Good morning MIT

Google presentation of Android

I went to the Google presentation of Android. It was a Mobile Monday event held in conjunction with the Mobile Internet World Conference in Boston.

David Carson and Alan Blount of Google (Android developers) presented an overview of the Open Handset Alliance and Android mobile phone SDK. Android is a software stack for mobile devices including an operating system, middleware and key applications. Developers can create applications for the platform using the Android SDK. Applications are written in Java and run on Dalvik, a custom virtual machine designed for embedded use which runs on top of a Linux kernel.

The centerpiece of the presentation was a demo to "live code" a web application using Android and they did in 5 minutes! Android is going to drop the cost of developing mobile applications!

Some things they pointed out about Android:

• During the last years, the HW cost of a mobile device has been decreasing whereas the SW cost has been growing. With Android, the SW trend is going to change.
• It is Java focus
• It is Open Source
• It has a Linux Kernel
• It runs on inexpensive devices (200MHz): the goal is to make it run on as many devices as possible and make it device agnostic (mass market)
• The developers have spent a lot of time on performance optimization

I am sure that Android will become the dominant platform and a lot of current developer’s problems will go away. It was clear that David and Alan also felt very confident about it. During the Q&A, they could not answer many questions owing to confidentiality issues. After the presentation, we managed to talk to them.

I include some pictures of the presentation while they were live coding the application.

 

Dinner with Desh Deshpande: founder of Sycamore, Cascade and Coral

In our last Entrepreneurship and Innovation dinner at the Marriott we had "Desh" Deshpande as our speaker.

Desh Deshpande is a very well known serial entrepreneur in high tech and one of the most successful high tech entrepreneurs in the world. His most recent success has been Sycamore Networks, which he co-founded and where he serves as chairman. Sycamore Networks, an optical equipment manufacturer, went public in its 5th Quarter and reached a market canalization of ~$50 Billion. Before Sycamore, he co-founded in 1991 Cascade Networks, a company that carried 80% of the Internet traffic. Cascade was acquired by Ascend Communications for $3.7Billion in 1999. Two years later, Ascend was acquired by Lucent for $24Billion (mainly based on the competitive advantage of Cascade).  Prior to Cascade, Desh Deshpande co-founded Coral Network in 1988 and served in various management positions for Codex Corporation. The financial success of Cascade and Sycamore made a significant number of millionaires in the Boston area, who went to start other successful startups alto in the telecommunications equipment sector. For example, ArrowPoint acquired by Cisco for $5.7Billion, Spring Tide Networks acquired by Lucent for $1.5Billion, Sonus Networks which went public, Ignitus acquired by Lucent, Argon Networks acquired by Siemens, Redstone acquired by Unisphere, etc.

More recently Desh donated $20 Million to MIT to create The Deshpande Center. The center serves as a catalyst for innovation and entrepreneurship at MIT by supporting leading-edge research and bridging the gap between the laboratory and marketplace.

Some interesting points Desh Deshpande made during the dinner about entrepreneurship:

• In the past, in order to show commitment to the VCs, you had to have a very low salary (or be unpaid). This has changed in the last years in the US (not in Europe) and VCs want you to live comfortably enough so you can focus on the startup.
• Every 5 years he changes what he does and spends 4 months without doing anything. He thinks that time is the biggest asset that we all have.
• Interestingly, he mentioned that while you are in a startup, you think that if you lose a minute you are going to be late. But he has realized that when he goes away and comes back 4 months later nothing has changed.
• He likes entrepreneurs who are passionate about what they do and crazy. However, craziness helps at the beginning but limits growth.
• Entrepreneurs are usually good only in one area (e.g., technology, sales, etc.) and do not need to be good at everything. That is why it is so important to build a team.
• During the last 6 years, each year he has helped to start a social company (mainly in India) and a for profit company, including Airvana and A123 Systems.

Amazon presentation

I attended a presentation of Amazon given by a Senior VP and some Sloan alumni working there. They talked about how they are growing with things like (examples of 2006/7):

• Amazon elastic compute cloud (scalabe computing resources for web developers)
• Amazon Fresh (Amazon's online grocery service)
• Endless.com (Amazon's independent shoe and handbag website)
• Lacoste
• Launch of digital music downloads
• Unbox Tivo (download videos to your TiVo)
• Amazon widgets
• Acquistions such as Brilliance (publisher of audiobooks)

I liked the way Amazon run IMDB, which is similar to a startup. They have less than 100 employees and it is very entrepreneurial, with people proposing new ideas and launching and managing them (e.g., the new feature of "characters" in IMDB).

Visit to the Google offices

Last weekend I went to New York to visit companies related to media and entertainment. The trip was organized by MIT. I visited Newscorp, Google and JumpTV with a group of 9 other MIT students. There were other groups that went to visit MTV, The Economist, CBS, etc.

It was my first time in the Google offices and I was really impressed! It is an awesome place! a place where you want to work!

• You can use a scooter to move around the office
• They invite famous chefs to cook for them
• The cafeteria has amazing food
• They have legos and video games (e.g., guitar hero) in every corridor
• Employees are allowed to bring their children
• etc, etc

Visit to News Corporation and JumpTV

In the trip to NY, we also visited  NewsCorp and JumpTV.

In NewsCorp, we went to the FOX studios and they invited us to one of their live shows in the morning and we were on national TV! Jennifer Garner was the invited host. After the TV show they gave us a presentation about all their businesses (Fox TV, 20th Century Fox, Wall Street Journal, The Sun, BSkyB, etc.) in a meeting room with very nice views (6th Ave and 48th St., see the picture). They also talked about future businesses related to News Corp: Myspace, Jamba, or Dow Jones acquisition.

The difference between the work environment at NewsCorp and Google is huge! although I have to admit that they were very nice with us, they gave us very good food and even a bag with presents (e.g., Little Miss Sunshine DVD).

After this talk we went to JumpTV, a startup that broadcasts international TV channels on the Internet. Before going there, I was a little bit skeptical about their business model (specially compared to other startups like Joost, Veoh or Zattoo, all with proprietary technology or carriers using IPTV). However, after the talk, I think that they have an interesting business model, appeling to the TV channel owners that decide to use JumpTV to broadcast their signal in other countries. The executives from JumpTV invited us to collaborate with them in January or during the Summer to define strategies to expand in certain regions.

eBay presentation

I attended a presentation about eBay with the CIO of the company and MIT Sloan alumni currently working at eBay. The gave some interested facts about the company, which is divided in 3 units: eBay (marketplace), PayPal (payments) and Skype (communications). They are the leaders in each unit:

eBay Marketplace

• 222 Million users
• 1 Million people make a living on eBay
• Presence in 24 countries
• Continuous innovation (eBay mobile) and expansion (acquisition of Stubhub, to buy tickets )
• Includes Shopping.com and Craigslist.com
• It is the 8th largest retailer in the world (Sales of $52B) compared to #1 Wall-Mart ($351B) or #2 Carrefour ($103B)

PayPal

• 163 Million users (compared to 78 Million of Amex)
• People use it not only on eBay but to buy outside or send money
• 31% year-on-year growth

Skype

• 220 Million users
• $200 Million in revenues in 2006
• Fastest ever product ever
• 5% of global international phone calls

Last year they had $5.8B in revenues and Operating income of $2B

Frank Zenie

Frank Zenie was the second speaker in our weekly Entrepreneurship and Innovation dinner. Mr. Zenie co-founded Zymark in 1981 and served as President, Chief Executive and Director until Berwind Corporation acquired Zymark in September 1996. At the time of acquisition, Zymark was valued at about $60 million. Following Zymark’s sale, Mr. Zenie embarked on a new career assisting entrepreneurial ventures as an investor, advisor and director. He currently serves on the Boards and provides advisory services to several early-stage, technology-based companies. He serves as Chairman for two of these, VelQuest Corporation  and Process Packaging and Control, Inc. He is also a trustee of the Zenie Foundation. He has recently published the book "StreetSmart Entrepreneuring".

Some comments about this talk:

• The entrepreneur's job is to identify potential customers and understand unmet needs
• The best question an entrepreneur can ask to their customers is "what keeps you up at night"
• It is better to have 100% of a niche market than 1% of a larger market. Having 100% of a niche market gives you control and customer will likely take you to their next unmet need
• About patents in pharma: They are important because of the approval process. If you have a new drug/unique molecule, people could probably slightly modify it and obtain something similar but they would have to go through the whole FDA approval process (~6 years). Therefore, competitors end up licensing the patent instead of modifying it.

Michael Cusumano: building successful Software firms

Last week Michael Cusumano was the invited speaker in our Entrepreneurship and Innovation dinner. He talked about the Business of Software.

Michael Cusumano is the Sloan Management Review Distinguished Professor at the MIT's Sloan School of Management. He specializes in strategy, product development, and entrepreneurship in the software business. He is co-author of several books about the SW industry, including the best sellers "Microsoft Secrets" and "The Business of Software". He received a B.A. degree from Princeton in 1976 and a Ph.D. from Harvard in 1984. He is fluent in Japanese and has lived and worked in Japan for seven years. He has been a director of several public and private software companies

Some of the things he pointed out about the SW industry:

• The dominant model of sustainable SW companies is SERVICES instead of PRODUCT
• This is a dynamic industry, with high pace of change
• Sales almost always decline over time

SERVICE vs PRODUCT COMPANIES

• Difference between the two: Product companies are the ones that sell prepackage products (e.g., Microsoft). Service companies offer support, training customization, etc.
• There has been a lot of consolidation in the industry. In 1998 there were 400 public SW product firms. In 2006, there were 140 public SW product firms (e.g., Oracle has acquired ~20 of them). A similar trend exists about public IT services companies.
• Product companies have margins of ~99%. Service companies have margins of ~40%.
• Advantage of Product vs Services: If a service company like Infosys wants to grow at 40% per year in revenues needs to grow at 40% in employees. A product company like Microsoft does not need to grow 40% in employees to grow 40% in revenues. Having a product company is like having a machine that prints money (marginal cost = 0)
• It is easier to make money with Service companies. For every $1 of licensing you can make $7 of services (support, training, etc.).
• During the last years, services as a percentage of revenues has been increasing for IT companies (IBM, Sun, Dell, HP).
• HYBRID COMPANIES: Even if services do not escalate (and VCs do not like service companies because they do not escalate), he recommends it since it is more sustainable: LOWER GROWTH AND LOWER PROFITABILITY BUT MORE SUSTAINABLE: THEY SURVIVE
• 37% of Web based enterprise SW vendors bootstrap.

SOME FACTORS OF A SUCCESSFUL STARTUP

• Strong and balanced management team
• Attractive market (Porter 5 forces)
• Compelling new product or service
• Strong evidence of customer interest (e.g., a letter of interest)
• Plan to overcome credibility gap (i.e., some customers will never deal with a startup since 90% fail)
• Business Model with early profits and scalability
• Flexibility: Strategy, technology, products adaptability
• Potential for a large pay off to investors

ABOUT ENTREPRENEURSHIP

• Everybody has an idea of a widget or social network :-)
• Greatest problems: Your employees leave or your customers think that your product is not good.
• Greatest satisfaction: Respect/trust of investors, employees and customers. You have a sense of building something of value

His final conclusion and advice is that the SW industry is very tough and it is difficult to play, make money and survive in this business.

Cellfish Media: breaking into new mobile media markets

I attended a discussion with Christian Bausch, VP of Marketing of Cellfish Media, on opportunities in new markets for mobile media in the U.S. and Europe.

Cellfish Media is a new digital content, marketing and distribution group that creates original branded content such as music ringtones, wallpapers, animations, games, infotainment services, and community applications aimed at the Mobile Generation. It operates the largest interactive response business in Germany and is a leading provider of mobile content and services in Europe and North America. They have ~$120M in revenues, ~300 employees (mainly in France, Germany and US) and ~20 carriers relationships.

On-deck vs. Off-deck: The main conclusion of the talk was that if you want to make money in this sector, relations with carriers are extremely important since they do the key thing: BILLING. It is extremely difficult to do billing easy (i.e., fast) for the final customer if you do not have a relation with the carrier.

 

Don Dodge, Director Business Development of Microsoft's Emerging Business Team

Last week, Don Dodge, a Director of Business Development of Microsoft's Emerging Business Team, gave us a very INSPIRING talk about innovation and entrepreneurship. His group at Microsoft takes care of Venture Capital relations and business development with start-up companies.

Don Dodge is a veteran of very successful startups, being among the first employees in most of them. These include Napster, Altavista, Forte Software (acquired by Sun), Bowstreet (acquired by IBM) and Groove Networks (founded by the founder of Lotus and acquired by Microsoft). He joined Microsoft after Groove was acquired by Microsoft 2 years ago. He feels very proud of having been part of these startups that at the time were the best of their kind. He is also the author of the popular blog "The Next Big Thing".

He talked about a popular blog post titled "INNOVATE OR IMITATE, FAME OR FORTUNE". Along these lines, he compared:

• Altavista (innovation) vs. Google (fortune)
• Napster (innovation) vs. iTunes (fortune)
• Netspace (innovation) vs. IExplorer (fortune)
• DoubleClick (innovation) vs. Addsense-Google (fortune)

He also clarified the difference between invention and innovation. Innovation is about taking an invention and commercializing it.

During the talk, he often referred to his experience at Napster. This was one of these extraordinary experiences that you only live once in your life and you do not realize after everything is over. He joined as the 8th employee. At that time, none of the employees had finished college (the founder dropped out after the first semester of his freshman year) and non of them could even go for a beer because they were under 21. They also had these "rebel bad boy image" which helped. He thinks that nothing could stop these guys.

He also talked about valuation of Internet startups. In the Internet sector, discounted FCF do not work. He asked how we would value an Internet company and the conclusion was that its price is either what the competitor is willing to pay or the damage it can do to your business. He did some "back of the envelope" calculations to justify the price that Google paid for YouTube (e.g., number of videos watched per day multiply by the number of days in year and advertising generated by each video) and it was not possible to justify it. He advised us to be ready with back of the envelope calculations for any meeting we have with a CEO, investor or partner.

Similarly, he talked about the amount of money that Microsoft has paid for Facebook. Although he did not try to justify the $15B valuation, he compared:

a) Paying $240M for 1.6% of Facebook
vs.
b) Paying $1.5B for 10% of Facebook

He thinks that the strategic benefit is the same in both cases so the important thing is the amount you are paying and not the total valuation or percentage you get.

He was VERY PASSIONATE about entrepreneurship and he even said that "Startups are almost as good as sex" and once it gets into your blood, it does not go away.

After the presentation, I talked to different people in the audience and everybody was very impressed. We all agreed that it had been one of the most inspiring talks since we are here.

Nick Beim, from Matrix Partners, talking about new Internet trends

On Thursday Nick Beim, a General Partner at Matrix Partners, gave us a talk about "New Internet Trends and Opportunities".

Matrix Partners is a very successful VC firm that invested in technology companies such as Apple, Sandisk, Aruba, Veritas, Sycamore, etc. during the last 30 years. They have offices in Boston, Silicon Valley, India and China. Nick has invested in various Internet companies, including JBoss and TheLadders.com. Before joining Matrix Partners, he worked at McKinsey & Co. and Goldman Sachs and attended Stanford and Oxford.

Nick stated that there are more and more opportunities on the Internet. As an example, he said that 4 years ago, a lot of people thought that the Internet was already saturated and the market was already concentrated. However, 4 of today's top 10 US websites did not exist 4 years ago.

The primary drivers for the opportunities and trends are:

• Higher broadband penetration (~45% US households)
• Dramatically lower costs to build and operate online services: processing power, storage, open source SW, cheaper bandwidth. It is very easy and inexpensive to test an idea that in 2000 needed $10MM to be tested.
• Maturation of online advertising: both performance based and direct marketing efficiency
• Unexpected boom in online sharing: both User Generated Content (Flickr, Wikipedia, Youtube) and Social Networks (Bebo, Facebook, Pandora, last.fm, etc.)
• Internet good to distribute non-text media

An examples of other Internet trends (mainly in other countries) with high growth he pointed out:

• Massively Multiplayer Online Gaming: $4B market size in 2006  (e.g., World of Warcraft)
• Online Gambling: $14B market size in 2006 (e.g., BWin, Betfair)

On the other hand, he thinks that from a VC perspective, Web 2.0 companies are discovered rather than built.

He also talked for a while about "Smart business model copying". Many of the next successful online businesses will be created as variations of products or business models that are working in an adjacent sector. As an example, he mentioned YouTube as a variation of Flickr and Facebook as a variation of MySpace.

What he definitively thought that is not working is assuming that advertisement will support most sites.

Finally, he was very excited about TheLadders.com, an online classified company in which he has invested. TheLadders.com has a reverse model for job search. This company tested the idea for 8 months before raising any funding.