Posts from September 2007

I was meeting with a web entrepreneur yesterday. It’s something I do at least five to ten times a week.

This entrepeneur said ‘but I worry that the coming downturn might have a negative impact on my business plan.’

Not ‘a possible coming downturn’, it was ‘the coming downturn.’

And I found myself nodding my head, not challenging that assumption.

Why is it that I feel a downturn coming? It’s not one single factor, it’s a combination of factors, some based on real factors, others based on fears and other emotions.

First, the economy seems rockier than it has in a while. The housing market is no longer a driving force, its weighing on the economy. The fed’s lowering rates in response but that makes the dollar and our markets less attractive to international capital. I have no idea if we are headed for a recession or not, but it sure seems more likely than it did a year ago.

Second, we are ccming into a presidential election cycle. The democrats are looking stronger than they have in a while. The Iraq war and Bush are unpopular. There will be a lot of uncertainty over where our country is headed until the end of next year. That uncertainty has traditionally been bad for financial markets

Third, there’s a looming crisis in the buyout business because banks have gotten more tight with credit. Less private equity buyouts will take one more positive aspect out of the financial markets

But none of those factors directly affects web/tech and the venture markets. But it does directly affect the psychology of the investors who fund the market and to a lesser extent the entrepreneurs who drive it

Then there’s the parallels with web 1.0. This is where emotion enters the equation. I started Flatiron Partners in 1996. We had the wind at our back for four and a half years and then we got headwinds in the summer of 2001. We started Union Square Ventures to focus on renewed opportunities on the web at the end of 2003. We’ve had the wind at our back the whole way. My mind is trained to expect headwinds soon. I don’t know that we will, but I can’t help but expect them

And then there’s the supply problem. The venture market in any industry (biotech, nanotech, green tech, comm equipment, web, etc) does best when the supply of new companies is relatively modest and the demand to invest in them is equally modest. Right now in web tech, we’ve got a huge supply of new companies and a huge demand to invest in them. That’s not sustainable forever

And we are getting to the point that some web 2.0 companies are going to start failing. VCs will keep bad investments alive for a while, but they won’t pour good money after bad forever. We’ve seen some web 2.0 companies close their doors and we are going to see more.

Finally there’s the question of what’s next? Is it semantic web? Programmable web? Social web? Yes, yes, and yes. But we are still seeing a lot of me too companies, slight twists on ideas that are now five years old. We are not yet seeing boldly new ideas, at least not enough of them to say we are now in web 3.0

Do we have to go through a shakeout to get to the next big move? I don’t know. I only know that’s what it took last time

So if you see the downturn coming as the entrepreneur I met with clearly does, what do you do? If you are a VC, I think you keep investing, but carefully. Its not a time to step on the gas. And focus on your existing portfolio, take gains where you can take them, and make sure you’ve got plenty of ‘dry powder’ for your portfolio

If you are an entrepreneur? Well that depends on where you are in your development cycle and what your goal is. If you want to spend the next five to ten years building your company, then raise a good amount of money and then put your head down and execute. If you are in it for the quick flip, get busy. That opportunity may not last forever

I know this post sounds gloomy. I am not certain we are headed for a rough patch. I am not sure of anything. But I think the probability of tough times ahead has gone up in the past year. And it seems to be creeping into our collective consciousness (or at least mine).

So let’s talk about it and if it comes to pass, let’s make sure we handle it better than we did last time.

More discussion of platforms. This post comes from Marc Andreessen, who is currently working on a platform for building and deploying social web apps called Ning. One of the apps that has been built in Ning is We Love Etsy, a social network for people who love Etsy. Very nice.

Marc describes three kinds of internet-based platforms

Level 1 – API access – Flickr, Delicious, Twitter, etc, etc
Level 2 – API plug-in – Facebook
Level 3 – Runtime environment – Ning, Salesforce.com, etc, etc

Marc asserts that Level 3 platforms are the best for the developer. And I am not going to argue with Marc on technical grounds. That would be like me trying to beat my son at his Xbox.

Marc’s argument is that Level 3 platforms provide all of the infrastructure to build, deploy, and scale a web application and therefore are more attractive to developers. He says:

What are some of those issues?  To list a few: You have to provide a runtime environment that can execute arbitrary third-party application code.  You have to build a system for accepting and managing that code.  You have to build integrated development tools into your interface to let people develop that code.  You have to provide an integrated database environment suitable for applications to store and process their data.  You have to deal with security
in many different ways to prevent applications from stepping on one
another or on your system — for example, sandboxing. You have to
anticipate the consequences an application succeeding and needing to be
automatically scaled.  And you have to build an automated system underneath all that to provide the servers, storage, and networking capabilities required to actually run all of the third-party applications.

So here’s my question. With providers like Amazon increasingly providing the infrastructure to host, deploy, and scale a web app, and with rapid development tools like Ruby, and with the web as your runtime environment, isn’t it possible to do much of what a Level 3 platform provides directly on the web?

And isn’t it also true that building apps on the web itself, instead of plugged into Facebook, or resident in Ning, is more attractive to developers because the app is less reliant on the owner of the environment to continue to act in good faith toward the developer and their app?

Marc notes that the idea of app running "off platform" is relatively new concept:

I say this is ironic because I’m not entirely sure where the idea came
from that an application built to run on an Internet platform would
logically run off the platform, as with Level 1
(Flickr-style) or Level 2 (Facebook-style) Internet platforms. That is,
I’m not sure why people haven’t been building Level 3 Internet
platforms all along — apart from the technological complexity involved.

I think that apps running "off platform" are one of the great things about the Internet. A truly distributed computing environment. With all the benefits and challenges.

But I am not a developer. And as Marc says, "lots of people have opinions about platforms, but the people whose opinions matter are programmers, and people who can make decisions about what programmers program"

I would like to hear what the developers think. I know there are a bunch that read this blog and comment actively. So bring it on.

One of my favorite moments in the history of social nets is the scene in The Myspace Movie when the girlfriend looks at her boyfriend’s myspace page and realizes she’s not in his top friends and goes beserk.

Social nets are great for meeting people, connecting, etc. but they pose some specific problems for those in a relationship. What exactly is the role of the boyfriend, girlfriend, or spouse in your social network?

The Gotham Gal reads this blog every day but has never commented on it. Is she a member of this community? Maybe, but not a particularly active one. I comment on her blog from time to time, but it always feels a bit strange when I do that.

I started thinking about this the other day when I saw a twitter post from Kylie that said:

   
      Has convinced the husband to sign up for Twitter and give it a spin!

The Gotham Gal doesn’t Twitter and she doesn’t follow my Twitters (other than those she sees on my blog). But the fact that I was riding to the GWB this morning would have been interesting to her since I left the house before she got up. I can see how it might be useful.

She doesn’t have a Facebook profile, a myspace profile, or any social networking presence other than her blog (which is the best profile on can have in my book). So all my social networking activity is  basically  invisible to her. I don’t think that’s a big deal one way or another.

Unless, of course, there are problems in a marriage. Brad Stone had a story in yesterday’s NY Times on the amount of electronic surveillance that spouses in troubled marriages do on each other. There was no mention of social networking in that article, but I have to believe social nets will find their way into divorce court soon enough if they haven’t already.

If social nets are going to map our social relationships correctly, they’ll have to include our closest relationships. I am sure that for many who are ten or twenty years younger than me, they do. But as my generation goes social networking, do we take our closest relationships with us? Of that, I am not sure.

The Hudson River is also known as the North River (as opposed to the East River and the Delaware which was the South River). It runs 315 miles from Lake Tear of the Clouds in the Adirondacks and into the ocean at New York Harbor.

I’ve moved a lot in my 46 years, but one constant has been the Hudson River. I was born in a hospital that overlooked the Hudson in West Point NY. My bedroom in my teenage years (after we moved back to West Point) looked out over the Hudson and in the winter when the trees were bare, I could stare out the window and watch the boats go up and down the river.

Maybe that’s why I love riding up the Hudson River Park. I guess I just have a thing for the North River. And it shows no signs of abating.

I wrote a post a week ago talking about products that become platforms.

I started it off with a discussion about the Mahalo/Gnomedex thing. That was a mistake. It clouded the point I was trying to make. And that point is that the best products become platforms at some point. And things that start out as platforms have a hard time becoming products.

The other day I stumbled upon SquidWho. SquidWho is one of a number people search engines that are cropping up. Other notable "people search engines" include WikiYou, WInk, and of course LinkedIn and Wikipedia can be used for searching people.

What’s more interesting to me about SquidWho is what it represents. It’s an application built on top of Squidoo, the service that let’s people make webpages about things they are passionate about. Squidoo is kind of like a truly peer produced About.com. And despite some recent controversy about Squidoo being spammed up, it’s a fairly popular service.

Squidoo is one of the 500 most popular websites according to Alexa. comScore says Squidoo has over 4mm unique visitors per month worldwide. Squidoo has excellent search engine optimization so the pages you create in it get indexed highly in Google.

That’s a good place to start when you want to build a web app. Like a mini version of Facebook, Squidoo is a platform because it has eyeballs and unlike Facebook, it has great google juice.

According to Seth Godin, the founder of Squidoo, SquidWho was built in five weeks from initial idea to launch. And they have a bunch more of these "apps" coming. What’s next? I sure hope they open up the Squidoo platform to web developers so thousands of apps can be built on top of Squidoo. That’s how a product becomes a platform.

One of my favorite twitterers is Raj Bala who posts under the name of 140orless.

Raj posts music reviews in 140 characters or less. That’s the perfect amount of information for me. Last week, this note popped up on my desktop:

Irene – Long Gone Before Summer: If you love Jonathan Richman and The
Magnetic Fields, welcome to your new obsession. You’re welcome.

Well the mention of Jonathan and Magnetic Fields in the same sentance led me to a manic web search for this band called Irene. It wasn’t easy. Irene doesn’t have a lot of fans here in the US. It was even harder to get an advance copy of this new record called Long Gone Before Summer.

But Raj was right. It has become the new obsession in our home. Everyone loves it.

The entire record needs to be listened start to finish. There isn’t one standout track. It’s the flow of the music that makes it so great. That said, here’s the opening track.

By Your Side – Irene – Long Gone Before Summer

I like to think that this isn’t needed because we all know what’s confidential (the pitches I get every day) and what is not (a twitter or a blog post), but Seth is right. There are gray areas. So just put NFYB in the message and then it’s clear. Thanks Seth.

Some people have accused me of wearing my investments on my sleeve. But that doesn’t hold a candle to Dave Morgan and Rich Levandov who are getting the TACODA logo tattoo’d on their bodies somewhere.

Robert Buderi has the whole story on the Xconomy blog.

From Lefsetz:

Mr. Jobs is on the brink of a Q rating meltdown.

Oh,
he hasn’t changed. Not much. But suddenly, all his wisdom and all his
talent have resulted in Apple being top dog. And EVERYBODY shoots for
the top dog.

Stunningly, Jobs isn’t even aware of the coming
backlash. As evidenced by his failure to foresee the early adopter
reaction to the iPhone price drop.

There have to be fewer
special events. Steve’s got to do some press where he laughs at
himself. The record labels and movie studios and TV networks have done
SUCH a good job of depicting him as a tyrant that some of it is now
sticking. Steve’s RIGHT! But right isn’t everything.

Steve has
always walked a fine line between the industry and the fan. But now,
it’s getting him in trouble. He’s isolated, he’s alone, out in the
desert.

In order to win in the twenty first century, first and
foremost you have to be aligned with the public. The Tommy Mottola
decade is over. It’s not about your flashy life and power, if you
believe that, you’ve watched too much "Cribs". It’s about being honest
and delivering for the public at large, with your cash and power being
mere BYPRODUCTS!

Buying tunes from Starbucks via Wi-Fi on your
iPod Touch? That doesn’t get my hormones going. How about a
subscription that can verify via Wi-Fi, i.e. when you enter Starbucks?
How about more music for less money? How about further illustrating
you’re in OUR world, not THEIRS!