Daily Archives: August 3, 2009

Those Wretched Palm Pre Ads

The advertising agency that devised the wretched Palm Pre television commercials is trying to persuade us that they’re actually good.

Gary Koepke, co-founder and executive creative director at Modernista, seems to arguing that we should accept his convoluted reasoning over what our lying eyes, candid emotions, and confused brains are telling us.

Explains Mr. Koepke:

“We weren’t trying to creep people out, but one thing I have learned now in this digital age is people can be as rude as they want as long as they don’t have to look you in the face. The Pre is probably being talked about more than other phones right now because of the marketing and advertising, and that’s a good thing. Could the ads work harder to show exactly how the phone works? Yes, but we knew it would be polarizing people to have a woman not shout at them and tell an interesting story.”

None of that makes sense to me.

The Pre will succeed or fail on the basis of its design, its ability to attract developers, and its quality and quantity of applications and content. The advertisements can help, but only if they emphasize and support the right messages to consumers, developers, and content creators.

These commercials are unlikely to motivate any of the above constituencies. They’re a cut above the infamous Microsoft “barf ad” for Internet Explorer 8, but that’s damning with faint praise.

VCs Stop Investing; Quattrone Laments Moribund IPO Market

Venture capitalists aren’t doing much venturing these days. They just don’t see how they can attain a return on their investments.

As reported on July 20 by The Associated Press, venture capitalists slashed their US investments in half during the second quarter of 2009 compared to the same quarter last year. It marked the second consecutive year-to-year quarterly decline of more than 50 percent.

Nearly $3.7 billion poured into 612 venture-capital deals in the three months ending in June, according to statistics released Tuesday by PricewaterhouseCoopers, Thomson Reuters and the National Venture Capital Association (NVCA). It represented the smallest quarterly total in 12 years. When one considers that biotechnology and cleantech investments are relatively ascendant, the IT-related investment picture is even worse.

The only positive that can be gleaned is that we see a sequential uptick in investment from the first quarter to the second quarter of 2009.

With such foreboding VC data providing a gloomy backdrop, Frank Quattrone — erstwhile technology investment-banking powerhouse and current CEO of boutique investment bank Qatalyst Partners — spoke with the New York Times about why an IPO has become an unachievable dream for the typical technology startup company, presuming said company can get enough funding to get off the ground.

Quoting NVCA data, the Times’ Claire Cain Miller reports that, from 1992 to 2000, 56 percent of venture capitalists’ successful exits from startup companies resulted from IPOs, with 44 percent resulting from acquisitions. From 2001 to 2008, only 13 percent of the exits were IPOs, with that proportion declining further in the last year. Of course, overall exits have been in chronic decline since 2000, too.

Quattrone notes that the incidence of IPOs, which generally make investors and entrepreneurs more money than do acquisitions, is declining because investment bankers have raised the qualification bar on such deals. Quattrone says some of the best companies with which he was involved in the halcyon days of the Internet had revenues ranging from $30 million to $50 million when they took the IPO plunge. Today, he said, bankers require companies to have $100 million or even $200 million in revenue before considering them as IPO candidates.

Other factors in the diminution of the IPO as exit strategy, according to Quattrone, include the already sizable number of publicly listed technology companies — most of which came of age and to market during better times — the increasing focus of large mutual funds on bigger investments, and the depleted pool of sell-side market analysts.

Quattrone failed to mention that the execrable economy might have something to do with the lack of IPOs. Even before the devastating financial crash of last autumn, the information-technology industry had not fully recovered from the bursting of the Internet bubble in 2001.

Except for spasmodic fits and starts, the industry has never seen, and probably will never see again, the effervescent euphoria experienced in the late 90s and into the year 2000, when a rising tide lifted all boats, even dinghies that were attempting to sell dog food online.

What’s happening is rather simple: VCs are scaling back investments in IT because they don’t foresee an appealing exit scenario, represented by an IPO or a big-bucks acquisition, preferably involving an all-cash transaction. IPOs are down because the market today does not remotely resemble what it was like when Quatrrone was riding high on an endless succession of gargantuan investment-banking deals.

As long as IPOs are down, VC investments will not be forthcoming. Why add to supply when there isn’t enough demand to satisfy what’s already on the market?

More HP Layoffs Rumored

Rumors are rife regarding layoffs at HP.

What’s yet to be determined is whether these represent new layoffs or a continuance and execution of previously announced layoffs.

Based on a back-of-the-envelope calculation, I’d estimate that most of HP’s recent job shedding is occurring in Europe, where HP faced bureaucratic, institutional, and cultural resistance to its across-the-board salary-reduction gambit, announced earlier this year.

HP also quashed perks for private executive jetting, but that, like nominal remuneration reductions to upper-echelon executives, was more about the appearance of probity than about serious cost containment.

It’s difficult to get a firm handle on just how severe the cuts have been at HP’s offices in Silicon Valley and elsewhere in North America. There have been reductions in employee numbers in Oregon and Colorado, but those were apparently modest.

What’s more, as a story by Tom Sullivan of InfoWorld noted earlier this year, it’s hard to know how many announced layoffs are consummated.

Apparently corporate executives try to deceive bloodthirsty investors into thinking employee pogroms are worse than they actually turn out to be. Investors and Wall Street types respond favorably to layoffs, which reduce operating costs and therefore have the potential to increase near-term profits.

This bait-and-switch layoff ruse was explained pithily by Forrester Research analyst Natalie Petouhoff in the aforementioned InfoWorld article:

“It’s smoke and mirrors, to tell shareholders they’re doing what they need to do.”

Feel better now? I didn’t think so.

Stray Thoughts on Billboard Campaign for Google Apps

We’ve seen an abundance of reports on Google’s billboard advertising campaign for Google Apps, the company’s web-based enterprise productivity suite.

Drivers on San Francisco’s Highway 101, New York’s West Side Highway, Chicago’s Eisenhower Expressway, and Boston’s Massachusetts Turnpike will presumably see Google’s billboards while stuck in mind-deadening traffic. The advertisements will change daily during weekdays for the entire month of August.

It’s all part of Google’s mounting bid to wrest revenue-bearing enterprise accounts away from Microsoft — and, to a lesser extent, IBM — for applications such as email, word processing, spreadsheets, calendaring, and the like.

The vast majority of Google Apps subscribers tend to choose the free, advertising-driven version, and Google would like to derive new sources of revenue from products and services unrelated to search-based advertising. Besides, very few enterprise IT departments, and the executives that hire the personnel in those departments, would be keen on having advertising appearing alongside and within the personal-productivity applications used by their employees.

Advertising issues aside, Google has a mountain to climb in convincing CIOs that Google Apps is ready for their patronage. As Larry Dignan of ZDNet notes, Google will need to comprehensively address valid enterprise concerns regarding security, privacy, and compliance before it can make substantive inroads against Microsoft.

That might take a while, irrespective of whether the simple but stark billboard advertisements draw the eyes and attention of commuters.

On a mildly digressive note, I wonder which billboard company captured the Google account. You’d think it would be worth some useful PR. Then again, perhaps I missed something (that happens from time to time) and Google now owns its billboards.

Revisiting Rumors of McAfee Acquisition by HP

Continuing to buzz if not exactly roar, rumors of a potential acquisition by Hewlett-Packard of McAfee persist.

Over at the Forbes website, Charlotte Dunlap of Synergy Research Group makes a compelling argument as to why HP should be giving serious consideration to a McAfee buy.

Is the latter open to such an offer? Presuming the price is right, I believe so.

One challenge is that, as an acquisition target, McAfee is relatively rich at the moment, trading close to its 52-week high with a market capitalization of approximately $6.96 billion. Still, as Dunlap contends, McAfee offers nearly everything HP would require to provide embedded, end-to-end security solutions to its enterprise clientele.

The question for HP is whether it could adroitly execute a post-acquisition integration of McAfee. It just might work, and one can readily understand HP’s motivation, but there’s an inverse relationship between the size of an acquisition and its probability of ultimate success as a business proposition.

There are good reasons why companies such as Cisco Systems refrain from big acquisitions. HP merely has to look back at the vexatious post-acquisition experiences it had with Apollo in technical workstations and — on a larger and more problematic scale — Compaq in the PC space.

McAfee would not represent an acquisition on that scale, but it’s a big enough meal to warrant forethought about potential indigestion. Such a move would require not only standard due-diligence procedures regarding the acquisition candidate, but also plenty of preparation regarding the disposition and integration of assets.

If an acquisition is in the works, the lengthy rumor trail could suggest that much discussion and considerable work have been occurring behind the scenes. Or, more darkly, the rumors might be traced to individuals with ulterior motives of one sort or another.

Google’s Schmidt Leaves Apple’s Board by Mutual Agreement

Apple announced today that Eric Schmidt, chief executive officer of Google, has resigned from Apple’s board of directors.

Schmidt joined the board at Apple in 2006.

Said Apple CEO Steve Jobs in a press release accompanying the announcement:

“Eric has been an excellent Board member for Apple, investing his valuable time, talent, passion and wisdom to help make Apple successful. Unfortunately, as Google enters more of Apple’s core businesses, with Android and now Chrome OS, Eric’s effectiveness as an Apple Board member will be significantly diminished, since he will have to recuse himself from even larger portions of our meetings due to potential conflicts of interest. Therefore, we have mutually decided that now is the right time for Eric to resign his position on Apple’s Board.”

One can’t argue with the logic behind the move. Google’s Android and Chrome OS initiatives place it in direct competition against Apple in mobile and computing markets. Without incurring egregious conflict-of-interest violations or recusing himself from the vast majoring of proceedings, Schmidt could not have continued as an Apple board member.

What boggles the mind is that it took so long for Schmidt and Apple to reach today’s decision. Schmidt knew Google’s strategic direction before it was manifest in the marketplace; he knew Google would be encroaching on acres of Apple turf. Similarly, once Schmidt signaled Google’s intentions, with regard to Android and Chrome OS, Apple knew it was hosting a board member with divided loyalties.

It’s odd that an increasingly untenable situation was allowed to linger as long as it did.

The Wall Street Journal and New York Times are covering the news, along with many others.