Category Archives: Insights

Why You Can't Short Private Company Stock

Stock shorting is popular among public investors, however, it is not applicable in all types of company stocks. Only individuals dealing with public company stock can short shares. Private company stock cannot be shortened regardless of the number of willing stock buyers. To perfectly understand why it can’t be done, it’s vital to first comprehensively define what shorting entails

What shorting entails

To effectively generate money from shorting, you have to be good in market speculating and analysis. As an investor, you have to concentrate on the particular stocks you think are currently overpriced and will possibly depreciate later. Selling such stocks in the current market and buying them later at a lower price earns you some significant profit especially if the price margin is quite large.

You definitely need to have stock to sell it. Unfortunately, you may not have the particular ‘overpriced’ stocks. The best way to acquire the stocks is to borrow them from a share holder. You can do this by directly contacting the holder or using your broker. Some brokers usually ‘borrow’ stocks from unknowing holders and lend them to investors for shorting. Such stocks always have to be returned immediately after the shorting before the holders realize they are missing.

As an investor, you will short by selling the ‘overpriced’ stocks and waiting for the price to subsequently depreciate. When the value significantly reduces, you should buy the same number of stocks and return them to the lender. You will therefore end up pocketing the profits that the stocks have acquired. Although this is a relatively attractive business endeavor, it is considerably risky since company stock may appreciate instead of depreciating. Let’s now take a look at a numeric example.

Let’s say I own 10 shares of company ABC at $10 per share. You believe the stock price of ABC is overvalued and is going to crash sometime soon. You then come to me, and ask to borrow my ten shares of ABC and sell them at the current market price for $10. I agree to lend you my shares as long as you pay me back ten shares of ABC at some point in the future. You take the ten borrowed shares, sell them for $100 and pocket the money (10 shares x $10 per share = $100).

The following week, the price of ABC stock falls to $5 per share. You call your broker and tell him to buy 10 shares of ABC stock, at the new price of $5 per share. You pay him the $50 (10 shares x $5 per share = $50). You then return the shares of ABC that you borrowed from me.

In summary, you borrowed my shares of ABC, sold them for $100. When ABC fell to $5 per share, you repurchased those ten shares for $50 and gave them back to me. This resulted in a $50 profit for you (minus of course any trading fees).

What would have happened if you were wrong and the stock price had increased?  You would have had to buy back the shares at the new, higher price, and absorb the loss. Unlike regular investing where your losses are limited to the amount of capital you invest (e.g., if you invest $100, you cannot lose more than the $100), shorting stock has no limit to the amount you might ultimately lose. In the unlikely event the stock had shot up to $500, you would have had to purchase ten shares at $500 a share for $5,000. Taking into account the $100 you received from selling the shares earlier, you would have lost $4,900 on a $100 investment.

Public vs Private Company Shorting

Public company shorting is possible primarily because stocks can be freely sold. They can be easily sold to willing buyers and re-acquired through willing sellers. However, the transfer of private company stock, is limited due to the current restrictions on private company stock and thus cannot be freely bought or sold.

Source: http://ker.by

Same Day Delivery

Consumers have been minimizing time and cost by shopping online for awhile now.  Amazon and others have been offering an online shopping option for years. However, more people are looking into ordering perishable items such as groceries or flowers and they’re requesting same-day delivery. In this post I will explore four services that I’ve tried: Google Express Checkout, Amazon prime, Instacart and Fresh Direct to see how each works and what their pros and cons are for consumers looking to shop through them.

Amazon Prime

Amazon prime customers are able to enjoy live streaming video and streaming movies from Amazon prime’s website. Amazon prime customers are also able to enjoy other discounts on the site including discounted express delivery costs. Recently, Amazon Prime began offering discounts on same-day delivery much to their customers’ satisfaction. The good thing about Amazon, is that it doesn’t just offer same-day delivery on perishable items, it also offer same-day delivery on any item that has the prime logo near it. Most of these items are shipped and sold from Amazon and not third-party companies, although there are a few exceptions. People can enjoy same-day delivery on items such as furniture, food and gifts for as little as $3.99. Amazon same-day delivery is called Local Express Delivery.

Fresh Direct 

Fresh Direct is a well-known online grocer that delivers everything from eggs to toilet paper directly to your home or place of business. At the moment, they primarily deliver to NYC and parts of Connecticut and Pennsylvania. Since they have a 100% satisfaction guarantee, customers feel safe purchasing products from the site even if they can’t view them in the store before hand. A lot of their popularity comes from the fact that their prices are similar to those that you would find in a grocery store and sometimes less. Items are all shipped in a refrigerated truck seven days a week between the hours of 6:30 AM and 11 PM, making it very convenient for those who need their groceries anytime of the day. The great thing about fresh direct is that they also have an app that allows consumers to shop directly from their iPhone, iPad or android powered device. This was a go-to service for me when I lived in NYC.

Instacart

Instacart is well known across areas of San Francisco, Palo alto and other surrounding neighborhoods. Unfortunately they don’t deliver outside of California just yet. Instacart allows consumers to purchase items from stores such as Safeway, Costco, Whole Foods and Trader Joe’s from the convenience of their home computer, tablet or smart phone. They carry over 30,000 grocery items from the stores and they’re all available for same-day delivery within as little as one hour. The way it works is that the consumer purchases items from their online catalog, the order gets routed to a personal shopper for collection and then it’s delivered directly from the grocery store to your home. Depending on where your home or office is located, these items could be to you in as little as 60 minutes. The prices for their deliveries vary, but most customers choose to have their groceries delivered in under two hours (the majority of these orders there around $35) making the the delivery just around $3.99. They deliver on holidays and weekends in their normal delivery hours are between 10 AM and 9 PM seven days a week.  

Instacart has been my favorite service in SF.

Google Shopping Express 

Google Shopping Express, not to be confused with Google Express a.k.a. Google Wallet, is a delivery service that allows consumers to purchase from big retailers such as Walgreens, Office Depot, Staples and Target for quick same-day delivery.  At the moment, Google Shopping Express only delivers in the San Francisco Bay area, but they are looking to expand into other cities and states. The Google model is identical to Instacart’s, however the big downside her are the delivery times.  While Instacart has one hour delivery windows, Google uses 3 hour delivery windows which is pretty burdensome for those of us who can’t block off 3 hours of our day to stay in one location.  I am sure Google will improve on their delivery items since the service is not yet publicly launched.  

There a plethora of other services that can also provide a similar service – TaskRabbit, Exec, etc.  I love products and services that make me more efficient.

What are everyone else’s thoughts?

Source: http://ker.by

Self Driving Cars!

There is a new type of connected technology that’s making eyebrows raise all around the world – self driving cars. Ok ok, so everyone is actually talking about Google Glass, but I have a greater fascination with the way in which the self-driving car can change the lives of all of us.

So, What’s the Big Whoop?

Some consumers and companies are worried about the programming going rouge and causing the passengers to be in danger, and others wonder if this will be a solution to the global warming crisis that seems to be worsening each year . Below are some reasons of why I think this innovation will help in more ways than one.

Minimizing loss of life. Everyday dozens of drivers are killed in automobile accidents. Driverless cars are able to detect potential hazards and work as the eyes and ears for the driver. According to Google, their driverless cars will reduce traffic accidents by 90 percent. In addition to saving lives, these driverless cars will also cut the annual cost of traffic accidents, which is currently over $450 billion per year.

Saves money on commuting. Not only do driverless cars know the most efficient routes to get to your destination, but they’re also estimated to use less gas. Google claims that using driverless cars can save over $101 billion dollars in fuel costs. The majority of this $101 billion is spent on wasted gas from taking incorrect or less-efficient routes, which will equate to savings in your pocket and savings for the ozone.

Auto Industry Disruption Businesses are already lining up and investing in buying fleets of these driverless cars. Businesses such as Zipcar could see a fundamental change in the structure of their fleets once these driverless cars hit the road as livery/taxi services and are produced in mass numbers. The reason investors are scrambling to invest in driverless car services is because of the profit margin and the best part about it is that they won’t have to hire in a staff to drive. The car will do all the work itself so there’s no need to pay those high health insurance payments or employee salaries.

All in all, I think Google has got something something special here (and we thought Google glasses were cool). Are you ready to ghost ride the whip? When driverless cars hit the mainstream, will you buy one?

 

Source: http://ker.by

Venturescape: This Year’s NVCA Annual Meeting

I’m going to Venturescape, the NVCA Annual Meeting May 14 and 15 in San Francisco and you should too. I haven’t been to one in many years, but this year is different.

The NVCA is the National Venture Capital Association. It’s much more than just a trade organization, and this year’s annual meeting demonstrates that.

My friend Jason Mendelson from Foundry Group is on the NVCA Board of Directors and he is running Venturescape. That being said, if the meeting was going to suck I wouldn’t go. But it looks quite good.

I’m excited about the agenda, as this is the best lineup I’ve seen at one of these events. Included in the mix are:

  • Dick Costolo, Twitter CEO
  • General Colin Powell
  • Ginni Rometty, IBM CEO
  • Anne Wojcicki, 23andMe CEO

There is also the world’s largest VC Office Hours. And for the first time, “fun” is part of the meeting in the form of NVCA Live! — a great concert featuring Pat Monahan from Train and Legitimate Front, a band in which I’m staring as the drummer and main groove man.

If you are a VC, I hope to see you there. If you are an entrepreneur, ask your VC funders for tickets to NVCA Live!, as that is open to everyone, although tickets are only purchasable by NVCA members.

If you are coming, especially to NVCA Live!, let me know. See you there.

Source: http://www.pakman.com

10 Rules For Disruptors In The Financial Services Industry

Having worked in the FinTech space many years ago, invested in the space for over a decade, and met with hundreds of talented teams in this area, I have observed the following ten traits among the most successful companies:

Rule #1: Unlock Economic Value   Most traditional financial service firms have invested heavily in branch networks that create expensive cost structures which result in higher prices to customers. Mass-marketing channels and poor customer segmentation also result in higher costs and marketing expenses which translate to higher prices. Online-only financial services can unlock significant economic value and pass this along to consumers. Lending Club offers borrowers better rates and more credit than they can get from traditional banks, while offering lenders better rates of return than they can get from savings accounts or CDs. SoFi is disrupting the world of student loans with better rates to student borrowers and superior returns to alumni lenders relative to comparable fixed income investment opportunities.

Rule #2: Champion the Consumer   Consumers are disenchanted and distrustful of existing financial institutions. Let’s take this historic opportunity to champion their interests and build brands deserving of their love. The team at Simple has envisioned a new online banking experience that puts the consumer first via transparency, simplicity and accessibility. Its blog reads like a manifesto for consumer-friendly financial service delivery. LearnVest is another company on a consumer-first mission to “empower people everywhere to take control of their money.” Its low-cost pricing model is clear and free of conflicts of interest that are rampant in the financial sector.  There is plenty of margin to be made in championing the consumer. The speed at which consumer sentiment spreads online these days creates an opportunity to become the Zappos or Virgin Airlines of financial services in relatively short order.

Rule #3: Serve The Underserved  In my last post explaining why the FinTech revolution is only just getting started, I described how the global credit crunch left whole segments of consumers and small businesses abandoned.  Some segments at the bottom of the economic ladder have never really been served by traditional FIs in the first place. Greendot was one of the pioneers of the reloadable prepaid cards bringing the convenience of card-based paying online and offline to those who lacked access to credit cards or even bank accounts. Boom Financial is providing mobile to mobile international money transfer at unprecedented low rates and ultra-convenience from the US to poorly served markets across Latin America and the Caribbean, and eventually globally.   No need for a bank account, a computer, or even a trip downtown to dodgy money transfer agent locations.

Rule #4: Remember the “Service” in Financial Service  Just because you are building an online financial service does not mean that your service is only delivered by computer servers.  When dealing with money matters many people want to speak to a live person from time to time or at least have this as an option just in case. Personal Capital delivers a high tech and high touch wealth management service via powerful financial aggregation and self-service analysis tools, but also provides live financial advisors for clients who want help in constructing and maintaining a diversified and balanced portfolio. These advisors are reachable via phone, email, or Facetime video chat.  As a rule of thumb every FinTech company should provide a toll-free phone number no more than one click from your homepage.

Rule #5: Put a Face on It  Chuck SchwabKen FisherJohn BogleRic Edelman.  These stock market titans may have very different investment styles but they knew that consumers want to see the person to whom they are entrusting their money and as a result they each plastered their face and viewpoints all over their marketing materials, websites, and prolific publications. If your startup wants consumers to entrust you with their nest eggs, you ought to be willing to show your face too. This means full bios of the management team, with pictures, and clear location for your company as well as numerous ways to be contacted. It’s also a good idea to make sure that your management team have detailed LinkedIn profiles and that a Google search for any of them will yield results that would comfort a consumer.

Rule #6: Be a Financial Institution, not a vendor  The real money in FinTech isn’t in generating leads for FIs or displaying ads for them. That can be a nice business, but the real margin is in making loans, investing assets, insuring assets, or settling transactions. In just a few years Wonga has a become a massive online lender in the UK by instantly underwriting and dynamically pricing short term loans. Financial Engines and a new crop of online investment advisors make and manage investment recommendations for their clients.  You do not need to become a chartered bank or an investment custodian as there are plenty of partners that can provide this behind the scenes, but if you can brave the regulatory complexity and develop the technology and skills to underwrite and/or advise exceptionally well, the opportunities are huge.

Rule #7: Use Technology Creatively  The incumbents have scale, brand history, brick and mortar presence, and armies of lawyers and lobbyists. If FinTech startups are going to disrupt the incumbents, you will need to work magic with your technology. How clever of Square to use the humble but ubiquitous audio port on smart phones to transmit data from their swipe dongle and for using GPS and the camera/photo album to make everyone feel like a familiar local when using Square Wallet.  MetroMile is a FinTech revolutionary disrupting the auto insurance market by offering pay per mile insurance so that low mileage drivers do not overpay and subsidize high mileage drives who tend to have more claims.  They do this via a GPS enabled device that plugs into your car’s OBD-II diagnostic port and transmits data via cellular data networks in real-time.  Start-ups playing in the Bitcoin ecosystem such as Coinbase and BitPay are certainly at the vanguard of creative use of technology and are tapping in to the mistrust of central banks and fiat currencies felt by a growing number citizens around the world who trust open technologies more than they do governments and banks.

Rule #8: Create Big Data Learning Loops  Of all the technologies that will disrupt financial services, Big Data is likely the most powerful. There has never been more data available about consumers and their money, and incumbent algorithms like Fair Isaac’s FICO scores leave most of these gold nuggets lying on the ground. Today’s technology entrepreneurs like those at BillfloatZestCash, and Billguard are bringing Google-like data processing technologies and online financial and social data to underwrite, advise and transact in a much smarter way. Once these companies reach enough scale such that their algorithms can learn and improve based on the results of their own past decisions, a very powerful network effect kicks in that makes them tough to catch by copycats who lack the scale and history.

Rule #9:  Beware the Tactical vs. Strategic Conundrum  One challenge when it comes to financial services is that the truly strategic and important financial decisions that will impact a person’s financial life in the long run, such as savings rate, investment diversification and asset allocation, tend to be activities that are infrequent or easily ignored.  Activities that are frequent and cannot be ignored, like paying the bills or filing tax returns, tend to be less strategic and have inherently less margin in them for FinTech providers. Real thought needs to go into how you can provide strategic, life changing services wrapped in an experience that enables you to stay top of mind with consumers so that you are the chosen one when such decisions get made. Likewise, if you provide a low margin but high frequency services like payments you must find a way to retain customers for long enough to pay multiples of your customer acquisition cost.

Rule #10: Make it Beautiful, Take it To Go  A medical Explanation of Benefit is possibly the only statement uglier and more obtuse than a typical financial statement.  Incumbent FI websites are not much better and over the past ten years many large FIs have heavily prioritized expansion of their branch networks over innovating and improving their online presence.  As a FinTech startups  you have the golden opportunity to redefine design and user experience around money matters and daresay make it fun for consumers to interact with their finances.  Mint really set the standard when it comes to user experience and beautiful design, while PageOnce pioneered mobile financial account aggregation and bill payment.  To deliver a world class consumer finance experience online today one needs to offer a product that looks, feels, and functions world class across web, mobile and tablet.

There has never been a better time to be a FinTech revolutionary, and hopefully these rules for revolutionaries provide some actionable insights for those seeking to make money in the money business.


Source: http://vcwaves.wordpress.com

Why The Financial Technology Revolution Is Only Just Getting Started

OccupyWallSt

The Occupy Wall Street protestors are gone (for now), but the real revolution against banking is still taking place at breathtaking speed, thanks to a new breed of technology entrepreneurs. The financial services industry, long protected by complex regulations, high barriers to entry and economies of scale, is ripe for disruption. Here’s my take on the macro environment, how consumer attitudes are changing and why technology and available talent make now the best time to challenge the status quo.

Global credit markets clamped shut in late 2008 and froze entire sectors of consumer credit. Mortgages became less available, millions of credit cards were revoked, lines of credit dried up, and banks essentially abandoned the small business and student loan markets. This left tens of millions of households in the position of “underbanked” (have jobs and bank accounts, but little to no credit) and the “unbanked” (no traditional banking relationship at all.)  This credit crunch fueled demand for startups like WongaBillfloat, and OnDeck Capital to establish themselves and grow rapidly, and the reloadable prepaid card market pioneered by GreenDot and NetSpend soared. While credit has eased for certain segments in certain markets, there are still big opportunities to fill credit voids, especially at the lower end of the market.

The last few years have seen significant changes in banking, payment, tax, investment and financial disclosure regulations. While complex legislation such as the Dodd–Frank Wall Street Reform and Consumer Protection Act is hardly intended to unleash entrepreneurial innovation, and virtually no single person can comprehend it in entirety, it does contain hundreds of provisions that restrict incumbent business practices, and typically when there is change and complexity there are new opportunities for those that can move quickest and are least encumbered by legacy. Other regulations such as the Check 21 Act which paved the way for paperless remote deposit of checks, and the JOBS Act crowd funding provision are examples of technologically and entrepreneurially progressive laws that create opportunities for entrepreneurs and tech companies. Inspired by the success of pioneers such as microfinance site Kiva and crowd funding sites like KickStarter and indiegogo, I expect that once the JOBS Act is fully enacted and allows for equity investments by unaccredited investors we will see a surge of specialized crowd funding sites with great positive impact on deserving individuals and new ventures.

Within a few weeks of Occupy Wall Street in Sept 2011, protests had spread to over 600 U.S. communities (Occupy Maui anyone?), hundreds of international cities (did I see you at Occupy Ulaanbaatar Mongolia?), and every continent except Antarctica. Regardless of what you think of such protests, it is safe to say that as a whole we are more skeptical and distrustful of financial institutions than virtually any other industry. Clay Shirky’s term “confuseopoly”, in which incumbent institutions overload consumers with information and (sometimes intentional) complexity in order to make it hard for them to truly understand costs and make informed decisions, is unfortunately a very apt term for the traditional financial services industry. There is thus a crying need for new service providers who truly champion consumers’ best interests and create brands based on transparency, fairness, and doing right by their customers.  Going one step further, peer-to-peer models and online lending circles enable the traditional practice of individuals helping one another without a traditional bank in the middle, but with a technology enabled matchmaker in the middle.  Perhaps the ultimate example of bypassing the mistrusted incumbents is the recent acceleration in the use of Bitcoin, a digital currency not controlled by any nation or central bank but by servers and open source cryptograpy.

As a Product Manager for Quicken back in 1995 I remember sweating through focus groups with consumers shaking with fear at the notion of online banking. Today it is second nature to view our bank balances or transfer funds on our smartphone while standing in line for a latte.  And while Blippy may have found the outer limit of our willingness to share personal financial data (for now), there is no doubt that “social” will continue to impact financial services, as evidenced by social investing companies eToro and Covestor. You can bet it will be startups that innovate around social and the incumbents who mock, then dismiss, then grope to catch up by imitating.

I think we will look back in 20 years and view the smartphone as a technical innovation on par with the jet plane, antibiotics, container shipping, and the microprocessor.  While the ever improving processing power and always-on broadband connectivity of the smartphone are the core assets, it has been interesting to see such widespread capabilities as the camera, GPS, and even audio jack used as hooks for new FinTech solutions.  While there are over a billion smartphones worldwide, the ubiquity of SMS service on virtually all mobile phones means that billions more citizens have mobile access to financial services 24×7 no matter how far they live from physical branches.  Cloud and Big Data processing capabilities are further fueling innovation in financial technology typified by the myriad startups eschewing FICO scores in favor of new proprietary scoring algorithms that leverage the exponential growth in data available to forecast credit worthiness.

Financial institutions have long employed armies of developers to maintain their complex back office systems but until recently the majority of these developers worked in programming languages such as COBOL which have little applicability to startups.  While COBOL has not gone away at the banks, more and more of the technical staff spend their time programming new features and interfaces in modern languages and web application frameworks that provide highly applicable and transferable skills to startups only too happy to hire them for their technical training and domain experience.  In addition, successful FinTech companies from the early days of the internet such as Intuit and PayPal have graduated experienced leaders who have gone on to start or play pivotal roles in the next generation of FinTech startups such as SquareXoom, Kiva, Bill.comPayCycleOutRight, Billfloat, and Personal Capital.

These are just some of the reasons now is a great time for financial technology startups and why venture capital is flooding in to the sector.  In my next post I will offer some suggestions for FinTech revolutionaries.


Source: http://vcwaves.wordpress.com

Facebook is No Longer Real-Time

It’s a good thing Facebook is thinking of redesigning the News Feed. Because I think a funny thing is happening to Facebook. For me, the news feed no longer surfaces anything of interest. The opaque algorithm behind it is just not able to produce anything relevant and, more important, timely, at least to me. Facebook appears to be turning back into what it once was: a way to research people in non-real time. A look back into the past. A people-stalking product. It’s back to being a personal LinkedIn.

People publish stuff on the (increasingly mobile) web that is timely and relevant. Sharing baby pictures isn’t really one of those. Sharing pics of how you are experiencing life, which is the Instagram use case, is a great example of this. But my News Feed does not have anything like that in it. My Instagram feed does.

People share highly informative and timely links to news articles and blog posts on Twitter all day long. But my News Feed does not contain any of those. And when I share these types of posts on Facebook, I get no engagement. When I share pics of my kids, I get a lot.

People share bookmarks of products and apparel they want to buy on Pinterest all day long. People don’t do that on Facebook.

Facebook started as a non-real-time service. It was a way to check people out. In the face of the rise of Twitter, they responded aggressively with a News Feed product that showed promise. But now I feel they really screwed the filters up that govern that feed, which creates feedback to those of us who post into it and it feels like a vast river of noise and irrelevant posts from people and events who aren’t really relevant to me. Perhaps most importantly, I can’t tune it. The tuning mechanisms are either too subtle (“hide”) or too crude (“report as spam”). I feel powerless.

The irony is that LinkedIn is moving to increase daily engagement by syndicating highly informative posts from influencers. They are trying to become more real-time just as Facebook seems less so.

It’s still amazing for stalking people, though.

Source: http://www.pakman.com

TV Is Changing Before Our Eyes

It’s finally happening. The Internet is taking over TV. It’s just happening differently than many of us imagined. There are two major transformations underway.

  1. The Rise of The Internet Distributors. Led by Netflix, the group of new distributors includes Amazon and Microsoft now, but maybe Apple and Google later. They are largely distributing traditional TV shows in a non-traditional way. All the content is delivered over IP and usually as part of a paid subscription or per-episode EST (electronic sell-through). Important to note that all of this content contains no advertising and is available entirely on-demand. This content falls into the “non-substitutional” cotent bucket. To watch it, you don’t need to be a cable TV subscriber.
  2. The Rise of Alternative Content Producers. Thanks to YouTube’s Channel strategy and investment in hundreds of content providers, new producers of content are emerging and offering non-traditional programming, usually in shorter form. This content is marked by dramatically different production economics than traditional TV content, taking advantage of an expanded labor pool and low-cost cameras and computer editing. This alternative content is chipping away at long- and mid-tail viewership on traditional networks (the “filler” and “nice-to-see” buckets.)

Both of these transformations are successful to date and will only become more-so. Rich Greenfield has a nice summary of why the TV industry suddenly loves Netflix. (Disclosure: I am long NFLX and have been a stockholder for some time.) The first transformation takes advantage of the massive pressure MVPDs place on traditional cable nets to not offer their programming direct-to-consumer. In this case, the HBO’s and AMC’s requirement that you authenticate your existing cable subscription in order to watch their programming over IP successfully persuades the cord-nevers to just avoid the programming on those networks until the hit shows are offered through Netflix or EST. Netflix, once again, looks like the hero. Those empty threats by Jeff Bewkes that he will never work with Netflix turned out to be, well, empty. The second transformation will take longer to fully prove out, but I believe it will happen. As more of our viewership takes place over IP, we lose our allegiance to networks as the point of distribution and allow new distributors to guide us towards content choice.

There is a third budding area of transformation, but I don’t yet see evidence that a business exists: trying to re-package cable TV bundles and sell them over IP. Companies like Aereo and Nimble.TV offer versions of this. I believe we live in a show-based world. Consumers aren’t looking for networks (with the exception of ESPN and regional sports nets) so much as they are looking for shows. Shows delivered over IP allow for the slow unbundling of television. One of the many challenges about this model for traditional broadcasters is that there is no advertising in this world. The traditional cable net business model enjoys two great revenue streams: affiliate fees and ad dollars. In IP-delivered shows, there are no ads.

Who are the winners and losers in this model? Well, show creators continue to flourish. The new distributors enjoy great success. Of course, ISPs, who are often the same companies as the MVPDs, do fine in the ISP business, but I believe the decline in total cable subs will continue. In a world where shows do not contain advertising, why do we need Nielsen? They have been a measurement standard for decades largely because advertisers needed a third-party validator of viewership. You can see why they have a vested interest in insisting TV ad viewership is not on the decline (despite everyone’s experience to the contrary.) I don’t think cable nets are in immediate trouble. They enjoy a great business model now, and also get to reap EST or licensing benefits after the shows air. But the Netflix House of Cards effort shows that consumers will now expect to be able to watch shows whenever they want and not be bothered by inconvenient broadcast schedules. The day is coming when the cable nets will have to respond.

For startups, one of the wide open spaces seems to be in cross-provider discovery. Now that my shows are spread among Netflix, Amazon, YouTube and on my DVR, I would prefer one interface to reach them all. Companies like Dijit’s NextGuide, Peel, Squrl, and Telly are taking cracks at this important space.

Source: http://www.pakman.com

Penn Engineering 2007 Commencement Address

It was an honor to be asked to address the 2007 Penn Engineering class as their commencement speaker. The video has been posted on YouTube for years, but I was recently asked to post the text. While it is several years old, I don’t believe the message is out of date.

Good afternoon. I know exactly what you are thinking; what is a guy that you have never heard of doing up here delivering your commencement address? Well, truth be told, I am wondering the very same thing. In fact, when Dean Glandt asked me to be here with you, my fist reaction was, “No. I have not accomplished enough to stand in front of such a distinguished crowd. What wisdom do I have to empart to them?” Well, I will do my best today to share something meaningful with you. Let me assure you though, this is not where I expected to be when I was sitting in your seat 16 years ago, thinking, “now what?”

2007Commencement12

When you got into Penn Engineering, your parents, like mine, probably breathed a sigh of relief. “At least he’ll have valuable skills and a career – and not just some vague liberal arts degree.” Well, I have some bad news for your parents. Engineering is the new liberal arts. It is the lingua franca of the next generation. Technology has become so pervasive, particularly in western cultures, that we engineers are no longer the geeks in the corner – we are now responsible for nothing less than the economic, media, and communication underpinnings of society. But the good news is, if you speak this new universal language – and all of you do – then your opportunities to contribute – not just to your own success but to society at large – are limited only by your drive, your desire, and your ideas.

When I sat in your seat 16 years ago, I of course knew exactly where I was headed. Had it all mapped out. I wanted to be a rock star – a drummer in a rock and roll band. Granted, that is not the most expedient path to becoming a CEO of a digital music company. But please don’t be misled by my title. Yes, I realize being a CEO opens some doors. It gives me the platform to accomplish things that I might never otherwise do. But CEO is the least important aspect of my career trajectory. It is representative of the fact that I have merged my two passions into my career. And that’s what I’d like you to think about today.

What are your passions and how can you incorporate them into your career? How can you utilize these newfound skills? How can today become a jumping off point for tackling the things you deeply care about?

When I graduated from Penn Engineering, I had two passions:  I was really into computers and I was really into music. Like many of you, I was tuned in constantly. I played in bands around campus and here in the greater Philadelphia area. I left the engineering lab as often as I could to practice and play gigs. Yes, I was a musician. But I was also an early adopter of technology. Penn helped open my eyes to that. It was clear where the music was headed – computers – to compose and mix, electronic drums, all the new tools of the trade. But I think I knew then that making a career out of my rock and roll aspirations was a long shot.

I came away with a couple of takeaways from this experience.  For one thing, I learned that I had somewhat radical intentions from a very early age. The straight and narrow probably was not going to work for me. But the biggest lesson – and the most empowering one of all – was that it is possible to do what you want to do. Maybe not play Madison Square Garden to 20,000 fans. But I was hopeful that I could combine my passion for music with my keen interest in technology.

So I took the same degree that you are receiving today and I went to work at Apple in California. At that time, Apple was still a huge underdog and its future was by no means certain. I fit in with the culture perfectly. Apple embodied the rebel mentality. It was, pardon the expression, marching to the beat of a different drummer. Working for an underdog and innovator like Apple was a great influence. I learned to “think different.” I learned that consumers will reward you for innovation. And most importantly, I learned that technology could be terribly disruptive to incumbent industries.

Remember the phrase “desktop publishing?” Because of the Macintosh and laser printers, an entire business was upended. Apple (and eventually Microsoft) reaped the benefit. It turned the print industry on its head. I saw a chance to take that very same disruptive psychology and apply it the music industry.

When I was a student here, Penn was an early contributor to the development of the Internet. It was clear that as information and entertainment became digitized, the businesses of distribution and retail of entertainment would be transformed. I already knew that music was my true north. So I devoted my career toward working to accelerate, and hopefully reap the benefits of this transformation in the music business.

After joining the first digital music company and then founding another, and trying multiple times to build a business which would be pivotal in the transition of the music industry, eventually, with some partners, we bought eMusic, an abandoned dot-com company in disarray. Long story short? We turned it around to become the number two digital music service in the world. Second only to my old company, Apple. It’s success is due to the fact that consumers, not the music industry itself, forced a format transition from physical goods to digital goods. All enabled by technology. While the incumbent music industry feared, and even ran from this inevitability, I welcomed the disruptive nature of technology and knew it would fundamentally alter the entertainment industry,

However, I don’t want to set up false expectations that if you stick with the drums, you’ll end up CEO of a music company. Dean Glandt did not ask me here today to talk to you about playing in a rock and roll band. So I asked myself, what can I possibly share with a group as educated and informed as you that would be original and have any possible value whatsoever? I labored over this and as I did, it struck me.  It’s not about technology or engineering. It’s about the disruptive nature of it.

You see, you all are sitting in the catbird seat for the next industrial revolution. You can join existing industries and work to build them bigger –  or you can be the disrupters. The shapers. The policymakers. Every last one of you can land a job in any technology role. At the biggest and most successful companies! You already speak the language. But is that enough? Do you want to get out of bed every day just to log on? Or do you take this incredible genius you possess – this mastery of bits and bytes – and use it for something that matters to you? Something transformative?

There is an ambassador who comes to mind who also got his start like I did, in music. His name is Bono. You’re probably sick of hearing about him. Why does a scruffy singer from a small country in the North Sea have so much clout on the global stage? Because he took a common language, mastered it, and made it his platform for change. It begs the simple question. What is your platform for change going to be? How will you disrupt?

I understand – you might be scratching your head and saying, “C’mon, it’s happened already. The billions have been made – with Microsoft, Google, Yahoo!, MySpace, YouTube. All the big bets have been placed. Everything has already been disrupted.” But in fact I don’t think that’s true. Those companies are just the building blocks for the next wave. These companies, these web players did not exist 30 years ago. No one knew where it was going back then and honestly, we don’t know, today. That’s where you come in.

How do you take these Goliathan companies and their all-encompassing technologies and turn them on their head? How do you wrap your arms around this knowledge and do something that no one has thought of yet? How do you take this “language” Penn Engineering has taught you and make it stand for something you care about?

My understanding of the digitization of music gave me an inkling that someday the songs I grew up with would be available in formats we could not imagine as kids. The model was changing and I saw that and embraced it and tweaked it and now I get to wake up every morning and spend my days guaranteeing that people can buy it. Any kind of music on any kind of player. Period. That’s what I believe in. That’s where I staked my tent.

Although I’m a computer scientist by degree, I am no quantum physicist or nanotech engineer. I didn’t invent something that is going to save the world. I foresaw a market trend in a field I was passionate about and was fortunate enough to get on board at the cusp of the transition. Sniffing out market trends? This is a very good skill to hone. And you’re not going to find it in any book. Turn to your instincts on this one.

Here are some more examples: Sergey Brin and Larry Page – the guys who figured out how to do “search” better? They got it.  Andreas Pavel? How many of you know THAT name. He and his girlfriend tested a new musical device he’d invented, on a snowy day in the Swiss Alps, listening to a Herbie Mann/Duane Allman composition – outdoors! – while they walked! The Walkman was born. Transformational! The way we listen to music has never been the same. And Steve Jobs can’t take all the credit on this one.

Nick Negroponte from MIT media Lab? One laptop Per Child! He is going to change the way children learn and he aims to do so one laptop at a time.

And it won’t just change the way children learn and think. It will change the way countries pull themselves out of poverty. The way emerging markets become self-sustaining. One man’s vision – and the language of technology – is going to change the lives of kids who never dreamt of having a chance – from Angola to Myanmar to Kazakhstan. These people are all using technology to disrupt the natural order, and making something better for consumers – for people – at the same time

Does this mean you have to invent the next big idea? if you have it, fantastic! But I think your mission is greater. You see, as I said at the outset, you are the new liberal arts generation. Technology is now omnipresent in society and you speak the common language. However, there are a lot of you speaking that language and believe me, the pack is closing in. You’re going to need more. You’re going to have to be aggressive, disruptive, and visionary.

I know many of you are thinking about the jobs you will start tomorrow. If I could spark one thought in you today, it would be to look five years out. Ten years out. Ask yourself, what are your kids are going to be listening to? What are they going to read, and watch? What’s their world going to look like? And how are you going to shape it? What industries are going to be completely disrupted by the inventions of today, and how can you, and society, benefit?

So I offer you a challenge. Look at yourself today, and ask what’s going to matter to you tomorrow. Which one of you is going to use your remarkable talent to feed Africa? Who’s going to tackle global warming? Does any one of you really believe, 20 years from now, that we’re going to still be running our cars on thick black crude pumped 2 miles out of the ground from a desert?

You are the 2007 graduating class of Penn Engineering. But engineering is merely the platform for the future. You will be more than engineers. You can engineer the shape of our society and shape the destiny of our lives.  You will be inventors. Designers. Architects. Engineers. But through your ideas and design and architecture, you will become the de facto policymakers of the 21st century. You will define our society, all because you understand technology better than everyone else.

Call it a grave responsibility, or the greatest road trip you’ll ever undertake. Either way, you are empowered. There is no turning back. You are truly on the launching pad.

In closing, I offer these words. Follow your passion. Question the status quo. Bang a few drums. Don’t be afraid to make some noise. Take this awesome new language you speak and use it. Put it to work. We truly are on the cusp of a revolution. Get out there and be disruptive. Be responsible and give a damn. And lead. Show us where we’re headed next. It really does matter.

 

Source: http://www.pakman.com