Something
Ventured:
January 4th, 2002
By Brent
Holliday
Greenstone
Venture Partners
"So
you think you can tell
Heaven from Hell
Blue skies from pain.
Can you tell a green field
from a cold steel rail?
A smile from a veil?
Do you think you can tell? "
- Pink Floyd, Wish
You Were Here
Like
many of you who worked their behinds off through the
tumultuous year of 2001, I managed to escape for a few
days over Christmas and just shut down. It was a good
time to unplug and reflect a little on what happens
next. It's like I just swam the length of the pool
underwater and had five seconds to gasp for air before
plunging back in for another length. I hope that somehow
2002 will be a shorter distance under the water than
2001...
What
struck me through the mental decompression of the past
two weeks was that predicting anything these days is a
lot like my tee shots in golf: it could go anywhere from
here, except backwards. So, rather than try and lay out
educated guesses as to where we are going as a tech
industry as most pundits do at this time of year, I
thought I'd try a wish list instead. Wishes are easier
and no one will look up your old columns and point out
where you went wrong.
Wish
#1 - Never Again, Not In My Lifetime:
First and foremost, I wouldn't wish 2001 on my worst
enemy. Especially if you were in information technology
or communications. It was the year of the
disappointment. The big D. For investors, for
entrepreneurs, for employees and for the economy in
general. From a financial markets point of view, 2001
continued the plummet begun in 2000 to set new records
in stock market futility. The NASDAQ actually hit 2900
in 2001. It also touched the 1400s in the September 11th
aftermath. Although the markets seemed to have found
their step lately, the reality is that we are all still
underwater on our Nortel and JDS Uniphase shares.
Consider this gem from the recent JDS Uniphase investor
day: 2nd quarter revenue ending March 2002 will be
US$280M and 3rd quarter will be US$238M according to the
company estimates. This is a company that did US$3.2B in
sales in fiscal 2001. They will be lucky to do US$1B in
2002. The whispers were that no one should expect them
to sell US$3B again until 2005 or 2006.
Most
smaller technology companies took a serious hit in
growth this year. In 2001, the hockey stick projections
were all thrown out. Hands up if your company still
doesn't have 2002 sales estimates nailed down yet. If
you work on commission this makes you very nervous. But
predictions are nearly impossible. Sierra Wireless just
missed their quarter by 40%! Do you think that their
graphs for the quarter showed worst case and best case
80% apart
In
the world of the start-up, 2001 was a wasteland. The
numbers will roll in soon. Dramatic declines in funding
and dramatic declines in new companies. Add into that
the tremendous number of businesses that failed and the
ones that are still around being skinnier in personnel
and you get a tough, tough market for the entrepreneur.
The
catastrophic events of 2001 were like a perfect storm.
All of the confluences of nature, both probable and
improbable, seemed to have washed ashore together. While
business has cycles and economies have ebbed and flowed
over time, I don't believe we are going to see as tough
a year again. Not for a long, long time.
Wish
#2 - Let The Corporations Spend Again
According to a recent Merrill Lynch CIO study from large
American companies, corporate IT spending (includes
networking and internetworking) declined by 1% last
year. The study predicted that it would increase 2-3%
this year. The areas that will receive the most
attention are security and storage. That 2-3% might not
seem like a lot, but it is billions. More importantly
(and why I focus on these numbers a lot), improving
sentiment towards spending and new projects means that
the big companies are happier (Microsoft, Oracle, IBM,
Cisco) and the little up-and-comers have a fighting
chance. Optimism in spending means that more risks will
be taken and new companies will have a chance to show
their innovation and grab key customers. Oh, and happier
big companies means they may be interested in buying
some of the up-and-comers again.
In
some ways the September 11th disaster and subsequent
corporate shock waves might be the antithesis to the Y2K
spending bubble. Corporate IT spending was very high in
1998 and 1999 leading up to the Y2K bug. As predicted,
2000 was slow as spending priorities were overhauled.
What was not predicted was the slowing economy and then
the screeching brakes of September and October 2001. The
result is that IT spending and IT budgets have been very
low, relatively speaking, over the past 24 months.
Perhaps (we are wishing aren't we?) the bounce back in
2002 will be as significant as the retraction
immediately after Jan 1 2000 as corporations look to
improve productivity and reduce expense in the long run
using IT.
Wish
#3 - The Consumers Pay For Their Internet
Did you notice what happened in November and December?
Have you tried to send a Blue Mountain Arts e-card or an
eGreeting lately? Have you tried to hear a streaming
sports broadcast? Have you gone to your Geocities
homestead one day to find it no longer exists? What in
the name of freeloading is going on here?
Like
dominoes, the Internet services that fanned so many
great dreams and billion dollar babies and then became
the laughingstock of all business, have gone to a
subscription business model. Advertising just doesn't
work. Free stuff is almost non-existent. With the
glaring exception of Gnutella, the Net has gone all pin-stripey
and corporate, man. For almost 5 years, the pundits have
said the Net must be free. Then, in an update of the
1974 Don McLean classic, February 20th 2001 was the day
the music died when Napster lost its court case. And so,
we get the notice on the egreetings.com site which says
that their bankers (ummm, VCs) said that they had to get
a real business model, so don't blame them that you have
to pay $7 to get the really good stuff. A conspiracist
would think that the clever people at Yahoo, AOL and
Microsoft have given it to us all free just to get us
hooked so that when subscription time came we would peel
out our credit cards just to get it back. What would 40
million teenagers do without instant messaging? Do you
think they would pay? Well, like, duh.
What
consumers need to do is be willing to look at a monthly
or annual amount that they can spend on this stuff and
decide what is worth it. Is my own web site, with my own
domain name for family photos and personal newsletter
really worth $30 a month or $360 a year? Do I want to
hear the seven or eight Canucks games that aren't on TV
for $29 a year?
My
wish is that the consumer does spend a few bucks and
that we get what we pay for: higher quality content,
better tools and a renewed interest in Internet services
as a real business. What we need is smarter marketing
people at the big Internet companies and access
companies to start to intelligently bundle services into
attractively priced packages.
Are
you one of the overt pessimists? Still think that this
on-line business model won't fly because people won't
pay. Then you would be exactly like the people at the
networks and large advertisers in the 1960's and early
70's who said that television will always be free like
radio. No consumer will pay a company to pipe stations
into their house that they can get with an antenna, they
said. Who is bigger now? The networks or the cable
companies?
Wish
#4 - That BC Has More Wins in 2002
Gordon Campbell may have a bad year in 2002, but leaders
are ultimately successful and respected when they stay
the course and don't waver on the first hint of ill
will. He needs to get the house in order before his
government can help with spending. What we really need
as a technology industry is a much better year than
2001. 360 Networks was the absolute worst performing
stock on the TSE in 2001. Ouch, that's one of ours. PMC-Sierra,
Sierra Wireless, CreoScitex and Pivotal have all taken
serious body blows in the past 18 months. MDA has stuck
in there, as has Ballard Power. QLT and Angiotech have
had their violent swings, but are still doing OK. We
lost all of Glenayre, part of JDS Uniphase and pieces of
Redback, Nortel, Alcatel and Motorola in their massive
downsizings. We lost a few start-ups and sold a few at
OK values (NCompass Labs and Xcert to name a couple).
But on the whole, we scored miserably in 2001 for the
tech sector when compared to the rest of the economy.
There's that disappointment word again.
We
need a return to the heady days of 1999 when a string of
successful IPOs and HotHaus being bought by Broadcom
ushered in a new respect for BC and its technology
industry. There are some solid companies lurking out
there with huge potential and solid management. There
are a few more with only the huge potential so far, but
further out can be groundbreaking innovators. Having
some new blood be recognized through clever promotion
and solid performance will help lift all boats in BC. A
few good stories about second and third time
entrepreneurs starting the "new new thing"
will certainly help the climate. This is bound to happen
as optimism returns to the market.
It's time for BC to go to the next level and my wish is
that 2002 begins that step forward.
Here's to 2002! May all of your wishes be true.
What Do You Think? Talk
Back To Brent Holliday
Something Ventured is a bi-weekly column designed
to supplement the T-Net British Columbia web site with
some timely, relevant and possibly irreverent insight
into the industry. I hope to share some of the
perspective and trends that I see in my role as a VC.
The column is always followed by feedback (if its
positive or constructive. I'll keep the flames to
myself, thanks).
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