America's Decline in Talent

Today's FT has a painful article on remarks made by Bill Gates at the World Economic Forum in Davos.

The US's status as "the IQ magnet of the world" was in jeopardy as a result of the stricter immigration rules that were introduced in the wake of the terrorist attacks of September 11 2001, he suggested. "There has been a 35 per cent drop in Asians coming to our computer science departments," Mr Gates said. "It really is a very bad thing for a very key area."

Officials at US universities are concerned about the fall in overseas students as applications are held up by visa problems. Larry Summers, president of Harvard University, warned last year that the US would lose "incalculable benefits" if the next generation of foreign leaders chose to be educated elsewhere.

Mr Gates pointed to the sharp difference between emerging markets such as India and China, where about 40 per cent of students take engineering degrees, and the US, where the proportion is about 4 per cent.

As finance ministers and central bankers from the G7 group of industrial nations prepare to gather in London this week with currency movements expected to top the agenda, Mr Gates, the world's richest man, revealed he was betting the dollar would continue to fall. "I have a bias. I'm short the dollar," he said.

This is simply disasterous for our US economy. I know it's been preached about for decades now, but the past five years have really been impacted by globalisation. With disappearing borders for both talent and innovation, free trade agreements popping up everywhere, and a negative-attitude generating foreign policy, the US is just simply not well positioned to take on the next century. I'm worried.

Travel Between DC and NY

There's been a lot of buzz lately about the alternative transportation options between NY and DC. Even the Wall Street Journal has caught on to the noise. Rob Goodspeed from DCist posts on the subject.

Flying between DCA and LGA is no longer the best option. With the hassle of TSA staff at airports and the pain of driving in to NYC from LGA, the flight is not that appealing relative to Amtrak train services. The train is generally on schedule and, unlike driving, doesn't face delays due to weather or traffic. Plus, it's really convenient to get work done (with 3 hours of uninterrupted desk-time). But, it's usually the priciest option.

I've never taken a bus for the trip, but am definitely going to try in the next weeks. I've heard the Washington Deluxe is the best bet, with somewhat more upscale services to the Chinatown buses. Apparently, the movies played are actually in English rather than Mandarin!

Building a Software Business Today

Tim Oren has written an excellent post on the evolution of a software startup - specifically a consumer or small-business oriented company (rather than enterprise or service provider focused). He suggests that these businesses are being built in two phases. The first stage is to build a targeted and simple product/feature that's immediately saleable (even if cheaply):
Build as little as possible, as fast and cheaply as possible, while demonstrating some unique value. From the classic VC view, many of these efforts will result in a product, or even a feature, rather than a sustainable company. But that may be OK for the first stage, because the development time and expense are small enough to be funded by the founders, friends and family, or a few angels. The go-to-market is similarly light. Rather than a sales channel, the venture will buy ad words on Google, promote itself via word of mouth on blogs and via user communities, and penetrate enterprises by pricing low enough to fall within the purchasing power of a department, or even an individual. Being in early and continuous touch with its market, the venture can course correct early and often.
Tim then suggests that the second stage is defined by further product development and larger scale deployment, with venture funding:
The second choice after a successful first stage launch is to light the second stage, which will require venture funding. Second stage activities will consume cash in advance of the sales to fund them, as they must occur before imitators arrive. They may include adding functionality to meet customer requests, rebuilding parts of the product for greater efficiency and defensibility, adding the necessary sales force, scalability, and system integration to be able to sell to a higher end market, such as the CXO enterprise level, or carriers. At the point of making the second stage decision, the technology risks have been greatly reduced, and a portion of market risk eliminated.
He argues that this evolution model is in response to the rise of open standards, open source, offshoring, and the commoditization of hardware & software. I would argue that this model is more likely in response to the Internet - easier & less costly distribution of product. Whereas selling software ten years ago required physical store distribution and the physical publishing of diskettes, now functional software can be sold online and marketed through cheap ads.

2005 is Really Shaping Up

There seems to be a lot of movement this January. This past week, I learned of a buddy joining buySAFE (a solution for safer online commerce transactions), another friend joining Square Loop (an early-stage location-based wireless play), another friend joining MPowerPlayer (a nascent online gaming technology for product portability), and the soon-to-be announced launch of BRC (a new global tech fund, abbreviated for now). And, I'm going to be spending much more time in New York as well, an exciting development. More to come later. So it goes.

Understanding Your Customer

Knowledge @ Wharton published an excellent discussion piece on the importance of understanding ones customers’ philosophical outlook. The authors cite a number of examples in which companies are successful by understanding the cultural trends impacting their customers. Starbucks, Google, Whole Foods, and Chipotle have all figured this out.

This may sound trivial, but a lot of analysts spend too much time understanding the numbers or looking at the technology advantages of businesses, where in fact the recipe for success lies in the management team. A management team that truly and introspectively knows their market is the winning team, in any segment. "Bet on the jockey, not on the horse."

I've spent the past few weeks reviewing an industry in which very few of the players actually have a clear understanding of what their direct customers are looking for. The industry is hyped on the fact that the direct customers' customers show increasing demand generally, but no one seems to have taken the time to really understand the market dynamics and consumer motivations. I will definitely recommend this article to the next few CEOs I speak with.

The Cato Institute - The Telecom Act

The Cato Institute is putting together a briefing on the The Telecom Act, suggesting that after nine years of existence reform can't wait.

The legendary (and infamous) George Gilder will be headlining the must see event on Monday February 7th in DC. As the Telecommunications Act of 1996 turns nine years old, industry analysts are expecting a major re-write of the act to be considered by the new Congress.
[The speakers] will provide a detailed agenda for telecom reform to help bring an end to the legally confusing and economically inefficient regulatory regime that that Telecom Act not only failed to clean up, but actually fostered.
I'd love to go to this event, but am otherwise tied up. George is a true visionary and has a solid understanding of the private/public balance of this regulatory issue. I hope there's a blogger out there to cover the event, let me know once you do.

The Andy Forbes Files

Andy Forbes, a serial entrepreneur and friend of mine, has launched The Andy Forbes Files™ - an interview series available online designed to give entrepreneurs access to the thoughts and opinions of other entrepreneurs, advisors, service providers, and potential customers. He has basically interviewed each of these folks for 15 minutes, around a specific subject matter.

First Impressions Do Matter

Ed Sim posts an excellent comment on the importance of first impressions in the technology sales process. I would add that first impressions matter heavily in any situation. He comments on the importance of ease of installation and an intuitive user interface:
Well, in today's environment, enterprises have the upper hand. This means that most enterprise sales end up in a proof of concept (POC) or bake-off against other competitors. So the first impression you make in the POC is the installation. If it is hard to install, forget about it. The logical conclusion your sales prospect will draw is that it is a hard to use product. So while you spend time building some great features and making your product more scalable, do not forget to spend time, lots of it, in the areas that customers touch and see. This means making the install process as easy as possible (this is where appliances can help in many cases) and making your GUI intuitive and easy to use. If you can't get this right, you will lose most deals or at least be fighting an uphill battle in a competitive bakeoff no matter how scalable or feature-rich your product is.
Many tech companies and technologists often forget about user interface, and always chalk it up as trivial: "something so easy, we'll get to it at the last minute - when we're done." But, this is just flat out wrong - looks do matter and its never that trivial. I've seen countless software companies present (at both sales meetings and venture meetings) and get passed on because of these two key issues.

Simplicity is golden. Make sure the first impression conveys that, and you can be pretty sure you'll get a second meeting - whether it be with an investor or potential client (or even a potential date).

Mauldin Weekly on China

One of my favourite weekly reads is John Mauldin's newsletter. Though generally bearish and quite US-centric is his opinion, he's usually got a very strong analytical grasp of the facts. This week he discusses the growth of China and its future role in the world hierarchy of balance of power. He brings up a couple of very interesting data points that impact the outcome. Namely, the first is one of innovation and education:

Each and every year China now graduates 250,000 engineers and scientists. The US graduates only 50,000. How long before they overwhelm not only the US but Europe as well in the area of technology? If we lose our lead in technology, how can we hope to continue to find whole new industries with high paying new jobs to substitute for the ones we have lost?
And, some concepts on the banking structure and capital markets:
Non-performing loans at banks in China are over 13%. Some observers think the real number may be double that. They do not have an internal Chinese capital market, so private capital has difficulty getting to deserving entrepreneurs. They need private venture funds. Accounting standards in China are not up to developed world standards. There is no rating agency for debt, so there can be little confidence in the debt markets. Their equivalent of the SEC is lacking, so the stock market is a rather wild and woolly one.
There is a lot to digest, as is usual with John's writings. But, the subject matter is fascinating and of tremendous importance to our business of investing in technology & innovation over the next several decades.

My Segway Experience

I guess I'm probably a little bit late to Dean Kamen's party, but I finally had the chance to test out a Segway this week. I came across a new retailer in the Shops at Georgetown, and decided to stop in for a test ride. Frankly, I was rather unimpressed. I just don't see how this is going to revolutionize the world, Dean. But, it may make America a little fatter.

I guess it was truly easy to use and to start & stop. It's extremely intuitive to operate, with the exception of the turning function (left and right). The maneuverability intelligence is all integrated into the gyroscopic machinery, except for the silly left/right functions which are controlled by a toggle-switch with your left hand. What's the point?

Trevor Blackwell, a robotics inventor-entrepreneur in the Bay Area, has posted an interesting review on the simplicity of building a self-balancing scooter. He even built a self-balancing unicycle, interesting. I guess if the concept is to take off, then low-cost replicas will help the spread. Because, at the current (discounted promo) price of $3,500, I'm not going to trade in my functioning two legs!

The Fate of TiVo

Mike Langberg, from the Mercury News, has an interesting review of the TiVo story and current situation. He says this:
The moral of the story: Sometimes you can accurately identify the next big thing in technology, flawlessly execute a plan to offer that technology, and still get squashed.
I, personally, think it's a bit early to call an end to this story. After all, the TiVo name has become a leading brand and unique product-identifier -- not DVR, as was hoped. So, in that aspect alone, I would hope that someone could figure out how to make some money. I hope these guys can make it work, it would be a blunder of extraordinary proportions if they didn't.

Paying a Premium

I'm not quite sure what got me thinking about this subject today, but it's one that has always fascinated me. Warren Buffett believes (as does my former boss Nicholas Brady) that wealth is made in finding value, but few heed that suggestion and there are many cases in which we are willing to pay a premium for an asset (or company, as the case may be).

Take in to account the Yahoo acquisition of Oddpost for almost $30 million to get a leg up in the webmail wars, or the $775 million LexisNexis paid for Seisint to bolster its presence in the billion dollar risk management industry. I have no idea what valuation metrics were given to the Yahoo-Oddpost transaction, but at 10 employees and with some angel capital in the bank, I cannot imagine it was a normal multiple of anything. In the case of LexisNexis-Seisint, the company was valued at a little more than 7x current/estimated revenues, not exactly cheap by any standards.

So, I pose the question: "When is it OK to pay a premium?" We've seen that in the world of search or portals, first to market isn't worth all that much, well, with Google coming out to play late in the game. Above and beyond the complexity of timing, I'd venture that there are 3 factors that can impact the premium payment of a company:
  • A Strong & Defensible Brand
  • An Industry Defined by Exponential Growth
  • A Truly Innovative Recipe or Protected/Patented Product

Any combination of these factors can elicit a premium, however what that premium might be is only really known to the buyer. To think otherwise is foolish and to think that you can build a company on these features alone without strong business fundamentals is also foolish -- a relic of last century!

Don't Buy American

My friend Sarah A (also known as NY Frog) emailed me a link to this excellent article in Slate about the effect of national perception on different brands. Also, check out this chart of companies here. Basically, some American brands are disliked in Europe for being American yet others are not. I wonder if these company's lobbyists' have ever taken a stance of foreign policyt because of this sort of issue.

Information is King, Right?

I pose that question, somewhat facetiously, based on a crippling thought that we in the US, and ostensibly even Western Europe, are just so far behind in communications that we're really not well poised to lead in information. RedHerring has an excellent article this month on telecoms activity in Asia:
Asian players are spending billions of dollars a year on state-of-the-art broadband and wireless services. Reliance has already built a pan-India multimedia network spanning more than 80,000 kilometers, allowing customers at its Internet cafes to do video conferencing to up to 22 different cities simultaneously for a modest price. And nearly every mobile phone it sells–including its cheapest models–can download TV and entertainment news clips, something Western operators are only starting to introduce on the most expensive phones.
By lagging in development of broadband (wireline, wireless, and otherwise) and value-added communications services (collaboration, presence, video, data, etc), aren't we setting ourselves up for failure? Am I missing the point here or something, but this seems to be a very dangerous situation (from a global capital markets & world power perspective).

Bill Gates by Gizmodo

I have no immediate comments on this article in Gizmodo other than it's a great read, and a pleasure to see the quality of formalized blogging publishing...

Steve Case; What A Guy!

Steve Case talks about the AOL Time Warner merger after having been out of the spotlight for the past few years.
Case added that much of the merger's failed vision stemmed from a failure in "timing and execution." When the stock market began to collapse in 2000, the ripple effect did not reach AOL Time Warner (the company has since dropped the "AOL") until late 2001. "For some reason--some was cultural, some was the stock going down--people got mad," he said. "The merger was my idea. If you wanted to be mad at somebody, I was the one to be mad at." Still, Case's reasoning for the deal made sense: AOL needed Time Warner for its cable division.
This is such a grownup move on his behalf, if only more very senior executives could stand more firmly behind their mistakes and introspectively look at their actions. I can't wat to hear what "disruptive" businesses he continues to spend time on.

China's Dragons Are Global

The Economist has a poignant article on China's efforts to build world-class companies. This is going to be a hot topic this year.

The scene is reminiscent of a place on the other side of the globe: Silicon Valley at its most breathless, when programmers on the go "24/7" collapsed with exhaustion at their workstations. Huawei's astonishing campus on the outskirts of the southern city of Shenzhen is straight out of the technology bubble too, with four football fields, swimming pools, apartments for 3,000 families and a fantastical Disney-esque research centre with doric pillars and marbled interior.

The hubris at Huawei, which makes telecoms equipment like routers and switches, is also vintage 1990s America. Hu Yong, a vice-president, is proud of being in more than 70 countries, that over 3,000 of the group's 24,000 employees are overseas nationals and that two-fifths of its more than $5 billion revenues in 2004 will be made outside China. "Are we a global player? FORTUNE magazine says that is when international sales exceed 20% of your total," he says. "So the answer is yes."
Globalization is here, and China gets it. Borders are disappearing and quality is job one in a price sensitive world. Can the boys in the US and Europe keep their leads and step up to the plate?

3G by Verizon, for Dirt Cheap

The news is out at CES: "unlimited high speed wireless data services for only $15 a month" from Verizon Wireless. This is huge news for the road warrior. Not only did Verizon expand EVDO from 2 to 32 markets over the past year, but they dropped the price from $80 to $15 per month. I'll pay that for untethered freedom and quality throughput of 150kbps to 500kpbs (and even 2Mbps in theory).

Verizon currently has EV-DO service in 32 major markets and has expanded on its initial launches in the New York, Los Angeles, Philadelphia, Miami, Baltimore, Kansas City, Mo., and Milwaukee metropolitan areas. For the last several months, Verzion Wireless said it has been conducting a consumer trial among 1000 users in its Washington, D.C. and San Diego markets--the first two markets to launch--in order to study consumer adoption, usage patterns and handset performance. The new consumer service, called Vcast will be available in all of those markets in February alongside its Broadband Access business service. VCast will cost $15 over the cost of regular wireless calling plans and will include unlimited access to specified content supplied by Verizon’s partners as well as unlimited Web browsing. Enhanced features and premium content will come at additional cost.

I can't wait to see how this takes off. And, I'm sure that the folks over at Sprint are as anxious as I am. If Verizon really gears up this service in a broad commercial launch in the next weeks, Sprint may be sucking wind to catch up.

The Future Operating System

So, once ago, some guy said the network is the computer, and that guy, Scott McNealy, along with a few others built a company governed by that vision. Well, the technology timing was a bit off as was the exact wording of the corporate motto (purportedly restructured), but the general gist is now seemingly a real possibility. But, in a completely different way.

Over the weekend, I had coffee with an interesting fellow from NeuStar. Who the hell is NeuStar you might ask? The company was originally founded as unit of Lockheed Martin, IMS Communication Industry Services. In 1999, the FCC approved a switch of the North American Numbering Plan Administrator (NANPA) functions from Lockheed-Martin to NeuStar, a new entity financed by Warburg Pincus. The company took responsibility for assignment and management of area codes and will also the local number portability database as Local Number Portability Administrator (LNPA). Previously, NANP (which came from the Telecom Act of 1996, I believe) has been handled by Bellcore (today known as Telcordia).

So, I bring this up partially because of my coffee meeting and partially because VeriSign recently bought MMS provider LightSurf Technologies. Mike Masnick presents a perspective that is right on, pointing out a concept that I've come to struggle with, the eventual possibility (or lack thereof) of a stupid network. Om Malik also makes some insightful comments on the acquisition. VeriSign acquired Illimunet in 2001, NeuStar acquired NightFire in 2003, and now this.

I'm convinced that this growing space, which VeriSign CEO Stratton Sclavos refers to this as the "intelligent infrastructure" and my friend from NeuStar calls the "new operating system for communications," is going to really heat up. Both VeriSign and NeuStar have the OS, now they need the applications that run on it.

Interoperability is a fairly necessary component to communications, and it's not a trivial issue. InPhonic has made a go of it, and is growing at breakneck speeds. And, as VeriSign and NeuStar (and InPhonic) both handle core components of this interoperability, communications networks become increasingly complex, service providers are melding together across mediums (utp, gsm, cable, dsl, wifi, etc) to handle VoIP, MVNO's are percolating from all walks of life, and as there are increasingly more companies playing ball, the party is only going to get much much bigger.

Venture Capital Forecast

Jeff Nolan points to Jason Caplain's blog post on predictions for the venture industry in 2005. I agree with most everything. It's probably a good year to focus on earlier stage deals, mid-market public-to-private transactions, communications convergence stories, and (as always) Hispanic consumer plays.

Consumer VoIP at CES

Andy Abramson points to a Washington Post article on Jeff Pulver and his presentation at the Consumer VoIP Summit at CES this week. I've been in New York, and haven't been able to attend -- it sounds like the team pulled something incredible off, once again!

Success Is Harder To Manage Than Crisis

Mohamed El-Erian, a Managing Director with venerable fixed income fund manager PIMCO, publishes his regular Emerging Markets Watch column on the fascinating topic of the difficulties in managing capital flows by governments or institutions. He simplifies it by relating it to the challenges of winning the lottery. I find emerging markets fascinating, mostly as it relates to how/why some countries succeed and others flail. His thoughts are concise:
For emerging countries, the literature on the “rentier state” has discussed the extent to which significant natural resources can undermine, rather than facilitate, nations’ management of their socio-economic development processes. And emerging countries do not have a monopoly here. Another influential strand of the natural resource literature has analyzed the “de-industrialization” of advanced countries under what was labeled in the 1970s as the “Dutch disease:” The phenomenon whereby the discovery of a depletable resource (such as oil and gas) can undermine existing industries, create unemployment problems, and undercut long-term growth potential.
He then dives in to the recent surge in EM capital flows and credits it due mostly to (a) some improved EM fundamentals (reflected in stronger domestic growth dynamics and improved fiscal governance) and (b) the “global carry trade” (reflecting investor search for yield along with US dollar worries). This co-existence of push and pull factors, as he calls it, result in significant surge in the flow of capital to emerging economies, with corresponding increases in international reserves. Imagine having to build a business where you had significant capital overhead and a credit line that was subject to the whims of your competitors' mis-steps...
For investors in the EM asset class, history suggests that, temptation aside, it is not enough to invest simply on the basis of the existence of large capital inflows. The manner in which these inflows are handled by policy makers around the emerging world will impact levels of absolute and relative returns from different instruments.
EM is a tough place to make money, especially in private equity. Not only do you have to make all the same difficulty strategic decisions that a US fund does, but you also have to take in to account global capital flows, sovereign risk, and fiscal governance -- not to mention the headaches from currency exchange.

The 2005 What's In & Out List

HireStrategy, a leading mid-Atlantic search firm, put out a fun list of What's In, What's Out, and What's 5 Minutes Ago. It's a pretty amusing list, definitely worth a look.

Why IBM Didn't Get More Interest

In a filing with the Securities and Exchange Commission, IBM, which hadn't broken out its PC division's results in recent years, revealed that the business had racked up $965 million in losses between Jan. 1, 2001, and June 30, 2004. The the filing:
"The [PC] business has a history of recurring loses, negative working capital, and an accumulated deficit. The ability to settle obligations as they come due is dependent on IBM funding the operations on an ongoing basis."
I think I'm starting to get a better picture of this transaction. But, I still wonder (certainly much like Lenovo) if a turnaround is easily feasible, especially with lower cost manufacturing in China.

Wireless Services in 2004

The wireless industry continues to grow at break-neck speeds globally, and is now poised to completely reshape as data becomes the primary driver in lieu of voice. When will softphone VoIP clients become common-place and, most importantly, less expensive than traditional WSP minutes? Who knows. But, the commoditization of connectivity is real and I hope that the wireless carriers are learning from the activity in the traditional ISP markets.

Gartner Group releases data on worldwide handset marketshare in 2004:

1. Nokia - 51.7 million
2. Samsung - 23 .0 million
3. Motorola - 22.4 million
4. Siemens - 12.8 million
5. LG - 11.1 million
6. Sony Ericsson - 10.7 million
All Other - 35.4 million

Interestingly, the last category "All Other" is a rapidly growing one as late adopters and users in emerging markets, where growth is tantamount, are relatively cost concious & brand agnostic.

Yankee Group counts the number of wireless customers in the US as of Q3 2004:

1. Cingular - 47.6 million
2. Verizon - 42.1 million
3. Sprint - 23.2 million
4. T-Mobile - 16.3 million
5. Nextel - 14.5 million
All Other - 31.8 million

Interestingly, T-Mobile falls far behind the group when Sprint & Nextel combine at 37.7 million customers.

Most surprisingly, according to Andy Seybold, during 2004, wireless carriers experienced an increase in overall ARPU of about $5 to $15. This is mostly driven by the increased revenue generated by data services. Call me crazy, but this is just a short-term bubble before the network becomes a ubiquitous commodity and the app becomes the value on the service.

Skype may have even more luck with a wireless carrier solution as form factor and habit aren't to change as they are in the PC-based broadband communications world.

Key Resource for Consumer Electronics

Happy New Year! I started out 2005 with a bang, joining some friends of mine for a buffet breakfast brunch and several hours of great conversation. One of these friends, Brian, is the founder of an excellent web site call that provides aggregated data & reviews on consumer electronics products. is one of the leading sources of reviews and buying guides in its category, a must visit if you're looking in to purchasing anything electronic, from high end audio to everyday digital cameras. Check it out.