Archive | November, 2008

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Facebook Won’t Be Rushed Into Going Public Like Google

Posted on 29 November 2008

From [Techdirt] [Michael Masnick]

Throughout 2002 and 2003 there was a ton of speculation concerning when Google would “finally” go public. Everyone knew the company was making a lot of money and growing fast, but it wasn’t clear how big the company was nor how successful. The company’s top execs insisted that they did not want to go public and tried to avoid any discussion of it. However, in early 2004, the company tripped a specific level that required them to start reporting their earnings publicly. If you have over 500 shareholders, even as a private company, you are required to file earnings reports, just as if you were a public company — and at that point, Google execs realized there was no additional benefit in remaining private. So that single event pushed Google to finally IPO, and some were beginning to wonder if the same might push Facebook into an oncoming IPO.

It looks like that won’t be happening.

Facebook’s lawyers requested and received a special exemption from the SEC, allowing the company to not report its earnings publicly, even if it goes over 500 shareholders (which is likely to happen relatively soon). The exemption will remain in place until the company decides to go public or is acquired. You have to think that some folks at Google are kicking themselves for not trying to do the same thing. Either way, it’s pretty clear that Facebook doesn’t have the financial numbers that Google had at the time it went public, either — so forcing Facebook to go public at this time probably would have made a lot less sense than it did for Google, who had fantastic earnings.

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5 Tips for Startups and Entrepreneurs

Posted on 21 November 2008

From ReadWriteWeb

Startups – want to be innovative? Go back to the garage. That’s the message venture capitalists at the Dow Jones VentureWire Technology Showcase in Redwood City CA today, are offering to entrepreneurs and startups.

In the midst of one of the worst economic crises the world has seen, investors are in the main optimistic, and agree that to weather this storm and come out on top, today’s entrepreneur’s need to change their mindset and go back to basics: go back to the garage, and success will follow.


Citi analyst Mark Mahaney explained that today’s market brings new opportunities if you’re willing to look for them. In the late 90’s when all looked bleak, one company that broke through was eBay(EBAY); it went public in the fall of 98. “While the bar is exceptionally high right now, it doesn’t mean someone can’t break through it.”

Pointing out that even though this is going to be a tough period, William Tai, Charles River Ventures anticipates the companies that will show up in VC portfolios will be born now. “If you look at returns on venture funds that were invested during a recession, they offered the best return. Companies that are being built now have fewer competitors, have the ability to address bigger markets and can hire high quality people that charge less.”

Five Tips for Startups and Entrepreneurs

1. Don’t focus on growth; focus on cash preservation

David Cowan, Bessemer Venture Partners, recommends companies move toward cash preservation rather than growth. “Spend less time worrying about what competitors will do in terms of features, it won’t be your biggest problem because competitors will have same issues in terms of growth,” he said. “Move toward cash preservation.”

2. Work out how to monetize social networks

Mahaney said the opportunities he sees are in social networks. “At the moment, no one has figured out how to monetize them, but they can – absolutely,” he said.

3. Don’t make new commitments, look for opportunities in mobile technology

Cowan also recommends to avoid new commitments, and to make money he suggests looking at new ways to use media. Taking out his iPhone, he played a tune for the audience using the new Ocarina application. “Six people developed this and it’s sold tens of thousands.” This is only one idea; there are lots of creative ways to use the Internet and mobiles.

4. Strike while there is less competition

Tai sees opportunity in going forward, and is most excited about Internet technologies, mobile and open source. “Everything is bigger and happens faster when stuff hits in this environment,” he said. In the environment of a few years ago, you’d have 20-50 competitors; in this market you have fewer competitors and an opportunity to shine.

5 Look to the virtual world and expect to nurture your product for 7 – 8 years

Basil Horangic, North Bridge Venture Partners said that they’re seeing excellent growth in companies that are working on social networks, virtual world space and the monetization for virtual goods. “There is a lot of innovation in those areas,” he said. As for startups looking to be acquired, he tells the audience that the data shows companies go public and get sold at seven or eight years of age.

google_garage_1998_nov_08.jpg

Page and Brin in Wojcicki’s garage, 232 Santa Margarita Ave, Menlo Park CA

If a simple garage was good enough for Larry Page and Sergey Brin to start goliath search engine Google, it should be good enough for new startups trying to break out at a time when the odds are against them. So the advice of the day? Stop paying $5 for a latte, invest in a basic coffee machine and start innovating.

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Google Chrome… updates without asking.

Posted on 17 November 2008


Last time I took apart the Google Chrome setup experience and came away disappointed that the Google Updater got left behind. This morning the Google Updater had another surprise. Well, it isn't so much a surprise as it is a departure from the norm and I'm curious what you all think about it.

 

The background.

The story actually starts a few days ago when there was a discussion on some mailing lists about the easiest way to crash Google Chrome. All you had to do was type ":%" into the address bar and the whole thing would blow up. However, this morning someone noted that the crash no longer happened but was baffled since nothing had changed. It turned out that Google Chrome had been updated silently.

The details.

It turned out that ZDNet Australia had already run down the story that included a couple nice quotes from a Google representative:

Google knows best

Without a manual check, Chrome will update itself automatically, Google said. "Google Chrome will automatically checks for updates approximately every five hours. If an update is available, it will be downloaded and applied at the next browser restart," Google said.

Google believes it's best if Chrome applies security updates not only without a description of what's changing, but also without an opportunity for users to decide whether to accept the patch.

"Users do not get a notification when they are updated … When there are security fixes, it's crucial that we update our users as quickly as possible in order to keep them safe. Thus, it's important for us to not require user intervention," the company said in a statement.

My reflection.

Clearly fixing any security issues in the browser is paramount. But does the need for distributing security updates and bug fixes trump the user control over the software? The Google Chrome EULA grants Google the right to do just that. In fact, the update clause has its own top level number.  Number 12:

12. Software updates

12.1 The Software which you use may automatically download and install updates from time to time from Google. These updates are designed to improve, enhance and further develop the Services and may take the form of bug fixes, enhanced functions, new software modules and completely new versions. You agree to receive such updates (and permit Google to deliver these to you) as part of your use of the Services.

But just because Google says, in an electronic document that most users never read, that they may push new software to your computer does that mean they should do so without informing the user?

I can tell you that no Microsoft legal representative I've talked with has ever allowed such a clause in a Microsoft product. By default, the user must always be notified that an update is available and/or required. The user must also accept the update before it can be applied. If the user chooses not to accept a required update then the product may choose not start but a silent update is never an option.

But I've argued (unsuccessfully) that updates should be automatic and silent by default. Of course, users should be provided the option to opt-out and require notification/approval of updates. And, of course, group policy should be respected so that businesses can manage their desktops.

Personally, I think that Google has gone a bit too far requiring silent and automatic updates. I think their current outlook will slow their adoption in enterprises (if that was even a goal for Google Chrome). Time will tell if anyone really complains about the updates. My prediction is there won't be unless Google silently updates to a bad/broken behavior.

My question.

So, what do you think about this automatic and silent update behavior?

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One Account to Rule Them All

Posted on 17 November 2008

A new service combines many ways of communicating.


Thanks to the constant advance of communications technology, there are now more ways than ever to reach the people you know. But this doesn't necessarily mean that life's more convenient. Checking every account for new messages can be tedious and time consuming, and nowadays many people have multiple telephone numbers, e-mail addresses, and instant-messaging accounts–even several social-networking identities. TelCentris, a company based in San Diego, hopes to untangle this mess by providing VoxOx, a single piece of software that can be used to communicate with contacts in a wide variety of ways.

Unifying communications tools is hardly a new idea. Over the years, several popular instant-messaging clients have been developed to let users from one network chat with those from others. And as cell-phone use has grown, companies like Grand Central (now owned by Google) andRibbit (now owned by BT) have focused on bringing together multiple phone numbers. The idea has proved especially popular in the business world, with companies such as IBM building products that combine a variety of communications tools–voice mail, IM, Web conferencing–with business applications like Lotus Notes.

VoxOx continues this trend but offers a more exhaustive list of services. It allows users to send e-mail and instant messages, send text messages, host video conferences, make phone calls, post messages to social networks, and even share files–all from the same place.

Rebecca Swensen, a research analyst with IDC, says that the product is interesting and ambitious. She cautions that "they're still working out the kinks in terms of how to make it easy to use." Swensen also questions whether consumers will be willing to put in the effort required to configure a service like this. Although ultimately, the service might make one's life a little easier, she says, it's a fairly big commitment to start using a new service, and to get all contacts loaded in and sorted out.

Michael Faught, chief financial officer with VoxOx, says that the service is, initially at least, aimed at younger users who "are confronted with this chaotic world of many kinds of communication tools." Faught sees social networks as compounding the problem and says that there's no simple, efficient solution. 

A  preview release of VoxOx was launched last week and can be downloaded for free for both Windows and Mac computers. After signing up for an account, a user is given a free VoxOx phone number and configures the rest of the service by providing usernames and passwords for compatible IM, e-mail, and social-networking accounts. VoxOx pulls in these contacts, allowing the user to scroll through a composite list and select whom to talk to and how. In some ways, VoxOx functions like a powerful instant-messaging application. Whether messages are sent as texts, instant messages, or e-mails, the conversation pops up onscreen like an IM. A user gets two free hours of calling time within the United States and Canada when she signs up, and has the option to pay for more minutes or earn them by watching ads.

VoxOx can afford to hand out phone numbers for free because it is owned by TelCentris, a communications company with existing infrastructure, says CEO Bryan Hertz. The center of the company's technology, Hertz adds, is a hub that includes support for a wide variety of communications protocols, which can be extended to include many more. "For every type of communications protocol that's an open standard, we either support it already or are integrating it into the platform," he says.

Hertz believes that the real power of the service is its ability to unify different mediums–for example, when a VoxOx user creates a three-way conference call, adding one person on a mobile phone and another on a VoIP call. However, the company acknowledges that there are bugs to be worked out. Some users have reported problems making and receiving calls, while others have posted requests on the company's forums for support for Linux and Facebook Chat. Hertz says that the company is now focused on responding to this feedback and plans to introduce more features and support soon. The company also plans to launch a version of the application for business users in early 2009.

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Google Is Taking Questions (Spoken, via iPhone)

Posted on 14 November 2008

Peter DaSilva for The New York Times

Google’s voice search software works only with iPhones, but the company plans to make it available to other phones.

Peter DaSilva for The New York Times

Vic Gundotra, right, and Gummi Hafsteinsson, of Google, with an iPhone running the voice search.

Users of the free application, which Apple is expected to make available as soon as Friday through its iTunes store, can place the phone to their ear and ask virtually any question, like “Where’s the nearest Starbucks?” or “How tall is Mount Everest?” The sound is converted to a digital file and sent to Google’s servers, which try to determine the words spoken and pass them along to the Google search engine.

The search results, which may be displayed in just seconds on a fast wireless network, will at times include local information, taking advantage of iPhone features that let it determine its location.

The ability to recognize just about any phrase from any person has long been the supreme goal of artificial intelligence researchers looking for ways to make man-machine interactions more natural. Systems that can do this have recently started making their way into commercial products.

Both Yahoo and Microsoft already offer voice services for cellphones. The Microsoft Tellme service returns information in specific categories like directions, maps and movies. Yahoo’s oneSearch with Voice is more flexible but does not appear to be as accurate as Goog
le’s offering. The Google system is far from perfect, and it can return queries that appear as gibberish. Google executives declined to estimate how often the service gets it right, but they said they believed it was easily accurate enough to be useful to people who wanted to avoid tapping out their queries on the iPhone’s touch-screen keyboard.

The service can be used to get restaurant recommendations and driving directions, look up contacts in the iPhone’s address book or just settle arguments in bars. The query “What is the best pizza restaurant in Noe Valley?” returns a list of three restaurants in that San Francisco neighborhood, each with starred reviews from Google users and links to click for phone numbers and directions.

Raj Reddy, an artificial intelligence researcher at Carnegie Mellon University who has done pioneering work in voice recognition, said Google’s advantage in this field was the ability to store and analyze vast amounts of data. “Whatever they introduce now, it will greatly increase in accuracy in three or six months,” he said.

“It’s important to understand that machine recognition will never be perfect,” Mr. Reddy added. “The question is, How close can they come to human performance?” For Google the technology is critical to its next assault on the world of advertising. Google executives said location-based queries would make it possible to charge higher rates for advertisements from nearby businesses, for example, although it is not selling such ads now.

As with other Google products the service is freely available to consumers, and the company plans to eventually make it available for phones other than the iPhone.

“We are dramatically increasing value to the advertiser through location and voice,” said Vic Gundotra, a former Microsoft executive who now heads Google’s mobile businesses.

Google is by no means the only company working toward more advanced speech recognition capabilities. So-called voice response technology is now routinely used in telephone answering systems and in other consumer services and products. These systems, however, often have trouble with the complexities of free-form language and usually offer only a limited range of responses to queries.

Several weeks ago Adobe added voice recognition technology developed by Autonomy, a British firm, to its Creative Suite software, allowing it to generate transcripts of video and audio recordings with a high degree of accuracy.

Mr. Gundotra said Google had been tackling the twin problems of entering and retrieving information with hand-held wireless devices.

“Solving those two problems in a world-class way is our goal,” he said.

The new iPhone search capability is not the first speech offering from Google. In March, it announced that GOOG-411, an experimental directory information service, had turned into a real product. The service allows users to ask for business phone and address information. The company said it had built on its experience and the data it collected through GOOG-411 in developing the iPhone service.

The new service is an example of the way Google tries to blend basic computer science research with product engineering. The company has hired many of the best speech recognition researchers in the world and now has teams working on different aspects of the problem in New York, London and its headquarters in Mountain View, Calif.

An intriguing part of the overall design of the service was contributed by a Google researcher in London, who found a way to use the iPhone accelerometer — the device that senses how the phone is held — to set the software to “listen” mode when the phone is raised to the user’s ear.

Google researchers said that another of its advantages over competitors was the billions of queries its users have made over the years.

“One thing that has changed is the amount of computation and the amount of data that is available,” said Mike Cohen, a speech research who was co-founder of Nuance Communications before coming to Google.

Past queries can be used to build a statistical model of the way words are frequently strung together, Mr. Cohen said. This is just one of the components of the speech recognition system, which also includes a sound analysis model and a mechanism for linking the basic components of language to actual words.

Google recently published a technical paper on building large models for machine translation of language. The researchers wrote that they had trained the system on two trillion “tokens,” or words.

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Two Mobile Operating Systems, One Phone

Posted on 13 November 2008

From [ReadWriteWeb] [Sarah Perez]

VMware Brings Virtualization To Mobile Phones

VMware, a company known for their virtualization software for the desktop and datacenter, recently announced their plans to bring that software to mobile phones through their new VMware Mobile Virtualization Platform (MVP). The software is built on technology the company acquired from Trango Virtual Processors just last month. With this new technology, you would no longer have to carry both a work phone and a personal phone. Instead, your I.T. department could just deploy the corporate phone’s profile to your personal device where it would then run in a virtualized space.


The VMware MVP is software that can be embedded on a mobile phone to provide the platform for running a virtualized mobile OS and its accompanying applications. VMware claims that this software would run efficiently even on low-power-consuming and memory-constrained phones.

For mobile phone users, the benefits of mobile phone virtualization mean they can run multiple profiles on one device. It also means that an entire mobile phone’s persona – including applications, photos, videos, music, email, etc. – can be easily ported from one device to the next.

For manufacturers, virtualization means they can deploy their software to a wide variety of phones without having to worry about the underlying hardware. It would also allow handset vendors to run their “trusted services” like DRM, authentication, and billing in tamper-proof virtualized environments.

According to Monica Basso, research vice president, at Gartner, virtualization for mobile devices is the next big thing. “We predict that by 2012, more than 50% of new smart phones shipped will be virtualized,” she says.

Of course the unanswered question here is the one everyone wants to know: will VMware’s MVP run as an iPhone app?

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Google Uses Searches to Track Flu’s Spread

Posted on 12 November 2008


Published: November 11, 2008

SAN FRANCISCO — There is a new common symptom of the flu, in addition to the usual aches, coughs, fevers and sore throats. Turns out a lot of ailing Americans enter phrases like “flu symptoms” intoGoogle and other search engines before they call their doctors.

Related

Times Topics: Google Inc.

Health Guide: The Flu »

 Backstory With The Times's Miguel Helft

Readers' Comments

Readers shared their thoughts on this article.

That simple act, multiplied across millions of keyboards in homes around the country, has given rise to a new early warning system for fast-spreading flu outbreaks, called Google Flu Trends.

Tests of the new Web tool from Google.org, the company’s philanthropic unit, suggest that it may be able to detect regional outbreaks of the flu a week to 10 days before they are reported by the Centers for Disease Control and Prevention.

In early February, for example, the C.D.C. reported that the flu cases had recently spiked in the mid-Atlantic states. But Google says its search data show a spike in queries about flu symptoms two weeks before that report was released. Its new service at google.org/flutrends analyzes those searches as they come in, creating graphs and maps of the country that, ideally, will show where the flu is spreading.

The C.D.C. reports are slower because they rely on data collected and compiled from thousands of health care providers, labs and other sources. Some public health experts say the Google data could help accelerate the response of doctors, hospitals and public health officials to a nasty flu season, reducing the spread of the disease and, potentially, saving lives.

“The earlier the warning, the earlier prevention and control measures can be put in place, and this could prevent cases of influenza,” said Dr. Lyn Finelli, lead for surveillance at the influenza division of the C.D.C. From 5 to 20 percent of the nation’s population contracts the flu each year, she said, leading to roughly 36,000 deaths on average.

The service covers only the United States, but Google is hoping to eventually use the same technique to help track influenza and other diseases worldwide.

“From a technological perspective, it is the beginning,” said Eric E. Schmidt, Google’s chief executive.

The premise behind Google Flu Trends — what appears to be a fruitful marriage of mob behavior and medicine — has been validated by an unrelated study indicating that the data collected by Yahoo, Google’s main rival in Internet search, can also help with early detection of the flu.

“In theory, we could use this stream of information to learn about other disease trends as well,” said Dr. Philip M. Polgreen, assistant professor of medicine and epidemiology at theUniversity of Iowa and an author of the study based on Yahoo’s data.

Still, some public health officials note that many health departments already use other approaches, like gathering data from visits to emergency rooms, to keeping daily tabs on disease trends in their communities.

“We don’t have any evidence that this is more timely than our emergency room data,” said Dr. Farzad Mostashari, assistant commissioner of the Department of Health and Mental Hygiene in New York City.

If Google provided health officials with details of the system’s workings so that it could be validated scientifically, the data could serve as an additional, free way to detect influenza, said Dr. Mostashari, who is also chairman of the International Society for Disease Surveillance.

A paper on the methodology of Google Flu Trends is expected to be published in the journal Nature.

Researchers have long said that the material published on the Web amounts to a form of “collective intelligence” that can be used to spot trends and make predictions.

But the data collected by search engines is particularly powerful, because the keywords and phrases that people type into them represent their most immediate intentions. People may search for “Kauai hotel” when they are planning a vacation and
for “foreclosure” when they have trouble with their mortgage. Those queries express the world’s collective desires and needs, its wants and likes.

Internal research at Yahoo suggests that increases in searches for certain terms can help forecast what technology products will be hits, for instance. Yahoo has begun using search traffic to help it decide what material to feature on its site.

Two years ago, Google began opening its search data trove through Google Trends, a tool that allows anyone to track the relative popularity of search terms. Google also offers more sophisticated search traffic tools that marketers can use to fine-tune ad campaigns. And internally, the company has tested the use of search data to reach conclusions about economic, marketing and entertainment trends.

“Most forecasting is basically trend extrapolation,” said Hal Varian, Google’s chief economist. “This works remarkably well, but tends to miss turning points, times when the data changes direction. Our hope is that Google data might help with this problem.”

Prabhakar Raghavan, who is in charge of Yahoo Labs and the company’s search strategy, also said search data could be valuable for forecasters and scientists, but privacy concerns had generally stopped it from sharing it with outside academics.

Google Flu Trends avoids privacy pitfalls by relying only on aggregated data that cannot be traced to individual searchers. To develop the service, Google’s engineers devised a basket of keywords and phrases related to the flu, including thermometer, flu symptoms,muscle aches, chest congestion and many others.

Google then dug into its database, extracted five years of data on those queries and mapped it onto the C.D.C.’s reports of influenzalike illness. Google found a strong correlation between its data and the reports from the agency, which advised it on the development of the new service.

“We know it matches very, very well in the way flu developed in the last year,” said Dr. Larry Brilliant, executive director of Google.org. Dr. Finelli of the C.D.C. and Dr. Brilliant both cautioned that the data needed to be monitored to ensure that the correlation with flu activity remained valid.

Google also says it believes the tool may help people take precautions if a disease is in their area.

Others have tried to use information collected from Internet users for public health purposes. A Web site called whoissick.org, for instance, invites people to report what ails them and superimposes the results on a map. But the site has received relatively little traffic.

HealthMap, a project affiliated with the Children’s Hospital Boston, scours the Web for articles, blog posts and newsletters to create a map that tracks emerging infectious diseasesaround the world. It is backed by Google.org, which counts the detection and prevention of diseases as one of its main philanthropic objectives.

But Google Flu Trends appears to be the first public project that uses the powerful database of a search engine to track a disease.

“This seems like a really clever way of using data that is created unintentionally by the users of Google to see patterns in the world that would otherwise be invisible,” said Thomas W. Malone, a professor at the Sloan School of Management at M.I.T. ”I think we are just scratching the surface of what’s possible with collective intelligence.”

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Hitwise: The Long Tail of Search is Much Longer Than Expected

Posted on 10 November 2008

From ReadWriteWeb] [Frederic Lardinois]

hitwise_logo_nov08.pngAccording to a recent guest post on the Hitwise blog by Dustin Woodward, a Seattle-based SEO and web analytics specialist, the long tail of search might be even long than many of us assumed. Looking at Hitwise’s data set of search terms used in the last three months, Woodward calculates that the top 1,000 search terms only account for about 10% of all search traffic. Woodward found about 14 million distinct search terms in Hitwise’s data, with ‘myspace’ still being the most popular search query.

According to Woodward, the long tail of search is in fact far longer than most other reports have assumed. The top 100 search terms account for 5.7% of all search traffic and include keywords like ‘myspace,’ ‘google,’ ‘bank of america,’ and ‘ yahoo mail.’ Those numbers are not unexpected. However, the top 1,000 search terms only account for 10.6% of all search traffic, and even the top 10,000 search terms only drive 18.5% of all search traffic.

hitwise_long_tail_search.png

Woodward also assumes that his data still underestimates the true size of the tail, as he deliberately filtered out all adult searches and only looked at data from the last three months. The fact that Hitwise relies on data from roughly 10 million U.S. users surely makes the data somewhat limited in its scope as well.

Also, looking at this data is yet another good reminder of the fact that search has replaced bookmarks and memorizing URLs for a lot of people. Most of the top search terms like ‘google,’ or ‘usps,’ are, after all, identical to their URLs.

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The New Stack: SaaS, Cloud Computing, Core Technology

Posted on 10 November 2008

During the PC era, the technology stack was controlled by Microsoft Windows and Wintel – the “Wintel” era. We are now entering a new era, called variously ‘Cloud’ or ‘SaaS’ or ‘Enterprise 2.0′.

In this era everything is different – the stack, the players and the potential for value creation. Let’s outline the basic shape of this emerging era, in particular defining what makes up the new stack.


The New Stack Has 3 Layers

At the Top – SaaS: these are the end user services that we actually interact with, such as Basecamp. This is the “final mile”. This is what we used to call application software, vertical systems or value added systems. Although SaaS is sometimes also used to describe the layer below, we prefer to label the top as SaaS and the middle as Cloud Computing. Typically this layer has had thousands of companies. These are our bootstrapped Gritty Entrepreneurs.

In the Middle – Cloud Computing: this is the Cloud where we witness the “sound and fury” of BigCos battling it out – Amazon, Google, Microsoft, IBM and others. This layer is the most fluid and where all the deals are. This layer can be seen as two layers, but the difference is very blurry. Some SaaS companies create some “middleware” that they position in this layer. Some start-ups create middleware as their primary focus, with an end game of getting acquired by one of the Cloud BigCos. Over time, these will tend to get rolled up into a few big platforms that compete by providing higher levels of abstraction for developers.

At the Bottom – Core Technology: this is what we might call “traditional Silicon Valley”, hard core patent-protected technology sold to big companies that use it as part of their stack. Arista, the latest venture from Andreas Bechtolsheim falls into this category.

Spectators And Players

Most of us are spectators in the Cloud Computing game. It is fun to watch the big guys duke it out and ReadWriteWeb will continue to report on that. Entrepreneurs need to understand the strategies of the big players who will be their “platform partner”. But we all have lots of opportunities to be players at the top of the stack, in the SaaS layer. This is where there are low barriers to entry, massively reduced R&D; costs and incumbents who will be slow to embrace SaaS for fear of cannibalizing their core business.

Has The Stack Value Inverted?

Traditionally, value was at the bottom of the stack, which is why Microsoft and Intel were so dominant in the past. With a few notable exceptions like SAP, the top of the stack tended to be smaller companies.

It is possible that this has inverted, that the real value is now at the top of the stack and not at the bottom. For example, Arista will probably be very successful, but their market will be limited to the few companies who build huge data centers. Those clients will place huge orders but will also have a lot of negotiating clout.

Lock-In And Network Effects?

So maybe the value is all in the middle now? This is certainly where all the action is today. The two big questions at this layer are:

1. Lock-in? How easy will it be to move your SaaS service between Amazon AWS, Google App Engine, Microsoft Azure and other contenders? Today there is quite a lot of technical lock-in, you cannot move from one to another without some re-coding. But is that a big deal? No, because a) any Platform that jacks up prices will get hammered by their competitors and b) when you do need to move, it may require some coding changes but the move is transparent to end users. So, very little lock-in.

2. Viral Network Effects? Market leaders will get a lower cost of sale, but there is no social media viral effect at the Cloud Computing Platform layer.

Without Lock-In or Viral Network Effects, this layer will be commoditized. It will be very, very big but it will be a thin margin commodity business that is all about scale.

So The SaaS Cream Floats To The Top?

This is our theory. The value is with the small SaaS companies in the “final mile” interacting with end users. This is what we are seeing with our bootstrapped Gritty Entrepreneurs.

What About Players Across Layers?

Next week I will be at Dreamforce, the Salesforce.com annual event in San Francisco. Salesforce.com is the SaaS pioneer that defined the market. At some stage they decided that being on the top layer only was not enough and they created their Force.com “platform” on which others could create applications.

IBM also operates at many layers of the stack. But they do so with separate divisions that would be large companies in their own right.

It will be interesting to see how this stack evolves and specifically how well Salesforce.com succeeds with their mission to operate at both the top and the middle layer.

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