Northwest Passages by Steve Murch

Getting Pretty Tired of the "Microsoft Doesn't Innovate" Zeitgeist

It's been 11 years since I turned in my badge as an employee of Microsoft.  But I'm getting really tired of the journalistic angle "Microsoft Doesn't Innovate" in the media and larger blogosphere.  For instance, Wired's article "Let's see Microsoft Innovate its Way Out of This One", and "Microsoft's XBox 360, Sony Playstation are No Nintendo Wii". 

Give it a rest.  Take a deep breath, and let's look at whether this is really true. 

Let me first state -- I think Apple is a tremendously innovative company.  If I were forced to choose which company is currently more innovative, I would choose Apple. 

Most journalists, and even more bloggers and Digg-ers, seem to accept Apple as the canonical innovator, with Microsoft being the old-time firm that can never think of a new idea and simply copies what's in the marketplace.  But we all stand on the shoulders of giants.  The iPod was far from the first digital music player, it merely was a much, much better designed and marketed one, well-integrated with a music purchase store.  Very nice innovation and improvement on what was there in the marketplace.  The iPhone too, is a tremendous cellphone, but its multitouch interface was demonstrated by Jeff Han at TED a couple years before the iPhone was released.  Apple synthesized and refined what was already there, and made it far smoother, far more elegant, and far simpler.

But this idea that Microsoft doesn't innovate is a total canard, and it's lazy journalism.

To wit:

• Who released the very first satellite-based map of the world on the World Wide Web?  It wasn't Google.  Microsoft had its "Terraserver" live on the Web for more than three years before Google even existed as a company.
• Speaking of Google Maps, do you like the smoothness of "Web 2.0" sites that show page updates without full page refreshes?  You see it all over the web -- Facebook, Digg, Flickr, and far more.  It's due to a technology called AJAX.  And the most important element that makes this all work is a magical feature called XmlHttpRequest(), a way for browsers to communicate with servers asynchronously (that's the first A in AJAX).  Invented by Microsoft, XmlHttpRequest first made its appearance in Internet Explorer 5.0. But you don't see many reporters recognizing that IE was the browser that actually ushered in the Web 2.0 AJAX revolution... All other browsers quickly followed, and this feature, coupled with some scripting, makes webpages feel smooth -- enabling things like Google Maps, Stock Quotes that update in real-time, and virtually all the "Web 2.0" sites you can name.
• 9,167 patents with assignee "Microsoft".  Doesn't necessarily prove innovation, but don't you think at least a few of those listed are innovations?
• Who created the first GUI-based relational database?  It was Microsoft, and the product was Microsoft Access, released in 1994.  Not dBase, not Borland, not Lotus.
• Who released the first web-based multiplayer matchmaking system for games?  Microsoft, in 1995.
• Who released the first high-speed gaming network for video consoles?  Microsoft, with XBox Live, which remains the most innovative online gaming experience out there.  Microsoft was also first with online game add-ons right from your console.
• Do you take for granted the red squiggly lines showing you spelling errors as you type?  Microsoft was the first to release this feature in Word, and now this innovation has become part of the ecosystem.
• The World Wide Telescope project is a tremendously innovative way of hurtling through space, virtually, and exploring our universe.
• Language Integrated Querying, or LINQ, is an incredibly innovative feature Microsoft just released in its developer tool suite.  No other development environment offers this level of language-to-database query and schema-mapping integration.

Does Microsoft take ideas in the marketplace and try to build on them?  You bet.  So does Apple (iPod, iPhone, etc.) and every other tech company out there.  Does Microsoft try some innovations every now and then that are total flops?  You bet.  So does Apple (Newton, meet Bob) and any other company.  Should Microsoft be releasing more new innovations due to their size?  I think so -- I do think they could and should generate far more than they are today.  But this idea that Microsoft never innovates is a total canard.  It's lazy journalism. 

Earth Class Mail -- Call me Skeptical

Having watched the Startup Junkies premiere season, some episodes multiple times, I guess I'm still an Earth Class Mail skeptic, at least at the market capitalization it must currently be at. (I am only guessing at the market cap, due to a very high initial raise of $16 million -- $10 million from Keiretsu Forum members and $6 million from Ignition.)

Vision Decision

First, I need to get this on the table.  CEO Ron Weiner, and several executive members, keep referring to ECM as somehow being competitive with the postal service, yet also wanting to partner with the world's biggest postal services out there.  (Weiner is reportedly moving to Switzerland to focus on Euro-postal opportunities.) 

I don't buy into the basic argument -- that postal services are going to be extinct if they don't look out and digitize now.

ECM *requires* a postal service. It is a mail processing facility, albeit a digital one, elevated by the language of a very good promoter, with some interesting twists. Sure, it helps digitize the "last mile", so to speak, but it doesn't really do anything to get the originator's message to the recipient digitally, end-to-end. That's where email, FTP, twitter, facebook, SMS, and other technologies/services fill a void and are truly competitive with the postal service.  Are we to believe that ECM has tremendous value-add over email in a truly end-to-end-digital world? No. It's merely a way of digitizing the final product.

Perhaps a Big Idea... but Seriously Overscaled at Startup

Which leads me to my second point. It *could* be a big service, if it really capitalized correctly versus the opportunity. The military, large corporations, and ex-pats, and perhaps RV'ers/snowbirds are all segments that could use mobile-snail-mail. But rather than invest multi-million-dollar sums to build out a processing facility in Oregon, and who knows how much to build dubious street-level facilities in major cities, why not scale operations with customers? If the data shared in Startup Junkies is correct, it's somewhere around 3,000-4,000 paying customers as of last year, adding maybe 300-400 every month. That's terrific, but really, that level of volume only supports maybe 10 employees, adding 3-4 every year. Overcapitalizing is equivalent to accepting $1,000 to mount a dagger to your steering wheel in your car -- it's all fine and dandy if the road is smooth, but if you're at all going to miss plan, it's a very bad thing.

My prediction is that a high burn rate is going to kill an interesting idea.

I understand the need to satisfy large corporate accounts and postal services and answer the "scaling" question. But with virtually zero directly-competitive pressure, there is no need to way, way overbuild infrastructure ahead of demand. Have we learned nothing from Webvan?

Recommendations

I think ECM could be an interesting idea, but they need to:

1)  Rightsize their infrastructure investment immediately versus the opportunity.  The "Raiders of the Lost Ark Filing Center" in Beaverton seems way, way overscaled.  Get the company as close to breakeven as possible, now.

2)  Rid themselves of street-locations.  (Isn't the very kernel of their idea to be location-free?  Why get bogged down with extremely expensive physical addresses?  If they need local-area addresses, they could do it much more cost effectively by setting up mini-mail forwarding micro-sites of their own, or even enlisting other mail-forwarding services.)

3)  Pick one or two major customer segments (e.g., the military, enterprises with highly mobile salesforces, snowbirds/RVers, etc.) and nail down their requirements.  Build up a beachhead and grow from there.

4)  Explore partnerships with physical-delivery firms UPS and FedEx aggressively.  See if there's a way to augment their product line with something that converts the physical mailstream into a digital mailstream.

5)  Consider offering a "mail to digits" service for consumers and/or businesses that allows people to simply mail something physical and analog to an address, and have it ready in digital form.  E.g., let me mail an envelope with magazine clippings, or albums, or what-have-you to a facility and have them converted into digital form quickly and easily.  That might be a way to get trial-users and upsell them to longer-term paying customers. 

I have very much enjoyed the show, but I remain a skeptic of ECM, at least at this level of investment/market-cap/infrastructure.

It could have been a very interesting, breakeven 20 person company growing larger every year, but I worry that a "get big fast" attitude will doom the company, much as it did Webvan, taking a very good kernel of an idea (e.g., HomeGrocer.com) with it.

Crossing through 1 million unique users per month

Today, my social network about food, BigOven.com, launched in 2004, crosses through an important milestone -- we're now serving over one million unique users a month. 

Unique users is the most commonly used and measure of Internet traffic.   It's not "hits" -- which refers to the number of fetches a browser might make to a web server -- and it's not "users" -- because "unique users" removes duplicate visits from the same browser.  It's also not "pageviews", which is becoming just as meaningless as hits these days, since AJAX-powered sites don't do full-page rendering on postbacks to the server.

Traffic has been nicely up -- about 500% year over year for BigOven.com.  BigOven is currently listed as the 20th most frequently visited Seattle-based Startup site out of 299 (BigOven.com is #17 when just measuring Web-based consumer sites) on Marcelo Calbucci's Seattle Startup Index for June 2008.  Total marketing expenditure for the year so far is less than a $1,000.  (Time to start spending money?) 

Not that I'm counting, but BigOven once again handily beat much-more-heavily-funded Seattle-based sites as Earth Class Mail, ImageKind, SecondSpace, Avvo, blist and SmartSheet.

The Web as Application Operating and Marketing System

Last month, I attended a Software as a Service two-day conference hosted by Madrona Venture Group here in Seattle.  There were some very good round-table discussions with the CEOs of NetSuite, Concur, and 37Signals.   

It really hit home for me how we're in the midst of the creation of the Web Operating and Marketing System.  And this OS is "moving up the stack" every day, progressing from basic services to high-level application-layer services relatively quickly. 

The "stack", in computer terms, is usually represented as a series of blocks, one on top of the other, signifying the layers of functionality.  The stack was largely confined to hardware and single-user input/output tasks for 25 years of the PC's life.  It had a "silicon ceiling" if you will -- the model was that the O/S would take care of talking to the devices and the hardware, and leave the application-level coding to the application developers, who would very rarely try to interconnect those applications.

But now, all of a sudden, the silicon ceiling is shattered, and thousands of startups and large companies alike are racing to engineer the next application and marketing layers of the platform.  This work is largely going on in parallel, not in series.  It's being done not by a few monolithic companies, but thousands around the globe.

1970's-90's: The desktop PC stack

At the lowest level is the hardware.  Electrical signals can be sent into the CPU and other electrical signals come out.  The magic that makes a computer work is at the BIOS (basic input/output system) and the operating system.  The desktop PC operating system stack tackles things like writing to the display, disk input/output, temporary RAM storage input/output, connecting to peripherals like printers, mice, network adapters etc.  As it got more advanced, the screen writing and networking became far more sophisticated, but essentially, it was still dealing with basic I/O and memory management tasks.

OS's are natural monopolies.  Why?  Consumers want powerful, inexpensive applications, and developers seek the largest market for their development efforts, since in most cases, they need to "bet" on an O/S to get the most power out of it.  As a result, economically, OS vendors receive great lock-in and network effects.

The Web Operating System will have similiar economics -- those who do the best job serving as layers in the cloud can extract economic rents, though perhaps not if they become too commoditized through standards.  I believe that the application-layer services in the stack have a real opportunity to provide tremendous value to customers, and also build lasting businesses.

Today's Web Operating System -- The "Cloud" plus Marketing

There's been a lot of talk in tech circles about "the cloud" -- this is analagous to data-management, communication and application-layer operating systems available on-demand.

In the past 5 years, the Web has moved from simply providing web browsing and file-serving (simply fetching data from web servers) -- to the next logical layers of the stack -- the application layer.  What lives there?  Things like:

• Social operating system services:  Single log-on, central address book storage, calendering, list management, instant messaging, etc.
• Search
• Image and video hosting, communication and manipulation
• Financial services -- accounting services, payroll services, ERP services, etc.
• Secure, fast database storage and retreival
• Monetization (advertisement, subscriptions, etc.)
• etc.

Importantly, and new for most developers, is the fact that Marketing Networks are now becoming a significant decision early-on in the life of a company.  Should you write your business on Amazon.com Web Services?  Or Google's App Engine?  Or Salesforce's Force.com?  Or NetSuite's platform?  Or Facebook's platform?  Or go it alone?  What are the benefits and risks of each?

For developers of software-as-a-service (SAAS) applications, the decisions start to look a lot like the ones console videogame developers have been making for years.  Do I bet on the XBox platform or Nintendo's Wii, or the nextgen Playstation?  If I do, what's in it for me?  I might get some really great marketing and network-effects, but only if I'm a premier app.  To gain the most marketing and "bundled promotion", I'll need to write my game to be a flagship for Microsoft -- I'll need to show off particular differentiating features of that XBox network.  So too for Google's App Engine, the iPhone, or whatever platform or device you're writing for...

The Cloud is starting to come with marketing services and broad-reach networks.

Implications for Microsoft

Strategically, Microsoft needs to internalize that Search is just one of the functions of the Web Operating System.  The long-lost "Hailstorm" project actually had it right back in 2001.  Perhaps Microsoft isn't in the brand position to build and power it, but it's coming.

Microsoft knows how to build platforms, and platforms are being developed right now.  Why isn't Microsoft the leader in free API's for search?  Why isn't it possible to look up an API on Microsoft's site for just about anything you'd like -- to manage subscription payments easily, to send money via email, to get a full Plaxo-like self-synchronizing address book for anyone in the world, etc.  Why the hell doesn't Expedia (note, not Microsoft-owned anymore) or any other travel provider let me search and buy airline tickets through an API?

It's not just about winning today's search war.  Sure, it's extremely vital, but in the end, the Web Operating System dominant players will be the ones with the most complete suite of easily "mashable" services and the highest lock-in of developers and users.  This, in the long-run, only holds together by delivering the highest value.  And ultimately, I believe application developers will force more and more API's and openness of that system.  Microsoft and their value-network benefitted greatly from the PC operating system revolution, and was significantly better at courting developers than other OS vendors, but ultimately is being forced to be even more open.

The recent moves by Yahoo to open up their search (for both input and output) are an interesting foreshadowing of the next war ahead in the Web Application Operating and Marketing System.

Escapia Launches the First Fully Integrated Dynamic Pricing Engine For the Vacation Rental Market Site

Escapia, the online vacation rental software company where I serve as Chairman, just launched a very cool new thing -- the first dynamic pricing engine for the vacation rental industry.

More information in the press release from Escapia Inc.:

SEATTLE – July 1, 2008 – Escapia Inc., the leader in web-based marketing and management solutions for professionally managed vacation rentals, announced the launch of the first ever fully integrated dynamic pricing engine for the vacation rental industry. This breakthrough program provides property managers with a simple but powerful way to promote and book open inventory and allows consumers to take advantage of last minute deals on vacation homes which can be booked online at Escapia’s consumer vacation rental web site, www.ClearStay.com.

Vacation Rental Managers: Maximize Booking Revenue
The new dynamic pricing tool is fully integrated into Escapia’s leading web hosted software suite, EscapiaONE™. Managers now simply set their discount level based on lead-times once, and EscapiaONE software does the rest. Vacation rental managers providing discounts for last-minute bookings of their homes receive prominent placement on ClearStay.com.

Travelers: Great Deals on Vacation Rentals
With the launch of the new program, ClearStay.com now offers travelers great deals on vacation homes.

Vacation homes generally offer consumers tremendous value compared to hotels. Now, consumers booking their vacation homes on ClearStay.com have an opportunity to get an even better deal if they book their trip close to their travel date. Discounts of up to 30% can now be achieved over and above what is already a tremendous value for vacation accommodations.

For example travelers visiting ClearStay.com can book vacation homes in the Colorado Mountains for 30% off, homes and condominiums in Hawaii for 25% off, homes in Oregon for 15% off and beachfront homes in Florida for 25% off of the normal rate.

”We are delighted to offer property managers a way to bring in more revenue and more bookings through our fully integrated dynamic pricing offering. We are also confident consumers will be excited to receive significant savings on their vacation lodging. This is a win-win situation for property managers and consumers, alike,” said Escapia and ClearStay CEO Bill Furlong.

The launch of the integrated dynamic pricing engine is just one part of ClearStay.com’s commitment to giving consumers an online destination where they can easily find, choose, and book vacation rentals they can trust.

1. All homes on ClearStay.com are managed by professional vacation rental managers committed to providing guests with a great vacation.
2. First ever fully integrated dynamic pricing engine which allows consumers last minute deals and property managers a way to further monetize open inventory
3. Ratings and reviews on thousands of homes let travelers get feedback from past guests before they book.
4. Availability calendars on ClearStay.com are automatically updated with up-to-the-second accuracy.
5. ClearStay.com gives travelers exact rate quotes on the total cost of the rental without calling or sending an email.
6. Online booking on ClearStay.com is reliable, safe, secure and available 24 hours a day.