Hints of an Apple-Disney Merger – “Who’s the Big Dog?”

Did anyone notice the announcement today from Disney that they would soon be giving away their broadcast content on the Internet? Some might think this means that the Disney deal to sell “Lost” and other TV show episodes on ITunes is a dead duck – after all, who would buy these shows from Apple when you can download them for free?

But are things really as they appear? One Silicon Valley dealmaker sees the signs of a bigger deal pending. “It’s all about ‘Who’s the Big Dog’. The ITunes model breaks a lot of things for distribution. When the content biz takes it seriously, they won’t do the $1.99 per video pricing model anymore. They can’t vary the pricing – you’ve got to play pricing games to profit off of premium offerings at least some of the time, and begin the process of moving to value pricing.” So what’s going on here? It’s pretty simple…

Knight-Ridder Sold, But San Jose Mercury News Goes on the Block

So Knight-Ridder got sold, for a premium say some and for a steal say others. Since the San Jose Mercury News is a KR paper, the buyout on the surface appeared to be cause for celebration. Matt Marshall said “But we can confirm that many Knight Ridder employees are breathing a sigh of relief. McClatchy has an excellent reputation for quality journalism, and its headquarters in Sacramento and relative strength in central California means that KR’s Mercury News, Contra Costa Times and other papers in Contra Costa, Monterey and San Luis Obispo will help make the combined company a California powerhouse.”

Maybe so, Matt, but since McClatchy has announced they’re selling twelve papers including the Merc because they only go into “high growth markets” (Pruitt, McClatchy CEO, NYTimes), perhaps the staff should put the cork back into the champange bottle. The only one dancing with glee right now is the SF Chronicle.

More to the point, the analysis of the buyout forsees a lot of debt for McClatchy in a shrinking market. Newspapers aren’t the cash cows they once were, and Internet companies from Google to Craigslist continue to gut both their content and classified revenue. Is this a good buy, or is it a “good bye” for the Merc? One analyst I know here in Silicon Valley said “for what it’s worth, the journalists at that paper might want to polish up their resumes and start blogs ASAP”.

Fast Internet Movers and the Long Term

Bill Burnham’s slant on “Deal flow is dead, long live thesis driven investment” makes a number of good points for rethinking investment for Internet companies. Ben Savage of Wasserstein & Co counters “So a firm that pursues thesis driven deals in ‘unpopular’ sectors I think is partially dooming itself to be a firm that hits for average and not for power. Unlike in public markets contrarian investing doesn’t seem to work so well in ventureland.” Perhaps even more to the point, it is a reminder that our industry isn’t “one size fits all”, and the key factors for enterprise versus Internet, for example, demand different evaluatory criteria.

The success of thesis investment depends on the time-to-market of the product vended. Having co-founded startups in bottom of the food chain semiconductors (InterProphet, w/Vint Cerf on the board, doing layer-4 semiconductors for datacenter / interconnects) and top of the food chain Internet services (ExecProducer, realtime video/audio production datacenter hosted services for Internet/DVD/3GPP) I’ve found the demands on IPR and product roadmap are completely different.

InterProphet was granted it’s first patent 3 years after founding and after an intense product development cycle that is still ongoing. ExecProducer in contrast was up and running with partners (we don’t sell direct) and referenceable accounts producing movies for customers instantly (in other words, no manual intervention = no expensive engineering / design staff required) within one year with none of the concerns that a fabless semiconductor networking company faced (equipment, expensive engineering personnel, high legal/patent expenses, due diligence with customers, and so on).

It took several years of time / expense to worry out the patents for a successful ringing strategy for InterProphet, and I’m still working on one of the landmark results papers. It took about a year of part-time work on a fun project with Berkeley to get a successful paper on pioneering massive video production accepted to ACM SIGCHI ACE2004, the conference that Disney and Warner and Pixar shop their papers.

I think Bill’s idea to get ahead of the game by calling up potential investments works well for top of the food chain companies like ExecProducer. However, given the capital and intellectual demands (plus the reputational and technical challenges) of areas such as enterprise software or telcom or networking, and the years of work to establish a presence, Ben’s view is probably quite correct for that space, and unlikely to change in the near future.

The Last Man Standing

Tom Foremski of SiliconValleyWatcher spoke with Alex Gove and Steve Eskenazi of WaldenVC in San Francisco about media investments. According to Tom “I’ve often discussed how best to fund development of new media technologies – and I’ve said that I believe many new companies will use private funding, rather than venture capital.” Perhaps one of the reasons is that most VC firms aren’t up-to-snuff on the emerging digital Internet.

Tom believes that WaldenVC is on the ball here – “I was delighted to find that these guys “get” this whole thing I’m calling media technologies.” They’ve made ten quiet investments so far, apparently focussing on advertising / marketing – “Most of these companies are run by ad/marketing people and they need help growing the company” according to Steve.

Ads are one important revenue growth area for the Internet, but advertising and marketing mechanisms are followers, not leaders. It still remains to see who’s going to shape the real digital media Internet. Taking bets right now, but better put your wagers in soon.

Who’s Doing the Icon’ing?

So, Steve Jobs got annoyed at a publisher’s attempt to sponge off of his rep and decided to kick out all of Wiley’s books from the Apple stores. Matt Marshall pulls some really funny quotes from the NYTimes from the beleaguered author, a kind of “pity me, I’m an orphan because I killed my parents” defense:

“This guy is out of control,” Mr. Young told the Times, referring to Jobs. “I’m just a little guy. I’m just one of many guys Steve has destroyed over the years,” he added, though it wasn’t clear from the NYT article exactly what he meant. Young added: “He has an amazing ability to con people.”

So does the author, apparently, who according to “the late Jeff Raskin, a former Apple employee”, didn’t mind a bit of imaginative invention himself. As an author myself, I can’t really feel any sympathy for a publisher and author who can’t even pull off a good scam. Steve is better – that’s a surprise?

My take to Matt today:
“Figures you’d get the pathetic cry for sympathy from a hack writer who rehashed a lousy 20 year old book.

But the real problem is Wiley. They’re the ones who got something on the cheap and said “Hey, let’s just respin this – who’s gonna do anything about it?” Well, guess they found out. 🙂

Maybe Wiley should pay a *real* writer to do a bio. Isn’t Silicon Valley worth the insight and talent of a Tom Wolfe or a Ken Kesey – or a Tracy Kidder, who’s “Soul of a New Machine” captured the sheer thrill of competition in the computer industry?

I think after changing the world, innovators in Silicon Valley deserve a real writer for a change. Put the hacks on the throw-away Britney Spears bios, and give us the literary positioning we deserve.”

When First Mover Doesn’t Help You

An engineer I know was infuriated to find that a software architecture proposal a friend had done several years ago and presented to Microsoft as an enhancement to work done at InterProphet appeared in another company’s patent claims – even though he’d presented a similar idea to Microsoft long before. “Well, I guess I can at least go to my grave claiming we did it first” he laments. And as I was there – I can vouch for them. They did it first. This happens occasionally, and we have to ask ourselves “Does being first really matter”?

First mover isn’t always best mover if you’re dependent on a behemoth like Microsoft. It’s when the market is ready – even IBM and Cisco face this problem. The first mover in Cisco’s area was Proteon. They had 100% of the router market. Haven’t heard of them? Not surprising.

What Makes a Great Venture? It’s the team, execution, and trust…

John Doerr spoke with his usual inspirational passion at the Stanford Entreprenuerial “Thought Leaders” seminar. He asked “What makes a great venture?”. Well, I’ve been around the startup block a few times or more, so that’s easy – team and application. “What makes a great company?” How about focus and execution. And “What makes a great group?” Piece of cake – interdependence and communications. And most importantly – trust.

I’ve heard most of this stuff time and time again, so I was jazzed he wanted to skip a lot of the canned presentation and move on to questions. So my question that got written under the biz catagory was:
“WSJ reported last week that ad revenues are finally moving substantially to Internet / online from print. Does this mean, as some claim, we’re in a “second Internet bubble”, or do you think it’s just the promise of the first Internet rush finally realized – in other words, it just took longer than expected.”

While a lot of others were of the “gee, what’s hot to invest in” and “how about my pet venture” variety (and dispatched quickly), mine made him pause a while and think about it. Can you see why?

Lean Times for Silicon Valley “Fighting for Every Penny”

Chris O’Brien of the SJMN put together a very good think piece on the state of Silicon Valley’s economy, and it isn’t pretty. “As companies try to cut costs throughout the food chain, the number of tech jobs continues to decline.”

Where are the jobs and the sales? “There are a ton of opportunities overseas” (Christine Heckart, Juniper’s vice president of marketing). And why? Simple – costs. “In the first 20 or so years of the technology age, the vendors held all the cards. But now, the fulcrum of power is not with the vendors or consultants. It’s with the customers” (Gary Beach, publisher of CIO Magazine).

This impacts all levels of our industry – not just IT workers, but sales, marketing, suppliers and manufacturers, and even investors.

While the article is quite gloomy – “They’re all fighting for a pie that isn’t increasing as fast as they’d like to tell their shareholders. Everyone is aggressively trying to cut costs. You’ve got to fight for every penny.” (Martin Reynolds, technology spending analyst for Gartner) – the fundamental assumption by all these experts is that tech needs will remain static, resulting in an ever-shrinking market dominated by a few big players. While that may be true for all those incredibly complicated and expensive enterprise integration companies that CIO’s are obsessing over, these companies are not the tech trend-setters of Silicon Valley and perhaps should rightfully be outsourced. New “takes on tech” are always the beginning, not the end, of the cycle.

San Jose State University School of Business Neat Ideas Fair

If you’re just plain tired of seeing slick pitches from con men and want to see a little genuine business enthusiasm and love of technology, check out the Neat Ideas Fair video invitation from Chris Surdi, student President of the San Jose State University School of Business Entrepreneur’s Society.

I’ve already heard today from one due diligence guy who said he was going to stop in after he received the invitation playing in email. “I really liked his pitch to come and see the students”. He also told me he cancelled another more elaborate “venture showcase”, because it’s “always the same”, but the student fair looked interesting because “you never know if you’ll spot a diamond in the rough”.

The Neat Ideas Fair runs today and tomorrow. Hope you all can make it – it’s good for Silicon Valley professionals to support our schools and entrepreneurs of the future.

Fun Friday: We’re Just Collecting a Little Marketing Info, Please Just Don’t Move…

I’ve chatted on occasion about consumer issues like the built-in failure mode design of the non-titanium vaio (see Remember when “design” meant “reliable”). But these are primarily good tech designs gone bad for cost / supply reasons. What about when we make good tech go bad because we want it bad? Well, marketing people are exceptional at this, except when they get caught – then they yell and complain and say they didn’t understand the tech. Well, should we believe them? If you do, I’ve got a bridge I’d like to sell you.

Well, got another one for you. Speedstick is running a “win a roadtrip” contest. If you purchase a product, you have a pull-off sticker with a code. You go to the site http://speedstick.com/roadtrip, input your contest code under the peel-off label, and enter your personal info. So just to see how they run this little “contest”, I decided to visit the site and play exactly by the rules to see if they do. And would the answer surprise you? Maybe not…