Tim Oren's Due Diligence

Is Vista Microsoft's Micro Channel?

OK, all of you fellow Old Farts who understand the title skip the next three paragraphs. For you newbs, here's some back story:

Once upon a time, there was this box called an IBM PC AT, which featured a kickin' 80286 processor, a substantial upgrade to the 8088 in the original PC. The two machines shared a common bus architecture, which allowed the use of plug-in cards to expand functionality. Back then you needed an expansion to do just about anything, including run the display. Trouble was, IBM had openly published the specs for that bus, as well as the rest of the original PC, and a lot of 3rd parties had started punching out expansion cards to compete with mother IBM. Even worse, there were 'cloners' who were copying the entire machine, and selling against Big Blue. This was not Good For Business and something needed to change.

When the 80286 generation rolled over to 80386, IBM tried to make that change. They ripped the standard PC bus out of the design, and substituted something called the Micro Channel Architecture (MCA), which was of course proprietary and patented by IBM. That would be the end of the license-free 3rd party add-ons, and of truly 'IBM compatible' PC clones.

In spite of some claimed architectural benefits of the MCA, the business intent was abundantly clear to both vendors and customers, and the market rejected it. The 'cloners' built 80386 boxes around the PC bus architecture that ran the PC-DOS of the day without modification. IBM's MCA based PCs entered the market late and ran a poor second to the cloners' machines. IBM was eventually forced to withdraw MCA from the market. Big Blue suffered an enormous erosion of PC market share and permanently lost strategic control of the PC platform to Microsoft, which happily supplied software to the cloners.

I'm not suggesting there is a complete parallel to Microsoft's situation with Vista, but there are a lot of similarities: A product introduced for strategic advantage at least as much as customer benefit. A workable alternative from the same vendor that remains in the market and still has wide support. Platform level competitors emerging as an alternative solution. Let me count the ways:

Newspaper Industry's Altimeter Still Unwinding

Back in November, I suggested that the newspaper biz's revenue graph looked somewhat like a falling aircraft. That post included a graph originated by Henry Blodgett, using estimated total 2007 print revenues. Now the actual 2007 numbers are in at Editor and Publisher, and they are even worse than the forecast, by a half billion dollars at $42b. The 9.4% year-on-year (YOY) decline in print advertising is the biggest since tracking began in 1950, beating the drop in 2001 caused by the combination of the bubble bust and 9/11.

The industry's online revenues also give cause for concern. Growth continued, at $3.2b and 18.8% YOY growth, but that was significantly slower than the 31.4% growth in 2006 and 2005. What's going on there? Depending on the cause, it could be a temporary setback, or an indicator that the newspapers are nowhere near finished with their downward spin.

In the most forgiving interpretation, online ads on newspaper sites turn out to be a leading indicator of economic softness. It may be possible to draw a line between incipient chaos in the mortgage-backed securities market and a drop in real estate ad revenues. That seems a stretch to explain a 40% falloff in growth, and anyway the newspapers have already lost a good deal of presence in that market.

A second possibility is an impact from diminishing effectiveness of ads. Newspaper sites have less potential for the known effective and well developed search based advertising. They are largely display venues, and this type of ad has suffered in spite of attempts to make it more intrusive with video, sound, interstitials, and so on. There may be a limited appetite for this type of inventory, until some means of increasing effectiveness comes on the scene. Newspapers have had minimal impact in the still-experimental social networking space, that may offer a third type of user behavior and inventory.

The third and worst possibility - not entirely independent from the second - is that the market for newspapers online is becoming saturated. Rather than a temporary pause, this could represent movement past the mid-way inflection point in the S-curve of adoption of a particular product or service. If that were the case, it might suggest an eventual, somewhat stable revenue flow of $6b or so for newspapers online. Compared with the $42b in already reduced print ad revenues, it would suggest the industry's tail spin will not be halted by online alternatives any time soon.

Further: See Jeff Jarvis' post including interesting comments from industry insiders and disgruntled or former readers.

Mitosis at MOT

This week Motorola announced that it would split off its mobile phone business. As the linked article shows, analyst response was mixed.

My own sojourn in the flat panel display industry gave an indirect look at Motorola's mobile activities. It's not violating any NDAs to say that indecision and lack of clear direction in products was apparent. It's also no secret to anyone who knows the supply chain relationships between flat panel vendors and mobile OEMs, and can correlate display sales numbers with ultimate customers, that Motorola's sales of late have been dropping like a rock.

MOT's product cycle isn't inherently any slower than competitors like Nokia. Where the winners may differ is in having more vision for their products. The market may push back (I'm still not convinced about carrier-borne video), but they know where they'd like to go. Apple's success with the iPhone shows just what can happen if the product managers stop trying to triangulate on carrier's wish lists, and instead work on a vision of customer value.

The point of the title is this: What sort of corporate genetics will be in the newly independent mobile-MOT? If that group's management has been the source of the problems, then it will be a good short. If the problems came from higher in the organization, then it's possibly an underworked asset that could be revived with some clear vision and execution.

Silicon + Carbon = Nano-tech

I've long held that the deliberate manipulation of matter at the molecular level would evolve at the interface between the silicon processing industry and biotechnology. The latter has access to the tremendous, but unorganized and partially understood, genomic library of molecular tools provided by evolution. The former provides both the computing power to assist in analyzing that repository, and a ready market for some classes of nano-scale manipulation. (The path to product is notably shorter in the land of Moore's Law than with anything that must go past the FDA.) The intersection of C and Si is fertile territory for innovation and investment, much more so than any attempts at a completely de novo invention of molecular manufacturing a la Drexler.

The latest sprout on this ground is a set of 'designer enzymes' to break a carbon-hydrogen bond in a particular molecule, an innovation created at UCLA and U. of Wash. Previous work had yielded an engineered enzyme that would break carbon-carbon bonds at specific locations. An enzyme is just a large protein molecule, built out amino acids specified by a DNA sequence. This sequence, once built, can be spliced into bacterial or other host genomes and used to produce the enzyme in bulk.

Cut-and-try 'forward' experiments involving building trial DNA sequences, expressing them as enzymes, and testing for activity would have been impractical, considering the complexity of both the reaction to be mediated, and the folding details of the protein making up the enzyme. Instead these proteins were modeled in silico for activity before attempting synthesis. That's one of the directions I'm suggesting above. It's probably not all that long before the loop is completed, and we have bio-derived chemistry being used to assemble portions of silicon based systems, such as sensors and interconnects.

Interestingly, this project was funded by DARPA. Those interested in the direction of future innovations can do far worse than keep an eye on DARPA's basic technology offices, which have an lengthy record of spotting leverage points to open up new paths of development.

What's Going On In Iraq?

Judging by the TV news I saw while consuming the morning coffee, the MSM is doing its usual inept job of explaining the flare-up in fighting in Iraq. Being unwilling to waste time backgrounding the conflict in the first place, they have no basis for analysis but sensational claims of a 'civil war'. Fortunately, the blogosphere provides, and some real analysis was in hand minutes after hitting the nets. The ever invaluable Strategy Page sets the tactical stage:

In the last year, the number of terror attacks has sharply declined, as the Shia Arab criminals and militias are not interested in slaughtering civilians. They were interested in maintaining control over neighborhoods, criminal enterprises, and augmenting political control. Many of these militias were supported by Iran, a neighbor that wanted to have more control over what went on inside Iraq. But Iran is run by the Shia clergy, and the prospect of a religious dictatorship in Iraq turned off many Iraqis. This was no secret to anyone, and the Iraqi government, run by more independent minded Shia, finally agreed that the Iran backed militias could not be tolerated. This has led to a recent campaign to take apart the more troublesome factions. The worst of the lot are in Basra, where Shia militias make a lot of money off the oil and port operations down there. These gangs were getting greedy, and stealing more than the government was willing to tolerate. Thus in the last week, thousands of Iraqi police and soldiers moved into Basra and began arresting members of the Mahdi Army (run by Shia cleric Moqtada al Sadr). At the same time, police moved in on Mahdi Army groups in Baghdad. But Basra was where the money was, and the fighting was expected to be long and difficult. On March 26th, the government gave the Mahdi Army three days to surrender, or face some real violence. For some Shia gangsters, this seems to mean American smart bombs. That rumor is all over Basra, and the bad guys are truly scared. Hiding out in a mosque won’t help, because American ground troops are not involved. Iraqi cops have no problem clearing out a mosque.

The Mahdi Army apparently believed that firing mortar shells at the Green Zone (where the senior Iraqi politicians live and work) would be a good way to strike back. But the Green Zone is a big place, and a few mortar shells rarely hit anything important. The police do know who lives where, and are raiding the homes of key Shia gangsters. The gangs look to their Iranian advisors, and get no answers, other than “fight hard.” That may not be enough. While Iran believes that eventually the Americans will go home, the Iraqi police are at home, and they want to send the Iranians back across the border.

The best strategic frame I've seen comes from commenter "Major John" at Jule Crittenden's place. It's short and pithy and worth a look, but here's the nut of it:

The fight up North is the fight to run AQI out of Iraq. The fight down South is the fight to see which way Iraq will go once AQI is beaten.

NB: North is the US and IA vs. Al Qaeda in Mosul. South is the IA vs. JAM in Basra.

Update: More useful commentary from Abu Muqawama, one of the most valuable counterinsurgency blogs out there. And Uncle Jimbo at BlackFive backgrounds in his - ummm - inimitable style.

Review: Ira Brodsky's "The History of Wireless"

I first got into wireless in my early teens. Kit-built an Allied 'Knight Kit' regenerative receiver. Then the obligatory Heathkit superhet shortwave set. Held an amateur ticket for a while, and scratch-built a small transmitter. All vacuum tubes, of course. Bread-boarded a few transistor circuits as well.

Wireless technology was still fairly transparent back then. Once you'd built that much gear, you knew the basic designs. If a neighbor or relative brought over a defunct radio or TV for the kid to mess with, it would have big fat wires that you could easily trace to figure out the circuits and deduce what was probably cooked. A multimeter and surplus oscilloscope were sufficient test gear. Tubes unplugged and could be tested separately. More basics and a lot of the history were available from ARRL publications, my father's old textbooks, even Boy Scout merit badge materials. The whole field of consumer level wireless was then about 50 years old, and much of its history still featured in general science texts.

A kid or curious adult interested in wireless today has a much harder task. Take apart the most easily accessible sample - a dead mobile phone - and you've got a bunch of parts opaque to all but experts. Just try to figure out a RAKE filter by staring at a few IC packages and a multilayer circuit board. With the advent of digital signal processing, even getting a start in comprehension involves understanding a very complex two-way system. No one bothers fixing the gadgets. If they flake out, they're eWaste. As far as a beginner building one, just forget it.

The existence of wireless is taken for granted, being over a hundred years old, with the start of effective use now beyond living memory. You may get some mention of twitching frog's legs and spark gaps in a science text these days, but the path from there to the Star Trek communicator you can get for nearly free at the local mobile store has become obscure.

Ira Brodsky's recent History of Wireless is meant to fill the gap between initial discovery and today's mobiles that (along with the Internet) are remaking global communications. The author is a long time technologist and consultant in the mobile phone arena, but he reaches all the way back to the discovery of electricity itself to begin his story. From there we go through the interaction between electric and magnetic fields, the first instances of wireless transmission, and into the vacuum tube era that made it practical for everyday use.

Clairvoyante's Pentile Technology Sold To Samsung

Our portfolio company Clairvoyante, which I've blogged about here and here, has sold its Pentile display technology intellectual property portfolio to Samsung Electronics of Korea. SEC had their own reasons for structuring the transaction in this fashion, but the Pentile development team will continue to work on improvements to display technology in a new entity to be headed by Clairvoyante founder Candice Brown Elliot. I've seen the development plans for the group, but as usual can't say anything specific. I will say that Samsung has some very exciting plans for where it will take the technology, and I look forward to (finally!) buying product with Pentile displays.

The Roving Eye: Trusting Wikipedia, Airportectomy, More Bad Debt

Wikipedia and Trust. When should you take Wikipedia's word on something? My own rule of thumb is that either the matter should be objectively checkable or the person or event in question should be long past and noncontroversial. Anything politically sensitive, either currently or as a plot point backstopping a current political narrative, should be regarded with deep suspicion. In spite of process changes at Wikipedia, you still get things like this, where a biased critic of an organization ends up editing its Wikipedia page. Community sourcing has its place, but this points out one of its hard limits: It cannot cope with politically charged matters. It either turns into yet another debating venue, or an echo chamber dominated by whichever side has the most time to kill. Update: another case in point.

LISP-head! So it turns out that Brad Feld is an old time parenthesis junky. I never got into the life-as-a-linked-list style. Back in the day a lot of my work was instrumentation, control and low level graphics, all necessarily real-time, so assembler and C were the weapons of choice. I still have this residual tic whenever I read about something that I know will be real-time implemented in an interpreted language: "What'll happen when the GC runs!!?" Oh yeah, incremental collection, twenty years of Moore's Law - guess it'll be OK. (Via Ole Eichhorn.)

A Successful Airportectomy. Or maybe I should say transplant. Over the weekend, I replaced my slowly dying Apple 'Snow' Airport with an Airport Extreme base station, and the wireless network situation has improved tremendously. Installation was mostly straightforward, but with a few security related glitches that invoked the cussing reflex. Just in case Google brings others performing the same operation here: As of 3/25/08, the interface and help documentation of the Airport Utility don't correspond in at least a couple of places. If you want to do MAC filtering, the doco say there's a separate menu entry. But it doesn't exist - instead use the Timed Access mode and set the times to Unlimited. When setting up a wireless distribution system (WDS), the doco says to use the 'add' button to authorize more wireless nodes, but that's actually on a separate tab in the interface. Also, if you reasonably decide to give the new network the same name as the old, and also decide to conscientiously change the network password at the same time, it will work great on your admin machine. But it will cause all the other client machines to be kicked off the network without any diagnostic, necessitating a bunch of spelunking in the obscure keychain interface. So don't do that. Once through these hazards, everything worked great, and I rounded off the install by hooking up my surround system and an old USB printer to the network via an Airport Express. Worked first time, and I've now got a stable 'four bars' throughout the house.

Go State! My wife and I are both alums of Michigan State University, and have been rooting for their men's basketball team in the NCAA tournament. They are through two rounds and into the Sweet Sixteen. If both State and Stanford win their next game, they will end up head-to-head, making for a real case of divided loyalty. Gotta go with the old school tie there.

More On Bad Debt. I'm not the only one taking notice of the unfunded pension liabilities at the state and municipal level. The Weekly Standard features California public employee pensions follies, starting with the recent near-bankruptcy of Bay Area suburb Vallejo. A lot of this material is from the California Foundation for Fiscal Responsibility, which is backing a public pensions reform ballot initiative for the state. The politician's handouts to the public employees' unions are starting to come due, just as the boomers head into retirement. It's not going to be pretty.

The Roving Eye: Arthur C. Clarke, Partial Weight Bearing, Sony Brand Destruction

RIP, Sir Arthur C. Clarke. I was in a seventh grade reading class, and had run through all the required in-classroom assignments, when my teacher reached into her desk drawer and came up with something to keep me amused. The first book in the stack wasn't by Clarke, it was Asimov's Pebble in the Sky, but the second or third was Clarke's 'The Wind from the Sun'. As Bruce Webster said in his great obit, that was two of the big three of the time right there (I came to Heinlein later). I'd been introduced to Tolkien's work the year before, and the combination of greats produced a fascination, if not sometime addiction, to speculative fiction and fantasy. My copies of Clarke's later works have since gone off to war, but I was unable to part with his early stories: Winds, 'Against The Fall of Night' and 'Tales from the White Hart' are still right here. Thank you for a life-long pleasure, Sir Arthur.

Trouble on the Network Line. The wireless network at the home office has been up and down all week for causes still not completely diagnosed. A bad combination with limited mobility. It did get me over my case of procrastination in replacing an aged 'Snow' version Apple Airport, so there's a brand new Airport Extreme sitting here for installation over the weekend. Blogging will become more frequent when I don't have to crutch my way up and down stairs to get at the network.

The Second Act Begins. The surgeon likes the progress on my leg's healing, so now I'm up to 50% weight bearing, and on crutches rather than a walker. And my physical therapist proved to me this morning that 50% is actually more than that ankle really want to hold up just yet. A tib-fib break this bad dumps lots of coagulated blood and other junk into the ankle and even knee joint. I'll probably be back to being able to carry full weight well before I have the flexibility to fully use it. Next milestone: Enough ankle flex to run the accelerator and brake!

Morita-san Must Be Spinning In His Grave. It took Sony decades to build up from exporting cheap transistor radios to having a brand that could command a premium price for its Trinitrons and other audio and video components. It appears all that brand equity is being frittered away over about the same period. Sony entirely lost its Walkman position in the transition to MP3, compromised by its content investments. It's an also-ran in flat panel TV - the Koreans are duking it out for the lead position. Then the root kit fiasco, again propelled by its content bias. Now the company wants to charge customers $49 for removing the pre-installed bloatware on its Vaio laptops. And then backed down under pressure within 24 hours - of course leaving the Web debris to come up on any future searches about the Vaio. I suppose I can in some sense understand the reasoning - I'm sure there are bounties from signups and upgrades from the preloads that are figured into the product's P&L - but a few clues by the relevant product managers would have told them the downside was much worse. Sony seems to have lost its way in the network age, and I'm guessing it's not going to find it until the shareholders unsheathe their kitanas and take a few management heads. This kind of tin ear tends to start at the top.

Telling The Story, Missing The Point. Via the Blogfather, Popular Mechanics touts Konarka's Power Plastic polymer solar cells and substrate. The company is going after roll-to-roll processing to drastically reduce the costs of solar power. Good so far, but the magazine then fails completely to ask or research the questions that determine whether it's of any use: What's the efficiency? How does that substrate hold up under the sun it's meant to capture? And why is this product still in vapor three years after it was given an innovation award? That's the kind of thing customers or investors might like to know, not a few quotes wrapped around a press release.

The Roving Eye: Why Web 2.0?, Bad Startup PR, Bad Debt Overhang

LOLcats, isn't that obvious? Notes on Ethan Zuckerman's talk at ETech, by himself. In one sentence: People will do what they want with new media, and trying to fight them is just pain. Or in three borrowed points: If there's no porn, it doesn't work. If there are no activists, it doesn't work well. Try to block the cats and other silliness, and you're providing an excuse and learning ground for the activists. RTHT, it's worth your time. (Sorry I couldn't make it to ETech this year, but I've still got this gimp thing going on.)

Can you say 'fiduciary duty'? Speaking of fighting the crowd, here's startup MobiTV's lawyers threatening a website that revealed the company was putting its (for pay) video streams out unencrypted, on a publicly available URL. That worked real well, as the company was forced to back down in less than 24 hours from the story hitting the net. MobiTV has a lot of big names associated with it. Maybe someone should have a chat with management re why the data was out there in the clear to begin with? Personally, I'm pretty skeptical that there's a lot of revenue to be had from mobile TV. It reeks of the usual wireless carrier ARPU fantasies, and feels over-invested at any rate.

Iterate, Iterate, Iterate. Here are some good words for entrepreneurs from Paul Buchheit. One of the big advantages of today compared to the bad old days when we had to put software in boxes is that you can test early and continuously with real users, and refresh the product without worrying about obsolete stock in the distribution chain. So why do so many startups charge ahead building their 'vision' without testing against the market that's as near as their net connection? Hubris. And Paul's got the right antidote: Humility. The market knows things you don't, go learn them fast. The more engineers on the founding team, the more you need his advice.

Speaking of Entrepreneurs. Here's a shout-out to blogger Ole Eichhorn, whose day job is CTO at digital pathology company Aperio. This week's VentureWire feed mentions that Aperio has just closed a $20 million C round led by HLM Ventures. Well done, sir! Don't spend it all in one place. (I've been pleased, if that's the right word, to see that the XRay images resulting from my little misadventure are being zapped digitally between the relevant offices, rather then hand carried on film. Glad that part of the healthcare world has caught up with the gaming sector.)

No, Not Bad Home Loans I spent part of a quiet two weeks here finishing off a small consulting project that I could do from my arm chair. Then a few more days on one of those "I'll get around to it" projects that really only happens when there are few alternatives. In this case, doing some serious research on locations for buying vacation/retirement property. The venerable Placed Rated Almanac is a good place to start, but there's a lot of information on the net these days, right down to dinky vacation towns with 10,000 population.

Having the long term, but paranoid thought habits of a VC now well impressed on me, I also did a bit of digging into the financial health of the various locales. No fun buying in and then finding your property or income taxes going through the roof in 10 years because the politicians have spent the funds in advance. S&P ratings on general obligation debt at the state level are a good starting place. Presumably their analysts have some experience at judging domestic political risk. From this I learn that California is one of the three lowest rated states in the country. Joy!

And since - as current debacles show - the professional analysts may not be paranoid enough, I went a little bit further looking for unexploded debt bombs. And found them. Here's a three year old study of unfunded public pension liabilities (big PDF) from the Reason Foundation. Check the tables at the end to see how much your local pols may have promised the teachers or civil servants without having bothered to deal with the eventual costs. Hmmm, says here my current home county of San Mateo, PRC has an unfunded debt overhang of a half billion dollars, give or take. Could be worse - San Francisco carries a billion dollar plus debt. This kind of things has already pushed one city, San Diego, into bankruptcy, so do your research before making long term commitments. Here's a database of public retirement funds and their health (reg. req'd.) for your enjoyment.