Thursday, October 9, 2008

The financial crisis of 2008 explained for art students and engineers

Ever since 1995, stocks have been historically expensive. In 1996, Alan Greenspan famously described the market conditions as "irrational exuberance." Since then, the market, even after the dot com bubble, has been propped up by financial engineering. Everything that's happening right now is the result of the last decade being built on a house of financial cards.

Don't think of what's happening as a crash. It's just the hangover from a great party. You were looking at you account's value through beer goggles.

About the chart (for the engineers): the trend line was chosen so that prior to 1995, roughly as much was below it as above it. No reasonable trend line makes even 2002 look like a 20 year bargain. The chart is on a log scale, so consistent, growth, e.g 10% annually, would be a line. This is the least scary chart. Linear and logarithmic charts of the Dow following 1970 are a lot more depressing.

The shaded areas represent the following recessions:

Saturday, September 27, 2008

Rereading an excerpt from an old post,
"I think there is a big, big play to be made in the mobile arena, [but] ...people have not figured out where it's going to be. Look at the raw number of handsets...As it relates to content, no one has put it together, yet"

Meanwhile, the first "Google Phone," a handset running Google's Android OS, was just released. My initial thought was that Google's an ad company, so this makes no sense, but I realized what Google's after: the mobile ad market. Google's been trying to tap this market for a while, but so far, it's been unsuccessful.

Platform matters. Regular phones are broken at practically every level. Bad hardware, bad provider, and bad software (even within software, the entire stack is broken). In a way, they're practically unusable for anything beyond phone calls and texting, which happen to be where carriers make the most money. Google saw this, and recognized that a new mobile browser wasn't the solution, it had to change the way phones are used.

The plan probably won't work. Google has competition from Apple, and the two carriers with faster networks aren't even involved with the iPhone or Android, so breaking into the market is tough, hence Google's role in the wireless spectrum auction.

Even if Google squeezes its way into the market, I'm still not convinced it can sell a significant number of mobile ads. Squeezing an ad onto 6 square inches just doesn't seem as practical as an ad for printers when I search for "troubleshooting deskjet 810" on a PC.

Friday, September 26, 2008

First to market

Face it; developers today are spoiled. Hardly a minute goes by without them using an IDE, a toolkit, a framework, a platform, an API, or a even a mouse, but that's not to say this is bad. Quality, reliability, and speed have matured in everything from the lowly 7400 series up to the once-perpetually-blue-screed Microsoft Windows. And this is good. It brought computing to the masses, transforming a machine that calculated math tables into a machine that connects us, entertains us, and sometimes inspires us.

But this isn't where the money is. Before Woz worked on the Apple I, he designed functional, but hacked-up CPUs that took half the gates of other designs. For an established company like, cheaper designs were nice, but for a startup like Apple, designs using half the gates of the competition meant a product could have a two-year lead to market.

The best startups develop technology that shouldn't be ready for a few years, and not with architectural pedantics, but with a bag of hacks. When they succeed, they have both a technological edge and an existing user base--barriers--that any entrant to the market would have to overcome. This is what startups are about; not a nifty tool that a Googler could develop in his 20% time, but something that the market hasn't seen, something almost impossible.

Thursday, May 29, 2008

Novelty watch: Windows 7 and Surface

Microsoft gave the world a peak at what their next OS, Windows 7, would look like at the All Things D conference. On the heels of Surface and it's multi-touch input, Microsoft decided to bring the technology to consumers sooner by adding it to 7.

Video: Multi-Touch in Windows 7

Never mind how single-touch a la tablets flopped, the applications for dual-touch are even more limited. Most are at best nifty, but one of these novelties is so bad, it reverses years of advancements: the multi-touch photo browser. Not only does the photo browser let users circumvent a selling point of technology and disorganize their photos, it offers only marginal benefits over a stack of photos on a coffee table.

Which brings us back to Surface, which I admit is quite nifty.

Wednesday, April 16, 2008

Reason #1 startups fail: software underestimates

A friend sent me a link about a programmer who was approached by friends to work on a startup, only to find that they thought his role was so easy, he'd do it for free.

Between budgets, man-hours, and even CPU requirements, underestimating how long software takes to write and test is easy. And it's not only a problem for startups, companies like Microsoft have the same problem--Vista wasn't just late, it was missing features. The good news for startups is that deadlines and requirements are often flexible, but missed deadlines kill morale.

Basically, the only people worse at estimating software schedules than programmers are managers, and the only people worse at dealing with missed deadlines than managers are programmers.

Thursday, April 10, 2008

Former Lycos CEO on the startup market

Why is it that CEOs who cashed out of failed companies early end up becomming VCs? No matter. Kara Swisher of All Things D interviewed former Lycos CEO Bob Davis, hoping for a few bits on wisdom.

"I think there is a big, big play to be made in the mobile arena, [but] ...people have not figured out where it's going to be. Look at the raw number of handsets...As it relates to content, no one has put it together, yet"
Platform matters. Remember WebTV? It was (and barely still is) a set top box paired with a keyboard for browsing websites on TVs. Despite the potentially large audience and the built-in market of newcomers to the internet, it never caught on. WebTV was a nifty idea, but Tivo is what brought TV and the web together, taking features from each component, and solving a problem that affected people.

So what's a relatively new VC do, now? Shamelessly promote a startup he funded, Quattro Wireless, that reformats the web for mobile phones and provides ads for web-enabled mobile phones. Their problem is that they're the WebTV of Web 2.0, and while trying to start an ad network--an revenue source--is admirable, if monetizing the web is hard, imagine trying to monetize a platform that isn't used for purchasing, has far less traffic, and far less space for ads. predates Adsense by several years. Maybe people should figure out what people are selling via phones before they start building advertising platforms.

Here's where Davis gets something right: when asked what's overhyped, he responded with the natural "social networking." More interesting was his take on social networking 1.0. He looks back on Lycos acquisitions Tripod and Angelfire as the Facebooks of their day. What's changing isn't the technology--neither the web, Facebook, or Google did anything to add to the internet--it's that the internet is changing from being generalized to being specific. Someone using his 1998 Geocities homepage to post personal information, a résumé, family photos, and a his research on Mark Twain would today use Facebook, LinkedIn, Flickr, and Wikipedia to do the same things. Generalized tools might be powerful, but only specialized tools find an audience.

Saturday, March 29, 2008

Monetization is hard

Web 2.0 wasn't proclaimed a bubble for any of the criteria that define a speculative bubble. Valuations aren't particularly crazy (few startups have sold or had an IPO), there isn't any "flipping" or speculation, and there aren't many people outside of the industry involved. People saw what was going on and recognized the South Park gnome business plan that dominated the 90s. Startups were sporting spiffy UIs, large userbases, but now, found a way to make money: ads.

Only it wasn't that easy. Take Facebook. In a Motley Fool piece, one fool had this to say:
Since some of the finest marketing minds in the world have tried and largely failed to monetize social networking already, I see many years of losses and negative cash flows ahead for Facebook.
Google was able to monetize search because of the nature of search. If you're looking for information on digital cameras, there's a decent chance you're in the market for a digital camera, so an appropriate ad is shown. Social networks, on the other hand, despite having detailed information about you, aren't complementing their service with ads, but their service is instead competing with ads.

Or take an anonymous startup that's essentially many niche forums. They know what their users are interested in, but there isn't an advertising platform that has relevant, niche products, and a lot of advertisers are only interested in US pageviews. When they turned to adsense as a last resort, they were making $500 a day, but for 50 million page views.

Simply gathering pageviews, even by the millions, isn't enough to turn a reasonable profit. What's worse, what value these startups have isn't in their technology, but in their use. These startups are more apt to see new competitors than an acquisition--becoming devalued is more likely than growing.

Wednesday, March 26, 2008

My best startup advice

Strange for this to be such an early post in the blog--you'd think epiphanies like this would come later--but it's certainly useful early on.

Solve a problem that affects you.

Look at open source software; the developers are driven by a common problem, not by money (but perhaps recognition).  Define success as making your life easier and gaining experience.  You'll gain more--in both experience and recognition--through the completion of a profitless startup than by abandoning a potentially profitable one.  Yes, a business model is great, but don't focus too much on it.  A business model doesn't define a good idea; it's just a criterion for a potentially profitable idea.

Monday, March 24, 2008

Platform matters

The Facebook application platform didn't do anything particularly new.  Take Scrabulous, a top 10  Facebook app.  Games associated with friends lists are far from new; AOL, ICQ, and others all tried variants of this idea in Bubble 1.0, but none of them were able to bring IM to be more than just messaging.  Even without integration, sending a friend a link to Yahoo Games wasn't a barrier preventing consumers from playing online games.

Importance of platforms is nothing new.  IM took users from email, mp3 took users from CDs, and so on.  What you're doing matters as much as where you're doing it, and certain platforms do a better job facilitating tasks than others.  This isn't to say Facebook is the alpha-platform.  Facebook may be moving into the IM market, they'll undoubtedly see stiff competition from existing services, as well as web services, and while their entry into the email market didn't go unnoticed, "Messages" hardly displaced email.

Presentation is as important as function.  Not only are numerous startups, e.g. Meebo, based entirely on presentation, but superior presentation can quickly displace even a 5-year lead in time to market.

Sunday, March 16, 2008

About the title

I owe Valleywag editor Owen Thomas a drink for the blog title.  It's his word (even if he wish he never coined it; I just couldn't think of a better name).

Markets and Audiences

There's a feeling among wantrepreneurs that they need to reach the widest audience possible. They don't have the knowledge to do anything particularly interesting, so they're led to the latest trend (web 2.0) and its business model. The problem with web 2.0 and advertising is that it's a low-margin business, so not surprisingly, there haven't been many IPOs, except notably, Google. Low margin, broad appeal: that's the Google way.

The problem is they're missing whole markets and over-saturating one. Web 2.0 isn't producing Microsofts, Apples, or Ciscos (or even Broadcoms, LSI Logics, or Seagates). That's not to say there aren't startups doing innovative things in limited markets, but the majority are so focused on one segment that they're missing better opportunities.

A coworker told me that the money isn't in the company doing something cool, technically, it's in the company with good sales applying technology to problems outside of Silicon Valley. If broad appeal and the internet was the recipe for profit, how did WebVan fail?