TiVo Enables Advertising

It's about time they did this. Mercury News prints that TiVo will soon start advertising while users fast-forward through content on their boxes.

I mean, really, did we truly think that we could avoid corporate sponsorship entirely?

WSJ on Samsung

The Wall Street Journal has a must-read article on Samsung, the Korean electronics giant. The article is interesting for two key reasons: (a) it's an incredible growth story and (b) globalisation is impacting our borders & resulting financial-legal system.

For Samsung's overseas investors, the company's tight-lipped behavior is most visible in its quarterly results announcements. Though more forthcoming in recent years -- Samsung has held a quarterly English-language conference since 2001 -- its disclosure is stingy by international standards. Samsung's fourth-quarter announcement in January, in which it touted $10 billion in annual profit, was eight paragraphs long and contained two short tables. Supplemental information provided to financial analysts contained mostly generic industry data. Only once a year does Samsung consolidate the results of its non-Korean operations, the only time investors get a full picture of its performance. As a result, Samsung's stock doesn't perform as well as some of its peers. Currently, it trades at a price-to-earnings ratio of about 10 times its 2005 forecasted earnings per share, while Intel, Nokia Corp. and Motorola Inc. trade at a multiple of about 18 or higher.

Samsung has resisted foreign listings for a long time, but now some of its independent directors and foreign shareholders are pushing harder than ever to trade shares in America and Europe. Unfortunately, Sarbanes-Oxley gives Samsung executives another excuse -- in many ways a legitimate excuse -- to avoid an American listing.

It will be interesting to see how listings (and country-specific laws) impact the transparency and access to capital of our world's companies over the next twenty years. I, personally, think the more nimble countries & laws will win out on this battle. Is the US in that pack?

JackBe Hits Forbes

The CEO of JackBe, Luis Derechin, a good friend of mine and founder of a portfolio company of my last venture fund, has gotten published in Forbes Magazine online. JackBe, a Company of Mexico City origin, has developed a pretty incredible rich client technology for web applications.

Applying IPv6 Immediately

I came across a treatise from Larry Roberts, of ARPANET acclaim, on the evolution of IPv6 and lessons learned from his past experiences. I think his thoughts on the economic & social impact of IPv6 are right on, and someone in Washington should get on the ball here. Rather than wasting time playing games with telecoms lobbyists nitpicking over the antidiluvian Telecom Act, lets look to the future and worry about long-term issues in access. Voice is an app, let it be. The industry's fucked; let our commercial system sort itself out. Broadband is a critical service that needs attention, and it's needed now.

Yesterday's Hot Technologies

As I finally get through my pile of favourite trade rag reading, one article that I feel obliged to post is a story I found in the InfoWorld 02.28.05 print issue. Specifically, Neil McAllister writes a solid column called "Whatever happened to yesterday's hot technologies?" that talks to tech darlings that never lived up to their hype.

It's always fun to think about the hype we saw around push technology and VRML in 1996. Some of my favourite past hypes identified were Microsoft Passport and the Paperless Office. I tend to think that many of the other ideas/products that are identified are actually only starting to materialize or disappear.

• The mainframe is clearly still around and, as IT looks to be shaping up, it's not going anywhere anytime soon.
• Java is by no means disappearing, and it's looking pretty strong in the mobile device world.
• Mobile broadband is here, and Verizon EV-DO kicks ass.
• Voice recognition, as deployed across broadband networks as a hosted application, is a real possibility with centralized processing/ intelligence.
• IPv6 has better come along in this country soon, or we might as well just settle for second place. If only our government worried about this sort of legislation rather than worrying about who gets paid for what voice toll hand-off.
• The Semantic Web is evolving now, and we should keep watching because Google hasn't yet given up.
• And, web services is only now starting to come to fruition, as leading companies begin to standardize API's with SOA and modular applications leveraging XML.

So, these are my thoughts. Let's see how this story really evolves.

Only a Team is "World Class"

Fred Wilson, of Union Square Ventures, has a fantastic post about the always-desirable dream of hiring "world-class" CEO's at portfolio companies. His comments are hilarious, as he's clearly in one hell of a mood.

As to who has what title, that's an important factor and time will tell what's right, but really its about building a group of talented people that can function as a team and get the job done. There are no silver bullets in building a company.

This is entirely true, and it's particularly relevant to startups. Hierarchical organizations are detrimental to the success of small/innovative businesses, as is the dependence on such a "world class" CEO or any one individual.

Craigslist Can Be Hilarious

From Good Morning Silicon Valley at SiliconValley.com, these are two of the best craigslist posts I've seen in some time:

• To the lady in front of me at Giant
• Not just one in a million ... one in 3 million!

What a riot! I hope the guy in San Diego gets what he's looking for.

Another Satellite TV Provider

So, NEA and SpaceVest seem to have backed a satellite service provider targeting the Asia-Pacific region. This seems like a pretty good idea to me, especially with the (obvious) huge populace and growing per capita income.

I wonder how much it costs to launch such a service. ProtoStar said that it had secured an undisclosed amount of initial equity funding and was formed to acquire and operate high-power geostationary satellites. I'm going to try to get some insight as to the numbers involved here...

The first satellite is scheduled to launch in mid-2006.

Community Reinvestment

As a consultant to a leading Hispanic effort that has been involved with community development, I feel obligated to touch on this conversation subject.

The Community Reinvestment Act (CRA) was passed by Congress in 1977, and federally insured banks & savings institutions (with more than $250M in assets) have since then been obliged to meet the credit needs of low-income areas in the communities they serve. This sort of law (and government intervention) actually helps prevent the bifurcation of access to capital across the rich and poor.

Some small banks complain that the CRA documentation is too burdensome and that good community lending & investment opportunities are scarce, given competition from bigger lenders. Others rant that the definition of a small business loan, $1M or less, is too restrictive. I think this is completely off.

Groups like the Hispanic Alliance for Progress can provide community development services, leveraging innovative services and technical assistance grants, for banks that are having troubles complying. And, HAP is definitely not the only organization of its kind.

My vote - keep the laws as they are and make sure that banks are in compliance & that funds are being put to good use, not just meeting the legal criteria.

Blue Helmets Serve a Greater Good

According to the Economist, there are somewhere between 30 and 50 failed states, or countries in which there is tremendous turmoil and civil unrest. These countries are, arguably, perfect hosts for global terrorism and suicide bombers. The World Bank identifies 30 "low-income countries under stress" and Britain's Department for International Development worries about 46 "fragile" states. Is the US going to address all of these and send troops to each one? Doubtful. The UN is the world's only means to protect itself under a common goal.

The RAND Corporation, a think-tank, studied the efficacy of UN-led peacekeeping missions versus US-led efforts and found that the blue helmets were significantly more successful. Apparently, according to the study, 7 of 8 UN missions brought peace whereas only 4 of 8 US missions brought peace. I guess teamwork is the way to go...

The most interesting tidbit was that the annual cost of all 11 UN peacekeeping operations today is less than what the US spend in one month in Iraq. So it goes...

Irrational Exuberance in Housing

TJ Jacobi points to an excellent article in The Economist on the imbalances of the housing markets throughout the world, and in particular the US. They discuss the ratio of house prices to rents and the unsustainability of the current market conditions.

The ratio of prices to rents is a sort of price/earnings ratio for the housing market. Just as the price of a share should equal the discounted present value of future dividends, so the price of a house should reflect the future benefits of ownership, either as rental income for an investor or the rent saved by an owner-occupier. To bring the ratio of prices to rents back to equilibrium, either rents must rise sharply or prices must fall. Yet central banks cannot allow rents to surge as this would feed into inflation. Rents directly or indirectly account for 29% of America's consumer-price index, so rising inflation would force the Fed to raise interest rates more swiftly, which could trigger a fall in house prices. Alternatively, if rents continue to rise at their current annual pace of 2.5%, house prices would need to remain flat for over ten years to bring America's ratio of house prices to rents back to its long-term norm. There is a clear risk prices might fall.

Lower real interest rates might justify a higher p/e ratio. For example, real interest rates in Ireland and Spain were reduced significantly when these countries joined Europe's single currency—though not by enough to explain the whole rise in house prices. In Britain, where tax relief on interest payments has been scrapped, real after-tax rates are close to their average over the past 30 years, and so do not justify a higher price/rent ratio. In America, too, real post-tax interest rates are not historically low, in part because mortgage-interest tax relief is worth less at lower rates of inflation. For instance, if interest rates are 10%, tax relief is 30% and inflation is 7%, the real after-tax interest rate is 0%. If interest rates are 6% and inflation is 3% (ie, the same gap as before), and tax rates stays the same, the real interest rate is 1.2%.

I've been saying this for almost four years now, and I've missed out on some extraordinary equity appreciation. But, I am even more bearish today than I was four years ago and am actually renting my home today. If things do go south in real estate, I just hope it doesn't impact the rest of the economy too adversely.

Chipotle, I Love You.

Chipotle is quite possibly one of the most extraordinary food chains this country has ever experienced. And, my dear New York City, is in the midst of getting swarmed by the distinctive smoky sweet dried jalapeno chili. Chipotle took over DC during 2002-2003 and it now looks like 2005 is the year of New York for the McDonald's revival strategy. The New York Times covers the developments.

About two years ago, I was told that the In-N-Out Burger was the future of fast food. I just didn't see it and am now convinced I was right. They've only got 189 stores and Chipotle had 419 as of two weeks ago. The Hispanic-ization of America is upon us, and I hope we'll soon start to see more tacos al pastor or ceviche de camarones!

I've heard these stores are just extraordinarily profitable. As I spoke with the folks of a favorite DC spot, I learned that they made, on average, over 2000 burritos per day. The WrapWorks a few stores down (in a much nicer location) only does about 500 and has a much more complicated (and certainly costly) operation.

I'm not a guy who's in to franchising, but if I had the chance, I would definitely franchise a Chipotle. It's not possible to do so today, and I wonder when McDonald's is going to let us at it. By the tone they take on their web site, I'm clearly not the only interested party.

We are not currently franchising restaurants or licensing markets. We are only opening company owned and operated restaurants. Please do not send us any inquiries in this regard, since we do not have the resources to respond.

This is a great story, one that I'm sure we'll continue to hear more about. There's even a great dedicated fan site for the restaurant, www.chipotlefan.com. It's got everything you'll need to know about Chipotle burritos including a nutritional calculator; which I don't recommend you use because you might never eat there again -- the food isn't that healthy for you. However, if you still remain a junkie, you can try to find your burrito soulmate on the site.

I'm in love.

The Groove Is Finally On

Microsoft just picked up Ray Ozzie and Groove Networks. It's about time. There's be so much speculation about this deal over the past years and I'm now actually surprised it's happening. Most importantly, however, is the fact that Ray Ozzie is to be name the CTO of our beloved Microsoft. Ray Ozzie, along with Mitch Kapor, created Lotus Notes about 15 years ago. Groove is a compatible technology acquistion for Microsoft, but Ray Ozzie is really the gravy in this deal.

Since its founding, Groove has raised more than $155 million in financing from Accel Partners, Microsoft, Intel Capital, and private investors. I can't wait to hear what the acquisition price was, and how much value Bill Gates placed on Ray Ozzie. The collaboration revolution moves on; and maybe a Gates-Ozzie combo can continue to advance the vision. So it goes.

No Points for 2nd Place

If there is one agenda that I think our public & elected officials should devote most of their time to, it would be education. Unfortunately, primary school is one of the few businesses that we've never managed to privatise successfully. So, let's throw a lot of government money at it and get it right as a public sector service.

The Washington Post published an article on a tech-led lobbying effort on Capitol Hill yesterday. The Post quoted Rick White, President of TechNet, as saying:

"The world is changing a little bit, and frankly there is a significant amount of concern that if we don't make some adjustments, follow the right public policies, do some things that are important, we could find ourselves very quickly losing the advantage we've had for so long,"

The US is in dire risk of losing its competitive edge (and, actually, has been facing this risk for several years now). According to an article in Forbes, Singapore has displaced the United States as the top economy in information technology competitiveness. Forbes drew this from the World Economic Forum's latest annual Global Information Technology Report released today.

The U.S. drops from first to fifth in the rankings, which measures the propensity for countries to exploit the opportunities offered by information and communications technology (ICT). Iceland, Finland and Denmark occupy positions two, three and four out of 104 countries surveyed, with Iceland achieving the most improvement among the top countries, moving up from tenth last year.

You might argue that these four countries are just simply kicking ass on their own right, but I don't like being in 2nd place (or 5th for that matter). So, this is bull-shit. I do not want to believe that I recently naturalized in to a losing organization.

Cold Front

New York (and the entire NE corridor) was hit with a massive cold front yesterday. Temperatures dropped from the mid-40's in the morning to the mid-teen's by late afternoon. It was bitter cold and windy as hell.

Living at the Edge

Martin Geddes, blogging at Telepocalypse, interviews the founder of Peerio and shares his thoughts in a quite candid fashion. I love the optimism of the "revolution from the edge" and the real benefits of a true peer-to-peer system, but it seems to meet that no one is ever really contemplating the reality of legacy infrastructure. Come-on, there's a lot people involved here and there's a lot at stake. If you want to make money under these circumstances, you have to be inclusive to at least a majority if not a super-majority.

The Flattening Yield Curve

Eric Janszen, from Trident Capital now blogging on Always-On, has a must-read post on the flattening yield curve. He poses a number of questions about how we (as individuals) should hedge for this and how it might impact our economy over the next months.

During the past 9 months, the Fed has raised rates by a quarter-point six times, from 1.25% to 2.50%. During that time, the ten-year US Treasury bond closed started at 4.62%. and has dropped to 4.16%.

So while the Fed Funds Rate has doubled, the long end of the bond market has actually declined. The effect is often referred to as a "flattening yield curve," in reference to the chart line of rising short-term interest rates approaching the chart line of rising long-term interest rates.

Eric quotes David Gilmore, a partner in research firm Foreign Exchange Analytics, as saying: "It is scary when one realizes that the U.S. yield curve is not really representative of inflation expectations in full, but reflects the visible hand of governments, the orgy of currency intervention in Asia, the recycling of $50 a barrel oil by OPEC, and more recently a determined effort by U.S. firms to reduce under funded pension liabilities."

The last time the yield curve was inverted was in 1944. I, personally, like Greenspan's comments on the situation: "For the moment, the broadly unanticipated behavior of world bond markets remains a conundrum."

If you want to read more on the subject, this is a good paper just published by some academics from NYU.

Wal-Mart & Google

Rich Karlgaard, from Forbes Magazine, has a great article on the differences between Wal-Mart and Google (arguably two of the most successful companies of our times). The stats are astounding!

Google and Wal-Mart are the business world's version of yin and yang. Google is a hypergrowth, high-revenue, wildly high-margin company. Three thousand employees produce annual sales of $5 billion (at the current run rate), or $1.67 million per worker. Cash flow is north of $500,000 per worker per year. The typical Google worker possesses an IQ high enough to boil water. Half hold advanced degrees in science or engineering, most from elite universities. Google leaves no stone unturned in its pursuit of brainiacs, even asking to see prospects' SAT scores.

Wal-Mart is the opposite of Google. It is the world's largest company by sales--$285 billion--but its profit of $10 billion is in line with low-margin retail. Wal-Mart sends the world's largest work force into battle, 1.5 million (few of them SAT superstars) who generate $190,000 in sales apiece. Cash flow and profits per Wal-Mart worker are puny--only $16,000 and $6,700, respectively, or about 3% of those of the Google counterpart.

Google and Wal-Mart have become huge successes in vastly different ways. But the yin and yang have this in common:

• Each company has a simple mission. Wal-Mart's is "always low prices." Google's is "to organize the world's information and make it universally accessible and useful." These companies know who they are.

• The brand and the mission statement of each are aligned. Picture Google and Wal-Mart in your head. There's no confusion about what these companies do.

• Both companies are technology leaders. The previous editor of FORBES, Jim Michaels, likes to call Wal-Mart the world's preeminent tech company. It pioneered the use of bar-code scanners, slick supply chains and inventory management tweaked to local purchasing preferences. The Bentonville, Ark. giant never sleeps. Now Wal-Mart is pushing into RFID chips. Wal-Mart's aggressive use of technology puts the lie to a recent Harvard Business Review article, "IT Doesn't Matter," that says it's okay to sit back and let others lead. Google, meanwhile, continues to attract the best tech brains in Silicon Valley.

• Both companies exploit the cheap revolution. Google's search engine runs on 100,000 cheap servers and a form of free Linux software. Wal-Mart searches the planet for low-cost production. It buys 10% of the goods China exports to the US.

These aren't the only traits that define a wildly successful company, but they sure are some. Read on, there's more. I, personally, love the fact that great companies can come from anywhere. There's a lot of talent and innovation waiting to be uncovered, around the world - outside of the Valley.