Don Dodge on The Next Big Thing

Apathy rules! Most people don't care

Apathy is everywhere...in business, in politics, and in life. There were several reminders this week. More people voted for American Idol (63M) than voted for George Bush (62M). Ken Lay and Jeff Skillings of Enron were finally convicted this week after destroying Enron and the pensions and life savings ($2.1B in pensions) of its 5,600 employees. Where was the Board of Directors?

Home Depot CEO Robert Nardelli was paid $38.1M last year, and $245M over the last 5 years, more than $150,000 per work day. Not robbery like the Enron case, but unreasonable for sure. Some boards seem to think that executive compensation works like tips for your waiter at a restaurant. They get a 20% tip based on the total price/revenue. I'm sure you have heard the justifications about creating shareholder value and deserving a percentage of that. Sorry guys but that isn't how you should evaluate the performance of a CEO, and the appropriate compensation. That shareholder value was created by hundreds, maybe thousands, of dedicated employees, partners, retailers, etc. It was NOT created by the CEO alone, and in some cases it was created in spite of the CEO.

Some boards award ridiculous salaries and bonuses to CEOs who are LOSING money. Go figure. Again, where was the Board of Directors? People just don't care. Amazing!

Home Depot is a disturbing example of director apathy and malfeasance. The board of directors didn't even show up for the company annual meeting this week. They should be embarrassed, in fact they should be fired. The Tyco board was also asleep at the wheel allowing Dennis Kozlowski and his CFO to rape the company of hundreds of millions. Their case is on appeal. Sarbannes-Oxley was passed to make executives and boards more responsible for their actions...or in-actions. SOX is a real challenge for small public companies, and a hassle for all public companies, but something had to be done.

The Board of Directors of many of these companies are simply country club buddies that play golf together and really don't know much about the actual operations of the company. Take a look at the bios and resumes of some of these directors. You will many times ask yourself "what could this director possibly add to the discussion? What relevant experience do they have?" This is bad, but you might ask why aren't the major stock holders demanding changes? Major pension funds, private equity funds, and  mutual funds control big blocks of stock and could sway the votes when electing directors or adopting shareholder proposals. Yet, they sit on their hands.

The size of the American Idol vote shows where middle America's priorities really are. My assumption is that many of the 63M American Idol voters are too young to vote in presidential elections. But, it has long been the case that only about 50% of all eligible voters actually participate. And, it only takes 50% of those who do vote to determine the winner. So, we end up with a president chosen by 25% of the eligible voters.

Do bad things happen because there are so many bad people...or because good people don't care enough to stop it? I remember a final exam question from a college political science course. The questions was "Would apathy prevent another Hitler style revolution because they couldn't rally enough people to join, or would apathy allow a small minority to stage a revolution because the majority wouldn't care?"

I am still not sure of the answer to that question. What do you think? Do you care? :-)

Next post I will get back to our regular topics of entrepreneurship and technology. Sorry for the political/social diversion.

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Don Dodge Digest - top 5 stories

Here are the stories I have found interesting today.

Is Microsoft Dropping Cryptic Hints About A New Gadget?  The New York Times, and several other media outlets, are running stories about rumors of a new consumer device, code named Origami, from Microsoft.

The Web site, www.origamiproject.com, suggests that the introduction of a personalized mobile device that "will change your life" is in the offing, but gives no details. It promises an update on Thursday.

A video clip unearthed by bloggers on the Web site of the video production firm Digital Kitchen appears to be an advertisement for a hand-held, wireless touch-screen computer from Microsoft called Origami.

The Seattle P-I says this about Origami "Actors in the video used the device to listen to music through plugged-in earphones, access the Internet over wireless networks, edit and transmit digital photos, draw sketches, play video games, send messages and control media on a home PC from an outside patio."

Who says Microsoft doesn't know how to create marketing excitement and hype. Maybe a little Google envy? Personally, I have no idea if this is true, and don't care about rumors. I just find it fascinating that the blogosphere can get so hyped up over a rumor about Microsoft.

UPDATE: Robert Scoble knows, but isn't saying what Origami is, and suggests there is too much hype. The rumor is that an official announcement will be made on Thursday.

Google Payments - Look out eBay and PayPal, here comes Googlebase and GooglePay. This is a HUGE business today, and Google may be extending it into micro-payments, payments of a penny or less.

Bill Burnham writes about Google becoming the merchant of record taking in payments from customers and paying proceeds to vendors. Bill says "One point that I feel compelled to elaborate on a bit more is that Google is apparently the merchant of record in these purchases. This is very interesting.

In contrast, EBay has done everything they can not to become the merchant of record for transactions on its site.  Anyone who has purchased something on EBay knows that you settle up with the merchant directly, usually via Pay-Pal, and not through EBay.  In contrast, when you buy something via Google Base, you will pay Google who in turn will pay the merchant."

Google already has a very well developed payment infrastructure for its advertising business. Take a look at this quote from the Google blog "Over the past four years, Google has billed advertisers in 65 countries more than $11.2 billion in 48 currencies, and made payments to advertising partners of more than $3.9 billion. When one of our consumer services requires payment to us, we've also provided users a purchase option."

Angel Investment deal structure Brad Feld has a good post on considerations in structuring a seed stage angel investment before VCs are involved. There are two basic ways to structure the investment; Convertible debt with a discount and/or warrants,  and Preferred Stock. My experience is that the most common approach is convertible debt that converts to preferred stock on the next significant financing round. This makes it easier for VCs to enter later, and avoids the hassle of establishing a pre-money valuation, ownership percentage, liquidation preferences, etc. Let the VC lawyers do all that later.

Fred Wilson talks about a new service called  Personal DNA that is an online personality test somewhat similar to Myers-Briggs. The cool thing is that you can have other people you know take the test to evaluate you, and compare the results side by side, and even publish the results on your blog or web site. The test takes about 20 minutes, and might be a useful job interview test.

When I am bored I sometimes experiment by taking a test like this twice to see if I get the same results. Many of these tests ask such bizarre questions and offer seemingly unrelated multiple choice options. By the end of the test I have forgotten the questions and how I answered them, so when I take it a second time.... Try it sometime. It will give you a view into your multiple personalities...or perhaps the uselessness of such tests.

Can MySpace be Beaten? Robert Young from GigaOm writes "With nearly 60 million registered users, 15 billion page views per month, and more than 150,000 new users signing up every day, MySpace is that rare social networking contagion that keeps spreading and growing. Can this beast be stopped? Is there anyone out there that can challenge the leadership of MySpace?"

I wrote about MySpace last week and how my teenage sons are addicted to it. Rupert Murdoch's News Corp bought MySpace for $580M last year. They have big plans for extending the service into other areas and monetizing the audience. The big corporate influence could erase some of the edginess and coolness of MySpace...and create an opening for a new player. But, I wouldn't bet on it.

Don Dodge Daily Digest- Patent Lunacy

Balthaser wins patent for online rich media The US Patent Office once again issues a patent for the obvious, ignoring prior art, and setting off a new wave of patent lawsuits. The USPTO is severely undermanned to handle the deluge of patent applications that are increasingly complex and technical. This quote from Balthaser makes me want to vomit;

"The patent covers all rich-media technology implementations including Flash, Flex, Java, AJAX and XAML and all device footprints which access rich-media Internet applications including desktops, mobile devices, set-top boxes and video game consoles," Balthaser added. "Balthaser will be able to provide licenses for almost any rich-media Internet application across a broad range of devices and networks."

Patent office issues final rejection of NTP patent This is the patent NTP was using to shut down Blackberry. There were actually five patents involved and each one of them has been invalidated by the USPTO after the fact. However, several companies spent years and millions of dollars in appeals before finally getting the patents invalidated due to "prior art". Prior Art is a legal term for examples of technology that existed before the patent was filed. It looks like Blackberry is now safe to proceed with its business.

There are many examples of patenting the obvious, patenting processes, and overly broad patents. You might recall the EOLAS patent, which reminds me of the deadly virus, but is actually a patent that covers the way browsers respond to ActiveX controls. This one cost Microsoft $520M plus legal expenses. Again there was prior art but the USPTO ignored it. The result is that consumers now need to click on an ActiveX control widget rather than have it automatically invoke.

Here is another one covering the use of XML. Scientigo, tiny company in North Carolina, has two patents  (No. 5,842,213 and No. 6,393,426) covering the transfer of "data in neutral forms." These patents, one of which was applied for in 1997, are infringed upon by the data-formatting standard XML, Scientigo executives assert.

All software companies and web developers use XML in some way. This patent, if enforced, would have disastrous effects on web development. Once again the big software companies will need to spend millions defending against patents that never should have been issued in the first place. Only the lawyers benefit in this lunacy.

The message to software developers at big companies is clear. Patent everything you create, no matter how obvious or simple. The company can decide not to enforce the patent, but at least it will provide protection against other "patent trolls" who are always trying to extort money.

IBM, Microsoft, HP, and other big technology companies have always used their patent portfolio as a defensive mechanism. They very rarely take the offensive and sue another company. More commonly patents are used as bargaining chips to offset claims from another patent holder. Sad, but this is the way the game is played.

Don's Daily Filter

I am going to try an experiment publishing a daily reading list...the stories I find interesting each day. I read lots of blogs and lots of news stories, and monitor several new clipper services. Most of what I read is only mildly interesting. I will try to boil it all down to only the most interesting stuff. OK, here is my list for today.

Windows bumps Unix as the top server OS  Windows has been the market share leader in terms of units for several years but 2005 was the first year that Windows Server also was the revenue dollar leader. I remember 10 or 15 years ago when Windows was ONLY a desktop OS. It was hard to imagine using Windows as a server. Today many think the same about Linux. Watch out, history could repeat itself.

Got Favorites? Technorati now tracks 28.4 million web logs. The number of blogs is doubling every 5 months. Technorati has introduced a new feature called Technorati Favorites where you can list your favorite blogs. You can share your list, and perform searches against just your favorites. Services like Memeorandum, TailRank, Findory, Blogniscient, Megite, and others, are trying to help users sort through the millions of blogs to find the most relevant content. The major search engines can find anything for you, but they can't recommend the good stuff to you.

MySpace is the new blogosphere MySpace is the number one most trafficked web site in terms of page views, and in the top 10 in terms of unique visitors. MySpace is basically a personalized blog where teenagers connect with their friends and share photos, music, and leave notes for each other. It is HUGE!! Both my teenage boys use MySpace for several hours each day. It is THE place for teenagers to meet and share. Parents and schools are worried about sexual content and adults posing as teens. The potential is there but my sons have never seen any issues. Most adults have never used MySpace and don't understand the community nature of the site. It is a big deal, and will expand into other areas like music distribution. It will be a big business. News Corp acquired MySpace for $580M last year.

Can Yahoo do content? Cnet has an extensive story about Lloyd Braun and Yahoo's attempts to capitalize on TV, Movies, and music.  AOL tried to create synergy with Time Warner. Disney is trying to do it with ABC. Yahoo is trying to create synergies with Hollywood by hiring one of its own Lloyd Braun. The theory makes a lot of sense. The payoffs would be huge. Many big players have tried...and they have all failed. There has been lots of brains and lots of money applied to this opportunity without success.

Brightcove - the new online media network I wrote this blog yesterday but it is relevant to some of the other stories listed today. Brightcove could be the one that dis-intermediates the network TV oligopoly. Think of Brightcove as the eBay of video, creating a marketplace for suppliers of video content, and consumer buyers.

How the VC business works If you ever wondered how VCs get compensated you should read this. It seems that some VCs envy the deal that hedge fund managers get. Nice work if you can get it. Also see this post from Jeff Bussgang at IDG Ventures.

Let me know if this list is useful, and what other subjects interest you.