Ending a work relationship needn’t be complicated or traumatic. It can be done in a sane and respectful way if a clean framework is set up at hiring time.
by Jean-Louis Gassée
In practice, the three slide pitch may be impossibly concise. This week, we’ll look at the seven slide variation.
After last week’s Monday Note, Three Slides Then Shut Up – The Art of The Pitch, I was subjected to a bit of email ribbing. My honorable correspondents, many of them entrepreneurs themselves, questioned my rationality, insisting that it’s psychologically and emotionally impossible for entrepreneurs to be so boldly concise as to limit their presentations to three slides. Indeed, how many three-slide presentations had I actually seen in a decade+ of venture investing? Upon the fourth slide, is the presenter sent packing? More
by Jean-Louis Gassée
This week, we look at pitches, at the stories entrepreneurs tell investors. The best pitches aren’t really pitches. Dumping one’s entire body of knowledge on easily bored investors won’t help. The best pitch is one that quickly moves from monologue to conversation.
The First 70 Minutes of The Hour. When, in 2002, I was invited to join the ranks of venture investors by Barry Weinman, my Gentleman Capitalist mentor, I voiced a concern: I didn’t want to go blind looking at PowerPoint presentations for the rest of my life. Gentleman that he is, Barry didn’t — and didn’t need to — remind me of the two hours investment pitches I had inflicted on his kind during my early entrepreneur days.
I finally learned to curb my prolix talk during the Be IPO road show in 1999. The investment bankers who helped prepare the show soundly disabused me of my prolix ways. I was relegated to the clean up position, following the VP of Marketing, our experienced CFO (three IPOs before ours), and the demo. Putting me last before the hard stop enforced concision.
Now that I’ve joined the VC brotherhood and am on the receiving end of money-seeking tall tales, I can attest that my fear of mental cauterization by PowerPoint wasn’t misplaced. I’ve found a name for the blight: The First 70 Minutes of The Hour.
The condition is caused when an entrepreneur uses the allotted hour to dump everything he or she knows about his/her business. I’m a sinner reminiscing: I’m anxious, I’m unsure which of the product’s many arcane features and benefits will click, I’m terrified that I’ll leave something out. My desperation induces acedia as the allotted hour ticks past, and, as a reward, I receive non-committal California-speak: Great, Interesting, We’ll Circle Back To You.
This is an unfair caricature, but not by much. Too many presentations concentrate on the needs of the speaker instead of addressing the interests of the audience. Fortunately, there’s a simple remedy: Show three slides and shut up. Say just enough to engage us and then move on to a lively conversation, to questions, arguments, suggestions.
The canonical three slides go like this:
- Who we are: The founding team’s résumé, its technical, business, and academic background.
- A nice, sharp dichotomy: The world before us, the world after us. Show a substantial, practical impact, not just a marginal improvement of something that’s already in place. The more impossible or unthinkable the better — it will become retroactively obvious once understood. The mouse is a good example.
- The Money Pump. Your business plan. I like the Money Pump image, the pipes that allow the cash that’s temporarily residing in customers’ pockets to flow into the company’s coffers – legally, willingly, and repeatedly.
After that, shut up.
The silence will be unbearable. It might help to look down at your shoes, your hands, something on the conference room table. But the awkward moment won’t last, no more than an interminable 12 to 15 seconds. If you don’t get questions, you have your answer: We’re not interested.
But if we poke holes in your story, demand explanations, play devil’s advocate, we’re hooked. You may now dig into the 253 backing slides you have under the table, whip out the market research, competitive analysis, academic studies, financial projections, and casually lay out your roadmap. Show us that you’re not afraid to think on your feet. You can even gently flatter us that we’re the visionaries, you just want to help make that vision a bit clearer.
You’re either in or you’re out, but you won’t have wasted our time or yours.
There are benefits to this approach even if we don’t buy your pitch.
If we’ve turned you down, you can call us back six months later, remind us of your “failed” three-slide presentation and offer to show us three new ones. If the first pass was quick and painless, we might ask you back in. You won’t get this welcome if you bored us for 70 minutes the first time around.
Moving forward, sharpen your internal characterization of your business. You can’t have ten success factors that are equally important. Concentrate on the top level features in your Before/After slide and leave the “really cool” pet tricks for the ensuing conversation. Remove the branches that blur the picture, but don’t hack away at the graphical details in your slides. Edward Tufte, the world’s pre-eminent “data visualizer”, has posited the counterintuitive notion that by adding visual cues we enhance comprehension. (We’ll get back to Tufte in the postscript.)
And the most important benefit: If you’ve distilled your presentation into three slides, you won’t even need them. The effort will have been so intense that they’re now burned into your brain. You can walk into a conference room, ask for a white board and a marker, and impress us with your command of your business by “extemporaneously” drawing the three slides. There will always be time to whip out your laptop, tablet, or big smartphone for the 253 FAQ (Foire Aux Questions, in French) slides.
All of this is easier said than done, of course. I can relate to anxious entrepreneurs who have a hard time sorting through the wonderful ideas brewing inside the garages in their heads. Afflicted with what Buddhists call monkey brains, I, too, have a hard time quieting the noise so I can “hear” the most important, reality-changing element of a product/service/business. Only the most gifted and focused (or perhaps the most delusional) can see the edge of the blade with unfailing clarity. The rest of us muddle through.
One point remains: The goal of the presentation is to start a conversation, the sooner the better.
Speaking of presentations, you might want to read Edward Tufte’s The Cognitive Style of PowerPoint: Pitching Out Corrupts Within, a searing indictment of mindless slide presentations ($7 paperback on Amazon):
(Also available in PowerPoint, er, PDF format here)
Tufte’s seminal work, The Visual Display of Quantitative Information ($29.62 for the hardcover edition on Amazon and also, it seems, in PDF form here), includes this celebrated chart that tracks Napoleon’s ill-fated march to and from Russia during the abominable Winter of 1812-1813:
The chart makes the French Army’s unimaginable losses imaginable.
by Frederic Filloux
At last October’s introduction of the new iPad Air, the creators of a clever iOS app named Replay were invited on stage. To get there, they went through a selection process that illustrates Apple’s perfectionism — and hidden application sophistication.
In September 2014, while at the Stupeflix Paris office, Nicolas Steegmann got a call from Apple in Cupertino. Once the caller identified herself, Nicolas knew something up. The contact came after Stupeflix presentations to Apple’s team in Paris. In rather elliptic terms, Steegman’s interlocutor said it would be great if two members of the company, a developer and a designer, could be in Cupertino the next day. ‘They will have to stay at least two weeks’, she said. 48 hours later, the team was on Apple’s campus. They quickly found themselves in a windowless room and given a straightforward brief: Devise the coolest possible demo for your app. No more details, no promises whatsoever.
[Stupeflix founder Nicolas Steegmans (right) and motion engineer Jean Patry (left)]
Replay is a clever iOS application that focuses on a “simple” issue: Automating the process of making of videos, without going through the convoluted steps of a dedicated movie editing app. With Replay, you shoot with your iPhone (or your iPad), select the clips you want, pick one of the proposed theme and you’re done. The app will assemble the clips in the smartest possible way, making visual corrections, adjusting the soundtrack selected from your iTunes library (or drawn from a proposed catalogue) to the pace of the movie. If you have the time and inclination, additional settings let you fine-tune your production. But even if you just stay with basic preset themes, the result is stunning. In literally a few seconds, you end up with a clip perfectly suited to quick sharing on YouTube, Instagram or Facebook.
Behind Replay’s simplicity are years of work and a great deal of sophisticated programming. The company’s roots are in an automated video generation system originally designed for completely different goals.
As often, a company’s final product has little to do with the original intent.
Stupeflix is a pure engineers’ startup. It was created in 2008 by Nicolas Steegmann, an engineering and mathematics graduate from Ecole Centrale de Paris, and Francois Lagunas who holds a PhD in computer sciences and linguistics from Polytechnique and Ecole des Mines. Their first product was an automated video generator that scrapped images and text from Wikipedia and other sources, inserted text-to-speech voice-over, to create 45 sec. glances at various cities and places around the world. The result was more a demonstrator than a commercial product (you can still access hundreds of automatically generated videos here on YouTube.)
The concept paved the way for a much more bankable product: a system to create videos entirely online, with presets themes — the ancestor to the Replay app. Its business model was (and still is) based on the proven freemium mechanism: Casual use is free, scaling to a professional/intensive use requires a subscription.
The same went for the next iteration: a home-brewed API allowing third parties to use all the tools Stupeflix developed to create videos. As a result, digital advertising agencies such as Publicis, Saatchi and TBWA jumped on it. Hundreds of thousands of videos were created for Coca-Cola, Red Bull or Sprint, to be used in countless promotional operations. Stupeflix still derives significant revenue from its API business.
Technically speaking, editing and rendering a video is CPU intensive — GPU intensive to be more precise; Stupeflix’s APIs suck a lot of graphic processing power. At the time, explains Nicolas Steegmann, graphics rendering was outsourced to a specialized server farm in Texas (where the oil industry consumes loads of computational power for geophysics modeling). Now, Stupeflix relies on Amazon Web Services, which has since cornered the CPU/GPU for-hire market.
It took 18 months to port the video rendering engine to iOS. Many invisible features had to be pared down to fit the power of the iPad/iPhone processor. Unbeknownst to the user, Replay performs many complex graphics tasks. For instance, it analyses each piece of raw media material picked by the user. Color palette and saturation, exposure, motion, pace are decomposed and translated into mathematically useable components. These chunks of data are then fed into a “cinematographic grammar” hard-coded by Replay’s programmers (all movie enthusiasts). Each theme or skin selected by the user reflects a Quentin Tarantino or Alfred Hitchcock inspiration that will direct transitions, colorimetry, beat, as well as soundtrack sync. And an embedded machine learning engine also devises new rules by itself.
The fluidity of Replay’s performance caught Apple’ attention during the summer of 2014, a couple of months before Tim Cook’s unveiling of the new iPad Air.
Now secluded in their room of the Apple campus, always escorted when they had to walk in and out, Stupeflix’s team is hard at work devising the most mind-blowing demonstration of their app. Early on, they had a hunch that the whole process was in fact a competition among applications (12 contenders, as they would later discover.) For two weeks, a quiet selection process took place, with a stream of people visiting the team, now allowed to test its work on the last version of a new iPad camouflaged in a thick neoprene enclosure to conceal its size and shape. Each successive visit was made by someone ranking higher and higher in the chain of command — as the team realized after Googling the reviewers. They knew they were on the short list when their demo was shown to Phil Schiller, Apple SVP for Worldwide Marketing. The next day, the pair was taken to a conference room where their work was reviewed by Tim Cook in person. They knew it was a go. It was time for a series of full rehearsals.
On D-day, the two-minute presentation was to be made by Jeff Boudier, the Stupeflix man in San Fransisco (and co-founder of the company), assisted by François Lagunas controlling the iPad. It went well, except when a slip of a finger (due to an excess of makeup applied to the demonstrator’s hand) caused the auto-correct to transform the title “Utah Road Trip” into a weirder “It’s a road trip”… After the show, Apple staff asked to re-record the demo for a spotless posterity (the re-edited version visible here on Apple’s site, while the original is here; time code about 00:55:10 on the two keynotes). This says much about Apple’s attention to details.
An epilogue: Replay became a hit, generating substantial revenue thanks to the in-app purchase system. Stupeflix now employs 23 people, all of the same caliber as the founders. To stimulate the team’s creativity, management keeps holding internal hackathons, and they continue to build on the uniqueness of their video algorithms and rendering engines. The company recently came up with Steady, a spectacular app that gives the impression your iPhone is mounted on a Steadicam (a complex system crops each frame in real-time to compensate for unwanted motion) and Legend, that animates texts on the fly. They are now working on another movie capture app that will further transfer the burden of filmmaking from the user to the software. Call it talent by proxy.
by Jean-Louis Gassée
We may have dodged the Comcast/Time Warner bullet but we’re still far from getting rid of the antiquated set-top boxes and cable modems that only exist to protect juicy old business models.
We can breathe a sigh of relief: The proposed $45B merger between Comcast and Time Warner Cable (TWC) is dead. When the merger was announced with size-appropriate fanfare just before Valentine’s Day, 2014, normal humans saw the deal as clearly dangerous. How could “Concast”, a company that’s unanimously despised and indisputably abusive, be allowed to bear down with even greater weight on our collective neck?
In a salvo of Orwellian doublespeak, Comcast assured us that less competition and a more dominant provider would translate into a dream come true for consumers and competitors:
“Transaction Creates Multiple Pro-Consumer and Pro-Competitive Benefits, Including for Small and Medium-Sized Businesses…This transaction will be accretive and will yield many synergies and benefits in the years ahead.”
This Freedom Is Slavery agitprop is evidence of Comcast’s belief in our passive idiocy — but it’s more than that. It’s a testament to the company’s faith in its political chicanery. Combined, Comcast and Time Warner Cable spent an outlandish $25M trying to persuade lawmakers to endorse the deal, and showered campaign donations on both parties – a little bit more on Democrats. (And let’s not forget that Comcast CEO Brian Roberts is President Obama’s golf buddy.)
The political machinations don’t stop there. As uncovered by The Verge, Comcast ghostwrote pro-merger letters that were delivered to the FCC:
“…Mayor Jere Wood of Roswell, Georgia, sent a letter to the Federal Communications Commission expressing emphatic support for Comcast’s controversial effort to merge with Time Warner Cable… Yet Wood’s letter made one key omission: Neither Wood nor anyone representing Roswell’s residents wrote his letter to the FCC. Instead, a vice president of external affairs at Comcast authored the missive word for word in Mayor Wood’s voice.”
Dipping into this bag of tricks has worked before. After all, Comcast got away with an anti-competitive deal when it acquired NBC in spite of the obvious anti-competitive distribution advantage stemming from its huge Cable TV footprint.
Yet, Comcast insists that the sentiments are genuine, an “outpouring of thoughtful and positive comments“. The company pronounced itself “especially gratified for the support of mayors and other local officials, […] underscoring the powerful benefits of this transaction for their cities, constituents, and customers.”
As Consumerist reminds us, this is the company that resorts to tortuous customer rentention tricks and foments a culture of customer disrespect. We’ve all experienced the poor customer service and bad attitudes, the last minute appointment cancellations, the phone reps who know nothing about our accounts. During a visit to Comcast Palo Alto, one rep tells me I can self-install while another rudely insists that I ignore what I’ve just been told.
I can’t blame the customer service employees. Deprived by management of any ability to access data or to exercise judgment, they’re just following the script and emulating the examples set by their bosses. I blame the execs who don tuxedos and put on airs of benevolent prosperity at charity balls in Washington and Philadelphia. They’re the ones who created the culture and then feign bewilderment and concern when they discover that customers don’t like Comcast. About a month ago, when the merger hung in the balance, the @ComcastCares Twitter account suddenly displayed increased activity, after repeated apologies and the appointment of a Senior VP of Customer Experience last September.
But arrogance, mendacity, and poor customer service weren’t enough to stop the merger. ‘Twas Net Neutrality killed the Beast.
The Comcast/TWC deal was initially seen as a Cable TV merger, with a combined market share that approached 30% of Pay TV. But Pay TV is sliding into the past. Internet connectivity, broadband speed, and reliability are what matter now, and an expanded Comcast would have garnered more than 40% market share. That’s a portion that can’t be squared with the concept of a free (as in freedom, not free beer) and open Internet. After the FCC issued Net Neutrality rules — which were immediately challenged by our freedom loving carrier friends — the notion that 40% of public access and about 50% of “triple play” services would be handed to a single company became intolerable.
So, we dodged that bullet. But entrenched players and their convoluted business models still keep us far from where today’s technology wants to take us.
First, an old issue: Extortionate channel bundling. Why must we buy a bunch of channels we’ll never watch just to get the few we actually want? A la carte distribution should be the norm.
Second, everything ought to be on-demand from the Cloud. It’s not that much of a fantasy: today, I can set up a recording from my Xfinity set-top box and then watch it from my laptop or tablet anywhere in the world — especially in places where Internet access is better and less expensive than in the US. See the following graph and sigh:
As Joe Palmer, a former colleague and current friend likes to say: It costs more, but it does less.
Lastly, our regulators should force carriers to let users connect a Brand X, Y, or Z box to the Cable network. Why must we put up with the clutter of a Comcast Internet modem and Wi-Fi access point, an Xfinity set-top box and DVR, and a Microsoft Xbox? Satya Nadella would love to sell us a single, universal Xbox. I have no doubt Tim Cook would look kindly on an all-in-one Apple “iBox” that replaces the two Comcast boxes and combines it with an Apple TV and a Time Capsule.
There will be dancing in the streets when we throw away today’s cable modems and set-top boxes. It will happen…but I won’t hold my breath. It will take time and repeated attempts to tear down the blockades erected by Comcast, AT&T, and the other carriers.
by Frederic Filloux
The French government didn’t foresee the negative ripple effect of its interventionism in the Dailymotion case. VCs and entrepreneurs are appalled. It’s time to rethink the French way of funding innovation. (Part 2 or 2)
Last week, we looked at the pathetic Dailymotion saga. Once described as “one the best French startups”, Dailymotion was funded, for a large part, with public money, then put on life support by Orange, patriotically protected by two economy ministers, and finally sold to media conglomerate Vivendi. The transaction did little to mask the company’s (and the Board’s) lack of a real strategy.
This wasn’t French capitalism’s finest hour.
Apparently, for the French government, Dailymotion was more important than Alcatel, acquired last week by Nokia (read below Jean-Louis Gassée’s analysis). The Nokia takeover will inevitably translate into massive jobs losses: Nordics, especially Finns, can be brutally efficient.
In the French venture capital milieu, the Dailymotion folk tale is seen as yet another blow to an already weak funding ecosystem. All the people I spoke with last week — VCs, entrepreneurs — say the same thing: The incursion of politics in the destiny of a tech startup sends a terrible message to the VC community — especially to non-French investors. If a startup becomes successful, it is likely to become a political issue in such a way that financial considerations become secondary, at everyone’s expense: employees, founders and funders.
Such government-induced repellent is the last thing the French economy needs. When it comes to supporting innovation, France already has an image problem — unfair in parts.
For one, the country does not really like entrepreneurs. Despite efforts deployed by all administrations from left to right, public opinion remains suspicious of entrepreneurship, startups, etc. No one really likes success stories here — including the press — which doesn’t help. A few entrepreneurs get lionized – as long as they don’t disturb the establishment, or don’t hire and fire like entrepreneurs.
Then there are structural obstacles. Here is a list of the most quoted issues by VCs and entrepreneurs:
— The tax issue. In due fairness, they note, this problem is largely overstated: When looking into details, the French tax system is not worse than anywhere else. Actually, many tax incentives favor investments in startups. But some items — stock options, capital gains, a misbegotten Wealth Tax — have justifiably created a negative perception.
— Administrative weight and scrutiny. Today, it doesn’t take more time to start a company in France than in the US or the UK. But after a year, the administrative burden falls on young entrepreneurs’ shoulders, with scores of complicated taxes and paperworks requirements. And the tax collector is watching: in 2012, about one out of five startups has endured a tax investigation, twice the previous year’s rate.
— Labor laws. A startup requires flexibility, a concept that is at the polar opposite of the super-rigid French labor code which imposes to a 10-person company the same obligations as those of a big corporation. As a result, entrepreneurs are virtually unable to adjust their staffing to the uncertainties of the business; in every incubator, you hear: “Well I could easily hire three more developers or project managers, but if things go South, I won’t be able to fire them before it’s too late”. Plus, employment costs a lot. Not only do the French work (legally) less hours in a week, fewer weeks in a year (and a lesser number of years in a lifetime) than in neighboring countries, but the amount of a salary diverted into social contributions accounts for 38% of French labor costs: that is 5 percentage points more than Germany, 9 points more than Sweden — both countries with much lower unemployment rates.
— Pool of accessible capital. That’s probably France’s biggest problem. “Here, we have no pensions funds, very few family offices (for tax reasons, they stay out of France, mostly in Switzerland, Belgium)”, says an investor, “and we don’t have university endowments”. As matter of fact, the French academic apparatus is notoriously allergic to business. A Stanford-like model is nearly impossible here. (On the relationships between Stanford U and the tech sphere, read this landmark piece by Ken Auletta in The New Yorker.)
The result is a size problem of the French venture capital ecosystem. This table says all:
Not only is the total amount invested by French VCs small, but it is spread too thin. Compared to the rest of Europe, France does well in the early stages but very badly when it comes to really grow companies. According to a study made by France Digitale for the European Commission:
France is the top European market for early stage investments, with 35% of all European deals ranging from 500K to USD 2 million taking place in the country, but it is surpassed by other countries immediately after the USD 2 million mark. The German industry is driven by large rounds, demonstrating a favorable later stage environment with 27% of European deals ranging from USD 10 to 50 million taking place in Germany.
Consequently, past the first round of financing, foreign VCs take the lead: According to a 2013 survey conduct by France Digitale and Ernst & Young, beyond the €50m revenue mark, 67% of the French startup already have foreign VCs among their investors. And when it comes to supporting a truly ambitious and global growth, French VCs are left out of the game. Two recent examples: Less than a year ago, French car-pooling platform BlaBlaCar raised $100m entirely from foreign funds. “We didn’t see any proposals”, said a manager in a prominent VC boutique. More recently, Sigfox, specialized in Internet of Things connectivity, raised €100m mostly form foreigns funds – and from state-owned Banque Publique d’Investissement.
Despite this bleak picture, French investors and entrepreneurs are also prompt to mention key national assets: An excellent technical infrastructure with blazing fast and relatively inexpensive internet connectivity; a significant output of qualified engineers in many disciplines, that are much less expensive (and less volatile) than their US counterparts; a vast catalogue of tax incentives that favor early stage investments; and the famous (and costly) social safety net that contributes to individual risk-taking. This results in a vast network of incubators, often supported by municipalities or regional administrations. As far as the pipeline of capital is concerned, solutions do exist. France Digitale recently proposed to divert a tiny amount of life insurance assets — 0.2% to 0.3% — to venture capital; it could almost double French VC firepower, at no cost to the French state, it says.
The main problem — which extends to most of Europe (not the UK) — is the exit for successful companies. European stock markets don’t have the Nasdaq’s strength (or luster), and the size gap between Europe and the United Sates discourages continental trade sales. Again, based on the EU survey made by France Digitale, “9 out 10 startup companies financed by VCs are sold to foreign acquirers (US and Asia)”.
At least, those lucky ones didn’t collide with the political agenda of the French government and its overzealous ministers.
by Jean-Louis Gassée
Stitching together the disparate body parts – and cultures – that make up Nokia-Alcatel-Lucent is not a task for the faint of heart. This week we look at what Rajeev Suri, the CEO of the combined companies, is up against.
April 15th 2015: Nokia “agrees” to the $16.6B takeover of Alcatel-Lucent. On the surface, the acqui-merger makes sense. Both companies make networking gear and they’re of similar size, each with 2014 revenues of about $16B. (Nokia’s latest financials; Alcatel-Lucent’s 2014 annual report.)
It’s a financially complex transaction involving two complicated and venerable companies. Debt is assumed, debt is exchanged for shares, new debt is issued…there are a lot of ifs and buts.
As expected when a deal isn’t a straight shot, Wall Street’s reaction is mixed. Some think Alcatel-Lucent’s shareholders are on the short end of the bargain. Others, such as Standard & Poor’s (S&P), the haruspex that fondles financial statements and divines the value of securities, buys into the deal partners’ obligatory rationale and opines that the merger will result in a stronger product portfolio and less financial risk. (Let’s keep in mind that this is the same S&P that contributed to the 2007 housing bubble and the resulting depression. It recently agreed to pay the United States $1.38 billion to settle civil fraud charges that the firm had inflated the value of mortgage investments.)
Regardless of the prognosis, these analyses have concentrated on the numbers, the regulatory hurdles, the challenges of competing with ascendent Chinese companies, or the rise of Software Defined Networking (SDN) competitors. They blithely overlook a more fundamental element that determines success or failure: Culture. As an old but eternal saying goes: Culture Eats Strategy For Breakfast, a saying attributed to management sage Peter Drucker.
Consider the paths that led the two companies to the altar.
Alcatel was founded in 1898 as Compagnie Générale d’Électricité (CGE). For more than a century, the company accretes and sheds businesses, mostly in France, but never achieves a solid, lasting market position.
Embroiled in a fraud and corruption controversy in 1995, Alcatel hires Serge Tchuruk to clean house and reshape the old electric equipment and electronics company. Tchuruk, a life-long chemical and energy man, had seen success as CEO of oil giant Total, but at Alcatel things don’t go his way and the company continues to lose money.
In an attempt to right the ship, Tchuruk explores a merger with Lucent, the telecom equipment company that was born from the AT&T breakup. The deal fails to conclude amidst accusations, from both sides, of “unreasonable demands”.
But Tchuruk is persistent. Five years later, in April 2006, he finally gets his way: “Alcatel and Lucent Technologies To Merge and Form World’s Leading Communication Solutions Provider”.
As part of the deal, Patricia Russo, Lucent’s CEO, relocates from New Jersey to Paris and becomes CEO of Alcatel-Lucent. Tchuruk stays on as non-executive chairman of the combined entity.
This was a deal based on weakness, a marriage of convenience between two struggling companies whose culturally incompatible teams were fixated, understandably, on surviving the impending “workforce optimizations”. Lucent carried habits of heart and mind that had been deeply embedded during its grand days nesting in Ma Bell’s well-regulated system. To top it off, no one believes that Russo and Tchuruk can work together.
The marriage doesn’t last. In October 2008, after two years of finger pointing and a further slide into industry irrelevance, both Tchuruk and Russo resign. (Tchuruk returned to the energy industry as CEO of Joule; Russo is back in the US as an HP Director and will almost certainly become Chairperson of HP Enterprise when the company is spun-off.)
Russo is replaced by Ben Verwaayen, a well-regarded, well-liked, and more restrained telecom industry veteran. He lasts for six years; the company continues to suffer.
In 2013, the task of turning Alcatel-Lucent around falls to Michel Combes, another respected and experienced telecom industry exec. Combes immediately launches a two-year mission aimed at cutting costs by 1B€. We’ve come to the end of the two-year time limit…and it looks like he made a reasoned decision to throw in the towel and go for the Nokia deal. Combes has let it be known he won’t stay on as a Nokia exec.
Nokia is a different story. Formed in 1865 as a paper pulp business, Nokia expands into galoshes and other rubber products around the turn of the 20th century (you can still put Nokian Tyres on your vehicle – a separate company). Soon after that, the company gets into electrical equipment (such as cables) and electronics.
After a long history of ups and downs, Nokia, under CEO Jorma Ollila, makes the fortuitous decision to get into the GSM networking business (late 1980s) and then the handset business (early 1990’s). By 2010, it’s the world’s largest handset maker, shipping 100M phones per quarter.
With its long history, its ability to ride crises and invent new businesses, its hard-won preeminence in the high-tech sector, it seems as though Nokia can survive anything.
Nokia can’t compete in the new world of software platforms and ecosystems. (See a June 2010 Monday Note: Science Fiction, Nokia Goes Android.)
When it becomes painfully obvious that its too-many Symbian and Linux derivatives won’t cut it, Nokia makes a grievous mistake in appointing a former Microsoft exec, Stephen Elop, as CEO. Elop promptly Osborns the existing product line by prematurely announcing a new and improved Microsoft OS that takes a year to materialize.
After Nokia sells its collapsing handset business to Microsoft in 2013 (the deal finally closes in April 2014 for about $7B), the company is left with three businesses: Nokia Networks, Here (mapping technology), Nokia Technologies (guardians of a fat patent portfolio).
Nokia Networks is the result of the difficult absorption of Siemens’ networking operations, a joint venture once known as Nokia Siemens Networks (NSN), started in 2006 and fully “resolved” in 2013. Despite the birth pains, it’s Nokia’s main breadwinner, garnering 90% of the 12.7B€ achieved in 2014 (about $14B US at today’s rate) with decent operating margins (lately between 12% and 14%).
Nokia Technologies and Here don’t really matter. Combined, they weigh less than 12% of total sales. The patent licensing activity provides decent margins, more than 50%, but it doesn’t matter much with less than 4% of sales. Here’s 6.8% operating margin guarantees that it will be disposed of.
Throughout it’s history, Nokia has been decidedly and unabashedly Finnish. In its heyday, Nokia remained proud of its strong culture and gutsy sisu, even as its factories, Supply Chain Management operations, and carrier relations spanned the globe.
Today, the company is no longer the old Finnish Nokia; it’s now a kind of FrankenNokia assembled from disparate body parts and cultures that CEO Rajeev Suri, a 20-year veteran of Nokia, will have the thankless task of stitching together.
We’ll be watching to see if Nokia can regain its once-proud culture and overcome the “foreign bodies” introduced by the Alcatel-Lucent acquisition.
by Frederic Filloux
No one should be happy with the sale of French video streaming Dailymotion to Vivendi. Not buyers, nor the the startup’s management team –and certainly not the venture capital community. (First of two articles)
DailyMotion was meant to be a YouTube competitor. The two companies were actually born almost simultaneously in 2005. Unfortunately, Dailymotion remained deeply French (even though his CEO later resettled in California). Over the last two years, it has become a typical French political football, kicked around by a succession of two cabinet ministers, the colorful Arnaud Montebourg (pictured below) and his more sober successor Emmanuel Macron.
Both government officials vehemently defended DailyMotion, invoking a national imperative: Keeping the French flag floating above the iconic startup. The “nugget” of the French startup scene was granted the status of a national symbol.
But was it really really a “nugget”?
Neither Arnaud Montebourg nor Emmanuel Macron seemed to care enough to have done more than quickly scanning reports from their own cabinet minions –and consulted media headlines for insights. Political imperatives should not be confused with economy realities: As an Industry Minister, Montebourg was obsessed by the defense of the Made in France, while Macron didn’t want to be the one who let the iconic French startup fall in foreign hands.
Dailymotion was created in March 2005. Its two first round of funding ($9.5m in 2006 and $34m in 2007) were provided by VC firms and private individuals. In late 2009, the French government had to step in to secure a third round ($25m) along with the VC syndicate. Audience looked good, but monetization didn’t work — the bane of video streaming platforms. Orange, the French telecommunications giant (inherited from state-owned France Telecom) was brought in to support Dailymotion by integrating the startup in its digital portfolio. The French carrier acquired 49% of Dailymotion in 2011, then 100% in 2011- at a valuation of €126m. “Creating synergies!” was the resonant battle cry. Except synergies never materialized. Dailymotion’s CEO Cédric Tournay was fixated on competing with YouTube and, to his chagrin, found Orange’s culture less than welcoming to the needs of a fledgling video startup.
Incorporated just a month earlier, in February 2005, You Tube followed a different path: one single relatively modest round of financing ($11.5m) then, twenty months later, in October 2006, Google showed up checkbook in hand, and coughed up $1.65bn to acquire 100% of YouTube. The brand remained, so did the headquarters in San Bruno, near San Francisco airport. But, business-wise, two big changes took place. First, in typical Silicon Valley fashion, the massive cash infusion translated into a large scale, global deployment: audience growth first, revenue later. Second, ads became to pour in, diverted from the fantastic Google money machine. Tons of data were used to determine that users should be allow to skip ads after few seconds, thus warranting qualified viewership to brands whose clips were actually seen in full.
This left little chance to Dailymotion, underfunded, unable (nor encouraged) to build upon Orange’s worldwide base of 244 million customers spanning over 29 countries. Through it Strategic Investment Fund, the French government still retained a 27% share in Orange SA (publicly traded on EPA:ORA and NYSE:ORAN). With such a stake, one would have pictured the French government representative sitting on Orange’s board pushing the bold, patriotic development of Dailymotion. No. Dailymotion was never more than a wart on Orange’s conservative product line. And the telco’s CEO, Stephane Richard (himself a former chief of staff of the Economy Minister), quickly set his mind on getting rid of the startup, under the best possible conditions.
A first opportunity flared up in early 2013 when Yahoo! approached Orange to acquire Dailymotion. From Yahoo!’s perspective, the operation made sense. The French company was performing well on markets other than YouTube’s native one, and Marissa Mayer wanted to have her video streaming platform to build upon. Orange’s Stephane Richard was elated: Yahoo! had proposed $300m (€275m) for the company; after all it the company had cost him about €150m, between the acquisition and the cash infusion. Not bad for a quick exit.
All of a sudden, the Minister in a striped marinière woke up and harangued Orange’s CFO: “I’m not going to let you sell one of the best French startups, you don’t know what you are doing”. Yahoo! quickly retracted its offer.
A year later, Orange, willing to get rid of an asset that was losing both relevance and value, tried to secure a syndicate involving Microsoft and Canal+, the Paris-based paid-TV network. Again, no luck.
Two years later, Montebourg is gone (now Board Vice-Chairman at Habitat) and the Economy minister is Emmanuel Macron, a pragmatic former philosopher (yes) and investment banker seen as less driven by ideology and grandstanding. But when Hong Kong’s Pacific Century CyberWorks showed up to acquire Dailymotion, the soft-spoken Macron jumped in and asked Orange to consider “other” suitors (read French or at least European ones). Problem is, in spite of government efforts to arouse bidders, there were no takers –a few tentative marks of interest, but no formal offer. PCCW was out.
Until Vivendi showed up. To its owner, industrial magnate Vincent Bolloré, and its newly appointed CEO Arnaud de Puyfontaine, the timing was just right. Vivendi faced a shareholder revolt lead by the American hedge fund P. Schoenfeld Asset Management. PSAM was calling for a €9bn dividend windfall from Vivendi’s massive divestment from telecommunications assets that left the group with a €15bn cash hoard. Not only PSAM wanted a fat dividend, but it also demanded a viable strategy. Hence the quick wrap-up of the Dailymotion deal. On April 7, Vivendi announced the purchase of 80% of Dailymotion for €217m (€230m), i.e. a €265m (€281m) valuation. Vivendi didn’t quibble, his shareholder meeting was ten days away. In the meantime, Vivendi had reached an agreement with PSAM: €6.75bn in dividend payouts.
Vivendi has yet to find what to do with its brand new “nugget”. It will have to deal with harsh facts:
- Last year, Dailymotion made €65m in revenue, and had a negative EBITDA of €2-3m. No big deal, but due to the specific nature of its business, of its infrastructure costs, the platform is said to require a €20m-€25m yearly cash-burn. (In fact, Dailymotion guarantees a minimum revenue for some of the media it hosts — to some extent, it buys its own revenue.)
- Dailymotion his having hard time monetizing its audience as most of its videos are user-generated (and therefore carry few ads) while Facebook is crushing the market –threatening even YouTube.
- Canal+ needs could generate post-deal opportunities. But, until then, the paid-TV network (owned by Vivendi) seemed quite happy with the deals it had with YouTube. So is Universal Music, also a Vivendi subsidiary.
- Vivendi made an opportunistic acquisition and overpaid it: in its books, Orange is said to have downsized the value of Dailymotion to €58m; that is almost a 5x implicit valuation for the transaction.
As far as going after YouTube, it’s no longer a realistic goal, as shown in these two charts:
This politically-induced operation carries its share of collateral damage. From now on, every Gallic startup that will be seen as a success — real or presumed, that’s beside the point — is likely to become a political football, a situation adverse to the interests of the company and its backers.
Next week, we’ll see how the maneuvers around Dailymotion have done more harm than good to the French startup ecosystem and to those who try to fund it.
by Jean-Louis Gassée
Product reviews of the Apple Watch launch are reaching new summits — and depths. A Business Insider post gave me an idea for a revealing experiment.
This isn’t an Apple Watch review — I don’t even have a Watch, yet. I’ve been told that my 42mm alumin-ium Sport model will arrive in “4 to 6 weeks”, mid to late May. Even then, I’ll hold out for my third impression. I’ve learned to distrust my first reaction: I thought the iPod was a bad idea because MP3 players had already been commoditized. The Apple Store? It will never catch on because it threatens the livelihoods of independent Apple retailers. When I came home with my first iPad five years ago, I resented the fact that my new tablet wasn’t very good at the “productivity tasks” I performed on my Mac… (I still think this, and, last year, called the iPad a tease – but I’ll leave the continuation of that saga for another day.)
As the first wave of Apple Watch reviews shows, waiting for impressions to settle down isn’t part of the Product Review genre. The psychoactive toxicity of Apple product launches that I made fun of two weeks ago is in full display as reviewers climb to the rooftops in a race for income-producing pageviews.
No flimsy GoPro camera, we’re professionals here, this is a Wall Street Journal production. How this relates to your everywoman’s user is left to us to figure out. That said, I sincerely bow to Joanna Stern’s stamina and dedication to her mission.
“There were 21 Apple Watch reviews published, but the 4 reviews that were more critical of the device got the most attention, leaving the 14 glowing reviews behind. Meanwhile, most of the important features of the Watch such as watch bands and durability were either not included or buried within lots of other text. Simply put: product reviews are broken.”
Our historian/philosopher Horace Dediu concurs:
Ignoring Dediu’s advice, I stumbled upon a Business Insider “meta-review”, an edited summary of other reviews ominously titled The Apple Watch reviews are (quietly) brutal. The piece starts well:
“Apple Watch reviews are out today.
At first, they seem positive.
For example, New York Times tech reviewer Farhad Manjoo writes that he ‘fell’ for the gadget — ‘fell hard.’
The Verge’s Nilay Patel says it is ‘the first smartwatch that might legitimately become a mainstream product.’
Joshua Topolsky of Bloomberg Business says, ‘you’ll want one…After using it, I had no question that the Apple Watch is the most advanced piece of wearable technology you can buy today.’”
The article then attempts to demolish this happiness by citing carefully chosen damnations from the same reviews (“Topolsky says the Watch isn’t a very good watch.” “Patel says the Watch is too slow”), and concludes with a back-handed compliment [emphasis mine]:
“The most exciting thing about the Apple Watch isn’t the device itself, but the new tech vistas that may be opened by the first mainstream wearable computer.”
“For now, the dreams are hampered by the harsh realities of a new device. The Watch is not an iPhone on your wrist.“
These initial reviews say more about the Product Review genre than they do about the Apple Watch. As the word genre implies, there are rules. One is that you have to provide quotable fragments that support your view — think of how movie posters and trailers quote reviews. Second, write what you want but remember you still need to eat in this town. In the case of tech reviewers, “lunch” is being among the select few invited to do the next “under embargo” product review — you don’t want to go hungry. Third, you have to be “fair and balanced”: You must provide at least a hint of negativity, no matter what, so you won’t be perceived as having “sold out”. Lastly, you have to write quickly, steamroll annoying counter-narrative trifles, and use strong words.
As an experiment, I cherry-picked quotes from the same sources as the “(quietly) brutal” Business Insider meta-review to see if I could come up with a different result. Much like the BI review, I decided what I wanted to say and then found the quotes that supported my thesis.
Burning Insider Meta-Review
The Apple Watch reviews are (giddily) enthusiastic
Apple Watch reviews are out today.
At first, they seem negative.
In his New York Times tech review Farhad Manjoo sounds disappointed:
“Third-party apps are mostly useless right now. The Uber app didn’t load for me, the Twitter app is confusing and the app for Starwood hotels mysteriously deleted itself and then hung up on loading when I reinstalled it.”
Out of the gate, The Verge’s Nilay Patel is unimpressed:
“Let’s just get this out of the way: the Apple Watch, as I reviewed it for the past week and a half, is kind of slow. There’s no getting around it, no way to talk about all of its interface ideas and obvious potential and hints of genius without noting that sometimes it stutters loading notifications.”
Another noted blogger, Joshua Topolsky of Bloomberg Business says:
“Yes, all these new functions, notifications, and tapping do make the Apple Watch very distracting. In some ways, it can be more distracting than your iPhone, and checking it can feel more offensive to people around you than pulling out your phone.”
But once you move past the obligatory “fair and balanced” negatives and get into the details of what the writers really say, it’s clear: The reviews are giddily enthusiastic.
“So Apple has succeeded in its first big task with its watch. It made something that lives up to the company’s reputation as an innovator and raised the bar for a whole new class of devices.”
“There’s no question that the Apple Watch is the most capable smartwatch available today. It is one of the most ambitious products I’ve ever seen; it wants to do and change so much about how we interact with technology.”
The NY Times’ Farhad Manjoo sees the Apple Watch as an extension of his body – one that makes him more sociable [emphasis mine]:
“I began appreciating the ways in which the elegant $650 computer on my wrist was more than just another screen. […] the Watch became something like a natural extension of my body — a direct link, in a way that I’ve never felt before, from the digital world to my brain. The effect was so powerful that people who’ve previously commented on my addiction to my smartphone started noticing a change in my behavior; my wife told me that I seemed to be getting lost in my phone less than in the past. She found that a blessing.”
David Pogue, one of the industry’s most thorough, experienced, and prolific tech writers, concludes his Yahoo Tech review thus:
“And this much is unassailable: The Apple Watch is light-years better than any of the feeble, clunky efforts that have come before it. The screen is nicer, the software is refined and bug-free, the body is real jewelry. First-time technologies await at every turn: magnetic bands, push-to-release straps, wrist-to-wrist drawings or Morse codes, force pressing, credit card payments from the wrist. And the symbiosis with the iPhone is graceful, out of your way, and intelligent.”
I think I can stop here.
If you, too, decide to ignore Horace Dediu’s advice, I found two reviews that stay away from the rooftops and make a serious attempt at providing insights into the nature of the Apple Watch, its user experience, and its future in the nascent “wearables” industry segment. (Keep in mind that while I have my own biases, the Monday Note doesn’t have advertising or other sources of revenue.)
Ben Bajarin’s Techpinions synthesis:
“Ultimately what I am convinced of is the Apple Watch represents a completely new computer interaction model. A PC is for when we have a few hours. Our smartphones is for when we have a few minutes. Our smartwatch is for when we have a few seconds. Each device, and the software and experience built for it, should help us maximize those hours, minutes, and seconds.”
John Gruber’s insightful Daring Fireball walk-through:
“Loosely, the path of all consumer electronic categories is to evolve as ever more computer-y gadgets, until a tipping point occurs and they turn into ever more gadget-y genuine computers. The sample size (in terms of product categories) is small, but Apple seemingly tries to enter markets at, or just after, that tipping point — when Moore’s Law and Apple’s ever-increasing engineering and manufacturing prowess allow them to produce a gadget-y computer that the computer-y gadgets from the established market leaders cannot compete with. That was the iPod. That was the iPhone.”
Those are nice exceptions to the Broken rule.
In the end, reviews don’t seem to matter much outside the kommentariat. In Neil Postman’s Amusing Ourselves To Death classification, most reviews aren’t Information but Entertainment. As recent Kantar World Panel research shows, consumers don’t pay them much attention:
In the end, only Word of Mouth matters. After two or three months of actual availability, real humans will talk amongst themselves and decide the future of the Apple Watch, just as they did for the iPod and the iPhone. And, come to think of it, their conversation explains sagging iPad sales.