Personalized Search

Google just launched a new version of personal search based on user preferences. In early 2000, we seeded a Xerox PARC spin-out called Outride (formerly called Groupfire) which aimed to bring personal search to the web by learning from a surfer’s prior searches or his workgroup or community’s prior searches. For example, if you searched on the word “Java” how does the engine distinguish Java the computer language, Java the coffee, or Java the island. So based on user behavior if you were a tech geek and into computer programming, it would serve you up the Sun Java and so on and so forth. The business model was to be an “arms merchant” to all of the major search engines like AOL and Yahoo. The problem was that it was very difficult to monetize. How do you get a search engine to pay for a supposedly more personalized search result? So at the end of the day, we ended up selling the assets and patent to Google. Fast forward to now and Google is bringing this back into the market, although it is using its latest acquisition, Kaltix, as the basis for its search. This one is based on profiles rather than behavior. As Jim Pitkow, co-founder of Outride says in a San Jose Mercury News article:

“That’s good because the search engine doesn’t have to try hard to infer anything from the user’s behavior. But it can also be a disadvantage, because a person’s interests will change over time, but they may not update their Google profile to reflect that. It’s really unclear what it’s learning about me,” said Pitkow.

While the idea for Outride was interesting, we were way ahead of the market without a clear business model. It is a long story but the old adage “pioneers get arrows in their backs” certainly applies to this company. Anyway, it seems that Eurekster is doing a very similar job to Outride except that it has created a destination site. It will be interesting to see how personalization and the search wars play out over the next couple of years. I, for one, am a big fan of the original Outride model based on user behavior. Of course, that can open up a whole new issue related to privacy. If you are interested in personalization, I suggest you visit the Eurekster blog for a nice comparison of Google and Eurekster.

A tale of two IPOs

So while I was at PC Forum, my partner, Ned Carlson, sent me an email on the recent IPO filing of Seven Networks. Having talked to a number of bankers, we always thought that one needed $6-8mm of quarterly revenue, profitability for at least 1-2 quarters, and good visibility for the rest of the year in order to go public. It seems that the filing for Seven Networks goes against the grain. According to its website, “SEVEN is a leader in Out of the Officeâ„¢ technologies; our mobile email software makes it simple and affordable to access corporate and personal data while on the go. SEVEN’s software provides secure, real-time access to email and PIM information via a wide variety of mobile devices.” The company has a blue chip list of customers like Cingular Wireless and Sprint PCS in the United States; Globe Telecom, KDDI Corp, NTT DoCoMo, Optus and Singtel in Asia Pacific; and mmO2 and Orange in Europe. However, we still do not understand how it can go public with the following numbers: 2002 revenue of $6mm, net loss of $19mm and 2003 revenue of $7mm and a net loss of $13mm. What bothers my partner, Ned Carlson, even more is that some of the investors are even selling in the $100mm raise. What I hear is that they are going to execute a roll-up strategy. Isn’t Visto already doing this as well? Does anyone know the story behind this IPO filing?

On another front, you have Brightmail (an anti-spam vendor) which recently filed with some nice numbers. Revenue for FY03 was $26mm up from $12mm the previous year. In addition, the company had net income of $1.2mm for FY03. These are definitely numbers in line with what we were told on the IPO front. Concerns could be the concentration of customers via Microsoft. According to the Computer Business Review in the UK, of the 305 million mailboxes they screen, 145 million are Hotmail and only 5 million are enterprise.

It is amazing how 2 companies with such different numbers can file. All I hope is that both of these companies can meet the expectations of investors and deliver on their respective stories. What we all do not need is a return of the speculative IPO. Tim Oren and Fred Wilson both comment on the action this week.

Thoughts from PC Forum-going into attack mode

Once again, I am not going to blog the panels at PC Forum, but you can find some good commentary on the conference via other bloggers from my post yesterday. Other good posts can be found from Dan Gillmor, Jason Calacanis, or the PC Forum Eventspace.

However, what I would like to share with you is some conversations I had with some VCs and entrepreneurs over the course of the day yesterday. While the panels are interesting and the speakers can stretch your mind, what is great about PC Forum is the high-level networking that occurs during the day. So what did we talk about? There were a number of attendees who were here during the past few years and their businesses raised a fair amount of capital and somehow they managed to survive the nuclear winter during the 2001-2002 period. What allowed them to do it? What are the challenges they face now? One observation that I discussed with some others is that the very principles that made companies successful during the bubble period are the very ones that would land you in bankruptcy court during any other business period. Some of these principles included growing revenue and headcount at all costs with no focus on profitability and spending tons of money on building a larger than life image-lots of money thrown at PR firms and advertising with no idea of who your target market was or what your customer really wanted. In other words, alot of these companies were based on cool technology and not on making customers happy. On top of this, VCs threw too much money at these companies and there was no need for entrepreneurs to be resourceful and creative in order to get things done.

Let’s fast forward to now. The companies that survived this downturn were excellent at cutting costs, repositioning their products for new markets, and being resourceful and creative to survive. While these are some of the business principles I want my companies to continue to adhere to, I also want to caution that there is a danger in being too cheap. Some of these companies were so shellshocked from what happened during the past couple of years that they have become too cautious. For anyone that has been through the tough years, the only thing I can say is congratulations for surviving but now it is time to take some calculated risks. It is time to get out of the bunker and go into attack mode. Go after your competition, take some calculated risks, and focus on creating some revenue growth. What is different now than before is that most companies that survived the nuclear winter know who their customer is, how much they will pay, and what features and functionalities they may want in future versions. While it may sound like idle VC talk, I encourage you to spend that extra $$$ now as long as you can see the real ROI behind a targeted marketing program, the hiring of a new engineer to finish a product faster, or a new sales person to manage more qualified leads. Once again, take it with a grain of salt, as some entrepreneurs may think this is another VC swinging for the fences, but the point is don’t be too cautious because the opportunity may just pass you by.

PC Forum 2004-Monday morning

PC Forum is off to a great start this year with an interview with Eric Schmidt from Google and a panel with the CEOs of AOL, Yahoo, and Google. I do not plan on taking detailed notes so I suggest you view Ross Mayfield’s blog and posts to stay current on the conference. I also suggest visiting David Weinberger and Brett Fausett for more notes.

With respect to the first panel, I took some interesting notes on spam. AOL and Yahoo are doing all that they can to stop spam, catching high 90% of it. The frightening aspect is that the high amount of spam that you do see is only the 4-5% that is not filtered. AOL gets 2.7 – 3 billion spam messages per day which is trying to get into their system. Not a surprise that spam is a huge issue, but these numbers are. No one claimed to have a silver bullet, but rather advocated the use of multiple ways to overcome this issue.

Bruce Schneier had some interesting comments on the security and risk panel. Specifically, Bruce said that security is social and not about technology. Yes, there are technical causes and solutions for security but it is irrelevant if the social and economic model are not fixed. For example, there are plenty of spam filters out there but we still get tons of spam. The economics work for spammers. For users, it comes down to balancing security with the cost to mitigate the risk. People will make decisions based on economic value and cost. I totally agree here.

Next up was the CIO panel (Dawn Lepore, former CIO of Schwab, Shai Agassi, SAP, and Rafael Sanchez, Burger King). Dawn Lepore said that software is one of the biggest issues for CIOs. It is complex and costs are excalating tremendously. Software vendors and customers are diametrically opposed as the software vendors want to lock-in customers and the customers want flexibility. How does seeing an architecture diagram where the vendor’s products are in 12 places in a stack solve her business problem? Given this tension between vendors and proprietary lock-in, it is no surprise that open-source and open-platform technology and new business models like the hosted or subscription sale are spreading rapidly. The more you hear the panel talk about technology and the job of the CIO as being a risk manager, you can clearly see why it is so hard for an early stage company to land a big customer. Who wants to take the risk of buying a new technology from a new vendor? Yes, it happens but it is not easy.

I guess it is not a coincidence that a number of companies floating around sell to/service consumers as the first target market-companies like Onfolio, Eurekster, and Datapod.

The Globalization of Education

Jerry Colonna and I had an interesting dialogue on the topic of utilizing offshore resources. In the end, Jerry and I advocated that education is the key to long-term success for the US. Offshoring of jobs will continue to happen, and it makes sense economically. However, in order to maintain our lead in the US, we need to make sure to educate our children and workforce to move up the value chain so we can continue to innovate, design, create, and own our core Intellectual Property. I just had an interesting discussion with another PC Forum attendee about his daughter’s college application process. He mentioned that it is more competitive than ever and that leading universities had to turn down many applicants with great grades and scores. In his discussion with a leader at an IVY League university, he mentioned that the university could fill its entering class with students from mainland China alone without any adjustments to its admissions process. So China also clearly sees the value of Intellectual Property, and it will be interesting to see how this race to educate our societies develops. Of course, this raises larger questions about how our colleges and universities create the right geographic diversity amongst its student population. However this debate evolves, what is great about this country is that we do educate and train many foreign-born students who contribute immensely to our economy and help us maintain our competitive edge.

Lunch with Pat Cox-thoughts on offshoring

On Wednesday, I had the pleasure of attending a small group lunch in honor of Pat Cox, President of the EU Parliament. It was quite a treat as I got to hear his viewpoint on Spain, terrorism, immigration, and offshoring amongst other things. Since I tend not to write about politics, I thought I would share Pat’s thoughts on offshoring. As you know, in the US, there is increasing political pressure on offshoring and a movement to put legislation in place to prevent and slow this down. Offshoring is certainly a key issue in the EU as well, and Pat offered an interesting and growing perspective on offshoring and how to deal with it. Pat believes strongly that it is not about protecting jobs but protecting people. The jobs will come and go but to the extent we can protect people and train them and teach new skills then we will all be better off in the long run. I certainly share this viewpoint and would like all of us to figure out how we can contribute to this line of thought.

If you want to stay on top of all things offshore, I suggest that you visit a new site called Offshoreupdate.com. The site is currently an aggregator of offshore outsourcing stories, but it will soon begin publishing news stories. This is a perfect example of what Jeff Jarvis calls “microcontent.” Throw up a blog, some links, and some Google Adsense and see where it takes you.

Open source Router? Open source moves up the stack?

I finally got a chance to catch up on some trade rags and came across this interesting blurb from Network Magazine about XORP, the Linux of Routing. While an early project from UC Berkeley, I encourage you to take a look and keep it on your radar. This is yet another example of the potential commoditization of high-end products. Here is an excerpt:

“Since the routing code and the OS are free, the biggest expense will be the hardware. Commodity PCs make notoriously poor routing platforms, so they’ll need a sufficiently gast bus structure to boost their total processing and throughput. The recently standardized PCI-X 2.0 fits that billing, providing bus sppeds reaching 700,000 64-byte Ethernet packets per second. That’s good news not only on the performance front, but for the price tag as well. “A machine with 1GByte of RAM could easily be assembled today for less than $1,500,” says Orion Hodson, a XORP developer. By comparison, a Cisco 7304-Cisco Systems’ highest-grade enterprise router with software forwarding-runs $22,000.”

It is still early days for XORP and the platform still needs to address performance and security issues, but the point is that any software product with a large enough installed base can be vulnerable to open source competition.

Speaking of open source software, MySQL just announced a new version of its database which has built in load-balancing and automated failover so it can be deployed in large transactional environments. This is a big deal and grealy expands the market opportunity for MySQL and will better position it against Oracle and IBM. One other open opportunity for attack in the database market is the reporting and analytics end. One of my portfolio companies which I have written about before, Metapa, is leveraging open souce technology, mainly Linux and PostgreSQL, to deliver terabyte-scale data warehousing on a cluster of commodity hardware. The secret sauce is its proprietary Linux database clustering software which is “purpose-built” for Business Intelligence. In early benchmark tests, the product has shown up to 10-50x performance improvements over existing data warehouses run on traditional enterprise systems. So if I were an incumbent, I would be concerned about these developments.

Staying close to your customers with blogs and RSS

As I have said a number of times, I am a big believer that companies should start looking at how to use new technology and standards like blogs, wikis, and RSS/Atom from a product perspective and not solely for news publishing and aggregation. What do I mean by that? In response to a post I wrote about why I blog as a VC and the benefits of it, Brandon Wirth sent me a link to a piece he wrote about the future of customer relationships. In it, he summarizes by saying:

In the very near future there will be a trend to use Social Networking to create product communities. This will replace focus groups, and market research trends of today with direct interaction with those most likely to buy a given product. This is the American Idol for big business. Instead of trying to pick what the best solution is and betting the farm on it, you let the market pick a winner for you and they will already love the product before they have it. The focus becomes on the end user. They feel ownership in the creation of the product, and already know they want it.

Not sure I agree on the “American Idol” for big business, but the point of staying close to the customer is an important concept. I certainly see a world where companies use new technology and standards like blogs, wikis, and RSS to build a relationship with its users and to empower them to participate in a company’s success. This conversational based approach to dealing with customers is a great and EASY way for companies to share information on new features and releases and get constructive feedback on their products, receive new ideas, and frankly hear about the gripes. All this should help companies build a better relationship with customers and gather real-world data. While the example Brandon uses is a consumer one, I also greatly believe that this applies to infrastructure software as well. As I mention in an earlier post, it is too easy for companies to get enamored about their technology and to forget that end users need a great experience. Building fanatical user communities is not a new idea, but the point is that new standards and technology make it easier for companies to create, manage, and leverage them in a frictionless and organized way.

Along these lines, Jeff Nolan just put up a new post on his LinkedIn experiment. And in it, he praises Reid Hoffman, CEO of LinkedIn, for paying attention to blogs and dealing with Jeff’s experiment in a highly positive way. I encourage reading this post as Jeff has some great comments on how companies can deal with bloggers and why it is another important source of information and feedback.

Hiring Talented Sales People

As you can see, I have been spending alot of time with my portfolio companies hiring in a number of functions to create growth. That is obviously a good sign. Hiring is such an important skill, there is no science to it, but research and common sense help. I am sure you remember the old adage, hire slow, fire fast. Anyway, when it comes to sales people, let me give you a rule of thumb-never hire sales people that have stuck around in a declining business for too long. Any sales person worth his weight wants to be where the action is, and if the company is not growing, the TALENTED PRODUCERS ALWAYS LEAVE FIRST. It may sound like I am being master of the obvious, but sometimes it is hard to remember this, especially since many sales people interview well. Do your research on their background and the companies at which they worked. Be extremely careful about the candidate that rode a company from $40 million of revenue down to $10 million because you can bet that if the guy was hungry and talented, he would be somewhere else!

Building your business around customers (continued)

Forgive me for being obsessed with customers, but after all, without them, how can you have a business. Anyway, I was interviewing a VP of Engineering candidate for one of my portfolio companies, and when I asked a question about the most significant lesson that he learned from one of his prior jobs, this was his thought-while the core technology is important, focus on providing the customer with an unbelievable user experience straight out of the box. What will the customer see and touch first. Start with the installation process. Make your product the easiest to install. If it goes smoothly and quickly, if you can do it plug and play or remotely, the customer will already begin to have a pleasant experience with your product. Make the GUI as user-friendly as possible. If it is as intuitive as using your email or browser, then it will make it easy for the customer to get the team using it with minimal training. Finally, make it easy to manage. Have a nice management console that allows an end user to administer the system, update it, and manage multiple licenses as simply as possible. So while having great underlying core technology is important, everyone will be selling technology and features and function. What many companies forget early on is that having a great customer experience can provide real differentiation and can often mean the difference between success and failure in competitive markets. As for the VP of Engineering candidate, he is on the shortlist as it nice to see someone with the experience to build product and manage teams but also think from a business-oriented perspective