The Upside of the Credit Crunch: Less Mail [Paul Kedrosky's Infectious Greed]

There is an upside to the credit crunch: Less mail...

• Mortgage and home equity direct mail down (Source)
• Credit card direct mail declines continue into 2008 (Source)

And this is with a mere recession. Imagine how peaceful it would be if we ever had an outright depression. You could go back to checking your mailbox again.

Google-Salesforce Deal Shows Google Not Insane, Microsoft Disruption Continues [Silicon Alley Insider]

One problem with the theory that Google is going to storm the Microsoft castle (MSFT) by disrupting the office-productivity-app business is that, to do so, Google (GOOG) would/will have to build a huge and expensive enterprise sales and service business.

Google may still end up having to do this--which will put further pressure on margins, and the stock price--but at least the company is not crazy enough to think it can do it immediately, by itself, all in one go (or, worse, that it doesn't need customer service). By integrating its app suite with Salesforce.com (CRM), Google makes its apps more useful to corporate customers. It can also leverage CRM's enterprise sales and support infrastructure, while benefitting from Salesforce's 1mm-customer installed base.

We continue to believe that the transition to "cloud computing" represents classic technology disruption and that Microsoft and other PC- and enterprise software companies will ultimately be in a challenging spot. This pressure won't develop overnight--for now, the Google App, Salesforce, NetSuite, contingent is small--but disruption always starts small.

Microsoft fans assure us that Microsoft is in great shape vis-a-vis the cloud transition, thanks to Ray Ozzie, but that it just wants to make sure it doesn't rush the products out, thus pissing off customers. We understand the desire not to annoy customers with not-ready-for-primetime products, but we also note that this problem--a high quality hurdle and incumbent customers--is just one of many challenges faced by companies in the process of being disrupted.

Internet users aren't adopting Google Apps because they're better than Microsoft Office. Google Apps are, by almost any objective measure, worse than Microsoft Office. Internet users are adopting them because they are:

• cheaper (or free)
  
• more convenient

These attributes will allow Google to grab the low end of the market, and, if this transition plays out as we expect, it will then move higher from there. Microsoft, meanwhile, will retreat higher to "power users" as it slowly gets disrupted from below.

TechCrunch has more on the specifics of the Google-Salesforce partnership...

The One Feature I'd Like From Adobe AIR [A VC]

Adobe AIR is a fantastic piece of software that allows you to run web applications on your desktop. You need to down the Adobe AIR client which runs on Windows, Mac, and Linux. Then you need the person or company who builds your favorite web services to build an AIR version. Once they do that, you can run the web application on your desktop. It's interesting that many of the AIR clients for popular web applications are not written by the application developer, but by a third party using the web applications' API. That's the case with the popular twitter client Twhirl and the new FriendFeed client AlertThingy.

The problem with AIR is that unlike Firefox, which allows for tabbed browsing, there is no way to launch one AIR client and get multiple services. I'd like to have Twhirl, AlertThingy, and Shifd (another cool AIR client) all running at the same time in different tabs.

Imagine if you could simply "attach" AIR clients to each other and they become tabs in one single mega AIR client. That's basically how Firefox works and I suspect I'm not the only person who wants AIR to work that way too.

Adobe AIR is a fantastic piece of software that allows you to run web applications on your desktop. You need to down the Adobe AIR client which runs on Windows, Mac, and Linux. Then you need the person or company...

Where does Mobile Connectivity need to go? [Babbling VC]

A painful realization keeps creeping into my daily life. Connectivity on a mobile device is always a hassle when it comes to data. Voice is somewhat established in the sense that you can get out of the plane in Malta (where I am right now), turn on your phone, and dial away to your heart's content. There's nothing further necessary. You may have turned off your phone for the flight which then means you have to key in your pin code) but it's fairly seamless. Unfortunately, when it comes to data it's just not this easy yet. You can go the route of installing a UMTS card (or one is already pre-installed) on your laptop but you still have to go through a couple clicks to get connected (plus set up a VPN connection if connecting to your business). I don't want to even get into the hassle that is wireless LAN. Finally, this is all without considering the costs. A UMTS card is nice and all but when you get the bill after surfing 10 hours when internationally roaming you may fall backwards off your chair. For any kind of true innovation to take place in the mobile space, connectivity needs to become better and by this I mean seamless. You need to turn on your phone or laptop and be connected, period! It can't remain as it is with the need to jump through all those hoops. Once we have "start-and-surf" connectivity, we'll start seeing true innovation on the mobile device. Until then, I fear that we'll often be chasing ideas without a support backbone. Let's just consider that broadband connectivity to the home is just getting to the point where companies can truly take advantage of the throughput. We all expected this ten years ago and it's just getting "there" now. I foresee that we'll need at least another five years until the mobile world gets "there". If you're a start-up in this space, plan accordingly.

A painful realization keeps creeping into my daily life. Connectivity on a mobile device is always a hassle when it comes to data. Voice is somewhat established in the sense that you can get out of the plane in Malta...

Welcoming Howard Hartenbaum to August Capital [VentureBlog]

When I first started talking to my now-partners about joining August Capital, I was stunned at the slow pace of the conversation. I couldn't imagine how it could take months to make a decision about whether or not to invite me to join the partnership. Admittedly, I wasn't coming from the most conventional background to enter the venture industry. But over the course of months, the August partners had more than enough time to talk with pretty much everyone I'd ever met in my professional life (plus a few choice grade school teachers while they were at it). In the end, after four months of grilling, I was invited to join August Capital.

At the time, I remember thinking to myself "how could it possibly take four months to decide?" It seemed like an absurdly long process. Yet, having now been in the venture business for some time, and having been on the other side of that process, it is amazing to me that it didn't take longer. Why is that? Two things in particular strike me.

The first is that partnerships are small, delicate creatures. At August, there were only four partners when I joined. That's not very many people. And partners spend a lot of time together. We make collective decisions about nearly all things in the partnership -- from investment decisions, to personnel decisions, to culinary decisions. And we each serve as a reality check for the rest of our partners. So keeping a partnership functional, let alone collegial, is tricky business. Rest assured, adding a new partner can throw off that balance really easily.

The second challenge is that adding a partner is a much bigger economic decision than making an investment in a company. I don't mean it is an economic decision in the sense of sharing the economics of the partnership. But rather, it is an economic decision because each new partner will be responsible for making a set of investments out of the partnership. If you make the right decision, your new partner will make investment choices that accrete large returns back to the partnership. But if you make the wrong decision, your new partner could easily invest tens of millions of dollars in companies that ultimately fail, hamstringing the overall fund returns. So adding a partner is a bit like making an indirect bet on a bunch of companies -- getting it wrong will have a widespread impact on your fund performance.

Given all that, the decks are stacked against anyone joining a venture capital partnership. It is just too easy to find reasons to say "no." Which is why it absolutely thrills me to welcome Howard Hartenbaum to the August Capital partnership. Howard has successfully run the gauntlet and come out the other side, and we are already enjoying the benefits of Howard's perspective and approach. Howard is simply a fantastic guy, and we are lucky to have him join us.

For those of you who don't know Howard, here are a few quick thoughts on why he's such a great fit for us at August.

First and foremost, Howard is a geek. After graduating from MIT, Howard didn't join an investment bank; he joined Honda Motor Company where he served as an ergonomics engineer. He got to build awesome products like the NSX. If there is one thing we like to do at partners meetings while eating lunch, it is talk about cars. Cars and email. Cars, email and digital photography. Cars, email, digital photography and high speed wireless. Cars, email, digital photography, high speed wireless and smart phones. Cars, email, digital photography . . . you get the point. Howard is a welcomed addition to the conversation.

Second, Howard firmly believes that the most important thing in a start-up are the founders. Howard has a great track record of working with entrepreneurs to help them bring their vision to fruition. As a result, entrepreneurs love Howard because he is helpful without being overbearing. What's more, Howard was an entrepreneur before becoming an investor. So he's been on both sides of the table and can bring that perspective not only to his portfolio companies, but also to our investment decisions.

And third, Howard is a great investor. Prior to joining us at August Capital, Howard was a General Partner with Draper Richards. He has invested in dozens of interesting technology companies. Notably, Howard was the very first investor in Skype and got involved in the business on the company building side (Howard was active in Skype's global business development efforts and served as the GM of Skype's US business). Howard was also an investor in Photobucket and Bebo, among many others. Howard's track record is impressive and it hasn't gone unnoticed -- he was named to the Forbes Midas List in 2007.

Given all that, it only took us a few months to invite Howard to join us at August. After all, we had to find time to talk with Howard's EE professors and his chess team coach :) We consider ourselves very lucky to have Howard as part of August Capital. He is a fantastic investor, a geek at heart, and a great guy to hang out with. What more could one ask for?

Lovely Sunset [Paul Kedrosky's Infectious Greed]

Lovely sunset shot tonight looking west from Vancouver over Georgia Straight toward Vancouver Island. The colors and textures are wonderful.

[via Katkam]

Links for 2008-04-13 [del.icio.us] [localglo.be]

• What is the future for tech VCs in Europe?
• Y Combinator's 2005 Summer Founders Program: A Complete Dud

• What is the future for tech VCs in Europe?
• Y Combinator's 2005 Summer Founders Program: A Complete Dud

What Exactly Is Google App Engine? [Feld Thoughts]

Last week was Google App Engine announcement and brouhaha.  This week is deeper analysis and understanding of Google App Engine. I spent some time last week trying to understand this better, read a bunch of stuff, and spent some time having a top secret special meeting that I can't talk about with some of my friends at Microsoft where this was discussed.

Following are three interesting things for you this morning (all courtesy of my friend Scott Moody) if you are interested in learning more:

1. The Google App Engine Q&A - an in-depth blogger-created FAQ that provides great links to other blog posts on the topic and summarizes various opinions and known facts.

2. Google App Engine for developers - Nial Kennedy's overview from his meeting with the App Engine team leads.

3. A high level comparison (via email) from Scott Moody where he compares App Engine and Amazon EC2.  Since Scott doesn't keep a blog, following is the pertinent text from his email.

Google hides infrastructure from AppEngine users. AE programmers never (and, in fact, aren't allowed to) think about database scaling and configuration, load balancing , fail-over, etc. In theory, the complexity of writing a highly scalable app completely disappears.

With EC2, you still have to set-up load balancers, configure multiple replicated database servers, implement scalability hacks if things grow too fast (such as distributed caching of data via memcached), keep distros and apps up-to-date, etc. Bottom Line: EC2-based companies still require sys admins, AppEngine companies don't. That will certainly change as more companies begin offering EC2 server management services.

Google provides a non-relational datastore and that's the only datastore available (no traditional file system, no relational databases). With EC2, people generally use MySQL or Postgresql. Amazon offers a non-relational datastore called SimpleDB, but it's a bit *too* simple. For example, it does not support sorting of results sets. Huh? That makes it non-workable in my opinion. There's also an issue with using EC2 virtual machines for your database servers -- Amazon says that when a virtual machine crashes, all the data managed by it disappears, so virtual machine crash = hard drive crash.

With EC2, programmers can use any (non-Microsoft) language to develop their apps. AppEngine users must code in Python. Also, Google does not support sockets at this time. All cross-app communication must be done via HTTP.

At *this* moment in time, it would be difficult to move apps off of AppEngine. Doing that in EC2 is trivial. This, to me, is the biggest issue, as I believe it could make startups less-interesting from an acquisition perspective by anyone other than Google. This will most likely change as people develop compatibility layers. However, Google has yet to provide any information about how to migrate data from their datastore the best I can tell. If you have a substantial amount of data, you can't just write code to dump it because they will only let any request run for a short period before they terminate it.

Some people are complaining about Google having access to their source code. I don't see this as an issue. I'd rather have it be stored at Google than at some small hosting company.

One final nice little thing in AppEngine's favor: Websites that store less than 500MB of data and get roughly 5MM pageviews per month or less can use AppEngine for free. The downside is that Google has yet to say what they'll charge if apps go over that quota, but I have to believe that it will be reasonable.  Right now, you're prevented from going above the free-level quotas.

If you are into this and have other good links, please leave a comment with them.

A Dedicated 409A Site [Feld Thoughts]

Holy Absurdity Batman, someone actually writes a dedicated 409A site called 409A Dismay.  For the latest and greatest 409A silliness, you are one click away from a subscription.

That’s Rich: FM Publishing Gets Big Valuation [PE HUB]

Federated Media Publishing has raised between $40 million in $50 million in Series C funding at a $200 million pre-money valuation, peHUB has learned. Oak Investment Partners led the round, with return backers Omidyar Network and Panorama Capital also participating. An official announcement is expected to come early this week.

FM Publishing is a Sausalito, Calif.-based operator of an advertising network for more than 200 online publishers, including Boing Boing, GigaOm and TechCrunch. It’s run by former Industry Standard honcho John Battelle, and is known to take extremely large commissions.

I’m told that FM had just under $25 million in 2007 revenue, and expects to generate upwards of $60 million this year. That’s one hell of a jump in a down economy, but I’ll accept the conventional wisdom that online advertising will continue to grow, particularly because it represents an affordable alternative for cash-strapped offline advertisers.

But, still: A $200 million pre-money valuation? It really must be the silly season, or perhaps Oak just has so much money that it doesn’t feel compelled to wrestle down terms. Again, that’s Oak Investment Partners — a report from two weeks ago had identified the lead as Oaktree Capital Partners (which would have been really weird).

I have requested comment from Battelle and individuals at Oak and investment bank Savvian, but have not yet heard back from any of them. If they do respond, I’ll update this post.

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