Mar 9, 2009
New Draft Chapters are Up at www.gallaugher.com/chapters!
- Software in Flux: offering a managerial overview of changes in the software industry, including Open Source, Software as a Service (SaaS), Cloud Computing, and more.
- Software – A Primer: offering a basic intro to software categories, TCO, and software failures.
Comments, corrections, suggestions, and perceptions are all welcome! Look for more chapters & cases, soon!
Save the Date – Tech For Good @ BC, Friday, April 3, 2009. Featuring Three Killer Talks:
- 9:00-9:50AM, Fulton 511: Bob Metcalfe, Inventor of Ethernet & General Partner at Polaris Venture Partners (and the Metcalfe behind “Metcalfe’s Law”): on Internet History Lessons for Solving Energy
- 10:00-10:50AM, Merkert 127: Chuck Kane, President & COO of OLPC on the firm’s pioneering efforts to provide laptops to the world’s poorest children.
- 2:00-2:50PM, Fulton 250: Ben Heywood, CEO & Co-Founder, PatientsLikeMe on the firm’s groundbreaking and inspiring efforts to empower chronically ill patients.
The Coming Facebook-Twitter Collision
In her latest column, Sarah Lacy (who gets my vote as the smartest journalist in Tech) gives a shout-out to the TechTrekkers (she had dinner with my students last week). Sarah points out that Twitter’s key advantage lies in asynchronous communications. On Twitter, someone can choose to “follow” you, but you don’t have to follow them. Up ‘til now, Facebook feeds worked two-way, with both parties having to ‘friend’ each other, making Twitter ideal for celebrities and others who want to communicate with a mass audience without friending them. Recent Facebook updates bring Twitter-like features to Zuckerberg’s site, allowing public personalities (and firms) can communicate with fans & followers on Facebook. Apparently Facebook offered half a billion for Twitter (that’s a firm with 175 million users coughing up over $83 bucks for each of Twitter’s 6 million users). Twitter says no – the firm’s just ramping up. Who should fear? How ‘bout Google. As Lacy points out, Web 1.0 was about organizing information, Web 2.0 is about organizing people, and both Facebook and Twitter have a leg up on Sergey and Larry in all things social graph (remember Google killed Jaiku, its Twitter-like service. Or perhaps you didn’t remember b/c neither you nor anyone else used it). Stay tuned – even in the downturn we’re not quite done with nosebleed valuations. BTW: Sarah’s brilliant book, Once You’re Lucy, Twice You’re Good, was requried reading on this year’s TechTrek. It’s a GREAT read on the current gen of Valley entrepreneurs!
Video: The Daily Show Explains Twitter
“It’s no wonder young people love it. At least, according to reports about young people by middle-aged people!”
How Facebook is Taking Over Our Lives
Fortune’s cover story lays out why Facebook is the most significant Internet product since Google. Far from being a fad, Zuckerberg has developed the equivalent of browser-based crack. The avg. Facebook user is on the site for 169 minutes a month (for comparison, the New York Times’ website hold users for only about 10 min./month). No longer just for the undergrad set, we’re all addicted. 18-24 yr. olds currently make up only a quarter of users. With 175 million ‘citizens’, if Facebook were a country it would be nearly as big as Brazil.
Them’s bigger-than-SuperBowl numbers, and FB is as mainstream as they come. Starbucks wrapped its service day and Election Day promos around the site, with feeds spreading the coffee giant’s message like the most virulent digital Ebola. E&Y recruits on Facebook, Dell will soon follow. Salesforce.com has built Facebook access into its latest platforms. Microsoft will borrow FB features for the next Windows. And Facebook has become the go-to place to organize everything from political events to fundraisers. Where are the profits? Be patient. Says Zuckerberg: “We think that if you can build one worldwide platform where you can just type in anyone’s name, find the person you’re looking for, and communicate with them, that’s a really valuable system to be building”. And now everything from CNN to DonorsChoose is sharing data with the mega site. Says one entrepreneur “If there are [175 million] people in a room, you’d better be in that room”. Sure the firm has accepted $400 million in venture coin without solid in-the-black numbers, but as board member Marc Andreessen points out on Charlie Rose – FB could bring in a boatload of revenue by splashing banners on the login page. It doesn’t. Instead Facebook is taking time to weld itself to users’ lives, as it experiments and innovates to build durable revenue tools. Those waiting for a Friendster-like Facebook collapse ain’t gonna get one.
Salesforce Hits Its Stride
Benioff’s baby is a behemoth. Salesforce.com’s $3.5 billion in revenues represents a 60% five year annual growth rate. The firm has now moved beyond SaaS to become one of the major players in cloud platforms. Some clients are running over a dozen custom apps in the firm’s Force.com cloud. All good, but there’s another secret about the SaaSy cloud – margins aren’t anywhere near those of traditional software. Remember, the marginal cost of shipping bits is pretty much zero, but the marginal cost of hosting a customer in the cloud has to factor in bandwidth and boxes, plus the staff to babysit all that tech. That’s why although Google’s US ad revenue has outstripped Microsoft’s Windows revenues since Summer 2007, Windows remains the more profitable franchise. Salesforce’s numbers paint a similar picture. The firm’s 4% margins are pretty skimpy when compared to the 25% take Oracle snares from competing products.
Topps Launches 3D Baseball Cards
Baseball card firm Topps, now owned by former Disney chief Michael Eisner, is shipping packs of 3D Live cards. This is very slick. Hold up a Topps baseball card to a webcam, and the image shown on screen has a little computer-generated image of the player popping up from the card. Place it back on the table and you can use the keyboard to control pitching and batting. Check out the video of what you’d see on screen when using the technology.
Why the Music Industry Hates Guitar Hero
Music video games like Rock Band and Guitar Hero have snared $2.3 billion in the past three years. Geezer rockers Aerosmith made more from the band’s special edition Guitar Hero game than from any previous album. Problem is, Ed Bronfman and others from old-school music are grumbling that their take isn’t big enough, and ‘ol Ed is threatening to pull Warner Music’s tunes from future deals. BTW both Guitar Hero & Rock Band were created by Cambridge-based Harmonix. The firm sold Guitar Hero to Activision (which has introduced all subsequent versions), then sold out to MTV when the Viacom crown-jewel coveted Rock Band. See, the East Coast CAN do consumer tech!
The NBC/Fox video sharing site focused on two things: 1) building the best playing experience on the web and 2) offering up lots of first-rate content. The success of shows like The Office, 30 Rock, Family Guy, and the SNL political season all helped spike usage stats. This is key because all these shows target a web-savvy demographic that lacks the anchor-time that planted a past generation on the couch for ‘prime time’. Students, late-night office workers, road warriors, and anyone with a nightlife, all found that Hulu gave them a way to pop into the pop culture that they previously skipped.
Although far behind YouTube, Hulu actually makes money (a modest $12 million in profit in ’08). And now the channel pressure kicks in. Hulu initially invited CBS to join, but the Tiffany Network balked. Then CBS bought CNet and got TV.com, a site that had the right to distribute Hulu videos (Hulu streams more video, but TV.com actually had more unique visitors in January). Hulu pulls content from TV.com, CBS cries ‘you broke our deal’. Hulu also started blocking content on Boxee, a little device that allows a web experience over the TV (while networks have created Hulu, they aren’t too keen on accelerating the death of the network, especially when brought about through someone else’s device).
Food for thought: NBC has said the Net saved ‘The Office’. Could a site like Hulu have done the same for a show like the critically acclaimed, but ignored ‘Freaks & Geeks’? That show was an early venue of Judd Apatow, one of the most successful pop culture directors of the past two years. Will net-streamed video help high quality program gain audience and avoid an early axe?
Michael Moritz: Lessons from a Long-Ball Hitter
The Sequoia partner has emerged as one of the leading Valley VCs. Some interesting tidbits. Mortiz was a journalist for Time before joining Sequoia in 1986. The firm’s $12.5 million investment in Google (co-led with Kleiner) was eventually worth over $2 billion, a 160+ bagger. We spent some great time at Sequoia last week, where two BC alums are now on the roster.
Venture Capital and Start Ups Feel More Pain (Study Says)
It’s interesting to compare this with data from a recent Fenwick & West study on the state of SF/Valley VC deals. While a year ago we saw power shift to the entrepreneur as the cost of startups & speed of web 2.0 efforts meant less cash needed to attract a following & prove a concept, now power is shifting back to VCs. Valuations are clearly down. ‘Down-rounds’ (where firms receive lower valuations than the prior round) are up – hitting 47% in December. And VCs are demanding ‘pay-to-play’ among syndicate partners – deals where if an investor isn’t in a subsequent round, they risk having their shares converted from preferred to common stock.
Hal Varian on How the Web Challenges Managers
I’ve spent a lot of time studying Google lately. Our (mostly freshmen) students will be participating in the Google Online Marketing Challenge, working with real clients on AdWords projects. I’ve had four Google visits to three locations in the past year. And I’m knee-deep writing a chapter on Tech & Advertising. As part of prep, I’d dug up a McKinsey interview from last Oct. featuring Google Chief Economist (and Berkley Prof) Hal Varian. Insightful stuff on how the Web Wave, with infinite bits and no inventory shortages, shifts businesses in a far more different way than the tired old electricity or railroad analogy that many used to describe the revolution in the past. The Net created a situation where firms had intellectual property that was free to distribute and easily accessed, but no way to monetize it. Inventory from publishers + an advertiser’s need for action = Google’s AdWords auction system (where Varian spends much of his time). AG (After Google) we’ve gone from “Copyright 1997: Do Not Distribute” to “Copyright 2008: Click Here to Send to Friends”. Riffing on Herb Simon’s “A Wealth of Information Creates a Poverty of Attention”, Varian predicts that the hottest job of the next era will be statistician; read those who can find, filter, and focus attention. Curiously, statistician is already among the top three on jobs rated (and mathematician is #1)!
What an Antitrust Case Against Google Might Look Like
Wharton Prof. Eric Clemons shares his insight from past work in the Carrier Reservation System and Banking ATM markets to posit a possible government case against the search giant. While my work has also been used in anti-trust work (Brattle Group leveraged my browser/server research is dreadfully boring to all but academics, but it can be found [here] and [here] to help determine the $750 million Microsoft / AOL settlement), I’m not convinced Google’s actions constitute an abuse of the natural state of a market where network effects are at work. Nor am I willing to suggest that Google’s ability to nurture other, possibly money-losing markets (e-mail, Office) is an abuse of power. With Berkey’s Hal Varian on one side and Wharton’s Clemons on the other, we may get a courtroom smackdown featuring two of academia’s more prominent information economists.
Plugging In To Transformation
Vasant Dhar and Arun Sundararajan of NYU offer an insightful piece on the importance of investing in technology during this downturn. To build on the points made; while many brokerage firms successfully made the wrenching shift to online trading, music firms botched the shift and gave power to new intermediaries (most notably Apple). Players in the video space are now at their destiny-defining moment as users unplug cable, go to the movies less, and think about Netflix, Hulu, and others, as worthy and cheap alternatives. With so much uncertainty and a painfully weak economy, where should firms invest? Good choices are technologies that increase customer intelligence and improve business intimacy. The good news is these technologies are low cost. The bad news is that few managers understand them and have the skills to exploit them. Marketing is moving away from an era of directly influencing consumers to one where they are “reacting to their customers’ electronic intent” or mediating “the influence that customers have over one another”. All this offers more support for our success at repositioning our curriculum to cover peer production, SaaS/Cloud, online advertising, and the broader strategic thinking that surrounds all of these trends.
Do You Know 2.0
YouTube users have likely seen this, but it’s an updated version of a video I’ve assigned to past classes prior to our globalization discussion. It still gives me goose bumps.
Cloud is the New Dotcom
From TechCrunch, a selection of video highlights from the “Whose Cloud Is It Anyway?” event. Featured talks are from Salesforce’s Benioff, Amazon’s CTO Werner Vogels, Google’s VP of Engineering – Vic Gundotra, and a panel with Ning’s Gina Bianchini and FriendFeed’s Paul Buchheit. Another example for those faculty using the Software in Flux Chapter