Category Archives: technology

Can You Handle the Truth? Advice for Founders

Always tell the truth, its the easiest thing to remember. — Glengarry Glen Ross

I have started my second semester at the Founder Institute, Adeo Ressi‘s awesome incubator.  It has been a blast so far, in my view, a lot of really strong founders wiht great, viable business ideas. It has been a lot of fun to be involved, and it is as always humbling to have smart, passionate people asking for my input.

As it is still early in this group’s process, some of the ideas are a little earlier on, still in “ideation” (terrible word) mode.  This is of course a natural state of being in a startups life, that early stage when you’re still not even sure you’ve got a good idea.  Its an exhilirating time–you’ve not made any mistakes (yet) and the world seems ripe to take on your vision, while at the same time, you definitely have those soul-shaking moments of doubt as to whether you’ll ever be able to turn your idea into reality.

Int this stew, founders will come to me to ask my advice on their idea, and I’m happy to try to take the time to listen and provide a few minutes of helpful input.

A question I have had and answered for myself is how hard core or harsh to be on someone’s idea when it is still on the drawing board.  Although it certainly has its risks and drawbacks, I’ve decided that this is a time to be very blunt and hardcore.  The risk is that this approach dissuades someone or that it gives them an impression that I’m a jerk.   This is the last thing any founder wants to become–the startup world is too small afor people t get such an impression.

The counter argument is that by being hard core you toughen up a founder, you help him or her focus on the key challenges in their business, and  at an extreme, you convince the founder that the idea is not worth investing time and life in.  At the ideation phase, the costs of switching an idea are low.  I have become comfortable with this being on balance the preferred approach–the pain is worth the value.  I also try to remind the founder whenever I do this that my opinion is just one, and I’m certainly perfectly happy to have the founder prove me wrong and make a boatload of money doing just that.  In other words, its not personal, and I’m hopeful that it does help.

I have come to believe passionately that this is the only appropriate response for founders asking for advice.  My input is not costing anything, and if I’m off by a mile, there’s no reason that a founder should listen to me.  You asked and I answered.  No harm, no foul.  Totally makes sense, right?

Right.  As founders we should all be pushing each other in as hard core a way to make our businesses kick ass and take names.  Give the advice, hit hard.

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Twitter’s Platform Mojo

Betaworks’ John Borthwick recently posted the informative Ongoing tracking of the real time web…  Combined with Fred Wilson’s AVC post Twitter v. the Twitter Ecosystem, these two posts illustrate and highlight important learnings for startups and entrepreneurs everywhere.  Those learnings are the subject of this post. 

The key points of this post are: (1) Twitter is indeed a platform; and (2) platforms’ own profitability are related not a little bit to the revenue driving capabilities of those partners that build on the platform.  Twitter has clearly enabled other applications to create and build innovative services, a la Tweetdeck, Seesmic, Bit.ly, etc.  These are great as they extend Twitter’s value even further.   Over time, we should expect that the traffic through the platform will dwarf the traffic of the application/web site called Twitter.  This is a useful illustration for web- internet-based entrepreneurs on the value of platform building in a business.  Here’s what I mean…

I give a talk called Revenue: Of Moats & Models in Silicon Valley.  The purpose of this talk is to help the very early stage startup—ideally the 1-2 founder team in the garage—frame quickly and easily how to think about revenue and building their business.  One of the things that I talk about a lot is thinking through how to build a fly-wheel in your business.  Some people call this a “platform play,” but I tend to prefer a more crisp illustration of a positive feedback loop.  The steps that I illustrate and walk through with founders is one that is simple and seems to resonate with most founders.  The steps are:

  1. Create something users want.  (Smart, effective founders recognize this as the Paul Graham [YC] mantra.  It totally makes sense—this is step 1, without this you’ve got nothing.)
  2. Build user base and share leadership.  (This is just about extending step 1 into momentum.)
  3. Create a extension that attracts and enables a second stakeholder group.  E.g., application developers who want to access your users; teachers who want to access your students; advertisers who want to sell stuff, etc., etc.
  4. Empower that second stakeholder group to reinforce and extend the value to the core users who you started with in step 1.

Wash, Rinse, Repeat. 

This is a very basic description of the positive feedback loop that the vast majority of massive tech companies have used to achieve their dominance—Microsoft, Google, Facebook, Apple Iphone, etc.   Sometimes tech folks will look all dreamy eyed and say the words “platform play,” and this is probably what they mean (or should be).  Specifically, the platform means that there is a second stakeholder group that is specifically betting on you to make money, gain share, whatever for themselves. 

In the talk I give, I suggest or recommend that the founding team spend an hour or two trying to think about building that precise feedback loop around their idea.  I contend that this can be a useful exercise, one more should do.

Part of the reason this exercise is so useful is now highlighted with the blog posts that I started this off with.   What Borthwick and Wilson are both highlighting is something that has been obvious to me for months: namely that the power of Twitter is as a Platform, not as an Application.  Others – bit.ly, tweetdeck, tweetfeed, etc. – are now investing their R&D budgets, engineering talent, marketing efforts towards extending brands that build on Twitter.  Twitter as the platform enables this, and Twitter gets some benefit by having these partners do this work.  This is all great, and it reinforces arguments I’ve made before on this blog about why skeptics focusing on Twitter traffic or retention, while important, is probably less important than the health of its ecosystem. 

The second thing that I’d illustrate on Twitter as a Platform is a point that’s common to most platforms but not well understood.  Namely, while platforms on their own can be massive from a revenue and profitability standpoint, over time, healthy platforms can pale in comparison to the revenue pool created for the partners betting on the platform.

Microsoft’s Windows business is a great example.  According to MSFT’s Annual Report, the Windows division pulls in roughly $16B in revenue, and makes >$12B in operating income.  (What a machine!)  This is awesome.  What is also awesome though, is that you are probably talking about an order of magnitude in terms of the amount of revenue that the partner ecosystem makes. 

Same thing with Google.  Massive revenue, massive margins.  But the amount of money that advertisers are making through getting direct contact with users, massive.  Facebook, starting to show the same thing.  Its an awesome thing on its own, but as Zynga, Playdom and others are showing, they are making massive amounts of money on the Facebook platform.  As Facebook extends, I expect to see even more companies making more money off of them.

This brings us back to Twitter.  As I’ve said before, its easy to think that Twitter is too simple to be a viable business.  That’s wrong-headed.  Twitter is en route to becoming the platform for the real-time web.  As I’ve said, it will create massive value for its users, employees, founders, and investors.   To me, the key quesiton with Twitter is not whether it will continue to thrive in users and traffic (it will), or whether it will make money (it will).  The question for me is whether its ecosystem will find ways to make real money, as this is ultimately a partner ecosystem’s profitability is ultimately the best way for a platform to ensure its long-term viability.

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Google & China: An Operator’s View

Google’s announcement Tuesday that it was mad as hell and not going to take it anymore was its second bombshell in a new 2010.  (I count the first being the announcement of the Nexus One, which I think is very possibly a hugely important step for Google as a company.)

Instapundits leapt on the announcement.  Some–TechCrunch notably–stating that it was all about Google finding a graceful exit.  Others—Robert Scoble, SearchEngine Land Sullivan, and others, defending the move as a principled stand.  As someone who’s worked internationally on building businesses, I’m firmly in the Scoble camp.

The idea that this is some cynical move to enable Google to exit China gracefully is ridiculous.  Google is a massive public company, seeking a growth trajectory that goes for decades.  Aside from all the great points Scoble makes on his post on this–which I agree with entirely–the simple math states that Google can’t not be in China long-term.  Later this year, China will become the world’s largest economy that is not the United States, etc.  Huge potential market. 

The second piece to this equation is that its not as though Google’s pouring so much money down a hole with China that earnings are hurting.  Indeed, Google’s trajectory on cash flow, earnings, etc., all are moving in the right direction.  Earnings calls don’t lead Google’s CFO to fend off nervous investors, anxious at the out of control spend in China.  Huge potential market without materially impactful investment—sounds like something Google would want to do. 

So that cost/benefit analysis is straightforward.  The other element to this though that’s been missed is simply that international business is hard.  In Silicon Valley, we like the narrative of overnight success.   And to be sure, Google has achieved unprecedented things in its 11-12 year existence.  Still, Google has been in China for 4 years.  The time between Olympics; the length of most people’s undergraduate career.  That Google has not convincingly “won” in that timeframe is not at all a sign that the race is over.  At least it wouldn’t be to anyone who’s ever built or worked on a business overseas.  With international businesses, you have a whole set of issues around who to hire, how to implement a culture that retains the specific elements to the native culture while still being connected to the headquarters, there’s often differences in business models or price sensitivities of customers, etc., etc., etc.  4 years is the blink of an eye for this type of thing.  The idea that Google’s crying uncle at the end of 4 years because China is just too hard a market to win is quite naive and nonsense to anyone who’s been a manager in an international business. 

Given that view, I’ve found Google’s stance really extraordinary.  It will be fascinating to watch the dialogue between China and Google as this conversation progreses. 

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Channel marketing: What all marketing people can learn from social media

Founder’s Fund’s, Internet Mastermind, and friend, Dave McClure posted one of his periodic rants over on his blog.  Good read, great font colors. 😉

When I read it, it got me reflecting on the value I’ve seen as a marketing professional around social media, though not in the manner that most people talk about this. 

Here’s what I mean.  Many people who talk about social media will talk kind of breathlessly about all the channels that are out there, how to do things like SEO, etc.  These tools are out there and free.  The tools and concepts like SEO are easy to figure out.  And these are all new, lower cost media channels: ones in which marketing people really need to embrace and understand in order to be on top of their jobs, really in almost any industry. 

And this is all spot on—as a marketer anywhere, understanding blogging, twittering, youtubeing, facebooking, blah de blah de blah is IMHO vitally important.  Some though will sort of hesitate and say this is all too egocentric, with too little privacy, and with too high a techy dork quotient to be that important.  Or they’ll just say they’re too busy and blow it off.

My counter to that is to frame these social media outlets in a more traditional context.  A marketer’s job is to figure out how to frame a winning value proposition and to get the word out in order that sales people’s jobs become very very easy.  Social media—broadly—is a free, experimental petri dish that any marketing person can use to learn about this exact process.  All sorts of channels exist in the social media realm, with more coming all the time.  What makes this stuff both fun and useful for marketing people is that now there are free channels for you to try stuff out to see what draws and engages and audience.  Indeed, with nothing more than having something useful to say (your product) and with experimenting in where you say it (your channel), you can create a community.  For a marketer, what could be more golden? 

Dave’s rant goes off principally on VCs who don’t understand design, user experience and internet marketing.  And right on, Dave.  I would extend the points on internet marketing, and specifically social media marketing, to anyone who calls themself a marketer.  This stuff is out there and free.  Use it.  It’ll sharpen your skills for free.

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Apple’s Dr. Jeckyl & Mr. Hyde Routine with Developers Continues

TechCrunch just announced that this is the year for Flash to come to the IPhone.  (Oh, wait, it’s already kind of been there with YouTube, the world’s largest flash app, for the past 2 years, but whatever.)

TC’s Erick Schonfeld rightly points out that this is a big, big deal for users as well as for Flash Developers, as they can build once (in Flash) and have the app automatically turn into an IPhone application:

Once Adobe publicly releases CS5, Flash apps and video still won’t run on the iPhone. But those 2 million developers will be able to keep working with Adobe tools and simply turn them into iPhone apps automatically. In contrast, there are only an estimated 125,000 or so iPhone developers. This will lower the barriers to making iPhone apps even more than they are today, which may ormay not be a good thing. But if you thought there were a lot of iPhone apps now, just wait until the Flash floodgates are open.

I think this is right on.

For me, though, the thing is that this will further weaken the IPhone as a specific developer platform–meaning using the Apple SDK exclusively.

Apple enthralled developers with the opportunity and promise of the IPhone, and for the past 2+ years, they’ve basically run the table.  Any developer who was building a cool mobile app had to look at the Iphone first.  The Palm thing isn’t viable, Android wasn’t quite there.   But Apple’s treatment of developers has been so poor on the dimensions developers care most about–specifically being able to build, ship and update code quickly and hassle free–that there is a lot of badwill out there.  I’d be willing to bet, though can’t prove, that the quantity of badwill is proportional to the skill of the developers working with Apple.

I’ve written earlier about my thinking that Google’s Nexus One and Android strategy throw one very large shot over the bow of Apple’s IPhone ecosystem strategy.  With Adobe opening the gates for its developers, it will help Apple get even more apps, a good thing.  But it will likely marginalize Apple’s own developer efforts even further.

Strategically, it seems Apple has some decisions to make.  First is whether it wants exclusive app content, or whether it wants to be one of several mobile platforms for which all app developers build.  This is just like the game console business in my mind–you’ve got the PS3 and the XBOX–they will each fight for a few exclusives, but most apps are on both.  Iphone and Droid will likely end up in this position for mobile apps.  In this case, then, Apple then has to think about how it wants to retain that–on its own SDK or with Flash or other platforms.  Probably some mixture of a few.  And finally, it will be forced (i’d think) to revisit its approval process–its ability to retain control is correlated to the momentum it has.  As the momentum fades, so does its leverage on the app approvals.

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I’d listen to Jon Stewart before Chris Anderson on fixing media’s business model

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TechCrunch summarizes Wired Editor-in-Chief Chris Anderson’s rules for pricing on online media by calling them “counterintuitive.”  Author Erick Schoenfeld, writes that Mr. Anderson “articulated something that is now increasingly becoming obvious: As products go digital, their marginal cost goes to zero.”

“This is the law of gravity online,” says Anderson. “Everything that becomes digital will become free. There will be a free version, either you will be competing with free or giving it away for free and selling something else. If it is not zero today, it will be zero tomorrow.”

He then goes on to summarize Anderson’s new “rules”, which appear to be:

  1. The best model is a mix of free and paid
  2. You can’t charge for an exclusive that will be repeated elsewhere,
  3. Don’t charge for the most popular content on your site,
  4. Content behind a pay wall should appeal to niches, the narrower the niche the better

I’m scratching my head a bit here, and I’d love to have read more evidence of this actually working at mass scale. There are a bunch of counter-examples that a hard-headed business guy like me might push back on here with a hearty WTF.   First off, some counterexamples.

The best model is a mix of 100% pay / 0% free, like World of Warcraft.  It’s media IMHO, you want onto their servers, you pay to be there.

Any packaged software (or pharmaceutical for that matter) has a marginal cost of zero, it is still for pay.  I reject the idea that media–becuase its marginal cost is zero–cannot be for pay.  Plenty of other high-value products have zero marginal costs and extract high prices.  Linux and Windows have been two versions of digital OSs for more than 10 years.  Windows still has the vast, vast majority of revenue and unit share.

Plenty of authors are finding opportunities to charge for their content–especially in the financial sector. Jeremy Siegel for example.

Finally, nowhere do I hear that the core model of big media brand (e.g., WSJ) and all its writers are needed to do what they do.  I love the WSJ, and this stinks to write.  But the net net is that most news will be covered by more citizen-oriented news outlets by  citizen journalists and niches that are running around snapping Twitpics and posting to blogs.  This will mean that vastly smaller newsrooms are going to be needed to do what they do today.  Some will be needed and some are crucial.  But many will be continuing to compete with free.  Very hard to deal with.  This needs to get teed up and discussed.  Openly.

With that out of the way, now I want to explain why I think this talk is off base with respect to big media.  Brands such as the WSJ, Wired, Time, Newsweek do have a well-known problem–they’ve got a bunch of folks in a priesthood of journalism competing with their congregation of citizen bloggers, twitterers and so forth who are happily, ignobly disrupting the stuffing out of them.

Anderson’s prescription may work for them, but I’m extremely dubious.  I think that the congregation of citizens is going to disrupt all the slices of profit from the priesthood of jounralists.  While I might pay a few bucks for virtual currency on Zynga or a special hat on WeeWorld, I’m not going to pay $0.99 for an article that I can just read somewhere else.

I really think that we’re watching in journalism what we saw in the auto makers a few years ago.  We are looking at an industry that doesn’t realize its dead yet.   The business model needs far more dramatic reinvention in terms of what we’ll consume.  That debate ain’t happening though.  Instead, what we’re hearing is that the pricing model needs to go this long tail route, which is a baby step.  They’re using a pea shooter against an elephant on this.

As an example of how radical things need to get, here’s Jon Stewart talking to Katie Couric about what the TV news should do.  His ideas are closer to what I think needs to happen than working on a long-tail price model.

Jon Stewart Interviews Katie Couric

Here Stewart gives Couric all kinds of crazy suggestions–“free colonoscopy for viewers,” etc.  These get laughs, but he’s basically right.  Old media is going to need things like cage-matched talking heads debating health care pay-per-view, manage Wolf Blitzer’s as a multi-medai franchise similar to Tom Petty, and a bunch of other completely crazy ideas.

The idea that a pricing model as suggested is going to do the trick is in my mind, extremely short-sighted and likely to fail.  Media franchises will need to think radically about trying vastly new and different things, else they’ll be in the same spot GM / Chrysler are in now.

Jon Stewart’s become one of the most trusted ‘newsmen’ in the US, crazily.  His ideas on how to fix big media may make him the smartest business person too!

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Facebook’s Vanity URLs’ impact: web-based mail will be the big loser

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Like hundreds of thousands of others apparently, I grabbed a vanity URL On Facebook Friday night.  (I’m www.facebook.com/jay.jamison.) As it was all the rage in the geekosphere, I was aware it was happening.  As the Penguins had just won Game 7 and their 3rd Stanley Cup, I was at home, happy, and ready to jump onto Facebook and grab my URL.

The experience was no fuss and quick.  I was surprised in that sense, as I’d expected to have long queues as Facebooks servers melted with everyone trying to get their URL.  Didn’t happen–the whole thing took about 30 seconds.

So after grabbing my URL, I then finally gave some thought as to what was so important or not about these “Vanity URLs.”  Some, like Om Malik, speculate that it may take a bite out of Twitter’s growth.  I disagree with Om on this–I think the nature of the conversations and interaction in Twitter is fundamentally different than Facebook.  Having Vanity URLs might make groups of friends on FBK have more Twitter-y like conversations, I suppose.  But as a user of both services, I still see them as fundamentally different.  Facebook’s a place where I share with friends updates, thoughts, photos, etc. on a range of topics.  Twitter is in a sense more universal–it’s like a user-generated teletype news feed with people I know and those I don’t.  Vanity URLs don’t really change that for FBK, @replies won’t do all that much either, as my circle of friends already kind of do this in a klugey way in conversations on FBK.

So I don’t see this as a shot across Twitter’s bow, really.  Instead, I think this is more about making it easy for Facebook to grab and secure the next genertion of users.  What I mean here is that I expect that web-based email is going to feel the brunt of this move.  If you’re 13 say, and starting to use computers more deeply, why are you really going to need web mail now?  You aren’t.  You just grab your little Vanity URL, and you tell the world you’re http://www.facebook.com/your.name.  I’d think the groups more directly impacted in the short term are not Twitter, but gmail, hotmail, aol im, etc.

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