Archive for the 'venture capital' Category

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The Silo & The Pipe: Doc Searls gets Venezuelan

celebrity-smoking-andy

It’s a rare thing that I read a Doc Searls post and start shaking my head half way through. The recent $100 million investment in Twitter, bringing their valuation to $1 billion, has unleashed  a torrent of criticism. Driving my daughter to school the other day, I heard an “analyst” on NPR chirp that Twitter couldn’t be worth $1 billion because it was just a fad, that people might stop using it tomorrow and the bottom would fall out. If using Twitter were a random activity that returned no value, I suppose that could be true. Just as people could decide to stop going to the movies, stop eating pizza or stop listening to “analysts” on NPR. If the value of something is disregarded at the start, it’s rather difficult to speak sincerely of valuation.

SiloAndOldBuildings

Searls’s criticism is a reprise of the open source silo meme. The drumbeat for the nationalization of Twitter has re-emerged. The capitalist pigs at Twitter have chosen to build a business rather than contribute their technology to the open source technology commons. Praise is sung for linux, rss, email and http. If only Twitter would see the light and release what they have to benefit the common good. Twitter’s business is just lumber from which other software developers should be allowed to create value. The complaint is that because Twitter is neither open nor decentralized, it has created an intractable engineering problem and does not contribute to the greater good of the web.

I would contend that Twitter is both open and distributed. Its characterization as a silo misses the point. Rather than using the silo as a criteria for openness, what if we look instead to the pipe. In the Unix command line, the standard output can be piped to the standard input of a new filter. Some very complex forms of processing can be created by chaining together a series of filters and piping data through it. The “chainability” of the javascript library Jquery is another good example of this model. The critique of the silo is its lack of interoperability, you can’t pipe to or from it.

ceci-nest-pas-un-pipe--rene-magritte

Now, let’s look at Twitter. Can you pipe messages to Twitter? Can you pipe messages from Twitter? There was a time when I used Identi.ca as a primary micromessaging client. I typed messages into the Identi.ca web client and they entered the local pool, then I piped them to FriendFeed, where they also entered that ecosystem, FriendFeed sent them to Twitter, and Twitter sent them to Facebook. Examining this relay chain could you say that Twitter is a silo that owns my messages? Each of these venues represents a slightly different social graph and has a different tool set with which to display, prioritize and filter my messages within the context of the local graph. Twitter and Facebook are simply the most successful venues with which to read and write micro-messages (formerly called status messages). Google reader shares, SMS messages, Blog entries, et cetera can all be piped in and out of Twitter. Or if one prefers, Twitter can be left out of the chain entirely.

The mind share that Twitter and Facebook have built can’t be nationalized and distributed as lumber for a hypothetical socialist realist distributed micro-messaging ecosystem. If one is truly interested in open, look to the pipe, not the silo. Certainly there’s work that needs to be done on the pipe itself. Issues around real time, rate limiting, identity, social graphs, micro-communities, activity stream formats and track are all very important. But the real time stream environment is already here and operational. Many in the open source crowd are just rewinding the VCR and replaying the last battle. Steve Ballmer summed it up nicely in his interview with Mike Arrington, “we want to be first, best and interoperable.” Even Microsoft has embraced the pipe.

The Doomsday Machine and The Golden Rule

Before the turn of the millenium, back when I was first joining an investment bank, I wanted to do some background reading. One of the must-reads was Michael Lewis’s Liar’s Poker. Of course, we were looking at disrupting the business. But in the over-heated world of the Internet IPO, no one wanted to disrupt anything– there was too much money at stake. Like all bubbles, that one eventually popped.

Our firm had a small part in popping that bubble with a piece of research we produced called “burn rate.” The first crop of Internet companies went public very early in their lifecycles. That meant they had to report their financials quarterly. At a certain point it was a simple matter of looking at cash versus run rate to determine how many months these firms had left. In Internet Bubble 2.0, initial public offerings were not possible, but the principle of burn rate remains the same. If a firm is not at, or close to being cash flow positive, they’re burning cash. This time the fires are behind closed doors, but their burning just as brightly.

Whack-a-mole

But the Internet Bubble is nothing compared to the Real Estate / Sub-Prime Bubble. While trying to get my hands around this Bubble and Collapse, I turned to Michael Lewis again. Lewis’s article, “The End,” in the December issue of Portfolio nails it. The Sub-Prime meltdown is difficult to understand. And when people talk about the “bailout,” it’s hard to understand what exactly needs to be bailed out. Treasury Secretary, Hank Paulson, has come under criticism because he’s perceived to be playing whack-a-mole with the crisis.

Bubblicious

Lewis takes a simple approach to explain the situation. He looks at the other side of the trade. Every trade requires a buyer and a seller. While the vast majority of the nation and Wall Street were buying in to the idea of ever rising real estate values, Steve Eisman, of FrontPoint Partners, was shorting the bubble. The article exposes the transubstantiation of BBB rated debt into AAA rated debt. As Eisman struggles to understand the trades he’s making, we start to understand the Doomsday Machine that Wall Street was constructing. For the bubble to keep expanding, it was important that the emperor was percieved as being fully clothed and regal. People like Peter Schiff were laughed at for trying to seriously address the problem. Risk is at the heart of investing, but in the real estate bubble, risk was grossly misrepresented. The label on the box said it contained wholesome ingredients, higher return with less risk. It was too good to be true, and it was. Bubblicious.

Lewis closes the loop by having lunch with John Gutfreund. Gutfreund was the CEO of Salomon Brothers while Lewis worked there. Liar’s Poker chronicles that time. They were the first i-Bank to go public, created the mortgage-backed security and their BSD’s from the bond arbitrage group went on to found Long Term Capital Management. Investment Banks follow the Golden Rule, he with the most gold makes the rules. Lewis posits that this is the end of investment banking as we know it.

Bootstrapping the Live Web: Declaring Independence from the Selfish Meme

The Williamsburg Alternative

There are some distinctions that need to be made when thinking about the creation of new modes of interaction on the Network. A number of metaphors are currently employed when talking about services like Twitter (Identi.ca imitation is the sincerest form of flattery). The judgement we seem to be trying to make is whether this new thing will go viral, or will gain broad market acceptance. When we answer questions about the new thing in this way, we’re pretending to be venture capitalists. What we’re asking is: will my investment pay off? And since we have no real skin in the game, we’re really asking, will Fred Wilson’s investment pay off for his investors? There’s an assumption at the base of the question about what’s really important. In a sense, it’s a moral position about what’s most valuable and a definition of the fundamental drivers of innovation. Thus the endless questions about “business model.”

After the money question, we’ll ask what most people will do. Will this new thing be adopted and become common practice? There are a number of binary oppositions we use as sledgehammers to beat the daylights out of any emerging form of life. These tools are a substitute for thought and discovery, they stand between us and what is unfolding before our eyes.

  • Digital Natives vs. Digital Immigrants
  • Young People vs. Old People
  • Early Adopters vs. Most People
  • The Enterprise vs. The Consumer
  • Geeks vs. Jocks
  • You vs. Your Grandmother

Tools for thought need to be put into question even as we employ them. When we thoughtlessly pick them up and use them as a hammer, we’re just repeating memes. The meme is speaking us and just asserting its evolutionary destiny as a selfish gene. When a meme is repeated to a group in conversation and all heads nod knowingly, no thought has taken place. Rather, this is an example as language as a virus.

So when does thinking begin as we continue our conversation on these new modes of the Network? It starts with a question and the deepening of the question. The Answer puts an end to the dialogue. Think of an answer like a software release; there’s alpha, beta, release candidates, golden masters — but in the end everything launches with bugs and has a version number assigned to it. The only way to move the ball down the field is to return to the question.

We’re starting to see the emergence of the Live Web from the established Static Web. The mistakes we make at this point give us important information about the future landscape. Twitter built a static web application using a content management system metaphor. But by opening pipes to the live web through SMS, XMPP and Track, Twitter enabled a compelling live web experience. Twitter’s ensuing stability problems have taught us that static web architecture can’t support live web usage at scale. The team there now has to start over with a live messaging architecture that can support the experience that was discovered. In this effort, Twitter’s simplicity is its friend. Oddly, the imitators don’t seem to have comprehended this lesson.

The interesting conversation around Twitter isn’t about whether it will make someone money or whether your grandmother will use it. Rather it’s the question about whether it’s a real foundational piece in bootstrapping the coming Live Web. Twitter’s Follow and Track relationship models have uncovered a much larger social space for real time interaction. Where the real-time web as IM is largely point-to-point, allowing two previously connected individuals to trade messages, Twitter enables a space where meeting someone new is a possibility. Our bootstrapping activity is only partially about technology, fundamentally it has to be about how we use the service right now and our ongoing conversation about its possibilities.

 

Mark Lucovsky and Jason Calacanis suggest National Heathcare as a Web Service

Red Cross

Shuffling through my notes, I found a post that slipped through the cracks. It references a Gillmor Gang from earlier in the month, Mark Lucovsky of Google was a guest on the show:

The conversation was wide ranging and focused on Lucovsky’s current role at Google and his former role at Microsoft. Jason Calacanis shifted the discussion on to the general ecosystem of online business infrastructure. He’s in the middle of making some decisions about the growth path for Mahalo and sees the cost of these services dropping rapidly.

Calacanis’s political point was that the virtualization of fundamental web infrastructure lowers the cost of business creativity and therefore will be a major economic driver– and may pull us out of this recession. Lucovsky commented that he didn’t see a consolidation of infrastructure providers, but rather an environment where each of the big online companies provided the thing that they do best as an API or service.

In a comment on Microsoft’s Live Mesh, Lucovsky asserted that the complexity of the problem required a seasoned professional like Ray Ozzie. He’s made the requisite number of mistakes to take on a project of that level of difficulty. Lucovsky goes onto say that there’s a difference between this kind of creativity and the frothy sort of Web 2.0 stuff that comes across our screens every day via TechCrunch.

Assuming that business creativity in this ecosystem is not the sole province of the young and the rich, there are a couple of pieces missing. This picks up the thread of a conversation that happened about a year ago about age and business creativity. It was a conversation that unleashed a lot of passion. Here are a couple of links back into that conversation space:

Creativity in any space is tied to risk taking. The young assume immortality and therefore have a high tolerance for risk, time allows for recovery from failure. The rich also can recover from failure through the buffer of money. As we all know, time is money and conversely money is time — and time heals all wounds.

If, as Calacanis asserts, it’s all about ideas in this new era of cloud-based infrastructure, then implicit in that is the notion that the services that sustain the human side of that equation take a similar form. National healthcare and a decent retirement system would reduce certain aspects of risk and open the field to a broader range of individuals: people who’ve lived a little and made the requisite number of mistakes to create at a deeper level.

A new era of a meritocracy of ideas in the technology businesses is deeply intertwined with the political questions that sustain the humans that do that work. In our conversations about the path of technology, these background processes need to brought to the surface– if there is to be change we can believe in.

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