Product Management – who cares?! A VC speaks

Cambridge Product Management Network's keynote event this year will be held on Wednesday 29th June. More information at CPMN's website.

Who needs product managers anyway? Don’t they just stifle innovation? Don’t they get in the way of building stuff?

Having co-founded nCipher, a successful Cambridge IT company, and now an active entrepreneur and one of the team at Amadeus Capital, Alex van Someren has a view. Now’s your chance to hear it.

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Alex is a General Partner in the Seed Fund at Amadeus Capital in Cambridge, UK.

Alex has worked in the technology industry since the 1980s. He co-founded ANT Ltd in 1990 to produce networking products, including Web Browser software licensed to the Oracle Corporation. ANT plc was listed on the London AIM market (AIM:ANTP) in 2005.

In 1996 he co-founded nCipher to develop internet security products using advanced cryptography. The company became a world leader in IT security, counting major banks, finance companies and governments among its customers. As CEO at nCipher he raised a total of £14m ($25m) in venture capital funding before he led the company to an IPO on the London Stock Exchange in 2000 (LSE:NCH) at a £350m valuation. nCipher plc was sold to Thales SA in 2008.

Alex lives in Cambridge, UK and is married with three children. He was appointed an Entrepreneur in Residence at the Judge Business School, University of Cambridge in 2005.

Microsoft overpays for Skype

  
Microsoft acquires Skype for $8.5bn, becoming MS's largest acquisition. Quick history (with big numbers) associated with Skype:

• Skype was founded in 2003 by Swedish entrepreneur Niklas Zennström and Dane Janus Friis
• In October 2005, EBay outbid Google and Yahoo! Inc. for the loss-making company and paid $2.6 billion for the privilege. (I thought that was madness then!)
• Zennström and Friis fell out with Ebay about patent licensing of some of the key technology in Skype (Truly incompetent due diligence from Skype - surely the IP should have been bundled into the acquisition?!?)
• In 2007, EBay wrote down the value of Skype by $900 million.
• EBay's CEO, John Donahoe, sold 70 percent of Skype to a consortium of investors (Silver Lake Partners, CPPIB, Andreessen Horowitz)  in November 2008 in a deal that valued Skype at $2.75 billion. 

Today

• Skype has 663 million global users (145m active users in an average month)
• Windows Live Messenger has 299 million accounts worldwide in June 2010. (Source: Microsoft by the numbers) 
• Skype is the largest international voice carrier and owns 13% international call market share (Source: Skype Commands 13 Percent of International Phone Calls)

The Deal

• Microsoft pays Skype for $8.5bn
• This marked a 300% increase in value for the company in the three years since the eBay write-down in October 2007.
• The price Microsoft agreed to pay for the company is 32 times Skype's operating profits
• EBay said it will reap more than a 50% return from the company’s $2.6 billion investment in Skype Technologies SA six years ago. (Source: Bloomberg)
• $14.70 is what Microsoft paid per user for Skype. When eBay bought Skype back in 2005, they paid $45.60 per user. (Source: 14 And 116: These Two Numbers Explain Why Microsoft Dropped $8.5 Billion On Skype)
• 116 is the number of days until Microsoft makes the money back in operating cash flow. Microsoft had $26 billion in operating cash flow last year. So $8.5 billion works out to around 116 days of cash flow for Microsoft (Source: 14 And 116: These Two Numbers Explain Why Microsoft Dropped $8.5 Billion On Skype)

Was the deal over valued?
Lots of respected analysts think that this was a fair investment by MS - given all the possible synergies between so many of Microsoft's products (Windows Phone 7, Kinect, Lync, etc.), but in my opinion they overpaid.

MS are no novices in any of this technology. Skype does have some advantages - intelligent routing for one (see Skype's explanation of its technology)
 
I think there are two logical reasons for this acquisition:

• User Base 166m users making international calls. By plugging Skype into WinMobile 7, it gives MS a way to get a bunch of well connected users making premium international calls from their mobiles. (IMHO, people avoid making international calls from their mobile phones because of its outrage expense.) This gives a neat way for operators whose users on WinMob phones to take voice calls off 3G data network and onto 2G voice network (See my post on 3 launches X-Series for how this could work.)
• Keeps Cisco from getting its hands on Skype Apparently Google came knocking, but was told the starting price was $7bn, but I think this would have muddied Andriod's strategy. An acquisition by Cisco could have seriously dented MS's interest in the enterprise unified communications market now and in the future. (Note that Skype's CEO Tony Bates is a former Cisco execs appointed in October last year.)

Some great blog posts on reasoning:

• ZDNet: Microsoft's purchase of Skype: One expensive game of keep away
• Microsoft Insider: Here's Why We Bought Skype

P2P Social Networks versus Group Management Software

I've been in social software for 9 years – almost before the term was started. I enjoy contributing to the alumni network for Judge Business School at Cambridge University. Naturally, we have our own online network, called the 'Common Room'.

We've run into a problem – recent graduates ie those that did their MBA in 2004/5 onwards are glued to Facebook in order to interact with others – to the detriment of any other social software.

This article intends to explain why the Common Room (and other Group Management software) will continue to remain much more useful and relevant than Facebook.

Group Management at the core of the network

There are two ways to manage a network:

• At the edge: means that each individual manages their connections and the level of information that they share by themselves. 
• At the centre: means that management is done centrally, by an appointed person(s) of the organisation.

Solutions between these two extreme have to make compromises between these two models which introduces technical and user complexity, ultimately confusing the end user which make participation harder.

Facebook Groups falls between these stools.

Facebook is good / bad at ….

Facebook is great – brilliant for connecting for individuals to connect with others – sharing ongoing updates, as well having the one place to house your profile information. It's perfect for students to join up together online (err, that was what is was invented for, right?!?).

Btw, many people outside the US don't realise that a ‘Facebook’ on American university campuses was the ubiquitous book that was handed out to all first year students so that they could quickly get to know each other. It was a book of faces and names possibly with some other information eg home town, birthday, interests, sports. Of course, the first thing that everyone does is flip through it looking for hot guys / girls – I did it myself at my American high school in New England.

Unfortunately, the elegant P2P social network model breaks down when it crosses from being a network of peers to being a group with a common interest. Certainly a group with a common interest can be set up on P2P networks. It fails because every individual has to join that group. Given that setting up the group is free and pretty painless, then lots of similar groups proliferate.

Remember Metcalf's Law? The value of a network is proportional to the square of the number of users of the system. The value of a large network is disproportionately more value than lots of little, ill-formed networks.

For the Alumni of Cambridge Judge Business School, there are Facebook groups for each year, country, location… except that it is inconsistent: many countries are missing, locations are based on the passion of the group leader and the naming convention is (inevitably) inconsistent.

Entrance to the community is done via invitation or more practically by request. The group manager has to undertake the verification of membership. Do they have the time to do that? I doubt it.

What happens when the group leader leaves / resigns / becomes too busy? Unfortunately, there’s no way for someone else to take over the management of the group.

Facebook and Privacy

Facebook have really, REALLY struggled with the issue of privacy. The user generated content is incredibly engaging, but what attracts new users is the mass of information on their friends – the more is disclosed, the more engaging that content becomes. Squirrelling information away is fundamentally destructive to Facebook.

Facebook blundered around the privacy issue. Facebook Beacon was an early version of Facebook Connect which enable certain activities on partner sites to publish activity on third party site to the user's News Feed. The colossal error of judgement was that it was default opt-in, rather than default opt-out. Worse, at launch, there was no opt-out.

Step forward Group Management functionality (again)

I was involved in Social Software before the term existed (it was community software back in the late 90s) so it is good to see its relevance today.

Group Management requires the appointment of someone to act a gatekeeper and referee (if required) to the community. This is required when everyone doesn’t know everyone, but would like to connect across a large network.

The Gatekeeper is nominated by the community to control entrance and exit. Once the community trusts the gatekeeper to do a good job then then the community is likely to be much more virulent and healthy because each member has been vetted and is likely to more trustworthy.

The Gatekeeper acts as a referee. It represents the (independent) court of appeal for any behaviour that is deemed to be detrimental to the community (eg spam or over communication) or a disagreement within the community.

Conclusion

Facebook has its uses, but not really in professional membership organisations. Bring on Group Management functionality please!

UI Challenges of Paperphone and Snaplet

Researchers at the Human Multimedia Lab at Queen's University, Canada have developed two functional paper computing devices: Paperphone and Snaplet. What's novel is the use of bending the flexible displays to provide input. For example, bending the top corner of the paper phone is 'go to next page' when reading an e-book.

However, what made my mind boggle was the UI challenges for the Snaplet. If it is bent around your wrist, it acts as a super duper watch / media player / calendar, etc. If you take it off your wrist and it is flat, then it converts to a note-taking tablet.

Here's a video of switching between the two modes.

Product Management Interview Questions

Ken Norton, Senior Product Manager at Google, formerly at Yahoo!, Jotspot, Inktomi (see LinkedIn profile), wrote a fantastic article, How to hire a product manager. It was originally published in June, 2005.

The article is a great read. Unfortunately, the author has chosen to prohibit any derivative works (see license), so I unable to precise the article and highlight my favorite parts.

Instead, I point my favorite parts out. Do read the introductory section in which Ken compares Product Management in a large company vs PM in a small company.

Ken's article divides his hiring requirements in six major attributes:

1. Hire all the smart people
2. Strong technical background
3. "Spidey-sense" product instincts and creativity"
4. Leadership that's earned
5. Ability to channel multiple points-of-view
6. Give me someone who's shipped something

My only modification to this list is modify (5)   Ability to channel multiple points-of-view.

I would like to rename it: "Have a good nose to appreciate and understand how other business functions operate".

Ken highlights the point that a Product Manager plays a devil advocate role and representing all (or as many as possible) interests in any discussion. Ken lists pre-sales engineering, support, developer relations, business development, legal, or customers. Of course there are many more.

A product manager has to have a good nose to understand the impact of their decisions on other functions, as product decisions impact many other business functions and processes. For example, choosing to sun set a product (a product management decision ultimately) might have a radical impact on one sales person's commission (sales and sales operations). Before you announce that PM is jettisoning a product, has the impact to that sales person / manager / director / VP been thought through?

Key Questions:

• Are you familiar with the Pragmatic Marketing Framework? How was it / have you applied it in your previous career history? 
• What business functions did you do that were missing from the Framework and why?
• Can you describe an example of unintended consequences of one of your decisions? What could you learn from it? 
• Can you give me an example of how you achieved an objective at the second attempt?

Migrating from Hosted to the Cloud - my case study

 

Here's a case study that I did with Rackspace (who provided the Cloud) and Webmetrics (performance monitoring) about moving from hosted to cloud environment.

Key

Amazon's outage questions Forrester's explosion in cloud usage

Amazon Web Services, the pin-up of the cloud industry, suffered a serious outage (read The Register coverage: Amazon: Some data won't be recovered after cloud outage).

Four days later (with Amazon struggling to put everything back in place), Forrester Research publishes an optimistic report entitled, Sizing the Cloud, about SaaS usage.

Here are some quotes taken from Silicon.com: SaaS spending to rocket in next five years:

• Revenues from SaaS will increase from $21.2bn today to $92.8bn in 2016, by which point SaaS will account for roughly 26 per cent of the packaged software market.
• After 2016, however, the market will come closer to saturation, and SaaS growth will be far less impressive between 2016 and 2020.
• Revenues from SaaS will help the global market for all types of cloud services increase from $40.7bn in 2011 to $241bn in 2020. 
• However Forrester analysts predict that not all cloud-based services will see uninterrupted revenue growth to 2020: The infrastructure as a service (IaaS) market [Arthur: ie Amazon Web Services) is expected to grow from $2.9bn to $5.9bn between 2011 and 2014, before shrinking to $4.8bn in 2020.

Competition in the IaaS space is intense, with over capacity and competition driving down costs leaving only those with massive scale (eg Rackspace) with the deep pockets and the clout to compete.

Continued differentiation in IaaS and SaaS is essential.