How high can ARPU go?

ARPU or Average Revenue Per User is the way that mobile operators judge how well they are doing in mining expansion opportunities within their current customer base. This is especially important in western markets where mobile phone use is virtually ubiquitous so no new growth will come from expansion of the customer base. It looks as if the news is good for operators who have bet on next generation services, if you believe the results of a JD Power and Associates survey reported on the BBC. "It is quite amazing really that people are spending more on their mobile than on gas or electricity bills," Gunda Lapskim, a JD Power director, is quoted as having said. Much of this spending is on services beyond voice. But how much will people pay for communication services even if entertainment is included? How high can ARPU go?

According to the survey, the average monthly bill rose by 14% since 2003 -- an average of 534 British pounds per year. If the annual increase continued at 14% for the next 10 years, ARPU would grow to almost 2000 pounds per year. Even allowing for inflation, this still suggests that people would be willing to spend as much on their mobile bill as they would for a new desktop computer... every year.

Here is the full JD Power press release in which the rankings of UK operators are also disclosed -- Virgin is number one amongst pre-pay customers and Vodafone is number one amongst contract customers. "Image" competes closely with "Call Quality/Coverage" as the most important factor...

The issue is not about how cool the phone looks

Martin Geddes blogs Finland, Finland, Finland offering opposing views on whether Nokia can get its cool back (not to mention growth, profitability, etc). What I find interesting about this discussion is that here (and elsewhere - Techdirt and BusinessWeek) the debate is about industrial design -- do Nokia phones look and feel cool? But in my opinion this is not at all what the next evolution of the device is all about...

Nokia made a really smart move -- they jumped on the digital bandwagon early, when a lot of their competitors (and leader Motorola) stuck with analog. The question in my mind is whether or not Nokia will make the next jump from phone to computer.

The handset industry has approached the problem of increasing features in handsets from a consumer electronics perspective -- pack the electronics tighter, pre-wire the features, and focus the device on a particular demographic.

Two years ago I was at the Nokia Mobile Internet Conference and heard Jorma Ollila's keynote speech in which he said that in the future every phone would be unique. That is, you would have a phone that suited your needs, I would have one that suited mine, and 500 million other people would have their own idiosyncratic versions of the "perfect" phone.

The only path to this vision is by making the leap from thinking of the phone as a consumer device to thinking of it as a computing platform -- infinitely programmable to provide whatever feature set a given user wants -- even different feature sets at different times of the day (work vs evening).

Nokia's purchase of Symbian solidifies their intent to own this new phase, but will they understand enough about this alien world and will they understand it fast enough? Microsoft is moving quickly, and we could wake up one day with Windows ubiquitious in our pockets the way it already is on our desktops.

Wi-Fi -- just like Bathrooms and Napkins...

In the continuing saga of the Cometa Networks shutdown, eWeek reports that Cometa customers are scrambling to find alternatives. In the article, Peter Hoedemaker, vice president of retail at Tully's Coffee,is quoted as saying

"Everybody is still trying to figure out the economics of [Wi-Fi]."

Note to Peter -- the economics are in selling coffee.

Perhaps he should go check out this post at Wi-Fi Networking News, outlining Wayport's new pricing plan. Wayport is converting from the common Wi-Fi model of sharing variable revenue and cost with their location partners to a flat fixed fee, allowing the partner to decide how much (if anything) to charge.

In a clear swipe at T-Mobile’s arrangement with Starbucks, Borders, and Kinko’s, in which, according to many sources, the cell company bears the cost of the network and operations and shares revenue with its venues, Wayport’s CEO Dave Vucina said, that a retail partnership “shouldn’t be about how much they can get for free from the provider but should be more about their core business and driving enormous traffic for their core business.”

So Peter -- think about it this way -- you provide a bathroom in Tulley's and that costs you something every month, even though not all of your patrons use it. You provide napkins, even though not everyone takes one. Why not build Wi-Fi into the base cost of operating a Tully's outlet and offer patrons free access just as you do with bathrooms and napkins?

Will Telephony go to Zero (dollars)?

A reader of this blog anonymously posted a comment to one of my earlier posts, How Cheap Can It Get?, asking if the price to make a phone call might one day drop to zero. The answer is YES and that day is already here.

How can you make a free phone call? Download Skype, go to a coffeeshop with free Wi-Fi access, and dial anyone else who has a Skype phone.

While we are still a few years away from ubiquitous free calling (and free Internet access for that matter) this day is likely to come sooner than later

Jeff Jarvis has a report on an article by Eli Noam, a Columbia professor, in which he argues that:

the entire information sector - from music to newspapers to telecoms to internet to semiconductors and anything in-between - has become subject to a gigantic market failure in slow motion. A market failure exists when market prices cannot reach a self-sustaining equilibrium. The market failure of the entire information sector is one of the fundamental trends of our time, with far-reaching long-term effects, and it is happening right in front of our eyes.

Eli seems to take this as a negative, while I tend to think in terms of Joseph Schumpeter's concept of Creative Destruction -- the deconstruction of these industries is enabling an entirely new generation of technologies an industries to evolve.

In the future we will pay for certain aspects of connectivity -- reliability, security, and performance. Like drinking water, in the western world basic access will be ubiquitous (it may just taste funny) and you will pay for the higher quality bottled stuff. Telephony will become just "...a voice application, completely indistinguishable from any other kind of application that can run on an IP network..." (Michael Powell, Chairman of the FCC)

Should I Stay or Should I Go?

The provocative title of a recent Crain's Chicago Business article is Should Moto sell its cell phone biz? Now may be best time to hit the exit though the article goes on to state what most analysts believe -- that Motorola needs an Asian partner to take over manufacturing while continuing to be a design center:

No Motorola business needs bold action as badly as its largest, the $11-billion cell phone manufacturing unit. Now a distant second in a business it once dominated, Motorola has operating profit margins less than half those of its biggest rivals. Cell phone manufacturing is migrating to low-cost Asian producers able to churn out cheap phones for the mass market. Cell phones themselves are morphing from a sophisticated technology into a household product subject to shifting consumer tastes and falling prices.
...
Decisive action on the cell phone business could take one of two forms: an outright sale of the business, or a deal with an Asian manufacturer to take over Motorola's handset production while Motorola continues to develop and license the technology and its brand name. A pair of big European cell phone makers have cut such deals in the past month.

But does this make sense? The interesting problem for all of the handset manufacturers is that virtually ALL of the growth in this market (60 million units) will be in China. According to China View (Xinhua online)Lucky Goldstar has already surpassed Motorola in the worldwide CDMA handset business and is also number one in the critical Chinese market. And they have there eyes set firmly on the GSM prize.

Motorola could hollow out their handset division, handing over manufacturing to China the way they have handed over software to Microsoft. But what is left? The Motorola brand name? Dell would have more success managing this kind of business. If Motorola truly can't figure out how to manufacture mobile phones cost effectively at an $11 billion annual run rate, maybe they should exit the business.

Firefly.. softphone and network but not P2P

A reader anonymously wrote in to suggest that I give Freshtel's Firefly a test drive. While it looks like another nice option, competing with FWD and others, it doesn't appear to be P2P... am I missing something? I believe that there is an important distinction between the VoIP providers with centralized arhchitectures and a P2P architecture. The three providers I have found so far in the later category are Skype, ITALK2U, and Peerio -- anyone know of others? Of course each of these has drawbacks starting with the reasonable argument that Skype shouldn't be considered P2P at all... (see earlier post on Why Skype is No Different...)

Review of ITALK2U

Alec Saunders sent email with a link to his review of ITALK2U and a comparison to Skype. Thanks Alec! In part he writes:

iTalk doesn't yet support conference calling, or encrypted calling, and doesn't have the Skype missed calls list, but other than that appears to be a functional clone of Skype. It's also a bit more standards based, in that it supports H.323, rather than a proprietary signalling protocol, but it uses a proprietary codec, which makes that somewhat moot. Voice quality is similar to Skype, which is to say very good, but I don't know how well it will handle dial-up. The codec seems to be some kind of a learning codec, in that quality improved over the duration of the call. MSN messenger is the same way.

Click on over to Alec's blog for the rest of his rundown and screenshots.

Another Skype competitor

Here is another competitor to Skype in the peer to peer VoIP world -- called Peerio it appears to have a number of advantages over Skype... with a few caveats though. First of all it is open source, second it has a developer API which will easily allow others to build Peerio compatible applications, third it claims to be entirely serverless (as opposed to the directory architecture required by Skype) and fourth it is based on H.323 and SIP standards.

Now for a few caveats... their web site definitely leaves a lot to be desired with lots of holes to be filled (although the promise is there). More problematic is the half-hearted approach to open source. On the site they write:

Despite our efforts, there are two necessary exceptions to the open source principle:

1) The source codes for the Peerio444™ core will not be released.
2) Peerio444™ will not function in embedded systems and is limited to standard PC use (x86 and PowerPC).

Why is that?
The source codes for the Peerio444™ core will be kept proprietary so that we can avoid spawning hundreds of proprietary commercial systems (see Linux) that could jeopardize our ability to maintain a Forever Free platform. To be Forever Free we must protect the system from profiteers. Support and maintenance of the Peerio 444™ core will be limited to our research and development team.

This is like saying that you can do any work on the car except for modifying the engine -- we have welded the hood shut to prevent you from making modifications to anything inside that compartment.

This flies in the face of good open source policy for a whole bunch of reasons but I'll just mention a few here:

• At anytime Peerio can change the definition of what is inside the core and what is outside the core, endangering other projects that have been built on Peerio.
  
• The argument that this protects the system from "profiteers" is spurious -- by contrast placing assets in the open source community creates a level playing field
  
• Most importantly, Peerio will defeat its own strategy by holding back this key element of the product -- open source only works as a viral means of distribution when it is truly open.

Part of the point of open source is that by using it, a developer is no longer dependent upon the whims of a given company for the future of their development project -- The developer knows that the core building blocks will always (Forever?) be available. By holding back this key element as proprietary property Peerio eliminates that key advantage of open source and will significantly reduce the number of companies and individuals willing to invest in the future of the project.

On another front, I have been meaning to test the beta of ITALK2U which has been out for awhile from Endoreal/LitFiber. I downloaded one version and couldn't get it to work, but have been meaning to download a newer version. If anyone out there has had any success, please let me know.

How cheap can it get?

Already it is significantly cheaper to use VoIP providers like Vonage for your telephony needs, but now there is a price war between the low cost providers! According to this NetworkingPipeline story, Vonage Cuts Prices for Internet Calling

The company insisted it was not launching a price war in a market that is just starting, saying that the price cut reflected its decreasing costs in doing business.

Right. And as the article goes on to point out, AT&T announced their CallVantage plan just 6 weeks ago with an introductory price of $19.99 a month for the first six months. I am guessing that would have slowed Vonage's customer acquisition rate.

More time to blog...

After almost 7 months of work and a considerable financial investment, Fred Ball and I along with the founding partners have decided to turn out the lights at CallTrex.

The immediate cause of death was our inability to close follow on financing to help grow the company. A call center model only works at a significant scale of operations. Below a certain threshold, fixed costs represent too large a part of the financial model and it is impossible to make money. We were operating at about one-third of the scale that we needed to be to start generating top line profit. At least another $300,000 was needed to arrive at this first milestone. A number of angel investors moved in the direction of funding the business but pulled back at the last minute. Others simply moved too slowly. In the end, the Board of Directors expressed a lack of confidence that we would close this angel financing round in time and approved a plan to shut down operations.

As in so many cases, there were a set of underlying causes of death that led up to this end point. A large number of people had warned that selling to the small and medium business market was fraught with peril -- this certainly proved to be the case. Customer acquisition was slow and expensive and we never reached a scale where a larger distribution partnership made sense. In addition we suffered from technology problems which could have been solved with more resources, but we found ourselves spending money to fund the call center operations and starving the technical team. Technology problems sometimes meant the loss of customers which further slowed our growth rate.

Despite all of these challenges, CallTrex had a unique value to offer the marketplace, with an innovative system for connecting our customers to their remote staff and allowing that remote staff to provide a great service to our customer's callers. It is sad to see it go. As we have notified our customers that the service will be turned off, we have received some terrific praise on how great our service was.

I will be taking some time off and thinking about what I want to do next. Definitely spending more time with my daughter -- 7 months old and doing great!

Asterisk Use Accelerates...

The adoption of a technology outside the initial core group of visionaries is an important milestone on the path to greatness or abandonment. Recently a number of folks have pointed out that Pulver's "Free World Dialup" now supports Asterisk -- you can read about it here on -- Pulver's own blog . A comment over in North American Bandwidth news:

Soon, protocols will be irrelevant since all VoIP devices will support all of them.

An interesting point -- though it misses a key issue. Translation can replace standards as long as the standards are transparent and processor speed is cheap and plentiful. This is true for all open protocols -- think currencies, human language translation... But not so for closed, proprietary protocols. As an open-source VoIP offering, Asterisk makes it easy for anyone to support since their protocol is published. Translation for Skype, on the other hand, might prove much more difficult.

On another front, I spoke to someone who was told by Global Crossing that they are now doing tests to certify Asterisk. If they decide to formally support Asterisk, this will be an even stronger indication that we are on the road to wide adoption rather than oblivion...

COMMENT 5/8/2004 1:40:50 AM Roland Tanglao (www) said:

Hi Ted:

Yes, it can be difficult to translate and emulate a closed protocol like Skype, but it's not impossible.

If Skype doesn't interoperate and coexist with other VoIP protocols but in spite of this still becomes popular with the mass market, somebody will reverse engineer it!

Corporate Cockroaches

One should never underestimate the lowly cockroach. If any creature could survive a nuclear holocaust, it would likely be cockroaches. They have a capacity for survival that surely puts them in the Darwinian All-Stars. A few days ago a friend of mine (who works for a very large company) and I were talking about the people that somehow survive layoff after layoff inside his company. "They are cockroaches!" he exclaimed. A kind of corporate cockroach. Through a combination of hoarding information, avoiding accountability and spending their work time on building a network of relationships these individuals find cozy cracks and crevices to survive the reduction in force bombs that explode on a regular basis.

One can't entirely blame the cockroach, however. If corporations made their employees feel a little more secure in their positions, perhaps they wouldn't feel the need to spend their intellectual energy on how to protect themselves instead of on how to get their jobs done. Or is society to blame because we learn to attach our own sense of self-worth to the work we do, so losing a job can be a more terrible blow to self-confidence than virtually anything else?

Whoever is to blame, a manager's task is clear -- take out the RAID can and exterminate the beasts. Watch for those three signal events -- hoarding information, avoiding accountability, and inordinate amounts of time "networking." Businesses have to be able to have "roles" and not "faces" as another of my friends recently stated. We each play a role within or organization. Part of our job should be making sure that someone else can play that role if we move on. And we should look to our teams as people playing roles as well. The moment you believe that a particular person is essential, rather than a role being essential, you should recognize that you have a problem.

Will VoIP kill the telco star?

A nod to pop music group the Buggles* in the title of this Red Herring website post on VoIP -- Will VoIP kill the telco star the latest article pointing out how mainstream telephony is fumbling the opportunity to emerge as winners in the new IP based world that is rapidly emerging...

A particularly interesting point made in the article -- a report of one individual's experience in switching over to VoIP -- the phone company did nothing to try and keep this business:

Qwest did not handle the transaction well, failing to complete the hand-off of my old telephone number and cutting me off from the world for several days. Rather than competing for my business – there was no call asking if they could find a way to keep my business after I requested the number be moved – they made it difficult for me to stay connected.

I love the comment from the Qwest customer service person as well when the reasons were explained for the switch:

Wow, that's a lot of savings every month.

The author reports savings of 87% on his total phone bill.


*(Video killed the Radio Star on their Age of Plastic album)

Too late to close the barn door...

Great blogging of the VON show by industry pundit Paul Kapustka. I like his post today in particular about the strength in numbers approach to the regulatory questions being asked of the VoIP industry. When VoIP was a flash in the pan with a few startups playing, the ancient telecom companies might have been able to deal the industry a fatal blow with some heavy regulatory action. But now that there is real momentum and many large players getting together to create a political lobbying power, it is reasonable to believe that the cow is long gone from this barn...

Why Skype is No Different

Great link found on Lance Tracey's Blog on why Skype is no different from other VoIP services. A thoughtful analysis by Aswath Rao on what Skype really is and is not, and how its technical architecture embodies faults that undermine the P2P marketing message. Excerpt:

Some have expressed reservation because Skype is proprietary. There have been previous instances where proprietary consumer items have found wide adoption without incurring huge collective cost. VCR is one of the examples that come to mind. But in this case there are some differences:

• Alternatives, based on standards are available
  
  
• Skype uses mostly well-known and open technologies; only the protocol semantics is proprietary
  
  
• Even though Skype (for that matter VoIP) is naturally a “product” and not a “service”, Skype views it as service. For example, they do not allow an enterprise to use their own GIS, instead of the global one, even if communication will be restricted to internal use alone.
  
  
• As I am told, there is no way to directly address another client, even if the IP address is known. Windows Messenger from Microsoft has the same limitation, whereas NetMeeting allowed direct communication.

In this respect also, they are just like other VoIP providers. It is disheartening to see that even those whose middle name should be P2P, think like this.

Competition for Skype

It was bound to happen. The model is just too darn attractive. Other companies were going to enter the p2p VoIP business, it was just a matter of time.

I just finished talking with the founder of one such company about his company and product -- John Jarvis of LitFiber told me that they are just a few weeks away from a beta release of their new p2p VoIP product iTALK 2U.

John claims that the sound quality in their product is significantly better than what Skype can achieve due to a significantly better codec that his team has built from the ground up. Even more interesting is the way he is approaching the market though -- he has built his product to be H.323 compliant.

Compliance with VoIP standards means that users of his product should be able to connect to any other VoIP infrastructure that supports the standard. This is a terrific competitive advantage over Skype's current closed architecture approach and should really transform the game. With this product, any of the companies that have made VoIP investments will be able to leverage the p2p VoIP phenomenon using LitFiber's product.

I eagerly await the release of the download...

Anyone in their garage can now be a telephone company...

Jim Kohlenberger blogs on VoIP
Excerpt:

VoIP has decoupled voice from the physical infrastructure itself. Now it can go independent of who your physical provider is. Of course, this challenged incumbent interests in that regard. Because of this decoupling it has allowed many new things. Microsoft build SIP (the protocol) just like HTML (http) and FTP, SIP is a protocol. Anyone in their garage can now be a telephone company for the entire planet. In shopping e-commerce you can get a voice rep. You can do online voice conferences. Included in game boxes and game consoles where kids use VoIP to communicate. Used in instant messaging. Star-trek type communicators are now used in Hospitals (Wi-fi based). All sorts of other things. Skype. Free World Dialup. Metcalf’s law: value of Internet goes up as you can talk to more people. New companies are broadband VoIP providers. Vonage, 8x8, etc. Plug in a regular phone to IP network and make calls. All types of new services are possible. Right now they look like regular telephones because that is what we expect. Many things are possible in the future. Question is how do we get there? How do we allow them to flourish so these new services can be made possible?

COMMENT:
On : 3/25/2004 7:27:06 AM Joshua Ruihley (www) said:

The "Jim Kohlenberger" post on Smart Cog isn't actually a blog posting by Jim. The post is of my notes from his presentation at the Internet Commons Congress yesterday.

Conferences, Panels, Speakers... getting your time and money's worth

Putting on a conference is a huge undertaking. Having it be a good conference with inspiring speakers, fascinating roundtables, and great networking is even more difficult. So the organizers of this week's Open Source Business Conference should get credit for meeting most of their objectives and inspiring, fascinating, and networking at least some of the time.

Two major places where the conference felt weak to me:

1) Too many gratuitous keynote speeches by event sponsors. Its OK to have a keynote from someone at a sponsoring company, but they have to have something to say! A tired flogging of the sponsor's products and market strategy (especially if the speech has been given before at other conferences... you know who you are) doesn't do the sponsor any good and cheapens the conference experience for attendees.

2) The panel format is difficult at best to pull off. The two key ingredients are a tough moderator and some tightly defined issues that the panel (and audience) can dig their teeth into. Going deep on an issue and really uncovering some great ideas is much more valuable than a skin-deep flyover of a broad set of questions.

Criticism aside, the idea of a conference on Open Source Business is definitely one whose time has come and I am certain that this conference will only continue to improve with time.

My thoughts on the open source investor roundtable

This group of venture capitalists seem to be largely interested in investing in commercial software -- gee, if you can use open source as a leverage point against a larger commercial competitor to get distribution scale or infrastructure -- great. But there is no open source business model. Proprietary software advantage is what will succeed.

This is quite a contrast to Ray Lane's presentation of the watershed that the software industry is confronting, or the comments that Clay Christensen reportedly made yesterday (I wasn't here) about how open source transforms the way we think about the software product -- instead of a core piece of software wrapped in service, documentation, etc -- the wrapping becomes the product.

So are the VCs wrong and stuck in the past? Or are they the pragmatic ones and the idea that open source can change the software industry is polyannish at best?

More from OSBC -- Open Source Investor Roundtable

Panelists:

Opening comments:

Dave Power, Fidelity Ventures -- open source is a way of getting a headstart and a way to build a community, but it is not a business model in itself

Peter Fenton, Accel Partners -- open source is one of the top three disruptive forces in the software industry, we don't make a bet on organic uptake but it has to be there, a viral broad and growing community around an open source product -- there has to be run time, or production value -- the oxygen that allows you to charge for support and thirdly there needs to be demand side economies of scale -- a dominant provider vs. many small providers, and lastly there has to be product drift over time -- sendmail doesn't have much product drift for example, that is the key to harvesting revenue streams for open source vendors

Tim Guleri, Sierra Ventures -- As Peter said, there has to be an organic uptake of the product, it has to be a group of people that has control over the way the open source community contributes to that open source product

Steve (?) -- we are looking at companies that are building applications on top of an open source platform


Moderator Question -- as venture capitalists you are making significant early bets, what are the business models you are making on open source?

Dave -- three models that make sense -- 1) a dual licensing model, an open source version but also a commercial version that they can make money on; 2) enhancing open source software with proprietary software and 3) a service model

Peter -- those are the revenue models. But as a VC we want a scalable, high margin revenue model. Consulting companies shouldn't be looking for venture money.

Tim -- there is a commercial tipping point at which big companies have deployed a certain amount of an open source product and then someone asks, is there a commercial version of this product?

Steve -- we are in a period of transition in the way that corporate america thinks about open source -- they have started to embrace it with the caveat that they still want to have a commercial vendor that gives them comfort that there is a support function -- but will they continue to evolve? will they become completely comfortable with using open source without the need to have a commercial vendor associated with these technologies?


Moderator Q -- relationships with the communities, as the products become more commercial how does the community react?

Dave -- in each case in the beginning there is a community leader of the open source product, a person that reaches out and then there are hundreds of thousands of downloads, that creates a community. But over time as you get more successful the companies that form around these products are doing more and more commercial software development so there is a challenge about how these companies continue to nurture that community that got them started. We are in a window where there is an opportunity for startups to do something special here -- but large companies are starting to figure out how to manage these open source communities.

Peter -- the starting point is some mercurial founder that gets the ball rolling, and builds a viral contributor base but this shifts over time. Once a project is established the issue becomes maintaining and this requires a different kind of support from the company built around the project

Tim -- we make sure that we fund, maintain, and make sure the open source community thrives -- in our market segment we keep the commercial and open source in sync (security product)


Moderator Q -- Where is the value of open source over time?

Dave -- the value will be up and down the stack

Peter -- anywhere you can get huge distribution efficiencies and broad developer interest

Tim -- every segment of software will get affected in a positive vein by open source. I think the SMB space is where a lot of this innovation is going to occur -- maybe GM won't want to run their financials on open source, but the 10 person parts company will want to.


Audience Q -- comment on standardization for interconnectivity APIs

Tim -- standard XML protocols that are self describing

Peter -- standard product sets - JBoss, mySQL, running on Linux -- a standard open source software stack and that drives standards

...

David Ritter continues...

but I was wrong about having power... yes there is a plug, but no it isn't providing any electricity.. so I am signing off for now and will be back when I find power...

Dave Ritter Keynote

Making Connections: Lessons on the Power of Networked Communities

David Ritter is Vice President of Strategic Technology for the Boston Consulting Group

Opening comments:

Open Source is about people. And it is about networking

Breakthrough creativity solving complex challenges by participants who are geographically and organizationally dispersed, who don't do it for direct monetary reward but display unusual enthusiasm...

Ray's closing comments

We are just starting the "golden age" of our industry

Open source is the key factor (besides web services) that will start that

Software will be delivered as a service. Software IS a service. A service company is a different DNA than a product company. Software companies have to recognize this shift.

Software has always been a service business and we just haven't been honest about this.

Ray continues -- How has the formula changed?

90s formula -- ROI = I x M / C

invention times momentum divided by the cost

NOW -- ROI - P(I) x U / TCO

Proof of innovation times useability divided by total cost of ownership

Software industry at the start of this decade is a $200 billion industry, 70% in the US, representing 1% of the US GDP, and employing 325,000 people

Today, (2004), Open Source Software and Web Services changes the marketplace. Apache is 2x Microsoft. Microsoft is only 3x Linux. India and China are becoming enormous. And the enterprise is adopting OSS

Here is what enterprise CIOs are saying about Open Source:

Positives -- Lower TCO, Equivalent Functionality, Equivalent Quality, Bi-directional scalability, Faster bug response fixes

Some challenges -- Informal support, velocity of change, no roadmaps, functional gaps, licensing caveats, ISV endorsements

What does the software industry look like in 2010?

OSS destruction > Growth -- the industry will be the SAME SIZE at the end of the decade because Open Source will destroy as much revenue growth as occurs in other parts of the industry

US Share < 60% -- more and more is going to move off shore

<1% of US GDP -- GDP will grow faster than revenue in the software industry

< 325,000 people -- the US is not supplying the engineers for this industry

Ray continues -- what the software industry needs to do

More predictability -- not necessarily perfect software, but better predictability about when software will work

Ubiquitous Access -- this is a worldwide marketplace

Continuous Updates

Service-Oriendted Architecture (network/federated data)

Flawless Service

Ray Continued -- Compare to the automobile industry...

Ray's comments

Progress on auto industry:

• Replace Horse
  
• Build for masses
  
• Make better, faster, cheaper
  
• Mass customization
  
• Differentiate on service

The software industry has done this --

• we replace Labor
  
• PCs were built for the masses
  
• progress on Moore's Law drove better, faster, cheaper
  
• the Internet drove mass customization
  
• Now it is about service

Ray Continued -- "New" Enterprise

Ray's comments:

The Software industry's technological progress is our vulnerability

Innovation-- emphasis on "how" vs. "what"

Scarcity -- focus on management vs. engineering

Entrepreneurs -- focus on Renovation vs. Invention

Investment -- "OP Ex." vs. "Cap. Ex."

Technology -- "Service-centric" vs. "Component-Centric"

Ray continues -- What does the next decade look like?

Constraints:

Volatility -- we can resolve for some time the assymetric threats in a conclusive manner. It was much easier to deal with the Soviet Union in the cold war. Now how do we operate? How do we plan our business and invest in the stock markets with the invisible threats?

Transparency -- if you are the CEO of a public company your shareholders should thank you every day -- why would anyone want this job? You run your company in a fish bowl and get no appreciation for this.

Low Growth -- focus on profitability instead of growth

Enablers:

Knoweldge Work Globalization -- it doesn't matter what your politics are, you have to decide where you stand on globalization of work and free trade economied. I just came back from India and I learned a whole lot about what is going on over there. India is not a black box that you shove work into. There is a lot of innovation goin on there and it is driven by an outstanding educational system over there. Either we use this advantage or someone else will.

Network Based Service Providers -- ASPs are NOT a flawed business model created by the Internet bubble. They are a capital intensive investment because you have to invest a lot to get the service level up by the time you have a first customer. End users are going to, more and more, say "I get it now" Instead of talking to my commercial software vendor and putting software on the shelf I can buy what I use.

Rationalize IT Infrastructure -- there is a modern IT infrastructure sitting out there now. CEOs say all that money I spent in the 90s I didn't get a return on so there is a negative attitude about IT. But what you have to convince them of is that they have to invest more now -- because the next set of technologies will leverage the infrastructure that was installed in the 90s and really deliver on that investment

Portable Computing -- Mobility is finally here -- we don't even need laptops as mobile devices, anywhere, any place, can provide communications and computing in a handheld platform.

Ray continues -- A New Economy?

Ray's comments:

A few years ago everyone was saying that the aggressive investment in IT technology was supposed to create an unending improvement in worker productivity that would allow economies to grow at a faster rate than at any other time in history.

Now people are asking, does IT matter? Quotes Nick Carr in the Harvard Business Review as saying "no"

The mistake -- it is not the IT that matters, it is the USE of IT that matters. How do you change the prospects of leadership in your industry because of the IT possibilities?

Nineties Optimism makes today look like a recession but if you look at the past 30 years, today looks like normalcy.

Based on a perspective from the bubble, it looks like we crashed the "new economy" -- wars, terrorism, market crash, job loss... but I contend that the new economy survived all of this.

Look at Amazon, EBay, knowledge workers at work anywhere in the world. Yes we destroyed it temporarily but it is being recreated.

I contend that by the end of this decade most of the predictions made during the Internet bubble will have come true

Ray continues... 2004: Things Are Looking Up, but...

Ray's comments:

The economy is recovering... so why the paranoia in the software industry?

This stuff is still not easy to sell, the buying activity is still back-end loaded at the end of the quarter, prices are at an all time low -- you are plagued with the thought "how long can I manage my cash flow burn rate to get out of the recession or is this the shape of things to come -- it isn't getting better? What is the next big thing to get us out of this rut?"

We all hope that this big new thing is going to solve all of our problems. But the wait for the next big thing is probably a decade away.

Examples of "big things" -- Transistor, Microprocessor, operating system, personal computer, Internet

Is open source a "big thing"? No, it is a shift in the existing set of paradigms that will effect incremental change in the way the computer industry operates.

Ray Lane's introduction...

Ray's comments:

This industry is at a watershed.

A sum up of all of our successes and problems.

The computer industry has become one of the largest in the world -- 3rd or 4th in the world

Yet we still operate with a lot of proprietary baggage that forces the end user to integrate and make it work

One of the significant events that is not often recognized is Andy Grove's horizontal stack chart which was designed to attack IBM's dominance of the computing marketplace.

This chart was one of the first attacks on the set of assumptions about proprietary advantage - that proprietary products will work better, have a lower cost of ownership, and give the company's that make them lasting profitability.

This is the subject that we will address today

Open Source Business Conference

I'll be blogging the conference today here in San Francisco -- the Open Source Business Conference or just OSBC...

This morning's keynote is by Raymond Lane, former president of Oracle and currently General Partner at venture fund Kleiner Perkins Caufield & Byers. His speech is entitled The Macro-Economic Impact of Open Source Software and should start momentarily...

Here is the abstract:

The bubble and subsequent crash in Information Technology will be recorded in history as a normal growth phase all industries inevitably go through. Our industry is maturing, moving from the "installation" phase to the "deployment" phase where mass adoption occurs. The next ten years will be the "golden age" of technology where the focus will be on applications and services, rather than the technology differentiators themselves. Profits will be attained by those that drive low prices and achieve volume adoption, rather than pure specialization. We will see widespread adoption of standards. This keynote will cover the economic impact of Open Source Software (OSS) and its benefits of no vendor lock-ins, significant cost savings, shift of IT spend from infrastructure to applications, and open standards based architecture. We will also discuss about where OSS has impacted today, where it will reach in the next 5 years, steps to accelerate its adoption and to exploit it to the fullest extent.

By the way, kudos to the show organizers. It is great to be able to get power connections and wireless Internet access from the main conference ballroom and thus to be able to blog the conference in realtime. It would be nice if there were more power outlets though... despite all attendees having laptops we live in perpetual fear of running out of juice so whenever possible, we plug in... thus the hall is filled early with people strategically sitting at the edges of the room so that they can reach the wall plugs.

Anonymous office buildings...

It used to be that companies would fight for the opportunity to have their names on the outside of office buildings -- every little bit of advertising helps, the reasoning would go.

I was just on the phone with a friend at a large company (which shall go nameless...) who told me why this practice may be waning -- due to international terrorism...

Why advertise your presence if this could make you a target for terrorism? The friend cited a number of examples where his company and others had been removing signs from properties they inhabit in order to be (or at least appear) proactive in protecting their employees.

Will the future bring vast anonymous office parks where it is hard to tell who the tenants are in any of the buildings?

Open Source Capitalism

Very interesting conference this week in San Francisco, the Open Source Business Conference or OSBC is being held March 16-17 at the Westin St. Francis in San Francisco, CA.

A great set of speakers: Clayton Christensen, Ray Lane, Larry Lessig, Chris Stone, Tim O'Reilly, Mike Evans, Bud Tribble...

Their self description:

Open Source Software (OSS) is rapidly coming to dominate certain areas of IT. Despite this advance, few beyond hardware vendors have developed solid models for leveraging OSS to boost margins or revenues. This inability to monetize OSS is perhaps its greatest inhibitor to thriving beyond the commodity server.

The Open Source Business Conference (OSBC) is the first forum to bring together established technology vendors, startups, open source community members and enterprise IT users/customers to jointly explore new oppotunities for OSS deployment and how to capitalize on them.

Who should attend? Senior technology executives (both vendors and users of OSS); venture capitalists; in-house and outside counsel for IT vendors or buyers; analysts; strategy consultants; and members of the media.

Databases are the next to fall to open source...

Anyone wondering why Oracle's Larry Ellison is spending so much time pursuing an acquisition of Peoplesoft need look no further than open source database company mySQL and today's news (care of CNET) that mySQL will soon offer database clustering technology previously only found in high end commercial databases (like Oracle). Clustering is one of the few remaining reasons to buy a commercial database product.

Open source is an unstoppable market phenomenon. We will see open source projects that provide as good or better software to commercial competitors in every software category over time. Infrastructure elements such as operating systems (and now databases) are the first because the characteristics of these products are broadly understood in the marketplace and technical innovation in these categories tends to be incremental and not transformative.

Larry is right to try to move Oracle away from its dependence upon that core database revenue but wrong in trying to replace one software revenue stream with another. IBM is the only one of the tech giants that seems to clearly understand the future -- software is something you give away in order to lock customers into your other revenue streams.

Maybe Oracle should be trying to buy Accenture...

VoIP and the Telecom Giants

I happened to sit next to an AT&T exec on the plane last night. He commented that "...two years ago I would tell customers that while VoIP is coming, it is still a long way off..." And what do you tell them now, I asked? "VoIP came."

It was interesting to speak with him about their VoIP experiments though. AT&T is still spending a lot of time worrying about priority packet routing and trying to focus on the highest quality possible on the voice connection. I observed that 8.5 million people find Skype acceptable (he had never heard of Skype) and that the wireless providers have trained us all to expect a little fuzziness on our voice connections... so won't businesses choose "good enough?"

He admitted that this scenario worried him...

Interesting VoIP statistics

These statistics were provided by Federal Communications Commission Chairman Michael Powell in a speech that he gave today at the National Association of Regulatory Commissioners. You can download the entire speech from here.

• 2 percent of US firms currently use some form of IP telephony, and this number is expected to grow to 19 percent by 2007
  
• 73 percent of wire line service providers and 31 percent of wireless operators either have implemented, or are testing packet telephony in their networks
  
• 50% of Internet households are interested in Internet Voice as a way of reducing monthly long-distance charges
  
• Starbucks offers its customers 19,000 ways to have coffee (ok, not about VoIP but interesting nonetheless...)
  
• The US is 11th in the world in broadband development
  

More on Skype

Great post on Skype from Lance Tracey. I love the quote from Federal Communications Commission Chairman Michael Powell:

"I knew it was over when I downloaded Skype. When the inventors of KaZaA are distributing for free a little program that you can use to talk to anybody else, and the quality is fantastic, and it’s free—it’s over. The world will change now inevitably.”

Still don't know what Skype is all about? Find out....

Skype

North American Bandwidth News has some really interesting comments on Skype. If you aren't familiar with Skype you should be. As you'll read in NA Bandwidth News -- "Skype is a large bulldozer for destroying and rebuilding the telecoms industrial complex..."

The perfect fractalized enterprise

I encountered a terrific example of a fractalized enterprise a few days ago. A friend has started a business that takes professional photos of children's sports events and then sells prints or other items (coffee mugs, mouse pads...) back to the parents. It combines his interest in photography with his daughter's passion for sports and parents seem to love the opportunity to purchase professional quality photos of their children.

What is really amazing to me about this business is how Bob uses technology to create a business that appears significantly bigger than the one person shop he really is. The Internet provides a mechanism for Bob to outsource every part of his business that isn't core. Here is the formula:

Web site hosting company: YahooDomains
E-Commerce Storefront: PhotoReflect (specializes in photography e-commerce)
3-4 photo processors, all available on the web (some are better at posters and prints, some are better at mugs and mouse pads...)
Accounting and CRM: Intuit
Receptionist and personal assistant: CallTrex (my own company)

Add in a few friends who enjoy being weekend photographers and are willing to work for $10 an hour and a local camera shop that rents high-end photography equipment (REALLY big lenses for those close up shots from across the field) and you have a complete business set up for almost nothing.

This is the kind of entreprenuerial engine that the Internet can enable. Bob focuses on his "Core" -- marketing and sales -- and he uses technology to martial a set of organizational fractals that come together to serve his "Context" and present a unified face to the end customer.

An interesting idea -- what about creating a set of "recipes" for people that would like to start their own businesses -- essentially a list of the organizational fractals needed to construct a given type of business?

Greenspan on Intellectual Property Rights

As usual, Federal Reserve Board Chairman Alan Greenspan is eloquent, his position is well thought out, and his timeliness is perfect. But in this instance Greenspan is commenting on Intellectual Property, not interest rates.

At the Stanford Institute for Economic Policy this past Friday, Greenspan delivered an address on the importance of protecting Intellectual Property Rights. The full text of his speech can be found here.

He does not offer a specific remedy (as he did in the case of Social Security earlier in the week) but instead sensibly asks a set of questions:

If our objective is to maximize economic growth, are we striking the right balance in our protection of intellectual property rights? Are the protections sufficiently broad to encourage innovation but not so broad as to shut down follow-on innovation? Are such protections so vague that they produce uncertainties that raise risk premiums and the cost of capital? How appropriate is our current system--developed for a world in which physical assets predominated--for an economy in which value increasingly is embodied in ideas rather than tangible capital?

One thing that both sides in this debate are likely to agree on (at least privately) -- currently Congress, with the Digital Millenium Act for example, is primarily taking into account the interests of lobbyists, and not thoughtfully addressing the economic issues that Mr. Greenspan articulated. Hopefully his speech will spark a broader debate on these issues.

Revolutionize the PTO

Just about anyone who has had to deal with the US Patent & Trademark Office will readily agree that a major overhaul of this part of our government is needed, preferably as soon as possible. A significant portion of our economy is dependent on the principals of intellectual property protection and the PTO owns all of the passageways into these strange lands. With a wave of a pen fortunes are made and lost when a patent office action grants an idea the status of property, or takes it away.

The debate continues to rage (not least within this blog) regarding the merits of different types of patents, and the merits in particular of software patents. But both sides of this argument can probably see that the PTO as currently configured is in no condition to render intelligent judgements on a consistent basis as to the patentability of various software innovations.

At dinner with a friend last night, I heard the (not uncommon) story of receiving an official PTO office action memorandum, rejecting all claims for a filed patent due to the existence of "prior art" -- which is to say, someone else patented the idea first. However, upon review of the cited prior patent, the only conclusion a reasonably trained computer scientist could come to was that the rejected patent application and the prior patent both used the word "meta data" a few too many times and otherwise were not at all similar.

A Revolutionary Suggestion
In thinking about how he had arrived at this state, and whether the Patent office personnel were merely using a word search on prior patents to reject claims, my friend made an interesting observation: the business community as a whole has a vested interest in blocking the issuance of bad patents (that is, patents for ideas that are not, in fact, innovative), the business community has the resources and the knowledge to properly investigate a patent claim and uncover prior art -- why not have an open review process for patent claims?

This would radically change the role of the patent office from one of research to one of adjudication. Patent officers would have to determine whether or not the counter claims that competing businesses raise against a patent's issuance were accurate. But this role of adjudication would at least remove the patent official from the now almost impossible job of coming up with the potential prior art themselves.

The Fractalized Enterprise

Paul Kapustka notes in his most recent networking pipeline blog that small business is where we should be looking for growth in IT purchasing. As Paul points out, it is much more difficult for journalists and market analysts to pay attention to the behavior of small businesses -- but we all need to become better at understanding small business as a key underlying economic trend.

If Geoffrey Moore is right, the Internet is accelerating a movement toward what you could call the Fractalized Enterprise. Geoffrey explains his "core vs. context" concept as follows:

Activities that support ... differentiation are core to our businesses. Everything else we do, by contrast, is context -- that is, work that has to get done but cannot improve our valuation.

The interesting thing about the Internet is that it creates the opportunity to outsource context seamlessly. Every business can appear to be a big business, can have endless resources to handle customer support, sales, product development, marketing -- all by weaving together a team of disparate entities (organizational fractals) that cooperate together to create an enterprise.

That is the future -- small businesses, often sole proprietors, working together, mediated by IT, creating, marketing, distrubuting the brands, products, and ideas that we all consume. Much more powerful than corporations.

Of course our technology, government regulations, and personal dispositions must all continue to evolve for this to fully fractalize.

I love this product...

We purchased the squeezebox from Slim Devices and absolutely love it! This is exactly the kind of innovative product that WiFi is screaming for...

Within minutes I was able to connect this tiny box to my stereo and to my home wireless network. The box finds a computer on my network running server software provided by Slim Devices and I am immediately able to play any MP3 in my collection, over my home network and on the stereo in the living room.

Oh, and any device connected to the network with a web browser can control the jukebox...

Who wants a computer in the living room? Who needs extra wires around the stereo? One little box, using WiFi to connect my stereo to my home network and I am done. Can it get better than this?

Why hasn't anyone produced a WiFi baby monitor? WiFi walkie talkies for kids? And I am not talking about analog over unregulated bandwidth -- I am talking VoIP over WiFi. The technology is all there... Let me know if you have heard of other innovative products using WiFi.

The VoIP debate on interconnecting

A recent C Net Article reports on the FCC judgement that "pure VoIP" is no different from email or any other IP based application and thus should not be subject to federal regulation regarding telephone services.

However the FCC has left open the question of what happens when VoIP services interface with the PSTN (public switched telephone network). Perhaps then they should be regulated?

This issue is a red herring. Anyone who connects a VoIP service to the PSTN pays an interconnect charge -- in California at least $10 a month for a single phone line or a lot more for a T1 PRI bringing 23 lines in on one circuit. So the regulation is available at the interchange point... how do you make the argument that the regulation should then extend to other parts of the VoIP network if a "pure VoIP" network has no such regulation?

And how do you keep the "pure VoIP" networks from interconnecting to the blended networks?

This is a meager attempt by the phone companies to at least create some FUD for operators like Vonage while they line up legal arguments and lobbying dollars to slow down VoIP, which, left unchecked, will destroy their current business models.

Amazon Honor System

I really enjoy writing this blog, and I believe there are folks out there that enjoy reading... So I have decided to try out the "Amazon Honor System" -- a way of making voluntary donations to web publishers you'd like to support. My commitment to you is that the more donations I receive, the more time I will spend on my blog - bringing you ideas, information, analysis, and ponderings on life, technology and philosophy.

I'd love your comments -- positive or negative -- on this voluntary support system, since I am just trying it out for the first time.

The economics of VoIP

I spoke with two companies last week that are in the long distance VoIP telephony business and it made me start thinking about the economics of VoIP telephony. My conclusion -- it really doesn't take that much money or work! We should all build our own long distance companies.

Here is some back of the envelope economics:

Variable Costs

There are three kinds of variable costs -- bandwidth, co-location facilities, and the cost of the T1 PRI from the phone company, allowing you to interconnect with the PSTN (public switched telephone network -- the analog stuff).

Bandwidth will cost you about .0001 cents per minute.

Co-location space works out to be about .00004 a minute

Finally the monthly fee for the local T1/PRI is about .00035 per minute

Total cost at maximum efficiency for your VoIP telephone network -- approximately .0005 per minute

No one can reach maximum efficiency -- but if you assume a bell curve for utilization against the capacity you need to build the variable cost is still less than .001 per minute of talk time. There is a minimum scale you have to be at to get to this rate... about 7 million minutes a month.

Now that is a lot of time on the phone, and one person isn't going to talk that much. A good comparison point -- common nationwide long distance deals are available for about $0.05 a minute.

To get to that price you'd need to use your VoIP circuit at least 70,000 minutes a month... 2333 per day... 97 minutes per hour... If you think about the average customer as having 2 hours of long distance calls a week, this is less than 150 customers for your phone service... of course they all have to want to call the same single destination if you only install one circuit...

Equipment and software

You will need a little bit of hardware for this exercise

First you need to get Linux based Intel machines. You can get solid machines for $2,000.

Then you need to download and install Asterisk -- an open source hybrid TDM/VoIP PBX.

You'll also need a card for each PCs to manage the T1 PRIs -- A company called Digium sells cards for Asterisk at $1500 each.

And you'll need at least one of these machines on each end of your connection.

$8,000 in capital investment to be a phone company.

Of course there is your time, or the time of a technician that you hire.

Still, if you could build a clientele between two points -- say India and the US -- you could probably offer them $0.02 a minute phone service and make a solid profit. And save your customers an enormous amount.

The traditional phone companies have to be worried.

Mac vs. PC (but no viruses...)

I find myself under constant pressure to return to Windows. I love my Mac. But Microsoft's monopoly power really has a way of making a guy sweat. First it was that Siebel CRM OnDemand application that only works on MS Windows. Then it was WebEx that I was unable to use from my Mac. And everyday I visit web sites that have Javascript errors from my Mac. Even though I am using the latest, greatest version of MS Internet Explorer from Microsoft on my Mac! I would switch to Safari as my web browser, but other sites simply say they don't even recognize the Safari browser...

But no viruses...

One of the things that has made me happy I am on the Mac is that I am not subject to the regular waves of viruses afflicting my colleagues on Windows. Think about it -- a Mac virus simply wouldn't work! There just aren't enough Macs out there to enable a virus to spread. It would get out maybe 2, maybe 3 generations from the origination point, and would find that all of the machines it was connected to were PCs... Now I suppose someone could go to the trouble to write a virus that worked on both PCs and Macs... But why bother when 95% of the time your virus will spread based just on running on PCs.

And isn't this an argument for not having a single operating system in the world? Just like with mono-agriculture, we suffer more damage, more quickly, when a pest infests our mono-operating system world.

Keiretsu Forum...

So if you were an ex-CEO of Levi's... or an heir to the Schwab fortune... or have found your way into a few million dollars in the dot com boom... where would you go to find some interesting private investments? Today I spent my morning at the Keiretsu Forum -- self described as being about Great Association with Quality Deal Flow and watched the moneyed of Silicon Valley give the thumbs up or thumbs down on 5 early stage companies.

By their own admission, the section most members visit on their website is the "event calendar" -- including ski trips, golf outings, and trips to Hawaii... but the presentations today were all business with both self-made millionares and inheritors weighing in on the pros and cons of businesses that ran the gamut -- life sciences, software, financial services, even a new packaging concept.

It was a refreshing reminder of the dynamic form of capitalism alive in our country. A "swarm" of investors that self-organize and fund companies. The "K-Forum," as everyone calls it there, just creates a venue for the investors to see qualified deals. Investors make their own individual decisions to jump in.

Joining is easy -- have $1 million in liquid assets (that makes you an accredited investor) and give Randy Williams, K-Forum Founder, $1,000 a year. Oh, and there is a 2-3 month waiting list...

Lest you think that the $1 million rule is a way of keeping the club exclusive -- this is actually an SEC rule intended to protect less sophisticated investors from bad investments.

Reed Hundt on VoIP

An excellent interview by Paul Kapustka for Networking Pipeline -- Reed Hundt former chairman of the FCC...

Here is one thoughtful quote from Reed on regulation of VoIP:

So that's a huge regulatory issue. If the regulators say, "well, we sort of want to regulate VoIP," my view is: Be suspicious, be wary, be alarmed, be worried. Because what they should say is, we have no more business interfering with the flow of bits that are voice than we do with the bits that are the picture you sent to somebody to see if you can persuade her to go have a drink with you because you were connected by Match.com. That's personal, and the voice call also ought to be personal.

So many people saying such sensible things about VoIP regulation (or non-regulation)... Where are the big, bad phone companies to insure that their investments are protected?

I am a VoIP believer

I have to admit that I have been hanging back from the VoIP banquet table because of my misplaced concern about voice quality. Well this week I set up phone numbers for myself through VoicePulse in both New Haven and in New York City... and they work great!! I am now a Believer and am jumping in with both feet.

One other lurking concern was about the possibility of government regulation. I was heartened by these comments by FCC head Michael Powell:

"It is not a telephone service; it is a voice application, completely indistinguishable from any other kind of application that can run on an IP network. If you're going to say to me that voice over IP is something that needs regulation, then you're going to have to explain to me why e-mail isn't also, or streaming video or instant messaging is not also..."

Remarkably intelligent comments coming from a government official!

The full article is available on News.com

All this euphoria makes me want to become a VoIP long distance telephone company. Heck, I think we should ALL become long distance telephone companies! I was tired of doing business with SBC anyway...

Microsoft wins again...

Why use a platform independent technology to deliver your application to customers and then tie your implementation exclusively to a single platform? This is exactly what Siebel has done with their CRM OnDemand product.

Despite having built the application to run in a web browser, the technology that should allow vendors to break their dependence on Microsoft, the Siebel folks have tied their implementation to an MS Windows specific implementation of Internet Explorer. That's right, even using Microsoft's version of Internet Explorer for Mac OS X you cannot run Siebel's CRM OnDemand application.

And forget about any non-IE browsers.

Understandably, 95% of the world uses Microsoft, so vendors should support their Windows customers. But it isn't that hard to make a browser based application work on non-Windows platforms. And if you don't care about supporting non-Windows customers, why use a browser based application anyway? A much better user experience is available by building a native Windows application.

Siebel is not alone. I have found that more and more web sites that I visit are Mac unfriendly. Recently I upgraded to IE 5.2.3 (the most recent release for Mac) and discovered that Macromedia's Flash Player has stopped working. Whether deliberate or not, Microsoft is succeeding in balkanizing the Internet -- diverging their browser (even on their OS) from the marketplace. Given the economics, most companies will chose to invest in Windows specific solutions. The Microsoft monopoly wins again.

Fair Disclosure -- Prior relationship to Salesforce.com

I have received some questions regarding my relationships to either Salesforce or Siebel and in the interest of pursuing a blogger code of ethics, let me be clear -- I have known Marc Benioff for some time, while at Borland I was the principal contact between Borland and Salesforce.com, and I did attend a 49ers game in the Salesforce.com corporate box. I have never received any such invitations from Siebel.

I personally do not believe that this clouds my reporting here on this blog, but now you can decide for yourself given my disclosure.

By the way, I did finally get a password and logon to Siebel CRM OnDemand -- after sending an email reminder to them yesterday. However I am not able to logon due to a Javascript error that I get when accessing their system. I have contacted their customer support organization and am awaiting their reply.

And when I signed up for the Salesforce.com trial (which worked flawlessly and immediately) it was through their website - not through my relationships to executives at their company.

Are We Losing the Robot Race?

Pik which, when launched in October 1957 by the Soviet Union, excited our nation to respond with a technology crash program of its own, we have no equivalent Space Race response to the frequent announcements from Japan of its growing prowess in robot manufacturing.

The latest news, that Sony has built a full-size humanoid jogging robot is just the latest in a series of firsts from Japanese mega-conglomerates. For some time now Honda's Asimo and Sony's Qrios have been entertaining conference attendees with dance routines.

Many have argued that humanoid shaped robots are not particularly useful by comparison to industrial robots where most US researchers have focused. Solving the complicated problems of making a machine move like a human being doesn't help with any of the heavy industrial problems for which most robots are utilized.

This narrow view of robots ignores the basic premise that Honda and Sony are successfully focused on -- that everything in our world is designed to accomodate a human frame and human hands. If robots are going to play a useful role in an everyday human world, they will have to move and look something like human beings.

Robot manufacturing will be one of the 21st centuries biggest industries. As the world's largest economy we ignore this market at our own peril.

Siebel CRM OnDemand update

Its nice to have a blog that people read. Thank you to whomever let IBM/Siebel know that I was frustrated -- suddenly a "CRM OnDemand Solution Specialist" contacted me from IBM. She was very friendly and she has set me up with a trial account that begins on Monday. It appears to be a manual process...

Suggestions to those of you at Siebel and IBM who may be reading this:

1) Automate your process for issuing a trial account -- when I register to try your software, your service should be "on demand"

2) Have your salesperson contact me to offer to help after I have a trial account not as a barrier to my getting a trial account. Use that contact as an opportunity to find out something about how I intend to use the product.

3) I got the impression that you hope that people who sign up for the "trial" will begin actually using the service and entering real data. Why would I do that? If, like Salesforce, you had a lightweight version for free I might, and then you might hook me and I'd want to upgrade to a pay version. But as it is I know that my trial will end in 30 days so I will play with your product so that I can learn about how it compares to your competitor but I will not be so foolish as to really use the product and then have my data go away in 30 days.

I look forward to receiving my userid and password on Monday...

Salesforce.com has nothing to worry about

CRM Daily ran an interesting article recently, predicting that Salesforce.com is going to feel increasing pressure from SAP and Siebel, who recently acquired Salesforce competitor Upshot. In Will the Siebel-IBM OnDemand Initiative Crush Salesforce.com CRMDaily writer Kimberly Hill pulls together a tired group of analyst quotes in the old Fear Uncertainty and Doubt (FUD) method, suggesting that having such big companies in the race will spell doom for little upstart Salesforce.com

Salesforce.com needn't worry

As a potential customer of an online SFA system I recently visited both Salesforce.com and Siebel to find out more about their products.

At Salesforce.com I was able to immediately sign up for and start using a free version of their product. A Salesforce.com salesperson called me that day to ask if I had any questions or problems and what the size of my ultimate implementation would be (should he spend any more time trying to sell me... which I respect).

At Siebel the experience was VERY different. After being promised a free trial with registration (not free use as at Salesforce, just a free trial for 30 days) I filled out the form and then was greeted with a message -- "thanks, a Siebel salesperson will call you to set up your free trial." It has been two days and I have received no call.

Big Software and small business don't mix

Sure, Siebel and SAP and IBM would all like to sell to the small and medium sized business market. After all, SMBs employ over 50% of all workers in the US. But their techniques simply don't work. A big company will dedicate a team to evaluating SFA offerings, spend months coming up with a recommendation, and spend millions implementing a product. I on the other hand want to make a decision tomorrow and start using the product the minute after I make that decision. Salesforce.com has the right stuff for small business. Siebel isn't even in the game.

Will I ever trust analysts again?

Before I believe anything more that the Aberdeen Group has to say I want them to fully disclose their sources of financing. How much are Siebel and IBM paying for this hit piece on Salesforce.com? Why is it that journalists still believe such people?

Kapustka is back!

After a short sabbatical away from journalism, fans of tech journalist Paul Kapustka will be happy to learn that he is behind a new "newslog" at CMP Media. networkingpipeline is part of CMP's effort to create focused content in narrow vertical tech niches and Paul's efforts should lend some street cred to this effort. One does have to wonder where they got the picture however... But it is great to have you back Paul!

Spoke as Napster of Social Networking

A friendly VC suggested this meme -- will Spoke be the Napster of Social Networking? And that isn't Napster as in good -- viral, inventive, breakthrough, industry changing... that would be Napster as in bad -- accused of breaking laws, shut down, investors sued...

If you haven't investigated social networking yet you should take a look at the two services that are making waves -- LinkedIn and Spoke

Did you know that you are probably already in Spoke? Only 50,000 users and already 7 million people are linked to each other. They do this by taking their member's email mailboxes and indexing everyone that the member has ever sent or received mail from. Then they cross-index with anyone else already in their system and add a variety of other Internet sourced information about each person to build a profile of the member's contacts.

Imagine the ultimate result -- an automatically generated profile of you which includes your photo, your home address, phone numbers, email addresses, jobs you've worked at, your blog, other people's opinions of you... in short any piece of information out there about you. A people Google on steroids.

Feel that your privacy has been encroached on yet?

So with spoke gathering information and building dossiers on millions of people that have no connection to the service, isn't it just a matter of time before someone sues?

Desktop Linux

In a recent news.com article, C Net reports the "news" -- IBM warms to desktop Linux Amazingly the article is actually about how one IBM exec is giving a speech at the Desktop Linux Conference. This is news? What is particularly sad about the article is that IBM seems to be still locked into the mind set of using Linux as a replacement for 3270 terminals. Someone needs to show IBM Mac OS X -- ok its not Linux, but it IS a complete Unix environment with fantastic (better than Microsoft) look and feel. It will take some effort to make Linux as easy to use as the Mac, but it is clearly possible.

If IBM really wanted to create a competitor to Microsoft it would cost less money than they are currently spending to give Java development tools away for free (eclipse). So the real question is -- why don't they want to compete with Microsoft?

Moving on

For a variety of personal and professional reasons, the time has come (after 3 1/2 years) for me to move on from Borland. I am working on some start up ideas which I will share via this blog as they develop. In the meantime, my Borland email address no longer works, but you can still reach me at the afterink email listed here (over to the left...).

One of the greatest beneficiaries (second to my daughter anyway) of my departure from Borland may be this blog. Both because I expect that I'll have a little more time for blogging but more importantly because I am no longer an officer of a public company. I had always worried about posting too much about what I was doing or what I was thinking about -- I wanted to be careful to avoid violating (or being perceived as having violated) the SEC's "Regulation FD" -- that's FD as in Fair Disclosure.

For the same reason, I won't be posting anything about Borland even now that I have departed. You may see some views on the industries that I worked in, but I'll avoid commenting on anything too direct in order to avoid the appearance that I have disclosed something confidential about the business.

We all make hard decisions in our careers and leaving Borland was definitely a hard one for me. I have had the pleasure of working with some terrific people over the past few years, and of being a part of one of the few really important software companies. Thanks to all of you reading this who have been a part of that time, hopefully we will meet again under new circumstances.

Another day, another blog...

Hardly a day goes by anymore when I don't hear that another friend has started a blog. Today it was Ed Sim with his Beyond VC self described as "A venture capitalist's viewpoint on technology, the markets, and life in a connected world..." Ed's a smart guy and I expect this to be interesting reading on a regular basis... Maybe he'll figure out how to be more regular than me! :-)

Who believes in the growth number?

I am taking an informal survey (email me) on the GDP number -- do you believe it? If so, do you believe that the tax cut is the reason or do you have a different theory? If not, what do you think it really was? 7.2% !? Here is what I want to know -- how do home refinancings figure into this number? Could it be that the real reason that GDP seems so high is low interest rates?

Funny dad moment...

You know you're a dad when you find yourself in line at the supermarket buying diapers, beer, and dog food. I imagined the store staff calling the department of health and human services to follow me home... I wonder how often those three items are purchased together. I bet it is not uncommon for dads to run out of those three items at the same time in the first few weeks... speaking of which -- Paloma Elena Shelton is now 16 days old. Sorry I didn't write sooner to let you know out there in Blog land!

Email up and running

Now that I am home, expecting the birth of my daughter, I am really going to try and get going again on this blog (so many previous promises though!). I now have email up and running for the blog -- tshelton@afterink.com if you want to write to me.

Internet Innovation continues...

I have just been playing around with a new service called Linkedin which allows you to build an online network of friends and colleagues for job hunting, sharing ideas, investigating investments... It is similar to a service (now defunct) called sixdegrees -- but much more useful. I am certainly happy to see people continuing to try out new ideas -- the Internet revolution isn't over. It has just slowed down a bit.

During the bubble we just got too far away from innovation and too interested in get-rich-quick. Hopefully the innovation is coming back.

Will Software be free?

I had the opportunity to participate in an industry roundtable at JavaOne. An interesting article has recently been published, summarizing the conversation. You can read the entire article here. In this article, I was quoted as having said:

"But Shelton countered that the reality is that "people are downloading free things from developers' sites, not from open-source vendors." In fact, he predicted that "software will be free" in five to 10 years."

It is a problem to summarize a conversation -- you always end up simplifying the points that people have made.

The funny thing is -- my prediction as stated has already come true -- there is software that is free today. But my real point was that the software that costs money today will be free in five to ten years. Free can happen in lots of different ways -- open source, bundling, or through making the software so trivial to develop that anyone can build their own.

The challenge for software companies to remain relevant is to constantly innovate on top of the layer that is becoming free.

Keeping up with the blog

OK, I am going to make another attempt -- after having been gently criticized by a close friend for letting this blog grow stale. I have a different idea about what a blog can be though than some of the really prolific posters. It doesn't make sense to me to be posting every personal thing that happens to me -- the new place for spicy noodles that I discovered, the links to every other person's interesting comment... unless it is apropos to a comment I am making. I will attempt to keep this blog information rich. Critics welcome -- email to tshelton@borland.com

Yahoo News Group

I am asked by "thejunglejaguar" -- a frequent Yahoo newsgroup poster -- to "blog it out" in answer to his question "...whether I should really be invested in Borland."

No Borland exec will ever give you investment advice.

Why not try asking questions I can answer?

The left-out coast

Unfortunately the Economist has gone to a pay-per-view web model. But if you are an online subscriber or receive the paper version (yes I still do receive paper magazines), The left-out coast published in the Apr 10th 2003 Economist print edition is really worth reading.

Subhead A state that used to be a trendsetter is stuck in a time-warp -- The differences in attitude, fashion, and politics have always been great between the East and West coast of the United States. But the events of September 11th have created an enormous new divide in the way the East and West think about the world. As this article accurately points out, Californians have simply not been confronted with the same sense of imminent danger that residents of New York and Washington face every day. As a result, responses to events on each coast are completely different.

Take for example the warning by the government that citizens should stock up on duct tape to seal their houses from potential chemical or biological weapons attacks. On the East coast, duct tape sold out in hours. On the West coast, people laughed.

At best the citizens of California believe that if there were another terrorist attack in the US that it would happen in NY or Washington DC -- far away. At worst they simply don't think about this new dangerous world we live in. The primary concern for the majority of Californians is the economy, not the new world disorder. An interesting divergence which is likely to lead to disparities in voting, government spending, and business activities. The most interesting question is whether these two world views will continue to diverge or whether they will begin to come together again. Hopefully it won't take a terror attack in San Francisco to get the West coast in sync with the rest of the nation.

Mobile Blogging

Someone recently complained that my blog has "...ground to a halt completely..." and I admit I have been very busy. If only I could blog from my mobile device as this article in Wired News describes...

I have just received a Nokia 3650 which I am very excited about -- built in camera, takes videos, ships with the real audio player... But so far my carrier here in the US (Cingular) won't let me use GPRS... so even though I have a phone capable of sending data to a website like Blogger, my phone company's network won't let me...

On a recent trip to Europe someone asked me how far behind Europe the U.S. mobile networks are. I said "at least two years behind," and then I felt bad... wanting to be more patriotic I said "maybe only one year behind..." but two years was more honest.

Picture phones will change the world

I have had so many conversations with people who say that they don't get why it is interesting to have a digital camera built into a mobile phone. To this question I offer the typical example of parents on vacation taking pictures of the kid and sending them to the grandparents. But I have also offered the suggestion that putting power into the hands of the people always causes social change and ask people to think about what happens when thousands or millions of people can take a snapshot of injustice and instantly broadcast to the world.

Now comes the BBC with an example of this social implication of picture phones.

People thought that the Internet was going to be a new publishing medium -- like television, a way for large media brands to package and distribute content for the consumption of the masses. While it has become an interesting publishing medium, the interesting things that have created the most volume in usage on the Internet have not been when a few central nodes publish to all of the leaf node consumers but rather when all of the leaves become self publishers and start talking to each other without the need to have a central node mediating the conversation. Personal home pages were an early example and blogging has taken this to another level.

The bias of phone companies was to believe that these new mobile devices would become another broadcast medium, allowing central nodes to present information to all of the end consumer leaves. I believe the real transformation will come, however, as it did with the Internet when the end nodes become the publishers.

HP =everything is possible

Perhaps HP should reconsider their advertising campaign. Or at least the way in which it is being executed. Some clever person in their advertising department decided that HP should sponsor the CNN Technology section -- a column length advertisement in the right hand side of the page reads " = everything is possible " and then the HP logo. The idea seems to be that one will read the technology article and see the HP ad, associating the marvel of technology that CNN has reported with HP's prowess in computing.

Unfortunately for HP, not all articles in the Technology section are positive.

Take this one for example, about a man who stalked his girlfriend using a GPS device... Is that how HP is helping to improve the world?

The Very First Blog

I was thinking about the medium of blogging, and what an interesting vehicle it is for individuals to express their ideas when it occured to me that I had run into a very similar concept in my youth... and it made me think that the idea of "blogging" has a pre-Internet print precedent in the concept of the "fanzine." Way back in 1975, an interesting little publication called Alarums & Excursions began circulating amongst folks who enjoyed playing role-playing games (dungeons and dragons and other games of this genre). The idea was simple -- anyone could write for the publication -- the requirement was just that each contributor had to print up their own pages of the publication, as many pages as there were expected subscribers. Each writer would then mail his or her printed pages to Lee and Barry Gold who would assemble the pages of all contributors and send them back out as the next issue of the magazine. Each author's pages would look a lot like a blog page -- a series of disconnected thoughts on different topics reflecting the author's interests. Amazingly I find that the publication is still in print and has come out every month but one since 1975...

Woefully behind

I certainly am falling further and further behind. For loyal readers here is a content tease -- updates coming soon on the Lessig conversation and on the Kurzweil inquiry...

Archives and permalinks...

My archives and permalinks should be working again, but please use my new domain tedshelton.blogspot.com

New URL

I have moved my blog to BlogSpot, Blogger.com's hosting service. The URL is tedshelton.blogspot.com in case you'd like to go directly there, rather than through the bogus register.com redirector service... I'll have to get that fixed as well... But one thing at a time! At least I am back on the air...

Unreliable server companies...

The company that has served up my blog for the past several years, SiteAmerica has finally gone completely AWOL. It will take a while for me to get my site back in order and find all of the old image files, so please bear with me.

Is Comdex Still Relevant?

Charlie Cooper says NO -- Comdex is dead. So did my cab driver here in Las Vegas. My cabbie believes that there are even fewer attendees this year than last -- the post Sept 11 Comdex. And anyway, as he points out, Key3Media is going bankrupt, aren't they?

Well I'll offer a contrarian viewpoint, and since its Vegas I will offer odds. There will be another Comdex next year. And the show will grow again. But it will be a different show than the one Charlie Cooper cut his teeth on as a young tech reporter. Or actually it will be the same one -- a sort of "back to the future..."

You see, Comdex lost its way in the world. The thing it has always done well, still does well, and will do well in the future is bring together the people who make up the distribution channel for computing products. Resellers, VARs, distributors... the feet on the street that sell technology products.

And the people who get it most are the people who live in the center of that channel. Publications like CMP Media's CRN -- Channel Reseller News. At Comdex this year, the most important event on Monday night was CRN's Industry Hall of Fame -- presented by CRN, and Comdex jointly with the Computer History Museum.

And this year the inductees were a little different from past years. In the first five awards shows the hall of fame has honored such industry greats as Steve Jobs and Andy Grove and of course Bill Gates. Who joined these titans this year?

Michael Krasny -- founder of CDW Computer Centers

Izzy Schwab -- CEO of D&H Distributing

There were a few "industry" folks (manufacturers) recognized as well -- Jerry Sanders of AMD, John Chambers of Cisco, Michael Ruettgers of EMC, and Gary Starkweather of Xerox (the only science guy). But the message that all of the inductees had was -- the distribution channel matters. That's what made us successful -- all of the people selling these products.

Izzy, of D&H Distributing, told a great story. He talked about how his father had founded the company as an RCA distributor. And how in 1986, RCA was acquired by Thomson, a European company. Well Thomson didn't understand the value of their distribution channel and so within a year they cancelled all of their distributor agreements nationwide with 30 days notice. As Izzy pointed out, this action destroyed RCA's (Thomson's) market share, a mistake they are trying to recover from to this day.

For D&H though, it was a rebirth -- they applied their sales experience and channel presence to the computer industry and are now a $900 million business. Not just taking orders but creating demand and selling into that demand.

Comdex just needs to remember this lesson. Its about the distribution network. Its about connecting manufacturers with the resellers and VAR's and distributors that actually sell the manufacturers' products. If Comdex can re-focus on this key market that it serves, maybe it will be reborn just like Izzy's company was.

Lessig blogs back

I am a few days behind (things have been busy) but I wanted to get at least some brief comments back on Lawrense Lessig's latest response in our long running debate about "opaque creativity."

Lessig reasonably criticizes my rhetorical device of suggesting that placing source code in the public eye is equivalent to a writer having to make public the thought process behind his/her work. But in doing so he ignores the underlying argument and the analysis of what "derivative works" means in the case of software.

One of the valuable parts of this discussion for me has been in refining my thinking on this subject. I have had an intuitive feeling that there is something wrong in Lessig's call for source code escrow -- and not the least of which is my concern about giving governments too much power. I have some more work to go in my thinking, but I am close to having a good formulation of the core issue. Here is an attempt at a clear statement of my thesis:

Software is not a narrative. Software is a machine

Narrative is not quite the right word (it doesn't capture songs for example) but it is getting close. Where Lawrence Lessig and I agree is that copyright law intended for narrative forms of creativity -- books, movies, etc -- is not adequate for software. Where we disagree is what the remedy should be. Lessig would require that the machine be given away for free after some period of time. In my view this appraoch is too extreme. That it gives away the algorithm along with the implementation and that software developers (like mechanical entrepreneurs) should not be required to give away their algorithms.

I will spend some more time on the formulation of this and post a longer note soon.

Snark Hunting

One of WordLab's creators, Jay Jurisich, writes with news of another naming and branding blog that he has created. Called Snark Hunting. This site seems to mostly cover news of interest to the brand brainstorming crowd.