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Imagine walking into a flea market where you don’t know the price of anything until after you’ve bought it.

The sellers won’t tell you exactly what it is they want to sell you. And you can’t even tell how good something might be until after you’ve taken it home and used it up.

Then you get the bill. You might be able to haggle over the price, but only long after you’ve bought the product. Your success rate at haggling will depend a lot on your negotiating skills and clout, as in any market. But in this one, it will also depend your ability to find the seller’s correct phone number, work your way through a complicated phone menu system, and master complicated, unfamiliar terminology.

Now imagine that there’s no way to compare notes with other buyers, because everyone is just as much in the dark as you are.

A flea market like that would be what economists call “inefficient.” Ordinary people would probably use a more vulgar term that starts with “F” and ends with “up.”

Yet that’s exactly what the health care market looks like in the U.S. today. If there was ever a market ripe for technological disruption, this is it.

Because of the lack of transparency over prices, the U.S. health care market has little correlation between price and quality. Sellers have almost total control over the market, and they resist any attempts to change the game by introducing more data — or easy-to-use tech tools to analyze and compare the data — because transparency would hurt their capability to charge high prices and avoid quality comparisons.

But there are signs that the barriers are starting to crumble.

Earlier this month, the U.S. Department of Health and Human Services released a pile of data about what 3,000 hospitals charge for the top 100 services they provide. HHS, of course, is the cabinet-level agency that regulates the $2.8 trillion U.S. health care market. It’s got an enormous amount of data about health care in this country, but until recently, that data was not widely available.

“We have a ton of data that we have collected over the years, and lots of it was just sitting locked up in a vault, doing nothing,” said Bryan Sivak, the chief technical officer and entrepreneur-in-residence at HHS, speaking yesterday at VentureBeat’s HealthBeat conference in San Francisco. (He’s @BryanSivak on Twitter.)

The data made a bit of a splash, particularly once the New York Times used it to identify the Bayonne Medical Center as the most expensive hospital in the country.

“It was a big win for the government to put this data out there,” Sivak said, when I asked him about it. “It very accurately demonstrated the wide variety and irrationality of prices that hospitals charge for the same procedures.”

The data dump was a tiny piece of what’s available. Fortunately, it is just the latest step in the department’s “data liberation” project. Sivak’s predecessor, Todd Park (now the chief technology officer of the United States), put the process in motion a few years ago. Sivak estimates that the HHS holds at least 1,000 different data sets in its archives. So far, just 400 have been cataloged on the agency’s data-liberation website, HealthData.gov.

And that’s just pricing data. The real treasure trove is quality data: How well various health care providers do in actually treating the conditions that we’re paying them to treat.

“You could be paying the highest price in the region for a given procedure and be getting the lowest quality, and not even know [this],” said Peter Isaacson, the chief marketing officer of Castlight, when I asked him about it. “And that’s the mark of an inefficient market.”

Castlight offers a service, sold to employers for the benefit of their employees, that shops for medical services by price and quality. It currently works with 50 different corporate customers, but there’s huge potential to offer this kind of service to every American — if the data can be made available.

Medicare, for instance, tracks a variety of data about mortality rates, readmission rates, infection rates, and other details. But it won’t provide this data on a per-facility basis except to qualified academic researchers; for-profit companies can’t currently use it.

What’s more, Medicare charges $100,000 for the data. That’s contrary to the spirit of Affordable Care Act, according to Bob Kocher, who helped shape the health care reform bill as an adviser to the Obama White House. The ACA mandates that Medicare release this kind of information, but it doesn’t specify exactly how or to whom, Kocher told me.

Medicare is probably restricting access in order to protect patient privacy, but it may also be under pressure from health care providers who don’t want to see this data publicized. Still, Kocher said, he’s confident Medicare will eventually release it — if there’s enough demand.

For-profit companies can use other available datasets, but these cost as much as $20,000, an attendee at HealthBeat complained — a barrier to very early-stage entrepreneurs.

Sivak acknowledges that this is a problem. But for those startups who need help, he offered two channels.

One is the department’s fourth annual “HealthDatapalooza,” happening in Washington in two weeks’ time.

“We’re expecting about 1,800 people to come to D.C. for a two-day celebration of all things health data related,” Sivak said. (Sounds like a jumpin’ party.) It will present plenty of opportunities for entrepreneurs and other interested people to dig deep into the HHS’s treasure trove of data, ask questions, and press the department to release more datasets.

Second, Sivak said, he’ll personally try to help any entrepreneurs who are having trouble getting to the data they seek.

We may not yet have all the data we need for an efficient health care market, but we’re moving in the right direction.

Sivak’s email, by the way:  bryan.sivak@hhs.gov.

Flea market photo: Benjamin Stäudinger/Flickr

This column originally appeared on LinkedIn. 

Google Glass is one of the most polarizing user-interface inventions to come along in decades.

We’ll have a chance to see just how polarizing this week when thousands of developers crowd into the Moscone Center in San Francisco for Google I/O, the tech giant’s sixth annual developer conference. Since Glass just started shipping to its earliest adopters, Google I/O will probably have the highest concentration of Google Glass wearers anywhere to date. That means we’ll have plenty of opportunity to watch people struggle with its interface — and to watch bystanders’ reactions. Expect lots of photos of Glass-wearing nerds to pop up in your usual media streams.

On the one hand, Google Glass users look like the Borg, creeping us out as they stare into a digital middle distance that no one else can see. It also raises troubling privacy implications, since it can be used to take photos and video almost surreptitiously.

On the other hand, the device is undoubtedly a harbinger of technologies to come that are even more integrated into our bodies.

The question now is: How do we make the most of this invention without making ourselves look like complete dorks?

Some take a hard-line approach. Bars and restaurants have banned the device. Casinos have said Google Glass is not welcome (due to its potential to help gamblers count cards, no doubt). Other establishments will follow.

Ryan Singel has suggested that lasers could seek out and blind Google Glass cameras using the same technologies currently being investigated for mosquito eradication. (Seriously!)

And many of us will content ourselves with simply making fun of people wearing Google Glass, just as we mock people for wearing Bluetooth headsets.

But let’s not let the dork factor blind us to the real-world possibilities. Google Glass, or something very like it, will have a revolutionary effect in many areas of life.

Among the most promising uses are those that fit into work environments where the addition of data can provide real, meaningful benefits.

Google Glass makes a lot of sense in health care, for instance. Doctors and nurses could use Google Glass to look up prescription details, access patient health records, see reminders about their next appointments, and even get better at recognizing patients’ faces.

What’s more, Glass would have a real benefit in the sanitary environment of a hospital because it could enable health care providers to do all this without having to touch a keyboard or a screen with their hands (or even, god forbid, paper).

For paraplegics and quadriplegics, Glass could be a stunningly useful way to get information and interact with it, as investor John Doerr noted last month when unveiling Kleiner Perkins’ Google Glass-focused investment fund. Its combination of a heads-up display and voice-control mean that it’s potentially ideal for people unable to use hands to control their computing devices. While it might seem creepy to take a picture just by winking, that is exactly the control gesture needed by people who don’t have hands.

For journalists, Google Glass could be an amazing note-taking and content-generating device that lets them shoot videos and photos as they cover a scene in real time. I’m a fan of the Livescribe pen, which lets me capture audio at the same time I’m jotting notes. Whenever I use it to interview someone, I always ask permission to record the audio. The same technique could work with Glass, and I’m looking forward to trying it. Right now, Glass only records 10-second video snippets and only has about 12GB of usable storage, but it shouldn’t be too hard to make an app that records longer audio or compressed video clips, as Jason Perlow noted on ZDNet.

For game designers, Glass presents tempting opportunities to overlay the real world with imaginary video game elements, as Google itself is already doing via Niantic Labs, its experimental augmented-reality project.

Even for tourists, Glass might have some intriguing possibilities: Imagine walking through a neighborhood in Paris, using an app like Findery to view geotagged notes about historical events that happened in a place, interesting architectural details you might have missed, or recommendations for good places to get a pastry and a café au lait.

Just keep in mind that these are special-purpose uses. And just because Glass is useful doesn’t mean I have to enjoy talking with you while you’re wearing it.

Eventually, our attitudes toward Glass and other always-on devices may shift. It’s not uncommon now to see a table full of people at a restaurant, all of whom are busy tapping away at their phones at the same time as they talk to each other. While many people might find that rude, it’s clearly acceptable to a growing circle, whereas five years ago it would have been unheard of.

Similarly, Google Glass might become more socially acceptable as it becomes more ubiquitous.

But that day isn’t here yet. So wear Google Glass all you want at work, or while you’re playing the goggle-eyed tourist or the obnoxious journalist. But please remove the damned thing when you’re talking to me.

Photo: Jolie O’Dell, VentureBeat

The web represents one of the biggest triumphs of individual freedom and openness over corporate control.

Now corporations have found a way to roll back that openness. One of of the most successful? Apple, whose quarterly earnings report lands later today.

Amazon, Facebook, and Google are close behind, but nobody has the leverage Apple does. That’s why I think Apple’s long-term revenue possibilities are strong. It’s also why Apple, and those who are busy emulating it, represent a dire threat to the open flow of information.

Openness vs. central control

As Tim Wu argued in his 2011 book The Master Switch, new technologies — the phone system, radio, television — go through several phases. There’s an initial phase of experimentation during which the technologies prove themselves. Then there’s a flowering of alternatives in the market as dozens or hundreds of companies sprout up and grow rapidly to seize previously nonexistent market opportunities. That corresponds with a sense of optimism about the technologies’ potential to change the world and democratize communication.

Eventually, however, market forces and aggressive executives concentrate power — and regulatory control — in a few giants.

AT&T is the classic example: In the early years of the 20th century, hundreds of local and regional phone systems existed, serving small markets in idiosyncratic ways. Eventually, AT&T assimilated them all, bringing the entire phone system under the control of a single, centralized, autocratic monopoly.

That kind of central control is terrific for reliability (you could call anyone in the country — or the world — and get a crisp, clear connection) but terrible for prices and for innovation. It was only with the forced breakup of AT&T’s monopoly that phone rates started to come down.

Similar cycles of openness followed by consolidation followed the appearance of radio and television technologies. But the web, in some ways, is an amazing exception.

For three decades, HTTP (which Paul Ford called “the Web’s operating system”) and HTML have proven to be resilient, flexible tools for interconnecting people and machines, facilitating communication in the most decentralized way imaginable. Anyone can publish a web page to a server on the Internet, and within seconds it is readable by anyone in the world who has the address and a browser capable of rendering HTML.

What’s more, anyone can link to any page on the Web without having to ask permission and without having to worry about what hardware or software delivers that page. All you need is a URL — another widely accepted, well-defined standard for interconnecting information.

If you can’t beat the web, go around it

Now, however, there’s a threat to this openness. It’s called the app store.

Technically, it’s not just the store: It’s the entire ecosystem of apps, content, hardware, and software. Apple perfected the model, and it has transformed the company into one of the most profitable corporations in the world. Even though its share price has plummeted in recent months, Apple is still in a very strong position thanks to the leverage that this ecosystem gives it. Indeed, that position is so strong that Apple continues to generate profits even though its market share among mobile devices is shrinking.

Apple’s model is so successful that others are emulating it. Amazon, as I’ve written before, is perhaps best-positioned to create a similarly integrated ecosystem. Amazon sells content (TV, movies, music, books, news) and apps; it also sells a popular Android tablet that is tied tightly into its own app store as well as its shopping cart for physical goods. 

Others are still in the running, though. Google has an app store, software, and its own hardware, but its ecosystem is less tightly controlled because Google also has to work with dozens of hardware manufacturers — the companies who actually make most Android devices, led by Samsung — who have their own agendas.

Facebook is trying to enfold its customers more and more deeply into its own world, starting with its own quasi-open web standard called Open Graph (really just a markup language aimed at making it easier to share text, audio, and video within Facebook) and, lately, extending to its own Android app, Facebook Home, that takes over your phone and turns it into a virtual Facebook phone.

Microsoft, of course, has lots of leverage with the Windows ecosystem, and while it’s coming from far behind in mobile, it might have a shot with Windows 8 and Windows Phone 8 — but it’s too soon to say how well this will work.

But nobody has all the pieces tied together quite as well as Apple.

What we lose when we use apps

The app approach is working: 80 percent of the time people spend with their smartphones and tablets is spent using apps, not the web browser.

Apps provide a better experience for end users, in many cases, because their performance is better. They’re better-optimized for the screen and for other specific capabilities the device has. And for many publishers, it’s easier to make money from an app, whose experience enfolds the end-user and keeps them contained within an environment of the app publisher’s designing.

With the web, by contrast, users keep escaping to other sites — there’s no wall around the garden. That’s why many mobile sites have those obnoxious popups that encourage you to download the publisher’s mobile app. For these companies, the mobile site’s best use is as marketing tool for the app.

But here’s the problem: Apps are difficult to connect to one another. There’s no universally accepted way to link to a specific page or location within an app. (Many apps don’t even have pages.) To connect with an app, you need to use its application programming interface (API), assuming it has one, or the API of the device it’s running on. Naturally, that API differs from device to device. Making app-to-app connections is far more difficult than linking to a URL because you need to be a programmer to do it.

The difficulty of integrating apps with one another was one of the topics I heard executives discuss, in passing, at VentureBeat’s recent Mobile Summit. I’ll be honest, though, it wasn’t one of the event’s top themes. It matters the most to enterprise IT architects, for whom it’s a hassle as they try to tie together various apps that their employees use.

For big companies and carriers, app-to-app connections aren’t important. They’re too busy trying to build their own ecosystems.

Most entrepreneurs don’t care about the ease of integrating apps: They just want to make their own apps popular and figure out how to make money from them. And for consumers, this issue is not even on the radar screen.

That’s why I’m not optimistic about the future of the open web, particularly on mobile: There are huge companies with a large incentive to bypass it, and very few who have enough of a problem with it to register any opposition.

We may just look back on the past 30 years as a strange and happy interregnum between eras of corporate control. Enjoy it while you can.

Image credit: Phil Aaronson/Flickr

When a tragedy hits, we all struggle to figure out what to do. It’s hard to sit at your desk, thousands of miles away from the news, watching scenes of horror and suffering scroll across your screen, and know that there is nothing meaningful that you can do to help the people in the pictures.

We are glued to our screens, watching the liveblogs and scanning our Twitter feeds for the latest scraps of information. It feels like doing something, but it’s not: We’re just passively collecting information while we struggle to figure out what to do.

For those of us in tech, a disaster like Monday’s bombing of the Boston Marathon is also a reminder that there are far more important things in life than social media startups, cute robots, Facebook chatheads, or Google Glass. Things like running marathons. Giving blood. Hugging our children. Letting our friends and family know that we’re OK.

And yet, tech can play a small but meaningful role. Google put up its own person finder for Boston on Monday to help connect people in Boston with those who might be worried about them. But Facebook may have been the most effective people finder of all as Bostonians checked in to say they were safe.

Twitter, for its part, played a role in funneling news from Boston to the rest of the world, and — as is increasingly the case with big, breaking news events — it was the medium through which the first reports and photos (and, yes, Vine videos) began to trickle out. The Boston Police even used Twitter to solicit videos, photos, and tips that could lead to solving the crime, and indeed, online crowdsourcing may play a key role in the investigation, as Wired’s Spencer Ackerman reports.

Surprisingly, I didn’t see a lot of people jumping to conclusions about exactly what had happened or who was responsible. Perhaps that’s a reflection of the people I follow, many of whom are either journalists or are extremely media-savvy. Regardless, the Twitter news stream seemed remarkably focused on facts, not conjecture. I’d like to take that as a sign that Twitter is maturing as a source of factual news.

Still. All that pales in comparison to the calm and orderly help that people on the scene in downtown Boston were providing. Yellow-jacketed marathon volunteers, police officers, and soldiers all worked side-by-side to pull away twisted metal barricades, provide first aid to people, carry victims to safety, and keep the crowds calm and at bay. That’s real help.

So I asked VentureBeat’s readers this morning, “What should the tech community do to respond?”

The responses ran the gamut. “Shut up for once” was the top-rated response, and as a tech journalist, that gives me pause. Even writing this column makes me worry a bit: Am I just taking advantage of a tragedy to put my own spin on things? Is there really a tech story to be written about here? For that reason, we at VentureBeat have proceeded very cautiously in covering the explosions, preferring to write only when we have something to add.

Other responses are more focused. My favorite, from Ron Schott: “Work with Facebook/Twitter/others on a national Emergency Response System for social media that puts important information into people’s feeds during times of emergency.” That’s not inconceivable. Apple’s iOS already has the capability to put AMBER Alerts and other local emergency alerts directly into your phone’s notification center, and those are both turned on by default. Why couldn’t social networks incorporate the same kind of geographically targeted emergency messaging?

One reader suggested that “big data” analysis could help identify threats before they turn into real acts of terror. Another suggested (facetiously I hope) that the answer was more sensors, more cameras, and more drones in the sky.

Joe Chernov, a marketing guy with a Boston-area startup called Kinvey, pointed me to an excellent interview between Washington Post blogger Ezra Klein and security pundit Bruce Schneier. In it, Schneier offers this telling rule of thumb:

I tell people if it’s in the news, don’t worry about it. By definition, news is something that almost never happens. The brain fools you into thinking the news is what’s important. Our brains overreact to this stuff. Terrorism just pegs the fear button.

Klein, by the way, wrote a moving statement on why marathons matter last night. “If you are losing faith in human nature, go out and watch a marathon,” he quotes Kathrine Switzer, the first woman to run the Boston Marathon, as saying.

Finally, here are a few more specific ways you can help.

A Boston-area tech group called TUGG (Technology Underwriting Greater Good) has a fundraising campaign that is raising money to support victims of the bombing. It has raised $38,000 so far. I’m sure they could use more.

The Red Cross always needs donations of blood and of money.

And techies, consider contributing your time and expertise to nonprofits outside the tech world.

“The most important thing the tech community can do is get involved,” wrote Todd Freeman on our Facebook post. “The best thing the tech community can do is start volunteering their expertise to nonprofits and grassroots movements.

“It is much more fulfilling to know, despite terrible news, you yourself are making a difference, than to simply let the depression of a seemingly endless amounts of hate witnessed from media sources slowly erode your faith in humanity. There is no greater payoff in life.”

Boston Marathon photo credit: Aaron Tang/Flickr

This week’s Mobile Summit, organized by VentureBeat and held at the Cavallo Point resort just north of the Golden Gate Bridge, brought about 200 industry executives together for deep discussions of the mobile technology market.

The event featured a number of boardroom sessions with 20 or so people apiece, focused on intensive conversations around the Summit’s main themes.

I helped facilitate two hourlong discussions on enterprise mobility. Gaurav Tewari, a partner at SAP Ventures, and Scott Davis, the CTO for end-user computing at VMware, led the conversations, which also included top executives from Apperian, Capital One, Cisco, Deutsche Telekom, Ingram Micro, Intel, MasterCard, McAfee, StackMob, TIBCO, and T-Mobile, not to mention an assortment of venture capitalists, a handful of analysts, and one press person (myself).

The conversation provided a good window into what executives are most concerned about regarding mobile tech in the enterprise.

Better security tools

The number one topic, which kept recurring throughout the two hours, was security. In a world of increasing fragmentation, security threats are harder and harder to plan for. Employees want to use the devices of their choice, on the carriers of their choice, with apps that IT managers don’t control. Corporate developers want freedom to choose their app development platforms, languages, libraries — or to develop native apps or web-based solutions. Enterprise apps will have to deal with an increasingly complex environment, where data might be stored locally, on Dropbox, Box.net, Sharepoint, or elsewhere.

“You’re going to have to deal with messiness,” one participant said.

In light of that messiness, security is an anxiety-producing issue. Yes, mobile platforms are by and large more secure than the old, Windows PC-based environment that IT departments have been managing for two decades. But mobile platforms aren’t entirely secure, and given that people are using these devices over insecure networks, they are open to new and extremely dangerous vectors of attack.

Combine that with an environment where international attackers are getting more sophisticated and are going after more economically critical targets (like blueprints and other intellectual property), and it’s clear why enterprise IT leaders are getting very, very nervous.

A more consolidated, overarching security model would help corporations a lot in dealing with this fragmented, complex mobile environment.

BYOD policy education

A large majority of companies are now bowing to the inevitable and allowing some kind of “bring your own device,” or BYOD, activity, letting employees use the smartphones or tablets of their choice and adjusting the company’s IT tools accordingly.

BYOD, by the way, is not happening because it saves money. (In fact, it might even cost companies more money, thanks to the cost of processing expense reports for monthly telecom bills.) It’s happening “because we can’t stop it,” in the words of one roundtable member.

But, according to another participant, while BYOD is a reality at 80 percent of companies, only 10 percent of companies actually have a spelled-out BYOD policy. (I couldn’t track down figures to support that assertion, but Insight Quarterly has some related data, as does Threat Metrix.)

That’s a problem because employees might not know how to be safe online, what devices to choose, or what consequences they might incur if they use their devices for work. Mobile Device Management (MDM) often gives your IT administrator the ability to remotely wipe your phone — personal data and all — which is something you ought to know before you start using your phone for work.

Apps that do more with mobile devices

Many enterprises are still using mobile devices as little more than tiny, portable terminals to their corporate information systems. Yet smartphones and tablets are capable of so much more. Cameras, GPS devices, accelerometers, and other features that are now ubiquitous in many mobile devices can all play a role in enterprise apps. For example, one speaker talked about a company that created an augmented-reality app for equipment maintenance workers to use. Hold up the phone to a piece of equipment, and the app superimposes information about what that machine is, what its last service date was, and the like. Another speaker described equipping forklift operators with iPads and a customized video-chat app that let them hold the tablet up to a pallet, so the person requesting a delivery could see in real time whether the operator was picking up the right thing.

IT managers who are brokers, not providers

As more companies embrace the flexibility and speed of cloud services, IT executives run the risk of being marginalized. We’ve heard how chief marketing officers (CMOs) are supplanting chief information officers (CIOs), and in many companies, the CMO’s budget already exceeds that of the CIO. One participant in our discussion said he’d seen several CIOs terminated and replaced with CMOs when the former failed to deliver. (Given the security concerns mentioned above, those might prove to be rather shortsighted replacements.)

Mobile tech exacerbates the trend. After losing control of corporate apps to cloud providers, IT managers are now losing control of the most basic tech: the very devices and networks that employees use to get their jobs done.

In the short term, at least, IT executives need to adapt by embracing their new roles as brokers for tech services, rather than the exclusive providers of those services.

They also need to understand their company’s business goals and get ready to move quickly on projects that can drive revenue or cut costs. But that’s always been part of the IT remit, hasn’t it?

Apps for humanity — or at least your employees

Many companies have failed to understand that the best mobile apps aren’t just mobile versions of their existing corporate apps. (More than one person at the roundtables complained about how poorly Salesforce.com works on tablets, for instance.) Enterprise developers creating in-house apps need to understand two things:

First, design matters far more in the mobile universe than in the old desktop world. Smartphones and app stores have conditioned users to expect apps that are simple, slick, fast, and responsive.

Second, you need to make apps work for your employees. If you make apps that improve their lives or help them get their work done, they’ll use those apps. If not, they’ll go around you to find apps that meet their needs.

“Build a great app that helps people do their jobs, and they will use it,” one speaker said.

A simple example: One participant described a company that had some difficulty getting acceptance for its employee-oriented mobile apps. Then it created an app that let employees order food from the company cafeteria. Not something that was essential to the business’s success, of course — but it did help make people’s lives easier. As a result, they used it. What’s more, when they went to the corporate app store to get that app, they noticed that there were a lot of other useful apps there, too, so usage of all the company’s apps rose.

The short lesson: Make something that makes your employees’ lives better.

Photo credit: Michael O’Donnell/VentureBeat

In the eternal tug of war between publishers and readers, the readers have an enormous advantage right now.

But publishers are starting to pull the rope back a tiny bit toward their side.

The AP won a legal victory against the Meltwater Group, a news aggregation service, earlier this week, with a court decision that affirmed the AP’s ownership of its stories. Newspapers like the New York Times and independent bloggers like Andrew Sullivan have started experimenting, successfully, with partial paywalls: Their sites let readers view a certain number of stories for free but demand payment for the full slate.

There’s even some backlash against the multimillion-dollar sale of Summly to Yahoo earlier this week. While most commentators focused on the the youthfulness of Summly’s 17-year-old founder and the reported $30 million price tag, Time‘s Victor Luckerson wondered how Summly — another news aggregation service — got away with what it does. Essentially, Summly was aggregating and summarizing news stories for the benefit of its users without compensating the creators of those stories. As suggested by the Associated Press v. Meltwater decision, that might not even be legal.

These court decisions and paywall strategies are just skirmishes in the bigger battle.

Just as Napster did with the music industry and The Pirate Bay did with the movie industry, aggregators like Summly and Meltwater are hollowing out the old business models of the news industry and leaving destruction in their wake. But while musicians have started to figure out new business models, news publishers and moviemakers haven’t got there, yet.

Expect more experimentation

Never before in the history of humanity have we had so much content available for free. The Internet’s default mode of publishing is to offer content — news stories, videos, music, movies, whatever — for free. To the extent that there’s a commercial transaction involved, it’s usually the rather tenuous exchange of attention for advertising.

Unfortunately, advertising is a diminishing business: Print dollars turn into dimes on the web. And web dimes turn into pennies in mobile.

Now with the increased use of tools like AdBlock and Readability, it’s possible for readers to avoid even that tiny exchange, stripping out the advertisements and leaving just the content they’re interested in reading.

Don’t get me wrong. Although VentureBeat publishes an ad-supported website, I use these tools myself occasionally. I’ll turn on AdBlock when I have a less-than-ideal Internet connection (like at a conference or during my commute) and want to optimize download times. I use Instapaper frequently to clip articles that I don’t have time to read during work hours and want to save for later.

In fact, I was an early fan of Instapaper and Readability. These tools’ capability to strip out extraneous formatting from a web page and make it more readable pointed out a serious flaw with many content sites’ designs: They were simply too cluttered.

Instead, such tools suggested another way: a combination of minimalism and user control over design, which I labeled “undesign” in a 2010 post.

The message to site designers was clear: If you want people to read your stuff, make it easy for them to do so, or else get out of the way. If readers don’t like the way your site looks, they’ll use these tools to reformat them.

Since then, other tools have popped up to fill this gap. Amazon now offers a “Kindle” button that lets readers send a story directly to their Kindles. Another popular read-later service, Pocket (formerly known as Read It Later), works similarly to Instapaper, reformatting text into a cleaner, more readable version and saving it in a queue so you can read it at your convenience. Apple’s Safari browser even has an ad-free Reader option built-in.

In short, people are doing just what I predicted. The question for publishers is how to respond?

Embrace or resist?

Pocket this week added publisher tools that let content owners see statistics on who is using Pocket. That’s helpful (and VentureBeat is considering using these tools) because it at least gives the publisher some visibility into how people are using Pocket. And by encouraging people to save articles for later, it can increase the shelf life of a good story, encouraging people to read it and share it over a longer period than they otherwise would have.

Publishers have also started experimenting with different kinds of advertising. So-called “native advertising,” or sponsored posts, are easier to integrate into the content stream and harder to filter out. Done right, a sponsored post or advertorial should be just as interesting to readers as a piece of editorial.

However, native advertising can be a dangerous game. Publishing sponsored posts without sufficiently disclosing that they’re sponsored risks blowing any trust you have with your readers, as the Atlantic discovered recently when it published a post created by the Church of Scientology. Also, Google has made it clear that Google News will punish publishers who mix sponsored content in with news content without sufficiently distinguishing the two.

Yahoo is discontinuing the Summly app, but will fold its algorithms into Yahoo itself. Should publishers embrace news summaries by Yahoo or try to find ways to thwart it, either by using tech or in the courts? There won’t be an easy answer.

As readers get more and more control over the content they want to read, publishers are in a difficult place: Run alongside them, in the ever-diminishing hope of recouping revenues at some point down the line, or risk being left behind.

Old newspapers and Reddit alien photo: Dylan Tweney/VentureBeat

Talk about badly-timed debuts. Google rolled out its latest new product, Keep, one week after it announced it would be shutting down Google Reader.

For people already upset about Google’s lack of commitment to preserving their data over the long haul, it’s not exactly an auspicious start. Sure, Keep is just an Android app, for now, and Google is pitching it more or less as a replacement for multicolored sticky notes.

But it certainly doesn’t help that Keep was preceded by Google Notebook, another product that did almost exactly the same thing, and which Google killed off in July, 2012.

The lesson that Google seems to be teaching us — probably inadvertently — is that we can’t trust it to hang on to our data for any length of time. Don’t get too attached to any Google product, because there’s no telling when it might go away.

For that matter, don’t get too attached to any cloud-based service, especially those you’re not paying for. None of Google’s services belong to you, unless your name is Larry Page or Sergey Brin. Even those that you might pay for, such as Google Apps for Business, don’t belong to you; you’re just renting time on Google’s servers.

Ditto for Twitter, Facebook, Pinterest, and Yelp. The same goes for App.net — even if you pay $36 per year for the privilege of using an otherwise Twitter-like service, you still have no lasting claim on it. Anything you use online could disappear tomorrow, taking all of your status updates, likes, and online relationships with it.

When Everyblock disappeared overnight in February, 2013, that’s exactly what happened. After several years as a promising hyperlocal startup (it was even funded by a $1.1 million Knight Foundation grant to help foster hyperlocal news coverage and build communities), Everyblock sold out to MSNBC, then still a joint venture between Microsoft and NBC Universal. A couple years later, NBC pulled the plug without warning, deleting all the community contributions that had been made over the years. It didn’t even give users the chance to exchange email addresses so they could continue relationships they’d formed on the service. One day it was there, the next it was gone.

Sure, NBC was totally within its rights to do that: It didn’t owe anyone on the service anything. But a commenter on Everyblock’s farewell post came up with a parable that explained the situation pretty well:

Once upon a time a man had a front lawn. He said, you know what, I should turn this lawn into a garden, and let all the neighborhood use it. So he did, and the whole neighborhood came everyday to grow plants, spending much time and effort into the beauty of the garden. Then one day, he bulldozed his front lawn. “Sorry,” he said, “The garden is over.”

No one sued or called the police, because no one else owned the lawn … But from then on they all kinda thought that neighbor was a huge enema.

Back to Google Reader. The end of this service took me by surprise and hit me rather personally: I used Google Reader every day, and until last week it was a critical part of my workflow as the executive editor of a busy newsroom.

I used Google Reader’s excellent Android app to catch up on the 50+ stories VentureBeat and GamesBeat publish every day. Because it cached those stories offline, I was able to read them quickly and efficiently on a Nexus 7 during my (usually Internet-free) commute, emailing comments to the authors as necessary.

I used a variety of Google Reader bundles to keep tabs on minute-by-minute updates from competing news sites and on news sources we track.

And I used Google Reader to browse through friends’ websites and to discover interesting new material from a variety of eclectic sites, from Poetry Daily to Metafilter to Indexed.

With the passing of Reader, I’ve had to build my own alternatives from what’s available. I use IFTTT.com to email VentureBeat’s stories, as they’re published, to my mailbox. For now, Gmail works fine for reading these stories, and it has the offline capabilities I need for my commute. I’ve had some problems with IFTTT’s reliability (and it’s too slow to be a real-time notification tool), but for catching up on essential reading, this works well.

I’m experimenting with a minimalist RSS reader, Skimr, to scan news stories. It’s fast and easy. I’ve also rebuilt my own RSS news dashboard on my personal website (using a PHP-based RSS parser called SimplePie, along with some custom PHP I wrote and a stylesheet I borrowed from Readability a long time ago, back when it was just an Arc90 project) so I can scan my personal “river of news” as it breaks.

And I’ve honed some Twitter lists that I use to give me a real-time heads-up display of the news in Tweetdeck.

I’m cautiously pessimistic about all of these solutions. RSS is an open standard and it’s widely used, but I’m nervous that with Reader’s passing, websites will have less and less incentive to maintain their RSS feeds. Twitter lists are functional, but they’re entirely dependent on Twitter continuing to support and maintain them, and they’re certainly not based on any open standards. Skimr is still in alpha testing. PHP is tricky and error-prone.

So none of these solutions is perfect, and they probably won’t last more than a year or two before I have to replace them or substantially rebuild them.

That’s the price of living on the Internet: Everything changes, nothing remains still. As the philosopher Heraclitus supposedly said, some 2,500 years before the Web, you cannot step into the same river twice.

Photo credit: Sam Howzit/Flickr 

If you’re a founder or an investor, you’re going to love the new marketplace for trading shares in private companies that the Nasdaq is setting up with SharesPost.

That’s because this market, called the Nasdaq Private Market, will provide a lot of liquidity. Those pre-IPO shares in a once-promising company that hasn’t shown much growth in the past year? They used to be a drag on your portfolio — now you’ll be able to unload them and turn them into cash.

“From an entrepreneur and VC perspective, this is a good thing,” Ajay Chopra, general partner at Trinity Ventures, told me via email today. “One more avenue for capital formation and liquidity, particularly in turbulent times when the IPO window is closed, is hard to argue with.”

It’ll be good for founders who have spent years of toiling away on their startups while drawing minimal salaries and still have nothing to show for it because all their equity is locked up in private company shares. Instead of having to structure strange investment rounds where the majority of the cash goes right into the pockets of the founders as a way of giving them an early payday, those founders will be able to list some of their shares on this marketplace and sell them more efficiently.

It will also relieve some of the pressure for companies to go public before they’re ready. An IPO has a lot of downsides, not least of which is the enormous time and expense of setting up the IPO, going on a roadshow, defending your financials, and more.

“An increasing number of companies are choosing to remain private longer, which requires an efficient means to access liquidity for employees and investors,” Nasdaq said in its press release. “NPM will offer a complete, end- to-end solution that will enable a private company to control the marketplace for its shares. Transactions on NPM will meet NASDAQ OMX’s industry-leading standards for security, compliance and client support.”

But here’s the troubling thing — at least for me, as a journalist. There’s a disturbing trend toward secrecy and opacity in the tech markets, and I’m concerned that NPM will only contribute to that.

Private companies are not held to the same standards of disclosure as public companies are. Once a company has held its IPO, it has a responsibility to file quarterly earnings reports and to publicly disclose anything material to its business. (Sometimes those requirements become ridiculously bureaucratic, as when a company is required to file an SEC disclosure every time its chief executive tweets something about the business, which is one reason companies find them so annoying.) The Sarbanes-Oxley Act imposes additional restrictions, making executives personally liable for misstatements in a public company’s reporting. And then there’s no telling which direction the “wisdom” of the markets will push your share price, as Facebook discovered last year to its chagrin.

Or, as a spokesperson for SharesPost competitor SecondMarket told our reporter today, “Coupled with the recent reports that Nasdaq itself was considering going private, this announcement is a telling admission that companies increasingly wish to avoid the casino-like atmosphere of the U.S. public markets.”

Merely filing for an IPO carries with it certain disclosure requirements, which help would-be investors evaluate the company and decide whether it’s worth buying the stock. Or, it did — until the JOBS Act passed, and with it, provisions for companies to start the IPO process in secret.

What’s more, even an ordinary public offering has built-in ways to give certain investors more information than others, as we saw during the Facebook IPO. The biggest Wall Street investors were privy to details about Facebook’s revenues (specifically, its difficulty in making money from mobile traffic) that were withheld from the broader market. At the time, that seemed to me like it was in direct conflict with the purported mission of making information as widely available as possible in order for the stock market to function freely and fairly.

Now, in addition to preferential pre-IPO treatment for certain investors, companies also have the option of “testing the waters” by secretly filing pre-IPO paperwork. Or, through a private marketplace like the NPM, they can skip the IPO process entirely and create a private, less-regulated market for their shares.

I asked Chopra if he shared my concerns, and here’s what he said: “If a company really wants to place securities using a private exchange, they may have to be more forthcoming with disclosing their financial information.”

But then he acknowledged that high-profile companies have more latitude, because there’s a lot of demand for their shares, with or without transparency.

“In which case potential investors have to weigh the risk vs rewards of consummating such a transaction,” Chopra added.

As VentureBeat’s Jolie O’Dell reported earlier today in her analysis of the NPM, “companies will exercise vast amounts of control in Nasdaq’s version of the private, secondary market.”

Bottom line: This liquidity is a welcome change for investors, founders, and employees with stock in the startups they work for. I’m just not sure it’s the best thing for the public, or for anyone on the buying side of these increasingly private marketplaces.

Without full transparency about these companies and their financials, anyone purchasing shares on a private market will need to remember two important words:

Caveat emptor.

Photo credit: NASDAQ

A funny thing happened during Facebook’s IPO.

A company that looked like a model corporate citizen, paying high tax rates for its pre-IPO years of 2010 and 2011, suddenly turned into one of those giant corporations that pay no tax at all.

Writing about Facebook’s S-1 a year ago, Benchmark Capital’s Bill Gurley wrote, “Warren Buffet’s secretary would be happy. Facebook’s tax rate is already north of 40 percent. Other multinational companies typically have found a way to reduce this. Facebook is paying full-boat.”

There are some ambiguities to computing the effective tax rate for a corporation, so let’s put it in terms of actual dollars. In the S-1 filing, Facebook reported that it was setting aside $695 million for taxes in 2011 and $402 million for taxes in 2010.

How quickly things have changed. In Facebook’s most recent 10-K annual filing, the company revealed that it’s receiving tax refunds of $429 million for the 2012 fiscal year.

But it doesn’t stop there: The company is receiving an additional $451 million credit for “carrybacks” on the taxes it paid for 2010 and 2011, which means it’s getting a retroactive tax benefit against the taxes it paid in those years.

And Facebook will be carrying forward an additional $2.17 billion in tax credits for use in future years.

The upshot: Despite generating $1.1 billion in profits in 2012, the company is not paying any federal or state taxes this year, according to Citizens for Tax Justice, and it has cut its tax bill for the past two years by about 40 percent — retroactively.

“They probably won’t be paying taxes for several years to come,” Robert McIntyre, the director of CTJ, told me.

The CTJ is a nonprofit advocacy group, which clearly has an agenda in favor of tax fairness, by which it means getting corporations (and perhaps wealthy people) to pay more taxes.

Based on the experts I talked with, corporate tax is a complex issue, so this isn’t exactly a black-and-white issue. There are a lot of ways to slice up a financial report, and the categories used for a 10K don’t correspond with those used for federal taxes, so confusion abounds. CTJ is not alleging that Facebook is doing anything illegal — far from it.

“It’s legal as hell,” McIntyre said.

The question is whether this kind of tax dodge is fair, or ethical, especially in a country that’s struggling to come up with the money to pay for basic things like education.

You can read the CTJ’s report on Facebook’s taxes here (PDF file).

So how did Facebook manage it? Simple: By issuing restricted stock units (RSU) instead of incentive stock options (ISOs).

With ISOs, which were more common in the past, employees don’t pay any taxes when they exercise the options (buying the stock at the option price). Instead, they pay long-term capital gains taxes when they finally sell the stock, assuming they’ve held it long enough. That’s nice for the employee, because the capital gains tax rate in the U.S. maxes out at 15 percent, compared with a top tax rate of 35 percent for normal income in 2012 and 36.9 percent in 2013.

RSUs and nonqualified stock options, which have been the predominant type of option for the past 10 or 15 years, put the tax burden on the employee receiving them. Any increase in value from the option price counts toward the employee’s income for that year — and will be taxed as income, not capital gains.

However, the nonqualified route enables the company granting the options to take a tax deduction equal to the amount of additional income that the employee must declare.

In other words, Facebook isn’t exactly cheating the government out of $429 million in taxes for 2012; it’s just transferring that tax burden to its employees (now presumably much wealthier thanks to all that Facebook stock they own).

A Facebook spokesperson made the same point in an email to me today: ”Billions of dollars went to the U.S. treasury and to the California state treasury, as well it should have. It’s fairly typical for a company in the period after an IPO to have most of its taxes collected this way, while not having a large corporate tax burden. … It’s a mistake to look only at the corporate tax revenue while ignoring the billions in taxes paid from the initial shareholders.”

This is one reason Facebook founder Mark Zuckerberg sold 30.2 billion shares on IPO day, netting him an estimated $1 billion. Most of that money, Facebook’s S-1 said, would be going to pay his tax bill — taxes Zuck would have incurred as he came into ownership of his Facebook stock.

On the other hand, Facebook got a huge deduction for granting those stock options — a deduction that cost them absolutely nothing. It’s a common move in the tech industry, but one that McIntyre, and others, feel is unfair.

Many Facebook employees are probably facing a similar situation as Zuck did, albeit on a smaller scale. If they want to exercise their options and turn them into Facebook stock, they’ll have to sell some of that stock in order to pay for the taxes they’re about to owe. (And by doing so, they’ll be helping contribute to the company’s tax deductions.)

I suspect, however, that plenty of tax lawyers out there could help them reduce their tax bill.

Perhaps Facebook’s corporate finance department could make an introduction, as they’ve clearly mastered the art.

Correction 3:30pm Pacific: Facebook issued its employees restricted stock units, not nonqualified stock options, as I wrote earlier. The tax implications are the same, however — both count towards the employees’ income, not capital gains, and are deductible by the corporation issuing them.

Top image via Francis Luu/Facebook

To paraphrase investor Peter Thiel, we were promised flying cars, and what we got were 140 characters.

But while I’ve often felt that way myself, I think that complaint is a little too facile.

Thiel’s quip echoes a common lament among those, like me, who were drawn to Silicon Valley because of its legendary achievements: the transistor, the integrated circuit, the Internet, and the personal computer. (Well, the PC actually came from Florida, but it got out of that state ASAP, and it’s fair to say that Silicon Valley companies like HP and Apple had an enormous amount to do with the PC’s success.)

These were life-changing, even world-changing, inventions. So it’s a bit disappointing to survey the landscape of innovation today and see the brightest minds of a generation chasing comparison-shopping solutions, social media aggregators, and subscription commerce schemes for selling razors, condoms, and underwear.

In fact, it’s easy to overlook the tremendous chain of invention that made those 140 characters possible. Twitter couldn’t exist without cellular data networks, smartphones, widely accepted browser standards, and widespread Internet service. If Twitter solves a relatively simple problem, it can only do so because it rests on the shoulders of giants who were solving incredibly difficult problems.

Ditto for the companies that we love to mock because it seems their hardest thinking has gone into deciding what kind of swag they should send to tech bloggers. You shouldn’t overlook that these companies are possible only because they stand at the end of an incredibly long line of inventions that have made it cheaper and easier to start a company than ever before.

Aaron Emigh, the founder and chief executive of Shopkick and a serial entrepreneur, drove this point home for me recently.

A couple years ago, he compared the costs of building an e-commerce company to scale (the point at which it can support millions of customers) in 1999 versus the costs for building a similar company in 2009. He helped build one such company in 1999, CommerceFlow, so he had real data on which to base his analysis.

What Emigh found is that bandwidth costs declined an average of 40 percent per year from 1999 to 2009. Internet capacity that would have cost a startup $180,000 per month in 1999 would only cost $6,000 per month in 2009. That’s a huge difference.

Bandwidth, of course, is cheaper because of all the fiber that got laid during the dot-com days. People used to scratch their heads about the “dark fiber” that had been built by companies like Qwest and Global Crossing. But the truth is, that dark fiber (unused optical cables for Internet data) is now cheap fiber, and it’s in use. So maybe the dot-com boom was good for something after all.

Bandwidth is only part of the story, though. Cloud services mean that fledgling companies can get started on little more than a founder’s credit card and can grow to a pretty respectable size without incurring significant capital expenditures (capex) at all.

In 1999, Emigh spent about $10 million buying expensive Sun servers and other hardware necessary for hosting a high-volume e-commerce site.

“These were really expensive machines and you needed a bunch of them,” Emigh said.

In 2009? Total capex dropped to just $27,000. It could probably be close to zero today, as all you’d need to buy would be desks and chairs for your few employees and maybe a few laptops.

Overall, the total monthly expenditures needed in Emigh’s model dropped from $479,000 to $162,000, amounting to a 66 percent discount.

We’ve seen other changes besides costs. Distribution is easier thanks to wide-reaching search engines like Google, and advertising is cheaper and more effective.

For mobile startups, Apple’s and Google’s app stores give developers access to tens if not hundreds of millions of potential customer phones, a feat that was next to impossible to achieve 10 years ago.

Engineering productivity has gone up, too, Emigh told me, thanks to the maturity of open-source tools. A development project that would have required 20 engineers in 1999 might only need seven engineers now.

And we know much more about how to start a company. I started a company myself in 1999 and, it is fair to say, I had almost no clue what I was doing. Today, incubators and seed funds like 500 Startups, Y Combinator, and TechStars provide systematic coaching and guidance. The “lean startup” philosophy has become widespread through books, websites, and even giant robot dinosaurs so that even outside of an incubator, a would-be entrepreneur can learn a lot about what it takes to get started.

So, yes, we still don’t have flying cars. What we got were 140 characters and a host of Pinterest clones. But let’s not forget that those Pinterest clones depend on the engineering and business equivalent of a flying car: a cheap, ubiquitous, and robust infrastructure for building companies more easily than ever before.

Photo credit: x-ray delta one via photopin cc

Last year, Courtney Stanton organized a conference for game developers whose 12-person speaker roster was half women, and half men.

And she did it without considering the gender of applicants.

In the world of tech conferences, that gender ratio is almost unheard of — let alone getting there without actively saying yes to certain applicants just because you know they’re female.

Stanton is a product manager for a video game publisher. She wanted to put together a conference for game developers, make it accessible — and get onstage speakers more diverse than, as she put it, “the same four straight white men agree(ing) with each other on some panel.”

How did she do it? By actively recruiting women through every possible channel. She attended events and spoke to women. She encouraged women she knew to submit speaking proposals. She recruited online. She met people for coffee and promised to mentor them, review their slide decks, help them brainstorm — whatever it took to get women to apply.

That’s because, as she points out, women tend to be less assertive than men in promoting themselves. In other words, if you ask a room equally full of women and men to submit proposals to speak at a conference, the men are going to respond in far greater numbers than the women.

To balance the submissions, you need to work harder to recruit women.

Once she had proposals in hand, the balance of submissions was roughly evenly split between women and men. Stanton was able to pick what she thought were outstanding choices for each session. Result: A 50-50 split, without compromising on the quality.

Since she published her post before her event, the No Show Conference, actually took place, I contacted Stanton this week to ask her how the conference had been received.

“The actual conference went really well — the quality of the content was stellar and, across the board, very highly rated by attendees,” she told me in an email.

“I think the biggest thing the event has led to is other conferences using my approach,” Stanton added, mentioning JSConf, a programming conference in Berlin last fall, which credited her example for helping it get 25 percent female speakers.

“I’m starting to see more people talking about this idea of recruiting for submissions instead of holding spaces open for specific minority representation,” she said.

It’s an approach I’ve used when recruiting employees, whether at VentureBeat or elsewhere. If you don’t make an active effort to widen the circle of candidates, you’re just going to draw from the same pools you always draw from.

VentureBeat also produces a lot of conferences, usually with lots of dudes onstage — the photo above, from the last DEMO conference we produced, is an exception I’m especially proud of. We’re actively working on increasing the representation of women onstage, starting with our upcoming Mobile Summit. Stanton’s approach will help.

If you value diversity, you need to make an effort to recruit from groups that you aren’t part of or which aren’t usually represented in your company or your event.

But once you’ve done the outreach, consider the applicants on their merits alone. That’s the only way to ensure excellence in your outcome, whether that’s your startup team or your speaker roster.

Final note: Stanton said her conference actually opened doors for several women, who went on to speak at other conferences after making their first public-speaking appearance at hers. Talk about a ripple effect.

Hat tip: Hacker News and Attendly

Photo credit: Stephen Brashear/Flickr

When IBM bought Lotus for $3.5 billion in 1995, it looked as though the venerable computing giant was just about to lock up the software industry and coast to unstoppable profits.

Eighteen years later, Lotus looks more like a millstone around IBM’s neck than a flywheel giving it extra speed.

According to a report in the Wall Street Journal, in advance of IBM’s Q4 earnings release today, Lotus was the weakest performer in IBM’s software portfolio, shedding 6.4 percent of its sales volume in the first nine months of 2012.

It probably accounts for about $1 billion in annual revenue, according to estimates sourced by the WSJ, or one-sixth to one-fifth of IBM’s overall software business.

Ironically, Lotus once led the way toward today’s hottest enterprise technologies, the collaborative software that helps teams communicate and work together on projects. One of the success stories of that niche is Yammer, which Microsoft acquired last year for $1.2 billion. So, why is IBM sitting at the back of the pack instead of leading from the front?

Lotus, which made the first blockbuster “killer app” in the 1980s (Lotus 1-2-3, a phenomenally successful spreadsheet program), went on to create Lotus Notes, a powerful groupware suite that came out in the early 1990s before anyone had any idea what “groupware” was.

I used it extensively at several companies I worked with. Initially, it was mysterious and powerful. Like most end-users of Lotus Notes, I used it primarily as an email program. It had its quirks, but it worked. But there was another dimension to Notes, a powerful, programmable backend that let you create databases and workspaces for collaborative work, contact management, information sharing, and communication.

Today, we’d call it a collaboration tool or a corporate social-media tool, and it would be web-based and standards-compliant, like Yammer, Jive, and Huddle. In the absence of standards, Notes’ engineers had to invent everything themselves, making it a clever but proprietary solution.

But long before those web-based startups came along, Notes was already losing its cool. The client software became huge and bloated. It was expensive to implement and difficult to customize.

As the Internet gained popularity in the late 1990s, Lotus added standards, like POP3 and IMAP email interfaces. They didn’t do so well with the standards department, however, driving anyone who had to use an Internet mail client with a Lotus Notes mail server absolutely insane.

The upshot is that, just as the Internet became widely used, Lotus Notes became annoying and out of date.

Sure, it was still powerful, but unlocking the power of Notes often required specialist knowledge, giving rise to a sector of Notes consultants. No surprise that these consultants are having a hard time getting taken seriously today. The WSJ quotes a Notes consultant who complains about his reception:

“I go to a party, and I almost immediately get insulted,” says Eugen Tarnow, a director of the consultancy Avalon Business Systems, which sells the aging email software to businesses. “They say, ‘Lotus Notes, that’s still around?’ It’s no fun.”

Unfortunately, IBM’s engineers realized the importance of standards compliance too late and didn’t bake interoperability into Lotus Notes well enough or early enough. So, as powerful as Notes could be, it was and is ill-prepared to work in today’s API-rich cloud environment.

IBM has more modern social-media software, too, but only makes about $55 million per year from that segment of its business. So the challenge for IBM is to continue milking as much revenue as it can from Lotus, while gradually shifting the branding and the revenue to newer, sexier lines of business. One example: Renaming its annual Lotus conference, Lotusphere, as “Connect2013.” Yeah, that’ll help.

We’ll be watching to see if the earnings report sheds any more light on IBM’s efforts to turn Notes around. But as for me, I’m not holding my breath.

Photo credit: Andrew Mason via photopin cc

I spent much of the past few days thinking about Aaron Swartz and what a loss we suffered when he took his own life last week.

His passing breaks my heart. I didn’t know him, though he was in my circle: I know many people who knew him well. But he made my life better, and every day I use technologies that he contributed to. Whether that was working on an early version of the RSS spec, laying out the Python framework for web applications known as web.py (used by many sites now, including Reddit), or working with Larry Lessig on the launch of Creative Commons, he had a knack for finding useful projects where his considerable talents could make a real difference to millions of people. I use the fruits of those projects constantly.

That, in a nutshell, is the focus of what I look for and try to write about: technologies that have the potential to make a difference to millions.

Unfortunately, most of what tech journalists wind up writing about instead are technologies that have the potential to make millions (but only for a few people).

No one can blame entrepreneurs for getting excited about the possibility of a big payday. If you create something amazing, work your ass off for years to make it work, and you find a market that’s eager to use it and to pay for it, congratulations. You deserve everything you’ve earned.

But what about changing the world? Sure, many entrepreneurs say they’re really in it to change the world, not just get rich. I’m not sure I buy it. For every founder who is sincere about that motto, there are probably nine others who just give it lip service because they know it’s a reliable way to demonstrate deep commitment to investors, employees, and customers.

If more people were really serious about changing the world, they’d be following Swartz’s path: reading voraciously, trying new things, gabbing about them with other people, building things that matter, and relentlessly optimizing for productivity.

He made some money from the sale of Reddit to Condé Nast, but blog posts from his friends in the past few days suggest he wasn’t wealthy. He certainly wasn’t motivated by money. After Reddit, he engaged in a series of ambitious and sometimes amazing projects, including Demand Progress, a nonprofit he started to win progressive policy changes, using clever, online grassroots organizing tools. He helped liberate public-domain court documents from the for-fee database they were (and still are) stored in. And, in the action that got him in trouble, he helped liberate a large chunk of academic journals from a nonprofit publisher, JSTOR, which — coincidentally — started doing the same thing last week, in a small way, by offering limited free access to individuals.

Few can say they’ve been so selfless. Jon Postel, who died in 1998, helped ensure the stability and fairness of the Internet for decades by overseeing, almost singlehandedly, the Internet’s address space. The late Michael S. Hart founded Project Gutenberg, digitizing thousands of public-domain books and distributing them widely. Carl Malamud has helped put the SEC’s database online and continues to be a relentless advocate for open access to public information. But these are rare exceptions.

Swartz clearly was a difficult, confounding person whose personality often brought him into conflict with authorities, coworkers, and friends. Not everyone agreed with his progressive political values, and even those who agreed often took exception to his methods. But he was also clearly a generous, giving person who used his considerable talents and time in the best way he saw fit, to improve the Internet and the world, with little regard for his own profit.

We need more people like that.

Photo credit: ldandersen via photopin cc

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Tech journalism’s annual festival of self-loathing is in full swing. I refer, of course, to CES, the Consumer Electronics Show in Las Vegas that will draw, this year, over 150,000 visitors and nearly as many blog posts complaining about how irrelevant and miserable it is.

I won’t argue about the miserable part. When you take people from all over the world, many of whom were just visiting with family members a week ago, and cram them into a single, shared space with industrial ventilation systems, you’ve got one of the most efficient systems for transferring pathogens ever invented. It’s crowded, the lines for cabs and coffee are long, and it takes forever to get anywhere, whether that’s from Caesar’s Palace to Mandalay Bay or merely from one side of the Las Vegas Convention Center to the other.

Plus, the news is weak and much of it is just boring. Nearly every so-called press conference is really a press briefing, as our copy editor somewhat crankily pointed out earlier this week: They are presentations with no chance for the journalists and bloggers present to ask questions, let alone handle the products being shown and form well-grounded opinions on them. They’re pseudo-events designed to crank up the hype on products that no one in their right mind would get excited about: large-screen televisions, incremental improvements to old computers, consumer cameras, tablets, routers, wireless adapters, and audio and video cabling. Yawn.

And yet, CES is still, for all its failings, one of the most important single events in the technology industry.

It’s not important as a press event, but it’s critical as a meeting place for manufacturers, distributors, and retailers of consumer electronics. I think of it as a temporary bazaar or souk on a grand scale: a huge marketplace where vendors compete to draw the attention of buyers, who flock up and down the aisles looking for a good deal, an angle, or merely an interesting distraction.

Maybe that’s why the press love to heap scorn on it: They’re not the main event. The buyers, middle-aged men from Arkansas who you might find out back sharing a cigarette, are for once the big wheels here. Sorry, disenchanted tech bloggers, you’re not the center of attention here.

But even for the media, CES is valuable as a meeting place, if not as a news source or a predictor of what will be hot in the coming year. Just showing up helps build relationships and establish connections that are hard to get any other way — and in many cases it does give you an early chance to get your hands on the latest ridiculous inventions.

CES is also a barometer for where the hardware industry is going. Yes, hardware as we know it is dying. Software is more important than ever, and there hasn’t been a world-changing product unveiling at CES for years. The action has shifted to apps and cloud services, and it’s arguable that those are all more important than the hardware used to deliver them to consumers. But the pendulum may be starting to swing back, and CES 2013 shows the first signs of it.

For the past few years, hardware-focused startups have gradually come back into vogue, attracted by the ease of utilizing cheap overseas manufacturers, the opportunity to enhance silicon and metal with clever software, and the margins and lock-in that a well-run hardware business can offer. The organizers of CES recognize this, and this year they’ve devoted an even larger section of the show to startups and emerging technologies. Called Eureka Park, this area is the one I’m most excited about.

I’m not at CES this year, for the first time in about eight years, but VentureBeat is: Dean Takahashi, Devindra Hardawar, and Sean Ludwig are tackling CES 2013 with gusto. They’ve already uncovered plenty of interesting technologies, from transformative products like Nvidia’s 72-core Tegra 4 processor to sublimely ridiculous gadgets like a smart fork and film cameras with brightly colored trim.

I’m glad to be missing the crowds and the inevitable CES disease that I seem to contract, year after year. But you know what? I kind of miss the action.

Photo: VentureBeat’s Sean Ludwig is excited to head into CES Unveiled, the first overcrowded press event of the show.

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It’s time to take back our social networks.

It’s time, because the networks we rely on have been gradually making it clearer and clearer that we are not in control. What they mean by sharing is not what the web used to mean by sharing.

Facebook recently updated its terms of service, removing a sham user voting policy that it had in place for a few years. It also updated the terms of service for Instagram, giving itself the right to sell your location and other data to advertisers — and even to feature your photos in advertisements, although it subsequently removed that clause.

Meanwhile, Twitter is steadily restricting the ways you can use tweets. While the company did just start letting people download an archive of all their tweets, it’s increasingly resistant to letting you do anything else with your data, such as integrate it with services like If This Then That.

So, fine: These companies are entitled to run themselves the way they want, and you can participate or not, as you choose.

But I want to suggest a third way, which leaves you in control of your own stuff.

It’s called blogging.

That’s a bit of a retro suggestion, because blogs have taken a back seat to other forms of expression in the past few years. The RSS feed never engendered the kind of reciprocal sharing and commenting that a well-designed social network does, and as a result, many people have migrated away from blogging.

“I’ve used many social networks. Friendster, Facebook, everything. But they come and go. But my blog has always been my home on the web,” Matt Mullenweg, the founder of WordPress, told me last week. ”What’s changed in the past few years is that blogging started to feel a bit more lonely, because it wasn’t connected to these social news feeds.”

Like Mullenweg, those of us who have had blogs for a decade or more have been using them less and less, drawn to the ease of tweeting and the warm, friendly responsiveness of Facebook.

But now it’s possible to circle back to the blog without giving up the social networks. In fact, it’s increasingly easy to use a blog as the center of your social universe.

That’s because, while social networks like Facebook and Twitter are reluctant to share data out, they are eager to bring your data in. (This is why Twitter no longer lets you update your LinkedIn status from Twitter, but you can do the reverse and update your Twitter status from LinkedIn.)

So if they won’t share, fine: Make your own website the source, and share it out to various other networks as a way of staying in touch with your friends there.

If you’re a WordPress user, a feature called Publicize makes this super-simple. (It’s built in to WordPress.com, and for people who host their own blogs using the open-source WordPress.org code, Publicize is now available through the Jetpack plugin.) With Publicize, you connect your blog to the social services you want to update: Twitter, Facebook, LinkedIn, and Tumblr. You may also connect it to Yahoo’s profile updates, but I don’t know anyone who uses those. It doesn’t have Google+ integration, a minor downside if you are one of the few who uses Google+. Once connected, every post you publish on your blog posts to the social networks you chose.

This, I’ve found, creates a subtle shift in the way I think about blogging. Blog posts are more integrated into my social networks — plural — and in turn, my social networks are tied into the posts I write.

Sure, I’ll still get @ replies on Twitter and comments on Facebook, and I’ll still post short updates that are unique to those networks. But with this setup, I’m less dependent on any one social network.

If I get tired of one network — say, Instagram pisses me off with a terms of service update — it’s far easier for me to relocate somewhere else, like Yahoo’s long-disused Flickr service, which just added a new iOS app that has its own Instagram-like photo filters. (It’s easy to post photos from Flickr onto a WordPress blog, and from there to your social networks, but going the other direction — from blog to Flickr — is trickier, probably because Flickr isn’t tied in to those Yahoo updates I mentioned above.)

Flickr, by the way, has been sending me a flood of notifications about new people following me, something I haven’t seen in several years on the service. I’m not the only one to notice this. Apparently, its new app has caught people’s eyes.

Bringing blogs and social networks together is exactly what the makers of WordPress were thinking with the Publicize add-on.

“We found that when we hooked them up, you can have the best of both worlds,” Mullenweg told me. “We’ve been trying to just close that loop.”

WordPress has more clout than you might think: According to at least one estimate, it powers 17.5 percent of the world’s websites. (That includes VentureBeat, which runs on WordPress.com, as well as my personal blogs.) And it’s an open-source system, not controlled by any one company, and not beholden to advertisers or data miners or other interests.

If the WordPress plan works, more people may return to blogging, not just as a form of self-expression but as a way of organizing their online social lives. As that happens, it might — just maybe — encourage a slightly longer attention span than you can manage with 140 characters.

“WordPress users are some of the most savvy users on the web,” Mullenweg told me. “They have accounts everywhere. They already have a Facebook and a Tumblr and so forth. So it’s a challenge to provide something different, something that’s geared more toward longer-form content, rather than something that’s a distraction, that you check while you’re busy.”

Imagine that. Along with owning our own words, we might actually start to think a little more deeply about them, too.

Photo credit: Vicki’s Pics via photopin cc

Carrier subsidies are increasingly standing in the way of innovation.

“We’re drunk off the subsidy model,” IDC analyst Ramon Llamas told VentureBeat last week.

The lure of cheap, subsidized phones underwritten by massively long two-year contracts stands in the way of competition and innovation. The big carriers use their contracts to lock in profits and help limit the customer “churn” that would otherwise make their revenues too unpredictable. But those two-year contracts keep people from upgrading as quickly as they would otherwise, stifling handset makers’ ability to get the latest models in our hands.

Carriers also stifle OS upgrades, keeping you from upgrading to the latest version of Android because they don’t want to invest the time to make it work with a string of older phones: They’ve already got you locked in to a contract, so why would they want to make your phone any better than it already is?

The U.S. is not unique in its dependence on carrier subsidies, but it’s not the only way: In many European countries, for instance, people buy their phones and SIM cards separately, without long, onerous contracts.

Some carriers are starting to see this as a wedge issue. T-Mobile, for instance, promises to do away with contracts and subsidies altogether. The carrier sees it as a more honest, direct model, and I agree: I’m done with contracts. I recently paid $245 to get out of my contract with a large carrier after I had endless problems with its service and its phones.

In an earlier column, I blamed Microsoft for not being able to solve these problems. It was an unfair criticism, but it does reveal an opportunity for the Redmond, Wash.-based software company.

We need someone to break the logjam. Could it be Microsoft?

Instead of standing by and playing the same ballgame as every other mobile phone maker, Microsoft should take a page from Apple’s book and rewrite the game. It’s got the leverage, it’s got the installed base, and it’s got a powerful weapon: cash.

In short, Microsoft should subsidize its own phones. Google currently offers the Nexus 4 for $299, unlocked and off contract. That’s a subsidized price, although the actual amount of the subsidy is probably far less than you might think. When you buy an unsubsidized iPhone for $650, only about $200 of that goes to the iPhone’s  component parts. Let’s be generous and assume that another $200 goes to manufacturing, shipping, and the manufacturer’s profit. That subsidized price is still higher by $250 than the actual cost to the carrier.

In other words, assuming that it, too, can get phones made for $400 apiece, it would cost Microsoft $100 to $200 each to subsidize unlocked, off-contract Windows phones to a sales price of $200 or $300.

That’s a small price to drive its currently anemic Windows Phone OS deeper into the mobile ecosystem.

It would cut out the carriers — those that depend on subsidies, anyway. A small benefit might be helping out the carriers like T-Mobile and Virgin Mobile that have a big incentive to take on the incumbents, and they’d in turn help Microsoft with aggressive, edgy advertising campaigns.

Now, Google can afford to subsidize Nexus 4s because it knows it will eventually make money from advertising and location services for Android users. Microsoft might make some small amount of money from Bing, but that’s not its real payoff.

The real benefit would be enabling Microsoft to sell directly to the large companies that make up the backbone of its revenues. It wants to tie Windows 8 closely together with Windows Phone 8, and this is one way to do it: With volume sales of corporate phones that are off-contract, work seamlessly with your corporate Windows 8 laptop or tablet — and, by the way, which are far more useful and hipper than anything Research in Motion is likely to produce.

Why I keep harping on Microsoft

I’ve been writing about Microsoft a lot this year because it’s one of the most interesting companies in tech right now.

With a market cap around $225 billion, annual revenues of $73 billion as of the fiscal year that ended in June, and net income around $17 billion, it remains a mighty company, one to be reckoned with.

Microsoft still outstrips IBM, Cisco, Intel, and many other giants of the tech world in size and revenues.

Microsoft’s research and development arms are unparalleled, with armies of Ph.D.s that few other companies can match. Even a long-time startup guy like Rahul Sood, who joined Microsoft over a year ago, can’t stop raving about how much talent the company has.

Microsoft’s financial power pales next to Apple, which still has a market cap of about $500 billion despite sudden (and rather inexplicable) losses last week, on about twice the revenue and more than twice the profits — over $41 billion for the last fiscal year.

It stands eye-to-eye with Google, which has almost exactly the same market cap on half the revenues and profits. Google is worth more on a P/E basis because its star is still rising, while Microsoft is a mature sun, and no one knows if it will keep burning for another billion years or if it’s going to blow up next year and obliterate its entire solar system.

Make no mistake, Google is Microsoft’s biggest threat. One glance at this slide from KPCB partner Mary Meeker’s annual Internet trends report, and you’ll see that mobile devices — led by Google’s Android OS — have rapidly blown away Microsoft’s dominance of the computing market in the past few years. (See that green triangle in the right corner: That’s Android.)

That’s why Microsoft’s mobile strategy is so critical. It’s going to do everything it can to regain control over the computing world. It may already be too late. But it’s certainly been interesting to watch.

I’d love to see Microsoft start tackling that by mining one of the areas most ripe for disruption today: our broken carrier subsidy model.

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Vint Cerf is one of the two or three people who can rightly claim to have invented the Internet. Now he’s worried about its survival.

Specifically, he’s concerned about the World Conference on International Telecommunications, happening now through December 14 in Dubai. At this meeting, for the first time since 1988, the countries of the world will gather to try and update international agreements on how to handle data, voice, and other communications technologies.

Now, the host of this event, the International Telecommunications Union, or ITU, knows that it needs to update the antiquated rules governing international telecommunications. In 1988, the last time they met, the Internet existed but was far from being a huge consumer and business phenomenon.

Here’s the danger: Certain countries want more control over the Internet. According to the Open Net Initiative, 42 out of 72 surveyed countries do some kind of filtering and censoring of Internet content, while 21 do “substantial” or “pervasive” filtering — and that’s not even counting North Korea or Cuba.

Lest you think this applies only to “repressive” countries, keep in mind that the U.S. is the #1 country asking Google for more information about its users. That’s not censorship, but it still could be a threat.

Imagine if you had something politically sensitive to post about corruption in Washington, D.C., so you posted an anonymous YouTube video. If the FBI asked for it, Google might give them details that could lead them to your identity.

That’s just one of the examples why openness and anonymity are still important.

Cerf spoke recently at the Egnyte Firestorm conference in San Francisco, where I was a speaker. See below for a video of Cerf’s speech, which covers the entire history of the Internet — no kidding! — in about half an hour, all the way up to Internet-connected wine cellars and the ITU threat. I was honored to meet the man, and of course I took the chance to ask him what he was working on.

(By the way, Cerf really did invent the Internet, or at least the most important part of it: Together with Robert Kahn, Cerf concocted the Internet Protocol [IP] and Transmission Control Protocol [TCP], which, together, underlie nearly all Internet communications. He’s now the chief Internet evangelist for Google.)

At the conference where I met him, he’d just returned from a meeting of the Internet Governance Forum in Baku, Azerbaijan — the kind of dry, technocratic meeting that a man like Cerf must spend his life flying to — but the first thing he mentioned was the emergence there of a faction of countries that want to limit free speech and the unfettered ability of people to connect to the net. He expanded on that Dec. 2 in a guest article for CNN.com:

Several authoritarian regimes reportedly propose to ban anonymity from the web, making it easier to find and arrest dissidents. Others have proposed moving the responsibilities of the private sector system that manages domain names and Internet addresses to the United Nations. Yet other proposals would require any Internet content provider, small or large, to pay new tolls in order to reach people across borders.

The upshot? The next garage-based phenomena would face a steep and probably insurmountable financial hurdle in its effort to become the next YouTube, Facebook, or Skype.

Rules like this would put a huge crimp into the Internet’s “free and open” principles, which is why Cerf and others are calling for people around the world to sign a pledge of support for openness.

Maybe it’s no surprise, but I’m in favor of Cerf’s petition. Openness and transparency are critical to the Internet’s survival.

The pledge has attracted over 2 million electronic up votes to date. You should add yours.

But its real impact is probably minimal, at least in the short term: The ITU meeting will happen behind closed doors with what Cerf told me was a complete lack of transparency, and nobody at the ITU meeting is going to pay much attention to this website.

Worse, the ITU meeting only includes representatives from various national governments. It lacks representatives from companies or people who use the net, as other Internet governance organizations like the IETF or ICANN have.

Still, signing the pledge is a good way to raise awareness and, eventually, political pressure on the administrations sending delegates to the ITU. It’s also a good heads-up that these requests for control might come dressed in language that sounds much more innocuous.

For example, Cerf warned that governments would likely couch their demands for control in terms of protecting citizens — from, for instance, spam. But the upshot would be an end to the freedom we’ve enjoyed for decades.

In reality, many countries want to control access so they can prevent dissidents from using the Internet to organize, without having to shut down the entire country’s Internet access, as Syria recently seems to have done. And they want to control content for a variety of reasons: to prevent seditious material from getting in the hands of their citizens, to enforce content laws like Germany’s ban on Nazi propaganda, and to help enforce copyright law.

“History is rife with examples of governments taking actions to ‘protect’ their citizens from harm by controlling access to information and inhibiting freedom of expression,” Cerf concluded in his essay today. “We must make sure, collectively, that the internet avoids a similar fate.”

Photo: Mandy Kakavas/Google Ventures

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VentureBeat’s second annual CloudBeat conference is coming up, and here’s why you should be there:

* Unlike most other conferences, customers are center stage at CloudBeat 2012. We’ll have IT executives talking about how they implement cloud technologies in the real world, sharing equal billing with the vendors that provide those technologies.

So if you’re sick of marketing mumbo-jumbo and want to know what the reality is behind all this “cloud” verbiage, come check out CloudBeat.

* It’s a small, intimate venue, perfect for learning about cloud technologies at a high level and for making deals. If somehow the people on stage aren’t clear enough with their examples or aren’t giving you the data you need, ask them about it afterwards. This is not a velvet-rope conference where only the few have access to the speakers. This is a true networking event.

* Cloud and mobile are two sides of the same coin. Cloud technologies enable the be-anywhere, you-can-take-it-with-you mobility that tablet and smartphone users demand. If your employees are using iPads or Nexus 7s for work (and you can bet they are, whether or not they got them from IT), cloud-based enterprise apps will make those devices far more productive and useful. That’s why learning about the cloud is critical right now.

* Last year, one of the most amazing revelations came from the chief information officer of a nationwide physical therapy chain, RehabCare: He said that the company saw a 92 percent reduction in broken devices after it switched to supporting Apple iPads and iPhones. The tipping point that pushed IT to support Apple devices? When the CEO got an iPad, of course.

The lesson isn’t that Apple products are amazing — though that certainly might enter your head, especially if compared with whatever pathetically outdated device, probably from RIM, your IT used to provide. Rather, the lesson is that well-made devices that don’t get in people’s way are less likely to get hurled against the wall in frustration and rage. The world is shifting away from PCs and smartphones designed for computer lovers and towards simple tablets made for nontechnical people; your employees expect your company’s tech to keep pace with this trend.

* Another thing we learned at last year’s CloudBeat event: Small startups have a shot at knocking behemoths like Microsoft and Oracle off their pedestals. Enterprise technology is where it’s at, as far as market opportunity and revenues are concerned. Forget about trying to make the next Pinterest clone or yet another mobile app for getting your Facebook friends to help you find the best onion rings in town. Build something that will solve a real problem for real businesses, and there is a small army of investors and customers waiting to help you succeed.

* We’ve got an amazing lineup of speakers. On the vendor side, we’ve got senior execs from Box, VMWare, Nimbula, Cisco, Huddle, Google, and more. On the customer side, we’ve got IT execs from Pepsico, Harvard University, Bosch Tool, Dignity Health (the largest hospital network in California), and the Church of Latter-Day Saints. Yes, the Mormon Church is going to talk about how it is using the cloud.

And, of course, on the VentureBeat side, we’ll have the talented moderation of our founder and editor-in-chief Matt Marshall as well as the onstage interviewing talents of VentureBeat reporters Jolie O’Dell, Meghan Kelly, and Christina Farr. I’ll be there too, so get in touch if you’re attending. I’d like to hear from you.

Want to attend? Here’s a link to register with a deep VIP discount of 30%.

Top photo: Zendesk’s Adrian McDermott and Twilio’s Jeff Lawson chatting with me at CloudBeat 2011. Photo credit: VentureBeat.

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For decades, “artificial intelligence” was a long-sought-after ideal in computing circles. Now it’s finally starting to become real — just not in the way anyone expected.

Sure, the field of AI has produced a few stunning successes, like IBM’s computers beating chess master Garry Kasparov in 1997 and Jeopardy champion Ken Jennings in 2011. But it hasn’t yet delivered computers that can pass the Turing test or protocol droids that can act as interpreters during delicate negotiations with galactic separatists. Instead, today’s AI technologies help connect people with things they want, usually for the benefit of marketers.

An early-stage startup, Solariat, illustrates what I’m talking about: It uses powerful AI-derived technologies to insert itself into online conversations, providing relevant information in response to tweets.

Solariat is following a path blazed by Apple’s natural-language assistant, Siri, probably the most successful product of the AI field ever. Like Siri, Solariat took inspiration from SRI’s Calo project, an ambitious attempt to knit together many fields of AI and natural language research for military applications. The name “Calo” is partly an acronym for “Computer Assistant that Learns and Organizes” and partly a shortened version of the Latin word “calonis,” which means “soldier’s assistant.” The idea was to create an intelligent assistant that could provide soldiers with up-to-date information in the field, by responding to simply voice commands and queries.

It turned out that building a working, functioning Calo was beyond the capabilities of a Darpa research grant, even a very generous one. However, SRI generated several successful spinoff companies from its work. One was Siri, which Apple acquired an then integrated into its iOS mobile operating system. Another was Social Kinetics, a small startup that provided technologies that learned from interactions with customers and which Redbrick Health acquired in 2010.

Jeffrey Davitz, the founding chief executive of Social Kinetics and a former program manager for the Calo project, is now back in the game as the founder of Solariat. His new company is building quasi-intelligent agents that mine Twitter for examples of people expressing some kind of intent that’s relevant to Solariat’s customers.

For instance, if you post a tweet to your friends about how you need to buy a new laptop because your daughter spilled orange juice on your current one, Solariat could chime in with an @ message to you pointing to recent reviews of laptops.

The key, Davitz said, is that the technology identifies an expressed need accurately. “Otherwise you turn into Clippy,” he said, referring to Microsoft’s infamously obnoxious Office assistant.

Once the technology identifies that need, it matches it with content provided by one of Solariat’s customers — laptop reviews, for instance — and delivers it in the form of a targeted tweet. The goal: engaging customers and getting them to click on the offers, or as Davitz terms it, building an “engagement platform” that lets companies respond to people’s actual intentions, not just keywords.

Just as Google found that its search-driven ads don’t annoy customers as long as they’re relevant, Solariat is finding that contextually-relevant marketing tweets are welcome, too — as long as they’re on topic. Davitz said the company is seeing 20-30 percent clickthroughs on its targeted tweets, which is a remarkably high percentage.

The technology can be used for customer service as well as marketing. Or, Davitz suggests, publishers might use it as a kind of content distribution network: Instead of waiting for people to find your site via searches, Solariat could deliver relevant articles to you via Twitter @ replies whenever you express a relevant desire.

It’s a bit creepy, this notion of a computer combing through the entire flood of human expression on Twitter, searching for little tidbits of desire that it can latch onto and use to deliver something marketable. On the other hand, it’s also a potentially powerful marketing tool and has the possibility of decreasing the amount of junk you’re subjected to online. Rather than those ubiquitous and untargeted promoted tweets that keep popping up in my timeline, I might see tweets that are actually interesting to me.

It’s also a good business: Davitz says his company has successfully tested the technology, has paying customers, and is looking to build a more complete product offering in one or two vertical markets. So far, Solariat has raised $3 million, led by KPG Ventures, and aims to raise $3-5 million in its next round.

Marketing, customer service, and content delivery can be clever and profitable uses for AI — even if they aren’t exactly what Alan Turing envisioned 60 years ago.

Photo credit: pinkpurse via photopin cc

Related articles

• Even Ray Kurzweil is nervous about a future with hyper-intelligent machines (venturebeat.com)
• Can Google compete with the next generation of search engines? (venturebeat.com)
• 17 years until the Singularity: A conversation with futurist Ray Kurzweil (venturebeat.com)

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Dear Windows Phone 8,

I want to love you, but there’s something coming between us.

When we first met, you were just version 7, but you impressed me. I liked how your home screen showed me all kind of nice things, like gentle reminders about my next appointment or photos of my Facebook friends. I liked the way that your photos app was always showing me new pictures of my niece. Something about the way your tiles flipped into place just made me smile.

I was so won over by your charms that I was even willing to go back to AT&T, a company that’s let me down many times in the past, for your sake. I took the big step and signed a two-year contract to get a Lumia 900, which was the flagship Windows phone last summer. It wasn’t your most flattering phone, but I will say it was impressive in almost every way: Fast. Big screen. Bright colors. And fun to use.

Besides, it was made by Nokia, a company I’ve always admired for its workmanship, for its well-designed and reliable devices.

But then something went wrong. One morning the Lumia 900 just didn’t wake up. I had plugged it in to charge overnight, but it just wouldn’t boot up, no matter what I did.

I went without a phone that day. Fortunately, I use Google Voice as my mobile contact number, so I could still get calls on my computer, even without a phone. When I got to the AT&T store that afternoon, they told me they’d seen this happen a few times but that they couldn’t do anything to fix it. They gave me a new Lumia 900.

I entered my Live.com information and signed in. There you were again: My Windows Phone OS. Except something was missing. My Live.com account included connections to Twitter and Facebook, so those contacts reappeared right away. But all of the groups of friends and family members I had created? Gone. I had to re-create each group, one contact at a time. Ringtones, music, and all the apps I’d downloaded? Also missing.

So I re-created the groups, re-installed my apps, got my music and favorite photos back onto the new handset. Everything went smoothly then for a week or two. But then it happened again: One evening, the Lumia locked up and just wouldn’t wake up. I couldn’t power it back on. Even after recharging it all night, it still wouldn’t work.

Back to the AT&T store I went. They replaced my phone again, after a short half-hour wait. Once again, I had to re-create my Google accounts, contact groups, apps, and such. Fortunately, I’d remembered to check the option to sync all the photos I took to Skydrive. Thank goodness for that.

At this point I was growing quite a bit less enchanted with you, Windows Phone. I mean, I still liked you. But reintroducing myself to you every time I got a new phone was getting tiring. Why couldn’t you just remember all the things about me, like my apps, my ringtones, all my contacts, and email accounts?

So things puttered along for a month. And then it happened again. One fateful morning, the Lumia did exactly the same thing again: It wouldn’t wake up.

Back to the store I went. This time, I begged them to give me a phone — any phone — so long as it worked reliably. So the nice AT&T representative handed me an Android phone, an HTC Vivid. I’ve used Android phones for several years, before I met you, so this was an easy transition, even if it wasn’t the phone of my dreams.

But here’s the thing. It’s three months later. I’ve seen your new style, Windows Phone 8, and I like a lot of things about you. I’ve spent some time with you on the confusingly named HTC Windows Phone 8X, which is a terrific phone: It’s super-slim, attractive, fast, and has a battery that goes for days. I like it a lot.

If I weren’t already an AT&T customer, I’d be happy to give you another try on the Windows Phone 8X, which will be offered to AT&T customers soon for $99 plus a two-year contract. That seems like a good deal. Except I’m not eligible for it. Because I signed on with a two-year contract for a subsidized phone, and that phone is now my HTC Vivid, I’m stuck until October of next year, it appears.

Even if I still had that Lumia 900, I still wouldn’t get Windows Phone 8, because none of the older models are upgradeable.

I’ve talked to AT&T. I’ve begged, pleaded, and spoken to supervisors. But no one is budging. I signed a two-year commitment to get to you, but what I got, in reality, was AT&T — because that’s the way subsidized contracts work in the U.S.

So, Windows Phone 8, I’ve got to break it to you: AT&T is not your friend. It’s what’s keeping me from you right now.

For that matter, Verizon probably isn’t your friend either. I’m not sure there’s a carrier in the country that will put you first, not when iPhones sell so quickly and Android phones come so cheaply. And that’s a problem.

Since you’re coming from way behind iOS and Android, you’re going to need all the friends you can get. I don’t know where you’re going to find them. Big companies that want to standardize on Windows? People like me who are bored and annoyed with Android? They all seem like a stretch.

Your best best, in all likelihood, is Windows 8, which promises to link you with tablets and PCs in one, consistent interface, all sewn together with the surprisingly useful Skydrive service. For your sake, let’s hope that works, because right now, you need a lot of help.

A pretty face that makes people smile is a good start, but it’s not enough.

Photo credit: Karen Jensen, for VentureBeat

PayPal president David Marcus announced layoffs in his division this week with a tone-deaf line about delighting customers and providing great experiences.

Never mind the 325 employees and 120 contractors who are going home without jobs this evening, and who could be facing months of unemployment, family stress, financial hardship, and more. Our focus is on the customers!

And that’s just two weeks after Paypal’s corporate parent, eBay, said the payments division was knocking it out of the park, with revenue up 23 percent compared to the previous year.

Marcus is a decent guy, according to at least two VentureBeat reporters who have talked to him. I don’t think he’s cruel or unusual among his peers: He is certainly not the first tech executive to handle layoffs in such a cavalier manner, and he won’t be the last. For example, last week Salesforce laid off 100 people in its Marketing Cloud division and led its statement to the press with bold words about how it “is the undisputed leader in social marketing.” This, just a few days after rolling out new features for Marketing Cloud and claiming that 55 of the Fortune 100 are using the service.

The playbook seems to be: Announce a new product. Tell the world how it’s raking in money hand over fist. Then quietly let go a chunk of the people who made it happen.

This approach does nothing to endear companies to their customers. More immediately, it runs the risk of demoralizing the remaining employees. Sadly, it’s all too common in tech companies and is a sign that the industry is getting seriously out of touch with the rest of the world.

Now, I get it. Not every company can boast that its revenue and profit graphs go straight up and to the right. It’s a rare company that doesn’t run into financial difficulties and have to lay people off at some point. Fortunately, many of the people eBay let go are in product and technology roles, which means many of them will likely find new work quickly, assuming they’re based in Silicon Valley, where software engineers and product managers are in high demand.

But really, people, there’s a good way to do this and a tacky way. For a chief executive to focus on the customers and not the people he’s laying off is insensitive at best.

At worst, it telegraphs the message that the tech industry can afford to be cavalier about jobs. Laid off? Get another one! If you’re lucky, it’ll be one where there’s a chef to cook you lunch every day or a policy for unlimited time off. Can’t get hired? Just start a company! Just make sure it’s one that delights its customers.

You have to wonder how PayPal’s customers in other parts of the world, where unemployment often floats well above the U.S.’s 7.8 percent nationwide average, feel about that kind of attitude.

Maybe they don’t care — many customers don’t pay that much attention to how a company conducts itself. But everything a company does reflects, subtly or not, on its brand. A move like this casts PayPal in exactly the same light as the banks and credit card companies it competes with: impersonal and concerned only with profits.

I submit that a better way to announce layoffs is with humility and with an acknowledgement that, somewhere along the line, the company and its executives screwed up. Let the responsible execs take a cut in pay, and make that part of the announcement. (I asked eBay if Marcus was taking a pay cut, but got no answer.) Apologize to those who lost their jobs, talk about how you’re helping them find their next gig, and thank them for their contribution.

Then talk about how you’re still committed to deliver amazing experiences to your customers.

Photo credit: hellvetica via photopin

This week is an epic one for tech news.

I’m not talking about Apple. Sure, the iPad Mini that Apple just confirmed is a long-awaited addition to the company’s tablet line, and it’s one that Apple is virtually required to make — assuming it doesn’t want to keep losing market share to smaller, cheaper Android tablets like the Kindle Fire and Nexus 7.

No, the company I’ll be watching most closely this week is Microsoft.

Microsoft will launch Windows 8 and its own iPad competitor, the Surface, at the end of the week. These two products will be the test of whether the company can successfully manage the transition to a new era of computing.

The company has done it several times before, as I explained in a CNBC appearance earlier this week (see below). Microsoft started as a software vendor for hobbyist computers but turned into the dominant operating system provider in the PC era, thanks to a canny deal with IBM to provide MS-DOS for its computers.

Then, just as DOS started to fade, Microsoft managed the transition to a graphical world with a multi-year strategy to shift its customers to Windows in the 1990s.

As computers became increasingly connected to the Internet in the late 1990s, Microsoft’s “embrace and extend” strategy put it in a dominant position among Internet companies, successfully driving Netscape out of business and rocking AOL back on its heels. Of course, there was a small matter of an antitrust suit to deal with, and that arguably kept Microsoft on the sidelines as Google rose to dominance in the Web 2.0 era. (The consent decree Microsoft had to sign with the Department of Justice finally expired in 2011, after 10 years.)

Now the computing world is entering another new chapter. Desktops and notebooks are beginning a long, slow decline, to be replaced by what we now call “tablets” but soon will refer to simply as screens. Some of those screens will be small, some will be large, some will have removable keyboards and some will be mounted on walls as passive displays. Almost none will have permanently-attached keyboards or mice.

In short, voice and touch interfaces will dominate in the new, screen-centric era, and Microsoft knows it needs to make this transition if it wants to remain a dominant force in computing.

So the company is drawing on decades of experience with computing transitions to make this happen. Just as the early versions of Windows were based on DOS and still let you run DOS programs, Windows 8 is based on earlier versions of Windows and will let you run all the Windows programs you already have.

Sure, there’s a new interface to learn, but it’s hardly as radical or as disorienting as critics have made it out to be. With minimal training, even a three-year-old can manage the basics of opening programs, resizing screens, and going back to the Start screen. (I’ve been using Windows 8 at home for several months, on an older IBM Thinkpad, and it’s just fine.) As Joanna Stern wrote on ABC, it does require some willingness to accept change. Microsoft is almost certainly going to be pouring massive resources into educating consumers, via advertising and other means, so this interface won’t remain alien for long.

Still, if you don’t like it, ignore it. Switch over to the classic Windows view and pretend nothing has changed. That’s the genius of Microsoft’s strategy: It lets people put one foot in the tablet world while keeping another foot planted firmly in the past.

As a mentor told me long ago, best not to remove foot from stone until other foot is planted on next stone, Grasshopper.

Still, the Windows 8 transition is a risky strategy, and it is possible Microsoft will blow it. I’m not convinced that many people will actually buy the Surface, despite the rave reviews: I think it’s probably overpriced, and there are still no compelling apps. If history is any guide, it’ll take Microsoft several versions to get the touchscreen right, so it’ll probably be Windows 9 or Windows 10 before we see the full range of what the company is capable of.

Even if it’s not a guaranteed win, though, Windows 8 is Microsoft’s best shot at remaining relevant into the next decade. That’s why I’ll be watching its launch this week, and its reception in the weeks to come, with great interest.

Before Facebook, before MySpace, and even before Friendster, a small but influential social network started in San Francisco that eventually drew in tech-savvy entrepreneurs and artists from all over the world.

It was called The Well (or the WELL, for Whole Earth ‘Lectronic Link), and 27 years after its founding, it’s still here.

Now, with new owners and a new business plan, the Well is poised for — well, not exactly greatness. But something more sustainable.

“Unlike many startups, we don’t want explosive growth,” Well chief executive Earl Crabb told me last week. “We’re not going to sell people’s information. We want to stay small and grow slowly.”

At its peak, the Well had about 10,000 members: Nothing compared to Instagram or even Path, but a significant community for what was essentially a bulletin board system in the late 1980s and early 1990s. Those members had an outsized influence on the dot com era: It was a sort of elite, highbrow alternative that attracted exactly the sort of entrepreneurs, artists, philosophers, and dreamers who made the dot-com boom so fun (and so ridiculous). But over the years, the Well’s influence and size dwindled.

Last month, Salon Media — the Well’s owner since 1999 — announced that it was selling the Well to a new company, The Well Group, Inc. The selling price was $400,000, which might seem a bit steep for a service that had just 2,600 customers, negligible growth rates, and no obvious monetization strategy.

The new Well is a welcome respite to a tech industry that seems obsessed with making billion-dollar marketing businesses, going “balls to the wall,” and working 120-hour weeks. I don’t expect the Well will change the world, at least not in obvious ways. But I’m glad it’s not going away.

The purchase price was put up by 11 members who have an average of 20 years on the Well each and who kicked in at least $30,000 apiece.

“Would this have passed muster with my normal investment criteria? Hell, no,” said Jim Rutt, a Well investor who is chairman of the Santa Fe Institute and a former chief executive of Network Solutions.

But like the other Well investors, Rutt is looking for more than a high annualized rate of return. They’re investing largely to keep the thing alive.

“Well users are devoted, passionate, brainy, and deeply engaged. How often does one get to invest in a company where so many long-time customers check in multiple times a day always with an anticipation of pleasure?” said Evelyn Pine, a playwright.

That’s not to say that this is a charity. Well members pay $10 per month or $100 per year for membership, and those fees are sufficient to keep the company in the black indefinitely, Crabb said — and eventually to start paying profit-sharing dividends to its investors.

“I really wanted The Well to survive. It’s been an online home to me for 23 years,” said Joe Flower, a Well backer who describes himself as a health care futurist. “But equally important, it looks like a sound business that has survived all these years despite its owners doing little to promote it. With some nurturing and some marketing, it should not only survive, but it should do well.”

Or, as Rutt put it, “It ought to produce better than bond-like returns if it doesn’t collapse entirely.”

Regardless, traditional VC-type exits are out of the question.

“Any IPO or acquisition would be precisely the opposite of our goal, since we’ve seen the results of similar ownership changes over the past couple decades,” Crabb told me in an email. “As unusual as it might sound these days, we are interested in a sustainable business model with a reasonable return.”

So far, so good. The service has added more than 200 new members in the past few weeks, thanks to a burst of media coverage about the sale, and it now stands at about 2,850 subscribers.

As a business model, the Well might be hard to replicate. It does have something in common with the more small-scale, passion-driven projects that have found new life on Kickstarter: labors of love like the Pebble watch or the Ouya video-game console that would never pass muster in the wider investment community but that can attract plenty of support from a broad base of committed believers.

Still, the Well  isn’t aimed at making a cool new gadget, or new way of sharing photos, or an easier way to find the best garlic fries in your neighborhood. As a result, it’ll probably stay relatively small and relatively focused. And that’s okay.

“I think it’s pretty unique. We have 27 years of history,” Crabb said. ”Come take a look. It’s got a whole bunch of very bright people. It’s very active, a very vibrant community that’s going right along.

“Our conversations go on for years. On Facebook, it’s maybe a day.”

Photo: An old well, by pfarrell95/Flickr.

Bravo TV’s latest “reality” show, Silicon Valley, makes a mockery of how Silicon Valley really works.

So what, right? So-called reality television hasn’t had any connection with reality since MTV’s “The Real World” first crammed a handful of screen-tested strangers into a house and shoved video cameras in their faces 24-7. No one is expecting the makers of “Real Housewives of New Jersey” to deliver anything even closely resembling its nominal subject.

And the fact that the trailer for the new show already has a rating of just 2 stars — on Bravo’s own website — shows just how execrable this show probably is.

But one thing pisses me off, and no, it’s not Bravo’s loose relationship to the truth. It’s the way the word “geek” is getting steadily drained of all meaning.

Bravo’s trailer proclaims “Geeks are Definitely the New Rock Stars.” Ok, then. So where are the geeks in the trailer?

Apart from one middle-aged guy with a Vandyke beard who appears onscreen for about one second, and who might be central casting’s conception of a geek but is more likely some kind of generic boss figure, there is not one single geek in the whole video.

Instead, we’re treated to a parade of frat boys who like to “work hard and party hard,” airbrushed beauties who weep as they claim “I’m pushing myself so hard,” and testosterone-laden knuckleheads who say things like “Silicon Valley is just balls to the wall.”

These people aren’t geeks. They may be smart, they may be entrepreneurs, and they may even be coders (though I’ll believe that when I see the first line of code any one of them writes). But they are not geeks.

(And let’s not forget the way this trailer seems to airbrush all diversity out of Silicon Valley. In a place where 52 percent of startups are founded by immigrants from India, China, Japan, and many other places around the world, it’s just insulting to pretend that a startup is a bunch of Californians, with maybe the occasional English accent thrown in.)

I grew up in the 1980s, at a time when “geek” was still a put-down that carried real weight. Then a funny thing happened: People like Bill Gates (uber-geek) and Steve Wozniak (as geeky as they come) became fantastically successful. Nerds like Marc Andreessen (a geek in his youth, though now polished to a fine, MBA-like sheen of smoothness) and Jerry Yang (still a geek — just witness his awkward attempt to right Yahoo a few years ago) defined a new generation of geeks who could aspire to become titans of industry, and some of them even succeeded. By the time a couple of geeky Stanford graduate students named Larry Page and Sergey Brin came along, it seemed almost inevitable that geeks would rule the earth, or at least that majority of it controlled by the top 1 percent.

Naturally, now, everyone wants to be a geek.

So, fine. If you’re socially awkward, fascinated with Dungeons & Dragons, and have reached a high level in World of Warcraft, welcome to the club. If you want to join VentureBeat’s game of Magic: The Gathering or celebrate your latest Github commit over a round of Settlers of Catan, fine: You’re probably a geek.

But don’t hoist your Corona and tell me that geeks are “definitely the new rock stars.” Don’t show off your miniskirt and tell me that I’m intimidated because “this package doesn’t usually come with a brain.” I’m intimidated because you’re a girl, and girls make boy geeks like me nervous.

This attempt to redefine the meaning of the word geek disrespects anyone who really did get hassled for being a geek, and it misrepresents and negates the work of a culture that has contributed much to Silicon Valley and the tech world at large. And it’s not just Bravo that’s doing it: All over Silicon Valley, the bros are trying to take over with their own brand of macho startup life.

Go ahead and define your own category of cleavage-showing, perfect tousled-haircut-having, made-up, back-shaved, Pam-sprayed, toned-body entrepreneurship. But don’t tell me you’re a geek, because you’re not.

Photo: Actual photo from Bravo’s show, with photoshopped title by Tom Cheredar.

The first time I attended DEMO, which happens today and tomorrow in Santa Clara Calif., was in 1995. I watched Jeff Hawkins and Ed Colligan stage the very first public demonstration of the PalmPilot, a then-revolutionary handheld organizer with a stylus-centric “touch” screen and a strange input system called Graffiti.

Like most of the people in the audience, I was blown away. I placed an order for a PalmPilot the same day, and a few months later, I was geekily using its to-do list feature to check off items on my grocery list while I walked the aisles of Safeway. I felt conspicuously nerdy, and I probably was. The world wasn’t quite ready for digital grocery lists.

Five years after the PalmPilot debut, I returned to DEMO, this time as the co-founder of an early-stage startup. We were woefully underprepared to start a company, but we knew that the DEMO conference, which by then was already in its ninth year, was the perfect venue for getting attention and — we hoped — venture capital. Sadly, we learned that the dot-com bust was more powerful than our DEMO exposure, and we didn’t have enough business experience then to weather the storm, an experience I described in more detail last year.

Subsequently, I covered DEMO as a member of the press when I was at Wired and returned to the stage as a moderator last year when I joined VentureBeat, which has co-produced the show together with IDG for the past three and a half years.

Having seen the event from so many different angles, I suppose it’s normal that I feel a little twinge of sadness that this will be the last time VentureBeat works on the show. We’ve handed the reins over the Erick Schonfeld, a move that will benefit DEMO itself as much as it benefits VentureBeat. Schonfeld, who is a smart guy, will bring new blood and new ideas to DEMO. And the move leaves VentureBeat free to concentrate on our own rapidly growing brand, instead of balancing two brands.

Introducing the DEMO Fall 2012 conference this morning, VentureBeat’s founder and editor-in-chief Matt Marshall likened the process of starting a company to getting a flywheel moving. At first, the flywheel is huge, massive, and seemingly immobile. But if you push and push, he said, eventually it starts rotating, and then its mass and inertia work in your favor, keeping the business spinning. VentureBeat is a pretty big flywheel now, with 24 employees and traffic that’s doubling every year. It’s time for us to move on.

As for DEMO, there aren’t too many tech conferences that are still going 22 years after they’ve been started. It’s a testament to the power of a deceptively simple idea: Make the products and their creators the center of attention, and give everyone just a few minutes to give the best demonstration they can.

Since 1991, many other tech conferences have imitated the model, adding tweaks of their own here and there. But few have been able to replicate the professionalism, quality, and selectiveness of DEMO. It’s been a great ride for me, and even though I won’t be onstage after this year, I’ll look forward to continuing to cover DEMO as a journalist.

Unless I come back again someday as an entrepreneur, that is.

You can follow all the news from DEMO Fall 2012, and watch a live video stream of the event, right here on VentureBeat.

Photo credit: Stephen Brashear/DEMO

What is a startup? Paul Graham has a deceptively simple answer in an remarkable essay posted earlier this month: It’s a tool for generating rapid growth.

From the point of view of venture capitalists and entrepreneurs, nothing else matters. If your company is growing exponentially, it’s an attractive investment, for a whole host of reasons. If it’s not growing exponentially, VCs won’t be interested — even if it’s profitable.

So Graham suggests to companies in Y Combinator, the incubator he founded, that they pick a weekly target: Say, 7 percent growth. Every week, that is their only goal. They either hit it, in which case they’ve done everything they need to for the week, or they don’t.

Picking such a single-minded, concrete target focuses the mind and helps founders optimize their startups the same way they’d optimize code, Graham writes.

But exponential growth has a kind of magic to it, in that most people don’t have a good intuitive sense of how powerful it can be. For example, 7 percent weekly growth, week after week, translates into 33.7x annual growth. Any company that can demonstrate 33-fold annual growth is going to be an attractive target for venture capital, whether that’s growth in revenues, members, or some other metric. It’s growth like that which made Instagram such an appealing investment target (and potent threat) for Facebook. And for companies like that, VC money is like rocket fuel.

But while Graham is one of the smartest people in the investment community, and his essay is an excellent rubric for young entrepreneurs to understand the rules of the game, his approach is not the only valid way to run a startup. Another smart investor and entrepreneur, Mark Suster, lays out an alternative viewpoint in his own post, arguing that startups need to stand for more than just growth.

Suster worries that Silicon Valley’s obsession with hypergrowth is making it elitist, causing investors and other observers to ignore and undervalue companies that take a bit longer to “percolate” before they deliver real value.

And as he points out, you don’t need a gigantic, Facebook-style IPO to be a success. His two startups were both acquired for amounts that, he says, might seem small in the overall scheme of things, but which made enormous differences to the lives of everyone on the two teams. In fact, Suster writes, 98 percent of the exits for VC-backed companies are for amounts under $100 million.

I’m with Suster, who writes:

I want the definition of startup back. To be used by anybody who is willing to take the risk to quit their corporate job and go out and try and build an innovative, disruptive, tech-enabled business that tries to change the way things work in the world.

It’s OK to build a company that stays small, has a few million dollars in revenue, and builds careers, bank accounts, and enriches client experiences.

So where’s the room for tremendous successes that don’t fit the VC patterns? For companies that haven’t hit “escape velocity” but which are still excellent businesses?

The short answer: Chin up. You don’t need venture capital to make a dent in the universe. In fact, the obsessive focus on the VC model can actually drive founders crazy.

When you start a company, you need to have some idea of what your goal is. For Y Combinator companies, that’s a weekly growth target. For your company, it might be financial independence. But it could be other things.

For my part, I’m interested in startups that are trying to change the world. Exponential growth is one kind of magic — but let’s not forget that it’s not the only kind.

Photo: Saturn V engine, courtesy NASA

How much longer will Silicon Valley stand by and watch the “silicon” part of its name wash away like so much sand?

This week, one of the most popular stories on VentureBeat carries the headline “Hardware is dead.” It’s an echo of a sentiment expressed earlier this year by venture capitalist Marc Andreessen, that software is eating the world. Here’s the argument in a nutshell: If you’re making hardware, get out of the business as fast as you can, and move to something more profitable.

In fact, hardware is not actually dead; it’s just that, like running cattle (as one VentureBeat commenter eloquently put it), the hardware business is no longer very attractive to Americans. That’s because it’s difficult, requires huge up-front investments, and offers narrow and unpredictable profit margins. So from a venture capitalist’s point of view, sure, hardware is dead.

From a broader perspective, however, the disappearance of hardware manufacturing expertise could have a long-term, negative impact on the health of the Silicon Valley economy. Harvard management professor Willy Shih recently said in a troubling roundtable on U.S. competitiveness, “Innovation requires access to manufacturing technology. This is not about being patriotic. It’s a strategic question.”

One thing is sure: American manufacturing expertise is slowly fading away. As the New York Times reported in January, we simply cannot compete with Chinese electronics manufacturing facilities. If you need to make a sudden change in the display for a smartphone, as Apple did, Foxconn managers can roust 8,000 workers from their beds and have them working 12-hour shifts the same day. If you need to hire thousands of manufacturing engineers overnight, Chinese companies can do it, whereas in the U.S., that many qualified candidates don’t even exist. Yes, these companies have an edge over U.S. because they pay lower wages and have looser environmental controls, but it’s our lack of manufacturing expertise that clinches the deal. Even if price was no object, you could not manufacture the iPhone in the U.S. — or any other competitive smartphone, for that matter.

But do we even want to compete in this business? When Chinese manufacturers can build an Android tablet that sells for $45 in the Shenzhen electronics markets, and if Fry’s Electronics can sell it to Americans for $80, that puts an enormous downward pressure on prices in the tablet market. If you wanted to sell commodities, you would have gone into corn and pork bellies instead of technology.

Ditto for smartphones, PCs, notebooks, ultrabooks, and most of the components that go into them. This is an industry that U.S. companies long ago ceded to overseas manufacturers for ostensibly smart economic reasons: Why compete in a market with dwindling margins when you can move up the food chain, become a design- or software-driven company, and enjoy fatter margins?

The problem is that these smart economic reasons make sense in the short term only. Long-term, we’re undercutting our capability to compete — something only Apple seems to understand, with a $500 million, multiyear chip development project to make itself more independent from chip manufacturers like Samsung and Intel.

Here’s why this is a problem: Asian manufacturers are moving up the food chain just as fast as U.S. manufacturers are, only one step behind. In the 1980s, when U.S. companies led the world in chip and PC manufacturing, Taiwanese and Chinese firms got a toehold in the market by making electronic components like resistors, capacitors, and motherboards. Eventually they got good enough at making those that they were able to move up the chain to chip manufacturing, then chip design, then the design and manufacture of entire electronics products.

At the same time, U.S. firms climbed up the ladder toward operating systems, software, integration services, and marketing, ceding the lower layers of the stack to their overseas partners.

If this trend continues, U.S. companies will eventually be standing on the very top rung of the technology industry ladder, doing the last thing we know how to do better than anyone else: public relations. Meanwhile, overseas manufacturers will do everything else: making the chips, building the hardware, and writing the OS and software.

Unfortunately, once you’ve reached the top of the ladder, you have nowhere to go but down.

Photo: Seagate factory workers assemble 2.5-inch disk drives. Credit: Robert Scoble via photo pin

Here we go again. The clouds part, and another iPhone descends from the heavens.

What mystical secrets will be written on the device’s extra-large, 640-by-1,136-pixel Retina display? Will there be earthshaking new features? Will it contain the answer to the question of life, the universe, and everything?

Not likely. Apple has entered a new phase in the evolution of its iPhone line, and you can pretty much forget about radical reinventions from now on.

The iPhone is now a mature product, and as with many mature products, the chief innovations will interest chief financial officers more than tech reporters like me: Expanding to new international markets and new carriers. Reducing dependence on sometimes-antagonistic partners like Google and Samsung. Marginal improvements to major features. Enough new features to maintain parity with chief competitors. And a few nifty extras, like rainbow colors (my favorite speculative iPhone 5 concept), to keep customers feeling special.

At this point, Apple has settled into its favorite spot: A comfortable No. 2. That’s because the company has always prioritized profits over market share and is happy to cede the latter as long as it can hang on to the former.

Source: Horace Dediu/Asymco

Apple dominates mobile phone operating profit share.

Horace Dediu’s analysis of Apple’s profit share earlier this year makes this crystal clear: Even though the iPhone is no longer the leading smartphone, it has by far the largest share of the market’s profits. But even the term “profit share” is misleading, Dediu points out, because it assumes that the total pool of profits is constant.

“The story isn’t so much that Apple ‘took the profits from the incumbents.’ Rather, it’s that Apple created a vast new pool of profits,” Dediu writes.

It did so by squeezing mobile operators, never anyone’s favorite companies, and by coming up with a model for how to make smartphones that was demonstrably better than anything that came before. Once they had seen it, millions of customers flocked to the iPhone, and dozens of companies followed with their own takes on the touchscreen phone. As Apple demonstrated conclusively in its recent court victory over Samsung, it has defensible patents to protect the iPhone, so competitors now have to find new, less derivative ways to make smartphones, while Apple continues to own the “rectangle with rounded corners” approach.

I’m not saying that Apple is sleepwalking its way to irrelevance. It remains a potent, prickly competitor, out to make no friends. It will continue litigating its patents and aggressively renegotiating business deals. If Samsung is proving difficult, it will source iPhone and iPad componenets from Sharp, LG, and others. If Google is rattling its sabers, Apple is more than happy to ditch Google Maps and build its own iPhone maps and then ditch YouTube and let Google release its own iOS app.

As long as Apple can maintain control over its entire ecosystem — including hardware, software, and services — and keep its customers rabidly happy, it will be assured of having the fattest margins in the smartphone industry, which in turn will help keep Apple the most valuable company in the world.

If you’re looking for radical reinventions, you’ll have to wait for Apple’s idea of a television. (If that happens.) In the meantime, look for a slightly better iPhone tomorrow. It won’t change the world. But then, it doesn’t have to.

One of the hottest marketing terms right now is “big data.”

Like “the cloud” last year, it’s ubiquitous: Every tech company seems to be working on some kind of pitch to show how it can handle huge volumes of data and turn it into a strategic advantage for you.

I don’t blame them. Nobody wants to be accused of having “small data,” after all. That would just be embarrassing.

The truth is, though, most companies would be better off with small data — or really any data — than they are today. An embarrassing number of business decisions are made without reference to real data.

I realized this point over the weekend, while reading Daniel Kahneman’s eye-opening 2011 book, Thinking, Fast and Slow. Kahneman, who won the Nobel Prize for economics in 2002, has spent his career studying how people make decisions. He and his many research partners have found that most of our decisions are based on quick, intuitive responses, rather than on our brain’s more deliberative, analytic capabilities. The intuitive part of your brain is amazingly powerful at coming to rapid, synthetic judgments based on a large amount of information. Unfortunately, it’s terrible at making judgements about anything where there is a statistical uncertainty about the outcome, and even trained statisticians have a poor intuitive sense of statistical probabilities.

Kahneman details the many examples where supposed experts are provably inept at predicting the future. Political analysts can’t reliably predict the outcome of elections. Sports fans can’t predict who’s going to win a game. Individual investors are terrible at picking stocks, and hedge fund managers aren’t much better, doing only marginally better than random chance.

Once I’d read Kahneman’s book, it became obvious that much of the tech industry suffers from the same problems he describes.

• When a venture capitalist decides to invest in a startup, it’s often based on hunches and on “pattern matching,” the VC term for betting on things that, in their opinion, look like something that’s been successful before.
• When a startup launches a new product, it’s usually done without any real data. And that’s fine, except that startups don’t usually set themselves up to collect usage data and act on it rapidly, a model espoused by Eric Ries and others in the “lean startup” movement.
• When companies hire people, their decisions about whom to hire often come down to personal chemistry between the candidate and the hiring manager.
• When a large company decides on a marketing strategy, it’s often based on the hunches of senior marketing managers or on the advice of marketing consultants.
• When journalists — myself included — decide on an angle for a story about a new company, it’s usually based on some kind of hunch about the company rather than on exhaustive analysis of the company’s statistically likely outcomes.

There are exceptions: In environments that are relatively predictable, where repeated experience provides immediate feedback about the validity of your judgments, you can become expert enough to make valid predictions. That’s how chess masters get so good at analyzing positions at a single glance, and why experienced firemen have a “sixth sense” about when a floor is about to collapse.

Sadly, the tech world is not very predictable, nor does it provide immediate feedback. In situations like this, Kahneman advises, any kind of algorithm — even one based on common sense and scribbled on the back of an envelope — has more predictive power than an expert judgment.

That’s why I’m inclined to believe Vinod Khosla when he says that software can ultimately replace 80 percent of doctors. Predictive algorithms, well-designed checklists, and caring nurses can probably take care of people better than doctors can in many cases — leaving doctors to focus on the complex situations where their expertise provides real value.

So why aren’t people using algorithms more often to make business decisions? One problem is that they simply don’t have access to enough data about the outcomes of previous decisions. That’s where so-called big data companies could make a real difference.

For VentureBeat’s part, we’ve been making an effort to get more systematic about collecting data on the companies and products we cover, so we can make more accurate judgments about them — or give you the data to make your own judgments. For instance, our news team contact form, which lets you send news alerts to our reporters, is more structured than a typical email. That’s because it feeds into a database that, over time, will become a valuable resource for VentureBeat and its readers.

But we’re still only a tiny part of the way along this journey towards more algorithmic decision-making. Ditto for most of the tech industry.

How are you using data and algorithms? Let me know in the comments below or by email. I’d like to hear from you.

Photo credit: saturn ♄ via photo pin

Apple has made it through the bruising hand-to-hand combat of its latest patent trial, and it’s defeated all the lawyers that Samsung could throw at it. Now it’s got to face the big boss at the end: Google.

The jury last week handed a decisive victory to Apple, declaring that Samsung had infringed on nearly every patent under consideration. In the countersuit, the jury found that Apple hadn’t infringed on any of Samsung’s patents. It was a remarkably one-sided decision that could wind up costing Samsung more than $1 billion, if the jury’s decision and its award of damages survive the appeals that are no doubt coming. Actually, it could cost Samsung over $3 billion, if the judge decides that its willful patent infringement demands a payment of triple damages. Google has to decide how to respond before doubt about Android’s future throws more consumers into Microsoft’s arms.

But what’s Apple going to do next?

If I were Tim Cook, I’d keep the legal pressure on Google in order to force it to continue differentiating Android from iOS as much as possible, a process that’s already begun. Google, for instance, has already removed “bounceback” from the Android OS, a feature covered by one of the Apple patents that Samsung was found to be infringing. The latest versions of Android, Ice Cream Sandwich and Jellybean, continue their evolution away from the operating system’s early, imitative roots, with different methods for unlocking the screen, an increased use of widgets, and an approach to notifications that started out quite different from Apple’s and has only become more differentiated over time.

But Apple doesn’t have a lot to win by going after Android directly. Google gives away the OS and makes money from it only indirectly, as it encourages more people to use the company’s ad-supported services, such as Gmail and search. That’s why the most likely outcome is for Apple and Google to reach some kind of negotiated settlement.

Negotiation would have been impossible while Steve Jobs was alive, by the way. He was furious at the ways in which he perceived Google to be imitating the iPhone and vowed to “go to thermonuclear war” with the search giant to make it stop. Jobs wouldn’t have rested until Apple extracted some kind of painful concessions from Google.

Cook, however, is a more practical, approachable man: a relentless competitor, yes, but willing to negotiate when negotiation promises a better outcome at a lower cost. Rather than transform the landscape of Silicon Valley into a smoking legal wasteland, Cook will probably take the route most companies with huge patent portfolios follow: detente. Google has its own suite of mobile patents, thanks to its recently complete acquisition of Motorola, and is seeking to use them to stop the import of iPhones and iPads into the U.S. In return for calling off that threat, Cook is likely to offer Google CEO Larry Page a compromise: Don’t sue us, and don’t copy us too directly, and we won’t sue you.

A peace between Google and Apple has a chance of working, because the two companies’ fundamental businesses are so different. Apple makes its money from selling hardware and software (and to a certain extent media); Google makes its money from selling ads.

Meanwhile, expect Apple to aggressively pursue handset and tablet manufacturers whose devices — or particular implementations of Android — hew too closely to Apple’s model. These hardware makers’ revenue streams are simply too close to Apple’s to allow any sort of compromise. For Samsung, HTC, and Nokia: no mercy.

Photoshop work by Tom Cheredar/VentureBeat