Above C-level

With the announcement of Windows Azure, Microsoft has awoken to the trend towards software as a service, otherwise known as cloud computing. This new product line will allow companies to “subscribe” to Microsoft’s software offerings, and use them over a network instead of hosting the applications on local machines. Although thin on specific details, the company’s chief software architect Ray Ozzie stated that Azure represents “a transformation of our offerings across the board”, hinting that the software will encompass all of their mainstream Office products.

When I wrote in on this topic in August, I was optimistic that cloud computing was the wave of the future for enterprise applications, but I questioned whether mainstreaming would occur anytime soon. Azure will certainly accelerate that timeline. And even though Azure is an obvious reaction to Google Apps, I like Microsoft’s chances. Microsoft enjoys a virtual stranglehold on the industry with their Office suite, and it will be a long, expensive and arduous process for any company to surmount the monopoly. Furthermore, Google Apps is yet to impress. Although Google is synonymous with innovation, they did a poor job of building products to truly compete with Microsoft Office. For example, their spreadsheet program lacks critical functionality for power users. Finally, the day is still far away from when large companies move to a pure cloud computing environment. Microsoft already has the locally installed Office to ease that transition, and in fact may bolster functionality due to compatibility between Azure and Office.

Whoever wins, the end result of this race between Google and Microsoft should drastically benefit the end user. It’s been too long since Office has had a legitimate heir to its throne, and Google Apps has clearly lit the flame under Microsoft’s you-know-what.

What if I told you that you could listen to any song that you want as many times as you want for only 10 cents? Is that something you might be interested in?

In a change of heart from last month where I negatively reviewed SanDisk’s new digital music media, Lala.com is living proof that the music industry has hope. Their secret: lure you in for free and keep you there for cheap. The way LaLa works is the following: users may listen to any song one time for free from their library of over 6 million. If they wish, they can then pay 10 cents for unlimited streaming use of the song while online – this is called a “web song”. And then for an additional 79 cents, users can download an offline, DRM-free version of the song for their mp3 player of choice. Better yet, LaLa seamlessly integrates with iTunes, where the song is instantly delivered to the user’s music library.

It costs 89 cents to physically own a song via LaLa versus 99 cents via iTunes. But the slight price difference isn’t the kicker – instead it’s the 10 cent web song that is the real innovation. At a dime a pop, illegal downloading may finally have some competition. Of course 10 cents is no reason for record labels to jump for joy, but when you consider the fact that over half of today’s music downloads are illegal, it’s a sound stopgap measure. Furthermore, it’s a gateway to the incremental 79 cent purchase for outright ownership – a 20% improvement over perceivably overpriced iTunes when you consider the first 10 cent payment a sunk cost.

LaLa will not solve all that ails the music business, but it certainly has captured a creative revenue model to compete with iTunes’ number one download platform. Furthermore, as wireless internet becomes ubiquitous, online streaming music may render today’s mp3 storage devices (e.g. classic iPods) obsolete. If and when this disruption takes place, new entrants such as LaLa will be ready to step into the shoes of current mp3 retailers, rekindling the hopes of a quickly fading industry.

Matt Marshall from VentureBeat reported today that MySpace expects to hit $1 billion in revenue this year, up from $850 million last year. So much for the theory that web-based advertising is not a sustainable business model for social networks.

What I found more interesting about the article though is that MySpace’s number one competitor, Facebook, is struggling to monetize their ads (~$300 million expected revenue) even though they have surpassed MySpace in terms of traffic. So what’s the problem?

Ad Content
I am not a user of MySpace, so I can’t comment on the firsthand effectiveness of their advertisements. But I imagine their ads are better than the ones I’m currently staring at on my Facebook profile, which include “Straight Teeth, No Braces” and “$99 Dental Whitening”. My dental hygiene is just fine, thank you. And furthermore, where are they getting the impression that I need dental work? Nothing in my profile, which is fairly rich with data once you take into account my network of friends, suggests I need help with my teeth. On a refresh of the page, I see “NYC Bars That Don’t Suck”. New York is listed as the current city in my profile, so I give them partial credit for picking up on that basic fact. I’m still not clicking.

“Growth is primary, revenue is secondary.”
I found that quote in FAZ.net’s recent interview with Facebook CEO Mark Zuckerberg. Of course growth is important, but why deemphasize the importance of revenue? Growing one’s customer base to reach critical mass is top priority for fledgling startups, but Facebook is a mature platform capable of churning out big dollars. Furthermore, domestic U.S. growth is on auto-pilot for Facebook. I only became a member of the site very recently, and it certainly had nothing to do with the company’s marketing efforts. I simply found that so many people I associate with were on Facebook that it didn’t make sense NOT to join. When your network alone fuels growth, it’s time to cash in.

I like Facebook’s technology and I’ve spent plenty of time building my network, so I have vested interest in seeing them succeed. However, I’m not impressed by the company’s cocky attitude towards making money. Revenue, not traffic, will determine the company’s sustainability – a truth that is becoming even clearer in today’s challenged economy. MySpace understands this point, and they’ve got much deeper pockets to begin with due to their parent company, News Corp.

Traffic is good. Money is better.

When I left American Express at the beginning of this year to join Brilliont, many expressed to me their desires to do something similar – leave the corporate giant and start something of their own. Unfortunately, the majority of people who make such a statement have no serious intention to do so. I know because I was one of those people until recent years. It sounded nice, but why take the risk?

Now with what’s happening in the market, risk has become a relative term. When I graduated Columbia Business School, I went the small company route instead of joining a McKinsey or Goldman Sachs. This is not exactly unheard of for a Columbia MBA, but certainly not the popular option given 1) the MBA price tag and 2) the school’s proximity to high-paying finance jobs. Fast forward a few years: of my four closest friends from business school, two of them have already been laid off, with a third waiting in the wings. Without mentioning company names, my friends’ employers were large financial and real estate institutions with much lower perceived risk profiles than that of my small business employer of choice.

The entrepreneurial life is not for everybody, but the element of risk in one’s decision-making is overrated. The recent downturn drives home that point. If you have an idea, and you can somehow secure adequate seed funding to provide decent runway, your job security is actually better than if you work at a large financial services company. That’s right - it can actually be safer to control your own destiny with the benefit of limitless upside versus the alternative where you simply collect your paycheck and consider yourself lucky to have one.

Although the market is down and many will lose their jobs, I am encouraged by the fact that many talented people will recognize opportunities in self-employment. Funding standards will be more stringent than they have been in recent years (see Benchmark Capital’s memo to startups), but I am cautiously optimistic that this downturn will spur positive innovation.

Entrepreneur wannabes: don’t be a victim of the downturn. If you lose your job, see it as an opportunity to do what you wanted to do for years, but haven’t had the guts to do under the security of a salary. Otherwise you may find yourself repeating this vicious cycle numerous times in the future.

Google’s reputation for innovation continues to grow, this time expanding into the energy sector with their Clean Energy 2030 proposal. The plan, which is a product of Google’s not-for-profit organization Google.org, calls for a $4.4 trillion investment in alternative energy over the next 22 years to lessen U.S. dependence on fossil fuels. The plan suggests net savings of $1 trillion and the creation of nearly 500,000 new jobs to support this transformation.

Is the plan too ambitious? I believe it is on two major fronts:

1. By 2030, the U.S. will produce exactly 0% of its electricity burning coal and oil.
It’s not en vogue to criticize green energy, and I for one, don’t doubt its potential to transform the future. However, suggesting that our country can be completely free of oil and coal within 22 years when over half our electricity currently comes from those sources is over-ambitious. The only proven power sources that Google sees in the picture in 2030 are hydro and nuclear, and even those outputs are to remain fairly steady in their plan. Instead, Google suggests virtually all oil and coal replacement will come from solar, wind and geothermal. Ignoring nuclear power in the plan is a mistake.

2. Roughly 60% of new car sales in 2030 will be plug-in hybrids, with another 20% being fully electric.
Electric car technology is fairly proven, but infrastructure and profitability remain the issue in the automotive industry. Without government mandates, it’s unthinkable that car companies would follow suit with Google’s goals. Public perception aside, there is no incentive for automobile manufacturers. And a federal mandate will be tough to say the least.

But maybe by focusing on the details, I’m missing the most important point: alternative energy gained an important partner this past week. Google’s brand is built on innovation. When the company speaks on a topic, no matter how outlandish or unrelated to its core business, people listen.

This is neither the first plan nor the last that will attempt to solve this country’s energy challenges. However, it’s refreshing to see the issue move away from politics and self-interested oil companies, and into the hands of a universally respected innovator with the money to weave dreams into reality.