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Who will create the Netscape of the Blockchain era? May 27, 2014

Posted by Bernard Lunn in capital markets, Fintech, Globalization, India.
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This is one of a series called Explorations down the BItcoin rabbit hole.

The Blockchain is exciting because The Perfect Copy Machine has its flaws.

Let me unpick that, starting with an anecdote.

In 1992, somebody showed me the Internet (thanks Charles Rawls). I ignored him. Silly me! The reason I ignored it was that I am not a developer and could not see how to use it.

The next time I saw the Internet was in 1996. I was in India and needed to use email in an Internet cafe. A developer showed me Hotmail.

The rest, as they say, is History.

In between those two events, a student at University of Illinois at Urbana–Champaign co-wrote the first browser for the Internet (thanks Marc Andreessen).

The Blockchain does not need a browser, but it needs something like a browser that makes it accessible to ordinary people. Today we only know the Blockchain because of Bitcoin. Now I will play the Long/Short game that FT journalists use in interviews:

Blockchain: Long

Bitcoin: Short (it’s primary value is to teach us that Fiat currency is like Winston Churchill’s description of democracy “lousy but better than any of the alternatives that have been tried”).

My inner editor is saying, get to the lede  (thanks Owen Thomas). What is wrong with The Perfect Copy Machine of the Internet? Simple: I cannot value something because it can be copied for free. That has been a dream opportunity for developers to make fortunes by offering ways to navigate the oceans of freely-created digital data. It has been a nightmare challenge for creative people, who had over time learned how to control of the analog copy machine, but then lost control of the digital copy machine.

However that is not where the Blockchain is needed. Creative people will finally find ways to make a living using The Perfect Copy Machine (as musicians are finding with iTunes and Spotify and writers with Createspace).

That is a First World problem and it is being solved.

I think the Blockchain will find use in the Rest of the World. Then it will come back to the West.

This is a “First the Rest then the West” story. To think about this, travel to Kenya and see where a digital currency/mobile wallet accounts for 30% of GDP. No, it is NOT Bitcoin. It is M-Pesa, derided by techies as utterly simplistic but massively useful to the billions emerging into a global middle class (which is the biggest story of the 21st century). One reason that M-Pesa works is because individuals can prove who they are using the most basic mobile phone. Yes, that is right your mobile number is your identity!

Like the other 7 billion people on the planet, I am unique. That is scientifically true, check my DNA. But my identity can be copied and my work can be copied. Again that’s a Western World problem and I can live with it. What if the title to my house or the access to my bank account could be copied? That is not fanciful; anything that has access to the Internet is accessible to criminals who can steal any of my assets that are recorded digitally (stealing is another way of saying copy it without my permission).

What if there was a way to protect the uniqueness of assets (creative or land or financial or whatever) that was not controlled by anybody other than you? That would be a powerful enabler for the billions emerging out of poverty who will then buy the products and services that our children and grandchildren in the West will be creating in order to make a living.

The Blockchain could give me the same control over all my assets as WordPress gives me for over my scribbling. 

That is why I am excited about the Blockchain. Other people share this excitement, but it strikes me that it is like the excitement for the Internet around 1992 before the browser made it accessible. Making the Blockchain accessible to the 7 billion people who will soon have mobile phones (it is over 5 billion today) will create a seismic shift.

If you are building something like that, I would love to hear about it.

This is one of a series called Explorations down the BItcoin rabbit hole.


Playing against 5 Aces December 6, 2007

Posted by Bernard Lunn in Globalization, India, start-ups.

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.

Mahalo is Web 2.5 – its official October 4, 2007

Posted by Bernard Lunn in India, social networks, start-ups, Web 3.0 Semantic.
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Jason Calacanis tried spinning Mahalo as Web 3.0 and got flamed all around the Blogosphere. Being a savvy promoter and ex publisher I am sure he is tickled pink at the free attention he got for his start-up.

I have to admit I rather liked his definition of Web 3.0:

“Web 3.0 is defined as the creation of high-quality content and services produced by gifted individuals using Web 2.0 technology as an enabling platform.”

Leaving aside the entirely correct view that all this versioning is just silly (it is silly, but methinks it is here to stay, the concept of continous evolution is too messy to grasp, we need defined phase transition points), Calacanis is just a bit wrong. What he described is Web 2.5. I think he is onto something big with Mahalo and it is a potentially great model, particularly with a few million more knowledge workers coming on stream from “the countries formerly known as emerging markets”. Mahalo is an interim step and brilliantly timed.

The reason is that the real Web 3.0 when we combine the Web 2.0 user generated social web with STRUCTURE (like we had in all those boring 30-year old databases) is a technically very, very tough thing to pull off. There are some big attempts such as Freebase and Radar Networks but these are very early stage.

So the interim, using humans rather than relying solely on algorithms, will be a great business model. It might not be Mahalo that pulls it off. But the basic idea is bang on target IMHO.

What amazes me is that the Mahalo concept was not invented in India.

Global audience development August 9, 2007

Posted by Bernard Lunn in B2B Media, Globalization, India, Online Advertising.
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American Business Media firms have a big opportunity to globalize. There is no other country that has a large enough market to support most of the niches that make up the 1,000 titles in the B2B Media world. So American B2B Media firms are the only ones with the scale and brand to go global in most of these niches. The question is how to take this opportunity.

The traditional answer has been licensing. That was the right answer for a print-centric world. You needed a local partner that understood the local nuances of content, circulation, production and advertising.

However the print economics in some of these markets are challenging. Take India as an example. That 300 million middle class is an enticing market and the opportunity in consumer publishing is growing fast; this is is country where new Newspapers are starting up! However B2B makes up only 1% of the media market and 50% of that is within IT. Advertising rates are far lower than in the US and with print costs pretty similar it is hard to see the economics working out.

However online it is a different story. With an almost zero cost per additonal online subscriber, the gross margins look good. Many Publishers tell me that they get a lot of traffic internationally and they know a lot of smaller vendors who want access to their US audience. This is not just classic English-speaking markets (UK, Canada, India, Australia, New Zealand) as the “business class” globally tends to speak English and seek out content from US based sites.

With User Generated Content (UGC) techniques it should be relatively easy to localize content; but even without this there is a big market as markets globalize.

Currently many Publishers are in reactive mode. They know from the weblogs that international visitors are coming but they don’t know enough to really sell that audience to advertisers. This requires a more proactive global audience development strategy.

What it feels like within an economy growing at 10% August 4, 2007

Posted by Bernard Lunn in Globalization, India.

Coming back from a week in India, I am reflecting on how different business feels like when GDP growth is in double digits. This is very different from simply growth in asset valuation (i.e. stock & property prices). This is the whole economy growing at 10%. It is certainly not just outsourcing, in fact that is not where you saw the excitement. Think Eisenhower America building the physical infrastructure that enables a mass-scale consumer economy, but at Internet speed.

I have been doing business in India since 1994 and this boom looks very different. One acid test I have is looking at the Billboards on the way into Mumbai from the airport. In 1994 they were advertising stock exchange shares and my instinct was bubble and that proved right. In the shortest bubble in history, for a about 3 months in late 1999, you saw Dot Com billboards. Now it is what you would expect for billboards, consumer products and services.

Looking at the newspaper on the first day, two stories jump out: 

One. A company called Suzlon Energy, making alternative energy from massive wind power farms, buying a $10m SAP implementation from IBM. Another story relates how Suzlon is a huge success story for American investors through funds such as Citi and ChrysCapital. This is certainly not another outsourcing story.

Two. An article about how Indian entrepreneurs and old family business owners are more willing to sell out. This is leading to capital formation within India, liquidity that is going
into Indian based VC/PE funds as well as angel investing.

Now a quiz. I am eating airplane food that is fresh and tasty using real cutlery and a cloth napkins, served by 4 cabin crew in a two aisle plane and they seem genuinely pleased to serve people. My personalized entertainment system has a huge choice of movies, news, games, music. Am I on long haul business class? No, this is domestic Economy on Jet Airways from Delhi to Mumbai. The founder CEO of Jet, Naresh Goyal, goes down in my book as one of the truly great entrepreneurs. Building this kind of consistently high levels of service in a country where infrastructure is a challenge and where large institutions have typically treated customers as annoying pests is a massive achievement. Jet has set the standard that has forced the other airlines to follow. Now the airports are starting to get revamped as customers come to expect the same quality on the ground.