White Sauce

Reluctantly Defending Scott Thompson

Scott Thompson, the now ex-CEO of Yahoo, is fading back into tech history for lying about receiving a computer science degree. Couple that with a dash of thyroid cancer, and you have one rough month on your hands.

Thompson is completely at fault for lying. And regardless of what he said, he was lying about that - it’s too convenient of a mistake to make. He got what he deserved (being fired, not cancer).

That said, after a bit of research, I failed to find ANYONE standing up for him. I find that more than a little surprising. So, for the sake of balance, I’m stepping into character to defend this cancer-riddled, litigation-happy corporate reject.

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Prior to coming to Yahoo, Thompson worked at PayPal where he came in as CTO. Prior to that, he had an impressive career with various companies as an IT executive. He had all the skills that any other computer science major had, he just “accidentally” said that he’d attained that particular degree on his resume.

Does what Thompson’s resume says affect his ability to lead an organization? Does it change the skills that hee’d already demonstrated as a successful technology executive for other organizations? Does this affect his ability to add value to Yahoo…or at least lose Yahoo value more slowly? Would he realistically have remembered anything from those computer science courses had he actually taken them?

Let’s keep in mind that this whole controversy was started by Dan Loeb, an activist shareholder. Last time I checked, the American public supposed to find corporate raiders contemptible, at least 4 years ago. Now we’re looking to them for guidance for who to run our FORMERLY cherished technology jewels? Is the entire American public Loeb’s puppet?

Yahoo needs a long-term CEO. Aimlessly casting about for 10+ years has taken it’s toll on the company. Is booting yet another CEO out of the head office what’s best for Yahoo? It can’t possibly be.

What if this had happened to a rockstar tech CEO? There would have been a completely different response. Would Mark Zuckerberg have gotten any more than a slap on the wrist?

Tech bloggers frequently complain about uniform thinking in the tech industry, and particularly in Silicon Valley. They generally refer to entrepreneurs. If they’re a legitimate Valley reporter, they’ll call themselves out while they’re at it. But in this case, no one is questioning leaving Thompson out to dry.

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Thompson’s lying doesn’t sit well with me, but neither does the public response. This man deserves a legitimate defense. Too bad he won’t get one.

Instagram Announcing Its Relationship With Facebook. Why an App IS Worth $1b

Yesterday, I should have been working on Frameable. I should have been working on my Javascript lessons, or reading for the class that I had last night. And yes, that’s the order of my priorities these days. Yet I wasn’t doing any of these things.

Yesterday, Facebook bought Instagram (“IG”), and I’ve done little but email, read, and talk about it since. I promised myself that I’d stop blogging about Facebook, but I can’t help it. This story is frickin’ cat-nip for me.

This is a great purchase by Facebook. $1 billion is a heap of cash/stock and there’s risk in the deal, but it will pay off. The rest of this post explains my reasoning.

Facebook’s IPO is reportedly next month. The valuation will be $80-100 billion. Facebook will continue to grow by adding to their already impressive pool of genius. Attractive equity attracts top talent. After poaching gobs of world class engineers from Google, Zuck gets that equation.

Facebook earned $1b profit in 2011. At a hypothetical $100b valuation, they have a P/E ratio of 100 right off the bat. That’s high. Therefore, they need to make an argument that they will have many quarters of strong revenue growth in order for their stock to have upside, and for the company to attract top talent/prevent attrition.

Their plan (if I were them)? Mobile. More than 50% of Facebook’s users are already using a mobile client, yet Facebook doesn’t make any money off them. $0! For a publicly traded company, that’s suboptimal :)

Facebook will tap this revenue stream in the near future, and I expect the crack team they just purchased to drive that revenue (note: the team, not the product). With the purchase of Instagram, you get a team of world-class mobile development talent, that has already built out a scaleable, sticky application on iOS and Android. 

But companies don’t buy a 13-person team for that much money. As gifted as they were, this is a strategic acquisition (i.e. not talent, and obviously not revenue). Here are six reasons for strategically purchasing IG:

1. Existing User Traction - Instagram reached 30m users even though they were only available for iOS, and 1m more the day they released on Android. There’s a lesson in there about doing one thing right before you move on, but in doing so, they generated very impressive user traction while ignoring the Android platform. Counterintuitive to the point of cocky, yet impressively effective. That sounds Steve Jobsian, and I mean that in a good way.
2. Importance of Photos - Facebook bought a very particular type of user base too. The photo is the new status update. We’re better at understanding images than words. We’re also better at remembering them. Social status sharing via images is the future - ask any 14-year-old. Not only that, but with Instagram’s filters, you can look like a regular Ansel Adams with an iPhone (maybe with a little more color). Facebook’s power users are trained to type their status with text. IG’s users are trained to snap a photo. Photos are a more concise, accurate, and moving medium. It would make sense if photos-as-a-status become more widespread, and Instagram has already captured those on the leading edge.
3. Near Term User Traction - Even ignoring their release on Android, IG’s user traction will continue to ramp. I’ve had a TON of notifications of friends joining Instagram in the past 24 hours. The acquisition could very well catalyze IG crossing the chasm. Facebook isn’t buying an app/network that’s anywhere near it’s peak. Ingenious.
4. Sustainability - In business school, we learn about how high barriers to entry are a big advantage over potential rivals, and a network effect is the classic example of this. Facebook reaffirms their competitive advantage as a sustainable one by purchasing IG. I don’t see how another company could sign up 1/6 of humanity on a highly connected and social platform. The value of what Facebook has created is so staggering because it’s so sustainable.
5. Defense - By purchasing Instagram, Facebook keeps the company out of the hands of it’s rivals. In the name of building their own social network, Google has taken a succession of shits in their own bed. The stakes are heated for this rivalry because it’s so important for how we’ll interact with the internet. Like Facebook, IG matters. It’s beautiful. I love it, and I’ll continue to use it for years.
6. Data - I take pictures about the shit I care about. So does everybody else. This fact + geolocational data is info digital marketers will pay a pretty penny for.

All of these reasons for purchasing Instagram are material. In light of them, Instagram is worth a heap of money, and it’s especially valuable to Facebook. $1b? Who am I to say one way or the other? And what do the people disputing about it know?

Ironically, most people I read complaining about the $1b did so on Facebook. That’s funny. Facebook was a a figment of Mark Zuckerberg’s imagination 9 years ago. That’s an important thing to keep in perspective as we fumble around trying to value technologies like Instagram. None of us have any idea, but the people working at Facebook are better informed than just about anyone else out there.

Other miscellaneous thoughts about Instagram + Facebook:

• IG has 2x the number of users as Foursquare, yet that company raised $50m at a $600m valuation 10 MONTHS AGO. Comps are one of the best means of valuing difficult to value items. This comp supports Facebook’s valuation.
• Market vision: IG co-founder Kevin Systrom was well aware of Hipstamatic when looking at the photo sharing app landscape. He saw that Hipstamatic had a great package of camera filters, but it wasn’t social. Designing an app that was Hipstamatic meets Facebook took an impressive amount of foresight about where the market was going. Genius.
• Weakness of Facebook? - Many people have complained about the image quality on Facebook. I read recently that photos were Facebook’s most heavily used feature, yet people haven’t gone bananas over them like they have for Instagram. Calling photos a weakness for Facebook is  unfair (probably my favorite feature). That said, I’m excited to see Facebook continue to improve, and they have room for it in the photo department.
• My title is completely unfair. Facebook didn’t buy an app, they bought an important social network, a gifted crew of developers, and data.
• I was shocked by the droves of people immediately deleting their accounts due to not trusting Facebook. I have always been much closer to aligning with the companies writing the privacy policies than the users who complain about them (Pinterest is a notable exception), and this “Insta-backlash” only reaffirms my conviction. If you don’t have anything to hide, then you should be excited that pairing data with technologies can significantly improve our lives. Get ready for consumer-oriented tech to revolutionize health, education, and democracy. Is it sinister if that needs to be financed with ads?
• I’ve had friends argue that Facebook is going to try to monetize the hell out of Instagram pronto. Highly doubtful. Be prepared for very little to happen on the surface with Instagram in the next couple of months.
• In building my own business, I’ve only begun to realize how difficult it is to design a beautiful, minimalistic product in a huge market at exactly the right time. Instagram NAILED it. Good for them.

Apple’s Relentless Pursuit of the Most Valuable Real Estate in America

In a recent interview, Dave Morin said “the most valuable real estate in America is the 8 feet between peoples’ couch and their television.” As of 2010, Americans spent an average of 2.5 hours/day in front of the TV. Unfathomably, that is STILL more than the average amount of time spent on the internet!

Apple finished 2011 with $97 billion in cash. This week, I lost my last shreds of doubt that they’re going to spend some of their cash purchasing the real estate between peoples’ couch and TV. They won’t admit it, yet rumors have been swirling for years. I believed the rumors, but wasn’t 100% convinced until I read this article in The Economist a couple of days ago.

Hon Hai, aka Foxconn, aka Apple’s default assembly plant for iPads and iPhones, is buying a 10% stake in Sharp, which is 100-years-old and struggling like its age. What’s more, Hon Hai’s chairman is buying a 46% stake in a Japanese LCD TV manufacturing plant.

Like airlines, the LCD TV business is terrible. Across the board, LCD TV manufacturers have income statements that are a sea of red. Companies like LG and Sony are screwed.

With their acquisitions, Hon Hai is sending a clear signal. They know what the tech blogosphere suspects. Apple will build the iTV.

I bet it will cost 50% more than comparably sized TVs, but people will mortgage their houses for one. It will be that good.

We’ll see a flat panel 50-60+” TV with an integrated Apple computer. It will be controlled by the iPad on your lap, or the iPhone in your hand.

I hardly watch TV anymore (thanks MBA program), but Apple can pull me back in (as long as I don’t have to get another mortgage for my house).

Apple has already built Facetime, but it didn’t revolutionize telepresence systems. I expect iTV to do just that. The environment will be grateful if working from home becomes even more common. Maybe Greenpeace will even pay tech some respect.

I buy incredibly addictive games in Apple’s app store. There is a graveyard of phenomenal games that I’ve forced myself to delete from my iPhone (Jetpack Joyride, Mafia Wars, Metalstorm, & ~10 others). Despite creating the mobile game market, Apple hasn’t discernibly disrupted the console gaming, at least not yet. Nintendo is screwed just like Sony and LG are.

Who else? Mastercard and Amex; that’s who.

Apple is mooted to get into the mobile payments game. I question how many more hundreds of billions of dollars they can put on their market cap before the Department of Justice starts poking. That said, I wouldn’t be the first person to connect them with an acquisition of Square for a couple of billion dollars, simultaneously buying a burgeoning mobile payments giant and one of the most capable replacements for Tim Cook in the form of Jack Dorsey (btw I didn’t include Visa above because they invested $27.5m in Square).

Steve Jobs’ biography is a great book about an undoubtedly brilliant man. It gave me three major insights about the future of Apple:

1) Apple might be better off without their highly dysfunctional leader. God rest Steve’s soul, but berating employees + stealing credit from them = horseshit management. That’s right, I learned that in business school. I’ve read about how some people in SF idolize these Jobsian habits like NY financiers did Gordon Gekko, but Jobs was clearly great despite these traits. The world is lucky that he had the showmanship, eye for talent, and design chops to make up for his profound character deficiencies.

2) The products that Steve & Apple developed happened over huge expanses of time (5+ years). In building Frameable, I’ve developed respect for the mountains that have to be moved in order to give the user a truly simple experience. Rumors of an iTV have been swirling for years because, for all their talent, that’s what it takes for Apple to build new products. Hence, “relentless” in the title of this post.

3) Last but not least, an abbreviated quote from Steve: “I’d like to create an integrated TV set that…will have the simplest user interface you could imagine. I finally cracked it.” I’ve read 10+ blog posts about how that quote gave the writer some form of goosebumps. There’s magic in that quote, because there COULD be magic in the 8 feet between your couch and TV.

I’m excited to see what happens to that real estate.

The Good Enough Market

As competition increases across technology categories, prices decrease while quality is maintained. We’re now seeing mature technology categories segment into two camps: premium and good enough.

The Good Enough Market provides customers exactly what they want, and little else, for as cheaply as possible. Cheap products don’t exist anymore. They’re merely soon-to-be-extinct products.

Look at any new technology product that you’ve purchased, and I’m willing to bet that there are a litany of features that you’ve never touched. Those features were built into the price you paid, whether you wanted them or not.

Producers are getting better and better at forgoing unused functionality. By saving money by not developing the technology, they can create pricing advantages that other companies can’t match.

China built their manufacturing chops by building crappy plastic toys. Increasing wages (and manufacturing workers with higher skills) have necessitated the manufacture of more value added products. Now they are targeting the Good Enough Market. Lenovo epitomizes this trend. Thinkpads aren’t anything special, but they are cheap computers that do everything that the vast majority of consumers require.

Why do you care? There are heaps of pure-play middle-market consumer companies that are going to be disrupted, in the same way that Amazon has been crushing the non-digital media industry. Once consumers have the convenience that they seek, they’ll obtain it for the lowest cost possible. When they win, companies’ profit margins lose.

Americans like to bitch and moan about China’s unfair trade practices and undervalued yuan, but China’s low cost technology manufacturing is what really should be keeping us up at night.

My company, Frameable, is a play on this trend. It’s a Good Enough Company. Our products are good, but not premium, and are priced cheaper than just about anything else online.

Price wars and process innovation will create a lot of tears for producers in various tech categories. However, from the perspective of consumers, this trend is decidedly positive.

The Rise of Flux Employees

Hypernetworks. Mobile. Social. Global.

Rules are changing, drastically and inexorably. As competition intensifies, our persistance must follow accordingly.

At the same time, things never work out the way one anticipates. My father has a t-shirt that says “Mr. Flexible” on it. The world could do with a few more of these t-shirts.

Competition breeds volatility. Volatility breeds opportunity.

As a result, the idea of “flux” permeates business. The top cell phone companies five years ago (Nokia and RIM) are in shambles compared to Apple and Samsung. I predict that this turmoil/opportunity will continue, with Amazon replacing Samsung as the dominant Good Enough smartphone manufacturer within five years.

The flux corporation mandates flux employees. The average stint at any given job is perpetually contracting. Services like Crowdflower, TaskRabbit, and The Mechanical Turk can handle fluxes in menial labor needs. If you need more specialized/technical support, Elance, oDesk, TopCoder, and Kaggle will gladly solve your problems (for a fee).

As a worker who only entered the professional workforce 5 years ago, this is going to have a profound impact on the way my peers get paid. Their will be a discernible increase in contract employees. For us, this means amassing savings while you’re working to cover the times when you aren’t…at least if you’re smart. Hopefully, it will also force us to come to the job with your healthcare in hand (what better way to make our nation more price sensitive?).

Qliance

I experimented with a Seattle-based “answer to America’s health care problem” last week, and I was thoroughly impressed. Qliance is a string of primary health care clinics in the Puget Sound region. It’s unique in bypassing traditional insurance companies and offering unlimited physician visits for a low monthly fee ($49-$89). They save $$ by avoiding the bureaucracy.

Office visits are unhurried, paperless, and there is minimal waiting. My physician was really affable and more than willing to talk. I spent more than an hour together - an absurd amount of time if I’m not having an operation/minimal tests. My doctor was something of a healthcare extremist, having shunned medical insurance for 15 years! He was thrilled that I put “the soaring cost of health care in America” as my primary concern for making the visit. 

I tend to associate health care customer service with that of airlines, with services across the board only varying by how poor they are. Following that analogy, this strikes me as being the Southwest Airlines of health care. Sure, as a customer, you’re still dealing with the same uncomfortable situations, but the customer service is discernibly better and the employees are noticeably more happy. That makes all the difference.

I’d love to see this business scale and help solve SOME of the issues that are facing America’s busted health care system At this point, there is room for a multitude of solutions.

Any company that can viably challenge medical insurance’s grip on the system has the potential to be revolutionary. Or, more plausibly, take a beating.

Qliance has been effective so far. They’ve been building up their subscriber base and attracting venture capital. I hope they make it.

Like an obese person that chain smokes, paper tickets will be dead in three years.

This year, the Seattle Sounders asked me if I preferred season tickets in the classic paper form, or a plastic card that held all my tickets via a barcode. I went with B.

My bright green shoebox arrived yesterday that contained my credit card and a new scarf.

I hope they offer everything through my smartphone next season, that’s clearly where tickets will ultimately end up.

Until then, I’m psyched for a new season.

“There are very few people who appreciate how quickly this is accelerating. The combination of software, the Internet, and the machines is completely transforming society and the human experience as we know it.”

-Brad Feld

Greenpeace Attacks Facebook, Delegitimizes Self

I’m taking a course through my MBA program called Cases in Sustainability. I find myself frequently at odds with the instructor and the speakers she brings in. Today was no different. We hosted a rep from Greenpeace, and she showed this video that her organization put together attacking Facebook’s Oregon data center.

In case you don’t care to spend 4 minutes watching the video, the gist is that Facebook needs to be knocked off its high horse because its Oregon data center is powered by this coal power plant located nearby.

I grew up in North Dakota, where most every house is powered by coal. Was it my fault that my house is powered by coal? Was that in my control? I now live in in Seattle, where my home is fueled by sustainable hydropower. Is this in my control either? I don’t take credit for that one.

Let’s put that argument to the side and look at what Facebook is doing about its power consumption.

Do a Google search on their data centers, and you’ll see that Facebook has actually revolutionized power consumption for data centers.

An excerpt from the linked article:

“[Facebook unveiled] a server design that minimizes power consumption and cost…The result is a data center with a power usage effectiveness ratio of 1.07. That compares to an EPA-defined industry best practice of 1.5, and 1.5 in Facebook’s leased facilities.”

They are on the cutting edge of data center environmental stewardship.

Not only are Facebook on the cutting edge, but they made their innovative servers open to the public, so their competitors or anyone else could mimic their design.

In fact, Apple blatantly copied this design which results in substantially improved energy efficiency even outside their organization. Facebook deliberately forsook a competitive advantage (lower relative utility expense) for the sake of the planet.

Does this sound like an an Exxon-incarnate that Greenpeace is poking in the eye?

But wait, there’s more!

Remember how Facebook is at fault for building a data center right next to a coal plant? Well, by consuming power right next to where it is produced, there is reduced transmission loss, which improves environmental efficiency.

But wait, there’s more!

Facebook’s fundamental rationale for building the data center in Prineville, Oregon was because their “…data center uses outside air from the Oregonion high desert to cool its server rooms, eliminating the need for energy-sapping chillers.“ They cleverly chose this particular location for their data center in order to be environmentally efficient, yet Facebook then got attacked for being environmentally insensitive.

What more could Facebook have done? What is Greenpeace is doing attacking Facebook for showing a lack of environmental stewardship?

Don’t get me wrong. I am DEEPLY concerned about environmental degradation, and strongly desire to see the same outcomes that Greenpeace seeks to affect.

This is how I feel about the environment:

On the other hand, I couldn’t disagree more with their tactics.

The Greenpeace speaker in our class today acknowledged that her organization is on the fringes of the environmental conversation in the United States. This sort of behavior does nothing but ostracize itself from the mainstream. They are pushing away even environmentally progressive organizations (and me) in the name of dramatizing their message.

That’s selfish.

Greenpeace uses selective facts and a cute English kid’s voice to challenge a brand that everyone recognizes. By failing to provide even a moderately balanced view, they are being counter-productive to their own cause. They delegitimize themselves with this bullshit, especially by parading it around in front of impressionable students year and a half later.

As one of the vanguards of the environmentalism, this is pathetic and despicable behavior. 

The earth deserves better.

Literal Elevator Pitch

Tomorrow morning at 8AM, I am going to be filmed for a TV show pitching Frameable as I ride the 43 second elevator to the top of the Space Needle.

Geekwire, a local Seattle tech blog, is piloting a TV show called “Elevator Pitch” that films entrepreneurs as they pitch their business while riding the Space Needle’s elevator. As cameras roll, I’ll be watched by a panel of three judges, who will then decide who (out of an unknown number of entrepreneurs) gets to stay on the “top floor,” or has to go back to the ground and work on their pitch.

Apparently, this will work as a game show format, with the winner of each round moving on to some sort of finals at some point in the next couple of months.

Yikes.

UPDATE: After rehearsing my speech literally 300 times, I stepped in the elevator on Thursday morning and pitched

My pitch came out NOTHING like I had practiced.

They noted that I sounded nervous (true), but let me stay on the top floor. I advanced.

This was a HUGE learning opportunity, and hopefully I’ll be around to sound less nervous for the next round of the Elevator Pitch.

The video won’t come out for another month or so (I’ll post when that happens). I feel fortunate that there was a good outcome, even if the execution didn’t go as expected.