Well, Russell Beattie got beaten bloody in the numerous comments to his anti-tech bubble screed. This makes me pretty jealous since I rarely get this treatment, and certainly never with this volume and intensity. Doubtless this is primarily because my writing is so clear and compelling that it’s daunting to try to refute it. Perhaps it also has a little bit to do with the fact that he has maybe 100 times as many people reading his stuff.
Russ has responded with a refined take on what’s wrong with today’s tech startups. He’s basically saying that you shouldn’t start a business without knowing how you’re going to make money. In fact, he continues, you should be making money from the get-go or you don’t have a real company. Is anyone surprised that I disagree on both counts?
To the first point: though I’ve run hot and cold on Paul Graham’s thesis that tech startups are becoming a form of outsourced R&D for software behemoths, I have the highest respect for his brand of lateral thinking… and he may well be on to something. The implication is that startups don’t necessarily need a way to make money in order to be a positive economic activity (for their founders and for society). It’s enough that they can innovate faster than larger companies, enabling the latter to focus on their core competence of making money. The corporation is a pretty new concept, so there’s surely scope for keeping an open mind about how companies will be configured in the coming decades.
To the second point: my roommate Pierre, a financier, sums up modern economics in three easy-to-remember principles. One of them is “time is money” (I’ve forgotten the other two). What he means by this is that money today is worth more than money tomorrow. So, for example, it’s worth borrowing money if you can do so at an interest rate which ends up costing you less than the increased value to you of having the cash now instead of later. (You may have to reread that, but probably not as many times as I just rewrote it.) If a startup can sell debt or equity at attractive terms to finance its growth, this may well provide better returns in the long-run than trying for early revenues and profits that may hamper it in achieving its strategic goals (such as growing its user base). And in point of fact this is exactly what occurred at the two most recent tech megasuccesses: Google and Skype. Neither generated “real cash right off the bat.”
Of course, I see what Russ is getting at. Generating revenues requires a certain skillset, state of mind and discipline which are all important to a successful startup’s company culture, even if you end up selling out before you make a dime. Blithely creating what is really a cool hack, not a viable product, with the idea that you can always make money somehow (probably by plastering ads all over your user interface), is not a recipe for building a great company. But to claim that we shouldn’t take a startup seriously if it doesn’t have immediate revenues (or any plans to make revenue, for that matter) is overly simplistic. Big things are happening in way companies are financed and in the very process of innovation, and we shouldn’t let the irrational exuberance of the bubbleheads obscure this.
Here’s a gem from the IMDb Studio Briefing. Top director M. Night Shyamalan apparently aired his deathly fear of simultaneous DVD release of first-run movies at a convention, justifying his viewpoint thusly:
“If this thing happens, you know the majority of your theaters are closing. It’s going to crush you guys,” he said. For filmmakers like himself, he suggested, the result would be equally devastating. “When I sit down next to you in a movie theater … we become part of a collective soul,” he said. “That’s the magic in the movies.” He added: “We have been seduced by the DVD and what will sell the DVD. It has been the worst year in cinema for quality.”
I briefly touched on this topic the other day on my way to predicting the demise of broadcast TV. Cinemas don’t have so much to worry about because they offer a qualitatively different experience when compared to DVDs. Of course, M. Night may well be correct in surmising that simultaneous release will lead to lower movie theater receipts, since a certain segment of customers won’t go anymore; namely, the segment who wants to see new releases but would prefer to do so on DVD. So his thesis can essentially be summed up as: “For those of you who don’t agree with my subjective feelings about where movies are best viewed, I’d like to prevent you from having the right to choose. Clearly you don’t know what’s good for you. And failing that, I’ll just stop making movies.”
Hmmm, maybe it’s just me, but if this regressive (not to say repressive) attitude is typical of Hollywood bigwigs, the movie industry may have bigger problems that allowing consumers to view the movies they paid for when and where they want to.
Russell Beattie in a vituperative rant against spurious Web 2.0 startups. He surely has one valid point: a lot of the startups you see out there seem designed to latch onto the latest VC hype craze and get rich quick, not to create anything truly new or of lasting value. This irks me as well, especially since it raises the noise level and makes it harder to recognize truly revolutionary new companies.
Where he loses me is in his assumptions that a) all these hype surfers are actually innovative geniuses who could be doing something world-changing, if only they would apply themselves and b) he, you or I would actually recognize the next big thing if it bit us on the ass.
Let’s take these in turn. At the risk of seeming elitist, I simply don’t believe that there’s an Einstein or Picasso or Steve Jobs lurking inside each of us. Building a ground-breaking startup is a specialized activity that requires specialized skills. I know that Paul Graham would disagree, but not everyone is necessarily qualified to have a great business idea, much less to execute on it. After the financial madness of the last bubble, it’s hardly surprising that everyone and his brother is trying to cash in. People play the lottery, too. But to imply that pretty much anyone could be the next Bill Gates, if only they had the requisite cojones, is just plain silly.
The second point is equally dubious. Gates, Jobs and Ellison were once kids in garages (metaphorically if not literally), unknown to the world. They didn’t have “unrelenting focus”, “hubris” and “arrogance” tattooed on their foreheads, ferchrissakes. Their ideas probably seemed pretty loopy to their contemporaries, and it took years for them to build their companies into household names. It doesn’t make sense to criticize the lack of truly innovative startups when there’s no reason whatsoever to suppose that we would have heard of them yet or recognized their potential even if we had.
I’m quite sure there is the requisite number of revolutionary tech startups out there, beavering away as we speak, but we won’t know for sure until they make their presence known in the market. So by all means bellyache about the propensity of people to jump on whatever bandwagon is handy in search of a quick buck. As Douglas Adams once said: “People are a problem.” And while you’re at it, there are a few of my own personal pet peeves I’d like to add to the list. For example, why is there always some doofus in front of me driving 2mph when I’m trying to shave 60 seconds off my morning commute by racing through an orange traffic light on my way to work?
Now that’s what we should be talking about!
Cedric has been all on me about how this blog isn’t “commercial” enough. So he whipped up a new logo and now this is officially the “official AllPeers blog”. Exciting, isn’t it?
It looks like the Flickr interestingness thing is shaping up to be another honest-to-goodness blogosphere-based knock-down take-not-prisoners screaming match. Good… we haven’t had one of those for a while.
I actually wrote about this yesterday evening with one foot out the door since I didn’t see Anil’s post until I was finishing work. So I should probably be a little clearer about what my standpoint actually is, lest anyone be tempted to believe that I’m siding with Caterina. Actually, I agree with Scoble: if companies are basing their business model on monetizing their users’ high-quality media contributions, they need to give them back cold hard cash, not just a warm fuzzy feeling.
I know that a lot of people are terrified of the potential effects of real cash money sloshing around the web. Sorry kids, but that’s how the world works. If we want to take on Big Media, we have to be prepared to harness the full power of capitalism. And this doesn’t just mean advertising. For example, Flickr could charge users to download a professional-quality high-resolution version of their favorite photos, passing a slice of the booty onto the photographer. That might anathema to some, but to me it’s just a case of the web growing up. Finally.
So we’re putting the final touches on the first release of AllPeers MediaCenter. It’ll be another couple of weeks til we’re ready to start giving it out, but now is the time to sign up to receive it. Unless you have some sort of undue influence (compromising pictures of me, perhaps?), we’ll be sending out invites on a first come/first serve basis. It’s looking pretty darn cool, by the way.
Anil Dash points out a potentially unfair aspect of Flickr’s (i.e. Yahoo’s) business model. Flickr makes the traditional website’s bargain with its users, trading free hosting of their content for the right to splatter it with ads. But the users whose content is most popular get no more benefit (financially, at least) than those who post only crap. Flickr co-founder Caterina Fake strikes back with the observation that (after passing through my cliche-ifier) there’s more to life than money. Flickr users, and web users in general, don’t expect to make more cash for quality content, she claims. They want attention, status, empathy… basically, they wanted to be loved, by golly!
In terms of traditional web dynamics, Caterina is definitely on the more defensible side of the argument. As she points out, if profit were the only consideration, no one with anything of any value to say would have a free blog or website. The distinct lack of capitalistic dynamics on the internet has a lot of advantages, and as I touched on in my last post, as soon as you add a dose of the profit motive to the web ecosystem, all manner of distasteful characters start to crawl out of the woodwork with loopy con schemes.
That said, I’m quite sure that if Flickr were to find a way to compensate those users whose photos are deemed most interesting by their peers, there would be a dramatic increase in the volume of high-quality pictures on the site, and the average quality would go way up. Lest we forget, capitalism ain’t all bad. Something to think about?
For all you wannabe cybercriminals out there, Joel Spolsky has a good expose of how AdSense click fraud is accomplished. Though Google can doubtless use algorithmic methods to further limit the problem, I don’t believe that this approach represents a true long-term solution. It’s a bit like fighting an insurgency with conventional forces; you can shock and awe them, but if you fight the battle on their terms, you’re never going to achieve definitive victory. (I think I may have been reading too much Salon lately.)
The real solution is to move from a pay-per-click to a pay-per-sale strategy. PPC is already a big improvement over previous approaches to advertising; i.e. throw a whole bunch of ads out there and hope it was worth whatever it cost you. But what you really want is to pay only when your ads lead to real revenues.
Luckily there’s a precedent for this: it’s called the Amazon affilitate system. If I link to a book on Amazon from my website using my affiliate ID, I get a slice of the pie if, and only if, the person actually buys the book. For all intents and purposes, this is PPS advertising. What we need is an affiliate system a la Amazon, but as generalized as AdSense is. Of course, the problem is a lot more difficult than normal AdSense, since the advertiser has to track what the user does once they arrive on the site, and let Google know in some standardized way whether they buy anything.
Not easy, but whoever cracks that nut has achieved the Holy Grail of advertising. Let the games begin!
Okay, I have a confession to make. Although I do have a blog, I don’t live in London, I don’t work for the BBC and — worst of all — I’m straight. But I still think these phones look wicked! That said, I agree that Nokia should terminate its copywriters… with extreme prejudice.
Movie theater operators are making a huge stink about simultaneous DVD release and other trends that threaten their monopoly on first-run movies. This is nonsense: the criteria for making this type of business decision should be customer demand, not the desire to protect existing companies from competition. But cinemas are always going to command a healthy chunk of movie revenues because they offer a unique experience: huge screens, plush seats, overpriced concessions, sticky floors, etc. (Okay, perhaps the last two aren’t such a big draw, but you get my point.)
Not so for broadcast TV, which is doomed. Mark Cuban does a great job elucidating this trend with respect to Disney’s recent agreement to sell TV shows on Apple’s iTunes store. (After seeing his inarticulate performance at Web 2.0, where he appeared grumpy and — frankly — deathly hungover, I’m amazed by the quality of his blog, which is excellent.) The advertising model is a holdover from a simpler time, back when the most exciting inventions were hulahoops and colored lightbulbs rather than high-speed fibre backbones, micropayment systems and ultra-efficient video codecs. Broadcasters financed their fare with ads because there wasn’t any other practical possibility.
Besides all the inefficiencies inherent in the advertising model, where value for both sellers and consumers is unclear, it also happens to be extremely irritating. A lot of ads are quite entertaining, but not when you see the same ones 4-5 times at 7 minute intervals over the course of a single 30 minute show. Broadcasters seem to have decided that if a few commercials are good, gobs of them must be better. Audience reaction has been predictable: TiVo, BitTorrent, DVDs… anything to avoid having to sit through someone screeching about ring around the collar or sinking your battleship. There are some signs that broadcasters are getting the hint, but they’re still pretty thin on the ground.
Meanwhile, the International Herald Tribune speculates that the BBC may extend its experiment in free TV downloads to encompass paid downloads for non-British viewers. A more transparent business model, a smoother viewing experience, more choice and flexibility… how’s broadcast going to compete with that? After all, you can watch your shows on the same 80-inch wall-mounted plasma screen no matter how you obtain them.
I think it was Sir Isaac Newton who first observed that “every hype surge has an equal and opposite antihype backlash.” Or maybe it was Gartner Group. I’ve made the observation many times that tech journalists like to talk up every new technology to the moon (creating a fertile source of stories), then bash it into a pulp when it doesn’t achieve its supposed potential in a ridiculously unrealistic timeframe (creating another, potentially richer source of stories).
It seems that Web 2.0 has now fallen firmly into Gartner’s so-called Trough of Disillusionment. My friend Radovan Janecek points to a slew of rants by technology insiders sick of seeing the same tired buzzwords bandied about with little regard for substance.
The irony is that the antihypers are often as wrong as the original hype hounds. As far as I’m concerned, the term Web 2.0 is serving a useful purpose by pointing to an undenial sea change in the way web architectures are structured. It’s hard to come up with a concise definition since there’s more than one major shift occurring. But we should be wary of writing Web 2.0 off as vacuous before it has a realistic chance of achieving its potential, particularly since this is likely to take several years.
One of the abovementioned shifts is increasing exploitation of “the wisdom of crowds”, pioneered in Google’s PageRank algorithm and exemplified by del.icio.us. As significant is the movement of application logic from the server to the client, and the parallel growth in XML, as opposed to HTML, data streams. This is part of the appeal of the horribly overhyped AJAX, but the same premise underlies Firefox’s extension mechanism. A VC friend of mine asked me the other day if we weren’t swimming against the tide by promoting client-side architectures at a time when everything is moving onto the server, but I think that in reality the opposite is the case. Perhaps this is due to a misconception that AJAX apps actually run on the server.
Web 2.0 may be a messy term, and it’s undeniably over- (and frequently mis-) used. But it’s still a useful way of encapsulating a real and important trend.
With Web 2.0 now in the throes of a genuine hype frenzy, much has been made of the potential of Google to supplant Microsoft as dominant force in the technology universe. As one software category after another moves off the desktop and into the web browser, the idea is that Google is the best placed company to exploit this trend.
Realistically, however, it’s hard to imagine Google achieving real dominance in a web-centric world, and it’s unclear how it would profit even if it did. The one scenario where they could achieve lock-in on a Microsoftian scale would be if they could convince enough third-parties to use Google user accounts as the basis for their services. But in a world where even Microsoft is working on a federated identity management scheme, it’s implausible that anyone will gain real traction with a centralized system.
Perhaps Google will come up with a brilliant way to monetize it’s non-search offerings (mail, maps, etc.), but in the meantime, a more certain beneficiary of the trend towards browser-based apps is Apple. They’ve done an absolutely brilliant job of creating computers, applications and accessories (everyone’s talking about something called the “iPod”, for example) that appeal to consumers far more than boxy Intel hardware and clunky Microsoft software. Two things have prevented Apple for becoming the dominant force in computer hardware and software, at least in the home market.
One is price. When given a choice between cheap or good, too many people will still opt for the former. But there is price/income ratio where a few dollars here or there cease to make a difference. A gorgeous iMac G5 with a 20-inch screen and tons of accessories and software now runs at $1,699 list price. I can’t believe that the equivalent Wintel machine is significantly cheaper, though I haven’t done extensive research on this.
The other is software. With most stuff running in the web browser, and the rest packaged with the operating system or web browser, this is practically a non-issue. Meanwhile, Apple has proven itself capable of churning out consumer electronics products that generate massive revenues while increasing the appeal of its overall offer. And it has the world’s leading online content marketplace.
So I’m mildly sceptical on Google. But I see a very bright future indeed for Apple.
In the heady early days of Peer Pressure, I commented on the unfortunate balkanization of the instant messaging space and threw out a few hypothetical endgame scenarios. None of these involved consumer activism, but it’s still nice to see that this issue is gaining more widespread recognition. Concerned citizens have gone as far as to set up an organization dedicated to IM client interoperability.
IM is a mass market phenomenon, and while mass market folks may be dismayed by the fact that there are people they can’t chat with, for reasons they probably don’t quite grok, they aren’t likely to rise up in arms to rectify the situation. But perhaps this effort, or something like it, will get enough techie support to force the IM vendors’ hands.
I’m giving this long odds, however. In the year since I posted on this topic, my thoughts have crystalized around two real possibilities. One is my “Windows Scenario”. I rated this as unlikely at the time, but the recent announcement of cooperation between Microsoft and Yahoo on chat interoperability, coupled with rumored acquistion talks between both of the above and AOL, make it far more plausible that a single commercial “megastandard” will emerge and that the combined market weight of these players will force others to comply.
The other potential outcome is the emergence of something so much better than existing chat clients that everyone switches over. I believe that there’s huge scope for improving chat, and not just by adding cute animated “winks” or whatever the marketing goons at the big internet properties are dreaming up. This is bound to happen eventually; all communication technologies are seen off, sooner or later, by disruptive new approaches that offer compelling advantages (though this might take decades).
Only time will tell how this pans out. But by hook or crook, IM interoperability is creaping closer.
Okay, it’s reader participation time. During the Web 2.0 conference, I blogged about Michael Powell’s comments regarding the perception gap between paying for online music versus ringtones.
So why is this? I’ve never bought a ringtone, and I don’t have any adolescent offspring (or any offspring for that matter) to educate me. I can think of a few possible explanations:
- The purchasing process for ringtones is much smoother since payment is automatically added to the buyer’s phone bill.
- People don’t want to buy music online because Napster, its descendants and the braindead RIAA response have conditioned us to expect music to be free. At the same time, we don’t consider ringtones to be music, per se, so they fit into a different mental category.
- Potential purchasers of online music are put off by DRM, but this isn’t an issue with ringtones since people are only expecting to use them for a limited time on a single device.
Do you have more direct or indirect experience with this than I do? Which, if any, of the aforementioned hypotheses seem most plausible to you? Are there others that I missed?
