Feature Friday: Distributed Identity

Last year at LeWeb I talked about four areas that we are looking at closely to make investments in. One of them is identity. I said this at the very end of my talk:

I predicted that there would emerge a “bitcoin like protocol” for identity. And we’ve been looking for that.

One thing we realized along the way is that this could be built on top of bitcoin or another blockchain. And so earlier this year we made a seed investment in a startup called OneName that is building exactly that. On Wednesday of this week, OneName announced a bunch of things, including our investment, and my partner Albert wrote about OneName at usv.com.

Now many will say “well Facebook, Google, and Twitter handle that pretty well for me” and they would be right. But are you really comfortable with Facebook or Google operating the identity layer of the Internet? I am not. And I think over time less and less of us will be.

But the answer isn’t another startup controlling the identity layer of the Internet either. The answer is a distributed ledger of identity that is open and not controlled by any entity. And that sounds like an application for a blockchain if there ever was one.

I have cleared my identity on the blockchain and it is here. I have verified it on Twitter and Facebook and you can send me bitcoins through it. It’s not much today, but in some ways it is everything. Because everything can be built on this and our hope is it will.

To date about 20,000 people have cleared their identity on the blockchain via OneName. My hope is that number will be in the millions within the next year. If you want do do that today, go here and get started.

The First Law Of Internet Physics

I’ve written a lot about free vs paid here on AVC. There was a time I was obsessed about this topic. We even coined the word freemium here at AVC (thanks Jarid) during that phase. I’ve moved on to other obsessions but I still think a lot about it. I got in a long twitter discussion with a bunch of people yesterday about this topic, spurred by this tweet by Jonathan Weber:

That led to a long twitter discussion in which a bunch of people joined. I can’t find a good way to showcase the discussion so I’m not going to. But during the course of the discussion I tweeted this. I made it up last night but it’s something I’ve experienced many times over the years.

Isaac Newton observed some things about motion and encoded them into his three laws of motion. I think we should do the same thing with the Internet. There are some things that just are, and we should acknowledge them. I posit that one of them is this:

many users * low arpu >>>> few users * high arpu

I’ve seen so many people try paid content on the Internet and the result is less users, a lot less. You can extract a higher average revenue per user (arpu) from a paid model, but you get so many less users that is it better to extract a lower arpu with a free model and get many more users. I guess a corollary to the first law of Internet physics is that you can implement a freemium model on top of a free model and turn some of your users into high arpu customers, but they will always be a small portion of the total number of users.

That’s a long way of saying that you can do paid, but you had better have a free tier first and foremost as most users will go for that. And if you put too much of your content behind a paywall, you’ve effectively turned your core product into a paid one and you are back to {few users*high arpu}. So be careful with the freemium offering.

Book Recommendation: The People’s Platform

My partner Albert recommended we read this book, The People’s Platform, by Astra Taylor.

Astra’s perspective, to use my words not hers, is the promise of the Internet to be transformative for society has largely been a disappointment and “the new boss is the same as the old boss.”

This is an important perspective that I want to hear and internalize. So I’m reading it now and I thought you all might want to join me.

Internet Freedom

The President did one of the gutsiest things he’s done in the six years he’s been in office yesterday. He came out in favor of treating access to the Internet as a basic and essential service that should be approached like phone calls, electricity, water, sewer, and the other utilities we have in our life. Politicians on the right like Ted Cruz immediately reacted negatively.

What Ted Cruz does not understand is that the Internet in the US already operates at “the speed of government.” Going slow is a feature of government, not a bug. The same is not true of something as essential and important as access to the Internet. Here are global average download speeds by country:

download speeds

Our communications policy in the US is backward. We have allowed the telcos to capture the regulators and they are spending their dollars lobbying and buying off congress instead of investing in their networks.

The telcos argue that they cannot afford to invest in their networks and yet Verizon makes $23bn in net after tax income, AT&T makes $28bn in after tax income, and Comcast makes $7bn in net after tax income. Maybe if they were investing in their networks so we can have the 100Mbps that people in Hong Kong get, I’d be a little more sympathetic to their argument.

But this isn’t really about download speeds anyway, Ted Cruz just thinks it is because he hasn’t done his homework yet to understand the issue. I hope he will.

This is about something more simple and more important. It is about making sure that the Internet remains open and free for innovation. It is about recognizing that the last mile of the wired and wireless internet is a natural monopoly/duopoly where scale creates massive advantages, just like the electrical grid and the water system. It is about making sure that the massive companies that operate these last mile monopolies don’t use their market power to extract rents from the entrepreneurs, developers, and companies that must go through those networks to reach their customers.

This is about keeping the Internet the way it has been operating for the past twenty years. This is a conservative idea. Don’t change something that has worked so well for so long. Don’t allow the telcos to start inspecting each packet and prioritizing some over others. Because that is what they want to do, and are doing, and we as a society cannot allow that to happen. Thankfully the President understands this issue. My hope is politicians like Ted Cruz will step back and take the time to really understand this issue because it is a conservative and pro business idea. This is something the GOP should get behind instead of fighting. And I’m happy to come down to Washington and explain it to anyone who is willing to listen.

Messing With A Competitor’s Fundraising

I saw a post that described how Uber tried to mess with Lyft’s fundraising. This is not a new tactic. I have seen it used for as long as I have been in the VC business. It is, however, unethical and unsavory, just like the companies that use it.

And it is one other thing, ineffective. When I get a phone call from a company telling me that they are going to raise more money and we should think about investing in them instead or at least not investing in their competitor, I hear fear and it makes me more excited about investing in the competitor. If you can’t win in the market on the merits and have to turn to messing with a competitor’s fundraising, what does that tell you about the defensibility and differentiation of a company’s service?

And when another VC calls me to ask about a company that competes with our portfolio company, I don’t bother to trash talk the competitor. I just tell them the pros and cons of the market, the two companies, how I think things will play out, and then let them make the investment decision on the merits. I assume the competitor is going to get funded from someone so I might as well provide an honest assessment of the situation.

Capital is not normally a recipe for success vs competition. Product execution, network effects, go to market strategies, and a few other things are what allows companies to win the market. Access to capital and raising a boatload of it is rarely the thing that wins the market.

And there is a ton of money in the market for funding startups right now. When the CEO of one of our portfolio companies tells me one of their competitors is raising money, I always tell them “assume your competitor will raise successfully and raise a lot” because that is what is happening in the market today.

Don’t waste your time trying to mess with a competitor’s financing. It doesn’t look good, it won’t work, and your time and energy is best spent elsewhere, where the real competition happens, product and market.

All Or Nothing vs Keep What You Raise

We’ve been investing in the crowdfunding market for a long time. My initial exposure to it was via the non-profit DonorsChoose where I am on the board and where my partner Brad and I made an early contribution to the fundraise which allowed them to go nationwide. That was almost ten years ago now.

There are two prevalent funding models in the crowdfunding market, all or nothing and keep what you raise. I prefer the all or nothing model and I think most funders do. DonorsChoose uses the all or nothing model and that’s where I saw it first. Kickstarter also uses the all or nothing model.

In the all or nothing model, the project creator picks the size of the raise they want to do and then they have to hit that number to get the funds. In the keep what you raise model, the project creator picks a size of raise as well, but they don’t have to hit the number, they keep whatever they raise.

Many project creators think the keep what you raise model is preferable. They don’t like the idea that they will fail and not get anything. But they fail to realize a number of important points about crowdfunding:

1) Funders prefer all or nothing because they want to be sure the project creator will have the funds to complete the project

2) The need to hit the goal pushes everyone, including the project creator, to work hard to make the goal. It drives the whole raise.

3) Creators who choose all or nothing are more committed to the project, the raise, and the process. Keep what you raise often attracts dabblers.

4) All or nothing raises more money. The amount of money that is raised every year in crowdfunding via the all or nothing model dwarfs the amount of money that is raised in the keep what you raise model, except in the charitable giving category.

Crowdfunding on the global Internet may be new, but raising money is not. In the venture capital business, the keep what you raise model is almost non-existent. A founder can’t go out to raise $5mm and then say to the investors “well we only got $2mm of capital committed, but we are going to close on that next week.” That just doesn’t fly.

Keep what you raise is for people who are afraid to fail. It’s not funder friendly. And it is less effective too.

So if you are considering a crowdfunding project for anything other than charity and are being wooed by a platform that pitches its keep what you raise offering, you should see that for what it is. Lame.

Feature Friday: Phone Number Parsing

So it’s been about four weeks since I switched from a Nexus5 to an iPhone6. It’s going ok. I feel like someone who has spoken english their entire life and finds themselves living in a city where everyone speaks spanish. I can function but everything seems a bit off for me.

But there is one thing that is driving me crazy. On an Android, whenever I come across a phone number, in an email, a calendar event, a website, whatever, it’s clickable and I don’t need to cut and paste it into my phone app. On iOS it is almost always the case that when I come across a phone number, it is not clickable and I need to cut and paste it and I also find cutting and pasting much harder on an iPhone. The latter might well be “spanish vs english” but I am pretty sure the former is not.

I’m hoping that all of you iOS users out there can help me. I’m open to suggestions except that I can’t move from gmail to the native iOS mail app. I am totally reliant on gmail’s priority inbox feature and can’t operate without that. I would be happy to move my calendar from the native iOS calendar app to something that supports phone number parsing better.

Scripting For Others

Yesterday I was cleaning up a google spreadsheet that contained a data dump I wanted to do something with. The spreadsheet had a bunch of blank rows and columns and garbage data in it that I needed to remove. So I was going through the sheet deleting stuff, moving stuff, and in general cleaning it up. It was super boring work. I got about half way through this mundane chore and was so bored that I decided to tweet about it to relieve the mental drain this chore was creating for me.

This is what I tweeted out:

tweetstorm

I don’t think I will ever have to do the same set of cleanup actions that I did yesterday afternoon and I don’t expect to get a data dump in that general format again so I think the decision not to write a cleanup script was the right one. I got through the cleanup in about 15-20 minutes, not including the time I spent on that tweetstorm, and it would have probably taken me as long or longer to write the script to automate the cleanup.

So I think I made the right call.

But then I got this reply on Twitter:

And I thought to myself that my current “script or not” algorithm is a selfish one and I need to add another factor which is a modification of the 2nd tweet in the tweetstorm. It should be “if I or others are going to find ourselves doing this again.”

Thanks Francesca for correcting me on that one.