A "Natural Cure" for the Author's Debts

Here's a sickening reminder of how easy it is to scam a public that doesn't understand science. Amazingly, this snake oil brochure is Number 1 on the NY Times Best-Seller list of How-To books. How is it that anyone can trust the prescriptions of a convicted fraudster with no scientific or clinical background?

Notice the con man's effective use of conspiracy theory to leverage public mistrust of large corporations. Trudeau loves to point to the "profits of multinational pharmaceutical companies" as motivation for this broad-based conspiracy to squelch natural cures (amazingly, not one of the 100,000 people he implicates has ever decided to tell all). But what about the profits from his self-published book and infomercials which have, so far, procured for him "dozens of homes and condominiums"? I mean Good God, the man has a motive.

I can't help but suspect that US consumers would think more critically about medicine if our healthcare system weren't a "black box" over which they have no control. Perhaps Consumer Driven Healthcare (CDH) will motivate consumers to critically assess their medical options (empowered by data from Healthia!).

More likely, this nonsense won't end until we stop teaching our children to trust their lives to storytellers and "spiritual leaders", and instead to make practical decisions based on empiricial evidence, as observed directly or repeatedly reported by credible witnesses.

Otherwise expect more scams like this one until natural selection kicks in to favor the consumers of scientifically valid medicine.

Healthia

Introducing a new Bessemer-funded consumer venture...

My previous post celebrated Consumer Driven Healthcare (CDH), the new development in American healthcare reform. CDH promises to stabilize premiums for employers, cut out-of-pocket expenses for employees, and improve the quality of healthcare through freer competition.

But consumers are unaccustomed to shopping for medical services, and there are no available data on the price, quality and service of competing providers. A McKinsey study concluded that "this is the huge challenge of the CDHC movement. If consumers are to welcome new incentives to manage their health care and spending, they must have better information to support their decisions." (via this report on CDH).

So we have incubated a company in concert with founders from Healtheon and Valicert to build a portal for delivering the information and online shopping resources that healthcare consumers have come to expect when buying other goods and services. According to Healthia's About US page: "Our goal is to provide America's first comparison shopping and research portal for consumer driven healthcare, enabling businesses and their employees to choose health plans and ancillary health benefits objectively and transparently."

Please visit our California-only beta site and give us feedback. We're starting with just the first steps toward consumer driven healthcare--setting up an HSA and HSA-eligible plan.

Consumer Driven Healthcare

This post is only for people who consume healthcare services.

It is well understood that our nation's healthcare delivery system is in crisis, but you may not realize the degree to which it is about to impact families. Health insurance costs per employee are rising between 10% and 20% every year, and healthcare spending per capita is 16.3 times 1970 levels, bringing us to more than twice the average for western world countries. As the costs per employee rise above a certain threshold, employers pass on the deficit to employees, and so the inflation rate of out-of-pocket health costs is even higher. The US Census Bureau forecasts a stunning picture: out-of-pocket expenditures per US family has risen from 13.1% of median income in 1999 to 21.1% in 2003, and heading north of 30% by 2006. According UCLA's Center for Health Policy Research, in just two years between 2001 and 2003, the average California worker's contribution for family coverage plans rose 79% -- from $114 to $204 per month.

We all recognize, from first-hand experience, the root of the problem. Insurance companies control which doctors we can see, when we can see them, what treatments and medicines they can prescribe, which hospitals we can use, how long we can stay, what tests they can run, how much we pay, etc. As a result, the whole system is, well, completely fucked up.

The ability for consumers to make rational decisions in a free market normally governs the rate of inflation to a reasonable level. Even expensive, complex purchases, such as real estate, taxation, estate planning, investments, home renovation, etc. can be made so long as the consumer has access to professional counsel from practitioners who compete on price, service, and a reputation for dispensing quality advice. But consumers do not have access to an open, freely competitive market for medical services. Our employers choose our plan, our PPO or HMO chooses our doctors, and to keep the PPO patients flowing, doctors comply with the PPO guidelines rather than dispense unencumbered advice. You rarely even have the choice of paying for preventive medicine today to avoid expensive, dangerous treatments later (at which point, figures your insurance company, you are highly likely to be Someone Else's Problem).

But whatchya gonna do? No one wants to start picking up the tab for medical services. Is the whole mess just a necessary evil of the third-party payor system? No!

In fact, there is a promising movement afoot to fix the system that is quickly gaining ground. It is known as Consumer Directed Healthcare (aka Consumer Driven Healthcare, CDH). The goal of CDH is to put the consumer in the driver's seat, so that (s)he is motivated and able to make free, rational choices, while still relying on one's employer to cover the expense using pre-tax dollars. The idea is for employers to purchase very high-deductible (and inexpensive) plans for employees, and to set aside the savings for the consumers to spend themselves on any expenses below the deductible. In the event of grave illness, the old third-party payor system kicks in, but for most families, the healthcare decisions reside in the hands of the consumer. Critically important, whetever you don't spend this year remains available for future years, even if you change employers, so you're motivated to factor in costs as well as quality and service.

Fortunately, in an extremely rare show of wisdom, the Republican US Congress passed a Medicare Modernization Act that legalized CDH funding plans known as Health Savings Accounts (HSA). Employers can buy high-deductible plans, and contribute as much as the deductible itself into the employee's HSA tax-free (federal, soon state). Since the act became effective on Jan 1, 2004, HSA adoption has exploded. By March of this year the number of HSA-covered lives exceeded a million with a 250% annual growth rate.

This comprehensive study on CDH reveals some promising results among early adopters. Employers are saving 20% on healthcare costs, and premiums for high-deductible HSA-elgibile plans rose only 4-6% or, by some estimates, even dropped 15% this year. Over half of the consumers have money left over after 12 months, accumulating wealth for future years. A McKinsey study found that HSA account holders are 20% more likely to comply with treatment regimens for chronic conditions. HSA account holders are 50% more likely to inquire about cost, 100% more likely to inquire about drug costs, and 30% more likely to get physical exams. And most importantly, health outcomes are equivalent or better.

Contrary to concerns that HSA's would appeal only to the young, rich and healthy, a study by the consortium America's Health Insurance Plans found that most of the million HSA account holders among its members' insured lives were over 40, 73% of them had children, and 29% had family incomes below $50,000.

So what's the catch? Some people worry that consumers NEED insurance companies telling them and their doctors what to do. Ridiculous. It's certainly hard to make the best decisions about healthcare, but a decision reached by a consumer advised by a licensed doctor of choice has to be at least as good as the same decision constrained by the one-size-fits-all, cost-cutting guidelines of an insurance company.

Having said that, consumers are unaccustomed to shopping for medical services, and there are no available data on the price, quality and service of competing providers. McKinsey's study concluded that "this is the huge challenge of the CDHC movement. If consumers are to welcome new incentives to manage their health care and spending, they must have better information to support their decisions." (source)

This sounds like a job for "the Internets". Shopping portals have simplified all kinds of complex purchases. And healthcare expenditures are certainly high enough and important enough to drive consumers to whatever comparable data are available.

Meanwhile, get your company, or your family, an HSA and an HSA-eligible plan. I did, and now my family is saving anywhere from $2,000 to $4,000 per year on healthcare, depending upon whether we hit the deductible. And until we hit the deductible, we decide for ourselves which doctors, tests, treatments, drugs and hospital to use.

My next post will point you where to go for an HSA plan, and also tell you how Bessemer hopes to play a critical role in the CDH movement.

Consumer Investing (2)

Following up on my previous post, I'd like to say a bit more about what kinds of consumer technology ventures I'm looking for.

Obviously, many consumer markets promise significant growth--wireless services, mobile devices, mobile content, home automation, digital music services, console games, casual games, RSS readers, blogging sites, location-based services, social networking applications, search engine optimizers, consumer payment systems, VOIP, vertical search, local search, desktop search, comparison shopping engines, online marketing, video on demand, etc.

Without revealing exactly which areas we're scouring (we're open to all of them), I can share one important lesson on assessing consumer investments, one that we have learned the hard way--from either bad investments or regret from passing on good deals. The lesson is that venture capitalists don't have a clue how consumers will behave.

As conceded in our anti-portfolio, I passed on the Series A round of eBay because I couldn't imagine a big business based on selling stamps, old comic books, and used junk. But I did invest in EXP, an internet exchange selling all kinds of advice (legal, technical, household, business...). Both mistakes exemplify the egotistical VC tendency (at least mine anyway).

Of course, we're not the only ones. According to a great essay in MIT Sloan Management Review, "It may soon no longer be possible for even gifted visionaries to imagine the next killer app."

Fortunately for us, user adoption is only one of the key milestones reached by a successful consumer venture. Others include a validated revenue model, a validated distribution strategy, and an IPO-quality management team. Those other milestones are ones that we can more reliably predict and control. And so, as Bessemer assesses consumer ventures, we are least interested in funding User Behavior risk, but much more comfortable with risks associated with the revenue model, distribution model, and team.

That's why my partner Rob Stavis funded Skype when it was only 3 months old with no revenue (and no idea yet of how to generate it). Having observed 2 million people download the alpha client in the first month and 150,000 concurrent users, we didn't have to worry about User Behavior risk. Clearly Skype had developed something of great value to users. The same pattern applied to Gracenote, Bokee and Blue Nile when we funded them--each had millions of registered users who found their way to the site without expensive marketing to acquire them. Had we developed this screen earlier, we would have funded eBay based on the strong, organic growth they were seeing in traffic finding its way to their homegrown site. Today, this kind of thinking reflects very favorably on the new crop of "web 2.0" services, whose viral nature and network effects can attract growing clusters of users.

The focus on "eyeballs" sounds like 1990's bubble investing, but the difference is that bubble investors valued eyeballs no matter how expensively they were acquired (since capital was free). We are looking for organic growth--the kind that's easy even bubble-scarred for VC's to mentally extrapolate into a large capital-efficient business.

That's why we believe that the formula for any successful consumer venture is to be as scrappy as possible until you see that exponential growth curve. Twist, tweak and test until you find the mark. Only then is it time to raise lots of money, hire expensive VP's, and "monetize" your users. (Be sure to read this excellent post from Brad Feld on finding the next killer app.) If Google taught the world anything, it's that you start with the customer experience, and then build the business only after you've got that one nailed.

Consumer Investing (1)

I mentioned in an earlier post that Bessemer's fund is over-allocated to enterprise security, and so several emailers asked for a preview of my next investment road map.

I am venturing out on a broad road map that several of us (led by Jeremy Levine, Rob Stavis and Ron Elwell) have been scoping out since 2002 around emerging consumer services on the internet and on mobile phones. In later posts I can get into some specifics, but generally speaking we see the greatest returns this decade accruing to new consumer service companies (Yes, I know: Duh).

Between 1984 and 1994 we funded many retailers (Staples, Sports Authority, Businessland, Eagle Hardware, Dick's Sporting Goods...) and then during the 90's we funded many consumer facing dot-coms (eToys, BabyCenter, Blue Nile, Mindspring...). But our most successful investments had always focused on enterprise and carrier, so shifting our focus to consumer actually took some real thought. (Normally we try to avoid the VC herd, but in this case they were grazing in our favorite spot.)

The global consumer technology market has encountered three major catalysts of change powerful enough to displace global markets. This is the kind of disruption we like to see underpinning investment road maps:

1. Technology Catalyst: Rapid evolution of mobile computing platforms.

Mobile computing devices have evolved for years along several technical dimensions including processing power, battery life, screen resolution, network bandwidth, I/O capabilities, storage, RAM, miniaturization and cost. Sometime around 2002 the technical capabilities hit a critical threshold that enabled the rapid development of broad new services beyond telephony. But the technical evolution is accelerating, and so we can expect the devices to continue getting smaller, faster, cheaper, more dazzling, and more versatile. Mobile computing is the new application platform, the internet of this decade. (Look, I know this is old news but it was uncommon VC thinking back in early 2002.)

2. Geopolitical Catalyst: emergence of consumer middle classes in the world's most populated countries.

The new Asian consumer markets are obviously exploding. Wireless services are particularly interesting there because for many subscribers, the phone is the only video-based computer they have for entertainment and productivity.

3. Psychographic Catalyst:

When is the last time you heard someone complain about the VCR back home blinking 12:00? Early adopting consumers used to be the exception, but today they are the norm. Look at the uptake of new technologies like Tivo, Google, Firefox and Skype--it is no longer insane to aim for 50 million users within 18 months of launch.


So what have we done about it so far? In the last three years Bessemer led early rounds at Gracenote, Skype, GoTV, Mforma, and Zensys (the Z-Wave home automation company). We have seeded and incubated about a half dozen consumer startups not yet announced. We increased our stake in Celtel, the largest African cellular operator, which was just acquired for $3.3 billion. Our semiconductor team led rounds at companies leading the way in mixed signal, low power processors for consumer devices, such as PA Semi and Avnera.

Perhaps more importantly, Bessemer opened offices in both Shanghai and Bangalore, in order to tap those markets for employees and customers. We have already made investments in both countries (only one of which, Rico, has yet been announced).

More to come on how we assess consumer investments, and specific areas of interest...

The United States of Almighty-God

For my fellow Americans deluded enough to believe that we live in a secular state with a free, objective press, take a sobering look at the cover of this week's Time Magazine, in which the editors--exploiting the religious fervor that continues to grip our nation--pose the question "Does God have a place in science class?"

Objection, Your Honor: the question assumes facts not in evidence. The question refers explicitly to God (presumably, the old, bearded white guy trying to poke the monkey), rather than referring to "God" in quotation marks or--more consistent with journalistic principles of detached objectivity--"the creator deity worshipped in monotheistic mythologies."

The bigger problem, though, is that by just asking the question, Time seemingly legitimizes the "school of thought" behind the "science" of intellectual design. This is precisely what churches love to see--Christian fable elevated to the same level of credibility as hard-earned scientifically proven theories.

Let's be clear. Science class is for science , defined as:

Reasoned investigation or study of nature, aimed at finding out the truth. Such an investigation is normally felt to be necessarily methodical, or according to scientific method – a process for evaluating empirical knowledge...scientific theories are objective, empirically testable, and "predictive" — they predict empirical results that can be checked and possibly contradicted. -- Wiki

This means that scientists must embark upon inquiry without any agenda other than finding the truth, whatever it may be. (What a coincidence, then, that intelligent design "research" is completely funded and staffed by Christian fundamentalists.) Further, theories are definitively NOT scientific unless they are conceivably falsifiable through observation. But superstitions that adapt to observation cannot be falsified no matter how false they are (e.g. "we are all brains in a vat" is not a scientific theory). Show me an empirical observation that can disprove intelligent design, and I'll show you a "test of Faith."

This isn't the first time this past year that our nation's esteemed pillars of journalism have stooped to exploiting mass ignorance in order to peddle more magazines and sell more ad pages. Here are some more evangelical cover stories from America's three major "news" magazines:

US News Dec 20, 2004: "The Power of Prayer"

US News, March 8, 2004: "The Real Jesus"

US News August 8, 2005: "God and Country"

Time, April 12, 2004: "Why did Jesus Have to Die?" Objection, Your Honor: assumes facts not in evidence--namely that there was a Jesus, and that he was the son of the creator deity in monotheistic mythologies, rather than a regular person who "has to die."

Time, Mar 21, 2005: "Hail, Mary"

Time, Dec 13, 2004: "Secrets of the Nativity"

Newsweek, Dec 24, 2004: "The Birth of Jesus"

Newsweek, March 28, 2005: "How Jesus Became Christ" (not even a pretense of journalistic integrity)


Apparently, at least one of Time's subscribers is on board with teaching intelligent design in the Kansas public school science classes: on August 2, our Chief Executive proclaimed that "both sides ought to be properly taught." (Aug 2, 2005) The President must not have heard that (according to the New York Times)...

Mr. Bush's science adviser, John H. Marburger 3rd, said in a telephone interview that "evolution is the cornerstone of modern biology" and "intelligent design is not a scientific concept."

It is also quite stunning that Bush refers to Biblical Creationism as "the other side." What about giving equal time to other Creation theories, such as deeply held beliefs you should read about here that all was created by the Flying Spaghetti Monster?

To appreciate the distinction between ID gobbledy-gook and clear thinking science, listen to this week's NPR debate on Evolution vs. Intelligent Design. You will hear George Gilder, ID advocate, throw out terms like "prodigality" and "codons," forecasting that the "theory of information will overthrow biology." You will also hear from my hero Richard Dawkins (author of The Selfish Gene and Devil's Chaplain). When a church-going caller challenges Dawkins to explain how he--such a complex individual--could have come from evolution, Dawkins responds in frustration: "All I can say is, Just go away and read a book... They are fascinating--you will love them." (Dawkins, a true scientist, then answers the question properly.)

I like to think that eventually education will prevail upon most human minds to exercise critical thought. So I was greatly heartened (and proud) to read this week that Harvard University is funding an ongoing study of the precise mechanisms behind evolution, clearly demonstrating the system by which stunning complexity arises from energy, carbon, and a morsel of luck.

Meanwhile, I've been crafting a plan to incubate a startup that sells subscriptions for fairy tales and immortality, but I'm finding the market to be both crowded and saturated.

Road Map Investing

I have received many emails asking about the logic behind my investment decisions--both good and bad. So this is the first in a series of posts addressing investment strategy.

Many VC's talk about Road Map investing, but I think that we at Bessemer try to take this more seriously than most. This stems in part from our unique structure--with only one investor, we do not engage in the tri-annual exercise of raising new funds, which may lock firms into a strategy, and burn time that can otherwise be spent on strategic planning.

I think I developed the first formal road map at Bessemer. Back in 1992, fresh out of business school, I joined Bessemer and proceeded to fall in love with every crappy pitch I heard (I recall that one of them manufactured conference expo booths). Fortunately, before I did any damage, my bosses intervened, suggesting that perhaps I should take a few months to Think Before I Fund.

So I developed a comprehensive list of 38 potential investment sectors of high technology, and I spent the next 3 months whittling it down to 5. I crossed off sectors which required deep domain knowledge I don't have (semiconductor capital equipment), sectors that were too early (wireless LANs -- pre-Wifi), sectors that were too crowded (object oriented databases and middleware), and too unproven (multimedia CD-ROM titles). I solicited advice from the smartest experts I could find -- folks like Al Lill at Gartner Group, Rick Sherlund at Goldman Sachs, Brad Feld at Feld Technologies (now at Mobius), Eric Schmidt at Sun (now Google), and Per Suneby who ran Motorola Codex and is now at Flagship Ventures (Per: "Let me give you some advice: never invest in a security company"). I went to conferences, surveying telco equipment buyers and MIS Directors (there weren't too many "CIO's" back then).

The result was a decision to focus on Data Communications (indeed, that was a narrow specialty in 1992), and a Powerpoint presentation targeting five specific "initiatives", each of which led me to proactively find very specific investments that I made in the following 3 years:

1. Network Management (led to NetSys--acq. by Cisco)
2. Network Security (Verisign)
3. Asynchronous Transfer Mode (Cell Access--acq. by Fore, Data Labs--acq. by Yurie)
4. Wavelength Division Multiplexing (Ciena)
5. Enterprise E-mail (Worldtalk, ON Technology, Tumbleweed). Actually, PSI-Net also emerged from the Email initiative, since PSI-Net's commercial IP network was accessed primarily for SMTP (there was no web in 1992).

This road map enabled me to focus my time very specifically on investment opportunities that matched my plan. I think that entrepreneurs outside my road map appreciated the quick No, and entrepreneurs on my road map appreciated the in-depth knowledge I brought to their businesses. (At least no one had to explain to me what IP was--quite a credential for a VC!)

Other Bessemer investors noticed how much more pleasant my life was with a road map, and so they adopted and enhanced the methodology themselves, with great results.

Obviously, my road map in 1992 was way too broad to be effective today, when the volume of startups and investors demand a much higher degree of specialization. Along the way I stopped every few years to refresh the map, redirecting myself toward internet services (Keynote, Flycast, Register), then later to consumer e-commerce (eToys, BabyCenter, Blue Nile, Hotjobs). In 1999 I composed an ill-fated road map around B2B exchanges, and in this decade I have focused primarily on information security.

Each Bessemer investor's road map begins with an analysis of disruptive catalysts that have the potential to cause major displacements in our economy. Those disruptive catalysts might be technical (e.g. network vulnerabilities), demographic (e.g. aging US population), regulatory (e.g. spectrum auctions or SarbOx), psychographic (e.g. consumer concerns about security), or geopolitical (e.g. China's reception to foreign investment). The road map then lays out specific strategies, or "initiatives", to exploit the disruption.

The information security road map included many initiatives over the years. With help from our operating partners--Peter Watkins (ex Pres. McAfee), Chini Krishnan (founder Valicert) and Devesh Garg (GM, Broadcom's security business unit)--my partners (Justin Label, Jeremy Levine, Rob Stavis) and I decided to seek out companies who would address policy compliance, IPS (without false positives), spam, ID theft, spyware. For each of these intiatives we made one investment in the best team we could find attacking the problem--some were follow-on rounds (Postini, Cyota) and some were new teams that we incubated in our offices (Elemental, Determina, Infinitrust).

Perhaps the most difficult step of road map investing is knowing when to burn the map. Some of the best and worst decisions we have made over the years centered around this question of when enough was enough. We successfully exited biotech in 1993, big box retail in 1995, and etailing in 1998 before those sectors busted, but on the flip side we failed to exit telecom in 1999.

Even with a great road map, it's always necessary to maintain an open mind to great opportunistic investments (our anti-portfolio routinely reminds me of this). Nevertheless, I recommend that investors try the road map approach. And if you're an entrepreneur, I recommend that you favor working with investors who have very precisely targeted your space for investment--those investors will take less time to sell, cause less damage (maybe even help), and, if they don't invest in your deal, will likely make a competitive investment.

As for me, I believe that data security remains a robust market, but at this point Bessemer is over-allocated to the sector. So last year I crafted a new road map, but that's another post.

Rajiv, You the Man!

Hooray for Flarion on its acquisition by Qualcomm!!

Congratulations to Rajiv Laroia (the Bell Labs PhD who invented wireless OFDMA), Ray Dolan (the kick-ass CEO, once a marine corp fighter pilot) and the whole Flarion team. Special thanks to my partner Bob Goodman for leading that early venture capital round of this ambitious Bell Labs spinout way back when it was called Radio Router, and advocating along the way to make Flarion our firm's largest investment ever!

Congrats as well to our early co-investor Charles River Ventures. Flarion joins a prominent list of joint ventures between our two firms (along with Parametric, Staples, Flycast, Celcore, Ciena, Sonus)!

Favorite Car Gadgets

As further evidence of my pathetic weakness for cool gadgets, I feel compelled to supplement my earlier post on my favorite home technologies with a reckoning of absolutely necessary automotive accessories...

1. Omnifi DMP1 Digital Media Player

This product successfully extends the notion of an automotive MP3 player with a Wifi antenna that automatically synchronizes your car's music collection with PC-based directories. Add music to your collection during the day, and while you sleep at night the Omnifi software pushes it to a 20 GB drive in your trunk. The hard drive is removable and USB-mountable to any PC, so it's also handy for backing up photo collections, just in case. Works great.

2. Solar Panels

The factory-installed (but now discontinued) solar panels on the roof of my 2004 Mercedes sedan power an automatic ventilation system to eliminate that stuffy summer heat. Well designed--actually fits in between the front and rear sunroofs. And the solar panels dissuage the guilt of driving such a politically incorrect gas guzzler. Hell, my car should qualify for the carpool lane!

3. Tennis Ball Hanging On String


As far as Automotive Parking Guidance Systems go, nothing beats the old Tennis Ball Hanging on String of Garage Ceiling. Park your car and then position the ball so it hits your windshield at just the right moment. Far more accurate and reliable than the laser measurement systems or hokey traffic signals. For households with kids, I recommend this upgraded version.

The Wormhole Factory

2002 was the darkest, bleekest year of the market crash's aftermath. VC's like me, struck with a hangover worthy of the greatest market rally ever, struggled to either transform or euthanize our portfolio companies. Gripped in gory triage, it was hard to muster much enthusiasm or time for new investments.

However, a disruptive technology with the potential to transparently accelerate the internet 10X was brewing back then, so in 2002 I did make one investment. It was a long shot, but now that this cool technology has been developed, patented, deployed, field tested, and market approved, I can now confidently blog about it. You might call it The Big Internet Protocol Hack, but I prefer to think of it as the Wormhole Factory.

Light, it turns out, is just way too sluggish. 300 million meters per second is, well, adequate when it comes to illuminating your fridge. But if you need to light up fiber segments that snake their way from, say, San Jose to Boston and back, you're talking at least 10,000 miles of fiber, demanding a good 55 milliseconds of light travel (and practically speaking, you have to at least double that to accommodate electronic switches along the way). So if you need to make that cross-country round trip 25 times sequentially, take a snack with you because photons won't fly you there any faster than three seconds (longer than a round trip to the moon).

This explains the "World Wide Wait." When DARPA and BBN invented the Transmission Control Protocol (TCP) in 1969, lines were dirty and slow (we're talking dialup modems), and the only applications they anticipated running were ones like FTP, SMTP and TELNET, in which the data transfer rate is much more important than the session's setup time. So every time TCP opens a new network session, the protocol rallies packets dozens of times to verify the integrity of the connection, and to execute the "slow-start" mechanism by which TCP incrementally ramps up the data rate until it reaches an equilibirium defined by the capacity of the network (a very long process now that networks typically run up to 1000X DARPA's expectations). But HTTP is a stateless protocol, so just about every hyperlink you click opens a new TCP session. In all, it takes the typical web site about 25 to 35 round trips to respond to your browser (at 15 round trips, Google has been highly engineered to be what is likely the most efficient site on the web). That's at least a 3-second Physics Tax from Boston to San Jose, 6 seconds from London, and 12 seconds from Israel or Australia.

By 1996, Content Delivery Networks like Akamai emerged to scratch the itch for speed--a hack on the web that simulated local performance by caching content at the edge. Great idea, so long as the content is cachable. But by 2002, most interesting web sites were no longer static. Services like eBay, eTrade, Salesforce, Expedia, Amazon, Yahoo Finance, etc. as well as web-based enterprise applications all generate personalized pages. Sure, they all have cachable content (e.g. the logo) but when users click on hyperlinks, it is precisely the dynamic content that they await and await and await. It's easy to replicate a hundred content servers around the globe, but replicating even two dynamic databases across the internet is extremely difficult and expensive to do if you care about data integrity--so much so that practically no one even tries.

So along came this startup Netli, whose founders recognized that the problem essentially springs from an incompatibility between TCP and HTTP. These protocols are pretty well deployed already -- rather than try to replace them (as some standards groups have failed to do over the decades) you might be better off changing the speed of light! Of course, in the "real world" the only avenue to bypass the luminary speed limit is a wormhole, a Grand Short Cut through the universe that exploits the curvature of space-time to let you hop around faster than Paris Hilton on prom night. So that's what they figured the web needs: some wormholes.


Netli's wormhole is an Internet Protocol (IP) router that speaks both TCP and the Netli Protcol--a layer 4 replacement that transfers a web page in only ONE round trip. Realizing that the universe wasn't about to replace its routers, Netli deployed its own routers, co-located across the US, Europe, South America, Africa and Asia. Now, dozens of companies like Dell, HP, Toyota, Honda and even Blog China simply redirect the internet's Domain Name System (DNS) so that Netli's local routers serve the long-distance (S)HTTP/TCP/IP requests, and then traverse the globe in one round trip using the Netli protocol. At the server side, a Netli router converts the session back to TCP so that the servers have no idea (anthropomorphologically speaking) that they're not connected directly to the browsers. The TCP sessions created on either end of the connection still require 30 round trips each, but those are just local 10 millisecond errands--so serving an entire web page from San jose to Israel takes 300 milliseconds of TCP in Israel, 200 milliseconds for the Netli hop, and another 300 milliseconds of TCP in San Jose, totalling only 700 milliseconds!

Now any good warp-speed airline offers peanuts and in-flight movies. So once Netli started carrying mission critical traffic, the company threw in load balancing, performance monitoring, encryption, caching, compression, pre-fetching, and the like to flesh out a complete solution. The result is that web applications can now be delivered with speed and reliability an order magnitude better than any other web carrier, no matter how much fiber, compression, congestion avoidance, or edge caching they apply. Netli is the new, warp-speed internet.

As you might guess, the company is cranking, and Akamai has been desperately spinning, trying to position against the tiny startup. Too late--edge computing was a nice idea until Netli made it possible to much more simply and cheaply centralize applications without compromising performance and reliability.

Maybe 2002 wasn't such a bad year after all.

Filling In for Walt Mossberg...

As a VC I often get to demo new gadgets in development. In this post I recommend my favorite gadgets on the market, or soon to be (and no, I'm not invested in any of these companies).

1. SONOS Home Audio Controller.

Imagine piping music from any analog or digital source to all the rooms throughout your home and yard, even playing different streams in different parts of your house, and controlling all the streams from your PC/Mac or, better yet, from an iPod-like remote control with full color LCD that displays cover art and dynamically creates play lists.

One approach is to build a new house, install in-wall speakers that are all wired back to a central closet with lots of sources and amplifiers, buy an MP3 streamer that is networked to your PCs, and purchase a Crestron system with color wireless controllers and custom programming. This can be accomplished for about $200,000, not including the house.

For those of us who don't wish to build a new home or spend $200,000 on new gear, we can still get the same functionality (even better) by spending a thousand or two on the new SONOS product. SONOS cleverly turns the equipment you already have into a full home audio system.

The primary component is the zone player. Distribute these little white boxes throughout your house anywhere you have amplifiers or amplified speakers, and the boxes create their own wireless mesh network, so only one of them needs an Ethernet connection. (The players even have a 4-port ethernet switch built in.) The player communicates with companion software on your PC or Mac to pull digital music from your collection, internet radio or Rhapsody. It also has RCA input ports for external music sources. The player also has an amplifier so it can drive the local speakers, as well line level output for driving a local amplifier.

The second component is the controller. This beautiful unit, when in range of any player, allows you to stream music to any zone player in your home. You can also link multiple zones into a single "Party Zone" so everyone can listen to the same stream.

I picked up version 1.0 of this product and it has worked perfectly (though I did have to navigate the friendly menu system to select a different frequency that didn't conflict with my Panasonic cordless phone). SONOS does exactly what you would want it to do, leveraging all the sources, amplifiers, speakers, and music you already own.

2. Brother P-Touch Label Printer.

Hardly a high-tech item, this little label factory is exactly what I needed to organize all the junk around my house--the contents of file drawers, instructions for using the features of my cordless phone, the purpose of each light switch, the purpose of each power transformer (there must be hundreds floating around my home), my name and number on my mobile gadgets, the kids' names (who can keep them straight?), and lots more.

3. Good G100.
If you're an email nut, forget about using a cell phone with its absurd keyboard, and lay aside the blackberry. The G100 rocks, but it is also discontinued so you'll have to get yours on eBay.

G100 beats Blackberry because it is much easier to navigate. The directional/scroll controller is located front and center (Blackberry splits up vertical and horizontal control), and the software allows you to scroll not only up and down the day schedule, but also left and right to previous and next days, so you can easily jump around on your calendar. G100 is conveniently small and has a backlit display and keys, so you can check your email in bed at night if you're as disturbed as I am. The keyboard, though, is spacious with buttons that are sufficiently raised for accurate feel and feedback.
(If however you want converged email and voice, make sure you buy a phone with Visto software, or you won't get push e-mail, attachments, over-the-air synchronization, and full Outlook content.)

4. Radar Golf.
Okay, if you're not a golfer, skip to the next item, because you wouldn't understand.

If you golf like I do, you spend 20+ minutes a round hunting for the balls you sliced into the woods (who has time for this?), only to take penalty strokes for the elusive ones. Radar Golf has developed a handheld ball finder that directs you straight to your ball, whether it's in the fairway or perched at the bottom of a goddamned canyon. A passive RF element is baked into the core of the ball--a ball that performs as well as other high end golf balls (RG's ball designer has designed numerous branded balls such as, I seem to recall, the Noodle). Radar golf should be available at Sharper Image in Q4, but you can reserve your unit now.


5. Wi-Life Video Surveillance.

Visit Radio Shack in Q4 to find your Wi-Life Lukenworks Surveillance System. This system delivers unprecedented ease of installation, as well as unprecedented functionality and quality, all in one inexpensive package. I plan to use mine for home security, child monitoring, and pool safety.

The cameras use TI sensors to record high quality color video, and transmit the video via Home Plug to your PC. Wi-Life is easy to install because the Home Plug frees you from stringing CAT5 to your camera locations (wireless doesn't work reliably at this frame rate) and the cameras even come with little suction cups that stick right to the inside of your window, so you can monitor your yard, driveway, or entrance without climbing up ladders to mount cameras (who has time for that?). Wi-Life is unusually functional because it offers professional features like multi-image screens (watch 6 feeds at the same time), motion detection, and full Tivo-like archiving and playback of the video. Wi-life can even send you motion-triggered email alerts, with video attached.

Without Wi-Life, you'd need $10,000 of video capture equipment, and another $10,000 of in-home wiring to even approach the same functionality. A starter kit will run about $300--expect to pay somewhere between $1,000 and $1,500 for a complete home setup of Wi-Life with 6 cameras. (Due to legal restrictions in certain states, Wi-life doesn't record sound.)

6. Seascooter XL

Tired of flapping your arms and legs only to swim slower than a snail? (who has time for that?) Grab one of these underwater scooters for $200 from Symall, and you'll snorkel at top speed.


Got your own favorite gadget? I'd like to hear about it...

Enough With The Convergence, Already!

Here’s a bit of contrarian thought from a true gadget lover: convergence has gotten way out of control.

Convergence can be cute—it sometimes enhances portability (e.g. carry one gadget instead of two—unless the converged device is characteristically bulky), offers occasional riffs of functional harmony (click on the address book entry to dial), and eventually reduces cost (but not until the third generation of product). It also pumps up the Cool Factor in those of us who appreciate technology for its own sake.

But these considerations are trivial compared to Battery Life, Usability, and Functionality. That’s why so many converged devices look a whole lot better on the pages of Wired than they do after 30 days of real use.

Just think about the best single-purpose cameras, email devices, cell phones, MP3 players, e-book readers, portable DVD players, mobile video playback units, GPS navigators, portable game stations, USB storage keys, remote control units and satellite radios. Each has a different set of features that works best for that application. For example:

• Battery type: small rechargeable battery for camera, AAA for MP3, watch battery for remote control, huge lithium polymer for video player, none for USB key…

• Keys: keypad for phone, QWERTY for email, none for MP3, Play/Pause type buttons for Video and DVD, programmable keys for remote control, multi-directional keys for gaming, zoom sliders for cameras…

• Screen size: High res, big (expensive) DVD and gaming screen, tiny cell phone screen, no USB key screen…

• Speakers: High fidelity MP3 and DVD, Bluetooth phone, integrated speaker in game player, none in a navigator…

So one device means there are always compromises, and lots of them. Converged devices will never work as well as single purpose ones. Ever use your cell phone to type out a blog, take a decent picture, or play a compelling video game?

Second, you need a robust operating system for converged, general purpose computers. Personally, I prefer handy devices that don’t require pull down menus, styluses, hourglasses, and frequent system crashes.

Third, one device means one battery. But carry 3 or 4 devices with you (easy if you carry a purse like I do), and each device has juice. Then, when the Nokia battery poops out because you’ve blathered on the phone for too long (“No, honey bunny, YOU hang up first…”), you can still fire emails and crank up the iPod.

Finally, it’s far easier to use multiple devices simultaneously. Consult your GPS navigator while talking on the phone. Lend your Sony PSP to your kid while you finish watching Spanglish on the DVD player. Look at your calendar without having to take the phone away from your ear (unless you also carry around a Jabra and requisite charger).

All these lessons apply as well to other modern day sporks like home automation controllers or Media Center. Lots of things make sense to integrate into these systems, but you still want the light switches, alarm panel, and thermostat to stay on the wall right where they are now. You want your music controller easily accessible without navigating menus or interrupting your kid’s homework so you can get to the PC. If you install video surveillance, you want to see the image near the front door, not in your office. They can still be networked for central control (that’s why Bessemer invested so much in Zensys, the Z-Wave company), but if you muck with the human interface element, you’ll stir riots in the household.

That’s why people I know who already use Crestron or Media Center in their homes, are buying SONOS systems for their home audio. There’s just no substitute for having the perfect music controller at hand. (I fell in love with these babies at CES—they were the sexiest thing in Vegas.)

Pushing the envelope on convergence impresses Engadget readers, but newer Swiss Army Gizmos with one more half-assed gimmick will always spill out of next week’s Korean container shipments. Meanwhile, the great, lasting brands are built on single purpose innovation: Apple iPod, Nikon camera, Motorola push-to-talk, Sony PSP, Palm PDA (the original), Panasonic DVD, Philips Pronto remote controllers, and one day SONOS audio control (no, I’m not a SONOS shareholder).

If you’re with me on this, tune in on Friday for my list of favorite gadgets on the market, including some new, unannounced beauties.

CiscoGate at DEFCON

DEFCON is the annual hackers' conference, a 3 day hacking binge in Las Vegas that follows the more corporate Black Hat Conference. DEFCON has a hard time finding venues, according to Dead Addict (Black Hat's Grand Vizier), because the hackers wreak havoc on a hotel's computer systems. This year, though, they returned to the Alexis Park Hotel, an off-strip property whose campus feel and tolerant GM accommodate the fraternity atmosphere. (The hotel had to drain its pool yesterday after someone poured enough Koolaid powder in to create a massive purple beverage.)

DEFCON, in fact, resembles a giant party, with competing sound systems and widespread intoxication, but in fact there is more going on. The general purpose is to explore unintended avenues by which anyone can "own" someone else's resource through clever hacking. Obviously, such information could be used for Evil, but you have to look at the ends here, not the means. DEFCON exposes vulnerabilities in systems all around us so that, in the long run, we can all live more secure, private lives. How far you can go to expose vulnerability is a matter of widely differing opinion. Most folks at DEFCON go pretty far--supporting the publication of vulnerabilities as well as any stolen though mostly harmless information (some go much further).

At DEFCON yesterday I attended sessions on how to hack your neigbbor's garage door and remote car key, how to slip off handcuffs, and compromise the nation's telecommunications network. I attended a press conference by Dr. Linton Wells (CIO of Defense Dept) and Robert Morris (former NSA Director) regarding cyber terrorism,and I delivered a talk titled Information Security Industry: Billions Blown on Bloopers, Blights and Blunders. (View the Notes Pages for at least some of the narration behind the slides.)

I also visited the war room where teams of hackers compete in the annual Capture the Flag contest. Nearby, the Wall of Shame displays the usernames, passwords, photos and private information like tax returns of the hundreds of "sheep" whose computers were "owned" when they were naive enough to use local WiFi waves to surf. Winn Schwartau describes the ritual in detail. Other tables of the war room focussed on cracking new security products, with cash prizes offered by the forward-thinking vendors.

The parties included the geek-fetish Black and White Ball and the exclusive 9th annual Caesar's Challenge, in which "Caesar" challenges guests to solve a hard problem between chugs. (all the coolest hackers have "handles"--sort of superhero identities--like Mudge, Raven, Agent X and Dead Addict.) Another party favorite was RF-enabled Kegbot.

But the spotlight this week was on CiscoGate. Temperatures held steady in the high-90's all week, but tempers truly flared inside as a result of Cisco's epic faux pas. As widely reported, Cisco didn't want Michael Lynn of ISS to proceed with his planned presentation of flaw in Cisco IOS that would allow hackers to control Cisco routers. So, incredibly, their attorneys descended upon ISS to compel them to supress the talk, and then descended upon Black Hat, insisting on republishing the CD's and binders without the offensive material.

Man, this was the wrong crowd from whom to hide information! Michael Lynn resigned his job minutes before his talk and then, egged on by the crowd, spilled the beans. Cisco then fired off cease-and-desist letters to supress publication of the presentation, but as you can imagine, mirror sites popped up everywhere (there is a rather comprehensive one at the defiant www.cryptome.org). Cisco fired off various explanations along the way that they were simply protecting their proprietary information from being illegally disclosed, and that the vulnerability wasn't so bad after all. But I attended one session by Raven in which she pointed out that Cisco's own explanations accidentally revealed additional information about the vulnerability that facilitated generation of exploits.

Cisco failed to recognize the futility of suppressing data (especially from this group). More important than the black eye, Cisco can no longer expect security researchers to cooperate with the company if provocative findings invite litigation rather than appreciation. The attitude at DEFCON was best summed up by all the CisoGate t-shirts circulating including Raven's which simply read FUCK CISCO.

There were, by the way, lots of fun t-shirts, including my favorite: "Resistance is Futile (when <1 ohm)"

Another highlight of the conference was a dinner Bessemer hosted for the luminaries in attendance: Robert Morris (Cornell, ex-chief scientist NSA), Linton Wells (CIO, DoD), Paul Mockapetris (CSO, Nominum), Mark Maifrett (eEye), Bart Decrem (Flock), Raven, Dead Addict, Agent X, Nico Sell (DEFCON organizer), Brian Krebs (Newsweek), David Mortman (Siebel CSO), Alex Sotirov (Determina), Mike Jacobs (ex-NSA), Paul Proctor of the Bessemer-seeded company Gartner Group (though Paul still likes to say he's with Meta), Adam Shostak, Effugas (aka Dan Kaminsky) and others. Steve Wynn's new restaurant Okada peppered us with a barrage of tasty though not always identifiable morsels. The highlights were the 2001 Robert Sinskey Pinot Noir and the heavy duty air conditioning.

Throughout DEFCON I felt increasingly vulnerable to hacking. But looking back on the weekend, I feel a sense of awe and gratitude for these free-thinking geniuses who, in the long run, make our world safer. Then again, that could just be the sleep deprivation talking.