
Why Facebook is killing Silicon Valley - czzarr
http://steveblank.com/2012/05/21/why-facebook-is-killing-silicon-valley/
======
krschultz
This really has little to do with Facebook and has everything to do with 'big
startups' vs 'small startups'.

Facebook changes how you interact with the acquaintances in your life. With or
without Facebook, I'd keep in touch with my best friends. But Facebook keeps
me in touch with some people I probably wouldn't otherwise know anything
about. For better or worse, it really changes your relationship with those
'weak tie' friends.

LinkedIn similarly changes how you connect with former co-workers. There is no
way I could have kept up with all these people as they switch from job to job
if the world still operatered on an address book I update myself.

Obviously the iPhone was revolutionary.

These three are all 'big startups/big ideas/disruptive innovation', (pick your
favorite moniker).

But the 1,000,000th iPhone app is not a big idea. The next Facebook game is
not a big idea. Obviously there are some exceptions, but by and large these
are just small fishing surfing on a big wave. Yet entrepreneurs and VCs are
disproportionally investing their time and money into them.

Is it easy money? Do they have a lack of imagination?

I'm not sure but it seems like we all would like to see more money and talent
going to the 'hard' stuff, whether that is material science, clean tech,
biotech, AI, computer hardware, space technology, self driving cars, electric
cars, etc etc.

That said, it's not a bad thing if a lot of entrepreneurs hit singles right
now on this wave, and set themselves up to hit a home run later on a bigger
problem.

~~~
EliRivers
"Obviously the iPhone was revolutionary."

The iPhone's marketing was very good. I'm not sure there was anything
revolutionary about it.

Edit: Rather than answer individuals below, I'll state my terms here.
Revolutionary indicates a complete change - the overturning of all that was
before. We already had phones, we already had pocket computers, we already had
phones that were pocket computers, we already had phones that were pocket
computers that you could get extra programs for, we already had increasing use
of them as time went on. We already had.

~~~
bitops
_> We already had._

This is one of those truisms that technologists love to repeat over and over
again. "It already exists, so it is not revolutionary." I think it just a
curse of the people working on the tech.

To technologists, the tech isn't that amazing or revolutionary. "We already
had that 5 years ago!". What they miss, and will probably continue to miss as
long as there is technology, is that what is amazing is making it available to
everyone in an accessible format.

It's the go-to example, but that was the genius of Apple. Sure, all the tech
was already there, but what was revolutionary was starting the path to putting
a computer in every home.

A machine or piece of technology by itself isn't any more amazing than
anything else. Having it available and easy to use for all of humanity is very
revolutionary.

~~~
fpgeek
> A machine or piece of technology by itself isn't any more amazing than
> anything else. Having it available and easy to use for all of humanity is
> very revolutionary.

Absolutely. But I feel compelled to point out that the wealthier slice of the
developed world isn't "all of humanity" by a long shot. Right now the
revolution that is encompassing all of humanity is the mobile phone itself.
The smartphone's going to get there, but it still has a long way to go.

------
crusso
That article struck me as a bit of an extreme and luddite take on the current
social networking trend.

VC is chasing social networking right now because consumers are moving toward
social networking vs other forms of entertainment. Some VC will make good
guesses at the direction things are headed and make some money... some won't
and will suffer the pain of being wrong. A lot of hype-sensitive VC will make
the mistake of overplaying the social networking trend and that's a good weed-
out mechanism in the economy of the Valley.

It doesn't mean that funding for cancer drugs has stopped or even slowed down
as a result. Even if you could attribute a slow-down of cancer funding to FB,
it doesn't mean that funding for cancer drugs won't resurge and maybe increase
after this trend subsides.

Another thing to consider. The author mentioned Elon Musk as being one of the
few sources of a "disruptive startup" in the last few years. Well where did
Elon Musk get his money? Hint: not in the Space or Automotive industries. He
is a brilliant guy who made money on the Internet then applied his problem
solving skills and vision to other fields where he thought he could make a
difference.

Likewise, Facebook has converted a whole bunch of smart people into rich
people in Silicon Valley. It's likely that some of them are going to take
their money and apply it to new ideas in non-social-networking endeavors and
we'll be referring to them years from now as innovators in those industries.

Money flowing into Silicon Valley smart problem solvers is a good thing.

~~~
johnrob
A quick way of summarizing your point: the invisible hand is working properly.
It's telling us that 1 social investment today plus 5 science investments
tomorrow is better than 1 science investment today.

------
pg
I see no sign of the trend he describes. And if it were happening I'd see it.
But I don't find myself telling startups preparing for Demo Day "you guys are
building important technology, so you'll have an uphill battle with investors,
but you other guys have a social startup, so you'll have it easy."

~~~
sblank
Hmm. Selection bias perhaps? How many medical devices, nano materials,
chemical sensors and life science, etc. startups applied to the last
Y-Combinator cohort? The hundreds of hard science teams I see every year don't
send you applications.

~~~
pg
We started out specializing in software, so we rarely get these types of
applications. But you can build important infrastructure using software
(indeed, most of the examples you give are largely or mostly software). And
the companies we fund that are building such things do not have a harder time
raising money than the companies building social apps.

------
arturadib
There is nothing wrong with #LowHangingFruits. They can be just as good as
harder-to-get fruits, and one would be silly not go for them first.

And it's not just social media that's low-hanging in the Valley -- that'd be
an oversimplification. It's also the plethora of in-your-face B2B and B2C
opportunities, thanks to the pervasive connectivity of business and
individuals (which unlike the 90s is _very_ real this time).

If you walk around America visiting businesses and industries you get a sense
of how rudimentary most processes are, and how amenable they are to software
automation. Companies like Square and OpenTable are examples of non-social
ventures that are disrupting markets. Of course it's not science, but who
cares? They are innovating and disrupting just the same.

I say go build your apps, whether social, B2B, etc. Find those low-hanging
opportunities first. All signals say Go: connectivity is increasing; devices
are selling like bananas; software companies are making real revenue; and most
opportunities are yet to be exploited.

And in parallel to all that let the government/large risk takers support more
pie-in-the-sky ideas, and when the opportunities are depleted let's refocus
and aim higher.

But there's nothing wrong with enjoying a delicious fruit without having to
climb trees.

~~~
psychiatrist11
when you climb a high tree you have a vantage point over your competition. yet
it would be inappropriate to deem the botanical landscape analogous to the
"low hanging fruit" metaphor.

------
talmand
I have to wonder what some people, who should know better, are planning for
the eventual software bubble bursting. Meaning, what's next? Lately it just
seems that the big names in the industry right now are just hype machines that
are not really innovating anything. It's more that they are riding the big
wave started by others that's just about ready to crash on the beach.

~~~
randomdata
The software bubble has, arguably, burst twice before (dot-com, 2000; web 2.0,
2008). Assuming this bubble is no different, we'll just move on to the next
ride. What that ride is - it is too soon to know. It'll be some project none
(or few) of us have heard anything about yet.

~~~
talmand
I agree, these things tend to come at us in waves. I just wish we could see
the light a little bit sooner so we can at least start speculating on what's
next as opposed to rehashing the same hype over the same stuff.

For instance, I would like to see more speculation on making web apps that
behave like apps in the browser instead of being web pages that try to act
like apps. But I guess the native apps on mobile devices is already addressing
that plus the other usual suspects in the space that are trying their best
with what we have now.

~~~
randomdata
My own personal prediction is that it will be something in the embedded space.
Some interesting things are starting to happen there (see: the response to
Pebble, Arduino, etc).

But it is anyone's guess at this point. The people who are working on the next
big thing, at this stage, don't even know it yet. These bubbles are born out
of people exploring new spaces, with, once a market has been proven, everyone
else jumping in to try to take control of that newly discovered space.

I think these bubbles are apt to continue so long as new mass-markets for
software continue to be discovered, and will continue to pop once a definitive
leader for that market has been chosen.

------
dasil003
> _But what’s great for making tons of money may not be the same as what’s
> great for innovation or for our country._

The article fails to make the distinction between companies actually making
money versus frothy investors climbing all over each other driving up
valuations. Of course Instagram doesn't help my case, but that's just the
knock-on effect of Facebook's valuation.

Whether you want to call it a bubble or not, what's going to happen over time
is that the amount of actual money in social will start to be revealed. Once
the winners such as Facebook and Twitter squeeze the most attention they can
out of the public, and once public privacy expectations (and laws!) settle,
and their monetization stabilizes, then the upside of "social" is going to
disappear and the funding will dry up overnight.

At that point the value of individual attention will be much better understood
than it ever was in the golden age of television advertising, and "social"
will just be the refinement of the advertising industry. VCs will then start
looking for the next big thing in other areas. Sure Facebook might be
disrupted down the line, but it's gonna take a decade just like it almost took
Facebook a decade to get where it is today, and in the meantime they're not
going to be making any more Instagram-level purchases.

------
christianbryant
I would over-simplify this by saying true innovation is being killed by
popular social media in general. The real reason for pointing to Facebook and
similar sites is that, popular media focuses all its attention on these sites,
and so, then, do investors. But why isn't extreme tech cool? Why can't groups
like SpaceX get the same wave of investors and popular media support that an
app like Twitter can get? In particular, I think project like SpaceX need to
be better supported and more visible so the level of quality embedded in their
processes is as high as possible.

"Give the people what they want" is fine, but what if they don't know what
they want? What if, more than yet another way to splash pictures of their dog
in a dress across the Internet, they really want to see experience their web
browser in full immersion VR? Or fold their computer into the shape of a
pocket map after their done teleconferencing with Tokyo? I love my LAMP as
much as the next guy (though my P has been more R(uby) of late), but come on,
simple isn't always better, and that goes for code as well as ideas.

That's my beef. Not with Facebook or Twitter specifically, but with the
continued support of mundane ideas rather than ideas that will put us into
other solar systems, or computing at the quantum level.

~~~
randomdata
Investors/media/most people are not leaders. Facebook and the social space is
interesting right now because it is already a proven business model, so
everyone is trying to take their last piece of the pie before it becomes an
established industry.

Nobody has really showed the promise of making millions flying to space yet.
When they do, money and media attention will start to flow in that direction
and everyone will start fighting for their share of that market pie.

Nobody cares about the idea, just how much money it is going to make them.
Right now, it is unknown if you will ever make money going to space. It wasn't
that long ago that some brave people were making social networking websites
that nobody cared about or wanted to invest in.

~~~
christianbryant
Sad but true.

------
kraemate
We've become lazy. Its much easier building a photo uploader in php (aka
facebook) than actually build something or put man on the moon.

~~~
simondlr
Facebook is not just a photo uploader in PHP. I can assure you that's not why
Mark built it. Instagram is not just a photo app with filters. These products
add more value than the sum of the parts. A car is not simply a combustion
engine with wheels. Who would buy that? They buy it, because it takes them
somewhere. Who would want a photo uploader in PHP? It's used because users
find value in seeing their friends in photos. You must take the tech and use
that to make something of REAL value, something people would want to use and
understand why they would want to use it.

But I do get what you mean. Preferably we would want to see people putting
their minds into 'big' ideas, vast improvements in humanity (such as
privatised spaceflight/mining). Facebook has value because it connects people,
Instagram has value because it allows people to make their photos look good
(and easily share it).

Do you know what Elon wanted to do before SpaceX? He wanted to put a
greenhouse on Mars, just so people could get excited about space again. SpaceX
isn't just about reusable rockets, it's about selling the idea of a space-
faring civilization.

Sorry if I came across as a bit harsh, I'm just tired of people distilling
products (that has value) into the parts, as if that is only what it
'actually' is.

~~~
kraemate
There are complexities and nuances in the most 'trivial' activities of life.
Brick laying is brick laying, you say, but there are several sophisticated
factors at play at erecting a wall. But the core principal has remained the
same "stack bricks neatly, and use a plumbing bob". Photo sharing services
have been around a _long_ time, and i will dare say that there isnt anything
significantly 'valuable' about them. And by value, i mean value to society,
not some arbitrary financial random-number wall-street assigns.

The space-race produced several useful byproducts, while facebook is turning
programmers into sheep who dream of writing instagram plugins.

\-- a space nut.

~~~
ojr
what did we achieve from going to the moon (there was nothing there)? Only a
few people even saw the moon, ~900 million of people on facebook. Even people
like Neil Armstrong has come against going to the moon again and is against
SpaceX

~~~
patrickk
I read somewhere that the ROI from Apollo and NASA generally exceeds any other
US public spending by a massive amount. The amount of space age derived
technology is hard to imagine and perhaps not communicated as well as it could
be.

I don't live in the US, but if I could wave a magic wand and do anything I
wanted, increasing global space exploration spending x10 or more would be top
of my list. The benefits would be enormous to everyone- you are pushing the
very boundaries of what's possible, you are going to uncover some interesting
new tech along the way. If the US got into a massive space race with China
(sending a manned spacecraft on Mars for example) the benefits would be felt
globally for decades. Pity it takes a rivalry to create the urgency for doing
such ambitious projects, instead of doing them because they are worthy goals.

<http://spinoff.nasa.gov/spinoff/database>

------
psychiatrist11
Here's my (illogical, emotional) reading of the article -- or shall i say,
media piece:

The invisible theme of the article is that Facebook's stock is down today,
about 12%; Facebook employees won't be able to cash in for at least 28 more
days; It's a timed media piece with an invisible point that FB won't recover;
and why should someone accept a slavery contract (Startup Employment) if they
aren't going to be paid a king's ransom (>= what the ibankers are making)?
Thus $FB kills silicon valley and makes wall street that much more attractive.

disclosure: I'm bullish $FB and bet it's likely to recover, although status in
such uncertain climates only comes from short-term coups. So I may make 12% on
my investment over a 28 day time frame, but at what cost? I look like a fool
and am used like a tool in the media circus clown show. It's not worth it, but
I'm not strong enough to bet otherwise.

------
nswanberg
It's a catchy headline, but it would have been better titled "Why VC herding
is killing Silicon Valley". Though even then he doesn't make a strong case for
Silicon Valley being killed off by this behavior.

~~~
psychiatrist11
i think he does; read my response later in the thread; startup conditions are
miserable and the payoffs need to start justifying the poor conditions and
life expenditures

------
tytso
Perhaps it would be fairer and more accurate to say that startups that require
relatively smaller amount of capital (i.e., software based startups that can
use Amazon EC2) are killing startups that are much more hardware intensive and
thus require more capital, and typically a longer time horizon before success
or failure can be declared?

Of course, that's not as sexy a headline...

------
socratease
I guess he means you can only sell so much smoke before people get smart.

I'm bullish on the internet as a medium, and teaching people how to use it,
not Facebook or other "companies" selling smoke.

If Facebook ceased to exist tomorrow, I could still keep in touch with all my
Facebook friends. That's because I have their email addresses. And there are
now easy ways to move big files outside of email. We can use VOIP. We can
stream big data to each other with today's bandwidth. It's all possible
because of the advance of technology. (Not because of Facebook.)

When people know how to use the internet properly to do the things they do
using Facebook (share photos, etc.), peer to peer, then we can get on with
solving "real problems".

Apple and Facebook and others are not educating the population how to use
computers and the internet. As far as I'm concerned they are not solving a
problem. They are perpetuating it for their own benefit. Keep users dumb,
track everything they do, feed them ads and try to sell them stuff. We have
internet savvy kids whose only thought is "What's the business model?" Maybe
there is none. Why should Wikipedia exist? What purpose does it serve?

We do not have to keep users dumb and feed them ads to move forward. Hardware
is cheap, software is free, connectivity is cheap, bandwidth is cheap. Let's
use the internet to help solve real problems, not pretend that keeping users
dumb and showing them ads is getting us there.

------
nextstep
I don't think "social media" will kill Silicon Valley. VCs are certainly
interested in a quick return on investment that social media start-ups can
achieve. However, most start-ups fail; for every lucky investor who got in
early on Facebook or Zynga or Instagram, how many investors backed a different
company that's had only modest returns? In general, the majority of VC money
is placed in also-ran start-ups that don't generate the media attention of an
outlier like Facebook.

Most VCs aren't stupid. They know that not every social media company will
earn 100 million in three years. Most will never earn that kind of money.
However, a lot of VCs back projects they're passionate about, projects like
renewable energy, cancer research, and many others.

This article takes a complicated market (venture capital in SV) and makes
sweeping generalizations.

------
omaranto
The title is misleading, the piece seems to be about _how_ Facebook is killing
Silicon Valley (according to the author), not about _why_ they're doing it. :)

------
apechai
It's true in the short term that social and mobile trend chasing will be
detrimental to investment in other areas of tech, but markets and VC returns
will correct this over the longer term.

Trend chasing and herding makes it harder to invest in the winners in a space
at a reasonable valuation.

If VCs invest in 100 social/mobile start ups at $100 million valuation and
only 10 reach $1 billion, then the VCs on aggregate are break even. Also, a VC
has a 1 in 10 or 1 in 100 shot of getting that big hit because there are so
many 'me toos' in the same space.

If a VC invests in the next spaceship, smartwatch (Pebble), or X less
competitive field, there might be only 2 companies competing for that pie. So
you have a 50% chance of picking the winner.

The economics are also more compelling for less crowded fields because
customer acquisition costs, talent hiring costs and other costs are cheaper.
They're not being driven up by the other 100 'social networking / Instagram'
start ups competing for the same resources. Your market share of revenue is
also higher because you are sharing it with 1 or 2 other players, instead of
100.

That makes the margins better for the the less crowded areas of technology.

If you started a social or mobile company in 2005-2008, your customer
acquisition cost was close to zero and engineers were cheap so that made each
VC dollar go very far. You also didn't have to compete against 10 other
companies for mind share in your space.

That's not the case on social or mobile anymore.

Some smart VC firm will invest in a hardware, biotech or (insert non social /
mobile) start up and make a ton of money. Then all the money will chase that
area and the cycle will repeat. The VCs which invested in the 'me toos' will
lose money and lose assets.

------
ticks
The trend for that graph appears to hint at one wave abstracting and building
on top of the previous wave (especially in the later stages). So I guess the
next wave has something to do with the abstraction of social media and using
it to build new technologies and services? If that were to be true then
Facebook, Google Plus, Twitter etc. are all destined to become social media
service providers - that is, high level utilities.

------
shmerl
Those who want to monetize on the social networks *(the way FB does it) are in
the wrong. Growing privacy disrespect will backfire on them soon enough.

~~~
psychiatrist11
Or in a "bishop" maneuver, another company comes out with video tracking and
renders privacy a property of "the past" and FB, Google, MSFT, and anyone else
with pending anti-trust suits - to make out like kings!

------
sakopov
I am still astonished at the fact that we even have SpaceX all while VCs are
throwing money away to fund photo-sharing concepts to make photo-sharing
easier than scratching an itch on your ass. I'm just amazed that there are
wealthy people out there who haven't yet stooped down to the level of social-
media rats and decided to fund projects of such astronomical proportions.

P.S. I want to hug humanity right about now.

------
dennisgorelik
The reason behind killing of hardware/science businesses is that we are
transitioning into The Matrix (based on Internet). So software that utilizes
network effects is in really high demand.

Update 1: Downvoting? I can't even guess your reasons for that.

Update 2: Thanks for upvoting back. Downvoters still didn't give the
explanation though.

Update 3: Replaced "Unified Matrix" with "The Matrix" (movie).

~~~
icebraining
I haven't downvoted you, but WTH does _unified Matrix_ mean?

~~~
dennisgorelik
Matrix is a reference to "The Matrix" movie.

I just dropped word "Unified". It does not really add value I think.

BTW, I'm not joking about the Matrix. We are clearly on the way there and
that's good.

~~~
psychiatrist11
The whole point of "The Matrix" is that we are already there. It's a good
reading of human nature.

~~~
dennisgorelik
We are entering The Matrix, but we are not fully there yet. We need more tools
to achieve better integration.

That's why investing in social networking software is more important at this
time (and therefore more profitable) than investing in other directions.

------
kfk
You can't complain people are choosing the best combination of risk and
profits on investments. You can complain if people have bad information about
risk and/or profits on investments, but that problem usually is easily solved
with a bubble burst.

And data missing, I just don't believe all the money is going into software...

------
drumdance
He refers to finding cures for cancer as a Big Idea, but has any IT investor
ever invested in such a thing? I believe Kleiner Perkins does biotech, but
most others stick to specific niches.

IOW I don't think the money that went to Facebook would go to life sciences. I
think it would just go to other IT startups.

~~~
MartinCron
Bill Gates and Paul Allen have both put serious money into life sciences.

~~~
unfortunat
yep. gates has enabled research that simply would not get done otherwise
because it is not viewed as being a good candidate for development. that is,
vaccines.

but i don't think he's looking for a return in monetary terms. he's looking
for results of a different kind.

and that's the difference.

now, the question to ask is whether the investors that enable these sv
startups have enough capital that they could fund projects to get non-monetary
results, even if it means they might take a loss.

that's why things like spacex and such are different. it's not just about the
money.

the worst part of this facebook ipo is it is totally unnecessary. they do not
need the capital to carry the facebook idea forward. there is no reason they
need to pass the risk on to the public.

when you invest in facebook you do so for one reason only: a financial return.
facebook contributes little to society. it's technology that makes the
contribution. this is hard for some people to process. but you can take away
facebook and technology still remains. everything that we are doing with
facebook is still possible. the network effect is still there.

------
jrosenblatt
But of course the "newly monied social media entrepreneurs" will "invest in
their dreams." Many already are. Dreams like space exploration and reforming
education seem to be shared by a lot of entrepreneurs today.

After we make money from easier-to-start startups, we can be like Musk and
Thrun...

------
finneusbarr
I think that the IPO crashing (as it appears to be doing) might have an effect
on this. If the VCs see that even Facebook, the biggest of the social media
sites, can't make money, they might shy away from sites like it and to more
product oriented start ups.

------
erehweb
Part nobody seems to be mentioning is government intervention. This doesn't
have to be at the level of government picking individual companies. A carbon
tax would make renewable energy sources more attractive and spur investment in
the sector.

------
josefonseca
So much bad publicity for Facebook today all over social media...

~~~
talmand
I believe it's the IPO, it just got serious.

~~~
psychiatrist11
It's serious for everyone with skin in the game.

Disclosure: myself included.

