The sad truth about Facebook

I have been thinking about this recently, should the start-ups - which rely heavily on user addiction - be treated as gambling outlets, and therefore be regulated and watched closely? It would at least discourage that form of start-up.

Which is probably what the author of this article would consider to be part of the problem.

One problem is that the article mistakes light for heat. Just because they get less press than Facebook doesn't mean that old-school high-tech engineering startups don't exist. Facebook et al are focused like a laser on getting their names out. That is what social networking is: word-of-mouth viral publicity. Whereas most hardware startups are born below the radar, and the majority die below the radar, and many of the successful ones get bought out by bigger companies and never rise above the radar under their own name. But that doesn't mean they don't exist. Some statistics would have been nice.

The balance of companies has shifted a lot over time, but that's because computing has grown and matured. Back in the 1970s Silicon Valley's only customers were nerds. That meant a lot of emphasis on nerdly products. H-P calculators. Oscilloscopes. Chipsets. After thirty years of work on mobile phones, broadband networking, and UX design, we've improved computing to the point where there are now many Valley firms whose customers are non-nerdly iPhone owners and Web users. That's a huge number of people. And it turns out that you can make as much gross revenue by selling a $2.99 app directly to 2 billion people as you can by selling a $2.99 part to a firm that will make 2 billion mobile phones, but the former requires much more marketing and makes a lot more noise.

But the big problem with this article is that it is trying to blame a forest-management problem on the individual leaves. If the USA is not investing enough resources in "alternative energy, better batteries, and nanotechnology", don't blame Silicon Valley startup culture. That's putting the cart before the horse. Entrepreneurs go where the money is, and who controls how much money goes into cutting-edge hardware research? The government, mostly. Either directly (by giving out research grants) or indirectly (by providing an artificial "market" with a single customer -- often the Department of Defense, but sometimes an entity like NASA -- that happily commits to spending money on the very latest high-tech toys; or by creating and enforcing the incentives that drive the market for, e.g., alternative energy).

The Internet got developed because the government commissioned it. Rocket technology got developed because the government commissioned and bought it. H-P and Intel became big companies by selling equipment and parts to the high-tech companies that sold to the government. The nanotech researchers I know are paid by the Department of Defense, the National Institutes of Health, or the National Science Foundation. Biotech research? Funded by the NIH or the DoD. Alternative energy? The size of our research efforts have tended to wax and wane with the size of the DoE budget; the economics of deploying alternative energy have everything to do with the cost of oil and gas (determined by forces outside of an entrepreneur's control, like taxes, and tax-funded highway projects, and tax-funded transportation projects, and zoning policy, and tax-funded military maneuvers, and government-mediated international agreements) and the extent of environmental regulation (determined by government and politics).

If you want to address these problems you must first analyze them correctly. If you're a rag like Newsweek it's easy and fun to pick on Mark Zuckerberg, but the real problem is economic and research policy: We've got an economy with flat or declining demand and lots of excess capacity (I, for one, could certainly be talked into applying my Ph.D. in EE to alternative energy problems instead of to PHP applications... if the price was right) yet our government officials are perversely engaged in an effort to further depress demand and raise our excess capacity by cutting spending. I wonder if there are any magazines that are ostensibly devoted to discussing problems in society, government and policy, instead of trading in mindless gossip, cheap shots, and PR hit pieces?

Positive. The author understands the gist of what's going on. Places like YC focus on Minimum Viable Product and doing just one thing that people want. These are great and wise strategies for both investors and entrepreneurs, but there's also another term for it that's not as flattering: bottom-feeding. Going after the little bits of value here and there, not being a hunter, existing by providing the least amount of value possible. There are huge bottom-feeders! Facebook is one of them. But it's little tidbit work. Stuff like reminding me when I like to scratch my nose, or a service for recommending dog groomers.

Negative. The problem here is that the author seems to think he knows where technology is headed, and that's always a foolish bet. His view is that we should be making complex things and solving hard problems. While I agree that hard problems need to be solved, I don't think you can decide ahead of time which problems are going to be the ones that gain traction. This is like the government or VCs "deciding" that one area of effort is going to give more results than another. Nobody knows. This is the risk of startups. It's why the smart move is to do the little stuff.

More to the point, there are two kinds of innovation (to steal from Kuhn). There is "normal" innovation, where people take existing tech and put it together in new ways to make trivially more usable things than existed before. Then there is paradigm-changing innovation, where completely new things appear.

By far, normal innovation is the norm. Probably 99.9% of all innovation is normal. Maybe more. Systems change from the ground-up, not from the top-down. Eventually a bunch of little things reach critical mass and a paradigm-changing innovation occurs. But hell, most of the time you can't force the little innovations to work, much less the big ones. I love the contrarian tone, but it's just not a realistic article.

We've seen where demand (Wall Street) driven acute focus on the short term has brought many companies today, ie, over-reliance on what was once popular but quickly hit the dust the second something slightly more trendy came along.

Of course, making so many rapid platform adjustments drives people into borrowing ... from Wall Street. But companies were told over and over by a barage of management consulting gurus that things were so fast and blurry, they couldn't afford to not keep borrowing more and more money to pump out more and more crap to keep up with the almost instantly changing trends.

On the other hand, look at apple - just over a decade ago they were considering bankruptcy, and instead of giving in to the urge to "do what would sell at the moment" they decided to ignore "expert advice" and instead invest in a simple but well-thought out development plan (iPad seems new but is really just a long-held fantasy of Newton II) and chart their own long-term course of doing what they wanted at a time when it wasn't certain there was going to be a long term for them.

Now of course everybody praises them for their determination to do what they wanted rather than catering to the fickle whims of the market.

Now look where they are. They define the market. They don't make what you want - they tell you what you want and make sure you get the hint that they know what you want even better than you do. And more and more people seem to agree.

I think that's what this article highlights - what will the world be like 5 years from now (more of the same) if facebook keeps getting more and more money to hire more talented people so they can figure out clever new ways to help people keep each other up to date on useless banalities that do nothing to advance anything other than their intimate familiarity with useless and ephemeral trivia about their sometimes friends but mostly loose associates.

The world is facing more and more problems ... exponential inter-relationships between these problems will at some point overwhelm us ... and smart people are figuring out how to steal money from grandparents on wall street or how to better allow you to tell everyone you ever bumped into in life that you got a new refridgerator.

Path dependency is very real and we may come to a point where we can't solve the important problems anymore even if we want to or need to.