Something Ventured:
March 5th, 2004
By Brent
Holliday
Greenstone
Venture Partners
"Now
I'm a believer
Not a trace of doubt in my mind" - Neil Diamond,
I'm A Believer
"For
those who believe, no proof is necessary. For those who
don't believe, no proof is possible" - Traditional
Saying
Throughout civilized history, man has fought for beliefs
that they hold to be true. The individual man has, for
the past 3000 years, struggled with what it is that they
believe because it gives them purpose… a reason to
exist among so many others and amongst the vast, chaotic
universe. If you believe nothing, then you achieve
nothing and your life appears to have no meaning. So, we
believe and we fight for those beliefs that we hold to
be true. It has always been honourable to do so.
The
downside of man's collective need to believe in certain
truths is that wars have erupted and incredible
suffering has been created because one group believed in
something very different than the other group. In order
to seize power and wealth, clever leaders created the
"reason" for battle by playing to that
difference in beliefs. It continues to this day and
manifests itself most clearly in beliefs about religion.
Religious
differences and holy wars are no stranger to the
technology business. In fact, I would argue that there
is no industry in which dogma plays a role as great as
in technology. Think about it - mainframe vs. PC,
Java/Linux/Apple vs. Microsoft, ATM vs. IP, DSL vs.
Cable and many others. People in either camp, on either
side of these great struggles for dominance in the minds
of the buyers of technology, think that the other side
is utterly and completely wrong. And stupid. And evil.
And worthy of being exterminated by any means possible,
so that they don't pollute the minds of the buyers with
their corrupt view of the world.
"Every
dogma has its day." - Abraham Rotstein, 1978
The stories of the struggle to bring a revolutionary
technology to market are always steeped with religious
overtones. David vs. Goliath is a very popular theme,
but Moses singing "Let My People Go" is also a
nice metaphor sometimes. Take the PC revolution (of
course IBM called it a PC after they lost the battle and
joined the revolutionaries. Initially, it was called a
desktop computer) for example. Against incredible odds a
group of uber-nerds started tinkering with the idea of
shrinking a computer's parts into small, affordable and
easily assembled machines. Not until the
evangelist/prophet Steve Jobs came along, did any of the
tinkerers realize that there was a huge business
opportunity associated with their "belief"
that a desktop computer was possible. Apple was the
first to successfully mass produce the new computer and
the behemoths of the industry engaged in the battle for
the first time. Ken Olsen, CEO of Digital at the time,
famously stated, "Why would anyone want a computer
on their desk?". Remember that most computers in
the 70's took up entire floors of buildings and DEC had
thought they revolutionized the world with
mini-computers (which were merely the size of three
photocopiers stacked on top of one another). No, DEC had
been "evolutionary" in their approach and they
still wore pin-stripe suits like IBM. They were not
different in their beliefs from IBM.
We
all know that the PC won the war and the days of big
iron religion were relegated to fringe markets. IBM
changed their religion and started to wear khakis in the
90's, no doubt bringing a satisfied smile to the now 50
something nerd warriors of the 70's.
The
story of ATM vs. IP still engenders fierce rhetoric and
chest thumping among the various communications camps.
In a way, ATM and its synchronous parent, SONET, are
making a comeback after being nearly slaughtered by the
world of IP and routers and their new shiny transport
means, the all-optical network. In the early 90's, data
communications was just beginning to have its day over
wireline networks dominated by voice traffic. SONET had
already emerged as an expensive, but 99.999% reliable
new way to deliver voice traffic over the newly
installed fiber-optic lines. This had the "Bellheads"
from the SONET world thinking of new ways to use this
reliable infrastructure to haul the rapidly emerging
asynchronous data (the Internet) which was annoyingly
un-reliable by its very nature. The "Bellheads"
thought in terms of the phone network: Constant rate of
traffic, reliable throughput, high quality of service.
So they created ATM (Asynchronous transfer mode) to deal
with sending Internet packets reliably over SONET.
Meanwhile, back in California (home of the PC
revolution), the nerds were back at it, fomenting a new
religion based on the router. The "Netheads"
raised gobs of money from the financiers of the
rebellion, the venture capitalists, and proceeded to out
market, out maneuver and out sell the "Bellheads".
ATM
is still prevalent in the network, but what really
peeves the "Bellheads" is that the "Netheads"
co-opted their story of high quality throughput for
voice, video and gaming and tried to make it work
through the routers (an alphabet soup of failed and
struggling technologies like RPR, RSVP, MPLS, etc.). IP
routing was a revolution because the Internet evolved on
it. The perfect storm of conditions existed in the mid
to late 90's for the "Netheads" to win the
war. Look at Ethernet, the original packet based
technology that created local area networking, and its
adoption in the wide are networks today. It's cheap and
it works. Ethernet's evolution outside of the enterprise
is showing the continuing dominance of the "Netheads"
approach to networking.
But
wait, what's that noise? The "Bellheads" have
re-grouped and squashed the idea of new, intelligent
all-optical networks, for now. It seems that the SONET
infrastructure in the ground is too useful to swap out
for all new networks. Next-generation SONET is evolving
the infrastructure using the old reliability that the
carriers so love about it. Stay tuned for the continuing
battle, now that Cisco is the Goliath...
Everyone's
favourite religious war is Microsoft technology vs.
anyone else. Their continued hegemony of the operating
system market and their equally dominant position in
enterprise applications like Office, makes the
"other" camp furious with envy. First Apple
took shots at them and the Apple lovers are a fervent
cult (of personality?) driven by the guru Steve Jobs (he
was crucified, banished and then resurrected the
company… Will Mel Gibson do his story next?). Apple
owners love to taunt Windows users with the better, more
stable system that they use.
Next
up was Java (and cousin Jini), Sun's attempt to un-seat
Windows development tools in an increasingly
interconnected world of devices. The Java war is still
on-going and little by little the Java point of view is
winning more and more buyers. Put a room of Java
developers and VB developers in a room. Add beer. Watch
the fur fly.
But
Microsoft's worst battle in the religious war, the one
that bloodied it the most, was the browser war with
Netscape. By giving away Explorer, Microsoft raised the
ire of the governments of the world leading to seemingly
endless legal battles. The chink in the armour was
apparent and the Linux revolution stepped in at a very
timely point. Now the war is Linux vs. Microsoft at the
core of the Microsoft dominance, the operating system.
Linux is stupidly fighting side battles among its own
believers (a civil war?) with SCO suing everyone for
royalties to an open source movement. But make no
mistake, the world is dividing into camps and, although
Microsoft has US$53B in its war chest, the barbarians
are at the gate.
"Belief
is a wise wager. Granted that faith cannot be proved,
what harm will come to you if you gamble on its truth
and it proves false? If you gain, you gain all; if you
lose, you lose nothing. Wager, then, without
hesitation." - Blaise Pascal, 1650
Since our human nature is to stand for something, you
must eventually pick your camp and join a religion.
Unless you are a venture capitalist. Investors should
step back and place bets on revolutions and evolutions,
with emphasis on the latter. Revolutions are the
riskiest of risky bets. What I have not had time to get
into here are the thousands and thousands of
"cult" ideas that never gained the membership
to be a true religion. Discarded in history, some of
these ideas should have been truly great, but for one
reason or another, they weren't. Evolutions are safer
because the dogma is understood and the buyers are more
likely to buy a better mousetrap that does not deviate
from what they believe.
"Believe
nothing merely because you have been told it. Do not
believe what your teacher tells you merely out of
respect for the teacher. But whatsoever, after due
examination and analysis, you find to be kind, conducive
to the good, the benefit, the welfare of all beings --
that doctrine believe and cling to, and take it as your
guide." - Buddha, 500 BC
However,
as Buddha exhorts, don't jump on the first bandwagon
that comes along. And carefully assess the opportunity
if it has two (or more) distinct camps that affect your
decision. The software entrepreneur can choose
Microsoft, Java or both. By adapting to both, you are
almost certain to double your costs of development, so
usually in a limited resource environment, you choose
one or the other. Sometimes, the choice is easy because
you are already a believer in one way over the other.
Personally, I tend to doubt the fervent believers. I
think they may be missing something if they dismiss all
others as fools.
Religion
is a sensitive subject, sure to cause debate and stir
emotions. It is no different in the tech industry. I
have one final quote, to whom I can't find the authour
because I think I'm paraphrasing a bumper sticker, that
sums up there technology religious wars nicely: You have
to be careful because "those with karma can run
over your dogma."
Random
Thoughts –
- Lightning Strikes Twice - As all of
you no doubt heard last week, the trio of Paul Terry,
Adam Lorant and John Seminerio (with a very good group
of unsung engineers led by Pat Ogmundson) struck gold
for a second time. Cray Computing bought OctigaBay
Systems for US$115M after just 2 ˝ years in business
and only 15 months since raising US$15M in venture
funding. Cray took a big bet in OctigaBay as their
market capitalization was just US$528M before the
acquisition. This means that after issuing US$100M more
in stock to the shareholders of the Burnaby company,
they have added nearly 1/6 more stock for no meaningful
addition to earnings until well into 2005. In speaking
to the analyst that did downgrade Cray immediately after
the acquisition, he did like the deal in the long term
for them. And we all like the deal locally because it
shows what a big idea and great execution can create,
even at the tail end of a rough time for the technology
industry.
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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