Al la carte versus All you can eat – the rise of the virtual cable operator

Recent announcements by the FCC proposing to change the interpretation of the term “Multi-channel Video Programming Distributor (MVPD)” to a technology neutral one has thrown open a lifeline to providers such as Aereo who had been teetering on the brink of bankruptcy. Although it is a wide open debate if this last minute reprieve will serve Aereo in the long run, it serves as a good inflection point to examine the cable business as a whole.

“Cord cutting” seems to be the “in-thing” these days with more people moving away from cable and satellite towards adopting an on-demand approach – whether via Apple TV, Roku or now – via Amazon’s devices. This comes from a growing culture of “NOW“; rather than wait for a episode at a predefined hour, the preference is to watch a favorite series at a time, place – and now device of ones choosing. Figures estimate up to 6.5% of users have gone this route, with a large number of new users not signing up to cable TV in the first place. The only players who seem to have weathered this till date are premium services such as HBO who have ventured into original content creation, and providers offering content such as ESPN – the hallmark of live sports. Those who want to cut the cord have to end up dealing with numerous content providers – each offering their own services, billing solutions etc. To put together all the services that users like, ends up being a tedious and right now – and expensive proposition.

This opens the door for what can only be known as the Virtual Cable Operator – one which would get the blessings of the FCC proposal. Such an aggregator (could be Aereo) could bundle and offer such channels without investment into the underlying network infrastructure – offering a cost advantage as much as 20% as compared to current offerings. This trend is a familiar one in the Telco business – and cable companies better be ready for this. Right now they may be safe as long as ESPN doesn’t move that route – but with HBO, CBS etc all announcing their own services, I believe it is only a matter of time. While the primary impacts to cable has extensively been covered – there are a few other consequences, and opportunities that I would like to address.

The smaller channels (those who charge <30c to the cable operators) will experience a dramatically reduced audience. Currently there was a chance that someone would stop by while channel flipping – with an al la carte service – this pretty much disappears, and along with it advertising revenue. An easy analogy would be that of an app in an app store – app discovery (in this case channel discovery) becomes highly relevant. Another result is that each channel would be jockeying for space on the “screen” – whether a TV, tablet or phone. I can very well imagine a scenario of a clean slate design like Google on a TV, where based upon your personal interest you would be “recommended” programs to watch – question is who would control this experience…

Who could this be –  a TV vendor (a.k.a a Samsung – packaging channiels with the TV), an OEM (Rovio, Amazon etc.), a Telco or cable provider (if you can’t beat them – join ’em), or someone like Aereo? The field is wide open and the jury has yet to make a decision. One thing however is clear – the first with a winning proposition – including channels, pricing and excellent UI would be a very interesting company to invest in…..

Finding Yahoo’s next Yahoo! moment

“Yahoo CEO set to refresh turnaround plan” screamed the headline across the pages of the Wall Street Journal. Sitting pretty on a pile of cash, fresh from Alibaba’s IPO, activist investors are now encircling the embattled media giant to do something. None seem to be content from her set of acqui-hires – Yahoo did get excellent technology and personnel. But the big question remained – was this being monetized, and worth the millions paid out from the war chest?

As a person who only uses Yahoo for email and weather on my phone, the value (and hence worth) provided by the firm is hard to justify. I haven’t ever clicked on any advertisement EVER on the portal, and these days I could be forgiven not to remember any advertisement on the page once I have closed it. With this I am not sure what my worth to Yahoo is, I would say – close to ZERO. One could argue that I have the same reaction with Google and/ or Facebook – but at least I spend 10X more time on those sites than on Yahoo, and engage with their different properties (a.k.a mail, news, search etc). I daresay I am not unique in my consumption of what Yahoo has to offer. In addition, Yahoo is no longer a startup and hence is evaluated in terms of quarterly results, revenue, margins and other standard KPI’s – a difficult position when you are in the middle of a long term restructuring plan.

And so I pondered, what should Yahoo do; or better still if I were in Marissa Meyer’s shoes – where would I focus…. These are my thoughts, drawn from insights into the sector along with its continued transformation.

1. Start by getting rid of the clutter – if you open Yahoo these days, the site is cluttered, darn cluttered (even after efforts this year). Although an improvement from the Yahoo of old, it is still a quagmire of many properties bought along from its many acquisition. It is surprising that it still remains this way, given Marissa’s pedigree at Google. It is a good ambition to aim to be the one-stop stop, but is it possible to achieve this without 100 different options (news, finance, ads etc) staring at you from the get go? I understand you don’t want to copy Google with the clean slate design, but well couldn’t one of your highly paid UI/UX designers come up with a better alternative?

2. Go mobile – where others don’t dare to go. If there is one place Internet companies have not fully invaded, is to go the Telecom route. Most have been content to piggy back as OTT services that users consume. The only challenge here is now you are competing for attention with all the others who have adopted a similar route. Whataspp made the first step in this direction with an MVNO in Germany – others are yet to follow. Yahoo has mobile, has data rich content and I daresay has the ability to upend the Telco market with a freemium strategy (search after all remains “free” to the user and is monetized indirectly) and capture an ever growing market of mobile adoptees. If there are any cardinal truth’s about telecom then it is the fact that mobile user base (across the world) is on an upswing (especially in developing markets), and so does their consumption of content. All around the world regulators are fostering new competition (see Mexico as a prominent example). So now, you do not need a network to offer a service. Be the first mover, use the MVNO route – and open up a whole new market.

3. Find the next Ali baba – within the developing world. This evolves from point 2 above. With Alibaba, Yahoo was able to get in early and strike it rich. Although acqui-hires are great for building up talent, bigger acquisitions such as these have to potential to provide the greatest impact. The BRIC states along with emerging economies such as Nigeria and Indonesia offer enormous long term potential, with current valuations incorporating some level of the risk. Although a long term shot, lessons from Alibaba can only serve as a guideline on the future benefits of such an approach.

So there you go, my top three choices. Two which could be addressed immediately and one moon shot for the future. I love my Yahoo account (it was my first email address), and I would hate to see it go the way of Myspace… the long darn and lonely march into obscurity.

Friction-free: enabling happy customers

Last week, I had the good fortune to attend MBLT 2014, a conference all around the rapidly evolving mobile ecosystem. Among the many speakers at the conference, two which piqued my attention were those from Spotify & SoundCloud; both speakers were engaging, and interestingly enough – both talked about growth.

When we talk about growth here, it wasn’t all about entering new markets, or creating new products. It involved a lot of small elements; elements which when brought all together ensured that you gained a lot of users and who kept coming back. Although Spotify and SoundCloud operate in the music space, both (currently) focus on different aspect of this segment. As Andy @ SoundCloud succinctly put it; if Spotify was the Netflix of music, then SoundCloud was Youtube. However, each company seemed to have a common approach when it came to customer acquisition – to develop a friction-less sign up process.

At its core it simply meant reducing the number of clicks, mouse moves etc required to sign up a user and/ or a customer. Both agreed that if any sector was to be considered as “best practice” then it would be mobile gaming – and the king of the hill was… well, King.com. The makers of Candy Crush had got this bang on – all you had to do is download the game and you were good to go.

Their mantra was -> Number of clicks to sign up = 0. Number of users = millions!

Both SoundCloud & Spotify were always on the lookout to make the whole signup process, simpler, quicker and more efficient – fully aware of the fact that complicated processes turned away prospective users, and getting them back wasn’t a trivial matter. That point got me examining different websites to see just how much this mattered (a study done by Spotify as well).  After some pottering around, I couldn’t but wholeheartedly agree with the rationale of such an approach.

If you now compare this mentality with IT solutions at traditional corporations you realize how far behind the curve they are in this respect. Many systems there are built more with the paranoia of security and little consideration for user engagement.  These are what I call “push systems” – where employees have no choice BUT to use these services mandated by IT. The direct result is that either personnel shy away from using these services, or doing so becomes an irritating chore (especially since they use better designed services on a daily basis). Rather than a full scale rebellion, we are seeing services which simply assist existing ones services such as Brisk.io gaining traction because continuously updating SalesForce is tedious.

A takeaway would be for IT personnel to closely work with  end users in deciding how they would like to engage with the services they use on a daily basis. Focusing on small but important elements such as “clicks to complete entries” etc will make employees more enthusiastic on using such services making these more an aid (which was the purpose) rather than a chore!

Bevation – A canary for corporate incubators?

A few weeks ago, my attention was drawn to a small post within Gruenderszene – that of the quiet exit of Bevation, the incubator hosted by Bertelsmann. The exit was so swift, that even the landing page has by now disappeared into cyberspace. This article, coupled with a previous editorial on the same site highlighting the harsh downsizing of other smaller private incubators in 2013 made me speculate where the fortunes of the corporate incubator lay for 2014 and beyond. Was Bevation the proverbial canary for the Old Economy Corporate Incubator as an industry, or was it more as an exception than the rule?

To be fair, the aims and objectives of Bevation had all the makings of a corporate PR exercise, with words such as “innovation”, “exchanging ideas”, “providing insights” liberally interspersed within their vision. My experience has shown that more vague the objectives, the increased likelihood that you will fall short of those objectives. In addition, although Bertelsmann did provide space, facilities and mentoring it stayed away from capital investment. Given that they have a lot of prime real estate in Berlin this would be a cheap way of getting into the startup scene and checking it out, with limited risk. My hunch is that as corporate priorities changed, and management didn’t see any “wow” outcomes interest withered to the point where the validity of its existence itself was challenged. Notes posted on the website of incubated startups such as Snoopet point to this situation. Management was perhaps expecting the next Google or Facebook – what they got were a few startups, some with even unclear business models.

Will this be the same fate for the other corporate incubators? Many of them are doing a lot more, including investing badly needed seed capital in their startups. However, at the same time all of them do need a few heralded and publicized exits (or at least “BIG story”) to validate their approach and business model. In the end it all boils down to some hard decisions – why are we doing this? Is it for revenue, image… or something else (and this something else better be tangible!). If revenue – are we giving the unit sufficient runway to achieve this rather than a quarter by quarter evaluation approach? If image/ PR/ branding – have we achieved this, and is this achievement recognized and aligned with the interest of the management?

My gut feeling is that those that can objectively answer these questions will survive; perhaps even emerge stronger (and better supported) than ever. Those who operate in a wishy-washy environment may be better of in taking heed to the message of the canary…

The nascent VC – Fools rush in!

The good folks at SeedCamp invited me to be a mentor for SeedCamp week in Berlin, and never to miss an opportunity to discover new trends and companies I signed up for the same. The event was very smoothly run, with quite a nice mix of startups ranging from education to financial management, fashion and sustainable farming. Most of them good ideas, but as serial entrepreneurs caution, an idea is one thing… execution is everything.

However, this post is not about the startups – but more about the investor community who were milling around. Before I arrived, I thought I had a good idea of the players within this ecosystem; after yesterday I realized on how much I had undersized this segment. There were players I had never even heard of, and suddenly it seems that there are a lot more VC’s than companies! Some of these firms are niche so if you are not in that industry you may never have heard of them. But among some of the others, I admit if I would be one of their LP’s then I should be justifiably worried. Some definitely seemed qualified, many born out of established VC’s; however there were many running around speaking in platitudes interspersed with jargon. Maybe this impressed some, but left me wondering about their actual capabilities.

The challenge I realize is that there just aren’t a sizeable number of high quality investment opportunities. If you are a good startup, with a good product – you literally have all the VC’s knocking on your door. In this case, major firms such as Earlybird have an advantage since they are well known and can provide you with good, solid advice to help you along the way. Conversely it means that a no-name VC would have to simply outbid an established player (i.e. cough up more cash for lesser equity) just to get a chance to get a foot in the door. They may still lose in this game since most good startups realize the value of strategic advice over money and may still decline such an offer; as Peter Witt (my professor at WHU) liked to say – if you want dumb money, ask your dentist; he will give you the money, and offer no advice!.

What are your options then – well, you then have to target the “not so good firms” to invest. Well that increases your risk…. an odd saying in what is already a highly risky business. Who stands to lose – well, the LP of course! Not only this, even startups should be cautious in working with these – to carefully evaluate what (apart from money) other resources are offered. If you can get money from one, then perhaps you can get money from another – see what else is on the table in terms of support.

But all in all, Berlin is now becoming an increasingly attractive place for folks to come and set up a business. The key is to set up – and hopefully with a well connected Angel investor – who has the right connections and contacts to the right VC’s. So when you grow (with the right advice and investment) you are automatically in the inner circle to help you get to the next stage. And if you are one of those who isn’t sure that his idea is there yet – Berlin is an even more attractive with money floating around…. it wasn’t like this, and not sure how long this will last…. but now it is there… so grab it!

RIM or RIP

Hello readers – it has been a bit of a hiatus, but with so much happening in the industry felt it was time to dust the cobwebs and get back to some good ol’ smart-bytes once again. Today it will be as much of looking back as much as peering into the future – enjoy the read.

In September 2012, I coined in a small post postulating on the future of Blackberry – specifically that their new phones wouldn’t quite cause a dent in the market and the firm would disintegrate if it continued down that path. Fast forward one year and many of those predictions have come true – including the one that Blackberry would perhaps have to move towards a software strategy rather that stick to creating me-too devices.

The question on everyone’s mind is – well, what next; specifically who (if anyone) would buy the firm or parts of it. Over the last few days many names have been bandied about, from John Sculley, to Lenovo and even the original management among others. What is intriguing is who would command the best price – and what would their plan be?

For starters, one must realize what they are getting into. What you end up buying is a company whose back is broken – both in terms of an absence of a concrete road-map as well as the enthusiasm of its employees. The former could be fixed – the latter much more difficult unless a suitor can rally the remaining rank and file within the firm. That being said, Blackberry still has a few aces up its sleeve. It may not be the darling of the masses anymore, but in government circles it is still the preferred device of choice. If Blackberry needs a poster boy to this effect they do not need to look far – President Obama firmly holds on to his device of choice.

In my belief, this presents the first avenue for the way forward. Blackberry has excelled in one thing, and that is security – and the ability to provide it on a global basis. This goes beyond what a common WhatsApp or Viber can provide – and this what governmental agencies all over the world would always pay a premium for. If they are able to come up with a suite of services and applications (perhaps even residing on other devices), this would be immediately an attractive proposition to many. After all, who would say no to a combination of an iPhone or a Galaxy S4 equipped with the secure services of Blackberry.

The second area of opportunity is to move beyond just communications into the machine-to-machine space. Once again, it was a firm like Blackberry who managed to ink deals with carriers around the world to offer global BBM services at a flat rate. Add security and superior compression protocols to the mix then you get a world wide network where machine traffic can flow in a secure and reliable fashion. Given the ongoing trend towards cloud based m2m platforms (from the likes of Ericsson DCP, Jasper etc) the availability of such an underlying framework opens the doors to a whole new set of service providers who can offer global m2m services.

Now – it is difficult to say if either of the paths would be chosen, or if the suitors are simply interested only in its treasure trove of patents, and plan to strip the company of its assets before shuttering it down. For companies who want to enter the “mobile” space and think that Blackberry is their golden ticket – they perhaps should reconsider their options. However, it would be a pity if the company is not given the means and ability to affect a return – albeit as a different software/ service company.

For a company such as Blackberry – I still do think that the old firm still has a couple of tricks up its sleeve; if it were just given the chance and motivation to exercise this freedom.

Partnering at large corporations – secrets to succeed!

In the era of consolidation following the economic crises, many firms turned towards a ‘protect the core’ approach. One often adopted approach was the slashing of R&D budgets and consequently a diminishing pipeline of new products. These now lean companies are facing a new problem – what do you do when your core itself is shrinking! This is being fueled by rapid technology changes which allows substitutes to enter the market, many with a compelling service offering, and many times free of cost!

Given an option to either make (i.e. reinstate the development that you just fired), buy (who knows if this is a hype or will work?) – many large firms are turning to the third, the partner option. At the highest level this would seem simple – there are no integration headaches, no large in-house development costs; but many are realizing this is not as easy as it seems. This is best illustrated by a simple analogy, ‘have you ever seen an elephant dance with a mouse?‘. Nonetheless, rather than give up on what is and should be a clear cornerstone of new products offerings to keep customers happy, large companies can make some concrete steps in this direction.

• Make sure that the partnering and venturing team has the full backing of the management. This simply boils down to the fact that partner products should always be evaluated on par with similar internally developed offerings – no step-motherly treatment here.
• Ensure that the team understands the partner mindset. At best this would also mean that a few members if not all have past experience in such an environment. It is quite difficult to understand the challenges, needs and wants of small firms if you haven’t quite done it yourself.
• Do not subject your partner to the internal functions, realpolitik and bureaucracy in your organization. Instead work hard to make your own internal processes lean, efficient and less cumbersome. Best way to look at it – treat the partner as you would a customer; keep him happy! It is amazing how beneficial this could be to other divisions in your organization as well.
• Invest in being able to effectively manage multiple partnerships. Managing the first 3 – 10 are easy, managing 50 is another story altogether. This does not imply additional layers of complexity – but recognize the need to be abreast of and manage partner needs. The Microsoft way – i.e. categorize partners based upon a few select KPI’s (e.g. revenue, strategic interest etc) and then accordingly assign resources to them is quite effective in this respect. Have to give them credit here – they do know how to manage (without strangling) their partners to a good extent.
• And with all partners – do not be afraid of failure; monitor the progress, recognize if and when it is failing – and move on. Do not throw good money after bad.
• Finally – be patient. The above points may sound simple but do need some time to fall in place and for you see tangible results. Give yourself the time, and make management aware of the same. Last thing you need is the fruits of your labor falling apart halfway through because unrealistic short-term expectations have been set!

Fit or misfit – decoding the Skype acquisition

On May 11, 2011 Microsoft coughed up a staggering $8.5 billion to acquire Skype via an unsolicited bid. The general reaction all around was critical; why did Microsoft make its largest ever acquisition for a company which only 18 months ago was acquired from eBay at 1/3 the price? And that too a company which by itself had never turned a profit in all the years of its existence, but with over 170 million active users most of whom never paid a dime for the service.

Why would this be important for emerging markets you ask? Well, for one Skype is the way millions of users across the world communicate with each other – many of them from just these developing countries. I have been an avid user of Skype for many years from Africa to Asia and Latin America and can daresay that there are few services which can squeeze voice and video within a limited bandwidth as compared to Skype. And what’s more – it is all for free. What makes it an excellent and attractive proposition for a user makes it a challenging proposition for a company….. well unless you are Microsoft.

Microsoft has quietly developed several online properties over the years, some by itself – others by acquisition but few if any have actually gain traction among a large user base. Anyone can tell you, that in order to be successful in this space you either have to be niche and specialized or well, be the gorilla. Microsoft is just too big in size to be able efficiently address many small niches, hence only the gorilla option is available. In addition, it had been hoarding a lot of cash over the years and now investors were getting restless. You could consider an analogy to that of a property developer building a large mall with all the bells and whistles only to find that he didn’t have anyone coming to his mall because it was too far, too inconvenient or perhaps there were better alternatives. If he couldn’t somehow get the people to come and visit, then he would never have any hope of monetizing his other assets.

This is the dilemma Microsoft faced. It needed a heavy lifter, one who had the capacity to draw people to itself. Organically this would have been impossible, it would have taken too much time and effort – and well, past efforts hadn’t been successful as well. The only logical choice was an acquisition. If you looked around carefully at that point in time, the only asset which was available was Skype. If Microsoft had low-balled it may have resulted in a protracted negotiation, other parties may have entered the mix and the end result could possibly have been much higher. Hence it offered a price which couldn’t be refused – and at around $35 per active user, it can also been seen as a pretty low price to get continuous users.

Now that it has this asset, it is to be seen how best it will go about integrating it with its other offerings. If it manages to keep Skype’s flexibility and ease of use intact, it could potentially draw customers to products such as Office Live, its cloud assets etc – making its once barren landscape humming with activity once again. This could be an route to get people in the developing world latched onto Microsoft as they continue to use Skype as an integral part of being connected to the outside world.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours