Don Dodge on The Next Big Thing

Patent lunacy defense

Microsoft reportedly has filed two patents covering certain aspects of RSS, Really Simple Syndication. Dave Winer is outraged. Nick Bradbury sagely says "Not so fast".  I don't have the inside scoop on this yet, but here is what I think is happening. Microsoft is protecting itself against patent trolls.

Relax. I believe Microsoft has no intention of enforcing this patent against anyone, and no intention of collecting royalties on it. Microsoft is not pretending that they invented RSS...just protecting itself against potential patent infringement lawsuits from "shell companies" and "patent trolls" who do nothing but sue big companies. Sad to say this is the current state of the patent system.

You might recall that Microsoft was sued by a shell company called Eolas for a patent on the embedding and invoking of interactive applications, such as plug-ins and applets, in Web browsers, something every Internet application has done for years.  Google was sued for patent infringement on GoogleTalk. Blackberry was sued, for $612M by NTP. RedHat was sued over Hibernate. All of these patent infringement lawsuits cost millions of dollars to settle. And all of them were about commonly used technologies that were in the public domain for years...until some patent troll popped up and produced an obscure patent.

Big successful companies like Microsoft, Oracle, IBM, and Google are prime targets for patent trolls and their lawyers. These mostly frivolous lawsuits take years to settle and cost millions of dollars to defend, even if you win.

Patent portfolios are the best defense against patent infringement lawsuits. Many times there are overlapping patents or very similar patents on any technology. When a big company is sued the first thing they do is look at their own patent portfolio for a similar patent so they can counter sue. This usually leads to a reasonable out of court settlement. Patents become poker chips in a high stakes game of legal lunacy. Don't you just love lawyers?

Subscribe - To get an automatic feed of all future posts subscribe here, or to receive them via email go here and enter your email address in the box in the right column.

Blogs and wikis, Web 2.0 platforms?

Application platforms are very profitable in the software business. Platforms attract developers. Developers build all kinds of interesting applications...which attracts users. Millions of users mean your platform will generate revenues for a long, long time.

Wikis and blogs are great collaboration tools, but they are now moving beyond that to become application platforms. Socialtext and JotSpot (acquired by Google) are building out suites of office productivity applications built on top of a wiki platform. Telligent and Blogtronix are building application platforms on top of the blog model.

Web 2.0 applications are more than just "webifying" existing apps. Web 2.0 applications are inherently interactive and collaborative at every level of the application. They are simple to build, easy to manage, and cheap to maintain. Increasingly they are being built on new platforms like blogs and wikis, and using new tools like AJAX and REST.

Dan Bricklin, inventor of VisiCalc, the first spreadsheet, has created a new wiki based spreadsheet called WikiCalc. It is not just a spreadsheet with a web interface...it is a web authoring tool that combines the ease of authoring and multi-person editing of a wiki with the visual formatting and data organizing of a spreadsheet.

Jotspot, recently acquired by Google, has built several office productivity applications like spreadsheets, word processors, and project management tools on top of the wiki platform.

Telligent has a blog based application platform called Community Server. The Microsoft StartupZone site  is built on top of Community Server. The site appears to be a standard HTML web site, but it is in fact a collection of blogs that drive interactive content to every section of the web site. Blogtronix is working on a similar blog based platform for enterprises. No web master or HTML skills are required to manage and maintain the site. A simple blog edit window generates all the content and graphics that appear on the site. UPDATE: Robert Scoble has a video interview with Blogtronix and a demo of their platform.

These new wiki and blog based platforms are an example of the promise of Web 2.0. They introduce a whole new way to build collaborative, interactive, web ready applications that can be hosted "in the cloud" or inside the firewall.

Platform shifts happen every 10 to 15 years. We may be witnessing the start of a new platform shift with Web 2.0 style blog and wiki platforms.

Subscribe - To get an automatic feed of all future posts subscribe here, or to receive them via email go here and enter your email address in the box in the right column.

The worst Billion dollar Internet acquisitions

There were lots of bad acquisitions so it is hard to keep the list to just ten. But, here are my nominations for the worst Internet acquisitions of all time.  To get on my list the acquisition must be at least a Billion dollars, must have disappeared from view or lost the market share race, and must have been acquired at least 18 months ago. It takes a while to really know if an acquisition was a success or failure.

10. Mapquest - AOL acquired MapQuest for $1.1B in December of 1999. A nice service but worth $1.1B? I actually like MapQuest and it has decent market share but I couldn't find another billion dollar acquisition that looked worse. Any ideas?

9. Ask Jeeves – IAC/Interactive Corp acquires Ask Jeeves for $1.85 Billion in March 2005. Less than 4% market share and losing ground to Google. AskJeeves definitely has value but it is hard to justify the nearly $2B price tag.

8. Overture - Acquired by Yahoo for $1.6B in October 2003. Yahoo has spent the last year of so building "Panama" which will replace most of the Overture technology. There is some value left in Overture...but not much.

7. AltaVista - CMGI acquired a controlling stake in AltaVista from Compaq Computer for $2.3 Billion in June 1999. Later acquired by Overture for $140M.

6. GeoCities - acquired by Yahoo! in May 1999 for $3.56 billion

5. Netscape - acquired by AOL in November 1998 for $4.2 billion.

4. Broadcast.com - acquired by Yahoo! in July 1999 for $5.7 billion.

3. Excite - acquired by @Home in January 1999 for $6.7B

2. Lycos - acquired by Terra Networks for $12.5B in May 2000. Terra then sold Lycos to  Korean company just 4 years later for $95 million.

1. AOL - merged with TimeWarner in January 2000. AOL was valued at $160B. Today AOL is valued at about $20B, based on Google's investment of $1B for a 5% stake in AOL. Losing $140B of market value is really hard to do...almost unheard of. This is the number 1 worst Internet investment of all time.

Honorable mentions, but less than $1B;

Blue Mountain Cards $780M acquired by Excite

MySimon $700M acquired by C/Net

Too soon to tell;

Skype - acquired by eBay for $2.6B with performance bonuses that could push the total price to $4.1B. Huge price tag for a free VoIP service. My guess is that Skype will turn out to be a bad investment for eBay and eventually take a place on the Top 10 Worst Billion Dollar Internet Acquisitions.

YouTube - acquired by Google for $1.65B. Time will tell, but it looks very expensive right now.

MySpace - acquired by Fox Interactive for $580M. Too early to tell but this could turn out to be one of the BEST Internet acquisitions. A relatively low price for a really hot Internet property.

Tom O'Keefe maintains a pretty comprehensive list of Internet Acquisitions on the ResearchConnect.com site. I used this list in compiling my worst billion dollar acquisitions of all time.

What do you think? Are there other Billion dollar acquisition blunders? Would you rank them differently? Doesn't this make you wonder what happened to the executives that made these decisions? Only in America...

Why have customers asked for Windows and Linux?

Why have customers asked for Windows and Linux to work together? Joe Wilcox at Jupiter Research has figured out the details. But, the best responses are from customers themselves;

"The City of Seattle’s IT staff supports a number of different operating environments, including Microsoft Windows^®, Novell NetWare and several varieties of UNIX/Linux. All these environments require separate physical servers, and our data center is running out of space. This new Microsoft and Novell collaboration agreement could allow significant virtualization of servers, reducing the number of physical platforms we’d have to maintain. That, in turn, reduces costs for maintenance, electricity, cooling and space,etc"

Bill Schrier
Chief Technology Officer
City of Seattle

“Microsoft and Novell should be commended for putting customers and innovation before licensing ideology. This is the kind of achievement that can only be reached when parties respect one another’s innovations and intellectual property and put their customers first. 

This announcement is a victory for customers and the industry, including small software developers developing solutions for both Windows and Linux platforms. It’s further proof that free market forces are working and enable a vibrant software ecosystem that provides customer choice, innovation and competitive products. 

The reality is that customers are not interested in the best proprietary product or best open source product; they want the best product, period. With their pioneering approach, Microsoft and Novell are giving customers the choice they have demanded, leaving behind the philosophical licensing debates around open source and proprietary software."

Jonathan Zuck
President
Association for Competitive Technologies

Customers have been using Linux and Windows for years, but typically on separate servers, and for very different tasks. It is now quite common for a customer to choose Windows to run a CRM or production management system, and choose Linux to run a print server, file server, or a rapidly changing environment.

What has changed is that now customers are using virtualization to better utilize their servers, and they now want to run Windows and Linux on the same server. Customers also wanted assurances that they would not be caught in the crossfire of patent infringement lawsuits between  the vendors.

This deal is a big win for customers and the industry. See my previous post for more details on the deal.

Microsoft & Novell, Windows & Linux

Microsoft and Novell announced a broad collaborative effort that puts customers first.  It includes a set of three agreements: broad business and technical collaboration agreements to build, market, and support a series of new solutions to make Novell and Microsoft products work better together for customers, and a patent agreement that provides each company’s customers with patent coverage for their respective products.

Customer demand coupled with common business interests between Microsoft and Novell made this deal happen. This agreement comes on the heels  of Oracle announcing worldwide customer support services for RedHat Linux.  The Linux world now has the attention of the largest software companies because their customers are using it, and it makes good business sense to support it.

Customers have been using Linux and Windows for years, but typically on separate servers, and for very different tasks. It is now quite common for a customer to choose Windows to run a CRM or production management system, and choose Linux to run a print server, file server, or a rapidly changing environment.

What has changed is that now customers are using virtualization to better utilize their servers, and they now want to run Windows and Linux on the same server. Customers also wanted assurances that they would not be caught in the crossfire of patent infringement lawsuits between  the vendors.

These customer requests caused Microsoft to look for a Linux partner who would work cooperatively to make interoperability successful, and recognize the IP rights of both companies. Novell has a long history as a commercial software company and has significant ownership and patents in the Unix and Linux space.

Microsoft has reached out to the Linux world and Open Software community.

• Microsoft announced an agreement with Zend to develop a high performance PHP runtime environment for Windows.
• SocialText announced SocialPoint, an open source based wiki environment for SharePoint
• Port25 is Microsoft's community site to communicate with the open source community.
• XenSource is working with Microsoft to ensure that Xen based open source works with Windows 
• CodePlex - similar to Sourceforge, a new portal for source code sharing and collaborative software development. CodePlex has over 400 projects, 40 from Microsoft employees.
• JBoss interoperability work announced last year.
• Support for ODF and PDF file formats. ODF stands for Open Document Format.

Customer demand drives decisions at Microsoft. It is that simple. It is not about philosophical or "religious" arguments. It is about what our customers request and what makes good business sense. Microsoft has millions of customers and they all have slightly different needs. But some issues clearly rise to the top, and those get addressed. You can never go wrong listening to your customers.

Subscribe - To get a FREE automatic feed of all future posts subscribe here, or to receive them via email go here and enter your email address in the box in the right column.

Microsoft Office vs. Web 2.0 upstarts

Om Malik writes "Web Office vs. Microsoft Office", the market is very crowded with at least 17 web office up-starts, citing a Red Herring article.

The Office Alternatives
The Old	The New
Microsoft Word	Thinkfree
	Zoho Writer
	Writeboard
	Writely
	Rallypoint
	JotSpot Live
Microsoft Excel	JotSpot Tracker
	Numsum
	iRows
	Zoho Street
PowerPoint	S5
	Zoho Show
Office ‘Suite’	ThinkFree
	gOffice
	Zoho Virtual Office
Microsoft Project	Basecamp
	JotSpot Project Manager
Source: Red Herring Research

Microsoft Office is the "gold standard" for office productivity applications, and has been for more than 15 years. What are these new startups bringing to the table? Lightweight, web based applications that can be updated quickly, accessed from anywhere with a web browser, and in some cases, built in collaboration tools.

Microsoft is responding to the challenge with Microsoft Office Live, a suite of productivity applications for small business. And, Groove will be a major part of the next version of Office. Groove founder, Ray Ozzie is now Microsoft's Chief Software Architect. Expect to see collaboration and software services infused into everything Microsoft does.

Google is announcing Google Apps for Your Domain which is a collection of existing apps packaged for small business. The apps include Gmail, Google Calendar, GTalk, and Google Page Creator. The services appear to be aimed at very small businesses who don't have any internal company systems. Google says they will be offering similar services for enterprises sometime in the future.

Microsoft Office Live has all the same services and lots more. Things like a company calendar, employee directory, expense reporting, HR tools for hiring and interviewing, project management, the list goes on and on. Great stuff from Microsoft.

Here is a screen shot from Google's "Apps for Your Domain" page.

You can choose any combination of these Google services

	Gmail  -  Offer email to your members with 2 gigabytes of storage per account, search tools to help them find information fast, and instant messaging built right into the browser.
	Google Talk  -  Your members can call or send instant messages to their contacts for free -- anytime, anywhere in the world.
	Google Calendar  -  Members can organize their schedules and share events, meetings and entire calendars with others.
	Google Page Creator  -  Create and publish web pages for your domain quickly and easily with this what-you-see-is-what-you-get website design tool.

And here is a screen shot from the Microsoft Office Live site.

Shared Sites Subscribers to Microsoft Office Live Collaboration can create any number of password-protected Web sites, called Shared Sites, for collaborating among internal employees and external customers, suppliers, and vendors. Work more effectively by consolidating and sharing your business information with others, inside or outside of the company. Online business applications Take advantage of a rich and versatile set of business applications for managing your customers, opportunities, projects, employees, and general company information. The entire solution is hosted and supported by Microsoft, which saves you the cost of IT infrastructure and maintenance. Company information at work, at home, or on the go Because Office Live Collaboration is hosted by Microsoft, you can access your data from almost any Internet-connected computer (running Internet Explorer 5.5 or higher). Whether you're at work, at a job site, or on the road, you can access critical business information when you need it, regardless of location or time zone. Storage space With Office Live Collaboration, you get enough storage to promote every aspect of your business with more than 50 MB of storage space for your online business application data or Shared Site content. Plus, you can always purchase additional storage space should your business needs change. Enhanced data protection Microsoft is committed to protecting the security of its customers' business information. All your data is backed up daily for an added level of security and peace of mind. This means that any inadvertently corrupted or deleted files in your Web site or Shared Site can be recovered by simply clicking a button. There is also built-in password protection for the business applications and Shared Sites. Customer support Microsoft Office Live Collaboration customers receive free 24-hour phone, e-mail, and billing support. We're here to make getting started easy and to help your business grow and thrive.

The competition is heating up for web based office applications. Publish.com has a list of their top 10 favortite web 2.0 applications. It is a huge market and lots of competitors want a piece of it. Competition is always good for the customer, and brings out the best in the competitors.

Subscribe - To get an automatic feed of all future posts subscribe here, or to receive them via email go here and enter your email address in the box in the right column.

YouTube worth a billion? The bubble is about to burst...again

C/Net says "YouTube could be a steal at $1 Billion". Grouper, a P2P video sharing company was recently purchased by Sony for $65M and they had about 1% market share. YouTube has 43% market share...so they are worth $1B. No, make that $2.6B. This kind of crazy logic is what fueled the last bubble and led to its bursting.

I think $65M for Grouper is ridiculously expensive. Four of my Napster buddies could build a P2P video file sharing service in about 6 weeks and have it ready for production in 6 months. Bambi Francisco at Marketwatch says Grouper had signed a term sheet from a venture capital company for $8 million with a pre-money valuation in the $30 million range. But Grouper decided to take the Sony $65M purchase instead.

Sony Pictures bought Grouper for its P2P technology platform which can be used for other things like distributing its vast video and music catalog in a cost efficient way. The Grouper web site and user base were just frosting on the cake...that they may throw away.

I was a VP at the original Napster. There are many similarities to YouTube. I wrote a blog about the challenges facing YouTube and lessons learned from Napster. You can find it here.

Video sharing sites and services are hot now. There are new services emerging every week. The technology is simple. There is no significant barrier to entry. YouTube was founded in February 2005...just 18 months ago. They are reportedly burning $1M per month in bandwidth fees, and have no current revenue stream. Another hip brand could emerge just as quickly and attract YouTube users over to their service. There is no substitution cost...users can move with a click of the mouse.

How many companies can afford to pay $1 billion dollars for any company, let alone one with no barriers to entry, no revenue stream, and copyright lawsuits hanging over its head? It looks like the Web 2.0 bubble is ready to burst. At least this time the companies are not public so individual stock market investors will not be harmed.

Subscribe - To get an automatic feed of all future posts subscribe here, or to receive them via email go here and enter your email address in the box in the right column.

Synergy rarely works in big acquisitions

Many times analysts talk about "synergy" and "leverage" that is sure to result from acquisitions. My experience is that small acquisitions (5 to 200 people) do in fact often result in synergy. I can only observe that large acquisitions, $1 billion and up, rarely result in significant synergy or leverage.  The Seattle Post Intelligencer has an interesting article about Microsoft acquisitions, comparing the size and number of acquisitions this year and previous years.

Synergy and leverage are descriptive words that always come out when a company overpays for an acquisition. I started my tech career at Digital Equipment. At DEC whenever something was "strategic" what they really meant was, it is not profitable. I think synergy and leverage often fall into the same category. Fancy words for "this acquisition will pay off somehow at some point" and that "1+1=3".  Remember AOL and Time Warner? Or Compaq and DEC? Years later they are still looking for the synergy.

Microsoft spent $650 million on 23 acquisitions last year and  about $207 million for 9 companies the previous year. This contrasts with more than $2 billion was spent on just three companies in 2003.   The Seattle P-I article points out that some of the smaller acquisitions like Onfolio, SeaDragon, and Massive have produced immediate results while the huge acquisitions like Great Plains and Navision are taking much longer to produce results and payback.

Another quote from the Seattle P-I article; "With smaller ones, what you're really buying is the technology that they've developed, and in some cases the people who are developing it," said Charles Di Bona, financial analyst at Sanford C. Bernstein & Co. "They're fairly straightforward investment decisions as opposed to all this 'synergy.' "

"I think when they look at what they paid for Great Plains and Navision, and what they expected from those businesses, and how long it has taken to integrate them into Microsoft, they'll be very cautious about big acquisitions for precisely that reason," said Matt Rosoff, analyst at the independent Directions on Microsoft research firm.

I would agree that smaller acquisitions are about people and technology. The Groove Networks acquisition brought us Ray Ozzie and lots of other talented people.  The Onfolio acquisition brought us JJ Allaire and his talented team.  Of course the larger acquisitions bring outstanding talent as well. But sometimes the large dollar amount overshadow the individual contributions.

In an earlier blog post I listed all the 2005 acquisitions, what they do, and the Microsoft group that acquired them.

Microsoft is not alone in seeing the value of small acquisitions. Google Chief Executive Eric Schmidt told reporters at a conference last month that Google buys companies at a rate of one or two a week, many of them as small as one to three people.

If you have a hot startup with innovative technology...gives us a call. Microsoft is ready to deal.

Subscribe - To get an automatic feed of all future posts subscribe here, or to receive them via email go here and enter your email address in the box in the right column.

Hindsight 2.0, Lessons from a Failed Web 2.0 startup

Dharmesh Shah and Brian Halligan wrote a very interesting blog entitled "Hindsight 2.0. Lessons from a Failed Web 2.0 Startup". The post is about Kiko, a once highly touted startup building a web 2.0 on line calendar. They had lots of buzz, VC money from Paul Graham, built with AJAX, and were considered cool. They are now up for sale on eBay...starting bid $50K.

I don't know the specifics of Kiko, but I do know that the calendar space is hard to crack. It is not about the technology...that is relatively simple. It is about existing calendars being entrenched in Microsoft Outlook, Lotus Notes, and to some degree Blackberry.

Calendars are a feature, not a company. Not only are calendars just a feature, but they have only been successful when integrated with your email/communication system. I don't know of a single calendar product that is successful on a stand alone basis. Even mighty Google has failed, with all its brand, money, and engineering prowess, in terms of market share, its calendar product is a failure. Kiko didn't stand a chance.

There are other companies doing on line calendars but the problem is always which calendar will be the primary consolidator of all entries, work, personal, or shared? Each calendar company wants to be the controlling or consolidating point. For most users they will not agree to give up their Outlook or Notes calendar, so it is a non starter.

This is why Ray Ozzie invented Simple Sharing Extensions (SSE), an extension to RSS. The idea behind Simple Sharing Extensions is to allow multi-directional synchronization of data and objects across multiple applications. Ray used the example of trying to synchronize his private/shared/public calendars with those of his wife. They used different tools and wanted to share pieces (but not all) of each calendar, and contacts, with each other, and associates.

SSE can help solve the calendar synching problem without requiring the user to choose a primary controlling calendar. Microsoft Outlook Calendar users can continue to use the Outlook Calendar for work, add personal events, and share selected calendar entries with other people. No one wants the hassle of maintaining separate calendars for work, personal, and shared items, and use different systems to do it.

An on line calendar does not solve the problem of sharing selected items with friends, or synching your work calendar on multiple devices, phones, etc. Web 2.0 or not, it was doomed to failure. Kiko is out of business and Google's calendar is a forgotten novelty.

There are lots of Web 2.0 failure stories but most of them are never told. They simply fade away, and with them, the lessons that could prevent another wave of bubble failures.

Subscribe - To get an automatic feed of all future posts subscribe here, or to receive them via email go here and enter your email address in the box in the right column.

MacroMyopia and the technology hype cycle

Google product announcements are a perfect example of MacroMyopia, somewhat analogous to what Gartner Group calls the Technology Hype Cycle. MacroMyopia is simply, over-estimating the short term effects and under-estimating the long term impact.

There is a lot of hype and expectation surrounding any Google announcement or product release. Google Spreadsheet was announced a few weeks ago and people immediately labeled it an "Excel Killer". Give me a break! Not even close. But, on the other hand, give them 5 years to improve and innovate and it could be a product to be concerned about.

Google Checkout is in the same hype category. In fact, anything Google announces is hyped beyond reason.

Warren Buffet is fond of saying that the stock market is a voting machine in the short run and a weighing machine in the long run. Meaning, the stock market moves on hype and popularity in the short run, but in the long term real revenues and profits are weighed and determine the real value of a stock.

The Gartner Technology Hype Cycle theory is also relevant here. The same concept is at play here. In the short term there is unrealistic hype. Analysts predict a huge multi billion dollar untapped  market.Then reality sets in, competitors react, and the excitement wanes...or what Gartner calls disillusionment. However, over the long term the early adopters attract the followers and the product "crosses the chasm". Remember "Crossing the Chasm"? Hmmm...this is turning into a cliche riddled diatribe. I think you get the point.

The rational thing to do is follow the money. Don't be dazzled by the technology. Examine the business model to see if it makes sense and can scale up to a meaningful size business. Anticipate how competitors will react and adapt in the future. Then decide if this is really something that will change the game. Most times it will not, but there could be valuable lessons. Are you listening Redmond?

Subscribe - To get an automatic feed of all future posts subscribe here, or to receive them via email go here and enter your email address in the box in the right column.