Competition-proofing

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Apart from getting started in the midst of one of Silicon Valley's regular downturns, another great thing about the beginnings of Nvidia was that instead of insisting on the "minimum viable product" our VCs, Sutter Hill and Sequoia, gave us the time to develop a real architecture for a family of chips. It enabled us to get an amazing amount of functionality into a half-micron gate array; I/O virtualization, a DMA engine, a graphics processor that rendered curved surfaces directly, not by approximating them with triangles, a sound engine and support for game controllers. As I write, after a three decade-long history of bringing innovations to the market, Nvidia is America's third most valuable company.

I've written several times about how in pursuit of a quicker buck, VCs have largely discarded the slow process of building an IPO-ready company like Nvidia in favor of building one that will be acquired by one of the dominant monopolists. These VCs don't support innovation. Even if their acquisition-bound companies do innovate in their short lives, their innovations are rarely tested in the market after the acuisition.

Below the fold I discuss a new paper that presents a highly detailed look at the mechanisms the dominant companies use to neutralize the threats startups could pose to their dominance.

The Stanford Digital Library Project

The Stanford Digital Library Project stated its goal thus:

The Stanford Integrated Digital Library Project will develop enabling technologies for an integrated “virtual” library to provide an array of new services and uniform access to networked information collections. The Integrated Digital Library will create a shared environment linking everything from personal information collections, to collections of conventional libraries, to large data collections shared by scientists.

Stanford librarians Vicky Reich and Rebecca Wesley provided the "library" input for the research.

Wayback Machine, 11/11/98

In particular Vicky explained citation indices, the concept behind Page Rank, to Larry Page and Sergey Brin. Andy Bechtolsheim was famously instrumental in persuading them to turn their demo of a Page Rank search engine into Google, the company. In his fascinating interview in the Computer History Museum's oral history collection, Andy explains why the idea of ranking pages by their inbound links was so important.

Below the fold I have taken the liberty of transcribing and cleaning up the relevant section of Andy's stream of conciousness, both because it is important history and because it exactly reflects the Andy I was privileged to know in the early days of Sun Microsystems.

Prof. Hilary Allen On Venture Capital

After writing Predatory Pricing, via David Gerard, I found Prof. Hilary Allen's Interest Rates, Venture Capital, and Financial Stability. In the abstract she writes:

This Article illuminates one path through which the prolonged period of low interest rates from 2009-2021 has impacted financial stability: it traces how yield-seeking behavior in the wake of the Global Financial Crisis and Covid pandemic led to a bubble in the venture capital industry, which in turn spawned a crypto bubble as well as a run on the VC-favored Silicon Valley Bank.
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It argues for increased monitoring of the venture capital industry by financial stability regulators, given that venture capital is well-positioned to generate asset bubbles now and in the future. More specifically, it argues for more aggressive enforcement of the securities laws to tamp down on the present crypto bubble, as well as for structural separation between crypto and the traditional financial system.

Prof. Allen describes yet another of the many ways the current venture capital industry is malfunctioning, and calls for increased oversight of these risks to financial stability. Below the fold I discuss this and one of the papers it cites.

Predatory Pricing

Adam Rogers' The dirty little secret that could bring down Big Tech is based on work by Matt Wansley and Sam Weinstein of the Cardozo School of Law, who questioned why the investors in companies such as Uber, Lyft, or WeWork would sink:

billions of dollars of capital into a money-losing business where the path to profitability wasn't clear?

The answer is the remarkable effectiveness of predatory pricing at making money for VCs and founders. Rogers writes:

Wansley and Weinstein — who, not coincidentally, used to work in antitrust enforcement at the Justice Department — set out to change that. In a new paper titled "Venture Predation," the two lawyers make a compelling case that the classic model of venture capital — disrupt incumbents, build a scalable platform, move fast, break things — isn't the peak of modern capitalism that Silicon Valley says it is. According to this new thinking, it's anticapitalist. It's illegal. And it should be aggressively prosecuted, to promote free and fair competition in the marketplace.

Below the fold I discuss Wansley and Weinstein's paper and relate it to events in the cryptosphere.

Lies, Damned Lies, & A16Z's Statistics

This post is a quick shout-out to two excellent pieces documenting the corruption of the venture capital industry:

• Molly White's Narrative over numbers: Andreessen Horowitz's State of Crypto report
• Matt Levine's Crypto Had Its Bank Runs Too

Below the fold I comment on both.

Two Great Reads

This post is to flag two great posts by authors always worth reading, both related to the sad state of the venture capital industry upon which I have pontificated several times:

• Molly White's The venture capitalist's dilemma.
• Fais Khan's Zero Knowledge Influencer: Are ZKPs Worth the Hype?.

Each will reward your time. Below the fold I comment on both of them.

List And Dump Schemes

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In Alternatives To Proof-of-Work I wrote:

The Chia "price" chart suggests that it might have been a "list-and-dump" scheme, in which A16Z and the other VCs incentivized the miners to mine and the exchanges to list the new cryptocurrency so that the VCs could dump their HODL-ings on the muppets seduced by the hype and escape with a profit.

Now, in "You Don't Own Web3": A Coinbase Curse and How VCs Sell Crypto to Retail, Fais Khan takes the idea of "list and dump" and runs with it:

If coins, especially VC-backed coins, consistently underperformed Bitcoin/Ethereum after listing on Coinbase, that says to me that insiders were waiting for a big, dollar-based exchange to list so they could sell - VCs taking profits at the expense of retail. Those insiders include venture capital firms like a16z and, incredibly, Coinbase’s own venture arm, which has a number of investments listed on Coinbase. Other exchanges like Kraken, FTX, and Gemini are also all active in venture, and have listed their own investments.

Below the fold I comment on Khan's excellent analysis.

Counterpoint on Venture Capital

My personal experience working with VCs was very positive, but it was (a) a long time ago and (b) they were top-flight firms (Sutter Hill and Sequoia). I've been very skeptical of the current state of the VC industry in Venture Capital Isn't Working and Venture Capital Isn't Working: Addendum. Steven J. Dubner's Is Venture Capital the Secret Sauce of the American Economy? presents a far more optimistic view, as does The Economist's The bright new age of venture capital. On my side of the argument are Fred Wilson's Seed Rounds At $100mm Post Money and the Wall St. Journal's The $900 Billion Cash Pile Inflating Startup Valuations.

Below the fold, some discussion of these opposing views.

Venture Capital Isn't Working: Addendum

I didn't find Nicholas Colin's Bill Janeway on Who Should Be in Control in time, or it would have been a significant part of Venture Capital Isn't Working. So, below the fold, an addendum discussing legendary VC Bill Janeway's views, and an interesting paper that he cites, The Rise of Dual-Class Stock IPOs by Dhruv Aggarwal et al.

Venture Capital Isn't Working

I was an early employee at three VC-funded startups from the 80s and 90s. All of them IPO-ed and two (Sun Microsystems and Nvidia) made it into the list of the top 100 US companies by market capitalization. So I'm in a good position to appreciate Jeffrey Funk's must-read The Crisis of Venture Capital: Fixing America’s Broken Start-Up System. Funk starts:

Despite all the attention and investment that Silicon Valley’s recent start-ups have received, they have done little but lose money: Uber, Lyft, WeWork, Pinterest, and Snapchat have consistently failed to turn profits, with Uber’s cumulative losses exceeding $25 billion. Perhaps even more notorious are bankrupt and discredited start-ups such as Theranos, Luckin Coffee, and Wirecard, which were plagued with management failures, technical problems, or even outright fraud that auditors failed to notice.

What’s going on? There is no immediately obvious reason why this generation of start-ups should be so financially disastrous. After all, Amazon incurred losses for many years, but eventually grew to become one of the most profitable companies in the world, even as Enron and WorldCom were mired in accounting scandals. So why can’t today’s start-ups also succeed? Are they exceptions, or part of a larger, more systemic problem?

Below the fold, some reflections on Funk's insightful analysis of the "larger, more systemic problem".

The Death Of Corporate Research Labs

In American innovation through the ages, Jamie Powell wrote:

who hasn’t finished a non-fiction book and thought “Gee, that could have been half the length and just as informative. If that.”

Yet every now and then you read something that provokes the exact opposite feeling. Where all you can do after reading a tweet, or an article, is type the subject into Google and hope there’s more material out there waiting to be read.

So it was with Alphaville this Tuesday afternoon reading a research paper from last year entitled The changing structure of American innovation: Some cautionary remarks for economic growth by Arora, Belenzon, Patacconi and Suh (h/t to KPMG’s Ben Southwood, who highlighted it on Twitter).

The exhaustive work of the Duke University and UEA academics traces the roots of American academia through the golden age of corporate-driven research, which roughly encompasses the postwar period up to Ronald Reagan’s presidency, before its steady decline up to the present day.

Arora et al argue that a cause of the decline in productivity is that:

The past three decades have been marked by a growing division of labor between universities focusing on research and large corporations focusing on development. Knowledge produced by universities is not often in a form that can be readily digested and turned into new goods and services. Small firms and university technology transfer offices cannot fully substitute for corporate research, which had integrated multiple disciplines at the scale required to solve significant technical problems.

As someone with many friends who worked at the legendary corporate research labs of the past, including Bell Labs and Xerox PARC, and who myself worked at Sun Microsystems' research lab, this is personal. Below the fold I add my 2c-worth to Arora et al's extraordinarily interesting article.

Lina M. Khan On Structural Separation

In It's The Enforcement, Stupid! I argued that anti-trust enforcement was viable only if there were "bright lines". I even went further and, following Kim Stanley Robinson's Pacific Edge, suggested a hard cap on corporate revenue, as a way of making anti-trust self-executing.

Much of the recent wave of attention to anti-trust was sparked by Lina Khan's masterful January 2017 Yale Law Journal article Amazon's Antitrust Paradox (a must-read, even at 24,000 words). Now Cory Doctorow writes:

Khan (who is now a Columbia Law fellow) is back with The Separation of Platforms and Commerce -- clocking in at 61,000 words with footnotes! -- that describes the one-two punch of contemporary monopolism, in which Reagan-era deregulation enthusiasts took the brakes off of corporate conduct but said it would be OK because antitrust law would keep things from getting out of control, while Reagan-era antitrust "reformers" (led by Robert Bork and the Chicago School) dismantled antitrust). 

You should definitely read Khan's latest magnum opus. OK, maybe you can skip the footnotes, I admit I did. Below the fold I examine two threads among many in the article.

What Does The Decentralized Web Need?

In, among others, It Isn't About The Technology, Decentralized Web Summit2018: Quick Takes and Special Report on Decentralizing the Internet I've been skeptical at considerable length about the prospect of a decentralized Web. I would really like the decentralized Web to succeed, so I admit I'm biased, just pessimistic.

I was asked to summarize what would be needed for success apart from working technology (which we pretty much have)? My answer was four things:

• A sustainable business model
• Anti-trust enforcement
• The killer app
• A way to remove content

Below the fold, I try to explain of each of them at more readable length.

Triumph Of Greed Over Arithmetic

I discussed FileCoin's ICO in The Four Most Expensive Words in the English Language and worked out that:

Filecoin needs to generate $25.7M/yr over and above what it pays the providers. But it can't charge the customers more than S3, or $0.276/GB/yr. If it didn't pay the providers anything it would need to be storing over 93PB right away to generate a 10% return. That's a lot of storage to expect providers to donate to the system.

On my bike ride this morning I thought of another way of looking at FileCoin's optimistic economics.

FileCoin won't be able, as S3 does, to claim 11 nines of durability and triple redundancy across data centers. So the real competition is S3's Reduced Redundancy Storage, which currently costs $23K/PB/month. Assuming that Amazon continues its historic 15%/year Kryder rate, storing a Petabyte in RRS for a decade is $1.48M. So, if you believe cryptocurrency "prices", FileCoin's "investors" pre-paid $257M for data storage at some undefined time in the future. They could instead have, starting now, stored 174PB in S3's RRS for 10 years. So FileCoin needs to store at least 174PB for 10 years before breaking even.

It gets worse. S3 is by no means the low-cost provider in the storage market. If we assume that the competition is Backblaze's B2 service at $0.06/GB/yr and that their Kryder rate is zero, FileCoin would need to store 428PB for 10 years before breaking even. Nearly half an Exabyte for a decade!

Decentralized Web Summit 2018: Quick Takes

Last week I attended the main two days of the 2018 Decentralized Web Summit put on by the Internet Archive at the San Francisco Mint. I had many good conversations with interesting people, but it didn't change the overall view I've written about in the past. There were a lot of parallel sessions, so I only got a partial view, and the acoustics of the Mint are TERRIBLE for someone my age, so I may have missed parts even of the sessions I was in. Below the fold, some initial reactions.

The Four Most Expensive Words in the English Language

There are currently a number of attempts to deploy a cryptocurrency-based decentralized storage network, including MaidSafe, FileCoin, Sia and others. Distributed storage networks have a long history, and decentralized, peer-to-peer storage networks a somewhat shorter one. None have succeeded; Amazon's S3 and all other successful network storage systems are centralized.

Despite this history, initial coin offerings for these nascent systems have raised incredible amounts of "money", if you believe the heavily manipulated "markets". According to Sir John Templeton the four words are "this time is different". Below the fold I summarize the history, then ask what is different this time, and how expensive is it likely to be?

Archival Media: Not a Good Business

Thinking more about DNA's Niche in the Storage Market led me to focus on some problems with the market for archival media in general, not just DNA. The details are below the fold.

Crowdfunding

ExoLife Finder

I've been a fairly enthusiastic crowdfunder for the past 5 years; I started with the Raspberry Pi. Most recently I backed the ExoLife Finder, a huge telescope using innovative technology intended to directly image the surfaces of nearby exoplanets. Below the fold, some of my history with crowdfunding to establish my credentials before I review some recent research on the subject.

Death of the "free internet"?

I've linked before to the excellent work of Izabella Kaminska at the FT's Alphaville blog. She's recently started a new series of posts she's calling Web Perestroika:

an occasional series lamenting the hypothetical eventuality of a world without a free internet* and the extraordinary implications this could have for markets and companies. A tragedy of the web commons if you will.

It is inspired both by India’s ruling to bar Facebook from subsidising internet availability with Free Basics packages (see Kadhim’s series of posts for more on that) but also Balaji Srinivasan (he of 21 Inc toaster fame), and his attempts — including a Stanford Bitcoin course — to convince the world the web should in fact be a paid-for luxury product of scarcity.

And yes, the asterisk means she does understand that The Internet is not free:

*when we say “internet” we mean it in the popular sense of the word.

She means a world without free Web content. Below the fold, some thoughts on the first two posts in the series, both from Feb 10^th.

Kai Li's FAST Keynote

Kai Li's keynote at the FAST 2013 conference was entitled Disruptive Innovation: Data Domain Experience. Data Domain was the pioneer of deduplication for backups. I was one of the people Sutter Hill asked to look at Data Domain when they were considering a B-round investment in 2003. I was very impressed, not just with their technology, but more with the way it was packaged as an appliance so that it was very easy to sell. The elevator pitch was "It is a box. You plug it into your network. Backups work better."

I loved Kai's talk. Not just because I had a small investment in the B round, so he made me money, but more because just about everything he said matched experiences I had at Sun or nVIDIA. Below the fold I discuss some of the details.