Search Results for: palo alto

Real Stupid

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Since we find ourselves in another Internet bubble – and, believe me, being here in Palo Alto, I'm sensing it more acutely than those in other parts of the world – I wanted to touch on a phenomenon I've witnessed recently.

As we all know, investors really never learn from their mistakes. Human behavior repeats itself, over and over again, which is pretty much the basis for using patterns for predictive value. Given the insanity of 1995-1999 and its devastating aftermath from 2000-2002, you might think investors would shun Internet stocks until, oh, about 2037. However, since LinkedIn has set everyone ablaze with excitement, the investing public is more than happy to give it another go.

I know a lot of venture capitalists, and naturally they bristle if I ever challenge the notion that the new crop of Internet darlings might not necessarily be great long-term enterprises. To a man, they state that It's Different This Time because….

+ these are real companies…..

+ with real revenues…..

+ and real profits

When I hear this, I yearn for a few awkward moments of silence and then – off in the distance, at the far side of the room – the sound of one man, slowly clapping, as if to mock what had just been uttered without one hint of irony.

Real revenues. And real profits. Whoop-dee-freaking-do. Do you want a medal or something? They act like the fact that a business is actually capable of generating a little more in revenues than expenses means they should hold a parade. It's all well and good that the business generates a profit, but…….news flash, gents!…….that's what a business is SUPPOSED to do!

I am sure that Facebook, Zynga, Groupon, LinkedIn, and a few others are going to be with us for a long, long time, and they're going to make plenty of founders and early employees rich. But excuse me if I don't get a boner about companies that manage to throw off a profit. That sort of thing was perfected a few thousand years ago.

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Android’s Surge

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When the iPhone first came out in 2007, I bought two of them. I think it's a terrific product, and I've been a loyal iPhone user for the past four years (in spite of namby-pamby Palo Alto residents being too scared of cell phone antennas to give decent coverage in this town).

There is a very surprising trend happening, however, as the graph below indicates. Simply stated:

(a) RIM is withering away……which kind of makes sense, since I've always considered Blackberries to be pretty lame;

(b) Google's Android is absolutely surging;

(c) Apple is dead-flat.

0404-ANDROID

Perhaps this is why AAPL is starting to weaken. It broke its ascending trendline last month (magenta circle), recovered to the "kiss of death" just beneath the same trendline (green circle), and has been pretty much falling ever since. Apple has basically been incapable of having any bad news for the past eight years. That had to end sometime.

0404-aapl

Color and the Mania in this Valley

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I love the free enterprise system, but I hate bubbles. They distort everything, and they bring out the worst in people. That's why, living in the Silicon Valley, the late 1990s was an unpleasant time for me. Sort of like right now.

Back in 1999, my little company, Prophet, had an office at 420 Cambridge Avenue in Palo Alto (there's just an empty lot there now). Prophet was in its seventh year of business, and I had started the company with a war chest of $3,000. It employed a dozen people, made good products, and turned a profit. It was grown organically, and I was proud of my enterprise.

Next door to us was a startup called DoDots. They appeared out of the blue and had $20,000,000 dropped into their laps for a product which – as far as I could tell – was absolutely useless. It needled me that someone could dream up an idea – – and, in my mind, a really lame idea – – and, without a single dollar of revenue, let alone profit, get a check for twenty million dollars to pursue their "dream." I admit I was a little jealous at not having that kind of cash at my disposal, particularly since I had worked hard on a legitimate enterprise for years.

Well, fast forward a year later. DoDots was LongGone. So was the money. I don't know what VC genius lost $20 million, but that was a spit in the ocean of the trillions lost in the dot-bomb bubble. And Prophet? Still chugging along, with real customers, real sales, real profits. And a real sense of relief that the insanity had ended.

Well, my friends, the insanity is back, and it's bigger than ever. But……..but………it's different this time. It always is, isn't it? Why is it different? Oh, that's easy. Just listen to any of the entrepreneurs or VCs scurrying around my town:

(a) The dot-com days were about concepts. The companies funded these days are real products with real customers.

(b) The sheer enormity of the Internet population makes it much easier to get huge. A decade ago, the web was a shadow of its current self.

(c) Look at Facebook. Look at Zynga. Look at Twitter and Groupon. You wouldn't want to miss the next big thing, would you?

There's only one Facebook, ya know. That space is taken. Same for Twitter and Groupon. Sure, there are hundreds of Groupon clones, but Groupon's won.

But let me direct your attention to a new company within walking distance of my house that got me thinking about the New New Bubble. It's a firm you may have heard of called Color.

It runs on your iPhone or Android, and here's what it looks like:

0402-color

Yeah, it's a bunch of pictures. The product is real. It's live. You can download it right now. How are the reviews of this new product shaping up?

0402-coloreviews
In case you're not acquainted with the Apple Store review system, a 1-star is the lowest rating a product can get.

Now the BFD with respect to Color is that it lets you instantly share and receive photos from everyone – utter strangers – that happen to be nearby. I can't say I've ever been inclined to know what total strangers are doing, but if you walk to downtown Palo Alto, you'll see this charmingly handwritten note taped to the entrace of their offices.

0402-colornote

So here's the kicker: these guys were handed $41 million in cash in funding. That must have been one hell of a PowerPoint presentation, huh? Oh, wait. Hold on. They didn't even bother with a PowerPoint deck. Sequoia just had them come over, describe it, and get funded. Bang. Done.

So does this market the top of the market? Good Lord, you think I'm going to be top-calling after all we've been through? No way. Frothy startup valuations could go on for years and could make the above investment look downright prudent. But what I am saying is that there's no doubt in my mind that – for the 3,289,829th time in humanity's history, we're in a bubble, and this one is going to end the same way all the other ones did.

A lot of people will get hurt. A lot of people will be disappointed. And things will get back to normal.

And people will scratch their chins, nod their heads, and solemnly vow that they've learned from this experience and will never do anything like that again.

Which is exactly when the new bubble will commence. Because people never learn. Ever. Just take a look at where we were two years ago and where we are now. People have learned zilch, and nothing has changed. If you asked a person two years ago what they thought April 2011 would look like, they'd probably assume corporations would be heavily taxed, Wall Street would be under Congress's thumb, and Lloyd Blankfein would be begging for mercy in his prison cell.

But no one learned a thing, and if anything changed, it simply changed for the betterment of Wall Street. Here on my own coast, the entire dot-bomb and Great Recession crashes have had no effect on the mentality of the people here. Everyone expects to get rich, and they expect it as a birthright.

We shall see.

No Fear

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I've been kind of irked lately at all the hand-wringing, particularly here in California, about the radiation coming from Japan. I'm a cautious chap, but it seems to me people get in a tizzy over the most irrational things. I shall cite a few examples from my own experience in years past.

Twenty years ago, there was a fire in the hills near Oakland, California. It was a pretty big fire, and it lasted a couple of days. I found out later than a friend's mother doused her roof with water as a preventative measure.

If this mother lived in the midst of the fire, sure, I could understand the precaution. But her house was at least ten miles away, as indicated by the arrow below:

0319-moraga

So I was bugged on two levels: (1) by the sheer stupidity of trying to prevent one's house catching on fire when the likelihood of a meteor striking the house was greater than the very distant fire spreading that far; (2) the waste of water. Stupid, stupid, stupid.

Since we get earthquakes here from time to time, another pet peeve of mine is the aftermath of a moderate earthquake. Invariably, two things happen:

(1) Utter morons call 911 to ask if there was an earthquake; I fervantly believe there should be a $75 surcharge, charged directly to one's phone bill, for making a 911 call that isn't an emergency. Simple, effective, and revenue-generating.

(2) The next day's newspaper is filled with accounts of what people said the earthquake felt like. "It was a jolt"……….."First it was a shake, then it was a rolling motion"………."It was like my wedding night." I mean, for God's sake, I don't need to read what an earthquake feels like, anymore than I need to know that a hurricane is windy and rainy.

I remember back in 1995, my wife and I were in Hawaii, and an earthquake struck in the Western Pacific. The tidal wave sirens shrieked, and everyone waited for the very specific time that the tidal wave came to obliterate the coastline. The appointed time came………everyone was on the high ground……….and the tidal wave came. It measured, I was told, at three inches high. How they could discern this from the regular wave action is beyond me, but thank God we were spared the ravages of a three-inch tall tsunami.

This all came to a head for me when I heard a friend had taken his entire family to "high ground", away from Palo Alto, because of the incoming tsunami. The arrow below indicates Palo Alto's location relative to the Pacific Ocean – – it's about twenty-five miles or so. Added to which, there are 1500 foot tall hills between here and there. I suppose if a 2,000 foot high wave were coming, evacuation might make sense, but in this case – – how shall I say this kindly? – – the act was unnecessary.

0319-bayarea

And the latest, of course, is the mania over iodine, which people are satisfying by buying out whole inventories of salt. This is a whole new level of idiocy. Unless you are right there in the midst of the radiation, and unless you consume huge quantities of salt, it's not going to help you. And even if it does, it only addresses a very specific kind of cancer. It's not like eating lots of salt prevents you being affected by radiation.

I'll wager that there will be hundreds of deaths – maybe even thousands – from hypertension-induced heart attacks caused by wolfing down all this salt – and not a single, solitary human life will be saved due to its intended medicinal effects. Isn't that ironic? People are literally killing themselves in order to give themselves a misplaced sense of security. I suppose people yearn to feel proactive.

Do you want to be safe? I'll tell you how to be safe. Look both ways before you cross the street. Don't drink and drive. Keep a close eye on your kids when they're swimming. Don't go out driving on New Year's Eve. Don't keep loaded firmarms in the house. Stay away from bad neighborhoods. Avoid walking alone.

But spritzing your roof for a fire that's not within eyesight? Going to higher ground for a 5-foot wave that's thirty miles from here? Choking down salt that won't do you any good? No.

Another Superpower

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This is dumb, but I wanted to share a quick anecdote.

Like anyone else, I have strengths and weaknesses. Being an overly-visual person, I'm really, really good with faces, but I'm lousy with names. I can be introduced to someone five times, and I still won't remember their name the sixth time I meet them. I never forget a face, however.

This ability to identify someone visually goes to extremes. I can spot someone at a great distance just based on how they move. And – weirdly – I can identify people just by the backs of their heads, even if they are not someone I've met before (e.g. celebrities, minor or otherwise). For instance, I was walking in the New York Hilton lobby once, and from 200 feet I could tell the person walking away was George Stephanapolous. I mean……….what's wrong with me? What kind of superpower is that?

I was reminded of this just a few minutes ago. I was driving toward the Stanford campus, and I saw a couple of guys walking down the sidewalk about a block away. They were walking away from me, and there was nothing outwardly unusual about them. However, I instantly knew one of them was Mark Zuckerberg, the founder of Facebook. I told this to my young son who was with me, and as we passed the two guys by, sure enough, the shorter one was Zuck.

This, coupled with my vibrating eyeballs, surely gives me the right to wear a cape or something. Added to which………..it is so cool to live in Palo Alto if you're a tech fan-boy like me.