Thursday, June 9, 2016

What happened to the Republican Party?

As I watch the Republican Party fracture over Donald Trump, it makes me wonder, what happened to the Republic Party? While I was growing up, the Republicans were known for being the “Dad” party. They were the responsible party; focused on business and infrastructure, strong on military and prudent on spending. But like boiling frogs, when change happens slowly we don’t realize what’s going on.

Back in my youth, the Republicans were Yankee dominated White Anglo-Saxon Protestants. Today they are the party of Appalachian Fundamentalist Protestants. This change in the dominant region that controls the party has changed the values and direction of the party. What we see now, with our current election, is a vote on the current Republican’s Appalachian values.

The Appalachian takeover of the Republican Party started in the late 1970’s when Jimmy Carter told Fundamentalist Christian schools they couldn’t have tax-exempt status unless they desegregated. Unwilling to do this, a group of preachers led by Jerry Falwell approached the Republican Party. Labeling themselves the Moral Majority, they promised the GOP their parishioner’s votes in exchange for support of their social value platform.  As more Fundamentalist parishioners voted, their leaders started pressing for more changes.  By 1992 George H. W. Bush, a Yankee White Anglo Saxon Protestant Republican, made it well known he didn’t like Jerry Falwell or Pat Robertson. Unfortunately for Bush, the takeover of the Republican Party by Appalachian Fundamentalist Christian’s had already started. Pat Buchanan and Newt Gingrich, supported by Fundamentalist Christian leaders, were influential in derailing H. W. Bush’s bid for a second term. Eight years later, George W. Bush, a Fundamentalist Christian convert brought the Appalachian values to the White House. In 2009, in response to Obama’s presidency, the Tea Party, an Appalachian movement, were the last step in taking over the party.

As outlined in the book American Nations by Colin Woodard, North America is made up of eleven distinct nations, each with its own unique historical roots and values. The Appalachian region extends from West Virginia through the Great Smoky Mountains, skirting Ohio, Indiana, and into Northwest Texas. While the greater far west through to the central valley of California is filled with a variant of Appalachians who moved west to find wide open spaces. The Appalachian's are descendants of borderland Irish, English and Scottish settlers who left the UK after eight hundred years of almost constant war.  Living for almost millennium in almost constant war created a unique culture. This ingrained culture was continued in their new homeland.

The Appalachian’s are a clan based warrior culture who believe people should rely on themselves and their extended family.  They’re suspicious of outsiders and authority. They believe in minimum government, maximum personal freedom and aggressive military. Over fifty percent of our military comes from this region. They are deeply suspicious of aristocrats and social reformers. You can tell when you’re in the Appalachian region since they don’t believe in investing time or money in fixed property and they believe the land is there to extract resources from. Within this culture dissent is unacceptable and savagely crushed. Education is not important. They tolerate enormous inequality; ten percent of the people are wealthy, whereas fifty percent live in poverty. Their religion is based on liberty; rich people have a lot of liberty, poor people have little liberty, while slaves have none.

This differs drastically from the Yankee culture which controlled the Republican party up to the 1990's. This region encompasses New England, New Jersey, New York, except for New York City, a hundred miles around the great lakes; and an area in the west that was settled by Yankee merchants that include Hawaii, Utah (Mormon founder Joseph Smith was from Syracuse NY) and the west coast from Monterey up to Nome Alaska.

The founders of this culture were the Puritans. The Puritans set up a moralistic culture based on church, education, and elected local government. They believed that the salvation of the entire community depended on everyone doing their part. They came as families and were generally middle class, well-educated and economically equally composed of highly literate artisans, craftsman, and yeoman farmers.  By the mid-seventeenth century, all Yankee children had to go to school. Six years after landing they set up Harvard. In this culture, education was the means for a bright man to move up. They were hostile to landed gentry and believed that the rich and well-born had no special privileges in politics or before the law. They believe the government is an agent of good, the goal should be efficient and effective government. Everyone should partake, and there is no greater outrage than to manipulate the government for your own personal gain. Their religion was based on freedom, in that everyone is born free, based on your behaviors you can lose your freedom.

Our current Appalachian Republicans values of lower taxes, small government, and pro-business sounds appealing until the majority of citizens realized the reality. Starving government by defunding infrastructure the government has a harder time providing essential services to citizens. At the same time, large businesses receive corporate welfare while rules and regulations are broken down so that large rich companies have an unfair advantage, and companies interest are considered over those of citizens. The Appalachian disinterest in investing money in infrastructure leads to poor roads, bad schools, and poisoned water. Their propensity to crush descent has alienated moderate Republicans while their unwillingness to compromise has led to a senate and a congress that refuses to approve judges, creates government shutdowns, and a congress that has attempted to appeal Obama Care over fifty times – because if your current approach isn’t working why do anything different.

Frustration with the current state of the Republican Party has led to the rise of Donald Trump who is neither a Yankee or an Appalachian. Metropolitan New York City is its own cultural nation. One based on the Dutch Traders. This nation cares about only one thing, the deal. As a culture, they don't have a strong stance on education, government, or religion. They will do business with anyone.

Trump’s demagoguery plays well with people who know something isn’t working but don’t want to think too hard about it. The current Republican leadership sees the rise of Trump and are completely dumbfounded on what to do.  Unfortunately, our Republican elected officials are so caught up in their Tea Party rhetoric that they don’t realize that the majority of Americans don’t agree with their platform.  

Every time the Republican Leaders are given a chance to act in a manner the majority of Americans are clearly asking for, they doubled down on their current approach. For example, when Judge Scalia died, people who were voting for Trump in the primaries were clearly stating they were looking for someone who could break the gridlock in Washington. What did the Republican House and Senate do? Instead of taking this opportunity to show that they can get things moving, they came up with some ridiculous reason not to even meet with a potential, reasonable judge. This move only angered their base, making Republican voters not want to elect anyone who has ever held an elected office.

Another example of doubling down on Appalachian rhetoric when clearly the majority of citizens are calling for something different is guns. Ninety percent of Americans including 74% of NRA members favor universal background checks for guns, but congress has no interest in getting that passed. A sign of big business over citizen interest is the NRA. The NRA only represents 5% of gun owners, they get most of their money from Gun Company’s lobbyist and use this money to control the dialog on gun laws in this country.

The question is, how does this play out? What we are seeing is a fracturing in the Republican Party. The Appalachian/Tea Party leaders keep on stating that Trump doesn’t represent their values. But what the Republican primary clearly showed was Appalachia/Tea Party values no longer represent the citizens either. When the leader of the Party, the citizens and the establishment all disagree on the core values of the party, then the party clearly needs to re-center. Unfortunately, the current Republican leadership does not have the ability to pivot. It will take citizens voting in a different type of representative who will eventually move the party in a different direction, a direction that represents the electorate.

Monday, July 27, 2015

The Next Big Thing Is Already Here… Sort of

Media outlets love to highlight the next big thing. Trend spotters love to say they know about it, and investment bankers love to bet on it. As a twenty five year Silicon Valley veteran, I’m always astonished on how often they miss what’s big. That’s probably why, when the next big thing comes out, most of us are shocked since we think the technology came out of nowhere.

Currently the press is talking about drones, robots and smart watches. These technologies are real, but are they the next big thing? Are they life changing? Not really. They simply are prevalent and easy to understand.

The next big thing isn’t the next big company; it’s the next big enabling technology that will change our world. The next big new company will either provide that enabling technology, or more realistically, provide a new product or service by riffing off or re-adapting that technology. To understand the next big thing, it’s easiest to look at past big things and investigate what really happened.

Twenty years ago Netscape exploded onto the scene. Everyone outside of Silicon Valley (and worldwide technologists) were blindsided and blown away by the internet. Those of us working in the technology world all said, “What’s the big deal? We’ve been using the internet for years.”

Netscape capitalized on the simultaneous maturing of a number of technologies including ubiquitous TCP/IP, low cost PC’s, color monitors, and especially graphical user interfaces being applied to everything most importantly browsers and Windows, which made it easy for people outside of technology to participate.

What couldn’t be understood by Silicon Valley, or anyone else at that time, was how the internet would change our lives. Life changed when technologists began riffing off these initial technologies. Examples of companies that successfully riffed off of the internet are Google, Amazon, and Facebook.

The next big thing was the Smart Phone. For years everyone was saying, “why can’t we combine the phone, camera, MP3 player, and PDA’s (e.g. iPod) into one device?”

It took until 2007 for the technologies to mature so these applications could be combined and a Smart Phone could be created. On launch, Apple didn’t allow non Apple applications to run. It took “Jailbrakers” hackers, who broke into the phone to run their own apps, to show Apple the real market.

Smart phones were the enabling technology, but apps and the maturing of WiFi and low-cost ubiquitous cloud servers allowed for new applications to riff off of mobile phones. The confluence of enabling technologies really changed our lives. New companies that riff off of phones are Uber and Square.

Today, the hottest hiring in Silicon Valley is for big data. The two most obvious applications for big data are advertising and genetic sequencing. Companies have established data farms full of data, but we don’t yet have the tools to understand this information or take advantage of it.

Some of the most progressive technology companies are skimming the surface of this data potential to provide better information. But the information derived is mostly regressive. For example, if a consumer views shoes in an online store, advertisements for shoes will appear on screen when the same consumer surfs the web — even if he or she bought the shoes.

Predictive technologies are the current holy grail, but they are considerable more difficult to develop. Highly progressive companies like Facebook are starting to deploy predictive technologist. For example, based on your “Likes,” Facebook can use big data to accurately predict your sex, age, political views, sexual orientation, and a number of other metrics about you. All this predictive information can be used to more accurately target advertising.

A few “forward thinking” media writers have nominally identified big data as the next big thing. And these writers have reported that engineers who work on advertising applications are in big demand, and tend to get promoted into senior level positions.

Their conclusion: advertising is a hot field to be in. What they miss, however, is the BIG BIG trend. Big data is the next big thing and people with any sort of big data experience are highly sought after.

Of course, the next question asked is: how will big data change our lives? That’s why the media doesn’t cover the really big trends until they are upon us.

Currently, we can say superficial things like, big data will provide better predictions for what people want, and this will result in more accurately targeted display adds. Or, improved health information can be provided since we can better spot health trends. In areas like genomics, faster and cheaper sequencing will allow us to create custom health solutions.

The real answer is this: harnessing big data will change our lives. Not this year, and not even next year — but soon. And it will change our lives in ways we can’t imagine. That’s because the killer applications that will riff off of getting information out of big data haven’t yet been conceived.

Monday, July 13, 2015

AirBnB vs VRBO

Last year I joined the sharing economy by renting out our over-the-garage apartment.   I’ve listed the apartment with both AirBnB and VRBO.  Both services work similarly.  Each have pro’s and con’s when it comes to using their web site. What’s interesting is the difference between their clients.

We live in Mountain View, a work, not vacation destination.  With limited hotel rooms and large companies like Google and Linked-In located in our town, along with a bunch of start-ups and VC’s, there are plenty of people needing a place to stay.  I may be getting a skewed audience since I have a standalone apartment, the main stay of VRBO; whereas most AirBnB listings are for renting out a room in a home.  Then again this can result in more AirBnB listings, since someone can rent out three individual rooms compared to one three room house.

Surprisingly about half of my renters come from each service. But that’s where the similarity ends.  AirBnB renters typically are younger and are coming to this area to work.  They typically book from two days to a week before their stay. While VRBO renters are typically over fifty and are coming to the area to visit family.  They book a month to two months in advance. AirBnB renters typically stay for shorter visits, less than a week with a few notable exceptions.  While VRBO renters typically stay for one to two weeks.  

On a recent trip to Europe I stayed in apartments.  After an initial search I only stayed in VRBO apartments since their choice was so much larger then AirBnB.  Probably because I was looking for a stand-alone apartment, not a shared facility.

Both of these companies provide a similar service. AirBnB’s valuation is more than ten times that of VRBO.  I'm surprised AirBnB value is so much higher.  Is it that much more valuable to provides a convenient platform for renting out a room instead of a whole houses?  If so, why hasn't VRBO added a "shared" option to their listings.  It would be easy to do, and could potentially increase their value ten fold.

Monday, April 6, 2015

Google’s Achilles Heel Is Not Limited to Google

Article published in The Manzella Report:

Google just dodged a bullet. But their Achilles heel still can be exposed by the European Union’s monopoly litigation. Ninety five percent of Google’s revenue comes from Ad Words. They are a brilliantly successful revenue generator. The profit in Ad Words comes from Search. However, this amazing revenue generator is also Google’s Achilles heel.

Advertising revenue allows Google to be what Bell Labs was back in the 20th century — one of the most innovative technology companies in the world. Ad Words allows Google to provide a plethora of products and services for free, a price point only other goliath companies can compete with.
Apple’s favorite saying is, “If you’re not paying for a product or service — then you are the product or service.” As Google has demonstrated, people are willing to give up their privacy for free access to technology. All of Google's technologies are, in effect, additional platforms for them to gather data on users or present advertising.

Government monopoly litigation in Europe and the Sherman Antitrust act in the United States play an important role for large companies, but not in the way most people think. When the U.S. government goes after a company for antitrust violations because they've become too big, many people think government is over reaching.

I think the government is the canary in the coal mine. The government is telling a company it's time to divest, and chances are, the company has gotten too big to be managed effectively.
The only person really negatively affected by a break up is the company CEO. After a separation, shareholders have stock in two successful companies, employees have a job in one of the companies, executives have more paths for success, and the CEO has a smaller organization to run.

The high-Tech History of Antitrust: 3 Quick Case Studies

Back in the 1980's, IBM won their antitrust suit. The government wanted to break IBM into two firms: a large computer and small computer company. To fight possible divestiture, IBM licensed an operating system for PC's instead of using one they had previously developed, thus creating the Microsoft juggernaut.

Instead of using an internally created processor for PC's, IBM used a third party processor thus creating the Intel juggernaut. By the 1990's, IBM realized that small computers and printers were hobbling them, and sold these business units off. For stakeholders and employees, a more advantageous solution would have been to have their stock split into a small computer company — think Lenovo, Microsoft and Intel as one company, and what remains of IBM — a large computer solutions company.

AT&T fought the U.S. government on anti-trust issues for years, finally succumbing to divestiture in the mid 1980's. AT&T found that divestiture gave them a much better way to manage their company. AT&T was way too far flung of an empire. They continued to divest even after the government no longer required them to.

In the 1990's, Microsoft was in the cross hairs of the U.S. government. Microsoft won. But look at the company today. Their revenue is high. But they’re struggling with market share. Rather than being focused on customers and innovation, they have become too big to manage and their ability to innovate is hobbled by internal squabbles.

Back in the 1990's, if Microsoft had broken up into an OS company and an applications company, these new entities likely would have become more flexible and able to lead the market with their technology. Shareholders would have stock in two profitable companies and employees would be working in a more innovative environment.

Now back to Google. Technologically they are into everything and tend to be a Juggernaut in each of these fields — think search, maps, mobile OS, video. Plus, they now they are dealing with European litigation. The real problem: these products either don’t bring in revenue or are barely breaking even on their advertising revenue (re: YouTube) since advertising and collecting information on users is how Google makes money. How do you break that up?

Monday, March 2, 2015

Net Neutrality: Why It’s Crucial to Every Consumer and Business

Article published in The Manzella Report:

As a Silicon Valley entrepreneur, I, like everyone else working here, is cheering that we are finally going to get Net Neutrality. The question I have is this: why do Silicon Valley businesses, companies that depend heavily on the internet, care so much about Net Neutrality, and why is Fox News and many vocal republicans, so adamantly against it?

First of all, Net Neutrality has to do with access to the Internet. On one side of the argument are consumers, along with small, medium, and large businesses. On the other side are the four large carriers: Comcast, Time Warner Cable, Verizon and AT&T. What Silicon Valley is cheering for and what informed consumers and businesses want is for all web traffic to be considered equal. While the carries want a multi-tier system.

On the surface, the carrier demand sounds reasonable. Supporting high bandwidth traffic like Netflix is more expensive then supporting low bandwidth traffic like Twitter. The carriers want to charge more depending on the network demand. But what appears on the surface is not the reality. In reality, the carriers want to speed up and slow down traffic based on how much an organization pays.

This level of control gives a company that has a geographic monopoly the legal right to slow down or deny access to individual organizations. They can use this tiered system to act especially egregious when they are negotiating a contract.

From the business and consumer point of view, we already pay for network access, and we pay much more than people in the rest of the world. For example, in Mexico you can get 80 channels and great Internet access for $35 a month. A similar service in Silicon Valley starts at $80 a month.

Netflix, YouTube, Twitter, and your company pay the carriers a lot of money for internet access. What no business wants is the equivalent of a work stoppage when negotiating their next internet access contract, or to find out their competitor paid the carrier more money to slow down their access. Work stoppages like this have already happened.

Last year, while negotiating their contract, Comcast drastically slowed down Netflix’s traffic. In 2013 when negotiating a contract, Time Warner Cable discontinued service to CBS and NBC stations in four cities.

What gets confused on sources like Fox News, is the difference between Net Neutrality and government regulation. Net Neutrality is the what of the issue, while government regulation is the process of insuring that the rules are followed. The carriers have already shown that they can’t be trusted to self-govern. Do you want to be negotiating a contract with a carrier if you know they will drastically shut down your internet traffic unless you agree to their terms?

Realistically, the only way to insure Net Neutrality is to have an oversight group and regulations that assure a third party is watching out for businesses and consumers. Most importantly, what is needed are ongoing rules to measure what's fair to the consumer and to businesses.

Fox News says that any regulation is bad — a heavy handed statement considering the proposed Net Neutrality regulations. This proposal differs from that of a regulated utility since there is no rate or tariff regulation. What Net Neutrality includes is a set of safeguards that make access fair.

The Net Neutrality proposal has been modeled after the 1993 rules for wireless traffic. Rules create certainty. For businesses to prosper and our economy to grow, we need to assure consumer and business rights and privacy over the internet.

So, back to my original statement: why are Silicon Valley companies for Net Neutrality and Fox News and vocal republicans against it? Silicon Valley companies know the importance of Net Neutrality. The web is the blood line of their business and all modern businesses.

I can only come up with two reasons why Fox News is against Net Neutrality. The first reason: they blindly disagree with anything that President Obama supports. The second: any and all regulation is bad. Neither of these arguments involves a rational business decision or creates a positive business climate.

Thursday, December 4, 2014

The VC View - funding start-ups in todays market place

Article published in The Manzella Report:

Every few months news report claim we’re on the verge of another dot com bust or too much money is being pumped into too many start-ups that are destined to fail. These reports often are greatly exaggerated and demonstrate a total lack of understanding of the current startup market.
Some doomsayers’ predictions of another dot com bust actually have more to do with the changes in the world of funding over the last fifteen years. And venture capitalists (VCs) have devised a Darwinian culling process which can look to outsiders like a waste of money. But in actuality, it’s exceedingly efficient.

It is difficult for even the most experienced VC to choose early stage winners. Nevertheless, within the first year of funding it usually becomes self-evident which startups will not make it to round two.
The first big change since the dot com bust is in the internet itself. Today’s entrepreneurs have an easier time vetting an idea and accessing funders. There also are many more avenues of funding for very early startups then in the past. And today’s entrepreneurs can post their ideas to crowd funding sites and apply to incubators — organizations that work with entrepreneurs in developing business plans and executing products.

The second big change relates to who gets funded. Back in the 1990’s an entrepreneur with a well presented idea likely could get funding. Today, angel financiers and VCs want to see traction. Thus, an application needs to be available and already have a following before VCs consider funding the project. More specifically, the angels and VC’s look at user growth rates as the prime metric for funding.

What started in the dot com area now has become a way of doing business. There are a few exceptions to this model which have involved a very few lucky entrepreneurs with an idea so compelling their high rate of crowd funding has received the VC’s attention. Think Oculus Rift, the virtual reality headset company bought for $2 billion by Facebook. Entrepreneurs who have proven themselves on previous projects also can get funding for just an idea. And finally, some VC’s troll top grad schools like Stanford and MIT for graduate projects that fit their portfolios.
For most startups, funding is their first daunting hurtle. What started in the dot com area now has become a way of doing business.

For example, when VCs decide on an area of technology to build out their portfolios, they may give $10 million to ten or more different promising startups which only get scant support and direction. At the end of one year, the VC’s will review each startup and fund the top one or two that show promise.
It’s not a coincidence that some of the most successful companies in Silicon Valley started in a garage and have founders that can finish each other’s sentences. When VC’s decide which companies they’ll give the next round of funding to, they do this on the following basic criteria: they look to see if the startup has met it’s deliverables, used its money wisely, hired the right type of people, and very importantly, whether or not the principles work well together.

Too often startups internally combust when the partners have disagreements, spend too much money on fancy offices, waist funds on the wrong people, or do not have the necessary discipline to cut losses by firing employees who don’t work out.

For those few startups that make it out of their first round of funding, VC’s have a strong network of experienced managers that can provide the winners with guidance. For example, VCs appointed Eric Schmidt as President and CEO of Google.

Some startups that don’t receive a second round of funding become Zombies — startups with some money and level of traction, but not enough traction or market interest to be considered of value to a VC. These Zombie companies usually continue for a time from sheer determination of the founders. Some turn into mom and pop companies, while others eventually wither up and close down.
Regardless if the startup continues as a zombie or just closes, today’s VC’s are positioned to recoup all their expenses. In fact, some even make a profit from failure. Over the last fifteen years markets have been established to sell debt from closed startups, while intellectual property such as patents are sold on patent exchanges.

By calculating expected losses and creating markets for debt and intellectual property, VC’s have mitigated their losses while providing a Darwinian process, that in the end, can produce a few blindingly bright stars.

Saturday, November 1, 2014

How Steve Jobs Stunted Apple’s Growth

Article published in The Manzella Report:

Steve Jobs’ death was a sad and traumatic event for Apple. His ability to drive marketing and product design was truly amazing. It was unheralded the way he was able to see the market for the MP3 player, drive a better design, and use this product to move a niche computer company to unimaginable heights. Yet, Jobs also held the company back.

Strangely enough for a man who ran a company with more than 100,000 employees, Jobs didn’t understand large companies and had no idea what IT organizations required. He always enjoyed being the iconic rebel, thumbing his nose at big companies like IBM.
Jobs’ brilliance when it came to consumer products was juxtaposed to his inability to understand the need to create business focused solutions, as well as to establish the environment to sell organizations other than schools and designers. Jobs more than bristled at what was needed to create products for employees.

Understanding the needs of an IT organization truly was his Achilles heel. When Jobs was running Next, classic Silicon Valley stories included his demand to make all internal computer wires black so when computers were opened for repair, they would look cool. Every computer repair person will tell you they use wire color to trace problems. And who else would be opening up business computers?
It’s not just Jobs’ absence that has given Apple new business opportunity. Apple obviously is doing just fine without Jobs, as company devotees quickly gobble up their latest offerings. But as Smartphones become more commoditized, Apple needs to create new markets and products to drive growth.

For Apple, business customers traditionally have been an untapped market. But with Jobs gone, Apple can move their products into the corporate environment. The deal Apple now has with IBM is a perfect example of what never would have occurred if Jobs was involved.
Selling corporations takes more than just a consumer product available to business customers. There is a whole synergy around business solutions that need to be executed. Business products never would have gotten past the consumer driven Jobs and his need for total control over the design of each solution. With Jobs gone, these synergies now can be created.
It’s not just Jobs’ absence that has given Apple new business opportunity; a weak Microsoft also let it happen. Microsoft started off as an IBM partner who used that relationship to dominate the business desktop.

While Microsoft has been busy maximizing revenue with existing applications, they lost focus on the changing marketplace. Steve Ballmer never had the guts to “eat his young” and cannibalize current revenue to maintain a leadership role in browser, operating systems, and office applications. Currently, Linux is eating into the server space, Google is eating into their browser and office application space, and as the desktop space moves to fingertip space — where clients want complete synergies with computers, Smartphones, and tablets — Apple is well poised to take over this space.
While Microsoft focused on maintaining a 1990’s business model, they missed the biggest change in technology — consumer driven solutions. In the 1990’s, Microsoft dominated the computer industry. After winning the browser war, Microsoft let other companies innovate and drive technology while they focused on internal fights and created lack luster product offerings.
Has there been a word processing feature added in the last twenty years that anyone really cares about? Microsoft didn’t even pay attention to the Smartphone and tablet market until it was well established. Eventually Microsoft put forth a lackluster solution that didn’t grab anyone’s imagination.

As Google steels the low end of the office market with their free doc’s products, Apple is now poised to take over what the employee touches with their line of integrated Smartphones, tablets and computers. It will be interesting to see if Microsoft’s Satya Nadella has the nerve to do what’s necessary to create compelling solutions to keep Microsoft in the game.