17 December 2004

Letting Go

I believe very strongly that different people have different strengths at different times in a company's life. It's easy to characterize it as pre-revenue to $5mn in revenues; $5-20mn and $20+. As with all generalizations it avoids the subtleties but hits the key points. I have learnt, painfully at times, that my strength is in the "pre-money to $5mn revenue" area. I am genuinely interested in all the bits that come with being a larger company but have very little to add to a CEO who has been there before. For those fighting through to the first year of product sales (as opposed to NRE or grants) I can offer a ton of tough love.

However, like any affair there is a good, better, worse moment to admit that your value on the board could be improved by a someone with skills in the next category up (or the workout category!!)

It does not make it any easier to step down, refocus on the company's where you add more value and move on.

Still feels like shit though when they are doing well.

13 December 2004

Apple - London

I just passed the Apple Store on Lonon's Regent Street at 13.00 - ish. It's FULL. The queue at the checkout was about 20-25 minutes. Nearly everyone was buying i-Pod's and i-Pod accessories (a lot of sound options) but it was clear that people were looking at the Powerbooks and G5's as well.

Happy Christmas Apple.

More On The Economy

Apologies to the Daily Telegraph for failing to remember the link to this. But its yet more evidence that inflation and the dollar's collapse, or the Rbl's rise (the mental masturbation required to make a difference is not worth the effort). Surprisingly it is at the high end where restaurant spend is on the up and up. I thought that the pain was being felt by the "middle-class."

Electronic Telegraph (UK)

December 10, 2004

Russia's super-rich steer clear of shops as boom era ends By Julius Strauss in Moscow

In Moscow's elite Tretyakov Passage, a typical offering at Tiffany's yesterday was a gold, pearl and diamond necklace for about £14,000. In the windows of Gucci, Dolce and Gabbana and Tod's, shimmering behind a phalanx of security guards, some of the smaller accessories cost more than an average Russian earns in a year. For those with serious money there were the Bentley, Maserati and Ferrari showrooms next door. But yesterday, barely a month before Orthodox Christmas and despite a warm spell that brought temperatures up to around zero, the outlets where the super-rich shop were almost empty.

In Russia, which has enjoyed five years of vigorous growth under President Vladimir Putin, experts say it is too early to speak of an economic slump. But economists and even government officials say that the boom which has given Moscow more billionaires than any other city in the world is now over. According to the latest figures, economic growth has fallen to its lowest in 22 months. Industrial growth is back to the levels last seen after the crash of 1998.

Anton Struchenevsky, economist at the investment company Troika Dialogue (sic), said: "This is more than a slowdown. In the second half of 2004 we are talking about stagnation in five leading industries."

In his first term Mr Putin made the goal of doubling the country's GDP by the end of the decade his top political priority. In scenes reminiscent of the Soviet era, he is now frequently shown on state television urging government ministers to ever-greater efforts in the pursuit of national prosperity.

But two mini-slumps this year mean that even government forecasts now say that his economic goal can not be achieved before 2012 at the earliest. With year-on-year growth down to around 4.5 per cent in November, it could take much longer. The downturn comes at a time when oil prices, the main source of Russia's wealth, are at record highs.

After coming to power in 2000, Mr Putin laid the ground for broad-based reforms. His economics minister, German Greff (sic), was allowed to pursue a western-style liberalisation of the economy that brought foreign money pouring in. But in the past two years the siloviki, former colleagues from the security services with little time for liberal democracy and a pool understanding of economics, have won the president's ear. The result has been a new chill in the country's business community.

Some economists now believe that Russia is on the cusp of a return to a state-run economy.

The unseating of Ukraine's pro-Russian president-elect, Viktor Yanukovich, has all but dashed Mr Putin's hopes of revamping a regional empire on the ashes of the Soviet Union. Now the former KGB officer, who likes to model himself on one of the greatest Russian modernisers, Peter the Great, is in danger of seeing an even greater ambition - that of turning Russia into a strong, wealthy and modern country - go the same way.

11 December 2004

Mobile Roaming Charges

The Register on the EU on Roaming Charges.

It's interesting stuff if only because I am working with a couple of start-ups on ways to use VoIP rather than your mobile. Unfortunately nearly all solutions require either a phone hack or a network type solution. Which takes us back to the network operators. The easiest solution at the moment seems to be yet more death for fixed-line operators.

Bets On James Enck's Longevity at Daiwa

After this post on the lack of real thinking allowed in brokerage research I guess a market should open in days that he will be at Daiwa after bonus payment date.

China versus Russia

In Saturday's FT there is a long piece on Liu Chuanzhi, Legend's CEO and The Man Who Ate IBM (Subscription only) The article says very little actually unless you are a sucker for reading PR releases.

Also in today's FT this piece on the first time in Ikea's history that they have failed to open a store on schedule. The blame is being put squarely on the local authorities shoulders who in a usual piece of shameless hucksterism saw a way to a quick bribe when they "discovered" that an obscure stamp on an obscure piece of paper had not been obtained. I am sure that it happened but normally Ikea would have solved the problem; whisper it quietly but the rumor doing the rounds of the retailers is that they were just not ready. Anyway this post is not about Ikea exploiting corrupt bureaucrats to cover their own problems.

The theme is China versus Russia. Mr. Liu Chuanzhi started Legend in 1984/5, 8 years before the collapse of the Communist regime of the former Soviet Union. After a couple of missteps they localized IBM PC's. They started building their own brand PC's in 1990. Today he runs a business that has bought the PC making business of the guys who invented (sic) the PC. Does it seem likely that a Russian-led firm will buy IBM chip design business before 2010?

The question is in itself flawed, as the comparison is actually apples and oranges. Legend has taken over a business that is about inventory and logistics and the application of technology. Russia will never compete in this business space. The real question is where are the international business leaders in Russia who have boot-strapped businesses and when will they start to challenge to be global leaders. Where is the Russian tech business that is exploiting Russia's great talents to take on the world?

My life is about entrepreneurs not established businesses. However, I don't feel or see management quality almost anywhere. There are some inordinately clever people surrounding the Oligarchs and a bunch of pretty clever ones around the Minigarchs. But they are not building businesses they are deploying overwhelming financial power to win in not very crowded spaces. They are not and never will be entrepreneurs. For the record let it be known that VC's are not entrepreneurs either. Some may think more entrepreneurially than others but our future is safe - until it's time to raise the next fund. I spent some time with a pizza & cinema entrepreneur from the regions this week. His mantra is quality of execution. There are very few other businesses where I get that feeling.

There was a point to the Ikea link. Business in both Russia and China is fundamentally corrupt at the bureaucratic level. Yet China has succeeded in creating a number of international businesses that compete on their ability alone; Legend, Huawei and UT Starcom straight off the top of my head. Where is the Russian UT Starcom?

A previous post despaired at the India versus Russia comparison because it is so meaningless. This one despairs at the China versus Russia comparison because it is so huge.

08 December 2004

Messages - DFJ Nexus

For nearly all of you please ignore this message. On 12/7/2004 someone asked about the status of our raising for DFJ Nexus. We are.

Please contact me at astobie at dfjnexus dot com

07 December 2004

The Next Big Issue

It's interesting to watch an issue emerge and the reasons for which they emerge. Ukraine is now a VERY big issue in Russia. It became a big issue when Russia failed to steal an election and the people decided to respond in a very unexpected way (for Eastern Europeans.) However, what should be a minor issue has become something considerably more significant in terms of Russia / Western Elections.

Putin Warns West to Back Off
VC's Bubble Their Way Into China

An interesting article being sceptical of VC's rushing to China. This is not a post decrying VC's rushing to China when they could be coming to Russia. Though it's still a nice idea.

I guess that my business model is to be ahead of the bubble so whilst I still don't have cash please stay away. However, bubbles in any emerging market have an impact in every other emerging market as once bitten, twice shy always works. It would be nice to know that intelligent people would look at all markets equally.

The Talk of a Bubble as Venture Capitalists Flock to China

06 December 2004

Hypocrisy

This from Dan Gillmor's eJournal on the steroid story that refuses to go away in professional sports.

His last point is that he has tuned out the steroid story to focus on the Middle East and a lot of people dying. I believe that this is the worng answer. We have tuned out too much and accept being lied to as the norm. I tried to add this to the comments section but hit server problems.

I would never compare deaths in Iraq with taking drugs in sport. However, our ability to tune out events that we knew to be lies, corrupt, hypocritical started with sports and then moved pretty rapidly to low-level politics, then to national politicians and then suddenly to voting and participating in society.

Drugs in sport is just another example of us (the people) being taken for a ride by the establishment. In some cases it does not matter; take boxing for example which is now so corrupt that it barely registers a flicker before being ignored again. In too many cases just ignoring the bad and corrupt leads to a situation where we accept being lied to as part of the daily truth.

At some point we have to stand up and be counted by demanding that lies be accountable. Sports is not a bad place to start.
India versus Russia

Vladimir Vladimirovich went down to India to get away from his problems in the Ukraine. This from the NY Times Putin Woos Indian Help for High-Tech Hub on 6th December makes me rather annoyed.

It's too easy to stand in awe of the Indian outsourcing model. However, Russia cannot compete in this space on price alone. It can compete under the Israeli model; invent and move to the US. Outsourcing, will never be Russia's strength they are not process oriented and their strength will be in being disruptive not in executing somebody else's idea.

05 December 2004

Me Too Investing

Om charts the end of the original Reef Edge business plan and then finishes the post with the (multi-) million dollar question;
The big question, however remains for the venture capital community: how do you evaluate a start-up that is involved in highly commoditized business like WiFi?
Um...you don't. Venture investing is about anticipating trends, being the start-up that the main stream wants to buy when the product goes mainstream. If you are investing in VoIP today then please go read the hundreds of posts available on me too investing. That is unless you are Tim Draper at DFJ who has the uncanny knack of spotting disruptions in business models. Skype continues to outperform expectations.

The answer lies in the link at the top of Om's page in a very readable 10 Commandments for Entrepreneurs from a Mayfield Blog. Actually it's 13 coommandments and the 3 extra are the most important. I paraphrase;

1. Great technology
2. Great team
3. A market undergoing significant transition

The VoIP market is still in the process of undergoing significant change but the end games are beginning to look a little clearer. With the possible exception of Popular Telephony I don't see much technology disruption going on in the VoIP business model. Technologically the changes are even fewer and further between. This game has been going on for a while. We are approaching the moment of truth when the last 3-4 years of worrying will either lead to a great sale, a good sale, a thank god we sold that sale or oh shit. With the only really unknown happening at the good end of the scale.

Telecom has been undergoing it's own moment of transition for a while now ~ effectively since the beginning of the Internet bubble. There are some plays to be made at the edge (sic) but I doubt that an investment made today in a technology will result in a "Google" day.

We made one play in the telecom world very early and very boldly generating pretty much a 10 on the ulcer scale. At the end of the year I will step down off the board in favour of someone who can help the company as it transitions from a business generating $5-7mn in sales to one that could well do over $40mn in 2005. Job done, time to get the ulcer in full functioning mode again.

01 December 2004

Ukraine

There seems to be some doubt as to why Russia would support a gangster who has never done them any favours over a democrat who was happy to sell to the highest bidder.

Just in case the confusion continues anywhere out there. Russia wants the Ukraine to be a pariah state which is shunned by the rest of the world, with the possible exception of that paragon of democracy Lukashenko from Belarus.

Short term financial gains be damned this is long-term control over its own backyard. Which, if anything is to be learnt from history, is probably a good idea. It's just that your average Russian always has to take the hardest route from a-to-b. If it's possible to fit in a convulted trip via AB1 at the same time that would suit them just fine.

If Putin surrounded himself with people who could think there way out of a 2004 paper bag the solution would be screamingly obvious. Schooling in cold-war spy techniques tends to create a degree of paranoia that makes it logical to support the guy who does not want your support.

26 November 2004

Goodbye And Farewell Baring Asset Management

The Economist today reports the sale by ING of Baring Asset Management;

ING agreed to sell Baring Asset Management to two American firms. Northern Trust will pay the Dutch giant some �260m ($489m) for Baring's financial-services business, while MassMutual will pay an undisclosed sum for the investment-management business.

I was at BAM when Nick Leeson and the management succeeded in selling the business to ING for GBP1 and some fairly large debts. Given what came later at LTCM it was pretty small fish.

It was a great learning experience. My boss, Richard Sobel, taught me a huge amount about the Russian venture capital, private equity business. What the organization taught me though was as important. Treat people like human beings and not as cattle. Seniority, or time served, does not equal a divine right to be respected or paid like a king whilst the performers are kept down in concerns about over-spending.

I joined BAM pretty much straight out of the Army. The Army is a hierachical organization but it was clear when orders were being followed because they were orders and when it was done from respect. Senior management never learnt that lesson.



25 November 2004

Russian's Go Home

Some 25% of all Israeli's holding with higher education received their education in Russia or the former Soviet Union. And now they are comig back Israel faces Russian brain drain from our friends at the BBC.

If Russia can get at least some of their entrepreneurialism that would be a good thing.
Russian Consumer Confidence Crisis?

Since the beginning of September retail consumer spending seems to be down anywhere between 30-50%. The evidence:

  • A high-to-mid end consumer electronics distributor (-30% versus forecast) who are pleased with themselves because they are still outperforming their competitors. They are no longer serving one of the larger retailers who they believe will soon fail.
  • A direct marketing organization. Again 20-30% down against forecast (up to August they were both outperforming against plan)
  • A residential real estate company which says that to the extent that deals are being done at all prices are down 50% since pre-summer.
  • An advertising agency which reports that car sales have stalled - "there are no cars being sold" since the summer
  • another advertising agency which reports that its staff are unhappy because their pay is $ -indexed and inflation is Rbl-indexed. The Agency is considering billing in Rbls and having to lift prices in line with inflation.
There are two more sources, both from the FMCG world, which concur but which I am not even allowed to hint at.

At the end of September people believed that it was due to Breslan, and that the stoic Russian spender would be back in full spend mode by at least November. With November just about done it looks like it will be worse than September, and November should be a good month. If the December 12th holiday weekend does not see foot-traffic back in the malls the BRIC story may become a tired much chewed BIC. Ikea are due to open Mega2 (large malls alongside their ubiquitous stores) that weekend. Mega1 was a blowout affair with km's of traffic jams in a blizzard. Mega2 may well be an opening flop.

Which pretty much leaves us with a shift from $s to Euros as a quick 20% price rise along with another 20+% of Rbl inflation in core purchases (food etc) whilst the Rbl/$ exchange rate has gone from close to Rbl30:$1 to Rbl28:$1. The last data point above comes from my wife's BTL agency business. Her staff, predominantly young & female are feeling poor and it is becoming increasingly difficult to hire event staff (job description; young, female, good looking, ability to stand up) at the $-indexed price they have been offering. She reports that this is predominantly a Moscow phenomenon; the Regions usually take a while to catch on.

I guess that it will take another quarter before the Central Bank starts to pay attention. Whither the Rbl? To 30 or even more aggressive?

Is this Russia's version of the Dutch disease? Given that there is shockingly little domestic manufacturing maybe its the consumer who will take the smacking instead. Not that the super-Rich care.

Update: Confirmed by a foreign car manufacturer

23 November 2004

Russia Teaches Ukraine How To Steal Elections

Some coverage from the Moscow Times on the theft of the Ukrainian election Outrage as Yanukovych Takes the Lead. I spent some time yesterday with a Soviet era bureaucrat who has made himself unbelievably wealthy through some insider gas deals. We spoke briefly about the elections (it was his money I wanted) he believes that there will be real trouble in the Ukraine.

It only goes to prove that ex-KGB men are brilliant at stealing elections - just less good at knowing what to do once they have stolen them. For those who have yet to work out that I am British (Scotish) note that this is called under-statement.

17 November 2004

Stupidity of the Highest Order

Up until this point I have been a strong supporter of Andrei Fursenko who has shown himself to be an intelligent and critical minister. Thisrubbish on resticting the Internet does not sound like him. Maybe the geniuses who have failed to corrupt elections in Abkahazia (its about 1,000km after nowhere on your map) and the Ukraine (only marginally closer) have realized that television is not the only information medium.

09 November 2004

Battery Power and Skype

A long term sceptic of Skype's ability to disrupt mobile communications I was just made very aware of how good it is.

A call from Palo Alto (Sand Hill Road to be precise) to my Moscow mobile roaming in Zurich could not connect - lots of SS7 messages agreeing that we were talking but no sound. Log in to the WiFi network and Skype away (w/o headset and mike; is it worse to hear the whole conversation but not understand or is hearing only one way worse?) But I went from 20% of battery power to critical in less than 10 minutes. That's not sustainable.

A conference I went to a year ago mapped various tech advances against battery advances. It had to be on a log scale so that battery power did not merge with the x-axis.

01 November 2004

Video Google

Check out this quotation;

There will need to be a Google of video -- a means of helping people find what they want. And, no, that's not just about creating a search engine. It's about capturing the metadata we create when we watch and share things and making sense of it. It's not trivial but it's vital for without a great guide, we'll never find the programming we want and this new medium won't work. This video Google thing will be the next Google and TV Guide and it will be big. And I doubt that either Google or TV Guide will be the one to create it.

from BuzzMachine... by Jeff Jarvis

I'm so confused about listening to music on my iPOD - some albums should be listened to as albums, sometimes it's great to listen to mixed up songs. Before digital music you looked at an album cover that was close to the top of your CD collection and the picture would conjure up an sound......The same is sort of true finding programs on the TV, be it cable or broadcast.

iPOD's and PVR's (TIVO's etc) change all that. In addition, as Jarvis points out, content is increasingly indivualised, or is that not big-corporate, so it's not as though you know where to find it, or where you find it, or whether it's what you want to listen to.

So something new is required.

25 October 2004

Sistema Triple Play

It's pretty difficult to get overly enthused by anything Sistema does or says its almost a direct copy of the countries bureucracy. James Enck posts on the announcement that Sistema and Alcatel are partnering for a DSL triple play. With ARPU's in this market at $20 and heading toward $14 pretty rapidly, with 13 free-to-air channels broadcasting all the meaningful content and with still crappy pulse dial up I cannot see DSL being a winner. Having said that Sistema has access to the best new "elitny" houses which is where pricing is fairly inelastic - maybe there they have a chance. My bet is with the Ethernet home LAN's being aggregated.

22 October 2004

Creative Destruction in Emerging Markets

No this is not another rant about the stupidity of people in Russia's government - though I will take the opportunity to have a go later on.

I caught the train to St. Petersburg on Wednesday night to speak at InfoCom 2004's wireless forum. Not quite as prestigous as speaking at VON. I took the opportunity to try out my how creative destruction in the telephony world will affect Russia. If I was a good writer I would now set out the state of the telecom industry in Russia. That would take too much time and isn't as much fun as trying to determine where its going.

In short;

Substantially all residential is still on pulse dial-up
Large corporations are well covered by a mixture of politically-connected incumbents who have aggregated CLEC's and the one or two CLEC's that made it, such as Golden Telecom - now NASDAQ listed and one of my previous investments.
A motley band of smaller CLEC's trying to service SME's and SMB's who cannot get anything approaching service from the above
Another (motley?) bunch of local home network/cable/ethernet/wireless (quasi-licensed) most of whom are cf positive - they have to be. But none of whom are really growing that quickly. A bunch of them just received investment from Oligarchic groups. A favorite of mine just got funded to the tune of $50mn.
Three principal cellular networks and a WCDMA player in the 450 band trying to break in.

The incumbents are profitable though I would bet that the Sage of Omaha would contend that as free cash flow is less than depreciation that they aren't really. The 2-3 incumbents and successful CLEC's are wildly profitable/cf positive - albeit with crap service. The motley crews are substantially all cf positive but until very recently w/o the capital to grow and capture the opportunity. The mobile guys are an interesting group. Growing rapidly in the regions the main markets are rapidly approaching/have reached the point that customer acquisition costs produce ever lower returns on investment. They really need the wealth to grow in to them rather than reaching down to acquire unprofitable subscribers. Meanwhile, GPRS is only really a reality in Moscow (Blackberrys don't work in St. Petersburg - roaming issues related to billing infrastructure rather than lack of network). But you can already see trial UMTS networks in Moscow with the right equipment. In addition an also run network is the first to trial WCDMA (I think) in Russia in an attempt to break in to data markets. It's an interesting play in Russia but I'm not sure what roaming capabilities it will have.

So that's the preview I wasn't going to give. What's the opportunity in creative destruction?

The cable guys aren't selling cable TV but high-speed internet and quasi-IP telephony. The PSTN's won't invest in local access, except in "elitny" housing and cannot provide business services. Cable TV is an add on sale (I'll go into this more some other time - think German cable in the meantime.)

Voice is free in the local loop - all of Moscow's 8mn inhabitants plus calls to all local mobile numbers call each other for free, so its difficult to disrupt a model where you will be charged the same for interconnect - which leads to a thought; is SkypeOut just a discount calling card with a fancy GUI?

I have always struggled with the opportunity to disrupt mobile companies from a business model point of view. I just don't buy in to mobile operators providing a pipe to better-than-Skype's. Put another way - the big mobile companies intend to keep the walls around their gardens very high. I also understand that Vodafone is not going to use a true VoIP solution when they launch UMTS. Which would suggest that they have not solved packet hierarchy issues. So they can lock in a lot of their value. Don't get me wrong - technology advances will eat away at/destroy roaming charges, lowest cost routing savings will be passed on to the customer. Data will at best keep ARPU's where they are. Single number plans will do further damage. However nothing is as fundamental as the pain that fixed line providers are going to face.

My conclusion is that in addition to creative destruction in applications we will also need to see alternative delivery methods. I don't believe that Intel's WiMax push will be part of the creative destruction. I was bamboozled today by a Professor talking about Russia's efforts in DAB/DVT in conjunction with GSM - is this it?

Anyway my takeaway is that I failed to be controversial because Russia is still getting used to what already exists and does not want to see a disruptive future - more importantly it does not care less about the disruption to its PSTN's.

Watching TV

Brad Feld lays out some good thoughts on the future of watching programming. I am currently lugging around a 100 page presentation by one of the Big 4 on the future of media. Based on a series of interviews with CEO's of Disney, Viacom, BSkyB etc they try to get to the bottom of how they view the future. Let me say at this point that I am on page 50-something but my big takeaway is that they all have different views of the future - except they all know that the 30 second add is dead.

I sat for a while on the boards of 2 TV network / station groups in Russia, am an investor in Russia's largest producer of Russian language content for TV, and are currently selling a media-selling agency, but feel all at sea in this business. As I don't spend much/any time in Beverly Hills I can't say whether medialand spends much time talking to VC's like Brad - they need to. Innovation is about to eat them up. What will be left is some of the least profitable parts of their business (gross margins at less than 40%).

Martin Geddes put in a great post on creative destruction in the telecom industry from VON. I have not seen the same introspection in the media industry.

20 October 2004

Popular Telephony

Tom Keating has more interesting coverage of Popular Telephony's global numbering efforts ("GNUP"), also from James Enck on Popular's global numbering. I don't like this, read what someone else wrote blogging style but a comment and subsequent response from Peerio (the name of Popular's product) is worth covering;

In order to implement peering between disparate networks, this would need a media wrapper (or gateway) to exist between protocols, wouldn't it?
Posted by: Andrew at October 18, 2004 11:35 PM

Not really... There are no networks really... SIP or H.323 or whatever... it is all on the user machine isn't it?
Posted by: Peerio at October 19, 2004 10:52 AM
As a Mac user I have yet to check out their claims but it seems to me that they are way ahead of the crowd.

Update: Martin Geddes posts from VON with some great thoughts including why we should all be scared about communications. Key take aways;
  • Too many border session controllers = trying to make the IP network resemble the current TDM network
  • Popular are "hijacking and subverting" the global numbering plan (this was meant in a good way)
  • A lot of money will be lost in VoIP - see point 1 to understand the coming crisis - So if you’re putting your pension savings into the VoIP business, tread very, very carefully. This boom going to hurt as bad as the .com explosion. One way or another, there’s going to be a lot of roadkill, and a lot of get-rich-quick money from inflated promises.
  • VoIP is a classic separation of application from carrier and more importantly the financial relationship between the two - someone astutely commented that a key aspect of IP was not just decoupling of the applications from the service. It is also the decoupling of the financial relationship between the connectivity and service provider.

All this should apply to the mobile network as much as the fixed. However I recently saw a line in a RFP to a global service provider that said in effect that GPRS and 3G are not yet robust enough to support true VoIP connectivity - bomb shell. Put another way voice is going to continue to have its own protected piece of bandwidth until QOS issues can be resolved.

Timely Insights Into the Arrogance of Power

In today's FT (subscription required) is a fascinating review of Seymour Hersh's new book - Chain of Command - the road from 9/11 to Abu Ghraib by David Scheffer. Scheffer was apparently US Ambassador at large for war crimes issues (1997-2001). He finishes his review:

Chain of Command shows the critical need for evidence of illegal conduct by US forces to reach high levels quickly and elicit rapid responses. The White House needs a special prosecutor on international law to brief the President honestly and rein in officials who might forget or deliberately derail what the US stands for as a nation.
A nation at war, with itself?

07 October 2004

Packed Full of Information

Jeff Nolan has two excellent posts on the Vortex conference Day 1 and Day 2.

I'm not really going to comment on the specifics of the posts other than to say that his additional notes and commentary provide way more insight than the blog it as it's said stuff. This is super intelligent reporting that its impossible to buy. No journalist would ever know this much about a subject. I have printed them off and am reading more slowly for greater insight in to an area I understand only a little.

06 October 2004

As If It Really Matters

Copied below in its entirety is a research piece from UFG (40% owned by Deutsche Bank) on the legal games being played around Yukos. What murder being a sell-side analyst trying to paint a positive picture of what is clearly a mess;

An article in today's Vedomosti draws attention to speculation in the market about the possibility of Yuganskneftegaz passing automatically into state property. Such speculation should not be taken seriously in our view. Unless you should want us to pay us to short the stock - unfortunately you are likely to be using RenCap to do that.

The grounds for this scare are a provision in the relevant law (the Law on Enforcement Proceedings) that if an asset selected for the purpose of debt recovery has not been sold by the selling agent two months after being frozen, the creditor has the right to simply keep the asset in question. Yukos' 100% stake in Yugansk was first frozen on 14 July. A court decision of 6 August released the asset from the freeze, which was then re-imposed on 9 August by another court decision (procedurally dubious, as it turned out, but such details have long since ceased to matter). It follows that the two-month deadline expires next Saturday. We are quoting the law in the off chance that it makes a difference - we know it doesn't and our last sentence shows as much but we are like lawyers and paid by the word.

Our discussions with legal practitioners in the debt recovery field suggest that the standard practical application of the law is that the two month period begins from the moment the bailiffs hand an asset over to the selling agent. That moment has been on hold for weeks while DKW has been valuing Yugansk. Actually what our legal advisors said was; this is the law but given that the President couldn't give a damn for the constitution you might as well vote for the democrats in Florida.

Secondly, if the tax authorities did claim a right to appropriate Yugansk under the two-month rule, this would contradict another law - namely, the Tax Code, which states that tax liabilities (which is, of course, the nature of the debt being recovered) can only be settled in cash. As if they think that the law applies to them. A real estate report in the English language Moscow Times today reports that the most attractive Moscow real estate is owned by Government employees. Try this maths. "Golden Mile" real estate $5-7/km2, suburb real estate $500k-1.5mn. Average salary of government officials $100 - $2k month ($k applications are correct.)

On this basis alone, the authorities can be expected to at least proceed with the planned sale of Yugansk, rather than short-cut the whole process in what would be a scandal to put the whole of the Yukos affair to date into the shade. In any case, the law simply states that the creditor "can" appropriate the unsold asset as such. It does not oblige the creditor to do so. Apparently we can still be shocked by the application of power (sorry the law) in the Yukos affair.

05 October 2004

Pulver 100

Own investment promotion time. Congratulations to Tom Martinson and the team at jNETx on being chosen to the Pulver 100.

Also well done to Mera on also being chosen. Mera are very high on my would like to invest list - if I could come to a conclusion about value in the telco universe.

Whilst I am at the praising Russian-originated companies game; I would like to claim Dmitry Goroshevsky from Popular Telephony.

Softphones - but where's the value?

Andy Abramson posts pretty convincingly on the benefit of Softphones. All well and good so far. Then I have to link to this not quite outstandingly good post on GigaOm from Aswath Rao - an Open Letter to Steve Jobs. If the connection has to be pointed out Andy Abramson is praising the ease of configuring a piece of pure software rather than messing with a piece of hardware and software. Aswath is saying the technology exists - package it with a GUI and make it a universal communication device.

All of which I'll buy never having owned an ATA and clogging up my PC with softphone clients - my all time winner if you can get past the engineer's interface is SJ Labs. Native SIP and H.323 stacks make a real difference.

However, where is the value in engineering a great softphone? An OEM deal with Apple would be nice, but as an investment strategy is a little on the risky side.

I've seen plenty of soft-PBX's on PC's (all with engineer GUI/MMI's) so theoretically all of us could have all the "intelligence" we would ever need at the end point. Somehow feel that someone called David Isenberg got here before me.

I struggle to see the value in the engineering though. There will be some in hosting the always-on services (voice-mail etc) but if I can co-ordinate multiple sessions on my end point (PDA, laptop, etc) and the cost of my connection to mobile/PSTN reverts to the absolute cost of that service then there is little value in being a service provider.

I can see the IBMGS making $'s out of this at the enterprise level....

Thank goodness an all IP world is so far away and interoperability will maintain the ability to make $.

01 October 2004

Applied Tech Investing

Interesting piece on building VC communities. What struck me most was the thought somewhere down the page that:

First, technology VC is moving from turning science into products (core tech investing) to turning technology into businesses (applied tech investing). That's a trend that started 10 years ago but is now gaining steam across the technology and venture capital industries. In the emerging new world of technology, being located in Silicon Valley and Boston is less of an advantage and we are seeing more early stage venture capitalists locating themselves in places like NYC, Washington DC, Atlanta, Chicago, Denver, Seattle, and a host of other business centers that have not been on the venture capital map until recently.


Add Russia to that list.
VC Syndicates

Great post on VC types from Jeff Nolan. Jeff Nolan: Pick Your VC Carefully.

Everyone has followed up on it so no more comment from me.

13 September 2004

Left, Centre (sic) and Middle

I am no bleeding heat liberal but to hear Tim Oren describe himself as a centrist and have Fred endorse that view suggests to me that gravity moves in mysterious horizontal ways.

Re-classified in to UK terminology:
Fred would be an old-fashioned one-nation Conservative with slightly dodgy liberal theories or a champagne liberal - depends on your starting point.
Tim would also fit neatly in to the Consevative party grouping; that part which sits so far to the right of the one-nationers that they pass them having gone full-circle. This grouping would also hold that Gengis Khan was a little overly liberal.

None of which matters much (and its not intended as a criticism.) The point was more to demonstrate that the UK and the US have been separated by more than a similar language.

Notwithstanding, the supposedly left-wing Labour Party have sided with the Republicans (or Tony has sided with George W anyway) and the Conservative Party are trying to help Kerry (however given their (Conservative party) success recently I would personally leave them in the UK.)

10 September 2004

Terrorism on My Mind

Extracted from Philip Stephens OpEd piece in todays FT (subscription required);

�Hard power is needed to deal with those who have already turned to murder. But soft power is essential to prevent fresh recruits to murder . . . No steps could do more to outwit today's terrorists than serious efforts to establish in Chechnya, Palestine and Iraq governments which are supported, or at least accepted by, the bulk of the population.�
(with apolgies to FT - too important to miss)



Light Reading

I like these guys at Light Reading. It's real tell it as it is analysis and there are very few who who can stand the scrutiny of that claim. This piece The Softswitch Name Game. includes this incredibly apposite statement;
"If you look at the large carriers, everything they're doing in VOIP is layered on top of their [old] infrastructure."


Terrorism and Repression

I have held off commenting on Russia's recent spate of terrorism attacks and the response to them whilst I try to get my thoughts in order. Quoted below in it's entirety is a note to clients from Bernie Sucher the Chairman of Alfa Capital (one of Russia's leading asset management firms.) I agree with all of what he has written and the conclusion, but personally would take it further.

Given events, a number of people have asked after us these past days.
I answered this morning with some paragraphs that I thought you might want to see.


1. What we've seen over the last week is Pure Evil vs Absolute incompetence. The Russian State has plenty of evil left in it, but in facing monsters that kill children, the level of the State's incompetence, corruption, and myopia manages yet to prompt astonishment. The post-event signs are already discouraging -- there will be no salutary shock to the tragi-comic system of "security" in Russia, just more of what doesn't work: posturing, sloganeering, scapegoating, steelbooting and bruting.

2. You don't easily win any war without "society" as an active supporter of the war effort. The challenge for Russia remains the building of a Civil Society -- a set of relationships, rules and standards in which the People and their Institutions set the agenda, vent their frustrations, and in various ways collaborate to achieve common ends. Putin talks often about the construction of a healthy Civil Society, and I for one believe that he means what he says. But his rule stopped making detectable progress in this direction as the presidential "election campaign" began to hit its homestretch earlier this year. So today, everyone -- the security services, the government, the parliament, and the people -- all wait for the Czar to say what is to be done. This, despite the fact that it his direction of five years of the "not-war" that led up to last week's horror. In this terribly complex situation, where the most creative, collaborative, and diverse kinds of thinking and acting are required, we find Putin's Chechnya policy exposed for the shambles we all knew it to be, and the man himself standing all alone, without any in this cowed society daring to step forward and advise him, let alone act.

3. Until last week, the Russian government had before it a pressing agenda to push comprehensive reform. Reform of its choking bureaucracy, reform of its useless judiciary, reform of its antiquated military, reform of its inefficient natural monopolies, reform of its inadequate financial system -- to name just a few. Until last week, I was worried that the government's costly grasping in the Yukos affair had already drained too much energy from its reserves to support the realization of a meaningful part of the broad reform agenda. This week, I am certain that the twin hammer blows of Yukos and Beslan mean that any progress we see in Putin's second term in the main reform targets will be thanks more to accident than to design, thanks more to circumstance and forward inertia than to political will or conviction.

4. Given the high price of Russian natural resource exports, its economy will continue to grow, and at rates about which most large countries can only dream. Day-to-day economic policy is in good hands. So the lost opportunities of unrealized reforms will not bite the country until lower export prices become reality and/or the remorseless dynamic of globalization reaches deeper into the Russian economy.

5. Thus, remarkably, we can well imagine that as Russia becomes mired deeper and deeper in the bloody mud of its "new" war, and its children's best hopes choke slowly on unchecked corruption, waste, and incompetent leadership, the headlines from the financial sector will tell a different story. Foreign direct investment is rising, and as there should be no dramatic successor to Yukos as a scarecrow to ward off investors, we can expect more of the same. Speculators in thin Russian financial markets will see promise in a deeper shared commitment by the US and Russia in their crusade against the bad guys; they'll celebrate when Russia accedes to the WTO, and gush when President Putin of Russia plays the role of president of the rich men's club called the G-8. A country with more cash than debt will at last get its full investment grade credentials. A chronic lack of supply of paper in fixed income and equity markets, set against global liquidity and bottled-up domestic savings, will keep the prices of Russian securities bubbling. There will be lots of happy people writing lots of good things about Russia.
Previously, I commented on the incompetence of the ex-KGB thugs surrounding Putin. Security is their area of competence......... As always Gideon Lichfield at the Economist has written a much more balanced piece Economist.com | Terrorist attacks in Russia

Today's Moscow Times (Moscow's English Language newspaper) gives some insight in to the mess that is Russia's government. We should not be that surprised it's just that when the economy was booming (and it still is) and reforms were being pushed through left right and center it sort of felt that we were living in a normal country. We aren't. Anyway the MT's headlines (all free today and over the weekend and then subscription);
  1. Silence of the Political Elite is Deafening
  2. Police Emerge as Big Security Threat
  3. The Populist Approach
BTW, Indpendent Media MT's publisher has launched an appeal for the Beslan kids. They will need help. IM is trustworthy and should be supported.

I sat tight in Moscow after the 1998 financial crisis believing that Russia had the ability and the will to drag itself out of that hole and get itself moving again. It did so with some aplomb and then Putin needed to get himself re-elected and it's been downhill ever since.

I am sickened to my very core by the corruption and incompetence of this country. Time to move on?

01 September 2004

Meanwhile.....

The police find something useful to do. Looks like someone stopped paying for protection.
Narco Cops Smoking Out Weed Ware

28 August 2004

VC Business

Two great pieces from Always On (any you can't say that all the time). Mike Moritz, Eric Schmidt and Guy Kawasaki talk about staying awake and entrepreneurs, Part 1 and Part 2.
Vonage and VoIP

Vonage's latest infusion equity led to this first from Bill Burnham followed by this from Om Malik. As I know nothing about the online equity trading business I'll not add to sum of human wisdom being imparted in the similarities.

I had hoped that a comment that the company was cash flow positive before customer acquisition cost might inspire a Sage of Omaha type put down. Here's mine; my car costs nothing to run before petrol (gas), insurance, servicing and depreciation. If your business involves acquiring customers then stripping out the cost is at best duplicitous. Surely it is the job of the blogging community to point out such monstrous bullshit. Let the mainline press quote verbatim from press releases without thinking.

Anyway that was not the main point of the post. In my evolving thinking about sessions over IP my recent trip to Nizhny Novgorod, the centre of Russia's telecom technology industry, has taken me a step further. I am not smart enough to determine whether Vonage or Skype will be good investments. I am fairly sure that they won't be great companies.

This recent piece from the VON round up about BT becoming the European centre for VoIP interop testing would suggest that VoIP is not only not ready for prime time but that we have some time to wait before they are. The company that I was visiting in Nizhny's value proposition is building products that allow Nortel IP PBX's speak to Avaya etc. How can you expect to have an industry when there are no standards and no interoperability.

So I posit that there will be a crisis before we see the sessions over IP winners. If the owners of Skype and Vonage have cashed out before the crisis then great investments. I also posit that SIP will not spawn the winner; it's too large a signaling package and thinks like traditional telephony. Lets call this phase of the transition IP over TDM or new telephony like old telephony. The truly disruptive phase has not yet started and we don't yet know what it will look like - but keep reading Isenberg if you are looking for a clue.

27 August 2004

Fly Russia

The day after two Tupolev's, a Tu154 and a Tu134 were (allegedly) blown out of the air I found myself aboard a Yak 40 bound for Nizhny Novgorod. Two things struck me at the time; firstly nobody should ever have to pay money to get on to a Yak. Secondly that at the time I got on the plane I believed that the crashes had been caused by negligence or poor fuel. With a little rational thought it would have been clear that neither poor fuel nor negligence makes planes disappear from the radar screen. Nonetheless, my primary thought was negligence.

The FSB (successor to the KGB) was also hoping that it was negligence as they have told Putin that Chechen terrorism is under control.

Scanning the pages of the Komsomolskaya Pravda, a third rate producer of newsprint that does not justify the title newspaper, there was a picture of a sniffer dog at Domodeydovo Airport (the take off point for the two aircraft) with the caption "Sniffer dogs are better because they cannot be bought."

Entirely disabused of the negligence excuse, it struck me that the Chechen / fundamentalists will always be able to strike wherever and whenever they like because someone in uniform will always sell them a way around whatever security has been put in place to stop the terrorists - and will do so without any conscience.

19 August 2004

Sessions Over IP - Update

More on my previous post. Dan Dearing, VP Marketing at NexTone, another player in the border session controller space, believes that Carrier-to-residential (C2R) will amount to only 20% of the total revenue per port spend (from this article at Light Reading - Networking the Telecom Industry via Andy Abramson.

I sometimes get the feeling that conversations about the future of sessions-over-IP are held in two different planes. The "voice-will-be-free" crew are talking about residential voice. Those who see value in BSC's and feature servers in NGNs are more interested in enterprise sessions.
Telecom Quality / IT Ease of Use

It was cold, cold, cold in Moscow this weekend and dropped 22mm of rain on Saturday alone. The good news was that it allowed me to sit in a corner of my study and re-read a number of core think pieces including David Isenberg�s The Rise of the Stupid Network and his subsequent piece with David Weinberger, The Paradox of the Best Network. The end of the telecom company as we know them, as David Isenberg correctly identifies in this article for IEEE�s Spectrum Magazine The End of the Middle, is nigh. What comes next, and why, is significantly harder to fathom. Once you get beyond the �one sentence will cover it� CNN simplistic answers there remains substantial complexity. The good news is that in an industry undergoing significant tectonic shifts is the opportunity to invest in start ups that can become household names.

VoIP for early adopters has been viewed overly simplistically. It works pretty much all the time, it�s free as long as you don�t need to talk via a telephony network. So if it�s not working no great hassle, and pretty much all of us have a back up of some kind, even if we have junked our PSTN line. However, Vonage has had a couple of outages in the last two weeks that have caused some angst. Om Malik�s suggestion that this is The End of the Honeymoon seems to me right on the money. Someone, somewhere commented that he could remember the number of times that his (switched) phone system went down. On the flip side; whilst his telecom network never went down, his video conferencing never went up. Mercer Management Consulting forecasts (via The Register) that consumers will be happy to move to VoIP � provided that the quality is as good as their telephone line. It would be a good assumption that enterprise requirements are more demanding than those of consumers.

We backed a start-up in 2002 jNETx who built a next generation intelligent networking platform, or Open Convergent Feature Server based around a JAIN SLEE and OSA/Parlay that bridges the evolution from 2G to 3G mobile, and of course fixed platforms. Ensuring that the OCFS is a carrier grade product has required all the brilliance that a large room full of maths and science PhD�s can offer. Douglas Tait from Sun and the founder of the JAIN initiative posts here on the complexity of writing SS7/Voice signaling-to-IP gateways. (For more on the Service Delivery Platforms, JAIN SLEE�s etc I encourage you to read this 512 page, 16MB report from the Moriana Group. This link takes you to the download.)

Niklas Zennstrom CEO of Skype, a DFJ investment, has recently blazed a trail for the freeness of VoIP. Emphasizing the fact that Telephony is Just Software, which I blogged here. Rohan Mahy�s response covered here in The Register, has a go at the proprietary solutions such as Skype and begins to explain why SIP is a better solution � in the long term. Albeit that SIP has some issues that IAX may handle better.

In my immediate pipeline at the moment are two companies in the border session controller space and one in CPE / soft phone space. Both of them sit in so much of the pie covered by soft switches that definitions becomes difficult, if not meaningless. So this is not just an issue of connecting legacy networks to IP networks. To my mind the issue is ensuring that the mission critical data application otherwise known as voice is always available. One of the BSC companies spent considerable time educating me as to the very considerable issues running enterprise-quality voice over the Internet. I�m not there yet � let�s just say the problem won�t be solved tomorrow.

So what was the point of this link fest? I think that the point was to say;

  • The end of fixed line switched copper-based telephony is upon us � that much is clear.
  • It�s not a given that you can jump from there to free calls/sessions. Let me be specific; voice may be free but that does not mean that you won�t be paying for it somewhere, especially if you require quality of service. Video conferencing will not be a bundled all you can consume package for [10] years.
  • There will never be a global utility called The Internet.
  • Building networks and intelligence to provide enterprise quality mission critical applications requires significant tinkering with the Internet � it won�t come for free.
  • What the meaningful difference between soft switches, border session controllers, feature servers will be is unclear. It should mean the death of stovepipe applications but we are not there yet.
  • IBM GS is a more likely winner than Ericsson Services (or whatever they call themselves) because of their enterprise knowledge.
  • And don�t even begin to bring mobility in to this until we have clear answers to all of the above.
That�ll do for now.

18 August 2004

VC Skills

One post below is Bill Burnham on the skills needed to make a VC. His argument synthesized; if a VC is deep in a company they have made a bad investment. A good investment is getting all the parts right up front. Fred Wilson posts in my same assault on NewsGator about the value that a VC brings to the board, and the resulting discount in the next deal The Discount and the Work.

My take is the difference is one of emphasis not of substance. Getting involved beyond reading board papers is clearly massively important; but it should be at the strategic level. And management should be able to distill the advice - some good some bad, and act on it.
Operator vs Finance

Bill Burnham on what makes the The Perfect VC: Operator or Investor?

There's not much to argue with here, though I tend to believe that a good mix of skills across a Partnership is as important as the right skills in anyone person.

13 August 2004

VOIP Sub-Critical Dependency

This from Om Malik was going to be just another VoIP's not quite ready for prime time story's and was about to enter file 13 when I picked a comment from Andy Abramson "Outages like Vonage is having are to be expected, but not appreciated. With growth comes growing pains. Experience in a carrier is what one needs to look for, and a network that is fully redundant, fault tolerant. One has to ask, does your voip carrier have that?"

Andy then blogsOm's post w/o his comment. The post is not wrong, a very Russian way of putting things, but the comment is more correct. If, as Om says, he wants a form of communication that works all the time then VoIP's not there because the carrier network was designed to be best efforts only. To get fault tolerant VoIP we will have to pay a carrier who will give our voice carrying data packages QoS preference over the porn surfers. And that will carry a cost.

Whilst I believe in disruptive technologies and business models, it's part of the DFJ faith, fully fault tolerant VoIP is not as cheap and "free" as currently touted. Yes its an order of magnitude cheaper than circuit switched calls but it's not free. Free as a marketing trick in Russia does not work. Russians don't believe that something that's free is worth having - it's a communism thing. Now a shed load of Russians use cheap VoIP calling cards etc to call Israel and the US, but they expect the QoS that they get.

Bottom line; enterprise-VoIP will save companies a lot of cash - it won't be for free.

06 August 2004

Mmmmm

I want one of these, no camera, just a phone with Blackberry software. Siemens touts Blackberry-based business phone | The Register
Stupid Network; Intelligent Client; Stupid User

I believe in the first statement. The rise of the Stupid Network has happened and is happening. As processor power improves more and more intelligence is being moved to the client. The question is how much, and how much does it rely on an intelligent user. The early adopters are mostly intelligent enough to work through the issues. The mass market won't happen until the how the f*** do I make this work issues are ironed out.

So, my question for now; how much intelligence ends up in the client and how much stays at the edge?

Russia

Yesterday in the FT (subscription required) was a very good piece on the path that is being taken by Russia. Among the people heavily quoted is Al Breach, Brunswick UBS' (a leading investment bank) economist and a big Russia bull. The other, respected, huge Russia bull eating his words is Eric Kraus in this piece The Summer of Our Discontent. You may struggle to hear the munching as the words are masticated - I assure you that they are there.

The long and short of the pieces is that the Silovki (people of power - i.e. the ex-KGB and Putin's friends) have taken control of the economy. Their underlying reasoning is correct What happened during Yeltsin's time was mayhem - it was fun, but it was mayhem. They want in a strong state and a lack of mayhem - oh and substantial bank accounts (their own.) However, as they have taken control of the reigns of power the country has moved from an imperfect quasi-liberal economy to a corrupt natural resource economy. And it has done so in less than a year. KGB school seemingly teaches control for controls sake and fails to go on to explain consequences.

Lets consider the right of the Silovki (ex-KGB) to run Russia. Since the death of Brezhnev in the mid-80's the head of the Central Committee of the Communist Party were two septuagenarian ex-heads of the KGB, followed rapidly by Gorbachev. The septuagenarians died pretty rapidly - they were pretty-much figure heads anyway. As an aside, Gorbachev is revered in the West for his reformist tendencies that lead to the end of the Cold War. Actually he did not have a clue what he was doing - it all happened without his input. Crucially though, it was the hard liners in the Politburo - the Silovki - who hastened the collapse through their complete lack of understanding of what was happening in country that they believed that they ruled and controlled. The actual event was the 1992 coup. My take on the legacy of the Soviet Union after the death of Stalin and the removal of Kruschev is that it was a state run by the KGB. Brezhnev was allowed to stay in power long after he was officially useless because he was a puppet of the guys who thought that they ran the country - the KGB. They replaced him with two of their own; only for them to die. Gorbachev was the chosen successor because he was deemed to be controllable (southern town hick without a power base.)

The Soviet Union had some fantastic achievements during its 70-odd years of existence. It also had some fairly miserable failures. You can directly attribute the failures to the KGB. In particular Brezhnev's era is best remembered for it's economic stagnation. Almost complete control, almost complete stagnation. This legacy of success is what qualifies them to run Russia.

Fourteen years later, the successors to that legacy of failure have emerged from the hole that they had to hide in after the 1992 coup. Since their re-emergence Russia has suffered the Yukos crisis, a manufactured banking crisis, the return of capital flight (hint - buy real estate in desirable and warm places. Russians are exporting their money from Russia again and they believe in real estate, and football clubs) a stalling of reform and a very badly bungled withdrawal of social security from pensioners and veterans whilst increasing them for bureaucrats. It would appear that during their 10+ years in the wilderness they failed to read any Adam Smith.

What next? There is no opposition, the Silovki can fix elections, so there is no one to provide an alternative view of the facts. I previously believed that Putin would step down at the end of his second term to preserve his place in history. His place in history will be as the President who undid all that was working in Russia - so not stepping down pretty much cements that position.

It's also increasingly clear that he is not in charge. I have previously written that he is primus inter pares of a group of like-minded people. It would appear that he no longer holds that position. German Gref, the reformist Minister of the Economy, has made a number of very critical remarks recently. Putin will be loathe to fire him. It removes the pretence that he is trying to undertake liberal reforms. Loyalty to the party line is pretty much Silovki 1.01 so I would expect that he will be taking a long holiday somewhere warm this winter.

So after that bout of happiness I am heading to my dacha to enjoy Russia's summer and swim in the Moscow river.

Update; even previously loyal members of the Duma are speaking out.

04 August 2004

Vonage Outed or IT & Telecom Converges

Andy Abramson blogs Vonage's Outage which may or may not have been caused by Global Crossing. In an attempt to get through some 1,000 unread blog's courtesy of much loved NewsGator sitting in the inbox I skim read, deleted and then brought it back and started writing here;

We have an investment in a next generation IN / feature sever play jNETx which is putting in a replacement IN system in to an Irish mobile provider - when the system was launched with a new HLR and various other bits and pieces the whole system went down for 3 hours. I'm pleased to say it was not jNETx that caused it but it was A BIG DEAL with as many expletives as you want to add.

I am not saying that Vonage's outage was or is the cause of calling the end of VoIP - it's not; Vonage et al will continue to take business from PSTN's. However, service includes being available nearly all the time. Is that 99.999 or some lesser number - no idea. What seems logical is that enterprises will demand the same service levels from a full VoIP sytem as they got from the PSTN's, and that is built around 99.999% availability. So whilst Vonage is principally a retail / SoHo play a few hours spent at the beach is OK. To go mainstream it's not.

Whilst I am here a link to a previous post Go South Young VoIP'ers. Yesterday I was in a meeting with a company that claims to have solved the feature issues caused by SIP passing through IPPBX's passing through border session controllers (my middle name is esoteric.)

Andy makes the point that the S. American governments are trying to protect their local PSTN's by regulating out VoIP providers. Same thing happened here in Russia. In an attempt to get the highest price for Svyazinvest, the all controlling super-telco, they force all long-distance to pass through Rostelecom - the long distance carrier. Thus a number of local enterprise CLEC's wanted to move their clients on to full VoIP systems however, they found that when a VoIP call was made via SIP that passed through a BSC and then via an IP PBX (100% of legitimate enterprise VoIP traffic) they lost the features of the call when the IP PBX diverted the call / session to an internal "number". The call went through it just lost any "intelligence" - call forwarding, voicemail (?). Thus the Russian government's desire to protect revenues caused a Russian technology company to overcome a global problem. The law of unintended consequences strikes again.

08 July 2004

Yukos and the Banks

Politics are not my normal terrain, and to be clear both Yukos and the Banks are about politics.

For ever and a day the Investment Banking analysts have been telling us that the Yukos affair is about humbling Khordokhovsky and not about taking Yukos to bankruptcy. Well its effectively bankrupt and the only way that it's not going to be bankrupt is politics. That way the portfolio investors can maintain their navel gazing shortsightedness and pretend they did not lose too badly.

The banking crisis is an oxymoron - to have a crisis you need a banking sector. Anyhow it too has been driven by politics. I have on my desk (somewhere) the banking blacklist. It comprises 38 banks including 2 of the 4 leading non-state owned banks. That I can get my hands on it somewhat goes to prove that its meant to be seen. And causing a run on the banks who you can't control is a pretty good way to get them to come in to line.

It might amuse you to know that there was a queue outside Citibank's branch yesterday. So strong is the public's faith in private banks.

The Russian menatlity is stronly zero-sum-game; and it is now being played out in front of our eyes for all to see. I am afraid to say that Putin's government has gone from partial reform to failed authoritarianism.
Valuation

Two good posts on valuing an early stage deal. First from Fred Wilson which is philospohical here. The second from Brad Feld on deal algebra here Feld Thoughts: Venture Capital Deal Algebra.

What the second post does not go on to say is that by the time you factor in a. liquidation preferences (VC's get there money out first and sometimes in a multiple of what they invested) b. potentially a coupon on the preferred stock c. penny warrants etc. that the implied pre / post-money valuation is a lot different from the headline number. To borrow some algebra from Brad Feld:

Implied post-money = (invested amount)/(return to investors / total return). For the implied pre-money subtract the amount initially invested.

Thus if you invested $2mn at $3mn pre-money (assuming no further dilution) you would expect the investor to receive 40% of the proceeds of a sale. Actually the % of the return that an investor gets after liquidation preference et al can be a lot higher.

As Brad Feld points out many serial entrepreneurs don't always follow the math - try this on a whole nation of first time entrepreneurs. Add to it the national characteristic that lawyers don't matter its the handshake agreement and you are open for all sorts of interesting discussions.

02 July 2004

Skype Under Attack

A much more cogently argued piece from The Register on what is wrong with Skype via David Isen than my rant yesterday. Isen argues that David Mahy is demonstrating "bellheadedness" and goes on to say "the "industry" that will bring VoIP to most of us is the Internet Industry."

I am not entirely sure that the two are disagreeing. The article's introduction says "and focused on the difference between the instantaneous gratification of Skype for private individuals and the safe and efficient enterprise wide VoIP implementations, reliant mostly on the SIP protocol." We are all very happy to pay nothing for personal or small-business calls. Can't see IBM doing the same.

Skype's business model is based on selling VAS. As Mahy points out that is very unlikely "That's missing the point, don't you think? Say a Skype user in India wants to communicate with me in California on a SIP network. He can make a basic call through 2 gateways with international toll charges. Its unlikely that I will see his correct caller ID, and dead certain that we can't exchange IM, video, presence status, or do file transfers. A pair of implementations using SIP could do this for free over the public Internet."

And then we return to the security issue - which has some legs but may be as much about the easy line for journalists as any real concern.

I have seen a number of recent firewall implementations that ban cross-firewall p2p sessions - I think it will be a standard feature in 2005 enterprise releases.
Ridiculous
ITunes has finally launched in the UK - hurrah. If you don't have a US registered credit card you can't buy ITunes from the US website.

However, my wife tells me that a song in the UK costs 75 pence. At the current exchange rate that's $1.42. Which is just plain ridiculous. Did the Apple execs think that we would not notice?
The Bizarre

I rarely blog the bizarre Russian happenings but here's one. From about 5a.m. this morning a car alarm from what could only be a very small car went off incessantly. It was still going when I headed off to work. Only it (it being a badly-parked Nissan Micra) was now surrounded by 6 Militsia (policemen.) Who had succeeded in opening its passenger door - but clearly not in turning the alarm off.

Usually you only see 6 policemen together when there are some Azerbaijani, Armenian, Georgian etc., market traders to be beaten up.

Q. Why do the Militsia travel in threes. One who can read, one who can write and one to guard the two dangerous intellectuals.

30 June 2004

RSS

Link via A VC to a RSS wishlist at therssweblog.

Tech bloggers are all a little self-involved (it's a stat thing) but this and Brad Feld's blog on why he invested in NewsGator makes it a big RSS day.
Telephony Software

Niklas Zennstrom on the emerging realization that telephony is just software; a fact that anyone in the telephony world cottoned on to at least 5 years ago - its just taken the software world a while to catch up with the practice. Link via A VC. As with any recent convert they have a habit of skipping over inconvenient facts and making statements that are not based in reality. Or at least in any reality that we are likely to face in this investment cycle.

The main thesis of his argument is accurate, provided that we stick to fixed-line networks.

"One key factor is that when telephony becomes a software application, it will live on the edges of a network. There will be no centralized control. Telephony development cycles are still very long. But their carriers' services are very much commodities, and there isn't much differentiation.

When we can change telephony to an application, we'll be able to change the economics of it. That will increase software innovation, new products, services, features. And that will be in the hand of small, nimble, software development companies. There will be higher competition, and the services will live on the Internet."


Hoever, he overstates his case. In this generation of telephony software, JAIN SLEE-based advanced intelligent networking, it takes less than a month to build and deploy an enterprise VPN. It takes less than one day to build a SMS marketing app, or location-based service; i.e. if you are watching Euro 2004 / the Yankees etc live from their stadium then you can get free calls over such-and-such network. These services are available today with some mobile providers in Europe, none in the US (albeit one fixed-line provider could if it had a marketing department worthy of the name,) and increasingly across Asia. Becasue the mobile operator is capable of gathering information from its network they are able to provide considerably more intelligence in an application.

The Internet is the ultimate stupid network. Client-side software cannot completely replace IN and that "information from the network is needed to provide new applications. And its the new applications that are supposed to pay for giving voice (still the killer app) away for free. Without which Skype and the like remain disruptive tecchnologies and not disruptive business models. I continue to believe that network ownership provides the information that is required to provide really innovative applications.

The article goes down hill a little after that:

"There will also be increased robustness. If you have a switch go down or a gatekeeper, that's not a problem to the end user. They can go to the Internet and find another route of communication. That will not be a problem for a decentralized network."

Unless of course the switch / node etc happens to be the one to which you are connected. The quality of service difference between my ISP and my mobile provider is the difference in call completion between 80% (ISP) and mid-90's (Vimpelcom). Move that quality differential to Europe where Vodafone et al really does buy equipment with 99.999% relaibility and any piece of network software has to have the same reliability. He also continues to believe that existing networks are centralized - they are not as decentralized as the Internet - but intelligence is increasingly at the edge and controlled by the same software of which he talks.

He goes on to make some good points about the commoditization of voice. Which as an overall point even the FCC gets. However, to Skype, voice is just another form of data, albeit one that the "higher quality" Internet can cope with, whereas video is, as yet, not enterprise standard. I suspect his emphasis on the death of voice is poorly masked marketing. As is the plea not to be regulated. VoIP should not be regulated, not because its not a monopoly. His desire not to be regulated is because Skype, and others, do not want to have to guarantee connections for emergency calls. It's business model precludes it from taking responsibility, but it also won't take responsibility becasue their QoS is not good enough.

My bet stays with the cable companies, the telco's that are willing to innovate quickly and Vonage - in that order. And that's before we start talking about Skype security issues.

23 June 2004

Pitch Me This

From Brad Feld on what questions a pitch to a VC / me should include and why PowerPoint is so badly used. Feld Thoughts: The Torturous World of Powerpoint.

Please, please, please if you are pitching read this first.

22 June 2004

Stock Options

A leader in the FT of 21 June on the cash flow impact of options. The title Will reform pull the plug on technology profits? (requires subscription) might give you a hint as to the writers initial leanings.

The net transfer of wealth diagrams at the bottom of the page are instructive. The article suggests that the furore over options is a back lash against the expose of how much value is being transferred from owners to employees. Over-stated I would imagine. A buy-side analyst worth his pay packet will already have factored in the dilutive/cash-flow impact of stock options. The greater issue is their ability to align interests all the time, not just when things are going well. Not being particularly well versed in motivations in large companies, my comments will be limited to start-ups (though they are inherently the same for people who value their work rather than their ability to climb the corporate ladder.)

When do start-up founders / employees worry about stock options?

a. When things are going well
b. The day they join
c. Every new financing round

When do start-up founders / employees worry about cash remuneration?

The rest of the time.

In particular stock options have almost no impact on employee behaviour when life gets difficult (sweat equity yes, options no.) As the article points out there is a growing feeling that options are a poor way to incentivize employees.

Not that I am trying to do away with options altogether. Better a stock option than cash, especially when the cash is limited. But lets not pretend that a talented sales guy is tied to the company (aligns his interest with yours) through stock options. Not being seen to fail is a better incentive.

Which leads to the follow on question. With what do you replace stock options? Maybe like democracy they are the worst system we have; except for all the others.
RSS and email

A good post here from Many-to-Many on ID and push versus pull communication models. Because I am looking at a deal that crosses in to this space (P2P information updating; this time push versus pull) the post touches upon a number of the areas that I think about.

I think that both Ross and I exist outside the big company way of doing things ("behind the firewall) and therefore think about email in a different way from an IBM'er. Michael Sippey comment makes the point better than I can. He concludes; "We�?re doomed to a life of infoglut, push or pull!"

Maybe the question we need to be asking is not trusted versus untrusted, push versus pull; but restoring quality of information. Is it really better if a meeting note is posted to a corporate blog-site or mailed to the everyone who might want to know about this. The same information has different meanings to different people. Since I started pondering corporate information networks I cannot count the number of times that I have been told that the seemingly useless dissemination of information (cc; all) has resulted in a bad decision not being made byforcingg someone to turn up to a meeting with additional information.

Whether the information is pushed or pulled matters not. We have to read an enormous amount and discard 99% of it so as not to miss something.

With one of our companies (a $5mn+ 2nd year start-up) they are blogging the softer elements of sales/marketing meetings. I receive the RSS feed more as an experiment in communication than trying to play a role in product marketing. The writers are all "trusted" emailers and the VP sales, a founder and board member, will regularly email me as well. He'll get in to my inbox whether he pushes or I pull. However, I rarely get informational email from the company, instead I get actionable email. I pay more attention to the actionable email when that has to be dealt with because they want me to pay attention. And when I set aside time to be informed I get more out of that. Better quality information.

You could argue that if I managed my time better I would achieve the same purpose.

07 June 2004

More On Mobile

Earlier today I had a mini-rant on the US not getting mobile services then via Om Malik comes this super rant from Russell Beattie Where's the Mobility? It took me a while to get through the comments so I have not had a chance to get the rest of his blog but I agree with the theme of what he says if not all the content.

First of all the means of communication is (relatively) unimportant. There are great things to be said for CDMA2000 versus W-CDMA v's WiFI, WiMax and on and on. In short there are inherently better ways of delivering bandwidth to the place and time that it is required; some suffer from poor economics others from integration issues, others still from pure stupidity by carriers. However, the issue is not the means of connectivity but the services that can be provided by connectivity. Just because a person's connectivity is limited to a desk top PC does not reduce the communication services that he can access via SIP (to his machine) and via SS7 to other communications devices.

It is the services that matter; these used to be called apps. To build them quickly and to utilize all the services that may be required to make them easy to deploy and easy to market you rapidly move in to the great convergence that is rarely covered; networks and IT. Some quick definitions; what do I mean by services? Parlay does a pretty good job of defining them but here they are anyway;

Generic Call Control
User Interaction
Mobility
Terminal Capabilities
Data Session Control
Generic Messaging
Connectivity
Account Management
Charging
PAM
Policy Management

A mobile operator looking to build an app on a 2.5 - 3G network needs to use some or all of these capabilities in different mixes depending on the nature of the service; a PAM app requires PAM, location, terminal capabilities, call control, charging. A video call requires call control, charging and data session control. Just think of the charging capabilities required - do you charge per mb, or for the type of the call at the time of day? Imagine if a filewas transferred during a video call - how would that be charged. Ask a Bell-head what chance of developing these services in an AIN environment. And yet as I mildly ranted earlier US operators are building services using stovepipe solutions that don't allow these services to be easily offered and easily changed.

From hosted-PBX to VoIP services over any network the convergence of networks and IT (as well as object oriented programming) has fundamentally changed the way that services can be provided over networks of any kind.

I would be remiss not to acknowledge that there are issues, substantial issues, in provisioning data for different devices; securing enterprise data; marketing the need to enterprises and on and on. However, it strikes me that these are implementation issues not technology issues.

So I conclude its not just mobility, its mostly mobility but its about services over any network.
Venture Over Funding

A great post here from Bill Burnham via Fred's A VC's blog on massive overfunding in the mobile application space.

I am not going to add to the comments on over-funding of hot companies; but actually rubbish the technology and then take a poke at technology acquisition. Seven is a great example of a stove-pipe solution. Great if you want to add just the ability to send and receive mobile email, but once a network operator wants to add other services / applications and charging capabilities with slightly greater sophistication than $x per mb, or per email then the system integrators get to rub their hands and put their hands back in to the cookie jar. All these cool apps, are just that apps. They aren't technologically advanced, they aren't future proof and they are difficult to integrate.

A semi-literate Java programmer could replicate Seven's technology in about a week using this generation open standard; if you don't believe me go to the Parlay org's website or Sun Microsystems JAIN (Java for advanced intelligent networks) JSLEE websites and think about how much more these two technologies can offer than Seven.

So why has Seven raised a chunk and the ISV's that form Parlay and JAIN / JSLEE next to nothing. Superior marketing may have something to do with it but there is also a trend in the US to keep on acquiring stove-pipe solutions - and then complain that they don't do the job advertised. It has been suggested that as US carriers, in particular, have cut back on R&D they have lost the ability to spot technical bullshit in the marketing blurb.

Somewhere between the US super-charged attitude and the European ultra-cautious approach would make sense for everyone.

01 June 2004

Energy Conservation

Flipping marvellous post from Jeff Nolan on the downside of depending upon gas guzzlers for your means of transportation Dependent on Gas. Not exactly SAP stuff but isn't that the point anyway. Anyway I am sure that he will be delighted to hear that I support one of the main tenants of his piece. Namely that electricty driven motors are the most obvious solution; provided that I remember the physics that I was once taught. If we had finished capital raising I would have backed a very smart brushed-electric motor. Instead its got Russian money and risks heading to oblivion.

Just got to find a way to create cheap electricity!! That will do for the next challenge.

17 December 2004

Letting Go

I believe very strongly that different people have different strengths at different times in a company's life. It's easy to characterize it as pre-revenue to $5mn in revenues; $5-20mn and $20+. As with all generalizations it avoids the subtleties but hits the key points. I have learnt, painfully at times, that my strength is in the "pre-money to $5mn revenue" area. I am genuinely interested in all the bits that come with being a larger company but have very little to add to a CEO who has been there before. For those fighting through to the first year of product sales (as opposed to NRE or grants) I can offer a ton of tough love.

However, like any affair there is a good, better, worse moment to admit that your value on the board could be improved by a someone with skills in the next category up (or the workout category!!)

It does not make it any easier to step down, refocus on the company's where you add more value and move on.

Still feels like shit though when they are doing well.

13 December 2004

Apple - London

I just passed the Apple Store on Lonon's Regent Street at 13.00 - ish. It's FULL. The queue at the checkout was about 20-25 minutes. Nearly everyone was buying i-Pod's and i-Pod accessories (a lot of sound options) but it was clear that people were looking at the Powerbooks and G5's as well.

Happy Christmas Apple.

More On The Economy

Apologies to the Daily Telegraph for failing to remember the link to this. But its yet more evidence that inflation and the dollar's collapse, or the Rbl's rise (the mental masturbation required to make a difference is not worth the effort). Surprisingly it is at the high end where restaurant spend is on the up and up. I thought that the pain was being felt by the "middle-class."

Electronic Telegraph (UK)

December 10, 2004

Russia's super-rich steer clear of shops as boom era ends By Julius Strauss in Moscow

In Moscow's elite Tretyakov Passage, a typical offering at Tiffany's yesterday was a gold, pearl and diamond necklace for about £14,000. In the windows of Gucci, Dolce and Gabbana and Tod's, shimmering behind a phalanx of security guards, some of the smaller accessories cost more than an average Russian earns in a year. For those with serious money there were the Bentley, Maserati and Ferrari showrooms next door. But yesterday, barely a month before Orthodox Christmas and despite a warm spell that brought temperatures up to around zero, the outlets where the super-rich shop were almost empty.

In Russia, which has enjoyed five years of vigorous growth under President Vladimir Putin, experts say it is too early to speak of an economic slump. But economists and even government officials say that the boom which has given Moscow more billionaires than any other city in the world is now over. According to the latest figures, economic growth has fallen to its lowest in 22 months. Industrial growth is back to the levels last seen after the crash of 1998.

Anton Struchenevsky, economist at the investment company Troika Dialogue (sic), said: "This is more than a slowdown. In the second half of 2004 we are talking about stagnation in five leading industries."

In his first term Mr Putin made the goal of doubling the country's GDP by the end of the decade his top political priority. In scenes reminiscent of the Soviet era, he is now frequently shown on state television urging government ministers to ever-greater efforts in the pursuit of national prosperity.

But two mini-slumps this year mean that even government forecasts now say that his economic goal can not be achieved before 2012 at the earliest. With year-on-year growth down to around 4.5 per cent in November, it could take much longer. The downturn comes at a time when oil prices, the main source of Russia's wealth, are at record highs.

After coming to power in 2000, Mr Putin laid the ground for broad-based reforms. His economics minister, German Greff (sic), was allowed to pursue a western-style liberalisation of the economy that brought foreign money pouring in. But in the past two years the siloviki, former colleagues from the security services with little time for liberal democracy and a pool understanding of economics, have won the president's ear. The result has been a new chill in the country's business community.

Some economists now believe that Russia is on the cusp of a return to a state-run economy.

The unseating of Ukraine's pro-Russian president-elect, Viktor Yanukovich, has all but dashed Mr Putin's hopes of revamping a regional empire on the ashes of the Soviet Union. Now the former KGB officer, who likes to model himself on one of the greatest Russian modernisers, Peter the Great, is in danger of seeing an even greater ambition - that of turning Russia into a strong, wealthy and modern country - go the same way.

11 December 2004

Mobile Roaming Charges

The Register on the EU on Roaming Charges.

It's interesting stuff if only because I am working with a couple of start-ups on ways to use VoIP rather than your mobile. Unfortunately nearly all solutions require either a phone hack or a network type solution. Which takes us back to the network operators. The easiest solution at the moment seems to be yet more death for fixed-line operators.

Bets On James Enck's Longevity at Daiwa

After this post on the lack of real thinking allowed in brokerage research I guess a market should open in days that he will be at Daiwa after bonus payment date.

China versus Russia

In Saturday's FT there is a long piece on Liu Chuanzhi, Legend's CEO and The Man Who Ate IBM (Subscription only) The article says very little actually unless you are a sucker for reading PR releases.

Also in today's FT this piece on the first time in Ikea's history that they have failed to open a store on schedule. The blame is being put squarely on the local authorities shoulders who in a usual piece of shameless hucksterism saw a way to a quick bribe when they "discovered" that an obscure stamp on an obscure piece of paper had not been obtained. I am sure that it happened but normally Ikea would have solved the problem; whisper it quietly but the rumor doing the rounds of the retailers is that they were just not ready. Anyway this post is not about Ikea exploiting corrupt bureaucrats to cover their own problems.

The theme is China versus Russia. Mr. Liu Chuanzhi started Legend in 1984/5, 8 years before the collapse of the Communist regime of the former Soviet Union. After a couple of missteps they localized IBM PC's. They started building their own brand PC's in 1990. Today he runs a business that has bought the PC making business of the guys who invented (sic) the PC. Does it seem likely that a Russian-led firm will buy IBM chip design business before 2010?

The question is in itself flawed, as the comparison is actually apples and oranges. Legend has taken over a business that is about inventory and logistics and the application of technology. Russia will never compete in this business space. The real question is where are the international business leaders in Russia who have boot-strapped businesses and when will they start to challenge to be global leaders. Where is the Russian tech business that is exploiting Russia's great talents to take on the world?

My life is about entrepreneurs not established businesses. However, I don't feel or see management quality almost anywhere. There are some inordinately clever people surrounding the Oligarchs and a bunch of pretty clever ones around the Minigarchs. But they are not building businesses they are deploying overwhelming financial power to win in not very crowded spaces. They are not and never will be entrepreneurs. For the record let it be known that VC's are not entrepreneurs either. Some may think more entrepreneurially than others but our future is safe - until it's time to raise the next fund. I spent some time with a pizza & cinema entrepreneur from the regions this week. His mantra is quality of execution. There are very few other businesses where I get that feeling.

There was a point to the Ikea link. Business in both Russia and China is fundamentally corrupt at the bureaucratic level. Yet China has succeeded in creating a number of international businesses that compete on their ability alone; Legend, Huawei and UT Starcom straight off the top of my head. Where is the Russian UT Starcom?

A previous post despaired at the India versus Russia comparison because it is so meaningless. This one despairs at the China versus Russia comparison because it is so huge.

08 December 2004

Messages - DFJ Nexus

For nearly all of you please ignore this message. On 12/7/2004 someone asked about the status of our raising for DFJ Nexus. We are.

Please contact me at astobie at dfjnexus dot com

07 December 2004

The Next Big Issue

It's interesting to watch an issue emerge and the reasons for which they emerge. Ukraine is now a VERY big issue in Russia. It became a big issue when Russia failed to steal an election and the people decided to respond in a very unexpected way (for Eastern Europeans.) However, what should be a minor issue has become something considerably more significant in terms of Russia / Western Elections.

Putin Warns West to Back Off

VC's Bubble Their Way Into China

An interesting article being sceptical of VC's rushing to China. This is not a post decrying VC's rushing to China when they could be coming to Russia. Though it's still a nice idea.

I guess that my business model is to be ahead of the bubble so whilst I still don't have cash please stay away. However, bubbles in any emerging market have an impact in every other emerging market as once bitten, twice shy always works. It would be nice to know that intelligent people would look at all markets equally.

The Talk of a Bubble as Venture Capitalists Flock to China

06 December 2004

Hypocrisy

This from Dan Gillmor's eJournal on the steroid story that refuses to go away in professional sports.

His last point is that he has tuned out the steroid story to focus on the Middle East and a lot of people dying. I believe that this is the worng answer. We have tuned out too much and accept being lied to as the norm. I tried to add this to the comments section but hit server problems.

I would never compare deaths in Iraq with taking drugs in sport. However, our ability to tune out events that we knew to be lies, corrupt, hypocritical started with sports and then moved pretty rapidly to low-level politics, then to national politicians and then suddenly to voting and participating in society.

Drugs in sport is just another example of us (the people) being taken for a ride by the establishment. In some cases it does not matter; take boxing for example which is now so corrupt that it barely registers a flicker before being ignored again. In too many cases just ignoring the bad and corrupt leads to a situation where we accept being lied to as part of the daily truth.

At some point we have to stand up and be counted by demanding that lies be accountable. Sports is not a bad place to start.

India versus Russia

Vladimir Vladimirovich went down to India to get away from his problems in the Ukraine. This from the NY Times Putin Woos Indian Help for High-Tech Hub on 6th December makes me rather annoyed.

It's too easy to stand in awe of the Indian outsourcing model. However, Russia cannot compete in this space on price alone. It can compete under the Israeli model; invent and move to the US. Outsourcing, will never be Russia's strength they are not process oriented and their strength will be in being disruptive not in executing somebody else's idea.

05 December 2004

Me Too Investing

Om charts the end of the original Reef Edge business plan and then finishes the post with the (multi-) million dollar question;
The big question, however remains for the venture capital community: how do you evaluate a start-up that is involved in highly commoditized business like WiFi?
Um...you don't. Venture investing is about anticipating trends, being the start-up that the main stream wants to buy when the product goes mainstream. If you are investing in VoIP today then please go read the hundreds of posts available on me too investing. That is unless you are Tim Draper at DFJ who has the uncanny knack of spotting disruptions in business models. Skype continues to outperform expectations.

The answer lies in the link at the top of Om's page in a very readable 10 Commandments for Entrepreneurs from a Mayfield Blog. Actually it's 13 coommandments and the 3 extra are the most important. I paraphrase;

1. Great technology
2. Great team
3. A market undergoing significant transition

The VoIP market is still in the process of undergoing significant change but the end games are beginning to look a little clearer. With the possible exception of Popular Telephony I don't see much technology disruption going on in the VoIP business model. Technologically the changes are even fewer and further between. This game has been going on for a while. We are approaching the moment of truth when the last 3-4 years of worrying will either lead to a great sale, a good sale, a thank god we sold that sale or oh shit. With the only really unknown happening at the good end of the scale.

Telecom has been undergoing it's own moment of transition for a while now ~ effectively since the beginning of the Internet bubble. There are some plays to be made at the edge (sic) but I doubt that an investment made today in a technology will result in a "Google" day.

We made one play in the telecom world very early and very boldly generating pretty much a 10 on the ulcer scale. At the end of the year I will step down off the board in favour of someone who can help the company as it transitions from a business generating $5-7mn in sales to one that could well do over $40mn in 2005. Job done, time to get the ulcer in full functioning mode again.

01 December 2004

Ukraine

There seems to be some doubt as to why Russia would support a gangster who has never done them any favours over a democrat who was happy to sell to the highest bidder.

Just in case the confusion continues anywhere out there. Russia wants the Ukraine to be a pariah state which is shunned by the rest of the world, with the possible exception of that paragon of democracy Lukashenko from Belarus.

Short term financial gains be damned this is long-term control over its own backyard. Which, if anything is to be learnt from history, is probably a good idea. It's just that your average Russian always has to take the hardest route from a-to-b. If it's possible to fit in a convulted trip via AB1 at the same time that would suit them just fine.

If Putin surrounded himself with people who could think there way out of a 2004 paper bag the solution would be screamingly obvious. Schooling in cold-war spy techniques tends to create a degree of paranoia that makes it logical to support the guy who does not want your support.

26 November 2004

Goodbye And Farewell Baring Asset Management

The Economist today reports the sale by ING of Baring Asset Management;

ING agreed to sell Baring Asset Management to two American firms. Northern Trust will pay the Dutch giant some �260m ($489m) for Baring's financial-services business, while MassMutual will pay an undisclosed sum for the investment-management business.

I was at BAM when Nick Leeson and the management succeeded in selling the business to ING for GBP1 and some fairly large debts. Given what came later at LTCM it was pretty small fish.

It was a great learning experience. My boss, Richard Sobel, taught me a huge amount about the Russian venture capital, private equity business. What the organization taught me though was as important. Treat people like human beings and not as cattle. Seniority, or time served, does not equal a divine right to be respected or paid like a king whilst the performers are kept down in concerns about over-spending.

I joined BAM pretty much straight out of the Army. The Army is a hierachical organization but it was clear when orders were being followed because they were orders and when it was done from respect. Senior management never learnt that lesson.



25 November 2004

Russian's Go Home

Some 25% of all Israeli's holding with higher education received their education in Russia or the former Soviet Union. And now they are comig back Israel faces Russian brain drain from our friends at the BBC.

If Russia can get at least some of their entrepreneurialism that would be a good thing.

Russian Consumer Confidence Crisis?

Since the beginning of September retail consumer spending seems to be down anywhere between 30-50%. The evidence:

  • A high-to-mid end consumer electronics distributor (-30% versus forecast) who are pleased with themselves because they are still outperforming their competitors. They are no longer serving one of the larger retailers who they believe will soon fail.
  • A direct marketing organization. Again 20-30% down against forecast (up to August they were both outperforming against plan)
  • A residential real estate company which says that to the extent that deals are being done at all prices are down 50% since pre-summer.
  • An advertising agency which reports that car sales have stalled - "there are no cars being sold" since the summer
  • another advertising agency which reports that its staff are unhappy because their pay is $ -indexed and inflation is Rbl-indexed. The Agency is considering billing in Rbls and having to lift prices in line with inflation.
There are two more sources, both from the FMCG world, which concur but which I am not even allowed to hint at.

At the end of September people believed that it was due to Breslan, and that the stoic Russian spender would be back in full spend mode by at least November. With November just about done it looks like it will be worse than September, and November should be a good month. If the December 12th holiday weekend does not see foot-traffic back in the malls the BRIC story may become a tired much chewed BIC. Ikea are due to open Mega2 (large malls alongside their ubiquitous stores) that weekend. Mega1 was a blowout affair with km's of traffic jams in a blizzard. Mega2 may well be an opening flop.

Which pretty much leaves us with a shift from $s to Euros as a quick 20% price rise along with another 20+% of Rbl inflation in core purchases (food etc) whilst the Rbl/$ exchange rate has gone from close to Rbl30:$1 to Rbl28:$1. The last data point above comes from my wife's BTL agency business. Her staff, predominantly young & female are feeling poor and it is becoming increasingly difficult to hire event staff (job description; young, female, good looking, ability to stand up) at the $-indexed price they have been offering. She reports that this is predominantly a Moscow phenomenon; the Regions usually take a while to catch on.

I guess that it will take another quarter before the Central Bank starts to pay attention. Whither the Rbl? To 30 or even more aggressive?

Is this Russia's version of the Dutch disease? Given that there is shockingly little domestic manufacturing maybe its the consumer who will take the smacking instead. Not that the super-Rich care.

Update: Confirmed by a foreign car manufacturer

23 November 2004

Russia Teaches Ukraine How To Steal Elections

Some coverage from the Moscow Times on the theft of the Ukrainian election Outrage as Yanukovych Takes the Lead. I spent some time yesterday with a Soviet era bureaucrat who has made himself unbelievably wealthy through some insider gas deals. We spoke briefly about the elections (it was his money I wanted) he believes that there will be real trouble in the Ukraine.

It only goes to prove that ex-KGB men are brilliant at stealing elections - just less good at knowing what to do once they have stolen them. For those who have yet to work out that I am British (Scotish) note that this is called under-statement.

17 November 2004

Stupidity of the Highest Order

Up until this point I have been a strong supporter of Andrei Fursenko who has shown himself to be an intelligent and critical minister. Thisrubbish on resticting the Internet does not sound like him. Maybe the geniuses who have failed to corrupt elections in Abkahazia (its about 1,000km after nowhere on your map) and the Ukraine (only marginally closer) have realized that television is not the only information medium.

09 November 2004

Battery Power and Skype

A long term sceptic of Skype's ability to disrupt mobile communications I was just made very aware of how good it is.

A call from Palo Alto (Sand Hill Road to be precise) to my Moscow mobile roaming in Zurich could not connect - lots of SS7 messages agreeing that we were talking but no sound. Log in to the WiFi network and Skype away (w/o headset and mike; is it worse to hear the whole conversation but not understand or is hearing only one way worse?) But I went from 20% of battery power to critical in less than 10 minutes. That's not sustainable.

A conference I went to a year ago mapped various tech advances against battery advances. It had to be on a log scale so that battery power did not merge with the x-axis.

01 November 2004

Video Google

Check out this quotation;

There will need to be a Google of video -- a means of helping people find what they want. And, no, that's not just about creating a search engine. It's about capturing the metadata we create when we watch and share things and making sense of it. It's not trivial but it's vital for without a great guide, we'll never find the programming we want and this new medium won't work. This video Google thing will be the next Google and TV Guide and it will be big. And I doubt that either Google or TV Guide will be the one to create it.

from BuzzMachine... by Jeff Jarvis

I'm so confused about listening to music on my iPOD - some albums should be listened to as albums, sometimes it's great to listen to mixed up songs. Before digital music you looked at an album cover that was close to the top of your CD collection and the picture would conjure up an sound......The same is sort of true finding programs on the TV, be it cable or broadcast.

iPOD's and PVR's (TIVO's etc) change all that. In addition, as Jarvis points out, content is increasingly indivualised, or is that not big-corporate, so it's not as though you know where to find it, or where you find it, or whether it's what you want to listen to.

So something new is required.

25 October 2004

Sistema Triple Play

It's pretty difficult to get overly enthused by anything Sistema does or says its almost a direct copy of the countries bureucracy. James Enck posts on the announcement that Sistema and Alcatel are partnering for a DSL triple play. With ARPU's in this market at $20 and heading toward $14 pretty rapidly, with 13 free-to-air channels broadcasting all the meaningful content and with still crappy pulse dial up I cannot see DSL being a winner. Having said that Sistema has access to the best new "elitny" houses which is where pricing is fairly inelastic - maybe there they have a chance. My bet is with the Ethernet home LAN's being aggregated.

22 October 2004

Creative Destruction in Emerging Markets

No this is not another rant about the stupidity of people in Russia's government - though I will take the opportunity to have a go later on.

I caught the train to St. Petersburg on Wednesday night to speak at InfoCom 2004's wireless forum. Not quite as prestigous as speaking at VON. I took the opportunity to try out my how creative destruction in the telephony world will affect Russia. If I was a good writer I would now set out the state of the telecom industry in Russia. That would take too much time and isn't as much fun as trying to determine where its going.

In short;

Substantially all residential is still on pulse dial-up
Large corporations are well covered by a mixture of politically-connected incumbents who have aggregated CLEC's and the one or two CLEC's that made it, such as Golden Telecom - now NASDAQ listed and one of my previous investments.
A motley band of smaller CLEC's trying to service SME's and SMB's who cannot get anything approaching service from the above
Another (motley?) bunch of local home network/cable/ethernet/wireless (quasi-licensed) most of whom are cf positive - they have to be. But none of whom are really growing that quickly. A bunch of them just received investment from Oligarchic groups. A favorite of mine just got funded to the tune of $50mn.
Three principal cellular networks and a WCDMA player in the 450 band trying to break in.

The incumbents are profitable though I would bet that the Sage of Omaha would contend that as free cash flow is less than depreciation that they aren't really. The 2-3 incumbents and successful CLEC's are wildly profitable/cf positive - albeit with crap service. The motley crews are substantially all cf positive but until very recently w/o the capital to grow and capture the opportunity. The mobile guys are an interesting group. Growing rapidly in the regions the main markets are rapidly approaching/have reached the point that customer acquisition costs produce ever lower returns on investment. They really need the wealth to grow in to them rather than reaching down to acquire unprofitable subscribers. Meanwhile, GPRS is only really a reality in Moscow (Blackberrys don't work in St. Petersburg - roaming issues related to billing infrastructure rather than lack of network). But you can already see trial UMTS networks in Moscow with the right equipment. In addition an also run network is the first to trial WCDMA (I think) in Russia in an attempt to break in to data markets. It's an interesting play in Russia but I'm not sure what roaming capabilities it will have.

So that's the preview I wasn't going to give. What's the opportunity in creative destruction?

The cable guys aren't selling cable TV but high-speed internet and quasi-IP telephony. The PSTN's won't invest in local access, except in "elitny" housing and cannot provide business services. Cable TV is an add on sale (I'll go into this more some other time - think German cable in the meantime.)

Voice is free in the local loop - all of Moscow's 8mn inhabitants plus calls to all local mobile numbers call each other for free, so its difficult to disrupt a model where you will be charged the same for interconnect - which leads to a thought; is SkypeOut just a discount calling card with a fancy GUI?

I have always struggled with the opportunity to disrupt mobile companies from a business model point of view. I just don't buy in to mobile operators providing a pipe to better-than-Skype's. Put another way - the big mobile companies intend to keep the walls around their gardens very high. I also understand that Vodafone is not going to use a true VoIP solution when they launch UMTS. Which would suggest that they have not solved packet hierarchy issues. So they can lock in a lot of their value. Don't get me wrong - technology advances will eat away at/destroy roaming charges, lowest cost routing savings will be passed on to the customer. Data will at best keep ARPU's where they are. Single number plans will do further damage. However nothing is as fundamental as the pain that fixed line providers are going to face.

My conclusion is that in addition to creative destruction in applications we will also need to see alternative delivery methods. I don't believe that Intel's WiMax push will be part of the creative destruction. I was bamboozled today by a Professor talking about Russia's efforts in DAB/DVT in conjunction with GSM - is this it?

Anyway my takeaway is that I failed to be controversial because Russia is still getting used to what already exists and does not want to see a disruptive future - more importantly it does not care less about the disruption to its PSTN's.

Watching TV

Brad Feld lays out some good thoughts on the future of watching programming. I am currently lugging around a 100 page presentation by one of the Big 4 on the future of media. Based on a series of interviews with CEO's of Disney, Viacom, BSkyB etc they try to get to the bottom of how they view the future. Let me say at this point that I am on page 50-something but my big takeaway is that they all have different views of the future - except they all know that the 30 second add is dead.

I sat for a while on the boards of 2 TV network / station groups in Russia, am an investor in Russia's largest producer of Russian language content for TV, and are currently selling a media-selling agency, but feel all at sea in this business. As I don't spend much/any time in Beverly Hills I can't say whether medialand spends much time talking to VC's like Brad - they need to. Innovation is about to eat them up. What will be left is some of the least profitable parts of their business (gross margins at less than 40%).

Martin Geddes put in a great post on creative destruction in the telecom industry from VON. I have not seen the same introspection in the media industry.

20 October 2004

Popular Telephony

Tom Keating has more interesting coverage of Popular Telephony's global numbering efforts ("GNUP"), also from James Enck on Popular's global numbering. I don't like this, read what someone else wrote blogging style but a comment and subsequent response from Peerio (the name of Popular's product) is worth covering;

In order to implement peering between disparate networks, this would need a media wrapper (or gateway) to exist between protocols, wouldn't it?
Posted by: Andrew at October 18, 2004 11:35 PM

Not really... There are no networks really... SIP or H.323 or whatever... it is all on the user machine isn't it?
Posted by: Peerio at October 19, 2004 10:52 AM
As a Mac user I have yet to check out their claims but it seems to me that they are way ahead of the crowd.

Update: Martin Geddes posts from VON with some great thoughts including why we should all be scared about communications. Key take aways;
  • Too many border session controllers = trying to make the IP network resemble the current TDM network
  • Popular are "hijacking and subverting" the global numbering plan (this was meant in a good way)
  • A lot of money will be lost in VoIP - see point 1 to understand the coming crisis - So if you’re putting your pension savings into the VoIP business, tread very, very carefully. This boom going to hurt as bad as the .com explosion. One way or another, there’s going to be a lot of roadkill, and a lot of get-rich-quick money from inflated promises.
  • VoIP is a classic separation of application from carrier and more importantly the financial relationship between the two - someone astutely commented that a key aspect of IP was not just decoupling of the applications from the service. It is also the decoupling of the financial relationship between the connectivity and service provider.

All this should apply to the mobile network as much as the fixed. However I recently saw a line in a RFP to a global service provider that said in effect that GPRS and 3G are not yet robust enough to support true VoIP connectivity - bomb shell. Put another way voice is going to continue to have its own protected piece of bandwidth until QOS issues can be resolved.

Timely Insights Into the Arrogance of Power

In today's FT (subscription required) is a fascinating review of Seymour Hersh's new book - Chain of Command - the road from 9/11 to Abu Ghraib by David Scheffer. Scheffer was apparently US Ambassador at large for war crimes issues (1997-2001). He finishes his review:

Chain of Command shows the critical need for evidence of illegal conduct by US forces to reach high levels quickly and elicit rapid responses. The White House needs a special prosecutor on international law to brief the President honestly and rein in officials who might forget or deliberately derail what the US stands for as a nation.
A nation at war, with itself?

07 October 2004

Packed Full of Information

Jeff Nolan has two excellent posts on the Vortex conference Day 1 and Day 2.

I'm not really going to comment on the specifics of the posts other than to say that his additional notes and commentary provide way more insight than the blog it as it's said stuff. This is super intelligent reporting that its impossible to buy. No journalist would ever know this much about a subject. I have printed them off and am reading more slowly for greater insight in to an area I understand only a little.

06 October 2004

As If It Really Matters

Copied below in its entirety is a research piece from UFG (40% owned by Deutsche Bank) on the legal games being played around Yukos. What murder being a sell-side analyst trying to paint a positive picture of what is clearly a mess;

An article in today's Vedomosti draws attention to speculation in the market about the possibility of Yuganskneftegaz passing automatically into state property. Such speculation should not be taken seriously in our view. Unless you should want us to pay us to short the stock - unfortunately you are likely to be using RenCap to do that.

The grounds for this scare are a provision in the relevant law (the Law on Enforcement Proceedings) that if an asset selected for the purpose of debt recovery has not been sold by the selling agent two months after being frozen, the creditor has the right to simply keep the asset in question. Yukos' 100% stake in Yugansk was first frozen on 14 July. A court decision of 6 August released the asset from the freeze, which was then re-imposed on 9 August by another court decision (procedurally dubious, as it turned out, but such details have long since ceased to matter). It follows that the two-month deadline expires next Saturday. We are quoting the law in the off chance that it makes a difference - we know it doesn't and our last sentence shows as much but we are like lawyers and paid by the word.

Our discussions with legal practitioners in the debt recovery field suggest that the standard practical application of the law is that the two month period begins from the moment the bailiffs hand an asset over to the selling agent. That moment has been on hold for weeks while DKW has been valuing Yugansk. Actually what our legal advisors said was; this is the law but given that the President couldn't give a damn for the constitution you might as well vote for the democrats in Florida.

Secondly, if the tax authorities did claim a right to appropriate Yugansk under the two-month rule, this would contradict another law - namely, the Tax Code, which states that tax liabilities (which is, of course, the nature of the debt being recovered) can only be settled in cash. As if they think that the law applies to them. A real estate report in the English language Moscow Times today reports that the most attractive Moscow real estate is owned by Government employees. Try this maths. "Golden Mile" real estate $5-7/km2, suburb real estate $500k-1.5mn. Average salary of government officials $100 - $2k month ($k applications are correct.)

On this basis alone, the authorities can be expected to at least proceed with the planned sale of Yugansk, rather than short-cut the whole process in what would be a scandal to put the whole of the Yukos affair to date into the shade. In any case, the law simply states that the creditor "can" appropriate the unsold asset as such. It does not oblige the creditor to do so. Apparently we can still be shocked by the application of power (sorry the law) in the Yukos affair.

05 October 2004

Pulver 100

Own investment promotion time. Congratulations to Tom Martinson and the team at jNETx on being chosen to the Pulver 100.

Also well done to Mera on also being chosen. Mera are very high on my would like to invest list - if I could come to a conclusion about value in the telco universe.

Whilst I am at the praising Russian-originated companies game; I would like to claim Dmitry Goroshevsky from Popular Telephony.

Softphones - but where's the value?

Andy Abramson posts pretty convincingly on the benefit of Softphones. All well and good so far. Then I have to link to this not quite outstandingly good post on GigaOm from Aswath Rao - an Open Letter to Steve Jobs. If the connection has to be pointed out Andy Abramson is praising the ease of configuring a piece of pure software rather than messing with a piece of hardware and software. Aswath is saying the technology exists - package it with a GUI and make it a universal communication device.

All of which I'll buy never having owned an ATA and clogging up my PC with softphone clients - my all time winner if you can get past the engineer's interface is SJ Labs. Native SIP and H.323 stacks make a real difference.

However, where is the value in engineering a great softphone? An OEM deal with Apple would be nice, but as an investment strategy is a little on the risky side.

I've seen plenty of soft-PBX's on PC's (all with engineer GUI/MMI's) so theoretically all of us could have all the "intelligence" we would ever need at the end point. Somehow feel that someone called David Isenberg got here before me.

I struggle to see the value in the engineering though. There will be some in hosting the always-on services (voice-mail etc) but if I can co-ordinate multiple sessions on my end point (PDA, laptop, etc) and the cost of my connection to mobile/PSTN reverts to the absolute cost of that service then there is little value in being a service provider.

I can see the IBMGS making $'s out of this at the enterprise level....

Thank goodness an all IP world is so far away and interoperability will maintain the ability to make $.

01 October 2004

Applied Tech Investing

Interesting piece on building VC communities. What struck me most was the thought somewhere down the page that:

First, technology VC is moving from turning science into products (core tech investing) to turning technology into businesses (applied tech investing). That's a trend that started 10 years ago but is now gaining steam across the technology and venture capital industries. In the emerging new world of technology, being located in Silicon Valley and Boston is less of an advantage and we are seeing more early stage venture capitalists locating themselves in places like NYC, Washington DC, Atlanta, Chicago, Denver, Seattle, and a host of other business centers that have not been on the venture capital map until recently.


Add Russia to that list.

VC Syndicates

Great post on VC types from Jeff Nolan. Jeff Nolan: Pick Your VC Carefully.

Everyone has followed up on it so no more comment from me.

13 September 2004

Left, Centre (sic) and Middle


I am no bleeding heat liberal but to hear Tim Oren describe himself as a centrist and have Fred endorse that view suggests to me that gravity moves in mysterious horizontal ways.

Re-classified in to UK terminology:
Fred would be an old-fashioned one-nation Conservative with slightly dodgy liberal theories or a champagne liberal - depends on your starting point.
Tim would also fit neatly in to the Consevative party grouping; that part which sits so far to the right of the one-nationers that they pass them having gone full-circle. This grouping would also hold that Gengis Khan was a little overly liberal.

None of which matters much (and its not intended as a criticism.) The point was more to demonstrate that the UK and the US have been separated by more than a similar language.

Notwithstanding, the supposedly left-wing Labour Party have sided with the Republicans (or Tony has sided with George W anyway) and the Conservative Party are trying to help Kerry (however given their (Conservative party) success recently I would personally leave them in the UK.)

10 September 2004

Terrorism on My Mind

Extracted from Philip Stephens OpEd piece in todays FT (subscription required);

�Hard power is needed to deal with those who have already turned to murder. But soft power is essential to prevent fresh recruits to murder . . . No steps could do more to outwit today's terrorists than serious efforts to establish in Chechnya, Palestine and Iraq governments which are supported, or at least accepted by, the bulk of the population.�
(with apolgies to FT - too important to miss)



Light Reading

I like these guys at Light Reading. It's real tell it as it is analysis and there are very few who who can stand the scrutiny of that claim. This piece The Softswitch Name Game. includes this incredibly apposite statement;
"If you look at the large carriers, everything they're doing in VOIP is layered on top of their [old] infrastructure."


Terrorism and Repression

I have held off commenting on Russia's recent spate of terrorism attacks and the response to them whilst I try to get my thoughts in order. Quoted below in it's entirety is a note to clients from Bernie Sucher the Chairman of Alfa Capital (one of Russia's leading asset management firms.) I agree with all of what he has written and the conclusion, but personally would take it further.

Given events, a number of people have asked after us these past days.
I answered this morning with some paragraphs that I thought you might want to see.


1. What we've seen over the last week is Pure Evil vs Absolute incompetence. The Russian State has plenty of evil left in it, but in facing monsters that kill children, the level of the State's incompetence, corruption, and myopia manages yet to prompt astonishment. The post-event signs are already discouraging -- there will be no salutary shock to the tragi-comic system of "security" in Russia, just more of what doesn't work: posturing, sloganeering, scapegoating, steelbooting and bruting.

2. You don't easily win any war without "society" as an active supporter of the war effort. The challenge for Russia remains the building of a Civil Society -- a set of relationships, rules and standards in which the People and their Institutions set the agenda, vent their frustrations, and in various ways collaborate to achieve common ends. Putin talks often about the construction of a healthy Civil Society, and I for one believe that he means what he says. But his rule stopped making detectable progress in this direction as the presidential "election campaign" began to hit its homestretch earlier this year. So today, everyone -- the security services, the government, the parliament, and the people -- all wait for the Czar to say what is to be done. This, despite the fact that it his direction of five years of the "not-war" that led up to last week's horror. In this terribly complex situation, where the most creative, collaborative, and diverse kinds of thinking and acting are required, we find Putin's Chechnya policy exposed for the shambles we all knew it to be, and the man himself standing all alone, without any in this cowed society daring to step forward and advise him, let alone act.

3. Until last week, the Russian government had before it a pressing agenda to push comprehensive reform. Reform of its choking bureaucracy, reform of its useless judiciary, reform of its antiquated military, reform of its inefficient natural monopolies, reform of its inadequate financial system -- to name just a few. Until last week, I was worried that the government's costly grasping in the Yukos affair had already drained too much energy from its reserves to support the realization of a meaningful part of the broad reform agenda. This week, I am certain that the twin hammer blows of Yukos and Beslan mean that any progress we see in Putin's second term in the main reform targets will be thanks more to accident than to design, thanks more to circumstance and forward inertia than to political will or conviction.

4. Given the high price of Russian natural resource exports, its economy will continue to grow, and at rates about which most large countries can only dream. Day-to-day economic policy is in good hands. So the lost opportunities of unrealized reforms will not bite the country until lower export prices become reality and/or the remorseless dynamic of globalization reaches deeper into the Russian economy.

5. Thus, remarkably, we can well imagine that as Russia becomes mired deeper and deeper in the bloody mud of its "new" war, and its children's best hopes choke slowly on unchecked corruption, waste, and incompetent leadership, the headlines from the financial sector will tell a different story. Foreign direct investment is rising, and as there should be no dramatic successor to Yukos as a scarecrow to ward off investors, we can expect more of the same. Speculators in thin Russian financial markets will see promise in a deeper shared commitment by the US and Russia in their crusade against the bad guys; they'll celebrate when Russia accedes to the WTO, and gush when President Putin of Russia plays the role of president of the rich men's club called the G-8. A country with more cash than debt will at last get its full investment grade credentials. A chronic lack of supply of paper in fixed income and equity markets, set against global liquidity and bottled-up domestic savings, will keep the prices of Russian securities bubbling. There will be lots of happy people writing lots of good things about Russia.
Previously, I commented on the incompetence of the ex-KGB thugs surrounding Putin. Security is their area of competence......... As always Gideon Lichfield at the Economist has written a much more balanced piece Economist.com | Terrorist attacks in Russia

Today's Moscow Times (Moscow's English Language newspaper) gives some insight in to the mess that is Russia's government. We should not be that surprised it's just that when the economy was booming (and it still is) and reforms were being pushed through left right and center it sort of felt that we were living in a normal country. We aren't. Anyway the MT's headlines (all free today and over the weekend and then subscription);
  1. Silence of the Political Elite is Deafening
  2. Police Emerge as Big Security Threat
  3. The Populist Approach
BTW, Indpendent Media MT's publisher has launched an appeal for the Beslan kids. They will need help. IM is trustworthy and should be supported.

I sat tight in Moscow after the 1998 financial crisis believing that Russia had the ability and the will to drag itself out of that hole and get itself moving again. It did so with some aplomb and then Putin needed to get himself re-elected and it's been downhill ever since.

I am sickened to my very core by the corruption and incompetence of this country. Time to move on?

01 September 2004

Meanwhile.....

The police find something useful to do. Looks like someone stopped paying for protection.
Narco Cops Smoking Out Weed Ware

28 August 2004

VC Business

Two great pieces from Always On (any you can't say that all the time). Mike Moritz, Eric Schmidt and Guy Kawasaki talk about staying awake and entrepreneurs, Part 1 and Part 2.

Vonage and VoIP

Vonage's latest infusion equity led to this first from Bill Burnham followed by this from Om Malik. As I know nothing about the online equity trading business I'll not add to sum of human wisdom being imparted in the similarities.

I had hoped that a comment that the company was cash flow positive before customer acquisition cost might inspire a Sage of Omaha type put down. Here's mine; my car costs nothing to run before petrol (gas), insurance, servicing and depreciation. If your business involves acquiring customers then stripping out the cost is at best duplicitous. Surely it is the job of the blogging community to point out such monstrous bullshit. Let the mainline press quote verbatim from press releases without thinking.

Anyway that was not the main point of the post. In my evolving thinking about sessions over IP my recent trip to Nizhny Novgorod, the centre of Russia's telecom technology industry, has taken me a step further. I am not smart enough to determine whether Vonage or Skype will be good investments. I am fairly sure that they won't be great companies.

This recent piece from the VON round up about BT becoming the European centre for VoIP interop testing would suggest that VoIP is not only not ready for prime time but that we have some time to wait before they are. The company that I was visiting in Nizhny's value proposition is building products that allow Nortel IP PBX's speak to Avaya etc. How can you expect to have an industry when there are no standards and no interoperability.

So I posit that there will be a crisis before we see the sessions over IP winners. If the owners of Skype and Vonage have cashed out before the crisis then great investments. I also posit that SIP will not spawn the winner; it's too large a signaling package and thinks like traditional telephony. Lets call this phase of the transition IP over TDM or new telephony like old telephony. The truly disruptive phase has not yet started and we don't yet know what it will look like - but keep reading Isenberg if you are looking for a clue.

27 August 2004

Fly Russia

The day after two Tupolev's, a Tu154 and a Tu134 were (allegedly) blown out of the air I found myself aboard a Yak 40 bound for Nizhny Novgorod. Two things struck me at the time; firstly nobody should ever have to pay money to get on to a Yak. Secondly that at the time I got on the plane I believed that the crashes had been caused by negligence or poor fuel. With a little rational thought it would have been clear that neither poor fuel nor negligence makes planes disappear from the radar screen. Nonetheless, my primary thought was negligence.

The FSB (successor to the KGB) was also hoping that it was negligence as they have told Putin that Chechen terrorism is under control.

Scanning the pages of the Komsomolskaya Pravda, a third rate producer of newsprint that does not justify the title newspaper, there was a picture of a sniffer dog at Domodeydovo Airport (the take off point for the two aircraft) with the caption "Sniffer dogs are better because they cannot be bought."

Entirely disabused of the negligence excuse, it struck me that the Chechen / fundamentalists will always be able to strike wherever and whenever they like because someone in uniform will always sell them a way around whatever security has been put in place to stop the terrorists - and will do so without any conscience.

19 August 2004

Sessions Over IP - Update

More on my previous post. Dan Dearing, VP Marketing at NexTone, another player in the border session controller space, believes that Carrier-to-residential (C2R) will amount to only 20% of the total revenue per port spend (from this article at Light Reading - Networking the Telecom Industry via Andy Abramson.

I sometimes get the feeling that conversations about the future of sessions-over-IP are held in two different planes. The "voice-will-be-free" crew are talking about residential voice. Those who see value in BSC's and feature servers in NGNs are more interested in enterprise sessions.

Telecom Quality / IT Ease of Use

It was cold, cold, cold in Moscow this weekend and dropped 22mm of rain on Saturday alone. The good news was that it allowed me to sit in a corner of my study and re-read a number of core think pieces including David Isenberg�s The Rise of the Stupid Network and his subsequent piece with David Weinberger, The Paradox of the Best Network. The end of the telecom company as we know them, as David Isenberg correctly identifies in this article for IEEE�s Spectrum Magazine The End of the Middle, is nigh. What comes next, and why, is significantly harder to fathom. Once you get beyond the �one sentence will cover it� CNN simplistic answers there remains substantial complexity. The good news is that in an industry undergoing significant tectonic shifts is the opportunity to invest in start ups that can become household names.

VoIP for early adopters has been viewed overly simplistically. It works pretty much all the time, it�s free as long as you don�t need to talk via a telephony network. So if it�s not working no great hassle, and pretty much all of us have a back up of some kind, even if we have junked our PSTN line. However, Vonage has had a couple of outages in the last two weeks that have caused some angst. Om Malik�s suggestion that this is The End of the Honeymoon seems to me right on the money. Someone, somewhere commented that he could remember the number of times that his (switched) phone system went down. On the flip side; whilst his telecom network never went down, his video conferencing never went up. Mercer Management Consulting forecasts (via The Register) that consumers will be happy to move to VoIP � provided that the quality is as good as their telephone line. It would be a good assumption that enterprise requirements are more demanding than those of consumers.

We backed a start-up in 2002 jNETx who built a next generation intelligent networking platform, or Open Convergent Feature Server based around a JAIN SLEE and OSA/Parlay that bridges the evolution from 2G to 3G mobile, and of course fixed platforms. Ensuring that the OCFS is a carrier grade product has required all the brilliance that a large room full of maths and science PhD�s can offer. Douglas Tait from Sun and the founder of the JAIN initiative posts here on the complexity of writing SS7/Voice signaling-to-IP gateways. (For more on the Service Delivery Platforms, JAIN SLEE�s etc I encourage you to read this 512 page, 16MB report from the Moriana Group. This link takes you to the download.)

Niklas Zennstrom CEO of Skype, a DFJ investment, has recently blazed a trail for the freeness of VoIP. Emphasizing the fact that Telephony is Just Software, which I blogged here. Rohan Mahy�s response covered here in The Register, has a go at the proprietary solutions such as Skype and begins to explain why SIP is a better solution � in the long term. Albeit that SIP has some issues that IAX may handle better.

In my immediate pipeline at the moment are two companies in the border session controller space and one in CPE / soft phone space. Both of them sit in so much of the pie covered by soft switches that definitions becomes difficult, if not meaningless. So this is not just an issue of connecting legacy networks to IP networks. To my mind the issue is ensuring that the mission critical data application otherwise known as voice is always available. One of the BSC companies spent considerable time educating me as to the very considerable issues running enterprise-quality voice over the Internet. I�m not there yet � let�s just say the problem won�t be solved tomorrow.

So what was the point of this link fest? I think that the point was to say;

  • The end of fixed line switched copper-based telephony is upon us � that much is clear.
  • It�s not a given that you can jump from there to free calls/sessions. Let me be specific; voice may be free but that does not mean that you won�t be paying for it somewhere, especially if you require quality of service. Video conferencing will not be a bundled all you can consume package for [10] years.
  • There will never be a global utility called The Internet.
  • Building networks and intelligence to provide enterprise quality mission critical applications requires significant tinkering with the Internet � it won�t come for free.
  • What the meaningful difference between soft switches, border session controllers, feature servers will be is unclear. It should mean the death of stovepipe applications but we are not there yet.
  • IBM GS is a more likely winner than Ericsson Services (or whatever they call themselves) because of their enterprise knowledge.
  • And don�t even begin to bring mobility in to this until we have clear answers to all of the above.
That�ll do for now.

18 August 2004

VC Skills

One post below is Bill Burnham on the skills needed to make a VC. His argument synthesized; if a VC is deep in a company they have made a bad investment. A good investment is getting all the parts right up front. Fred Wilson posts in my same assault on NewsGator about the value that a VC brings to the board, and the resulting discount in the next deal The Discount and the Work.

My take is the difference is one of emphasis not of substance. Getting involved beyond reading board papers is clearly massively important; but it should be at the strategic level. And management should be able to distill the advice - some good some bad, and act on it.

Operator vs Finance

Bill Burnham on what makes the The Perfect VC: Operator or Investor?

There's not much to argue with here, though I tend to believe that a good mix of skills across a Partnership is as important as the right skills in anyone person.

13 August 2004

VOIP Sub-Critical Dependency

This from Om Malik was going to be just another VoIP's not quite ready for prime time story's and was about to enter file 13 when I picked a comment from Andy Abramson "Outages like Vonage is having are to be expected, but not appreciated. With growth comes growing pains. Experience in a carrier is what one needs to look for, and a network that is fully redundant, fault tolerant. One has to ask, does your voip carrier have that?"

Andy then blogsOm's post w/o his comment. The post is not wrong, a very Russian way of putting things, but the comment is more correct. If, as Om says, he wants a form of communication that works all the time then VoIP's not there because the carrier network was designed to be best efforts only. To get fault tolerant VoIP we will have to pay a carrier who will give our voice carrying data packages QoS preference over the porn surfers. And that will carry a cost.

Whilst I believe in disruptive technologies and business models, it's part of the DFJ faith, fully fault tolerant VoIP is not as cheap and "free" as currently touted. Yes its an order of magnitude cheaper than circuit switched calls but it's not free. Free as a marketing trick in Russia does not work. Russians don't believe that something that's free is worth having - it's a communism thing. Now a shed load of Russians use cheap VoIP calling cards etc to call Israel and the US, but they expect the QoS that they get.

Bottom line; enterprise-VoIP will save companies a lot of cash - it won't be for free.

06 August 2004

Mmmmm

I want one of these, no camera, just a phone with Blackberry software. Siemens touts Blackberry-based business phone | The Register

Stupid Network; Intelligent Client; Stupid User

I believe in the first statement. The rise of the Stupid Network has happened and is happening. As processor power improves more and more intelligence is being moved to the client. The question is how much, and how much does it rely on an intelligent user. The early adopters are mostly intelligent enough to work through the issues. The mass market won't happen until the how the f*** do I make this work issues are ironed out.

So, my question for now; how much intelligence ends up in the client and how much stays at the edge?

Russia

Yesterday in the FT (subscription required) was a very good piece on the path that is being taken by Russia. Among the people heavily quoted is Al Breach, Brunswick UBS' (a leading investment bank) economist and a big Russia bull. The other, respected, huge Russia bull eating his words is Eric Kraus in this piece The Summer of Our Discontent. You may struggle to hear the munching as the words are masticated - I assure you that they are there.

The long and short of the pieces is that the Silovki (people of power - i.e. the ex-KGB and Putin's friends) have taken control of the economy. Their underlying reasoning is correct What happened during Yeltsin's time was mayhem - it was fun, but it was mayhem. They want in a strong state and a lack of mayhem - oh and substantial bank accounts (their own.) However, as they have taken control of the reigns of power the country has moved from an imperfect quasi-liberal economy to a corrupt natural resource economy. And it has done so in less than a year. KGB school seemingly teaches control for controls sake and fails to go on to explain consequences.

Lets consider the right of the Silovki (ex-KGB) to run Russia. Since the death of Brezhnev in the mid-80's the head of the Central Committee of the Communist Party were two septuagenarian ex-heads of the KGB, followed rapidly by Gorbachev. The septuagenarians died pretty rapidly - they were pretty-much figure heads anyway. As an aside, Gorbachev is revered in the West for his reformist tendencies that lead to the end of the Cold War. Actually he did not have a clue what he was doing - it all happened without his input. Crucially though, it was the hard liners in the Politburo - the Silovki - who hastened the collapse through their complete lack of understanding of what was happening in country that they believed that they ruled and controlled. The actual event was the 1992 coup. My take on the legacy of the Soviet Union after the death of Stalin and the removal of Kruschev is that it was a state run by the KGB. Brezhnev was allowed to stay in power long after he was officially useless because he was a puppet of the guys who thought that they ran the country - the KGB. They replaced him with two of their own; only for them to die. Gorbachev was the chosen successor because he was deemed to be controllable (southern town hick without a power base.)

The Soviet Union had some fantastic achievements during its 70-odd years of existence. It also had some fairly miserable failures. You can directly attribute the failures to the KGB. In particular Brezhnev's era is best remembered for it's economic stagnation. Almost complete control, almost complete stagnation. This legacy of success is what qualifies them to run Russia.

Fourteen years later, the successors to that legacy of failure have emerged from the hole that they had to hide in after the 1992 coup. Since their re-emergence Russia has suffered the Yukos crisis, a manufactured banking crisis, the return of capital flight (hint - buy real estate in desirable and warm places. Russians are exporting their money from Russia again and they believe in real estate, and football clubs) a stalling of reform and a very badly bungled withdrawal of social security from pensioners and veterans whilst increasing them for bureaucrats. It would appear that during their 10+ years in the wilderness they failed to read any Adam Smith.

What next? There is no opposition, the Silovki can fix elections, so there is no one to provide an alternative view of the facts. I previously believed that Putin would step down at the end of his second term to preserve his place in history. His place in history will be as the President who undid all that was working in Russia - so not stepping down pretty much cements that position.

It's also increasingly clear that he is not in charge. I have previously written that he is primus inter pares of a group of like-minded people. It would appear that he no longer holds that position. German Gref, the reformist Minister of the Economy, has made a number of very critical remarks recently. Putin will be loathe to fire him. It removes the pretence that he is trying to undertake liberal reforms. Loyalty to the party line is pretty much Silovki 1.01 so I would expect that he will be taking a long holiday somewhere warm this winter.

So after that bout of happiness I am heading to my dacha to enjoy Russia's summer and swim in the Moscow river.

Update; even previously loyal members of the Duma are speaking out.

04 August 2004

Vonage Outed or IT & Telecom Converges

Andy Abramson blogs Vonage's Outage which may or may not have been caused by Global Crossing. In an attempt to get through some 1,000 unread blog's courtesy of much loved NewsGator sitting in the inbox I skim read, deleted and then brought it back and started writing here;

We have an investment in a next generation IN / feature sever play jNETx which is putting in a replacement IN system in to an Irish mobile provider - when the system was launched with a new HLR and various other bits and pieces the whole system went down for 3 hours. I'm pleased to say it was not jNETx that caused it but it was A BIG DEAL with as many expletives as you want to add.

I am not saying that Vonage's outage was or is the cause of calling the end of VoIP - it's not; Vonage et al will continue to take business from PSTN's. However, service includes being available nearly all the time. Is that 99.999 or some lesser number - no idea. What seems logical is that enterprises will demand the same service levels from a full VoIP sytem as they got from the PSTN's, and that is built around 99.999% availability. So whilst Vonage is principally a retail / SoHo play a few hours spent at the beach is OK. To go mainstream it's not.

Whilst I am here a link to a previous post Go South Young VoIP'ers. Yesterday I was in a meeting with a company that claims to have solved the feature issues caused by SIP passing through IPPBX's passing through border session controllers (my middle name is esoteric.)

Andy makes the point that the S. American governments are trying to protect their local PSTN's by regulating out VoIP providers. Same thing happened here in Russia. In an attempt to get the highest price for Svyazinvest, the all controlling super-telco, they force all long-distance to pass through Rostelecom - the long distance carrier. Thus a number of local enterprise CLEC's wanted to move their clients on to full VoIP systems however, they found that when a VoIP call was made via SIP that passed through a BSC and then via an IP PBX (100% of legitimate enterprise VoIP traffic) they lost the features of the call when the IP PBX diverted the call / session to an internal "number". The call went through it just lost any "intelligence" - call forwarding, voicemail (?). Thus the Russian government's desire to protect revenues caused a Russian technology company to overcome a global problem. The law of unintended consequences strikes again.

08 July 2004

Yukos and the Banks

Politics are not my normal terrain, and to be clear both Yukos and the Banks are about politics.

For ever and a day the Investment Banking analysts have been telling us that the Yukos affair is about humbling Khordokhovsky and not about taking Yukos to bankruptcy. Well its effectively bankrupt and the only way that it's not going to be bankrupt is politics. That way the portfolio investors can maintain their navel gazing shortsightedness and pretend they did not lose too badly.

The banking crisis is an oxymoron - to have a crisis you need a banking sector. Anyhow it too has been driven by politics. I have on my desk (somewhere) the banking blacklist. It comprises 38 banks including 2 of the 4 leading non-state owned banks. That I can get my hands on it somewhat goes to prove that its meant to be seen. And causing a run on the banks who you can't control is a pretty good way to get them to come in to line.

It might amuse you to know that there was a queue outside Citibank's branch yesterday. So strong is the public's faith in private banks.

The Russian menatlity is stronly zero-sum-game; and it is now being played out in front of our eyes for all to see. I am afraid to say that Putin's government has gone from partial reform to failed authoritarianism.

Valuation

Two good posts on valuing an early stage deal. First from Fred Wilson which is philospohical here. The second from Brad Feld on deal algebra here Feld Thoughts: Venture Capital Deal Algebra.

What the second post does not go on to say is that by the time you factor in a. liquidation preferences (VC's get there money out first and sometimes in a multiple of what they invested) b. potentially a coupon on the preferred stock c. penny warrants etc. that the implied pre / post-money valuation is a lot different from the headline number. To borrow some algebra from Brad Feld:

Implied post-money = (invested amount)/(return to investors / total return). For the implied pre-money subtract the amount initially invested.

Thus if you invested $2mn at $3mn pre-money (assuming no further dilution) you would expect the investor to receive 40% of the proceeds of a sale. Actually the % of the return that an investor gets after liquidation preference et al can be a lot higher.

As Brad Feld points out many serial entrepreneurs don't always follow the math - try this on a whole nation of first time entrepreneurs. Add to it the national characteristic that lawyers don't matter its the handshake agreement and you are open for all sorts of interesting discussions.

02 July 2004

Skype Under Attack

A much more cogently argued piece from The Register on what is wrong with Skype via David Isen than my rant yesterday. Isen argues that David Mahy is demonstrating "bellheadedness" and goes on to say "the "industry" that will bring VoIP to most of us is the Internet Industry."

I am not entirely sure that the two are disagreeing. The article's introduction says "and focused on the difference between the instantaneous gratification of Skype for private individuals and the safe and efficient enterprise wide VoIP implementations, reliant mostly on the SIP protocol." We are all very happy to pay nothing for personal or small-business calls. Can't see IBM doing the same.

Skype's business model is based on selling VAS. As Mahy points out that is very unlikely "That's missing the point, don't you think? Say a Skype user in India wants to communicate with me in California on a SIP network. He can make a basic call through 2 gateways with international toll charges. Its unlikely that I will see his correct caller ID, and dead certain that we can't exchange IM, video, presence status, or do file transfers. A pair of implementations using SIP could do this for free over the public Internet."

And then we return to the security issue - which has some legs but may be as much about the easy line for journalists as any real concern.

I have seen a number of recent firewall implementations that ban cross-firewall p2p sessions - I think it will be a standard feature in 2005 enterprise releases.

Ridiculous
ITunes has finally launched in the UK - hurrah. If you don't have a US registered credit card you can't buy ITunes from the US website.

However, my wife tells me that a song in the UK costs 75 pence. At the current exchange rate that's $1.42. Which is just plain ridiculous. Did the Apple execs think that we would not notice?

The Bizarre

I rarely blog the bizarre Russian happenings but here's one. From about 5a.m. this morning a car alarm from what could only be a very small car went off incessantly. It was still going when I headed off to work. Only it (it being a badly-parked Nissan Micra) was now surrounded by 6 Militsia (policemen.) Who had succeeded in opening its passenger door - but clearly not in turning the alarm off.

Usually you only see 6 policemen together when there are some Azerbaijani, Armenian, Georgian etc., market traders to be beaten up.

Q. Why do the Militsia travel in threes. One who can read, one who can write and one to guard the two dangerous intellectuals.

30 June 2004

RSS

Link via A VC to a RSS wishlist at therssweblog.

Tech bloggers are all a little self-involved (it's a stat thing) but this and Brad Feld's blog on why he invested in NewsGator makes it a big RSS day.

Telephony Software

Niklas Zennstrom on the emerging realization that telephony is just software; a fact that anyone in the telephony world cottoned on to at least 5 years ago - its just taken the software world a while to catch up with the practice. Link via A VC. As with any recent convert they have a habit of skipping over inconvenient facts and making statements that are not based in reality. Or at least in any reality that we are likely to face in this investment cycle.

The main thesis of his argument is accurate, provided that we stick to fixed-line networks.

"One key factor is that when telephony becomes a software application, it will live on the edges of a network. There will be no centralized control. Telephony development cycles are still very long. But their carriers' services are very much commodities, and there isn't much differentiation.

When we can change telephony to an application, we'll be able to change the economics of it. That will increase software innovation, new products, services, features. And that will be in the hand of small, nimble, software development companies. There will be higher competition, and the services will live on the Internet."


Hoever, he overstates his case. In this generation of telephony software, JAIN SLEE-based advanced intelligent networking, it takes less than a month to build and deploy an enterprise VPN. It takes less than one day to build a SMS marketing app, or location-based service; i.e. if you are watching Euro 2004 / the Yankees etc live from their stadium then you can get free calls over such-and-such network. These services are available today with some mobile providers in Europe, none in the US (albeit one fixed-line provider could if it had a marketing department worthy of the name,) and increasingly across Asia. Becasue the mobile operator is capable of gathering information from its network they are able to provide considerably more intelligence in an application.

The Internet is the ultimate stupid network. Client-side software cannot completely replace IN and that "information from the network is needed to provide new applications. And its the new applications that are supposed to pay for giving voice (still the killer app) away for free. Without which Skype and the like remain disruptive tecchnologies and not disruptive business models. I continue to believe that network ownership provides the information that is required to provide really innovative applications.

The article goes down hill a little after that:

"There will also be increased robustness. If you have a switch go down or a gatekeeper, that's not a problem to the end user. They can go to the Internet and find another route of communication. That will not be a problem for a decentralized network."

Unless of course the switch / node etc happens to be the one to which you are connected. The quality of service difference between my ISP and my mobile provider is the difference in call completion between 80% (ISP) and mid-90's (Vimpelcom). Move that quality differential to Europe where Vodafone et al really does buy equipment with 99.999% relaibility and any piece of network software has to have the same reliability. He also continues to believe that existing networks are centralized - they are not as decentralized as the Internet - but intelligence is increasingly at the edge and controlled by the same software of which he talks.

He goes on to make some good points about the commoditization of voice. Which as an overall point even the FCC gets. However, to Skype, voice is just another form of data, albeit one that the "higher quality" Internet can cope with, whereas video is, as yet, not enterprise standard. I suspect his emphasis on the death of voice is poorly masked marketing. As is the plea not to be regulated. VoIP should not be regulated, not because its not a monopoly. His desire not to be regulated is because Skype, and others, do not want to have to guarantee connections for emergency calls. It's business model precludes it from taking responsibility, but it also won't take responsibility becasue their QoS is not good enough.

My bet stays with the cable companies, the telco's that are willing to innovate quickly and Vonage - in that order. And that's before we start talking about Skype security issues.

23 June 2004

Pitch Me This

From Brad Feld on what questions a pitch to a VC / me should include and why PowerPoint is so badly used. Feld Thoughts: The Torturous World of Powerpoint.

Please, please, please if you are pitching read this first.

22 June 2004

Stock Options

A leader in the FT of 21 June on the cash flow impact of options. The title Will reform pull the plug on technology profits? (requires subscription) might give you a hint as to the writers initial leanings.

The net transfer of wealth diagrams at the bottom of the page are instructive. The article suggests that the furore over options is a back lash against the expose of how much value is being transferred from owners to employees. Over-stated I would imagine. A buy-side analyst worth his pay packet will already have factored in the dilutive/cash-flow impact of stock options. The greater issue is their ability to align interests all the time, not just when things are going well. Not being particularly well versed in motivations in large companies, my comments will be limited to start-ups (though they are inherently the same for people who value their work rather than their ability to climb the corporate ladder.)

When do start-up founders / employees worry about stock options?

a. When things are going well
b. The day they join
c. Every new financing round

When do start-up founders / employees worry about cash remuneration?

The rest of the time.

In particular stock options have almost no impact on employee behaviour when life gets difficult (sweat equity yes, options no.) As the article points out there is a growing feeling that options are a poor way to incentivize employees.

Not that I am trying to do away with options altogether. Better a stock option than cash, especially when the cash is limited. But lets not pretend that a talented sales guy is tied to the company (aligns his interest with yours) through stock options. Not being seen to fail is a better incentive.

Which leads to the follow on question. With what do you replace stock options? Maybe like democracy they are the worst system we have; except for all the others.

RSS and email

A good post here from Many-to-Many on ID and push versus pull communication models. Because I am looking at a deal that crosses in to this space (P2P information updating; this time push versus pull) the post touches upon a number of the areas that I think about.

I think that both Ross and I exist outside the big company way of doing things ("behind the firewall) and therefore think about email in a different way from an IBM'er. Michael Sippey comment makes the point better than I can. He concludes; "We�?re doomed to a life of infoglut, push or pull!"

Maybe the question we need to be asking is not trusted versus untrusted, push versus pull; but restoring quality of information. Is it really better if a meeting note is posted to a corporate blog-site or mailed to the everyone who might want to know about this. The same information has different meanings to different people. Since I started pondering corporate information networks I cannot count the number of times that I have been told that the seemingly useless dissemination of information (cc; all) has resulted in a bad decision not being made byforcingg someone to turn up to a meeting with additional information.

Whether the information is pushed or pulled matters not. We have to read an enormous amount and discard 99% of it so as not to miss something.

With one of our companies (a $5mn+ 2nd year start-up) they are blogging the softer elements of sales/marketing meetings. I receive the RSS feed more as an experiment in communication than trying to play a role in product marketing. The writers are all "trusted" emailers and the VP sales, a founder and board member, will regularly email me as well. He'll get in to my inbox whether he pushes or I pull. However, I rarely get informational email from the company, instead I get actionable email. I pay more attention to the actionable email when that has to be dealt with because they want me to pay attention. And when I set aside time to be informed I get more out of that. Better quality information.

You could argue that if I managed my time better I would achieve the same purpose.

07 June 2004

More On Mobile

Earlier today I had a mini-rant on the US not getting mobile services then via Om Malik comes this super rant from Russell Beattie Where's the Mobility? It took me a while to get through the comments so I have not had a chance to get the rest of his blog but I agree with the theme of what he says if not all the content.

First of all the means of communication is (relatively) unimportant. There are great things to be said for CDMA2000 versus W-CDMA v's WiFI, WiMax and on and on. In short there are inherently better ways of delivering bandwidth to the place and time that it is required; some suffer from poor economics others from integration issues, others still from pure stupidity by carriers. However, the issue is not the means of connectivity but the services that can be provided by connectivity. Just because a person's connectivity is limited to a desk top PC does not reduce the communication services that he can access via SIP (to his machine) and via SS7 to other communications devices.

It is the services that matter; these used to be called apps. To build them quickly and to utilize all the services that may be required to make them easy to deploy and easy to market you rapidly move in to the great convergence that is rarely covered; networks and IT. Some quick definitions; what do I mean by services? Parlay does a pretty good job of defining them but here they are anyway;

Generic Call Control
User Interaction
Mobility
Terminal Capabilities
Data Session Control
Generic Messaging
Connectivity
Account Management
Charging
PAM
Policy Management

A mobile operator looking to build an app on a 2.5 - 3G network needs to use some or all of these capabilities in different mixes depending on the nature of the service; a PAM app requires PAM, location, terminal capabilities, call control, charging. A video call requires call control, charging and data session control. Just think of the charging capabilities required - do you charge per mb, or for the type of the call at the time of day? Imagine if a filewas transferred during a video call - how would that be charged. Ask a Bell-head what chance of developing these services in an AIN environment. And yet as I mildly ranted earlier US operators are building services using stovepipe solutions that don't allow these services to be easily offered and easily changed.

From hosted-PBX to VoIP services over any network the convergence of networks and IT (as well as object oriented programming) has fundamentally changed the way that services can be provided over networks of any kind.

I would be remiss not to acknowledge that there are issues, substantial issues, in provisioning data for different devices; securing enterprise data; marketing the need to enterprises and on and on. However, it strikes me that these are implementation issues not technology issues.

So I conclude its not just mobility, its mostly mobility but its about services over any network.

Venture Over Funding

A great post here from Bill Burnham via Fred's A VC's blog on massive overfunding in the mobile application space.

I am not going to add to the comments on over-funding of hot companies; but actually rubbish the technology and then take a poke at technology acquisition. Seven is a great example of a stove-pipe solution. Great if you want to add just the ability to send and receive mobile email, but once a network operator wants to add other services / applications and charging capabilities with slightly greater sophistication than $x per mb, or per email then the system integrators get to rub their hands and put their hands back in to the cookie jar. All these cool apps, are just that apps. They aren't technologically advanced, they aren't future proof and they are difficult to integrate.

A semi-literate Java programmer could replicate Seven's technology in about a week using this generation open standard; if you don't believe me go to the Parlay org's website or Sun Microsystems JAIN (Java for advanced intelligent networks) JSLEE websites and think about how much more these two technologies can offer than Seven.

So why has Seven raised a chunk and the ISV's that form Parlay and JAIN / JSLEE next to nothing. Superior marketing may have something to do with it but there is also a trend in the US to keep on acquiring stove-pipe solutions - and then complain that they don't do the job advertised. It has been suggested that as US carriers, in particular, have cut back on R&D they have lost the ability to spot technical bullshit in the marketing blurb.

Somewhere between the US super-charged attitude and the European ultra-cautious approach would make sense for everyone.

01 June 2004

Energy Conservation

Flipping marvellous post from Jeff Nolan on the downside of depending upon gas guzzlers for your means of transportation Dependent on Gas. Not exactly SAP stuff but isn't that the point anyway. Anyway I am sure that he will be delighted to hear that I support one of the main tenants of his piece. Namely that electricty driven motors are the most obvious solution; provided that I remember the physics that I was once taught. If we had finished capital raising I would have backed a very smart brushed-electric motor. Instead its got Russian money and risks heading to oblivion.

Just got to find a way to create cheap electricity!! That will do for the next challenge.