February 12, 2016
I read “The State of Venture Capital.” I thought, “Oh, ho, here comes the tightening of the thumbscrews. The idea is simple. Insert fingers and turn the crank. My hunch is that the device will focus the attention of person whose fingers are in the business end of the gizmo.
In the write up, I learned that in the next two years, folks should expect:
- Increased loss ratios
- Most flat rounds
- More down rounds
- More structured rounds
- Relatively harder to raise capital
- VCs marking-to-market showing some movements south
I like the reference to the movement south.
How does this relate to the search and content processing outfits which have sucked in tens of millions in venture funding? Three items for which I will be watching:
- More market repositioning. Think predictive analytics, data lakes, cloud solutions, and artificial intelligence. Talk is cheap. If talk generates a license deal, that’s the upside.
- Downsizing. I know that growth is all the rage, but I think that some vendors will have no choice except cutting back on expenses. Full time hires become contract workers. Trade show participation becomes a webinar which is archived and the promoted as a resource.
- Dance card shuffling. In an effort to generate leads and from the leads some real license deals, companies will join up. Others will departner and find another entity with which to dance.
Which search vendors will survive? The last big shake out winnowed the likes of Convera, Delphes, Entopia, and Siderean. The acquisition boomlet moved Autonomy, Exalead, ISYS Search, and Vivisimo into the safe havens of larger organization. Who will buy today’s market leaders? Other vendors will have no choice but go quiet. The last time I checked Dieselpoint it was still in business. Sophia Search? Intrafind? X1?
Which company is the next Autonomy? Elastic, Recommind, IBM Watson?
My view is that 2016 will be exciting for some folks.
Stephen E Arnold, February 12, 2016
February 6, 2016
I read “Kremlin Considering Google Tax on Technology Services.” The article suggests that Russia may tax online services. The services named include Google, Facebook, and Apple. I know that Facebook works hard to avoid certain conflicts. Apple has its hands full with the specter of not having any hot products in 2016. So the Google?
The world’s most valuable company may have to pay more than a UK “get out of jail” fine if the write up is accurate. I learned from the “real” news source:
Klimenko, an early Russian Internet innovator, was appointed as President Vladimir Putin’s Internet adviser in December. His suggestion of a kind of value-added tax on technology services in Russia comes only days after he asserted that Google, Facebook, and other social-media companies will be blocked in Russia “sooner or later” if they do not comply with a law enacted in August requiring them to locate facilities that store Russia data in Russia. And it comes after Russian news agencies reported that Putin on January 29 signed an executive order asking federal agencies to work with Klimenko on amending legislation to ensure equal operating conditions for companies within Russia with respect to the Internet.
Google may get a chance to demonstrate its potency if Russia boosts taxes. I recall that Mr. Brin’s space flight did not work out. Will this new chess match result in Google’s sitting on the sidelines in Russia?
Worth monitoring. Now about that source and its “real” journalists? Nah, never mind.
Stephen E Arnold, February 6, 2016
January 24, 2016
The founder of Salesforce pointed out that some of the stampeding unicorns are going to die. See the frosty thoughts in “Salesforce CEO Marc Benioff Predicts ‘a Lot of Dead Unicorns’ and Cheap Startups to Buy.”
What goes up must come down, right? But the obviousness of the prognostication misses one aspect of the economic snowmageddon.
There are many search sasquatches which have been struggling to survive in the Lucene/Solr landscape. These outfits share some characteristics:
- Histories of low or no profits and revenue challenges
- Fuzzy positioning about what their information access technology does
- Difficulties making clear why proprietary technology is better than open source search technology
- A dependence on venture funding to keep the lights on and the parking lots paved.
Who are some of the proprietary vendors living in the suburbs of unicorn land?
Examples which an intrepid sasquatch hunter might consider fair game are:
- Attivio, a system based on inspirations from Fast Search & Transfer
- BA Insight, a Microsoft centric information access system
- Coveo, a search system once anchored in Microsoft technology
- EasyAsk, proprietary natural language processing. The company has used crowd funding to raise some cash.
- MarkLogic, once considered a unicorn, and now trying to find new revenue as the firm’s original market of publishing faces its own problems
- Sinequa, one of the interesting French search vendors
- X1, a search and discovery outfit with an interesting interface
There are others as well, but few North Americans know about Exabyte, Intrafind, SRCH2, and their ilk.
If Marc Benioff is correct, the information access ecosystem will suffer the type of implosion that occurs when Brazilians chop down the rain forest. Reforestation does occur, but it may deliver a radically different ecological environment. Consultants and installations of Lucene/Solr might be more friendly than the venture capital firms who want their money back.
What is the going rate for the pelt of a search sasquatch?
Stephen E Arnold, January 24, 2016
Which unicorns and search sasquatches will survive? Where is Darwin when one needs him?
Stephen E Arnold, January 24, 2016
January 20, 2016
Watson seems to be running out of answers. The system came up with a cook book, a plan to put a dent in cancer, and make sense of Big Data. Great public relations efforts, but the financial payoff seems to be lacking.
I read “IBM Shares Slide as Revenue Drops for 15th Stright Quarter.” How can this be when a company has the smartest, fastest, bestest artificial intelligence system in the world?
The answer is similar to Google’s analysis of its autonomous car’s track record. Wrecks are the fault of those pesky humans. IBM may be better off letting Watson and its Lucene based, home brew, and acquired technology make business decisions for IBM.
I learned in the write up:
Revenue shrank to $22.06 billion versus $24.11 billion.
And in “IBM Still on a Downward Roll with 15th Consecutive Quartgerly Revenuye Drop” this caught my attention:
“We continue to make significant progress in our transformation to higher value,” offered IBM chairwoman and chief executive Ginni Rometty.
Perhaps Ms. Rometty is not listening to IBM Watson? Or, on the other hand, perhaps she is? Either way, Watson is not delivering the payoff that IBM’s somewhat wonky Watson marketing purports.
Revenue, gentle reader, not marketing fluff seems to be needed. Cognitive computing and humans seem to be ineffective when it comes to generating sustainable, substantive revenue.
Stephen E Arnold, January 20, 2016
January 19, 2016
I think about French search and content processing systems once a year. Okay, maybe less frequently. I check out what’s new with Antidot, KBCrawl, Exalead Dassault, Sinequa, CustomerMatrix (né Polyspot), and Pertimm Qwant plus a handful of other outfits.
Most of these firms are unknown to those who kibitz in Sillycon Valley. Each of the companies has a revolutionary technology, world class technology, and galactic confidence in their zeros and ones.
The concern I have for French information access companies in 2016 is a story in USA Today, the McPaper which is often a source of amusement for me.
The article is “French President Declares Economic Emergency.” Here’s the passage I noted:
French President Francois Holland pledged Monday to redefine France’s business model and declared what he called “a state of economic and social emergency,” unveiling a 2-billion-euro ($2.2 billion) plan to revive hiring and catch up with a fast-moving world economy.
Will a couple of billion filter down to impact the economic fortunes of the French search and retrieval vendors? That’s a good question.
But the answer is, “Non.”
Some of the systems are quite interesting. Most of the firms struggle to generate substantial organic revenue in the US. Once a search vendor announces that it will expand its US operations, the follow through is often modest.
France cranks out some good engineers. But 2016 is going to be as or more challenging for the French search engine vendors as any other year in recent memory.
Stephen E Arnold, January 19, 2016
January 6, 2016
I read “Insider Selling: Alphabet Inc (GOOG) Major Shareholder Sells $26,091,956.28 in Stock.” I noted these transactions summarized in the write up:
- On Tuesday, January 5th, Sergey Brin sold 33,340 shares of Alphabet stock. The stock was sold at an average price of $753.62, for a total transaction of $25,125,690.80.
- On Monday, January 4th,  Sergey Brin sold 33,332 shares of Alphabet stock. The stock was sold at an average price of $745.36, for a total transaction of $24,844,339.52.
- On Thursday, December 31st, Sergey Brin sold 33,332 shares of Alphabet stock. The stock was sold at an average price of $773.18, for a total transaction of $25,771,635.76.
- On Tuesday, December 29th,  Sergey Brin sold 33,332 shares of Alphabet stock. The stock was sold at an average price of $784.52, for a total transaction of $26,149,620.64.
Timing is everything my grandfather told me. Perhaps 2016 will be an interesting year for Google’s stock price?
Stephen E Arnold, January 6, 2016
January 4, 2016
The question is a baffler. Navigate to “Sorting Truth from Myth at Technology Unicorns.” If the link is bad or you have to pay to read the article in the Financial Times, pony up, go to the library, or buy hard copy. Don’t complain to me, gentle reader. Publishers are in need of revenue. Now the write up:
The assumption is that a unicorn exists. What exists are firms with massive amounts of venture funding and billion dollar valuations. I know the money is or was real, but the “sub prime unicorn” is a confection from a money thought leader Michael Moritz. A subprime unicorn is a co9mpany “built on the flimsiest of edifices.” Does this mean fairy dust or something more substantial?
According to the write up:
High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. But the way in which private market valuations have become skewed and inflated as start-ups have delayed IPOs raises questions about the financing of innovation. Despite the excitement, venture capital has produced weak returns in recent decades — only a minority of funds have produced rewards high enough to compensate investors for illiquidity and opacity.
Why would funding start ups perform better than a start up financed by mom, dad, and one’s slightly addled, but friendly, great aunt?
The article then makes a reasonably sane point:
With the rise in US interest rates, the era of ultra-cheap financing is ending. As it does, Silicon Valley’s unicorns are losing their mystique and having to work to raise equity, sometimes at valuations below those they achieved before. The promise of private financing is being tested, and there will be disappointments. It does not pay to be dazzled by mythical beasts.
Let’s think a moment about search and content processing. The mid tier consulting firms—the outfits I call azure chip outfits—have generated some pretty crazy estimates about the market size for search and content processing solutions.
The reality is at odds with these speculative, marketing fueled prognostications. Yep, I would include the wizards at IDC who wanted $3,500 to sell an eight page document with my name on it without my permission. Refresh yourself on the IDC Schubmehl maneuver at this link.
Based on my research, two enterprise search outfits broke $150 million in revenues prior to 2011: Endeca tallied an estimated $150 million in revenues and Autonomy reported $700 million in revenues. Both outfits were sold.
Since 2012 exactly zero enterprise search firms have generated more than $700 million in revenues. Now the wild and crazy funding of search vendors has continued apace since 2012. There are a number of search and retrieval companies and some next generation content processing outfits which have ingested tens of millions of dollars.
How many of these outfits have gone public in the zero cost money environment? Based on my records, zero. Why haven’t Attivio, BA Insight, Coveo, Palantir and others cashed in on their technology, surging revenues, and market demand?
There are three reasons:
- The revenues are simply acceptable, not stunning. In the post Fast Search & Transfer era, twiddling the finances carries considerable risks. Think about a guilty decision for a search wizard. Yep, bad.
- The technology is a rehash gilded with new jargon. Take a look at the search and content processing systems, and you find the same methods and functions that have been known and in use for more than 30 years. The flashy interfaces are new, but the plumbing still delivers precision and recall which has hit a glass ceiling at 80 to 90 percent accuracy for the top performing systems. Looking for a recipe with good enough relevance is acceptable. Looking for a bad actor with a significant margin for error is not so good.
- The smart software performs certain functions at a level comparable to the performance of a subject matter index when certain criteria are met. The notion of human editors riding herd on entity and synonym dictionaries is not one that makes customers weep with joy. Smart software helps with some functions, but today’s systems remain anchored in human operators, and the work these folks have to perform to keep the systems in tip top share is expensive. Think about this human aspect in terms of how Palantir explains architects’ changes to type operators or the role of content intake specialists using the revisioning and similar field operations.
Why do I make this point in the context of unicorns? Search has one or two unicorns. I would suggest Palantir is a unicorn. When I think of Palantir, I consider this item:
To summarize, only a small number of companies reach the IPO stage.
Also, the HP Autonomy “deal” is a quasi unicorn. IBM’s investment in Watson is a potential unicorn if and when IBM releases financial data about his TV show champion.
Then there are a number of search and content processing creatures which could be hybrids of a horse and a donkey. The investors are breeders who hope that the offspring become champions. Long shots all.
The Financial Times’s article expresses a broad concept. The activities of the search and content processing vendors in the next 12 to 18 months will provide useful data about the genetic make up of some technology lab creations.
Stephen E Arnold, January 4, 2015
December 31, 2015
Watson has its works cut out for itself in 2016. I read “IBM Set to Drop 13% in 2015.” When one is tossing around a $100 billion outfit, the thought of a share drop is disconcerting. Will Alibaba or Jeff Bezos step in. Fixing up the Washington Post may be trivial compared with an IBM scale challenge.
According to the write up:
Much of the disappointment in the tech company is because it has been unable to replace its hardware and software legacy products with new cloud-based and AI products — at least not at a rate that would pull IBM’s revenue up. Its major branded product in new age technology is Watson. While Watson has been the source of press releases and small customer alliances, outsiders have trouble seeing what it does to sharply increase IBM’s sales. Granted, Watson may be one of the most impressive product advances among large companies in the sector recently, but what it does for IBM may be very modest.
Somewhat of a downer I perceive.
The smart software thing is not new. In the last 18 months, awareness of the use of various numerical recipes has increased. Faster chips, memories, and interconnections have worked their magic.
The challenge for IBM is to make money, not just marketing hyperbole. The crunch is that expectations for certain technologies are often more robust than possible in a market.
Watson is, when one keeps its eye on the ball, is a search and content processing system. The wrappers make it possible to call assorted functions. Unlike Palantir, which has its own revenue fish to catch, IBM is a publicly traded company. Palantir does its magic as a privately held company, ingesting money at rates which would make beluga whale’s diet look modest.
But IBM has exposed itself. The Watson marketing push is dragged into the reality of IBM’s overall company performance. In 2016, IBM Watson will have to deliver the bacon, or some of the millennialesque PR and marketing folks will have an opportunity to work elsewhere. Talk about smart software is not generating sustainable revenue from smart software.
Stephen E Arnold, December 31, 2015
December 30, 2015
Those chart mavens at CBInsights have produced another timeline for wild and crazy Internet services. “The Rise and Fall of Venture Backed News Readers” makes clear the long odds traditional news producers face when trying to find a business model. The chart is a shopping list of case studies for MBA programs. The idea of providing “news” to the hungry minds with mobile devices and sci fi laptops seems to be a bit of a challenge. For investors, these services trigger opportunities to explain why their investments did not perform particularly well. The chart, intentionally or unintentionally, causes Flipboard to stand out from the crowd. It may be the red logo and bold faced type. Alternatively, Flipboard has managed to attract money over the last five years. The chart makes clear why an average millennial may want to take a vacation instead of investing in a newsreader start up.
Stephen E Arnold, December 30, 2015
December 29, 2015
I read a number of articles about Yahoo each day. Most of these are rehashes. Xoogler flops. Yahoo tanks. A fresh angle rare.
“Why Yahoo Needs a Monopoly to Survive” is different. The approach takes a tough stance:
Yahoo is in trouble. Despite nearly $5 billion in annual revenue, investors value Yahoo’s business at next to nothing. Most of its value comes from its investment in Alibaba–to the point where Yahoo has largely become a tracking stock for Alibaba shares.
Direct and to the point.
The write up continues:
Google has the content platform in search. Facebook has the social networking platform. Amazon has the product marketplace (in the U.S.). Similarly, in China, Alibaba has the top product marketplace, Tencent has the top messaging platform and Baidu has the leading search platform. All leading platforms have a core monopoly that is the lifeblood of their business. Why? Once a platform has a monopoly, it can use its core network to expand into other markets Every subsequent platform can leverage the platform monopoly’s network to its advantage.
There you go. A monopoly is just darned good. Quite a generalization, but I like the frankness of the insight.
How does this relate to Yahoo?
Yahoo is not a monopoly. Yahoo must be a monopoly. The logic of the article is that Yahoo is a goner unless, like a pilot fish, it attaches itself to the shark Alibaba.
What will the Xoogler do? Do the parasite move or stick with a symbiotic relationship? Yahoooo!
Stephen E Arnold, December 29, 2015