From Istanbul To Sand Hill Road

The iPhone App Store

Apple continued to amaze the world as they took one more chunk out of the carriers' business.

The App Store takes 30% revenue cut from app developers and controls all apps that run on an iPhone.

Does this not surprise all of you? 

This is one big move to capture ALL the revenue wireless carriers used to be able to capture for either putting your app on their deck, or collecting from you through premium sms.  This was supposed to be their growth in the future.

First they Apple took a cut of carrier data revenues, now they are taking ALL application revenues.  I don't know how many times I wrote about the carriers taking their pound of flesh from poor app developers, now Apple is doing the same.

I find it amazing that they have the cojones to pull something off this material.

What Apple is doing is simply telling wireless carriers that the Apple design and brand is far far more important than the carriers wireless network.  And they are soo right.

Microsoft didn't have it this good.  Did Microsoft ever charge all software vendors 30% revenue cut for the honor of running on windows?  Well, Apple is doing just that.

Got to love Apple's strategy.  Some companies become a monopoly and charge more.  Apple charges more and then tries to become a monopoly.  They succeeded in the iPod, now the iPhone is coming and who knows maybe the Macintosh is on its way to become the dominant personal computer.  Maybe the whole Windows thing was a temporary anomaly that lasted 20 years and is now fading away.

My hat's off to Steve Jobs, again and again and again.

The Facebook Platform and Its Impact

Without a doubt, the facebook platform is the most impactful event that happened in the internet in 2007.  A lot has been written about it, from Marc Andreessen's great post on how it works, to Dave McClure's colorful and passionate (the blogosphere needs more of both) descriptions of how to make it work, to a plethora of articles on why it won't work.  But what is the big picture?  What does this move mean to VCs investing in social networks and entrepreneurs running them?

To start let's define two things that make a social network; the app and the underlying social graph.  On a site like dogster, the application is "dogs" and the social graphs are the groups, the messages, the profiles, friends and comments.  Features are added to the app by the company, and users add to the social graph.  "Dog of the week", "dog blogs", "dog videos", "local dogs" are all features of the app, and how the users interact with each other what friends they make are the social graph.  Sometimes the apps grow a lot bigger than the social graph, sometimes the social graph grows a lot bigger than the app.  In the case of myspace the application started as voyeurism and music, but the social graph grew so big and spawned many other applications.  In the case of youtube, the application of sharing videos got so big that the comments and profiles, the social graph got dwarfed even though those features were there.

What's important is that regardless of the outcome, a lot of companies got funded as "social networking for X" where X could be fantasy sports, trendspotting, dogs, cats, vampires etc.  The formula that got VC funding was, "take an application that people know, and build a social graph around it."  The hard part wasn't building the application but getting the users.  It was all about getting users, building the social graph.

What facebook did was turn this upside down.  They said, "we have a social graph, why don't you build an app on it".  In their platform you start with the social graph and build the app on it.  Since the hardest part of building a social network is getting the social graph, facebook effectively gives this to an application.  This is what's so impactful about the platform.

It's because of this paradigm shift, there are apps with 9M users in under 2 months.  Facebook gives the app maker a social graph to work on the app maker grows fast, adds back to the social graph, grows it a little bigger, benefiting the next app and most importantly facebook that owns the social network.  They own the most important, hard to do, defensible, valuable piece of any social network, their users.

By owning the social graph they are controlling what makes the network work, they control the operating system.  As networking guys will realize instantly, facebook becomes the "IOS of social networking".  Hopefully, the application developer learns to monetize their apps (haven't seen a good example yet, doesn't mean I won't) and everybody wins.

Facebook took a good killer app, your desire to know what your friends are doing, aka, your social graph, and turned it into a platform.  The killer apps of today are the platforms of tomorrow.

So what does this mean for a social networking site?  The days of starting a site to build a user base on your own is over.  You will have to do it on facebook, otherwise your competition will and they will grow faster.  For those sites big enough to have a decent social graph, they still have to have a facebook presence, not to be left out, and will their current user base remain relevant if the facebook user base grows fast.  It's the old Microsoft adage "no need to build this, the operating system gives it free".  Over the years Microsoft took the top applications on windows and made it part of the OS.  This is the same story happening here and there is no stopping it.  Every independent social network has to keep a good eye for what's going on at facebook, and if I were them go straight there and stay there.  Yes, Microsoft got the lion's share of the market, but app developers on windows did well if they wrote the right apps.  But one thing is for sure, no app vendor made it big if they were not supporting windows.

Becoming the operating system of social networking is why the facebook platform is the most relevant thing that happened to the Internet this year.  They are on their way to become a Microsoft of sorts.

So what are they worth?  I don't think it's $1B, I don't think it's $2B, I don't think it's $3B.  I think it is more.  Who will buy them?  My bet is that it won't be any of Yahoo, Google, Microsoft.  They all have products that touch this, and they all have the capability to do this.  I think the buyer will be one that who is much less obvious, one for whom this move is way more disruptive and game changing. 

The next big question is, will they take a $10B offer?  I am not sure that they will. 

Fortune iMeme Conference & Richard Dawkins

I was fortunate enough to attend the 1st annual, Fortune iMeme conference.  Apart from hearing and talking to a who's who list of intellectuals and technology influencers, the audience also got to see products from promising startups like Spigit and Adaptive Blue.  I will write more about some of the specific, thought provoking panels shortly.

But for me, the most exciting thing about the conference was seeing one of my favorite authors, Richard Dawkins, in person. I saw him, and even had a good chat over lunch which was a lot of fun.  This brings me to the point of this post.  Richard Dawkins will be in Menlo Park tomorrow at the Kepler's Bookstore (can amazon.com do that, I ask you?) at 3:00pm.  More details for the event are here.  I highly recommend this event to my readers. They may find a surprise if they attend.

This is How You Market Your Company

Would you work at Google or at Meetup?

http://docs.google.com/View?docid=dg2z5whw_41cb322p

Fantastic.

Social Networking 3.0: From Self-expression to Group Action

My favorite social networking site is one that makes $10B of revenues/year, has no infrastructure costs, and has no salesforce, has no management team.  Can you guess which one it is?  I can't tell you.  It's invite only.  You'd know if you knew.  But it is a great site.  It's browser based, but technically not a site, since it's all peer to peer.  All the data, all the content, is scattered around the laptops of our 50M users all around the country. 

Our site is different than others, in that it's owned entirely by its users.  It's the open source equivalent of social networking.  Our members suggest features, and our members implement it.  It's a lot of fun when you interact with other cool people in a place that you've built yourself.  Being P2P, there are very little costs too, but they are far overcome by the revenues we generate, and that's in the billions.

That's right, this open source community makes nearly $10B in revenues per year, with room to grow to $50B.  No other social networking site makes this much money.  How do we do it?  We make this happen by being our own ad network.  Any advertiser who wishes to influence our decisions, can do so, but they now have to pay us to do it not some evil third party.  While other sites only allow you to monetize the content you create, we let our users monetize their most valuable assets; their decisions.   

Advertisers spend about $2000/person in advertising per year.  Our users spend 25% of their awake time on our sites.  That's $500/person and we have 20M members.  That's how we get $10B in revenues.

So how do we build our own ad network?  Well there are two things that must be done.  We have to find and sign up advertisers, and then get the right ads in front of the right member.

The first is easier.  Our users sign up businesses and products they like.  With 50M users, it doesn't take long to sign up a lot of advertisers.  They sign them up for free for the first three months, and our users do all the work of creating the ads and messaging until the advertiser can do it themselves.  The advertising world has embraced user-generated advertising, and they let us do all the creative work for them.  Each user who signs up an advertiser gets a piece of their ad spend on our network.  Since each user competes to create the best campaign for people like themselves, they create great ads, and our advertisers are hooked once they see how effective this all is.

How do we determine who sees what ad? Every one of our members, when logged in, shares their browsing history into the community.  So we know what our users do on their site and we generate a profile for them.  Then we experiment.  We put ads randomly at first, but quickly it becomes clear what kind of person reacts to what ad (we know all the way form clicking to buying, nobody else can do that), and we learn from the community what ads work for who.  It's not an algorithmic solution but a social one.

No data centers, no sales force, no infrastructure costs and $10B of revenues.

That's the beauty of my new social network.

What do we do with all the money?  Campaign contributions...we have a huge influence on our elected officials.  When and email goes out from us, it is as if it came from 50M people, ergo, whatever we want, gets done.  In the election year 2008, we are thinking of asking the new President to write us a weekly email on progress on our issues on his blog.  What do you think, can we pull it off?

Entrepreneur Shot During Beta Testing

It's true.  Look at the picture.

You know you are a true entreprenuer when you are willing to take a bullet for your product.  The man in the photo, a bullet proof vest maker, is.  This is a great photo.  If I had a higher quality copy, I'd give it to every entrepreneur I've worked with.

Bonus question:  Which silicon valley restaurant used to display this picture prominently?  For some reason they moved it a few years ago.  Luckily a friend had taken the photo for me. 

Thanks Linus, thanks Anna.

Update:  Click on the image for a larger view of the photo

An Anthropologist Explains Web 2.0

An anthropologist explains without talking, in this five minute video, how the web has evolved to be what is it today.  Very well done and worth the time to see.

How To Buy a New Playstation 3 for $350

I just saw this web site that helps you get brand name products cheap on Ebay.

It's called AuctionIntelligence, and it's a great idea.

You type in the keywords you are looking for, such as 'Playstation' and it searches Ebay on all the auctions with the misspelt versions of the keywords. If he keyword is wrong (i.e. palystation) then nobody can find the auction, ergo fewer bids and lower prices. I tried it, it works.

It's a very clever idea and a must for cheap bas..rds.

I wonder what other such ideas are there that test the limits of search technologies.

The Apple iPhone and the Power Of Design

Yesterday this time, I was sitting in the audience listening to Steve Jobs.  A day later, I've had some time to think about what I really liked about the Apple iPhone.  I think the best innovation, out of many great ones, is how they've solved the problem of web browsing on a handheld device.  What so many others have tried to solve with technology, they've solved with user interface design.  It's one of the finest uses of design as a serious competitive weapon.

The problem statement is as follows:  The web experience on handheld devices is awful.  It really is.  People are scared to surf the web on a handheld.

The causes of the problem are, in order of severity: 1) Small screen size 2) Lack of a powerful browser that can run common internet plugins such as Flash, ActiveX, toolbars etc. 3) Low bandwidth.

VC's have seen a plethora of attempts to solve this problem, most of which are technology solutions.  In the case of video, a number of companies are trying to transcode the content so that it can play on the dumbed down players on the handset.  In the case of text a number of companies are trying to take the web content, chop it into snippets and send them to the small screen.  Some are trying to glean the headlines and put them in text form so that they are viewable.  There is a whole ecosystem of companies that big web sites hired to reformat their content into the WAP page.  These WAP pages look like the Internet of 1994.  None of these technologies work well.

Enter Apple.  First, they wait until EDGE and 3G is imminent and solve problem 3, low bandwidth.  Secondly, the reality distortion zone, makes Apple put OS X on the iPhone.  That solves problem 2.  Whatever file format that works on your MAC (or PC) now works on your phone.  No need for the "lite" versions of technologies.  You have a uniform browsing experience.  This is already huge.

Then comes the two main design innovations.  First, make the screen bigger by eliminating the keyboard, that's phenomenal.  Second, put the killer UI where a "double-tap" blows up the part of the web page you are reading.  You can also do the "pinch move" and blow up sections you need and go back and forth.  This is the design solution, it is elegant, and looks like it works.  All of the transcoding, reformatting, wapping and all that technological gunk is blown away as if they were made of dust.  This is the power of design.  What an army of technologists couldn't solve by technology, Apple solved by design.

There is a saying that the D-schools (design schools) are the new B-schools.  I don't know if that's true, but the world should be watchful of companies whose expertise is good design, companies like, Stone Yamashita Partners which has design expertise at the same caliber as Apple.

What is Yahoo Doing?

I have many friends at Yahoo who I respect a lot and hence I don't want to write negative things about the company, but what they just pulled off on this poor consumer is unbelievable.

I came back from the Microsoft briefing I wrote about below, and docked my laptop.  Started Yahoo IM, and got a message saying "Yahoo can automatically load updates, would you like it?"  I said yes, then I got a window popping up saying "now Yahoo toolbar has Yahoo Messenger embedded, would you like it?"  I said yes, and Yahoo did three things.

1) The toolbar they updated is now twice as thick as the old one and take up a lot more space on the top of my browser, and a lot of the space they take is blank.  I can't collapse it.  This ridiculous.

2) They change my homepage to www.yahoo.com.  Hijacking somebody's homepage is what sketchy sites do, not the #2 site on the Internet.  But here is the sad part, the page they hijacked was http://my.yahoo.com, one of their pages.  That's the page that's been customized by me, and that's hard to switch out of.  It's their best property that serves their best ads. They take that away and put a generic one in its stead.  How's that for shooting yourself in the foot? 

3) To add insult to injury, I try to load an image in my blog post, and this time the Yahoo toolbar popup blocker is blocking pages typepad is trying to serve me.  Now I have to turn that off as well.

How much pain do they think users can take before they get to the benefits of their product.  Answer, not a lot.  My Yahoo toolbar is gone...