Category Archives: Business

Betaday 2013 Pictures

Some photos from the event – Enjoy!

The Foundry

View from the balcony

The crowd eagerly awaits the start!

Cool glass ceiling

John Borthwick opening remarks

Baratunde Thurston, our MC

Ricky Engelberg, Experience Director, Digital Sport of Nike

Andrew McLaughlin interviews Emily Bell of Columbia

Marc Ecko on Unlabeling yourself

The Gillmor Gang

Gilad Lotan presenting recent research

Paul Murphy talks about the HIR program

Aleksandar Kolundzija on

Kuan Huang presenting Poncho

Matt Hackett with

Jace Cooke presenting Giphy

Patrick Moberg with Dots

Hackers in Residence 2013

Google Glass sighting No. 1 w/ Robert Scoble

…and discretely using it all day…

Nick Steele with Google Glass sighting No. 2

Betaday concepts captured on paper

Last but not least, the ever present GoPro camera
which was everywhere capturing time lapse pics

See my previous post Betaday 2013 by Betaworks for a brief synopsis of the day!

The Physical Store Analogy for Internet Competition

Today I just sent this email to a buddy of mine working on a startup:
If [] was a physical store on a street and you wanted to build a store right next to them, what would you build? Would you build exactly the same store or would you do something different?
I always talk about so many me-too products and startups out there today, and the ease of building competitors to just about anything. But entrepreneurs don’t seem to want to stop thinking they can exist and thrive with essentially a clone of something else out there.
My statement/question above is a problem about the internet. In the real world, if you were to build a store on a busy street, would you build exactly the same store? Probably not. You would see that if you wanted all those pedestrians to walk into your store, you’d want to build something with some kind of uniqueness to attract them, and rarely would you want to build the same business that already existed on the street. But on the internet, you can’t see what’s on your street so easily. The browser detaches ourselves from the brutal reality that your competition can be literally a virtual store or two down from you but yet you can’t perceive it as a problem because it’s virtual and not something physically experienced.
And this problem is exponential on the internet as the virtual street you’re building on is limitless in available storefront. Imagine a street with a limited number of pedestrians but tens, if not hundreds of storefronts are squeezing all onto that street, creating ever smaller slices of storefronts for internet pedestrians to walk by, all screaming at them to come in and buy my stuff please!
So ask yourself again – do you want to be yet another storefront on an infinite street or do you want to build something that is truly unique to attract internet pedestrians away from all the same stuff?

Steve Jobs on Design: Explicit vs. Implicit Authority, Authority is Earned

He’s (Jony Ive) not just a designer. That’s why he works directly for me. He has more operational power than anyone else at Apple except me. There’s no one who can tell him what to do, or to butt out. That’s the way I set it up.
Steve Jobs by Walter Issacson

Like the rest of the world, I’ve been reading the new Steve Jobs book by Walter Issacson. I came upon the passage above and it hit a nerve.
One of the long standing debates is how to integrate design into large organizations, and how to use design more effectively. When I read that passage above, it resonated in a big way with respect to why design is so dysfunctional in companies both big and small.
I read all the time that companies are trying to be more design-centric. They bring in consultants, read all sorts of books about people like Steve Jobs, hire design firms – they get all sorts of roadmaps and then try to implement them….and fail.
While I could go into the multitude of reasons on why design fails in companies, I’d like to focus on those brought out by Steve’s quote.
Explicit Authority vs. Implied Authority
It is well known that Steve Jobs uses design like an expert swordsman yields a fine blade. However, he’s not a designer himself; he just has incredible design sensibilities. So he needs help in the form of Jony Ive in whom he has found a kindred spirit in executing his design initiatives.
BUT – Steve was smart enough to understand that in order to make sure Jony Ive could function, he made it organizationally explicit what power he had. This is a big problem faced by many orgs. They say design is important. They say they want it integrated into everything they do. But organizationally, designers are not given explicit authority in the org to be able to make it happen. Their managers may be given the authority, but they do not know how to advance design themselves and so they just say “make it happen.” But they do not know how to argue for support or resources; designers have the best knowledge about their own discipilne to argue for it. Thus Jony Ive reported directly to Steve and was his right hand man and everyone knew it, and knew not to mess with him.
Therefore, the first message of this post is, if you really believe design is important to your company, then make it explicit, through the organization (ex. design has C-level representation, reports to CEO, etc.), and through explicit, constant vocal support by tthe CEO (ex. “why are you asking me? I said, the designer has complete responsibility and I trust him to make the right decisions on this matter.”).
The worst thing you can do is give weak, implicit responsibility. You push designers far down the reporting chain, make them work with those who have more responsibility and power in the org, and then expect them to advance design? You give lip service to its importance but you have setup the organization to fail. So what’s the problem? Trust? Naive knowledge? Unsure of exactly how to proceed? If you’re the leader, you need to figure out what the problem is in you and solve it.
Ability Needs to be Demonstrated and Authority Earned
BUT (another but!) – great power wields great responsibility. You cannot give such power to just any designer. In this passage, Steve describes Jony:
He is a wickedly intelligent person in all ways. He understands business concepts, marketing concepts. He picks stuff up just like that, click. He understands what we do at our core better than anyone. If I had a spiritual partner at Apple, it’s Jony. Jony and I think up most of the products together and then pull others in and say, “Hey, what do you think about this?” He gets the big picture as well as the most infinitesimal details about each product. And he understands that Apple is a product company.
This is the second message: designers, if you expect to get authority in your company, you have to demonstrate that you are worthy of it. It was clear that Steve trusted Jony in all aspects of his abilities to be able to entrust him with the authority. That means you need to build up your abilities too. You need to understand not only design and user experience, but also a multitude of aspects, like engineering, marketing, business development, strategy – everything – and its relationship to design. You need to demonstrate that you understand it fully and gain the trust of company management in order to earn at least the capacity to wield such authority with some level of confidence of not messing up.
With the ascendance of Apple through design, everyone is talking about how to integrate design into their strategies better. Both management and designers need to change and grow in order to make this really happen.

The Dangers and Opportunities of Platforms [UPDATED]

UPDATED: Added another possible suggestion to What Can You Do?
Recently, we saw a flurry of discussion surrounding Apple and their new subscription bounty. So many cries of “foul!” and “unfair!” – it was evident that many people had never taken a deep look at platforms, the people behind them, and why they come into being in the first place.
The First Platform
The first platform I can remember was when Google launched their maps API in June 2005. How cool was that! Before Google, maps data was nearly impossible to get hold of, and certainly not in a form that made it easy to access. Maps data was huge; it took a lot of resources to host and to maintain. It was expensive to get hold of – who could cut a deal with a maps provider at early stage? Even big organizations couldn’t justify the cost of getting that data versus the uncertain return it would bring. Maps data took a lot of computation power to fully access; you had to know how to write programs to access maps data efficiently and quickly.
In an ingenious move, Google took their maps data, which powered their own maps product, worked it out with the maps providers contractually, and then released it to the world through an API. This spawned an amazing flurry of innovation, more than they could have achieved internally. They created a maps platform on which others could build and innovate without the added difficulties of getting the maps data at all, and maintaining it.
Not only did this spawn innovation on their own platform, it created a flurry of platforms launched by every company who had data to share, on the hopes that they could get developers to do something interesting with the data they had.
Why Platform?
Now that Google (assuming there wasn’t another company that did it before Google) paved the way, people had proof that this was a great thing to do and could justify positive effects worthy of their time and cost.
Google showed that companies can open up their data to the outside for the following reasons:
1. They have some valuable proprietary data that nobody else has.
2. They want to extend the value of their data by leveraging outside resources.
3. They want to innovate on that data and want to utilize the creativity of the external developers to do that.
4. They want innovation but can’t do it internally for any one or more of reasons we all could come up with, with respect to big organizations and even small.
5. They want to create another monetization stream, now that Google and others have shown that this is possible.
6. If someone innovates in a way that is hugely profitable and brings an enormous amount of customers and value to the company, that opens up the possibility of bringing that capability into the company either through acquisition or blatant copying.
7. By the way, all this has positive effects on the customers and users of the original platform as they can enhance their experience with the activity via the new innovation that arises.
This is, of course, dependent on the company actually having resources to:
1. Do the development and make the platform available for outside consumption.
2. Create a backend to support the platform and be able to support enough access to it to support a large ecosystem of developers.
3. Create a monetization scheme around the platform.
4. Set up on-going support and maintenance of the platform. Continuing support is necessary to make sure that platform access is not interrupted or corrupted.
5. Setup educational resources to teach people how to develop for the platform.
Opportunity Beckons!
The announcement of a platform comes usually with lots of excitement and interest.
Wow! Data that was previously hard to get hold of, now easy!
Developers can innovate and make money! They put together pitch decks and get funded by investors!
Even the company benefits from the press, who covers this explosion of developer studliness and the emergence of a new ecosystem and rampant innovation.
Eventually, as developers get on the platform, the company makes money by charging for access to the platform. If the company is smart, it would have planned for many avenues of monetization. In many instances, many cannot be planned for. Herein, lies the dangers of developing for platforms…
Dangers of Platforms
While opportunity knocks for both developers and the company, people start forgetting about a crucial concept, which is the most often misunderstood or forgotten concept about platforms:
A company creates a platform solely for its own benefit first, before all else.
I cannot think of any company that just puts a platform out there for the good of the world, and is willing to just pay the bills for providing this service without monetizing anyone using it. Wikipedia seems to be getting an API together so I suppose they are the closest to an independent organization that claims to be non-profit. NYC opened its data to the world and held a competition to see who could create the best applications using that data.
But other than non-profits like Wikipedia and government organizations, for-profit companies create platforms to increase usage, to open up new opportunities, to draw customers, to make more money. Otherwise, how can they justify to their shareholders, budgets, and balance sheets to keep personnel dedicated to developing and supporting the platform?
While a platform may be launched with its services being used for free, at some point this must change. A platform’s owner will eventually, if not at the outset, begin to charge for being on that platform. It will start exerting control through techniques like throttling of data (pay to get full speed and volume access), taking a cut of all money made by anyone on the system, and up to kicking developers who have growing influence and power off the system using a variety of techniques.
All of these facts make it extremely dangerous for any developer to depend solely on a single platform for its livelihood. It’s because you never know when the platform will turn on you. So if you’re going to create a business on someone else’s platform:
Never bank your business on a single platform.
Why is that? It’s because the world has shown that as long as you are small and not a threat to a platform, the platform will let you live on it. The moment you get big, powerful, hugely profitable, and/or influential, the platform will begin to actively work to stifle you up and to the point of shutting you down.
Let’s take a look at what was once one of the most opportunistic platforms: Facebook. Here is a snapshot of a series of events through the history of its apps platform. As you flow through this peek at its history, remember also this essential fact about Facebook which is their relentless focus on the user and keeping users happy:
May 24, 2007
Facebook Launches Facebook Platform; They are the Anti-MySpace
“Facebook’s strategy is almost the polar opposite from MySpace. While MySpace frets over third party widgets, alternatively shutting them down or acquiring them, Facebook is now opening up its core functions to all outside developers.”
After Facebook launches its platform, developers quickly figure out that continuous posting throughout friend’s walls, both legitimate and not, could grow their services enormously by exposing new potential customers to their services. Many grew to tremendous size on these marketing techniques.
Aug 16, 2007
Facebook Takes Action Against “Black Hat” Apps
“The changes that Facebook have made today, while they may inconvenience some application developers, have clearly been done to protect users from spammy tactics that some applications have employed.”
Jul 7, 2008
Facebook Continues War On App Developers. This Week: Super Wall
“Facebook is continuing its war on Facebook apps that push the limits on acceptable user interaction. Last week it was Slide’s Top Friends App, which it briefly suspended. Later Facebook also suspended another popular app, Social Me.
This time they’re targeting Slide’s rival RockYou and their Super Wall application, which tends to have a lot of spammy user content. But instead of shutting down the application wholesale, they’ve simply turned off the viral components of the app – invitations, notifications, etc.
The consequences have been just as dramatic. A month ago Super Wall had 2.4 million average daily users. Today it’s 600,000 and falling fast.”
Those whose services were dependent on a continuous firehose of users and not on their own merits to grow users saw their traffic shut off and many were forced to shut down. But some did figure out how to keep growing within the system, generate huge profits, and then use those profits to further market to users on Facebook via their advertising platform. Enter Zynga.
Oct 31, 2009
Scamville: The Social Gaming Ecosystem Of Hell
“Zynga may be spending $50 million a year on Facebook advertising alone, fueled partially by lead gen scams. Wonder how Facebook got to profitability way ahead of schedule? It was a surge in this kind of advertising. The money looks clean – it’s from Zynga, Playfish, Playdom and others. But a large portion of it is coming from users who’ve been tricked into one scam or another.”
This time also saw the entrance of a clever promotional method pioneered by a company named Trialpay and others like Offerpal, which enticed users to sign up for an advertiser’s service and traded that user signup for credits which could be used in the games. It drove a ton of revenue into the social games running on Facebook and encouraged users to keep signing up for these services in order to get essentially free credits in the games to gain levels and buy virtual goods.
Sep 17, 2010
Social Gaming Market Reaches Its Final Stage…and It’s Not Looking Pretty
“This same cycle is now taking place in social media. When Facebook changed the rules, the early leaders in the space faced two extremely unpleasant realities: 1) Unlike casual gaming, their popular franchises were ineffective at acquiring Facebook audience directly and 2) Paying market rates for audience made their books look a whole lot less pretty. Faced with this challenging circumstance, social game development studios have started taking aggressive steps to remedy their situations, including:

  • Finding buyers as fast as possible before people realize that their growth and maybe even their businesses are not sustainable
  • Leveraging the abundant capital available to try to buy their way out of dependence on Facebook by either acquiring their own standing audiences or by acquiring non-Facebook dependant game companies
  • Overspending on marketing to try to buy audiences to preserve their apparent growth even as their books leak money and their earned audiences decline”

By now, Facebook’s changes and restrictions were growing to point that many companies simply could not survive and were forced to shut down or take other options. If they have enough capital, they attempt a pivot off the platform. If not, they were dead.
Jan 24, 2011
Facebook To Make ‘Facebook Credits’ Mandatory For Game Developers (Confirmed)
“Facebook has confirmed that it is indeed making Facebook Credits mandatory for Games, with the rule going into effect on July 1 2011. Facebook says that Credits will be the exclusive way for users to get their ‘real money’ into a game, but developers are still allowed to keep their own in-game currencies (FarmBucks, FishPoints, whatever). For example, Zynga can charge you 90 Facebook Credits for 75 CityCash in CityVille.”
“Of course, Facebook gets something out of it: they take an industry-standard 30% cut whenever users purchase anything with Facebook Credits. That can add up to a lot of money — we’ve heard elsewhere that Zynga is paying Facebook around $30 million a month for its Credits tax.”
Facebook launched their own virtual currency which they are requiring any developer on their apps platform to use. Direct charging of customers is prohibited, and Facebook receives a 30% cut of all monetary transactions on their system.
What’s a Facebook dependent company to do? Zynga was a lucky one. They were grew so huge that they *could* take their users and leave.
May 7, 2010
Zynga Gunning Up (And Lawyering Up) For War Against Facebook With Zynga Live
In fact, after Facebook began to force Zynga to use their credits, they threatened to leave. They formed and started making motions that it was going to leave and take its audience with them. But, it was also to Facebook’s advantage to keep Zynga on their platform as they were generating an enormous amount of revenue for Facebook. So after a lengthy negotiation, Zynga still remains on the platform, to the delight of users who love to play Zynga games on Facebook, but also paying a significant amount of capital to Facebook, although we do not know the details of how much.
May 18, 2010
Facebook And Zynga Enter Into Five Year Partnership, Expand Use Of Facebook Credits
So far, only Zynga has had enough market power to initiate that kind of negotiation. Every other company has been forced to change their strategy or die.
Will it Happen Again?
There are a lot of platforms and their APIs: older ones like Google, newer ones like Twitter and Foursquare.
You could say that Google search is a platform. Over the years, people have used SEO to drive traffic to their sites. It’s a never ending game to figure out how to get yourself on the top of search results for important terms. Google adjusts the algorithm for best user relevance; companies game the system to get higher up, sometimes being relevant and sometimes to fool users into clicking over in order to monetize them. Even now, companies are in danger of being dependent on Google.
Demand Is Strong For Demand Media IPO
“It’s important to note that Google is changing how it ranks certain websites, including Demand’s network of content. Demand is highly dependent on Google search traffic and no doubt a change in ranking could negatively effect the content farm’s business.”
If Demand Media is to be a true contender in the public markets, it cannot be beholden to another company for its success. It needs to be independent or else it risks being shut down. The markets know this and the short sellers are loading up on Demand Media stock. As of Feb 28, there are 3.21M shorts on DMD, up from 2.68M from the previous month.
Twitter’s Platform
Look at a small piece of history of Twitter’s platform:
September 20, 2006
Twitter Blog: Introducing the Twitter API
Dec 9, 2009
Twitter Spawned 50,000 Apps To Date, Will Open Up Firehose For More
Apr 9, 2010
Twitter Acquires Tweetie
“Unsurprising, because Twitter investor Fred Wilson recently wrote that Twitter developers needed to stop “filling holes” in Twitter’s product and instead build entirely separate businesses.”
When Twitter acquired a mobile app, it put all other mobile Twitter apps in danger. But let’s look at someone who is trying build a business on real-time Twitter data and attempt to monetize it in a way that other Twitter apps have not, to this date: UberMedia.
Why Is Twitter So Afraid Of This Man?
The world suspects that Bill Gross is attempting to aggregate Twitter clients and find a way to monetize the users, which has, to date, eluded Twitter itself.
As a result:
Feb 18, 2011
Twitter Suspends UberMedia Clients For Privacy And Monetization Violations, Trademark Infringement
While I am only hypothesizing here, and the news say that Twitter shut down UberMedia due to policy violations, I am sure that somewhere in Twitter, somebody has noted the growing power of UberMedia and has drawn battle lines in the sand. To me, it was only a matter of time.
And at SXSW:
March 11, 2011
Twitter Drops The Ecosystem Hammer: Don’t Try To Compete With Us On Clients, Focus On Data And Verticals
It becomes official; Twitter clients are Twitter’s responsibility.
And Apple’s iOS…?
So why would Apple’s strategy around iOS be any different, when it comes to exerting control over its developers over time?
The Harsh Realities
1. The launch of a platform can present large opportunities, especially if the platform owner has chosen not to innovate for whatever reason.
2. Small to medium businesses can be built on this platform and the platform allow them to thrive.
3. Over time and as the platform gains users and power, the platform will continue to press its advantage in monetization.
4. If there are any businesses that gain significant influence or power, the platform will seek to limit their influence and power through any number of techniques. This can be any kind of limits in access to the data, to driving more monetization from them, to blatant shut down.
5. As a business owner who is trying to build a business in this kind of environment, it can really suck. You will feel like the world is crashing down around you and are powerless to do anything about it. Feeling powerless and watching all your hard work go down the tubes really sucks. I can sympathize. In my portfolio, the machinations of platforms has already tanked two of my businesses. I’ve learned to not invest in startups who are overly dependent on a single platform.
What Can You Do?
1. Don’t plan on building a business that is dependent on a single platform. Plan early for a business strategy that can be ported to other platforms (ie. a mobile app business that is built on iOS, Android, and Blackberry; ad serving that is on webpages, mobile apps, etc.).
2. You can start by developing for a single platform to gain traction. But move as fast as possible to be not dependent on that single platform.
3. If you’re skilled and/or lucky, you should attempt to build your business as fast and as large possible on the platform. If you can grow your influence and power to the platform, you may be able to have negotiating leverage against the platform in case they attempt to shut you down. Do this before the platform figures out that they should do something about you.
4. If you can, you should build something that is essential to the platform’s customers. This puts the customers on your side in case the platform tries to shut you down.
5. Plan for independence. Can your customers/users be taken with you if you are forced to leave the platform? If so, this makes you less dependent on the platform. Build towards this independence as fast as possible.
6. Build something that continues to add tremendous value to the platform, and hopefully that value is measured in dollars. This has proven to be a way to be exempt from getting shutdown by the platform. An example of a business built on a platform that have been left alone are SEM management companies who are helping Google generate tons of revenue, but their own revenue is independent of gets passed to Google. As long as they do not interfere with Google’s monetization, they really don’t care about how they monetize over and above the rates that Google sets.
7. Leverage PR to your advantage. Write blog posts, talk to journalists about how a platform has destroyed your livelihood. Bad press can be a lever used against a platform’s owner who cares about their reputation in the world.
8. Analyze the terms of service before you start. Make sure you aren’t violating or are close to violating their TOS. Even entering grey areas can put you at risk for shutting down.
9. Don’t develop an improved version of a core service. Just because the original platform owner doesn’t do something basic well, doesn’t mean that they won’t do it better later and supplant you, or shut you down. It may mean that you get acquired (ie. Tweetie), but if there are a lot of competitors, then this can be a single-winner-everyone-else-loses-it-all game.
10. [NEW] Be super-creative and develop a service that is a huge opportunity but also something that the platform owner would never want to do themselves. Then the platform will be most likely to leave you alone (assuming you don’t do something like violate their policies). An example of this is Zynga on the Facebook platform. Facebook will never want to be a games developer, so they will probably never try to do this themselves. However, if you’re great at games development, you can create a big business as Zynga has done. If the platform owner ever wants to enter the space that you’re in, then you’re most likely going to die.
The struggle between the platform’s constituents (users/customers, businesses on the platform, and the platform itself) is a classic fight for market balance. You provide something of value, you find out what people are willing to pay for it, you constantly test how much you can charge for something and adjust to what you think the market will bear. If there is anything you don’t like, then just leave, assuming there is somewhere to go. If there is nowhere to go to, then the platform has all the advantage. But usually there are competitors and a platform has to also work hard to keep customers and businesses on its ecosystem or else they will leave.

Apple Charges Subscription Bounty, Dependency on Single Platforms, Part 2

The indefatigable @webwright posted some comments to my previous post Apple Charging Subscription Bounty, Evolution of Platforms, Free vs. Paid, Right vs. Wrong. @webwright brought up Pandora, who has tight margins and can’t give Apple 30% of its normal subscription fee without taking a loss on every subscription it gains through the app, via this new restriction.
I guess that I could naively say that Pandora should just raise its subscription fee to incorporate the 30% over and above its normal margin and just tell its user base that it had to do it because of Apple. But pricing is rarely so cut and dry.
I could also just say that Pandora should just give up the iOS platform and go Android, which is still a pretty big market and theoretically should make the company plenty of money. But giving up any market is a tough decision to make, especially when there are entrenched users.
And especially that Pandora is in the IPO line up for this year. In looking at their S-1, it unfortunately didn’t mention what the breakdown was in terms of iOS users versus other platforms. So I don’t know if punting on iOS would be a big deal for Pandora or a loss they could absorb with the growth of other listening platforms.
Still, all my supposed solutions are just the musings of a guy sitting outside of Pandora and not a guy who is in the trenches at a company trying to do its best to make money and ultimately go IPO.
I think my point, though, is this. Let’s say a company was singly dependent on iOS as a platform. I am sure we can point a number of companies like that. To me, this is a problem. That’s because when you build a business solely on one platform, you incur the risk of having that platform ultimately be able to jerk you around or even sink you.
Let’s go back to my example of the electric company in my preceding post. The platform on which that electric company depends is fuel. How much it charges for electricity is highly dependent on fuel costs. If oil prices go up, so does our electricity bill. But yet we all roll with the fact that this is true and we may grumble but we don’t go on Twitter and rage about how my heating bill is up a few bucks because those damn oil cartels in the Middle East raised prices again.
Still, at some point, oil prices might rise so much that we might do something. We might even refuse to use electricity from that company and get it elsewhere: home solar cells, energy from one of those other green utilities, etc. That company could go out of business because it was dependent on oil prices with which it has zero control.
Take a look at Facebook apps and the ecosystem it first created, which allowed a myriad of businesses to flourish. Then, they went and started closing down the viral mechanisms that allowed so many games and apps to gain users. Yes, it did do so to clamp down on bad practices, but it also affected legitimate companies and stifled their ability to grow. Many startups either left the app ecosystem or just outright died.
Nowhere else did dozens of companies feel the pain and death as a result of their dependence on a single platform.
Last year, Zynga almost left Facebook but had built enough value and power against the platform to leverage a 5 year deal. It also realized that its future could not depend on this platform, so it started to break away in a variety of ways, forging a partnership with Yahoo!, MSN Games, and also working on Zynga Live.
Zynga was fortunate enough to have grown so large and so quickly before the platform could entirely sink the company. They had gotten enough users who loved their games that they could now just take those users somewhere else. So Zynga shows that you can use a single platform as an early growth mechanism, but it also shows that you better hedge your bets against the day when the platform turns against you.
Apple’s iOS is a platform which has spawned a ton of new businesses. Many of these are thriving in the iOS platform. However, Apple did not create the platform so that other businesses could just flourish out of the goodness of their hearts; they created it so they could make a ton of money and benefit its users who would in turn buy more Apple products and services. It is easy to forget that and just feel entitled that the platform should just exist for the benefit of those working in it.
Therefore, businesses whose livelihood are dependent on one platform as at extreme risk of that livelihood being screwed with by the platform owner and as history has shown, they could even die by the machinations of the platform owner. Companies should be acutely aware of this and work to make their businesses immune to the manipulations of any one platform. If they can, they should strive to create their own platform and jerk other people around instead being jerked around themselves.
So if you were developing on iOS and dependent on subscription revenue, and then Apple comes in and says you gotta pay up 30% or we’ll drop you, you better have a back up plan and execute it fast if you can’t absorb the 30% cost somehow.
On the other hand, if the 30% bounty either kills off enough businesses or makes them leave, such that their users become dissatisfied enough to revolt and leave, then Apple will have to make changes because it needs those users. Facebook doesn’t have this problem – pretty much every user in the world is on Facebook. Users can leave, but where would they go? If they leave, their social graph is still back on Facebook…

Apple Charging Subscription Bounty, Evolution of Platforms, Free vs. Paid, Right vs. Wrong

My buddy, @LDrogen, tweeted recently:
@LDrogen: There’s nothing unfair about this arangement, it’s like complaining that a store owner on 5th ave has to pay rent, complete bull $AAPL
in reference to recent news about Apple formally announcing they were going to take a 30% cut of any content subscribed to through one of their iOS apps. I retweeted it, because I agreed with him.
But then, my buddy @bmull replied back:
@bmull: @LDrogen do you feel like apple should take 30% of anything (pandora, netflix) subscribed to on a MacBook? How is that different? @dshen
to which, @LDrogen replied:
@LDrogen: @bmull no, only content that is exclusively delivered through their platform and paid for in the store $AAPL
and @bmull then replied:
@bmull: @LDrogen so apps in the Mac app store? If pandora had an app in the Mac app store, they should be required to pay apple 30%? / cc @dshen
Apple’s announcement of the subscription bounty recently sparked some strong emotions and opinions on the net. Many were opposed to Apple charging 30% and felt it was unfair that Apple should force this on everyone. But yet, I was OK with it. I promised @LDrogen and @bmull a blog post on this topic and here it is!
Why I think this is OK crosses many dimensions. I’ll do my best to cover them here:
Evolution of Platforms
If you look throughout history at any kind of platform, there is a starting point from which things evolve. Picking that starting point is critical as it sets the evolution from that point onward.
When people got electricity delivered to their homes, a company was formed to create a big generator and maintain it, wire up the neighborhood and maintain that, and then bring that wire to the home. Somebody had to pay for that so that people could create all this and then continue this service to everyone. Since the dawning of electricity service to our homes, this hasn’t changed. They began charging and so we’re used to that and OK with it.
Had the service been provided by the government, then we might have perceived this service as “free” and then developed a sense of entitlement that the government should provide us with these services along with other services. I quote the word “free” because we really don’t get governmental services for free; we still pay taxes and that pays for these services which are seemingly for free (ie. police, fire, elected officials). But changing from that to making the people pay at some point would probably result in some uproar as all of a sudden, people were paying for these services out of some other part of their bank account at a different time, when they were paying for it all along (whether the government would lower taxes in response to this change would be a whole other discussion).
When Microsoft developed DOS and then Windows, they didn’t charge for the presence of software products and services which used their operating system. Not charging here set the tone for software on operating systems for decades to come. Because they did not charge in the beginning, I argue no other operating system could either or else they could not compete against the proliferation of Windows. However, their only two real competitors were Mac OS and versions of UNIX, and of those two, only Mac OS *could* have had the mission of charging as UNIX was a community driven product who probably never would have considered charging anyone to put software on it in the first place.
It’s pretty obvious, I think, that if Apple had charged a bounty to place products and services on their operating system, their ability to gain any kind of share relative to Microsoft over the years would have been hampered severely. Hence, their decision competitively was to not charge or else they would have died years ago.
But platforms evolve over time from their beginning points based on competitive forces and what people are willing to pay for.
Free vs. Paid
This is where free versus paid comes in, as an element for competition and a general desire of the people to not want to pay for anything.
The internet is infamous for taking something we paid for and giving it away for free, disrupting and pissing off older established businesses and creating a ton of new ones. For years, we paid for news in newspapers and magazines on newsstands and then all of a sudden we could get the same stuff for free (to the consumer)!! Wow!
Free then became a competitive tool for new startups and businesses to enter the market, forcing those before them who charged for products and services to go free or die…or at least find a new way to monetize. After all, who could survive by just giving everything away for free in perpetuity? Born was the word ‘freemium’ and strategies of using free to get customers, destroy your competitors (and potentially themselves in a nuclear fury of mutual free destruction), and maybe…just maybe monetizing your customers later., assuming you survived that long. This is the inherent problem of free, which is people who provide the product/service must eventually get paid to support themselves; very rare is the group of people who can provide time/effort into providing a product/service for free indefinitely.
Despite that, free is pretty effective at getting customers. This is because I believe that people in general are pretty darn cheap. Nobody wants to pay for anything. In a choice between getting something for free or paying for it, I would bet that free would be chosen near unanimously no matter what the consequences. We are indeed a selfish bunch; welcome to capitalism!
Coming back now to the exchange between @LDrogen and @bmull and Apple charging for subscription fees on its iOS platform:
Can Apple charge?
Yes, of course, they can. They have full control over the platform since they built it and have built controls into software/services which enter into the platform.
Am I OK with them charging?
Yes, I am. I am in the minority on this issue, but I believe that people should get paid for the products/services they provide, whether its software, news, music, or videos or whatever. If I enjoy these services, then I want them to get compensated for it to the level that they can survive and feel motivated and incentivized to produce the best of whatever it is that they are working on. I am totally OK with watching TV shows which I purchase through iTunes. I pay for music all the time. I still subscribe to physical magazines and also read news online that I do not pay out of my own pocket for.
But, I also want Apple to be motivated and incentivized to provide the best platform they can provide. To date, iOS and the hardware it runs on are clearly superior to that of any other platforms out there. Granted, if someone never encountered an iOS device, they would be totally OK with Android or some other similar touch based, app economy platform. They still get the majority of the benefits that was pioneered by iOS. But if you have the ability to experience both platforms side by side, you’ll notice that iOS is just better, sometimes so subtly superior that you may not be able to articulate why. That is the magic of Apple’s user experience and the care and attention they put into making their products not just good enough, but insanely great. And I want the people who create these insanely great products to keep doing it, and so I want to them to be paid and happy.
As long as Apple keeps putting out superior products, I’m OK with them charging.
If they falter, then I believe that people will vote with their feet and their wallets. Faltering can simply mean, “I don’t think you should charge so I’m going to Android, et al.” which is a choice and an opinion. Or someday, Apple will start to build mediocre or crappy products and then we’ll all bolt to someone else who is better. Or if the world evens up on its superiority until everyone is at some new baseline of mediocrity, then we’ll all choose on price since when all else is held equal, the only differentiator is price.
So if you disagree with Apple on this issue, it’s easy; vote with your feet and your wallet and go somewhere else. If enough people vote to go elsewhere, Apple will be forced to change. This also goes for businesses who want users to subscribe. If they don’t want to pay the bounty, then don’t be on the platform. Go somewhere else. You may add to the pressure put on Apple to charge or not charge.
What will the future bring on the charging on a platform issue?
If Apple decided never to charge a subscription bounty, I believe they will never be able to in the future. People get used to whatever cost environment they operate in and hate change, especially ones that impact their wallet negatively. That is why going from free to paid can be painful when you’ve trained a whole bunch of users to enjoy your products and services for free.
If the world votes with their feet and wallets to go somewhere else, whether through better products elsewhere or simply by their opinion, then Apple will be forced to change their strategy. It’s that simple.
To reverse the decision on apps through the Mac App Store will be a difficult one, given that Windows still dominates. While Mac OS is gaining on Windows and everyone universally hates Windows, I think the competitive landscape is still very unsure and Apple won’t be able to do that for a long time if they want to continue gaining share on Windows.
Perhaps at some point in the future, if they dominate, they may be able to impose a bounty on subscriptions. But that is far in the future. Or they may never be able to. Or they just might not. We’ll have to wait and see.
Right versus Wrong
So much in the commentary on the net is regarding right versus wrong. To me, being religious on this issue sparks of the entitlement that people feel, but also their bias on the issue relative to their own position in the ecosystem.
As I said before, people are basically cheap. They don’t want to pay more for anything. If Apple charges a bounty, this could raise prices.
A lot of people who oppose this issue are also are those trying to build businesses on top of Apple’s iOS. They want to make as money as possible and don’t want to pay bounties at all.
Everyone complains, but again the answer is easy. You don’t like this, then go somewhere else. There are other platforms to build for like Android. By some metrics, Android even leads iOS in sold devices.
There is no right or wrong; the shades of grey in business (and in life) permeate everywhere. Our own self interest and biases may be hidden but we have only our self gain to blame on whether we are OK with Apple charging or not.
Still the reality is that workers need to get paid and support themselves and I, for one, want to keep motivating them to do great work. I want to buy music so artists will continue to make awesome music. I want to buy TV shows to download so that I can enjoy the next great show. I am OK with paying for content because I want content creators to keep doing it. And I want Apple’s employees to stay motivated on making the best platform out there, even if prices are higher on Apple platforms than on others.
And by the way, today’s press release on Apple’s subscription bounty says:
“…when Apple brings a new subscriber to the app, Apple earns a 30 percent share; when the publisher brings an existing or new subscriber to the app, the publisher keeps 100 percent and Apple earns nothing.” – “Apple Launches Subscriptions on the App Store” – Business Wire
This little nuance is important – they do not take 30% on ALL subscriptions, only those they create. If the publisher does a better job than Apple at gaining subscribers, then they pay no bounty.
How do we feel about the subscription bounty now?

Confirming Meetings

One habit I’ve gotten into over the years is making sure the night before I take a look at tomorrow’s calendar and send an email confirming every meeting I have. I confirm the time, place, and give my cell number.
I felt compelled to write about this because very few of the people I meet with do this. It seems so important and not often done at all. I wonder about this a lot.
Why is this important?
1. In many instances, the other person didn’t write down or put in their calendar that we were meeting. Now I’m wasting my time going somewhere expecting a meeting and they aren’t!
2. The other person couldn’t make it, but I wouldn’t have found out if I didn’t email them! They either didn’t bother to tell me or it kept slipping their mind to tell me but my email reminded them to bring up that fact! Many times if they have assistants, good ones will reconfirm and tell me if their boss can’t make it; but often I have to email the assistants to find out!
3. I want to make sure that the other person has my cell number handy, and in a recently accessible place: within 24 hours of email, in case something goes wrong at the last minute. Then they can call or text me to tell if they are late or can’t make it. I have found that contact management for a lot of people is very, very spotty.
4. I or the other person has often made the mistake of thinking we were meeting somewhere else! So confirming helps reinforce the place we’re going to meet.
As mentioned before, in the confirmation email I put the time, place, and my cell number. If I can, I will find the original email which sparked the meeting and put in the confirmation. Or I will write a short sentence reminding them of why we are meeting if it’s not obvious. I like to make sure I remind the other person why we’re meeting or else it may be awkward for both of us wondering why we’re meeting in the first place.
Before I meet someone for the first time, I try to pull up some info about them: LinkedIn, Google, an executive summary, pitch deck, look at their website, remind myself of who introduced us. This is to help break the ice and get the conversation going. Sometimes I’ll be doing this on my iPhone while walking to the meeting; other times, I’ll print out the materials and flip through them before the meeting. Or I’ll get to our meeting place early and do it all there. Familiarizing yourself before the meeting shows you care enough to have spent time to do that. I think it speaks a lot for showing respect for the other party.
Many times I’ll also try to find their picture online which helps immensely to find the other person in a crowded venue. Likewise, I may email or text to the other person what I’m wearing and what I look like so they can find me easily.
If I’m somewhat late to the meeting, I try to text/email/call them that I’m going to be X minutes late. This is also showing common courtesy that you’re running late and that they aren’t just sitting there waiting for you, wondering if you’re going to show up at all. But generally, I try to get to someplace early; tardiness is not a good habit to get into!
All this seems like basic good meeting habits but, as I’ve observed, it happens very seldom. I would love to see more people learn these habits, and certainly I assign a new level of respect to anyone who sends a confirmation email before I do!

The Rise of Small Business on the Net

A few years back I worked on a tiny startup that was attempting to jump on the affiliate marketing/blogging bandwagon. It was all the rage that people were making $100Ks per year just writing articles and doing a good job on driving traffic and purchases to marketers. It was a site about how geeks were cool because they were buying cool products, and so we would write about these really cool products and then drive affiliate traffic to places where you could buy them.
Our venture didn’t get that far, but so many others’ did. And the list is growing.
As everyone working on projects on the Net knows, the cost of building a business has dropped dramatically over the years. It started with blogging software which would could install on our own servers or use the hosted versions. Now, you can go out and find shareware for just about anything; stuff that would have cost a big company millions of dollars and a team of 100 to build in the past could now be found and deployed for a tiny fraction of that cost.
It’s also easier to deploy web applications now. Previously you had to be a computer scientist to do so; now just about anyone can figure out how to deploy it, or using hosted versions just fill out a signup form and point your domain at it and you’re off and running.
So now, just about anyone can throw up a website which has some advanced functionality. And people are doing it too. In the startup world, we see the internet has gotten super crowded over the last few years. Very few truly unique business/product ideas have emerged, and many are just clones of each other. Or once someone puts up a good idea, the clones emerge quickly because it’s so easy and fast to put up a website. Thus, it’s now less about the idea but rather how many customers you can grab and whether you can monetize that traffic to balance out your burn.
Thankfully, the internet crowd is enormous. Grabbing a small slice of that traffic and monetizing it effectively can mean a sustainable business that pays its employees a decent salary. In the past, we called these businesses microbusinesses or lifestyle businesses where a single person could make a decent living managing a website. However, in today’s world, I call this phenomenon the rise of small business on the net.
Many startups we encounter have plans that we know can reach this stage. With great execution and effort, we can easily see many businesses growing to great small businesses. They will have revenue from several $100Ks a year to small millions. They have a small teams and all of them are well compensated for their work. All the employees will have great lives supported by this business.
The effort is comparable to opening up a storefront on your favorite street. In the old days, you’d go find a great physical location with lots of foot traffic. You go get a small business loan from your local bank and open up shop. Then you go and acquire customers and build your business from there. In today’s world, you can do it on the internet without a physical location and tap into customers from around the globe.
From an investor’s standpoint, we’re finding that this creates a number of problems. Our model is dependent on finding those startups which will go big, much bigger than small business size, and find a way to return our investment with large gain through some mechanism like M&A or IPO. However, the ease at which startups can reach small business stage makes our job harder; we’re seeing many businesses reach a certain level of growth and then breaking through that level is tough due to how easy it is for competitors to enter your market, and how hard it is to acquire the attention of users.
Some of us are thinking about change in the way we support some startups. I find parallels in the area of restaurant investing, where the investment is all about cash return and not ownership. What kind of restaurant would go IPO? Highly unlikely. But could we make 10-20% on our investment? Infinitely possible.
I wonder about how the structure of deals we do for internet startups might mimic restaurant investing. Instead of caring so much about ownership, perhaps we should find a way to get a healthy return on capital invested through cash flow, if the startup monetizes efficiently and does it well.
The problem with traditional investing in startups here is that these small businesses may never attract an acquirer and certainly the chance of an IPO is even more remote. Driving these small businesses to activities to return an investors’ capital in that manner may take a healthy sustainable operation and turn it into something unsustainable and problematic as it reinvents itself to attract an M&A event or IPO. That seems dumb; the business is thriving and its employees well paid and happy – why destroy this?
I think the world of investing should think more about the rise of small business on the net. Many more businesses each day are showing up that are great sustainable operations supporting employees and their customers. They are never going to be superstar Googlesque success stories and we should not attempt to turn them into one. In today’s crappy economy, the world needs more small businesses to show up to employ the masses and make them money. We as investors should find a way to invest in and help these companies to grow, and just be comfortable in the fact that they will never be Google but still can help us make a healthy return on our money.

The Hierarchy of Attributes for a Product Person

Often I wonder what makes a great “product person”. There are definitely those “product manager” type attributes like project management skills, group management skills, business development experience, and the like. These are important, but I want to talk more about those fuzzy skills that give a person a sensitivity towards what makes a great product out in the marketplace.
So perhaps the “product person” I talk about is not just about the product manager or those we choose to lead product teams. I am talking about anyone who seems to have that innate sensitivity and instinct towards creating a great product.
I thought about this for a while and thought it could expressed as a hierarchy like a pyramid:

In describing the levels in numerical order, the bottom-most levels deal with the self. The next level expands thinking to include others. And the top most levels deal with actually being able to do something about it.
The levels are:
1. Can only express a like or dislike for something, but cannot articulate why, or very vaguely.
2. Can explain clearly why they like or dislike something.
3. Can explain clearly why others like or dislike something.
4. Can create something for yourself, that is expression of likes, and/or fixes dislikes.
5. Can create something for others, that is expression of likes and/or fixes dislikes.
I talk about a person’s product sensitivity as likes or dislikes in the sense for what they would like or dislike in product. In this case, a great product is a product that many people likes a lot about, and dislikes very little about it. So in other words, a great product is one we love, want, or even need. My definition of a great product person is someone who has risen to the top of the pyramid and not only express likes or dislikes for himself and for others, but one that can take those likes and dislikes and create something that not only he loves, but everyone else does too.
The pyramid is an illustration of how rare great product people are. A lot more people inhabit the lower portions of the pyramid and pretty much everyone can tell you whether they like or hate something. But they can’t necessarily explain why.
Then as you move up the pyramid, you also need to be able to release your own ego and expand your sensitivity to others. This is very difficult as most people are very self-centered and tend to like solving problems for themselves. In fact, it’s a lot easier to solve problems for yourself since you know yourself pretty well and can keep at it until you like something a lot, and your dislikes disappear. However, doing this for other people is much much harder.
In design, we are taught design processes which tease out what others like and dislike and we have methodologies to discover them, and to figure out what to do about them. These processes can help create great products, even though the people involved may not be superior product people.
But, I believe the best product people have an instinctive connection to what makes a great product and often does not require additional processes and methodologies to do so. These processes and methodologies certainly enhance a great product person’s ability to create something great, so many great product people smartly employ these techniques to fine tune their creations.
I offer up this hierarchical pyramid of product people attributes as a potential way of evaluating whether or not someone truly is a great product person or not. I think that it could be a way to structure questions to ask a potential hire by giving them an example of a product to evaluate, and see how far up the pyramid they get in terms of sensitivities. Then you can figure out whether or not the person is great enough a product person for you to hire.

Are You Evil or Are You Just Lucky?

Last night I attended the Startup2Startup"s CeWebrity DeathMatch: Jason Calacanis vs Guy Kawasaki on "Is Apple Becoming Big Brother?" and it was a hoot. Watching Guy and Jason rag on each other was pretty hilarious and Dave McClure did a great job keeping the action going all night.
After the main feature, Startup2Startup dinners have a discussion at our dinner tables around a topic, which, tonight, was based on the concept of being evil and whether it was necessary or not. One question that circulated around the table was whether or not doing evil things in our lives was justifiable or not. In a funny way, I was glad that we did not get around to me answering this question because I really didn’t have an evil example in my work past to give.
How can that be? Well I’ll tell you. I thought back through my work history and could not think of a single evil event I’ve ever done. Not in business, not in politics of corporation, not in management. Now perhaps some of my former team may think of evil things I’ve done, especially like during layoffs, but that wasn’t really self orchestrated but rather forced on me by the corporation.
I’ve always tried to live my life to a higher moral standard and in dealing with people as human beings. I’ve never been great at lying, and thus corporate politics totally are out of my realm and I have seen many instances where I would have been totally outclassed in dealing with manipulation and backstabbing of others. I’m also not very talkative during meetings, which I believe has sunk my career because I’ve always let others take the limelight and not myself. The unfortunate by product of this is that if you don’t say something in meetings, people tend to view you as having nothing to contribute and thus are not worthy of attending further meetings or advancement in the company.
This, my readers, is the reason why I got about as high as I could up the corporate ladder and then could go no further. Because I’m an honest guy, don’t play corporate politics well, and just do my job well, that’s unfortunately not a formula for success in organizations.
I thought back to this lack of evil and wondered how I came to be at this point in my life. And I came on one big factor which has carried me to this day – that is LUCK.
In looking back to people I’ve worked for, the companies I’ve been at, the people who took a chance on me when I was just a dumb out of college guy, and then somehow being buddies with right two guys at Stanford leading to me joining the right internet startup at the right time – these coincidences were incredible instances in chance.
Looking back at this path I’ve taken through my career, I could have just taken the wrong step in a multitude of places and gone off totally into another place. But yet I ended up here.
Intelligence had an effect? Perhaps, but a lot of smart people do some smart things, or what they think is smart and don’t get anywhere. And I’m not particularly a genius either. I don’t think I went around and did anything special but just happened on these people as I walked through life. So that couldn’t be it.
While a lot of people poo-poo luck, I’m a big believer in it. The big problem is, how the heck do you find luck? I also think that some people are naturally lucky, and there are people who seem to have no luck at all. To that end, I have some suggestions as to how to increase your luck:
1. If you’re a lucky person, you’ve made it!
2. If you’re totally unlucky, I don’t think you’ll instantly be lucky. However, there could be hope for you. Read on.
3. Hang out with lucky people. Don’t you hate it when some of these people always seem to have great things happen to them and it doesn’t seem like they do anything? These are the people you need to find and become BFFs with. The downside is that lucky people want to also increase their luck, so they will try to find luckier people to hang out with. So you may not be successful in becoming BFFs with these people because they may spot your lucklessness.
4. Get rid of unlucky people around you. These people will be a drag on your life. Don’t hang out with them. Something bad that happens to them may also happen to you despite your luckiness. Increase your luck by hanging out with lucky people.
5. Generally, lucky people are happy, and unlucky people are not. I think that your general outlook in life can help add lucky points to your life, or at least fake it.
6. Don’t go putting yourself in risky situations. Why walk around in the middle of the night wearing expensive jewelry in the bad part of town? Duh. Reduce the chance that your unluckiness might manifest itself. Or don’t use up your lucky quotient for the day by doing inherently risky and stupid things.
7. Place yourself in situations where you can shine. So instead of walking around in the middle of the night wearing expensive jewelry in the bad part of town, go to Startup2Startup and meet some smart people, maybe some VC who takes a liking to you and funds you.
As an entrepreneur or investor, I cannot under emphasize the importance of luck. Meeting the right founder at the right time, being in the marketplace and finding some product that consumers love and it takes off, finding the right business partner who ultimately buys your company, or discovering that in a crowded marketplace that you backed the right entrepreneur (like me joining Yahoo, instead of Excite, Infoseek, or Lycos).
Luck is one of those unexplainable forces in the universe. All I can say is do things to increase your luck as one of those things you can do to help you be successful in life or business….and be very wary of when your luck runs out.