Burnham's Beat

A GOOD Exit: Good for VCs, Bad For Microsoft

Mobile E-mail middleware provider Good Technology was sold to Motorola yesterday.  I have written about the mobile e-mail middleware market in the past and the vast sums of VC money that it has consumed.  Good consumed the most of anybody, almost $250M and had a long roster of some of Silicon Valley's finest as investors.

As good as Good was at raising money it was apparently even better at spending it.  I got a call in May from a retail broker, of all people, pitching me on the virtues of Good's Series E or F or Z (I can't remember) and this was less than 3 months after they had announced raising another $20M.  Not only was I dumbstruck that a retail broker was pitching Good's stock as though it were the stock de jour, but I was equally stunned that they were out looking for money only 3 months after raising $20M and only 15 months after they had closed another $65M.  I'm no math major, but if you raised $85M in 15 months and are already looking for more, you are probably burning $4-5M/month.  I guess I'll never know exactly what they were burning a month because I declined to go the San Francisco Airport Marriott and hear their pitch with whomever else this broker had rounded up off the street.

Not that it matters either as the Silicon Valley rumor mill (at least the part I am plugged into) puts the exit value at around $500M, give or take some escrow and indemnities here or there, which means that Good's investors actually made out, well ... good, real good.  Of course that could be totally wrong, but it's now being reported by respectable news organizations so it sounds like it is a good number.

A 2X To Be Proud Of

A 2X on $250 in PIC might not seem like much, but from my perspective it is absolutely heroic given that there's a very real chance that Good would have been out of business in a few years if not a few quarters.   No they wouldn't be out of business because they had run out of money (they were apparently too good at fundraising to do that), they would be out of business because Microsoft has started literally giving away the same functionality, the only catch, and it's admittedly a big one, is that you have to have a phone with Microsoft Windows Mobile on it.

Its' Hard To Compete With Free And Easy
I just so happen to have such a phone (the Treo 700wx) and was amused to find when I first powered it up that Good Technology's software was prominently displayed on the phone and offered as a solution for accessing my Exchange server.  So I faced an excruciating dilemma:  I could either A) Pay Good a $30 a software license and then pay my hosting company a monthly service fee of $20/month or $240/year (per phone mind you) or I could B) Get the same exact "push e-mail" functionality as Good offers absolutely free by taking 1 minute to enter my exchange log-in details into my phone.  No software to install, no bills to pay. Needless to say this was not a hard decision.

However if one did not know that this functionality was released by Microsoft in Q1 06 for free and yet desperately wanted "push e-mail" functionality, there's a good chance you would dutifully sign up with Good and pay them there $240/year.  It's not like Sprint, Good or my hosting provider went out of their way to mention this, after all they are all getting a piece of the action and thus don't have a big incentive to point out that I am wasting $270 on them.

I should point out, that since that time (a couple months ago) my hosting provider has actually had a change of heart (most likely prompted by a heart to heart with some lawyers and some very angry phone calls from customers who found out they were duped into wasting $270) and has now posted on their site a comparison of the three push e-mail solutions they offer which you can view here.   For those too lazy to click through, the link is to a page that shows the three push e-mail solutions offered by my hosting provider: Blackberry @ $50 up front and $10/month, Good @ $30 up front and $20/month and Microsoft @ FREE.  Now I am not a market researcher but my guess is that once you explain to people that each service is roughly equivalent, that about 100% of the people who have a Window's Mobile phone will pick Microsoft and a decent chunk of people who own other phones will go out and buy a Windows mobile phone while the rest will resolve to buy such a phone next time they upgrade.

Which brings me back to why Good's exit is so damn good.  To get $500M for a company 6 months AFTER the death warrant for its main product line has been very publicly signed, sealed, and delivered from Redmond, WA is absolutely awe inspiring.

Hello Moto ... Hello
While the exit left me with tremendous respect for the VCs, it also left me wondering what in the world the folks in Schaumberg, IL were smoking.  At first I thought they just were either desperate, drunk, or filled with wild-eye RIMM envy.   Then I figured it was all three, but then I thought a bit more about it and realized that Motorola's purchase really didn't have anything to do with RIMM (despite the fact that every news account under the sun characterized the deal as primarily motivated by a desire to compete with RIMM).  No, what this deal was about was freeing Motorola from Microsoft's potential stranglehold on the OS software for their smart phones

After all, Motorola already knows full well that Microsoft offers the same functionality as RIMM and GOOD for free.  One can imagine that their Microsoft reps trumpeted this fact to them to no end while they were putting the Q together and gleefully told Motorola of their grand plan to destroy both companies through their time tested strategy of giving everything away for free.  In fact, there's a decent (and highly ironic chance) that Microsoft was so convincing that they literally scared Motorola into paying a huge premium for what they knew was dying asset as this was the only way to insure that they would be have the flexibility to compete with RIMM and Nokia (which bought Intellisynch last year) without having to throw itself at the mercy of the merciless Microsoft.

In Linux We Trust
Thus by buying Good, Motorola now has the freedom to develop and ship Linux-based smart phones (such as Ming) that can still play ball with push e-mail (using a familiar "brand" no less) without having to pay a significant tax to Redmond on each phone.  I am not sure what that's worth but I suspect there's a spreadsheet somewhere inside Motorola's headquarters that multiplies that tax by the number of smart phones they expect to ship over the next 5 years and that this spreadsheet was the main one used to justify the deal or at least the main one that Ed Zander, someone who knows a lot about competing with Microsoft, used to justify the sky high price to himself.  Of course, I could be wrong and the folks in Schaumberg could just be filled with blind RIMM envy or drunk or whatever, but I think they deserve the benefit of the doubt.

Whew! That was a Close One
As for the VCs involved, I suspect there are a lot of happy and relieved looks around the Good boardroom these days for no one could see the oncoming train better than they could.   It may not be "Google Style" money, but it's more than respectable and considering the circumstances, downright impressive.

Search + State + Metadata = A Search Application

The major search engines have all built incredibly impressive and expensive infrastructures with one main goal in mind:  finding the one result or small set of results that enable a user to find the specific information they are looking for amidst the vast forest of information that is the Web.  Finding the specific tree in this vast forest, and finding it fast, is thus not only the benchmark by which all search engines are measured but also arguably the dominate axis of investment and innovation within the search industry today.

If you don’t believe me, just look at all the search start-ups that have launched in the last few  weeks including  Riya and Powerset.  While these start-ups each have a different focus, their main value proposition is the same: we help you find you are looking for faster and better than the other guys.

As I outlined in my last post though, the huge investments required to even have a prayer of “building a better Google” dictates that most “tree focused” search start-ups will either: A)  Be forced to concentrate on a small niche, B) Be acquired by one the one of the majors for their technology, or C) Be crushed by the major players when they add similar functionality.

Seeing The Forest for The Trees
The real green field in search today is not trying to find the tree, it is in trying to understand the forest.    The forest, is the vast interconnected sea of web of sites that make up the web and the flows of information that constantly course through it.  Once you can see this forest and observe how it changes over time, you can begin to derive insights and information that simply are not possible to discern with a single query.

To understand the forest you need three main things:  persistent search, state, and metadata.  Persistent search is simply a search query that is constantly running.  State is information about the state (what time is it, what things are connected to what, etc.) of the web each time a query is run.  And metadata is information that is derived from the set of search results returned for a particular query (how many results, what type of results,  who authored the results, statistical analysis of elements within the results, etc.).

Marrying these three items together adds two key dimensions to search:  time and context.   Time is an incredibly important dimension because once you can compare things over time, you can determine change and the rate of change.   For a primitive example of how to marry search and time, look no further than a little noticed (and very immature) feature on Google Finance.   If you look at the news for a particular stock in Google Finance, on the top left hand side you will see a little graph of the number of articles mentioning this stock over time.

Right now this feature is very novel (and it lacks state), but if you think about a more robust version of this that attempts to relate the number of articles to other times series, such as stock prices or trading volume, it starts to get much more interesting.

In terms of context, context allows a user to easily understand how one data point fits into a broader picture.  For example, at Vast.com, if you search for a specific used car, say an Audi S4, on the left hand side of the page you not only see all of the Audi S4’s for sale, but also the median mileage and median price of all those cars.  This metadata (the medians ) is not found in the search results, but produced by analyzing the aggregate results.

Now imagine charting this metadata over time (via a persistent query that captures the state each time it runs)  and you can easily envision a chart of the average asking price for a specific type of Audi S4 over time.  (Kind of like what mpire is doing with its auction search today.)  A marketing person at Audi (or its competitor) might be very interested to see how these values change over time or respond to price cuts for new cars or new model introductions.   Similarly a car insurance company might be very interested in this data to assess replacement values.   Kelly BlueBook might be interested in this data because it has the potential to seriously disrupt their business.

The Metadata’s the Limit
Things get even more interesting when you add in advanced text analysis techniques, such as natural language processing and entity extraction, to generate additional metadata.  All this metadata can then be correlated with not only data from other searches but with traditional structured data.  Want to understand if good or bad product reviews on blogs impact sales?  Search away.  Want to understand if a sharp spike in message board traffic is likely to impact a stock?  Search away.

Of course,  you won’t be able to simply type in a search to Google (or any other search engine for that matter) and find out the answers to such questions.  You will likely get you answers from purpose built “search applications”.  Who will build those applications? Mostly start-ups to begin with (many already are), but eventually established firms will also enter this space.  Expect to see a heavy focus on financial services and marketing related applications early on, but the concept has applicability across just about everything.   It will be very interesting to see just what is built and what succeeds.