The NetSuds™ Report ©

The June 1, 2002 Issue:

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Definition:  "com and .com" = Telecom, Datacom, IT or Internet

In this Issue:

        1.0  Heard on the Net
        2.0  Jobs in the "com and .com" Market
        3.0  NetSuds and MedicalSuds Calendars
        4.0  Tidbits
               4.1 NetSuds on Tour - CIBER, Focal
               4.2 Nextel's MyCast
               4.3 IP Communications Junk Bonds
               4.4 BOB is Here
               4.5 North Dakota "Seed Stage" Investing
               4.6 Letter to the Editor
               4.7 ILEC Study From Wharton
               4.8 Earthview.com
               4.9 More BroadBand Policy Commentary
               4.10 The Myth of Five 9s
        5.0  Calendar of Events
        6.0  Minnesota Venture Capital Conference Re-Cap
        7.0  Net Perceptions
        8.0  Increase Your Influence With Industry Analysts
        9.0  Internet Gaming: Demystifying the Craze
        10.0 The State of the American Dream in Massachusetts, 2002
        11.0 Guest Writers for this Report

1.0 Heard on the Net

1.1 People on the Move:

Please email:  people@netsuds.com to report a change in your job status if you are moving from or to a company in the "com or .com" space. 

DC NetSudser Joy Howell, who also runs the NetSuds organization in DC, has merged her PR practice with New York City's Weiser Group and will manage the new Washington, DC office of the Weiser Group -  http://www.weisergroup.com/DCrelease.htm.  The Weiser Group has extensive background in financial communications, strategic transactions and investor relations. Its Washington office will focus on the conjunction of capital markets, public policy and strategic communications to serve clients in the financial services, technology and telecommunications industries. The firm already serves several major clients in Washington, including the American Institute of Certified Public Accountants and the National Venture Capital Association. The firm has also worked with the Information Technology Industry Council, a leading technology trade association.

August Technology (AUGT) announced on May 23 that it has entered into a definitive agreement to acquire Semiconductor Technologies and Instruments, Inc. (STI) of Plano, Texas.  The acquisition purchase price is approximately $26.1 million consisting of $12 million cash, a $3 million six month note to ASTI Holdings, Ltd. and $11.1 million in stock.

Please give details on the above including any information you do not want made public.  We are very discrete.

2.0 Jobs in the "com and .com" Market

Please email:  jobs@netsuds.com to report job openings in the   "com and .com" Market.  In the body of the message, give the name of the company and a URL link to the job postings.

*       Time Warner Telecom - http://www.twtelecom.com/Default.aspx?pageId=36
***    ObjectFX - http://www.objectfx.com/joblist.asp
***    ADC - http://www.adc.com/Careers/index.jsp

The web calendars for NetSuds and MedicalSuds continue to grow in popularity as more and more people use them for the definitive place to find high-tech events in the Twin Cities.  The Calendars are accessed at

http://mailman.netsuds.com/cgi-bin/calweb/calweb.pl

and are free to use.  If you want to post your events, there is a charge of $100 but you can post as many events as you like - if they are your own - for 2002.  We recently announced the availability of the Press Release calendar to anyone free of charge.  For details, see www.prsuds.com.

4.0   Tidbits

4.8  Earthviewer.com

Launching June 2002 - www.earthviewer.com

4.9  More BroadBand Policy Commentary

"Issues in Science and Technology" asked me to write a letter commenting on Thierer's recent article there on broadband. My draft is available at http://www.dtc.umn.edu/~odlyzko/misc/ist-thierer.txt

4.10  The Myth of Five 9s

In telecom service lingo, the concept of "Five 9s" is bandied about as a holy grail showing how reliable service is.  The concept is simple, Five 9s equates to 99.999% availability.  Apply 99.999% availability to any circuit and it means that the circuit will be "out of service" about 5 minutes and 30 seconds every year, on average.  Not bad, one might surmise.

Imagine if that was the reliability of a Medtronic pacemaker.  Ooops.

It wouldn't be so bad if 99.999% availability were actually achieved, however.  I can think of several examples in the last 2 years which blew out the average for not only me, but probably the whole city of Chanhassen or the state of Minnesota.  No doubt the equipment is more reliable but the service is a dismal failure because of human incompetence.

I have shifted my phone service, added phone service and deleted phone service four times in the last 2 years.  Qwest screwed up each time.  KMC screwed up twice.  Mediacom, my cable provider, screws up almost as regularly.

The last cable modem outage occurred in mid-May when Mediacom decided to make a 2 am change to their network without informing any of its customers.  Their hope was the change would be completed by 5 am and no customer would know the difference.  Ooops.  The outage lasted about 30 hours.  No info on the website or via email.  The customer service representatives - once you spent 10 minutes in their phone tree - were not uniformly informed.  The first representative had no idea there was an outage and tried to schedule a technician call to my home 10 days out!  The second representative knew about the problem and the screw-up.  At first, they weren't going to reimburse me for the service outage because they have a 48-hour outage policy.  I told them I had a 1-minute policy and that their bill would not be paid unless I was credited for the outage.  In the end, they agreed to credit my bill.  However, they don't automatically credit bills unless a customer calls in to complain.  What hogwash!  You can be sure they will cut off service to anyone not paying in full!  That's the third outage from Medicacom this year for a total downtime of 4 days.  98.904% - four nines short of five.

Qwest was worse.  I estimate I was without phone service a total of 10 days in the last year due to Qwest screw-ups.  I won't relive the horror.  97.260% - worse than the cable company.  But how bad is it?  If 5.5 minutes is Five 9s and Qwest was out 10 days.  I estimate they are off by about 261,818% from Five 9s.

KMC has a great customer service representative that I have dealt with but KMC has its share of problems.  When I first had my phone installed, I was able to place calls but not receive them.  Let me correct that.  I was able to receive calls but only if I had ESP ... the phone wouldn't ring.  Ooops.  When I had my phone transferred to Qwest (only because I had to due to a physical move), Qwest first took the phone number and transferred it a month early to a wrong address.  After being without service about 1 day, it was back at KMC and scheduled for May 10.  May 10 rolls around and I'm at my new location but the phone doesn't work.  Qwest and KMC start pointing fingers at each other and I don't get my phone service fixed until May 15.  It was both their fault.

Five 9s?  Communications service providers will be lucky to get Two 9s.

5.0  Schedule of Events

You can also try our new online calendar by clicking here.

5.1 - Minnesota               

6/12   MedicalSuds Evening Gathering - Golden Valley Country Club
          http://www.medicalsuds.com/eg/

6/14   MedicalSuds Entrepreneurs Breakfast - Marriott SW Minnetonka
          http://www.medicalsuds.com/eb/

5.2 - Outside Minnesota

6/12   NetSuds Evening Gathering - Vienna, VA
          http://www.netsuds.com/dc/eg/

6.0  Minnesota Venture Capital Conference Re-Cap

7.0  Net Perceptions

Giving Back:  What to do with a public company which trades below its cash value?  And what does it mean? 

My first experience as an investor looking at companies trading below cash value was to buy the stock.  How could I lose?  One could liquidate the company and make money at the very least.  What would lead the investment community to sell – and buy – below the cash value? 

I have since come to the conclusion that stock trading below its cash value is an indication that investors are discounting management’s ability to turn the company around.  In this case, a monkey could liquidate the company and increase the value of the stock.  However, management is never convinced that it can’t rescue a company and increase its value beyond the cash value.

This leads me to Net Perceptions (NASD:NETP), a local software company which originated from technology at the University of Minnesota, was funded by both Hummer Winblad Venture Partners and St. Paul Venture Capital and rode the Internet wave to a very high valuation.  Then the hinges came off the door.  The company has never recovered.  Some new management was brought in.  There is no question that the management and employees at Net Perceptions are trying hard.  But somewhere in business theory 101 is the idea that management and the Board of a company has a duty to the stockholders to maximize shareholder value.   

Net Perceptions had a very successful initial public offering.  It also had a tremendously successful secondary offering while its stock was still trading at a high but declining value.  Any company deserves a second chance but it is time for Net Perceptions to seriously look at its prospects for success.  Would it make sense to dissolve the company and return the proceeds to the shareholders at a premium over the current stock value?  It does if the company has no viable plans for increasing sales, making a profit and growing.   

The company’s products are related to the field of personalization; sometimes known as collaborative filtering.  The software is ostensibly sold to help e-tailers increase sales based on knowing more about the customer; the customer who shops on the Internet.  The market for such software has weakened considerably in the last 2 years.  Personalization is a very cool technology and it is worth something to retailers.  The question seems to have been answered for now – not enough.  Other local companies with “Internet software” such as Digital River and Stellent have fared much better because their products are fulfilling basic needs and they are leaders in their respective markets.   

It would seem Net Perceptions' hope would be to use some of the cash on hand to selectively buy undervalued but promising software companies with growth potential.  Another option would be to sell the company for a premium over its cash value.  Another option is to use its personalization algorithms for national defense (profiling suspected terrorists!).  But it is time to do something.  It’s been approximately eighteen months since the stock traded above cash value. 

I pick on Net Perceptions in this article because it was held out as a darling of the Internet age in Minnesota.  No local company had more hype at that time.  It was exciting and more than one Minnesotan bought the stock.  A local angel investor recently told me – without any suggestion from me – that he thinks liquidation is long overdue.  He rode the stock from IPO to 60 and down to its current value. 

Shareholders, especially those who bought at the secondary offering, made an investment based on the company using the money to grow and become profitable.  It is very doubtful they will ever realize any return based on their purchase price.  It would be responsible for the company to try to mitigate their loss.  Without a plan to increase shareholder value soon, it would seem the best option now is to liquidate. 

8.0  Increase Your Influence With Industry Analysts

By NetSudser Aaron Pearson, account group director in the Technology/Investor Relations Group at Weber Shandwick.  Reach him at apearson@webershandwick.com.

In some industries, industry analysts influence more than half of sales opportunities, but many IT companies fail to maximize their analyst relationships.  Common mistakes include treating them like journalists, viewing their needs as homogenous and failing to communicate on a consistent basis.  These practices erode IT vendors’ impact on a highly influential audience, resulting in missed opportunities with potential partners and customers, new investors and the media. 

That said, for growing companies, time and money are scarce.  So here are three initial, cost-effective and time-sensible steps you can take towards better analyst relationships.  These steps will help you take advantage of the most important analyst opportunities available to you, maximizing your marketing impact. 

1. Put Somebody in Charge

Does one person own your analyst relationships, or are analysts calling all over your company, informally working with a handful of PR, engineering and marketing employees?  Successful clients we’ve worked with put a single individual in charge company-wide.  That doesn’t mean they necessarily schedule every briefing or make analyst relations a full-time job (unnecessary at most smaller companies).  But somebody should be the point person and have responsibility for aggressively enforcing guidelines about how your company works with analysts. 

Analyst relations managers can reside in marketing/business intelligence or corporate communications but should have the understanding that they simultaneously exist in both worlds.  That is because analysts talk with multiple audiences, including investors, customers, strategic partners and the media. 

I once had a client with a generally solid analyst relations program, but one day, quite by accident, the analyst relations manager learned that the market research department was holding its own analyst day for marketing personnel across the company.  That department had no idea it ought to work with the AR manager on that effort. 

2. Prioritize Your Efforts

You probably have at least 20 industry analysts following your industry segment and you may have hundreds.  Divide your universe of analysts into at least two groups.  One group, representing no more than 25 percent of the total, will get the bulk of your personal attention and resources.  The other group represents analysts on the periphery of your industry or those from firms commanding less attention from your market. 

This isn’t hard science – it’s a judgment call.  Factors that go into your decision should include the strength of your current relationship with the analyst or firm, the influence that firm has over your target customers’ IT purchasing process, and the kinds of analyst research that are most helpful to your particular situation.  IDC and Cahners In-Stat, for example, focus primarily on market forecasting.  These organizations carry influence for predicting the long-term attractiveness of product categories in addition to highlighting marketshare differences.  They are less likely, however, to directly influence the selling process.  In contrast, firms like Gartner and Meta Group map the competitive landscape through techniques like the infamous Magic Quadrant, making more qualitative judgments about companies’ vision, leadership, technology advantages and market strategy.  They may be directly responsible for your presence or absence from the short list of a sales opportunity. 

3. Communicate Consistently

Analysts need fresh information on a consistent basis and a once-a-year cameo at a trade show isn’t going to suffice, particularly for your most important contacts.  How many 30-minute conversations do you remember clearly a year later? 

It’s going to take more than a rare analyst tour or occasional show floor briefing, as useful as these tactics may be, to build deep relationships with the analyst community and provide all the information they need to accurately cover your company.  Use other forms of communication to reach your top analysts on at least a quarterly basis.  They don’t have to be elaborate.  Consider assembling a quarterly electronic analyst newsletter.  Contact the analysts periodically to stay apprised of any imminent research projects you may want to contribute to.  Pre-brief analysts a day or two before important company announcements.  Elicit feedback from the analysts as well.  Don’t be a pest, but certainly work to build your company’s reputation as a provider of quality information. 

Of course, nobody wants to hear about vaporware and fluff, so if you truly do not have useful information to contribute, your outreach level should drop.  Lost credibility with the analyst community takes years to restore. 

If these three steps are put into practice early, your company will have more control over its story and increase the likelihood of having credible third-party advocates influencing your important stakeholders.  You will have reduced risk and increased potential rewards.

9.0  Internet Gaming: Demystifying the Craze

By NetSudser Bruce Bahlmann, Director of technical market development for Alopa Networks (www.alopa.com) and owner of the broadband technical information site www.birds-eye.net.

Internet gaming is one of the hottest growing markets in the world. Among today’s hundreds/thousands of game titles for personal computers lies the even older (perhaps even larger) isolated market for game consoles played on consumer televisions. The advent of widely available broadband Internet connectivity along with recent game consoles from Microsoft and Sony that now include Ethernet ports present the potential for an interesting merger of the two previously separate industries. This merger creates unlimited possibilities for nearly anyone whose game! 

So what is the big deal with having a multitude of games to play out on the Internet? Why is this significant? Furthermore, what drives people to play games, especially Internet games? All questions one should understand before gaming will make any sense to the average person – non-gamer!

Have you ever played pong? You know, the “really” old video game where you would manipulate some device (dial/joy stick) to move a bar up and down a screen in an effort to deflect a ball-like object against a wall. I recall people, including myself, spending hours playing that game – a match of skill against a computer who could actually make each deflection increasingly difficult. After a while you either get frustrated and give up or beat the game and thus the fun runs out. While pong is a pathetically simplistic example of a solo game, this concept of either giving up or the fun running out applies to any game you play against the computer. The computer is simply a boring opponent.

New games out on the market come with increasing intelligence, graphics, and sounds (even voices) that certainly grab your attention and can hold it for hours (if not days/weeks/…). However, in the end, the same thing happens – either you get frustrated and give up or you beat the game and the fun runs out.

The Internet has changed EVERYTHING when it comes to games. Take a small software gaming company called ID, it has 17 employees, two blockbuster games, and 20 million a year in revenue - gaming is big business! ID figured out that gamers eventually find playing against the computer lame, so they developed a way for gamers to play against each other across a network – to make play more interesting/unpredictable. So instead of playing against some computer, you can now play with your friends, your co-workers, pretty much anyone worldwide. As these Internet games evolved so did the variations of play.

Take one game produced by ID and one of its blockbuster hits – Quake. There are two versions of the initial game available: Quake and QuakeWorld. While they are relatively the same game, QuakeWorld was developed more as an Internet friendly game. The Internet version of Quake leverages three pieces of software to offer it on-line: game servers, game clients, and master servers. These three entities play in important roll in the wide spread popularity of the game. The game server actually hosts the game. The master server allows the game servers to post/advertise its games on it – whereby allowing gamers to find these games. The game client allows Internet gamers play the hosted game.

The difference between the standalone game distributed to consumers on CD and the games on the Internet are extensive! First of all, its not just a single out-of-the-box game gamers play out on the Internet – virtually anything is possible. Quake supports user modifications (mods) – a program interface limited only by ones imagination! So the owners of the game servers can select different maps and rotations that the players will encounter along with a multitude of other performance settings and game play environment parameters. You can even build your own maps – there are hundreds of custom maps created by die hard gamers who have build whole cities, starships, etc. Beyond that you can even totally change the game from one person against everyone to team play, or even change the game play. QuakeWorld for example supports a number of different games (mods) including Deathmatch, Fortress, Capture the flag, paint ball, etc. While all these games fit within the confines supported by the game’s graphics and basic capability (shoot-em-up), they all represent drastically different play and attract different types of players. 

The game play of Internet servers goes beyond what of your typical computer opponent is capable – even the most complex/smart ones. The reason for this is because players find a way to push the game to the limits – even cheat at it! Some players are so good they take the game to another level (e.g. shooting while flying, hiding up in the rafters, etc.). These players seek out other players of their skill or greater – which they can only find on the Internet! Thus as players increase their skill, they consistently seek out more advanced players to compete against – Internet games host an endless supply of talented gamers!

Each player can also express him/her self in games. For example they can create and wear different skins (e.g. football uniform, male/female, monster, etc.). Expression can take on a kind of cult where players form clans and play together challenging other clans or groups of players. There is even the capability for players to express themselves verbally – I refer to this as physiological warfare as they can make fun of other players, taunt them, just about anything to distract you.

With the convergence of personal computers and game consoles onto the Internet, a whole new realm of game play will unfold. This next generation of these Internet games will be increasingly rich in multi-media and attract even larger audiences than before. Understanding gamers requires you to understand their passion. I’ve only given you an introduction, and encourage you to experience it yourself. Note the craze will be soft spoken and primarily out of the public’s eye. If you’re not a gamer you’ll never really know what drives them and how powerful and addictive this experience can be.  

10.0  The State of the American Dream in Massachusetts, 2002

11.0  Guest Writers for This Report

I have opened up the Monthly NetSuds Report to guest writers. If you have a passion for a topic, and you can write (at least no worse than me), send an email to me matt@netsuds.com.  You can even send copies of your work.  It needs to be on "com and .com" topics and can include entrepreneur/investor activities.  Good information from our    service providers and vendors is also welcome so long as it is not a "commercial" for any one company or individual.

We will consider both sponsored and unsponsored columnists and guest writers.

If you are aware of others who would like to receive the NetSuds Report, ask them to visit http://mailman.netsuds.com/ to subscribe or unsubscribe.

Please send your comments and feedback regarding this issue of the NetSuds Report to matt@netsuds.com.

Matt Noah

980 Lake Susan Hills Drive
Chanhassen, MN  55317

612.279.2154
fax:  425.795.2019
matt@netsuds.com

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