For example, we now think about our pictures as stored on a PC or Mac, uploaded through a USB cable and protected by an online service such as Carbonite or Dropbox. We select which pictures to put in Facebook, Flickr or Picasa Web Albums. In a couple of years we’ll think about the pictures as stored primarily online, directly uploaded there by our WiFi or UWB-enabled camera and protected by a service such as Backupify (yes, we’ll still need backups).

Our computers’ will still have our documents and pictures and music downloads but these won’t be the “master” copies but serve merely as performance optimization and offline access caches for the data, in the same way you can read your email on a plane with no WiFi access using Google Gears for Gmail and Cached Exchange mode for Microsoft Outlook. Amazon’s Kindle is another good example. I read my Kindle books on my laptop, iPad, iPhone, Blackberry and, oh yeah, Kindle. All my content is there, locally cached for fast access without requiring connectivity with the latest read position automatically synchronized without me having to even think about it.

Side note: A few weeks ago Google deprecated Gears with an eye towards HTML5 offering more standard approaches for building these types of application experiences. I would expect significant extensions–going well beyond HTML5–to show up in ChromeOS.

The change will profoundly impact both the hardware and SW industry. On the hardware side, it benefits netbooks and tablet devices as well as smartphones. On the software side, it benefits third-generation SaaS players who are targeting this deployment model as they will have a noticeable performance and user experience advantage over current-generation Web apps.

I’m even more excited about fourth-generation SaaS apps whose user experience will automatically scale up and down with the capabilities of the client-side hardware and bandwidth constraints, similar to the way some gaming engines & services work today.

The shift of master data from PCs and local networks to the cloud creates significant opportunities. Get in touch if you are working in this area–I’d love to hear from you.

The background story here is of the explosion in mobile browsing and mobile applications driven by the iPhone. That s what fueled a lot of AdMob s growth in the past 18mos. I was at a dinner with Omar about a year ago. He had the numbers in his sights and predicted growth will accelerate.

This is mixed news for the other players in mobile advertising. The gap between the largest player and the next one down just got much, much bigger. Key takeaways:

• Google s reach with advertisers and their targeting technology are likely to improve the performance of the AdMob network measurably. It s difficult to see how others can compete meaningfully on scale.
• Startups main advantage is technical innovation and business agility. Both should be severely discounted in mobile where, in addition to the device & network fragmentation, operators and app store owners exert a significant degree of control which, often as an unintended consequence, slows the pace of innovation.
• There is an opportunity to shift competitive advantage from volume to quality as Quattro has done but that s a tough business to scale even in a growing market. In the end, the biggest risk here is that large players such as Google can always buy your customers with guaranteed minimums.

It s time for mobile publishers to take more control over their inventory by looking at players such as Nexage.

1. Convince the market leader to give you something big they don’t see the value in for cheap
2. Innovate, innovate, innovate
3. Make a ton of money
4. Eat the market leader’s lunch
5. Bet on everything big

Guess which is the most important step…

The case of Microsoft

About 28 years ago, IBM made one the biggest strategic mistakes in its history. Being a company primarily focused on hardware, it didn’t understand the value in the PC operating system. It outsourced that work to a, at the time, little-known company called Microsoft. From Wikipedia, the ancient lore of the computer industry:

On August 12, 1981, after negotiations with Digital Research failed, IBM awarded a contract to Microsoft to provide a version of the CP/M operating system, which was set to be used in the upcoming IBM Personal Computer (PC). For this deal, Microsoft purchased a CP/M clone called 86-DOS from Seattle Computer Products, which IBM renamed to PC-DOS. Later, the market saw a flood of IBM PC clones after Columbia Data Products successfully cloned the IBM BIOS, and by aggressively marketing MS-DOS to manufacturers of IBM-PC clones, Microsoft rose from a small player to one of the major software vendors in the home computer industry.

The rest is history. Microsoft took the job seriously, created a pretty darn good product for the time and used the PC clone explosion as a way to increase its dominance in the value chain. IBM lost it leadership. The DOS and then Windows franchises generated massive cashflow which MS plowed into innovation (often in the form of cross-subsidies lasting a decade) to create often dominant product lines such as Office, the server business (don’t forget that Sybase in a no less brilliant move licensed core tech to MS enabling them to create SQL Server) and others. Now, the company bets on pretty much all large markets in the software space. If it’s big, there is no way MS would ignore it. In fact, from conversations with execs there, it seems like much of new market development planning begins with a process as simple as ranking future market sizes. That’s why Microsoft will relentlessly pursue search and why it was probably willing to do an even better deal with Yahoo. (Jason Calacanis has a good post on the Yahoo-Microsoft deal.)

The case of Google

In the case of Google, the strategic mistake was Yahoo’s. The company didn’t value search. It outsourced it to Google. Google took the job very seriously. They innovated a ton behind the scenes while smartly keeping the simplicity of their user experience. Through AdWords and later AdSense + the DoubleClick quisition, Google gained significant control of the advertising value chain. They passed by Yahoo and never looked back. The search franchise is so profitable that it gives them freedom to bet on everything from browsers to OSs to mobile, something pretty much no other company save for Microsoft can afford. Google’s version of the cross-subsidy is the perenial beta that just keeps getting better. Very, very hard to compete with that.

The moral of the story

The moral of the story is that the two most important software companies in recent history were enabled by massive strategic errors on behalf of the market leaders in their respective sectors. It was the market leaders who put the companies on the map, gave them distribution and scale and enough revenue to fuel innovation. IBM and Yahoo nursed the companies that nearly killed them. One could argue that without the explicit support of the market leader, a startup wouldn’t have had the chance to grow at a rate that allows it to have Microsoft’s and Google’s escape velocity.

Kudos to IBM for innovating around its business model and evolving into a company which is still a huge industry player. I’m not sure Yahoo will have that chance.

The interesting question is whether this will happen again… Do you think a market leader will make that type of mistake again? Can you point to where this is happening now or likely to happen in the future?

1. Get scale in usage and aggregated data
2. Redefine search via the social graph
3. Colonize the Web through Facebook Connect and OpenStream
4. Sell targeted ads everywhere

It is clear that the two companies are on a collision course and will both look for help and leverage in the upcoming battle. Beyond the well-identified brand advertising + search + communication tools + social graph battle lines there are two that merit a bit more analysis and some wild guesses:

• The real-time Web is becoming more important. That’s why both went after Twitter and, of course, why Twitter rebuffed both. (Nothing like a horsy race, especially when you don’t need to exit. Yes, Twitter knows they have to manage hosting/traffic costs.) Now both FB and Google are busy adding capabilities around real-time content contribution/sharing/search.
• More general search. If FB is to redefine search, it needs to be able to handle a reasonably set of search queries. Google’s core technology and reach have an overwhelming advantage here. FB has great data but even at their scale it is very difficult to create a great user experience for search. People come to a search box with diverse intent. Therefore, intent discovery is one of the most important and hardest problems for a search engine to solve. Through its richer UI and tracking capabilities FB has an advantage is discovering intent. However, if the intent and/or the search query cannot be satisfied easily within the agregated dataset of friend activity there is a problem. Also there is the expert gap–my friends may not be the experts. Wild guess: Facebook may partner with Microsoft, which is eager to give Bing more momentum, or another search player to create a more compelling search experience within FB.  Or they may really redefine search to establish a clear psychological contract with users about what FB search is all about. Either way, it will be interesting to watch.
• Desktop access. I was excited when Facebook acquired ParaKey. It was a brillian strategic move, Facebook’s Secret Plan v2.0. Desktop data and flexible offline access to online services is very important. Google clearly has the leadership now with Google Gears and Chrome. Google Apps help indirectly by moving the data to the cloud. I am disappointed that for two years we haven’t seen anything come out the Parakeyacquision. Blake Ross and Joe Hewitt are still at FB. Joe is doing some very cool work on the iPhone app and something secret (hopefully desktop-related). Blake’s been so busy he stopped paying his hosting fees.

Ultimately, the Net doesn’t want to be owned by anybody. We are witnessing the wearing off of Google’s goodwill as their hold on non-brand advertising solidifies. The same is likely to happen with Facebook if they aggregate tons more user data and continue to make it difficult to export/share/operate.

So, who’s going to balance out the power of Facebook and Google? One obvious answer is Microsoft. As the underdog in the online space, the company will be willing to play by new rules. When threatened MS rallies and responds well. Well, at least they did. A lot of people have left. Next is perhaps an unlikely candidate–the Mozilla Foundation. With its significant browser share Mozilla has a huge role to play in the evolution of data ownership, privacy and advertising. In fact, this will be the topic of my conversation with CEO John Lilly tomorrow. Apple has a role to play.

About to land. Enough for now.

• iPhone is a great Google phone
• Android phones will overtake iPhones bu 2010 or 2011
• Apple has very different views about how mobile app economics should be split than does Google. (Google is attacking Apple smartly through openness and rev sharing with operators.)
• Google Ventures got $100M for its first year. Think of it as a first drawdown on a larger fund.
• They are not a strategic investor. They want to invest for financial return, regardless of overlap with Google’s business.
• They’ll inherit the cleantech investments of Google.org
• A lot of the dealflow is coming from Google employees.
• Google ventures plans to mine the activity stream captured through Google toolbar to catch interesting new trends/startups. Of course, they’ll do this in an anonymous manner. That’s a cool idea. I nearly built something similar on top of Alexa ranks to look for new online startups while at Polaris.
• The goal is to be a “reasonably significant player in the venture space” and syndicate with the top venture firms.
  
• They are stage-agnostic. Rich likes to do seed/Series A investments.
  
• Will bring on-board a couple of new partners over time.
  

I spoke on a panel with Google, IBM, Microsoft and Sun. Their offering are somewhere between vaporware and beta.

• Google recently launched App Engine
• IBM has a big vision and is mastering resources internally
• Microsoft is trying to equate enterprise application hosting and SaaS as cloud services
• Sun recently did a beta release of Project Caroline.

Absent from the discussion due to schedules was Amazon, so I had to be the one to talk about Amazon Web Services. For the record, I like what AWS is doing for the simple reasons that (a) they shipped early and (b) they took a very open approach to the core of cloud computing (EC2 and S3).

The audience focused Q&A on a couple of interesting areas: SLAs/reliability, where is became clear that one-size cloud computing would not fit all, and security/privacy, which is indeed a very interesting topic, especially when one considers, for example, what governments can force your cloud services provider to do with your data.

There are three complementary approaches to both topics or, for that matter, any facet of value-add on top of the core infrastructure-as-a-service cloud computing layer:

• You can architect a solution that achieves your objectives based on core cloud services. For example, since many startups don’t trust Amazon S3 and EC2 not to fail they have made alternative provisions. In another example, one can introduce application-level encryption such that Amazon or Google only keep encrypted data and don’t have access to the keys.
• You can rely on enhanced cloud services, e.g., data encryption add-ins or spreading servers across different zones with an automatic failover layer maintained by the cloud service provider (CSP), etc. This carries potential lock-in implications in exchange for having to solve less of the problem yourself.
• Rather than solving the problem through technology, you can solve it through processes and contracts. For example, failure to meet SLAs can carry financial penalties.  

The AIR / Flex 3.0 launch is a big deal for three reasons:

• The AJAX ecosystem is heavily fragmented
• Flex 3 is a big step forward
• AIR is a disruptive innovation enabler

There are just too many pure AJAX frameworks out there. This may be great for some abstract notion of innovation but is pretty bad for market adoption. It causes confusion and friction. Developers hate that. They want to feel like they are developing skills for the next cool technology which will be around for a decade. The tooling is also pretty immature, although my friend Paul Colton @ Aptana is doing some pretty cool work. I have also seen a number of new startups trying to make things better in this space but for now the situation is not great. After initially missing the AJAX boat in a big way, Adobe has recently gained traction in repositioning from Flash vs. AJAX to Flash vs. DHTML, both of which use AJAX. As proof, I’ve seen more startups mixing Flash/Flex with DHTML/AJAX.

There seems to be a rule that really big software companies get things right by version 3.0. That has been the case for years with Microsoft and now Adobe may be large-enough to join the list. Flex 1.0 shipped late and left a lot to be desired, which made Flex 1.5 more or less a requirement. Flex 2.0 was a big step forward but there was much more left to do to build a great RIA platform. Flex 3 steps up the innovation pace on a number of fronts. Better developer tools. Improved frameworks. Smaller application size. Better data handling throughout. And the Flex SDK as well as the BlazeDS remoting and messaging services are now open-source. Everything is in place to accelerate Flex adoption. There is a massive shortage of Flex developers in the market, always a good sign for a platform. The main challenge for Adobe remains monetizing the platform. I’m not 100% on board with the Flex Builder tool as the main revenue driver although the team recently added some great people from the ColdFusion team who really understand Web developers. For examples on what Flex can do, check out the app showcase. Warning: you may spend more time there than you previously  imagined.

AIR will become the biggest enabler for media-heavy Web applications. To get an idea about what I mean, check out the Allurent Desktop Connection video. This only scratches the surface of what one can do with a cross-platform, always on, richly interactive application with Net access and plenty of local storage. Adobe isn’t the only company who gets this–Google has plans based on Google Gears and Facebook has also moved in this direction with the Parakey acquisition–but Adobe has so far executed the best. Not surprisingly, Microsoft remains paralyzed by the Web <-> desktop strategy tension.

AIR is truly disruptive–in Clayton’s exact sense of the term–for two reasons. First, it given Web apps access to the desktop. Second, it does so while subverting the native operating system installers (using the Flash player executable as a conduit) which gives Adobe and its ecosystem substantial freedoms. One caveat–security. Adobe has done a pretty good job with the Flex 3 security model but it hasn’t been extensively tested in the wild. Also, the anti-virus and anti-spyware vendors have often been trigger happy in the past to blacklist totally legitimate software. I’m not expecting them to blacklist the AIR runtime but who knows how they’ll treat some of the apps… I hope the Adobe platform marketing team and evangelists have spent enough time with the security vendors. This is something I advised them to do at the Engage event last year based on some bad experiences from our portfolio.

With this launch, Adobe cements its platform leadership in Web 2.0 and makes life easier and more interesting for millions of developers and designers. A shout out to all my friends at Adobe who worked hard to make it happen and to everyone who put skin in the game during the beta process.

As Aber mentioned, we’re currently in a sandbox phase. Here are the important points to understand about this phase:

• Your application profiles are private
• Your apps install on real MySpace accounts, but are limited to three installations
• If your app renders a profile module, it will only be visible to users who have that application installed

So, essentially, the platform is in a public beta allowing for some back’n’forth between MySpace and the developer community. This is a good change in stance for MySpace, which has in the past taken a rather confrontational stance with respect to third party developers. I hope they have hired (a) some great platform architects and (b) some great developer community managers or else it’s unlikely that the outcome of the beta period will lead to significant improvements.

Always more of a media/lifestyle company than a technology company, MySpace has taken a long time to come to terms with opening up. Some months ago I had a conversation with one of the CXOs there about this very issue. From his comments it was clear that there was tension at the highest ranks about how to proceed. I guess Facebook’s growth accelerating and the company becoming progressively closer with Microsoft helped MySpace, whose own growth declined, realize that they need to open up and partner with a tech savvy power (Google, which is helping with OpenSocial and Caja). Good move, though I expect Google to benefit more in the long run than MySpace as it sets up OpenSocial for success.

Although Facebook and MySpace remain quite different, it will be interesting to see what developers do on MySpace. Let the widget games begin.

The weather this year was both great and marginal. Deer Valley got about  55-60” of snow in four days. The powder made the skiers happy. Those of us who don’t do the downhill thing went snowmobiling. We had a good time although snowfall killed the visibility as you can see on the pic. On the flip side, getting to dinners with the road closings was a challenge and today a few attendees narrowly escaped an avalanche at Deer Valley Resort.

We covered many important topics: from how to build organizations in digital media startups and scale infrastructure, to new content & advertising models, to monetization of UGC and other forms of social media, etc. Many of the comments were insightful due to the diversity of backgrounds and perspectives around the table. I have a few good follow-on topics for blogging that I hope to organize and post in the next few weeks.

On Friday the group was abuzz following the news of the Microsoft offer to buy Yahoo. Several of the attendees had stayed up overnight and were prepping for board calls and press interviews. Microsoft does best when someone is breathing down its neck. I hope the same is true for Google.

Motley Fool makes a daring suggestion:

If Microsoft or Yahoo want a shot at Google AdSense – a market that is nearly as big as all of Yahoo! and twice the size of MSN’s top-line output – they will need to put the dagger between their teeth and treat an ad network as a loss leader. Even if it means offering 100 percent – or even more – for a limited time, AdSense will only get bigger without opposition.