Don Dodge on The Next Big Thing

Powerset - Open Source approach to beat Google

Powerset is slowly coming out of stealth mode. Dan Farber at ZDNet has an excellent in depth story on Powerset and PowerLabs, their approach to including the community in developing and QA'ing the Powerset search engine index. It is a novel idea, empowering of the open source community to join the fight to beat Google. Open Source contributors love to join a crusade, contribute their skills, and change the world.

Steve Newcomb, co-founder of Powerset, said in the ZDNet story; “We want as many people in Powerlabs (as possible) to help us build and test the product. Powerlabs tells us when we are ready to go. We could have 50,000 people QAing our product,” he added. So far Powerset has 10,000 Powerlabs users. “Imagine how many widgets that could sit inside of Facebook, MySpace and even Second Life. It gives us the ability to launch with an extremely passionate set of people.”

Powerset is using linguistics and Natural Language Processing (NLP) to better understand the meaning and context of search queries. But the real power of Powerset is applied to the search index, not the query. The index of millions of web pages is indexed in the traditional way but they also analyze the pages for "semantics", context, meaning, similar words, and categories. They add all of this contextual meta data to the search index so that search queries can find better results.

Who is the best ballplayer of all time? Powerset breaks this query down very carefully using linguistic ontologies and all sorts of proprietary rules. For example, they know that "ballplayer" can mean Sports. Sports can be separated into categories that involve a "Ball". Things like baseball, basketball, soccer, and football. Note that soccer does not include the word ball, yet Powerset knows this is a sport that includes a ball.

Powerset knows that "ballplayer" can mean an individual player of a sport that includes a ball. They know that "best of all time" means history, not time in the clock sense.

Why hasn't this been done before? Powerset uses all these rules and linguistic approaches to analyze millions and billions of web pages, and adds "meta data" hooks into each word on each page. As you can imagine this is a huge scaling problem, that has been impossible to solve economically. With Moore's Law applied to constantly reducing the cost of computing, storage, and bandwidth, it is now possible to solve this problem, and within a few years it will be economically viable. Powerset may sustain some losses in the early years but economics and scale are on their side.

Remember, "Why 1% of search market share is worth over $1 Billion" This is a huge market with staggering growth. Powerset is banking the lowering cost curve and the growing revenue curve. Both curves are moving fast. Grabbing 1% of market share can pay for a lot of early costs.

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MySpace and Facebook struggling with social network business models

MySpace is now saying in a Financial Times story that they will follow Facebook's lead and allow developers to build widgets and apps for their platform...and consider allowing the developers to get some advertising revenue.

But all is not well in Facebook land. Over at Valleywag an anonymous developer complains that Facebook changed the rules on them. Facebook has made it much harder for users to virally spread widgets and apps. The developer says;

Facebook made a small tweak in this process that has had dramatic effects in stunting the potential viral growth of apps - they started preventing users from inviting more than 10 friends to the app in any given day. This seems like a small deal, but it is enormous in its impact. Most people on Facebook have over 100 friends, and were inviting all of these to the service. Now, with the restriction of inviting 10 friends, the barrier to going viral on Facebook is exponentially higher (particularly because in general only 10% of people join a service when invited, meaning that exponential growth of the sort seen by the first few dozen apps on Facebook is nearly impossible).

MySpace and Facebook are struggling with explosive growth and how to monetize that growth while building a sustainable ecosystem. They want thousands of hackers and developers to build cool widgets and apps for their platforms, but they want to maintain their control over the platform, and keep all the revenues for themselves. Nice try!

Facebook says they will allow widgets and apps to include their own advertising. My guess is that will change when Facebook sees how much potential ad revenue they are losing. MySpace has refused to let widget developers do their own advertising. I wrote a while back that "Free services come with strings attached" meaning, they can change the rules at any time. Free services layered on top of other free services is not a sustainable business model.

In another post, The Remora Business Model, I talked about four different business models these widget/app developers could use. They are; Freemium (up sell), Sponsorship, Revenue share with host, and Syndication network. I discuss each model in more detail in that post. The point is that the traditional advertising model will probably not work for small widgets or apps, especially when they are tied to social network hosts.

Facebook and MySpace will eventually figure out a way to create a viable revenue model for widget/app developers. They need the developers to sustain their rocket ride growth. They will figure it out, but until they do developers like the one on Valleywag will get whip-lashed around. Many will be very disappointed. Proceed cautiously.

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Lijit and Me.dium gain VC funding -Colorado startups on fire

Lijit, the search widget for blogs, and Me.dium, a friend activity tracker, both closed rounds of funding this week. Lijit and Me.dium are both based in Colorado, home of Brad Feld, and up and coming startup hub. Brad was the seed backer of both companies.

Lijit raised $3.3M from Boulder Ventures.  I have written about Lijit and use it for search on my blog. See this post for more details about Lijit and widgets in general.

  Me.dium raised $15M, led by Elliot Katzman at Commonwealth Venture Capital. Me.dium is a funky new tool to track "attention", where your friends are congregating, and other similar web pages your friends are viewing. It is available on Flock and Firefox, and they are working on the Microsoft Explorer release now.

Disclosure: Both Brad Feld and Elliot Katzman are my personal friends.

The second week of July I will be visiting with Lijit, Me.dium, Newmerix, Electric Rain, Newsgator, and the TechStars group, all based in Colorado. TechStars is an entrepreneur boot camp and mentoring group started by Brad Feld, David Cohen, Jared Polis, and David Brown.

Colorado is an emerging center for tech startups. There are a surprising number of VCs located in Colorado and many excellent universities. I am looking forward to my trip to Boulder and Denver. I will file a report here after my visit.

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Powerset, Hakia, and Mahalo taking on Google

The New York Times, Sunday Edition, has a story "The Human Touch That May Loosen Google's Grip".  The NYT writer sets up the notion that Google can be toppled by using a quote from my earlier post "Why 1% of search market share is worth over $1 Billion" 

Even gathering the crumbs of business left behind by Google could generate a lofty market capitalization. Don Dodge, a Microsoft manager who works outside of the company’s search group, made this argument in a post on his personal blog last month: “Why 1% of Search Market Share Is Worth Over $1 Billion.” Mr. Dodge reasoned that 1 percent of the 7.3 billion searches performed in the United States in March, multiplied by 12 cents in advertising revenue per search, would yield annualized revenue of $105 million. Assuming a market cap that is 10 times revenue, his arithmetic leads to a billion-dollar company.

The story mentions Hakia and Powerset using Natural Language Processing to produce better results. The human touch is represented by Mahalo, a new search engine that uses humans to prepare search results for common queries.

Engines like Hakia, Accoona and Powerset are trying to grab market share by writing a more sophisticated algorithm. A growing number of entrepreneurs are placing their bets, however, on a hybrid system that puts humans back into the search equation. They are grouped under a newly coined rubric, “social search,” and it is becoming a crowded field.

Newcomers like Squidoo, Sproose and NosyJoe offer search results based on submissions or votes by users. Bessed also relies on users to suggest the best Web pages for a topic, but then has editors refine them. ChaCha gives customers the opportunity to have an online chat with a human being who can provide search assistance.

Mahalo now has pre-prepared pages for 5,000 terms related to entertainment, travel, health, technology and other subject areas. The company plans to expand its coverage to 10,000 terms by year-end, and eventually to provide results for one-third of the most common search terms.

There are hundreds of alternative search engines out there and more coming on everyday trying every imaginable approach to delivering better search. Charles Knight maintains and constantly updates a list of the top 100 alternative search engines. Here is a review of those companies and their approaches. Read these links for more in depth reviews of alternative search engines and new approaches to search.

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I have 400,000 users of my widget - Now what? Freemium potential?

Widgets are the coolest thing now. InsideFacebook has a story today about a guy who built a "Where I've Been" map widget that has attracted 400,000 Facebook users. Now he is struggling to pay for servers and bandwidth...with no revenue stream. he has basically built a free service layered on top of another free service, something I call The Remora Business Model. The remora is a type of fish that attaches itself to a larger fish like a shark or even a boat. It rides along with its host and feeds on whatever comes by. The remora can also detach from its host, swim on its own, and survive. Can widgets survive separate from their host? 

What are widgets? I have several examples of widgets on my blog; things like Lijit (search), MyBlogLog (readers photos), Feedburner (subscriptions) , Sitemeter (traffic stats), and Criteo (blogroll). Other examples are things like stock tickers, news feeds, and of course, Google's AdSense widget which delivers ads to web sites and blogs.

MySpace and Facebook are huge social networking hosts that are attracting lots of widget builders. Some of the widgets are gaining hundreds of thousands of users. Great, but how do you convert those users to revenue? MySpace and Facebook will not allow the widget guys to put advertising in their widget. It is somewhat impractical anyway since widgets are typically small 2X2 applets with no room for an effective advertisement.

What is the business model for widgets?

• The Freemium model, upselling from free to premium services seems to be the best bet, at least for now. Many of the widgets provide a free service with options to buy premium services such as more detailed traffic statistics, more powerful services, enhanced customization, or higher levels of service.
• Sponsorship might make sense. A simple "Sponsored by Big Company" tagline across the bottom of the widget might fit well. I don't see how larger advertising units would work for a small widget, and I doubt the "hosts" would allow it.
• Revenue sharing with your host - Facebook and MySpace don't need to share their advertising revenues with the widget guys, but a smaller social network might want to. If I were the owner of a social network and wanted to build an ecosystem of developers building cool widgets on my platform I would indeed share some advertising revenue with them.
• Syndication network - If your widget distributes content widely,, think YouTube, then the content owners might want to pay you to get their content on your widget.

What other business models make sense? If you can't do advertising, and you haven't figured out any premium services to upsell, what can you do? Clearspring takes a completely different approach. They are a widget network that allow content providers (video, image, text) to use the widget to distribute, control, and monetize their content. Clearspring makes money from content owners that want to use their widget, not end-users that want to play with it.

Do you have any other ideas on revenue models for widgets?

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Vista more secure than Linux, Apple OSX, and Windows XP

Jeff Jones, Director of Trustworthy Computing at Microsoft, has released a very detailed report comparing the vulnerabilities reported and fixed, in the first 6 months after release, of each of the major operating systems. Vista is the most secure operating system ever released.

Microsoft took a lot of heat for delaying release of the Vista operating system, but it has paid off in terms of security and defending against hacker vulnerability.

Vista is more secure than Red Hat Linux, Apple OSX, and even Windows XP. The Linux and Apple fans will be sure to rant and object, but not with facts, just opinions. This report is very detailed, includes actual reported facts, and even strips out some bugs associated with Linux add-on software, so there is a fair "apples to apples" comparison. The report is fair and comprehensive.

Vista is more secure than Windows XP. That is the real measure of success. Linux and Apple OSX do not have much market share, so they don't attract hackers as much. Vista is attacked by all the worlds hackers because it is the biggest target. Given that exposure it is even more impressive that Vista is the most secure.

The Linux and Apple OSX fans will never be convinced, so it is irrelevant to them. It is however, nice to see a report based in facts, rather than the fanatical and biased opinions we often hear from the Linux crowd. One bright spot, Jeremy's Blog, a blog written by a Linux and Open Source evangelist, says;

This report indeed does a better job than some from a methodology standpoint. For instance, he didn’t simply compare a default RHEL install, which includes a full Office suite and a whole host of apps not found in a default Windows install, with a default Windows install. He attempted to rip out the packages from the Linux installs that he perceived as being extra functionality when compared to a Windows install. This gives a much better baseline.

Flame wars are likely to erupt, but to be fair, demand equal attention to detail and supporting facts, and ignore the fanatical opinions.

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Silverlight on Linux - Miguel de Icaza's moonlight project

Miguel de Icaza, Open Source developer of Mono, has turned his attention to working with Silverlight on Linux. Miguel and his team worked 21 straight days to build a demo of Silverlight on Linux for the Mix07 Paris  show going on now in the city of lights.

Miguel's team did an outstanding job. He has a day by day review of what they did and how they did it on his blog. This quote from Miguel, an Open Source and Linux developer, summed it up for me;

Needless to say, we believe that Silverlight is a fantastic development platform, and its .NET-based version is incredibly interesting and as Linux/Unix users we wanted to both get access to content produced with it and to use Linux as our developer platform for Silverlight-powered web sites.

Miguel and his team built a Silverlight Airlines demo that shows how you can make an airline reservation, put it in your calendar, and see the flight path on a world map. It lets you compare flights and make changes. You would have to see it to understand the power and flexibility of the application and how Silverlight makes it easy and beautiful.

The Mix show, first seen in Las Vegas, is traveling the world. Today there are Mix sessions in Paris and Silicon Valley, and more planned over the next several months.

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Marc Andreessen's big company turn around plan - Yahoo are you listening?

Marc Andreessen of Netscape fame has started blogging and has written a series of very insightful posts.  Today he writes "A Guide to Big Company Turn-arounds" which reads like a blueprint for how to turn around Yahoo (YHOO). Marc cites Hewlett Packard (HPQ) as a good example of how to do it, but the "guide" could be applied to any big company in trouble.

Marc outlines 9 steps to a successful turnaround. Please read his whole post, but here are 9 steps, with my short explanations. Marc goes into more depth in his post;

1. Go dark and execute - meaning don't talk to the press, just focus on getting the next 8 steps done.
2. Throw your predecessor under the bus - meaning blame your predecessor for everything and warn that it will take a year to fix everything.
3. Identify the 3-5 things that are working surprisingly well and double down on those. - Big companies have lots of products and projects. You can usually find some hidden jewels if you look really hard.
4. Identify the 3-5 things that are consuming lots of time and money, yet going nowhere, and kill those. This is critically important, otherwise it will be business as usual. Note, there may be more than 3 to 5 things that need to be killed.
5. Lay off a third of the work force. Tough but necessary. I was at DEC back in 1990 when layoffs happened every quarter for several years. There is nothing more debilitating and demoralizing than constant layoffs. Cut once and cut deep.
6. Reduce layers of management, then promote the "up and comers". Lets face it, the company got in this predicament because existing management was clueless. Get rid of them and promote some bright people who want to make good things happen.
7. Figure out the single most important thing your company must win, and put your single best person in charge of winning it. This step is strategic. The most important thing may not be one of the 3-5 things that are going well. You double down on those things to create some success and time to execute on the ONE thing that is absolutely essential to winning.
8. Look for 3-5 areas where your company is not playing or winning, but is clearly growing fast. Acquire the best company in that space. This will be expensive, but don't settle for the 3rd or 4th best company. Pay up and acquire the best. This will be your rocket fuel for growth.
9. In six months relaunch the company with a single, crisp, coherent, strategy and message. Then go dark again and execute on it. Sounds simple enough but most CEOs get consumed by the depressing details and forget to do the simple things.

Turning around a big company with 5,000 or more employees is a very difficult task. A new CEO from within the company will have a difficult time doing what is necessary. They were part of the problem and will have a hard time reversing some of the earlier decisions.

A new CEO from outside the company will not be constrained by prior decisions, old friendships, or pet projects. Making the deep cuts and canceling projects will be much easier. Sacred cows and long held beliefs will be open to re-examination.

Marc explains that big company turnarounds are very different from small company get well plans. One of the nice things about big companies is that they have a momentum that can sustain them. This is both good and bad. The trick is to find the "good" momentum and kill the "bad" momentum. The problem is that they don't walk around with signs identifying themselves as good or bad.

Small companies don't have the cash flow and momentum to carry them for a year while a new CEO figures out what to do. Small companies require immediate and decisive action. Cash is king in all decisions. Small company turnarounds usually focus on cash and customers first. Small companies may not have 3 to 5 things to promote and 3 to 5 things to kill. They may have only one thing...and you better make that one thing work in a hurry. I actually think it is harder to rescue a small company than a big company. But, the financial rewards for turning around a big company are insanely rich. Steve Jobs can tell you about that.

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Microsoft - a friend to startups

My job at Microsoft is to help startups be successful by building a partnership with Microsoft. Today at Joel on Software a contributor wrote about his experience as a one person startup and how Microsoft helped him get going. Here is a snippet from his story;

Now I'm looking back on how I started off. I needed Visual Studio and Microsoft Office. Plus I needed old versions of Office and several localized versions of Office for testing. At the time Virtual PC wasn't free. I couldn't afford to keep buying boxed package software all the time.

Fortunately I signed up for Microsoft Empower and for, I think, 300 USD got a full MSDN subscription. On top of that because of my Windows Marketplace listing I got a small, constant stream of customers. Over time my software product got mentioned in a Microsoft help file, which again gives me a constant stream of orders.

I generally feel that Microsoft helped me (a 1 person software band) succeed in so far as my software product is now the number one choice for a certain niche.

His story and the comments from readers prove that Microsoft really works hard to help startups, small ISVs, and developers from any size company, get what they need to be successful.

I wrote a blog a while ago "How to Partner with Microsoft" that explains many of the programs and resources available for free, and links to sign up. Here are just a few of the programs;

Get free software and support. The Empower Program for ISVs helps new software companies get software, consulting, and MSDN subscriptions for the low price of just $375. The software alone is worth over $10,000.

Join the ISV community. Microsoft has a special ISV Zone for software companies. Find partners, get leads, get beta software, and get involved in the community.

Microsoft Startup Zone. If you are a startup you should visit the Microsoft StartupZone. The StartupZone is managed by the Emerging Business Team which is focused on helping startups build a relationship with Microsoft.

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Chuck Thacker, Butler Lampson, Jim Gray - legends in their own time

  Chuck Thacker, Microsoft Research Labs, was just awarded the IEEE John von Neumann award for outstanding achievement in computer science. The prize is given annually by the Institute of Electrical and Electronics Engineers (IEEE). The group cited Thacker for playing a "central role in the creation of the personal computer and the development of networked computer systems."

Many years ago I had the privilege of working with Chuck every day at Digital Equipment Corp's research labs in Palo Alto. Those were the days. Chuck Thacker, Butler Lampson, and Jim Gray all worked for DEC at the time, and later all moved to Microsoft. Butler Lampson won the same IEEE award in 2001. Jim Gray won the Turing Award in 1998, often referred to as the Nobel Prize for computing. These guys are giants in computer science. I am honored to have worked with them.

Chuck Thacker was involved in inventing many of the fundamental computing technologies we all use today. Things like the first personal computer (Alto), the first laser printer, the first cable modem that allowed Internet over cable TV wires, and the first Tablet PC. Chuck also worked with Bob Metcalf at Xerox PARC where he developed Ethernet networking, and the first computer time sharing system.

A few months ago I found this really revolutionary company, Nantero, that is developing semiconductors and microprocessors based on carbon nanotube technology. I know nothing about semiconductors so I asked Chuck to take a call with Nantero. Chuck understood the technology in about 2 minutes and then proceeded to deep dive on processor geometry, manufacturing techniques, the laws of physics, and probable market applications of the new technology. Wow! This guy knows something about everything.

The DEC research labs also employed other computer science legends of lesser fame. Louis Monier and Mike Burrows were the inventors of the first web search engine. I had the pleasure of working with both of them at AltaVista. They now work at Google.

Congratulations to Chuck Thacker on a lifetime of achievement in computer science.

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