Last week, VMware announced that it was acquiring early Software Defined Networking leader Nicira for a deal worth ~$1.26 billion. Nicira is a trend-setter in Sotware Defined Networking (Nicira’s founders are also the inventors of OpenFlow), but the company came out of stealth mode only recently. While the company boasts a few marquee customers, its revenues are unknown and possibly close to zero.

Is this another overpaid acquisition, or is this a smart move for VMWare? A quick comparables analysis suggests that the price might be justified. Insieme, the latest Cisco spin-in, for which Cisco has the option of buying the final 20% stake for $750 million (Cisco already owns 80% of the company through its upfront $100 million investment), will have an implied valuation at acquisition of $3.75 billion. While Insieme’s exact product offering is under wraps, assumptions are that the product will represent a new approach towards SDN . In the context of Insieme as a comparable company, in order for Nicira to justify its current $1.26 billion valuation, it would have to triple in value over the two years or so Insieme might need to develop its SDN product and achieve its $3.75 billion valuation. Such a 3x valuation bump over a two year span for the current SDN leader may not be too implausible, especially considering that Nicira in the hands of VWware might be as potent as Insieme in the hands of Cisco when it comes to shaping the evolution of SDN. Irrespective, one thing has become clear with this acquisition: we are one step closer to a software defined data center, especially for the private cloud.

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On July 17th, Marissa Mayer, the early Google engineer and in more recent times one of Google’s most public faces, took over as CEO of Yahoo! As the sixth CEO of Yahoo (including interim CEOs) in the past five years, Ms. Mayer for sure has a challenging path ahead of her. Patience runs thin for shareholders of this fabled company whose market cap is currently approximately equal to the estimated value of its combined holdings in Alibaba and in Yahoo! Japan.

Is Marissa Mayer the need of the hour for Yahoo? Maybe Yahoo’s achilles heel in recent years has been its user experience – if so then this product-focused executive who is touted to be behind the clean and simple look and feel of several of Google’s products might just be the right person to bring Yahoo’s products out of their current funk and back to relevance over the next couple years. Or maybe Yahoo’s challenges lie more on the business side; maybe Yahoo rather needs executives who know how to create, nurture, grow and retain two-sided marketplaces. Can Marissa Mayer in this case, attract such key executives to join her in architecting Yahoo’s renaissance? Or maybe Yahoo’s real problem is that it has been bleeding engineering talent for the past decade, in which case would Ms. Mayer be able to attract some difference makers in that area? Lots of questions clearly remain, but one thing is for certain – the Yahoo board is swinging for the fences with this choice; for Yahoo’s sake, let’s hope this turns out to be a home run!

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Digg, a once iconic company, a shining star representing ‘the wisdom of the crowds’ was acquired last week for the paltry sum of $500,000. As a social news website founded less than a year after Facebook, Digg rapidly gained users in its early years by allowing them to vote content up or down, but in more recent years the company had struggled.

Digg’s rise and fall account for highly educational reading. The company wasn’t the only site implementing the knowledge of the crowds to determine its content – sites such as Wikipedia crowd-source content as well, and sites such as Google crowd-source page-ranks. All these sites represent a common type of feedback loop seen across various businesses and sectors: that of a need being addressed by an innovative solution, which in turn generates value that increases as the solution scales (in Digg’s case, exploding viewership for those pieces of content that the crowd deemed to be worth the front page), resulting in the emergence of entities that try to exploit the system for unfair benefits. As is well documented, Digg suffered massively from such exploitation that eventually drove away its user base. Compared to Digg, Wikipedia has been affected to a lesser extent by the negative impact of such a feedback loop, since it has been less lucrative from a content positioning standpoint. And Google has dealt with this by over time honing its ability to ban webpages that cross the SEO line. Would it then be fair to say that Digg was just a victim of its own meteoric rise? Maybe slower growth (say the five or so years that Google had before it became a lucrative platform for users) would have allowed Digg to fine tune its ranking algorithms and help stay valuable to its user base? Guess we will never know…

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Over the past year or so, Netflix stock has taken significant beating, due to the company’s attempts to initially significantly raise prices on its most popular DVD + Streaming monthly subscription plan and then to separate out the DVD business to focus purely on the streaming business. Popular outrage to such decision making resulted in some subscriber exodus and combined with the emergence of competitors such as Amazon Prime caused many analysts to proclaim that Netflix was in a death spiral.

In a short Facebook post last week, Netflix CEO Reed Hastings suggested that rumors of Netflix’s demise might be exaggerated, mentioning that subscribers viewed more than a billion hours of streaming video over the month of June. That’s a big jump over the ~2 billion hours subscribers viewed over the entire fourth quarter of 2011, not to mention that after all the attrition, Netflix still has a paying subscriber base of ~23 million, much larger than pureplay competitor Hulu Plus (~1.5 million at the end of 2011).

Could Netflix be back for real? Does 1 billion hours of streaming video indicate a renaissance?

Video streaming is clearly the trend for the future, and by focusing on this trend and reducing investments in its DVD mail order business, Netflix is in the right direction. However, does Netflix have the leverage to build on these trends? Does a 23 million strong paying subscriber base provide Netflix enough leverage over content providers (studios, distribution houses etc.) to negotiate prices down and maintain reasonable eventual operating margins. Netflix’s current approach seems to be to try to create custom content, as Reed Hastings’ excitement about Arrested Development and House of Cards indicates, although this exposes Netflix to the risk of sinking money into potentially poor viewership content.

Meanwhile, a few other players continue to work on improving their own. Amazon Prime may not currently have the breadth of video offerings that Netflix does, but a subscriber base of more than 100 million for the parent company may offer Amazon the pricing leverage that Netflix lacks, and allowing for faster shipments on e-commerce purchases might enable them to incentivize streaming enthusiasts long enough to build their content platform. Apple, while not immediately an active player might be an even larger threat. More than 250 million iTunes accounts and an unparalleled viewing experience platform consisting of the iPhone, the iPad and potentially a smart TV equip the company with the ability to become a significant player through moving from their current high-price pay-per-view online video rental approach to a monthly subscription approach. And then there is Youtube, for which it might even be natural logical evolution to offer online movies supported by the consumers’ choice between subscription and ad supported streaming. Also, Youtube is fast becoming a highly important pre-release publicity platform for movies and so would offer studios a multitude of barter service opportunities in order to gain access to the greatest variety of content possible. Netflix may have moved off from its near term trough, but continues to thus face a challenging competitive environment.

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For those interested in ‘out there’ technologies, the Google I/O developers’ conference held last week was not a disappointment at all – at the conference, Google introduced mankind’s latest step towards Singularity. A lightweight, lens-and-camera totting pair of glasses that overlays an information layer literally in front of our eyes holds interesting possibilities for the future of artificial intelligence.

Significant (maybe orders of magnitude) enhancement in information access clearly is a key building block for super-intelligence – we currently use our five senses of touch, smell, sight, hearing and taste for all of this information access. Google Glass currently represents a tool to enhance our ability to view the world around us, and it may not be too insane to expect a modification of the device to include audio overlays as well. Similarly, maybe longer term developments would be to have devices that capture, amplify, simulate and analyze odorants that drive our sense of smell, chemicals that translate into taste, and force signals that translate into our feeling of touch. A few years towards these and we will have a solid platform to help us drive towards truly augmented reality!

So what might inhibit the drive towards augmented reality? In the context of Gartner’s Hype Cycle, we may be currently early on in our climb towards the peak of inflated expectations… Multiple challenges and to-do’s exist, including:

• Potential FDA approval needs
• Usability related modifications, which may need additional developments in miniaturization, power management, connectivity etc
• Applications on top of the platform that trigger needs and enable mainstream adoption

Until about a year ago, analysts were projecting that augmented reality glasses were five years away, and even so the projections for the broader augmented and virtual reality market at the time were in the $1.5 billion range by 2015. Will Google Glass accelerate this trend and make this a larger, faster growing, mainstream market much before that? Let’s see…

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