Market Trends & Momentum

Mayfield Fund News: 2nd Quarter 2010

In this issue:
» Navin Chaddha: The New, New Thing: Energy Efficiency
» Robin Vasan & Rajeev Batra: Top Tech Execs of British Telecom, Intuit, Virgin, Zynga, Speak Out–Bleeding Edge Goes Mainstream
» Raj Kapoor: Game Mechanics Everywhere
» In the News

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The New, New Thing: Energy Efficiency

The explosive growth in rich media, cloud computing and smart phones has had major unintended consequences. Thirteen percent of all the energy used in businesses comes from datacenters and PCs. A major efficiency trend in the IT industry has been to consolidate computing infrastructure in data centers by using virtualization. This not only reduces IT CAPEX and OPEX, it also reduces energy requirements for running servers, cooling loads from HVAC systems and physical space needs. This efficiency trend is being taken further by a new class of emerging IT companies who count energy savings as one of their prime customer benefits.

1. Virtualization Moves to the Desktop: PanoLogic provides small and elegant zero-client virtual desktops which consume 97% less power than PCs without sacrificing functionality. Pano devices consume so little power that they hardly emit any heat, reducing the amount of HVAC required in the office building. This is in addition to their primary benefit of reducing IT CAPEX and the OPEX of buying and managing desktop PCs for the enterprise.
2. High Quality Video Delivery at Low Cost: Ankeena Networks makes video delivery software that significantly enhances the quality of video content delivered to Internet consumers . Its solution drastically decreases CAPEX and OPEX costs by bringing down the number of physical servers required by a factor of 10. As a result, the amount of physical space goes down by a factor of 10 and simultaneously the energy requirements for running the servers and HVAC systems are dramatically lowered.

Energy efficiency can help address the new pain point for IT of drastically rising electricity costs related to running computing infrastructure and HVAC systems in datacenters today. We are excited about the opportunities that lie ahead for innovative startups in this area.

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Top Tech Execs of British Telecom, Intuit, Virgin, Zynga Speak Out—
Bleeding Edge Goes Mainstream

"Java is the new COBOL!" While a slight hyperbole, this statement was effective in setting the tone for a provocative discussion that ensued at a recent jam-packed roundtable hosted by Mayfield with top tech execs from British Telecom, Intuit, Virgin, and Zynga. Four major themes illustrated the movement into the mainstream of trends considered unconventional only a few years ago:

1. Frictionless Selling and Adoption: Corporate buyers of technology act and behave like consumers on the Internet - they search on the web, try, buy, bypass IT and want value on Day 1. In this era of the bottoms-up adoption model, it feels like enterprise sales is a 90s model that has seen its time. SaaS and Cloud services play directly into this trend. For example, one of our investments Marketo not only makes its customers extremely efficient marketers, it also markets and sells its wares using a frictionless model.
2. Open Source: Open Source has moved beyond adoption among innovative technology companies to become mainstream - it is the technology of choice for many corporate IT departments and developers. Just like how COBOL was replaced by more mainstream programming languages like C/C++, Java(currently still in wide use)is being challenged by a variety of new languages and frameworks including Ruby/Rails, Erlang and Scala/Lift. Many traditional and expensive stacks such as Documentum for content management will persist, but they simply cannot meet the needs of 80% of the market. This has given rise to new companies, built on an open source platform from the ground up, such as our company Alfresco, the largest private open source company in the world.
3. Data and Scaling: With the rise of Web 2.0, social networks, SaaS, cloud computing, video and mobile, the data and scaling problem is at a tipping point. Data growth has gone from linear to non-linear, presenting opportunities for entrepreneurs to solve significant problems that will drive the next generation of services for consumers and value for enterprises. While the incumbents will also benefit, this is a fundamental shift in the technology landscape, presenting an opportunity for the next enterprise technology giants to emerge. For instance, Northscale, a company we are tracking, is solving the data and scaling problem with an innovative approach.
4. Cloud Architecture: Just like how COBOL was replaced by more mainstream programming languages like C and C+, Java, which continues to be widely used, is started to show its age. In particular it is being challenged by a variety of new languages and frameworks such as Ruby/Rails, Erlang and Scala/Lift. These new languages and frameworks are built for scale out commodity and cloud computing environments. The top Internet companies are being forced to these newer languages and frameworks both to take advantage of increased programmer productivity, but also to cost effectively serve massive demand. While still early, we believe there will be many exciting opportunities as the application development and deployment architecture is recast for the cloud.

As a result of SaaS, open source and cloud computing, the cost of innovation has decreased again significantly which should give rise to a variety of exciting new startups!

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 Game Mechanics Everywhere

Gaming is quickly becoming the largest entertainment sector - generating billions in game and virtual goods sales across the globe. The rapid growth of social game companies such as Zynga and Slide are proof that the consumer base of gamers is widening. The core appeal of a game is driven primarily by "game mechanics" - a technical term which refers to how a game engages us to continue to play, earn status or "leveling" and competing with our friends by tapping into basic human instincts.

At Mayfield, we are thinking about how game mechanics apply to other consumer sectors, with two examples being e-commerce and social networking/discovery. We have invested in Bigdeal.com, a site that offers auctions in a new format. Only a few months since launch, Bigdeal's revenues have grown faster than most e-commerce services due primarily to its engaging and fun game of bidding against the clock to win products at very substantial discounts. We believe Bigdeal is the next generation of entertainment shopping - beyond QVC or HSN - combining gaming and e-commerce. In social networks, Tagged has risen to become the third largest social network in the US primarily because it is focused on helping users discover new people (unlike Facebook which is about helping you connect deeply with people you already know). Tagged has found that its most engaging and profitable features are social games , which provide a basis to connect to other people and fulfill users desires to raise their social status via virtual goods. Another one of our investments, Slide, has brought game mechanics to the business of helping users with self-expression on social networks. Rather than just decorating user profiles with slideshows, Slide has integrated the concept of a virtual pets game where users adopt a pet, dress up and decorate their habitats with lively animations and sound effects. This has resulted in strong engagement and sell thru of virtual items.

We are excited to find more verticals that will leverage game mechanics, especially across new devices such as the iPhone, iPad and other smart mobile devices.

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