• Technology companies cater to Wall Street interests too much often at the
  expense of good strategy.
• Isn’t what a company does for customers and developers more important than
  shareholder interests?
• What’s wrong with being a mid-size technology company if customers and employees are happy and the products–software, hardware, services–fit a need? There’s nothing wrong with it, but Wall Street would lead folks to believe that any company that isn’t acquired by Oracle isn’t worth existing.
• And why are we listening to Wall Street at all given that analysts, investment bankers and other financial wonks can’t even manage their own businesses (subslime, credit swaps, write-offs galore)?

Even as I do agree that the recent focus on shareholder's (short-term) returns is probably misplaced, the real problem is elsewhere.

What Does The Company Stand For?

The problem with Yahoo! is not just its mediocre financial performance compared to its more successful cousin in Mountain View - Google, but that Yahoo! does not seem to stand for anything and rarely arouses any passion amongst customers, employees or partners. Its a listless organization that seems to be going through the motions - see this excellent post by Jeff Nolan.
Marc Andreesen recently wrote up an article praising dual-class structure to help management teams prevent hostile takeovers. I believe this is the wrong remedy - its a cure for a disease that should be prevented in the first place: A lack of clear vision around what a company is trying to achieve.

A company (and its management team) deserve to be independent as long as they inspire confidence among investors, employees, parters and customers that the company has a vision that it aspires to that the stakeholders can commit to.

After all, what does Yahoo! stand for? A hodge podge of websites relating to entertainment, communication, search etc with no grand vision of changing our (digital) lives. There are hundreds of smaller companies that are not under any duress to be acquired because their management teams inspire confidence around a vision.

Here is a list of companies that I don't know what they stand for, and hence will not have shareholders clamoring to keep them independent if the right opportunity came along:

• BEA (Sold)
• Yahoo!
• Tibco
• WebMethods (Sold)
• IAC (Bought/Sold/Consolidated/Unbundled)

Contrast this with list with:

• Salesforce.com (Changing the enterprise software world; See my disclaimer)
• Google (Organizing World's Information)
• Amazon (Changed Retail, Now Web Services)
• COST (Concur, Omniture, Salesforce and Taleo - the SaaS horsemen, per Phil Wainewright)

The same holds true beyond technology businesses - if your company does not stand for something bigger than management's entrenched interests and egos, its not very likely to inspire shareholders to forgo a 50% overnight return.

There is a story of two labourers working at a construction site, breaking stones. A passer-by asked one labourer what he was doing. “Breaking stones”, was the bored reply. A few yards down the road the traveller came across the other labourer. This worker was different; there was a spring in his steps and a tune on his lips. So the passer-by asked, “What are you doing?” “Oh, I am helping Christopher Wren to build the greatest cathedral in the world.” The vision of the great architect, Sir Christopher Wren, of building a cathedral that was to be the pride of England, gave meaning to the labourer’s work.

So, the question is: Do your stakeholders see your company as a stone-breaking venture or as a company that's building a Cathedral?

India is Ready

There was genuine appreciation about how difficult and wasteful it is to currently build, deploy and manage software applications. This is especially true for IT outsourcing firms that month after month see ISVs and IT departments of large enterprise burn time and money on infrastructure and platform, delaying and risking delivering business value to the end users.

Across Generations

India is a country of young people – over 50% of India’s population is under 25. And presenting to various audiences – I couldn’t help but wonder how many in the audience can even remember what computing without connectivity was like. The shift from client-server to SaaS comes naturally to this generation.

More interestingly, the senior executives and technology gurus – some that wrote compilers in 1980s by hand – were even more excited about this shift. The questions and discussions revolved around how to navigate this shift and understanding the new evolving SaaS ecosystems and not whether the shift is underway.

Here is a sampling of questions:

Is There a Whitepaper on SaaS?

Yes, we do have whitepapers on SaaS and PaaS. However, whitepapers are so 90s – I encouraged our audience to learn through building and engagement with the community – blogs, online forums, how-to wiki’s, informational videos.

What Kind of Applications Can I Build on PaaS?

Even as salesforce.com started out as a CRM company, the Force.com platform is being used by our customers and partners to build out applications that cover wide variety of solutions be it Finance and Accounting (Coda), Risk Management (Riskonnect), Life Sciences (Verticals OnDemand) and many others. Business Applications that are data and process driven is where Force.com provides the most value today

What about Security?

No one asked this question – so I thought I will mention it. This question that resulted from both genuine apprehensions and FUD created by certain vendors that did not have SaaS capabilities is increasingly becoming a non-issue. I think there are two reasons for this: First, as customers use more and more SaaS applications their experience invalidates the concerns. Second, initiatives such as trust.salesforce.com that educate and inform have re-assured the community of users, developers and investors.

Really?

Yes, this question was asked a few times. For example, when I explained that Force.com is multi-tenant not just for our direct customers but also for all applications written by end users and partners – and that everyone is on the latest version of the software. The response is: Really?

Salesforce.com’s success with the platform in releasing as many as 25 major releases in last 8 years – and comparing that to once in 3 to 7 years cycle for legacy software vendors also draws a: Really?

So yes, really!

The proof is in the pudding – you are welcome to get a free developer login and build an app.

From The Economist: The bust begins

... finally, tighter credit and overstretched household budgets are pulling prices down.

A collective shudder ran down the spines of British homeowners on Tuesday April 8th when Halifax, a part of HBOS and the country’s biggest mortgage lender, revealed that house prices fell in March by 2.5%.

And just like in the U.S., transaction volume is declining, and inventory is increasing:

... both the Halifax and Nationwide are predicting “modest” declines in house prices this year. Forward-looking indicators suggest a gloomier picture. The number of mortgages approved for house purchase was almost 40% lower in February than a year before. According to the Royal Institution of Chartered Surveyors, estate agents have been grappling with the worst conditions—measured by the ratio of completed sales to unsold stock—since September 1996.

The housing bust is going global.

“Apartment sales have gone down by 20 to 30 per cent in Mumbai. Developers are doling out goodies like stamp duty relief, free parking and interiors to boost sales,” said Rajiv Sabharwal, head, retail assets, ICICI Bank.

Crucially, developers are not cutting prices.

“Developers can not cut prices because once you do that, it signals the start of a downward spiral. They are holding on to the prices to maintain the momentum,” said Rajesh Mehta, a leading property consultant in Mumbai, adding: “April and May are the key months as far as property deals go. If transactions do not pick up, prices of apartments will fall at least 10 to 15 per cent”.

by avlxyz (CC)

• Reliability: How do you ensure that the SaaS Franchisee has architected its end to end systems to provide reliable service?
  
• Security: What kind of processes are in place to ensure data is not lost?
  
• Performance: How will the brand owner ensure that the SaaS Franchisee provides the right performance?

1. Data Loss vs. Money Loss: Data is lost when someone performs a successful read operation without your permission. If I read your mental health records, I don't have to steal them. With bits and bytes, reading is stealing. With money, not so much. Just because you know my bank balance, I haven't lost my money. (Yes, there is loss of privacy and trust is eroded but its not the same. You don't call a cop because someone read your bank statement but if I read your critical health data you would have to call the cops.)
2. No FDIC: A small bank or cooperative can be insured by FDIC and therefore provide sufficient protection to a customer but with SaaS you are relying on the trust earned by the brand. How comfortable do you feel having your data in a Uncle Billy's HealthCare On-Demand App that runs on software from NanoSoft?
   

Courtesy: by emergent007

• Focus on Innovation, not Infrastructure: Starbucks could have spent its own time and resources building out the infrastructure, renting bandwidth and compute capacity etc. but it instead chose to focus on customer feedback and was able to deliver greater value to customers (and therefore shareholders), faster.
• Simple is Beautiful: Starbucks website is really simple to use. A few neatly placed icons tell users exactly what to expect. You can view the ideas without creating a login. Voting and commenting require a login which makes sense.
• Business Value: For the budding technologist who wants to be an entrepreneur - notice how a simple concept forums+voting can become a great product/service. I have often met technologists who are looking for the hard problems to solve rather than looking for simple solutions to real business problems.

• Do you feel like that others must loose for you to win?
• Can you identify 3 other people whose success will bring you greater reward/success?
• Do you play for something - a team, mission? Or do you better when you are up against an enemy?
• When you have a great day, are there people at work who you can walk over to and share your success with? Would a great day for you mean - they achieved something? Or would it mean - they lost?

• Condos in New Delhi, India: 2-bedroom, 1000 sq ft apartment for $200,000. [$200 per sq ft] (Source: 99acres.com)
  
• Condos in Chicago, USA: 2-bedroom, 1000 sq ft apartment for $400,000 [$400 per sq ft] (Source: Google Housing)
  

• Agricultural land in Faridabad, Haryana (adjacent to New Delhi much like New Jersey is to New York): $250,000 per acre (source: 99acres.com)
  
• Agricultural land in New Jersey: $12,000 per acre (source: USDA, and for comparison its $6,000 per acre in California and $8,000 per acre in Florida)

"Most people told us house prices never go down on a national level, and that there had never been a default of an investment-grade-rated mortgage bond," Mr. Paulson says. "Mortgage experts were too caught up" in the housing boom.

In several interviews, Mr. Paulson made his first comments on how he made his historic coup. Merely holding a different opinion from the blundering herd wasn't enough to produce huge profits. He also had to think up a technical way to bet against the housing and mortgage markets, given that, as he notes, "you can't short houses."

Source: msmobiles.com

Source: Microsoft Watch

Source

Henry Blodget Timed It Again Perfectly In October
Image Source: Yahoo! Finance

Blue Ocean Strategy

The metaphor of red and blue oceans describes the market universe. Red oceans are all the industries in existence today—the known market space. In the red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known. Here companies try to outperform their rivals to grab a greater share of product or service demand. As the market space gets crowded, prospects for profits and growth are reduced. Products become commodities or niche, and cutthroat competition turns the red ocean bloody. Hence, the term red oceans.^[3]

Blue oceans, in contrast, denote all the industries not in existence today—the unknown market space, untainted by competition. In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid. In blue oceans, competition is irrelevant because the rules of the game are waiting to be set. Blue ocean is an analogy to describe the wider, deeper potential of market space that is not yet explored. ^[4]

The corner-stone of Blue Ocean Strategy is 'Value Innovation'. A blue ocean is created when a company achieves value innovation that creates value simultaneously for both the buyer and the company. The innovation (in product, service, or delivery) must raise and create value for the market, while simultaneously reducing or eliminating features or services that are less valued by the current or future market. The authors critique Michael Porter's idea that successful business are either low-cost providers or niche-players. Instead, they propose finding value that crosses conventional market segmentation and offering value and lower cost.

The event itself signals Oracle’s increasing awareness of its opportunity to become a leading supplier of the building-blocks for Saas infrastructure. There’s been a big turnaround in Oracle’s public pronouncements on SaaS in the past year, culminating at Oracle OpenWorld with the announcement of its new CRM On Demand products and a restatement of its commitment to the on-demand model. Meanwhile, the company has been drawing together the ingredients of what it now calls the Oracle SaaS Platform, which aims to package up a range of Oracle products into a coherent platform that ISVs can build their SaaS offerings on. As I mentioned when I wrote about Eight reasons SaaS will surge in 2008, the proliferation of SaaS platforms from major vendors will be a big factor in bringing more and more SaaS offerings to market in the coming years, and it’s a theme I’ll be discussing in my presentation on Friday.

• The increased adoption in the near term should deliver sufficient profits for the sellers of HD DVDs who can set aside a small %-age of the revenues to pay for the replacement, if it comes to that.
• This bet is even more lucrative for the format that has a higher potential of winning (HD DVD?). They could accelerate the adoption and it would be hard for the loosing format (Blu-Ray) to offer the same guarantee.
• To keep costs low, HD DVD vendors could offer the guarantee for an additional fee ($1) or conversely bundle it in cost and offer discount if you don't buy the guarantee.
  
• Alternatively, there could be a small fee of say $1 or 2 to cover the cost of converting content from one format to another.
• None of this solves the sunk cost of the player but that is smaller concern for customers than the cost of DVDs.
  

• Ignore Apple and pretend the world is flat. Or round. I hate Friedman for killing this metaphor.
  
• Build great looking PCs and Notebooks. This is harder than it sounds. And even when companies succeed with products like Sony Vaio and HP's latest Notebooks, they invariably end up only competing with Apple. Also, the PC vendors are limited to hardware improvements. If I am going to pay a premium, why not get the real thing?

• Replace all taxes with "FairTax": The name Fair Tax notwithstanding the proposed tax would essentially be a national sales tax. The unintended (or unseen) consequences of this could include consumers buying more second-hand goods or even conducting transactions in tax without reporting them. A simple taxation system could also mean its simpler to avoid taxation. The incentive to cheat would be much higher given that the proposed fair sales tax would be around 20%+. I am all for reforming the tax code but any time a huge change like this is proposed I am worried about unintended consequences. For example, the rich could spend more of their time and money in foreign countries while earning in the US. Take your (much maligned) hedge fund trader who could do his job in London as well as in New York and compare that to the Wal-Mart clerk. Doesn't seem fair to me!
• Immigration: He wants to crack down hard on illegal immigrants and employers. Although, I agree that enforcement of laws needs to be strengthened there seems to be very little emphasis on immigration reform. By way of example, he wants to eliminate the visa category for brothers and sisters of citizens - I don't understand why this is a key issue. After all, does pro-family stop at the border? He does propose to increase the visas for highly skilled and highly educated immigrants - I support this increase but few highly skilled and highly educated immigrants want to live in a country that doesn't let their spouse, siblings or parents in. Germany tried a restrictive program to attract top talent from countries like India and the program was a failure.
• Marriage and Sanctity of Life: Huckabee wants to define marriage. As a union of man and a woman. I am relieved. I guess this is a huge problem. Why bother with real issues like poverty, climate change or disease when you can define marriage.
  

1. Google Will Decide Against Doing Something: After years of saying yes to every problem they seem to encounter and even some non-problems (Google Products, Google Checkout, Google Base), Google will finally refuse to do something. As a wise person said - Don't Just Do Something, Sit There!
   
2. Steve Ballmer Gets Fired: Bill Gates will go on one of those famous one week sabbaticals and come back with a realization that his college buddy has not been able to defeat Google, kill Apple or even Yahoo! He will then ask Steve to become the Chief Motivation Officer while he hires a young silicon valley executive to run the company.
   
3. Chinese Currency Skyrockets, American Exports to China Boom: After reading Taleb's book (Black Swan), the Chinese premier realizes that there policy of keeping the currency artificially low is like picking up pennies in front of a tank (sorry for the metaphor but its Taleb's not mine). In order to mitigate the risk of a blow up in future, China allows Yuan to float - and it sinks nonetheless (despite the term "float").
4. College Enrollment in Computer Science Shoots Up: Thousands of college kids realize that learning computer science is a much shorter path to success and with better odds than trying to become the next Britney or Angelina Jolie. The trend is even more surprising when the students signing up include more girls than boys.
5. Telcos and Banks Offer Transparent Fee Plans (and IRS Follows): After realizing the folly of their ways, mobile phone companies and banks decide that alienating customers is not the best way to win friends and influence people, or make money in the long run. So they decide to provide clear documentation in an easy-to-use format for their rates and fees. IRS takes the hint and also decides to hire ex-Telco and Banking executives to restructure the IRS Code.
6. Democracy Returns to Pakistan (and Russian Democracy Thrives): The elections in Pakistan turn out to be exceptionally well conducted. The winners and losers accept the verdict and Musharraf allows the newly elected Prime Minister to actually run the country while he stays the titular head. Meanwhile, Putin continues to let freedom reign as capitalism and democracy thrive. (A note: I wrote this on December 27th and I am leaving it in despite what has unfortunately happened in Pakistan yesterday with Benazir Bhutto being shot dead. Irony sometimes turns into tragedy.)
   
7. Wall Street Firms Re-organize to Curb Excessive Risk-taking: Major banks and other financial institutions realize that the problem with mortgage blow-up was not just because of inflated house prices or lenient lending but there is an underlying more perverse cause - the incentive structure for the players rewards risk-taking (article by Taleb in PDF). The problem is that the bonuses are paid out annually and no matter how much money I loose in one year, my pay out can not be less than zero (I can loose my job in worst case scenario). This means that employees think in one year cycles (or few year cycles) while the investors (especially the naive retirement account holders) are in it for the long-term. Once identified, the problem is addressed with fees and bonuses that are held in escrow over a period of 10 to 15 years. The escrowed funds are invested in the very same investment vehicles!
   
8. No New Platforms in 2008: Technology companies realize that there are enough platforms in every conceivable market and niche from mobile computing to social networking. So, venture capitalists stop funding any startup that aims to be a platform for anything. All new ventures (whether funded by VCs or not) aim to solve real problems. After all someone needs to build apps on top of the dozens of platforms out there.
9. Three New Text-based Communication Formats: After the success of blogging, twittering, instant messaging, Facebook Wall, Orkut Scraps venture capitalists continue to fund new formats for communicating in text. As a result, 3 new formats will become popular with variations on the length of allowed messages, where you have to go to fetch these messages and how often they interrupt your life. At least one of the 3 formats, will become so pervasive and frequent that Twitter will seem so last generation and slow. Psychiatrists will come up with a new term (Polytextphilia) to describe this new form of online addiction and will offer treatment using latest Web2.0 technologies. Patients can subscribe to online newsletters, sign up to receive RSS feeds of de-addiction reminders, become Twitter friends of the psychiatrist, join Google Groups to get support and blog about their experience. (I have to stop, irony police called).
   
10. None of My Top 9 Predictions Come True: This is my insurance. If this prediction is true, I got one right. If I get this wrong, at least one other came true. Either way, I get to write a post in 2008 claiming that I predicted the future accurately. And if I have learned one thing in 2007, it is how to look at risk. Thank you, Taleb.
    

Warren Buffett

How to Minimize Investment Returns (and what value hedge funds add!)

It’s been an easy matter for Berkshire and other owners of American equities to prosper over the years. Between December 31, 1899 and December 31, 1999, to give a really long-term example, the Dow rose from 66 to 11,497. (Guess what annual growth rate is required to produce this result; the surprising answer is at the end of this section.) This huge rise came about for a simple reason: Over the century
American businesses did extraordinarily well and investors rode the wave of their prosperity. Businesses continue to do well. But now shareholders, through a series of self-inflicted wounds, are in a major way cutting the returns they will realize from their investments.

• Diamond Necklace for your Love: Guess what, she would love the iPhone more even if its not forever. (Okay, so she probably wants both.)
  
• Expensive Shoes: With an iPhone in your hand, your friends will be eating out of the palm of your hands. Who looks down?
• Employee Bonus: I recently asked a few friends in an informal survey - what would they be more happy with a 2% bonus increase or a new iPhone? These are all math and engineering whizzes earning over $100K and the answer was uninanimous - an iPhone. If I were an employer, I would be giving out iPhones not cash.

But these days, for all the outside adoration and all of its innate strengths, Italy seems not to love itself. The word here is “malessere,” or “malaise”; it implies a collective funk — economic, political and social — summed up in a recent poll: Italians, despite their claim to have mastered the art of living, say they are the least happy people in Western Europe.

We have an economy that is five times as large as either of these - six billion to be precise. The car by India's Tata or the software by China's Kingdee has a very limited chance of being bought by people outside of their respective billion people markets. The Apple iPod has a potential market of 6 billion. The Microsoft Windows has a potential market of 6 billion.

Oracle has indeed established a leading position in the market for SaaS platforms. Independent Software Vendors are attracted to Oracle's product for its scalability, security, and productivity inducing development environment. The functionality of this SaaS platform is further augmented by its ability to manage and meet Service Level Agreements, a vital facet of the product for most SaaS vendors. [Read full report here (PDF)]

1. The amorality of Web 2.0: He believes that the Web2.0 is amoral. He clearly refuses to acknowledge the genocide in Darfur. What's next, support for Al Qaeda?
2. Sharecropping the long tail: In this piece that reflects gross insensitivity to the long history of sharecropping's association with slavery (see Wikipedia entry), Nick tries to advocate this egregious practice.
3. The ignorance of crowds: Oh, how easy it is to make fun of the average. Does he not know that 50% of Americans are below average? How can he turn his back on half the nation that has given us so much.

Sexy Diane Keaton

1. Virtualization: A data center that has fewer wires, requires less energy and is easier to manage is nothing short of an IT dream.
2. SaaS: Ability to rapidly deploy new functionality without having to buy new hardware and go through lengthy implementation cycles - its sexy the way a husband cooking dinner is sexy way for a wife. Again, it takes a certain eye and maturity.
   
3. Visibility: Call it Business Intelligence, Business Activitity Monitoring or Complex Event Processing, the ability to have both senior executives and employees performing the actual tasks be able to get actionable intelligence is huge.
4. Collaboration: I recently attended a Cisco telepresence session and I don't care who you are and what you smoke, that stuff is outright sexy. And so is Oracle's Social CRM.
5. Transactions: Yes, age-old transactional applications. When they just work, its sexy. The way a plain perfect old black dress just works.
   

Oracle has indeed established a leading position in the market for SaaS platforms. Independent Software Vendors are attracted to Oracle's product for its scalability, security, and productivity inducing development environment. The functionality of this SaaS platform is further augmented by its ability to manage and meet Service Level Agreements, a vital facet of the product for most SaaS vendors. [Read full report here (PDF)]

Further, we would not be surprised to see the first acquisition of a major US broker or commercial bank by an emerging market institution. While most US brokers and some US banks have broadened their geographic presence over the past decade, none has developed a truly robust Chinese or Indian offering. With these economies growing at multiples of the US, we would not be surprised to see a larger international bank attempt to gain access to the US financial services community through acquisition.

• Clearwire is a WiMax company in US that is struggling due to the break up of the Sprint deal.
• Reliance is India's largest conglomerate with a successful Telco business and market cap approaching $100 billion (yes with a B).
  
• ICICI Bank is India's largest bank.
• Goldman Sachs is one of the few large banks/brokers that has come out ahead through the mortgage fiasco.