ImaginativePRO Blog

GOOGLE AND APPLE SET TO DO BATTLE OVER THE NEXT MOBILE FRONTIER: AUGMENTED REALITY, A POTENTIAL $3 BILLION INDUSTRY

Google and Apple are set to tussle in mobile augmented reality, pitting Android handsets against the iPhone, according to ABI Research, which sees a $3 billion AR market.

Google and Apple meet on several battlefields in the mobile computing war, but there is one big front where the rivals have yet to show their weapons: mobile augmented reality.

Mobile augmented reality (AR), which comprises the overlay of information on real-world views seen through a mobile phone's camera viewfinder, is the window to the Internet of Things, where real-world objects have data associated with them.

For example, one AR application could allow users to point their phone's camera at a building, click on an information label associated with the building and see information about the building's history.

ABI Research analyst Mark Beccue has been studying mobile AR, which to date has largely been a niche market covered by startups such as Layar and Wikitude, which have built AR browsers for smartphones such as Apple's iPhone and Google's Android platform.

Beccue said the 2010 revenue total associated with AR amounted to only $21 million, but added that the total could explode to $3 billion by 2016.

How wil AR get to $3 billion by 2016?

• Mobile marketing 
• Online search 
• Tourism 
• Retail 
• Social Networking 
• Other verticals 
• Google and Apple, of course.

Google and Apple will become major rivals and facilitators in this space because they each possess computer vision technologies that rely on smartphone cameras that send image information to the companies' computing clouds, then back to the users' phones to complete an action.

• Google Goggles - Google's visual search application that lets users take pictures of objects such as landmark bridges, book covers, wine bottles and other two-dimensional objects.
• Polar Rose - Acquired by Apple and makes facial recognition software and other products that enable the "automatic creation of events based on visual cues in images."

Apple hasn't said what it is doing with these assets, but Beccue believes the computer maker could adapt the assets as a social networking capability on the iPhone. For example, Beccue said a user might hold his or her phone camera up to a person and see that person's social networking feeds from Facebook, Twitter and other social apps.

Of course, there are all sorts of privacy concerns with this, so Beccue said such a service would have to be completely opt-in. If an iPhone user didn't choose to turn on the facial recognition enablement for the app, his or her social feeds would not be accessible from other users' iPhone cameras.

Google, which has deliberately (Google Buzz) and inadvertently (Google Street View) challenged privacy boundaries, has interestingly declined to make facial recognition a part of Goggles due to the privacy concerns.

"Google is being driven by search, which is being driven by a new kind of search, [which] would be [the Internet of] Things," Beccue said. "They started with books and CD covers, but we're talking about anything. There are a lot of different pieces they need, but they have very sophisticated algorithms."

For example, Google could marry Google Goggles with its Google Shopper application.

This would allow a shopper to point his or her phone camera at an article of clothing in a retail store and learn perhaps not only all of the sizes available, but all of the colors and even information about which stores might carry the clothing article at a discount.

The key to real AR market growth, Beccue told eWEEK, is to embed AR into a wide range of apps running on a variety of devices. That's when we'll see the tipping point en route to that $3 billion estimation ABI expects in the next five years.

COMMENTARY:   Augumeted reality presents the same challenges of adoption that location-based social networks like Facebook Places, foursquare and Gowalla are facing,  only it's going to be much worse.  User's who opt-in to an AR services are quite literally revealing aspects of their personal life they may not want revealed.  Mr. Beccue is getting a bit carried away with the potential revenues from AR technology without understanding its full ramnifications  In the wrong hands, AR could be very destructive.   From my vantage point, I see three social networking levels:

• Level 1 - Regular social networks like Facebook and Twitter.
• Level 2 - Location-based check-in services like Facebook Places, Gowalla and foursquare.
• Level 3 - Augmented reality.

AR is on a different plane altogether, which is why augumented reality, if taken to the extreme, can become your worst nightmare.   The technology has to be controlled.  I visualize several categories of AR:

• Retail - Used in the retail environment to obtain product information, increase retail store traffic, capture a bigger share of the consumer wallet at the point-of-sale and enhance the overall shopping experience.
• Non-Retail - Finding and discovering information about places and things (non-human).  Restaurants, museums, stadiums, zoos, amusement parks, universities, hospitals, and tourist spots would be a an excellent fit.
• Personal Information (PI) - The use of AR in identifying and obtaining information about individuals.  I see the following possible levels:
  • PI01 - The disclosure of basic personal information about you to your close friends and fans.  Does not include contact information or very personal information. Similar to your connections on LinkedIn.
  • PI02 - The disclosure of more indepth personal information on a by-invitation-only basis to a small group of specific individuals, friends and fans.  Similar to a protected account on Facebook and Twitter.
  • PI03 - Used by corporations, educational facilities, governmental agencies, private clubs, and so forth to identify individuals, students, employees, contractors and temporary workers, and to allow access to secure facilities and areas, offices, lunch rooms, libraries, research labs, and so forth.  
  • PI04 - Used only by law enforcement agencies like, the local police, CIA, FBI, NSA and so forth.  Used for positively identifying individuals through facial recognition and in the apprehension of criminals.  
  • PI05 - Used by the military to allow military personnel and contractors to access highly classified areas and facilities requiring security clearances (confidential, secret, top secret, above top secret, and so forth).  

I just don't see how you can just open the flood gates and use AR without placing strict limits on who can use AR and for what purpose.  Children under 12 should not be allowed to use AR apps. You must also set a time limit, and be able to turn-on, turn-off and terminate AR.  Wanton missuse would just result in total chaos.  

Back on December 9, 2009 I posted an article titled, "Tonchido's Augmented Reality Takes Position-Based Marketing To A New Level", about Tonchido Corp, a Japanese startup located in Tokyo that had created quite a stir at the TechCrunch50 show, when it introduced Sekai Camera, the first mobile augmented reality applicaton.  Today, Tonchido has developed the following AR apps:

• Sekai Camera For iPhone
• Sekai Camera For iPad
• Sekai Camera For Android
• Sekai Camera ZOOM 
• Sekai Camera Web

Here is a screenshot of the Sekai Camera For Iphone app:

 

It appears that Tonchido Corp has come a long way and now has quite a following in Japan.  In September 2010, Takahito Iguchi, Tonchido Corp's founder and CEO, said the Sekai Camera for iPhone "has been enjoyed in all corners of the globe, having created millions of 'AirTags' in the busiest of cities and remotest of places in the process".    

I thought it was important to share this information with you, since a lot of people don't have any idea what augumented reality is all about and that Tonchido Corp was the original inventor of this technology for commercial purposes.

Just for fun, I want you to review my blog post dated July 11, 2010 titled, "Augmented Reality: The Nightmare Scenario", about about augmented reality taken to the extreme.  So be careful what you wish for, you just might get it.

Courtesy of an article dated February 21, 2011 appearing in eWeek.com 

HYBRID CARMAKER FISKER AUTOMOTIVE RECEIVES $150 MILLION INVESTMENT FROM KLEINER PERKINS AND NEA, POSSIBLE IPO IN 2011

After significant delays, Fisker Automotive Inc. is preparing to launch its luxury plug-in hybrid next month. The company is armed with $150 million in new capital raised at a pre-money valuation of about $600 million, and it's positioning itself for a potential IPO attempt later this year.

The Irvine, Calif.-based car maker has a well-received design for the vehicle, done by the company's founder, chief executive and chief designer, Henrik Fisker, combined with a cost-effective business plan. It's outsourcing manufacturing for its first line of cars, called Karma, for which it has built up a strong order book. For the second line of cheaper sedans it has acquired a former General Motors Co. factory on the cheap. It has also procured large, low-interest government loans.

On the down side, the delays in the car's launch have allowed large competing automakers to chase Fisker's tail. That in turn may have made the company's intellectual property less differentiated. It is also addressing a limited market of expensive luxury sedans, though it has a second line of cheaper cars coming down the pike.

As the latest equity round indicates, venture investors believe in Fisker's potential. The company offers "potentially a huge return in a fairly short order," said Scott Sandell, a general partner of New Enterprise Associates, which just invested in the company's latest round. "Tesla is worth $3 billion," said Sandell, referring to electric vehicle maker Tesla Motors Inc., which went public last year. "The public markets want a few more of these. I think it could be a blockbuster IPO."
One clean-technology analyst said several banks are trying to gain Fisker's business as it starts eyeing the public markets.

The company said it now has enough capital to launch its first car and manufacture the second line.
"We have over $150 million in the bank--we're really financially strong," said Joe DaMour, the company's chief financial officer.

Fisker said the latest round is "definitely an up round."

Long-time backer Kleiner Perkins Caufield & Byers is also participating in the new round. The company declined to name other investors in the round, which is still open. "We might raise a little more," Fisker said. The deal is somewhat unusual for NEA since most of its investments are early stage.

The company raised $189 million in a separate round last year. To date, it has raised more than $500 million in equity. Besides NEA and Kleiner, investors include A123 Systems Inc., Ace Investments, Palo Alto Investors, Qatar Investment Authority and Quantum Fuel Systems Technologies Worldwide.

The company is about to start full production of the Karma on March 21. "By October we'll be on a full monthly volume of just over 1,500 cars a month," Fisker said. The goal is to manufacture 15,000 Karmas annually, though that won't be reachable in 2011 due to slower ramp-up.
"Fisker has a backlog of hundreds of millions" of dollars, said Sandell, all of which it could deliver on shortly. The company has taken deposits of $5,000 each on more than 3,000 preorders.
Not everything is running smoothly. The company has increased the price of the car--each Karma will cost $95,900, a price that's 19% higher than originally proposed--and delayed its release, after originally promising to start selling in mid-2009.

"Sometimes people forget that we started developing this vehicle in the first quarter of 2008," Fisker said. He said that even given a delay, which he attributed to the financial crisis, it has taken the company only three years for the release. "Actually that's still a record time for development for any vehicle anywhere on the globe," Fisker said.

He added: "Considering that this is a brand new power train by a brand new company by a brand new team that also had to raise money with the DOE, and has raised over $1 billion, there aren't that many examples like that." The Department of Energy selected the company for a $529 million.

One of its current transitions is to stop taking reservations from interested customers and to pass these along to dealers. It is setting up a network of 43 dealerships in the U.S. and as many in Europe. The phase-in is a work in progress, said Fisker, as the dealers aren't yet up and running, even as the company isn't taking deposits either. Showrooms should be up by July, he said.
Even as the company gears up, "the competition is not going to stand still for them," said Oliver Hazimeh, a partner at management consulting firm PRTM.

But Sandell said he doesn't worry about the big automakers. "They have the classic incumbent's problem--they have something to lose, not just something to gain," he said.

Still, a plug-in electric car is no longer a huge, upending market leader that it would have been two years ago. General Motors is already selling its plug-in Volt. At this point, said one venture investor not connected to the company, Fisker Automotive is left with a great design, but not with the huge leap forward in market differentiation that it was peddling when it was originally looking for funding.

But Sandell said the market has actually been moving favorably for Fisker by showing consumers that plug-in vehicles are real, which is driving interest.

The new capital, from investors NEA, Kleiner Perkins and others, comes at a pre-money valuation of about $600 million. It's a sign its investors are optimistic they have a blockbuster potential IPO on their hands, though a delayed product release may have diluted some of its early advantage.

COMMENTARY: Fisker Automotive has substantial disadvantages versus Tesla Motors, its primary competitor in the high-end electric sports car market. Fisker will be producing and delivering beginning this coming March, while Tesla already began deliveries of its Sporsters beginning in 2009.  I am impressed that Fisker has taken deposits on 3,000 Karma's, which based on the price tag of $95,000 translates into $285 million in gross revenues if all of them are delivered in 2011.  

Tesla Motors has first mover advantages in the high-end electric sports car market, had a very successful IPO in June 2010, inspite of limited revenues from sales of the Sportster and substantial operating losses in 2009 and 2010.  

We will quickly determine if the Karma will be a strong seller and how it will hold up as the vehicles hit the road.  Fisker's Karma is a hybrid, which gives it the advantage of being able to use both regular gasoline and electrical power from batteries for power.  I have been reading that cold weather can create problems with electrical batteries, so having the ability to use gasoline is really an advantage for the Karma. 

On the other hand, a lot has happened to the price of gasoline in the last few months, and with the recent upheavals in the Middle East and North African nations, the price of oil will go up significantly, increasing gas prices even more. Some oil experts predict that gas could go increase to $5.00 by summer 2011. Other automatkers are introducing hybrids of their own, and this makes a hybrid like the Karma not as attractive as it once was, giving Tesla Motors a real advantage.  

In a previous blog post dated January 11, 2010 titled, "Karma Hybrid Sports Car Maker Fisker Automotive Raises $115 Million", I pointed out that Fisker had projected that the Karma would not go into production until 2012, so being able to start production in March 2011, one year ahead of schedule, is very impressive. Let's hope that they can take advantage of this
Fisker Automotive has deposits on 3,000 Karma's, which is nearly twice the number of Sporsters delivered by Tesla Motors, and that's very significant, since it gets Fisker Automotive closer to their projected 5,000 breakeven point.    

In another blog post dated February 19, 2011 titled, "Tesla Motors Faces A Rough Road Ahead As It Tries To Compete Against Bigger, Deep Pocket Automakers", I mentioned that Tesla Motors had numerous challenges, and that I had estimated their breakeven point was somewhere in the vicinity of 10,000 and 12,000 vehicles. Tesla Motor's huge accumulated losses over the last two years, prospects for continued red ink in 2011 and 2012, might give Fisker Automotive an upper hand.  The new investment from heavyweights like Kleiner Perkins and NEA appears to confirm this, and lends a lot of credence for a possible IPO in 2011.    

This is going to be a race to the finish line for both Fisker Automotive and Tesla Motors. Both are working on producing lower-priced sedans in 2012.  A lot can happen by then.  The instability in the Middle East and North African nations, the potential for huge gas price increases, and the possibility of a new war in the Middle East, and its affect on our recovery can put a severe damper on future prospects of both companies.

Courtesy of an article dated February 22, 2011 appearing in The Wall Street Journal VentureWire   

 

HOW THE COURT SYSTEM USES SOCIAL NETWORKS TO SNOOP ON US AND SELECT JURISTS, INVASION OF PRIVACY?

Facebook is increasingly being used in courts to decide who is—and who isn't—suitable to serve on a jury, the latest way in which the social-networking site is altering the U.S. court system.

Prosecution and defense lawyers are scouring the site for personal details about members of the jury pool that could signal which side they might sympathize with during a trial. They consider what potential jurors watch on television, their interests and hobbies, and how religious they are.

Josh Marquis, district attorney of Clatsop County in Oregon, did background searches on Facebook to help pick a jury for a penalty trial last summer to determine if a convicted murderer should get the death penalty. He was looking for clues on how potential jurors might feel about the defendant, a man who killed a couple as a teenager in 1988. The jury imposed the death penalty.

Jury consultant Amber Yearwood in San Francisco found that one potential juror in a product-liability case last year held strident opinions on a host of issues, and dispensed unsolicited medical and sex advice. "Often juries offer opinionated people like that the perfect opportunity to wield their influence," said Ms. Yearwood. The prospective juror was bounced.

Some legal experts oppose this growing practice of scouring social-media sites, arguing that the traditional jury-selection process, which involves lawyers questioning prospective jurors, provides more valuable information than out-of-context online comments.

"I don't think we should abandon that system in favor of Internet snooping," said Jason Schultz, co-director of the Samuelson Law, Technology & Public Policy Clinic at the University of California, Berkeley, law school. "There are a number people who post who they want to be, as opposed to who they are."

Some appellate courts have upheld lawyers' rights to research jurors online, including one in New Jersey that ruled last year that a lower-court judge erred by prohibiting a plaintiffs' attorney from using the Internet in the courtroom. The court wrote: The fact that the plaintiffs' lawyer "had the foresight to bring his laptop computer to court and defense counsel did not, simply cannot serve as a basis for judicial intervention in the name of 'fairness' or maintaining a 'level playing field.' "

Jury selection is not the only way in which social media are altering the nation's courts. Divorce lawyers have used information in social-media posts to extract higher alimony payments from indiscreet spouses, experts and lawyers report. And in some juvenile courts, judges considered what defendants wrote online to help determine whether they were remorseful.

Using Facebook and other social media such as MySpace and blogs are particularly appealing during jury selection because lawyers have limited time to ask questions. Social-networking sites often contain candid, personal information generated directly by the user. "These days, it's the place where people voice their opinions," said jury consultant Art Patterson.

Armando Villalobos, the district attorney of Cameron County, Brownsville, Texas, last year equipped his prosecutors with iPads to scan the Web during jury selection.

He acknowledged that they sometimes dug up only the unprotected tidbits that Facebook users share with everyone, such as their alma mater or favorite band.

Many people, he said, limit access to more telling details to those they have "friended." (It's unclear, for example, what his prosecutors would glean from Mr. Villalobos's own Facebook page, without friending him: It shows he is married and a fan of the TV show "Spartacus.")

Mr. Villalobos is considering a method to get behind the site's private wall to learn more. One option: granting members of the jury pool free access to the court's wi-fi network in exchange for temporarily "friending" his office.

Some citizens in Brownsville are apprehensive about lawyers rummaging through their online lives. "It feels as if they are tapping into our personal lives," said Lazaro Leal in an interview conducted via Facebook. Legal teams aren't convinced by that reasoning.

David Cannon, a Los Angeles-based trial consultant, discovered on blogs that a potential juror in a personal-injury case had made extensive attempts to contact extraterrestrials. He recommended that his clients, who were representing the defendants, not select her. "It just showed an instability," he said.

Paul Kiesel, a plaintiffs' lawyer in Beverly Hills, Calif., said his firm ran searches of social-networking sites during the jury-selection process in a recent sex-abuse case involving a Catholic priest. The case was settled, but Mr. Kiesel said the information would have proved invaluable.

"We could glean whether someone was identified with a religion, and get a sense of how devout they seemed to be," he said. "It's a waterfall of information, compared to the pinhole view you used to get."

Mr. Marquis, the Oregon DA, said that even small details, like a person's favorite show, could say something about them. A predilection for crime shows, such as "CSI: Crime Scene Investigation," tells Mr. Marquis that the prospective juror might have unrealistic expectations that DNA evidence could be obtained from every crime scene.

"It's way more complicated and expensive than it is on TV," he said.

COMMENTARY:   This revelation about the use of social networks as a source of information about us--what we say, our biases, prejudices, political persuassions, bad social behaviors, and so forth is nothing new.  The CIA, FBI, NSA and local police are using social networking sites to trackdown criminals or compile evidence.  The Patriot Act has opened the doors.  Even spouses, boyfriends and girlfriends are using social networks to find out about their partner's infidelities.

Discovering that the court system is using information they find out about us to qualify or disqualify us from serving on juries is not a total surprise.   I have served jury duty twice, and one case in particular shocked me as to the liberal use of physical force, a kill first, and ask questions later mentality, and the prejudices that exists in some police departments.   Although I cannot prove it, there appears to be a code of conduct between officers, that there will be no snitching or turning against a fellow officer.

The idea that jury selection by trial and defense lawyers questioning jurists for prejudices and biases is better than online snooping is debatable.  A defense lawyer wants a jurist that will convict, while a trial lawyer will want to pick jurists sympathetic to their case. That's how the system works. I have seen this with my very eyes and ears.    

Courtesy of an article dated February 22, 2011 appearing in The Wall Street Journal Law

TEENS AND GEN-Y'S STOP BLOGGING DUE TO LACK OF INTEREST, NOW BLOG ON TWITTER, AND SOME TIPS TO DRIVE TRAFFIC TO YOUR BLOG

SAN FRANCISCO — Like any aspiring filmmaker, Michael McDonald, a high school senior, used a blog to show off his videos. But discouraged by how few people bothered to visit, he instead started posting his clips on Facebook, where his friends were sure to see and comment on his editing skills.

“I don’t use my blog anymore,” said Mr. McDonald, who lives in San Francisco. “All the people I’m trying to reach are on Facebook.”

Blogs were once the outlet of choice for people who wanted to express themselves online. But with the rise of sites like Facebook and Twitter, they are losing their allure for many people — particularly the younger generation.

The Internet and American Life Project at the Pew Research Center found that from 2006 to 2009, blogging among children ages 12 to 17 fell by half; now 14 percent of children those ages who use the Internet have blogs. Among 18-to-33-year-olds, the project said ina report last year, blogging dropped two percentage points in 2010 from two years earlier.

Former bloggers said they were too busy to write lengthy posts and were uninspired by a lack of readers. Others said they had no interest in creating a blog because social networking did a good enough job keeping them in touch with friends and family.

Blogging started its rapid ascension about 10 years ago as services like Blogger and LiveJournal became popular. So many people began blogging — to share dieting stories, rant about politics and celebrate their love of cats — that Merriam-Webster declared “blog” the word of the year in 2004.

Defining a blog is difficult, but most people think it is a Web site on which people publish periodic entries in reverse chronological order and allow readers to leave comments.

Yet for many Internet users, blogging is defined more by a personal and opinionated writing style. A number of news and commentary sites started as blogs before growing into mini-media empires, like The Huffington Post or Silicon Alley Insider, that are virtually indistinguishable from more traditional news sources.

Blogs went largely unchallenged until Facebook reshaped consumer behavior with its all-purpose hub for posting everything social. Twitter, which allows messages of no longer than 140 characters, also contributed to the upheaval.

No longer did Internet users need a blog to connect with the world. They could instead post quick updates to complain about the weather, link to articles that infuriated them, comment on news events, share photos or promote some cause — all the things a blog was intended to do.

Indeed, small talk shifted in large part to social networking, said Elisa Camahort Page, co-founder of BlogHer, a women’s blog network. Still, blogs remain a home of more meaty discussions, she said.

“If you’re looking for substantive conversation, you turn to blogs,” Ms. Camahort Page said. “You aren’t going to find it on Facebook, and you aren’t going to find it in 140 characters on Twitter.”

Lee Rainie, director of the Internet and American Life Project, says that blogging is not so much dying as shifting with the times. Entrepreneurs have taken some of the features popularized by blogging and weaved them into other kinds of services.

“The act of telling your story and sharing part of your life with somebody is alive and well — even more so than at the dawn of blogging,” Mr. Rainie said. “It’s just morphing onto other platforms.”

The blurring of lines is readily apparent among users of Tumblr. Although Tumblr calls itself a blogging service, many of its users are unaware of the description and do not consider themselves bloggers — raising the possibility that the decline in blogging by the younger generation is merely a semantic issue.

Kim Hou, a high school senior in San Francisco, said she quit blogging months ago, but acknowledged that she continued to post fashion photos on Tumblr. “It’s different from blogging because it’s easier to use,” she said. “With blogging you have to write, and this is just images. Some people write some phrases or some quotes, but that’s it.”

The effect is seen on the companies providing the blogging platforms. Blogger, owned byGoogle, had fewer unique visitors in the United States in December than it had a year earlier — a 2 percent decline, to 58.6 million — although globally, Blogger’s unique visitors rose 9 percent, to 323 million.

LiveJournal, another blogging service, has decided to emphasize communities. Connecting people who share an interest in celebrity gossip, for instance, provides the social interaction that “classic” blogging lacks, said Sue Rosenstock, a spokeswoman for LiveJournal, which is owned by SUP, a Russian online media company. “Blogging can be a very lonely occupation; you write out into the abyss,” she said.

But some blogging services like Tumblr and WordPress seem to have avoided any decline. Toni Schneider, chief executive of Automattic, the company that commercializes the WordPress blogging software, explains that WordPress is mostly for serious bloggers, not the younger novices who are defecting to social networking.

In any case, he said bloggers often use Facebook and Twitter to promote their blog posts to a wider audience. Rather than being competitors, he said, they are complementary.

“There is a lot of fragmentation,” Mr. Schneider said. “But at this point, anyone who is taking blogging seriously — they’re using several mediums to get a large amount of their traffic.”

While the younger generation is losing interest in blogging, people approaching middle age and older are sticking with it. Among 34-to-45-year-olds who use the Internet, the percentage who blog increased six points, to 16 percent, in 2010 from two years earlier, the Pew survey found. Blogging by 46-to-55-year-olds increased five percentage points, to 11 percent, while blogging among 65-to-73-year-olds rose two percentage points, to 8 percent.

Russ Steele, 72, a retired Air Force officer and aerospace worker from Nevada City, Calif., says he spends up to three hours a day seeking interesting topics and writing about them for his blog, NC Media Watch, which covers local issues in Nevada County, northeast of Sacramento. All he wants is to have a voice in the community for his conservative views.

Although he signed up for Facebook this month, Mr. Steele said he did not foresee using it much and said that he remained committed to blogging. “I’d rather spend my time writing up a blog analysis than a whole bunch of short paragraphs and then send them to people,” he said. “I don’t need to tell people I’m going to the grocery store.”

COMMENTARY:   It's unfortunate that young people are not blogging.  For whatever it matters,  I don't think there were that many young bloggers to begin with.  I have been blogging since early 2008, and most of the blogs I have visited or accidentally found online, are run by older individuals, so I tend to agree with PEW Research findings that those 34-to-45 years of age, 46-to-55 years of age and older are blogging.

I can only speak for myself, but my PBT Consulting blog traffic has increased substantially between September 2010 and the present.  How did this happen?  

• I pick interesting topics to blog about. I have settled on technology--social media, greentech, software, mobile, computing, startups, venture capital, inventions and rumors, just to name a few.  
• I have opted to become a "value-added blogger".  Quite simply, I take interesting articles and embellish them with additional information and commentary to help the reader grasp the "big picture".  I try to provide answer to the who, what, why and when, and include additional imagery, video, graphic charts and infographics, to spice things up a bit.
• My commentary has often been described as hard-hitting and thought provoking. I take no prisoners.  If I really disagree with something, or believe the original writter omitted or said something wrong, I hold his feet to the fire.
• I view each blog update as a discovery and new learning experience for me.  I have often picked articles on topics that I know knowing about, which makes me do some homework, before I add them to my blog. 
• Typepad, the blogging service that I use, provides a Share This Post feature, that allows all of my blog posts to automatically appear as a tweet on Twitter.  The challenge is to use an eye-catching and interesting title, limited to 140 characters, of course.
• My Twitter tweets are automatically feeded to my Facebook wall.  I don't hardly use Facebook very much, but if one of my fans happens to see my tweet, and they click on the link, this takes them to my blog article.
• Twitter feeds all of its tweets to both the Google and Bing search engines which is an added benefit to help drive traffic to my blog.  If you are searching for information on a particular subject, and I have written about it in my blog, there is a pretty good chance that it may show up in your search results.  Probably 70% of my blog traffic comes from Google and Bing. The rest come from Twitter and Facebook.

All of these efforts and strategies have resulted in an increase in unique visitors from zero to 11,000 and 13,000 page views per month--an overall 11,000% increase (and growing) in traffic to my PBT Consulting blog, and this is only since September, when VOX, my previous blog provider, shutdown and my blog history was moved to Typepad.

I have learned that if you employ the write tools and strategies, you can create a fairly large, and highly loyal audience.  I get a lot of compliments about my blog, so I must assume that I am on the right track.  That's my formula.

Courtesy of article dated February 20, 2011 appearing in The New York Times  Internet

BY-INVITATION-ONLY ONLINE RETAILER GILT GROUPE RAISING $80-$100 MILLION AT A $1 BILLION VALUATION

The leading by-invitation-only (BIO), also called private-sale or flash-sale, company in the U.S., Gilt Groupe, is raising $80-$100 million from private-market investors, industry sources say.

 

The deal will likely value Gilt at around $1 billion.

Gilt Groupe was founded by Kevin Ryan, Dwight Merriman, Alexis Maybank, Alexandra Wilkis Wilson, and others in 2007.

Gilt's numbers look like this:  

• Venture Capital - The New York-based company has raised more than $80 million of capital in several rounds from Matrix, General Atlantic, and others. 
• Revenues - $270 million in revenue in the fiscal year ending June 2010.
• Projections - $500 million for the fiscal year ending June 2011.
• Valuation - $1 billion

The valuation for this latest financing will be about 2X revenue, which is similar to the price Nordstrom paid for HauteLook last week (an industry source says HauteLook's revenue was $115 million in 2010 and will be about $150-$160 million this year).

The online BIO industry appeared out of nowhere about a decade ago when French entrepreneur Jacques-Antoine Granjon founded a company called Vente-Privee in France. Vente-Privee is still the world leader, with more than $1 billion in sales last year, and Granjon's goal is to become the "Amazon of the event sale," with $15 billion of revenue a year.

Following on Vente-Privee's success--and reversing the normal trend of US online business-models being copied abroad--the following US private-sale businesses have been founded in the US in the past five years:

• Gilt Groupe - Launched in 2007 and is the leading BIO company in the U.S and has raised $80-$100 million from private equity investors.
• HauteLook -  Founded in 2007, HauteLook is a U.S. leader in the BIO sector, and was acquired by Nordstrom's in mid-February for $270 million. 
• Rue La La - Located in Boston, Rue La La was founded in 2008 and acquired by GSI Commerce for $350 million in 2010.
• One Kings Lane - Founded in San Francisco in 2008 by Susan Feldman and Alison Pincus (wife of Mark Pincus, founder and CEO of Zynga). The site was launched in the spring of 2009 and quickly gained ground in the world of group buying.  Focuses on home-furnishings and recently raised $23 million in venture capital from Kleiner Perkins Caufield & Byers and Greylock.
• Zulily - Founded in 1994 by Amazon's Mark Bezos and Blue Nile CEO Mark Vadon, focuses on the kids category and already has more than one million customers. 
• ideeli - Founded in 2006 by Paul Hurley, a serial entrepreneur who wanted to create a shopping community that sold luxury brands.

As is to be expected after such torrid growth, the BIO industry is also now experiencing growing pains:  

• Growth rates are slowing. 
• Managing inventory and fulfillment is challenging. 
• None of the companies are consistently profitable yet. GSI Commerce just missed earnings and took a big write-off, which it blamed on Rue La La.  

Between fulfillment, logistics, and merchandising (knowing what inventory to buy and when), the business is also extraordinarily complicated, especially at scale, and it requires more capital to build and operate than pure online businesses.

According Krista Garcia, eMarketer research analyst, the four leading flash-sales sites—HauteLook, ideeli, Gilt Groupe and Rue La La—as reported in the "Flash Sales: What Retailers Need to Know", are projected to generate 2010 revenues of $900 million and double the number of visits to the category over the previous year.   Multichannel retailers are also starting to adopt flash-sales techniques, but first they need to understand the consumer and how to make scarcity and exclusivity work for them.

 

Gilt Groupe, for example, is rumored to have been stuck with a hefty chunk of unsold inventory last year, a factor that one industry source believes contributed to its decision to raise more capital now.

A source at Gilt says the inventory story is overblown: Gilt was indeed left with more inventory than it wanted after last summer, the source says, but compared to a traditional retailer, Gilt's level of inventory is still very low. The company has only $45 million of inventory now, equivalent to about 10% of this year's sales, and it turns its inventory an impressive 8-10 times per year. (This compares to 2X-3X for some traditional retailers). As Gilt becomes more efficient, our source says, the company believes it can increase its inventory turns to 10X-12X per year.

Importantly, these growing pains are nothing new in the online retailing business, and was made more difficult by the Great Recession, which hit online brands very hard.  Amazon, is an excellent example of a company which endured the Dotcom Bubble, incurred fulfillment problems due to its rapid growth, but after consolidating its distribution, and improving its fulfillment, merchandizing, and marketing efficiency, Amazon is now a model of efficiency and has become a global ecommerce powerhouse.

The challenge of transitioning from explosively growing startups to mature, profitable businesses isn't the only issue facing the private-sale industry. The spectacular recent growth of Groupon, Living Social, and other "daily deal" companies, for example, has emerged as a new threat. Gilt Groupe has responded by launching its own "daily deal" competitor, Gilt City, but the explosion of competitors offering brands and retailers a new way to move inventory will likely put more pressure on profit margins.

Amazon's inevitable entry into the BIO space also looms as a future threat:  The company acquired BuyVIP, a European private-sale site, last fall, and one industry source says it is now hiring people to help it enter the apparel sector in the US.

All of these issues make HauteLook's decision to sell and Gilt's decision to raise more cash look prudent.

And, importantly, the broader picture remains excellent, especially for the industry leaders.

As the industry's extraordinary growth over the past five years illustrates, private sales have developed into a major new sector of the ecommerce industry. Nordstrom's purchase of HauteLook shows that traditional retailers feel they need to enter the business, and none have had any success launching flash-sale sites themselves. Walmart, Target, Macy's, TJ Maxx, and others are potential buyers of the remaining pure-play companies, as are Amazon and eBay.

Amazon's recent purchases of Zappos and diapers.com show that the company is not afraid to buy its way into attractive sectors instead of building them, and Amazon also has the wherewithal (and balls) to pay the premiums that industry leaders command.

The suddenly-rejuvenated IPO market, meanwhile, offers another potential attractive exit for Gilt Groupe's investors. 

In short, despite its growing pains, the flash-sale business represents a huge opportunity, and Gilt is still the clear US leader. So it's not surprising that there's demand for the company's stock at a ~$1 billion valuation.

COMMENTARY:   The Great Recession and drop in the sales of designer brands and luxury goods from high fashion-to-glass ware, has given rise of the online By-Invitation-Only (BIO) retailer. I have covered BIO's on my blog several times, more recently Rue La La and ideeli.  BIO's are membership-based and require that you be "invited" by a current member.  

BIO's offer 50%-70% discounts on top designer brands.  BIO sales are announced just a few days before they are scheduled, which is why they are often referred to as flash-sales.  Sales are limited to a few well known luxury brands, merchandise and quantities are limited, and the sales last for only a few days.  The strategy of BIO sales is to give the buyer or member, a sense of exclusivity, and is a big selling point.  Marketing and promotions is primarily through opted-in email and targeted display ads.   Speaking of targeted display ads, I profiled Rue La La and ideeli, and their display ads popped up regularly during my online visits.  My fear is that Gilt will do the same thing. Keeping my fingers crossed.  

Courtesy of an article dated February 21, 2011 appearing in Business Insider

THE CASE FOR EXPANDING AMERICA'S NUCLEAR ENERGY AND THE FUTURE OF NUCLEAR POWER TECHNOLOGY

 

UNLIKE MANY OTHER SECTORS OF THE U.S. economy, the nuclear energy industry is growing. In fact, it's beginning to boom, with the potential to help the United States reduce its carbon footprint while also making a major and positive impact on the U.S. economy over both the near and long term.   

THE CASE FOR NUCLEAR ENERGY  

1. Energy Demand Rising -  In spite of the Great Recession, energy demand has risen fairly steadily over the past several decades, while investments in new electric generating capacity have lagged. To keep pace with the rising demand for energy and to remain competitive in the global economy, the country will need to add significant new electric generating capacity.
2. Aging Fossil Fuel-Based Generating Capacity Is Aging - Replacing the existing infrastructure and adding new capacity to meet growing demand will also have to meet the demand for green energy, helping to reduce greenhouse gases and the use of carbon-based fuels. But sources such as solar and wind account for approximately 7 percent of our electricity supply, and for these sources to meet future demand would not be feasible in many parts of the country.
3. Future Electricity Demand - Overall U.S. electricity demand is expected to increase by as much as 30 percent over the next 25 years. To meet that demand and replace those aging fossil fuel plants, the electric utility industry may need to invest as much as $2 trillion in new generation and transmission during that time period. What's more, it must add this new capacity while reducing greenhouse gas emissions.

Today, there are 104 nuclear power stations in the country, which supply 20 percent of our electricity needs while producing zero emissions of any harmful greenhouse gases, such as carbon dioxide, sulfur dioxide or nitrogen oxides. Together, nuclear and renewables represent the 27 percent of America's total electricity supply that comes from clean energy sources, and nuclear power produces three-quarters of it, according to the U.S. Energy Information Administration.

Clearly, the best way forward is to expand the role of nuclear energy in our domestic energy supply. Although renewable sources clearly have an important role to play in America's energy future, the cost and physical limitations of solar and wind are currently both prohibitive and impractical. Still, America requires new sources of clean and carbon-free sources of baseload energy to fuel economic growth.

BENEFITS OF ADDING NEW NUCLEAR CAPACITY

From an economic perspective, these operating nuclear plants are already making a major contribution to the U.S. economy through direct spending in local communities and in tax payments to federal, state and local governments. Building new nuclear plants will only increase this already significant economic stimulus as follows:

1. New Jobs - Construction of each single unit nuclear power plant will create 1,400 to 1,800 on-site construction jobs and hundreds of additional support jobs during the construction period. Once a plant is operational, an additional 400 to 700 permanent operational jobs will be created at salaries that are typically 36 percent higher than the average in communities and towns that are home to nuclear plants.  The Nuclear Energy Institute estimates that private investment in new nuclear power plants has already created an estimated 14,000 to 15,000 American jobs and many of these are at Westinghouse.
2. Local Community Financial Benefits - Every new nuclear plant will also produce approximately $430 million annually in sales of goods and services in the local community, creating or sustaining hundreds of long-term, peripheral support jobs while also providing annual state and local tax revenue of, on average, more than $20 million to benefit schools, roads and other state and local infrastructure projects. And the Nuclear Energy Institute estimates that federal tax payments from each plant amount to approximately $75 million annually.
3. Boost Construction Materials - New nuclear plants will increase purchases of steel, concrete and thousands of electrical components.  For example, construction of each new Westinghouse AP1000 nuclear power plant in the United States will require procuring approximately 30,000 cubic yards of concrete, 22,500 tons of rebar, 15,000 metric tons of steel and 300 modules and assemblies.  Presently, 22 new nuclear power plants have been announced for the United States, with six under contract and four in the early stages of construction.

PUBLIC PERCEPTION OF NUCLEAR POWER

Over the past 30 years, more than 100 existing commercial reactors in the United States have continued to operate safely and efficiently without a single incident. As a result, Americans now support the use of nuclear power for electricity generation more than at any point in history. According to a study commissioned by the Nuclear Energy Institute, 70 percent of Americans favor the use of nuclear power, whereas the country was evenly divided on this question just 20 years ago.

A nuclear renaissance has arrived and it presents an extraordinary opportunity to help the U.S. economy rebound. We should embrace this historic chance to achieve energy independence and, at the same time, provide the United States with the clean electricity it needs to support robust economic growth well into the future.

COMMENTARY:   In a blog post dated November 1, 2010 titled, "The Looming Aging Crisis of America's Nuclear Power Plants -- Built To Last 40 Yrs, Can They Last For 80 Years?", I wrote that our nuclear reactors were expected to last 40 years, but many have already exceeded or are approaching their 40-year operational life cycle, so the NRC has granted an additional 20 years, extending their operational life cycle to 60 years.  Although this is not a serious cause for concern, the nuclear power industry must plan now to build new nuclear energy capacity or risk falling behind other countries.  

Although still under development, 4th generation or advanced class nuclear reactors are smaller, modular and more cost-efficient  than its predessors:  

• Generation I (built 1950-1965). 
• Generation II (built 1965-1995). 
• Generation III (built 1995-2010). 
• Generation III+ (To be built 2010-2030). 

Generation I and II reactors that were designed with a 40-year operating life cycles (now extended to 60 years) and built prior to 1995.  Generation III built after 1995 were designed with a 60-year operating life cycle.  Generation III+  are a slight improvement over the regular Class III.  

The claimed benefits for Generation IV reactors include:

• Cost 40%-50% less to build than larger Generation III and III+ nuclear reactors.
• Nuclear waste that lasts decades instead of millennia.
• 100-300 times more energy yield from the same amount of nuclear fuel.
• The ability to consume existing nuclear waste in the production of electricity.
• Improved operating safety.

One disadvantage of any new reactor technology is that safety risks may be greater initially as reactor operators have little experience with the new design. 

If you are not familiar with nuclear power generation, I encourage you to read some of my other blog entries:

• February 11, 2011 titled, "Small Nuclear Ready For Big Splash"
• November 1, 2010 titled, "The Looming Aging Crisis of America's Nuclear Power Plants -- Built To Last 40 Yrs, Can They Last For 80 
• September 17, 2010 titled, "MIT Study: U.S. Nuclear Power Can Be Cost-Effective And The Uranium Supply Is Plentiful, But We Must Plan"
• August 9, 2010 titled, "Tri Alpha Energy, The Stealthy Plasma Fusion Nuclear Reactor Startup, Receives $50 Million Investment"
• May 5, 2009 titled, "Nuscale Progresses With Small Modular Nuclear Reactors"
• March 23, 2010 titled, "Bill Gates Goes Nuclear, Backs Toshiba 4S Nuclear Mini-Nuclear Reactor"
• January 29, 2010 titled, "Nuscale Power Paves The Way For Safe Nuclear Power With A Modular, Mini-Nuclear Power Plant"

After the catastrophic crisis of the Fukushima nuclear reactor plant, I wished I had not posted this blog post, but who would've thought Japan would've been hit with a 9.0 earthquake and tsunami wave that has killed thousands. 

Courtesy of an article appearing in the January/February 2011 issue of EnergyBiz, Wikipedia - "Nuclear Reactor Technology", and Wikipedia - "Generation IV Reactor"

THE LOOMING AGING CRISIS OF AMERICA'S NUCLEAR POWER PLANTS - BUILT TO LAST 40 YRS, CAN THEY LAST FOR 80 YRS?

The nuclear industry recommends that reactors work well beyond retirement age.

While nuclear plants in the U.S. get licensed to operate for 40 years, the lifetime will likely be extended in many cases to 60 years. Nuclear plants could even roll on for 80 years if safety and reliability benchmarks can be achieved, said executives and researchers on a conference call sponsored by the Electric Power Research Institute (EPRI) today.

"We will need to extend the life of old plants," said Maria Korsnick, chief nuclear officer of Constellation Energy's nuclear group.

The problem boils down to economics and circumstances. Nuclear plants require tremendous amounts of time and capital: a nuclear plant typically might generate one to two gigawatts of power and the "overnight cost" or construction cost minus interest might range from $4,000 to $10,000 a kilowatt depending on the estimates. As the price rises, nuclear becomes less competitive with wind and solar, not to mention natural gas. Because of the recession, many utilities have cancelled plans for new plants or pushed them out into the future. Constellation, in fact, just bowed out of a project because the fees associated with a federal loan guarantee; the 1.6-gigawatt plant had been budgeted at around $6,000 a kilowatt.

Unfortunately, most of the nuclear facilities in the U.S. already hover around the 40-year mark in terms of age. Over half are already asking for licenses that will let them operate for 60 years and the other half are expected to seek similar requests.

The U.S. has 104 commercial nuclear power plants that provide about 20 percent of the country's power.

"If you let these current operating units retire, you will end up with a gap. Why put ourselves in that crisis?" she said. Nuclear plants provide 70 percent of the carbon-free electricity in the U.S. and operate 90 percent of the time, she added.

In April 2010, Nuclear Fissionary calculated the total cost of electricity production by kilowatt hour, and although the construction cost of a nuclear power plant is running $6,000 per kilowatt, the weighted average operating costs per kilowatt make nuclear power a bargain when compared to renewables, namely solar and wind.   Please refer to the following graphs and charts.  

2008 US ELECTRICITY GENERATION BY SOURCE & WEIGHTED AVERAGE COST PER KWH

Energy Source	% of Total	Cost per kWh	Weighted Avg Cost
Nuclear	19.7%	$0.04	$0.008
Hydro	6.1%	$0.03	$0.002
Coal	48.7%	$0.04	$0.022
Natural Gas	21.4%	$0.10	$0.022
Petroleum	1.1%	$0.10	$0.001
Other Renewables	3.0%	$0.15	$0.005
	100%		$0.059

 

PROJECTED US ELECTRICITY GENERATION BY SOURCE & WEIGHTED AVERAGE COST PER KWH BY DOUBLING NUCLEAR ENERGY

Energy Source	% of Total	Cost per kWh	Weighted Avg Cost
Nuclear	39.4%	$0.04	$0.015
Hydro	6.1%	$0.03	$0.002
Coal	29.0%	$0.04	$0.013
Natural Gas	21.4%	$0.10	$0.022
Petroleum	1.1%	$0.10	$0.001
Other Renewables	3.0%	$0.15	$0.005
	100%		$0.058 [change of -1.7%]

Local storage facilities for these plants will also need to be extended or the industry will have to move toward centralized interim storage facilities.

Japan and France, which re-license plants every ten years after a safety inspection, are also looking at extending the life of their plants, said Ronaldo Szliard, director of nuclear science and engineering at Idaho National Laboratory.

If the age of reactors can be extended, it could be a financial boon, added Neil Wilmshurst, chief nuclear officer at EPRI. Existing nuclear plants in the U.S. are paid for already. Thus, there is no financing cost. Nuclear plants are also more of a known commodity than carbon capture facilities.

What are the problems? That needs to be figured out. Further studies are needed to test to longevity and durability of cement exposed to radiation.

"We don't believe there is a problem but we need to understand what the aging process entails," said Szliard.

Wilmshurst added that the industry also needs to upgrade its procedures. Many nuclear plants, for instance, use digital control systems like virtually everything else in the working world. Part of the problem has to do with making sure the existing safety systems will continue to function properly if underlying controls are shifted.

COMMENTARY:    I often wondered what the useful life of a nuclear power plant was, and this article is quite worrisome.  With nuclear power plants originally built to least 40 years, I don't think the U.S. has any other choice but to extend their operating service licenses to 60 years.   The longevity issue is a global problem with France and Japan requesting 10-year operating permit extensions.   However, extending operating permits is a temporary fix.  Twenty years can pass by very quick, so you have to ask yourself:  What are we going to do after their operating permit licenses expire after 60 years of service?

If you review Nuclear Fissionary's comparison of both construction costs and operating costs per kilowatt hour for nuclear, coal, hydro, natural gas, petroleum and renewables, namely wind and solar PV, nuclear is the better choice over the long-term.    19.7% of America's electricity is produced from nuclear power plants, while only 3% is produced from renewable energy sources.   Therefore, unless there are major cost breakthroughs in both wind and solar power capital and operating costs per kilowatt, I don't see how we can let our nuclear power plants wither and die.

The catastrophic nuclear reactor accident and subsequent uncontrolled meltdown at Fukushima, Japan builds an even stronger case for making sure America's 104 nuclear reactors are safe from earthquakes and flooding caused by natural disasters, including tsunami's.  America cannot afford the same fate as Japan.   

Courtesy of an article dated November 1, 2010 appearing in GreenTechMedia and an article dated March 9, 2010 appearing in CanadaFreePress   

ROGER ENRENBERG, FOUNDER IA VENTURES SAYS: "BUBBLE? I JUST DON'T SEE IT"

Let’s be serious - EVERYBODY is wondering if there is another shoe to drop in the Great Internet Gold Rush of 2011. $6 billion for Groupon? Nah, too low. Something between $8-$10 billion for Twitter? Sure, why not? Eight-figure pre-money valuations for numerous West Coast consumer web start-ups? Hey, it’s just supply and demand, and besides which, they DID go through YCombinator. $50 billion+ for Facebook? How about $70 billion in a handful of trades on SecondMarket. Even $315 million for HuffPo. Is AOL nuts? What’s up? 

There is a strong desire to characterize the market in a homogenous way, e.g., “We’re in a bubble” (Fred Wilson) or “Valuations are reasonable” (Chris Dixon). Bottom line, this doesn’t begin to explain the variations observed in nature. There is a world of difference between Quora and Facebook, YCombinator start-ups and Groupon, every “social shopping” start-up and Twitter. One needs to look beyond the headlines and ask “What is REALLY going on here?”

Great franchises cannot always be valued purely on the basis of revenue or current cash flow. This isn’t sophistry, it’s simply reality. When Google paid $1.65 billion for YouTube, many thought this was merely a symbol of having way too much cash to spend on something irrational which it coveted. Fast forward, Google has had to pump hundreds of millions into integrating and scaling the YouTube platform, but will this acquisition pay off on an ROI basis? Google has created a unique property in one of the fastest growing segments of the online market, and they have the resources to take the long view. I bet it will turn out to have been a prescient deal for the company.

Facebook has effectively created a parallel Internet, fostering a level of engagement and stickiness Google would drool to have. Social, messaging, location, recommendations, commerce and more. Facebook also hosts the websites of millions of businesses globally. Are the levels at which Facebook is trading irrational? I have no idea what its fundamental value is, only what others are willing to pay. But there is no question that it represents a massive and rapidly growing franchise, a business that has immense competitive barriers and powerful network effects. It may well be worth what people are paying for it - and more. Its mid-11 digit valuation is certainly not indicative of a bubble.

Groupon? Please. The company is generating cash like a casino, except in a much more predictable manner. Was turning down $6 billion crazy? Not if you consider the valuation that it may well be able to claim via IPO. Given that its principals were able to take hundreds of millions off the table in the most recent financing, there is no reason for them to sell the company. They are in it to win it, and have the momentum to support its growth through an IPO and beyond.

Twitter is an enigma. A household name with an large and engaged user base. A powerful platform that has supported the growth of countless businesses on top of its pipes. A force for freedom, commerce and distribution. The revenue story is only just beginning at Twitter while rumors swirl about its eventual acquisition by either Facebook or Google for a reported $8-$10 billion. It has also had some legendary outages, and continues to crash on a fairly regular basis. Few revenues, iffy infrastructure, $10 billion. Really? Crazy? Well… Twitter, like Facebook is a unique property. It is the global connective tissue linking together millions of people across the globe, enabling the sharing of news, ideas, hopes, dreams, product reviews and offers. For some it has replaced newspapers, magazines and RSS as a vehicle for aggregating relevant information from trusted sources. For others it serves as a platform for sending messages to a targeted audience. Widespread adoption and brand are its competitive barriers, much as Bloomberg chat locked in hundreds of thousands of terminal subscribers for decades. In the hands of Facebook or Google, might a $10 billion price tag be rational from both economic and strategic perspectives? It may, indeed.

I can’t pretend to understand the valuations of many West Coast consumer web start-ups, and I won’t attempt to rationalize them here. There has been an explosion in the availability of seed stage capital in and around Silicon Valley, and I believe it has had a marked effect upon valuations of consumer-driven businesses in the region. As I’ve discussed previously, I do not believe there has been a parallel phenomenon in New York or Boston, and I don’t find the froth around Foursquare to be indicative of bubble-like behavior on the East Coast. Supply and demand appear to be out of whack among a segment of the West Coast seed stage universe, driving up valuations to what seem to be unsound levels, but the jury’s out.

All in all, I do not see pervasive bubble behavior among US-based technology companies. In fact, in several segments of the market and across myriad geographies, there appears to be a dearth of Series A capital available for investment. So depending upon where you’re standing, the tone of the market looks very different. Froth or famine? Both can be observed in nature. But deal discipline coupled with common sense can yield attractive values across much of today’s venture investing landscape.

COMMENTARY:    I must admit that I am very tough on VC's, because they are very smart people, but wrong about 60% of the time, and they will admit this, so it's not a personal thing. So when Roger Ehrenberg, an experienced venture capitalist from IA Ventures wrote the above piece for Business Insider, I could not help myself.  Here's my response:

Roger, the quote in your article that caught my ear were, 

-- "Great franchises cannot always be valued purely on the basis of revenue or current cash flow, This isn’t sophistry, it’s simply reality," 

and

--"I can’t pretend to understand the valuations of many West Coast consumer web start-ups, and I won’t attempt to rationalize them here." 

Most of the current valuations, at least for Facebook and Twitter, occurred in private company stock traders like SecondMarket and SharesPost. Those trades were all made on a closed bid and "by invitation only" basis, benefiting a very small group of deep pocket investor's like Goldman Sachs and BST. Although the SEC has investigated those trades, and found them "mostly legal", those trades are based on a "shadow market" that benefits very few investors, mostly VC's, insiders and employees. Regular folks are left out of the pipeline.

Roger, these incredible valuations are all based on hype, euphoria, speculation and a whole lot of greed. They are the spawn of wealthy investor's (mentioned previously) whose only purpose is make money, anyway that they can, and those private company stock traders are fueling it. It's all a neat joke as a prelude to an IPO. 

In a normal public trading market, like the NASDAQ or NYSE, the price for shares is determined by the homogenous elements that investors consider in establishing the price of that stock, namely, management team, size of the market, predictable revenue model, sustainable and scalable business model, market share, years in business, and those all important numerical measurements of value (earnings per share, revenues per share, revenues per user, return on equity, CAGR, EBITAD, PE ratios and comparable market values). 

The only way to rationalize the value of startups like Facebook, Twitter, Groupon, etal, is quantitatively. The numbers count, and if you don't understand this, and use some other superfulous measurement, and refuse to question its validity, you are asking for problems. This is the sort of craziness that led to the last DotCom Bubble. I am not saying we are there, but the makings of one are clearly there. Many startups are simply riding the "Facebook Wave". A great example of this is foursquare, the location-based social network, that was recently bestowed with a $250 million valuation by Andreesen Horowitz. Andreesen Horowitz went on to acquire $80 million in Twitter shares, lifting the value of Twitter to $3.7 billion virtually over night. The Huffington Post is another.

Roger, someone needs to ring the alarm bell, and the problem we are having is that there is practically no regulation of startup, non-public companies. So long as they do not exceed the 500 shareholders limit, anything goes. What we have here is a secondary market that is acting like it is public market, without any rationalization what so ever. Everything is based on future potential, without discounting earnings to take into account the uncertainty and potential risk. I challenge you to say definitively that there is no risk or uncertainty in a Facebook, Twitter, Groupon or foursquare.. 

It is regrettable, but you have written a piece that is mostly based on personal naivety and shallow, with the trademark of someone without experience in business valuations standard practices. If you don't understand valuations, you should not write about it, and try to defend them.

If you can't "understand" or "rationalize" those valuations, then don't talk about them as if you do. What you just said, was complete bullshit. 

I rest my case. @turk5555

I know that I have been pretty tough on Mr. Ehrenberg, but afterall, he should know better.  He's a VC.  He has also been involved in a number of investments mostly in companies attached to stocks, financial instruments and so forth.   Numbers matter to VC's, and if you just stop and take the time to find those numbers, it may give you a pause for deep thought and introspection.  

I posted the above as a comment to the Business Insider article, and if anyone can defend some of today's valuations, please come forward.

Courtesy of an article dated February 11, 2011 appearing in Business Insider

TESLA MOTORS FACES A TOUGH ROAD AHEAD AS IT TRIES TO COMPETE WITH BIGGER, DEEP POCKET AUTOMAKERS

Tesla Motors has built a great story around excellent technology. Now, it has to prove that it can build great cars, en masse.

It already built one, the Roadster, which it released in 2008. It's a slick, fast automobile, in line with Tesla's (TSLA) strategy to tap into a niche market-luxury electric vehicles. As of the beginning of this year, Tesla had sold 1,500 of them. Now, it needs to prove that it can sell great cars on a scale that will make the company profitable. That's going to be challenging, even though Tesla is mostly on track for the rollouts it outlined after it went public in 2010.

On Tuesday, Tesla issued a press release on its full year earnings, ahead of filing its first annual report as a publica company. Its losses grew -- Tesla reported a net loss of $51.4 million for the fourth quarter of 2010 compared to a loss of $24.2 million for the same time last year, when it was still a private company.

On the upside, it boosted revenue by 95%. Tesla's fourth quarter revenue grew to $36.3 million from $18.6 million in 2009.

That pleased the market. Many analysts rated the company a hold or a buy, heartened by the fact that the company's revenue is up and that Tesla seems on track to launch its Model S sedan when it says it will, in the middle of 2012.

But the market may be overlooking some of the major challenges that Tesla could face in getting all the way home. Car production takes a tremendous amount of capital, notes Carter Driscoll, a senior alternative energy analyst with Capstone Investments.

Tesla has enough cash now, Driscoll says, much of it from the $465 million in low-interest government loans that the company received from the US Department of Energy back in June 2009. But going forward, Tesla will have less of a cash cushion than competitors. In the process of rolling out new cars, there are often speed bumps.

"They need to execute on this model perfectly to get Tesla on the radar screen," says Driscoll. "It's just so much harder than people recognize," for several reasons, one of which is that Tesla won't get volume purchasing discounts for the parts it doesn't manufacture.

Tesla plans to release 20,000 vehicles for the entire year in 2012, which isn't very many. "That's a good month at a suburban facility in Flint or in Lancing," Driscoll says.

And unlike the Detroit and foreign companies entering the EV market, Tesla will have some manufacturing disadvantages. The main one is lack of access to the kind of capital that huge auto manufacturers have on hand.

Those auto manufacturers are getting in on the EV market. GM's (GM) Chevy Volt and Nissan's Leaf are both scheduled to go online around the same time as the Tesla Model-S. GM and Nissan are power players in the automotive world, both with market caps around fifty billions dollars. Tesla, in comparison, was estimated to have a market around a couple billion when it went public.

The company targets the niche consumers who want luxury electric vehicles. Compared to the Leaf, which will cost $25,280 after the tax savings and the Volt, which will cost over $32,000 after tax savings, Tesla's model S will cost right under $50,000.

"There's a segment of the population that wants to be green and wants to be in a very sexy car," says Driscoll. "It doesn't outweigh the tremendous amount of capital you have to put into one car. If that car doesn't succeed, even if that time frame gets delayed by a couple of quarters, you're talking a big shortfall in cash flow."

New models of cars get delayed all the time, especially with safety reviews, he says, and the electric vehicle market is particularly volatile.

It's difficult to predict consumer demand for EVs, especially since there are other forms of green cars out there for consumers, such as hybrid cars and plug-in electric vehicles.

Tesla's main strength has been stellar technology for electric car batteries and powertrains-the portion of the car that actually transfers energy from the engine and transmission to the wheels. Tesla's tech for these parts is some of the best in the business, according to Driscoll. Other car companies are accessing that technology too. For example, Telsa partnered with Toyota, the plan being for Tesla to develop the powertrain for Toyota's new Rav4 car.

The partnership is great for Tesla as a company, but carmakers such as Toyota that are capitalizing off of Tesla's battery tech are also pushing products that could potentially compete. For example, Toyota is still building another family of its hybrid car the Prius, set to hit the market between summer of 2011 and 2012. One of which is a Prius plug-in hybrid, which, unlike an electric car, doesn't require a special charging station. The plug-in hybrid and could tide Toyota over until the electric vehicle market becomes big enough to profit off of it.

Not that Tesla can't become profitable, it can, Driscoll says. But it's working with a tighter margin of error than competitors. If the demand for electric vehicles switches a bit, or if there are production delays, Tesla could get slammed.

"They're a long way away from profitability," says Driscoll. "Until they produce vehicle number one on a commercial scale, they're essentially a design shop." 

COMMENTARY:  Tesla Motors has been one of my favorite electric car startups.  I have given Tesla Motors a bad rap at times, but this article confirms what I have saying all along.  Tesla cannot afford to make any major mistakes, like running out of capital, experiencing design and production problems and delays in meeting its scheduled release date of 2012 for the new Tesla Model S sedan.

In a previous blog post dated February 1, 2010, I estimated that Tesla Motors had to sell between 10,000 to 12,000 cars just to breakeven.  It's future is with the Model S, not the Roadster. The market for the Roadster is much too narrow and he will be competing with the likes of Ferrari, Porsche, Mercedes-Benz and BMW, and Fisker Automotive to name a few, who plan on releasing hight-end hybrids and electric cars of their own.

Tesla has no control over how consumers will adopt electric automobiles.  However, the price of gasoline is predicted to hit $5.00 by 2012 (if not sooner) as the world enters the era of peak oil, and making car owner's think serioiusly about purchasing an EV.   Whether they will purchase Tesla's premium priced Model S sedan, when there are less costly options, remains to be seen.  From what I have seen, Tesla's Model S is the jewel of EV and hybrid sedans.   The problem is going to be capital, and I don't believe that the government loans and funds Tesla raised from its mid-2010 IPO will be sufficient to meet the 2012 market deadline for the Model S.

There is already evidence that the market has lost some of the confidence it had back in 2010 after its IPO.  It's stock price has gone from a high of $35.00+ to $23.00.    

If you are not familiar with Tesla, you might wish to read my past blog posts:

• January 2, 2011 - "Tesla Motors Plans Aggressive Timeline For Production Of 2012 All-Electric Model S"
• December 13, 2010 - "Electric Vehicle Manufacturer's Will Flood The Market in 2012,  Casualties Will Be High"
• November 29, 2010 - "Tesla Motors Stock Price Grew by 41% Since The IPO in June, Analysts Say It Is Way Over-Valued, Cause For Concern?"
• October 25, 2010 - "GTM Test Drives Tesla Motors' Roadster Electric Sports Car, Kicks Butt At 3.7 Seconds in 0-60 Tests"
• June 30, 2010 - "Tesla Motors First Day IPO Is A Resounding Success"
• June 24, 2010 - "Tesla Motors Sales Come To A Halt During First Quarter 2010, Will This Hurt Their IPO?" 
• June 12, 2010 -  "Electric Car Makers Fisker Automotive And Tesla Partner With Detroit And Japanese Automakers"
• February 1, 2010 -  "Tesla Motors Tests IPO Market, Files SEC Form S-1 To Raise $100 Million"

Courtesy of an article dated February 18, 2011 appearing in CNN Money's Fortune 

PRESIDENT OBAMA MEETS WITH SILICON VALLEY'S TECHNOLOGY ELITE, DINNER AT JOHN DOERR'S HOME IN WOODSIDE

Mark Zuckerberg, the 26-year-old founder of Facebook, is rarely seen without a T-shirt or a hoodie. But Zuckerberg brought out a suit for his dinner with President Obama on Thursday. That says a lot about what happens when you combine the world of politics with Silicon Valley. It’s a very formal affair.

The president visited the Bay Area to meet with some of the country’s most innovative technology leaders before zipping off to Portland, Ore. this morning for a tour of Intel’s manufacturing facility. Hopefully, they figured out a way to grease the wheels of innovation and create more jobs — or justhad a nice dinner at the home of Kleiner Perkins Caufield & Byers venture capitalist John Doerr.

   

The picture below from the dinner is pretty revealing. For one, Steve Jobs is sitting on Obama’s left and is clearly not on his deathbed, as reports have suggested.

The White House issued these photos and said the dinner was “part of our ongoing dialogue with the business community on how we can work together to win the future, strengthen our economy, support entrepreneurship, increasing our exports, and get the American people back to work.”

 

Before the event, an official spokesperson said, “The President and the business leaders will discuss our shared goal of promoting American innovation, and discuss his commitment to new investments in research and development, education and clean energy.”

We don’t know exactly what they talked about at the dinner. The power group includes Reed Hastings, Larry Ellison, John Doerr, Eric Schmidt, Carol Bartz, Jobs, Zuckerberg and more. Jobs is dressed in his signature black turtleneck.

If you had to write a caption for these photos, what would it be? Please leave it as a comment.

 

COMMENTARY:   This is quite an impressive group of entrepreneurs of some of the most successful Silicon Valley high-technology companies.  Zuck wearing a suit is quite a change for the normally hoodie and sandal clad head of Facebook.   Steve Jobs looking like Jobs with a black turtleneck.  

Obie, don't forget I gave to your presidential campaign in 2008, so throw me some of that high-tech coin or "change" you promised us.  Seriously, I want to buy foursquare and put it out of its misery.      

Courtesy of an article dated February 18, 2011 appearing in VentureBeat