At its core I see four fundamental pillars: Identity, Trust, Reputation and Influence.   Yes, social networking is part of this, but this perspective gives a different, and I would say more informative, way to look at the space.  Here are a few thoughts:

• These four pillars will become increasingly important to two different constituencies: advertisers that want to reach consumers, and individuals themselves;
• Game dynamics can be applied to “manipulate” or “guide” people into certain behaviors that can then be measured in real-time – shopping and flash-deals come to mind;
• Regulation will have to play catch up – this is not longer cookie tracking it is stalking;
• People will be rewarded for the data  they surrender: a better table at a restaurant, front row seats, free goods, if they can influence others to follow their lead.

Companies will grow up over the next few years to address these needs.  Watch this space as it is going to be very, very interesting.

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Before if you were making a product, the right business strategy was to put 70% of your attention, energy, and dollars into shouting about a product, and 30% into making a great product. So you could win with a mediocre product, if you were a good enough marketer. That is getting harder to do. The balance of power is shifting toward consumers and away from companies…the individual is empowered… The right way to respond to this if you are a company is to put the vast majority of your energy, attention and dollars into building a great product or service and put a smaller amount into shouting about it, marketing it. If I build a great product or service, my customers will tell each other.

This resonated with inarticulated thoughts then, and it continues to do so.  The implications are huge: costs of getting to market are lower for products that your customers care about; companies should reduce friction in their products, and then reduce it more; social networks are not just valid but the “new normal” in marketing.

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I have just returned from the offsite of one of my portfolio companies.  We came away with three simple things: a mission statement, long-term goals, and a set of  tasks for the the next three months and six months.  That does not sound hard, but it took us a day of meetings over two days to hash this out – we all knew it in general, but the meetings allowed us to clearly articulate it to ourselves and others as needed.  No confusion going forward.  At the end, every member of the team felt empowered, and knew exactly what they needed to achieve and what part they could play in the company’s success.  The CEO was able to communicate a laser focus on what the company wants to achieve and achieved buy-in from the entire organization.  Sounds simple enough, but in practice it is rare to see put in action.

For instance, how many start ups have a clearly defined mission statement?  Few, I suspect.  How many of those then articulate the necessary but sufficient goals that have to be met to enable the company to meet its mission?  Fewer.  And, how many of those then sit down and make sure that all the work is directed at tasks and milestones over the next six months to achieve those goals.  Big companies attempt this from time to time, but for startups it is critical as every resource is precious, missteps are costly and  the faster you run the more important this is.

We left the offsite with concrete tasks that we all knew would lead to meeting the company’s goals and be consistent with its mission statement.  Now comes the hard work: execution.

Management can’t simply leave it there.  They need to give everyone in the firm simple metrics to follow and targets related to those metrics that if met will achieve the goals.  Anyone on the team then knows how to measure their work as it relates to the company’s needs.  Again, laser focus.  How do you achieve this?  You make sure that everyone has access to these metrics, everyone has access to everyone else’s metrics and everyone helps everyone else on the team.  It is all about culture and team spirit and when it works amazing things can be done.

I left the offsite with the view that not only the CEO but every employee had a very clear understanding of what was immediately ahead of them and, with that, their chances of success are significantly enhanced.

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What happened?  Simply put: it worked until it stopped.  I do not know if that is because  I reached 96% usage of the 1 GB of non Google Docs formatted files, or something else, but I found that it started to behave inconsistently.  Strange, strange things would happen.  For example: (1) a document would show in one view, but not another; (2) the number of documents in folders plus the number of documents not in folders were less than the total number of documents; (3) I would delete a document but it would reappear a few days later.  This opened doubts in my mind regarding if I would be able to recover my files when I needed them.  Doubt and critical file storage do not make good bedfellows.

The obvious solution was to see if buying more space would eliminate the problem.  But, you cannot do that.  You can buy more space for email by going pro, but that does not impact Google Docs – coming soon?  The next step was to reach out to customer service – oh, yes!  There is no customer service.  So, I went pro, found out via email over a day or so that they could not solve any of this and downgraded.   This might be a way for Google to run its business, but it was increasingly clear that it was not the right way for me to run mine.  I started to work out alternative solutions to Google Docs.  Fortunately, they have added a download feature recently so that I could extract my 1,000 or so documents.  The question now was where to transition to.

I spoke to some folk, researched on the web, made a few calls and decided to go with Box.net.  It is different, but has some good features that will help us share and run our business better.  It costs money, but also has customer service.  I also get the sense that the profit motive will encourage them to ensure that their service works and improves over time.

The key insight is that Google by giving products away for free does not have the same customer relationship as someone who sells their products.  As long as the area is of interest to Google (for their business needs) they will offer and enhance the service, but they are not offering the service for the sake of servicing customers with it.  They are offering it for other objectives, and ultimately that means that the service might need to be OK, but not great.  When you sell a service, for profit, you listen to your clients, you find out their needs and you meet them.  You work to ensure your customers are happy and you find ways to enhance the service so that you can up-sell features.  You worry when things do not work and you are scared about the competition.  I am not sure that this is the case for all the free products that Google offers.  It is free to use some of them, for some of the time, when they care.  If Google decides to end a service, well they can do so and lose no revenues!  Though customers might want a Google Voice desktop product, but if Google decides that this is inconsistent with its everything-in-the-cloud philosophy then it will not happen.  The profit motive is a powerful tool to align customer and service providers objectives – Google does not have that in may of its offerings.

So, do I love of hate Google Docs?  I am not sure.  I have replaced a lot of Google interaction with Box.net, but still love some of the sharing aspects of Google Docs.  Does this make me feel less positive about Google?  not yet as I rely on Gmail and it works great (until it doesn’t).

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To me Twitter is the digital equivalent of broadcasting.  This allows me to take a very simple view re users: there are two types – those that “broadcast”, and those that “listen”.  Broadcasters and those with something to say: celebrities, brands, news organizations, and folks like me that like to share curated information with other.  Listeners, are, well, the rest of us.  Twitter provides a listener some of the best dynamic aggregation of relevant content out there.  How to find interesting content?  Well one way is to use Klout’s BirdBrain took (full disclosure: Klout is a portfolio company and I sit on the Board), but there are many ways.  For those that do broadcast Klout provides great tools to measure your influence, even it it is as pathetic as mine, and ranks my influence vs. everyone else’s.

I suspect as time goes on more and more people will listen into Twitter, and find it a great source of relevant curated content from their favorite news and entertainment sources.  A few simple souls like me will continue to broadcast into the ether with a belief that in some small way they are helping humanity, as well as increasing their ego via the Klout Score:

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So, what is a “feature”?  It is a business that is not a business, it is something that in itself is neat or cool that improves fun or efficiency.  It has no revenue model, and if successful can be copied by existing players or new entrants in the space.  It probably can’t be patented effectively and if could you would not have the resources to defend yourself.  It is the stuff dreams are made of, but often not businesses.  It is narrow in its application, or something that could be wide if everyone changed what they do today and do it differently using this new wizbang feature.  Businesses that start as features often spend a lot of energy looking to back into a business model.  A few make it.  Twitter?

This brings me to adoption.  The biggest area I have difficulty with, and where I am likely to disagree with an entrepreneur,  is with user adoption.  Start-ups want to change the world, and to do that effectively they often need to change behavior from “I would never Tweet” to “Twitter is where I get all my cool news” or from “the iPad will never take off” to “I watched two movies on my last trip and read 5 books, all on my iPad”.  The question is when you try to change the world will it change with you?  This comes down to user adoption curves and entrepreneurs’ vision as to the ease of take-up/deployment of their product.  Often they simply underestimate the difficulty of gaining customers.  The key question that they do not have a perspective.  Is this a problem?  Yes and no.  On the one hand they have to have an unreasonable belief and passion for their idea, because if they do not it will never happen.  On the other hand this can border on the delusional.  What is most essential is that the entrepreneur tries to understand why others question their adoption assumptions and then communicate effectively their perspective.  If you are raising money this can be the most difficult idea to get across.

I do not have a checklist when I meet with investors, but if I did these would be top of the list.

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So many kids graduate college with a fantastic understanding of what life can offer but with crushing debts that take years to pay off.  They get no education about the downside of debt, that leverage is a two edged sword and that debt is financial servitude.  Don’t get me wrong, debt has its place and for most of my adult life I have had a mortgage and borrowed money when appropriate, but like alcohol moderation is key, and only in the right circumstances.

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Well, in fact, we all are to blame in some interconnected way, but it is clear to me that actions taken by the Fed a decade ago have been the prime determinant for the path we are on.  They never should have cut rates to such low levels and allowed them to stay there for so long.  They never should have indicated stability in rates and “measured” changes.  They never should have reached for quantitive easing.

Low rates have led to misallocation of capital on a scale never before seen.  This has “forced” savers to reach for yield and make poor investments.  This has allowed people and peoples to borrow money hand-over-fist and spend it unwisely.  There is a fantastic quote from Michael Lewis’ article in Vanity Fair:

When you borrow a lot of money to create a false prosperity, you import the future into the present. It isn’t the actual future so much as some grotesque silicon version of it. Leverage buys you a glimpse of a prosperity you haven’t really earned.

Leverage buys you a glimpse of a prosperity you haven’t really earned.  This encapsulates the problem we have.  A decade of easy money not only allowed people to become over-leveraged but also gave politicians the tools to go out and make promises that can’t be met; whether they are in Greece, California, or my local town school system.  A bailout will only kick the can down the road for someone else to face.  Borrowing more to solve a debt problem is not a solution that can work for the long term, as the debt is not borrowed to supercharge growth.  We are now entering the Decade of Defaults as it becomes clear that there is no other solution.

Why are the authorities so wary of defaults?  Because it will wreck the banks, pension funds, insurance companies that own this debt and want to treat it as money good.  I suspect it would have been better to take the losses and re-cap the banks and start to explain to people that their pensions and other “entitlements” are not entitlements rather than continue the charade.  Politicians do not have the stomach for this – they, like investors, are increasingly myopic.

I am in a small minority, and it is increasingly clear that banks, politicians and regulators have interests that are mis-aligned to what is best for the rest of society – they will continue on with their make-believe asset valuations and hold onto power beyond any reasonable expectation.

Ultimately, there will be a reconciliation and such a reconciliation will be political as much (or more so) than economic.  Political reconciliation can sometime be peaceful and through the system, but often than not it is neither.  Don’t blame me when it happens, blame the Fed.

Postscript: The ECB is just as bad, given their capitulation this weekend.

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There is a great giant sucking sound, and it is of everything that was physical in my childhood being virtualized, vaporized, digitalized and dematerialized;  News, newspapers, magazines, books, books-on-tape, cassettes, records, CD’s, DVD’s, home movies, theater movies, televisions, telephones, mail, junk mail, voice mail, shopping, dating, researching, reviewing, trading, banking, gaming, you name it.  Moore’s Law, productivity, capitalism are all drivers here, but in the process we replace physical interaction with objects with pseudo-interaction via keyboards, mice, and “touching” images on screens.  The human mind is so malleable that it is able to ignore the difference between what is real and what is its representation:

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Apple has dominant market share in high end PC’s and nominal share in PC’s below $1,000.  The iPad is a mainstream low cost PC – thus the mainstream media promotion on Letterman, Modern Family, and other mass audience shows.  That much is obvious.

What I think is more subtle is that it can also create a strong beachhead in the education and corporate markets.  These markets are full of people that create content on the fly, and if they are willing to do that on an iPad then Apple will have taught them to be comfortable with Pages, Keynote and Numbers.  Once they are comfortable, then they might just feel comfortable using the same programs on their desktop…and the rest, as they say, is history.  Microsoft by not being present on the platform allows Apple to gain desktop market share.

To me another indicator of Apple’s push to the education and corporate markets is the removal of the camera from prototype versions – a camera would be cool, but it takes away from what might be appropriate in these serious settings.  Time will tell, but I can see many notes, dossiers, and text books being replaced by this 1 1/2 pound device.

Apple takes the risks, and so deservers the rewards.  Microsoft can try and be a fast-follower, but that is becoming a riskier strategy in tech.

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