Posts from blockchain

Online Publishing Should Look At Steem, Not Spotify, For Inspiration

Yesterday Medium announced that they are moving away from ads and thinking about a different kind of business model for their online publishing network.

I saw this tweet suggesting they are looking at Spotify for inspiration:

I don’t have any inside information here. USV is not an investor in Medium and I am not privy to any of the strategic thinking at Medium. So they may not be looking at Spotify for inspiration. But they are certainly looking around to figure out where to go from here.

I don’t think Spotify (music), or Netflix (video), or Amazon (books), should be the inspiration for online publishers in search of a new business model. The sad truth is most people are not going to pay a monthly subscription for online publishing content. Certainly not for blog posts by people they have never heard of.

The new online publications that have a paywall have built nice small businesses that pay the bills and maybe make some money for the founders. That’s a great way to go if you want to be small. But if you want to be a large network with millions of readers and publishers, as Medium already is (2 billion words written on Medium in the last year. 7.5 million posts during that time. 60 million monthly readers), a paywall is not going to work.

I think the blockchain based social network Steem would be a more interesting place for the Medium team to poke around at. Here’s the Steem white paper. That’s a good place to start.

To be clear, I don’t think Steem has this all figured out. I don’t own any Steem (or at least I don’t think I do). And I think they have made things a bit too complicated with their tokens and incentives. To their credit, they have taken steps to simplify things and they are headed in the right direction.

The thing about token based business models is that the token captures the value of the network as it grows and it is the only business model that exists for the network. You can buy tokens if you want to speculate on the value of the network (or invest in the online publication business, as it were). You can earn tokens by participating in the network (or by publishing content on the online publishing network, as it were). You can spend tokens to participate in the network (or by engaging in or curating the online publishing network, as it were).

Twitter could also go this route but clearly it would be harder for them to move away from an ad-based business model than it was for Medium. And believe me, it was not easy for Medium to do this.

The most likely companies that are going to figure out this token based business model are startups. They have nothing to lose and everything to gain. It would be stunning, bold, and brilliant for Medium to do this. I hope they do.

What Is Going To Happen In 2017

Happy New Year Everyone. Yesterday we focused on the past, today we are going to focus on the future, specifically this year we are now in. Here’s what I expect to happen this year:

  • Trump will hit the ground running, cutting corporate and personal taxes, and eliminating the preferential treatment of carried interest capital gains. The stock market has already factored in these tax cuts so it won’t be as big of a boon for investors as might be expected, but the seven and half year bull market run will be extended as a result of this tax cut stimulus before being halted by rising rates and/or some boneheaded move by President Trump which seems inevitable. We just don’t know the timing of it. The loss of capital gains treatment on carried interest won’t hurt professional investors too much because the lower personal tax rates will take the sting out of it. In addition, corporations will use the lower tax rates as an excuse to bring back massive amounts of capital that have been locked up overseas, producing a cash surplus that will result in an M&A boom. This will lead to an even more fuel to the fire that is causing “old line” corporations to acquire startups.
  • The IPO market, led by Snapchat, will be white hot. Look for entrepreneurs and the VCs that back them to have IPO fever in 2017. I expect we will see more tech IPOs in 2017 than we have since 2000.
  • The ad:tech market will go the way of search, social, and mobile as investors and entrepreneurs concede that Google and Facebook have won and everyone else has lost. It will be nearly impossible to raise money for an online advertising business in 2017. However, there will be new players, like Snapchat, and existing ones, like Twitter, that succeed by offering advertisers a fundamentally different offering than Facebook and Google do.
  • The SAAS sector will continue to consolidate, driven by a trifecta of legacy enterprise software companies (like Oracle), successful SAAS companies (like Workday), and private equity firms all going in search of additional lines of business and recurring subscription revenue streams.
  • AI will be the new mobile. Investors will ask management what their “AI strategy” is before investing and will be wary of companies that don’t have one.
  • Tech investors will start to adopt genomics as an additional “information technology” investment category, blurring the distinction between life science and tech investors that has existed in the VC sector for the past thirty years. This will lead to a funding frenzy and many investments will go badly. But there will be big winners to be had in this sector and it will be an important category for VCs for the foreseeable future.
  • Google, Facebook, and to a lesser extent Apple and Amazon will be seen as monopolists by government and individuals in the US (as they have been for years outside the US). Things like the fake news crisis will make clear to everyone how reliant we have become on these tech powerhouses and there will be a backlash. It will be Microsoft redux and the government will seek remedies which will be futile. But as in the Microsoft situation, technology, particularly decentralized applications built on open data platforms (ie blockchain technology), will come to the rescue and reduce our reliance on these monopolies. This scenario will take years to play out, but the seeds have been sown and we will start to see this scenario play out in 2017.
  • Cyberwarfare will be front and center in our lives in the same way that nuclear warfare was during the cold war. Crypto will be the equivalent of bomb shelters and we will all be learning about private keys, how to use them, and how to manage them. A company will make crypto mainstream via an easy to use interface and it will become the next big thing.

These are my big predictions for 2017. If my prior track record is any indication, I will be wrong about more of this than I am right. The beauty of the VC business is you don’t have to be right that often, as long as you are right about something big. Which leads to going out on a limb and taking risks. And I think that strategy will pay dividends in 2017. Here’s to a new year and new challenges to overcome.

What Did And Did Not Happen In 2016

As has become my practice, I will end the year (today) looking back and start the year (tomorrow) looking forward.

As a starting point for looking back on 2016, we can start with my What Is Going To Happen In 2016 post from Jan 1st 2016.

Easy to build content (apps) on a cheap widespread hardware platform (smartphones) beat out sophisticated and high resolution content on purpose built expensive hardware (content on VR headsets). We re-learned an old lesson: PC v. mainframe and Mac; Internet v. ISO; VHS v. Betamax; and Android v. iPhone.

And Fitbit proved that the main thing people want to do with a computer on their wrist is help them stay fit. And yet Fitbit ended the year with its stock near its all time low. Pebble sold itself in a distressed transaction to Fitbit. And Apple’s Watch has not gone mainstream two versions into its roadmap.

  • I thought one of the big four (Apple, Google, Facebook, Amazon) would falter in 2016. All produced positive stock performance in 2016. None appear to have faltered in a huge way in 2016. But Apple certainly seems wobbly. They can’t make laptops that anyone wants to use anymore. It’s no longer a certainty that everyone is going to get a new iPhone when the new one ships. The iPad is a declining product. The watch is a mainstream flop. And Microsoft is making better computers than Apple (and maybe operating systems too) these days. You can’t make that kind of critique of Google, Amazon, or Facebook, who all had great years in my book.
  • I predicted the FAA regulations would be a boon to the commercial drone industry. They have been.
  • I predicted publishing inside of Facebook was going to go badly for some high profile publishers in 2016. That does not appear to have been the case. But the ugly downside of Facebook as a publishing platform revealed itself in the form of a fake news crisis that may (or may not) have impacted the Presidential election.
  • Instead of spinning out HBO into a direct Netflix competitor, Time Warner sold itself to AT&T. This allows AT&T to join Comcast and Verizon in the “carriers becoming content companies” club. It seems that the executives who run these large carriers believe it is better to use their massive profits in the carrier business to move up the stack into content instead of continuing to invest in their communications infrastructure. It makes me want to invest in communications infrastructure honestly.
  • Bitcoin found no killer app in 2016, but did find itself the darling of the trader/speculator crowd, ending the year on a killer run and almost breaking the $1000 USD/BTC level. Maybe Bitcoin’s killer app is its value and/or store of value. That would make it the digital equivalent of gold and the likely reserve currency of the digital asset space. And I think that is what has happened with Bitcoin. And there is nothing wrong with that.
  • Slack had a good year in 2016, solidifying its position as the leading communications tool for enterprises (other than email of course). It did have some growing pains as there was a fair bit of executive turmoil. But I think Slack is here to stay and I think they can withstand the growing competition coming from Microsoft’s Teams product and others.
  • I was right that Donald Trump would get the Republican nomination and that the tech sector (with the exception of Peter Thiel and a few other liked minded people) would line up against him. It did not matter. He won the Presidency without the support of the tech sector, but by using its tools (Twitter and Facebook primarily) brilliantly.
  • I predicted “markdown mania” would hit the tech sector hard and employees would start getting cold feet on startups as they saw the value of their options going down. None of this really happened in a big way in 2016. There was some of that and employees are certainly more attuned to how they can get hurt in a down round or recap, but the tech sector has also used a lot of techniques, including repricing options, reloading option plans, and moving to RSUs, to mitigate this. The truth is that startups, venture capital, and tech growth companies had a pretty good year in 2016 all things considered.

So that’s the rundown on my 2016 predictions. I would give myself about a 50% hit rate. Which is not great but not horrible and about the same as I did last year.

Some other things that happened in 2016 that are important and worth talking about are:

  • The era of cyberwars are upon us. Maybe we have been fighting them silently for years. But we are not fighting them silently any more. We are fighting them out in the open. I suspect there is a lot that the public still doesn’t know about what is actually going on in this area. We know what Russia has done in the Presidential election and since then. But what has the US been doing to Russia? I would assume the same and maybe more. If your enemy has the keys to your castle, you had better have the keys to their castle. And as good as the Russians are at hacking into systems, the US has some great hackers too. I am very sure about that.  And so do the Chinese, the Israelis, the Indians, the British, the Germans, the French, the Japanese, etc, etc.  This feels a bit like the Nuclear era redux. Mutually assured destruction is a deterrent as long as both sides have the same tools.
  • The tech sector is no longer the belle of the ball. It has, on one hand become extremely powerful with monopolies, duopolies, or nearly so in search, social media, ecommerce, online advertising, and mobile operating systems. And it has, on the other hand, proven that it is susceptible to the very kinds of bad behavior that every other large industry is capable of. And we now have an incoming President who doesn’t share the love of the tech sector that our outgoing President showed. It brings to mind that scene in 48 Hours where Eddie Murphy throws the shot glass through the mirror and explains to the rednecks that there is a new sheriff in town. But this time, the tech sector are the rednecks.
  • Google and Facebook now control ~75% of the online advertising market and almost all of its growth in 2016:

  • Artificial Intelligence has inserted itself into our every day lives. Whether its a home speaker system that we can talk to, or a social network that already knows what we are about to go out and purchase, or a car that can park itself and change lanes on the highway automatically, we are seeing AI take over tasks that we used to have to do ourselves. We are in the age of AI. It is not something that is coming. It is here. It may have arrived in 2014, or 2015, but if you ask me, I would put 2016 as the year it had its debut in mainstream life. It is exciting and it is scary. It begs all sorts of questions about where we are all going in the next thirty to fifty years. If you are in your twenties, AI will define your lifetime.

So that’s my rundown on 2016. I wish everyone a happy and healthy new year and we will talk about the future, not the past, tomorrow.

If you are in need of a New Year’s Resolution, I suggest moving to super secure passwords and some sort of tool to manage them for you, using two factor authentication whenever and wherever possible, encrypt as much of your online activities as you reasonably can, and not saying or doing anything online that you would not do in public, because that is where you are doing it.

Happy New Year!

Blockchain In 2016

Nick Tomaino has started a new publication called The Control to provide “high brow” (my word not his) reporting on the Blockchain sector. If Coindesk is the TechCrunch of the blockchain sector, Nick wants The Control to be The Economist of the sector. Here is how Nick describes his ambitions for The Control.

The Control will be a largely free site so that the content can be consumed broadly on Reddit (very important for the blockchain sector), Twitter, and Facebook. But you can become a member of The Control. And you can even become a patron of The Control for $5/month. I wish that I could support The Control for 0.005BTC a month instead of $5/month. So does Nick. Maybe that will happen someday but using Medium as his publishing platform limits what Nick can do in that regard.

Anyway, all of this is context for my recommendation of Nick’s 2016 Blockchain In Review. I generally agree with all of it.

Here are the three big takeaways for the blockchain sector in 2016:

  1. Bitcoin is becoming like digital gold, or the reserve currency of the blockchain sector. We had a gold standard for a long time while confidence in fiat currency developed so this relationship makes sense to me. The conservatism of the Bitcoin core developers (good or bad depending on where your views lie) has caused much of the blockchain sector innovation to move to other Blockchains. But this conservatism builds confidence and that was rewarded by a return of the BTC/USD to the highs last seen three years ago.
  2. Ethereum had a tough year in 2016 but has emerged as the platform of choice for the development and deployment of blockchain tokens. If there is a second blockchain to bet on, I think it is Ethereum.
  3. There are some new blockchains emerging that appear interesting like Zcash and Steem. There are plenty of others that are vying to become interesting. Many/most of these blockchains are funding the development of the technology using tokens and crowdsales. This activity became quite common in 2016.

2017 is looking to be a quite interesting year for new blockchains, tokens, and blockchain based applications. I expect we will see a lot of all of that in 2017. I am most excited to see if proof of stake emerges as a viable alternative to proof of work in 2017. That would be huge for the sector.

Here are a few forward looking posts for Blockchain 2017:

From William Mougayar on Coindesk

From Andrew Keys of Consensys

I will write more about this in my twin posts at year end on looking back and looking forward. They are coming over the weekend.

Fixing The Internet

Walter Isaacson wrote a blog post last week suggesting that the Internet is broken and outlining how he would fix it. I think that most of his suggestions are currently being built using blockchain technologies. Here is his list (in italics) and my reactions to it.

1) Create a system that enables content producers to negotiate with aggregators and search engines to get a royalty whenever their content is used, like ASCAP has negotiated for public performances and radio airings of its members’ works.

While not “a system to negotiate”, services like our portfolio company Mediachain‘s platform will provide much of the underlying infrastructure for this to happen.

2) Embed a simple digital wallet and currency for quick and easy small payments for songs, blogs, articles, and whatever other digital content is for sale.

Bitcoin.

3) Encode emails with an authenticated return or originating address.

While not blockchain based, standards like DKIM and SPF in the email sector provide some of this today. I am also excited about a blockchain based identity later like the one being built by our portfolio company Blockstack.

4) Enforce critical properties and security at the lowest levels of the system possible, such as in the hardware or in the programming language, instead of leaving it to programmers to incorporate security into every line of code they write.

Blockchain based applications can use the underlying security of the blockchain (using sophisticated cryptography) to achieve higher levels of security in their applications.

5) Build chips and machines that update the notion of an internet packet. For those who want, their packets could be encoded or tagged with metadata that describe what they contain and give the rules for how it can be used.

I am not sure you would need a chip or a machine to do this.

The bottom line for me is that we don’t need to build a new Internet to fix the issues Walter articulates in his blog post. We just need to continue to build new capabilities on top of our existing Internet. And, right now, the biggest potential contributor to those new capabilities is the blockchain.

What Has Gotten Into Bitcoin?

Bitcoin is up 16% this month:

And it is up 86% YTD 2016:

Obviously there is more demand for the leading digital currency than there is supply of it right now.

My guess is this is speculation driven (the more it goes up the more traders want to bet on it) and does not represent any fundamental change in the usage of Bitcoin. The USD transaction chart doesn’t show any massive increase in transaction volume this year.

But whatever the cause, Bitcoin is on a tear going into the end of 2016. Seven years in, there are no signs of this slowing down.

The Dangers Of Being Too Early

I have been reading Whiplash, a book I recommended here last week. It starts with the story of the Lumiere brothers, who are credited with the invention of “the moving picture.”

As told in Whiplash, the Lumiere brothers started showing films to audiences in 1895 using their patented cinematograph. But by 1900, they were out of the film business and had moved on to color photography. The industry they helped to start went on to be one of the biggest new industries of the 20th century.

I often think of the formative years of the Internet, in the early/mid 90s. There are a lot of people from that era that remind me of the Lumiere brothers.

I was in a Board meeting on Friday in my office and one of the executives of the company that was having the Board meeting left to get coffee or use the rest room. When he came back, he said “why do you have one of the Josh Harris Gilligan paintings in your office? I explained that the reason Gilligan hangs in my USV office is to remind me that being first to something doesn’t mean you will profit from it. Josh Harris was the first person to show me audio streaming over the Internet. Josh was the first person to show me video streaming over the Internet. He did both of those things at his Pseudo Programs company that he started in 1993. Around the same time, 1993 ish, Josh predicted to me that auctions would be one of the first big businesses to take shape on the Internet. That was roughly two years before eBay was founded. Josh didn’t profit much from any of his visionary efforts or insights. But there is a Josh Harris painting in my office because I respect being early more than I respect making profits. I think the latter is easier than the former.

Which takes me to some things we have been thinking a lot about at USV recently. Things like Blockchain and Genomics. We think we are very early in these two important technological revolutions. We are investing actively (but not heavily) in one of them (blockchain) and trying to find the right entry point to the other one.

I think that the investing we are doing in these sectors right now is more likely to be like Psuedo Programs than YouTube or SoundCloud.

But I also think that you have to be early to learn the technology and the markets and build the networks and relationships that will allow you to see, understand, and invest in YouTube when it shows up. What you don’t want to do is lose patience or interest and move on, like the Lumiere brothers did.  Early stage VC is a marathon, not a sprint. That is true in everything, from the hold periods, to the work you do with a portfolio company, to the patience you must show towards a sector you think will be important. It is hard to sustain the enthusiasm sometimes, but if you have conviction about something, you have to stay the course.

SegWit

There’s an interesting thing going on right now in Bitcoin land. The core developers have released a new version of the core Bitcoin software which includes a number of updates and the “segregated witness” approach to scaling the Bitcoin technology. This release won’t be “confirmed” until 95% of nodes adopt it. That 95% is a choice that the core developers made.

Right now “SegWit” is at roughly 1/3 of nodes (based on this tweet which I have no idea if its valid). The Internet is for fake news after all 🙂

I am curious what all of you Bitcoin folks out there in the AVC community think of SegWit’s prospects and what it means for Bitcoin if it is not confirmed.

Marketing The Blockchain

Longtime AVC community member Jeremy Epstein (who launched the first AVC Meetup in the summer of 2008) has been working on bringing marketing to the blockchain sector.

He asked thirty-three leaders of the blockchain sector to write short one or two page descriptions of why blockchains are important.

They are compiled in a free ebook that is available here.

I read the entire ebook (which is roughly 55 pages) over the past weekend and I was struck by how uneven these short blurbs are.

Some, like the ones by Naval and Jake Brukhman are excellent. You really should go read them. They explain some really important things about the blockchain.

Some, like the ones by William and Joel are solid. I have featured their writing and talks on the blockchain here at AVC a number of times.

But many of these short blurbs are awful. They are full of platitudes and jargon and don’t help the reader connect to why this is important to them.

I told all of this to Jeremy and he was disappointed to hear it. But he also recognized that it was an uneven read.

For me, this ebook highlights the challenges of marketing the blockchain. We have done a poor job of it to date and the sector is full of technologists and mostly empty of marketers.

That needs to change. We need more people like Jeremy and William who can popularize deeply technical stuff and make it make sense to the average person.

I’ll know we are getting somewhere when my Mom understands the blockchain and why it is important to her.

We aren’t anywhere near there right now.