eBay’s Squandered Trust
Last week, I met with one startup trying to solve "online trust" issues in the social sphere, and wrote about another one dealing with trust in commerce (both online and offline).
I guess for some, trust and reputation seem like an unsolved problem. But shouldn't this have been solved already?
I think it should have... by eBay, a long time ago.
Almost all of us have bought or sold something on eBay before, and when we did, we all cared about the reputation of both ourselves and the other party.
eBay was early to figure this part of the trust out: online buyers and sellers don't have another way of contextualizing the other person in a transaction, so reputation adds a confidence premium to the sale.
Realizing this early helped eBay win the auctions game and then move on to "store" models, taking a lot of online retail with it.
What eBay failed to see, however, is how this identity data could have been used elsewhere, outside the world of second-hand hand-bags, collector's items, and cheap electronics. And so, other players started chipping slowly away.
Want to know if that business person is a schmuck? I bet eBay could have told you, but LinkedIn stepped in and took over the Professional Reputation space.
Want to know how that local retail store treats its customers? I bet eBay could have told you, but Yelp stepped in and took over the Local Business Reputation space.
And that's just on the seller side!
Millions more people buy goods on eBay than sell on eBay, and buyer reputation data has much larger implications!
As I've applied for apartments and credit cards over the years, I would have LOVED to show off my eBay score, as a way to build trust between myself and a business, in order to lower my rates or get a better deal.
And remember that time I -- achem -- went on an online dating site? Why wouldn't I have told people that I was an "A++++++ Buyer" with an eBay score of over 25.
=======
As startups like Venmo keep reminding me, trust and confidence are pilars of any economy, and The Connected Economy -- every economy powered by the Internet -- is no different.
Obviously, hindsight is 20/20; but it's just so hard for me to understand how eBay could have let their pioneering trust and reputation work go unused. We know they knew how powerful eBay scores and feedback were! Was there no imagination or dreams for something bigger?
I guess not.
Luckily, eBay's no longer a startup, so I don't have to root for them anymore. It's sad to call out a company I used to admire, but I'm glad I work in this innovation industry, so I can watch my friends and colleagues make things right.
Today, I root for the startups hustling their way into the void left by this Internet pioneer.
Would a Google Antitrust Suit be Good for Startups?
Yesterday, Silicon Alley Insider wrote that Obama's pick to head the Justice Department's antitrust unit is decidedly and publicly anti-Google.
Now, as Henry Blodget put it, this in no way means a certain antitrust movement against Big Rainbow (Google):
Hard to view this as anything but negative for Google. A strident government attack on the company seems unlikely (and ill-advised), but Google's future moves will almost certainly be more scrutinized and restricted than they have been to date. That's not good for shareholders.
However, I wonder if we as startupers -- rather than shareholders -- should encourage or discourage such an action.
In the past, of course, startupers and VCs have rushed to Google's defense (see my Google Antitrust articles from 2007). Not only has Google maintained relatively good Karma among the early stage community (awesome APIs will do that), but also Google has been seen as an attractive exit option for startups ever since they went public in 2004 and began a buying spree.
However, an analysis of this list of Google acquisitions (graphed below) reveals a suppressed appetite in Mountain View, leading me to wonder if keeping Google as a monolith is such a great thing for startups and VCs, who -- in a SOX environment -- increasingly rely on acquisitions as a way to realize the value of their company or investment.
If Google's status as a monopoly were taken on by the Justice Department (and if the DoJ prevailed), Google would likely split itself into several smaller companies, leaving the world with several powerful, cash-rich micro-Googles, in turn leaving with world with that many more exit or business development opportunies for startups.
On the flipside, if Google isn't split up, its obvious that Google's appetite for acquisitons will continue to slow, if not halt altogether, in fear of inducing futher scrutiny from the DoJ.
So, disregarding any political beliefs, corporate loyalties or grudges, I wonder: Should those of us in the startup market hope for a Google shakedown? Would an antitrust suit do us well?
The answer may be surprising.
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Planet X
The following post is by my father, Richard Westheimer, who has the joy of working both in the early stage tech world, as an investor and occasional Board member, and in the stock market, as an investment advisor. He sent me this story earlier this morning, and I have edited out the name of the company and replaced it with "SomeCo." ~Nate Westheimer
A funny thing happened on the way to the SomeCo board meeting. I traveled from a world of increasing doom and gloom -- where jobs are lost at a furious clip, where banks are dysfunctional, where hyper-inflation looms behind each threat of deflation, where demagogues rule that airwaves, and a Max Headroom world beckons. And I entered a world of possibility, action orientation, strategy, and tactical planning.
The meeting began with the expected report of expense reduction: 20% slashed from the expense line -- 70% of that was body count -- mostly from the SG&A side of the ledger. The CEO reported increased efficiencies, elimination of dead wood, reassignment of tasks to more appropriate players, and little or no encroachment on quality or revenue potential. Sales are actually up a bit year over year as other companies see using SomeCo's services as a cost cutting avenue. John Doe CEO has hired recently -- a fellow with expertise in product development. His addition has brought increased discipline and focus. The deals for possible strategic partnership with several Chinese concerns are heating up -- not cooling. Board of Director members who were advocating selling at a deep discount 6 months ago are talking strategy for growth.
I felt like I was on Planet X. There was almost no discussion of macro mega-risk. Everyone was either heads-down, grind-it-out, tactical/procedural, build market-share, pricing model refinement, QA, marketing strategy, OR big-picture, level-two break-out growth, strategizing. Economic shit-storm? What economic shit-storm? (This IS an exaggeration, but barely. Folks at the table are suffering. Businesses they command are facing serious serious strain. Long term investments are suffering. But folks were down-to-business.)
I am not faulting our work or actions. I was really energized by the meeting. We accomplished a great deal and I left with a sense that business can go on and rebuild -- and specifically that SomeCo can.
Sooooooooooooo.... what is going on here. Was this a microcosm of what is happening all over: Businesses tightening up their processes, focusing on core competencies, cutting out non-productive dead-wood, levering existing resources, repositioning for lift off throughout the recovery? OR was a sitting amidst a bunch of "hear no evil, see no evil, speak no evil" Armageddon deniers?
The good news: This is as good a place as any for active investment. The bad news: Well, there may be no good place.
10 Smartest Things Said About the Financial Crisis
Disclosure: I do not agree with *everything* quoted here. Nonetheless, I've found these quotes insightful and indicative of how we got into this mess and how we'll get out of it. Please add your favorite quotes in the comments section below:
Buy American. I am.
Scott Rafer, as told by Aaron Cohen:
"MacroEconomics are fiction," claimed Scott three times during our conversation. He’s admirably cogent and intentionally hyperbolic in his arguments. His point, and I agree, is that the startup community — investors and entrepreneurs — are spending too much time worrying about the recession, global finanical challenges, and domestic financial policy. We both feel that entrepreneurs should focus on their energies on the economics of their particularly companies.
Chris Sacca, via Twitter:
Anyone vociferously advocating for the US auto bailout clearly hasn't rented this 2009 Dodge with no power windows or locks.
Another advantage of bad times is that there's less competition. Technology trains leave the station at regular intervals. If everyone else is cowering in a corner, you may have a whole car to yourself.
It is unacceptable that the United States ranks 15th in the world in broadband adoption. Here in the country that invented the Internet, every child should have the chance to get online and they'll get that chance when I'm President -- because that’s how we’ll strengthen America’s competitiveness in the world.
Graham and Dodd, as oft quoted:
Be fearful when others are greedy, and greedy when others are fearful.
So expect to see a fair number of people taking the entrepreneurial plunge. Traditionally, factories have avoided working with entrepreneurs, because entrepreneurs place smaller orders and their growth is anything but certain. However, in this environment, order-starved factories will be more willing to work with entrepreneurs.
The most concrete thing that neuroscience tells us is that when the fear system of the brain is active, exploratory activity and risk-taking are turned off. The first order of business, then, is to neutralize that system.
This means not being a fearmonger. It means avoiding people who are overly pessimistic about the economy. It means tuning out media that fan emotional flames. Unless you are a day-trader, it means closing the Web page with the market ticker. It does mean being prepared, but not being a hypervigilant, everyone-in-the-bunker type." (Via Chris McAleen)
The shareholders who financed the risks had no real understanding of what the risk takers were doing, and as the risk-taking grew ever more complex, their understanding diminished. The moment Salomon Brothers demonstrated the potential gains to be had by the investment bank as public corporation, the psychological foundations of Wall Street shifted from trust to blind faith. (Via Heekyung Kim)
The SOC [Stabilization Oversight Council] will be accountable to Congress and the US taxpayer, and will be staffed by market practitioners, economists and policy-makers. It will be responsible for developing policy and implementing decisions to address the crisis and stabilize the economy, and will incorporate input from the Treasury, the Federal Reserve, the FDIC and the White House. However, it will neither seek nor require consensus.
Bad Could Be Good
Excuse me for being late to the game on this one, but I've been out of the office and away from the tech industry for the last month.
As I left, the startup world was just coming to grips with the new economic realities before them. But now I'm coming back to the full on start of the wreckage of an industry.
Never before have I been contacted by so many of my friends in their 30s and 40s -- seasoned sales, HR, and community professionals -- who are out of work and looking for a new job.
All of these folks have been laid off within the last few weeks; all of them worked at startups which have laid off multiple workers and instituted a hiring freeze; all of them in reaction to the latest economic trends.
So, what do we do?
We can't have dozens of amazingly smart and capable people wandering the streets. How could this industry and economy turn around with our best and brightest sitting on the side lines?
The answer, then, is for them to organize and create MORE STARTUPS!
Indeed, now is the time for folks to gather 'round and build something together and build themselves and this economy out of this rut!
I've noticed that those who have lost their jobs go out and try to solve this problem on their own -- email after email to friends, asking for help -- when instead there are dozens like them who are highly skilled and also out of work.
Organize people! Get together! Build something valuable, together! This economy is bad - yes, very bad! - but if folks take advantage of the situation, bad could be good!
At the Web 2.0 Summit in San Francisco, last week, Kevin Rose reminded folks that Digg was born out of the nuclear winter of Web 1.0. He reminded folks that the nuclear winter forced him to build Digg for next to nothing.
You can't build Digg -- we don't need another social news site. But you can build something. Your condition and this economy beg you to build something.
What’s Risky?
"Will my Money Market fund be there tomorrow?"
"Is my savings account safe?"
As this financial crisis progresses, we're hearing phrases like these whispered more and more.
What we once thought were risk-free investment vehicles now carry disproportionate risk, leaving people to consider making a run on their banks.
What times are these?!
However, in the early stage investing world, relative to the rest of the financial markets, times aren't changing very much at all.
As recently as two weeks ago (post-Lehman), the New York Angels -- a relatively conservative Angel group, considering its proximity to Wall Street -- polled its members and found that the amount of investors looking to invest less, the same, or more in the coming year was a healthy bell curve.
Readers of popular VC and Angel blogs, like AVC and Information Arbitrage will also find a relatively optimistic tune being sung; and my own boss, David S. Rose, falls in line with those NY Angels who will likely invest the same, if not more, in the coming year.
"Excellent start-up prospects will continue to get funded and grow, even in today's hostile environment," reports Roger Ehrenberg.
Fred Wilson also added today,
I don't think we are in a "depression" in startup land. We are in a down cycle driven by a bad global economy. I think the web and information technology is one of the few bright spots in an overall gloomy economic outlook...
The tools and services that are made in the web technology business are only going to increase in demand over the next five years.
Of course, wise investors, such as Fred and Roger and David, while optimistic, aren't stupidly so -- and they do pepper their optimism with a more cautious tone now than a few months ago.
But, what's absolutely remarkable here, is that the early stage investing market -- at both ends of its spectrum (VC and Angel) -- have become only slightly more risky when compared with more traditional investment markets. That is: the relative risk of the early stage game is disproportionately lower than other investments, given that when the market returns from this slump, new companies started should be poised to bring greater gains to their investors.
All this then begs the question: What's risky?
Is it less risky to put your money in startups vs in a savings account? On balance, no, but ask that to a Washington Mutual customer and they may hesitate a little before asking.
Are you better off extending a line of credit to an existing company than taking equity in a zero-revenue prototype? Again, on balance, probably not -- but for more and more financiers, the early stage investment will be more on par with their appetite for risk and reward.
Mash up the shifting landscape of risk and reward with the opening of the early stage investment game (look at the path Angelsoft is on) and the continuing lowering of early stage barriers, and one of the most significant results of the market could be a tetonic shift of what "risk" looks like in the early stage investment game.
Calacanis to startups: raise tons of cash, now
Photo: Jason Calacanis' black SUV escort. Julia Allison and David Karp deciding where we'll go next.
Last night, it seems as though I was the only person who got any work done in Silicon Alley.
No, it's not that I wasn't out enjoying the much reported festivities of Jason Calacanis being in town -- I was there looking my usual dashing self -- it's that while we were all drinking champagne at UnderBar (okay, gin an tonics for me), I had the audacity to bring up the economy with the most experienced CEO among us.
"Are we fucked?" I asked Jason, in reference to this tailspin economy's impact on Internet startups.
His reply:
"I'm not. I raised enough to last me for years. You should too. Now. If you can."
Jason's right (first time I've said that, I think). He was smart to raise $20 million back in November and any entrepreneur trying to raise money now should probably raise as much as possible, even if it means giving up more of your company.
If what folks are saying is true (and some have been saying it for a long, long time), we're about to have a long economic winter on our hands, and it's going to affect every budget: from advertising, marketing, HR, travel, etc, all the way on down to consumer discretionary.
And if all that is indeed true, no matter your web 2.0 business model, -- ads, premium, freemium, utility, etc -- the answer to my initial question ("are we fucked" is this):
You're fucked... unless you raise serious cash, now.
Clever understanding of the stock market
Just got this in an email from a second cousin:
Once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys for $10 each. The villagers seeing that there were many monkeys around, went out to the forest, and started catching them. The man bought thousands at $10 and as supply started to diminish, the villagers stopped their effort. He further announced that he would now buy at $20. This renewed the efforts of the villagers and they started catching monkeys again.
Soon the supply diminished even further and people started going back to their farms. The offer increased to $25 each and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it! The man now announced that he would buy monkeys at $50 ! However, since he had to go to the city on some business, his assistant would now buy on behalf of him.
In the absence of the man, the assistant told the villagers. "Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $35 and when the man returns from the city, you can sell them to him for $50 each." The villagers rounded up with all their savings and bought all the monkeys. Then they never saw the man nor his assistant, only monkeys everywhere!
Now you have a better understanding of how the stock market works.
(Photo attribution: babasteve)
The NYC Test: Can We Hire a Local PHP Developer?
(photo credit: Dave Parmet)
A few weeks back, Charlie O'Donnell asked, in a blog post, an important question: "Why aren't you working for a startup?"
Now it's my turn to ask: "Developers of New York, why aren't you working for BricaBox?"
Two weeks ago, Kyle and I posted a job opening at BricaBox on the nextNY job board, Authentic Jobs, 37Signals, Zend Jobs, Center Networks, and Craigslist.
One may hope (I did), with the greater-than-zero visibility our project has, we could get the attention of some great independents. People who know us know that working with Kyle and me would be a fun, flexible, and meaningful. We made it clear in our postings that we're looking for someone to be a local team-member, not just a code-monkey we send specs to and then don't invite out to drink beers at 2A, or get BBQ at Georgia's or sip coffee at The Roasting Plant.
No, we were looking to form a great relationship with someone and we're building something of engineering importance and intrinsic value. And while it may not be the dreamiest of the dream jobs out there, I know from reading the other job postings on the same boards, that working with us is in the top-teir of rewarding jobs in NY market right now.
So, before analyzing the lack of response to our ads as total rejection [tear], I started asking around.
First I turned to my startup CTO friends -- folks who are developers themselves and also looking for more hands to help on their projects. Guess what: everyone is having the same problem. The shortage of talent in NYC is real. There are tons of great developers available in other places -- I heard from folks in Chicago, Colorado, Washington, India, and California -- but the lack of response in NYC was beyond startling. It was troubling, for me and everyone else.
Probably the best insight on the matter came from my very own partner and CTO of BricaBox: Kyle. He reminded me that startups = risk, and that with the economy the way it is right now people would feel more comfortable working in an unexciting job that's definitely going to be around in a year. While we can hope and expect this for our own startups, we can't compete with most companies in the job security market. We're offering a 3 month contract, and while that should look like security for many independents, perhaps it's getting more and more frightening considering the economic crisis our country is in.
Of course there's another obvious analysis here: supply is not low, demand is high. I imagine this is also a part of the equation, but I think supply and risk is the real issue here.
So, it's sad for me to say, because I'm such a booster of the NY tech community, but in my mind NYC is failing us right now. I'd almost like to think that we're the only ones having this problem, but I know we're not. Everyone is. And this makes me wonder: what's the solution? Are we fools to try and work with local folks? Can we only hire when it's permanent? Should we kick the dream of finding a team-member, rather than a code-monkey, to the curb? I can't imagine the latter is more attractive than the former, but it all goes back to Charlie's question:
Why aren't you working for a startup?
Who is Nate?
You've found Nate Westheimer's blog. Nate wears many hats. He's the EVP Product & Technology and Co-founder of AnyClip, the Organizer of the NY Tech Meetup, and Advisor to Flybridge Capital Partners.
More about Nate can be read on his Bio page and you can follow his thoughts on Twitter
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