Paul Smalera http://blogs.reuters.com/paulsmalera Wed, 04 Sep 2013 00:04:42 +0000 en-US hourly 1 http://wordpress.org/?v=4.2.5 On Twitter, dubious health claims from e-cigarette bots http://blogs.reuters.com/paulsmalera/2013/06/27/on-twitter-dubious-health-claims-from-e-cigarette-bots/ http://blogs.reuters.com/paulsmalera/2013/06/27/on-twitter-dubious-health-claims-from-e-cigarette-bots/#comments Thu, 27 Jun 2013 16:09:14 +0000 http://blogs.reuters.com/paulsmalera/?p=486 Advertising is a funny medium. TV spots, radio jingles, banner ads — none of these are meant to get us to rise out of our seats and run to the store. Instead, most advertising is meant to impress something upon us: an idea, a favorable opinion, a subtle memory of a brand name. As social media has gotten more sophisticated, however, a funny thing appears to have happened online: People with products to sell aren’t even bothering to call themselves advertisers.

Instead, on Twitter, they open plain old accounts and start tweeting about the stuff they want to sell us. Social media has brought a revolution to advertising, but in the case of products subject to regulation regarding health, safety or efficacy claims, it’s also brought the potential for a return to the bad old days of snake-oil products peddled by quacks in the backs of magazines, where the best result would be to not end up becoming sick or dying thanks to the “cure.”

E-cigarettes — the smokeless, tobacco-free, nicotine vapor delivery systems — are being talked about everywhere lately. The devices, and their fans and detractors, are in newspapers, magazines, the mouths of celebrities, even the investment portfolios of Internet moguls. The New York Times spots one dangling out of Leonardo DiCaprio’s mouth. The Wall Street Journal notices Silicon Valley gadfly Sean Parker adding some nicotine vapor to his investment portfolio. And Bloomberg Businessweek spies an e-cig hospitality tent at the Bonnaroo music festival. This is the growth template — celebrity sightings, brand ambassadorship, big-name investments — of many new products these days. There’s even $1 billion in “traditional” advertising being spent this year by tobacco companies like Philip Morris, Lorillard and R.J. Reynolds (selling MarkTen, Blue and Vuse branded e-cigarettes, respectively) who have gotten into the vapor game. The only piece missing from e-cigarette campaigns would appear to be a social media strategy. Or is it?

A recently concluded study run by a research team from Health Media Collaboratory, based at the University of Illinois at Chicago, has in fact analyzed Twitter traffic looking to learn how e-cigarettes are marketed and promoted on social media. What the team found was a steady stream of tweets, many of which appear to be from bots, or automated Twitter accounts, that tout the health and safety benefits of e-cigarettes, primarily pushing the idea that e-cigarettes aid with the cessation of smoking the plain old paper-and-tobacco variety.

The study has the potential to open a new battle line on advertising in social media platforms like Twitter and Facebook — not just their adherence to legal regulations, but the very definition of what social advertising is. The regulation of emerging products like e-cigarettes is already a blurry field, as the fledgling industry fought to avoid being categorized as a tobacco product, a fight it lost in 2011. However, while final FDA rules on e-cigarette regulation are awaited, there is one bright line the makers of e-cigarettes are not supposed to cross. Manufacturers can, according to the study, “make unrestricted advertising appeals, provided they do not market their products as smoking cessation devices.”

In an analysis of over 73,000 tweets from a two-month period in 2012, the authors concluded that nearly 11 percent of “commercial” tweets touted cessation as one of the benefits of e-cigarettes, with a potential reach of 7.4 million Twitter users. These tweets weren’t part of Twitter’s advertising program, but they weren’t organic either. The authors concluded that the Twitter accounts were commercial in nature; that is, they touted websites and resellers of e-cigarette products, along with the cessation claims that e-cigarette sellers are supposed to be barred from making. (I first learned of the research when I moderated a panel that included study co-author Dr. Sherry Emery, at a conference put on by social data company Gnip.)

The FDA must sign off on claims of smoking cessation because, quite simply, they have to establish the efficacy and health trade-offs of the cessation devices themselves. Mini cigars, or even full-size ones, for example, could be pushed as cigarette smoking cessation devices, but there’s obviously a less than positive health benefit to trading one for the other. Studies are underway about whether e-cigarettes are effective cessation devices, according to Scientific American, but it’s already anecdotally known that the devices do help people stop smoking. Indeed 13 percent of subjects in a study conducted in Italy stopped smoking regular cigarettes, without even intending to, according to a Reuters article.

The question is, are the chemicals in e-cigarettes any better (or worse) for you then a regular old puff of cigarette smoke? It will likely take years for the FDA to decide that question, not even factoring in the lobbying and litigation efforts various interest groups will employ to attempt to put their thumbs on the scale.

Meanwhile, it appears e-cigarette companies and resellers aren’t awaiting the final verdict to begin touting health benefits. By taking advantage of the ease with which a relatively anonymous Twitter account can be created, seeded with followers and programmed with automated messages, it appears the kinds of so-called commercial Twitter accounts identified in the study have found a way around the one rule the FDA currently has established with regards to e-cigarette marketing: a ban on cessation claims. To be clear, e-cigarette tweets that make cessation claims, like this one:

and this one:

often come from very small online resellers, not the big tobacco brands that are just getting into this new market.

On the websites of leading sellers of e-cigarettes, all sorts of creative copy is employed to suggest, but not claim, that switching from paper to electronic is the smarter, safer choice for smokers everywhere. But as this data-driven study has shown, there no need to employ such hair-splitting when it comes to social media platforms. Indeed, the connections between the bot Twitter accounts and big e-cigarette makers will likely always be tenuous, which means that no matter what the FDA eventually rules in the matter of the health and safety of e-cigarettes, the bots will keep pumping out potentially misleading or illegal claims. While spam blog networks for e-cigarettes (and other dubious products) have also long existed, the “fire hose” of big data from social media providers has allowed researchers to quantify studies in a previously impossible manner.

Emery, the investigator I interviewed on the panel in Boulder, Colorado — which was about academic uses of social media data sets — emailed me, “there’s a ton of marketing — a nontrivial amount of which potentially violates [e-cigarettes’] current regulatory status.” The study is currently under consideration for publication with an academic journal. The FDA is due to present its regulations on e-cigarettes sometime this year. Those regulations will greatly affect how and where e-cigarette manufacturers can present their products to the public. Until then, and perhaps even after, the public can find, it seems, whatever health claims those with an interest in promoting e-cigarettes have, on Twitter and other anonymous corners of the Internet.

PHOTO: Gabor Kovacs of ‘smoke no smoke’ puffs on an e-cigarette that his shop sells at Camden in London June 9, 2013. REUTERS/Toby Melville

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Video Transcript: Cory Booker on Tech Tonic Interface http://blogs.reuters.com/mediafile/2013/06/03/video-transcript-cory-booker-on-tech-tonic-interface/ http://blogs.reuters.com/mediafile/2013/06/03/video-transcript-cory-booker-on-tech-tonic-interface/#comments Mon, 03 Jun 2013 14:59:16 +0000 http://blogs.reuters.com/mediafile/?p=36546

Below is an unedited transcript of the video interview I conducted with Cory Booker, Mayor of Newark, NJ, in April.

Paul Smalera: Earlier today I had a great conversation with Cory Booker, the Mayor of Newark, New Jersey. Let's have a look. Mayor Booker, thank you so much for being here with me.

Cory Booker: It's great to be here with a Jersey boy. A fellow Jersey boy.

Smalera: I wanted to ask you first of all, you have this reputation as the social media mayor, the tweeting mayor. What made you get onto Twitter in the first place?

Booker: It happened in 2009 where now co-founder with me of WayWire but really an extraordinary visionary woman who saw social media and was a social media maven before...she actually thought up the idea of a Twitter race to the top between Ashton Kutcher and CNN. For some reason she felt the platform would benefit from having indigenous, grassroots authentic leadership on it not just a place for triviality or celebrity but really a mission driven platform and to get more people like that on the platform would be better. She had seen a lot of the other things I was doing in Newark and finally decided to reach out to me. It was a great conversation but I really felt was too busy. I still didn't understand the concept at all. She pulled a powerful persuader out on me which was Ashton Kutcher. I had this surreal moment where I thought my staff was punking me because Ashton Kutcher's calling city hall in Newark? I can't believe that.

I remember I was travelling back to my law school and this drive up highway 95 talking to him, he spent must have been 45 minutes on the phone, really challenging me and explaining to me the benefits of taking control of your own media, of connecting with thousands of people and said, "Look, I want you to do it but I don't just want you to do it. I want you to dive in head first and be authentic on the platform, take risks.' He counseled me to it and I said, "I'm going to give this a three month trial.' And by month two I was completely sold and amazed. What really sold me was a veteran's issue. I was greeting the largest deployment of New Jersey National Guard since World War II was coming back from the Middle East and I was tweeting back and forth about issues. A guy in California, very frustrated veteran, tweeted me, angry, frustrated, wasn't getting support. We have a veteran's one stop in city hall, the first of its type in New Jersey, and I just connected him with the people. Before you know it, he's tweeting out that he got help, got housing. It was just an incredible moment and it took me seconds on my Blackberry.

Smalera: This has become a key part of how you govern the city, people do reach out to you over Twitter. I'm sure you describe it as a net benefit but what have been some of the surprising moments for you from connecting to your community in a way that probably no mayor has been able to do in a large city like Newark?

Booker: The biggest everyday benefit is now I can change a relationship with my residents as opposed to them coming before government and asking, demanding whatever they want. Now it's created a collaborative relationship with my residents where they're actually partners in governing. Every day people on their way to work, people in their neighborhoods will tweet me pictures, will blog at me, "there's a water main break' or what have you. For me it's a powerful shift even with my departmental directors. I now will find out about things before they will; even major things happening in the city I'll know first. Sometimes I'm even informing my police director who's in charge of emergency response. This morning was a great example where people were furious about a major traffic back up on one of our main arteries so I texted the police director and said, "Obviously we're not doing enough with traffic control. Can we do something about it?' I wouldn't have been able to make those connections if it wasn't for my residents. Now they're helping their government move at the speed of people and be far more responsive in a far more collaborative way. That's one of the best benefits: I can crowd source thousands and thousands of New Jerseyians, thousands and thousands of Newarkers, from young kids to seniors, to collaborate on how to make our city better.

Smalera: Can we talk about the young kids and the seniors, the people that may be at the extremes that might not have ever heard of Twitter, might be too young to legally be on Twitter, might be too old to have a smartphone. Do you worry at all about your approach to government, that you might miss some of those people?

Booker: I would worry about it if Twitter was taking the place of the other tools in my toolbox. I will still do community visits, community meetings, walk my neighborhoods. At the end of my day, sometimes at 9 or 10, 11 at night, I'll still do patrols around the neighborhood. I'm still doing all those things. This is just an added tool that has supercharged my ability to connect with my residents. Even if I did on my best days, pre-social media, I could maybe meet with 2,000 residents, face to face, small groups, standing in fronts of schools in the morning, greeting parents maybe I could touch 2,000 people. Now I can touch tens and tens of thousands. It would be a problem if it was replacing it, if I was just sitting at home in my sweatpants tweeting all day but I'm still doing everything as mayor. As a matter of fact, Twitter is a seamless integration into my day. What I used to do if I was driving back from New York to Newark I would be checking with departmental directors. Now I'm checking with departmental directors, returning phone calls and scrolling through my Twitter feed. While I'm on the phone, often. We are both of a multi-tasking generation. Interestingly I've now seen some actual data that urban communities are over-represented on Twitter. In fact, African Americans are over-represented on Twitter than the population as a whole. These are folks who may not have a laptop at home but they have a smartphone.

My favorite days are when it's snowing at night and my Twitter feed blows up with kids, hundreds and hundreds of kids saying, "Do we school tomorrow? Do we have school tomorrow?' The questions will go until midnight. And my responses are, "Go to bed. Yes, you do.' Then the next day, "Will we have early dismissal?' No, you won't. Don't tweet in class. It's amazing to me that people feel like they have a personal relationship with their mayor that they didn't have before and I become more than just this distant figure, I'm now right in their pocket. And more than that...I think the mistake politicians make is they just use it as an announcement like the PA system when we were in high school. "I will be in this place here. I just cut a ribbon here.' No. For me it's giving people a real window in what my life is about. I let people see when I'm angry about something. When I see somebody littering on the street that's one of the things that annoys me the most, I'll tweet about it. I have horribly corny jokes and anybody who follows me...

Smalera: I've seen them.

Booker: ... they're pretty painful but I love to laugh at silliness. When something has us all deeply affected like what happened in Boston I'll express my authentic feelings. In many ways sometimes those are the tweets that are retweeted the most. Now people see that their mayor is accessible to them, they see that he's a real human being who has a strange addiction to two men, Ben and Jerry...

Smalera: I assume you're talking about ice cream.

Booker: I am talking about ice cream. Would there be a problem if there wasn't? You're just a guy trying to serve. The wholeness of me is expressed on the platform. You're no longer "the mayor'. You're just a guy trying to serve.

Smalera: You're the mayor, you're a politician. Let's say you're over-represented on Twitter, you're very engaged and I think a lot of people who've studied Newark and your interactions and would say that net it's probably a positive because, as you mentioned, you continue to do all the other things to outreach and engage. How exactly do other mayors in other cities take your example?

Booker: We all need to be ourselves. Lincoln said, he said "man' but I'll skip the sexism for a second, "Everyone is born an original but sadly most die copies.' We all need to be who we are and be ourselves but not being in social media is almost like Nixon not wanting to put make up on for a TV appearance. It's going to become so ridiculous five, ten years from now because government is going to have to catch up to the rest of society. Non-profits, businesses, religious institutions, advocacy groups, they're all starting to move at light speed, they're all starting to create more collaborative engagement with their constituencies, they're all creating more transparency to their actions. Government really is stuck. We're going to have to unstuck government by opening it up to technology in general, social media in particular. I know five or ten years from now every political leader is going to be finding creative ways to engage on these platforms as they emerge because they are such powerful tools for making change.

My hope is that everybody doesn't become me but that everybody is going to become entrepreneurial in their engagement with technology. We have to stop thinking...you said, "You're a politician' and I accept that in the sense that I'm elected by the people to represent the city of Newark, but what I knew is that if I just fit into the box that people thought of being mayor I would not be able to move my city forward in the ways I dreamed of doing it. We all should not, this is a new word I'm making up at the moment, "boxify' ourselves. We need to get out of boxes because we live in a much more dynamic world. My parents worked for the same company 25 years each; IBMers, a tech company. The millennials, people born after 1980, of which you are not. I'm just trying to make you feel old today. You've got obnoxiously much too hair but I hope it grays quickly. The reality is we're going to live in a lot more dynamic world where you need to define yourself not by your job and your title but by your purpose and your mission. Just in the same way that my Twitter account is going to follow me around no matter what I do, if I become a private citizen next year, if I become a United States senator next year...

Smalera: Which will it going to be?

Booker: There will be a gap of which I am a private citizen because they're not proximate, the two offices. I see myself as a lot of different things. I definitely am a mayor if I'm going to accomplish my mission which is transformative change in my community I've got to be an entrepreneur, I've got to be a media syndicator, I've got to be a philanthropist. What I've tried to do is find every way to use all the ability God has given me to push toward my mission. What I am excited about is that the constitution gives constitutional offices different powers but as soon as we begin to think like private sector entrepreneurs do we being to develop and imagine different ways to use these powers but also other powers to make a difference. Do you understand what I'm saying? I can be more specific if you want.

Smalera: Be more specific.

Booker: I have no power over education in the city of Newark...

Smalera: That's because the school board is a separate body.

Booker: I have no authority over schools whatsoever. If I thought of myself as a mayor in the box that the statutes give me I would not be focusing on that issue. But that's not my mission in life. My mission in life is to create transformative change and to help America living up to its promise. When kids say "liberty and justice for all' I believe we should all be working to make those words real. I had to be very entrepreneurial in how I was going to get it done. Entrepreneurial means that I'm going to talk to tech people and say, "There's a technology revolution going on. How can I work with you to make it more available to my kids?'

Smalera: You talked to one specific tech person...

Booker: I talked to a tech guy, Mark Zuckerberg of Facebook. We connected not as the head of Facebook and the head of a city, but more as two citizens of this country that felt this nation was falling woefully short of developing the greatest resource this country have ever seen, not oil and gas but the genius of our children. If you look at oil and gas it's a great metaphor. When I was in a petroleum engineering class at Stanford I still remember my professor telling me we would be out of oil by 2020. And he was right if we used the same technology to obtain oil but what he did not see is that we would find are new technologies that are fracking awesome and can get more of that resource out.

Smalera: Hydro fracking.

Booker: Exactly. A joke is bad if you have to explain it. The incredible thing is that technology has helped us to further cultivate that natural resource but the genius of our kids, remember: genius is equally distributed unlike oil which is only in certain pockets. There's as much genius being born in Beverly Hills as there is being born in Newark, New Jersey. What we've done horribly is develop the technology and the skill to release that genius. For me as a guy that has an overwhelming mission I'm not going to be curtailed by what people tell me my job is. I'm going to partner with other people in different sectors who by the way, it's not their immediate mission either. Mark Zuckerberg's job at the board of directors is not telling him, 'show me the data on education in Newark, New Jersey.'

Smalera: Or give Cory Booker $100 million.

Booker: I was his hundredth millionth friend on Facebook. That's how we settled on the number. That's what I mean by I need to be entrepreneurial in how I can make a difference and make a change. My favorite example of me using media to leverage philanthropy to leverage brand changing for Newark, because Newark had a very seriously bad brand. I'm a mayor but I'm thinking about what people here in Manhattan think about all the time which is how do we help this brand advance. My favorite moment is one that five years ago would not have been possible which is mayors of mid-size, American decaying cities. When I say "decaying', losing population, losing tax base: Cleveland, Detroit, Newark, Pittsburgh, all these cities that got hit in the 60s, 70s and 80s. They get kicked around on late night TV shows all the time. I was sitting there with my buddies, Ben and Jerry, one night watching TV and Conan O'Brien comes on and says, "Newark, New Jersey has this great new healthcare program.' Which excited me because I was so proud of this program, I'm like, "Conan's going to talk about our victory here.' Then he said, "I've got a suggestion for Newark, New Jersey,' which got me even more excited because I thought, "Conan's going to give me advice.' Then he said, "The best thing for healthcare in Newark is a bus ticket out of town.' The more you laugh at that joke the more I'm going to...in the old paradigm when you're stuck in who you are you lack imagination to see your true power. Remember Alice Walker said, "The most common way people give up their power is not realizing they have it in the first place.'

Five years ago when a mayor heard their city insulted, this used to happen, they could write an angry letter and it would be read by the intern's intern on the Tonight Show or they could call a press conference. Remember, they don't control media now; they're dependent upon the media of others...channels 5 and 32 might be the only cameras that might show up. But I realized this is a different era and I'm far more entrepreneurial and I looked at Conan, after I grabbed another pint of Ben and Jerry's because that's usually what I do when I get down, I opened up my laptop and said, "How many viewers are there of Conan?' And there were 2.5 million. That number shocked me because I know the views on my social media platform are many and many multiples of that. In a good week I can get 10, 20 million people who have seen my social media feed. So I said, "Wait a minute, I control more media than this person.' I filmed a film at my desk and I put the flags behind me. And I tell you, when a politician puts flags behind them they are serious. I said, "I'm Cory Booker. Conan O'Brien has insulted the great city of Newark. ' I bragged about my city for a few moments and then I said, "By the power invested in me by the people of the City of Newark I am banning you from Newark Airport. You're on the no-fly list. Try JFK, buddy.' The video, which was a joke video, went so viral that we got hate letters from civil libertarians. Then the TSA got so nervous...

Smalera: You don't have the authority to ban someone from Newark airport?

Booker: ...the TSA getting nervous, as government institutions often do, clarified that very point and said on the front page of their website they just made sure that people understood mayors could not indiscriminately ban people they don't like from their airports. I wish I did have that power; there would be a lot of people I would ban. It become such a big story that I had gone out and done this and it commanded more media attention than the 2.5 million who saw the joke in the first place that Conan had to respond. So he banned me from Burbank Airport which if you know LA is not a big deal to not be able to go into Burbank Airport. It's a little out there. I'm an LAX guy myself. But the testosterone kept escalating, we were banning each other. The Cory and Conan Kerfuffle became one of the top news stories of the week. Eventually the Secretary of State for the United States of America, a woman named Hilary Clinton, filmed her own joke video saying in a Rodney-King way, "Why can't you guys just get along?' Lo and behold I'm on Conan O'Brien's show, now I'm in front of his 2.5 million people, we apologize, we made up and he gave me $100,000 of philanthropy for the city of Newark.

This to me shows you the unimaginable potential for entrepreneurial public servants and when I say that I don't mean elected officials. I mean all of us are entrepreneurs, all of us are collaborators in helping our democracy live up to its highest level, to its aspirations. If you think about this the power of technology and media together is what's created really great transformations from our parent's generation. Martin Luther King, in the same month we're filming this in April of 1963 though, hit a wall. He was imprisoned in a jail cell in Birmingham, wrote one of the most eloquent pieces of literature in modern American history, Letters from Birmingham Jail, but what people don't know and if you read some great accounts of this, Taylor Branch's book and some others, he wasn't succeeding. He couldn't get people to organize. He didn't have Twitter or Facebook. He didn't have a way to affect media in the way that we do. He couldn't do a WayWire video. What two ingenious young people, King was young at the point but these folks, Dorothea Cotton, James Bevel were younger than him, and they convinced him to do something which captured the media and transformed the city of Birmingham and brought segregation to an end. They said, "Let us organize kids, the next generation, and do a kids march.' The power of Bull Connor and eight year olds and ten year olds and 14 year olds are still some of the most powerful images from the Civil Rights movement with the dogs and the fire hoses. It so captured media attention from the Soviet Union to newspapers in Iowa it was on the front page of the nation. This is the power King knew, if I can be creative in capturing the media and controlling the national dialogue...I get very upset and this is one of the reasons we founded WayWire...

Smalera: Let me stop you for a second. You do live the entrepreneurship. I do want you to explain what WayWire is and why you founded it. You're an entrepreneur so you're starting a company that is basically trying to change the way media works.

Booker: We are told in America what is important every day. By the oligarchy of media. They say, "The top stories today are, you should pay attention to who's dating who or this divorce or this person got pregnant, the princess in England should be the most important thing we should be talking about.' That's very anti-democratic because people in the grassroots might be struggling with a lot different issues. Suddenly America decided because of a horrendous tragedy that I wept as I watched, America decided that gun violence was the issue and now that's...there are millions of American daily basis in their communities and it was never decided to be a top story because the media was telling us what to pay attention to. There's a problem with that. What I loved when I saw other social media platforms, which are really micro blogging platforms, what I started seeing is that there's no way to really accelerate that social change through the most powerful version of media to me which is the moving picture, it's video. I saw that the younger generation was consuming video in different ways and the appetite for short form video was growing and user generated content was exploding but there was no real way to get those voices, compelling voices, articulate voices. I met with the head of CNN recently...can I mention them?

Smalera: We'll bleep it out.

Booker: Good. Bleep it out. I met with "bleep'. And I was telling him, "What's more compelling: you sending a reporter to cover bullying or this amazing content being created by high school students that is so gripping?' That's going to be the powerful news of the future. It's not this news agency going in but the voices of people actually talking about their experiences with deeper authenticity and independence of thought. When I started seeing that I said, "there's something missing right now.' I know as Cory, as a mayor, that YouTube is a very valuable utility which has hundreds of thousands of hours being put up, I don't know. Every week? Every minute? Of new content. My problem is that there's probably thousands of hours in that utility that I would probably love but I can't find it and those voices that are really important being buried by the sheer volume that's out there. Sarah Ross, who's one of the three of us founders, and Nathan said, "We've got to crack this nut, figure out a way to pull out content that is compelling and important to an individual and then give ways for people to better share video content and even more than that'. Say we have an interesting conversation. One of the best parts of this conversation is right before the camera started when we were talking about sci fi and revealed the level of your geekiness and nerdiness...does not compare to mine...

Smalera: We can see about that.

Booker: ...but now I want to know a little bit more about you. I have no way of knowing your favorite music videos, your favorite sci fi videos, your favorite videos about important news issues. You don't have a video identity. I can look at your Twitter feed and read through that but that's not even organized; it's organized by time but not by issue. These are some of things we said were lacking out there: my video identity is not pulled in one place because I'm sure people might be interested in the most compelling videos that I might watch in a month that I have no way of...I always call it the "Pandorafication' of video, pull videos that are important to me and better share those and by doing that, by creating a virality into the social stream of certain videos it helps to elevate them in the consciousness of our country and God willing, democratizing imagery as opposed to the oligarchy controlling it, giving more power to the people.

Smalera: Did going to a school like Stanford, where you went as an undergrad and graduate, being in a start up mecca like that, being around those people, being on campus at the same time as the founders of Google and so many other start ups, how did that impact you?

Booker: Powerfully so. I was there at the dawn of the internet age and was surrounded by people whose names we know. Like Reid Hoffman. I just had dinner with the fifth person hired by Yahoo who was a Stanford classmate, being around these dynamic folks and even organizations. I was passionate about working in east Palo Alto. I was running a crisis hotline so I was very involved in non-profits at the time and I still remember having a tech guy on our main team in the Bridge, the counselling center, and him using these Apple computers to better help us create data and metrics for what we were doing. Being in that environment, in that cauldron of creativity in the technology world, really seeded for me the way I wanted to live my life. We're all entrepreneurs. In fact, Reid Hoffman wrote a book, The Start up of Me, and it definitely did give me that bug to do things. And also the courage to say, "You're not going to tell me what my job is. If I have an idea that is burning in me I'm not going to do it even though it puts me as an outlier in what you perceive as being a mayor.'

Smalera: What are your hopes for the tech industry as far as your mission, as far as being someone who is trying to help elevate the quality of life for their citizens.

Booker: First of all I hate that we've gotten to this point where "mayor' is a pejorative. This is the greatest job I could ever dream of. Mayor Bloomberg gave me a clock that counts down my days with a little note that says: don't count the days, make each day count. Every day I feel...I was texting with the head of the ACLU right before I came in here for New Jersey saying, "The clock is ticking, we've got to get some opening data sets in Newark up. We've got to get this stuff done.' I love being mayor but technology, as I sit both as a participant and a witness, is charging my imagination every day as I see these democratizing forces flow through.

Banks, here in New York, if I needed access to capital in the past I had to supplicate myself, prostate myself before big banks and say, "Please, please, please give me money.' Now we don't have to do that; we've got Kickstarter and we've got Kiva as democratizing access to capital. We've got forces that are democratizing work. One of my friends, again from the Bay area-Stanford community, started [SOMA Source] taking micro tasks and using them in developing nations, giving people internet hook ups and liberating their economic potential. I've got friends that are liberating in the United States using technology to better monetize their very being with collaborative consumption from Uber and AirBNB and Lift. I'm seeing in every sector education and how online Stanford courses are now being taken by people in developing nations who are outperforming Stanford students. We're creating greater access, we're creating greater equality. Somebody, just because they're in a certain geography or a certain race or a certain sexual orientation, or certain socio-economic status, are being liberated. In fact, I listened to a presentation from a guy who has a company called Huge, which I thought should be my company given my size, who said, "Look, we're talking people with a formal education in the ninth grade. But we're seeing that people who are learning coding in college half of that stuff is not even useful anymore.' The whole way we think about education is wrong. In fact, we don't have an unemployment problem in America; we have a training and education problem in America. They were hiring people with six figure salaries who maybe only had a ninth grade education because that's how demand people in coding is. Why isn't our education system reflecting this demand that we have?

These are amazing forces going through everything and for me as mayor these are forces I want to capture and draw into my city in an entrepreneurial way. Whether we can use technology in job training, technology is helping us clean the environment, technology in creating more efficiencies for our cities, technology in better educating our children, all these things technology is going to afford us the ability to do better. And more. That's what's exciting for me. What gets me more excited, I do think time is ticking on the time that I will be able to call myself a mayor, and I think about running for statewide office at the federal level, I get very excited about this idea that we could hack the Senate, disrupt Congress in a great way, in a righteous way. Why do we have these omnibus bills that are so dense, there's no light, there's no accountability, there's no understanding, there's no people leaning in and collaborating. We have government really drawing away from people recently. Special interest groups, people who can obfuscate information, people who can distract people, we have lobbyists, all these people that are creating...in fact, the only place that's not being democratized is our democracy in some ways because these people are creating a less than democratic process. The cure for that is getting more people involved.

I'm very frustrated about campaign finance rules. Very frustrated by them. I've been telling people for a long time, "I don't know how to solve this problem,' especially with the Supreme Court moving in a direction I'm not in favor of. They're creating more and more access for large money givers to do what I subvert the system. The solution that was just given recently by a friend of mine said, "You talk about this Cory. The solution to that is people getting involved.' You have a woman like the now senator of the great state of Massachusetts, Elizabeth Warren, who was facing that. Facing super PACs, facing these individual donors and what stopped that was hundreds of thousands of Americans giving small donations, a dollar online giving her a chance to fight back and overcome that. "Wow. Wait a minute. I, a dollar giver in Alaska, can help counteract the forces working against our democracy?' That's power. By the way, another call I made as I drove in here was to my oldest friend from fourth grade who, now knowing that I'm looking potentially to run for Senate, was bragging to me that he's calling all my high school friends and they're giving $5 and $20 and $100 and he was so excited about it because he really feels like he's participating. He doesn't need to be a super PAC guy. He can help me. Lo and behold, in our first financial filing our average donor was really, really small. I was one of the lead senators, I think I saw an article today me and Al Franken were two of the biggest fundraisers in this cycle, had so much of that push from small donors. That's a democratising of our democracy and we need to do more of that.

Smalera: Thank you so much for being here at Reuters on Tech Tonic. I really appreciate it.

Booker: I'm grateful. Thank you."

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How Tumblr might ‘screw up’ Yahoo http://blogs.reuters.com/paulsmalera/2013/05/20/how-tumblr-might-screw-up-yahoo/ http://blogs.reuters.com/paulsmalera/2013/05/20/how-tumblr-might-screw-up-yahoo/#comments Mon, 20 May 2013 19:05:39 +0000 http://blogs.reuters.com/paulsmalera/?p=445

There’s a lot to unpack in Yahoo’s reported $1.1 billion deal for Tumblr, but much of the reporting today is focused on the rather bland challenge of turning Tumblr into a profitable company. Forcing Tumblr to make money will eventually become an important mission for Yahoo, but for now it’s far from the point.

This deal’s most pressing issue isn’t what will come of balance sheets, it’s what will come of each organization’s corporate culture. Marissa Mayer has promised, in her post on the deal, “not to screw it up.” She’s talking about Tumblr. But that’s just Mayer’s very smart way of inverting what she must be hoping Tumblr becomes for Yahoo: a threat to its older, established, some might say calcified culture that has been short on innovation, creativity and user-focused design for many years now. Tumblr, indeed, will be far from “screwed up” as it gets used to its new home under Yahoo. Tumblr seems to have a bright future as something like a design lab and an already-functioning charter city under the aegis of the Yahoo brand. It will be, and already is, something Mayer will point at to tell her team, “why don’t you do it that way?”

When Mayer was at Google and led all product management and design efforts, she famously relied on data about user behavior to inform her “design” choices for Google’s products. At the time, some argued that her method of, for example, choosing one shade of blue over another because it made users fractionally more likely to click wasn’t really design at all.

Tumblr has, in some important ways, already been living by this design by data principle long espoused by Mayer. Most importantly, Tumblr is not trying to offer products to its community by throwing nonsensical new portals and features and widgets at them, the way Yahoo has for years. Rather, it’s given its community a platform, staying out of the way when it comes to all but the most fundamental underpinnings of the site. Sure, it’s got lots of handy defaults for new users, but ultimately Tumblr is whatever its users want it to be, and it’s different for every user. That’s precisely why so many different types of communities, from design bloggers to GIF makers to bored high schoolers, live on Tumblr, and why Tumblr doesn’t have to overtly try to attract new users–its platform is already doing the job.

The Tumblr-Yahoo deal isn’t about two tech companies linking up to share strengths. It’s about two entirely different ways of doing business being pitted against each other to do battle in the meeting and boardrooms now controlled by Mayer and her trusted deputies. It’s pretty clear what camp Mayer will likely favor, given that she came from the company that helped kill an earlier iteration of Yahoo. The problem is that Yahoo’s portal/agency/sales-culture DNA is still in many pockets and products across the company, however dormant. So, possibly, is Yahoo’s propensity for killing or starving to death its acquisitions, as it did with an earlier generation of once-promising startups. (Hello Delicious! Hello Flickr!) By making such a strong oath to Tumblr, Mayer is basically throwing down a challenge to her team to move forward or get left behind.

Either the existing Yahoo will learn from Tumblr’s successes as part of the new landscape of successful online properties, or Mayer (or someone) will have to take Yahoo even further, and strip the company down to the studs in order to rebuild it for a new digital world.

The individual frames of the animated GIF gracing Mayer’s announcement can almost be read as coded messages to the constituent parts of the new Yahoo. For Team Tumblr, it’s Keep Calm and Carry On. And for Yahoo’s legacy crew? Now Panic and Freak Out. 

]]> http://blogs.reuters.com/paulsmalera/2013/05/20/how-tumblr-might-screw-up-yahoo/feed/ 0 Video Transcript: Fred Wilson on Tech Tonic Interface http://blogs.reuters.com/paulsmalera/2013/04/18/video-transcript-fred-wilson-on-tech-tonic-interface/ http://blogs.reuters.com/paulsmalera/2013/04/18/video-transcript-fred-wilson-on-tech-tonic-interface/#comments Thu, 18 Apr 2013 19:54:49 +0000 http://blogs.reuters.com/paulsmalera/?p=441

Below is an unedited transcript of the video interview I conducted with Fred Wilson of Union Square Ventures:

PAUL SMALERA, Technology Editor Reuters.com: Today I had a great chat with Fred Wilson of Union Square Ventures. Check it out.

Let’s start with Bitcoin. It’s captured the imagination of tech blogs, there’s been a big price spike, dozens of posts all over the internet. And your own blog is full of savvy readers; I was reading through the comments on it. One of them said, ‘I haven’t even followed Bitcoin because I don’t really understand it quite frankly.’ Can we start there? Can you just tell us from your point of view what Bitcoin is?

FRED WILSON, Union Square Ventures: Bitcoin is a digital currency.  It’s a currency like the dollar or the euro or the yen. But it’s different in a couple of important ways. One is that it’s not based on faith in a commodity like gold or in a government like the US government. It’s based on faith in a mathematic formula. What underlies Bitcoin is math really and there’s a finite amount of Bitcoin that could be created; 21 million Bitcoin in total. We haven’t created all the Bitcoin yet because Bitcoin gets mined like gold would get mined.

Mined in like a computer has to crunch through a program?

To make it simple, computers are searching for matches of block chains and it takes a lot of processing power to do it and when you get a match you own that Bitcoin. People mine Bitcoins and they either keep them, own Bitcoin, or they sell them, exchange them for dollars or yen or they conduct transactions with them.

This is the cash of the internet because you really do own that piece of code, that Bitcoin? And you put it in your Bitcoin wallet. Why does any of that matter? What’s important about this?

The cash analogy is really important. Cash is very valuable because if I give you cash, you have it and you don’t really care who I am because the cash has value so you don’t need to worry about my creditworthiness. As long as I’m giving you the $10 it’s yours and I can’t get it back, there’s no chargeback on it or anything. There are a lot of transactions where cash is really the most efficient way to do them but there is no cash on the internet. There’s no way to actually put cash on a wire so Bitcoin is cash on a wire. So every transaction that you would want to do electronically but ideally you’d want to use cash, Bitcoin is the ideal currency to do that transaction with.

Why does that part matter on the internet? Why does it matter that I can do it with cash and it doesn’t trace back to me?

There are all sorts of reasons. If you’re a criminal and you want to engage in some sort of illegal activity it would be a very effective way to do it. In fact, a lot of the early uses for Bitcoin are for illegal activities on the internet.

It’s one of the Silk Road website. You can buy any drug in the world pretty much and have it mailed to your door.

People need to because those transactions anonymously because they’re engaging in illegal behavior so that’s not a good thing. But like many…

Those of us who don’t want illegal drugs, what are we going to use it for?

Lots of transactions that people want to do anonymously or cross border. For example, there are a lot of parts of the world where you have to conduct transactions in the local currency but people don’t want to actually own the local currency because they don’t trust it: Bitcoin’s very good for that kind of thing. It’s a good way to move money internationally, there are no fees for moving Bitcoin. I take dollars, convert them to Bitcoin, I send the Bitcoin to you, you take the Bitcoin, convert them into yen and nobody’s taking any fees on that transaction other than potentially the transaction from dollar to Bitcoin and Bitcoin to yen.

It’s something that could really start to disrupt governments, monetary systems, central banking. Is it at that scale yet though?

No, the total value of all the Bitcoin in the world right now is about $2 billion which is a pittance. That’s a lot of money, right? We would all be very happy just to take $2 billion and go home. The problem is if I gave you $2 billion of Bitcoin it would take you a very, very long time to convert that into…

Right.  There’s a whole process, third parties and…

What’s interesting to me about Bitcoin really is it reminds me of a lot of other things. It reminds me of peer to peer architectures. It reminds me of protocol like HTTP, SMTP and RSS. These things that are of the internet and are fundamental to the architecture of the internet have turned out to be very, very important and Bitcoin shares a lot of those characteristics. In the venture capital business we’re in the business of pattern recognition so when I see something emerge that reminds me of all those other things it just tells me that there’s something here that’s important and that this could be a very  big deal. I’m not saying it will be but it could be.

Is it, to borrow a phrase from another company, that you and Union Square Ventures have invested in, is it plumbing of the internet? Is it something that’s already become that fundamental?

Yes. Absolutely. I think there’s a chance that it will be. There are a lot of people who will put restrictions on it; as you said central banks aren’t going to like it and governments aren’t going to like it.

Can they regulate it?

They can regulate the interface between their currency and Bitcoin. FinCEN which is the regulatory body in the US has already put guidelines saying that anybody who’s operating certain kinds of Bitcoin businesses needs to get licensed as a money transfer agent and so we’re already seeing it start to get regulated. I don’t think regulation is a bad thing; I think in many ways it might be a good thing because it might allow people to have more confidence and have more legitimate uses of Bitcoin emerge as opposed to just illegitimate uses of it.

Maybe even reduce the illegitimate uses if there are only certain things. You’re making me think of the online poker world that disappeared a few years ago when credit card companies stopped allowing transactions for those.

There are lots of gambling sites. You asked me who uses Bitcoin: there are a lot of gambling sites where people are using Bitcoin to buy chips or whatever because, again, they want to bypass laws.

From where you’re coming from as a venture capitalist, you presumably don’t want to sell illegal drugs but I’m guessing you wouldn’t want to run a gambling site, what are the opportunities to participate in something like this?

Trading exchanges. Think about NASDAQ. Should there be a NASDAQ of Bitcoin? Should there be hedge funds of Bitcoin? Should people short sell Bitcoin? Should people be able to market make in Bitcoin? The whole ‘Bitcoin as an investment asset’ I think is quite interesting. I also think allowing more merchants to accept Bitcoin and instantly convert it into whatever local currency they want so they’re just allowing people to pay them the way they want to pay them but not have to accept the risk of holding Bitcoin. I think there are a lot of interesting opportunities there. I do think more and more people will accept Bitcoin. There are all sorts of geeky type of activities but Word Press accepts Bitcoin, Reddit accepts Bitcoin, 4chan accepts Bitcoin.

There’s a bar in New York City that apparently accepts Bitcoin.

Probably filled with geeks.

Something you said a few minutes ago: it’s money on a wire, it’s $10. If you give it to me I keep it and I hold onto it. That’s assuming you don’t just rip the $10 right back out of my hands. Talking about security

Security is going to be critical in Bitcoin for this very reason.  If I can get your cash it’s my cash and if I can get your Bitcoin it’s my Bitcoin. So using the latest and greatest computer security technologies to create wallets that people can…think of wallets as banks, effectively. I’m choosing to store my Bitcoin at XYZ wallet because I think they have the very best security and they’ll keep hackers out of stealing my Bitcoin. People also take their Bitcoin and do something what’s called ‘cold storage’. So they take a USB flash drive and stick it in their computer, get the Bitcoin and then disconnect it from their computer and the internet and stick it in a safe in their house or something. The same thing they would do with cash.

That seems excessive.

I’m not sure it is excessive.

It seems like something that shouldn’t be necessary given the fancy computers sitting on the desk and the thumb drives…

Hackers are pretty good at cracking into system. If they know you’ve got $1 billion of Bitcoin they’d probably want to figure out how to get it.

Fair point. I wanted to shift gears a little bit and talk about something else and almost intersects with Bitcoin a little bit which is regulation. You have something called ‘activist in residence’ that’s actually dealing with the problem of regulation 2.0. Not the problem but the opportunity. What is an activist-in-residence, first of all?

We have found that we can use the internet to advocate for things that we’re interested in seeing happen in the policy and regulatory environment and using all the people who are out on the internet who have an interest in these policies and activating them and making their voices heard either in local government or federal government is something we’ve done a bit of and we want to do more of and so having somebody who can help us do those sorts of thing is quite useful.

Does he lobby?

No, we don’t do any lobbying but I’ll give you an example. The FCC is thinking about what to do with a lot of the white space they’re going to get back from the television broadcasters. We would prefer, we being Union Square Ventures, but I also think ‘we’, people who care about the internet, would prefer that it doesn’t all get auctioned off to the wireless carriers with the highest price. We’d prefer to see that white space be deregulated…

Allow anyone to jump into it?

Right. The way that Bluetooth spectrum and wifi spectrum is so anybody can operate in the wifi spectrum.

And those were deregulated at one point. That’s why those technologies exist today.

Exactly. But they don’t have a lot of good spectrum for wifi and Bluetooth; the TV spectrum is quite good. TV signals can go through lots of things, the frequency bands are quite good so it would be wonderful if that spectrum were treated the way that wifi is: instead of being auctioned off to the highest bidder just given to society to innovate in and create new wireless communication technologies, one of which is called ‘super wifi’. At South by Southwest we and a few other like minded people funded We Heart Wifi; we took wifi access points and connected them to the internet via super wifi which is operating in this unregulated spectrum and made wifi portable because wireless access points would get moved around. They weren’t hardwired to the internet, they were wirelessly wired to the internet. We made a bunch of these wireless access points available for free during South by Southwest and got a lot of attention around that. It’s a hack, it’s a stunt but these kinds of things make a difference.

Who’s on the other side of this wifi spectrum? Who’s on the other side of this equation when you say you want them to be open and there are big companies that want them to be auctioned? Where is the balance going to lay down and how does your activist-in-residence move the needle towards what you’d want to see?

We want to educate our elected officials. This is a federal issue so we would like to educate our the senators and representatives about the power of unregulated spectrum and one of the best ways to do that is to get their constituents hyped up about it and the best constituents to get hyped up about it are people who are in the technology industry and they’re all at South by Southwest. That’s why we did what we did.  But you’re probably not going to get them to go all the way and not auction off any of the spectrum. But if we can get them to make a meaningful piece of the spectrum available for super wifi and other forms of unregulated wireless communication that would be a good thing so that’s what we’re hoping for.

Let’s broaden out a little bit back to regulation 2.0. Right now regulation, to almost anyone, it sounds like a horrible thing…what is 2.0? What are you trying to change there?

The current regulatory paradigm is if you want to do anything you must go to the regulators and get permission to do it and only after they give you permission can you do it. We would like to change the paradigm to be you can do it without getting anybody’s permission as long as you do the following things and then let the market adopt it. Once the market has adopted it for a while then regulate it once we have some idea of what the good and bad aspects of this thing are. I think the big quid pro quo for doing that is data sharing and transparency.

What’s that?

A good example is Airbnb. Airbnb is illegal in New York State but there’s going to be a billion dollars of Airbnb renting this year in New York City. People are doing it and they’re breaking the law.

And the law isn’t stopping them. The New York Times ran a story maybe one person will get busted for running a hotel room.

One of the problems is the way Airbnb is architected. You can’t go into Airbnb and do a search on your block and see all the apartments. What I would do if I were a regulator is I’d say, ‘We’ll let you do it but you have to make the whole thing transparent. You have to make it possible to see everything that’s going on. Don’t hide anything. Make the entire thing transparent not just to regulators but to the citizens…’

Addresses? Names?

I don’t know about the guests but the hosts, for sure. Who the hosts are, where they’re operating and under what name are they operating in. That should be out in the open so that if people are doing bad things and they’re in your building and the bylaws in your building say you can’t do it you can say, ‘Stop doing it.’ But that’s not what we do. We have this stupid system where it’s illegal but it’s happening and Airbnb is incented to make it as hard to understand as possible. We should change the paradigm and in return for giving people permission to innovate they should be required to be as transparent as necessary and be transparent and share the data about what’s going on.

Another example of this is Umber and Lift and the rideshare companies. How does this model for Airbnb apply?

One of the regulatory concerns about these ridesharing things is are people going to discriminate? A licensed taxicab in New York City is not allowed to discriminate about where they take their passengers. It happens all the time, by the way. They drive around with an off duty sign. But that’s illegal.

I’ve told them that; they still keep driving.

They don’t really care. But if Lift and Halo and Umber and all these various taxi cab, black car, ridesharing applications were in order to operate, were required to publish their data in real time to not just to the government but also to the public about how many drivers are on the road at any one time, where the rides are, what neighborhoods are people being picked up in, what neighborhoods are people being dropped off in, then we would have really good data about whether these services actually reduce the discrimination problem or increase the discrimination problem and then we could regulate based on that. But today it’s in theory. ‘We shouldn’t allow this because they might discriminate.’

Everything that you’ve said that the tech companies need to do a, I think makes perfect sense to me. And b, I can see how they could probably light up something tomorrow to provide that data. I think the other half of the equation: how does the government move at the speed that technology is changing our world?

They won’t. I think what we’re betting on is these services are going to get into the market one way or another and the citizens of the United States and the world are going to adopt them. We’re betting on that the services and the citizens of the world are going to adopt them and they’re going to become so important to the way people live their lives or earn money that people are going to demand that these services exist. It’s a lot like gay marriage. I think the reason that society, certainly in this country, is changing their tune on gay marriage is that we all know people who are gay. We love people who are gay and we can’t imagine discriminating against them. Even the Republican Party which has been opposed to this, more and more senators and representatives are coming out and saying, ‘My child is gay and I’ve changed my mind on this.’ Society will change and government will change as the world changes. As these services become an important part of our lives people are going to demand that they be legal.

We’re in New York City, you’re based in New York City and New York is about to have a mayoral race. I think Mayor Bloomberg is probably someone who, correct me if I’m wrong, is considered a friend to the tech industry and has really helped develop it over his three terms. Do any of the candidates out there now strike you as someone who’s going to carry his torch? Does that worry you?

I think it depends on who we get as the next mayor. I think there are some candidates who are probably more willing to follow Bloomberg’s policies and…

Anyone in particular?

I think anybody who runs on the Republican side would be in that camp. I think of the Democratic candidates probably Chris Quinn is the most inclined to follow his policies because she’s, to some level, been an implementer of his policies in her role as speaker of the city council and she’s been supportive and would like to position herself as the logical successor to Bloomberg. I think it would be politically sensible for her to take that approach and I think she is taking that approach.

Let’s try to square the tech timeline and the political timeline. Say this happens and Chris Quinn becomes the next mayor of New York what would you hope to see in regulation 2.0 change in the city over the course of say, one of her terms?

All you want is city hall to tell these regulators to just back off, let these companies come into the market and see what happens. I’m not advocating that in any place where people’s lives are at risk. I’m not saying we should do that for the fire department, I’m not saying you should do that for the police department. When we’re talking about health and safety issues I’m not advocating for more of a free for all situation. What I’m talking about is a lot of these industries where innovation can lead to better services at lower costs. Going back to Airbnb, one of the interesting things is the billion dollars that is going to get spent by guests in New York City this year renting places on Airbnb is going to go into the local economy because all of those hosts are real people. They get that money and they spend it here in New York because they live in New York whereas if it goes to the hotel industry a lot of the shareholders and operators of hotels in New York aren’t even here in New York.

It’s going up the chain to multi-national corporations.

Or international corporations. It actually has more of an impact to the city economy when someone stays in someone’s apartment in Bushwick than it does when somebody stays in one of these hotels here in Times Square.

I want to change topics again. I think I wooed you here with a conversation about the future but I feel we’re really hitting three topics about regulation but I’m going to go for it because I think it’s another important one. Recently the valley or many of the tech companies there were supporting the STEM act. I believe there’s a White House petition and the White House’s response is, ‘We can’t support this right now because it’s not comprehensive reform.’ The STEM act would have allowed PhD’s and other highly qualified engineers and tech types to stay in the country to have long term visas. What’s so important about comprehensive reform?

First of all, I think we’ll get comprehensive reform this year. I’ve been advocating for STEM visas and start up visas for at least five years both publicly on my blog and privately meeting with lots of elected officials advocating for this. I always hear the same thing which is, we cannot do immigration reform piecemeal. We have to do it in a comprehensive way. The reason is stakeholders on both sides of the issue have so much investment in comprehensive reform that even though they would both agree that a STEM visa or a start up visa makes all the sense in the world they won’t do it because it will take the pressure off. Everybody in Silicon Valley will say, ‘We got what we needed. We no longer care about immigration reform.’ All that pressure to get comprehensive immigration reform…they want to direct all the people who want piecemeal pieces of immigration reform to be vested in comprehensive immigration reform. That’s why what’s going on is going on. But I think we’re going to get it this year because I think the politics have changed.

How so?

On the Republican side the demographics of who went to the polls, who voted for them versus who voted for the Democrats in the election last November was stark. They are not where they need to be with the Hispanic population. Their leading candidate for four years from now, Rubio, this is his signature issue. They need to give Rubio a win and they need to give themselves a win with the chances of getting back pieces of that Hispanic population. On the Democratic side they believe that they got those votes from the Hispanic population and they’re now expected to deliver it. So I think the politics on both sides is such that we’re going to get it probably the first half of this year.

You’re predicting bipartisanship in Washington DC?

People can be bipartisan when it’s in both of their partisan interests to see something happen.

Interesting. We will somehow convince them that it is in their partisan interests as a country. I have one more question for you and it was more about you and about how you run your business. People who read your blog, which again, our audience is filled with they know your wife well. She has her own blog…

It’s like who satoshi who invented Bitcoin a character in a sci fi novel. We’re all characters…Joanne Wilson is a real person. The Gotham Gal is a fictitious representation of her.

You guys are invested in some other things both separately and together. Food blogs and a couple restaurants. How is investing in a restaurant different than investing in a start up? Can you compare the two?

I think investing in a restaurant is much more of a lifestyle type of decision. We’ve invested in half a dozen restaurants, maybe more. Maybe close to a dozen restaurants and on the portfolio of investments we’ve made we will get our money back. But that’s not why we’re investing in the restaurant. We’re investing in the restaurant because we believe in the chef or we believe in the operator or they’re opening in our neighborhood and we want them to open in our neighborhood and we will be great customers. It’s a lifestyle investment. The founders of Kickstarter always say Kickstarter is so people can help make the things they want to see in the world exist. It’s an example of that. It would be irrational of us to do it if we knew we were going to lose money but if we do it across a diversified portfolio of investments and we’ve gotten our money back on a few already, and we’re close to getting our money back on a few others, so I have a fairly high degree of confidence that on the bucket of them we’ll get our money back but the financial returns are not going to be the same as the venture business. There are other kinds of returns, karmic returns or whatever you want to call them, that are quite substantial.

Do you help a restaurant founder in the same way you help a start up tech company founder?

And Joanne is better at this than I am. A restaurant we’re investors in got a bad review and she called up the operator of the restaurant and said, ‘I just want you to know I agree with the review. I know you get defensive about these things sometimes you’re so protective of your team and your restaurant. I just want you to know this review is actually accurate and you would be well served to pay attention to this negative review.’ Joanne’s very good at that.

How did he or she take it?

I’d say about the way everybody takes that type of criticism. Well enough, I guess. But it’s very important and it’s hard to do and it is our job as active investors to tell entrepreneurs the truth. You have to do it in a way that is helpful without seeming overly critical. It’s great having kids. Having kids have made me a much better investor because I’ve learned from my kids how to be constructively critical. They need to know that you love them and that no matter what they do you’re going to be there for them and that you support them but by the way, they’re screwing up in math and they’ve got to fix that. When there’s no question about all those things that I started with they’re more open to hear that criticism. But if you’re just beating them up all the time and they’re not getting that reassurance it’s not productive. It’s the same thing with entrepreneurs; they need to know that you’re there for them and you’re giving them this feedback because you want them to be successful not because you want to throw them out of their company.

Audience member: Question on regulation. You said towards the beginning of the conversation that bringing regulation to Bitcoin might increase the confidence in Bitcoin. We did have enough regulation in the credit default swaps and all those things but does that really bring confidence? Do we use Airbnb because there’s a regulation or because we like the product?

I do think regulation could help Airbnb as well. If someone lists an apartment at 4 Times Square you should be able to type in ‘4 Times Square’ and see all the people who are listing an apartment. If that was the law that would cause people who are hosting illegally to stop doing that. I think regulation can be good if it’s sensible regulation and I’m hoping whatever regulation we get in Bitcoin will be sensible regulation. It might not be a bad thing for people who are processing millions of dollars of Bitcoin to dollar transactions every day to have some capital requirements. If they have no capital requirements they could go out of business at a moment’s notice and your transaction might not clear and you might lose money so that’s not a good thing, I do think sensible regulation is a good thing. What’s not good is when people use regulation to keep competition out of the market. The hotels don’t want Airbnb to be made legal. They want Airbnb to be made illegal. Period. Full stop. They’re pushing for the kind of regulation which I think is bad which is incumbents using regulations to keep competitors out of the market.

Audience member 2: It was really great to learn about the super wifi, the regulatory effort. One thing I’ve noticed as a person living in New York City is the rich and the poor gap is very distinctive in that people who have access to high speed internet and Smartphones you can access Bitcoin, you can learn about Airbnb and those who do not have access to high speed internet and Smartphones, computers in their hands essentially, are left out of these opportunities for growth. I was wondering on that note if the super wifi and the regulatory effort that you’re spearheading whether you’re addressing that issue?

Not directly. It would be easier for libraries and schools and other sorts of facilities that are operated by the government or even non-profits to provision high speed wireless internet and not necessarily make it available to people in their homes but maybe make it available in places of public gathering and such. If you didn’t have enough money to afford internet in your home you could go to the local library or the local school and get access to it. The point you raise is a really important problem. I am wary of saying that high bandwidth internet should just be free for everybody because there needs to be some business model because it costs a lot of  money to operate internet services so people need to have a way to make money at it. If we made the technologies available the way I was advocating with the unregulated spectrum you would see the cost of provisioning wireless bandwidth come down to the point where governments and other institutions could start to make stuff available.

Can you talk about how the relationship between technology companies and regulation will change as technology companies becomes the biggest and most powerful companies in the country and maybe their interests start to diverge from the average internet user?

It’s already happening. There are issues where big companies like Google and Microsoft and Facebook are not necessarily aligned with the average internet user. Data privacy would be one I would point to. A lot of those companies, their whole business model revolves around having access to our data and be able to do all sorts of stuff with it. They wouldn’t want to see a policy regime which gave us a lot more control over what they could do with our data but we might want that. I think there are plenty of examples of that. I think that’s the role of government; figure out how to be on the side of what’s good for society as opposed to what’s good for big business.

Audience member 3: Relative to the future of enterprise data and enterprise networks do you think the companies that are willing to be a little more flexible with their data will widen the competitive advantage with companies that require everything to be behind the firewall?

I think it’s already the case. I know lots of small businesses, for example, that rely on Google Mail and Google calendar and Google Drive and have been able to grow to 100, 200, 500 employees without any in house IT organization of  any size or scale. So they have cost efficiencies by doing that whereas these bigger companies who grew up in a different era and have their own IT organizations and run their own systems definitely have a much higher cost of operation. I do think these larger companies are going to look at these more nimble, younger companies with envy and try to figure out how to adopt more and more of these technologies. But there are some areas where I think it will take longer. Anything in banking and finance and some of the other industries where data security is really important will take longer. Other industries where that’s less of an issue, retailing for example, might move more quickly. That’s where the trend is for cost reasons and completive reasons and that’s where the world will move over time.

Thank you to the studio audience for being here.  And thank you to the audience at home.

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Fred Wilson on Bitcoin, Airbnb and immigration http://blogs.reuters.com/paulsmalera/2013/04/12/fred-wilson-on-bitcoin-airbnb-and-immigration/ http://blogs.reuters.com/paulsmalera/2013/04/12/fred-wilson-on-bitcoin-airbnb-and-immigration/#comments Fri, 12 Apr 2013 18:17:52 +0000 http://blogs.reuters.com/paulsmalera/?p=435 This week Fred Wilson of Union Square Ventures sat down with me for a video interview (part of Reuters’ Tech Tonic: Interface series) to talk about a wide variety of topics: Bitcoin, wireless spectrum auctions, Airbnb, immigration, the New York City mayor’s race, even his wife Joanne (the Gotham Gal), and a few others. Why so many topics? Fred’s simply one of the most thoughtful technology investors working today, and peppering him with as many different questions as possible can help us learn how he thinks.

Fred often cites “pattern recognition” as the main job of a venture capitalist, and I think I got a pretty good sense of Fred’s pattern: he understands the mechanism behind a company or technology, and figures out whether his firm can help that company grow. In this interview, he’s an insightful and persuasive defender of the interests of the tech industry, because he very sincerely believes in its ability to do good for people.

Do you think Fred’s take on technology’s promise is accurate? Watch and share the interview and let me know in the comments.

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Boxee CEO on the future of TV: Aereo, Cloud DVRs, Netflix and Apple TV, oh my. http://blogs.reuters.com/mediafile/2013/02/25/boxee-ceo-on-the-future-of-tv-aereo-cloud-dvrs-netflix-and-apple-tv-oh-my/ http://blogs.reuters.com/mediafile/2013/02/25/boxee-ceo-on-the-future-of-tv-aereo-cloud-dvrs-netflix-and-apple-tv-oh-my/#comments Mon, 25 Feb 2013 21:49:09 +0000 http://blogs.reuters.com/mediafile/?p=36325 Boxee CEO Avner Ronen recently sat down with me for a wide-ranging video interview on the state of television, and its future. His company just released a $99 device that uses the Amazon cloud to give its users an infinitely-sized DVR. If it takes off, the Boxee TV could fundamentally change the way cable customers consume content -- and the way they pay for it. Users will also be able to watch their recordings from devices like the iPad. Can Boxee play nice with an industry it's trying to disrupt? Ronen says yes. But between the Aereo lawsuit and the Apple TV rumor-mill, it's a crowded, competitive landscape. So, can the company keep competing with the next generation of startups that have the television industry in their targets? Please watch, and find out:

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In Amazon, Wall Street worships a disruptive god http://blogs.reuters.com/paulsmalera/2013/02/08/in-amazon-wall-street-worships-a-disruptive-god/ http://blogs.reuters.com/paulsmalera/2013/02/08/in-amazon-wall-street-worships-a-disruptive-god/#comments Fri, 08 Feb 2013 21:12:55 +0000 http://blogs.reuters.com/paulsmalera/?p=418

Why does Amazon please Wall Street so much? The company treats shareholders with a disregard that borders on contempt. (CEO Jeff Bezos is “willing to be misunderstood” which means he really doesn’t care if investors understand the business, as we’ll see.) Yet when it announced that profits last quarter fell 45% year-over-year, the stock price saw a healthy bump. Meanwhile, many tech companies, like Apple, which had a high-profit, high-margin quarter, found their stocks punished. Perhaps this is a sign that Wall Street is finally embracing the idea that, for tech companies, growth comes first, even at the expense of profit.

If that’s what’s going on then the Street has started to adopt the ethos of the Valley, specifically of one its most prominent sages: Harvard Business School professor Clay Christensen. The godfather of disruptive innovation, Christensen is often quoted chapter and verse by technology company founders and venture capitalists alike. Christensen studies how established, high-flying technology companies like Amazon and Apple conduct business, to determine if they are ripe for attack from low-margin, startup competitors. His thinking can help shed light on why the market loves Amazon, which is, after all, a barely profitable conglomerate of loosely related businesses that is growing at a bonkers rate. But basically, his theories all comes down to profit margins, and how companies spend their money.

Amazon’s razor-thin margins — just 1.9% for all of 2012 — are, according to Christensen’s theories (and some other Amazon watchers), the company’s key weapon defense against disruptive competition. Not just in defending itself from whatever competitors exist today, but also from competitors that might exist tomorrow. Christensen writes in his seminal book, The Innovator’s Dilemma, that disruptive companies generally start at the low-end of the market, serving customers with cheap, low-margin products that established companies have neglected, in their endless quest to move upmarket, increase profit margins, and please investors.

Despite years of massive growth, Amazon seems to have decided that, in order to remain alive, it must remain a permanent disruptor. In fact, Amazon, it seems, may never optimize for profits over growth. It would surely be tempting for CEO Jeff Bezos to reward himself and shareholders with a couple of blowout profit quarters. A few tweaks in the CFO’s office, and that is probably an achievable goal, and one that would press firmly on Wall Street’s Pavlovian lever of reward. But by taking that tack, Bezos would be forsaking two values he built the business on: a customer-first mentality, and an ethic of permanent disruption. And, to keep its stock healthy, Amazon would have to exceed each blowout quarter with another. And another. Why would Bezos ever play that game?

Instead, the company looks well beyond the short term. On the surface, It made no sense for the world’s largest bookseller to cannibalize its business by promoting ebooks, let alone to build an entire software and hardware platform for them, but that’s what Amazon did with Kindle several years ago. This allowed Amazon strengthen its already huge advantage over traditional retail booksellers — today it’s got a sleek $99 Kindle that might just be the epitome of the form, something unthinkable when it released its first slow, expensive readers years ago. And as overall print book sales keep falling, Amazon continues to grab a larger and larger share of the ebook pie.

Instead of earnings, the pressure on Amazon puts on itself seems to be to find new ways to be an integral, irreplaceable part of the Internet. Bezos in fact seems to have done nothing more than scare away investors who expect Amazon’s focus to be on anything else. Let Apple or Samsung make whatever device it wants, and sell it at whatever margin. Amazon will be the one get it to your house in two days, and handle the servers that put a lot of the content on it. (And perhaps while ordering one, you’d like to check out their latest, cheaper Kindle Fire?)

Matt Yglesias missed a key point when he wrote “Amazon, as best I can tell, is a charitable organization being run by elements of the investment community for the benefit of consumers.” There’s nothing charitable about how the company is run. It wrings efficiency out of its businesses until there’s nothing left to give (and it refuses to break down its profits by business segment, masking which of its businesses generate cash and which lose it). Then it goes after seemingly stable businesses, like server hosting, punishing competitors for their high-margin ways, and systematically destroying them. Rinse and repeat, and you either have Shiva, the destroyer of worlds, or you have Amazon, the great disruptor.

There’s no rule that says publicly traded companies must be judged on earnings. And it’s often said that no matter what product a company is selling, if it’s a technology company, its primary output is shouldn’t be code or apps or devices, but innovation itself. By that measure, perhaps Amazon’s investors have the company dead to rights after all — or at least they do until next quarter.

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Let them run http://blogs.reuters.com/paulsmalera/2012/11/02/let-them-run/ http://blogs.reuters.com/paulsmalera/2012/11/02/let-them-run/#comments Fri, 02 Nov 2012 20:18:10 +0000 http://blogs.reuters.com/paulsmalera/?p=404 The New York City Marathon should be run on Sunday. Not because it is easy, but because it is hard. This is unpopular to say in the hours since New York Road Runners club CEO Mary Wittenberg, with Mayor Michael Bloomberg’s support, announced the marathon would go on. Anger and outrage have been the prevailing emotions on TV call-in shows, on social media and in media reports on the controversial decision.

Staten Island, home of the marathon’s starting line, is a disaster zone. The south shore has been wrecked, and residents are rightfully scared and angry. In many cases, their basic needs for food and shelter, let alone their pleas for security and recovery efforts, have not all been met. Many residents say the city police and fire departments are nowhere to be found or are not penetrating deep enough into neighborhoods that need help. Borough President James Molinaro has called the American Red Cross a “disgrace.”

Many also say the Federal Emergency Management Agency has been absent from the recovery effort. Rumors of armed robbery by criminals dressed as utility company employees have spread like wildfire online. Yet the NYPD says that, with out-of-state help, it has searched Staten Island for victims and survivors since the storm abated, and would likely complete the search Thursday night. The aid situation seems to be rapidly improving.

Even so, Staten Island congressman James Michael Grimm reminded us, on the day of the marathon announcement, that bodies had been pulled from the water as late as Thursday. Some commenters are suggesting that the marathoners on Sunday simply turn around and run down Father Capodanno Boulevard to provide help to those in need. While that’s a noble sentiment, it’s not one that is likely to help any more than the running of the marathon.

In fact, the marathon generates many millions of dollars for charity and the local economy. According to Wittenberg, the NYRR’s “Race to Recovery” campaign has raised almost $3 million in the day since she affirmed that the race would go on. Wittenberg has also stripped away the marathon’s pomp: The opening ceremony and 5k race are gone. Only the main event will go on.

Rather than insulting those in need, the race will sharpen the focus of the national spotlight on New York. The hidden dangers that Staten Island residents fear in the wake of the storm will not remain hidden, nor will they easily be distorted by rumors or misinformation. The race will hasten the delivery of government services to every corner of the borough. The race will mean that charities engaged in recovery will have to spend money wisely, under the gaze of many more onlookers. The race, always teeming with runners who bear the names of loved ones lost to disease or war, will be a testament to the plight of struggling New Yorkers.

The mayor has staked his reputation on being able to host the marathon in a city that is vastly different city from the one in which he made the announcement on Thursday ‑ one where the lights are on, the subways are running, gas is flowing and the people in devastated areas are cared for and on the way to recovery. And, especially, one where the police officers who help secure the marathon course are not being pulled from emergency duties. Wittenberg said in a TV interview that hotels should take care of displaced storm victims if they still need shelter, in place of honoring marathoners’ reservations. This is the right sentiment and is already what some hotels are doing. The marathoners will get by. By Sunday, the city may start to resemble itself again.

On Thursday morning, I rode my bicycle to my office in Times Square from my home in Brooklyn through a seemingly abandoned Lower Manhattan. I felt only sadness in the traffic-free streets and cold sunshine. On the ride home, having forgotten my flashlight, I was plunged into darkness, relying only on the occasional generator-powered floodlight and the headlights of passing cars to guide me. Cursing my stupidity as I neared the base of Fifth Avenue at Washington Square Park, I saw a dim light point rapidly swishing the sidewalk. It was made by a woman holding a flashlight as she ran through the chilly darkness. More darkness was ahead of her tiny beam. I wondered if she had questioned the somewhat dangerous choice of going for a run in the darkened neighborhood.

There is no question that it would have been easy and perhaps even sensible for Bloomberg and Wittenberg to call off the race. But that would have done little to ease the tragedy or speed the recovery. It would have done nothing for those who are suffering, and it would have punished runners, who have been assured the city will be safe on Sunday. What calling off the race might have done is assuage the guilt of those of us who have our homes, with power or without, who live on high ground, who were spared loss, devastation or death. A better way to relieve that guilt would be for those of us who live here to grab a bucket, a case of water, a blanket and to donate our time, our talents, our money, our help of any kind, to our fellow neighbors. Not to tell 40,000 runners who surely recognize our shared plight that they are no longer welcome in our city.

A city of 8 million has all the volunteers it needs to provide aid to the neighborhoods that need it. A city of 304 square miles, many of those mercifully undamaged, can surely give 26.2 linear miles to runners who had chosen, nearly a year ago, to test themselves in it. By the end of my training for my marathon run, my first, a year ago, I was little more than a simple engine: eat, sleep, run. I had also, finally, a discipline and temerity that had escaped me in daily life, keeping off 60 pounds I had lost the year before I started training. Much to my surprise, after nearly eight months of training, I was ready to race.

The 40,000 runners and their cheering supporters can and must be called upon to send their dollars to the charities supporting New York’s recovery effort. A moment of pause, even doubt, when confronted by the devastation of Hurricane Sandy, is allowed from all of us. But we can’t punish those whose personal journeys have collided with this tragedy, nor can we blame officials for allowing them to run for the finish line if they attest it is safe to do so. The truth is, when you train for a race like the marathon, especially when it’s your first, you don’t really know if you’ll be able to finish, since the training never takes you the full distance. It’s an act of faith to line up on race day and try to pull it off, much like the act of faith the city has made in deciding to hold the marathon itself. And right now, we need some faith.

We should take the mayor at his word when he says this race can be run safely and without compromising the recovery effort. He may be a cold technocrat, but that doesn’t mean he wants blood on his hands. Right now, it feels as if running a race should be the last thing on anyone’s mind. For New Yorkers, it may well be. But for thousands of runners, I know, this race has been the only thing on their minds for the last year. Until Sandy.

New York’s hopeful visitors are acutely aware of what the city and state have endured. That does not make them culpable for our plight, nor does it make them responsible for the city’s salvation. Let them run, and see the city for itself, and let those of them who are inspired and able to help before or after the race to do so. And let the rest of New York stand up for our fellow citizens in need, and give those who come visit us the very best treatment we can muster, rather than a cold shoulder. And let the world see, as it has too many times, that nothing can keep us off our feet.

IMAGE: Runners cross the Verrazano-Narrows Bridge after the start of the 2011 New York City Marathon in New York, November 6, 2011. REUTERS/Brendan McDermid

 

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Paradise regained: Clayton Christensen and the path to salvation http://blogs.reuters.com/paulsmalera/2012/06/29/paradise-regained-clayton-christensen-and-the-path-to-salvation/ http://blogs.reuters.com/paulsmalera/2012/06/29/paradise-regained-clayton-christensen-and-the-path-to-salvation/#comments Fri, 29 Jun 2012 05:10:43 +0000 http://blogs.reuters.com/paulsmalera/?p=374 Is it possible in the year of our Lord 2012 that leadership still isn’t well understood? In 2012, despite business journalism’s fetishization of Steve Jobs, the most successful leader ever, whose apotheosis was Walter Isaacson’s doorstop, Steve Jobs, a biography of the half-Syrian, bearded man who built the world’s most valuable company, brick by brick, and found himself, like an earlier CEO of sorts, with legions of devoted apostles, some powerful enemies, and an inextinguishable legend? Is it possible, despite the endless streams of management self-help articles burbling out of Fast Company, Inc., Harvard Business Review, Businessweek, Fortune and the blogs of droves of self-appointed leadership gurus, we need more advice? And is it possible despite the emails – so many emails, Jesus wept – those emails that aggregate all this content using algorithms and intern labor, and slice it up so that the middle manager in Minnesota and the lawyer in Los Angeles and the new media marketer in New York are all .0058% more likely to click through to a relevant article? Is it possible, really possible, the answer to our prayers is another book on leadership?

It is, thinks Clay Christensen. Business folks – the unquenchable consumers of all that content – have been taking the paradoxes of leadership, because they are so familiar, for granted. When they do this, they ruin their companies and then they ruin their lives. Like that subway step everyone tripped over for years without noticing, they take for granted that the well-worn grooves on our society’s pathways are the right ones to be in. They don’t watch the road to see when a turn they are on is about to become rutted, or when they might hit mud and tip over. They feel, like the pioneers, safe in a wagon train, but then something goes wrong, and they are very alone, very fast. They need the wisdom of a pioneer who has crossed the valley, and studied the path.

  • Paradox one: Leading is usually about getting people to go someplace difficult and new, even if (or precisely because) they’re perfectly comfortable and prosperous where they are right now.
  • Paradox two: A leader can’t just motivate people to change, she has to persuade them to actually take the journey, and care about its success or failure.
  • Paradox three: Even if a leader succeeds, there’s no guarantee she will get any credit, or gratitude for the services rendered. Except for the millions of dollars in compensation some business leaders make, the magazine cover stories and books written about them, the hobnobbing with President Obama, being a leader can be the most thankless of tasks. Of course, if you do it wrong, you get shown the door.

Still. Celebrity, money, power – hard to shed a tear, it’s true. But pay attention, for a moment, before we get to the personal, to the failures of business leadership. The landscape is littered with the carrion of companies that blew it; high fliers that flamed out. If leadership can be occasionally rewarding, it is far more often the case that business leaders, even ones who have been coronated by adoring customers and media, end up, over the long haul, stumbling and failing. To put it in more fruitful terms: For every Apple, there is a Blackberry.

Yet to Christensen, Harvard Business School professor, consultant, investor, onetime failed CEO, the problems of leadership are not inscrutable. They are very scrutable. They just have to be worked through a sound theory. Christensen, 60, is most famously the author of business school bible The Innovator’s Dilemma, a 1997 tract that grew out of his HBS doctoral thesis, about the disk drive industry. His work has appeared in or been the subject of scores of articles in all the above-named publications, but there is something different about it. It’s a something that grants him the ear and attention of some of the world’s most powerful CEOs. Christensen excels at delivering to them a very special kind of bad news, which would be unwelcome but for his steady, deep tone, gentle nature, and unshakeable conviction that his findings offer a path to corporate salvation, no matter how fraught it is with trials and temptation. Christensen tells his chosen people that if they want to survive they must lead, and they have to have faith in the theory that shows the way. He tells them that the moment of greatest danger comes when they stand at the pinnacle of their industry. Upstarts are coming for their customers. Soon, they’ll be broke. His theories are familiar to business journalism junkies, startup founders, and those powerful CEOs. Venture capitalists and startup founders in Silicon Valley and beyond have found religion in the concept of disruptive innovation that he refined.

Using spare black and white charts, which are his favorite visualization tools, Christensen shows how well-managed, profitable companies can become abject failures in a breathtakingly short time by doing all the right things: They refine their existing products to be better and better. They cater to their best, biggest customers. And they try to grow their profit margins with every passing quarter. But it turns out the path they’re on is something like C.S. Lewis’s gently sloping road to Hell. Christensen sees Bethlehem Steel go bankrupt just a couple years after a glowing Wall Street Journal profile about its genius CEO. He sees the second largest computer company in the world, DEC in the 1970’s, reduced to irrelevance in less than a decade. He observes the tragi-comic rise and fall of Enron. And he studies those disk drive companies, which he calls the “fruit flies” of the technology industry, as they are born, evolve, succeed, and die by the dozen, in no time at all. What the loser companies and many others all missed was, he believes, the impact of disruptive technologies on their business.

Christensen may appear to be an all seeing and all knowing deity, but he decides nothing. He doesn’t have an opinion. Christensen has a theory. “The theory has an opinion,” he tells me. “Like gravity is a theory. And it has a very strong opinion.” The theory, then, that Christensen has spent years refining, believes that great companies fail “because the very management practices that have allowed them to become industry leaders also make it extremely difficult for them to develop the disruptive technologies that ultimately steal away their markets.” What made you strong in the past, says the theory, is precisely what will kill you now.

Companies that want to survive over the long run must figure out how to disrupt their businesses or they will instead find themselves disrupted by smaller competitors who, at least initially, make subpar, expensive products that do similar jobs. That sounds laughable until the day all the old company’s customers abandon it to buy from the new guy, because the startup was able to tap a new market, or innovate more rapidly on the product, or relentlessly steal low-margin market share while also developing a more efficient cost structure to later raid the older company’s high-margin business. In industry after industry that Christensen has studied — steel, steam shovels, disk drives, and lately, education — the failures repeat themselves.

Though hydraulic backhoes were underpowered compared to mighty cable rigged steam shovels, Christensen found they tapped a new market, among trench diggers, and as their manufacturers improved them they caught up with and surpassed steam shovel makers in price and, thanks to the lack of cables to snap, safety. Mainframe computer makers may not have had much use for 5.25” disk drives, but the PC makers who were about to pillage their market had a huge, unfulfilled need for more compact drives, even at the expense, initially, of some capacity and reliability. In both cases, the original companies had learned to do business a certain way, and the technology that disrupted them was something their organizations weren’t built to address or nurture.

Though the failures repeat, so do the successes. IBM has experienced no less than three total reinventions in its hundred years of existence. Apple made beige computer boxes once too, and still makes computers today, but its two biggest sources of revenue, and its future, are now the iPhone and iPad. Christensen’s follow-ups to The Innovator’s Dilemma have examined the “hard” and “soft” strategies that CEOs use to effect change, and the various business structures large companies deploy to foster disruptive technologies that may eventually replace their core business altogether, but the how of how these big, established firms thrived all comes down to leadership. At IBM, the PC division was established in Florida, far from corporate headquarters, and given no corporate baggage to handle, only a mandate to build a product. At Apple, Steve Jobs was his own product designer and customer, and could bend the company to his will—traits he leveraged heavily upon returning in 1997 to the directionless company he had founded. His imperiousness would have backfired horribly if he hadn’t perfectly understood, according to Christensen’s “job to be done” theory, exactly what types of products Apple needed to make in order to turn itself around.

Christensen calls himself “quite a religious” man, a devout Mormon who has been a leader in his church and does not shy away from talking about his faith. It’s hard not to see how the teachings of his church have impacted his thinking about management. His faith, in fact, was one of the first things he discussed with me when I sat down with him in his living room in Belmont, Massachusetts, at the crack of dawn one Monday morning, the only time he could spare, because he was due to board a private jet and spend the day counseling a Fortune 50 CEO. “God designed our world,” he said, introducing a paradox. “He oriented us to look at the future, but he only makes data available about the past.” Then Christensen politely but firmly renounced the entire model upon which business schools are built. The elites who hold the status quo sacred might almost take what this devout man said about them as profane. “People come through the funnels, like the Harvard Business School, or Wharton,” he said, and these students learn by using historical business cases to make analytical, data-driven decisions about the future. The problem, he told me, is that, “in teaching them to be data driven, we condemn them to take action when the game is over.” This is how he works. It’s easy to throw ideas like disruption around in education, thinking, surely he couldn’t be talking about Harvard, where they have it all. But he is very much talking about Harvard.

It’s interesting then, that Christensen’s God by definition knows the outcome of every action that takes place in our universe. If hindsight is useless, so is a CEO who needs leadership lessons. Theories on process may be crucial to execution, but if a leader doesn’t already have Jack Welch’s balls, Steve Jobs’s arrogance, or Jack Dorsey’s sense of purpose (a “hall of fame” two-time disruptive innovator, says Christensen), the war is over before it’s begun.

The next paradox: The theory is just that: a theory. A leader can’t really know where the path he chooses will lead. Even Christensen couldn’t know that of the elite classmates that joined him at Harvard Business School and in the Rhodes scholarship, two, including Enron’s CEO Jeffrey Skilling, would wind up in jail, and several more would find themselves in broken marriages and with frayed professional lives. Watching Skilling’s tragedy unfold may be why, for the first time, he is applying his theories beyond business, to the personal. To our lives.

Those damaged beings became different kind of case studies for Christensen’s new book, How Will You Measure Your Life?, co-authored with with James Allworth and Karen Dillon. “I don’t want to mislead you,” Christensen writes. “There are many of my classmates who have led exemplary personal lives.” But the tapered ends of a distribution curve in Christensen’s world are not to be thrown away. They are for study. “You’re always going to find, ‘What does your theory not explain?’ And then”, he says, “you have to use that to go back and keep always improving your theory.”

It must have been tough, even so, for Christensen’s theory to make sense of his old classmate Jeffrey Skilling’s sad case. How did someone like Skilling, who was known as “a family man” even in his business school days, go on to become a jailed, disgraced symbol of fraud? And how does the theory explain Skilling? “I never,” Christensen says, “want to tell people, ‘If you do this, you’re going to be a happier person,’ because, in fact, life is very complicated. But there are better and worse ways to think your way through the problem.”

Much the way a CEO can’t afford to ignore a tiny, disruptive startup that could become an existential threat to his business, Christensen believes it’s the small compromises in life that eventually lead to grave crimes. “You get there because you couldn’t think through the end result of these innocuous, sense-making things,” he says.

“It’s easier,” says Christensen’s theory, “to keep your standards 100 percent of the time than 98 percent of the time, if these paradoxes or hard decisions occur repeatedly in your life, which they do.” Christensen can hear in his head the phrase people use when they excuse their lapses: “‘I know that in general everybody should follow this rule, but in my particular extenuating circumstance, just this once it’s O.K.’ If that theme recurs in your life over and over again, it really is true that life is an unending stream of extenuating circumstances.” But he gives me a longer list of exemptions people grant themselves, including viewing pornography, outsourcing, and even hiring a guy to mow your lawn, that lead to the same sloping road to Hell, just on a personal rather than corporate level. And he tells me how they get on the road:

“When Satan is trying to convince us to follow him, he doesn’t have a full disclosure policy. But he says, ‘Hey, come in this box with me.’ And you look inside the box and it looks really quite enticing. So you come in and in fact you enjoy it. and then Satan says, ‘How about you come into this next box?’ And it looks pretty good compared to the last one, and then you end up at the end of the path.

“And you say, ‘Satan, you never told me that this is where the path ends.’ But that’s his whole point. And so, the first step is pornography for a lot of people. And compared to no pornography, this is actually quite a nice box. And then the next thing happens, and the next thing happens, and all of a sudden you’re divorced and your kids are alienated from you. And you would never choose to go there, but you just don’t know the end.”

It’s not, then, about the flaunting of wealth. After all, Christensen had a Subaru in his driveway and a housepainter coming by as he was leaving for the airport. It’s that, he says, “all of these things make consummate sense individually, but then, your children don’t have to do hard things.” If they— if any of us—never have to ask ourselves why we can’t take the easy route, we’ll never take our own measure, or be able to foresee how our little compromises spiral into life-destroying ones.

Over the past few years, Christensen has become his own edge case. He bounced back from a stroke that robbed him of his ability to speak and he continues have trouble with writing, hence the co-authors. He underwent successful chemotherapy for lymphoma, which he was initially told was the same kind that killed his father. And he survived a “widow-maker” heart attack, not that the pain kept him from grabbing his briefcase on the way to the hospital, in case he could squeeze in some work while hooked up to the EKG.

Somehow, Christensen’s extenuating circumstances haven’t prevented him from thinking about new applications for his theory of disruption. Nor is his new book likely to be a permanent transition from business writing into the self-help section of, well, any bookstore that hasn’t been disrupted out of existence. The consulting firm he co-founded, Innosight, has been studying how disruption could apply to healthcare, and Christensen himself has been thinking a lot about education. Harvard Business School, he’s noticed, has been experiencing disruption from online education models and corporate universities. “What that means is in the past,” he tells me, leaning forward, ”we made our money with the artistry of the professor. And the components of the course, the cases, that was insignificant. But now online learning and corporations are just booming.”

The solution for Harvard, Christensen’s theory believes, is what he advises leaders to do when they are at the top of the heap, when their leadership is unquestioned. Disrupt. Tear it all down. Lead the business to an uncomfortable yet inevitable place. “Make it so affordable and easy that an unwashed instructor in a third rate corporate training program can teach better strategy than Clay Christensen. And if we did that, then we become the Intel inside of all these corporate universities.”

Mormons believe everyone is saved thanks to Jesus’s sacrifice, but that they must continue to, as is written in The Holy Bible, “work out their salvation with fear and trembling.” If they do that, they may eclipse mere salvation and become exalted, which is to say, become god-like. The way Christensen’s theories seem to work, our futures already exist. The path forward is clear enough, and the results of our actions are entirely predictable. Work the data through them, and everything will be illuminated. The only question is, are you saved?

 

Photo: Harvard Business School Professor Clayton Christensen conducts an interview with a Reuters journalist at his home in Belmont, Mass. REUTERS/Jessica Rinaldi.

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Brad Feld’s four ingredients for thriving startup cities http://blogs.reuters.com/paulsmalera/2012/06/26/brad-felds-four-ingredients-for-thriving-startup-cities/ http://blogs.reuters.com/paulsmalera/2012/06/26/brad-felds-four-ingredients-for-thriving-startup-cities/#comments Tue, 26 Jun 2012 17:18:32 +0000 http://blogs.reuters.com/paulsmalera/?p=365 BOULDER, Colo. — One of the most resonant talks I heard at last week’s Big Boulder conference was also one of the shortest. In about twenty minutes, Brad Feld, who is without exaggeration the godfather to the Boulder startup community, explained exactly why it is that Boulder feels like a town on the verge, and why it’s teeming with startups. A lot of it has to do with Feld himself.

It’s not just that Feld is a co-founder of Techstars, the nationwide startup incubator that got its start in Boulder, or that the college kids — and lately, mid to late twenties startup veterans — flock to Boulder in hopes of getting a few minutes of his time to discuss their ideas. It’s not just that Feld’s Foundry Group scored big with an exit on Zynga, though that credibility certainly helps. And it’s not just that he picked Boulder as some magical perfect place to be a startup Mecca. In fact when I asked him why he moved there from Boston, he said, laughingly, it was because, “my wife told me she was moving to Boulder.” He figured he had better go along.

“Happy warrior” is usually a phrase reserved for politicians on futile crusades, but the four principles that Feld talked about that make Boulder a burgeoning startup locale are ones that he seems to embody, not just talk about. And as to my earlier post, wondering where and whether Boulder needed a billion dollar startup (or founder) to justify itself, Feld more or less shrugged it off. If that outcome is a natural result of the principles Feld sees as key to keeping Boulder a great place to found a company, then great. If it’s not, I get the sense no one, he least of all, would mind very much.

Brad Feld’s four ingredients for thriving startup cities:

1. The startup community has to be led by entrepreneurs.

Everyone who’s not an entrepreneur, says Feld, “is a feeder.” Feeders can be useful, indeed even essential. Lawyers, bankers, shared workspace providers, venture capitalists, business services, city hall, even incubators, are all essential components. But if one of those groups get into the position of calling the shots on what the community should be, Feld thinks it won’t work.

2. Take a very long term view of success; a twenty year view at least.

If you took a look at a decade-long slice of Silicon Valley, and you took the the period from, say, 1992-2002, you’d have to assume that the promise of technology was a huge bust. But if you encapsulate the next decade, you’d get a better picture of how out of the ashes of the dot-com bubble bust, a new and perhaps more resilient approach to tech startups came about. It’s foolish, then, to assume that any startup city is going to have its ecosystem all figured out in a relatively short period of time.

3. Be inclusive.

Inclusive, says Feld, of anyone who wants to engage in the startup community in any way. And don’t try to box them into a hierarchical structure, where their activities are controlled by the “leaders” of the community. Assume good intent, and try to have everyone “lean in” to the work at hand. Though Feld didn’t say this in his talk, I got the sense behind the idea was a simple theory of the wisdom of the crowds. When people think up good programs or activities, they naturally will attract the attention of others; when they don’t, they won’t. There’s no need to bring rubber-stamping into the mix.

4. Create activities that engage the “entire stack” of entreperneurs.

Different startups are going to work on vastly different ideas. But they should still have a way to get together, almost a rallying point, to learn from and get to know each other. In Boulder, Feld thinks that rallying point is Techstars. Indeed, it’s hard to meet anyone involved in the tech community in Boulder who doesn’t have some connection to Feld or Techstars. A key distinction: Techstars, nor Feld is the “head” of the community; he and it are just the network node– the connector of connectors.

In sum: give before you get

“Until the machines take over,” Feld told the crowd, “we have a chance to change the way we work.” While these ingredients don’t sound revolutionary on their face, consider how radically they upend the traditional company structures most of us in America work for. For years now, we’ve been hearing statistics about how startups actually create more jobs in the U.S. economy than the big, established firms, which tend to shed jobs. Yet, our entire economy and government has long been organized around protecting our largest industries. It seems logical: if the U.S. is going to start creating jobs again, it’s going to have to act more like a startup. And if it’s going to act like a startup, its cities and towns — the places we live and work — might want to take a page from the boom in Boulder.

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