DRM ain't cool

Along with overlooking huge credit card debt and indulging in impulsive shopping, ticking off Steve Jobs is generally included on the Big List of Things Not to Do. That holds true for anyone from programmers to parking attendants, but especially for companies in the business of distributing digital entertainment, seeing as Apple Inc owns iTunes and iTunes owns the market. But suddenly these days, in a display of either intestinal fortitude or foolhardy bravado, people are starting to say no to Steve Jobs.

First it was UMG that pried loose from iTune stable. Today, it's NBC Universal bolting the barn, apparently feeling frisky about the prospects for Hulu, the video service it has in the works with News Corp.

Given that iPhone was set free recently from AT&T stranglehold by a 17 year old hacker, wonder why the breed is missing out on an opportunity to break into Apple’s DRM blocks that prevent iTune downloads in and out of devices other than iPods.

Hello hackers, where the hell are you? Hurry up, you’ve got a good thing going !

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Another way to get that new car

So you now know AT&T lock on iPhone can be picked.

George Hotz, the 17 year old that hacked it open, has traded his unlocked iphone for a cool Nissan 350z (costs between $ 35 - $40k ). This is after rejecting several million $ bids that he got in ebay from sources he could not verify.

Cool way to get a cool car ? Parents would be mighty pleased to pay its insurance…..

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Now don’t hurry and get into the “business” of unlocking iPhones… You could well be in for more trouble than cars…

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Using iPhone minus AT&T

Hackers love freedom; and are most turned on by any cool gadget that is restrictive. iPhone seems to be their latest object of dissection since Apple has a two year service contract with AT&T that binds its iPhone users to its network. Their efforts reached a milestone on Thursday when George Hotz, a 17-year-old from New Jersey, posted a tricky but apparently effective method of getting iPhone to work on compatible systems other than AT&T like T-Mobile in the US or a variety of overseas carriers.

Taking off on that, the folks at iPhoneSimFree.com have devised a method that leaves virtually all the iPhone's features intact (except for visual voicemail) and adds some choices to the menu. Engadget watched a demo of the entire process and concluded, "We can confirm with 100% certainty that iPhoneSIMfree.com's software solution completely SIM unlocks the iPhone, is restore-resistant, and should make the iPhone fully functional for users outside of the U.S." They plan to "sell" licenses for their key – so next time someone wants to gifts you an iPhone, don't say `no' if you are living outside the US ; just tell them to load in the "patch"...!

AT&T is certainly not amused. How about Steve Jobs? He might pretend ire but will have to struggle hard to conceal his joy over the prospect of increased iPhone sales even in non AT&T serviced territories.

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Now, wait a minute.... What will be FSJ’s take on this AT&T upstage by third parties ? I go that FSJ is quite an in-the-face type…loves all freetards and hates anything that shuts itself out (calls Microsoft "Beastmaster"). I can already hear him saying "let AT&T go to hell" !
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Update : The frigtard did react. Here.

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Shake-up in Music street

Apple has been comfortably camped at the peak of the online music mountain for so long now that it may have tuned out the noise from the climbers struggling below. But the competing expeditions are getting more formidable. Today, MTV, RealNetworks and Verizon announced a joint venture aimed at loosening the grip of the iTunes-iPod-iPhone party.

MTV is taking its Urge digital music store out of a futile partnership with Microsoft and merging it with RealNetworks' Rhapsody subscription service to form a new entity called Rhapsody America. Verizon will be the exclusive mobile carrier through its V CAST system. Urge's Michael Bloom will head the company, but Real will own 51% and contribute all the software assets. One nugget is that MTV will lend the JV $230 M.

So, can Rhapsody America's combination of retail sales, subscription service and mobile downloads (coming soon), all for multiple devices, pose a challenge to Apple? An uphill battle to be sure, but analysts are chipping in with suggestions. And Adario Strange writes, "The one Apple Achilles heel Rhapsody America is positioned to exploit is iTunes' lack of mobile phone downloads. Which means the next major announcement from Apple in the next two quarters will probably have something to do with wireless music downloads on the iPhone."

Will our mobile startup entrepreneurs take a leaf…?

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The cost spiral

When DLF buys out DCM Shriram Consolidated (DSCL) Mill land in Delhi for over Rs 16 b ($400 m) on Thursday, it will be the largest private sector land deal in the country and will give DLF access to about 38 acres of prime land, at a distance of just about 4-5 km from the capital’s central business district, Connaught Place.

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Interestingly, the company had bought about 25 acres of land next to the DSCL plot in 2005. DLF already has an in-principle approval to develop an IT SEZ on this land. Also, this will probably be the first integrated township of its kind, combining an IT SEZ with a massive housing supply for those working in the SEZ.

That brings us to the question of affordability.

The deal puts a cost of Rs.9,640 per sq.ft. This being an IT SEZ, with ample luxurious amenities, parking and open spaces, the cost of construction could be easily another 40%. That brings the total cost of ownership to Rs.13,500 per sq.ft. For a modest 1,000 sq.ft. apartment, the cost will be upwards of Rs.13.4 m. Now if a software engineer has to live and work here, how much will be his cost of ownership plus living in the lap of such luxury? If he has to afford that, how much will be his cost to the company?

Did you say labor arbitrage…? Talk of our IT vendors having to compete with IBM, Accenture, EDS, HP and the like… San Francisco pales in comparison.

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The great virtual hunt

Talking of ecosystems that breed competition…

The tech news word of the day is "virtualization," but there's nothing virtual about the big bucks that are changing hands. After introducing their stock to Wall Street yesterday, the folks at VMware, market leader in the software that allows one machine to run multiple operating systems, found themselves running a $19 billion company. The stock ended its first day up more than 70 percent, making it Silicon Valley's third-largest home-grown software company after Oracle and Adobe Systems.

But there was little time to celebrate, as hours later, a new competitor emerged. Citrix Systems, a leader in application delivery infrastructure, shelled out $500 million for Palo Alto's XenSource, an open-source server virtualization outfit. According to the press release, "This acquisition moves Citrix into adjacent server and desktop virtualization markets, expected by Citrix to grow to nearly $5 billion over the next four years."

But neither VMware nor Citrix has any time to waste. In a feeding frenzy like this, it's only a matter of time before the big shark from Redmond shows up - Microsoft has a virtualization product called Viridian in the works. That could make things a little awkward for Citrix and XenSource, both Microsoft partners. As research outfit the 451 Group told its clients, "The virtualization market now revolves around three players: market darling VMware; Citrix's combination of young blood and old money; and the (potential) threat of Microsoft's Viridian, slated to ship in Q3 2008. Both Citrix and VMware have a 12-month window of opportunity before Microsoft shows its full hand."

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Things can't get better (or worse?) than that... you agree...?

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Code is cracked

When I had first heard about the riddled San Jose Sephamore, the public art mystery message being flashed in a series of four changing symbols from atop the Adobe tower on Almaden Boulevard, I thought it’ll take a geeky teeny bopper with a lot of time and lot less worries in life to solve it. Who else can spend hours staring at a communication mode that uses moving flags or lights to send messages – especially if the reward is just bragging rights and an acknowledgment at its website?

Recently two guys -Bob Mayo, an out of job computer scientist together with Mark Snesurd, a chip designer had solved this mystery in a “classic way” as has been recognized by Ben Rubin, the New York artist who designed the project.

My reasoning was not entirely wrong. It helped that Bob Mayo, 47, had plenty of free time since his job as a computer scientist at Hewlett-Packard labs had ended, to spend snapping hours’ worth of patterns. The pair even thought of setting up an AM radio to pick up low-wattage broadcast from the building, but gave it up since the contraption would look more like a bomb.

Lesson learned - curiosity is priority….!

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LucidEra makes business sense

Yesterday, I figured out the venture pitch that had taken Peter Rip’s breath away. It’s LucidEra – a company that offers a web-based service that helps businesses collect and analyze data across their internal software systems to make them more efficient.

First I felt LucidEra is just another company in the somewhat crowded “business intelligence” industry. I grew curious. What was it that was so exceptional about this venture that had made an astute VC like Peter fall head over heels in love and leads a $15m round? All I could see was it was an on-demand SaaS application as opposed to most of its competitors that are on-premise enterprise apps. I just ran the demo and I was convinced. I haven’t verified the cost to consumer yet, which I guess should be disruptively low to absorb market share away from high cost enterprise solutions. I am a stingy guy and IT's the last thing I want you to spend money on.

I have great faith in Peter’s judgment and would gladly recommend it for my clients, here in India. In case you are thinking of buying a high cost business intelligence application, LucidEra looks like a far better and economic alternative. No complex architecture, multiple layers or components and no integration or supports required. Just plug and play. Your bottomline should look a lot better with that savings in IT budget.

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In my other blog

Reality perspective
Age and entrepreneurship
How well do you evolve ?
The cover’s blown
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Buffet's list of pro-bubbles

Here’s more to advance the smugness of Indian IT vendors that refuse to tame their margin expectations (25% plus) even in the face of stiff competition in the home turf by global giants like Accenture, IBM, EDS and the like.

Standard and Poor's, one of the world's biggest investment services providers that compiles a list of stocks meeting the legendary Warren Buffet's appetite twice a year, has named the three of the biggest names in Indian IT space (Infosys, Satyam and WIPRO) in the latest model portfolio.

I am afraid this will further India’s already bloated IT illusion. Content with the growth achieved thro cost arbitrage, India's IT vendors are loath to mature beyond BPO, ADM and other low end service capabilities. I don’t see them investing significantly in R&D (and that explains the high margins) like the global majors do, that progressively helped an IBM almost regularly gross $90 b in revenues. In contrast, Indian vendors that notch up $3b in revenues with over 70,000 employees is hardly sustainable since this model is already creaking because of wage escalation, higher visa costs and attrition in India. With less than 3% revenues from consulting / product based IP, it’s time Indian vendors begin to worry.

I will repeat. Unless India’s IT vendors make meaningful dents in diverse high-end fields like system integration, data center management, remote architecture support, process automation coupled with product innovations that stun the markets with their utilities and features, they stand no chance. Focusing on long overlooked domestic markets is another strategy that could work. Making it to Buffet’s list of probables (pro-bubbles?) can wait, for good reason.

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Facebook Apps - next big shelfware ?

Vinnie Mirchandani revived the great debate – “Is software bought or sold” and generated some interesting comments.

I liked the way he triggered the debate with a confession. Admitting the tendency of many gadget buffs like him to dream up “solution driven requirements”, he steers it close to the latest fad – attempts by the industry’s marketing machines that turn social networking tools like Facebook, Twitter into next big enterprise application irrespective of business value.

I had always argued against the practice of leaving the software “buy” decision with the CTO. This is often the reason why many enterprises have so much of “shelfware” – high cost software that are installed but hardly ever used. Could be either because users found it too complex or the context itself underwent massive change (like Wiki or Social Network tools coming up now) that they now will have to be customized at a great expense to make some sense. The buying decision itself will have to be a process that should begin with the users at the core and not just the suits.

Partly the timing of this debate is aligned to the release of Facebook Platform, an application program interface (API) that developers can use to build applications within the social-networking site Facebook, that has created a Silicon Valley gold rush. It’s the big user numbers in Social platforms (Face book: 30m) that entice founders and VCs to try and turn them into next big enterprise Apps. Or will it be the next big “shelfware” ? All bets off.

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Scam in a virtual world

Is the Second Life economy bursting? Or has it been a highly creative scam to begin with?

Second Life, which was created by Linden Labs of San Francisco, is an online world where players can trade in all kinds of goods and services. The game's economy is based on fictional currency, called Linden dollars. But those dollars do have real-world value at an exchange rate of about L$270 to $1 on the Lindex market. Second Life's website even boasts that "thousands of residents are making part or all of their real life income from their Second Life businesses."

Now the entire Second Life economy--which could affect more than 8.5 million players--is in trouble.

Although financial institutions in Second Life are careful to define themselves as games, some Second Life banks offer more than 100 percent annual interest--a tempting rate when combined with the possibility of turning Lindens into U.S. dollars via the Lindex. Set off by high interest rates and a recent ban on in-game gambling, the bank run could ultimately have a major effect on the game's economy. The theft of approximately $12,000 from the Second Life World Stock Exchange doesn't help matters either.

If something is too good to be true, it almost always isn’t…

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Paid content ? Forget it.

Media content hiding behind a paywall as a breed is becoming fast extinct. Most publications have either dismantled their paywalls on their own because of depleting web traffic or competition edged them out by throwing similar content for free. Just as I was mentally speculating the odds of WSJ tearing down its paywall, Scott Karp has a nice post predicting it wouldn’t take too long using NYT example.

I’ve never been gladder. Excerpts -

“The new economics of media make charging for content nearly impossible because there is always someone else producing similar content for free — even if the free content isn’t “as good as” the paid content by some meaningful metric, it doesn’t matter because there’s so much content of at least proximate quality that the paid content provider has virtually no pricing power. As smart, talented, and insightful as the New York Times columnists behind the paid wall are, there are too many other smart, talented, insightful commentators publishing their thoughts on the web for free.

The WSJ.com remains the last great bastion of paid content on the web, and with the News Corp acquisition, the pressure to tear down the walls will likely be too great to resits. Even if it’s true that the WSJ has the highest quality business content bar none, the web is so awash in good, great, and utterly crappy business content, all free, that WSJ is holding onto its paid subscribers through sheer brand strength alone.”

The ability of the web to shrink revenue streams is amazing. It takes a really disruptive, significantly value creating something to get paid.

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Stress puppies to turn idea streamers

Looks like outsourcing vendors will soon get to clean up the keyboard plaque. Sub-optimal cost savings from outsourcing IT services are forcing a number of firms to rethink their strategy and bring jobs back in-house, according to a recent Forrester study – reports Business Standard.

The report said clients in North America and Europe, despite cost escalations at offshore destinations are not in a hurry to retrace though, many of them do have plans to bring jobs back in. As per the report, 36% of the firms surveyed agreed that cost savings from services were lower than expected and another 28% of respondents believed that their providers are unable to respond rapidly to changing business needs.

BPO clock turning full circle? Time for stress puppies to turn idea streamers…!

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Cost of hurry

As most of my getting-to-know meetings go, this one with the CEO of a growth stage firm (Revenues $5 m) few weeks back had its share of insights. Despite having a robust business, revenues growing 25% and profits by 15% post tax, he was getting a raw deal from VCs.

He had then offered me if I could take a fresh look at his business and get a better offer, the deal’s mine. As deals go, you can’t be sure of what value VCs will offer to a business. But the darned thing is that, it’s pretty much what I do for a living – getting entrepreneurs and VCs to arrive at a consensus on team caliber, value creation, growth prospects, robustness and finally, valuation. In his case, I had no doubt about the first four aspects. The chops were getting bust on valuation. One look at his valuation sheet confirmed my early suspicion - valuation of intangibles.

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Because businesses are often worth far more than the sum of their hard assets and working capital, I devote a lot of attention identifying and assigning value to intangible assets. These assets must be valued for their residual life to assess entity value in addition to that of real estate and equipment. It calls for minute verification and cross referencing, which many established investment banks overlook since it takes more time on due diligence. Instead, they put a lumpsum value and close books – in a hurry so that they can move on to the next deal.

In this case - among the various types of intangible assets to which I had assigned value were: (a) Patents, copyrights and licenses (b) Customer lists and relationships (c) Non-compete agreements (d) Favorable financing (e) Software (f) Trained and assembled workforces (g) Contracts (h) Leasehold interests (i) Unpatented proprietary technology (j) In-process R&D (k) Databases (l) Trademarks/tradenames Intangible assets such as brands, intellectual property and licenses - that now comprised a greater percentage of the economic value of his business. To me, these intangibles represent the main performance drivers in the current transition from a traditional financial economic structure to a new knowledge-based economy. No arguments.

I had sweated a lot for what I got. But in the end, we both felt glad. Joy of incremental valuation that was up by 45% - on a conservative estimate ! My client was itching to go after the investment bank that had cost him a bomb for the job they did. I gave him an expression of nonchalance. Stay tuned for more, I’ll be back soon after the expiry of silent period in a VC deal that we are currently pursuing.

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