The latest from TechCrunch
- Scamville: Zynga Says 1/3 Of Revenue Comes From Lead Gen And Other Offers
- How To Spam Facebook Like A Pro: An Insider's Confession
- Avoiding the Cargo Cult And Getting The Trans-Atlantic Startup Model Right
- Scamville: The Social Gaming Ecosystem Of Hell
- The Valley of My Dreams: Why Silicon Valley Left Boston's Route 128 In The Dust
| Scamville: Zynga Says 1/3 Of Revenue Comes From Lead Gen And Other Offers | Top |
| A big part of the debate about the lead gen scams plaguing Facebook and MySpace via social games is over how much money is being made on these “offers.” Zynga, by far the most successful at building and monetizing these games, is now telling us exactly how much – 1/3 of total revenues, according to Andrew Trader , a co-founder of Zynga: Andrew Trader, co-founder of Zynga, said the company makes about a third of its revenue from advertising and another third from virtual goods transactions. The last third comes from companies that provide commercial offers, trading Netflix memberships and marketing surveys for in-game cash. Zynga revenue guesses range all over the place, but are likely $250 million a year or more. That means $80+ million/year is being brought in from legitimate offers like Netflix subscriptions, as well as the really smelly stuff like recurring mobile phone and learning CD subscriptions that trick users into paying big dollars for little or no return value. What percentage of offer revenue is scammy? We believe it varies over time, and is heading in the wrong direction. Legitimate advertisers like Netflix and Blockbuster, hit with countless laundered subscriptions from repeat subscripers, are said to be dramatically lowering bounty fees paid on signup. Far less scrupulous advertisers like Video Professor and Tatto take their place. HotOrNot cofounder James Hong said it best in a comment to our post yesterday outlining the scams : “In a nutshell, the offers that monetize the best are the ones that scam/trick users. Sure we had netflix ads show up, and clearly those do convert to some degree, but i'm pretty sure most of the money ended up getting our users hooked into auto-recurring SMS subscriptions for horoscopes and stuff.” Offerpal and others, who provide these offers to game developers, try to downplay the percentage of revenue that comes from scams. Clearly they are obfuscating the truth, to put it kindly. Facebook and MySpace must takes steps to address this. Crunch Network : CrunchBase the free database of technology companies, people, and investors | |
| How To Spam Facebook Like A Pro: An Insider's Confession | Top |
| Last night we wrote about the lead generation scams within social gaming networks. This is a guest post by Dennis Yu , the CEO of BlitzLocal , a privately held 50 person advertising agency in Denver, Colorado, specializing in local search engine marketing for franchises and professional service firms via Google and Facebook. BlitzLocal is no longer in the business of spam, but they do specialize in Facebook advertising and are now using the platform they've developed to run campaigns for big brands and small businesses. Dennis writes a blog at dennis-yu.com Did you know how Mark Zuckerberg supported Facebook in the early days, before he got venture funding? Casino ads. And how about those advertisers who were making over $100,000 a day selling Acai Berry and other weight loss products – they are friends of mine, pioneers of new advertising channels. You see those ads saying “Inbox (5). Nick, someone in San Francisco has a crush on you!" (with your name, profile picture, and city in the ad). I generated millions of dollars from these offers on Facebook – I am not proud of it, but it was very lucrative. I will walk you through how these online scams work on Facebook and other social networks – the mechanics of how the money is made, some of the people involved, and who is actually clicking on ads. If you're reading this article, there is a good chance that you are not the type of person actually clicking on these spam ads, but are you curious as to who actually is? In June 2007, Facebook opened up their application developer platform so that anyone could build games on top of the social network. By having access to user data, game developers could instantly make engaging, viral games. Rate who is hottest among your friends, share quizzes, race cars, grow vegetables, and so forth – all with a click of a button. Users in one click gave the game permission to access their profile data and they didn't think twice about it. Facebook hadn't consider what was possible when the game developer passed on user name, profile picture, and personal details on to an advertiser – and the kind of deceptive ads that were possible. These ads looked like they were from Facebook- the blue button, white background, same font. And, of course, they had your profile picture, your name – plus that of your friends, in the ad. If you're a 15 year old girl, would you know what's being served by Facebook, the game developer, or the ad network? These same offers have been running for years on MySpace, using tactics such as fake Windows system messages and pop-ups. But the perfect storm being able to dynamically insert user data into an ad, disguising the ad to seem like part of the application, lack of enforcement by the social networks, and billing the parents' cell phone – well, it's no secret what happens next. By early 2008, the platform was generating 400 million impressions a day, as people poked, bit, slapped, kissed, and drop-kicked each other to the glee of a college-age crowd of game developers. These developers weren't professional corporations – they are college kids who build a game for fun over the weekend and now discovered they could make over $10,000 a day in ad revenue. Yes, we wrote some big checks. The numbers today are much higher. Given the choice of making money versus being ethical, these kids chose money in nearly every instance. When the Facebook platform first launched, developers used Google AdSense, which was paying 10-15 cent eCPMs, meaning that developers were earning 10 to 15 cents for every 1,000 ads they shown. But soon, ad networks, such as the one I operated, stepped in to show that by using social data and some clever ad copy, we could raise this to well over $6—that's 60 times better than AdSense. AdSense was getting a 0.1% CTR and earning 15 cents a click. Our ads were getting up to a 4% CTR and also earning 15 cents a click. You do the math. Believe me, I tried to do honest optimization—running legitimate flower ads on Valentines Day, Walmart ads on Cyber Monday, auto insurance offers on car racing games, and so forth. For months, I went through over 150 offers across a dozen networks, systematically testing offers, ad copy, targeting, creative templates, and so forth. I couldn't get a single one to work. And in a previous life I worked on Yahoo!'s internal analytics team—our job was to optimize traffic. I finally came to this realization: People on Facebook won't pay for anything. They don't have credit cards, they don't want credit cards, and they are not interested in shopping. But you can trick them into doing one of three things: Download a toolbar : It could be spyware (such as Zango) or something more legitimate, such as Webfetti or Zwinkys. Give up their email address : You've won a "free" camera or perhaps you've been selected as a tester for a new Macbook Pro (which you get to keep at the end of the test). Just tell us where you want us to ship it. Give up their phone number : You took the IQ Quiz, so give us your phone number and we'll tell you your score. Never mind that you'll get billed $20 a month or perhaps be tricked into inviting 10 other friends to beat your score. Method #3, getting their phone number, has been the most lucrative thing on Facebook, even more than the fake weight loss offers, for the last 2 years. As an ad network, we are at the mercy of what the game developers want—more money. Here's what ad networks struggle with—to either run what ads make the most money else be forced out by other ad networks willing to be shadier than you. Publishers (game developers) choose whoever makes them the most money. And that led to things like: Showing personal data on landing pages : This got a couple ad networks banned —they took the user name and images and put them on landing pages, which increased conversion. This is the equivalent of steroids in Major League Baseball. Cloaking : This is when you show a different page based on IP address. We and most other ad networks would geo-block northern California—showing different ads to Facebook employees than to other users around the world. One of the largest Facebook advertisers (I'm not going to out you, but you know who you are) employs this technique to this day, using a white-listed account. Our supposition is that it makes too much money for Facebook to stop him. Believe me, we have brought this to Facebook on several occasions. Here's what this fellow does—he submits tame ads for approval, and once approved, redirects the url to the spammy page. To be fair, players like Google AdWords, have had years more experience in this game to close such loopholes. Sharks who smelled blood : I was contacted by every major ad network to either run their offer and/or help them optimize their ad platform. One CEO (not saying his name, but they're on Comscore's list of the top 25 ad networks) threatened physical violence if we didn't cooperate with him. I got wined and dined like you wouldn't believe. That's how much money was at stake—whether on the game inventory or the self-serve ad platform. Weak enforcement : Paul Jeffries, who enforced (or didn't enforce, depending on your view) the platform rules, wanted to allow a laissez-faire economy, stepping in only when the violations were so egregious that his call center was getting flooded with complaints. He called me into a meeting and told me that my ads were costing him more in customer service than any revenue I was possibly generating. That pre-supposed that he knew what we were generating – in the high 5 figures a day. And most of that was profit, since we paid out only a fraction of what we earned. Remember that we had to beat only what Google AdSense generated. There was no way that Facebook – and definitely not the Federal Trade Commission—could keep up with the "innovation" happening. Witness the virtual currency scam , where users complete the offers mentioned above to earn points in a game. It doesn't take a genius to know that the quality of such leads is garbage – these users are filling out forms just to get the points. They sign up for Netflix , a platinum credit card, get an auto insurance quote, whatever. The industry term for type of traffic is called "incentivized". The underlying advertiser is paying for these leads much like they would if they were coming from paid search. They may be told they're getting incent traffic—or maybe not. Or maybe the ad network, the middleman between the advertiser (company paying for traffic) and publisher (source of traffic) is mixing PPC, email, and incent (also called social) traffic to hit certain quality thresholds. Either way, the advertiser is usually blind—they can't see the referral data (which is understandably masked) and they probably can't figure out what's going on anyway. The three major ad network that deal in incentivized (or virtual currency) are OfferPal, SuperRewards, and Q Interactive. OfferPal is run by Anu Shukla—she and I have sat down before, where she flatly claimed that most of her offer inventory was unique (it was actually brokered from MemoLink, a company down the street from us in Denver). Ms. Shukla also touted her optimization technology, but couldn't discuss it because of the proprietary nature—I'm sure you understand. You can watch her video with Arrington to judge for yourself. SuperRewards is run by Jason Bailey (aka ChickenHole), who was able to quickly morph himself from Millnic Media to this new company. This fellow would call me up and yell at the top of his lungs, as I wouldn't refund his money for setting up multiple accounts to game our network. I did refund his money, only once he agreed to a ban on our network. Q Interactive is the quietest, but largest player of group. Formerly coolsavings.com, it's run by Matt Wise, and is, in my opinion, the most reputable of the bunch. They have Fortune 500 clients and a more massive bankroll and sophisticated technology platform. You won't find information on their virtual currency platform , as they work with large publishers only. The offers across all of these networks are similar. There is a lot of money to be made if you're a game developer on the MySpace or Facebook platforms, so choose your ad networks wisely. Ad Networks are not going away soon, as the big brands aren’t there yet and someone must fill that vacuum. In case I have thoroughly disillusioned you of all social advertising, let me prognosticate of a slightly brighter future: When any new platform opens up, the spammers are there first: Traffic is cheap and their untargeted offers are profitable. But as legitimate advertisers come on, they bid the price of traffic up and squeeze out the spammers. The most powerful bit of social advertising, unlike traditional PPC, is the ability to target by interest and by location. And local represents 74% of Facebook's ad revenues in 2009. That's a deceptive stat, as it likely includes dating, which is technically "local” – but the point still stands. Facebook will either clean things up or become a MySpace : Users loved the "trust" and "clean look" of Facebook. I believe Facebook will put controls in place on their fledgling platform, as told to me by the executive in charge of their online marketing. I honestly believe from my meetings at Facebook, that they've all drunk the Zucker-koolaid and are putting the user experience ahead of earnings. That's why, if you're a UK resident, you're not seeing those sexy Russian dating ads from a couple months ago—but man, were those profitable. But you may continue to see these girls: Deceptive ads will be gradually replaced by trusted ads: The underlying premise of all the advertising techniques we've discussed so far is that trickery is profitable. Fool them into thinking the new friend request is from Facebook, lie to them that the miracle skin crème is actually free, tell them they'll earn points if they just click this button – which then puts their email address on a list that's resold to the top spammers in the world. Incidentally, if you hate someone, sign them up for one of those free offers – it will burn their email to a crisp. Just kidding – don't do that. The local and big brand advertisers are slow to react, but will eventually shift their ad dollars to Facebook, as they figure out how to advertise effectively. Facebook is the "other Internet" and represents 25% of all pageviews in the US. What's possible right now: Imagine getting an ad on your birthday, saying "Happy Birthday, Nick! Mention FBCAKE and get a free slice of cake today at Jim's Coffee Shop" (yes, you can target people on their birthdays ). What if you're a B2B company and want to hit small businesses? You can target by job title and company. That's not possible in traditional PPC, where a search for "massage" can be a consumer with stiff muscles, a student looking for a massage school, or a practitioner looking to buy massage supplies. What if you're Maggianos and want to target folks who like Olive Garden? You can | |
| Avoiding the Cargo Cult And Getting The Trans-Atlantic Startup Model Right | Top |
| This guest post was written by Roman Stanek, the founder and CEO of Good Data, a cloud-based business intelligence startup headquartered in San Francisco. Roman has been a tech entrepreneur for almost 20 years. He was founder and CEO of NetBeans (acquired by Sun Microsystems) and Systinet ( acquired by Mercury Interactive and later Hewlett Packard). Read Roman's blog here. When I met Michael Arrington back in April, I told him he was crazy to dismiss the possibility of a first-class technology startup coming out of Europe. I was born and raised in the Czech Republic, I’ve spent the last 15 years working towards building a global hi-tech company. So naturally I took it a bit personally. But I’ve been thinking about this quite a bit since then. The story usually goes that Europeans just don’t have the drive and commitment to spend enough hours necessary to get a fledgling company to an escape velocity and grow it from there. Our love of the two-hour lunch and Augusts in Provence is the evidence most often cited to prove this theory. But I believe that there are some very driven people in Europe who are willing to put enough time into it. My problem with the European startup ecosystem is somewhere else. I actually believe that it bears some signs of a Cargo Cult. Here is the definition from Wikipedia: A cargo cult is a type of religious practice that may appear in traditional tribal societies in the wake of interaction with technologically advanced, non-native cultures. The cults are focused on obtaining the material wealth of the advanced culture through magical thinking, religious rituals and practices, believing that the wealth was intended for them by their deities and ancestors. The best known examples of Cargo Cults come from some Pacific islands during World War II. The American airfields and their personnel brought relative prosperity and modernity to the island people, but once the war was over the Americans took their planes and equipment and left. The local people wanted to bring the prosperity back but they did not understand the substance of why the Americans came there. They only saw the form. And so the locals crafted wooden headphones, lit fires to light up runways and tried to attract back the planes with canned food and other useful goods by emulating airfield traffic. Something similar happens in the startup community in Europe these days. People start companies, write business plans, meet with investors, talk about term sheets and exits. But in reality most Europeans don’t actually understand the substance of the system—the business plans are wooden headphones and term sheets are fabricated control towers. Repeating the form of US-based startups without a real understanding of how much the deep and complex ecosystem of Silicon Valley contributes to the success of VC-funded US startups won’t bring prosperity to companies coming from Europe. In order to overcome the limitations of not being in the Valley and to avoid the the cargo cult mentality, I had to adjust the typical model. I’m on my third attempt to get the trans-Atlantic startup model right. I started my first “global” startup in Prague in the summer of 1997. I was so impressed by Marc Andreessen and Netscape that I wanted to build something similar. And so I started NetBeans and sent the business plan to Esther Dyson. Esther introduced me to her friends in Silicon Valley. And that’s when I first realized that I had no idea how the system works. And so NetBeans was marketed in the US, we raised money here but the engineering team was always based in Prague. We were ultimately able to build the company on a shoestring. Eighteen months later we got a call from Sun Microsystems and we agreed to sell our baby. I did not know until the last day if my transaction was going to happen. I had spent all my money (and more) on lawyers and advisors and there was no break-up fee in the term sheet. Startups are absolutely not for the faint of heart. I thought Systinet would be very similar, but it turned out quite different. We started working on the code in Prague in 2000. By the time I got here after the Summer of 2001, the situation did not look so rosy. Fortunately we managed to get the attention of the VC community; by Christmas time we received a $21M term sheet from Warburg Pincus. In November 2005 we signed a term sheet with Mercury Interactive for $105M. What we did not know is that during the due diligence, Mercury would be investigated by the SEC for stock option backdating and the company was delisted from Nasdaq. Not a pleasant experience for a small startup going through a very disruptive (and expensive) process of being acquired. Mercury was eventuaally acquired by HP. I am now working on my third startup: Good Data. I am a huge fan of the Customer Development Model by Steve Blank, but it assumes that the company can continue spending money on engineering and market/product fit tests until the target market is actually validated. And as much as I like the startup ecosystem here it seems to me that the people cost of software development forces startups to launch half-baked products. Very few companies can make the “Four Steps to the Epiphany” work financially – this is one reason having engineering located in a cheaper country from day one is a major plus. Good Data is still early but we managed to raise money from Marc Andreessen (among others)—the same person who inspired me to start NetBeans. Since Good Data was born in the cloud, we own no hardware (except notebooks), we have no PR agency, we do no outbound marketing, there are no software downloads, but we’re able to release a new version of our service to our customers twice a month. Startups are cheaper to operate these days, and technology helps us be much more agile than ten years ago—agile throughout our business. And being here in the Valley lets us be part of new trends—we can move even faster. My advice is always the same to European entrepreneurs: emulating and competing with Silicon Valley startups in Europe looks easy but the substance is quite a bit more complicated. You just cannot compete with Silicon Valley completely from the outside. Europeans—and all entrepreneurs—should consider that bootstrapping and focus on local markets is usually a better way to obtain the material wealth of the advanced culture rather than through magical thinking, religious rituals and practices. Crunch Network : CrunchBoard because it’s time for you to find a new Job2.0 | |
| Scamville: The Social Gaming Ecosystem Of Hell | Top |
| Last weekend I wrote about how the big social gaming companies are making hundreds of millions of dollars in revenue on Facebook and MySpace through games like Farmville and Mobsters. Major media can’t stop applauding the companies long enough to understand what’s really going on with these games. The real story isn’t the business success of these startups. It’s the completely unethical way that they are going about achieving that success. In short, these games try to get people to pay cash for in game currency so they can level up faster and have a better overall experience. Which is fine. But for users who won’t pay cash, a wide variety of “offers” are available where they can get in-game currency in exchange for lead gen-type offers. Most of these offers are bad for consumers because it confusingly gets them to pay far more for in-game currency than if they just paid cash (there are notable exceptions, but the scammy stuff tends to crowd out the legitimate offers). And it’s also bad for legitimate advertisers. The reason why I call this an ecosystem is that it’s a self-reinforcing downward cycle. Users are tricked into these lead gen scams. The games get paid, and they plow that money back into Facebook and MySpace in advertising, getting more users. Who are then monetized via lead gen scams. That money is then plowed back into Facebook and MySpace in advertising to get more users… Here’s the really insidious part: game developers who monetize the best (and that’s Zynga) make the most money and can spend the most on advertising. Those that won’t touch this stuff (Slide and others) fall further and further behind. Other game developers have to either get in on the monetization or fall behind as well. Companies like Playdom and Playfish seem to be struggling with their conscience and are constantly shifting their policies on lead gen. The games that scam the most, win. And some users aren’t dumb, either. For every user who gets tricked into some fake mobile subscription, there’s another who can beat the system. That’s where the legitimate advertisers, like Netflix and Blockbuster, get hit. Users sign up for a free trial with a credit card, get their game currency, then cancel the membership and start over. Netflix has a policy of only paying for a user once. But game developers use a complex set of partner chains to launder these leads and try to get them through for payment. Netflix sees an overall lowering of quality and pays less for leads. Game developers, desperate to monetize, then search for ever more questionable offers to make up the difference. In the end, the decent advertisers are out, and only the worst of the worst remain. Left alone, the system really will slide into a full blown disaster. The platforms (Facebook and MySpace) are in a position to regulate this, and even have rules prohibiting some scams . But those rules are routinely ignored by developers, and are rarely enforced by Facebook and MySpace. There can be only one reason Facebook and MySpace turn a blind eye to user protection – they’re getting such a huge cut of revenue back from these developers in advertising. If they turn off the spigot, they hurt themselves. Zynga may be spending $50 million a year on Facebook advertising alone, fueled partially by lead gen scams. Wonder how Facebook got to profitability way ahead of schedule? It was a surge in this kind of advertising. The money looks clean – it’s from Zynga, Playfish, Playdom and others. But a large portion of it is coming from users who’ve been tricked into one scam or another. And recent moves by Facebook to shut down application spam only make the problem worse in some way – game developers have to spend more money on advertisers to get users now that the viral channels are shut down. That means the games have to monetize even better. Which means more scams. It’s time for this to stop. Facebook and MySpace need to create and enforce rules against it so that game developers aren’t tempted to get a competitive edge by scamming users. And if Facebook/MySpace won’t protect users, then the government will have to step in. There’s an easy way to determine if something is a scam or not. For any particular offer, ask yourself if anyone would buy the product or service if the terms were clearly spelled out for them, and they weren’t being bribed with in-game currency. The answer for many of these is a resounding “no.” A few examples are below. Examples Of Scams: A typical scam: users are offered in game currency in exchange for filling out an IQ survey. Four simple questions are asked. The answers are irrelevant. When the user gets to the last question they are told their results will be text messaged to them. They are asked to enter in their mobile phone number, and are texted a pin code to enter on the quiz. Once they’ve done that, they’ve just subscribed to a $9.99/month subscription. Tatto Media is the company at the very end of the line on most mobile scams, and they flow it up through Offerpal, SuperRewards and others to the game developers. As you can see in the image below, nothing in the offer says that the user will be billed $10/month forever for a useless service. Another scam: Video Professor. Users are offered in game currency if they sign up to receive a free learning CD from Video Professor. The user is told they pay nothing except a $10 shipping charge. But the fine print, on a different page from checkout, tells them they are really getting a whole set of CDs and will be billed $189.95 unless they return them. Most users never return them because they don’t know about the extra charge. Woot. Again, sites like Offerpal and SuperRewards flow these offers through to game developers. See here for more on the Video Professor scam. Of course, there’s no mention of any of these payments in the offer itself: An Industry In Denial Yesterday I attended the Virtual Goods Summit in San Francisco. In the Q&A session of one panel I asked Offerpal CEO Anu Shukla to explain the ethics of her business, and outlined my ecosystem of hell argument above. Shukla went on a tirade, calling my points “shit, doubleshit, and bullshit” (yes, really), but never really addressed the points. A video of the exchange is below, care of Alexa Lee . Offerpal now has a blog post up on the exchange, but they still don’t address the issues. They offer misdirection, denials and a shield of rules that are never actually enforced. Sadly, most of the audience of game developers was on Offerpal’s side. Many of these developers see quick dollars with lead gen scams and they don’t really care about how users are affected. In one session earlier in the day, IGG Cofounder Kevin Xu recommended that game developers “get users in the door to play free, then monetize the hell out of them once they’re hooked.” Sadly, it’s simply human nature to push the rules until they break. It’s time for Facebook and MySpace to protect their users from this stuff and make sure it stops. p.s. – An interesting development. Offerpal defended their mobile survey scams on stage and in the blog post referenced above, saying there was no scam involved. But today those offers have quietly been pulled down from all the games I’ve checked. If there’s no scam, why remove them? At least some good is coming from my ongoing rants. Update: Two Companies That Said No To Social Media Scams Update 2 : How To Spam Facebook Like A Pro: An Insider's Confession Update 3: Scamville: Zynga Says 1/3 Of Revenue Comes From Lead Gen And Other Offers Crunch Network : CrunchBoard because it’s time for you to find a new Job2.0 | |
| The Valley of My Dreams: Why Silicon Valley Left Boston's Route 128 In The Dust | Top |
| No one disputes that Silicon Valley is the global capital of the tech world. But this wasn’t always so. It is the Valley’s dynamism and networks which have given it an unassailable advantage. Silicon Valley has simply left rivals like Boston’s Route 128 in the dust. I mentioned a little bit about my first Columbus Day in California in a previous column . But I didn't tell you the whole story. I was invited to three amazing events on the night of October 12. Venture capital firm Alsop-Louie —known as one of the wackier and unconventional VC firms—invited me to their legendary Columbus Day party. On that same evening I had an invite from Henry Chesbrough, Executive Director of the Center for Open Innovation at the University of California-Berkeley to attend a dinner party for his forum. Down in Silicon Valley I also had an invite to speak at an event with India’s former Minister of Disinvestment, Arun Shorie —the guy who was once in charge of privatizing the country’s moribund nationalized firms and who is as close as you can get to financial royalty in India. It was a really hard decision which one to pick. And I found myself wondering, where else in the world would I have to face such a decision? The answer is nowhere. Silicon Valley, which has expanded to embrace the entire Bay Area as an engine of entrepreneurship and innovation, is a unique place of powerful and concurrent overlapping networks. As a new arrival to Silicon Valley and San Francisco, I had read about this and did believe it. But it was hard to understand to what degree these types of concentric circles of connections were pervasive in the Valley. I am now studying how some of these networks develop and their influence on success rates in entrepreneurship. I am focusing on what is possibly the largest of these networks, an organization called The Indus Entrepreneurs (TiE). This started as an Indian network and served as a mechanism for those from the Subcontinent to help each other. Silicon Valley is the birthplace of TiE and remains its stronghold. But at the latest TiE Global Conference, held in Silicon Valley a few weeks ago, an interesting debate broke out among the Board of Directors. While the organization remained largely Indian in composition, a significant number of non-Indians had joined TiE and become very active members (some had risen to the role of chapter president). Some members of the board thought it was time to change the name of TiE from The Indus Entrepreneurs to The International Entrepreneurs. They eventually agreed to drop the "Indus" from the name and to just call the organization TiE. The fact that such a debate even took place illustrates both the power of networks to embrace outsiders and draw them in, as well as the power of these networks, when unconstrained by convention or conservative establishment rules, to grow in unexpected ways. It’s a metaphor for Silicon Valley. Which brings me to Boston. Ever heard of Route 128? To my surprise, neither have any of my students at Duke or the entrepreneurs I've met in Silicon Valley. I'm surprised because it wasn't so long ago that Silicon Valley was considered a poor cousin of Boston's tech center—a cluster of technology companies located along this freeway which partially rings the city. Starting in the 1960s and on through the 1980s, Route 128 was, if anything, more closely associated with tech than Silicon Valley. Today few young technology workers even know where Route 128 is located, let alone its importance in the tech world. Silicon Valley has simply left Boston's tech center behind. In the 1980's the Silicon Valley and Route 128 looked very similar—a mix of large and small tech firms, world class universities, venture capital, and military funding. If you were betting on one you’d have been wise to bet on Route 128 because of its longer industrial history and proximity to a large number of high quality educational institutions (Harvard, Yale, Brown, MIT, Tufts, Amherst) and proximity to Bell Labs and other large corporate research centers. You remember Bell Labs, right? It’s where the transistor was invented. Now, aside from big biotech breakthroughs, Boston is a distant second nationally to Silicon Valley in technology entrepreneurship. So, what happened to Boston? A young professor at UC-Berkeley, AnnaLee Saxenian , wrote a book in 1994 which answers this question. At a time when Boston still thought it was the powerhouse of the tech industry, Saxenian declared Boston the loser in the tech race and explained why it would only fall further behind. This book was titled Regional Advantage : Culture and Competition in Silicon Valley and Route 128 . It kicked off a firestorm of criticism from the Boston elite. Saxenian also alienated friends at her alma mater, MIT. She noted that Silicon Valley had an amazing dynamism about it. There were extensive professional networks, job hopping was the norm, information was exchanged openly, and the culture encouraged risk taking. The Silicon Valley ecosystem supported entrepreneurial experimentation and collective learning. In other words, Silicon Valley was a very open network—a giant social networking site working in analog before the concept of such a thing even existed. This organizational mechanism was in sharp contrast to that of Route 128. Dominated by large, vertically integrated, and secretive minicomputer producers such as DEC, Wang, Prime, and Data General. Technology, skill, and know-how were trapped within the boundaries of the large corporations. The differences were evident at many levels: venture capitalists in Silicon Valley had deep roots in local networks and were far more nimble than their east coast counterparts; educational institutions and research labs in the West partnered with local startups as well as more established firms, while those in the East worked only with the largest corporations; and the meritocratic openness of Silicon Valley made it a magnet for non-traditional talent and immigrants. By the mid-1990s the east had missed the shift from minicomputers to personal computers as the flexible Silicon Valley ecosystem sped ahead with innovation across a diversifying range of components and systems going from chips, routers, and application software to ecommerce and search engines. Today Silicon Valley is the leading location for cleantech venture activity, an area widely considered to be the next big value creation engine for the U.S. and the world. Boston, however, is no slouch. The Route 128 community remains the second biggest in the U.S. in terms of venture funds committed. Boston has powerful research institutions, still, and lots of very strong companies. In some areas, such as biotech, Boston may even rival Silicon Valley. But overall, its pretty clear that the Valley has not only won but is racing further ahead. Most entrepreneurs and engineers that come to Silicon Valley, come to experience this network and to embrace the culture it has created. That’s why I came, too. Network effects don’t just work for fax machines. But then again, most of them knew that intrinsically. University guys like me need to do a bunch of surveys to figure it out. They voted with their hearts and feet. Editor's note: Guest writer Vivek Wadhwa is an entrepreneur turned academic. He is a Visiting Scholar at UC-Berkeley, Senior Research Associate at Harvard Law School and Director of Research at the Center for Entrepreneurship and Research Commercialization at Duke University. Follow him on Twitter at @vwadhwa . Crunch Network : CrunchGear drool over the sexiest new gadgets and hardware. | |
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