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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{

Marc Andreessen’s NY Times Deathwatch

The following has to be seen, not as a particularly acute media analysis, but as an interesting barometer of the perception of the press by the digerati. In that instance, Marc Andreesen, co-founder of Netscape with Jim Clark, remains quite a voice. And it was noteworthy when he said : “…I hereby inaugurate my New York Times Deathwatch, which will continue until the last Sulzberger [family who owns the Times] has left the building”. Asked by Fortune Magazine what he would do if he were running the Times, “Easy, Andreesen said. Kill the print product immediately, and deliver the base line, for news online. (…) Take acute pain in order to avoid years of chronic pain”.
> read this opinion on Marc Andressen’s blog

Emerging economies — In Baltic States, foreigners import their ethics

This is an unexpected consequence of globalization: foreign investments in media companies have positive impact on their ethics. Take two of the Baltic States: Lithuania and Estonia. Two young democracies, two palpable desires for freedom. A visit of newsrooms in Vilnius and Tallinn shows the same demographics: the average journalist there is at least 10 years younger than in France or UK. As the (27 years-old) foreign editor of the main Estonian paper Postimees puts it : “…in this country, there is no such thing as old journalists”. In the two countries, senior journalists from the Soviet era have since been diluted in politics or public relations, clearing the stage for hungry young journalists.

Then come the differences. In Lithuania, the press remains largely owned by local investors. The result is a great coziness with the new power, once the enthusiasm of the immediate post-communist era has faded. Several local editors explained to me that to get a positive story printed about your business — or to get a negative one about a rival — you just have to pay. This doesn’t go as far as Russia, where, until a few years ago, the website Komsomolskaya’s Pravda (formerly dedicated to the Young Communists) had a price list for customized journalism.

Estonia is different. For cultural as well as geographical reasons, the country has always been under greater western influence. When its independence was re-declared in 1991, the new elite of the country welcomed foreign investors such as the Norwegian group Schibsted (1) and the Swedish Bonnier, which in the same stroke, imported their journalistic practices and ethics.

One weird thing, though. In a booming country like Estonia, you would have thought that a large number of well-educated young people would embrace ja ournalistic carrier. That’s not happening. I was told by the editor-in-chief of Postimeees, that among few dozens of last year’s graduates in communication from Tartu University, only one chose journalism. Amazingly enough, the shortage of journalistic talents could lessen the development of the press a young democracy like Estonia should be entitled to.

(1) Schibsted is the majority shareholder in the Eesti Media Group in Estonia. This group of companies publishes Estonia’s two largest newspapers, Postimees and SL Ohtuleht, as well as several local newspapers, and owns 50% of the Estonian Magasin Group, which publishes a number of magazines. Schibsted controls also two newspapers in Lithuania, LT and 15 minutes.

The booming E-Stonia

This 1.4m people Baltic state is actually one of the most wired countries in the world. Online banking, penetration of news websites like Postimees, uses of cell phone to pay for parking spaces, free wi-fi everywhere, the infrastructure is amazing. This makes also the country vulnerable to attack. In April 2007, when the country decided to distant itself further from Russia, riots triggered by Russian nationalists erupted. In retaliation, Russian hackers launched one of the most severe cyber attack suffered by any sovereign states.
> Wired magazine published an excellent account of the incident
> Speaking of hackers, read this story in ArsTechnica about the strong demand for multilingual hackers

Google and Apple are robbing us!

That’s the cry of anguish heard in the executive suites of cellular carriers, poor things. Why the sorrow?

Nuances removed, it boils down to this:
. ISP (Internet Service Providers) don’t sell content, they bill at a flat rate regardless of what you download, music, e-mail, video. ISP don’t decide which computer you can and cannot connect to the network.
. Cellular carriers charge a different price for voice, SMS, data; they play all sorts of games to sell content. In addition, they lose their customers in an impenetrable jungle of agreements and billing plans. Cellular carriers decide (this is much less true in Europe) which computer, pardon, phone you can connect to their network.
Yes, but why the anguish? Because Google and Apple are two reasons why the future of cell carriers is to become ISP — of the wireless kind. Flat rate, no content games, no control over devices. All this “converging”, to use a fashionable word, towards smaller profits.

A Silicon Valley wag suggests we build seven statues to Steve Jobs: for the orignal Apple II, the Mac, Pixar, coming back and reviving Apple, iPod/iTunes, Apple stores and the last (latest, we hope) one for the iPhone. Steve’s feat here isn’t so much the phone as it is showing how to break the control US carriers still exert on what paying customers can connect to their network and what the phones are allowed to do. For example, in order to maximize profits, Verizon forced Motorola to remove one Bluetooth feature, file transfers.

The result? No way to transfer music from your laptop to your Verizon phone, use the network and pay us. Another (more fortunate) result is Verizon and Moto lose a class action lawsuit.

With the iPhone, Steve wrestles control from the carriers and dictates how things work. And, an unheard feat, he gets a piece of the carrier’s revenue. To be fair, knowing our Steve, dictate is the right verb here. We’ll see in a few days how Apple decides the future of third-party applications on the iPhone. We also remember how tightly Apple controls iTunes content – much to the chagrin of the previous generation of extortionists. In any event, Apple shows how carriers can lose their grip.
Next, Google. They bid for open spectrum, spectrum where you decide what you connect. And they show an operating system for smartphones, Android. The result within a year? Tens of different Android-based phones, hundreds of applications. Smartphones become cheaper and richer at the same time. The result is pressure on carriers to offer flat-rate plans, something they do already, sort of, reluctantly, with dissuasive rates.

Google reveals a striking statistic: the iPhone performs 50 times more search traffic than the next brand, a number initially viewed as a mistake. But no, the numbers are correct and show the iPhone is the first real Internet smartphone. Others, many, are ready to follow. With their help, cell carriers won’t be able to avoid their future: wireless providers of Internet connections.Voice is but one of many types of Internet data. Cellular carriers have no choice but to embrace that fact. Wired ISP already did.

- JLG

Privacy — Europe to fight the printer “secret watermark”

For several years (it seems it started around 2000) most printers and photocopiers sold in the US have marking every page with an almost invisible set of yellow dots. This wartermark can be used by law enforcement to identify the owner of any machine. What could be useful to track down Al-Qaeda can also be used against political dissidents. Last week, a European Union commissioner issued an official statement questioning the legality of such practice. This, he states, is a possible violation of privacy rights guaranteed by the European Union’s Convention of Human Rights and Fundamental Freedoms.
> story in ArsTechnica
> The Electronic Frontier Foundation is leading the campaign against the yellow dots.