Om and Niall PodSessions

I spent last weekend at Foo Camp, a gathering of about 200 technologists about 60 miles north of San Francisco on the grounds of O'Reilly Media. Om attended on Saturday afternoon and both of us came away with various impressions of people and ideas shaping our current technology world as well as a few trends just around the corner.

I was surrounded by so many interesting people and ideas my head is still spinning. Om enjoyed the frankness of discussions and the ability for people to take big bets with their ideas and plan out a better world.

This week's PodSession, A Camp Named Foo, is 20 minutes in length, a 9 MB download.

Posted by Niall Kennedy at 6:33 PM | Permalink

We saw a bit of a shakeup in the web startup space last week as Kiko, FeedLounge, PubSub, and other often mentioned startups either teetered on the edge of existence or fell off the map completely. In an age of rapid technology expansion fueling new Internet startups, what are some of the essential qualities that will help a new company hang on? Should companies cower in fear of the day Internet giants Google, Yahoo!, or Microsoft might cast a shadow on a small startup and trounce them with distribution? Should we all just quit now?

Om and I discuss these questions and more in this week's PodSession, Snakes on a Business Plan. The podcast is 25 minutes in length, a 11 MB download.

A full transcript is available in the extended entry.

Transcript

Hi, I'm Niall Kennedy.

I'm Om Malik, and you're listening to Om and Niall PodSessions. Hello, Niall.

Hello, Om.

You know I can't do your thing, which is like, "Goooood Morning!"

Yeah.

I tried. I failed. I moved on.

I just did it once for the heck of it, if anyone ever watched "Good Morning, Vietnam" and knows the Robin Williams intro. Some people get it.

That's right. The old school people are totally going to get it. Some of the newer kids who are out there, they won't get it at all. Oooh.

Kind of like Web 1.0 and Web 2.0.

That's right baby.

[laughs]

That's right. We're the old OGs man, OG. You know I'm trying to stay relevant in your context.

Right, right. Back when we were poking our heads out of a Gopher hole.

Yeah, that kind of shit. What's going on?

Well, this week we're going to talk about Web 2.0 flameouts. Feeling a little bit of a shakeup in the web world in the last week and...

Oh, not really. I think a whole bunch of things are going on out there. Is it a flameout? I don't know. I think "shakeout" might actually be a good word.

OK.

"Flameout" is kind of extreme. And you and I are not extreme people.

It does drive traffic, and you like the traffic.

What, the flameout?

Extremes. Extreme things drive traffic.

Oh yeah, that is true.

But talking more about what's been going on. This week we had the news of Kiko shutting down and PubSub details came out. And there have been rumors of a couple of other things too.

FeedLounge.

FeedLounge having a bit of an issue. And there are a bunch of others which are having issues.

So, I think it's too soon to call this a flameout. But it's clearly a shakeout because... My explanation of this is, there are a lot of people out there saying, "bubble this," and "bubble that." I don't know. I'm not expert on the bubble theories, but I do know this, that the cost of doing a startup has been lowered so much that a lot of new people have jumped into the space and they're trying out new things. And what we have is a lot of features masquerading as companies. And in an environment like that, it's only bound to happen. The big guys can dole out those features pretty quickly and they have the market traction and they can just stick around.

I think about whether it's the big guys or it's your own startup. It's a question of the people within and who's actually building the products. What I saw happen in these different startups falling apart were co-founder issues.

There are just issues with the employees that were there. They had different takes on the business. They wanted to focus on different things. That was definitely the case in FeedLounge. It was the case with PubSub, supposedly (I don't think the full story's been told there). There's one side, [Bob] Wyman's side, that's been out there. But I haven't heard much from [Salim] Ismail.

So I think it's a question of, "Make sure you know the people you are working with, that you hire the right people." And that hire might be at the founder level when you looking to do a new startup or it might be for a small team. That's something that will hold true and could just pull apart your product if you don't have the right people in place.

One of the things that I really disliked about some of the talk at Microsoft -- and it might be true for other big companies -- executives sometimes refer to employees as "warm bodies." That's just wrong.

Right. Well, that is just incumbent thinking. But beyond that, I think a lot of people misread. The Kiko example is all about, "OK they tried." It didn't seem like they burned through their entire money. It wasn't even that. I guess there were other issues. Personal interests got in the way.

Startups are not easy. I'm learning it first-hand. The accumulated knowledge of the past 38 years and the past 38 days stack up pretty nicely against each other. But I think you are going to more and more of these companies go away, because it's hard to find traction when you're just a feature.

There's also one thing which I've noticed, which is the desire to do everything in your product: "if others are doing it, let's do this." I kind of compare this with folks with Six Apart. There is a very solid focus there. They're doing a blogging platform, but for different market segments. Or for example at 30 Boxes, which is just like a four-person team. They just want to make the best calendar experience. If they get 100,000 to 200,000 users, they're happy with it. They're not looking to bring down Google [Calendar] with their product.

That's one take. I think you also need to realize where your product may head. I think specifically of Pyra Labs which created Blogger. That wasn't the first product they set out to achieve. Blogger was an offshoot of project management. They just said "Oh, as part of project management you might like to keep status updates. And we'll create this product that we'll call Blogger for status updates."

Or in the case of Flickr, you wanted to capture elements from your gaming experience and share those with others. And that became more popular. So you have to recognize what's happening with your users. What do they want? What are the market opportunities? And maybe you don't become too attached to your original idea.

I think in the case of online calendars, in Kiko's space or in 30 Boxes' as well, there are different ways to slice the online calendar market. You don't have to look at it exactly the same way, where you would stack up directly Kiko, Google Calendar and 30 Boxes and say, "They're the same but on different domains." I don't think that's the case.

30 Boxes, for example, has a heavy people integration. And you can look into these different people that you might meet. Say you're going to go have dinner with someone tonight, you could see there recent blog post before you go to dinner with them, built into the calendar. And there are some extensions there. You can build plug-ins into the system: different ways to leverage it.

Or it might just be the way that you integrate with everything that's on the web. That's one of the things that, when I talk to the guys at Box.net, they just integrate well with everything else that's out there. So even if they don't have the most free storage available -- they only offer a free gigabyte I think and some other people offer 25 free gigabytes -- they're still popular because they are everywhere you want to be.

Right. I think the other issue that a lot of us are forgetting is that in the shareware community you have similar products which are also similar to the product offerings from big companies. Yet those tiny companies and tiny developers continue to thrive. Case in point being our good friend David Watanabe, right?

He's done well with his RSS reader [NewsFire], which is, in my opinion, pretty solid. It's focused. It's really elegant. And it does one thing well. You can get the same functionality in Safari and Firefox and NewsFire and so on and so forth. So, I think the independent developer software model should now embrace the independent web developer model.

So, a lot of these companies which are coming out with features and all should not be confused with companies, but they should be looked upon as products. Some of them will be for 200,000 people and some of them will be for 50,000 people or 100,000 people.

I think a lot of these newer web-based companies have to kind of step back and get comfortable in their own skin and figure out what market they're addressing, who they're going after and basically be happy about it. Not every startup needs to be a gigantic success. Success is very internal and the metrics are very internal.

OK, so you mentioned a couple of times feature versus companies. What are some of the things you see that differentiate? Because the examples that I gave of Pyra and Ludicorp, those were features that became companies. Those were independent features.

So how do you determine -- other than just trying to lay it out there for everyone -- that there may be a difference? What are the distinguishing factors between something that may be a feature and obviously not going to make it, versus something that has been thought out as a definite company?

Well, Blogger was a subset of the big product, right? And similarly, Flickr. But people were willing to pay for those subsets. So it was not really just a feature. It was addressing a market need, which was an easy way to update the website and an easy way to collaborate and communicate around certain visual experiences, whether it was photographs or something else.

I think that was what the market was telling them they should be selling, whereas they were trying to sell something else. So they listened to the market and kind of came to the conclusion, right?

So, you can't call Flickr a feature. It's a complete product. It's a complete product for a complete company which basically realized very quickly that the rest of the stuff they were doing is irrelevant to the mass market. This was the only thing that people were willing to pay for and use.

Well, makes sense. That's what you do. It's the same as with Blogger. Everything else just went away. Blogger became the thing, caused a revolution... Yadda, yadda, ya.

So, right now let's look at some of the newer players. You have all these online shopping services popping up. I'm not sure if I want to even use them.

Shopping bookmark services.

Yeah.

Not shopping comparison.

Yeah. It's an extension for Firefox.

Yep.

It's an interesting way to share that information. Do I need to go to a website and figure out those things and keep bookmarking this stuff?

So, the problem I have with those companies and those markets -- the business plan that I tend to hear from people -- is "The market is size X. If I can get 0.2% of that market I'll be a good company." That doesn't really seem like the right kind of reasoning if you're starting a new company. It's a little shaky.

Yeah. I mean, there are a lot of people who disagree with me. I talk to the boys at 37signals. People have different opinions on them, I have mine. When I talk to them they say, "If you define that 250,000 users will be your market and you can get 90% of it, that's great." You find an addressable market, the market is X billion dollars, that is just like a PowerPoint presentation for raising money.

Right.

If you know exactly what you're audience is, that's pretty nice. And you work on that audience and you basically make them happy. You make them happy, they ultimately make you successful. Happy customers make companies a lot of money.

And do you think everyone should be scared of the big giants of the world, like Paul Graham says? Is it a question of never go into a space that Google could possible cast a shadow? Or Yahoo!, or Microsoft? Should all startups stay away? It's basically the same in the desktop market, because Microsoft or Apple might bundle your feature in a future OS.

Right. But people still do it, right? Desktop applications still continue to thrive. You had NetNewsWire, which was a wonderful product, survive even when the RSS features were integrated into Safari. It's like, look, you have to better than them, as simple as that. That is key.

And the second thing is, something as generic as a calendar, and Google is doing it, it just isn't very difficult to figure out that you shouldn't be in that space. You shouldn't be in that space considering there are 50 other people doing exactly the same thing with very few distinguishing features.

I think the fear of Google is good because that keeps you on your toes. But that doesn't necessarily mean that you just give up. You have to be better than them. If that was the case then Orkut would be MySpace but it's not.

Right.

Orkut could be Facebook but it's not. The execution of Google is kind of... Let's just say, leaves a lot to be desired.

Right. So, my personal experience with PriceGrabber and Technorati, we are kicking Google's butt in both those verticals. So you can definitely out-execute. You can think about their market differently. Wonder who is on the other side and how do they understand the market. How can you deliver unique assets?

So, for example, a company might not want to give Google certain data because it would be competitive. But they might give a smaller company that data.

There's also the other thing. I hate to disagree with somebody as illustrious as Paul Graham, but look at Google. Who are they fighting? Microsoft, Yahoo! and eBay, those are their primary competitors, right?

Yeah.

I mean, come on. If you have a product which is not a feature, which you think you can do well with, I'm sorry, you can beat them, easily. They still haven't been able to create a Flickr-like experience.

Do you think some of those smaller startups that are developing something that is more of a feature than a company are just aiming to flip and have an integrated feature with some of the big companies?

Dude, it's a buyer's market, unfortunately. There are just too many similar companies.

Uh-huh.

Uniqueness is the important thing. We had the whole Neven... I forgot the name.

Yeah, Neven Vision was acquired by Google.

Neven Vision versus Riya. Riya could have been acquired by Google. But they weren't acquired, and then Neven Vision got acquired. These are both pure tech companies, right? There's a lot of technology involved in that. And even in that space, it's still a buyer's market. One needs to be very careful as to what you do. Coming up with ideas and getting into business is so easy. But how far do you go with it?

A lot people ask me, "What do you do?" And I say, "I'm an online publishing business." That's the simplest way I can describe what I do. If I start thinking of it any other way, I'm in trouble.

Right, there's always many different ways you can go. People want to do deals with you to get after your audience in some way. And you have to realize what it is that you want to dedicate your resources to.

Exactly. When you're so small, you really need to know. We have a small team at GigaOm, Katie, me, and Liz and that's it. We're going to do what we know best and we're going to focus on that.

Right.

It's not that complicated to figure out. And I think a lot of startups actually know their answer, except sometimes they get swayed by what other people are doing or what the market reports are saying or what the media is saying. Conviction is very important. People, even if you're building better features than Google, you still need to out conviction them. You are building the right features and you need have that follow through.

Right.

You and I have had this conversation privately a lot of times.

Another thing I've mentioned privately but not on the podcasts: years ago, back at PriceGrabber, we were making the decision between two hot technologies. We were either going to dedicate about six months of engineering to WAP or VRML. Both were really hot in the marketplace. Both were going to change how you do business, especially for a shopping site. We took an afternoon to talk about it. At the end we chose WAP and it was a good decision but the ability to go browse through a mall and take a look around and see the electronics store on your left and see the movie store on you right is just so cool.

But, yeah, you have to look past the technology and say, "How are our users going to use it? How are our users going to interact with this? What is the under-served market?" And on that level, "What are the different markets that you might not see or your competitors don't see?"

Meebo's IM, for example, may be really popular in Eastern Europe, but people here [in the United States] might not get it.

You mentioned Orkut earlier. Orkut can be popular in Brazil and that can make it a business, based on all the Brazilian users, possibly. Or people don't get MSN Spaces, but they're huge in China.

I think in our geek community no one gets MySpace still. They're obviously a success, in terms of the amount of users they have, the amount of time people spend on that site. But in the geek community we're like, "Oh, MySpace is ugly." So it depends, you have to create your own measures of success.

Exactly.

And go for it. And it could come from unexpected places. When they were building Orkut, who could have thought that it was going to be huge in Brazil? You don't really know what's going to pop up.

There are two companies that I look at out there and which kind of impress me the most. 37signals, obviously, because they have very high focus on what they're doing. And of course they've managed to build a big cult around them, which is also good for business. Apple has found that very profitable. I think 37signals are smart to figure that out.

And similarly, Salesforce, right? Salesforce.com, who would have thought? Salesforce management tool on the web, how big a business was that going to be? But it clearly is a huge business, because they focused on what they really wanted to do. The experience still is very highly focused on the customer relationship management and making it simpler and easier for the community. I think they beat a lot of people. And they succeeded, despite being on the web and having a new usage pattern. I think those are the two good examples.

In both cases, those companies embraced and actually sought out the market leader position. They said, "We are different and we will tell you how we are different."

In the case of Salesforce, they are the ones known for having a no software button around, saying, "Installing software is dead. Let it all live online. Don't maintain it." They really pushed that vision ahead. And now we're getting to that with some of the new hosted services.

In the case of 37signals, "Small is the new big," is their mantra. Keep it small. Keep it real. The reason the whole cult developed is because there are a bunch of other people who believe in that mantra with them.

Right.

They believe that a small company is the way to go and therefore their small company will use this type of software.

Right.

So, they know their marketing plan. They know their audience. And they're able to build that cult around the type of audience that needs to be there. And I think they're definitely saying, and Salesforce is saying, "Aren't you tired on installing that software and then Microsoft or someone else will come along a few years later and say 'hey it's time to upgrade and the price went up?' Well, just have it all live online. And it integrates with all this other great stuff you may or may not already use, easy transition, go ahead. It can be flipped on today."

Right, and I think that is the key thing, building the right product, like 37ignals or Salesforce.com. Both those companies basically knew the marketing plan, knew the audience. They knew exactly what they were doing. But it was all based around a product people actually wanted to use. It all starts with building a compelling user experience with your product.

That's why I think 30 Boxes is going to be around for a while. They may not set the world on fire. They may not have a billion users, or a million users, for that matter. But they will still be around for one simple reason: they've created a compelling experience. It's different. It's not business as usual. It's not just another fucking calendar. I'm sorry. It's a different kind of an experience.

So, that is the thing. I think people need to say, "How are we going to create a better compelling experience, value added?" You have to treat the end user, customer -- whatever you want to call him or her. Basically, that defines your future, not Google or Microsoft getting into your business.

And my customer doesn't come in one shape or size.

Right.

You look at the blogging world, the reason there are so many different blogging services and they do well, is because different people want different things from their blogging software. Someone might really want their blog to have integrated forums, and they can go to pMachine and do that. Or they really want to be able to have an integrated friends experience. LiveJournal is good at that.

Or they just want to be known, have a blogs.com or TyePad.com address. People say, "Oh I want this," kind of like a business address. Just like people want that Fifth Avenue address. It's the same thing. So someone might buy in just for that to a certain service. Or someone might like a certain plug-in and want to use WordPress. There are all these different types of users out there.

Right.

Let them have the choices. Identify that there are these types of users out there and embrace it. I think that will lead to success.

Exactly. I think that is what we're missing, the "flameout," "bubble," blah, blah, blah. All those issues aside, at the end of the day, if you have a great product, you know your community, and you know how to sell it, you're going to do okay. Sometimes, we forget the basics. Those are the basics of the business.

It has to be a profitable idea. It can't be something that just is out there. I think of Eazel and the Nautilus file management system, which is a good idea with solid people behind the company in the late 90s. But they didn't really have a way to monetize the company, even though it was awesome. It ended up getting rolled into GNOME.

I think that's another... Again, if you know the audience and you know you have the right product, you know it's going to make money. It's not like it's not going to make money. I keep saying this again and again, this is all about making money. Guys, when you say you're incorporated, that kind of says it's about making a profit, not just doing a fancy experiment.

So, regardless of that, I think there's going to be a lot of this talk on and off over the next few months. I think you're going to see these "whoopsy daisy" situations. Companies will come and go, but they'll be some which will survive, some which will do really well. But I applaud the whole spirit of trying. It's just...

Yeah, I think some things, for example craigslist, they make money. But they give the site away for free and they make money off of job listings. There may be other sites in the world that do a similar thing.

Yeah, I know. 37signals does that, and I have just launched the job board on GigaOm.com. So if you have any job listings, please go to jobs.gigaom.com. End of commercial message.

All right, that's the end of the podcast as well. I had to work that in there. [laughs]

Thank you.

Bye.

Posted by Niall Kennedy at 12:58 PM | Permalink | Comments (1)

In a recent issue of IEEE Spectrum magazine Bob Briscoe, Andrew Odlyzko, and Benjamin Tilly, three respected academics argued that the Metcalfe's Law - which states that the value of the network is proportional to the square of the number of users of the system - is wrong and dangerous.

Bob Metcalfe doesn't think so, and defends the Law and in a long chat argues that as the networks evolve, so does the law. Download the 26-minute interview here, and the transcript is available after the turn.

Transcript

This is Om Malik from gigaom.com, talking to Bob Metcalfe, the inventor of Ethernet and the author of "Metcalfe's Law." We are talking today about the relevance of Metcalfe's Law in the age of social networking and what people are beginning to call "the long tail." Hi, Bob, how are you?

I'm great, good to hear from you.

Nice to talk to you again. It's been a while, we haven't been in touch, but there seems to have been some controversy around Metcalfe's Law and how relevant it is. You're no stranger to controversy, but you've always been proven right. What do you think? What's going on this time around?

I haven't always been proven right.

Okay. 80% batting average is pretty good. You've got David Ortiz kind of numbers there.

[laughs] I'll take 80% then. Well, it is surprising, Metcalf's Law is about 25 years old, and there's an article currently appearing as a cover story in IEEE-Spectrum Magazine, that has about 385,000 readers. And the title of that article is "Metcalfe's Law Is Wrong." Every few years there seems to be an attack on my law and I feel obligated to defend my law. And, as you've guessed, the current context is social networking, where there's a suspicion that there's a network effect working to drive the proliferation of these social networks.

As somebody who's covered telecom for a long time I've always seen Metcalfe's Law as a purely telecom/networking phenomenon. How does it really relate to social networks like MySpace and how does it become irrelevant in this age of social networking? We've been social networkers since Adam said hello to Eve. That was social networking, right?

That's right.

So what's the story here?

Well let's go back 20 years to the humble beginnings of what much later became Metcalfe's Law, where I was trying to sell people on Ethernet. And I was selling these kits of three Ethernet cards, and some software where they can share disks, printers and exchange email. And after a few months of this, many of my customers reported that the little networks that they'd set up weren't very useful.

So I made up this slide, after some thought, which communicated that the cost of the network grew linearly, that is the cost was $1,000 to buy an Ethernet card in those days, but the value of the network grew as the square of the number of users. So that at some point, the critical mass point, the value of the network would exceed cost. And three nodes was not a big enough network, and they should try, say, 30 and see if that worked. And it did work, and Ethernet caught on. And a quarter-billion Ethernet switch boards were sold last year.

So that's where Metcalfe's Law came from. The value of a network grows as a square of the number of users and the way that that sort of gets applied in social networking is: you have a group of people who get connected and the more of them that get connected, the better. Can you quantify that? The Metcalfe Law is a vague attempt to quantify the benefits of hooking more and more people together.

OK. So, connecting devices, computers, nodes on the network which, as you had originally outlined, that makes a lot of sense to me. But how does it pertain to people? Now, let me actually expand on this. I had written a piece -- about two years ago -- basically saying Metcalfe's Law meets market reality. And I looked at eBay, because at certain points, you keep adding nodes. Or in the case of eBay, sellers, or the buyers for that matter, the value of that network started to degrade because there was too much crap coming online. And the network was beginning to get a lot of static, so to speak. There was a lot of static... so it didn't make a lot of sense. But in this case, in the social networks, isn't that what you're talking about? In Metcalfe's Law, you can only go up to a certain point and after that the social networks start to degrade. I mean, I can just sit here and say "There are six billion people on the planet, that's my social network because I'm a human being." Just trying to use your law into what are the online equivalent of off-line relationships, that just doesn't make sense to me.

Well, the current attack on Metcalfe's Law in IEEE Spectrum, actually they call the law in that little article, which I recommend, they call my law "dangerous." Because apparently they're afraid that just the way Metcalfe's Law was used to inflate the internet bubble, the first internet bubble, that now suddenly with some connection to social networks it's being used to inflate the social networking bubble. And the authors re-argue the case and say that Metcalfe's Law overstates the value of a network and that in fact, in their case, the value only grows as n-log-n, instead of n squared. N times the logarithm of n instead of n squared, which is slower.

Of course they missed the opportunity to catch the point you just raised, which is it's possible there's a point after which the network's value starts going down, let alone going up more slowly. They argue that it just goes up more slowly than n squared. But one could -- and I haven't yet -- but one could look for ways in which at some point a network reaches and not only passes critical mass but at some point reaches a point of not only diminishing returns, but actually negative returns. Where spam, too much spam, too much e-mail makes it less valuable for its size. I think that would be a direction to go if one wanted to properly refine Metcalfe's Law.

Right. I mean, do you actually even look at it and say, "How are people applying a law that more pertains to actual, physical networks?" You know, as you defined them back in the day, being applied to something like MySpace or Bebo or one of these social networks. Where does the correlation come from? I don't even understand. Why are they wasting their cycles comparing those two things? You know, Andrew is a good friend. I don't know why he is spending time on equating these two things.

Well, the trends...Metcalfe's Law is old now. So, it's been modified several times. So, you're right. The original 35mm slide which is in Andrew's article...which, but the way, it was George Gilder in 1993 in Forbes Magazine who called that slide Metcalfe's Law. But along the way the law changed to be the value of a network grew to be a square of the number of users. And you're right. It started as devices, then over the 25 years transmogrified into users.

So, it's valuable to you and me, I hope, that we're talking by phone. And this little phone I've got here would be more valuable if I could talk to two people or three people or four people. So, I don't agree with you that it would be inapplicable to social networks. That if a group of us have an affinity...some sort of affinity like we like the same book, the same candidate, the same idea, the same product... If we can be connected, that's valuable to us. And the more of us that can be connected, the more valuable it is. So, for example, in the eBay case, the more buyers and the more sellers that can be connected, the lower the frictions and the higher the economic activity, the more value generated by the lowering the frictions of us finding each other.

This, then, eventually leads to Chris Anderson's great book "The Long Tail" which is now out and I recommend highly. My argument would be that there has been a latent "long tail" of various affinities for a very long time. But thanks to the internet and then the world wide web on top of that, the cost of getting connected has gone down and more of these affinities have gone from latent to actual. That is, the cost of connecting has become low enough that the values have exceeded them. The critical mass has been achieved, so that's why you see this power "long tail" forming, because now those tiny little networks are now economic, or valuable, or their value exceeds their costs, where in the past they didn't, so those networks didn't form.

Right. So, here is one rub, though, that you didn't think about. Your version of the world, which is the Metcalfe's Law and the "long tail" are actually coming at...are polar opposites, right? The "long tail" is about a very finite network that works...I mean, it's looking at niches which work. So isn't that what...it's the exact opposite of Metcalfe's Law in a sense, that you're saying the more nodes we have on the network, the better we are. The network is better and more efficient whereas "long tail" is about having very defined, small communities or very small networks like micro networks, which add up to become one mega-network. So, can you explain a little bit about that? How do these...

You can look at Metcalfe's Law in two ways. The original way of looking at it, and the way I'm now returning to look at it, it mostly applied to networks. Remember, I was selling Ethernets that were too small and having trouble. So I cam up with this concept which argued for getting above critical mass. So, the way I'm looking at this little law now is we're talking about when does the network achieve critical mass? When is it useful to have the network? When does the network pay off? And if you look at my little formula there -- the value growing as a square, the cost going linear -- there is a critical mass point. That is the number of users at which the network becomes viable. That critical mass number, I claim, is going down, which explains why the "long tail" is growing out. That is, increasing numbers of the smaller networks are becoming viable.

So, you're saying there are many Metcalfe's Laws at work in this world we live in, right now. Instead of there was one network and one network grows and now there are smaller and smaller networks, and they're being guided by the same principle as the original Metcalfe's Law.

Yes, in an obvious desperate attempt to prolong the life of my law, I've now declared it to be recursive, which is to say there is a certain network value, associated with being on the internet, but then above that at a higher level, associated with each of the affinities that we might have, there's another opportunity for a higher level network to form, and there Metcalfe's Law is reapplied with a different set of coefficients.

And then, returning to this "long tail" concept, at say, this higher level. All of us interested in islands in Maine, for example. There must be a million of us and previously we could never find each other and it wasn't really worth being connected. But now we can form a blog about islands in Maine and be connected, and the cost of being connected is so low that now there can be this little network. And so Metcalfe's Law is reapplied at a higher level. And you can imagine it recurring again around a particular island in Maine, for those of us who are interested in these islands. We're in the community of Maine Island People, and now we're in a sub-community. And that network is now viable because of the decreasing cost and higher value of networking.

Have I made the point about this recursion of Metcalfe's Law?

Yes, I understand that. But there is one little thing which I am trying to... maybe in my puny little brain, it's not clicking... So, you're saying what used to be, in the old world, and you were talking about Metcalfe's Law, that the devices on the network, which were the PCs and the workstations, and then there was the network. Now, network, as it becomes the device, the Metcalfe's Law, its value has moved up the stack into the affinity groups, popularly called social networks, right now. Am I understanding? Is that what you're trying to explain to me, sir?

Yes. There's a sort of a base-level network of being on the internet, then there's being a member of MySpace, a social network.

Right.

So, when there were 11 people that were members of MySpace, apparently that network, whenever the hell it started, at some point MySpace achieved critical mass. It became viral and grew and it was worth it. It was worth going to MySpace, worth uploading your picture and your vital statistics. It's worth it for you do to that, because of all the other people you can now network with in the MySpace network. And my argument is that's a new occurrence, a new opportunity to apply the general notion of Metcalfe's Law, using MySpace as a network, rather than the whole world wide web, rather than the whole internet as a network.

So, there is the Metcalfe's Law, layer one and then there's Metcalfe's Law, layer two, and upon network upon network upon network. So as we grow, the pyramid grows. You're saying Metcalfe's Law actually mutates and adapts to that finite number of people in an affinity group or have similar social interest or whatever.

Exactly. And that's why I wrote this little piece that I sent you, whose title is "Metcalfe's Law Recurses Down the Long Tail of Social Networks." That's sort of a recasting in this lame attempt to extend the life of my pitiful law. Sort of the modern version of it recursing. And social networks is a bit more than MySpace. I mean, a blog is a social network in a way. Are you using the term very specifically? Would a blog be a social network?

I think a blog is a social network. All of my friends in recent times, some of my newer friends, including folks like Mike Hirschland, I met through the blog. They were not introductions by other people. They were through the blog and that's my network. They are the people and they feel happy for me and they feel sad for me. So, that's my social network of sorts. So, yeah, I'm with you on the whole concept of affinity groups or social networks, and not confusing MySpace as the social network.

Well, The New York Times used to be a -- well, still is -- a social network. But it was among very few big social networks because the cost of social networking, to be The New York Times -- was you had to have a printing press and you had to cut down trees and you had to have editors and you had to have truck to deliver the newspapers. And the cost of social networking was extraordinarily high, so you had very few newspapers. But since about 1994, when the internet kicked in, now you've got millions of newspapers. Every blog, I think of as a newspaper, with its own little community, its own little circulation, its own little audience. And why are there millions of blogs? Because the cost of creating that publication had gone to zero. You don't need to cut down trees, you don't need to have trucks, you don't need buildings and bureaus. You can just go to wordpress.com and set up your own blog and you're in business.

The cost of that network has come down, therefore the critical mass has come way, way down, so now there are many, many more publication networks that are viable, hence the blogosphere.

Right. So, why do you think this piece is saying that your law is wrong? You've talked about the relevance of Metcalfe's Law in our ever-changing world. What do you make of their contention that it's wrong? What's your thought on that?

Well, I sort of have two thoughts. At one level I think they're wrong, and at another level, I think that the direction they're going.... I mean, I'm flattered that they would revise the law and accuse it of being wrong and even dangerous. That, I like. My law is "dangerous." So, I'm grateful for the attention. The reasons they give are weak. So, for example, by refining... you know the law states v as approximately n squared, but "No, no, no," they say. V is approximately n-log-n. Well, you know Metcalfe's Law has never been numerically evaluated. Nobody has ever taken a bunch of v's and n's and attempted to fit them with a curve or assess the content of apportionality on the law.

Unlike Moore's Law, for example, which has been numerically true since 1965. Metcalfe's Law has never been numerically evaluated. So, whether it's n squared or n-log-n, who cares? I'll stick with n squared until I see some data points. I've never tried data points, and in their paper in IEEE-Spectrum, again, there are no data points, it's purely a conceptual argument.

One of their conceptual arguments is that Metcalfe's Law can't possibly be true because big networks rarely find it in their interests to merge with smaller ones. They seem to attribute that phenomenon, that empirical data... They attribute that to some defect in Metcalfe's Law, when I think that the reason why the big networks don't merge with the little networks is not that they don't see the value. They have it in their heads that they're going to conquer the little networks and they're going to capture those users and they don't have to buy them.

So, anyway, they use that argument very strongly. They have a sidebar in the piece about that. But I think it's a very lame argument that they make. So, anyway, I think they're wrong. I'm flattered at the attention. But I think a more fruitful direction if you want to refine Metcalfe's Law is to go in the time domain. Metcalfe's Law is not in the time domain. Moore's Law is. You may remember Moore's Law says basically that all semiconductors get half the price in two years. Two years in time.

If you apply Moore's Law to Metcalfe's Law, now you're talking. Now you're going in a fruitful direction. Because that critical mass point that I theorize exists for each little affinity network, that critical mass point is dependent on the cost of networking and Moore's law is halving that cost every two years. So, therefore, the critical mass is halving in size every two years. And that's what's making Chris Anderson write about the "long tail."

Well, you know, there's a lot of things we can talk about the "long tail." I have my opinions about that. I kind of feel that the "long tail" is good for the distribution channels and not necessarily so for the content creators, who actually have to make a living. And it doesn't take into account the nagging practicality of making money to live. But that's a topic for another whole conversation. I cover social networks and I cover all sorts of random stuff and I'm seeing the bubble 2.0 form right in front of my eyes. But I haven't seen the Metcalfe's Law being mentioned in any of the presentations made by some of the start-ups in this space or the social networking players. So, where is this coming from? It'll be interesting to kind of just figure out how did they even actually arrive at this one. This argument, I mean.

I think that maybe the Spectrum article is alarming us unnecessarily and that Metcalfe's Law isn't going to be used, isn't being used at all to inflate the new internet bubble, the social-networking bubble.

You know, I have not come across anybody talking about Metcalfe's Law in direct relation.

Oh, I have. Since reading the Spectrum piece. There's the Spectrum piece, right there. But then you take the Spectrum piece and you start using Google and you'll find, as I did, 30 or 40 pieces relating social networking and Metcalfe's Law. How does it work or if it does work. And then there's various blog entries. I'll have to send you some of them. I just found them by branching off of the Spectrum article and doing a little Google, and found lots and lots of mentions of it. And you can imagine...you know, these social networks clearly are deriving energy from network effects. And since Metcalfe's Law about as simple an explanation of network effects as you can find, it's not surprising that people would occasionally mention it. And when they do, I'm delighted.

I was mentioning more of when I meet social networking start-ups or that kind of stuff. I never hear them talk about Metcalfe's Law. I mean, I bet most of them don't even know what it is.

Okay, then the Spectrum piece is inflating the danger. And that there really is no danger from Metcalfe's Law.

You know, I may be wrong. I may have limited information. I'm just saying my personal experience. Well, you know it's been great talking to you. I'm glad you've written this piece and you've shed some light on the whole issue. Hopefully we'll be re-introduced in a few months and see where we're at. Thank you, Bob, for your time today. I know you have a very busy day tomorrow, so I won't hold you up for very long.

Well, thanks very much. I appreciate the attention. Be careful about that new bubble that's inflating.

Okay, sir, I will. Thank you.

Posted by Om Malik at 9:31 PM | Permalink | Comments (2)

The last week contained big announcements from Apple and Google at WWDC and SES conferences respectively. Apple announced new desktop and server hardware as well as a few new features from its next operating system, code-named Leopard. Google and Fox Interactive linked up in a three-year search and advertising deal worth over $900 million and added video search to the Google homepage, dropping Froogle from the list.

Om says he will never buy another piece of Apple hardware. The form-factor previously known as a laptop is burning laps during an already hot summer and causing us to place our notebook computers on a table at home, work, or cafe. Be sure to watch out for battery recalls to avoid a battery acid explosion in your lap! How long will it be before the first laptop-burn lawsuits pop up, damaging the skin of the elderly and indie-hipsters alike?

Google beat out Yahoo!, Microsoft, and others for the rights to power search and text-based advertising on Fox Interactive Media properties including MySpace and IGN. Google guaranteed payments of $900 million over three years if Fox Interactive meets site traffic and performance goals. MySpace and IGN continue to grow in the U.S. and expanding into international markets giving Google access to a younger audience and better ad targeting if they can monetize the traffic.

This week's PodSession, Sour Apples and Googling for Deals, is 21 minutes in length, a 10 MB download.

It's a pretty lively podcast this week as Om and I have some fun during our discussion and generally a pretty good flow. Enjoy!

Posted by Niall Kennedy at 3:38 PM | Permalink | Comments (2)

Online advertising spending will reach $16.7 billion in 2006 according to research firm eMarketer. Google and Yahoo! are the two biggest players, with 23% and 19% of the market respectively, with a variety of other services collecting the other $10 billion this year. Advertising networks are popping up every week, looking for their own slice of the available millions through group targeting, niche marketing, and interactive formats.

The past week saw the introduction of new advertising networks from Adify, Automattic's WordPress.com, and FeedBurner. Om blogged about Adify yesterday.

Any advertising network needs to have enough inventory and targeting to cover their client sites. Large FM Publishing sites such as Digg and GigaOm might run through ad inventory from one network quickly, requiring the sites to serve ads from multiple networks. Advertising sales teams are a limiting factor in the growth of ad networks, and there are only so many talented individuals to go around. Is there a shortage of advertising talent in our new Web economy?

Om now relies on advertising full-time to run his new startup. We run through a few different advertising scenarios in this podcast, including ad-free memberships, in an attempt to better define the current marketplace and the options available to webmasters.

This week's PodSession, Slicing the Advertising Pie, is 20 minutes in length, a 9 MB download.

Posted by Niall Kennedy at 9:02 PM | Permalink

Last week I attended the O'Reilly Open Source Convention in Portland, learning lots of new information about the software powering our favorite online services. I had a chance to hear about the latest changes in open source software directly from the teams and benevolent dictators leading the way as well learn about the variety of communities and business models in the world of open source.

Om and I talk about the current state of many different open source languages and programs in this week's PodSession. Will Perl 6 and Python 3000 ever be released? What are some big changes happening in the underlying software of the web that developers and businesses should pay attention to? What are the latest developments in open source text and voice messaging? What are some of the big emerging trends we will see play out over the next 1-3 years?

Om and I discuss these issues and more in this week's PodSession, Open Source Convention. The podcast is 22 minutes in length, a 10 MB download.

Posted by Niall Kennedy at 6:37 PM | Permalink | Comments (2)