Author: Steve Shu

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Heard of the Hot Hand Fund? What About Prediction Markets?

This post has been cross-posted at The CIO Weblog.

If you have read James Surowiecki’s book, "The Wisdom of Crowds", you might be interested in this post (Surowiecki’s basic thesis is this: "large groups of people are smarter than an elite few, no matter how brilliant").

Anyway, Forbes has an interesting article on California investor Ken Kam, who has created a
fund, MOFQX, that has more
than doubled the returns of the S&P 500 since it was founded in
November 2001. The article goes into great detail on the beta of the fund, how it works, etc., but I’ll boil down the basic gist here:

  • Ken created a simulation stock market (marketocracy.com)
  • People sign up and trade on that market
  • Ken allows the best performers of the group in his simulation market to designate the trades in his real fund, MOFQX
  • Ken’s real fund is kicking butt.

Backing away from this a bit, it will be interesting to see if prediction and simulation market software takes off. It seems like there could be a need for a generic software platform that could be configured and/or customized by user need. I have heard anecdotally through the grapevine that for some CIOs who have breathing room away from Sarbanes-Oxley, security, etc., that they may spend some time looking at how to set up various artificial markets to support real business decisions. The information on prediction markets is hard to find though. In a very cursory analysis, I did turn up two interesting sites at NewsFutures and MIT Technology Review’s Innovation Futures. Only one of these sites is vendor-related, but at least it does give people a quick flavor of the possibilities.

Steve Shu

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Good Post on Software Industry Consolidation

Jeff Nolan (SAP Ventures) has an interesting post covering consolidation in the software industry. There are at least three key undercurrents to his post covering background of this sector of the economy, M&A philosophy from the perspective of platform vendors, and the importance and practicalities of post-merger integration within the software space.

Jeff’s pragmatism shines through in this part of his post:

… Probably the single biggest thing you can do with an
acquired company is know what members of the management team and rank-and-file
that will be leaving the combined companies no later than 12 months after the
acquisition. The fact is that when you have large companies buying small
companies most of the people won’t mesh together for the simple fact that
entrepreneurs and people attracted to startups don’t like big companies. So
knowledge transfer and integration becomes a critical success factor.

Although I’ve pointed out some general M&A studies done in the consulting industry here (not to mention another study by McKinsey here [free subscription required] that reveals "that 70 percent of mergers failed to achieve the predicted
revenue synergies, while cost synergies were overestimated by at least
25 percent in a quarter of the mergers"), Jeff’s post is great because it signals some experiences specific to software sector M&A. Clearly, not all M&A deals create an exitus of personnel. In the M&A scenarios that have  been closer to home for me (generally telecom space), one key aspect of many deals is that management typically goes out Day 0 to proactively "re-recruit" personnel – e.g., management assumes that M&A deals create tension that must be relieved. That said, from the people I know who have been involved in M&A in the software space, the day after the deal it is not uncommon for those in the acquired company to have looks on their faces like they are reporting to prison even though their pockets may have been lined with gold.

Steve Shu

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PR and Brand Consulting Firms Make First Moves as Thought Leaders in Corporate Blogging

It’s one thing to speculate about how corporate blogging is going to pick up. It’s another thing to see what the market is actually doing. Traditional management consultants sometimes call the latter "watching for markers" as to how an industry is going to shape up. From my viewpoint, the PR and brand consulting firms look to be the first movers (relative to 3rd party service firms) in evangelizing corporate blogging, even though these areas are not the only involved parties in a blogging equation. Steve Rubel’s post here and Jennifer Rice’s post here are both good examples of actual moves to go out on the road to pitch clients and out on the web to educate prospects. I’ve indicated that the core mass of the consulting industry may not be making any moves yet on corporate blogging, even though corporations are starting to ramp up use. It is also useful to note that one of the primary authors of the expected blockbuster book on corporate blogging is Shel Israel, a PR consultant. Shel is writing the book with uber blogger Robert Scoble.

Steve Shu

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Are Marketers the Future for the Next Generation of CEOs?

Based on some of my posts related to Seth Godin, Somill Hwang of Bite Communications brought to my attention the results of a new study by the Institute of International Research, which polled 1,300 business leaders and discovered that 29 percent believed that marketing is the most important area of expertise among next-generation leaders.

Here’s the question the IIR posed and a snapshot of the results:

What will be the most important area of expertise for the next generation of leaders?
      Marketing: 29 percent
      Operations: 22 percent
      Finance: 14 percent
      Sales: 8 percent
      Engineering: 8 percent

Now it’s always a bit hard to interpret these kinds of survey results very deeply. That said, it’s an interesting question when one considers that many CEOs have come from second-in-command positions like CFO or COO positions. What do you think about these results?

Steve Shu

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Why Entrepreneurs Need To Wear Their Decoder Rings When Talking With VCs

Venture capitalist Bill Burnham describes in his blog why venture capitalists never say "no" to entrepreneurs. Some insightful ways of describing why such behavior is so, Bill writes (bracketed text is mine):

… The issue with saying “no” in the venture business is that there’s really isn’t any upside to saying “no” …

… You might be saying “no” to providing the initial funding to the next Google or Cisco or Yahoo … you risk [getting] shut out of their next round of financing …

… Saying “no” to any entrepreneur is not fun and creates enemies.  It’s
like telling someone their baby is ugly or their child is stupid …

… Net, net: no one likes to make enemies and saying “no” is a pretty easy way to do it …

For entrepreneurs not wearing their decoders rings when talking with VCs, the pursuit can seem like playing "hard to get". Although Bill describes his use of language as an "art", it’s really a "craft". Art is for show, craft is for dough. VCs are in the business of making money, and saying "no" doesn’t help that cause.

Steve Shu

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The Vonage 911 Incident Sheds Light on Differing Definitions of Quality of Service (QoS)

Om Malik’s recent post got me a little heated. While I support voice-over-IP (VoIP) efforts, I worry at times that we as consumers will unknowingly contribute to a tragedy of the commons. The "commons" that we risk of losing is that of the reliability and security of a public utility. Below I’ve reproduced (and cleaned up formatting for) some comments I made in Om’s post as to why VoIP is not the same as the public switched telephone service (PSTN).

Everyone gives a lot of heat to the incumbent PSTN providers, and there’s good reason for that because people are looking at Skype, pre-paid international calling cards, and the like and coming to their own conclusions that the PSTN is not a good deal. Heck, I’m a user and have switched over in some cases based on cost.

What people fail to understand is the PSTN was designed to handle a lot of things we take for granted:

  • 911 calls being nailed up to the operator position so you can’t hang up. Can all VoIP providers do that? (I don’t know)
  • What about cases of power outages? The PSTN was designed to keep your phone powered during outages.
  • What about cases of major disasters, e.g., bombs blowing up key parts of the national infrastructure? The PSTN was designed to handle these requirements …
  • What about traffic congestion and call gapping?
  • What about FBI or authorities being able to wiretap under authorized situations, etc.?

The list goes on and on, but all people care about is price until things go badly …

Now regardless of whether Vonage has made, will make, needs to make, etc. any information regarding differing QoS, a lot of this will likely go over a typical person’s head in the early rounds and years to come. Telecom technology is pretty complex. I hope someone is keeping their eye on the ball so that we don’t unknowingly wipe out a valued, public commons without a proper alternative. I am all for Vonage, and may the best service win so to speak, but the PSTN gets too much of a bad rap at times. As consumers, we (via our unsatiated appetite for VoIP) and companies like WorldCom have created a ton of pressure on the incumbent carriers that we sometimes forget.

Steve Shu

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Good Post on the Structure of Corporate Blogging

Provocative post by Steve Rubel on whether a company should blog from top down, bottom up, or use hybrid approach. It was a topic that I had planned on covering in a prior book opportunity. I may comment more on the structure of corporate blogging after Easter. I think it is probably also important to consider the legal aspects of risk management. One recent, useful corporate policy to look at is here.

Steve Shu

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Update (3/29/05): Version #2 of the corporate policy I mentioned before is up here.

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Article on the Value Debate Over MBA Degrees

Last week I cited an article by Professor James Carlini that captured a big but sometimes forgotten point about the WorldCom fiasco. This week he begins a two-part series on the debate on the value of an MBA. Professor Carlini had picked up on a thread of MBA topics on this blog (potentially starting here) and was motivated to write some of his own perspectives.

One paragraph from Professor Carlini’s article really jumped out at me. He writes:

In today’s competitive and mobile society, values have changed. Some working professionals want convenience and expediency in getting an M.B.A. They have been sold on this as the criteria to select a school. There are online schools, extension programs and other avenues to go through instead of the traditional approaches that some schools still use. Tens of thousands of people graduate with an M.B.A. every year.

I haven’t followed the MBA supply and demand issues that closely, but from my vantage point in the blogosphere, I have heard from respected industry people that there may be too many MBAs out there and that this diminishes the value of the degree. Perhaps so.

My biggest concern would be that business schools need to make sure that their curricula and reading material are up-to-date. There has been some significant shocks and changes in the world over the past half decade. Some that come to mind are:

  • major economic shift related to offshoring and potential marginalization of even innovation
  • big changes in technology and viral diffusion models (e.g., Tipping Point-type stuff)
  • stock market bubble bursting and change in demographic needs of business school students beyond consulting and investment banking
  • corporate scandals and corporate governance concerns
  • ballooning US trade deficit that will not be reversed for many years to come.

When I asked Malcolm Gladwell to what extent the "The Tipping Point" was diffused in business schools, he replied something to the effect of "it is too early to tell". Granted, I can appreciate the needs of business school professors to balance academic caliber literature vs. popular writing. Yet, for something that is on top of the business world (i.e., viral models) … well Gladwell’s response made me a little uncomfortable.

Steve Shu

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