By pretty much all accounts, The Social Network sounds like a fantastic movie (which is what you'd expect from Aaron Sorkin). At this point, it's been made clear a hundred times over that it's a work of fiction, rather loosely based on the truth, rather than an accurate depiction of what actually happened in Facebook's early days. However, Larry Lessig does an excellent job highlighting why, even as it's a great movie, it's dangerously misleading about how innovation works. The key point, as we've made in the past, Facebook -- the idea -- wasn't anything special. There were tons of social networks out there. What made it special was the execution, which Facebook did like no one else has done before or since.
Except, as Lessig notes, in the movie, a totally different portrait is painted. One where execution is meaningless, and only ideas and lawyers seem to matter:
In Sorkin's world--which is to say Hollywood, where lawyers attempt to control every last scrap of culture--this framing makes sense. But as I watched this film, as a law professor, and someone who has tried as best I can to understand the new world now living in Silicon Valley, the only people that I felt embarrassed for were the lawyers. The total and absolute absurdity of the world where the engines of a federal lawsuit get cranked up to adjudicate the hurt feelings (because "our idea was stolen!") of entitled Harvard undergraduates is completely missed by Sorkin. We can't know enough from the film to know whether there was actually any substantial legal claim here. Sorkin has been upfront about the fact that there are fabrications aplenty lacing the story. But from the story as told, we certainly know enough to know that any legal system that would allow these kids to extort $65 million from the most successful business this century should be ashamed of itself. Did Zuckerberg breach his contract? Maybe, for which the damages are more like $650, not $65 million. Did he steal a trade secret? Absolutely not. Did he steal any other "property"? Absolutely not--the code for Facebook was his, and the "idea" of a social network is not a patent. It wasn't justice that gave the twins $65 million; it was the fear of a random and inefficient system of law. That system is a tax on innovation and creativity. That tax is the real villain here, not the innovator it burdened.
It's too bad, if not surprising, that the film decides to celebrate this tax on innovation and creativity as if it makes sense.
I was recently talking with a group of folks who were discussing an idea for a new product, which I thought was pretty compelling. However, one of the concerns raised by someone in the group was the fact that there seemed to be a few other companies already in that space, and while they weren't doing the exact same thing, there was concern that this product wouldn't be considered "new." This is an issue that comes up a lot, and one that we recently talked about in suggesting that companies need to get over the wasteful and inefficient view that everything they do has to be wholly invented from scratch. Along those lines Chris Dixon has an excellent post, which he titles: "competition is overrated," but I think he really means that fear of competition is overrated. He notes that competition in a market often means you're on the right track:
Almost every good idea has already been built. Sometimes new ideas are just ahead of their time. There were probably 50 companies that tried to do viral video sharing before YouTube. Before 2005, when YouTube was founded, relatively few users had broadband and video cameras. YouTube also took advantage of the latest version of Flash that could play videos seamlessly.
Similarly, just because there are so many companies in a market, it doesn't mean any of them are really executing well:
Other times existing companies simply didn't execute well. Google and Facebook launched long after their competitors, but executed incredibly well and focused on the right things. When Google launched, other search engines like Yahoo, Excite, and Lycos were focused on becoming multipurpose "portals" and had de-prioritized search (Yahoo even outsourced their search technology).
In fact, this succinctly reiterates a whole bunch of the points that we've discussed repeatedly over time. First, there's a big difference between ideas and execution. Just because others are in the market (and even well established), it doesn't mean you can't do a better job. It also highlights the difference between invention and innovation, where invention is just coming up with something new, but innovation is really bringing it to market successfully. Facebook and Google are both great examples of innovative companies who didn't really "invent" their initial markets.
And Dixon then brings it back to the value of imitating, on which there's now an excellent book out (which I'm still only partially through) called Copycats. Dixon points out that in being a "follower" initially, you can build off of their work:
The fact that other entrepreneurs thought the idea was good enough to build can be a positive signal. They probably went through some kind of vetting process like talking to target users and doing some market research. By launching later, you can piggyback off the work they've already done.
On top of that, I would argue that you can also avoid some of the mistakes that they make.
In the end, he points out that worrying about competitors is really usually the least of your issues as a startup:
Startups are primarly competing against indifference, lack of awareness, and lack of understanding -- not other startups. For web startups this means you should worry about users simply not coming to your site, or when they do come, hitting the BACK button.
Consider that the startup equivalent of the messages told to tons of content creators these days: that obscurity is a much bigger threat than "piracy." In the same way that "piracy" is really just "competition," those too focused on that sort of competition will often miss the more important fact that you need to find actual, real users and customers who are going to stick around.
One other point on all of this: when you limit a market to just one player (via monopolies like patents), you can actually lose out. You don't get those other players in the market that you yourself can piggyback off of as well, and there's less incentive to get the formula right. Competition is a good thing in how it drives a market, but if you're working in a startup, you shouldn't necessarily be so worried about it directly.
For many years, we've pointed out over and over and over and over and over again, that ideas are easy, whereas execution is hard. People get way too hung up on ideas, but lots of people have ideas, and no two people (or groups of people) are likely to execute in the same way. And, for anyone who's ever built up a success, you quickly learn that execution is everything. The initial ideas are usually completely meaningless. Apparently Scott Adams is thinking the same way. Andrew F was the first of a whole bunch of you to have sent in his recent blog post on the "value of ideas" which highlights this point, specifically with regards to people complaining about the idea of a Dilbert movie:
Movies are good or bad because of execution, not concept. Even outside of the movie realm, ideas generally have no economic value whatsoever, except in rare cases such as when a patent is issued. And even in those cases it's the patent law that creates the value, not the ideas.
From there, he goes on to point to a whole series of huge success stories... all of which probably sound like terrible ideas on paper:
I've long been fascinated by the common human illusion that ideas can be sorted into good and bad, when all experience shows this not to be the case. We could play the game all day long where I describe a simply terrible idea and then tell you about the people who got rich implementing it just right. Let's try a few...
How about a comic strip that is literally a bunch of stick figures? It will be called XKCD and have no discernable characters. Done! It's the most viewed comic on the Internet.
How about a movie about two gay cowboys? Done! Academy Award!
How about a comedic TV show about a Nazi concentration camp? Done! It was called Hogan's Heroes and was a hit in its time.
How about a Broadway musical about a bunch of frickin' cats? Done!
You'd be hard pressed to come up with an idea so bad that it couldn't succeed with the right execution. And it would be even harder to imagine a great idea that couldn't fail if the execution were left to morons.
Ideas are worthless. Execution is everything.
Separately, I should note that it's pretty cool to see Adams highlighting the massive success of XKCD. Last week, when we had posted about another Scott Adams item, one of our regular critics insisted in the comments that Adams was only successful because of newspapers, and that no new comic strips could be successful or make money without the aid of an industry like newspapers. Others in the comments quickly pointed to Penny Arcade and XKCD -- both of which have been huge success stories. Honestly, I didn't realize that XKCD was "the most viewed comic on the internet," but as Adams has been considering how the market is changing, it's great that he's paying attention to what folks like Randall are doing, and recognizing that it's been such a huge success.
We spend a lot of time talking about innovation and ideas. Part of that discussion often turns to patents, and questions of whether it is better to "protect" or "hoard" your ideas, or to focus on sharing them. Patents live in this nebulous world between the two, where you partially (sort of) "give away" the idea, in exchange for the right to protect it. This seems counterintuitive when you think about it. Plenty of research has shown that people invent and innovate more often because they want what they're inventing themselves -- not because they want some sort of monopoly right over it. Other research has shown how innovation (rather than invention) is really an ongoing process, that often involves building on various ideas. For years, we've discussed how the "idea" is quite often overvalued, while the execution is undervalued. Lots of people have ideas. How you execute on them is where the real innovation occurs.
I was thinking about all of this after hearing of the launch of a new service called Mixtape For You, which let's you create a limited time mixtape, which only a single person (who you email) can download. What does this have to do with ideas, execution and innovation? Well, let's go back a bit... and follow this (somewhat convoluted, but fun) trail:
On Memorial Day weekend in 2009, at the annual Sasquatch Music Festival, some shirtless dude started dancing, and someone else started filming him with a cameraphone. Then someone else started dancing with the shirtless dude. Then someone else. Then a few more people. Then a bunch more. Then pretty much everyone. The guy who filmed it put the video up on YouTube, where it went viral (nearly 3 million views at this point). I remember seeing it passed around as a video that "just makes you smile." And it does.
As the video became popular, some started to think about it a bit more, and all around smart guy, Derek Sivers, wrote up a nice little blog post in June, analyzing the sociological aspects of the video.
That discussion turned into an absolutely wonderful 3 minute TED Talk, given in February of this year, that Sivers gave, using the video as a way to explain and demonstrate the importance of "first followers" in creating a true "movement."
That talk got a ton of attention, with lots of people telling Sivers that he should turn the whole "first follower" meme into a book or something like that. Sivers, however, said he wasn't that interested in doing much with the concept and decided, in the very nature of the "first follower" to give away the idea and embrace anyone else who wanted to take the idea and run with it:
If this "First Follower" idea inspires you to elaborate on it, please do. Feel free to write a hit book about it, tour the corporate speaking circuit talking about it, or anything else. I won't.
You don't have to ask my permission, pay me, or even credit me.
I've been very lucky with lots of opportunities. This one's all yours.
Another all around smart guy, Andrew Dubber, picked up on the idea and considered doing exactly as Sivers suggested above, and writing a book based on this concept. But, after sleeping on it, he decided to innovate and execute in a slightly different way. Instead of taking the "first follower" idea and preaching it, Dubber wanted to be a first follower of Siver's other concept: giving away ideas. He decided that he would give away 30 ideas in 30 days -- just like Sivers "gave away" his idea.
Starting March 3rd, Dubber did exactly that, giving away an idea a day.
On March 16th (day 14), Dubber's idea give away, was called I Made A Tape, and was based on the idea that, back in the old days, when people made mixtapes, they were usually for someone specifically. And while there are a bunch of "mixtape" services out there these days (though the RIAA likes to shut them down every so often), Dubber thought it would be cool to create one that allowed someone to be more personal:
So that's why my idea is an online music sharing site -- but one that can only be shared with one person. You craft a "tape" with a single person in mind, and then that mix is sent to that person with a unique URL that only they can access.
They can download or stream the mixtape, and it comes with the liner notes that you've written.
I'd been following the whole chain of events from the very beginning, but what struck me about it, and what caused me to write this post was when I read Dubber's followup post, gleefully talking about how cool it was that Kuyvenhoven actually executed on his idea, this one line stood out:
I invented something, and it came true because I said it out loud.
That's a really powerful statement when you think about it. And, of course, it goes way beyond that. Just look back at the trail of things that happened that resulted in this particular offering coming about -- how many of them were disconnected and simply shared. Yet, we keep hearing people talk about the need to "protect" an idea? Innovation doesn't come out of protection. It comes out of building on the ideas of others and sharing and others taking a different view on it and finally someone executing, not because they want a patent, but because they want the product.
And to tie this all together, Sivers (who kicked off a lot of the chain of explosions above) has also pointed out himself that it's the execution that matters, and ideas, by themselves, are "worth nothing unless executed."
But think about all this in context, and you realize that it was the openness and sharing of ideas that resulted in execution. It happened by building on different ideas -- not "copying," but innovating. And, it's not just this one idea. Remember, Dubber put forth 30 ideas, and others have been doing the same, building on those ideas themselves. In fact, some have committed to delivering on other ideas that Dubber put forth as well.
Now, before people get upset and say "well that's great, but it doesn't mean patents aren't useful," you're right. I'm not saying that any of this negates the need for patents (there are other reasons for that), but I found it to be such a great example of how ideas travel and morph and lead to eventual execution, totally separate from focusing on the need for protection, that it felt worth sharing. And hopefully, someone else might share it, build on it and do something different and innovative with this idea themselves.
For years we've tried to explain the difference between ideas and execution, and how lots of people have ideas (in fact, many have the same ideas entirely independently), but without good execution, those ideas aren't really worth much at all. This point comes up a lot in the debates we have over the patent system -- with patent system supporters often overvaluing the idea part, and grossly underestimating the importance of execution. Often this is because they've never built a real business, and don't realize how little an initial idea plays into the final product. The two are often oceans apart. But stopping others from executing well (or forcing them to fork over a ton of money) just because they executed well where you did not? That doesn't seem like encouraging innovation or promoting progress at all.
DSchneider points us to an excellent recent Jeff Attwood post about the differences between the idea and the execution. It's well worth reading as it covers a bunch of different things, including a common refrain made against those who successfully execute: that they were only able to do so because they were "well-connected." As he notes, being well connected may get you an initial head start, but if you can't execute well, no one will come back. The idea, alone, is almost meaningless.
Attwood highlights this by pointing to a recent letter to a mailing list from one of the guys who started a crowdfunding operation called Fundable a while back, which failed miserably (and very spectacularly in public, with an open letter posted to its website laying out all the dirty laundry). There were all sorts of problems with the execution, which the guy even admits:
Yes, Fundable had some technical and customer service problems. That's because we had no money to revise it. I had plans to scrap the entire CMS and start from scratch with a new design. We were just so burned out that motivation was hard to come by. What was the point if we weren't making enough money to live on after 4 years?
The "technical and customer service problems" underplayed how significant some of those problems were. And yet... now that other crowdfunding platforms are getting attention, such as Kickstarter, this guy is crazy upset that they "stole his idea."
I feel that this story is important to tell you because Kickstarter.com copied us. I tried for 4 years to get people to take Fundable seriously, traveling across the country, even giving a presentation to FBFund, Facebook's fund to stimulate development of new apps. It was a series of rejections for 4 years. I really felt that I presented myself professionally in every business situation and I dressed appropriately and practiced my presentations. That was not enough. The idiots wanted us to show them charts with massive profits and widespread public acceptance so that they didn't have to take any risks....
I cannot tell you how painful it is to watch 5 assholes take your idea
and run with it and not even give you credit. I hate all 5 of them
for that. If I see them, I may punch each one of them in the face.
If you have never started your own company and then had someone else
steal the credit for what you worked hard to develop, you don't
Now, I have started my own company, and I've had lots of other people either come up with the same idea separately, or even blatantly decide to do something similar to various aspects of our business. So I do know how it feels. And, certainly when you first hear about it, it may be annoying, but it's really just a challenge. I'll be honest, there are times when others have done a better job executing on ideas than I have in the past, and in the end you either compete, or you tip your hat and move on. Competition breeds innovation and better execution since you know you need to do more. And that means not screwing up your technology and customer service and not lashing out and blaming others when someone else executes better.
And, the thing is, given what we write about, and all the business model examples we've see over the years, we're pretty damn familiar with many of the players in the whole "crowdfunding space." There have been lots of players who have come and gone, and there are at least a dozen players in the space today. And it's not because they all "took" the idea from this guy, but because lots of people recognized that it's an idea that makes sense. Kickstarter is certainly getting a ton of press these days, but that's mostly because of some top notch execution on its part.
Economics is all about incentives -- and when you create incentives for bad activity, you can rest assured that you're going to get more bad activity. This has become especially troubling with respect to the belief that (a) ideas are more important than execution and (b) that you can "own" ideas. You cannot own ideas -- and even though, technically, intellectual property isn't supposed to let you own ideas, in many cases it's created either scenarios where that is what's happened -- or where enough people believe it's true that you can insist that ideas aren't ownable, but you'll still have a costly legal bill to pay.
So what does that have to do with incentives?
Well, we keep seeing scenarios where winners innovate, but losers litigate. That's because the market "losers" claim that they had the "idea" that allowed the winners to innovate and succeed in the market. But, of course, that overvalues the idea and greatly undervalues the actual execution. Anyone who's built a successful business recognizes that it's the process and execution that leads to success -- not the idea. But, with courts all too often rewarding the losers, it's simply too lucrative for marketplace losers not to sue.
In one such case, it seemed absolutely ridiculous that the founders of a competing social network, ConnectU that had briefly employed Mark Zuckerberg before he founded Facebook was suing him for "stealing" their idea. ConnectU had been a massive failure in the marketplace, while obviously Facebook has been much more successful. But, of course, the "idea" part was rather meaningless. There were already a bunch of similar social networks out there when both ConnectU and Facebook were getting started. Yet, rather than avoid a drawn out legal battle, Facebook eventually just agreed to settle -- though with the demands that the terms of the settlement remain confidential.
That worked... briefly. It turns out that the lawyers for ConnectU couldn't resist bragging, and accidentally advertised that they had won $65 million from Facebook. The number is not really accurate -- as the settlement was a mixture of cash and equity (whose value is really anybody's guess). However, it does show you why losers litigate so often. Imagine being handed millions for failing in the marketplace? Why wouldn't you litigate? But, if you believe in basic free market capitalism, you should recognize how this is rewarding exactly the wrong behavior. It punishes those who best served the market, and rewards those who couldn't serve the market.
We've certainly been somewhat harsh on Nicholas Negroponte's OLPC program in the past -- not because we don't like the idea of helping underprivileged kids building technology skills, but because of the way Negroponte has run the project from the beginning. He's acted as if he were the only one who should be working towards that goal and any competition was seen as a betrayal. Also, he took a very top down Negroponte-knows-best approach to building the laptop, which has led to significant problems within the team and with the product not living up to expectations -- showing once again that ideas are easy, it's the execution that's difficult, and if you limit the execution to just one company, you're cutting off a lot of the opportunity.
But, again, the point is clear: the overall market is doing a rather amazing job serving the market. They're providing all sorts of very cheap mini laptops at price points even below what the OLPC is going for. No, most netbooks don't have some of the bells and whistles of the OLPC that help it survive a rough environment, but it seems rather likely that used netbooks and newer cheaper netbooks will find their way into developing countries soon enough as well -- just as second hand mobile phones have made it. So, in the end, Negroponte's original vision may get served, but it will get served by the market and competition, rather than his own grand master plan.
We've never quite understood Nicholas Negroponte's position when it comes to the $100 Laptop/OLPC/XO (whatever it's called these days). While the idea behind creating a super cheap, super durable useful computer for children in developing nations is good, Negroponte has always approached the idea as one where only he should be allowed to see that vision through. When other companies decided it might be a good idea and wanted to target that market themselves, Negroponte flipped out and started attacking them for trying to undermine his project.
Sorry, Nicholas, but competition isn't undermining.
In fact, competition is generally what drives all parties to be better at what they do, in order to fend off the competition. Yet, somehow, the UK's Times Online has bought into Negroponte's side of the story and written up an article bashing Microsoft and Intel for trying to "kill" the OLPC. The article is riddled with factual errors and opinion substituting as fact, but the worst is in the central point of the article. The author mistakes companies all aiming for the same market as a nefarious attempt to "kill off" Negroponte's pet project -- as if he has some universal right to the market that no one else can attempt to enter. It also brushes over some simple facts, like the one where many countries have looked at the OLPC and realized it doesn't really serve their needs just yet. That, if anything, should be even more reason why competition is necessary. It helps create better products that actually serve the needs of people in those markets, rather than just what Negroponte decides they must want in his top-down manner.
Business Week has an in-depth write-up about the One Laptop Per Child project's first deployments in developing countries. The original plan called for building 150 million laptops by the end of 2008; it now looks like they'll be lucky to ship a million before the end of the year. It appears that a big part of the problem is that Nicholas Negroponte and his team underestimated the support requirements for the laptops. Getting laptops into the hands of poor children is good, but it's a lot better if the laptops come with training for teachers and support personnel on how to use them effectively. OLPC may have hoped to build a laptop that was so easy to use that little support was required, but the countries writing the checks don't appear to have bought the argument. Nigeria, for example, backed out of a previous commitment to buy a million laptops from OLPC, opting for Intel's Classmate PC instead. Intel's superior support was cited as the major reason for the decision.
This highlights what was so ridiculous about Negroponte's demand that other companies stop offering competing low-cost laptops. Negroponte deserves credit for pioneering the concept of producing cheap laptops for poor children, but coming up with the idea is, relatively speaking, the easy part. What's far more difficult is the execution. Technical wizardry is an important part of that, to be sure, but probably even more important are the logistical details: keeping the project on time and under budget and ensuring that the shipping project has adequate support. There are a million ways for things to go wrong, which is why it's a good to have a bunch of different organizations working on the problem in parallel. By his own admission, Negroponte is more a visionary than a strong manager, which is precisely why he should have welcomed the entry of a company with Intel's logistical prowess into the market. It may not be as personally satisfying for him to have a for-profit company finish the job he started, but if the goal is to help poor children, then he should be happy to see them being offered more options.
We've been hitting on the theme that ideas are easy, while execution is hard for a while now -- and a friend pointed me to a worthwhile blog post by Brad Burnham, an experienced venture capitalist, now a partner with Union Square Ventures. Burnham muses that the successful entrepreneurs he's backed tended to be the ones who were the most open about their ideas, not just with him, but with everyone. What it really comes back to is this idea that ideas are easy and execution is difficult. The entrepreneur who is living and breathing the idea (and has probably already tested out a bunch of different related ideas) is likely to gain a lot more from the conversation with an outsider (even a potential competitor) than that other person is going to gain from talking to the entrepreneur. While there is an old-school mentality that you need to keep things secret, history has shown that that tends not to be the best way to grow a successful business. When you do that, you end up making all sorts of mistakes that a few conversations may have helped you avoid.
An interesting parallel to this debate is the discussion we had last year about noncompetes. What the research there has shown is that a big part of the reason for Silicon Valley's success is the fact that noncompete agreements are unenforceable in California. What happened, then, was much more job-hopping, and a much faster dispersion not just of ideas, but of problem solving and innovation across the industry. In AnnaLee Saxenian's book that kicked off this debate, she noted that Silicon Valley culture was such that many engineers here spent plenty of time discussing their biggest challenges with direct competitors, just to get better ideas -- believing that solving the big problems would work out better in the end for everyone, and that holding back ideas didn't solve anything. Amusingly, in that case, Burnham's partner at Union Square Ventures, Fred Wilson, took the other side: favoring noncompetes (though, I get the feeling Wilson's changing his mind as the evidence has been presented).
This also, by the way, goes completely against the theory (chiefly propagated by supporters of a stronger patent system) that without patents, the world would devolve into an innovation-free zone where trade secrecy ruled. That seems unlikely to happen, based on exactly what Burnham and others have noticed. Keeping an idea secret not only is unlikely to be effective, it can often stifle the necessary development. Thus, it will be the companies that are more open and free with their ideas that dominate the market. The key reason why, of course, goes back to what we talked about at the beginning. Ideas are certainly important, but it's execution that's the key to success -- and being more free in sharing your ideas will often help you execute better.
Burnham also asks about whether or not it's possible to "model" this openness -- and I think it is. In fact, in many ways it matches the infinite goods economic model we've been discussing, with the ideas representing the infinite goods, and the execution being the main scarcity. So, in the same way that freeing up music helps expand the opportunities for every other area of the music business, opening up your idea is likely to open up many huge new opportunities for the entrepreneur in how to execute successfully. If you really want to model it mathematically, you could probably build something based on the economic models that made Paul Romer famous (and should eventually net him a Nobel prize), but that might be overkill for what Burnham is looking for. However, if you're familiar with Romer's work, applying it to this scenario should make you see how much more powerful sharing ideas can be vs. keeping them secret. It's not just a small edge -- it can be a huge difference. I've been working on a few simpler models myself that I'm hoping to share (openly and freely!) soon enough, in the hopes that others can improve on them.