From Istanbul To Sand Hill Road

Clearwire, The "Anti-Triple Play" Company

Clearwire, Craig McCaw's Wimax wireless broadband provider which raised $1.5B last year, is planning to go public in the next two weeks to raise another $400M.  You have to raise a lot of money to build a nationwide communications network, that's not the surprise.  The surprising question is why there is the need for another service provider when both telco's and cable companies are offering a bundled voice, video and data service they call 'triple-play'.  The answer, I believe, is hidden in the question itself.  Is triple-play really good for consumers?  I don't think so.  This is the whole point of this post, but before we go there let's briefly go to school on Clearwire's business.

Last week, while on vacation, I got the chance to read the Clearwire S-1.  As of Sept 30th 2006, they had 144K paying customers over their total coverage area of 5.6M people.  That's nearly 3% penetration in 1 year.  The blogosphere doesn't appear impressed with this number but it is real growth.  That growth gave them $76M in revenues for the first 9 months of 2006 vs. 15M for the whole of 2005.  They did spend $142M in sales and marketing, but the service business in itself is at about 50% EBITDA which is better than their competition.  If they can keep churn low, they can more than recover that big subscriber acquisition cost, and their churn is low.  It's at 1.9% per month which is at least half of their competition.

So what do all these numbers mean?  It means they are growing, the operating metrics are healthy with room for improvement.  But why?  Why are people switching to Clearwire?  Their speeds are not materially faster than Cable modems and DSL.  They are also charging about $40/mo which is comparable to current offerings with the bundle discount.  So it is not the price, it is not the performance.  What is it then?  The answer is in their prospectus, I quote:

We believe that our subscribers are attracted to our current wireless broadband services primarily because our network combines some of the best features of cable modem, DSL and cellular networks into a single service offering at an attractive price. While we serve a large variety of subscribers, we believe that the majority of our subscriber base can be divided into the following broad categories:

	•	subscribers who require a portable high-speed Internet connection, such as on-the-go professionals, field salespeople, contractors, police and fire personnel and others;
	•	subscribers who value the flexibility of a portable wireless broadband service;
	•	subscribers who desire a simple way to obtain and use high-speed Internet access at a reasonable price; and
	•	subscribers who are dissatisfied with other service offerings, often because of perceived or actual poor quality of service, slow speeds, price, the requirement to participate in undesired bundled offers, difficulty of installation or unsatisfactory customer service;

The last bullet is the killer, and is why I think Clearwire will succeed.  I don't think consumers really want the bundling.  It's not that important to have one less bill when you give up so much for it.  Clearwire offers the price you get with the bundled discount, but you are not locked to one company.  Maybe you want voice from another provider, or don't want a landline at all, maybe your cell phone is good enough.  What if you move from a place that has a different cable company, then you have to change everything including your broadband.  Do you really want that?  How about one company that will give you one thing, and give that simply, reliably and in time, ubiquitously?  You move, your broadband moves with you.  That's got to be worth something, and Clearwire has figured it out.

The cable companies and telcos have painted themselves in such a corner with "triple-play" that they've forgotten that it benefits them a lot more than the consumer.  This is their Achilles Heel and I believe Clearwire will exploit it.  The only additional cost of Clearwire is the additional bill, but that is easily overcome by the inherent portability, simplicity, and almost surely better customer service.

This is the counterintuitive marketing behind Clearwire, and I believe it is working.  58% of their subscribers switched from either cable modem or DSL.  I was involved in a Wimax investment when Wimax was a zero billion dollar market.  I am very happy to see the market coming, and Clearwire appears to have the right marketing, right team and right business model to take advantage of it.  Plus, if Jim Cramer says so, it must be true.

Why Is The Blackberry Brickbreaker So Addictive?

A good friend of mine sent me this WSJ article I am quoting pieces of below and wrote; "See, we are not the only crazy ones."  He was talking about the Brickbreaker game on the Blackberry.  It is such a game that one addict, the CEO of Lehman Brothers, had to have the game removed from his Blackberry, only to have it put back.  So why has this simple little game become so popular and addictive?  It's not a new game either.  The Atari 2600 had it and it was called Breakout.  So why now?  I think it's mostly luck, I doubt the RIMM had any idea that it would be successful and the article appears to confirm that.  However, whether you call it serendipity, luck or divine intervention, this game has got three essential elements that's made it successful.  It's worth exploring not just for the sake of game developers, but for any consumer electronics product that wants to have an addictive user base. 

1) It fits the delivery medium.  In this case, it fits the hardware form factor it's on.  It's simple, you need to use only two fingers.  You don't need any kind of dexterity that you do in say, sports games or even games you have to move a character in 4 directions.  It can almost be operated with one hand.

2) It fits the audience.   Blackberry owners are mobile, they don't have a lot of time, but they have a lot of dead time.  The game can be paused and continued at another time.  Any kind of time based, beat the clock game would be a big failure here, in case the player got interrupted by a phone call during the last 10 seconds. 

3) The game is social.  This is by far the most important feature.  A social game is one where you are not trying to beat the computer but your friends.  Even though it appears you are playing against the computer you are actually playing against your buddy because all scores are globally tabulated and players ranked.  Because of the bragging rights and the conversations that ensue (as the one from Mt. Everest in the article), players bring more to the game than the game brings the players.  When a game achieves this, it is more than a game.  WoW does this masterfully, so did the genre started by Doom.

I believe this feature was serendipitous, and the makers of the game didn't intend it to become social.  The article suggests that they "just wanted to have a game on the device".  So why did it become social?  The stars lined up in two ways.  First, it was the only game on the device and the players had to play it, and secondly, the game was available to people who are similar to each other and interact with each other.  The blackberry user is a special kind of demographic.  It is also people within the same company more often than not.  If all Director level employees and above get a Blackberry, you are effectively selecting people who are similar to each other and likely to interact.  So the game was available to the perfect group of people who would make it social.  What a nice surprise.

Now here is what I suggest. How much more usage would RIMM get out of the blackberry if they offered prizes, cash prizes, to the top gamers?  I bet that the usage of the game would materially increase if players knew that the winner every year got say $40K.  Just the marketing PR would justify the expense.  Moreover, they could make up the cash outlay and more if they put a tiny feature that connects to the Internet every so often to download the top 100 list after every game and reported where the individual stands. The added data charges could recover the cash payout.  Of course the carrier would keep a big cut, but that's about to change and that's the subject of another blog post.

Enjoy the article...

BlackBerry Addicts
Also Can't Resist
This Little Game Playing BrickBreaker Is
Executives' Guilty Pleasure;
Phoning From Mt. Everest By SUSANNE CRAIG and GREGORY ZUCKERMAN
February 17, 2007; Page A1
When Richard Fuld, chief executive of Lehman Brothers Holdings Inc., couldn't control his addiction, he took drastic measures. In October, he had the game BrickBreaker taken off his BlackBerry.

"I was playing so much," says Mr. Fuld, who had used it to relax on the plane or in the car. He missed it so much he had it reinstalled, but it's no longer on the main menu. That removes the temptation, he says, "for the most part."

In this era of startlingly realistic video games, BrickBreaker is straight out of the Stone Age. Yet it has developed a cult following, not among the young Gameboy set, but with executives chained to their email. Players swap strategies in chat rooms, brag about their prowess and pay homage to BrickBreaker superstars -- a few with top scores of over one million.

BrickBreaker's premise: Move a paddle left and right with your thumb to bounce a ball so it demolishes "bricks" atop the screen. Most bricks earn 10 points. Clear a screen of bricks, and move on to the next level. Drop the ball too many times, and the game is over. Occasionally, "pills" appear containing bonuses such as a gun or laser, or an extra "life." There's also the deeply hated "flip pill."

....

Messrs. Fuld and Handler have high scores of 16,000 and 15,135, respectively. But they are rank amateurs compared to lawyer Gabriel Berger, who has a high score of 476,000. He's in the top ranks of BrickBreaker players. (Players with the latest BlackBerries can register high scores on a Web site sponsored by BlackBerry maker Research in Motion.) In general, a novice has no trouble scoring three or four thousand points. But as the levels get higher, things get tougher.

Mr. Berger took three lawyers to a Yankees game last fall, hoping to drum up business for his company. But the bonding didn't really begin until one of the men pulled out his BlackBerry.

Mr. Berger saw his opening: "What's your high score?" he asked. The lawyer brightened, instantly recognizing a fellow user. Now, Mr. Berger regularly asks the question as an icebreaker. "Everyone has played the game if they've got a BlackBerry," he says.

One thing that makes the game so addictive is that players can pause the action at any time, then resume it later. Skilled players can stretch out a game for days, weeks or months as they rack up points. Last year, Jed Wider, an attorney at Morgan Lewis & Bockius in New York, got a phone call from a hedge-fund friend in Nepal who had just finished scaling Mount Everest. "The first thing he said was, 'Level 24 calling from Everest Base Camp. Beat that!'" Mr. Wider recalls.

"I knew exactly what he was talking about," namely, BrickBreaker. The highest level in the game that Mr. Wider has reached is 22.

The current registered record-holder is Daniel Allen, a 34-year-old economist in Santa Monica, Calif., who has racked up 1,392,260 points. He started playing two years ago on a business trip -- and once he got on a hot streak, he just had to keep going. Mr. Allen estimates that he played a total of 90 hours, over the course of a year, on his record-setting run. He now fields daily emails from bankers, lawyers and financial executives asking for playing advice.

...

Myspace Goes Mobile on The Way To $1 Billion Dollars

Rupert Murdoch was one of the keynote speakers at the 2007 Media Summit and one one of his statements became very popular on Digg.  It's the statement that says Myspace was getting $25M in ad revenues per month.  While the statement is correct, the comments on Digg were missing some of the facts, and there were a few other very significant statements Rupert Murdoch made that should be widely known.

First of all, Myspace revenues from advertising is at $25M/mo and growing 30% per quarter, but this revenue does not include search revenue from Google.  The $900M deal is going to start kicking in next year.  As far as pure advertising goes, $25M/mo is phenomenal, but low compared to the 150M registered users they have, and I'll get to that later.

Much more interestingly, Myspace launched a mobile app with Cingular, allowing Cingular subscribers to access Myspace profiles on their handsets.  the application costs $3/mo, where $2 goes to Myspace and $1 goes to Cingular.  The most amazing thing about this service is that 200K people has subscribed to it in the first six weeks of the service and it's on one carrier so far.  If it goes at this rate, in one year the application will be the most poplular mobile app ever, passing the likes of MobiTV, and can easily surpass the $25M/mo ad revenues.

Looking back at the numbers $25M/mo in advertising with 150M users is a very scary number.  Any social network with 5M users would be considered successful by VC's and that would correspond to a mere $10M/yr business.  Secondly, the data shows how low the CPM's are on Myspace.  My calculations are that each pageview is worth less than 3/10ths of a cent.  That means that Myspace is really a volume game.  They get really crappy ads, but they just have a lot of pageviews.  My hat's off to them because this will be very hard for others to replicate, in the US at least.

Finally, about the $1B, Rupert Murdoch said that with the search revenue in 2008, and the organic growth of ad revenues, and the addition of revenues from IGN, Fox Interactive will get to $1B in revenues in a year or so.  That's impressive.

Why Do You Want Interactive TV?

I spent two days in New York, attending the 2007 Media Summit.  With Rupert Murdoch and Barry Diller as keynote speakers, this event was bound to attract the top people in the traditional media business.  I am talking about Television and Advertising.  And they were all there in suits.  A small handful of us, representing silicon valley, were there too, trying to understand how traditional media saw the world.  As soon as the conference started it became abundantly clear that guys in the Internet media camp, and guys in the traditional media camp see the world in very different ways indeed. 

On both days of the conference I was a panelist.  One of the panels was titled "Reinveting Advertising: Broadband, Social Media, Mobile, VOD & DVR - New Platforms, New Paradigms".  I was sitting between the Sr. VP Corporate Strategy at Disney and the Dir. Bus. Development at Charter.  The former represented the content owners, the latter represented distribution.  The conversation inevitably came to interactive TV.  The paradigm where you can click on things you see on TV and get feedback and interact with the device.

I very thoughtful question was asked.  It went something like this:  "I've been waiting for interactive TV for 10 years, and I had given up on it.  Are you guys saying that Interactive TV is finally coming?".  Now watch the answers, it clearly reveals how each constituency sees the world.

The answer from Charter was: "Interactive TV is not coming, it's already here.  We've been trialing it in this town XYZ, and getting great reaction from the viewers who can click on ads and interact".  This is the typical answer of the cable company: "It's coming, it's almost here".  But it never really is.  The fact is that the distribution guys want to do nothing unless they absolutely have to, and they have to feel the pressure from somewhere.  Unfortunately, satellite has no prayer of delivering interactivity (no return channel) so there is no real impetus to deliver it.

The Sr. VP from Disney answered the question revealing how content owners look at interactive TV.  The answer was: "technology can do anything and everything.  This is not a technology question.  Interactive TV will come when customers want it".  Let me decipher this to my readers.  The answer really is: "I don't give a sh.. about interactive TV.  I sell content.  As long as people want to be entertained they will buy my content.  I don't care how you package it."  How can you disagree with that?

Then it was my turn.  I said: "Let me answer your question with a question.  Why do you want interactive TV?"  There was a silence in the room.  "If you want to interact with your TV, why can you switch your bigscreen TV to the PC mode and get all the interactivity you like from the Internet.  When you are done, go back to your TV."  10 years ago people used to say, "the TV is a lean back experience and the PC is a lean forward experience".  Hence there was no way to use the PC while in the living room.  I think the PC has become a lean back experience in a big way.  Look at what's happened:  1) TV screens are big enough and with enough resolution that you can surf the web fantastically lying on a couch 2) Laptops are smaller, cheaper and can be easily hooked to your big screen TV with a long enough VGA cable or hopefully one day with wireless HDMI. 3)Products like Apple TV bring your PC content on to your TV already 4) The game consoles are PC's that are hooked up to your TV.

So while we were waiting for interactive TV, a massively interactive device, your PC, has found its way right next to your PC, and it's game over.  You can get HD content on your laptop.  You can get, or will soon, all kinds of on demand content on your PC, and over time the quality will get better and better and better.

Point is that, while big media is still thinking that they can reach out to consumers via their TV's consumers are electing to turn their TV's into monitors for their PC's.  Moore's Law is making this happen, and there is no coming back.  The sooner big media realizes this the better it is for them.

An Anthropologist Explains Web 2.0

An anthropologist explains without talking, in this five minute video, how the web has evolved to be what is it today.  Very well done and worth the time to see.

The World's First Wiki Novel

British publisher Penguin just launched a very interesting project called "a million penguins."  It's the worlds first wiki novel.  The idea is simple, anybody can edit and contribute to a novel.  The result is a book written by the crowds. It's a novel experiment and I applaud the project and hope it is successful.  You can visit the site and read the chapters that are being edited as we speak.  In Penguin's own words:

"A Million Penguins is an experiment in creative writing and community. Anyone can join in. Anyone can write. Anyone can edit. Anyone can be special. Even YOU. Yes you. Let’s see if the crowds are not only wise, but creative. Or will too many cooks spoil the broth?"

The project is supposed to go on for a few months. I read the current version and am curiuos to see the last version.  There is one little thing that needs to be monitored though.  The project reminds me of the high school game where you go around in a circle and each person writes one sentence of a story.  I remember one time, we were on a blue voyage near Bodrum sleeping under the stars and we decided that we go around writing a horror story.  It went around among my friends like this:

Baris: "It was the third straight day in our dig in Egypt to find the lost tomb of the cursed pharoah and every day one member of our crew died in an accident."

Ali: "It was dark and we didn't notice the strage clouds gathering around the pyramid."

Isik: "Until that night, I hadn't noticed the female archeologist in our crew"

I wonder if a million penguins will write it any differently.  From the way the project's started, they won't. :-)

Harry Potter Book 7 - Deathly Hallows

Harry Potter Book 7, Deathly Hallows is out July 21, 2007.   Surely it will be the most anticipated book of the year.  Don't miss the chance to get it first.