Research 2.0

Tuesday, November 28, 2006

We've Moved!

In addition to consolidating our URL we are going to WordPress after evaluating it side by side with Blogger. Come on over!

Thursday, November 23, 2006

Virtual Amazon?

Bezos has created some buzz and head scratching with his infrastructure initiatives lately. Last year we explored and wrote about A9 and Mechanical Turk which have not really taken the world by storm. So it is with some trepidation that investors greet initiatives like EC2 and S3. However it's hard to believe that Bezos is just being unfocused or distracted into a sideline business as the CEO of a major company.

We've been provoked by the idea that Amazon can go much further and offer a very complete array of outsourced services that might represent the kind of turn-key virtualized company often conceived and seldom realized.

Despite the efforts of eBay, Yahoo and Google it's still not very easy to instantiate a robust online business of any sort, digital or physical.

To get an inkling and have a little fun we decided to build Our Bookstore using Amazon's new store tool. The point of it is to get thinking about what Amazon could do if they really deliver on the vision of being able to offer a complete solution for a business. Although this simple example uses existing Amazon products it could be extended and generalized easily enough to support custom products or even just designs which are then sourced from global suppliers (think Alibaba), delivered to Amazon and ultimately shipped to end customers.

There's an open question about the shape of the big wave of innovation and investment around virtualization and open source. One possibility is that it will take the form of typical business process outsourcing but with much more disruptive price points and cycle times. If this is true and Amazon can execute, it would provide a real opportunity for them.

Right now it's mostly rhetoric so we're going to push on EC2, S3 and their other services with some force and see what we find. Combined with some margin analysis it will give us a foundation for measuring their progress and determining whether or not it will make a difference for the company and investors.

Thursday, November 16, 2006

Beginning to revisit BEA.

We haven’t covered BEA for many years but did follow them pretty closely during their ascendancy back in the 1999’s. Ironically their very success made them somewhat uninteresting to investors for a few years because they reached $1B in revenues so fast they were left with few meaningful growth prospects and had to work hard to replicate the same level of success each year.

Recently we just started to become a bit more interested in the company and started to look at them more closely again. They company just reported and the results disappointed most of the analysts who have been recommending the stock the last few quarters.

We’ve been out of the loop for some time so all the minutiae are lost on us. From our point of view the results and near-term guidance was pretty much inline with what we would have expected. BEA is a fairly large and complicated company with enough moving parts to defy easy analysis. A few million dollars either way should not make much of a difference.

During their call management talked about SOA moving out of the experimental phase and into mainstream enterprise deployments. We agree that SOA is au courant but disagree that this is a recent fact. We would observe that mainstream market adoption started a few quarters ago in our view and has probably been driving BEA results since then.

Claims about the business of SOA being driven by the business rather than I/T seem doubtful to us. BEA has fielded a BPM product that might be touching there but we have yet to look at it in detail.

Analysts are out today with downgrades citing a range of reasons including the point that BEA is losing market share to Oracle and IBM. We can’t refute the claim but we don’t believe it. BEA does have a challenge in that customers have limited resources and Oracle has forced many of them to allocate a significant portion to navigating the Fusion path to reach some converged application architecture. IBM, Oracle and BEA have all failed to attract new generations Web 2.0 technology developers into their fold.

They company spent quite a bit of time talking about their new generation products like SOA360 and Workspace360. They are also focused on creating fine-grained components of their functional products that sounds sensible. The idea of unifying endeavors of development in Eclipse, business process management and application management with OpenView is interesting but hard to visualize without more concrete information and code.

Management touted new technology (Guardian) that sounds very similar to the IBM autonomic computing initiative which as been around for quite some time with limited impact.

One emerging thing that is interesting is the increasing SOA and related software content in the network layers. BEA talked about some deals and has been working in the communication area for some time. Their micro service architecture is said to allow very small implementations of SOA to be driven all the way to the edges of intelligent networks.

So what’s for real in this network infrastructure area? Does it help explain why Oracle bought Portal Software? We know SIP is becoming real and creating new disruptive applications. Plenty of work is going on to drive 3G and IPTV application networks.

We believe software infrastructure that reaches out from behind a virtualized infrastructure behind the firewall to deliver service-enabled applications out to devices at the edge of the network will be a very promising place to be. We just can’t yet say that what BEA doing is going to really get them there.

So what is BEA worth? We took the time to punch some rough numbers into our long-term valuation model and came out to about where the stock is trading now, $14. We will publish the model later on but our assumptions included a 15% long-term growth rate, operating margins of 12-15%, a 30x earnings multiple and a 15% discount rate.

In conclusion we can see people got ahead of themselves on BEA, which seems like a company that only just now is hinting at some interesting things. Corporate portals and the Plumtree acquisition certainly did nothing for us. We have yet to delve into many of the newer products but our nature is skeptical. For us this is something that could be an interesting situation a few months from now depending on what the company does.

So we would advise people to focus on other things now and stay tuned for more informa-tion on BEA as we figure it out. Our best bet on the M&A side is that HP buys the company and puts Alfred in charge of their overall software business much as IBM has done with Steve Mills. (HP are you listening?)

Wednesday, November 08, 2006

Powerset as Bubble Indicator?

So all it takes to grab headlines is a bold claim that you are going to be the next Google by providing a better search and have raised $10M?

Powerset has been featured in notable technology blogs and profiled by reporters. Without going into great detail they talk about looking at words in context to get superior search results.

Although I've commented on a few of these blogs already since this situation reminds me so vividly of the Zitel fiasco in 1999 I had to post it here. This was a company also in "stealth mode" that supposedly had a secret powerful technology invented by a PhD in China that could solve the Y2K problem easily in all cases. They promoted the solution (although it didn't exist) and even developed the idea into an trailer-based implementation plan so they could drive their specially-equipped datacenter to parking lots outside of desperate companies who would pay them a ton of money to fix their crisis. The stock zoomed and created many a fool as it turned into a poof and went to zero. We were amazed at how many people took it seriously.

Powerset isn't a public company and it's only going to lose the $10M it has raised so far. But still 22% of a poll being conducted on GigaOM thinks they will "reset Google" in the market.

I'm not sure we are in a real bubble but there is certainly a healthy amount of froth in the market place with respect to valuations. Silicon Valley is probably in bubble mode now but the public markets still seem somewhat grounded. If Powerset gets acquired for anything more than their remaining cash you know we are getting into some trouble...

Thursday, November 02, 2006

VC goes lightweight...FINALLY!

Charles River announced a new program to give $250K venture loans to entreneurs who send them an email (quickstart@crv.com) with their idea.

We give them credit for recognizing that many Venture Capital firms have amassed so much capital that they look more like Private Equity firms. Angel investors abound they can be hard to work with and demand a reasonable chunk of equity in exchange for a small investment.

This area has been championed by Paul Graham and his crew at Y Combinator but this move by Charles River certainly ups the ante and investment resources for building companies fast with a minimum of friction.

Overall the terms and conditions look pretty fair. Complete information on the program and the ability to apply can be found at the Charles River Website.

Tuesday, October 31, 2006

Virtual STDs

A recent BBC article brings to light some of the more covert and malicious dangers of social networking and the YouTube phenomenon. The increasing popularity of video sharing destinations on the Internet have provided crackers (as an ex-software engineer, I refuse to use the word "hacker" to denote black-hat activities) and unscrupulous marketers the opportunity to proliferate malicious video codecs that install ad-ware and other viruses and trojans, often without providing any of the actual expected functionality.

This highlights the underbelly of Metcalfe's law, which states that the value (danger?) of a network is proportional to the square of the number of users of the system (n2).

So remember, when watching an online video passed on to you from a friend, you have now videoed with everyone that they have ever videoed with. Erstwhile online Johns had best be on their guard.

Tuesday, October 24, 2006

Calendar 2.0?

We're tired of new calendars. Each one coming with a slightly different assortment of features and improved eye candy. When we ask about advanced functions and smart calendar behavior we are told they are all "tough use cases" and not planned in any future releases.

A calendar knows where I am going. It's easy to map it to my address book by location. It's easy to transfer a travel reservation automatically. It's not hard to deliver time and location-aware advertising to me based on my interests and plans.

Hopefully we are moving to a stage where developers will focus on adding these functions to existing calendar interfaces, be they Google Calendar, Outlook, iCal or what have you.

There's plenty of buzz around Scrybe which does indeed look like a nice implementation of a number of personal applications. While it is worth taking a look at and considering, the issue most people have now is that they are not really looking to ditch their existing calendar. Adding advanced functions in an integrated and seamless fashion seems like a way to win users.

We moved to Google Calendar some time ago for basic features and easy sharing. There's no offline capability and data import/export is a drag. These are problems we think will be solved soon. Generally speaking there is still too much focus on building the "next thing" and not enough on making what we have work much better by implementing those "tough use cases."