startingup

What this acquisition demonstrates is that there is a lot of established vendors who have cash burning a hole in their pocket, but no organic sources of growth. Years of bureaucratic culture - I would have said marketing culture but Apple does marketing well, so it would be a disservice to real marketeers to call Adobe's a marketing culture - has destroyed the technology soul of the company. Result: clueless management goes and overpays, aided and abetted by investment bankers (public) or VCs (private).

This disease abounds in the industry. Sun overpaid for a series of companies over a 7 year period; Intuit has acquired and done nothing with a whole lot of them; the less said about Yahoo the better; and VMWare + SpringSource ($400 million?) ...

I guess there is hope for a lot of start-ups yet ;-)

I agree completely. I am shocked by the amount of food they serve here in the US. I went out with a customer recently to one of those Mexican chain restaurants. Basically I was "done" at the appetizer stage. They proceeded to have the main course, and ordered dessert!

There are many times when my (petite) wife and I go out, and we share ONE meal and sometimes even have some left-over!

I would say "overproduction", on the expectation of high valuation (i.e valuation compared to the accumulated paycheck sacrificed). I do believe there is such a thing as "too many start-ups", a problem that will self-correct.

Hey, hey, let's go easy on the "superstition" part, OK? :)

One man's religion is another man's superstition, I guess! And shaving off the hair is pretty harmless, as "superstitions" go -I mean, I got a lot of friends pretty non-superstitious types who shave off their hair here in the valley.

I will accept that Facebook did not think this way (ie. it is cheaper to hire developer than acquire). But to be fair to me, until this parent comment, nowhere had you actually mentioned that you knew exactly why Facebook passed on the acquisition. Until you mentioned that fact, it was reasonable to assume that one party in a negotiation does not know all the motivations of the other party.

Having said that I would still let my thesis stand while withdrawing the Tipjoy incident as any kind of evidence of that thesis: given the proliferation of start-ups and the buyer's market, it is reasonable for acquirers to think that way.

"frickin Aspergers asylum ... " - you had me in splits on that one! Upvoted.

These are what outsiders know: a) Facebook and many acquirers looked at the company and passed b) Company ran out of money c) Facebook hired the developer, who also posts in the blog that his idea would work far better as part of Facebook or Twitter. I am not asserting that (a) and (c) are directly connected. It is perfectly possible that the people who looked at the acquisitions aren't the same ones who made the hire and the two sets of people may not even have talked to each other.

However the one thing no one outside Facebook can really know is why they passed on the acquisition. My reasonable guess is that they figured it would be cheaper to hire (some, not necessarily the same) developers and do it themselves. Are you asserting that it is outside the realm of possibility for them to have thought that way? Or that future acquirers, facing similar choices, would not calculate that it would be cheaper to hire developers after they run out of money?

In my mind, brand value equates to user traction. User traction alone isn't enough for valuation (particularly in sober times), particularly when the acquirers have massive user-bases themselves.

Microsoft's historical acquisitions were of that kind (starting with DOS!): technology/development teams, with little or no premium paid.

As an acquirer this is perfectly rational behavior.

Why make a VC rich? That is the logic that is increasingly being applied and the proliferation of start-ups makes that logic very compelling. Let's say FB next needs a real time video service. Do they really need someone else's brand or audience? They would likely scout for a hot development team with good technology, and there are many to choose from.

Basically it appears like Facebook made the rational calculation that hiring the developer at retail is a lot cheaper than buying the company wholesale.

That is consistent with what I have argued in HN comments: with the glut of start-ups (50 from YC alone this year?) prices will drop towards replacement value. The replacement value of a start-up amounts to a hiring bonus for its developers. This is likely true even with substantial user traction.

We saw much the same thing in the implied valuation of iLike - after liquidation preference, developers basically get a hiring bonus, if they stick around. And iLike had 10 million monthly users on Facebook.

So unless a start-up has a plausible path to independent profitability, it is going to be subject to the brutal laws of a buyer's market. In other sectors this effect has been well observed: take enterprise software for example. There are public companies with $100+ million revenue that trade for basically not much more than cash on hand.

Exactly the same way I have felt about both Scribd and Justin.tv.

Here is another "algorithm" to gain traction, last seen at Ning: 1) allow adult content - in their case adult oriented social networks 2) gain traction, 3) jettison the adult content to clean up your image.

At least this second algorithm has no legal issues, but third party copyrighted content, I have serious legal/ethical issues with.

I have never understood why Y Combinator never saw that as a problem.

For good or ill, GPL reflects RMS' personality, in much the same way start-ups reflect their founder's personality. GPL is a polemical, political statement, not just a software license. That reflects the fact that RMS is a moral philosopher, not just a programmer.

This is not to say that we should judge GPL by RMS' personality - GPL, just like companies people create, will stand on its own; all I am saying is that GPL is strongly influenced by the personality of its creator.

You may be surprised to hear this: that part about "stay in one place, do not talk to each other and look straight down" is true even in Japan and Korea, even in many high tech office settings. My vivid recollection when I worked in Japan was "These people are so nice outside the office, why do they become such expressionless robots inside?" I have many close friends in Japan (and we have done a lot of fun stuff outside the office), and so I would ask them this. They would shrug and say "At work we have to wear a mask, that is just the culture here, everyone has to conform to it." It felt oppressive to me, but they seem to take it in their stride.

I am fluent in two languages, and I have encountered the exact problem described in the article: I am trying to recall a word, and find that I can't. At times I can recall the beginning letter, even the rough sound of the word, but not the word itself. Then the word will come to me a few moments later in a flash. The embarrassing part is when this happens during a conversation; I have resorted to filler sentences or repeating myself as my brain searches frantically for that right word.

I used to worry if it was some kind of early warning of Alzheimers ... good to know this phenomenon has a more benign explanation too.

Several southern Indian states have achieved even more impressive population control (below replacement level fertility in a part of India that accounts for about 30% of the population) without any coercion at all. Even in northern states, fertility is dropping at a pace that has surprised demographers. I bet fertility would have dropped in China the same way voluntarily.

This is a company that I am just very uncomfortable with. Just so much pirated content. If they get anywhere close to popular, they are going to get sued. I hope they have a big war-chest.

I know the immediate answer - YouTube. Just because they got rich (Google still doesn't seem to have made money on the deal) doesn't make what they did right. Right and wrong, yeah, I know, very "quaint" notions.

After all, Wall Street investment bankers got very rich creating toxic waste and ultimately unloading it on the tax payer. I met a dude recently who was in that line of business, and he said it wasn't like they didn't know what they were doing. They all along knew what the game was, but their attitude was "I am getting mine, so who cares."

In the best of times, companies like Digg with fairly massive traffic have found it difficult to actually make a profit. And Digg is a poster-child of web 2.0.

Where does that leave the others dependent on similar user-generated-content-with-a-social-angle (which would describe so many of the consumer-oriented YC companies too)? Call me pessimistic, but I just don't see how the numbers add up to profitability, even ramen profitability for most such sites.

I have been in situations of ramen profitability and after a while (like 2 years) it gets tiresome. Even the most relentlessly resourceful people tend to throw in the towel and move on. This recession (depression?) looks like it will be around for a while.

To be fair, some of us saw this coming. Did you ever read blogs like Mish, Daily Reckoning, Prudent Bear etc. I have read them for years (at least 7 years in some cases), and they have been saying these things, based on very rational considerations such as historical comparisons to debt levels and so on. Bill Bonner of Daily Reckoning, in particular, unveiled his "trade of the decade" around 2000: sell the Dow, buy Gold based on VERY FUNDAMENTAL grounds. At that time Dow was ~12,000, gold was around $250/ounce. Today, Dow is ~7300 and gold is at $1000/ounce. Not bad for a long term prediction.

Following a lot of their advice, at a personal level, for example, I sold my home a few years ago (for a tidy profit), have zero debt, I am in mostly cash + CDs, have some gold etc. I haven't made much money on my investments (except in gold, and except the tidy profit on my home) but I haven't lost anything at all over the past 10+ years, simply because I didn't "play" the markets. I have a lot of gun powder dry ... I hope to pick up some great companies at 10+% dividend yield at some point, for example.

Many people did see it coming. Most of them were the Austrian-school libertarian types - in politics, check out Ron Paul's speeches going back several years, as an example.

The unfunny part is that the exact types of mainstream Keynesians who didn't see it coming are claiming they have the fix for all this mess. That is what should make you really afraid. Most of us who saw all this coming think these morons will screw it up even more than it is already screwed up. How is that possible? Think World War III, just as one scenario or Zimbabwe/Weimar Republic for another scenario (and a nightmare that combines World War III + Zimbabwe, if you are really into horror stories!) ...

Is it all psychology? Absolutely not. Debt is REAL. There is nothing psychological about 10x (or 40x) leverage. Psychology simply accentuates the direction, but real fundamental factors are involved here.

Exactly the response I meant by "hiding behind the DMCA". To call Scribd an ISP is a stretch. They pretty much invite anyone to upload anything, and it is not clear they take any step to take out copyrighted content (entire books can be found there) until someone sends a DMCA notice. An ISP is a transmission service, while Scribd is a stateful, long lasting, very search-engine optimized storage service. An ISP doesn't by design intent (SEO!) carry traffic to copyright infringing content. Some day a distinction like that could come back and bite them in the ass, but their hope must be to "exit" before that happens.

I will be charitable here (you can tell I am not a huge fan either!). I have seen a couple of people use the site, and they use it to publish short stories and such. They could always post it to a blog, but I think Scribd gives them nice search engine optimization. Even for this legitimate use case, the flash player is a bit of a turn-off for me.

But the reason I am not a huge fan is the sheer extent of copyright abuse going on there. Turning a blind eye to it - hiding behind DMCA really - is not kosher, and I frankly wouldn't want to do business that way, no matter what the profit.

I have seen some Bangladeshi immigrants in Japan speaking Japanese fluently. They got to Japan well in their twenties. Necessity, mother & invention come to mind.

I would like to believe Paul's thesis, but in the back of my mind, why do I get the feeling "He is trying to scare investors into putting money"?!

Seriously, I think over-supply of start-ups will crash prices. Yes, there is no limit to wealth creation, but even so, it is easy to upper-bound wealth creation over, say, the next 5 years. We can say with confidence there won't be more than, say, $10 billion worth of web start-up acquisitions over the next 5 years (in total, not per year) - that was about the total in the last 5 I would estimate and I think I am being fairly optimistic here. Even that $10 billion would be parceled out in the 80-20 rule - a couple of YouTube home runs, a few singles and doubles, and the remaining mass of start-ups have to fight over a fairly small pot of gold.

My objection is consistent with economic theory: over-supply leads to serious price crashes, even when you make the favorable assumption (which is not exactly true in the start-up case) that in the long run, the over-supply can be absorbed.

SugarCRM is open source? They offer an open source version as a kind of sampler/taster, but their main offering is not open source.

PG overstated the case IMO. Having good bosses helps many people, and being independent helps a (I believe a smaller number of) other people.

One of the problem with managers today is the MBA and the management ideology that it has spread. The average MBA makes a lousy manager, in my observation.

Government and market are both human institutions. Market is really a convenient shorthand for "distributed, decentralized, uncoordinated economic transactions between consenting parties with an interest in the outcome", while government is shorthand for "centralized decision making made by disinterested economic actors". Please note that "disinterested" is a value-neutral term - it implies that the decision makers don't personally & directly benefit from the outcome.

Once you have the definitions right, you can see the benefits and pitfalls for both approaches. If you believe in maximizing human freedom, it is very clear that leaving people free to transact as they wish is the best path for all but those rare edge cases.

Yahoo is a classic 1990s land-grab story: go public, use the inflated stock to grab as much territory as possible. In that game, they out-executed everyone else (Lycos, Infoseek, Excite ...) Keep in mind Viaweb was one of their minor land-grabs!

Inevitably, this process destroys the soul of the company. The people who sold them companies mostly didn't stick around (pg!) because they realized there was no soul.

It is very hard to repair such companies (I never say impossible, but very hard!). The comparison is not Apple, because Apple was never built that way. Even in its darkest hour, it had a soul. To give a more relevant contrast, I believe Sun can be repaired, but alas, the longer management fiddles, the more difficult the task becomes.

Sun's current cost structure doesn't begin to be supported by revenue. It has ~32,000 employees, and makes $12 billion in hardware revenue, with declining gross margins (Dell, Rackspace etc. are commoditizing servers). Their "strategy" for growth is open source, but after 10 years, they still haven't shown how they will make money out of Java. MySQL is a $100 million a year business, respectable, but there is no way to see how it grows to billions without pissing off and driving away the very users that made MySQL successful.

If I were them, I would cut deep, real deep, like 50% lay-off, assume further drastic erosion in their margins (and plan to be profitable with such drastic erosion), and crucially, with a slim-but-sharply-focused R&D division, focus on coming up with innovations that people are willing to pay for.

Apple did it, Sun could. It has the heart of a great company faintly ticking somewhere deep inside, but alas, current leadership hasn't shown it is up to the job.

Sun's current cost structure doesn't begin to be supported by revenue. It has ~32,000 employees, and makes $12 billion in hardware revenue, with declining gross margins (Dell, Rackspace etc. are commoditizing servers). Their "strategy" for growth is open source, but after 10 years, they still haven't shown how they will make money out of Java. MySQL is a $100 million a year business, respectable, but there is no way to see how it grows to billions without pissing off and driving away the very users that made MySQL successful.

If I were them, I would cut deep, real deep, like 50% lay-off, assume further drastic erosion in their margins (and plan to be profitable with such drastic erosion), and crucially, with a slim-but-sharply-focused R&D division, focus on coming up with innovations that people are willing to pay for.

Apple did it, Sun could. It has the heart of a great company faintly ticking somewhere deep inside, but alas, current leadership hasn't shown it is up to the job.

I was using Circuit City & Mervyns as strawmen examples. Realize that AmEx employees are some of the highest paid in America, while Mervyns' people are among the lowest paid.

A government loan (by definition on more favorable terms than what they can get in the market) to AmEx is inevitably a subsidy to those high paid employees. Mervyns having to raise funds at 15% or 25% or whatever loan-shark terms they could get - yes, entirely their own fault - means that by extension, their low paid employees have to bear that interest burden on the company.

Why should we the taxpayer subsidize AmEx? Why not let the do the write down of their bad assets? In what sense Mervyn's management mistakes more punishment worthy than AmEx management mistakes?

Here is a modest proposal: any company requesting a government loan should accept civil service pay rules for their employees. Would AmEx employees put up with it? They can get the fuck out of they don't like those terms and find real private sector employment.

By now, we should really be concerned about the immorality of it all. AmEx is one of the richest corporations in the world, serving mostly well-to-do clientele. On what moral basis do they get this aid? What is wrong with letting them do the write-off, fail if necessary?

On what moral basis can the same government deny <name-your-company> aid? So why not Circuit City? Why not Mervyns - I was there at a closing-store sale yesterday, the employee's faces told me everything. I am not advocating bailing out any of them, but if AmEx is OK to bail out, why not Mervyns? Is it because the Mervyns employees are a lower breed of human?

It is making my blood boil.

It would be nice to know some real stats, like subscribers, revenue etc. not just vaporous speculation about valuation.