A Bit Chilly

We're not talking the economy here or even the weather in California, but rather the current cold snap in Europe. I heard on the BBC that last night the U.K. was, in places, colder than Antarctica. Even allowing for global warming, that's still a rare occurrence, so I thought I'd post something in solidarity!

The picture above comes from Belarus (and is part of a set of images on the theme of "Icy Days & Nights" featured in the Boston Globe) where they are used to this sort of thing, but it's perhaps a warning that continued exposure to cold weather seems to do bad things to the brain.

Roll on summer. Round these parts the forecasters are promising us temperatures in the 68 to 70 degrees F range by Sunday. Now that's more like it!

(Oh, and I think I did very well to avoid any "man with his chopper in his hand" jokes, don't you? Bit of a struggle, mind ... )

Glimmer Of Hope?

A Sight Not Seen For A Long Time

It may just be new year fever, but there are signs of things stating to improve in the Silicon Valley housing market according to the SJ Mercury News today. Although prices are down 40%, year-on-year sales in Santa Clara county, November '07 to November '08, were up 14%.

Obviously there are a couple of effects at work here: inventory and affordability. Back in November '07, low-end houses, where there's always been an imbalance between supply and demand, were few and far between, and let's be honest you really didn't get much for your dollar. Fast forward 12 months and now you have a lot more choice within a given price band and you get significantly more house for your money.

If you are employed, solvent and can get a mortgage, life is clearly pretty good for house buyers just now. If prices are truly down 40% in your chosen area and you are still making what you made 12 months ago then it's hard to see any reason to sit on the sidelines much longer, unless of course you think you may get laid off sometime soon ... which alas is still a fear for a lot of SV workers. So apart from the solidly employed, who else is buying?

It seems Silicon Valley is luring real-estate investors back to its bosom. From a year ago, sales to absentee or investor buyers rose 38% to now account for 11% overall. Which is a lot. And interestingly, those investors are spreading their dollars across a broad church of property districts from the relentlessly up-market (Los Altos Hills, Atherton etc.) to the more Blue Collar(San Jose, Alviso, etc.)

Does all of this signal that we have reached a bottom and that things are now starting to turn around? From a real-estate perspective then ... perhaps, especially at the low end of the market and particularly once Spring arrives, by which time post-Christmas layoffs will be over, any businesses who couldn't scrape past the new year sales will be gone and company budgets will be set for '09. Add to that the chance for a "new president dividend" in terms of optimism & consumer sentiment and things might be looking brighter than they have done for quite a while.

The real signal for a broader upturn will likely be when Wall Street stops reacting negatively to further bad news. That's been a leading indicator of recovery in at least the last two significant recessions and no reason to think it won't be so once again. Wall Street is basically a forward-looking discounting mechanism and hence a leading indicator of corporate recovery. Therefore, it will be very interesting indeed to see how the markets react in these early weeks of January to new economic or political data that's perceived to be negative. If there's a floor found over that period then we may well have found a base for the much-mooted second-half recovery.

Happy days are here again? Not quite, but perhaps we might at least cancel the suicide watch.

Back To The Fray

F-4U Corsair & F/A-18

Here we go again: another year, another plan, another mountain to climb. The Christmas break seemed all too brief, interrupted as it was by having to close out the last minute Chinese deal, and before you know it Silicon Valley is back to life and ready to rumble.

I did though manage to find time to work on processing some older images, such as the one above. Recipe roughly as follows:

1. B&W conversion layer

2. S-curve to boost contrast slightly, but mostly to pull down darker tones

3. Tinting done via a gradient map that's set up just to affect mid- and upper-tones whilst leaving darks and highlights unaffected. Blend mode set to "color" and opacity at around 50% in this case.

4. Bit of dodging and burning, mostly to brighten the skull-and-crossbones.

Here's to 2009, whatever it may bring. However, given the on-going Israeli incursion into Gaza, starting the year with a picture of two warplanes doesn't seen wholly inappropriate. After all, it's hard to see that this year will be the one in which peace on earth finally arrives ...

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!

Merry Christmas

Eric Gill, 1882-1940

"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!

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??

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 ....

Still Doing It Wrong

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

Classic.

Jobs-Worth?

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?

Shocking

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.)