Jerry Yang’s departure as Yahoo! CEO opens the door to a renewed bid by Microsoft to buy Yahoo!’s search business (or Yahoo! itself). Such a merger could produce a significantly stronger challenger to Google in the search market. With this possibility in mind, the WSJ just ran a fascinating history of the “paid search” 
business—the placement of “contextually targeted” ads next to search engine results based on the search terms that produced those results.
In a nutshell, Microsoft failed to see (back in 1998-2003) the enormous potential of paid search—just as small start-ups (such as Google) were starting to develop the technology and business model that today account for a $12+ billion/year industry, which is twice the size of the display ad market and which supports a great deal of the online content and services we have all come to take for granted online. Microsoft first put its toe in the water of paid search with a small-scale partnership with Goto.com in 1999-2000. But this partnership failed because of internal resistance from the managers of Microsoft’s display-ad program. In 2000, Google launched Adwords and thus began its transformation from start-up into economic colossus. By 2002, Microsoft realized that it needed to catchup fast, and approached Goto.com (by then renamed Overture) about a takeover. But Microsoft ultimately chose in 2003 not to buy the startup because Bill Gates and Steve Ballmer “balked at Overture’s valuation of $1 billion to $2 billion, arguing that Microsoft could create the same service for less.”
Microsoft, meanwhile, spent the next 18 months deploying hundreds of programmers to build a search engine and a search-ad service, which it code-named Moonshot. The company launched its search engine in late 2004 and its search-ad system in May 2006.
But Microsoft’s ad system came too late:
Advertisers applauded Moonshot for its technical innovation. But Microsoft had trouble coaxing people to migrate to its search engine from Google; advertisers were unwilling to spend large sums on MSN’s search ads. By building a new system instead of buying Overture, Mr. Mehdi says, “we really delayed our time to market.”
What’s most fascinating about the piece is that it seems to suggest that Microsoft missed its opportunities to get into paid search not because it was “dumb,” “uninnovative” or a “bad” company, but for the same sorts of reasons that big, highly successful and even particularly innovative companies fail. The reasons companies generally succeed in mastering “adaptive” innovation of the technologies behind their established business models are the very reasons why such great companies struggle to encourage or channel the “disruptive” innovation that renders their core technologies and business models obsolete. Continue reading →
See my comparison of the state of technology in 2008 versus 1992, during the last Democratic presidential transition.
In mid-2008, the four-gigabyte (or 4,096 megabytes) flash memory chip in an iPod Nano cost $25. Late in 2008, four-gigabyte flash cards and USB drives are selling for $14.99. But back in 1992, four gigabytes of flash memory would have cost $500,000. This means a hypothetical iPod Nano circa 1992 would have set back the teenage Nirvana or Boyz II Men fan around $3 million.
Apart from research scientists and a few early adopters of Compuserve and AOL, the Internet essentially didn’t exist in 1992. Monthly Internet traffic was four terabytes. All the data traversing the global net in 1992 totaled 48 terabytes. Today, YouTube alone streams 48 terabytes of data every 21 seconds. . . .
The dramatic centralization of money, power, information and influence now under way seriously threatens the entrepreneurial revelations and technological revolutions that drive long-term growth. If we quasi-nationalize the energy, finance, auto and health care markets, and possibly bar dynamic new business models on the Internet, as with possible network neutrality regulation, we will close off many of the most promising paths to needed efficiencies and, more important, new wealth.
See the whole article at Forbes.com: “How Techno-Creativity Will Save Us.”
About 10 days ago I gave a presentation to a D.C. business group on “Innovation: The End? Or a New Beginning?” We got into a discussion of high-end immigration and were in general agreement that we should grant easy green cards to all STEM PhDs educated in the U.S., among other enticements to smart immigrants. One commenter then suggested this was a kind of a zero-sum race between the U.S., China, and India for the world’s human capital.
I replied, however, that the technological, economic, and political advance of China and India is a good thing. Innovation anywhere in the world benefits us, too, if we are open to the global economy. For hundreds of years, North America attracted much or most of the world’s financial and human capital because (1) though imperfect, we were an attractive realm of freedom and (2) much of the rest of the world was so inhospitable to innovation, entrepreneurship, education, and was generally politically intolerant. This massive tilt in our direction is now over. Other parts of the world present more opportunities for entrepreneurship and education, and we’re not going to get all the smart people, no matter how open our immigration laws. Doesn’t mean we shouldn’t try to get the smartest people. Just that there’s going to be lots of innovation and new enterprise in new non-U.S. places, and that overall that’s a good thing.
So I was intrigued when an Economist article on this very topic hit my radar yesterday. Turns out Amar Bhidé of Columbia Business School has written a whole book on the subject: The Venturesome Economy. Continue reading →
A fantastic post from Matt Yglesias:
The basic business outlook is very focused on the key role of the executive. Good, profitable, growing firms are run by brilliant executives. And the ability of the firm to grow and be profitable is evidence of its executives’ brilliance. And profit ultimately stems from executive brilliance. This is part of the reason that CEO salaries need to keep escalating — recruiting the best is integral to success. The leaders of large firms become revered figures. Not only important because, in practice their decisions are significant. But they become celebrities and dispensers of advice and wisdom. Their success stems from overall brilliance, and thus they must have enlightening things to say on a variety of subjects.
The thing about this is that if this were generally true — if the CEOs of the Fortune 500 were brilliant economic seers — then it would really make a lot of sense to implement socialism. Real socialism. Not progressive taxation to finance a mildly redistributive welfare state. But “let’s let Vikram Pandit and Jeff Immelt centrally plan the economy — after all, they’re really brilliant!”
But in the real world, the point of markets isn’t that executives are clever and bureaucrats are dimwitted. The point is that nobody is all that brilliant. Nobody really has a reliable method of surveying the scene and accurately gauging What Is To Be Done. But in a market economy, we don’t need anyone to have such a method. Instead, a bunch of people get to do some inquiries into the issue and then give it their best shot. And the ones who are wrong will fail. And the ones who are right will succeed.
This is spot-on, and it’s a theme that I’ve blogged about in the past. One of the reasons I think that Matt’s point isn’t more obvious is that most industries are relatively homogenous, and so it’s hard to make an apples-to-apples comparison of different forms of industrial organization.
One of the things that makes the software industry industry interesting is that you have genuine institutional experimentation. You have 2-person startups toppling multi-billion-dollar firms. You have free software projects embarrassing proprietary software companies with budgets three orders of magnitude larger. You have venture capital firms investing tens of millions of dollars and angel investors investing tens of thousands. And so we get some real data on how efficient different forms of economic organization are. And it turns out that the centralized, bureacratics ones tend to be massively wasteful, relative to other ways of organizing software development.
Of course, software is special in part because their primary output is made of infinitely reproducible bits. You need a certain minimum of capital to start a car company or a bank. But still, it’s worth keeping in mind that the inefficiency of central planning isn’t limited to the government—the government just happens to be the largest bureaucracy with the least competition. But other organizations exhibit the same problems in proportion to their size and lack of competition. The larger an organization is, the more dysfunctional it’s likely to be and the harder it will be to reform. Which is one of the many reasons I hope Congress let’s GM collapse under its own weight.
As TLF readers may know, I took over in July as Chairman of the Board of the Space Frontier Foundation. As I explained in my recent interview on The Space Show, SFF has been the leading citizens’ advocacy group for space commercialization since 1988. Dedicated to promoting Princeton physicist Gerard O’Neill‘s vision of space settlement, as described in his 1976 masterpiece The High Frontier, the Foundation has always argued that “space is a place, not a program.”
We sent out the following press release on October 28, calling for a major transformation of the U.S. government’s space program by which the U.S. government would buy commercial transportation to the International Space Station. We’ll have more to say about this in the coming weeks.
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Space Frontier Foundation Finds Funding Source for COTS-D
The Space Frontier Foundation today called upon Presidential candidates Barack Obama and John McCain to invest the $2 billion in new funds they have promised to NASA for reducing the “Gap” in U.S. human spaceflight (after the Space Shuttle is retired in 2010) to spur innovation and competition in America.
Foundation Chairman Berin Szoka said “It’s time that our national leaders give American entrepreneurs a shot at closing this gap. Let’s take the two billion dollars in the candidates’ plans and fund up to five winners of COTS-D.”
The NASA Authorization Act of 2008, recently signed into law by the President, directs NASA to “issue a notice of intent [by mid-April 2009] … to enter into a funded, competitively awarded Space Act Agreement with two or more commercial entities’ for transporting humans to the ISS”-the “Capability D” of NASA’s Commercial Orbital Transportation Services program (or COTS-D for short). But that directive is not yet funded.
Szoka continued, “Let’s have an American competition in space – to create good jobs, fuel innovation, and close the gap more quickly. With private funds matching government’s investment, we can dramatically leverage the $2 billion to produce breakthroughs in a new American industry – commercial orbital human spaceflight.” Continue reading →
The Federal Circuit significantly limited the patentability of software and business methods today. Mike Masnick at TechDirt summarizes the holding of the case as follows:
the court has said that there’s a two-pronged test to determine whether a software of business method process patent is valid: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing. In other words, pure software or business method patents that are neither tied to a specific machine nor change something into a different state are not patentable.
I’m sure several of my TLF colleagues will have a great deal to say about this. Tim Lee has already written about this on Ars Technica:
The Bilski decision, then, is a clear signal that the pendulum has begun to swing back toward tighter limits on software and business patents. However, it remains to be seen how far the court will go in this direction. Bilski was a relatively easy case. The applicant made little effort to hide the fact that he was seeking to patent a mental process, something the Supreme Court has clearly said is not allowed. Therefore, the Federal Circuit’s rejection of this patent doesn’t tell us how it will rule when confronted with software or business method patents that are tied more directly to a physical machine or a transformation of matter. And indeed, the Federal Circuit reiterated that some software and business method patents are valid, so we are unlikely to return to the near-prohibition on such patents that prevailed until the early 1980s.
Thoughts?
Debates about online privacy often seem to assume relatively homogeneous privacy preferences among Internet users. But the reality is that users vary widely, with many people demonstrating that they just don’t care who sees what they do, post or say online. Attitudes vary from application to application, of course, but that’s precisely the point: While many reflexively talk about the “importance of privacy” as if a monolith of users held a single opinion, no clear consensus exists for all users, all applications and all situations.
If a picture is worth a thousand words, this picture makes the point brilliantly—showing:
locations where [Flickr] users are more likely to post their photos as “public,” which is the default setting, in green. Places where Flickr users are more likely to put privacy controls on their photos show up in red.
Of course, geography is just one dimension across which users may vary in their attitudes about privacy, but the map makes the basic point about variation very well. Seeing what users actually do in real life says a lot more about their preferences than merely polling them about what they think they care about in the abstract—as my colleagues Solveig Singleton and Jim Harper argued brilliantly in their 2001 paper With A Grain of Salt: What Consumer Privacy Surveys Don’t Tell Us (SSRN).
http://penny-arcade.com/comic/2008/9/26/
Speaking of snakes, I am just returned from a camping trip along the Appalachian trail in the Michaux Forest, quite out of wireless reception range. Several days’ heavy rain had washed the forest clean, left the moss glowing green and the mushrooms, salamanders, crayfish, and frogs quite content. There one combats the same problems confronted by earlier settlers–mice (and the snakes they attract), staying dry and tolerably warm, the production of decent meals, and keeping small children from wandering off into the woods. Why do some people enjoy briefly returning to this world? Despite being one of those people, I can’t say. Now I am back and my day is easy and comfortable (comparatively), with time to spare contemplating the meta-structures of finance, property, and capital. Let’s all hope these structures are not nearly as fragile as our confidence in them, which, judging from the tone of remarks at last week’s ITIF conference on innovation, has fallen quite low. Continue reading →
MIT’s Technology Review has a great review of a new biography of Georges Doriot (Wikipedia) by Businessweek Editor Spencer E. Ante entitled, Creative Capital: Georges Doriot and the Birth of Venture Capital. Born in France, Doriot fought in World War I, then studied at Harvard Business School, served as director of the U.S. military’s Military Planning Division during World War II as a brigadier general, and in 1946 launched American Research and Development Corporation (ARD) as the first publicly owned venture capital firm.
Doriot’s legacy looms large today, even if his name is new to most:
Contemporaneously with ARD’s watershed investment in [Digital Equipment Corporation], others began walking the trails Doriot had blazed: Arthur Rock (a student of Doriot’s in the Harvard class of 1951) backed the departure of the “Traitorous Eight” from Shockley Semiconductor to form Fairchild Semiconductor in 1957, then funded Robert Noyce and Gordon Moore when they left Fairchild to found Intel; Laurance Rockefeller formed Venrock, which has since backed more than 400 companies, including Intel and Apple; Don Valentine formed Sequoia Capital, which would invest in Atari, Apple, Oracle, Cisco, Google, and YouTube.
Doriot himself would likely have felt at home among today’s embattled and outnumbered regulation-skeptics in the technology policy community:
he opposed both the dirigiste political economy of his native France and the tax hikes and anticompetitive laws enacted in the United States under the New Deal. Such regulations, he maintained, arrogated to bureaucrats the function of the markets; their worst feature was that they let government lend money to failing businesses. Ante notes that a former colleague of Doriot’s, James F. Morgan, recalled him as “the most schizophrenic Frenchman I’ve ever met”–devoted to his original land’s wine, cuisine, and language even as “the French capacity to make very simple things complicated drove him nuts.”
Continue reading →
TheFunded.com is an interesting site where people who have pitched VCs get to report on their experience. There was a big story on it in Wired this month.
Interested as I am in the entrepreneurship that is was is the Internet, I’ve been looking over the posts and came across an interesting one, about Accel Partners:
We pitched Kevin Efrusy on taking a round and he provided excellent advice …
He liked what we were doing but suggested to NOT take funding since we were profitable.
He was concerned that our exit wouldn’t be high enough to justify their investment but thinks that we’d probably get acquired in the next year.
Being a serial entrepreneur I’ll certainly pitch Accel again and recommend them to others.
Spot the albatross? I’ll point it out after the break.
Continue reading →
The Technology Liberation Front is the tech policy blog dedicated to keeping politicians' hands off the 'net and everything else related to technology.