Technofile Europe

The next big thing (part 3): zeebox

This is part 3 of my review of the TV revolution unfolding.  Part 2 is here, part 1 here. 

So, everyone potentially has something to gain from this revolution if they really 'get' the value of connecting TV viewers with RELEVANT and CONTEXTUAL stuff from the Web.  And clearly any disruption like this creates opportunity for new entrants.  So far we've seen a plethora of (mostly US-based) start-ups targeting small slivers of the opportunity: social TV check-in services like GetGlue; TV content recognition services like IntoNow (acquired by Yahoo); and efforts to enable synchronised advertising like SecondScreen Networks. 

What most of these efforts have in common is that they are building relationships with individual brands or shows to distribute content or special offers.  This is a great way to help large companies engage with social media, but it's not particularly scalable based on current evidence.  What the ventures I've seen seem to really lack is (a) an integrated approach to giving consumers what they so clearly want (information, social, e-commerce), and (b) a true understanding of live TV CONTEXT as the basis for making the right connections to the Web.  

We can do better.  Much much better.

[Warning: shameless plug follows.  What can I say? - I'm convinced and excited.]

We’re zeebox, TV’s new best friend.  

zeebox is the new way to watch television.  A, social, immersive, interactive, amazing way to watch television.

zeebox is your TV sidekick

zeebox is a free app and web service that’s with you on your laptop or iPad while you watch TV.  It knows what you’re watching, right now.  Not only that, it shows you what your friends are watching.  It can give you more information about what’s on your TV, instantly.  It lets you buy and download relevant stuff.  It can tell you what shows are most popular, in real-time.  It’s like a quiet, cool, well-connected and unbelievably clever companion, right there on the sofa next to you.

zeebox is social

Because zeebox knows what you and your friends are watching, you can all share.  Think they’ll enjoy what you’re watching?  Invite them to join you.  Wonder what they’re gawking at?  Switch over and sneak a look.  And you can all chat together, while you watch.  Splutter over what Pat just said on EastEnders.  Voice your own commentary during the match.  Share your disbelief about the score Craig just gave on Strictly.  zeebox is even integrated with Twitter, so you can tweet about what’s going on.  

zeebox is clever

zeebox doesn’t just know what you’re watching, it understands.  So when it picks up references to things on a show, like Tom Cruise, armadillos, Late Victorian sideboards or Usain Bolt, it puts them up as zeetags.  Hit the zeetag and it brings you the lowdown, from Wikipedia, Google or anywhere else you want to go on the web.  It can even detect if your TV is Internet-connected – and if so, act as your remote control.  Like we said, clever.

zeebox is everything

So, zeebox can do some pretty amazing things.  But that’s not all, not even close.  Say you’re watching Stephen Fry plugging his new book.  Want to read it? No problem - right there is a link to download it from iTunes.  Apps, games, music, books, films, TV shows – if it’s related to what you’re watching, zeebox can help you buy it, easily.  Anything and everything – if it's on the Web it's at your fingertips. 

zeebox. The best thing to happen to TV since TV. 

zeebox is a website and an iPad app.  iPhone soon to follow.

zeebox go! from zeebox on Vimeo.

The next big thing. Yes, TV. (part 2)

This is part 2 of my review of the TV revolution.  Part 1 is here.

Now, imagine that your second screen knows you’re watching Top Gear.  Based on your TV viewing pattern it knows that you are probably male, and it knows that you’ve just seen a TV commercial for the Audi A3.  What’s more, it knows where you are located.   If I could offer you a test-drive in the Audi A3, tomorrow, at a dealership near you – that would be pretty relevant and useful, would it not?  And – crucially for the advertiser – given the warm context, you would have a high likelihood of conversion to booking the test-drive.

The idea is not revolutionary from a technology point of view.  This kind of targeting happens on the Internet millions of times per day – the input is normally a search query, or a behavioural targeting profile.  In the example above, the equivalent input is the TV context – it’s live, it’s warm (in the language of lead merchants), and it’s actionable, if only you know how to reach the consumer at that very moment.

So, whose opportunity, whose threat?

Adding live TV context to the data that drives Internet ad targeting is a no-brainer.  But who is doing it? The obvious candidate is Google – having indexed the whole web and helped turn it into a $70bn economy, Google ought to be spidering the whole of live TV, extracting its context and connecting information and transaction opportunities from the Web to users who are online whilst watching, or who go online after watching.  And yet, Google seems to be pre-occupied with two misguided efforts:

• creating a Google TV platform that asks consumers to engage with TV like they do with the Web – by searching for stuff, whilst fighting with skeptical and terrified content owners for the right to licence their crown jewels; and, 
• trying to turn YouTube into a premium content distributor to compete with broadcasters, cable companies and video-over-IP providers like Hulu and Netflix.

The case studies of AOL/Time Warner and Yahoo come to mind… ‘nuff said.

The pendulum of power has shifted back to the existing owners of content and brands, while the distribution channels are being commoditized (Apple is trying to be the exception).  But the incremental size of the new advertising and lead generation opportunity – mashing together the $170bn TV and the $70bn online advertising markets – provides enough capacity for everyone to get a piece.  If they play their cards right that is:

• Programme makers are in a great position.  They own the ideas, concepts and access to the celebrities that drive the social media conversation around TV.  They’ve embraced apps (a good first step) and social media.  Now they need to feed the web conversation and interactivity back into their programmes.  The second screen is the perfect companion – potentially delivering behind-the-scenes content, access to celebrities, polls, games and competitions, and an opportunity to measure the social pulse of the show and target its fans.  But in order to reach the wider market, they need to ditch the idea of show-specific apps – there are only so many individual apps consumers will bother to download, especially if these are only useful for an hour a week.  The key strategy here is to partner with a platform that can deliver the relevant app or widget or content flow to consumers when they start watching the show, on whatever second-screen device they’re using.
• Broadcasters/cable companies are in a bind.  On the one hand, the advent of measurable, targeted second-screen advertising threatens to expose the real effectiveness of TV commercials.   But who better to sell second-screen ads than the broadcaster’s existing sales team?  It’s a tick-box on the package being sold to brands already.  The catch is that if the broadcasters don’t take this opportunity, the agencies and second-screen platforms will.  The two types of ad inventory should be mostly incremental, so broadcasters who aren’t afraid of what actual clicks would reveal about the reach of their TV commercials should embrace this new medium.
• Brands and agencies are perhaps in the strongest position amongst the industry players – they control the flow of money and will gain access to phenomenal new analytics once we can mash up real-time TV ratings with social media monitoring and Internet traffic analysis.  They need to be proactive in driving experimentation with second-screen ads and rigorous in pressing the old media giants to embrace the new data and what it really means.  The ability to track effectiveness of TV ads will finally put paid to the adage that half of ad spend is wasted.  Soon we will know largely which half.
• The Internet giants – Google, Facebook, Amazon, et al – can cream a lot of value out of this new market if they stick to their knitting and just look at TV as another HUGE source of user data, shareable content and contextual commerce opportunities.  Imagine if Amazon used its fabulous recommendation engine to show you stuff to buy that is relevant to the show you’re watching, or to the TV ad you just saw, or that people who watch what you watch just bought?  Imagine if Facebook showed you not just which friends ‘liked’ a show in the past, but actually who is watching right now and pulled in all the social media chatter around that event?  But if these companies keep picking unwinnable bunfights with the industry players above, they’ll miss the opportunity right under their noses.

Stay tuned for part 3.

The next big thing. Yes, TV. (part 1)

Mark Suster's presentation this week to the VCJ Alpha Conference was spot on (as usual) both in its analysis of the VC industry and his calling out the next big thing after social networking: television.  I'd like to take this a bit further and slay a few common industry assumptions in the process.  The next big thing is indeed TV, but not as you might expect...

The Coming TV Revolution (part 1)

The recent coverage of Eric Schmidt’s MacTaggart Lecture in Edinburgh and the much-anticipated (re)launch of Google TV in the UK have highlighted the way in which most of the industry is missing the point on Internet/TV convergence.

They’ve got it wrong on 3 fronts: 

1. Pushing more choice of content.
2. Misunderstanding how the medium of TV is consumed, and why it’s NOT the Internet.
3. Failing to see the value of real-time TV context as the last frontier of data collection to personalize web content for users.

1.

Our living rooms are crammed with options for watching films and TV – broadcast television, cable channels, pay-per-view, our DVD collections, our bursting PVRs, content streamed from our computers and media servers, etc.    Now many of our TVs, set-top boxes and game consoles are directly connected to the Internet – the great enabler of personalization and targeted advertising.

And yet both the entertainment and tech industries seem determined to use the TV’s Internet connection to pump more video content into the living room.  This is hardly a consumer pain point.  If there is a frustration among consumers it’s DISCOVERY, not choice.   Showing me an empty search bar when I get home in the evening, and expecting me to balance a keyboard on my knees, isn’t going to displace good old TV viewing anytime soon.  We like our TV channels and the serendipitous, lean-back discovery experience they provide.

2.

In the UK, the average adult now watches 4hrs 10min of broadcast TV every day.  In the US, the number is 5 hours+.  Counterintuitively, those figures have risen slightly in recent years, even though use of other media like the Web have also increased.  The obvious conclusion (confirmed by surveys) is that people are increasingly multi-tasking – exploiting TV context to search for stuff on the Web – social connectivity, more information, ecommerce.  And they do this IN SPITE of the technology – the second screen is not sync’d to the TV, doesn’t know what’s on, and only responds to active search queries from the user.

TV is clearly not dead.  The fact is we like our broadcast TV, and its purveyors have gotten very good at bringing us (and the family) back into the living room at a time of their choosing – we want to see the X Factor live, we don’t want to miss the eviction on Big Brother, we can’t wait a day for the next plotline in East Enders or Glee.

3.

So how do we really give benefit to consumers and extract value for business from connecting the TV to the Internet?  The TV is the last dumb screen in the house, unchanged for the better part of 30 years.  It’s the only screen that doesn’t know where we are, what we like, what we’re doing.  If it knew just those three things, it could be as powerful as any web browser in delivering social connections, information and transactions that are relevant and contextual.

The tech and media industries have struggled with this in part because the TV itself is a poor delivery mechanism for non-video web content.  Yes you can tweet and post to Facebook using the apps on some newfangled TVs, but the experience sucks and – hey, you’re covering up my TV picture!  This is not the way to bring the Internet to TV.  And why are we even trying, given that 60%+ of people watching TV have their laptops, tablets or smartphones open, engaging with the social, transactional web already?  Hello!?!  The perfect delivery device already exists – it’s the second screen, stupid.

Stay tuned for part 2.

 

New gig: over to the bright side

I've been silent on this blog for nearly 6 months, for which I apologise -- now it's high time I get back into my technology and business rantings.

The reason for the long silence is simple: I did a 'pivot' as the startup business gurus are fond of calling it. I left the VC world and went looking for a (big) change.  This could have been anything and I roamed a bit widely for a while, but in the end the markets got me: I decided to jump to the other side and join an entrepreneurial team out to revolutionise television. [more on this later]

There ought to be a network or -- dare I say -- a support group for VCs turned entrepreneurs.  The transition feels like switching from flying in a Boeing 777 to a single-prop cropduster.  Suddenly everything is so close up, every detail critical, every task a bottleneck, every impediment a potential disaster.  And you quickly learn that most of the world does not move at the pace or with the urgency you so badly want to maintain!  Commercial banks?  Property agents?  Accountants?  VCs for that matter!?  Fuhgeddaboudit...

So this blog will from now on range a bit more widely than before: entrepreneurship, technology, markets at a minimum.  And if I comment on the VC industry it will be from a rather different perspective, that of a user.  Thanks for staying tuned. 

AOL goes viral

Image via CrunchBase

Today Kennet announced the sale of viral video seeding network goviral to AOL for nearly $100m.  This investment was a great example of Kennet's proactive approach to working with bootstrapped companies to help them achieve superior exits.  The Guardian covered it here. 

When we came across goviral in 2009, the business was seeing rapid take-up of its video seeding platform from advertisers eager to benefit from the viral potential of edgy commercial videos.  The company was bootstrapped and profitable and didn't need external capital to maintain its growth.  But the founders realised they could use an investor and adviser on board to help professionalise the business and prepare it for an eventual exit.  This was the basis of Kennet's investment, led by Michael Elias. 

Congratulations to the goviral team, CEO Rene Rechtman and co-founders Jimmy Maymann and Claus Moseholm, on building a European success story in online video.

Related articles

• AOL buys GoViral for $96.7m (guardian.co.uk)
• AOL Buys GoViral Video Network For Up To $96.7 Million (paidcontent.org)
• AOL Europe Acquires Branded Video Network goviral For $96.7 Million (techcrunch.com)
• Viral Video: AOL Media Head David Eun Gets Jiggy in Internal All-Hands Video (kara.allthingsd.com)

It's official: shopping clubs kick off a new phase

Today Amazon announced the acquisition of our portfolio company BuyVIP, confirming a deal that had been widely leaked via the Spanish press since the weekend.  This deal was done at the same time as BuyVIP's nearest rival, Barcelona-based Privalia announced a whopping €70m funding round.  The markets are abuzz with further transactions among private sale clubs and private equity firms.

What does this mean for the market pioneered by Vente-Privee, variously referred to as private sales, shopping clubs or short-duration sales?  Until Groupon and its many deal-of-the-day clones exploded onto the scene, the private sale market was the fastest-growing business model most of us had ever seen.  

The torrid growth continues, but the market dynamics are about to change.  The first phase was about speed of execution,the next phase will be about scale and cash.

Originally, the private sales model offered brands a way to quietly feed excess inventory to loyal brand followers, much like out-of-town outlet malls.  But with European private sale revenues exceeding €1bn in 2009, up perhaps 40% on 2008, the shopping clubs had become a significant channel in their own right.  I suspect brands were surprised at how quickly this new channel ran away from them.

Brands are waking up.  They're learning how to play the various shopping clubs off against one another.  In the coming months and years they will drive harder bargains.  Inevitably, the clubs will have to start buying more inventory if they want to continue to pass on discounts of 60-80% to their members.  That approach has been the norm in the US market for some time. This is why Privalia needs so much capital and why BuyVIP will now benefit from Amazon's balance sheet.  Look out for more scrambling for cash among the other clubs in Europe.

The last two years were all about the land-grab.  Vente-Privee expanded into the UK, Germany and Spain, with mixed success.  BuyVIP and Privalia battled it out in Spain and Italy.  Privalia became the first serious player in Latin America by building a beachhead in Brazil.  BuyVIP fought over the German market with incumbent Brands4Friends, and the latter expanded haphazardly into Austria, the UK (by investing in SecretSales) and Japan. BuyVIP also entered the Dutch, Polish and Portuguese markets through partnerships. In the meantime, domestic players dug in at home: Showroomprive, Private Outlet and BrandAlley in France, SecretSales in the UK, KupiVIP in Russia, and many others.

Hundreds of millions of euros have been spent on acquiring members, feeding a whole sub-industry of SEM agencies, affiliates, lead  hustlers, etc.  A lot of that spend has been inefficiently duplicated as the same fashion-hungry shoppers are hoovered up to join multiple clubs.  That in turn drives up marketing costs for everyone, which is ultimately not sustainable.  

Fixing this will require consolidation.  There are only two gorillas in the space today: Vente-Privee in Europe and Gilt Groupe in the US.  If the others move quickly enough there can be a third, perhaps a fourth, with enough scale to push down member acquisition costs, and enough clout to stand up to the brands.  Then it will be a race to IPO.  Why Vente-Privee has not yet issued shares to the public is one of the enduring mysteries European investors love to grumble about.  I suspect Gilt Groupe won't be so reticent.

And for consumers... it's all good news.  Shop on!

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It's all about growth, stupid

Since 2003 Kennet has played in the gap between venture capital and buyouts, and sometimes I wonder whether we get the best or the worst of both worlds.  

The typical companies we invest in are not explosive high-profile start-ups with Web 2.0-type logos.  They tend to grow as fast as their cash generation (and the market they're in) allows.  And so they don't often get the big headlines when they're acquired.  At the same time, we don't get to juice our returns with piles of cheap debt financing, as the buyout funds do more or less easily depending on market conditions.

No, the Growth Equity industry depends entirely on -- you guessed it -- growth.  Chances are that the annual returns on a growth equity fund will be roughly equal to the median revenue growth CAGR across the portfolio.  If the fund manager is able to "expand the multiples" as well (in other words "buy low, sell high"), he can do even better.  

We always had a theory that capital-efficient businesses -- those built by bootstrappers -- were better than their venture-funded peers at growing faster than the market.  So we were delighted to find five of our portfolio companies named in the Inc. 500/5000 list of America's fastest-growing private companies, based on overall revenue growth over a 3-year period:   

• AcademixDirect (639% growth): performance-based marketing to the post-secondary education market.
• Revolution Prep (305% growth): test preparation and online education company for the K12 market. 
• IntelePeer (302% growth): communication-as-a-service platform and VoiP peering network that enables carriers, service providers, and enterprises to build communication services in the cloud.
• Schoolwires (248% growth): platform for social communication, community-management and productivity application used by the K-12 education market. 
• Recommind (219% growth):  data management platform for the corporate, legal and eDiscovery markets. 

With growth rates like that, I think we're getting the better of the two worlds: less technology risk than venture, less refinancing or covenant risk than buyouts.  So far so good.

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Wolters Kluwer catches compliance wave with FRSglobal acquisition

Today we’re very pleased to announce the sale of our portfolio company FRSglobal to Wolters Kluwer.  

Coming on the heels of the new Basel III accord, this deal is a small but significant milestone in the evolution of banking compliance following years of regulatory upheaval.  FRS and Wolters Kluwer's Financial Services unit will have their work cut out in providing solutions to help bank CFOs manage the welter of new regulations coming out of Basel III, Solvency II, the Dodd-Frank Act, MifiD and other regimes.

The financial crisis highlighted the importance of really understanding risk, not just managing it to regulatory requirements.  Wolters Kluwer -– an established purveyor of content to the legal, health and financial verticals – long ago started investing in bringing true analytics to senior decision-makers.  In fact, by 2009, software and online revenue represented more than 50% of Wolters Kluwer’s business, while books were less than 10%.

Like the acquisition by Thomson Reuters of Complinet, this deal also confirms the entrance of a new competitor group into the enterprise solutions markets previously dominated by IBM, Oracle and Microsoft.  Analytics (fka decision support) is the new battleground. The competition is likely to heat up, with IBM also announcing an acquisition last week in the risk management space.

When we acquired FRSglobal together with Carlyle’s European Technology Fund in 2006, we were tracking several trends: 

1. Need for centralised risk management. Banks had disparate, disconnected systems to manage compliance in each product group and geography.  This led to textbook-compliance only –- eg box-ticking exercises to please local regulators -– and deprived CFOs and risk managers of a single view of risk across the bank’s product silos.  This lack of risk oversight would have disastrous consequences in 2008.  FRS was and remains the only provider of a unified regulatory reporting platform that can address this issue for large banks.  Too late for some; in time for many. 
2. Convergence of content and software. The first wave of SaaS companies moved traditional enterprise applications (eg CRM) onto a hosted platform.  The next generation combines delivery of software functions with proprietary content -– eg domain databases, analytics, benchmarking data.  Without unique content, most SaaS businesses will be commoditised away.  FRS had worked out how to codify statutory regulations in 40+ countries into useable, actionable templates that banks could use to manage compliance.  Most important, however, FRS’s domain experts around the world continually maintain this content, effectively providing ongoing ‘compliance insurance’ to customers.
3. Shift from perpetual software licences to subscriptions.  In the 1990s investors and the public markets loved the spectacular growth rates of software companies flogging perpetual licences.  Big deals, high-flying sales people, and double/triple-digit growth drove valuations of 5x revenues and more.  But in recent years the markets have developed a total aversion to the volatility implicit in that model, so that now the highest valuations are reserved for companies with recurring revenues, strong cash flows and low churn.  When we bought FRS the idea of shifting to a recurring revenue model was a glint in the management team’s eye.  Today the majority of FRS revenues are recurring on long-term contracts, and –- thanks to its clients’ reliance on FRS to remain compliant with regulations -– customer churn is virtually nil.

We couldn't predict the financial crisis and the wave of interest in compliance that followed.  That was a spot of luck.  But the team we recruited into FRS, led by Steve Husk and Serge Minne, understood how to shepherd banks up the curve of the software and risk management trends above.  

FRS is an operational success story among European software companies, like Cramer Systems, Business Objects or StepStone.   It shows that there are top-notch management teams in Europe with whom we can build market-leading businesses given a modest amount of capital and a touch of vision.

Congratulations to Steve, Serge, Jeroen and the rest of the team.

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Thank you Steve! (but will it be enough to resurrect Apple TV?)

Last week I presented my wishlist for the new Apple TV, and it seems that -- for better or worse -- the consumer feedback Steve kept referring to in his keynote was closer to my heart than that of the pundits and bloggers.   So let's see:

• Near-instant access to movies and TV shows.  Check.
• No more sync-ing between PC and Apple TV. Check.
• No clutter with iOS and apps.  Check.
• Netflix movies. Check.
• Cheap, small, silent, cool.  Check! 
• Social features.  Not enough!  Favorites lists are good, but why not a 'Share' button!  How hard can it be??  Where is Ping for video content?
• More content deals. Nooo, you're going backwards... what the heck am I supposed to do with ABC and Fox?? 
• 1080p HD... No, sob.

The idea and direction are right, but Apple's ability to disrupt this industry is waning as fewer content owners acquiesce to its terms.  Launching Apple TV in 5 countries without any non-US content is a sign of severely missed objectives.  If the studios don't come around fast, Apple TV may remain a hobby.  And why would the studios do a deal under pressure now?  They're better off waiting to see how Google TV and various other initiatives pan out.  

At least one blogger claims Apple is biding its time before coming out with a full-fledged flat-screen TV + PVR branded Apple TV...  Now that is something to dream about...

The same skepticism goes for Ping, the new music social network inside iTunes.  Apparently Facebook integration was scrapped at the last minute, making Ping an isolated, empty network, built into a web store, for a market that is weary of creating (and managing) yet another persona, yet another social graph.  Social music is a great idea, but it has to play nice with the existing social graph to become mass market.  Someone's ego will have to give.

 

 

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The Apple TV I want for my birthday

Although Apple TV has been the ugly stepchild in the Apple family for years, I confess that I have been a quiet fan.  Now that rumours are swirling about an imminent 're-invention' of Apple's television strategy, I thought I might revisit the platform and fantasize about what it could become.

My Apple TV is good at just a few things: nearly instant access to US TV shows and mainstream films; a reasonable YouTube search engine; a way to watch home videos without crowding around the Mac.  It does not displace the cable box, PVR or Blu-Ray player, nor -- so far -- the Netflix subscription.  

Like most Apple products, it's not remotely essential but oh-so-very-nice-to-have...(iPad anyone?)

Everyone loves to hate Apple TV and what it represents: another closed platform chained to iTunes; an expensive hostage to the Apple's contracts with major content owners; another unnecessary node in your home music-and-photo network.  People want it to be a TiVO with Genius; a TV gateway to the open Internet; a home media server; a Sky+ killer; a consolidator of boxes and remotes... and on and on.

Forget all that: 

Dear Steve, 

My fantasy is a lot simpler, and fits rather better with your long-standing product/service strategy: consolidate the Apple TV's role as the on-demand hub for paid(and free) quality content.  

I don't care whether the acquired team from Lala comes up with a newfangled video streaming service, so long as I can decide what to watch and start it within a few minutes.   Simplify the link to iTunes, so I don't have to think about keeping my Mac and the Apple TV in sync.   And for crying out loud, do more content deals -- give me foreign films, documentaries, art-house releases!  What's more, if you can provide a choice of language dubs on films I would actually consider ditching the DVD player.

I don't think you should move Apple TV to the iOS platform and clutter it with app icons (though you probably will) -- I have enough of those around the house and I don't need more interactivity on my primary "lean-back" platform.  All the OS needs is some basic social features: tagging, sharing and rating; so that I can manage my film pipeline better. 

I don't want to browse the ugly UGC Web from my TV, so I'm happy with limited 'openness': YouTube, BBC iPlayer and other dedicated channel apps like NPR, ABC, Al-Jazeera will do.  For those who want thehun.com [NSfW!], there's always a Boxee hack.  Please spare me Twitter and Facebook on the big screen.... aargh! 

Hulu and Netflix streaming services would be nice, but I'll totally understand if that's smooching the competition a bit too much.

I've spent money and effort to HD-enable the various boxes and connections around my TV, so please find a way to output 1080p video and Dolby Surround Sound, at least to my AV receiver. For bonus points, let me use the iPod or iPad as the primary remote.

That's all I need.  Keep your tuner, your PVR, your browser. Stick to instant delivery of top-quality content.

All the best,

Max

  

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Curing Apple's boo-boo

Now that's the spirit: a first aid kit for poor poor iPhone4 owners.... 

 

Thanks Valleywag.

Stop this AIFM disaster

If ever the UK body politic needed reminding why European institutions make terrible -- even dangerous -- legislation, surely the imminent 'hedge fund bill' is the last straw.  As early as Monday the new Con-Lib government's George Osbourne will fight passage of this legislation in the European parliament, with nary a chance of defeating it.  

(Fred was admirably early on the ball, rallying European entrepreneurs against the bill.)

Officially known as the Directive on Alternative Investment Fund Managers (AIFM), this misguided reaction to the financial crisis by the EU's demagogues risks doing more long-term damage to the European economy than the Greek financial crisis. 

The nub of it is this: 

In their populist hunt for a bogeyman, the Eurocrats have latched onto hedge funds, blaming them for various aspects of the financial crisis (CDO trading, shorting bank stocks, etc), and even for the Greek debt crisis.  In spite of scant evidence, Brussels declared these funds to pose a 'systemic risk' to the financial sector, and drafted new rules to curtail and control them.

So far, so mediocre.  But the real disaster is that the politicians have failed to understand the structure of the equity financing markets, and have lumped into this legislation not only hedge funds, but also private equity firms, real estate funds and hundreds of venture capital firms.

Not only does this directive do nothing to address systemic risk (neither PE-backed nor VC-backed companies pose any, and arguably hedge funds don't either), it threatens to throttle the one potential engine of growth in Europe: entrepreneurship.

If passed in its current form, the AIFM directive will: 

• require VC-backed companies with 50 or more employees to disclose their financial performance, capital structure, divestment plans, research spending and strategy;  
• increase the compliance burden on venture funds and (probably) require them to hold additional regulatory capital; and,  
• discriminate against non-EU investors in European funds, making it more difficult to raise new funds.  This is likely to lead to retaliatory action from the US, further reducing the flow of capital to innovation.

It is estimated that the cost of complying will set portfolio companies back €30k or more per year.  But more insidious is the loss of competitiveness that results from revealing so much to the market.  Many growth companies will be required to disclose more confidential information than divisions of large public companies or foreign companies with which they compete!  Score one for big business against the little guy...

European venture capital is still a relatively young industry, and one that is going through tumultuous times.  But the growing number of high-growth technology and Internet ventures, and the development of a real class of repeat entrepreneurs, remains one of the few bright spots.  And they arguably represent one of the few export industries that can help pull this continent out of the doldrums. 

This legislation has too much political momentum to be stopped, although there is some hope of it being watered down as it goes through the approval process.  If only the Eurocrats invested as much time in thinking about the real systemic risks to the economy, like the structure of the banking industry or the lack of control over national budgets... and left the innovation sector alone. 

I used to be a real Europhile and advocate of the UK joining the Euro.  But if this kind of legislation is the best our 'European government' can do, then we had better steer well clear. 

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Jobs on Flash, and the coming video codec war

Image via Wikipedia

An interesting rant essay from Steve Jobs appeared on Apple's website today: a detailed defense of Apple's decision not to allow Flash on iPhones and iPads.  

When the iPad launched the critics continued to lambast Apple for not supporting Flash, the technology that powers "75% of video on the web".  This is considered one of the Appleverse's top 3 sins, alongside the lack of multi-tasking and the absence of USB ports.  Speculation has been rife that this is part of a personal war Jobs is waging on his former ally and owner of the Flash standard, Adobe Systems.

Jobs' letter is a competent answer to the critics, though I suspect it will silence few. It's worth a full read here, but for those busy ones among you, he makes the following points: 

• Although ubiquitous, Flash is a proprietary standard, owned and controlled by Adobe.  Jobs admits Apple has many proprietary products, but always promotes open Web standards (like HTML5).  The first part is clearly true -- the public often confuses widespread adoption with 'open'.  Also explains why Adobe is fighting so hard to keep it everywhere.
• The implication that 75% of web video is not available to iPhone/iPad users is not true.  Many of those sites also make video available in H.264, including YouTube and all the major media outlets, but notably not Facebook (?).  I don't feel like I'm missing out on much in the way of Web video on my iPod Touch.
• Flash has reliability and security problems, especially on mobile devices.  Flash has yet to be released for smartphones.  Is that all true?  That would be fair problem...
• Most Flash players use an old software decoder which is inefficient and drains battery life, while most modern devices (including iPhones, etc) use faster H.264 on the chip.  Adobe has been slow to add support for H.264 to Flash.  Possibly true.
• Flash was designed for PCs and mice, using the mouse 'roll-over' as a call to action, whereas the Appleverse is, of course, all about touch.  I think Adobe better come up with a fix for this, seeing as the world is going all-touch very quickly.
• Finally, Jobs doesn't like the fact that Adobe wants developers to use Flash to create games for his devices.  He says that this is because inserting a third-party development tool between the apps and the devices is unnecessary and makes the result less performant and stable.  

The last point is undoubtedly true. In an ideal world all applications would be written in assembly language directly to the chip!  But it's also true that Jobs is forcing a lot of developers to learn how to write directly to his OS, which creates a large development community and significant commercial benefit.  This does not seem pernicious, just savvy.

There is a broader mobile video standards war brewing under the surface.  Less than a year ago Google acquired On2 Technologies, and fueled speculation that it would open-source the video compression technology, which was already widely embedded in third-party devices.  Two weeks ago, this rumour was confirmed and Google jumped right into the middle of the video codec wars.

Google is well-armed for this one: the distribution power of YouTube, Chrome and Android will go up against the rapidly growing army of iPod/iPhone/iPad wielders.  Makes you feel kinda sorry for Adobe doesn't it...?

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iPad puts Google on the backfoot

Image by Getty Images via Daylife

The most interesting debate about the iPad's impact on the tech industry is around the coming clash with Google.  The iPad clearly has the potential to replace at least one of our computer use-cases (eg the laptop in the kitchen/living room).   In the past week, it dawned on me how radical the threat to Google really is. 

Back in the dark days of blogging (over 3 years ago!), I wrote that Google was increasingly about navigation rather than search.  In 2006, 5 of the top 10 Google searches were navigation shortcuts like 'Facebook' or 'Bebo' rather than searches for discoverable information.  Google was fast becoming the gateway to the Web, ie the browser itself.   

Fast-forward to 2009, and by now nearly all top 10 Google searches are not search terms (see right). Google's primary use by consumers is as a navigation aid.  This means that the biggest risk to Google's traffic is people finding other ways to navigate to their favourite content. Google recognised this threat on the iPhone/iPod platform, and responded by launching its own phone and phone OS.  

But the iPad poses an altogether more serious threat -- if a proportion of PC useage migrates to the iPad, and people use apps to navigate directly to their content without passing Google, then the volume of Google searches could be seriously impacted. Joe Mele of Razorfish describes the effect here. 

It's unclear to me how this would impact Google's ability to monetise search -- none of the 'navigation' searches actually carry any Google Ad-Words alongside, so they are not monetised directly.  But the traffic they generate must contribute to Google ad pricing.  Perhaps someone with a better grasp of the Google Economy can enlighten us here?

The second part of Apple's assault on its former ally is the launch of the iAd platform to deliver adverts through apps.  Whereas Google isn't even monetising its Top 10 searches, Apple is offering developers a way to monetise the destination sites themselves, and taking a 40% cut of ad revenue to boot (more than Google takes from its AdSense partners).  

What these ads will look like, how they will be received by consumers, and whether they will be a big business for Apple all remain to be seen.  But it's a clear poke in Google's eye, with no clear way for the search giant to retaliate.  

The only way Google can now prevent Apple from eating into its browser/home page share and related search and ad revenue is to fight Apple on the platform itself.  Thanks to Apple's contrarian approach to vertical integration, we have come full circle: control of the endpoint is important again.  

iPhone vs Android?  I know where I'm putting my money...

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SaaS sales compensation simplified, sort of

The final question to our panel at last month's Rackspace conference was about how to structure sales compensation plans in SaaS companies.  Our answers at the time were basically of the "Depends..." variety, eg long-winded and not very helpful.  

I had intended to do some more research on this topic and blog it later, but that is unnecessary when a true SaaS Scientist like Joel York has done it comprehensively right here: SaaS Sales Compensation Made Easy. 

The most important message: always use a fixed measure of recurring revenue (eg ARR or MRR) as the target for commission, NOT bookings.