Are The Old Enablers Becoming The New Gatekeepers?

from the watch-out dept

We've argued, for a long time, that just railing against "middlemen" misses the point. There are always middlemen. But not all middlemen are created equal. The distinction, that we've discussed multiple times, is the difference between enablers and gatekeepers. That is, historically, many middlemen came to power because they were gatekeepers. If you wanted to do something -- be a musician, write a book, sell a new product -- you effectively had to get "approval" and support from a gatekeeper who had access to those markets. Being a gatekeeper gave them enormous power, such that the gatekeepers often became central to the market, rather than the people/companies they were working with and it also allowed them to craft ridiculous deals that were incredibly favorable to themselves, at the expense of those they were working with. That, of course, is why there tends to be so much inherent antipathy towards traditional gatekeepers.

In contrast to that -- and what we found most exciting about many of the new companies that had popped up over the last decade or two -- was the rise of middlemen as "enablers." These were situations where the middlemen weren't gatekeepers, and weren't "required" to do what you wanted to do. Instead, they were companies that helped give people/organizations a lift up on what they were trying to do, while keeping them and their work (rather than the middlemen) central to the market. So, when you see things like eBay or Etsy or Kickstarter, those are more enablers (and, yes, they do have some restrictions on use, but they're more policy based, rather than "can you make us money"-based).

Of course, the truth is that there's a spectrum along which these middlemen lie. It's not two separate buckets, where "enablers" are here and "gatekeepers" are there. Rather, intermediary companies often fall somewhere along that spectrum. It seems somewhat clear that, for the most part, newer firms are becoming successful by being enablers, rather than gatekeepers. But... they don't necessarily remain enablers their whole lives. One thing that is worth paying close attention to, is how companies shift over time, and when they start to shift from being enablers to being gatekeepers.

In fact, it seems like some of the big "clashes" we've been seeing in the tech/web world lately are along those lines. Lots of people have talked about Instagram and Twitter fighting with each other, which is just the latest in a series of "fights" among hot web companies blocking each other. Considering that many of these companies grew up on a web 2.0 ethos of openness and sharing -- and we're now watching them get more locked down, proprietary and limiting -- it seems obvious that some of these companies are moving along the spectrum from enabler to gatekeeper.

Anil Dash recently wrote a great post in which he frets about the fact that we're effectively losing key parts of the open web, which made the web great. You should read the whole post, as I couldn't do it justice summarizing it here. Again, it seems like many of his points are really about some of the more successful "internet" companies moving along that spectrum more towards the gatekeeper side of things, and that clashing with the more open spirit that the enablers built their reputations on. Dash, rightly, points out that this is self-correcting over time. We shouldn't necessarily fear the new gatekeepers, mainly because a gatekeeper business model, while lucrative in the short-term, is unsustainable in the long term. Companies, which move along that chain chasing the easy money, need to learn that they do so at their own peril. Becoming a gatekeeper merely opens up massive opportunity for a new enabler to disrupt you. That's a lesson that too many companies learn way too late.

That said, Dash fears that because a new generation is growing up in a world with more closed systems, that we may lose some generational knowledge of what came before:

This isn't some standard polemic about "those stupid walled-garden networks are bad!" I know that Facebook and Twitter and Pinterest and LinkedIn and the rest are great sites, and they give their users a lot of value. They're amazing achievements, from a pure software perspective. But they're based on a few assumptions that aren't necessarily correct. The primary fallacy that underpins many of their mistakes is that user flexibility and control necessarily lead to a user experience complexity that hurts growth. And the second, more grave fallacy, is the thinking that exerting extreme control over users is the best way to maximize the profitability and sustainability of their networks.

The first step to disabusing them of this notion is for the people creating the next generation of social applications to learn a little bit of history, to know your shit, whether that's about Twitter's business model or Google's social features or anything else. We have to know what's been tried and failed, what good ideas were simply ahead of their time, and what opportunities have been lost in the current generation of dominant social networks.

I both agree and disagree. I'm among those who get a bit frustrated when I see new entrepreneurs trying something that was done before -- and they seem to have no knowledge of it (ditto for reporters who cover the big "new thing" without mentioning that half a dozen companies did exactly the same thing a decade earlier). But, some of that, I'll admit, may just be the onset of old fogeyism. Yes, there's value in knowing the past, and learning from it, but there is also value in the naivete with which some new entrepreneurs jump into the pool -- often not fully understanding the past. Will they repeat some of the mistakes? Sure. Absolutely. But not being burdened with the past can sometimes be a key ingredient in redoing something that failed in the past, and in somehow making that slight unexpected tweak that just makes it work.

So, I agree wholeheartedly that the "new gatekeepers" mean that we've lost some sense of what made the last generation of internet companies great. And I do hope that the next generation that comes along can similarly disrupt the last generation, often by being the enablers that break up their new gatekeeper role. And I think that companies who understand the history of how enablers disrupt gatekeepers should understand why progressing down that spectrum in search of short-term profits can lead to long-term pain. So I think it's wise for those companies to learn from history. But I'm less worried about the new entrepreneurs jumping into the space. They'll likely find their opportunities in being the new enablers, because that's where the disruption occurs.

Watching the cycles of innovation can be a fascinating (and at times frustrating) past time. Companies make the same mistakes over and over again. The ones, which actually don't fall for the usual traps, are few and far between. But, in the long run, the new startups tend to be pretty good at showing the old guard that they chose the wrong path.

Filed Under: enablers, gatekeepers, innovation, intermediaries, middlemen, progress

Disruptive Innovation: Bad For Some Old Businesses, Good For Everyone Else

from the also-known-as-'progress' dept

I recently joked that it felt like the main purpose of Kickstarter seemed to be to convince the world they wanted simplified wallets and fancy ink pens. If you don't spend much time on Kickstarter, you may have missed that those two categories seem to account for a somewhat-larger-than-expected percentage of projects that people find interesting. The wallets, in particular, fascinate me, because there are an absolutely insane number of new wallet projects, with nearly every single one claiming to have reinvented wallets. I had no idea that the wallet market was open to such disruption.

Of course, it may be open to an entirely different form of disruption. As Nick Bilton at the NYTimes recently pointed out, as his smartphone has been able to do more and more, he's beginning to think that wallets may be becoming entirely obsolete. There's almost nothing he still needs to carry on his person since nearly everything that used to be in his wallet can now be taken care of via his smartphone:

Printed photos, which once came in “wallet size,” have been replaced by an endless roll of snapshots on my phone. Business cards, one of the more archaic forms of communication from the last few decades, now exist as digital rap sheets that can be shared with a click or a bump.

As for cash, I rarely touch the stuff anymore. Most of the time I pay for things — lunch, gas, clothes — with a single debit card. Increasingly, there are also opportunities to skip plastic cards. At Starbucks, I often pay with my smartphone using the official Starbucks app. Other cafes and small restaurants allow people to pay with Square. You simply say your name at a register and voilá, transaction complete.

But wait, what did I do with all of the other cardlike things, like my gym membership I.D., discount cards, insurance cards and coupons? I simply took digital pictures of them, which I keep in a photos folder on my smartphone that is easily accessible. Many stores have apps for their customer cards, and insurance companies have apps that substitute for paper identification.

It's not entirely obsolete, but Nick makes a compelling case that it's heading in that direction. To be fair, many of the new wallets seen on Kickstarter are, in effect, responses to this trend. The most popular styles appear to be "simplified" or "minimal" wallets that shrink down what you have to carry, so that you can just take the few essential cards with you. But, it's possible that many people will be able to get by entirely without a wallet in the not-too-distant future.

This, in turn, reminded me of something else: about how disruption may destroy industries while making our own lives better in the process -- but that simple economics tends to do a bad job recognizing that. I've talked about how traditional economic measures might measure the wrong thing. So, if we're looking at wallets, for example, those in the wallet-making business might claim that this move towards the digitization/smartphonification of everything is "bad" for the "wallet industry." That's obviously silly, and most people aren't too concerned about the wallet industry. But that ignores just how many industries are being totally upended by the smartphone. Think of all the things you don't need any more due to the smartphone. A few months back, the Cato Institute put together a fun chart on "dematerialization" due to the smart phone, trying to make the argument that advances in technology, such as the smartphone, might also be good for the environment, since they lead to people needing a lot fewer physical devices, since they're all packaged into that tiny device in your pocket: Of course, what this also points out is the nature of disruption and innovation. Disruptive innovation, by its nature, destroys entire industries or segments of industries by making them obsolete. If you simply measure the economic impact on the fact that those industries are no longer present, or that those products are no longer being sold for hundreds of dollars, you could argue that there's a negative impact on the economy. But, if you flip it around and look at (a) how much better our lives are, in that we have access to all that at the touch of our finger tips in a single smartphone, and (b) that as compared to buying all those other devices, individuals actually get to keep more money to themselves (though, not necessarily in their now obsolete wallets) to be spent in more productive ways, it seems like it's actually a really good thing.

But this is something that we often struggle with from a policy standpoint. While no one claims to be missing "the fax" industry, lots of industries at risk of disruption will do all sorts of things to angle policy makers into blocking that disruption, by arguing about the economic impact of their own industries, and falsely implying that, if they're disrupted away, all of that money somehow "disappears" from the economy. But the nature of innovation is that we make things obsolete by making other things better and more powerful and changing the way we do things. The end result is, generally speaking (and, yes, there are exceptions), better for everyone, enabling them to do more with less and do so more productively. Whether it's a "wallet" or the entire list of things in the graphic above, progress has an amazing way of destroying old ways of doing business, and we shouldn't fear or worry about that, we should celebrate it.

Filed Under: advancement, dematerialization, disruption, economics, innovation, progress, wallets

Corruption Laundering: The Art Of Manipulating Regulations To Block Innovation

from the plausible-deniability dept

A bunch of folks, including James Allworth himself, sent over James Allworth's excellent post at HBR entitled How Corruption Is Strangling U.S. Innovation. If you're a frequent Techdirt reader, there is little new here, though much you'll likely agree with. It details how many legacy companies use questionable regulations to hinder disruptive upstarts who are challenging their businesses via unique and innovative means. It covers a bunch of different fields or situations where this is seen: autodealers going after Tesla for daring to sell cars direct, perpetual copyright term extension that appears to be much more a function of the age of Mickey Mouse than promoting the progress, how companies like Uber and Airbnb have had to deal with a bundle of local regulations on taxis and hotels, and how Comcast doesn't count its own video content towards your download cap, but Netflix's traffic does count.

It's a great article, but the thing that struck me about it is how it would be possible for people to explain away the corruption in each case as having a legitimate basis. That's what's really pernicious here. Allworth calls out Larry Lessig's book, Republic, Lost which often tries to drive this point home by calling it "soft corruption." That is, we're generally not talking about overt corruption, the kind where someone is handing briefcases full of cash over to politicians. It's much more subtle. What you get are legacy companies who fear disruption -- and they are able to make the case that the "disruption" should be illegal because it's scary to the incumbent. That is, "we must shut down this new innovation x, because it will destroy industry y, and industry y is important to America because of all the jobs it creates!" Or, it's "we need to carefully regulate industry z, because if we don't they'll take advantage of customers!"

And, thus, there are legitimate-sounding reasons for these kinds of regulations, and supporters of them always hit back on the corruption charges, claiming that "of course, it's not corruption -- politicians are just protecting jobs / children / etc."

There's a myth out there that businesses hate regulations. That's only partially true, and it's only true in limited cases. In many industries -- especially highly regulated ones -- the incumbents often love regulations because (a) they have enough power to control the regulations, (b) they know their way around those regulations better than anyone else, (c) those regulations quite frequently limit competition and (d) those regulations quite frequently effectively block out any form of disruptive innovation by stopping it entirely.

Perhaps what this is all about isn't properly conveyed by just calling it "corruption," or even "soft corruption." I think it's better described as corruption laundering. It is corruption, but it's done through this regulatory framework to make it look, sound and (in some cases) feel perfectly legit to many people, making it much easier to keep those regulations in place. The corruption is "cleaned" of its dirty connotations because it can be wrapped in a cloth (though bogus) of "protecting jobs" or "protecting your safety." It is corruption, but the truly nefarious part is that the corruption is done in such a way that there is plausible deniability over whether or not it is truly corrupt. And that's what makes it so difficult to root out this form of corruption. It's all been white-washed in a way to have a plausible explanation, even as the pace of important innovation suffers drastically.

Filed Under: competition, corruption, innovation, politics, regulations

VCs Successfully Fund Lawsuit Against Best Buy After It Completely Screws Over Startup

from the stopping-bullies dept

I recently heard a story of yet another startup which had been hit by a bogus patent troll lawsuit. As always, it would be cheaper to just settle the lawsuit than to fight it in court, even though they knew that they would win. In this case, the CEO said he was going to fight it anyway because it was "the right thing to do" and to ward off future trolls. That, of course, is the worst part of troll lawsuits: the reason they work so well is that it's cheaper to "lose" and pay the troll than to "win" in court. Obviously, the SHIELD Act looks to change some of that calculus by making trolls have to pay up for bogus lawsuits. However, in general, plenty of startups can tell stories (beyond just patent trolls) in which they "settled" some sort of legal dispute, rather than did what's "right" and to win in court. Frequently, this is driven by the pressures from investors and venture capitalists, who don't want to fund lawsuits but high growth companies.

Of course, many realize that settling or foregoing a legal response in such cases can often make the situation worse, because it attracts more such activity from companies who know they can get away with it. I'm thinking of that after reading this fascinating story by famed venture capitalist, Josh Kopelman, in which he discusses why he and another investor in the startup TechForward financed a lawsuit against Best Buy. You should read the whole thing, but the short version is that Best Buy approached TechForward about using its system to create a "buyback" program. They signed some non-disclosure agreements, leading TechForward to share a bunch of confidential info about their model with Best Buy. Best Buy proceeded to take that info, and then tell TechForward "no thanks." Of course, it came out that the plan all along had been to get access to TechForward's model to build Best Buy's own. Due to the amount of resources (over a year) that went into trying to get the deal, having Best Buy pull it out from under them left TechForward in a bad position, and its assets were sold off. But the VCs kept funding the lawsuit:

Best Buy's last minute actions posed a fatal blow. Techforward sued Best Buy – but it would take a very long time before the case made it through trial. And since Techforward had invested so much money working on the Best Buy deal, the cash position of the company was not looking good. The board ultimately had to make a horrible choice – they sold Techforward's assets to a third party. BUT – they did not sell the lawsuit. Instead, First Round Capital (along with our co-investor, NEA) decided to keep funding the lawsuit. And over the last 18 months, we and NEA gave the lawyers hundreds of thousands of dollars to keep the suit going. This wasn't an easy decision. We are in the business of funding companies – not lawsuits. But my partner, Howard Morgan, was a board member of Techforward – and he sat in those board meetings. And Howard was convinced that Best Buy shouldn't get away with their behavior. We needed to send a message to Best Buy – and every other large company – that they can't blatantly violate agreements and steal ideas from startups. And if big companies believe they can violate agreements with immunity because a startup can't afford to sue them, it is bad news for every startup in the ecosystem.

The end result is that a jury sided with TechForward, awarding it a $22 million award, along with an additional $5 million in punitive damages as response to the action being willful and malicious. The details show that Best Buy employees were pretty blatant about their plan to lead TechForward along, get access to its model, and then copy it. In one email exchange between employees, they even said directly "...remove the Techforward reference in the file names..."

A couple of thoughts on this. It is incredibly rare and surprising to see VCs like Josh and Howard agree to do this kind of thing. I can't recall a single instance of VCs agreeing to fund a lawsuit like this. However, as with the CEO fighting the patent troll, there's an important signalling aspect to this decision. Letting companies know that they can't just rely on VCs not wanting to fund such a lawsuit might lead some big companies to think twice before trying to take advantage of smaller companies. Hopefully more venture capitalists will agree to do similar things.

The second interesting tidbit: this kind of lawsuit got figured out without using a patent. We always hear about how patents are "necessary" to stop big companies from just copying small companies -- but what this showed was that (1) it's not always so easy to copy without more detailed knowledge and access and (2) even if such access is granted, it can be done so conditionally (such as with an NDA, as in this case) allowing for the sharing of information, without having to use a tool like a patent or a copyright. Hopefully more investors will do similar things, recognizing not just the wider social benefit, but in scaring off other companies from either filing bogus lawsuits of their own, or just taking questionable actions towards the companies.

Filed Under: breach of contract, bullies, howard morgan, innovation, josh kopelman, lawsuits, venture capital
Companies: best buy, techforward

Once Again: High Tech Jobs Are Important, Growing And Everywhere

from the so-maybe-don't-try-to-muck-it-up dept

A few months ago, we wrote about a presentation from the Bay Area Economic Council, in association with Engine (I'm on their steering committee, but had nothing to do with this), showing that high tech jobs were a high point in the economy. Unlike many other sectors, those jobs were growing -- and contrary to what many believed, they weren't just concentrated in one area, but were spread out across the US. Furthermore, their economic contribution tended to be significant. Basically: the tech industry is increasingly important to our economy, and policy makers should be careful not to muck that up. This week, the Bay Area Council Economic Institute, commissioned by Engine, put out the full report on this, entitled Technology Works: High Tech Employment and Wages in the US (pdf). Once again, it highlights the importance and success of the tech industry. A few high level points:

• Since the dot-com bust reached bottom in early 2004, employment growth in the high-tech sector has outpaced growth in the private sector as a whole by a ratio of three-to-one. High-tech sector employment has also been more resilient in the recent recession-and-recovery period and in the last year. The unemployment rate for the high-tech sector workforce has consistently been far below the rate for the nation as a whole, and recent wage growth has been stronger.
• Employment growth in STEM occupations has consistently been robust throughout the last decade, outpacing job gains across all occupations by a ratio of 27 to 1 between 2002 and 2011. When combined with very low unemployment and strong wage growth, this reflects the high demand for workers in these fields.
• Employment projections indicate that demand for high-tech workers will be stronger than for workers outside of high-tech at least through 2020. Employment in high-tech industries is projected to grow 16.2 percent between 2011 and 2020 and employment in STEM occupations is expected to increase by 13.9 percent. Employment growth for the nation as a whole is expected to be 13.3 percent during the same period.
• Workers in high-tech industries and STEM occupations earn a substantial wage premium of between 17 and 27 percent relative to workers in other fields, even after adjusting for factors outside of industry or occupation that affect wages (such as educational attainment, citizenship status, age, ethnicity and geography, among others).
• The growing income generated by the high-tech sector and the strong employment growth that supports it are important contributors to regional economic development. This is illustrated by the local multiplier, which estimates that the creation of one job in the high-tech sector of a region is associated with the creation of 4.3 additional jobs in the local goods and services economy of the same region in the long run. That is more than three times the local multiplier for manufacturing, which at 1.4, is still quite high.

These are all important points, but the biggest one may be that tech work encompasses so much these days. It's not just "Silicon Valley" at all, but all kinds of jobs for all kinds of companies. Tech isn't an industry. It's not just a job function. It's a part of nearly every aspect of our economy.. It makes other parts of the economy more efficient and increases opportunity in many different areas. And because of that, "tech" jobs are growing all over the place. When I see that (as the report notes) places like Boise Idaho, Augusta, Georgia and Peoria Illinois are seeing the greatest amount of high tech job growth, that's a really good sign. We run into problems when all you have is a "company town" where an entire industry is based out of one place. This isn't about "the tech industry" but the fact that every single industry is a tech industry, and tech jobs are everywhere -- and, given their economic impact, incredibly important.

Filed Under: economy, growth, high tech, jobs

How The Video Game Industry Was Launched 40 Years Ago... Thanks To Infringement

from the well-look-at-that dept

Chris Stokel-Walker, over at Buzzfeed, has an absolutely fantastic feature article all about the creation of the video game Pong by Atari. 40 years ago, this week, Atari delivered the first 12 Pong machines (outside of a prototype at a local bar that proved how addictive the game was). The full article is wonderful, with tons of well-researched details. You should absolutely go read it. But one bit that might be interesting to folks around here: this game, which nearly everyone agrees launched the entire video game industry (now pushing $80 billion per year), was based on infringement. Actually, it looks like Atari's founding was basically based on copying games. Before Pong, it had a different video game console, called Computer Space, which was basically a copy of Spacewar!, a game created by MIT student Steve Russell in 1962.

However, it was Pong that set the world on fire. And... it was almost entirely based on Nolan Bushnell copying someone else's idea:

Meanwhile, the first TV-based home console, the Magnavox Odyssey, designed by gaming-industry forefather Ralph Baer, was being released. The Odyssey was demonstrated in Burlingame, California, on May 24, 1972. "It turned out that Al started at Atari almost exactly the same day I went up to see the Magnavox game," says Bushnell. Around the same time, Baer was at Tavern on the Green in Central Park, sitting amongst the 30 or so East Coast retailers to whom his employers were trying to sell his creation. Beaming with pride, Baer could barely sit still. "The entire Magnavox product line for 1972 was displayed there," he explains. "That included the Odyssey game, which was the hit of the show." One of the games on the Magnavox console was a version of tennis.

"I thought the game was kind of crappy," Bushnell says. Yet people were lining up to play it, "and they were kind of having some fun. I thought, If they can have fun with this shite" — Bushnell breaks off into a hearty laugh — "if it can be turned into a real game, that'd be great." On the drive back from the demonstration, "I got thinking of ways it could be improved."

Boom. Bushnell had someone on his team: re-create that basic tennis-like game for arcade machines. And that's what they did. But, they made some improvements. This is, of course, the nature of how innovation works. Two key steps: build on the idea that you see elsewhere... and figure out a way to make people love it. And that's what happened. This, once again, highlights the difference between invention and innovation in a fairly striking manner. And, while the creator of the Magnavox tennis game, Baer, wasn't thrilled about it, the article makes it clear he grudgingly admires Bushnell's ability to take that silly game and turn it into a giant industry.

Baer, the inventor of the Odyssey, is to this day ambivalent about his competitor. "Mr. B. didn't 'invent' anything," Baer, now 90, told me via e-mail, "but he started a whole industry, the arcade video game industry. Give the man credit for that achievement. He just simply didn't invent anything."

So here's the quick question: which action here was more valuable? Baer's or Bushnell's? This is one of the issues that we've tried to make for a while. For all the talk of how infringement "harms" the inventor, if someone else can build a massive market where the originator failed, isn't that better for society and the economy?

Oh, and part of the reason that the industry itself became so big, was because tons of others jumped into the market as well, often copying Atari (and, eventually, figuring out how to do it better -- which is why consoles today are from Nintendo, Microsoft and Sony... rather than Atari).

Other developers, big and small, saw the runaway success of the game and brought out their own clones to take a slice of Pong's pie. Allied Leisure released around 20,000 cabinets of Paddle Battle in March 1973. Nutting Associates, the company Bushnell and Dabney had worked with to release Computer Space, ended up releasing Computer Space Ball, which was strikingly similar to Pong. There was Paddle-Ball from Williams Electronics, and Rally from For-Play. Midway Manufacturing, then a pinball machine company, dipped their toe into the waters of arcade games with Winner in 1973.

In fact, as various studies have shown, with a developing market, it actually helps quite a bit to have lots of copying going on, because it basically cuts the marketing costs of developing that market a ton. That was clearly true with the video game market:

These manufacturers doubled down on their advantage: Not only could they piggyback on Pong's PR success, they did not have to take into account the cost of developing the game: They could simply lift its internal machinery wholesale.

Yes, the article highlights that eventually Bushnell had to pay off Magnavox, after they pulled out a broad patent "regarding interaction between machine-controlled and player-controlled elements on the screen," but Bushnell insists that he only paid out because the settlement costs were half of what it would have cost to have won in court (sound familiar?). Once again, the article quotes Baer admitting that even if he invented the game, credit has to go to Atari:

"That's the business," he says. "Most inventions are based on some prior history. Al Alcorn knew absolutely nothing about the existence of the Odyssey game — he deserves the major credit for getting Atari started successfully."

The thing is, this isn't a unique story by any stretch of the imagination. Look into the histories of lots of developing industries and you see the same basic thing. Lots and lots of copying and building off of each other... and quite frequently it's that very fact that leads to those industries being so successful. Yet, we look to shut off that possibility due to an over-reliance on things like intellectual property, which hinders that kind of market development.

Filed Under: infringement, innovation, invention, nolan bushnell, pong, video games

PeopleBrowsr Gets Temporary Restraining Order Against Twitter For 'Felony Interference With A Business Model'

from the someone-else's-bitch dept

For years, we've seen so many legal disputes that could be jokingly described as arguing "felony interference of a business model" -- a term coined by Steven Bellovin a while ago as shorthand for lawsuits that are much more about a company who bet on the wrong business model, than any actual legal wrongs. Normally, this relates to legacy companies upset at upstarts who win through the disruptive judo of taking a totally different approach. But it can be seen in other arenas as well. We've also talked, for example, about how odd it is that some companies appear to base their entire business on what some other company does -- and they seem wholly unprepared for a situation in which the company they are 100% reliant on changes. As venture capitalist Fred Wilson has summarized, a good company can't be someone else's bitch.

Both of those concepts seem relevant given the news that a startup called PeopleBrowsr has successfully obtained a temporary restraining order against Twitter for changing how it doles out access to its "Firehose" (i.e., the raw stream of all public tweets). As has been covered widely, over the last few months, Twitter has really clamped down on some of its more open practices lately. I actually agree with many people that I'm not sure this is a smart long-term business move, but I can't see how it could possibly be a legal violation. Yet, that's what PeopleBrowsr appears to be claiming. Of course, its Firehose offering has long been an offering that companies had to work out a deal with Twitter to get access to, so even then it was never fully "open."

As part of the changing business strategy, Twitter has cut off many of its "Firehose" partners, including PeopleBrowsr. In response, PeopleBrowsr sued arguing that this change has a negative impact on PeopleBrowsr's business (apparently true), and thus it must be illegal. The company highlights how it has all sorts of highly valuable deals with other companies because of its analytics of Twitter's Firehose.

PeopleBrowsr's products are highly valuable to its users, who utilize them to extract relevant information from the massive Twitter stream, as well as to organizations marketing their messages or brands. PeopleBrowsr has entered into valid contracts including: (1) a three-year, $3 million contract with defense contractor Strategic Technology Research, (2) a long term, $400,000 contract with Cadalys to build a customized Kred application, (3) a long term, $300,000 contract with Radian6 to incorporate Kred into its products, (4) a long term, $400,000 contract with Badgeville to incorporate Kred into its products, (5) a contract with Mashable to power its mRank product through PeopleBrowsr's API, and (6) a contract for at least one year with DynamicLogic, worth at least $75,000. PeopleBrowsr has business relationships that are likely to ripen into new business with firms including Dell Computer, Demand Media, Ogilvy, Bell-Pottinger, and CBS Interactive, among others.

It is not difficult to understand why PeopleBrowsr is upset that Twitter decided to end the relationship, even as PeopleBrowsr claims to pay over $1 million a year to Twitter for access to the Firehose. The key argument that PeopleBrowsr makes, is that Twitter has, in the past, made various statements concerning its embrace of an open platform that allows others to build on top of their work. But I'm not sure why that's actually relevant here. PeopleBrowsr obviously knew that Firehose wasn't completely open since it signed two separate licensing agreements with Twitter (according to its own filing). In fact, they explicitly note that the agreement has a termination provision, so PeopleBrowsr had to know it was a possibility. In addition, most of the statements about openness that PeopleBrowsr cites, are vague statements about the importance of openness. Even the specific comments about keeping Firehose open are things like an engineer noting that he's "fighting to keep access to the Firehose and other API's as open as possible," which should have clearly indicated to PeopleBrowsr that the entire company was not in agreement, and there was a very real chance that it would not remain so open.

In the end, it really seems like the problem is entirely PeopleBrowsr's for building a business in which it relied almost entirely on a single relationship, and did not set up the contract to ensure that relationship would not go away. Again, I'm not sure that Twitter's strategy here is smart, but it's difficult to see how it's illegal. The problems seem entirely self-created by PeopleBrowsr. It even seems to admit that it bet its entire business on this fact, without securing a contract that they knew would last.

The Firehose is an essential input for PeopleBrowsr's business. PeopleBrowsr's products function by creating a comprehensive view of Twitter activity, and a mere sample of Twitter's data is not sufficient to provide the sophisticated analytics PeopleBrowsr's clients have contracted for.

All that says is that perhaps they shouldn't have put things in their client contracts that they really couldn't promise they'd have access to -- or they should have put together a much more solid agreement with Twitter in the first place. While PeopleBrowsr may have won a temporary injunction, preventing Twitter from turning off its access to Firehose for the time being, it seems like a massive long shot to think that it can possibly win this lawsuit. Yes, it sucks that the one partner you bet your business on is changing its own ways of doing business, but that's what happens when you bet your business model on being someone else's "bitch."

Filed Under: business models, contracts, firehose, interference
Companies: peoplebrowsr, twitter

Russian Supreme Court: ISPs Need To Proactively Block 'Illegal Content'

from the that's-not-going-to-go-over-well dept

We've been covering Russia's moves towards increasing censorship of the internet over the past few months, including passing a dangerous new law that appears to be focused on being able to directly censor sites that the government doesn't like.

Now the Russian Supreme Court may have just made it even easier for Russia to stifle speech online. A new ruling has said that ISPs need to proactively block access to "illegal content" or they could "lose their license" to operate. Specifically, the court found that there is no difference between allowing access to illegal information and disseminating it yourself. The law firm Baker & McKenzie summarized the findings which had to do with whether or not it was illegal for an ISP to allow access to an online gambling site, despite gambling being illegal:

The Supreme Court ruled that is it unlawful to disseminate information that is restricted in accordance with Russian law, including, but not limited to, on gambling. The court further concluded that provision of access to restricted information is equal to dissemination of this information. The court thus found that a telecoms company de-facto disseminates restricted information by providing access to websites containing this information.

The court concluded that Rostelecom must take measures to technically block its clients’ access to restricted information. Following the Supreme Court’s rationale this requirement applies irrespective of the location of the servers containing such websites.

That's a startling and dangerous finding. Basic common sense would suggest that there's a world of difference between merely being the conduit to information and actually putting forth that information yourself. In the US, this is why we have various safe harbors, to avoid ridiculous situations where the platform/service provider is blamed for the actions of users. But, apparently, the Russian Supreme Court has no concept of secondary liability and has squashed it all down into primary liability. If you're a Russian service provider, you should be afraid. Very afraid.

A ruling like this could quite easily stifle Russia's internet industry, as it will make it prohibitive for most companies to operate, given the potential liability -- especially given the new rules about what might be considered illegal online.

As for why it will likely increase censorship, beyond the obvious, you need look no further than China, where the famed "Great Firewall" tends not to be based on a blacklist of "illegal" sites, but by a similar belief that an ISP is liable for any "bad" content that users are able to access. As such, the default is to overblock. Basically block anything that the government might deem to be illegal, just to avoid legal liability. Given Russia's recent crackdowns, it seems quite likely that ISPs will take a similar "block first, deal with any questions later" approach, rather than risk liability.

Filed Under: censorship, free speech, isps, russia, secondary liability

One Step Closer To Real Medical Tech Breakthrough... If Immigration Law Doesn't Get In The Way

from the so-close dept

Six years ago, we wrote about Andy Kessler's fascinating book, The End of Medicine, which got me to totally rethink how nearly every society approaches healthcare today. Even though the book is years old, I recommend it frequently. The key issue is that we still tend to treat healthcare as something driven by two key industries: pharmaceuticals and insurance. However, the book is based around the idea that, in pretty much every other industry, technology tends to (1) get better and (2) get cheaper. But that doesn't happen much with healthcare -- and that's because it's all about insurance and drugs. That means it's really about treating the symptoms, rather than actually trying to prevent problems.

One story in the book that has stuck with me is the description of a possible home-based heart scanner. The argument was that we really aren't that far off from being able to wake up in the morning, walk into the bathroom and scan your body, such that your computer (or phone?) would immediately pop up a 3D scan of key internal organs, such as your heart, allowing you to see if everything's okay. No waiting for chest pains before you get your heart checked out. Why not check out your heart every single day, and have the 3D model immediately available?

We're not quite there yet, but a few months ago, I was introduced to Dr. Fabien Beckers and his co-founders of the fascinating startup Morpheus Medical -- and when he described the product they were working on, which some have called "a Google Earth for cardiologists", I immediately recalled that product from Kessler's predictions. Morpheus is building an amazing product, where a simple heart scan creates a 3D model of the heart non-invasively and shows flows and pressure. Morpheus doesn't go quite as far as the example in Kessler's book yet, but this is a serious team and the existing product looks amazing. You can read a bit more about the offering here. Among the key features is the fact that they can just use data from a quick MRI to build this 3D model and show all sorts of useful data to doctors at a fraction the cost of what's out there today. A product that is cheaper, faster, better and can help keep people healthy? It seems amazing.

The team leading the company really is a bunch of all-stars. Dr. Beckers has run a series of companies, often driven by the ability to use technology to advance social good. For example, before Morpheus, he built and ran a company called Kameleon Technologies -- which was initially built off the idea of helping design a better guidance system for the blind. That technology then expanded to be useful in the consumer space, using the same concept to create interactive billboards for advertising purposes, called Mobizone. And, oh yeah, he has a PhD in quantum mechanics from Cambridge University -- hence the "Dr." title. The rest of the team is equally talented. The origin of the company came from a meeting between Dr. Beckers and John Axerio-Cilies, who was working on a PhD in fluid dynamics at Stanford. Add to that Albert Hsiao who has a PhD in bioengineering, and Shreyas Vasanawala, an associate professor at Stanford whose own works is focused on pediatric MRIs, and it's a monster team of innovators building an offering that I hope drives the healthcare revolution in the direction that Kessler described in his book.

It will not surprise some that the biggest roadblocks the company may face are regulatory, rather than technological. But the amazing thing is that the biggest one may be immigration regulations. You see, Beckers, who put the company together and has been instrumental in building it up, is not an American citizen, and due to our immigration policies, there's a very real chance he can't get a visa to stay in the US. Is this really the sort of thing that the US wants to be known for? Kicking out pioneering innovators like Dr. Beckers as he seeks to build a company that can really drive the healthcare market forward would be a massive loss to the US and the public at large, especially if it leads to difficulty in keeping the company going. I know the experience first hand, having tried to start a company many years ago, where my partner couldn't get the appropriate visa, leaving us unable to proceed.

Years after reading that Kessler book and imagining a world where we might finally focus on using technology to really solve healthcare problems outside of the pharma industry, I'm hopeful that we may finally be near such a world. Hopefully our short-sighted immigration policies let that kind of innovation move forward (and move forward here in the US).

Filed Under: andy kessler, fabien beckers, healthcare, heart scans, immigration, innovation, mri
Companies: morpheus medical