Monthly Archives

October 2008

Phone industry becoming like the PC industry

By | Mobile | 6 Comments

Ajit wrote a good post on Open Gardens yesterday analysing how the mobile phone industry is coming to resemble the PC industry.  His thesis; open source software (e.g. Android) is stimulating the fragmentation of the handset market.  Currently 84% of the mobile market is in the hands of five vendors, whereas by contrast 40% of the PC market is in the hands of white label manufacturers.  Ajit’s post was stimulated by the news that PC manufacturer Asus is entering the mobile phone market.

The recent launch of the Android phone G1 to rave reviews is evidence of this trend unfolding.

All of which is great news for innovation and startups in this sector.

If we could just get this same sort of openess and choice in mobile networks, now that really would be something….

Creative destruction in the digital value chain

By | Business models, Content, Entrepreneurs, IPTV, Music, Venture Capital | 10 Comments

I’ve blogged this before with respect to music, but I have been struck again today by the thought that in the digital world many media industries will simply be much smaller than they have been before.

You can argue this from the price side – the wide availability of illegal free copies of music and TV/films (and soon books) means consumers will only pay so much for a legitimate copy.

And also from the cost side – in the internet era the cost of distribution is zero, so whereas previously the industry had to make a margin on the costs of physical production, transport and retail distribution of media that is no longer necessary.  Whole swathes of middle men and production and logistics companies are simply no longer required.  The internet also dramatically reduces the cost of finding and test marketing new content – it is no longer necessary to employ armies of scouts looking for new bands/movies/talent/art when artists can publicise themselves for free to a certain level using social media and production companies can simply pick off the ones that have already proven a degree of popularity and help take them to the next level.

For consumers and the world economy at large this is all great news.  New efficiencies have been unleashed reducing the price we have to pay for digital media and increasing global productivity generally.

For existing players in the relevant industries it creates pain and dislocation, as well as opportunity.  For many traditional media businesses the choice is to embrace the new order or face the risk of extinction.  The difficulty of course comes in deciding how aggressively to cannibalise your main business.  That is particularly difficult when there is a large chance that the ‘new’ business will only be a fraction of the size of the one it is replacing.  Worse, you can envisage scenarios where the profits you cannibalise are greater than the discounted value of all the future profits you hope to replace them with.

Small wonder then, that traditional businesses are usually reluctant to adopt cannibalisation strategies.  Even if there was unanimous agreement around the board on how the new world will look (which is unlikely) there would be legitimate disagreement on how aggressively to transition the company.  This is doubly true when there are lots of tools you can use to slow the pace at which the market moves from old to new – e.g. copyright law.

The old media companies that are most caught up in this dilemma are record labels, broadcasters and publishers and their distribution channels.  These are therefore promising areas for startups. 

Two free tickets for Library House Essential Mediatech 2008

By | Announcement | 25 Comments

UPDATE: CONTEST CLOSED

The kind folks at Library House have offered readers of TheEquityKicker two free tickets to their upcoming Essential Mediatech conference on November 11th.

There are 4 panels during the day:

  1. Web startups in Europe – Bindi Karia, Nadim Saad, Stefan Menden,
    William Tunstall-Pedoe, Nikolaj Nyholm,
    Marc Samwer
  2. All about games – Ed Bartlett,
    Sebastien de Halleux,
    Andy Moseby, Timo Soininen,
    Matt Rothman, David Bailey
  3. Survive the carnage – from crisis to opportunity – Jeppe Zink,
    Hugo Burge, Me, Errol Damelin,
    Charles Cohen,
    Brian O’Reilly
  4. The future of Mediatech M&A – Doug Richard,
    Barry Maloney, Jay Patel,
    Ben Holmes, Jonathan Wolf, Lucy Vernall

The tickets will go to the two best questions for any of these panels.

One question per comment and per person please!

Questioning market cap as a measure of value

By | Business models | 9 Comments

Since the bankruptcy of Lehman Brothers wiped out $47bn in market cap I have been thinking that somehow we must be doing something wrong when we look to share price as a measure of value.

Now that VW shares have gone through the roof making it briefly the largest company in the world by market capitalisation I feel compelled to explore this point in a blog post.

First some numbers – VW shares are up 286% this week and 444% for the year.  By comparison the other 29 stocks in Germany’s Dax index are down.

Critically for my argument here this share price move has nothing to do with the performance of the underlying company.  Rather it is the result of Porsche building it’s stake in VW and precipitating a short squeeze.

Something is amiss here – value is being created (VW) and destroyed (Lehman’s) extremely rapidly on a massive, massive, scale in ways that have little to do with the underlying purpose of business and the economy in general – i.e. to sell products and services, employ people and make profits (hopefully).  Real people’s lives and jobs get caught up in all this.

That is the problem statement.  But I am reminded of when I shared a political science book I liked with a philosophy teacher at school – he read it and described it as “typically useless political science – all problem statement and no solution”.  I am conscious of being equally useless here.

I have no idea what the answer is, but I am pretty sure that something has to change, and that it will happen slowly and over a long period of time.

I am a believer in appropriately regulated free markets and I’m reasonably sure that short selling is an overall positive influence, helping assets to find their natural price more quickly.  So radical change doesn’t seem sensible.  Yet finding some way to reflect the fact that the value of these big companies doesn’t change that quickly seems to me to be important.  Greater transparency would obviously help.

For tech this recession will be shallower than the last one

By | Entrepreneurs, Venture Capital | 2 Comments

George Colony of Forrester has posted a great analysis of why this recession will be different for tech than the last one 2001-03.  This is important to remember as the wave of layoffs continues.

To dramatically simplify his argument the reasons are:

  1. After 2000 there was fat everywhere in tech – but enterprises have become much more disciplined since then
  2. Tech has become much more pervasive and central to strategy, making it more difficult to cut – particularly as customers now also live on tech
  3. There are now burning tech issues that need addressing (virtualisation, social computing, mobile, green IT and SOA) – this wasn’t the case last time round

The full post is well worth a read, but the message is clear, we can expect tough times but predictions of armagedon should be treated with care.

Note that this is about tech rather than media.

Searching for a ‘killer app’ is usually futile

By | Innovation, Mobile, Networking | No Comments

As soon as I read the title of Techcrunch’s Microsoft About to Open Surface For Developers in Search For Killer App I thought, uh-oh, that doesn’t bode well for them.  They have been publicly working on Surface for over a year now and this announcement simply tells me they haven’t found a good application themselves.  The demos that I’ve seen haven’t blown me away with their commercial potential.  They’ve looked pretty cool, but that is about all.

More generally when people start talking about searching for ‘the killer app’ I start wondering if there will ever be a meaningful application at all.  It is often the last vanguard of hope for those in possession of technology infrastructure assets for which they are struggling to find customers.  We saw it most commonly in the mobile internet arena in the 2002-06 period, and there weren’t many companies that came through that successfully.

A visit to Wikipedia really hammers this point home.  In the entry for killer app there is a section on ‘killer applications and wireless networks’ which features the following list of services:

  • Google Maps on iPhone 3G with GPS
  • News and Weather SMS Subscription services
  • Email, Skype, Live! Messenger (SMS forwarding).
  • Electronic Banking and Money Management
  • Movie Showtimes and Ticketing
  • In Japan, cellular subscribers can “call” vending machines to purchase something and have the item billed to their accounts.

All these are interesting enough in their own right, but none of them come close to deserving the description ‘killer’, IMHO.

Rather than searching for killer applications (or worse, hoping someone else will do that for you) I think the smarter way forward is to find a decent application yourself, build it and then use that as a base to work from – both for yourself and as an inspiration for others.  Most often that first application will be niche.

Going this route provides evidence that the infrastructure works and that applications can be profitably built on top of it – both of these are pretty important if you want other people to commit time and money to your platform.

This is the way that Facebook operated – they built the platform with a few of their own applications (Wall, messaging, poke, etc.) and then opened up to third parties.  In the middleware space Tibco did the same thing when they released their MarketSheet application on top of their information bus back in the 1980s.

I’m sure there are many, many other examples.  There are probably a couple of counter examples as well, but I’m confident that they are far fewer in number.

Make your product ‘remarkable’

By | Entrepreneurs, Venture Capital | 10 Comments

When I finish reading great books I often like to share my enthusiasm here, and the latest to join the list is Purple Cow by Seth Godin.  I’m a little late to the party with this – the book was originally published in 2003 – but I think the advice still stands.

So what do I like about this book?

It offers a new twist on a favourite theme of mine – the importance of having great product.  Plus it was short and very easy to read.

In a single word Seth’s advice is that you make your product “remarkable”.

To expand on that a little, he believes:

  • remarkable products get talked about – generating word of mouth marketing and advocacy, which is about the only way to drive sales these days
  • safe incremental product innovation has become boring and won’t work – consumers are becoming immune to the effects of big ad campaigns
  • being remarkable often means heading for the extremes – best quality, fastest, cheapest, most fun etc.
  • or it means doing something very different
  • and this all starts with product design – not in marketing (despite the fact he is a marketeer

I think all of this is particularly true for startups, for whom the number one challenge is often getting heard above the noise on a shoestring budget.  That said, Seth targets his advice as much at big companies as small.

This is consistent with the views of Mark Earls on the power of belief businesses, and Tara Hunt, both of whom I have written about before, in glowing terms.

Ultimately it all starts and ends with product.

It’s getting tough out there

By | Advertising, Entrepreneurs, Exits, Venture Capital | No Comments

This morning I read of Yahoo!’s 64% profit decline and impending layoffs, which comes on top of recent news that Google is only trading at 15x cashflow, and rumours that UK online advertising in Q3 might be flat year on year.

We are seeing a rapid deterioration on all fronts; it was only two weeks ago that I blogged the 21% increase in UK online ad spend for H1 (also interesting is that the comments on that post pointed out that the normal time to see a decrease in ad budgets is after Xmas).

Whilst it is important not to throw the baby out with the bath water and stay focused on what you can do, this is a reminder that prudent budgets are the way forward – plan for the worst, hope for the best. 

Growth rates in ad revenues can be expected to be slower (particularly display), and biz dev deals with the likes of Yahoo! and Google will be harder to come by and slower to close.  Conditions in the M&A market will be an order of magnitude tougher.  Current best guess is that we should plan for these conditions to persist for 12-24 months.