SOPHISTICATED FINANCE

The Consequences of Technology Adoption

Two Harvard Business School professors, Diego A. Comin and Bart Hobijn, have just published an interesting paper entitled An Exploration of Technology Diffusion. The paper basically looks at the rate at which fifteen technologies have been adopted by 166 countries over the period from 1820 to 2003 and the resultant affect on economic development. The main conclusion of the paper is that the time to adopt a new technology is the leading factor to explain economic development.

Two examples illustrate the point that shortening the period between invention and adoption of a new technology accelerates economic development. The first example cited by the authors is the Meiji Restoration in Japan (circa 1860) where one of the major objectives was to industrialize Japan by using western technology (and thereby shrinking the time frame to adopt new technologies). As a result of these efforts begun in the Meiji restoration per capita income increased 33 percent. The second example is the Four Tigers (Hong Kong, Singapore, Taiwan and Korea) who in the period from 1960 to 1995 each averaged 6 percent annual economic growth. The data shows that it was the speed to adopt new technologies that explains in large part their phenomenal growth. The data also shows that Latin America is comparatively slow to adopt new technologies and consequently has had much slower economic growth than many other regions.

The paper provides the data to draw some other interesting conclusions about globalization, government policy, new business development, and business management.

Globalization The rapid diffusion of technologies in recent years is probably not due to globalization or the Internet revolution. Over the nearly two hundred year period studied, newer technologies are adopted faster than older technologies. As we consider the free trade dialog, rather than focusing on jobs going off shore the better discussion would be about how to encourage U.S. companies to adopt new technologies faster.

Government Policy The shorter the lag in the adoption of a new technology the greater the economic benefit. Government interference in the development and particularly in the time to adopt a new technology has dramatic negative consequences for economic growth. Government policy on stem cell research and global warming, to cite two examples, could severely slow adoption of these technologies in the U.S. and put economic development at a severe disadvantage.

New Business Development When the number of technologies available for a production method are small an increase in production methods, i.e. a new technology, have a very large effect on economic productivity. Given the limited number of communications methods available pre-Internet (Telephone, radio, television, newspapers) it should not be a surprise the profound effect the Internet has had. More importantly, when looking for new business ideas, look at industries or needs where there are a limited number of technologies for production; energy generation comes to mind.

Business Management A widely held view is that one does not invest in new technology when the cost of using people at low salaries is cheaper. This view is particularly prevalent in emerging markets. The key factor to explain the lack of development in emerging markets is their slowness to adopt the new technologies. Invest in new technology, even if you can not afford it.

While much is said about globalization, economic development and third world governments, it all comes down to how fast can you adopt new technologies--assuming that the goal is economic development.

If you are interested in following the thought leaders at Harvard Business School their new work is here.

Machines Rule

I believe this qualifies as universally funny.

clipped from geekandpoke.typepad.com Voting Machines It's time for the real voting machine which deserves its name. (See also Wired about mysterious voting machines) 12:03 AM | Permalink

It's time for the real voting machine which deserves its name.
(See also Wired about mysterious voting machines)

Voting Machines

It's time for the real voting machine which deserves its name.
(See also Wired about mysterious voting machines)

Outsource IT-Amazon Web Services

Any new business should review its business model and look for ways to replace fixed costs with marginal costs. One way to achieve this is to outsource as many functions as possible, which allows you to convert upfront investment into pay as you go monthly charges. Examples of available outsourced services include the online version of QuickBooks, the enterprise version of Gmail, salesforce.com and ADP payroll services, to name just a few.  All of these services eliminate the investment in people, overhead, IT and computer support. I think concerns about the security and privacy of data stored on the web are overrated. Most of these companies referenced know more about data security than anybody you are likely to hire. Also, I assume the U.S. government is capturing every voice and data communication in the U.S. (if not the world), so concerns about privacy are somewhat mute.

At this point you are probably thinking that Hacker's outsource model may work for a small business, but not for a fast growing business such as an Internet application or social network. To achieve fast growth, typically the biggest challenge is learning to scale the business whether it be adding stores for a retailer, adding data storage for a website, training staff for a call center or addings POPs for a telecom company. Only 1.7% of startups achieve sales in excess of $5 million by the fifth year. A large part of the reason is that the entrepreneurs can not manage scaling the business.

Increasingly, the inability to manage IT and the related services is becoming a primary reason for the failure to successfully scale. Large customers expect their smaller suppliers to be fully integrated electronically. Customers expect their sales person to have complete information about their order, complaints, disputes, etc. 24/7/365. On top of all this, employees are finding better, free applications on the Internet than their employers make available and are surreptitiously introducing them into the corporate IT environment.

The good news is that Amazon is providing a solution to some of these issues through its Amazon Web Services (AWS) offering which began in 2006. I have been following AWS for awhile and a couple of weeks ago I read in a blog that AWS uses more broadband capacity than the Amazon website for books and merchandise. To use this much broadband capacity, AWS must already be serving a large customer base with large data requirements. Today in a blog called Amazon Web Services they describe a project by AWS for the New York Times. Through AWS the NYT processed "4TB of raw image TIFF data (stored in S3) into 1.1 million finished PDFs in the space of 24 hours at a computation cost of just $240". (TB are terabytes or 1024 gigabytes; huge amounts of data.) I believe this may be part of the recently announced project where the NYT converted its entire historical archive into a searchable, web-accessed database. For AWS to have handled this project, we are talking about serious outsourcing resources.

AWS includes three major services--EC2,S3 and Hadoop (maybe these names make sense to someone more geeky than me :)).

• EC2 provides resizable computing capacity or more specifically "EC2 presents a true virtual computing environment, allowing you to use web service interfaces to requisition machines for use, load them with your custom application environment, manage your network's access permissions, and run your image using as many or few systems as you desire".
• S3 is expandable online storage or more specifically "S3 provides any developer access to the same highly scalable, reliable, fast, inexpensive data storage infrastructure that Amazon uses to run its own global network of web sites".
• Hadoop provides distributed data processing (on a large scale) or more specifically "Hadoop distributes the data and processing across clusters of commonly available computers" for parallel processing.

In summary, through AWS one now can dynamically resize the data, applications and processing resources of their company and pay only the marginal cost for the resources used. Effectively, everything but applications development can be outsourced. Very, very cool!

There is one other important point about strategy that should be noted from the AWS example. In developing a strategy one should focus on using the company's core competencies. Many companies do not do this and many more do not even know what their core competencies are. Amazon ran a large distributed IT infrastructure for many years to support its books and merchandise business. Very few organizations run a bigger infrastructure--maybe Google, NSA and a few others. AWS grew out of Amazon's recognition that they had a core competency in distributed IT infrastructure on a very large scale and there were few potential competitors. Build your business by focusing on your core competencies and when the competency is unique you have something special.

Note: I think AWS is going to be a special company that we should all follow (think Google) and an easy way to do it may be to read their blog.

 

Microsoft's Strategy with Yahoo

The Sunday New York Times had an interesting article on Microsoft's acquisition of Yahoo. In part I found the article interesting because it followed the same logic that I outlined in Microsoft Yahoo Makes Little Sense. The NYT basically said that Microsoft would be better off acquiring an enterprise software company like SAP rather than Yahoo. According to the NYT, approximately 50 percent of Microsoft revenue comes from business customers. Therefore, if a company was going to make acquisitions, they should be in their core business. I faulted Microsoft, in part, because Yahoo's online advertising was not part of the core Microsoft business and required different core competencies to succeed.

The article got me thinking about the benefit to shareholders from acquisitions in the core business. The NYT article had cited Oracle as one example of an acquisitive company that focused on its core competency. Oracle made 37 acquisitions in the period 2005-7. I also looked at Cisco, the network equipment manufacturer, who made 29 acquisitions in the period 2000-2. Basically Cisco acquires new products to compliment its product line through acquisitions. I then considered Intel as a non-software computer-related technology company to compare to Cisco. Interestingly, Intel appears not to have made any significant acquisitions since 2000. I also included Microsoft, whose acquisitions are all over the map. With the exception of Great Plains and Solomon (SME accounting packages), Microsoft  has rarely acquired in the business/enterprise software area.

The return on the stocks (excluding dividends) for the period 2003-7 is shown below. (A pretty Yahoo Finance chart is here.)

Recognizing that the sample is limited, focused acquisition strategies (Cisco and Oracle) where the company is acquired for its product (not the business) generated better returns in the period than Microsoft's wide ranging acquisition strategy. Intel, with its laser focus on its core business, also outperformed Microsoft. The fact that the NASDAQ index outperformed all four companies probably shows that young, fast growing companies generate better returns than the mature company examples I chose. Of course, on a risk adjusted basis Cisco and Oracle look pretty good.

Web 3.0

When I wrote my most popular blog post ever (1100 readers), Microsoft Yahoo Makes Little Sense, I struggled with how to describe Yahoo's failing strategy. Finally it came to me. Yahoo failed to realize the change in the Internet to where people now "live on the web". No longer is the Internet about portals, static content and pushing information to readers. Today the Internet is the place where people have their social, intellectual and professional lives on display, in large part through content they produce.

As I consider the future of the Internet, a point my wife (who is much smarter than I am) always makes guides my thinking. She always says, "the computer is just a tool". Thinking about the future of the Internet, the Internet is just a tool to create and collect information. More sophisticated ways to create and collect information, not the technology, will drive the future direction of the web. As Sramana Mitra (another woman) at ReadWriteWeb said, "Web 3.0 will be about feeding you the information that you want, when you want it in the proper context".

Two recent developments support my view:

1. Reuters, the international news conglomerate, launched Calais. Basically, Calais automatically generates metadata (subject) tags from any XML document using artificial intelligence. Tags are generated automatically about event, company, organization, person, country, city and people. Producing the tags permits the document to be more easily discovered through a search. Now every Reuters story, and any document that uses Calais, will be much easier to find. Reuters obviously supported the development of Calais in order to facilitate the discovery of more of their proprietary information, but Calais can be used by anyone.
2. Google now offers the ability to translate any web page into any one of 13 major languages, but the really useful feature is that I can enter a Spanish search term, search Spanish language web pages and receive the pages translated into English, French, Russian.... Next time you need to research a foreign country or company, you are no longer limited to the English language pages (or whatever language you prefer).

A recent post on Research Recap, an excellent blog for new research on a wide range of subjects, highlights another interesting development. According to Forrester Research, 64% of consumers prefer to read user reviews of products (rather than manufacturer specs). This finding makes clear to me that we have more confidence in each others content than in content from companies, the media or the government. This is why blogging is so popular :), del.icio.us bookmarks has so many users and Ning's growth has been fueled by specialized subject social networks. There is a social component to all these examples, but I believe that it is the user generated content that is driving their popularity. A newly launched site, Docstoc.com, is another example that user generated content is the future. Docstoc allows users to upload and share a wide range of documents on subjects ranging from business and legal to creative and educational. Next time you need a sample contract try Docstoc.

What I expect to see in the near future is the following:

1. The ability to subscribe to a particular search on Google or any other search engine and receive updates via RSS as the search results are added to or change. This would be particularly useful to people interested in SEO, search engine optimization, or staying updated on a particular subject. I think it would be easier than saving a Google search or relying on a clipping service to collect pages on a particular subject.
2. While much is made of vertical market search engines, I think that a better alternative may be for several users with a common interest to be able to collectively post their bookmarks on a subject. Rather than having to view the hundreds of low quality subject tags on delicious, you could go to a specialized search engine that, for example, utilizes the bookmarks from four professors at MIT that are subject matter experts (sort of a Ning for search engines).
3. Another search option that I think will be coming is the ability to direct the search engine to certain particular databases that may not show in results frequently. For example, the Social Science Research Network is an excellent source of academic articles on a wide range of subjects, but I rarely see links there from a business topic search on Google.
4. I think there is a big opportunity to develop expert answers, similar to the questions feature on LinkedIn. Almost every question on LinkedIn has a rating of the best answer, yet these responses are only available to LinkedIn users. The other difference between LinkedIn and, for example Yahoo Answers, is the quality of the respondents (very high on LinkedIn). I think there is a business model based on a subject matter website where real experts (not hacks) answer questions and revenue comes from advertising.

Enough user generated content for today. Have to go check the Google searches that brought readers to this blog.

The BOGO Business Model

I have written about business models eight times in the first 100 posts on this blog and most recently here. (If you are counting, this is my 100th post.) Business models obviously interest me, in part because they are so important for sophisticated investors (VCs, hedge funds, etc.) to understand. They also interest me because so many entrepreneurs fail to think through in detail the key parts of the business model:

1. Revenue model
2. Pricing model
3. Sales and distribution strategy

The BOGO model is a relatively new business model popularized by OLPC and Sun Night Solar. In this model when you buy one you get one additional unit which is sent to the third world to be given free to a needy soul. OLPC sends a proprietary PC and Sun Night sends a proprietary photovoltaic flashlight. While both companies use a marketing pitch targeted at helping the third world, I think that most people evaluate the price they are paying against the value of the single product they themselves receive. In both cases a single unit of the proprietary product has sufficient value to justify a price that permits two units to be manufactured at a profit (or positive cashflow).

In both cases the companies decided that:

1. They were developing products for the third world
2. Realized that the third world could not afford to pay for the product
3. Opted for the BOGO model
4. Engineered the product to match the costs for BOGO to work

The entire logic here is based on a profound understanding of the pricing model. One might say that the pricing model drives the entire business strategy. For example, the pricing also has to cover the entire cost of distribution in the third world, which lead both companies to low cost distribution strategies. (OLPC uses local governments and Sun Night uses local charities that are paid to distribute.) Without an in depth understanding of the value of the product they would not have been able to establish a price that would support BOGO.  Perhaps every startup should consider BOGO as a business model, not to help the third world necessarily but to force the entrepreneur to better understand the value of their product and the appropriate pricing.

A case in point is my online backup service, Fabrikinc.com. The first gigabyte of storage is free and the second gigabyte costs me 89 cents a month (yes-I do keep my overhead low). Why does Fabrik not offer me an extra gigabyte of storage for $1.78 per month and allow me to give a one gigabyte backup service to a friend or family member (whose computer always dies). The extra 89 cents a month is insignificant, would not change my decision and Fabrik would benefit from a zero customer acquisition cost for the new customer. A variation on this logic, which relates to sales and distribution strategy, is why when you sign up for a web service, such as Clipmarks, they do not offer you the option to enter a friend's email so they can be told about the neat new application you are using. (Clipmarks copies web images and allows you to email them, post them to a blog, archive them online and put them on your Facebook page.)

On a related theme, NewsGator announced a change in its business model this week. NewsGator is an application-based RSS feed reader, as opposed to a web service such as My Yahoo or Google Reader. (Only about 30% of the readers of this blog use a feed reader and you may want to check out any of these three products.) NewsGator will no longer charge for their consumer version of the application-- FeedDemon. Their logic is that by increasing penetration in the consumer market, this popularity will increase the likelihood that FeedDemon will be chosen as the enterprise version feed reader in corporations. NewsGator's strategic focus is on the corporate market for the enterprise version of the product. FeedDemon also resells the data related to your blog reading, if you permit it, so a one time fee for the application may be interfering with maximizing the data sale revenue. Obviously NewsGator has changed its pricing model but in doing so they support a change in revenue model to focus on data resale. They also support a change in sales and distribution strategy to support their focus on the enterprise market.

This post hopefully points out the relationship between the revenue and pricing model and sales and distribution strategy.  Both examples above, BOGO and NewsGator, hopefully also make clear that there is no "normal" business model. A new business model may provide a competitive advantage, at least for a time, but it requires detailed analysis and a bit of courage.

FIU Green Forum on Supply Chain Management

Another excellent seminar at FIU on "green" topics for business

To register for the Green Supply Chain Forum,

please visit http://business.fiu.edu/greensupplychain.

 

Digicel Wins Honduras License

Back in October I posted on the auction taking place in Honduras for the fourth cellular license in that country. I predicted that either Telefonica or Digicel would be the winning bidder and the winning bid for the license would be at least $20 million. Yesterday several sources announced that Digicel had been awarded the license with a winning bid of $80 million or about $10 per capita.

The magnitude of the winning bid for the license prompted me to do a short analysis, which is shown below. Digicel's total investment in Honduras will probably total $300 million based on their previous strategy in similar countries. The initial network buildout will cost $100 million and with success in the market they will expand their network in phase two at an additional cost of $120 million to provide the best network coverage in the country. The license fee brings total investment to $300 million. Assuming that Digicel is targeting a return of 15-25 percent per annum in 5 years, their target exit value for Honduras is $600-900 million. Based on an assumed value per subscriber at exit of $1500-2000 (50-60 percent of a U.S. subscriber), Digicel needs between 300-600,000 subscribers in year 5 to achieve its return target at exit. This level of subscribers is quite realistic given Digicel's performance in markets similar to Honduras.

Digicel's willingness to invest $300 million in a market that already has two strong competitors shows just how attractive the cellular market is in Latin America. It is proof we can expect continued growth in subscribers and new investment in this sector in Latin America.

Personalized Games--Kickplay

Personal content has reached a new level!!

Kendall Kunz, who I have mentioned before in this blog, has taken the cover off his new startup--Kickplay. Kickplay is Kendall's third game startup and his experience in the gaming field shows. Kickplay let's the player customize a game with their own images and sounds and share it on the Web--all with no programming. There is a wide selection of popular games and the plan is to add new games monthly. You can also play games created by others. All free.

 

A game featuring yours truly is available here and shown below.

I will buy lunch for the best game submitted by a reader and will post it on this blog.

Strategy in the Wireless Industry

I have followed the wireless industry for many years, raised capital for cellular companies and done several feasibility studies for greenfield projects. An announcement this morning caught my attention. The government of Honduras is auctioning off the fourth wireless license for the country. Honduras has a population of 6.8 million, a per capita income of about US$ 1,000 and three operating cellular service providers. The minimum bid for the license is US$ 10 million and the network build out will cost approximately US$ 100 million based on similar projects. One other fact, two of the best cellular operators in Latin America, America Moviles and Millicom, already have operating service in the country. So in summary, you write a check for US$ 110 million, go up against two formidable competitors and the total available market is probably 3-4 million subscribers.

Despite this daunting scenario, four very qualified companies are bidding:

1. Telefonica, the second largest provider of cellular services in Latin America
2. Cable & Wireless, a leading provider of cellular services in the Caribbean who is going after their first new market in many years
3. Iusacell, a second tier Mexican cellular operator (everybody is second tier in Mexico behind America Moviles, Carlos Slim's company)
4. Digicel, now with nearly 5 million subscribers in the Caribbean and Central America

So why is everybody looking to jump into Honduras:

1. The unserved market probably totals at least two million (sufficient to pay off the US$ 100+ million investment)
2. All of the bidders get certain economies of scale in head end systems and network
3. The absence of local number portability means that you get the customer probably for life
4. Significant growth in cellular services in Latin America is only available from entering new markets
5. The amount of investment is insignificant to all of the bidders (with the possible exception of Iusacell)
6. All the bidders have experience and strategies for the markets of Central America.

My fearless forecast is that either Digicel or Telefonica will be the winning bidder, that the license will go for US$20+ million and that the price of cellular service in Honduras is about to come down. Who says you can not make money in poor countries!

University Startup Conference

I have just returned from the University Startup Conference in Washington, D.C. This is the first academic conference that I have attended in the last 34 years and I recommend that you space out your academic conferences at least every 40 years. The conference was held at the National Institute of Health facilities, where the level of security would suggest that I am glad I live outside the Beltway.

The conference brought together representatives from several federal agencies that give research grants to foster scientific research, state government officials who foster economic development, state university administrators principally responsible for technology transfer, venture capitalists who get their deal flow from these groups and me and one other person interested in boot camps for student entrepreneurs. I gave one of my usual humorous, insightful talks that was of interest to one other person and when I find them I am going to thank them for attending.

Not surprising in this gathering of federal, state and university officialdom, the people that had the most useful information were the VCs. They told good war stories about all the conditions attached by these types of officials to deals they had considered. The most important point for entrepreneurs is that the conditions you agree to before you bring in the VC may prevent the VC from structuring a proper return on the deal and consequently kill it. A few examples cited were:

1. Granting anti-dilution protection to prior investors
2. Granting liquidation preferences to prior investors
3. Agreeing to high royalty percentages on licensed technology, even if they are contingent on performance (5% or less appeared to be generally acceptable)
4. Agreeing to an escalating, fixed payment schedule for royalties
5. Agreeing not to move your business out of a state

Of course there were several questions from the officials on how the VCs valued companies with significant federal or state grant monies.  The consistent answer from the VCs was that prior money invested (in any form) had no effect  on their determination of pre-money valuation. They explained that they backed into a valuation based on their target 10X return in five years. A noticeable hush came over the room after this answer.

A Canadian government official (who probably wandered into the conference by mistake) commented to me that U.S. citizen interest in immigrating to Canada is near an all time high. If interested, the words to O Canada in English and French are here.

New Business Ideas-II

I recently received a business plan for a new networking site for business people. It offered no compelling reasons to abandon LinkedIn, Xing or Facebook, all of which I use. Managing three networking sites is about my limit and two more than I would like to manage. Consequently, as social network sites sort themselves out competitively, I need a very good reason to add a new networking site.

Last week a little noticed news item mentioned that Wachovia is developing an internal social networking site using Microsoft technology. (Hint: When the Web 2.0 technology is Microsoft there is definitely a business opportunity.) This morning Read/Write Web posted on two Forrester Research reports on Web 2.0 in the enterprise. My interpretation of the graphic below from Forrester suggests that Web 2.0 as a corporate application(s) has barely penetrated companies with more than 500 employees and significant opportunity still exists.

 

(Click on graphic to see full image)

Marc Andreessen, the developer of Netscape, posted today about the three types of web platforms. Not surprisingly he advocates the type of platform he is currently developing at Ning. (Ning provides a platform so that anybody can create a social networking site and hosts a reported almost 100,000 networks.) Andreessen's recommended platform is a runtime environment.  In such a platform third party applications code actually runs inside the platform, as opposed to third party Facebook apps which run outside on their own infrastructure. (As a big fan of salesforce.com, another runtime platform, I think Andreessen is correct about the best type of platform.It is not for the technologically challenged as he points out.)

At this point it may not yet be apparent where I am going......patience.

I think a big opportunity exists to provide corporate social networking sites, a combination of the functionality of Facebook and LinkedIn, to large enterprises. The product would be offered on a software as a services model but would offer a runtime environment so third party developers could develop apps and be compensated. Effectively, one would have salesforce.com for corporate social networks. Security concerns could be met by the apps the corporation selected to offer employees.

Some pundits have pointed out that corporations are restricting access to Facebook during business hours. Ten years ago companies were concerned about the employee productivity loss from Internet "surfing". Social networks within corporations should be a big business and there is always room for a number 2... after Microsoft :)

How MySQL was Built

Sandhill.com, a website devoted to strategy for software companies, has an excellent interview with Marten Mickos, the CEO of MySQL--the leading open source database provider. He talks about the keys to the successful development of the company. A few of his key thoughts are summarized below:

1. Distributed Workforce  70 percent of the company's 360 employees work from home, which  leads to efficent operations
2. Culture of Experimentation  Test new projects quickly rather than over analyze them
3. Everyone Listens to Customers  Make a focus on the customer part of the corporate culture and not the responsibility of a single department such as customer service
4. Run Sales as a Science  Manage sales to reduce the time to close, particularly with products that have long selling cycles

Much has been written about MySQL as an open source software product that has had over 100 million free downloads. Perhaps less widely known is that they developed the product for six years before they ever released a copy. With a six year period of investment, execution becomes paramount. In case you missed Mr. Micko's points on execution, they are:

1. Capital efficiency
2. Constant product innovation
3. Focus on the customer
4. Rigorous sales management

Add a point that one should hire the best people and constantly develop and reward them and you probably have the five key points to build a successful company in any industry.

Florida Venture Capital-III--TRDA

One of the keys to a successful startup is marshaling as many resources with as little capital as possible. While I have never believed in using government resources (they have their own agenda), the State of Florida has the TRDA. The Technological Research and Development Authority offers training programs, an incubator, mentoring and other relevant resources. They appear very interested in cleantech and alternative energy in particular. A very seasoned acquaintance who is on the Review Committee to admit companies to the TRDA incubator gave me this heads up.

FIU Hosts Water Issues Forum

This year's business plan competition at the Pino Entrepreneurship Center at FIU featured many environmentally oriented and cleantech business concepts. In keeping with this theme, the Center is co-hosting a discussion forum on water issues in Florida to be held Friday, August 10. The complete announcement is below, and for additional information contact Banu at bsizi001@fiu.edu.

OLPC-Great Technology, Great Cause

Today I met with Richard Bernstein to catch up. Rich is a partner at Greenberg Traurig, the large, Miami-based law firm, where he is a senior member of the corporate securities and transactions practice. As soon as we got our coffee, Rich began talking about a new client. Rich is serving as counsel in Central and South America for OLPC. (Rich and I share a deep interest in technology and international business and he has a great sense of humor.)

OLPC (One Laptop per Child) is Nicholas Negroponte's project to provide a $100 computer to every child in the third world. Negroponte is a Professor at MIT, the co-founder of the MIT Media Laboratory and wrote some fascinating articles in the 1990s for Wired about the future of the Internet, media and technology.

Rich detailed the technical specs for the laptop (open source software, AMD chip, 1G of flash memory, camera, etc.) and pointed out four distinctive features:

1. a patented screen that works in direct sunlight (because many third world schools are outside)
2. a 10 hour battery that can be recharged up to 1000 times (compared to 300-500 for a normal laptop battery) and many other "green" features
3. wireless communication between nearby OLPC laptops without the need for routers
4. mesh network technology which enables all the laptops in an area (think classroom) to have Internet access if only one computer has access

He also showed me his working model of the OLPC. A picture is at the end of the post (courtesy of www.techfresh.net). Much has been written about the OLPC, but what impressed me was the range of functionality in such a small form factor.  If I loaded Open Office, a Linux-based Microsoft Office competitor, on the OLPC I would have the complete functionality of my current Dell Machine at approximately one fifth the weight (and the battery would last about four times longer.)

I think that smaller and smaller, light laptops with long life batteries is the future direction of PCs. I think that the OLPC could now be the standard of comparison for "ultralight" laptops. Maybe this is why Dell and Intel have been so anti-OLPC. 300 million third world children having their first computer experience with an OLPC (running an AMD chip) might also be a concern :).

Now if the cell phone served as a projector for the laptop, I might not need a screen. If the PC was embedded in the cell phone, then I might only need a keyboard and .......maybe that's why Apple launched the iPhone!

Where is the Internet Going

It's not surprising that I am not the only one wondering about the future direction of the web. Nick O'Neill at Webpreneur posted here on his thoughts for the future of the web. He forsees a web of widgets and social networks, and the only competitive advantage a network will have is its user base. 

Market segmentation (user base) alone is rarely a sustainable competitive advantage. The only way a user base is a sustainable advantage is if the host or the users provide some form of accreditation. For example, almost every internist in the U.S. is a member of the American College of Physicians because the ACP grants "Fellow" status, a distinction which acknowledges the advanced training of the doctor. LinkedIn, the business networking site, appears to be following the accreditation strategy. If you answer questions on LinkedIn and the person posing the question rates it the best answer, you accumulate "expert" points in the subject area.  As soon as LinkedIn adds an "experts" tab to the website, blogs about their experts or features experts on the home page, they will have combined market segmentation with accreditation. The "expert" users will be reluctant to switch to another networking site and people will join the network to gain access to the experts.

I think a part of the future direction of the web is shown in two sites--Lijit and Widgetbox. Lijit organizes all my web content in one place and makes it searchable on leading web content sites such as delicious, LinkedIn, My Space and my blog(s). Now that Facebook has opened its platform I am sure that Lijit will soon be able to access that site also. My content on Lijit is shown below.

With each of us posting more and more content  on the web , finding where  you put content is becoming increasingly challenging and important. Lijit simplifies that task. Lijit also organizes my public "persona" so prospects, clients or employers can gather a much more in-depth understanding of me. Running a professional services business, I see a great value providing as much information to prospects as possible. With the web increasingly being driven by user generated content, organizing an individual's content will become increasingly desirable. (Now if we could get LinkedIn to put Lijit search widgets on each network member's profile that would be really convenient and increase the value of  LinkedIn.)

Putting Lijit on LinkedIn brings me to my next  point about the future of the web. Facilitating connectivity in a user friendly, easy way is going to be a must for every network and web service.  Widgetbox understands this idea and offers a one step process to embed a widget into Typepad and Blogger (blogging services), Facebook, My Space, Net Vibes, Page Flakes, Google and several other sites.  Two clicks and a widget can be embedded into any of these sites. (Lijit's interface is equally easy.) While everybody wants an easy interface, with the proliferation of networking sites and widgets users are increasingly going to choose based on ease of use (and design). In a future post I'll talk about design and some additional ideas on the future of the internet.

 
Widgetbox

Is the Internet Following the Retail Industry

In the early 1980s I visited Target headquarters in Minneapolis. They had just installed their first POS (point of sale) equipment with the expectation that it would improve cashier productivity. What they found was that the customer data was much more beneficial than the negligible improvement in cashier performance. By the 1990s Wal-Mart had advanced the use of POS data to the point where they could tell you the number of red ladies shoes, brand x, size 9 sold this saturday and the same saturday last year (and the weather on each day). What prompted Wal-Mart to develop their POS data to such a degree of completeness?

The answer lies in part in the change that took place in retailing in the U.S. in the 1980s. In the 1980s retailing changed from a push to a pull model. During the "push" period retailers put out merchandise based on what they could source. When the model changed, customers had the power and "pulled" from the store what they wanted. What caused this shift in power to the consumer was the proliferation of retail concepts and better international sourcing methods. More segmented store choices with wider and deeper choices of merchandise gave consumers the power to choose or "pull".

We are seeing the same shift in power today on the Internet through Web 2.0--the change from a "push" to a "pull" model. John Hagel, amongst others, makes this point in a post here where he discusses several trends transforming the web. In the early days of the Internet everybody was ecstatic just to find a website with accurate information on a topic that interested them. This was the "push" period where users had fewer choices and the websites had the power to determine the information. Today the web has been transformed into a "pull" model where users not only pull what they want  but also are able to self-organize the information.  Social networking (delicious, Facebook, Ning) and widgets (Lijit, Widgetbox, etc.) are just two examples that demonstrate these changes.

All consumer business models change from "push" to "pull" when consumer choices increase dramatically. The rapid pace of technological innovation, the low barriers to entry to offer new web-based services and the ability of consumers to organize their own information will make web 2.0 an unprecedented change from "push" to "pull".

The change to a "pull" model in retailing lead to the development of supply chain management and "just in time" inventory, both far reaching changes in business methods that affected a wide range of industries. The change to a "pull" model for the consumer Internet will have far reaching effects that will also extend to business processes and methods. In an upcoming post I'll write about the effects on business that I expect.