What Is Uber’s P/E Ratio if it’s valued at $41 billion?

Uber raised $1.2 billion that valued the company at $41 billion. Some people are skeptical that Uber could have the same market cap as Time Warner Cable or ADP. Projecting future P/E may give some idea of the scale and scope of Uber.

The entire Taxi & Limo industry in the United States is well shy of $15 billion. If Uber has 50% market share and 20% commissions, its revenues would be $1.5 billion. Net profit margins for a mature internet company (such as Ebay) are 18% – or $270 million. That’s a 152x P/E ratio.

Factoring in the rest of the world (based on GDP) brings the P/E ratio to 33x.

In sum:  33x forward P/E ratio for the startup assuming 50% control of the industry throughout the entire world. The S&P 500 is cheaper.

So, perhaps Uber has grander visions – ride share / carpooling, car share, ambulance service logistics, military applications…. there must be a larger market it plans to tap into, or its latest investors got caught up in the hype.

Uber Ballooning P/E Ratios

How to Make a Bad Idea Good (or at least less bad)

I’ve been reading a lot of pitches lately, and many are obviously ill-fated. Here are some themes that would benefit most of them:

1) Cut the budget in half. Costs will be higher than expected, and returns will be lower than expected. Inflated numbers won’t fool anyone.

2) Plan the project in multiple phases. Then focus on phase 1 – it should make sense on its own.If it’s only value comes from the success of future phases, then that’s a problem.

3) If you can’t even explain it clearly, then what chance does it have of actually working? Simplify.

4) Money does not equal marketing does not equal success. There is often low correlation between each.

5) Time is not money. Spend the time, don’t spend the money. If your team doesn’t have the in-house capabilities, then it’s not the right team for the project.

6) Experience matters – but experience doesn’t matter. Past successes are great, but what’s even better is experience that will help with the current idea.

7) Think small – but be ready for success. How will the idea scale if it turns out to work?

8) How will it fail? How long will it take? How much will it cost? Will there be any salvageable value?

Inc Magazine: Best Industries for Starting a Business

Inc Magazine article highlighting 16 industries for starting a business. A few of the industries are a little goofy (e.g., selling homemade goods online and sperm banks), but others come from the just-released Top Industry data from AnythingResearch.com. Cool, huh? There are certainly a lot of other factors that go into identifying venture opportunities, but many of these  less well-known industries are worth looking at.

Why the Department of Defense Failed to Secure Our Computers

Every day, new viruses emerge that compromise the security of millions of computers – both personal and corporate. As government agencies increasingly rely upon commercial software for Top Secret computer systems, they found themselves facing a difficult dilemma: continue using their 80’s era software or upgrade to the latest commercial systems, while exposing themselves to the security vulnerabilities that plague everyday users.

From 1999-2001, Robert Meushaw, the director of the NSA’s Information Assurance Reserach Laboratory (NIARL), and his team worked on a solution that coul dgive hte best of both worlds. The system he developed, codenamed NetTop, uses a “sandbox” technique whereby inherently insecure software (such as Microsoft Windows and MS Office) is granted access to a limited portion of the computer. Even if one of the insecure applications was infected with a virus, it is unable to spread beyond the specific machine.

Unfortunately, the results were disappointing. Two crucial missteps ultimately led to its slow adoption within government agencies and by the general public.

The first problem was that NetTop compromised security for functionality. By being neither 100% secure, nor 100% functional, security experts were unsatisfied, and users were frustrated.

The second problem was around cost. Each “virtual” system required its own licenses. Thus, Top Secret computers that accessed six separate networks would require 6 licenses for Microsoft Windows on a single computer! Furthermore, the virtualization component was developed by a for-profit startup named VMWare (now publicly traded NYSE: VMW). As VMWare grew larger and more successful, Microsoft started to tamp down the competition by restricting its licensing terms to make virtualization even less cost-effective.

The end result has been another expensive government project with limited application and a dim future.

Three Things Every Business Should Do in a Recession

Change begets opportunity. Given the current economic situation, here are three things that every company should do:

Renegotiate vendor contracts. This is not to say that you should squeeze all profit out of your vendors. Business relations should always be mutually beneficial. However, contracts that were negotiated a few years ago when things looked rosy should be carefully reevaluated. For example, one small business was able to renegotiate their contract with Verizon Business and cut their bill in half.

Foster employee loyalty. Employees are more likely to stay at their jobs now, if they feel the jobs are secure. The good news is it’s easier to retain employees. But don’t be lulled by this. Unhappy employees being forced to work harder and longer hours will not stick around once the economy turns. Now that employee’s expectations are lower, do small things to increase job satisfaction and make people feel appreciated.

Do more for your customers. Much advice centers on how to maintain price discipline and avoid doing work at (or below) cost. There’s a different opportunity, however. Given that your customers are likely facing a new environment, they may be open to help in new, adjacent areas. For example, a company that downsized may now be shortstaffed in certain areas and happy to have a vendor provide managed services. Look for these areas, and propose solutions for your customers’ problems.

AnythingResearch.com – Industry Analytics and Research

AnythingResearch.com has released 2009 research reports on over a thousand industries providing instantaneous access to market size, typical financials (e.g., income statement, balance sheet), salary benchmarks, etc etc.

The goal is to shed light on  small businesses in “main street” industries by providing accurate and detailed statistics.

http://www.AnythingResearch.com

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Massively Multiplayer Online Game (MMOG) Hosting Market Opportunity Analysis

MARKET OPPORTUNITY

The MMOG market is expected to double in the next five years. MMOGs differ from typical computer games because they are perpetual virtual worlds, meaning that users can continue to play forever building on previous play. New players are constantly starting to play these game and continue playing them, creating a snowballing user base.

Traditional game developers are beginning to discover a new sources of revenue from MMOGs. The developers typically offer a free version or trial period to attract users, and then a subscription-based version (typically $10-$20/month) to keep the on going revenue stream. In the future, MMOGs are likely to generate additional revenue through advertising and non-traditional revenue sources such as virtual sale items.

Overall, DFC Intelligence estimates the market will double by 2012, reaching $13B worldwide. Half the revenue will come from East Asia, 25% from North America, and the remainder from Europe and Japan.

MAJOR GAME OPERATORS

The 15 largest MMO Games are as follows:

Of these fifteen MMOGs, the fastest growing (based on 2006-2007 subscribers) are:

• World of Warcraft
• Second Life
• Guild Wars
• Dofus
• Runescape

Additionally, the following venture-backed MMOG developers are likely to launch in the next 1-2 years:

• Real Time Worlds will be launching “APB” in 2008
• Red 5 Studios is developing an as-yet unnamed MMOG
• Areae is developing an as-yet unnamed MMOG

MMOG HOSTING and IT REQUIREMENTS

Leading MMOG Hosting companies:

• AT&T
• Online Game Services (OGSi)
• Hypernia
• Valve Software

Additional hosting companies used by MMOGs:

• APIServers (www.apiservers.com)
• Go Daddy (www.godaddy.com)
• JHServers (www.jhservers.com)
• ServePath (www.servepath.com)

Most game developers do not have the capabilities to host games themselves. Rather, they rely on outsourced MMOG hosting services. Even the largest MMOG developers such as Blizzard, Activision and Electronic Arts use third party MMOG hosting services.

Whether an MMOG game developer is hosting a game in-house or outsourcing it to a hosting company, the following three issues are most important in selecting IT vendors:

1. Price – minimize price of both hardware and bandwidth. A rough estimate for hosting prices for 100k subs requires 30 servers plus bandwidth and costs $50k/month. (Note this includes ammortized hardware costs, bandwidth, and managed services)
2. System stability and scalability – ensure data isn’t lost or corrupted and system can scale to handle growing subscriber base.
3. Bandwidth and latency – maximize uptime at all hours of the day, since most MMOGs are highly international and cross all time zones. Provide sufficient bandwidth for peak usage. Minimize latency by using NOCs collocated near major POPs and with localization in areas with large numbers of gamers.

The largest IT vendors for the MMOG market are IBM, HP, and Dell.

ENTERING THE MMOG MARKET

A vendor seeking to serve the emerging MMOG market should take the following approaches:

1) Target both large MMOG developers that do their own hosting and also outsourced MMOG hosting companies. To avoid competing on price, focus on system stability, scalability, and management tools that can support the MMOG environment.

2) Focus on the development stage. Historically, MMOGs could be hosted on any vendor’s hardware, but as developers seek to increase system stability they are increasingly becoming platform dependent. This means that if an MMOG developer uses a specific vendor’s hardware for development and testing, they are likely to request the same vendor’s hardware for hosting.

In order to assess exactly how a company can enter this market, it is necessary to understand how the company is currently positioned. The Ansoff matrix provides a basic framework to understand what type of entry is needed – based upon a company’s product portfolio and market space.

A go-to-market strategy required for a Market Development play is quite different from those required for a Product Development play, and different still from Diversification.

One of the immediate next steps to take will be to benchmark your company’s current status along key dimensions. Using a “Points of Differentiation” graph, it is possible to tailor the go-to-market strategy to take advantage of the company’s strengths.

In the example above, a company may be strong in performance, reliability, average in scalability, reputation, service and price, and weak in value-added services. After analyzing other vendors using a similar framework, a company with these particular points of differentiation might choose to focus on midsized MMOGs with 100k-200k subscribers.
SOURCES

MMOG Data
http://mmogdata.voig.com

DFC Intelligence – Online Game Market Forecast
http://www.dfcint.com/game_article/may07article.html

IGDA (International Game Developers Association) – Hardware and Hosting
http://www.igda.org/online/quarterly/1_3/persistenthw.php

GigaOM Top 10 Most Popular MMOs
http://gigaom.com/2007/06/13/top-ten-most-popular-mmos

MMORPG Developer’s Forum
http://mmorpgmaker.vault.ign.com/phpBB2/index.php

FURTHER READING

IDC – ASEAN Online Gaming 2007 – 2011 Forecast and Analysis
http://www.idc.com/getdoc.jsp?containerId=AP3221S4P

IDC – China Gaming 2007-2011 Forecast and Analysis
http://www.idc.com/getdoc.jsp?containerId=CN656102P

IDC – India Online Gaming 2007–2011 Forecast and Analysis
http://www.idc.com/getdoc.jsp?containerId=AP3221SSP

Time for Innovation

In a recent article, John Hagel articulates a remarkable theory regarding product innovation:

1. The rewards for product innovation accrue over time, though with diminishing returns
2. Product life cycles are becoming ever shorter
3. Thus total rewards for product innovation will be smaller than in the past

Hagel believes that given this change, product and process innovation no longer produce a positive return on investment; thus a new kind of innovation is needed – “Institutional Innovation.” The organization must become a living embodiment of innovation. This includes

• Diversity of ideas – to create a Darwinian ecosystem in which the best ideas can rise to the top
• Relationships connecting people across the organization, to enable interdisciplinary innovation
• Modularity among processes and departments – this is a complex but often-used analogy that applies a successful technique in computer science to organizational design
• Distributed decision-making
• Feedback loops – a mechanism of measuring the success of a particular activity (in this case an innovation) and making corrective adjustments accordingly. My favorite feedback loop is the OODA Loop (Observe, Orient, Decide, Act) developed by Col. John Boyd for the U.S. Air Force. The technique allowed fighter pilots to react in combat situations faster and more accurately than the enemy combatants
  
• Incentive structures – since everyone likes Christmas bonuses

But before you go re-engineering your company, beware…

“Institutional Innovation” is a path that few companies have successfully executed.

Perhaps there is an easier way, an approach to product innovation that can still produce positive ROI, even in the current climate. The approach I’m thinking of is something I’ve called Growth Explosions. Yes, have diversity of ideas. Yes, have relationships crisscrossing the organization. Yes, have feedback loops. But more importantly – lean how to watch for and exploit once-in-a-lifetime opportunities. For they actually come along more often than that.

With a little bit of product innovation, a strong tailwind of market demand, a good nose for opportunity and a dash of luck – a company should focus on cashing in on black swans as they drift by.