Analyst Andrea Rice of Deutsche Banc. Alex. Brown in San Francisco spoke at the first day of the P2P Working Group meeting in Santa Clara today.
She was asked to share her insight as to how P2P companies should more effectively communicate their value in order to secure more funding.
Her answers were simple and possibly predictable, but extremely valid:
- Have a solid business model
- Have customers who are willing to pay for the product
She went on to describe that, although Deutche Banc is looking heavily at the P2P space, it to date has not made any investments or committments. She explained that the due diligence process would involve a lot of conversations with the prospective or existing customers of the company, questioning how much money those customers were really willing to commit to the P2P solutions.
Implicit in her discussion was that any financially successful business models were sales to the corporate sector (i.e. not to consumers.) She questioned whether P2P was a “new industry” and asserted it was more accurately an “extension of existing technology”.
She gave a somewhat useful analysis of potential revenue streams, basically listing all the models she was aware of being tried: licensing (per desktop or site), ASP model (per resource, per asset, per computer, per transaction), etc. She concluded that a per seat license was the most likely near-term model for enterprise clients. And then she honesly pointed out how few paying customers there were in P2P.
I agree with this sober analysis of P2P. It is a pity that P2P did not coalesce as a technology and a movement during a more excited and confident period of investment, as it would have given us more room to make mistakes as we experiemented.
I also think that it is useful to look at P2P from the perspective of an financial outsider: While they don’t have any particular passion for technology, they don’t want to be left out on the “next big thing.” To them, P2P seemed initially like the hotbed of new technology, but in the same way that “biotech” or “optical” or “wireless” might be- the interesting aspect was the potential revenues, not the interesting cultural phenomenon.
When you then put on your analysts hat and look at the financial indicators, the “vital signs” of a new industry, P2P looks awful- the complete lack of revenues throughout the new sector demonstrates that P2P is not yet adding value, and the erosion of intellectual property respect might be percieved as actively destroying value… which of course, is not particularly impressive to a financial analyst in their search for new areas to invest in.
Even the analysts understand that P2P is not merely hype, that it is a uniquely new category of innovation and technolgy, and that it has great potential. But they don’t grade on a curve and they don’t give any credit for effort. And they want to see substantial revenues, not baby steps and “look we made our first sale”.
We can prove that we’re great business people as well as great engineers by making our revenues just as massively scalable as our network technologies.
And if you don’t think you have the skills to write that business plan, go get a businessman who can. They’re available. And they’ve rolled back to running Business 1.0, a time-tested financial operating system. Apparently, Business 2.0 was buggy and crashed. :)
Is mentioning revenues and fiscal responsibility offensive and disgusting in a P2P collumn? Or was this data useful?