To IPO or Not to IPO: Live at TechCrunch Disrupt

IPOs traditionally are the grease that keeps Silicon Valley’s gears turning. There’s no lack of startups today, but the big question is whether initial public stock offerings will ever become a viable way for investors, founders, and employees to get a return on their money and work. When even the likes of Facebook and Zynga haven’t gone public yet, the prospects for IPOs look almost as bleak as ever. This morning at the TechCrunch Disrupt conference, Benchmark Capital partner Bill Gurley and Michael Grimes, managing director of global technology for Morgan Stanley, will be discussing what we can expect in coming years with TechCrunch editor Erick Schonfeld.

Grimes says there are new ways for companies to get larger sums of money and to help the founders get some liquidity, such as second markets for private stock. There’s a belief that the IPO market is closed. It’s not, but it’s more discriminating. There’s a bit of a supply issue, but there’s also a bit of a demand issue.

Gurley says there won’t be one IPO that will change the IPO market after it. There are 14 companies that IPO’d in the last few (one?) year, but no one writes about it because not as many are happening in Silicon Valley.

So why aren’t Silicon Valley companies going public as much? Grimes says investors think there’s too much of a leap of faith to believing the apparently ready companies are profitable enough. Gurley says companies must be profitable or convince investment groups they will be. That’s tougher now.

Why aren’t the obvious companies such as Facebook, LinkedIn, etc. going public now? Gurley can do whatever they want. LinkedIn has hired a public-company finance guy, they’re getting ready most likely.

Should Facebook go public? Gurley: They get to do whatever they want, they’re extremely successful. The argument that Facebook doesn’t want the scrutiny of being a public company doesn’t hold up. You don’t hear Salesforce’s Marc Benioff or Amazon’s Jeff Bezos saying that.

But they say they’re still experimenting and don’t want to be limited by the need to show quarterly results. Gurley: And Bezos isn’t? But a company as successful as Facebook can raise whatever they want from private sources.

Of the 40 (or is it 14?) or so companies that have gone public in the past year at $1 billion-plus valuations, why are they not very well-known? Gurley: 75% of the deal value is not from Silicon Valley. So people here have blinders on.

So why should Facebook go public at all? Gurley: To get liquidity for shareholders and employees. To do acquisitions. Grimes: The employee liquidity can keep the team motivated to work late nights.

What are the prospects for tech IPOs this year and next? Grimes: Could be 40 or 50 next year, compared with 30 this year. Gurley: I would predict you’ll see Skype and LinkedIn go public.

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LIVE from TechCrunch Disrupt: Fireside Chat with Reid Hoffman and David Sze

Now we’re on to the fireside chat with Reid Hoffman, cofounder of LinkedIn prolific angel investor, and VC David Sze. They’re both partners at Greylock Partners. TechCrunch editors Mike Arrington and Erick Schonfeld are moderating.

Hoffman: Today, we’re announcing Greylock Discovery Fund, a $20 million seed fund to operate very quickly to invest in startups with only a single partner OK.

Facebook, Zynga, Twitter, Pandora, LinkedIn–these companies are some of the most successful startups in the Valley, and most had many naysayers.

Q: What disruptive spaces are underinvested in? Hoffman: Mobile e-commerce. Consumerification of the enterprise.

Q: Are Silicon Valley startups really tackling hard problems? Hoffman: Yes. But is it important to be doing stuff in the hard sciences? It would be great.

Q: What happened to Cuil (which appears to have hit the skids)? Sze: Not close enough to say. Cuil is not done, it’s in the process of a lot of things.

Q: Is it a good thing that things sometimes go wrong? Sze: Yes, it shows you’re taking risks.

Q: Digg seems to be at an inflection point–what’s next? Sze: The last launch didn’t go well, but they’ve made some changes. All the successful companies hit these points. The key is the ability to power through them.

Q: What were LinkedIn’s inflection points? Hoffman: Every year, you actually hit something, no matter how well you’re doing.

Q: Can LinkedIn really overcome Facebook’s more universal appeal? Hoffman: All our numbers are better every month and every quarter. It’s a different consumer value proposition. Sze: Stuff happens in email (but that doesn’t mean LinkedIn isn’t of value in a professional setting). We want some separate between different things. (I agree–very different kinds of services. Some overlap, but I’m doubtful I’ll go full bore on Facebook for all professional things. But the question is how big LinkedIn can be. Less sure of that.)

Eric Schmidt: Google’s Next Big Business Is Display Ads

Annual shareholder meetings can be anticlimactic snoozers, but often enough, Google’s are not. There was the time in 2008 when cofounder Sergey Brin abstained from a motion for Google to end its activities in China, on which the rest of the board voted no–providing a clue to Google’s recent decision to stop censoring search results in that country. And with many issues, from antitrust to Android’s challenge to onetime Google partner Apple, continuing to percolate, it’s worth hearing the latest official line from the company’s executives.

Indeed, judging from questions already posted on Google Moderator for the meeting, the interchanges could be lively. One question: “Google top management seems to be too egotistical and aloof about the stock price Shareholders are mad,the stock is down 21%YTD,You play catch up with apple with nexus one and now verizon tablet What is actually going on?” Hostile tone aside, interesting questions.

There are also several shareholder proposals, on China, behavioral advertising and privacy, and sustainability, all of which Google is officially opposing.

So I’ll liveblog the highlights of  the meeting here starting at 2 p.m. Pacific–and in the unlikely event there are any big surprises, I’ll also tweet them here. I’m told there will be a Webcast here, though it wasn’t listed on that page earlier today.

And we’re nearly underway, as Joe Cocker’s Feelin’ Alright and smells from the adjoining cafeteria waft across the room.

CEO Eric Schmidt comes onstage with what will be the usual board introductions, including John Doerr and cofounder Larry Page. And then the shareholder proposal presentations. First the proposal on asking Google to do a sustainability report. Then the proposal asking Google to strengthen its privacy policy, especially with regard to behavioral advertising. Finally the one calling for more protections for human rights in China–by a guy who I think has asked pointed questions at at least one previous annual meeting (I recognize his T-shirt). And, big surprise, they’re voted down.

Now Schmidt comes back on to talk about Google’s business. “We had a very good year.” And did better coming out of  the crisis than many other companies. Core business grew well, internationally and in the U.S. “So all is well after a year of great tumult.”

So what’s next: Schmidt shows a slide entitled “The rich Internet,” and explains the explosion of data, now about 800 exabytes (which is a billion gigabytes), from 5 exabytes from the dawn of civilization to 2003. “No wonder we all have headaches.” Except Google, of course, because search becomes all the more important with that infoglut.

“Search is no longer just a static Web page.” YouTube and search “audiences” are already larger than most television companies. Taking off in mobile too–number of mobile searches up five times from two years ago. “Search is not just a query”–Google Goggles lets you use a photo as a query. Also 550 quality improvements in the last three months.

Schmidt talks about what he calls “the engaging Internet,” like YouTube. Now all of a sudden, the ads need to be engaging too. In five years or so, “the ad we  grew up with will go away.” Click to call, direct links to store locations or the particular product being searched, etc.

“A huge success for us now is display.” DoubleClick was “money extremely well-spent.” Also announced an ad exchange. Some 60% of display advertisers are new to display. “This is probably our next huge business.”

Enterprise business is growing fast too–a few thousand businesses a day, he says, starting to use Google Apps.

Android is going to be either the No. 1 or the No 2 player in the mobile market–not sure yet. We’re trying to build an entire system of openness–the opposite of the other guys. (Yes, he used a plural, even though we all know he’s talking about Apple.)

The Chrome browser, he says, is also a huge success, because of speed, simplicity, and security. Schmidt says Chrome OS should become a third platform for computers (I guess Linux doesn’t count?).

OK, time for questions. Onstage are Schmidt, Page, search experience chief Marissa Mayer, products head Susan Wojcicki, CFO Patrick Pichette, and Kent Walker.

A guy from Consumers Union (I think) asks a couple of questions that seem rather inside-baseball. One is on use of SSL more broadly–Mayer says stay tuned. Another, more interesting: Is there a $700 million kill fee on the AdMob deal. Schmidt doesn’t say, but says he expects the deal to get approved because mobile is a “highly competitive market.”

Another guy asks a convoluted question about the mobile market, ending with: Why isn’t Google doing mobile devices and products more directly? Page says Google is making “tremendous progress” in those areas but thinks the best strategy is to provide a mobile platform.

Q: Is it over in China or what? Schmidt says Google wants to continue business operations in China, but the situation isn’t settled yet.

Q: Will Google run out of computer space for all that data? Mayer: It’s a big challenge to keep up with data, but that’s what makes it exciting. Wojcicki: Algorithms and better technology will improve Google’s ability to deal with growing data.

Q: What is the next big thing? Page: One of the next big things is translation. Other two-thirds of world population not yet online need that. I think that’s really going to significantly change the world.

Three people now have complained about the lack of responsiveness of investor relations. Pichette tries not to look too uncomfortable.

Q: What’s happening with that competition for Google to build a citywide fiber-optic network? Schmidt: Winnowing the list down but no decision yet. Page: We had an Olympics for trench diggers. (Yes, they did.)

And that’s it.

What I’d Like to Happen in 2010 (But Probably Won’t)

I just foolishly offered some predictions on what will happen in tech and and on the Internet this year (and what won’t happen). Now, I’d like to offer a few things that I wish would happen:
* Cell phones provide decent call quality. I really don’t get folks who don’t have a landline, because cell call quality often sucks, and I simply refuse to inflict this on people I’m talking to if I don’t have to. I’m not the first to point out that cell phones have improved in every way except as phones, and I’m pretty sure I won’t be the last, especially as data-intensive apps hog more and more bandwidth.
* A cheap, fast, and simple way to get Internet video onto my TV. Yeah, I know there are many ways to do this, but somewhere along the line, they all seem to require some kluge to work. Sorry, life’s too short. Really, can it be so hard to come up with something that just works, like Tivo? (Come to think of it, maybe Tivo is it–just not the model I own today.)
* Apple gets the iPhone onto Verizon’s network. I know, unlikely at best. But I’d buy an iPhone right now if I didn’t have to deal with AT&T’s spotty network, at least in the Bay Area. Otherwise, I’ll stick with the Touch and cadge WiFi where I can get it.
* Someone figures out how to help individuals sift through the data deluge flooding us from Twitter, Facebook, news sites, YouTube videos, and who knows what-all. I sure wish, and whoever does this in a reasonably comprehensive way will have a heckuva business. But I’m not holding my breath.

What Won’t Happen on the Internet in 2010

Against my better judgment, I just posted a few predictions for the parts of tech and the Internet that I pay attention to. But maybe it’s just as important to note what won’t happen:
* Tablets won’t be the next big thing in client computing. Oh, Apple will create a lot of buzz over whatever it releases. But as my former colleague Steve Wildstrom notes, the key will be the user interface–specifically, user input. Like it or not, a keyboard is still key to doing (as opposed to watching) anything online. A virtual keyboard might work, and voice commands might work as a way to surf to the most-visited sites. But beyond typing 140 characters at a time, a real keyboard still seems mandatory. So does an easier way to upload video and communicate via voice and video in real-time. This is one reason the iPhone and other smartphones are so popular–you can take a photo or record video, send it, and then communicate about it all on the same device. I’m not sure how a tablet is going to do that elegantly–though if anyone can figure it out, it’s Apple.
* There won’t be as many tech IPOs as venture capitalists and startups are hoping. A lot of folks are predicting a significant number this year, and I don’t doubt there will be a noticeable improvement from the drought of recent years. But I’m skeptical that there will be enough to save the bacon of many startups and VCs. The economy’s too uncertain, and retail stock buyers don’t seem ready to step up for what they surely remember are very speculative investments. If I’m wrong about the number of IPO filings, it will be only because there will be too many offerings that people shouldn’t be buying anyway.
* In particular, Twitter won’t go public. Neither will Facebook (though I’m less sure about that). The thing is, both can afford to wait until the economy or the IPO outlook really turns around. There’s no reason for them to lead the way in an uncertain market and risk getting less than top dollar.
* Real-time won’t be a business, except for Ron Conway and betaworks. Oh, it’s important, but as I’ve said before, I think the appeal of most so-called real-time technologies and companies is the social aspect. In other words, the key thing is less real-time than real people.
* Online advertisers won’t escape a privacy backlash, because they’ve been careless about addressing people’s concerns. I think the real problem is poorly targeted advertising, since the right advertisement is likely to be overcome any sense of spookiness. If the ad scientists hadn’t gone all geeky and named targeting advertising “behavioral targeting,” and then often tried to hide what they’re doing, they would be in a much better position. “Personalized advertising,” fully disclosed, might have worked much better. But it’s probably too late for semantic tricks at this point–especially for lawmakers looking to make headlines. At the same time, this won’t tank online advertising, or even dent it much. Advertisers will find ways to get around any restrictions that are imposed, which will be so general as to be fairly meaningless.
* Google won’t get hit with a major antitrust lawsuit that so many have been predicting for years. It’s just tough to pin particularly egregious competitive behavior on the search giant–not yet, anyway. It also must have learned something from Justice’s slapdown on its aborted Yahoo deal. So while there will be some noise–perhaps around the Google Books agreement–Google may skate by. As it continues to vacuum up more online services, however, the US. or Europeans regulators will keep looking for a way to limit its power.

What Will Happen on the Internet in 2010

Predictions may be more useful for the writer than the reader. After all, if you’re as specific or as provocative as you should be, you’re going to be wrong at least half the time, and that’s not a very dependable percentage to prove your worthiness as a futurist. For me and other prognosticators, though, predictions are a useful way to ready ourselves for the coming year (OK, it’s already here)–to tell ourselves what to pay attention to and to provide a vantage point for assessing the many events and announcements to come.

So here’s my attempt to predict a bit of what’s going to happen in technology, mainly on the Internet–that is, the scattered parts of it I pay attention to. I’m also going to follow up with two separate but related posts: what won’t happen this year, and what I wish would happen but probably won’t.
* Merger mania will accelerate in technology. Valuations of private companies in particular seem low enough, but won’t be forever. And the industry’s leaders–Cisco, Google, Microsoft, HP, etc.–not only have the cash but have said they’re ready to spend it. Both sides know that cosmic convergence won’t last for long, so they’re ready to deal. I don’t know that multibillion-dollar deals will happen but I bet there will be many smaller deals.
* Branding will start to become more apparent in Internet advertising. That’s mostly because brands won’t be able to treat “digital,” as traditional ad types quaintly call it, as an add-on anymore. The Web is becoming the main event for too many consumers now. Plus, targeting technologies of all kinds, along with new ad formats, are starting to get good enough that brands can stomach using them. Not least, display ads, the chief vehicle for online brand advertising, will be a big focus for Google this year. While it’s not at all certain Google can master branded display ads, its efforts no doubt will move things forward.
* Google’s software efforts will finally establish it as more than a search company, making it apparent what this pony’s second trick is: Whether it’s because of Google Apps, Android, Chrome OS and the Chrome browser, or some new product, Google will be seen as the software company it really is. It will continue to be seen as a media company as well, but that’s only because software provided as a service on the Net is the new media. It’s just that few people realize this, least of all traditional media, to their everlasting detriment.
* Yahoo will surprise on the upside, thanks in part to that pickup in brand ad spending, which has always been Yahoo’s strength. Also, people may be underestimating CEO Carol Bartz’s ability to get Yahoo, which has more resources than its performance in recent years would indicate, back on track.
* Mobile applications will start to take off. Only start? For the masses, yes. I can assure you that even many of my tech-savvy friends in the Valley have no idea what Foursquare is. Plus, bandwidth limitations will only get worse, which could delay mass rollouts of data-intensive apps. But there’s a reason smartphones are exploding, and it’s not because they’re a computer in your pocket. They’re the Internet in your pocket.
* Twitter’s main business model will become more apparent–whatever it turns out to be. But it won’t knock everyone’s socks off–at least if it turns out to be mainly selling data feeds to other companies. I’m also not sure lead generation, e-commerce or even in-stream ads are killer businesses. None of that sounds like the next AdWords to me. I’m not privy to Twitter’s plans, but I have to think the ambitions of its founders and everyone around them require some new kind of advertising that’s just as fast and easy for advertisers as search ads.
* Facebook will keep growing, providing perhaps the first test of whether social media is a blockbuster business after all. Although I’ve been on Facebook a long time now, anecdotally it feels like my generation (let’s just say, not in our 20s and 30s, OK?) has just started embracing it bigtime. And that’s a lot of people. Eventually, and I think before long, Facebook’s scale could create fairly specific audiences that could rival the reach of television. That’s the Holy Grail. What I don’t know yet is if Facebook will be able to seize that opportunity.

Greetings

On Dec. 1, I’m leaving BusinessWeek magazine after 21 years as a writer and bureau chief in Silicon Valley for some new adventures of my own making. For the last few years, my Web site has been businessweek.com and its Tech Beat blog. Suddenly it’s time (and yes, WAY overdue) to set up a more independent presence online. For now, while I take some time to decompress and get some planned projects rolling, this will be my main online home and outlet for blogging.

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