You reap what you sow

Over the wise objections of my spouse, I thought it would be great family time to have the various members of the family unit explore the myriad short and long form video content available on the internet. I had visions of us sitting together, like a Norman Rockwell painting, enjoying past Hill Street Blues episodes and pontificating how this is a precursor to the beloved and fast paced 24. The reality is that, after 3 minutes, the family unit degraded to the plural; family units. Screens were displaying a myriad of video content in four separate rooms and I found myself assigned four room popcorn kernel corralling Dustbuster duty.

Fortunately, we have a number of distinct access points so 4 HD/VHS quality streams were not too taxing on our bandwidth, but it set me thinking about the 'real time' video experience that is about to hit the beach. The vagaries of video encoding, coupled with network congestion issues, caused uneven experiences in our unscientific family sample. Most of us were watching Hulu, where the stream is around 700kps (VHS quality); or their HD channel which I suspect is closer to 2Mbs. No doubt the uneven experience would have been exacerbated if we all chose to watch true 4+Mbps HD content.

An even larger macro issue facing the industry is scalability of provisioning a network to economically deliver a positive 'real time' viewing experience. Our industry has learned in many ways and countless times that adequate provisioning is really over provisioning; where networks need to have the infrastructure ready for the peaks, not the normal traffic load, is an equation rife with the potential of economic losses.

For many reasons, I am normally a fierce advocate of non-client solutions. Nevertheless, it seems likely that, from a combined cost/quality perspective, we are (and should be) heading towards a hybrid client/cloud solution for the living room internet experience. Content will be called from the cloud and streamed via a hybrid P2P solution (see Pandonetworks) that can cost effectively deal with the massive over provisioning required in an uncertain forecasting world.

This may be stored content, or 'live' streamed (see Octoshape and what they did with CNN, delivering 25mm streams around Mr. Obama's inauguration). Provisioning to such a large, and uncertain number of viewers exclusively via CDN's would break the bank for many revenue starved networks. In an era of challenged advertising budgets, network shareholders no longer tolerate spending like drunken sailors, especially when viable solutions that increase quality, lower costs, and provide better viewing information are available.

If the premise that we are heading towards a hybrid P2P client/cloud delivery solution holds true, it is logical that the client would also incorporate features that enable you to download once to the house and enable distribution to multiple family unit(s) (see Tversity), offer PVR capabilities, and an enhanced discovery/search capability.

Sometimes, fantasies come true.

Access, Fire hoses, to Garden hoses to Straws

For sometime, I have been looking at the internet to the living room market opportunity (NY Video 2.0 Meet-up, run by Yaron Samid, is a recommended place to see some interesting folk) and, while visiting with companies, have been focused on how this phenomena can be harnessed with a 'permacheap' focus. Many entrepreneurial vendors are stirring the better component of the better/faster/cheaper cauldron. I grok better (but think it will be commoditized quicker than you can say good exit), faster (tends to be in the capital intensive hardware dominated section of the infrastructure arena), and cheaper (when combined with the one of the two aforementioned traits) is good for any season.

MSFT and Netflix just issued a joint announcement stating that 1 million Xbox LIVE Gold members activated the joint service and watched 1.5 billion minutes of video in the past 3 months. The service enables people to watch content, streamed to their Xbox via Netflix, on their connected TV's. Today, 30,000 movies and shows are available via Netflix, plus over 17,000 HD content is available from Xbox Live. Surely, the amount of available content from these vendors, plus Hulu.com, Blip.tv, or Magnify.net type vendors is going to dwarf the exposure available from the moderated Netflix/MSFT sources.

It seems to me that the first issue of bringing the internet to the large screen home TV is access; simple to set up and attractively priced. Receiving streamed/cached content through a device that I already own, hard wired to the TV, clearly reduces the adoption cycle. With all the PC's and devices in homes today, I am sure enterprising folk are working to overcome this first hurdle. From a large vendor perspective, LG seems to be taking an early first step in this direction with their announcement last month.

This brings me to the fire hose. When these screens are connected to the internet, users will be instantly overwhelmed by the tens of thousands of sites offering millions of clips/shows/movies to watch. Hopefully, device will have sufficient intelligence to understand the various codecs used. If so, the next big step is to help organize this morass through an easy navigable User Interface (big button AOL circa 1999) that reduces navigation time.

While I will undoubtedly appreciate the winnowing of the content fire hose to a mere garden stream, it's still not good enough; Amazon has trained me to expect better. I value 'the customers like me also bought' facility, and appreciate the display of in context alerts from my 'favorites'. Therefore, on my TV, I would like a recommendation list populated by my friends/associates on Facebook/LinkedIn. Thereby giving instant access to a trickle, or a strawfull, of moderated content that has real 'better' value.

In fact, if I have a number of WiFi ready spare devices at home, a centralized PC (think Media Server), capable of streaming moderated content, enables me to reduce the number of monthly billed cable connections. Thereby, combining 'better' and 'cheaper' experiences. With a bit of Mr. Harry luck, this could be really rewarding.

U of Texas Investment Mangement Co (UTIMCO) reports on the value of their PE investments

Is a large investor in the Private Equity asset category. The folk at PEHub recently published UTIMCO's PE performance data here. In general, UTIMCO has posted reasonable numbers, certainly compared with the S&P index. One has to caveat these numbers as the returns embed a sizable number of investments that are not yet realized, and are subject to market vagaries.

You will see the data for such notable venture firms as Atlas Ventures (which missed its fund raising target), Austin Ventures, Spark (too early to opine), and Union Square (last fund seems to be a solid performer; latest is too new to comment on). I would expect that, in the near term, GP assessment of current value will trend down as the comparables have tanked. It is still too early for many of the funds recently raised to opine on the cash-on-cash or IRR numbers.

Incidentally, the publication of these numbers is precisely why many funds shy away from taking investments from public entities that have an obligation to report on the status of their PE investments. Certainly, in the venture capital business, one large 'win' can overnight change the outlook for an entire fund.

ComScore 2008 Digital Year report (click here) and excerpts from Akamai analyst call

Comscore recently released a report detailing digital media usage for '08, and thoughts for '09. As video is a big part of it, I have also included highlights from today's Akamai analyst call:

1. 2008 e-commerce spending of $214B increased 7% over '07. All metrics were positive going into Q4, which ended with Nov/Dec each down 3%. Travel continues as the largest commerce category ($84B).

2. The fastest growing categories were Video +29%, Home/Garden +25% and Sport/fitness +25%

3. Notable site performance; Facebook +57%, Wordpress +67%, Mozilla +40%

4. Video is rocking; 6% more people viewed 34% more videos last year than prior period. Online video now accounts for 12.5% of all time on the internet (up 50% in the last year). YouTube leads all video sites, with a 40% market share, and growing more than 50% faster than the market. Facilitated by near ubiquitous broadband access, legal streaming and better displays, a pronounced trend is emerging towards long-form viewing, led by Hulu, which is now the #6 video site. Moreover, Hulu had an average of 12 minutes view/video, which is nearly 4x that of today's other leading video sites. From the Akamai call, management sees television moving to delivery over IP. Today, internet provisioned video to the home serves the 3rd or 4th TV in the house, but they inevitably see it coming to the primary screen. For the big screen, quality of the viewing experience matters.

I am not sure that '09 will be the year it crosses to the mainstream, but definitely sees signs that it's coming. Per my son, " this is going to kill MTV". Quite fittingly, as we are at the beginning of another paradigm shift, here is the first video played on MTV.

5. Smartphone internet browsing soared 34%. Led by a 43% rise of 3G phones, coupled with flat rate pricing, this trend should accelerate as the full-year impact of 3G iPhones, Blackberry's and Androids are felt.

These trends continue to bode well for cloud based applications that are built for universal access (any device/anywhere). The continued explosion of alternative viewing channels will place a premium on developing a familiar way to organize and search/discover desired content. Also, during platform shifts people are constantly trying new things. Of course, many monetization and user experiences need to be worked out. In any event, these should be wonderful areas for young companies to exploit vibrant and growing markets.

Pew reports

The Pew Charitable Trust has for many years sponsored the Pew Internet & American Life Project. Researchers there have produced many fine reports that range from Internet usage trends (highlighting surprising demographic data), to details on what activities people are doing online.

If you are interested in gathering data on social trends, demographics, or connectivity this is a wonderful place to visit. Check out the piece on Networked Workers, it will give you a sense on why people are flocking to SaaS and Cloud based applications.

All the reports are free.

Time = Quality + Features

A recent article about Microsoft's process and thoughts behind the release cycle of Windows 7, brought to mind the above equation. A few years ago, I was lucky enough to have a partner, Yuval, who is as quietly wise (especially on matters dealing with technology), as he is gentle. Over hot chocolate one evening, he explained to me a stunningly simple equation that brought the tie between Product Management and company culture into sharp focus. For him it was as obvious; sort of like Einstein just knowing there was a relationship between the square of speed of light, energy and mass. Let me explain his equation:

Time= The date when your product/service will really be introduced to its customers
Quality= The customer experience (e.g. how many bugs/maximum pain to be inflicted)
Features= How much 'stuff' will be packed into the release

Yuval explained that each company has its own DNA, market pressures, and competitive dynamics that will cause them to interpret the above equation uniquely. For example, Intuit must hold (T) constant for its TurboTax product line, even at the risk of excluding 'killer' features, as it would be a death defying act for them to release a tax product on April 16th. On the other hand, Microsoft, was well known for its mantra to win all reviews. Knowing that breadth of features was essential to securing the coveted 'editors choice' (T) and (Q) often lagged customer expectations.

Lastly, a proud organization, such as IBM, was logically obsessed with product quality. As a consequence, they often shipped a superior quality product too late (OS/2) to have a market impact, or one that lacked feature depth to really differentiate themselves in a crowded ecosystem. Nonetheless, their core constituency, Enterprise customers, appreciated the reliability of the IBM brand.

The Internet, and more specifically the fast evolving SaaS universe, reinforces the validity of the equation. The now common practice, eponymous with Google, of releasing low/no cost permacheap 'beta' products may change user expectations at the core of Yuval's theorem, but it does not alter the DNA, or market pressures, that inevitably lead companies to make the 'best' in character decisions. To everything there is a season.

Resource for acquistion/partnering insights (SYMC, IBM, Citrix, Salesforce, SAP,etc)

The Software and Information Industry Association (SIIA) is in the midst of running a series of presentations, for members of the Venture Capital community, where the most acquisitive companies in the Information Technology Industry present their strategies, M&A interests, and are open for questions from participants.

Access to a few of the past presentations are available here. I participated in the last session where the VP of M&A for Oracle, and bankers from Pacific Crest, shared their M&A and strategic thoughts. Past sessions included IBM's thoughts on cloud computing, Salesforce's view of SaaS, and Pacific Crest's insights into the Saas M&A environment. With the IPO window closed and capital access used to fund market expansion vastly more expensive, these sessions are timely.

On Feb 10th, they are hosting a presentation from Adobe, SAP, and Credit Suisse's Software analyst that is accessible in person, or via conference call. You can learn more, sign up to attend, or listen to the next session here.

Ken Wasch, the head of the SIIA, is focusing on building a closer relationship between the Association and the venture capital community. With sessions like these, I have no doubt he will be successful. If you want to reach Ken directly, his mail is Ken.Wasch at SIIA.net