Fractals of Change

Imbedded Social Networking

The Facebook/MySpace model is wrong for most groups, we all agreed; it's inside out. We is VC and blogger Fred Wilson, FeedBlitz CEO Phil Hollows, Return Path CEO Matt Blumberg, and me. The venue is a panel at a Return Path sponsored event at the Museum of Natural History in NYC.

Phil Hollows took our conclusion to heart. He went home and changed the FeedBlitz interaction with readers so that interaction occurs inside the context of the publisher's site rather than on the FeedBlitz site. FeedBlitz (which I'm an investor in) turns blogs and online newsletters into double opt-in email and tweets and other things; the email gets through spam filters. FeedBlitz is part of how publishers communicate with readers so it make sense that it appear on the publisher's site rather than lead readers away. Here's what Phil wrote on his blog:

"One of the challenges of using third party services on your site is that when a visitor needs to have a meaningful interaction with that service, they're transported away from your site and onto that service's site. Often the point of adding a third party service, widget or script is to add value to your own offering, but all too often the first thing these services want to do is take those visitors (and their advertising revenue potential) and park those visitors where the plug-in vendor's value is increased, not yours. Great for them, but for you? Not so much…

"So I'm delighted to announce an API-free embedded email subscription form that allows you to keep your subscribers on your site while they go through the initial subscription forms…"

Granted that we want the users of our service or the readers of our blog to form a community which interacts around the service or the content of the blog. We want and they demand that their interaction be horizontal as well as vertical – with each other as well as with the service provider or the author. In fact customer and prospect events in the real world. like the Return Path one we were speaking at, have long provided a forum for such interaction. But, in the online world, we send our customers to Facebook or MySpace to interact around OUR service; we send them away from our website; we fragment them according to what social network they happen to belong to. That's nuts! The fact that companies DO send their customers off to Facebook is evidence of how important the social networking function is – and of the fact that there is no good alternative.

Many large sites do support their own bulletin boards and chat services; this is particularly true where tech support is involved. My prediction is that these capabilities will end up imbedded in medium and small sites, even blogs, and that these services will usually be provided via third parties like FeedBlitz who understand that their brand is NOT the one that comes first for your users. Social networking will be in the context of sites and services, not the other way around.

Of course I have to take my own advice so I implemented FeedBlitz' new capability on Fractals of Change – it took about five minutes. When people click on the "subscribe me!" button at the top of the left sidebar of my site, they get the FeedBlitz signup form between MY sidebars -see below or click here for an example.

DISQUS for discussions

Lately the comments and replies on Fractals of Change have gotten a lot more intense and interesting, maybe because these are interesting times.

Typepad comment handling is pretty primitive so I've switched to DISQUS starting with this post. DISQUS supports threaded comments, has a more powerful profile system for commenters across blogs which use DISQUS, lets you (and me) get email notification of replies to comments and even lets us reply to comments with comments by reply email. Should be neat; let me know what you think.

For testing purposes, I'll be making the first comment on this post.

Full disclosure: I'm an indirect investor in DISQUS through Union Square Ventures.

Invent, Baby, Invent

Tom Friedman says we ought to be chanting "Invent, Baby, Invent" rather than "Drill, Baby, Drill". Forget that this is a false dichotomy (or read this post), invention IS a good idea. I've spent most of my career inventing both technology and business models - successfully and unsuccessfully, have a handful of patents, better stuff I was too dumb to patent, and an interesting career and comfortable life to show for it so am all in favor of innovation. Unfortunately neither cheerleading nor government subsidies are very effective in stimulating invention.

Inventor invent because they can't help it – just like writers write even when no publishers'll publish. What matters to society is how many good inventions actually can be deployed. The deployment rate of invention has a lot to do with capital (and a lot to do with marketing – I've been lucky to have Mary to promote my inventions). Government capital, however, is usually harmful to the innovation process (some exceptions below). Let's take a look at energy which is what Tom Friedman is talking about.

Corny ethanol is the greatest achievement of the latest round of government-stoked energy innovation; it's a bipartisan boondoggle made inevitable by the position of Iowa in the primary calendar. It has succeeded in adding a great deal of ethanol to our fuel mix. It's dubious whether it's led to a significant reduction in either oil imports or CO2 emissions since so much energy is required to grow, transport, and process the corn and much of that energy comes from oil. It certainly has added to commodity inflation (I have no idea how much). The subsidies paid to ethanol producers tilt the scales AGAINST other less-favored forms of energy innovation. Private capital likes to bid with and not against government capital so bad choices made by government are followed and then encouraged by private capitalists who benefit from them. VCs who bet on corny ethanol and were rewarded with subsidies like to picture themselves as green – it's only become recently clear that this particular shade of green is the color of money.

The next round of private investment in solar and wind generating capacity is waiting breathlessly to see when and whether Congress gets around to passing some subsides and what those subsidies are for. If there weren't a prospect of subsidies, more of that private investment would have already been deployed. Moreover, without subsidies the capital gets deployed better because the return is determined by base economics and good execution, not whose lobbyists do the best job writing the rules for subsidy. Let's do a thought experiment: do you think Congress is hesitating on the next round of alternative energy subsidies because our representatives are diligently trying to understand the science and economics involved?  I didn't think so.

BTW, it's not that private investors are prescient or infallible. Most private investment in innovation is in dead ends. But, when the government isn't tipping the scales, private investment fans out across the landscape and the good stuff inevitably gets funded along with a lot of what turns out to be junk. Government as an investor concentrates on what'll pay the highest political dividend and, even worse, drags the private investment in the same direction and discourages diversity of investment.

Let's talk about cars. Both major Presidential candidates are in favor of $25 billion of subsidized loans to American car manufacturers; have you noticed that Michigan is a critical swing state? Is innovation, especially radical innovation likely to come from the major manufacturers? Of course not. Are innovators who aren't major manufacturers going to be able to raise the capital they need to bring their innovations to market; very difficult seeing that their competitors are getting these big gobs of taxpayer subsidy. The result of these loan guarantees will be to decrease the likelihood that America will turn the energy "crisis" to the energy "opportunity".

There is a role for government capital in enabling infrastructure – the power grid which creates a way for even yet-uninvented energy sources to distribute is, perhaps a good example. Keeping taxes low doesn't make inventers invent – they'll do that anyway – but it does help convince the investors the inventers need to invest. Taxing capital out of the private market and having government "invest" it is pretty much the worst way to encourage innovation.

Spam Filter: Debt More Important Than Sex

 

Mary was actually the first to spot this trend. Used to be that my spam filter was full of offers to enlarge my body parts, even those I'd rather not enlarge. Second hottest category was offers of medicine to help me make the best of the body parts I have. Then some opportunities to meet girls.

Assuming that spammers have their finger on the pulse of America, we seem now to be much more worried about debt than sex.

 

Satellite Internet Access That Could be Good

According to The Wall Street Journal, A company called O3b Networks LTD Traditional is planning to launch up to 16 satellites by the end of 2010 to provide Internet access in Africa, the Middle East, and parts of Latin America. This satellite plan, unlike many others, could be good. These are low earth orbit satellites or LEOs so they will be able to avoid the latency problems which are unavoidable with the geostationary satellites used by companies like WildBlue and Hughes to provide "last resort" Internet access in the US.

O3b stands for "other 3 billion" – the people in the developing world. No one should ever underestimate a developing market. O3b's backers for $60 million of the estimated $650 million they'll need include Google, HSBC Holdings PLC, Allen & Company, and Liberty Global Inc.

The trouble with geostationary satellites is that they have to be 22,000 miles above the equator in order to appear stationary from earth (law of physics). Even at 186,000 miles/sec (another law of physics), radio signals take so long to get up and down that noticeable latency is introduced. Typically these services are useless for gaming, near useless for VoIP, and increasingly useless for web surfing as web sites get more and more interactive. They can be OK for file downloading, email, and relatively small uploads.

The advantages of geostationary satellites are that very few of them cover lots of the earth, they are high so they stay up and useful for a long time, and, because they appear stationary from earth, an antenna can be pointed precisely at them to save on transmit power.

LEOs are used by services like Iridium and GlobalStar primarily for voice use in remote locations or at sea where cellular networks don't reach. The services are expensive – partly because of how many LEOs are required to cover the earth and partly because friction with the atmosphere makes low satellites fall relatively soon after they're launched. So it's economics and not physics that'll be a problem for O3b. To succeed, they'll have to get good penetration (but they do have greenfield markets) and offer high data rates at prices much lower than the primitive data offered by Iridium and GlobalStar. Unlike these companies, which offer service directly, O3b plans to be a wholesaler and leave distribution of Internet access to local providers. This strategy means that they can rely on high bandwidth smart head end antennas which can track satellites as the move across the sky and that the satellite radios don't have to worry about numerous relatively lowspeed connections.

Sounds like it might work

Chrome - Getting Microsoft’s Goat

Historically there has been nothing which gets Microsoft's attention as fast as a platform for applications which threatens Windows dominance. Google's Chrome is obviously such a platform; Google can afford to challenge Microsoft; it's healthy for innovation that it does. Can Microsoft still rise to the challenge?

Way back when I was at Microsoft – 1991 to 1994, Lotus Notes was the threat du jour. Developers WERE developing Notes apps instead of Windows apps; analysts and Lotus CEO Jim Manzi were predicting that Windows would fade in importance and that Microsoft apps like Word and Excel would than wither as well. Bill Gates respected Manzi as a tactician and really respected Notes creator Ray Ozzie (now chief software architect at Microsoft) as a technician. We were at war.

Since I was responsible for the development of what was to become Microsoft Exchange, I was in charge of that war for a while although I was never as aggressive against Notes as Bill would have liked. I was an email guy; I thought the real battle was over email (and that email was the platform of the future – wrong). I knew Lotus cc:Mail had more users than either Notes or Microsoft Mail (the then current DOS-based version). I knew mail was on or about to be on every desktop. I believed that Notes, powerful as it was for collaboration, was too complex for most people to want to use as an email client. But, every time Bill insisted that we add more Notes-killing functionality to Exchange, the further behind schedule we got (this is partly excuse; we were behind schedule anyway). The further behind Exchange got, the more seats cc:Mail and, to a lesser extent, Notes added.

In the end, we (Microsoft) won the email battle, partly because MAPI (Messaging APIs) made Exchange and Outlook better platforms than cc:Mail for ISVs and 3d party vendors and partly because Lotus didn't upgrade cc:Mail on a timely basis since they, too, were focused on Notes so we really had a better email system. Our collaboration battle faded into irrelevance as the link-based Web proved more useful than the mainly hierarchical data storage models used by both Lotus and Microsoft.

The next serious platform challenge to Microsoft was a browser: Netscape Navigator. The applications you could write in a browser back then were very limited; but that didn't stop Marc Andreessen, the chief inventor of the Web browser, from proclaiming (perhaps unwisely) that the browser was a platform which would challenge Microsoft. Bill Gates apparently believed him. Netscape wasn't really strong enough to stand up to Microsoft despite a soaring stock price; its middle managers had prematurely become as arrogant as Microsoft middle managers. Microsoft courted ISPs (I was running AT&T WorldNet then so was courted) and won distribution for Explorer at least equal to that for Navigator. And, of course, Microsoft bundled Explorer with Windows. Eventually Netscape was acquired by AOL, which didn't do much with it, and that threat was gone.

Chrome could be the most serious threat yet. Browsers have come a long way since Navigator and the early Explorer. JavaScript and a host of server-based tools make it much easier to write applications in a browser – and gain at least partial platform and operating system independence. Amazon, and to a lesser extent Google, have made it extremely practical to deploy Web apps professionally at very low cost. Most importantly, we're online with access to web servers more and more of the time – even when we're moving.

Google has googles of cash; it can't be starved out by Microsoft. It has "distribution" as the search engine of choice; it dominates search and keyword advertising the way Microsoft dominates desktop software. THIS is a battle of the titans.

Related posts:

How MAPI Beat VIM (an historical footnote)

The Flattening of Almost Everything #2 – Information Retrieval

 

Microsoft Memories

 

 

 

Going Without Revenue

Starting a business with no plan for revenue is always a risky approach; it's especially so these days with no quick exits through either going public or being acquired and not much VC money available – especially for businesses with no revenue in the P&L.

Some people would argue that a "business without a revenue plan" is an oxymoron. That's NOT true; you can build spec houses for a business and know you won't get a cent back until you sell them; that's a business. In the Internet world you can build a service on spec hoping that it will be purchased and become a feature of another business (which probably does have revenue); nothing wrong with that except the risk. You can also speculate that, if you can only attract enough users, many revenue models will be possible; you may be right; Google was.

More on reasons why starting without revenue may be a good idea here. If you're convinced that's what you want to do, here's what you need to have any chance of success (and even with the items below, you will probably fail; but so will most new businesses WITH a revenue model):

Hugely deep pockets of your own. If you've got that, you've got lots of runway – but no verification that anyone besides you believes in your idea.

OR

Enough starting capital to survive at least twice as long as you think you're going to need to survive before you either sell out or raise more capital.

AND

A very low burn rate for personnel costs. If anyone you depend on (especially you) is taking out what they could earn in a "regular" job, you run a good chance of having to fold because they or you have to quit and earn a living.

AND

A business which can grow to scale without consuming large amounts of capital either for equipment or for hosting costs. This requirement can be met by offloading most of the cost of growth to your users' machines and Internet connections (as in a P2P service) or by frugal use of cheap hosting from the likes of Amazon.

AND

A source of follow on funding willing to raise the ante purely because you have met internal goals even if you haven't achieved the growth you hoped for and are still far from revenue. See Fred Wilson's post on why VCs DO like to do follow on funding; but remember that VCs also can and often will pull the plug (Fred again here).

The point is that many things will go wrong and, without revenue, you are walking a tightrope without a net. Revenue gets you both additional runway – infinite if you're breakeven and patient; revenue opens doors to new funding and/or acquisition from many more sources that will look at a non-revenue operation. That's why you need either a huge fortune of your own or an excellent combination of funding and low cost growth before swinging for the no-revenue fence.

 

Should Your New Web Business be Ad-Supported?

Contrary to popular belief, the ad-supported model for a web business is very, very hard to succeed at. I've underestimated the difficulty of living on ads a couple of times in the my investment career. Wouldn't want you to do the same either as an investor or an entrepreneur.

Google, of course, is advertising-supported and is a huge success; that's bad news for you - and Yahoo and Microsoft. Google is consuming most of the free oxygen in the ad-supported cave. If someone wants to buy keyword-driven ad inventory, they go to Google. Why should they bother going anywhere else, especially to a startup very few page views? If you want ads on your service, you'll have to sell them or get them from someone else who is selling them. No matter how neat your self-help ad engine is, no one except maybe your mother will try using it UNLESS you open the way to a significant new market AND can prove that.

OK, you say, people won't by ads from me but they'll buy them from Google. I'll create the page views with my wonderful new service and Google'll put the ads there. Google'll put ads anywhere. Yeah, but. Google will put ads on your pages; some people will click on these ads (Google charges for and pays for clicks in case you've been living on Mars and missed that). You will get a small stream of revenue; it won't bring you anywhere near breakeven. It won't impress potential investors. In fact, the trickle of revenue you get from Google might even convince potential investors that you CAN'T make a living with ads; no ads and no revenue might leave them easier to convince.

Google ads are fine for harvesting ADDITIONAL revenue. Bloggers run them because any revenue is nice; but most bloggers aren't trying to make a living from their blog or attract investors to it. If your website sells something, it makes all kinds of sense to sell additional related somethings through Google ads or Amazon ads (which you can better aim at your customers). If your website has some spare space, Google ads are something people are used to looking at and they'll make some spare change for you. But they won't make your business model.

Maybe there's a counter-example (if so, please post it). In theory, I thought, since Google does such a good job of keyword targeting and increasingly good job of geo-targeting, a well-defined site that viewers come to for well-defined reasons (not an eclectic site like Fractals of Change) ought to be able to induce the Google bot to send just the right ads to attract many clicks at a high price per click. But I haven't seen it happen that way.

Besides Google there are ad networks which will actually sell your site to advertisers. Professional blogs do get a great deal of their advertising from networks like Federated Media (FOC is a small blog using FM). But it's tough to get the attention of a good ad network if you don't already have good demographics AND high viewership. Even if a network takes you on, their salesmen aren't going to be able to do much for you unless you have numbers big enough to get their attention and the attention of the advertisers and agencies they sell to. If your content is powerful enough, you might make a living with agency ads – but it's a long shot if you're not BoingBoing.

Whether it's Google or an ad network, whoever sells your ads is going to have to keep a lot of the revenue to pay the selling expense. It's highly unlikely that they'll be enough left for you to run your business on.

The bottom line is that you have to have way to sell ads if you're going to support a service on advertising revenue. Sell as in actually convince somebody to buy something, not just take orders. Selling ads nationally means having existing contacts with people who buy ads nationally AND having such a hot property that they'll pay attention to you. Selling locally means feet on the street walking into stores and helping to build local campaigns. Radio stations know how to do that; you probably don't and probably can't afford to hire someone who does. The easy local ads were the classifieds because the newspapers didn't sell them, they just took orders. Craig and his List jumped quickly into that huge niche. Almost inconceivable that you'll make money there.

If you have a better way to sell ads, then maybe you should start an ad-supported service. If you just have a better service, you probably can't support it on ad revenue alone.

Too Much Revenue, Not Enough Growth

Jeff Jarvis posted a comment on my post In Praise of Revenue:

"I'd also like to see you reprise your lesson (from the Union Square event some time ago) on extracting minimal value from the network you create so the network grows as large as possible and the value you've created and can extract in the end is greater than if you had tried to extract more value at the beginning. Did I get that right? I quote you to that effect all the time. Did it just the other day with a big publisher whose blog ad network is taking too high a cut. I told him to just cover his costs for the first year - or less - and he'd end up growing something bigger that would be more valuable to each member, thus bigger, thus more valuable to him. Eh?"

Jeff remembers quite accurately that I advocated optimizing for growth rather than revenue – in the extreme forgoing revenue. Jeff's advice to the publisher was right on. If you simply solve for maximizing revenue, you can end up with little growth – and little future revenue opportunity. Note, though, that Jeff did not advocate forgoing revenue; in fact, he did advise the publisher to cover costs, presumably so that growth can occur without needing to raise more capital or so that there will be a solid basis for raising capital when it can be put to good use.

The case Jeff presents of an ad network is particularly straight forward. It is difficult if not impossible to sell ads which will be seen by only a few number of people. The cost of selling the ads is too high to justify the effort; advertisers are not interested in taking the trouble to investigate a tiny potential market or put any creativity into reaching it. Other than in strictly local markets, there need to be millions upon millions of impressions AND data to do targeting with before advertisers are interested. So it is not practical for any but the very largest blogs to sell their own ad space – and even they usually don't. There is an opportunity for ad networks which aggregate advertisers and advertising on one side and an inventory of space ads can run on the other side. The network matches the ads to the blogs, typically collects from the advertiser, and pays the blogger. Google is the most successful example of an ad network but the ads it aggregates appear in many more places than just blogs. Federated Media, the ad network to which Fractals of Change belongs, is an example of a blog-based ad network.

If you're an ad network, the more page views you have to sell, the more and better the advertisers you can attract. The more advertisers and the higher the rate for page views you can achieve, the more bloggers you'll attract to make their page view inventory available through you. You obviously have to scratch to get started, need to have some credibility or an existing inventory of ads to start with, and are going to lose some money getting going. But now you've got traction: how much of the ad revenue should you share with the bloggers and how much should you keep? Your investors may be pushing for some return on their capital (profits); your compensation might even be tied to your margin on sales rather than just your gross sales. Nevertheless, charging more than you have to, even if you can for a while, is a mistake.

Charging too much stunts growth so you'll have fewer units to charge for in the future. Charging too much opens the door to competition.

The more that bloggers make from your ads, the more space for ads you'll have available as bloggers tell their friends which ad network to use. The more ad space you have, the more ads you'll get and – on the average – the more you'll be able to charge for ads because you'll have better opportunities to target and you'll have more advertisers interested. The more ads you get and the more you can charge for them, the more money bloggers in your network can make.  You want to keep this virtuous circle of growth going as long as you possibly can.

If you are extracting profits before you have to, you're forgoing future growth. In any sort of competitive market, profits attract competitors. Big profits attract lots of competitors. Would-be competitors can point to your profits and easily get funding. Funded competitors can undercut your rates and "steal" your bloggers. Whoops; the circle is now turning in the non-virtuous direction. If you're doing well but running at or close to breakeven, you've made it impossible for anybody to undercut you without running at a deficit which is hard to get funding for – at least in this market. The biggest danger to you is someone who finds a way to substantially cut costs or to deliver a better product. Obviously you've got to be vigilant about that and ought to lose some sleep over these possibilities – but keeping prices down keeps a plague of me-too competitors from cutting off your growth.

This logic goes well beyond ad networks, they just make a good example.

Craig's List has the successful strategy of forgoing revenue for MOST listings it runs and MOST markets that it's in. That strategy helped it attract a critical mass of listings and a critical mass of listings meant a critical mass of ad readers which attracted more ads etc. etc. If Craig now attempted to maximize revenue by charging for a substantially higher percentage of ads, a door would be cracked open for competition. There is no chance at current rates for a competitor to steal Craig's listings (and readers) by charging less. If and when Craig's List is bested, it'll really have to be by something which delivers a better way for listers and readers to communicate.

Unless you are a protected monopoly, high prices are a recipe for losing whatever lead in the market place you have. Low prices are the engine of growth.

The strategy Jeff suggested to the publisher and that I'm recommending here is to keep revenue as low as it can be and still fund growth. No revenue is a different strategy that I'll post more about.

In Praise of Revenue

The most noted Web success stories are of companies which began without a revenue model, grew like topsy, and eventually made very good. ICQ at the beginning of the first Web bubble; Google at the beginning of the latest one; and – on a smaller scale – del.icio.us, flickr, and YouTube in the Web 2.0 boomlet. I've advised some young web companies to grow first and worry about revenue later; this post qualifies that advice. Revenue is probably a good strategy for most – but not all – startups.

The no revenue approach is a long shot, a swing for the fences strategy. If growth isn't funded by revenue, it has to be funded by investment capital. If expenses escalate commensurate with growth, then growth itself can be a problem if there is no more capital available. If growth doesn't come as fast as planned, then time becomes a problem as capital is eroded. In an exuberant time, growth itself can attract capital. But we entrepreneurs don't control the swings the of the economy; when times are sour, money hides.

It's a lot easier to raise money with a demonstrated revenue stream; even easier if you are already cash flow positive and can show in simple terms how more capital will produce more cash flow from a "proven" model. The number of investors willing to invest in pure growth is much smaller than those who will invest in a revenue stream. A company with a revenue stream can use debt as well as or in addition to equity. Moreover, if more customers automatically mean more revenue, growth can be self-funding – assuming you have some way to pay for attracting those customers.

A company with revenue can survive a downturn in the investment climate and be well-positioned when investors swing back from funk to frenzy.

This may all seem pretty basic if you've never been part of the Web economy; but it's a reeducation for those of us who've lived on the leading, growing-edge of bubbles. Maybe it's a sign of how mainstream the Web has become that most (but not all) of the opportunity is available to companies which start with a revenue model and use revenue to either fund growth or attract the funding for growth.

Next: when a no revenue strategy IS (and isn't) appropriate.

I blogged about ICQ and creating network value here.

Yahoo.licio.us is about the success of del.icio.us.

Net Neutrality and Metered Broadband

Yesterday Chris Albrecht writing on GigaOM pointed out that NBC is warning users that it's Olympic download service is "not recommended for people with dialup or metered broadband Internet access (emphasis mine)."  Chris predicts "That is just a taste of things to come — especially if you're a fan of video services like Hulu."

Last Friday the FCC voted to uphold a complaint against Comcast for blocking BitTorrent (software for file sharing) traffic and ordered the cable company to cut it out. The two stories are actually strongly related. From a New York Times article on the decision:

"Curiously, representatives from other telecommunications companies praised the decision, even though they objected to the commission meddling in how they manage their networks. They said they would prefer such rulings to legislation from Congress, which has discussed enshrining net neutrality principles in the law."

There could well be another reason why at&t and its brethren were less than unhappy with this FCC decision: it helps pave the way for the widespread introduction of metered Internet access – something the carriers have already imposed on cellular broadband access services.

The PR argument'll go like this: "A few people are using the lion's share of our bandwidth. We're not allowed to block software like BitTorrent  used by these bandwidth hogs; we're not allowed to discriminate in any way. So we'll have to charge by the megabyte instead so that costs will be 'fairly' allocated and a few users don't spoil things for the rest of us. It would be bad for our users to allow them to actually have unlimited Internet access. This plan doesn't discriminate against anyone."

Andy Kessler blogged against the FCC talking the position it did on net neutrality:

"We need policy to help cut a path for more competition, rather than protecting incumbents -- a Bandwidth Competition Act of 2008, not bogus net neutrality. All takers should be allowed access to poles or underground conduits. This is where neutrality should be enforced, instead of being a choke point.

"Municipal or privately run wireless data services using Wi-Fi or WiMax should be sprouting like weeds. But they aren't being built because of lack of access to street lights, of all things, to set up access points. Verizon is busy rolling out a fiber optic service, FIOS, that will provide much higher speeds and real competition to Comcast. But it is slow going, as state by state video franchise rules still favor cable over any newcomers.

"A stroke of a pen can cure these ills, incumbents be damned. They will adjust. I personally would climb telephone poles on my street to run fiber if I could get 100 megabit Internet service. Any takers? Talk about an economic stimulus; this is the type of infrastructure we need. The stock market will fund it all as well as resolve overbuild problems."

The problem, as Andy points out with his usual eloquence, is lack of competition. Adding more regulation into the mix won't get us broadband in the US which is comparable with what already exists in the much of the rest of the world. Put another way, regulation usually favors incumbents and discourages innovation. There are no companies more skilled at playing the regulatory game than the existing telcos.

Here's some evidence from NewTeeVee of what has happened in the more competitive Internet market of Western Europe where utilization limits used to be the rule. A couple of years ago, metered pricing meant it could cost about $30 in charges to download a movie. But YouTube and other online video services are very popular in Europe.

"And guess what? The online video boom has taken its toll on the ISP market as well, with customers voting with their feet for better plans. And as for all the metered packages that were all the rage just two or three years ago, none of the big German ISPs are even advertising them anymore. Instead, they're trying to sell premium packages bundled with fast, unmetered broadband access.

"Take 1&1 for example, one of Germany's biggest ISPs: The company is now offering its customers a DSL package with 16MBit, unlimited bandwidth and 100 movies on demand, streamed to your PC, for just 40 euros per month. Beats paying $30 per movie download, doesn't it?"

Don't make a mistake: it's all about the video! Comcast doesn't want "free" Internet content displacing packaged entertainment plans; Verizon counts on charging for content to justify the huge capital investment its making in FiOS; at&t wants to be your content company. They each have a right to try to make money by selling packaged content. They don't have a right to use the power of what Andy calls "faux competition, cable monopolies versus phone monopolies" to assure their business plans.

But, defenders of the cablecos and telcos will say, they won't invest in their networks if they can't make more profit from them. Well, we do have the example of Europe to say that isn't so. If the present incumbents won't invest, their successors will. If you are purely in the network business, cheap content makes your network more valuable because you get more usage and can compete for a greater share of the total entertainment dollar by providing superior access.

BTW, though, I do think that Comcast should have been prohibited from blocking BitTorrent – one, because it IS a monopoly (or part of a duopoly) in its service areas and two, because it wasn't disclosing the practice. Users had a right to assume that they could use their unlimited bandwidth absent any warning to the contrary.

 

 

 

Shape of the Future?

 

This is good news, right? This convention center in Boston is NOT charging an arm and a leg for temporary roaming Internet access. BTW, it worked pretty well at a little less than one meg in the downwards direction.

But, even if access to information is free, the energy to power that access isn't. See below:

 

I think this may be aimed at people who forgot their chargers because there were plenty of wall plugs you could camp next to and get some free kilowatt hours.

But my guess is that we'll see less free access to energy and more free access to the Internet.

How To Lose Your Company

From an article on "net-top" computers in today's New York Times:

"'We're sitting on the sidelines not because we're lazy. We're sitting on the sidelines because even if this category takes off, and we get our piece of the pie, it doesn't add up,' said Paul Moore, senior director of mobile product management for Fujitsu. 'It's a product that essentially has no margin.'"

No one can blame Fujitsu for wanting to stick with higher-margined traditional laptops. But you don't always get what you want. If this category of thin, light, cheap, energy-light computers built primarily to surf the Internet and use online applications takes off and begins to cut into sales of today's full-featured laptops, Fujitsu will lose its current laptop business and have nothing to replace it with.

You can't make displacement products disappear by sticking your head in the sand. You can't always maintain the margins you were used to. In fact, if you're in a line of business where you have "comfortably" high margins, you're in a line of business which is particularly susceptible to disruptive attack.

It Fujitsu really believes there is no market for this product, it is good business to avoid making it. But, if Fujitsu believes there is a market, then they need to figure out how to make their existing product more competitive or how to compete in this market and add enough value to earn a margin or how to disrupt the disruptors with innovation of their own (or get a law passed against their competitors but that's unlikely in this case).

Further down in the story the Times says:

"Intel is projecting that by 2011, the market for the netbooks will be 40 million units a year, which is why Intel is jumping in with low-powered chips that would be used in the netbooks and the net-tops… Intel executives think the market for low-cost PCs is too big to pass up, though it does raise a potential threat to more powerful and more profitable computing lines."

Microsoft, according to the story, is also a participant in this market:

"Microsoft has been a reluctant participant too. Even though it is no longer selling its Windows XP operating system software, it made an exception for makers of these low-cost laptops and desktops. Microsoft said it was responding to a groundswell of consumer interest in the low-cost machines, but some makers of those machines say Microsoft did so reluctantly because it did not want to lose market share to Linux."

Reluctance is OK ; sitting on the sideline sulking is not.

Years ago I tried to interest my then-employer AT&T in VoIP. To their credit, some people in the company believed AT&T should be a leader in this new category of voice service. But the argument that kept AT&T out of VoIP was "why should we participate in cratering the margins of a profitable business." It was somewhat a holdover from the monopoly days when AT&T's lack of participation in a technology might have slowed the spread of that technology. When my counter-argument "because it's going to happen anyway and we'll be better off leading rather than following" wasn't persuasive, I left to cofound a VoIP company secure in the belief that I wouldn't have to worry about competition from AT&T.

I have no idea whether net-top computers will succeed. But I do know that companies have to face disruptive competition squarely in order to survive.

The Smart Grid Should Be Stupid

It is becoming conventional wisdom (uh-oh) that a large part of the strategy for reducing dependence on imported oil is to use electricity from sources like wind turbines, solar arrays and concentrators, and nuclear plants as a substitute for that oil. There is general recognition (uh-oh again) that getting that electricity from where it is produced to where it is used will require rebuilding our sadly obsolete electrical grid. Moreover, that new grid should be "smart" so that demand and supply can better be matched across the network. The important question is want do we mean by smart?

David Isenberg famously explained that the success of the Internet as a platform for innovation is due to the fact that it is a "stupid network", blissfully unaware of and unoptimized for the applications which send packets over it. David's thesis was heresy at a time when telcos were spending billions of dollars building "smart networks" – each had its own brandname and advertising campaign. The smart networks were and remained innovation-free for the simple reasons that you couldn't build an app for them which didn't fit the preconceptions of the engineers who built the smarts into the network and you couldn't deploy an app onto those networks without the permission of the carriers that owned them.

On the Internet, the devices ("endpoints" to us geeks) are smart but the network knows about nothing but packet routing; it is (or should be) blissfully unaware of what these packets contain, what applications the endpoints are running, and all of the many complex interactions flowing through its routers. The designers of the Internet didn't even plan on its being used for email let alone web browsing, voice over IP, Googling, or video streaming. It could be made a better network for any one of these applications by optimizing it for that application but only the expense of other applications, particularly those yet to be invented.

So what's the lesson for the new electrical grid we want to build?

Make it stupid! Make it open! Enable innovation! And, again learning from the Internet, make it robust by making it distributed without a central command point or central points whose failure would bring down the whole network.

Of course we want smart metering. But smart metering's an application on this network. The information flow for smart metering should be over the existing Internet – which today shares poles and conduits with the power grid and may be extended in some places over the current-carrying wires.

Of course we want to be able to deploy new sources on the power grid and the grid has to be built to where the sources are.  These new sources are like server farms on the Internet; their output is accessible anywhere on the grid. The grid should be "smart", in a distributed sense, about having power flow from regions with a surplus to regions with excess demand. The power network, or the Internet as a parallel information network, should provide information used for real time pricing but the actual pricing should happen at the edges of the network and accommodate many different pricing and settlement schemes.

There are differences between the Internet we know and love and the power grid. One is that transport is a more significant component of the cost of power than it is of the cost of information (put another way, only  a tiny fraction of a kilowatt hour is need to move a packet from anywhere on the Internet to anywhere else). So transport and distance MAY be a more explicit part of energy pricing than they are of information pricing. On the other hand, electricity is fungible and information is not. I want the response to my query from Google, not someone else's fun video; but, if I buy a kilowatt hour, I don't really care(economically and physically) if it comes from the wood-fired plant in Burlington, Vermont Yankee, the dams of Canada, or a windmill in Nebraska, I couldn't tell the difference even if I did care.

The new grid will have to accommodate today's model in which most of us buy power from a local company which buys regionally when it has to and usually belongs to a pool which can buy nationally. But the new grid should NOT be built assuming or, worse, assuring that this is the only model that will work. The point is that we don't know what our mix of electric power sources will be in the future: how much local to save on transportation and for reliability? How much where the wind blows or the sun shines? We don't know much about how we'll use electricity: heating? transportation? lighting of what? recharging of what? we don't know whether or where we'll store electrical energy.

Despite all we don't know, we still need to rebuild our electrical grid. Because of what we don't know, we want to build a stupid grid which, like the Internet, will allow almost limitless innovation at the edge.

The Internet’s Next Killer App

Fred Wilson, blogging about the economic disruption caused by high oil prices, says: "And the web clearly has a role to play in all of this too. More on that later."

I look forward, as always, to seeing what Fred has to say but a smart reader Rajesh Raut jumped the gun in a comment on my post Passing the BTU:

"Why do we need smart meters to use off peak electricity?

"Take a space heater, connect the on/off switch to a small computer with Wi/Fi access. Have the computer read a web page once an hour and if the price of electricity on the page is above a certain value (settable by the user) turn the heater off. With a little more work you can have it read the outside temperature and ignore the price of electricity if the temperature is too low.

"Why wait for the electric company to grow a brain? It could be a long wait."

As Rajesh points out, the Internet (and the web as part of it) have a huge role to play in both immediate coping with the current emergency and a long term response to a world with more affluent people and a basically fixed supply of fossil fuel (oil production WILL grow in response to higher prices but, absent a catastrophe, demand for energy will grow even faster). Communication and computing are the key both to using existing energy sources more effectively and the very necessary switchover from oil to electricity first for home heating and manufacturing and , only slightly later, for transportation.

Electricity, of course, is not an energy source; it's a mechanism for energy delivery. The real substitution is whatever fuel is being use to generate the electricity for oil. Many of these fuels – coal, nuclear from existing plants, hydro from existing dams, solar and wind in the right configuration – are already cheaper than oil even given energy losses in generation and transmission. However, peak electricity is generated from natural gas, propane or oil so is less efficient in most cases than just burning the fossil fuel at the end point where you need heat or motive power.

So the trick is to use off-peak electricity better at the same time as we develop more baseline capacity. Because different parts of the world are suitable for different types of generation, a very smart grid – with the parallel Internet carrying the data required to be smart – is necessary both so that local price signals will be correct and actionable and so that electricity can be wheeled from areas of surplus to areas of deficit and routed around inevitable outages.

Consistent with Rajesh's vision, much of the price signaling will be between the grid and its endpoints in businesses and residences with no human intervention required. Energy use will be the first massive D2D (Device to device) application on the Internet. Energy is the next "killer app". It will be energy use that will force 100% broadband connectivity and even pay for getting to the hardest to reach places – all we're talking about is reaching all the places the electrical grid already goes.

My only quarrel with Rajesh's comment is that it is naïve. Some people may be willing to regulate their own energy use for the common good, but significant self-regulation of demand won't happen without prices which reward those who use energy when it is in surplus and penalize those who use it in when it is scarce. We need the smart meters both so that everyone doesn't have to hack together his or her own solution and to charge appropriately for usage.

Related posts:

 Heads in the Sand

 Passing the BTU

 Electric Heat Savings Estimator

 Energy Saving Devices

 Fuel Selector Helper

 Energy Tipping Point – Part 1

 Should You Be Heating with Electricity?

• Geothermal Heat Pumps and Saving the World
• The Answer is Plug-In Electric Hybrid Vehicles
• Modest Proposal

Podcast on Kindle, White Spaces and More

Had fun doing a podcast with old friend Carl Ford last week. We talked about lots of stuff -  mainly Kindle, the future of white spaces, and future GPS capabilities, all of which - believe it or not - are somewhat related. Podcast here.

Sitemaps and How the Rich Get Richer

Sitemap files are a competitive advantage for Google – an example of how the rich get richer and why power curves exist. This is true even though Sitemap files are a public standard open to every website and endorsed by Yahoo and Microsoft as well as Google. This is not a complaint about Google; in this case they've done everything right. It's just an example of why dominance is self-reinforcing – for a while.

Sitemap files (see previous post) are a way for webmasters to help web crawlers look at their websites more constructively so that search engines will be able to search the websites better. Sitemaps are essential for the many websites which have some kinds of dynamic rather than static content since the crawlers would never find and index the dynamic content with the sitemaps.

Webmasters can and do put their sitemaps in discoverable places on their sites. However, there also procedures for notifying search engines when your sitemap file changes so that your site will be reindexed and new content made findable through search as soon as possible. You can "submit" a sitemap file to a search engine or just tell the search engine that a previously registered sitemap has changed. Which search engine would you notify first when your sitemap changes? Google, of course. Yahoo, probably next. Microsoft if you get around to it. What about some new search engine somebody just invented? Of course not, you never heard of it. So Google ends up more current than Yahoo, indexes stuff that Microsoft may or may not see and that a startup search engine will have to discover  on its own.

The leaders get a longer lead over the challengers. But, in this case, there's more.

Sometimes sitemps are submitted to some search engines without being made public. Social media sites like Facebook and Twitter want to be found by search engines. The advantage to them is that you get led to a page which encourages singing up if you're not already a member when you search for the name of a member of the social media site (Facebook allows you to opt out of being found in such searches). If you're a member of a social media site, try googling your name and the name of the site as in "Tom Evslin Facebook"; then click through the resulting link. But how did Google know where to find all these dynamic pages on Facebook members which don't appear in any sitemap file I can find? Yahoo knows where to find them, too; Microsoft Live Search knows about them but doesn't handle them well.

A developer of a new application searched in vain through Facebook's developer documentation for information on how to find and index these pages and finally wrote to developer support. It took a long time to get a reply. When it came, the essence were these sentences: "Unfortunately you will need to make a specific arrangement with Facebook in order to achieve this functionality. You may submit your proposal to partners@facebook.com for review. Please let us know if you have any further questions." Facebook probably has a legitimate concern about how this information might be misused; but that didn't stop them from making the information available to the major search engines. Maybe they'll make it available to little guys, maybe not. Advantage incumbents.

Google gets a third advantage (totally legitimate) by innovating in the sitemap space. Incidentally, only a leader really can innovate in this space because you need all the SEO consultants to tell all the webmasters that it's important to implement the new stuff.

The standard for sitemaps assumes that, when a crawler reaches a page, it will be able to read the text on that page for indexing purposes. But what if the page is a video? What if it's a map? Does standard crawling work for code that someone wants to sell, share, or promote?

Not to worry, Google has announced five extensions to the Sitemap format :

• Video Sitemaps
• Mobile Sitemaps
• News Sitemaps
• Code Search Sitemaps
• Geo Sitemaps

These are useful just for submitting to Google as far as I know so , for now, leader Google can do a better job of searching for video, mobile content, news, code and geographic stuff than the followers.