broadstuff

I am fascinated with the concept of VRM (Vendor Relationship Management) and have been an irregular regular (or is that regular irregular) for some years.VRM is the idea thhat the user owns the data about themselves,and uses the data inexchange for better dealsfromthe seller. Obviously, it works better if more data is given, and also if more users can aggregate their demand. Thus this play by Loopt caught my eye - Business Insider:

That's the idea behind Loopt's new "u-Deals" product, which it's rolling out first in the San Francisco Bay Area. It's sort of the reverse Groupon.

The big idea: You come up with a deal, get your friends on board, and submit it to Loopt. They'll then try to get their sales team to get the merchant to give you the deal. If it works, you get the deal.

It's an interesting idea. Will it work?

People will have to be realistic about the size and value of the deal, otherwise it's a non-starter.

And better, more desirable merchants probably have no incentive to cut their prices, unless they can fill their shops up during slow times.

I thinkthat'sapretty good summaru of the issues - in Dotcom 1.0 a number of the aggregationsites (or C2B as they were also known) were mooted (some were even floated, iirc) but it all fizzled out as it seemed that toet a bunch of "C" side people to agree on their demand proposition was like herding cats- it still seems easier for a retailer to"propose" a proposition and consumers to react.

However, the thing that keeps me interested in VRM is that part of me thinks that if (i) the power of today's web was harnessed (ii) with modular product design ansd (iii) the sheer numbers onlinenow, it may become a reality.

One to watch.

I am watching with some fascination the emerging story of the 2012 London Olympics ticketing approach - from a strictly game theory point of view, you understand

The background is the following - UK citizens, especially Londoners, are subsidizing these games to an amount far greater than the officially admitted of £3bn (original estimate £700m....)

They have been allowed to apply for c 3m tickets as a first tranche, using a rather curious lottery system. In essence, 1.9m people sent in c 19m bids for these tickets. You had to bid at once, for everything you wanted, hence the overbidding. The outcome was also rather curious - 700,000 people got about 4 tickets each, 1.2m people got nothing.

LOCOG, the Olympic society, claims that this was the fairest approach, and is trumpeting an "average" of merely 4 tickets per applicant. It isn't of course, as only about 33% got any at all. The "average" is actually more like 1.5 tickets per person, the "mode" is zero, the "median" is none, and the distribution is thus very highly probably a power distribution with the rich getting richer etc etc.

The winning game theory of the lottery thus becomes clear - those that can afford to risk a large bet were going to win, those millions of less wealthy souls who cautiously bid for what they wanted were far more likely to get nothing.

LOCOG claim this isn't the case (but so far have refused to show the actual allocation distribution, just a very vague non-sensical description*), but I'm buggered if I know how a theoretically random lottery would give me any other outcome. And it it was filtered, why not maximise by number of applicants?

And Unbeknown to UK people, at the same time tickets were being sold normally in Germany and other countries at the same time. So clearly an auction was not the only, nor even optimal, approach to actually selling tickets.

If this sounds odd to you, it also sounds odd to many applicants. Despite reassuring noises from LOCOG that the demand was unpredictably large (wtf? Country of 60m people, one Olympics per generation....) and no other system would be fairer, and the MSM being roped in to bland things over, a rather large rat is being smelled..... It also appears that that the number of tickets on sale to joe public for key events (like the opening) were pitifully small, since much of those have been given to vested interests, (aka "sponsors"), as opposed to the citizen taxpayers funding the olympics (aka "suckers")

Anyway, a "second opportunity" has appeared to buy tickets in a weeks time, mainly of the football tournament and expensive tickets for some other sports, which no-one wanted in the first round - with "priority" being given to first round applicants. It's at 6am on 24 June on a first come, first served basis. The whiff of another rat is starting to permeate the air.....

As a game theorist, I stand back in admiration at the design of the lottery system to maximise rewards for the touts well to do (I await the tickets on eBay at 10+ x face value**) , and the subsequent creation of a panic demand for the less popular stuff.

As a London citizen who will have extra taxes for the next N years to pay all this off, it really p*sses me off. And no, no-one I know got any tickets.

*"Eighty percent of applicants applied for between one and five sessions, with just 5% applying for more than five and "a fraction of 1%" applying for the maximum of 20." Thus by by my calculation 15% of applicants applied for none? FTW?

**They allegedly cannot be sold on eBay et al. We shall see how the 'Net routes around that....

From AllThingsD, Spotify:

....has raised around $100 million from DST, Kleiner Perkins and Accel. Spotify has been working on the round for more than six months, but people familiar with the company tell me it didn’t actually close until this week. Spotify CEO Daniel Ek can use some of that cash to support a planned U.S. launch this summer. He now has U.S. licensing deals with three of the four big music labels and is in advanced talks with holdout Warner Music Group. Spotify is also working with Facebook on a significant integration deal, but that won’t be tethered to the U.S. launch, I’m told.

Some context for the funding: U.S. Web music service Pandora, which went public Wednesday and got hammered in the markets yesterday, is currently valued at about $2.1 billion

One assumes there is some link between Pandora's IPO and the sudden funding of Spotify

It's still a tough play, as AllThings D note:

Unlike Europe, however, the U.S. has several existing subscription services that also stream unlimited tunes for $10 a month, and those have yet to take off, even though the services are now compatible with popular handsets like Google’s Android and Apple’s iPhone.

During the time that Spotify has spent trying to get to the States, meanwhile, three different cloud/locker services have launched in the U.S. as well: Amazon and Google allow users to move their own music to an Internet-based server, where they can stream it to PCs and some phones.

Couldn't come soon enough therefore, as they have had to cut down on the free service in Europe which, however you look at the "why", reduces the ability to grow. No doubt most of the money will be used to bribe US labels penetrate the American market, but we also wouldn't be surprised to see the free service limitations released therefore, as news of crashing European numbers does not play well in the run-up to an IPO.

Watch this space..........

Been watching Bitcoins* in a low level mode for a while, it's market structure always reminded me of Second Life (ie there is a scarce Good you can speculate on, but actually that Good can be massively increased at the flick of a switch and thus crash the market). I was also intrigued by the potential for global currencies and tax evasion of Second Life far more than I was ever interested in the actual virtual world, and Bitcoin reminded me of that, just without the hassle of coding virtual structures and having to be avatars with cocks on their heads.

But the stuff going on over the last few week has made me sit up - I was not too bothered about the the First Bitcoin Bubble of the last few weeks - it's a very limited market so even a few newbies pouring in will set it off - and fully expect to see the First Bitcoin Millionaire in Fortune soon (anyone remeber the same with 2nd Life). But I was very interested by the First Crash, as that came very early in the cycle - NYO:

The price of a Bitcoin climbed slowly but steadily until May, when Gawker and the tech blog Launch published two big stories about the phenomenon. Prices started zigzagging up, hitting a high of $33.11 last week after three weeks of increasingly frenzied trading, and then fell a spectacular 30 percent Friday morning, what the blogs dubbed “Digital Black Friday.” As of now—3 p.m. Tuesday—a Bitcoin can be had for around $18.

So why the fall? Until last week you could exchange Bitcoins for Dollars on Paypal, but that was then blocked by Paypal, so converting Bitcoins to real currency became a lot harder, and the Bitcoin fell sharply (and has continued down, bitcoins hit c$10 before coming back to c $19 - see the graph above).

Nonetheless, the Boosters are out - NYO again, quoting Wagner:

“It’s a bubble, but it’s an unbreakable bubble, one that is just going to keep growing and growing and growing,” he said. He had predicted Bitcoins would be going for $10 each by the end of May; the price hit $9.999 on June 1. He now says it will hit $100 by the end of the month and $10,000 within one year. That nutty-sounding forecasting recalls dot-com bubble boy analyst Henry Blodget’s famous 1998 prediction that Amazon’s pre-split stock would double to $400, which happened less than a month later. (The call earned him a job at Merrill Lynch, but his public cheerleading of tech stocks eventually led to a $2 million fine for securities fraud.)

My take - conventional economics suggests it isn't going up anytime soon - its hard to see how it will attract a lot of specualtion now the easy liquidity route is gone.

* To copy and paste NYO because I'm lazy - Bitcoins are snippets of code that use encryption to prevent counterfeiting and double-spending. Complex algorithms control the money supply, in theory replacing the need for banks or a central regulator. Right now Bitcoins can be generated—or “mined”—by running a program on a powerful computer. This task requires exponentially more time and processing power as the number of Bitcoins grows, and the absolute number of Bitcoins is capped at 21 million, mimicking the scarcity of gold. There are now 6,539,450 in circulation; $2 million worth were traded on the main Bitcoin exchange Mt. Gox on Friday.

It would appear that Duke Nukems PR threatened to nuke people who said nasty things about the new release and was then nuked itself! Ars Tech:

...the Redner Group's official Twitter account posted something you almost never see: an open threat stating that outlets who reviewed Duke Nukem Forever poorly may not receive review copies of games in the future. Anyone who has done this job for any amount of time has suffered through a dry spell after giving a publisher a bad review, but this is the first time the threat of a blacklist has been made public.

"Too many went too far with their reviews...we are reviewing who gets games next time and who doesn't based on today's venom," the company tweeted. "Bad scores are fine. Venom filled reviews...that's completely different," another tweet read. Currently, Duke Nukem Forever has a Metacritic score of 49 on the Xbox 360, the format most commonly sent to the press. For a game with such a large marketing budget and name recognition, that's shockingly low.

The furore spread out all over the social media nets in a viral way that any PR would have been proud of, sadly in this case Duke didn't take to the Wildean view that any publicity is good publicity and thus nuked the PR Agency:

2K Games has officially weighed in on the issue. "2K Games does not endorse the comments made by Jim Redner and we can confirm that The Redner Group no longer represents our products. We have always maintained a mutually-respectful working relationship with the press and do not condone his actions in any way."

Face saving nuking move, may even have got the correct PR bang, and maybe even without paying the bucks. We eagerly now await the discovery at Redner that it was an Intern wot done it

Reinforces my view that you should never buy anything until after it hits the market, time passes, and the independent reviewers can get a good look at it.

Quite a good article in the Economist debating whether there is a Tech Bubble or not - as an alternative to my "10 stages of a bubble".

Key points for a bubble from the article from Steve Blank :

Dr Jean-Paul Rodrigue, in the Department of Global Studies & Geography at Hofstra University, observed that bubbles have four phases; stealth, awareness, mania and blow-off. [ see chart above- ]. I contend that we are approaching the early part of the mania phase.

In the stealth phase, prescient angel investors and Venture Capitalists (VCs) start investing in an industry or market segment that others have not yet found. In the case of this bubble, it was social networks, consumer and mobile applications, and the cloud. VCs who understood the ubiquity, pervasiveness and ultimate profitability of these startups doubled-down on their investments. Long before others, they saw that these applications could have hundreds of millions of users with "off the chart" revenue and profits.

The awareness phase is where other later-stage investors start to notice the momentum, bringing additional money in and pushing prices higher. The Russian investment group, DST, is an example, with their $200 million investment in Facebook, at a $10 billion valuation, in 2009. This was followed by another $500 million investment (along with Goldman Sachs) in 2011, at a $50 billion valuation. Meanwhile, the bubble for "seed stage" startups began when Ron Conway's Silicon Valley Angels and DST guaranteed every startup out of a YCombinator $150,000. And it was hammered home with Color—a startup without a product—raising $40 million, at a reputed $100 million valuation, from brand name VCs who should have known better. When they did launch their product, it was compared to boo.com, and entered the dot.com bubble hall of infamy. Meanwhile, smart VCs continue to invest in this segment and increase their ownership of existing companies. The technology blogs (TechCrunch, et al.) start cheerleading, and the general business press/blogs start paying attention. And all of the investors trot out explanations of "why—this time—everything is different".

We have just entered the mania phase. The Linked-in IPO valued the company at $8.9 billion at the end of the first day of trading. It sent a signal that there is an irrational demand for tech IPOs. Silicon Valley startups are falling over each other to file their S-1 documents to go public.

There is no bubble says Ben Horowitz:

A lot has changed since the internet bubble eleven years ago. Firstly, the cost of running an internet application has fallen 100-fold. In 2000, I was CEO of the first cloud computing company, Loudcloud, where the price for a customer running a redundant version of a basic internet application was approximately $150,000 per month. The cost of running that same application today in Amazon's cloud costs about $1,500 per month.

Secondly, developers are more productive. In 2001, Stewart Butterfield abandoned plans to build a massively multiplayer online game (MMOG) after costs became too great; he built photo-sharing service Flickr instead. Now Stewart's new company, Tiny Speck, is again building that MMOG, but today it is working brilliantly. Why? Because Stewart's programmers are ten times more productive than they were in 2001 due to massive advances in programming language technology.

Thirdly, the market is far bigger. In 1998, I was working at Netscape, which owned well over half of the browser market. We had about 50 million users, more than half of them on dialup connections which could not run many interesting applications. Today, there are over 2.1 billion people on the internet, most of them using broadband connections. The true market for internet businesses is about 50 times larger than during the actual technology bubble.

With costs 100 times lower, programmer productivity ten times higher, and the market 50 times larger, it stands to reason that many more internet businesses will work today than did the last time around.

The markets for internet businesses will double in size again over the next five years

International Data Corporation (IDC) estimates that there will be 1 billion mobile internet users by 2013. That estimate will prove to be low. There are currently 4.5 billion mobile phones worldwide; within five years almost all of them will be more fully featured "smart" phones offering better access to the web.

As smart phones become the volume leaders, the component costs for smart phones will fall below the corresponding component costs for low spec "feature" phones—a trend that will eventually render feature phones obsolete. As a result of smart phones replacing feature phones, the internet will double in size over the next five years.

This time it is different

To be fair, Ben is not ruling out the possibility that a bubble may occur....

One may still argue that a bubble is coming. A bubble will almost certainly come eventually—that is the nature of human psychology and of markets. But what is the value of predicting a bubble with no time frame? What does that even mean? If we are approaching a boom and huge growth in technology over the next several years, do you want to miss it due to the eventual bubble? If the true goal of the bubble promoters is simply to encourage caution in investing, when does that advice not apply?

....but he is a bit disingenuous when he says that people are not saying "when" - most are in the c 18 - 24 months frame:

Currently 68% For Bubble, 32% Against.

On the news that usage is falling in the early markets.

Facebook is still growing towards 700 million users, having reached 687 million monthly actives by the start of June, according to our Inside Facebook Gold data service. Most of the new users continue to come from countries that are relatively late in adopting Facebook, as has been the trend for the past year. But overall growth has been lower than normal for the second month straight, which is unusual.

The company gained 11.8 million more people over May, following 13.9 million over April. In contrast, it grew by at least 20 million new users over the typical month in the past 12; while there have been a few months that have registered lower growth numbers, they have not been back to back.

Why the drop? Most prominently, the United States lost nearly 6 million users, falling from 155.2 million at the start of May to 149.4 million at the end of it. This is the first time the country has lost users in the past year. Canada also fell significantly, by 1.52 million down to 16.6 million, although it has been fluctuating around that number for the past year. Meanwhile, the United Kingdom, Norway and Russia all posted losses of more than 100,000. If these countries — most of whom had adopted Facebook many years ago — had not lost users, and instead posted even small gains, Facebook would have had a much more typical month.

We predicted this 3 years ago, using the social network dynamic explained in the post. The graph is reproduced above

The blue line represents the total number of users, the red line represents usage, each user is assumed to have a usage pattern that is high intially and then settles down to a lower frequency over time (second graph below). Bear in mind that it's the red graph that is the major predictor of Ad based revenues.



The result for Facebook is worrying as they move up to IPO, the last thing they can afford is widespread signs of this sort of collapse so we would not be surprised that, if this trend carries on, the IPO is pulled forward.

This week I had a client engagement in Wales, about 3 hrs from Broadsight's London base. Got there and, with sinking feeling, realised I had left my laptop back in London. Presentation to client COO early the next day, lots of last minute work to do.

Why is this significant? Well, the sinking feeling was from remembrance of times past - I've done this sort of high stress "forget the laptop" once about every 10 years - here is how it went:

1991 - Arrived at hotel near client (in Wales) at c 12pm, had a few final touches to make, no problems as meeting is at 10 am next morning but then found I had left correct "luggable" computer (with the files on) at office - in those days you didn't have your own laptop. I got up at 3am, drove 3 hours back to office, got computer, drove 4 hours back to client (more traffic by then) and then rushed into meeting and present without final touches. There was early Internet in the UK (I used it) but virtually no companies were on it, and as for storing files in the "cloud"...

1999 - Arrive in Kuala Lumpur in afternoon, meeting next morning, PC dies. Borrow another PC, spend all night desperately trying to download 2Gb of stuff we needed over a PSTN line, colleague in London and I took about 5 hours trying email, FTP etc etc - big files and PSTN modems do not get on well! Finally done, walk into key presentation with no sleep and jetlagged.

2011 - The solution? Simple, the hotel gave me one of their desks and a PC, I pulled the files I wanted off our Internet server, used the Excel and Powerpoint on their computer, updated them, emailed it to my colleague and client for the morning. Hotel even have a Costa Coffee in the foyer so I could keep my caffeine habit going. Sorted. (A shout out to the Hilton Hotel in Newport, Wales here - they were magnificent in my hours of need)

Of course, you know the end don't you - the meeting was postponed till next week .

Now, in about 1993 I wrote an article in Management Today stating that the impact of this new fangled Internet would be to replace physical travel with digital travel. It hasn't done that yet, but it has replaced the sinking feeling with a sympathetic latte from the hotel staff.
One wonders what will happen in 2021 - will laptops be disposable commodities (5 more cycles of Moore's Law means a £300 machine today will be a tenner by then) or will my laptop be hardwired into my brain, so it cannot be forgotten unless I forget my head!

I twt'd this on Friday:

"the Groupon biz model is to use Other People's Money to grab eyeballs, then IPO the f*cker before it comes crashing down - Dotcom II"

And then worse came out the woodwork with their filing. Seems they are technically insolvent and the bigger they get, the more they lose, along with the fact that later investors were paying for earlier investors' exits, and the IPO will no doubt pay for the current investors' exits.

Greater Fool Theory in full technicolour! (In fact some have been more direct, calling it a Ponzi scheme)

We can only apologise to the readers of our Bubblewatch series, in that we never predicted an attempt to IPO a Greater Fool Theory dotcom business before the big one had gone out. Move the notch up one (see chart above). DotCom II is nearly here now....

But a whole bunch of dumb pension funds will invest - with your money. And This Time It Is Different, as everyone seemed to arguing at D9.

Of course it is...........

Update - Don Dodge, (who I have a lot of time for by the way), takes a mildly contrarian view, but even he concludes that sustainability is uncertain but they won't be the first business with a seemingly unsustainable buisenss model that finds a way to thrive:

Is Groupon sustainable? No one knows for sure. Time will tell. Competitors are sprouting up everywhere. Margins are likely to tighten. Competitors will offer the merchants better deals with lower discounts. Will consumers become loyal repeat customers after using a Groupon? If not, the whole concept doesn't work. On the other hand, as we have seen with Facebook, Twitter, YouTube, Amazon, Google, Skype, and many other iconic brands, once a huge customer base is established, it is very difficult for a competitor to lure them away.

To be fair, Don is conceptually right - if they can keep ahead of their cash burn, they can succeed - in theory - but the probability, given all those ifs, is very low.

Rather interesting talk by Marc Andreessen at D9 (as reported by Liz Gannes) - some nuggets:

If you look at the history of VC, the best firms were generally formed by operators. Over the years, there have been many different kinds of VCs, but we thought it would be kind of fun to go back and do what they did at the beginning.

We’re a throwback in two other ways. We’re focused on computer science and technology, and we’re overwhelmingly Silicon Valley focused. As far as we can tell, we will always be a single-office firm based in Silicon Valley. We think SV is special because there’s a repeatable process for building great companies.

Interesting observation - but I'm not sure they are quite a Back-to-Basics VC, as so far - if you follow the money - they have been investing big money in dead certs quite late in the pre-IPO game. More like Private Equity investment in (soon to be) Public Enterprises.

On Bubbles:

If everybody’s euphoric, then I’m concerned. “If we’re back here in three years and nothing’s changed and nobody’s worried, I’ll be horrified. I’ll wet my pants on stage.” There’s no history of an equity bubble that has not affected the public markets in a major way. Read “The Go-Go Years.” Fast-forward to today, in 2011: Apple’s PE is 12, projected to be 10. Microsoft’s is 7.2, next year 6.8. Google 13.7, next year 11.3. Cisco 7, next year 5.5. “PEs in single digits are what steel mills trade at before they’re going out of business.”

Maybe, but those are not the BubbleCo's - Google, Linked In and other Social media operators are where the bubble is, most with stratospheric P/Es (or virtual P/Es from secondary markets). Marc is quoted as saying "there is no bubble because everyone thinks there is one" elsewhere, but that is not how I read the above. I read it as saying there is risk of a bubble. I think Henry Blodgett is calling this more correctly now, and he should know....

....in 1999, there was actually lots of talk and concern that it was a bubble. But having lived through that one, I'd say there was actually less then there is right now. And the real challenge for decision-makers in that era, by the way, wasn't in determining whether or not it was a bubble--many smart folks thought it was. The challenge was in figuring out when the party was going to end. Because if the bubble lasted longer than you thought it would--which, by 1999, it already had--it didn't really matter whether it would eventually prove to be a bubble or not: You'd have been "wrong" and fired long before you got to do your victory dance.

This is what I believe is really going on in these funds' calculations, and Andreessen is in a roundabout way corroborating that.

And on dotcoms being a predictor of great Web 2.0 startups:

I just had this out-of-body experience where I saw someone reading on an iPad in the lobby and I had a flashback to the Newton. I’m quite confident that there are things we’re funding now that will be great 10 years from now.

Here’s my prediction: Almost every dotcom idea from 10 years ago that failed will succeed. Pet food, diapers, deliveries, they’re all working again now.

Probably true, for any pre-2000 company anyway. A lot of the dotcom ideas before the "end of days" lunacy were sound ideas but failed from a combo of too few customers, too thin bandwidth, not enough functionality in the infrastructure and too high a running cost. Much of this has changed hugely for the positive now.