Thoughts On The Tech Industry

What do Facebook and Muhammad have in common? Well if you can’t bring the mountain….

Recently, I had a chance to sit in on a Digital Media session at the Asia  America  MultiTechnology Association conference.  The panel was led by Mark Stevens of Fenwick and West who did his usual masterful job of teasing out some interesting tidbits from his panelists. They included Tim Kendall the Project Manager of Facebook's recently botched Beacon introduction, Yoon Lee of Samsung,  David Richter of DivX and Chris Corvalho of Lucas Films.

Needless to say there were a variety of views represented. They ranged  from US and Asian cultural differences that help explain variations in consumer electronics  adoption rates, to snide remarks about how this coming CES will once again be the year of the Digital Living Room  - something that seems to be a continuously moving target.    

Although I found some of these topics interesting, the real morsels of insight came from several points made by Tim Kendall of Facebook. These provided a few key signposts of how we may see Facebook evolve as it attempts to monetize its 58 million users.

Tim kicked off with a relaxed apology for the Beacon privacy debacle, echoing some of the points made by Mark Zuckerberg in the press recently.  As he said in his mea culpa,   "Beacon may go down as Facebook's biggest screw up."  He hoped this was the worst mistake they ever make.  They certainly learned a lesson from it. You might think this would have damaged Facebook, but so far it appears to be mostly a PR gaffe.  As comScore Media Metrix recently reported, Facebook had 20M visitors the week of Beacon’s announcement and 22 million for each of the two subsequent weeks.  It then rose to 25 million the week of November 25^th. We’ll see how the December numbers shape up.

One of the key points Tim made was how Facebook will evolve from a community site to a community that you can take with you as you travel the web. Imagine for a minute, as he explained, that you’re a member of the Facebook community. You decide to go to Netflix to pick up a video, say, Tom Cruise in Top Gun.  When you land at Netflix you identify yourself with a Facebook ID. Then before you finalize your selection, you decide to see who else in your community has seen the film and what they think of it.  Hmmm, more context, more relevance, more ad dollars. Repeat across multiple websites and presto, you have some serious incremental ad revenue.

So "If the mountain won't come to Muhammad, Muhammad must go to the mountain.” Or in Facebook’s case, if we can’t squeeze enough dollars out of our site alone, let’s take our revenue generation engine to the places where we can monetize the community to the hilt.

I’ll follow up in another blog entry or in an upcoming Milestone Group Quarterly with a discussion of 5-6 other key initiatives that Tim talked about. In the meantime, let us know what you think.

Does The World Need Another IM Client?

So Google launches GoogleTalk, yet another IM client.   We're already running AIM, YIM, MSN and Skype IM on our desktops so begs the first question do we need another IM client?  What does Google bring to an already fragmented market?   (Hey, whatever happened to Trillion which was supposed to aggregate IM clients for us?)

Anyway, real question about GoogleTalk is when will they begin reading our IM threads and inserting context sensitive ads?  Read carefully those Terms of Service we so quickly click on...

BTW, interesting to note www.googletalk.com takes you to the Ronald McDonald House Charities.  Download the GoogleTalk client, get a free Happy Meal.  Conspiracy theorists unite...

Microsoft Runs The Table On The Anti-Virus Market?

Anyone taken a serious look recently at Microsoft's Information Rights Management technology recently?

Microsoft have an obvious, ($440m for licenses to patents, now mobilizing significant marketing dollars); their clear intent is to drive their Information Rights Management (IRM) technology.  Left to their own devices, they'll have it on every Windows desktop.

MSFT can make a powerful case to have every user automatically assigning Rights Management to each email and document, spreadsheet and presentation they create.  Takes no more work and gives the author total post delivery control and security over the material they've generated throughout its life cycle.  It's an interesting revenue opportunity for them at $20/seat, but what's more fundamental is the high ground it gives MSFT on file formats.   Once these Information Rights are assigned, the file's automatically encrypted and the keys are kept inside a MSFT product.  Try scanning that file for viruses or filtering it for content after it's encrypted.  The only technology that will be able to do it?  Microsoft.  (Brings the Sybari acquisition into focus, doesn't it?)

It'll be tough selling ahead for AV vendors against the Microsoft alternative when they can scan Word docs or email and AV vendors may be literally locked out.   Doesn't stop there:  MSFT will be able to control intelligent storage, archive and retrieval, basically any intelligent management of the same material.

Fascinating play.  Short term revenue and long term significant competitive leverage.

A Unique Little Start-up

As a team here at Milestone Group we probably see 3,000 software deals in any given year.  Not too often you really run across a truly unique company, but here's one for you.  We don't bandy about the words 'truly special' lightly.

Met with the CEO of an early stage enterprise software start-up this past week:

• Revenue: They've been in business only 24 months and they just closed their second full year in operation with USD $6M revenues. 
• Customers: They have over 400 enterprise customers and have the most reference installations in a very interesting emerging software category.   Their customer list reads like a who's who of big established businesses globally; Nokia, Cisco, JP Morgan, BNP Paribas, Citigroup, Telstra, NASA, Pfizer, the United Nations. (No, it's not a security company!)
• Footprint: They have 25 employees and their product is being purchased in North America, Europe and Asia.   
• Funding: They haven't taking a penny of VC money (but VCs who run across them are BEGGING to get in), two co-founders boot strapped it themselves, and in fact are sitting on a very nice pile of cash; not a penny of debt. 
• Profitability: They are already profitable.  The business is consistently running at 50% profit margins. 
• Sales Model: Oh, what if I told you they never made an outbound sales call or in fact they don't even employ a single salesperson?  They believe, and have proven, great products sell themselves.  Raise prices?  Why?  Their attitude is keep prices low so they get more enterprise wide deployments.   Oh, their products are already in deployment in North American, Europe and Asia.
  
• Management: So who is the hotshot CEO?  An extremely sharp 25-year old with no prior blue chip software experience who thinks freshly and logically about building a software business.  Maybe he's on to something we can all learn from?

This one reminds me of the calf born with only three legs.  You stare at it in amazement, you know it has a chance to survive if you can keep the coyote's away until it matures.  you really want it to beat the odds.

Very early days, but reminds us of a very early SAS under Jim Goodnight.

Stay tuned.

Microsoft and Apple - The Oh So Retro Innovators....

Some very intruiging product strategies in the past few months.  First, Microsoft announces the acquisition of Sybari and that they'll have a subscription based anti-virus security product ala Symantec and McAfee  (shipping late 2005) .  Most analysts and researchers concur that MSFT won't be stealing market share but in fact hoping to walk away with a disproportionate share of new desktop growth in the AV market.  Second, in a bizarrely unrelated announcement, Apple announced Monday they are abandoning IBM for Intel processors.  (Mactel anyone?  Note to Wintel users: don't look down the noses of Mactel users, time not to act like technology prima donna's, we knew they'd come around)   Two bold moves by self proclaimed innovators, uh 20 years too late maybe?  Imagine a world where each had done this in 1985, not 2005?  Talk about waiting to see the direction how the market develops.   Humorous too when you think about how 'innovative' Microsoft and Apple both claim to be.  I bet if Bill Gates kid or Steve Jobs kid turned up at my kids birthday party they'd be easy to spot, they'd be the kid re-gifting...

Driving Too Fast With A Poodle In Your Lap

Ever see those people driving down the road with a poodle in their lap?  You want to keep watching because you know you're just about to see an accident?  (OK, you also want to laugh...)  We see a lot of software  companies driving down the road with a poodle in their lap!  From a product standpoint, too many companies have too many products (really just features?), that when separately packaged they make no sense; worse they confuse prospects and existing customers alike.  There is the enterprise edition, the 'pro' version, solutions specifically tailored for vertical markets, the run-time version, the developer edition, the proof of concept version, the 'lite' version, the workgroup version, the server version, and our favorite, the 'team' edition.  There are tuning packs, upgrade packs, diagnostic packs, configuration management  packs, server migration packs.  You name it.  Remember the 80/20 rule?  The Pareto Principle?  80 percent of your revenue is going to come from 20 percent of your products.  Complex product suites confuse prospects, resulting in lost sales.  You better figure out how to get that poodle off your lap before it bites you.

Microsoft Bolsters Real Time Collaboration Functionality

We don't usually get too excited about new products from Microsoft, but in this instance, we'll make an exception.  Microsoft has announced  a suite of real time collaboration products that are accessible within Office that are very impressive.  Microsoft Live Communications Server 2005 has been upgraded with new features, such as connectivity to AOL, Yahoo and MSN instant messengers (IM); federated IM with external partners and customers; and integration with SharePoint and improved management and administrative tool support.  The highlight of the announcement was the client piece, Microsoft Office Communicator 2005, which ties together communications capabilities, such as IM, presence awareness, notifications, voice, video and VoIP with productivity applications.  Communicator is integrated with Outlook and Exchange Server, and via a PBX or PSTN gateway allows users to control their office phone and, based on preferences, to route calls to their cell phones or other destinations.   Imagine accessing LiveMeeting (formerly PlaceWare web conferencing) with Skype-like VoIP functionality, integrated with IM presence, and also the ability to control office and cell phones - all unified within the Office environment, all one click away.  We can speculate that with the recent Groove acquisition, Bill Gates and Ray Ozzie will also have their eyes on how to incorporate workgroup collaboration into Office.

Microsoft Office now has an installed base over 500 million desktops worldwide.  Live Communications Server 2005 could finally be the basis of some breakthrough technology that moves Microsoft beyond it's Windows and Office franchises.

Microsoft is certainly not an innovator - Xerox PARC had Windows-like technology well before MSFT, Netscape Navigator  preceded Internet Explorer (IE), Lotus 1-2-3 preceded Excel, WordStar preceded Word, Harvard Graphics preceded PowerPoint, etc.)  What Microsoft is world class at is pursuing, then dominating, growing technology market sectors.  Call it a fast follower strategy.  Live Communications Server 2005 looks to be game-changing technology in the real time collaboration and web conferencing spaces.