Tim Oren's Due Diligence

Intellectual Property Run Amok

The RIAA? The MPAA? No, believe it or not, it's the military hardware vendors that are about to casually destroy an industry:

For over half a century, kits have been sold that enable military history buffs to assemble scale models of military ships, aircraft and vehicles. But that era is coming to an end, as the manufacturers of the original equipment, especially aircraft, are demanding high royalties (up to $40 per kit) from the kit makers. Since most of these kits sell in small quantities (10-20,000) and are priced at $15-30 (for plastic kits, wooden ones are about twice as much), tacking on the royalty just prices the kit out of the market. Popular land vehicles, which would sell a lot of kits, are missing as well. The new U.S. Army Stryker armored vehicles are not available because of royalty requirements. Even World War II aircraft kits are being hit with royalty demands. This move grew out of the idea that corporations should maximize "intellectual property" income. Models of a companys products are considered the intellectual property of the owner of a vehicle design. In the past, the model kits were considered free advertising, and good public relations, by the defense firms. The kit manufacturers comprise a small industry, and the aircraft manufacturers will probably not even notice if they put many of the model vendors out of business. Some model companies will survive by only selling models of older (like World War I), or otherwise "no royalty" items (Nazi German aircraft) and ships. But the aircraft were always the bulk of sales, and their loss will cripple many of the kit makers.

From the invaluable Strategy Page. Too bad about the kids who'll miss their toys, or the folks tossed out of work, but at least those fulminating about war toys will be happy. Now, just who was it paid for the designs these guys think they own, anyway?

Update: Chuqui writes to point out this issue has existed with model trains for some time. While agreeing that it's a dopey move to alienate your biggest fans, it's not quite the same. The RR trademarks really are private property; I find it hard to argue the same for designs paid for by US taxpayers, not to mention hallowed by some of their blood.

Well, this will all become academic when 3D printers reach consumer price points. A generation of kids will miss the joys of polystyrene model cement, but instead get a quick education in open sourced CAD files.

Objets d'Art?

Is today's computing hardware just too utilitarian for you? How about a 128MB USB flash memory dongle, cleverly disguised as a raw fish and vinegared rice confection, the SushiDisk? Sure to draw attention when you use it load up your next VC pitch. American distributor here. Hat tip: Mochio Umeda.

Dreams insufficiently vivid? Maybe you need several of these evocative characters to stimulate your fantasy life. (Thanks to Mike Stein.)

Mission: In-Q-Tel

I spent Tuesday and Wednesday largely offline at the 2005 In-Q-Tel CEO Summit. As those in the VC world already know, In-Q-Tel is the strategic venture fund of the US intelligence community. Lacking the scale economies that allow the DOD to have a captive research arm, DARPA, it was the CIA that originally funded In-Q-Tel as a way to gain early access to venture funded technologies critical to the intelligence mission. The program has accomplished just that, as well as scoring some exits on its early investments. It was reauthorized in 2004, when other relevant agencies, such as NGA, joined the CIA in support. (Disclosure: Pacifica Fund has one co-investment with In-Q-Tel, Bay Microsystems.)

The conference is an interesting mix of portfolio company executives, mid-level and senior intelligence agency personnel, and VCs and other hoi polloi. For a VC, it's a chance to look at companies which have already had their technology and capabilities vetted by one of toughest and most sophisticated customers in the world, and which are already receiving cash flow as a result. Your mission (should you choose to accept it) is to figure out which of the ventures also have scalable, fast growth opportunities on the civilian side.

An unsurprising interest of the agencies and focus of the In-Q-Tel portfolio is natural language processing. As I have a nearly two decade long personal interest in text and unstructured data search, organization, and discovery, the conference is an opportunity to catch up on the state of the art, as filtered by those with extreme mission-critical needs. In-Q-Tel and the intelligence community are also beginning to push these best-of-breed vendors into tighter integrations, such as a collaboration between Arabic OCR vendor NovoDynamics and Arabic/English machine translation experts Language Weaver. Since I agree with the remarks of panel moderator Ron Weissman of Apax Partners, to the effect that the unstructured data landscape has too many vendors without critical mass, here's hoping this kind of collaboration will naturally lead to some rollup activity in the field. While the intelligence community has the expertise to match technology to requirements down to the project level, that sophistication is not matched on the civilian side. Law firm IT departments (to pick one example) aren't able to differentiate between many of the offerings, leading to a fragmented, sales driven market and limited exit opportunities. Can we have a little M&A music, please?

Many two day investor conferences feature a 'best of show' vote and panel as a wrap-up. That would be a bit tactless on In-Q-Tel's part, since all those presenting are already part of the family, but there's nothing stopping me from dishing out my own awards. So, I hereby present the Due Diligence awards for:

• Coolest Technology, to Cambrios, for its genetically based approach to creating nanostructures that will be useful in small scale circuits, materials, and sensors. In an example given in the presentation, the genome of a bacteriophage was randomly modified and the resulting organisms screened for selective binding of the protein coat to GaAs. This one's still in the science project stage, but it doesn't take too much imagination to guess the relevance to things like sensing of biochemical threats. It's also an example of bootstrapping nanotech from the inherent scale economies of natural, evolved systems, something that deserves another post.


• Best Civilian Application, to Call Miner. The VC community has seen plenty of speech recognition plays, mostly centered around off-the-shelf engines used in call center applications. replacing IVR systems and live operators. Corporate and consumer acceptance has been spotty, shall we say. But here's a new twist: Look at speech as a discovery and analytics target, where even low accuracy word spotting can result in useful insights on shifting content and timing patterns of customer interactions, diagnosing response issues within a call center as well as noticing shifts in inquiries triggered by service or product problems. No points given for guessing the intelligence applications of this one, but here's hoping the 'customers' involved receive the world's best high explosive products, express COD.


• I Want It, to Destineer for First to Fight, a game based on a Marine Corps training simulation. Fire team level tactics built from the POV of those who have been there. This is out on the Mac as well as PC and console platforms. Looks like it will melt the CPU on my poor old TiBook. Agency applications: Play testing Coffee breaks Simulation. Yeah, that's it!


• Best Keynote, to Mark Leslie for a talk featuring his concept of the Sales Learning Curve, an experience curve for the customer facing portion of a venture, analogous to the well known learning curve in manufacturing. Highly recommended for venture investors and early stage managers, particularly those entering the go-to-market phase of the company. Update: You can find a version of the presentation here (PDF). Hat tip: Dave Chase.

Thanks to the staff of In-Q-Tel, who put on a crisply run event that has the best tchotckes you'll find at an investor conference. Where else do you get a Spy Pen with your registration materials? Last year's boodle included a CIA cookbook (did you know Julia Child was once an agent for OSS, the CIA's predecessor?) , and this year's featured Spy-Fi, a print version of the collection of fictional spy props currently housed at CIA HQ. Both well received on the home front. Intelligence is a deadly serious business, but these guys have some tongue-in-cheek fun along the way.

Iraqi Election Reporting Online

I've been busy the last couple of days (explanation shortly), and so missed noting that the Iraqi election reporting collective, sponsored by Spirit of America, is up and running, with Michael Totten taking a break from his regular blogging to edit the reports from Iraqi correspondents.

The site is already reporting the pre-election campaigning in the major urban centers, and will be the place for on-the-ground reports of election day and the results, without MSM spin. Our best wishes and prayers are with the brave Iraqi voters, for their safety and a wise result that will advance their country.

It's also a good time to note that the Arabic blogging site is also up and accepting users. Won't do you too much good unless you happen to read Arabic, which is one reason I've been banging on about machine translation for a while.

Update: Those following the multilingual thread here might want to read Janice Abrahams' comment at Winds of Change re the flow of posts from the Arabic site into the translated, parallel English texts that Totten is posting.

New Model Software Startups: Two Stage Ventures

How will entrepreneurs wanting to build value in software startups, and venture funders requiring both defensibility and eventual liquidity, respond to the rise of open standards, open source, and offshoring? As I've written before, these are all faces of the commoditization of information technology.

I think I see the shape of one response emerging from the fog. This is partially based on companies which have pitched to our team - and will remain nameless - and partially on a rather inchoate impression of chatter on blogs, tech sites, and open source sites. I'm not sure this is particularly unique or profound, but perhaps it's an early indicator of the shape of symbiosis between community and commercial processes.

Let's call this pattern the two-stage software startup. Unlike a two-staged rocket, the first stage is light and runs on little fuel, it's the second stage that has the big burn, if it ignites.

The first stage of the new model software venture builds a useful product as cheaply as possible. Actual engineering is focused ruthlessly on the unique value and differentiating features. In most cases, open standards are exploited to address as large a market as possible using off-the-shelf APIs and libraries. In many cases, the software is written on top of open source platforms, such as LAMP, to keep down development and initial customer costs. Code is usually written to published interfaces, rather than integrated into the open source itself, to avoid 'contamination' by GPL and other OS licenses. Often, a portion of the development will be sent offshore, particularly if the founders have prior experience or cultural connections with a reliable venue.

Build as little as possible, as fast and cheaply as possible, while demonstrating some unique value. From the classic VC view, many of these efforts will result in a product, or even a feature, rather than a sustainable company. But that may be OK for the first stage, because the development time and expense are small enough to be funded by the founders, friends and family, or a few angels. The go-to-market is similarly light. Rather than a sales channel, the venture will buy ad words on Google, promote itself via word of mouth on blogs and via user communities, and penetrate enterprises by pricing low enough to fall within the purchasing power of a department, or even an individual. Being in early and continuous touch with its market, the venture can course correct early and often.

Assuming this promotion strategy reaches interested buyers, the venture can go cash flow positive fairly quickly. This doesn't mean that it's a sustainable business: Barring some strong intellectual property defenses, the costs to an imitator may be equally low, and the venture's reward for proving a value proposition may be to draw competitors with greater sales and engineering resources. However, the time value of having a functioning product with newly proven value may be sufficient for a quick sale to a larger company which has sales channel synergy, or products in a touching function which can quickly integrate the new functionality. While the sale may result in only a few million dollars, that outcome may be quite profitable to the founders and the individual backers. This may even be true on a risk adjusted basis, and that may be a new thing.

The second choice after a successful first stage launch is to light the second stage, which will require venture funding. Second stage activities will consume cash in advance of the sales to fund them, as they must occur before imitators arrive. They may include adding functionality to meet customer requests, rebuilding parts of the product for greater efficiency and defensibility, adding the necessary sales force, scalability, and system integration to be able to sell to a higher end market, such as the CXO enterprise level, or carriers. At the point of making the second stage decision, the technology risks have been greatly reduced, and a portion of market risk eliminated. The company has already been learning from the market, though it will undoubtedly need to relearn some things as it shifts focus. Entrepreneurs who choose to enter this stage will receive valuations well above what they would have commanded before achieving a first stage takeoff, though perhaps not as much as they might hope: The VC will understand the business still requires significant investment to become sufficiently defensible for an eventual exit, and that the management team which succeeded in the first stage may need to be supplemented for the second phase.

Have we seen this pattern before? In a way, yes. Those of dating back to the beginning of the PC movement remember that a few coders, in less than a year, could knock out an acceptable product. The machines of the time had limited capabilities, customer expectations were modest, networking and enterprise integration were years away, and the early PCs provided embedded code for the machine-specific and performance critical input and output functions. Many of the early companies went the whole way without venture funding, and others bootstrapped their proof of concept stages. These options slowly eroded as the power of PCs grew, customer expectations for functionality and integration of software expanded, and the manpower and capital required to achieve initial release increased. Now we've taken a step back closer to those early days, as the combinations of open source and standards, and commoditization of hardware and software, once again make a low rent market entry feasible.

Blogging Roller: Monitoring wikis worldwide (Translated)

Blogging Roller, the weblog of Java developer Dave Johnson, complains that Wikis, compared to weblogs, are hardly reached by RSS-Search Engines such as Feedster. Johnson, according to his Blogroll a reader of Jeremy Zawodny's blog, received a comment from its reader Scott Rafer, among other things referring to a well-known contribution to the topic on LIBRARY Stuff, and explains the poor contents of Wiki RSS Feeds:

“Much of the work to be done is on the wiki side, unfortunately. Feedster, et al, would be thrilled to make wiki changes as easy to search as everything else, but (…) the Wiki vendors need to make RSS output a standard option”

The blogosphere in the last few days and weeks has identified a deficit in the Wiki world. There are many different circumstances in which this topic emerges. In one case it the desire to have the Wikipedia informed about current events (LIBRARY Stuff), and another the interest to have discussions in the Lieblingswiki to remain up to date (Jeremy Zawodny), and now it is equally about searchability through more precise engines than Google (Dave Johnson). The basic problem is the same in each case: Wikis do not supply contentful RSS feeds.

The Following Post Is A Translation Test

The next post up is an English translation of a German post that caught my eye. A guinea pig for testing some of my, Lewy14's and Kevin Marks' ideas on marking up translation. If it makes your browser or RSS reader gag, please add a comment.

On The Trail Of The Elusive G

So have I been absent closing a big deal, or birthing some machine translation hack? No, I have been following in the tracks of Glenn Reynolds. That is to say, shopping for a sports car. Like Glenn, I'm no fan of the automotive buying experience, and I tend to keep vehicles quite a while. If I have it for less than five years, it was a failure, and my most recent #1 ride, a Maxima SE, was traded away at ten. So a fair amount of effort is invested towards making sure I'll stay happy that long.

The Maxima was a great car in its own way, with a strong V6 and clean shifter, but on the heavy side and with a bit of under steer that made it not the best for California mountain roads. The rear seats were seldom used, so that four door weight was being dragged along for nought. The mission was to a find a lighter toy, well balanced for carving the hill curves, enough kick for fun, decent enough manners to be the #1 ride, and something I think I could love for quite a while. And do it for as much under forty grand as possible, since I have religious objections to tying up money in depreciating assets.

The first stop is always the Consumer Reports listings for brand and model reliability. I value my time, and resent laying out well into five figures for something that ends up in the shop too frequently. So if it rates under average in CR for any of the last three years - bang - it's off the list. There went every one of the Euro-rides common around the Valley. Leaving me with a list of what seem to be called 'ricers' around here. I always try vehicles across a wide range of prices, to get a feel for price/performance tradeoffs, so that was still a good sized list.

Next is trying the cars on for size. Literally. At 6'3", a lot of sport coupes and true two seaters are a tight squeeze, particularly given that I demand a stick and clutch. That rules out small Toyotas (and my hopes of a Prius for a #2 car), and the Solara is too large for my tastes. It also knocked out the Honda S2000 I'd been eyeing - it fit sort of like OJ's glove. And there went both Mazdas. (While Glenn and I share a - physical - stature, we must be built differently, since the RX-8 that works for him felt dangerously tight on me when working the clutch.) And I just don't like the exterior design of the Subarus.

Now I was down to three primary candidates: the Acura RSX-S, the Nissan 350Z and the Infiniti G35 coupe. Just for grins, I ignored my principles and added the new Ford Mustang in a six cylinder flavor, for the sake of nostalgia and to see what Detroit can do these days. Now I had four rides across a 2x spread in sticker price. MLK day provided the time to kill half a day at the Stevens Creek auto dealer strip and winnow the list. (A note on dealers. Contra Glenn's experience, in my case it was the Mazda salesman who was the pushiest, and the Nissan and Ford dealers that were the most generous with their time and test rides. A true case of YMMV - it all depends on who owns which franchise.)

I deliberately made the test drives in order from least to most expensive. The Mustang was the base 6 cylinder, stickered at just over $18,000. The interior trim and instrument design are a memory lane trip, with materials on the basic side as one might expect. The six has a decent kick, the suspension is tight for a Detroit product, with a slight rearward balance on this vehicle. Engine and road noise were fairly evident. The shift is billed as a short throw, but was the least precise of those I tested. The brand new clutch was slightly grabby, which I've found common on American iron. Don't take this review as a slam though - this is a lot of car for the price, and will make many buyers happy, particularly those who like to mod their ride. But for me it was a novelty, and not likely to wear well. I'll rent a Mustang on a few road trips, and get my nostalgia that way.

Next up was the Acura, stickered around $24,000, the only four in the batch. It's built on the Civic platform, which I do not regard as a negative: My wife's older Civic around-town car is very well balanced and does nicely on the curves. The Acura interior is unsurprisingly a step up from the Mustang. The six speed shifter was the crispest of all four vehicles. The four is happiest at high RPMs, and zips right into traffic when wound up in a lower gear. The suspension is tight and precise in sudden lane changes - no tail wagging here. The clutch was smooth and forgiving, even when I reverted to six cylinder habit and shifted well below the RPM happy point. The RSX is also a lot of ride for the money, but I ended up deciding that the buzziness of the four was not going to grow on me. The salesman tried to get me into a TL, but I wasn't looking for a four-door, so onward to the next options.

The Z and the G are built on the same platform, and both use engines that are well-reviewed derivatives of the strong Nissan 6 I drove for ten years. The Z is an unrepentant two seater sports car, while the G coupe has 8" more on the wheelbase, more storage, a rear seat that's usable by small, friendly adults and doubles for storage, and more cush in the interior. Both shifted easily, perhaps due to my experience with my previous six. Glenn's right that the G's shift was a little looser than some others, but I didn't find it problematic at all. The new versions of the six seemed happier 300-400 RPM above the old, but the takeoff experience was otherwise a more refined, better thrust/weight upgrade. Put through the same highway maneuvers as the RSX, the Z was loafing where the Acura was breaking a little sweat. The G and two variants of the Z (Performance and Touring hardtops) were all nicely balanced, precise, and made light of any maneuver I dared attempt on a Valley freeway. The notable difference is in the stiffness and busyness of the ride on surface streets. Curiously, there was more difference between the Z variants than between the G and the Z Performance configuration. I'm not sure if this was variation in the individual vehicles, or in the models' suspension setup, but the Z Touring had me feeling every crack in the road - a little too much for a day-to-day ride and perhaps the basis for some reviews in the same vein. The G and Z Performance grade were both firm, but not unduly so. The Z's as driven were stickered at about $32k (P) and $35k (T); the G was above $38k, but the tester included a pricey navigation system that I don't need.

Both the Z and G are great cars to drive, are good on the eyes, and I'm sure I'd be happy with either. The Z gets a vote on pure fun, but the G gets the win on day-to-day ride at the trim level I want, a little more storage for long weekend runs to B&Bs and wineries, an apparent edge on service record, and a tie break vote from the spouse. So now it's on to the next fun activity: Let's Make A Car Deal. I would just go and pick the one model on the list that's in shortest supply. I'll report back on that experience in a few weeks, hopefully with a new ride.

In The Wake of Rathergate

This is what is happening to the legacy news media. Here is why I will be happy if the entire business sector crashes and burns. Update: And this only reinforces my feelings.

What I Read On My Winter Vacation

I hate traveling during the holidays, so usually we hang out at home and hope for the best as far as the weather goes. No such luck. If you paid any attention to CA weather of late, it's been like that old Al Capp character with the cloud always over his head. It rained, then rained some more, and while considering what to do next, it kept on raining. So I caught up on the reading queue a bit, between trawling the net for translation information and new blogs. A few mini-reviews from the turn of the year:

Kenneth Timmerman, The French Betrayal of America. Don't read this book if you have ulcers, high blood pressure, or need to sleep well tonight. Also don't expect a blow-by-blow of the whole Iraq/UN Security council affair. This is background which makes that affair understandable, not as an outlier, but as a direct continuation of a pattern of perfidy and support for Saddam by the French government in general, and Jacques Chirac in particular. Read this and you'll never look at the news from Paris the same. One thing I found wanting: Timmerman at times cites 'rumors' that US oil or arms companies were engaged with either Iraq or Iran, which were used as justification by the French for some of their own activities. He never pays off on these hints - were they self-serving disinformation, or something more serious? It's a small but significant weak point that these rumors are not clearly sunk or substantiated.

Scott Ott, Axis of Weasels. When the tooth grinding from reading Timmerman gets to be too much, put it down and pick up this book of snark and comic relief from the mad genius behind Scrappleface. There is no international crisis or political outcome so dire that it can't be lampooned. There are a few snags in the dish - I was periodically reminded that Mr. Ott and I do not share views on religion, abortion, gay marriage, and evolution. (Evolution? Just what century is it?) But fortunately, he's not running for office, so I can skip past the offending bits and enjoy the residue in good conscience.

Rick Atkinson, An Army at Dawn. This history of the invasion of Northern Africa, the US Army's first action of World War II, was recommended over the dinner table during my visit to Army War College. This entire campaign is in danger of falling out of school book histories, and Atkinson does an admirable job of digging into the archives of the Army and our adversaries of the time to bring it back to life. Those who have some notion that the efforts of the Greatest Generation were meticulously planned need to read this book, and compare to today. In spite of numerous errors, Operation Torch also marked the point when the productive and logistical capabilities of the US began to eclipse our allies, an event that is still playing out. Atkinson's work is marred only by the occasional descent into 'people journalism' marginal to the outcome of the action.

Peter Cozzens, The Long War for the Northern Plains. This is number four in the author's series "Eyewitnesses to the Indian Wars, 1865-1890". I've had an interest in the war in the Northern Plains since touring several of the significant battlegrounds some years ago, and working on related content as part of a multimedia educational project even further back. The size and price of this volume is likely a bit much unless you share that level of interest, but I enjoyed it. The contents combine contemporary newspaper articles and military reports, and later recountings by the participants, including some from the Native American side. Here you will learn that the history of 'embeds' goes back a long way, and had serious risks of being a 'hair-raising experience' at the time. Personality journalism, criticism of actions that led both to defeat and to eventual victory, and the duels between hawk and dove are just as old. Those brought up on Little Big Horn and Wounded Knee will find that neither of those actions was decisive. It was the ability of Col. Nelson Miles to supply his troops and relentlessly follow the Sioux villages through the harsh winter of 1876-7 that finally broke that proud tribe to the reservations. There are honors and horrors enough here for both sides of that long-ago war.