November 9, 2010

The Illusion of Social Progress

In the last 20 years, smoking has been transformed from something that seemed totally normal into a rather seedy habit: from something movie stars did in publicity shots to something small huddles of addicts do outside the doors of office buildings. A lot of the change was due to legislation, of course, but the legislation couldn’t have happened if customs hadn’t already changed.

—Paul Graham, The Acceleration of Addiction

“Whig History” is history rewritten to support a narrative of constant progress. The single best example I’ve found comes from David Brin’s essay on Lord of the Rings: JRR Tolkein — Enemy of Progress:

It’s only been 200 years or so — an eye blink — that “scientific enlightenment” began waging its rebellion against the nearly universal pattern called feudalism, a hierarchic system that ruled our ancestors in every culture that developed both metallurgy and agriculture. Wherever human beings acquired both plows and swords, gangs of large men picked up the latter and took other men’s women and wheat. (Sexist language is meaningfully accurate here; those cultures had no word for “sexism,” it was simply assumed.)

They then proceeded to announce rules and “traditions” ensuring that their sons would inherit everything.

Putting aside cultural superficialities, on every continent society quickly shaped itself into a pyramid with a few well-armed bullies at the top — accompanied by some fast-talking guys with painted faces or spangled cloaks, who curried favor by weaving stories to explain why the bullies should remain on top.

Only something exceptional started happening…

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November 8, 2010

The Iron Law of Online Marketing: Why Your Ads (Almost Always) Can’t Be Your Competitive Advantage

There is only one interesting way to make money, in any field: develop and exploit a durable competitive advantage.1 Berkshire Hathaway wins because they are the buyer of first resort for good businesses that want to sell, and they can get cheap capital through superior underwriting; Facebook wins because to achieve parity with them, you have to recreate a 500 million-node social graph; the corner bodega turns a profit because that particular corner has a bodega and a half’s worth of foot traffic. In every one of these cases, it’s theoretically possible to compete with the incumbent, but there’s a better ROI in just letting them dominate the industry.

One thing these companies have in common is that their competitive advantage applies to the product or the process—either they can make the same thing for less money, or they can make something nobody else can make. What they don’t rely on is superior advertising. With good reason:

In the long term, the best advertising—the best creative, the best placement—will be sold to the high bidder. And the high bidder is whoever’s competitive advantage lets them earn more from a given customer. Read the rest of this entry »

September 7, 2010

A Challenge for Net Neutrality Supporters

The great thing about most critiques of Laissez-Faire economics is that they make great business plans. If “the market” can’t provide something, but that something is in demand, it’s a great opportunity!

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August 12, 2010

Demand Media’s IPO: Everything You Need to Know

Demand Media is the biggest pure-play SEO company in existence. And SEO is one of the fastest-growing marketing channels. So if you want to know what the marketing industry as a whole will look like, the best way to do it would be to take a look at Demand Media’s financial data. That information was available to investors and executives at the firm, but not to everyone else—until now.

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August 5, 2010

The Talent Acquisition “Put” Will Create More Startups and Better Startups

From the outside, a talent acquisition looks a little bit like a failure: a founding team got together, launched a product—and couldn’t get traction. The company was liquidated, and its most valuable asset turned out to be the founders’ resumes.

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August 4, 2010

How Platforms and APIs Debugged the Technology Labor Market

Every career has an “efficient frontier” of compensation. On one end, there’s a job that pays you what you’re worth; on the other end, there’s a job that you know will pay for next month’s rent. In some sectors, you can switch from one to the other at the same company (being a full-commission salesperson instead of a salaried “account manager”). In the technology industry, there’s not a strong tradition of pure incentive-based compensation; I don’t know any designers who will get 10% of the extra revenue from a successful A/B test.

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August 2, 2010

Higher Education: The Next Big, Bad Bubble

“Good afternoon, sir. I’m a broker with Churnham & Burnham, and I’d like a few moments of your time to discuss an extraordinary investment opportunity. It’s an asset that everyone is buying—your friends, your neighbors, teachers, firemen, doctors, lawyers, and even your humble broker.

“Not only that, but it’s an exceptionally long-lived asset. Once you own it, you’ll be getting dividends for your entire working life.

“While it’s not as cheap as it used to be—in fact, it’s going up in price at about twice the rate of inflation—it’s never been easier to get government-subsidized loans to purchase it. In fact, third parties may pay for some or all of it for you!

“The asset is, of course, a college education. Now, wouldn’t you like to review the prospectus?”

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July 28, 2010

The Phony Scalability of “Local,” and “Long-Tail.”

VCs throw money at startups because they’re scalable. With the right model, the thinking goes, you can double your revenue while your expenses rise 10%. Then, you can do it again.

This works pretty well for some companies. Facebook, for example, hit 100 million users in mid 2008, with “more than 600″ employees. Now they have 500 million users, and 1400+ employees. 400% growth in users; 130% growth in employees. That’s exactly the kind of math VCs like to see, and it’s why they were willing to fund Facebook generously in the early stages. Facebook will run into scalability barriers after a while. At some point, the limiting factor is not engineers (a scalable resource) but customer service reps and servers.

For many of the current crop of hot companies, the end of scalability is coming much faster.

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July 26, 2010

DuckDuckGo and Quora: Two Companies That Could Wreck Google Search

Online businesses compete by being the default. You want to connect with friends, so you default to Facebook; you want to waste five minutes, you default to Zynga; you want to talk about stocks, you default to Stocktwits.

Google is the Big Default. If you want to find something, but you’re not precisely sure what, Google is where you start. For about eight years, that’s where I’ve started, too. But recently, two sites have started to replace Google. And what’s especially dangerous about them is that they’re both encroaching on Google, starting at opposite ends of the spectrum of services that Google Search provides.

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June 9, 2010

Guest Post: Metrics That Matter For Social Gaming Investors

I have a guest post about social media gaming metrics on Secondshares, the blog about private company stocks.

Take a look!