It’s Not the Wild West Anymore

A recent Facebook post by David Sacks is worth reading.  He said:

I think silicon valley as we know it may be coming to an end. In order to create a successful new company, you have to find an idea that (1) has escaped the attention of the major Internet companies, which are better run than ever before; (2) is capable of being launched and proven out for ~$5M, the typical seed plus series A investment; and (3) is protectable from the onslaught of those big companies once they figure out what you’re onto. How many ideas like that are left?

As you might expect, his note sparked a fierce debate in the comments (and a TechCrunch article).

I think he’s more right than not:  the unbounded “wild west” days of the Internet are winding down.   I’ve written before about the GAAF ecosystem, and how much of the Internet is now controlled by Google, Apple, Amazon and Facebook.  Those gorilla incumbents have taken a lot of friction out of the system, but they also tax, manipulate, control, and limit success at the upper-bound.  You’re not going to build the next Facebook on Facebook.

(The incumbents will get replaced, but it will be a LONG timeframe — they’re too deeply entrenched.)

However, the Facebook discussion suggests a nice framework for evaluating opportunities.  Ideas within the incumbent ecosystem (especially pure Internet software ideas) will be limited.  But stepping outside that ecosystem makes things much, much more interesting.  Uber (mentioned in one comment) is a great example:  they solve a messy, real-world problem — they’re a lot more than just a app.

Markets are smart:  Silicon Valley will figure it out, but it might take a while.

The CPU Free Lunch is Over

Back in the late 70s, my dad ordered a Heathkit H-89 computer.  It had a 2 Mhz 8-bit Z-80 processor, took months to arrive, cost $1600 (in 1980 dollars!) and we had to put it together.  Now, you can go to the nearest Best Buy and walk out with a ~3Ghz system for a few hundred dollars.  While that’s a staggering increase in price performance, you may not have noticed:  we haven’t seen anything much faster than 3-4 Ghz for a few years.

That’s because we’ve “hit the wall” for single-processor CPU performance, and we’re at the limit for CMOS processes, circuit performance, and instruction level parallelism (ILP).  New processors from Intel and AMD are “spreading sideways”, implementing multiple CPU cores (2, 4 or even 8 processors).  Future processors will have even more cores, and you can “rent” as many additional processors as you need, in the cloud, on the fly.

This is a fundamental change in CPU performance architecture, and it’s forcing software developers to think differently.  For decades, you could speed up your software by just waiting for the next (faster) CPU.  Now, that’s no longer the case.

This leaves us with many large, complicated legacy code bases (e.g. database engines, solid modeling kernels, etc.) that need to be completely redesigned to take full advantage of multiple cores.  That, in turn, will create new opportunities — someone will step in to build multi-core scalable implementations of this stuff.

The Subtle Power of Git

Unless you’re a software developer, you’ve probably never heard of Git. If I told you it’s a source code version control system, you’re might then think, “who cares?”

Occasionally, a tool comes along that quietly but powerfully changes the way things are done. Git is one of those tools. Developed out of necessity by Linus Torvalds in 2005 to host the Linux kernel, it’s recently exploded in popularity.

For all of its features, Git’s real power is enabling distributed, non-linear development. Because branches are effectively “free”, everything’s done in branches. Developers typically work in their own branches. If a developer is fixing a bug, she might make a new branch, fix, test and commit, then merge that back into a working branch (or the main one).

In contrast, with systems like Subversion, there tends to be much less branching. Developers end up “huddling” around branches, and having to spend much more time coordinating commits. The usual result is that commits are larger and less frequent, which makes merging significantly more difficult.

With Git, developers make small, frequent commits to their own working branches, then they merge that branch into the main one. Often, the merging can be automated: the merger has a much better chance of success with 10 small commits than one big one. Also, Git enables ad hoc sub-projects: two developers working in the same area can merge between themselves, then when done, offer up the combined branch to merge into the main project.

But it’s not enough to just start using Git — if your team uses Git like they use Subversion, you won’t be getting the benefit. You’ve also got to change your development workflows.

Why aren’t you using Git for your project?

It’s All Fun Until You Become an OS Feature

Catching up on my reading, I liked what Fred Wilson recently wrote about the cloud storage space:

It’s not a space I like very much because I don’t think we’ll be using files in the cloud. Now Dropbox is a brilliant company and an amazing service and they are doing very well, but will we need a service like Dropbox when everything is in the cloud? I don’t think so.

He’s absolutely right:  cloud storage/file sharing is not the end-game.  It’s just an intermediate step to what users ultimately want:  (a) having their documents and “stuff” everywhere, and (b) being able to easily share things, with manageable security and access control parameters.

Eventually, these capabilities will be built directly into apps and operating system platforms, as we’re starting to see with Apple’s iCloud.  This will severely threaten third-party providers, such as Dropbox.  Remember FTP Software and Stacker?  They were hot products until they became operating system features, and then their revenues fell off a cliff.

Lottery Avoidance: Have a Real Asset

If you’re one of the five people that read this blog, you know I’ve become negative on many pure-software/Internet/mobile entrepreneurial projects.  Low barriers to entry create a competitive, weedy ecosystem that becomes a lottery for many entrepreneurs.  (Investors have a slightly different situation:  they can pick break-out winners from a field of options, where entrepreneurs have to start from zero).

So, how do entrepreneurs avoid the lottery?  There are a number of ways (this is the first in an ad-hoc series of blog posts).

One way is to have a real asset that’s core to the business, but is hard to copy.  Amazon’s product reviews are a great example:  competing with them means competing with the fact that many buyers go there first to check reviews.  Amazon built their own review database, but I think there are many data & content assets that entrepreneurs could buy or license (exclusively) as the basis for a new business.

Sometimes, IP can be the core asset, when there’s real technology with high-quality, issued, in-force patents, and relevant expertise in the team. Given the time it takes to get patents issued, this means the startup is licensing or acquiring patents to get started — pending applications usually aren’t worth that much.

(Note that software/code is rarely a core asset.  There are lots of smart developers, and software is usually pretty easy to copy.)

The next lottery-avoidance topic:  deep domain expertise (to be continued).

Video Chat is Now a Feature, Not a Product

I tried out the new Facebook Video chat.  It worked great — there was a small download/install, but after that, it was click-and-go.

I’m really wondering what Skype gets out of this.  Facebook’s chat is not integrated with Skype at all, and you only briefly see a Skype logo when the video chat starts.  How is Skype worth N billion when video chat is now a Facebook feature?  I know Skype has some good technology (esp. with firewall traversal), but how hard is it this days to implement robust video chat?

UPDATE:  Skype has a nice blog post on how the integration works.

Finally, I really wish Facebook would invest more in their mobile apps:  getting them current with video calling, and rolling out an iPad app (please!).

When Facebook brings multi-user video chat to the iPad, it’s “game over”! and the iTunes Era

I love

It’s a well-executed simple app offering virtual music “rooms”.  You can just listen, or be one of 5 DJs selecting songs for that room.  It’s a fun way to share music with friends and co-workers.  It’s taking off fast.

I think we’re entering the next chapter for music, following the iTunes era, and it’s all about social.  Apple’s Ping service has the right social buzzwords, but isn’t quite right. is dead on for one aspect of social music, and Facebook has big plans for music.

(And if Facebook is smart, they acquire now or just copy the feature. Unfortunately, I don’t think lasts independently & competitive long-term; it’s so obvious that it should be part of Facebook).

It will be interesting to see how Apple reacts.  Is the iTunes era ending?

Facebook Is The New Internet

Well, not quite, but it certainly feels that way!  When did marketers stop using their own URLs in ads and start using Facebook URLs?

It’s amusing how this seems to have come full circle.  Many users started out on AOL, a relatively closed ecosystem.  Then, the open Internet came along and AOL’s relevance faded.  Now, we’re cycling back from open to Facebook’s partially closed ecosystem.  (I do think Facebook will settle into a hybrid of open & closed that AOL never seemed to achieve:  they’ll control the ecosystem “backbone”, while providing open APIs for apps.)

Also, we’re starting to see Facebook opportunities analogous to what’s existed for the Internet.  For example, we have content management systems (CMS) and other tools to manage Web sites, and we’ll see analogous tools (and associated apps) for Facebook page content.   Other things to expect for Facebook:

  • Analysis tools for the social graph, analogous to Web site analytics tools
  • Tools to manage marketing communications (status updates, new content, direct messaging, etc.), analogous to email marketing / campaign management tools
  • Individual user analysis (using social graph data) and profiling, analogous to ad targeting/profiling systems
  • Systems to manage communications with individual users, analogous to existing Customer Relationship Management (CRM) tools

In some cases, existing Web tools will evolve to include Facebook-specific functionality. In other cases, the Facebook ecosystem will be different enough that we’ll see new tools emerge (I’m expecting this to happen around the social graph).

How Are You Acquiring Customers?

I know that “how are you acquiring customers?” is now part of a VC joke, but the question is no joke.

Across the companies I work with, there’s a very strong correlation between those that found a new twist on acquiring customers early on, with success in the business.  In contrast, those companies that ended up acquiring customers in more traditional ways (e.g. Google AdWords, display ads, etc.) have struggled much more and grown more slowly.

Taking this even further, I think differentiation for many companies resides not with the product idea itself, but with customer acquisition methods.  For the Web and mobile, ideas are plentiful, often easily copyable, and increasingly narrow (because it’s gotten so crowded).  With the ever-growing app/Web-site/messaging bombardment, it’s impossible to get new user attention.

This viewpoint is heresy for many product-oriented entrepreneurs, but I think it’s more right than wrong.  I frequently meet entrepreneurs that have 10 slides on product/service, but only 1 on customer acquisition.  That ratio of attention is completely backwards.

And taking this to the extreme, I’ll share advice I recently gave a friend.  He’s a very creative product guy, working on a bunch of new product ideas.   I suggested he invert things:  stop working on products, and start working on customer acquisition opportunities.  Then, figure out the apps that will engage those customers.

Twitter’s Ecosystem Woes

In case you missed it, Twitter recently updated their Terms of Service, asking developers (effectively) not to build any more Twitter clients.  Now that they have their own apps, they don’t want developers to compete with them.  This announcement was followed, of course, by the expected uproar.

The whole situation highlights several interesting issues.

First, platform companies are always looking at emerging compliments for growth.  Ecosystems are great experimental “test tubes” for the platforms, and ecosystem developers always run the risk of being subsumed.

But this highlights a much deeper issue, unique to Twitter.  In spite of phenomenal usage growth, Twitter’s still struggling with monetization.  The real problem is that they’re stuck in utility-level value. They’re much like AOL’s Instant Messenger:  widely used, but beyond display ads embedded in the Windows client, a very very tough app to make any money from.

Given this, I’m not surprised to see them attempting to take more control — they don’t have any choice.