Vijay Anand | The Startup Guy.

Posts Tagged ‘Microsoft

Disclaimer: This is just a theory. Not the fact.

The war between the giants, Microsoft and Yahoo continues. But none of the threats, nor the position that Yahoo is in, seems to be putting a brake on the companies they are going around acquiring, nor the services they are releasing. Life is as normal, infact on a fresh new lease – one that is quite agressive for Yahoo!.

So here’s a theory that I have, and time will tell how much of this is true.

The following things seem to be happening:

1. Yahoo is very pissed off at Microsoft.

2. Yahoo has been for the longest time wanting to get into what Facebook is doing. And now it does. – the open platform shabang.

3. Yahoo is working on a whole new ad delivery platform.

4. Yahoo has an amazing advantage of close to 5 million new email signups every month in India alone – which is actually ahead of what Google has, followed by I believe either Indiatimes or Rediff.

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Venture Capitalists and Entrepreneurs call it Business Models. Economists call it as Game theories. They are such fabulously mind-stimulating equations. The equation which essentially makes someone give up hard, liquid cash in order to avail a service, and enable you to make a profit. It’s really quite as simple as that.

How do you get to that, is usually the question. If you do understand game theory, then valuations and how they are raised, along with expectations, become a wee bit simpler to comprehend. If not, its time to hit the books and look into what “Game theory” is all about.

Sometimes, the valuation game that the so-called MBA founders of startups are playing, start to get simply ridiculous that its good to return to the math and make one and one add up to bring back some sanity. Here’s the basis of how companies survive. If you don’t have one of these, you are very strongly advised the drop the high valuation game, and think of a way to claim one of these.

Strategy #1: Build Long Lasting Technology Claims.
I really don’t care what you think about Microsoft, but from a perspective of Intellectual property, and strategy, Microsoft is a company to learn from. Microsoft, Intel, IBM, all thrive on creation of Intellectual Property. Microsoft is infact quite a fabulous case study to follow, as its one of the longest running companies which still claims dominance. Given the sheer amount of grasp that they have – everything from the platform underneath your feet, the diversification of devices, and especially in how standards are dictated, they have a sure footing for sometime to come. I’d even dare say that Wikia (or some such guy) might put google out of business, but Microsoft will remain.

Strategy #2: Enter a very conservative market and dominate it.
The trick is that the entry barrier is high. Atleast it is conceived to be. it is a sector that folks are scared to get in. Case in Point: Durex condoms. How many folks do you know who want to get into the condom business? How many people do you know who want to make lingerie in India? They are all very fabulous businesses, for people with guts, and pretty much an open field for them to exploit.

Strategy #3: Scarcity is a goldmine.
Look at the headlines that India is making. There is almost a civil riot that is at the verge of breaking out because of the prices of commodities going up, and there are insinuations that there are governments who are hoarding these grains so that the prices go up. More demand, raises the price. it’s quite as simple as that. To lets get to the topic. Anything that is scarce, will demand higher price. If you hold one of the three operating licenses for the 3G spectrum, yep,that will be worth a pretty penny. If you hold land in an area that is quickly running out of space, yep, thats pretty much a gold mine. I’m sure you get the idea. It has to finite, and limited. If that is the case, pricing and survival is pretty much guaranteed.

Strategy #4: Control Standards.
Be part of every consortium which chews out standards and have a say in it.

Strategy # 5. Insider Info.
Imagine standing in an open view of the market and you alone know something that others dont. It could be simple as a technology trend (look at Ray Kurzweil), or something of very minute knowledge that adds to your efficiency to play your cards right.

Strategy #6: Build a reputable Brand.
Brands take ages to build, and ages to die.

Strategy #7: Superior Expertise.
This is most often the most common reason than any other for a startup. You might have heard this question a little differently as “So why do you think you are the right person to execute this idea?”. The answer to that question is essentially to figure out if you do understand something that others dont and have total grasp on the subject. This is the reason why when some senior personnel of a well established company goes out and bootstraps a startup, the valuation and expectation of the market is tuned to expect something fabulous – if nothing atleast a fabulous disaster. This is why teams make for the greatest assets and liabilities of a company.

In short, this is how things work. Lets say you have a startup and your shares are valued at INR 100, and you have enough shares allocated to put you at a valuation of One Crore. The simple math is that, whatever your current revenue is, be it six or seven paise or maybe even in the negative, people value you higher and put money into you hoping that in the long term you will benefit. It’s really the basis behind valuations. It’s all “In the long run”. But there is ofcourse a finite length to that, and people are going to constantly keep comparing their returns to the interest rates they can get from banks, ROIs on other assets and comparable other investments. You are going to have to measure up.

“In the long run” never happens, if you dont even exist. And the only way to ensure that you are there in the long run is find yourself a slot in one of these categories. If you havent, or cant, i wouldnt be too surprised to see someone sideline you and get ahead not too far in the near future.

Once a while I actually go on crazy cruise mode and just randomly search for keywords that strike my fancy, hoping to come across a blog or a news article that catches my interest. Its an excercise to get out of the “echo cloud” which happens quite often when you keep listening to the same set of bloggers and writers. I don’t blame them. When all of Paulo Coelho’s book start to sound the same after reading two of his series, I am not surprised that it becomes a case with most bloggers.

So coming back to the point.

While one such exercise, I am across a post from a blog that I used to follow once: Venture Explorer. There was a post on how in this day and age, every startup from day one has to focus on the global market place and do competitive analysis, and potential market analysis of the globe as a whole from day one. That was a pretty interesting read to say the least.

While my trip to delhi this weekend, I met up with quite a bit of folks, and some old time friends that I haven’t had a chance to catch up with lately. So while during one of the dinner meets with someone who is running a fairly successful – actually very successful – internet service, he mentioned how for the past four days his service is under DDoS attacks from China, because them not liking some content which is up on the site. The attacks are apparently causing some slight issues and troubles with the hosting provider who is just plain simply confused at the scale and frequency of the attack which doesnt seem to stop.

Now I am wondering as to what is the solution for such a thing. Globally speaking, the likes of Microsoft, Yahoo and Google have succumbed to the demands of the Chinese government and have let them have their say in whatever these guys do. The Indian government repeatedly gets hacked by chinese hackers who deface government sites, and we are still working on the security protocols to keep them out. And to effectively fight back against these attacks, you need some pretty heavy weight hardware to defend yourself – something that startups don’t have. I mean, if MS, and Google who do have the muscle in terms of popularity, their stance, and technology don’t stand up, what chance does a startup have?

This is a troubling question though, and one that needs to be answered somehow. Maybe we need to put together our elite squad of hackers to fight back, should the need arise. Maybe. Maybe there are better and less complicated solutions.

UMPC, the Ultra Mobile Personal Computer. The design initially came out of Microsoft roughly about an year or so ago, and there were quite a few skeptics who raced to make claims that this would die the same death that the tablet PC had. Though the Tablet PC is quite an interesting form factor, it hasnt taken mass adoption. The UMPC very much seems like its going to beat all the odds and catch up on that adoption curve.

I am usually blamed for not giving enough numbers, so let me start with statistics. The number of laptops that were sold last year saw a massive jump of 85.6% from the year before compared to what is happening with other forms of PCs. For example the PC saw a growth of close to 12-16%. With that backdrop, 85% is quite a significant jump and one that has never happened for a technology so late in the life cycle. So what does it all mean?

Its a given that desktops are gonna head out and more and more laptops are taking up their space. Considering that you can get a laptop for Rs. 30,000, almost at the same price at what a decent desktop costs, I am not surprised at the adoption rate jump. But there might be more to it.

Type UMPC in google image search and hit enter. I am currently getting close to 1.5 million images and all different variations of the same specification. It’s certainly quite interesting to see how many companies are betting behind the adoption of this device.

There are a couple of reasons why I think this would work. For one, the Sony Vaio (the Miniature version) has been providing one with a similar form factor and it is quite well received. It comes at a hefty price tag and there are a lot of up-and-coming executives who are willing to pay something a bit less to join that ivy league. Pride and desire is very well served.

The another might be the fact that the technology and software are quite timely in place. Low power consumption, touch-screen devices which dont cost as much to sign off your firstborn, handwriting recogition technologies which fair quite well, and flash-drive hard disks which bring down the power consumption and the weight of the laptop, all are adding to the glamour of the device in terms of usability and features.

Yet another reason I can think of is the fact that though people fantasized about having tabloid PCs, nobody had the use for one. With a device that can double as a mini-laptop and as a tabloid is quite appealing.

The last and final point would be the fact that for once all the markets are being targetted. Whenever there was a device launched, it would usually serve either the higher segments (Read Vaio) or the lower segments (Read OLPC). The market size in the higher segment is quite small and niche and you are essentially fighting with very well established brands, and if you try to sell something new to the under served markets, they dont want anything but what everyone else is using. In other words, nobody wants retarded or “special” meachines.

But for once, companies are launching products that cater to both the segments, and with equal platform and features specifications that people would be willing to trade options for price points and make their pick. The success of the ASUS EEE PC is a solid proof of that happening.

So is there an opportunity here? You have a touchscreen / tabloid PC, portable device which can connect over bluetooth, wifi and in some cases even over WiMAX, and you have quite a bit of processing power with some generous RAM capacity. The guys who were working on the Simputer should jump to tap into this market. This is the time for them to play their cards. There is definitely going to be a need of applications that can fuel this new platform, especially with the alternative interaction mechanisms it offers

I am soon going to pick up a UMPC – its all that I need for times when I head out to a barcamp or so. It might be an ASUS EEE, or something else. From whatever devices I have been trying out, I do have a feeling that soon enough I would get quite comfortable with it to use it for most of the time – checking mails, blogging, surfing the web etc. What then would I use a normal desktop / laptop for? This is probably a time just before laptops and mobile devices merge. If you look at what smart phones like Iphone do, and what devices like the UMPC do – given their form factor, I do have a feeling that we will be seeing them merge quite soon. I am also trying to decide on a new phone and was looking to get either a sidekick or a Sony Ericsson Xperia, and the more and more that I think about it, I cant stop seeing the similarities that devices like the Xperia and Nokia Tablet offer, compared to the UMPC.

There have been enough experimentations which happened and failed in the past, but this time, it might be for real.

The Bubble is back again. Facebook is grossly-overvalued. I am turning green with envy at the guys who are raking in money. This is not going to last. Facebook should go public.

I hear many such comments at the recent news that facebook is valued at USD 15 billion.

Hold your horses, will ya?

Microsoft has bought a less than 2% stake in the company at about USD 240 million. People are extrapolating it to the point that if 2% of it is worth 240 million, then 100% puts it at 15 billion. The calculation is all wrong.

A 2% stake in Facebook, for microsoft is worth 240 Million. and thats all there is to it. What does Microsoft get out of this entire deal? A foothold on trying out their advertising network on Social Network – and on one of the most popular.

Does it make sense for Microsoft to do this? I think its perfectly justified. Facebook makes around 140 Million USD on revenues – and most of this revenue would be through advertisement. If the Advertisement revenues that they make are around that much, imagine how much the guys behind the advertisement network would be making. Microsoft would rake in back whatever they have invested quite quickly.

Also, this is a way to keep google or their alliance Yahoo! from getting in there. Its most probably considered as a marketing cost that can be recovered in no time. In all this, there is the added reputation that is built, saying Microsoft is getting agressive in the web space.

So, Is Facebook worth 15 billion? Nope. Is that 2% worth 240million to Microsoft? Absolutely.


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