Getting away from détente. Possibly you read my blog about Soviet Negotiating; nyet, no, walk away, say nothing. As noted on an adjunct video on the NCC website this style is not fun but it works in certain situations. You may think that the Soviet style is entrenched in non-communication, but it is all about communication.

In all deals signs are given; suggestions, ranges, needs, desires, ratios, values, terms all of which are blatantly stated, suggested or inferred. You need to listen.

The Chinese Menu Negotiation - Either the buyer or the seller can instigate the Chinese Menu. Simply stated you are providing at least three choices.  Each menu item wraps up all of those signs into a separate and distinct deal each with at least three courses: the appetizer, entree and desert.  In deal making usually terms, price and the toss-out. If you are the buyer and are presenting to the seller you have be able to live with any of the three seller selections.

Most people think is easy, OK three choices, they will make a selection and then we will negotiate that selection.  Well I had hot and spicy pork last night, and there were not three choices. What we really show in our Chinese Menu of three items, each with three courses that there are really nine items each of which is unique or in the least somewhat different. What you will notice at your local Chinese Best #2 is in the $8.50 to $9.25 range there are dozens of choices, many palatable.

No one ever makes a final selection from one of only three items. The goal is the range not the three choices; the goal is to open up the decision-making and negotiation process. If you cannot find the range there will be no deal.

Bi-lateral negotiations, or The Chinese Menu, are entrenched at keeping everyone at the table deciding if they want MuShu Pork, Princess Chicken or B17 – bingo.  And then someone decides to… I am not even going to go there.

Later Tom -

Meet me at the Parallels Summit in Miami February 22-24

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This morning I noticed a comment by former SAP CEO Hasso Plattner regarding what I will generally term convergence. I thought it was an interesting summary. Essentially he stated that SAP needs to rapidly embrace … super-large in-memory systems, parallel computing, on-demand software, cloud computing, and mobile phones as components that competitors are exploiting these technologies, too.

Cool stuff - 2010 is teeing up to be an interesting year, a year of real transition and I think a great year for hosting investment and M&A - 2010 will not be a year in the doldrums.

This is going to be a busy year. This weeks headlines week include IBM's $360M green data center in North Carolina, Savvis adding 10k square feet in Chicago, Layered Tech picking up $20M investment from Accel-KKR and Interxion raising €200 million ($278M). I know that only adds up to $658M but there those were the quick and easy headlines.

There be another billion $ next week.

Over the past ten years the US Government built data-centers at the rate of one every 6 days. Now they are going to spin many off, they don’t run them as well as the private sector. I see opportunity, a time not to stand still.

As we conjure up cloud definitions and I continue to research and write my treatise regarding cloud valuations for this blog, we are not in the doldrums.

I am looking forward to the Parallels Summit in Miami later this month and believe it will confirm my thoughts. Not a year to stand still.

Yes it is going to be a most interesting year. I think Thomas Paine stated a management style that just may be perfect for 2010..."Lead, follow, or get out of the way.

Regardless Peabody Coal also has it right.

Later Tom -

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As promised I have been doing quite a bit of researching and thinking on this cloud valuation issue.  A client turned me on to Dr. Randy H. Katz (photo left) over at UC Berkley, he is one of the authors of  “Above the Cloud: A Berkeley View of Cloud Computing”.  Some would consider the paper ancient history, published Feb. 10, 2009, but I think you will find it a good read and will be referenced in further editions.

Also as promised in my last blog I want to follow in Dr. Michio Kaku the theoretical physicist, Berkeley grad and Professor at the City College of New York footsteps. Big steps to follow, I hope to address this cloud valuation so that even your bank officer can understand.

So I thought we could start off with a couple of quotes, this one stolen (and credited) by the Berkeley study…they are simple enough…

"The interesting thing about cloud computing is that we've redefined cloud computing to include everything that we already do.” Oracle CEO Larry Ellison

Further in my research I read an interesting prediction from Appistry about the cloud stating:

“4- The Cloud will Shape Data, and Data will Shape the Cloud. The ubiquity of highly distributed cloud-like infrastructures, coupled with heightened expectations around application scalability, elasticity and robustness lead to increasing enterprise adoption of non-traditional approaches to data access and storage. Enterprise adoption of “NoSQL” data stores jumps in 2010, and the technology begins to work its way into the mainstream.”

Frankly I prefer Einsteins Rainbow Project quote in my previous blog...

but back to Larry Ellison..."Maybe I'm an idiot, but I have no idea what anyone is talking about. What is it? It's complete gibberish. It's insane. When is this idiocy going to stop?” the last sentence of  Larry Ellison’s previous quote.

Well back to cloud valuations… I was at a conference last year and someone thought that the electricity it uses would rate the cloud, a commodity, as you will. Frankly I had a hard time figuring out where they were going and a harder time buying off on that one. It could be because my new briefcase lock would not open. But I am readdressing that one, will get back to you if I see it has merit, just thought you should know.

So for this lesson I think you should really read the Berkeley treatise which includes this nifty little trade off equation:

Next time we may take a break into reality back to how to translate the cloud in real valuations respects. More than likely we will revert back to our  third grade math skills.

We will make it as simple as an iPad.

Later Tom -

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LIGHT: I said all matter in the universe oscillated in a coherent pulse, all going on then off together. Not quite all, it is possible to place an energy field around an object to isolate it from the rest of the universe and make it oscillate at it’s natural frequency (even a ship can be isolated from our universe - Einstein's Rainbow Project)

A cloud is only reflected light embraced by a field of energy. Our friend Einstein did it again; I think it is a great definition of a cloud.

People have been asking me what clouds are worth. This is really not quantum physics but becomes a bit of a quandary. Prior we have been dealing with a standard recurring revenue model  that was neatly broken down into months or years. Primarily a static base rate divided into tiers of service carefully guiding the customer to a preferred selection.

Now we are dealing in three and even four dimensions. While not quarks or protons, but small things, very small things that become twisted and skewed by dimensions of power and speed.  How else would SAS per minute hour second, bandwidth, server capacity, processor speed,power usage, peak hours, government credits, in such a construct with appropriate contract discount terms and usage guarantees, be delineated? It is not linear or compartmentalized. Yes on the surface it is confusing and mystifying to the provider, you and the buyer. Just think what your banker is saying.

Einstein on the other hand would not consider it rocket science, just a different reality to consider.

You probably have seen Dr. Michio Kaku on the Science Channel describing theoretical physics in a way us mere mortals believe we almost understand the dynamics of the universe. That is how I hope to address the cloud. Find a way so we can translate this ephemeral concept to your bank officer and customers. A translation that will eventually provide the value we all want to find. In the end I believe we will find it is not as hard as it sounds. The question may be how many of the secrets we want to give up, and, as you will see, how long.

Yes to determine if there really is a pot of gold at the end of Einstein’s Rainbow Project.

Later Tom -

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Perplexing, perplexing, perplexing. I look at web hosting acquisitions all the time. That is my business, so I try to keep up with the ebb and flow so to speak.

BAM – I can smell when something is out of whack, like immediately. In this case you probably did also.

This week WHIR was reported that “Local.com Corporation  acquired approximately 22,000 web hosting subscribers from telemarketing services provider LaRoss Partners for approximately $2.6 million in cash….The acquired customers, according to the company, pay approximately $35 per month for web hosting services, which are provided by a third party”

You probably did the math but lets run through the metrics:

    •    22,000 (subscribers) X $35/mo X 12 mo = $9,240,000 annual revenue

    •    $2,600,000 (purchase price) / $9,240,000 annual revenues = .28X Annual Revenues

Now if you own a shared hosting company you may be thinking your value dropped some 70%.  If you are a buyer you want to know where you can get a sweet heart deal.

At first I thought deferred revenues came into play. You know those customers that pay a year in advance. Wrong, after looking at the 8K SEC filing I am pretty confident these customers pay monthly.

I had a client once that was in what he called the Golden Commode business. In one year he build his ISP dial-up base to over 125,000 subscribers paying $39.95 a month, in a $19.95 world. They were all billed by the LEC (Local Exchange Carrier) right on the customers phone bill. Churn was atrocious but those that stayed were, as he termed it “Golden Commodes”. He was what he termed a “marketing company”, I won’t go into detail but it had to do with innovative direct mail.

When you review the Local.com   01/05/10 8-K  Report of unscheduled material events or corporate event you will read that on December 30, 2009, Local.com Corporation entered into an Asset Purchase Agreement with LaRoss Partners, LLC.  Now go on down to page 5 d) Purchase Price Adjustment, it talks a lot about telephone billing including…  “(ii) Buyer has not received a written or telephonic notice from or on behalf of such Purchased Subscriber or a clearinghouse indicating that such Purchased Subscriber intends to cancel or has cancelled, and (iii) where such Purchased Subscriber is billed by AT&T or would otherwise be subject to the October 29, 2009 letter directive from AT&T Billing Solutions attached hereto as Exhibit 2.3(d) (the “AT&T Guidelines”)”. It goes on and on but you can read it, you are smart and can figure it out.

These types of deals only work when you are dealing with volume and anticipate the churn. They are not indicative of the overall market. So you can rest calmly tonight, as the world has not fallen apart. It is just another perspective.

Happy New Year Tom - Lets's get a deal done.

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