Tech trends and business ideas

All things that motivate entrepreneurs

Monday, April 30, 2007 some idea !

Some people have an unintended, truly honest way to win fans - by their innate brilliance and simplicity. Twice before - here and here I have openly admired the blog posts of Vinnie Mirchandani, the Deal Architect. Here’s yet another gem from him, a nice, ingenuous tip for airlines to lock in their customers or may be a new business model for crafty entrepreneurs (Travel portals) – to run the process without having to own airplanes, no need to issue tickets – just monthly statements.

Excerpts –

“Know of any other industry which forces long term customers (and routine ones) to make decisions at each transaction level? And spends tons of money trying to optimize at the transaction level versus holistic customer revenue - and is successful only a small part of the time? Breaks most rules of CRM and building customer loyalty.

Ten years ago I sent Delta a simple proposal. Bill me 10c a mile for 100,000 miles each year (and allow me to top off or carry forward). Send me a monthly statement based on usage. No tickets necessary. I would use the statement for client billings and internal accounting. If I choose to upgrade on certain segments charge me 20c a mile. Simplify your systems. Reduce head count in yield management and reservations. Lock me in so I don't comparison shop every time.”

Find the full post here. Do tell me what do you think of it.

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Monday, April 23, 2007

Vinod Khosla bets on with clean fuel tech

I had earlier affirmed in my post here how clean fuel technologies are becoming a rage with VCs. That was about VC Vinod Khosla’s investment as a part of $60 m VC round in Celunol, a cellulosic ethanol technology venture based out of Cambridge, Mass and his exit later when Celunol was acquired by biotech company Diversa for $ 182 m.

Now Larry Fisher of NYT reports that Vinod is backing yet another ethanol venture LanzaTech, based in Auckland, Newzealand – that produces ethanol from an untapped source – carbon monoxide gas.

As per report, LanzaTech had developed a fermentation process in which bacteria consume carbon monoxide and produce ethanol. Ethanol can be used as an alternative fuel or an octane-boosting, pollution-reducing additive to gasoline.

Sean Simpson, LanzaTech’s co-founder and chief scientific officer, is reported to have said the company would use the $3.5 million investment from the venture firm, Khosla Ventures, to establish a pilot plant and perform the engineering work to prepare for commercial-scale ethanol production.

Vinod Khosla, a co-founder of Sun Microsystems who formed Khosla Ventures in 2004, has invested in more than a dozen start-ups involved in “clean fuel” technologies. It seems LanzaTech stood out from the scores of proposals he sees each day for both its ability to scale up to industrial proportions and the credibility of the company’s founding scientists.

Regardless of how it is made or what it is made from, ethanol as a fuel has its detractors. Some plastics and rubber materials commonly used in fuel lines are degraded by ethanol, and depending on the blend of ethanol and gasoline, ethanol may raise levels of nitrogen oxides produced. Ethanol also contains less energy than an equivalent amount of gasoline, so mileage may be reduced.
But then for Vinod Khosla, it's still a weapon to use in the all out war on oil.

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Thursday, April 19, 2007

Boy, do I have a sixth sense….

Hey, hey, hey….get a load o’ this…! Just last night did I make this post on the changing IT services landscape, I am looking at this article in Economic Times today. [it's US time shown here and I am writing it from India when it's 11:08 a.m, April 20]

Infosys planning new biz models….” screams the title. Hmmm, what would you call that ? Intuition ? Horse sense ? Just don’t bother, may be it’s just an incredible coincidence. I would’ve rather gone to town with it, but instinct tells me not to let go off the opportunity to display my rare brand of modesty for a change :)

My previous post had touched upon the need to rethink IT service delivery models since large corporations are increasingly micro straining their IT needs with a fine filter. Threat from smaller SaaS vendors and the capability of large clients to break down large scale requirements into modules for assigning to multiple vendors have all been cited as reasons in there. ISVs have been of late, feeling the heat despite co-location companies, managed services providers, systems integrators, and consultants all sense an opportunity to help them build the data center and hosting infrastructure they need to deliver their applications through a web-based services model, as well as advise them on their pricing, billing, and go-to-market strategy.

The latest article is a rant from Nandan Nilekani of Infosys that talent crunch and high attrition rates in the domestic IT industry has prompted Infosys to look at creating new business models that are not all that people-intensive

Quote –

We are looking at creating other business models as not all business models need to be people-intensive. But the new models will take some time to evolve. These could be more about products and price points and not necessarily the number of people you use”, said chief executive officer and managing director of Infosys Nandan Nilekani.

The $3 billion technology services company employs over 64,000 people worldwide. Responding to a query on whether the company would continue to hire employees at a scorching pace, Nilakeni said that Infosys will look at other models that are not people intensive. “We will leverage on our new assets like brand, intellectual property, customers, technology and presence”, he said.
IT companies in India directly employ around 1.3 million people and the number is expected to touch 2.6 million in the next three to four years. However, over the couple of years, domestic IT firms have been facing s talent crunch. Compounded with this has been the problem of high attrition — estimated at around 30%.
According to a Nasscom-McKinsey report on IT and BPO sector (2005), only around 25% of technical gradutaes and 10-15% of general college graduates are suitable for employment in off shore IT and BPO industries. India needs around 2.3 million IT/BPO workforce by 2010 to retain its current market share.
End -----

A couple of more coincidences (oh boy, I hate that word) and I will switch my profession to that of full time fortune teller. Intend to restrict my services only to hedge funds / Investment Banks that may come sniffing for new strategies to beat the market :)

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The changing IT services landscape

I had great fun watching the live telecast of announcement of financial results by Infosys and TCS. Being a shareholder in both these companies and in a few other promising companies in the Indian IT sector that give 25% plus y-o-y, I have little to complain on their efficient use of my capital.

As a long term investor, I am not bothered by cyclical factors like the weakening $$ or interest rate hardening. Anyway these companies have hedged their $$ exposures in the short term and the impact cost on their margins can only be negligible. Well, in case if the trajectory persists, they may have to re-price their offerings and I am not much worried about their loss of competitive edge since still it would leave their clients with significant cost and efficiency arbitrage. Even the competition has large presence in India, hence the problem is not just theirs. Interest rates matter much less since these are mostly zero debt companies with sufficient cash hoard (apparently to finance acquisitions) at least in the short term.

But something else worries me more.

I often get to hear CIOs often mouthing the word ROI than CFOs. They are looking for solutions more than technology (which is the way it should be). They say they simply can’t afford large scale, highly customized and costly IT implementations and services. Enterprise solutions are becoming all the more modular, pre-integrated, pre-tested pre-assembled and validated at the Vendor’s side before implementation. Not much different from custom orders given to a carpenter. Customers engage multiple vendors to bid on smaller projects that can be easily deployed, managed and measured. The IT partners are also expected to provide best practices, 24x7 service and at times even to give a better insight into the customers’ business model itself – not as a consulting assignment, for free. These ancillaries have become the differentiators in the otherwise commoditized IT services market place.

Add to it the long term threat posed by SaaS to the traditional revenue streams of these IT services companies. If clients are no longer rolling out large CRM or ERP applications on-premise and are instead accessing them from a remote center via a web interface, won't that bypass the role of third party systems integration and applications management vendors altogether?

Under SaaS, clients use the internet to access remotely-hosted applications, which are delivered on a one-to-many basis. SaaS specialists such as, NetSuite, and RightNow, which all develop and host web-based CRM and ERP systems are enjoying strong growth, driven by the continued acceleration in speed of WAN bandwidth, and diminishing user concerns over security and reliability.

SaaS will sound familiar to anyone who lived through the Application Service Provider hype of the late 90s. However, the big difference is that ASPs were basically pushing hosted versions of traditional client-server applications on a one-to-one basis, whereas SaaS applications tend to be multi-tenant, are designed for internet delivery from the outset, and many utilize genuine usage-based pricing models.

Some say that the prospect of bandwidth carriers requiring SAAS companies to pay a premium for faster networks could slow the general adoption of SAAS. This is because it will require SAAS companies to rethink how much they are willing to pay to deliver their services, as well as how much to charge customers. But the flip side is that if someone went to a customer and said ”we're going to reduce your access to applications over the Internet because you're not paying us enough”, they would switch providers so fast it would make their head spin. I find it extremely hard to believe there won't be some [carrier] who says, “I’m the one you don’t have to pay for.”

How the small SaaS providers differ from the big consulting organizations is that they are focused on doing lots of short integration projects, whereas an Infosys or a TCS or Accenture wants to send in a truckload of consultants into its clients for 18 or 24 months at a time. If the employees are not on a project, it inflates their bench strength that hits their bottomlines hard.

I don’t want to put out a `sell’, but many soon will if a quick rethinking of IT service delivery models do not emerge out of the woodwork to meet the ever evolving set of challenges.

A comprehensive perspective can be found here and here.


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Wednesday, April 18, 2007

How did you do it ?

Recently I found a great article in Matt Marshall’s Venture Beat, a topical news and feature resource for entrepreneurs and VCs alike.

A simple but effective chronicling of the experience in building a good startup team by Jaideep Singh, a VC with Clearstone Ventures and now co-founder of Spock (in beta now), a people search engine [ “Creating a killer team” ] is a must read for most of the aspiring entrepreneurs in India. You may not have the resources ( $ 1 million plonked during concept stage and $ 9 MM before wider adoption ) of a VC & entrepreneur that Jaideep happens to be, but going by the rigors I am quite convinced that it's just one of the things.

Sample a few great insights Jaideep had in that article –

I have noticed that in technology we’re surrounded by very smart people. IQ is virtually a commodity. However, there are those who are analysts – can ask 1 million questions, and be skeptical of everything; then there are doers, people who apply their intellect and resourcefulness to find solutions. Find those people and keep them close to you. Stay a 100 miles away from the former”. Well said, Jaideep.

“In a matter of 60 days, we had contacted over 200 engineers, spoken to about a 100, interviewed 40, and got 7 good guys who very interested”. Hmmm…you thought you couldn't find quality engineering talent in India ? It isn't much different even in Sand Hill road, dude !

Vision and concept aside, Hongche, like most engineers who aspire to join startups, realized that the risk of not joining a startup was way greater than being a cog in the wheel at a large company”. How many of you would repeat that ?

And then Jaideep has also not forgotten to clip some valuable lessons out of his experience, a few of which I liked very much. Excerpts -

Age is not a factor but motivation is. People who don’t work hard, will never be the key drivers in your startup. Perfection comes from hard work.”

There are those who look for problems and those who look for solutions. This becomes clear in interviews very quickly. Hire people who look for solutions.”

Grow a thick skin for rejection.”

How did you like it ? If it had been Déjà vu, do tell me about it !

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Friday, April 06, 2007

The outsourcing contrasts

I was reading this nice post by Shantanu Bhagwat, which is in fact a good compilation of varied perspectives on oustsourcing by people across the developing world. Mostly all of them acknowledge it as a real benefit and sensible economics to companies that offshore jobs overseas which far outweigh the economic costs of job losses caused by it in the home countries.

A quote from this article in International Herald Tribune by Anand Giridharadas.

“There is no job that is done in Cisco that a guy in India can’t do,” said Samu Devarajan, a Cisco managing director in Bangalore. “If this theater becomes successful and grows the way we want it to grow, I see no reason why the CEO of Cisco couldn’t sit in India.”

It symbolises the level of confidence Indian firms have on their competence. The article gives several other instances where high end jobs have started flowing to India.

“Boeing and Airbus now employ hundreds of Indians on critical tasks, including the design of next-generation cockpits and systems to prevent airborne collisions. For about one-fifth the cost, investment banks like Morgan Stanley are hiring Indians to analyze U.S. stocks, a job that can pay $200,000 a year or more on Wall Street” etc.

Shantanu’s post as well cites several other articles on globalization and off-shoring. As Presidential election approaches in the US, the shrill gets louder en route to 1600, Pennsylvania Avenue.

I think it could do with a little contrast that you’d find in my previous post.

Can’t agree more. What do you think ?

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