Sunday, July 19, 2015

Front Row At AlwaysOn Silicon Valley Innovation Summit 2015

I spent some very valuable time this month attending the AlwaysOn Silicon Valley Innovation Summit (SVIS) 2015 down at the Computer History Museum.  I attended in 2014 for the first time and that's how I got hooked on the AlwaysOn events.  Tony Perkins always rallies a start-studded lineup for these confabs.  I sat front and center for every session.  The stream of consciousness narrative I generate below should capture the event's zeitgeist.

George Gilder displayed his flair for original thinking.  I heard him talk at the MoneyShow San Francisco 2014 and he retains his conviction that gold and bitcoin are future stores of value.  I disagree with him on the usefulness of Bitcoin.  Tech enthusiasts like Gilder love Bitcoin as a currency due to its supposed time-based scarcity.  If something must be scarce to be valuable, the ability to fork a digital coin into another variant (Litecoin, Dogecoin) dilutes its value.  Real currency is recognized as legal tender; forking introduces confusion as to which coin can be recognized in a transaction.  I also don't buy his contention that gold and bitcoin are somehow independent from economic reality.  Those things are very much part of the economy as long as jewelry demand drives the gold price and the demand for stronger blockchain ledgers in transactions drives Bitcoin's development.

I have been a big fan of programmatic RTB advertising placement since I first heard of it in 2013.  RTB requires massively parallel bids that make ad buys more efficient.  The auction method that optimizes a price across several channels can probably apply to other sectors besides online marketing.  Calling Wall Street . . . programmatic bids for securities across several exchanges can eliminate the ability of high-frequency traders to front-run other institutional investors.

The debate between advertising tech and marketing tech will never end.  IMHO marketing tech offers more opportunity than ad tech as Big Data and AI make automated DRM tools more attractive.  Tech advances bring a lower CPC for ad buyers, enabling a wider audience reach and lower CAC.  Standardization will happen as ad networks consolidate.  Only the biggest players have the market power to demand adherence to standards, as Google achieved with AdSense.  The pain point for "fraudulent ad buys" reminds me of payments fraud in finance and it is probably amenable to the same types of fraud detection solutions.  There's a pivot opportunity for fin-tech startups there if they understand ad tech.

It's nice to see enterprise software successfully disrupt the HR function.  Salesforce and other big players will want to buy that stuff someday.  The supply chain is next on the list for innovation.  I have nothing against in-memory computing if it can extend the life of Moore's Law.  Quantum computing already has that law in its sights, so in-memory players may not have five years to mature and cash out.

Big Data and business intelligence (BI) are supposed to work together.  Analysts develop hypotheses from their own experiences, and Big Data is supposed to expand those potential hypotheses beyond analysts' familiar heuristics.  Virtualizing BI empowers non-scientists to run analytics.  Curious types can read the stuff I've been writing about knowledge management and decision rules for several years.

One of the best quotes I heard at SVIS was that "linear solutions don't solve exponential problems."  I'll use that line the next time someone asks me why another European bailout program won't solve Greece's problems.  The human brain is wired for comfort and familiarity; it recognizes unsound patterns.  Automation and Big Data generate statistically sound patterns that will present robust visualizations.

I liked a couple of cool audio / video tools on display.  One automated video editing tool will reduce user friction in content creation.  A smart hearing aid had controls on a smartphone and plays music.  It reminded me of how Adm. James Stockdale turned off his hearing aid during the televised vice presidential candidate debate in the 1992 elections.  The admiral could have saved himself some embarrassment if he had worn this hearing aid.

Lou Kerner mentioned how Roy Amara's Law describes tech investment bubbles.  He concluded his talk by arguing that private market valuations are stretched (echoing VCs' public comments since 2014 about bubble conditions)  but markets are not close to the dot-com era's levels.  He also thinks tech within public markets appears fairly valued, but public markets look overvalued.  I disagree with his use of the NASDAQ's five-year CAGR to show we're not in any tech bubble.  Five years isn't long enough to reach back to the post-dot-com crash bear market, and it still exceeds the NASDAQ's long term average CAGR.  I also think his example of non-VC deal participants ramping dramatically contradicts his data showing VC investing as a percent of GDP not yet reaching 2000's bubble level.  I do like his awesome quote, "Beware of confusing donkeys in party hats with unicorns," originally from Bryce Roberts of OATV.  Good one there.

I loved it when a former management consultant said "people, process, and tech" with no context.  People throw that phrase around a lot in knowledge management with "tools" sometimes replacing "tech."  We'll hear it a lot more in on-demand markets as the demand for micro-task fulfillment continues to disintermediate people from the work they perform.  Laws and regulations are not catching up to the on-demand labor market that TaskRabbit and others fulfill.  Other online markets are making offline experiences in travel, taxis, and real estate more valuable.  It won't make participants smarter if they don't understand market basics.  Investors making "sight unseen" big purchases like real estate can waste money even faster with tech.

Video service entrepreneurs believe content will prompt transactions.  It sounds like a stretch and reminds me of the "push media" fad predating smartphones.  Television ads already have professionally produced content and YouTube enables amateurs to make mashups.  User-generated content now has more distribution options than ever.  I can foresee the existing user-friendly video channels inserting transaction prompts into videos.  The implied corporate development goal will be to acquire startups whose algorithms will recognize user actions as purchase triggers.

Let me revisit the blockchain one more time.  Open source developers need to think hard about how to make a distributed transaction ledger that no one can falsify.  Claims that blockchains are immutable ring hollow.  Ask any merchant who has been the victim of a fraudulent Bitcoin transaction.  If a blockchain is immutable, it cannot reverse a fraudulent transaction.  A falsified blockchain is useless as an auditing record.

I was very impressed with PageCloud's demonstration.  The ease of editing a live website will be a boon to small and medium-sized businesses.  It looked way easier than the tools I've used with other web hosts.  I especially liked how easy it is for a merchant using PageCloud to adjust portal prices.  That feature will come in handy during a hyperinflationary period when shops must update their prices daily.

Women have proven they bring advantages to Silicon Valley.  Marissa Mayer and Sheryl Sandberg know what they're doing.  I would like to believe the conventional wisdom that women project empathy when pitching a believable narrative, but the female supervisors I've had in my career who told me baldfaced lies always left a bad taste in my mouth.  One of the SVIS panelists mentioned a McKinsey study on the elements of female leadership.  A Web search for that report brought up tons of McKinsey work on the subject.  I would like more experts to mention the supplier diversity programs at big companies so that women-owned small businesses are aware of that path to subcontracts.  Closing the knowledge gap in SMB contracting will help women.

The VC outlook for the coming year is usually the highlight of these types of conferences for me.  I try to think like a VC, partly because I always wanted to know why they wouldn't hire me in the early 2000s when I was looking for work.  "Unicorn" is rapidly becoming one of the most overused words in Silicon Valley, just like "disrupt" and "curation."  I just LOL at the late-stage non-VC investors chasing unicorns with very unique preference structures.  Expect plenty of post-IPO writedowns.  I heard one VC endorse wild spending on customer acquisition while cheap capital is widely available.  The VCs who acted that way in the dot-com bubble aren't around for the rebound these days.  The excuse is that free spending is okay if the LTV/CAC comparison makes sense.  My critique of that is a too-generous LTV assumption will tempt inefficient startups to spend like drunken sailors on unattainable metrics.  One laugh line quote from a VC is worth repeating:  "You can walk down the street, shake a tree, and two angel investors will fall out" because risk capital is so easy to get.  I'll try that the next time I'm on Sand Hill Road.  Someone else discovered that a group of unicorns is called a "blessing." The blessing of Uber, Lyft, Airbnb, and others will make a handful of founders rich.

AlwaysOn's latest list of hot private companies shows them staying private longer.  The late-stage capital injections are a big factor in long incubations.  Founders now have every incentive to hold out for larger pre-IPO valuations.  This year's big winner was Docker, a sort of "hamburger helper" for app developers that pivoted during its Series A raise.  Docker's CEO says we should play the hand we're dealt, and I agree.

Analytics for sales data is mostly "undefended territory" because it doesn't integrate with internal knowledge management systems.  No one in Silicon Valley ever discusses KM but I believe that's the ultimate determinant of how analytics delivers value from enterprise systems.

I would like cloud experts to announce which part of their stack is the most expensive to deliver.  The up-front cost of any open source solution is lower than a proprietary solution because customers aren't paying a premium to develop a proprietary code base.  I initially thought vendor lock-in is more likely in the hardware (IaaS) part of the cloud stack.  Now I think SaaS lock-in may be more costly; imagine the difficulty of switching from Oracle to Salesforce.  Consider how Amazon Web Services' price cuts and competition from other data centers makes IaaS a commodity, competing only on price.

Knowing your average revenue per user (ARPU) is a start to building credibility in a startup pitch.  Losing credibility happens when founders don't describe their target market or team background.  They also lose when they assume customers will pay a premium for a commodified service.  They gain credibility when they compare their total cost of ownership (TCO) to their competition, describe entry barriers that will protect their market position, understand their sales cycle, and hack their pedigree for endorsements and tech validations.

I have very little insight into the vice economy.  The Rosewood Hotel on Sand Hill Road is the local epicenter for VC vices.  Knowing that will come in handy at some point.  Apps offer instant gratification and gaming is the only vice that can be done 100% online.  The eventual legalization of online gambling may displace video gaming.  Addictions are more powerful if they generate real financial rewards.

The unicorn roundtable was the single best panel of SVIS.  Truly brilliant people were on hand.  The rise of secondary market liquidity is changing the exit options available to early investors.  I agree with Tony Perkins that companies will find staying private very attractive.  One panelist said that a large stock market decline means mutual funds and hedge funds will be forced to meet redemptions, and will no longer have the late-stage capital for startups.  Another expert said each megatrend has a value pyramid, and each level of the pyramid from base manufacturing to top content adds value.  New tech can invert those pyramids.  Startups must anticipate changes when those value-added activities will shift the pyramid in verticals they understand.  Folks, this was brilliance I never learned in my MBA program.  I attend AlwaysOn events for just this stuff.

Everyone is looking past mobile, just like a previous panel when someone said 5G tech will turn all mobile phone companies into short-sell stocks.  I have not heard anyone say "data sector" or "data supply chain" at recent Silicon Valley events.  I have blogged about those concepts and that's why I have a data-related speaking engagement coming up in September 2015.  It's also why some tech media people have been following my Twitter feed.  AlwaysOn might as well follow me too.  I learn enough from their events to build my own thought leadership.