Is today’s computing paradigm, which has evolved over decades from the single central processing unit to networked or virtualised processing units, on which ‘applications’ are loaded and interact with ‘files’, but otherwise remained basically the same, adequate for tomorrow’s computing requirements?

Visions of ubiquitous computing and ambient computers have been with us for quite a while, mostly created by companies who would like to sell us the wall that turns into a large display, the coffee table that becomes an interaction device, the clock that announces important news, the mobile device with access to a slew of functions. 

Imagine, however, your grandmother trying to install that coffee table: “Please select the SSID for your network”, “Please assign a unique name to this table”, “Please select your server from the list of available servers”, “Please select your proxy settings”, “Select the applications that will run on this device” ... 

Clearly today’s network architecture is not ideal for handling all the devices around us that will be always ‘on’ and will interact with us and with other devices.  What is needed is an environment where there are no more servers and clients, no more applications that start and stop, no more files or documents that are saved, but rather a continuum where objects just exist and interact and are modified according to the environment, where data is not ‘saved’ but rather ‘exists.’ Each device is part of a whole doing things according to its own capabilities.  A ‘matrix’, if you will, just like in the film, where a world just exists and evolves.

For this to happen, several conditions need to be met:

- Data has to exist on the network, and not on one particular device or cluster. Google’s implementations have been impressive in this area.  Once, a whole Google data centre burnt down and users didn’t even noticed.

- Devices of all sorts (from the powerful laptop to the mobile phone to the clock on the wall) have to identify themselves to the network, communicate their inherent capabilities, and run the same functions at different levels according to what they are able to do.

- ‘Applications’, just like data, have to exist on the network and not ‘run’ on a specific processor. They have to split themselves between the powerful servers on the network and the user devices according to device capabilities and availability.  An ‘application’ has to be available from any device and has to be able to switch from one to another without any problems.

Now your grandmother can start writing you a letter on her desktop computer, and then move to the lounge where she can visualise and slightly modify the same letter on the display of the coffee table, without worrying about where she ‘saved’ the letter and without telling the coffee table how to connect to the rest of the network.

Science fiction?  Not really. A very exciting start-up (and Ariadne Capital’s newest portfolio company) by the name of GravityZoo has designed the architecture that will make this new paradigm a reality on the internet. With GravityZoo it is possible have an application ‘exist’ on a huge cluster of computers, and it is possible to access it from a PC at one moment, another PC in the next moment, and a mobile phone in the next.  Imagine, as a realistic scenario, that OpenOffice is “GravityZooed;” it becomes a suite of applications that are always available, with various levels of functionality depending on the capability of the access device.

Isn’t this just a web operating system?  Not really.  We are not talking about a complex application running at a data centre and a browser accessing it.  If everything was possible with a browser, surely Google Earth, Skype or Second Life would not force you to download complex applications in order to use their services.  This is technology that makes individual devices and servers irrelevant.  This links the whole network together into a ‘Matrix’.

By Julie Meyer and Jem Eskenazi, Ariadne Capital

With the Dow seeing its biggest one-day drop in three years, ending about 400 points lower after plummeting more than 500 points earlier in the day on the 27th of February, one could ask: “Does anyone know where this bull market is headed?”

Something new is happening not only in the way that the internet is shaping our lives this time round, but also in how new technology innovations are getting bedded down in the industry. Briefly put, venture capital-backed start-ups [a term I use for all high-growth private companies particularly in the technology sector] are being acquired much earlier by corporate enterprises who can offer scale to these entrepreneurs and who are looking to expand the way they grow new products and services. Most larger companies through their corporate development units operate a mixed economy where they balance the greater certainty of organic growth and its longer time horizon with the benefits of inorganic growth, namely an earlier starter position, and probably a more excellent innovation.

There has been a lot written about how much value destruction can happen by acquiring businesses.   Some would argue that if you’re clear about what drives the value, then acquisitions create value when they improve long term cash flows. The time frame is important here for assessing the improvement of cash flows, but so are the additional strategic value drivers and elements above and beyond financial value.

Clearly strategic value needs to be tied to financial value. However start-ups are not bought (necessarily) for the financial value they have. That’s part of it, but there’s more.   

Entrepreneurs have the greatest insight into how a particular market is developing – if they are good – as they are in the “eye of the tornado” and are dealing with how the markets are dynamically evolving real-time. Entrepreneurs also think differently. They see things that others don’t.They feel compelled to make things happen because something doesn’t exist which should. Sometimes that’s blind faith which leads to catastrophe, but more frequently, that’s great insight which is harnessed into a step change in how an industry operates. If a company acquires that asset of the entrepreneur’s insight and innovation, then they can lead in that industry breakthrough. Time and time again, we see that the benefits of market disruption and dislocation accrue to the number one and two players who embrace it. Said another way, the disrupter will be acquired by the entity they most disrupt, and embracing the disruption can be very value-enhancing.

It is common to refer to Google as a media firm today. The company entered a crowded market with better technology. Its unfair advantage was applying that better technology, specifically search algorithms, to the aggregration of audiences, which is what media firms do. Google figured its business model out later. Since going public in August 2004, it has become one of the largest media companies on earth. That game change occurred by a different approach – different thinking – and adding different technology to media.

Part of why corporates buy start-ups is to add new DNA to the corporate gene pool and introduce that new way of thinking into how they operate. Sometimes there is massive organ rejection by the body, but there have been hugely successful acquisitions. In the best of these, the startup culture has positively affected the corporate culture as well. The EMAP acquisition of WGSN has worked exceptionally well. WGSN is a Bloomberg service for the fashion and style business which was acquired by EMAP in October 2004 for £140m. WGSN’s business has doubled since then.

So is the buyer typically disadvantaged in an M&A process? Pretty much - one has to conclude as the information asymmetry is such that there is a fundamental disequilibrium. The best way to offset this is to ‘date before getting married.’  Not surprisingly, some of the healthiest acquisitions have stemmed from successful business development leading to the larger company wanting to own the startup. The longer and better you understand the asset, the better you can assess the value.      

There are more ways to get some of the right and new DNA in your firm if you are running an established enterprise. Acquiring firms will always carry the risk of information asymmetry.      Google apparently acquired YouTube in five days. It’s easy to look at the price and the time frame and see how that worked in the founders of YouTube’s favour. Increasingly, smart corporates like Skype and Google are investing  directly into startups in order to continue to learn about markets.    Recently they both co-invested in FON, a European Wi-Fi network.

In summary, it’s important to stay radically open to small change which indicates that major disruptions are happening in the market. You can become obsolete faster than you know.  Partnering, investing and acquiring have always been part of the corporate toolkit, but derivatives of each, and blended models, and an overall speed in the market mean that a corporate executive can never take anything for granted – neither his current market position, nor his next year’s forecasts.

Julie Meyer