Hark: The Software Paradox

Hark

Stephen O'Grady at RedMonk has launched a new Podcast called Hark. In his second episode, he and Agile programming guru Kent Beck have a thoughtful discussion around the ideas in O'Grady's book "The Software Paradox."  Even though software is "eating the world" and become more widespread and strategic, its economic value appears to be declining rapidly. Certainly, we've seen a shift in the industry from traditional on-premise software commercialization to distribution models like open source, and software-as-a-service, with vastly different business models.

Simply put, the software industry is undergoing a significant disruption that is reshaping the economics of the industry and rendering older "tried and true" business models obsolete. And at a level that strikes closer to home for many, it's also reshaping employment models and careers. Although the parallels are not perfect, the software industry is going through a transformation much like the publishing industry or the music industry. (And we all know how well that turned out for writers and musicians!)

I would argue this has transformation has been going on for at least ten years already since the emergence of successful open source companies. In the early days of MySQL, Marten Mickos regularly talked about how his goal was to disrupt the database industry taking it from $9 billion in revenue to $3 billion, and then capturing a third of that. While this was possibly more bravado than business plan, it was based on the fact that MySQL was 90% cheaper than Oracle. (And for many, MySQL was 100% cheaper --after all, it was under a GPL license and free for most users.)

While we built a solid business with MySQL, growing it to just short of $100m in revenue and selling it to Sun for $1 billion cash in 2008, the long term impact of MySQL was far higher outside the database industry. MySQL, Linux and other open source infrastructure software spawned thousands of businesses that simply would not have been economically possible under traditional commercial licensing fees. We routinely met founders of companies that said their business was enabled in part because of the dramatically lower cost of building an IT infrastructure. So at least some of the value that MySQL disrupted was captured not by traditional software companies, but by newer companies like Facebook, Google, Skype, Craigslist, Priceline and the like. And many of those businesses also happened to be disruptive, which is why software is eating the world. 

Not surprisingly, there have been very few home runs in the open source business, at least as measured by revenues or exits. Red Hat, JBoss, Pentaho have all been successful as businesses and have had good payouts for their investors. But many more open source projects have had widespread popularity with remarkably little economic value generated. And that is precisely the nature of the Paradox. 

And as Mickos has recently noted "The bad news is: it's almost impossible to make money on open source. The good news: it has happened many times."  But at this point it's hard to say what the future successful models for software commercialization might be, but it's certainly not going to be the traditional on-premise up-front license model. And I don't think open source, in all its various forms, is likely to generate a large number of economic home runs. There are definitely a handful of promising companies like Acquia, CloudEraDataStax, MuleSoftPuppetLabsSugarCRM and the like, but they may be more the exception than the rule. (If I missed other rapidly growing open source companies, let me know in the comments below.)

Likely we will see more divergence over time with more value realized in other forms, whether it's service-based models, cloud-based businesses, advertising, data aggregation or perhaps something as-of-yet to be invented.

It's a fascinating topic with more questions than answers at this point.  And I'm sure we'll see more discussion on this topic at the Monktoberfest conference in October. 

The Hark podcast is available on iTunes, SoundCloud or wherever you get your downloads.


Open Source Enigma Project

Open Friggin' Enigma

The wild and crazy guys over at S&T Geotronics, James Sanderson and Marc Tessier, have decided to go full tilt with a Kickstarter version of their DIY Open Enigma Project.  For those who missed the fanfare last year, they were featured on Instructables showing how to build an Arduino-based encryption machine that works exactly like a WWII era Enigma.  You know, the thing that Alan friggin' Turing and his team at Bletchley Park cracked to  bring an end to WWII?  Yeah, that Enigma.  

The Enigma was also featured in the aptly-titled novel "Enigma" by Robert Harris and the film starring Kate Winslet and some people I've never heard of.  That film was produced by Mick "code-breaker" Jagger.  Yeah, that Mick Jagger... By the way, Jagger owns his own personal friggin' Enigma machine.  How cool is that?  

The Enigma Machine (and it's cracking) remains one of the most significant breakthroughs in computing.  And Turing is considered one of the fathers of modern computing as well as a brilliant mathematician, logician, code-breaker and... wait for it.... world class marathon runner. (I kid you not, the guy ran a 2:46 marathon, coming in 5th in an Olympic qualifying round.  Take that Nazi scum!)

But unless you happen to have a spare $208,137 lying around to throw at a Christie's auction, the closest you're ever gonna get to an Enigma machine is to view Mick Jagger's Enigma sealed behind glass at Bletchley Park.  I've been there, it's fantastic.  But it's also heavily guarded.  Just sayin'. 

Enigma kitNow with the Open Enigma Project, you can get a working, life-size replica of the Enigma and be a part of computing history.  You can sponsor the Kickstarter project for as little as $5 (cheapskate), or if you're a DIY hardware hacker, for $250 you get a bag of electronic stuff you can assemble. 

Or if you're a software person who wouldn't know which way to plug in a soldering iron, then you can get a fully assembled kit (without a case) for $300.  And if you want the whole enchilada including the genuine wooden case, it's $600.  Executives, VCs, rock stars and others can splurge for even higher levels to help make this project a reality. 

This is literally a once-in-a-lifetime opportunity to get a working Enigma replica.  And that is some cool cyber-encrypting steampunk goodness!  You can plug the Open Enigma into your PC via USB port and run some kind of crazy distributed big data bitcoin-mining NoSQL social media photo sharing site on it.  

All the hardware and software is open source so you can compute all you want on your desk, put it behind glass or run a marathon with it.  Just like Alan Turing would have done.


Steven Sinofsky on Disruption

Sinofsky_wings

There is a good article over at Re-Code by ex-Microsoft VP Steven Sinofsky called "The Four Stages of Disruption".  It describes the evolution of products and markets through disruption, drawing from Sinofsky's own insights and also building on the work of Everett Rogers ("The Diffusion of Innovations") and Clayton Christensen ("The Innovator's Dilemma.")  There are few software industry execs with as much experience in shipping billion dollar software products as Sinofsky.  And he understands how brutal it can be to manage large teams.  In my view, Sinofsky is always worth reading, though he can be a bit, ah, verbose at times.

There are dozens of examples of disruptive technologies and products. And the reactions (or inactions) of incumbents are legendary. One example that illustrates this point would be the introduction of the “PC as a server.” This has all of the hallmarks of disruption. The first customers to begin to use PCs as servers — for application workloads such as file sharing, or early client/server development — ran into incredible challenges relative to the mini/mainframe computing model. While new PCs were far more flexible and less expensive, they lacked the reliability, horsepower and tooling to supplant existing models. Those in the mini/mainframe world could remain comfortable observing the lack of those traits, almost dismissing PC servers as not “real servers,” while they continued on their path further distancing themselves from the capabilities of PC servers, refining their products and businesses for a growing base of customers. PCs as servers were simply toys.

At the same time, PC servers began to evolve and demonstrate richer models for application development (rich client front-ends), lower cost and scalable databases, and better economics for new application development. With the rapidly increasing demand for computing solutions to business problems, this wave of PC servers fit the bill. Soon the number of new applications written in this new way began to dwarf development on “real servers,” and the once-important servers became legacy relative to PC-based servers for those making the bet or shift. PC servers would soon begin to transition from disruption to broad adoption, but first the value proposition needed to be completed.

Sinofsky makes a number of good observations on how markets and products evolve through disruption.  But there is a certain irony to reading about disruption by a Microsoft exec.  Is Microsoft a disruptor or a disruptee?  I'd say Microsoft has been on both sides of the disruption equation.

In the early days, Microsoft was a pioneering company that created vast new markets where none existed.  If Microsoft products were not initially the best in their categories, their persistence and steady release cycles gave them the features they needed to beat competitors in just about every category in which they competed, whether operating systems, applications, or networking software.  There were some notable exceptions, such as Microsoft's failure to beat Quicken in personal finance software.  But in general, Microsoft was the 800 pound gorilla in the market and few were brave or foolish enough to tackle them head on.  

The most clear example of Microsoft being a disruptor was it's entry into "back office" markets for server software as Sinofsky described.  The "Wintel" combination of Windows server software and Intel X86 architecture had a profound effect on redefining the server market.  It enabled large corporate Enterprise customers to move server workloads off expensive proprietary Unix systems for a fraction of the price.  You could argue that SQL Server was not as good as Oracle or that NT was not as good as Unix, but for many users it was "good enough."  And Microsoft was smart enough to add Enterprise DNA to the company to help them build this new class of software.  I'm sure in some cases the incumbents saw what Microsoft was doing, but dismissed it's solution as mere "toys."  And by the criteria of the incumbents that was exactly so.  

But where did all that disruption mojo go in recent years?  The emergence of smartphones and cloud-based software left Microsoft flat-footed.  New versions of Windows have been acknowledged failures.  It's rebooted it's mobile and cloud offerings several times.  And in the last couple of years there's been a steady stream of departures from the executive suite including Sinofsky, Bob Muglia, Hank VigilCraig MundieRay Ozzie, Robbie Bach, J Allard, and soon Steve Ballmer.

In the mean time, Apple, Google, Amazon, Salesforce, Box and others have been the innovators coming up with new cloud-based offerings and products that have disrupted incumbents including Microsoft, HP, Dell and others.  

So what do you make of Sinofsky's article?  How is it disruptors get disrupted?  Let me know in the comments.


What Makes a Good Incubator?

Chicken
Although I took most of the summer off, I did spend some time with various San Francisco business incubators including Heavybit (which focuses on infrastructure and tools) and Hub Ventures (focused on technology with social good).  And I'm familiar with probably another half dozen incubators in the SF Bay Area where I either know people or have spoken at or attended various panels.   

Of course, you would expect San Francisco to have lots of incubators.  But what's surprising to me is just how many business incubators and accelerator programs there are in North America --several hundred it seems. Not to mention numerous incubators in Europe and Asia.  And each one seems to have a couple of dozen promising tech startups.  While the costs of starting a company have fallen dramatically with open source, SaaS and cloud technology, I'm not sure the odds of success have risen.  If anything, the low-bar to creating companies is making the early stage startup market even more competitive.  Every good idea seems to spawn more than it's share of copycats and wannabe's.

While there are real benefits from the mentorship and connections you can make at a good incubator, it seems that the rush to create many tech companies has spawned some pretty lousy incubators.  David Cohen of TechStars recently posted "A Horrifying Accelerator Story You'll Need to Read Twice" that tells the tale of an unnamed incubator from the perspective of a participating startup company.  Short version: lots of promises, psychotic drama and bushel of lies: 

A month later, we’d seen or heard from the founders of the top-billed startup exactly zero times and there had been exactly zero sessions for learning... By the end of the 4 months, their total time invested was 45 minutes with the accelerator. It was very strange given the outline for the program included a very specific syllabus with promises of luminary speakers, tech for non-tech founders, and more. None of it happened.

If you're giving up equity make sure you do your homework before choosing to go with any incubator.  And in particular, speak to companies who are at or have graduated from the program and find out whether the promises of mentorship, investor connections and demo days paid off.  Did they launch their product or service?  Did they get funding?  Are they making money?  While everyone knows most startups have long odds and won't make it in the long run, it's worth remembering that it's probably also true for many of the incubators themselves.  


NPR on Software Patents

Nopatents

A few years back, along with some folks at MySQL and in the open source community, we helped kick off a campaign against software patents in Europe.  This was a hot topic and surprisingly, it seemed no large companies were willing to step up the fight.  As a relatively young company, MySQL had a lot to lose if someone went on the attack against us using patents.  While we had a very small number of patents in our portfolio (mostly through acquisitions), we help them only for defensive purposes.  

It's been interesting to see some stories come out from NPR's Planet Money and This American Life shows that shed more light on software patents.  The first episode was aired in 2011 and cast some well needed light on the rather murky area of software patents and a company called Intellectual Ventures that appears to have accumulated a massive war chest of patents.  I've seen some of the patents and some are truly impressive.  But in many cases, it's less clear how these patents benefit society.  

"We're at a point in the state of intellectual property where existing patents probably cover every behavior that's happening on the Internet or our mobile phones today," says Chris Sacca, the venture capitalist. "The average Silicon Valley start-up or even medium sized company, no matter how truly innovative they are, I have no doubt that aspects of what they're doing violate patents right now. And that's what's fundamentally broken about this system right now."

The second episode, aired in 2013, went even further in disclosing the money that is being made by Intellectual Ventures through a licensee called Oasis for rather dubious claims around internet backup technology.  

It's unknown how much money Oasis received from those licensing arrangements. We do know how much it wanted from Carbonite. Danielle Sheer said Oasis proposed a $20 million license fee plus a portion of revenue going forward.

Tom Ewing, an intellectual property lawyer who studies patent infringement cases, says, assuming Oasis was asking for settlements in rough proportion to the size of the company being targeted, a pretty good estimate of its total take "might be in excess of $100 million..."

Because of documents filed with the court, we now know that Intellectual Ventures, owned by Nathan Myhrvold, gets 90 percent of Oasis Research's net profit. Intellectual Ventures sold Crawford's patents to Oasis on this condition.

It's a fascinating story and illustrates just how out of control the patent system has become.


VentureBeat: Protect Yourself From An Online PR Disaster

Venturebeat logo

A few months back, I wrote a guest editorial over at VentureBeat called "How to Protect Yourself from a Twitter-Fueled PR Disaster".  Somehow, I forgot to do a cross-post.  Here's an excerpt:

Facebook, Twitter, YouTube, Yammer, Flickr have changed the world. What started out as a way to hunt down old high school pals has revolutionized how we communicate with friends, family, and businesses. On the business side, a few retweets, and a single offhand comment can spark a PR disaster. Papa John’s realized this when a photo of a racist comment on a receipt blew up on Twitter within minutes. Both Verizon and Bank of America had to scrap newly proposed user fees after customers waged a full-blown protest via social media. And we all know how Netflix got an earful when it sprung a new pricing structure on its customers.

The point is, in the customer service realm, where customers’ interactions with a company are now incredibly public and visible, social media has created a newly empowered “collective” customer. Customers, not companies, are controlling how customer service policies are created and implemented...

Perhaps the best way for corporations to leverage social media is to regularly solicit customer feedback through online surveys and customer satisfaction ratings. These and related inexpensive tools give you invaluable information about customer perceptions and needs. Armed with this, you can create the best solutions and staff customer service teams at times when they’re needed the most.

You can read the full article at VentureBeat

 


SambaCloud and Big Content

Sambacloud_app

Another hot new startup that has recently come out of stealth mode is SambaCloud.  The founders Ian Howells and Razmik Abnous bring many years of content management experience from companies like Documentum and, in the open source space, Alfresco.  

When I first heard about SambaCloud, I was a bit skeptical.  But as soon as I saw the demo, it was quite clear that SambaCloud does something that no one else does.  While there are lots of content management software companies and quite a few cloud storage companies, SambaCloud brings a much needed fresh perspective on some age-old problems that vex most organizations.  Namely, how do you get people sharing the right information?

SambaCloud enables you to easily set up different channels of content so that you can monitor, share and collaborate with others. These channels can be built from different types of content ranging from external newsfeeds to internal documents and presentations.  That may sound like a minor detail, but it's a huge breakthrough in transforming content management from something that sounds as fun as a tax audit into something that's as easy to use as Facebook or FlipBoard.  

Despite the fact that SambaCloud is a relatively young company, they've also come out of the gate with not only an easy-to-use Web application, but also mobile versions for iPhone and iPad. Initially, SambaCloud is targeting sales & marketing teams, but ultimately I think there are probably dozens if not hundreds of potential use cases. 


Kindle Screensavers

Kindle slaughterhouse
I picked up a Kindle 3 (aka Kindle Keyboard) a while back and have been thoroughly impressed with it.  I love the fact that I can take half a dozen or more books with me when I travel without taking up a lot of weight or space in my luggage.  While I wish the Kindle used an open standard like ePub rather than Mobi file format, given the large variety of books and reasonable prices, I can live with it.  The only thing I don't like is that the Kindle is essentially a closed system and not very customizable.  Nonetheless, there's a healthy community of open source hacks out there.

If you have a Kindle and are tired of the standard screensaver images of authors, you can install a Kindle screensaver hack with a couple of downloads.  Just make sure you install the right version for your particular Kindle device.

I've posted some Kindle screensaver wallpapers on PicasaWeb of various novelsMad Magazine covers and Infocom game covers.  I couldn't find a good source of O'Reilly book covers, so I created some fake ones.  And there are plenty of other Kindle screensaver wallpapers out there to chose from. 

Enjoy!


Q&A with Stephen Baker of "Final Jeopardy"

Final jeopardy

IBM's Watson natural language Question & Answer system made headlines recently with its primetime debut on Jeopardy.  Despite a few embarassing answers, Watson trounced top Jeopardy players Brad Rutter and Ken Jennings.  Watson is built from 90 IBM Power 750 IBM Linux servers with 16 terabytes of memory providing 80 Teraflops of processing power.  Watson is perhaps the most famous "Big Data" systems out there.  Watson's knowledge base consists of 200 million pages of text data that is pre-processed using Hadoop and uses 4 terabytes of on-disk storage.  What makes Watson unique is its ability to process questions in realtime assigning confidence levels to its answers.  While Watson's not necessarily true machine intelligence, Watson does a good job of demonstrating how computers can complement human intelligence.  

Stephen Baker, former writer at BusinessWeek, was on hand observing the team and has written Final Jeopardy to chronicle IBM's efforts.  The book was published before Watson's appearance on Jeopardy and then finished in the days that followed on.  I did a short Q&A interview with author Stephen Baker to get his take on this project.

Q. How did you get involved in Final Jeopardy

I had finished The Numerati and was back at BusinessWeek, looking for the next book project. BusinessWeek was in the process of dying,  (Bloomberg bought the remains) and I had requested to be let go in the transition. A few weeks before that came, I was having lunch at IBM and heard about the Watson project. It seemed like a dream for me: a story to tell with a championship match at the end, and really interesting computer issues to boot. My only fear was that some other writer must already be writing the book. I was enormously relieved when I found this wasn't true. 

Q. What was the biggest surprise in covering this story?  

That computer scientists can be so utterly captivated by language. You know, a lot of us divide the world into halves, the number people and the word people. I sometimes fall into this. But when you spend time with a team that's trying to train a machine to make sense of English, you see computer scientists dissecting the language with a precision that probably surpasses the most dedicated (and neurotic) English Phds at Ivy League schools. And what's especially interesting is that they cannot afford to focus on theory. They have to study the statistics of how we actually communicate--and then use them to program the computer.

Q. Given IBM's involvement were you able to tell the story you wanted to tell, or was there an approval process on what you wrote?  

I could write whatever I wanted. They didn't demand any pre-approval. (Jeopardy actually appeared more concerned about these issues, and I had to send them a long list of "facts" about Jeopardy that appeared in the book. No such issues with IBM. I think they had confidence in the machine, and even if it lost in the final match, which was always a concern, readers would see a team at IBM taking computing to a new level.

Q. Cynics might argue that Watson's ability to deal with Jeopardy questions is really little more than a parlor trick, akin to old school interactive fiction games like Infocom's Zork or Hitchhiker's Guide to the Galaxy and not a true measure of intelligence or perhaps not even useful.  What's your perspective on this?  

Look, the Jeopardy game was a contrivance, and IBM chose the game in part because it came with a national audience with millions of viewers. That much is given. What's more, you could argue that it is not a test of intelligence, since the machine doesn't really understand the answers it's bringing back, and cannot draw conclusions from them. But I'd say to look at the results. IBM's computers struggled four years ago to answer much more ordinary natural-language questions in annual competitions. Their machine got about one of three right, and they were among the top performers. Building a Jeopardy machine was a huge advance in the domain of question-answering. As far as the usefulness, having machines "read" millions of documents and bring back answers, each one scored for its level of confidence, will be extremely useful--and even disruptive--in a number of industries. Whether or not the technology comes from IBM or its competitors, or whether the Watson platform itself will play a role, is still open to question.

Q. As I read "Final Jeopardy" I'm reminded occasionally of Tracy Kidder's 1981 book "Soul of a new machine."  Of course that's quite a long time ago now and the computer they build has less power to it than my iPhone 4.  But Data General was an underdog at that time and the Eagle project was essential for the company to survive.  In the case of "Final Jeopardy" how do you create drama around a company as established and successful as IBM? 

Most of the drama centered around whether the IBM team could take a dumb machine that played Jeoaprdy at the level of a fifth grader and turn it into a champion--and then whether or not it could actually win. So while Soul of a New Machine was a corporate drama, this was a little closer to sports. There was also some drama in the conflicts between IBM and Jeopardy, which was basically a tug of war between science and Hollywood.

Q. What was your schedule like to finish the book?

I got contract for the book on January 26, 2010. I agreed to deliver the first third to my editor by the end of June, the second third by the end of September, and the rest--minus the final chapter--by Nov. 7. During much of the time I was rewriting the beginning and reporting the end at the same time. All of those chapters went into production in early December. I reported on the final match on Jan. 14 and wrote the final chapter over the following weekend. The partial ebook came out on Jan 26, 2011, one year to the day after receiving the contract. So it was a quick turnaround. I would expect that schedules like that will become the norm. The book industry has to speed up. 

Q. How did you feel about releasing the eBook version on Amazon before the final chapter was finished?  

I was happy to release the ebook early. It was new, and it wasn't seamless. Some of the people who bought the partial ebook didn't get the final chapter until a few days after the match. But I would imagine that those who read through Chapter 10 before the match might have enjoyed the show more, since they knew the cast of characters--including the computer. What's more, I think more books are going to be published this way, in dribs and drabs. So it was nice to be the first.  

Zack Urlocker is Chief Operating Officer at Zendesk, a cloud-based help desk provider.  He was previously the Executive Vice President of Products at MySQL where he was responsible for Engineering and Marketing and helped grow the company to $100 million in revenue.  Urlocker is an investor, advisor and board member to several software companies. 


Behind the Scenes at a Venture Capital Firm

Ventures

Last fall, before I joined Zendesk, I took a role as an Executive-in-Residence at Scale Venture Partners. A lot of people asked me about this, so I've written an article at GigaOm that describes my thought process and what I ended up working on.

While there are as many variations on the EIR position as there are venture firms, there are two flavors, generally speaking: Entrepreneur-in-Residence and Executive-in-Residence. Most firms have some experience with Entrepreneur-in-Residence programs. Essentially, they give office space, coffee and food to a proven entrepreneur so he or she can spend a few months researching or prototyping a new product or service...

I’m not the inventor type, and I didn’t want to just “hang out” at a venture firm to look at their portfolio companies, so I proposed doing a specific research assignment with Scale Venture Partners. Scale typically invests in late-stage Series B or Series C companies, which made it a good fit. I am good at scaling companies, but I don’t know that I’m any better at predicting which Series A investments will thrive than anyone else.

The key area of my research was to analyze some specific developments around Software-as-a-Service (SaaS), big data and NoSQL. This entailed studying the technologies in this area, understanding the optimal use cases and speaking to a broad range of customers and prospects to see what was actually happening in the marketplace and what patterns were starting to emerge. I also worked with the senior partners at Scale to determine how to keep them up-to-date with my findings and how the results would fit into their overall software investment strategy. The important takeaway was that a venture firm is not a research house. At the end of the day, they would measure the success of this effort by whether it helped them make better investments.

While I could have done my research on my own, it was helpful to have an office to go to, access to research materials and introductions from the Venture partners to companies that were using some of the new technologies. While I was primarily focused on pursuing my research, I also gave the investors my perspective on a couple of portfolio companies.

Working as an EIR was one of the most interesting projects I've done.  While it was a short, concentrated time, it exposed me to some new ways of thinking about managing the growth of a software company and how to think like an investor.  The contacts I made were also invaluable.

You can read the full article over at GigaOm or a slightly expanded version at Scale Venture Partners' site.  The full version also includes some tips for those who are thinking about an EIR role and how to determine the best match with your own needs.  

Zack Urlocker is Chief Operating Officer at Zendesk, a cloud-based help desk provider.  He was previously the Executive Vice President of Products at MySQL where he was responsible for Engineering and Marketing and helped grow the company to $100 million in revenue.  Urlocker is an investor, advisor and board member to several software companies.  He's also an occasional marathon runner and blues guitarist.