Finance Geek

Yesterday I wrote about the emerging evidence that digital is starting to pay for the music industry and Rhitu Baria commented that it is only a matter of time before the music industry allows new technologies to permeate through, and linked to a post on her blog detailing the history of change in this sector:

I sometimes wonder why we have all the noise about streaming music services and the associated revenue losses for record labels. At every stage of the music development cycle – live concerts, sheet music, gramophones, vinyl discs, magnetic tapes, CDs – there has been a huge hue and cry about the change i.e. no one will go to live shows or buy sheet music or buy tapes or buy CDs thus leading to a loss of sales for the musicians.

That’s not to say that there wasn’t an impact on sales in the traditional way of operations of the industry at each step. But the music industry as any other has moved with technological developments, been flexible and adjusted its business model, finding new ways of surviving even thriving. After all, no industry can put on blinkers to the world around them and hope to survive or better themselves.

These historical analyses of technology change are a useful reminder that new developments are often greeted with fear and scepticism, particularly if they have social ramifications – TV will destroy society by stopping us from reading books and computer games will stop kids being social are two others I remember well, and the Daily Mail’s dislike of Facebook is a more recent example (see How using Facebook could raise your risk of cancer).  These histories also a useful reminder that in the end society and companies always adapt and life always goes on, often looking a little different, and sometimes very different, but life always goes on.

Technology driven change is therefore a constant of modern society and for many observers (including a lot of VCs) it is easy to form very strong opinions about how the world will change.  In fact many VC investments are bets on a vision of the future, making it a part of my job to form these opinions (which is one of the reasons I write this blog).

For me forming the future vision is the easy bit – unfortunately we also have to bet on timing, which is much harder.

Rhitu’s point in the comment was that it is inevitable that streaming music will come to be a major part of the music landscape – and I agree with that.  It is a superior user experience than having to bother about downloading and storing files, and then being able to access them from your various devices – for me it is as simple as that.

My reply to her comment was therefore to agree it is only a matter of time before these new technologies permeate through the music industry, but to add that the question is ‘how much time?’, and ‘how many startups perish in the interim?’.  Remember the story of Imeem, the popular music streaming service that raised a lot of venture capital, did deals with the music majors and ultimately had to sell out to Myspace for $1m.  Hopefully Spotify will be more successful.

Other markets where the future was clear for a long time before it happened include mobile network operators and their evolution to being dumb pipes, and the software as a service business model for software companies.  The transition to hosting apps in the cloud and everything that means for standardised hardware and virtualisation is another that is underway right now.

All of which begs the question of how to judge the timing.

Most of these markets tip pretty quickly when they go, especially the ones that are interesting for startups.  So judging the timing is about spotting the tipping point, and knowing the extent to which you can make it happen sooner.  With hindsight tipping points are periods when massive demand was created (Ben Horowitz today defined winning a new market as 1,000 enterprise customers or 50 million consumers) – so judging timing is all about understanding the obstacles to creating that demand and the extent to which you can get over them.

In the music industry the chief obstacle to (legally) creating demand has been getting a service to market.  The problem has been that the startups need co-operation from the players with the most to lose (the record labels).  The result – slow innovation.  The key to judging timing in this market is understanding the point at which the writing is so obviously on the wall for the old model that industry veterans can only look forward AND when their legacy revenues are declining sufficiently fast that there is a financial imperative for them to face up to reality.  Unfortunately that is a very hard call to make.  The two things that startups can do are a) generate consumer pressure for change by building popular services, which Spotify has done well, and b) look for win-win solutions with the old guard – but the biggest driver of industry acceptance of change comes from within.

Similarly, in the mobile industry the services that would turn operators into dumb pipes have to run over those same operators networks, giving them a control point which they have used to hold back the future while they continued their (in my opinion) futile search for an alternative business model.  It took the consumer power of Apple and the iPhone to really make a change here.  In this market there was next to nothing startups could do to help speed operators towards their destiny.  The key to judging timing was spotting the catalytic effect of the iPhone before anyone else.

In contrast, back in the 1990s Yahoo! was more easily able to quickly beat AOL and realise their vision of an inevitably open internet because users on ISPs other than AOL could easily switch to their better portal service.

This post is already overlong so I will end here with a quick summary – which is to look for the value chain blockers that slow down the transition to an inevitable future and not to underestimate how long they can take to overcome.  Often it is years and years.

More…

Daniel Ek, founder of Spotify, was interviewed at SXSW today.  There is a full write up on VentureBeat which is well worth a read if you are interested in this space, but the standout nugget for me is captured in the following quotes from Ek.  They capture the industries main challenge, the evidence it is starting to overcome the challenge, and the article of faith that underpins many free-cheap music services.

The industry is looking at new revenue opportunities and are generally positive on them. But nothing in digital has really been able to counter the decline in traditional revenue sources. [The challenge]

……..

If you also look at Sweden, between 15 and 18 percent Swedish population actually uses Spotify. The music industry revenues are up there. Legal music revenues are up. Everything is up. It’s only a few percentage points but it’s up. [The evidence of progress]

……..

I really believe that if music could be legally available on any device that you wanted… I think the music industry would be radically bigger than what it is today, [The article of faith]

It is dangerous to read too much into an extract from an interview at a conference, particularly when the interviewee has a vested interest, but if legal music revenues in Sweden continue to rise that will be of huge significance.  In supporting news elsewhere in the interview Ek said that the UK is showing signs of being similar.

More…

Last week in a post about Apple and Android mobile OS market share I wrote that:

Something deep inside me that I am starting to think may not be entirely rational prefers open to closed, so I’m pleased by the early signs of Android’s success.

and James Penman commented:

Hi Nic,
You normally choose your words very carefully so I’m fascinated by the clause: ‘Something deep inside me that I am starting to think may not be entirely rational prefers open to closed’. Would love to read a blog post unpacking that as it suggests a change, or the beginnings of change, in outlook presumably driven by experience?

I’ve been mulling this question over in my mind since then and I think the reason I’m starting to question my preference for open over closed is that (as with so many things) when you get into it the whole debate is too complex and nuanced to simply come down on one side or the other.

I think my dislike of closed comes from watching big companies operate closed systems to promote their own interests to the detriment of innovation and startups.  Mobile operators loom large in my mind here – the way they controlled the content that could be accessed via the phone on their networks and tried to take a big slice of any revenues held back mobile innovation for years.  IBM and Microsoft have at times played similar games too, and now Apple is doing the same thing with their App Store application approval process.

I also dislike content and consumer device companies pushing closed DRM’d systems which offer a worse consumer experience because they hope to lock you into their platforms.  The Kindle is the latest device to get my goat in this regard.

Finally, the open source revolution has been a boon to everyone.

The shift in my thinking comes from a growing appreciation of the power of closed systems to drive game changing innovation.  Two big examples – it took the iPhone to break the mobile operators control over wireless networks, and it was AOL’s closed system that got the web moving for many people in the 1990s.

Similarly I have been experimenting with the FitBit this year and I have liked what their proprietary hardware and closed web service has allowed me to do (the devices keep breaking though…).

Thinking further forward Apple have just hired a ‘Senior Prototype Engineer’ to work on wearable clothing.  This guy (Richard DeVaul) has previously wrote a dissertation on Memory Glasses – a heads up display that provides memory support.  DeVaul describes the results of his work:

The short version is that I can improve your performance on a memory recall task by a factor of about 63% without distracting you, in fact without you being aware that I’m doing anything at all. Even more interesting is that giving you wrong information subliminally doesn’t seem to mess you up.

I want some of those!  And I’m also reasonably convinced I’m likely to see them sooner as part of a closed and proprietary system.

To generalise, the obvious conclusion to all this is that closed is appropriate early on in the evolution of a market and open is better later on.  Maybe the reason the debate evokes so much passion is the moment of transition is painful for individuals who are asked to ditch their loyalty to the closed systems of which they were early adopters and embrace the messy chaos of open systems which offer the promise of greater richness but maybe less utility out of the box.

More…

Debates about privacy are often polarised between those of the Scott McNeally “you have no privacy, get over it” school of thought and those who feel deeply uncomfortable with this notion. 

I have been in the former camp because it seems to me that people are increasingly sharing private information and getting benefit from doing so, and that (appropriately annonymised) the data has commercial value whose (appropriately sensitve) exploitation can bring value to everyone.  The way advertisers can now narrowly target on Facebook is a good example – it is good for Facebook and by extension its users and it is good for the advertisers who can now reach their customers more cost effectively.

The counter argument is usually a sense of deep unease about how the data might get used and the point that once the genie is out of the bottle you can’t get it back in and bad things might happen.

danah boyd’s speech to SXSW on Saturday helped me understand this counter argument much better.

For those that don’t know danah does a lot of primary research talking to people about how they use social media so when she says “Privacy Is Not Dead. People of all ages care deeply about privacy” I take notice.  Particularly when it is sandwiched between an admonishment of privileged straight white male technology execs who think differently (that’s me) and an assertion that privacy may have a different meaning to my current understanding.

According to danah, privacy is about having control over information flows and understanding the social setting in order to behave appropriately and avoid embarrassment.  When either of these things are challenged they scream privacy foul.  Reading between the lines of danah’s talk slightly it seems to me that the first thought is about avoiding embarrassment and the desire for control might stem from a desire to be able to fix things later should a difficult situation emerge.

The key to your consumers feeling good about your privacy policy is therefore trust – trust that they understand how your site works from a social perspective and that you won’t change the rules on them in ways that might create problems.

Three quick illustrations of privacy FAILs illustrate the points, the first two from danah’s talk and a third from the UK market:

• Google Buzz – Google introduced a service into gmail that took data from a private system (email) and by default made it public thereby changing the rules and creating potentially embarrassing situations
• Facebook Newsfeeds – we have gotten over this now, but when Facebook first started putting status updates into Newsfeeds it created an uproar – because they had changed the rules of the site to make updates much more public which shifted the context and changed the social game (my point isn’t that this was a bad move – we have gotten to like Feeds now)
• Phorm – this UK company planned to sell a software service to ISPs that would allow them to target ads based on surfing history, people were outraged at the lack of control this implied and the business struggled to make progress

The web and in particular the social media sites within it are of course evolving extremely rapidly which I think explains why privacy is such a hot topic.  If feeling good about privacy requires an understanding of the social setting it is easy to see why people are nervous.

The final point I want to bring out from danah’s talk is the notion that privacy isn’t binary.  Offline there are a myriad of privacy status’s between nobody knows and published in a newspaper and online services need to recognise the complexity of how people think about information sharing.  The Facebook newsfeed example makes this point nicely – they made information that was already publicly available more visible and people were upset, in the way they might be if information from a handwritten note that was passed round the class was copied onto the blackboard.

From the perspective of a startup if privacy might be an issue for your users this analysis tells suggests to me you need a clear set of principles about how and why information will be shared and to inspire trust by having integrity as a core value and not springing surprises on people.  Be aware also that as your site grows the rules of information sharing are likely to change and creating a shift in the privacy ‘environment’ that will need managing.

More…

• Twitter Weekly Updates for 2010-03-07 http://goo.gl/fb/kCxB #
• Old media needs to embrace change http://goo.gl/fb/OKvj #
• Just joined the Venture Capital community to keep track of the best experts. Join me here: http://mrtweet.com/c/venture_capital?v=jt #
• @paulsweeney thanks Paul. I will think about that. in reply to PaulSweeney #
• "Paradoxically, the enduring competitive advantages in a global economy lie increasingly in local things…" http://tumblr.com/xdv76vit5 #
• Choose a banker who understands your story http://goo.gl/fb/isRh #
• Most platforms start as applications http://goo.gl/fb/J96y #
• Real time search results not that useful? http://tr.im/RiSZ #
• The UK passes law allowing blocking of fileshare websites – protecting creatives is good, but this is risky http://tr.im/RiTP #
• Geeking out this afternoon at a Serious Games Institute seminar on artificial intelligence in gaming #
• @jonathanmendez maybe not much fallout?!? in reply to jonathanmendez #
• Amazon 1-click patent re-confirmed. To me this is about protecting business, not innovation: http://tr.im/Rqwa #
• US mobile market share – Android growing faster than Apple http://goo.gl/fb/3a6v #

Powered by Twitter Tools

More…

comScore reports from Jan in the US just out show that whilst Apple still has momentum it is still emphatically not top dog.  Taking overall mobile (i.e. not just smartphones) they are not even in the top 5:

Then when it comes to smart phones Google has added 4.3 points of market share to Apple’s 1.7 points in the three months ending Jan 2010 compared when with the previous three months.  That is much faster growth off a smaller base and bodes extremely well for Android, particularly given the number of new devices they have got coming.  It’s also noteworthy that RIM is still way out in front and also gained more share than Apple during the period.

Something deep inside me that I am starting to think may not be entirely rational prefers open to closed, so I’m pleased by the early signs of Android’s success.  That said, it would be nicer still if Google wasn’t behind it.

More…

Creating a platform business is the dream of many entrepreneurs and their VCs – and it is easy to understand why.  Successful platforms have huge scale and customer lock in and, to an extent at least, if you own a platform you can sit back and watch the dollars roll in as other companies build their businesses on top of yours.

So I’ve been thinking about how successful platforms come to be, and it seems to me that most of them start off as applications.

I’m writing this post today having just read about Facebook’s latest step towards being a platform business imminent launch of a share location feature which will work both on site and via an API.  As we all know they started as a profile surfing application business and then communication service via messaging and news feeds.  Then when they had sufficient volume of users to be attractive to third parties they became a platform as well, first with their applications API, then with Facebook Connect and now with location.

The Google story has similarities.  They started as a web search application and once they had a sufficient volume of traffic to attract third parties they became an advertising platform.  This began with Adwords on their own site, and then when they had a sufficient volume of advertisers to attract third party publishers they added the Adsense product.  It probably isn’t an exaggeration to say that their other products since have been funded from the profits generated by these two.

Two more quick examples.  Twitter always had platform ambitions but it was the success of the microblogging service which convinced developers to build Twitter clients and other apps based on the service.  And then on the business side – Salesforce started as a SaaS CRM application and used their success and scale to launch the Force.com platform.

There are counter examples, of which Ning is the best I can think of right now, but these are riskier ventures requiring much more investment before proof of value can be generated.  I suspect the application first route to platform development is a new one enabled by the internet.  On previous platforms aggregating huge volumes of users and cross selling them to new services were both much harder.

More…

I’m fresh out of a pitch from a group of bankers we thinking of appointing at one of our portfolio companies and on my way home I was working through our selection criteria.  In this case at least I think it comes down to three things (other than fees):

1. The story – do the bankers understand why this company is valuable above and beyond the cash flows
2. Access – have they had recent regular contact with senior people at your target buyers
3. Fit – is there a good fit between the target size of your deal and the bankers you are thinking of working with

All three of these are important, and if any one was missing I would seriously think about working with someone else, but I list them in this order because I think the story is the most important.  Good venture capital is all about selling companies for big revenue multiples and that requires big stories – you need to be able to explain why your company is important to the acquirer and most of the time that won’t be because of the immediate financial contribution.  The most prolific aquirers are Cisco, Google, HP, Microsoft, IBM and Oracle and very few startups have the scale to make a difference to their financial statements at the point of acquisition.

Some common stories:

• ‘revenue pull through’ – i.e. post acquisition every dollar of sales from the acquired business will pull through say $50 of sales from the acquirers other products.  That way your $20m revenue will make a $1bn impact.
• ‘account control’ – for companies with large suites of products filling a gap with an acquisition enables them to keep competitors out of their clients business.  This was the logic AOL had when they acquired buy.at.
• Finally, another common story is that acquiring a company will allow the acquirer to enter an strategically important market.  This can be a hard sell when the startup is still small.

Different potential buyers will have different strategies and different reasons why they might be interested in making an acquisition.  A good banker will appreciate that and craft different stories for different suitors.

To close, it is worth reminding ourselves that these ‘stories’ need to be real.  A far fetched ‘I have the cure for cancer’ story will get initial interest and meetings but will come undone during due diligence.

More…

This is an unusual post for me, but I hope you enjoy this Ted video where Susan Savage-Rumbaugh introduces the Bonobo ape.  As a kid I used to read a lot of science fiction and one passage that has always stayed with me described a future earth where humans wandering through the forest saw chimps and monkeys making fires and using stone tools.  Incredibly we see a lot of that and more from the Bonobo in this video.

Specifically:

• from about 5.45 using a lighter to make fire
• from 9.30 knocking two stones together to make a ‘knife’
• from 11.20 using chalk to write a symbol to say where she wants to go
• from 14.05 playing musical instruments

Quite amazing.

Thanks to Jof Arnold who pointed me towards this video at the end of a very stimulating lunch discussion yesterday.

More…

A couple of weeks ago I wrote about consumer health products, and in the comments David Waxman pointed me to a Fast Company post on the Future of Healthcare.  The following is a summary of how it works in the future for a mythical ‘Susan’:

Using networked devices and tapping into net works of people, Susan manages her own health and the health of her family. Her health-care team is comprised of her friends, her husband, her parents, her siblings, her pharmacists, her traditional health-care providers, along with online "friends" from around the world. This broad team, coupled with more personalized data collected from mobile phones, wireless health devices, and ongoing information exchanges, will lead to better health for her and her family. Susan no longer has to rely upon the infrequent office visit to yield health information; instead, she can draw from a steady stream of useful and personally relevant data, some of which may trigger the need for an office visit.

To break it down, there are three elements to this future vision that are different from today:

1. The social aspect – friends, family and a wider web community are seen as providing advice
2. Better data gathered from general purpose devices like mobile phones and specialist wireless health devices
3. Continuous information exchange replaces the periodic visit to the doctor presumably via a web platform

From the point of view of the patient this is a compelling vision, particularly the second and third pieces.  When it comes to thinking about illness running regular checks would enable early detection and treatment of issues when they are still minor resulting in higher levels of general health.  Further, these ideas quickly migrate from treatment of problems to general wellness management, covering physical fitness and vitamin supplement regimes.

From my position as a venture capitalist I see a requirement for a ton of innovation here that should lead to creation of some significant companies.

I’ve already talked about a number of companies in the second category on this blog, of which the Withings Scale is the one I am still using and in addition over the last couple of days I have begun playing with some of the iPhone apps from GymFu.  These examples all focus on physical fitness, but there is plenty going on in the medical side too, just yesterday I was hearing about an Irish company which is developing a blood monitor that works intravenously, i.e. it will sit inside one of your veins (albeit only for ten days).

In the third category the obvious areas requiring innovation are the middleware for getting the data out of existing medical systems (something which Seedcamp winner Patients Know Best is working on), and also consumer services to support the collection and analysis of data and over time to connect with healthcare professionals (DailyBurn is a good example here).

It is extremely early days for all of this stuff.  Many of the products and solutions out in the market are very niche and often hard to use, and the traditional healthcare value chain is heavily regulated and will be slow to change – but I suspect the potential here is enormous.  As sensors and networks get cheaper and medical science advances at an exponential rate we could see some pretty amazing stuff emerge over the next few years.

Or will we?

I’d love to hear your thoughts.

More…

Last week I wrote about the growing unease at the major record labels with ad funded music streaming services, and now it looks like something similar is happening with Hulu.  The following is from a New York Times article dated Monday this week:

Unable to make the digital media dollars add up to their liking, Viacom will remove “The Daily Show with Jon Stewart,” “The Colbert Report” and other Comedy Central television shows from Hulu next week.

The Daily Show and The Colbert Report are two of the most popular shows on Hulu so this is a pretty big deal.  Viacom’s reasons for removing the shows are of course unclear and could range from the ad splits being too low to be interesting, through a short term bargaining position, to a desire to protect their existing cable subscription business – and only time will tell.

The other interesting thing here is that this move comes despite Hulu experimenting with a bunch of innovative ad formats.

I suspect that we are heading towards a world where production costs come down (including stars’ salaries) enabling production companies to make profits on shows with lower revenues, enabling them to distribute successfully on ad-funded sites – for a majority of shows at least.  Simultaneously innovation with ad formats will drive up the revenues achievable via this business model.

More…

Ben Horrowitz of new Valley based fund Andreessen-Horowitz has a good post up today promoting an open source legal project for seed stage investments.

His discussion of how the requirements of companies have changed over the last ten years is spot on and very illustrative for the debate about the evolution of venture capital:

It turns out that building a company has changed quite a bit since the early days of venture-backed technology companies. Building a company like Twitter or Facebook is quite different from building Tandem. Specifically, the risk and cost of building the initial product is dramatically lower. I emphasize product to distinguish it from building the company. Building modern companies is not low risk or low cost: Facebook, for example, faced plenty of competitive and market risks and has raised hundreds of millions of dollars to build their business. But building the initial Facebook product cost well under $1M and did not entail hiring a head of manufacturing or building a factory.

As Brad says, the upshot of this is that funding the initial product development of a startup should be about speed, flexibility and low cost – a challenge for VCs who operate a model based on lengthy due diligence and significant capital deployment.

There is, however, still a very clear role for venture capital, and that is in helping a company move from initial product to huge scale.  This still takes significant capital (hundreds of millions of dollars for Facebook and Twitter) and also benefits from the additional value add many VCs can bring to bear, including experience in growing companies, access to senior execs who might join the team and access to corporate partners.

So, when should you raise venture? again Ben has it about right:

If you are a small team building a product with the hope of “seeing if it takes” (with the implication being that you’ll try something else if it doesn’t), then you don’t need a board or a lot of money and an angel round is likely the best option. On the other hand, if you’ve developed a strong belief in your product or your product idea and you are in a race against time to take the market, then a venture round is more appropriate. You will benefit from both the extra capital and extra support that comes with a serious and large commitment from your investors.

More…

A couple of weeks ago I wrote about Edgar Bronfman, CEO of Warner Music Group, making negative public statements about free music streaming services.  Now it seems the head of steam against Spotify, We7, et al is really building amongst industry execs, and possibly artists too.

The new news is came yesterday from market research outfit NPD Group.  They have found that free on demand music streaming sites lead to a 13% decrease in paid downloads.  In other words, not only do streaming services not generate much money directly for artists, they also reduce the amount musicians are getting from other channels.  The labels also note that there have been lots of music streaming failures and no real successes – SpiralFrog and Ruckus closed their doors last year and Imeem sold out on the cheap to Myspace.  Pandora has achieved profitability (if only for a single quarter) and is the closest thing to a success story, but crucially, they are a radio service, not an on-demand service.

All of this is pretty potent criticism, but it is worth remembering that the labels are making money from the free streaming services via their minimum guarantees, so there is at least some cash sloshing around.  As we all know, the internet loves disintermediation, and as industry observers we shouldn’t assume that any of the existing players have a right be part of the value chain forever.

In a related development, US based on demand subscription service Mog.com has raised money from European venture fund Balderton Capital to launch their subscription service over here.  Interestingly Mog are pitching themselves as a cheaper on-demand subscription service than Spotify, claiming they are able to be cheaper because they don’t need to subsidise a free ad-supported service.  Mog’s US service launched in December and costs $5 per month, which compares with Spotify’s £9.99 a month in the UK.

To get theoretical for a second – the validity of Mog’s claim that it can undercut Spotify because it doesn’t have to subsidise an ad-supported service depends on the relative cost of customer acquisition for the two businesses.  The beauty of free services is that they spread like wild fire by word of mouth and customer acquisition to the paid service can be low, depending on conversion rates – this is the basic logic behind the freemium business model.  In the case of Spotify the main cost of acquiring paying subscribers is subsidising the free service, and that cost will swing hugely with the rate of conversion (if the conversion rate doubles from say 3% to 6% then the cost halves) – and it is this which will tell in the end.  Mog will have more straightforward customer acquisition expenses and their efficiency in PR, buying media and converting site visitors to subscribers will be the difference between success and failure (assuming they have a decent service).

To wrap up, I think we are headed for a period where the music industry will experiment with subscription services and free services will become more limited.  It is rumoured that Spotify’s launch in the US will be subscription only, for example.  This structure has the advantage for existing industry players that it protects the existing industry structure.  Whether it will be successful in getting more money into the hands of artists and reducing piracy only time will tell.  Right now my personal view is that it is to tough to call – certainly existing music subscription services like Rhapsody haven’t made much headway, but I think these new services offer a better user experience.  Maybe it will come down to price in the end – at $5 per month Mog is already heading towards the point where many will just sign up without thinking too much about it.

More…

Reading through emails and blogs yesterday afternoon I came to posts from engineers at Disqus and Twitter via Fred Wilson’s Code is craft post.  I read them partly because Fred recommended them and partly because I was interested to hear what presumably talented engineers at successful services like Disqus and Twitter had to say about improving the speed of a service and identifying the root cause of service problems respectively.

I’m interested to read these stories not because I am ever likely to need to do something similar myself (I am nowhere near that technical) but because I need to be able to recognise a good engineer when I see one.  That helps with figuring out whether we should invest in a company and in hiring senior techies into our existing portfolio companies.

I had two takeaways from the Disqus post:

1. Separating the code which deals with dynamic data from code which deals with static data offers possibilities for performance improvement, including using CDNs
2. For widget companies loading code onto a page asynchronously helps improve their customers page load times and is therefore a good thing

I will remember the Twitter post for its description of how they went about identifying the cause of a performance problem and having read it I will now experiment with asking CTOs to describe the last performance problem they encountered and how they dealt with it to see if it helps me form a view on how they would deal with problems they encounter in the future.  Additionally, there are two takeaways, that they helpfully put at the end of the post:

1. First, always proceed from the general to the specific
2. And second, live by the data, but don’t trust it

When I hear stories from companies that are consistent with these concepts and ideas I will take it as a good sign, and when their are contradictions or absences I will want to understand why.

As a VC I have to cover a lot of ground.  In fact, one of the reasons I enjoy this job is that it is one of the last bastions of the generalist.  I need to be conversant in best practice across sales, marketing, engineering, finance, and general management as well as form a view on markets and opportunities for startups generally.  Reading stories like these, and their equivalents in other areas (many of which I post on this blog) is one of the ways I try to stay on top of this challenge.

More…

Now is a tough time to be in business as a startup.  It’s a tough time for everyone pretty much, and internet entrepreneurs are no exception.  Venture capital is tight, exits are difficult and the easy internet plays have all been done.  These are statements I hear a lot, swiftly followed by the observation that to succeed these days you need to be much smarter and work harder than was the case a few years ago.  I agree with most of that although I would add the poor macro climate as a significant contributor along with the maturing of the internet industries.

But my point here is not to be downbeat, but rather optimistic, because this difficult period will soon give way to another wave of innovation – the ever increasing pace of change will see to that.

Consider the chart below for a second.  It is plotted logarithmically, which means that if the line were straight it would be telling us that the amount of compute power you get per $1,000 has been increasing at an exponential rate for over 100 years now, but given that it is curving up the increase is faster than exponential.

The dotted red lines show when that $1,000 will buy you more power than biological equivalents – an interest of Ray Kurzweil, the creator of this chart, who believes that when computers can match human brains we will rapidly approach a point he calls the singularity when the distinction between human and machine intelligence will cease to be important and even exist.  An interesting idea, but one for another day.

I post this chart because it gives me confidence that the wave of innovation that was unleashed by the power of the internet will be followed soon by another wave.  It could be smartphones (as Mary Meeker believes) or it might be consumer driven healthcare (as I’m starting to think), or maybe even robotics.

To bring this down to the level of nuts and bolts, and the original impetus for this post, in Ray Kurzweil’s newsletter email today I read about the following examples of innovations that might herald clusters of startup creation in the next few years:

• Near-Threshold-Computing offers the promise of 10-100x more power-efficient electronics – enabling a continuation of Moore’s law and more powerful and smaller toys
• Man controls his MP3 player with eye movements  – demonstrated at Mobile World Congress in Barcelona this week.  The technology works by monitoring tiny changes in current around the eyes
• The Federal Communications Commission in the US is a proposing a plan to get 100MB of bandwidth to 100 million US homes by 2020
• Robots to gain social skills

Think of that – maybe at this time on one Friday night in 2020 you will be sitting at home controlling your fingernail sized iTV Nano with facial gestures as it streams high quality holographic images for your pleasure – while your house robot will be serving you a cold beer and making small talk.

There is plenty of space for multiple new startup waves between here and there – at least that is what I’m betting my career on.

More…