August 27, 2001
Note: Today's issue features a special guest editor, Michael Kettner, (mkettner@digitalripple.com) the new sales and marketing associate at Digital Ripple. Welcome Michael!

contents

        Quote:
      Time Honoured Myths
        What's New:
      Venture Capital Goes Back to the Future
        Web Term:
      Bleeding Edge
        Background:
      To BE or not to BE (Be Inc. that is...)
        Background:
      PC Sales: Disapointing
        Site Reviews:
      Ten Minute CEO!
      News.Com
       
        Ripple Rock:
      Convergence & Broadband

      quote of the day

      "Some of the richest people in the world are those who simply refused to accept the time-honored myths of their business. . " 

       - Sergio Zyman, former Senior Vice President and Chief Marketing Officer of The Coca-Cola Company.

      What's new

      Venture Capital Goes Back to the Future

      Welcome to venture capital 2001-style. VCs are tougher and stingier. Existing companies are worth less than they were a year ago, even if they have more business. To raise money, entrepreneurs need a proven, operating business with several clients, not just the idea of one. When they finally get the cash, it has to carry them to profitability, not the next round of funding -- and it could be years before an IPO. Indeed, five years has replaced 18 months as the average VC investment time horizon.

      RETURN TO NORMALCY.  As the venture-capital world adjusts to life without the IPO market, you can understand why a certain illiquidity has crept into the system. Valuations have dropped 50% or more since 2000, and seasoned VCs are putting less money more cautiously into new ventures. Existing ventures are subsuming some of the funds in their hunger for working capital. And while institutional investors are still committed to venture capital, the ones that have traditionally invested in it are reassessing their portfolio weightings in the wake of the stock market decline.

      So money is tight. But, far from an implosion, the slower pace of venture-capital investing is the precursor to a return to normalcy.

      Money is still being invested in venture capital. The total amount put into new deals in the first quarter totaled $11.7 billion, comparable to 1999's first quarter, but down 56% from the $26.7 billion in the first quarter of 2000, according to statistics from Venture Economics and the National Venture Capital Assn. And the average deal size of around $10 million is 33% lower than it was in the first quarter of last year, say VCs.

      For entrepreneurs, the new reality is harsh. The experience and quality of management has become paramount in importance, just as it used to be before the dot-com bubble blinded the better judgment of many a VC and investor.

      "We're seeing a correction back to the way things used to be," says Chris Darby, 41-year-old president and CEO of Cambridge (Mass.)-based digital consulting firm @Stake, which successfully closed a $26 million funding round in late October. "They want to know how you'll manage when finding equity is more challenging." That's the name of the game in venture capital these days and will likely continue to be as the private equity markets experience a return to normalcy.

      Source:  http://www.forbes.com/asap/2001/0528/050.html

       

      Kettner's Comment

      I was at a conference last Friday that dealt directly with this topic. The point made by the speaker was that there are still huge amounts of Venture Capital available, but everyone is really careful on who, and what to give it to. A proven record must be supplied to investors before any money will be shelled out. Venture Capitalists don’t want to be hurt again by anyone that is relying on technology rather then a plan. So, basically, it's "back to the future" in Venture Capital. Make sure you have a real business in addition to real technology (email mkettner@digitalripple.com and we can help out with a technology audit/ business review).

      terms

      Bleeding Edge

      "Bleeding Edge" started out as a joke in the software industry: there was "Leading Edge" technology, and then "Bleeding Edge." This was the stuff that was so new, so sharp, it might cut you when you tried to use it. In the last year or so it's come to stand for the very newest of the new tools: things that no one's quite sure are going to make it to mainstream.

      Kettner's Comment

      There are a lot of great ideas and products out there that the world would greatly benefit from. These products and services could potentially offer customers time and money savings. However, the inventors seem to not have the know how to drive these goods and services to market, and they waste time and resources inefficiently trying to get them into stores and boutiques because they believe in what they have created. Sometimes products need more than just belief in order for customers to buy them, they may need a plan. Especially if you are at the "bleeding edge" in technology/Internet related advances - planning and business analysis is essential.

       
      terms

      Be Or Not Be; That Was Palm's Question

      Update:  Palm announced on Thursday that it is acquiring the technology assets and intellectual property of software maker Be for $11 million in stock, in a move aimed at strengthening its operating system to compete against Microsoft.

      Palm Inc.'s operating-system business is set for some changes, as executive Alan Kessler leaves and a band of Be Inc. engineers prepare to arrive. Palm--which by some measures supplies the system software for 75% of handheld computers--has been slumping financially of late as it transitions to new products and contends with competitor Microsoft. Kessler, Palm's chief operating officer for platform products, appears to have taken the fall. The former 3Com exec plans to leave Palm Aug. 17.

      Palm also says it's buying the engineering staff and technology of Be--a software company founded by former Apple Computer exec Jean-Louis Gassee in 1990--for $11 million in stock. Be has been through several incarnations, most notably as the developer of an alternative PC operating system, BeOS, and as a supplier of software for TV-top boxes. But Palm wants Be's BeIA software for handheld computers, which provides instant-on capabilities and TCP/IP software. Be, which claims Intel as its largest investor, plans to liquidate its assets after the transaction closes. Palm says Gassee will stay on temporarily as an advisor.

      Source:     http://www.informationweek.com/story/IWK20010817S0002

      Kettner's Comment

      Business technology warfare at it’s best! One of the lessons I have learned over time through experiences and watching others is simply this: life is too hard to experience alone. The more people and expertise brought together the better things will turn out under smart strong leadership. Competing with Microsoft is no easy thing, so the experts must be brought in. Perhaps the Be group will make a difference for Palm.

      I wonder if there is any money to be made in the battle between Microsoft and Palm?

      whatsnew

      PC makers face back-to-school disappointment

      Dell
      (DELL) and Hewlett-Packard (HWP) officials confirmed that it won't be a stellar "back to school" season for PC Sales on Thursday when they talked about the current quarter with analysts.

      Dell said it actually expects revenue to stay flat or decline slightly this quarter, which would buck the usual autumn trend.

      And Hewlett-Packard Chairman and Chief Executive Carly Fiorina described back-to-school sales as subdued this year.

      "We are -- as we've said a couple of times -- expecting a seasonal up-tick, but I would think of this school season as more subdued than others in the past," she said.

      Baker said sales are likely to be closer to the levels of 1998, the year before generous rebates drove big gains in back-to-school sales. Although it is still early in the season, he expects sales to be down 15 to 20 percent from last year and 25 to 30 percent from 1999.

      Source: http://www.upside.com/BigCaps_Weekly/3b7c529f1.html

      Kettner's Comments

      As we quoted in our December 2000 issue of the Ripple Effect Newsletter, we have enter the Post-PC era (Digital Ripple always tries to stay ahead of the trends for you). In my personal house-hold we have more computers then family members. To be exact we have 5 members that have access to, 4 desktop PC’s, 2 Laptops, and 5 palm sized mobile PC’s. I understand our family may be an exeption, but the point is everyone has access to a computer, so why do we need to buy more. The market has moved on and consumers are looking to be more nomadic.

      Is there money to be made in developing new technology or implementing new ideas?

      site review


      Business Simulation
       
      Want to be a CEO of a high-tech company for ten minutes? Convinced you have the right stuff to be the top gun at a new-economy company? Click on the link above to try out this demo that shows the potential of simulations for corporate learning. It is based on the Palm OS, and lets you manipulate pricing, R&D budgets, product line, over a 4 year cycle and see how well you perform as a virtual CEO. (email me and let me know how you did, and I'll let you know how I did -- mkettner@digitalripple.com)
       
      News.com
      Technology related news - and lots of it! The CNN site for business/technology related news. Want to know what's going on? Check it out here - well categorized so you won't get lost trying to find what you are looking for. It's searchable, and updated daily.
       

      ripplerock

      What's a Ripple Effect Rock? Well, think of a rock thrown in a lake, and how the water ripples outward. This section of the newsletter covers developments and technologies that we think might soon cause a "ripple effect" in business or society.
       
      Convergence and Broadband
       
      "Every decade has some word associated with it. In the '80s, it was the PC. In the '90s, it was the Internet. For the rest of this decade, the key word is going to be convergence."  - AOL Time Warner (AOL) Chairman of the Board Steve Case in his closing keynote address at this year's JPMorgan H&Q Technology Conference.
       
      So, what is convergence and what does it mean related to broadband?

      Convergence, broadly speaking, includes not only the blending of hardware devices like the PC, television, telephone, and stereo, but also the melding of media enterprises into powerful, synergistic combinations. And we will soon see the convergence of broadband with CPU power.

      Richard Baskin, co-founder and chairman of Intertainer -- which provides interactive-television services such as video on demand for the entertainment industry -- says, "We are now in this adolescent phase of broadband and interactivity. But make no mistake about it: The child will grow up. Imagine having a video store in your home with all the TV, movies, and music videos you could possibly want. You get to choose what you see and play it instantly. That's what we're trying to do."

      Of all the arguments given for the AOL Time Warner merger, it is this belief in convergence and the inherent potential for targeting consumers and cross-selling packaged advertising deals across brands that has investors salivating.

      Is AOL Time Warner, with Warner Brothers Pictures, HBO, Time and cable properties, an Internet service provider, a content provider, or a content distributor? Is Microsoft (MSFT), which has moved aggressively into the portal business with MSN and into game consoles with the Xbox, a software company, a media company or a hardware company?

      And what about AT&T (T)? How will it leverage its assets in the pipe business?

      Intertainer's Baskin says, "The real economic value lives in content and services, because that's the one thing that can't be commoditized. That's why AOL is so successful. If AOL was just an ISP, nobody would care, but what's happened is that AOL has provided a service to people that they've become addicted to."

      Source: http://www.upside.com/DigitalMedia/3b7846fb57c.html  (check out the full article for a great business analysis)

      Kettner's Comment

      Microsoft has been on trial for a long time due to its monopolistic practices and situation. However; who is watching AOL? They seem to have a monopoly on communication. They have our magazines, internet, movies, television, and music. The only thing that they don’t have is a radio station, but that may be in the working. They have the largest sphere of influence. Pretty soon they will have to power to inform us of what to eat, what to wear, and how to act; then again, they probably already do. :)

      That's it for now! Have a great week!

      subscription info

      If you have any one who you think should be added to this list, let us know--or better yet, let them know by forwarding a copy of the newsletter to them directly.
      To subscribe to the list, go to:

      http://www.digitalripple.com/joinlist.html

      Back issues of the Ripple Effect Newsletter are available on the Digital Ripple web site at:

      http://www.digitalripple.com/joinlist.html

      ~~~~~~~~~~~~~~
      British Columbia
      745 Clark Drive
      Vancouver, B.C.
      V5L 3J3
      Telephone: (604) 215-0216
      Facsimile: (604) 215-0431
      E-Mail: dcurrie@digitalripple.com
      ~~~~~~~~~~~~~~
      Toronto, Ontario, Canada
      Telephone: (416)430-5726
      Facsimile: (416)430-5726
      E-Mail: alcurrie@digitalripple.com
      ~~~~~~~~~~~~~~
      Oshawa, Ontario, Canada
      Telephone: (905)721 0285
      Facsimile: (905)721 1335
      E-Mail: alcurrie@digitalripple.com
      "Exploring the Ripple Effect of Digital Technology"
      ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~