Paddy Srinivasan's WebLog

One of my favorite sports writers - Bill Simmons of ESPN has op-ed his weekly column this week with Malcom Gladwell of “Blink” and “Tipping Point” fame.

http://sports.espn.go.com/espn/page2/story?page=simmons/060302

they talk about why some athletes perform the best when they are in their contract year - well thats understandable but usually they dont live up to their fat contracts the first year of their signings - thats understandable too- they jsut dont work that hard. What is interesting is the parallel drawn to regular people - if everyone gives their best at everything we do, then we will have a different world - it doesnt happen- we prioritize, laziness kicks in , 2 year olds distract us and the list goes on and on- as Malcom suggests do we really not prepare our best every time with an inherent fear of coming up short ? If we dont prepare our best, we can always use the excuse of “hey , had I put my mind to this, I would have aced this - its no big deal” - but if we put in our best and failed it would mean that we are plain stupid or inept at the task. As they say - “at the end of it all - we all will have a long list of excuses or a list of accomplishments”

Gladwell’s blog is here -> http://gladwell.typepad.com

Another interesting topic here is the “Jake Plummer” phenomenon- where do we draw teh line between an individual and a system. Tom Friedman wrote a colum on NY Times recently to the same effect in reference to Saddam and Iraq. Someone is going to make some cash by researching this one day !

I am not a financial analyst, I don’t play one on TV and neither did I stay in Holiday inn express last night but I would like to ponder on the valuation of a certain business model.  There is so much clamoring for a piece of the advertising pie that I decided to check out what this hoopla I all about. I am not claiming that all these #s are totally accurate. They are back of the envelope calculations at best and take it for what its worth ( close to nothing ).

WW total spend on Advertising ( online + print+ media+ hoardings + etc ) = $500 Billion

Online advertising today = ( less than ) $20 Bil

This segment is projected to grow immensely

Say in 5 years Online advertising = ( less than ) $100 Bil ( 20% of overall advertising ) – BEST case

Google market share today is about 30 %  - lets say it grown in the best case to about 40% which will put their share to 40 Billion

Margins in content publishing business will reach an equilibrium of 20% - even at a high end say it is at 30% -> GOOG’s margin is 12 Bil

For arguments sake, I am going to assume that google doesn’t really get much traction on other revenue streams other than advertising ( search, placement, display etc )

Let’s take an earnings multiple of 15-20X considering the risk, potential upside outside of this core business etc -> 180- 240Bil market cap – today GOOG’s market cap was 138 – some room for growth huh?  

Supporting evidence

Ever heard of the "Long Tail of the market" ? This phenom is ringing bells recenlty in discussions around the residual value of content aggregation businesses and how content providers like goog derive value etc. I found this useful in thinking about the business model of how economics in emerging market software would look. It is a simple Zipfian distribution if you think about it. the essence of this model is that Rank * Frequency = Constant which essentially means that the perpetuity of the business model tends towards infinity and if you plot it along a logarithimically, it will turn out to be a straight line. This is important in the emerging markets setting? it is relevant if you think about how the emerging market opportunties are essentially a compositio of several long tails. Hence one has to keep distribution, sales and maintenance costs to an absolute minimum to derive the maximum benefits of scale. Chris Anderson of Wired is writing a book on this topic and has an excellent blog on this topic.

Guy Kawasaki writes about the mistakes Entrepreneurs usually make

Here are a couple I thought were funny -

“All we have to do is get 1% of the market.”
This is not isolated to startups. We see it every day in valuating new business opportunties. A corollary of this is how almost everyone wants just 1% of the chinese population for their consumer product !!

“Key employees are set to join us as soon as we get funded.”

Wish it was this easy- IMHO, the most difficult thing ( next to getting customers ) is to get great people. I have a tough time hiring at a great group at microsoft - cant imagine how hard it might be to hire at a start up

1. Writing is much harder than "thinking"
2. I have a much more acute problem of attention disorder than my friends and my wife give me grief on
3. MS Word can be "very" annoying
4. "Search" technologies are in their infancy
5. It *does* rain a lot in Seattle
6. I sure can drink a lot of coffee
7. Creative writers deserve a hefty paycheck
8. Writer's "block" is real and could last weeks :)
9. Writing is a creative art form
10. I love writing  !!!

Here is a quick list of books that I am either currently reading or have just read in the last 6 months or so:

1. The Next Global Stage: Kenichi Ohmae
2. The 86% solution
3. Blue Ocean Strategies
4. The World is Flat
5. The Competitive advantage of Nations- Michael Porter - old classic
6. Freakonomics
7. Das Kapital - Carl MArx ( dont ask me why I read this )
8. The New Silk Route - coming :)

I am doing some research on how RSS can be used in non consumer scenarios. For ex, Can RSS be used to create an alarm management platform in a process control system or can it be used to deliver information to financial services clients from content providers. Yes, you can do all the above usign native technolgies but RSS makes it easy and interoperable. A RSS platform should also be able to provide other platform services like archiving,searching, security, etc. It is fascinating once you start thinking about RSS above and beyond the standard consumer scnearios where it is used for reading news headlines and blogs. It also got me thinking about a variety of other technolgies like VOIP and how companies can use it as a strategic advantage rather than jsut for cost reasons. As with many other technologies, voip is primarily used as a cost reduction mechanism and not many are realizing its potential to build a sustainable edge on competition. Same goes for speech software. Call center IVR apps use it as a way to reduce staffing costs. and did you know that there is a venture fund exclusively for RSS based companies for $100 mil ? Go figure !

http://laptop.media.mit.edu/faq.html 

From the Economist - "The idea is as audacious as it noble: provide a personal laptop computer to every schoolchild—particularly in the poorest parts of the world. The first step to making that happen is whittling the price down to $100. And that is the goal of a group of American techno-gurus led by Nicholas Negroponte, the founder of the fabled MIT Media Lab. When he unveiled the idea at the World Economic Forum in January it seemed wildly ambitious. But surprisingly, it is starting to become a reality. Mr Negroponte plans to display the first prototype in November at a UN summit. Five countries—China, Brazil, Egypt, Thailand and South Africa—have said they will buy over 1m units each. Production is due to start in late 2006"

The altruistic goal of this laptop notwithstanding, the economics of such an undertaking puzzles me. Negroponte has to ship about 150 Million of these puppies to make ends meet - truly astounding by any yardstick. How in the world is he going to find 150 Million dual mode LCD displays, same # of processors and other stuff. What about distribution and support ? Maybe things will fall into place like it did for all those companies in the late 90's whose business plans called for just 1% of the market as an exit strategy :)

Career Potential Index ( CPI ) = N ( const - Natural Intelligence [0-1]) + d( learning capacity) /dt + d( at the right place at right time ) /dt - ∫ ( Integral of all Career limiting moves )

For Example, the equation for someone who is brilliant but with a habit of putting his foot in his mouth will be
CPI = 0.8 + 0.8+ 0.3 – 1.5 => CPI = 0.4 ( LOW becos of the integral of the career limiting moves )

 For Example, the equation for someone who is average but with great people skills will be
CPI = 0.5 + 0.6+ 0.5 – 0.5 => CPI = 1.0 ( HIGH )

Does it make sense ?  

The book I am reading right now is called "Blue Ocean Strategies". It talks about how companies should focus on developing new markets and fundamentally change the game rather than focus its energy on "Red Oceans" which denotes existing market place where competitors lurk. Though I enjoyed reading hte book, the strategy is easier to theorize than to implement. It seems like there are so many strategies that use Southwest Airlines as an example. This reminds me of all the learnings people profess from successul leaders like Jack Welch or Lee Iacoca and how one can follow their foot steps to being the CEO of GE. Though one can pick up a few things from these leaders, there is a reason why you simply cant duplicate everything these successfull companies or leaders do. This reminds me of a story I heard about Toyota opening up one of their large factories in Japan for an organized everyday tour in the late 70s. Critics and "experts" were all over them and said it was stupid to display in public their core competence of process effeciencies. Toyota's response was classic - they said that though other car manufacturers were welcome to copy, they felt confident that no one could replicate all the steps in exactly the same manner every single day. Lo and behold, almost 30 years later, Toyota is still regarded as an innovator in manufacturing and everyone else is busy trying to copy them :)

In the wake of recent discussions of google vs Microsoft, I wonder how this concept of Blue Ocean strategy can be applied in this context. More on that later ....

good article on business week on retaining talent. http://www.businessweek.com/magazine/content/05_41/b3954001.htm 

They use Schlumberger as the primary example for good practices in encouraging a global workforce. I have worked with SLB for a long time and I have been truly impressed with the quality of the management and their diversity. It is one of those rare companies where international assignments are not only encouraged but also a requisite element of moving up the chain.

I am working on a book called "the New Silk Route - Software for Emerging Economies". This book is intended to raise the awareness of the market opportunity for software companies in the emerging markets. The book will serve as a catalyst to companies that are formulating strategies to enter this market. This book deals with a unique topic with a wide appeal and with an interesting fusion of technology, strategy and history.
I have stated posting draft chapters of the book at http://newsilkroute.blogspot.com . I am looking for feedback and volunteers who can help refine my thinking . Please drop me a note if you are interested !

-paddy

http://hbswk.hbs.edu/item.jhtml?id=4834&t=technology

The model shows that Microsoft can use piracy as an effective tool to price discriminate, and that piracy may even result in higher profits to Microsoft!

Harnessing demand-side learning more efficiently is not sufficient for Linux to win the competitive battle against Windows.