Blake Borgeson, in blog form

suspected facts. validated opinions.

should everything people use be free?

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People justifiably have strong opinions on the “everything’s free” model that google, facebook, linkedin (mostly), and most of the biggest up-and-comers in the new web espouse.  The conversation reached mass proportions a while ago when it made the cover of Wired, but I found a couple more interesting perspectives this week, and they tie in well together:

  • The economics of creativity – This post comes from James Currier, founder of Ooga Labs, the company behind the Medpedia project, which looks awesome.  He tells of how his great-great-grandfather married into royalty for his musical abilities, while today it’s tough for an incredibly gifted pianist to make ends meet.
  • If someone can do it for free, it will inevitably be free – a discussion at Hacker News (of YCombinator) with (yep, you guessed it) some more good insights from Paul Graham.  [Click the link at the top of that discussion if you’d like to read the blog post the discussion references.]

[ I wrote this two weeks ago, so that discussion above at YC is a little stale.  Didn’t post it right away for some reason. ]

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August 15, 2008 at 2:31 pm

doha trade talks collapse: it matters, and it’s bad for us

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It started popping up in the news throughout Tuesday, and got the front-page writeup Wednesday: after 7 years of trying, the Doha round of free trade talks have been declared over with zero agreed on.

The NYTimes and others write in detail about what the US says on one side, and what India and China say on the other, about what went wrong, and who’s the stubborn one that cares more about guarding against risks to their own pocketbook than moving forward the world economy.  But, like a lot of news, there’s very little discussion of why anyone should really care much about all this.

I believe the standard position I hear from economists: that the principle of free trade is good, just like free markets in general, but that it causes problems for the people on the losing side of the equation when wealth and jobs are redistributed within a country and throughout the world.  Still, it’s not second nature for me to think of what some real ramifications could be of free trade stopping its recent forward march, or of turning around and retreating.  But I happen to be reading a book that does a fine job of discussing that.  Saving Capitalism from the Capitalists, which generally is about the benefits, causes and curses of free markets, spends some time on free trade, and its importance to free markets and competition within a country, so I thought I’d share a few lines.

First, a huge problem free markets generally run up against is the whims of democracy.  To illustrate this, the authors discuss what happens once a country has had a free market for a time–long enough to have some very successful large companies that now dominate their industries.

Those in power–the incumbents–prefer to stay in power.  They feel threatened by free markets.

So you’ve got big, successful companies that now dominate their industries and have tons of cash, and these guys are looking to put a bit of a damper on the “free” aspect of markets and competition to maintain their position.  The winning firms want to hold onto their power.  They’ve got cash.  The distressed (to a large extent, the ones who lost their jobs) are numerous, loud, and rally in the name of reversing the damage.   In their words,

…incumbent groups ride the coattails of the distressed back into power.

The two groups combine their political influence to enforce regulations on the market.  For the dominant companies, the goal is to restrict competition.  For the distressed workers, it’s to bring about a system more like the old days, with less risk and less change foreseen.  The main defense against regulating away competition, which eventually makes the industry stagnate and under-perform compared to the industry in other more competitive countries,  is opening the country’s borders to allow trade with other countries.  Competition from the outside prevents our government from regulating markets out of existence in the name of smoothing risks and preventing further damage to the distressed.

Open borders limit the ability of domestic politics to close down competition and retard financial and economic growth.

Why don’t we hear about the effects of closed borders on developed countries more these days?  Mainly, the authors believe, because these days it’s quite hard for developed countries to successfully keep out foreign competition, given how open the world as a whole has become.

A country’s borders are porous.  When the rest of the world is open, it is difficult for any single country to put up barriers to the flow of goods, capital, and people.  … So when the world is open, its borders will perforce be open unless it is a police state.  Incumbent interests will be subdued.

But if we allow the world as a whole to drift backwards, we risk those rules of the game changing significantly. Countries have the ability to close their borders en masse and keep out competition to protect incumbents and ailing industries.  The Doha Round of talks, at the beginning, was supposed to outline a set of commitments among most of the largest economies in the world to continued opening-up of borders and freeing-up of markets that are currently not very free.  In the end, the hope was to at least get everyone to commit to at least keep trade about as open as it currently is.  Unfortunately even that failed.

So let’s do what we can to keep from rolling backwards on free trade.

[Update: As I should have expected, the Economist put out a piece in their latest issue, online just a day after my post, with a lot better treatment of specifically what the eventual goal of the Doha talks at the end were, and what that failure specifically means: The Doha round…and round…and round]

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July 30, 2008 at 11:22 pm

Posted in politics

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some good web finds last week: zembly platform, startup ideas, a postmortem

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If you have been following my friendfeed, you may have noticed I decided sharing my delicious links there was overkill, so I stopped.  Instead, I’m going to try summing up a few interesting blog posts I’ve read and websites I’ve seen this past week.  I may stick to this, I may do it more often, I may stop completely.  I’ll try to keep it to things you may not have seen, and I’ll also try to stay away from really timely stuff, since I probably should have already twittered or posted that if I was going to.  I’ll also probably pull out and post separately for topics that seem worth discussion beyond just “that’s cool.”  So what’s left for this post?  Let’s find out…

+ Launched 6 weeks ago, but I just heard about it: zembly.  Coming out of Sun Microsystems, zembly is an online social simple software development platform, for creating facebook apps, meebo apps, widgets, and iphone web apps.  To explain, you can go to their website (if you can get into the beta, which is somewhere in between private and public I think), see the top apps created so far, copy one over into your account, modify it and publish it to facebook right there, on the spot.  They host the apps for you.  Its functionality is definitely limited so far, but it seems incredibly promising.  We need easier ways for more people to develop and share better software to use all over the place, and the web as a true software platform (level 3 in Marc Andreessen’s world) is a big step in that direction.

+ More VCs, and more people in general, should publish their ideas openly like this: YCombinator: Startup Ideas We’d Like to FundPaul Graham, point man and founder at YCombinator, writes essays about startups and whatever else he thinks is important, and they’re almost all phenomenal.  A few of my recent favorites:

  • Lies we tell kids – unlearning the lies we’re told growing up is hard–are they worth the protection they provide?
  • The future of web startups – web startups are easier to get going than any startups ever have been–what does that mean for their future and the future of the internet?
  • How to disagree – to-the-point guide to constructive argumentation.

+ Writing a postmortem on a failed startup is incredibly valuable to the community, and I’m sure it takes guts.  They often contain excellent insights better shared than kept close, and this is no exception: Monitor110: A Post Mortem.  If you follow fred wilson or brad feld, you’ve seen this already.  If not, here’s the author’s list of the “7 deadly sins” that he believes together prevented the company’s success:

  1. The lack of a single, “the buck stops here” leader until too late in the game
  2. No separation between the technology organization and the product organization
  3. Too much PR, too early
  4. Too much money
  5. Not close enough to the customer
  6. Slow to adapt to market reality
  7. Disagreement on strategy both within the Company and with the Board

Written by blakeweb

July 27, 2008 at 9:42 pm

finally, good statistics: have any mutual fund managers beaten the market?

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We’ve all heard it a number of places over the years, I imagine: actively-managed funds basically never beat the market anymore.  But a study published about a year ago finally sounds like it used the right statistics to answer the question.  It’s covered in this NYT article: The Prescient Are Few.

Here are some excerpts, if you’d rather not click through.

The method:

The statistical test featured in the study is known as the “False Discovery Rate,” and is used in fields as diverse as computational biology and astronomy. In effect, the method is designed to simultaneously avoid false positives and false negatives — in other words, conclusions that something is statistically significant when it is entirely random, and the reverse.

The result:

… when analyzing their entire fund sample, with records through 2006, this proportion was just 0.6 percent — statistically indistinguishable from zero, according to the researchers.

Some likely explanations:

WHY the decline? Professor Wermers says he and his co-authors suspect various causes. One is high fees and expenses. The researchers’ tests found that, on a pre-expense basis, 9.6 percent of mutual fund managers in 2006 showed genuine market-beating ability — far higher than the 0.6 percent after expenses were taken into account. This suggests that one in 10 managers may still have market-beating ability. It’s just that they can’t come out ahead after all their funds’ fees and expenses are paid.

Another possible factor is that many skilled managers have gone to the hedge fund world. Yet a third potential reason is that the market has become more efficient, so it’s harder to identify undervalued or overvalued stocks.

A friendly reminder:

Whatever the causes, the investment implications of the study are the same: buy and hold an index fund benchmarked to the broad stock market.

[thanks to umair haque for including this in ‘Essential Reading‘]

Written by blakeweb

July 14, 2008 at 11:43 am

Posted in investing

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reblog: president bush pardons himself via congress for potential warcrimes

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In this video, we learn about some pending legislation to retroactively pardon the entire Bush administration for certain violations of the Geneva Conventions starting 9/11/01.

via blurb.rahmin.com – press the button – President BUSH PARDON’s HIMSELF via congress for…

Written by blakeweb

July 11, 2008 at 2:31 pm

Posted in politics

Tagged with , , ,

studies show shorter blog posts are the new hip thing

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I’ve initimidated myself out of posting by writing such long posts recently.  That’s about to change.  I may write a long one occasionally, but generally I’ll be posting more links, videos, and shorter thoughts.  I enjoy getting those thoughts from my friends and people I follow through rss from their blogs, and I think I’ll join that party.

I had been planning on using something like tumblr or posterous for that, or just posting that stuff straight to friendfeed, but since it seems like subscribing to people’s blogs is still the easiest way to see what they have to say, I’ll be using this blog to share that sort of stuff.

To start that off, here’s a pretty sweet site you should definitely check out if you use delicious for bookmarks:

http://favthumbs.com/blakeweb

It generated a nice looking thumbnail grid, like searchme, for all my bookmarks.  I didn’t even have to create an account.  I just went to that page, and it pulled up and thumbnailed all my delicious links from delicious.com/blakeweb.  Makes it super-easy for me to find something I bookmarked a while ago.

Oh, and I also rethemed this blog.

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July 11, 2008 at 2:16 pm

umair to business: be sustainable

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Whenever Umair Haque, whom I’ve blogged about here before, saves up some thoughts and posts them and titles them a manifesto, people take notice these.  There’s Fred Wilson’s post from a couple days ago promising to really digest the suggestions; there’s Michael Lewkowitz, whom I didn’t know until today, and who sounds like a sharp vc up in Canada; there’s me, writing this post.  Hey, I count.

I didn’t plan on writing two posts about this, but there was so much to think about once I got into the topic that splitting up the two big questions Umair brings up seemed like the smart thing to do.

I’ll get right to the point.  Here’s another link to Umair’s post, if you’d like to read it first: A Manifesto for the Next Industrial Revolution.  The end of his post gets into suggestions for big sustainable opportunities to pursue, which goes beyond what I think I can talk about in a single post.  This post is about how an existing business can think about sustainability.

How can Businesses Make the World Better?

This question assumes, as Umair strongly believes, that economic progress doesn’t appear to be lining up with improving welfare and prosperity for everyone, as many of us have either hoped or assumed (or for cynics, doubted) it would.

The world is getting phenomenally richer – but the costs of that wealth seem to be endemic poverty for vast swathes of the world’s population, the poisoning of the water we drink, the pollution of the air we breathe, and the fraying of the social and cultural fabric that binds us together.

I agree with him regarding many aspects, (including allocating environmental costs), but regardless I don’t feel like you have to agree 100% with the above statement to appreciate a discussion of how to improve a system that could clearly stand some rethinking.

Restructure your Thinking around Sustainability

The first way to make the world better is a DNA (philosophy, mindset, fundamental strategy in Umair’s vocabulary) shift to sustainability–not just environmental, but people sustainability and market sustainability as well.  Umair says below that technology alone will not achieve a sustainable economy, and I’ll give him that, though as he admits, technological advancement will continue to play a critical role making the world better.  He just calls the DNA shift harder, and he may be right, since it’s a departure from the present course of most businesses.

Even if we invent a magic energy or food source tomorrow, it does the world little good if it’s in the hands of a Bill Gates 2.0 – the amount of new value that’s created is minimized. Conversely, it also does us little good if it’s in the hands of a Ford 2.0, who’ll just push-market next-generation gas guzzlers that put us squarely back into an energy trap.

The real problem is that the industrial economy is riddled with incentives to rip your head off, sell you lemons, maximize so-called “profit” at all costs, and exert power against you – not for you. That’s why it seems that pain, suffering, and value destruction are deeply embedded in the very DNA of our rusting, industrial-era economic system itself.

And that means that though technology is necessary, it’s not sufficient. What’s harder – and what truly unlocks new value – is new DNA. The fundamental question new DNA must answer is this: how do we organize and manage resources so they’re not depleted, crushed, strip-mined, and slashed-and-burned?

We need company and organizational DNA to get reinvented with a long-term view towards creating sustainable businesses and a sustainable world.  For a terrific perspective on that idea, Yvon Choinard’s book about starting and running one of the most sustainable companies out there (patagonia) really opens your eyes to what kind of a shift in mindset Umair is talking about.

Why be Sustainable?  Is it a Moral Imperative?

One reason to go the sustainable route is if you believe it’s a moral imperative–that it’s actually unethical for a business to operate knowingly in a way that is not sustainable, even if it’s legal.  However, as one of the commenters on Umair’s post points out, I think it’s going to be difficult for businesses to come together to agree with that until a new generation of business leaders, raised with all this talk of sustainability, takes hold.  That means you’re putting yourself at a competitive disadvantage by being sustainable, which means that, until the government steps in and regulates industries across the board, allocating environmental and social costs more effectively, sustainable companies are going to be on the down-and-out.

Should businesses sacrifice themselves for the ethical opinions of its leaders, even when not asked by the law? That’s a tough question for a private company.  As for public companies, in the US, leaders get taken to court for acting counter to the interests of shareholders.  To me, this means that the moral imperative is instead for both companies and individuals to push our government to reform the regulatory environment as quickly as possible, towards more effectively lining up with the realities of life on earth as we understand them now.

Long-term competitive advantage.

So how should business leaders, investors, and entrepreneurs see sustainability in our current business environment?  As a source of long term competitive advantage.  Work with politicians, if possible, to help them understand the costs and concerns associated with your business that aren’t accounted for in today’s regulatory environment.  Educate customers as to what needs fixing in your industry, what you’re doing about it, and how they can help, by voting at the ballot and with their purchasing decisions.

And think long-term.  Allocate costs correctly yourself in preparation for the day, hopefully not too long in coming, when the regulators force companies to do so.  Brag about it to your customers.  When you know where the business environment is headed, you can swim with the current instead of against it, and prepare yourself to be at an advantage when things settle out.

What does this have to do with most companies?

Loads of companies, especially in the internet space, can remain blissfully ignorant of greenhouse gases, global warming, and starving people elsewhere in the world with no consequences.  What should these companies and entrepreneurs make of all this talk about sustainability?

I think sustainability in the broader sense, beyond the environmental sustainability most people discuss, is about being honest about what you know–with yourself, your employees, and your customers.

Here are a few standard dishonest tactics:

  • manipulation (hiding important facts for your benefit)
  • bait and switch (say, introducing a new opt-out advertising mechanism without warning, like beacon into facebook)
  • push marketing a product that you know destroys wealth or value in the long run (umair’s ford 2.0 example, though I know too little about ford’s history to point a finger specifically at them)

If you wouldn’t be comfortable explaining to an audience of friends and family why you made the strategic decision you did, to me that’s not a sustainable strategy.  To agree with that, you have to believe that in the end, the truth will out, and that trust matters.  This broader view of sustainability loops back into my previous post about employing “be good” as part of your company strategy.

In my next post I’ll look at the second big question Umair discusses: How should we go about solving the world’s big problems?  I’ve been thinking about it a lot recently, so it should be interesting to try to put into words.

Please comment if you like.

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June 25, 2008 at 5:17 pm