BusinessWeek asked some CEOs what they thought of Obama's performance so far and here's the blurb they quoted for me:

Andy Grove wrote an interesting piece on how the computer industry became more horizontal with the advent of the PC and it may be time for the auto industry to do something similar.

The car industry today is as vertical as the computer industry was before the PC. However, the simplicity of the electric car combined with the standardization of certain components may cause the automobile industry to shift to a horizontal structure. The Internet is already emerging as a key marketing medium for automobiles and is easily adaptable to a horizontal structure.

Richard A. Epstein on "Why the Obama Stimulus Plan Must Fail" 

Ex nihil nihilo: out of nothing, nothing comes. It is as though corporations could work their way to greater wealth by making stock dividends to their shareholders. One might as well increase the size of a cherry pie by increasing the number of slices.

The evidence would appear to suggest not:

The Obama administration wants to regulate venture capital firms to prevent systemic risks. Silicon Valley residents are scratching their heads and asking: What risks? The rest of us should ask why Washington is targeting a jewel of the American economy that had nothing to do with the housing bubble.

The confusion began when Treasury Secretary Timothy Geithner recently told Congress that large venture capital (VC) firms should be forced to register with the Securities and Exchange Commission (SEC), and submit regular reports on their investors and portfolios. Data collected by the SEC would then be shared with a new risk regulator to ensure that VCs aren't "a threat to financial stability."

Since then, venture investors have been trying to solve the mystery of how they could possibly threaten the financial system. Their work involves very little banking. Venture firms raise equity from wealthy investors to buy ownership stakes in small companies. The VCs and the companies in which they invest use little or no debt.

James Freeman gets it:

If our economic system is to thrive, venture capital is exactly the place where we have to encourage risk. In pursuit of innovations that will enrich themselves and the world, employees at start-ups accept low pay and reputational risk, while well-heeled investors accept the possibility of losing every nickel of their investment.

Attempts to limit risk pose a systemic threat to American technology. Venture capitalists, mainly veterans of the tech industry, are deeply involved in the companies they back, often helping to recruit each of the key employees at a start-up. This hands-on feature of venture investing means that innovative companies and their backers tend to cluster in areas like Silicon Valley. If the VCs move offshore, that's probably where the next generation of companies will be born.

I'm hoping Geithner's comment is born of ignorance, not calculation, for if it's the latter then we're in trouble.

UPDATE: comScore's Gian Fulgoni has some VC quotes on this.

I just wrote about the disturbing trend of Internet censorship in democracies around the world, and this story is a case in point. A bill supported by President Sarkozy that would have cut off Internet access to people was defeated, but may be resurrected next month. What crime must you commit to lose your Internet connection?

The measure would have created a government agency to track and punish those who pirate music and film on the Internet. Analysts said the law would have helped boost ever-shrinking profits in the entertainment industry, which has struggled with the advent of online file-sharing that lets people swap music files without paying.

So a department of Internet monitoring and censorship, empowered to cut of your Internet connectivity with the full force of the French government, would be established to help boost a flagging industry. How long before the censorship agency would be used for other sorts of control over Internet freedom?

Legislators and activists who opposed the legislation said it would represent a Big Brother intrusion on civil liberties -- they called it "liberticide" -- while the European Parliament last month adopted a nonbinding resolution that defines Internet access as an untouchable "fundamental freedom."

I am very sensitive to the rights of copyright holders, but let's remember that it is not a natural right, such as freedom of expression or even physical property rights. It is a man made right -- an artificial monopoly created by government fiat to provide a limited economic incentive for creators to produce.

In the US, you don't find copyright in the listed in the Declaration of Independence as an "unalienable right," such as "life, liberty, and the pursuit of happiness," but rather its justification is found in Article 1 of the US Constitution that "The Congress shall have Power To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries."

Your copyright comes at a cost of my freedom, and so it is a right that should only be very carefully applied when there is a compelling societal interest, and in a limited fashion. I'm not against punishing lawbreakers, but this bill is beyond the pail.


UPDATE: NYT covers this story.

UPDATE: Reid expands on his ideas in this TechCrunch piece. He still hasn't won me over on point 3 though.

Here is a great column by in the Washington Post making the point that entrepreneurship is a major engine of growth for this country and it deserves some stimulus.

Entrepreneurs are the fertile soil for job growth and recovery. Small companies represent 99.7 percent of all employer firms, Commerce Department data show. They pay nearly 45 percent of U.S. private payroll and have generated 60 to 80 percent of net new jobs annually over the past decade.

There are few people who are more credible or smarter when it comes to technology entrepreneurship than Reid, who has PayPal and LinkedIn on his resume and, as he mentions in this piece, has invested in over 60 companies. I should also mention that he is an investor and board member of Six Apart -- and a friend.

I think he is right on when he makes the point that although there is some focus in the stimulus package on scientific research, that "new ventures -- not merely new technologies -- need to be championed as the course to stability."

As for Reid's proposals, I would support some and I am more skeptical of others (this would not surprise Reid :) ).

First, he proposes that we "encourage small business with loans. Apply to the United States the micro-lending model that has proved successful in developing countries, extending credit lines of up to $50,000." I would like to hear more about this. There are parts of this I like. The costs of starting a tech business -- an Internet business especially -- are now relatively low and it would be great to have more start-ups get financed by small loans. VC is in a sense the most expensive form of financing, but it has come easy in the past and so entrepreneurs haven't relied on raising money from banks or, heaven forbid, customers (i.e. selling something!) as a means of funding operations as much as they should. So I like the general idea.

However, I'm a bit wary because we saw what artificial incentives for banks to lend to those that couldn't afford mortgages did to the overall credit market, and I wouldn't want this $50k incentive to similarly distort markets. If there is a way to free up lending to start-ups by lowering barriers but without artificial distortions in the credit market, I'm all for it.

Second, he would "welcome foreign innovators" by urging lawmakers to remove "the cap on H-1B visas while imposing a 10 percent payroll tax above and beyond the benchmark salary for any position being filled by holders of such visas." This is the subject for much more discussion but I am strongly in favor of eliminating the cap on H-1Bs. I think it's crazy that this country is severely gating our ability to attract the best and brightest from around the world and Reid is right to focus on this as a severe hindrance to entrepreneurship in this country. I don't like his 10% payroll tax increase, but I'd accept it if it were the only way politically to remove the cap.

Third, "match funds for venture capital and angel investments. Venture firms and investors need financial incentives to invest in companies that create U.S. jobs. What if firms with credible histories could receive as much as $100 million in federal matching funds if their investments create jobs in the United States?" This is my least favorite of his proposals. In the first place, my sense of the angel and VC markets is that there is in fact plenty of money out there still, though this may be changing, and investors don't really need artificial incentives to invest. What they need are returns.

And it's on the liquidity side that investors are having the biggest challenges with unstable and plummeting public financial markets and regulations such as SarBox making it ever harder and expensive for companies to go public. Companies from around the world are now looking elsewhere to list when they used to look only to the NYSE and Nasdaq. There is a whole lot that could be done to improve liquidity options for companies and I'd like to see more focus on this.

Also, I am very skeptical of injecting the federal government into private investing. It will undoubtedly come with strings attached, as so much of the recent government intervention has, and frankly it's not needed. And once a system gets hooked on federal funds, it rarely weans itself off. Finally, "credible" venture funds as a class have not had a challenge raising capital, so this seems to be a solution in search of a problem. The scarce commodity is not private capital but the time and talent of capable investors who should want a full return on their effort rather than giving half of it away. Such a system would actually lower the returns on investors time, which is a zero sum, and probably not be in the best interests of the industry.

(Fred Wilson has a more detailed and eloquent take on this which I endorse.)

If the goal were to infuse more capital into private investing, I'd prefer a different approach. Right now there are a huge number of impediments for individuals to invest in private companies. Reid can invest in 60 companies because he is experienced and is an accredited investor, but most people simply can't invest in these companies by reasons of law, regulation, legal cost, and sheer logistics. Many of these limitations are imposed on people to "protect" them from themselves. Thank goodness we've been preventing people from private investing so that they can keep their money in the public markets! Another classic example of a system that punishes the responsible in an attempt to protect the irresponsible.

I am sensitive to the need to protect less sophisticated investors from shams, but it strikes me that there should be some middle ground between the public market which is easy and open for investors but difficult and expensive for companies and the private market, which imposes fewer restrictions and costs on companies but is much more challenging and restrictive for investors. This, more than anything, restricts the flow of capital to start-ups.

The very purpose of a financial market is to provide capital and liquidity to businesses -- they are not an entitlement for individual investors -- and when they stop serving that purpose effectively we should ask what we can do to fix things. Whether this means lessening the burden on public companies, or loosening the restrictions on private investors, or coming up with a middle way, perhaps by freeing up personal investment in venture funds or creating mutual fund like vehicles -- or all three -- we should be exploring these avenues.

And finally, I have to say that I'm a bit disappointed that there is no comment here on the Obama tax increases. Whether you are for or against the income and capital gains tax increases and the massive implied taxation on the energy sector put forward by President Obama, we should not kid ourselves that these don't come at a cost to entrepreneurship. These taxes will hit many wealthy individuals who fund a lot of start ups and many SMBs that file as individuals -- and capital gains is the return on their investment so higher taxes here will further impede growth. Rather than take this money out of the financial system, and then use the political system to dole funds back to favored constituencies, how about leaving it there in the first place?

Finally, as Internet companies grow we depend on energy (how much does LinkedIn spend on power in its data centers?) and so I believe this heavy regulation on energy will come at a real cost to growth in the Internet sector.

I think this is a good conversation that Reid has started. I support much of it, but I would love to have more discussion not on what the government can do to play favorites but instead what it can do to remove impediments for people like Reid to do what he does best -- grow companies and create jobs.

Thanks to Auren Hoffman for the pointer to this interview in The Australian with Professor Clayton Christensen. The discussion is along the similar lines of one I had with Kevin Maney a couple of months ago and expanded on here. It's also the reason why I think the assertion that The Economist made that "Gone... is any sense that blogging as a technology is revolutionary, subversive or otherwise exalted," is a premature judgement on the medium that may be proven wrong in 2009. Here's some of the interview, but the rest is worth reading too:

BUSINESS INSIGHT: Professor Christensen, tell us a little bit about what you think the effects of the financial crisis and economic downturn will be on the environment for innovation.

DR CHRISTENSEN: I think it will have an unmitigated positive effect on innovation.

BI: That's counter-intuitive.

Dr C: Well, it will force innovators to not waste nearly so much money.

One of the banes of successful innovation is that companies may be so committed to innovation that they will give the innovators a lot of money to spend.

Statistically, 93 per cent of all innovations that ultimately become successful started off in the wrong direction; the probability that you'll get it right the first time out of the gate is very low.

So, if you give people a lot of money, it gives them the privilege of pursuing the wrong strategy for a very long time. In an environment where you've got to push innovations out the door fast and keep the cost of innovation low, the probability that you'll be successful is actually much higher.

BI: In other words, what you're saying is that prosperity tends to insulate innovators from market realities and allows them to pursue their vision - a vision which is probably wrong, statistically speaking.

Dr C: That's a perfect summary of how I think the world works. The breakthrough innovations come when the tension is greatest and the resources are most limited. That's when people are actually a lot more open to rethinking the fundamental way they do business.

I believe that when viewed through the rear view mirror, 2008 will turn out to be one of the most significant years in blog history. It will be a key inflection point when the blog economy - that sum of value created around blogs and bloggers - moved to establish its true independence.

What is the blog economy?

Often there is an artificial divide between the non-commercial and commercial side of blogging. We see stories about those making money off of blogging, but this seems to be a universe only for stars. But I view the blog economy as a much larger, and more complex, ecosystem that includes both financial and non-financial aspects. While it includes large corporations who are using blogs as part of their marketing and outreach strategies, from GM to Boeing to Intel, it also includes that value that blogs are increasingly bringing these organizations *internally* -- as blogging is becoming a way that organizations are communicating within themselves, and to their best customers.

Blogs aren't just being used by large organizations of course. Millions of people are using blogs to augment ... well, whatever it is that they do. From pundit blogs that we know so well in the political and tech space, to the flood of food and entertainment blogs, to expert blogs written by designers, marketers, lawyers, scientists, economists, and the like to the SMB blogs written by boutique wineries, photographers, craftsmen of all kinds, and businesses in countless industries. Some of these blogs are used simply to get attention to a small business of professional service. Some are used to directly drive ecommerce, and everything in between.

The biggest story, however, may be how blogs continue to transform media.

From experiment to strategy

Blogs became infamous for being the unbridled alternative to MSM, and we all had a lot of fun debating whether this ease of publishing is ultimately to the good or the bad. But it strikes me that this vector of discussion is becoming outmoded - much as the false "bricks vs. clicks" dichotomy of the dot com era obsessed us for too long. Of course it's both, not an either or. Large media have in great measure embraced blogging, and indeed bloggers. What started out as experiments in the past 5 years are evolving into outright strategies as media companies realize that conversations happen on blogs and they better participate. This not only takes the form of links back and forth, but of publishers getting into blogging themselves - and in some cases acquiring the blogs outright. Look at USA Today, Washington Post, Time, Conde Nast, Hearst, NBC, ABC, CBS, and on, and on, and your see media brands building communities - and traffic - through non-traditional means, with blogs, forums, and other forms of social media. A key driver here: the insatiable demand of publishers for more inventory. When it comes to blogs, to steal a phrase from that thief Willie Sutton, blogs are increasingly where the readers are. I believe the significantly lower cost of acquiring traffic via social media will be essential to making the online arms of most media companies profitable.

From hobby to career

But it is the independent bloggers that deserve the highest praise -- the folks that are on the frontier, pushing the medium as they invent new businesses and reinvent new media. Boing Boing, Gothamist, TalkingPointMemo, Huffington Post, Serious Eats, ReadWriteWeb, Simply Recipes, Cute Overload, Celebrity Baby Blog, and many, many, many others who have turned what may have started as a hobby into a career. Success has come quick for some, but for most it has been the product of years of labor, sometimes only for love, not money, with that indispensable ingredient for entrepreneurial success: perseverance. It doesn't hurt to have a little je ne sais quoi to help one blog stand out among millions, but inevitably you'll find plenty of blood, toil, tears, and sweat behind each success.

But many of these folks are exhausted. Absolutely exhausted. Blogging, done right, is work. And there is often a phase in which the blogger has achieved just enough success to be independent, but not enough to be flush. They can pay their bills but they also wear many hats -- and can't yet afford to build a team to wear some of those hats for them. Some have managed to pass the exhaustion phase - they've been able to raise money or generate enough revenue to hire a team - but others are realizing that a profession brings new demands to their hobby.

This is when the concerns of having a site that works, that scales, that's beautiful, that engages the community, that facilitates a greater level of participation, that is cutting edge... become critical. Some have argued that the gap between the small and the successful is just too large for most, and others depend on venture capital to close this gap. With no offense intended to our VC friends, selling part of your blog to investors shouldn't be the only way to make it sustainable. We think we can help emerging bloggers: we can be their team.

This is why we at Six Apart, always in service to bloggers from our very creation, see that while our mission hasn't changed, how we deliver on that mission is expanding. We started Six Apart Services, and acquired the fantastic company formerly known as Apperceptive, because bloggers of all types are asking for more on top of the tool, the service, the platform. From large media companies to aspiring independents, they want help building, help designing, help running, and help pushing the limits of their site. They also want help making money.

Yet another ad network?

We are invested in the success of the bloggers and the companies we serve - whether they are hobbyists, pundits, passionistas, amateurs, prosumers, professionals, or experts - and increasingly this means helping them make a living. The good news is that Internet advertising continues to grow dramatically, and blog advertising spending is growing at a rapid clip too, creating huge opportunities for emerging bloggers.

It is certainly not an underreported story that a wave of blog ad "networks" has emerged to take advantage of this opportunity. While this often elicits eye-rolls from those pundits whose favorite headline starts with "yet another..." there are aspects to this that are underappreciated. First, it takes a village: an energetic push from a large number of players, many venture backed, evangelizing, cajoling, and selling Madison Avenue on how to makes an effective entrance into social media is vital for the whole enterprise to come of age. Second, this discovery process will drive innovation.

We launched Six Apart Media not as YABAN (we ban the word "network" here, lest we elicit images of pork bellies, and I am in trouble already for using it here!), but because we think there is a better way to serve bloggers and marketers alike. Too much advertising is simply "targeted" IAB ads, shingled on the side of a blog. Too much is low-CPM, low-value direct response or backfill ads that don't deliver as much as they could for the publisher. We think there is a better way.

Fear v. greed cycle

And that better way inevitably includes brands. Brand advertising against branded media has been well understood for a long time, but brands on online communities & UGC is something very new. And yet brand advertising makes a huge portion of overall media spend. We've been selling branded advertising against a large set of bloggers and we believe there is new territory here that will fundamentally change how the blog economy works. The good news is that, in our assessment, we are reaching a new point in the cycle.

We all know about the fear/greed cycles of markets. The more we talk to marketers the more we see that the concern about whether they should even touch social media is being supplanted by another concern: they may be left out. As now in 2008, for the first time, more Internet users read blogs than not, marketers realize that blogs are where many opinions are created, shaped, and influenced. It's shifted from a "whether" question to a "how" question. We think that the "how" is best answered with intelligent, high-engagement, custom content campaigns that fully leverage the platform - and we feel this platform advantage makes Six Apart Media unique.

Next phase in blogging: social publishing

Which leads us back to where we started: the platform. This new phase isn't about "business blogging." It about how this complex ecosystem is operating to move the whole medium forward. Traditional blogging, with easy publishing of reverse chronological posts and comment threads, gave birth to this blog economy, and the economy in turn is pushing forward a new, modern form of blogging. This modern blogging, infused and influenced by the innovations of social networking over the past years, is in many cases moving past single author/single blog sites. Sites are becoming more complex, with multiple blogs and multiple authors - sometimes with posts not in reverse chron! Readers, who became commenters in traditional blogging, are becoming members. Vital contributors -- who have profiles, comment histories, guest posts, etc. - develop identities on the sites they frequent. The cutting edge sites, like many of the ones I mentioned above, are forging a new form of social publishing. Social networking for socializing is powerful, but it isn't the end of the story. Community around content is a growing form of social networking.

This is what has driven the success of our Movable Type Community Solution, which launched last year, and has helped dramatically improve how sites interact with and engage their readers. We think it's the cutting edge of blogging - and there is a lot more to come. And, of course, the services and innovations that emerge, spawned by the growth in the blog economy, serve everyone blogging and reading blogs, not just those trying to make money.

What's so great about 2008?

While there are many early adopters, and there will be laggards too, it feels like 2008 is an inflection point year. The year in which professional media embraces blogging as a strategy, rather than an experiment. The year in which bloggers turning their hobbies into careers is a common tale, not an outlier. The year in which for the first time more Internet users are reading blogs than not. The year in which brands let their desire to participate in social media overtake their trepidations. The year in which a modern form of blogging hit center stage, ushering in a new form of social publishing.

While there is nervousness about the global economy - a tide that in the short term may lower some boats - the blog economy has never been better.

From Henry Miller:

Human rights? Their expansion and consolidation are worthy goals, to be sure, but Vasella's saccharine altruism brings to mind economist Milton Friedman's 1970 reproachful observation that "businessmen believe that they are defending free enterprise when they declaim that business is not concerned 'merely' with profit but also with promoting desirable 'social' ends; that business has a 'social conscience' and takes seriously its responsibilities for providing employment, eliminating discrimination ... and whatever else may be the catchwords of the contemporary crop of reformers." Friedman derided business executives so inclined as "unwitting puppets of the intellectual forces that have been undermining the basis of a free society." ...

Businesses do not have social responsibilities; only people do. And inasmuch as corporate leaders work for the owners of the business, their responsibility is to pursue the best interests of their employers - interests that relate primarily to making as much money as possible while conforming to the legal rules and ethical norms of society. By taking actions on behalf of the company that he decides arbitrarily are "socially responsible," a corporate executive is, in effect, spending someone else's money. His actions reduce returns to stockholders, which means he is spending their money.

One of the easiest things to do is to spend other people's money on causes in which you believe. One of the most difficult, but most meaningful, is to spend your own money. If executives wish to support non-business-related goals of their own choosing, they should make charitable contributions from their private fortunes. Many charitable foundations have been established precisely for that purpose.