Welcome to Mayo615’s Odyssey to France and the first of our Tuesday weekly updates. We invite you to subscribe to our YouTube Channel and follow our weekly updates. In this Week One update we will focus on my first Big Idea, and how I achieved it. I will also discuss my three most important key takeaways from that experience. We hope that you find this video helpful in achieving your own Big Ideas and goals. So here we go.
In this Week One update we will focus on my first Big Idea, and how I achieved it. I will also discuss my three most important key takeaways from that experience. We hope that you find this video helpful in achieving your own Big Ideas and goals. So here we go.
Years ago now Google quietly announced its “Loon Balloon Project” in New Zealand. The objective was to launch high altitude balloons that could potentially float over areas of the globe that did not yet have Internet access. The tech press predicted that the idea was “loony” indeed, though some called it “crazy cool.” Google has since also dabbled with the idea of low earth orbit satellites to achieve the same goal. With the rise of SpaceX, this seems an even more interesting technological approach, though other firms in the 1990s lost large amounts of money and failed. A modest aerospace company and a subsidiary of Airbus in Toulouse France is manufacturing low-orbit internet access satellites, hoping to launch as many as 650 such satellites. The idea that is captivating me is the potential for space-based Internet access to potentially provide an alternative to growing political and corporate control and Balkanization of the Internet.
Years ago now Google quietly announced its “Loon Balloon Project” in New Zealand. The objective was to launch high altitude balloons that could potentially float over areas of the globe that did not yet have Internet access. The tech press predicted that the idea was “loony” indeed, though some called it “crazy cool.” Google has since also dabbled with the idea of low earth orbit satellites to achieve the same goal. With the rise of SpaceX, this seems an even more interesting technological approach, though other firms in the 1990s lost large amounts of money and failed. A modest aerospace company and a subsidiary of Airbus in Toulouse France is manufacturing low-orbit internet access satellites, hoping to launch as many as 650 such satellites in a “global constellation”. The idea that is captivating me is the potential for space-based Internet access to potentially provide an alternative to growing political and corporate control and Balkanization of the Internet.
Ariane Soyuz rocket launch with six OneWeb satellites on board. February 27, 2019
Aclear plastic box the size of a sofa sits in an underground factory in the suburbs of Toulouse in southern France. Inside it, a nozzle fixed to a robot arm carefully drips translucent gloop onto bits of circuitry. This is to help get rid of excess heat when the electronics start to operate. The slab that is created is then loaded onto a trolley and taken away as the next piece of electronics arrives for the same treatment.
This is what the mass production of satellites looks like. Making them in quantity is a necessity for OneWeb. The company was founded in 2012, and it has yet to launch a single satellite. Yet it plans to have 900 in orbit by 2027. That seems a tall order. Intelsat, the firm which currently operates more communications satellites than any other, has been around for 54 years and has launched just 94.
OneWeb, which is part-owned by Airbus, a European aerospace giant, and SoftBank, a Japanese tech investor, needs such a large quantity of satellites because it wants to provide cheap and easy internet connectivity everywhere in the world. Bringing access to the internet to places where it is scarce or non-existent could be a huge business. Around 470m households and 3.5bn people lack such access, reckons Northern Sky Research, a consultancy. OneWeb is one of a handful of firms that want to do so. They think the best way to widen connectivity is to break with the model of using big satellites in distant orbits and instead deploy lots of small ones that sit closer to the ground.
The rate at which an object orbits depends on how far away it is. At a distance of 380,000km, the Moon takes a month to travel around the Earth. The International Space Station, around 400km up, buzzes round in an hour and a half. In between, at an altitude of about 36,000km, there is a sweet spot where satellites make an orbit once a day. A satellite in this orbit is thus “geostationary”—it seems to sit still over a specific spot. Almost all today’s satellite communications traffic, both data and broadcasts, goes through such satellites.
The advantage of a geostationary orbit is that the antennae that send data to the satellite and those that receive data coming down from it do not need to move. The disadvantage is that sending a signal that far requires a hefty antenna and a lot of power. And even at the speed of light, the trip to geostationary orbit and back adds a half-second delay to signals. That does not matter for broadcasts, but it does a little for voice, where the delay can prove tiresome, and a lot for some sorts of data. Many online services work poorly or not at all over such a connection. And it always requires a dish that looks up at the sky.
Ships, planes and remote businesses rely for internet connections on signals sent from geostationary orbit, but this method is too pricey for widespread adoption. Beaming the internet via satellites orbiting closer to the planet has been tried before. The idea was popular at the height of the tech boom of the late 1990s. Three companies—Teledesic, Iridium and Globalstar—poured tens of billions of dollars into the low-Earth orbit (leo) satellite internet. It culminated in the collapse of Teledesic. Although the technology of the time worked, it was very costly and so the services on offer had to be hugely expensive, too. Iridium survived, but as a niche provider of satellite telephony, not a purveyor of cheap and fast internet access.
OneWeb is among several firms that are trying leo satellites again. SpaceX, a rocket company founded by Elon Musk, a tech entrepreneur, is guarded about its proposed system, Starlink, but on November 15th American regulators approved an application for 7,518 satellites at an altitude of 340km (bringing the total for which the firm has approval to nearly 12,000). Telesat, a Canadian firm, has plans for a 512-satellite constellation. LeoSat, a startup with Japanese and Latin American backers, aims to build a 108-satellite network aimed at providing super-fast connections to businesses. Iridium, still in the game, will launch the final ten satellites in its new constellation of 66 by the end of the year. Not to be outdone, a Chinese state-owned firm recently announced the construction of a 300-satellite constellation. In ten years’ time, if all goes to plan, these new firms will have put more satellites into orbit by themselves than the total launched to date (see chart).
These companies want to avoid the technical issues of geostationary satellites by putting theirs into a low orbit, where the data will take only a few milliseconds to travel to space and back. And because signals need not be sent so far the satellites can be smaller and cheaper. OneWeb claims they might weigh 150kg and cost a few hundred thousand dollars, compared with a tonne or more, and tens or even hundreds of millions of dollars, for the geostationary sort.
At 1,200km up, where OneWeb intends its first satellites to operate, they do not sit still in the sky. A satellite overhead will sink below the horizon seven minutes later. That has two consequences. First, to ensure that a satellite is always available to any user, a great many are required. Second, to talk to such a satellite you need an antenna that can track it across the sky.
One way to understand this is as a cellular-phone network turned inside out. On Earth, cell-phone towers are fixed; a user’s phone talks to the closest or least busy one, which may change as the user moves or traffic alters. In OneWeb’s system each satellite is a moving cell tower, circling the Earth from pole to pole in one of 18 orbital planes that look like lines of longitude (see diagram). The 900 cells, each one covering an area of a bit more than 1m kilometres, skim across the Earth at 26,000km an hour. Clever software hands transmission from one satellite to the next as they move into and out of range.
There are three ways to connect to such a network. One is to place an antenna on a terrestrial cell tower, which can use the satellites to get data to and from a mobile-phone network, in place of the fibre optic, microwave or cable links that are normally used. The second is for homes and businesses to have their own ground terminals, smaller and cheaper antenna that can talk to the satellite. The third is for vehicles to have ground terminals. This might be important for driverless cars, which will need to transmit and receive large volumes of data over an area which may be broader than that covered by appropriate terrestrial cellular networks.
In all cases data will make their way to the wider internet through large ground-based dishes, called gateways. An email sent from a house connected to one of the new satellite network, for example, would travel up to a passing satellite, down to a gateway then onward to its destination.
The firms involved today hope to overcome the obstacles confronting the previous generation of leo satellite firms because building and launching hundreds of satellites is now much cheaper. The cost of launch in particular has tumbled in the past decade with the arrival of better rockets and more competition. OneWeb has a contract, reportedly valued at over €1bn ($1.1bn), for 21 launches with Arianespace, a European consortium. Russian-built Soyuz craft will also take 34 to 36 satellites up at a time from either French Guiana or Kazakhstan. OneWeb may later use Blue Origin, a rocket firm owned by Amazon’s founder, Jeff Bezos; it also has a contract for launching single satellites to replace ones that break down with Virgin Orbit. Virgin Group, like Airbus and SoftBank, is an investor in the company. SpaceX intends to launch its satellites on its own rockets.
The bigger challenge is making satellites quickly and cheaply enough to fill up these rockets. It typically takes existing satellite-makers two years to build one after contracts are signed. They are not up to the challenge, says Jonny Dyer, who worked on a Google project that first brought the OneWeb team together (but stayed with Google when the two parted ways). “The supply chain does not scale,” he says. “They’re not used to working at those volumes, and they’re not used to the unit cost.”
OneWeb and SpaceX thus not only have to make new satellites, they have to build a system for building satellites. OneWeb has been doing so in Toulouse for the past two years. Its first satellite was completed in April and ten more will be ready in time for the company’s first launch, some time before February 2019. To step up manufacture, OneWeb is building two copies of its production line in a new factory in Florida. It hopes to have the first satellite from this facility ready before March 2019 and to raise output to ten a week not long after.
The factory floor in Toulouse has separate workstations for propulsion systems, communications payload, solar panels and so on. Satellites in the making move on robot carts from one station to the next. Cameras track the components and look out for errors—misalignments and the like. The finished cube is about the size of a beach ball bedecked with antennae and solar panels. After testing, it is shipped out. The system has had teething problems. The first launch will be more than a year behind schedule. But Greg Wyler, OneWeb’s boss, says he still hopes to offer connectivity in places in higher northern latitudes, such as Alaska and Britain, by the end of 2019.
Putting satellites in place is only part of the problem. How useful they will prove to be depends on designing and building antennae to get data to homes or vehicles that are not close to terrestrial cell towers. “The elephant in the room…has always been the ground terminal,” says Nathan Kundtz, the former boss of Kymeta, which makes antennae. Mr Kundtz says that tracking satellites across the sky mechanically is untenable if the antennae are to be affordable and widely used. His firm does tracking electronically. No moving parts, he says. Teledesic failed in part because no such ground terminal existed in the late 1990s. Fortunately, the necessary electronics have shrunk in size and cost.
Firms such as Kymeta, along with at least two other companies, Phasor and Isotropic Systems, are producing flat, electronically “steerable” antennae with no moving parts that can send and receive signals from leo satellites. Kymeta’s antenna is the least orthodox. It relies upon the same kind of lcddisplay found in laptops and flat-screen televisions. Instead of using the 30,000 pixels in its screen to display images, it uses them to filter and interpret the satellite signal by allowing it to pass through at some pixels and blocking it at others. Different patterns of pixels act like a lens, focusing the signal onto a receiver beneath them; the pattern shifts up to 240 times a second, changing the shape of the “lens” and thus keeping track of the satellites overhead. Phasor’s system works similarly, but uses an electronically controlled array of microchips to perform the same task. Isotropic Systems, which has said that it is developing an antenna that will be able to receive signal from OneWeb’s satellites, uses an optical system more like Kymeta’s.
Kymeta and Phasor have both said that they do not want to sell antennae directly to consumers, but will focus on businesses, cellular networks, maritime and aviation customers instead. Isotropic Systems has announced that it will use its technology to produce a “consumer broadband terminal” in time for OneWeb’s launch. Once available, consumers are most likely to get the new pizza-size antennae through their internet service providers. But if it is too expensive for people to receive signals on the ground—most of the world’s unconnected are poor—those ventures selling direct to consumers will struggle. Mr Wyler says his firm needs antennae that cost $200 at most for the consumer business to thrive.
Telesat, the next biggest firm in terms of constellation size, is taking a different approach. It does not plan to offer services to consumers directly, but instead is focusing on filling in gaps for cellular networks, as well as businesses, ships and planes. Specialised telecoms companies would buy bandwidth and resell it. In contrast to Messrs Wyler and Musk, and their aspirations for global coverage, Telesat has divided the surface of the planet into thousands of polygons, and modelled exactly in which ones it makes financial sense to offer strong connectivity. This means its constellation needs fewer expensive gateways.
Mr Wyler, in contrast, is known as something of a connectivity evangelist. His first satellite internet firm, o3b (Other 3 Billion), placed large satellites in a higher orbit, providing a connection only slightly slower than a leosatellite. Now owned by ses, a larger satellite company, o3b specialises in providing connectivity to islands that are otherwise cut off. OneWeb’s goal of connecting consumers is largely in the hands of SoftBank, its main investor, which owns the exclusive rights to sell the new bandwidth.
Even if the new satellites bring the internet to people and parts of the planet that have been ill-served up until now, putting ever more objects in space brings another set of difficulties. Satellites in densely packed constellations may crash into each other or other spacecraft. “If there are thousands [of satellites] then they’ll have much higher probability of colliding,” says Mr Dyer. “If there is a collision in these orbits it will be a monumental disaster. At 1,000km, if there’s an incident it will be up there for hundreds of years.” Geostationary satellites, because they do not move relative to each other, are unlikely to collide.
Managing constellations is particularly difficult, says Mr Wyler, because each satellite has only a tiny amount of power to work with (equipping small ones with bigger thrusters would be hugely expensive). So even if a crash were imminent, there would be little that could be done about it other than watch. “What are you gonna do? Nothing. Get popcorn. There’s nothing to do,” says Mr Wyler. OneWeb has designed its constellation so that faulty satellites fall out of orbit immediately to avoid this risk.
The new constellations will also raise tricky questions of national jurisdiction. Countries generally have control of the routers which connect them to the wider terrestrial internet. Satellites threaten that control. The national regulators that OneWeb has talked to are uneasy, says Mr Wyler, because it would create a route to the internet that countries could not monitor. OneWeb’s intention is to build 39 “gateways” on the ground around the world that will beam up and receive traffic from its satellites.
The first is under construction in Svalbard, a remote Norwegian island chain. These access points, and those planned by other firms, present another difficulty. Some countries are willing to share gateways with other countries. Others want their own because they are concerned that third parties will be able to monitor internet traffic, potentially using it to hack data flows of national importance.
Questions remain about whether the businesses involved can do all they promise cheaply enough. But if these companies succeed, their impact will go beyond helping to bring 3.5bn people online. Mr Musk has hazy plans to use Starlink as the foundation for a deep-space network that will keep spacecraft connected en route to Mars and the Moon.
With a network of satellites encircling the planet, humans will soon never be offline. High-quality internet connections will become more widespread than basic sanitation and running water. The leo broadband firms are trying to reinvent the satellite industry. But the infrastructure they are planning will provide a platform for other industries to reinvent themselves, too.
Correction (December 11th, 2018): This piece originally stated that Intelsat has launched 59 satellites in its 54-year history. That is the number of active satellites the firm has in orbit. The firm has successfully launched 94. Sorry.
In one of the more bizarre recent articles on the state of the Canadian venture investment market, The Globe & Mail offered this story of the entry of Canadian commercial banks like CIBC, RBC and TD into the world of entrepreneurial finance. Not more than a few weeks ago, Toronto University Professor Richard Florida also published an opinion piece in the Globe & Mail, in sharp contrast which is entitled “Canada is losing the global innovation race”, describing the long term decline of Canadian venture capital and decades of poor investment in basic R&D compared to its other OECD industrialized nations. Recently, a colleague in Canadian venture capital told me of his retirement, citing the enormous difficulty his firm had raising capital from the Canadian financial industry. This is prima facie evidence of how disconnected Canada is from the reality of entrepreneurial finance and venture capital. The Canadian financial industry mindset is Problem One. Name another major entrepreneurial ecosystem that operates like this.
Banks spent 2018 fighting to give Canada’s fast-growing tech sector something it hasn’t had much taste for in years: debt.
Canadian scale-ups and venture-capital-firm partners spent much of the past year watching offers for debt financing pile higher than they can ever remember. In interviews with The Globe and Mail, founders, partners, and lenders used phrases like “slugfest” and “arms race” to describe the phenomenon. Both Canadian and American banks are racing to serve young tech companies, by improving loan terms and shoving down rates. This has reshaped how Canadian tech startups secure financing: Debt is so cheap that some small companies that would have never considered it are taking it on as a cushion, giving them extra runway between equity raises without diluting founders’ ownership.
The trend is partly a reflection of Canada’s tech sector’s coming-of-age after its post-financial-crisis doldrums. But it’s also the result of deliberate moves by two major players – one established in debt financing, the other making its return.
California’s Silicon Valley Bank is taking steps to formalize its ability to lend to Canadian clients and hopes to be fully licensed here early next year. Meanwhile, Canadian Imperial Bank of Commerce bought the private specialty-finance firm Wellington Financial in January with ambitions to better serve early- and mid-stage companies with broader banking services. In Wellington, CIBC found a team of experienced tech bankers after Canadian institutions largely shed that expertise in the long tail of the dot-com bust; in CIBC, Wellington found a lower cost of capital thanks to its scale, making debt cheaper to sell for clients.
While both players offer a suite of banking services, it’s been their debt offers that caused jaws to drop in Canada’s tech community in 2018 – and has pushed other lenders, including Royal Bank of Canada and Bank of Montreal, to try harder to entice startups with similar offerings.
While no one interviewed for this story would share numbers on specific rate offers they’d seen – rates vary across lenders as well as by company size, stage and revenue model – they all agreed that the past year saw remarkable drops in cost of capital. Two sources who were not authorized to share confidential rate proposals said that interest rate offers had fallen from 15 to 20 per cent a year ago, but now hover between 10 and 15 per cent, sometimes falling as low as 6 per cent.
“Entrepreneurs 10 years ago wouldn’t have known about venture debt – now they know about it,” says Mark Usher, the veteran technology banker who is managing director and North American market leader for CIBC Innovation Banking – Wellington’s new moniker – and chair of the Canadian Venture Capital & Private Equity Association.
Mr. Usher cautions that founders should be careful and seek the advice of their investors and board when considering debt financing – and warns, too, that the super-competitive Canadian market is not sustainable in the long run. “It will normalize back to historical returns and rates,” he says. “Venture-debt lenders will take losses at some point, then they’ll realize that they weren’t charging enough to make up for the losses, and that’s how it corrects.”
Many in the sector suggest the first sign of the shifting Canadian venture-debt ecosystem happened in March, when Vancouver social-media company Hootsuite Media Inc. signed a $50-million deal with the newly minted CIBC Innovation Banking, having previously largely worked with Silicon Valley Bank. (The American bank says Hootsuite also remains a current client.)
“Even if we never use it, it’s just a nice cushion, and it really doesn’t cost that much to have it,” says Sid Paquette, a managing partner at OMERS Ventures, who oversees the firm’s investment in Hootsuite. “At almost all of my companies … I’m doing a disservice if I don’t encourage them to take on a little bit of debt right now, because it is so cheap.”
Since then, venture-capital partners and tech executives say, the debt rally in Canada has been adopted by firms of all sizes and stages. Janet Bannister, general partner at Real Ventures in Toronto – which focuses on early-stage investments – says that many companies in her portfolio and on her radar are taking on debt financing, largely to accelerate growth without diluting owners’ stakes.
“The banks are increasingly saying, ‘We need to be the banking partners of these young companies, because some of them are going to grow up and be the next Shopify,’” Ms. Bannister says. Still companies need to be prepared for the debt, she says. “If the interest expenses become so onerous that they are impacting growth by forcing the company to curtail spending on things such as development, sales and-or marketing, that can become a problem.”
Bryn Jones, the co-founder of PartnerStack, a Toronto firm that helps software companies grow through partnerships, has spent the last few months evaluating term sheets. “The only banks that really cared before were from the Bay Area,” Mr. Jones says. Now, he continues, “everybody wants to get into it.” The phenomenon has been helpful for companies such as ChatKit, a Toronto e-commerce chat-marketing startup, which did a debt-financing round with CIBC Innovation Banking last July, says founder and chief executive Mazdak Rezvani. “To build a successful Series A round, you need metrics to appeal to an investor. A few extra months of runway really helps.”
Since the debt-rate battle began earlier this year, “all of the banks now have a tech-lending focus and strategy,” says Mr. Usher. His own firm, CIBC Innovation Banking, even hired tech financier Robert Rosen away from American rival Comerica Inc., a long-time leader in offering debt financing for Canadian startups.
Banks’ embrace of tech companies has in some cases turned into a talent war. Devon Dayton, who’d been a part of CIBC’s technology push, left to join the Bank of Montreal in April, just three months after the Wellington deal. He says he’s now charged with “accelerating” BMO’s tech coverage, including both through banking services and providing debt capital to the sector.
Royal Bank of Canada, meanwhile, turned to established Toronto tech lender Espresso Capital in August to partner for venture-debt deals. Espresso has funded more than 230 deals since 2009, the company says, and recently established a new program to lend to software-as-a-service cloud companies up to 24 times their monthly recurring revenue in growth financing, to a maximum of $10-million.
“For the longest time we were the beneficiary of a massively under-served market,” says Alkarim Jivraj, Espresso’s chief executive. Amid what he calls a “slugfest” between banks to offer debt, he says, “we continue to grow, even with the noise around us.”
A rash of Canadian debt-funding options have emerged, in fact, offering loans on such highly specific terms. Toronto’s Fundthrough offers cash advances between clients’ invoices; Clearbanc, co-founded by serial entrepreneur and Dragons’ DenDragon Michele Romanow – and which just raised US$120-million – helps finance young e-commerce businesses by fronting online ad revenue. “How you fund your company probably ends up being the most important decision you make as a founder,” Ms. Romanow says. “With equity, you never get to give it back …. Coming up with as much alternatives around that is really powerful.”
Silicon Valley Bank, which serviced Canadian businesses for about a dozen years but until recently, did so largely from offices in Seattle and Boston, is looking forward to a formal Canadian licence from the Office of the Superintendent of Financial Institutions.
“What the licence will give us in the new year is the opportunity to have feet on the street [and] meet with clients and investors in a more proactive kind of way,” says Barbara Dirks, the bank’s Canadian head. Her colleague Win Bear, who long worked for the lender’s Boston office, says that it’s a historic moment for startup financing – not just in Canada.
“There’s a lot more competition,” Mr. Bear says. “It’s really driven down pricing, much in the same way that increased competition on the growth equity side has increased valuations up to levels that some would argue are unprecedented.”
Five years ago, I wrote a post on this blog disparaging the state of the Internet of Things/home automation market as a “Tower of Proprietary Babble.” Vendors of many different home and industrial product offerings were literally speaking different languages, making their products inoperable with other complementary products from other vendors. The market was being constrained by its immaturity and a failure to grasp the importance of open standards. A 2017 Verizon report concluded that “an absence of industry-wide standards…represented greater than 50% of executives concerns about IoT. Today I can report that finally, the solutions and technologies are beginning to come together, albeit still slowly.
Five years ago, I wrote a post on this blog disparaging the state of the Internet of Things/home automation market as a “Tower of Proprietary Babble.” Vendors of many different home and industrial product offerings were literally speaking different languages, making their products inoperable with other complementary products from other vendors. The market was being constrained by its immaturity and a failure to grasp the importance of open standards. A 2017 Verizon report concluded that “an absence of industry-wide standards…represented greater than 50% of executives concerns about IoT.” Today I can report that finally, the solutions and technologies are beginning to come together, albeit still slowly.
One of the most important factors influencing these positive developments has been the recognition of the importance of this technology area by major corporate players and a large number of entrepreneurial companies funded by venture investment, as shown in the infographic above. Amazon, for example, announced in October 2018 that it has shipped over 100 Million Echo devices, which effectively combine an intelligent assistant, smart hub, and a large-scale database of information. This does not take into account the dozens of other companies which have launched their own entries. I like to point to Philips Hue as such an example of corporate strategic focus perhaps changing the future corporate prospects of Philips, based in Eindhoven in the Netherlands. I have visited Philips HQ, a company trying to evolve from the incandescent lighting market. Two years ago my wife bought me a Philips Hue WiFi controlled smart lighting starter kit. My initial reaction was disbelief that it would succeed. I am eating crow on that point, as I now control my lighting using Amazon’s Alexa and the Philips Hue smart hub. The rise of the “intelligent assistant” seems to have been a catalyst for growth and convergence.
The situation with proprietary silos of offerings that do not work well or at all with other offerings is still frustrating, but slowly evolving. Amazon Firestick’s browser is its own awkward “Silk” or alternatively Firefox, but excluding Google’s Chrome for alleged competitive advantage. When I set up my Firestick, I had to ditch Chromecast because I only have so many HDMI ports. Alexa works with Spotify but only in one room as dictated by Spotify. Alexa can play music from Amazon Music or Sirius/XM on all Echo devices without the Spotify limitation. Which brings me to another point of aggravation: alleged Smart TV’s. Not only are they not truly “smart,” they are proprietary silos of their own, so “intelligent assistant” smart hubs do not work with “smart” TV’s. Samsung, for example, has its own competing intelligent assistant, Bixby, so of course, only Bixby can control a Samsung TV. I watched one of those YouTube DIY videos on how you could make your TV work with Alexa using third-party software and remotes. Trust me, you do not want to go there. But cracks are beginning to appear that may lead to a flood of openness. Samsung just announced at CES that beginning in 2019 its Smart TV’s will work with Amazon Echo and Google Home, and that a later software update will likely enable older Samsung TV’s to work with Echo and Home. However, Bixby will still control the remote. Other TV’s from manufacturers like Sony and LG have worked with intelligent assistants for some time.
The rise of an Internet of Everything Everywhere, the recognition of the need for greater data communication bandwidth, and battery-free wireless IoT sensors are heating up R&D labs everywhere. Keep in mind that I am focusing on the consumer side, and have not even mentioned the rising demands from industrial applications. Intel has estimated that autonomous vehicles will transmit up to 4 Terabytes of data daily. AR and VR applications will require similar throughput. Existing wireless data communication technologies, including 5G LTE, cannot address this need. In addition, an exploding need for IoT sensors not connected to an electrical power source will require more work in the area of “energy harvesting.” Energy harvesting began with passive RFID, and by using kinetic, pizeo, and thermoelectric energy and converting it into a battery-free electrical power source for sensors. EnOcean, an entrepreneurial spinoff of Siemens in Munich has pioneered this technology but it is not sufficient for future market requirements.
Fortunately, work has already begun on both higher throughput wireless data communication using mmWave spectrum, and energy harvesting using radio backscatter, reminiscent of Nikola Tesla’s dream of wireless electrical power distribution. The successful demonstration of these technologies holds the potential to open the door to new IEEE data communication standards that could potentially play a role in ending the Tower of Babble and accelerating the integration of AI, IoT, and Big Data. Bottom line is that the market and the technology landscape are improving.
READ MORE: IEEE Talk: Integrated Big Data, The Cloud, & Smart Mobile: One Big Deal or Not? from David Mayes
My IEEE Talk from 2013 foreshadows the development of current emerging trends in advanced technology, as they appeared at the time. I proposed that in fact, they represent one huge integrated convergence trend that has morphed into something even bigger, and is already having a major impact on the way we live, work, and think. The 2012 Obama campaign’s sophisticated “Dashboard” application is referenced, integrating Big Data, The Cloud, and Smart Mobile was perhaps the most significant example at that time of the combined power of these trends blending into one big thing.
READ MORE: Blog Post on IoT from July 20, 2013
The term “Internet of Things” (IoT) is being loosely tossed around in the media. But what does it mean? It means simply that data communication, like Internet communication, but not necessarily Internet Protocol packets, is emerging for all manner of “things” in the home, in your car, everywhere: light switches, lighting devices, thermostats, door locks, window shades, kitchen appliances, washers & dryers, home audio and video equipment, even pet food dispensers. You get the idea. It has also been called home automation. All of this communication occurs autonomously, without human intervention. The communication can be between and among these devices, so-called machine to machine or M2M communication. The data communication can also terminate in a compute server where the information can be acted on automatically, or made available to the user to intervene remotely from their smart mobile phone or any other remote Internet-connected device.
Another key concept is the promise of automated energy efficiency, with the introduction of “smart meters” with data communication capability, and also achieved in large commercial structures via the Leadership in Energy & Environmental Design program or LEED. Some may recall that when Bill Gates built his multi-million dollar mansion on Lake Washington in Seattle, he had “remote control” of his home built into it. Now, years later, Gates’ original home automation is obsolete. The dream of home automation has been around for years, with numerous Silicon Valley conferences, and failed startups over the years, and needless to say, home automation went nowhere. But it is this concept of effortless home automation that has been the Holy Grail.
But this is also where the glowing promise of The Internet of Things (IoT) begins to morph into a giant “hairball.” The term “hairball” was former Sun Microsystems CEO, Scott McNealy‘s favorite term to describe a complicated mess. In hindsight, the early euphoric days of home automation were plagued by the lack of “convergence.” I use this term to describe the inability of available technology to meet the market opportunity. Without convergence, there can be no market opportunity beyond early adopter techno geeks. Today, the convergence problem has finally been eliminated. Moore’s Law and advances in data communication have swept away the convergence problem. But for many years the home automation market was stalled.
Also, as more Internet-connected devices emerged it became apparent that these devices and apps were a hacker’s paradise. The concept of IoT was being implemented in very naive and immature ways and lacking common industry standards on basic issues: the kinds of things that the IETF and IEEE are famous for. These vulnerabilities are only now very slowly being resolved, but still in a fragmented ad hoc manner. The central problem has not been addressed due to classic proprietary “not invented here” mindsets.
The problem that is currently the center of this hairball, and from all indications is not likely to be resolved anytime soon. It is the problem of multiple data communication protocols, many of them effectively proprietary, creating a huge incompatible Tower of Babbling Things. There is no meaningful industry and market wide consensus on how The Internet of Things should communicate with the rest of the Internet. Until this happens, there can be no fulfillment of the promise of The Internet of Things. I recently posted “Co-opetition: Open Standards Always Win,” which discusses the need for open standards in order for a market to scale up.
Read more: Co-opetition: Open Standards Always Win
A recent ZDNet post explains that home automation currently requires that devices need to be able to connect with “multiple local- and wide-area connectivity options (ZigBee, Wi-Fi, Bluetooth, GSM/GPRS, RFID/NFC, GPS, Ethernet). Along with the ability to connect many different kinds of sensors, this allows devices to be configured for a range of vertical markets.” Huh? This is the problem in a nutshell. You do not need to be a data communication engineer to get the point. And this is not even close to a full discussion of the problem. There are also IoT vendors who believe that consumers should pay them for the ability to connect to their proprietary Cloud. So imagine paying a fee for every protocol or sensor we employ in our homes. That’s a non-starter.
The above laundry list of data communication protocols, does not include the Zigbee “smart meter” communications standards war. The Zigbee protocol has been around for years, and claims to be an open industry standard, but many do not agree. Zigbee still does not really work, and a new competing smart meter protocol has just entered the picture. The Bluetooth IEEE 802.15 standard now may be overtaken by a much more powerful 802.15 3a. Some are asking if 4G LTE, NFC or WiFi may eliminate Bluetooth altogether. A very cool new technology, energy harvesting, has begun to take off in the home automation market. The energy harvesting sensors (no batteries) can capture just enough kinetic, peizo or thermoelectric energy to transmit short data communication “telegrams” to an energy harvesting router or server. The EnOcean Alliance has been formed around a small German company spun off from Siemens, and has attracted many leading companies in building automation. But EnOcean itself has recently published an article in Electronic Design News, announcing that they have a created “middleware” (quote) “…to incorporate battery-less devices into networks based on several different communication standards such as Wi-Fi, GSM, Ethernet/IP, BACnet, LON, KNX or DALI.” (unquote). It is apparent that this space remains very confused, crowded and uncertain. A new Cambridge UK startup, Neul is proposing yet another new IoT approach using the radio spectrum known as “white space,” becoming available with the transition from analog to digital television. With this much contention on protocols, there will be nothing but market paralysis.
Is everyone following all of these acronyms and data comm protocols? There will be a short quiz at the end of this post. (smile)
The advent of IP version 6, strongly supported by Intel and Cisco Systems has created another area of confusion. The problem with IPv6 in the world of The IoT is “too much information” as we say. Cisco and Intel want to see IPv6 as the one global protocol for every Internet connected device. This is utterly incompatible with energy harvesting, as the tiny amount of harvested energy cannot transmit the very long IPv6 packets. Hence, EnOcean’s middleware, without which their market is essentially constrained.
Then there is the ongoing new standards and upgrade activity in the International Standards Organization (ISO), The Institute of Electrical and Electronics Engineers (IEEE), Special Interest Groups (SIG’s”), none of which seem to be moving toward any ultimate solution to the Tower of Babbling Things problem in The Internet of Things.
The Brave New World of Internet privacy issues relating to this tidal wave of Big Data are not even considered here, and deserve a separate post on the subject. A recent NBC Technology post has explored many of these issues, while some have suggested we simply need to get over it. We have no privacy.
Read more: Internet of Things pits George Jetson against George Orwell
Stakeholders in The Internet of Things seem not to have learned the repeated lesson of open standards and co-opetition, and are concentrating on proprietary advantage which ensures that this market will not effectively scale anytime in the foreseeable future. Intertwined with the Tower of Babbling Things are the problems of Internet privacy and consumer concerns about wireless communication health & safety issues. Taken together, this market is not ready for prime time.
I was very interested yesterday to read the article in the Globe & Mail by University of Toronto Professor Richard Florida, and Ian Hathaway, Research Director for the Center for American Entrepreneurship, and Senior Fellow at the Brookings Institute. The article by Florida and Hathaway draws the same conclusions as my research, providing even more precise data to support their disturbing conclusions. It is not hard to find many additional articles on these issues. Ironically, also yesterday, a LinkedIn connection shared a post by Sciences, Innovation, and Economic Development Canada with a very upbeat, positive assessment of venture capital for startups in Canada. This is the essence of the problem. Since I came to Canada years ago now, I have seen a pollyannaish state of denial about the true situation for entrepreneurship, immigration policy, and the lack of “smart” venture capital for Canadian startups. No amount of counter-evidence has changed this mistaken rosy outlook. Without a recognition of these problems, nothing will change.
My long-time business partner and I, one of us in Canada and the other in Silicon Valley, last year launched a business targeted at bringing immigrant entrepreneurs to Canada, Vendange Partners. http://www.vendangepartners.com. We spent months analyzing and investigating the Canadian entrepreneurial ecosystem, particularly Vancouver and Toronto, Canadian immigration policy, and the Canadian venture capital industry. What we found was very concerning. Last December, I wrote a blog post here detailing our findings (read more below) that Canada was nowhere close to being the next Silicon Valley. With regard to venture capital, we found that there was a lack of adequate risk capital, which could be traced to deeply rooted conservative values in the Canadian financial industry. Immigration policy was a mixed bag, with a “startup” visa program that had become a magnet for immigration scams. Despite these disadvantages, we decided to press ahead, and are making progress.
That said, I was very interested yesterday to read the article in the Globe & Mail by University of Toronto Professor Richard Florida, and Ian Hathaway, Research Director for the Center for American Entrepreneurship, and Senior Fellow at the Brookings Institute. The article by Florida and Hathaway draws the same conclusions as my research, providing even more precise data to support their disturbing conclusions. It is not hard to find many additional articles on these issues. Ironically, also yesterday, a LinkedIn connection shared a post by Sciences, Innovation, and Economic Development Canada with a very upbeat, positive assessment of venture capital for startups in Canada. This is the essence of the problem. Since I came to Canada years ago now, I have seen a pollyannaish state of denial about the true situation for entrepreneurship, immigration policy, and the lack of “smart” venture capital for Canadian startups. No amount of counter-evidence has changed this mistaken rosy outlook. Without a recognition of these problems, nothing will change.
READ MORE: Canada Woos Tech Startups But Canada Is Not Silicon Valley December 20, 2017, mayo615.com blog post
Source: Solving Canada’s startup dilemma – The Globe and Mail
Canada, we increasingly hear, is becoming a global leader in high-tech innovation and entrepreneurship. Report after report has ranked Toronto, Waterloo, and Vancouver among the world’s most up-and-coming tech hubs. Toronto placed fourth in a ranking of North American tech talent this past summer, behind only the San Francisco Bay Area, Seattle, and Washington, and in 2017 its metro area added more tech jobs than those other three city-regions combined.
All of that is true, but the broader trends provide little reason for complacency. Indeed, our detailed analysis of more than 100,000 startup investments around the world paints a more sobering picture. Canada and its leading cities have seen a substantial rise in their venture capital investments. But both the country and its urban centres have lost ground to global competitors, even as the United States’ position in global start-ups has faltered.
Overall, Canada ranks fifth among countries in the number of venture capital deals and sixth in venture capital investment, trailing only the United States, India, China, Britain, and Germany. That said, Canada’s share of the world’s venture capital investment is tiny, just 1.5 percent. And it has actually declined over the past decade and a half.
But start-ups and entrepreneurship are a local phenomenon: They happen in urban areas. The good news is that a dozen or so of Canada’s cities make the list of the world’s 300-plus startup hubs. And the three largest of them – Toronto, Montreal, and Vancouver – rank among the world’s 62 leading global startup hubs.
Toronto, Canada’s top-ranked startup hub, is the only Canadian city to crack the list of the world’s top 25 startup cities. Vancouver and Montreal are in the top 50. Kitchener-Waterloo leads all Canadian cities in venture capital investment per capita, ranking 26th globally on that measure. It and Ottawa also rank among the world’s top 100 startup hubs in terms of capital invested, and Calgary is among the top 150.
The not-so-good news is that Canada and its startup cities are losing ground to startup hubs such as New York and London; Beijing and Shanghai; Bangalore and Mumbai; Berlin, Amsterdam, Stockholm, and Tel Aviv.
More worrying, Canada is failing to take advantage of the United States’ weakening position, which is attributable in part to its tighter immigration policies. While the U.S. continues to generate the largest amount of startup and venture capital activity, its share of the global total has been falling steadily, from more than 95 percent in the mid-1990s to about two-thirds in 2012, and a little more than half today. But the country that has gained the most ground is China, which now attracts nearly a quarter of global venture capital investment.
Exactly why Canada is lagging is unclear. A growing number of Canadian commentators suggest that the influx of large U.S. and Asian tech firms into Canada is sucking up tech talent that would have otherwise gone to local start-ups. But companies like Microsoft and Google are such powerful talent magnets that they are more likely to increase the overall supply. After all, San Francisco, New York, and London are homes to some of the biggest tech companies in the world, and they are also leading startup hubs.
Perhaps the brunt of Donald Trump’s anti-immigration policies has yet to be fully felt. Maybe it is because New York and the San Francisco Bay Area are close enough to lure Canadian entrepreneurs away, or maybe we are just not as entrepreneurial as we like to think.
Whatever the cause, Canada and its leading tech hubs must do more to grow their ecosystems, which already enjoy such clear advantages in talent, especially in the field of artificial intelligence, and their openness to immigration. Given the role that innovation and start-ups play in propelling economic growth and raising living standards, our economic future depends on it.
Richard Florida is University Professor at the University of Toronto’s School of Cities and the Rotman School of Management. Ian Hathaway is Research Director of the Center for American Entrepreneurship and a Senior Fellow at the Brookings Institution. They are authors of the Rise of the Global Startup City, released earlier this month.
READ MORE: Rise of The Global Startup City
At its inception, Uber touted itself as a shining example of the “sharing economy” described by Jeremy Rifkin, in this now famous book, The Third Industrial Revolution. As time has passed the reality has been radically at odds with a sharing economy. Among the many issues that have emerged has been the legacy of Uber’s ugly corporate culture, secret apps used to confound regulators, and to intimidate journalists, a Justice Department investigation of illegal practices, including 200 Uber employees conspiring together to attack Lyft’s operations. The proverbial chickens have come home to roost, as municipalities around the world have begun to regain control of transportation policy within their jurisdictions, and the inflated valuations of these unicorns begin to deflate.
At its inception, Uber touted itself as a shining example of the “sharing economy” described by Jeremy Rifkin, in this now famous book, The Third Industrial Revolution. As time has passed the reality has been radically at odds with a sharing economy. Among the many issues that have emerged has been the legacy of Uber’s ugly corporate culture, secret apps used to confound regulators, and to intimidate journalists, a Justice Department investigation of illegal practices, including 200 Uber employees conspiring together to attack Lyft’s operations. The proverbial chickens have come home to roost, as municipalities around the world have begun to regain control of transportation policy within their jurisdictions, and the inflated valuations of these unicorns begin to deflate.
READ MORE:
READ MORE: Wharton Newsletter: Regulating Ride-Sharing: New York May Be The Model For The Future
From the Wharton Newsletter/Podcast, August 14, 2018
The largest market for Uber, Lyft and other ride-hailing app companies — New York City — last week had its first successful attempt at regulating the growth of the nascent industry. On Wednesday, the New York City Council passed a series of bills, notably one that places a one-year moratorium on the issue of new for-hire vehicle (FHV) licenses. Other bills establish minimum wage levels for ride-hailing service drivers; require FHVs to submit data on ridership with penalties for failure to do so; and create driver-assistance centers to provide counseling services.
New York City had little option to act, especially after a similar move by Mayor Bill de Blasio fell apart following intense lobbying by Uber. Increasing road congestion by cars was the biggest contributing factor to the passage of the bill capping new licenses, corroborated by a decline in subway ridership. The number of FHVs in the city had grown from 65,000 in 2015 to about 130,000 currently. Uber is the biggest gainer, as shown by its almost hockey-stick growth in ridership.
New York City took the right steps to regulate the FHV industry, according to Wharton professor of operations, information and decisions Senthil Veeraraghavan. “This is the right way to go,” he said. “This is a great experiment that we’re [witnessing].”
“They had to do something,” noted Wharton management professor John R. Kimberly. “This is part of an obviously much deeper story … and the timing seems to be right.”
The move to ensure that drivers receive a minimum pay of $15 an hour after they cover expenses is also significant, said James Parrott, director of economic and fiscal policies at the New School’s Center for New York City Affairs. He had worked on an extensive study for the city’s Taxi and Limousine Commission that looked at the ride-hailing sector and its growth, and in particular its impact on driver earnings.
Kimberly, Veeraraghavan and Parrott discussed the implications of the legislative actions governing New York City’s for-hire vehicle industry on the Knowledge@Wharton radio show on SiriusXM. (Listen to the podcast at the top of this page.)
“This is the right way to go. This is a great experiment that we’re [witnessing].”–Senthil Veeraraghavan
Incentive to Improve
The establishment of a minimum pay for drivers is an important incentive for ride-hailing app companies to increase the utilization of drivers’ time, said Parrott. Drivers currently have a passenger in the car for only about 36 minutes of every hour, which means they don’t have a paying passenger for 42% of their time, he added.
Up to now, Uber’s business model has been “to flood the streets with cars,” since the firm gets a commission based on every fare, Parrott said. “There’s been no incentive for them to better utilize the drivers’ capital,” he added. “Keep in mind; this is an industry where the capital investment in the rolling stock – the cars – is entirely put up by the drivers. The pay standard gives them an incentive by allowing them to pay a little bit less if they make better utilization of the drivers’ time.”
The city will use the year ahead to study congestion levels in the city and find ways to redress that, including through congestion pricing mechanisms. Last week’s actions took a step in that direction with a surcharge on cabs below 96th Street ($2 per ride for medallion trips and $2.75 for ride-hailing app cabs). It will also allow the city to monitor how the pay standard works out, and how the ride-hailing app companies make better utilization of drivers’ time, Parrott said.
“Even if you increase utilization by 10 percentage points – from 58% to 68% – you would only increase average wait times across the city about 20 to 30 seconds,” said Parrott, citing his study’s findings. “We sense that most people can live with that.”
According to Parrott, the number of Uber trips in the city increased 100% in 2016 and 70% in 2017. Going forward, he said that figure could probably grow another 40% over the next year, “even without any additional cars on the street – just from increased efficiency.” Those increased efficiencies could come from a variety of quarters, including urging part-time drivers to go full-time and recruiting some of the drivers from the non-app services, such as the traditional livery car segment that has no minimum pay standards.
“Uber and the drivers are on both sides of the story,” noted Veeraraghavan. Riders want low waiting times, which can be achieved with more vehicles. But drivers want fewer drivers, because that would allow them to get better pricing, he said.
“Granted it might have been done a lot sooner, but it seems to me that at least in the city of New York there’s a real, serious effort to get their arms around the problem.”–John Kimberly
Worsening Congestion
Parrott said New York City had first started talking about capping Uber and Lyft cars in 2015, drawing “heavy pushback” from the ride-hailing industry at that point. Between then and now, the number of trips using ride-hailing apps has skyrocketed to 600,000 a day, which is more than five times the level in 2015, he noted. A 2016 study by the mayor’s office proposed several remedial measures including those to reduce congestion, improve air quality, protect drivers’ interests and enhance passenger experiences.
Parrott said that while the city bears some responsibility for not acting sooner on the unbridled growth of the FHV industry, it faced a different climate when it attempted that in mid-2015. Uber at the time controlled 90% of the market in the city as opposed to 66% now, he pointed out. Suicides by six cab driversalso highlighted the “economic crisis” and changed public opinion in favor of the changes, he said.
“Theoretically speaking, there’s always a gap between what firms will want to optimize and what society wants to optimize,” said Veeraraghavan. “And it’s hard for individuals to see what’s optimal for this society.” However, as city residents have begun seeing the impact of the FHV industry’s growth — including on public transportation ridership numbers — they now have had a better understanding. “So we have a redo from 2015 to 2017 … and we’re seeing better support for this.”
“Granted, it might have been done a lot sooner, but it seems to me that at least in the city of New York there’s a real, serious effort to get their arms around the problem and to figure out how to solve it,” said Kimberly.
Congestion in New York City has worsened in recent years with not just the influx of cabs, but also other vehicles “providing instant service for a variety of needs that people believe they have,” including delivery vehicles, said Kimberly. “The density of tourists on the sidewalks is so great it spills over into the street – that slows down traffic and makes it hard for cars,” he added. The option of levying congestion pricing is being seriously considered also at the state headquarters in Albany, he noted.
At the same time, “the growth of FHVs has meant that there’s much better transportation access in the outer boroughs, so the city doesn’t want to diminish that newly available service,” said Kimberly. “And yet the city also has a great interest in making sure that the drivers are able to remain economically viable to meet their expenses and to earn a decent living.” Higher wages would also enable drivers to work fewer than the 10-12 hours a day they now put in, he added, and that would have safety benefits as well.
“If they can show that they have stability and regulatory certainty in their largest market in the U.S., that will give investors a lot more certainty….”–James Parrott
Congestion pricing will also help fund investments in maintaining and upgrading the city’s aging subway and public bus system, Parrott said. The decline in mass transit ridership is not just because of the growth of the FHV industry, he noted; commuters are turning away because of “under-investment and under attention to adequately maintaining the mass transit system.”
Uber’s Leadership Challenge
The changes also highlight a “leadership challenge” for Uber, said Kimberly. “They have hundreds of markets around the globe, and each market has its own political configuration, and its own way of doing business,” he noted. “When you think about the challenges of operating an enterprise like Uber on a global basis with all the local idiosyncrasies that need to be taken into account both economically and politically, it’s a really interesting [problem].”
Uber, which is currently valued at about $62 billion, is said to be preparing for an initial public offering of its stock next year. “If they can show that they have stability and regulatory certainty in their largest market in the U.S., that will give investors a lot more certainty about the potential prospects for the company,” said Parrott.
Uber’s impact on employment is also large, Parrott noted. Uber drivers are not legally considered employees, but if they were to be treated as full-time equivalent (FTE) employees, Uber would be the largest private-sector employer in New York City, with about 35,000 FTEs, he said. “[Ride sharing] has become a huge enterprise in New York City, and it and it’s not what people usually think of as gig work where you are doing this to supplement other income. We found that 80% of the drivers bought their cars mainly for the purpose of providing transportation services, and two thirds of the drivers are full-time drivers.”
Parrott noted that both Uber and Lyft embraced the pay standard proposal. But Kimberly thought they had little option in the matter. “I don’t think it’s by accident that they’re embracing the pay standard,” he said. “Left to their own devices, they probably would not have done that. But there’s been so much social criticism – and valid criticism – of their models that they’ve really had no choice.”
Wikipedia defines Specsmanship as the inappropriate use of specifications or measurement results to establish the putative superiority of one entity over another, generally when no such superiority exists. It is commonly found in high fidelity audio equipment, automobiles and other apparatus where uneducated users identify some numerical value upon which to base their pride or derision, whether or not it is relevant to the actual use of the device. Smartphones and the early microprocessor market are also examples.
Most recently, we are seeing specsmanship in the smartphone market. As the smartphone market has matured into 7th, 8th, 9th generations of smartphones, the differentiation among products has been reduced to smaller and smaller differences in the products : resolution of the camera, display size or alleged brightness, etc.. In earlier generations, Apple, and the Android phone manufacturers created a highly effective intangible market need to possess their latest generation phone in which features were less important. I called this market need the smartphone “Star Wars” phenomenon causing people to line up around the block as if to see the latest Star Wars film. Most market analysts now agree that the smartphone market frenzy has run its course. Apple’s strategy to reinvigorate the market by creating a higher price point product has predictably fallen flat. Apple’s move surprised me because the marketers at Apple seemed to miss the consumer market sentiment. Water resistance in my view was the last major device feature with a market need to protect phones from the dreaded “toilet drop.” Samsung introduced water resistance in the 5th generation Galaxy, and permanently in the Galaxy 7. I have not been motivated to buy a new phone since the Galaxy 7.
In another, more dramatic and pivotal example, my first personal experience of the specsmanship phenomenon was at Intel, during the original first generation microprocessor war: the Intel 8086 versus the Motorola 68000. Without diving too deeply into the technical specifications, the Intel 8086 on its face was technically inferior to the Motorola 68000 at a critical time when microprocessors were very new, customers had doubts, and the market was just beginning to establish a foothold in electronics design. Facing this marketing challenge, Intel’s Vice President of Marketing at that time, Bill Davidow, made a momentous decision to “differentiate” Intel and the 8086 not its specifications, but on Intel’s long-term vision for its microprocessor family of products and to focus its marketing efforts on senior management executives of its customers, not the engineers. Davidow famously delivered a presentation to the Intel sales force, “How To Sell A Dog.” The message was to ignore the spec and concentrate on the customers higher level needs, and the security of an investment in Intel with its long-term vision to provide them with greater value and competitive advantage.
Motorola fatefully decided to concentrate its marketing strategy entirely on the superior technical specifications of the 68000, poignantly winning a small skirmish but losing the war. Intel dominates the general purpose microprocessor market to this day. The Intel versus Motorola story is definitively detailed in Bill Davidow’s now famous book, Marketing High Technology: An Insider’s View. Davidow’s book also includes numerous gems of insight into marketing. Bill’s thoughts on the barriers to a new entrant into an existing market have stuck with me over the years.
If the smartphone market is ever to revive, it needs to learn from Davidow’s lesson, ignore the specs, and concentrate on creating a higher level marketing message that meets deep customer needs.
Bill Davidow, former Intel Marketing Vice President
Though I have met with Bill Davidow many times, spent time with him, and invited him to speak with executives of an emerging technology company, I have never directly asked him about the degree to which Harvard Professor Ted Levitt’s concept of a Total Product influenced him. It does seem highly likely that it is the case. By way of example, marketers often refer to “product differentiation.” Specsmanship is the lowest possible form of product differentiation. Creating a higher level of product value is the true essence of product differentiation. This is also the essence of Levitt’s now legendary Total Product. What is different in the Intel case is my memory of how Levitt’s Total Product model, was adapted at Intel. I will explain.
Harvard Business School Professor Ted Levitt
READ MORE: Levitt HBR: Marketing Success Through Differentiation of Anything
Levitt’s classic Total Product model is graphically displayed here:
In my personal view and recollection which I show here, I believe Davidow focused on the “Augmented Product,” “Expected Product” and the “Potential Product,” and avoided the “Generic Product” to win the specsmanship war with Motorola. I also distinctly remember a slightly different Intel model which is shown below.
It is my recollection that we at Intel, and most likely Bill Davidow in particular, adapted the Ted Levitt model to Intel’s particular new market realities, and focused on the outer circle, “Corporate Vision” and “Product Roadmap” to win the microprocessor war. The “Engineering Deliverable” is not a product. It is only a naked engineering project deliverable. Specsmanship does not make it a product. The “Corporate Vision” and “Product Roadmap” offer greater long-term value to customers, and ultimately create a powerful brand image.
Industry analysis is not a well-understood discipline. It sits between macroeconomic analysis and market analysis and uses tools from both. It is most commonly associated with the financial services industry which produces guides for their investors. But there are also large global consultancy firms that specialize in industry analysis. It is an important tool for governments, regional development agencies. Companies use industry analysts to assist in their strategic planning. Those who can anticipate the changes in an industry are more likely to be successful. This brief presentation provides an overview of what industry analysis is, examples of industry analysis in action, and why it is so important.
Another Silicon Valley reckoning is on the horizon. We have seen cyclical events like this before, the 2001 bubble burst being the most recent memorable reckoning. The talk in 2001 was about too much “dumb money.” The coming reckoning, however, is on a massive, unprecedented scale, fueled by the same excess of global capital that has fueled the bubbles in housing markets in attractive locations around the World. The problems with Uber, Travis Kalanick, and the now obvious difficulty of the Uber Board of Directors to exercise meaningful governance should have been the “canary in the coal mine.” CNBC’s reporting on the excessive Silicon Valley “unicorn” valuations and media reports that New Enterprise Associates would divest $1 Billion in startup investments that cannot be made liquid have made the situation blatantly obvious. After a long silence, the Wall Street Journal has finally joined the reporting on the crisis. What more does one need to take to the exit?
Another Silicon Valley reckoning is on the horizon. We have seen cyclical events like this before, the 2001 bubble burst being the most recent memorable reckoning. The talk in 2001 was about too much “dumb money.” The coming reckoning, however, is on a massive, unprecedented scale, fueled by the same excess of global capital that has fueled the bubbles in housing markets in attractive locations around the World. The problems with Uber, Travis Kalanick, and the now obvious difficulty of the Uber Board of Directors to exercise meaningful governance should have been the “canary in the coal mine.” CNBC’s reporting on the excessive Silicon Valley “unicorn” valuations and media reports that New Enterprise Associates would divest $1 Billion in startup investments that cannot be made liquid has now made the situation blatantly obvious. After a long silence, the Wall Street Journal has finally joined the reporting on the crisis. What more does one need to take to the exit?
Source: In ‘Founder Friendly’ Era, Star Tech Entrepreneurs Grab Power, Huge Pay – WSJ
Founders of highflying startups are increasingly wresting control of their companies from venture-capital backers and extracting huge pay packages tied to going public.
Venture capitalists had long called the shots in startup boardrooms and continue to be the primary backers of private companies. But in recent years they have had to compete against new classes of investors including mutual funds, sovereign-wealth funds and now Japan’s SoftBank Group Corp. , which has a $92 billion Vision Fund investing in startups.
That has reduced their leverage, shifting power toward star entrepreneurs and adding pressure on VCs to cultivate “founder friendly” reputations that will help them get a piece of the next hot startup. The flood of capital also gives entrepreneurs the ability to pick not just their investors but also when and whether to go public. An initial public offering is the primary way in which VCs cash in on their gains from startup investments.
VCs say empowering founders—through special voting shares, governance rights and other tools—frees them to follow ambitious long-term strategies once their companies go public without having to worry that poor performance will bring pressure from activist investors that scoop up stock. They point to founder-controlled tech companies such as FacebookInc., where founder Mark Zuckerberg had power to make bold moves and resist early pressure to sell the company. Facebook, which went public at around $100 billion, is now valued at roughly five times that.
Venture-capital backers of Stripe Inc., whose software is used by businesses to accept and track digital payments, recently gave the company founders an incentive to go public: special supervoting shares. The move was meant partly to assuage the founders, brothers Patrick and John Collison, that they would keep significant control of the company they founded in 2010 if it went public, people familiar with the matter said.
Many of Stripe’s investors say the founders have earned the right to control the company because it has performed so well. It was valued at $9 billion in its last fundraising round. Until March, when Stripe added its first independent director, the Collison brothers’ only fellow director was Michael Moritz, a partner at Sequoia Capital, one of the company’s earliest investors. Stripe and Sequoia representatives declined to comment.
Glenn Kelman, the longtime chief executive of online real-estate brokerage Redfin Corp.that went public last July, said that in the run-up to the IPO he was pushed to be more disciplined with expenses by two big investors who traditionally buy public-company stocks but also back later-stage private companies. Redfin’s shares are up about 50% since the IPO.
“There is a new world of VCs who really can’t perform their governance functions on boards because they want to preserve their relationship with you,” Mr. Kelman said of the venture-capital industry.
Star founders of private companies often get to pick their own investors, but as public-company CEOs they can’t. Supervoting shares—typically a second class of stock held by insiders that have 10 votes per share—give founders more power to elect directors and approve other items up for shareholder vote and protect them from investors who may have different priorities.
Last year, 67% of U.S. venture-backed tech companies that staged IPOs had supervoting shares for insiders, according to Dealogic, up from 13% in 2010. The proportion of non-tech U.S. venture-backed IPOs with supervoting shares has stayed between 10% to 15% every year over that period.
The proportion rises as tech companies get larger: 72% of founders of U.S. tech startups valued over $1 billion that had IPOs over the past 24 months have supervoting shares, according to a Wall Street Journal analysis.
Empowering a founder has risks. Uber Technologies Inc. co-founder and former CEO Travis Kalanick built a ride-hailing juggernaut valued at $68 billion with a pugnacious leadership style, but that approach ultimately contributed to a series of scandals. His supervoting shares and de facto control of the board made it more difficult for investors to push him out.
They did so last year, and then abolished supervoting rights and adopted a “one share, one vote” policy ahead of a planned 2019 IPO, something Mr. Kalanick ultimately voted in favor of.
Spotify Technology SA’s shareholders issued special “beneficiary certificates” to its founders in February, in part because co-founder and Chief Executive Daniel Ek wanted to maintain control, a person familiar with the arrangement said. The certificates boosted Mr. Ek’s and his co-founder’s voting control to a combined 80.5%, double their economic ownership. Spotify listed its shares in April. A Spotify spokesman declined to comment.
Snap Inc., whose two co-founders control about 90% of its voting power, sold shares with no voting rights in its 2017 IPO, meaning public-market investors don’t have any say on corporate matters.
Evan Spiegel, co-founder and CEO of the Snapchat parent, received a $625 million stock package that vested with the IPO as an incentive to get it done, people familiar with the deal said.
Drew Houston, co-founder and CEO of online-storage company Dropbox Inc., in December got his own stock package worth potentially $590 million partly tied to his company’s March IPO, according to offering documents. The stock vests based on Dropbox’s share price, among other milestones, and he can earn the full amount only if shares reach $90, triple their current value. Mr. Houston already holds nearly $3 billion of Dropbox’s shares.
Bankers and lawyers who work on IPO deals say there is little precedent for big stock packages offered to founders ahead of public offerings, a reflection of venture-capital firms’ decreasing leverage. Snap and Dropbox representatives declined to comment.
Some star founders may even be emboldened to overstep boardroom norms.
WeWork Cos. co-founder and Chief Executive Adam Neumann, who has 65% voting control, is one of two members of his board’s compensation committee, along with longtime company investor Benchmark, according to WeWork’s recent bond-offering documents. Public companies aren’t usually allowed to have their executives on compensation committees—which set executive pay—to avoid conflicts.
A WeWork spokesman said Mr. Neumann takes $1 a year in salary and declined to comment on whether he receives stock compensation or recuses himself from committee discussions of his pay. It is unclear when WeWork will tap the public markets, but the company’s $4.4 billion investment from SoftBank in 2017 was seen as pushing out its need for a public offering potentially for years.
WeWork bond documents show that in 2016 and 2017, the company paid more than 1.3 million shares of class B stock compensation, worth more than $50 million at the company’s current valuation. Mr. Neumann controls 78% of class B shares, which come with supervoting rights.
—Eliot Brown contributed to this article.
Write to Rolfe Winkler at rolfe.winkler@wsj.com and Maureen Farrell at maureen.farrell@wsj.com
This IEEE Talk discusses the three biggest trends in online technology and proposes that in fact, they represent one huge integrated trend that is already having a major impact on the way we live, work and think. The 2012 Obama Campaign’s Dashboard mobile application, integrating Big Data, The Cloud, and Smart Mobile is perhaps the most significant example of this trend, combining all three technologies into one big thing. A major shakeout and industry consolidation seems inevitable. Additional developments as diverse as augmented reality, the Internet of Things, Smart Grid, near field communication, mobile payment processing, and location-based services are also considered as linked to this overall trend.
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