There was a pretty lively debate between Eric Schmidt and Peter Thiel at Fortune Brainstorm Tech in Aspen. You should read the transcript and watch the video.
I just want to focus on one point of the debate. Thiel said that energy innovation was a catastrophic failure. The usually brilliant Peter Thiel appears uninformed in this case. There is a real reason why there has been little energy innovation. Here is the explanation for Peter Thiel and others who are frustrated with the unrelenting pace of energy innovation stagnation.
To really answer the question “why has energy innovation been a catastrophic failure?” and to understand the difference between the innovative technology sector and the non-innovative energy sector you need to ask a hypothetical question to Paul Otellini, CEO Intel and Anthony Early CEO of PG&E.
Question: What are you doing to make your product better for your customers over the next two years.
Answer Otelline: We at Intel invest $8 Billion per year, 15% of revenues in research and development. We have major research centers in 26 locations in the Americas, Europe and Asia. We fund university research. Where we can’t invest in research we invest in promising young companies so we can observe the evolution of commercial technology. Our venture investments exceed $2 Billion and are managed in 25 offices around the world.
Answer Early: We invest 0% of revenues in research and development. We have no major research centers anywhere. We don’t fund any university research outside of our PR budget. We don’t invest in promising young companies that would help us be more efficient, save money or improve the quality of electrical power. In the next two years we will do every thing to improve our product that government incentives pay for.
Energy innovation will be stalled unless a new approach is adopted. Regulators, lobbyists and government subsidization have proved ineffective to date and given economic and political conditions are likely to become less effective.
January 19, 2012
Congress’s brinksmanship with new media.
At lunchtime today I stopped by the San Francisco Civic center to listen to some talented people speak out against SOPA and PIPA. Flickr co-founder Caterina Fake, legend venture investor Ron Conway, Craig’s lists founder Craig Newmark and MC Hammer all took the microphone and condemned the legislation for its violations of law, common sense and economic good.
It is hard to determine if congress is that easily influenced with campaign contributions from the old media music and movie industries or are they out of touch with the internet’s transformation of the world during the last 20 years. Did they miss the memo on the Arab Spring in which new media played a significant role in toppling three governments. Clearly they have miscalculated in choosing sides.
Congress has aligned with old media in an attempt to turn back time to $14 CDs and daily late charges at Blockbuster. Old media has chosen to lobby for protective legislation rather than take advantage of the internet’s capabilities through innovation.
Even if consideration is not given to the opponent’s charges that SOPA and PIPA will violate freedom of speech and due process, you have to question the wisdom of congress to pick a fight with the people that build and operate the internet. The people that know how to attract billions of daily internet views like Craig Newmark and Reddit cofounder Aaron Swartz and many others who have been energized into activism to oppose congress’s threat to their beliefs and livelihood.
Even if new media loses and congress passes SOPA and PIPA, there will be an army of well educated, competent and economically advantaged new media internet opposition that will boil them in an ocean of electrons come the next election.
Matt Bai detailed and predicted the political influence of new media in 2007 in his book “The Argument: Billionaires, Bloggers, and the Battle to Remake Democratic Politics” and predicted Obama’s presidential success in part due to the creativity of Blue State Digital‘s harnessing of the influence of new media and the internet to help him. “The Argument” should be on every congressman’s night table though it might keep them awake for fear of their reelection.
December 27, 2011
The Limits of Venture Investing
A friend tweeted: “Headline from the NVCA OPTIMISM WANES FOR START-UP ECOSYSTEM AS VENTURE CAPITALISTS AND CEOS FACE ECONOMIC REALITIES IN 2012″. This blog post is a response to him since I don’t share this pessimistic view about venture capital but I could not fit it into 140 characters to respond with Twitter.
A Historical Perspective
On an elevator ride to the heights of Boston to a free lunch at the Bay Tower Room to listen to Alex Brown pitch an IPO I learned how to read a prospectus and invest in technology. Accompanying me in the elevator was an old dog of a senior analyst from Fidelity with an apprentice analyst who was Old Dog’s charge. I overheard this conversation 20 years ago, but Old Dog’s words are still fresh as when I heard them during the short interval of the elevators ascent.
Old Dog’s Rules for Technology Investing.
With a Red Herring (another term for the S1 Registrations Statement) in hand for illustration and pointing for emphasis Old Dog said:
“First you look at the numbers, because you pay the premium for growth.”
“Then you look in the back of the book and see who is involved to see if you like them.”
“Next you look at the summary of the business. If you still like the deal, you take the Red Herring home with you, read it through and do the rest of your homework before making a buy recommendation. “
Look for growth, like the track record of the management and board, find an attractive growth business and do your homework. Simple? Yes and no. This was simple until 1998, after which venture capital suddenly exploded. The number of venture capitalists, the amounts of money and the number of deals grew by staggering unmanageable proportions. And temporarily old dogs rules were suspended. Everyone bought. First everything went up then everything crashed down in 2000. In the financial rubble the mortality of even the best brand name venture capitalists became apparent.
Finite Limits of Venture Capital Investing
As I watched mine and other’s technology fortunes decline, I called Dick Shaffer, founder of Technologic Partners to get his view. Dick had been astutely watching venture deals for three decades as a Wall Street Journal reporter and later as the publisher of the Technologic Partners newsletters he founded in 1984. Dick’s point was simple and clear, venture capital was a $15 – $20 Billion a year investment market. No matter how much money you invest you can’t really change the rate of real invention and innovation.
So fast forward from 2000 to 2011: we are back to where we started. Too much money and too many deals out strip the rate of invention and innovation. At a certain point, the quality of the investments sinks precariously.
If one looks at the chart based on data from Dow Jones LP Sources via Silicon Valley Insider, the annual amounts raised by venture capitalists exceeded the limits the start-up entrepreneurial market can absorb in 5 of the last 7 years. On average, compared to the upper and lower bounds Dick Shaffer noted, about $5 – $10 Billion more has been raised on average per year than needed.
The cost of too much money invested is lower quality companies and plummeting venture capital returns. The limited partners that fund venture capital firms reconsider their poor investment returns from venture capital and invest less.
Of course everyone moans about the drought of capital, especially the venture capitalists. They get paid partly on their performance and partly on the amount of capital they have under management, usually around 2 – 3% per year. So if a firm has 5 partners and $1 Billion under management from raising 3 funds, the management fees alone amount to $4 – $6 Million per partner per year to cover salary overhead and travel. Hard to give up a good deal. No one I have ever known has accepted a salary cut without some protest.
We are seeing a correction. Limited partners such as university endowments, institutions and wealthy individuals that invest in venture capital are investing less because the over abundance of capital compared to the market has reduced the returns. We might even see an under investment in venture capital until real returns rise.
Venture capital is not on its deathbed. Just look at the performance of firms like Accel, Greylock and Sequoia to name a few. They are all following Old Dog’s rules and in the end so are the limited partners and so should every entrepreneur and start-up employee: look for prerequisite growth, partner with people you like, believe in the business and market and do your homework.
Microsoft enjoys a dominant position in the large enterprises desktop marketshare with more than 90% of the desktops running Microsoft Office. But there is a huge opportunity for Google to start to erode this dominance with Google Apps. If Google focuses on those enterprise user profiles with limited dependencies on Microsoft applications (Office, Outlook Exchange, .Net and Sharepoint) they can win migrations of thousands of users. Why? Annual licensing of Google Apps is inexpensive, the support burden is less costly and more than likely the customer can skip a hardware refresh cycle.
There is one challenge: Google Apps and Native Client (NACL) are less robust than Microsoft equivalents. It is essential to find a profile of users within the customer’s organization whose requirements can be satisfied with Google Apps. The technical profile for qualifying users are:
- Microsoft file compatibility
- User Customization
- Workflow Customization
- Apps and Software management
- Policy and security management
Where a user profile can be demonstrated to be independent of Microsoft features and the transition costs quantified the business case can be made. It is essential to find qualified projects and win the confidence of the customer so they will start the project dependent upon Google and third parties delivering important functionality at a future date. People like me who have worked for start-ups know how to convince customers to make this leap of faith.
Its not necessary to create a one to one map of Microsoft capabilities within Google Apps, but customers need to be encouraged to draw a line between those users that are dependant upon Microsoft capabilities and those that are not. The size of the set of Microsoft dependant users can be reduced with time by moving users to heterogeneous apps such as new tablet apps, new workflows like box.net and by enhancing Google Apps with Microsoft capabilities.
The customers that are the best candidates are those that are interested in moving IT and communications to browser apps. If managed service providers such as IBM IGS and Siemens Business Systems that currently hold enterprise desktop support contracts are convinced to become Google Apps partners, Google Apps success will be accelerated. If a technology refresh project can be identified, the ROI of the project can be enhanced because a hardware upgrade cycle will be eliminated.
This transition could create whole new companies to address new opportunities in the delivery of cloud computing to the desktop.
December 7, 2011
I wrote the following story in April of 2009 about iPhone Apps and published in Networkworld. No doubt Apps have not become obsolete but with HTML 5 and WebApps those more discerning developers and technology marketers might be wondering if the definition of mobile Apps is changing.
If an App is an enticing programmatic morsel that leads a customer on a trail to spending money or other type of engagement, the technical definition has not changed. But if the definition of an App is a heavy slug of code the definition of App is changing. I’m running a couple of twitter surveys and hope to publish in the begining of the 2o12. Please share your thoughts.
Google Ventures’ Rich Miner recently predicted at a conference in Cambridge, Mass., that a significant numbers of people will disconnect from the wired Internet in 2 to 3 years, abandoning their computers for mobile devices.
His prediction, at the Xconomy forum on the Future of Mobile Innovation, raises some interesting questions about what such a future might mean for the Apple iPhone. One in seven adults relies solely on a mobile phone for voice communications, according to a recent Harris Interactive poll. A generational crosscut of this data reveals that wired telephones have almost no presence among the digital generation. Compared to the 25 years it took for large numbers of people to cut the cord to voice communications, liberation from the wired Internet will occur more quickly. Measuring from the introduction of the iPhone, it will take only one fifth that amount of time for the masses to begin to cut the cord to the wired Internet
When Internet nomads become a significant population, the iPhone will either be a fond memory of a pioneering technology or if still prevalent, it will be Apple’s proprietary legacy of equal distinction to the Intel 8086 and Microsoft Windows, a contradiction to today’s preference for open development.
There are three pillars of innovation to the iPhone, an attractive $200 entry price, an addictively simple mobile user interface, and the Apple App Store. Price is a very short term advantage in this world of relentless miniaturization and cost reduction. And Apple and Microsoft both proved that PARC’s “mouse” based user interface was an easily adapted royalty-free innovation. The iPhone UI will be one more nonproprietary innovation on that same continuum.
Is the App Store a lasting competitive advantage for Apple or an ephemeral pioneering innovation destined for business school case studies and computer museums?
The genius of iPhone applications is as a solution to inconsistent throughput of current mobile broadband services and the genius of the iPhone App Store is the standardization of application download and installation that is reasonably spyware and virus free.
The iPhone’s impressive arsenal of communications alternatives — UMTS/HSDP, GSM/EDGE, Wi-Fi and Bluetooth — should be sufficient to begin the nomadic Internet lifestyle now, if the build-out of mobile data communications infrastructure was not lagging mobile voice communications infrastructure. Well designed iPhone apps smooth out data service inconsistencies and provide a lot of value to AT&T customers who want to justify the iPhone’s acquisition and monthly data service costs.
AT&T, Apple’s exclusive cell phone network iPhone reseller in the United States, could not have created the community of diverse mobile data application developers and thus its population of premium customers without the Apple App Store. And even if AT&T could create this community of developers, it could not afford to staff its call centers with enough customer service representatives to overcome the user problems encountered in the downloading and installation of this diversity of off-deck applications. The App Store’s installation standards imposed on independent developers protect AT&T’s customer service staff from intervening in iPhone app problems.
But fast forward a couple of years, let the mobile data networks catch up and let the mobile device designers iterate a couple more generations of denser electronics, better battery life and faster processors. Most App Store offerings would be more efficiently hosted and run in a secure browser. Building on the personal privacy standards of browser technology is a very attractive option compared to the unresolved status of personal privacy on the iPhone.
When 80% of the Java, XML and Flash that one runs on a computer can operate on a mobile device without too much user frustration, most of the App Store applications become redundant. A standard SDK for controlling the mobile device’s hardware (display, GPS, camera…) from a browser and a security policy to restrict or allow access to these devices and data stored in memory is all that is needed to enable the growth of mobile device applications as rich and diverse as the wired Internet.
As the mobile Internet emerges, what will the iPhone’s legacy be? Will the App Store retain its popularity because it is a great business model for developers and advertisers? Or will competition, improved mobile bandwidth, a new generation of mobile devices and the advantage of open development obsolete the proprietary App Store?
Miner’s prediction of Internet nomads is almost indisputable. How much branded and open source technology that the nomads will hold in their hands is yet to be resolved.
December 1, 2011
With my morning coffee I perused my news feed and saw the host of the Australian TV channel 9 morning show bomb attempting to tell a joke to the Dalai Lama.
Its a bad joke with a useful application. Too often I get drawn in by an inbound marketing site offer to “chat. ” And I’m disappointing to find that I am bearing my soul to a bot rather than talking to another human being via Liveperson. Its so frustrating to have typed 200 words to a descendant of Dr. Spaitso before I discover that it is incapable of responding to my needs.
Back to the joke. If you have not already watched the video link above the joke is:
The Dalai Lama goes into a Pizza shop and asks the chef “can you make me one with everything.”
Yes I know, slightly funny but irritating.
Whenever I am offered a “chat” I type this joke. If the response is a smiley or a frown I know that I am chatting with a human.
But if I get a response like “That is false information. Delete it.” I know right away that I’m on a fruitless journey.
The United Kingdom often appears to be the logical choice for an American company’s first beachhead in Europe. It is certainly one of the geographic opportunities where products can be sold with a minimum of internationalization and localization. But the United Kingdom is often not the right location for companies employing an inbound marketing model with significant sales volume booked by inside sales.Local language shatters the economies of scale that successful companies have realized from telecommunications and Internet marketing technologies in the United States. The EU is comprised of 27 countries with 23 different official languages, heavily weighted toward English, German, French, Spanish and Italian. Economically speaking, the United Kingdom, Germany and France account for about two-thirds of the total GDP, with Germany having the largest share.
To the extent that sales and customer service relationships can be carried out via email and chat, local accents are not a factor. But when it comes to booking revenue and customer satisfaction, accents do matter. An inside sales person with a Moroccan French accent will perform poorly when selling into Paris compared to his peer who speaks Parisian French. Likewise a customer service representative with an East Indian English accent servicing the United Kingdom will be reviewed poorly in comparison to his peer who speaks English with a British accent. To the extent that conversion of inbound marketing leads rely on telephone communication, the business enterprise needs to be located where there is a rich labour pool of multilingual people who speak with the native accent of the targeted country market. There are only a few places in Europe where this can be accomplished effectively, Ireland, the Netherlands and Germany. Intuitively one would expect a rich multilingual labour pool in the London area but salary, operating and real estate costs are prohibitive. Further, government subsidies are limited to capital intensive businesses. As a result, one does not find sales and service operations directed towards the entire European market in the United Kingdom.
Large sales and service operations of Microsoft, IBM, Oracle, Facebook, Google, LinkedIn, Amazon, EMC2, eBay, Amazon and Yahoo are located in Ireland. There are a few firms such as Cisco/WebX, IBM, NetApp and Blackboard located in the Netherlands. When considering smaller companies, LogMein moved its sales and service operation from Budapest Hungry to the Netherlands because the multi-lingual labour pool was too shallow and SolarWinds opened sales and service operations in Ireland.
I can find representative offices of many of these American technology brand companies in the London area, but these are direct sales operations servicing local customers.
B2B technical support can be located where there is language proficiency. Customers will tolerate quality technical services delivered by a person in their local language, though accented. Such is the case of Getronics and Deutsche Telekom’s technical support centers in Hungary and Siemens’s technical support center in Turkey. If technical support can be delivered via email and chat, this function can be moved almost anyplace. Lionbridge and IBM have a promising technology that permits real-time semantic and idiomatic translation for email and chat facilitating a conversation between two people who do not know the other’s language.
In building a European sales and service capabilities, one must always remember that language fragmentation limits the consolidation of business processes using communications and Internet technologies. It takes time to implement an inbound model and opportunity will be lost if the operation needs to be moved because of high cost or an insufficient labour pool at a time when it should be scaling smoothly.
For inside sales models to work, websites need to be internationalized and localized and paid and organic search strategies localized.
Achieving measurable results in the local market with global web marketing campaigns can be expensive because much of the creative and web technical resources need to be replicated in local markets with contractors or employees. Strategies and tactics need to be adjusted for local culture and preference. The thresholds and conversion expectations for SEO are different from country market to country market and require local expertise.
Translation needs to be idiomatic and contextual because buying search terms and creating content that is meaningful to potential customers is necessary for the inbound marketing to produce clicks, conversions and leads for inside sales.
Below is a table that explains by example how context is critical without the complexity of translation into a second language.
|United Kingdom||United States|
|Toss the rubbish in the dustbin||Throw the garbage in the trashcan|