Red Herring has published an article on a widely known but rarely discussed phenonmenon of the co-mingling of nightlife and business scene in China. In it, Red Herring profiles the nightlife of 25-35 year old Asian American ex-pats who usually runs in the same business (private equity, consulting, banking, venture) and social (ex-pat, young professionals, english speaking) circles due to hugely overlapping demographics.

Remember Peter Chung? Back in May 2001, Mr. Chung was a 24-year-old Princeton University grad posted to Seoul by the Carlyle Group and living, by his own account, quite large. A week and a half into his new buy-side job, he emailed home telling friends about his opulent digs, about riding around in the VP’s Porsche, about the bankers who treated him to rounds of golf, banqueted him, and took him clubbing—and about his intention to bed every hot woman in Korea: “5 down, 1,000,000,000 left to go,” he wrote.

Mr. Chung’s email circled the globe, eventually finding its way to his bosses at Carlyle, who promptly fired him.

The picture he painted is familiar to young people working at investment banks, private equity firms, or VCs almost anywhere in East Asia, Beijing included. China’s tech boom has given rise to a new class of moneyed elites—overwhelmingly young, single men in their late 20s and early 30s—for whom nightlife is an integral part of business.

I have a ton of friends out in China (Shanghai and Beijing) who are living that lifestyle. What the Red Herring article doesnt mention is that similar “scenes” exist for Asian Americans in many of the large cities in the U.S. . . SF, NY, Seattle, Boston, LA, etc. . . All these was borne out a influx of asian american immigration into the U.S. the mid 80’s to early 90’s. (which I’m part of). Asian American penetration in the top universities (ivy’s, stanford, berkeley etc) began to climb in the middle of the 90’s as a result. Taking off shackles of our parents’ expectations to be doctors or engineers, we took our ambitions and work ethics and applied it to our business/professional goals instead (chasing the old might dollar instead ). A whole generation of Asian Americans eventually entered the work force as junior bankers, consultants, venture capitalists, and PE analysts into previously white male dominated industries . . . Driven by similar goals, education backgrounds, cultural identities, and professional expereiences they congregated together in the after hours and weekends sharing their travails. . . thus formed the beginning of the social scene.

Almost five year later we have reached a phase in our careers to not just be entry level employees but to take on increasingly important roles within our firms and companies. The rise of China as an economic power has given many of us the opportunity to take our career to the next level and create our own rules and opportunities . . . to be kings and king makers . . . (ironically the same reasons our parents immigrated to the US in the first place). So the mass reverse migration back into China began almost 3-4 years ago (the Chinese calls these Asian Americans, “Sea Turtles”) . . . one friend convincing another . . . and thus the social scene migrated BACK into China’s major cities intermingling with traditional Chinese night-life (which the article mentions at the end) to become what it is today. . .

The women aren’t working girls, Mr. Lee insists, though the assumption could be forgiven. Their bare midriffs, plunging necklines, and microshorts leave little to the imagination but he says they’re secretaries, teachers, or personal assistants, “and they all speak English.”

But there’s another woman at the table—much more conservatively dressed, doing no gyrating. Ling Ong, a Singaporean who recently completed her law degree at Oxford University, has just started a three-month stint as a paralegal. “You see the same sort of thing in clubs in Singapore or in London,” she says. “It’s just not so blatant.”

Watching Mr. Lee in action, she comments with measured ambivalence: “He certainly seems at ease with the whole scene.”

While he insists he doesn’t “party to facilitate business,” Mr. Lee estimates that 80 percent of club time is business-related.

Unfortunately, technology is one of the most insular industries in the world. While “old world” executives jumps from one industry to another . . . CPG, to media to industrial products (GE-trained managers are the perfect examples), very few technology executives ever leaves the industry once they enter. Even old-world executives who got recruited to the tech world (such as Terry Semel, Meg Whitman) rarely go back. (the money is too good, and the work too exciting ?! ) Even worse, many of us have spent most of our business careers in the industry without ever tasting what it is like to work at a “build-to-last” company like P&G.

These so called geeks turned entrepreneurs/executives (I’m one) tend to truly lack context for making complex business decisions. We tend to think that we are breaking new grounds but in truth, we are really just re-inventing the wheel. This is one of the main reasons I decided to leave the comfy confines of the valley and head eastward for business school. . . to get a little perspective, context, and some history lessons.

Nothing is more clear these days as I read blog after blog arguing about some new business model or partnership using some new fanagled meme to explain away one business decision against another. Sure there are many nuances that only someone knee deep in the industry will understand . . . but fundamentally, the industry is not so different from what existed before that we deserve to re-write the rules of business. (remember what happened last time when we did so? where did the new economy go? Dot-Bomb?).

So there has been incredible amount of noise lately about profit motives, margins, and market powers of content creators versus content publisher. Specifically Google & AOL ’s blockbuster deal as well as lots of startups & bloggers arguing over revenue share model to content creators from content publishers (is it fair? is it communism? is it necessary?). The value chain for content in the internet world is really not so different than media . . . the line is not so clear who is really the content creator and who is the content publisher. . . AND there are so many value added layer in the middle (producer, executive producer, talent agents, distriubtors, theators etc) that mashups are really not a cool new invention born out of the colletive genius minds of the web 2.0 crowd. So yes, other people do get the complexity of the two-dot-oh world.

For better or for worse, search engines has become the defacto channel for distributing internet content. Even more so than cable/satellite TV providers in the broadcasting world. Google is by far the largest and most powerful search engine, and Comcast is the same in the broadcasting world (ever wondered why Comcast wanted a piece of Google?). As Michael Porter will tell you, the power interactions (and direction of revenue flow!) between two partners within a value chain is highly dependent on industry concentration and the market share of the particular players. Because Comcast owns such a powerful position in the TV industry it can extract “tolls” from commodity content creators to have access to its subscriber base. ESPN on the other hand, because it owns highly desirable content, can negotiate with Comcast significantly more aggressive. We tend to forget that when AOL first started, it was PAYING for content to be made avaiable to its subscribers, BUT as AOL grew larger and larger the table turned, and AOL ended up getting PAID to make content available to its user base. (BTW AOL lost most of its gateway strangling hold to google . . . but its still important enough for Google to want to work with)

The same powerplay has been in play for almost a hundred years . . . I dont see why we are arguing over AOL/Google OR over whether content creators (in the peer economy) deserve to be paid or not. There is no right answer it all depends on who you are. . .

AOL needs Google to act as a distribution channel for its content/services. Google OneBox seems to be the most effective/premium placement for search inclusion. Google, on the other hand, needs AOL to distribute its advertising content/network. The powerplay and eventual “deal” comes down to what other alternatives each other have and what they are willing to offer.

The same case for startups . . . if you are a new cable TV provider, you dont have the bargaining power of Comcast so you need to pay up the wazoo to get ESPN. . . (plus other larger problems) . . . if you are a new distribution channel for internet content (such as a new search engine or a new content aggregator) the only way you are going to get proprietary/differentiated content (like AOL in the early days) is to provide some sort of value to content creators (and cash is one way to add value). . . Google can give away eyeballs/traffic/subscriber as a “value proposition”, startups can’t so they end up have to use cash instead . . . sometimes its just that simple. . . good ole Porter’s Five Forces.

Just writing to get my fingers warmed up after no blogging for almost 10 days Havent got to the point of “missing” blogging yet but I thought if I dont write soon I might lose “it” so I’m just typing for the hell of it.

The office is still pretty empty today with traffic really really light on 680. Lots of people took some time off between Christmas and New Years to re-charge. It was actually a great time to get some stuff done around the office without meetings after meetings interupting my work/thought process. Just got done with 2006 planning for eBay so I can do some 2006 personal/career planning work for myself . . . kicking ass it the keyword . . . on both fronts

Everytime during this time of the year eBay Nation basically takes a break . . . listing volume drops by over 70% as people take some time off from the internet and enjoy real human beings. The blogosphere is not so different, many of the blogs I like to read havent posted for days . . . that’s good though . . . knowing that we all have real lifes outside of Matrix like world of blogging. That we are not so self-absorbed we cant stand people NOT listening to us bicker and moan over the latest startups or meme’s for just a week.

Anyways, happy holidays everyone, and lets all hope that 2006 wont be like 2001 . . . the last bubble lasted about 3 years . . . so if this “2.0″ thing is a bubble, the popping sound should be starting just about now too. . .

I’m extremely disappointed at the lack of vision (or maybe just imagination?) here in the valley. Meebo just raised ~$3.5M at a pre-money of ~$10M from Sequoia and all we get is a collective moan and groan from the blogosphere on what the hell Roelof Botha was thinking. Isnt it kinda obvious? Its all about the long tail of software . . . first coined by Joe Krause. (BTW here is my old post on that topic).

Once Sandy from meebo announced the funding (BTW, Sandy looks familiar, I think I went to high school with her), both Om Malik, Paul K, and their readers (read the comments at TechCrunch too) wondered aloud why a thin client IM aggregator deserves to get funded by Sequoia of all firms. I suspect the key metric that got the partners over there excited wasnt their incredible week over week user growth but the average duration of the visits. Because IM is the stickiest of all apps, Meebo has essentially created a persistent connection/relationship with their users . . . the first requirement for becoming the third “desktop” . . . (windows and the browser were the 1st and 2nd).

Because the economics of the long-tail distribution, the real money to be made is not in serving the individual niches underneath the tail (by definition small in area) but in the aggregation of the entire long-tail (by definition disproportionately larger than the head). The problem with creating “platforms” capable of aggregating the tail is that without some applications ontop, the platform is useless and unable to create network/platform effects. So Meebo (and others) have all built trojan horse applications on top of their platform in order to attract critical mass of users which can in turn be monetized through the platform by selling “access” to independent developers. As a result, all the complaints about Meebo and the unsustainability of thin client IM as a business is really stupid. They could care less if their IM app makes them any money, its only for traffic building. Why do you think Meebo needs to raise money? Why do you think Sandy said they will not be pushing ads for now? They need to invest in the infrastructure and continue to grow. . . they are not even close to the harvesting phase of their venture life cycle.

What is special about Meebo is that unlike other players (Mashable has a good list of Ajax desktops and Ajax Office Apps), they have picked the right application (IM) as the trojan horse (persistent, realtime, social, sticky, high switching cost, high ubiquity, portable, variable access points, and highly controversial in the enterprise thus encouraging new access points). Goowy spent all this time building a platform using e-mail as the trojan horse but didnt realize IM is a better app for that purpose. Other Ajax office players spent too much time building applications rather than the platform and will eventually have to pay Meebo (or whoever wins) to have access to its user base.

Of course the platform itself really includes two components: backend and frontend. On the backend its pretty uniform in implementation (from the feature standpoint), its API (like konfabulator), payment metering/processing, and some sort of directory/marketplace that helps users discover new apps.

The front end is much much harder to define. The so called “ajax desktop” implementation that Meebo is trying to do is only one methodology. The portal players (Yahoo, MSN) can and is playing in this space aggressively without a virtual desktop (for now, though start.com is here). (BTW, Yahoo is probably the only website I keep up persistently on my browser). The Wiki approach by JotSpot and SocialText is another. Lastly, salesforce.com is also aiming for this space through the enterprise application (again another persistent web-app/page/site for the enterprise worker).

Thus Meebo might have a leg up on the desktop players, the battle for the dominance of the software long-tail is far from over because competition could come from all directions. Due to time/space constraints, I highly doubt there will be more than one winners in this space (if at all, it could remain forever fragmented). We already have the OS, the browser, and for some Outlook “up” permanently on our desktop . . . one more seems reasonable if it could aggregate all messaging needs but two or three more will for sure cause carpal tunnel syndrome from all the Alt-Tab I have to do.

Was clicking aimlessly today and came across this post - Convergence: A Great Word to Hate by Danc who is a game, product, and grpahics designer. Danc talked about the myth of “convergence” as a product strategy and design philosophy. In short, he argues that

A company strategy based on convergence is often that of the lazy corporate strategist who attempts to avoid the radical cultural shifts required by real innovation by playing a childish game of mixing and matching existing product lines.

(Which reminded me of room full of MBA’s doing conjoint & regression analysis on product feature to come up with the “ultimate” product but in the process failing to realize trade-off and interactions of the various features)

As i read through the post I realized that we, the web 2.0 crowd, is facing similar issues as the consumer electronics industry. I.E. CONVERGENCE = MASHUP . . . or atleast its a good enough analogy for us to learn from. Given that CE companies have been struggling with “convergence” for what seemed like eternity, we can learn much from their mistakes. (Maps =cool, social bookmarks = cool, QED: Maps+ social bookmarks = Cool^2!!!!!).

Its better to read it yourself, but I took the liberty of “Control-H ing” convergence with mashup for a portion of the post to prove my point. . . (also the part on how platforms is different from products/applications is applicable for web/software based platforms too) . . . really the more things are different the more they are the same

Issue #1: Confusing benefit statement
Instead of a single clear benefit statement, consumers are bombarded with a dozen half-baked benefit statements. You need to be able to sum up your entire value proposition in a short sentence.

Look at the PSP’s promise to the customer “Experience entertainment without boundaries.” That, my fine lady friends, is vague and meaningless marketing speak that fails to describe any sort of concrete benefit. Check out the value statements of some successful non-mashup products:
• iPod: 5000 songs in your pocket.

• Google: Find anything on the web easily and quickly.

• Nintendogs: Own a cute dog (even if you can’t own a real one)

• Gmail: Friendly webmail that never forces you to delete your messages.

• Tivo: TV without the crap. (Admittedly, Tivo’s biggest problem is that they aren’t allowed to promote this as a value proposition without irritating the advertisers)
Issue #2: Compromised solution that competes poorly against single purpose solutions:
Look at the classic VCR TV. You end up with a crappy TV and a crappy VCR glued together by a weakened user interface. Many consumers would rather buy a quality TV that gives them those warm post-purchase fuzzies. The quality of the individual buying experience matters.

The complexity that attends mashup is typically the kiss of death. A poll the Consumer Electronics Association found 87% said ease of use is the most important feature for users when they are purchasing new technologies.

Issue #3: Higher cost of entry
A multi-function device forces you to buy a bundle. What if a VCR TV costs $300 and you only have $200? By increasing the entry point, you limit your audience. Often consumers will buy the cheaper single component and then save up to get the secondary or tertiary elements of the bundle.
Issue #4: Single point of failure
When one piece fails, the whole thing fails. The perceived risk of system failure is much higher for multi-function devices. This is quoted as a typical issue, but it sounds a bit academic relative to how consumers typically purchase.

The failed logic of mashup focused product design
The traditional product design logic of a company focused on mashup is deeply flawed.
• Both product A and Product B are valuable to consumers.

• If we combine product A and Product B into a combined Product C, we will end up with a product that is twice as valuable to consumers.

• Other companies aren’t selling converged devices so our super product will have a unique competitive advantage that will help us dominate the market.
Customer value however is not an additive property in consumer products. For all the reasons listed above, a converged product will often have dramatically less value than its individual parts.

A company strategy based on mashup is often that of the lazy corporate strategist who attempts to avoid the radical cultural shifts required by real innovation by playing a childish game of mixing and matching existing product lines.

Product successes are not based on mashup
I can only assume the myth of mashup as a product strategy came about when someone saw the occasional success of a mashup device and mistakenly assumed that the chimeric nature of the device was indeed the source of the product’s sales mojo. Let’s look at a couple mashup devices and dissect the real reason why they were successful.

The classic one is the “clock radio” combo. Though this is certainly a ‘mashup device’, the ultimate driver of adoption was a simple, easily articulated use case: “Wake up to music.” Customer benefit drives adoption.

I find camera phones to be another interesting example of customer benefit being the real driver of adoption, not mashup. At first glance the combination of cameras and phones seems to validate the logic of mashup. Cameras are successful and cell phones are successful. And what do you know; camera phones are successful as well!

Yet something curious occurs here. The marketing people at phone companies are running around frantically trying to come up with ‘mashup’ products and services that take advantage of this obvious ‘camera-cell phone synergy’. This task ends up being really quite difficult. Why? Because the benefit of having a camera phone has very little to do with synergy.

The reality is that the benefit of a camera phone is really quite simple: “Always having a camera with you helps you take better pictures.” Any professional photographer will tell you that the real trick to taking great photos is having a camera with you when the right moment occurs. By stashing a camera in an item that is on your body 99% of the time, you increase the value of the camera.

By this argument, if the technologists had managed to figure out how to pack a camera into a standard keychain (and people were constantly encouraged to upgrade their keychains), the “camera keychain” would have been nearly as successful. The customer value is what matters. The fact that the value takes place in a mashup device is mostly random happenstance.

and the conclusion . . .

And so end my meandering thoughts on the topic of mashup. The important takeaways:
• A product design strategy relies on a focused product targeted at a strong user need.

• A platform strategy relies on creating a broad and flexible foundation that accelerates the development of successful products. Where products are about fulfillment of needs, platforms are always about potential.

• The cultural DNA required to pursue each strategy is very different. Product design involves making hard choices for the customer. Platform design involves throwing in the kitchen sink for the developer.

• Product design requires a strong centralized system of decision making. This creates amazing successes, but limits the scalability of the platform.

• A platform focus creates a business model that scales impressively based off the contribution of numerous 3rd party developers. The real trick is getting it off the ground in the first place since the initial value proposition is mere fluff without products to back it up.

Well known fact . . . the functional differences between version 1.0 and 2.0 (of anything) are actually pretty small but these little differences could make all the difference in the world as far as adoption, monetization, and growth. . . ie 1.0 is an idea while 2.0 become a business and/or phenomenon. The first post I read that compared Bubble 1.0 and Web 2.0 in these terms was from Fred Wilson who invested in Geocities and is an avid blogger (blogging 1.0 vs. blogging 2.0).

Blogging 1.0 paved the way for Blogging 2.0. I see four fundamental improvements that differentiate Blogging 1.0 from Blogging 2.0.

The first is the notion of the post as the central piece of content. About.com had some of this in its DNA, but Geocities and Tripod did not. Posts drive freshness, frequency, and syndication and make Blogging 2.0 much more exciting than Bloggin 1.0 was.

The second is related to the first. Permalinks have changed the game fundamentally. Linking to content was not really possible until permalinks came along. Now each piece of content is a persistent object that has a unique identifier. This is a huge deal and this concept did not exist in Blogging 1.0.

The third is RSS. Blogging 1.0 was a web experience. Blogging 2.0 is a everywhere experience. Content was a solid in Blogging 1.0 and its a fluid in Blogging 2.0.

The fourth is CPC and contextual ad networks. In Blogging 1.0, the only way to monetize the business was with banners. And brand advertisers were not thrilled with paying high CPMs to advertise on “amateur content”. With the arrival of CPC and contextual ad networks, this is no longer the case. Wherever advertisers can get clicks, they’ll place their ads. The result is a huge increase in the potential revenues.

Yesterday through Dare’s blog and almost simultaneously through Anil Dash’s blog, I discovered an equally eye opening and insightful analysis of social bookmarking 1.0 versus 2.0 by Ari Papro on Blink.com called “Getting it Right”

Since the post is a little long, I’ll just paraphrase/generalize/augment Ari a little bit . . . (but please still read it)

1. Defaults Matter - dont assume use cases for the end users, find out, survey, and measure . . . they might turn out to be more resilient than you think . . . that “socialness” is a fair and valuable tradeoff for “privacy”

2. Folders Suck - dont underestimate users’s ability to process and organize very fuzzy and large amount of data, show them everything (within reasons) and give them the tool to filter/search

3. Make it Instantly Useful - same as above

4. Don’t Let Technology Decide - users dont care about elegance, they care about usefulness

Like what Fred & Ari mentioned, very very small differences in positioning, product functionality, and design orientation can make the 2nd generation disrupters scale more efficiently than the 1st generation. (notice that I didnt mention success since I’m not sure if delicious or blogging will be sustainable in the long-run just like their 1st generation cousins did not). With lots of ideas being recycled from the first boom to the second boom, it is always hard to figure out the small differences and how “this time it will be different.” It is from the individual stories of insiders that lived through the first boom that we can all learn not to repeat the same mistakes. We, as managers and entrepreneurs, finally have a channel(blogs) to share these snippets of stories that would not have found daylight in another era.

I’m thankful for Ari’s post especially because as an founder, he shouldered the responsibility perpetually for the all the success (and there are many) and failure of the company. That post required deep courage, clarity, and thought of delicious, blink, the industry, and especially of himself. He has come to terms with the past and has moved on with better purpose. Anyone who was a founder of a failed dot-com during the first boom will still remember vividly the bitter, thoughtless(?), and vitriolic criticism heaped on them from the media and the anonymous mobs of fuckedcompany. Dont get me wrong, we(entrepreneurs, founders, executives, VC’s) deserved it and should take full responsibility for the failure of our companies, but I think conversations like the ones that exists today on the blogosphere (aided by identity transparency of today’s web) creates a much more constructive environment.

To be honest, I too have been writing and re-writing a mea culpa of sorts for the last few month but unlike Ari, I still lack a successful foil to my failed venture. I’m actually still praying that B2B “comes back” (B2B 2.0?) so I can find out for once what worked and what didnt. Even better, my startup, in its current incarnation could still discover the right business model or right set of functionality to come roaring back under the rightful/determined leadership of my ex-colleagues. For now, there are still too many things I screwed up on that I should share for the same reason Ari shared his (I’m guessing) . . . 9/10 unselfish knowledge contribution, and 1/10 selfish self-absolusion. Look for it soon

From Pragmatic Marketing’s Annual Product Management Salary Surveyfor 2005

Profile of a product manager

The average Product Manager is 36 years old;
87% claim to be “somewhat” or “very” technical;
90% have completed college and 46% have completed a masters program;
33% are female, 66% are male.

* 46% report to a director
* 28% to VP
* 5% report directly to the CEO
* 15% are in the Marketing department
* 21% are in the Product Management department
* 12% are in Development or Engineering
* 5% are in a sales department

What we do

* 66% researching market needs
* 54% preparing business case
* 19% performing win/loss analysis
* 79% monitoring development projects
* 77% writing requirements (the “what” document)
* 52% writing specifications (the “how” document)
* 49% writing promotional copy
* 23% creating web content
* 47% approving promotional materials
* 16% working with press and analysts
* 51% training sales people
* 44% going on sales calls

and most importantly, how much we get paid . . .

Average US product management compensation is $90,610 salary plus $10,961 annual bonus (79% of product managers get a bonus)

In the valley/west coast the # skews higher, average total comp of $107,240

Lots of talk recently about structural changes in the venture capital industry with major internet companies competing with VC’s for not just series B ventures but also series A/Seed. Om’s Business 2.0 article summarizes some of the issues involved while Silicon Valley Sleuth takes a longer term view. Paul Graham has been pushing the general topic for a while, calling the VC business outdated . . . most recently in Venture Capital Squeeze. Furthermore, Yahoo’s purchase of Flikr and Delicious and the recent rumors on Riya did not help VC’s case on proving their value proposition to entrepreneurs either.

As a one-time entrepreneur, I wondered aloud whether the so call change is temporary or structural. I’ve bitched and moaned about venture capitalists from time to time (exhibit A) but always understood that venture capital is neccessary, important, and (sometimes ) welcomed part of the ecosystem. Putting myself in the shoes of these founders, I did some fuzzy math on the alternatives these 2 “financing” options. (huge caveat, I call this fuzzy for a reason cause I’m making a lot of assumptions and they varies widely case by case . . . if my finance professors or my ex-colleagues CSFB see this they’ll revoke their association with me)

Option A - Tier One VC
Pre-money valuation- 15M
Investment - 8M
Post-money valuation - 23M
VC - 35% stake
Pre-allocated employee pool - 20%
Founder(s)/founding team stake - 45%
(doesnt look TOO bad at this point, but this is where it gets dicey)
Liquidation Preference - 1.5x
(people has been telling me that this is around the market level these days . . . better than the last bubble)
Participation - Yes
(double dipping on the preference)
Vesting - 4 years, 1 year cliff . . . founders get 1 year credit for the work they put in (again VC’s being nice)
Automatic vestiing of 1/2 outstanding shares upon acquisition

Now, if the founders chose this option they are probably assuming that in one year they can triple the value of the company and sell it off at a higher price. (no discount factors used here, I’m being really aggressive but this is a Riya-esque company I’m talking about)

A year later, the company is sold for $69M, the founders vested 2 years already + 1 year automatic vesting upon acquisition = total 3/4 of their 45% = ~34%. BUT since the VC’s have a liquidiation preference + double dip, only 69M-12M = 57M is available for the founders. 34%* 57M = ~$19M. (again this is very fuzzy since we dont know the status of the employee pool and the acquisition terms)

Final founders take - ~$19M, one year later, working hard to 3x the value of the company.

Option B - Yahoo/Google
Offer - $25M
Founders share - 100% of $25M
Time - now
Effort - none
Fuzzy math confusion - none

Obviouse choice . . . sell out to the highest bidder . . .

Unless the entrepreneurs are 1) already somewhat & rich looking for a homerun OR 2) extremely confident of their ability to get to a IPO . . . Financially, there is really no reason to go route A. Of course, there are other reasons to work with VC’s, the desire to build a lasting and great company is the ultimate goal why many of us are doing what we are doing instead of working for millions at a investment bank or consulting firm . . . We make that choice a long time ago to walk down this path, making that choice again isnt really that hard. For VC’s the ultimate value add or sales pitch to entreperneurs isnt financial returns but the desire and the means to help us achieve our dreams and goals. The venture business is changing, and I think its for the better. VC’s who specialize in dumping their entrepreneurs at the first sign of trouble and view their startups as an exercise in portfolio optimization will no longer be able to attract the best and most promising startups. . . and will eventually disappear.

Peter Rip at EarlyStageVC had an interesting vision of the future of the web. Given that everyone has accepted the fact that the web will become the next application platform, a coherent vision of that web based platform stack will be extremely important for anyone in the technology industry. Year to date, web 2.0 had been focused very much application innovations (consumer services) but in the near term future we will quickly reallize that the current web architecture is not scalable for the type of end use innovations that we want to built and enable. As much as the current web development software stack went through rapid development and transformation(2 layer, 3layer, etc etc) the web stack (web services? has 2.0 replaced web services as a buzz word?) will too. Smart VC’s are now digging around for infrastructure plays which will bring technology savvy entrepreneurs back into the web 2.0 game (rather than just some MBA with some consumer services ideas). I believe (like peter?) that the next phase of “web 2.0″ will not be innovations focused on applications but the infrastructure, with GoogleBase kicking off the game. The middleware VC’s and entreprenuers who had been left out in the cold the last 6 months will reign again.

I do have one addition/modification/clarification on Peter’s vision of the web stack. I believe the web will continue to fragment and become even more distributed. Try as google might, I do not think the so called “data store” (current incarnation is just good old web pages) will consolidate but fragment even more. Instead, I think where companies can achieve leverage and or network effects is through owning the schema/meta layer. Specifically, some sort of web wide integration network might appear that can in real time, create meta data and schema out of unstructured content or normalize schemas out of structured content. Where significant scale in data throughput will be needed (read increasing returns) to generate these schemas automagically (Gbase is trying). The closest things right now to this is not webservices vans (like Grand Central) but actually vertical search engines and Google Search+Google Base. Google is already in the process of modularizing their search stack so they can make search simply an application service ontop of their platform. With meta data integration layer and datastores(GoogleBase) underneath.

Apparently me and Phil Wainewright shared the same thoughts around the need for a revenue sharing infrastructure for the long-tail. My post is here and his here.

But what I neglected to say in that post is that the techniques for doing this are still at a primitive and elementary level because so little experience and best practice has been built up. Nobody knows for sure how to measure and price on-demand functionality, and even when that has been resolved, there still needs to be an infrastructure for presenting the bills, collecting payment, and distributing the proceeds. This is the biggest headache facing the pioneers of Web 3.0 and it’s not going to get resolved overnight. I suspect it’s a topic I’ll have to carry on asking awkward questions about throughout 2006.

I’ve gotten a couple emails regarding my post and I’ve been struggling with how to reply given that I am an insider at a company that does have a vested interest in the space (eBay-Paypal). (please accept my apology) But given that Phill already brought up many of the issues, I think I can share a little more thoughts. I believe a lot of the lessons of how a startup could own this space could be learned through how paypal built a multi-billion $ business ON TOP of the existing ACH and CC infrastructure. That given the right value proposition, the right functionalities, the right barrier to entries, and right integration with the required payment and metering pieces, a startup could very much become Paypal’s strategy into the space rather than competing with it.