Posts from April 2004

The enterprise software business has been built on a simple business model – build a new software product and sell it to companies that will pay you for the increased efficiency that the software creates for them.

But its harder and harder to get companies to pay for software today. They’ve got a lot it in place already and they are paying more and more every year to maintain it. Plus they’ve been burned by relying on small companies to deliver for them.

I don’t believe that we have come anywhere close to addressing every problem that software and information technology can solve for businesses. But I am beginning to feel that we may be reaching a saturation point in terms of what enterprises can pay for software and information technology.

So what should we do about this? I think we should turn our customers into suppliers.

I’ll give you an example. Ten years ago, I invested a million dollars in a company called Multex Systems.

Multex was created by a brilliant guy named Isaak Karaev and his initial idea was to build a software system that would facilitate the electronic distribution of investment research within large brokerage firms. It was a big problem. Printing and mailing investment research cost the brokerage industry tens of millions of dollars a year and by the time the printed research got to the brokers and their customers, it was old news. Isaak and his team built the system and started selling it to the large brokerage firms. But as everyone who has built enterprise software finds out, its hard to crack into tight budgets and the sales process was long.

But Multex was scrappy. They turned their customers into suppliers. They realized that the research reports that they were distributing around these brokerage firms were also valuable to the firm’s clients. So they developed another product which was a service to the buy side (the people who buy the stocks the brokerage firms sell) that allowed the buy side to subscribe to an aggregated set of real time investment research. Multex’ original customers – the brokerage firms – became the suppliers. Sometimes they were paid for the research and other times they were not. The buy side became the customer. And the rest is history. Multex went public five years ago and last year was sold to Reuters for over a quarter billion dollars.

I’ve seen this scenario played out more and more frequently. A technology that solves a fundamental business problem can be monetized in more ways than you might imagine at first blush. And the most obvious business model is often not the best one.

So when you are writing your next business plan, think long and hard who your best customer is and who your best supplier is. It might not be the ones you first think of.

Mazel Tov Jessica!

Apparently that’s what Colin Powell told Bush in January 2003 when Bush told Powell that he was going to invade Iraq.

We broke Iraq.

And now we own a big mess.

So true.

Back in 1997, some friends showed me a deal called Reciprocal.

Actually in 1997, the company wasn’t even called Reciprocal, but that’s what it became. The idea was great. Reciprocal had licensed some core technology called Digital Rights Management (DRM) from a company called InterTrust and was building an entire system around the InterTrust technology that would allow content owners to make their content available on the internet without having to worry about illegal file sharing and copyright violations. The Reciprocal solution would insure that whatever rules the content owner wanted to create around the consumption of their content would be enforced. The system even allowed for “superdistribution” which is the concept that everyone who passes on a file to another person can be rewarded for doing that when the ultimate recipient pays for the content.

I liked the idea, saw that it was a necessary building block for internet commerce, and made an investment in January of 1998.

Things didn’t work out too well for Reciprocal. The big problem is that the dogs didn’t eat the dog food. The system worked pretty well, but the Company couldn’t convince the big content owners to adopt their system. Everyone was looking for a “standard” to emerge, but none did.

Microsoft was a big investor in Reciprocal and even their considerable support couldn’t get the various content owners to move. The Company ran out of money in the fall of 2001 and Microsoft took over the business as a result of a bridge loan it had made to the Company.

Fast forward to 2004. DRM is in the news in a big way all of sudden.

Intertrust, which went public and struggled for the same reasons, was taken private by Sony and Phillips in a transaction that is reminiscint of the way that Microsoft took over Reciprocal.

But InterTrust had its patents, the same ones that Reciprocal had licensed back in 1997. They had sued Microsoft for patent infringement in 2001. Last week Microsoft paid InterTrust $440 million to license the InterTrust patents and settle the long standing legal battle.

And also last week Rob Glaser sent the now infamous email to Steve Jobs looking for a partnership to team up against the newly strengthened Microsoft. Real has to pick a DRM standard. Rob’s head is telling him to go with Microsoft, but his heart is telling him to work with Apple. Sadly for Rob, Steve doesn’t seem interested.

So even with all the progress made in the past year, the market is still looking for a “standard”. Will it be Microsoft’s WMA which includes the Reciprocal technology and a valid license to the InterTrust patents? Or will it be Apple’s Fairplay which is by far the most user friendly DRM system i have seen? Can the market continue to develop with competing DRM systems?

I don’t know the answers to all these questions and i am not sure Glaser, Jobs, and Gates do either. But i hope that they get them figured out because i still believe DRM is a critical foundation technology for internet commerce and i wouldn’t want to see Real or Apple go the way of Reciprocal and InterTrust.

Jeff Jarvis posted an excerpt from Bush’s speech last night. Jeff liked what he heard. I didn’t much care for what i read. Here is Jeff’s excerpt with my comments in italics.

America’s commitment to freedom in Iraq is consistent with our ideals and required by our interests.
required by what interests? – our reliance on oil from the mideast because we have no other energy policy?

Iraq will either be a peaceful, democratic country or it will again be a source of violence, a haven for terror and a threat to America and to the world….
As I have said to those who have lost loved ones, we will finish the work of the fallen.
America’s armed forces are performing brilliantly, with all the skill and honor we expect of them. We’re constantly reviewing their needs. Troop strength now and in the future is determined by the situation on the ground. If additional forces are needed, I will send them. If additional resources are needed, we will provide them….
why not ask our friends – or the countries that used to be our friends before Bush pissed them all off – to send some of their troops to help us out?

Now is the time, and Iraq is the place, in which the enemies of the civilized world are testing the will of the civilized world. We must not waver….
this is only the case because Bush decided to make Iraq the place where he would fight these “enemies of the civilized world”. maybe he should have picked a better place to do that

Yet, in this conflict, there is no safe alternative to resolute action. The consequences of failure in Iraq would be unthinkable.
then why were we in such a hurry to pick a fight there? didn’t we realize that the risks of failure were so large?

Every friend of America in Iraq would be betrayed to prison and murder, as a new tyranny arose. Every enemy of America in the world would celebrate, proclaiming our weakness and decadence, and using that victory to recruit a new generation of killers.
We will succeed in Iraq.
at what cost? and why did it have to be this way?

Well i got a few comments suggesting that offering MP3s for download on my blog wasn’t such a good idea. I guess they are right. But i also got this comment from Rob which i am going to try.
—————-
Fred:

Great idea. Another way to achieve the same…

Add the sound clips (mp3, wav etc) to your blog via Flash. Cross-platform, no QT player and accessible to 90%-ish of visitors.

Try: Swish – http://swishzone.com for an inexpensive way to convert your clips to Flash – and add player buttons.

And, to appease the RIAA-types. Edit your music clip (sample it) with the free editor, Audacity.

http://audacity.sourceforge.net

Fun stuff.

I was browsing through my Kinja tonite and i came across this post from Burned By The Sun.

It sounded worth reading so i clicked on it. I didn’t get a web page, i got my quicktime player and heard a great tune from the Velvet Underground called I Found A Reason pour out of my laptop. What a wonderful experience. And i am a total sucker for the harmonica.

So now i want to do that on my blog. Why link to music when i can just host it and let people listen?

So i uploaded “Coma Girl”, the first song on Joe Strummer’s last album.

Cool. I am going to do this from now on.

Wow. Every now and then i come across a comment that rings completely and totally true to me. So it was 10 minutes ago with Clay Shirkey’s comments about good and bad technologies and freedom to innovate. Here it is:

The thing that will change the future in the future is the same thing that changed the future in the past — freedom, in both its grand and narrow senses.

The internet means you don’t have to convince anyone that something is a good idea before trying it, and that in turn means that you don’t need to be a huge company to change the world. Microsoft gears up the global publicity machine its launch of Windows 98, and at the same time a 19 year old kid procrastinating on his CS homework invents a way to trade MP3 files. Guess which software spread faster, and changed people’s lives more?

This is but a small piece of a really brilliant interview with Clay where he tells some great NY stories and more at Gothamist.

If you are Wilco fan like me, you can listen to their new album, A Ghost Is Born, in Quicktime on their site.

I liked what i heard, but unfortunately, I had a hard time getting the Quicktime to work right.