I was flattered last week by a visit from Rick Smolan, the creator of some very creative photo-projects, such as From Alice to Ocean, America 24/7, Blue Planet Run and his latest America At Home. Since the early 90s, From Alice to Ocean stuck with me when it was first introduced and distributed with Apple computers and the clever use of multimedia capabilities built into the Mac early on. But the great thing about these projects is not just the stunning imagery but rather what they evoke. Again, the value of photography is in the eye of the beholder.

Rick approaches photography in the same way I look at business; by simply surfacing the facts. So much in our lives is influenced by mountains of politics and rhetoric that reduce the chance of quick resolution and success. How do you think we can ensure a vibrant global economy and peace if 1.1 Billion people - 1 in every 6 - worldwide have no access to clean water. The book Blue Planet Run displays that with chilling accuracy.

But Rick Smolans projects shed light on reality, good and bad. America at Home is a compelling compilation of how American families live at home, rich and poor, photographed by the families themselves and complemented by photographs from professional photographers. The pictures and their captions are so inspiring that a country decided to buy more than 200,000 books to educate their children on who Americans really are. Transparency works both ways.

I would like to see Rick do a book of “The World at Home”, so I can continue to sit down with my daughter and give her a peek into the living rooms across the world.

Our welfare greatly depends on our ability to become a citizen of this world. To achieve that every school should at least purchase one of Ricks books so our children receive an objective view of the opportunities and problems in our global eco-system and thrive.

Update: For readers of my blog, Rick has graciously offered a discount of $10 off his book America At Home, which you can customize with your own image on the cover. Just enter the code GEORGES at checkout.

Tags: Photography, Mac, Photographers, Apple, Economy, Transparency

I received a lot of feedback and questions on my previous blog posting named Building efficiencies in tough times and the embedded presentation posted there. The danger of attaching a presentation is, that as a reader you may miss the rational that built the words.

Because of that I want to explain my sometimes condensed thinking a little further.



It may have appeared that I only care about the product, but nothing is farther from the truth. The diagram on the left of the chart is what I see a lot in technology companies, early and late stage - across the board. The diagram on the right is what I tried to convey with the words in my presentation. Let me clarify:

Many companies develop incremental innovation (to leapfrog their competitors) without a diligent (re-)assessment of the opportunity to change the battle field. Not surprisingly. Real disruptive innovation requires a certain amount of vision, faith and a compass combined with larger commitments and investments, all seemingly based on untested values.

The path of least resistance therefor is to start with an incremental product and throw inordinate amounts of marketing & sales at it, in order to push it beyond its competitors into the marketplace. That is a highly inefficient model (in any economy). But it is a model to which many companies are forced to comply because of risk adverse management and the stale investment criteria deployed by many Venture Capitalists (VCs).

So, it is somewhat ironic that the VCs are now telling their startups to be more efficient, right after they were pushed through the VC wringer of startup-commoditization.

I believe the market for cheap (bootstrap-to-market) technology companies, that yield a large early exit is gone. That model only worked in a bull market of technology (from the 90s that has not dissipated) and the investors that still cling to that model will get punished for it. The new opportunities are for companies that build real macro-economic value.

The starting point of the next wave of innovation, in my view, is to feed a macro-economic need, as depicted in the diagram on the right. That macro-economic need is directly attached to the way we behave as humans (which is relatively predictable). It is our need to express ourselves, live the life we want and be in control (rather than technology controlling us). Think free-market principles, think social, think benefits, think fundamentals.

The fundamental shift in thinking that needs to occur in Silicon Valley, is to develop technology with a fresh mind, looking from the outside in, and serve a larger, less specialized, constituent.

Apple comes to mind as a company that often completely ignores the current state of the technology industry and connects better to basic human needs than any other technology company. But Apple can improve/be beat at the macro level, but I digress.

We simply need to support human behavior with technology.

With “free” distribution of information through the Internet, psychographics - not demographics - matter. Four-hundred year old free-market principles, The Long Tail, and marketplaces like eBay prove that the traditional rules of marketing do no longer apply. In my thirty years in technology I have never met anyone who truly understands markets. And market definitions have changed, they comprise no longer of buyers that fit an artificial model (I cringe when I hear people debate for hours how many users delineates the SMB segment), but because they subscribe to the pain or gain from which subsequently, marketers can extrapolate a larger pool. Bottom-up.

We do not all need to be economists to create the next successful technology company, the material is all around us. All it takes is a healthy interest in the actual behavior of human beings, compare their offline and online behavior and fill in the gaps. So, stop supporting companies that just build nifty technologies, but focus on companies that create larger macro-economic differentiation. More impact to everyday people.

No company will be more efficient by simply cutting cost (as suggested by the recent doom-and-gloom VC messages), it will just take longer to die. The real efficiency comes from a more disruptive value that attaches more people to better technology. On top of that, macro-economic value is very resistant to economic downturns.

Tags: Performance, Commodity, Consumer, Marketing, Markets, Marketplace, VC, Macro-economics, Psychographics, Apple, Distribution

Let’s look at photography (my hobby), arguably the most important purchasing-driver of computers (after the ability to access the internet) by consumers. Media management (yes, on the desktop) remains more than a Billion dollar market opportunity.

Case in point: new announcements of Adobe Lightroom and Apple Aperture tout enhanced interoperability with third party plugins to manage and edit your photographs. Don’t you feel good about that warm open-source-like karma of interoperability?

I don’t. Both vendors have deployed their next trick to customer imprisonment. And plenty of uninformed customers will fall for it. Here is why you shouldn’t:

1/ There is no need for an additional platform for photo management.
Photo editing capabilites of both applications are mediocre (no layer based editing, no advanced local editing etc.) and their asset management capabilities are little more than a replica of file system capabilities (even photographic attributes such as exposure, aperture and other attributes are maintained by the file-system metadata today). So, except for making nice photo albums and calendars, why else would you slug thousands of photographs in a proprietary asset management format that is less reliable than the underlying file-system and requires seperate backup and archiving strategies to maintain.

2/ Plugins have worked for years on file-system based photographs.
The announcement of the interoperability with plugins is really old news as those third party applications have been working with file-system based photographs for years. This is a platform on top of a platform, designed to milk more money out of customers and locks them into a proprietary technology stack. A prison with the windows open is still a prison.

3/ The operating system needs-to and will evolve faster.
The pace of meaningful innovation of the Personal Computer OS is deplorable. Microsoft has not made the PC operating system significantly smarter over the last ten years and that has opened the window of opportunity for Apple to surpass Microsoft in usability (rather than functionality). The ability to easily create and manage user-generated content such as, Photography and Video, has now become important adoption drivers to the platform, OS-vendors have yet to respond to. Photographic capabilities should be built-in (not priced-on). These days the unique media experience of the platform is the differentiation that sells the computer (since they all do internet quite well).

As a consumer, buying into seperate photography management siloes will cost you significant time and money (as the former CEO of a photo software company, researching the alternatives, I tried). My advice is to wait until an agile vendor steps up and turns media management into a core competency of the computing experience.

In the words of Ray Lane (partner at KPCB and former COO of Oracle) who once said customers are better off skipping some steps of innovation (in his case to skip client-server for three-tier internet architecture), I have just presented you with my reasoning to skip-over Adobe Lightroom and Apple Aperture. Not because I don’t like some of its functionality, but because it is strategically a dead-end street.

The next evolution of media management will soon eradicate the old one and deliver lasting differentiation to the vendor that owns it and provides a much, much better media experience to the consumer.

I am planning on having something to do with that.

Tags: Platform, Photography, Consumer, OS X, Operating System, Innovation, Integrity, Adobe, Microsoft, Apple

With the proliferation of the new iPhone, Mobile Applications as a viable VC investment category is dead.

Companies like Digital Chocolate (founded by software gaming pioneer Trip Hawkins) are now painfully aware of that. Recenty switching gears, it is debatable whether they can compete with the endless supply of a new free-market.

The future of many companies like Aeroprise, still basking in the glory of a proprietary Blackberry environment and tucked away in the enterprise mobile markets, will be severely threatened by standards-based technlogy running on any internet capable device, very soon.

The premium market of mobile applications protected by walled gardens has been changed to a free-market by Apple’s iPhone and the App Store. Macro-economics, discussed in this blog many times before, at work again.

Rather than single minded companies being able to protect their turf with a collection of proprietary applications (usually aimed at businesses), now individuals will start to create applications for other users. By the people, for the people. N/N :the airplane code for Steve Jobs’ Gulfstream. Get it already?

User-generated-content (one of those awkward Silicon Valley attempts of describing content that resides in a free marketplace) has a brand new companion, it is called: applications.

But these applications are no longer mobile applications, they are internet applications - that happen to run on a great mobile internet device. And they will run on many other internet devices, hard-wired or mobile. Think of them as the big brother of widgets, task oriented applications that remove the need to use a browser to benefit from the Internet. They target regular consumers, not internet savvy technologists and they self-configure, based on location and other user preferences.

So the investment model for mobile has changed dramatically and the recently announced $100M iFund (by top investment firm KPCB) and a similar one by BlackBerry - the vehicle of purportedly investing $1M per application vendor - makes no sense at all. Here is why:

1/ User-generated content does not provide a great foundation for large upside - let alone an acquisition or IPO that is priced to produce interesting VC returns.

2/ The value to the VC is in the “winner-takes-all” platform, not the content (albeit that produces great value and choice to the consumer). Apple, with the App Store platform for distributing applications using free-market principles (although still not perfect, check out our marketplace rules) will again walk away with the same benefits it reaped from the iTunes store, direct and halo.

3/ Application development is a very high cost business, especially in a highly competitive marketplace. The gaming industry wrapped in a slower transition from premium to free-market is finding that out too.

4/ Mobile used to be a proprietary, and protectable, path to the internet. No longer. The intelligence of the backend service, accessed through a mobile of hard-wired computing device is where the value is.

So, i suggest to rename the iFund in Software-As- A-Service fund, agnostic to access paradigm.

Nokia and Blackberry (RIM) will have to follow quickly. But they would need to start hiring people that understand macro-economics, not just technologists that create poor copies of Apple’s implementation.

All phones need to have a real operating system inside, and Roger McNamee’s investment in Palm may make sense in that way, but they better step it up quickly. Nokia is off playing with Symbian, Microsoft has its own concotion. All of them pretty much asleep at the macro-economic wheel.

Yet for individuals, on the supply and buy side, all this disruption leads to new opportunities that are derived from a meritocracy. Fantastic applications are being developed and used in massive numbers. The world is indeed flat after all.

Tags: Apple, Nokia, Blackberry, Free-market, Marketplace, Meritocracy, SaaS, Proprietary, Gaming, Funds, Wall-Street, ITunes

Is the question that was posed to me recently. My short answer is: macro-economics.

1/ Apple technology is proprietary, all the way
Apple is creating a premium computing platform, rather than an open and commoditized one. Premium markets precede open markets and dish up much higher profit margins. Proprietary environments also allows Apple to control the differentiated customer experience.

2/ Apple is focused on lifestyle computing
Apple is focused on creating solutions to support our lifestyle - a massive addressable market - that consists of music, photography, video etc., rather than esoteric office software for people with lots of technology expertise.

3/ Apple is building an ecosystem
Apple is focused on supporting a differentiated ecosystem, rather than building competitive technology silos. The sum of all lifestyle components interacting with each other make it unique. The iPod remains competitive because of the iTunes store that is accessible through a (Mac) computer and vice versa. Their capabilities are tied to each other.

4/ Apple is building an unique customer experience
The experience of purchasing, innovative design, great product quality, and unique (in-store) customer support provides the evidence of a company that wants to please you.

There are many other differences, some of which also lie in a fundamentally different product development strategy. But top-level differentiation drives micro-economics.

Other companies face an uphil battle if they don’t compete with Apple at the macro level first.

Tags: Apple, Margin, Mac, Eco-systems, Proprietary, Software, Platform

The key to understanding customers is to observe them, rather than to listen to them. As in most life scenarios, what people do and what they say are quite different. And your product strategy better be focused on real purchasing behavior rather than yet another opinion - stated as a fact.

For that reason, the way large technology companies implement usability studies is useless, as these studies attempt to formulate an opinion from people who should be buying - but have not - and use the wrong method to derive their intent, verbal rather than behavioral. Unbridled wishes, promises and demands from prospects are worthless. Yet priceless is the behavior and satisfaction of buyers.

So, without the customer telling you what to do, how do you improve your chances of success:

1/ Focus on greenfield adoption
Many so-called markets have no real market leaders owning more than 30% market share. Technology adoption is still in its infancy and plenty of room exists to tap into greenfield markets. Even in a fast growing market like the mobile phone industry where Apple is resetting the rules of engagement, a large demographic still does not use a mobile phone. So, the trick is to come up with a new strategy for the ever changing greenfield, rather than stealing market share by building a better mouse trap.

2/ Define the macro-economic impact of your technology
Consumer technology should yield immediate personal benefit and become an indisposable asset to the daily tasks we perform. It should save considerable more time than it takes to learn. The iPhone is a portable lifestyle device, rather than just a better version of the old category mobile phone. Redefine the rules from the top.

3/ Build a unique customer experience
Style, performance and capability are important consumer product characteristics and so is the purchasing and support experience. Satisfactory life-cycle support of the product is crucial to secure brand loyalty. Ever noticed how almost half of the Apple Store is dedicated to improving customer experience?

4/ Remove the technology language from the equation
Adoption by a greenfield market demands the development of a user-experience, marketing messages, and support experience that is void of technology language and solely talks about usage benefit - rather than how it is achieved technologically. Notice how the marketing of the iPhone is fundamentally different from the Nokia N95 (same price range), full of references to technology protocols (like UPnP) a greenfield market should not have to know about.

The success of technology innovation is increasingly related to how well companies serve steady customer behavior. That behavior has extensively been studied by so many non-technology companies ahead of us.

That’s why I spend so much time listening to the wisdom of CEOs like A.G. Lafley (CEO of Procter & Gamble), Mickey Drexler (CEO of J. Crew, former CEO of GAP, Apple BoD), Jack Welch (former CEO GE) and many other consumer CEOs who put themselves constantly in the shoes of the customer and define what they would like the purchasing experience to be.

It is not hard to detect the patterns of success, but as a CEO you would need to be committed to keep looking at your company from the outside in (rather than from the inside out), and experience the company from a customer perspective.

Get ahead of change and tune in to Charlie Rose on NPR (KQED in the Bay Area) for some great lessons from the masters.

Tags: Entrepreneurs, Innovation, Consumer, Markets, Apple, IPhone, Nokia, Experience

As an entrepreneur, getting to know your Venture Capitalist is important, especially because their life is not as cushy as you may think.

Just imagine the onslaught of business plans they get, and how much time it takes to find that rewarding investment. Eliminating the false positives and false negatives takes time, lots of it. We personally reviewed about 40 companies over the last 7 months, yielding 3 companies that have huge potential for our investors but they need work. Hard, fun work. But life of the VC doesn't end there. Knowing the goals of your VC (in terms of fund composition and exit requirements) will make you better understand why a VC firm behaves the way it does. Its fund needs to end up in the top quartile, with or without you.

Operating on both sides of the isle and getting to know the investors I work with better, I attended the AAMA-AAAIM session in San Francisco called "Fund Management As A Business" (presentation in pdf used with permission from AAMA), moderated by the skilled and jovial Robert Grady, Managing Director of The Carlyle Group with a fantastic group of fund managers (Hamilton Lane, SFERS) and a surprisingly honest VC (Altos Ventures). I wish everyone in the investment community was as transparent as this group so we can remove some of the stigma around VC.

Here are three reasons why VCs don't have it that easy:

1/ Many more VCs need to compete aggressively on a relative steady amount of fundable deals, hovering around 4,000 equity investments in venture backed companies per year. The number of VC firms has grown from 399 in 1990 with $31B under management, to 798 firms in 2006 driving $236B into the US venture marketplace.

2/ Joe Schoendorf (Partner at Accel Partners and board-member of World Economic Forum) confirms that less than 5% of the VCs deliver the goods that sustains technology as an investible asset class. That means 95% of the investors are probably stressed out. So don't take a lack of response or a no from a VC too personal. VCs deal with complicated and sometimes long drawn investment strategies (it took Altos Ventures 3 years to land their last fund). Investment allocations may be another reason why you don't always get a quick response for your technology venture.

3/ VCs are working hard. The exits of about 400 M&A plus IPO transactions per year account for less than 10% of total venture investments made. And in order to get a successful exit, VCs review more than 20 times (and that's a conservative assessment) the amount of business plans before they invest in one. So, south of 0.5% is where their - and your - statistical probability of producing a successful exit lies.

The same criteria that apply to the return of the collective technology investments made by a VC with a fund, applies to their Limited Partners (LPs) trying to find great collective VC returns for their Investors (Pension Funds, Insurance Companies, Endowments/Foundations etc). The VC is sandwiched smack in the middle between the entrepreneur and LPs breathing down their neck. Their only "luxury" is time: 5 years of investing and 5 years of harvesting.

As an entrepreneur you can't worry too much about the statistics, if you did you wouldn't be an entrepreneur. But that the amount of deals is slightly on the rise again, perhaps indirectly spurred by massive influx from sovereign funds, means access to money - to live out your dream is improving slightly.

But be prepared to talk to more VCs and saddle up for an extensive roadshow. Fact remains: the cost of doing business to entrepreneurs and investors has increased dramatically.

Tags: Apple, VC, Investment, Private Equity, Premium, Eco-systems, Google, FaceBook, Long Tail, Hollywood

We communicate with each other using a common language and we obviously become more effective when we all understand that language. However, technology complicates our lives as each piece of technology we interact with requires us to learn a new (proprietary) language; a set of rules, technology grammar and a unique user-interface experience.

Think about it, when Larry King on national TV stumbles over his own URL (yes, language) and messes up http, semicolon and slash (or was it backslash), I can't help but think about the hell we put users through to use the internet. Only if you understand that language do you get to benefit from its capabilities. That's like forcing anyone that wants to vacation in Mexico to speak Spanish first. The Mexican tourist industry would grind to a halt.

It gets worse, for example, to make photographs look better, Photoshop (and now with Photoshop Express) and many other photo-editing applications deploy a language that requires users to understand the intricacies of color and light and apply that language in the right order.

Here is a synopsis of the skill level my mother-in-law would need to master in order to make her photographs look better: first increase the dynamic range using a histogram, then use curves to change the tonal values to your liking, apply the right white balance and improve saturation and vibrance. Indeed, what I just described is the introduction of yet another language to solve a pretty mundane problem.

To create a web page, we introduce yet another language, a compilation of HTML, Perl, Ajax and Flash usually contained within a desktop product with its own proprietary language. To write a book we wrestle with 90% of Microsoft Word's functionality and language we seldom use, trying to figure out how to create a table of contents. In Excel we use another language consisting of non-intuitive formulas (like sum() ) to derive values from other cells. Should I go on?

So why is it that we seem to get away with it - or are we? For one, lots of people make money understanding a computing language that fewer others do. Web designers don't always create better design, but they understand the language of design, and can implement it. So, web designers don't want you to know there are better ways to do this. Adobe is probably not in a hurry to remove the language and erode its premium market, it could have created much more democratization in the website creation process. Many times have designers, with corporate marketeers in tow, abjected the use of Rapidweaver, a tool that attempts to democratize web design (this site is built with it).

But we are fooling ourselves. The democratization of the internet requires that we make technology more accessible and easier to understand and implement. Only then will it reach real mass adoption.

We could easily build technology that figures out how to make the majority of images look better, or design a web page by drawing it - rather than programming, or have Word make recommendations for a table of contents when it discovers one.

The iPhone is a great example of how packaging existing technologies in a different way, can make people feel that they don't need to learn a new language to communicate with it. My 3 year old daughter uses it. Each of the individual technologies in the iPhone had been around for a while, Apple "just" packaged it so the language became intuitive.

But Apple is not the only vendor that can remove the computing language from the equation, others just need to pay attention to it.

So when you design products, pay attention to the removal of the language, fewer yet intuitive options - rather than more. After all, for thousands of years, we ourselves, have communicated in many other ways than verbal, the majority of our communication remains behavioral.

Innovation has become the art of packaging a flawless user experience, rather than a race to add features. The latter quickly becomes commoditized anyway.

Tags: Apple, Microsoft, Experience, Yahoo

Since a platform is the technology foundation for a marketplace, platforms - to achieve extraordinary growth - need to instill the rules of marketplaces as we laid them out in our previous post.

But not all platforms are created equal and some self-proclaimed platform vendors do not adhere to marketplace principles. That could mean you as a provider think you subscribed to a meritocracy - with equal opportunity exposure - yet other participants (your competitors) get pay-to-play advantages. Potential buyers in that tainted market are actually shopping in a premium market, not the free-market they expect to be most economic and trustworthy.

Other synonyms of the same phenomenon abused in the technology industry include: ecosystems, exchanges, communities and networks which all serve identical needs in connecting disparate supply with disparate demand, something a premium market is unable to do.

Consumer companies understand the freedom of choice customers demand. Enterprise software and services vendors have long basked in the glory of premium markets and have a long way to go in order to truly build winner-takes-all free-markets, which in total size are often larger in size than the total size of premium markets in that category.

In the Enterprise space the majority of customers (roughly 80%) buying products or services deviate from its intended design and want to add on, integrate or correlate those off-the-shelve configurations with other ones. Enterprise customers often spend more money on customization than they spend on licensing fees for say, Oracle products. Hence the requirement for a true marketplace of additional enterprise components (check out Serena, great concept but marketplace execution and marketplace compliance - yet to be developed - will be the tell-tale of their real success). Salesforce.com's Appexchange seems to provide the best proximity to a free-market of applications we've seen, although we have yet to verify its integrity against the marketplace rules.

Developer programs from companies like Oracle (with OTN), Microsoft (MSDN) and others use surrogate models of marketplaces to mimic, but not truly deliver on its powerful benefits. Go visit their websites and you'll notice no mention of third party products. There literally is no marketplace, although Microsoft has a link to "a library", if you can find it.

Apple (with the iPhone Developer Network) is experimenting with its rules but apart from compliance to the free-pricing rule, its overall compliance to a free-market is minimal. And, today, they don't need to. Apple still has time to deploy some premium market tricks as long as Google with Android doesn't deliver on a real marketplace for developers early.

As a software provider you may need to run on and comply to a major vendor's technology, just don't assume a developer network, exchange or community will make you rich - not until the marketplace supports a true meritocracy. And for that, again, real marketplace principles need to be deployed.

Tags: Apple, IPhone, Experience, Microsoft, Adobe, Photography, Internet, Democracy, Communication, Innovation

If you've read my previous blog on marketplace rules, you would agree. Amazon.com is a Super Store which, by expanding the relationship with other premium suppliers mimics the appearance of a marketplace. And because Jeff Bezos associates Amazon.com with a marketplace frequently, I stand to correct him:

Marketplace rules.
Rule #1: Failed. Amazon limits the supplier participation to their premium strategy.
Rule #2: Failed. Limited suppliers means limited transactions are available
Rule #3: Failed. Amazon regulates the process of how a transaction takes place, conforming to Amazon pricing models
Rule #4: Failed. Once you book an order from a different supplier than Amazon, all bets are off with regards to transparency, shipping, returns etc
Rule #5: Failed. There is no way for new buyers to see who bought what at what price and equally for sellers who sold what.
Rule #6: Failed. User opinions are irrelevant if they are not borne out of a transaction.
Rule #7: Perhaps not relevant here.
Rule #8: Failed. Amazon is "competing" in the "marketplace" with its suppliers

Amazon will have a much harder time to sustain growth and meet Wall Street expectations, as a lot of growth through premium suppliers will become non-organic (or sell through revenues). Amazon has plenty of opportunity to migrate to a real marketplace without losing its footing, but it better hurry. In the meantime, Jeff, please call Amazon what it is: earth's premium selection.

Tags: Marketplace, Oracle, Microsoft, Apple, Google, Android, Enterprise, Networks, Eco-systems, Meritocracy

I visited the entrepreneurs week at Stanford this week where many MBAs were walking around with new business ideas. Since we raised a fair amount of money ourselves in the last 10 years we've been focused on startups, I wanted to give some advice that may be helpful to any first time entrepreneur:

1) Define the end goal of the company in a newly defined market
The determination of pre-money valuation, even for the first round, should be based on the disruptiveness of the company when it grows up. The goal is to find the investor that understands the path to that goal, not an assessment of the current val