Hacks and Startups

We hypothesised last year that the iPhone's early day functionality, like all new media, will be heavily driven by porn. Here is confirmation from Time:

The technological feats of the 3G iPhone are key to the coming pornucopia. To date, mobile porn has consisted largely of still images, racy text chat services and so-called "moan-tones," which are sultry-sounding ringtones. In Europe there is an active market for video chatting; customers pay $50 a month on average to exchange dirty messages with actresses. But now, thanks in large part to the iPhone's video dexterity, short clips are becoming a staple for the mobile porn business. The speed promised by iPhone 2.0 is much anticipated. Google Trends, which measures Web buzz, shows a sharp increase over the past year in the popularity of the term "iPhone porn."

We look forward to Apple reforming the online porn industry with an iTunes like service. YouPorn, you have been warned. But there are issues:

Opposition to iPhone porn, however, may grow as well. The genre's availability could spark new demand for mobile phone porn-blockers, as parents realize that children could access adult content on Apple's device.

Blimey - who buys iPhones for their kids?

Comes as no surprise that the number of VC firms in the Valley are shrinking, and will continue to do so:

There were 844 venture firms investing in U.S. companies last year, 40 fewer than in 2006, according to the latest data from VentureSource, a research unit of VentureWire publisher Dow Jones. That is down 30% from the bubble year of 2000, when there were nearly 1,200 active investors....

In fact, The National Venture Capital Association President Mark Heesen:

....foresees a 15% decline in the next two years in the total number of venture firms investing in the U.S., many of them too small to meet the NVCA’s membership threshold of $5 million under management. The NVCA has about 470 member firms representing 90% of the venture capital under management in the U.S.

Partly its the shakeout from the bubble, but partly its due to good old Messrs Moore and Mercalfe - it costs an order or two of magnitude less to build a startup and get to a decent point of traction, and if it is successful it can usually get mmoney on decent terms from a number of sources. The industry needs to restructure to a more "mass production" model for funding, via incubation (Y Combinator) or a more simple deal, portfolio approach (eg Charles River)

Richard Dawkins, inventor of selfish genes and memetic theory. and who has more recently become the god of atheists everywhere, is on Twitter - but this morning I was intrigued to see the following series of posts from him:

- While I still have 1700 of you paying attention, I just wanted to say: Whatever you believe, respect others beliefs.
- It's not wrong to be kind to people who don't believe the same as you. You don't have to be militant atheists.
- People who claim to be Christians can be hypocrites, but they're just people, and all people make mistakes. Try to be good to one another.
- That is my message of peace to all of you. Love one another. It's ok.
- Consider that being hostile towards others has never won any followers. Richard Dawkins is just an old man trying to leave behind a ...
- legacy. Just like I, a Chrisitan do not follow Jerry Falwell or Pat Robertson, don't be mislead by someone just because they share your...
- belief system. It's easy to be against people who are different than you, but try not to be like that. Take the high road, unlike RD.
- Thanks for listening and following along. Have a nice day.

Assuming for the moment that Mr Dawkins has not had a Damascene conversion, then his Twitter account has clearly been hacked (Twacked?). A very un-Christian act I am sure, but there you go. I don't know how it has happened (hackers, man-in-the middle etc) but this got me thinking about the impact of hacking in different comms media:

Email - the hack potentially goes out to to your adress list (your "tier 1" social network), and it can be transmitted on to your "Tier 2" but it remains hidden until then, and there is a transaction cost (forward) for any of your contacts to do it. Email Groups are not really different, though because everyone in the group knows its a group message it could change the dynamic (more likely someone will realise its a scam?).

IM / Skype - its far harder to spam IM as many systems only put up sessions for 1-1 online chats, and not everyone records them. Those that do have address books that allow mass messaging are in a similar position to email, except the transaction costs of re-sending the message on to others are higher because by and large they are clunkier than email systems

Chatrooms - an address can be taken over and everyone on the chatroom can see it, like in Twitter or an email group, but most Chatroom stuff has very low persistence and is certainly not linked to the web.

Synchronous (Reciprocal?) SocNets (eg Facebook) - where links are 2 way - ie you only get my messages if I agree to be your friend. Situation is similar to email above,except that as they are web documents, rather than on users PC's they are theoretically exposable with lower transaction costs. It starts to depend more on the privacy controls of the service supplier.

Asynchronous SocNets (Twitter et al) - are different. Firstly, the linking is asynchronous in that (i) I can link to your posts without you knowing me, and (ii) anyone who knows me and sees me talking to / about you can look at your posts too, unless they are held private. Most people do not do this. Secondly, there is a public timeline that can be picked up unless posts are held private. And Twitter links to the Internet, so that post is stamped there too. Whole new ballgame of risk if the account is hacked.

A lesson for us all to keep a close eye on how we manage more public comms like Twitter etc.

Update - The Twacking was not so much a man in the middle attack, but an avatar-sitting impostor, a Fake Richard Dawson (I note he has now declared himself on Twitter). Thanks to Rae's comment below for the link to (we hope) the Real Richard Dawson:

Yet again, some impostor is pretending to be me. I do not Twitter, I had never even heard of Twittering until this thread alerted me to it, and I most certainly have not signed up for it. I am told there are numerous Facebook pages purporting to be mine. None of them is. I do not have a Facebook page, or anything comparable.

The impostor's agenda is religious, so thats why I never got a response to my query on Memetics I know avatar-theft goes on in Facebook, and in Friendfeed people are now group-squatting, but this is the first Twitter example I know of.

Umair Haque blogs about how one can re-hack Detroit, riffing off a New York Times article that notes that (surprise surprise) in these straightened times gas guzzling (and profitable) SUVs are losing ground:

Here's perhaps the ultimate industrial era business: Detroit - who seems to be trapped in terminal strategy decay.

Let me cede the floor to you.

How would you rethink Detroit for the 21st century - not just in terms of technology, but, in terms of management, strategy, and advantage?

You can use the principles we've been discussing, bring something new to the table - or perhaps you think the chances of renewal are slim to none

Here's some thoughts then, as requested - its not as if Detroit hasn't been shown how to strategically re-hack itself - Toyota etc have been in the game with Just in Time manufacturing and all those techniques for 40 years, now build cars in the US, and Detroit has crawled all over them. Ditto European car makers, and Ricardo Semmler had some innovative success in Brazil.

So the issue to me is more, given that they already know the answers, why are they unable to execute?

This is not a re-hacking issue, its a "how can we make them drink the water" issue.

Rigid labour conditions are often held as an example, as is the "DNA" - but if you go back to GM's Alfred Sloan, the original DNA was pretty flexible and pragmatic in many ways, and the Japanese companies have dealt with labour successfully all over the world. If I recall, the Japanese were handed a GM factory and turned it round

So is it just a basket case that should be left to wither away?

I suspect the answer - in my experience anyway - is that none of these companies have really had their backs to the wall for a long time, and organisations in that situation accumulate a lot of unnecessary crap in their workflow, like cholesterol in a blood system. This only goes away when they have to jettison bad habits or die. If you've ever done any change management, you'll know that apart from rare examples of forward thinking companies, in mos cases change is minimal without massive, compelling pressure - and that only happens when they face major crises that can actually kill the company in short order (ie the current management could lose their jobs in droves - focusses the mind).

I also wonder if the Detroit mob can't use the US's Chapter 11 laws to help restructure themselves, it may be the only way to exit some of the legacy issues they have built up while still viably trading.

I spoke at the Converged Services Congress in Amsterdam yesterday, which I shall write up later - but initially I wanted to blog one session which I thought was very useful for the Web 2.0 startip scene. It was by Daniel Holle, who is researching for his PhD at the University of Regensburg, and waqs based on what Telcos and Media c o's have found mekes for succesful new launches in the converged service space.

(I've remarked before that I have a foot in the Web 2.0. the Telco, and Media Co camps and though they are all doing much the same stuff, they are often calling it different names, and wearing different clothes )

Anyway, the key points of Daniel's research so far are that success is driven by:

Understand user Needs – stick to the user, not the technology

- Seek repeated feedback and integrate into service
- Understand the usage scenarios – watch what the users are actually doing
- Don’t get blindsided by technical possibilities

Make the choice on features – and integrate the systems to deliver these, rather than have a number of uni-services existing side by side

- Focus on what actually adds value from what already exists
- “Known” functions must be as good or better than “good enoughs” already available
- Give users a selection choice

Get Usability right, early – and reduce the complexity

- Use similar usability to existing “knowns” initially
- Seamless transfer of “knowns” is required to migrate customers to the new service (eg easily set up friends on a new social network, migrate email addresses to a new client etc)

Don’t forget about the overall ecosystem – need to test in an end to end environment.

- Daniel differentiated between two ecosystems – the early stage and late stage ones:

Early Stage Ecosystem – keep it closed and simple and ensure:

- high quality of operation
- high attention to User Experience – iterate like mad to get it right
- Small number of service options / tariff options initially

Later Stage Ecosystem

- Open up Ecosystem to 3rd parties when it is stabilised
- Avoid functionality that you can’t manage reliably
- Increase personalisation options

I asked Daniel if there were any lessons on scaling – ie whether to design for scale early, and risk over-egging the pudding, or grab customers first and worry about scaling later if you are successful. His view was that its far easier to scale a system when its simple, and his view was that thos companies that scaled well had got the product right first, kept it simple, then re-designed where necessary for scale .

...you have written exactly the sort of post I wish I had thought of first (you will, Oscar, you will) - to wit (and it is, very) the 5 Ages of Startups. Now, they say the copying is the sincerest form of flattery, but that is so Old Media - no, in the New Meedja Copy & Pasting is the sincerest form of flattery, so I have applied a quick bit of digital flattery here:

IN THE BEGINNING

One day an entrepreneur is chatting with his friends, gets an idea, writes about the idea on his or her blog, and then starts coding. A few weeks or possibly days, a beta — increasingly a euphemism for a not-fully-thought-out-product — emerges.

THE LAUNCH

Then the buzz builds and the company opens up the beta far and wide. Maybe TechCrunch, ReadWriteWeb, WebWorkerDaily or WebWare write about the product. Either way, this is the first traffic spike and the entrepreneur rejoices. The VCs come calling. If they don’t, the angels will certainly do a fly-by.

But eight weeks later reality sets in. The traffic stops growing or — worse yet– dives. The VCs stop calling and blogs start posting Alexa charts that look like ski slopes or tabletops. But as an ever-optimistic entrepreneur it’s time to regroup, gather your programmers, toss back some Red Bull and…

LAUNCH A SOCIAL NETWORK WIDGET

If the user adoption press releases, the widget and subsequent coverage can’t get your site growing again, it’s time for the big guns...the open API. Now you’re a platform! The startup gets a fresh round of publicity, maybe more exposure to new users, and the founder rejoices again. This time the money men get serious because you have shown them you can survive the Silicon Valley jungle and you have a Facebook strategy.

12 MONTHS LATER

Maybe the media is getting too insistent with their questions about how this service is supposed to make money. Maybe the bills from Amazon Web Services are getting too high, or the VCs are getting impatient. The blogs are back to posting unflattering Alexa numbers. Compete data backs those charts up! So it’s time for advertising.

If the startup is well-funded or has a famous founder, the ad unit might be something novel like a widget, pre-roll voice ads on a mobile phone, or Beacon. Otherwise it’s generally based on banners and Google AdWords with promises of more to come.

THE END IS NEAR

But selling online advertising is hard. If Google, Yahoo, AOL or Microsoft haven’t stopped by with a buyout, it’s time to consider reality. You could always try your hand as an ad network or merge with a competitor, but more than likely it’s time to sell that domain name and user base on eBay or quietly shut your doors. Better luck next time.

Now, we always try to add complex...I mean value in Broadstuff, so here we have parsed this through Shakespeare's 7 Ages and found 2 more Ages of Startup

To wit - at some time after the Genesis, there is:

EXODUS - when the co-founder / main buddy / guys who actually thought of it (See Stigler's Law) are made to Walk The Plank so the Heroic Founder can "consolidate and renew the effort"

And of course, the end itself:

DEADPOOL - the glorious RIP - your status as a has been is recorded by the quality of the blog on which the demise is noted

You cannot possibly have any street cred in the New Social Media without saying "Yay", "w00t" or doing things for the Lulz. Sadly too much of the stuff that passes as content is crap, and ditto the companies building "Web 2.0 applications" (or subroutines, as they were called in older days). However, 2 things I saw today were, I thought, worthy of a Yay - as in Good Guys sometime win.

Firstly, Richter Scales, those guys who took the p*ss out of Silicon Valley and Bubble 2.0, and were then hounded down by Photographatrix Lane Hartwell (see here for The Saga) were awarded a Webby. Also, I noted The Onion picked up 2 gongs.

Secondly, Rashmi Sinha's Slideshare was given $3m to build out what is quite a useful and well executed service. I met her at FOWA last year, her presentation stood out as doing something useful in a business sense, rather than so many other Web 2.0 plays dedicated to sites giving the consumers what they really, really want ( petsites and upmarket green tat if my memory serves me right). I am also in "Yay" mode because it proves my hypothesis re what B2B 2.0 will get funded is correct - ie (as I noted last year re Slideshare and a few others at FOWA 07):

The implication is in the short to medium term nearly all those startups are going to be fighting for the... ... "B2C non critical quadrant"...... - but of course this changes the economics and culture (to a more consumer style play). The premium on publicity, the leg up on TechCrunch from the morass of same-tech me-too's, will thus be immense.

By the way, all the Webby awards and nominees are on this site, its quite interesting in that there is a winner and a "people's voice" winner. I leave you to make your mind up which you'd prefer, suffice to say on this evidence, the "wisdom of crowds" (Or more likely the wisdom of lobby groups, unless their public voting software is very good at tracking repeats) is somewhat over-rated in my view.

Apparently, once the Web 2.0 bubble is over we can stop having to say "Yay" again. w00t to that, say I!

Marc Andreessen has thought about the perennial problem of allowing management of public companies to operate with long term objectives in a short term world (sparked no little bit, one assumes, by the Yahoo Saga). His solution - tiered stock, where some stock has greater voting rights than others, typically so that founders and early investors retain disproportionate control for their declining economic stake:

After 15 years in the technology industry, though, I have done a complete 180-degree turn on the topic -- with some caveats.
I come not to bury dual-class stock structures, but to praise them.

I now believe that dual-class stock structures are a great idea for a technology company that is in the process of going public, under the following conditions:

- The key leaders of the company -- typically the founders -- who will own the controlling Class B shares, are also major economic shareholders in the company. They own a significant portion of the company and are therefore highly incented to maximize the value of the company over time.

- The key leaders of the company who own the controlling Class B shares have a long-term goal of building a major franchise, and the commitment required to execute against that goal.

- The controlling Class B shareholders have a commitment to treat Class A shareholders fairly and equally in all respects other than voting power.

- All public shareholders understand what they are getting into up front -- no bait and switch.

The key to the whole thing is shared goals -- particularly the shared goal of long-term value creation, particularly the creation of a long-term franchise, the kind of franchise that can require 10 years or longer to build.

It's a very interesting post, especially in his argument that short termism has risen owing to the increasing proliferation of hedge funds, private equity companies etc who are, as he notes:

....wonderfully skilled at paying themselves; on average, their franchise-building skills are questionable at best.

The issue, though, as with all matters of entrenching control, is what do you do when the people in control are no longer the greatest guys on the planet, and where commitment has slipped somewhat. Marc talks about the New York Times and other US Media companies, where dual stock companies seem to proliferate:

....dual-class stock structures are not exactly good investments today, since their entrenched management teams can fight off shareholder activists and hostile takeovers indefinitely while riding their declining franchises straight into the ground...

....And remember, the New York Times Company had its dual-class stock structure for decades, and for much of that time, ordinary investors would have done very well to own its shares.

His thesis is essentially Caveat Emptor et Cave Canem - speaking of the New York Times:

But on the other hand, it's not like you couldn't have seen it coming. Every investor in any declining dual-stock media company today knew they were buying into that stock structure and did it with their eyes open. And any investor still holding stock in such a company has been aware of the Internet for 15 years and has been able to track the performance of the company's management team in dealing with the Internet over that entire time. Certainly it's possible to be delusional about your investment and think that recovery is right around the corner, but you can't blame the stock structure for that delusion.

And certainly caveat the poor pawn....I mean faithful employees of the business. Google is quoted as the Good Guy example, where Marc notes that:

....Google may actually be getting a premium in the market due to its dual-class share structure, as investors are able to make a clean bet on long-term value creation, and they know that the core team can just put their heads down and power through any short-term nonsense.

I think Google has changed the rules on this topic -- I think many technology companies, certainly the ones with high potential, that go public over the next decade will have dual-class stock structures, due in part to the Google precedent.

It would appear Facebook has engineered some sort of control structure like this, if Sarah Lacy is to be believed (noting Marc's view that the number of decent financial Tech & Finance journalists is very small )

What is less well known is that there are actually five seats, Mark just controls three of them.

This has been nothing but a positive for Mark, and so far, for Facebook... .....had this board arrangement been different, so many pivotal moments in the young company's history would have turned out drastically different. The News Feed debacle, turning down Yahoo's overtures, even -- arguably-- Mark's lock on the CEO slot. Mark knows this.

(Facebook a Beacon FOR disproportionate control ? ...no doubt the cluetrains ran on time too ). Sarah notes something else in passing, which I think gives the game away:

Like Peter Thiel, Andreessen is a big believer in founders as CEOs and early on, before Web 2.0 was even sexy, he was the guy trying to convince a lot of Web 2.0 companies not to sell. Frequently, they didn't listened.

Indeed, some tooked the money and ran for the hills - of Aspen, and the sands of Malibu etc etc. So am I seeing a bellweather moment here? The Tech industry now adopting the structure that has served media so badly?

I can see why its of interest (to founders and VC's), but I don't quite read it the same Utopian way as Marc, ie tiered structures are great for freeing Da Heroic Management from the slings and arrows of outrageous fortune hunters. It looks to me that this is also possibly being used as a tool by the early financial backers to (i) bind in high potential senior management to jump big fences rather than sell out for a mere $100 million or so , and (ii) to be able to take in large amounts of extra funding without relinquishing control, the typical fate du jour of the early day investor. I can see newbie founders being seduced by this too - Sarah Lacy notes re Mr Z that:

Smart -- and previously burned-- people advised him well when he was starting Facebook. It's not an accident the company has this structure.

But once in harness, it may be quite another thing to get out......

(An afterthought - given the obvious attraction of such a model, its surprising that it isn't more common - but as Eric Beinhocker notes, companies compete in a darwinian world and their structure is part of that adaptive evolution - thus I suspect one reason why there are not more of these is that they have, by and large, not survived apart from in areas like the print media, where Founding Moguls have used the structure to entrench dynastic control. Quite why that industry was able to get away with it is a unclear to me, I just don' know enough about its historical structure - anyone else have a clue?)

News today that Twitter is going to use its funding to get off the Ruby on Rails system, followed by the standard harrumphing from Railistas that Ruby on Rails is not the problem, but "those dorks at Twitter" are - etc etc

Two observations, if we may*

Firstly, speaking to a lot of startup entrepreneurs, we reckon many (most) of them don't "get" scaling issues early enough. I wrote this after attending the first ever Open Coffee club in London last March:

Some general observations from the conversations mixed with our experience, all to do with the Boring Bits - that's right, the Infrastructure Behind the Sexy Stuff.

1. Infrastructure matters, especially the scalability bit. Too many Web 2.0 betas are built to launch, not to scale - causes big problems down the line
2. Forget about the whizzy bits, make the basics work first - and work fast
3. Many people we spoke to were going to have to build the same basic (SocNet) functionality, on their own - clearly an opportunity for a platform play.....

Had a chat after with Mike Butcher re software development productivity - probably needs a blog on its own, but in our experience anyway there is a very direct relationship between productivity, closeness of location and quality of team. Also don't get religious (or fashionable) about languages, or snotty about using open libraries of Other People's Code.

What we found was that the younger startups were in the main (i) pretty naive about scalability and (ii) quite fervent in support of various "sexy" development environments, Ruby on Rails was high on the Sexy Reverence list.

Secondly, Ruby on Rails. I'm sorry to say this, but the correlation of the terms "Scaling Problems" and Ruby on Rails" does seem higher than usual. I suspect part of it is that the language is young and very powerful, and part of it is that the sort of startups who were religiously "into" RoR were maybe younger and less experienced, but right now its probably worth avoiding it for serious scaling and using something more proven, if only because more experienced people probably use these other languages.

All this does not help Twitter of course, but a total rewrite is a very hard thing to do while you are also supporting an existing system that is growing (in users and complexity) very rapidly. I would advise against it. What I would suggest is rewriting the pieces of the system that are most bottlenecked in older, lower level languages - takes longer, but they are faster and more robust. I also don't know enough about how they interface to the databases, but this can cause - or save - endless hassle if done well. Some databases are just better at scale than others, so that is also an area to look at.

Update 1. - Twitter has issued a response, denied moving off RoR, also notes that a lot of the code is not in RoR:

FWIW: Twitter currently has no plans to abandon RoR. Lots of our code is not in RoR, already, though. Maybe that's why people are confused.

Update 2 - Andy Wise, one of my Broadsight colleagues, emailed a few extra thoughts after this was posted:

The most important thing a start-up has to do is to get out there & generate a brand identity. They need the twiddley bits early on and to build users as rapidly as possible in order to attract funding and momentum.

Its also quite difficult in the early stages of a venture to see where the bottle necks will be - this is somewhere our expertise could help.

So I would not criticise anyone too much when they find themselves in the position of being successful - but in need of a re-write to boost performance.

Without being successful they wont have a performance problem
Without being successful they wont have the cash to do a rewrite

The great mantra is of course Moore's Law - so long as your computing power can double every 1-2 years then it does not mater if the dev. environment is poorly performing - just get more hardware.

This argument breaks down as scalability issues are not necessarily linear. No amount of additional computing power can resolve concurrent access to a single record in a database. The issue comes down to the design of the solution.

In some examples the start-ups have actually been very successful at building scalable systems - all the work being done on peer to peer networks is a great example of new ways to approach scalability.

I suspect the difference is in the goal of the start-up - those developing media players know they have a scalability problem - their innovation is to fix it. Those developing SocNet applications like Twitter have a different goal - they are experimenting with the way people behave. Its only their success that has exposed them to scalability issues.

As you allude to - what is needed is a Social Net core that many players can licence - and that core needs to address the scalability issue as a matter of architecture from day one.

(* Context - we are ex Big Telco, Web 1.0 internet and Real Time OSS guys - we (think) we know a thing or two about scaling - or at least know where the bodies are )

Sir Tim Berners-Lee quoted as saying the web is in its infancy and its impact is still to be felt.

Sir Tim predicted that the web's ability to engender collaboration could one day see the web being used to help manage the planet.

"What's exciting is that people are building new social systems, new systems of review, new systems of governance.

"My hope is that those will produce... new ways of working together effectively and fairly which we can use globally to manage ourselves as a planet."

If previous major tech revolutions are anything to go by, he is right - the "mass internet" - ie the Web - is only 15 years old.

A few years ago I did a study of the development of communications technologies, the "80-20" impact of the more modern ones is a 100 year game, the older ones - like printing - took even longer. In fact in my view the fastest technical development cycle was the move from wooden sailing ship to steel steaming ship - it was a mere 50 years to get from HMS Warrior to HMS Dreadnought. (Which drives another subplot, the role of conflict in technology development, and how VC money now fills that role - anyway, I digress on my digression). In that journey, the amount of experimentation was immense, and - given the fairly tight operating environment envelope - literally sink or swim - it was amazing what was tried out. How about this French beauty, the pre-dreadnought battleship Hoche?

.


Anyway, one last digression - if you were around pre-Web, you will recall Archie, Veronica, FTP and....Gopher.

...competing technologies, such as Gopher, which was developed at the University of Minnesota, were also offering a method of using hyperlinks to connect documents across computers on the internet.

"If we had put a price on it (Sir Tim's technology) like the University of Minnesota had done with Gopher then it would not have expanded into what it is now. "

Now that I did not know (that Gopher was a for-sale technology). Does that make me an early day Freetard