VCs Spar Over Tech Direction

PALO ALTO — The hottest ticket in Silicon Valley Thursday was entry to
the Churchill Club’s 8th annual “Top
Ten Tech Trends Debate,” which included a panel of all-star venture
capitalists.

A couple of sharp disagreements punctuated an otherwise friendly
discussion between the business rivals at a standing-room only hall at the Crowne Plaza, Cabana hotel here.

Ann Winblad, partner in Hummer-Winblad, probably went the farthest out on
a limb with her prediction that big enterprise software firms Microsoft, SAP
and Oracle will lose dominance in the $100 billion application software
market over the next 36 months.

“The Internet is having a very disruptive affect on the software market,”
said Winblad. “Open source and software as a service, and peer to peer
versus point to point.

“And also the completely new pricing and business
models for newer applications will redefine the applications space to make
today’s leaders tomorrows laggards.”

No one on the panel agreed with her, though they all liked the idea.

“I pray you’re right,” said Roger McNamee, co-founder of Elevation
Partners. “There has been no incentive to compete for those market spaces,
the customers are inert. They have implemented maintenance contracts and
it’s too much [effort and expense] for them to get off the elevator.”

“We meet with the biggest CIOs and corporations,” agreed John Doerr,
partner in Kleiner, Perkins Caufield & Byers. “They are not just committed
but stuck on SAP, Oracle and Microsoft, and I don’t think their dominance
will be less in 36 months.

“If you want to say Web services is the most interesting new trend, then,
yes, I’d agree with that, but it will take more than 36 months to get the
pieces in place.”

Winblad stuck to her guns, noting that her firm also meets with CIOs and
corporate execs, which helped inform her forecast. “I think if you look at
the budgets [corporations] have it’s happening faster than you think.”

To which Doerr quickly retorted: “It’s not happening at all.”

Joe Schoendorf, a partner in Accel Partners also dissed Winblad for
wishful thinking: “I want her to be right, but it won’t be in 36 months. We
have a tendency in venture capital to be right about what’s going to happen,
but wrong about the decade it will happen.”

Steve Jurvetson, managing director of Draper, Fisher, Jurvetson, forecast
that voice calls will become free within data networks and that voice
becomes the killer app for metropolitan wireless data networks.

“Voice runs as a free incremental service over data networks,” said
Jurvetson. “It’s just like the transition to e-mail, you don’t meter it.
Communication is the fundamental lubricant of the economy.”

Jurvetson said VoIP applications like Skype has been a
“geek thing,” that’s not mainstream because it requires a computer.
“Cordless phones with Skype and then the Wi-Fi phones are coming.”

The move to mobile communications is indisputable. Some 10,000
landline phone accounts are cancelled every day, according to Jurvetson. He
said there will be plenty of innovation and business opportunity to take
advantage of this new platform with new applications.

“Many businesses will
be like an eBay for information.”

Winblad agreed free and mobile voice capability is an important trend but
“not as seminal as Steve says. Everything is becoming digital but we will be
hybrid for a long time, including in the enterprise.”

Schoendorf questioned the reliability and thus the ubiquity of new phone
services. He asked the audience how many had a cell phone connection drop
off recently and most hands shot up. “We have a long way to go to get to
free voice calls [everywhere],” he said.

McNamee made the point that even poor or unreliable connections will be a
boon to many: “Half the world’s never made a phone call, and I like that it
will get to those places and that I won’t have to deal with the phone
company [in the future].”

Schoendorf raised the heated debate over his prediction China continues its
march to being both a low-cost producer and a low-cost, world-class
innovator.

“They’ve gone from the copying phase to the innovative phase,” said
Schoendorf.

“Our competitiveness is my favorite trait, but I don’t think we see
what’s going on in China.

“I get the feeling we view them like [we used to
view] Japan; [their stuff is] low cost but we’re the innovators with all
the great ideas. But every time I go over there I see more fundamental
innovation. I see China as our biggest competitor.”

Other panelists didn’t so much disagree with Schoendorf’s assessment as
much as what the competitive response of the U.S. should be.

“Joe’s right, China’s very important,” said Doerr. “I’m not sure we
can’t collaborate with them, and seeing China succeed is probably more
important than [trying to] to compete with them.”

Winblad said China is an enormous competitive threat. “But it’s not all
bad news. Innovation needs strong drivers. This could be fabulous if we have
the right leadership [to answer the challenge].”

McNamee noted that while’s China’s made great strides, it’s trying to
make a lot of technological progress in a short time.

“Their infrastructure
has a long way to go,” said McNamee. But he also said China’s huge population
and resources make it a major force in setting tech standards.

“Whatever standard China says cell phones are going to be is the
standard we should follow and if we don’t we’re nuts. We should stay out of
their way, and do something about [upgrading] their public health system and
then they’ll owe us .”

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