It’s not a space I like very much because I don’t think we’ll be using files in the cloud. Now Dropbox is a brilliant company and an amazing service and they are doing very well, but will we need a service like Dropbox when everything is in the cloud? I don’t think so.

He’s absolutely right:  cloud storage/file sharing is not the end-game.  It’s just an intermediate step to what users ultimately want:  (a) having their documents and “stuff” everywhere, and (b) being able to easily share things, with manageable security and access control parameters.

Eventually, these capabilities will be built directly into apps and operating system platforms, as we’re starting to see with Apple’s iCloud.  This will severely threaten third-party providers, such as Dropbox.  Remember FTP Software and Stacker?  They were hot products until they became operating system features, and then their revenues fell off a cliff.

Yesterday, New Scientist published an excellent article by Jim Giles that outlines the hijacking business practice (and associated customer lawsuits) in much more detail.   His article includes a link to a tool developed at Berkeley that screens your Internet connection for a variety of ISP manipulations.  If you’re suspecting your ISP, you should try it out.

… I am concerned that he [Zuckerberg] sets an example of meteoric success that virtually no one else will ever be able to repeat. But wannabes are trying to copy him, and consequently squandering their careers on false hopes.

For pure-software/Internet/mobile ideas, the low barriers to entry have created a very crowded, “weedy” ecosystem.   It’s a great time to be a consumer (e.g. look at the number of mobile apps and free Web sites), but a very tough time for entrepreneurs in these segments.  More and more projects look like lottery tickets:   long odds, with a slim chance of payoff.

Why do entrepreneurs do it?  It’s partially the psychology of poverty, where entrepreneurs hungry for success (financial or otherwise) make irrational decisions. Worse, a startup career commitment, unlike a lottery ticket, has an especially high opportunity cost.   The other element is a belief that skill can influence the outcome.  This is generally true, but is much less so in these segments:  competition is fierce, copying is rampant, and success often comes from quirky combinations of factors that are difficult to plan.

We will have more big Facebook-scale lottery outcomes, and that will spurn more entrepreneurial career bets.  But I think the smartest entrepreneurs will avoid the lottery.

Many Google+ reviewers focus on “Circles” and “Hangouts”, which are great features.  I also think they’re relatively easy to copy:  Facebook has had friend lists for a long time, with the ability to limit visibility of status updates.  It’s not as cleanly presented as Circles, but that’s fixable with some UI work.  Hangouts should also be relatively easy enough to copy.

I think Google+’s rapid uptake is less about feature advantages, and is much more about being the “new bar in the neighborhood”.  Bars are defined somewhat by their decor and menus, but also by their “crowd” — the regular patrons and the way they behave.

Social networks are no different, and I’m guessing the initial burst of interest is coming from those seeking a new “crowd”.  I’ve seen a few Facebook-resisting friends jump on immediately.  Many of us joined Facebook initially for friend/personal reasons, then tried to figure out how to appropriately add in a professional layer (some are still struggling with this).  Google+ is a clean slate, a way to start over.

My hunch:  Facebook and Google+ will track similar features over time, but will diverge based on the “crowd”.  Facebook will be “fun, party, games, joking with friends”, while Google+ will be “drinks after work with colleagues”.

I’m really wondering what Skype gets out of this.  Facebook’s chat is not integrated with Skype at all, and you only briefly see a Skype logo when the video chat starts.  How is Skype worth N billion when video chat is now a Facebook feature?  I know Skype has some good technology (esp. with firewall traversal), but how hard is it this days to implement robust video chat?

UPDATE:  Skype has a nice blog post on how the integration works.

Finally, I really wish Facebook would invest more in their mobile apps:  getting them current with video calling, and rolling out an iPad app (please!).

When Facebook brings multi-user video chat to the iPad, it’s “game over”!

Demand Media has a mix of businesses, including a domain name registrar.  The most visible property is eHow (acquired in 2006), which you’ve likely seen in search results. For eHow, Demand Media pays authors small amounts (~$15 and up) to write focused topic articles, then decorates those articles with ads.  As you’d expect for these price points, articles are relatively low quality (see how to roast a chicken).

Their risk for Google search algorithm changes has been well-reported.  Google has gone on record they are going after low-quality content, and recent algorithm updates appear to have hit eHow hard.  Demand Media has downplayed the impact, saying:

… the Company currently expects that its year-over-year page view growth across its owned and operated Content & Media properties in the second quarter of 2011 will be comparable to, or greater than, the year-over-year page view growth achieved in the second quarter of 2010.

This will likely be true, because they’ve added lots of new article content in the past year.

But it avoids the real question:  how do Google’s updates affect the per-article ROI?   Can Demand Media make a $20 article fee back in some reasonable period of time?

On this issue, what’s most interesting is Demand Media’s accounting treatment of the article fee. Instead of treating it as an expense (as a newspaper would do with journalist salaries), Demand Media argues their articles are a capital asset, with the creation cost depreciated over 5 years.  This method makes them look more profitable (or less unprofitable) than they would otherwise:  instead of a $20 article expense in the first year, they only expense $4.

Depreciation makes sense for assets that have a relatively predictable lifespan and value:  telephones, furniture, servers, tools, machinery, etc.   In this case, it’s a stretch application of the concept.  First, things change, and 5 years is forever in Internet time.  Second,  the content’s value-over-time is heavily influenced by external factors that they can’t control:  the search rankings (which are trending the wrong way), and the emergence of competitive content.

My bet:  their per-article ROI was already on the cusp, and Google’s updates are pushing it in the wrong direction.  Their content’s asset values will decline far faster than the depreciation model reflects, and they’ll be stuck holding the remaining depreciation expense.

What am I missing?

I’ll concede that the US Constitution has made our in-state/out-of-state sales tax system a bit quirky.   But I object to these bills because they put Massachusetts at a competitive disadvantage in the emerging Internet economy, at a time when more entrepreneurs are eyeing NY and CA for new companies, instead of MA.

It’s also not clear there’s any material revenue benefit:  in other states, Amazon (and other vendors) have responded by canceling their affiliate programs in those states.

These bills are being pushed by Wal-Mart, other multi-national retailers, and the Retailers Association of Massachusetts (RAM), who argues:

Our local small businesses operate at a significant 6.25% price disadvantage to out-of-state, online businesses, leading to fewer sales at brick-and-mortar establishments who contribute so much to our community.

This highlights my real objection:  these bills are about protecting the status quo, without taking a rational and realistic view of the future.  Any MA-based retailer facing out-of-state mail-order competition should be considering the future of commerce.   There are 49 other states where that retailer can sell tax free!  That’s hardly a “disadvantage”.

Like many issues, it’s always helpful to understand the deeper issue.  This is really about Wal-Mart pushing around Amazon.  I can only hope that the MA legislature doesn’t rise to the bait.

For example, consider ideas around DVDs:  they’re still very popular, but their future seems clear.  With bandwidth and storage advances, movies will be like music is today:  downloaded on demand.

These kinds of ideas aren’t necessarily bad, but they require a shrewd assessment of how big the window of opportunity really is.  Trying to build a company is hard enough; doing it while the market is moving in the other direction is virtually impossible.

But at least you should know going in:  is your idea oriented in the “right” direction?  Do you have enough time?

A few days ago, Ben Horowitz wrote one of the best blog posts I’ve ever read, all about CEO psychology:

By far the most difficult skill for me to learn as CEO was the ability to manage my own psychology.  …  Over the years, I’ve spoken to hundreds of CEOs all with the same experience. Nonetheless, very few people talk about it, and I have never read anything on the topic. It’s like the fight club of management: The first rule of the CEO psychological meltdown is don’t talk about the psychological meltdown.

This blog post is a must-read for all CEOs and boards; it’s very good stuff.

Being CEO was the toughest job I’ve ever had, no question.  It was an intense and extreme range of emotions:  I never laughed so hard, or cried so hard.  I went between periods of pure optimism, to periods of deep anxiety with many, many sleepless nights (in both cases).  I formed some new, lifelong friendships, all while feeling I let down all of my friends when things didn’t go as planned.  CEOs attract more blame than credit; it is the most demanding job in the world.

I’m glad so Ben wrote this, because the “leader” personality type tends to avoid signs of personal weakness.  CEOs talk about “managing to the metrics” or “rallying the troops”, but you never hear “I’m depressed”, “I’m tired”, “I need help”, or “the team is pulling me in three different directions and I can’t choose”.

There’s a reason my friend calls the job “CPO” — Chief Psychological Officer.  That “other stuff” is usually the Real Stuff.

Across the companies I work with, there’s a very strong correlation between those that found a new twist on acquiring customers early on, with success in the business.  In contrast, those companies that ended up acquiring customers in more traditional ways (e.g. Google AdWords, display ads, etc.) have struggled much more and grown more slowly.

Taking this even further, I think differentiation for many companies resides not with the product idea itself, but with customer acquisition methods.  For the Web and mobile, ideas are plentiful, often easily copyable, and increasingly narrow (because it’s gotten so crowded).  With the ever-growing app/Web-site/messaging bombardment, it’s impossible to get new user attention.

This viewpoint is heresy for many product-oriented entrepreneurs, but I think it’s more right than wrong.  I frequently meet entrepreneurs that have 10 slides on product/service, but only 1 on customer acquisition.  That ratio of attention is completely backwards.

And taking this to the extreme, I’ll share advice I recently gave a friend.  He’s a very creative product guy, working on a bunch of new product ideas.   I suggested he invert things:  stop working on products, and start working on customer acquisition opportunities.  Then, figure out the apps that will engage those customers.