Daily Tech Snippet: Monday, February 1st 2016

• Microsoft Plumbs Ocean’s Depths to Test Underwater Data Center: Microsoft has tested a prototype of a self-contained data center that can operate hundreds of feet below the surface of the ocean, eliminating one of the technology industry’s most expensive problems: the air-conditioning bill. Today’s data centers, which power everything from streaming video to social networking and email, contain thousands of computer servers generating lots of heat. When there is too much heat, the servers crash. Putting the gear under cold ocean water could fix the problem. It may also answer the exponentially growing energy demands of the computing world because Microsoft is considering pairing the system either with a turbine or a tidal energy system to generate electricity. The effort, code-named Project Natick, might lead to strands of giant steel tubes linked by fiber optic cables placed on the seafloor. Another possibility would suspend containers shaped like jelly beans beneath the surface to capture the ocean current with turbines that generate electricity. Such a radical idea could run into stumbling blocks, including environmental concerns and unforeseen technical issues. But the Microsoft researchers believe that by mass producing the capsules, they could shorten the deployment time of new data centers from the two years it now takes on land to just 90 days, offering a huge cost advantage. The underwater server containers could also help make web services work faster. Much of the world’s population now lives in urban centers close to oceans but far away from data centers usually built in out-of-the-way places with lots of room. The ability to place computing power near users lowers the delay, or latency, people experience, which is a big issue for web users. The company recently completed a 105-day trial of a steel capsule — eight feet in diameter — that was placed 30 feet underwater in the Pacific Ocean off the Central California coast near San Luis Obispo. Controlled from offices here on the Microsoft campus, the trial proved more successful than expected. The researchers had worried about hardware failures and leaks. The underwater system was outfitted with 100 different sensors to measure pressure, humidity, motion and other conditions to better understand what it is like to operate in an environment where it is impossible to send a repairman in the middle of the night. The system held up. That led the engineers to extend the time of the experiment and to even run commercial data-processing projects from Microsoft’s Azure cloud computing service.

• Tech Valuations In 2016: The End Of The Line For Sloppy Growth: What’s going on in technology investing right now? Is this another 2001, when tech imploded? Another 2008, when the wider world crashed but tech powered through? Or is it like Facebook in 2012, a valuation blip and a chance to buy? High-growth companies have attracted  high valuations, which allowed them to raise capital, which was then spent to generate still more growth and raise the valuation again. The result has been a self-perpetuating cycle of high burn, higher growth, still higher valuations and a strong positive feedback loop. The slop has been showing up in the numbers. The valuations of public companies already reflect this - valuations of public tech companies crashed 18 months ago. In March 2014, these high-growth companies were being valued at 12x run-rate revenues, but by mid-2014, this had declined to around 6x revenues, which is where it has remained since. The long-expected crash has, in fact, already happened — almost 18 months ago.  Unlike the private markets, the public markets get to rethink investment decisions every day. Over time, public investors either explicitly or implicitly realized that customer economics and the quality of growth have declined and, consequently, reduced the premium paid for excess growth. Capitalism works. The private markets, where decisions only get made once a year, have been slower to react; hence, the dearth of IPOs and the price adjustments seen as high-priced private companies come to the public markets. In 2016, any private tech company where the last percentage points of growth have only been generated at the expense of profit will no longer be able to attract capital at a high valuation. Smart companies will respond by cutting marginal investment, thus raising sales efficiency — even at the expense of having a lower growth rate. We will then see the same feedback loop kick in, but in reverse. Lower valuations will result in less capital being raised, which will result in lower growth and still-lower valuations. In contrast to the rise, the decline will happen much more quickly. Bubbles build up slowly, crashes happen fast. Eventually it will bottom out as growth rates become sustainable at acceptable levels of customer economics. Sloppy growth will be out. Sustainable, smart growth will be back — at least until the next time.

• Theranos is running out of time: When Elizabeth Holmes, chief executive officer of Theranos Inc., sat down for an interview last month, she sought to address reports that sparked serious doubts about her company's innovative blood-testing technology. “What we need to do now is focus on the technology and focus on the science and the data and put that out there,” Holmes said in an interview for a Bloomberg Businessweek cover story. “Because that speaks for itself.”: Since then, investors, critics, and members of the medical community have been waiting. And waiting. And the news just keeps getting worse. The most recent blow comes from an inspection report by the Centers for Medicare and Medicaid Services, which found that Theranos's lab facility in Newark, Calif., is in violation of regulations on five counts. As Bloomberg News reported, the company's testing center inside a Walgreen's pharmacy in Palo Alto, Calif., has been temporarily shuttered and turned into a ghost town with a sign taped out front saying it's closed "until further notice." The company's response to this new crisis is the same as it has been all along: It says it is on top of it. How much longer it can keep saying this without losing its credibility is unclear, but it's safe to say that time is running out.Holmes and her story of upending the blood testing market were so powerful that Theranos was granted a $9 billion valuation through recent investment rounds and attracted a VIP roster of politically connected board members from outside the medical field, such as Henry Kissinger and William Perry. Theranos did much of its fundraising from 2003 to 2015, in the midst of an inflating Silicon Valley bubble, when billions of dollars in investor money was sloshing around. The environment has become much more difficult over the past six months, and the company may be running out of time.