Tuesday, March 11, 2008
A Wake Up Call For The Venturescape
Let me ask a question. Is SXSW fiddling while Rome burns?
We've been discussing Zuck, Sarah Lacy, Facebook's privacy controls, etc. But perhaps we don't have the luxury of that self-indulgence.
Why not? Because the global economy is about to get hammered. The signals the economy is sending are, to put it bluntly, very, very scary. As Lex notes:
"...Now, after a very nasty week in markets, the whispers are that it might even be the big one: the worst crisis since the 1930s. Signals of distress abound: Friday’s non-farm payroll data were awful, the US auction rate market is closed, banks’ shares are collapsing, interbank rates are back in the danger zone and debt spreads are ballooning."
From this perspective, Yahoo + Microsoft, Google + Digg, Zuck + Lacy - who cares? We're lost in the trivial. It's like happily painting your toenail - while Freddy Krueger closes in on slashing your jugular.
Let me put this to you another way. Most of us in the venturescape and mediascape think orthodox business - ie, working at a corpocracy - sucks.
Yes, big business sucks. We all know it. But the question is: what does our feeling really mean? Why do we feel that?
Because the DNA of the industrial era firm is sucking the life out of the economy. Once upon a time, industrial era firms were engines of value creation. Today, they're prisons, where trauma is institutionalized into everyone who comes into contact with them.
That feeling - like a dull toothache - is a massively powerful heuristic that something is deeply wrong; wrong with McJobs; wrong with $100m bonuses for value destruction; wrong with the evisceration of variety, choice, and happiness; wrong with the long slow death of culture and community; wrong with the sinking intuition that like you've signed away your life when you walk into that cube, all for a few bucks and free lattes.
So who reinvents the firm? We do.
The power of 2.0 isn't minigames and ad nets: it's the new DNA it brings to the table.
There are two paths ahead of us. First, a global crisis explodes, and the economy is reinvention via the new genetics of 2.0 is forced upon it slowly, over 5-6 years. Second, we take the initiative, and reinvent it fast, over 2-3 years.
As a naive and trivial example: no one loves Wal-Mart - but no one is helping Wal-Mart think about love.
Here's a better example. Big pharma's manipulation is lame and cheesy - but we're all complicit in it - except Google and a handful of startups, who are busy redesigning the pharma value chain.
That's the point. If the venturescape wants to remain relevant, it has to solve the problems that are causing the macropocalypse to accelerate.
That's always been it's job: to power renewal. Today's crop of VCs are nice guys - but fast being corporatized: comfortable in their myopia, highly risk-averse, cronied into each other, and, unfortunately, totally out of tune with the problems they should be solving.
Ad nets, social nets, and minigames won't change the DNA of the economic system. Radical new approaches to consumption and production across the industries that are broken will.
Let me put it more sharply. I think we have two choices. Help fix things, and get rich, or just get blown up along with everyone else.
Let me make that concrete.
-For venture guys, that means: most of you are going to have to develop new investment theses, centred on redefining industrial era DNA. What do next-gen value chains really look like? What do the economics of production and consumption look like tomorrow?
-For entrepreneurs, that means: forget about hot products/services (ads, games, etc) and tech. Think about DNA, and how it can reshape the markets and industries that are crying out for help. Where does business suck today, and how can you make it radically better?
-For corporates, that means: stop making acquisitions driven by growth/share thinking. That's easily dominated. Make acquisitions driven by DNA, and use it to suck the lameness out of your strategy - fast.
getting up from my chair, and climbing on top of the seat
CLAP CLAP CLAP! Well said, Umair.
A perfect 'sum-of-all-fears' post.
El Dumbo talked about exactly this a week ago.
Citing a specific example...but elaborating on the stale-ness of the VC world.
I've been meaning to put down my thoughts on new DNA/value creation, for quite some time now.
Thanks for the push.
i must echo the "getting up from my chair, and climbing on top of the seat: CLAP CLAP CLAP!" sentiment. killer post.
// kid mercury // 12:29 PM
So, is this pointed at Brad and Fred or what? My guess is that your premise for raising a fund in 2008 wouldn't be "more of the same consumer-web, but bigger". ;)
Your time frame makes me think of a really wise advanced technology engineer I worked with, who upon our first meeting told me that good ideas take 20 years to get to market. From the web's earliest days + 20 years, hmm.
Put another way, the jump from early adopter to mass market is a big one. Hold on to your hats.
i'm glad you enjoyed it.
not pointed at fred + brad at all - in fact, they're one of the few funds taking these signals seriously, look at their recent investments.
more meant for the sand hill road kru - where's the innovation?
thx for the comments.
Talk a little about the politics of the post-corporate world. We really won't need that many jobs or that many consumers. But voters will still be hanging around for a generation demanding that politicians save their (our) sorry asses. And those politicians (even Obama) have no clue about how to keep the people pacified. The masses will be justifiably pissed and it will be ugly.
Great post. Makes me want to change the world.
A Question: Who are the handful startups are working on the pharma value chain?
I've been examining this area and couldn't find many companies of interest, just lots of "same old".
"Because the DNA of the industrial era firm is sucking the life out of the economy. Once upon a time, industrial era firms were engines of value creation. Today, they're prisons, where trauma is institutionalized into everyone who comes into contact with them."
Wow. This comment is so unbelievably accurate. This captures exactly how so many people are feeling while they work at these big companies. It's sad. The people aren't bad, but the institutions are sick.
Umair, one direction all your arguments point to is bringing the massive innovation we've sen in terms of web technologies to the corpocracies as you label them. This will require the active involvement of the 3 actors you're pointing to: VCs, entrepreneurs and corporates.
Yes, DNA needs to be changed, but DNA is made up of many levers and the IT one is currently the most powerful. Try to change DNA without changing the IT tools available and the way corpocracies interact with IT, and you will get nowhere.
Bring up a tool that, combined with a few twist of DNA, will unleash massive change, then you have a shot at convincing some corporates to try it.
There's a massive potential lying in the open before our eyes in creatively bringing consumers, "web 2.0", bla bla techs into full use to connect the edges into and across corpocracies.
It should be a no-brainer for VCs as well: not investing this field, taking advantage of increasing returns, first-mover advantages, etc. and completely renovating DNA in the process is myopic to say the least.
Consider this (fromhttp://thingamy.typepad.com/sigs_blog/2008/01/sexy-or-boring.html ): online ads market is approx. 20 Bn $ a year (you may find it low, so double or triple that if you want); IT spending by banks alone would be 390 Bn $ a year. Extrapolate.
Investing to reinvent or even create new tools coupled with new DNA bits that will explode efficiency in generic parts of the value chain that are used across a large number of industries will further compound the power of increasing returns.
Can't understand why VCs aren't seizing this to innovate. Sure, doing web 2.0ish stuff for corpocracies isn't sexy at first sight. But you're chasing a whole lot more dollars with far fewer competitors. And "reinventing the firm" does make that sexy ;-)
Okay...step 1 in understanding new DNA...asking oneself: do iRock or do iSuck?
Masterful post. It will be interesting to live this out.
Unfortunately I'm sure we'll all look back to this whole "Macropocalypse" series in 12 months and sigh.
Umair, can you give us any indication that you're hatching some massively open and distributed effort to spread the word on these strategies?
// Ethan Bauley // 5:47 PM
wow, umair haque almost
comes up with an action step, never saw that before
but the "how" still remains invisible, cheerleading for change being easier
it would be nice to be able to stop a container ship headed towards the shore, about a thousand yards out, in less than a thousand yards, but it is physically impossible, and it is the same with the economic/production system
the crash, the chaos of the next five or six years, that is the only way existing "dna" will die off
until greed is known
to be self-destructive, people will continue to go for the quick hit
i think you're relatively new to bubblegen. here's the deal: usually, you have to be a client to get the how.
given the amount of analysis i share with you here every day, i think that's more than fair.
is a crash needed for new dna? i don't think so, watch out for my latest hbs post.
my blog at hbs and my forthcoming book will push a lot of these issues...as for spreading the ideas, let me know what else you think might work.
that's a great comment, which i can't do justice to given my miserable flu!!
there are quite a few pharma communities/nets - have a quick google. wish i could be more helpful but flu = braindead.
that's exactly the point - the institutions are in need of transformation.
i think there's a deeper point there - which is that we need DNA that lets consumers act responsibly as well.
thx for the comments guys.
Thanks for responding, Umair.
I'll have to think more about how Bubblegen can "go viral" (pardon the phrase, lulz ;-)
I admit to feeling pretty cultish (in a very positive way) about Bubblegen...which I think is a powerful emotion that others here probably share.
i.e. I feel like I'm "in" on something.
I gave a presentation that surveyed Bubblegen and Yochai Benkler at BarCampLA last week. The response was inspiring...the audience was captivated by how your framework (well, as related by humble me...markets, nets, communities, DNA, context) articulates so many important concepts that many take for granted.
((( presentation is here: http://tinyurl.com/342sf3 )))
Given the inherent positivity of your message (good beats evil), it could explode.
// Ethan Bauley // 8:31 PM
ethan said, "Given the inherent positivity of your message (good beats evil), it could explode."
you are right
as soon as oprah gets done with her ten weeks with eckhardt tolle, umair is next
Hey Gregory, that was pretty funny.
I've read most of your comments here and they are without exception really insightful...
I just think that the "good v. evil" construct may go a long way towards helping:
Your words, re: Umair
"your thinking is necessary to be heard in the world, so however that happens, good.
"resistance to it will be natural, so skill in presentation, showing people how it benefits them, is good."
Who doesn't want to be a do gooder...AND make money?
// Ethan Bauley // 10:03 PM
this is an inspiring post.
i hope we can live up to the challenge you pose.
Here is my (long) take on things:
This is the future, no doubt.
The readers of this blog are on the forefront, and see the future coming. However the public masses, and many analysts included - who know how to read the market signs and also understand we are facing change - don't see where it's all going... and they won't, until it's in plain view.
What gets me is that Gregory isn't necessarily wrong, and Umair isn't necessarily right. It's too early to call. In my opinion, things could go either way, depending on certain factors.
The economy is about to hit a forked path (or it already has, you could argue). Either way, there are going to be huge changes in the way we do business and massive economic restructuring is inevitable.
So is a crash inevitable, or more as Gregory suggested: necessary? No. Could it happen anyway? Yes.
What's going to happen could be potentially destabilizing, but I don't see it going down that way.
This is the edgeconomy - where we are right now in time. We are in transition, but we are still in the early stages. That means there is plenty of time to shape the future.
What I am getting at is this: With the way the world has "opened up" so to speak, we are going to see widespread elimination of the middle man because of decentralization and the consumer's increasing ability to make direct connections. (Maybe "middle man" is a bad choice of words, but I'm refer to businesses and institutions that have served as gatekeepers to content/services, that in the future, will have no business being in business)
Umair, I think its funny that you put a lot of this on VC's as a catalyst for change. Yeah, they are a source of funding, but to me their importance is negligible.
Most of them will wise up and change once it becomes clear which emerging industries are profitable... meaning they haven't really changed at a core level. How many do you think are going to be proactive and take risks before then? Many don't have the tools to make those decisions. They are in the business of minimizing risks, not taking them. I think they are a cog in the machine, and not so much an independent entity for affecting change.
The real players that will lead us into the future and determine whether or not it's a bumpy ride or smooth sailing will be people and firms like Bubblegeneration.
I think once there is more visibility on the issue (think 2-3 years ahead), there will be many more strategy firms just like yours popping up, because smart entrepreneurs will see how these businesses will be key to facilitating the transition into this new age. And they will flourish.
And then the idea is, if we get enough people collectively affecting widespread DNA changes in the corporate - and even consumer - world, the economic transition won't play out like a Greek tragedy.
But hey, I'm just a young disaffected college grad, so take that for what its worth.
Thanks for the reply Umair.
Hope that you get better soon.
The only SN's in pharma/medicine that I could find in the US are imedexchage (which is pre launch), and Sermo.com, which seems like a way for companies to profit from the anonymous conversations of doctors. They have signed up with Pfizer, who can pay a fee and can see what the doctors are saying to each other and access the votes on different topics. It is true that they don't take ads, but it seems a bit of a shill game, esp as the docs are paid to post. http://alphamd.com/
It's an interesting bis model, but i'm not sure that anonymous communication between docs under a spyglass is a great way to build social/intellectual capital in healthcare. It seems to fit the "evil" side of transferring value from one side to the other rather than creating new paradigms. Is there anything more inspiring that you have come across?
Doctors.net.uk was the other (UK based) community style service that I saw. Again, here pharma pay to promote their wares/ads/sponsorship, so nothing new there.
I want to get a deeper understanding for the new DNA in this area, so would be great if you could let me know what I've missed.
My brother is helping Wal-Mart to think about love: http://tinyurl.com/2yjce6
Anyway, as usual, a great post. Those who *think* they are the future by definition (VCs, entrepreneurs, geeks) sometimes see less clearly than the old farts stuck in the soul-destroying corporations. The tragedy is that the latter lack the agency to do anything about it.
Fortunately, the SXSW kerfuffle is still a ways away from Internet Summit 2000, when someone paid $10,000 (IIRC) at a charity auction to throw John Battelle and Meg Whitman in a pool. Rome isn't burning quite yet... though Wall Street may be, as you point out.
Glad we'll have you back at Supernova this year!
// Kevin Werbach // 1:27 PM
My regards on posting a great article.
The best of 2008 so far.
My two cents worth.
We are at the brink of "something" that is true. I think that the best opportunitys will lay in the under developed countries like China, India, Brazil and Mexico. The problem how we will drive this new DNA and change the very nature of the enterprise.
VC's as a comment posted before, will not see this coming. Entreprenuers are the one's in the trenches, they will be the guides, either through rocky times or smooth riding. We will see lots of failures, which is part of being on the edge of something new, that has never been proveen before.
So far and wide, there will be great ideas.
Right now Barcelona (as many other places...i think) is living an exciting time, as many people are getting together and collaborating.
I hope that every one gets their opportunity to showcase what they have in mind. But also improve and collaborate with each others findings. In this new era of peering.
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