Pirates & Rebels

This article also appeared in VentureBeat

BlackBerry maker, Research In Motion, recently released disappointing Q4 2012 financial performance results. New CEO Thorstein Heins has acknowledged RIM is in need of significant changes if it is to survive, much less stay relevant. The odds are heavily stacked against RIM at this point, but there are still things the company can do to regain its footing in the market.

While some believe licensing the Blackberry OS is a potentially winning strategy, it’s not going to work. The simple truth is the Blackberry OS is no longer cutting edge and has fallen behind Android and iOS. Why would HTC, LG, or Samsung license the Blackberry OS over much better alternatives? There is no conceivable reason.

In order for RIM to pull out of its downward spiral, it must make bold moves and recognize the “triumph of software over hardware”.

Adopt Android OS and maintain their own App Store

RIM is too far behind to establish a developer ecosystem for this generation of smartphones; it needs to accept this fact and use Android. Amazon’s success with the Kindle has shown that Android can be used as a foundation for creating a unique experience. Because Amazon has heavily modified the Android OS, it can’t use Google’s cloud services like Google Play (the Android app store formerly known as Marketplace). But, Amazon has shown that building its own cloud services and custom apps (e.g. Silk, Kindle Reader app) is actually a benefit. It allows Amazon to monetize the app marketplace by taking a cut of in-app purchases just like Apple.

RIM should follow in Amazon’s footsteps and deliver a new OS for its smartphones and tablets by customizing Android (to support RIM’s unique push mechanism) and integrating Blackberry’s great email functionality as an app. RIM still makes a better phone than most Android smartphones, and I’d gladly purchase a Blackberry that has the great email functionality one expects from a Blackberry but happens to run Android so I can take advantage of the large library of apps for the Android platform.

Partner with Wal-Mart to deliver an answer to the Kindle

Tablets have become popular devices for shopping and watching videos. RIM isn’t in a position to maintain its level of investment and focus on the consumer market. It needs to protect its core enterprise market and find a partner for the consumer market. That partner is Wal-Mart. That’s right, Wal-Mart. Amazon is one of Wal-Mart’s biggest threats, and the Kindle is as much about making it easy for consumers to purchase physical goods from Amazon’s website as it is about purchasing Amazon’s digital goods (video, music, books). A partnership with RIM will give Wal-Mart a credible tablet with which consumers can easily make online purchases from Walmart.com as well consume video from Wal-Mart’s VUDU video service.

Wal-Mart would provide RIM with a large-scale consumer retailer able to drive high volume sales of the Blackberry Playbook, purchasing power when negotiating with suppliers, and enough volume to generate meaningful revenue from a new Android-based app economy.

Attack the enterprise market with integrated solutions

With a modern mobile OS in place and a strong partner for the consumer market, RIM can re-focus on innovating and protecting its core business market. While smartphones have been mostly a consumer phenomenon to date, they are increasingly pushing into the enterprise market, and RIM must thwart this encroachment in order to survive. RIM’s superior security and email capabilities give it some breathing room. By innovating on top of Android, it will be able to meet the needs of enterprise IT managers under increasing pressure to support smartphones and apps at work. Enterprises need a way to securely distribute internal apps via a corporate app store; they need the ability to protect corporate data that is stored on devices along with employee personal data; they need a way to make data available from internal corporate systems (such as SharePoint, SAP, and custom developed solutions) available via apps for employees while maintaining security. RIM can provide a tightly integrated software, hardware, and cloud solution for the enterprise much like Apple has done for consumers.

While it still may turn out to be too late for RIM, these bold steps would give it a chance to leverage its strengths, stem the bleeding, and strengthen its position so it can potentially mount a stronger comeback down the road. Holding onto the belief that the yet-to-be released, and already delayed, Blackberry 10 OS will turn things around is not the answer for RIM, nor is licensing its OS and email technology to others. It will take bold steps and a willingness to walk away from long held beliefs, but if the sales and revenue figures continue to erode as they have, there is little left to loose.

There has been a lot of press over the Cornell versus Stanford showdown over the proposed NYC Tech Campus, which is intended to help NYC eventually rival Silicon Valley as a center for technology and entrepreneurship. As an entrepreneur, bay area resident (formerly resident of Austin & Seattle), Cornell graduate, and someone who was born in NYC, I feel I have a few thoughts on this topic. It is a bad idea for NYC to pick Stanford over Cornell, but I also feel it is a bad idea for Stanford as well.

Commitment

It is clear that Stanford President Hennesey is enthralled by this idea that Stanford should invest $2.5b in a NYC tech campus over the next 30 years, but it doesn’t seem like the Stanford alumni agree. Only 39% of Stanford students support a NYC campus and a recent article in The Stanford Daily Op-Ed outlined a number of arguments against this initiative.

President Hennessey claims they will launch a multi-decade fund raising drive to raise billions of dollars for the campus. But I ask from whom exactly are they going to raise this money? They are going to ask existing Stanford students (who will become alumni) and existing alumni to give that seem uninterested in this project. So unless Larry and Sergei are willing to bank roll this themselves, it isn’t clear to me that Stanford is willing to use 15% of their existing endowment to turn NYC into economic competitor to Silicon Valley.

What happens when native New Yorker President Hennessey is no longer President of Stanford? Will the next president continue to make the NYC Tech Campus a fund raising priority over Stanford’s existing local initiatives? Will the next Stanford president continue to ignore an alumni base uninterested in this effort? By comparison, Cornell alumni have put together a petition and collected over 20,000 supporters in a matter of a few weeks. That is what you call alumni support.

Cornell will remain committed to a NYC tech campus, because NYC has the largest collection of Cornell graduates in the world, because NYC and the surrounding area represents 30% of applicants to Cornell, and because they’ve already have 100 years of history supporting a NYC campus with Cornell’s medical school. Cornell has no Palo Alto, with its sunshine, palm trees, tan bodies, convertibles, etc., to divide their affection because Ithaca, as Gorges as it may be, is a small college town in rural upstate New York and is incapable of becoming a global center for technology startups.

Location, Location, Location

While I have a great deal of respect for Professor Hennessey as he authored two of my favorite Computer Science textbooks, I think he is way off base on this one and I’ve wondered if he might be drinking too much of his namesake as he continues to barrel down this path perhaps motivated more by hubris and a desire to find an initiative he can use to define his presidency despite the dubious value to Stanford.

Cornell has over 50,000 alumni in New York City whereas Stanford has fewer than 10,000 (the politicians in New York City should let this one sink in – these are voters). This should not be surprising, a recent Stanford student who is against the NYC campus said, “west coast, best coast.”

This alumni base will provide a community of angel investors inclined to invest in Cornell graduates interested in starting companies, providing the critical risk capital these companies require before they have enough traction to raise venture financing.

The NYC Tech campus is focused on graduate education in engineering, but where will the source of undergraduates come from to feed the needs of successful start-ups looking to scale? It is unlikely that Stanford undergraduates would be tripping over themselves to relocate from Palo Alto; however, Cornell can provide a steady stream on undergraduates looking to leave Ithaca for their first job after college.

Bad for Stanford

There is competition for Silicon Valley. It is coming from other cities and it is global. Stanford needs to focus on nurturing the center of the universe that they are stewards for. By venture afar they risk diluting their attention. Silicon Valley is a special place and that is where Stanford’s attention should remain. If it has a few billion dollars burning a hole in their wallet, there are a number of better ways Stanford could use this money.

• Lower tuition costs (the amount of money Stanford would invest in the NYC Tech Campus would pay full tuition for all students for 9 years)

• Making Stanford more affordable for the very best International students who are not eligible for the same financial aid as US students.

• Creation of a Stanford venture seed fund to back alumni (as Cornell does with its BR Ventures fund which is run by students)

• Provide loan forgiveness to students who start companies, teach in public education, or other worthy endeavors.

So as some Stanford students like to say, “west coast, best coast” and Stanford would be better served by staying in Palo Alto and NYC would be better served building its own version of NYC with the help of an institution with deeper ties to the region.

This post was also published in TechFlash

Attention Seattle startups. Silicon Valley startups are coming to town, and they want your devs. Over the past few weeks I’ve lost count of how many Silicon Valley based companies mentioned their interest in opening a Seattle office. The larger players with thousands of employees — Google, Zynga, Facebook — have been setting up shop in Seattle for some time. What is different, and surprising, is that companies with no more than 100-200 employees and $25 million to $100 million per year in revenue are seriously considering it.

What is driving this is the tight market for top quality engineers in Silicon Valley. The companies are rapidly growing revenue, have raised significant amounts of capital (tens of millions) and just can’t find enough engineers to hire.

There is so much money flowing into seed and early stage deals that two or three rock star developers are almost guaranteed to raise $750,000 to $1 million in seed financing. So many figure why not give it a shot instead of working for a later-stage company.

In response to this, companies are looking to solve their resource constraints by importing developers from outside of the Bay Area and opening up satellite development centers. Seattle appears to be on top of everyone’s list, with places like Austin, Boulder, and even Atlanta mentioned.

From my conversations it appears that there are a number of reasons why Seattle is a top choice:

• Google has a large presence here, and its Kirkland and Fremont dev centers are considered to be the most productive outside of the Mountain View headquarters. Word has spread.

• So many technology startups are using Amazon’s AWS, and moving into Amazon’s backyard where there are a lot of local AWS experts is compelling.

• Seattle is in the same time zone as the Bay Area and is a relatively short flight (under 2 hours) away, which eases common issues related to organizing engineering teams across different locations.

• The University of Washington has a top-notch computer department with a large number of graduates every year.

• Amazon, Google, Microsoft have large numbers of talented engineers located in Seattle.

I’m sure the reaction for many entrepreneurs based in Seattle is something along the lines of “keep the b#@% out.” But there are positive impacts of companies coming here.

• It is often difficult for mid-career folks at Microsoft to make the jump to an early stage start-up. The early stage companies are perceived as having too much risk relative to what they are used to. Having a chance to join a 100- or 200-person company with $50 million in revenue that is based in the Bay Area might provide a nice transition job before striking it out on their own or joining a seed-stage start-up.

• It helps the ecosystem by developing executive and business talent. While Seattle always had an abundance of engineering talent, it hasn’t always had the business and executive talent necessary for startups to put together a top-notch management team to go big. That’s because the mega-companies in town aren’t a good training ground. It can be difficult coming from a large player like Microsoft to understand how to grow a business from $50 million per year to $200 million per year, so these later-stage companies can provide this experience, which will ultimately benefit the entire ecosystem.

• It creates a destination for those in the Bay Area looking to move. Sure the Bay Area may be the center of the universe for technology startups. But Seattle has a number of advantages for some. Those living in the Bay Area who are looking for more affordable housing, lower taxes or less traffic (its relative people) would consider moving here. However, people who have been working for startups might not want to move to work for mega companies like Microsoft or Amazon. But they might find working at a satellite office of a company with a hundred employees more attractive.

• It also creates more awareness and visibility for technology startups, even if we’re talking about later-stage companies, within the Seattle community. Although these companies will not have their headquarters in Seattle, they will still be part of the community, potentially sponsoring local technology events and receiving coverage from local technology press and bloggers.

This could potentially negatively impact the local community in the following ways:

• The increased competition for development talent drives up salaries for engineers, and that will force Seattle startups to adjust their assumptions on how much capital they need based on 10 percent to 20 percent higher costs around engineering staff.

• Also, if the best and brightest in Seattle aren’t helping startups based here become the next Amazon, Zillow or Isilon, then it hurts the ecosystem. Every big win has a huge effect of further developing the local Seattle startup environment, because in theory, the folks who have made money will turn into angel investors, and fund the next generation.

But while there are positives and negatives, my opinion is that this is an overall positive for the Seattle start-up ecosystem. So for all your Seattle startups, think about raising more capital, expanding the size of your option and putting out the welcome matt for the new folks coming to town.

This post was also published in VentureBeat

The bidding war for Hulu is heating up, with Google, Yahoo, Amazon, and DirecTV still in the mix. Google is rumored to have made an aggressive offer for Hulu. It may be hard for anyone to match Google’s ability to pay, but Amazon needs to find a way to come out on top — not just that Amazon wants Hulu, but because Amazon really needs Hulu and is best positioned to make the most of Hulu. Here’s why:

1. Amazon could become the iTunes of video. No one has been able to challenge Apple’s success with iTunes in the downloadable music space. Despite Amazon’s position as one of the largest music retailers in the business, it has not been able to provide much competition to iTunes with they MP3 download store. The reason is simple: Apple controlled the entire experience by providing an integrated phone/mobile OS/Internet service experience. Amazon toyed with the idea in the past of creating an iPod competitor, but the project was shelved as the market transitioned from iPod devices to the iPhone. Despite Apple’s success with music, it has been unable to translate that success to video. So there’s an opening here for Amazon, and the company needs to go after it aggressively.

2. It’ll take video to push Kindle tablet sales. Amazon’s success with the Kindle, which is expected to sell 25 million to 35 million units this year, has given it the confidence to develop an Android powered tablet to compete with the iPad. These numbers are respectable given the nine million iPads Apple reportedly sold last quarter. The iPad is a great device for many things — web browser, emails — but it is a killer device for watching video. My consumption of online video has skyrocketed since purchasing an iPad. Amazon can leverage a large installed base of Kindle owners who could upgrade to the Kindle tablet that happens to provide the ability to purchase and stream premium video content.

3. Amazon has the right leverage with studios and broadcasters. Hulu has been a success from a user adoption standpoint and Hulu’s CEO, Jason Kilar, has generated significant revenue in a short amount of time. Under normal circumstances, investors wouldn’t want to unload a winner – they’d keep riding it. But the threat Hulu posses to its investors, NBC/Comcast in particular, is too great, and the studios want to cash out. The big elephant in the room is the content licenses. Without access to premium content, Hulu is dead. Any potential buyer has to wonder what happens when it comes time to renegotiate those licenses down the road. As we’ve all seen with Netflix and Starz, there are no guarantees. Many book publishers felt threatened by Amazon’s ebook initiative, but as the largest retailer of books Amazon has the power to turn promotions on or off for a new book. Amazon, unlike Hulu’s other bidders, is one of the largest DVD retailers in the world. Since DVD purchases are a big part of revenue for new movies, older movie catalogs, and premium TV shows (e.g. Dexter, Mad Men), the studios can’t jerk Amazon around on licenses. If Starz threatened to pull online video rights from Amazon, Amazon could simply pull all Starz DVDs from its retail store.

4. Amazon and Hulu are a cultural match. A lot of acquisitions fail because of people. In the case of Amazon and Hulu, Jason Kilar was a very well respected executive at Amazon for a long time. He knows how to operate in that environment, and he has the respect of Jeff Bezos and the rest of the Amazon executive team. There is much less of a chance for post-acquisition “culture clash,” which often leads to acquisitions failing to live up to their potential. Would Jason and his team of consumer Internet superstars fit in with DirecTV? How would they fit within Yahoo? How would they deal with the inevitable politics of strategy and execution debates at Google’s YouTube division?

5. Amazon can include Hulu as part of a bundled pricing offering. For example, users who purchase Amazon Prime could receive a free subscription to Hulu’s subscription service. Although it has been reported that Amazon is considering providing Amazon Prime for free to purchasers of the Kindle tablet, that’s the wrong strategy. The Kindle is the razor, and content, in the form of video, app store purchases, is the razor blades. Amazon has to entice users with bundles that essentially give the Kindle away. For example, if a consumer buys a Kindle tablet for $199, Amazon could give that customer $100 credit to purchase ebooks and apps from the Amazon Android marketplace … and videos. Or Amazon could come out with a new subscription offering that is distinct from the Amazon Prime subscription, say a Kindle content oriented subscription that supersedes Hulu Plus and gives consumers a number of free apps or ebooks per month. There are endless permutations, but Amazon needs Hulu to complement its existing assets to really make it all work.

6. Amazon wouldn’t have to remake Hulu. Hulu is a great consumer experience, and consumers will likely end up disappointed with a Google acquisition. For one, Google doesn’t have the greatest track record with acquisitions (I’ll spare you the long list of examples). YouTube is an exception and has been very successful in terms of user adoption, but it hasn’t succeeded in premium video. How would Google integrate Hulu? Would it simple replace Hulu with YouTube channels (after all, YouTube’s new user interface, currently in beta, looks more like Hulu)? Would Google continue to run them as separate sites? Would consumers see no new features for 9-12 months (as is customary with Google acquisitions) while Hulu’s back-end is migrated over to Google’s infrastructure? Amazon is less likely to screw up what Hulu has done because there are fewer internal projects that would create complexities around strategy and execution. Amazon can simply leave Hulu as it is. Users can buy videos from the Amazon Video store, and Hulu is the free/subscription video site Amazon owns.

With Hulu, Amazon will be able to provide users with a killer integrated experience around online video. Without it, the company is missing a critical piece of the puzzle.

If Amazon can pull this off and somehow manage to win a bidding war for Hulu with Google, then it has a chance to become a real competitor to Apple and Netflix. If this happens, I wouldn’t be surprised to see Apple or Google try to acquire Netflix next. The race to own online video is only in the third inning and we have a lot of game left to play.

If Amazon pulls this off, expect it to continue to view hardware and integrated experiences as a key part of its strategy. Perhaps we’ll see an Amazon television in the future, or maybe even an Amazon-branded game console.