Don Dodge on The Next Big Thing

Web 2.0 Bubble - Now entering Stage Two

Bubbles always burst. It is just a question of when, and who gets hurt when they do burst.

TechCrunch says that Automattic (Wordpress) turned down a $200M offer. Read/Write Web says Plenty of Fish, an online dating site, may be worth $1 Billion. Last week Facebook had an implied value of $15 Billion. Not to be left out of the Web 2.0 frenzy, BEA  turned down a $6.7 Billion offer. And New York Magazine says, it may be a bubble but New Yorkers should embrace it. There are lots of good reasons to turn down acquisition offers, and it doesn't necessarily signal that we are in  bubble, but it should give pause for serious thought.

Entering Stage 2 - Bubbles go through predictable cycles. Bubbles emerge from the ashes of despair. It takes a while to gain momentum but eventually greed overtakes fear and we are off on another bubble adventure. The first stage of a bubble is when most smart money declares we are NOT in a bubble...it is different this time. The second stage is more dangerous. Many people agree that we are in a bubble, but it will last another year or two, and there is still money to be made. The third stage is when the bubble has burst but most people are in denial and think it is a temporary set back. The fourth stage is when everyone agrees the bubble has burst and life will never be the same. My guess is that we are now entering Stage Two of the bubble cycle.

I have written about bubble cycles before. My favorites are; "Bubble or normal failure scenario?", and "I'll trade my two $50K cats for your $100K dog", and of course "Fear is temporary, greed is permanent"

Bubbles are always different and play out on different time lines...but they all end the same way. Where we are in the current cycle is debatable. But as Mike Moritz of Sequoia Capital said at the recent Web 2.0 Conference

“The great news for me about these times of enthusiasm is that inevitably there’s a lot of bedlam, undoubtedly there’ll be carnage, there’ll be all sorts of carcasses strewn across the road. But there will also be a handful of companies that will emerge to become very significant. And that’s what working and living and investing in Silicon Valley has always been about.”

Mike Moritz (Sequoia) and John Doerr (Kleiner Perkins) have been very successful navigating through these cycles. The interesting thing is that smart entrepreneurs and investors can succeed at each stage of the cycle. There are always inefficiencies in the market and unmet needs. That is indeed what makes this business so much fun. Good luck!

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The Eagles shun labels, go direct with Wal-Mart

The Eagles join, Madonna, Nine Inch Nails, Radiohead, and others in dropping the record labels and going direct to consumers. The Boston Globe has an excellent original story about The Eagles decision to ignore the record labels and instead make a deal with Wal-Mart to be the exclusive distributor of the CD. Don Henley, lead singer of The Eagles, told the Boston Globe;

"This just makes business sense," says Don Henley. "With the disappearance of large record store chains, Wal-Mart is now the largest CD retailer in the world. And if people don't want to buy from Wal-Mart, they can buy directly from us at the website."

Napster was ahead of its time - Back in my Napster days there were several big name artists interested in working with Napster to sell their music directly to customers. They were tired of giving up the vast majority of their CD sales revenue to the big record labels. Even the most successful music acts only got about $2 from every $20 CD sale.

Those artists who wanted to work with Napster were still under contract to the big labels. As soon as their contract expired they wanted to go direct with Napster and sell their music for $1 per song...a lot better that $1 to $2 per CD in royalties. Madonna, Green Day, Limp Bizkit, MC Hammer, Courtney Love, and several other artists talked to Napster about doing a distribution deal.

The record labels are failing to adapt to the new realities. They have had 7 years to figure it out and for the most part they haven't changed a thing. They are still suing their customers, charging high prices for CDs, and giving the artists meager royalties. With big names like Radiohead, The Eagles, Madonna, and Nine Inch Nails make announcements like this it signals a significant change in the music business.

Napster lives...7 years after its untimely death.

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Facebook friends? Defining moments ahead

Facebook is the social network taking the world by storm. It is truly amazing, and I think it is here to stay...not just a fad. However, I think college students have a different definition of "friends" than I do, and different ways of "knowing" people.

Facebook changes needed - Facebook is still a very young social network service in the process of transforming itself into a business. They have done an amazing job so far, and there are lots of plans for the future. Every young company at some point goes through an identity crisis. Who is their target customer? What do they aspire to be? How will they remain unique and competitive? Facebook hasn't faced these issues yet. There will be "defining moments" when they do.

Who are these friends? Maybe I am old fashioned, but I only accept friend requests from people I actually know, have met, or exchanged email with. On LinkedIn I have around 600 real friends and business associates that I have come to know over the past 20 years. On Facebook I have around 200 real friends. I do not understand why people send "friend" requests to people they don't know. And, when I try to figure out if I am somehow connected to them...they have no profile information, and sometimes no picture. I have 50 friend requests like this. I am too polite to "Ignore" them so I just leave them in the queue. Shout out to Alisha Wright. You are absolutely beautiful, but I don't believe I have ever had the pleasure of meeting you in person or online. How do I know you?

Another problem is the "How do you know this person" process. Facebook provides a list of possible ways you met this person...none of which fit my experience. So, I always click "Skip this step". They could add some choices like; "met online", "met at a conference", "met through mutual friends", or "met at a meeting".

Snagit -  This post gave me the opportunity to try Snagit, a screen capture tool. It is available for a 30 day free trial. I saw my friend Dan Farber, editor at Cnet and ZDnet, using it at a recent conference so I thought I would try it. Pretty cool. Thanks, Dan.

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The kinder and gentler Microsoft

Microsoft has changed a lot in the past 5 years.  In fact, new employees, hired in the last 5 years, out-number all employees hired previously. Ray Ozzie, who I worked with at Groove Networks, has taken over for Bill Gates as Chief Software Architect for all of Microsoft.

Dan'l Lewin, who I work for now, leads Strategic and Emerging Business at Microsoft. Dan'l was one of the early employees at Apple, and a co-founder of Next with Steve Jobs. Dan'l joined Microsoft in 2001 and now heads the Silicon Valley campus with over 2,000 employees.

Microsoft is working hard to build partnerships with VCs, startups, and entrepreneurs by sharing information and helping them succeed. Microsoft is also making its Silicon Valley campus available to outside organizations for meetings and conferences.

Today the San Jose Mercury News ran a story about Microsoft's investment in Facebook, and Silicon Valley's changing perception of Microsoft as a positive force and partner. It is nice to see a good story about the positive things we do. Here is a snippet from the story;

The Facebook deal adds to the remarkable evolution of Microsoft's relationship with Silicon Valley. Reputations die hard, but Microsoft is now embraced as a participant in the valley's business culture as never before. Three years after it paid $1.6 billion to settle antitrust and patent litigation with Sun Microsystems, Microsoft is credited with developing closer relationships to other companies, venture capitalists and entrepreneurs.

With about 2,000 employees and growing, Microsoft's campus in Mountain View is hardly a little satellite operation, and includes such key groups as Internet television and digital games.

Microsoft's involvement in the valley extends beyond business. The company and its employees have become a leading supporter of valley charities, as well as institutions such as the Tech Museum of Innovation in San Jose.

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At the NYSE WF360 Summit with Ceslie Armstrong and Keith Reinhard

Last night I was at The 360 Summit held at The New York Stock Exchange (NYSE). Francois Gossieaux and Susan Bird invited prominent bloggers to attend and join the conversation.

There was a cocktail reception on the trading floor of the NYSE. It was interesting to see the real thing in person and meet some of the people behind the scenes. Security was incredibly tight. The streets around the NYSE are closed to traffic with security guards everywhere. But, once inside we were able to explore anywhere we wanted to go.

Catherine Kinney, President & COO of NYSE-Euronext, gave a dinner speech about the history of the NYSE and its transformation into a global exchange. The NYSE recently merged with a French exchange to form EuroNext. The NYSE is on an aggressive plan for diversification and globalization. Interestingly, Catherine mentioned that every high tech IPO this year except one has listed on the NYSE, and 80 of the top 100 companies in the world are listed here.

Ceslie Armstrong of The Womens Network sat next to me at dinner. Ceslie has been a writer or editor for many of the top fashion magazines including Glamour, Cosmopolitan, In Style, and others. I asked her if "The Devil Wears Prada" was a realistic characterization of the fashion magazine world. To my surprise she said it was largely true, and the story was based on a real fashion magazine editor. One interesting tidbit; Ceslie said that the March and September magazine issues pay for the rest of the year. Ceslie left the fashion magazine business and started an online web and video network called The Womens Network. Ceslie jokingly referred to herself as "The Geek Who Wears Prada".

Keith Reinhard, (seated left in photo) Chairman Emeritus, at DDB Worldwide, a global advertising agency, was also seated at our table. Mr. Reinhard has taken on a new challenge leading Business for Diplomatic Action, a task force of business leaders focused on improving the image of America. As Keith said, it has never been worse. There are significant issues that need to be addressed, and others that are misconceptions. The group is focused on two things; work to change the issues that are true, and change the perceptions for those issues that are not true. Keith mentioned one startling statistic; 1% of world travel market share is worth $12.3 Billion. The image of America is important to all businesses, but especially the travel business. Learn more about how you can get involved at Business For Diplomatic Action.

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Microsoft quarterly earnings and stock price up

Microsoft (MSFT) reported strong results for the September quarter with revenues up 27%. This is the third quarter in a row with revenue growth of 20% or more. Larry Dignan at ZDnet says " Can't we give Microsoft some props?". Paul Graham and others have suggested "Microsoft is Dead" which triggered my reply "Since when does growing $4 Billion a year = dead?".

How about $8 Billion revenue growth? Let me revise that. Microsoft will grow by about $8 Billion this year, from $51B last fiscal year to a projected $59B this year. That is over 15% annual growth on a very large base. Let me put $8B of growth into perspective. Just the growth ($8B) is more than the total revenues of Yahoo (YHOO), and more than Adobe, BEA, Facebook, Youtube, and MySpace combined.

The Big Three - Again this quarter the big three business units contributed most of the revenue and profit. Multiply these numbers by 4 quarters to get an idea of the size of these businesses;

• Windows Client (desktop) $4.1B
• Microsoft Business Division (Office) $4.1B
• Servers & Tools $2.9B
• Entertainment (xBox, Halo) $1.9B
• Online Services $671M

There were several key milestones this quarter. Microsoft acquired aQuantive ($6B) to make a big move into online advertising. Halo 3 had the biggest launch in entertainment history. Microsoft made a $240M investment in Facebook. And, Microsoft Entertainment and Devices division turned a profit this quarter.

Yes, Larry, I think it is OK to give Microsoft some props. TechMeme has a good collection of stories on Microsoft's earnings announcment.

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Mark Cuban and Jane Seymour are class acts

Mark Cuban's run on Dancing With The Stars is over. He had a great time, is in the best shape of his life, and experienced many wins. He wrote a blog about his experiences and thanked everyone for their support.

Jane Seymour is my new favorite dancer on DWTS. I was talking with Mark this morning and suggested he add meeting Jane Seymour as another "win" to his list of positives from DWTS. I asked "Is Jane Seymour the classiest lady you have ever met? I don't know anything about her, but if her personality matches here elegence and beauty...she is quite a lady" Mark agreed. She really is a lovely person.

OK, that does it for me. I am voting for Jane Seymour the rest of the way, and invite all of you to join me. You can vote on Monday night at the DWTS web site or by calling 800-868-3406. I will post the number here when I find it.

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Microsoft acquires stake in Facebook - Techmeme has 151 stories

Microsoft will pay $240M for a 1.6% stake in Facebook valuing the company at about $15 Billion. TechMeme has 151 news reports covering every possible aspect of the story. When is the last time you remember seeing 151 stories about Microsoft at the top of TechMeme?

Sending a message - This investment, in my view, is about setting a tone for the company, and sending a strong message to advertisers, publishers, employees, and investors, that Microsoft is serious about being a leader in on line media. The investment sends a message to every Microsoft employee that we will invest aggressively, try new things, and push the business into new areas. Don't underestimate the value of this message. It emboldens the entire company to get aggressive, stretch the boundaries, think outside the box. The message has ripple effects outside the company.

This isn't about valuation. Some will argue that Microsoft paid too much for a small 1.6% stake. Time will tell. But, that isn't really the point. Think about the strategic value of being the exclusive provider of advertising to a premium property like Facebook. Think about the possibilities for future cooperation on things like search, instant messaging, games, email, video, music, etc.

Strategic value - Investing to gain strategic advantage is an interesting and subtle art. There are lots of angles, future possibilities, and financial intricacies. Think about this. Which would you do; invest $1.5B for 10%, or $240M for 1.6%? Both value the target company at $15B, so you might ask what is the difference? Ask yourself this question "Do I get more strategic value or influence with $1.5B than with $240M?" My guess is that you get the same amount of influence, access to decisions and people, with $240M as you do with $1.5B. So, why not reduce your cash outlay and risk by only investing $240M?

Partnerships always start small, in areas of mutual interest. Once partners become comfortable working with each other new areas of cooperation will become obvious. How much is that worth? I don't think anyone knows now, but time will tell.

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Google, Verizon & Microsoft on 700MHz wireless spectrum auction

The battle for the 700 MHz wireless spectrum has begun. It is both a business and political battle, while the issues are very technical. The US governement is holding an auction in January to sell off the most valuable wireless spectrum ever available, raising as much as $10 Billion dollars. It is a once in a lifetime opportunity for several reasons. The 700 MHz issue was raised at the CTIA conference.

More powerful and cheaper to deploy - The 700MHz spectrum is more powerful than the current cell phone spectrum, can go through walls much easier, and it is cheaper to deploy. Because the spectrum is more powerful it requires fewer transmitters and towers, making it much less expensive to build out a nationwide network. We are talking 50% less, ore eveen 70% less.

Why is this political? The government decides what gets auctioned, when, and under what rules. The incumbent wireless carriers (Verizon, AT&T, etc) want to own the spectrum and use it the same way they currently do for other cell phone spectrum. Google and others want in on the action, and want to change the rules of the game.

Why is Google interested? Google wants to buy the spectrum for up to $5 Billion dollars and make it available in much the same way that the Internet is available today. Everyone can access it, but you do need to pay. Here is how The Register describes Google's intentions;

"Google doesn't want to run its own wireless network. It wants to sell spectrum to third-party ISPs, hoping to finally create some competition in the broadband internet market. That's the broadband market as a whole, not just the wireless market. Remember, the likes of AT&T and Verizon control not only the airwaves, but all those wired lines as well."

What will Microsoft do? Microsoft is interested in seeing the Windows Mobile OS on as many cell phones as possible. Microsoft is a software platform company, not a wireless infrastructure company. In response to a question at the CTIA conference, eWeek reported that Steve Ballmer said

"No, we don't have plans to participate in the spectrum auction," said Ballmer, to audience applause. "We may be broader in what we do than any company, but we have a core competency. And we think the telecom industry has a core competency. It takes a real expertise to set up networks, to invest in capital expenditures, to provide customer service 24/7—that is a core competency. What would it buy us to own a piece of the spectrum? It would probably alienate us."

How much will it cost? Buying the wireless spectrum will cost at least $5 Billion. It will cost another $4 Billion or so to build out the network infrastructure, transmitters, etc. Then it will cost another $1 Billion or so to build the network services and control infrastructure. So, we are talking at least $10 Billion to make this spectrum available to the public. With that much invested any company will need a pretty good business model to get a return on investment. This is a complicated issues with lots of business and political ramifications. TechMeme has aggregated lots of stories on the subject.

John Doerr of Kleiner Perkins has been working hard to make this wireless spectrum available to anyone...just like the Internet. If you look at the rate of innovation on the Internet compared to the rate of innovation on the cell phone network you can see why this is important. US government regulation and monopoly ownership of the wireless spectrum is the single biggest reason why the US lags behind the rest of the world in cell phone technology and usage. Maybe the rules do need to change.

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Why Google will fail in enterprise software

Google has done a great job with web search for consumers, but what about enterprise search? Will Google Docs and Spreadsheets succeed in the enterprise? I don't think Google will succeed in the enterprise. Why? Customer Support.

Have you ever tried to call Google Customer Support? Hmmm...have you ever tried to find the phone number? I can't find one. Have your ever tried to email someone in customer support? Good luck. Google's famous 24X0 support is all self service. Search for an answer in the Help database or submit a question to the discussion forum and hope someone else answers it.

Google acquired FeedBurner, the RSS feed service. As you may have read in my previous post "Google Reader RSS feed messed up?" some of my readers are having problems reading my feed in Google Reader. I have searched for solutions to the problem and have tried to submit help requests. Very frustrating. Will enterprise customers put up with this? No way.

Can Google fix their Customer Support problem? Yes, Customer Support isn't rocket science, but perhaps that is why Google doesn't value it. Google will need to change its attitudes and values to embrace customer support as an important service. Will they? They haven't yet. Take a look at these two examples of poor customer support.

Feedburner Support? Here is what you are faced with if you need help on Feedburner. Note the "neat-o" help form, their words, not mine. Great if your problem fits into one of those three areas. If not?...good luck.

OK, so they don't offer telephone support, and if you want to use their "neat-o" form...you have 3 choices; transfer your feed, complain that someone else is using your feed, or cancel your account. What do you do if you need help with a feed problem? Go to the discussion forum and hope someone else will help you.

Google Reader Support? Next I thought about getting help from the Google Reader team. Hmmm...self service anyone? Again, I don't think corporate customers will put up with this lack of support. Here is what I found. "We will not necessarily respond to your message". OK, we are off to a great start here :-(