All right, where is the REAL Chris Anderson? What did you do to him?

I have to confess that I didn’t understand Chris Anderson’s perspective then and I still don’t understand it now, so part of me still feels that he’s the same person.

Anderson talks about web businesses’ “business models” and how the Free model that was working before is not well adapted to survive in the current hostile economic environment as they can’t rely on advertising revenue anymore. Thus the need to earn money through other means, namely subscriptions.

I actually think that a tough economic context is a great test for the robustness of a company’ business model. “Free” is not a business model, it’s a sales strategy - Chris Anderson rightly uses examples world with free product samples or free (discounted) razors offered Gillette. Free products or services on the web are no different and ought to be part of a broader strategy to earn money (whether through advertising or other means).

My main issue with Anderson’s views (from yesterday or from a few months ago) is that they put the emphasis on the wrong aspect of a business model for web entrepreneurs. The real question in my mind, and the real test for web businesses, is whether or not their business is creating substantial value. This ought to be the primary focus of anyone working on a new business venture: can I demonstrate that my business is creating substantial value to the community at large or a specific segment of it. The clearer the answer, the more straight forward the revenue strategy.

I don’t mean to discard the importance of figuring out a revenue strategy but it won’t succeed unless the people you’re asking to pay for your product or service (advertisers, users, or else) or to buy your company perceive the value of what you’re providing.

This is the reason why I bet all my chips on Twitter: the value proposition is so clear and strong that they will figure out a way to turn the corner.

“Don’t listen to anybody. Nobody knows what’s going to happen next … Better to be contrarian in times like these than not.”

Up until today, Ignesis had stayed away from commenting on the financial crisis because analyzing how we got there is largely irrelevant to how to get out of the current crisis. Of course, this analysis is still critical to building safeguards against a similar crisis occurring in the future, but really when you find yourself in a hole, digging yourself out is really all that matter right then.

I’d find amusing the prospective analysis by so many, casting definite judgments on what to do next, if it didn’t have such tragic and real impact on people’s life and the economy: freeze spendings, save the banks, layoff people, spend $700B of public money, etc.

The reality is that Max Levchin has it right: noone knows what ought to be done, so why pretend?

Actually the answer to why is quite straight forward: this is how we’re wired. The human brain is wired in such a way that strive to predict the future based on the generalization of past experience. In most situations in life, projecting ourselves in such a way is a wonderful way to anticipate situations. It is also a way for pundits and corporate leaders to emerge by displaying greater insights (as a side note, an interesting piece of research came out recently on this).

The glitch is that in a very limited set of situations, in which the framework for applying this reasoning is being challenged, such insights are not just off the mark but they are dangerous because they fail to recognize our incapacity to predict. We have undoubtedly entered such a period of uncertainty and acknowledging it is the first step to finding remedies.

But how? If we can’t foresee what’s next, what can we do to move in the right direction? Thankfully, humans’ ability to anticipate the future, rendered useless here, is not our only skill. We also have an amazing faculty to learn and adapt, and this is what will get us out of this. What this means is that we need, at all levels (as individuals, small startups, large corp, government) to function on shorter, more responsive cycles in order to try and fail faster and cheaper than we normally would in a more predictable environment.

Interestingly, there is a group of people out there who excel in this context, ironically, the same group that Venture Capitalists and pundits alike have been lecturing since the start of the financial crisis to tell them what they should do: early stage entrepreneurs.

So kudos to Max Levchin on setting things straight.

Aside from an unfortunate choice of words and from violating the 11th Commandment (”Thou shall not call journalists stupid”), Fred is actually quite right: asking about Twitter’s revenue model is no different from asking a biotech startup about their sales strategy while they are in the midst of developing their new drug.

The reason why it sounds absurd in the case of biotech but not necessarily for Twitter is that there is a very clear line being drawn when a new drug is developed, tested, FDA approved and finally released. Because the development of Twitter’s social experiment is happening on the public place with everyone’s participation, the line between development, testing (which is where I believe we are when it comes to Twitter), and ready for prime time (revenue model figured out) gets blurred.

For any startup, whether in biotech or social media, there are 2 fundamental questions that entrepeneurs need to ponder from the very beginning of their venture:

1- What is the value that my venture is creating?

2- How will I be able to extract a fraction of this value?

In my view it is critical for entrepreneurs to pose these 2 questions very early on and revisit them frequently, even if there is no obvious answer in the early days.

In many respects, the question of the value creation is the more critical, otherwise, what is there to extract?

This week’s Advertising Age, ironically ran 2 articles across from each other - the first one titled Twitter, R.I.P.? Or Is There Gold Buried in Them Thar Tweets? and the second LinkedIn’s Promising New Revenue Model: Sending You Surveys. According to Ad Age (ok, not exactly a thought leader in new media) Linked In has it all figured out while Twitter is digging its own grave.

I would actually contend that Twitter is much closer to success than Linked In. The reason is that while Twitter has shown an amazing ability to demonstrate the value (to users and businesses alike) of micro blogging, Linked In has brushed off the question of value creation and gone for the easy dollars. I blogged about this a few months ago: Linked In is an API away from getting its whole business taken away because they haven’t proven the value of the platform itself, only the data it holds. No wonder their API has been in private Beta for over a year now…

Now, I don’t think that the future is necessarily all that bright for Twitter, not because they “don’t have a business model”, but rather because they have shown an unusual inability to execute. In today’s dire financial context, this could prove to be a fatal weakness. Let’s remember that the first reason for small businesses to fail is cashflow management (or lack thereof). So for a company with no revenue, it is indispensible to be extremely efficient in its resources in order to spend money wisely. With its continuous technical issues (service going down, functionality disabled, unreliable API), that even Michael Arrington has grown tired to joke about, Twitter is indeed putting itself at great risk.

But let’s get this straight: if Twitter doesn’t survive, it will not be because of a flawed business model but rather because they will have failed to execute. No doubt that another microblog will then take over proving that there was indeed value being created.

Note to Linked In: I hope you received the postcard you asked us to send to your corporate office to get access to your private beta API. I’m guessing that our key is on its way back to us on horse’s back. Quite a ride from Mountain View to Boston…

Bloomberg announced over the weekend that Google signed a $500k contract with the City of Washington D.C. to replace Microsoft Office on all city computers.

I know it sounds pretty lame on the face of it: $500k is very small money for Google or for D.C. for that matter, so why do I consider this big news?

For a few years now, Microsoft has been rightly scared of the chess game opposing them and this piece of news is one of the first indicators of what could be an crutial inflexion point in the technology industry, leading among other things to the end of the Microsofy empire as we know it.

Microsoft’s revenue model is heavily relying on its partnerships with large organizations and with OEMs to license MS software (whether Office, Windows or else) and Google has been working very hard to bring the pieces together making this model obsolete. How? By offering software as a service with the applications and the data accessed and stored remotely “in the cloud”.

Microsoft is not challenging Google’s vision, quite the opposite, they have been playing catch up for some time to build their capability in services - not an easy thing to do when most of your revenue comes from licensing software.

The impact of this new model is much greater than the demise of Microsoft as a business, it marks the end of the Microsoft era, meaning of the PC as we know it: if most of your work is accessible and stored remotely, all you need is a window of access into the cloud. This really leads us to rethink the usefulness of the PC and what other forms could these windows take.

I won’t ramble too much on this because I’m really not saying anything very new here and many people have already said it better than I could. So I’ll go back to my original point: why is this Bloomberg announcement big news? It’s a sign that this futuristic picture that I and many others have depicted is not SciFi. It’s happening here and now.

In disruptive innovations, we always look for signs of a major event that could mark an inflexion point, leading to accelerated change. My view is that this weekend’s news could be this sign: the first domino has fallen.

When I say that there is something magic about Twitter, I really mean something I don’t get that makes the harshest critics and loudest voices show leniency and forgiveness.

I had forgotten about Twitter’s demise from a few months ago up until today when I got this when I tried to access the site:

I found it incredible that Twitter survived months of flacky service at a time when users tend to have very low attention span and media critics are unforgiving. Instead of moving on and away, users started getting organized to try to help Twitter fix its problems, while investors completed a second round of investment for the start-up.

Now, a few months later, Twitter doesn’t seem to have worked out the simple workflow and procedure to follow when the site is down. This would be acceptable if the site were in Private Beta but not so much when it has a couple of millions of regular users. It also shows quite a bit of cockiness on the part of the Twitter team to disregard such basic user expectations and industry standards.

This is where I find Twitter to be magic, the same way I find card tricks I don’t understand to be magic: I have to assume that the disregard that Twitter has for some basic business rules, that most have already figured out, is probably the magic ingredient in their recipe. I don’t mean to say “do everything wrong and you’ll succeed” or that these very business rules don’t apply to them, but rather that it is by abstracting itself from business-as-usual patterns, Twitter managed to stumble on something new and interesting, so interesting that it prompts a very different reaction from people than one would expect.

So kudos to Twitter and the Twitter team for not going by the book.

As I finish writing this post, Twitter is back on. Gotta go see what I missed…

There is a story I do want to tell in there though, and it has to do with HP updating the TouchSmart PC. The update echoes Bill Gates’ psychic pronouncement that the future will belong to touch interfaces - which I think someone at Apple said 15 years ago and went on to spec out the Touchpad.

HP’s TouchSmart, is, well, a very large Iphone that’s not as fun as an Iphone. (Yes, here I go again with the Iphone). What’s interesting here is not so much how well the TouchSmart stacks up among the successful touch interfaces available today; but HP’s continual efforts over the years to put a wrapper around Windows. The implication being: Windows sucks on its own, and we’d rather spend a bunch of money making more intuitive interfaces that remedy Windows failures so our customers can use our PCs more intuitively - and also for us to control what they do and what add-ons they buy.

I disagree with the opinion that Microsoft never innovates. MS realized a few years ago that it wouldn’t be able to play the NetScape gambit again. It hasn’t worked with Yahoo, Google, or even Firefox at this point. MS has been forced to innovate, and in fact, there are some wild projects underway at their Seattle campus. One of them being the amazing SeaDragon software - admittedly an outside project that was brought in. The real issue being whether these projects will make it quickly into mainstream products.

I’ve been using Office 2007 and Vista for a while. I’m unhappy with both: they’re over-engineered, porky pieces of bloat that perform sluggishly at best and confuse the user more often than not. What sense does this make? Are we going to need petaflop chips, a gazillion gigs of RAM, and a half-hour each morning just to start a word processor?

That’s the real story, and I don’t believe it’s Microsoft’s alone. It seems to me most large software companies end up painting themselves into a corner, driven by their internal logic. It’s a bit like inbreeding, and long-term it may very well fail. Look at the Bourbon dynasty. Perhaps a solution to this innovation problem lies in opening the works up to outsiders: congregating around standards, seeking interoperability, and brainstorming about new ways to do things better and faster.
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First, Overlay TV’s CEO, Rob Lane, presented his business. There are so many social media projects out there, especially video projects, that it is hard to make an impression on me, but Overlay TV has. Embedded overlaid links in videos enable viewers to not be passive anymore but start interacting and enriching the content.

Some of these links are tied to an affiliate program and that’s how Overlay TV makes some money. I think this business has a very bright future as marketing budgets are already shifting from advertising to product placement. This is very much a natural extension of this high margin high volume business.

The actual implementation of Overlay TV still has a lot to desire, especially the interaction design that can be quite invasive at times and remind me of popup ads. But this is a problem with a simple solution and the most important aspect is that they seem to be getting the business right.

The second presentation was from Emerson’s students. They shared a project they did with AOL to create a social campaign to revitalize their brand (good luck with that!). The approach is actually quite witty: they put up a site for people to share videos interacting with the AOL running man, where the running man acts as the AOL shrink. Some funny content out there (love the secret hand shake).

Two concerns with this though: 1- The content focuses on good ol’ memories people have with AOL and act as if they were talking about a dead person, how is that revitalizing the brand? (Mind you, I think it’s a close to impossible project) 2- The content is posted on its own proprietary website instead of leveraging existing platforms out there… Reminds you of something? Hmm? Yeah, I guess that would be the very reason why AOL went out of fashion…

With that said, and not withstanding the use by the 2 students of the terms “viral” and “user generated content” way too many times, it remains a very interesting project by promising marketing students.

Under the Radar is the American Idol of early startups looking for seed or round A funding: the fat lady has 6 minutes to sing, but then it ain’t over, judges and audience grill you till you look like a 4th of July hot dog. Finally, everyone texts their vote to a set address.

I want to say that Dealmaker is a great model for disruptive innovation: great VCs, interesting companies, cool-looking media types pecking away on their keyboards (actually, everyone is doing that, and it’s an annoying habit: why go to a conference if you’re going to spend your time on email? Although to be fair, many people are checking out the presenting companies online as the pitch is being delivered). Also, Dealmaker helps, for a fee, the start-up CEOs make the best pitch possible, so all in all this is the apex of venture capitalism, right?

Well, not so sure. Look at the list of this year’s winners:
http://www.undertheradarblog.com/wp_blog.html?fb_2042860_anch=4171647
All of these are interesting concepts. None of them rocked my world. My neighbor, Prafull Nayak of Webex, resonated. “I find the companies to be pretty soft this year” was how he summarized it before leaving early. This doesn’t invalidate Dealmaker in any way, but it does bring to mind  two things:
- There is a start-up flocking behavior: projects are congregating in the social media space at a dizzying rate, but the technology and revenue models are sounding more and more tired; which tells me that we are at the top of the logistics curve and returns will be diminishing
- Innovation happens elsewhere to borrow from Goldman and Gabriel.

This second point relates to the first.
From my standpoint, innovation happens at Ted, the “ideas worth spreading” show. I’m not important enough to be an attendee, but like the rest of us, I watch the videos.
That’s where I found out about Jeff Han’s touch screens, which I’m sure inspired the Iphone; and definitely reminded me of the very cool interface in Minority Report. I also found out about Blaise Aguera’s amazing Seadragon photo-linking program; and Theo Jansen’s spookily beautiful “new life-forms”, which I think should invite the robotics crowd to reconsider their designs.

At Ted, you won’t see bumbling CEOs subjecting you to inane slides or crumpling under a barrage of equally inane objections from dyspeptic judges: you will be awed, inspired, and quite moved. Moved by human creativity before it is reforged in the crucible of business.
That’s the stage, I believe, when a project is worth looking into. Not the Dealmaker stage.

Hoooga aims at getting people to rethink travel and lodging by making it easier to access your friends’ home to stay while you travel, and getting you more comfortable leaving your house in the hands of a trusted guest.

If it sounds interesting and you’d want to take part in our private beta (to be released in a couple of months), email contact@ignesis.com with a request.

“The salacious and the stupid have been traditionally the avant garde and the advance guard of the more high-minded and definitely more profitable fare. The Internet will be no different.”

I understand the urge for Mr. Eisner to make such a statement, speaking on Microsoft’s turf (not exactly an early adopter of the internet new market dynamics), while trying to convey the idea that there is still room for innovation for video startups such as his, Vuguru studio, coming to market at the eleven’s hour.

I take issue though with the fact that the voluntary inflammatory, controversial, and, yes, moronic framing of the issue he raises undermines a very reasonable point.

Let me try to interpret (freely) what I understand to be the idea here. Eisner is telling us that there is still a room for business model innovations on the internet in general, and for online videos in particular.

I don’t think that presented this way any of us would object to this statement, especially coming from Michael Eisner as he belongs in the category of highly talented evolutionary innovators who make things better; leaders who grow businesses instead of starting them, refine concepts rather than invent them. Without such talent, most ideas would never go mainstream.

I believe that Mr. Eisner has something to contribute to the future of entertainment, just like he did during his days at Disney. But why undermine the very people who started it all? Inventors and “enhancers” can’t do without each other, so let’s celebrate this indispensable partnership. Doesn’t he remember that the man who made his career possible was among “the salacious and the stupid”, crazy genius in his own right, a certain Walt Disney?