For Many Akamai and On2 Investors, Emotions Clouding Their Judgement

For shareholders in any company, these days are trying times. I don't have to tell you that all stocks are down and the market has taken a beating. That being said, even when the market was doing better, I still got more hate mail from Akamai and On2 shareholders than any others, most of which are for emotional reasons as opposed to rational arguments.

Most of the mail comes from individual investors and not large firms and the person typically wants to argue over a post I made on my blog, without either reading what I actually wrote, or not wanting to admit things that are simply facts. And while I am the first to admit that I don't own stock in any public company and have never bought or sold a single share ever, even I know that investing in any company means you have to keep your emotions out of the decision making process.

In my blog post last week about Sun launching the new JavaFX platform, I got tons of e-mails from readers who said I was crazy not to realize how big of a deal JavaFX is and how it would take over video playback on all devices. When asked, most of those who sent me the e-mails said they were investors in On2. While I can understand how an investor in On2 would be excited for the JavaFX announcement since Sun licensed the On2 codecs, you still have to keep the deal in perspective. Sun is not going to make any major traction in the market anytime in the next year. What they released last week was version 1.0 with very limited functionality for video and they don't even expect to have development software available for mobile until half way through 2009. Developers have to build apps first, get content owners to use them, get them deployed and get viewers to start to consume them. This does not happen overnight, or even in twelve months. Yet, many of those On2 investors who sent me e-mail wanted to argue with me that I don't know anything about investing and that I must be working for Adobe or have an interest in seeing H.264 succeed.

I don't need to know anything about investing to know how long it takes for something to be adopted in the market. How quickly do you really think it will take Sun to grab any large share of the market away from Adobe? That will not happen anytime soon and that's reality, like it or not. And while it is very easy to dismiss my post by saying, "Dan must work for Adobe", that's a lame argument. Whenever I write a post that is considered positive about Adobe, people say I must be working for them. If I write something positive about Microsoft, some are quick to say I must work for them. Rather than some investors wanting to actually admit and that they are allowing their emotions to cloud their judgment about how a company is really doing, it's easier for them to come up with a lame, and false, statement that the author must be getting paid by someone to write something that is positive one way or another.

If I were an On2 investor, I would look to the past. When Adobe licensed the On2 codec for Flash, many On2 investors wanted to make crazy statements about how big of a deal that would be for On2 and the revenue that would come from it. Considering how much Flash video is on the net and the rate at which Flash video was adopted, is any On2 investor happy with the deal Adobe got? I'd doubt it. On2 has made very little from the Adobe deal, but that is not stopping some from saying the Sun deal will be completely different. Can Sun get as much adoption as Flash has? No way.

I'm not knocking On2 as a company or their investors. Hell, I would not want to be an investor in any company with the way the market operates and the kind of headache it must cause for those who own shares. But at the same time, you have to remove your emotions out of the picture so you can make informed decision based on data, logic and what is really taking place in the market.

Aside from lots of e-mails from individual On2 shareholders, I also get a lot, if not more e-mails from Akamai shareholders. Many of them want to argue over points that make me wonder if they just want to argue for the sake of arguing? When I wrote the post last week on Akamai and how they were cutting pricing, I got lots of e-mails where people wanted to argue with me on lots of aspects of their business. That being said, not a single person was or could argue that Akamai is not growing revenue as fast as they use to, is seeing pricing pressure in the market, has seen a slowdown of traffic growth on their network and had to layoff 110 employees. Instead, folks wrote in with lots of angry e-mails about how Akamai is going to crush Limelight in the patent case and how Limelight is building a business on stolen technology.

For starters, the post didn't have anything to do with the patent case and I've never said that I think Limelight will win the patent case. In fact, I don't see why the judge would reverse the ruling and I think at some point, Limelight would have to pay some kind of damages, but it is really the rate that will be debated. But even if that happens, why would Akamai investors care so much about it? Lets say Limelight has to pay $50 million in damages and shows that they are no longer infringing on the patent. Now what happens? Nothing major. Akamai gets $50 million dollars, which does not put them in any kind of new revenue bracket and Limelight now only has $127 million in the bank instead of $177. It does not put Limelight out of business and if customers have not left Limelight over the past two years during the lawsuit, what makes you think they would leave down the road after a Limelight payment? It's an emotional win for Akamai shareholders, but it has no real impact on how Akamai is going to get back to growing their business.

But the best thing I always get from many individual Akamai shareholders is that I must be working for Limelight or trying to "pump" their stock. Again, what an easy argument for them to make, except for the fact it's not true. When I write something positive about Level 3, people write in and say I must be working for them. When I write something positive about Limelight, they must be paying me. And when I did two posts about Akamai's application delivery product, some said they probably paid me to write that. By all accounts, apparently I work for just about every CDN company in the market. Too bad they are all wrong and that I have never been paid by any CDN ever, except for Mirror Image which I stopped working for over a year ago and have never written about them on the blog.

If investors want to debate, great, lets have a discussion on how or why one company is going to grow over another. The comments section is always open on my posts. But bringing emotions into the picture and wanting one company to do well over another just because you have stock in them is not the reasoning behind why they must do well in the short or long term.

Comments

[Don S.]

Dan, I am a significant investor in ON2. I own more shares than all but one of the current directors and have been an investor for many years.

The Macromedia deal was much different than the Sun Javafx Deal. The main difference and perhaps the driver of significant revenues is this fact:

Tony Wyant, Lead Engineer Javafx Media:

Q. How can developers take advantage of current media-encoding tools to create media that is supported on JavaFX?

A. For the cross-platform format (FXM), try the Flix tool from On2 technologies. ($249)

http://java.sun.com/developer/technicalArticles/Interviews/wyant_jfx.html

Since Java has a Distribution Channel of 6.5 Million Developers, wouldn't that make a viable, ready made, virtually exclusive marketplace for the Flix Product Line?

Perhaps you may consider becoming an investor at some point.

Don

[Dan Rayburn]

Hi Don, I have no interest in becoming an investor in On2 or any other company as I don't play the stock market.

While it is great that On2 has the Flix tool today, as Sun told me, moving forward there will be other software solutions available for encoding. So while On2 does have the only product for this today, it won't be exclusive come sometime next year. And how many of the 6.5 million developers will be creating an application with JavaFX next year, and how many of those applications will be video based? No one knows the answer to that question, but On2 would have to sell a ton of Flix licenses at $249 to make any large sum of revenue.

It's possible, but not likely.

[Kemper]

I find it amazing that so mant people have made comments to a arena "Streaming Anything, Mobile What, Silver Who.

As investors or not it comes down to "will I use it"

Do you really think the end user cares who develops what and on what platform. I or WE just want it to play.

If it gets to me in the simplest form without to much interaction on my part, who cares what CDN, Sun, Microsoft, Adobe thingy it comes to. Thats the beauty of America. We the users determine who wins. Rather than worrying about your deals "Where's the Meat" where's the apps I have been promised. Where's the high speeds I have been promised and where is the low cost delivery.

It's not on my phone or phones it's not showing up on my PC. So cut the Cr@p big time investor. I dont really care about your stock shares. What do I get from it.

And by the way I use On2 and Silverlight and Adobe because my customers have different needs. None of the above fulfills all areas, Thats the big app I've been waiting for. Botton line as I know you investors love that line, our users Don't care we just want what we want.

CDN should stand for Could Deliver Network in so many cases. Give us something that truly delivers without paying for your infastructure every 1000kbs or your next programming platform, MAKE something that truly delivers.

[Steve Lerner]

For all those investors and institutions scouring this blog looking for hints on movement of stock price or equity value:

Dan, other posters, and I have been working in this industry far longer than you have been holding the stocks of the companies in this market.

Rather than issuing declaratory statements i.e. "You must be working for Vendor X" instead you should *ask questions*... Maybe then you'll find some answers.

Caveat: I absolutely have bought and sold stocks

[Don S.]

Dan, Thanks for the reply.

Point 1:"moving forward there will be other software solutions available for encoding. So while On2 does have the only product for this today, it won't be exclusive come sometime next year."

Bring the encoding crowd on as they will need a VPx license from ON2 if they want to encode Javafx. More revenue.

Point 2: "how many of the 6.5 million developers will be creating an application with JavaFX next year, and how many of those applications will be video based?"

From Cisco: "The sum of all forms of video (TV, VoD, Internet, and P2P) will account for close to 90 percent of consumer traffic by 2012"

Applications better address all screens with Video. Thanks.

[Ray Hood]

Dan -

You're dead on with your Sun/ON2 comments. I would probably be even harsher. Sun's track record with software (other than Java itself) is abysmal and the company is currently is deep trouble with dwindling market share for its server products and facing far more powerful competitors.

I have direct experience "partnering" on software initiatives with Sun and the outcome was not pretty.

[Christopher Levy]

In this environment with the economic risks clearly in front of them, many if not most major media players won't deploy anything from Sun because of their terrible track record and clear financial desperation. It could be 5 or 6 years before Sun gets 10% of the market for this technology. Maybe longer.

[On2 vs H264]

News Flash On2 investors: for so many reasons I don't have the time to write them all, H264 won and you lost. Here are some high level examples:

1. Patent pool = you aren't going to get major traction without this. Period.

2. Standardization - again, no major traction without this.

3. Quality = don't start flaming with comments about On2 quality. It isn't appreciably better than H264 or VC1 if at all.

4. Sun = no one in professional media cares about them. The other players have spent decads and hundreds of millions of dollars building their reputations and customer bases. Sun had an effort years ago, with a couple of companies. Yawn.

Yes I'm sure there will be adoption for the consumer/internet area but content is shifting back towards professional so you'll probably continue to be a bit player.

[Tim Siglin]

Hey On2 vs H264, step back and breathe!

Like Dan, I get lots of "fan" mail from On2, and I was the one that wrote the "H.264 Wins" article a few months back. I agree that there are significant benefits to a standard - been beating that drum on H.264 for more than five years since it did wonders in another area I consult in (videoconferencing).

For all that, though, if On2 wants to spend money on continued innovation (VP8) and will engage in referenceable tests that consistently compare H.264 / VP8 the way they did for H.264 / VP6-S comparisons, lets not stand in the way of that. I've yet to see that type of comparison, but perhaps they'll get around to it.

And let's definitely not adopt the attitude of the uncivil argument level that matches some of the "fan" mail that Dan's referring to. Yawn?!

[Tim Siglin]

Err, I should've said "from On2 investor types" not from On2 itself

[spixleatedlifeform]

Dan,

If the consortium (I prefer the term 'syndicate' with all its implications "think bent nose, bulge under the coat types"--for reasons to be seen next licensing cycle) wants to be THE Standard, why don't they call it what it would really be--MONOPOLY. The only way to be exempt from that category would be for the syndicate to give it away for free--encoder and decoder, both. Permanently. To any and all comers. As software or firmware (SoC or Software on a Chip). No matter whether large audiences or those talking to grandma via video phone. No matter whether one is talking PC maker, cell phone or mobile device manufacturer, or any other OEM. Or a small video on the internet service provider.

And if my experience is any indicator, and it really is h.264 encoded content that my digital video converter box is playing on my TV, then their claims to quality beg the question, 'What kind of quality?' The 'quality I see is blocky, often jerky, and a major distraction, enough for me to be totally disgruntled over the entire experience and expense. I've followed all the rules, instructions, and have gone through several antennas, none of which ought to have failed to provide the excellent video and audio 'quality' claimed I ought to be receiving from a direct line-of-sight less-than 8-mile-from-transmission-tower location. Yet there it is. A terrible experience. I'm now relegated to watching 'broadcast media' mostly over the internet--and guess what? Most of the best quality isn't in h.264!