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Why Facebook is killing Silicon Valley (steveblank.com)
214 points by czzarr on May 21, 2012 | hide | past | web | favorite | 120 comments



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.


"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.


Are you serious? It was absolutely a revolutionary product, in a number of different ways. It redefined the way one interacts with mobile interfaces (swipes, flicks, pinches and other 'touch' gestured premiered in a commercial product with the iPhone) - stylus based control was completely replaced. Apple also wrest control of the end-user experience from the carriers, preventing them from forcing their crap-ware onto their customers. It created a (much more) open ecosystem for mobile apps, that wasn't strictly controlled by the carriers. In US, Apple pushed for and got AT&T to agree to an 'unlimited' data plan. The original iPhone browser was like no other mobile browser at the time. It was actually usable. With the iPhone, the smart phone went from a niche business product to mass market adoption almost completely replacing traditional cellphones, and destroyed pretty much all existing competition (Nokia Symbian, Blackberry, Palm, PocketPC).

It wasn't just marketing. It really was a transformative product.


I think the iPhone was a nice set of improvements on the existing smartphones of the day, but I just don't see it as revolutionary in the sense that Blank means. Apple definitely forced the pace of evolution in that market substantially, but they didn't create an entirely new market.

That's not a knock on Apple, by any means. I think they're brilliant at taking an existing consumer product and dominating it by making something that's radically better designed and made. They are very willing to let other people pioneer a category and prove the market before coming in to crush their competitors, drive their executives before them, and hear the lamentation of their women. One could argue that given their particular skills, that's a much better use of their time and money than pioneering anything major.


Honestly, I don't think you're giving them enough justice. It was more than just a "nice set of improvements", as the corpses of PocketPC, Symbian, Palm (and soon maybe) Blackberry can attest.

>Apple definitely forced the pace of evolution in that market substantially, but they didn't create an entirely new market.

Here's one example: mobile and mobile apps. Look at the number of start-ups (and established companies) in mobile, compared to just a few years ago. The app store model made buying, downloading and installing mobile apps, brain-dead simple for users which exploded the market.

You have to give them more credit.


You do understand that it wasn't the iPhone that killed Windows Mobile, Palm, Symbian and (maybe) Blackberry, right?

It certainly didn't help, but to this day (and probably for the foreseeable future), there is still a larger non-iPhone slice of the market to divide up. Existing smartphone players could have stuck with incremental improvements and held onto more than enough to survive.

As evidence, I'll note that iPhone didn't pass Symbian until somewhere between Q2 and Q4 2011 (depending on which analyst you believe) - after Nokia announced the switch to Windows Phone. Existing players could have survived the iPhone, but something else happened...


You can drive somebody else out of business without a revolutionary product. Look at how the US car companies got hammered by the Japanese for decades. Japanese cars did not fly or even hover. They were just better cars, but they still kicked Detroit's ass around the block again and again.

I'm happy to agree that Apple's App Store was a revolutionary approach to software sales, though. That really did transform a market entirely. But the iPhone itself was not revolutionary in the same sense.


they didn't create an entirely new market

The App Store provided an entirely new sales and delivery platform for inexpensive smartphone software programs.

This is a $2B market for software that didn't exist before. I'd call that an entirely new market. Perhaps not big by Apple scale, but lots of companies would kill to have a $2B market.


Not entirely new. See the Danger Hiptop / Sidekick (and its download catalog) from 2002, among other examples.

Did Apple do much better with a more powerful device and a large user population used to buying music and other media from them? Absolutely. But that's still doing it better, not doing something entirely new.


That's fair. I have heard of that device but did not realize that it had an app store.

I think Apple's (correctly) viewed as the company who "makes it work" with the right combination of technology that is cutting edge enough, but integrated superbly. When they are really out on the leading edge, the results are mixed (e.g. Newton), although that may have changed with greater vertical integration and supply logistics in recent years.

On that level, though, how "entirely new" does something have to be before it gets that stamp. If a given company invents something but doesn't bring it out of beta, and another company becomes known for commercializing it and bringing it to millions, who gets / deserves the most credit?


I don't think there's an objective way to divide the credit - different people are going to assign different weights to different parts of the process because they have different values.

That being said, it is clear many Apple fans (and Apple themselves, frankly) have gone way past a reasonable division of credit. Considering the last decade-plus of smartphone history, the idea that Apple should be suing HTC (among others) over products they developed with Andy Rubin's ex-Danger team is laughable. If either (or both) had spent a bit more time and money on patent lawyers in the early 2000s, they could have sued the iPhone out of existence. At least at HTC (at Google is a more complicated question), I'm sure there are a few people who regret that they didn't.


Oh, I'd agree that the App Store actually is revolutionary. But it's not a revolutionary new consumer product. There were for-pay apps for mobile phones before. The Palm app ecosystem was well developed; I bought a bunch of apps for my Treo phone.

Apple did, thought, create a revolutionary new distribution mechanism. But imagine for a sec that some third party had invented the App Store. Who would they have sold it to? Apple, Nokia, and Microsoft. Or perhaps AT&T, T-Mobile, and Verizon. The market for that innovative product was large companies who sold a lot of phones. Apple just happened to have an exclusive on it, and used it to crush their competitors.


I'm sorry, do you remember the state of touch screen consumer devices pre-iPhone? It was a much different world. If your jaw didn't drop a little the first time you saw the pinch/pull zoom on a map during the keynote, I don't know what it would take to actually amaze you.


The other day, I was setting wifi on my Dad's old Dell Axim (PocketPC PDA). I was trying to hit the keyboard with my finger and wondering why the keyboard was so small, before I realize that, of course, I was supposed to be using a stylus. It's amazing how much the landscape changed.


I do. It was a very impressive set of user interface improvements. That something amazes me does not make a revolutionary product in the sense that Blank means. For him it's a technical term.


Really. The 100-odd patents filed by Apple just to achieve that level of touch capability don't constitute a technical revolution? Compared to the state at which touch screens had been advancing prior, it was a night and day change.


> 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.


> 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.


Having it available and easy to use for all of humanity is very revolutionary.

That's stretching it a bit, don't you think? Apple devices are neither ubiquitously available (i.e outside US), nor are they within the price reach of "all of humanity"

edit: oops, I did not read fpgeek's response before posting


Pre iPhone: Carriers control software ecosystem of mobile phones.

Post iPhone: Apple/Google control software ecosystem of mobile phones.

Revolution: A forcible overthrow of a government or social order for a new system.


"Revolution: A forcible overthrow of a government or social order for a new system."

By your own definition; _same_ system, just different controller, so no revolution.


I would cynically add that that's how most of the revolutions work in practice.

In this case, I would suggest that while the system may seem similar, the end user experience differs greatly, for better or worse,


yes and in addition our new overlords are more affable generally than the old ones, atleast till the status quo changes again.


Ubiquitous pocket computers are revolutionary. If you compare usability and adoption before and after the iPhone, I think Apple deserves a fair bit of credit for that. Of course not nearly all of it, but they are certainly a hero of this revolution.

(I was going to go into a whole rant about why ubiquitous pocket computers are revolutionary, but maybe I'll let someone else tag in on that one if it's in question ...)


First really widely accepted smartphone?

It seems that a true revolution happens not when someone invents a new thing, but when someone figures out how to make it useful to masses. Printing press is much older than Gutenberg. Steam engine is much older than Watt.


For whatever it's worth, the framework I use to discuss innovation/what succeeds is the balanced breakthrough model, afaik, credited to Larry Keeley at the Doblin Group.

Basically, the gist is that to be successful, idea/offering/product/service needs to not only be 1) technologically advanced, yet feasible, but also 2)desirable from a user perspective and 3)viable from a business perspective.

Only when you put strongly advanced yet feasible, desirable and financially viable innovations out there do you get really successful and revolutionary advances.

Lots of cool tech fails to make an impact because it doesn't solve a need or can't be clearly fit into a business case – and you can repeat that story for any of the three key parts of this model.

It seems obvious, right? Except you can point to an endless string of failures, big and small, that clearly didn't account for at least one of those three parts.


If you don't remember what mobile phones were like before the iPhone, you must have either a short memory or a revisionist memory.


I'm not going to argue if the iPhone was revolutionary or not like the others commenting here... but if it was, then you would have to say Windows 3.1 was as well.


iOS killed the pseudo-pen for touch screens.

PS: Remember when people paid for ring tones?


People still pay for ringtones, on iOS even. If you have an iPhone: Settings -> Sounds -> Ringtone -> Buy More Tones.


People still pay for text messaging even though they don't need to. If you care, the iPhone includes built in support for custom ring tones and there are apps that make it even simpler.

http://www.demogeek.com/2009/07/31/how-to-add-custom-rington...


I didn't pay for custom ringtones on my Treo 650 (and I suspect mine wasn't the first Treo that supported custom ringtones).


Carrying the internet around in your pocket is, indeed, revolutionary.


We already had, but it was shit and almost nobody used it. Thanks to Apple it's not shit, and everyone uses it. This is actually almost as important as inventing the thing.


everything in tech is an iteration of something that has come before. still new technologies can be revolutionary..

before the internet we already has arpanet, tcp/ip, newsgroups, telnet. there is nothing revolutionary about the internet? or is there?


Apple set some standards with the iPhone, but Android brought smartphones to the masses. I would go as far as evolutionary for the iPhone, but it was still a niche product. Some of the cars that existed before Ford were pretty slick, but few people owned one.

Credit for revolutionizing a market should go to whatever brings it to that market in large enough numbers to matter. This is why we usually credit Ford for revolutionizing transportation, even though many interesting automobiles preceded his.

It's hard to see from the SV bubble, but most people were introduced to smartphones with Blackberry and Android. It wasn't long ago that the iPhone was seen as an interesting toy used by celebrities and a few friends by people outside of tech circles.


Umm, they have sold over 200 million iPhones, how is that a nitch product?


How many had been sold when Google started promoting Android? I doubt it was more than a few million. Other companies outsell Ford a century later, but they still revolutionized the industry. We're talking about history here, not the current market.

Apple revolutionized smartphone design, but they didn't revolutionize the industry. Google did that by creating a good smartphone operating system that anyone could use freely.


Android outsold iPhone for the first time in 2010 at which time the iPhone had been out for 3 years. In 2012 they sold 50% more phones in 2012 which while significant is hardly the type of dominate market position your talking about. If you look at the iPhone growth in the US it's mostly a question of increasing the number of carriers vs increasing the market share at any one carrier, so no Google had little impact on promoting iPhone sales.


I'm talking about impact, not sales. I started off using sales as a measure of impact, so I can see where the misunderstanding came from. That's a possible measure of impact, but probably not useful here.

Android made it easy to make a good smartphone by removing the biggest hurdle. What matters in the history books is who had a lasting impact. Will the future look like Android where the basic software is free to duplicate and modify? Or will it look like Apple's tightly controlled system?

History doesn't seem to favor Apple's way of doing things. Apple's way can never create as diverse a market as Google's has.


You're in a big hole already. Stop digging.


What?


I guess what he meant in essence was - would Android exist at all if iOS hadn't shown the world how great smartphone OSs could be? Just like Apple showed the world how good PC OSs could be back in the 80s.

Very important not to underestimate the polish and usability that iOS brought to the table. I remember looking into developing an app for symbian and realising how tricky it would be (tools, guides, lack of examples, crappy devices, etc).


I guess it's an overreaction to the more zealous of Apple customers. They want to give Apple all the credit when their contribution was to create a significant stepping stone. I know most people who use Apple's products see the company as an important part of an enormous mix of players all doing something important.


Given that Google bought Android in 2005 and was reasonably far along when the iPhone came out, I'd say it is safe to say that Android would have existed whether or not iOS did.

Would it have been significantly different today? Sure. But by that standard, iOS would have been significantly different today without Android, too.


"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."

Well, the assumption is that social is some sort of platform. You'd figure, now that we have some semblence of the relationships between people, we can build applications would wouldn't have been able to otherwise with it. It seems like that would be the case, wouldn't it? We often lament that our software treats us badly, usually due to social faux-pas a human wouldn't commit (like inviting your ex-girl to your wedding in a wedding invitation app).

In the same way that when other products we have that sprouted other industries as a result. Cars(along with highways) helped made suburbs possible. The first apps for the personal computer probably seemed gimmicky (why would people want computers in their homes other than for recipes?), but people kept trying since it seemed like something should be there.

So therefore, we see a lot of people trying. And it's true what Steve Blank said about VCs liking fast and big returns, but they can also only invest in what companies people start. There are also a disproportionate number of startups in that space.

That said, there are a lot of copycats that haven't thought deeply on the matter and are just digging there just because that's where everyone else is digging. In addition, social/mobile seems easy to people to do. Everyone's a self-proclaimed expert because, "hey, I'm social and I use a smartphone!". Social/mobile is hard to get right.

I believe it's just what innovation looks like. You're going to get patterns like this, where everyone's chasing after the same big and lucrative stuff (what someone else in their thread called #LowHangingFruits). Once it's exhausted (or seems like it is), people will turn their attention elsewhere.


This really has little to do with Facebook and has everything to do with 'big startups' vs 'small startups'.

Minor point- at what point can we stop calling this organisations 'startups'? Surely there should be no such thing as a "big startup". Facebook is not a startup. Any more.


I don't think the "big" and "small" was a comment on the size of a startup, but rather the size of the idea. Facebook was once small in size, but always big in terms of its vision. The next Facebook game is "small" in size and in vision, and may still be small in vision even if it is successful and is big in size.


Agreed, Facebook stopped being a 'startup' a while ago, but I was talking about their startup phase.


What we're really seeing is just small increments of introducing the basic UNIX functionality of the internet to unskilled users.

This is nothing new. What's new is that there are a lot more people connected and willing to use the web now. And their computing devices have ample power. And they have an installed version of UNIX. The network is growing continously. And we're still not done yet. It will grow more.

The formula for these startups is simple: Take something simple that nerds have long known how to do, using UNIX, e.g., share a photo, and make it so easy that anyone can do it. This made sense in the past, when few people had running copies of UNIX.

What is CGI? It's letting someone use UNIX utilities, or use a scripting language interpreter running on UNIX, who cannot run those utilities or that interpreter herself. (Not counting all those Windows servers.) Today it amounts to telling someone to use the web and CGI to run a script on a server somewhere that she could just as easily run on her own machine. A lot of the data that is kept on servers somewhere else could be stored on the user's local machine. Instead users are trying to figure out how to use all this extra space. So they fill it with music and movies. Then we tell them they should put that stuff in the cloud. With storage costs what they are, users can purchase enough external hard drive storage space to store their whole digital life. But they're being told to give their data to someone else.

We could just teach them how to run the UNIX utilities on their own machine. Or teach them how to use scripting languages to do basic tasks.

But we don't. We think of everything in terms of client and server. Even when every user is holding the power of a server, powerful enough to serve her needs, in he palm of her hand.

At some point, we'll reach the point of "self-service". Because it does not make sense with the computing power we now have to keep letting someone else do everything that could be simply done by users using their own devices. This not 1980, or 1990, or even 2000. An enormous number of people are using UNIX (via OSX or Android, for example) and they don't even realize it.

There is a place for "the cloud" and big jobs, but for most users, like the ones on Facebook, they can accomplish most things without having to use a server in some datacenter somewhere.

And this is more cost-effective. And if more people knew how to use the underlying UNIX system they now have on their laptops, tablets and smartphones, we could see huge advancements in their productivity.

Instead we're still trying to keep them hooked on using someone else's servers to do really simple things, so we can manipulate them and try to make money in subtle ways, indirect ways. We don't just charge fees for use, because we know we'd be undersold. Everything is "free", to the frustration of some would-be enterpisers. And why is that? Because the cost to provide these "services" is near zero. Someone else who knows UNIX can do the same thing. Even more, today the user could do it themselves with just a bit of know-how.

Stop trying to manipulate users and let progress proceed. Let them use the full power of the devices they have purchased.


all due respect, i disagree. the value of a new engine, or a new process for treating water, is hard to dispute. the market economics are less complex.

facebook stock is just as bad as a mortgage backed security. yet i'm a speculator because i'm greedy.


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.


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.


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."


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.


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.


The hundreds of hard science teams I see every year don't send you applications.

Maybe some of them should. Sure, the direct experience of most of the YC partners is web-centric, but they're connected enough in SV that YC might be a big benefit, especially if any of those teams are amenable to a 3-month build cycle.


Is that what Blank is arguing though?

I remember listening to your office hours at TC Disrupt, when you were talking to the guy from Omniplaces. You said: "This is commercialized research? Ouch. It’s often a solution in search of a problem..." (Of course, that was part of a broader commentary about how the startup shouldn't be competing with Google in search, which I don't necessarily disagree with.)

But I think that's what he's talking about. Sun, Google, Cisco, Akamai, VMWare, and a variety of other technology companies came fairly directly out of commercialized university research in systems, databases, networking, virtualization. Are there YC companies that are commercialized university research? Such companies at the very least seem very different from companies like Airbnb which seem like they evolved from a consumer problem rather than innovative technology. What's more, it seems like basing investing decisions on current consumer behavior and problems seems much more sensible than doing so based on technology, which is what Blank seems to be arguing and what you seemed to be arguing at Disrupt.

http://techcrunch.com/2011/09/12/tc-disrupt-office-hours-wit...


The problem with commercialized research is more the attitudes of the founders than what they're building. They usually approach starting a startup as a solution in search of a problem. Sun (and Google) were exceptions in that even while working on the project within a university, they were building a product. We'd love to fund that kind of project, but they're rare.


Isn't the fact that they're rare his point?


No, Steve is saying

    ... material science, sensors, robotics, 
    medical devices, life sciences, etc... 
    VCs whose firms would have looked at these 
    deals or invested in these sectors, are now 
    only interested in whether it runs on a 
    smart phone or tablet.
Paul is saying that founders aren't coming to him with the former sort of startups.


But couldn't that be said about Facebook too?


Facebook was born in a university dorm room, not a university lab (or department lounge). Facebook is a great product, and has spawned some interesting technology created to solve a massive scaling problem, but what cause the scaling problem to begin with was a product created with a good intuition for what people love, built with some existing, not academic, technologies.


I was more thinking about the problem looking for a solution part.


Do they know you're there? Do they realise that they can do interesting research, and build a product, and get a chance at funding from you?

Has anyone tried to solve that publicity problem?


I can confirm this. When my co-founder and I told PG we were working on a mobile social network around movie trailers, he hated the idea, and told us we would have a hard time and that we should build more important technology.

We wouldn't have arrived where we are today without building what we built, so I hesitate to call it a mistake, but PG was right in the end :)


I'm not going to contradict you, but at least to me it seems that all the hype and press goes to social start-ups. I'm excluding mobile since this is a rather new technology. Being as far away from SV and Vcs as you can probably get in the western world, I had the impression that there could be some kind of "social bubble". Or am I completely mislead here?

That said, I don't believe you can make the point the other way round. whereas social start-ups can have an easier going there is also more competition. On the other hand the next apple might face different problems.


EDIT for clarity:

I think Steve Blank has in mind the level of ambition of the stealth fighter program.

Such a venture would involve putting in many orders of magnitude more money than YC invests in a single startup.

Today's equivalent would be investing in a new Intel corporation.

Last time I checked, YC sponsored much smaller ventures such as bed-and-breakfast exchanges and online backup systems.

So why would you be involved at all in such ventures, let alone aware of the trend?


When you look at Airbnb's potential I hardly consider this a small venture. Maybe they are not disrupting technology / hardware businesses. But at least from my point of view they have the potential to disrupt the hotel and travel industry (including corporate travel, I know an austrian company using it for their sales people). Wether or not that scale was part of the vision right from the start I can't tell.


But Airbnb is still something that could start small and grow, rather than something that was capital-intensive from the start.


Which is completely true. But the overall impact could be as great as a new Intel, midterm and from a global perspective.

Seems you get more disruptive bangs per buck now than you got some time ago.


Sounds like you don't understand what we do. We do seed funding. The money we invest is not the last a startup will raise; it's just enough to get them to the point where they can raise more. So YC can fund arbitrarily expensive projects.


Look, let's take an example.

The microprocessor was invented in the 60s to be the wing controller for the F14. The F14 was rolled out in the 70s and deployed in the 80s, and in service till a few years ago.

So the government was funding integrated circuits for multi-decade deployment, decades before it intended them to be used and between 5-10 years before silicon valley got in on the action.

Last time I checked, VC funds are 10 years, and most VCs want an investment to return within 3 years. (As Steve Blank is complaining about).

By my understanding, even if somebody got seed funding for a project with an F14 level of ambition, the money would be peanuts compared to what it would take to make meaningful progress, and then the VCs would think it too far from a liquidity event to invest in anyway.

How could YC invest profitably in such a venture? What am I not understanding?

I think you'd need to find a source of follow-on financing that would be much longer term than either Wall Street or Sand Hill Road (again what Steve Blank is complaining about).


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.


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.


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.


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.


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.


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.


> 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.


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.


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.


Sad but true.


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.


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.


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.


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


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


The funny thing is that the people making their money in software and entertainment: John Carmack, Elon Musk, Larry Page, James Cameron, etc... are the ones getting us to space and re-igniting the space program that the general population lost interest in funding a long time ago.

http://www.cbsnews.com/8301-205_162-57419801/asteroid-mining... http://www.armadilloaerospace.com/n.x/Armadillo/Home http://www.spacex.com/

I say: Let the people with big ideas and great implementation skills make all the money they can legally. They're the ones we want to fund so they can pursue new interests and create new markets.


> the general population lost interest in funding a long time ago

That's because the general population has been for a long time overpaying for not going to space https://scottlocklin.wordpress.com/2011/07/22/good-riddance-...


Very true and that's an interesting article. The Shuttle Program is a great example of an idea that should have been allowed to fail. At very least (in YC terms), NASA needed to pivot hard much earlier on.

The opportunity cost to mankind only existed because politicians and bureaucrats didn't get their funding and power from success at getting cargo and people into space economically and safely. They got it from overplaying their hands on past successes, diverting dollars to their constituencies and contractors to "bring home the bacon", and plain dumb government spending momentum.

In other words, the incentive model of the Shuttle Program (and of NASA in general) was broken and no one with sufficient power ever did anything about it.


Agreed. The Shuttle, as operated, was a pretty stupid design, compared to the alternatives. I admire the folks who ran it for making it run as long and safely as it did. But it was insanely expensive. And fundamentally inferior, inefficient and risker compared to say just having a cylindrical multi-stage rocket and putting a payload on top of it, ala Saturn, Delta, Falcon, etc.


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.


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.


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


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...


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.


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.


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. :)


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.


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.


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.


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!


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.


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).


I haven't downvoted you, but WTH does unified Matrix mean?


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.


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


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.


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...


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.


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


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.


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...


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.


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.


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


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


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

Disclosure: myself included.


Disclosure #2: Whenever acting serious, probably not accurate.




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