BY DAVID SPEAKMAN

A move by the nation’s largest cable television company could be bad news for San Jose-based TiVo Inc., which dreams of continuing its domination of the digital video recorder (DVR) market.

Comcast Corp. of Philadelphia, the cable TV company that serves most of the Bay Area, plans to start testing a TiVo-like service this summer based on the technology of TiVo rival Ucentric Systems Inc. of Maynard, Mass.

TiVo stock (Nasdaq:TIVO) fell 5 percent to $6.66 a share May 13, the first trading day after Comcast’s DVR plans went public.

TiVo, which did not return telephone calls, recently unveiled two new business lines: a TiVo-lite service to be bundled with some Toshiba DVD players, and a home networking upgrade that requires multiple TiVos and wiring for broadband Internet access in each room with a TV.

Comcast says its Ucentric service will record 60 hours of programming, compared with 20 to 40 hours for most TiVos. Along with traditional DVR abilities of pausing and rewinding live TV, the Ucentric DVR will allow cable customers to record a program on one digital cable channel while watching a different channel — an option not available to VCR or TiVo owners.

The Comcast-Ucentric system also allows automatic home networking over existing coaxial TV cables, with no need for additional broadband Internet wiring. This will allow shows recording in one room of the house to be viewed in other rooms.

“If your kids are watching TV in the living room and you want to watch a ballgame, you can send their show to their bedroom. If you’re watching the game and it’s time for dinner, you can hit pause … then resume the show from your bedroom,” says Michael Collette, CEO of Ucentric.

Comcast is test marketing the Ucentric system in Philadelphia this summer, but has no immediate plans to roll it out nationwide.

Analyst Jeff Groverman of Pacific Crest Securities, which makes a market in TiVo stock, remains bullish on TiVo because of its almost cult-like status.

“96 percent of TiVo users say they would recommend TiVo to friends or family. TiVo could have the highest satisfaction ratings of any consumer electronics product,” he says.

BY DAVID SPEAKMAN

New laws are like new drugs, it’s the unintended side effects that can hurt you.

In the wake of the dot-com bust and accounting scandals of 2000 and 2001, the federal government stepped in with a new law, the Sarbanes-Oxley Act of 2002, to protect investors.

But some entrepreneurs are saying the new laws are too broad and are affecting private companies, which they weren’t meant to regulate.

“Part of it’s tangential in a sense unrelated to the new laws’ purpose,” say Ken Fromm, a San Francisco-based entrepreneur.

Fromm now works as director of business services for enterprise software startup Modulant Inc. of Charleston, S.C.

He says an unintended side effect of Sarbanes-Oxley is hurting some startups.

“Any company that we’re looking at to get funding from, any companies that we want to get acquired by and any companies that we want to be in a partnership with have additional measures they have to go through in order to do business with us,” he says.

Fromm says this can be twice as hard for private startup companies dependent upon venture capital from larger public companies.

In the past, a public company that wanted to form a strategic partnership with a private startup to develop a new technology had an option to form a limited partnership called a “special purpose entity.”

That allowed a technology-sensitive company to invest money in possible breakthrough products without alerting its competition by disclosing the investment expenses in its quarterly or annual reports.

Making matters confusing, the U.S. Securities and Exchange Commission, the federal agency in charge of enforcing Sarbanes-Oxley, has no simple mathematic litmus test to determine when one of these “off-balance sheet” investments by a public company should be reported.

The SEC says off-balance sheet investments that “have or are reasonably likely to have” a current or future effect on the public company’s financial performance, should be claimed on earnings reports.

That can hurt a startup that may have trade secrets or emerging technologies that would be endangered by public disclosure.

“We’re looking at additional funding from a company and with this ‘special entities’ provision in the new laws Å  they may have to include us on their books — which is not something either of us wants,” Fromm says.

This is a direct result of the Sarbanes-Oxley Act as well as other federal accounting regulations of public companies.

Startups that already are facing a squeeze in VC funding are facing more red tape in corporate partner financing, Fromm says.

But, one prominent Cupertino software company, known for investing in startups, says so far it’s been unfazed by the new laws.

“I spoke with some of our finance team about this and I do know that we have not yet been impacted by Sarbanes-Oxley,” says Genevieve Haldeman, a spokeswoman for Symantec Corp. “But that doesn’t necessarily mean that we won’t be.”.

Market watchers have been warning of this danger for months.

Shortly after Sarbanes-Oxley became law eight months ago, Burlingame-based Forbes magazine publisher Rich Karlgaard wrote a column ruminating that well-meaning lawmakers may be killing viable companies before they leave the womb of their incubators.

“The dilemma for public policy makers is that most entrepreneurs do fail,” Karlgaard wrote, explaining that in these cases market conditions are more likely than misconduct to kill a startup.

Karlgaard also argued management at startups could be pressured by legal advisers to tone down the cocky entrepreneurial spirit out of fear of possible lawsuits if the company ever goes public or gets acquired by a public company.

“That would be a travesty,” he wrote. “Entrepreneurs are neither saints nor sober-minded.”

Fromm says the new regulations are expanding beyond their legislative boundaries.

“You’ve got these regulatory issues written for public companies spilling over into private startups,” he says.

BY DAVID SPEAKMAN

In the startup mergers-and-acquisitions market, sometimes a fierce independent streak is the easiest way to attract a mate.

When Redmond Wash.-based Microsoft Corp. wrapped its $200 million cash buyout of PlaceWare Inc. of Mountain View last week, company management and board of directors say they worked for years to be a stand-alone company; a position that ultimately attracted the world’s largest software maker.

Microsoft says it plans to use PlaceWare as its entry into the Web conference market and many analysts predict PlaceWare technology will be incorporated into Microsoft’s Office suite of business software.

“The Microsoft stuff happened pretty fast within the last six months,” says Rory O’Driscoll, PlaceWare board member and managing director of BA Venture Partners in Foster City. “But it’s the positioning — not so much positioning PlaceWare to exit, but positioning the company so it was running well enough so we had options. That’s the most important part.”

Part of that positioning involved replacing key staff, including CEO B.J. Folsom who departed a year ago. He was replaced by George Garrick, who barely had time to get his feet wet at PlaceWare before Microsoft started courting the company.

“B.J. Folsom came into PlaceWare relatively early, was a super guy and did a great job of identifying the business model and got the thing out on the right track,” BA’s O’Driscoll says. “But when we started scaling into a larger company, it made sense to bring in someone who had that experience who probably wouldn’t have been a good startup guy,” he says.

Folsom agrees that PlaceWare grew beyond his skills and main management interest. Although he still is on PlaceWare’s board of directors, he left the company and joined San Francisco-based Internet media startup Laszlo Systems Inc. in December.

“I’m a serial entrepreneur. I like to be involved in companies that are developing a new category or a new segment that ultimately will become ubiquitous,” Folsom says.

“You can put your mark on the creation. You not only helped make it happen — you influenced it,” he says.

Folsom has a long track record of innovation. He was involved with the first desktop PCs in the 1980s, launching the Rainbow personal computer. Before joining PlaceWare in 1998, Folsom also helped develop Sun Microsystems Inc.’s networking strategy and helped move Exodus Communications Inc. (now owned by Cable & Wireless plc) to focus on the Internet data center market.

One of Folsom’s hardest challenges when he started at PlaceWare in 1998 was helping the company, … which was split between two focal points: Web conference software tools and a conference product, to focus on its business model.

“I put a process in place saying a startup had to focus on one or the other, but could not have two agendas,” Folsom says.

In 1999 Folsom convinced PlaceWare’s founders that software services was a viable market for the company.

That focus helped PlaceWare to become the No. 2 Web conferencing firm next to WebEx Communications Inc. of San Jose.

“So what did we have to do to attract Microsoft? What we didn’t have to do is spend all our time trying to get them to buy us,” BA’s O’Driscoll says.

“What we had to do is prove the category mattered. Microsoft decided to enter the space once it reached critical mass,” he says.

The journey to Microsoft ownership changed PlaceWare.

“In many ways, PlaceWare has changed dramatically over the years as you could expect for a company that started with half a dozen people,” Pavel Curtis, a PlaceWare founder-turned-Microsoft employee who is still with the company says.

“Last week I couldn’t spell Microsoft,” Curtis jokes. “Now I am one.”

Mark Coker’s BestCalls.com used the Internet to provide investors with up-to-the minute information on companies

BY DAVID SPEAKMAN

Mark Coker’s personal crusade as an individual investor helped change the way American companies do business.

That’s not a claim most 37-year-olds make.

Two weeks ago, Coker sold his profitable BestCalls.com investor information Web site to Shareholder.com of Maynard, Mass., for an undisclosed price.

Shareholder.com says it plans to keep three full-time BestCalls.com workers in Los Gatos for the foreseeable future.

Coker plans to stay on in an advisory role with Shareholder.com, but will focus on developing his other business, Dovetail Public Relations of Los Gatos.

Back in the late 1990s, Coker, who had been following the stock market since he was a teenager, became fascinated with quarterly conference calls with analysts.

As an investor in a handful of companies, Coker wanted to listen in on those calls and hear what his companies were telling
analysts.

After Legatos Systems Inc. of Mountain View refused him access to its quarterly calls, Coker sold the stock he owned in that company and used the proceeds, slightly more than $100,000, to start BestCalls.com.

“What we’re talking about — disclosure — is all about communication; it’s companies increasing communication and the level of transparency with their investors,” Coker says.

About that time in 1998, BestCalls.com started its partnership with Shareholder.com, the company that would one day become its owner.

“I heard about BestCalls and the campaign Mark was on to open up conference calls,” Ron Gruner, president and founder of Shareholder.com says. “We began to do more things together, using BestCalls information and sharing our strategies.”

While angering some companies hell-bent on keeping their conference calls private in 1998 and 1999, Coker’s BestCalls.com started getting attention in such national news media as Time, Businessweek and the New York Times.

It wasn’t just the press that was paying attention to BestCalls. Former U.S. Securities and Exchange Commission (SEC) chairwoman Laura Unger, who was a commissioner at the time, also contacted Coker.

“People really flocked to us for ideas on how to manage the move towards greater corporate transparency,” Coker says. “I remember having a conversation with Laura Unger in 1999. She had never attended an earnings conference call before and I remember her asking me, ‘Do companies release information on these calls that they don’t release through other methods?’ I told her definitely. That’s what it’s all about — they were selectively disclosing material information.”

Although Unger balked at new federal regulation, she finally buckled and supported Regulation FD, which requires full disclosure from public companies about information that could affect stock price.

During the public comment period for the regulation, the SEC says almost 6,000 public comments were filed with its office.

“The vast majority of these commenters consisted of individual investors, who urged — almost uniformly — that we adopt Regulation FD,” states the SEC Web site.

BestCalls.com’s Coker says regulation FD, which took effect on October 23, 2000, changed everything and companies that once were reluctant to provide conference call access were willing partners with his company.

“Once that happened, the writing was on the walls for companies to become transparent,” he says.

The U.S. Department of Defense has a bunch of Dungeons & Dragons-playing computer geeks to thank for its collaborative computing system.

According to PlaceWare Inc.’s Web site, the company was started in 1990 by a group of engineers from Xerox PARC who developed technology to play a primitive form of interactive D&D over the Internet called multi-user dungeon.

The underlying game technology, called LambdaMOO, was used by the U.S. armed forces to create interactive computing and by PlaceWare to develop its current Web conferencing products.

As a nod to its heritage, PlaceWare continued to host LambdaMOO for current Web users at its Mountain View headquarters. But now that Redmond, Wash.-based Microsoft Corp. owns PlaceWare, LamdbaMOO is packing up and will be run out of a volunteer’s home.

“LambdaMOO is moving into private hands for the first time,” says Pavel Curtis, a founder of Mountain View-based PlaceWare Inc. and keeper of the LamdaMOO source code.

Curtis says LambdaMOO has been running off antiquated spare parts for more than a decade and actually will be on better equipment running off its new home-networked DSL server.

Networking giant unveils line of Wi-Fi phones, plans to release other products in coming months

BY DAVID SPEAKMAN

After weathering the brunt of the information technology (IT) spending downturn, the largest telecom networking hardware maker is lashing back with a slew of new products set to be unveiled over the next couple of months.

At the NetWorld/Interop tradeshow in Las Vegas April 28, San Jose-based Cisco Systems Inc. (Nasdaq: CSCO) unveiled a new line of wireless, voice over Internet protocol (VoIP) telephones using the 802.11b Wi-Fi wireless standard.

Cisco stock, which is trading at 26 times earnings, rallied slightly and closed April 29 up more than 1 percent at $15.14 a share.

Cisco predicts cost savings for companies, as its new Wi-Fi phones could replace pagers, cell phones and walkie-talkies currently used in health care, maintenance and warehousing industries, where workers are rarely at assigned desks.

Cisco thinks hands-on products are a key to its future growth.

“Investments that increase the productivity of end users have a more compelling return on investment than investments that only focus on IT support costs,” says Don Proctor, Cisco’s vice president and general manager of its voice technology group. “If an enterprise makes an investment that increases the productivity of 5,000 end users by only 2 percent, that is like adding 100 more people to your staff.”

But at least one analyst isn’t buying the hype.

“Despite the press releases and chest thumping Å  when all is said and done, we see this as more of a marketing event than a driver of sales in 2003,” says Raj Srikanth, a New York-based analyst with Deutsche Bank. “We do not think the
wave of new products that is just beginning to be unleashed in the space is likely to have any meaningful impact on market share and the financial performance of companies in the current IT spending environment.”

Cisco holds more than a 65 percent share of the data networking market, 76 percent of the Layer 2 Ethernet market (the most-common technology used for corporate local area networks) and 73 percent of its network switching cousin, Layer 3, which is used by internetwork packet exchange (IPX) and AppleTalk internetworking protocols, according to Redwood City-based Dell’Oro Group research.

Its competitors, such as 3Com Corp. of Santa Clara, Foundry Networks Inc. of San Jose, Extreme Networks Inc. of Santa Clara and Juniper Networks Inc. of Sunnyvale, carve up the rest of those markets.

“We believe Cisco’s dominance of the networking space will remain unchallenged in 2003 to 2004 and expect to see some minor shifts in market shares of other players,” say Deutsche Bank’s Srikanth, who predicts consolidation in the sector.

Deutsche Bank has a significant banking relationship with Cisco and many of its networking competitors.

Cisco, which closed its fiscal third quarter April 26, is in a U.S. Securities and Exchange Commission-mandated quiet period and is unable to comment on issues that may affect its stock price until after it releases quarterly earnings May 6.

“We look to the networking giant to post revenue of $4.555 billion, which represents a sequential decline of 3 percent,” Mark Sue, a New York-based analyst with C.E. Unterberg, Towbin wrote in a research report.

“In our opinion, overall networking equipment demand is likely to remain muted
during this constrained IT spending environment,” he says. “Cisco may be particularly impacted due to its large size.”

By DAVID SPEAKMAN

Red Herring co-founder Tony Perkins still has the fever for the Internet and journalism

Tony Perkins has been at the forefront of Silicon Valley’s technology industry for the past 15 years. Through his work at Silicon Valley Bank and as a co-founder of the now-defunct Red Herring magazine, Perkins has consistently ridden the crest of each technology wave that washed across the valley.

His current project is a dot-com startup he funded with $50,000 of his own money. Called AlwaysOn LLC, it is a Web-based hybrid of business reporting and online journals popularly called “blogs” that he predicts will turn traditional media on its ear.

Biz Ink reporter David Speakman recently spoke with Perkins at Buck’s Restaurant in Woodside about AlwaysOn, which he eagerly showed off from his wirelessly Apple PowerBook. Perkins also talked about the health and entrepreneurial spirit of Silicon Valley.

You’ve said before that the success of eBay Inc. inspired you to attempt to apply its model to media on the Internet to create AlwaysOn.

It’s really built upon two trends. One is a Web media trend, the other is a business trend. A couple of observations in the reality of the market really inspired me to get this thing going. From a Web consumer standpoint, the clear winner in the first chapter of the Internet was eBay.

What eBay did was create an arena and invite its customers to come play in that arena. But if you think about it, all the things that go on in the arena that are of value to the customer are produced by the customers themselves.

But how can you apply that model to news media?

I think that is an incredible business strategy. I think that quality is the ultimate unique quality of the Internet. In the first generation of the Internet, all of the media companies really viewed the Web as an additional way to broadcast something. What AlwaysOn is about is creating a two-way relationship. An overwhelming amount of our content is generated by responses from our users. It can be described as the “ebay-ization” of media.

What does that mean?

eBay is the first example of the second-generation media company. Whether it was lucky or however you describe it, eBay created a business model where, again, most of the content they offer customers is customer-generated.

I think all the rules and the ideas concerning media and journalism are going to be incredibly challenged. I don’t even know what media is anymore. When you go to the AlwaysOn site, about 70 percent of our content is created by our members.

Would you call the invention of weblogs, or blogging, a disruptive technology in the media landscape?

Open-source media is probably the best way to describe it. Today most media companies control 100 percent of their content; even the letters to the editor that they edit before they publish. Traditional media is hesitant in participating in audience-generated concepts. They are worried about losing control of their content.

I think the Internet and blogging software is going to blow all the rules of journalism apart and we’ll have to put them all back together and see what happens.

Isn’t that already happening? Your traditional magazine, Red Herring, is out of business.

There is a cycle. Personally, I get great enjoyment out of doing things that are new and cool and this is the most fun I’ve had.

How will interactive journalism and blogging affect traditional media giants?

I think they are going to have to give up editorial control, as radical as it sounds, and allow their viewers and subscribers to participate in it. No offense to our profession as journalists, but I think the established media companies will have to decide whether they want to tap into the collective intelligence of their customer and subscriber bases to become a facilitator and aggregator for the rest of their subscribers’ ideas or whether they are going to continue to take a puritanical view and say “this material must pass through the editorial screen, and we completely edit and control it.”

Dot-com content companies have a bad reputation. How will AlwaysOn succeed?

AlwaysOn is already profitable. We already have many sponsors through advertising. A lot of our content is free to us and the cost of maintaining and operating the site has gone down dramatically. I spent $150 on software licenses and operate the site for $400 a month. And it’s scalable. The fact that I can run a virtual company and have a copy editor in the Netherlands and another copy editor out in Sacramento and we can all just operate wherever we are and can produce this Web site means that I’m not spending on office space or an information technology department.

You’re a native of Silicon Valley and have had a career that has taken you through some steep highs and deep lows. What’s your take on the current state of the region?

I expect this is going to be one of the most interesting times ever. I’m finding today more interesting things than I’ve ever found in my career. I’ve always been fascinated by the entrepreneurial process here. I take pride in exporting entrepreneurial capitalism around the world. I think that innovation means good margins and good margins raise the standard of living. I think that for an entrepreneurial capitalist one plus one can equal three; so everybody can win.

I’m very proud of the fact that people come from all over the world to start companies here. As you know, a third of the companies founded in Silicon Valley are founded by either Chinese or Indian immigrants. I think that’s cool. I think the global Silicon Valley is the American dream.