Posts about innovation

When innovators sell out

Great response by Umair Haque to Fred Wilson’s discussion about fixing the venture investment ecosystem.

Let’s revisit the spectre haunting venture capital. Why aren’t there more Googles?

The answer’s very simple. Because every company that had the potential to be economically revolutionary over the last five years sold out long before it ever had the chance to revolutionize anything economically.

Think about that for a second. Every single one: Myspace, Skype, Last.fm, del.icio.us, Right Media, the works. All sold out to behemoths who are destroying, with Kafkaesque precision, every ounce of radical innovation within them.

Let’s replay the Google story. Google, despite serious interest from Microsoft and Yahoo – what must have seemed like lucrative interest at the time – didn’t sell out. Google might simply have been nothing but Yahoo’s or MSN’s search box.

Why isn’t it? Because Google had a deeply felt sense of purpose: a conviction to change the world for the better. Because it did, it held on and revolutionized the advertising value chain – and, in turn, capital markets gave Google an exuberant welcome.

See the point? If all Larry, Sergey, and Google’s investors had wanted to do was to sell out fast to the highest bidder, they could have done so at any time. But they didn’t: they chose to revolutionize something that sucked – and so a tsunami of new value was unlocked. That’s how Google was made.

Now, I agree with Fred. Equity capital markets are myopic, beancounterly, and soulless. But it’s not venture’s job to fix those problems. The real problem is internal: structural inertia and risk-aversion. . . .

The dynamics of old boy’s clubs are almost deterministically predictable: they fight tooth and nail against risk, against the radical, against any kind of change to the status quo. They’re great at “monetization” – cutting deals – but the last thing old boy’s clubs are good at, unfortunately, is sticking up, come hell or high water, for innovation. From music, to publishing, to food, to autos, the outcome of locked-down boardrooms has been innovation stifled and suffocated. . . .

A new liquidity event

Fred Wilson has an important post today arguing that we need a new way to find liquidity in innovative startups. The IPO market is over. Big companies buying new companies usually just ruin them. Big companies buying big companies — MyMicroYaAOlSpace — only makes it worse. My response:

I think there’s a new opportunity to buy up good startups without even trying to integrate them: the unsynergy corp.

AOL has ruined everything from Netscape to Moviefone to ICQ to Mapquest to Tacoda Being bought by bigco is a disaster for an application’s users and fans; the only reason it is done is liquidity for the founders and investors.

If I were, say, Carlyle today, I’d raise a fund to buy up and manage — but not synergize — some of the best applications and startups out there. I’d give them decent management and shared services (a la a later stage Idealab, I suppose) but let them still operate independently and entrepreneurially. I also wouldn’t want to buy 100 percent of the equity; the founders should stay and have earnouts that motivate them to improve their products, give them the control necessary to do so, and still let them and their investors cash out.

What I’m really proposing, then, is networks over corporations. If small is the new big — but, as Mark Potts said at my conference, “If you want to be small, you probably have to be part of something big” — then we need a new definition of big with all the benefits and none of the stupid corporate ruination.

Deeper in the comments — and a very good discussion there — Subhankar Ray says this is what Berkshire Hathaway has done for years. Good point. We need the hip version. Commenter Ambrosini adds:

What Jeff describes does seem like the obvious next phase of tech “growth/later-stage” funds, especially as vc/pe firms are looking to more money to work. As Fred mentioned, it seemed this was where Velocity was headed (which didn’t really happen).

This strategy extends to many of the types of deals that are probably viewed as successful as well. At the time of its acquisition, Myspace HAD to get acquired by someone like News Corp. because the company and its backers–Redpoint–couldn’t fund its huge and growing cost structure. Was Myspace worth more than $150mm (remember it was Intermix that sold for $580mm…Myspace was just a piece of that overall deal)??? In hindsight it would obviously seem so, but without News Corp. coming in with its big balance sheet the cost of business would have killed growth and Myspace would not be Myspace as we know it today.

However, a Carlyle-funded late-stage Idealab would have been a great buyer/investor. Redpoint gets a good return on its earlier stage/higher risk investment, and Carlyle funds/grows Myspace into a fast growing, highly profitable business. The story would be the same for Youtube and many other top start-ups. . . .

New business models for news

No doubt to the frustration of my fellow organizers, I’m still thinking through the format and agenda for the New Business Models for News conference we’re holding at CUNY in May and want your advice.

I was influenced watching the Google team at Davos and by a session on innovation there: I saw that engineers don’t start with neat ideas. They start with problems and then seek solutions.

Too much of the discussion about the future of news has been focused on the blind hope for some neat solution: an iPod moment or a white knight or even, god help us, government support. And too much of the parallel discussion about media on the internet is about neat things.

Instead, I think we need to identify the problems and then have a rational search for solutions. So I’ve been focusing my thinking on expressing our problems — or call them our challenges and opportunities — as the agenda for the meeting. My thoughts:

* Efficiency: See the results of my back-of-the-envelope survey asking what should be cut from newspaper budgets. There is no shortage of suggestions. I think we need to have a hard-nosed discussion about the efficiencies that can be found in news. The negative way to say that is that we’re getting rid of commodified fat. The positive way to say that is that we must boil down what we do to its essence, its greatest value. And the internet gives us opportunities to be newly efficient — it is journalism’s internet dividend. So what can and should we do without? What do we absolutely need? How can we use technology to find efficiencies? What is the proper organization of a news company (see Dave Morgan’s proposal to split up newspapers)? What does efficient journalism look like?

* Networked content: It is a precept of mine, at least, that one way to expand journalism’s reach even as revenue and organizations shrink is to work collaboratively outside our organizations. That was the subject of our last conference on networked journalism. So let’s come up with real solutions using collaboration. Where could it help? With what kind of stories? What kinds of beats? What tools do we need? Training? What’s the business relationship?

* Networked advertising: I also believe that the key to making the networked architecture work is advertising to support and motivate new creators and to have control over their quality. We are beginning to see examples of this: blog ad networks from the Washington Post, the Guardian, Reuters, and Forbes; Reuters selling the Guardian’s international advertising (just announced); Glam.

* Innovation: We’re going to get nowhere if we don’t start inventing new products, networks, means of work, means of distribution, technologies, and business models for news. This is just not happening in the industry now, especially in the U.S. So how do we jumpstart it? I’ve been working on starting an incubator. At Davos, some innovators suggested to me that we should start an X prize contest to solve some of our problems, (e.g., an open-source ad network; geotagged news….). Do we need to start an investment fund across media companies? What should universities do?

* New revenue: There may not be any. It may all be advertising. And too often in this discussion, all hope is thrown into this bucket: There’ll be some new ad product or there’ll be some foundation that out of the goodness of its heart decides to feed a newsroom. Ask any foundation whether that’s likely. It’s not. But public support of journalism is one model: see NPR, Pro Publica, and the Center for Public Integrity. There may be new models for supporting high-quality journalism. (One idea I’ll write about soon is what I call reverse syndication: What if the LA Times pointed its traffic about Baghdad to the NY Times’ reporting and rather than the NYT charging the LAT, it pays for LAT for the traffic, which it monetizes to help support the bureau?) I’ve long thought that subscription models won’t work. Prove me wrong. Come up with other new models we should be testing.

How does that sound as the basis for discussion — and more than discussion: real plans?

Davos08: Collaborative innovation

In a session on collaborative innovation — a theme of this year’s Davos — Mark Parker of Nike tells the crowd that Nike plus — the gadget you put on your shoe to hook you into your iPod and the internet and a network of runners — has hit 40 million miles run so far. What’s coolest is that the system connects runners so they communicate and get together to organize races. The internet is all about making connections. Those who enable those connections win.

Later, Reuters’ Tom Glocer says the company has an internal innovation program that budgets money to ideas employees can submit in one page.

Davos08: The tongue sucker

At the innovation session, Kigge Hvid, CEO of Index in Denmark, told about the tongue sucker as a new necessity in first-aid kids to avoid blocked airways and suffocation. I asked her to demonstrate for my first Reuters mojo video (taken on a Nokia phone):