Monthly Archives: October 2013

New Economy vs. Old Economy – where the future is going

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Yesterday I posted an article about AirBnB focusing on how it’s upsetting entrenched businesses, neighbors, and has attracted the attention of the NYC AG. I had intended on having a much longer discussion but ended up going down the rabbit hole with that topic. I was influenced to do that article by an article in CS Monitor about the growing backlash against the sharing economy. That article did discuss AirBnB, Uber, and a few other sites. I suggest reading it.

While that article focused on the sharing economy, there’s quite a few other companies that are causing problems for entrenched businesses because of the way they’ve structured their businesses. One of the most prominent companies doing this is Tesla Motors. Tesla has upset a just about every single car dealer in the US. Why? Well, as an attempt to encourage growth of multiple types of car companies the US and many states forced a separation between car dealerships and the manufacturer of the cars. This has worked extremely well for car manufacturers because they are able to push cars to the dealers and the dealers can get them for a discounted price and then sell them to their customers. The US is pretty unique in this approach – it’s why there’s those megadealers all over the place. Tesla is more closely modeling their distribution network off of Toyota where they build a customer for life and build to order. Toyota in Japan is so flexible they can meet an order and have it delivered within a week. Tesla has decided to have “showrooms” where people can look at the car try it out, but they can’t buy it. They have to order it online. Car dealerships are pushing for legislation and suing Tesla over this. I believe that Tesla’s model will work for many consumers but not all. It should be interesting to see how this plays out.

Another area that’s interesting is Twitch.tv, which has turned watching your friend play a video game into the next big thing that ESPN already missed out on. For those unaware, Twitch allows people to stream themselves playing video games and interact with their viewers directly by reading chat and talking to the chat or typing back to the viewers. Through this, games like League of Legends, StarCraft, DOTA, Street Fighter, and first person shooters has turned into a $20 million dollar industry just for tournaments. It’s replacing how people watch “TV” and engage with the people that are watching. These tournaments are pulling 200,000 viewers on just about any given weekend with several thousand in person to watch the event. Each game type has their own celebrities, heroes and villains. It’s still early, but it is going to pull people away from cable and from watching ESPN. I would not be surprised if ESPN began to show some of these events. It might take a few more years, but it’s going to happen.

Finally, the other interesting area where the new economy is threatening the old economy is the Silk Road. The Silk Road was an online blackmarket that used Bit Coins as it’s only accepted currency. It was wildly successful before its owner was recently arrested with approximately $80 million in BitCoin or about 5% of the total currency in circulation. This is the cut that this person made, which means it’s likely that hundreds of millions of dollars flowed through the site selling drugs and other material. With it’s collapse this market is likely to follow a similar path as the music pirating industry. Effectively there will be more security, less people will know what the Silk Road’s replacement is (I heard about Silk Road about 6 months ago) and it might be more dangerous to use. From all reports Silk Road was relatively safe to buy drugs from as the drugs were simply mailed to the user and it cut out the distribution channel where a bulk of the violence occurs.

I think that these types of business models will likely continue to flourish, it’s likely that we’ll see a lot of new types of business models that build upon this. I’m interested in seeing what’s going to happen.

New economy vs. old economy

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With the rise of the so-called “Sharing Culture” there’s been a recent upswing in the types of business that focus on connecting people point to point with others that can provide services that people need without a lot of the fuss of other intermediaries. There are, of course, a few pioneers in this type of activity, Napster, Kazaa, but also more “Legitimate” companies, such as eBay, PayPal, and Craigslist. These caused disruption, but not on a seriously massive level. eBay expanded the amount of people that could or would auction off their goods. It more likely impacted the amount of garage sales or donations to Goodwill. Craigslist did have a negative impact on newspaper’s income – however newspapers were having other issues because people just weren’t buying them, so it was somewhat moot. Now, however, there are companies springing up that are impacting much larger less “fringe” portions of our economy.

I first heard of companies like this while in the Netherlands where some of my friends were using Couchsurfing. Which connected people that were passing through an area for a night to two to crash on someone’s couch. I don’t think any money was exchanging hands. I believe that this site was a natural precursor for AirBnB, which has gotten in a lot of hot water lately. This site, for those unaware, allows people to rent out rooms of their house or their entire house for short periods of time. The idea is that the renters can use the stuff in the house and have a cheaper place to stay compared to a hotel. While the owners are able to rent out unused space. For instance, I could rent out my third bedroom if I wanted too.

A lot of people aren’t happy with this notion. For one, it does violate a lot of zoning laws and people are pissed about their neighbors renting out rooms to god knows who. Secondly, it does violate those laws and New York City has decided to do something about that. They’ve asked for information on 15k users in the city. This will likely be a large blow to membership there. If users feel that they are likely to be hit by a law suit or forced to pay licenses to rent out the rooms, renting the rooms will be much less appealing. This of course will thrill hotels as they can continue to enjoy a higher cost.

Part of this stems from the fact that this is new and scary. People don’t understand the change. Part of it comes from the fact that the city doesn’t want people to do this instead of normal rental agreements which “protect” both parties in different ways. An AirBnB arrangement is very different and likely has a lower level of protection (mostly social norm based rather than legal based). Part of it probably has to do with money. The city likely earns less taxes from people renting rooms this way than from Hotels.

These types of differences are going to be occurring on a more frequent basis. We need to help steer the conversation as internet savvy folks and look into how we can create accommodations for both sides. I’m not saying for the hotels, I’m talking about for your neighbors and community. Work with them to help them explain what’s happening, why it’s happening, and what they can do to help develop the social norms for websites like AirBnB rather than destroying it before it has a chance to be successful.

I’m hoping there will be a lot more experimentation in these types of sites even if I never use them. I firmly believe that it’s your house you should be able to use it as you see fit as long as it doesn’t cause harm to other people. Having a two way conversation and educating the different stakeholders involved is crucial to ensuring the survival and continued experimentation in these spaces.

The NSA, FBI, and Internet Security

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Over the past few months we’ve learned a lot about how the US government looks at its own citizens. We’ve learned this through the actions of Edward Snowden. He’s done us a great service by forcing a conversation that the NSA and FBI didn’t want us to have. The NSA lied to the Senate recently by claiming that it never tracked US citizens through Cell Phones. We would never have known about these activities if it wasn’t for Snowden.

Snowden was using email to send information back and forth between himself and Glenn Greenwald. Since email is in one of those fuzzy gray areas of the law around data retention and government access to it this has caused a bit of a problem. It make things more difficult Snowden used an encrypted email service called Lavabit. It’s encryption was at such a level that when the FBI requested data from it, they were confounded and essentially attempted to blackmail (legally of course) the owner into handing over the encryption key. This would have effectively rendered the service these people were paying for worthless. They were paying to have their email traffic be secured from both public and private entities.

As we hear and more about how the US government has been behaving towards internet security, the more we’re learning that the NSA and other US agencies are doing their best to thwart it. They have worked with the NIST and weakened the encryption key they developed. The problem with these backdoors is that if it’s there for the “good guys” (whoever that might be) it’s also there for the “bad guys” (whoever that might be). This isn’t just general encryption keys, it’s things that we use every day without using it. Whenever we are using any website that includes “https” we are using a basic encryption protocol called SSL. Think about when you’re banking, you see the https. Google now allows you to use this when you send information to and from them. This encryption has also been broken by the NSA. This is our personal stuff and if it’s broken by the NSA it can be broken by other people. Now does this mean we’re likely to have a rash of new fraud cases or theft cases? No, as it’s been compromised for some time. However, people do know about it now and this of course is a greater cause for concern.

What can we do about this? Well, first, look into more secure encryption methods. I wouldn’t be surprised if Google and applications like HTTPS everywhere will change their algorithm in result. Second, contact your representative and your senator. I’m lucky my senator in Oregon is very vocal (Ron Wyden) not everyone is so please help inform your leaders. Third, buy from companies that you know haven’t given up data to the NSA, don’t use Facebook and the like and basically try to follow the great writing that Sean did several months ago over on KBMOD. He nailed it then and it’s even more pressing than before to keep up with security.

Review of Without Their Permission

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I was inspired to begin writing again by reading Alexis Ohanian of reddit fame’s debut book, titled “Without Their Permission” for those that were regular readers and know me are aware of my interest in the startup community, technology, and activism during the SOPA/PIPA days. So reading this book happily fell into many of those interests.

First of all, this book was entertaining. It’s a rather self aware book and in some cases the humor of it reminded me of Drew Curtis’s book “It’s not News it’s Fark” which is a humorous book that really pokes fun at mainstream media. There’s some of that in this book, but it’s much more playful and selfaware of how important the media has been to Alexis’s success.

During my Master’s thesis research I read a lot of scientific studies that looked at the types of businesses, industries, education, and so forth of founders. Which really focused on the technical skills of the founders. This book didn’t. Alexis wasn’t the technical brains behind reddit, he was the “other stuff” that helped make reddit reddit. I believe that this is a fantastic view point to bring to the conversation on start ups, incubators, accelerators, etc… because it’s something that’s missing.

I have to say at first while reading the book I was really annoyed by the line “every link is created equal” because in any network this simply isn’t try. Any unconnected link is equal, but as soon as the Internet is the Internet links become less equal because of interconnectedness of the Internet. At first this prevented me from enjoying the book because I was so focused on this, however after working 8 hours I forgot about it until it was mentioned later. I only bring this up, because a large portion of the book is spent discussing how important networking is to the success of a startup. It became clear to me that Alexis gets it.

I also found this book enjoyable because it is much less self congratulatory about the Internet entrpreneurs than other books such as Makers, the New industrial revolution, Micro Wikinomics and Macro Wikinomics which cover very similar topics and ideas. In fact any time it felt to be getting too overly optimistic Alexis would point out that everything comes from hard work. It’s work that almost everyone can do, but it takes dedication.

Alexis points out a lot of successes that he’s been involved with as an investor, which provide a lot of great anecdotal experience as well as a graduate’s perspective from the Y-Combinator. I think these views are all helpful as we begin to look for more unique ways to fund startups beyond the traditional VC method.

Finally, I enjoyed the section about SOPA/PIPA which was interesting as I was actively involved on reddit and blogging to inform others about what was happening. Some of that included sharing the interviews Alexis did during that time period.

In general this book is definitely a great introduction to a more realistic view of Internet entrepreneurship from a successful founder, a great introduction to many unique startups out there that are very inclusive, and a great introduction to SOPA/PIPA for people that weren’t paying attention.

Get out there and make something great happen.
5/5