More people than bots?

In 1975, BusinessWeek magazine imagined the rise of the paperless office as computer use became more widespread. Of course, over the following two decades, consumption of paper doubled. A couple more decades on, we are finally seeing year-on-year decreases in office paper use, at least in North America and Europe.

One recent tech fascination is bots. Retailers are especially interested in bots which will allow consumers to ask unstructured questions about products and help them order pizza or whatever. Bots may be the latest advance in customer service automation, but, they aren’t quite up to scratch. There are still plenty of limits to overcome with machine-learning and natural language processing. It will not likely take four decades like the paperless office, but automated sales bots are still a ways off. In the meantime, what is likely to happen? To put it another way, how will the “paper double”?

Continue reading “More people than bots?”

The Seven revenue models

Consider the following chart showing how the Revenue per User flows for each of the major mobile platforms:

dediu_rev_models

The chart belongs to a presentation where Horace Dediu looks at the future of online services. (Disclaimer: I have not been to the event, nor have I seen the presentation.)

At first glance, my first impression was: “Only four revenue models?” (Transaction, Subscription, Ad, or a mix of the three). On second glance: “Wow Advertising is pretty much the same size as Transaction.” But then later, in the shower, I started to ask: “What does ‘transaction’ mean anyways?”

Generally there are 7 revenue models:

  • Production
  • Markup
  • Fee-for-service
  • Commission
  • Advertising
  • Subscription
  • Licensing

Horace has split out Advertising and Subscription in his chart, but Transaction seems to fold a few of those rev models inside of it. So I decided to attempt to reverse engineer the chart. Let’s take a look (click to enbiggen):

Transaction is made up of four subcategories: Transportation, e-commerce, Travel and App. I reorganized each of the companies featured in the slide into their category, then labelled each with one of the five remaining revenue models (Production, Markup, Fee-for-service, Commission and Licensing). This is a complex endeavor since some of these companies do more than one thing. For example Amazon sells its own hardware, sells other people’s products, and licenses you Kindle and Audible books. Ridesharing companies charge you a fee-for-service and then take a commission from the driver (doesn’t sound like “sharing” to me, but that is another post).

Inside of the Transaction category the biggest group belonged to the Markup category. I have no way of separating out production and licensing revenues from those companies, but even simply adding them all up and comparing them you can see that Ads are bigger than any one Transaction subcategory.

dediu_ad_v_markup

Hey, ads are big (and growing), we know that already. But that fact may be hidden in Horace’s chart.

Why go through this exercise?

True, since I do not have access to the data set, and do not know what Horace’s intention is for this particular screencap, I could be speaking out of turn. That said, I find it very interesting to see how consumers are parted with their money, myself included. Think about what you spend your money on each day, and think about what you used to own, compared to what you merely rent or lease today. I don’t own much of anything anymore, not least my hundreds of Kindle and Audible books, iTunes tracks, or Google Play Movies and TV Shows. As a minimalist, I am okay with owning less, but I have issues with proprietary formats (I now use Downpour for audiobooks), and it seems especially egregious as they are pushed into the real world (ahem… John Deere).

For all the talk of innovation there has not been much on the business model side. We have had these 7 revenue models for a long time. Regardless of how dominant the Ads model is, it doesn’t work for everyone, and is in fact failing many of our vital institutions it once supported (ahem… public interest media). Unfortunately, most of the “innovation” around business models have been on the finance side, with very “innovative” accounting and debt models (ahem… [subprime lending](subprime lending)). The results have been runaway household debt and financial collapse. As with all things, technology helps out here too.

So, Innovators, we could use some new revenue models that are straightforward, and not detrimental to consumers.

Putting humanity back into startups

Startup culture is pretty absurd. You can seriously criticize its neoliberal, technocratic ideological underpinnings, or you can satire it with shows like Silicon Valley. Hackathons are ripe for criticism too, but there is a place for laughs. Listen to this great Radio Berkman ep about “Comedy Hack Day,” where they embrace the absurdity of the “app-happy Cloud of anesthetized convenience”:

This reminds me of another Hackathon I heard about from last month:the Stupid Shit No One Needs & Terrible Ideas Hackathon where an amazing CLI for Tinder was released, among other stupid and funny inventions. At last year’s local Startup Weekend Okanagan the winning team used humour to get an edge, building an app that routes your txts through a friend for approval before sending — for those times when one is inebriated and should not be sending ill-advised, late night missives to former lovers.

Baratunde Thurston (of The Onion fame) ends the Berkman podcast (at about 10:20) with a comment worth highlighting:

Technologists, I think, its very important as architects of our future… that there’s a dosage of humanity in that. And there’s not much more human than humor.

These examples aren’t specifically political or social critiques about technology per se, but the potential is there. I like to read (and sometimes write) high-minded, literary critiques of this business that I am in. That is certainly valuable, and works. But humour is another way to make people aware of the absurdities of this business, and is an enjoyable and artful way to valuable tech criticism.

Local startups! Protect our shared resource!

The internet is like the sea, a vast and shared resource that we all depend on. Unfortunately we do not have anything like UNCLOS to help protect that resource from the countries and companies that threaten it. So much of the innovation and content on the internet is the result of individual users like us. Well, so is the responsibility to protect it.

Luckily we have some grassroots organizations to help coordinate individual efforts. Here in Canada we have OpenMedia, which I have mentioned before and you have probably seen me tweet about. I’ve been a member for a couple of years.

This month they are reaching out to fellow tech companies, whose businesses are all enabled by a free and open internet, to step up and contribute to the protection of that precious resource. The amazing thing they have done is got together a bunch of tech organizations to match all donations. This is the best time to get the most bang for your buck.

The campaign is called #StepUp4Net.

StepUpForNet_donate_banner

This is a grassroots campaign, led by local tech leaders. My pal Boris Mann has been working hard with cool people like Michael Tippet and Tim Bray to activate the YVR community, and I hear from OpenMedia that donations are coming in from Toronto. I would love to see some of our community members in the Okanagan and Thompson regions also contribute to this campaign.

For each one of you in your respective geographic areas, please reach out to find companies around you that are able to help. We are trying to get a couple hundred businesses to step up. Connect them directly to Open Media or even to me if they have questions. The campaign link is:

https://openmedia.org/stepup

2015 is going to be a big year with all kinds of legislation on the table regarding net neutrality, the TPP, surveillance, and lots of other issues. We need orgs like OpenMedia to augment our voice in Ottawa and elsewhere both as businesses and citizens. There is no better time to step up!

And don’t forget, you can still donate individually. Check out OpenMedia’s Donate page.

Hack startups — The state of ink-stained disruption

Two of the scariest areas in startupland are healthcare and education. These are monolithic, highly regulated sectors with long sales cycles — not particularly prone to “disruption.” In this year’s Kleiner Perkins annual internet trends report, Mary Meeker argues that these two sectors might be at an inflection point. I remain sceptical.

Another sector with hundreds of years of history and entrenched players is investigative journalism. Newspapers have been struggling since their heyday in the 1980s. Revenues are down, churnalism is up, and there are less employed reporters out there chasing down leads.

Newsroom employment over time in the US

Something needs to change, but since most revenue still comes from print, newspapers are loth to experiment too wildly. In effect, newspapers are prisoners of their own business model.

Within journalism, investigative reporting is the most difficult to produce because of the capital required and the long turn-around times involved. In our instant-gratification-mediascape, investigative journalism has fallen by the wayside. What was once a valuable service, subsidized by the the inefficiencies of bundled media empires, is now withered and cut as media behemoths look to slim down in the face of internet disintermediation. This is happening across the board of public interest content — just look at the troubles at the CBC.

I don’t think it can be argued that investigative journalism should be done away with. It is a valuable institution for our democracy — the venerable Fourth Estate. (The Fifth Estate is an extension, not an evolution). Thus, with an established pain (ie. the need to know what is going on in the halls of power) and a market (ie. every citizen), the opportunity for startup disruption is obvious, non? There are certainly a lot people tackling this problem.

AngelList has 194 companies under the “Journalism” market. Most fall under a few categories:

  • marketplaces selling for photos, videos or writing
  • content management platforms for writers, editors, publishers
  • citizen journalism platforms
  • delivering breaking news (usually via social)
  • aggregators and curators (again, backed with social)

Many are solving the problems of “information overload” (through curation) or distributed workforces (through publishing platforms) but as far as I could tell, none are focused on solving the business problem of funding long-term, quality reporting. Paywalls and online advertisements do not suffice.

One solution is lots of money. Pierre Omidyar, the billionaire founder of eBay, started First Look Media with some interesting new ideas on how to fund real journalism (I encourage you to watch the video). Last year, Jeff Bezos of Amazon purchased The Washington Post. We are still unsure of how WaPo will change.

I am one of the few people that is actually willing to pay for content. I have subscriptions to a few established news outlets (Foreign Affairs, Globe and Mail, The Economist etc) and I have even supported some startups in the space. I backed Matter (later acquired by Medium) which tries to solve the problem of terrible science and technology reporting. They had a community-based editorial board where members could vote for allocating commissions.

Another outlet I have used in the past is Atavist. They have an interesting model in that they are a product company that commissions longer pieces to feature its platform. The non-fiction pieces can sometimes approach investigative journalism. The business model is subscriptions and micropayments, and the selling of their publishing platform Creativist.

Most recently I have discovered a Canadian startup Ricochet Media. I heard about them on Jesse Brown’s Canadaland podcast. Ricochet is trying to square the circle of funding independent, investigative journalism in Canada. Like Beacon, Vourno and Contributoria they are going with a crowd-funding model. Like Matter they have a community-driven editorial process. They are trying to get off the ground by crowdfunding themselves on IndieGogo. We shall see how they do.

Journalism is a “hard problem.” Some have argued that it has been failed by the market because you cannot treat citizens as consumers. Some say public-interest journalism should be considered a public good. If this is true, traditional startups will have trouble disrupting anything due to their market-first orientation. There could be some business model innovation that could work, or maybe a SocEnt solution. It might come down to [shudder] consumer education and teaching people to pay for valuable things. I don’t know the answer, but this is a sector that I am deeply interested in and hope we get a solution soon.

Growth

So far this has been an explosive year for the Kelowna startup community. For the past few years the community has been germinating inside the Kelowna Innovation Center, which served as the single hub for all startup activity. Now we are seeing more and more happening beyond those walls — a positive development and a signal of maturation.

Local startup legends Vericorder and Vineyard Networks (now part of Procera) scaled out of the KIC years ago. Many of the early stage startups in Accelerate Okanagan have been hoping to do the same. Last month Syndicate Theory left with Cityseed to join another stealth startup at the new Rocketlaunch space. This past week FreshGrade moved into a new space called Wheelhouse and Just be Friends set up their new office space. Soon Hyper Hippo will be moving into a brand spanking new building, and I suspect taking with them one or two other small outfits from KIC. Furthermore there are rumours of two more startup-centric spaces on the horizon. This might just be #startupkelowna’s Big Bang moment.

All of a sudden we have transitioned from a single to multi-hub community network. Such a distributed system is great for innovation, but we must remember that it is an ecosystem. As a community we must double our efforts to keep the communication lines between the hubs open to prevent isolation. We at Rocketlaunch intend on hosting events for developers in our space, and you will always be able to see the Syndicate Theory boys at the various tech meetups in Kelowna. I implore the other hubs to do the same or better. There will be growing pains, but we have the lessons of many other communities that have followed this path before us.

What are you going to do?

Startup Weekend Okanagan AAR

It has been a week, and I think I have finally recovered from Startup Weekend Okanagan. I had a total of 7 hours sleep over the three days of taking a product from concept to pitch. The team was a powerhouse with 5 devs, a designer, 2 biz/cust devs, and me (a product dev). Throughout the weekend, we never thought we had a chance of winning, and were in it for the love of the product, the love of the tech, and fun. In the end, our enthusiasm prevailed and we were able to take home top prize, even though I think half of the audience still had no idea what it was we made.

1st place: Arkitektor
Champions, with AO CEO Jeff Keen on the left, and city councillor Colin Basran on the right

The Arkitektor concept was formed out of a #devKL session where we discussed visual modelling. Our fearless team leader @neh decided that we should use Startup Weekend as a chance to try and build the product development app of our dreams. At the pitch he said “graph database” and boom! He had a team. Originally, I wanted to join a team with people I didn’t know. However all the other pitches did not excite me as much as Arkitektor, which I threw myself into.

It was a tiring/amazing experience. I truly believe that the amount of talent on the team made it a once in a lifetime experience. I didn’t get much of a chance to learn Node.js or Neo4j as I spent so much time on the planning, presenting, biz and cust dev side(s) of the project. I was pretty ragged by the end.

I was very happy that SW integrated market validation into the judging this year. At the #devKL beforehand we were planning on pushing such an agenda and basically told all the dev’s not to make anything until it was proven. The Arkitektor team used both the Lean Startup Machine’s Validation Board and the Business Model Generation tool.

I had a crash course in delegation. Our dev team was experienced and could quickly get up and running, but our designer and biz people were not used to working in a startup environment. I introduced a kanban style task list to the biz people, which worked pretty well. I hope they got a taste of what startup life is like: you cannot afford to be a specialist, you cannot wait to be told what to do, you must use your initiative.

My other big lesson learned was the importance of honing your message. I practiced explaining our concept to as many people as I could, and even though I felt I got better, we still were not able to to explain it to a non-dev in two or three sentences.

Prize

The only thing that I would suggest to the organizers, other than providing lighter meals, is to have a physical object to award the winners, even if just a piece of paper. We had no idea what we won, and had nothing to show for it, which was a bit anticlimactic.

If we are to have this thing every year in Kelowna, I think it would be great if we could make an 8-bit trophy, maybe 3D printed, to give to the winning team to keep in their office until the next year.

Taking Startup Weekend into another dimension

Speaking of 3D, I think it would be brilliant if we had a special edition of Startup Weekend that focused on physical products, with 3D-printed prototypes. It is hard to imagine what amazing products would come out of such an event. I am sure physical product-focused events like Startup Weekend happen all the time in other contexts. However, Startup Weekend has typically been the purview of digital products, and we find ourselves in an era of bit-pushers being able to push atoms, bringing all their web and graphic design skills to the physical world. We could even get Objet or some other company to sponsor the printers, and have to include the lengthy printing time in the development strategy.

Furthermore, think of the new types of people that would be introduced to Startup Weekend. Kelowna has healthy gaming and animation communities, filled full of modellers that would be worth their weight in gold on a 3DSW team. It sounds like lots of fun…

Well, what do you know, it has already happened!

Wrap-up

Highly recommended. We are still considering whether to make Arkitektor in real life. Regardless, I will be there next year, hopefully as a well-rested volunteer organizer.

Software Tree of Life follow up

Whiteboard from #LeanCoffeeKL 74

I presented my idea of the Software Tree of Life at #LeanCoffeeKL #74. It was a pretty high concept session but I think it challenged everyone that attended. It certainly challenged me as the attendees brought up a number of interesting points I had not thought of. If you look at the full-sized whiteboard photo you will notice on the right a list of “Other Factors.” Other than the industry specific factors of which I alluded to in my last post, most of the points can be summed up into two considerations: 1) competition, and 2) capital.

I mentioned the red ocean of competition in my last post, but it was brought up that in the Regulated Enterprise Kingdom, there is are often very few competitors. The market is yours if you can get into it. If you already have an in, this will seriously impact your opportunity assessment calculus. Further to this, it was proposed that there is such a thing as a Regulated Consumer Kingdom, for example customer-facing software for banking or telecoms. An excellent point.

Capital wise, some branches of the tree take much more initial capital in order to enter. This could mean cash, physical capital and even knowledge capital. R & D costs to understand the domain before building a solution can be exorbitant for some industries. Having domain expertise on your team will be a must, and could be a high barrier to entry for you in these cases.

The final point that I would like to highlight from the session is something that I have talked about at length previously (eg. Getting customers in the enterprise) but did not make the connection with regards to the Tree of Life. It is the consumerization of the enterprise. This is a recent trend in technology and it is still far too early to determine whether or not will be all encompassing. However it is intriguing to consider the possibility of all of the top level branches of the Software Tree of Life merging into a single hybrid (note the green dotted lines on the whiteboard).

As entrepreneurs it is always beneficial to share stories and discuss the intricacies of daily startup operations. I maintain that it is also worth examining how the innovation ecosystem works as a whole from time to time. I think that is the part of being an expert in the field.

The Software Tree of Life: Finding the shortest branch to success

The Premise

Software is often described as a “living thing,” something that grows and evolves. Each point release offers a new evolutionary adaptation, spurred on by complications in the production environment, and sometimes a competitive business environment.

One might discard this metaphor outright simply due to the common job title of software designer. Life has no designer, and evolves through competitive and climatic constraints over geological time — software can hardly be considered the perfect result of divine will, no matter what your sales department claims. Software is not developed in a perfect vaccuum. Much depends on the (un)natural selection of frameworks and libraries, harsh environments such as server and regulatory requirements, not to mention the various pressures on the developers actually creating the software. The bugs, shortcuts and hacks that riddle any newly shipped piece of software are reminiscent of the vestigial legacies of human evolution: the appendix, coccyx and wisdom teeth. It is a closer analogy than one might first realize.

Which leads me to think of the possibility of a sort of Linnaean taxonomy of software. In 1735 Carl Linnaeus split organisms into three kingdoms (animal, plant and mineral) made up of a number of classes. Since then there has been much evolution in biological taxonomy, including such complex descendants as the recent genomic Tree of Life.

Why should we want to classify software in such a manner? Surely the categories on the iTunes store are be enough? No, that taxonomy serves a different purpose. Our purpose would be analyze software in terms of rate of evolution. In biological studies differences in evolutionary rates can be found within and between phyletic groups. Reptiles, specifically crocodiles and alligators, are identified as being the least different compared to their prehistoric ancestors. In the startup world, knowing the rate of change in a sector is key to opportunity assessment.

New software products are often trying to introduce speciation within a certain software class or business, usually by attempting disruptive innovation. When thinking strategically about developing a new startup business or product, consider which branch of the software tree you are operating in. Some branches might be more amenable to success than others.

Considerations

A topic that comes up often at #LeanCoffeeKL is not to bite off more than you can chew, especially when starting your first venture. PayPal Mafia capo Elon Musk started with a simple content management system long before he started revolutionizing the civilian space industry. Paying your dues and gaining experience is important to your odds of success when you are tackling big ideas.

When planning your first move, consider if the industry you are targeting is ripe for disruption. Note that I did not say deserving of disruption. Education and health startups may be “cloaked in nobility“, but they are notoriously resistant to change. On the other hand, consumer startups also have a difficult time as there is so much noise and such a rapid rate of (relatively minor) adaptations in the market that it is difficult to make an impact. If government regulated industries are the “dinosaurs”, consumer markets such as games are the “insects” of the startup phylogenetic tree. That is not to say creating a successful business in these sectors is outright impossible, it just requires a lot more perseverance and luck than the unsexy enterprise market, which is recognized as being probably the easiest sector to attain an early success.

If Consumer, Regulated and Non-regulated Enterprise are the three industry kingdoms of our Software Tree of Life, what are the subcategories? I am unsure of where to proceed here, as I think it might be a matter if identifying characteristics rather than a bifurcated tree model.

People buy software in order to achieve something. In this sense all software is a tool — regardless if it is Photoshop or a fart app. From this perspective I tried to develop some extremely wide types of software:

  • information retrieval (browsers, info terminals like wiki, weather, maps, dictionary, etc)
  • entertainment (games)
  • pure content (books, magazines, movies, music)
  • creative tools (productivity)
  • communication tools (email, messaging, social)

The above categories are debatable, and at one extreme could be cut down to just two types: consumption and production. But I think information retrieval is not captured by those two categories, and for cultural/business reasons games are different from other types of content. This is just a first pass and I am open to your suggestions.

The next step is to categorize business models, to see if certain software types lend themselves to certain business models. Some common models include:

  • direct sales (one-off payment)
  • distribution control (pay-to-access, subscription)
  • marketplace (a cut)
  • engagement (ad driven)
  • platform (licenses)

Traditionally software used a direct sales model: pay once to use your copy as much as you like. With the internet transforming software distribution, subscription based models became more viable. For example, subscription-based electronically distributed games and content like magazines became possible, and pay-to-access has been a sort of last bastion for content that cannot be DRM’d. Even traditional creative tools are moving toward subscription models (ie. SAAS). Communication tools have traditionally been subscription or free online, supported by ads (eg. Facebook). Marketplaces are a type of communication tool, joining sellers and buyers and taking a cut (and are notoriously difficult to get off the ground). Similarly, finding the right business model for software platforms has been tough (how much to charge for API access?), with those types of applications falling back on an engagement model. Each of the above models has its own pitfalls.

Which industry, type and model offers the shortest and/or surest route to startup success? This preliminary thought experiment is far too rudimentary to offer a conclusive answer. Other factors such as sales cycle, churn and adoption rates, and other industry-specific characteristics should be considered. As an exercise the Software Tree of Life offers an unorthodox analytical framework for opportunity assessment.

The untapped talent well in Kelowna

In a constrained startup environment pushing for change it is important to identify and connect the “capable” members of a community. What I mean by “capable” is a bit nuanced, but effectively they are the “DO-ers” of society. If given the proper opportunity, these people could do great things, whether that means community engagement, creating new product ideas, or designing and developing the next big thing.

Attempting to drive all felines in the same direction typically results in a chaotic, leaderless mess. The best way to get action in a distributed environment is to find the do-ers and let them lead. The followers will follow. The community will become stronger. In his book Startup Communities Brad Feld estimates the number of true do-ers as 25% of volunteers — never mind the population at large. I will set an arbitrary (if optimistic) number of 10% of any given population. In our small startup community 10% is still too small to effect big, long-lasting change. Thus we must look to recruit other do-ers from other population pools. I have been considering a list of these pools for some time now, and so far have come up with:

  1. Those currently engaged in the startup community (us, as it stands);
  2. Those in the established tech companies (eg. Club Penguin, QHR, Vineyard, Vericorder) that for one reason or another do not interact with the community at present;
  3. Those rotting in dead-end web design jobs (you know who you are!);
  4. Those outside of tech, looking in (call them nontrepreneurs, wantrepreneurs or aspiring entrepreneurs);
  5. Students, whether they are college/university grads or even promising high schoolers (we need to get them before they leave);
  6. Developers and other startup people from other communities (Kelowna has lots to offer, especially considering the progress in the past year);
  7. and, the immigrant community.

The final one is close to my heart, as someone who is married to an immigrant and who has lived most of his adult life as an expat in a foreign land. Immigrant communities are typically disconnected from regular economic activity but they don’t have to be. In four months of living here I have already met foreign-trained architects, engineers and nurses that do not have the local social connections to get jobs in their industry. I have been approached by one immigrant web-designer and my wife met an unemployed programmer in her ESL class.

Kelowna is still predominantly “old and white” but the immigration population has been rising in the past few years with the rise in education opportunities here, and the deterrent rise of living expenses in the traditional immigrant hub of Vancouver. There is a growing talent pool here that remains overlooked. These people are already trying to build something for themselves here. Why not get their help on building a new economic engine for the benefit of themselves and the city?

Our startup community has been using events organized through tools like Meetup.com and Twitter, as well as through the activities of Digital Okanagan and Accelerate Okanagan. We cannot expect a newly landed programmer to know about these resources. Yet to my knowledge Kelowna has no central clearing house for immigrant-related information that we can hook in to. I cannot begin to estimate the depth of the untapped talent well Kelowna’s immigrant population has to offer. We must find ways to reach out, and make newcomers to our country and city have the opportunity to plug in and offer their skills and experience. Our community will be better for it.