Monday, March 31, 2008

Not quite a love-hate relationship

In yesterday’s Merc, the column by Vindu Goel was entitled “Our love-hate relationship with Comcast.” I’d say he’s half right, which is more than we usually agree.

Comcast has been spending hundreds of millions with its Slowsky (and other) ad campaigns trying to make people think that it has a better Internet service than anywhere else, while SBC (aka AT&T) is attacking Comcast and other cable TV over misleading teaser prices. Apparently hyperbole and dishonesty is normal for telecom advertising (like laundry detergent of 40 years ago) but there’s clearly more of a factual basis to the AT&T attacks.

Comcast claims to have 16 megabits/second; all I know it isn't in my neighborhood. I don't know if we have poor infrastructure, too much shared bandwidth or it's just the normal latency problems, but under normal conditions the responsiveness is no better than DSL and noticeably worse than at work. We had Cox in San Diego for nearly a decade, and boy I wish I could have that service up here.

What is, clear, however, is that Comcast is a monopoly and acts like it in its pricing. It reminds me of 20 years ago, when people were mad at DEC for acting as though its customers had no other choice. Once they did — through POSIX, Unix, and Open Systems — buyers deserted DEC in droves.

Comcast will never have a cable TV competitor (in those markets where it has the franchise), but it certainly will face relentless competition from substitutes. About its only hope is that once SBC gets good TV market share that its arrogance will eventually match Comcast's. For consumers, that would be the nightmare scenario.

Thursday, March 27, 2008

Wednesday, March 26, 2008

Brown throws in the towel

The bad news for Motorola just keeps on coming. Unable to find a buyer for its handset division, Motorola CEO Gregory Q. Brown is going to spin it off to shareholders.

Brown is washing his hands of the critical problem that cost Ed Zander his job. In effect, he's saying that either a) the handset division is a net negative for the stock price or b) the best way to sell it is to cast it loose and make it the new management's problem.

A number of the articles noted what a terrible idea it is to dump Motorola's largest business rather than fix it. Dow Jones (via CNN) has a good take:

Skeptics believe that, over the next year, Motorola will endure customer confusion, interruptions with the supply chain, and ultimately the loss of more market share. More importantly, a lack of stable leadership has left the mobile devices business without clear direction, which is only exacerbated by the uncertainty of a spinoff.

“It's a terrible idea,” said James Faucette, an analyst at Pacific Crest Securities. “It hastens the demise of the handset business.”
As DJ notes, even with a spinoff the new division will need a leader, strategy and a way to keep its top talent.

CNET has an intriguing article in which a disgruntled ex-employee basic says that Motorola's success with the RAZR could be all credited to Chief Marketing Officer Geoffrey Frost — and when Frost died on the job in 2005, so did Motorola’s stream of good ideas.

Carl Icahn — the master of short-term arbitrage and long-term disaster — seems to think the spinoff is good news. I think the stupidity of this strategy — dumping rather than fixing the problems — will become obvious long before Icahn can dump his 144 million shares.

Monday, March 24, 2008

3rd place, going on 4th

Motorola has managed to fall from 2nd to 3rd in the global handset market, and the bad news doesn’t seem to be ending any time soon. Elizabeth Woyke of has an interesting summary of how Motorola is doing its best to get to 4th or 5th.

Bigger isn’t always better, but Woyke summarizes some advantages of market share:

...the industry is expanding beyond hardware to span technology, fashion, applications and operating systems--what Milanesi calls "the whole ecosystem of services."

Elite rank isn't just a symbolic win. Placing in one of the top three positions in the industry translates to big volumes--which, in turn, lowers costs and increases a manufacturer's clout. No. 1 Nokia, for instance, will ship more than 500 million phones this year, more than twice as many as No. 2 Samsung. "From a vendor's perspective, it's good to be in the top five and better to be in the top three," says Milanesi.

Adding to everyone's stress is that Nokia has opened a wide gap between it and competitors everywhere but North America. Here the latter, it’s Motorola (#3) vs. Samsung (#2) and LG (#5).

Samsung is doing well

thanks to aggressive moves into Europe and emerging markets, a greater focus on consumer research and an embrace of open operating systems, including Windows Mobile, Symbian and Google's Android.

Note to readers: Android is potentially much more open than Windows Mobile, with Symbian somewhere in between.

The article notes the speculation that Motorola may cut half of the staff at its Birmingham (England) design center, which is the only piece it has left from its purchase three years ago of the innovative mobile phone startup, Sendo. It also guesses that the announcements at next week’s CTIA Wireless show will be underwhelming.

Motorola still has a strong brand, distribution, and lots of talent. Its leadership seems to be of mixed quality, and its strategy for dealing with increased competition and commoditization has been failing badly. I hope it can turn around, but I’m not going to bet money on it.

Sunday, March 23, 2008

Nothing beats a good monopoly (2)

As I’ve said before, nothing beats a good monopoly. Eventually, the monopoly may come to an end due to substitutes, or the monopolist may squander his billions, or the would-be monopolist could even help his enemy get ahead.

If you can’t get a monopoly, then a duopoly or oligopoly can be nearly as lucrative. In fact, if there are high entry barriers and orderly competition (i.e. no price wards), the oligopoly may be preferable because it invites less antitrust scrutiny from the government.

This week saw the biggest IPO in US history, when the bank-owned Visa Inc. (NYSE: V) raised $18 billion in its offering Tuesday. In the first two days of trading the stock was up 17%.The markets were closed today for Good Friday, but at Thursday’s closing price of $64, counting the Class B shares Visa has a market cap of more than $62 billion, more than twice that of rival MasterCard (with a higher multiple).

Most people forget that Visa began life as BankAmericard in the 1950s, IIRC a decade or more ahead of MasterCard. At the time, it seems like BofA competed with AmEx and Diner’s Club by being slightly less exorbitant in merchant fees. BofA also pushed beyond the standard T&E (travel & entertainment) business to merchandise, and (IIRC) was less elitist in who it targeted. The network effects made the BankAmericard (later Visa) and MasterCard more widely usable, more widely adopted, and so on in a virtuous cycle that swamped the first movers in T&E cards, Diner’s, Carte Blanche and AMEX.

Both consortia leveraged their credit card oligopoly to win comparable merchant fees for debit cards — where they bore lower costs and lower risks — crowding out attempts to build a rival (competing) debit card fulfillment system. With two main credit card networks, not surprisingly there is little competition and high prices (hence the lucrative IPO this week).

The banks have even managed to delay (if not defeat) the world’s most powerful retailer. To avoid paying high bank fees, Wal-Mart tried to open its own bank but the banks were able to exploit Walmartophobia* and round up the usual suspects in their (thus far) successful lobbying to have the government block Wal-Mart from such vertical integration. (Although Wal-Mart is offering its own VISA debit card for undocumented workers and others in extreme poverty).

Of course, when someone sells an asset, you wonder why. Selling shares is improving balance sheets for banks at a time when they desperately need it. But, with the debit card shift nearly compete, are Visa’s best days behind them — or will their share of the oligopoly deliver high margins and high growth for decades to come.

* Walmartophobia. n. 1. An irrational fear of large chain store retailers; 2. political demagoguery that seeks to increase and exploit such fears.

Municipal Wi-Fi: stick a fork in it!

Last month Earthlink admitted that its municipal Wi-Fi business was a mistake and it was bailing out. As I noted in my posting “End to the Wi-Fi mirage”:

This is probably the beginning of the end of attempts to build self-supporting municipal Wi-Fi systems (as opposed to those subsidized like parks and libraries as a “public good”).

This weekend, even the NYT has noticed (wistfully) that the city-subsidized plans are also on their way to oblivion. Not surprisingly, the system design overestimated the hotspot range and thus underestimated the number of base stations required. (WiMax partisans: take note.)

The obvious lesson is if public-private partnerships seemed like a risk-free way for government to get something for nothing, in fact if the private entity can’t make a profitable business, the partnership is doomed.

The municipal Wi-Fi fanatics are hoping to deny economic realities and have someone subsidize their pt approach to social action, urban renewal, etc. etc. But it’s time to stick a fork in the whole movement — it’s done for good. If people really care about making Internet accessible — rather than spending lots of money or building cool toys — then libraries and community centers with free Internet access are a lot less expensive way to (mostly) accomplish the same goal.

Thursday, March 20, 2008

4th wave of platform wars

Thursday I was fortune to hear Brent Williams of The Benchmark Company talk at EclipseCon about investing in open source. However, the former IDC/Gartner analyst most piqued my interest when he argued that signs are ripe for a 4th wave of platform wars.

Here is one of the slides summarizing his views.

1st-3rd Generation Proprietary Platforms (1965 -~1995)
  • Mainframe, mini, Windows PC
  • Extreme architectural & vendor lock-in
  • Lower complexity enabled fantasy of “one vendor could do it all.”

    Galactic Architectures (a comical detour, 1987-1995)
  • Everything to everyone, solving all problems
  • IBM SAA, Digital AAS, Apple VITAL, ACE Consortium, Sun ONE, etc.
Brent was obviously trying to be provocative, but his point about platforms often being driven by vendor needs — not user needs — rang very true.

He sees the signs that web-based platforms (like Google) will be the next wave of platforms. Even if that’s not who will eventually win, it makes the topic worth studying. Meanwhile, his hopes for involvement of user organizations in standardization seem fanciful at best.

I’ve long wanted to meet Brent, a friend of my co-author Siobhán O’Mahony. He was even more entertaining in person, and he also offered some interesting ideas of how to estimate company performance that would be useful for my students in researching competitors.

Flash in the phone

Flash is coming to Windows Mobile devices, and now Engadget speculates Adobe will develop it for the iPhone even though Apple has said no and remains unenthusiastic. Adobe later backed down on their prediction of imminent Flash for the iPhone.

The most compelling explanation for Apple’s reluctance is that Flash would open a new site of APIs with new applications that Apple doesn’t want. However, Flash would also require a change to Apple’s ban on interpreted languages, which are a potential security hole.

Many Flashaholics have said that Apple now can’t resist the inevitability of Flash for the iPhone, but that’s hope and not economic reality. Apple’s biggest rival in North America is Research in Motion, and the BlackBerry also lacks Flash.

The one place where I do think Apple needs Flash (actually Flash Lite) is Japan, where 80% of the current Nokia phones run some form of Flash. Of course, if Apple adopts, endorses or enables Flash for Japanese websites (or even bundles it), then it would be hard not to make it a use download worldwide.

Kid-friendly business models

This morning’s news brought several stories about KidZui, a kid-friendly browser from a San Diego startup. It was written up by Walt Mossberg in the WSJ and my hometown paper talked about how it was formed by an ex-Qualcomm engineer who has won VC funding.

I can’t comment on the product, because it's Windoze-only. However, as one of the target customers I can comment on the business model.

The browser is a piece of software that (AFAIK) seems to have been developed from scratch and not one of the proven open source engines (I can’t tell without the software on my machine or the UserAgent string as a clue). It does appear to provide some additional browser features that make it easier for kids to find information.

The real value is as a service — a whitelist of 500,000 authorized sites, some other filtering controls, and efforts to lock out use of other browsers on the machine. (Mossberg notes that not locking out searches for “Spitzer” could bring up topics you might not want to be seen).

It sounds like a service that would be potentially valuable for our family. Today we use Safari to lock down my daughter’s machine (via a very short whitelist), but that list is a pain to keep current with other legitimate sites. However, we’re too cheap to join KidZui: the price of $5/month or $50/year (discounted from the nominal $10/$100 price) is beyond what we’re willing to spend, when ISP access is only worth about $20-30 a month.

I'm also a little reluctant to go to an entirely new browser. My daughter uses one browser at home and also at school; if she uses a friend’s Windoze machine she’ll come across a third. So having her learn yet another browser is a barrier to adoption.

There are clearly going to be ongoing costs (and value) in maintaining the whitelist. Perhaps the key issue is negotiating site licenses with (notorious poor and cheap) elementary schools to get the brand out there and to seed the market with knowledgeable users.

As for us, our child approaching age 10 may be too old to be a target user. We’re near the end of the “lock our kid out of the Internet” phase and approaching the “use your judgement and talk with us about what you find” phase. But I still wonder who will sign up for the service, absent some clever cross-promotion or co-marketing.

Charlie likes his MacBook Air more than I do

I am still waiting for my MacBook Air that supposedly is coming Real Soon Now. But even when it comes, I don’t think I’ll value it was much as PBS talk show host Charlie Rose. Channel surfing after midnight, I couldn’t miss his shiner.

TechCrunch (via Salon) attribute the black eye his new MBA: facing a fall on the streets of Manhattan, he chose to protect his new laptop and not his face. Fake Steve Jobs isn't buying it.

To me, Charlies’s priorities seem in the wrong place. I don’t know what Charlie makes: he runs a business, Charlie Rose Inc., that sells a TV show to local PBS affiliates. However, if he’s paying for homes in NYC and Long Island, I’m guessing that he makes at least 3x what a CSU professor makes, and more likely 10x.

The machine can’t be more than a month old, so even if not backed up that’s not a lot of information to lose. I backed up my (old) laptop today, and you’d think he could get someone to back up his machine for him (or to set up .Mac Backup or Time Machine to do it automatically).

Wednesday, March 19, 2008

Aiding your enemies in total world domination

For the past three days I’ve wanted to blog on the most incredible article from the front page of Sunday’s Murky News. Reporters Elise Ackerman and Pete Carey documented how Yahoo worked from 2000-2005 to help Google get established and get revenues.

Here is an excerpt:

In 2000, Yahoo agreed to use and promote Google, which it touted as "the best search engine on the Internet." Google co-founder Larry Page described the pact as a "major milestone."

The following year, Yahoo was even more generous, paying Google $7.2 million for its services. (Google in turn paid Yahoo $1.1 million for promotional help.) Google desperately needed the money, which helped pushed it into the black for the entire year. ...

The paranoid survive

The tech industry's giants - like Microsoft, Intel and Oracle - are famous for ruthlessly dealing with competitors. Not Yahoo.

In 2002, Yahoo paid Google $13.2 million, equivalent to more than a quarter of Yahoo's annual profit of $43 million. The sum, however, meant less to Google, which had blown past its benefactor with an annual profit of about $100 million.

There is also an interesting sidebar about how Yahoo once owned 8.2 million shares of Google, and Yahoo founder David Filo owned an (unspecified) personal stake in Google. The article implies that the former stake was sold for about $1.4 billion from 2004-2005.

The two have obvious commonalties. Yahoo was founded in 1994 and Google was founded in 1998 — both by Stanford Ph.D. students. The two are 5.5 miles apart (“about 9 mins”) via the Bayshore, but only 3 miles as the crow flies.

The story is how the two firms were originally complementary but eventually became direct competitors. Yahoo CEO Terry Semel considered buying Google in 2002 but gave up, and so instead bought (loser) Inktomi. There are interesting tidbits, including early warnings by lower level managers to Yahoo execs that it wasn’t such a good idea to help Google in its march to total world domination.

As with all of, there’s no figures and no tables. The online article leaves out an interesting history of Yahoo, and some comparisons of Google and Yahoo revenues (plotted below in Excel) and search market share. We tend to forget that Yahoo was bigger than Google until 2005 — the current train wreck has been relatively recent.

My coworker Randy Stross is finishing a book called Planet Google, and in an e-mail this morning said he’s already covered it in the manuscript. He's doing final edits now and the book is due in September.

We both think that Yahoo’s helping Google is an exact parallel to IBM handing Microsoft the PC operating system franchise back in 1980. However, to my mind, IBM’s complacency as a 90-year-old Fortune 100 company vs. tiny Microsoft is much more excusable than Yahoo (at age 6) assuming it could forever stay ahead of Google (age 2).

Tuesday, March 18, 2008

The City and the Stars

Science fiction novelist Sir Arthur C. Clarke died Tuesday in Ceylon, where he moved more than 50 years ago. (In the meantime, island renamed itself Sri Lanka). The various obits (such as the NYT and Wired) covered a lot of familiar ground (his RAF job), but also a few tidbits that I (as a 40+ year fan) didn’t know.

Everyone knows Clarke “invented” (or popularized) communications satellites, and certainly NASA gives him full credit. I did not know that in 1965 (as part of a collection of his essays), he published a book chapter called “A Short Pre-History of Comsats, Or: How I Lost a Billion Dollars in My Spare Time,” explaining why lawyers said it was too impractical to patent.

All the obits talked about his most successful novel, the one that created the first big-budget science fiction movie, 2001. As a kid, I recall seeing the week it came out, and being blown away by the special effects and the visual representation of an imagined future. Alas, when 2001 came around, a few ideas turned out to be dated — PanAm, AT&T, PicturePhones, ubiquitous space flight — but that’s the risk of any prediction. (I own a copy of the movie, which I should show my daughter, but I’m not impressed enough to pay $30 for the Blu-ray version).

However, nearly all of the obit writers had little understanding or appreciation of how Clarke changed the craft science fiction. Of the big four of his era — Asimov, Bradbury, Clarke and Heinlein — he was the best novelist and the only one able to carry a long and complex story through to conclusion. (Unless you want to clam that Asimov’s three part Foundation series of books was really one book).

My favorite childhood book was The City and the Stars, written a few years before I was born. The poignant story of Alvin winds through two highly detailed imaginary worlds — Alvin’s own time, set in a period of decay millennia in the future, and the past, more advanced society that Alvin discovers in his explorations. The main theme was the importance of curiosity and striving for achievement, but in retrospect it was also remarkable in its portrayal of the technology and social impacts of virtual reality.

The only place I saw his fully body of work (including his 1956 opus) mentioned was in the Telegraph obituary, which also gave his middle name (Charles), the date of moving to Ceylon (1956), and the delay in his knighthood due to false claims of sexual abuse.

The Telegraph reported that Clarke was hoping that resurrection comes some day: “cloning by highly advanced aliens being, predictably enough, his favoured method.” Not where I’d put my money, but I think also logically flawed.

If aliens did show up, and decided to resurrect some small fraction of the billions of dead humans, where would they start? I’d guess someone like Napoleon, Shakespeare, Einstein, Churchill or da Vinci. (Sure, there’s the issue of DNA availability, but for this thought experiment that’s not a dealbreaker). Clarke would have a hard time standing out from the clutter of 20th century novelists: in English alone, there’s Joyce, Steinbeck and Faulkner among others. There’s also a narrow time window: if the aliens show up In the Year 2525, then most of these 19th and 20th century novelists are going to be long forgotten, and I presume that the list will be more heavily weighted towards Chinese.

Perhaps if Virgin Galactic (or Sir Richard) names their spaceport after Sir Arthur, the aliens or humans of the 26th century will be curious enough to investigate who this Clarke character was. But I’m guessing that the British citizen is more likely to get that honor in the UK or Sri Lanka, should the opportunity present itself.

Monday, March 17, 2008

Computerization as a movement

Regular readers know of my ties to UCI and its pioneering studies on computer adoption over the past 40 years. The “UCI School” even had an article about its influence on the IT field. Two pillars of the school were Ken Kraemer (nominally retired) and his student John L. King (who left for U. Michigan to be a dean and now vice provost). John King was my dissertation co-chair, but I’ve remained close to both men.

The third pillar was Rob Kling, who I did not know very well because he left UCI in 1996 to go to U. Indiana in 1996 to transform their library school into an “information school”. That’s where he worked until he held his untimely death in 2003.

In 2005, Kraemer and others at UCI hosted a workshop of papers in honor of Kling, building on his most famous stream, that on “computerization movements.” The stream began with a 1988 paper with Suzi Iacono (later updated in 1994) and culminated with the 1998 book Computerization and Controversy.

The point of the “computerization movements” stream is that computers are not just adopted as the result of individual utility-maximizing decisions, but instead are often promoted to enable some form of social change. Examples include personal computers (empowering the individual), computer-based education, and internetworking.

Kling (specifically this work) is considered a founder (at least in the US) of the field of research now called “social informatics”. His doctoral students have spread this social view of IT adoption across the US, and are affectionately known as Kling-ons.

The workshop was a no-brainer for my co-author (and band partner) Jason Dedrick and I. In our workshop paper, we looked at the open source and free software movements — noting how the movement ideologies are much more different than the actual artifacts or IP regimes. We then remarked how little impact that ideology had upon the decisions of firms that we interviewed to adopt Linux servers, which was instead driven by a utiliarian driver for cheap Unix.

The papers were published this month in a book edited by Margaret Elliott (a Klingon) and Kraemer. I found the earlier workshop versions of these papers to be an interesting cross-section of how IT is adopted — and how a purely economic view of adoption is (gasp!) undersocialized.

My copy of the book arrived Friday, so I finally got a chance to see how it turned out. My first reaction was its heft — both quantity and quality. The hardback book spans 540+ pages across 20 chapters. The topics include a wide range of computer adoption issues: virtual teams, online communities, open source, ubiquitous computing, even the mortgage industry. It also reprints two of the seminal Kling & Iacono papers from 1988 and 2001.

We know that it’s not going to make the NYT (or Business Week) best seller list, but it is a serious work of scholarship and (if we’re lucky) will influence how researchers think about technology diffusion over the next decade.

Saturday, March 15, 2008

Cyberleft and cyberright

This morning I saw an odd juxtaposition of two stories about the politics of right and left and California’s high tech industry.

The first involved a lawsuit against Craiglist, the free online ad service founded and run by Craig Newmark of San Francisco. In federal lawsuit in the Northern District of Illinois, Chicago Lawyers' Committee for Civil Rights Under the Law, Inc. v. Craigslist, Inc., the plaintiffs alleged that Craiglist violated fair housing laws by allowing discriminatory housing advertisements.

Craigslist said that it was immune to lawsuit under the Communications Decency Act, and the court agreed. Craigslist was supported by a joint amicus brief that included major Internet firms (Amazon, eBay, Google, etc.) and the Electronic Frontier Foundation.

Right wing ideologues have long been fractured between social and economics conservatives over cyberporn, but this is the first such fissure I’ve seen among their left wing counterparts. Effectively, the cyberleft and cyberright are using the same argument: we’re just the messenger, so go after the original author if you don’t like the message.

For the most part, EFF has impeccable bonafides on the left for leading the fight against the Bush Administration’s post-9/11 electronic surveillance efforts. However, by standing on its principles, it has also clashed with businesses that fund left-leaning causes, as with its fight over data mining by AOL, Google and Yahoo. More dramatically, one of its major causes has been to defend copyright infringement (euphemistically called “file sharing”) that undercuts the livelihood of various Hollywood entertainers, media moguls and their politicians. In that regard, EFF’s perspective is similar to that of its former board member, retiring cyberlibertarian guru Larry Lessig.

The other story this morning was woman-bites-dog story proving that there are actually Republican tech executives in Silicon Valley. (Note that in Republican circles, McCain is considered more of a centrist than a right-winger). The papers reported that retiring eBay CEO Meg Whitman has joined HP/Lucent alumna Carly Fiorina and Cisco CEO John Chambers in backing John McCain for President. The implausible claim is that McCain will attempt to win California, but everyone knows it’s just about raising money.

This means that politically active GOP execs here are outnumbered by Democrats by only 4:1 instead of 5:1. Google CEO Eric Schmidt donated to a range of Democrat candidates in 2004, and 98% of employee money went to Democrat candidates in the 2006 elections. Apple CEO Steve Jobs is a certified friend of Bill Clinton — having hosted a 1996 dinner at his Palo Alto home — and, like VC John Doerr, is also close to Al Gore. Despite being from Arkansas via Yale Law School, Clinton was clearly Silicon Valley’s favorite president of the past generation, and he strongly supported R&D spending favored by local executives.

If anything, local execs are less left-leaning than the Bay Area as a whole, which overwhelmingly favor Democrat (if not Green Party) candidates and causes. Like the rest of the party, local voters, donors and media this year are torn (if not fractured) between its two remaining presidential candidates. Perhaps as a legacy of her husband’s presidency (or the local demographics) Hilary Clinton beat Barrack Obama in the Silicon Valley popular vote. However, Obama was reportedly ahead in the money race here, including donors at Google and Yahoo.

Personally, I wish active tech execs wouldn’t get involved in partisan politics: they run the risk of becoming like steel and auto and textile execs, with their success depending on political protection rather than market prowess. The one place I’d make an exception is improving education quality, where clearly the private interests of employers intersect the general public interest. Such opportunities have included K-12 education reform, wiring school classrooms (something I once did), or improving science and engineering education (as Bill Gates did this week).

Of course, when tech execs ask for tax credits for R&D and cheaper imported labor (as Gates did), then their self-interest becomes blatantly obvious. I guess like lawyers and finance execs, successful tech execs think their success (or smarts or money) grant them a disproportionate role in picking politicians and making public policy.

What's Web 2.0 worth?

Catching up on an interesting week.

Social networking site Bebo sold itself this week to AOL for $850 million. Some see it as a validation of the Web 2.0 market, including Microsoft’s seemingly foolish October investment in Facebook that implied a $15 billion valuation for the latter firm (as compared to the $500 million News Corp. paid for MySpace back in 2005).

From the one presentation that I saw in September, Bebo is a cool company with an aggressive push towards the mobile Web 2.0. However, as far as I can tell, it’s thus far a niche player that doesn’t lead in any national market. Although popular in the UK, it’s a distant fourth in the US after MySpace, Facebook and MyYearbook.

One way to look at this is that AOL is buying a fading star because it can get it cheap. Another is that the owners want to cash out, and the VCs are thrilled to get a 9x return in after 22 months.

The network effects are pretty strong here, so it’s not clear how a #4 property gains market share. Small entrepreneurial companies tend to lose their focus and drive after acquisition by a big company; Exhibit A is the AOL-Netscape merger. In fact, AOL has demonstrated a reverse midas touch over the past decade, squandering the tremendous market share advantage it once had from its walled garden and dominance of dialup service in the US.

On the other hand, Hotmail, MySpace and YouTube have continued to grow since their acquisition. So it’s possible (if not likely) that the AOL acquisition could be good for Bebo.

IMHO Bebo needs to dominate a niche rather than strive to be #2 or #3 in various national markets around the world. The idea of cross-promotion and integration with AIM seems the most plausible, but a lot depends on how much talent (and motivation) remains at Bebo after it gets gobbled up.

Thursday, March 13, 2008

Will it blend?

I am heading up the science fair committee for our local elementary school, and we had a meeting today about planning our April 11 event for a hundred kids ages 5-10. (Yesterday I served as an IEEE judge for the Santa Clara County science fair, the championship for kids ages 11-18).

Today I heard that one of our fourth graders is doing a project about blending money — which brought the observation from another parent that he must spend too much time watching “Will It Blend?”

Sure enough, browsing to the “Will It Blend?” website, the featured video clip is “The iPhone. Will It Blend?” This was an absolutely fascinating video — eliciting a wide range of feelings from curiosity, ghoulish humor, and scientific reflection. The ending — when they pour out the results of the iPhone smoothie — is not to be missed.

The videos hosted by Tom Dickson (a crazy combination of Mr. Science and cable TV ginzu salesman) are segregated into two categories: try this at home and don’t try this at home. The latter category (which includes the iPhone) features the most outrageous and popular of the genre.

In addition to entertainment, it’s also a brilliant business model — as clever an advertorial as I’ve ever seen. The site is run by Blendtec, a maker of consumer and commercial blenders, which promotes the website (and vice versa) for both types of blenders.

They swear they use one of their consumer blenders (the “Total Blender”), which is the low end of their consumer product line (let alone commercial), but at $600 list ($400 street) would be considered a luxury blender by Wal-Mart or Costco standards.

There’s no explicit ad, but everything is an implicit testimonial: the videos can be embedded in websites, reposted to YouTube, or otherwise promoted via word of mouth. If ever there was a way to position a premium-priced product, this is it.

Like YouTube and most other short clip services, it uses Flash — good for Macromedia, bad for iPhone users. Dickson said the iPhone smoothie was by request of his YouTube fans, so expect to see it among the YouTube most viewed videos soon.

Tuesday, March 11, 2008

Man with a mission

This week some of my student teams have to write a mission statement. Normally when I teach my undergraduate strategy class, I dismiss mission statements as so much hokum, but for an intercollegiate competition they have to come up with one.

This is one of the few cases where I agree with Scott Adams: normally I find Dilbert too anti-business and cynical, but his online mission statement generator is spot on. Here’s the third example it gave me tonight:

It's our responsibility to assertively administrate low-risk high-yield infrastructures while maintaining the highest standards.
Despite my general skepticism, there are good mission statements and bad mission statements. A good mission statement is memorable — something employees can recite or at least paraphrase. The COB faculty just rejected a proposed change to its mission, which was already succinct and to the point:
The College of Business is the institution of opportunity, providing innovating business education and applied research for the Silicon Valley Region.
Trying to help my students, I stumbled on the blog Man on a Mission, by financial planner “JLP” in Texas.

On the blog, I found a couple of excellent examples of mission statements, for Trader Joe’s (my wife’s favorite grocery store), and for Southwest Airlines. I liked the Xerox mission statement, but it’s really more of a vision statement (a statement of desired future state, rather than the activities a firm will undertake to achieve its goals).

This really confirms what I always suspected: mission statements are effective for exceptional companies, but not run-of-the-mill ones. If you can’t succinctly say why your company is different, then it’s either because you’re not — or because you have lousy, inarticulate leadership. (BTW, some exceptional companies are not necessarily well run — think Ben & Jerry’s, Body Shop, or Apple during the period 1992-1997).

Finally, there is the question of credibility. It appears that in many cases the mission statement (or values or vision) is what management would like the company to be, not an accurate discussion of what it is now (or what it once was). For example, what company is this?
As a company, and as individuals, we value integrity, honesty, openness, personal excellence, constructive self-criticism, continual self-improvement, and mutual respect. We are committed to our customers and partners and have a passion for technology. We take on big challenges, and pride ourselves on seeing them through. We hold ourselves accountable to our customers, shareholders, partners, and employees by honoring our commitments, providing results, and striving for the highest quality.

Does this sound like a company that gets sued so often that FindLaw has a special page to summarize all the litigation? The sort of company they’d like to become? Or merely the sort of company they’d like people to think they are?

Monday, March 10, 2008

Upgrading to XP

My first Mactel machine (the Macbook Air) is due any day, and with it I’ll install the first copy of Windoze that I’ve ever owned. This means that I’m at last following the whole Vista-or-not-Vista discussion that’s been going on for the last year.

I long since decided that I’m going to run XP instead of Vista. Alas, the bookstore no long sells a copy of XP — but if I buy a copy of Vista for my Macbook, our computer tech can upgrade me from Vista to XP under the CSU site license policy.

To this I add a couple of tidbits. InfoWorld has mounted a likely futile campaign to slow XP’s inexorable march towards end of life on June 30, although the significance of that deadline appears to be exaggerated. Odds right now are only 46% that The Petition Will Succeed.
The other relevant tidbit comes from this morning’s NYT, which I happened to be skimming to catch the latest political news out of NYC. I caught a cool column entitled “They Criticized Vista. And They Should Know”. And They Should Know” which talks about some really knowledgeable experts complaining about Vista problems.

As if dumping on Microsoft wasn’t cool enough, what’s even more cool is that the column is written by my coworker, Randy Stross. Even before I interviewed with SJSU in 2001, I was a fan of his work from his early Steve Jobs biography, which was a huge hit at Palomar among the staff (although today I’d recommend one or the other of the recent biographies). I also liked Microsoft Way although he seems best known for eBoys.

I’m tempted to skip Vista, go straight to “Windows 7” whatever that is. That reminds me of what my first boss after college said — every OS stops at 8.x because it gets so complex that they can never get the updates out. (The Mac doesn’t count, because it went 1.x, 4.x-9.x and then threw out the OS and started over again).

Software as a service is threatening to do away with the mega update model, anyway. If firms are not forced to come up with massive new changes to generate revenue, then resources could be taken off of Windows and put onto designing new applications or preparing for the (long rumored) post-PC world.

Limits to all you can eat

At my favorite Panera bakery location, I get nice atmosphere, good (if slightly premium priced) baked goods, and unlimited free Wi-Fi. For the past two years, my co-author and I have been writing our book here (which is why I got up before sunrise today).

The only limit on the Wi-Fi is the length of my battery (about 90 minutes on my 6-year-old TiBook). Today I may be heading from Cupertino to Stanford for a lunchtime talk, so I packed my power adaptor. (Update 1:30pm: never made it).

However, Panera has covered all the power plugs near where I normally sit. Closer inspection shows that half (but not all) of the plugs in the store are covered.

Sure enough, talking to the clerk, this is part of a deliberate strategy to keep people moving in at least part of the restaurant. One Panera I tried in Encinitas had wall-to-wall road warriors who made it their home office, so I can see why it’s needed.

Salad bars excepted, you-can-eat restaurants usually aren’t very good. Panera doesn’t offer all-you-can-eat food, so I'm hoping that their all-you-can-surf Wi-Fi and atmosphere will remain good, even if I’m on my own for power.

Saturday, March 8, 2008

The dog that didn't bark

As Sherlock Holmes noted back in 1892, sometimes it’s just as interesting when a dog doesn’t bark as when it does.

Last month I asked whether this week’s iPhone SDK would bring Flash support. It didn’t, and in almost all the coverage of the SDK intro nothing was said about this major gap (for Apple? for Adobe?) in platform compatibility.

Despite what Adobe boosters claim, Steve Jobs still feels that Adobe needs Apple more than Apple needs Adobe. Various accounts quoted him as telling shareholders Tuesday that PC-based Flash is too slow and Flash Lite is not capable enough to support today’s web. It’s not clear if Steve is being sincere, or merely sending a message diss’ing (or even promising?) Flash support. Adobe this week was noncommittal.

Interestingly, Sun took a quick look at the iPhone SDK and then promised to bring Java to the iPhone. That’s what I expected Adobe to do, so maybe Steve is right: the current Flash is suitable for the current iPhone hardware.

Friday, March 7, 2008

Fund, fund, fund

Thursday was the big day for the iPhone. Apple finally announced its SDK, it has a new partnership with Microsoft for Exchange server support, and has intimated that white-market (not gray market) iPhones will show up in Asia sometime soon.

All of these things were interesting, and the Microsoft alliance was somewhat (but not entirely) unexpected. But the oddest thing was the deal with KPCB to come up with $100m for the iFund, to fund iPhone (and iPod Touch) startups.

The KPCB FAQ explains

Q: Does the iFund focus on specific investment areas?

A: The iFund is agnostic to stage and size of investment (from seed stage to established products with revenue), but targets companies with long-term standalone potential. Focus areas include location-based services, social networking, mCommerce (including advertising and payments), communication, and entertainment.

Q: Why did KPCB establish the iFund?

A: KPCB believes that the iPhone and iPod touch are a fantastic platform for mobile applications and services, combining a world class development environment, great devices and UI, an advanced customer base, and strong global distribution. This confluence of factors will ignite a wave of mobile internet innovation, generating opportunities on par with or greater than the PC internet. We expect the most innovative mobile companies and entrepreneurs will choose to develop their apps for the iPhone and iPod touch platform.

Q: How much will the iFund invest in each startup company?

A: The iFund will invest anywhere from $100K of seed capital to $15M of expansion capital in mobile application and services companies.

As with any venture fund, this is not a promise to fund specific companies — presumably the VCs will only put their money where they think they have a good chance of earning their desired return.

But why KPCB? Yes, they’re the bluest of blue chip VCs in Silicon Valley, and partner John Doerr (who shared the stage with Steve Jobs) is the king of active VCs. But Apple was funded by Arthur Rock, and NeXT by Ross Perot, so Jobs had no obvious linkage to KPCB linkage.

I was scratching my head. And then I saw it: Algore, one of 8 directors on the Apple board, and also “team member” at KPCB. Apparently Gore has brought Doerr and Jobs together before to sell his passion for “greentech” investments.

I was initially skeptical of Gore’s initial appointment to the Apple board, that it was merely a self-indulgent, feelgood move by the aging hippie iCEO. But if Gore brokered the iFund creation, he certainly earned his director fees for a few years.

"Reorg" of HP Labs

All day I’ve been trying to make sense of HP’s announcement Thursday that they’re reorganizing HP Labs. This is the official announcement:

HP today announced that it has sharpened the focus of its advanced research group, HP Labs, to address the most complex challenges facing technology customers in the next decade. ...

The redesign of HP Labs is intended to balance exploratory research with an entrepreneurial approach so breakthrough technology can be transferred more rapidly into commercial applications for customers.

HP Labs will pursue 20 to 30 large research projects – instead of the 150 smaller projects in the past – based on insight gained from newly expanded relationships with universities, partners, customers and venture capitalists.

At one level, it looks like a cut although there are pledges to keep up head count and funding. The 600 researchers are expected to focus on 23 areas instead of the 150 earlier projects; supposedly the priorities are being set by researchers.

CEO Mark Hurd was quoted as saying of the labs “It's one place where there is still R left in R&D.” Despite this, the press release and news accounts strongly suggest an increased emphasis on near-term results, and thus a shift from advanced research to applied research.

To me, one of the more interesting tidbits was a decision to embrace open innovation:

HP Labs has established an Open Innovation Office responsible for deepening HP Labs’ strategic collaborations with those in academia, government and the commercial sector. The office is designed to ensure joint research endeavors result in high-impact research that meets the scientific and business objectives of HP and its partners.

As part of this initiative, an Entrepreneur in Residence Program is being established to give venture capital investors and their portfolio companies early access to HP Labs research. In return, HP will receive insight into emerging market trends and potential business development opportunities.

HP’s interest in open innovation is personally gratifying, given my personal stake in the subject. And the idea of collaborating with academia, government and other firms seems like the right way to go about it.

Still, given all the HP mismanagement of the past 15 years, all we can do is wait and see. HP was once the shining exemplar for innovation excellence in the valley, and now (for better or worse) that mantle has passed to Google. So I’d like to think the new innovation strategy will increase effectiveness, but past results give reasons to be wary.

Thursday, March 6, 2008

Cheap commodities can kill you

The pharamaceutical heparin has been killing a small number of its users, as USA Today and others reported Thursday

In a finding eerily similar to the contamination of pet food last year, the Food and Drug Administration said Wednesday that a counterfeit chemical has been detected in recalled supplies of the blood thinner heparin.

From 5% to 20% of the active pharmaceutical ingredients in some heparin supplied by Chinese companies to Baxter (BAX) Healthcare is a similar, but different, chemical that mimics the blood thinner in commonly used tests.

Nineteen people have died since Jan. 1, 2007, from allergic reactions that appear to be associated with contaminated heparin, says Janet Woodcock, acting director of the FDA's Center for Drug Evaluation and Research. The death toll had been four.
So, let’s summarize what this says:
  • Baxter bought ingredients cheap in China
  • Chinese suppliers cut corners in a way that they knew would not be detected in normal testing
  • The difference killed 19 people.
Yes, Baxter’s 2007 COGS is a whopping 51% (leaving a gross margin of only 49%). If Baxter is like industry norms, some of that is the fully amortized cost of the manufacturing facility. However, much (most?) is an expensive distribution channel with lots of incentives for an inefficient sales force and buyer incentives, as Gwen Olsen talks about in her book.

Very little of that is for raw materials: which raises the question of (when human safety is involved) why cut corners with unproven and under-regulated suppliers.

Regular readers know I’m a flaming capitalist, but this is just begging for further regulation — if not by grandstanding politicians, then by greedy trial lawyers (the latter being an extremely inefficient form of regulation).

If the Chinese government doesn’t like the US blocking the buyout of a failing US IT company on national security grounds, it’s going to hate blocking use of dubious pharmaceutical inputs on safety grounds. I will be curious to see if other developed countries follow suit, or if they decide they’d rather risk lives on lax Chinese health regulations rather than risk trade tension with China.

Wednesday, March 5, 2008

A few bumps on the road to Total World Domination

There were a couple of bumps today on Google’s drive towards Total World Domination.

Barely noticeable is the sound of being crushed as Google steamrollers over it. There’s talk of refocusing, but Danny Sullivan wrote their obituary this morning:

The truth is, you're dead. You're about to join the legion of other has-been search engines.
Perhaps more material to Google’s executives and shareholders is the recommendation by analyst Jonathan Moreland that it’s time to short Google stock. At 447, Google stock is 40% off its all-time high last November.

The argument (apparently only in this morning’s WSJ) is that internal stock sales are accelerating and stock buying has dried up. Moreland has already made money shorting Google stock, based on a combination of insider sentiment, economic conditions and the end to the company’s seemingly unstoppable momentum.
"So many of these insiders have been so anxious to sell or exercise their options, and so unwilling to hold much of anything long, and that's a particular red flag to me," he said....

Mr. Moreland said he believes it would take only a small crack in the bullish sentiment among analysts and institutional investors to send the shares down further.

"The near-religious fervor behind the stock is likely to wane a bit in the near future, and I thank insiders very much for showing their extreme lack of confidence," he said.
In the 1990s, Microsoft could do no wrong (at least with employees) as its stock options got every more valuable. In this decade, the ineffectiveness of option incentives has meant high attrition among veterans and (presumably) forcing it to pay market prices in straight salary for employees.

Barring some miraculous recovery in Google stock, a flat trend for share prices will crimp both its recruiting and acquisitions strategy.