VCinJerusalem

Guys from Google

I had the pleasure of taking out two product managers from Google out to dinner the other night. Why is that so special? Well, maybe because the week before I was with their "boss" Sergei, but was actually more interested to talk to these two guys. Both have been at Google for five years, which for my ADD work style, is many lifetimes.

I enjoyed meeting them more than Sergei because they are not the top guy -- but without them (and several dozen others at their level) Google would crawl to a halt. These guys are what makes Google great.

And it is often the "lower" down people on the corporate totem pole that can truly give the pulse of what is happening at a company like Google, that has grown in ten years to a 19,000 person behemoth.

Bottom line, from what I heard Google is becoming a normal company. Not a bad place to work, far from it. But normal. Internal politics, lack of decision making at times, fear of the unknown. "Us" v. "them" when speaking of different groups in the company. And then the acquisitions, which will take years to integrate, if at all (think YouTube, DoubleClick).

Spending some time with these guys reminded how "easy" it is to create a Google. You just need a great core concept that can scale to hundreds of millions of users, incredibly smart team around the founders, and a business model. Shake that all up, throw in healthy amount of luck, and walla, you have your self a market dominating company. Sustainable? Who knows. MSFT stock has not performed well recently, and obviously their growth has slowed. Will that happen to Google? Based on my dinner, probably.

Are VCs To Blame For "Free?" And Is Free Model One Size Fits All?

Excellent posting by Hank Williams today on Silicon Alley Insider, which is one of my favorite sources. See full text of his original post below, and definitely check out the discussion that erupted within minutes on SAI...back and forth brings out the angst that many of us have been dealing with over the past few years.

With the success of Google, who weave billions of dollars of profit from millions of "keywords", convincing the world that a "click" has inherent value, there has been a run on the bank. Literally. Everything is now supposed to be supported by "advertising." But remember, as I have often said, in the end someone needs to buy something. That's how advertising works. Otherwise its a massive ponzi scheme.

Traditional media companies have always had (and will have) advertising as a dominant (and sometimes sole) source of revenues. But advertising was never 100% of the revenues, think of movies, video games, even most daily newspapers. There is a price. It is not free.

And now think of services that are not media companies -- there is no historical justification for free. Salesforce.com, a pioneer of using Web X.0, charges. And many gladly pay. Is Gmail free? For now. I doubt it will last, and if it does will mean a re-shuffling, but not complete revolution.

Advertising has its place, but I for one am tired of very smart entrepreneurs acting like deer in the headlights, who have been brainwashed by VCs with too much money that usage/users  are all that's important. We will be facing a capital crunch in the days, months, and years ahead -- those who have developed real revenue generating businesses will survive.

I agree with Hank, that VCs are killing many businesses, but there will be a revival of the dead. Make sure you are prepared!

Free" is Killing Us--Blame The VCs

             

Hank Williams             April 4, 2008 9:20 AM        
                          I believe it should be possible to start a small business and to have a small number of profitable customers, and to earn a living. From there, it should be possible to work hard, and to grow your business into something substantial. Until recently, this was the American way, and it applied to technology as much as to any other business. But no more.

In today’s “free” world, in most online business categories, it is inherently impossible to start a small self-sustaining business and to grow it. This is because in the digital world, advertising, the only real revenue stream, cannot support a small digital business. If businesses were based on the idea that people paid for services then small companies could succeed at a small scale and grow. But it is very hard to charge when your competition is free.

The economic problem with advertising businesses is that advertising businesses do not work without really significant scale. In the past, a good product or service could address a niche and succeed without being a home run. Today, a home run is required because if you do not reach a massive scale, advertisers are uninterested. And even if advertisers could be attracted, CPMs are so low that the revenue would be inconsequential. Small Internet businesses don’t work.

So how did we get here? In a word, VC.

Venture capital has totally distorted the market. VCs are investing billions of dollars in companies with instructions to get big fast and to worry about advertising revenue later. As a result the competition is for users and not for paying customers.

Unfortunately, to fix this, many more companies need to die.

With less “free” floating around, a more regular supply and demand dynamic can take hold, customers will have to pay for the things that are important to them and non-quantized growth dynamics can return. In the meantime, why should consumers pay for products and services that VCs and their pension fund investors are willing to give away for free?

The good news is at some point VCs will indeed realize how dumb all of this is and stop giving away everything of value on the Internet. This will all stop when the average VC can’t get any of his/her companies to scale because there is just too much VC sponsored free stuff out there. Then and only then will this crazy eyeballs business model redux finally be put to bed.

I cant wait.

SAI Contributor Hank Williams is a New York-based entrepreneur. He recently launched a new blog: Why Does Everything Suck? Exploring the tech marketplace from 10,000 feet.

    

   

Where Google Goes, the Dollar is Not Far Behind

Google has represented the decade we are now winding down, and tracked the resurgence of the American economy after the blows of NASDAQ implosion in 2000 and then of course 9/11. With the succesful growth of Google, its IPO took off, and while I thought it was a short at 80, stock price continued to climb.

While the dollar did not follow the same meteoric rise over the past 6-7 years as the Google stock price, Google is many ways was keeping the dollar propped up, overshadowing the many serious problems in the American economy and government (not the least the American invasion and occupation of Iraq, costing the American taxpayer, which includes me, more money than it would take to feed all the hungry people in the world).

Clicks. Click throughs. PPC. Adwords. Adsense. These are the ingredients of Google's billions of dollars of profits (and still insane valuation). What it boils down to is the ultimate American value point: marketing. The Google guys convinced the world that clicks=$$, and until the emperors cloths start to fade noone knows he is standing there naked (or nude, if you prefer). But how well tested is the core Google theory? What are conversion rates really like? None of "know," tremendous amount of guesswork involved. Look back to my post on Jaxtr for a taste of emptiness of usage--10 million users and no revenue to speak of, in my eyes that is not a business.

Now, let me stress that while I know little about the public markets, I know far less about the global currency market. When my children ask me about the dollar falling in value against the Shekel, I blabber for a bit about "shakiness in the American economy," but actually have no idea what I am saying. I do know, however, that much like Google, America marketed itself well, even in the face of some astonishingly stupid moves in the world. In 1990 we defended one dictatorship from another (to this day not clear why). In 2001, in response to 19 Saudi men bombing New York and Washington the US went to war in Afghanistan and Iraq. Go explain that one to your kids.

Now people are losing confidence in Google, and in the Greenback. As long as you cashed out and your life is all in dollars, nothing to  worry about.

For those of us who live in the world, and I mean in the world...multi-currency,  multi-lingual,  multi-national,  the  rapid deterioration of the  Google stock price and  the dollar  remind  us  that we cannot rest  all our hopes on one player. Going global means being global, and even living in Jerusalem (in the center of the world) I am feeling left behind. Time to move savings in multiple currencies. Time to figure where the next waves are coming from -- because Google Greenbacks are so....what do we call this decade?

Living in a Disconnected Bubble in Munich: DLD Unplugged…and No WiFi

I am composing this blogpost at the DLD conference in Munich, Germany, convened by Burda Media. DLD stands for Digital Life Design, and many of the names you would expect are here, about 1000 people representing all the players in the connected world today.

And yet I am having a similar experience to that at CES 2006, when I saw dozens of WiFi networks but none would allow me to connect, see my posting "Water, Water, Everywhere, Not a drop to Drink.” I ideologically do not carry a Blackberry or any other always on device, because I know that for most people these are prohibitively expensive, and because they are addictive (and distracting in public). So I depend these days on finding stable WiFi to connect.

 

When I first arrived in Munich and checked into my hotel, the trouble started. I picked the hotel from Hotels.com, because it advertised WiFi, was cheap, and short walk from conference venue. Turns out the hotel was practicing marketing using Bait and Switch, claiming it “offered Wifi,” but it was additional fee. OK, I said, am prepared to pay. But then they explain that I needed to load some special software from a CD (I kid you not). I immediately called Hotels.com, and rebooked myself into nice hotel (for few dollars more, but WiFi included!!!).

 

At conference expected to have ubiquitous WiFi…and instead what I found (while listening to CEOof Deutche Telekom speak about seamless mobile connectivity) is that the WiFi network was overloaded, incapable of the traffic being generated. Could barely get websites to load. For techies out there, see ping results (when I could get connected, which took a few tries):

 

 

 

For the rest of you, what the above numbers tell us is that the WiFi network at DLD is incapable of supporting VoIP, Video streaming, or any other real time web service. In fact, wrote this blog off-line in word to prevent losing it when trying to post (I usually use on-line Typepad tools from SixApart). 

All this got me thinking that we are so far from the promised land in some many ways. In time I will try to address all of these, and in some way am working to cure these issues, for now just going to highlight:

-Connectivity has a long way to go before, outside some bubbles (office, some universities, etc.) we in the Western world are far from “always on”

-Most people in the world, even if they have a mobile phone that gives them some voice communications, are still cut off from broadband world (further digital divide)

-Often hype creates value way before reality is there. Sure, there are the Googles that manage to score big from revenue point of view, but infrastructure is a blocking point for many

Free Wifi...To Be or Not To Be? Does Free Pay? WiFi in Jerusalem

Every time I see another story about free Wifi, I wince. I spent way too much time in the free wifi discussion and reality to read all these stories without taking it a little personally.
Read on to understand ...and to get a "scoop" on life in Jerusalem.

A little background.

Four years ago, motivated by a desire to do something good for Jerusalem, I joined up with some friends (including Mati Herbst, Shai Kavas) to create UnwireJerusalem , a grand project to bring free WiFi access to key areas of Jerusalem. First of all, we were way before our time, a good two years before our friends at Google started to make noise about free Wifi (see here for details on their Mountain View project). Our project was completely non-profit, we recruited companies such as Intel (NASDAQ: INTC), Checkpoint (NASDAQ: CHKP ), Cisco (NASDAQ: CSCO ) Golden Lines (NASDAQ: SMLC )and Compumat  to donate equipment, some cash, and human capital (employee time). Later on we enjoyed some support from the Jerusalem Development Authority and Boot-Net, led by Robby Leon.

When we started we had a few principles:
1. Service needed to be free for end users
2. Coverage was focused on outdoor areas
3. No dependencies on any governmental bodies

With those in mind, we approached business owners in certain areas of downtown Jerusalem, and asked them to host WiFi access points and simple ADSL modems, with all costs associated with the connections for those born by us, except for electricity. Obvious bonus for these business owners (mainly restaurants, coffee shops, etc.) was getting free WiFi in their establishments as well...

It worked out quite well, and in November 2004 we formally launched Unwire Jerusalem. Since then we have had monthly usage in the thousands, and sometimes in the tens of thousands.

Recently I took the very painful and difficult decision to pull the plug on Unwire Jerusalem...yep, we turned off the lights, yanked the plug, cut the cord. Let me try to explain why, and where I think all this (i.e. "free" internet connectivity) is headed.

1. Municipal Support
We had none. We went to literally dozens of meetings with various city officials, and not a one seemed to understand what we were doing and/or why. That we we felt a sense of civic responsibility seemed to mystify most of the city management we met with, and they constantly suspected us of a hidden agenda. Oh, some of the them said nice words, from the Mayor on down, but then completely failed to follow up or do any of what we asked for, even the most minimal. But wait, you say, wasn't one of the principles above no dependency on government? Yes, for the initial launch, but we always wanted some cooperation. And long term, yes, to get serious we needed government buy-in, if it was for public signage or even more for outdoor antenna. As we were not interested in running a municipal network, but rather a service for plain old citizens and visitors, could not get anyone to focus.

2. Business Model
We wanted to keep it free, but were also running the project as a non-profit, with a lot of big names but no major sponsor. Without a Google like backer, my friends and I could not keep up the sustained effort required to keep the network running. The basic costs are (after initial set-up and equipment) connectivity and network maintenance. Connectivity we received from 012  (local Israeli  ISP)  for the first 2 years as a donation. And then they wanted to be paid. We thought about rolling out all kinds of ad support, but could not find ad model that would really operate seamlessly, or that would really generate funds to cover to core operating costs. And bottom line, there was no working full time to implement  such a system.   

3. Need - Or, we created great momentum
When we started (4-5 years ago) there was virtually no free WiFi in Jerusalem, and as I was working out of coffee shops back then, felt it  every day...Today the  reality is very different. I like to think we were part of the momentum that resulted in many establishments directly sponsoring free WiFi, some like Aroma that made it a standard in any of their franchises. Pretty soon free WiFi became the norm in Jerusalem. Now, outdoor wifi is still limited, meaning if I don't want to fork over 20 shekel ($5) for a latte and a cookie, signals are going to be weak. But they are there. Especially downtown, which was our focus anyway.

4. The WOW! Factor
When we envisioned and launched Unwire Jerusalem part of our motivation was to initiate a WOW! response, to push the needle a bit on how Jerusalem was looked at -- as proud Jerusalemites we wanted to show that we are here and now. We succeeded in that, garnering massive publicity and good feeling. Together with momentum I cited above, not much more WOW! factor to milk out of this project.  While possibly we should have pushed more for BOT (Build Operate Transfer)model with municipality, again, we did not want to be dragged down by that in the beginning. And at this point we have given up on the municipality. Perhaps if my good friend Nir Barkat wins the mayoral elections later this year we can revisit...

Based on the above, decided that we had accomplished what we set out to do, and I for one (and may partners in creating Unwire Jerusalem) could not justify spending more time (or money) on it, so we notified 012 to pull the plug a few days ago.

Now comes the bigger question: Does public access free wifi make sense? Well, I believe it does, just as public toilets make sense (by the way, see this April's fools initiative by Googlers...priceless! http://www.google.com/tisp/). Should local governments pay for local toilet facilities in highly trafficked areas? Sure. Could there be some ads in there? Yeah, why not, but that shouldn't be the determining factor!  Consider malls, which are essentially little privately managed towns. All the malls I have been to have toilet facilities that are free to use. And the people that run malls know that they need to be there--and figure the costs into the business model of the mall.

Internet connectivity is a basic service today -- without it difficult to make your way in the world. Municipalities should do all they can to make sure that some level of "free" connectivity is in place (not only WiFi, but banks of computers for public use as well--not everyone has a laptop, no matter how cheap they are becoming).

I obviously could go on and on about this subject, having invested untold hours over the past 4-5 years. And perhaps I will write more in the future.

For now, however, want to look back on what we did with Unwire Jerusalem, smile, and thank all of those who helped along the way. 

Lessons From Radiohead, Or, Are People Essentially Good?

Our friends over at Google are well known for having a corporate motto of "Do No Evil." Searching through their site today, couldn't find that nugget, but what they do say, (over here) is 'You can make           money without doing evil". I should hope so! The fact they need to say that shows us how some people's perception of the world and human nature has sunk so low that we need to state such "bold" declaration.

On the opposite end of the spectrum (in terms of belief in essential goodness of humanity) is the recent Radiohead experiment. Radiohead released their new album, InRainbows, as a digital download back in October. The price: up to you. Completely was based on a voluntary payment scheme. While exact results are hard to come by, according to this report 38% of the people who downloaded from the site paid an average of $6 each. Meaning around 450,000 people (out of 1.2 million downloads) resulted in $2.7 million of revenue for the band (with no middle people, no packaging costs, net revenues). Well, it would be better for my argument if 50% paid, but 38% is good enough...one can look at that and say, wow, 60% didn't pay anything...or that close to 4 out of 10 people paid when they didn't "have to," and paid more to the band per album than what the band would have received from CD sales in stores.

While we could discuss the Radiohead experiment for a long time, and there are no end of analysis on the web about it, for me it was good news about the essential goodness of people. With no restrictions, guidance, limitations, but rather a completely open environment, a significant percentage of the audience decided that Radiohead deserved to be paid for their creative output.

Continuing with my mantra of people need to pay for things (i.e. not everything can be "ad-supported"), it is refreshing to see that  when given free reign, the public chooses to pay. I believe is Radiohead, and others, would put out material with no DRM but the need to pay something before downloading, most people would pay, if it were easy enough, and a direct relationship with the artiest was possible. Would I pay Madonna less than a little known struggling artist, yes, b/c she can afford it. But that should be above board, not a rationalization for stealing Madonna's music.

I continue to believe that if friction is kept to a minimum, a good percentage of people would voluntarily "be good," not just not evil. And I for one prefer being good than "not doing evil."