VentureBlog

The Softwareless Software Company

In 1991, Andy Rappaport, my partner at August Capital, wrote an award winning Harvard Business Review article entitled, "The Computerless Computer Company." As described by HBR, Andy's paper argued that:

By the end of the century, the most successful computer companies will be buying computers rather than building them. Defining how computers are used, not how they are built, will create real value. Three new rules will guide the computer industry's strategic transformation: 1) compete on utility, not power; 2) monopolize the true sources of added value; and 3) maximize the sophistication of the value delivered, while minimizing the sophistication of the technology consumed.

Well, that century has come and gone and Andy hit the nail on the head. The real value in computers was all about utility. Dinosaurs like Digital Equipment Corporation and Wang that were unable to evolve to deliver utility rather than compute power disappeared in the 1990's, while companies like Microsoft and Lotus thrived. Computers were no longer viewed as valuable independent of the software they ran. They became commodities, upon which value was created through applications.

In the context of Andy's description of the computer industry in the 1990's, I believe that a new era is upon us in the 2000's. I believe that we have progressed from the "Computerless Computer Company" to the "Softwareless Software Company." Taking the evolution of computer company one step further, "computer" companies are no longer about selling software, but rather about delivering services. Hosted services have the distinct advantage of meeting all three of the "new" rules suggested in the Computerless Computer Company: 1) they compete purely as a utility; 2) they monopolize the true sources of added value; and 3) they are designed to deliver the greatest possible sophistication with the simplest possible user experience.

Perhaps the best evidence that we are entering this era of Softwareless Software Companies is Microsoft's "Live" push. At a recent VC Summit, numerous Microsoft execs, including Steve Balmer himself, talked about Microsoft's focus on rolling out service offerings under the moniker of "Live." They are now offering LiveDesktop, LiveSearch, OfficeLive, LiveExpo, LiveMeeting, etc. And in support of their massive push into the services space, Microsoft has just opened a new datacenter that will ultimately span just shy of half a million square feet (I hope to write more specifics about this some time soon).

In the era of the Softwareless Software Company, in which value is measured by utility, simplicity and reliability, the greatest asset may ultimately be the near infinitely scaling data center. It will certainly be important that the new computer company deliver great utility through its software-delivered service. But the most significant differentiator may ultimately prove to be the capacity to scale with massive demand. And those companies best situated to deliver that scale will be the winners. Thus, it is no surprise that just up and down the river from Microsoft's new datacenter in Quincy Washington, both Yahoo and Google are contemplating building their own gargantuan datacenters. The Softwareless Software Company may have come full circle from the Computerless Computer Company and be more about hardware and infrastructure than about software after all.

CES 2007: True HD, OLED and Ultra Wideband

I have survived another Consumer Electronics Show. No small achievement. But it has taken me nearly a week to recover and tell the tale. The Consumer Electronics Show has gotten so large -- so out of control -- that it will undoubtedly break apart under the weight of its own mass. Conference organizers were predicting that 140,000 people would come to Las Vegas for CES this year. But I'm betting they missed by a couple tens of thousands. Quick trips from the convention center to any hotel on the strip took 45 minutes when they should have taken 15. And the line for free ice cream at the Yahoo tent was backed up all day, every day. I heard one blogger at the airport say to a friend that he spent the day at PodTech's BlogHaus rather than contend with the crowds (I myself took refuge at the BlogHaus on a daily basis -- they had the winning combination of copious drinks, snacks and bandwidth).

All the whining aside, CES was jam packed with gadgets, technologists and big giant TV's. That's right. Once again, CES was absolutely dominated by Televisions. LCD TV's. Plasma TV's. Home Theater projectors. My partners Andy, Vivek and I wandered the conference floor obsessively comparing TV's. We got right up close and looked at the consistency of color. We stood back and looked at motion blur. We debated the extent to which differences in displays were the results of actual technical superiority or merely better tuning. We checked out Sharp's 108 inch LCD TV (for those keeping score at home, last year's colossal TV king was a 103 inch plasma but this year LCD claims the bragging rights). We enjoyed Panasonic's use of plasmas in their booth for window panes, picture frames and a blazing fire.

And the winners are? None of the above. There weren't any clear winners in TV land this year. I suppose if there were any winners, it was the consumers. There were a panoply of stunning televisions on display. Technology is getting better. Prices are going down. That's undoubtedly a winning combination for TV buyers. That said, there were three TVs that I left the CES floor excited about. First, Sony was showing the thinest, most beautiful little OLED (Organic LED) displays you've ever seen. Sadly, they aren't yet in production. But when they are, they're going to be big sellers. They had extremely vibrant colors, a stunningly precise picture (with a 1,000,000 to 1 contrast ratio), and a form factor that can not be beat. I really want one. Second, as beautiful as some of these flat panel TVs are, the best pictures on the show room floor came out of a high end projector. Optoma was running the perfect scene from "Phantom of the Opera" to show off their amazing HD81 projector. The quality of the picture was unrivaled by anything I saw on the showroom floor. Sure, at ten thousand dollars or so, it isn't cheap. But for those of you with an empty basement and an old car to sell, this projector is the way to go. And Third, my partners and I were thrilled to see beautiful TV's on display using the single panel LCOS (liquid crystal on silicon) technology from our own portfolio company MicroDisplay. Both Akai and Memorex will soon be manufacturing MicroDisplay enabled Full HD TVs that will be priced hundreds of dollars cheaper than the next closest 52" and 62" Full HD TVs.

It was not, however, the fancy new televisions that I found most compelling at this year's CES. It was the amazing disappearance of TV wires. Several companies were demonstrating wireless systems for high definition televisions. It reminded me of the initial hints of wireless audio several years ago at CES. The first year there was a single dedicated Yamaha system demonstrating wireless audio. The next year wireless audio was scattered throughout the convention center. And the following year it was everywhere. I imagine we'll see the same trajectory for wireless video. This year there were a few manufacturers demonstrating wireless televisions (several of which were powered by our own ultra wideband portfolio company Tzero). Next year I anticipate that it will be everywhere -- built directly into TVs, in stand alone systems, as part of set top boxes. Wireless video is a no brainer. Imagine the ease of installing a flat panel on the wall if you don't have to worry about burying the wires in the wall. (Now if only someone could come up with a system that safely and efficiently delivers wireless power.) I guess I'll go back to CES next year. If nothing else, to see the proliferation of wireless video -- and party like its 1999.

Recovering From FOO Camp

I can't decide what is making it harder for me to write this morning. Is it the fact that I am still completely exhausted after a weekend of too little sleep and too much mental stimulation? Or is it the more mundane fact that God-awful music is blasting out of my speakerphone courtesy of the now 57 minutes I've been on hold with Bank of America credit card services? I'm going to go with mental overload because I refuse to cede the power to communicate to B of A musak.

This weekend I was privileged to attend Tim O'Reilly's FOO Camp. FOO stands for "Friends Of O'Reilly" but the crowd is only a small subsection of those who count Tim as a friend. Tim has long been not just a uncanny predictor of future technology trends but a supporter and promoter of both those technologies and the individuals responsible for inventing them and shepherding them from concept to phenomenon. The individuals present at this year's FOO Camp had played significant rolls in the creation and dissemination of some of the most important technologies over the past decades (from Lotus 1-2-3 to Perl, Python, Ruby, Flash, you name it). But the conversations of FOO Camp were clearly pointed at the future, which leaves one's mind spinning.

One of the things that is striking about FOO Camp is that nearly everything that takes place over the weekend is collaborative. Talks are rarely lectures -- they are conversations. Ad hoc projects at FOO take interesting twists and turns because they are necessarily interdisciplinary, driven by experts in hardware, software, networking, who are encouraged by the environment to think out of the box (a child of FOO's inventive environment was unveiled at this year's gathering -- Chumby is an open source hardware and software platform that truly embodies the collaborative and interdisciplinary nature of FOO). As I wandered around O'Reilly's campus Saturday night I was struck by the incredibly inclusive, social and creative energy everywhere -- in one room a group of folks were singing and strumming Simon and Garfunkel tunes, in another a crowd was engaged in their 5th or 6th hour of Werewolf, on the patio a few pyromaniacs enjoyed a fire sculpture involving propane and a zen sand garden, others gathered 'round the laser in Make Magazine's office engraving their laptops and cell phones with various a sundry images and insignia.

Two of my favorite sessions during FOO Camp were further testimony to the collaborative nature of the weekend. One of the "talks" was entitled "Halfbaked.com: entrepreneurial improv theatre." It was organized by Dave McClure, Paul Rademacher and James Levine, who had the great idea of randomly assigning teams of participants two word company names and, with fifteen minutes of preparation time, having them then present their business plans to a panel of VC judges (namely, me and Paul Graham). The results were clever and funny and felt sufficiently close to my day job as to be a little disconcerting. The winning team pitched Bottlecap Porn, fully functional (if somewhat under-featured) website and all. The other session I can't stop talking about was called "That Sucked," which was organized by Joshua Schachter. In Joshua's session, he started off by telling about times he'd been faced with technical challenges that really sucked. He then opened up the floor to the crowd to share their stories. The tales of woe expounded were like a history of computers gone bad, from printers shooting parts across the room to infinite loops to missing source code (the inspiration for SourceForge). They were simultaneously the geekiest and funniest stories I'd heard in some time. And like the "Halfbaked" session, virtually everyone in the room participated, making the session all the more illuminating and entertaining.

I hope that Tim and the entire O'Reilly organization get as much out of FOO Camp as do the participants. We all certainly owe him a debt of gratitude for hosting this incredible event.

Post Script: I hung up on Bank of America after being on hold for 190 minutes! I hope there is less of a wait when I call to cancel my card.

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Walled Gardens At DemoMobile

As I fly back home from DemoMobile, I am struck by the fact that "innovation" in the mobile market is apparently stuck in the same quagmire we faced at the outset of the Web. All mobile computing paths appear to be leading to the walled garden. And no matter how pretty that walled garden may appear at first blush, mark my words, it is going to feel pretty claustrophobic in no time at all.

Disintermediating CBS

Through bad planning and happenstance, I landed in Boston with my family smack in the middle of the Democratic National Convention. The DNC is, of course, an excellent explanation for why 6 months ago I was unable to get reasonable tickets into Boston en route to Cape Cod. Instead, I had to fly through Providence. But I digress. Since I was going to be in town during the DNC, I figured I might as well benefit from the hoopla and attend a convention party or two. But, thanks to the good graces of Dave Sifry and the DNCC, I was able to do one better than that -- I was able to get a blogger credential and attend the Convention itself on Thursday.

The fact that there was such a thing as a blogger credential at all is a testimony to the speed with which personal publishing technology has taken hold. Up in the rafters of the Fleet Center on Blogger Alley stood a couple dozen bloggers who had been granted the right to report on the convention from the convention. While some of the bloggers looked as much like journalists as the professionals on the floor, others looked more like sys admins. And, frankly, this new breed of journalists were just that -- sys admins in reporters clothing (or is that reporters in sys admins clothing). The geeky nature of this crowd was worn on their collective sleeves. When wifi connections went down, they shared private IP addresses. They debated the pros and cons of their respective digital cameras. I was even able to find someone with a Treo power adapter when my "personal communicator" started running low (man does the Treo's battery life suck when you're trying to blog on it).

A Porsche 911 For $750

I was reading my favorite travel publication on the plane today -- USA Today. What a great paper... where else do you get a half page on the war in Iraq, a half page on Tiger Woods' quest for a third straight Masters title and a half page on the three new reality-TV style movies coming out.

But along with those fine contributions to journalism was an interesting piece by Kevin Maney on the rebirth of Iridium. You may remember Iridium. Motorola poured $5 billion -- with a B -- into launching 66 satellites that would power a worldwide satellite phone network. Despite the $5 billion investment, the company went bankrupt and measured as one of the great business failures of our day. Until today -- perhaps.

It turns out the Iridium assets were bought out of bankruptcy for $25 million by a random collection of investors (Maney analogizes the acquisition price to paying $750 for a Porsche 911 or $2 for a night at the Ritz). The new owners cut out all the bureaucracy, stabilized the system and are now operating the company in the black, in no small part thanks to the many reporters and military personnel in the Gulf using Iridium satellite phones to communicate. Maney concludes "Once a joke, Iridium might turn out to be a leader."

I have no doubt that the excesses of the late 90's have led to a number of valuable assets being available for purchase for a song. That said, I find it a little hard to view the rebirth of Iridium as a business triumph. Iridium was a bad idea. There just wasn't sufficient business in the satellite phone market to justify $5 billion in capital costs to get it up and running. That the system is now making small amounts of money is a far cry from vindication for the initial supporters of the Iridium Project. It's great news for the new investors and more power to them -- good entrepreneurs can always spot an undervalued asset -- but the $5 billion Iridium Project remains a business mistake of pretty colossal proportions.

Sitting in My Hotel Hall

The hotel in which I'm staying in Korea is allegedly a modern hotel. Yet the bathroom's 70's motif belies the reality of that claim. So it wasn't a big surprise to me that there was no apparent way to connect to the internet in the room. I couldn't even find a phone with an auxiliary jack for dial-up. The surprise came this evening, however, when I decided to take a flier and check if there was a wireless signal in range of my Titanium -- it turns out that the hotel has a wireless LAN. With great pleasure I paid the 13,000 won and got connected (I was even willing to overlook the fact that in order to get a reasonable signal I had to sit in the hall outside my hotel room door -- where I type this now).

Of course, if I thought about it, it should not have come as a surprise that there's wireless connectivity in this hotel. South Korea is perhaps the most wired nation in the world. Over 50% of the households over here have broadband, and WiFi is proliferating like a weed. While much of Seoul feels like progress has been on hold for some time, when it comes to DSL (and cell phones) South Korea is leading the world.

Old Technology In The Air

I flew to Korea today and encountered a whole lot of frustrating technology. On the good side, the airlines are working hard to put technology in place that will make the travel experience a better one. On the bad side, the technologies they have deployed to date are old, flakey or poorly executed.

I started out my trip with an hour to kill in one of these airline lounges. For next to nothing, the airline could easily have deployed a wireless LAN in the lounge that would have created a very satisfying experience. Rather than that, the airline had a dedicated "business services" room that had a couple dedicated machines with internet access and some stations with analog lines to dial out to your ISP. I used one of the machines to access my email and despite having reasonable bandwidth, the machine was an antiquated eMachine that was so slow that the experience was a painful one. I probably would have been better off dialing out on my PowerBook.

On the plane the airline had implemented a number of technologies. The one they were touting the most was their SMS/Email service that was free for the time being. To call it an email service is a little deceptive. In essence the service allows you to send SMS messages or short emails (no more than 280 characters) from your seat on the plane. Of course, sending isn't really what anyone cares about while trapped in an airplane. To be able to access your own email would be an invaluable service. To be able to send an "I love you" SMS to your wife is little more than a gimmick (not that the sentiment isn't lovely).

The plane also had a "sophisticated" entertainment system at each seat. It allowed you to access video on demand, as well as music and games. And it essentially worked as advertised after a 20 minute reboot period at the beginning of the flight to get the system functioning. But to give you a sense of the power of the system, the games available were Gameboy games -- not Gameboy Advance, Gameboy. They might as well have used an emulator for Donkey Kong and Defender.

I don't want to seem like I'm sour grapes. I am very glad to see any progress with the airlines. But it sure feels like there is a lot of opportunity for some airline to differentiate itself as the forward looking carrier when it comes to deploying technology in the name of a better flying experience. And it also seems like there's a lot of room for the development of better in-flight technology (not that I'd want to sell to that set of customers these days).

Sand Hill Dead Zone

I continue to find it a little bit mystifying that the worst cell phone coverage in the Bay Area is on Sand Hill Road. Sand Hill Road is infested with gadget freaks. And we love wireless technology. We spend inordinate amounts of time discussing the latest cell phones, the non-emergence of 3G, the integration of cell and PIM technology, etc. Yet, there's nothing we can do to get better network coverage in and around our offices.

The bad cell coverage on Sand Hill Road poses a real problem for companies presenting wireless technologies. Demos don't work and when they do work, they don't work well. On several occasions I've watched companies struggle to show very cool applications that would work perfectly 10 miles away in any direction. We've seen it enough that we don't hold it against the company presenting but it's a real momentum killer.

I highly recommend testing out your demo in the conference room before any meeting -- you never know when you won't have cell coverage, or can't get past a firewall, or don't have an analog line out, or can't create a video link, or...