About Jean-Louis Gassée

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Posts by Jean-Louis Gassée:

User experience — Microsoft Buying Love

Silicon Valley VC-dom is having a grand time watching Microsoft. It always did, in fear some time, with hope the Bill Gates would buy ingenious or annoying startups at other moments, always with respect for the giant’s impact on the high-tech industry.

Lately, the respect has turned into puzzlement. Because of, to simplify, Google and Vista. Google has exposed Microsoft’s inability to have any significant impact on search, advertising and, more generally, Cloud computing.

Vista surprised everyone, myself included, by how immature and uninteresting it is. To the point where Ballmer had to call it a “work in progress” — this five years after the previous version, Windows XP. So immature that many large organizations have decided against upgrading and launched a campaign to “save XP”, to force Microsoft to keep it available indefinitely. The market reaction to the new 2007 version of Office has been similar: Why bother?

I’ll hasten to say Microsoft is still hugely profitable: just Office made it more money in one quarter than Google in an entire year. But, last week, puzzlement turned into something else: a mixture of incredulity and worry. Is this all Microsoft has to offer to take Google down from its number one position?

“Microsoft is going to pay us to search!” said many stories. Not quite. It’s more complicated. When I search for a Nikon lens in Microsoft’s new Live Search site, I get offers from selected merchants. When I buy, Microsoft gives me a small percentage of the purchase price, 2% to 4%. So, I set up the Microsoft rebate money to go to my PayPal account and off I go, looking for the Nikon 85 mm 1.4 lens of my dreams. (Don’t go to Livesearch.com, that’s another company, they’re probably holding out for a better offer from Redmond.) For a lens worth about $1,000, live.com gets me 6 stores with discounts in the 2% to 4% range. Out of curiosity, I try Goggle. In one instance, the same merchant, B&H, offers the same lens for less than on live.com, in an “imported” version. And when I do research on the other Microsoft-offered merchants I won’t name here, I see slightly lower prices. But… a bit of research shows the sellers are labeled as crooks or worse by dissatisfied customers. Google also reminds me Amazon offers the lens for $999, free two-day shipping and no doubt about integrity. I try another search, for an inexpensive camera this time. The results are similar: the lowest price is from a company with an ugly reputation (and recently sold to another entity). For $10 more, you buy from Amazon. No complication, no paying one price and getting the discount later from Microsoft.

Let’s review. Microsoft Live Search: not really cheaper, not safer, not simpler.
Speaking of safety, it is fair to point out that some of the merchants featured on the right-side of the Google results page are known bait-and-switch artists. Also, several “shopping engines” on the same list are honey traps working for the scammers just mentioned. The good news is two minutes of googling gets you plenty of data on these schemes. Caveat emptor.
The other news from Microsoft is Per Action pricing. The advertiser only pays if the customer buys, downloads, makes a reservation. Much better than Per Click pricing, no? No. Merchants continuously evolve statistics measuring the conversion of clicks into action. In other words: How many clicks to get an action, a purchase. As a result, they already bid the clicking business with the Per Action cost in mind.

Is this how Microsoft is going to lift themselves from their 9% share in search (vs. Google’s 60% and growing)? Probably not. That’s why they’re still angling for a deal with Yahoo! Buying their search business only this time.

For more, a niece piece by Henry Blodget in Silicon Alley Insider: From the VC perspective, here, it’s hard to avoid ambivalence. Yes, this is quality entertainment. But how does this lead us to healthy start-ups? Even a “less than Google” search engine will get you a long litany of Microsoft fumbling attempts at gaining a meaningful share of the on-line business. Do we have a Satan IV (an old sci-fi novella) questions? Will the “new Microsoft” of the on-line world be as domineering as the old one was in the PC business, draining much of the resources, much of the money out of the domain?
In plain(er) English: how much oxygen left after Goggle inspires? – JLG

Yahoo! Part II: Naked capitalism

This week’s complaint in the Valley: Carl Icahn is an ugly capitalist. He only bought 3.9% of Yahoo! to extract profit from his investment and, in the process, he’ll destroy the company. Really? Isn’t this is a little rich coming from people who make money from stock options? You will recall Microsoft walked away from their Yahoo! bid writing Jerry Yang a nasty “protesting too much” letter on their way out. Monday morning quarterbacking rose to a new pitch and shareholders who hoped to cash out launched lawsuits – SOP, Standard Operating Procedure. More surprising was Carl Icahn’s decision to accumulate Yahoo! shares and start a proxy fight. Here, proxy fight means putting a proposal before shareholders against the board of directors’ party line. In this case, Carl Icahn tells shareholders to elect his “slate” (list) of directors at the coming July 3rd meeting. His pitch: Management and directors at Yahoo! are idiots. Before Microsoft’s offer the stock traded below $20. Those incompetents could have sold to Microsoft for $33 or so. Let’s kick them out. Our newly elected board will re-open negotiations with Microsoft and we’ll make you money. There are problems with that line of thinking but they’re not what the whiners and ankle-biters think.

Yes, there are good reasons to fear Carl Icahn. He is relentless, he takes no prisoners, sweeps in, shakes the company down (greenmail) or up (restructuring). He extracts a profit from his investment and goes on to his next prey. A vulture capitalist, say his critics (I thought this was us VC): he’s taking advantage of troubled companies. But how did these corporations get in trouble? The causes are commonplace: resting on one’s laurels, complacent Boards of Directors, failure to adapt to new competition, to strategize or just plain incompetent top executives. All this causing shareholders to lose money. The latest Icahn raid got Ed Zander out of the CEO job at Motorola as, year after year, the company failed to keep its leadership position in an industry they invented: cell phones.

So, Icahn waltzes in and the worriers worry: He’s going to do irreparable damage to Yahoo! The thing is, it’s already done, that’s why the stock tanked before Terry Semel got fired, sorry, before he “stepped down”. In 1994, Yang and Filo founded Yahoo! and, for a brief moment, made it the shining star of the Web, the place to go as a user, the place to be as an engineer. But, quickly, Yang and Filo decided that the dirty task of managing was beneath their creative level. They hired Tim Koogle to make the trains run on time, it didn’t quite work, then Terry Semel from Hollywood because “it” was all about media, about content. Never mind technology. Yahoo! failed to grow its server farms, to sharpen its search, to make shopping competitive, to fire the ones who needed to be fired. Google came and we know what happened: they shed a cruel light on Yahoo’s directors and management. So, Carl Icahn is doing what he’s known to do: pounce on poorly run companies, clean up messes and make money for shareholders. Unpleasant but healthy. Predators keeping the ecosystem in shape.

But, will it work? I doubt it. First, Microsoft made up its mind. Too messy. What were we thinking? They won’t be back at the bargaining table. Second, it’s the technology and the techies, Carl. It’s not a bricks and mortar business where the accountants, the attorneys and the investment bankers can rely on a stable set of formulae to remodel the house. This, the Web, is the new New Frontier, we make laws as we move forward. People, the real assets, users as well as engineers move around at will, creating and destroying value much quicker than at an auto parts company or a shopping mall conglomerate. Ask Terry Semel and, actually, ask any outsider who came to the Valley to try and mend its ways. Conversely, ask any outsider, hello J6M, who tried to run Hollywood.

Carl Icahn could end up being right about the diagnosis: Yahoo! needs a new Board of Directors and a new management. And he could be the wrong doctor because the patient is unlike any other he’s treated so far. Unless he manages to force Yahoo! to re-open talks with Microsoft — which seems to be the case .– JLG

Why Venture Capitalists cry over the failed MicroHoo! Deal

The answer is simple: we love destruction. We don’t like order — unless we briefly own a monopoly, take it public or sell it to Cisco and recycle the money.

There was much to love in that Microsoft’s projected acquisition of Yahoo! The people, the cultures were incompatible, there were duplicate products, mail as an example, different advertising platforms and disparate server “farms”. Lovely.

Thanks to Microsoft’s unsolicited offer, techies were going to stream out of Yahoo! We were going to get a fresh supply of much-needed engineers for our start-ups.

You see, we love Google but they’ve been a pain in the wallet lately. How do you compete with three free meals a day, Google’s own buses transporting them to work and back, 20% time for their pet projects, on-site laundry and dry-cleaning pick-up and delivery, free munchies, soda, organic coffee and green tea everywhere on campus? The monstrous heap of amenities – I was going to forget massages and restricted stock, not riskier options – makes getting talent for our nascent companies much harder. Harder as in expensive. Expensive as in threat to our return on investment.

So, for a moment, we thought of Steve Ballmer as our benefactor. The Yahoo! acquisition closes, the engineer cashes her or his stock options after the prescribed interval and leaves.

This is a triple win.

First, the engineer pays off student loans or part of a mortgage. This results in a mind more open to risk, to joining an unproven company.

Second, the time the individual must “mark” before cashing out of the combined company is used to our benefit. Writing code for a new music widget site, a PowerPoint presentation to raise money, just thinking what to do next or schmoozing with a team in formation. This is all good traditional Silicon Valley use of OPM, Other People’s Money.

Third and last, building up a head of steam. Frustration begets creativity. Large company (let alone victim of an acquisition) politics creates negative energy. We invert it, we channel it towards building a shining (as in gold) proof of what the old fogies should have done if only they had listened.
Some say we shouldn’t despair. Wait one quarter or two, Yahoo’s performance will tank, so will the stock. In six months, Microsoft might get the company for ten billions less. And we still get a fresh supply of adequately frustrated engineers.

In the meantime, we’re watching a migration of execs from Google to Facebook. A COO, Sheryl Sandberg, a CFO, Gideon Yu, a PR exec, Elliot Schrage, to name but the most prominent. We’re not really interested in such individuals as their most prominent skills are corporate politics and PowerPoint. An exodus of engineers would be another topic, they know things we can’t see but care for. These execs, on the other hand, jump from a company with an immensely profitable business to one with a huge (70 million) user base but no earnings. Facebook is now raising money ($100 million) through debt because no investor wants to pony up more funds at the latest $15 billion valuation. Unlike Google, Facebook is still a private company, we can’t see the stock deals the transfuges are getting as a reward for their skill, experience, reputation and risk taking. Who knows, they might soon work for Microsoft. The company invested $240 million in Facebook in October 2007, getting 1.6% of the company, but it apparently declined to do more – for the time being. I guess we’ll have to wait a little more to see if Steve Ballmer gets us freshly motivated engineers out of Facebook. –JLG

Steve Ballmer not so gracious

Background: this Sunday May 4th Microsoft withdrew its offer to buy Yahoo for $44.6bn. Saturday, Microsoft CEO Steve Ballmer had invited the two co-founder of Yahoo, Jerry Yang and David Filo for a final discussion. In a last move, Ballmer sweetened his proposal by $5bn, to $33 a share. Yang and Filo demanded $37.

So, Microsoft walks away from a bad deal. Incompatible cultures, incompatible computer systems made this a terrible idea, to say nothing of probable delays due to regulatory reviews.
Steve Ballmer could have issued a terse letter: We withdraw our offer because we couldn’t agree on price. We’ll continue on our own path and wish you the best of successes. Steve Ballmer.
Instead, Steve Ballmer sends a long letter to Yahoo’s CEO, Jerry Yang. First mistake. Second, and much worse, this is a bitter, angry, accusatory letter. Accusations and veiled threats.

This raises a number of questions.

First. To quote Ballmer: “By failing to reach an agreement with us, you and your stockholders have left significant value on the table.” If this is true, trust shareholders and their attorneys, they’ll see it without Ballmer’s help and sue Yahoo’s Board of Directors. What does such a statement do for Microsoft shareholders or employees? It just makes their boss sound petulant, entitled. You should have seen we were your only salvation…

Second. Explaining at length (6 paragraphs) why a subcontracting some search and advertising to Google was a terrible idea. Again, is this rising graciously from a muddy playing field or is this trying to throw more mud at the adversary Ballmer couldn’t bring to heel?

Third. Accusing Yahoo! and, indirectly, Google of fomenting the creation of an advertising monopoly. How does this look coming from a repeat monopolist?

Fourth. Is Ballmer angry because, after the Vista fiasco, after failing to achieve any traction in Cloud Computing (ironically called Microsoft Live), or in Search, or in Advertising, his leadership could be questioned?

Fifth. Is Ballmer secretly relieved or is he so insulted by this defeat he’ll go an bomb another country?

What to expect? Perhaps Microsoft will turn to better targets: Intuit, Adobe, SAP… They’ll have to do something and Ballmer will have to explain what got to him going in and going out of this ill-conceived sortie. – JLG

Markitecture (take 2) — Google descends from the Cloud

Google’s markitecture isn’t so different from Microsoft’s. Just like the old champion, Google tells us we can have the best of both worlds: Everything in the Cloud, applications and data. What? You want to work off-line? No problem, we can do that too. Your data and your applications also on the desktop, re-connect and everything is in sync. Another all pros and non cons con.

Like any good preacher, Google doesn’t confuse what you say and what you do. It is well aware of the problem with the new religion: editing this column with Google Docs is great but what happens if I lose my connection? What happens if I’m on a plane? The solution is a browser extension, Google Gears.

Suddenly, they Cloud applications just work, connected or not. Two months ago, Google Reader, a free (and very good) blog reader gets a Gears update. My (large) set of blog subscriptions is now synched to my desktop and equally readable off-line or on-line. Just recently, we see Google Docs get its own Gears extension. As I start writing this on-line, the Cloud docs synch automatically to my desktop. I cut off my Net connection and I continue typing off-line. Back on-line, the two off- and on-line versions re-synch on their own. It seems to work as expected.

Microsoft’s Outlook isn’t that different. On the desktop, you have a local copy of your mail, calendar, address book. If you answer mail off-line, or change a calendar entry, everything will synch back at the next connection with the Exchange server. And, you don’t need Outlook. From any browser, you get to the Exchange server and take care of business. This sounds very much like the on-line/off-line modes extolled by Google.

Where are the differences?

Google: Yes, we have no choice. The truth is we must provide desktop software. We’ll call it a browser extension, but software running off-line on the desktop is what it is. The Desktop vs. Cloud dichotomy? A question of nuances.

Microsoft: Yes, we do on-line/off-line dual mode software. So, what prevents us from doing an on-line/off-line version of Office? Well… Three things, size, profits and culture. Once upon a time, we did software that was small, fast and inexpensive. Hard to believe when you see Vista and Office, but true. Our users grew in numbers, our software grew in size and now we are facing someone like us a quarter of century ago, only better financed than we were and with a better computer infrastructure (in English: large number of servers working well together) than we have.

The real debate isn’t between Desktop and Cloud. Everyone agrees the hybrid model is the future. But Microsoft is saddled with heavy desktop software that will be harder to hybridize than Google’s young on-line applications. To say nothing of business model transitions and corporate culture. –JLG

Microsoft mesh — Caught Between The Desktop And The Cloud, Part II: The Markitecture Solution

Last week’s column asked how you’d like to be Microsoft’s CEO, caught between the aging desktop and the emerging cloud. How do you grab a significant (Microsoft likes “dominant”) share of Cloud Computing. without cannibalizing your desktop business? Imagine shutting off the Divine Earnings Stream, the immense profits from desktop applications, Microsot Office, mostly before the Cloud applications profits kick in. Immense? In one quarter, Microsoft Office makes as much money as Google does in one year.

This week, we have the answer: Live Mesh.

We The People, are going to get the best of both worlds, the Desktop and the Cloud, without any disruption whatsoever. It is so beautiful, so obvious that I wonder: How come I didn’t think of it before? Actually, I did. I once was a corpocrat, we told stories like this all the time. Chief, no problem, here is how we get the best of both worlds. Same thing in politics, a French president campaigned on Change With Continuity. In the US, we have More Spending With Less Taxes.

The Theory Of Everything: Live Mesh synchronizes everything on all your devices — through the Cloud. An offer we can’t refuse. See, you keep using your PC, meaning Office the way you always did. But we, Microsoft, know you’ve been seduced by these sirens: smartphones, laptops, Macintosh and, soon, MID, Mobile Internet Devices (small pocketable computers not running Windows and using Cloud applications through non-Microsoft browsers). No need to feel guilty, my son, come back to our embrace — and don’t forget your wallet. Live Mesh connects all these devices and applications in a synchronized mesh. Here, synchronized means your data are kept identical, up-to-date, everywhere. Let’s say you have a PC at the office, a laptop and a smartphone. The PowerPoint presentation you write at the office will automagically propagate to your other devices. So, when you’re on the Eurostar going to London, you edit the same presentation on your laptop and the changes appear everywhere on your universe of devices and applications. And, while you’re at it, make sure to create different Meshes: one for your work and one for your family. This way, the pictures from your smartphones will propagate to your wife’s iMac, just like that. [Sorry, I've just been advised by Microsoft there is an update for Silverlight to be downloaded: Click Here. And, sorry again, "We Were Unable To Service That Request".... Just happened as I'm writing this on Google Docs.] The problem with this story? Too perfect. Who can disagree with keeping everything synchronized, consistent? In Valley argot: When it’s all pros and no cons, it’s a con! We’re being framed, the proposition is couched in an artfully arranged perspective leaving annoying details in the dark and no room for disagreement. Still in Valley-speak, we also call such discourse markitecture, architectural discussions for marketing purposes only. No need to worry about the Mere Matter Of Implementation. Which is where the ugly details lurk.

Examples: Do I want to replicate everything everywhere? Do all my company documents belong into my smartphone, or even my personal laptop? Does my home iTunes music and video library belong to my PC at the office? Away from industry conference slideware, pedestrian reality intrudes: the dream of seamless (another much abused word) synchronization becomes a complicated reality of segregation and permissions. Where can this file go and not go, who owns it, who can see it, modify it. Nothing new here, these are old, known computer systems problems without simplistic solutions. Things get even more complicated when what you really want isn’t synched copies of presentations but calendars, address books and more delicate data structures, think real-time business data for a mobile organization, running on incompatible systems. Ask the folks at RIM/Blackberry, it’s close to black magic — and a reason why Microsoft should buy a winner like RIM instead of a Yahoo!

And there is another “mere matter”, the matter of making money, the business model. At an industry conference this week, one of the Mesh evangelist, Amit Mital, was asked by a French journalist, Dominique Nora: What about the business model? In substance, the answer is it’s still very early to talk about money. Here, “it” refers to the availability of Live Mesh. In other words, we’re being conceptual here, folks, this is not a product announcement. Just an attempt to cloud the Cloud. Don’t worry about this Google stuff, keep using our desktop applications, we’ll protect and extend your investment as you use more and more connected devices.
Pure, undliluted markitecture, a clever attempt by Microsoft to finesse the Cloud vs. Desktop dilemma.

Next week, if nothing more pressing presents itself, we’ll examine some of the half-truths in Goggle’s theory of Cloud Computing. And, perhaps, my boss Mr. Filloux will let me take you through an exercise in kremlinology: commenting Ray Ozzie’s BS paragraph by paragraph. For fun, I used to do this for an industry analyst in Paris and it got me my second biggest career break. Who knows what this could lead to now. –JLG

Caught Between The Desktop And The Cloud

How would you like to be the head of Microsoft? Yesterday, you were the emperor of the desktop. Riding Moore’s Law, microprocessors doubling their power every 18 months, microcomputers became personal and made IBM’s mainframes passé. Microsoft Office, Windows on the desktop, Windows servers running Exchange became the industry standards. The resulting dominant position (some say monopoly) gave Microsoft unheard of pricing power and generated billions for shareholders, founders and employees. But, today, we have Cloud Computing. It is often characterized as all applications run on servers in the Cloud, the PC’s browser is merely the interface. Is this a pendulum swing back to the old mainframe and dumb terminals days? No. Is it the passing of Marc Andreesen’s 1996 prophecy: The browser is the operating system? We’re getting closer.

First step: delivering former desktop applications from a server. This is what Salesforce.com pioneered with the leading CRM application. Initially a struggle, Salesforce.com is now a brilliant success with many imitators. The genre is known as Software as a Service, Saas.

Second step: Google’s server farms. Combining technical brilliance, foresight and agile opportunism, Google now runs the largest sever farm on the planet, more than one million servers on three continents. Building on this infrastructure, on its engineers and on its brand, Google enters the Saas business buying applications such as Writely. We now have Google Docs. Essentially, this is Microsoft Office delivered from the cloud. Who cares which PC and which OS you run, all you need if Firefox (Linux, Mac or Windows) and a Net connection. I’m writing this column on Google Docs in Palo Alto, for my boss Mr. Filloux editing it in Paris.

Third step: working off-line. It’s nice to store data and run applications in the Cloud but what do you do when you’re on a plane? Google (and others) have thought about it and we see an off-line version of applications coming to us. Edit on-line, go off-line, write some more and re-sync with the server when you reconnect. The idea isn’t exactly new, a good sign. Consider Outlook/Entourage and Exchange in Cache Mode: you “own” a local version of the server data on your machine. You answer mail, edit your calendar locally. Then, you send/receive mail, re-sync you calendar when you reconnect.

Fourth step: offering the server farm to application developers. Again, not the newest of ideas: Amazon has been offering very good server services, AWS, Amazon Web Services. Small start-ups delight in using AWS to host their applications. Now, building again on its infrastructure, engineers and brand, Google tells entrepreneurs: Come and build your cloud on our cloud. You see the idea: getting it both ways, autonomy when off-line, full power, world reach when connected. I’m leaving many other examples and companies aside to go back to Microsoft. Today, Microsoft gets more than $300 (at retail) for a copy of Microsoft Office. That copy costs a few dollars to make. That’s pricing power. But what I called The Divine Earnings Stream is doomed to run dry.

Microsoft cannot and doesn’t ignore the threat but what can it do? In theory, they should do what Google does, deliver Office in Saas mode, cached locally and run form a server farm. In practice, they’re caught in three concentric prisons. First: servers. Windows Server works reasonably well for enterprise applications. But using it for a million servers farm is out of the question. Second: the Office code base. Big and heavy. Can it be adapted to an on-line/off-line Saas delivery model? Third: Wall Street. Free is a four-letter for Microsoft shareholders. How do you earnings trouble when converting from $300 per copy to a free or freemium Saas Office? This is what Microsoft is timidly testing with Albany. Not a Saas version yet, but Office by rental subscription. In the meantime, Salesforce.com and Google join forces, Google Apps now available with the leading CRM application. As for the question at the beginning: Bill Gates answered it by passing the baton to Steve Ballmer. –JLG

Microsoft vs. Yahoo!– Covering yourself with feces…

“That seems sort of like trying to keep a wild animal from eating you by covering yourself with feces.

It might make awful sense for about a second, but it’s just a bad, bad idea. First, it’s unlikely to work — and, second, it’s just pathetic.”

To save itself from Microsoft’s jaws, Yahoo! considers buying AOL, the fallen leader of the consumer Internet. Crudely but accurately stated by Techdirt, the idea is to cause Microsoft to give up the chase, turned off by the smell. Complications piling upon an already convoluted deal. More incompatible systems, more hostile cultures, more risk of customer going “elsewhere”, meaning Google. To say nothing of added anti-trust scrutiny and talent flight.
But Microsoft isn’t any saner. Steve Ballmer wants the deal really badly: he’s willing to get in bed with Rupert Murdoch. News Corp’s wily patriarch got snookered into buying MySpace only to find the epicenter of social networking moving to Facebook.
Wait, there is more: Yahoo!, the deposed Internet king, wants to outsource search to Google. Better search results get a higher price for Yahoo! ads. According to our favorite Internet Bubble repentito, Henry Blodget, the putative outsourcing deal is worth $5 per share to Yahoo!

So….

First, this mess shows again how far Silicon Valley is from Wall Street. Yahoo’s management, led by its founder Jerry Yang, opposes the deal: It will kill the company they care so much about. Never mind the years of mismanagement, delusion or neglect, never mind the sinking market share, the number one position lost to Google, the bad decisions made by the board of directors, the string of CEOs, Tim Koogle, gone, Terry Semel and his Hollywood connections, gone, Sue Decker and her consultant-speak memos, out of sight…. Is this really about the company, about shareholders? Or is it a few people trying to keep their phallus extender?

Speaking of Wall Street, all shareholders want is for the pain to stop: they lost 50% between January 2006 and January 2008, right before Microsoft’s offer at a 25% premium. How can they trust management’s promises to right the ship when the rosy predictions came as a reaction to the ogre’s appetite? Now, if Yahoo’s posturing results in Microsoft adding another 10-15% to their opening offer, I take back the sarcasm: management played a weak poker hand well, the bluff worked. In “real life”, we’re told, Jerry Yang is a good poker player….
Still on shareholders, those owning Microsoft shares aren’t so thrilled. They don’t distrust the directors and the CEO, Steve Ballmer, but they don’t see what the board sees either, that cloud computing spells the end of the Divine Earnings Stream, profits from desktop applications, mainly Microsoft Office. Microsoft shareholders see the short-term threat of the messy acquisition, not the longer term trouble with Google becoming the new Microsoft in the cloud.

Second, I wonder if there is another bluff taking place. Let’s assume Ballmer and his advisers hadn’t expected this much hostility. They now see the deal as substantially riskier than planned, they want out. Microsoft secretly welcomes Yahoo’s intransigence, postured and real. Ballmer doesn’t raise the offer and hopes Yahoo won’t budge. The deal dies of a “natural” death. Yahoo’s fault.

We’ll know soon whose bluff worked. –JLG

TV on Internet Protocol: Advertisers Salivate

Here’s the BFD: TV programs come as IP packets, just like any other Internet content. The results? Advertisers target me with unprecedented precision, TV finally becomes interactive, huge profits on the horizon. Is this another Web 3.0 pitch? No, your honor, let me explain. For this I start with a small epiphany. Two years ago, I buy one of the first Intel Mac Minis. This is a BYO deal, I find a no name keyboard and mouse in a closet and decide to use my brand new Sharp “Full HD” TV for the monitor. All I need is a DVI ti HDMI adapter in the back of the Mac and a HDMI cable to the TV. The Mac boots and sets itself up automagically to the TV’s resolution, 1920 by 1080. [I can proudly report it's also "possible" in Windows, this Mac also runs it, I did it and I have the new hair on my chest to prove it.] So what? Well, the Mac Mini is now on the Internet, I watch YouTube, Joost and others. With the browser in Full Screen mode, how do I know I’m watching the Net vs. cable TV? This is the future, the Internet devours TV.

With real IPTV in theory, the broadcaster knows my IP address, my ZIP code, my credit card number, what I was watching 10 mins ago or last night. Toyota sees Palo Alto proudly features the highest concentration of Prius on the planet, we’re the epicenter of the (caviar) Left Coast. The automaker also knows I owned two generations of Prii. As a result, the next isn’t for the humongous Tundra pickup truck. Instead, I get a very personalized offer to trade my German VC-mobile (they know, they have my DMV record) for the new high-end green-guilt (hybrid) Lexus 600h. Other exercises featuring teenagers or bored seniors are left to the reader’s imagination. One set-top box maker even floated the idea of adding a camera to their device, a “good” way to know who’s actually watching…

This is the advertiser’s green (money, not melting Greenland) dream. TV on IP protocols, as opposed to today’s airwaves or cable, gives a gold mine of information to the advertiser. And, for the viewer, we have more choices. It is now easy to respond to an offer, one click of the mouse/remote. Voting, menus of choices, candidates or pizza toppings, impulse purchases, multiple windows for the ADD-afflicted or the sports addict…

I wrote “in theory” above. Cable networks aren’t there yet but companies such as Comcast are furiously working with huge Cisco routers to deploy their own high-speed IP network. Today, they get no share of Internet advertising revenue. Tomorrow, their IPTV network gives them high-resolution user information and toll booths to convert it into a share of advertising spending. This is the end of the era of “dumb pipes” a France Telecom executive decried when he saw the Internet killing their obscenely (in more ways than one, they once were the largest pornographer in the Western world) profitable Minitel. And, speaking of phone companies: Will they compete with their own fiber network, or will they let the cable companies provide everything, VoIP, IPTV, Internet access. Actually, with an ultrafast IP network, there is no more “triple play”: Telephone, TV, Internet, it’s all IP packets. Still on theory: We The People better wake up and kick our bought and paid for legislators in the rear. Our private data are in play, we can’t let our solons sell us down the river again. At least, get us more “free” channels… – JLG

BFD: In VC parlance, Big Fundable Deal. You may replace Fundable with other F words.
BYO: Bring Your Own. As in BYOB, Bring Your Own Booze. Here it’s Bring Your Own keyboard, mouse and monitor.
IPTV: Television delivered with Internet Protocols (or Packets).
VoIP: Voice Over IP, voice, telephone connection, delivered with Internet Protocols (or Packets).

P2P isn’t the enemy

There is a comical side to the P2P controversy. The ISP philanthropists are whining, music and movie publishers are suing, users cry foul, The Electronic Frontier Foundation (EFF ) jumps to the defense of the oppressed and raises money, pundits gravely contemplate the future of the Net and, of course, smelling a photo (or Web) opportunity, politicians strike poses.

What’s the story here, do we have a dog in that fight?

A quick reminder: P2P stands for Peer To Peer communication, as opposed to the classical client (my PC) server (amazon.com, hotmail.com) configuration. With P2P, users, peers, share files without central server. Using software such as LimeWire on your PC, you share what you have and get what you want. As usual, Wikipedia provides a robust explanation of the ins and outs of P2P. Let’s just say the magic of IP packets makes it work well, much too well.

The first to complain are the owners/publishers of content: for them, P2P is a way to propagate stolen property, it stands for Pirate-To-Pirate. The highs and lows of fights between the RIAA or the MPAA are well documented: google (it’s now a verb) “RIAA lawsuit” or “MPAA lawsuit” for more. How the “majors” think they prevail in the end remains a mystery. They should read Jonathan Swift, it’s free, in the public domain.

Next, we have the ISP. Yes, the potential for P2P was right there in the Internet basic technology, but nobody saw it coming. There are times where P2P consumes 90% of all Internet traffic. Design a finely calibrated business model for your All You Can buffet and, suddenly, a bus full of sumo wrestlers pulls in your parking lot. Comcast and others tried to choke P2P traffic. The result? More of an already bad reputation for gaming their customers and more politicians rooting for an exploit. As recent tests have established, the very sophistication of IP protocols that makes P2P possible also makes it very hard to distinguish a “bad” P2P transmission from a “good” exchange with schibsted.com.

But there is another side to P2P, one that saves money. Consider CDN, Content Delivery Networks. One example is Akamai, $630M in sales, 15% profit margin. One customer is Apple, the company “pushes” more than 100 megabytes of software updates per month, per user as well as large servings of content such as video tutorials or Steve’s much consumed keynotes. All free. Instead of owning and operating servers for that task, Apple offloads it to Akamai. That company, in turn, maintains a network of strategically located and finely tuned servers, hence the CDN moniker. Bandwidth is expensive, before being saved by Google late 2006, YouTube spent about $1M a month feeding free videos.

This is where the “good” P2P comes in. Invented in computer science labs at Stanford, variations of P2P automatically distribute content to users who, in turn, propagate it to others on request. “All it needs”, an admittedly dangerous phrase, is cooperating software on PC and a directory that keeps track of the propagating content. The CDN is hierarchical. By contrast, this modified P2P is a mesh network, one where bandwidth is shared between users. One important addition: with P2P, fragments of content come from multiple simultaneous connections, software re-assembles the load on my machine.

This matters to publishers and advertisers. A video on my site gains sudden popularity, Hillary says something true, my servers get “hammered”, I lose advertising revenue, or I have to pay a hefty CDN bill. If I want to deliver movie trailers, a form of advertising, or slick video eye candy to sell cars in Spring, or Summer fashion, or Greek islands vacations, the bandwidth expense hurts my business.

That’s the dog we, users, content designers and publishers, advertisers have in that fight. With a browser plug-in, my computer becomes part of a mesh CDN. Pay for my participation with goodies, discounts, freebies and we’re in business. As for the ISP, it won’t change the amount of traffic they carry and I trust them to invent some freemium variant.

The rest is, as engineers like to joke, a mere matter of implementation.