Naspers made a strategic investment in OLX

The cat is out of the bag. We had not planned on disclosing the investment, but given the sheer number of people aware of the transaction (all of our employees and the LPs of our VCs) it was bound to happen. Someone tipped off Techcrunch that Naspers had invested in OLX and my partner Alec Oxenford and I confirmed the deal.

We are excited about Naspers’ involvement which will allow us to grow even faster than before.

We can’t wait to see where we can take OLX and how fast we can get there!

You can read the Techcrunch article at:
http://techcrunch.com/2010/08/26/naspers-makes-strategic-investment-in-craigslist-competitor-olx/

Apple: Short Term Winner, Long Term Loser

There is no denying Apple has had an incredible run.

Steve Jobs’ return and the Mac’s resurgence

After a number of strategic and execution mistakes, the company almost went bankrupt in 1996. It was greatly helped in 1997 when Steve Jobs returned as CEO and announced that Microsoft invested $150 million and made a five-year commitment to develop Office for the Mac. Steve Jobs slashed Apple’s 15 product lines to just 4 categories: desktop and notebook Macs for consumers and professionals. Jobs halted the Macintosh licensing program. In 1998, he hired Tim Cook as COO. Cook had worked at Compaq and IBM and was tasked to “clean up the atrocious state of Apple’s manufacturing, distribution and supply apparatus”. He hired Taiwanese contract assemblers to manufacture Mac products. He revamped Apple’s distribution system from smaller outlets to national chains and also launched a website to offer direct sales for the first time. Apple’s inventory fell from months to a few days! In 1998, the company posted a $309 million profit, reversing the 1997 $1 billion loss allowing Steve Jobs to increase R&D spending.

Under Tim Cook operations are now smoothly oiled. According to Fortune Magazine “Apple routinely pulls off the miraculous: unveiling revolutionary products that have been kept completely secret until they appear in stores all over the world. The iPhone, the iPod, any number of iMacs and MacBooks – the consistently seamless orchestration of Apple’s product introduction and delivery is nothing short of remarkable. … In 2006 Apple transitioned its entire computer line to running on processors made by Intel. … Cook’s team … made sure there was nary a blip in sales.”

The transition to Intel CPUs allowed Apple to build chips that were faster and less power hungry, essential now that notebooks account for the vast majority of Mac sales. This also allowed Macs to run Windows applications if the user so chose, thus offsetting one of the longstanding disadvantage to choosing a Mac – the relative lack of Macintosh software.

The move into direct retail distribution also proved revolutionary. The first Apple retail store opened in McLean, Virginia in 2001. The Apple retail experience gave many consumers their first exposure to the Macintosh product line. By 2009, Apple estimated that half of all retail Mac sales were to “new to Mac” customers. The retail division with more than 280 stores in 10 countries grew to account 16% of Apple’s total revenue. The company also entered into a partnership with Best Buy, the world’s largest electronics retailer.

Moving Beyond the Macintosh

While it was essential for Apple to fix its Mac business, it’s the new product lines that really put Apple on its explosive growth path. Apple introduced the iPod in 2001. With its sleek design, simple user interface and large storage, it put other MP3 players to shame. Apple had the foresight of allowing the iPod to work with both Macs and Windows machines. The distance only grew wider when Apple introduced the iTunes Music Store starting in April 2003 which was the first legal site that allowed music downloads on a pay-per-song basis. With its large catalogue and ease of use, it allowed Apple to capture the MP3 market. By 2010, Apple was estimated to have around 70% of the US MP3 player market.

In 2007, Apple introduced the iPhone. While the product was revolutionary in many ways, it was not a huge success. Apple actually only sold 6 million of the first iPhone because it was sold for $499 without a subsidy and AT&T gave a revenue share back to Apple. In 2008, when Apple released the second iPhone which ran on the faster 3G network, it smartly revamped its pricing model. AT&T provided a subsidy in exchange for dropping the revenue share agreement. Consumers could now buy an iPhone for $199. With the 3G model, iPhone revenues exploded to $13 billion by the end of 2009. When the 3GS went on sale in June 2009, the subsidized 8Gb iPhone price dropped to $99.

The recent very successful launch of the iPad further extends Apple beyond its Mac roots and diversifies its revenue base.

Near Term Winner

Apple is currently on top of the world. It has the highest market cap of any tech company, recently surpassing Microsoft’s and dwarfing Google’s. It also seems perfectly positioned for the future given its strength in smartphones.

Apple is now essentially a mobile company. As of the last quarter, Mac sales accounted for $4.4 billion of revenues (with 31% growth year to year), iPod sales for $1.5 billion (4% growth), iPhone sales for $5.3 billion (74% growth) and iPad sales $2.1 billion out of a total of $15.7 billion. Apple is arguably in the perfect business. US smartphone penetration just crossed the 20% mark and global smartphone penetration is around 10%. Undoubtedly at some point in the next 5 years the majority of phones will be smartphones and eventually almost all phones will be. Market growth alone should buoy Apple.

Moreover, Apple still has two low hanging fruits to massively increase its iPhone revenues:

  1. Expanding the number of carriers that carry the iPhone in countries it has released the iPhone.
  2. Releasing the iPhone in more countries.

However, Apple and Steve Jobs seem to be repeating a number of strategic mistakes that seem destined to relegate it to a niche player.

Long Term Loser

In 1984, when Apple introduced the Mac in 1984, it was revolutionary. It was elegant, simple to use, had the first mass market mouse and graphical interface and became a huge success. Apple seemed destined for greatness. However, Steve Jobs’ vertical integration driven by his desire to only have beautiful machines and software limited both innovation and the availability of software. On the DOS, then Windows side, the constant competition between PC makers, processor makers, and software developers, while less elegant and functional at the beginning, given enough time led to a plethora of offerings and innovation that not only copied many of the Mac’s best features but extended them. The competition also drove prices much below Mac prices. The combination of faster PCs with more software at lower prices eventually completely marginalized the Macintosh.

Steve Jobs seems to be repeating the same mistake all over again. The elegant integration between the iPhone, iTunes and the App Store is definitely a current source of comparative advantage. It is easier to offer a better user experience at the beginning when you limit the form factor and completely control the hardware and software. The iPhone 4 is clearly the best smartphone on the market. The apps in the Apple App Store are clearly the best apps on the market.

However, Apple’s insistence on having a single form factor, on being a premium player at a premium price point (to carriers at least), and its arbitrary decisions with regards to what apps make it in the App Store will eventually make Apple a niche player. Even if Apple keeps innovating and has the best phone on the market, it won’t matter.

Android, with its relative openness, seems to be playing the role Windows played for the Mac. We are already seeing a plethora of Android phones which cover all segments of the market – from the very low end to the very high end. There are phones with keyboards or without, Amoled screens, huge screens, small screens… There is already seems to be an Android phone for every taste and the choice is only going to get larger. In only one year Android’s smartphone market share catapulted from 1.8% to 17.2% overtaking Apple’s iPhone which grew from 13% to 14.2% of the market. Moreover Android is now activating more phones in the all-important US market, despite the iPhone 4’s recent launch.

It’s unclear to what extent the number apps offered is relevant. Regardless of the answer, it won’t play in Apple’s favor. It could be that the top 30 apps are all that matter (e.g.; Maps, Facebook, Email and a few games), in which case the current better quality of Apple apps will eventually be matched by the apps on Android. Alternatively, and arguably worse for Apple, if it’s the diversity of apps that matters, the relative openness of Android will mean that there will eventually be many more apps for Android phones than for Apple given its desire to only have “pretty” and “elegant” apps. This will only get worse as Android’s market share will increasingly exceed Apple’s and many developers will first build for Android and the guarantee of appearing in the Android App Store versus taking a risk with Apple’s fickle App Store approval process. More developers are already developing for Android than the iPhone and the number of Android apps is rapidly approaching the number of iPhone apps.

Furthermore, with the iPhone Apple has taken vertical integration one step further. It acquired PA Semi for $278 million in April 2008 and Intrinsity in 2010 and now designs its own chips. Both the iPad and the iPhone 4 run on the A4 chip it designed. This means that in addition to competing with Google, all the handset manufacturers in the world and many app makers, it now has to compete with the likes of ARM! It’s extremely hard to be world class in so many product categories and arguably Apple has just made its job of having the best smartphone on the market that much harder. In a few years it might end up with underpowered phones relative to the Android phones very much like the Macs used to be underpowered (and overly power hungry) before Apple made the switch to Intel!

None of this will matter in the short run. Globally increasing smart phone sales and extending sales to new carriers will buoy growth for some time to come, especially since Apple still has a better phone and better apps. However, this growth will bely the fact that Apple is losing market share rapidly to Android. Fast forward 5 to 10 years and it’s not hard to imagine seeing Apple with a small (but probably very profitable) share of the smartphone market. It will be a niche player in the market it revolutionized and could have dominated. History seems bound to repeat itself!

Kick-Ass is great!

I just rented Kick-Ass on Zune HD and had a blast! The movie much more violent than I expected; yet, somehow the violence was extremely funny. Choe Moretz who plays Hit-Girl really makes the movie. Her moves, tone and attitude were all amazing! I can’t wait to see her in other movies.

In the meantime, you owe it to yourself to check out Kick-Ass, it’s different and fun!

Toy Story 3 is very good

Like in Shrek 4, the themes of Toy Story 3 are very grown up as they deal with growing up, moving on, and letting go.

I loved the movie and cried at the end, but despite the raving critics and the 99% Rotten Tomato Meter, it’s not the best movie of the year. That title currently goes to another animated movie: How to Train your Dragon. That movie’s masterful depiction of the relationship between Toothless and Hiccup, not to mention the complex father/son relationship, left me in awe the entire movie. The Kids are All Right might challenge it for the best movie of the year so far, but I have yet to see it.

What to do with your millions

One of the wonders of entrepreneurship is that sometimes we can get lucky and make millions. Paul Buchheit wrote a good article on what to do when that happens. His advice is very practical and covers both how to invest the money (don’t rush to invest it, keep it safe) and what to change in your life (very little – keep working, maintain your friendships, be grateful).

If you are lucky enough to be in this position, you owe it to yourself to read his article at:
http://paulbuchheit.blogspot.com/2010/05/what-to-do-with-your-millions.html

The Master Cleanse Day 11 Update: The End … for Now!

After 11 days of not eating, the time has come to slowly return to a normal diet. I am going camping in Kalalau (in Kauai) for 6 days. I will have limited access to food there and it’s probably a good idea to get some strength before going, especially as I hear the 11 mile hike in is very arduous.

This experiment has shown me how little I really need to live and be happy; always a useful reminder in this world of plenitude. It has also been a useful sharpening of my willpower as I went out almost every night to dinners with my friends who ate seemingly delicious food while I only drank water. On the positive side, it allowed me to speak even more than usual 🙂 It’s also been an interesting exercise in no longer scheduling your life around meals which allowed me to be even more productive than usual.

After 11 days with no alcohol, caffeine or food, I feel as great as usual and healthy. I lost 16 pounds, at least half of which I expect to gain back rapidly. I was able to play tennis reasonably well, though I did have less energy than usual.

All in all, it has been an interesting and positive experience which I will probably revisit in the future.

Shrek 4 is very good

Shrek 4 obviously does not match the originality of the first movie which was the first animated movie I ever saw whose humor and parodies were made to appeal to adult audiences. However in terms of entertainment value Shrek 4 is much nearer the first two amazing movies than the horribly disappointing, muddled and boring third movie!

I really connected with Shrek’s midlife crisis. It’s really easy to lose sight of how good you have it, and really hard to cherish the amazing things you have in life, until you actually lose them.

I loved the entire story and the big closet romantic in me loved to see Fiona and Shrek fall in love all over again!

Don’t believe the critics: Knight & Day is tons of fun!

The movie never found an audience and was panned by critics, but it was incredibly entertaining and the dialogues between Cruise and Diaz were absolutely amazing! The chemistry between Diaz & Cruise was great and the campy tone was exactly what the movie called for.

The movie was mindless, but tons of fun – perfect for a hot summer evening!

The Master Cleanse: Day 6 Update

In a way, I don’t have too much to report. Living on nothing but lemonade with maple syrup and pepper for 6 days has not been as miserable as many predicted it would be. On the other hand, it has not led to a newfound clarity or the spiritual nirvana others predicted. In other words, I don’t feel like much has changed.

The diet has not been that hard to keep and my willpower has not really been tested. I am constantly a little hungry, but not so hungry that it is distracting. I was rather light headed and a bit dizzy for the past few days, but this too seems to have subsided especially since I amped the maple syrup dosage to two thirds the recommended dose (up from half) and drink a table spoon of maple syrup if I feel too light headed.

I have found a few ways to make the diet much easier. I substituted the lemons for limes which I found have much more taste. I really hated the taste of the cayenne pepper and decreased the dose of that and now really like the drink (I would love it if it had no cayenne pepper at all).

On a daily basis, I drink around 2-3 liters of the lemonade (half a gallon to three quarters of a gallon) (8 to 12 250 ml glasses). I also drink about a liter of water. I always drank 3-4 liters per day so this is not exceptional. I can’t be bothered to prepare the drink every time I am thirsty or hungry so I prepare a 4 liter (a bit more than a gallon) pitcher in the morning and carry around a two liter bottle with me during the day. To prepare the lemonade for 4 liters, the dosage that works best for me is as follows:

  • Squeeze 8 lemons or lime with a juicer
  • Put 24 table spoons of maple syrup (32 is the recommended dose, but that tasted too sweet and 16 left me too dizzy
  • Put half a tea spoon of cayenne pepper (the “correct” does would be one and a half a tea spoon)
  • Fill the rest of the pitcher with tap water

That’s it! I don’t feel very different physically and was able to play tennis without difficulty. I don’t think I look very different, but according to the scale, I have been losing around two pounds per day and am now 10 pounds lighter than when I started. I am sure a lot of that is water weight I will regain once I start eating normally again.

I assume a lot of the benefits of the cleanse come from completely avoiding alcohol, caffeine and junk food, while becoming well hydrated rather than the elimination of “toxins”, but regardless of how it works, as long as it works, I can’t complain.

Some people got disgusted by food while on the diet, but I can tell you there is no chance of that happening to me. I looked in envy while my friends were eating delicious looking grilled tuna steaks, pear and gorgonzola salads and a huge selection of amazing looking fruits. The amazing smell of super thin crust truffle and mushroom pizza and barbequed cheeseburgers and hotdogs also left my mouth watering. After 6 days of the bland monotony of the lemonade, I cherish the thought of giving my palate sensory diversity.

To avoid losing too much weight or becoming unhealthy, I will probably stop my cleanse after 10 or 11 days, this Monday or Tuesday, and slowly transition to fruits, soups and salads before making my way to more consistent food. As I am in Buenos Aires, I am looking forward to my first grilled lomo next Thursday or Friday!

I just started the Master Cleanse!

I usually don’t follow faddy diets, especially since I don’t really need to lose weight and if I did eating less and exercising more would be the first thing I would try. That said after my good friend and fellow Internet entrepreneur and angel investor Stephan Paternot raved about it, I decided to try the Master Cleanse.

The Master Cleanse is also called the lemonade diet. Basically, you drink fresh lemon juice with maple syrup, cayenne pepper and water and that’s it. You start by easing yourself into it by eating only fresh fruits and soup for a day or two. You then forgo all food and liquids except for the lemonade and water for a week or two. You then you ease yourself out of it. You can find out the details at www.themastercleanse.org.

I am on day 2 of the diet and so far I don’t have much to report. I feel no different than usual – I have my usual good mood and high energy level. I do feel a bit hungry. Hopefully that will subside in a few days. I will keep you posted in the coming days on the progress!

I guess this means no Ferrari for me :)

William, my best friend and VP of Marketing at OLX, is in the market for a used Ferrari 360 Spider. As a good friend, I decided to help him through the ordeal of car shopping by tagging along to the Ferrari dealer 🙂

The new Ferrari 458 Italia is so gorgeous I considered letting myself be tempted. After many attempts by the desperate dealer to get me to fit into it (and every other Ferrari in the showroom), we came to a definite conclusion: Ferraris are not made for tall people! And at 6’3” I am not even that tall!

Look at the photos below William took of me in a 360 Spider. My head was sticking out so much it was actually hilarious 🙂

Windows Live Sync Beta is fantastic!

Given my itinerant lifestyle I end up working from many different computers. I was looking for a solution to move everything to the Cloud but only had imperfect solutions. Thanks to Microsoft Exchange I already have access to all my emails from any computer and many mobile devices. Carbonite gave me a good backup of all my files and remote access to them, but keeping files in sync between all my computers was always a pain. I would change some files in some folders at home, different files in the same folder at work and keeping it all straight was messy and complicated. I would use a mix of emailing myself the files and copying them on a USB stick, but it was manual, annoying and error prone.

I just installed Live Sync Beta and it’s amazing. It’s easy to setup and keep files in sync between many computers and on the cloud. Best of all it’s free! In the screenshot below you can see I setup syncing between my notebook and my work computer for three folders. If both computers are on, the sync is instantaneous.

The software is not without flaws:

  • The interface is clunkier than it should be – I should be able to go on any folder in Explorer and right mouse click “Keep this folder in Synch with Live Sync” instead of having to manually select folders from within Live Sync.
  • In Explorer there should be a little sync icon next to a folder to show that it is being synced.
  • The focus on peer to peer syncing is annoying. I can see why it’s cheaper from a bandwidth perspective, but many of my computers are not on the same network. You can use the SkyDrive to sync through the cloud, but it’s limited to 2Gb and I can’t find a way to buy more storage. I would be more than happy to pay for cloud syncing.

Hopefully those will be solved in the full product release. In the meantime, if you need to keep files in sync between multiple computers, you owe it to yourself to check out the free beta!

Partial non sequitur: It’s hard to believe Microsoft had a gem like this and I had never heard of it until Daniel Rasmus mentioned it to me over breakfast a week ago. I wonder what similar products are lost somewhere in the Microsoft matrix! I also wonder what weird Microsoft politics infected this project. It seems to have had many different owners over time given the many very different blogs on Sync/SkyDrive/Live Mesh within Microsoft (all of which have been discontinued except for the official Inside Windows Live blog). Also, the product used to be focused on syncing through the cloud when it was called Live Mesh instead of through peers. I hope it becomes the focus again soon!

Inception is very good

I am fan of all of Chris Nolan’s movies. I loved Memento, The Prestige and both Batman Begins and The Dark Knight. He always brings thought provoking concepts to his movies including blockbusters. For instance, the concept of anarchy promoted by The Joker was truly frightening and novel. In a summer movie landscape where movies have been dumbed down to the extreme, his movies have always a beacon of hope for the thoughtful moviegoer also looking for massive explosions and fantastic special effects.

In other words, I went to see Inception with high expectations. I was not disappointed! The movie’s plot is very intricate (but logical), the special effects are dazzling and the concept of dreams within dreams is innovative. The movie is not without flaws. The various parts don’t quite neatly tie perfectly together. Somehow, I did not feel emotionally attached to the characters. I was also disappointed by the deliberate gimmick of leaving the movie open ended.

That said, go see the movie! It’s very good, well-acted, visually stunning and thought provoking.

SPOILER ALERT – DO NOT READ FURTHER IF YOU HAVE NOT SEEN THE MOVIE

Was it all a dream? The totem not falling at the end made every moviegoer wonder whether Cobb was still dreaming. Nolan actually left it open to interpretation and you can make convincing arguments either way. The totem wobbles and if you listen carefully you actually hear it fall after it goes out of view suggesting that he is in the real world. However, there are a number of elements suggesting he’s still dreaming: the kids have not aged and are still wearing exactly the same clothes as in every sequence where he dreams of them. The ending has a dream like quality. Moreover, he’s actually not using his own totem, he’s using his wife’s totem. He very well might have learned to manipulate it and make it fall or not. The polls I have seen suggest that viewers seem evenly split on this one, probably as Nolan intended.

The Booq Boa Squeeze is the best notebook backpack in the market!

I prefer backpacks to carry my notebook to keep the weight balanced on both my shoulders. After I downsized notebook, it made sense to downsize backpack.

The Booq Boa Squeeze is great. It is super light – 2.9 pounds – and very compact in addition to being well built, ergonomic and comfortable. It’s not very big, but can definitely hold a few magazines and a book in addition to the notebook and charger.

If you are trying to carry a lighter load, you can’t go wrong with this backpack!

The Vaio Z Series is the best notebook on the market right now!

When my notebook was my only computer, I only bought super high performance 17” notebooks. What they lacked in portability and battery life they made up for in performance. As a game player, I especially valued 1920*1200 screens and fast 3D graphics. Windows compatibility was a must as few games are written for the Mac and games come out months if not years later for the Mac, if at all.

During the last 4 years, given OLX’s global nature, I started spending more and more time on the road. As my travel schedule worsened, I started looking for ways to shave a few pounds from my backpack. When Apple released a 17” Windows compatible Macbook Pro, I immediately switched – it had a reasonably quick Nvidia graphic card and most importantly was only 6 pounds – 2-3 pounds lighter than any other 17” notebook on the market! Unfortunately Apple never optimized its computer for Windows and I only got 90 minutes of battery out of it.

Two years ago, I decided to go down one size and moved to a 15’4” Macbook Pro running Vista. It shaved another pound off of my backpack and was a good notebook, though again it only had a 90 minute battery life under Windows.

During the past 6 months, my travel schedule has taken a turn for the worse and I spent less than 2 months in New York. I also came to the realization that I no longer needed a large screen or as fast a notebook. The transition to cloud computing means I no longer need to have a single PC to work from. With all my emails on Exchange and all my work files automatically backed up with Carbonite from my notebook and accessible from anywhere, I can work from any PC.

As a result, I now have a powerful Core i7 desktop with an Nvidia GTX 285 and a Samsung 30” 2560*1600 monitor to work and play with at home. Moreover, my game playing has largely switched to consoles. First person shooters like Modern Warfare 2 are now optimized for consoles, have much better and seamless online multiplayer on consoles, especially on Xbox Live, and have larger multiplayer user bases on consoles. I still play strategy and adventure games on PCs and am looking forward to Starcraft II and Civilization V, but the reality is those are not nearly as resource intensive as shooters.

To my chagrin, I also play a lot less than I used to for a variety of reasons, not all of which are bad: a lack of new exciting real time strategy games (where are Age of Empires IV and Rise of Nations 2?), too much work and business travel, new interests (paintball, kite surfing, etc.) and dating (funnily enough it’s much easier to play 4 hours a day every day when you don’t have a girlfriend 🙂

All this to say I was ready to downsize my notebook yet again. I started looking for the fastest and lightest 13” notebook on the market. To my surprise, Apple was not even in the running. Apple has been extremely slow to update its notebooks during the past few years. The new 13” Macbook Pro, despite the last update, remains underpowered with a Core 2 Duo processor, a 256Mb Nvidia GeForce 320M and only a 1280*800 screen. Worse it’s 4.5 pounds! The Macbook Air is even more underpowered and overpriced with an old Core 2 Duo, a Nvidia 9400M, the same low resolution 1280*800 screen and only a 128Gb SSD hard drive. The Dell Adamo Onyx was by far the prettiest 13” notebook, but suffers from many of the same flaws as the Macbook Air: it’s last generation hardware, has a low resolution screen, only 128Gb hard drive and does not include an internal DVD player. The same applies to the somewhat heavier and less pretty HP Envy 13. There were rumors that Toshiba was going to release a 2 pound 13” notebook, but so far it has not come out (and it does not have an expected release date either). This left the Sony Z Series as the only real option.

A few friends of mine were raving about their Sony Z Series so I checked it out. The Sony Z Series has it all: a powerful Core i7 processor, a superfast 256Gb Raid 0 SSD hard drive (with a 512Gb option), a 1Gb Nvidia GT 330M graphic card, 8Gb of Ram, a long battery life, an internal DVD player (or optional internal Blu-ray player and burner). It even has a 1920*1080 HD screen, a rarity in a 13” notebook! It’s only 3.04 pounds. It’s blisteringly fast, boots Windows 7 in record time and I have been able to get 5 hours of battery life out of it with the default battery! I also hear you can get up to 9 hours of battery life with the large capacity battery which adds 0.3 pounds to the weight of the notebook. In any case, the battery is changeable so you can take a spare with you.

I got the black carbon fiber case which I found to be most elegant. My only complaint is that I have not been able to get it to run my 30” monitor in 2560*1600 (I max out at 1920*1200 on external monitors).

In any case, it’s the best notebook on the market right now so if you are looking for a lightweight high performance notebook, look no further.

Buy the VPCZ1290X now!

Predators is terrible

I went to see Predators last week with my good friend William. We were lured by the 63% Rotten Tomatoes score from the critics and 77% from the community. The reviews promised a back to basics approach for the movie with a darker, scarier tone similar to the original with Schwarzenegger.

Unfortunately despite the presence of Adrian Brody, the movie did not deliver. It was not scary. You don’t care about the characters. The plot is laughable. Laurence Fishburne, who seems to be on the same diet as Russell Crowe, makes a brief pointless paycheck appearance.

We were looking for dark, gritty, entertaining mindless action. Instead, we got a pointless bland movie.

The Passage was disappointing

I had read that The Passage by Justin Cronin was the must read beach book of the summer. After one too many raving review, I downloaded it in the Kindle store to read on my iPad during my crazy business trip.

I expected the book to be a dark, gritty and personal version of World War Z, a book I thoroughly enjoyed. In other words, I expected the book to be in the same style, but written from the perspective of a few individuals with all the lack of information and fear of the unknown that that entails.

The Passage definitely had the potential to be that book and displays flashes of it. Unfortunately, it is so full of pace killing religious and spiritual mumbo jumbo that I could not even get through it. It’s even worse than Stephen King’s The Stand from that perspective, another book I could not finish and that would have been infinitely better and shorter if you removed all the religious allegory.

I hope the next end of the world virus/vampire/zombie outbreak book just focuses on the action, character development and storytelling!

What Microsoft should do in search

We can start by asking why Microsoft should be in search. Microsoft has two extremely successful businesses with Windows and Office that generate $13.1 billion and $12.4 billion in operating income in 2008. Granted search advertising is an attractive market. It is predicted to grow from $20 billion in 2007 to $40 billion in 2012. It’s also extremely profitable once you obtain scale and cover your fixed costs with 60-70% gross margins. However, market attractiveness is not enough: pharmaceuticals are also an attractive business with high margins and no one is suggesting Microsoft goes into pharmaceuticals.

In one word Microsoft’s problem is Google. The spread of broadband, Wi-Fi and mobile data network presages an always on connected future where applications can run in the cloud as effectively as they do today on your local desktop. In this world desktop operating systems and desktop applications become irrelevant. The company best positioned to take advantage of that future is Google. Google’s scale gives it an inherent cost advantage in providing services in the cloud. For instance, Google is rumored to have 15 data centers to Microsoft’s 4. Moreover, while Google may not be interested in Office like applications per se, it can offensively offer them for free to disrupt Microsoft’s core business without undermining its own given that it relies on advertising rather than software sales.

Looking at it from this perspective, Microsoft’s logic for being in search is clear: it is a strategic defensive move to protect its core Windows and Office franchises. Given this logic, Microsoft has to be in search. This leads to the fundamental question: can Microsoft succeed in search? Bing has around a 10% market share in the US and an irrelevant market share in the rest of the world. Even with Yahoo’s 18% of US search share, it will be a distant number 2 in search in the US and irrelevant in the rest of the world. Moreover, there is evidence that a fair amount of Bing searches are “passive searches” brought about by partnerships. These are much less valuable than active searches where the user intentionally goes to a search engine to search for something. Add to that the fact that Microsoft has 50% less search engineers than Google and a quarter of the data centers and it’s hard to see how they can succeed. Worse, even if Bing was a slightly better search engine than Google (as it is for some categories of searches), analysis of consumer behavior suggests it would not be enough for consumers to switch. People cannot tell the difference between the speed of two PCs if one is 25% faster than the other. The speed increase has to be above 50% for consumers to start to be able to tell the difference. Similar consumer behavior seems to affect search. As a result Bing would have to be significantly better than Google for a large number of users to switch which is unlikely to happen given the speed at which Microsoft and Google are copying each other’s new features in search.

Let’s ask the question a few different ways. Can Google sustain its leadership in search? It is not difficult to argue that search as we know it today is extremely primitive. We can easily envision a world where things like natural language search crossed with social and behavioral information will revolutionize the way we search. Unfortunately for Microsoft and wannabe competitors, Google is best positioned to dominate the “Search 2.0” market. The reason is simple: fixed costs. The amount of existing and new information on the web is incredibly large and growing exponentially. Google’s index for instance is rumored to have grown from 1 billion pages to 40 billion pages between 2000 and 2008. A company which developed a better algorithm would still have to crawl all the information on the web to apply its algorithm in order to offer relevant results. Doing so requires billions of dollars to build the type of data centers that Google and Microsoft have built. High fixed costs create huge barriers to entry. As a result, I don’t see anyone displacing Google in search in the next 10 years.

Given all this, what should Microsoft do in search? Historically the company has dealt very effectively with competitors which threatened its franchise by entering their business and giving away the product for free. When Netscape released its browser, Netscape Navigator, in December 1994, Navigator was priced below $50, with evaluation copies downloadable for free, while matching software for servers was priced above $1,000. Marc Andreeson, Netscape’s chief technologist, had a vision that the browser could grow to become a PC user’s primary interface to all of his or computing needs. The browser, he opined, would “reduce Windows to a set of poorly debugged device drivers.” By May 1995, Netscape held a 70% share of the browser market.

Recognizing the threat, Bill Gates sent his top team a nine-page memo title “The Internet Tidal Wave.” Promising to “embrace and extend” the Internet, Microsoft released its own browser Internet Explorer (IE) 1.0 in My 1995. With the August 1996 release of IE 3.0, Microsoft then largely matched the then-current version of Navigator. IE and its matching server software were offered for free and IE came bundled with Windows on new PCs. Versions of IE were also made available for Apple and Unix operating systems. Microsoft also struck deals with Internet service providers (ISPs) to use IE to provide Internet to consumers. To convince America Online, the largest ISP, to promote IE, Microsoft agreed to place AOL’s icon on the Windows desktop, even though AOL competed with Microsoft’s own ISP offering.

Netscape tried to survive by quickening its pace of innovation, by opening its source code so that others could improve its products, and by diversifying into new products. However, Netscape’s development costs rose rapidly, its browser share plunged, and webmasters increasingly optimized their websites from IE, not Navigator. By late 2002, Microsoft’s browser market share surpassed 95%.

Could Microsoft use a similar strategy with Google? At first glance, the answer would seem to be no. Google is offered for free so there is no way to undercut their price. However, Google is more vulnerable that appears at first glance: almost all of their revenues come from search advertising on Google’s own websites where it bears no traffic acquisition costs. Moreover, the vast majority of the revenues comes from less than 5% of the searches which are concentrated in the following categories: travel, product, real estate, vehicles, jobs, services, finance and legal. Long tail searches actually have very little economic value: what ad do you want to put next to “GDP of Zimbabwe”?

In other words Microsoft can disrupt Google by attacking its profit engine in the short tail of searches. This would prevent Google from spending billions of dollars on various new initiatives which often are aimed at Microsoft’s core business. Granted most of Google’s new initiatives fail, but the sheer number of initiatives combined with Google’s rapid iterative product strategy are clearly giving Microsoft cause for concern. To achieve this objective, Microsoft should do the following:

1. Attack the short tail of searches where all of the value lies:

  • Deploy most of your engineers to work on the aforementioned short tail.
  • Offer 85-100% of the revenues to sites that use Bing’s equivalent of Adsense (we now know that Google gives 51% for AFS and 68% for AFC).
  • Keep trying new initiatives like Cashback (which was aimed at product searches) to lure users to use Bing for those short tail searches (though discontinue them if they fail, as Cashback did).
  • Spend a few billion buying vertical search sites (Kayak, Trulia, Indeed, etc.) and deploying them globally to attract an ever greater share of those short tail searches.

2. Get scale in order to cover your fixed costs. The Yahoo deal is a step in the right direction, but it’s a pity that it has taken so long to be implemented. It should already be live! Continue doing such deals but please don’t acquire AOL or Ask. The integration would just distract you. Just power search for them.

3. Leverage your operating system leadership and installed base by putting a big search box in Windows 7 on the desktop. You can offer local searches, but the default should be Internet only searches using Bing (at least when there is connectivity). At the very least put a Bing search Box in the taskbar.

4. Use the market’s distrust of Google and their monopoly position in many markets to your advantage:

  • Present yourself as the friendly, open and responsive alternative to Google to publishers. Be fully transparent on revenue shares, etc. Giving 85-100% of the advertising revenues back to them will also help that cause 🙂
  • Give away Windows Phone 7 to mobile operators and handset manufacturers and tightly integrate mobile search into it. Many operators fear Google as much as they fear Apple and are open to partnerships. Given how irrelevant the revenues from Windows Phone are going to be just give it away but make sure you get Bing to be the default search engine.

5. Keep your research lab working on long term disruptive technologies in search such as natural search. Maybe you could use all the data on people’s hard drives to improve search results. Being the dominant OS you have the easiest access to that information. It’s likely any innovation would be rapidly copied by Google, but you never know, besides you have to stay product competitive.

Good luck! The world’s web publishers need a strong alternative to Google and you are our last remaining hope in search! You owe it to yourself and to us to succeed. We’re all rooting for you!

If

If you can keep your head when all about you
Are losing theirs and blaming it on you;
If you can trust yourself when all men doubt you,
But make allowance for their doubting too;
If you can wait and not be tired by waiting,
Or, being lied about, don’t deal in lies,
Or, being hated, don’t give way to hating,
And yet don’t look too good, nor talk too wise;

If you can dream – and not make dreams your master;
If you can think – and not make thoughts your aim;
If you can meet with triumph and disaster
And treat those two imposters just the same;
If you can bear to hear the truth you’ve spoken
Twisted by knaves to make a trap for fools,
Or watch the things you gave your life to broken,
And stoop and build ’em up with wornout tools;

If you can make one heap of all your winnings
And risk it on one turn of pitch-and-toss,
And lose, and start again at your beginnings
And never breath a word about your loss;
If you can force your heart and nerve and sinew
To serve your turn long after they are gone,
And so hold on when there is nothing in you
Except the Will which says to them: “Hold on”;

If you can talk with crowds and keep your virtue,
Or walk with kings – nor lose the common touch;
If neither foes nor loving friends can hurt you;
If all men count with you, but none too much;
If you can fill the unforgiving minute
With sixty seconds’ worth of distance run –
Yours is the Earth and everything that’s in it,
And – which is more – you’ll be a Man my son!

Rudyard Kipling

Maui is my favorite kiteboarding spot!

I had the privilege of being invited to MaiTai Kite Camp 2010 in late May. It’s a fantastic annual event which started four years ago when professional kiteboarder Susi MAI and venture capitalist Bill TAI from Charles River Ventures invited a few of their friends to kite with them. The event has grown to over 150 venture capitalists and entrepreneurs who come to network and kiteboard! The setup is really smart: networking events start early in the morning and end at 11 am and start again at 6 pm. In other words, we’re completely free from 11 am to 6 pm to kite all day long –and what a kiting experience it is!

I was a bit wary to travel so far (12 hours from NY when you include the stopover in Honolulu) to kite given the rotten luck I had the last three times I had gone to Cabarete (2 days of wind out of 20 days total!) and in Margarita (2 days of wind out of 11!). The minute I landed my fears were put to rest. I had never experienced so much wind! There was 25-30 knots of wind with gusts over 40 knots! Not wanting to fly into the stratosphere, I left my Cabrinha Switchblade 12 in the trunk of the car and borrowed someone’s 7. For guys my size – 6’3”, 185 pounds – 7s are usually trainer kites you learn to fly on the beach when learning to kite. It seemed inconceivable to kite with one, but with that much wind if anything I was overpowered! I bought a new Cabrinha Switchblade 8 later that day and kited with it the entire week. The experience was amazing. When you are so used to light wind and big kites, the responsiveness of a small kite is thrilling and empowering!

Kiteboarding also makes for great bonding opportunities and the kiting community is very close. Kiteboarders look out for each other: they help each other launch and land their kites and most importantly bail us out when we have kitemares especially far out at sea. Everyone who kites has needed to be helped or rescued by someone at some point. Knowing you will need help one day makes you much more understanding, appreciative and willing to help! As a result, the event made for fantastic networking. I got to meet fantastic new people, made new friends and became even closer to existing friends.

Maui is also fantastic in its own right! I stayed near Paia at the Inn at Mama’s Fish House around 20 minutes from kite beach. The lodging was great and the food even better! The locals were extremely friendly and helpful and the sunset from the Haleakala volcano was breathtaking!

I will definitely be back!

You can also Forbes’ article on the event: Kiteboarding: The New Golf


Ironman 2 is very entertaining

The movie is not quite as good as the original but still very good. Robert Downey Junior is as good as ever. Mickey Rourke is fantastic as the bad guy and has significance presence despite his few words. The story is interesting and a lot of the speeches and dialogue reach the level of the first movie. I was laughing out loud at the beginning when Robert Downey Junior does not say how fantastic he is 🙂 The tone has remained appropriately light and campy and I very much enjoyed the story.

What bogs the movie down relative to the original is the introduction of too many new characters which are barely developed. They are trying to set the stage for an Avengers movie and Captain America, but the introductions were distracting. Samuel L. Jackson and Scarlett Johansson should have had bigger roles to play or should not have been there (more likely the latter).

If you are somewhat self loving, as I can be at times, the movie is fantastic therapy. Watching Tony Stark’s narcissism will make you feel like a well adjusted self loving individual 🙂

Go watch the movie.

Things to do in the South of France

As I am from Nice I keep getting asked what to do when visiting the South of France. Here are my recommendations:

Nice:

  • Eat dinner at “La Petite Maison”, my favorite restaurant in the world! Make reservations ahead of time. Once you are there tell Nicole you are coming from Fabrice Grinda and you want to try the sampling menu with sea bass as the main dish.
  • For great local fare in a more casual setting, eat at “Le Safari” on “Le Cours Saleya”
  • Walk on “La Promenade des Anglais,” “La Zone Pietone”, “Le Cours Saleya” and visit “Le Château”
  • Eat Fenochio ice cream and sorbet in “Le Vieux Nice” (over 70 home made flavors!)
  • Cultural activities include the Matisse Museum, Museum of Modern Art, etc.
     

St. Paul de Vence:

  • Beautiful little village 30 minutes away from Nice that gives you a sense for the relaxed life on the Cote d’Azur
  • Eat at La Colombe d’Or. Don’t miss looking at their art collection which includes a Picasso!
  • Explore the old town and its art galleries
  • Walk on “les ramparts”
  • Take a stroll in the gardens of “La Fondation Maeght” and admire their modern and contemporary art collection
     

Monaco:

  • 30 minutes East of Nice by car or train
  • Just walk around the city and the main Casino it’s beautiful
     

Cannes:

  • 30 minutes West of Nice by car or train
  • Most well known for “La Croisette”
     

St. Tropez:

  • 1 hour 30 minutes West of Nice by car or 20 minutes by helicopter from Nice airport
  • It’s the “Ibiza” of France – beautiful and rich people go party there
  • Walk around the town, eat lunch or dinner on “La Place des Lys,” walk alongside the huge boats in the harbor, eat ice cream at “Barbarac” (70 amazing flavors).
  • Visit the beautiful sand beaches “Les Plages de Pampelonne”, especially “Club 55” or “Kai Largo” 20 minutes outside of town (great places for lunch too). Go to “Nikki Beach” if you want to see how the young idle rich party.
  • Go to the night club: “Les Caves du Roy”
     

Nice, Monaco, Cannes and St. Paul can all be done from where you are staying in or near any of those cities. You will need to rent a car to get around.

Stay a few nights in or near Saint Tropez. With the nights you will have there, you will not want to be doing any commuting!

I can’t believe we flew over the Eyjafjallajökull volcano!

I flew back from Europe 10 days ago. My flight from Berlin to Zurich had been delayed a few hours as the volcanic ash had forced a shutdown of German air space. The next day I flew from Zurich to New York. I was minding my own business watching Shutter Island (which I very much enjoyed btw) when all of a sudden I noticed that almost all the other passengers were standing on the left side of the plane watching out the window.

I asked what was going on, hoping they were not staring at an engine on fire, and they excitedly reported we could see the Eyjafjallajökull volcano from the window! I checked the on screen map which said we were flying right over the middle of Iceland and went to look out the window. Low and behold the volcano was right there in all its glory!