Saturday, March 3, 2007

Funniest Business Story of the Week

I vowed not to blog this weekend until I finished my grading (which has a hard deadline of Monday). Alas I happened to visit the NYT website (to test the ad-blocking feature I just found in Camino) and found in Sunday’s paper what is the most hilarious business story of the week if not the year.

What makes it so effective is writer Danny Hakim’s dry treatment of a business absurdity:

The New York Times
March 4, 2007
That Ship Will Come in, Right?
by Danny Hakim

Wave Systems has never had a profitable quarter. Ever. In nearly 20 years.

“We’re pursuing an opportunity, we have been for a long time, it’s much closer and we can actually now see the light at the end of the tunnel,” Steven K. Sprague, the company’s chief executive, told shareholders at its annual meeting last summer at the Grand Hyatt Hotel in Midtown Manhattan. “It probably fills the tunnel, actually, pretty strongly.”

That flickering light has been enough to attract one of the most devoted bands of investors this side of Berkshire Hathaway. But how do people keep faith in a company that has lost roughly $300 million since its inception in 1988 and has had nearly 50 consecutive quarters in the red since going public?
Recognizing the absurdity, the Waveoids even have a habit of drinking Kool-Aid. There seems to be a bitter humor among the foolish speculators, some of whom tragically invested all their savings in a single stock. However, I would quibble with the characterization of the stock’s plunge as a “sheer cliff face”: it looks more like a landslide to me.

For the rest of us, Hakim offers a cautionary tale of huge financial losses by a company that helped create value (through the “open” standards of the Trusted Computing Group) but couldn’t capture enough of that value. As with many other technologies, it may be that Wave’s security software isn’t important enough (or protectable enough) to work as a stand-alone business model in an industry full of integrated giants like IBM, Microsoft and Cisco.

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awk said...

Hi Joel,

...mind if I repost your blog entry on this most absurd business opportunity again in a few weeks?

Jeff said...


I was wondering if you could elaborate with all your extensive experience and expertise in technology upon what exactly is it that Wave Sustems does and it's relationship to all th eother GIANT tech companies it seems to have a seat at the table with. Perhaps if we understood more of why this company is apparently an absurdity instead of just taking your word for it we could all be enlightened further. I'll check back and see what you can tell us technically about how all this trusted computing, tpm's, and Seagate's newest line of secure hard drives all fit together so we can make an informed decision.


Anonymous said...

Hello distinguished Author,

Do you have any idea of what a TPM is and what it can do? Seems to me you specialize in the past, and then blog as if you are an expert on all things new. You will be one of the fools whose poor judgement and lack of technical insight will have you falling in line some time in the future. What is sad is your inability to do some basic due dilegence prior to forming your openly hostile opinion. I will have a plate full of warm crow waiting for you when you are ready.

best wishes,

The Future

Joel West said...

Folks seem to misunderstand the point of my article — other than to prove that the Wavoids are more rabid than even the Macolytes.

Wave has had terrible financial performance to date, and yet people still hope against hope that someday everything will be great and their faith will be rewarded. It could happen, but (statistically) it’s not very likely.

Nothing in my post says anything bad about Wave’s technology. There are plenty of little companies out there with great technology that never make a viable business. That’s why it’s important for startup firms to think carefully about their business model, and in particular whether they can capture value. (I’d be glad to talk about value capture in a future post if there’s interest).

The other key issue is industry structure. I’d never heard of Wave before Saturday, but there are a lot of big companies in the IT industry trying to solve the same problem. In the IT industry, it has often been true that a mediocre technology with great distribution (e.g. IBM’s virtual memory) will trump a superior technology (e.g. Burroughs’) with weak distribution.

I don’t wish Wave ill, and it would be nice to see the people who lost all that money get something back. But I think it serves as a cautionary tale for future investors.

Wavoid Wrath said...


Just so you know what's going on with these replies.

Your blog was posted on the Wavoid investment board--

Awk and micro are both Wavoids--

Wavoids don't like to be laughed at. Now you must pay! You must suffer 1000 Wavoid insect bites.

Old Security Hand said...


The Wavoids think they know the entire history of the trusted computing journey ... and that history (in their opinion) begins and ends with Wave Systems. They are either ignorant or choose to ignore the many hardware-based initiatives launched by major players since the late '80's.

Further, they automatically perceive that the deployment of Trusted Platform Modules equals deployment of Wave's software on an equal basis.

The fact of the matter is, many large firms have worked on a hardware-based trusted computing solution for many years and these efforts are still ongoing. As a retired engineer at one of these firms, I have first-hand knowledge of one firm's efforts, going back almost two decades.

Perhaps this would make for an excellent follow up blog entry sometime in the future?

Best regards!

Bluefang said...

Joel: There are some other factors about Wave to consider. The founder, Peter Sprague passed the torch to his unqualified son, an unsuccessful salesman. The son promptly hired Dad and brother Michael and an old family friend.

A subsidiary, called Wave Express (WXP) employs all three of these characters and despite burning up $50M in Wave's revenue, WXP's own revenue doesn't even come close to that of a peanut stand. they all draw big salaries and bonuses.

What no one has mentioned, is the constant share dilution. Danny Hakim touched on it. It happens about 3 times a year.

The CEO has promised breakeven every year since 2003. He hasn't even been close. The latest promise was breakeven by this June, or possibly by the end of this month--again, Wave will not even come close to breakeven.

The only analysts covering Wave are Dutton & RedChip, both are paid for the honor by Wave and both have never come within 100% of being right.

Are you beginning to catch the scent of rotting fish flesh here?

That doesn't begin to tell the story--like the WXP lease between Steven Sprague and Michael Sprague (brothers) to house WXP corporate HQ in Michael's NYC loft. On and on it goes.

Put some Vick's vapor rub under each nostril when approaching Wave--that will help block the bad odor.

Bluefang,a reformed Wavoid

Jeff said...


I think that since you are concerned about people's investing, and you cite in particular the business model, I was wondering if you, or Bluefang, or others could possibly post the business model of the company?

I am sure that it was readily available at the open to the public Annual SHM in New York and the CEO makes himself readily available for questions just like these.

Wave Systems is not about the past financial investments by people who have bought stocks or bought on options or leaps.

Wave Systems, like Trusted Computing, and FDE hard drives, and multiple other still emerging technologies for making computing safer and keeping your I.D. from being stolen, and your personal information from falling into the wrong hands, as well as a host of myriad other E-business and e-commerce issues that are coming to a head quickly, is about change and the future, which is almost upon us. I would suggest that you do a little research into the Trusted Computing Group for basic starters and learn a little about where OPEN STANDARDS have been developed and are still being developed continually as devices as diverse as cell phones through PDA's and desktops and laptops are
but some of the things that are being addressed by this standards body, which boasts quite a resume of members btw.

True, Wave has not made a dime in all these years. That does not mean they won't and it also says something about this question: why would companies be willingly to purchase large shares of this emerging technology company in private placements, given their track record, if it is such a great example of a small company that never made it or is not going to make it?
May I ask you a question please?

Have you ever in your lifetime started up a new business of your own, with emphasis on something entirely radical that has not been done before, that would be a disruptive technology?

If not, may I encourage you to please try looking at this whole Industry, that is just now emerging on an enterprise Desktop or Laptop from Gateway and Dell, and understand that it is impossibe to sell anything beforehand when the markets and space did not yet even exist.

As another poster said, Wave is about the future, and the future of Trusted Computing is only just now beginning to unfold before our eyes to become a permanent part of this world and the way trusted business will be conducted.
I wish you well,


Joel West said...

As I’ve said twice already, I don’t know anything about Wave other than what’s in the article. I offer it an example of how people can learn from the mistakes of the Wave investors.

And actually, I have started a business — but I didn’t take other people’s money: I used my own. I didn’t draw a salary for 2 years, and when things got tight I was personally on the hook for a potential net loss of more than $100K (which would have wiped me out).

Once upon a time, a Japanese CEO (actually a kaicho or shacho) would commit suicide if they brought dishonor to the company or lost all their shareholders’ money. While that’s a bit extreme, I completely understand the level of responsibility that such leaders feel towards the investors who have put their trust in the company.

Jeff said...


What mistake exactly is it that Wave investors have made?
Has the company dissolved? Does it have a market? Are large corporations buying their product?
When did this market for their product become available for them to be able to distribute their technological products?

As far as I know, the jury is still out on whether Wave succeeds or fails.

Perhaps in the interest of fairness you might want to post Wave's earnings from the past four consecutive quarters and chart that for all to see.
It might surprise you if you have an open mind.

BTW, what disruptive technology corporation did you start with your won money as that was my question? Did it ever go public? If not, why not?

It is easy to sit on the sidelines and be a blind criric, especially when by your own admission you know absolutely nothing about the now emerging technological space that is emerging loosely known as Trusted Computing, but so much deeper than that.

Please, just post the last four consecutive quarters of revenues and then draw a simple graph and see if you see a pattern.

You know Joel, it has been my experience in more than 3 decades of business experience that sometimes, when it happens, that a person gains more respect when they simply acknowledge they simply might have been a bit hasty in assuming a conclusion, or just say you pre-judged something you know absolutely nothing about by your own admission.

Since when does the current stock price dictate the success or failure of whether an emerging company, in a never before existing marketplace, mean this is a good example of things to avoid?

Why don't you let it play out and see what happens in a few more quarters and then, after doing at least a minimum of DD on Trusted Computing, make a comment on whether the company known as Wave Systems is improving its bottom line from the previous year and quarter, and what its prospects look like then?

Would that be fair?

Wavoid Wrath said...


You're supposed to feel INTIMIDATED now! The Wavoids are trying to teach you a lesson! The lesson is nobody is allowed to mention Wave Systems on the internet unless he is a cult member who is underwater and drowning.

Wavoid Jeff (micro) is now posting that you are a piker, a baby, and an amateur--

Wavoid Awk is posting that you are dumb--

Wavoid Cactus Flower is posting that you don't understand a logarithmic chart--

Wavoid cm is posting that you are snide and trying to sell something through your consulting business--

Wavoid wavxmaster (Anonymous) is posting that you don't know anything--

Doesn't that just want to make you run out and buy this stock?? Don't you want to be a Wavoid too??

Anonymous said...


TPMs (trusted platform modules) are now required for all future Army PC purchases. This requirement is about to be extended the whole of the DoD. Kind of a large market. Let's see if Wave can capitalize on this market as well as its upcoming Seagate deal. Who will get the last laugh?

Chickybaby said...


This is truly the funniest business story of the week. I love Seagate's dry wit. Oh those utterly foolish Wavoids: