VenChar

Millimeter-wave sensors

The NYT has an article on millimeter-wave imaging technologies applied to the detection of concealed weapons. The human body has a high emissivity and emits a great deal of millimeter-wave energy (between 30 and 300 GHz)- it shows up as hot on a millimeter imaging system. By contrast, a concealed gun, for instance, has a low emissivity and a high reflectivity - it reflects the ambient energy (at the temperature of the surroundings) and shows up as cold on the scan. The temperature differential with respect to the surroundings allows for the discrimination of the weapon being carried.

The article profiles three companies (Brijot Imaging Systems, Millivision Technologies and Trex Enterprises) that appear to have working imaging systems integrated with video surveillance and software that accomplishes detection and classification in a device that's about $50K.

Interestingly, these passive detection systems have an active counterpart (involving bouncing millimeter waves off the subject in a manner analogous to radar). Understandably, there are health and privacy concerns around the active imaging systems as a result of which the passive systems are likely to get better traction.

Millivision has a nice whitepaper on the technology on their website.

SAP Shindig on Netweaver or how I want to be a platform company

Thanks to Jeff Nolan, I got invited to a SAP Shindig in Palo Alto earlier today.  The whole executive board of SAP hosted a bunch of VC's this morning to talk about their "platform" strategy as well as to get our thoughts. 

I went with a fair amount of skepticism and walked away impressed and open-minded.  Some thoughts on the meeting:

• Henning and Shai did a very impressive job articulating the SAP platform - Netweaver.
• Shai is a terrific speaker - articulate, cogent, and skillful in his use of words
• Netweaver is a standards based platform built on SAP engines that 3rd party developers can build apps on.  The basic benefit is that if you build your app on Netweaver, it can semantically integrate with the rest of SAP's apps thus not forcing the customer into making a suite vs. best of breed decision (atleast in theory)
• They have established a set of rules around Netweaver such as:
  • Will not change the API's for 8 years
  • Will publish all the API's (no unpublished API's like Microsoft used to do)
  • All SAP applications will be built on the API's
  • Netweaver will be standards compliant
  • The application group will build applications on top of the API that will compete with partner applications
• The presence of the whole executive board reiterated the company's commitment to the strategy
• I talked to some of the board members informally and those conversation further reinforced SAP's commitment to this strategy.

Now am I going to rush out and get all my companies to port to the Netweaver platform.  Not really.  There are some companies of mine that sell into a largely SAP universe such as Steelwedge that can benefit from being Netweaver powered as large customers do integrate Steelwedge's planning and forecasting apps with SAP - See recent press release on how Air Products is using Steelwedge.  Challenges SAP still faces in getting ISV's to adopt are:

• Its not a "true" platform - I still need to make a database/operating systems/app server decision that is separate
• the platform does not offer a semantic level interoperability with the other platforms i.e. IBM, MSFT, etc.
• Most companies do not need an "another" platform - Open source is good enough and I do not need to pay a "tax" to use it
• Biggest value in joining an "ecosystem" is the sales and marketing push and unless SAP really invests in a "partner" program that creates some sales traction for their partners this program is not going to take off.

Btw they had Mark Feldman from Virsa on a ISV panelist who has benefited from the SAP relationship.  The guy was such an "ass kisser" that his credibility was zero.  Someone remarked to me that for a white guy he had a very brown nose ;-)   

Regardless, I do want to commend the SAP guys.  They made a strong case on Netweaver and were intellectually honest on what they do and don't do.  Any enterprise company targeting the global 2000 market should look at Netweaver - its definitely worth considering.

Experimentation and Failure

Last weekend I attend the Stanford Entrepreneurial Conference.  The lead keynote speaker was Jeff Bezos of Amazon and he did a terrific job.  He talked about historical innovations and innovators.  Some of his examples were:

1. The guy who invented toilet paper
2. The woman who invented windshield wipers - prior to her invention people just stopped every mile or so and wiped the windshield
3. The woman who invented "white out" - she was an executive assistant who made a lot of mistakes while typing and was annoyed there was no quick way of correcting her mistakes.  By the way "white out" was nothing but white paint - just shows you don't have to always invent cutting edge stuff to be successful

Then he talked about Amazon and how he tries to instill a culture of "innovation' within Amazon.  He said the two important factors that help drive innovation at Amazon are:

• Cost of Experimentation is low - its easy to run experiments in an online business and check to see effectiveness.  Amazon runs experiments all the time and evaluates which of his innovations are more effective
• Cost of failure is low - again another terrific element of online businesses is that the cost of failure can be controlled since you can run these experiments without a significant cost if it fails.

The combination of these two factors also result in an open non-hierarchical organizational culture at Amazon.  Even front-line folks can run a experiment since the cost of doing and the cost of failure is low.  These two factors are not unique to Amazon, they apply to all online businesses and good online businesses take advantage of them - the folks at Plaxo (full disclosure:  portfolio company) are masters of this.  Rikk, Todd, and Cameron and the other engineering folks constantly experiment, test and iterate on their new feature set before releasing it.  No wonder they are at 5 million users. 

The allure of big VC rounds

A lot of good discusson in the blogosphere about Webroot's recent $108 Million round.  Arun Natarajan blogs about it and provides a couple of different thoughts on the financing from Robert Cringely and Fred Wilson. 

I don't buy Robert's argument that its the fear of losing management fees that drove the Webroot financing.  I don't know any of the details of the financing and have no secret source.  However the people who did the financing (Accel, Mayfield, and TCV) are some of the smartest folks around and really understand the security space (full disclosure: Robin Vasan was on the board of Trigo Technologies - A company I co-founded).  I suspect that unlike traditional VC financings in which VC's invest their money in the company, a part of this transaction was done to buy secondary interest from the founders.  This is way for the founders to get some liquidity without necessarily selling the company.  This provides some risk mitigation for them and allows them to shoot for a big outcome.  The founders and investors probably believe that they can build a huge security company starting with the base of spyware/virusware and then expanding into IDS/IPS/etc. 

Can this company fight off Symantec /McAfee/Microsoft in this space?  We will have to wait and see. 

On a side note Brad Burnham has a post on private companies that have raised over $100 Million in venture capital and its not a pretty history.  Hopefully this one will have a better outcome

Value of Customer Development

We are all very familiar with software product development.  Its a process with well designed steps (design, code, test, iterate, release, etc.).  We schedule, plan, and track the various stages.  Given how granular we track the product development process, its strange how we have such a laissez-faire attitude towards sales.  With sales, we just hire a VP of sales give him some budget to hire a few more folks and hope (and in my case pray) that sales show up. 

Chris Whitted, VP of sales at Steelwedge (one of my portfolio companies), forwarded me a presentation from a gentlemen at Berkeley who tries to formulate a "Customer Development" framework.  I found it to be very useful.  I am attaching the presentation for everyone's benefit:
Download customer_development.pdf

Update 1: Just received an email from Steve Blank identifying himself as the author of this piece.  He teaches a course at Berkeley in the business school.  I highly recommend it for all current and aspiring entreprenuers. There is also a book that covers the material in the slides I posted and follows the course.  It can be found at: www.cafepress.com/kandsranch.  Steve can be reached at steveathassdotberkeleydotedu

 

 

APIs and innovation

I had written a while back about Skype's API. I found out recently that someone's developed an answering machine application using the API:

SAM is a simple voice answering machine for Skype® users.

When you are away from your PC and there is no one to answer your incoming Skype calls, SAM will pick up the call, play a greeting message and the "all-time clasic beep" so that the calling party will leave a voice recorded message.

It looks a little rough around the edges right now, but I still think it's a great example of how opening up APIs, done well, can fuel user-driven innovation. Apropos of this, also see the recent Google AdWords API announcement:

Google's free AdWords API service lets developers engineer computer programs that interact directly with the AdWords server. With the applications created, advertisers and third parties can more efficiently - and creatively - manage their large AdWords accounts and campaigns.

From the Google Blog:

The AdWords API beta program is an open invitation to developers to explore new concepts (and then write great software) for managing Google AdWords advertising campaigns. Large advertisers can use it for their complex ad management needs, like tying product margins to optimized keyword bids.Third parties can use the API to build new interfaces to manage their client accounts. Best of all, an API enables the creation of all sorts of unanticipated ideas.

Sales Learning Cycle

Many of us are familiar with the MLC (manufacturing learning cycles) which basically provides a framework to understand how manufacturing costs decline as volume increases.  Mark Leslie (of Veritas fame) has applied some of that thinking to software sales and I think its brilliant!!! There were many moments reading this slide deck that I hit my head saying wish I had known this a few years go ;-)

Some of the salient points Mark makes are:

1. There *IS* a sales learning cycle for selling software
2. The curve is different for different categories of products e.g. faster better cheaper, innovation, brave new world, etc.
3. VC's and entrepreneurs tend be too optimistic and do not plan for "learning"
4. Rather than acknowleding the "learning curve" we tend to staff sales on a capacity basis and then wonder why we missed the number and burned so much cash
5. Early on we need to hire different kind of sales reps (one who can learn and iterate)

My summary does not do the powerpoint justice.  Here is the complete presentation 
Download markLeslieSLCslides.pdf

Wiki Wars

The blogosphere is buzzing about the Wiki wars.  Matt Marshall has an article in the Mercury News about it.  Ross Mayfield felt compelled to write about it and give his point of view on the news.  Here is the REAL news about Wikis - CUSTOMERS CARE AND ARE WILLING TO PAY FOR IT!!!!!

Big markets need competition.  The best thing that can have happenned to both Socialtext and Jotspot is that they are getting customers even if they are stealing them from each other. 

At this early stage of the market both companies should cheer each other on when they get customers as it validates the markets and moves people from asking, "What is a wiki?" to which "Wiki software should I buy?"

So Ross forget about trying to defend Disney's move to Jotspot and rejoice that people are buying Wiki software even if it is not yours.

Prisoners of context

One of the elements of my job that I love is the ability to connect and talk with some of the top executives in the technology field.  While I like to think its my cheerful personality that allows that to happen, I know that in reality its driven by my role as a VC.

I have had a chance in the last few months to talk to quite a few senior software execs from a variety of software application companies.  A constant theme appears:

• The software business has changed irrevocably and has matured
• The glory days of growth are over
• Technology does not matter; its all about maintenance revenues and consolidation
• No white space remains in the software landscape

Hearing all their lamentations reminds me of an episode from my salad days when I had a real job.  I was at Microsoft in the mid 90's and was lucky enough to be one of a few microsofties invited to have dinner with Bill Gates and Mike Maples (they had a program in which they selected 30 odd employees every month to have dinner with the big cheeses.)   After dinner, Bill and Mike would run a 30 minute question and answer session.  I asked Bill that day if he was starting out his career in the 90's and he wanted to create a big company what would he do?  Bill earnestly said (and I felt he was being very honest) that the big opportunities in technology was done and that he would do something in Biotech.  He felt then (this is 1993) that the software industry has matured and there was not going to be much growth anymore.  Mike Maples also agreed.  Obviously in retrospect they were wrong.  They missed the Internet.  They missed BEA, Siebel, Veritas, Verisign and other countless B2B software companies that created billions in value. 

The moral of the story is that even very smart people can be blinded by the context of their environment.  To most senior software execs, they are living in a tough environment of long sales cycles, even longer implementation cycles, impossible to non-existent upgrade capability and a 3-5x services budget to implement their license software.  And they are right - that market is DEAD!!!! Customers don't want that anymore. 

What they are not realizing is that the new opportunity is exactly to sell and make software in a manner that has shorter sales cycles, very fast implementation time-lines, easy to upgrade and easy to maintain software, and a small amount of services.  The new software companies will do exactly that and they will eat the legacy players alive as history has shown many times.

Rumors of the death of IT jobs have been greatly exaggerated

I was in India recently on a personal visit  and had a chance to witness first hand the boom in IT and BPO jobs.  There was a buzz similar to ones I had felt in Silicon Valley in the 90's and to the ones folks say they feel in China.  I am happy that globalization and technology has bought an economic lifeline for India.  However dear readers (especially my American IT brethren) fret not for your IT jobs and please don't dissuade your children from thinking of IT as an option.  The cold hard facts of economic data don't support the hot air of technology Pandora's and trade unionists.

NASSCOM (the trade association of IT companies in India whose sole goal is to trump up the size of the industry to curry better favor from the government) claims that Indian IT software and services exports were $12 Billion in 2003-2004.  They expect that the BPO and IT sector will grow to $62 Billion by 2008/2009.  This is their "most optimistic" estimate however let us take it as fact.  Now let us make an adjustment to this number - since most people who outsource to India do so for a cost advantage, let us assume that people get a 3x advantage by outsourcing to India.  This is again a very agressive estimate since very few people get a 66% reduction in cost after they take into account communication and travel costs.  Even with that assumption, we only get a economic total of $186 Billion dollars .  While this is a big number for most of us, it is not a big number in the context of the American economy. 

The US economy is around 11 Trillion dollars growing at 2-3% a year.  Assuming 2% growth, the US is creating $220 Billion of economic value every year.  In 5 years by growth alone the US is going to create a Trillion dollars in economic value.  Even if all of India's outsourcing growth came from the US it would still be only 20% of the economic growth the US has created and less than 1% of the US GDP. 

The real challenge to all jobs is productivity.  Rather than worrying about red herrings such as India and China, we need to figure out how we can constantly upgrade our role in the value chain and make ourselves more productive.  I predict we will create 50% more IT jobs by 2009