Ross Mayfield's Weblog

Open Source Business Companies

We've been selected as a Showcase Company for next week's Open Source Business Conference (OSBC).

Here is a handy list of the good company we are in: Realm Systems, Optaros, Zend, Covalent, SpikeSource, Forum Systems, Funambol, SugarCRM, Univa, Humano2, OpenLogic, Simula, Coridan, ActiveGrid, Compiere, Open Country, OpenXource, Protique, Mergere, Digibug, Cymphonix, SourceTap, Active Endpoints, SafeDesk Solutions, BlueSunrise, Antigrain , BitRock, Groundwork IT, Adisoft, Aduva, Palamida, Sleepycat, Socialtext and Transitive.

Del.icio.us Goes Pro

Very noteworthy that Joshua Schacter has quit his very good job to go full time with del.icio.us, the social bookmarking network that all of us are so fond of.  Much of tagging originated with Josh and he deserves praise for taking this calculated risk.

[via Gen]

EVDB is Live

EVDB took their beta live tonight.  Below is a sample published calendar, here is a sample event page.  Go poke around.

See that little green button?  I'll lay odds you will see it more often over the next year than you imagine. 

Yesterday EVDB announced a $2.1 million raise from Draper Fisher Jurveston, Omidyar Network, Esther Dyson, Ev Williams, Mark Pincus and others great angels. 

Some people really like it.  The event space is heating up, with Upcoming.org and Whizspark with their own approach.

Disclosure: I am an advisor

Eastwiki

Eastwick Communications launched a new communication practice today, powering PR with wikis:

...Several Eastwick clients have already begun using the eastwiki to manage internal and external communications with new media tools such as blogs, wikis, and RSS. The eastwiki was built with the knowledge that the new media sphere is increasingly promoting a more collaborative approach to corporate communications.

Eastwick is assisting clients in using the wiki to build private and public workspaces including private rooms for reporters, client collaboration sites, and topic-focused public wikis for corporate and non-profit projects. In addition to the agency wiki, the new service will provide consultation in new media training, best practices in corporate blogging, and collaboration with globally distributed marketing teams.

Regular readers will know I'm pretty darn opinionated about the role of PR these days. There used to be PR gods who had access to key broadcast media. Now media isn't broadcast, the game isn't access and exclusives. It's conversations and inclusives.

I actually believe the market for PR Firms is growing, for a couple of reasons:

• A PR firm used to work with an information officer and some key executives. Now they have to work with everyone in the company
• It's hard to scale conversations
• Good PR reps actually make good bloggers.

Unfortunately, good reps are hard to come by as there are no barriers to entry for the profession and some people don't recognize when they are in a trust business. Interesting that people like Steve Rubel are beginning to have as much influence as those he used to influence.

Can you work without a PR firm? Sure, to start things out you are even better off without one. But as you scale, you need help, but as an entrepreneur you always want to play a role in the most public conversations. Hire people because:

• You trust them
• They get the new tools and practices
• They understand your business
• They work with you to make you better

Eastwick became a customer a while ago. Now they are starting to help me with the load and being a valuable voice in group conversations. PR Newswire is a customer, so I'm issuing some press releases now and then. In fact, they are using Socialtext to build a new platform for their Profnet expert network. In one wiki conversation, Eastwikker Giovanni Rodriguez provides a deeper comment when describing their Wisdom of Crowds approach:

...collaborative media is a nice counterbalance to all the technologies that recently have aided and abetted in the creation of what we like to call the "on-demand generation," and the current Internet ethos that has wreaked havoc on important social structures and norms. We believe that the Internet will be a better and healthier place when ego-centered technologies have a real and credible counterbalance. The invisibility of bloggers is not just a publicity problem. It's a societal problem. Wikis present a real if modest solution to this problem.

It will be interesting to see which firms and clients adapt, what mix of tools works best and how new roles and practices arise.

Silicon Valley Will Never Be Detroit

Steve Lohr's article in the NY Times begs the question is Silicon Valley turning into Detroit? Especially when Goldman Sachs calls 2005's IT growth at 4% and remarks that "technology looks to be firmly in the cyclical category for now."

This against the backdrop of PC Forum's desert climes. The theme reached out to support new industries such as health care, education. Even so far as outer space. But that's a good thing. When IT is only selling to IT, we know where that leads.

I read Steve's article as the discovery of new markets fulfilled by bottom-up phenomena.

Another path for technology can be seen in the proliferation of new services and networks on the Web that are being built, largely from the ground up, by ordinary people. The information and images - the content, in media industry jargon - is supplied not by company-paid professionals but by communities of people who find the data useful. Those seeking a business in the phenomenon call this information user-generated content. Photos, event listings, blogs and wikis - Web sites that allow users to make their own entries - on every imaginable subject are all part of the trend.

There is mounting evidence that this grass-roots media hybrid is moving into the mainstream. Ross Mayfield, chief executive of Socialtext, reports rising demand for his start-up's expertise in using wikis among large corporations like Nokia and Kodak. Last week, Yahoo announced that it had bought Flickr.com, a Web site where people store and share photos. Jerry Yang, a Yahoo founder, said candidly, "We are venturing boldly, and somewhat blindly, into this world of user-generated content."

I'm not sure there is any other way. Outer space is a big place, and colonizing the martians is futile. But back to Detroit, not that there is anything wrong with the city.

Here is a way of thinking about economic geography. Other regions may have been positioned for trade, produced efficiently, financed trade or produced means for transport. But have other regions provided this plus produced goods that enabled others to produce with such economies?

In other words, past revolutions produced for others to consume, but net net, we produce so others can produce. Naturally technologies diffuse until they become infrastructure, but are social infrastructure a fundamentally different economic input?

Dream Mergers

In this time of wacky M&A, I thought I would start a list of dream mergers.  Please add yours, even if they don't entirely make sense.

UPDATE: Some pretty good suggestions so far:

• Cisco buys Skype
• Sun buys MySQL
• Fedex Kinko's acquires Starbucks (thus monopolizing the away-office telecommuter workspace)
• Boeing acquires Cooper, builds flying car
• Yahoo! acquires Disney
• Amazon acquires last.fm
• Fujitsu and IBM acquire Sun (hardware and software respectively)
• KKR buys HP, spins out Compaq, DEC, and Tandem
• Evite acquires Upcoming (Waxy uses proceeds to provide unlimited free bandwidth for mashups)
• Google acquires Technorati (6 months tops)

The Risk Management Software Vertical

The Mercury News reports on the largest tech buyout, ever.  Silver Lake Partners and other private equity firms are acquiring SunGard Data Systems, a risk management software company, for $11.3 billion.  There is a different kind of Barbarian at the Gate, as buyout firms are producing more IPOs than VCs.

Sungard has been the leader in the risk management software category, but you couldn't call it dominant.  There is a typical VC 2x2 with expertise and complexity to build as one axis, and size of the vertical as the other.  This category has high expertise requirements with a relatively small size, which leads VCs to naturally shy away.  The market has, however, had consistent growth through boom and bust.  This $3 billion revenue company underperformed in the midst of growth opportunities in an increasingly risk-centric world and could be highly strategic for other enterprise software vendors.

Jeff Nolan has a great post on Consolidation in the enterprise software markets:

...Pick a vertical or a platform stack layer and there will be at least 1-2 dominant vendors and a handful of hanger ons, and even the largest vendors in the space have a hard time displacing a vertical leader. The investment required to build a vertical from the ground up is too great, it's much more cost effective to acquire a dominant vendor and use the maintenance base to pay off the acquisition.

While I have been away from this market for some time, it seems that Silver Lake has acquired a great company to roll-up (including SarBox companies?) and flip.

Hmm...is HP next? Roll-up with Kodak?

Hot Tags

Neat index on Flickr...

In the last 24 hours
hail, tourists, rodeo, semanasanta, goodfriday, watercolor
buddies, fullmoon, lamb, luna, gravestone, diptych, stlouis, easter, uae, toddler, luke, religious, nikon, friday

Over the last week
dilomar05, holi, pcforum, sexyblogger, goodfriday, dilo
purim, semanasanta, transparent, desktopshowandtell, fallas, portable, diptych, antwerpen, easter, psp, xpro, crossprocessed, sidekick, westvirginia

VCs Don't Invest in Ideas

SiliconBeat looks at the overhang in venture capital because interest rates have led to a general glut of capital, and wonders if all that supply benefits demand: So if you think you've got a good idea, you're marginally more likely to raise more money now.

The problem, and I hope you don't think it is a problem, is that VCs don't invest in ideas. This is one of the greatest myths in the Valley. We would like to believe it as it implies a meritocracy simply not present. Part of the Valley culture is a self-perpetuating desire to be more like Hollywood, where talent is discovered and hits are made. But the only people who get funded on ideas alone are serial entrepreneurs.

Techdirt suggests that it may be time for VCs to start pitching entrepreneurs, because Bloglines and Topix have been able to go it alone. But again, the people who don't need the money in the first place are the other half of the supply/demand story. And as Jeff Nolan points out:

Serial entrepreneurs are perhaps even worse at times becuase they really do think they are the dog wagging the tail (us)... even though the odds of finding serially successful entrepreneurs are only slightly better than O.J. didn't do it.

These days it is cheaper to bootstrap products and even markets. If you are only pitching an idea, it may be stolen, and you have lost the option to focus on customers and execution. If you are still at the kitchen table stage, your side time is better spent developing relationships.

VCs invest in real businesses and the criteria today, even in the consumer internet, is still relatively high. When VCs start funding nobodys based on ideas alone again, its time to cash out and move to Montana.

My sense of the private equity market is it is exactly the same as a year ago. Further confirmed by how VCs lag the NASDAQ by a year. The one exception is M&A has taken off, a market with even greater false incentives. Large companies saved cash during the bust, furthered by low interest rates. Someone rang the consolidation bell. Now public equity investors are investing in larger companies because they don't want to own acquired public companies because their price declines in the transaction. Large companies increase their market cap, they start buying with less cash and more equity. They cycle perpetuates until there are greater perceived returns for sellers by going alone. My guess is in a year or so we may be talking about IPOs more than M&A.

Lenny Bruce is Not Afraid

Last night I watched a Lenny Bruce Biography on the Sundance Channel. The first obscenely popular comedian, he developed his own style of unabashed social commentary.  Arrested for using the word cocksucker (practically the subtitle of Deadwood), he found himself passionately defending everyone's speech in order to defend his own.

I couldn't help thinking, what would Joi do?  He recently commented on the difficulty of more extreme speech when anything said can be shared outside of context and privacy.  In some cases, this could be viewed as a good thing.  But generally it is harder to share what you really think.

I happen to believe that people do not exercise un-compromised speech unless their right to it and views are challenged.  As such, Joi is more likely to revel against issues like Visas he is regularly confronted with.  In other words, Ghandis arise from extreme conditions and threats, no matter how much we aspire to emulate one.

Tagging in the Enterprise

One of the most popular sessions at PC Forum was the Roundtable on User-generated Metadata. Moderated by David Weinberger and Esther Dyson, it engaged the former audience in a conversation.  Good thing too, as many of the experts were in the room.  You can see from my raw notes that it covered the topic widely. 

But the gem was from two comments by JP Rangaswami, CIO of Dresdner Kleinwort Wasserstein.  Not just because he is one of my favorite customers, but its a rare insight into tagging in the enterprise:

Using Socialtext in my bank... Two dimensions that work: people tag things for themselves and whatever I am doing, can I do it in a way that makes collaboration easier. All it is doing is making things easier. The thing that got me on tagging was when I went to Ross and he said it was the simplest thing that could work. I will do things with tags to try to help people remember.  And I don't want to be committed into a structure.

Going to use tags to solve a problem in my organization. People label things differently in different cultures in the same organization. Today English might be the language, but there are perhaps 300 dialects and the labels are different. Tagging lets structure cross-reference, where patterns emerge. Important for me in a commercial context. To let people in different contexts collaborate, keeping it simple and gaining a high adoption rate. Not pushing or pulling, its a community, which is why I like social software.

I helped provide an intro to tagging alongside Caterina Fake from Flickr and Dave Sifry from Technorati -- making points on relative cost, potential scale and social incentives that drive adoption.  But after JP's comments, I knew to shut up and let the customer do the talking.

The other enterprise social software highlight from the show was John Seely Brown and John Hagel finally talking about their forthcoming book:

The notion of productive friction has major implications for IT across multi-tiered process networks. Hagel said the combination of service-oriented architecture (loosely coupled), virtualization and social software (a shared collaborative workspaces like Wikis) is key to developing a work culture that can support productive friction and facilitate conflict resolution, allowing the stakeholders to browse the context to figure out how to "unstuck" an exception (problem).

See Dan Farber's post and the session page on the wiki.

EVDB

Notes from a company presentation (disclosure: I am an advisor) by Brian Dear on EVDB.
The problem

• the application: inconsistent ui, no synch hard to read, etx.
• What presentation would be right without this reference: the long tail
• little to no structured data, no search engine, no prospective searches
• All results in the "had I known" syndrome

The solution

• address the problems, naturally

Events of all kinds -- an event is anything that occurs or will occur.  Not necessarily at a place, it is at a time.  Not necessarily something in the newspaper, could be something important to you only.  Webinars, podcasts, meetups.

The spectrum of events: Search, Find and Go

1. logistics, planning
2. promotion
3. discovery
4. registration, ticketing, fulfillment

Their focus is discovery.  Everywhere.

The V in EVDB stands for Venues.  Venue data is one of the biggest problems in publishing events.  Rich venue, include lat and long. and enable people to annotate/tag.

Views help people discover events.

Data beyond scraping (inefficient), a hybrid smart crawl.  Very inspired with Wikipedia, counter-intutive that it works.

Detail. Mere pointers are good enough vs. mere pointers are not good enough.  We'll build the tools, but we'll let the community decide.

Distribution:

• web services api
• point of entry support: Point of entry (like point of sale or care): who is entering the data and how.  Very few tools to let people publish.
• publishing support: plugin to publish to blog
• syndication: took a big drink of the blog kool-aid.
• open-source development

Demand: using perscriptive effects to generate demand.

Positioning: between events are the focus or feature.  between web portal orientation and a web services orientation.  EVDB is focused on events with an increasingly web services orientation.

Business model:

• Targeted advertising: local search, plus time, plus events
• Licensed API

Powered by apps (web, mobile)

• bounties from ticket/event registration partners
• Consumers can use for free

beta@evdb.com

System is personalized.  Starts with a command line.  Event items, with parents. Lets you tag events.  Select from sessions during an event to compose a personalized calendar.  Calendars have RSS and iCal feeds.  Calendars can be publsihed as HTML.  For things that haven't happened yet, SmartCalendars are persistent structured queries. Integrated with Meetup.  Talks through entering an event.

You earn reputation based upon what people do with your events, not by creating events.  Looking to have community moderation.

The promise is having your web services interop with others.

IMHO, Next year's Flickr and icon of obsession.

Why Wiki?

Socialtext developer Chris Dent has a long and well considered post on social software and why he does wiki.

I think there are three primary audiences for wikis: the individual who hopes to use the wiki as an outboard brain or memory; the nascent group that hopes to discover and solidify the community that lies as potential in their loose connections; and the existing community that hopes to support a shared goal or perform some action.

PC Forum Company Presentations

Trumba

It's not easy being me. You wouldn't know that from looking at my outlook calendar. Trumba is not just a personal calendar or group calendar we help people build calendar networks across communities.

EVDB

Have you ever found out about an event after the fact, one you would have gone to if you had known? Movies, concerts, interviews on NPR, business meetings that were right down the steet. Ever try to use the web to keep up? With all these mapping apps, wonder what is going on in all the building. In 2005 the web has still not delivered on the promise and potential of the long tail of events.

Endeca

The future of search is find. Enterprise software. Search today is anachronistic, assumes the user is an application, not a human. Future of search mirrors human behavior. Not sure what this company specifically does from the pitch.

Siderian

Why is it after all that has been achieved with information access on the web are will frustrated with search engines and portals. They do not let us manage information in the way we think. We think of documents as tangible objects with surrounding relationships. We know what information matters to us, but systems make it difficult. Enterprises have built KM systems that cannot keep pace with how we think, or have given up and gone with search that does not reflect they way we think.

Impinj

Makes chips for RFID. Tiny indeed. Small, low cost, simple manufacturing, consume less power than the brain of a honeybee. 10's of billions will be deployed annually, replacing bar codes, new apps, more processing power than an Intel 8086. The largest Platform for Communications on earth. Patents, performance, scalable manufacturing, system solutions company, first to market.

Grouper

A peer to peer network introduced by two people (Esther says its appropriately so). May remember them from Spinner, the first internet only radio station service. Grouper is a private media network. Came back from Burning Man and wanted to share media. Sharing with friends, integrates file sharing, social networking and desktop search. Create private groups. No restriction or size or quantity of files. Private encyrpted. Numanuma.

Epocrates

Millions of medical errors happen each year. Suite of software on handhelds for use by physicians at the point of care. 1 in 4 physicians in the US use Epocrates. Layering on services from the top 10 drug companies to deliver drug info, drug recall, insurance information. Have the largest medical research community for polling doctors. Grew 70% last year.

Brightcove

John Malone in 93: "out new network, the infostructure network, will do blah blah blah" 10 years later this is all true, but on a dumb network. Barry Diller: "Rupert Murdoch is the only person in the world able to deliver content on three content." Brightcove fosters and enables this transformation, an era of information television.

Rearden Commerce

Five years ago, founded at the peak of the boom. Massive infrastructure is available, but we have diminishing returns for productivity or user satisfaction. Shift from technology to user centric. They are building Internet 2.0, perhaps they do something with web services.

Opera Software

They make browsers "we are coming from scandinavia and its difficult to talk up things." Fastest, most secure, best browser. WAP browsers only let you get to a certain amount of sites. They port the same desktop browser and put it on the mobile device. Use web technologies to make standardized solutions. Much of this is not visible in the US. If you are making Active X big screen sites, you will have to make whole new sites.

JotSpot

Joe talks about his background. Ward Cunningham and the Wiki Wiki bus. No comment on the rest of it.

Enterprise Strength, Wiki Simple

Today Socialtext relaunched it's product line at PC Forum with three core offerings:

• Socialtext Enterprise: Enterprise Strength, Wiki Simplicity
• Socialtext.net: Quick and Simple Hosted Collaboration
• Socialtext.org: Affordable Collaboration for Non-Profits

What's new is the Enterprise product now has all that boring stuff that enterprises actually need for collaboration at scale.  We have had our Appliance deployed at great companies like Veritas for over a year now.  Over time, an ecology of use arises and before it becomes a victim of its own success you really need enterprise monitoring, storage and backup.

Also new, besides the look and feel, are email integration features that let you work from your email client.  Email to category or blog post, email this page using the address book of the space, HTML email so you can WYSIWYG if you really have to and round-trip editing.  Gaining adoption for a wiki is not an easy thing, and most of the success is in practices we have learned over the last two years, but features that adapt to the existing information flow really help.

But more than anything, we are keeping things simple.  If you ever need to explain what a wiki is to someone, just point them to this page.

Jerry Yang on Buying Flickr

Notes from one of the first PC Forum sessions, while hanging out in irc://irc.freenode.net/#pcforum just after Jerry said something about how most bloggers are bad bloggers and new competition from real writers will crush us...

Esther hinted about it... Jerry said, "I know you were involved in a company we just bot, we just announced we acquired Flickr"

Marc Canter yelled out loud something for the first time in two years that wasn't "FOAF" and we all applauded Caterina while Stewart was in IRC.

Jerry continued: "I am a little embarassed.." and Esther took Jerry's picture. "We had to have these people with us... I hope stewart and caterina become our vanguards as we venture forward..."

James mentioned in IRC that drinks were on Stewart tonight.

"...Part of it is because as users we were admirers of the services and communities, then got to know the people, to help us build the next generation, we learned they liked us, and we will boldly venture into a whole new world... Hopefully one of these things where we will understand the communitity, help it grow, help Caterina and Stewart grow it."

There will be much much more:

• Jeremy Zawodny
• Dick Hardt

PC Forum 2005

It's PC Forum time again. For the third year in a row we are providing a Socialtext Eventspace. The theme this year broadens the lens to see where IT can solve real world problems and help industries outside tech.

Heading to the desert, family in tow. Esther is really on to something with family friendly conferences. One of the ways to retain a work-life balance.

For a long time I limited myself to one color -- as a form of discipline.  Pablo Picasso

To tip my hand about one little thing we will be talking about next week, the Eventspace has a redesign.  Socialtext has been sketching out its cubist period of cold green boxes for some time now. Now we are entering our blue period. Interested in your impressions.

The Entrepreneur's Sacrifice

A great tale about the entrepreneur's sacrifice:

Rob Shostak, a long-time entrepreneur and founder of five-year-old startup Vocera, told a story about meeting one of the founders of software maker Lotus Development Corp. shortly after it had gone public. The guy had just cashed out $18 million of stock and invited Shostak back to his apartment to see a present he had bought himself. It turned out to be a modest Jeep Cherokee. Shostak followed the founder up to his apartment, expecting to find a palatial penthouse. But it was an average place furnished with only a mattress on the floor. "I was kind of dumbfounded when he volunteered, 'Actually, they just took all the furniture out to go to my ex-wife's place,'" Shostak said. "It was a striking and poignant moment for me to realize the cost of his commitment to the company."

It's a more common story than you might think. The long hours, low pay, and volatility of startup life takes a toll on the people who are close to entrepreneurs. "Make sure if you value the relationship with the person you’re living with that they’re up for this," Shostak said. In addition, make sure that you choose your co-founders carefully. "You literally will be seeing these people more than you’ll be seeing your spouse," Shostak added.

Choosing this way of life is seriously not normal. But it sure seems like it when you are working on something you believe in. The easiest rule to forget is to pay yourself. The easiest sacrifice is de-prioritizing everything outside your business, even the things you are really working for -- like yourself, friends and family.

Before starting Socialtext, my wife and I sat down and did a really big gut check. I think there are three phases you end up going through together:

• Poverty with Promise -- you live lean, which inevitably effects your relationship. This phase is like raising money, it always takes longer than you think. Tip: budget
• The Acceleration -- suddenly life gets a little more comfortable, but the demands on your time and to travel are at another level of strain. Tip: bring your family on long business trips
• The Payoff -- can't speak from enough experience on this one yet, but the grass is always greener. Tip: don't forget to pack, or remember where you came from

I really admire husband-wife teams like Ben & Mena, Stewart & Caterina, Zack & Casey. Working with your spouse must at times be the most imaginable hell, but on the other hand, you have more time together. Both physically and consciously.

CC Wiki

Creative Commons licensing of wikis is an increasingly popular practice.  Joiwiki is a prime example.  The issue of attribution is complicated with collective authorship and there is a longstanding need to attribute to group. To support the unique nature of wiki, Creative Commons has begun the process for a CC-Wiki license with a proposed modification to the Atrribution-ShareAlike license.

Sunir Shah suggested to me this may not be legal in Europe because of Moral Rights provisions.  But this is the beginning of a process, and by balancing individual and group rights, the end result will undoubtedly advance free-content.

And while I am biting my tongue on other ironies, a bonus link on Wikified Books.

Tim Berners-Lee on Wikis

TBL at a seminar in Finland,

Berners-Lee's original vision of the web was as a resource for collaboration. He said that so far it had been "a big disappointment" in this respect, although exceptions such as "wikis" - essentially interactive online note pads - showed its potential.
 
"Wikis in general are great examples of how people want to be creative and not just suck in information," he told the seminar, pointing to the online encyclopedia Wikipedia as the most advanced development in this area.

[via eastwikkers]

Etech Notes

Transcribed two sessions:

• Wikipedia and the Future of Social Computing (video snip)
• Tags and Folksonomies Panel

whatsinyourbag

whatsinyourbag
Originally uploaded by Ross Mayfield.

For the whatsinyourbag collection.

The Coming Corn Bubble

We really need to move to Ethanol-powered automobiles.  And I mean soon.  Not because of energy efficiency, or to reduce farm subsidies.  People in America are getting really fat.  We need a more profitable product for corn than High Fructose Corn Syrup.  Otherwise, I can't see any way out of this predicament.

Hey, what good is a blog if you can't espouse some nonsense now and then?

Etech Bound

Headed to my third Etech next week.  I'll only be there for part of it, so drop me a note if you want to meet.

Starting a Startup

Paul Graham has an absolutely fantastic essay that every entrepreneur should read.  Here's the summary...

You need three things to create a successful startup: to start with good people, to make something customers actually want, and to spend as little money as possible.  Most startups that fail do it because they fail at one of these.  A startup that does all three will probably succeed.

...but the essay is much deeper than that.  Real experience, real stories and practical advice.

Microsoft Acquires Groove Networks

The collaboration market just became more competitive.  Microsoft has acquired Groove for undisclosed terms.  Ed Brill points out the integration challenges (interesting how he marked is post as not-for-quote-by-press). Jeff Clavier highlights that Ray Ozzie will become Microsoft's third CTO, and he surely is the best person for the job.  Michael Sampson provides analysis and notes this wouldn't have happened save Longhorn.  Dan Bricklin says Microsoft endorsing P2P and Privacy is good.  BusinessWeek blogs:

But has the era of big programs that live on the computer on your desk or your lap passed? The collaborative Web sites called wikis, for one, seem to present a more lightweight, Web-based alternative to Groove. While they can't yet hold a candle to all of Groove's capabilities, they're evolving fast because they're so easy to use. Even Microsoft offers a wiki of its own. Should be interesting to see which approach ultimately wins where it counts--among paying customers.

No comment.  Will be interesting to see how Live Communications, Sharepoint, Groove and Office converge -- and if convergence is meets customer demand. The forecast is Cloudy. Ray's comment is forthcoming.

Congratulations are due to Ray and his team, really is a victory to celebrate.

UPDATE: Mitch Kapor by blog and print: "Most of the potential for collaboration has yet to be realized so I don't think anybody owns that or is even ahead."

First interview with Ray.

Relationships Over Transactions, A Learning from the Bubble

This post is part of Om Malik's bubble-a-thon.

Five years ago, I was the President and co-founder of a B2B Exchange with a $1B market cap. Seems right on the 5th anniversary of the bubble to revisit the rational insanity and fess up to your part in it.

A few years before, Sean Whelan and I were above a garage in the Mission district with a website brokering bandwidth.  RateXchange was a relatively simple business.  The telecom industry was full of the fattest cats imaginable, arbitrage opportunities abound and the margins were insane.  Sean knew the industry and had a simple concept of bringing some price transparency through a website.  For a year and a half we worked with hardly any salary, publishing rates and having conversations with phone brokers, buyers and sellers.  We pitched every VC and they still didn't get it.  I look back on this period fondly.  We were exploring new territory, creating a market and learning from people who worked profitable magic with only a phone, fax and a rolodex.

Then, Boom.  Suddenly what were doing all along was called B2B.  We raised $35M and $10M in debt overnight.  A dearth of B2B equity offerings drove us to go public with sixty thousand in revenue.  We went on a roadshow to meet people that had already participated in our oversubscribed offering.  Our business model was a fat butterfly, and we had to get fatter. 

Flush with capital, we embarked on an elaborate plan to foster a commodity market for bandwidth.  Not because the bandwidth market was growing like gangbusters, but because the market was grossly inefficient.  This was before there was B2B transaction software.  A year before, Chemdex spent $32M building such a system, cost us about a buck to develop our own in partnership with Trading Dynamics (later Ariba), a year later you could get one for $60k.  Beyond transaction efficiency, delivery was a mess of tangled wires, and contracted to deploy 14 pooling points in colo facilities to trade and deliver 91 routes in near real time across three continents.  We sought to create a spot and forward market to help carriers manager risk. 

For a damn good reason, the value of their assets was declining at 1000% per year for major routes and there was no mechanism to manage volatility.  Yet they kept building and buying.  After all, bandwidth was like a vacumm, and convergence promised smart layering of new services with elastic demand.  The more you build, the greater the demand, blah blah blah.  But for some reason, the sellers largely didn't ask to play in markets they couldn't control.  Around this time the Gorilla came in, Enron and its market making magic, offering their own market mechanisms.  Energy companies were ripe to play, but they still had little to sell.  Eventually we figured it out and liquidity was fostered, but it was too late for the equity markets and companies that were supposed to cumble, did.  Most of the rest is history.

Me, I would get up at the crack of dawn with my wife, logon at the desk I am sitting at now and look at how our paper value increased by a buck or two.  We would laugh in disbelief.  Private Client bankers called us before eight in the morning with schemes to turn paper into cash flow.  I hopped on the train to the city trying to figure out how to get the industry on board before it was too late for all of us.  Surely the market would flock to automated efficiency, to frictionless transactions, wouldn't it?

Around this time I picked up a copy of the Cluetrain Manifesto.  Markets are conversations.  This drum cut my ear, blew my mind, as it did many. 

Somewhere around the peak of the boom we forgot something.  That lowly phone broker who knew how to make money in the market.  Not because he could process transactions straight through to the bank. Near the bubble's pop, we were partnering with energy brokers, as they knew the people at energy-cum-telcos that wanted to play.  They didn't talk about efficient systems.  They talked about talk, they guy they knew they could extend credit or cut a deal because they knew they would get it back when they needed it.  Just like the phone brokers from a couple of years before, they knew markets were relationships.  Markets are social. 

But it was too late and the industry collapsed.  I moved on, and it wasn't easy.

Five years later I find myself with another startup, emulating the lesson learned as much as I can.  Now I am in the business of fostering social capital, of helping people connect through conversation.  Helping groups be more productive by tearing down false walls.  A revolution in simplicity, beyond aspirations of complex efficiency.  Going for sustainable growth, but also making choices based on relationships over transactions.  My customers are my business.  I work with some of the best people I could hope for, something I couldn't have said back then.  Even some of the Cluetrain authors, for which I am not worthy.  My network extends with people that value people.  My company produces social goods.  Even if Socialtext doesn't pan out as we hope (hey, it's possible), we have fostered a social software industry that will change the world.  Which is why I made the move from non-profit to public sector to private sector in the first place.

RateXchange lives on as an investment bank, MCF, thanks to the people that followed me, and one of its competitors went public three months ago.  It all happened so fast I never had a chance to vest or cash out.  Some investors made a thousand-fold return, which is more than fine by me.  I'm not sure I have regrets because I learned what I learned.  Markets are markets and somehow I maintained my own ethical integrity through boom and bust.  I still believe the network is the market, that bandwidth trading could have saved the industry and that similar businesses will thrive. 

I have learned two things from the bubble and have one theory that remains to be proven out.  One, relationships are the only thing you cannot commoditize, which makes them so valuable.  Two, by consequence, it matters who you work with.  Three, if you pursue what you believe to be the right thing, learn from failure, and innovate at the margin -- your rewards will be greater than what you could speculate.

This post is part of Om Malik's bubble-a-thon.

• Andy Kessler: Nazdog & The MOMOs
• Om Malik: The Beholden Years
• Ross Mayfield:  Relationships Over Transactions, A Learning from the Bubble
• Paul Kedrosky: The Bubble and Me

Peerflix

On of my co-panelists today was Billy McNair, CEO of Peerflix.  As they say in the movie business, its like Netflix, but P2P for DVDs.  Looks like a convenient way to share media. 

Deal Flow and Silicon Beat have the scoop on their recent funding and business model.

Managing Hypergrowth

I'm speaking today at a World Financial Symposium event on Growth and Exit Strategies for Software and IT Companies. Earlier today Veritas founder Mark Leslie spoke on the Sales Learning Curve. Here are my notes from one of the sessions, three CEOs who have experienced managing hypergrowth companies. Some good management insight from people who have been there and are doing that.

Brian Bacon, President & Founder - Oxford Leadership Academy - (moderator)

Three things you have to do when founding:
* Do something you love to do.
* Something you can do better than someone else.
* The Economics

Paul Sutton, CEO - Kabira Technologies (1550% growth)

On hiring and cycling: Looking to add new players to the team at all times. Early in your career you hire on gut reaction ,then you learn practices, but he has come back to gut reaction. When things are going well, its an indication to start thinking about what to change. When things go well, its because of decisions 9-12 months ago. Comes back to his gut about who can take them to the next step.

Sales learning bump, is about when to push the pedal to the floor. When you get the signals that you have a product, acceptance, then picking the hotspots where the product was applicable. Now they challenge is to take a generalized product and figuring out how to take it to the next level. I actually personally give away the upside and internalize the failure. You think about if you should exit, but you should also try to learn how to scale yourself and your company.

Layoffs are about communication. We all have investors. Its another test for a CEO, a hurdle to get to value down the line.

Tony Naughtin, CEO - Network Clarity, Inc. (former CEO - Internap Network Services)

Passion. Balance. Focus. Risk managed growth. You can be insanely passionate or passionately insane. Have to be very open to learning and adapting. You want to be insanely passionate. Importance of the team, no successful entrepreneur does it by themselves. Don't stray too far from home unless it will add value in a predictable fashion.

Can your team do things they have never done before. Get the work done even through it doesn't seem like its work. Be uncompromising about who you bring onto the team, but recognize by looking over the horizon at what the change points will be in my business model. Beyon $10, $50 and $110 inflection points (symptoms of if managers will capabile of managing 300 people in an engineering group or systems in place to take care of you 8 months out). Need to let people go, but have qualified people as backfill, don't make a move without an immediate replacement.

Knowing when to stop leading. When you grow something beyond your ability to manage it. In 2001 they were one of eleven public companies in the space looking at sales vs. churn and how the market changes were really effecting their business. 96% of the customers we had then we have now because we moved quickly to get the bad news out there. Every one of the other companies followed suit in 6 weeks. Then they raised more capital to get to profitability (making up for revenue). $100M Pipe financing. Decided to take himself out, after taking the company all the way up and all they way down (firing 300 people), the same person can't take it up again.

On sales growth... Better not be about me, or I have 1/1000 chance of being successful. If you have built your team you are not the smartest person in the company. CEO forces and refreshes the vision. Built their sales opportunistically. Something that was differentiated. Hired 3 director and 1 VP out of MCI when WorldCom acquired them. Then built underneath them. They allow engineers at an early stage to have a big influence on how the sales organization down to a lowly AE to make sure people could talk solutions. Lots of training. Last thing you want them talking about is price.

After layoffs, trust between employees. When private company, stay true to culture after the layoff. When public, do the same thing but its harder to do because morale has more to do with the stock price.

Having to expense options will hurt us not just monetarily, but as a country.

Pure plays are companies that do one thing, but also typically don't do the marketing research before doing it. Going to the next level, we made the same mistake. Didn't have people from the software industry who knew how to ask the right questions to form value added application bundles.

Joe Lynam, CEO- PaymentOne (9300% growth)

Focus on the early stage clients. What it takes to drive their metrics, they monitor client metrics above their own. Think big from the outset, plan to be big, think about large markets where you address pain points with differentiation. Go big or go home. When you start small and have an intimate relationship with customers, there is room for profit, which then provides a model to explore and scale.

Stages of growth. Early is Wild West, not all people thrive in all stages. Set expectation that this business will grow and take on entrenching processes. A CFO who is really a VP of Finance and the need for a true CFO, can be handled if expectations are set for the team up front.

Have to have, if not me, who? That keeps me in my seat for now.

On the sales learning curve...They help merchants get their charges into the telecom bill. In the early stage it was a CEO/CTO selling the deals. At $31M we still dont have the renessance sales rep, partially because of the size of our deals. Recurring model, so they have a big infrastructure sale, then sell services on top

Managing the downturn...layoffs can be a mystery or you can let people know what's coming. Most important element was communicating a transparent view of the business to the entire company in a day after meeting. Transparency and honesty is the best approach to manage something that is never fun and always difficult. After it happens, every day its like 100 days behind you.

Adword Arbitrage

Seems appropriate on the eve of the boom's anniversary to revisit arbitrage and bubbles. Jeff Nolan points to a definition of arbitrage (risk free profit), but in the context of a poor analysis. Jupiter analyst Niki Scevak takes issue with an article by Bambi Francisco on how keyword arbitrage is leading to a bubble in Google Adsense valuations. Unfortunately, the article is behind a costwall, but Niki's post summarizes:

Bambi cites Nextag as an example of a 'search arbitrageur' because they bid up the term 'dvd players'. Yet Nextag does not buy the keyword and simultaneously sell it for a riskless profit. I can't say enough that this assertation is categorically, absolutely and unconditionally wrong (again to put it mildly). Nextag takes a generic keyword, filters that user through the decision of what make and model, and often what price range the consumer is willing to pay for their dvd player, and then sells that more qualified lead to merchants. It furthers the consumer through the purchase funnel. Extra value is added. Ask any merchant bidding upon the term 'dvd player' and they will tell you it performs poorly, in terms of direct conversion. But the term 'dvd player' is more valuable to vertical search engines like Nextag than it is to merchants and so Nextag can afford to pay a higher price than can merchants.

I won't pick on Niki's analysis or assertion that Bambi's article is horribly misleading information, but instead explain how the Nextag example is arbitrage at work.

Say the keyword 'dvd player' costs $1 on Google's auction market. On Nextag's market it costs $2. Nextag does add value, by decreasing search costs for vertical merchants, say by $0.50 (lets not drift into a discussion of how they are extending the Long Tail, but this is about Fat Tails). Nextag also does have its own transaction costs, say $0.50. Overall, Nextag pockets a profit of $0.50 for their 'value add' -- but if you assume the transaction was straight through processed and there were no credit or operational risks, this is risk free profit.

In this simple example, they are buying from one market where there is a low price and selling in another where the price is higher. How did they do this? By having superior information than other market makers or buyers.

Now assume that there was a delay from when they purchased from Google and when they sold to another party. That would be risk, the price could go up. Common in storable commodities such as natural gas. But on the other hand, it would create the ability to retain inventory as a hedge against price volatility.

So is there an AdWord bubble? Not by the Nextag example. As arbitrageurs, they are doing the opposite, and others will follow, gradually bringing the prices in both markets towards equilibrium. Who knows if the market is in contango (trending up) or backwardation (trending down), there are many other forces at play. As we are figuring out the economics of the long tail, I fall back on Says Law, where the market flocks to both scarcity or abundance to bring it back into equilibrium

Foreward: Five years ago I created RateXlabs with the good folks at Oncept tand published some whitepapers on bandwidth arbitrage conditions applicable to today's computing commodity market. Finally I have a use for all that information, to share it and hopefully not mislead.

Disclosure Over Objectivity

Mitch Ratcliffe blogs about how he is starting a company and that may change the nature of his blogging.

Can I, as an entrepreneur and a blogger (and a consultant and a journalist—my career is a portfolio rather than a single effort), write about the “news” without wrecking the notion of objectivity?

...The point here is that the debate over “paid blogging” revolves not around compensation but whether or not the writer has a real passion for what they are writing about.

He also offers this disclosure, which I already noted, but saves me the effort of typing it myself:

(Disclosure: The author is on the board of advisors to Socialtext, whose CEO, Ross Mayfield, is on the board of advisors of the author’s startup.)

Links are Relationships

Two very disturbing developments in regulating the blogosphere -- one puts a price on links, the other demands bloggers reveal sources. 

Jeff Jarvis

: There's a considerable dustup today over an interview with Federal Election Commission Bradley Smith saying that under McCain-Feingold and a recent court decision overturning an internet exemption, the commission will have to go after bloggers, ascribing a value to the links they give candidates as campaign contributions.

Mary Hodder

Valuing campaign contributions as it were, from digital sources who link this way may also not get the true value of the link. The FEC is proposing to apply rules of analog campaign activity to the internet. So bloggers, linkers... are they press... are they contributors of in-kind linking or words... or are they expressing opinion? What is their status and is it based on what they do, or say, or based on self-identification? I'd say it's as varied as blogs are: blogs are a tool, remember? It's like asking what is the status of this piece of paper? Is it a letter, a newspaper, a shopping list, a diary? The status depends on how it's used but the are many possibilities and otherwise it's just a flexible tool for communication.

Links are a public form of speech, with a value, primarily for the commons.  A link is a connection between two peers, initiated by one, usable by all.  Commons-based peer production holds that social signals, underpinned by relationships, can drive productivity as an alternative to price or contract signals.  A tremendous level of productivity is unleashed when transactions are <i>not</i> valued.  Doing so reduces transaction costs and enable the long tail to produce.  If every contribution to Wikipedia or link in the blogosphere had a price, they would not exist.  However, links are relationships, and in the context of political donations they should be followed -- to discover if there are underlying prices and contracts driving activity.

The issue of confidentiality of sources is simply freedom of the press, so i will leave the argument to others.  "Just because Apple does not want these publications to report on its activities does not mean that they are not news publications," said Thomas Goldstein.

UPDATE: See Dan Gillmor's post.  Also, note that if a value is ascribed to links, the argument falls into the domain of Spending-is-Speech, which it is not.

NY Times Topics

David Weinberger breaks the news of the news, where the NY Times will open its grand old archive in the form of definitive topic pages. Supposedly this will provide a linkable reference at the time in which all media moves to linked formats. He rightly contrasts this with the trend of linking to Wikipedia articles as definitions, as well as the risk of imposing cost when readers seek trust.

But I have to wonder if any major move in the name of search engine optimization is simply. Just as the market flocks to abundance (or scarcity) because of arbitrage conditions until the opportunity is saturated. It also cedes the advantage of direct navigation, perhaps too early.

The web, and how it is indexed, does not reward first mover advantage. It rewards the latest advantage. Especially as weblog search engines and market demand are driving indexing towards real time.

Blogs do not reference the past, or definitive topics, enough, quite frankly. An obsession of new is only trumped with now. Media does seek a mainstream and trusted resource to link to in definition, but they are, after all, competition.

But really, the NY Times has no choice. They must move to open the proprietary when a juggernaut of open interpretation of history marches at pace. This move seems partial, which leaves open the opportunity for others, but is a test of brand longevity that may serve the mainstream before they realize their opportunity to participate in the movement itself.

Regardless, they should be applauded for the move. It will be a great resource, and it's better than naught.

Yahoo! Developer Network Powered by Kwiki

Much has already been said about the search web services released by Yahoo! today.  See Jeremy Zawodny's roundup.

I'll just point out their really nice developer wiki implementation of Kwiki.  The ApplicationList has already doubled this morning and I would imagine a Yahoo! Kwiki Plugin can't be that far behind.

UPDATE: Chris Dent hacked together a KwikiYahoo plugin.