Kerabu

What One Red Paperclip means

I spoke yesterday at the Engagement Alliance's conference on WhatMyspace Means about what a business model arising out of the primordial soup of the social network might look like.

First off, what are the characteristics of a network? A network is non-heirarchical, being composed of interconnected nodes. Which isn't to say all nodes are "equal," just that they're inter-connected, not sequentially connected.  A network is not a collective.  It's not about consensus, but about collaboration.  In a nutshell, a network is a self-sustaining system in which free-acting individual entities form complex, entirely voluntary interdependencies.

What I like about the network model is that there are virutally no barriers to entry. You can enter the network as a node at any time, for any reason.  Your performance determines whether or not you attract rewards in the form of attention, money, contacts, etc., but you need not pass muster with a "gate-keeper," i.e., an editor, banker, investor, in order to launch yourself. 

Failure in this environment brings few if any negative consequences, which gives incentive to those who wish to experiment, or to start enterprises with no obvious monetization model or exit strategy and feel their way along.  In other words, it's possible to launch an enterprise that makes sense even if it doesn't make money.  That is how Craig Newmark launched Craigslist--and let the profit model evolve organically along with the business model.

To illustrate how this works, I spoke a bit about One Red Paperclip, the phenomenally successful website started on a narrow but robust premise:  The site's author, Kyle MacDonald, originally proposed trading a red paperclip for a house.  He is an engaging, witty writer and a true showman, and within months had parlayed the paper clip into a snowmobile, a year's free rent, then an afternoon with Alice Cooper, garnering media appearances around the world along the way.  The site is clearly now a full-time job.

Now, clearly Kyle has "profited" from his highly productive endeavor, without a single dollar changing hands.  But is it a business? Is it a game? Is it art? Is it entertainment?  My point being that One Red Paperclip defies categorization because it is purely a phenomenon of the social network, and as such doesn't fit any category we would traditionally apply to any kind of going concern.

The One Red Paperclip website now hosts bartering forums, where others can trade, the first inklings of an avenue for conventional monetization (aside from the site's many ads). 

What is interesting to me is that the network sensed the genuine value of Kyle's intentions, perceived quality in his offering, and responded with both collaboration and attention, feeding and encouraging his growth in an entirely organic, symbiotic process.

From this I can extrapolate some very rudimentary emergent characteristics of the social-network-based endeavor: 

leadership without a heirarchy
collaborative, not collectivist
profitable, though not necessarily monetized

After the MySpace event, Adriana Cronin-Lukas and I were talking about how the very idea of a "business model" may be growing obsolete, and that we may need to re-learn how to conceive, plan and launch a business in a more intuitive, organic environment.  It sounds a bit too good to be true--the network as a business incubator that rewards authtenticity and creativity above all else?

What I like about this idea is that a web based "artist" like Kyle could start dozens of these kinds of "stunt" web sites, just for fun, with no opportunity cost whatsoever, in an environment where successes can be large or small, but always profitable because of the low opportunity costs.  The concept of risk is rendered virtually obsolete.  The reward comes from striking the right notes at the right time, and is entirely positive.

The moral to the story being: When you have nothing to lose, everything is gain.

Inventors: Artists in search of an art form

If I've been scarce here lately it is because I have taken on a new consulting job, helping a high-tech hardware startup manage what is turning out to be an avalanche of IP. I cannot discus the particulars of the technology, but suffice it to say that this company, which recently completed second round financing to the tune of $6 million, will be papering the town with provisional patent applications over the next year or so.

Inventors are a lot like artists. They have identical creative processes, including the highs and lows, aha!s and fallow periods. What differs is that their "art form" has no fixed means of turning the creative act into a durable artifact. What I mean is that when your metier is having ideas that can later be turned into "methods and apparatus," to use a bit of patent lingo, a great deal of the execution of your work is beyond your control, and beyond the reach of your skills. What is the invention? Is it the finished product? Is it the idea itself? Is it the patent? What is the inventor's medium? Writing? Drawing? Prototyping? All of these are imperfect manifestations of the valuable contribution itself. In short, inventors are like artists without an art form.

My job, right now, is to attempt to build up a methodology that can support an inventor's native processes, to get the inventor's creative output to stream into the work flow of the company, without inadvertently creating a dam.

The challenge is to avoid the kind of soul-killing "project management" approach that most companies use to impose order on chaotic processes. Did Tolstoy take a "project management" approach to writing novels? I hardly think so. I want to create a structure in which creative thinkers can effectively communicate their ideas without imposing any kind of conformity on the ideas or the process of generating them. (Hint: Will the end product look a lot like a blog? It just might.)

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On "Purpose as Strategy"

Umair Haque on an idealistic yet non-icky definition of purpose in the context of business goals:

...the benefits to yesterday's myopic version of competition are eroding fast. Profitability, competitive advantage, etc, are less and less durable.

In this kind of world, it begins to make sense to do what you think is cool - yesterday, this was more risky than otherwise; today, the risk in both equations is equalizing. And, of course, it's far more satisfying to do something that actually means something to you.

Most simply, perhaps the truth is that purposiveness is a strategy that dominates the economics of hypercompetition.

I have developed a distaste for overt discussions involving mushy terms like "social responsiblity," "following one's bliss," "purposiveness" etc., a revulsion that exists in a certain state of dynamic tension with my abiding interest in the actual accomplishment of these things.  Which is why I find Haque's hard, shiny language and sober reasoning refreshing--and props to him for daring to take back a five-dollar New Age word like "purpose."

In honor of the effort, here's another one: When most people use the word "integrity" they mean something noble and sentimental. To me, the other definition (as in "structural integrity") is entirely sufficient, as it accomplishes the same thing, but without dipping into the cloying smarminess of self-congratulation. I want to live in a world where integrity is structural, not sentimental.

Innovation Quotations

Here are some excellent reminders of exactly how disruptive innovation has always been, by definition (duh). From Tina Roth Eisenberg, whose design blog, SwissMiss, is one of the little things in life that make me happy when I'm not listening to smart people make frustrating, stupid statements about the future (fortunately for me, according to the research, it's the small things that make you happy anyway, not the big things):

"Heavier-than-air flying machines are impossible."
(Lord Kelvin, president, Royal Society, 1895)

........

"I think there is a world market for maybe five computers."
(Thomas Watson, chairman of IBM, 1943)

........

"There is no reason for any individual to have a computer in their home."
(Ken Olsen, president, chairman and founder of Digital Equipment Corp., 1977)

More.

All the World's a Game (or at least it should be)

From Ross Mayfield:

An interesting article in Wired by John Seely Brown and Douglas Thomas Page explores the role of online gaming as job training and a recruiting qualifier:

...Unlike education acquired through textbooks, lectures, and classroom instruction, what takes place in massively multiplayer online games is what we call accidental learning. It's learning to be - a natural byproduct of adjusting to a new culture - as opposed to learning about. Where traditional learning is based on the execution of carefully graded challenges, accidental learning relies on failure. Virtual environments are safe platforms for trial and error. The chance of failure is high, but the cost is low and the lessons learned are immediate...

...In this way, the process of becoming an effective World of Warcraft guild master amounts to a total-immersion course in leadership. A guild is a collection of players who come together to share knowledge, resources, and manpower. To run a large one, a guild master must be adept at many skills: attracting, evaluating, and recruiting new members; creating apprenticeship programs; orchestrating group strategy; and adjudicating disputes. Guilds routinely splinter over petty squabbles and other basic failures of management; the master must resolve them without losing valuable members, who can easily quit and join a rival guild. Never mind the virtual surroundings; these conditions provide real-world training a manager can apply directly in the workplace...

Mayfield suggests he'll be looking at prospective hires' "extracurricular" activities, like World of Warcraft play, as well as their work achievements from now on.

I say, if we can learn to do business better by playing games, couldn't we also improve business itself by making business itself more like a game? As a manager, I'd love to have lots of Avatars. I'd also like to see Avatars in a company perform specific jobs, especially those jobs no "real" person likes to feel stuck--anyone in the company could become Vlad the Collector for the length of a phone call, or spend an hour playing Katrina the Customer Service Fairy with far less ego-involvement than they feel being dispatched to do these things now. Role-playing could make the "dirty jobs" of business more palatable (and keep egos in check for the big jobs, too).

I also like the way games quantify abstract acheivements and encourage non-monetary forms of exchange between players. Getting people within a company to collaborate has always been an issue. What if they had karma, health or power points in a game, some juju to trade?  You could look at this as encouraging "office politics," but if you've worked in an office, you know the vast amounts of energy that go into office politics no matter what you do. Why not harness and store that energy and put it to use?

Could we make work as engaging and dynamic and fun as a game? Of course we could. I'd like to someday build an entire company with a virtual office on a gaming platform, and hire from the ranks of online players. Kind of like Ender's Game, but with profits instead of destruction.

Free money

Should money be as free as speech? After all, it is also a form of communication.

In the past year, the internet has spawned a few companies aimed at helping individuals borrow and lend without bothering to involve a bank or credit agency. Zopa, based in the UK, aggregates individuals into groups for the purpose of making small loans, with a socially conscious slant. In the US, Prosper just launched a sleek, well-designed person-to-person lending site. Borrowers can also form groups on Prosper, for the sake of leveraging better interest rates. I also know of at least one nascent project, Bruce Boston's Quid St., which aims to aggregate individuals for the purpose of making capital investments (as opposed to loans).  I met Bruce recently, and he mentioned what an influence gaming had on his view of how to build an online marketplace. Which put me in mind of the Park Paradigm, a blog about digital markets whose authors think future finacial markets may evolve out of sports book and gambling sites. And not entirely unrelated note, Paypal made it possible just this week for people to send each other money anywhere, via cell phone.

Lots of internet companies entering a "hot" development space usually means that there is about to be a battle for dominance. But I do not think this another instance of a "crowded" field, like Ajax word processors or online file storage solutions, where everyone is trying to bring the killer app to market and knock the others out of the running. What we are witnessing here, I think, is the creation of a new and diverse international capital market.

But we already have an international capital market, you say. Well, yes and no. When it comes to lending and investing and otherwise redistributing capital, we make do with a rudimentary, feudal system that has never really caught up with our momentum toward the free flow of other types of currency--cash, ideas, information, energy, goods and services, even political will. We have developed extremely liberal mechanisms for exchanging these forms of dynamic and stored energy, but capital remains over-managed, its governance, distribution and oversight resting in the hands of a select few.

The invention of a truly open and free capital market will be as significant a development as the invention of the printing press, affecting the free flow of wealth and opportunity much the way that invention affected the free flow of intellectual capital. 500 years after Gutenberg, it's hard to imagine a world without cheap, plentiful and ungovernable words. One hundred years from today, it will be just as hard to remember a world where capital flowed through banks and currencies were government-issued.

Capital, and as a consequence personal wealth, will exist in a much more fluid and dynamic state than it now does, and all our discussions about wealth, wages and income will take place in an entirely new financial language. We may not end up solving poverty, so much as rendering it obsolete, all because of the technology-driven privatization of capital that is just now beginning.

Cross-posted on Samizdata.net.

The non-obvious utility of patents

subtitle: beat the horse slowly (as in I've said all this before, I know, I know)...But I just posted this on Samizdata.net, and Qumana is making it easy for me to spam my own blog with cross-posts, so here goes:

Tags: patents, IP, intellectual property

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Different people have described the Metabolite patent, currently under review by the US Supreme Court, as being about protecting a fact, but if you could patent the fact of homocysteine's correlation to B12 levels, then we'd all owe Metabolite licensing fees just for existing in a state of B12 homeostasis. To play devil's advocate, I read the patent as applying to the observation of the relationship. As such, it is a bit as if Galileo had filed on his observation that the earth orbited the sun. At the time, his view certainly met the USPTO's criteria of originality, utility and non-obviousness.

There is a dangerously bumpkinesque notion afoot, which holds that patents obstruct progress. This is (pardon the pun), patently false. Why is it that the most vociferous critics of the patent system, the citizens of the web--people who can understand that markets are conversations--can't seem to grasp that patents are conversations, too? Patents protect the free flow of ideas within our business, academic and entrepreneurial cultures.

Before we blitely trash the Patent Office, let us be clear on the actual ethos of patent protection. The point of patents is not to protect the patent-holders; it is to allow the rest of us to read the patents, adding to our collective knowledge base. The protection provided is a carrot. Nothing more….

By offering a proprietary position on a piece of work, for a fixed period of time, we gain permanent open access to the idea and the process that led to it. The granting of patent rights is a collective cultural and financial investment we all make--and if you're a libertarian, this is the kind of tax you want to pay. For the applicant, the filing of a patent is a form of open intellectual engagement with the world of ideas, a bit like the exercise of free speech. You can also call it opportunism if you like, but it's a functional question at root, not a moral one. Like them or not, patents and the culture of open exchange surround them foster more innovation than they retard.

Look at Gallileo: had he been able to hand a patent application over to some proto-Jeffersonian (the US's first VP took patents home in his briefcase every night), rather than having to lobby a bunch of recalcitrant "experts" in skirts and surplices, he might have enjoyed some freedom from worry and gone on to further acts of creativity. If not by profiting from his work, at least by virtue of the systemic protection afforded by the very existence of a patent office.

We tend to blindly assume that all great men and women we admire maxed out their creative potential--they achieved greatness, didn't they?--but if you look at their histories, you find that usually they limped to greatness under extremely unfavorable conditions. The culture of the patent has gone further toward ameliorating this culture-retarding situation than any other institution in the history of mankind. And it can go further.

There are plenty of valid arguments out there for why our patent system is broken, like this one comparing the USPTO to Bastiat's Fallacy of the Broken Window. And there are also plenty of ways to fix it. But I'm concerned about the baby in the bathwater. Why should these protections not apply to the inventors of non-corporeal stuff, as well as thinkers whose contribution is to connect non-obvious dots?

Europe, Innovation and the C Word

Umair Haque thinks Europe is poised to be the next "fountain of innovation", now that it's time to fill up all that new space we've made online with content:

Europe needs structures which create more liquid markets for entrepreneurship, sure. But that's a very small part of the next great economic game, truth be told; and Eurocrats are working to build them, in their own ponderous way.

But to focus solely on entrepreneurship is to miss the bigger picture. I think Europe is poised to be the world's next fountain of innovation; far more so than the US. Here's why.

Europe has two huge capital stocks that no one else in the world does: social and cultural capital.

I agree with Umair that Europe is a nice place to live, because of its superior cultural environment (as opposed to the mini-mall wasteland of the US). Yet... I think that Europe defines culture too narrowly, and too aesthetically. To me, the fact that Europe does not have an entrepreneurial ethos is itself a cultural shortcoming--if you define culture the way I do. I have lived in Europe, and in India back in the days of the closed economy, both places with rich cultures if your definition of culture favors the arts over commerce. But in both places, there's a quiet brutality to the socialist ethic that culture belongs strictly to the social and the artistic spheres.

Europe is responsible for this secularization (I mean this in the broadest sense) and subsequent ghettoisation of the arts--for making culture precious, and toothless. (Des Esseintes anyone?) The result is downright dissociative, a cultural sensibility marked by self-defeating superiority--paired with a sweet-and-sour cocktail of economic snobbery and self-pity.

Culture is about context and meaning, and should be expressed in the context of our economic life, where most of us spend the majority of our productive energies. And right now, the US is the world leader in business culture--more and more, we create, innovate and engage, rather than merely "working". It's the only place where work and commerce are talked about in terms of fulfillment, idealism and even pleasure. This, to me, is where the cultural innovations are occurring. Not in the arts, which are geared toward creative iteration, but not necessarily innovation. And not in Europe.

Tags: Europe, innovation

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The (Techdirt) Greenhouse Effect

One more thing became clear to me during Techdirt Greenhouse: There is perhaps no better way to find out how an entrepreneur thinks than to get them to talk about what they'd do with someone else's business. Anyone should be able to pitch and defend their own startup, but ask them to parse something they've spent five minutes getting to know, and you really do get a fair picture of how fair and nimble an entrepreneurial intelligence they possess.

In the bricks and mortar world, business people sort each other out by playing golf--I'm not making excuses for them; they really do deserve the write-off, because golf is a very, very difficult game to play, let alone be good at, and four hours on the links can tell you a lot about how a person will handle stress, embarrassment, failure and frustration.

The unexpected fun yesterday was to see how entrepreneurs performed when called upon to parse the complexities of other people's companies. It is one thing to listen to someone pitch you something they care about and have lived and breathed for months. It's another thing altogether to see how they field entrepreneurial challenges, well, in the field.

All entrepreneurs, and doubtless all investors, have had the experience of being very keen on someone they've vetted with duly and diligently, only to find that under pressure--sometimes just the pressure of day-to-day ops--there's no one home, or worse, Mr. Hyde answers the bell. Finding out how robust an intellect you're dealing with is really very difficult. But I had the spooky feeling, walking out of these forty minute sessions, that I'd met people I'd like to work with, and also people I'd probably have made the mistake of working with if I hadn't seen them in action.

The upshot: If I were a VC (or a founder looking for partners, or a startup looking for key staff), I'd be pretty excited about seeing Mike, Mike, Mike, Mike and Dennis turn this into a regular event, so that I could avail myself of this forum to gauge my potential investment's performance, not just in a pitch meeting or interview, but on the "green."

Tags: techdirt greenhouse, techdirtgreenhouse

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Yesterday at TechDirt

Jackie and I spent our Saturday at TechDirt Greenhouse in San Jose. The idea: early-stage entrepreneurs who ranged from venture-backed cos with a launched product to college kids with a fresh batch of home-cooked Ajax gave five minute presentations, followed by small group discussions aimed at generating constructive advice.

One of the groups I landed in was charged with discussing the "new" business model for 2006 (result: "organically grown"--ie., "97% investment dollar free!"). The group also disagreed with Andy Kessler's assertion that every business has to scalable to the moon and back--the web needs its mom and pop dry-cleaning shops, too.

Another session dissected topix.net, at which point I briefly (and annoyingly I'm sure) dragged out two of my rickety soapboxes: the one about how I don't think the news aggregator is the killer new media app everyone else thinks it is, and the one about "information overload" being a myth:  Analogy: Do you sit around fretting about the fact that there are six billion people in the world, and how will you ever sort through them? Of course not. Another analogy: Do you walk into Borders and suffer a panic attack over how many books there are? Of course not. So there are a lot of blogs now--you'll get used to it. More importantly, as Umair Haque said, if you're under 18, you're already used to it.

I was very curious to hear Umair keep making quietly prophetic references to MySpace. He thinks we're not talking about this consumer end of 2.0 enough--and I agree. I'd like to see Umair, who is the Robert Venturi of Web 2.0 architecture, to write a "Learning from MySpace" manifesto in the spirit of  Learning from Las Vegas (that's Venturi's 1972 book about the significance of architectural kitsch, not the movie about the drunk and the hooker).

Tags: techdirt greenhouse, techdirtgreenhouse

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