By Georges van Hoegaerden

I could not leave my previous two "depressing" blog articles out there on a limb for too long without offering a solution. Even though I know that those articles are only depressing to those who cannot see the new opportunities created by the systemic Venture malaise.

Let me be clear, I see a grand new opportunity for Venture investing.

The current VC model can never attract disruptive ideas

Venture is on fire and not in a good way. So agreed with me one of the top money-managers who I met with last week in Palo Alto, and manages over $40B in Private Equity, including Venture. Especially since the Venture asset class is so young and has such a bright future ahead, the deplorable performance of its financial instrument Venture Capital (VC) with minus 10% returns across the board has failed, and proves its governance is fundamentally flawed as its recognition of entrepreneurial ideas has not (even) outgrown the technology adoption baseline it rides on.

The financial system atop of innovation has failed, not our capacity as a country to innovate. The primary reason for the systemic malfunction (described in 2010: The State of Venture Capital) is the incompatible market model created by VCs (and bought into by Limited Partners) that allows for and continues to stimulate the creation of an investment cartel, a single investment thesis that by definition can never find the outlier of innovation.

According to the aforementioned money-manager only 35 of 790 venture firms in the US consistently produce some positive returns (not necessarily venture returns as a return of the deployment of venture risk). That means less than 5% of all venture firms, consistently produce a return. And we can only wonder at this time how many of those 35 actually produce a viable Venture return, as opposed to a micro-Private Equity return, especially since out of fear Venture has turned subprime more than 10 years ago.

That result makes for a pretty depressing outlook for Limited Partners for Venture, with many avoiding or fleeing the asset class altogether. I too would worry about the future of cash infusions in innovation if as an innovator I did not know market fundamentals better.

It takes an entrepreneur to see financial opportunity where none exists today

Regardless of what business you are in, entering a market that relies on a hungry 80% greenfield, that continues to consume rapidly despite the worst of economic fear is an interesting endeavor.

Technology adoption continues to grow rapidly, yet much of it is coming from more effective curators of innovation, including from corporations such as Apple.

The rhetoric from the current intermediary Venture Capital, whilst supported over the last twenty years by truck loads of money from LPs (demand) and in which entrepreneurial capacity is larger than in the last 14 years (supply), and still cannot perform despite optimal circumstances should simply be tossed aside.

Governance of innovation (between the assets of LPs and assets of entrepreneurs, see our Venture primer) is broken, not innovation itself. Deflation of risk has turned the Venture business subprime and all metrics (with numbers that cannot be counted on by Dow Jones, Thomson Reuters, PWC MoneyTree, the NVCA and the likes) of that micro Private Equity deployment is therefor not representative of the opportunities nor the projected demise of Venture Capital.

I agree wholeheartedly with Michael Moritz of Sequioa that we have not deployed the Venture Capital risk profile in the last twenty years, and we rely on a handful of success stories (like Google, Facebook) who in one way or the other have managed to escape the defunct Venture Capital governance (and still got their money) to become successful. Those success stories are the ones that fell through the cracks of the Silicon Valley cartel, they were not the positive outcome of the stifling governance of the cartel, albeit success attempts to claim many fathers.

The opportunity in Venture is to replace governance

Lets try an analogy to cooking to clarify the opportunity in Technology Venture.

It does not take much to imagine that technology is like water. And water is the substrate to which many dishes are produced. But if the only recipe a Venture Capitalist can recognize and cook up is a soup (and based on the results, very few of them are good cooks at that), the measurement of success and the taste of the soup only matters to those who care about consuming soup.

Technology is at the beginning of its discovery that it can be used for much more than just the monolithic production of soup, and that it is a vital ingredient to make bread, cookies, rice dishes and almost everything else we consume. Hence the reason why the number of soup lovers or their enthusiasm is no indication - up or down - to the scale of the potential use of water.

The point being that a close look at the performance of subprime Venture will not lead to a viable conclusion whether or not Technology Venture has room for growth. For that we need to look at the absolute opportunity in technology and wonder why, with all this money spent, 80% of the worlds population does not currently have access to a meaningful technology application.

So the trick in Venture is how we define innovation and what risk we apply to it that reaches a broader audience with meaningful social economic value. That we build an economic model in Venture that stimulates the creation of a variety of innovations (dishes in the cooking analogy), and that can only happen once we break up the cartel that has turned Silicon Valley into a monolithic and therefor extreme risk to Limited Partners.

Time to re-invent Venture investing

The best way to innovate is to ignore everything that has happened in the past (especially when performance dictates so) and imagine how Venture should work if you could design it from scratch today. No right minded individual would design it the way it works currently.

With the Limited Partners' interest in mind we would not design Venture with ten levels deep bottom-heavy diversification, a single investment thesis deployed across most VC firms, extreme fragmentation of assets and risk, and lack of verifiable merit. To support groundbreaking entrepreneurs the financial system needs to reward the outliers in Venture Capital that have the unique capacity to find outlier ideas, and take the prudent risk that reaches massive upside, rather than to engage in risk aversion that secures (often personal) downside.

The grand opportunity in Venture is that such a system is relatively easy to build (I have), with minimal burden to Limited Partners. But even if we do not have a chance to rebuild Venture completely, a single Limited Partner (or a syndicate) can turn this new system in a competitive advantage and reap the benefit of harvesting the enormous greenfield opportunity that is currently ignored. A single VC can turn the deployment of the new model into a unique investment thesis that competes with the complacent investment thesis of the cartel.

Take no prisoners

It is however unlikely that the new VCs will come from the same stables as the current ones. The aforementioned money-manager also expressed his frustration with how many VCs have completely avoided risk and continue to hobble after the me-too deals, a subject we have written about often with regard to subprime VC.

But that should come as no surprise given the limited relevant experience many General Partners have in entrepreneurship (you cannot learn this stuff in school), many have never been an early stage CEO, have never taken companies from the left-side of the chasm to the right-side, and lack the foresight and vision (attitude) that would separate them from pure financiers. Venture may be part of the Private Equity asset class but its demands on General Partners are completely different, given the unique qualities it takes to build successful early stage companies. And insufficient relevant experience of General Partners leads to fear and improper assessment and deployment of risk, a logical outcome of Limited Partners' commitment to the wrong people.

The impending cannibalization of the new model is what gets the National Venture Capital Association (NVCA) protecting the interests of its members, all in a tizzy. It feverishly deploys every asset it has to blame deplorable Venture performance on anything but its own responsibility, steadfastly ignoring its own responsibility. It uses Limited Partner money to protect and defend their stance to politicians, who seem to accept the rhetoric from exactly those people who created the Venture malaise in the first place. Insufficiently informed, those politicians appear willing to cut them even more slack. Yet subprime VCs will never have enough resources (governmental or otherwise) to produce healthy Venture returns, and their clock keeps ticking.

The simple solution to better performance in Venture is to build a financial system that stimulates the creation of new investment recipes, so its deployment can reach the popularity similar to the consumption of rice and bread, and the world will be our oyster.

Tags: Limited Partners, VC, Entrepreneurs, Innovation, Apple, Private Equity, Monolithic, Performance, NVCA, SocialEconomicValue, Experience

By Georges van Hoegaerden



I read a lot of iPad reviews before I found myself waiting in line to get a shiny new 3G iPad from the Apple Store last friday. Because WiFi is simply not pervasive (albeit more pervasive where I roam on the east coast than on the west coast, surprisingly I found even gas stations in North Carolina having free WiFi), the iPad without 3G is perhaps best suited for children who need a somewhat controlled access to the internet and for many of us who use their mobile device connected to the Internet primarily from home (according to a pre-iPad market study I recall).

From the many other reviews (including Walt Mossberg's valuable assessment) you can read about the early experiences with this great new device. I agree with most of Walt's assessment but wanted to offer some complimentary considerations (from a demanding early stage entrepreneur, Venture Catalyst, Venture Capitalist and Venture Economist) I did not see.
The iPad is a beautiful, easy to use computer that will serve the lifestyle, internet and computing needs of most people. You should get one at your earliest opportunity.
If you travel frequently, the iPad 3G is so well equipped and easy to use, you can actually peacefully leave your main computer at home. Even novice users will suddenly have the world at their fingertips.

Here are my remarks to make the iPad even better:

Strategically

The requirement to tether the iPad for the first time to a regular computer and activate it through iTunes is beyond a lawsuit waiting to happen (it does not state such requirement on the box), not the right strategy for consumer adoption of the iPad.

The iPad is a device that is likely to appeal to 5/6th of greenfield of the world's population that is not using a computer capable of running iTunes, and bound to find itself limited in market penetration by the tethered activation requirement. Apple should aggressively offer in-store and cloud based activation to combat this issue.

Positioning

Now, Apple is often referred to as a great marketing company, in my view because they don't do any positioning at all. Most of Apple's products are described by virtue of their beauty and their capabilities and just like with finding a woman with those attributes; you know instinctively when you want to be with her.

Most other technology vendors still foolishly deploy expensive marketing departments to preempt who its buyers may be, and Apple merely states what the device does (in terms of benefits), the number one thing I find myself explaining to interested onlookers is that the iPad is a (lifestyle) computer, not just an iPhone Touch with a bigger screen.

The iPad, also by virtue of which software capabilities are included (see below) suffers from a bit of public confusion and identity crisis, as witnessed by the complete lack of built-in printing capabilities.

Hardware

The shape of the iPad is perfect for a handheld device, yet the 3G is big enough to make you want to rest it on your lap or elsewhere and tap around with both hands. My 5-year old daughter with smaller hands juggles with the weight and requirement to move the iPad around while playing games, yet not enough to keep her hands off my iPad.

- The volume button
The volume button on the iPhone and iPad irritates me to no end, not where it is placed but which part of the rocker is volume up or down. Given that the iPad can be used in many orientations I would make the volume up and down switch sensitive to the context of the orientation. Meaning, no matter how you hold the iPad, the volume up and down coincides in direction with the visual clues on the display.

- The home button
The home button is visually undetectable in the dark, and can be left, right, up or down depending on the orientation of use. This button needs a slight backlit to identify itself under low-lit and dark conditions.

- Back curvature
On a completely flat surface such as a desk or kitchen counter the iPad has a tendency to spin around easily, especially when typing hands-free. A slightly less curved back, with more surface area touching the underlying surface would improve resistance and offer more stable usage.

- Speakers
The current speaker position, (on one side only) leads to frequent muffling and diminished volume and clarity of sound when holding the iPad in landscape orientation when hands are prone to cover up the speaker slots. This needs a different implementation, perhaps dual mono sound asymmetric to the orientation of the device.

- Display
The display, even though made from a special material smudges easily which when viewed from an angle and will make the owner look like a dirty animal. I am not an expert in display technologies to offer a solution, and these fingerprints are hardly noticeable to the user with a straight-on view of the device.

- The Base
The docking base for the iPad (sold separately) only supports a portrait display of the iPad while docked, not the most natural way to view widescreen videos nor the default orientation of the majority of photographs while charging.

- Touch
It is probably a software modification, but I found the iPad sometimes responding to fingers not fully out of the way of the touchpad causing some unexpected behavior. Some of those fingers do not need to touch the iPad, I found out, to cause an in-adverted detection and operation.

Software

Apple is clearly ahead of the pack in delivering a compelling lifestyle computing device we can all use and therefor will catch most of the wind in addressing the imperfections of the software provided. That does not mean I suggest you should not buy the device, but it does mean Apple has room to improve with software updates that make the iPad better.

I can tell (and know) that Apple is developing the software in corporate divisions with their own disparate decision making. As the first vendor to provide truly integrated desktop, mobile and cloud computing services Apple needs to reorganize itself amongst the development of IP (Intellectual Property) that spans those boundaries. No longer is the power of one capability on one platform important, but the lowest common denominator now defines the overall experience.

- Portable capabilities
With much of development efforts at Apple focused on newer devices such as the iPhone and iPad, the lack of development efforts on its OS X companions are affecting the (synchronized) reliability of data on the new devices. With the release of Snow Leopard (OS X 10.6) Apple has really dropped the ball on the stability of the address book, iCal, e-mail and others that affect the use of all devices in concert. With the latest release Apple changed the way it deals with address book imports, how it deals with duplicate contacts, how it syncs address book images etc, to the extent that you need to verify and make frequent backups of every part of the process to prevent unexpected behavior.

- MobileMe
MobileMe is a necessity to synchronize over-the-air many of the e-mail interaction, contact, calendar and notes to keep your information up-to-date at all times, and you should therefor subscribe to it (a $99 / year charge). But it took me two months to figure out how to use MobileMe for my business without showing that the e-mails I sent were coming from MobileMe (a long story). Every business owner who wants to take maximum advantage of the iPad and iPhone capabilities is in the same predicament. The cloud services provided by Google's gmail finally came to the rescue.

But it does worry me that to get and send e-mail using MobileMe a la BlackBerry demands the proper workings of no less than four e-mail servers. The same with calendar sharing where Google cloud services trump those of MobileMe, and for the first time my wife and I can now share a social calendar (using CalDAV) to which we both can add, edit and delete from the same calendar whenever we wish. These everyday capabilities should be supported by MobileMe monolithically by now, but are not.

Also, MobileMe's iDisk and Gallery applications are not (yet) natively available on the iPad and users need to use the iPhone derivatives to continue to use those features. I am expecting a beautiful new Remote application from Apple soon, that allows me to control the Apple TV in wonderful glory.

- AppStore
The Application Store (for the iPad) is supposed to support The Long Tail of applications plus the Torso yet it provides no intelligence (yet) to figure out what based on your interest is the best selection of apps available. That means you need to scroll tediously through thousands of apps icons only to have to start over once you installed one of them from that list (as the store does not remember your last position prior to install). That means you give up exploring the Long Tail of applications pretty fast, and the meritocracy the marketplace (and thus opportunity for app vendors) the AppStore intended to provide is severely diminished.

And while iTunes bravely installs all previously installed compatible iPhone apps on the iPad, the AppStore makes no attempt to then upgrade the Apps (read upsell opportunity) to its iPad native companion. So, it takes hours perusing the AppStore to figure out which of your favorite App has a more capable iPad cousin. I found myself abandoning iPhone apps and instead bookmarking their respective webpages with an icon on the home-screen.

It is also a bit of an embarrassment for AT&T not to have a iPad native iPhone account management app that also incorporates managing the 3G iPad subscription service.

- Dictionary
When entering text the iPad prefers to use capitalization in some weird places, insert spaces at other times (without "suggesting" it first) and in e-mail actually changed the from-address descriptor from "The Venture Company" to "The Company". It appears the dictionary used in the iPhone is more robust than the one used in the iPad.

- iWork
As a long-time iWork user (for most of my work) iWork on the iPad is a big disappointment. I was hoping to use my iPad as the device I could take to Limited Partners and present my now famous "2010: The State of Venture Capital", but I quickly found out that iWork on the iPad is not compatible (in many ways, it imports rather than opens OS X documents) with the version that runs on OS X. As stated before, parity of software capabilities between platforms should be of new importance to Apple as that will prevent people from re-evaluating other options. iWork (KeyNote, Pages and Numbers) are fantastically powerful apps on OS X, and in its infancy on the iPad. Novice users can still have fun with iWork on the iPad.

- Mail
E-mail on the iPad looks and behaves stellar, yet with a few quirks. It appears impossible to change the reply-to address, notes are not synced over-the-air by default, regular IMAP e-mail is pull only and you cannot set a polling frequency. Some e-mails (such as private equity online) previewed incorrectly, the rendering engine must be different from on OS X, where it showed up correctly. Some Word documents could not be opened in Mail, not even with the version of Pages (and part of iWork on the iPad). I hate the horizontal scrolling while you reply to an e-mail, making it impossible to review what you wrote in place.

- Calendar
The Calendar views are visually stunning and well laid out. But some of its functionality bothered me. One cannot change the calendar of an appointment after it has been created. I could not find an option to display the time in the week view (as on OS X), nor could I find a way to accept a Microsoft Outlook invite which it entered correctly in the Calendar.

- Browser
A version of Safari runs well on the iPad, but I miss a few capabilities including a pinning of favorite pages (as available on OS X). Some documents, including v-cards (address book information from LinkedIn for example) do not load into the appropriate application (address book in this case). Some of the new social call-backs designed to integrate social capabilities by Facebook and Twitter do not work well on the iPad browser, thankfully a onetime process that can be handled on the desktop as well.

- Long list navigation
Long list navigation needs a new indexing approach, plowing through 4,500 contacts on the iPhone or iPad is not fun, nor is scrolling through 2,500 photos (a hobby) really practical. Some of the new indexing capabilities of iPhoto on OS X (face, date, folder, theme) would be welcome on the iPad.

- Multi-user login
Even before purchase my daughter "claimed" certain usage rights to my iPad, which to keep things safe, really requires a multi-user login with separate menus. I am hoping that becomes part of the unannounced features pending for the iPhone4.0 release for the iPad slated for the fall.

A new dawn

I may discover more things that are not perfect on the iPad, but so far I have been inseparable from this nifty lifestyle device that manages to take on a much larger part of my business requirements as well.

The continued development of the iPad will change the face of computing forever, and as a result people are no longer beholden to the lazy innovation and complacent attitude of Microsoft, joined by the mediocrity of cheap and ever commoditizing hardware partners.

Apple has singlehandedly changed the computing agenda from business to lifestyle, and managed to serve its fast growing customer base with an experience that truly meets their every day needs.

The iPad has become the third "woman" in my life (in the aforementioned analogy), who is bound to become more capable and more beautiful every day.

Tags: iPad, Apple, IPhone, ITunes, OS X

By Georges van Hoegaerden

I have disclosed in "How to fix VC once and for all" one important aspect of how to fundamentally change the financial system in Venture, and that is to change it into a real marketplace. A free-market in which marketplace transparency to all participants will establish the true merit of all participants; Limited Partners (LPs), Venture Capitalists (VCs) and Entrepreneurs alike.

Without that marketplace transparency, Venture Capital will continue to slide down the sub-prime investment slope it has been on the last 10, if not 20 years, leaving a growing opportunity of disruptive innovation under-financed and starving. Unchanged, the deployment of LP dollars will continue to fragment and yield even lower public value and trust than it has produced over the last 10 years.

Top-level Venture reform

The systemic failure of the financial system in Venture is why its output does not generate enough value (M&A, IPO etc). Venture Capital needs to become more agile, risk-taking, transparent and accountable (turn prime) in order to consistently attract entrepreneurs with a value that can change the world.

Its financial system is what turned Venture Capital sub-prime, not the lack of entrepreneurs, developers, visas, too many regulations, sarbox, FAS157 etc.. Once we change Venture into an efficient free-market marketplace I can assure you many of the current restrictions, born out of an artificially regulated market, will simply dissipate or become irrelevant.

Today, Venture performance is severely hindered by its black-box, under-the-table, institutionalized, monolithic operations. Lack of marketplace transparency (amongst many other deficiencies):

• allows walking dead VC firms to crush the dreams of (unknowing) entrepreneurs
• prevents competition between VCs, leading to a demi-cartel and a commoditized investment thesis
• allows GPs to hide behind the (often outdated) brand of their aging VC institutions
• clouds the difference between money and merit

Take me serious

Building a new financial system for the sake of re-empowering innovation through Venture is "my new startup", and as is typical to innovation, many first ignored me, then they ridiculed me, then they fought me, and then I win (Ghandi quote).

I win because Venture reform is the right thing to do for our country (not because I have an axe to grind). I win because the sector has lost serious money. I win because the opportunities in Venture have never been better. I win because the systemic failure of VC proves they are wrong. I win because there are no more bubbles for VCs to ride. I win because VCs are running out of excuses and time. I win because VCs (by virtue of their selections) have abused the trust of public markets. I win because entrepreneurs are unhappy with whom they partner and how they are being treated. I win because both asset holders in Venture are unhappy with the derivative. I win because I have identified the systemic failure in Venture and have a solution to fix it all in one fell swoop. We all win because that solution gets us all to a better place, including VCs with merit.

LPs own the problem

LPs are becoming aware of VC dysfunction and have started calling their Fund-of-funds and VCs based on my individual conversations with them and my blog, some VCs have confessed to me. LPs are at the top of the food-chain and can no longer deploy money without verifying the merit of the underlying financial system, top-to-bottom. The behavior of the dog is the responsibility of its owner, and so is the performance of VC the discipline of the LP.

LPs now start to realize that great performance in Venture comes from establishing discipline. Not just to who, but how they deploy money matters, and what the impact is on the rest of their value chain and the sector. How it affects VCs and how its finds the outliers of innovation that can produce substantial value. Only that discipline can fundamentally and consistently lead to great performance.

Smart LPs in Venture understand how to rely on a real marketplace in which merit and real competition (not the artificial one Tim Draper defines as "I have respect for all my competitors. We co-invest together.") thrives to find the outliers of innovation.

Inappropriate measures

It still baffles me how some LPs continue to recommit to Venture without a change to the underlying financial system and marketplace characteristics. But perhaps I shouldn't be surprised: a sector that has previously managed to sell the delusion of cyclical performance, measured against irrelevant market indices, and attracted the improper influence of the macro-economy, is very capable of producing new promises to maintain its position.

LPs should just not expect those promises to come true, not again. That would be the definition of insanity.

What is not a solution to Venture is cutting management fees. Changes in fees and carry structures are not going to change a sub-prime VC to prime. You cannot train or coax sub-prime VCs to become prime, in the same way you cannot train or coax people to become entrepreneurs. You are or you are not (by virtue of your DNA and life experiences). And just like VCs need to focus on the creation of upside, not the protection of downside - so do LPs need to focus on the upside with VC, established by merit, rather than protecting downside.

Lift the veil off my plan

But marketplace transparency is just one aspect of my plan. The Venture reform described in the (for customers only version of the) acclaimed presentation "2010: The State of Venture Capital" resolves all of the aforementioned issues in Venture, including:

• reduces ten levels of diversification by more than half
• eliminates bottom-heavy diversification
• employs far less fragmentation of risk
• establishes a meritocracy of GPs
• creates natural competition between GPs
• de-commoditizes the investment thesis
• allows for the discovery of the outliers of innovation
• provides better support for entrepreneurs
• deploys real venture capital
• builds more stable companies
• builds more disruptive value

First movers advantage

Prior to Apple entering the music arena, many VCs invested in music without producing any lasting public value. Now in Venture I am about to deploy a winner-takes-all Venture platform that leaves the LP laggers with artificial Venture marketplaces behind. Venture, the way it works today can never function nor scale, because the market model is simply incompatible with the discovery of the outliers innovation.

I invite the LPs who see the wide-open greenfield opportunity in Venture, to hop on board and use a brand new mower that is indeed capable of harvesting the hay that is ready for the taking. Innovation is by no means dead, and neither is the fantastic new opportunity to monetize it.

Tags: Venture, Limited Partners, VC, Marketplace, Meritocracy, Subprime, Apple

By Georges van Hoegaerden

And socialism without merit is a lie too, a hollow lie. So do not even try to juxtapose capitalism and socialism here, not the point. Neither is the "rich" man's black-or-white argument that the mere thought of criticizing capitalism defaults into sudden socialism.

Putting our economies in a box is the last thing we should be doing, it separates us further in an increasingly global marketplace that requires the opposite. The real issue here is how to revive our economy, knowing we have powerful capitalistic assets and an unending innovative drive in our back pocket.

We need to be ready to challenge the status quo, let go (yet not discard) of the past and endure the rigor of change if we want to prevent the bottom from falling out from under our economy or face worse in ten years from now. Hope is not a strategy, change is. So, hang in there with me to redefine economic change.

The Lies We Tell Ourselves

We cannot change our economy for the better if we keep lying. And as a former leader of this country has proven, reiterating lies do not make them come true. The biggest lie is that we claim that we are more free than any other country in the world. As a polyglot immigrant I can refute that argument flat out, that is if we use the same definition of "free".

Freedom is the foundation of free-markets that ensures that every willing-and-able participant can become an integral building block of our economy. While there will never be total freedom, the lies we tell ourselves prevent even rudimentary freedom from taking hold.

Our Freedom Is a Lie

Freedom is not your compliance to your boss's expectation to dress-up to go to work every day, nor your inability to challenge his leadership for fear of losing your job, health insurance, pension contribution and other financial perks.

Freedom is also not a financial system eleven times the size of production that turns running a company into a Las Vegas gamble, demanding a focus on investors that precedes and overshadows the needs of customers. Freedom is also not an aging stock exchange (copied around the world) that promotes the financial agenda of short sellers and forces companies to adopt a short term agenda, rather than to build long term sustainability (or however the company prefers to be measured).

Freedom is not the inability to really say or write what you want, for fear of retribution from a bulging legal system that makes it so easy to file bogus claims, such as defamation of character. Freedom is also not our cunning ability to segregate the rich from the poor, the native americans (in today's indian reservations) from the rest, or blacks from whites (I should know, I am part of an interracial family).

I can go on for a while, but I think you are getting my point. We are lying.

The Freedom To Abuse Freedom

Just because all 400 million of us live in the same country, does not mean we enjoy the same freedom. Many of us are disenfranchised by freedom; the freedom to abuse freedom and to create whatever walled gardens are needed to keep others out. And that is the freedom I am so against.

Our Government's Delicate Role

We cannot really blame Apple that it signed an exclusive arrangement for the iPhone on AT&T's network to yield focus and produce higher margins, but it is the Federal Communications Commissions' (FCC) fault, asleep at the wheel that allowed device-to-network locking before the iPhone was even conceived (device locking was contrary to what the GSM standard was designed to do; I was free to use and roam my european GSM phone on any european network more than 20 years ago).

We cannot blame public companies to drive a short term strategy, as the Security and Exchange Commission (SEC) has implicitly dictated that a string of positive quarterly earnings reports are the predominant way to measure company performance and respectively its CEO. And we should not be surprised that a temporal decline in revenues is then quickly followed by staff reductions to make those quarterly numbers still look good on paper. Are quarterly earnings really an accurate reflection of company performance for a company that has been in business for twenty years or more?

We also cannot really blame Venture Capitalists (VCs) for taking advantage of the blind faith (and now delayed response) from Limited Partners if the SEC continues to treat participants and investments in private companies as under-the-table transactions, hiding important transparency from marketplace participants.

Cure the Disease, Not the Symptoms

But the delicate role of our government is not to regulate the symptoms but to prevent the disease. It is impossible for government to keep tabs on the impurities of symptoms in all marketplaces, but rather it should aggressively work towards enforcing the definition of free-market principles to each domain that poses what it deems a direct or indirect systemic risk to our economy (I can think of about ten depending on granularity, possibly all boiling down to a single driver: our financial systems).

I do not want our government to tell banks how to describe their interest rates to customers, but I do want our government to require banks to file and freeze (for a certain period) their lending terms in a central database, so its customers can query a single website to get the rates from the bank that meet their needs.

The role of government is to establish the marketplace principles, not to establish what is merit. The marketplace participants will sort the latter out quickly.

Relevant Transparency Builds Merit

Transparency is becoming a buzz-word and similar to the buzz-word "experience" means nothing without the preceding adjective relevant. What is relevant is that all participants have immediate access to the transparency of marketplace transactions (between supply and demand) in order for that marketplace to be driven by merit. And that means that the performance of marketplace participants is measured solely by the nature of their unique offering in the marketplace, not a complex myriad of stifling walled gardens and derivatives.

The beauty of relevant transparency is that all marketplace participants become watchdogs. That the signals of impropriety are detected instantaneously by many rather than by a few who choose to pay attention. That must be the reason why the Romans preferred a flock of geese over a single dog to protect their property.

Economic Growth is Defined by the Merit of Marketplace Transactions

No longer will merit be built by the posturing and decibel marketing of the supply side of a marketplace, that without transparency can make virtually any claims it wants. Merit will also not be built by the endless expression of desires from the demand side. What creates economic growth is the merit of the completed transactions between unrestricted supply and unrestricted demand.

So, to come full circle on our financial systems; our stock exchange needs to evolve into a free-market. Where the supply of stock will reflect the strategy by-and-of the company (not by the bourse), and the purchasing of stock is based on investors buying into that strategy. Venture Capital needs to change from a closed market to a free-market in which the transparency allows Limited Partners and entrepreneurs to find VCs who have the merit to pick, build and monetize truly groundbreaking innovation.

Free Ourselves and The Rest Will Follow

Relevant transparency builds free-market principles that leads to merit, in every economic circumstance.

Relevant transparency of our education system will improve the much needed individual merit of teachers and the individual opportunities for children. Relevant transparency of our financial system will improve the merit of investors and the innovative companies they spawn.

Relevant transparency of our economy will improve the opportunity for all people with merit. And all people do have merit. Many people, stifled by the constriction of artificial marketplaces have simply not discovered it yet. Opening up our marketplaces to become more free will allow each participant to discover and hone their own merit and produce better customer value.

The world will be a much better place when every person can participate and validate their own intrinsic merit in a thriving marketplace. So, let's stop lying and demonstrate to the world what real freedom looks like.

Tags: Meritocracy, Entrepreneurs, Free-market, Marketplace, Transparency, Innovation, Government, Wall-Street, Apple, IPhone, Limited Partners, VC, AT&T, Securities

By Georges van Hoegaerden

The debate is heating up about the impending regulations from the government applied to Private Equity (PE) and its sub-class Venture Capital (VC), fought by the National Venture Capital Association (NVCA) and reluctantly supported by the Private Equity Council (PEC). The latter stating that private equity does not represent a systemic risk. Perhaps not, if the council excludes VC from its membership, but VC as Private Equity poses a systemic risk as the gatekeeper to innovation.

Why the government is forced to step in

The government has decided to step in and we, as participants in the ecosystem should present our government with the facts (good and bad) so it can make informed decisions going forward. If we give the government self-serving information, rather than the facts, we will get punished by regulations that miss their intended target. So, now is the time to separate greed from honesty and shape the regulations that will be bestowed upon us.

The most rational explanation as to why the government is tightening our private equity belts came from Bob Grady, Managing Partner at The Carlyle Group (who worked for the government for a while) at the recent IBF conference. He suspects that the government simply wants to reduce the size of the financial services industry as a percentage of GDP (Gross Domestic Product).

Not unreasonable, considering the collapse of our financial system and the discovery of an endless supply of imploding derivatives (and vice-versa). Simply put, the equilibrium between people who create products and those that capitalize on them is out of whack. We need more innovation with fewer derivatives attached to them.

VC is a systemic risk

The creation and growth of the Internet (and all the components around it) could not have existed without the faith and dollars from Limited Partners (LP), deploying their assets through VC firms. Kudos to people like IBF life-time award winner Bill Draper who started Venture Capital by literally knocking on the door of an interesting company, buying his first shares for $20,000. But the last nine years have been dismal for VC performance, almost 900 U.S. VCs producing less than 10% IRR, tarnishing the technology ecosystem and prompting LPs to look around to reallocate money to a different asset class.

Why VC needs to work

While venture-backed companies represent around 0.02% of GDP prior to exit, post exit they represent about 18% of GDP (according to the NVCA) and 9% of jobs in America. So, the decision-making process by a VC of what company to invest in is vital to building a healthy economic conversion rate. And I predict information technology will claim a larger stake of GDP as it continues to mature from its infancy. So while VC is a small percentage of the total Private Equity pie invested, it has proven its ability to produce a healthy stimulus to the economy.

What has changed

We can look at the statistics from the NVCA and debunk those statistics with reality, but common sense tells us that most of us would be hard pressed to name ten ground-breaking technology innovations in the last ten years. So, if 900 VCs produce this few real innovations, the billowing smoke is sufficient indication of a fire. On top of that companies like Apple show us how to invest in categories (like music) VCs had unsuccessfully invested in for the last 10 years, challenging VC fundamentals to its core.

Proper assessment of investment risk

The problem with VC is that it is inherently risky (more than other forms of Private Equity) and with the wrong people running VC firms, the asset - risk - that produces great returns is being sucked out of the investment equation.

Smaller funds, feverish syndications, easy exits are all instruments that create more rather than less derivatives to the creation of disruptive value. VCs now sell to LPs a similarly ill-fated pattern of risk as sub-prime lenders sold to their investors. Hence our frequent use of the sub-prime VC classification throughout this blog.

As a result of a lack of meaningful segmentation and guard rails by many me-too VC funds, LPs have actually invested deep rather than wide in information technology (as the included chart points out). For the last nine years that has created a massive number of false positives and false negatives and a continued downward spiral that attracts only entrepreneurs that comply with this risk-deflated investment mold, rather than attract entrepreneurs with truly disruptive ideas (that hold their value in any economy). So, for the last 9 years LPs have invested deep in a risk-averse technology sector while they expected their 10-15% venture share of total allocations to be applied to the inverse.

Moving forward

Many LPs are ready to cut all but their top quartile VC funds from their portfolio by flushing them through (i.e. letting them run their course without re-upping new commitments). That means over the next 5 years we are going to see many VC firms disappear, some replaced with new VC firms with more relevant entrepreneurial pedigree and investment models that are as unique as the strategies of the entrepreneurs.

New regulations by the government and tougher practices by LPs will make our industry more transparent and aim to create a platform in which the old aristocratic VC model will be replaced by a model that supports a meritocracy at every level of the investment pyramid. That is a fantastic development for entrepreneurs and VCs who are attracted by - and deserve - the merit.

Big stakes, big returns, fewer players, better innovation

LPs expect bigger returns (before larger commitments) from their allocation in venture and the only way to get it is to deploy risk. VC is designed to be the intermediary between the LP and the entrepreneur to mitigate that risk for LPs. Yet because of the aforementioned commoditization of VC investment strategies the VC model has failed to produce.

With LPs retrenching (to perhaps another asset class), the VC firm that wants to survive better articulate a clearly differentiated investment strategy with new GPs that can recognize and attract more disruptive (and sustainable) innovation, knows how to commit and helps make its portfolio companies work.

A new day

To create better returns for LPs, VCs need to rethink how to pick better companies with more disruptive (and sustainable) innovation and invest in upside rather than downside. The smart entrepreneurs are out there (we talk to them), waiting patiently for the right investment climate to light up their flame. Remember, great innovation can afford to be patient.

Venture Capital as the derivative in the investment pyramid between the assets of the LPs (money) and the assets of the entrepreneur (innovation) needs to provide a better service to both parties (or else it will be tossed out as a "dating service").

Until we fix VC, will it remain a systemic risk to our asset class, economy and frankly our reputation as the most innovative country in the world.

Tags: Limited Partners, VC, Apple, Subprime, Innovation, Funds, NVCA, GDP, Commodity, Investment, Integrity

By Georges van Hoegaerden

I owe HP (Hewlett-Packard) a debt of gratitude; in the mid 70s (when I was 14 years old) the HP-41C, the worlds first alphanumeric programmable calculator is what sparked my interest in technology. From a beautiful but too quiet medieval village in Holland (Woudrichem) I wrote applications for it that won awards (and was paid in new accessories) and found a mental connection with some of the developers who wrote about their role (and hobbies) in a monthly newspaper distributed to all owners (think of it as a Facebook group before Facebook).

The members of the development team wrote passionately about their incredible innovations explaining why they designed the HP-41 the way they did, its extensibility, its use in space etc. I read that magazine and all other publications related to it from cover to cover. In my eyes, HP was synonymous with great design, groundbreaking innovation and flawless execution of marketplace models.

A lot has changed since then, not surprising since HP chose to move from a technology specialist to a technology generalist to keep Wall-street happy. With a big hammer it stuffs the market with massive marketing vigor and manages to stay just ahead of its competitors, for now. But HP has lost its vision, agility and enthusiasm to innovate and fundamentally change the computing landscape.

1/ Longevity by association doesn't work
HP never grew up to own a part of the evolving technology stack from hardware, to software to services (or better yet, the consumer experience) and still today is making little more than me-too gestures with large manufacturers to suggest they own a unique proposition in the application and services technology segments. HP has become a master of associating itself to many things it does not own or add value to (just like the behavior of the many parasites in our industry).

To give some examples: HP rode the gold rush of the PC evolution (driven by Microsoft) and then had to buy Compaq to win the battle in a market that is still 40% owned by no-brand suppliers. HP rode (and lost) the database war by buying a stake in Informix (rather than buying it) even though it sold more servers with Oracle as the primary database (HP's stance propelled Oracle bed-fellow Sun then). HP partnered with Apple to deliver an iPod with no value add, only to kill the program one year later. HP acquired Snapfish in the consumer photography space and never made any attempt to improve its convoluted photography strategy. Examples abound.

So, the key for HP is to own identify and own certain technology ecosystems (from beginning to end) and redirect its massive R&D budgets to build proprietary technologies that attach customers to HP and HP only.

2/ Lacks product vision and execution
Mark Hurd is a great operational CEO with a proven ability to optimize an engine so it consumes as little gas as possible, but sustainability comes from engineering new engines only HP can produce that run faster and better. Mark can continue to hold as many fire-side chats as he desires but that vision is unlikely to come from employees that have been with the company for more than twenty years. Innovation from within is likely to produce nothing more than the same.

With all of HPs fragmented and discombobulated assets in many segments such as document management, printing, imaging it should have developed by now a cohesive customer facing experience that ties these products together like Apple does with music. The company needs a CTO with business experience and an aptitude to fundamentally tap into continuously changing consumer behavior and be open to outside counsel rather than adhere to a stifling "process for investigating outside ventures to allow equal access to these firms and inventors."

3/ Treat people differently
For more than 10 years I've heard stories about how people took advantage of a one-sided aspect of "The HP Way", the ability to stay with the company for many years and move from one division to another to escape being confronted with the outcome of their own decision making. Some people left HP only to make three times the money as an independent consultant working for the exact same group. But "The HP Way" also describes a high level of achievement and contribution that because of todays large and hierarchical org-chart (with many dotted lines) is hard to measure and manage. HP needs to reorganize just once, not based on product - but simply based on ecosystems that align with customer experiences.

Many of HP executives have disclosed to me that the company does not have the engineering talent to build its own product strategy and that probably isn't helped by rampant stories of how HP (a profitable company that should not have a need to layoff employees) is now allegedly laying off people that have worked at the company for 20-years, challenging their severance payments and disallowing them to ever work for HP again. Can you imagine how fast that news spreads to Silicon Valley developers? Not too smart HP. No surprise that it can only attract the talent that favors a paycheck over a challenge.

Start with a compelling vision
But amazing things happen when you drive a company with strong leadership, vision and execution. As a CEO I have experienced that the original assessment of employees fundamentally change when they are confronted with visionary leadership. They wake up and become energized, feel part of a common cause. So, the way to optimize a business is not to simply layoff people but to deliver a compelling vision to which people can either subscribe or not. The employees that don't will walk themselves to the door, especially when you turn up the volume.

So, turning HP around is actually very easy. It requires the innovative mind that "believes nothing it hears but anything it sees". It requires a visionary who cares about nothing but customer adoption, and an ability to model a company towards its purchasing power. Everything else is simply irrelevant.

I know HP despises it when I reference Apple (only to whisper their name in a restaurant), but the company simply has a much better DNA than HP. It is not too late for HP to change but it should start by reading "How to compete with Apple" in order to assess whether it wants to make the real sacrifices that are inherent to innovation (rather than resort to business process optimization).

Call me for a fireside chat, Mark. I would enjoy repaying my debt of gratitude.

Tags: HP, Microsoft, CEO, Innovation, Integrity, Oracle, Apple

By Georges van Hoegaerden

Apple is fundamentally different from any other company in Silicon Valley, but certainly not perfect. Its photography strategy is flawed (in the same way its competitor's are) and its iTunes Store needs to adopt true meritocracy if it does not want to alienate the record labels (movie subscriptions anyone?), its wireless Networked Storage strategy needs work as well as Apple TV and the MobileMe service. But in many ways Apple is ahead of the pack but not immune to the inherent risks.

Here is how technology companies, such as HP, Dell, Nokia, Symantec, Cisco need to change in order to compete:

1/ Innovate from the top, then continuously out-innovate themselves
Innovation is about taking a look from the outside-in with a fresh perspective and the purity of a new-born. The way to innovate is using my mantra of "believe nothing you hear, believe anything you see" (SM), meaning, the only thing that matters is how many people that you want using your product, are using your product. Analysts are useless in this assessment, as they simply use artificial market definitions to tell companies what they want to hear. Once you define real innovation, the next step is to continuously out-innovate yourself, ensuring that the pace of innovation is untouchable by others, and thus sustainable.

2/ Build irresistible products
Many of the aforementioned companies are in the technology commodities business. I wouldn't want to be in the business of building a car where the rest of the auto business is forced to use the same engine. There is only so much a pretty exterior can do to hide the ugliness of aging underperformance. As the dependency on operating systems shifts from the desktop to the web, now is the time for these vendors to escape commoditization and build their unique web-operating-experience.

3/ Develop a unique experience and maintain it
Too many technology companies in the Valley are "stocking stuffers", they stoically stuff a "market" (see markets don't exist) as defined by analysts and predecessors with incremental point products to eek out a larger percentage market-share than their competition. They "trade" market-share numbers as if they are the currency, that is - until "market" definitions change. But products don't sell, the experience does. People buy an iPhone, iPod because of the ecosystem behind it. Additionally with the lifecycle of many technology products being so short - around 3 years - renewals by recurring customers are vital to sustain growth. A one off product that made a promise and told many lies is devastating to the renewal rate and even the return to the brand. So, the emphasis should be on the experience -say music or photography - and innovate from the top around those.

4/ Change the culture: incent continuos innovation, punish stability
Corporate culture is fundamental to creating sustained innovation and for many large companies that means the CEO needs to exhibit that exemplary behavior. (it is somewhat humorous to see how VPs often mimic even the dress code of their CEOs). CEOs whos core competency is operational efficiency (HP, Cisco, Dell) need a right-hand man with executive privileges to cut through the bureaucracy and fundamentally realign the company along new macro and micro economic differentiation. Divisions need to be realigned to match customer experiences (not product groups) and be reduced into a one-level hierarchy. That ensures there is no place for employees to hide.

5/ Invest in innovation
Innovation as defined by bullet 1 is sustainable, spending money on stuffing markets is not. But the advantage large companies have over external innovation sponsored by Venture Capitalists is that they can think big, they are in a unique position to redefine customer experiences that ties seemingly disparate products into a cohesive offering that is much larger than the sum of all parts. Unlike startups, large companies are uniquely positioned to focus on the value of disruption rather than be restrained by the cost of entry. Large companies can build solid platforms upon which an ecosystem of independent software vendors can thrive.

Most of Apple's competitors are now simply chasing the iPhone strategy or music strategy, as they've chased market leaders for so many years. But that will never work. Every company has its own core competencies and its challenge is to become the innovator in the category they can make theirs.

Tough choices lie ahead for the technology titans. Those that change will survive.

Tags: HP, Dell, Nokia, Symantec, Cisco, Apple, Markets, Apple TV, Eco-systems, VC, IPhone

By Georges van Hoegaerden

As the creator of my own personal photography and blog website for over ten years that publishes new photographs on a weekly basis, I have experimented with many tools, none of which serve my purpose with ease.

Opportunity
Roughly 50 million semipro camera users (including dSLR and semipro hybrids, growing at a rapid pace) are just like me and cherish no less than 25 Billion photographs per year that they seek to publish and share. A nice big opportunity of which Fotonauts (now fotopedia) aims to capture a piece.

Complicated independent workflows
As one of those semipro users I keep my photographs in my file-system (where no vendor can lock my thousands of photographs in), use LightZone to edit, Rapidweaver for web authoring with embedded HTML photo libraries created by JetPhoto Studio. That whole process takes quite a few steps and is not for the faint at heart. Rapidweaver is not great at managing lots of photographs and JetPhoto lacks the web authoring capabilities to become more than a companion to a photographic workflow. That seems to be indicative of many of the technology solutions in the digital photography arena, that is littered with hundreds of fragmented software and services tools in which none provide full support for the complete photography workflow.

Smooth operator
Fotonauts is an improvement in terms of its ability to create an instant (while you work) and good looking web site with some powerful social media capabilities that promise to increase traffic to your photographs. It blends offline and online capabilities (in which it cleverly avoids recreating the strategically flawed asset management repositories of both Apple, Adobe and others) and live-to-the-web authoring with superb smoothness, even in this beta version.

Web pages created by fotonauts can incorporate photographs from offline repositories such as the file-system and proprietary iPhoto, Aperture and Lightroom photo databases, and fotonauts can also tap directly into online photo libraries at Yahoo! FlickR, Facebook and Google's Picasa. The technology promise is sound, as can be expected from former Apple developers.

More fragmentation
But Fotonauts does not erase the complicated digital photography puzzle that aims to reduce complexity for the semipros or professionals, nor does it seem to target amateurs that care less about optimizing traffic through viral capabilities. For semipros it does not contain any white-labeing options nor a way to make images available for sale. The uniform layout applied to all albums is slick but off-putting to photographers who want to create their own brand and separate themselves from the pack.

The fragmented state of the current photography technology reminds me of the state of MP3 music before Apple introduced a better player (mobile and desktop), a store and the availability of premium content all wrapped in a single compelling user experience. In photography that is an opportunity too large and too complicated for VCs to understand and can only be captured by an established company with the vision and the financial wherewithal to wrap its arms around the complete photography experience. It is time for the photography puzzle to become whole.

Until then, Fotonauts is a smooth and beautiful new piece.

Tags: LightZone, Aperture, Lightroom, Adobe, Apple, Rapidweaver, JetPhoto, Photography, Flickr, Picasa, FaceBook

By Georges van Hoegaerden

Every week I receive a new offer to convert my analog AT&T telephone service to Comcast's Voice-over-IP at a very affordable price of around $30 per month, combining Television, Internet and Phone (hence triple play) from a single provider. And I have been very close to switching over. But nothing makes it more clear to say no to them after having spent another frustrating hour at 5am in the morning on the phone trying to restore my repeatedly disconnected internet connection.

I do not usually use my own circumstances to highlight a vendor but this example emphasizes a much bigger issue: how destructive the experience can be to the acceptance of a product or service. Vendors need to learn that what sells is the experience, not the product or service.

Case in point. From the old days of Palo Alto's Cable CoOp (and MediaCity), the original provider of broadband some 10 years ago and final acquisition had landed my Television and Broadband service under one roof with Comcast. Fed up with receiving two separate bills for about 5 years I called in to Comcast to merge the two accounts into one. Four endless calls (one each month) and cumulative no less than ten hours later, I decided to throw in the towel and visit the Comcast store, one week before the inauguration. There, a helpful gal quickly assessed the situation, merged the two accounts and gave me a new cable-modem to serve my needs. Proud of my newfound face-to-face experience I returned home, installed the new modem and went on with life...so I thought.

Returning home from the inauguration in Washington DC a week later, expecting to relive the event we had witnessed in-person, I could not be more disappointed to find my Comcast DVR empty. A call in to Comcast led to the quick discovery and admission that they had disconnected ALL my cable activities by installing a physical terminator on the side of our house. Eager to reconnect and four hours later, with the help of a knowledgeable service technician my service was restored. Since then, consistently every month around billing time my service is being disconnected, requiring me to put in another 2 hour call to Comcast to repeat the saga and reconnect the service.

That gives new meaning to their Comcastic slogan, doesn't it. Needless to say I am not going to entrust Comcast with my phone service, or any other service.

But this case is symptomatic for many other consumer technology experiences we encounter.

We confirm again that:

• In this automated world face-to-face interaction still trumps phone support
• Customer relationship management does not come from an automated system (nor does it come from sales)
• Support is crucial to selling more services (or losing them) and should have profit and loss responsibility

But to Comcast specifically it proves it has no business in penetrating our life with consumer products of any kind. Let alone your most sacred connection to the outside world, your telephone. We named the Comcast DVR the most horrid consumer device ever built and combined with their incapable support provides for an unacceptable user-experience.

Just like AT&T in mobile telephony we expect (and demand) a consumer vendor like Apple to reduce Comcast to its core competency, providing nothing more than a reliable network connection.

I have high hopes for that new Apple TV coming our way soon, that with the help of the government mandate for cable-cards that is already in place, will make the choice for best-of-breed back-end provider very easy. I'll be the first one to take a hard look at the network provider.

Tags: Consumer, Experience, Comcast, CrM, Apple

By Georges van Hoegaerden

I am not going to add to the craze about Steve Jobs (Apple CEO) health rumors on the internet, and I seriously hope he recovers quickly and in excellent health.

Anyone trying to sue Apple or its board for inconsistent information, should back-off and be glad they are not faced with a similar diagnosis. One of my friends (much younger than Steve) was recently diagnosed with the same type of (a rare) cancer and is apparently being treated by the same doctor at Stanford. Having heard his stories first hand, I side with Steve that he cannot project with accuracy what is going to happen as 1/ what causes cancer is still fairly misunderstood (follow the cancer series on Charlie Rose and you’ll understand) 2/ his rare type of cancer (with about 8 known derivatives) is even less understood. So, give the man some space.

Steve has proven to be the best guy to ever run Apple, but that doesn’t mean the company can’t improve. Here is what I would do, given the chance:

1/ Making the current OS work “as promised”.
Snow leopard is on its way and without knowing any of the details the OS needs some fundamental improvements in Expose and Spaces that are simply not working correctly, those (and many other) flaws have been in OS X for quite a while and since it affects the user experience, that is simply not acceptable within Apple standards. It is clear, in many other areas, that the rapid pace of innovation in other areas has taken its toll on the focus on the OS. In addition, the OS needs an Applications Store similar to the iPhone App Store.

2/ Consumer OS, major OS overhaul.
It is time for Apple to define a new trajectory for the OS. The current OS trajectory is too technology centric and focuses primarily on local operating capabilities. Today’s use of computers requires a transparent blend between offline and online capabilities. I have formulated new specifications of what this new hybrid OS should look like, that is more powerful and easier to use (and gesture ready) than any of its predecessors. This new OS is a continuum of the iPhone experience yet dramatically exposes the increased power of a personal computer platform. This OS will provide similar experiences across the Apple TV, iPhone and computer platforms.

3/ Increased focus on digital photography.
Music and photography are the two most important applications consumers use. Digital photography needs fundamental new focus and a new application that manages photographs across offline and online repositories. Think of iTunes and the iTunes Store for digital photography. We have formulated the specs for these new capabilities. In addition, Apple should explore new camera technologies as well (for inclusion in later devices), the current dSLR vendors are leaving behind unique software opportunities that can improve the quality of images dramatically (even without changing the hardware).

4/ Put support in product group P&L.
Apple’s support is better than other vendors’, but a little better is simply not good enough. The organizational structure of Apple separates support from product groups, which, in every company, disconnects the product promise from its realities. I would make product groups responsible for their own support P&L, ensuring implementation of innovation is a closed loop. No longer will product groups be able to ignore the 5000+ complaints about a single bug in Apple TV, for example.

5/ Network backup (Time Capsule) needs an overhaul.
The Airport wireless base station is a fantastic, no hassle, device that just works. The backup capabilities with Time Machine that uses a USB connected disk (to the Airport) is fundamentally flawed. These networked storage devices have no fsck (file-system-check) built in that prevent disks becoming unstable because of lost network connections or other aberrations that can occur. Based on the documentation I assume Time Capsule also does not include fsck and is therefor also unreliable as a backup drive.

6/ Broaden adoption of Professional Applications.
Most of the professional applications for photography and movie editing simply provide tools to edit, requiring the operator to understand the often complex language and methodologies involved. But the power of professional tools becomes really obvious when the application provides methodologies that hide the underlying composition of tools. Through the use of styles, derived from a marketplace, both Aperture and Final Cut Pro can be dramatically enhanced to provide new capabilities that expedites new editing techniques for experienced users and enthousiasts.

7/ Implement movie rental subscriptions.
The iTunes store needs a movie rental subscription model to adopt the ‘old’ Blockbuster and Netflix model, many americans are used to. A fixed monthly rate allows you to watch a certain number of movies per month, perhaps with rollover credits to compete with alternative distributors that can’t follow due to their dependence on low-usage profits.

8/ Apple TV needs a tuner, make that two.
Apart from a new “front-row” user interface (supported by a new OS as described in 2), the Apple TV needs to embrace DVR capabilities. Similar to the iPhone and AT&T, Apple should take a swing at giving customers a better end-user experience (and integrated with iTunes content) with Comcast, or else threaten to take the business from under their noses. The cable-card mandate makes it possible for virtually any vendor to displace the current set-top-box and DVR experience, and I would bet customers would pay a premium to get rid of the Comcast experience.

9/ Build Apple TV server.
Longer term (preferably after a deal with Comcast) I would like to see an Apple TV with tuner capabilities feeding all my TVs, rather than having individual AppleTV and DVR tethered to each to TV. Record once, playback anywhere (for traditional and new media).

10/ Deep dive into enterprise server sales.
The enterprise server strategy of Apple is a mystery to me. Having built a couple of new business revenues in large business (Oracle, HP) and SMB segments (Symantec) I don’t see Apple apply the pressure that warrants building products for this segment.

Again, as a 15-year empathetic Apple user I would like nothing but to see Steve return soon and hope this blog will consequently void itself.

Tags: Apple, IPhone, Apple TV

By Georges van Hoegaerden

I wrote about the death of mobile application investments a while back and the recently leaked e-mail (posted by Tech Crunch) from Tapulous shines more light on those unattractive economics for investors. Investing in the Long Tail of content (the games category) is not a good idea.

Now I want to preface that selling 100,000 copies of a game is a great accomplishment (good job Bart and thank you Apple), but the $1M or so this very popular game generated can hardly be called a venture funded business that is going to emerge with a billion dollar market cap anytime soon.

Here is what needs to be accomplished to generate a little over $1M:

• #1 most popular game for iPhone & iPod touch for 2008
• #3 most popular app overall for the US
• 5 million unique installs on Tap Tap Revenge! (that doesn’t double-count when a user upgrades TTR)
• 100,000 paying customers

So, if being the #1 most popular game on iPhone means you make $1M, I can’t see how:
1/ This initial success is going to continue with an avalanche of other attractive games entering the market
2/ The company is going to be able to produce a consistent stream of similar “winners”

And so here is another example if subprime investing, this time provided by a long tail of angels.

Tap Tap Tap.

Tags: Gaming, Investment, Long Tail, Apple, Mobile

By Georges van Hoegaerden

I was flattered last week by a visit from Rick Smolan, the creator of some very creative photo-projects, such as From Alice to Ocean, America 24/7, Blue Planet Run and his latest America At Home. Since the early 90s, From Alice to Ocean stuck with me when it was first introduced and distributed with Apple computers and the clever use of multimedia capabilities built into the Mac early on. But the great thing about these projects is not just the stunning imagery but rather what they evoke. Again, the value of photography is in the eye of the beholder.

Rick approaches photography in the same way I look at business; by simply surfacing the facts. So much in our lives is influenced by mountains of politics and rhetoric that reduce the chance of quick resolution and success. How do you think we can ensure a vibrant global economy and peace if 1.1 Billion people - 1 in every 6 - worldwide have no access to clean water. The book Blue Planet Run displays that with chilling accuracy.

But Rick Smolans projects shed light on reality, good and bad. America at Home is a compelling compilation of how American families live at home, rich and poor, photographed by the families themselves and complemented by photographs from professional photographers. The pictures and their captions are so inspiring that a country decided to buy more than 200,000 books to educate their children on who Americans really are. Transparency works both ways.

I would like to see Rick do a book of “The World at Home”, so I can continue to sit down with my daughter and give her a peek into the living rooms across the world.

Our welfare greatly depends on our ability to become a citizen of this world. To achieve that every school should at least purchase one of Ricks books so our children receive an objective view of the opportunities and problems in our global eco-system and thrive.

Update: For readers of my blog, Rick has graciously offered a discount of $10 off his book America At Home, which you can customize with your own image on the cover. Just enter the code GEORGES at checkout.

Tags: Photography, Mac, Photographers, Apple, Economy, Transparency

By Georges van Hoegaerden

I received a lot of feedback and questions on my previous blog posting named Building efficiencies in tough times and the embedded presentation posted there. The danger of attaching a presentation is, that as a reader you may miss the rational that built the words.

Because of that I want to explain my sometimes condensed thinking a little further.



It may have appeared that I only care about the product, but nothing is farther from the truth. The diagram on the left of the chart is what I see a lot in technology companies, early and late stage - across the board. The diagram on the right is what I tried to convey with the words in my presentation. Let me clarify:

Many companies develop incremental innovation (to leapfrog their competitors) without a diligent (re-)assessment of the opportunity to change the battle field. Not surprisingly. Real disruptive innovation requires a certain amount of vision, faith and a compass combined with larger commitments and investments, all seemingly based on untested values.

The path of least resistance therefor is to start with an incremental product and throw inordinate amounts of marketing & sales at it, in order to push it beyond its competitors into the marketplace. That is a highly inefficient model (in any economy). But it is a model to which many companies are forced to comply because of risk adverse management and the stale investment criteria deployed by many Venture Capitalists (VCs).

So, it is somewhat ironic that the VCs are now telling their startups to be more efficient, right after they were pushed through the VC wringer of startup-commoditization.

I believe the market for cheap (bootstrap-to-market) technology companies, that yield a large early exit is gone. That model only worked in a bull market of technology (from the 90s that has not dissipated) and the investors that still cling to that model will get punished for it. The new opportunities are for companies that build real macro-economic value.

The starting point of the next wave of innovation, in my view, is to feed a macro-economic need, as depicted in the diagram on the right. That macro-economic need is directly attached to the way we behave as humans (which is relatively predictable). It is our need to express ourselves, live the life we want and be in control (rather than technology controlling us). Think free-market principles, think social, think benefits, think fundamentals.

The fundamental shift in thinking that needs to occur in Silicon Valley, is to develop technology with a fresh mind, looking from the outside in, and serve a larger, less specialized, constituent.

Apple comes to mind as a company that often completely ignores the current state of the technology industry and connects better to basic human needs than any other technology company. But Apple can improve/be beat at the macro level, but I digress.

We simply need to support human behavior with technology.

With “free” distribution of information through the Internet, psychographics - not demographics - matter. Four-hundred year old free-market principles, The Long Tail, and marketplaces like eBay prove that the traditional rules of marketing do no longer apply. In my thirty years in technology I have never met anyone who truly understands markets. And market definitions have changed, they comprise no longer of buyers that fit an artificial model (I cringe when I hear people debate for hours how many users delineates the SMB segment), but because they subscribe to the pain or gain from which subsequently, marketers can extrapolate a larger pool. Bottom-up.

We do not all need to be economists to create the next successful technology company, the material is all around us. All it takes is a healthy interest in the actual behavior of human beings, compare their offline and online behavior and fill in the gaps. So, stop supporting companies that just build nifty technologies, but focus on companies that create larger macro-economic differentiation. More impact to everyday people.

No company will be more efficient by simply cutting cost (as suggested by the recent doom-and-gloom VC messages), it will just take longer to die. The real efficiency comes from a more disruptive value that attaches more people to better technology. On top of that, macro-economic value is very resistant to economic downturns.

Tags: Performance, Commodity, Consumer, Marketing, Markets, Marketplace, VC, Macro-economics, Psychographics, Apple, Distribution

By Georges van Hoegaerden

Let’s look at photography (my hobby), arguably the most important purchasing-driver of computers (after the ability to access the internet) by consumers. Media management (yes, on the desktop) remains more than a Billion dollar market opportunity.

Case in point: new announcements of Adobe Lightroom and Apple Aperture tout enhanced interoperability with third party plugins to manage and edit your photographs. Don’t you feel good about that warm open-source-like karma of interoperability?

I don’t. Both vendors have deployed their next trick to customer imprisonment. And plenty of uninformed customers will fall for it. Here is why you shouldn’t:

1/ There is no need for an additional platform for photo management.
Photo editing capabilites of both applications are mediocre (no layer based editing, no advanced local editing etc.) and their asset management capabilities are little more than a replica of file system capabilities (even photographic attributes such as exposure, aperture and other attributes are maintained by the file-system metadata today). So, except for making nice photo albums and calendars, why else would you slug thousands of photographs in a proprietary asset management format that is less reliable than the underlying file-system and requires seperate backup and archiving strategies to maintain.

2/ Plugins have worked for years on file-system based photographs.
The announcement of the interoperability with plugins is really old news as those third party applications have been working with file-system based photographs for years. This is a platform on top of a platform, designed to milk more money out of customers and locks them into a proprietary technology stack. A prison with the windows open is still a prison.

3/ The operating system needs-to and will evolve faster.
The pace of meaningful innovation of the Personal Computer OS is deplorable. Microsoft has not made the PC operating system significantly smarter over the last ten years and that has opened the window of opportunity for Apple to surpass Microsoft in usability (rather than functionality). The ability to easily create and manage user-generated content such as, Photography and Video, has now become important adoption drivers to the platform, OS-vendors have yet to respond to. Photographic capabilities should be built-in (not priced-on). These days the unique media experience of the platform is the differentiation that sells the computer (since they all do internet quite well).

As a consumer, buying into seperate photography management siloes will cost you significant time and money (as the former CEO of a photo software company, researching the alternatives, I tried). My advice is to wait until an agile vendor steps up and turns media management into a core competency of the computing experience.

In the words of Ray Lane (partner at KPCB and former COO of Oracle) who once said customers are better off skipping some steps of innovation (in his case to skip client-server for three-tier internet architecture), I have just presented you with my reasoning to skip-over Adobe Lightroom and Apple Aperture. Not because I don’t like some of its functionality, but because it is strategically a dead-end street.

The next evolution of media management will soon eradicate the old one and deliver lasting differentiation to the vendor that owns it and provides a much, much better media experience to the consumer.

I am planning on having something to do with that.

Tags: Platform, Photography, Consumer, OS X, Operating System, Innovation, Integrity, Adobe, Microsoft, Apple

By Georges van Hoegaerden

With the proliferation of the new iPhone, Mobile Applications as a viable VC investment category is dead.

Companies like Digital Chocolate (founded by software gaming pioneer Trip Hawkins) are now painfully aware of that. Recenty switching gears, it is debatable whether they can compete with the endless supply of a new free-market.

The future of many companies like Aeroprise, still basking in the glory of a proprietary Blackberry environment and tucked away in the enterprise mobile markets, will be severely threatened by standards-based technlogy running on any internet capable device, very soon.

The premium market of mobile applications protected by walled gardens has been changed to a free-market by Apple’s iPhone and the App Store. Macro-economics, discussed in this blog many times before, at work again.

Rather than single minded companies being able to protect their turf with a collection of proprietary applications (usually aimed at businesses), now individuals will start to create applications for other users. By the people, for the people. N/N :the airplane code for Steve Jobs’ Gulfstream. Get it already?

User-generated-content (one of those awkward Silicon Valley attempts of describing content that resides in a free marketplace) has a brand new companion, it is called: applications.

But these applications are no longer mobile applications, they are internet applications - that happen to run on a great mobile internet device. And they will run on many other internet devices, hard-wired or mobile. Think of them as the big brother of widgets, task oriented applications that remove the need to use a browser to benefit from the Internet. They target regular consumers, not internet savvy technologists and they self-configure, based on location and other user preferences.

So the investment model for mobile has changed dramatically and the recently announced $100M iFund (by top investment firm KPCB) and a similar one by BlackBerry - the vehicle of purportedly investing $1M per application vendor - makes no sense at all. Here is why:

1/ User-generated content does not provide a great foundation for large upside - let alone an acquisition or IPO that is priced to produce interesting VC returns.

2/ The value to the VC is in the “winner-takes-all” platform, not the content (albeit that produces great value and choice to the consumer). Apple, with the App Store platform for distributing applications using free-market principles (although still not perfect, check out our marketplace rules) will again walk away with the same benefits it reaped from the iTunes store, direct and halo.

3/ Application development is a very high cost business, especially in a highly competitive marketplace. The gaming industry wrapped in a slower transition from premium to free-market is finding that out too.

4/ Mobile used to be a proprietary, and protectable, path to the internet. No longer. The intelligence of the backend service, accessed through a mobile of hard-wired computing device is where the value is.

So, i suggest to rename the iFund in Software-As- A-Service fund, agnostic to access paradigm.

Nokia and Blackberry (RIM) will have to follow quickly. But they would need to start hiring people that understand macro-economics, not just technologists that create poor copies of Apple’s implementation.

All phones need to have a real operating system inside, and Roger McNamee’s investment in Palm may make sense in that way, but they better step it up quickly. Nokia is off playing with Symbian, Microsoft has its own concotion. All of them pretty much asleep at the macro-economic wheel.

Yet for individuals, on the supply and buy side, all this disruption leads to new opportunities that are derived from a meritocracy. Fantastic applications are being developed and used in massive numbers. The world is indeed flat after all.

Tags: Apple, Nokia, Blackberry, Free-market, Marketplace, Meritocracy, SaaS, Proprietary, Gaming, Funds, Wall-Street, ITunes, Mobile

By Georges van Hoegaerden

Is the question that was posed to me recently. My short answer is: macro-economics.

1/ Apple technology is proprietary, all the way
Apple is creating a premium computing platform, rather than an open and commoditized one. Premium markets precede open markets and dish up much higher profit margins. Proprietary environments also allows Apple to control the differentiated customer experience.

2/ Apple is focused on lifestyle computing
Apple is focused on creating solutions to support our lifestyle - a massive addressable market - that consists of music, photography, video etc., rather than esoteric office software for people with lots of technology expertise.

3/ Apple is building an ecosystem
Apple is focused on supporting a differentiated ecosystem, rather than building competitive technology silos. The sum of all lifestyle components interacting with each other make it unique. The iPod remains competitive because of the iTunes store that is accessible through a (Mac) computer and vice versa. Their capabilities are tied to each other.

4/ Apple is building an unique customer experience
The experience of purchasing, innovative design, great product quality, and unique (in-store) customer support provides the evidence of a company that wants to please you.

There are many other differences, some of which also lie in a fundamentally different product development strategy. But top-level differentiation drives micro-economics.

Other companies face an uphil battle if they don’t compete with Apple at the macro level first.

Tags: Apple, Margin, Mac, Eco-systems, Proprietary, Software, Platform

By Georges van Hoegaerden

The key to understanding customers is to observe them, rather than to listen to them. As in most life scenarios, what people do and what they say are quite different. And your product strategy better be focused on real purchasing behavior rather than yet another opinion - stated as a fact.

For that reason, the way large technology companies implement usability studies is useless, as these studies attempt to formulate an opinion from people who should be buying - but have not - and use the wrong method to derive their intent, verbal rather than behavioral. Unbridled wishes, promises and demands from prospects are worthless. Yet priceless is the behavior and satisfaction of buyers.

So, without the customer telling you what to do, how do you improve your chances of success:

1/ Focus on greenfield adoption
Many so-called markets have no real market leaders owning more than 30% market share. Technology adoption is still in its infancy and plenty of room exists to tap into greenfield markets. Even in a fast growing market like the mobile phone industry where Apple is resetting the rules of engagement, a large demographic still does not use a mobile phone. So, the trick is to come up with a new strategy for the ever changing greenfield, rather than stealing market share by building a better mouse trap.

2/ Define the macro-economic impact of your technology
Consumer technology should yield immediate personal benefit and become an indisposable asset to the daily tasks we perform. It should save considerable more time than it takes to learn. The iPhone is a portable lifestyle device, rather than just a better version of the old category mobile phone. Redefine the rules from the top.

3/ Build a unique customer experience
Style, performance and capability are important consumer product characteristics and so is the purchasing and support experience. Satisfactory life-cycle support of the product is crucial to secure brand loyalty. Ever noticed how almost half of the Apple Store is dedicated to improving customer experience?

4/ Remove the technology language from the equation
Adoption by a greenfield market demands the development of a user-experience, marketing messages, and support experience that is void of technology language and solely talks about usage benefit - rather than how it is achieved technologically. Notice how the marketing of the iPhone is fundamentally different from the Nokia N95 (same price range), full of references to technology protocols (like UPnP) a greenfield market should not have to know about.

The success of technology innovation is increasingly related to how well companies serve steady customer behavior. That behavior has extensively been studied by so many non-technology companies ahead of us.

That’s why I spend so much time listening to the wisdom of CEOs like A.G. Lafley (CEO of Procter & Gamble), Mickey Drexler (CEO of J. Crew, former CEO of GAP, Apple BoD), Jack Welch (former CEO GE) and many other consumer CEOs who put themselves constantly in the shoes of the customer and define what they would like the purchasing experience to be.

It is not hard to detect the patterns of success, but as a CEO you would need to be committed to keep looking at your company from the outside in (rather than from the inside out), and experience the company from a customer perspective.

Get ahead of change and tune in to Charlie Rose on NPR (KQED in the Bay Area) for some great lessons from the masters.

Tags: Entrepreneurs, Innovation, Consumer, Markets, Apple, IPhone, Nokia, Startup, Experience

By Georges van Hoegaerden

We can look at Microsoft and Apple and compare them strategically: Microsoft is the plumbing for a commoditized desktop computing market where Apple delivers a unique computing experience based primarily on its proprietary technology stack. Microsoft as the complacent market leader, Apple as the wannabe - fighting hard to win share. Apple, in tune with today's computing lifestyle as the innovator, Microsoft as the raw execution machine, buying innovation where needed.

But for me, in the shoes of an end-user, all of that is summed up in a simple way:
Type in CNN in Safari (without url etc, just as we wrote it here) and then type in CNN (again without any internet "grammar") in Explorer. Here is what you get:

Microsoft (standard installation Windows XP):


Apple (standard installation OS10.4+):


Bottom line: with Apple you get what you expect, with Microsoft you get spun into their web, literally.

Maybe this is Microsoft's tactic to produce page hits to compete with Google: any user that doesn't know how to type in a URL will be rerouted by default to MSN search. I call that cheating, Microsoft. But even with those tricks, you still need Yahoo!

Getting and keeping customers is about integrity and authenticity, not sneaky monetization techniques to squeeze every cent out of every visitor - leading them down the endless path of search. I am glad Apple is around and here to stay. There is nothing better than getting what you want, quickly.

BTW: talking about Microsoft's complacency, does it still not have anti-aliasing sorted out - or is that the big improvement in Vista?

Tags: Apple, Microsoft, Experience, Yahoo

By Georges van Hoegaerden

We communicate with each other using a common language and we obviously become more effective when we all understand that language. However, technology complicates our lives as each piece of technology we interact with requires us to learn a new (proprietary) language; a set of rules, technology grammar and a unique user-interface experience.

Think about it, when Larry King on national TV stumbles over his own URL (yes, language) and messes up http, semicolon and slash (or was it backslash), I can't help but think about the hell we put users through to use the internet. Only if you understand that language do you get to benefit from its capabilities. That's like forcing anyone that wants to vacation in Mexico to speak Spanish first. The Mexican tourist industry would grind to a halt.

It gets worse, for example, to make photographs look better, Photoshop (and now with Photoshop Express) and many other photo-editing applications deploy a language that requires users to understand the intricacies of color and light and apply that language in the right order.

Here is a synopsis of the skill level my mother-in-law would need to master in order to make her photographs look better: first increase the dynamic range using a histogram, then use curves to change the tonal values to your liking, apply the right white balance and improve saturation and vibrance. Indeed, what I just described is the introduction of yet another language to solve a pretty mundane problem.

To create a web page, we introduce yet another language, a compilation of HTML, Perl, Ajax and Flash usually contained within a desktop product with its own proprietary language. To write a book we wrestle with 90% of Microsoft Word's functionality and language we seldom use, trying to figure out how to create a table of contents. In Excel we use another language consisting of non-intuitive formulas (like sum() ) to derive values from other cells. Should I go on?

So why is it that we seem to get away with it - or are we? For one, lots of people make money understanding a computing language that fewer others do. Web designers don't always create better design, but they understand the language of design, and can implement it. So, web designers don't want you to know there are better ways to do this. Adobe is probably not in a hurry to remove the language and erode its premium market, it could have created much more democratization in the website creation process. Many times have designers, with corporate marketeers in tow, abjected the use of Rapidweaver, a tool that attempts to democratize web design (this site is built with it).

But we are fooling ourselves. The democratization of the internet requires that we make technology more accessible and easier to understand and implement. Only then will it reach real mass adoption.

We could easily build technology that figures out how to make the majority of images look better, or design a web page by drawing it - rather than programming, or have Word make recommendations for a table of contents when it discovers one.

The iPhone is a great example of how packaging existing technologies in a different way, can make people feel that they don't need to learn a new language to communicate with it. My 3 year old daughter uses it. Each of the individual technologies in the iPhone had been around for a while, Apple "just" packaged it so the language became intuitive.

But Apple is not the only vendor that can remove the computing language from the equation, others just need to pay attention to it.

So when you design products, pay attention to the removal of the language, fewer yet intuitive options - rather than more. After all, for thousands of years, we ourselves, have communicated in many other ways than verbal, the majority of our communication remains behavioral.

Innovation has become the art of packaging a flawless user experience, rather than a race to add features. The latter quickly becomes commoditized anyway.

Tags: Apple, IPhone, Experience, Microsoft, Adobe, Photography, Internet, Democracy, Communication, Innovation

By Georges van Hoegaerden

Since a platform is the technology foundation for a marketplace, platforms - to achieve extraordinary growth - need to instill the rules of marketplaces as we laid them out in our previous post.

But not all platforms are created equal and some self-proclaimed platform vendors do not adhere to marketplace principles. That could mean you as a provider think you subscribed to a meritocracy - with equal opportunity exposure - yet other participants (your competitors) get pay-to-play advantages. Potential buyers in that tainted market are actually shopping in a premium market, not the free-market they expect to be most economic and trustworthy.

Other synonyms of the same phenomenon abused in the technology industry include: ecosystems, exchanges, communities and networks which all serve identical needs in connecting disparate supply with disparate demand, something a premium market is unable to do.

Consumer companies understand the freedom of choice customers demand. Enterprise software and services vendors have long basked in the glory of premium markets and have a long way to go in order to truly build winner-takes-all free-markets, which in total size are often larger in size than the total size of premium markets in that category.

In the Enterprise space the majority of customers (roughly 80%) buying products or services deviate from its intended design and want to add on, integrate or correlate those off-the-shelve configurations with other ones. Enterprise customers often spend more money on customization than they spend on licensing fees for say, Oracle products. Hence the requirement for a true marketplace of additional enterprise components (check out Serena, great concept but marketplace execution and marketplace compliance - yet to be developed - will be the tell-tale of their real success). Salesforce.com's Appexchange seems to provide the best proximity to a free-market of applications we've seen, although we have yet to verify its integrity against the marketplace rules.

Developer programs from companies like Oracle (with OTN), Microsoft (MSDN) and others use surrogate models of marketplaces to mimic, but not truly deliver on its powerful benefits. Go visit their websites and you'll notice no mention of third party products. There literally is no marketplace, although Microsoft has a link to "a library", if you can find it.

Apple (with the iPhone Developer Network) is experimenting with its rules but apart from compliance to the free-pricing rule, its overall compliance to a free-market is minimal. And, today, they don't need to. Apple still has time to deploy some premium market tricks as long as Google with Android doesn't deliver on a real marketplace for developers early.

As a software provider you may need to run on and comply to a major vendor's technology, just don't assume a developer network, exchange or community will make you rich - not until the marketplace supports a true meritocracy. And for that, again, real marketplace principles need to be deployed.

Tags: Marketplace, Oracle, Microsoft, Apple, Google, Android, Enterprise, Networks, Eco-systems, Meritocracy

By Georges van Hoegaerden

Over the last 10 years I've also been closely involved with early stage technology funding (advising VC firms and Angels) and have invested personal time and money in early stage ventures. That has given me a unique perspective of the challenges between entrepreneurs and investors.

I've written about my Top 10 fundraising lessons for entrepreneurs, and dare to follow up with my Top 10 investment strategies that may be useful to investors and entrepreneurs, here:

1) Invest in the founders, but be wary if the company consists of technologists only. The ones that come in without an operating plan clearly do not understand what you as an investor are looking for. Get a real operator in early.

2) Invest in the business, don't invest in technology. The statistics prove it: ninety-nine out of a hundred of the most innovative technologies never turn into successful businesses. Especially investors (both VC and Angels) that made their money in the hay-days of technology have a tendency to underfund the business side, providing a weak foundation for any technology to succeed.

3) Don't invest in an early stage company with more than one product or service. Let the company become the King-of-One, rather than the King-of-None. Multiple products or services require more money to support successfully and dramatically dilutes the focus of the company. Multiple products or services also "invite" a larger group of competitors, making it hard for customers to perceive true differentiation and unknowingly, slows down adoption.

4) Don't invest in an early stage company with more than one business model. Keep it simple. Multiple revenue models sound good, but usually don't yield the projected outcome. The company should make all of its money in advertising or in subscriptions, not in both. Dilution of focus is costly and provides yet another reason for failure.

5) Don't invest in companies that rely heavily on partner support early on. This is the typical David and Goliath phenomenon. Partners sell once the company does in overwhelming numbers. The company should always have direct control of its own business model first, before they allow any partner to reduce its margins.

6) Invest money or time, don't do both. I very much relate to Carl Icahn in an interview with Dan Primack (on PEhub) with regards to CEOs responsibility to make the numbers work, and not to rely on investors to "add value". The CEO is in the driver seat, take him out if he doesn't produce.

7) Look for fundamental changes in customer experience. The Ultimate Driving Experience is what sets BMW apart, not just the timing in their engines. Customer experience is much more than a pretty user interface, it is an overall experience that spawns disruptive purchasing.

8) Watch how professional the team operates pre-funding as an indication of their interaction post-funding and with customers. Real professionals do everything with a purpose and I have mastered the art of detecting them. So well that I can tell from a visit to a trade-show floor whether a company is going places.

9) Don't categorize investment allocations based on past investments or trends. Every company is unique and requires an amount of money unique to their assets: people, timing, market and ecosystem. If you don't think you have a unique scenario, you probably don't have a valuable investment opportunity.

10) Invest with passion but don't fall in love with the company. Investing is the ultimate flirting game, but it is usually a bad idea to get really involved. Your asset value is the selection and performance of all the companies in your fund. Stick with what you do best.

From an investment perspective I see many "sub-optimizations" but not a lot of real great innovations these days. I do blame the current investment model for that sometimes. We, in Silicon Valley, have too many technology investors using the same rearview-mirror investment criteria. Although I have a lot of admiration for Apple, it is a bad sign when we need to leave real innovation in the hands of large companies like theirs.

The landscape for investors is about to change dramatically, no longer can they just continue to invest in proprietary technology silos at single digit valuations. They'll soon need to broaden their experience ("in search of the Economist VC") to understand the macro-economic impact of marketplaces, platforms and the impact of technology to other industries.

A wonderful long road for technology innovation and investing still lies ahead.

Tags: BMW, Experience, Disruption, Revenues, CEO, Timing, Markets, Investment, Startup, Apple

By Georges van Hoegaerden

I bought the Apple TV the moment it came out about 9 months or so ago. Initially surprised by the tethering requirement to a computer running iTunes, I used it quite a bit as a giant picture frame (showing off on a 50" plasma), playing music during parties and watching kids shows with my daughter. Now, with Take 2, Apple has stepped it up and provides HD quality movies (and 5.1 Dolby Digital audio) and, less talked about, removed the need for a separate Airport Express to stream any iTunes audio through your Entertainment center.

But very interesting to see is how a technology called Bonjour (formerly Rendezvous - 13 year old Apple technology, first available in AppleTalk) automatically finds and connects iTunes capable devices on the network and staving off the need for central media management. And it does so quite well and transparently. Movies, music purchased on the Apple TV show up on the iTunes on your laptop and vice versa. When Comcast showed off a central media server for the home at CES 2007 that could stream content to any of your cable connected devices, I thought it was going to give Apple a run for its money on the movie rental business. But more than one year past and still product from Comcast in sight. Don't even start about the current Comcast DVR mess, possibly the worst UI experience I've ever encountered (the Tivo deal may ease the pain a little, but the early news is not encouraging). With Apple TV, no more runs to Blockbuster, or mailing DVDs to and from Netflix, just sit at home and watch whatever you want.

What I admire most about Apple is its ability to not just create new products but that it adjust its business and operating model so those products can succeed. That is a gift bigger companies like Oracle (my former employer) and Microsoft can learn from. Media and content are the new Consumer Packaged Goods of this century and if technology vendors don't invest in the ecosystem around it their technology solutions will continue to yield mediocre user experiences and sub-par adoption.

In converging media markets, the new leaders are going to be the ones that build disruptive business models first and great technology products to support that, second.

Can't wait for Apple to strike a deal with Comcast and similar to the iPhone strategy, replace the Comcast DVR with an Apple TV capable of receiving regular broadcasts as well as tap into the power of iTunes. All Apple needs to do is use its cash war-chest to "threaten" ComCast to go at it alone, just like it "convinced" AT&T it would be better for AT&T not to let Apple become a Mobile Virtual Network Operator.

Tags: Apple, Broadcast, Comcast, Consumer Packaged Goods, DVR, Netflix, Media, Entertainment, ITunes, HD, Mobile

By Georges van Hoegaerden

My 3 year old daughter uses my iPhone to play music videos and YouTube videos and has not touched a PC (or better, a Mac) yet. With the same content available on either she's obviously seen me operate my Mac and looks over my shoulder now and then, but finds all the keys and even the "Magic-mouse" complicated. Clearly a usage experience is more important to her than shear processing power. Sounds familiar doesn't it? Nintendo anyone?

What I see in so many early business plans today is the old-fashioned notion of deep technology expertise, something most traditional investors still harp on. I see too many BMW engines being developed without attention being paid to the development of The Ultimate Driving Experience®. True, you can't build the driving experience without great engines, but BMW, like no other vendor understands that the total experience is the selling point. In the end, technology will become commoditized and its differentiation will be determined by the way it interacts with content, media, social network, end-users to create a well designed user experience.

Apple is another company that understands that focus on user experience very well. Its products are a piece of art, its function (to a novice) is at least competitive. Buying a Mac is an experience, and so is using it. A much better experience than buying a PC in every way. The box your Mac comes is even a work of art, the way it folds open, the new materials, everything builds to the experience. As a customer you feel special, owning an iPod with your name engrave on it and all your music in it. And that is what Apple customers are buying into: feeling special and appreciated. Attention paid to you!

Now every market segment has its own definition of user experience, so don't go do what Apple does before you understand how you can differentiate. But every software, service or content vendor should consider building a unique customer experience that in the end - sells more. It's a CEO level responsibility because it involves making sizable investments in complementary areas, not just a marketing ploy. The days of just selling a product are over.

Tags: BMW, Experience, Mac, Apple, Nintendo, IPhone, Startup

By Georges van Hoegaerden

Photo-editing today is still an art form, a specialized and necessary art - and "endured" by prosumers. The great photography you see hanging on walls, on websites or in magazines, all have been edited digitally. Not necessarily to create some outrageous creative effect but because not a single camera accurately captures what your eyes see. Not since the invention of photography in 1870.

Camera vendors promise better results when their customers purchase a more expensive dSLR (digital Single Lens Reflex) camera, a better lens, a solid tripod, a new filter, and, while we’re selling: a new photo bag. Yet, none of those products do anything to change the fundamental difference between what your eyes see and what the camera produces. With a healthy growth of more than 60% worldwide in dSLR sales (according to new 2007 numbers from CIPA), most camera vendors are not in a hurry to out-innovate themselves as their current stance is feeding their business so well. So, the problem remains, camera output is far from ideal.

So today, the great results photographers strive for can really only be achieved through editing, reproducing what you tried to capture. That editing today happens primarily on the desktop (less than 10% of the whole photography market edits online) and by digital SLR users with a great sense of quality and aesthetics. Products are plentiful, such as Adobe Photoshop, Adobe Lightroom, Apple Aperture and my favorite: LightZone. Yet none of those products completely hide photographic complexity to its new users; the massive numbers of dSLR buyers that just want to create great photographs.

Photo-editing should work like a car, simply put the key in the ignition and drive (without having to worry about how the engine and the transmission works). The editing tool of the future should embed the photographic knowledge and make decisions or recommendations for you, rather than requiring its users to become proficient in the minutiae of color and light. Just like a car, photo editing should be able to go where others have gone before, enriching the experience of new users on a continuous basis. New editing techniques should be sharable through a language we all understand, a photograph. In short: edit "like-Mike" and me-too editing is born.

I believe photo-editing will move away from what it is today, a basket full of technology tools to a service through which the sharing of editing techniques will enable the new "language" of photo-editing. That dramatically simplified language will subsequently enable editing for the long-tail of the photography market, the massive market of point-and-shooters. New technologies such as Pixenate, Picnik, Adobe Photoshop Express already rush to deliver a new basket of tools for the consumer market. And many others will follow.

Today, plenty of opportunities remain in the prosumer editing space in which no vendor has amassed even close to 30% penetration. New editing capabilities are bound to drive the marketplace in which monetization of photographs and, eventually a free-market for photography can flourish.

What's left for the innovative camera vendor is to build a proprietary imaging pipeline that dramatically reduces the need to edit. With 90% of dSLR vendors using the same imaging pipeline (behind the sensor) the time is right to change the way a camera captures data before it reaches the sensor. In the same way your eyes do very smart tricks before light hits the retina.

Tags: LightZone, Apple, Adobe, SLR, Free-market, Photography, Photoshop

By Georges van Hoegaerden

While Sony, Microsoft and Nintendo show impressive results from a console perspective the game-play market today appeals to a very narrow demographic. Consoles are purchased by an age group 25-40 years old. While that demographic may be most capable of purchasing these consoles, we know from the types of games sold at roughly $50 per game that daddy plays more games than his children.

One could also argue that the most playful age range in our lives is from age 2 to 16 years old, yet the games and platforms provided do not meet that demographic. Fewer than 40% of teenage girls play any games, feeble attempts to turn existing games pink did not yield more sales, according to an executive at Electronic Arts.

So, rather than a deep dive in the existing game-play demographic, with even better graphics of game consoles, vendors should focus on a game-play experience that meets real market demand, removes the negative and vegetative connotation of gaming and instead exercises mind and body.

Nintendo has taken the first step of targeting a new game-play demographic and quite successfully so. Robbie Bach, president at Microsoft (who I recently spoke to) described his initial XBOX objective as building the best performing gaming experience. Sorry Robbie, wrong business objective. Sony is by far the leader in console gaming and has great opportunity; to lose or bolster its lead. Execution will be key, Jack Tretton will have his hands full on that one, but Sony's powerful assets in home entertainment should help.

While the console vendors battle it out on price and performance, we are seeing new entrants prepare themselves to enter the home entertainment demographic with new "game-play" propositions. The console vendors will see competition at a different level, Apple is just one of them.

Tags: Electronic Arts, Gaming, Xbox, Microsoft, Sony, Apple, Entertainment

By Georges van Hoegaerden

To quote Walt Mossberg of the Wall Street Journal at Consumer Technology Ventures last week, quality is an important pillar of success for consumer products and I couldn't agree more. Many times products are hyped with incredible promise (marketing) but the product either doesn't work as advertised, requires other services to be activated or simply is not ready (does Zune ring a bell).

From that perspective I am less happy that Apple (the only PC platform I have ever bought), is gaining popularity. Price pressure and popularity does not always do wonders to quality.

I currently use a 2-year old Powerbook G4 1.5Ghz of which the fan (right after the one year warranty expired) makes a noise like a sawing machine, and I had to reduce the speed of the processor to keep the fans from cooling. For work I purchased a $999 23-inch Apple flat-panel that produces stunning image quality and brightness, yet the ghosting of images on this expensive piece of equipment allows me to see which window was there 5 minutes ago. I expect the best from Apple and I am willing to pay a premium, but I am not willing to pay a premium for under-par quality.

Now, I am not picking on Apple because it is the worst performer in the consumer space, quite the opposite. Apple undoubtedly is the best performer in the business, but given that, Walt's comments make even more sense to me. Switching off of Apple is not an option for me, but griping is.

Update:
After unscrewing at least 20 screws on my out-of-warranty Powerbook G4 (directions courtesy of iFixit), I discovered that the reason why I had reduced the processor speed on my laptop for over one year and avoid the fan from coming on was created by, get this: a quality control sticker in the fan compartment that had come loose and was spinning along with the fan. A simple removal of the sticker solved the issue.

Tags: Wall-Street, Mossberg, Apple, Premium, Quality, Consumer, Images, Experience

By Georges van Hoegaerden

Last week I sat in at a VC panel and the general partners from a few early stage VC firms who agreed that founders should have deep and many years of domain expertise in the companies that they are investing in. I disagree.

For one, true disruptive innovation does not come from compliance to an existing market. Apple, as a pure technology company, has proven it does not need to be a content expert to take the music business for a spin, and a massive overhaul. Real innovation starts with a healthy skepticism about current markets and its tactics. Coming up with new approaches to make money, and fundamentally changing the workings of paralyzed markets, is what makes my heart tick.

In my career I've always taken the disruptive standpoint. I became one of the most successful media experts for Oracle, not because of my prior domain expertise: I had none, but because of my drive to disrupt and look at the issues from a different perspective, one that is not necessarily tied to common acceptance. Finding and believing in OuterBay Technologies when it was unpopular and (yet) unsuccessful and creating a new market segment no industry analyst had heard of and starting immergo video communications without prior video communications knowledge and signing up big brand customers like IDG, blowing existing 20 year old production companies away, are living proof of why domain expertise is over-rated. SoftKinetic, the company I just became the CEO of, enables the next disruption in home entertainment no-one has travelled before.

The right investments are those made into people with guts, who vow to change how markets work and create disruption that unleashes new money. As Einstein taught us early on: imagination is more important then knowledge.

Tags: VC, Music, Apple, Oracle, Startup, Outerbay Technologies, SoftKinetic, IDG, Investment, Einstein, Markets, Analysts

By Georges van Hoegaerden

Apple's latest Aperture software personifies how the technology industry fuels its own growth by creating new software that drives new incremental hardware requirements. Managing an increasing library of 16,000 photographs is what I do when I am not working or playing with my family. And when Apple's Aperture came out late last year, I jumped on the promise to manage those assets (or liabilities in some cases) more effectively. While I had the bottom-of-the-barrel of Aperture's hardware requirements, a not so shabby 1.5Ghz Powerbook, the expansion with 2Gbytes of memory and a 160Gbytes replacement hard-disk seemed a foregone conclusion. But not so fast, Aperture's performance that is. Even this configuration leaves you yearning for a large flat-panel, so the windows and photographs can be displayed in sizable fashion and with the clarity they deserve. An Intel Dual-Core wouldn't hurt either.

The bottom-line is, a two year old, top-of-the-line Powerbook is suddenly on its last leg. I can only wonder what upcoming updates of Microsoft Office, Adobe CS3, Dreamweaver and others will do to my geriatric Powerbook. Desktop software is still an important catalyst, fueling new hardware replacements in a slowing PC market. Software and services will live alongside each other for quite some time, in the interest of PC manufacturers and admittedly, end-users.

Tips for Aperture enthusiasts:
Two tips that will smooth a transition and took me two months to figure out: 1/ Remove all videos from the iPhoto library, Aperture will abort, in my case after 14 hours, if you don't. 2/ De-fragment your hard-drive after a successful import, or simply copy the main Aperture library to a backup disk, remove the original and copy it back. The Aperture import process fragments the library dramatically; I ended up with a Library of over 6,000 file fragments, absolutely killing performance.

Tags: Blackberry, Design, Microsoft, Apple

By Georges van Hoegaerden

Recently I was asked to think about how to improve the phone features and functionality in an ever commoditizing "Terminal market" (an Ericsson acronym). There is a lot at stake here; lots of people buying phones, 2.2B of them to be exact, not enough of them buying the associated internet service.

Improve the specs and make it look good is the easy answer to that question. That is, if you are building a phone not a PDA. In a PDA you can pull technology, services and memory into a bulky enclosure and rely on nerdocrats to buy them; not a large market. So how do you build a phone that is just as smart and fits in the enclosure of a RAZR? Or smaller? Research shows that people buy cool looking phones, rather than bulky ones stuffed with functionality.

The answer in my view is services. Just as the power of the iPod stems from the iTunes library on your desktop connected to the iTunes store, phones should become re-play devices to services provided on the backend. The phone should be an iPod geared towards managing and replaying service data; contacts, calendar items, music, news are pushed out to it automatically, pictures are taken, stored and uploaded automatically to your section of the "store", ready to be shared and, yes, sold. Enabling free market principles to the content distributed by these services, completes the value chain and drives growth of the platform, regardless of phone.

Phone manufacturers need to learn how to build a value chain, not just a phone. Business innovation is just getting started.

Tags: Ericsson, Motorola, ITunes, IPod, Innovation, Apple, Mobile

By Georges van Hoegaerden

Last week I bought a Motorola Razr to replace my Treo650. It is beautiful, highly functional and tiny, and folds open to something substantial in my hand. The Razr synchronizes all business data from my Apple Powerbook wirelessly over Bluetooth, including most contacts and calendar appointments. At a quarter of the size, and a third of the price of a Treo it keeps me just as informed. No wonder Motorola sold 6 Million of them. Lucky Ed Zander, Motorola's CEO who rolled into Motorola (from Sun) after the Razr had already been conceived.

Apart from previous comments in this blog about the Treo with regards to UI, target market etc., the Treo's bulky form-factor (which still reminds me of the old Ericsson, pre-Sony phones) with its pointy antenna, really started to bother me. I felt like a cop patrolling the neigbourhood with a gun in its holster.

But the real reason for my change is a strategic one. I lost confidence in the Palm (Source) platform and so apparently has Palm's CEO. The announcement of the Treo700 based on Windows Mobile has reduced Palm to a commodity hardware player with not much to be proud of. Owning and refining the Palm OS and segmenting it to identifiable target markets would have been the winning business strategy.

Amazing is the power and persistence of Microsoft who now delivers the Windows Mobile version on PDA phones from Motorola, Sharp, Samsung, HP and other brands, steadily repeating its Windows PC software success downstream. I am eagerly awaiting Apple's foray in the phone OS business.

Tags: Palm, Treo, Motorola, HP, Apple, Windows, Razr, Mobile

By Georges van Hoegaerden

"Apple is going in a different direction than we want to go." That is the statement from a long term Apple customer (10+ years) we recently talked to. The Apple Store in Palo Alto has recently been revamped to where the iPod and its accessories seem to make up the majority of the new store layout. Media software has been tucked into a little corner in the back. Enterprise software for Small and Medium Enterprises (SME), like FileMaker Pro Server is virtually non-existent, "you can get that online" was the response from an Apple representative.

Did you know Apple is actually making more strides than ever in the enterprise business? Oracle, MySQL and a lot of other mission critical software now runs on OS X. Apple risks loosing SME foothold if it does not carefully balance advertising the iPod trojan horse with the reasons why it created the iPod, selling higher margin products. Enterprise software may not be bought in a retail store, but providing exposure and demo stations with enterprise and SME solutions are critical to changing a destructive perception. Or does Apple plan to open new Business Stores soon?

Tags: Apple, IPod, MySQL, Oracle, Small Business, OS X, Software, Retail

By Georges van Hoegaerden

Apple switching to Intel is a move that stunned the faithful Mac community, yet most of us knew Mac OS X was derived from a dual core OS Steve Jobs had been running for a while at Next. Had we forgotten?

Did the success of the iPod blur our vision? But more important than the choice for Intel CPU's is the impact on the choice for other hardware components of the computer. The Mac derives its cool look, slim laptop design, unique features and true innovation from a primarily proprietary hardware design process. Low cost and commodity designs from mostly Intel, AMD, and other mass market producers still turns out computer bricks. Intel performance is good, instead of "Intel Inside" just add "Apple Everywhere Else".

Tags: Intel, IPod, Apple, OS X, Steve Jobs, AmD, Design

By Georges van Hoegaerden

Radio is about to get a major overhaul. With iTunes, record companies are losing their arbitration, no longer are we forced to buy collections (CDs) in order to enjoy that one favorite song. In the near future that power will be diminished even further. Musicians will post their music without intervention and arbitration of a record company, giving buyers the ultimate selection of music they want to enjoy. Pod-casts is the technology that allows you to pick which radio segment you'd like to listen to (instead of a whole program), and deliver it to you at whatever time is convenient. More exciting is that the creation of pod-casts is open to everyone, allowing anyone to get on the soapbox and speak their mind to the world. Independent reporting from the trenches is only minutes away. New music stations will spring up and deliver music from all corners, to all corners of the globe. Welcome to a free world.

Tags: Apple, Free-market, ITunes, Music, Premium, Radio

By Georges van Hoegaerden

As a fervent Macintosh user (I have never bought a Windows PC in my life, but been "forced" to use one), the Treo650 is about the only game in town to get your office with you on the road. The success of the Palm in 1997 started with a simple concept, provide business users with four simple buttons that gives them access to everything they need. No more, no less. Since then the Palm platform has grown in all directions, except the one I need; better support for the business user. I like access to e-mail and a decent browser, I don't like the fact that many of the phone software capabilities are not truly integrated with the original Palm software capabilities. Bluetooth performance of the Treo is below par, calls sometimes do not get sent to the Treo headset, regardless of the button you press (the headset works fine with my Powerbook and Skype). Categories don't work with the Mac. Call log can't be scrolled through using navigation keys. No keystroke consistency between applications. No global hot button consistency. Inconsistent user interface behavior between applications. Should I go on?

Opinion: I wish Apple made a phone, using a proprietary device that serves the needs of a business user very well (a key target considering its $500 price point) , instead of trying to appeal to a broad software market. In the same way the iPod did that for music players. Proprietary platforms competing with "open-source" will yield better customer value, Apple please bring it on.

Tags: Treo, Apple, Windows, Palm, IPod, Skype, Experience, Open Source, Mobile