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Takeaways from the Eilat Renewable Energy Conference

This week, I attended the Eilat Renewable Energy Conference. I’ve been working on renewable energy (primarily photovoltaic) for about two years now, and this conference has been a good chance to reflect on the industry.

In my mind, it goes without saying that VCs (and Israeli VCs in particular) should not ignore renewable energy as an area of potential investment. That said, renewable energy is very different from traditional areas of VC activity, and involves a very steep learning curve. I’m still very near the bottom of that curve.

A few takeaways from the conference:

  • Israel seems to be finally getting serious about PV. The country recently announced a feedback tariff incentive plan for both small scale and large scale PV installations, with guaranteed rates through 2011. This article (in Hebrew) lays out the details. This is a necessarily step because it puts the country on the road to renewable energy in a credible way and kick-starts the process of establishing an eco-system here. Without local PV demand, it’s going to be tougher to drive local PV manufacturing. And without local PV manufacturing, other elements of the PV eco-system are going to be harder to build. So this is a good step. Sort of a parallel to the establishment of the Intel fabs in Israel several years ago.
  • Israel has yet to get serious about a national policy. There has been a lot of talk this year and in previous years about establishing a national renewable energy policy. This has a lot to do with Israel’s energy security and even more to do with its economic security. Maybe I can’t decipher the difference between the twenty different government agencies that are somehow involved, but I think Israel is still a long way off from a real strategic decision to make renewable energy technology the pillar of its growth strategy. Just ask a company I know that is planning to relocate to Germany to build its manufacturing plant because of government economic incentives. That’s 100 good cleantech jobs and lots of corporate taxes that will go to Germans instead of to Israelis.
  • The conference, like the renewable energy industry, is a crossroads. Technologists, business people, start-ups, large multinationals, financial people, government people, environmentalists, academics, etc. They all meet here, and each comes with a slightly different take on the same overall agenda.
  • The energy market is truly immense, but that isn’t enough from a venture perspective. There is no question that the energy industry is absolutely immense and can be the home to some very big companies. That by itself, however, is not enough. VC is about the ratio between the amount of capital invested and the velocity of revenue growth a start-up can achieve. Too many cleantech start-ups require tremendous infusions of capital (far more than most Israeli VCs can deploy) and many of them do not have clear paths to rapid, scalable, revenue growth.
  • There are some fantastic Israeli cleantech start-ups. SolarEdge is my personal favorite, but I’m hugely biased. Other companies that are extremely promising are:
    • Zenith Solar – The company is building highly efficient concentrated PV (CPV) dishes. They want to marry low-cost reflective dishes with high-cost super-efficient PV cells to create very cost-effective PV systems. BusinessWeek covered them here.
    • HelioFocus – HelioFocus is building dish-based solar-thermal concentrators using micro-turbines. The company’s modular designs enable their systems to be installed easily at existing power stations. Haaretz covered them here.
    • 3G Solar – 3G Solar is pioneering dye cells, a different type of solar energy technology based on a chemical reaction instead of a semiconductor. You can think of it as “artificial photosynthesis.” If they can prove the durability of their technology, it will enable them to produce solar energy systems at a fraction of the capital cost of traditional PV, which would make them very relevant for off-grid emerging markets. http://www.3gsolar.com/
    • Project Better Place – Shai Agassi’s revolutionary plug-in-car project has been covered very adequately by the press, but it is one of the more exciting cleantech projects in Israel. Their deal with Renault is very exciting.
  • Don’t be distracted by falling oil prices. First, oil prices are falling with the economy, but the economy will recover eventually. On the other hand, there isn’t going to be any more oil, and some pretty smart people think we have already reached “peak oil.”  So oil prices are bound to rise again. Second, a big part of Obama’s recovery plan revolves around renewable energy, so lower oil prices don’t necessarily translate into reduced demand for alternatives. Third, electricity prices and oil are not tightly related because not much electricity gets generated from oil. The long-term demand for PV and other renewable technologies is driven by fundamental shifts that are not going to reverse themselves.
  • There is no vacuum. Unlike many areas of IT and semiconductors, its tough for cleantech start-ups to show up and invent new markets. The market for electricity (or fuel or air-conditioning) exists and is already dominated by large players. In cleantech, no one operates in a vacuum, and this means that start-ups must be very sensitive to realities in the world around them. Understanding the value chain in your market and how you fit into it is critical in every business – but in cleantech it’s absolutely essential.

A roundtable on mobile applications – and some thoughts on the AppStore

On Monday, Levi Shapiro gave a great talk on mobile applications and advertising at a roundtable hosted by my firm, Genesis Partners.

A few takeaways from the session at Genesis:

  1. Mobile 1.0 is over. Among US wireless subscribers, penetration of mobile games (6%), audio (12%), and premium SMS (5%) has been flat or down for the past 12-18 months. The days of paying real money for 30-second ringtones, commoditized games, or background images are over.
  2. Mobile 2.0 is about applications. Applications are the only category that is growing in penetration among US subscribers.
  3. The mobile phone is a first and foremost a practical device. Sure we use our phones for entertainment and music and lots of other things, but the phone’s primary attribute is its practicality. We carry it with us because we need to connect and access information.  Applications and services that recognize this and capitalize on it tend to do better than others – and the more practical applications seem to be growing the fastest. This is good news for Israeli companies such as Worldmate and PageOnce.
  4. Don’t forget MMS. In the US, MMS is growing faster (52% YoY) than WAP (49%), Data (37%), SMS (37%), Video (20%), and downloads (10%).
  5. Device improvement is the great enabler. We’ve all become aware of this, but Levi showed some pretty compelling statistics demonstrating that smart phones (and the iPhone in particular) are unlocking the mobile internet.
  6. The iPhone’s importance can not be underestimated. The iPhone’s demographics are very well distributed across age groups and genders. It has moved well beyond early adopters and solidly into the mainstream. Most importantly, the usage patterns of iPhone users are substantially different that those of feature phone users and even of smartphone users.

One more thing: Levi made another statement that struck a chord. The Apple Appstore, he said, might turn out to be the most important innovation of 2008. It’s a statement worth pausing to consider. The AppStore does, in fact, teach us a lot, and its no coincidence that Blackberry, Nokia, Samsung, Palm, and several other players have announced their own app stores. We have yet to see how Android is going to play out, but I expect the ecosystems that get built on the Android platform will take a play or two from Apple’s book.

  • Applications are at the core of the mobile experience. This may not be true forever as browsing gets better and cheaper, but its still true today. The iPhone/Blackberry browsers let me view online newspapers just fine, but the WSJ Blackberry Reader and the NY Times’ iPhone app are much better experiences.
  • Early adopters will jump through hoops, but the mass market won’t. The easier you make a process (in this case, downloading applications) the broader your potential user base.
  • If you can provide a stable OS, a meaningful distribution platform with reach, and a credible monetization option – developers will come.
  • “Owning the customer” doesn’t mean locking them in and limiting them. It means getting them to trust you as a source of access to anything they might want (it seems to have worked for Google).
  • Apple makes it’s big money (so far) from selling devices…but the experience of using the device is part of the reason people pay and AppStore is a big part of that experience. Apple is converting a solid software SDK into premium hardware revenues.
  • “Open” doesn’t necessarily mean totally out of control. Apple keeps a tight lid on the AppStore and who gets to participate in it. There are rules. Those rules may aggravate developers, but they seem to keep users happy. Apple might have found the right balance between open and under control (think Facebook’s structure vs. MySpace’s chaos).

It’s no wonder that when Nokia dreams, it dreams that its Apple.

(By the way, while we did not record Levi’s talk, the GarageGeeks recorded an interview with him, which you can find here. If you can endure ten seconds of Hebrew, the rest is in English.)

AppStore

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Danger: Commoditization Ahead

Back in September, Google announced that it was adding facial recognition to Picasa. That must have come as something of a blow to the facial recognition start-ups that are hoping to dominate that niche with superior technology.

Last week, Google released Latitude, which is an upgrade for Google Maps for Mobile that includes social networking features. Basically, it allows you to share your location with your friends in real time and see which of your friends are where. The application runs on your mobile device, uploads your location data (using GPS or cell ID) to Google’s servers, and from there its pretty trivial to integrate with other services.

Is Google Latitude perfect? No. I wish there was a better way for me to find and add my friends, and I wish there was an easy way to integrate contacts from other services such as Facebook and LinkedIn. That said, the service is really very good. I don’t even have GPS on my phone, but the cell ID approach is good enough for me to benefit tremendously and to want to keep using it.

What’s the connection between Picasa’s facial recognition and Latitude? Both are examples of a big player introducing a free feature that pulls the rug out from under a number of start-ups hoping to gain market share by introducing the same capability. There’s have been quite a few start-ups who struggled to make a business out of facial recognition. And there are quite a few working on mobile social networking based, in part, on marrying location data to social network data.

Unfortunately, I think Andrew Scott has it right, when he argues that LBS is not a business model. Its a post worth reading (and thanks, Boaz, for the link!).

Andrew is making a powerful point, and he does it better than I could. Bottom line: things that are ubiquitous are not differentiators. And business models based on features that are rapidly becoming ubiquitous are in serious danger. If that isn’t bad news enough, the pace of commoditization is getting faster and faster…

Latitude

A takeaway from Mini Seedcamp Tel Aviv: Submarine Captains and Fisherman

I had the privilege of attending Mini Seedcamp Tel Aviv last week. It was a great event with 20 impressive start ups and lots of good advice and good will from the Israeli entrepreneurial community. It’s exciting to see so much young talent in Israel and so many people willing to help by donating their time.

SeedCamp

During one of the panel discussions, Gigi Levy, who is currently the CEO of 888.com, made a comment that really struck me.

He said (and I hope he will forgive me if I misquote him) that “the same tendency towards secrecy that can help Israeli start-ups succeed in fields like semiconductors and enterprise software, can really hurt them when it comes to consumer-facing offerings.” The reason? When a company has lots of IP and is pursuing a step-function improvement in functionality, it can get away with disconnecting from the market and developing, developing, developing until its ready to show its wares to the market and get some feedback. In many cases, there isn’t much point in constantly communicating with the market when you are still months or even years away from a product or even a proof of concept. Lots of Israeli companies have historically been successful with approaches such as this one because their products represented major technological advancements. In other places, I’ve heard this strategy described as the “submarine” strategy. You put up your periscope from time to time to get direction and make sure you are on target, but most of the time you are underwater, moving towards your objective but not in eye contact.

On the other hand, if the success of your product is driven entirely by user adoption/behavior/experience and if it doesn’t represent a major technological leap forward, then you can’t afford to disconnect from your customers. You need them involved, almost from day one, to help give the product direction, to provide feedback, to do A/B testing, to start building a loyal user base and buzz, and to prove that you are on the right track in terms of providing users with value. By contrast to the submarine strategy, this one resembles a deep sea fishing boat – you’re always looking for the fish, and when you find them, you never take your eyes off them.

I think Gigi’s comment is brilliant and insightful – and deeper than meets the eye. It also says a lot about Israeli entrepreneurs and their historic sources of strength. As the Israeli entrepreneurial economy looks to the consumer as a source of opportunity, we are going to have to recognize that some of the ways we used to operate might need to shift. Fortunately, many Israeli entrepreneurs have fully embraced the realities of the consumer world, and many of them are returning to Israel to start companies based on years of experience dealing directly with the consumer at companies such as Google and Yahoo!.

So as you think about running your business, ask yourself whether you are the captain of a submarine or a deep sea fishing boat….and then ask yourself if you’ve picked the right type of boat for the job.

Hunt For Red October  deep-sea-fishing2

Three videos: youth marketing, growing up online, and tying it all together

Two of my favorite sources of web video content are the PBS documentary series Frontline and the unparalleled TED conference videos.

Frontline Logo

This morning, I found myself watching a Frontline report from 2001 called “The Merchants of Cool” about marketing to youth and the beginnings of guerilla marketing.  It’s a great look inside the big media marketing machine and it raises interesting questions about the impact of marketing on culture. Filmmaker Douglas Rushkoff argues convincingly that as marketers work harder and harder to figure out what is authentically “cool,” they reach further and further into youth culture and drive trend-setting teens to innovate faster and faster to try to remain authentic. It’s a vicious cycle in search of authenticity – a cycle that is accelerating.

In 2008, Frontline released another documentary, “Growing up Online” about the ways today’s youth are using the Internet to define and express their lives. For those of us closely following social media, there are no earth-shattering observations in the Frontline piece, but its definitely worth watching.

GrowingUpOnline

I think the two documentaries are connected:

  • The first one (from 2001) argues that authenticity is getting harder and harder to find as major brands crowd into the lives of youth.
  • The second one (from 2008) argues that the social web (and user generated content more generally) are creating new spaces where youth can express themselves – authentically. In a sense, the Internet is now leveling the playing field that corporate America once seemed to dominate.

Ted Logo 

This brings me to a video clip from TED: Joseph Pine’s great talk on what consumers want. It’s a great talk, and the focus is on authenticity. Pines argues that marketers need to understand (1) whether or not their product is truly authentic and (2) whether or not their product delivers what it promises. “To thine own self be truth,” he argues.

Social networks and UGC can allow users to express themselves authentically and can allow truly authentic brand evangelists to emerge. This matters to all of us, but it matters perhaps most to children and teens. Their resources and ability to express themselves can be limited by lack of money, driver’s licenses, and admittance to nightclubs – but online they are truly equal citizens.

Brands are already embracing this new reality. We’ve seen the beginning of this trend with things like Proctor & Gamble’s Being Girl website (described in this post), and we’ll see lots more of it. It’s been extensively covered by two Forrester analysts in this book and this press release with several examples of this trend in action.

This is why I’m excited by start-ups that provide a forum for users to turn into authentic evangelists. Companies like Zlio, for example, lower the barriers to authentic evangelism by letting users create their own stores,such as this user-generated sunglasses boutique.

Still confused by all the pursuit of authenticity and coolness? Just ask this guy:

The Fonz

Social network serendipity

An amazing thing is about to happen – Barack Obama’s inauguration.

But a (much smaller) amazing thing just happened to me and perhaps to millions of other Facebook/CNN users.

I logged into CNN to watch some live coverage of the Obama inauration….and without doing anything, was logged in automatically to the CNN/Facebook joint inauguration experience.

I don’t remember giving CNN my Facebook login (although I am sure i did at some point), but it doesn’t really matter. As soon as I clicked on the live inauguration coverage, there they all were: my Facebook friends. I immediately saw comments from Ouriel Ohayon, Orli Yakuel, and others. And I realized that I was experiencing something new about the social web.

What does all this mean?

  • This is “social network serendipity:” One website (CNN) leveraging my social graph in unexpected ways to bring a user (me) content that is very valuable to me (my friends’ comments on a live event) via a social graph provided by another website (Facebook). It was unexpected and welcome – and that’s serendipity.
  • This illustrates what people mean when they say that Facebook is the operating system of the social web. Its the promise of Facebook Connect, and its very very real.
  • This is another example of big media players understanding that they can and should leverage social data to drive engagement and stickiness. We’re seeing it live on CNN today, we’ve seen it at the New York Time’s “Times People.” we’ve seen at the WSJ with their facebook plug-in, and we’ll see a lot more of it I’m sure…
  • There’s opportunity for start-ups such as Loomia to create some value here, but I think this one might pretty much be a done deal. Social networks benefit from huge economies of scale and they also benefit from making it really easy for others to leverage their social graphs, so opportunities for start-ups might be more limited than we’d like to think.

ObamaCNN

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The Economist gets it right again

I don’t really have enough time to blog today, but I did notice this article from the Economist, and I think its important enough to post here.

The article is particularly timely given the extensive coverage of the drop in US venture funding in the fourth quarter, the generally dismal mood among Israeli VCs, and the often-forecast death of the venture model.

I’ll write about the venture model (and whether it’s alive, dead, or just chronically sick) in another post – but I want to point out a few things that the Economist piece gets right and that have been driving my thinking lately as well:

  • This is a serious recession, but unlike 2001, it was not caused by overblown technology stocks.
  • IT spending is too essential to modern enterprises to disappear or even decline dramatically – but its also too much of their budget to grow exponentially.
  • Enterprises are less and less focused best-of-breed and more focused on “good enough” and “relevant to my business.” (They learned this, by the way, in part from Google’s approach to infrastructure: the components are commodities, the platform and application are unique.)
  • Enterprises are increasingly moving to IT strategies that emphasize low cost, flexibility, and manageability. This means SaaS, open source, cloud computing, virtualization, thin clients, etc. etc. None of these trends are new, but they are likely to accelerate.
  • Technology shifts are always going to create attractive opportunities for start-ups.
  • Read The Economist, its good for you!

While we’re on the subject of the 2001 dotcom crash, remember this?

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The Xobni breakthrough

 

Occasionally, a company will come along with a product that shows us the way forward and prepares a market for a change that is coming. I think Xobni is one of those companies.

Why? Because our social interactions on e-mail, social networks, twitter, IM, and mobile phones are rich with data that has yet to be effectively mined and leveraged. Our PST files (those massive files Outlook creates on our hard drives) are huge highly personalized databases that contain tons of value – if only the algorithms existed to read them and make sense of them in ways that help us. Think about the richness of the data that exists in e-mails: contacts, attachments, meetings, and simple text – all of them time-stamped and many of them already grouped into conversations… LinkedIn’s toolbar is a great tool because (like Xobni) it collects data from multiple databases and uses it to enrich both of them…but it leverages only contacts, not content or context.

Google desktop search goes only part of the way to helping us make sense of e-mail. As with web search, the company’s relevancy algorithms provide a long list of results for each query. They don’t really do anything to understand relationships between people or objects. Google’s desktop search was, in fact, an essential tool for me, until I discovered Windows Desktop Search which is just a much faster, more efficient tool. It’s based on a product called LookOut, which Microsoft bought in 2004. Windows Desktop Search comes built-in in Vista, but XP users need to download and install it.

But search doesn’t really solve the problem – because none of relevancy algorithms are smart enough to really leverage the information that exists in e-mail…and that is where Xobni comes in. Xobni is pretty quickly taking its place alongside Windows Desktop Search as an essential application for me. Xobni does quite a bit (just ask Bill Gates, Walt Mossberg, or Rafe Needleman), including:

  • detecting patterns within e-mail
  • detecting groups of contacts based on e-mail threads
  • floating relevant attachments to the surface
  • providing powerful search for contacts and e-mail
  • integrating user profile information for contacts from Facebook and LinkedIn
  • integrating with Skype

Xobni, however, is just scratching the surface. There’s a lot of data locked away in Outlook (not to mention webmail, social networks, and IM), and I think we’re just at the beginning of a wave of innovation that will start to convert all of this data into useful information. There’s a lot of low-hanging fruit here that is ripe for the picking…and a lot of room for very smart algorithmic work and UI innovation that I believe can be the basis for some great companies.

Wherever powerful algorithms can make a difference, you’re bound to see Israeli start-ups, and this space is no exception. Some of the more notable (public) ones in this space include:

  • Nogacom – which is revolutionizing enterprise search
  • Delver – which is mining social networks for useful patterns
  • HiveSight – which is mining social networks for market insight
  • TimeBridge – which is helping solve the personal scheduling nightmare
  • Sightix – which is providing some interesting social search visualization

If you are also working on this problem – I’d love to hear from you…

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Music sales down 14%, digital track sales up 27%

eMarketer just published some data on US music industry sales from a Nielsen press release. The catalyst was Apple’s overdue announcement that it is shifting to a DRM-free model.

Overall album sales are declining by 14%. Some of this is the economy, but most of it is a continuation of a trend that has been developing for a while. CD sales were down 20% in 2007, and so this year’s numbers don’t come as a surprise to anyone.

Also not surprising is that physical sales of current (i.e. recent) albums are declining twice as fast as catalog (i.e. less recent) albums. I suspect this is a function of demographics, with young people going digital faster than older people. In the digital world, the picture is reversed. Digital sales of catalog albums are growing faster than digital sales of current albums. This, I suspect, is due to higher levels of piracy among young people.

What is somewhat surprising is that digital album sales are up (+32%) even more than digital track sales (+27%). There are a bunch of reasons why this might be true, but maybe (hopefully?) it suggests that the death of the album (snack-o-tainment) might have been prematurely reported.

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Ten minutes and one hour on the financial crisis

If you have ten minutes, read Michael Lewis’ fantastic piece from the New York Times today.

If you have an hour, listen to this straight-forward episode of This American Life that explains some of the roots of the crisis. I promise its actually quite easy to follow and well worth the time – since it seems like we’ll be talking about this crisis for a while.

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