Sunday, July 10, 2011

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Hotwire For Surgery

Posted: 10 Jul 2011 09:11 AM PDT

Editor's note: This guest post was written by Dave Chase, the CEO of Avado.com, a health technology company that was a TechCrunch Disrupt finalist. Previously he was a management consultant for Accenture's healthcare practice and was the founder of Microsoft's Health business. You can follow him on Twitter @chasedave.

The hotel bed that is empty tonight can never be sold again. That insight led Hotwire to create a disruptive model that has given travelers great deals on hotel rooms. It turns out there are “beds” and “suites” of a different variety - Surgical Suites/Beds - that have a similar phenomena. Just as top hotels rarely are 100% booked and can earn incremental revenue from otherwise empty beds, top surgical facilities have a similar dynamic. That insight is what led National Surgery Network to develop a national marketplace for surgical procedures. (Disclosure: National Surgery Network may become a customer of my company, Avado.com, which is why I am so familiar with it.)

Over 1.5 million Americans travel abroad each year for medical procedures in what is called Medical Tourism. Services typically sought by medical tourists include elective procedures as well as complex specialized surgeries such as heart surgery, dental surgery, joint replacement, and cosmetic surgeries. However, virtually every type of health care, including complementary & alternative treatments, psychiatry, and convalescent care are attracting Americans by saving as much as 90% off of medical procedures.

U.S. based healthcare providers have taken notice as have self-funded employers and health plans. The reality is most people, if given the choice, would rather travel for medical purposes to Tucson than Thailand to save time and uncertainty. Top surgical facilities realized they can be price competitive and have extra capacity so they have embarked on a program of domestic medical tourism. The byproduct, if you follow it to the logical extreme, is the creation of a national market for non-emergent surgery that has historically been strictly a local market. As the USA Today recently reported, costs commonly vary in healthcare by 600% or more (Source: change:healthcare) for the same procedure and same outcome even in the same city let alone from one to another.

The economics driving these savings are simple:

  • Target efficient, focused facilities – Many studies have demonstrated that doctors who perform procedures in high volume also have the best outcomes. Conversely, hospitals doing procedures less frequently often are more expensive and have outcomes inferior to higher volume facilities. Facilities and their staffs that are organized around particular specialties (e.g., cardiac procedures) can deliver care efficiently and effectively.
  • Simplified Payment – By developing comprehensive case rates for most procedures, they can reduce the administrative overhead of billing and reimbursement. Patients no longer receive the myriad bills and so-called Explanation of Benefits after a procedure. As NSN CEO Ken Erickson says, “Our patients no longer worry about uncovered costs and get one letter from the hospitals and doctors after a procedure…and that is a letter of thanks!”
  • Drive incremental volume to these providers – By filling beds and surgery slots, NSN patients are financially attractive at rates that are significantly lower than traditional reimbursements.

National Surgery Network is one of the first to identify this opportunity and has created a national network of surgical facilities that have been aggregated to offer to self-funded employer health plans (i.e., the employer directly pays for medical costs rather than buying traditional insurance) who have been frustrated with the hyperinflation they’ve felt covering their employees health costs. Currently, 110 million Americans are on health plans that are self-funded.

This is another example of the growing movement I call the Do-it-Yourself Health Reformmovement such as MedLion that was profiled earlier in The Most Important Organization In Silicon Valley That No One Has Heard About. That is, organizations such as National Surgery Network aren’t waiting around for politicians to fix what is widely understood to be the broken and most expensive facets of healthcare. Rather, through their own trial and error, they are refining care and payment models that are demonstrating impressive results. 

While the value proposition is clear for the employer who can save 10′s of thousands of dollars off of their employees’ medical bills, what’s in it for the employee? First, NSN only contracts with facilities that have shown the best track record for surgical procedures. The hospital closest to you may not have great outcomes and it’s tough for a typical consumer to assess that whereas that is NSN’s business to understand that. Second, a GetWell Benefit also rewards the patient financially for adhering to discharge protocols and for participating in longitudinal follow-up.

One woman who had a long history of heart problems required an aortic valve replacement.  The hospitals in her local market were poorly rated for heart care.  NSN arranged for the procedure to be performed by one of the leading surgeons at Heart Hospital of Austin.  Although the surgery required was more complex than anticipated, the outcome was a complete success.  The patient reported that although she had been in and out of hospitals for years, this was the first time she was being cared for and not just treated. NSN has what they call Care Navigators to help with a process that can be intimidating for patients.

NSN uses technology in support of personal interaction. They provide an on-line Health Information Portal to assist the patient in choosing a provider.  They also have care coordinators that establishes a personal relationship with each patient.

They use a secure on-line medical records system for easy access by the NSN physician specialist and the patient's local/primary care.  Each patient using NSN receives their own electronic personal health record as an additional benefit. NSN is also deploying social media to help patients share their experiences and connect with one another in an environment that protects privacy and anonymity where appropriate.

TechCrunch contributor and venture capitalist Mark Suster has repeatedly stated that entrepreneurs should be solving the truly big challenges in our society — health, education and energy — instead of creating yet another social tool, location-based service or trivial application. NSN is doing exactly that.



Google+ Added $20 Billion To Google’s Market Cap

Posted: 10 Jul 2011 09:08 AM PDT

How much is social worth to Google? Investors added $20 billion to Google’s market cap the first week after the launch of Google+ on June 28. A Morgan Stanley downgrade on Friday, brought the total down to $15.8 billion because of doubts whether Google will indeed be able to capitalize on new products such as Google+. But somewhere in between there, give or take a few billion, is how much more the market thinks Google is worth than before the launch of Google+.

On June 27 (the day before the announcement), the stock closed at $482.80. It rose to a high of $546.60 on July 7, for a $20.6 billion gain to its market cap (with 322.25 million hares outstanding). Then the stock dropped to $532 at Friday’s close.

Of course there are other factors at play here (the health of Google’s core search business, the overall market, etc.). In the past week, however, the most important new event for Google was it’s latest foray into social. And even though Google+ is still in a limited beta, the market is already rewarding the serious focus on social that it represents.

Bravo, Larry Page. If he can deliver on the promise of social, Morgan Stanley will be tripping over itself to upgrade the stock. Anyone want to guess what will happen to Google’s market cap between now and then?



Nearing 2M Members, One Kings Lane Lands A Lucrative Endorsement From Bravo

Posted: 10 Jul 2011 08:40 AM PDT

I happened to be watching my new favorite show, Bravo’s Million Dollar Decorators, last week and noticed a very familiar name. The show, which follows five LA-based, high-end interior designers in their industry, prominently featured One Kings Lane, the Kleiner Perkins and Greylock-backed flash sales site for home décor, furnishings and accessories.

In an episode that aired a few weeks ago, One Kings Lane was co-hosting a party with one of the decorators, Nathan Turner, to celebrate a new curated sale from Turner featuring hand-picked furniture and accessories from India. The site actually got a ton of air time, and even featured co-founder Susan Feldman (pictured in the post with Turner). The Turner-curated sale on One Kings Lane (which featured the Bravo endorsement) started the following morning after the episode aired and One Kings Lane saw most items sold out within minutes.

This past week’s episode again featured One Kings Lane as part of the story line, with celebrity designer Martyn Lawrence Bullard accompanying Feldman and another One Kings Lane employee to London to pick out items for a similar curated sale. One Kings Lane got much more air time in this past episode, and when the sale hit the next morning, the event was 96 percent sold out 3 hours into the start of the Bullard-London sale. And Wednesday was all time high for daily new member acquisitions, thanks to the feature on the show.

A Bravo endorsement is a big deal for the flash sales site, considering the channel is seeing record viewership among adults ages 18 to 49. Feldman tells us that the site was originally doing a Tastemaker Tag sale with Turner last year, and One Kings Lane actually took a TV crew with them to film the journey in the effort of pitching Bravo with the idea to use the flash sales site in the reality TV show. Upon return, Feldman says Bravo ended promoting the startup in the show because of the strategic fit.

Nowadays, broadcast is traditionally not thought of as a “direct action” marketing channel for web startups. But this example with One Kings Lane and Bravo (who has also featured partnerships with Foursquare and Shazam) demonstrates the power of connecting broadcast to next generation commerce, such as the flash sales model.

One Kings Lane has proven that a niche commerce model can not only draw a large userbase (the company is nearing 2 million users, says Feldman), but see revenue growth as well. The startup grew revenue over 500 percent from 2009 to 2010. In this Wall Street Journal interview, One Kings Lane CEO Doug Mack says that he expects to continue this growth (by “hundreds of percent”) this year as well. And more than 75 percent of sales come from repeat customers (I happen to fall into this category).

The truth of the matter is that commerce is evolving and promotional deals with networks, technology companies and other content providers is just one way in which flash sales sites are innovating. Gilt has been combining editorial with commerce in its foodie site Gilt Taste as well as in its Home And Furniture vertical. And Gilt just launched an interesting deal with in-flight WiFi company Gogo Wireless to offer exclusive in-air deals and free access on the flash sales site.

Celebrity partnerships are another way that flash sales sites are trying to draw business and engage with users. One Kings Lane featured a deal with actress Gwyneth Paltrow to promote her new cookbook and held and event in New York in her honor as well. Gilt and Lady Gaga teamed up for a curates dale featuring Gaga-inspired merchandise, access to Gaga events and more.

Feldman explains that not every celebrity or broadcast partnership is the right one. It’s important to make sure the brands fit, she explains, “where there is good synergy, there’s a win-win for everyone.”



Building An Enterprise Software Company That Doesn’t Suck

Posted: 10 Jul 2011 08:00 AM PDT

Editor’s note: Guest author Aaron Levie is the founder and CEO of Box.net

Thomas Wailgum, an editor at CIO.com, summed up the enterprise software industry best when he wrote, “It might appear that even tobacco companies enjoy a better level of overall ‘likeability’ than do enterprise software vendors.”

The way successful enterprise software companies have historically operated has been more or less uncontested: licensing costs increase at regular intervals, technology is difficult to integrate, and the user experience is often atrocious. Unlike most other open markets, which force out negative behaviors over time, many of the practices in place today serve the vendor and customer asymmetrically. Amazingly, more than 40% of IT projects still fail to deliver the expected business ROI, yet enterprise vendors come out winning regardless.

But not for long. Now that enterprise software can be delivered over the web and iterated quickly, we’re seeing the barriers for development, distribution and adoption shrink to levels previously only witnessed by consumer internet companies, with millions of users on top of platforms like Yammer, Box, and Zendesk; these changes are creating a much more competitive landscape where the customer stands to gain tremendously. The values that now separate legacy vendors from a new breed of companies are not only technological, but also cultural and organizational. In short, building better enterprise technology requires that we build fundamentally different enterprise technology companies.

Creating amazing products, not amazing RFP responses

Enterprise software vendors have long enjoyed a counterintuitive, but highly lucrative, reward system. Its buyers are different from the ultimate users, and each group’s needs are radically different — traditionally, enterprise technology has been designed with the sale to the CIO in mind, and this produces solutions that are inevitably feature-bloated to “satisfy” the vast majority of a customer’s requirements.

This has created an oddly perverse dynamic where the vendors with the most feature-rich solutions win the contracts, but the users lose due to the complexity of the technology. And thanks to the incredibly long gaps between product releases, vendors are further motivated to cram as many features as possible into each version, hoping to check all the boxes on RFPs for the next few years.

So how do new entrants avoid this cycle all together? By focusing on building enterprise software that the users love, driving demand up to the CIO. Vendors like Workday, Jive, Yammer, or Rypple are responding by investing more in design, usability, openness, and the total user experience. They're measuring success by user adoption, rather than feature checklists. And thankfully, buyers are catching on.

At Box, we now see RFPs where “user adoption” is a heavily weighted factor in the purchasing decision; this was virtually unheard of a few years ago. IT managers are realizing that there are better, more strategic uses of their time than training employees, fighting low adoption, and contending with angry users – they want technology that just works. And because of this, we're seeing more alignment between users and the CIO than ever before.

Maintaining a hacker-centric engineering culture

Paul Graham wrote a great essay last year on the need for hacker-centric cultures, where he ostensibly attributed Yahoo’s decline to their failure to build an engineering-driven organization. Enterprise software companies are uniquely vulnerable to the tendency of losing their edge in this way. For many enterprise software startups, survival mode kicks in and the market forces them to trade their product vision for more immediate, realistic revenue opportunities. But roadmaps driven by the goal of winning bake-offs or a few exceptional clients are the quickest way to kill the engineering spirit in your organization and turn away strong talent.

Today, the size and scope of the markets that even the tiniest enterprise startup can go after, and the amount of data and tools at their fingertips, are unprecedented. And because new software entrants are moving at web-speed, the challenges and rewards of building for the enterprise are drawing a new crop of developers. We speak with prospective engineers that hold the latest group of enterprise software startups, like Asana or PBworks, in the same regard as Facebook or Zynga because the ethos are now remarkably similar (minus the farm animals).

When business applications are delivered over the web, releases often occur on a weekly (or daily) basis – far from the standard three year cycle experienced by those working for Microsoft and most incumbent enterprise software companies. Engineers get to see their projects come to life immediately, and the organization benefits from instant product feedback.

Try performing A/B tests on a Siebel system or Lotus 10 to 15 years ago, or pulling customer activity in real-time to drive product decisions. It simply wasn’t possible. Or, just imagine what enterprise software would look like if all enterprise vendors implemented Google's 20% time, or quarterly hackathons?.

Building radically different enterprise sales

The new approach to building and delivering enterprise software also entails a very different sales process. With web-delivered, freemium or open source solutions, we’re seeing viral, bottom-up adoption of technology across organizations of all sizes. And while the ultimate buyer remains the same (as Ben Horowitz has pointed out), the chief adopters of technology are now the individuals within an organization looking for quick, easy ways to solve their most pressing business problems. With the freemium model in particular, software companies now have an incredibly scalable and qualified lead generation vehicle; your sales team doesn’t have to bang on the doors of unsuspecting and uninterested buyers, because your prospects are already familiar, and likely successful, with your product.

This is also changing enterprise software buying patterns. Enterprises are tired of six to twelve month sales cycles that leave them with a solution that ultimately fails to gain traction. They’re beginning to focus on working with technology that their employees are already using or familiar with. This model forces the sales organization to stay honest, as customers generally have to be "bought" into the product before they’ve technically paid anything.

Consequently, enterprise sales tactics and techniques reminiscent of Alec Baldwin in Glengarry Glen Ross are becoming as quaint as the mainframe. The sales organization isn’t going anywhere, it’s just focused on ensuring that customers are blown away by its products; and the focus is on building a department that is knowledgeable, consultative and friendly, focused on helping the customer navigate from being an early adopter to large scale

Taking responsibility for customer success and support

Finally, the enterprise software industry has become too wedded to a model where the success of the vendor is disconnected from customer success. Traditionally, as soon as an enterprise software sale is made, it becomes the buyer's responsibility to support the purchase – often requiring the manpower of a 6 and 7-figure consulting engagement. For instance, Microsoft touts that nearly 80% of SharePoint deployments involve a partner in some capacity, and there's a 6:1 ratio of dollars spent on services to the cost of the original licenses. While that’s great for the partner ecosystem, it means customers have no predictability in what they’ll ultimately be paying.

This too is changing. With the new wave of enterprise software companies, customers are no longer solely financially responsible for the victorious implementation of their purchased solutions. The unstoppable trend toward “renting” vs. “buying” software, means the vendor gets paid only as the software continues to solve problems for its customer. As forcing functions go, this is a pretty good one to ensure customers are happy — and it means implementation services, constant feedback loops, and deep customer engagement are all critical to successful retention.

And while we’re at it, customers should no longer have to pay dearly for vendor support. What if every enterprise technology company demonstrated a Zappos-like devotion to customer satisfaction? We’re already seeing this today with Rackspace eeking out extra margin with their fanatical support mantra. In the next generation enterprise software company, the customer support and services organizations are more important than ever before – committed to the success of customers throughout the entire life of product ownership.

The new rules of enterprise software are about delivering substantially better products and services, and aligning customers with buyers in unprecedented ways. We’ve already seen how quickly new solutions that are customer-focused can emerge within big and small businesses alike: Salesforce.com built an $20B market-cap company in a little over a decade with incredible customer success and satisfaction. The emergence of new enterprise platforms, and the amount of investment in and demand for these new tools, are going to dramatically change the competitive landscape for software providers. Startups, and even larger companies, that play by the new rules and understand the change taking place, will succeed. Ultimately, though, it’s customers that are the biggest winners, and my god has it taken a while for customers to win when it comes to their IT purchases.



How Apple Led The High-Stakes Patent Poker Win Against Google, Sealing Ballmer’s Promise

Posted: 09 Jul 2011 08:46 PM PDT

“It’s not like Android’s free. Android has a patent fee. You do have to license patents.”

That was Microsoft CEO Steve Ballmer in an interview last year with The Wall Street Journal. At the time, Microsoft was on the verge of releasing their first Windows Phone 7 devices, and knew their best hope in the market would be to go after Android — the same OS which quickly ran Windows Mobile into extinction. In the months that have followed, right or wrong, it looks like Microsoft is slowly but surely forcing Google’s OEM partners for Android to agree with this stance.

The reality is that for an increasing number of these partners now, Android is not free. It doesn’t require the licensing fees that Windows Phone does, but it does require a patent fee. A fee paid to Microsoft, not Google, mind you.

If Microsoft is able to convince (or force) Samsung to pay this fee as well, it’s likely lights out for Android as a free OS, as Tom Krazit rightly points out on paidContent today. And with Microsoft and now HP offering their own rival mobile OSes backed by a vast array of patent protection, some of these OEM partners may begin to think twice about their firm Android commitments. At least, that’s undoubtedly Microsoft’s hope. Android as a free mobile OS that rivals iOS in terms of functionality is an unbelievable value proposition. But Android as an OS that requires you to pay Microsoft for each unit shipped is less so.

Google’s last great chance to save Android in this regard may have been the Nortel patent purse — 6,000+ patents spanning mobile and wireless innovation. Unfortunately, the search giant lost the rights to those patents in a bidding war with their rivals. As a result — pending government inquiries surrounding the antitrust implications of all of this — Android remains very vulnerable. Perhaps more so than ever.

But the story of just how Google failed to secure these patents — which many had assumed they’d win — may be even more fascinating.

This Canadian court document (PDF), made public on Wednesday and linked to by Krazit in his piece, details exactly how Google lost the Nortel patents. The entire document is extremely long, but most of the good parts are in the earlier parts — aside from the documents later on in which Google’s name as the winner of the bidding is crossed off in favor of “Rockstar Bidco”, the name of the consortium made up of Google’s rivals that won.

As everyone knows, Google kicked things off by putting down the “stalking horse” bid on April 4. This bid of $900 million ensured that the auction would take place, and put Google in the driver’s seat for it. This bid led many to believe that Google would eventually prevail as the winner of the Nortel patents. In fact, many inside of Google believed they would win as well, we’re told. The company even did a blog post outlining why they were bidding.

As Kent Walker, a Google Senior Vice President and General Console, wrote in a post entitled “Patents and innovation“:

Today, Nortel selected our bid as the "stalking-horse bid,” which is the starting point against which others will bid prior to the auction. If successful, we hope this portfolio will not only create a disincentive for others to sue Google, but also help us, our partners and the open source community—which is integrally involved in projects like Android and Chrome—continue to innovate.

Google chose to use the name “Ranger” for their bidding.

Meanwhile, others interested in the patents began to organize themselves for the auction which would take place at the end of June. At the same time, the U.S. government began looking into the bidding to determine how the outcomes might affect the mobile and patent ecosystem. The DoJ quickly determined that a Google win would be okay, but they weren’t as sure about Apple, apparently.

At the same time, Microsoft began to complain that the auction could result in a termination of the existing licensing agreements they had on the Nortel patents. And while they never specifically mentioned Google, it was pretty clear that they did not want Google winning — such a victory would eliminate at least some of Microsoft’s patent leverage over Android.

But this complaining was odd since we had heard that the existing licensing agreement on the Nortel patents would have to be honored by any winning bidder. So what was Microsoft complaining about? At least some believe Microsoft was just playing mind games at this point — mind games which would later come into play.

Ultimately, four different parties were chosen by Nortel to be allowed to make bids on the patents, in addition to Ranger (Google), the stalking horse winner: Apple, Rockstar Bidco (a consortium — more on that in a bit), Intel, and Norpax (an affiliate of RPX Corporation).

The auction commenced on June 27 at 9:15 AM in New York. Intel made the starting bid — it’s not clear what that bid was, except that is was over the $900 million initial Google bid. After Intel, everyone was told that the minimum bid increments would be $5 million. All of the remaining bidders made bids.

The Nortel group looked them over and determined to raise the threshold for the bid increments to $50 million from $5 million — thus beginning round two of the auction. This time, only three bids were received. Norpax did not bid. A new leading bid was declared (unknown) and Nortel decided to up the increments to $100 million. Because Norpax had not bid, they were removed from the auction and the number of participants fell to four: Ranger (Google), Apple, Intel, and Rockstar Bidco.

It was around this time that Google began making odd bids, based around mathematical constants. The Nortel group was apparently confused by the seemingly random numbers Google was bidding. Reports have stated that they weren’t sure if Google was “extremely confident or bored”. Others believed Google was trying to confuse their rival bidders.

Still, while Nortel may have not known what to think, Google remained in the race.

By the fifth round of bidding, it was Rockstar Bidco that decided not to submit a bid. This brought the group of bidders down to three: Google, Apple, and Intel.

Then something really interesting happened.

Following Rockstar’s seeming exit, Apple asked Nortel for permission to talk to the group about a possible partnership. This request was granted. Following these discussions, Apple decided they wanted to partner with Rockstar and adopt their name and transaction structure.

Essentially, Apple decided to stake the Rockstar group in this high-stakes poker game.

If you’ve seen Casino Royale (the remake, not the original campy version), you’ll recall the scene where James Bond loses all his money attempting to call what he believes to be a Le Chiffre bluff. He is forced to exit the game, but then Felix Leiter, the CIA operative also in the game, tells Bond he’ll stake him since he’s clearly the stronger player. Again, that’s more or less what Apple did with this maneuver to Google’s Le Chiffre.

After the sixth round of bidding, Intel indicated it too was withdrawing. At this point, the two remaning groups were allowed to discuss partnership opportunities with all of those who had withdrawn. By the end of the eight round, Ranger (Google) partnered with Intel.

It was now down to Ranger (Google + Intel) versus Apple (staking Rockstar). For the next 10 rounds, the two sides traded bids in $100 million increments.

By the 19th round, Apple (Rockstar) presented a $4.5 billion bid. Ranger (Google) asked for permission to take some time to think about making another bid, this was granted. They ultimately decided not to continue. Apple (in partnership with Rockstar) was declared the winner.

While much of the press after the auction focused on the Rockstar group’s win, the court documents make it very clear that it was actually Apple that won in partnership with Rockstar. Apple was the only group that had not dropped out. Again, they staked the Rockstar group to ensure a victory for the stronger player. Why was Rockstar the stronger player? Because of the other companies involved. RIM, EMC, Ericsson, Sony, and yes, Microsoft.

All of those groups together had the cash and clout to break Google’s will. And with Microsoft, there was clearly the desire.

But why on Earth was Microsoft doing bidding on patents they already had licensing rights to? That’s not yet clear. But one has to assume that they simply did not want Google winning them — at all.

Even if Microsoft maintained licensing rights to the patents, a Google win would ensure that it would be a lot harder to sue Android and its OEM partners for other patent infringements. So it sure looks like Microsoft teamed up with longtime enemy Apple to ensure victory.

And if the U.S. and/or Canadian governments don’t now either block this result (which seems unlikely given that they approved the bidders beforehand) or force fairly drastic changes (such as they did in the Novell patent case) — which Google will have to lobby heavily for — Android seems to be in some very serious trouble.

Things didn’t ultimately end well for Le Chiffre, remember.



Eric Schmidt: You Don’t Know It’s A Bubble Until The Bubble Ends

Posted: 09 Jul 2011 04:56 PM PDT

Earlier this week, Google Executive Chairman Eric Schmidt gave an over 70 minute long talk to press at the Sun Valley conference here in Idaho. Towards the end of the talk, a reporter asked the former Google CEO whether he, like many in the media world, thinks we are presently in a tech bubble and what Google’s $1.67 billion 2004 IPO at a $23 billion valuation (Google’s current valuation is 171.43 billion) means in light of today’s IPO valuations.

“Oh we were underpriced,” Schmidt joked, before remarking that he didn’t actually know whether or not we are presently in a bubble.

“On the general question of bubble, in the first place you don't know it's a bubble until the bubble ends, by definition. The rule I set for myself 10 years ago was that if the press calls it a bubble then I'd pay attention, and let me report that the New York Times, the Wall Street Journal and the Economist have all written articles saying that it's a bubble.

So you have a couple choices A) The revenue growth possibility on these platforms is so large that you could get the kind of revenue acceleration that justifies the valuations. B) You have a liquidity squeeze where you don't have enough shares, and they're artificially high.”

When a journalist pointed out that it sounded like Schmidt was “unconvinced either way,” he said that it’s difficult to know whether the valuations are fair until a significant amount of shares hit the market, usually when employee lockups expire, typically after six months, “You won’t really know the answers until 2012,” he said.

The only clear thing at the moment, Schmidt said, was that real estate values will go up. “Young people who need houses will go into areas of scarce housing resources and there will be competition for houses and housing prices will go up. So for them it's not a bubble it's actually a house.”

On what effect if any the seven years of market experience have had on his perspective on Google’s IPO, Schmidt said, “Google went public at a very different time, at what people thought was an unbelievably high valuation, and let me point out that we've never traded below our opening price.”

When pressed again by a reporter for a yes or no answer, Schmidt gave the following humble reply, ” I don't think it's my job to call the market. It's a mistake for me to say what the market should think … I'm not a brilliant investor. If I were a brilliant investor then maybe I'd have some status. I'm a computer scientist.” … A computer scientist with a $7 billion net worth.



Despite Google+ Competition, Disco, Google’s Hushed Messaging App, Continues To Improve

Posted: 09 Jul 2011 03:03 PM PDT

It has been over three months since we first broke the news on the existence of Disco, the group messaging app made by the Slide team within Google. Google still refuses to talk about it. But work continues nonetheless. Today brings version 3 of the app — and the app is starting to get really good.

Just a little over a month after Disco was updated to version 2.0 with Push Notifications, today’s update brings a range of key new features. The biggest one is photo sharing, a feature which is now a must-have for all group messaging apps. Also new is 1-to-1 chat capabilities. But the most important additions may be the things Slide/Google is trying to do to help differentiate Disco from the rest of the pack. Namely, they’ve baked in Twitter and Yelp integration.

Yes, it may seem a bit weird for an app built within Google to rely on two rivals, but the features are interesting. Using the new “Star” commands, you can choose to follow any Twitter feed within a Disco group and see all the updates from that account within the app. You can also call up Yelp recommendations and reviews right from within the app with the new feature. Finally, you can also create a poll for everyone in the group using the Star options.

Disco also comes with a nice little bonus. If friends are not yet using Disco, you can still interact with them via SMS within the app. And the app will allow you to do this with up to five friends absolutely free of charge (though I assume they can still get charged for receiving the text).

While Google still won’t talk about Disco, perhaps it is ideal to just let that team do their own thing. Clearly, they are iterating fast minus all the oversight they might normally get as a regular group within Google. In just a few months, the Slide team has brought Disco from yet another group messaging client, into a really good one.

At the same time, the team is also working on other apps, like Pool Party, a group picture sharing app. I’ve been playing around with that for the past week, and it’s also pretty solid. If the slide team combined the two, it could be really interesting.

Of course, I’m also still interested to see how these Slide apps do in the face of Google+, which offers much of the same basic functionality. Google+ for Android has been out for over a week now, and it includes the Huddle group-messaging app. The G+ iPhone app remains in review, but should be out shortly — my guess would be next week.

You can find Disco in the App Store here or in the Android Market here.



The Twitter Endgame: IPO, Chess, or Roulette?

Posted: 09 Jul 2011 12:22 PM PDT

Editors Note: Guest contributor Semil Shah is an entrepreneur interested in digital media, consumer Internet, and social networks. He is based in Palo Alto and you can follow him on Twitter @semilshah.

Reports are swirling that Twitter is in talks to raise $400 million, valuing the company close to $8 billion. It seems as if it was only yesterday that Twitter raised $200m from Kleiner Perkins. At the time of Kleiner’s investment, some pundits chuckled beneath their breath, claiming the old venture firm was paying up on price in order to claim a bit of equity in social networks, which they had been perceived to have missed.

Despite that laughter, it may be John Doerr, his partners, other Twitter investors, and their employees that share in the last laugh. In addition to the success of their niche funds, Doerr knew exactly the bet he was making when he hunted down this deal last December. In buying a piece of Twitter, one could connect the dots for the possibility that Doerr, with his deep knowledge of Google, knows something about a Twitter endgame that got his investment juices flowing. There have been countless blog posts trying to show that Google should buy Twitter. At the same time, other technology giants left hanging without any social data could perceive Twitter as an attractive acquisition target also, giving them a large network and helping circumnavigate many walled-garden sites filled with social, user-generated content. Can the company’s major shareholders help create competition for a Twitter deal in a very small market?

The roll call of Twitter’s investors is impressive, littered with the names of blue chip venture firms and consumer web celebrities, many of whom built their reputations largely through this one investment—and rightly so. With around 400 employees, half of whom are focused on engineering and product, Twitter doesn’t necessarily need almost half a billion dollars of additional financing to keep going. To date, it has been able to book some revenue based largely on the promoted tweet ad unit.

However, it has also been acquiring companies to help eliminate blind spots in its technology and product offering, to date spending more than $50M on purchases like Fluther, TweetDeck, and most recently, BackType. One could make the case that as the company continues to get the product back on track that a mix of housekeeping plus new acquisitions make sense to get the product to a point of stability. This seems to be what is happening especially under the product guidance of c0-founder Jack Dorsey, who came back but still is CEO of Square, and former Google AdSense guru Satya Patel.

That is, because right now, the Twitter product struggles just to be stable. For those that use Twitter’s native web site in the browser, it’s been considerably slower, possibly because the system is processing over 200m tweets per day. Sure, that’s a lot, but in those 200m items are a lot of loud, spammy, and inaudible (or inauthentic) accounts. For those trying to get a handle on direct messages (“DMs”), random old threads keep popping up when they finally load, which means they may be moving all DMs to a new server. @Replies are still not distinguishable from @Mentions, users haven’t been educated to make lists, and it’s very hard to search through favorites or old tweets. There are also more add-on options available per tweet via mobile than there is on the web, perhaps due to the fact that for those that use Twitter heavily, there are so many different clients from which to access the stream.

And therein lies the huge challenge but also Twitter’s massive opportunity. There has been much controversy about Twitter’s handling of its own developer community. For some, the lack of a clear roadmap has spooked people from investing in the space with time, money, and developer resources. For others, talk is cheap, and the reality that Twitter will have to eventually own every piece of the stack is obvious, so those that enter the fray must do so willingly.

Most recently, these tensions were brought to light when Twitter was seen to attack Uber Media and then subsequently acquired TweetDeck, or when Twitter decided to launch it’s own photo-sharing service in partnership with PhotoBucket (and thereby bypassing services like Twitpic and yfrog), or when it decided to get into the URL-shortening game, going so far as to re-shorten URLs that were already shortened by other services like bit.ly. As powerful and disruptive as Twitter can be in the real world, make no mistake that in its own ecosystem, similar forces are at work.

There has now been a good year of “bubble” saber-rattling in the technology world, and combined with today’s red-hot IPO market, Twitter needs to keep advancing its chess pieces forward. While the public demand for shares in Twitter may be huge, the reality is that the five-year old company not only doesn’t have the revenue acceleration needed to make this a viable option, but it’s product isn’t entirely set either. This latest $400m fundraising round may be an attempt to help fuel more product-enhancing acquisitions and, overall, to begin a consolidation of fragmented clients and services that currently survive solely on an oxygen supply from Twitter’s API. With each round raised and as its valuation goes up and up, the possible exit outcomes dwindle and the stakes get higher. The Twitter endgame transforms from chess into a dangerous game of roulette.

From my own personal viewpoint as a Twitter user, my sincere hope is that Twitter remains an independent, standalone company that eventually is publicly-traded. I will line up to buy shares. I view the Web through Twitter and spend more time on the service than any other, by a mile. And while I hope it will IPO, I have this sinking feeling that’s not realistic. This is not to suggest that Twitter is failing at finding and tuning all the best possible business models. They are doing an incredible job with only 400 people. It’s astonishing, really. Rather, it’s that the scope of all the potential opportunities is so massive, wide, and deep—from Internet, to television, to back-end analytics, search, location—that it may take a real partnership to transform these models into real revenue engines.

Who would be interested in Twitter should they continue to remain private and closely-held? Some make the case for companies like Apple, especially after its integration of Twitter into its iOS5 software. A company like Twitter could give cash-rich Apple a huge network to deploy its iAd advertisements on multiple devices, perhaps eventually even on television. Earlier this year, there was some chatter that Facebook may be interested, but they don’t (yet) have enough cash on hand to do this (though Facebook stock could do the trick). There’s always Microsoft, which certainly has cash on hand and an appetite to buy social communication services, recently demonstrated by its $8 billion acquisition of Skype.

This leaves one company, located in Mountain View, that many believe could be the perfect acquirer for Twitter, despite the fact it just launched its own social network, Google+, which is poised to launch brand pages, too. A possible Google-Twitter acquisition has been analyzed to death, so I won’t do that here, other than to say on paper, it makes a ton of sense. Because of all the bountiful seeds Twitter has planted around the world, the company best positioned to harvest those seeds (and turn a healthy buck while doing so) is Google, bar none.

But, as Twitter raises more money at higher valuations, and if an IPO is not likely in the near future, the number of possible outcomes dwindles. While an acquisition by one of the four companies listed above could be huge, both in terms of dollars and media attention, the real game would be to create enough competition among at least two of the four possible bidders to drive up the price and maximize shareholder returns. If Twitter uses the new funding to continue to fortify the product and also continue on a hunt for the best business models, it may give the potential acquirers information that leads them to think they may not be likely to extract profits from Twitter either.

By raising a whopping round, Twitter buys itself time but also elevates the stakes. Does Twitter putter along for the next few years and stumble upon a business model, enabling it to IPO? Does a giant like Apple, Microsoft, Facebook, or Google snatch up the company, or better yet, engage in a chess match with each other for the right to buy it for close to $10b or more, minting money for the company shareholders? Or, does Twitter start to slowly fade away, unable to reel in enough cash to keep the twittering machine humming? With the first option being a longshot, we’re down to two numbers on the roulette wheel. My money and my hope is on black: an acquisition.

Photo credit: Håkan Dahlström



Gillmor Gang 7.09.11 (TCTV)

Posted: 09 Jul 2011 10:00 AM PDT

The Gillmor Gang — Michael Arrington, Dan Farber, Robert Scoble, and Steve Gillmor — enjoyed @scobleizer’s FaceTime tour of Florida’s abandoned Kennedy Space Center in the aftermath of the last shuttle launch. The countdown clock sat frozen amid a sea of media trailers and the huge Twitter Live Assembly building. No, wait; that was where FriendFeed stood until Google + was launched last week.

Google + should buy Twitter, suggested @arrington from his retirement center in the Pacific NorthWest. Having immediately shut down its live stream to Google the day after Plus went public, it seems unlikely Jack and Dick (and Ev and Alice for that matter) are any closer to selling. As the ghost of Walter Cronkite peered down from the “permanent” CBS News bunker, CBSNewsOnline editor in chief @dbfarber schooled @arrington on the news of the day. We all got a little older. And that’s the way it was.



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