The Ponderings of Woodrow

Jeff gets the Microsoft/Facebook transaction exactly right...

Jeff reflects on a recent VC industry event he attended, and addresses the Microsoft/Facebook transaction; getting it exactly right.

Lot’s of grumbling about Facebook being valued at $15 billion and “how could Microsoft do this to us?”. Let’s be clear about something, Microsoft didn’t pay $15b, they paid $240 million out of their well stocked bank vault for pole position and, as Jim Long speculated, it doubtful they spent much time on the valuation. Will Price made the most salient point about this in questioning why FB would do this to themselves considering they have made their future employees options worthless.

Think about that for just a minute, if you already have options in FB the news that the company is worth $15b in that calculation (and it’s unavoidable irrespective of what people think FB is really worth, company valuation insofar as options calculation is a rigid event driven process) is great. I would imagine there were a lot of private wealth managers descending on FB HQ to tell employees how they could collar their options even though there is no market for them at the moment.

If you have yet to be hired by FB this news is no good news because it’s not like FB is going to give you $10m in options for being a senior product manager. I can only imagine some of the awkward conversations FB has been having with prospective employees about options these days. Basically, FB made it a lot harder for themselves to hire good people who understand cap table math.

I was on a blog hiatus at the time of the Microsoft's investment in Facebook but I can tell you that I was baffled at how many people were looking at that transaction through the wrong lens. I kept hearing about the "absurdity" of the $15B valuation as though that valuation has any real-world value. As Jeff says so well, the REALITY is that Microsoft used an infinitesimal amount of its cash hoard to secure:

• A relationship with the fastest growing social network
• A call option on potential future negotiations with Facebook
• A much needed "win" against Google

Now, there are also plenty of reasons why Facebook agreed to the deal, but Jeff (channeling Will Price) does bring up an interesting point as to what this does for Facebook's ability to hire in the future. Then again, that's a problem that all companies face that scale. I'm not a VC, but intuitively it strikes me that it's rare for employee #500 to get rich on stock options at any company. Maybe my VC friends can put some meat on those bones?

Note: This is not a recommendation to buy or sell MSFT or any other security, but is merely a personal analysis to foster discussion for informational purposes only. At the time of this writing, I and/or funds I maintain discretionary control over, did maintain a long equity position in Microsoft but reserve the right to alter our holdings at any time. We also may, at times, carry derivative options on underlying positions as a hedge.

microsoft facebook jeffnolan vc software woodrow enterprise irregulars

Verizon's Any Apps, Any Device = Any Means Necessary?

  Kudos to Verizon Wireless. In what is unquestionably a bold decision, Verizon has pledged to allow the use of devices, software and applications not offered by the company itself.

• Verizon Wireless Introduces Any Apps, Any Device Option for Customers in 2008

Verizon detailed its plans yesterday in a conference call; here are the basics:

• VZ is setting up a certification lab
• Verizon will publish a set of technical specifications in early 2008
• They will hold a developers conference early in the year to help clarify specs and the certification process
• Customers will be able to provision any certified device via an 800 number or online
• Any 3rd party developer will be able to get certification
• Since devices are running off VZ's EVDO network, they must be CDMA
  • Yes, that means no iPhone (unless a CDMA version is released)
• This is not limited to telephony devices
  • Mobile data focused
  • Gaming-specific
  • Anything goes
• A "reasonable" certification fee will be required (but the terms have yet to be disclosed)

The news evoked massive reaction from all walks of life. Reactions ranged from abject skepticism to ebullient optimism. I'm no expert but I am a Verizon shareholder and can tell you my honest initial assessment:

• Of course this is about the upcoming 700 MHz auction -- Verizon management said yesterday's announcement had nothing to do with the upcoming 700 MHz auction; but that's just posturing. The simple fact is the FCC put an openness requirement into the C-block auction requirements and Verizon (and any other carrier interested in bidding) has to acquiesce because Google appears serious about making someone outbid them.

• This is about competition, not competing with Google -- Google's aggressive stance on bidding on the C-block spectrum as well as its GPhone/Android initiative certainly played a role in VZ's move; that's beyond debate. But understand that Verizon isn't merely embracing openness because of Google; it's embracing openness because it sees an opportunity to further strengthen its position against:

• AT&T, T-Mobile, et al.
• The cable operators

In fact, I wouldn't be surprised if this precedes Verizon joining Google's Open Handset Alliance. Does Google really want to be a telco provider? Or do they want to sell great devices that help them control another portion of people's information consumption? Sounds like a partnership opportunity more than competition. But Google has to be willing to pose a credible threat to that C-block spectrum in order to facilitate change; and it appears to have worked.

• Of course this is about the profits -- I have to laugh at all the critics who are skeptical of this move because they see it as a way for Verizon to protect and maximize its profits. OF COURSE it is; Verizon isn't a non-profit the last time I checked. They're a profit maximizing entity! And what's surprising is that Verizon realized, with just a minor push, that openness is actually the path of least resistance. Giving customers REAL options will help keep those customers; pretty simple stuff really.

Here's the bottom line. Whether you question VZ's motives or not is largely irrelevant. This IS a revolutionary move. And, while I think Verizon is reacting to market conditions; they are doing so far more aggressively and proactively than most have come to expect of BIG TELCO. The only way this isn't a great day for advocates of openness and network neutrality is if VZ fails to win any new C-Block spectrum and, as a result, reverses course and re-erects its walled garden. But that would be an immensely foolish move for a company that has, for some time, been the most rational and well-run U.S. telco.

Note: This is not a recommendation to buy or sell VZ or any other security, but is merely a personal analysis to foster discussion for informational purposes only. At the time of this writing, I and/or funds I maintain discretionary control over, did maintain a position in VZ but did not maintain a direct position (long or short) in any of the other publicly-traded companies mentioned. As always, we reserve the right to do so in the future. We also may, at times, carry derivative options on underlying positions as a hedge.

verizon openness platform anyapps wireless network spectrum woodrow enterprise irregulars

Intuit: The real platform play?

With all the talk of platforms of late, it occurs to me that too little is being said about Intuit and its position as arguably THE key enabler for small businesses on the Web. While Intuit's position as the dominant provider of accounting and tax preparation software and services is well understood, the company's ability to profitably leverage its position into other avenues of growth may not be.

There are myriad components toward building a successful platform and/or ecosystem; but it occurs to me that two of the most important are: SCALE and TRUST .

Intuit certainly has both in spades:

• $2.7B revenues
• 15mm TurboTax users
• 7mm QuickBooks users
• 8mm Online Banking customers

Earlier this year Intuit acquired Digital Insight, which was a transformative move (although one that has yet to be proven out); and now they follow the DGIN purchase with today's acquisition of Homestead. Creating synergies in technology mergers is no small feat, but the POTENTIAL of Intuit's acquisitions is impossible to ignore. Small business users need simple, easy-to-implement, reliable and trustworthy solutions. Intuit, Digital Insight and Homestead each, in their own ways, fit that bill.

Note: This is not a recommendation to buy or sell INTU or any other security, but is merely a personal analysis to foster discussion for informational purposes only. At the time of this writing, I and/or funds I maintain discretionary control over, did not maintain a direct position (long or short) in any of the companies mentioned but we reserve the right to do so in the future. We also may, at times, carry derivative options on underlying positions as a hedge.

intuit saas platform smb banking homestead tax woodrow enterprise irregulars

Big Tech trip over themselves to get a piece of VMWare...

By now you're well aware of the pending VMWare IPO; a deal that's going to be one of the largest tech IPOs of this decade. Ever since EMC announced plans to spin out 10% of VMWare in a public offering, just about anyone with a keyboard and an internet connection has tried to speculate on what the company's valuation will be once it starts trading.

The simplest and most truthful answer? A LOT.

But for those who want a slightly more scientific bent, let's take a look at two recent announcements from tech bellwethers Intel and Cisco.

Earlier this month, Intel Capital announced a strategic investment in VMWare:

• $218.5mm for a 2.5% equity stake
• Intel will appoint an executive to VMWare's board

Implied VMWare valuation: $8.47 billion

Today, less than three weeks after the Intel investment was disclosed, Cisco Systems jumps into the fray with its own strategic investment:

• $150.0mm for a 1.6% equity stake
• VMWare "will consider" appointing a Cisco executive to its board at a future date

Implied VMWare valuation: $9.375 billion

Cisco is no stranger to strategic investments, but it's quite telling that it was willing to accept a implied 10.7% increase in terms in less than a month with no concrete promise of board representation just to get a place at the pre-IPO table.

Virtualization is a massively important trend, and VMWare's growth trajectory is astounding. But it has to make you wonder just what price Cisco and Intel think VMWare is going to be worth when the shares are listed in the near future. Interesting times indeed.

Note: This is not a recommendation to buy or sell any publicly-traded security nor is it a recommendation to participate (or not to participate) in upcoming IPO offerings of VMWare or any other company. This discussion is merely a personal analysis to foster discussion for informational purposes only. At the time of this writing, I and/or funds I maintain discretionary control over, maintained a long equity position in CSCO and held a position in INTC convertible debentures. We did not maintain a position (long or short) in EMC. We reserve the right to initiate positions in any of these companies at any time in the future. We may, or may not, have interest in participating in the VMWare IPO or other securities listings. At times, we may maintain derivative options as a hedge on underlying positions.

vmware intel IPO investing cisco valuation virtualization emc software woodrow enterprise+irregulars

HP finds (a few) things to "ware"

Hewlett-Packard is commonly listed among the likely acquirers of software assets up for sale. Of course, HP made a big splash with its acquisition of Mercury Interactive and has openly maintained an interest in continuing to expand its software offerings.

Today, the company announced two new acquisitions: Opsware (OPSW) and Neoware (NWRE):

HP is offering $14.25 per share for a total consideration (net of cash/debt) of $1.6 billion. This represents just shy of a 39% premium to Friday's closing price, and a 33% premium over Opsware's 52-week high. This deal marks a triumphant outcome for a company that once looked destined to be swallowed up by the tech wreck of the late 90s. Founded by Marc Andreessen (Chairman) and Ben Horowitz (CEO) as Loudcloud, the company originally was part of the MSP wave. A few years ago (2002), they rebranded themselves as Opsware, sold the MSP business to EDS (who remains a large customer), and then went about selling the data center management software it created while building the MSP business.

Opsware has built out its suite of offerings over the last few years and, in the process, garnered more than 350 enterprise customers. As many of you know, this is a business that appears to have grown into a sweet spot, as the complexities of data center management have grown. From its website:

• Process Automation System -- Automates incident resolution and orchestrates change and configuration management
• Visual Application Manager -- Discovers and delivers a complete interactive map of your IT environment -- servers, software, network and storage
• Server Automation System -- Automates day-to-day management of large IT environment, easing managing of software and servers, and enabling your organization to work far more efficiently
• Network Automation System -- Ranked number-one for four years in a row, it provides the first proactive network change and configuration management solution that focuses on keeping costs contained, and quality and responsiveness high
• Opsware Network -- An optional offering that provides ongoing updates of security alerts and compliance policies
• Asset Management System -- Provides comprehensive visibility of your hardware and software assets
• Opsware OMDB -- Provides you the core foundation solution -- a comprehensive and accurate Operational Management Database

Ben Horowitz has been named the new head of HP's BTO (Business Technology Optimization) unit and will oversee both Opsware and Mercury assets, reporting to Ben Hogan. In terms of functional whitespace, Hewlett appears to be sticking to clear-cut infrastructure and tools plays, versus stepping on any applications related areas. While some may portray this as analogous to IBM's approach; there is a big difference when you consider that HP doesn't have a database or app server piece under its umbrella.

Opsware has been growing quite fast. With CY06 (Jan-07) revenues of $101.7mm represented a 66% year-over-year improvement. Excluding EDS (which is running flat at approximately $21mm annually), revenues grew north of 100% (to $80.5mm). Estimates for FY08 (CY07) show expectations of 50%+ YOY growth in the non-EDS portion.

Growth has come at the expense of profitability. On a GAAP basis, Opsware lost $16.1mm in FY07, but had guided toward NON-GAAP profitability of $0.09-$0.13 per share this fiscal year.

HP paid a "strategic" premium. With so much M&A happening, it's important to understand the distinction between deals that make pure financial sense (e.g., paying a low multiple of annual maintenance revenue and viewing the deal as attractive purely on the company maintaining its current customers) and those deals that are, instead, strategic. Clearly, HP views the Opsware deal as strategic given the multiples it's offering to pay:

• 16x EV/trailing 12 months revenues
• 10x EV/FY07 guidance ($142-$147mm)
• 110x-158x NON-GAAP forward earnings ($0.09-$0.13)
• 137x Merrill Lynch's FY08 cash flow estimate ($11.6mm)
• 47x Merrill's FY09 cash flow estimate ($34.3mm)

_____________________________________________

HP is offering $16.25 per share for a total consideration of $214mm net of cash.  Unlike Opsware, HP isn't offering a substantial premium on this acquisition. The offering price represents just 6.6% premium over Friday's closing price, and is 3.6% above its 52-week high.
This deal brings together the #2 (Neoware) and #3 (HP) makers of thin-client computing devices; and theoretically positions the company at parity with Wyse, the market leader. Wyse is privately held, so it's difficult to measure it's financial traction, but Neoware had struggled to meet Street expectations of late. Kevin Hunt, an analyst at Thomas Weisel Partners, noted that Neoware had missed his estimates for six consecutive quarters and had yet to show an improved trajectory in spite bringing in Klaus Besier as CEO several quarters ago.

Potential strategic reasons for the Neoware deal:

• Could signal a bigger push into virtualization and Linux for HP. Regardless of Neoware's financial metrics, they have been out in front of the Thin-client Linux movement and, more recently, announced a series of virtualization-oriented products.
• Removes competitive friction. Don't underestimate the power of removing a fierce competitor from the landscape. While HP was cautious on the call about product roadmap and migration plans, clearly this combination allows HP to generate scale and more effectively target Wyse, the market leader without having to fight against multiple fronts.
• Klaus Besier's addition. Besier ran SAP America years ago and has experience with big enterprise accounts; he should be a solid addition to the HP executive team.

_____________________________________________

A few takeaways and parting questions about today's deals:

1. HP clearly isn't afraid to pay a full valuation for companies it views as strategic. Paying 10x forward revenue for Opsware, a marginally profitable company, is clearly a bet on strategic value. And while Neoware's 2x/EV/sales doesn't appear lofty, given the company's revenue and earning trajectory, it too is a bet that HP can turn thing around and squeeze more juice from the fruit.
   
2. Why a conference call on Neoware but not Opsware?  I'm left to wonder why HP hosted a conference call today to discuss the Neoware transaction ($214 million) while eschewing a call for Opsware ($1.6B purchase)?
3. More deals to follow? The aggressiveness of disclosing both of these deals simultaneously and comments made today by HP executives signals they will continue to look for more targets if the price and strategic fit make sense.
4. Will HP round out its infrastructure stack and, if so, with what acquisitions? The combination of Opsware (data center management) and Mercury (applications monitoring and testing) put HP in a potentially powerful position in the world of systems management, but what are its intentions in other areas like app server, database, content management and enterprise security?
5. What does this mean for BladeLogic, and its pending IPO? It's curious timing that Opsware should be acquired just a day or two before BladeLogic, its closest comparable, is set to list its shares (proposed symbol: BLOG). Given the multiple Opsware went out for, BladeLogic has reason to smile it would seem. But will the company list its shares as planned, or does this portend a potential private buyout before we public equity investors get a chance to stake our claim?
6. Marc Andreessen can now focus on Ning (and his blog).  Andreessen has been serving as Chairman of Opsware while also running Ning and, of course, writing a damn good blog. Presumably he'll now have more time to focus on building out Ning and going for the entrepreneurial trifecta (i.e., Netscape, Opsware, Ning).
7. Don't underestimate the importance of the virtualization play. With the VMWare IPO looming, you can be sure that plenty of companies will continue to draw awareness to their roles in the burgeoning virtualization landscape. I expect a LOT more virtualization news, rhetoric, product announcements and M&A activity in the coming 12-24 months.

Related Posts:

• Vignette loses a CEO, HP gains a division head
• Vignette gets the M&A ball rolling

Note: This is not a recommendation to buy or sell any publicly-traded security. This discussion is merely a personal analysis to foster discussion for informational purposes only. At the time of this writing, I and/or funds I maintain discretionary control over, did not maintain a position (long or short) in BladeLogic, EMC, HPQ, IBM, OPSW or NWRE. We reserve the right to initiate positions in any of these companies at any time in the future. At times, we may maintain derivative options as a hedge on underlying positions.

opsware neoware m&a investing datacenter thinclient hp hewlettpackard consolidation bladelogic andreessen ning woodrow enterprise+irregulars

NetSuite IPO...Another SaaS horseman braves the public markets

NetSuite filed its S-1 this week, with an eye toward an IPO in September if the market conditions permit. The SaaS darling is looking to raise up to $75mm; Credit Suisse is the book runner and WR Hambrecht + Co is co-managing the deal. This is interesting for two reasons:

1) To those who think sell-side analysts don't play a role in the investment banking process, it's interesting that Jason Maynard's firm got the lead. Maynard has been way out in front of the SaaS world, including publishing a meaty research primer on the sector which has long been a prerequisite for firms that want to prove their mettle and expertise in a given space.

2) The selection of WR Hambrecht is a coup and undoubtedly relates to their expertise handling the Google auction. You see, NetSuite is taking a page out of Google and will hold an auction instead of the traditional IPO listing most are familiar with.

As you can imagine, this long-awaited offering garnered a ton of press in the last few days. Many of the mainstream stories are fixated on Larry Ellison's majority stake, yet few that I've seen have bothered to articulate why that's of any consequence.

Dissecting Ellison's Majority Stake

I was well aware of the fact Ellison and his family owned a majority position in the company, but even I was surprised at the magnitude of his position. As of March 31st, Larry Ellison and related parties owned 74.1% of the company:

• Larry Ellison -- 649mm shares (61.1%)
• Trustee for David Eillson (Larry's son) -- 69mm shares (6.5%)
• Trustee for Margaret Ellison (Larry's daughter) -- 69mm shares (6.5%)

Why does this matter?

1. Post IPO, Ellison will retain majority control. As a result, public shareholders will not have a material say in the governance of the company. Larry will still be able to make quasi-unilateral decisions and is under no obligation to create a truly independent board of directors. From the S-1:
   
   • As a result, Mr. Ellison and entities with which he is affiliated will be able to exercise control over most matters requiring approval by our stockholders, including:
       •   the election of directors;
       •   amending our Certificate of Incorporation;
       •   approval of significant corporate transactions, including a change of control;
       •   executive and director compensation plans, including equity compensation plans;
       •   issuing additional shares of capital stock; or
       •   commencing a liquidation.
2. While not a certainty, historically companies have been afforded a lower valuation than their comparable peers when they are captive
3. The ties to Oracle, itself with grand designs on the On Demand software market, will be hard to ignore as a real risk factor as long as Larry has controlling interest (imagine if you will Larry deciding to sell a major piece of the company in a privately negotiated transaction to Oracle, for example)

Nuggets from the S-1

• One Data Center -- I was surprised to learn that NetSuite currently operates its entire business out of one 3rd part data center in California. We host our services and serve all of our customers from a single third-party data center facility located in California. We do not control the operation of this facility. [cont]...[cont] We do not currently operate or maintain a backup data center for any of our services or for any of our customers’ data, which increases our vulnerability to interruptions or delays in our service. They have no redundancy which astounds me when you consider the company has 5,300 customers and $67mm in 2006 revenues and runs a utility computing model
• Staged Releases -- Unlike other SaaS companies that deploy major new releases to all customers at once, we roll out all major releases and many upgrades of our application suite to a portion of our customer base at any one time. This “phased release process” is designed to allow us to mitigate the impact of major changes and new releases, ensuring that any potential issues affect only a portion of our customers before they are addressed. Quite the contrast from SfDC, which prides itself on simultaneous release cycles.
• Principal Competitors List -- It's always fun to see who a company lists as its principal competitors. Lest you think this is a random sampling, I can assure you that every admission and omission is carefully calculated. So who does NetSuite list as its competition? Our principal competitors include Epicor Software Corporation, Intuit Inc., Microsoft Corporation, SAP, The Sage Group plc and salesforce.com, inc. The omission of Oracle is amusing and inaccurate (if SAP is a competitor, so too is Oracle). I give the company credit for listing Intuit, which I maintain is their most direct competition. Of course, NetSuite and the investment community are more likely going to compare the company to Salesforce, for obvious reasons.

The Inevitable Comparisons to Salesforce.com

Back in March of last year, I profiled NetSuite and handicapped its potential IPO, comparing it to salesforce.com. I'm pleased to see that many of my suppositions have proven accurate. Regardless of whether NetSuite and salesforce are really competing for deals (they don't very often), it's inevitable that from here on out, the two companies will be compared and contrasted against one another by the investment community. Many investors have been waiting for another pure-play SaaS vendor to hit the market, and now we're finally going to get what we asked for.

• Revenues at time of filing -- NetSuite reported 2006 revenues of $67.2mm, representing 85% year-over-year growth. March '07 results were $23.2mm, representing 72% growth. Compare that to Salesforce's numbers in 2004 when it files its S-1. It was coming off a $96mm year representing 88% growth. Don't underestimate the importance of NetSuite's June quarter results (which we will see in a subsequent S-1 amendment I'm sure). Although the company is growing incredibly fast, Q1 hinted at deceleration and investors will want to see that June results don't show further deceleration.
  
• Net profitability at the time of filing -- NetSuite is decidedly unprofitable. The company posted a 16% operating loss margin in March, and a 34% loss margin in 2006; compared to Salesforce.com's 3.9% operating profit margin.
• Current metrics -- It's hard to ignore the disparity in size between the two companies.
  • 2006 Revenues: SfDC -- $497mm (60% YOY) vs. NetSuite -- $67mm (85% YOY)
  • 4Q Annual Run Rate (As of most recent Q): SfDC -- $648mm vs. NetSuite -- $93mm
  • Customers: SfDC -- 32,300 vs. NetSuite -- 5,300

The size disparity is particularly interesting when you consider that NetSuite was founded in 1998 versus salesforce.com, which was founded in 1999. The fact that Marc Benioff's firm has been able to grow to be 7x larger over a similar time span raises broad questions:

1. Does being a publicly traded company make that much of a difference? NetSuite will argue as much, and certainly the ability to compensate talent with stock options and restricted stock grants is a factor in driving a growth company, but by itself this wouldn't seem to argue for the size disparity
2. Is this evidence of the more entrenched nature of on premise back office ERP functionality? Does the fact that NetSuite is 7x smaller than SfDC indicate demand for back-office SaaS pales in comparison to front-office SaaS? In aggregate, back-office ERP is several orders of magnitude larger than front-office SFA, yet uptake of SaaS appears far less pervasive.
3. Is the size disparity an indication of customer size? According to NetSuite's filing, they target the SMB channel, defined as companies with up to 1,000 employees. While that's an important part of SfDC's market, as well, they have been successful winning deals in larger enterprises, too. Does NetSuite need to prove an ability to scale in order to close the revenue gap?

Important metrics we've yet to be provided with:
There are variables to the NetSuite equation that we've not yet been provided with. I'm sure they will fill in the blanks in subsequent S-1 amendments, and will do the obligatory IPO deal roadshow when the time is right. In the meantime, here are a list of metrics that I would like to see from the company:

• Net new customer additions
• Net subscribers (we know they have 5,300 customers, but how many users?)
• Average revenue per customer (either annualized or quarterly)
• Pricing (e.g., per module? incremental pricing for platform? higher pricing for better SLAs?)
• Average contract length (the company has said it's been focusing more on 1-year deals of late)

What's NetSuite Worth?

I won't presume to tell you what NetSuite will, or should be worth at IPO. We have no idea what overall market conditions will be like at listing, what the institutional demand will be, how the auction process will alter the IPO pricing, or what NetSuite's forward-looking guidance will be. For the sake of comparison, here are a sampling of enterprise value/revenue estimates for publicly-traded SaaS companies, provided by Brent Thill's team at Citigroup:

• Concur (CNQR): $860mm market cap, 6.8x '07E revenues, 5.3x '08E revenues
• Salesforce.com (CRM): $5.0b market cap, 6.3x '07E revenues, 4.6x '08E revenues
• Omniture (OMTR): $1.1b market cap, 7.6x '07E revenues, 5.1x '08E revenues
• RightNow (RNOW): $540mm market cap, 3.9x '07E revenues, 2.9x '08E revenues
• Ultimate (ULTI): $725mm market cap, 4.5x '07E revenues, 3.8x '08E revenues
• Average '07E revenue multiple: 5.8x
• Average '08E revenue multiple: 4.3x

Remember, NetSuite is an entirely different company with a different growth rate (both historically and going forward), a different addressable market, and we have yet to see how NetSuite will approach margins and cash flow generation. Investors may opt to value NetSuite on entirely different metrics, and may also choose to assign a different multiple that lies outside the bounds of this theoretical analysis.

Related Materials:

• NetSuite S-1 (SEC.gov)
• NetSuite Ponders IPO (Ponderings of Woodrow)
• NetSuite Preps Long-Awaited IPO (Larry Dignan)
• NetSuite IPO will soon cost me (Zoli Erdos)
• NetSuite IPO: Why Now? (Phil Wainewright)
• NetSuite files for IPO (Sadagopan)

Note: This is not a recommendation to buy or sell any publicly-traded security nor is it a recommendation to participate (or not to participate) in upcoming IPO offerings of NetSuite or any other company. This discussion is merely a personal analysis to foster discussion for informational purposes only. At the time of this writing, I and/or funds I maintain discretionary control over, maintained a long equity position in CRM but did not maintain a position (long or short) in any of the other companies mentioned including. We reserve the right to initiate positions in any of these companies at any time in the future. We may, or may not, have interest in participating in the NetSuite IPO or other securities listings. At times, we may maintain derivative options as a hedge on underlying positions.

netsuite s-1 IPO investing ondemand saas erp applications software M&A woodrow enterprise+irregulars

Two bloggers that deserve your attention...

I have upwards of 400 blogs in my RSS reader, and try to turnover my feeds with a fair amount of frequency. There are, of course, a core group of mainstays and it's always a very gratifying experience when I come across a new blogger that is such a find, I feel compelled to spread the word.

Today, I have not one but two bloggers to call attention to:

• Marc Andreessen -- Chances are if you're reading The Ponderings of Woodrow, you are already reading Marc's blog, too. You also don't need an introduction to Marc, who helped create a little something called the web browser and more recently co-founded Opsware (OPSW) and Ning. Andreessen is off to a world-class start with a series of deep, lengthy and thoughtful posts that run the gamut of topics. His Facebook Platform analysis first caught my attention, but I'm still waiting for him to write a post that could be classified as fluff. Another personal favorite, his analogy to big enterprise and Moby Dick.

• John Hagel -- Hat tip to Charlie Wood for this one, but John Hagel has been blogging for almost a year. He's not a frequent blogger, but he falls into the quality over quantity camp. Hagel recently accepted a position with Deloitte to establish a new research center in the Silicon Valley, examining the intersection of IT and business strategy. Hagel's most recent missive, Unanswered Questions at Supernova 2007, helps set the groundwork for the questions he'll be looking to answer in the coming days, months, and weeks.

Note: This is not a recommendation to buy or sell any security, but is merely a personal analysis to foster discussion for informational purposes only. At the time of this writing, I and/or funds I maintain discretionary control over, did not maintain a position (long or short) in OPSW.

andreessen hagel blogging recommendations woodrow enterprise+irregulars

Facebook: Now that's a platform...

Facebook has been, by any measure, a runaway success story. Yet, because of its original nature [exclusively for college students], I never really peeled back the layers of the onion and figured it was something "not meant for me." But as most of you know, Facebook has opened its kimono to everyone and, in the process, has become far more accessible for old (class of '96) fogies like me.

Even so, it wasn't until the last two weeks that I've really begun to understand what Facebook represents. I've never been much of a MySpace guy, so I still had little reason to think Facebook would be beneficial for the way I network, communicate, and collaborate. That is, until I started getting invites from colleagues around the world asking me to become their Facebook friends. I would've chalked up one or two requests as random curiosity on the part of my friends, but dozens? That was worth creating a profile and checking it out.

Within minutes I could already see Facebook would be more useful to me than LinkedIn. You can add a layer of detail to your interpersonal relationships that LinkedIn has failed to embrace.

And then I read Marc Andreessen's blog post analyzing Facebook. Make no mistake, Andreessen has taken to blogging in a way few can rival. In fact, it almost pains me to read his blog now because in a matter of weeks he's mastered a form of expression I still toil at after 18 months actively blogging.

Marc does a fantastic job explaining what Facebook is, why it's far more important than many realize, and why it's only going to get more important.

[Marc's Blog] Analyzing the Facebook Platform three weeks in...

After spending some time building up my Facebook Profile and talking to colleagues about its power as a platform, my mind began racing about how Facebook (and other popular social networking sites like MySpace) is potentially disruptive in a way that many corporate focused "platforms" really aren't. I've spent a fair amount of time dissecting Salesforce.com's AppExchange, and SAP's SDN, and WebEx Connect; yet none of these hold the power that Facebook has, in my view. Despite feeling like I was onto something intuitively, I have been racking my brain to articulate why Facebook is more important than the aforementioned business platform plays.

Thanks to my good buddy Jeff, I no longer need to worry. Jeff hits the nail on the head as he posits the importance of Facebook and why it's different from other "platforms" we hear about so often in the world of enterprise software.

• [Jeff's Blog] Distribution is the new ecosystem play...

...Without question the large vendors look at Myspace and Facebook as mere toys and that reflects as much a misunderstanding of what these things are as it does the cultural disconnect that many enterprise software executives have with the broader market. They will say things like "our customers don’t use those services" without considering that while the CIO isn’t using them it’s an odds on favorite that a good number of people in the organization are.

It’s also worth pointing out that enterprise vendors consistently put themselves at the center of the universe like an aging movie star that doesn’t realize s/he is told old to play the role (think Sharon Stone in Basic Instinct 2). SAP/Oracle/Microsoft/IBM may be the gorillas in the global enterprise market but selling to 50,000 global customers out of a market of 100 million businesses (that’s a guess, I don’t know what the actual stat is) is hardly going to drive the growth each is predicting. This dovetails with something else I talk about frequently, selling to users instead of organizations.

The initiatives that each of the MISO vendors have spawned around widgets is a good start, but it’s not enough. Prosumer users really require the ability to create rich applications outside of the usual development platform, and to that degree SAP and Oracle in particular should be expanding their API support to include Facebook and Myspace integration...[cont.]

When we talk about things like "Enterprise 2.0", I think the myopic view that focuses on new tools [i.e., wikis, tools, RSS aggregators] completely misses the sea-change we're undertaking. We've all been asking ourselves when (and if?) business-centric analogs would emerge for the massively successful social networking platforms; without realizing that these sites may BE THEIR OWN BUSINESS ANALOGS.

What's going to be the Enterprisey version of Facebook? FACEBOOK.

enterprise2conf enterprise 2.0 platform facebook marcandreessen jeffnolan enterprise irregulars woodrow

Enterprise 2.0 Conference: Launch Pad 2007

Launch Pad 2007 was one of the better sessions today. Four startups get 6 minutes to make their pitch, and are then critiqued by Stowe Boyd and Dave Coleman for one minute each. It's a classic riff on the elevator pitch, and is an easily digestible way to get exposure. Frankly, I wish ALL the companies participating in the Demo Pavilion were required to do this sort of thing, a startup should be able to articulate its value proposition in a few minutes under any circumstance.

The four presenting companies were:

• Collanos --"Within minutes you can be sharing documents, having online discussions, and managing tasks, all in a single, consolidated space. Built on reliable peer-to-peer technology, Collanos Workplace software allows you to work anywhere, anytime, both online and offline."
• Clarizen -- "Clarizen enables on-demand, enterprise-grade project management for everyone. Active participation and secure cooperation lead to true team collaboration, while up-to-the-minute live knowledge helps align project data with business objectives. These unique benefits are derived through Software as a Service (SaaS) - which requires no software and no dedicated hardware - and the freedom of communication of Web 2.0."
• LiquidTalk -- "LiquidTalk, Inc. helps leading-edge companies envision and act on the revenue growth opportunities that mobile technologies present.  We create enterprise business applications for digital media devices (iPods, smart phones, etc.). Our patent-pending technology combined with our professional services enable new ways for businesses to create, organize, and distribute business content for sales enablement and employee learning and communication."
• KnowNow -- "More Fortune 1000 companies entrust KnowNow to bridge the information gap between the people and data that drive their business.  KnowNow monitors and pushes live, relevant information to users, instantly.  KnowNow’s live information management solutions increase productivity and enable timely, profitable decisions for some of the most respected organizations in the world, including AMD, BurrellesLuce, CSAA, Union Bank of California, and Wells Fargo."

Here are my raw notes from the presentations:

+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

Collanos
Cross Group Collaboration

Current Options Fall Short

• E-Mail [not good for teamwork]
• On-Demand [very broad category]
• Enterprise IT not suited for ad hoc team situation

Collanos' approach:

• Serverless Synchronized P2P Workspaces
• Install onto your computer [for a workplace]
• Invite members, synched automatically in background with other team members
  • No central server
  • Data is fully redundant b/c copy is on your machine

UI looked a lot like Outlook

• Versioning
• Doc types
• Unlimited projects

Today, we're announcing new feature set...VOICE SERVICES

• Ability to call members and start voice conference calls
• Collanos Phone, for voice and video calls also includes IM

Collanosphere...why we're a game changer
P2P approach is the way to go [not server centric solutions will always remain islands]

Workplace was released 6 months ago, getting decent coverage
Voice and video available as of today

ANALYST CRITIQUE

David: Interesting that you talked about what other companies don't do versus what you DO do. P2P is interesting, having redundant data brought up a problem with security [e.g., HIPPA compliance]...if everyone has versions on their laptops and desktop, that could be a security problem. Seeing you guys add asynchronous support is a nice improvement.

Stowe: Not sure the world needs yet another distributed, collaborative tool. Like Groove [Ray Ozzie's company], technology is P2P. I don't see how you can avoid server-side sync ultimately. Phone integration is interesting, but still maintaining a top-down group oriented look and feel to the UI and the invitation process seems undifferentiated. The world is a lot messier than that.

My Take: Far too many nebulous slides and buzzwords. I think this demo did the company a disservice in that I was left with no interest in getting to know them better. Seemed very "me too" save for the P2P angle which, as David mentioned, struck me as a tough sell in an enterprise environment.

+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

Clarizen
On-Demand, Collaborative Project Management for Your Business

18 months old company founded by execs from project management, enterprise software and On-demand markets

Key Success Factors

• Deliver on time
• Meet market needs
• Operate efficiently

What's changed in project management?

• Business environment is much more dynamic
• Projects are complex
• Static is now dynamic

What's different about Clarizen?

• Adoption
• Teamwork
• Knowledge

Combination of enterprise software and Web 2.0

Manage all projects in one place [360 degree view]
Collaborative Project Networks TM

• Share common objectives but maintain security and individuality
• Achieve True Team Collaboration
  • Shows demo of sharing email, comments, message board posts, links, documents

Provide your users with a system they love [great point!]
*** Unique email interaction

Over 100 design partners (Ford, Mindspeed, etc...)
FREE BETA [www.clarizen.com]

ANALYST CRITIQUE

Stowe: Many people have come before where you're going. How similar to what you're doing to eRoom, which was bought by Documentum, now EMC. These aren't tremendously new ideas, foldering, task lists, document sharing, been around a long time. Not bad idea, but it's not 2.0 to me.

David: These are Web 1.5 tools. Some of this, some of that. Not really all the way there. We've done a lot of work at Collaborative Strategy on CPM tools and we found the tool needs to cut down the time of interaction between the tasks. Cutting down cycle time between tasks, usually around communication
and interaction. Didn't see any real-time functionality in this, would help a whole lot.

My Take: I thought this was a much tighter presentation that hit on some important points [i.e., making tools simple and enjoyable for end users]. The demo seemed functional, and while I agree with David and Stowe that it didn't look like a 2.0 tool; that may help it in this environment where hybrid models are more digestible for IT buyers.

+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

LiquidTalk
Provide mobile knowledge for mobile workforce

Reality Check...How many of you are checking your Blackberry? [raised hands]

• Out of time, we're out of the office
• Few cracks in the day to get things done
• Few chances to connect in real time

Founded LiquidTalk to solve those problems in the workplace

Problems we solve:

1. Increasingly remote workforce...limited collaboration, knowledge transfer difficult, productivity lost during travel, commute
2. Talent acquisition...Web 2.0 generation, expect information immediacy, value place on peer input, hooked on mobile devices
3. Roles getting tougher, expectations higher...rising turnover rates, high dependency on star employees, less satisfaction

A disconnected, disengaged workforce

Mobile Workforce Engagement

• Create, find, organize and push audio/video business content to mobile devices
• Wherever, whenever
• Leverages most powerful means for collaboration
• Drives more productive teams

DEMO of the service:

• LiquidTalk portal [tabs = Library, Survey, Playlist, Media, Inbox, Home]
  • Some are automatically synced to his device
  • Others he can opt to sync
  • Others are pushed to him by his CEO
• Make it as easy as iPod [a digital briefcase in their pocket]

LiquidCast...phone in podcast [recorded on $30 bluetooth], press a button and its' uploaded into the LiquidTalk system

WENT OVER THE ALLOTED TIME

ANALYST CRITIQUE

David: A little bit more interesting. Would love to see what you do in one slide, versus 5 or 6. This struck me more as a DVR for business training and conversations. It does time shift the conversation; which is what I use my DVR for TV. You're more like Tivo for business than iTunes for business. I listen to podcasts quite often, but I don't always find it transfers knowledge, it transfers information but not knowledge.

Stowe: Expected something quite different from what your buildup was. It's intriguing but have a sense this is better as a set of features integrated into a broader application, i.e., a plug in into Salesforce.com. The notion that people have to create those files and then sync them seems like too much work for me, but if this was part of a larger process [e.g., the weekly sales update on SfDC], it would be more interesting.

My Take: The best demo so far. The CEO had real energy and spoke from a position of experience. He clearly knows the trials and tribulations a mobile sales rep faces in keeping connected with corporate information flow. I think David's analogy to Tivo was spot on, and this struck me as a tool I would gladly use and would be a great add-on for Salesforce.com [much as Stowe suggested].

+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

KnowNow
The Live Information Management Application for Today's Enterprise

VP Tech Services did the demo [worked for Epiphany and Clarify]
Has experience working and supporting software that people don't like to use

The Status Quo: Insufficient

• Email is overused...50% is junk
• Static portals are broken...<20% find portals useful
• Search isn't the answer...<50% of searches are successful

Imagine a day when Inbox doesn't equal a junk drawer

• Needs change, results change
• Information finds you
• 10 results, not 200,000
• No search button

Persistent monitoring [we don't store or move data, just track where it is in its native environment]

• 7 years old
• Strong security
• Content-based routing
• Aggregation
• Alerts/Notifications
• Filering/Matching
• Transformation
• Security

Launching KnowNow Live today at the show

Looks very much like iGoogle or NetVibes

Includes internal content [looking at a Sharepoint site]

• Project portal
• Process management
• Easy to ass content [added drag and drop for Engadget channel]
• Can view content inline

DEMO ENDED ABRUPTLY AND PREMATURELY

ANALYST CRITIQUE

Stowe: More demo and less pitch. [applause]...let the demos speak for themselves. I'm all for the core sentiment of things finding their way to me, versus me finding things. Just see you having a real hard battling the ECM guys [IBM, EMC, Microsoft] who may not provide as elegant a solution but a functional one. Like the message, but see a tough road. 9,000 other people like you in the space.

David: Originally met KnowNow 1.5 years ago at an RSS conference. In the Web 2.0 space, those who are doing aggregation will make the money. The individual functions will end up being part of services to do aggregation. Think you're following the right track there. The fact information finds you is good. I gave up doing a newsletter and use it as an RSS feed. You have a lot of good customers, is it 9x better than email.

My Take: KnowNow was doing a nice job, I thought but ran long and we didn't get to see much of the demo. I was a tad familiar with this company [unlike the other three] and it was interesting to see them moving away from their RSS-centric focus. All in all, this seems like the most mature business of the bunch, but didn't strike me as original as LiquidTalk.

+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

The audience was asked to vote for their favorite and, from memory, more than 40% chose KnowNow. I personally voted for LiquidTalk because it felt like the most focused and differentiated idea of the bunch.

enterprise2conf enterprise 2.0 IT conference enterprise irregulars woodrow

 

EI Dinner...good food, good friends, good ideas

This evening, the Enterprise Irregulars descended on La Famiglia Giorgio restaurant in Boston for a get together. As with all EI get-togethers, I was sure it would be a worthwhile experience, but tonight proved to be particularly entertaining.

• While Andrew McAfee and I may agree on the importance of Enterprise 2.0, we vehemently disagree about the place Led Zeppelin holds in the rock 'n roll pantheon
• Luckily, Andrew came to his senses when it came to ranking the Beatles (best all time) and Ray Charles (more important than Elvis) among music greats
• Virtualization is a grossly underappreciated tectonic shift in the technology landscape. Calling VMWare the most important IPO in the last five years would hardly be a stretch
• The quest for platforms continues apace, with an ever-decreasing line between consumerized portals (e.g., Facebook, MySpace) and enterprise portals (e.g., AppExchange, WebEx)
• Facebook is a MUCH more important platform play than I realized
• Google is going about things in the right way, they are building a development community and charging nothing for it
• The situation with Yahoo! is a house divided, some believe Jerry will bring much needed change, while others wonder why he represents any major change at all
• We have some brilliantly talented entrepreneurs in the group, including Neil Robertson (Newmerix), Greg Reinacker (NewsGator) and Charlie Wood (Spanning Sync)
• Atlassian is an impressive company. Self-funded, cash flow positive, significant revenue base with a high growth rate. Yet, the founders are in no rush to monetize their company. They're more focused on pushing toward $100mm revenue mark and expanding levels of employee ownership. I had the chance to spend time with Jeff Walker (CEO) and Scott Farquar (co-founder) this week and they are top notch guys, both personally and professionally
• There are a ton of startups at the conference that fall into the "me too" category, but it only takes one or two of them to emerge to make the entire effort worth the while
• I may not be the best looking Wood in the Irregulars, but I'm damn sure the youngest :)
• There is a lot of fear that the U.S. equity market is due for a major correction, and some are wondering when we'll see an end to the M&A engine
• The Enterprise Irregulars is a powerful community, and we haven't begun to tap into its potential
• EI should be a sounding board for ideas big and small
• We underestimate our impact and presence within the enterprise technology ecosystem
• EI is powered by the confluence of disparate viewpoints; the value is in the differences, not where we agree
• We, as a group, need to do a better job of eating what we grow. There are a lot of collaborative tools to increase the effectiveness of our day-to-day communication, and we've done a poor job of leveraging them

I probably left out a lot of meaningful nuggets, but these will do for now. If you were at the dinner and think I missed something, say so in the comments. Otherwise, until next time...

enterprise2conf enterprise 2.0 IT conference enterprise irregulars woodrow