Technofile Europe

A white knight for Splashpower?

As I vaguely predicted a year ago as part of my series on "unmarketable technologies", Cambridge-based Splashpower has gone into administration. 

This is a sad day for the forces of openness and interconnectivity who have once again been defeated by the ogre of proprietary systems and consumer lock-in. 

With its universal charging pad, Splashpower tried to free us from our dozens of phone and PDA chargers so that we can get on with letting these devices improve our productivity rather than weigh down our briefcases. 

But it was not to be. 

None of the consumer electronics or phone vendors had the courage to defy the industry and risk a revenue stream in supplementary cables and chargers.  Even though such a first mover could have won a huge PR victory by backing and promoting Splashpower in defiance of the industry old guard. 

Here is some coverage from Slashgear.

It may not be entirely too late.  Steve Jobs, Howard Stringer of Sony, Greg Brown of Motorola (nothing left to lose, no?), Jorma Olilla -- surely one of you might consider buying up the assets of Splashpower and becoming first mover in providing universal charging to the masses?  C'mon, think about it.

The mashable Web comes a step closer

I'm a big fan of the so-called mashable Web, because it implies that this unmanageable ocean of information can be turned into a personalised set of relevant applications.  That's nerd-talk for 'data you can use.' 

We all know how to scour the web for what we want.  We've all learned to reason in Boolean operators, even if we have no idea who Boole was.  The Web is useful, even essential, and so we have adapted our life-style and work-style to suit the Web as it is. 

But soon we will be able to adapt the Web to suit our way of working.  We will mash up the Web into the real-time information units we want, whether you call them personalised channels, or composite applications, or feeds, or 'little helper robots that fetch stuff' .

The crux of this idea is that by combining general data (from the Web) with specific data (internal corporate databases, or personal information), you create a new dataset that is truly relevant. 1+1=3. 

As I've covered before, lots of quirky mashups already exist; they're listed here.  But serious mashups that  are (a) useful to business and (b) programmable by business users, have been far and few between.  At this week's Web 2.0 Expo a number of new mashup technologies are being announced that will bring the mashable Web right onto the desktop.

Kapow Technologies (disclosure: Kennet company) announces two new products at Web 2.0: an on-demand version of its Enterprise Mashup Server, and an Excel connector that allows anyone who works with spreadsheets to pull real-time data from the Web into Excel.  This means business analysts can integrate live data from the Web (eg, competitors' prices, stock quotes, interest rates, airline fares, DHL tracking codes, etc) into their models without any programming.  The unstructured Web meets the structured Excel spreadsheet.  It's a very powerful idea, and the opening shot in what will be the next content revolution on the Web. 

The last two years saw a tsunami of user-generated content and new social networking links wash through the Web, fundamentally changing its character and usefulness to individuals.  In my view, over the next few years we will race to merge unstructured Web content with structured corporate databases to create information flows that are truly relevant to business, real-time and actionable.

Mashups come full circle with Radiohead

Not content with upending the distribution and pricing model for new music releases, Radiohead are on the bleeding digital edge again: letting fans take apart & remix their music, and pay for the privilege.  It kind of reminds me of Caterham letting you buy the car kit as well as the finished car (OK well maybe it's more like Stardoll ...)

You may recall Radiohead's first experiment last fall, allowing fans to pay whatever they liked for the album In Rainbows, available initially only as a digital download (and later as an expensive box set). 

According to band leader Thom Yorke (interviewed here by David Byrne), the band generated more profit from the 40% or so who paid for the album than from digital sales of all previous studio albums combined (including iTunes downloads).  This fact really exposed the extent to which the music industry (like the film and TV industries) has managed to screw artists out of their digital rights thus far.

With Radiohead's single Nude, the band applies our favourite Web 2.0 concepts -- mashups, UGC, social networking widgets and social bookmarking -- to music marketing & distribution.  Yesterday, an email went out to the fanbase, offering:

the song 'Nude' in pieces for you to remix. For those of you who enjoy this sort of thing, you can buy the separate components or 'stems' (bass, voice, guitar, strings/FX and drums) and remix your own version of the song. You can do this by adding your own beats and instrumentation or just remixing the original parts.

You can buy the stems of the song here and directly on iTunes.  They can be remixed in most music programmes including Garageband.  Once you've created you're own riff on the song, you can upload it to Radiohead's site (or to Facebook or MySpace) so that people can vote on it.  They've even created a Facebook app that allows you to embed it in your profile and collect public votes directly.

What I love about these guys is their willingness to take a flyer on the outcome of these experiments.  They had no idea what would happen with the pay-what-you-will download idea.  Who knows what will come of this public mashup-remix of Nude?  Sales for sure, studios take note...

Endemol scores Grass

Congratulations to my friends over at Pure Grass Films (PGF), who have taken a strategic investment from TV producer Endemol, as reported in the Guardian here.  This is a great cross-over deal between old and new media, and the large production houses should watch this space closely.  Endemol is perhaps the 'newest' of the Old Media companies, having made its initial fortune on global TV brands like Big Brother and (my preferred) Ready-Steady-Cook. 

Endemol is being smart about its digital media investments.  Rather than use its financial and political clout (Berlusconi, John de Mol, Goldman Sachs) to engineer a merger with a large online property, Endemol is making small, strategic acquisitions at the bleeding edge of its industry.  The focus remains on production and not on owning the means of distribution -- no AOL/TW debacle here. 

With Pure Grass and MoMedia as new investments, Endemol is pre-emptively tying up the top emerging talent for New Media: mobile, IPTV, and Web.  What Endemol 'gets' is that repurposing existing TV shows isn't good enough, and it's what most of its legacy competitors are doing. But these New Media are still in flux, viewing habits are not yet predictable, and experimentation (among viewers and producers) is rife. 

In order to succeed, new media production needs to be more like consumer Internet releases -- more frequent new material, produced at low cost, with lots of consumer input.  This requires a different skillset than traditional TV production and a cultural belief that traditional rules can be broken.  Endemol already showed it can do that with its invention and spectacular exploitation of the reality TV genre (think what you might about its cultural value...).  Now, with mobile fillm pioneers Ben and Tom Grass, they have invested in a team that can get them there.

PGF's newest film, Beyond the Rave (starring Sadie Frost and music oversight by Pete Tong) will be an interesting test of both format and channel innovation: it is being released exclusively on MySpaceTV (April 17) as 20 'webisodes' before being repackaged and sold as a full-length DVD.  Check out the trailer below and coverage from the Telegraph here.

The end of web advertising as we know it?

If you're interested in the future of online advertising, John Hagel had an excellent, thoughtful post on the subject about 10 days ago (I know, I'm running a bit behind the blogroll these days).

In his post, John cuts through the confusion created by the contradictory market trends that are being picked up by the media, typically one at a time:

• the cyclical downturn in the general advertising market;
• the continuing explosion of new web advertising platforms like social networks and video;
• the development of great new targeting technologies; and,
• the increasing fragmentation of our attention across media, which reduces the effectiveness of online ads.

The markets are reacting.  Google shares are down 37% since the start of the year, on fears of a slow-down in online advertising and waning effectiveness.

John points out:

Here’s the danger: we may become so focused on the recent growth in online advertising that we dismiss any short-term slowdown in spending growth as a purely cyclical phenomenon. In the process, we may miss the longer-term, and ultimately far more profound, impact of the diminishing returns that online advertising is already beginning to experience.

Think about the impact on traditional advertisers.  Just as they are about to embrace the Internet; just as the large brands are starting to shift more bucks into banner ads and online video campaigns; just as the P&Gs and Unilevers and BMWs are coming round to the view that the Web is the future of advertising; just then.... the yield drops and Web ad effectiveness is thrown into doubt.  Microsoft (oddly) captured the problem nicely in this funny video (thanks Nic, good find):

There will be a lot of click-through soul-searching and efforts to tweak ads to recapture our attention, but the truth will be inescapable: static, image-based advertising (eg banners, etc) will be on the wane just as these advertisers get it together online.  Some will be scared off, a few will charge ahead into the next marketing frontier: interactive marketing games, clever video ads, and vague concepts like influencer marketing, social marketing, collaboration marketing, and so on.  These innovations represent huge future advertising opportunities, but they are still nascent.

Future advertisign effectiveness will be about influencing influential people, and exploiting social networks to spread messages.  It will be about the confluence of marketing, public relations, and corporate social responsibility, and about mastering some guerilla tactics to get the word out.  And that's not likely to be your current ad agency's core competence.  As a result, you can expect some serious churn of people and companies in the advertising industry before the new paradigm is established.

What's in a name?

If nothing else the Carlyle Capital debacle is a good lesson in where to draw the line in extending your brand.  The Carlyle Group's partners owned only 15% of the fund, and yet they had lent it their prestigious name.  As a result the hedge fund's collapse has become a PR nightmare for Carlyle, when it could have been the disappearance of just another over-leveraged hedge fund, and little more than a (painful) personal investment loss for Carlyle's partners.  A lesson to remember for the next cycle.

Specific Media gets Europe with Adviva

Yesterday we announced the sale of our portfolio company Adviva to US-based online advertising network Specific Media.  The strategic rationale is straightforward: Adviva will be the European beachhead for Specific Media, the fastest-growing advertising network in the market (and probably the fastest-growing business I have ever come across). 

My M&A banking years have instilled a healthy skepticism about mergers between similar businesses (as opposed to acquisitions of point technologies), but in this case, the two companies really are a perfect fit.  Both run campaigns for top-end brand advertisers on small, high-quality networks of websites.  Both have been using innovative targeting technologies to generate outsized results for advertisers, whether on a CPA or CPM basis.  And while Specific Media's network is US-centric, Adviva's network is entirely European, so there is virtually no overlap.

The rapid rise of Specific Media and its move into the European market symptomise a new era for the online advertising industry.  This is an industry with issues.  Online advertising growth has been torrid but is slowing. The US is in recession, which will hit the overall advertising market hard.  The effectiveness of online ads is being questioned as click-through rates on banner ads decline, and consumer audiences are increasingly fragmented across social networks, blogs, etc.  The supposed 'next frontiers' of video advertising and mobile advertising remain immature and are simply not delivering results to the many investors who piled into those markets.

Many ad networks have grown fantastically on the back of this booming market. But the pace of growth camouflaged the fact that their offering was difficult for brand advertisers (BMW, P&G, et al) to buy -- the audience segmentation does not match what they are used to in the offline world (A-B-C, etc), and it was hard to measure true effectiveness in spite of (or because of) infinite volumes of data.

Many technology vendors and ad networks made things more difficult by barraging advertisers with fancy new products: behavioural targeting, contextual targeting, performance marketing, etc.  It has taken time for the two sides to learn to speak a common language. 

This is where Specific Media's approach really stands out.  The company makes it simple to advertise on the Web.  It boils down to this: tell us who you want to reach and we'll find them for you.  Rather than sell new targeting technologies, Specific Media sells the audience and uses all the available targeting technologies in the background to deliver.  The advertiser gets the audience he wants, and Specific Media gets a margin as good as its own opimisation technologies allow.  Thanks to the huge reach of its network (140m users, just behind Google, AOL and Yahoo), it has enough data on web surfers to deliver the most demanding, targeted campaigns -- always a struggle for the smaller networks.

These are interesting times: a new generation of online ad network is coming into the market just as contradictory macro trends buffet the industry (US recession, declining ad effectiveness vs better targeting technologies, continuing $$ shift from offline to online).  More on this later. 

No quiero Quaero!

Words fail me to describe the bureaucratic stupidity of this project.  If only it wasn't taxpayer Euros funding this folly... 

Over €200m committed since 2005 and they don't even own their domain name!  Maybe the best play here is to invest in Charlotte, NC-based marketing technology company Quaero, and wait for the Europeans to turn up to bid for the domain.

Cartoon credit: Mike Keefe, 2006-01-23

Mashups go mainstream

We have a happy announcement to make from our US portfolio today.  Kapow Technologies has closed a round of financing with Steamboat Ventures (the VC arm of Walt Disney!) and Morgan Stanley's Strategic Investments Group.  See more detail here. 

The fact that two corporate venture firms led this financing is significant, because it proves that application mashups are now relevant to the enterprise.  What started out as a consumer Web 2.0 concept akin to a DJ mixing tunes into a new hit, has now become strategic.  Companies are using mashup technology to create new applications from data and features available on the wider Web.

I've commented a lot in this blog on the gradual adoption by enterprises of Web 2.0 technologies (Don Hinchcliffe's Enterprise 2.0, etc), but so far most publicized uses have been experimental. In the meantime, some 300 companies have adopted Kapow's Mashup Server, either to integrate legacy applications through their web interfaces, or to mash up internal and online data sources into new, useful applications.  Those companies that tend to be on the cutting edge of new technologies, such as banks (like Morgan Stanley) and the Department of Homeland Security, have been using mashups for some time.

Kapow's online mashup server remains available to anyone on its open community site, openkapow.  It's so easy to program Kapow robots that one of my colleagues is going to make one that pulls portfolio company newsfeeds into our revamped website, due out soon. [There's not getting out of it now Mike :-)]

In the same way that blog, wiki and social network features are finding their way into enterprise applications, mashups are now becoming mainstream.  The ability to pull together all data and the many little applications found on the Web in a standard way effectively turns the Internet into a huge database and a flexible programming platform.  It's not quite the Semantic Web Tim Berners-Lee dreams of because it still relies on humans to decide which sources to mash up, but it takes us one step closer by eliminating the technical barrier to web integration.

My predictions for 2008

A bit late, but nevertheless here they are and -- as promised -- a more 'committing' set of predictions than last year's:

1. A combination of US recession and the waning efficacy of online ads will hit the Internet advertising industry hard, although "hard" is clearly a relative term.  Offline advertising may actually shrink, while online advertising will grow slower, perhaps even low double digits.
2. The Structure of Networks -- social and otherwise -- will migrate to the core of the Web, replacing the Structure of Documents on which it was originally built (HTML and all that).  Someone will figure out that applying the Google PageRank concept to networks of people is even more interesting: if we can identify influencers and how information flows among them, we can really start targeting campaigns.
3. 2008 will the year of the Return of the ERP Vendor.  SAP, Oracle and the midmarket vendors will make progress with their own SaaS offerings and will shrink the valuation gap with the pure-play SaaS vendors.
4. The Web 2.0 financial bubble -- fuelled by VC cash being round-tripped between startups buying and selling ad space -- will pop as a result of the weaker ad market and the failure of 100s of undifferentiated 'feature' startups to gain traction.
5. The mobile web will continue to be stymied by the difficulty of discovering content on mobile devices, Vodafone's new image search engine notwithstanding.  iPhone and other large-screen devices will help commuters surf the old Web, but mobile browsing won't take off until someone invents a new search paradigm that works on mass market mobiles.
6. As a result the mobile advertising market will fail to take off... yet again.  Those networks and technology vendors that were acquired in the past 18 months (Nokia/Enpocket, Microsoft/ScreenTonic, et al) will disappoint their new parents.  And the next generation of mobile advertising companies will have to make do with much less VC funding.
7. What on earth is UWB?  Anyone remember? Anyone care?
8. The success of the Nintendo Wii will spark a whole host of new physical interactive video games, providing a boost to vendors of chips to the console companies.  Perhaps a Wii Lite is in store?  Look to Japan for inspiration: this year's Christmas hit, Guitar Hero, was really a copy of a Konami game popular among Japanese teens in the late 1990s!  So why not portable versions of a DJ game like Beatmania or a competitive coordination game like Super Bishi Bashi? 
9. Social networks will see huge monetisation efforts and some applications and ad networks will make a financial killing.  But their performance will be erratic and useage of networks will be highly volatile as consumers get tired of being poked, zombied and voted HOTorNOT.
10. Some element of Open Source or "free" distribution models will become part and parcel of every software vendors' go-to-market strategy.
11. [Bonus, more of a hope than a prediction]: 2008 will mark the return of the Basic Business Phone, and it will be a runaway bestseller.  Nokia or someone nimbler will launch a high-performance phone that makes phone calls, has a long battery life, global coverage, and a simple, fast interface.  And absolutely nothing more!  I so wish...

Stay tuned.

Tracking Europe's largest tech deals

Our friends over at Go4Venture recently sent out their 2007 Headline Transaction Index with some interesting historical stats about European tech investment activity.  Based on a comparison of the 2007 deal list with previous years, they conclude -- much as I recently commented anecdotally here -- that European tech investing has matured.  The main corroborating fact they point to is the number of €20m+ financings, which by their count topped 22 in 2007 (up from 15 in each of 2006 and 2005).

Go4Venture concludes: "This reflects European VCs growing taste for high risk/high reward transactions, which is closer to the behaviour of their Silicon Valley brethren."  I disagree.   There are really two trends here:

• Large, speculative investments in early-stage companies: Joost, DailyMotion, VideoJug, Viagogo for example.
• Growth financings of more mature companies: Jentro, FastBooking, PlasticLogic, Cordys, etc.

The latter predominate in the list of 22 deals, reflecting not a higher risk appetite by Euro VCs, but rather the availability of capital for companies in more advanced stages of development.  These deals were made possible by new growth equity-focused funds and the presence of tech buyout investors, and they represent the maturation of the investment industry I have been talking about.

As for the deals being tracked by Go4Venture, I would add a few non-traditional tech deals (including some buyouts) in order to really see the trend over the years.  Other "Landmark" (>€20m) financings include:

• 2007: Moneybookers (Investcorp), Human Inference (Iris, GIMV), Asset Control (Fidelity), Vente-Privee (Summit)
• 2006: FRSGLobal (Carlyle, Kennet), UC4 (Carlyle), GlobalMedia (Carlyle), IGEFI (Summit)
• 2005: Jagex (Insight), GFI (Insight), Control Break (Summit), Navigon (General Atlantic), Webpay (3i)
• 2004: Ubizen (Apax, Kennet), Web Reservations Int'l (Summit), Kingston Inmedia (Carlyle), P&I (Carlyle), Iris Software (HgCapital)

MSFT unsolicited bid for Yahoo

At $45bn, Microsoft's proposal to acquire Yahoo must look like a godsend for Yahoo's beleaguered shareholders.  And at a 62% premium to Yahoo's last close, Steve Ballmer is clearly hoping to deliver a 'knockout' bid that the board can't refuse.

Oh, and just in case Yahoo's 10-person board (all but one of whom are independents) think they might softpedal the approach, Microsoft released the full text of the offer letter sent by Ballmer to the board, which is definitely worth reading here.  The timing is perfect, cruel but fair. Yahoo will find it difficult to resist.

In Ballmer's passive-agressive letter to the board, he berates management for failing to deliver growth after rejecting a merger with Microsoft a year ago.  But what's really interesting is the extent to which this is so explicitly a defensive manoeuvre against Google and in particular its scale and capital spending capacity.  Ballmer writes:

While online advertising growth continues, there are significant benefits of scale in advertising platform economics, in capital costs for search index build-out, and in research and development, making this a time of industry consolidation and convergence. Today, the market is increasingly dominated by one player who is consolidating its dominance through acquisition. Together, Microsoft and Yahoo! can offer a credible alternative for consumers, advertisers, and publishers.

For Yahoo's shareholders this is a great face-saving exit from a strategyless future.  But whether the combination will in fact create a viable competitor to Google in online advertising remains to be seen. 

I'm not dabbling in equities at the moment, but if I was I'd be long YHOO and short MSFT.

The Charlatans add another nail

Other established bands are following Radiohead's lead (which I wrote about here) and releasing new albums outside of the studio distribution system, allowing consumers to name their own price.  The Charlatans are releasing their latest album, You Cross My Path, as a free download on their website.  Just like Radiohead, they will follow the release with a boxed CD sold in stores (how retro!) which -- if the Radiohead experiment is any guide -- will sell briskly. 

So is this really an alternative distribution mechanism or just a new, very effective pre-release marketing tool to hype up CD sales?

While Internet downloads + CD sales may work for established bands with large, young fan-clubs, lesser-known artists will still need marketing and distribution support to get exposure.  This means there will be a role for studios in some guise or another.  But time is running out fast. Can EMI and the others figure this one out before they implode?

What to do in case of recession

Another great edition of Wallstrip here.

Royal to SocGen: please give it back

The French should be thankful every day that Nicolas Sarkozy -- for all his odd workaholism and his envy-inducing sex life -- became President.  Via Pierre Chappaz's blog comes this story:

Ségolène Royal, "shocked by the Société Générale scandal", demanded on Friday that "the €7 billion be reimbursed to those families who have been plunged into indebtedness."

Priceless. Thanks Pierre.

Time for risk management 2.0

The unrelenting waves of bad news coming out of the financial services industry these days all seem to wash ashore at the same place -- on the desk of the CFO and his compliance team.  Financial risk management just isn't what it used to be.  Or rather, the risks themselves have moved so significantly in the past 10 years that banks have not managed to keep up (except, perhaps, the whiz kids at Goldman). 

Time for a change, or as Steve Husk of FRSGlobal suggests in his new blog, banks need to decide whether they want to be Southampton FC or Real Madrid (really!).  It's time for a two-dot-oh look at risk management.

In my view 3 main factors have contributed to an exponential increase in the scope and complexity of risk.  First came an acceleration of innovation in financial instruments, with investment banks churning out weekly new spins on the securitisation concept to ensure they had something to sell to clients, something to trade in and out of to generate fees, and -- in many cases -- something for their prop trading desks to buy.  The sophistication of these products have come a long way from Bowie bonds to a finely-graded slice of sub-prime mortgage risk.

Second, the entrance of new market participants, including hedge funds, corporate treasurers and commodities offices, the banks' own SIVs, and -- finally -- consumers egged on by retail bank 'consultants', created greater liquidity but also volatility in the market.  The behaviour of many of these market participants was not predictable and their reaction in a crisis untested.

Third, capital moves at higher speed through many more jurisdictions today than ever before.  There is no such thing as a domestic or European or American capital market today.  The effects of US subprime mortgage defaults are being felt in every corner of the globe, much to the surprise, no doubt, of the poor souls who are actually defaulting.

And yet the risk management approach used by most banks is based on legislative concepts that were  developed decades ago, in a simpler world of capital offsetting measurable liabilities on balance sheets (Basel I, Basel II).  The IT systems on which these risk management processes run tend to be local financial accounting systems, perhaps even instrument- or business line- specific, with little integration with the global exposures of the bank.

Now that banks know their real exposure is much greater than previously thought, and with the threat of increasing regulation if they don't find a way to regulate themselves, it's time to dust off those formerly Utopian plans to develop a single view of risk within the bank.

For both banks and corporates the era of keeping multiple sets of books is drawing to a close.  There is simply too much risk in not having a single, accurate, reportable view of the financial position.  The board will want to see the same report as the regulator is reviewing.  And when the regulator calls, the CFO wants to make sure his reporting is fully transparent and auditable.

It's no longer good enough to delegate local regulatory reporting to country managers. Regulators from different countries are talking to each other and are likely to exchange information and continue to harmonise their requirements.  For a bank operating across the world, this means local financial reporting needs to be in synch.  For the CFO, it means reducing risk of local error, while increasing global visibility of the numbers. 

So while general IT spending by banks will likely tail off this year, spending on compliance processes and risk management will continue, benefting firms like Riskmetrics (which is going public today), Algorithmics, and FRSGlobal (disclosure: Kennet company).  It is likely to take banks years to consolidate their financial systems and arrive at a single, global view of risk and an ability to report on it.  The good news is that this is more a process problem than a technology problem.  Recent technical innovations, including all that Web 2.0 stuff, make it notionally easier than ever.  Time to get started.

TheFunded to expose us all!

Controversial VC-rating site, TheFunded.com, has been annoying investors again, with a weekend announcement that they would collect and publish the terms of investment proposals made by VCs.  The intention is to build a database of such "term sheets" so that entrepreneurs can compare notes and avoid being bamboozled by the supposedly increasing complexity of VC investment offers.

Before VCs panic and set upon TheFunded.com -- while instructing their lawyers to tighten the confidentiality provisions in their term sheets -- it's worth reading the fine print.  TheFunded is proposing to anonymously collect actual investment terms in the market -- valuation, share type, liquidation preferences, anti-dilution type, exclusivity, etc.  This is no different than the statistical reports periodically issued by law firms to show whether term sheets are trending more buyer- or more seller-friendly. 

The investment industry should welcome efforts like these to standardise terms and make our process more transparent to entrepreneurs.  Far too much time is spent in early deal negotiations overcoming the mistrustful reaction of entrepreneurs to what appear to be clever, opaque transaction terms.  The more these terms get airtime, the easier it will be for entrepreneurs to understand why they're there and for the negotiations to focus on those that have a real, economic impact on either party.

Thanks to blogs and other Internet resources, we already have a much more open, transparent debate on terms than we did two years ago.  There are great blogs devoted to demystifying the world of venture investing to entrepreneurs, including Brad Feld's Ask the VC, the more irreverent Venture Hacks and Term Sheet Hacks, and the indispensable US resource, StartupCompanyLawyer (would be great to get one of the European law firms to do something like this -- c'mon SJ Berwin, step up to the plate!).

So long as TheFunded's initiative protects the anonymity of specific investment offers, I don't see any issue here.  Only investors who believe their competitive advantage lies in subterfuge through opaque terms need be worried, and to be honest I don't know many any like that.

Don't build a sales force before you're ready

Good post here from Andy Blackstone about how to build a professional sales force in a founder-led business.  It's a good cheat-sheet for entrepreneurs to make sure they've covered the bases before going out and hiring a lot of sales people. 

As growth equity investors focused on bootstrapped entrepreneurs, we have learned this lesson the hard way over the years.  Too often we invested in ramping up sales too quickly, before we had distilled the founders' sales magic into a manual that could be taught to a new sales force.  This is probably the second-fastest way to burn cash (the first being buying traffic for a new dot-com).

Founders who sell are the best evangelists for a new product, and when they do it well it can create entirely new markets.  But translating that ability into a scalable sales model is hard, and you can't really cut corners.  So take the time to understand why customers buy and how to standardise your 'sales craft' before you determine the profile of sales people you need to recruit.   This is especially true for entrepreneurs who take in outside capital to take the next step in building a sales force.

Scoring my 2007 predictions

Apologies for the long silence, which was mainly due to an extended holiday absence.  Before you feel envious, it was our first multi-stage international trip with:

and we really could use another whole vacation to recover from it...

But back to business: in early 2007 I made 10 tech market predictions, so here's a reckoning to see how I fared.  On reviewing these I realised that many of them were of the slightly cheeky, undoubtedly-true-but-difficult-to-prove variety, so I shall resolve to to be more specific for my 2008 predictions (to follow) to keep it interesting.

Here is a summary of last year's predictions & my grade:

1. Web 2.0 technologies will begin to appear in serious enterprise apps, as vendors incorporate wikis, blogs and RSS feeds into their applications, starting with CRM and other consumer-facing apps.  TRUE, BEGINNING WITH SAAS VENDORS.
2. There will be very few high-value exits of Web 2.0 companies, but probably many more investments, leading to an eventual VC bust (in 2008?) not unlike the dot-com bust of 2001 (but smaller). HALF TRUE, BUST YET TO COME.  But come it will.
3. Actual adoption of Microsoft's new Vista operating system will underwhelm and Microsoft's share price will begin to suffer.  MOSTLY FALSE. Vista sales have not been what Bill expected, but it hasn't affected the share price yet.  MSFT is up about 35% over 12 months and outperformed NASDAQ by 10% or so.
4. We will see the first serious cracks in the indomitable Googleplex -- how many wheels will in fact come off?  Investors beware.... FALSE. But I'm definitely rolling this one forward!
5. Multimedia content for mobile phones (3D games, video, etc) will start to come of age, but more slowly than anticipated.  It will take time to overcome the many usability hurdles. TRUE, STILL TRUE, BUT TOO EASY.
6. Business software for the SME market will get a major boost, as vendors attack the midmarket with new, scaled down applications.  TRUE for both new and old vendors. New SAAS vendors are springing up to make business-level functionality available to SMBs.  Client-server giants like SAP are investing heavily in midmarket offerings.
7. Offshore technology vendors -- not content to do pure services work -- will continue to push into Western markets with their own product sets.  TRUE-ISH: it's still early days for Indian packaged software. The largest firms, like Infosys and i-Flex are still the main examples.
8. Expect to see lots of new applications for small vertical markets.  The combination of SOA and Web 2.0 technologies makes it easy to build apps for the long tail of micro markets. TRUE.  Lower cost of development and delivery has led to an avalanche of niche apps. We've seen everything from employee feedback management software through to environmental data reporting suites.  Great news for users and investors alike, although picking large enough markets will be key for the latter.
9. Consolidation in the WiMAX market will begin as the large chip and equipment vendors jostle for a piece of the infrastructure build-out.  Still too early for actual services of any scale though... TRUE. Cisco launched the first consolidation shot in December with the acquisition of Navini.  Sprint/Clearwire remains the biggest WiMAX network project, and it has been on shaky ground (but seems to be going ahead) . 
10. The line between information services and software functionality will become increasingly blurred, as more managed services effectively bundle both.  VERY TRUE.  The most interesting SaaS businesses we see are those that collect customer and industry data which has value in its own right.  Combining a software and data service can be very profitable and very sticky.

There you have it.  I'll call that a 7/10 caveated with the promise that I'll make meatier, harder predictions for 2008!  Stay tuned....

European tech investing comes of age

Congratulations to the busy bees over at Index Ventures for closing their €400m growth equity fund.  With new funds targeting mature technology companies also from Carlyle, Fidelity Ventures and Wellington among others, this is the strongest sign yet that European tech investing is coming of age. 

Index's Giuseppe has a thesis that there is a crop of sucessful VC-backed startups in Europe that would normally sell out early, but could in fact become global market leaders given the right backing.  And he's right.  If we look at home-grown tech companies of the past 5 years -- like MySQL, Cramer Systems, Cartesis, Qliktech, FRSGLobal, Smartstream, DocMorris, Trema, Ion Trading -- they have proven that it's possible to build financially and operationally successful market leaders from Europe.  Now, less than 15 years after venture capital set root in Europe, we have specialised investor capital available for each stage of a company's development: seed (eg Samwer brothers, Howzat) - startup & expansion (Spark, Amadeus, Advent, Sofinnova, Iris, et al) - growth equity (Kennet, Index) - buyout (HgCapital, General Atlantic, Hellman & Friedman).

This maturation of the industry is good news for European entrepreneurs, and for the European economies that benefit from their successes.

Weekender: Adam Curtis on our modern social trap

How do the Internet and TV unwittingly conspire to oppress our freedom of thought?  In case you missed it, The Register last week published an interview with one the most daring and unusual documentary-makers of our time, Adam Curtis.  If you have seen his (somewhat stealthy) BBC productions, The Power of Nightmares, or more recently, The Trap, then you'll know what to expect. 

[Inexplicably neither of these documentaries is easily found on DVD, but The Power is available at the Internet Archive here.]

The interview is a wide-ranging critique of Internet culture. Curtis makes a case that -- far from setting us free -- the Internet and television reduce choice, replace debate with noise, and entrench divisions between people.  His argument can be seen as a natural extension of the basic premise of The Trap.  In that film, Curtis used his trademark montage of historical video footage to articulate how the development of game theory in the 1950s ended up influencing cold war dynamics, popular and applied psychology, party politics and social policy for decades to come, culminating with Tony Blair's targets-enslaved civil service in the UK, and with the Bush administration's disastrous de-Baathification programme in Iraq.  A stretch?  Perhaps, but rarely has one's mind been so persuasively pulled in a new direction.

But while his earlier The Power of Nightmares described the common philosophical underpinnings of the neo-cons and radical Islamists to show how both feed on fear and are hence essentially co-dependent, The Trap postulates that what we think of as freedom of thought is in fact the tyranny of groupthink.  In this interview, he looks at the effect of blogging and user-generated content (UGC) on traditional media:

I've talked to news editors in America. What they are most frightened of is an assault by the bloggers. They come from the left and the right. They're terrified if they stray one way they'll get monstered by bloggers on the right, if they stray the other way they'll get monstered by bloggers from the left. So they nervously try and creep along, like a big animal in Toy Story - hoping not to disturb the demons that are out there.

It leads to a sort of nervousness. The moment a media system becomes infected by nervousness it starts to decline.

Big media responds to this newfound insecurity by incorporating UGC into their newsflow, asking readers to submit videos and contribute to blogs.  This reaction further fragments the newsflow and makes the media more toothless, less analytical and less authoritative.  The resulting avalanche of unfiltered, uninformed reporting is more about talking than listening, and less about debate than the taking of positions.  The shouting gets louder, positions fragment and harden and before you know it you have a 'Balkanisation of opinions' rather than a new, enlightened forum for debate.

[Balkanisation] gives people security. So over here is the part of the internet - and therefore of the world - where there are people who think the invasion of Iraq was all about oil. Over are people who think it's all about stopping Muslim hordes taking over our culture. And over here, it's the neo-conservative lot who think it's all about ideas.

Do you remember that book about intelligent buildings, how buildings work out how to stand up? That's what's happening now. They're working out how to hold each other up. So you get a Balkanisation where there is no movement forward - everyone just publishes their position, stands up, and that's it. Everything is so static.

Rather than lead us into a new era of independent thought, the Internet is largely about teaching us how to conform more effectively, how to feel better about ourselves.  Think about collaborative filtering, the technique by which Amazon tells you which books you'd like based on what others are reading.  Look at the sharing of blogrolls, the proliferation of Facebook groups, news ranked by popularity not relevance, the addiction to social networking and its basis of finding 'people like you'.  These Internet-driven social phenomena derive from our search for an affirmation of our likes and our views, rather than a search for truth or adventure. 

Our fragmentation into well-conformed, definable, targetable groups is great for advertisers, but is it good for human freedom?

I disagree with Curtis' statement that "it's a time of great technical innovation but it's a time of artistic stagnation."  He bemoans the lack of imaginative new art forms driven by the Internet's many possibilities.  It is clearly still early days and YouTube is indeed short on artistic merit, but we are seeing new art forms emerge thanks to an ability to reach the masses through the new medium.  Take the graffiti artist Banksy for example, whose rapid rise to global fame would not have been possible if his tongue-in-cheek protests and installations had not been distributed via blogs and videos.

Likewise, traditional art forms -- rock music in particular -- are getting a democratising boost through ubiquitous new distribution channels like MySpace.  Are video mashups a new art form?  Why not?  We wouldn't argue with the statement that the first DJ's to scratch records in the 1970s gave birth to a new medium.  Are short films made for mobile consumption (even if produced for commecial gain), like When Evil Calls not a new art form?  Even add-ons to commercial productions -- like Good Morning Agrestic, a cheeky Internet extension to the popular US show Weeds -- can expose new creative ideas from their creators, beyond the traditional boundaries of television.

Perhaps the biggest effect has been on art that protests, critiques, satirises -- the kind of art with a well-defined message.  Viral distribution among those who share the same views -- the flipside of the Balkanisation argument above -- is also a great means for sharing a creative, untested idea and encouraging budding new artists.

The best of Web 2.0

I really can't live without my Crackbook.

Good news from France

Sarkozy 1, public sector unions 0

The Economist: How Not To Innovate

PaidContent has been following the little-noticed story of a very smart enterprise that has opened a window into its internal struggles with a Web 2.0 strategy.  It's a rare insight and makes for fascinating reading.

Basically, earlier this year The Economist magazine gave total freedom to an internal group of employees to spend 6 months brainstorming an entirely new online service using any content from within the Economist group.  The project's failure to produce a business plan or venture provides interesting lessons in how not to run group collaborations, some of which are quite counter-intuitive. 

Most amazingly, the team's shambolic process has been exposed to the public throughout, via the project blog, which was actively covered on Slashdot.  When the project was finally buried a few months ago, the group's leader, Economist CIO Mike Seery, wrote a detailed memo drawing out its lessons and making seven recommendations for future projects of its type.

The paper a seldom seen glimpse into the internal struggle that many companies must be going through in one guise or another.  It also usefully explodes some myths about the correlation between the degree of freedom and openness a working group is given and their capacity to innovate.  Worth a read for any CIO.

Whither Garmin?

So the battle of GPS giants ended with a bit of a whimper.  Garmin withdrew from the bidding for TeleAtlas and simultaneously announced an extended deal with Navteq, who will continue providing maps to Garmin until 2015.  It makes you wonder how much say Nokia, who is in the process of buying Navteq, had in the negotiation of the Garmin contract extension.

In spite of Garmin's denials, rumour continues to swirl that the company is considering building out its own map-making network.  That would be a heavy, multi-year investment and one Garmin's shareholders ought to be interested to hear about.   But it may also be the only way to to de-risk a business whose main offering now depends on a large potential rival that wants to own the navigation and location-based services (LBS) market.

For now, the markets appear relieved that Garmin did not overpay for TeleAtlas, sending Garmin's share price up 14%. The kind view is that Garmin's bid was anyway just a gambit to force TomTom into paying an outlandish price (38 x 2007 EBITDA) for its own mapmaker.  But Garmin's future now contains a big hairy unknown, which has yet to be priced into the stock...

Weekender: Duchovny on the dumber Web

I guess I'm collecting bubble-pricking quotes on all things Web two-dot-oh.  First Seinfeld, now David Duchovny in his role as ueber-randy blogger Hank Moody on Californication... Here it is in case you missed it last week:

Henry Rollins (playing a radio show host): What's your latest obsession?

Hank (being interviewed): Just the fact that people seem to be getting dumber and dumber. You know, I mean we have all this amazing technology and yet computers have turned us basically into four-fingered wank machines. The Internet was supposed to set us free, democratize us, but all it's really given us is Howard Dean's aborted candidacy and 24-hour-a-day access to kiddie porn. People...they don't write anymore - they blog. Instead of talking, they text, no punctuation, no grammar: LOL this and LMFAO that. You know, it just seems to me like a bunch of stupid people pseudo-communicating with a bunch of other stupid people in a proto-language that resembles more what cavemen used to speak than the King's English.

Henry Rollins: Yet you're part of the problem, I mean you're out there blogging with the best of them.

Hank: Hence my self-loathing.

The world is not ready for open phones

The Googleites have been a-twitter since Monday's long-awaited announcement ABOUT ANYTHING MOBILE PLEEAAASE dashed hopes of a gPhone hitting stores anytime soon.  Google made the sort of announcement that normally sinks like a stone when made by any other tech company like, say, IBM:

[Launch of the] Open Handset Alliance, which consists of more than 30 technology and mobile leaders including Motorola, Qualcomm, HTC and T-Mobile. Through deep partnerships with carriers, device manufacturers, developers, and others, we hope to enable an open ecosystem for the mobile world by creating a standard, open mobile software platform...

...yadayada....yawn.  But where is the damn phone?!?!? 

Well, Google isn't launching a phone after all.  What they are doing is similar to past forays into established markets, such as the release of Google Docs to unsettle the Office monopoly, or Google Desktop to put the fear into Yahoo.  It must be said that those initiatives have largely underwhelmed relative to their hyped-up launches.

In this instance, Google Android is creating some welcome unsease among established handset vendors and their software suppliers, in particular the operating system duopoly of Symbian and Windows Mobile. By tossing into the developer community a full mobile 'stack' -- operating system, middleware framework and basic apps --, Google is accelerating the commoditisation of the mobile phone platform and pushing the focus onto the application layer and the consumer experience.

This is all good, especially for consumers, who can expect to see more user interface innovation and -- in particular -- a lot more smartphone-style apps becoming available on basic mass market phones.

But will it lead to an open handset platform for which anyone can develop apps?  Will it democratise access to any content and any applications from mobiles?  I wouldn't bet on it in this decade.

There are two critical differences between mobiles and PCs.  One, mobiles run over what are still proprietary networks controlled by large powerful companies.  Even though most operators no longer force consumers to remain within their walled gardens, they sure make getting out of them hard.  In other words, they still have access control over your handset and they like it that way.  Network owners also keep tight control over which phone functions your applications can access -- witness efforts by Vodafone to block VOIP calls through Truphone for example.  The operators are under increasing pressure, but they will not let go of their consumers without a long, drawn-out fight.

Two, PCs have standard screen sizes, shapes and resolutions; mobiles don't.  Phone manufacturers aren't about to give up their last competitive differentiator -- handset design -- in order to faciliate their own commoditisation.  Continuing differences in screen layout and device capabilities mean that it's a lot harder to write standardised apps for mobile phones than it is for PCs.  Worse, it means you can't deliver any rich content without thinking about the device.

Looked at another way, Google's announcement simply throws the hat of yet another mobile OS into the ring, alongside market leaders Symbian and Microsoft, as well as Palm, Blackberry, iPhone and other flavours of Linux that have come and gone.  With Google's animal magnetism and financial clout, Android will undoubtedly get built into some heavy hitting Taiwanese manufacturers' 2008 phone line-up.  But will this translate into mobiles that consumers will have to have, like the iPhone, which benefits from totally integrated hardware and software design?

Rather than simplify the situation, the launch of Google Android highlights the fact that the mobile device universe is getting more heterogeneous (not less), and that serving content and applications to mobiles will remain more difficult than serving web content to PCs. 

How do operators and content owners deal with this complexity today?  Well, virtually all the major operators and many media and Internet companies use a "write once, deliver anywhere" platform from UK-based Volantis Systems (disclosure: Kennet portfolio company).  Volantis provides a carrier-grade content delivery platform with automatic rendering to most mobile devices (4,600 supported and counting).  Sound expensive?  It is. To date this platform has only been within reach of companies that deliver a lot of content, like the operators themselves or eBay or Disney.

But that is about to change.  On Tuesday, Volantis announced the release of its Mobility Server under the GPL 3.0 open source licence, and available immediately as a free download here.  CNET coverage is here. The Mobility Server packs in everything you need to deliver a website to any mobile device: a multi-channel server, development tools, a client-side widget library and the full database of 4,600 devices.  This is a full functional release, open to incremental development by community developers.  The only additional features you get if you upgrade to the Professional edition is technical support, free database updates, and support for multiple administrators and groups of content managers.

I'm not an expert on mobile technologies, but I am a consumer of online services.  I'd like to have a single experience across devices, with the same content.  I don't want to log into Yahoo Blackberry in the morning, Yahoo Web in the afternoon, and Yahoo Mobile in the evening.  How about just plain Yahoo?  It's about true Web portability, and not about a proliferation of device-specific Web sites.

Google Android is great because it will spur independent development of mobile applications across more mass market mobiles.  That in turn will drive demand for Web content from mobiles, which will require content owners to have a delivery strategy.  With Mobility Server, delivery to mobiles just got a lot easier, and cheaper.

Killing the entertainment goose

Great post here from Marc Andreesen on the Hollywood writers' strike -- worth a full read.  If the movie and TV bosses really think this is the right time for a showdown with their talent over a few pennies on the dollar in royalties, they may be in for a nasty surprise.  The longer the strike lasts, the more writers will discover the new distribution channels that are making the large studios obsolete.  It won't take long for new media companies to take their place...

For SNL's unveiling of studio head hypocrisy, check out these videos which NBC then tried to remove from the Web.

During the last writers strike in 1988, most people saw their favourite shows fizzle out over 22 weeks, but they did not hear much from the writers themselves.  This time the impact the backlash will be far greater -- so much TV and Web programming is just-in-time, written-yesterday, current-events-led.  And the writers' have more avenues to influence public opinion (blogs, YouTube, social networks, whole pages on Flickr devoted to the picket lines, etc) than their bosses could ever imagine. 

The incredible irony here is that the studios are alienating the very talent AND the very consumers who just might have been able to save them from obsolescence....

What price private sector diagnostics?

In spite of apparent hesitation by the Gordon Brown government in pushing ahead with Blair's healthcare reforms, a recent secondary buyout deal highlights investor expectations of continued private sector involvement in UK healthcare provision. 

Last week Bridgepoint announced the sale of Alliance Medical to Dubai International Capital (DIC) for a whopping £600m.   This crowns a very sucessful stewardship of the company by Bridgepoint, who bought the business for £86m in 2001 and led it through 16 acquisitions to build one of the largest diagnostic scanning services providers in Europe.  Today Alliance Medical runs 190 fixed and mobile scanners (MRI, CT, x-ray) for private clinics and public healthcare systems, benefiting from the increasing trend by hospitals to outsource imaging diagnostics.

The price paid by DIC represents 4.6 x 2006 revenues (£132m) or 16 x 2006 EBITDA (£37m), which is fairly rich for a business that is heavily exposed to the political flip-flops on reform that buffet the NHS on a regular basis.  DIC is clearly making a bet that the requirement by Western countries to improve diagnostic services and reduce patient waiting times will force them to involve the private sector in one guise or another. 

DIC is a new-ish guy on the block in the UK.  It is not technically a sovereign wealth fund like the China fund that recently took a stake in Blackstone, or the better known ones like Singapore's GIC or the Kuwait Investment Authority.  The DIC fund runs the personal wealth of Dubai's ruling emirs.  It has been active in the UK in the past 2 years and today owns Tussauds attractions group, Doncasters defence engineering group and the Travelodge hotels operator.

Whether there is any strategic interest by DIC to expand Alliance's services into the Gulf region remains to be seen.  But as a financial investment this deal rides continuing consolidation among pan-European providers of diagnostic and other healthcare services.  With or without the explicit consent of their health ministers, European hospitals are clearly finding ways to exploit private-sector solutions to their woes.

The battle for control of the GPS market comes to a head

 

This year's most exciting takeover battle in tech may be nearing a conclusion.  On Wednesday TomTom, maker of the ubiquitous GPS navigation devices, increased its bid for digital map-maker TeleAtlas by over 40% and snapped up 28% of the target's shares.  This follows an earlier hostile effort by archrival Garmin from the US to prevent TomTom from gaining control over the only remaining independent provider of maps.

This expensive bidding war caps a wave of consolidation in the industry which pits the two market leaders against each other and both against a new, gigantic entrant.  The opening shot of this set-piece was Nokia's agreement to acquire Navteq Corp, one of only two global providers of digital maps to the fast-growing GPS navigation industry.  Pretty much all the sat nav device and navigation software vendors depend on either Navteq or TeleAtlas for maps.  What Navteq and TeleAtlas do is expensive and time-consuming (hundreds of people driving around the world mapping roads), so they are not easily replaced. 

Garmin primarily uses Navteq and TomTom uses TeleAtlas.  In fact TomTom is TeleAtlas' largest customers, making up about 30% of revenues.  So when Nokia bid for Navteq (having already acquired navigation software vendor Gate5 last year), alarm bells must have gone off at Garmin's beach HQ in the Cayman Islands.  Nokia is gearing up to become a formidable competitor to the dedicated sat nav device market, planning to put GPS-absed navigation on both its high-end smartphones and mass market handsets.  To protect its own source of maps, TomTom made a heavily geared bid to acquire TeleAtlas for a whopping €2.1bn. 

The loser of this battle may well struggle to survive.  US anti-trust officials have not opposed the merger, but the European watchdog is still considering it.  They will of course require the winner to continue providing maps to the industry as a whole, including to the loser.  But for the ultimate winner there are many ways to make life difficult for rivals.  And huge margin benefits for itself -- saving TeleAtlas royalties could add as much as 15 or 20 points to TomTom's gross margin.

This is one fight TomTom cannot afford to lose.  Last week Garmin countered TomTom's initial bid with an unsolicited €2.4bn offer.  TomTom responded swiftly, raising its bid to €2.9bn this week.  At the same time