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Steve Jobs, The Rule Breaker

Oh my god! Steve Jobs breaks rules…

Fortune magazine cannot see the difference between artists and bean counters.

Steve Jobs is on Fortune’s cover again: Apple has become the most admired company in America. Is this another PR job of “oral gratification”? If it is, it comes with bite marks or, in politically correct terms, “balance”. As a counter to the effusive praise, we find a piece where Peter Elkind outlines in great detail what he calls The Trouble With Steve Jobs. To their (author and magazine) credit, the piece is well researched, it provides a good overview of Steve’s orgins and career. The writer ostensibly aims high: “It may be instructive, then, to consider what drives the Steve Jobs adventure.” Unfortunately, instead of insights we get is a compilation of Jobs’ known or alleged infractions, couched in a tone by turns righteous and salacious. Perhaps the writer will understand if we turn the ad hominem argument around and look at his publicly documented appetites: a book about the Enron scandal, another about a murderous pediatric nurse in Texas, and magazine articles covering Wall Street malfeasance. Is Steve Jobs to be nailed by this kind of hammer? Yes, Steve looks like he’s running a business, and the numbers are terrific. But no, he’s a creator, an artist, not a business manager. Yves Saint Laurent made tons of money but couldn’t be accused of being a businessman. And the couturier’s behavior… Steve can’t even begin to approach Yves’ well-documented collection of deportments. (Alicia Drake’s book on Saint Laurent and Lagerfeld is a terrific and instructive read.)
Contemplate for a moment Steve’s unequaled string of creations: the Apple ][, the Macintosh, Pixar (think Ratatouille), reviving the Mac and Apple, iTunes and the iPod, Apple stores and the iPhone. How can we expect such creator to be normal, to follow rules? Musicians, painters, couturiers, designers, where are the normal ones? Creativity is breaking rules, it doesn’t belong to the realm of reason.
Contemplate again: For shareholders, Apple’s stock went up about 20 times in a little more than 10 years. Customers flood Apple stores driving up profits and market share. Employees feel part of a successful company and, through options, partake in the shareholders’ good fortune. On the topic of employees, we hear the tales: Steve Jobs is impossible, he makes people cry, the stress there is unbearable. And the turnover? Negligible. Insert you favorite winning team cliché here.

Apple is a 30 years-old company. How do you keep it fresh? (compare with Microsoft, only 2 years older.) You need the desire, the fire of an unreasonable, un-ruly creator. Mr. Elkind is confused, he forgot to Think Different — the Jobs 2.0 slogan. Artists aren’t bean counters. Yves Saint Laurent isn’t Michael Dell.
-JLG

> Further reading: Steve has had brushes with failure and death as movingly recounted in his 2005 Stanford Commencement Speech (text here, video here).

Magazines — The Economist’s contrarians approach to readers

On the US market, The Economist is quietly eyeing the one million mark in copy sales. it did it by targeting smart people, says MarketWatch media columnist Jon Friedman. > read of MarketWatch
> If you want a good insight on the Economist, watch this 2007 video interview of John Micklethwait made available by Stanford University’s Hoover Institution. Here (it’s a 45′ segment).
> And I you want more, read his profile in the Independent

Finance — Behind the subprime crisis : an equation that went wrong

The subprime crisis and the subsequent cascading effect to other credit instruments could have one single origin: the total failure of the portfolio insurance system and the underlying mathematical model that powered it, The Black-Scholes equation. To make it short (so to speak), the model applied to a portfolio of any kind of securities, was supposed to limit the effect of a market drop through the use of options. Except that, when the real crash arises, the model no longer works and it added fuel to the panic it was supposed to prevent. In this excellent piece of explanatory journalism, Michael Lewis (well know author of The New New-thing or Poker’s Liar), details the black-hole equation. The short version: the Black-Scholes formula relies wrongly on the past volatility to predict the future. It only works when things are stable…
> story in Porfolio

The three torpedoes against newspapers

Newspapers are dead — they just don’t know it. Says who? A Zogby poll released last week. 67% find traditional journalism “out of touch” and the Internet is the source of news for nearly half of Americans. Does this mean newspapers are dead? No. TV appears, we predict the death of movies, statist countries prevent TV channels from broadcasting movies on Sundays for fear of empty movie theaters. We know what happened. But this doesn’t mean newspapers will survive the Internet the way movie theaters successfully survive TV. The analogy fails for the following three reasons:

- The user experience difference
- The cost of the delivery medium
- Credibility, Out Of Touch
First, consider a difference of differences. Going (out) to the movies is, we know now, much different from watching a DVD (another threatened medium) from the living room couch (at home). Reading the NYT in paper form vs. on-line is much less different. And there is the annoying (to the incumbents) emergence of bloggers. The messy, shouting, unprofessional world of blogs. Ah, how come readers are so wrong? See the credibility problem below.
Second, the media cost. The law of physics say the market price of content inexorably converges towards the cost of the delivery medium. See music, see desktop software vs. on-line apps such as Google Docs, Microsoft Live or Salesforce.com. Newspapers “overshot” the target: the market price is already below the cost of the printed material thrown on your doorsteps. Advertisers make up the difference. Or they used to. Google now sucks the ad money out of the newspapers coffers. Google offers ways to start with smaller budgets (one of our companies started with $8 per day), better targeting (ads more likely to make sense to the reader), better analytics (what happens to the money I spend) and, of course, the medium du jour, the Internet. (Yes, Google makes noise about selling radio and paper advertising, it’s a sideshow.)
Last torpedo, credibility. Newspaper pros rightly criticize the blogosphere for being messy, noisy, dubious sources, echo chambers, bad writing, no standards. Millions of blogs with two readers each, the author and his mother. Unprofessional say the pros. But we know the establishment’s problem with parvenus: they have arrived. And here, the establishment is making it easy for the parvenus by selling out, by compromising its integrity. We’ll recall how Judith Miller at the NYT sold out to the Bush administration in preparing public opinion to the Iraq invasion. We had the Jayson Blair scandal forcing both the executive and the managing editor out. Did this electrify the paper into raising its standards instead of its nose? Two weeks ago, the NYT got a strong rebuke from its own ombudsman, the Public Editor. The cardinal sin was a whoring attack piece on McCain, with the badly sourced sex talk obscuring a more interesting discussion of money, legislation and lobbies. Just last week, the Technology section sported the kind of lazy journalism that makes the Valley insiders cringe. In essence, the piece explained how Nokia and other smartphone makers were going to listen to customers. Why start now? Do customers lead to real innovation or merely to better/faster/cheaper? None of these questions were asked, leading the reader to suspect what is known as a PR blowjob, an exchange of favors between a PR firm, its clients and the newspaper. Another beautiful example can be found in the Wall Street Journal with a hagiographic report of a Microsoft prince visiting the mujiks in outlying provinces of the empire.
Enough. The list could go on and on.

Newspapers will be around for a long time. The small number of survivors will be the ones that really straddle paper and the Net, some already do, albeit reluctantly, and replace their hauteur with actually higher quality standards. The cream always rises to the top, it’s just that the old one got stale. –JLG

Al Pacino: “Are you a newsman or a businessman?”

Surfing the web late at night, I dug up this great excerpt rom the movie The Insider : Al Pacino, playing the role of 60 Minutes producer Lowell Bergman in the Michael Mann’s film The Insider. If you are amenable to the journalistic mystique, watch these four minutes of a well-cut tirade. And if you have more time, read the fantastic 1993 piece in Vanity Fair about the tobacco scandal of Brown & Williamson. It still remains a a journalitic landmark.

Cash isn’t Cash Anymore

In our Valley, the so-called subprime mortgage crisis has been more a rumble in the distance than the wolves at the door. We don’t like the noise but local real-estate prices aren’t collapsing and, in any event, we’re in the high-tech business, you see. Entrepreneurs come to us for help in building the next Facebook, Google or Oracle (forgetting Larry Ellison, Oracle’s founder didn’t want VC money…). We don’t speculate in esoteric financial instruments, we don’t leverage, we don’t play derivative games. We do start-ups, a man and a dog growing into a company on the NASDAQ or an acquisition by Google.

2007 turned into a great Valley VC vintage: we invested $10.1bn last year, the highest in 6 years. Better said, the highest since the Bad Bubble days. (See the excellent PWC Money Tree. ) Inevitably, the Cassandras in our midst had to predict another fall. Look at these valuations: Facebook at more than $15bn, VMware’s market cap of more than $40bn, Apple and Google above $200 and $700 per share respectively, market caps approaching $200bn, more than 15 times those of Ford and General Motors (about $13bn each), more than Cisco’s ($150bn) and approaching Microsoft’s own $260bn. This was last November. Today, Apple, Google, VMware and other high fliers have shed about 40% of their value.

Is this The End — again? In a word, No. In two, Perhaps Worse.
No. We see none of the Internet Bubble follies. No smoke and mirror IPOs. No Enron, Qwest or MCI. No Henry Blodgets touting a stock outside and calling it a POS (Piece Of S–t) inside their Wall Street firms. And, above all, no Day Traders, no “widows and orphans”, no ordinary people yielding to the get rich quick temptation, to betting the tree would grow to the sky. For perspective, many Internet Bubble stock lost 90% of their value. Even Cisco, not exactly a vaporware company, fell from $90/sh to $8/sh in the space of 6 months. This is not what’s happening here — we think.

But, immune as we thought we were, the subprime crisis could be reaching us in ways we didn’t predict. As with the Internet Bubble, we’re dealing with normal humans falling for the unlimited growth mirage. But the numbers are much larger. Instead of trading high-tech high-concept stocks, tens of billions of dollars lost, the bets were made on the value of homes, trillions. Current estimates put the loans at risk above one trillion dollars with losses to exceed $500bn this year alone. This, you’ll say, impacts consumer spending, spending based on borrowing against one’s home value, the number that was supposed to climb forever. But how does it impact VC investments? Our funds have money to invest and, in contrast to previous years, we look more attractive than the Private Equity sector. We’re not leveraged (we don’t borrow money we can’t repay), we play a transparent game. Earlier this month, business writers started reporting concerns about the real value of cash. The real value of cash ? Today’s financial system works on a network of interlocking bets, sorry, contracts. See how a trader at Société Générale could buy contracts “worth” (E50bn) many times the total market value of his employer. Some of these bets are “safe”, tax-free municipal bonds come to mind. They are deemed “risk-free” because they are insured against the issuing municipality going bankrupt — it happens. But the data used for evaluating the risk, for calculating the insurance premium are obsolete. The sub-prime crisis has loaded the debt insurers to the breaking point and beyond.

Start-up companies with cash reserves need to park it somewhere safer than under a mattress. The rule is to invest the cash in “ultra-safe” instruments — muni bonds and other less well-known securities. You see where we’re going. We discover no one wants to convert these back into cash because the insurer behind the bond may or may not be solvent. I’ve seen e-mail exchanges where the bank that sold these so-called securities as a way to invest the “idle” cash reserve of a start-up now declares the cash no longer cash. And, of course, takes no responsibility for the advice, or the commission. Read the fine print. I’ll let you imagine how such e-mail propagate in our Valley. The sub-prime crisis finally managed to hit us where it hurts most — cash. — JLG

Infrastructure — The thick computer cloud

For each watt consumed in data processing (a search on the net for instance), another half watt is required for cooling the microprocessors. That explains Google’s race for cheap electricity. In 2006, American data centers used more power than televisions sets. Energy supply is so critical for the data processing industry that Microsoft will build its next unit in Siberia.
> story about Google in Harper’s
> and about Microsoft’s Siberia project, in Kommersant

The anachronic survival of Monocle

The survival of the monthly Monocle is a kind of anachronism in the current digital frenzy. Tyler Brûlé, creator of Wallpaper magazine, launched Monocle just a year ago. Brûlé, is a kind of modern global dandy, splitting his sophisticated life between London, Stockholm and Zurich. In the magazine world Monocle is a kind of UFO, with conceptual photos, detailed stories about tourism in Greenland, the new economics of Zimbabwe or innovative infrastructure in modern cities. Nobody was ready to bet an euro on this venture. One year after, it’s still alive. And that’s good news.
> story in the Independent
> the Monocle strange website{