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VC Pitches in a Year or Two

280 points by SethMurphy 13y ago

SethMurphy 13y ago
While I agree with his premise, there are already industries that used to be startup focused where there is a gatekeeper. E-commerce has Amazon, advertising has Google (and possibly Facebook), which already destroy new startups before they really get started through this same VC mindset. It seems to me that the balance of power is just moving up the line a bit to industries where VC's have little to no power to influence.
- antr 13y ago
  The power isn't moving up, but turning the model into a pay-to-play one. The economics for US startups and businesses overall will change considerably (for worse).
- rhizome 13y ago
  In what way(s) is Amazon a "gatekeeper" to e-commerce?
  - SethMurphy 13y ago
    Maybe I didn't word it properly. It is in the sense that VC's say, well Amazon could do that too, we'll have to pass. They are more of a gate that does not open.
antr 13y ago
I'd like to believe that many European entrepreneurs will reconsider going to the US to start a company. The European Parliament and the Commission have been straight shooters with net neutrality and they will not consent telcos to play with the pipes.
- eloisant 13y ago
  Still, if you're located in Europe but want to target the US audience as well (a huge market), you're going to be affected anyway.
  - antr 13y ago
    Yes, but it's rarely the case. US startups don't target any other places outside the US at first. The friction to start is in the US not in Europe.
    - troels 13y ago
      I don't think that's true. Most consumer focused startups will target the US market, even if within the EU. It's by far the largest homogenous (well, relatively) market. Targeting "Europe" isn't really a thing - You have to target each country individually.
ankitml 13y ago
Facebook already does this in india. I remember seeing an advertisement of a telco that said you wont be charged for data for facebook. Does this means that India already had this non neutral internet? It didn't change the scenario much here.
- suhailpatel 13y ago
  I remember here in the UK, Three (a UK mobile network operator) allowed for free access to Facebook. This was before the days of the iPhone though and it took you to a stripped down mobile site.
  - robmcm 13y ago
    Vodafone offer free access to Spotify or SkySports with some packages, although I am not 100% confident it's free data, or free service.
  - rahimnathwani 13y ago
    Three also offered free access to Skype. It used (uses?) a Three-specific Skype client (available for many, but not all, models of phone) to do the presence and signalling over data, and the voice over the normal mobile voice channel: https://support.skype.com/en/faq/fa10976/how-can-i-get-skype-for-my-3-phone https://support.skype.com/en/faq/fa10976/how-can-i-get-skype... To protect revenue, SkypeIn was blocked, and SkypeOut was restricted to non-UK numbers.
OoTheNigerian 13y ago
The issue of Net neutrality is a global phenomenon/risk. Telcos in Nigeria abuse their positions as the primary carrier of data and they are protected by having 'licenses' MTN and Rocket Internet recently tied a deal. I wrote about the risk here http://oonwoye.com/2013/12/17/mtn-rocket-internet-deal-worries-me/ http://oonwoye.com/2013/12/17/mtn-rocket-internet-deal-worri...
prolifically 13y ago
I hear him, Internet could become a caste system for businesses. But from what I understood, the ruling was more about the FCC trying to bend rules to accomodate everyone with carrier types (common carrier?). Yesterday's ruling raised awareness but the game is far from over.
r0h1n 13y ago
This is already reality in some countries. Like India for instance. 1st Indian entrepreneur: I plan to launch a search engine that understands Indian languages and contexts better than Google. VC: Well since Google has already paid telcos like Airtel (http://www.airtel.in/free-zone/ http://www.airtel.in/free-zone/) so their searches and even some results don't use up any of the data plan, we are passing. 2nd Indian entrepreneur: I have an idea for a social network that is better than Facebook. VC: Sorry, Well since Facebook has already paid telcos like Airtel (http://www.medianama.com/2014/01/223-airtel-facebook-free-hindi/ http://www.medianama.com/2014/01/223-airtel-facebook-free-hi...) so their site/app doesn't consume data while being used, we are passing.
- wslh 13y ago
  In Latin America too, and Facebook was part of that. I don't know why this issue was not discussed earlier. If I remember well, it started with the facebook applications for mobiles more than 3 years ago. Just a few times less developed countries predict what will happen in US (technologically speaking!)
- Grue3 13y ago
  Enterpreneur: I plan to launch an encyclopedia that people can edit, and it's better than Wikipedia VC: Well, since Wikimedia Foundation has already convinces telcos to provide their data for free (http://wikimediafoundation.org/wiki/Mobile_partnerships http://wikimediafoundation.org/wiki/Mobile_partnerships), we are passing. Now wait a goddamn minute. This doesn't make any sense. The alternative is even worse: no free access to Wikipedia. Is this what you're arguing for?
  - nightpool 13y ago
    The difference is Wikimedia doesn't pay for this benefit, the telcos are doing it because they support Wikimedia's mission. Any company with a similar mission and better execution has a chance of talking the telcos into a similar deal. The argument is that the paid types of mobile partnerships add another cost onto the already high barrier to entry into the market. This supports monopolistic practices by these companies, and reduces competition in the industry. That's the problem with removing Net Neutrality.
TTPrograms 13y ago
The author is missing the point that the ruling was about the specific language of the FCC regulations. See: http://gigaom.com/2014/01/14/breaking-court-strikes-down-fccs-net-neutrality-rules/ http://gigaom.com/2014/01/14/breaking-court-strikes-down-fcc... "That said, even though the Commission has general authority to regulate in this arena, it may not impose requirements that contravene express statutory mandates. Given that the Commission has chosen to classify broadband providers in a manner that exempts them from treatment as common carriers, the Communications Act expressly prohibits the Commission from nonetheless regulating them as such. Because the Commission has failed to establish that the anti-discrimination and anti-blocking rules do not impose per se common carrier obligations, we vacate those portions of the Open Internet Order." It seems very likely that the FCC will rewrite their regulations to fix this. Everyone knows that net neutrality is important, and this ruling is just an issue in legalese. It's a little early to resort to torch-and-pitchfork hyperbole.
- virmundi 13y ago
  Perhaps you're right when you say, "Everyone knows that net neutrality is important". My gut says otherwise. There is a strong contingent on the hill to allow companies to do what they want. They want to make money like this. The government will allow them to do so. Heck the head of the FCC is one of the companies that want this. So I doubt she'll be running off to change phrasing anytime soon.
- fredwilson 13y ago
  I am "the author" and I do understand that but the point of my post was to simplify the issue for the vast majority of folks who don't get the net neutrality issue
- declan 13y ago
  It seems very likely that the FCC will be slapped down a third time in court if they try to "rewrite their regulations" a third time. They're 0 for 2 so far before the DC Circuit. "General authority to regulate" is a legal term of art. It probably won't take you as far as you like.
deleted 13y ago
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zxcvvcxz 13y ago
Not the point of the article, but is anyone else annoyed by these "entrepreneur-sounding" ideas? I'm so sick of low-tech, solve-first-world-problem ideas and conflating that with entrepreneurship. If I were the VC, I'd tell them to get the fuck out, and it'd have nothing to do with Telcos.
- keerthiko 13y ago
  That's probably the biggest difference between you and VCs in the biz today. These ideas actually sound so legitimately like they could be funded today, and make mad bank while at it too. And that's all "normal" VCs care about, so there you have it.
  - sabbatic13 13y ago
    I wouldn't even qualify this by saying "normal." VCs are hyper-capitalists. Other people give them money with the mandate to turn a profit...period. That's the whole job. Most of us "normal" tech folk get migraines looking at the silly crap that gets funded, but a VC's job really isn't about anything else, and couldn't be ethically, unless the people who pay into the fund wanted it that way. The investors who do the stuff that I suppose one would call meaningful tend to be investing their own money or their friends' money, or it's a slice of a regular fund used in a way similar to corporate donations. Plenty of VCs do care about tech and meaningful endeavors, but that has to be secondary, unless they are playing with their own money. There seems to be a lot of misconceptions about what the business of investment is, when it comes to venture capital, for some reason. I've spent enough time around the activity and the people that I can see what it is and the logic of it. I don't really like it, but then I don't like a lot of things in our culture.
- josefresco 13y ago
  You missed the point. The author was choosing startup ideas that compete with entrenched entities that are also potentially data-intensive. I don't think the ideas themselves were supposed to be judged, just that they fit a loose model of ideas that would be almost impossible to fund/execute without net neutrality.
thejosh 13y ago
Australia has been doing this for years for mobile data plans. Even though data plans aren't as expensive as they use to be, Facebook, Twitter, Foursquare, eBay, LinkedIn & MySpace are all "free" on the Optus network.
- gz5 13y ago
  interesting. do you know if they are paying Optus? does Optus have competition in major Australia markets?
  - ecdavis 13y ago
    Optus is one of several major mobile telcos in Australia. Telstra also offers free Facebook, IIRC. I'm not sure whether FB is paying Optus/Telstra, but I would think so.
codingdave 13y ago
I get the point you are trying to make, but it wasn't presented in a way that non-tech folk will appreciate. My parents' reaction to your scenarios would be something akin to: "Really? For the monthly rate I'm already paying, I now get Netflix and Hulu included for free? NICE!"
- ricardobeat 13y ago
  If your parents were reading a VC blog, they'd get it.
orenbarzilai 13y ago
imho in the near future most countries will have unlimited data plans or similar, so this argument will be irrelevant.
josefresco 13y ago
Forget net neutrality, doesn't this reality already exist when you factor in data caps? Most of these startup ideas use a fair amount of data which is now being capped more often than it has in the past. I may be alone in my worry that as we move to capped data plans, and the pay-per-bit model that many new ideas and concepts (say for example always connected appliances) won't be financially feasible for consumers.
delinka 13y ago
So someone should plan to launch a VPN service that will pay telcos so its traffic doesn't use any of its customers' data plans. Configure the mobile device to route all data via the VPN, encrypted. It'll charge its customers for access to unlimited apps, sites and streams without incurring a data plan hit.
- talkingquickly 13y ago
  Myself and some guys with a telecoms background spoke to various telcos about that ~2 years ago. Feedback was that they were already so over stretched with data usage they weren't going to embark on any projects likely to increase it until there had been a lot of network upgrades. May have changed since then though.
  - gtirloni 13y ago
    I think the biggest risk in doing this for a VPN service is that the usage is impracticable given its nature and secrecy. With services like Facebook, Twitter, etc, the telcos know more or less what they can expect in average data usage from users (and plan/charge accordingly).
    - delinka 13y ago
      I don't follow. The VPN provider will still have to insist on limits, because the telco will insist on limits. It's not like Facebook is automatically unlimited, it's just limited to what Facebook is willing to pay for its users. It becomes Facebook's problem to understand data usage by its users and its apps and to pay accordingly (or not pay, and let the data start counting once the user is past the 'Facebook limit.') Therefore, a VPN provider will be in the same position. So instead of paying AT&T for your data plan, you're basically paying the VPN people for your data plan plus privacy from AT&T.
- wpietri 13y ago
  One problem with this plan is that it solves the problem only for a few relatively rich and aware people. The majority of people will continue to be screwed, which also means that new businesses trying to compete with incumbents will be screwed. Also, there's a good question whether telcos will sell Google the ability to prioritize traffic, and then sell somebody else the ability to get out of that. The VPN provider will always be a minnow, so my guess is that if any of the whales object, the telcos will just never sign with the VPN provider.
dredmorbius 13y ago
This is the best possible thing that could happen. Perhaps we'd see startups aimed at building out solar capacity, grid-scale storage solutions, electricity-to-fuels solutions, solar-powered airships, high-efficiency wind-steam hybrid shipping, high-efficiency retrofits to existing building stock, and management or treatment for TDR-TB, rather than an endless stream of privacy-invading "social" surveilices, games, and new forms of intrusive and annoying advertising. Though building out an alternet that bypasses the telco's "authorized" channels wouldn't hurt either. Mesh and darknets. Get cracking, HN!
- sehr 13y ago
  Most of the startup community is aimed towards web-centric ideas for obvious reasons -- the gateway to entry is incredibly low. This doesn't mesh well with hardware, and only puts more reliance upon VC's.
  - dredmorbius 13y ago
    Most of the startup community is aimed towards web-centric ideas for obvious reasons Yes, and that's pretty much part of the problem. I've commented before on how Kleiner Perkins' failure in cleantech is really sobering: https://news.ycombinator.com/item?id=6997397 https://news.ycombinator.com/item?id=6997397 Actually, there was a whole post on the topic I seam to have missed "The Rent-Seeking Economy" https://news.ycombinator.com/item?id=5548730 https://news.ycombinator.com/item?id=5548730 Source article: "Great Problems: The Rent-seeking Economy" http://intellectual-detox.com/2013/04/14/rent-seeking-economy/ http://intellectual-detox.com/2013/04/14/rent-seeking-econom... (Devin Finbarr) I see financialization, increasing advertising focus (much of which is supported by ... wait for it ... the FIRE industries[1], and "software eats everything", all as elements of catabolic collapse[2]. They're extracting financial value from the economy and transferring that financial wealth, which changes who holds real physical wealth, but doesn't much increase it. Finbarr's blog piece explores this in much greater detail. The focus of Silicon Valley over the past decade and more on ephemera and trivialities is very much part of the problem. The fact that the only remunerative opportunities for talent are in the FIRE and social / advertising / gaming industries is not a good thing. And the fact that even VC with long track records of success in technological application fail when trying to operate in the Greentech / alternative space is should be read as exceptionally cautionary. Yes, there's good news out there. Elon Musk is doing fascinating things with Tesla. Solar is absolutely exploding -- in the past two years, solar generation in the US hasn't merely increased, hasn't doubled, but is up seven times[3]. That's a rate of growth which, if sustained, would have solar being half of all electric generation within a decade. I'm skeptical that the rate of growth can continue, but even if it moderates significantly, doubling times of a year or two can grow a small base hugely, and we need all the help here we can get. But I really wish that the hacker community would pull its collective head out of its collective ass on occasion and look around at what problems should be solved. And a choking off of the backbone for new trivial ventures really could be a powerful refocusing mechanism, all snark aside. ______________________________ Notes: 1. "What Are The 20 Most Expensive Keyword Categories In Google AdWords?" http://techcrunch.com/2011/07/18/most-expensive-google-adwords-keywords/ http://techcrunch.com/2011/07/18/most-expensive-google-adwor... 2. "How Civilizations Fall: A Theory of Catabolic Collapse" http://www.indiana.edu/~workshop/colloquia/materials/papers/masters_abstract.pdf http://www.indiana.edu/~workshop/colloquia/materials/papers/... 3. EIA: "Table 7.2a Electricity Net Generation: Total (All Sectors)" http://www.eia.gov/totalenergy/data/monthly/pdf/sec7_5.pdf http://www.eia.gov/totalenergy/data/monthly/pdf/sec7_5.pdf
excitom 13y ago
Well, I'm no fan of losing net neutrality but if the worst thing that happens is that lame VC pitches are no longer funded, I'm OK with it.
- deleted 13y ago
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mathattack 13y ago
I get that this is an issue, but I'm a little curious why AT&T's stock price didn't pop as a result. http://finance.yahoo.com/echarts?s=T+Interactive#symbol=t;range=1y;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined; http://finance.yahoo.com/echarts?s=T+Interactive#symbol=t;ra...
neovive 13y ago
I guess this makes open city WiFi networks much more compelling. In most urban areas, how often are people not within range of a WiFi network?
legutierr 13y ago
I think the pertinent question now is whether the FCC rewrites its rules to classify ISPs as common carriers. It seems to me, given the local monopoly or duopoly that the vast majority of ISPs enjoy, that this is an obvious move. But I have heard it barely discussed, which is distressing.
- wdewind 13y ago
  AFAICT (and please correct me if I'm wrong), the ruling actually disallows the FCC from regulating in anyway at all, including classifying ISPs as common carriers.
  - dragonwriter 13y ago
    > AFAICT (and please correct me if I'm wrong), the ruling actually disallows the FCC from regulating in anyway at all, including classifying ISPs as common carriers. AFAICT, you're wrong. In fact, the dispute between the majority and the dissent in the ruling is that the majority not only accepted that the FCC can regulate broadband providers, but allowed some of the regulation in the Open Internet Order at issue (just not the key rules for net neutrality.) What specific language in the order gives you the idea you refer to?
    - wdewind 13y ago
      I haven't read the decision, just secondary sources, so I am probably incorrect. The reply above yours linked to: http://recode.net/2014/01/15/whats-net-neutrality-what-happened-to-net-neutrality-yesterday-what-happens-next-a-qa-for-the-rest-of-us/ http://recode.net/2014/01/15/whats-net-neutrality-what-happe... Which seems to do a good job explaining it. Specifically this bit: > It’s those rules [the Open Internet rules] that Verizon is saying the FCC had no legal authority to enact. The reason that Verizon was successful was because of the basic incongruity I described to you at the beginning — that 10 years ago, the FCC deregulated these actors. And it can’t now simultaneously pretend to regulate them. My original comment was incorrect: I meant they can either not regulate or classify ISPs as common carriers and then regulate. Again, totally open to being correct here, this is complicated and I could totally be wrong.
tarr11 13y ago
I guess we need a chrome extension to uuencode your next social network over FB status updates.
exelius 13y ago
Most VCs would pass on these ideas regardless. They're all in mature, saturated markets. One of the signs of a mature, saturated market is that the incumbents have taken great lengths to create barriers to entry that are very high. This is a discouraging thing for VC investment because it increases the chances that a new entrant will fail. Besides, you've had to pay for access for years. The big difference is that before, you had to go through a CDN like Level3 or Akamai. Part of what you paid them went to the ISPs to ensure fast connections. All this means is that the YouTubes of the world will begin to buy interconnects with the big ISPs. Small ISPs will likely just band together into a cartel and sell access that way. Yeah, there will be a fast lane and a slow lane, but the advent of CDNs in the early 2000s already created that anyway. The data caps are disappointing, but not really unexpected if you look at the mobile market. We're reaching the point where in many major cities, there is no media consumption that requires a much faster connection than is already available. So why will consumers pay for more speed when their existing 50mbps cable modem is enough to stream 4k video from Netflix? Those speeds ARE possible today if you buy carriage through a CDN like Akamai (and I regularly get those speeds from Steam downloads) and the fact that Netflix hasn't is really more of an implication of their business model. The most recent ruling really changes nothing, because net neutrality has been dead for 10 years anyway. While everyone on the internet was complaining about it, the business side moved on and built a few billion dollar companies around it. Capitalism at its finest.
- ericb 13y ago
  And if pay to play had been in place when Google debuted against Lycos/Altavista? If we were stuck with that old search tech today, we'd be suffering.
BrownBuffalo 13y ago
What's interesting are the comments below the post about Net Noot. The problem really comes less about the fact that traffic shaping may not occur, but there are no safe guards if someone attempts to do so. In smaller markets, its more and more sounding like a small cottage industry will start because of the lack of existing laws to protect the consumer. The larger markets will have power in numbers, but mom-pop towns like Marion, AL with only a small regionarl carrier - not so much. Problematic and there is SOME truth to this in scale of economy.
anovikov 13y ago
Scary thing, this is same thing that created Rockfeller-era monopolies: they had right and did pay railways to create preferences (price-wise and otherwise) for their traffic, literally derailing competition. Internet is the bloodline of the post-industrial economy just like railways were of industrial one. That is much worse than most of you think.
crgt 13y ago
A friend of mine was part of the team that made the decision for UHC to participate in AT&T's new sponsored data program. When I found this out, I tried to point out the broader implications of a shift towards pay-to-play, but had trouble getting past the narrow vision of "but we just want to get our content out to people that can't pay for mobile bandwidth". Just wanted to say thanks for this article for demonstrating what some of the implications are of a shift to a pay-to-play model. Non-techies really seem to struggle to get their heads around what happens to the entire ecosystem if net neutrality dies, and articles like this are helpful for making the consequences clearer.
avighnay 13y ago
The blog places its argument on the basis that data plan cost is going to be high. Would this be the case in the future? What if data plan costs are that negligible that it does not matter? Secondly, compare this to TV networks, consumers watch TV and pay for them too, a part of the cost is subsidized by advertisers who are willing to pay the network to reach the audience. The consumers are in that network only because of the content, remove the content providers or reduce the quality of the content then the consumer vanishes. An empty network is worth nothing. Would telcos, not harm themselves and their whole data plan business by attempting to charge the content providers (Google et al) and would the content providers 'advertising model' margins justify paying out to the telcos just to get through their infrastructure?
deleted 13y ago
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napoleond 13y ago
So basically it will become even harder for startups to disrupt the established players. Until a disruptive telco comes along and everyone switches to them, while also learning an important lesson about net neutrality. Maybe the whole thing will even cause society to re-think the way we allocate access to the internet and cellular networks. (A man can dream!)
hackaflocka 13y ago
Bandwidth isn't free. The universal all-you-can-eat model is very unfair to the bandwidth supplier. Either customers will need to be charged by meter. Or producers will need to pay by meter. It's only capitalism. By the way, why can't the VC say, "we love your idea, and we'll front the money you need to pay the telcos."?
- rhizome 13y ago
  What if the telcos won't allow anybody else to pay?
  - hackaflocka 13y ago
    Agreed, regulations can address this.
- warfangle 13y ago
  Producers already pay by meter, including peering arrangements with higher tier ISPs than the consumer ends up dealing with.
badman_ting 13y ago
Yes, current giants are going to continue consolidating and buying up businesses and amassing power. In America we used to have ways of dealing with monopolies but that is now passé -- we don't like the government "punishing" successful businesses (in the same way that taxes "punish" the rich). A lot of times I feel like something very bad will have to happen for things to change. Until then, hey.
mwsherman 13y ago
Here’s the problem: what AT&T is doing does not violate any technical definition of net neutrality, unless we ad hoc append new parts to it. This is the core problem of net neutrality arguments, which it is often defined as ‘I know it when I see it’. It amounts to principles, but if we are going to have an enforceable law, we need to do better than that. AT&T is not offering any priority to any bits here. Nothing is being blocked or degraded. Content providers who pay for sponsored data do not get faster bits nor do they slow down anyone else’s. It’s free shipping: http://clipperhouse.com/2008/06/03/the-long-game-on-metered-pricing-free-shipping/ http://clipperhouse.com/2008/06/03/the-long-game-on-metered-... Now, I can understand objecting to it on its merits, and Fred is making that argument, which is great. And I can understand why it feels like a violation of net neutrality, but we need to do better than feelings. Here’s how we test whether we’re defining net neutrality ad hoc: show me a clear, specific, widely accepted definition of net neutrality that describes AT&T’s behavior here, and that existed before this behavior was publicized.
rexreed 13y ago
While I hate the loss of Net Neutrality as much as the next person (as long as that next person isn't one of the incumbent carriers), this is the sort of thing that happens frequently in other markets. You want to see entrenched competition? Try launching a company in the Cleantech markets or in certain hardware or biotech or healthcare fields. Big pocket incumbents regularly flex their muscles here. The loss of net neutrality is bad from many perspectives, but to be honest, there will ALWAYS be opportunities for startups and entrepreneurs in the space and VCs will not be want for good ones. All this does is shake out many ideas in favor of other ones. I don't see why the VCs have reason to panic. And while I understand the Entrepreneur ideas were straw men utilized to illustrate a point, the quality of these ideas are pretty low. Maybe we should see the silver lining on this dark cloud in that it will shake out some of these deals from being funded when they probably shouldn't be anyways.
n00b101 13y ago
Entrepreneur: I plan to launch a better [XYZ] hosted on Amazon AWS. VC: Well since Amazon has paid all the telcos so that services delivered through AWS "telco-optimized elastic IPs" can be free on data plans, all you have to do is include Amazon's surcharges in your business plan.
andrewescott 13y ago
There seems to be an assumption in the original argument that not every company will be able to get access to sponsored data, e.g. > Well since Spotify, Beats, and Apple have paid all > the telcos so that their services are free on the mobile > networks, we are concerned that new music services like > yours will have a hard time getting new users to use them > because the data plan is so expensive If a new music service could make a deal with telcos so that their service is free too, wouldn't this problem go away? In other words, if sponsored data was open to all, does this address the concern described? The real concern seems to be that the cost base of a new service will go up because it will be forced to pay for sponsored data in order to compete, and VCs aren't happy about having to cover increased costs of their portfolio companies. A similar argument could have been made about CDNs. Because the big services use CDNs to provide a better service, startups have to pay to use CDNs also in order to compete, and hence their costs are higher.
dzink 13y ago
I am watching the reactions of non-technical people after they hear how this latest Net Non-Neutrality development affects them. Some are saying "Google, Apple, and the other big guys will step in for us". Others reply that when gas prices jumped to $3 everyone cried out and legislators started shuffling, yet we are now paying $4 and being thankful. Unless the outcry gets bigger this is going to pass through the cracks. Do any of the big tech companies really have an interest in stopping this development? They could afford to buy themselves an "unrestricted by cap" deal with internet distributors and suffocate every other potential competitor?

280 points by SethMurphy 13y ago

While I agree with his premise, there are already industries that used to be startup focused where there is a gatekeeper. E-commerce has Amazon, advertising has Google (and possibly Facebook), which already destroy new startups before they really get started through this same VC mindset. It seems to me that the balance of power is just moving up the line a bit to industries where VC's have little to no power to influence.

antr 13y ago
The power isn't moving up, but turning the model into a pay-to-play one. The economics for US startups and businesses overall will change considerably (for worse).
rhizome 13y ago
In what way(s) is Amazon a "gatekeeper" to e-commerce?
- SethMurphy 13y ago
  Maybe I didn't word it properly. It is in the sense that VC's say, well Amazon could do that too, we'll have to pass. They are more of a gate that does not open.

antr 13y ago

I'd like to believe that many European entrepreneurs will reconsider going to the US to start a company. The European Parliament and the Commission have been straight shooters with net neutrality and they will not consent telcos to play with the pipes.

eloisant 13y ago
Still, if you're located in Europe but want to target the US audience as well (a huge market), you're going to be affected anyway.
- antr 13y ago
  Yes, but it's rarely the case. US startups don't target any other places outside the US at first. The friction to start is in the US not in Europe.
  - troels 13y ago
    I don't think that's true. Most consumer focused startups will target the US market, even if within the EU. It's by far the largest homogenous (well, relatively) market. Targeting "Europe" isn't really a thing - You have to target each country individually.

ankitml 13y ago

Facebook already does this in india. I remember seeing an advertisement of a telco that said you wont be charged for data for facebook. Does this means that India already had this non neutral internet? It didn't change the scenario much here.

suhailpatel 13y ago
I remember here in the UK, Three (a UK mobile network operator) allowed for free access to Facebook. This was before the days of the iPhone though and it took you to a stripped down mobile site.
- robmcm 13y ago
  Vodafone offer free access to Spotify or SkySports with some packages, although I am not 100% confident it's free data, or free service.
- rahimnathwani 13y ago
  Three also offered free access to Skype. It used (uses?) a Three-specific Skype client (available for many, but not all, models of phone) to do the presence and signalling over data, and the voice over the normal mobile voice channel: https://support.skype.com/en/faq/fa10976/how-can-i-get-skype-for-my-3-phone https://support.skype.com/en/faq/fa10976/how-can-i-get-skype... To protect revenue, SkypeIn was blocked, and SkypeOut was restricted to non-UK numbers.

OoTheNigerian 13y ago

The issue of Net neutrality is a global phenomenon/risk. Telcos in Nigeria abuse their positions as the primary carrier of data and they are protected by having 'licenses' MTN and Rocket Internet recently tied a deal. I wrote about the risk here http://oonwoye.com/2013/12/17/mtn-rocket-internet-deal-worries-me/ http://oonwoye.com/2013/12/17/mtn-rocket-internet-deal-worri...

prolifically 13y ago

I hear him, Internet could become a caste system for businesses. But from what I understood, the ruling was more about the FCC trying to bend rules to accomodate everyone with carrier types (common carrier?). Yesterday's ruling raised awareness but the game is far from over.

r0h1n 13y ago

This is already reality in some countries. Like India for instance. 1st Indian entrepreneur: I plan to launch a search engine that understands Indian languages and contexts better than Google. VC: Well since Google has already paid telcos like Airtel (http://www.airtel.in/free-zone/ http://www.airtel.in/free-zone/) so their searches and even some results don't use up any of the data plan, we are passing. 2nd Indian entrepreneur: I have an idea for a social network that is better than Facebook. VC: Sorry, Well since Facebook has already paid telcos like Airtel (http://www.medianama.com/2014/01/223-airtel-facebook-free-hindi/ http://www.medianama.com/2014/01/223-airtel-facebook-free-hi...) so their site/app doesn't consume data while being used, we are passing.

wslh 13y ago
In Latin America too, and Facebook was part of that. I don't know why this issue was not discussed earlier. If I remember well, it started with the facebook applications for mobiles more than 3 years ago. Just a few times less developed countries predict what will happen in US (technologically speaking!)
Grue3 13y ago
Enterpreneur: I plan to launch an encyclopedia that people can edit, and it's better than Wikipedia VC: Well, since Wikimedia Foundation has already convinces telcos to provide their data for free (http://wikimediafoundation.org/wiki/Mobile_partnerships http://wikimediafoundation.org/wiki/Mobile_partnerships), we are passing. Now wait a goddamn minute. This doesn't make any sense. The alternative is even worse: no free access to Wikipedia. Is this what you're arguing for?
- nightpool 13y ago
  The difference is Wikimedia doesn't pay for this benefit, the telcos are doing it because they support Wikimedia's mission. Any company with a similar mission and better execution has a chance of talking the telcos into a similar deal. The argument is that the paid types of mobile partnerships add another cost onto the already high barrier to entry into the market. This supports monopolistic practices by these companies, and reduces competition in the industry. That's the problem with removing Net Neutrality.

TTPrograms 13y ago

The author is missing the point that the ruling was about the specific language of the FCC regulations. See: http://gigaom.com/2014/01/14/breaking-court-strikes-down-fccs-net-neutrality-rules/ http://gigaom.com/2014/01/14/breaking-court-strikes-down-fcc... "That said, even though the Commission has general authority to regulate in this arena, it may not impose requirements that contravene express statutory mandates. Given that the Commission has chosen to classify broadband providers in a manner that exempts them from treatment as common carriers, the Communications Act expressly prohibits the Commission from nonetheless regulating them as such. Because the Commission has failed to establish that the anti-discrimination and anti-blocking rules do not impose per se common carrier obligations, we vacate those portions of the Open Internet Order." It seems very likely that the FCC will rewrite their regulations to fix this. Everyone knows that net neutrality is important, and this ruling is just an issue in legalese. It's a little early to resort to torch-and-pitchfork hyperbole.

virmundi 13y ago
Perhaps you're right when you say, "Everyone knows that net neutrality is important". My gut says otherwise. There is a strong contingent on the hill to allow companies to do what they want. They want to make money like this. The government will allow them to do so. Heck the head of the FCC is one of the companies that want this. So I doubt she'll be running off to change phrasing anytime soon.
fredwilson 13y ago
I am "the author" and I do understand that but the point of my post was to simplify the issue for the vast majority of folks who don't get the net neutrality issue
declan 13y ago
It seems very likely that the FCC will be slapped down a third time in court if they try to "rewrite their regulations" a third time. They're 0 for 2 so far before the DC Circuit. "General authority to regulate" is a legal term of art. It probably won't take you as far as you like.

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zxcvvcxz 13y ago

Not the point of the article, but is anyone else annoyed by these "entrepreneur-sounding" ideas? I'm so sick of low-tech, solve-first-world-problem ideas and conflating that with entrepreneurship. If I were the VC, I'd tell them to get the fuck out, and it'd have nothing to do with Telcos.

keerthiko 13y ago
That's probably the biggest difference between you and VCs in the biz today. These ideas actually sound so legitimately like they could be funded today, and make mad bank while at it too. And that's all "normal" VCs care about, so there you have it.
- sabbatic13 13y ago
  I wouldn't even qualify this by saying "normal." VCs are hyper-capitalists. Other people give them money with the mandate to turn a profit...period. That's the whole job. Most of us "normal" tech folk get migraines looking at the silly crap that gets funded, but a VC's job really isn't about anything else, and couldn't be ethically, unless the people who pay into the fund wanted it that way. The investors who do the stuff that I suppose one would call meaningful tend to be investing their own money or their friends' money, or it's a slice of a regular fund used in a way similar to corporate donations. Plenty of VCs do care about tech and meaningful endeavors, but that has to be secondary, unless they are playing with their own money. There seems to be a lot of misconceptions about what the business of investment is, when it comes to venture capital, for some reason. I've spent enough time around the activity and the people that I can see what it is and the logic of it. I don't really like it, but then I don't like a lot of things in our culture.
josefresco 13y ago
You missed the point. The author was choosing startup ideas that compete with entrenched entities that are also potentially data-intensive. I don't think the ideas themselves were supposed to be judged, just that they fit a loose model of ideas that would be almost impossible to fund/execute without net neutrality.

thejosh 13y ago

Australia has been doing this for years for mobile data plans. Even though data plans aren't as expensive as they use to be, Facebook, Twitter, Foursquare, eBay, LinkedIn & MySpace are all "free" on the Optus network.

gz5 13y ago
interesting. do you know if they are paying Optus? does Optus have competition in major Australia markets?
- ecdavis 13y ago
  Optus is one of several major mobile telcos in Australia. Telstra also offers free Facebook, IIRC. I'm not sure whether FB is paying Optus/Telstra, but I would think so.

codingdave 13y ago

I get the point you are trying to make, but it wasn't presented in a way that non-tech folk will appreciate. My parents' reaction to your scenarios would be something akin to: "Really? For the monthly rate I'm already paying, I now get Netflix and Hulu included for free? NICE!"

ricardobeat 13y ago
If your parents were reading a VC blog, they'd get it.

orenbarzilai 13y ago

imho in the near future most countries will have unlimited data plans or similar, so this argument will be irrelevant.

josefresco 13y ago

Forget net neutrality, doesn't this reality already exist when you factor in data caps? Most of these startup ideas use a fair amount of data which is now being capped more often than it has in the past. I may be alone in my worry that as we move to capped data plans, and the pay-per-bit model that many new ideas and concepts (say for example always connected appliances) won't be financially feasible for consumers.

delinka 13y ago

So someone should plan to launch a VPN service that will pay telcos so its traffic doesn't use any of its customers' data plans. Configure the mobile device to route all data via the VPN, encrypted. It'll charge its customers for access to unlimited apps, sites and streams without incurring a data plan hit.

talkingquickly 13y ago
Myself and some guys with a telecoms background spoke to various telcos about that ~2 years ago. Feedback was that they were already so over stretched with data usage they weren't going to embark on any projects likely to increase it until there had been a lot of network upgrades. May have changed since then though.
- gtirloni 13y ago
  I think the biggest risk in doing this for a VPN service is that the usage is impracticable given its nature and secrecy. With services like Facebook, Twitter, etc, the telcos know more or less what they can expect in average data usage from users (and plan/charge accordingly).
  - delinka 13y ago
    I don't follow. The VPN provider will still have to insist on limits, because the telco will insist on limits. It's not like Facebook is automatically unlimited, it's just limited to what Facebook is willing to pay for its users. It becomes Facebook's problem to understand data usage by its users and its apps and to pay accordingly (or not pay, and let the data start counting once the user is past the 'Facebook limit.') Therefore, a VPN provider will be in the same position. So instead of paying AT&T for your data plan, you're basically paying the VPN people for your data plan plus privacy from AT&T.
wpietri 13y ago
One problem with this plan is that it solves the problem only for a few relatively rich and aware people. The majority of people will continue to be screwed, which also means that new businesses trying to compete with incumbents will be screwed. Also, there's a good question whether telcos will sell Google the ability to prioritize traffic, and then sell somebody else the ability to get out of that. The VPN provider will always be a minnow, so my guess is that if any of the whales object, the telcos will just never sign with the VPN provider.

dredmorbius 13y ago

This is the best possible thing that could happen. Perhaps we'd see startups aimed at building out solar capacity, grid-scale storage solutions, electricity-to-fuels solutions, solar-powered airships, high-efficiency wind-steam hybrid shipping, high-efficiency retrofits to existing building stock, and management or treatment for TDR-TB, rather than an endless stream of privacy-invading "social" surveilices, games, and new forms of intrusive and annoying advertising. Though building out an alternet that bypasses the telco's "authorized" channels wouldn't hurt either. Mesh and darknets. Get cracking, HN!

sehr 13y ago
Most of the startup community is aimed towards web-centric ideas for obvious reasons -- the gateway to entry is incredibly low. This doesn't mesh well with hardware, and only puts more reliance upon VC's.
- dredmorbius 13y ago
  Most of the startup community is aimed towards web-centric ideas for obvious reasons Yes, and that's pretty much part of the problem. I've commented before on how Kleiner Perkins' failure in cleantech is really sobering: https://news.ycombinator.com/item?id=6997397 https://news.ycombinator.com/item?id=6997397 Actually, there was a whole post on the topic I seam to have missed "The Rent-Seeking Economy" https://news.ycombinator.com/item?id=5548730 https://news.ycombinator.com/item?id=5548730 Source article: "Great Problems: The Rent-seeking Economy" http://intellectual-detox.com/2013/04/14/rent-seeking-economy/ http://intellectual-detox.com/2013/04/14/rent-seeking-econom... (Devin Finbarr) I see financialization, increasing advertising focus (much of which is supported by ... wait for it ... the FIRE industries[1], and "software eats everything", all as elements of catabolic collapse[2]. They're extracting financial value from the economy and transferring that financial wealth, which changes who holds real physical wealth, but doesn't much increase it. Finbarr's blog piece explores this in much greater detail. The focus of Silicon Valley over the past decade and more on ephemera and trivialities is very much part of the problem. The fact that the only remunerative opportunities for talent are in the FIRE and social / advertising / gaming industries is not a good thing. And the fact that even VC with long track records of success in technological application fail when trying to operate in the Greentech / alternative space is should be read as exceptionally cautionary. Yes, there's good news out there. Elon Musk is doing fascinating things with Tesla. Solar is absolutely exploding -- in the past two years, solar generation in the US hasn't merely increased, hasn't doubled, but is up seven times[3]. That's a rate of growth which, if sustained, would have solar being half of all electric generation within a decade. I'm skeptical that the rate of growth can continue, but even if it moderates significantly, doubling times of a year or two can grow a small base hugely, and we need all the help here we can get. But I really wish that the hacker community would pull its collective head out of its collective ass on occasion and look around at what problems should be solved. And a choking off of the backbone for new trivial ventures really could be a powerful refocusing mechanism, all snark aside. ______________________________ Notes: 1. "What Are The 20 Most Expensive Keyword Categories In Google AdWords?" http://techcrunch.com/2011/07/18/most-expensive-google-adwords-keywords/ http://techcrunch.com/2011/07/18/most-expensive-google-adwor... 2. "How Civilizations Fall: A Theory of Catabolic Collapse" http://www.indiana.edu/~workshop/colloquia/materials/papers/masters_abstract.pdf http://www.indiana.edu/~workshop/colloquia/materials/papers/... 3. EIA: "Table 7.2a Electricity Net Generation: Total (All Sectors)" http://www.eia.gov/totalenergy/data/monthly/pdf/sec7_5.pdf http://www.eia.gov/totalenergy/data/monthly/pdf/sec7_5.pdf

excitom 13y ago

Well, I'm no fan of losing net neutrality but if the worst thing that happens is that lame VC pitches are no longer funded, I'm OK with it.

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mathattack 13y ago

I get that this is an issue, but I'm a little curious why AT&T's stock price didn't pop as a result. http://finance.yahoo.com/echarts?s=T+Interactive#symbol=t;range=1y;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined; http://finance.yahoo.com/echarts?s=T+Interactive#symbol=t;ra...

neovive 13y ago

I guess this makes open city WiFi networks much more compelling. In most urban areas, how often are people not within range of a WiFi network?

legutierr 13y ago

I think the pertinent question now is whether the FCC rewrites its rules to classify ISPs as common carriers. It seems to me, given the local monopoly or duopoly that the vast majority of ISPs enjoy, that this is an obvious move. But I have heard it barely discussed, which is distressing.

wdewind 13y ago
AFAICT (and please correct me if I'm wrong), the ruling actually disallows the FCC from regulating in anyway at all, including classifying ISPs as common carriers.
- dragonwriter 13y ago
  > AFAICT (and please correct me if I'm wrong), the ruling actually disallows the FCC from regulating in anyway at all, including classifying ISPs as common carriers. AFAICT, you're wrong. In fact, the dispute between the majority and the dissent in the ruling is that the majority not only accepted that the FCC can regulate broadband providers, but allowed some of the regulation in the Open Internet Order at issue (just not the key rules for net neutrality.) What specific language in the order gives you the idea you refer to?
  - wdewind 13y ago
    I haven't read the decision, just secondary sources, so I am probably incorrect. The reply above yours linked to: http://recode.net/2014/01/15/whats-net-neutrality-what-happened-to-net-neutrality-yesterday-what-happens-next-a-qa-for-the-rest-of-us/ http://recode.net/2014/01/15/whats-net-neutrality-what-happe... Which seems to do a good job explaining it. Specifically this bit: > It’s those rules [the Open Internet rules] that Verizon is saying the FCC had no legal authority to enact. The reason that Verizon was successful was because of the basic incongruity I described to you at the beginning — that 10 years ago, the FCC deregulated these actors. And it can’t now simultaneously pretend to regulate them. My original comment was incorrect: I meant they can either not regulate or classify ISPs as common carriers and then regulate. Again, totally open to being correct here, this is complicated and I could totally be wrong.

tarr11 13y ago

I guess we need a chrome extension to uuencode your next social network over FB status updates.

exelius 13y ago

Most VCs would pass on these ideas regardless. They're all in mature, saturated markets. One of the signs of a mature, saturated market is that the incumbents have taken great lengths to create barriers to entry that are very high. This is a discouraging thing for VC investment because it increases the chances that a new entrant will fail. Besides, you've had to pay for access for years. The big difference is that before, you had to go through a CDN like Level3 or Akamai. Part of what you paid them went to the ISPs to ensure fast connections. All this means is that the YouTubes of the world will begin to buy interconnects with the big ISPs. Small ISPs will likely just band together into a cartel and sell access that way. Yeah, there will be a fast lane and a slow lane, but the advent of CDNs in the early 2000s already created that anyway. The data caps are disappointing, but not really unexpected if you look at the mobile market. We're reaching the point where in many major cities, there is no media consumption that requires a much faster connection than is already available. So why will consumers pay for more speed when their existing 50mbps cable modem is enough to stream 4k video from Netflix? Those speeds ARE possible today if you buy carriage through a CDN like Akamai (and I regularly get those speeds from Steam downloads) and the fact that Netflix hasn't is really more of an implication of their business model. The most recent ruling really changes nothing, because net neutrality has been dead for 10 years anyway. While everyone on the internet was complaining about it, the business side moved on and built a few billion dollar companies around it. Capitalism at its finest.

ericb 13y ago
And if pay to play had been in place when Google debuted against Lycos/Altavista? If we were stuck with that old search tech today, we'd be suffering.

BrownBuffalo 13y ago

What's interesting are the comments below the post about Net Noot. The problem really comes less about the fact that traffic shaping may not occur, but there are no safe guards if someone attempts to do so. In smaller markets, its more and more sounding like a small cottage industry will start because of the lack of existing laws to protect the consumer. The larger markets will have power in numbers, but mom-pop towns like Marion, AL with only a small regionarl carrier - not so much. Problematic and there is SOME truth to this in scale of economy.

anovikov 13y ago

Scary thing, this is same thing that created Rockfeller-era monopolies: they had right and did pay railways to create preferences (price-wise and otherwise) for their traffic, literally derailing competition. Internet is the bloodline of the post-industrial economy just like railways were of industrial one. That is much worse than most of you think.

crgt 13y ago

A friend of mine was part of the team that made the decision for UHC to participate in AT&T's new sponsored data program. When I found this out, I tried to point out the broader implications of a shift towards pay-to-play, but had trouble getting past the narrow vision of "but we just want to get our content out to people that can't pay for mobile bandwidth". Just wanted to say thanks for this article for demonstrating what some of the implications are of a shift to a pay-to-play model. Non-techies really seem to struggle to get their heads around what happens to the entire ecosystem if net neutrality dies, and articles like this are helpful for making the consequences clearer.

avighnay 13y ago

The blog places its argument on the basis that data plan cost is going to be high. Would this be the case in the future? What if data plan costs are that negligible that it does not matter? Secondly, compare this to TV networks, consumers watch TV and pay for them too, a part of the cost is subsidized by advertisers who are willing to pay the network to reach the audience. The consumers are in that network only because of the content, remove the content providers or reduce the quality of the content then the consumer vanishes. An empty network is worth nothing. Would telcos, not harm themselves and their whole data plan business by attempting to charge the content providers (Google et al) and would the content providers 'advertising model' margins justify paying out to the telcos just to get through their infrastructure?

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napoleond 13y ago

So basically it will become even harder for startups to disrupt the established players. Until a disruptive telco comes along and everyone switches to them, while also learning an important lesson about net neutrality. Maybe the whole thing will even cause society to re-think the way we allocate access to the internet and cellular networks. (A man can dream!)

hackaflocka 13y ago

Bandwidth isn't free. The universal all-you-can-eat model is very unfair to the bandwidth supplier. Either customers will need to be charged by meter. Or producers will need to pay by meter. It's only capitalism. By the way, why can't the VC say, "we love your idea, and we'll front the money you need to pay the telcos."?

rhizome 13y ago
What if the telcos won't allow anybody else to pay?
- hackaflocka 13y ago
  Agreed, regulations can address this.
warfangle 13y ago
Producers already pay by meter, including peering arrangements with higher tier ISPs than the consumer ends up dealing with.

badman_ting 13y ago

Yes, current giants are going to continue consolidating and buying up businesses and amassing power. In America we used to have ways of dealing with monopolies but that is now passé -- we don't like the government "punishing" successful businesses (in the same way that taxes "punish" the rich). A lot of times I feel like something very bad will have to happen for things to change. Until then, hey.

mwsherman 13y ago

Here’s the problem: what AT&T is doing does not violate any technical definition of net neutrality, unless we ad hoc append new parts to it. This is the core problem of net neutrality arguments, which it is often defined as ‘I know it when I see it’. It amounts to principles, but if we are going to have an enforceable law, we need to do better than that. AT&T is not offering any priority to any bits here. Nothing is being blocked or degraded. Content providers who pay for sponsored data do not get faster bits nor do they slow down anyone else’s. It’s free shipping: http://clipperhouse.com/2008/06/03/the-long-game-on-metered-pricing-free-shipping/ http://clipperhouse.com/2008/06/03/the-long-game-on-metered-... Now, I can understand objecting to it on its merits, and Fred is making that argument, which is great. And I can understand why it feels like a violation of net neutrality, but we need to do better than feelings. Here’s how we test whether we’re defining net neutrality ad hoc: show me a clear, specific, widely accepted definition of net neutrality that describes AT&T’s behavior here, and that existed before this behavior was publicized.

rexreed 13y ago

While I hate the loss of Net Neutrality as much as the next person (as long as that next person isn't one of the incumbent carriers), this is the sort of thing that happens frequently in other markets. You want to see entrenched competition? Try launching a company in the Cleantech markets or in certain hardware or biotech or healthcare fields. Big pocket incumbents regularly flex their muscles here. The loss of net neutrality is bad from many perspectives, but to be honest, there will ALWAYS be opportunities for startups and entrepreneurs in the space and VCs will not be want for good ones. All this does is shake out many ideas in favor of other ones. I don't see why the VCs have reason to panic. And while I understand the Entrepreneur ideas were straw men utilized to illustrate a point, the quality of these ideas are pretty low. Maybe we should see the silver lining on this dark cloud in that it will shake out some of these deals from being funded when they probably shouldn't be anyways.

n00b101 13y ago

Entrepreneur: I plan to launch a better [XYZ] hosted on Amazon AWS. VC: Well since Amazon has paid all the telcos so that services delivered through AWS "telco-optimized elastic IPs" can be free on data plans, all you have to do is include Amazon's surcharges in your business plan.

andrewescott 13y ago

There seems to be an assumption in the original argument that not every company will be able to get access to sponsored data, e.g. > Well since Spotify, Beats, and Apple have paid all > the telcos so that their services are free on the mobile > networks, we are concerned that new music services like > yours will have a hard time getting new users to use them > because the data plan is so expensive If a new music service could make a deal with telcos so that their service is free too, wouldn't this problem go away? In other words, if sponsored data was open to all, does this address the concern described? The real concern seems to be that the cost base of a new service will go up because it will be forced to pay for sponsored data in order to compete, and VCs aren't happy about having to cover increased costs of their portfolio companies. A similar argument could have been made about CDNs. Because the big services use CDNs to provide a better service, startups have to pay to use CDNs also in order to compete, and hence their costs are higher.

dzink 13y ago

I am watching the reactions of non-technical people after they hear how this latest Net Non-Neutrality development affects them. Some are saying "Google, Apple, and the other big guys will step in for us". Others reply that when gas prices jumped to $3 everyone cried out and legislators started shuffling, yet we are now paying $4 and being thankful. Unless the outcry gets bigger this is going to pass through the cracks. Do any of the big tech companies really have an interest in stopping this development? They could afford to buy themselves an "unrestricted by cap" deal with internet distributors and suffocate every other potential competitor?