Wednesday, December 31, 2008

RIP 2008

I think it's fair to say that few of us will mourn the passing of 2008, at least from the standpoint of the financial meltdown, on-going business uncertainty, mass layoffs, plunging stock prices and pretty much any other money metric you care to come up with.

Still, life is about more than that. We had a wonderful trip to Africa, added another dog into the mix and generally got on with life, liberty and the pursuit of happiness. (Where have I heard that line before?)

As the dust settles, and thanks to some heroic efforts that only finally got a result at 1:30 am last night, looks like we made our number for the year, plus a bit for good measure. In this sort of economy, and given all the challenges associated with building any sort of high-tech business regardless of where and when, that's a quite remarkable result and testament to the calibre of the entire team we've assembled. Of course, no one knows what 2009 will bring but it's fair to say that we have set the seal on a very strong 2008 and can feel proud of what's been accomplished.

It's with hope, therefore, that we all look forward to 2009. Across the board, it's a year of "new"s: new presidency in the USA, new ways for the world economy to benefit from all the various injections of capital and lowering of energy and raw material costs, new means through which we can all do better, and be better.

Can't ask for more than that opportunity really, so happy new year, thanks for reading and here's to 2009!

Wednesday, December 24, 2008

Merry Christmas

"Peace to men of goodwill" is I believe the more precise translation, rather than the traditional "Goodwill to all men", and much more logical. Therefore, let's go with that!

Merry Christmas and a Happy New Year!

Tuesday, December 23, 2008

Fraudster Fleeces Fry's

Fry's electronics store is something of a Silicon Valley legend. Founded in 1985 in Sunnyvale, the store started out as a geek's gathering spot; the sort of place where you could buy everything from obscure components to complete computers. From those early origins, the company has grown to where they now have 34 stores nationwide and turn over north of $2 billion per annum.

(Just as an aside, any of you visiting in this area who is interested in technology then do yourselves a favour and make a pilgrimage to one of the multiple Fry's locations. Each store has some sort of theme and the one in Palo Alto is fun as it's the Wild West. However, this is not the Fry's of old. Much more space is now dedicated to everything from fridges to folders, cameras to chocolate, and that close knit "geeks only" feel has gone. Nevertheless, it continues to attract the Valley's brightest and best who can be found wandering the electronics and components aisles still. It's also remained true, therefore, that the best way to learn anything in Fry's about what they have in stock and how it works is to ask one of the customers, their sales people being, err, "variable" in their knowledge, shall we say.)

Meanwhile, back at the ranch, all was not well: there was a traitor in their midst. A company VP, earning a salary reported to be $225k per annum, (which is more than I get paid in case you were wondering if I was one of those fat-cat CEOs the media bang on about) had more expensive tastes than this could reasonably cover. Therefore, he decided to make a little extra on the side, to the quite staggering tune of $65 million ...

By setting things up so that there were no other sales staff between him and his suppliers, it's alleged, he was able to offer them more attractive pricing and terms in exchange for a "marketing" fee that was supposed to offer them preferential treatment for things like advertising, shelf positioning etc. Those fees were channeled through a shell company the defendant owned, and in just a few short years got built up into quite a nice little nest egg for him to cash out on ... except it didn't.

Believe it or not, in parallel he managed to rack up debts in Las Vegas to the tune of $162 million. Yup, close to $100m underwater. To the Vegas mob. In three years.

Unsurprisingly, the Judge, upon letting Siddiqui out on bail, banned the defendant from travelling to Las Vegas. But he needn't have bothered. Doubtless Las Vegas will be paying a visit to Siddiqui instead .... and most likely by one of their employees whose middle name is "the".

What is it about Christmas and fraud??

Monday, December 22, 2008

What's An Eyeball Worth?

Interesting Business Week article on the social news site Digg. Digg is basically a news aggregater, relying on Internet users to vote for stories they like that then find their way onto the Digg site; the more votes - or "Diggs" - the higher the story ranks, and hence the closer to the top of the site it's displayed. So far, so what? Does this have any real-world enterprise value? Let's see.

Digg gets something like 1.5 million hits per month. Let's be generous and call it 20 million hits per year. Business Week reports that their revenues are likely to be around $8m for 2008 ($6.4m for 1-3Q, and assuming some fall-off from their on-going ramp thanks to the general recession.) Therefore, Digg has found a way to monetise each hit to the tune of roughly 40 cents. Not too bad, you might think, considering that they don't have to actually, you know, produce any content themselves? Not so, according to the article, that says this year they lost $4m in generating that $6.4m, or roughly speaking Digg has an expense rate of $14m to $15m per annum. On Digg's site, there are around 80 people shown as being "on the team" so that level of expense does indeed seem about right. Yeah, yeah, I have the same question: just what an earth are they all doing every day?? But let's just share the cool-aid and pretend that this level of expense is justified... somehow. What, then, does the future hold?

So here we have the classic Web 2.0 dilemma: this all looks good when both web traffic and advertising dollars are growing every month and when valuations are built around an assumption of being bought by Google, Yahoo!, Microsoft, Time Warner, Fox or someone else flush with cash and hot for web hits. Hang in there long enough, generate enough hits and voila - everyone gets to call in rich. Alas, those times are now as much history as is the Battle of Waterloo, but without the happy ending (well, for the British at least).

Last year, Digg reportedly went out with a heady $300m valuation and tried to sell themselves. They failed. Last year Digg did less than $5m in revenue and lost close to $3m in getting there. "Growth at any cost" would therefore seem to have been the prevailing mantra. Hmm, wonder how that chant's sounding right around now?

A 60x multiple is a bit cheeky in any climate; just now it's downright laughable, which might explain why Business Week reports that an additional financing round closed in September was done at a valuation of $167m, still a sum driven 100% by the prize of a rich exit through acquisition being within reach.

To be break even at a $14m expense run-rate would require Digg to attract 35 million hits per year. That's hard to see anytime soon, and by "soon" I mean ever. There's a limit to how social the world is willing to be in getting news items, even of the "ecstasy was for my dog your Honour" kind, and Digg is far from being the only game in town. Yes, they now have cash in the bank and hence time to figure all this out, but what we don't yet know is just how long-term many of these social-based businesses actually are; the available runway may be shorter than any of us know. Let's face it, there's nothing business critical here. If Digg went away tomorrow then another version of the same thing would take over, people would switch and the world will keep on turning.

I have no idea how this particular story will play out nor do I have any particular axe to grind against Digg, but it has been fascinating to see under the covers of the financial blanket that being private usually throws over the operation of a company such as this, and Digg's was just the one Business Week got to see under. Having now had a peek underneath, though, it just helps you understand that there isn't anything especially magic about these business models, other than how on earth they keep attracting the kinds of insane valuations that they apparently do. (Makes you wonder - if they went out now, what do you think that valuation would be? Bet the answer would be a lot less than $167m)

Despite the public warnings from Sequoia of "RIP The Good Times", the "land grab" mentality of Silicon Valley still appears to be alive and well. However, as the old time prospectors will tell you, there's a big difference between staking your claim and actually panning enough gold from that land to keep you supplied with whisky & beans, let alone striking it rich ....

Sunday, December 21, 2008

Still Doing It Wrong

A few more vehicular examples of how not to do things ... and thanks again to Jalopnik.


Thursday, December 18, 2008


A lot of column inches have been dedicated this week to analysing the announcement by Apple that this will be their last year giving the keynote at MacWorld. Furthermore, and despite its valedictory status, Steve Jobs won't be up there on stage delivering it ....

It's not hard to see the logic of the first point. Ever since the Internet put up its first corporate web-site, trade shows were well on their way to being a doomed species. Give it five years plus a nasty dose of recession and these high-tech bashes will be largely extinct. Apple doesn't need MacWorld anything like it did ten years ago now that they have their own retail outlets, their own highly-hyped press conferences and so much free media-buzz that it would drown out a city-sized swarm of bees.

It's therefore the second decision that's causing all the discussion: is this the beginning of the end for Jobs as the Big Cheese of Apple? Indeed, has his leadership role already slid into titular territory? Is he now too sick to do it? (Talk keeps going back to his dice with cancer, complete with obligatory mention of how gaunt he's been looking lately.) Apple says not, but it's clear that the change-over is no longer a matter of "if", but purely "when".

Silicon Valley has its own aristocracy within which Jobs has been ennobled to the highest possible level. But this begs the question, "what's that worth?" to Apple's stock price. Om Malik just posted an interesting assessment of how strong this "SJ premium" is when viewing Apple's current stock price, and the summary makes for interesting reading.

Today, Apple's market cap stands at around $80 billion. Using industry benchmarks to calculate the effective break-up value of the constituent parts of Apple's business, Jeff Segal, from the NY Times arrives at a total of approximately $60 billion from the Mac line, iTunes, gadget sales and all the rest. He therefore says that the Jobs premium is $20 billion, or roughly 25% of current enterprise value, which is really rather quite a lot when all is said and done.

Of course, this all assumes the market is a logical and methodological beast, something it proves not to be the case each and every day it lives, and hence no one really knows how wild the swings will be on the days following the switch to "After Jobs" for the Apple calendar. Regardless, it's interesting still to see the maths and ponder on what happens when he does inevitably step down. Ultimately, I suspect much will depend on the circumstances. An orderly transition to a board role will, if handled well, minimise the problem; a more sudden and more emphatic disengagement and just a 25% drop will be looking like a bargain.

Either way, the change will happen, so I actually hope for everyone's sake that this does indeed signal the beginning of the formal handover process. After all, with the stock price as beaten down as it is, when better to get this done?

Wednesday, December 17, 2008


Believe it or not, the picture here was part of a series from Austria, produced in the 1930s, warning of the dangers of electrocution. Not sure that this is immediately obvious from the drawing, nor indeed that the risk of getting zapped from a dodgy lamp via a cow is actually that high, though I can accept that in pre-WWII Austria this might have had a slightly higher chance of occurring than would be the case today. (It did though seem to require an odd coincidence of events to occur, from said faulty lamp going live, through to the cow having it's tail wrapped round the lamp casing and requiring a bare-footed milking maid to boot, err, or rather not be booted.)

Cautious lot those Austrians, as the other one shown above indicates. Is no one safe, not even a bloke with two bedside lamps and a grasping fixation??

(Thanks to Bre Pettis for making these available via Flickr here.)

Tuesday, December 16, 2008

Daylight Robbery

In the Valley we are used to large sums of money being made and lost seemingly overnight, so it takes quite a lot to make us sit up and take notice. However, when one bloke manages to burn through $50 billion, even we have to pay attention and doff our caps.

You really have to be pretty impressed with what Madoff (pronounced "made off", as in "made off with a huge wad of other people's money") accomplished. I mean, do you know how hard he, personally, had to work to dump that much? To put this in context, at the end of 2007, the Bill and Melinda Gates Foundation had investments worth around $38 billion. In order to house the necessary staff to handle things like investment management and funds disbursement, these guys are building a downtown Seattle campus on 12 acre lot. Big. Scale. Stuff.

Contrast this with Madoff. Seems this scam operation was run out of one floor of Madoff's New York office building, underneath the two floors dedicated to his other business of market trading. The same article goes on to say that the auditor who had been signing off the accounts is already under investigation. This highly complex task was, it seems, entrusted to an operation comprising one partner, who is in his seventies and living in Florida, and who employs one accountant and a secretary. That's it. Please contrast this with the audit we are currently doing at my company, a Silicon Valley start-up, where we've had a team of 4 variously on site for weeks at a time for a business that's almost 4 orders of magnitude smaller.

While public companies have to live under the broad and heavy yoke of Sarbanes Oxley, the fact that a $50 billion hedge fund can get away instead with using the sort of operation that would struggle to handle the accounts of your local sweet shop, it is clear that something is fundamentally broken at the base of the regulatory framework.

This jerk gets $50 billion free-and-clear to play with while real companies, producing real products (albeit largely crappy ones) like GM and Chrysler, can't even get a civil word, let alone a hand-out, from the very legislators that allowed this whole situation to fester for years unchecked? Fire the bloody lot of them, country-wide, and start again. And by "them" I mean Congress.

Madoff is a complete and utter scam artist, running an obviously illegal pyramid scheme. Congress is a collection of weak and venal politicians who can see no further than their next boondoggle, narrow self-interest,special interest payoff or electoral contest. Against them, it's hard not to prefer Madoff, minor failings like iceberg-scale embezzlement aside.

Sunday, December 14, 2008

Picture Competition

So just what is going on in this picture, and why should anyone care?

Answer in a couple of days.

Friday, December 12, 2008


Just a plug for a fascinating site: Artificial Owl. It's a pictorial record of abandoned man-made items or locations, anything from aeroplanes to atolls.

There's a great selection of aircraft pictures, including the one above which just begs the question of how on earth things ended up this way? Either it was a very unfortunate (or highly skilled) landing, or just an amazing construction project by someone with a bizarre sense of humor.

Definitely worth going through the Chernobyl images showing the abandoned town of Prypiat, stuck, unfortunately for it and it's residents, on the doorstep of the reactor site, and deserted now for 22 years.

Thursday, December 11, 2008

Where To Live In Silicon Valley?

People moving into Silicon Valley are faced with a tricky initial choice: where-o-where should we hang our hats?

In common with any large conurbation, there are a myriad array of discrete towns or communities to choose from, and, matching this, an equally large set of criteria to be applied if you are having to decide where to live. Are the schools more important than, say, the anticipated commute? Is access to a park a key requirement? Are there three Starbuck's within spitting distance? (Actually, the last one barely warrants even a passing thought since that rule would easily be met even if you were moving to the wilds of Alaska.)

The San Jose Mercury News today offered another way of looking at this: how many poor people do you want to encounter, on average, when strolling over for your daily caffeine fix? In the print edition, the Mercury News looks at poverty levels around the Valley using data that was derived from the 05-07 U.S. census.

In the South Bay, the only area mapped in this way, San Jose comes in at last place with 10.2% of the population below the poverty level. At the other end of the scale, Los Altos tops out with a quite remarkable 2.1%. (And that's remarkable because I have no idea where in Los Altos that 2.1% are living, given the prevailing property prices, even in today's market. Must be in the garden sheds of the large and plush grounds surrounding the mansions in the hills.)

Starting from Palo Alto in the north and going down to Gilroy in the south, three cities in Santa Clara County show up as having less than 5% of the population below the poverty line: Los Altos, Los Gatos and Saratoga. On the other side of the ledger, three cities are at 9% or higher: Gilroy, Santa Clara and San Jose.

Does any of this really say much about the quality of daily life for residents in these cities? Not to me, but in all fairness we are hardly the standard issue nuclear family & so may not be the best of judges. Personally, I either like to live a long way from anyone - pretty much as we do now - or in the middle of a city larger than any of those listed above; San Francisco, for example, would fit the bill quite nicely. And as they say in real estate, the three most important factors to assess with any property purchase are location, location and location. After all, the wrong sort of neighbours in Los Altos can likely be just as annoying as those you might find in San Jose; they might just drive a nicer car, is all.

Monday, December 8, 2008

Busy Week

Not sure how much posting will get done this week as Silicon Valley heads into the final stretch before the Christmas break. We still have a lot of business to close, and less & less time now in which to do it.

Therefore, "here's a test card and some music" as they used to say on the BBC when there was no programming on (remember those days?) in order to keep you occupied in the meantime.

OK, then ... pelicans flying over some flamingos, all delivered in absolute silence. Happy now?

Friday, December 5, 2008

Deliverance Cottage

This cabin is in some woods close to our house. Story goes that some bloke bought the parcel of land promising to build him & his missus a cabin getaway. However, once he proudly showed her the early results of his handiwork she threw a bit of a wobbly, quite understandably vowing never to go near the place.

I'll have to go back and capture it on a nice misty morning and maybe try one or two other things because the above doesn't do the whole spookiness/rustic hovel thing proper justice. (And only using a Canon point-and-shoot, just before sunset and in a densely wooded area didn't help much either.)

Handy, though, to have an additional bolt hole in these challenging times, even allowing for the fact that there's no vehiclular access, just an old logging path. It's also worth bearing in mind that the water supply seems to be drawn from a spring that only runs towards the end of the winter and any electricity you may feel in need of is via a very old and now rusted portable generator. Oh, and he never quite got round to putting any windows in, either.

Cue the banjos ....

Thursday, December 4, 2008

You're Doing It Wrong

Do yourself a favour and look at the rest of this gallery. I find it very cheering to see just how badly others manage to screw up!

Thank you, Jalopnik, I needed a good laugh in these most trying of times.

Wednesday, December 3, 2008

Bank Of The Mafia

According to the BBC, luckless business owners in Italy are having to seek alternate sources of funding in order to keep going in these credit-constrained days. In short, when Banko di Highstreet fails you, turn instead to the Banko di Cosa Nostra.

In the radio version of the story, the reporter cited the case of a business owner who went to his local bank to request a loan of 50,000 Euros in order to continue to operate. The bank told him it would take 5 to 6 months to gain approval, terms that if he could accept would of course mean that he would not need a loan in the first place. Instead, he went to the Mafia. Next day, someone showed up with 50,000 Euros in a black plastic bin liner, and he signed up for a very reasonable 4.5% interest rate.

Now you know what's coming next, right? This is all fine so long as you make the payments and hence keep those large, young men, in their nice suits and flash cars, all smiley and happy. Alas, he could not perform, repeatedly borrowing more and more to try and stay afloat until he had outgoings of 160,000 Euros per month just servicing the debts.

Unfortunately, the BBC didn't close this story out by saying what happened next but you can bet whatever it is you value highly that he didn't just declare bankruptcy and walk away into the Italian sunset. Indeed, I doubt he's walking anywhere at all, any time soon....

Right now banks might be a royal pain in the rear end, but at least it's not a terminal condition.

Tuesday, December 2, 2008

Valley Hillbillies

Thanks muchly to Jalopnik for this one but, as you can see, this part of California 'aint all Lambos and multi-million McMansions. However, seems on Black Friday even the coast-dwelling proletariat feels the need to go East and buy a bright, shiny new bauble to decorate their nests with. But how to transport it back home on Highway 17 afterwards? Hmm, tricky. Well, how about we just stick it on the back seat and rely on a single bungy cord to stop it either a) flying forwards and hitting us on the back of the head, or b) flying out the back to be smacked-into by whatever happens to be behind us at the time? Hell, yeah!

Just to be clear, Highway 17 is one of the worst roads in the Bay Rea, if not the entire state. It's windy, hilly, prone to very bad weather and almost always traffic clogged, being the main route between the coast and Silicon Valley. During the morning and evening commutes, it's not uncommon to come around a corner to find the two lanes of traffic at a dead stop, thereby generating a rash of rear-end accidents on an all-too-predictable schedule. It only takes one truck lumbering up the 5 mile-long hill towards the Summit to turn a two lane road into a one laner, with the added fun of people stuck behind said mobile-chicane trying kamikaze lane-changing maneuvers in order to try and overtake. "But what makes you such an expert?" you may ask. Simple. I drive it everyday.

Monday, December 1, 2008

From Bad To Worse

Not Many Customers This Month Then, George?

Fresh from the rumour mill, it seems that one Silicon Valley equipment manufacturer is predicting sales in one division will come in at 25% of what was originally predicted. Yes, you read that right, a 75% miss. Another rumour is that a major semiconductor manufacturer came within $20m of running out of cash, and that's in a business doing close to $5 billion world-wide on an annual basis. Meanwhile, companies across the globe are making cuts in both production capacity (semiconductors to name but one) and ongoing operating expenses as the calender 4Q plays out. (Oh, and as the big three U.S. auto makers head to Washington again to try for bailout round 2, GM is spreading the love to their dealer networks by allegedly refusing to make incentive payment unless they take more inventory ... which they can't anyway sell but it makes GM look, well, slightly less worse I suppose.)

In short, the January reporting season is going to be extremely ugly as retail companies give-up and fold now the Christmas bubble has popped, and industrial companies report the quarter in which they felt the worst impacts of the worldwide slowdown. And it is worth noting here that Wall Street today is only operating on the basis of reports reflecting the early signs of slowdown, the full economic impacts of which have yet to be fully felt.

2009 could yet be a record-breaking year, but not the good kind ....