Perspectives

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Here at midVentures, it doesn’t necessarily go with our business ethos to urge anyone to go offline. However, considering Thanksgiving is something that every American rejoices in – not just a specific religion – we figured we would give in just this once.

Offlining, a company created by two well-connected New York businessmen, Mark DiMassimo and Eric Yaverbaum, aims to get Americans to lift their heads every once in a while, specifically on family holidays such as Thanksgiving. It wasn’t always this way for them, as Eric says, “I’m the guy who sleeps with his blackberry. I’m raising my hand and saying ‘Yes, I’m an addict.’” Their company was founded when they did just that – lifted their heads – and took notice of such things as their wives, the sun shining in their windows, soft, furry animals and their kids, according to their website. They decided to follow Mark’s dad’s advice: “We invent technology to be our servant, not our master.”

So far in 2010, Offlining ran ad campaigns for the Jewish holiday of Yom Kippur urging family and friends to put down their cell phones with ads depicting celebrities such as Lindsay Lohan that read: “You don’t have to be Jewish to make amends for your tweets on Yom Kippur.”

For Thanksgiving, their ads feature such images as a turkey with a shotgun aimed at a cell phone saying, “Give thanks, not thx.”

So, go ahead, make like the Amish and revel in the joys of the earth – join in with your family members with fun, real-life interaction such as the medieval torturing device called charades or dive into helping your mom bake your favorite pumpkin pie. Why not up the ante and give a cuddle to every family member (yes, including Uncle Al) just to see the shocked look on each face?  If that doesn’t excite you, there is always the time-honored tradition of a board game to get the party started.

Pledge on Offlining’s website to no video games, internet, cell phones or iPads for one day with 11,081 others.

(This article was written the day before and, with the joys of technology, scheduled for Thanksgiving. No internet was used by said author on Thanksgiving Day. If you’ve read this, go back to your family now.)

Veteran entrepreneurs who have raised several million dollars or who have had a startup acquired will often talk about how there’s a “startup bubble” – they will say how there is too much attention on early stage tech startups right now, and how being a tech entrepreneur is the new “I’m in a band”.

In short, veterans of the startup scene or venture capitalists with a pessimistic outlook will assert that 5 or 10 years from now, tech startups might go “out of fashion.” In other words, the real entrepreneurs who have been building and exiting for years will be left behind.

But I’ll defend the new startup economy.

I believe that though there is a great deal of focus on new entrepreneurs and the new web startup, this is not a fad and this is not a startup bubble. Quite the opposite – I’ll argue that we will see more and more tech startups filling smaller and smaller niches because, in one form or another, a loose network of lean and interconnected startups can out-compete corporations themselves for solving basic economic inefficiencies.

Not to get too academic on you, but the Theory of the Firm, as described by Ronald Coase, illustrates that corporations exist to lower transaction costs. This means that it is easier for a corporation to setup 50 franchise offices where it can allocate its own funds internally; where it can share its own business processes required for franchising internally; and where it can engage in legal contracting with real estate development and hiring using designated lawyers and risk management professionals.

Conversely, all of those actions (or ‘transactions’) of resources could have been executed by separate, non-collaborating, non-associated entrepreneurs who would each raise their own funds, each negotiate and engage in contracting, each create business processes for franchising. Corporations are great at reducing the transaction cost for large scale redundant business development.

That ‘theory of the firm’ does not work so well for solving extremely niche and possibly risky economic problems.

Tech entrepreneurs are scrappy, lean and fast. They can attempt 12 solutions in the time it takes a company to approve one solution. Tech entrepreneurs experiment with consumer behavior, inventing the “mobile check-in” and “microblogging”. They solve old industry problems such as customer acquisition using social media monitoring through Radian6 or Scout Labs. Techie entrepreneurs like risk, because they can usually assume a company is too slow to try dozens of risky solutions. The transaction cost of experimentation is lower for entrepreneurs than for corporations.

Which leads to my theory on the startup economy.

What does a corporation do at the most basic level?

A corporation solves a market problem by taking resources, adding value to the resources and then, distributing the new product or service to the market for a profit. McDonalds and Walmart create low-cost and generally trustworthy goods that independent entrepreneurs cannot out-compete on price alone. They take in resources, add value, and distribute them.

However, many market problems currently solved by corporations could just as easily be solved by tech startups. Book publishing operated well at scale when the market only needed a few thousand mainstream books, but blogging has created micro economies of digital publications. McDonaldsand TGIFridays achieved efficiency at scale for food preparation, but the market demands more options in restaurant consumption, like how your Groupons and Yelps enable small vendors to target niche audiences with specific food types.

In short, the digital economy has created lower barriers for entry and lower transaction costs for startups to solve market problems.

To bring this back to my major point, the “everyone is an entrepreneur or knows an entrepreneur” phenomena will likely (in the next 5-10 years) increase because the tools, resources, know-how and opportunity to start your own company will increase. This is just as the transaction cost of solving a market problem will decrease.

We will see networks of loosely associated startups who are sharing and licensing one another’s data and intellectual property, utilizing the positive externalities of open source and finally, gradually becoming the new economic infrastructure.

In this sense, the fad of the tech startup is not a fad, but is a new economy of hyperspecific and interdependent entrepreneurship.

Guess what everyone? Nerds matter. While we technology minded people deep down know that we all have some inner-dork, we all want to be that rock star CEO plastered all over the media looking slightly goofy and incredibly rich.

Well, there are people out there who are nerdy and don’t mind the label. Enter the world of e-sports, where gamers rule the roost.  They don’t want a guitar, they want a computer keyboard and a fast internet connection.

The problem with e-sports is not that it lacks fans. The contrary. For example, one popular gaming ‘caster’ just crossed some 300,000 subscribers on YouTube and shot past 100 million videos served. In perspective, that is equivalent to the total amount of people watching 24 episodes of Conan’s new show, assuming that every episode he releases this season has equivalent ratings to the premier show. PlayStation Network alone boasts over 50 million users worldwide, as of June 2010, according to their website.

The growth of Battle.net’s users is remarkable as well. According to their Wikipedia page:

By November 1997 they had 2.2 million games played, had 1.25 million different users, and averaged 3,500 new users each day. By April 1999, it was reported that Battle.net had 2.3 million active users, and more than 50,000 concurrent users. By September 2002, their active user count had jumped to 11 million. By September 2004, their active user count was up to nearly 12 million, spending more than 2.1 million hours online each day, and they had an average of 200,000 concurrent users, with a peak concurrent user count of 400,000.

No, popularity is not the problem. The problem with e-sports is that it gets no respect.

Fact: e-sports is not new in terms of internet years. 1983 saw the beginning of the arcade era. Nintendo had their first world championship series in 1990. In 1988, the first internet team game called Netrek was introduced involving 16 players.

Fact: Electronic sports are more popular in Korea. In 2000, the first ever World Cyber Games were held in Seoul, Korea. There are several television channels and leagues (such as Ongamenet Starleague, MBC Starleague and Proleague) dedicated to the Grandaddy of e-sports: StarCraft. StarCraft 2 just came out and as the professional scene explodes around the world, there have been calls to get Starcraft 2 onto American television. Why not have an airing on ESPN2, or as the joke goes, ESPN8? If the talent, skill, and dedication required to be a real ‘progamer’ is so high, doesn’t it deserve TV-time, or at the very lease, recognition?

Demand drives creation. Period.  That equation operates powerfully online, but for some reason hasn’t yet reached the higher bosses.  But the facts are there. Entire teams of e-sport professionals run the equivalent of television ‘channels’ via their own YouTube channels and clear six figure incomes from that source alone.

As the demand for television declines and the internet slowly consumes it in one long, savory meal, expect the shouts for “this has to get on TV” to decline, and for e-sports to finally get the respect it deserves where it should: online.

When the first Kindle came out it marked the start of the rise of e-books. This is not to say that the first Kindle was the real revolution itself; it was more the original Tea Party. It is always hard to mark when a new format finds its legs or when the tipping point happens, but despite that acknowledgment, we can finally say that ebooks have absolutely hit full stride.

Maybe it was the Kindle 2, the Nook, iBooks, or perhaps all of those and the new Kindle 3 combined, but we now know one thing: e-books are not just growing, they are huge. It’s not difficult to understand that when initial sales are minuscule, as anyone who reads the Inc 500 knows, massive growth is easier to achieve. E-books in recent years have seen significant gains, however the dollar amounts remained small.

Is that still the case? Let’s ask Publishers Weekly:

“Sales for the 14 publishers that reported e-book sales hit $39.9 million in the month, and were up 188.4% in the first nine months of the year to $304.6 million.”

Let’s talk about those numbers: for just 14 publishers, e-books sold, more or less, 40 million dollars in product last month. That puts e-books (looking forward twelve months) at a half-billion dollar industry – assuming no growth. And, that is just for the big houses.

Many old-school, published authors are turning to independent sales of books on Amazon and other free-to-publish platforms, meaning that the total market appetite for digital books right now is actually higher than PW knows, or wants to admit.

The next time that someone tells you that e-books are a diversion, and that paper will live forever, just show them the numbers.

If you missed the news, Facebook is set to roll out ‘Project Titan’ on Monday, and the world is primed for its release. In the words of AOL’s mild-mannered, Jason Kincaid:

“Back in February we wrote about Facebook’s secret ‘Project Titan’ — a web-based email client that we hear is unofficially referred to internally as its “Gmail killer.” Now we’ve heard from sources that this is indeed what’s coming on Monday during Facebook’s special event, alongside personal @facebook.com email addresses for users.”

Despite Gmail holding onto market share far smaller than Yahoo Mail or Hotmail, the Google mail service is a popular, and powerful, tool. It holds the most respected spot in terms of technical innovation in its field, and is the defacto webmail solution for people in tech who are not trapped in Outlook.

If this ‘Project Titan’ does in fact launch to compete with full-feature webmail, it could slow the growth of Gmail to a crawl. Even more, whatever progress Gmail’s Chat has made as a chat protocol could be sent asunder by an ever ascendant Facebook Chat. That thought alone unsettles us. After all, who wants more Facebook chat?

But before we begin echoing shrill shouts of “Facebook To Kill Gmail,” we need to ask ourselves just why Facebook may be making this move. There could be two reasons: 1) Facebook wants to expand its central position in many people’s internet life even further, and 2) that Gmail is stepping on their toes.

We sincerely doubt that anyone is going to dispute that first point, but the second is perhaps contentious. Look at it from this angle: Gmail has expanded into Buzz, Chat, Tasks, and of course, has the honorary title of the best email management source. In short, Gmail is fleshing out its features to slowly become, if not a social network, surely a social hub. Facebook and Gmail appear to be on the same path.

So perhaps what we are really seeing here is Facebook presumptively moving into Gmail’s space to make sure that Gmail can’t move into their own space. Whatever the facts are, the question is, will you drop your Gmail account for an @Facebook.com address?

We’ll all know what Zuckerberg has cooked up soon enough, so place your bets and strap in.