A VC deal ( non-Web 2.0) I should have mentioned earlier was Ottawa-based Spotwave Wireless raising $10-million from a group of investors that includes Motorola Ventures. Spotwave makes hardwave and software that improves the strength of wireless signals inside offices and homes. As wireless devices become de rigeur for most people, bad reception anywhere is unacceptable so there's fertile ground for companies such as Spotwave to fill the void.
Media Bubble: Intriguing and Troubling
In the wake the Web 2.0/VC dialogue over the weekend, there are a couple posts (Scott Karp, Jack Shafer exploring how blogs are maybe attacking the foundations of the newspaper industry because of bloggers ability to establish themselves and reach out to millions of potential readers at little cost. Karp focuses on how the proliferation of choice is making life more difficult for the user and the media because it's difficult to capture the users' attention and, as a result, a tough to build a viable business that will attract advertising. The solution to leveraging the “attention economy”, Karp says, is creating a “personal killer app” (editor's note: a personalized portal such as My Yahoo?) that will be perfectly tailored to each user. Shafer adopts a more Luddite approach and wants newspapers to get better by making cartoons bigger again, writing editorials signed by the authors, getting great writers to write columns, and improve the newpaper's look and feel – a strategy he believes is more effective than bolting on a couple blogs and adding an online comment section. So where does the Web 2.0/VC talk fit over the weekend fit into the media world? As a newspaper journalist, the Web 2.0 is a fascinating issue and one that warrants coverage because it could be an important financing trend. But I have absorbed tons of insightful, provocative, intelligent information over the weekend on this trend on the blogosphere. Now I'm wondering if still makes sense – and there's still time – to write about it in the newspaper. If most people who would be interested in the Web 2.0/VCs issue have already read about it online, why bother do it in print? I'm probably giving the blogosphere too much credit for being a widely consumed, mainstream medium but hopefully you get the point. Over the past few months, I've used my blog as a testing tool for story ideas and column before deciding whether a particular topic makes sense for the newspaper. The more popular blogs become, the more I think this technique may not work anymore. As for how newspapers should respond, let's just say that's another discussion for another day – probably when I'm doing something other than writing for a newspaper.
A New VC Model?
Web 2.0 may not be a bubble yet but there are intriguing, if not troubling, signs that the inmates want to take over the prison. Dave Winer's call to remove VCs from the formula has some merit but it assumes investors in a publicly-traded venture company will have faith that the people running it are smarter than VCs. So, Dave, who are these people and what makes them more insightful than VCs? Before anyone gets carried away about turfing VCs from the equation, let's concede there is a role for VCs within Web 2.0 but it will have to evolve because many start-ups don't need much of what the biggest thing VCs bring to the table: money. Given development and distribution costs are modest, and the best services will market themselves virally, where is the VC's value that will get them a piece of the action? Rick Segal is among many people trying to figure that out. It may be that VCs “invest” in start-ups in different ways by offering services such as networking, headhunting, technical, marketing etc. as well as a small amount of capital ($1-million to $5-million). Rather than getting a 30% equity stake out of the gate, they would get 5%. And rather than investing in four or five start-ups a year, they would invest in 10 to 20 companies. As a result, the name of the game would be deal-flow. This new landscape would make competition for deals extremely competitive, which would be good news for start-ups who could choose their potential partners carefully. In other words, it could totally reverse the courting rules. The big question is which VC steps up first to seize the opportunity? Maybe it won't be a VC because it's too dramatic of a shift to do quickly. Maybe it will be Rick Segal – backed by some institutional or high net-worth money. What about Mark Cuban? He's got enough cash, energy, ideas and an appetite for start-ups (Ice Rocket, etc.) to pull it off. Maybe Dave Winer will walk the walk, rather than talking the talk by tapping some of the money sloshing around Silicon Valley these days. Or maybe it will be someone such Niklas Zennstrom, who has the required rebel DNA and oodles of eBay cash/stock to finance something disruptive (I assume Tim Draper would throw in a few bucks and ideas.) So who's game?
For more thoughts, check out CrunchNotes and Robert Scoble.
Update: If you're at all interested in this New VC dialogue, a must-read is Rick Segal's lengthy post, which clarifies his cryptic post of a few days ago. Rick has obviously been doing some deep thinking and talking with plenty of people recently as he works through his New VC theory.
Boom vs. Bubble
Chris Anderson has a thought-provoking story in Wired
arguing the technology sector's revival is a boom, not a bubble -
citing the industry's maturity, the lower cost of bandwidth and and
computing, and lower capital requirements. It's a reasonable argument
but I would suggest no one in Silicon Valley should pat themselves on
the back too heartily for being so pragmatic and/or rational this time
around. While it may not be a bubble, there are plenty of signs a
bubble be closer than many people think. A regular check with
TechCrunch and SiliconBeat, for example, offers a steady stream of news
about cool start-ups with questionable business plans (Does AdSense
count as a business plan?) raising several million dollars. Sure, many
of these start-ups are lean and mean operations that require little
capital to develop a service and distribute it, but if the path to
becoming a viable business is still very much work in progress. As a
result, I would argue many VCs are speculating on these start-up
investments even if these services have thousands of enthusiastic
users. This sounds a lot what I heard during the dot-com boom. If more
VCs jump into Web 2.0 with more enthusiasm and dollars, then the whole
speculation argument begins to gain credibility. I do concede, however,
that one thing that does make the current high-tech revival different
from the dot-com boom is the absence of IPO fever. There just isn't the
enthusiasm for high-tech IPOs – look at the muted reception Traffic.com
received recently and Vonage's oh-so-slow IPO plans. This environment
can only be viewed as an extremely encouraging check on the boom
becoming a bubble. As long as this situation exists, you will keep
unsophisticated investors and taxi drivers from catching a bad case of
Web 2.0 fever. So what does it all mean? I would argue Anderson's
thesis is right for the time being but there are very few barriers
(more VC activity, Nasdaq gaining strength, successful IPOs)
between a boom and a bubble, so let's not get too carried away with the
idea everyone that everyone learned so much during the last dot-com
boom there is no way it could happen again. Nicholas Carr
believes a flaw in Anderson's argument is he focuses on the supply side
but does not address potential demand from stampeding investors who
could easily “render Anderson's arugment moot”. And I totally agreement
with Om Malik that the bubble will really break out if Gigaom.com is bought for $150 million. When's the Giga IPO, Om?
Update: Blogspotting's Heather Green makes a good point about about the proliferation of “me-too companies” with uncertain business models other than Adwords. “That kinds of seems like the definition of a bubble. I don't know, maybe i am just being a curmudgeon”. No, Heather, I think you're being realistical and cautious,” she says.
An Microsoft xPod?
So Microsoft's thinking of developing an iPod-killer? So says BusinessWeek, which reports that Microsoft hasn't decided whether to go ahead with the “xPod” project yet. My advice is simple: don't do it, Bill, because it's already too late unless you want to be a marginal play. I mean, the iPod is so well-entrenched, Creative Technology and iRiver barely have a foothold – let alone Dell and its Digital Jukebox. The iPod's hold on the market has given its default status with consumers in that when most people think about buying an MP3 player, they immediatley think about an iPod. The same goes for the Blackberry and mobile e-mail, no matter what Motorola, Nokia and Microsoft may try to tell you otherwise.
Analysts Loving Nortel's Mike Z.
I've got an investment story in today's National Post about how a growing number of analysts are jumping on the Nortel bandwagon. A big chunk of the enthusiasm has to do with the expectations newly-minted CEO Mike Zafirovski and his plan to revive the embattled company by giving it a sharper strategic vision – as opposed to its all-things-to-all-people approach that spread its focus (and R&D dollars) too thin. While Zafirovski is a breath of fresh air after John Roth, Frank Dunn and Bill Owens but investors should be cautious before they start to believe Nortel's back on the right track. This is a company with a multitude of internal challenges that will time to fix, while it faces external issues such as rising competition from low-cost rivals such as Huawei and low margins in high-growth markets such as India and China. It would probably make sense to wait until Nortel issues its fourth-quarter results in a couple weeks before getting too excited about Nortel's prospects, particularly given it should be the first time Mike Z. will talk publicly since he started the new gig in mid-November.
