Thursday, April 29, 2010

Strange bedfellows?

Yesterday was a really interesting M&A day. Palm's acquisition by HP and Siri's acquisition by Apple seem to redraw battle lines across many historic boundaries.

Siri is a mobile application that's pursuing a lead generation, transaction oriented, business model. The application uses natural language, speech or written, to refer you to places, things or actions. Rather than being a search engine that refers you to information, it's more of an action engine, that short-cuts search. Combined with it's acquisition of Quattro Wireless, it seems as if Apple is girding for a fundamental change in which we interact with phones and search. Rather than going from web page to web page, an application to application metaphor is building. It is really similar to our relation with Facebook, where Facebook Connect, and its native applications keep someone engaged for extended periods, within a common framework. If search is invoked, it's within an application and, due to the deep vertical nature of the apps, offers incredibly relevant results. Better than GOOG can naturally aspire to.

This application to application metaphor is also easily translated to the mainstream computing market with tablets, or netbooks, being a natural bridge between the two. I have been using Siri for the past few months, and though impressed with the promise, must opine that today the results are just barely competitive with a host of similar applications, such as Tellmewhere, Searchit, and AroundMe. Don't be surprised if one of these are next in line to be acquired too.

I don't think this change replaces traditional search, but if adopted, will clearly cap the time spent searching via a traditional search engine. Combining Quattro and Siri has great potential to move advertising dollars away from search results and into applications. Now, if Apple can only figure out, or have the desire to open this up to more platforms, perhaps, they can be the MSFT of this decade. Or, paying homage to Dave Winer, perhaps they should just publish an open API and let anyone use it on any platform.

Palm's acquisition is noteworthy, not for the innovation, or leadership that's being shown, but for how far the industry is moving away from Microsoft. I simply can't imagine, 5 years ago, any PC maker building, or buying any operating system, other than Windows. Heck, even selling a dated version of the OS was enough to get you into scolding water. But now, HP is boldly saying (it takes revenues of $120B to be bold) they plan on using the soon to be acquired WebOS as a foundation for a series of computing devices that will take it beyond phones.

I am not sure that we really need yet another OS, but if HP can follow up it's tag line of "Let's do amazing', it may be worth playing with a few of those devices. On the other hand, till writing this post, I must confess that, for the past 15 years, I never would have associated 'let's do amazing' with HP.

Finally, speaking about Amazing from an unexpected source (besides the 'Amazin' Mets winning 9 straight), grab a look at this MSFT link to their work on Natal (courtesy of my buddy Zak). If they can really commercialize this, Redmond will again assume a lead part of the conversation.

Wednesday, April 28, 2010

Burning down the house

Goldman Sachs has been in the news much more than they would like and are bound to stay in this uncomfortable position for sometime. I have no idea whether this scrutiny is justified, or not, however, the age old conflict of interest monster is resurrected yet again. Over the past 20 years, much of the profits of Wall Street have shifted from gathering data, transforming it into information, which is then actionable by the firm's client. Today, much of the benefit from this data flow inures to the Wall Street firm, acting on its own behalf. With full disclosures, there is nothing wrong with this, and in many ways, it's the capitalistic way of life. But that does not make it right when you, as a client, find yourself on the opposite end of a trade, a transaction, or a bid from your advisor.

It's a trust issue. Plain and simple. In these cases, clients are not too interested in 'Chinese Walls', bolstered by regulations, when fundamental issues of self-interest arise when your competitor is your advisor. It gets your gander up enough to even think about uttering praise for the plaintiff's bar. Perhaps, all jokes aside they do serve as a conscience for the 'little guy'? At least, we know where they stand.

The subject of self-interest and trust comes up frequently in the venture business. One area, in particular, is around a M&A exit. Let me explain. Assume, as a VC, you have backed a CEO who owns 10% of the company and is 50% vested (with full acceleration on an exit). A private equity buyer approaches him and, with your consent, enters into sale discussions. The PE buyer, seeing the wonderful job he's done, puts on the table a wonderful CEO compensation package that post transaction refreshes his equity package (with options set at a value that reflects the acquisition cost).

The CEO, who works for shareholders that includes the VC firm(s) has a huge conflict of interest. He is charged with maximizing returns for existing shareholders, including himself, but has a MUCH greater incentive to gain personal liquidity and 'roll the dice' for another payday by serving a new group of investors. His self-interest is a conflict that the buyer recognizes and in many ways counts on to secure a favorable transaction. It's human nature.

If you've been through this before, a way to save the CEO and shareholders much angst, is to appoint a director as the point on valuation and structuring discussions. Remove the haze of conflict and replace it with a 'clean' transaction where everyone knows where self-interest lays. Understanding that most M&A approaches never reach consummation, it's also a good way to save the Company from much distraction, and the relationship from Burning Down the House.

Wednesday, April 14, 2010

Simple twist of fate

Coming back to the platform/application debates swirling around Twitter et al, I recall the old rhetorical question which my ex-partner Yuval Rakavy used to cite: what differentiates a smart person from a wise one?

The simple answer is that the smart person knows how to get out of the problem that the wise person would never get into.

When entreprenurs build a company that, by definition, has a single point of failure, they are vulnerable to a litany of potential catastrophic events. They may be regulatory, a systemic vertical industry failure, or a competitive blow. In the mobile space, the Telecom players were notorious single points of failure, and wiped out billions of dollars of capital exercising their prerogatives over a decade, blocking innovation.

Today, entrepreneurs and investors have much to gain, and lose with involvement with Apple, Facebook, Microsoft, et al. It's really imperative that they plan for the single point of failure to actually fail. If no fall-back exists, be prepared to have a war story of how great things were going, until....

Monday, April 12, 2010

Platforms and applications and tensions; Oh My

Much has been written and said over the past few months about the 'nefarious' intentions associated with three high profile conflicts. The Apple/Adobe rancor, Twitter's war with its developers over its acquisition of Tweetie and Google taking on its parters with the launch of its own Android powered phone.

Taking a step back, the presence of these debates signals a healthy and evolving ecosystem, fraught with turbulence, opportunity and danger. I really can't ascribe 'nefarious' intent to any of the actions taken. It's all about corporate self interest and fiduciary duty and far prefer this environment to a staid world which developers have abandoned. For example, I am sure that a once proud firm formerly at the center of such debates,Yahoo, would just love to recapture this type of caring attention.

Two decades ago, Microsoft showed us all how a drive for ubiquity in applications can be leveraged into a platform that offers value for users, partners and shareholders. When applications become ubiquitous (Facebook), they inevitably morph into platforms as supporting firms, usually with the cooperation of the platform owner, drive to fill in opportunities left vacant by the mothership. But danger lurks as the platform evolves, it consumes those who are too close to the ever shifting center. Twitter, showed that in spades last week with the acquisition of Tweetie. For now, I use Tweetdeck, who must unleash some great innovation to keep ahead of its former best friend for life.

Likewise, the Apple/Adobe debates are really not about optimizing user experience. It's really about legitimate corporate interests and has many twists and turns that were well documented in this blog post at Daring Fireball. I have a suspicion that if Adobe can show Apple how it's in their corporate interest to support Flash, then an accommodation will be reached. For now, the whining really is not an adequate substitute for good product management.

Dave Winer, who with Living Videotext knows these battles so well (here's a copy of the letter he posted where MSFT terminates their Letter of Intent, as they decided to buy his competitor, PowerPoint...full disclosure,I was involved in this transaction). He notes, and I agree, that the closest place in the software/web world you will find to a utopian world is in open source stacks. I am not here opining on what is better or worse, but I can't escape the reality that these stacks are usually ubiquity driven, without the profit incentive that drives self-interest to pitched conflict. Of course, (with apologies to Los Angeles) all is not LALA land in the open source world. Groups do pitched battle and debate rages, but common sense usually takes hold before mutual self destruction is assured.

Monday, April 5, 2010

Spitballs and the signularity vs diversity

Last week I had a spirited conversation with Yaron Samid, a co-founder of Pando, and now the founder of an interesting new company, CrowdSpot, which will launch later in 2010. Yaron is a spirited serial entrepreneur who, not surprisingly, rightfully prides himself on thinking differently. Our conversation was around business models and rapidly centered on the merits/trends of free/freemium vs free/don't worry about revenues (yet).

On the call, I found myself advocating a position with great certainty (as my friend Peta says 'always certain and sometimes right), citing a raft of new companies that are pursuing a certain course of action, popular today, but was in deep disdain a few years ago. Now, I can cite all the great reasons why things have changed, and today a company just 'has' to adopt the popular, but, on reflection, the reality is closer to what I tell my daughter; 'popular does not mean right, or good'. With the rich mosaic of niche markets available to technology companies, there's plenty of room to craft a customer winning solution that just happens to be different from common thought.

Looking at many of the successful princes of the software and internet businesses, the founders reached plateaus by not doing what's popular, but by thinking business different. For example, Apple's wonderful creativity aside, a great reason for the success of iTunes is it's business simplicity around $1 a la carte songs. Microsoft commoditizing, and greatly expanding the desktop market with its low cost productivity suites, and now Google leading the way with free web based applications.

Each of these strategies, were initially criticized by the status quo seekers, and each was wildly successful. The reality of our crowd behaviors is that we mimic success and strive for the popular, adopting a singularity of execution, until someone launches a spitball that happens to stick. Thereby, shining a light on a different way that, with success, becomes a new singularity to many to now follow.

Thursday, April 1, 2010

Middle Fiddle

It's tough being a middle fiddle. Whether in birth order, batting order, or a nearly impossible position to build equity in the technology space. Take phones for example, on one hand, you can get a simple 'dumb' Nokia 1661 unlocked phone for $39 on Amazon, on the other hand, the Apple iPhone 3Gs 32GB is $299 (with a media plan). In between lives more than 500 models (just on Amazon), all fighting for the 'we are just like the iPhone but cheaper', or we are 'just cheaper' space. It's nearly impossible to build a sustainable revenue stream, and even worse to build, or sustain, a brand (e.g. Motorola). Moreover, being in the middle doubles the number of deadly competitors who seek to maim or destroy you.

The same is true for markets. It's hard to have more selection than Amazon and to be cheaper than Ebay in the commerce world. It takes a fundamental different approach (Craig Newmark) to mine diamonds. I love the rewards entrepreneurs and shareholders earn from their innovations. Whether by mining new markets (friend, check-in, or follow someone/someplace recently?) or by destabilizing a somnolent arena (online Flash commerce and retailing).

We are at the crossroads of tectonic shifts in technology markets with new hardware platforms, mobile, open source and world markets beckoning consumers and corporate customers not far behind. Just be careful to not be caught in the middle.