The Path Ahead

At the end of 2011 I set out on a bit of a new path professionally.  I am very excited about the opportunity and so far it is living up to expectations.

So as we begin the new year, I thought I'd share a few pictures of the path ahead...

Sometimes the path ahead is flat and well traveled...


And sometimes you need to watch your footing...


It can be steep...


And it can take you through beautiful places...


Sometimes you can barely make out the next marker...


And sometimes, there appears to be no path at all, even when you know others have been here before...


But always, we must travel on. And remember, it's the journey that counts, not the destination.

Best of luck to all in 2012.

See the Smugmug Gallery for larger versions and more pictures.

Sunny Denver

Saturday we had our first snow of the year in Golden.  It was just enough snow to have a great snowy soccer game, but by the afternoon it was a nice sunny fall day.

After the storm passed, my family and I headed up Lookout Mountain Road to check out the snow, and on the way down I captured a quick shot of Downtown Denver illuminated by the sun peaking through the clouds, while the rest of the area was still in the shade.


Even on cloudy days, it is always sunny in Denver.

The End of the Independent Device Maker

Sony, Panasonic, Motorola, Nokia, Samsung, HTC. All big names in the consumer electronics market. All struggling to find relevance in a newly connected world.

Enter Apple, and Amazon?

Apple begin the revolution with the iPod, and iTunes. Vertical Integration. They added the iPhone, and soon after added an App Store to iTunes. And then the iPad.  And importantly (in the long run), the Apple TV.

Amazon joined the revolution along the way with the Kindle tied to their ebook store.  It really is 'an iPod for books'. And guess what, people still read.

Amazon has been busy building up their ecosystem. They've gone from selling paper books to becoming the market leader at selling virtual hosting services (EC2).  They've added cloud storage, and streaming video.

Today Amazon announced new Kindles, including a new 'tablet' Kindle, the Kindle Fire.  The Fire aims to bring the web, native apps, music, video, and books to the palm of your hand, all brought to you by Amazon's 'Cloud Services'.

The Kindle Fire and the iPad make interesting competitors, but that isn't really the point here. (Short Version, they can both win).  The point is, no one else can compete.

Barnes and Noble has some vertical integration with their Nook Reader, but they do not have anywhere near the ecosystem to compete with Amazon.  They are doomed to be an also-ran in this space, and will eventually lose.

Sony, Samsung, HTC, RIM, HP, Motorola.  None of these companies can deliver a product with this level of integration, this level of 'it just works'.  Apple has realized the power of this for a long time.  Amazon is a believer as well.

Does Google realize this?  Is that why they bought Motorola Mobility?  While there have been various reports about the justifications and plans for the acquisition, it is clear in my mind that their best long term play is to INTEGRATE with Motorola very closely.  Regardless of whether they keep Android Open Source, they should focus on Motorola producing 'the one true Android' devices.  But that isn't all.  Google needs to figure out how to deliver the rich set of media offered by Apple and Amazon as well.  Seamlessly.  I'm certainly not counting them out, but they have a lot of work to do.

What about Microsoft?  Well, aside from the fact that they are probably making more from selling Android phones then Windows phones (based on their Android licensing deals), they are still an interesting play.  Their movement into the gaming space (XBox) has achieved market share, if not financial success.  Their efforts with the Zune and their music services have built up some ecosystem.  I think they need focus, and to break from 'Windows'.  (Windows Phone 7, really?)  But I wouldn't count them out.  Yet.

However, if you are Samsung, Nokia, HTC, what can you do?  I'd focus on the parts business.

Who else is in the cross-hairs?  Netflix.  Amazon is building a solid competitor to their video streaming service, and with the device integration (Kindle Fire) and set top box integration, they are serious competition.

The pendulum is swinging back to vertical integration.  Nothing lasts forever, and I'm sure the pendulum will swing back some day, but I think we have a long road of vertically integrated devices ahead of us.

USA Pro Cycling Challenge 2011

USA Pro Cycling Challenge brought pro cycling to Colorado, including Golden.  I headed out to take in the race and capture a few pictures.  You can see all of my pictures here.

This was my first time shooting a cycling race, and I learned a lot about what works and what doesn't. I'm already looking forward to next year's race.

For more pictures, see the official gallery.


Racers go past 'in neutral' as they approach the rolling start.


Racers climb Lookout Mountain as the helicopter looks on.


The Stage 6 start line, just past the 'Welcome to Golden' arch on Washington.


Racers head out of downtown Golden on 13th Street on their way past Coors to Denver.


The winner, Levi Leipheimer, races past in the Yellow jersey.


Team Skil passes the 'Historic Downtown Golden' archway.

My Thoughts on Groupon

There is much hubbub around the internet yesterday and today about Groupon's announced IPO.  With their public S-1 we now have a window into their business, plans, and competitive concerns.

DHH has come out bearish on Groupon, both on twitter, and then summarized in a tumbler post.  DHH is relatively bearish on any business that requires funding, as he has successfully built (or helped build) a business, and an ecosystem, without splashy VC investments or IPOs.  He has some valid points, but many people will dismiss them based on the known bias of the source.

I read through much of the S-1 myself, and have have had two prior experiences consulting with companies with similar models.  Both involved selling x dollars for roughly x/2 dollars to be used at a given merchant.

On the face of it, the model should be very profitable.  You are essentially selling air (no inventory, no shipping, no fulfillment, etc).  You provide value by being an aggregator first, and by tailoring the presentation second.
  • Groupon is an aggregator as it has 83 Million subscribers (as of March 31, 2011), and 15.8 Million customers (cumulative as of March 31, 2011).  They obviously have a following. 
  • As they move from the deal a day model to targeted offerings, they are improving their ability to taylor the presentation.  Given our technology base today, their abilities here should only improve.
Selling air should be a great business right? You should have great margins, and since you just run a website, you should be raking in the cash!

Well, they are not.  While they have what would appear to be solid gross margins (40%+ in the first quarters of 2010 and 2011), they are still running at a loss.  Their big problem appears to be twofold.  Their cost to acquire a customer, and their cost to acquire a merchant.  Neither of these costs are part of the 'cost of revenue'.

For the 1st Quarter of 2011, here are the highlights:
(All #s in Millions)
Revenue: $644
Cost of Revenue: $374
Gross Profit: $270 (41%)

At this point, everything looks great.  This gross margin has been steady through growth (~45% in 1st Quarter 2010 on much smaller revenue (Q1 2010 was only 6% of the revenue of Q1 2011).

However, the two big scary numbers are:
Marketing: $208
Selling, General and Administrative: $178

These two costs alone consume all the margin and then sum, leaving a $116M loss before other operating costs.

What do these costs mean?

Cost of Revenue:
Cost of revenue primarily consists of the amounts paid to and accrued for our merchants associated with the sale of Groupons.
Therefore, this margin should always be steady unless they restructure their deals with the merchants.

Marketing: Pretty straight forward.  They 'buy traffic' via online adds and some offline adds.

Selling, General and Administrative:
Selling, general and administrative expense primarily consists of wages and benefits (including stock-based compensation), credit card processing fees, consulting and professional fees, depreciation and amortization and technology-related costs. Approximately 50% of our employees were part of our salesforce as of March 31, 2011, and their compensation represented a significant portion of our selling, general and administrative expenses. Our salesforce is critical to growing and maintaining our merchant base and is the main source for driving new Groupon offers. We expect that our salesforce headcount will continue to grow over time as we continue to expand our business into new markets, but that our sales and marketing expense will decrease as a percentage of revenue.
Essentially, convincing merchants to make offers, and the costs associated with the transactions.  50% of their employees are focused on convincing merchants to make offers.

I believe the success or failure of Groupon hinges on one question:  Do these costs sale lineally, or will they decrease (as a percentage of revenue) as they scale.  IE, once you acquire a customer, do you need to continue marketing to them?  Once you acquire a merchant, will they continue to provide regular offerings?

I don't know the answer to these questions.  Groupon fans will say they that they are 'scale up' costs and will decrease as a percentage of revenue overtime. Maybe.

I am not a personal fan of Groupon offers (although my wife is, which may really be the reason that I'm not!).  To me, they mostly involve convincing me to buy things I would not have otherwise purchased, or purchase them at stores I would not have otherwise shopped at. In the end, this has to be true.  Otherwise, the merchants that use Groupon are simply throwing money away.  Remember, if you pay $10 for $20 of merchandise/service, the merchant is only getting $5 for that $20.  Therefore, they must be getting 'follow on' value, either through additional purchases by you, or indirect marketing (purchases by others because you talked about it, etc.).  Because of this, I don't believe that the merchants will be highly sticky.  IE, I think the costs to sell offers will continue to be high, as merchants continue to churn through the system. 

On the other hand, I doubt there will be a huge churn in the subscribers.  They already have 83 Million, which is an impressive number.  But they only have 15 Million customers (still a big number, but less than 20% of subscribers).  Also note, the Subscribers are 'as of' March 31, 2011 while the customers are aggregate.  It would be interesting to see the number of repeat customers, and the subscriber churn.  Searches for 'turnover' and 'repeat' in the S-1 yielded no results.

With the current IPO market, I'm sure they will get a nice initial IPO pop.  People are starved for public tech companies, and there are very few new ones available at this point.  But will they become the next Amazon.com, or the next Pets.com?  Only time will tell.

I wish Groupon well.  As a former Chicagoan, and a friend of people who work with or for them, I hope they can prove out that their customer/merchant acquisition costs will reduce and become a profit powerhouse.  And we'll see how act 2 (Groupon NOW) and act 3 (?) play out.

Now in the Mac App Store...

My first commercial Apple OS X application, Playlist Export, is now live in the Mac App Store.  You can see the listing here (web summary).  Buy it now!

The application, Playlist Export, is a rewrite of my long time Open Source project iTunes Export as a native Cocoa application.  Since switching to an iPhone and MacBook Pro about 18 months ago, I've become increasingly interested in iOS/OSX development.  I was also interested in getting some first hand experience with the Apple App Store.

For those new to iTunes Export/Playlist Export, it is an application that allows you to export playlists from iTunes in a variety of formats with full control over how the playlist is created (file encodings, etc) and how the music files are copied (supports different directory structures, modifying paths, etc).

iTunes Export itself has lived across several implementations.  The initial implementation was a native Windows implementation (written in C#/.Net).  I received regular requests for a solution on OSX, so I eventually rewrote it as an Adobe Air (Flex) application for cross platform support.  With the release of a native OS X application, it probably makes sense to revert iTunes back to a native Windows application.  However, it isn't really very high on my todo list.

The initial sales of Playlist Export have been positive (I had VERY LOW expectation).  I released at at the lowest price point ($0.99 USD), so each sale doesn't bring me much revenue, but I wanted to give an opportunity for my beta testers and other followers to grab it cheap.  I plan on raising the price over time until I find the right tradeoff between price and units sold.  I'm curious to see where the price will end up.

I appreciate the donations many of you have made over time to iTunes Export.  If you have donated in the past and would like a free copy of Playlist Export, drop me an email at eric@ericdaugherty.com.

Home Technology: Occupancy/Vacancy Lighting

With my recent move into a new home, I have the opportunity to install all sorts of cool technology.

With DirecTV's new Whole House Video solution, I didn't need to utilize my previous whole house audio/video solution, so I needed a new challenge.

The 'Problem'
I needed a new toy to install, and luckily for me my wife provided a great excuse.  You see, like many women, she is deathly afraid of light switches.  Or at least turning them off.  She's never explained it in so many words, I've just come to this conclusion based on the number of lights that are left on around the house for no apparent reason.

So I had my problem: find a way to keep the lights from being left on all day.  Option 1, convince my wife to turn them off.  I have many years of evidence demonstrating that this approach is ineffective.  Option 2, technology!

I researched different options, and it appears that Lutron and Leviton are the primary players in the residential Occupancy/Vacancy sensor space.  With the advent of CFL bulbs, I also wanted a switch that could control both traditional incandescent, as well as florescent and CFL bulbs.  Why do these types of bulbs need a specific version?  The short version is that traditional versions use the 'load' of the traditional bulb in their circuit.  The florescent/CFL bulbs do not provide the right load, yielding unreliable results (flickering lights or failure to turn on).  The newer versions instead require you to wire your switch to ground (Common), alleviating the need for the bulb to provide the correct 'load'.

Based on my research, I chose to use Lutron switches.  I wanted both traditional switches, dimmer switches, and a 3 way switch, all with an occupancy/vacancy sensor.

Occupancy or Vacancy?
These switches consist of a toggle button, and a sensor.  The button is used to manually operate the light, while the sensor determines whether there is anyone in the room.

Occupancy switches turn on when you enter the room, and turn off when you leave.  Vacancy switches require you to turn on manually, but will turn off automatically when you leave.  Both can always be operated manually as well.

Some switches only do Occupancy or only do Vacancy, while some are programmable.  The switches I chose are programmable.

The Switches
I used three different models from Lutron:

  • Traditional Switch: Lutron MS-OPS5AM
  • Dimmer Switch: MS-OP600M
  • Accessory Switch (for 3-way): MA-AS 

I bought some from from Union Lighting, and some from SmartHome.  Union Lighting was slightly cheaper, but drop-shipped directly from Lutron, who was back ordered.  So it took a couple weeks, but they arrived just fine straight from the manufacturer.  SmartHome shipped from their own warehouse and came in about a week.

Both switches sold for between $35 and $40, while the accessory switch was between $25 and $30.

Installation
The installation is pretty straight forward IF you have a ground wire in your light-switch junction boxes. Since my current home is newer, I had a common wire in every junction box.

The wring is pretty straight forward.  Unlike traditional switches, you need to know which is the line (source) and which is the load (light fixture).  Visual inspection in each of my junction boxes illustrated this easily (the line was always tied into a wiring nut with several combined wires while the load always ran directly out).

Wiring in the common (ground) wire required an extra 4-6" length of electrical wire, which is not included.  I had a few scraps in the basement from previous projects that I was able to use.

The 3-way install was a little more complicated.  It took some careful reading of the instructions, and unlike traditional switches, the runner wires (that run between the two switches) must be on the same connector on each switch.  I missed this my first time around and it took me a while to figure out.

In most of the cases, the biggest challenge was adding a new wire to the combined bundles already in the box getting the wire nut back on, and then fitting the wires and the rather large new switch into the box.

Locations
I installed a mix of occupancy and vacancy switches.  In small/utility rooms (washrooms, closets, laundry room, garage) the occupancy switches work great.  I love being able to walk into a closet, or through the garage carrying something without worrying about the lights.

I used the vacancy switches in the master bathroom, where I didn't want them to turn on automatically all the time, but where they often got left on all day.

Results
I have been very pleased with the lights.  They've worked really well, and I love never getting home to find a light has been left on all day.  But I really enjoy having the lights turn on automatically in the rooms configured with occupancy lights.  It seems like a small thing, but it makes every day activities easier.  It's wonderful to not have to worry about slapping the light switch as you walk through or into a room with your arms full.

The switches are not cheap, and I don't plan on installing them in any of the 'main' rooms in the house (Kitchen, Family Room, Dining Room, etc.) but I think they are a great addition to bathrooms, utility rooms, and walk-in closets.