I wrote a post about this topic back in early 2006 and have returned to it a few times since. There was a short burst of startup activity in this area back in 2006. It was dubbed the "myware" sector, a reaction to the spyware era of the early part of this decade. But it did not get any legs and most of the people working in the sector have moved on.
But I have not. I still spy on myself and publish my activities publicly where the tools exist to do that.
And there's a blogrollr widget on the right sidebar of this web page that shows what blogs I've been reading lately.
I do this for a bunch of reasons. First and foremost, I am interested in this sector of implicit behavior data. I believe that publishing the things I do on the web will allow web services to get smarter about me and give me better experiences. And most of all, I want to control this data set.
There are so many web services out there, from Google on down, that have some or all of this kind of data about me already. The idea that we are going to surf the Internet privately is a non-starter in my mind. But we should own this data, we should be able to edit it, we should be able to determine who gets access to it and why.
Here's a small but enlightening example. Yesterday, I left my iPod playing overnight. When I sync'd my iPod this morning, all those tracks were scrobbled to last.fm. I simply went to last.fm and deleted them like this:
Blogrollr, the tool I use to record all the blogs I read takes it one step further and allows me to blacklist entire domains.
Of course, there is the potential for embarrassment in doing this. When I was doing some work on Gawker for a post I wrote a few weeks back. I thought I had blacklisted the fleshbot domain, but only blacklisted the straight version of the domain. That led to an amusing email with a regular reader.
I believe there are many ways to protect users from these kinds of embarassing situations. First and foremost, most people won't want to publish what they do on the Internet like I do. Some will but most won't. But they will want to see the activity themselves, edit it, protect it, and be able to share those feeds with web services that can give them better services as a result.
Imagine if you had a single data feed, fredsactivity.xml, that was hosted on the web and you could share with web services. I'd give it to Amazon to get better recommendations. I'd give it to Google Reader to find interesting blogs to read. I'd give it to Twitter to get better recommendations for people to follow. I'd give it to Netflix and Fandango to get better movie recommendations. I've give it to Goolge to get better search results.
I still believe this is going to happen. The burst of activity a few years ago may have stalled out, but I think that's a temporary pause, driven largely by the fact that the mainstream Internet user wasn't ready for this. Maybe they still aren't. But I am. I expect that a few of you out there are as well.
As of this morning, I've got 27,162 followers on Twitter. I've developed this following the hard way, slow and steady growth for 2 1/2 years. I'll be the first to admit that being an investor in and a board member of Twitter has helped. But I've not wanted to be on the Suggested User List and I am not. The people who follow me on Twitter have chosen to follow me for a reason and I try hard to post things that they'll find interesting.
My rule for Twitter is "four to six a day or you'll send your followers away". According to TweetStats, I post an average of 6.3 tweets per day. So I occasionally break my own rule, but I do edit myself on Twitter.
Yesterday, two things happened to me that got me thinking about this tension between informing and spamming. The first is my friend Seth Goldstein asked me to check out his company's new Twitter advertising system called Twitter Sparq. I went there, created an identical ad to the one I run for this blog in AdWords and submitted it. Somewhere in that work flow, I generated a tweet to all my followers that said:
@jcsalterego i did get tricked into spamming and it pisses me off. not cool. i guard what goes to my followers pretty carefully.
I also informed Seth and he promised to look into the workflow to make sure that doesn't happen to others.
The second thing that happened yesterday is I played around with the Hype Machine's new Twitter playlist. I gotta tell you that this is the coolest new web music thing that I have seen in a long time. Last night at a dinner party, I just put this list on the home stereo and we got great music all night from it.
Since then, I've been asked by a few artists and fans to tweet out some other tracks. I've been hesitant to do that. I don't want to spam my followers with tons of Hype Machine links. I am trying to figure out exactly how I should play this game. And that's the cool thing about the Hype Machine Twitter playlist, it has game dynamics in it. I like that.
All games built on Twitter, like Spymaster, include spamming your followers as a key component. I'm not comfortable abusing the trust of the 27k people who clicked that follow button by unleashing a ton of music links at them, even if I do really like the songs.
So I am working through this tension between informing and spamming. I thought I had it figured out pretty well but now as new services pop up that include the social (and viral) element of spamming your followers, I am facing some new questions. I think all of us who use Twitter regularly are going to face those questions, or are facing them, and the way we all work through them will be important to the value we get out of Twitter going forward.
I made the assertion last evening in Seattle that this blog gets more traffic from Twitter than Google. Mike Arrington called bullshit on that statement. The interchange is about 1:50 mins into this video:
I offered to share my refer logs with Mike and I might as well share them with all of you as well.
These are AVC's refer logs for the past 30 days. It says clearly that Google drives more traffic than Twitter (14.8% to 8.2%). However, some percentage of the direct (direct + avc.blogs.com) visits are coming from third party twitter clients and URL shorteners like bit.ly.
To demonstrate this, here are the refer logs from the same 30 day period one year ago.
Last year, this blog ran at avc.blogs.com and there was no avc.com, so the direct traffic was 22%. Now it is 39%. Some of that increase is simply more people typing in avc.com into their browser. But certainly some of it is traffic coming from third party twitter clients and URL shorteners.
If just 7% of the 17% increase in direct traffic is a result of twitter links that are not being counted as twitter, then it is true that this blog gets more traffic from twitter than google.
I wish I could be more scientific about this. Maybe the bit.ly guys can help. My assertion last night was based on data plus gut instinct. That's not going to be enough to satisfy Arrington I'm afraid.
I spent this week in the startup hotbeds of San Francisco and Seattle. Last night, I participated in a fun event called Naked Truth put together by leading Seattle entrepreneurs.
It was a wide ranging conversation about Internet business models and how to make money on the Net.
But at the end of the night, the 'silicon valley' question came out. A participant in the audience wanted to know if it was crazy not to do his startup in Silicon Valley. This is what I call the startup hotbed insecurity complex. Deep down inside, every entrepreneur working outside of the bay area worries that they are not as competitive and will not be as successful because they are not in Silicon Valley.
Many of the panelists had flown up from the bay area and pointed out how most of the important tech companies have come out of the bay area. Mike Arrington suggested the question wasn't even worth the time we were spending on it.
To which I responded that the idea that you cannot build an important tech company outside of Silicon Valley is 'a crock of shit'. Somehow that line was tweeted numerous times as 'silicon valley is a crock of shit' which I found humorous.
Let's look at the facts. Seattle has produced Microsoft and Amazon. Boston has produced DEC and Lotus. Austin produced Dell. NYC produced Bloomberg and Doubleclick. Europe has produced SAP and Skype.
I'm doing this at 5am on my blackberry on the redeye because I can't sleep so my examples are what I can muster at this moment. I could do better with a clear head and an Internet connection.
But the point is this. Not every great tech company comes out of Silicon Valley and you don't have to be there to be a successful entrepreneur.
For all the benefits of Silicon Valley, like density of great engineers and VCs, you have negatives like hypercompetition for talent and the creative cost of living in an echo chamber.
Tim O'Reilly sent me a comment via twitter on my most recent freemium post. He said he likes the perl motto "TMTOWTDI" which means "there's more than one way to do it"
When asked to summarize my thoughts on business models at the end of last night's panel, I said "there's more than one way to do it"
And the same is true of locating your startup. You can build a great startup in any of the dozen to two dozen startup hotbeds around the world. Pick a place you want to live and work and possibly raise a family. And then get busy.
All the talk about Chrome OS got me thinking about operating systems and how different OSes are used by people. Also, a comment on my post yesterday by Scott Shapiro got me to segment this blog reader base by windows and mac users in Google Analytics this morning. I looked at all the visits to this blog year to date by mac users and windows users and then looked at where each set of users come from. The data is interesting and here it is:
The most interesting fact is that 56% of Windows users visit this blog direct or via a google search whereas only 46% of Mac users get here by those two methods.
That 10% difference is offset by a much higher percentage of visits from Mac users coming from links on Twitter, Google Reader, Hacker News, Techmeme, Facebook, FriendFeed, Disqus, and several other services.
There are a few services that weight heavier with Windows users, like delicious, stumbleupon, and Yahoo Search (which is barely used by Mac users).
This community is a leading edge geek community so it's dangerous to make too much of this data. But I think it is safe to say that Mac users are more likely to jump on new services like Twitter and FriendFeed more quickly than Windows users. And it is also true that tech news junkies who hang out at places like Hacker News and Techmeme are more likely to be Mac users than the average news junkie.
The Twitter data is particularly interesting to me. Over 10% of Mac visits to this blog come from Twitter, whereas that number is only 5% for Windows users. That's a big difference and I'm not entirely sure what to make of it. I wonder if Twitter's user base skews Mac way more than the Internet as a whole?
The news that Google is turning its Chrome browser into a full blown linux-based operating system for netbooks has the tech industry buzzing. There's so much to like about this story; Google vs Microsoft, Google vs Apple, the rise of netbooks, the browser as an OS, freeconomics at work in the OS market, etc, etc.
I'm not going to add much to the discussion, particularly almost a full day after the news hit and literally hundreds of blog posts later. But I did enjoy Fake Steve Jobs' rant even though it was toungue in cheek. Fake Steve lists eight reasons why Chrome OS is "no big deal" including this one:
Point four: You also may not have noticed, but nobody uses Chrome. I
mean think about it. Do you know anyone who uses Chrome? Really? And
you know why nobody uses Chrome? Because Chrome is shit. Just utter,
utter shit. I mean they've got all these big brains at Google and you'd
think they could make a decent fucking browser. Jesus, the freetards at
Mozilla can do it. But not Google. Nope. They gave it their big best
effort and what did they come up with? Chrome. It's a joke.
Well that got me thinking if I knew anyone who uses Chrome, and I immediately thought of this community here at AVC. Well guess what, 9% of you all use Chrome. Chrome comes in fourth in this community after Firefox at roughly 50%, IE and Safari basically tied at 18%, and Chrome almost gets double digits. Here's the exact numbers for the past 30 days:
Of course these numbers come from Google Analytics, but I trust Google not to mess around with this stuff.
So in just three years, this community's use of IE has gone from 63% to 18%, Firefox has gone from 28% to almost 50%, and Safari has tripled from 6% to 18%.
So Chrome may be under 10% right now, but in three years, it could easily be the leading browser in this community. Browsers apparently don't command that much loyalty and switching costs are low. That said, I'm not moving to Chrome unless I can take my Firefox extensions with me.
Mobile phone companies should be required by law to sell an unlocked version of their phones at a price that is equal to the locked price plus whatever subsidy is being paid by the carrier that sells a locked version.
I don't know exactly what that unlocked price would be for the iPhone, but today AT&T and Apple sell the iPhone 3GS for $199 (16gb). I believe the AT&T subsidy is about $200 per phone. So Apple should be required by law to sell an unlocked GSM iPhone for $399.
I've been a T-Mobile customer for over ten years and I never sign a plan with them. I buy my blackberries at full retail value and never get the subsidy. That's because I don't believe phones should come with obligations to use a certain carrier (and I've used the same carrier for over 10 years).
Most people will gladly take the subsidy and buy the locked phone. AT&T will still be able to buy market share through a partnership with Apple. But there is a small (and growing) market of people like me who will pay a premium for an unlocked phone. And the government should let that market grow and flourish. It's in the long term interest of the mobile tech business here in this country.
Just like it is the law of the land that phone numbers are portable from carrier to carrier, it should be the law of the land that phones should be portable from carrier to carrier. Anything else is anti-competitive.
The entrepreneur is the customer and the LP is the shareholder. That's
the only way to think about the venture capital business that makes
sense to me.
And then I went on to explain why that is the right way to think about the VC business.
I am revisiting that post today because I love what Marc Andreessen and Ben Horowitz had to say about their new firm in the announcement on Marc's blog yesterday. They laid out eight core values/organizing principles of the Andreessen Horowitz venture firm in that post. And number three is:
A technology startup is all about the entrepreneurial team and their
vision. Our job as venture capitalists is primarily to support
entrepreneurs by helping them build great companies around their ideas.
That's right. Our job is to support the entrepreneurs. You got that right Marc and Ben. The VC industry is changing. New firms with new values are sprouting up replacing older firms who saw themselves in different lights.
I'll say it again. The venture industry is not broken, but some of the participants in it are.
This Thursday night in Seattle I am going to participate in a fun event organized by Seattle entrepreneurs called The Naked Truth. The name is misleading because everyone is coming fully clothed and since there will be bloggers like me and Mike Arrington involved, we don't have to deal with tricky things like the truth.
The topic is, you guessed it, how to make money on the Internet. The way they are going to bring this topic to life is put three local entrepreneurs, the founders of Picnik, Animoto, UrbanSpoon, together with three so-called experts, me, Mike Arrington, and Damon Darlin. The entrepreneurs are going to talk about the ways they make money and the so-called experts do the color commentary. The whole thing will be moderated by Glenn Kelman, CEO of Redfin who will keep us honest and the conversation moving. It sounds like a fun format.
Even better, the event is outside in a park and they've got a cash bar:
When: July 9, 2009, 6:00 – 7:30 p.m. panel, 7:30 – 9:30 party
I don't get to Seattle very often and I'm there for a few days of vacation with the Gotham Gal so I won't be doing any meetings when I am in town, but I am very excited to be taking part in this Naked Truth event. If you live in Seattle, I hope I see you there.
The most plausible contender for an "entirely new economic model" made
possible by the internet is what Fred Wilson, the New York venture
capitalist, has dubbed "freemium".
There was no dubbing by me. In March 2006, I wrote a post called My Favorite Business Model in which I outlined the freemium concept and I asked the readers to help me give it an easy handle. The word Freemium was not coined by me. It came from Jarid Lukin, who at the time was working for Alacra, a company I am on the board of. Fortunately, we've got Wikipedia which has got the story straight.
Now let's talk about freeconomics. I don't believe everything will be free on the Internet. There will be plenty of paid business models. For example, if you want to watch Major League Baseball games live over the Internet, you'll pay for that. If you want to use services like the FT and the WSJ frequently (more than 10x per month), you'll pay for that. If you want to watch HBO over the Internet, you'll pay for that. If you want a Twitter desktop or mobile client, you might pay for that too.
But we also must recognize that the cost of delivering many services over the Internet has decreased significantly from what it cost to deliver them in the analog world. The marginal cost of delivering a piece of content is approaching zero. But the total cost of delivering content on the Internet is far from zero. My partner Albert wrote a great post about this last week. He said:
The price of watching a stream on Youtube is zero. With marginal cost
zero and marginal benefit zero, from a perspective of maximizing total
social (net) benefit, free is the right price because it does not
preclude any video that could possibly have benefit from being viewed.
That does not mean that free is sustainable because it obviously
doesn’t help cover the total cost.
And, as Albert recognizes at the end of his post, this debate is not entirely about economics. It is about the value of various participants in the content ecosystem.
Gladwell got pretty negative on Anderson and his book in the New Yorker piece. He said:
It would be nice to know, as well, just how a business goes about
reorganizing itself around getting people to work for “non-monetary
rewards.” Does he mean that the New York Times should be
staffed by volunteers, like Meals on Wheels? Anderson’s reference to
people who “prefer to buy their music online” carries the faint
suggestion that refraining from theft should be considered a mere
preference. And then there is his insistence that the relentless
downward pressure on prices represents an iron law of the digital
economy. Why is it a law? Free is just another price, and prices are
set by individual actors, in accordance with the aggregated particulars
of marketplace power.
These are the anti-freeconomics arguments we hear from the likes of Andrew Keen and his ilk. Lambasting file sharers and entrepreneurs who rightly recognize that free is the right way to build market share on the Internet might be fun and make certain people feel good. But it's ignorance of a fundamental fact. And that fact is that free, ad supported media works best on the Internet. We have seen it again and again. I'm not going to even give examples.
Once you have built that audience, you can deliver upsells via freemium models, you can monetize it via advertising and you can branch out into other services which are easier to monetize. This post by Silicon Alley Insider on Facebook's revenues this year is instructive:
Earlier this week, we spoke to several sources who each have some
insight into Facebook's financials (none of them know precisely).
Taking the sources' input together, we'd estimate the company's
expected 2009 revenue this way:
$125 million from brand ads
$150 million from Facebook's ad deal with Microsoft
$75 million from virtual goods
$200 million from self-service ads.
These numbers are similar enough to others that I have heard that I feel comfortable republishing them here. Facebook has 200mm+ monthly active users worldwide. Let's say they are doing $50mm per month in revenue. That's a revenue per monthly active user of $0.25. Low for sure, but enough to operate at breakeven. And I expect the self service ads and the virtual goods revenues to grow strongly in the next year, more than making up for the likely loss of some of the $150mm from the ad deal with Microsoft.
And the next move for Facebook is to generate transaction revenues with its payment service and off site ad and transcation revenues from its Facebook Connect service. I'm pretty confident that Facebook can take its revenue per monthly active user to at least $0.50 and maybe higher in the coming years.
Facebook is a perfect example of freeconomics at work. A woman who works for a major media company was in my office recently. She quoted her CEO as saying "why doesn't Facebook just charge a monthly subscription fee, they'd be making money hand over fist?". Well I believe that if Facebook did that, they'd be vulnerable to other networks offering a free service. And certainly not every one of those 200mm+ users are going to cough up a monthly subscription. But by offering a friction free service, they have built a powerful and growing network that they are now starting to monetize in various ways and that they will monetize even further in additional ways. And they are super hard to compete with because they are free.
I like to keep my posts short, so I'll end here with the observation that the Internet allows an entrrepreneur to enter a market with a free offering because the costs of doing so are not astronomical. And most entrpreneurs who take this approach will maintain an attractive free offering of their basic service forever. But that doesn't mean that everything they offer will be free. That's the whole point of freemium. Free gets you to a place where you can ask to get paid. But if you don't start with free on the Internet, most companies will never get paid.