Posts Tagged ‘NY times’

The technology industry is clearly prospering, but has it entered a period of irrational exuberance? There are good reasons to worry that it has and that the bursting of this bubble could be painful, to investors in and employees of tech firms as well as to the broader economy.

By several measures — stock prices, multibillion-dollar acquisitions, the compensation of employees, the money being spent by start-ups that have little revenue or profits — the technology industry is in a period that is starting to feel like the late 1990s. Even some industry elders who lived through the previous boom and bust, including the venture capitalists Marc Andreessen and Bill Gurley, are warning that Silicon Valley might be overheating.

There are, of course, differences between the current boom and the earlier one. Most tech companies that have gone public in recent years, like Facebook and Twitter, are more mature than companies that created a frenzy on the stock market some 15 years ago before fizzling out, like Pets.com and Webvan. Tech companies that go public these days are more likely to be profitable or at least have been in business long enough to have some kind of track record.

Stock market valuations, measured by long-term corporate earnings, are high by historical standards but much lower than they were in early 2000, according to data collected by Robert Shiller, the Yale economist. That should provide some comfort to investors, though not much. At the end of trading on Friday, the tech-heavy Nasdaq composite index was down 7 percent from its recent high last month.

The problems are not limited to publicly traded companies. Many privately held tech companies have such easy access to venture capital that they are spending lavishly and burning through cash without a clear plan for turning a profit. Office rents in San Francisco jumped 10 percent in the first nine months of this year, according to the CBRE Group, which estimates that rents in that city could be higher than rents in Manhattan by the end of 2015. In a series of tweets, Mr. Andreessen recently said that many tech start-ups would probably fail and have to fire employees. He ended by telling his followers, “Worry.”

Much more of the current tech boom is concentrated in Silicon Valley than it was in the late 1990s. About half of the $22.7 billion that venture capital firms invested in start-ups in the first six months of this year went to businesses located there. By contrast, Silicon Valley’s share of venture capital investments was less than 35 percent during the late 1990s, according to a PricewaterhouseCoopers report. This suggests that a tech downturn could be particularly bad for the economy of Northern California.

It’s impossible to predict with precision when business cycles will turn. But as many investors learned more than a decade ago, the valuations of companies can outstrip their ability to make money for only so long.

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Here is an excellent article I found at NY Times blog section.

“For a group accustomed to looking outward for the next big thing, Silicon Valley’s venture capitalists are getting very introspective these days, The New York Times’s Claire Cain Miller writes.

Much of the soul searching along Sand Hill Road in Menlo Park, where many of the venture capitalists have offices, is leading to the same conclusion: venture capital needs to go back to basics. The biggest names in the industry are concerned about low returns and are blaming several factors: funds that have grown too large, the M.B.A.’s that have invaded the industry and older partners who have lost touch with what is new in technology.

“I personally believe and I think the evidence proves that the venture industry has gotten too big, the funds have gotten too big,” said Alan Patricof, an investor for 40 years, who backed America Online and Apple, at a recent venture investing conference in San Francisco. “Our biggest challenge today for venture capital is to think smaller.”

Mr. Patricof is part of a growing chorus of voices calling for the amount of money in venture funds to shrink drastically to levels last seen two decades ago. His firm, Greycroft Partners, is taking a retro approach with a $75 million fund that makes smaller investments.

Many in the industry predict that a third to a half of the 882 active venture capital firms could disappear, if only because poor returns will force underperformers to shut down. It is already happening: Investment in venture capital funds shrank to $4.3 billion in the first quarter, from $7.1 billion in the same quarter a year ago.

There will be “a ton of venture capitalists who disappear over the next 18 to 20 months, and it’s going to be painful for a while,” Bryan Roberts, a partner at Venrock, told The Times. “But the best thing that could have happened to V.C. is this economic crisis, because it’s lowering the flow of capital into these funds.”

Read the full article here.

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An article written by Uwe E. Reinhardt by way of NY times.

“In my previous two posts, I explored what insights might be had from economists on the compensation of American corporate executives. I concluded “not many,” besides theoretical demand-and-supply models based on questionable assumptions.

The decision makers on the demand side of these models are corporate boards elected, in theory, by shareholders. Economists tacitly assume that in their decisions the boards act as faithful representatives of the shareholders. Thus, they are assumed to bargain on behalf of shareholders with management over the compensation of the C.E.O. and other top executives, and to do so in genuinely arms-length negotiations.

In these negotiations, the boards are assumed to structure the compensation of executives so that the economic incentives facing management will be aligned with those of shareholders — an ideal called “optimal contracting” between the principal (shareholders, as represented by the board) and the agent (the executives hired to manage the shareholders’ firm) in this vision of corporate governance.

The question is how well this felicitous principal-agent model of corporate governance conforms to reality.

In their well-researched and cogently argued “Pay Without Performance: The Unfulfilled Promise of Executive Compensation” (Harvard University Press, 2004), Lucian A. Bebchuk and Jesse M. Fried, Harvard and Berkeley law professors, respectively, and experts on corporate governance, take straight aim at the economists’ model. Anyone interested in this topic could not do better than reading this widely praised book, along with the economist Michael S. Weisbach’s thoughtful review of it, published in the Journal of Economic Literature. ”

The whole article can be found at NY Times here.

Also, please see others analysis here: Proxydemocracy, MacIlree,

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Indispensable? No one is, we’re told. Times change, people move on and the notion of the irreplaceable individual is a myth. That is irrefutable, at least in the cosmic sense of Charles de Gaulle’s grim reminder: “The cemeteries of the world are full of indispensable men.”

Yet there are moments in history, or institutions, that are so shaped by the extraordinary contributions of a single person that it is hard to imagine one without the other. So the indispensable-man debate was fueled anew last week when Steven P. Jobs said he was taking a leave of absence from Apple until July because his health problems were “more complicated” than he first thought.

Since he returned to Apple in late 1996, Mr. Jobs has been the product team leader, taste arbiter and public face of a company that has been a stylish breath of fresh air in the personal computer business. With the introduction of the iPod, iTunes and the iPhone, Apple has shaken up the music and cellphone industries as well.

Read the full NY Times article by Steve Lohr here

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What games stand the best chance of changing the broader industry in 2009, either by dramatically influencing what consumers play and purchase, or by demonstrating the commercial viability of new revenue models and genres? Below is a list of the 10 most likely candidates, culled from several experts in the field and myself. Keep an eye on these titles to see how well they perform — and whether they really do impact the future business of games. All are scheduled for 2009 release, but of course, dates are always subject to change.

The Games:

Allstate’s “Insight” Games
A series of “serious games” sponsored by Allstate that are designed to gauge reaction time and perception, the insurance company is currently testing them on older drivers, and may use them as a resource for offering discounts to successful players (who are assumed to be better insurance risks).

The Beatles Video Game
The upcoming music game from Harmonix is set for a 2009 holiday season release, and will fully integrate music from the Beatles’ massive catalog, with creative input from Sir Paul McCartney himself.

“EyePet uses augmented reality technology to insert a virtual pet into a live camera feed of whatever room the camera is pointed at, and advanced motion and shape detection to make it interact convincingly with its virtual environment,” notes Thor Jensen.

“EyePet uses augmented reality technology to insert a virtual pet into a live camera feed of whatever room the camera is pointed at, and advanced motion and shape detection to make it interact convincingly with its virtual environment,” notes Thor Jensen.

Free Realms
Now in beta, this is an MMORPG aimed at kids from Sony Online Entertainment, and “represents a new area both in terms of demographic and business model for SOE,” Cole said.

Grand Theft Auto: Chinatown Wars for the DS
The enormously popular Nintendo DS generally skews to very young gamers or older consumers who enjoy Brain Training and the DS’s many other “eduplay” games.

Killzone 2
Is the epic shooter and PS3 exclusive the last, best hope to revive Sony’s ailing console?

Lego Universe
Thor Jensen believes the upcoming MMORPG has the best chance to become the world’s most popular one.

Noby Noby Boy
A strange, nay, near indescribable game from the creator of the bizarre cult masterpiece Katamari Damacy, it’s a downloadable title for the PlayStation Network, and if it’s successful, Washburn foresees a renaissance for indie games, which usually earn far less significant profit margins than AAA mainstream games.

Developed for the Nintendo DS, Jensen described it as a traditional side-scrolling platform game that very cleverly incorporates the DS stylus control and word-recognition technology: write “ladder” on the touchscreen, for instance, and a realistic, usable ladder materializes in front of you.

Wii Sports Resort
Sequel to the popular but modest Wii Sports, David Cole sees the follow-up as a consumer loyalty test for Wii’s many casual users.

Read the full article here at NY Times.

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