to plan for $20-$100M exits instead of IPO’s.  If this is the future of venture capital, as Patricof believes, there’s going to be a lot less capital to go around, and a lot less innovation as a result.  Note that all this is part of the Law of Unintended Consequences for a bill that was designed to protect the public from companies like Enron.  Just before it went down, Enron was booking revenue of over $100 billion dollars.  That’s billion with a “B”.  Yet the government in its infinite wisdom is penalizing all comers of all sizes with the same treatment.  The end result is that small companies are penalized much more severely than large companies.

Another area that works against small companies is the current patent system.  VC Fred Wilson says Patent Trolls are a tax on innovation, and he’s right.  But wait, the patent proponents say.  Patents are there to protect the little guy.  Without them, big companies could steal their ideas blind.  There’s just one problem: the big companies can defend themselves and the small ones can’t.  The patent code favors big in two ways.  First, Patent Trolls are gaining access to what are essentially bogus patents.  These are not patents associated with any going concern business that’s creating jobs.  They can’t be, because the best patents for the Trolls are overly broad patents that never should have been granted anyway.  A typical example would be a patent on any system that applies rules to databases.  If SQL statements aren’t rules, I don’t know what are, yet such a patent exists and it was filed after SQL was well established.  Evidently the USPTO is incapable of distinguishing good patents from bad.  Trolls love these broad patents because they can go after anyone and everyone with them.  The second half of the Patent Troll business is the asymmetry of coverage provided by the system.  Put simply, it tremendously favors the plaintifs over defendants.  This in a country with a constitution that states we are innocent until proven guilty.  I’ve been involved with patent trolls before, and attorneys advised my company that it would cost us $1 million just to get to trial.  The cheapest route at that point would be to prove we did not infringe the patent.  If we have to try to get the patent thrown out, that will cost millions more.  The cost to a Patent Troll to bring a case to court?  A couple of hundred thousand dollars.  When the Troll wants $500K to go away, guess what the answer is?  There is no point fighting it as it will cost twice that to get to trial, much more to finish, and the outcome is uncertain.  Trolls like to bring suit in the backwaters of Texas were a jury of your peers has no clue what’s being discussed or how obvious the Troll’s “invention” may be.  Trolls also like to attack small companies.  It helps them to establish precedent and build their war chests to go after bigger prey.  But the reality is that Big Companies can defend themsevles while Small Companies are at the mercy of these characters.  Fred Wilson says one of his portfolio firms recently spent 10% of their round of financing fighting off a Troll.  How does that help innovation in any way?

But there is a new sheriff in town in the form of Barack Obama.  Various parties are crowing about how the stimulus package is finally geared towards High Tech and Innovation.  The NY Times writes:

    What oil was to President Bush, some say, clean energy and technology are to the Obama White House. “We have a president who gets it,” said Dean Garfield, the president of the Information Technology Industry Council.

We’re giving $7B for broadband, $19B to automate healthcare record keeping, and billions more to create a “smart grid” for energy distribution.  What does it all mean?  Is this innovation?  In a word, “No!” 

Start with the broadband.  It’s largely about delivering broadband to rural areas, so the Department of Agriculture (a real hotbed of innovation) is getting almost half the money right up front.  There are no speed requirements at all, leaving the Federal Government free to declare victory however it likes.  This is pork.  You may as well consider it the Internet to Nowhere and put it up alongside Alaska’s Bridge to Nowhere.  Sure we’d love to make Internet access ubiquitious.  Will this package actually do that?  I won’t hold my breath.  And meanwhile, what does it do for non-rural areas?  Absolutely nothing. 

Contrast that with a plan by South Korea to spend $24.6B dollars, create 120K jobs, and deliver 1 Gigabit per second internet connectivity to the entire country.  Which one sounds more innovative, and more likely to spur innovation to you? 

Smart Grids?  Automated Online Health Records?  These don’t sound like innovation either.  I debated whether to even start in on the Stimulus Package until I read a series of exchanges by the Enterprise Irregulars.  They snapped me out of feeling like a curmudgeon and into seeing pork for what it is. 

Sam Diaz says Silicon Valley is finally getting some respect from the White House, but that isn’t it at all.  The companies that are going to benefit from this package are not Silicon Valley companies, they’re big tech companies.  IBM, Fujitsu (not even a US company), and similar large companies are the ones commonly talked about.  We’ve replaced the Bush administration’s pets like Halliburton with a few slightly more techie names that are still giant corporations.  This is not helping the little guy or innovation.

Why all the emphasis on the Small Companies, BTW?  Because that’s who creates the jobs.  That’s who innovates.  Isn’t that what we need right now?  More jobs?  More Innovation?  Look to Small Companies, not big ones to do that.  Take a look at this chart, for example:


That gigantic spike in job creation all the way on the left is courtesy of Small Business, and represents the vast majority of jobs created from 1987 – 2005.  President Obama, if you can’t get the Small Sector fired up, how do you expect to replace all the jobs the economy has lost so far (not to mention those yet to come as more shoes drop)?

Tim O’Reilly has it right when he agrees with this Twitter quote about the origins of success and failure:

    “privatize success (by chalking it up to individuals) & socialize failure (by blaming it on large systemic problems).”

Obama and the Rest of Government, take note of what you’re doing to Innovation and give us back a system that favors the Individual Innovators in Small Businesses and quits forcing Failure.  Do what you want with the stimulus package, it’s pork already promised, but reform the patent system and get rid of Sarbanes Oxley except for companies with at least $1B in revenues.  You’ll be amazed at what it’ll do by way of turning things around.  And it doesn’t cost anything at all compared to what the stimulus package itself costs.

Related Articles

Suddenly, startups and the stimulus package are an exciting topic.   LinkedIn’s Reid Hoffman on Techcrunch asks Obama Claus to give us Small Business Loans, No limit on H1B visas, and Matching Funds for VC’s and Angels.  But Reid misses the bigger point: availability of capital is a non-issue if liquidity is available.  Which brings me back to the point of this post.  Eliminate SOX for small companies and make liquidity easier and you’ll have private capital moving to the sector in droves.  You don’t have to pay for all this from the taxpayer’s pocketbook.  Fix the incentive side and the capital side fixes itself.  That’s how capitalism works.

Awesome post by Todd Dagres pointing out the linkage between SOX, the lack of IPOs since SOX, and the impact on innovation.

Posted in business, strategy | 8 Comments »

Should Big Companies Charge for Betas?

Posted by Bob Warfield on February 12, 2009

Google is charging for Betas. 

Huh?  What’s Bob on about now?

I was in GMail today, nothing new there.  BTW, I like GMail a lot.  I tried my personal accounts on it about 6 months ago, and turned off Outlook for those accounts a month ago.  More on that in a later post, but I’m surprised at some of the usability things I’ve learned from it.  Awesome job, Google!

Anyway, I noticed the ad bar at the top of the screen and several thoughts hit me immediately.

One, it was tastefully done.  Not garish.  Respectful of my valuable screen real estate.  I don’t know when it showed up, it could’ve been there all along.  I thought, pretty cool. 

Two, it was very well targeted.  It was actually something that might interest me, an ad for the Sony eBook reader.  I’ve been pondering whether I want a Kindle 2 lately.  I was just about to reach over and click when I stopped.  More thoughts: 

    –  I was reading morning email and needed to tend to business, finish, and head off to work.  This was not a good time to get distracted by an ad.  No biggie, fine, file it. 

    –  Hmmm.  How did Google target me so well?  I don’t recall emailing anyone about Kindle ever.  I sure blog about it, and I read every blog post I find about it.  How much does Google really know about me?  How big is the dossier of my online behavior that they are cross correlating?  Big Brother thoughts are always so unsettling.  And have they earned the right to divine my inner thoughts and desires by opening my mail and analyzing it?

    –  But hey, it’s free, it’s beta, what am I complaining about?

Then it hit me.  Google is charging for this Beta Gmail by selling ads.  Somehow that didn’t seem right to me.  Not a big thing.  I still kind of liked that ad because it was well targeted.  Certainly nothing like Louis Gray’s campaign to mark every ad on Facebook as offensive.

I guess in the end, I just didn’t like the idea of Google charging for a Beta.  Mind you, I don’t like the idea of them calling GMail a Beta.  It’s been forever in Beta.  What would be the signal to take it out of Beta?  It’s got to be pretty stable by now.  What is the purpose of this Beta?  Some say it’s just marketing.  OK.  We’re kind of past the rush of thinking, “Oh cool, I’m in the inside crowd, I get to play with a Google Beta.”  Some say it is so Google doesn’t have to take responsibility for it.  Find a problem?  Don’t call us, it’s a Beta.  I’m more in that camp.  I hate to gripe about it. 

GMail is great and all, and I like the ad, but hey, don’t charge me for your Beta.  Just take that “Beta” off the GMail logo and I’ll feel 100% better about it.  It’s a great program.  It’s not a Beta piece of software anymore.  Take responsibility.

OK, enough on Google.  I’m moving on to more interesting topics.  I’ve gotten a couple of great interviews lately from some Cloud Thought Leaders at 3Tera and Engine Yard that I’ll be sharing very soon now.


Posted in Marketing | 3 Comments »

Should Your Startup Ignore All the Advice?

Posted by Bob Warfield on February 6, 2009

Maybe.  Simply emulating what appear to be the reasons for other’s success without understanding why it works or what the ramifications of a particular strategy may be is certainly likely to fail.

Jason Cohen is tired of being lectured by others on how to run his startup.  Based on the indisputable fact that a lot of advice is contradictory, he is frustrated to the point he declares that most success is due to outliers.  Because of this, and with a quote from Malcolm Gladwell, he concludes the real answer is just to buck the conventional wisdom.

I couldn’t disagree more with the view that you should ignore everyone’s learnings, do whatever you want so long as its different, and just assume some magic outlier factor is all that separates you from success.  Call it luck if you want to be blunt about the outlier factor.  How many have decided that success is a matter of luck and the only reason they’re not successful is they haven’t been lucky?  I remember hearing a conversation between two older men I overheard one time where they were in violent agreement that all successful people were either lucky or crooks.  It’s very comforting to think you don’t have to learn, you don’t have to take responsibility for your own success or failure, because it’s just luck.  But ultimately, it’s also debilitating.

Luck is a factor, but successful people also make their own luck.  They have a track record of enough successes that it gets pretty hard to assume its just luck

BTW, out of curiousity I had to go check out Jason’s company, Smart Bear Software.  Unfortunately, the site was down at the time:




Posted in business | 3 Comments »

Three Blind Men and an Elephant: A Business Parable

Posted by Bob Warfield on February 6, 2009

There is an old story about three blind men and an elephant that is said to have originated from India.  Each one touches a different part of the elephant, one the trunk, one a leg, and one the tail.  None of them can agree on what an elephant really is.

Here is a modern parable based on the elephant story:

The sales guy wants to know, “What size companies are our target customers, small, medium, or large?”  Translation:  How big are my deals, how many do I need to close to hit my quota, and how shall I go about closing them?

The marketing guy wants to know, “Where do our target customers go to learn about new products?”  Translation:  Where should I buy ads?  Who should I buy mailing lists from?

The CFO wants to know, “What kind of margin do we get on that business?”  Translation:  What am I telling the Board and Investors about profitability?

The engineer wants to know, “What kind of hardware and software will they run my software on?” and “Why would customers want to do that?”  Translation:  How will customers interfere with my pristine architecture?

The professional services person wants to know, “How many hours can I bill while installing this software?  How little training can I get by on giving my consultants?”  Translation:  I just want to bill profitable hours: as many and as often as possible!

The elephant they’re touching is the customer.  None of them see the customer as they really are, but only as the customer affects them.

I was listening to someone tell me the other day about budgets and how it is hard to sell something that’s good for a company but doesn’t fit any one’s budget or goals.  Everyone will applaud the new idea, but then point there finger to the next guy to take responsibility. 

That’s the problem with Elephants.  And Customers.  No real organization, or at least no successful one, is quite as polarized as the parable suggests, but even a little polarization can obscure important issues that stand in the way of success.

What are you doing to make sure your organization sees Customers and not Elephants?

Posted in business, strategy | 1 Comment »

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