10 Internet Biz Predictions For 2010 December 5, 2009
Posted by bernardlunn in Uncategorized.add a comment
Brave or foolhardy? My 10 Internet Biz Predictions For 2010 by Twitter. Self-imposed brevity.
# 1. The US economy will have another dip and unemployment will stay close to current levels. The creative part of creative destruction does not keep pace with the destruction part.
# 2.The stock market will be up for the year, despite some nasty moments and despite a lousy economy, as interest rates will remain low
# 3.Return of the Internet IPO. Media heralds the “golden age of the Internet” but we are all careful not to utter phrases such as dot com that recall funneling $100 notes into a furnace.
# 4.LinkedIn IPO is the poster boy for the return of the Internet IPO perfectly timed for the combo of a lousy economy and rising stock market.
# 5.Facebook does NOT IPO and there is lots of Blogosphere chatter trying to figure out why not.
# 6.Twitter is acquired by either Microsoft or Google for an amount that creates a lot of talk about a bubble.
# 7.VCs find it easier to raise money in aggregate. But almost all the real returns go to a very small number of firms and most struggle for a sustainable role.
# 8.25% of the financial services industry find work doing something different and some of them will be very successful and create a lot of positive impact.
# 9.Google’s stock underperforms a broader Internet stock index as pundits focus on their lack of advantage in the golden triangle of social + mobile + real time
# 10.Do Not Track legislation roils the behavioral marketing market and the smart bets on monetization move to transactions and subscriptions.
(yes to math folks, this version does not restrict to 140 characters, pre TwitEdit)
Online Transparency: Mega Wave Building Now December 3, 2009
Posted by bernardlunn in Web 3.0 Semantic, capital markets.Tags: data.gov, open university, transparency
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During the US Presidential election campaign, Google ran a series of amazing meet the candidates events that were broadcast online. They were the opposite of the sound bites on mainstream media. The candidates had plenty of time and were questioned by a highly intelligent audience. Barack Obama was one of the candidates (other ones worth watching IMHO are McCain and Bloomberg). There was one point that made me really appreciate the “audacity of hope”. It was when Obama was asked how somebody with so little experience in Washington could stand up to the special interest lobbies. His response (it is around 0.50 minutes on the video), which previewed what became Data.Gov, made my hair stand on end. Data.gov is real and in this video he describes the initial vision and mission.
Could Data.Gov Become Obama’s Greatest Legacy?
The question seems absurd. But listen to what Harold Wilson, Prime Minister of the UK for 8 years, described as his greatest legacy. Despite many high profile achievements at the pinnacle of power, dealing with big crisis and initiatives on the front page and prime time, he chose his work to create The Open University.
The Open University was founded on the belief that television and radio could bring high quality degree-level learning to people who had not had the opportunity to go to university.
At the time, the creation of the The Open University was lost amidst far more high profile news. But 40 years later all the high profile urgent stuff he worked on is simply material for the history books, while The Open University still has tremendous impact on the lives of millions by improving access to quality education.
Data.Gov will also take years to have a big impact. But it is a toothpaste out of the tube dynamic. Once the data is out, nobody can get it back in. And this is riding a massive wave of online transparency. There is no need to fight entrenched interests – just ride a massive wave that will effortlessly wash away those entrenched interests and lobbyists.
The Decline Of Asymmetric Information Intermediaries In Consumer Markets
Online transparency is about taking away the power of asymmetric information from an intermediary. We have already seen this play out in consumer markets. Buyers now have access to much better data about pricing and costs. The most notorious intermediary exploiting information asymmetry was the car dealer. That game has changed forever.
Cars, houses, travel and many other big consumer markets now have the consumer in charge. Good data and social ratings have changed these markets forever. These are the big and complex purchase decisions for most consumers. But the data is still totally simple compared to information about how laws are made in Washington and who influences how those laws are made and how they benefit from those laws.
The Big 3 Markets That Will Be Impacted By Transparency
These consumer markets are also really simple compared to these three big markets:
1. Scientific Technical Medical Publishing.
2. Capital Markets.
3. Healthcare.
The data that drives these markets is horrendously complex. And what happens in these markets really, really matters to all of us.
Enter Stage Right, The Semantic Web
The Semantic Web, the geeky guy that web 2.0 hipsters like to poke fun at, is about to enter the stage and finally has a big role to play.
The data complexity in these markets is overwhelming for a the “slap some HTML and Ajax on top of RDBMS” that is the de facto technical approach today. The best data modelers in the world cannot design upfront for these markets.
Obliterating Data Obfuscation
Software engineers use “obfuscation” techniques to deliberately hide the underlying code designs in order to prevent a user from making an illegal copy through reverse engineering. That is a reasonable objective. What is not reasonable is “intermediary obfuscation”, the deliberate obscuring of reality through layers of complexity and impenetrable jargon. Special interests use data obfuscation to protect their profits.
Three Powerful Forces Driving Transparency
We are now seeing three powerful forces driving transparency:
- Political will from the leader of the largest economy in the world.
- Consumers and B2B buyers expecting transparency from sellers and rewarding the sellers who deliver it with more business.
- Semantic Web/Linked Data technology that is increasingly mature with many passionate proponents seeking a prime time role for the technology. In the capital markets, XBRL is the key enabling technology.
Online transparency is a mega wave to ride.
CIOs Think XBRL Impact Will Be Big (But It Is Not High On Their Priority List) December 1, 2009
Posted by bernardlunn in Uncategorized.Tags: capital markets, cio, compliance, governance, risk, transparency, xbrl
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I have developed a journalistic habit – try to find THE STORY. It is valuable habit when sitting through long conferences. You can learn lots of detailed stuff at conferences but it is too easy to get lost in the trees and not see the forest.
The story at the XBRL Conference jumped out at me when I saw two slides from a presentation by John Van Decker of Gartner. This generated the headline:
“CIOs Think XBRL Impact Will Be Big (But It Is Not High On Their Priority List)”
Of course headlines and sound bites can suffer from a different problem – oversimplification. So take a look at the underlying data as shown in the presentation slides. Specifically look at: John Van Decker, Vice President – Corporate Performance Management and Financial Management Systems, Gartner in Beyond The Mandate. See slide marked: Technologies that will have major impact.
# 1 at 37.1% is no surprise: Web Oriented Software. Actually that’s a catch-all term that includes almost all the other categories
# 2 at 29% is the big surprise: XBRL!
Add in the related # 3 at 24.8%: Governance Risk & Compliance (GRC) and you can see what is keeping CIOs awake at night. Arguably, XBRL is a tool to enable GRC:
XBRL + GRC = 53.8%.
To put this in perspective, check out the % for some “hot” subjects:
- SAAS: 15.7%
- Enterprise Mashups: 6.2%
OK, so much for the first part of the headline:
“CIOs Think XBRL Impact Will Be Big”
What about the second part?
“But It Is Not High On Their Priority List”
Look on the next slide labeled: XRBL adoption is SLOW!
For those relatively new to XBRL, the 1,2 and 3 relates to the SEC Mandate, where 1 is the first wave of filers. My takeaways:
- There is a lot of work to educate the 3rd wave of filers. 72% cite “lack of knowledge” (and therefore, not surprisingly lack of budgets or technology).
- Nobody has provided a compelling use case beyond the mandate, so the 1st and 2nd wave filers are not doing more than they absolutely need to in order to meet SEC mandates.
For more basic intro to XBRL, see my recent post and links on ReadWriteWeb.
Talking To John Hagel About Emergent Business Networks November 29, 2009
Posted by bernardlunn in Globalization, capital markets.Tags: big shift, china, emergence, john hagel, partnering, return on assets, ROA
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John Hagel is one of the leading business strategists, author of The Only Sustainable Edge. I interviewed him back in July about the research he is doing at Deloitte into the dramatic and overlooked plunge in Return On Assets (ROA). When Deloitte contacted me again about some new data which dug deeper into ROA in different markets, I wanted to learn more about the background story. In conversation with John, the story emerged. The story is what big western companies can learn from Chinese companies about peer partnering in emergent business networks.
The Return On Asset Bombshell
The Big Shift research done by John Hagel and his team shows:
“U.S. companies’ return-on-assets (ROA) have progressively dropped 75 percent from their 1965 levels despite rising labor productivity.”
That is dramatic. If you had to select a single measure by which to judge the value delivered by a CEO, board, or management team, it would be return on assets. To quote from the Wikipedia entry:
“The return on assets (ROA) percentage shows how profitable a company’s assets are in generating revenue. This number tells you what the company can do with what it has, i.e. how many dollars of earnings they derive from each dollar of assets they control.”
And here is the bit that matters:
“Return on assets is an indicator of how profitable a company is before leverage.”
If you want to understand the financial meltdown that happened at the end of 2008, just think leverage, i.e. debt. Companies juiced up their earnings using leverage. They have been doing this more and more in the last 30 years.
What happens when you take that away? You get the return on asset bombshell that the Shift Index reveals. It is like taking steroids away from an athlete and then saying, “Now, how fast can you run 100 meters?”
Give Your Lobbyist A Bonus
In their latest research the Shift Index team looks at how this is impacting different industries:
“While virtually every industry that Deloitte examined has been impacted by the “big shift”, the first wave of industries currently feeling the most pressure include technology, media, telecommunications and automotive. They also represent a ‘canary in the coal mine’ for industries that have just started to feel the effects of the Shift Index, including banking, retail and insurance. Finally, the report also reveals that heavily-regulated industries like healthcare and aerospace & defense are the most insulated, at least for the moment.
The take way for investors? Place your money in markets where the government has erected the barriers to entry through regulation. The take way for companies in that fortunate position? Give your lobbyist a bonus!
But what if you work in technology and don’t think that regulatory barriers are either desirable or practical? You certainly need to do something dramatic if you look at the ROA data in your industry:
“In terms of the technology industry, the report reveals that a decline in ROA of nearly 70 percent, despite the highest gains in labor productivity in the U.S. This industry is also experiencing a level of competitive intensity that has magnified almost four-fold since 1965 and is 30% greater than in the rest of the economy.”
What Companies Are Showing The Way?
This all sounded rather gloomy. Deloitte is in the business of advising large companies. So I assumed that John must have some role models, some tech companies that were prospering in this hyper-competitive economy. Surely the only answer was not just “work in a highly regulated industry and hire a good lobbyist”?
Yes, John had some role model of tech companies prospering despite hyper intense competition. But their location surprised me. In the past the role models brought out by management consultants were almost all American, with an occasional European or Japansese company thrown in for good measure.
The role models that Jon mentioned where Chinese tech companies.
As A Historian I Should Know About Quoting The Source
When he described how they were working, it reminded me of the Chinese motorcycle companies that I had written about in my original post on “Emergent Business Networks“.
I mentioned that I had written about this earlier having been impressed by the story about Chinese motorcycle manufacturers in Wikinomics by Dan Tapscott. Oops! John told me that Dan got the story from him. As somebody who studied History at college, I should know better. So, by way of an apology, here is a link to John’s book – The Only Sustainable Edge.
Peer Partnering vs PR Partnering & Platform Partnering
These Chinese tech companies are “partnering” to build products way more efficiently than they could by creating everything in-house. Nothing new there you might think. Partnering is what we all do, right?
Partnering is perhaps one of the most overused and abused term in the business dictionary.
There are two predominant forms of partnership today:
- “PR Partnerships”. These are designed to make both partners look good and to get press but they don’t involve much real work or create significant revenue.
- “Platform Partnerships”. These are when a big company sets the rules in order to get small companies to create products for niche markets or to sell their product in niche markets. This is like calling a landlord/tenant agreement a partnership.
By contrast, the Chinese model is more like “Peer Partnership”. Each company is genuinely independent and each partnership is mission critical to both parties. This involves some hard-nosed negotiation.
Keiretsu 2.0?
Cynics might say “we have seen this movie before”. In the 1980s it looked like the Japanese model was going to dominate. Their networks of companies were called Keiretsu. The term became popular in the start-up world; Kleiner Perkins called their network of contacts a Keiretsu.
I asked John if the Chinese model was simply “Keiretsu with a Chinese Face?” John had clearly considered this and responded that the Japanese model involved equity cross-holdings (that’s why the model appealed to VC firms). The problem with that is that the equity position outlives the usefulness of the partnership. Rather than re-negotiating or ending the partnership, cross-holdings tend to lock them in well past their “sell by date”.
Chinese Jiu Jitsu
Necessity is the mother of invention. Chinese companies have grown despite lacking two critical things that we take totally for granted in the West:
- Intellectual Property (IP) protection
- Well developed capital markets.
The Chinese firms turned these weaknesses into advantages through their approach to partnering – classic Jiu Jitsu.
Large American companies may need to learn some of these tricks. We are entering an era that looks a lot like emerging markets when:
- Intellectual Property (IP) protection is threatened by the “perfect copy machine” of the Internet and the consequent move to open source, open data and open everything else.
- Capital becomes more scarce as debt leverage declines and equity investors demand a greater real ROA.
StartUps Know That Partnering Has To Be A Core Competency
The 3 golden rules of a start-up are focus, focus and focus. Startups know that have to focus on the one thing that they do better than anyone else partner with other companies for everything else. Some entrepreneurs now consider the art of partnering as a core competency.
It is possible that we are facing an interesting inversion of the norm. It used to be that start-ups studied at the feet of managers who used to run large traditional companies. “Teach me to manage oh great suited one”.
Now the big cats in the corner office are being asked to think more like a scrappy bootstrapped start-up in a garage in cheap location in America or an equally scrappy start-up in a dusty corner of Western China. It’s enough to make you throw up your 3 martini lunch!
A great bit of business journalism December 14, 2007
Posted by bernardlunn in B2B Media, Journalism.add a comment
Read this article from Forbes:
“Internet II: Rebooting America
Michael S. Malone, 09.10.01
Getting real and getting it right.
The biggest economic boom in history is bearing down on us. “
Big deal, you might think. But check out the date (what happened the next day?). In late 2001 this was really far-sighted, clear thinking.
Now look at his concluding remarks:
“But with this announcement also comes a warning: We are not prepared for this impending boom. We have no way to support it, to nourish it, even to reap its benefits. What will happen to Internet II, the fulfillment of the technological revolution, when our order sits on a runway behind 60 other planes awaiting takeoff, or on a stalled interstate? And how many batteries will we need to surf the Grid in the dark?
Internet II is coming, but we aren’t ready. If we aren’t ready soon, we may have to wait until 2015 or 2020, and perhaps visit Frankfurt or Shanghai to see what we missed. “
Blogs, shmogs, great journalism still lives and makes a difference.
Playing against 5 Aces December 6, 2007
Posted by bernardlunn in Globalization, India, start-ups.add a comment
NOTE: THIS WAS WRITTEN IN 1997
I wrote this article 10 years ago, having spent a lot of time in India at that time. I have written the “10 years later perspective” and posted that to Read Write Web.
American software companies dominate the competitive landscape. Americans have no genetic advantage over Indians, a fact that is proven again and again by Indian immigrants to America. No, the advantage is environmental not genetic. America is a much, much easier environment within which to create great software companies. American companies start life with 5 major advantages – their 5 Aces:
1. A large domestic market
2. Access to intellectual capital
3. Reliable, low cost telecommunications
4. A culture that rewards innovation and risk taking
5. A well developed venture capital industry
If you were playing poker, that would be like having 5 Aces. Yes, I know you cannot have 5 Aces but, American companies have so many advantages that it almost seems like cheating. Stacked up against all those Aces, India has only one good card to play, an abundant supply of well-trained software engineers at reasonable rates. Sorry guys, America has the better hand.
So should Indian companies give up the dream of creating killer apps and just stick to Y2K and other low value work? Well let’s look at some of those Aces in more detail first:
A large domestic market.
America has a vast domestic market that serves as an ideal springboard for global ambitions. Unfortunately India’s domestic market does not serve the same purpose.
There are many brave companies creating software products for the Indian market. They are the unsung heroes of the business. Usually they have tiny revenues and therefore they never appear in the usual roll call of Indian software champions. Yet what they are doing is far harder than shipping a bunch of engineers off to USA, which is still the primary activity of TCS, Infosys et al
Let’s face it, India is a tough market. Indian buyers assume that foreign products must be better. In fact Indian software gets much more respect internationally than it receives at home. The local vendor typically only gets a look in at the low end of the market, where price is the main consideration. For example, a lot of Indian companies are going after the “low end ERP market” because the giants such as SAP are not interested in this segment, at least yet. Will any of these domestic companies make it into the big time before SAP and other global players decide that the low-end market is worth tapping? This is a tough game that has been called “picking up peanuts in front of a steamroller”.
This lack of respect works both ways. The big Indian software companies contrast the wealth of opportunities in USA and Europe with the slim pickings in the domestic market. They naturally put their best people on international projects, treating the domestic market as a training ground at best. This is a vicious circle. Indian industry, which is facing its own struggle to become world class, is not keen to be treated as second best.
Access to intellectual capital
Intellectual capital is the reason why a healthy domestic market is so important. Intellectual capital is much more important than revenues. You can have a world class software company that has no revenues from India. You cannot have a world class company without world class intellectual capital.
Intellectual Capital usually comes from customers. Think about how most new software products get built. The process usually starts with a visionary customer who wants to make a major impact on their business by using new technology. Looking around the market they see no off-the-shelf product that meets their visionary demands. So they tie up with some bright software guys. The visionary customer is more concerned with innovation than size and understands that innovation usually comes from small companies with no vested stake in the old way of doing things. So small, innovative software companies get their first break.
Look at virtually any software company and this is the pattern you will see. Bill Gates, received his first break through a contract from IBM to deliver DOS. Other giants such as SAP and BAAN follow a similar pattern.
When people in India talk about intellectual capital and the Indian software industry, they tend to focus on technology. They point out that most technological innovations come from the USA and that this puts India at a major disadvantage. In fact, this is only a minor issue. The latest version of Visual Basic or whatever is available in India at much the same time as it is launched in America. Through the Internet you can research all the latest technologies and download what you need.
No, the intellectual capital gap relates to industry. You need customers that are innovators and world leaders in the area of Supply Chain Management or Derivatives Trading or Electronic Commerce and these are hard to find in India.
There is one industry where India has innovators and world leaders (or nearly) and that is software. Maybe that visionary customer is in your own back yard. There is a huge population of software engineers in India that is always looking for innovative ways of doing their job more productively. Maybe the Indian “killer app” will be a new software productivity tool?
Reliable, low cost telecommunications
When Bill Gates was being wooed by the high and mighty in Delhi, he was often asked, “what should the Government do to ensure that India becomes the next software superpower?”
Rather than respond with a whole laundry list of initiatives, his answer was very succinct: “make the telephones work”.
Telephones are the single greatest tool used by the software industry. Telephones provide the means to reach your market, to transfer software to your customers and to access all that intellectual capital on the Internet.
Coming from Europe and America I took reliable, affordable telephones for granted. When I started calling on Indian companies I became all too familiar with a young lady telling me that “all lines on this route are busy. Please call back after some time”.
If you have always lived in India your reaction is probably a fatalistic “so what…that’s life…keep on trying”. Well I was selling rather than buying and so I did keep on trying. What if I was buying? What if my next calls were to companies in Israel and Russia where I got through the first time? Would I have persisted in trying to buy from India? Probably not.
A culture that rewards innovation and risk taking
There was a story in Fortune magasine recently where the big consulting firms, prestigious names like McKinsey, Anderson, Booz Allen, were complaining that they were having a hard time attracting the pick of the MBA crop. Why? Because the best and brightest wanted to work in tiny start-ups in Silicon Valley where they can make a difference.
I doubt that the consulting firms face the same problem in India. The best and brightest would flock to the status and safety of the big firms rather than face the uncertainty of a garage start-up. Without the best and brightest, Indian software will not hit the big time.
The difference is a culture in the USA that rewards innovation and risk taking. There are so many role models for the budding entrepreneur to emulate. Indeed high tech entrepreneurs in America receive almost as much attention as the Indian cricket team!
The role models are available in India and some of them, such as Shiv Nadar and Narayana Murthi, receive a lot of press attention. It is increasingly clear that software is one of the industries where India can become world class and this will help to attract the best and brightest.
America has a very healthy attitude to risk and failure. Start-ups are risky by nature. A lot will fail. Does a young engineer in America, leaving a failed start-up find doors closed and people and looking at him in a funny way? Not usually. Indeed most people would assume that the person has learnt some valuable lessons and will succeed next time. Magazines are full of people who tried numerous ventures before hitting on the successful formula.
A well developed venture capital industry
Venture Capitalists in Silicon Valley vie for the opportunity to tell their story to first year students at Stanford University. They hope that the bright kid with dreams will come to them first. Can you imagine this happening at an IIT?
Actually, yes I can imagine that! Venture Capitalists are thirsty for new ideas and don’t care where they come from. There is plenty of Venture Capital right here in India looking to invest in software ventures. OK, there are not as many as in the USA, but how many do you need? You only need one to fund your venture.
The talk about a lack of Venture Capital in India is misguided. Talk to some of the Venture Capital firms operating in India and you get a rather different story. “Indian software companies do not understand Venture Capital. We have plenty of money to invest. What we lack are good business plans promoted by credible and seasoned management teams.”
You need to understand the Venture Capitalists and talk to them in their language, but that is the subject of another article. If you have the right idea and the right management team, you will get funding.
So should you continue to play when your competitors have 5 Aces? Maybe it would be more sensible to stick to bodyshopping.
“Insanely great products”, as Steve Jobs calls them, are not created by sensible people. They are created by obsessed individuals, who forge ahead when everybody is telling them that they are crazy. There are entrepreneurs in India today who can turn those 5 Aces to their advantage and add the Indian advantage of abundant low cost talent.
There are great software companies that grew up outside of America. Look at SAP from Germany, BAAN from Holland, Business Objects from France and Checkpoint from Israel.
These companies treat America as their home market. They raise capital in America, have most of their customers in America and bring in American management talent to help them to better understand this key market. In other words they make those 5 Aces work for them and not against them. You had better take those 5 Aces and make them your own and do it quickly, because American companies are taking the one Indian Ace, your talent. Most of the major US software companies are setting up 100% owned subsidiaries in India in order to tap Indian engineering talent. That Ace no longer belongs exclusively to Indian companies.
If you think that the situation looks tough from India, look at Israel. Israel is tiny compared to India and does not share India’s English language advantage. Yet Israel received over $800 million in high tech Venture Capital from the USA last year, more than any other country and far more than India.
So, yes it is possible to create killer apps outside America. It is possible to create them right here in India. Do you have the ideas and the drive to make this happen? Do you know where you want to go but lack a road map? The Dataquest “In search of India’s Killer App” series of articles will give you a road map.
In our next edition, Bernard Lunn will describe the financing options for entrepreneurs, helping you to have fruitful discussions with Venture Capitalists and Angel Investors.
Alibaba and B2B media October 26, 2007
Posted by bernardlunn in Uncategorized.add a comment
While reading rather depressing news about B2B Media firms like Cygnus it is pretty wild to see news about a B2B Media firm raising $100bn in orders from institutional investors for its planned $1.5bn capital raising.
Yes, Alibaba is described as e-commerce not B2B Media, but what have they done other than build a database and add some software to enable better integration into user workflow? This is classic “rich data” and all B2B Media firms in the USA are sitting on similar goldmines.
Yes, as Warren Buffett pointed out on the same day, Chinese stocks are overvalued, but this is still a really good business even if you scaled back the valuation hype by about 90%.
