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In 1991, Andy Rappaport, my partner at August Capital, wrote an award winning Harvard Business Review article entitled, "The Computerless Computer Company." As described by HBR, Andy's paper argued that:

By the end of the century, the most successful computer companies will be buying computers rather than building them. Defining how computers are used, not how they are built, will create real value. Three new rules will guide the computer industry's strategic transformation: 1) compete on utility, not power; 2) monopolize the true sources of added value; and 3) maximize the sophistication of the value delivered, while minimizing the sophistication of the technology consumed.

Well, that century has come and gone and Andy hit the nail on the head. The real value in computers was all about utility. Dinosaurs like Digital Equipment Corporation and Wang that were unable to evolve to deliver utility rather than compute power disappeared in the 1990's, while companies like Microsoft and Lotus thrived. Computers were no longer viewed as valuable independent of the software they ran. They became commodities, upon which value was created through applications.

In the context of Andy's description of the computer industry in the 1990's, I believe that a new era is upon us in the 2000's. I believe that we have progressed from the "Computerless Computer Company" to the "Softwareless Software Company." Taking the evolution of computer company one step further, "computer" companies are no longer about selling software, but rather about delivering services. Hosted services have the distinct advantage of meeting all three of the "new" rules suggested in the Computerless Computer Company: 1) they compete purely as a utility; 2) they monopolize the true sources of added value; and 3) they are designed to deliver the greatest possible sophistication with the simplest possible user experience.

Perhaps the best evidence that we are entering this era of Softwareless Software Companies is Microsoft's "Live" push. At a recent VC Summit, numerous Microsoft execs, including Steve Balmer himself, talked about Microsoft's focus on rolling out service offerings under the moniker of "Live." They are now offering LiveDesktop, LiveSearch, OfficeLive, LiveExpo, LiveMeeting, etc. And in support of their massive push into the services space, Microsoft has just opened a new datacenter that will ultimately span just shy of half a million square feet (I hope to write more specifics about this some time soon).

In the era of the Softwareless Software Company, in which value is measured by utility, simplicity and reliability, the greatest asset may ultimately be the near infinitely scaling data center. It will certainly be important that the new computer company deliver great utility through its software-delivered service. But the most significant differentiator may ultimately prove to be the capacity to scale with massive demand. And those companies best situated to deliver that scale will be the winners. Thus, it is no surprise that just up and down the river from Microsoft's new datacenter in Quincy Washington, both Yahoo and Google are contemplating building their own gargantuan datacenters. The Softwareless Software Company may have come full circle from the Computerless Computer Company and be more about hardware and infrastructure than about software after all.

I have survived another Consumer Electronics Show. No small achievement. But it has taken me nearly a week to recover and tell the tale. The Consumer Electronics Show has gotten so large -- so out of control -- that it will undoubtedly break apart under the weight of its own mass. Conference organizers were predicting that 140,000 people would come to Las Vegas for CES this year. But I'm betting they missed by a couple tens of thousands. Quick trips from the convention center to any hotel on the strip took 45 minutes when they should have taken 15. And the line for free ice cream at the Yahoo tent was backed up all day, every day. I heard one blogger at the airport say to a friend that he spent the day at PodTech's BlogHaus rather than contend with the crowds (I myself took refuge at the BlogHaus on a daily basis -- they had the winning combination of copious drinks, snacks and bandwidth).

All the whining aside, CES was jam packed with gadgets, technologists and big giant TV's. That's right. Once again, CES was absolutely dominated by Televisions. LCD TV's. Plasma TV's. Home Theater projectors. My partners Andy, Vivek and I wandered the conference floor obsessively comparing TV's. We got right up close and looked at the consistency of color. We stood back and looked at motion blur. We debated the extent to which differences in displays were the results of actual technical superiority or merely better tuning. We checked out Sharp's 108 inch LCD TV (for those keeping score at home, last year's colossal TV king was a 103 inch plasma but this year LCD claims the bragging rights). We enjoyed Panasonic's use of plasmas in their booth for window panes, picture frames and a blazing fire.

And the winners are? None of the above. There weren't any clear winners in TV land this year. I suppose if there were any winners, it was the consumers. There were a panoply of stunning televisions on display. Technology is getting better. Prices are going down. That's undoubtedly a winning combination for TV buyers. That said, there were three TVs that I left the CES floor excited about. First, Sony was showing the thinest, most beautiful little OLED (Organic LED) displays you've ever seen. Sadly, they aren't yet in production. But when they are, they're going to be big sellers. They had extremely vibrant colors, a stunningly precise picture (with a 1,000,000 to 1 contrast ratio), and a form factor that can not be beat. I really want one. Second, as beautiful as some of these flat panel TVs are, the best pictures on the show room floor came out of a high end projector. Optoma was running the perfect scene from "Phantom of the Opera" to show off their amazing HD81 projector. The quality of the picture was unrivaled by anything I saw on the showroom floor. Sure, at ten thousand dollars or so, it isn't cheap. But for those of you with an empty basement and an old car to sell, this projector is the way to go. And Third, my partners and I were thrilled to see beautiful TV's on display using the single panel LCOS (liquid crystal on silicon) technology from our own portfolio company MicroDisplay. Both Akai and Memorex will soon be manufacturing MicroDisplay enabled Full HD TVs that will be priced hundreds of dollars cheaper than the next closest 52" and 62" Full HD TVs.

It was not, however, the fancy new televisions that I found most compelling at this year's CES. It was the amazing disappearance of TV wires. Several companies were demonstrating wireless systems for high definition televisions. It reminded me of the initial hints of wireless audio several years ago at CES. The first year there was a single dedicated Yamaha system demonstrating wireless audio. The next year wireless audio was scattered throughout the convention center. And the following year it was everywhere. I imagine we'll see the same trajectory for wireless video. This year there were a few manufacturers demonstrating wireless televisions (several of which were powered by our own ultra wideband portfolio company Tzero). Next year I anticipate that it will be everywhere -- built directly into TVs, in stand alone systems, as part of set top boxes. Wireless video is a no brainer. Imagine the ease of installing a flat panel on the wall if you don't have to worry about burying the wires in the wall. (Now if only someone could come up with a system that safely and efficiently delivers wireless power.) I guess I'll go back to CES next year. If nothing else, to see the proliferation of wireless video -- and party like its 1999.

I can't decide what is making it harder for me to write this morning. Is it the fact that I am still completely exhausted after a weekend of too little sleep and too much mental stimulation? Or is it the more mundane fact that God-awful music is blasting out of my speakerphone courtesy of the now 57 minutes I've been on hold with Bank of America credit card services? I'm going to go with mental overload because I refuse to cede the power to communicate to B of A musak.

This weekend I was privileged to attend Tim O'Reilly's FOO Camp. FOO stands for "Friends Of O'Reilly" but the crowd is only a small subsection of those who count Tim as a friend. Tim has long been not just a uncanny predictor of future technology trends but a supporter and promoter of both those technologies and the individuals responsible for inventing them and shepherding them from concept to phenomenon. The individuals present at this year's FOO Camp had played significant rolls in the creation and dissemination of some of the most important technologies over the past decades (from Lotus 1-2-3 to Perl, Python, Ruby, Flash, you name it). But the conversations of FOO Camp were clearly pointed at the future, which leaves one's mind spinning.

One of the things that is striking about FOO Camp is that nearly everything that takes place over the weekend is collaborative. Talks are rarely lectures -- they are conversations. Ad hoc projects at FOO take interesting twists and turns because they are necessarily interdisciplinary, driven by experts in hardware, software, networking, who are encouraged by the environment to think out of the box (a child of FOO's inventive environment was unveiled at this year's gathering -- Chumby is an open source hardware and software platform that truly embodies the collaborative and interdisciplinary nature of FOO). As I wandered around O'Reilly's campus Saturday night I was struck by the incredibly inclusive, social and creative energy everywhere -- in one room a group of folks were singing and strumming Simon and Garfunkel tunes, in another a crowd was engaged in their 5th or 6th hour of Werewolf, on the patio a few pyromaniacs enjoyed a fire sculpture involving propane and a zen sand garden, others gathered 'round the laser in Make Magazine's office engraving their laptops and cell phones with various a sundry images and insignia.

Two of my favorite sessions during FOO Camp were further testimony to the collaborative nature of the weekend. One of the "talks" was entitled "Halfbaked.com: entrepreneurial improv theatre." It was organized by Dave McClure, Paul Rademacher and James Levine, who had the great idea of randomly assigning teams of participants two word company names and, with fifteen minutes of preparation time, having them then present their business plans to a panel of VC judges (namely, me and Paul Graham). The results were clever and funny and felt sufficiently close to my day job as to be a little disconcerting. The winning team pitched Bottlecap Porn, fully functional (if somewhat under-featured) website and all. The other session I can't stop talking about was called "That Sucked," which was organized by Joshua Schachter. In Joshua's session, he started off by telling about times he'd been faced with technical challenges that really sucked. He then opened up the floor to the crowd to share their stories. The tales of woe expounded were like a history of computers gone bad, from printers shooting parts across the room to infinite loops to missing source code (the inspiration for SourceForge). They were simultaneously the geekiest and funniest stories I'd heard in some time. And like the "Halfbaked" session, virtually everyone in the room participated, making the session all the more illuminating and entertaining.

I hope that Tim and the entire O'Reilly organization get as much out of FOO Camp as do the participants. We all certainly owe him a debt of gratitude for hosting this incredible event.

Post Script: I hung up on Bank of America after being on hold for 190 minutes! I hope there is less of a wait when I call to cancel my card.

foocamp06

Consumer VOIP will hit mass adoption later this year

Like David, I too was at the Consumer Electronics show this year. One of the big themes was consumer Voice over IP. A host of previously unannounced products made their way onto the show floor with no fanfare (as well as a few with major hype). Consumer Voice Over IP is finally crossing the ease-of-use line to reach a wider market.

There were three approaches with promise on the show floor: portable handsets, consumer routers, and Skype gateways.

1. Portable Handsets: Almost a cell phone...

The best example of the first approach was UT Starcom's Vonage handset. Vonage is one of the major Voice Over IP providers. Previously, they used Cisco and Linksys VOIP devices that you plug into your network at home. Now innovative telecoms company UT Starcom has produced a wi-fi handset that lets you make calls from anyplace you can connect to 802.11b. Now consumers buying Vonage don't need to set up any equipment in their home so long as they already have Wireless.

On top of that benefit for Vonage customers, it will work anywhere you have wi-fi. Going to a hotel on business? Throw your phone in your luggage and your home phone number travels with you.

It's a flashy prototype and certainly got quite a bit of attention on the CES show floor. Of course the problem is obvious -- you still have to carry the handset and your cell phone since WiFi isn't ubiquitous. And at home, you can't use any of your existing phones without going back and installing the original gateway. It may be an easy piece of new equipment, but it still replaces everything you've got.

2. Consumer Routers: No more landline...

The second approach was to use existing home networking gear to replace the landline phone. Netgear and D-Link both had unannounced products on the show floor: combo 802.11b/g routers with built-in VOIP. Basically, it's a wireless router with two normal phone jacks in the back. Plug your existing cordless phones in there, and you have instant voice calling. Netgear was there with AT&T CallVantage and D-Link was there with Lingo. Both manufacturers promised firmware updates to work with a variety of services, but out of the box the routers work with default providers.

Anybody with a home network can now have VOIP too. Just take that old wireless router and replace it with the same brand except it's got phone jacks. Netgear in particular made a big deal about how the router itself did some magic to make sure voice calls were not interrupted by data usage from the computer. These devices are formally coming out by February or March will retail for about $120.

3. Skype Gateways: Free calling...

The most interesting solutions didn't get much press at CES, probably because they were too esoteric for the masses. However, it's hard to argue with free as a consumer proposition.

A Taiwanese company called Sysgration introduced the SkyGenie product line. These devices sit between your regular phone jack and the phone. An additional plug goes into USB port on your computer. Your phone works as it did before.

However, if you dial "##" before your number, you are now dialing on Skype, the free calling network. Incoming Skype calls ring on your home phone, complete with caller ID and a different ring pattern.

The high-end device, the SkyGenie Voodoo, can even route incoming Skype calls to other phones and receive calls that then get routed over Skype. When at both ends of a call, SkyGenie Voodoo provides free international calls using your current phone system. For less than $100 in equipment, any company with overseas offices can get rid of their huge telecommunications costs.

While it's a little complex for the mass market because it requires Skype signup, free is a powerful motivator. Though it received the least press attention of all the VOIP companies at the CES, I suspect that it (and other similar products like those by ActionTec) will have a greater effect on the telecommunications market in the long run.

Despite the lack of press, these companies certainly received a lot of attention from distributors on the show floor...

Last year, I wrote an article about using your mobile device as a window into your desktop world. This year, we are several steps closer to that goal.

Ironically, it's desktop search companies that are leading the way even if they don't know it.

The Problem: Too Many Devices

The paradigm of yesterday is that you have multiple devices, and each one has its own set of information you work with. Your PDA holds your contacts and calendar, which occasionally syncs with Outlook where you also have your email. Your laptop contains your files and presentations that you work with, and your work server contains corporate files. Your home computer contains your digital photos and your private work.

As I fly back home from DemoMobile, I am struck by the fact that "innovation" in the mobile market is apparently stuck in the same quagmire we faced at the outset of the Web. All mobile computing paths appear to be leading to the walled garden. And no matter how pretty that walled garden may appear at first blush, mark my words, it is going to feel pretty claustrophobic in no time at all.

Andrew, "David" and "modest" are two words I would not have expected to see in the same sentence, but bully to you for breaking new ground!

Good to see the both of you (and many more friends) at the recent BlogOn shindig. The night before I spent two hours trying to pay $15.99 for 24 hours of broadband connection only to have to debug their system myself (IP address assignment problem). There were a couple of weak WiFi signals available out the window, but most were WEP protected and breaking out AirSnort just to check mail seemed like overkill. Although Any@Web caught a couple of wardrivers trying to hack the WiFi connection! In the morning, the surf reports for Ocean Beach said it was small, blown out bad surf. We went anyway and had a great time in medium, decent shape, no wind waves. On the way to the conference the MapQuest directions were wrong. There was voice cell phone but not data coverage. My Jabra 250 Bluetooth headset randomly paired with another device and forgot all about the new Nokia 6230 it was recently in love with (bought from Taiwan -- not available in the US -- and hacked onto ATTWS). Lots of people on the WiFi connection made it frustratingly slow. Ouch! Where did that surly rant come from and where is it going?

Well, these things and more were on my mind as I sat down at the panel on "Who is investing in Social Software" and Chris asked me "What do you want to invest in these days?"

Through bad planning and happenstance, I landed in Boston with my family smack in the middle of the Democratic National Convention. The DNC is, of course, an excellent explanation for why 6 months ago I was unable to get reasonable tickets into Boston en route to Cape Cod. Instead, I had to fly through Providence. But I digress. Since I was going to be in town during the DNC, I figured I might as well benefit from the hoopla and attend a convention party or two. But, thanks to the good graces of Dave Sifry and the DNCC, I was able to do one better than that -- I was able to get a blogger credential and attend the Convention itself on Thursday.

The fact that there was such a thing as a blogger credential at all is a testimony to the speed with which personal publishing technology has taken hold. Up in the rafters of the Fleet Center on Blogger Alley stood a couple dozen bloggers who had been granted the right to report on the convention from the convention. While some of the bloggers looked as much like journalists as the professionals on the floor, others looked more like sys admins. And, frankly, this new breed of journalists were just that -- sys admins in reporters clothing (or is that reporters in sys admins clothing). The geeky nature of this crowd was worn on their collective sleeves. When wifi connections went down, they shared private IP addresses. They debated the pros and cons of their respective digital cameras. I was even able to find someone with a Treo power adapter when my "personal communicator" started running low (man does the Treo's battery life suck when you're trying to blog on it).

Five years ago, a conference wasn't complete without extensive dissertations on how m-Commerce (buying things on your mobile phone) was going to revolutionize the way Americans shopped. This year, the word was completely absent from the CTIA Wireless conference in Atlanta. The single panel discussion that touched on it was poorly attended. E-commerce really did take off and continues to grow at phenomenal rates (44% last year alone). What happened to m-Commerce?

It's taking off in the rest of the world, but remains virtually unknown in the US. Telecoms manufacturers and content providers are locked in a virtuous circle in Europe and Asia: content providers are busy creating compelling content and offerings for consumers. Consumers spend a lot of money on it, but to fully enjoy it, they need the latest and greatest: high speed data and better handsets. Better connections and handset provide new opportunities for better services and content, and so forth.

However, notice who's missing from that virtuous circle: carriers. The carriers do get some extra money from the extra services, but have to spend it on equipment to keep up with the new high-speed data, greater coverage, and services. Competition drives down prices. This shows up in the revenues -- average revenue per customer is much higher in the US than in other parts of the world, despite greater usage elsewhere.

Home servers and smartphones will eventually replace notebook computers for most users

First, people had computers at work. Next, they got them at home. Eventually, the work computer became a notebook, or one was added. This allowed mobility, and a scan of any airport will tell you how successful the notebook has been.

The next step is to eliminate the notebook and go back to a home pc with access via your smartphone. Several trends are behind this transition: more home applications require the power and constant availability of a home computer, while mobile technology and wireless data networks are evolving to meet the needs of notebook users.

Welcome to the age of personal servers.

Home applications require always-on and power

The next generation of any home appliance is likely to require an always-on server. For example, Tivo plays MP3s over any home stereo and shows photos on TV - but the library resides on your PC. Try doing that with your notebook, and your family can't play music if you're out.