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Web 2.0: Not necessarily good for VCs

Posted on Monday, Oct 24th 2005

Peter Rip of Leapfrog Ventures analyzes the Web 2.0 bubble. Good post.

VCs tend to “advise” experienced entrepreneurs to start a company again, these days. Many have certainly advised me.

But Peter’s analysis is on the money: low barrier to entry is not necessarily the most favorable market to enter.

One subtlety, however, is that entrepreneurs who know what they are doing can start and build a small business rapidly by boot-strapping, and get lucrative exits in 18-24 months. This IS a viable route.

Another viable route, indeed, is a cash-flow oriented lifestyle business.

Both of these, needless to say, are very bad news for the VCs.

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Ode to India

Posted on Sunday, Oct 23rd 2005

Maharishi Mahesh Yogi could not have imagined connecting with his ardent disciple George Harrison on a cellular phone. He would have relied on telepathy or some other transcendental power to listen to “Jai Gurudeva …” with Harrisson’s guitar strumming along.

Times have changed.

yogi

A $2 Billion Indian mobile handset market is set to grow by over 60% in two years. Pretty dramatic. Nokia has 59% market share of the 60 Million user base. Cellular networks cover only 30% of the country, set to increase to 75% by 2006. Presumably 100% by the end of the decade?

Contrast this with just 10 years back. I had to wait 8 months to get a set of business phone lines installed for my new company. How delicious it must feel to all those who have known and suffered under the old system!

Development’s strides are bold and broad. Satya Paul saris today cost as much as Armani jackets. A rapidly growing middle class breezes through the milestones that their fathers had to toil all their lives to reach. A phone. A watch. A TV. A car. A house.

Vivekananda had said, “Arise, awake, and stop not till the goal is reached.” 200 Million people are still living in abject poverty. That is 80% the size of the US population. How long will it take, before development’s magic wand touches this segment, and lifts them out of despair?

Long. The journey ahead is still very long.

Tech Visas: Who gives a damn?

Posted on Friday, Oct 21st 2005

Senator Diane Feinstein seems out to lunch … 46% boost in tech visas proposed.

Under a proposal by Sen. Dianne Feinstein, D-Calif., the annual number of H-1B visas would increase from 65,000 to 95,000. The increase was approved by the Judiciary Committee after it rejected a proposal by Specter for an increase of twice the size, to 125,000 a year.

Huh?

Who needs these visas anymore? No one is scaling tech operations in the US these days, except Google, who is today valued at $100 Billion, gloating in outrageously profitable revenues, and presumably, wants to be a good citizen by scaling in Silicon Valley. But their employee needs are still relatively small …

Video FAQs

Idiot-proof it, Cisco!

Posted on Thursday, Oct 20th 2005

And while we’re on the topic of Cisco, I have to say I find Linksys unbearably tedious!

If Linksys has to cross the chasm, it’d better pay a lot of attention to usability.

In 2003, Linksys had 30-40%% of the SOHO networking market, followed by NetGear, D-Link, Belkin, et. al. That’s when Cisco acquired it for $500 Million.

Two years later, Cisco has added more “stuff” to the SOHO portfolio, including VoIP technology from the Sipura acquisition.

Breadth keeps expanding. But what about coverage?

Linksys could get so much further with their core offerings alone, if they invested in making the products usable …

And this issue is going to come back to bite them if they don’t pay attention now, because their India strategy will need a super idiot-proof offering. It is going to be a very large SME / SOHO based growth opportunity, under fierce price pressures.

John Chambers, please go sit at Jobs’ feet for a while …

Move Product Marketeers to India

Posted on Thursday, Oct 20th 2005

Cisco announces $1.1 Billion investment in India, outlining a strategic emphasis on the geography.

This strategy, especially the $750 Million ear-marked for R&D, will only pay off if Cisco is able to apply sophisticated product marketing to the Indian market.

Indian IT industry has developed as a service hinterland for the US. Consequently, they know very well how to deliver projects based on other people’s specs, but the talent pool of actually coming up with original products has been, by and large, non-existent.

The good news, however, is that Cisco has over the years acquired many India-born entrepreneurs’ startups to string together its product portfolio. Many of these startups also had product marketing talent, and if Cisco can move some of these folks back to India with the express charter of inventing products for the local market, then this $750 Million will be put to good use.

Without a pool of product marketeers, however, all this money will generate is a bunch of technology solutions in search of problems!

Stealth SEM

Posted on Wednesday, Oct 19th 2005

I am working on a stealth-mode Search Engine Marketing technology right now, that is showing early signs of being able to optimize Paid Search Advertising Campaigns on Google by 50% within days …

As ad dollars keep migrating online, Google and Yahoo are pulling huge growth based on their SEM and other online advertising offerings. Yahoo reported a solid quarter, surpassing analyst expectations thanks to strong ad sales. Advertising revenue climbed 46% to $1.16 billion in the quarter, accounting for 87 percent of Yahoo’s revenue.

Consequently, companies are also scrambling right now to figure out their SEM strategies, and there is a serious dearth of skills in the industry in this area. Keywords range from hundreds to tens of thousands, depending on the size of the Ad budget. It is a nightmare balancing these huge list of keywords, ad groups, corresponding messaging, and optimizing CPC, CPA, leads … And then, the Internet is a dynamic place. Things change all the time. Re-indexing changes your once optimized campaign to a non-performing one in a heartbeat.

Not fun!

I have written extensively about Software As a Service (SaaS), and SEM appears to me to be a great SaaS opportunity. But I will report back in a few months, as we accumulate the metrics for this new SEM service, and validate the opportunity.

Meanwhile, one thing is for sure: the pain is acute!

ps. If you are feeling this pain, and want to beta test the technology, please feel free to email me.

Teenagers Coveted

Posted on Monday, Oct 17th 2005

If you have wondered why Rupert Murdoch spent $580 Million to buy his way into New Media via the acquisition of MySpace, read this.

MySpace has 33 Million users, mostly teenagers. They don’t watch TV. They don’t listen to the Radio. They hardly read. But they hang out in Cyberspace, so to reach them, advertisers would need to meet them in Cyberspace. Ad dollars, hence, migrate online.

And if you are wondering who needs to advertise to teenagers, read this. Amongst others like iPod, fashion brands Juicy Couture & Bebe, marketeers of lipsticks & mascaras, there is this booming new gaming business that positions bang-center into the heart of this market.

With broadband ramping up, sites like MySpace and Facebook gain tremendous traction from the teenagers and young adults segment. A good percentage of GameTap’s (TimeWarner’s new gaming venture) $50 Million advertising budget needs to be channeled creatively into sites like MySpace and Facebook.

Investors worry: Is the MySpace/Facebook trend (self-expression, photo sharing, blogging, chat, making new friends, … online) going to last, or will it go from being a fad to a bomb?

My assessment is that these media properties themselves need to be very creative and create fads. In a quintessential Jobsesque way, rather than following the trends the teens create, marketeers of these sites need to lead their audience from fad to fad.

And if they fail, the next generation of teens will go elsewhere, sending Murdoch’s $580 Million investment down the drain.

A Great Fund Strategy

Posted on Sunday, Oct 16th 2005

Oak Investment Partners has set up a $200 Million venture fund to focus on the retail boom in India. Veteran retail investor Jerry Gallagher visited India and was astounded by the revenue per square feet in the Malls and Stores. He came back and convinced his partners to commit capital.

Many of my VC friends have asked me about opportunities in the Indian Market. Unfortunately, these are tech investors, and they glaze over, when I tell them that the Indian market opportunity is elsewhere … in consumer brands, in ready-to-wear apparel and accessories, in restaurants and cafes, in movies, in prepared food …

“But software?” they ask. Well, India is not an enterprise software market, except with a few exceptions. There is some SME opportunity in software, but by and large, India’s technology absorption will come from consumer markets. Here are two technology-leveraged concept arbitrages that would work:

Netflix: There is hardly any good access to foreign films, but Indians love movies. Challenge will be the mail network which is not great.

Pixar: India has great stories to tell, and many that are very animation-friendly. A great animation studio with cutting edge technology, sophisticated story-telling and creative capabilities would do well. Challenge will be to take this outside of Bollywood sensitivities, and cut out the 7 songs per film that Bollywood typically injects.

As for Gallagher, his investment thesis is on the money!