The Network Garden - Mark Sigal's Blog

Bubbles, backlash and grim reapers

There is a truism that markets are discounters are all known information.  So, for example, when you are inundated by stories in the media and online that the economy is going to pot, markets are over-priced and the next plague is upon us (oh, I just wrote that post), that is actually a bullish indicator. 

Why? Because such thinking is collectively "priced" into the market once the information becomes known. 

Relative to stock markets, someone once said, that the time to buy is when you see Fortune running cover stories on "The Death of Equities."

Which brings us to the backlash and bubble questions around that nebulous bucket known as Web 2.0.

Over the past couple of weeks, I have noticed a major increase in the number of articles, blog posts, T-shirt spoofs and the like calling out that we are in a Web 2.0 bubble, that innovation is dead, that everything is me-too, a feature not a product, etc.

Just in the past day, I have read posts which assert that:

1. Innovation is nowhere to be found in the Web 2.0 world: I have written a pretty detailed response in the comments section of this blog by Russell Beattie, if you scroll that post to the bottom.
2. The blogosophere is comprised of a bunch of irresponsible hacks:  Again, when mainstream media feels compelled to attack, I would argue that it is a bullish indicator for the space.
3. There is "proof of an emerging Web 2.0 bubble: The example cited is actually pretty funny, but I would counter that an example does not a fractal make.
4. Attack the Flickr for Video wannabe's (and all Flickr for...derivatives for that matter).

First a disclaimer.  I agree with a lot of the underlying commentary, and actually if you read these posts, the positions are to their credit fully formed. I guess my counter is, "Do you have a thesis that drives your investing strategy?"  Hope and following the herd is not a strategy. 

So let's just say that like any evolutionary system, marketplaces gravitate to wherever the resources are, whether they be cheap-easy-free money, cheap-easy-free open source and mashable software or motivated (cheap-easy-free) people. 

Let's further say that the majority of these entities are bound to fail or be acquired for "undisclosed terms."  That's just survival of the fittest.  Hence, the grim reaper.

Finally, let's just say that the perspective of doom/gloom, discriminating analysis before investing or whatever you want to call it is now being priced into the market. 

This will and should effect what get's funded, valuations, where entrepreneurs invest their time and how survivors and thrivers think about strategy.

I guess the nut of it is, do you have a thesis about why what you are doing REALLY matters, how you will monetize it, what your unfair advantage is and how you will grow your venture? 

If so, codify that thesis, establish clear metrics of success for measuring how well you are doing, broadcast the indicators and trend lines and iterate as much as necessary.

Conversely, if you really don't have a thesis beyond, "We invest in big growing markets," the time is NOW to start baking one up.

Traversing contexts and Facebook

Jeff Clavier of Software Only has written an excellent post on Facebook's Q&A session last night at Stanford's ETL program.  Beyond the sheer jaw-dropping statistical aspects of Facebook's tremendous growth (summarized below), I would net out a good chunk of their magic as making the process of what I call "traversing contexts" friction-free.

By traversing contexts, what I mean is that I can build a profile of myself -- where I go to school, my former high school, what classes I am taking, what books I like, etc., and within a single click, I have visibility to a bunch of people that have common interests. 

Think about the simplicity and power of that model (relative to search) for social activities.  Or better yet, let me give you a simple use case. 

Let's say that I am taking Abnormal Psychology at my university.  Traversing from my profile, I am one click away from knowing everyone that is taking the same class.  Maybe I am looking for a study partner.  Maybe I just want to see if that girl that I have been looking at knows anyone that I know who can make an introduction.

So I click around some more because one of the profiles that has come up looks "interesting."  Now this click reveals that this woman is "married" to someone of the same sex.  Hmm.  Did not see that coming.  (Sidenote: married is Facebook lingo in the same way that the word "poking" someone is lingo in the Facebook realm -- intentionally ambiguous.)

But it also reveals that this person is a member of the "Derek Zoolander Center for Kids Who Can't Read Good...And Want to Learn to Do Stuff Good Too" Group, which clearly has to be a joke. 

Another click reveals that this is a pseudo group created by lovers of the movie Zoolander, and the profile page of the group has a picture of Ben Stiller, the group has officers, discussion threads, related groups and...1938 members.  Let me repeat that: 1938 members!  Did that many people even SEE Zoolander?

So what have I learned?  In three clicks, I went from the context of my classmates to the context of random but novel student to the context of affilitation with a mindset (by membership in an irreverent group whose purpose is to accessorize my persona).  And I have spent 15-20 minutes traversing these contexts and having a good time in the process.

Before you dismiss this all as just a silly fad, consider the following.  One, the workflow of moving up, down or sideways into different realms of meaning (contexts) is totally friction free in this model. 

Two, it encourages the short attention span generational mindset.  I have 15 minutes, maybe I will see what is new or interesting out there, and post a comment or two. 

Three, it is synchronous with the stumble upon aspect that makes life such an adventure.  I can start anywhere and have no idea where I will end up.  And four, it is fun.  Facebook does not take itself too seriously, all the while providing real utility to its user base.

What is that utility?  Well, it's providing a space for meaningful conversations via a mechanism for "lookup and hookup" according to whatever context jumps your boat.  Increasingly that activity is for coalescing around specific events -- dorm parties, local activities, private get togethers, and now photo sharing. 

No question that the context of a known demographic and filtration around meaningful boundaries like "UC Berkeley" are very powerful, and part of the Facebook's unfair advantage.  But another takeaway is that Facebook proves that you don't need to glut a service with features for features sake or have heavily stylized interfaces to look professional. 

No, the power here is speed, simplicity and friction free traversing of contexts, facilitating conservations of all types.

The raw numbers:

• 5M+ registered users
• Coverage of 45% of US colleges (a total of 2,000 - representing 8M students)
• 80% penetration among students of colleges that are on the platform
• 10th most visited Internet site in the US
• 5.5B page/views a month (230M page/views a day)
• 8.5M unique visitors
• Signing 20,000 new users a day
• Repeat usage: daily 70%, weekly 85%, monthly 93% – can you think of another site that sees 93% of its registered users coming back every month ?

There is much goodness in Facebook to emulate.

Short attention, short conversations and video clips

If it takes a thousand words to tell a story, and a picture is worth a thousand words, then how much information can you convey communicating with video?   

I ask the question for a couple reasons.  One is that one of my companies, vSocial, has recently gone beta, dubbing itself The Video Clip Sharing Community.  The goal in creating vSocial is to offer a site that delivers the easiest way to upload, watch and share your favorite video clips.

Towards that end, the site just works in the sense that it obviates the need for client software on the part of consumers, runs across browser types and OS platforms, and removes the historical imperative that the uploader of a video know anything about encoding to share a favorite clip.  Plus, the user interface is rich, having been built around the AJAX development methodology. 

Because of this development approach, the user interface supports dynamic rendering of content items within web pages, enabling users to see what's new, popular or talked about in a single click.

In turn, viewers can tag, review and rate their favorite videos, and vSocial also supports user-defined RSS feeds so that users can subscribe to automatically receive all "New" video clips or just the clips served up by their favorite uploader.  Next up is support for syndicating clips directly into iTunes for autonomous upload into the new video iPods.

Also recognizing that such clips are part and parcel of the way many consumers adorn their personal profiles and "My" spaces, users can easily embed a video within a remote web site, blog and/or online community.  Below is one such example (rumor has it this clip is from a haunted car commercial -- beware).  :-)

As to the uploading process -- let's face it, working with video is scary for a lot of people.  Again, with vSocial it is brain dead simple.  You choose your file, name the clip, provide a description of the video and tag it (if you'd like), and the software does the rest, auto generating thumbnails of the clip, which makes it easier for users to decide if the video is of interest.

While there are certainly other contenders who aspire to the 'Flickr for Video' crown, part of what makes vSocial unique (at least the stuff that I can talk about) is a core understanding that the power of video in the Web 2.0 realm is that it provides another means of telling stories and starting conversations. 

One does not have to think too hard to see how IM or Skype sessions can evolve into a sort of group "short attention span theater," and how in the long tail scheme of things a new realm of content publishers will emerge to address this opportunity.  Russell Beattie covers one example, "how to videos" in his blog.

Towards this end, vSocial is beginning to roll out web based tools that allow you to actually "do something" with video versus the site merely serving as a big remote hard drive.

Case in point, the company provides a Video Roll builder, which enables users to build a dynamic panel of multiple videos which can be incorporated into blogs, personal pages and the like. 

The use case is: let's say you want to post a blog on the war in Iraq that tells the story of how the war went wrong.  With the Video Roll builder tool you can create a panel of progressive clips from various sources (after all, the lion's share of blogging is derivative) that provide actual narrative from the first distortion of facts to the fall of Sadaam to "mission accomplished" to the terrors in Falujah and so on.

Apply that same model to telling the story of the birth of a child or a great vacation, and you get the picture of how this can enhance the online story telling process in a manner that is synchronous with the web of blogs and clickable people profiles (ala Facebook). 

As an example of the capability, I have built a simple video roll based on clips tagged "parody."  It took me all of 45 seconds and copied and pasted right into the Edit HTML section of TypePad.

The web is evolving from a web of text and links to a web of pictures, movies and sounds.  While this may seem like a great big "DUH" to some folks, actually seeing how the model is coming together and the early applications that are emerging to address this opportunity, and of course, how all of this coverges with trends like the RSS-enabled blogosphere and user-generated content has me really excited about the road ahead.

H5N1: The Coming Plague?

Several years back I read a book called, "The Coming Plague" by Laurie Garrett, which basically asserted that the law of averages and time was on the side of the microbes, given the incredibly rich design of nature's disease creation machines. 

The book -- all 700 or so pages of it -- was simultaneously riveting, terrifying and abstract since, let's face it, viruses like Marburg or Ebola or "The Plague" are the stuff of far off places, science fiction movies or distant points in time.

Flash forward to the present.  You may have read news clippings of avian flu in Asia, and heard background stories of a coming pandemic related to it.  You may even be familiar with the oft-cited parallels to the 1918 influenza pandemic which killed 50 to 100 million people in a world one-third as populated as ours is today.

But it is probably an abstract topic to you.  If so, and if you are interested in understanding such things a bit better, in the November Issue of Vanity Fair (an excellent magazine that proves the perils of judging a book by its cover, or name in this case), William Prochnau and Laura Parker have written an article called, "THE WAITING PLAGUE," that covers the avian flu strain known as H5N1 from the level of the field of vision where it exists today in China, Cambodia and Vietnam -- before taking off (literally) to places beyond.

Some excerpts:

• A human epidemic of bird flu in Cambodia would take just days to spread around a world linked by air travel.
• Last year the U.S. ordered 2.3 million dose packs of Tamiflu -- enough for less than 1 percent of the population for a week.
• H5N1 has already met two of three conditions necessary to start a pandemic and is toying with the third.  First, it is a new strain unknown among humans for more than a century, meaning that no one is immune to it.  Second, it has jumped species, from birds to humans and other mammals. Virologists are scrutinizing each human case carefully, looking for signs that it has made the final step -- spreading easily from person to person.
• The pandemics of past centuries have typically hit world populations like the epidemiological equivalent of a flash flood...They have started abruptly without warning, swept through populations with ferocious velocity, and left considerable damage in their wake.  Past pandemics have infected up to half the people in the world.

Scary stuff, to be sure, but then again there are two responses you can take to such things -- stick your head in the ground ala The Brain in the Jar or understand, get educated and live your life. 

Vanity Fair is $4.50 and this issue is recognizable by Beyonce on the cover.  The story alone is worth the price of admission.

What is a product?

In response to some comments on a blog post of mine regarding the "meat of Web 2.0" I felt compelled to share with the commenter an encapsulation that I wrote some time back about what makes a product.

While the description clearly speaks to an ideal, I think that it holds up equally well against both products and services. 

With so much talk these days about such and such offering being a feature and not a product, and axioms like "it is better to build half a product than a half-assed one," I'd be interested in your take.  In your mind, what makes a product? 

This is my take.  A product is an amalgam of an integrated set of functions that work caveat free, are thoroughly QA’ed, documented, have a logical workflow from the standpoint of the end user (not its maker), whose features/solution set match up with marketing’s articulation and sales’ ability and approach to selling it.

A product has a structure in place for delivering a compelling out-of-the-box experience as well mechanisms for elegantly handling when things go wrong.

At its core, a product is designed to fit the market requirements of a specific customer like a glove.  The customer hires that product to enable them to complete a specific job, whose metrics of success are defined by specific outcomes and boundaries are expressed as constraints.

Take away any of these components or fail to satisfy these conditions, and a product isn’t.

Brain in the Jar

One of the things that keeps me connected to life and always striving for purpose, meaning and achievement is the self reminder that I/we have a finite amount of time on the planet as flesh and blood, and that time, once lost, is irreplaceable.

That awareness, like a splash of crisp water, awakens me and challenges me to not waste life. 

It challenges me to be a better husband, a better father, a more humble son and a truer friend.

It makes me want to realize and rise above my professional goals as an entrepreneur, an active investor and, hokey though it may sound, an artisan who is driven by ideals and optimism to build substantive businesses that matter.

On some level, I am also driven by fear.  Of sustainable mediocrity.  Of wasting days or weeks, or months, or ever finding myself on a path that is a dead end, or worse, no path at all.

As a student of buddhism and yoga, I am also cognizant of avoiding the traps of spiritual materialism, akin to the lead character in Philip K. Dick's, "The Man in The High Castle," for I have had friends that, while brilliant and enlightened, were basically glass vessels, nothing more than a brain in a jar, pontificating, understanding all, yet doing little to seize that moment that is NOW. 

As someone said to me many years back and has proven prophetic and true: you can't know what you don't know, and there is no substitute for doing, so if you want to get into a space, starting doing "something" in it.

This is one of those statements that is "obvious" and easy to dismiss in a second of knee jerk, so I would encourage you to wear if for a day or two as an article of faith in an area of your life where you feel unrealized and uncertain how to cross the line from concept and thought to flesh and doing.

It is my own personal recipe for manifesting and becoming, and it has carried me through two discrete careers, seven different startups, compassion, humilty and I believe/hope, a balanced life.

Web 2.0: heads or (long) tails

Fred Wilson of A VC has written a really well articulated post called, "Point Solutions vs. End to End Solutions" that raises the question of whether the Web 2.0 mantra of lightweight "point solutions" that can be stitched together by consumers are preferable to end to end solutions that are provided in fully baked form by the service provider. 

You can read his post and reach your own conclusions, but I would re-frame the question somewhat.  Underlying his post is the question of whether Web 2.0 companies (see my earlier post on what the hell Web 2.0 is) can deliver enough best of breed differentiation and compelling-ness to grow into large standalone companies.  If they can, then the space will be "VC worthy." 

If they can't, then venture financing will be unavailable to these companies, the space will give rise to a bunch of niche providers and their best prospects will be to get acquired by a major portal (at whatever the market will bear) or more likely, be run as a cash flow business.

As I was chewing on this one, I was struck by a few thoughts.  One is that the above scenario feels pretty consistent with what you would expect from The Long Tail, where the mass-market provider sits at the head, and the multitude of serviceable but small market niches collectively make up the (long) tail. 

To be clear, this scenario isn't meant to suggest that such companies would be cruddy businesses with limited growth prospects, just that they wouldn't be VC finance-able.  In fact, because these businesses are more narrowly focused on the needs of a specific customer segment, product and service offerings are likely to be meaningfully differentiated, and consumers are more likely to pay a premium for that differentiation. 

Moreover, the loosely coupled nature of Web 2.0 application service models means that the cost of customization for the provider is likely to be pretty low relative to monolithic application development models. 

As such, this is a great outcome both for the long tail consumer, who will in effect have what feels like a customized solution at a commercial off the shelf price, and for the long tail provider, who can target naturally adjacent market opportunities without significant re-engineering of their offerings (ala the beachhead and bowling pin strategy articulated by Geoffrey Moore in Crossing the Chasm).

So how might VCs play this one and what strategy does it suggest that Web 2.0 upstarts pursue?

I think for the venture community it suggests one of two things.  One is that it becomes a lot harder to seed new companies targeting the "mass" consumer market on the premise of unlimited growth potential. 

This is because the mass consumer has proven time and again that they will default to following the crowd versus specifically searching out best of breed.  This obviously favors the Googles, Yahoos and MSNs of the world, inasmuch as they already have a large crowd, and the downside of Web 2.0's emphasis on open standards and open APIs is that incumbents can be fast followers and still get a good seat at the party.  This forces a re-factoring of investment/return underwriting criteria.

Or two, it forces crafting a strategy that I dub "hit them where they aint," an axiom of Wee Willie Keeler, one of the best hitting players from the early days of baseball.  In hit them where they aint, venture capitalists formulate an investing strategy around funding companies that target market opportunities that the portals are unlikely to chase on their own.  These are market opportunities that at first blush don't fit the "mass" definition, which is all about satisfying the needs of the lowest common denominator.

By contrast, in segments where being best of breed and highly specialized from an integration, usability and workflow perspective is a game changer for the consumer, Web 2.0 upstarts can grow in a (relatively) protected environment since little of the corporate DNA of the portals suggests an ability to satisfy the needs of this type of customer.

Three customer segment types come to mind that seem to pass the sniff test.  One is the prosumer.  Prosumers are a different breed.  The blogger who has assessed the different blogging tools before settling on TypePad or WordPress is never going to default into using Yahoo 360 or Blogger.  And last time I checked, Six Apart, makers of TypePad, were booking some serious coin.  For that matter, Apple has created a whole generation of digital music prosumers around iPod and iTunes.

Two are offerings targeted at creating online spaces, such as services that manage the flow of information between the boundaries of work, home and mobile, or value chains between consumer, vendor and sales/support channel, and virtually all of the offerings that will emerge to address the needs of small and medium sized businesses, an area where Salesforce.com has done pretty well. 

Finally, there are verticals like data services built around health and finance, or professional services built around accounting, law or graphical design.  If you read, "The World is Flat" by Thomas Friedman, it is hard not to see the Web 2.0 model catalyzing the emergence of eBay-like marketplaces where such services are sought, bought, sourced and staged. 

Ah, the naysayer, is probably thinking, "Wait a minute, are we still talking about consumers?  This sounds like B-to-B or enterprise, or…"  But this is the point of Web 2.0.  The boundaries between consumer, business, enterprise, enduser, vendor and channel become increasingly situational.

Case in point, as a blogger, am I writing this post as a consumer, an entrepreneur, a consultant, an investor, or what?  Is Google a consumer company when so many of the activities it facilitates are business oriented?  Finally, is there any question that unlike the past where innovation began in the enterprise and proliferated to the consumer, the exact opposite scenario is playing out in the present?

Netting it out: I haven't been this excited about my industry since the first time I played with Lynx, a text based precursor to the graphical web, and had the same "AHA" moment that I am having right now.  Lots of questions to be answered, and increasingly the road ahead is more like chess than checkers, but exciting times indeed for entrepreneurs, investors and consumers alike.