Thursday night was the unveiling of the newest batch of Launchpad LA companies.  We held a 90-minute demo session where 150 of LA’s VC’s and senior technology executives watched the LPLA V2 group present in small groups of 12-15 each.  The VC’s & executives were then asked to make “commitments” (in writing) to 3-5 of the companies that they felt they could make some sort of contribution to.  The goal of Launchpad LA is to be significantly more than a series of cocktail parties.  We want to give our brightest new startups the connections and interactions they need to help streamline success.  Oh, and the cocktail party afterward also rocked! (I went to bed at 2am at the hotel and several people were texted me to try and summon me back to the bar).

We had executives from the studios like Fox, Warner Bros and Disney.  We had software executives from Google, Yahoo!, Commission Junction, MySpace, TicketMaster and many more.  There were prominent founders of business like PriceGrabber, LowerMyBills and MyLife.  It was a great chance for the class to interact with the community in LA.  And of course we had, TheMan.

Now begins the 6-month journey.  We’ll be conducting a series of educational programes covering: fund raising, team building, product development, sales, marketing, business development and how to prioritize your time as a CEO.  It’s going to be a lot of fun and I intend to wrangle several non-LA folks to come down and join us for an evening.  Have a look at the companies below.  Each in their own right has potential and stood out in some way from the 120+ submissions that we received.

The ten companies selected for the programe are:

• AccessDNA: –  Think WebMD for genetic information.  As our knowledge of the human genome expands and our appetite for genetic information grows exponentially I think the team here is going to rock it.  Lee Essner is formerly a senior exec from WeddingChannel and has much experience in running a successful web property.  He teamed up with Jordanna Joaquina, a genetic counselor, to create an online version of what she was already doing in the physical world.  The company combines high-quality information about genetics, with tools that use family health history to help identify personal disease risk.  By providing insight into the genetics of disease, as well as access to relevant testing, services, and support, AccessDNA helps people better understand how genetics can impact their healthcare and lifestyle decisions.

• AwesomeBox:  AwesomeBox is currently in stealth mode so I’ll respect that.  But at the highest level they’ve created a marketplace for “flash” sales. The team has experience in building startups (Doug Ludlow was formerly a founder in a TechStars company) and have all worked at local Los Angeles based startups.  They’re applying the knowledge of what they’ve learned there to create compelling game-like experiences for driving consumers to retail sales.

• Circle Street – Circle Street was founded by Alex Nocifera who’s first company was Ripple TV.  Walk into any Coffee Bean & Tea Leaf in Southern California and you can’t miss their digital screens.  I first met him there and knew he was a talented entrepreneur that I wanted to work with some day.  Alex created his next company that leverages the senior relationships he’s already built in the retail space.  They have  developed a cloud-based platform for merchants to publish to multiple distribution networks, including social, mobile and email.  The company’s analytics comprehensively monitors customer behavior over multiple networks, including location-based mobile networks.  In a world of growing marketing solutions like FourSquare, GoWalla and Yelp – it will become important for merchants to have tools to manage all of this information.

• DataPop: DataPop was founded by performance marketing veterans from Yahoo!, DoubleClick and Amazon and is led by co-founders Jason Lehmbeck and John Zimmerman.  The DataPop team is building a platform that enables real time creation and delivery of highly engaging ads to consumers on a massive scale.  Its technology automatically generates the best combination of landing pages, targeting and ad copy for every individual product and offer available on a marketer’s website and in their local stores.  DataPop launched its initial Search Marketing application across Google, Microsoft and Yahoo late last year and leading marketers and agencies are seeing breakthrough results.  On average the platform is generating 30+% increase in conversions and 15% decrease in cost per lead.  Almost every VC I’ve spoken with in LA is tracking DataPop.  We’re excited to work with them.

• Gendai Games – Gendai Games is making it easy for anyone to create and publish sophisticated casual games without programming.  Built around the iPhone and iPad mobile experiences, their Game Salad platform enables creative professionals and prosumers to quickly make games to engage, to teach or to just have fun.  We’re excited to welcome the CEO Michael Agustin to Los Angeles.  In joining Launchpad he’s agreed to move here, which is a natural fit given their emerging set of media partners.

• Gyroscope Technologies – Gyroscope Technologies, founded by Dustin Rosen is rethinking the way consumers interact with their mobile phones.  The company’s first offering will be a mobile retail commerce platform.  The product focuses on the in-store behavior of consumers.  Gyroscope is in double-dog secret stealth mode right now so I’ll focus more on the entrepreneur.  (actually, Dustin was influenced by Chris Dixon’s “under-hyped” positioning).  Dustin is a Wharton undergrad (which my wife tells me is for people even smarter than the Wharton MBA’s of which she is one) and then moved to LA to work for the talent agency William Morris.  He then joined their venture fund, TheMailRoom Fund, which is where I met him.  Dustin is respected and liked by many in the LA tech scene so it was nice to see him go “white hat.”  Angel investors were clambering to put money in.  So I had all my G2 even before Dustin wanted to tell me what he was up to  He’s going to do very interesting stuff.  Watch this space.

• Laughstub:  Laughstub is a full service ticketing solution for comedy clubs.  The provide them with a custom website with online ticketing, box office software, customer data management, reporting, and marketing tools.  They build web solutions for venues and give them to the venues for free in exchange for keeping their ticket service fees.  They also provide a set of tools for artists to sell tickets directly to their fan bases through tools like Facebook ticketing and social media management tools.  It was founded by Scot Richardson who has deep domain experience in this space.  He previously founded ComedyJuice, which manages a large number of bookings for comedic talent including Sarah Silverman, Dane Cook and a bunch of other people I’m too old to know.  I spoke with a chap from TicketMaster who looked at Scot’s product and told me that he was really impressed what the team has built.  They’ve already signed up headliners like The Improv.

• MOVIECLIPS:  Launched December 2009 in Santa Monica, MOVIECLIPS is a premium online video destination offering audiences the largest and most diverse collection of movie scenes.  MOVIECLIPS allows fans to find, watch and share more than 12,000 movie clips from the libraries of the major Hollywood studios.  The company has opened its API to approved sites for distribution and approved developers who want to build games, etc. with the clips.  They have secured rights from 6 of the 7 movie studios in town, which I understand makes them the only player to have access to these libraries.  It is no wonder web content players with large audiences are all inking deals with them now.  MOVIECLIPS was founded by Zach James and Richard Raddon (who ran the LA Film Festival for nearly 10 years).  They also have my favorite company intro video ever.  You must watch this short video.

• Para Ti Novia: Para Ti Novia is a LA based wedding website for the Hispanic market.  Founded in 2009 by Candice Lapin, Para Ti Novia is part of a rapidly growing trend of bilingual media aimed at catering to both English and Spanish speaking Hispanics through both the web and mobile applications.  Having seen the success of The Knot the team realized that they don’t currently cater well to the massive Latino population and feel they can build a large business specifically addressing this demographic.

• ShopNation:  ShopNation, currently in stealth mode, is a next generation shopping platform launching in 2010.  They are quite secretive so I’ll respect that.  I will say that the two founders have already built and sold a company and have deep domain knowledge in what their building in ShopNation.  It caters well to several previously successful LA businesses.

I’m very pleased today to announce (via TechCrunch) that I invested, on behalf of GRP Partners, in Burstly alongside Rincon Venture Partners, an early stage VC in Southern California whith whom we love to work (and were our co-investors on RingRevenue).  Burstly, a Santa Monica based company, provides an open and free ad management platform that helps mobile application developers better monetize their inventory.  I’ll explain in detail below.

As I naturally get asked all the time why we invested in Company A or Company B, I thought I’d just put forth my thesis in writing.  Naturally I’m excited about this investment or I wouldn’t have done it.  As a result this post is bound to sound a bit self promotional to some and to competitors may sound like I’m taking shots.  I don’t intend either, Burstly has respectable and strong competition.  This post is mine and written by me based on my understanding of Burstly.  It isn’t written by them or any marketing department – so please take it for what it is.  So with these disclaimers, here’s why I’m so excited:

As a starting point I’ve made clear in many posts that my primary investment thesis always starts with team and that I believe that the best investments will be in people whom I’ve gotten to know over a long period of time rather than a shotgun wedding where I have 3 weeks to decide whether or not I want to invest.

So when I started talking with Evan Rifkin almost a year ago about the company he was planning to build, I was intrigued.  Evan and I met regularly over a three year period from the time he was running Flux, which he sold to Viacom (who was his strategic investor).  He has many of the attributes I look for in an entrepreneur and importantly he has deep domain experience in ad management.  This is his third company that is in this related space and he was an early investor in Adconion.  He knows the ad management and ad network businesses.  He’s a natural leader, appropriately competitive, very customer focused and a pleasure to work with.  Both of his co-founders worked with him previously and both worked on ad management platforms.  So on the 70% criterion – team – I was already anxious to see what they would build.

So what about the ad management business excites me?

Let’s start from the highest level that will not be rocket science.  The way we use “computers” is dramatically shifting.  The first big wave of this change came from the introduction of the iPhone, which was the first well built mobile device for using the web.  It broke the hegemony that the carriers had over software on mobile phones and the industry will forever be changed (for the better) for this.

The next major entrant is the Android platform, an open source mobile operating system that has led to the introduction of several handsets that are based on this OS and many more to be released over time.  We know that in early April Apple will deliver the iPad, which with a larger format may have an impact on the consumption of newspapers, magazines and videos.  The Kindle has already revolutionized book reading.  But there are also major mobile initiatives by Microsoft (Windows 7 Mobile) and eventually Blackberry surely will pull their heads out and deliver a real browser experience (how such a great company could have missed this for so long confounds me … but then again look at what happened to Palm).

There will be many more changes afoot that we can’t even imagine today.  Who would have guessed 5 years ago that Netbooks would have had such a big impact on the PC market?  And don’t count out Nintendo whose popular Nintendo Dsi had already shipped 2.1 million units in the US alone prior to Xmas last year (couldn’t find a more current number, I’m sure it’s much higher post Xmas).

The world is going mobile.  And as we know that means your device is with you at all times, is location aware, has advanced features such as a camera and accelerometer but also has the drawback of having short battery lives, slower bandwidth than our typical Internet consumption and importantly smaller physical screens / real estate for content.  We also currently have an “app marketplace” metaphor that drives mobile consumption and eventually I believe there will be a mobile browsing metaphor that becomes popular as HTML5 becomes more widespread and as mobile browsers improve.

This means that changes are afoot.  What worked on the tethered Internet will not necessarily dominate in the mobile world.  Much of the infrastructure to make the mobile ecosystem work well still needs to be built.  Mobile traffic consumption is rising dramatically and everybody expects it to become the major commerce platform of the future.

Enter Burstly.  It’s still in the first inning of its development (as is the whole industry) but it is already solving many pain points for mobile application developers and with an experienced team they already know their next 20 moves.  I like that. I know that there are competitors, so in typing up my understanding of their product I’m not trying to attack anybody else or claim that we’re the only one who does each thing.  But I believe it’s a very comprehensive solution and our due diligence with large app developers confirmed as much.

What does it do?

Summary view for people who don’t want to read all of the details:

• it helps you optimize your revenue by comparing the effectiveness of all possible monetization types: cross promotion, in-app purchasing or ads
• it provides complete transparency in how much advertisers are paying, how much Burstly takes and what your revenue is
• it has created an ad marketplace where you can promote your application in other applications where its performance will be strongest and allows you to help drive installs of other people’s apps and get paid for it
• it has created a comprehensive rules-based ad “flighting” system, providing you with the same tools that ad networks currently use to help themselves make more money
• it lets you sell your inventory directly and without any middle man taking fees
• it has built in iPad support from Day 1. This means you can set the ad size for their larger format rather than dealing with a predefined size. Burstly aslo has iPad video ad support
• it guarantees you that you will make more money with your ad space than if you aren’t using it

Now, the details …

1. Optimization – If you’re a mobile application developer you may be monetizing your real estate perfectly now and you may not even think you need advertising.  But basically your goal in your existing application should be to optimize your revenue across multiple factors: charging for your existing app, promoting your other apps (cross promotion), getting people to upgrade to your more expensive app (up sell), selling in-app purchases (unlock paid features, sell virtual goods), promoting other people’s apps (and getting paid for it) or good old fashioned advertising (e.g. banner ads on a CPM, CPC or a Cost-Per-Install [CPI] basis).

Burstly is the first open and free platform that helps you optimize all of these options.  By bundling Burstly’s SDK into your mobile application you’re guaranteed to make more money.  How can they claim this?  At its core it provides a free and open “mediation” layer that can work with any ad network or ad exchange.  This lets you run A/B tests on your inventory and tells you what performs the best and then optimizes for this.  For example, if you start promoting in-app purchases for 99 cent cents to unlock certain features (levels, virtual gifts, etc) you can compare how much of these you sell vs. how that inventory performs against ad network advertising you might choose to run.  You can also compare how in-app purchases perform vs. cross-promoting the other apps you may have for sale.  You can choose to allocate inventory to various uses based on your preference or have the system auto-optimize for what is converting the best and making you the most money.

Optimization also helps you optimize ad sales if you’re doing pure advertising.  It compares how ad units perform across all of the ad networks you might want to use and it also will compare the performance to your own direct sales of the inventory.  It can automatically “serve up” ads from the ad networks based on performance and daisy-chain ad-networks if the first network can’t fill your inventory.

Optimization, at its core, is an analytics platform that gives you the power to figure out how to make money.  And this part of the product is entirely free to use.  Optimization technology is not new.  It has existed on the tethered web for some time and open and free platforms like Open X have gained much traction.  What we believe is novel here is that Burstly is the first optimization platform to allow mediation for all mobile ad networks and to optimize against in-app purchases, other people’s apps, your direct inventory and your cross promotions of other products.

2. Transparency - Burstly also hopes to compete on the transparency plane.  Within the overall ad business, transparency rarely exists and there are multiple places from where you can black box the information. Burstly believes that since the developers are not only sellers of their inventory, but also buyers, they will benefit the most by having access to the data. Currently, that does not exist in the mobile marketplace.  With a typical mediation layer you will know the amount your ad network or broker is paying you but you have no visibility into what the advertiser is paying them.  Burstly will provide complete transparency where it has data.  Obviously if Burstly is fronting another ad network that network may still be a black box.  But to the extent that Burstly has advertiser data they will make that fully available to you.

3. Application Marketplace – One of Burstly’s focus areas is creating a marketplace for application developers to promote your applications with other developers.  It’s also a great example of why transparency is so important.  For example, when a user downloads somebody else’s application by clicking an ad in your app and then downloading it from the App Store, you will be paid on a CPI (cost per install) basis. On this transaction Burstly takes a straight 10% fee on all transactions and the CPI is totally visible to you so you’ll know exactly what your take is and what Burstly’s is.  They’ve even built in the ability to go around the Marketplace and avoid the 10% fee by entering in your deals manually. However, we feel the automation and ease of use for such a small percentage will be acceptable to most developers. Hey, ya gotta make money somewhere to stay in business, right?

We think this will create a very healthy ecosystem across developers.  It’s a way for you as a developer to promote your app with other developers to drive more installs.  Burstly will help you to optimize and also see which other application provider’s drive better installs for you and vice versa.  This way, if something works, the buyer has the option to go direct to the seller and determine the best way to work together. For sellers, the entire advertiser list and rates are published so they can see all this information. It’s not always easy promoting your app in the App Store and over time we know this will be hard on Android and other platforms.  Burstly is attempting to provide a better, more transparent way to promote your product.

4. Rules-Based System for Flighting Campaigns – Another area that we believe will be a big differentiator for Burstly is their rules-based system for flighting campaigns. Evan and the team knew exactly what features have been important in the website publishing world and noticed that many of the mobile ad platforms were not sophisticated enough.  Our system will allow you to take control of your inventory.  If you are new to running and optimizing ads you can leave the work to Burstly.  If you have or develop more expertise you can take control of the cockpit.  Burstly allows you to do many sophisticated things to both deliver a better experience to your audience and to deliver better financial results.  These include frequency capping, prioritizing inventory types, geo-tagging so that you serve up location relevant ads, time-of-day campaigns (e.g. you might switch to restaurant coupon ads from 4-7pm every day) and you can set up budgetary rules (caps by budgets, clicks, actions or impressions).  These are tools the ad networks and ad exchanges use for themselves so they can make a profit. We think you should have access to them to.

5. Direct – Another area the team wanted to deliver for app developers is the ability to sell your own “direct” ads and to flight them alongside your other inventory.  Again, as an open and free ad management platform we let you do this for free.  Why should somebody take a cut off of an ad that you sold directly?

6. Support for iPad Out of the Box – None of us have actually seen the iPad but it’s coming in less than a week!  They did give companies access to an iPad simulator to pre-build apps and that’s what Burstly has done.  Burstly allows you to configure your ad size on the iPad rather than accepting a pre-defined size for your ad unit as many platforms and ad networks dictate.  Burstly has also built in video as support as we know that’s likely to be a focus area for the iPad.

So, if you’re giving away so much functionality for free – how will you make money?  Surely there must be an angle (or are you that dumb)? So far, the initial monetization strategy is a 10% fee for Marketplace transactions. Having worked in the ad network and ad platform business for many years Evan and the team have some clever ideas for where they want to take the business and how they believe mobile advertising will ultimately evolve.   They feel if they offer an open, transparent and low cost solution they have a few great ways to increase monetization down the line.  And not just for themselves, but more importantly for the developers.

But, wait a second, aren’t you the guy who said “App is Crap?”  What up with that? Yeah, that’s me.  So I’ll try to be clear.  Applications are here today and that’s not going to change for the short-to-mid term and the market needs better infrastructure.  In the long-term there will always be some applications that are better to be natively installed versus used through your browser.  But when I talked about the investment with Evan I wanted to be sure that he was committed to also building a platform that would scale to the mobile web and not just the mobile application environment.  He is.  We hope Burstly will become a major and relevant player in both ecosystems.

Good luck, guys.  I feel proud to be involved with your project.

Los Angeles.  People either love it or hate it.  All the stereotypes and caricatures are overblown.  And we’re left with a city with idyllic weather, major commerce, the media center of the world, and a great emerging technology scene.  We have an abundance of ethnicities, culinary options, music and culture.  Randy Newman said it best, “I love LA” (Worth a 2 minute watch for pure nostalgia. Go on, have a bit of fun down memory lane!).  I was raised in NorCal (born in Philly – go Eagles!) so I feel I have an unbiased appreciation for BOTH Californias.

I was recently interviewed for an article that appeared in Fast Company titled, “Why you should start a business in LA.”  If you’re interested in the topic it’s worth a read, but I thought I’d elaborate on the topic since it comes up all the time.

First, I’d like to quote (paraphrase) Brad Feld speaking at Twiistup in LA in 2009, “I keep hearing people in LA talking with a chip on their shoulders about building a tech business here relative to Silicon Valley.  I have one message for you, ‘get over it!’ ”  His message was that in 2010 great business can be built anywhere if there is a great team and the will to make it work.

This is especially true in LA, the second largest city in the country with a population if 16 million.  We have universities like Caltech, UCLA, USC and many more.  We have many seasoned entrepreneurs who have built successful companies here and made a lot of money for investors and themselves.  But LA is not Silicon Valley and we don’t need to aspire to be so.  We will never be Silicon Valley in the way that Toronto will never be Hollywood.  But we have a great city for building technology companies.

If you decide to build a company in LA, here’s what you need to know:

1. Funding is different – In Silicon Valley you have mega venture capital funds and many of them.  They not only have gotten bigger but they have an amazing track record of funding the biggest names in the sector: Cisco, Apple, Google, Facebook.  As a result many funds are OK with big bets.  It’s not uncommon for incredibly smart and talented Phd’s or CS majors from Stanford to raise $10 million on an early-stage “platform” that if it succeeds it will be huge.

LA generally doesn’t have an appetite for this kind of investment at early stages.  LA investors are more pragmatic.  We tend to do more $3 million “A” rounds and we look for companies that have an early monetization strategy.  I like to repeat the mantra, “necessity is the mother of all invention,” meaning that because investors have this expectation you find entrepreneurs that focus on nearer term monetization.  Never say never – GRP Partners is actually looking very closely at a company in its A round that is raising a large sum of money.  I’m sure others have, too.  But it’s more atypical for investors located in this market.

The result is that we’ve had a lot of innovation coming from LA in terms of monetization.  The whole category of “sponsored search” came from a successful LA company, Overture.  (my firm, GRP Partners, was an investor).  LA produced Applied Semantics that created AdSense and was bought by Google.  We were also an investor in the early local listing company, CitySearch – an LA company.  LA was a leader in lead generation (LowerMyBills), comparison shopping (PriceGrabber, Shopzilla), social networking (MySpace … I know, I know – Facebook won – but it was still a big business).  If we extend a bit North up the coast line we have many affiliate marketing innovators including ValueClick, Commission Junction and FastClick.  They also produced GoToMeeting and CallWave.  My messages a) it can be done b) these have produced tremendous financial results and c) these were all innovators in monetization.

Side note: LA seems to have had some success in mega deals led by private equity firms as evidenced by DemandMedia and Chris DeWolf’s latest company backed by more than $20 million in private equity.

2. Recruiting will be different – You can build a great management team in LA.  You can find very talented technology executives.  But let’s be honest with ourselves – it’s not Silicon Valley.  You don’t have a pool of thousands of Google engineers to hire when they’re ready to leave the mother ship.  You don’t have the founders of eBay, LinkedIn, Salesforce.com and Yahoo.  You don’t.  Get over it. But we do have great technology developers.  You can build a team of 100+ people in LA without needing to hire outside of LA.  If you want to scale to become a “huge” company you will find it difficult to scale to the level of the Valley sized companies.  But if you grow to be that big it would be a very nice problem to deal with.  DemandMedia has already scaled a tech team to a considerable size in Santa Monica.

But what you do have is more loyalty.  You’re not in the grind of your staff being constantly approached by every other start-up within 10 miles.  So it’s always a trade-off.  You can hire a talented head of marketing, business development, technology and sales.  If you want to hire very experienced product managers there are less of these than I would like.  You will also struggle to hire an enterprise salesforce – but then again who does this these days anyways?  I believe you can attract people to relocate to Los Angeles but it’s likely that they’ll come from locations other than Northern California.

3. Commuting - The freeways here are legendary for traffic.  But the reality is that most people who work here in tech live close enough to their work to take surface streets.  My commute, for example, from Santa Monica to Century City is less than 15 minutes each way and I never have to take the freeway.  But the reality is that for some they live far from their offices and like any big city (maybe more so) the commute can be a bear.  My biggest message is that for most this fear is overrated.  For some, it’s a nightmare.  Your main commuting challenge with be taking the Southwest bus up to SFO/SJC/OAK.  Expect it.  Entrepreneurs in LA spend a lot of time commuting up to the Valley.  You need to for conferences, business development and often for sales.  It’s a one hour flight all – this is not an issue.  Just think of all the FourSquare checkins you can log at LAX

4. Los Angeles has a strategic asset : content creation skills – In order for the Internet to go mainstream you first needed the infrastructure to support it from networking equipment (Cisco, Juniper) to databases (Oracle) to search (Google) and more recently mobile devices (Apple).  But ultimately we’re on the Internet to communicate, buy stuff, become informed and be entertained.  All of these areas still have a lot of growth and innovation left.  Communications is being changed by people like Twitter, commerce by people like GroupOn, informed by people like DemandMedia and entertainment by people like Hulu.  In these last two categories LA has as much of an advantage as any other market.  In content creation we definitely have assets other markets don’t have.  While nobody has yet “cracked the code” on production quality video over the Internet (YouTube won UGC video), there is a lot of innovation happening in LA from places like Eqal, Deca.TV, DemandMedia’s studios, Clicker, Filmaka and other initiatives.  So if you’re out to create content businesses there is no better time and no better place than here.

5. The community has matured – The LA / Southern California market has many people who are now on their second and third companies.  A great team from MySpace has created Gravity.  Gil Elbaz from Applied Semantics has now created Factual.  Zorik Gordon is tearing it up at ReachLocal.  TechCoast Angels backed GreenDot should be a major IPO this year.  Frank Addante has created Rubicon Project.  Douglas Merrill, the former CIO of Google, is building his next company in LA. Scott Painter, founder of CarsDirect has created two new generation LA startups (Zag and TrueCar, both backed by GRP Partners).  Brett Brewer (ex MySpace) has AdKnowledge, there is Adconian, Legal Zoom and many more.  Hautelook, Gogii, Magento – all very high potential companies building in LA.  My point is – great companies are being built here like they are in in New York, Boston and elsewhere.

Summary – there is a lot of talent here.  We’re not all about the beach and sun – although we enjoy that, too.  We have started to build initiatives like Launchpad LA to help bring this community together and make it easier for first time entrepreneurs.  I will talk more about LaunchPad in my next post.  Basically, it doesn’t suck living and working in LA.  Come join us.  And for those that are here – let’s stop comparing ourselves to Silicon Valley.  In Brad’s words, “Get over it.”  We have much to be proud of in our own right.  And still much work to be done.

Bill Gates once famously said that people tend to overestimate the impact of technology in the 1-year timeframe and underestimate its impact in the 10-year timeframe.  That’s always stuck with me.

I tend not to go into heat when I hear the latest buzz on the tech blogs about the latest gadgets.  But when I read thoughtful pieces on the future of technology I start to imagine where our lives will be in 10 years.

I remember reading many years ago about how devices being connected in the cloud would be far more pervasive and have a much bigger impact on our lives than the simple PC’s that we operate.  That stuck with me, too.  I read about how in the future our heart rates would be remotely monitored, our food intake monitored and our grocery lists automatically created when our wrappers were thrown away.  Seemed such a fantasy back in 1992.

Yet 2010 is already showing me how connected our lives and our health are starting to become.  Here are 4 areas / companies that I’m excited about:

1. Withings.  Like many of you I made my annual resolutions and top of my list was getting back into shape.  I actually wrote a long blog post about this but I’m trying to get TechCrunch to publish it before putting it on my blog.  We’ll see.  There is one thing I learned a long time about about setting goals, “you manage what you measure” so you need to begin by regularly recording your weight.

Writing down your weight from your scale is obviously a manual process and it’s tedious.  Enter Withings.  It’s a wi-fi enabled scale that measures your weight, body fat and BMI (body mass index).  Your measurements are automatically sent via wi-fi to the cloud and stored in a password protected portal viewed on the web or on your iPhone.  You can also have them automatically published to Twitter; in fact, I first heard about the Withings from seeing Brad Feld Tweet about it.

I’m not that public about my weight.  I prefer the private portal.  Maybe by the end of the year

2. DailyBurn. My favorite new software tool is DailyBurn.  Under the credo of “you manage what you measure” it’s not good enough to just measure your weight.  You need to monitor what you put into your body and your exercise routine.

In January 2007 I had a resolution to lose weight and I didn’t want to do it through some crash diet like Atkins that I felt wasn’t sustainable for me.  So I signed up for the online version of Weight Watchers.  It was a simple plan – you measure what you eat and how much you exercise.  They simplify it into “points” to make it easier to keep track but these are ultimately tracked back to a combination of calories you eat with some adjustments for eating foods that aren’t processed or have high fiber vs. low.

It was a revelation to me how big my portion sizes had become relative to what the portion sizes listed on labels were.  Pounds fell off me as I stuck to an eating plan.  You can eat whatever you want as long as your daily totals don’t add up to more than your allotment (plus you get a weekly cheat).  You also enter your exercise and the more you exercise the more you’re allowed to eat per day (sort of “bonus” points).

So as I contemplated the kick off to 2010 I thought again about Weight Watchers.  Problem is – Weight Watchers software TOTALLY SUCKS.   It’s slow, loads in a pop-up and has a poor UX (user experience).  So I sent out a Tweet to ask what people in the Twittersphere used.  I got responses back for DailyBurn, The Daily Plate and LoseIt (quick aside: on Twitter Bryce Roberts had send me the link to LoseIt but I couldn’t remember the name so I searched Twitter.  Couldn’t find it through search and was getting frustrated.  So I signed into CoTweet where they store old Tweets.  Found it in 20 seconds.  Data storage in Twitter is a big problem and tools like CoTweet that solve this are essential).

I chose to use DailyBurn to monitor my eating and exercise.  It’s freakin’ awesome.  The UI is beautiful and it is so easy to find the foods that I eat every day.  Virtually every food that you can imagine is already in their database.  I went to PinkBerry last week and got their new chocolate flavor that wasn’t in the system yet so I decided to be a good citizen and enter the details into the system.  Was so easy and quick including adding an image.

So everyday I get a breakdown of the calories, fat, carbs and protein that I consume.  It also measures how much grain, protein, daily, veges, fruit and water I consume with guidelines on what I should consume.  It is really a pleasure to use the tool compared with WW.  And the starting price for WW is $18 / month … DailyBurn is free.  There is, of course, a paid version.  And even though I didn’t think I needed it (they give away everything I wanted for free) I decided to buy an annual subscription anyways.  I loved the product that much.

I also enter my workouts – mostly swimming and running.  DailyBurn could dramatically improve the UX in this area but it is comprehensive.  And, guess what?  That Withings scale I spoke about above … it integrates!  My measurements go directly to DailyBurn so I never have to key them in.

One key to sticking to goals is measurement.  The other key is making your goals public – at least to someone else who can help keep you accountable.  So DailyBurn allows you to invite friends to see your goals and help you monitor them.  When I ran the London Marathon I did this by raising money for Parkinson’s disease.  Once I took $3,000 I had a bunch of people to monitor me and felt compelled to follow through.  The part of DailyBurn can use the crowd to keep you motivated.  Social networking meets online personal health management.

But wait, there’s more!  If you have an iPhone you can scan the UPC code on the food you eat and they will be entered directly into DailyBurn done through a partnership with a company called Occipital.  No keying in required.  Now how much would you pay?!?

I got so excited about this company that I reached out to the CEO to enquire about fund raising.  Then I found out that Dave McClure had already invested along with many others in a Silicon Valley seed round even though the company is in Alabama.  Man, Dave seems to always find out about these deals earlier than I do!

Turns out DailyBurn was part of the TechStars program in Boulder.  Guess I’ll have to head out there next year before everybody else gets a look at the new batch of companies!

3. WakeMate - With eating, exercise and my weight being digitized there is obviously one major health component left out and it’s one that I’m often failing in … sleep.  Last week I went to the Inaugural Open Angel Forum run by Jason Calacanis.  5 companies presented and all were talented.  But there were 2 that struck my interest more than others and I’ve already reached out to both teams.

One of these was WakeMate.  I loved this company on multiple levels.  The product is a wristband that you wear when you sleep and it tells you how restful or not your sleep was.  It measures how many hours of sleep you get, how long it takes you to fall asleep, how much REM vs. NREM sleep you’re getting, etc.

It also wakes you up in the morning at the optimal time.  What?  Yes.  It turns out that you’ll feel more restful if you wake up in a certain stage of sleep versus another and within a time band the WakeMate determines what time to wake you up on a daily basis.

But WakeMate isn’t simply an efficient alarm clock.  The founders claim that up to 75% of the population has some form of sleep deprivation.  In our industry it must be 90+%.  WakeMate has you record things like the last time you had caffeine before sleeping, your last meal and when you last had computer or TV screen time.  It then compares the findings across nights to help you determine the root causes of any sleep problems.  Pretty cool stuff.

The other reason I loved this company was the team.  It’s two young guys who both dropped out of college to pursue their dream of becoming entrepreneurs.  One was at Yale and the other at Boston College.  They joined the YCombinator program and have raised a small amount of angel money.

I don’t endorse everybody dropping out of their undergrad programs but I do believe that if your smart, talented and have the ambition to try being an entrepreneur you should do it when you’re young and relatively unencumbered.  And as I wrote in this post, I think you need to be willing to take calculated risks to be a successful entrepreneur.

I don’t have a WakeMate yet but I plan to buy one soon.  Their first batch of shipping is due out in the next few weeks.  There are some competitors in the market such as MyZeo, but I love my wife too much to wear a headband to bed

4. Measuring my daily activity.  Next up for me is measuring my daily activities.  When I trained for the London Marathon in 2003 I bought a Nike device that I put on my shoe that measured my distance and pace via my Nike watch.  It was simply awesome.  To be redundant, “you manage what you measure” and knowing my pace and distance every day made a huge difference to my improving my times (I finished in 3:57).

So for Hanukkah I asked for the FitBit.  Unfortunately it seems that it was back-ordered due to strong demand with rumors of it selling for astronomical prices on eBay.  I wasn’t that desperate.  I got tickets to go see Anvil in concert instead  My wife asked her trainer about the FitBit and he suggested the BodyBugg instead.  I haven’t done the research yet so if anybody has any input on these devices or others please leave them in the comments section.  Now that my running is getting back into gear I want to automate the measurement process.  And hopefully whatever I buy will integrate with DailyBurn.

Montgomery & Co Projects Deal Volume to Grow by 167% in Just 2 Years with No End to Growth in Sight

On the third Wednesday of every month I co-chair a meeting called the SoCal VCA (venture capital alliance), which represents participants from all of the top venture capital firms in Southern California as well as prominent members of the Tech Coast Angels (TCA).  We meet to discuss trends in the industry and to find ways to work together to help with SoCal deal syndication – somethings that happens automatically on Sand Hill Road in NorCal due to proximity.

We feature a prominent speaker at every event.  This morning we heard from Jamie Montgomery, CEO of the venerable Montgomery & Co investment bank who is at the heart of what is going on in M&A for venture backed companies.  They do around 7% of the total VC-backed deals in the US per year or just under 40 deals / year on average (present year excluded!)

I have to admit that I was greatly encouraged by Jamie’s outlook for venture backed companies, which if true will be a welcome relief for our industry.  No doubt a tech M&A banker would have a bias to say that the world ahead looks rosy, but however you want to put a spin on the next 2 years I think you’ll find this data very interesting and useful.  Where I add commentary from myself or my fellow VC colleagues from our discussion after Jamie left I’ll put in red.

Summary of Montgomery & Co’s views on the road ahead for tech M&A of venture backed companies:   (the whole presentation is later in the post, which I suggest you look at because it has insightful data.  If you want to download the document I’ve made it available at my favorite document sharing site DocStoc).

1. 2009 has been the worst year for M&A in a decade.  The total number of M&A deals in the US this year is projected to be a paltry 225 transactions relative to more than 450 deals just 2 years ago, which was the norm between 2002-2007, varying only by around 3% per year.  Projected IPOs for 2009 are an embarrassing 10 total deals, down from 86 just 2 years ago (it was 265 in the go-go years of 99-00) but at least up from 6 in 2008.

2. Montgomery expects M&A to rebound to the normal recent levels at 450 deals by 2010.  They have data from surveys they did with corporate development officers (e.g. the people who buy companies) in Q2 of this year of technology & media companies.  Nearly 50% say they will increase their activity levels in 2010 (hallelujah!) with only 19% saying they would decrease levels.  Jamie believes that if he were to poll corporate buyers this month (e.g. Q4) the number of buyers expecting to pick up activity would be greater than 80%. Montgomery believes there will be 50 IPOs in 2010 as there is pent-up supply and a higher risk tolerance amongst institutional public investors harmonizing at 40 deals / year for the 3 years starting in 2011.

Fred Wilson supports Montgomery’s view in this thoughtful post on the return of the tech IPO market.  Bill Gurley of Benchmark Capital hopes IPO’s will pick up in this CNBC Video but stopped short of saying it would for sure.  He thinks demand for IPOs (from buyers) remains high while supply is low because Sarbanes Oxley amongst other things has made less CEOs want to go public.

3. More interestingly Montgomery expect the M&A market to grow to 600 in 2011 and 750 in 2012.  This would be a whopping 233% increase from today’s levels and 66% above the average of the years just preceding the current recession.  The believe several factors will drive this growth:

• VC’s have a supply of companies they need to sell: There is a huge pent-up supply of venture-backed companies.  VCs are typically “closed-end” funds, which means that we are expected to sell our positions in companies within a pre-defined timeframe and return the money to our shareholders.  This time period is usually 10 years (although small extensions are common).  They cite 800 VC-backed companies that are now > 10 years old and this number would more than double to 2,000  within 18 months if M&A doesn’t pick up.

• Strategic investors are looking to consolidate their positions: The top 6 buyers in tech & media account for 27% of all purchases.  And look at this post by Paul Kedrosky showing how much cash Microsoft, Apple & Google have!  With 50% of buyers suggesting in a Q2 survey (possibly 80+% now) they will increase their pace of investment and a further 33% holding flat this argument is for more deals.  

• More IPO filings will drive M&A: There is a truism that the best way to be sold is to register for an IPO.  Buyers tend to come out of the woodworks and realize that it would be easier to buy you as a private company so it’s sort of one last look.  A recent example would be Compuware’s $295 million acquisition of Gomez, a networking monitoring company.

• A secondary market for buying private companies will likely emerge:  The final point we all discussed was a secondary market for acquiring VC positions.  A secondary buyer is someone who buys either specific positions from a VC or buys their whole porfolio.  What drives this is often the need for the VC to return money to its investors due to the end-of-life nature of its fund.  Right now this isn’t robust because the buyers are bottom-feeders (e.g. cheap) but there was a sentiment that some funds will likely be raised in the next 3 years to buy out VC positions at more fair valuations.

What have been your experiences in the past 6 months?  What are your predictions for the road ahead.  Love to hear more views!

M&A Outlook for 2010 / 2011 –

I run a monthly meeting called the VCA that represents the majority of Southern California venture capital firms.  My goal is to bring in informative speakers who stretch our collectively thinking on topics that will influence our investment strategies and use it as a way for us to share our experiences in ways that I hope benefit the Southern California technology ecosystem.

In the past 6 months we’ve heard from Dmitry Shapiro on the future of online video, Ian Rogers on the future music model, David Sacks on the future of social networking and Michael Crandell on where Cloud Computing is headed.

All have been fascinating.  This month’s presentation was truly mind boggling so I wanted to be sure to share the entire presentation with all of you.  This was one of the most fascinating presentations I’ve seen in a long time and a must read – although you’ll see clearly better in person with commentary.  Benjamin Joffe (the author), a Frenchman who runs a consultancy in China that tries to help non-Asian investors understand the innovation occurring in Asia as a way to bring ideas to their local markets.  He also consults companies in Asia.

I lived in Europe for 11 years and in Tokyo for 6 months so the idea that innovation is happening outside of our 50 states in not new to me.  I’m sometimes surprised how little people here in the US want to try to learn from what is happening elsewhere.  I find that a shame.  When I reached out to Benjamin at the suggestion of Dave McClure who told me what a great guy he was I was fascinated.

To see the deck click —->  HERE (sorry, I can’t do embeds yet, I’m migrating from WordPress.com to WordPress.org in the next few weeks).  As I mentioned, some pages unintelligible without commentary but well worth a read to get to the nuggets.

My take aways are below:

1. Wacky, weird and low cost: Before diving into what I learned in the deck I want to share something crazy.  Motorola gave us in the US the RAZR (before they stopped innovating).  But China literally gave us the Cell Razor.  Benjamin brought in a cell phone where the bottom pulls out and you have an electric razor.  No joke.

2. Film innovation – If Benjamin’s analysis is right – even many of our most successful films have been adaptations from Asian films.  I knew some were but the scope was surprising.  Especially Star Wars & The Matrix.

3. Internet users in US – 225 million, mobile 260MM.  China Internet: 340MM, Mobile a staggering 650MM.  Don’t bet that China won’t innovate in mobile. (slide 29)

4. 70% of Korean population has Internet speeds > 5mbps (and avg = 15 mbps) – don’t bet that the Koreans won’t innovate on online content (slide 30).  Larger online game market ($1 billion) than Japan despite 1/3 population and 1/2 GDP per capital (slide 99).  Way ahead of the US on mobile gifting.

5. More than 90% of Japanese mobile subscribers are on 3G networks (vs. 20% in the US) (slide 30), More than 50% have mobile TV & NFC chipsets (slide 87). Mobile ARPU = a staggering $110 / month for content and commerce alone (slide 88).  Massive fall-off in ringtone and massive uptick in full songs (slide 89) —> still think we shouldn’t be watching what’s happening in Asia?  Sales of avatars in social games nearly 50% of total revenue eclipsing revenue from affiliate transaction, ads or paid games (slide 97).  Mobile game content revenue > PC game revenue (slide 98)

6. China’s leading social network (Tencent, who’s product is QQ) already does more than $1 billion in revenue.  That’s 2x Facebook estimates.  Tencent market cap on public market is $21 billion, Facebook’s is a theoretical $3-15bn (slide 52). China is innovating in many of the categories that the US is trying to solve now including mobile

couponing, vertical social networks, Internet TV, etc.

7. Free-to-play gaming with micro transactions has become huge in Asia with very nice profit margins. EA and others in the US are copying this success (slide 71)

When I lived in Europe in the 90′s we all texted people on mobile phones.  I was surprised when I came back to the US and the only people texting were 13 year olds.  When I worked in Japan it was crazy how much people were using mobile content on the i-mode phones.  Now they have TV & NFC chips.  I have been looking at a South Korean online start-up and am blown away by the innovation in this company relative to the online models I see in the US.  It is a global world – I plan to make sure I’m tapped into Europe, Israel and increasingly Asia to know what trends I can look for here in California.

ExpenseBay Wins Showoff

Twiistup 6 has come to an end.  It proved to be a great transitional year.  Out is the “cocktail only” Twiistup and in is the new format of a conference that should take its rightful place on the national technology calendar.  I believe that Twiistup is now a platform from which to grow and highlight what is uniquely LA.  We are a city unique in merging the world’s best content with digital media and technology expertise.  Much of this was highlighted at Twiistup.

LA not only produced the obvious – MySpace – but also created the whole category of sponsored search (Overture), AdSense (Applied Semantics), Local Search (City Search), comparison shopping (PriceGrabber, Shopzilla) and lead generation (LowerMyBills).  In SoCal we are also leaders in affiliate marketing (Commission Junction), Internet video (Hulu) and bringing local businesses online (ReachLocal).  We are also home to DemandMedia (Richard Rosenblatt) and Mahalo (Jason Calacanis).

We have accomplished much yet have much work to do.  There are now a second generation of entrepreneurs and companies that have learned from their last successes and are producing great new companies like TopSpin Media, Sometrics and GumGum.

For highlighting what is uniquely LA, for adhering to a strict quality standard for speakers and for building this great platform for the future Francisco Dao (aka “The Man”) should feel proud of what he has accomplished.  As should Eric Sikola and ExpenseBay who won the “Showoff” judges competition (Photos featured here taken by (cc) Kenneth Yeung – http://www.thelettertwo.com).  Twiistup 6 featured 12 showoff companies as the opening act of a 2-day conference.  From this crowd of 12 I believe you’ll see 4-5 companies with the potential to rise to prominence.

Andy Sack, Dave McClure, Brad Feld & Jason Nazar (photo by Jolie Odell)

We had an excellent opening panel on early-stage investing with Dave McClure (Founders Fund – NorCal), Brad Feld (Foundry Group, Boulder) and Andy Sack (Founders Co-Op, Seattle).  The panel was hosted by Jason Nazar who brought his usual frenetic energy.   My favorite line from this panel: Feld, “If LA companies still have a chip on your shoulders about not being in Silicon Valley, I have one message for you – get over it!” And of course there was the F-bomb count that Cathy Brooks and I were keeping on Dave … by the end of the panel we had counted 8.

There was the usual cogent presentation by Brian Solis on the future of PR in which he implored us to get beyond the echo chamber of Silicon Valley and Techmeme and focus on staying on the radar screen of real America.  In today’s “attention deficit” economy you need PR more than ever and this doesn’t come through press releases but rather a continued, authentic conversation.”

In the afternoon we had a corker of panel.  Quincy Jones III, Ian Rogers and Chamillionaire were all on the same panel facilitated by Brian Zisk.  I have seen Ian Rogers speak before and when he does he usually has the audience on the edge of their seats.  Ian is so knowledgeable about the evolution of the digital music business and speaks with a Howard Roark like truth about where it needs to go.  My favorite Rogers line was, “musicians of the future will be entrepreneurs and not employees [of labels].”  He obviously believes this since he has become CEO of TopSpin Media – a firm designed to do just that.

Mark Suster, QD3, Brian Solis, Chamillionaire, Ian Rogers, Brian Zisk

But in this case Chamillionaire stole the show.  He displayed a deep mastering of the power of the Internet, direct marketing and Twitter to manage his business.  He talked about the need to give personal access to fans and remain authentic while still leaving some room for mystique.  He talked about artists needing to retain rights for their website and digital content like ringtones.  He got this VC talking so effusively about his entrepreneurial instincts that my wife accused me of having a “man crush.”  (I don’t) I think this guy has the chance to be the Digital Puffy if he can amass a team to help young artists own & manage their digital careers. [photo credit to Brian Solis]

The evening cocktail party was an 80′s theme and lived up to the traditional Twiistup fame with an open bar, elaborate costumes, Hollywood lighting and poker games until 4 in the morning.  Having been out until 3am at the cocktail party the night before I called it quits at 12:30am or as Neil Patel told me, “OK, married men should go home now” though something tells me he may not remember this quote  … (Percival cocktail photo by (cc) Kenneth Yeung – http://www.thelettertwo.com)

The late night didn’t make for a productive start to the morning but by the time Sean Percival got on stage to host the panel with Chris Brogan, Micah Baldwin (who started #FollowFriday) and Ben Huh (ICanHazCheeseburger) there was a great discussion on what it takes to be an Uber-blogger and social networker.  I think I could summarize the hour by saying, “don’t be a douche.”  And we heard Sean’s rant of the moment about how he hates being shaken down for DM’s by friends asking for RT’s and how he’s tired of DM Spam in general.

After this was my panel (co-hosted by Christian Gammill who had to leave mid-way to race off to Hawaii to get engaged and by Tony Adam), with Mike Jones (COO of MySpace), David Sacks (founder of Geni and Yammer) and Jamie Montgomery (CEO of tech investment bank Montgomery & Co).  The tone of the panel was set by David’s announcement that he was relocating to Silicon Valley (and dragging Geni & Yammer with him).  A debate ensued in which the consensus was, “to build the next Google or Salesforce.com you probably need to be in Silicon Valley but that SoCal had produced many great companies that made a tremendous amount of money and that would likely continue.”

The closing event was the filming of a live version of Jason Calacanis’ “This Week in Start-Ups” (appropriately named TWiST – episode is here).  He started off the session of breaking news of the most important product announcement of his life to date – the pregnancy of his wife with his baby daughter.  He then led us through a series of discussions about the most relevant topics of the day along with Chris Tolles, the CEO of Topix.  Jason’s cutting wit and insightful commentary made for entertaining listening on topics ranging from the Microsoft / Yahoo! search deal (“will go down as one of the worst deals in history”) to the skewering Jason gave to his competitor Nick Denton (of Gawker fame) when he stole his most productive employee.

Anyway, to close my Twiistup 6 Summary post I will borrow from the wisdom of my forefathers, “next year in … Santa Monica.”  No doubt the platform that Francisco built will take Twiistup 7 to a whole different level.  Now back to work – we’ve got a venue to get booked.

I run a monthly meeting called the SoCal VCA (Venture Capital Alliance) in which we have great technology leaders present to the best VC’s in Southern California so that we can better understand the trends and develop tighter relationships with our local technology leaders.  In recent sessions we have had Dmitry Shapiro (founder of Veoh), Ian Rogers (CEO of TopSpin Media) and David Sacks (founder of Geni and Yammer, former COO of PayPal).  I hadn’t yet restarted my blog so notes from those meetings are still scratched in my yellow notepads.

This month we had an equally impressive speaker in Michael Crandell, founder and CEO of RightScale, a Santa Barbara based company that helps manage cloud computing infrastructure.  The company has raised more than $20 million from prominent investors including Kevin Harvey of Benchmark Capital and Danny Rimer of Index Ventures.

Michael’s entire presentation is here on Docstoc but I wanted to highlight a couple of slides below from his session and offer some thoughts about cloud computing.

1. Cloud continues to accelerate

When I first started experimenting with cloud computing it was 2005/06 and I had just launched my second company, Koral.  Amazon had just launched its S3 storage (EC2 for cloud processing didn’t exist yet).  It seemed that over night every start-up I knew was using S3 and the logic was simple.  In my first company we had to buy very expensive EMC storage ($500k), high-end UNIX servers from Sun ($40k / pop), load balancers, Sun Solaris operating system and an Oracle DB ($80k).  We were $750k into the hole before we ever had a single customer.  Such was life building a SaaS company in 1999.

Fast forward to 2005 and we were building with $4k PC’s, LINUX operating systems, cheap storage devices and a PostGres database.  But it was still $60k when you consider 5 servers, load balancers, storage, hosting, bandwidth commitments, etc.  Enter Amazon Web Services (AWS) who would charge us for storage only as we used it (e.g. scalable with our business).  We initially only used it for back-up storage and test processing.

In 2008 I invested in my good friend Stuart Lander’s new business called PublicSpend, whose long-term objective is to bring transparency to government spending on local vendors.  The architecture was designed by rock-star SaaS technologist Ryan Lissack , who is now with Salesforce.com.  He convinced me that we could build a company without buying any servers, load balancers or storage.  And simultaneously I noticed that a number of start-ups that were pitching me had done just that.  So it seems that the era of CAPEX is ended for a number of companies and Nicolas Carr got things mostly right in his book, “The Big Switch“.  And while the economy has slowed down and start-ups have curtailed spending I expected to see a slow down in Cloud spending by start-ups.  But if the graph below is any indication it seems things haven’t slowed down at all.  The red line is a good proxy for start-up spending with AWS. (note: there is more text after graph – some problems with WordPress.com don’t allow me to properly resize it)

2. Clouds are not inherently managed

What we were doing in building on AWS was buying “infrastructure-as-a-service”, a term I first heard from Michael Crandell.  We were buying storage and processing power but we still had a lot of technical work to monitor the services and be ready to provision as demand increased.  This is the problem that RightScale stepped in to fill as depicted by the graph below.

The blue line represents purchasing in a CAPEX world where you buy equipment before demand.  The dotted line represents predicted demand and the red line represents actual demand.  You’re either over-provisions or under-provisioned, leading to increased expenses or unhappy customers.  But what a truly “managed cloud” service offered was a feature called “auto scaling” that automatically monitors usage patterns and can provision new server instances if you get flash crowds as happened with this Free Chocolate website by Mars.  The beauty with auto-scaling is that  not only will new instances by provisioned for you for when TechCrunch writes that great article about you but you can also auto-scale down when the flash crowd leaves.

3. Everyone but Amazon seems to be asleep at the wheel

What has surprised me the most about Cloud Computing is just how asleep at the wheel everybody but Amazon seems to be.  Where are the great cloud services from Microsoft, Google, Sun, IBM or RackSpace?  I know that all have made announcements as have a host of other providers like GoGrid.  But literally every company that has pitched me who uses a cloud uses Amazon’s AWS.  Clearly that’s not great for the market and for innovation but it’s great if you hold AMZN stock.  And it’s probably not great for RightScale.  Ultimately Amazon will move up the stack with more management offerings and the most compelling feature of RightScale when that happens will be the ability to “abstract” from any individual cloud implementation so that you can more easily transfer across clouds.  But for now RightScale’s product offers significant enough value in offering a true “managed cloud” rather than just “infrastructure-as-a-service” that you get from Amazon.  Michael made it clear that he thought the competitors were making progress but the momentum feels as intractable as trying to supplant iPhone for mobile browsing.

4. Private Clouds on the horizon

One of the more interesting developments I noticed in the past 6 months was the evolution of the idea of private clouds.  When I first learned of the company Eucalyptus Systems I have admit I didn’t immediately get it.  Why would anybody want to manage an internal cloud?  But the more I learned about it I realized that there is a compelling case for large companies who have lots of excess server capacity or storage and want to be able to offer it out to other geographies or departments rather than have excess capacity.  And if you could do so in a way that allowed you to use some internal clouds and then also call external clouds with total abstraction and therefore one set of instructions to manage it would help to migrate to external clouds over time.  And now it seems that RightScale can also sit on top of these “hybrid” clouds and help manage their co-existence.

My conclusion is that Cloud Computing is not only here to stay but it is accelerating.  Today it seems to mostly be the domain of start-up companies or test projects for larger corporates.  But as we experienced with the success of Salesforce.com it was the small, nimble players that adopted it first.  And as we all learned when reading Clayton Christenson’s monumental book, The Innovator’s Dilemma, eventually the higher-end of the market will trade down given dramatically reduced costs and as Cloud Services continue to improve.

Built apps in the cloud?  Views on AWS or RightScale?  Views on AWS competitors?  Love to hear from you in the comments section.