On page 16 of the July 3rd BusinessWeek, I noticed a short article in the Wired Life section titled “Teaching The Press Release A New Trick.” I was kind of hoping it would say something like “don’t bother with press releases anymore.” Oh – how wrong I was. BusinessWeek was crowing about SHIFT Communications new “Social Media Press Release” template. At least Jack and Suzy Welch are podcasting – maybe the two things will balance themselves out (or not.) And – if you ask why I’m reading the paper copy of BusinessWeek – a guy has to have something to read in the bathroom.
No – this isn’t going to be a post about the father, the son, and the holy ghost.
I’ve done a number of investments in the past few years that have three possible constituencies: (1) subscribers, (2) publishers, and (3) advertisers. While I won’t try to map them to a particular member of the trinity, they share one thing in common with the trinity – if you believe in them, they are all critically important.
Early in my career, I ran a custom software company. We built PC-based business applications primarily for small and medium size companies back when dBase II was considered state of the art and a Novell fileserver took 24 hours and 600 disk swaps to build (assuming you had the right drivers for v2.0a.) We had our equivalent trinity: (1) cost, (2) speed, and (3) quality. After a while, we learned that we could solve for two of these, but not all three. So – we started explaining to our customers that we could deliver on any two of cost, speed, and quality, but not all three.
I’ve been pondering the same trend today, just with a different set of constituencies. The metaphor is a little different this time around – I’m finding most successful companies serve one constituency and get paid by another. For example, Google serves the subscriber (or user – although I prefer to call end-users “subscribers” in this metaphor because I think you can map “user” to any of the three categories) and gets paid by the advertiser.
Interestingly, I’ve run into a number of companies that can’t decide who they are serving and who they are getting paid by. In a number of cases, I’ve run into people that think they are serving all three but getting paid by none, or who present potential revenue models to me where they get paid by all three. Now – a company can have different segments of their business where they shuffle the constituencies around (Microsoft is a classic example of this) – but this is really hard for a startup.
As with my experience with my first company, I’m finding that when companies understand how they are serving their constituencies, they are much more effective at accelerating their business. It also makes partnering a lot easier, as you know that someone who serves the member of the trinity that you don’t should make an easy partner (e.g. neither of you is a threat to the other), while someone that has perfect overlap with you is a more difficult partner to solve for.
Time to go pray (I mean work.)
Niel Robertson just pointed me at retrievr. It’s pretty cool – you do a quick sketch and it searches Flickr and matches it to images. You can also upload a picture and it’ll do the same type of match. Of course, none of my sketches seem to have much correlation to the images it returns, but I’ll attribute that to the sketcher (me.)
Jim and I are using Writely to collaborate on our Board of Directors series. I had some character interpretation problems between Writely and Movable Type – they were similar to problems that I had posting from Flock a few weeks ago. Basically, ampersand based HTML codes come across fine in the HTML, but get interpreted / built incorrectly by MT. Thanks to the magic of Google, I found the problem and a potential solution in about 18 seconds. This is a test, to see if the problem is fixed. The following apostrophes should look correct: “This is a test’s of the apostrophe’s warning system’s.” The grammar should not be correct.
Unfortunately, I can’t figure out how to get the title or category “right in Writely.” Maybe tomorrow.
No – I haven’t read it yet (just the summaries.) Yes – I probably will (read it.) However – until then – Chris Pirillo has the best word on the Friendster patent so far.
The partners of Union Square Ventures (Fred Wilson and Brad Burnham) recently had a “Union Square Session” on “Innovation, Entrepreneurship, and Public Policy.” In these sessions, they get together some of the smartest people they know around a topic to spend a day talking about a set of issues – in June, one of the subjects of the “Innovation, Entrepreneurship, and Public Policy Session” was patents. I was on the road and wasn’t able to join them, but I was interested to see what came out of it.
There’s a short summary up on the Union Square Ventures website titled “Do Patents Encourage or Stifle Innovation.” Fred referenced my post “Abolish Software Patents” and his subsequent post “Patently Absurd” as starting points for the discussion.
While the summary is interesting, the actual transcript of the session is fascinating if you are interested in this issue. It’s relatively short (16 pages – less than 15 minutes of reading time.) In it, you see three different perspectives: academic, legal, and entrepreneurial in conflict generally about the patent system, whether or not it is an effective and appropriate mechanism for protecting intellectual property, and how it could be improved.
My original post focused specifically on software patents and my ranting against the patent system continues to be limited to software patents. While some of my perspective can be generalized, I don’t know enough about the fundamental dynamics of other industries (such as biotech) to either have a strong feeling or any credibility discussing these areas. However, I believe I do with regard to software (I’ll leave you to be the judge of that.)
After reading the transcript, I came away feeling more strongly than ever that software patents should be abolished. All the counter arguments – especially about creating a liquid market – sail right past the key point of the difficulty with software patents – a requirement that the patent be non-obviousness or that there be no prior art. I’ll restate the central point of my original argument – I’ve carefully read hundreds of patents (yes, parts of my life are extremely tedious and boring) and most – if not all – of the software patents that I’ve read fail either the non-obvious or the no prior art requirement.
However, once a patent is granted, it’s now a property right and the only way to deal with it is to pay for the right to use it or to litigate against its validity. For a young, cash strapped, entrepreneurial company working on new innovations, paying for the right to use something that you believe shouldn’t have been patented in the first place is effectively the equivalent of a regulatory burden which is well known to stifle innovation. Your alternative to litigate in advance of creating your innovation is impractical – it’s almost certain that you won’t have the financial resources to do this. For a large, cash rich company that employs lots of lawyers, creating more property rights (e.g. patents), even if they are bogus, is now part of their business process.
All of the current argument in favor of software patents presume that software patents are legitimate. If 99% of them were, my argument wouldn’t be valid. However, my guess is that – if subjected to a deep, open, and all inclusive review approach like the one that John Funk recently proposed – less than 1% of software patents would stand. Even if I’m wrong and it’s 80/20 or even 50/50, I believe my point holds. If your property is illegally or inappropriately gotten, you should not stand to profit from it. If you think you should because of “the system” or the lack of expertise / ability / time / whatever of the current patent system, just go read Atlas Shrugged again for a doomsday scenario.
I think this is a hugely important debate that will have a profound impact on the software industry over the next 20 years. I know I’m taking an extreme position – that’s deliberate – in an attempt to really generate debate on this. Interestingly, the reaction from people deeply involved in this issue – including several academics and lawyers – seems to be split 50/50 – half of them tell me how naive I am; the other half nod their heads up and down vigorously. Whenever there’s such a split in consensus, I think it means I’m on to something.
Quest Software has been competing with Mercury Interactive for a number of years. In the past, several of Quest’s strategic moves clearly positioned it as a alternative to Mercury. However, last week, they ended up being similar to Mercury in a way they most likely weren’t happy with and never anticipated. Quest announced that it will have to restate its finances from 2000 to 2005. The stock dropped some, but will likely hang out where it is until this plays out more.
In response, a friend dropped me a note with a new public company option pricing strategy. As we now know, many of these companies went to great (and in some cases illegal) lengths to get the best possible option pricing for their employees – often disproportionately so for their executives. Now that this information is coming to light, the new strategy is:
Hopefully the irony of this won’t be lost on anyone.
We’re at our house in Homer which doesn’t have a TV (by design). Amy loves watching tennis and wanted to watch Wimbledon. Our Tivo at our house in Boulder broke in May and we haven’t bothered to replace it.
The intrepid nerd decided to BitTorrent Wimbledon for his darling bride. Imagine my shock and horror when I basically couldn’t find any Wimbledon BitTorrents. There were plenty of TV shows, as well as lots of porn, but no tennis. I sulked around for a few minutes and then decided to head over to the Wimbledon site to figure out the times / channels to ask Ross to record for me, burn a DVD, and fedex.
Imagine my glee when I found – front and center on the Wimbledon Video page – an all access pass for a mere $12.95 (it’s been reduced to $5.95 now that Wimbledon is over.) Everything, every match, every court – $12.95. I was shocked for a second time in an hour when the DRM worked perfectly and the quarter final match Amy wanted to watch started downloading.
Within a span of 30 minutes my world view (and mood) did a 180. Today, I cancelled my DirecTV subscription and decided not to fix my Tivo. Plus, Amy is very happy with me.
I’ve been watching the backdating option scandal unfold with the same horror that someone watches a slow motion multi-car pile up (or maybe the space shuttle exploding on takeoff.) A few folks have been writing interesting stuff and/or have useful links (such as Paul Kedrosky) and it’s been widely covered in several mainstream publications, most notably the Wall Street Journal.
Mercury Interactive – the company that was the first one to have to deal with an investigation into this issue (the first shoe fell with an 8–K they filed on 11/2/05 announcing the resignation of their CEO, CFO, and General Counsel ) finally filed their restated 2004 10–K this week. While a careful read of it is instructive for anyone following this issue in general, Jack Ciesielski has a fantastic summary of the major issues up on SeekingAlpha in his post titled Mercury Interactive: Less Murky But No More Forgivable.
One of the important facts is that a number of the restatements will ultimately have a cash impact since they result in underreported withholding taxes. Several articles that I’ve read that have been dismissive of this issue have asserted that all the charges will be non-cash so this isn’t really a big deal. I’ve never understood that perspective (I thought we already learned our lessons about cash and non-cash charges in the telecom and dotcom meltdown), but this just guts that argument altogether.
Unfortunately, this car crash is far from over.