Category Archives: Insights

Venrock 7

With our fundraising complete for Venrock 7, Bryan Roberts and I are looking forward to putting more capital to work in the healthcare IT space. We believe now is the time for our clunky and expensive healthcare system to be reimagined and we’re seeing some of the most talented entrepreneurs flock to this sector, bringing much needed creativity, brain power and passion to address this massive challenge.

Finally, this market is getting serious about attacking the 30% of healthcare spending that is wasteful and unwarranted, providing transparency around cost and quality, and improving patient experiences so hospitals can stop duking it out with cable TV and airlines for the worst customer satisfaction. Now that the Affordable Care Act is no longer a politically uncertainty – we can get on with helping the market respond to significant incentives changes. Incentive changes like Medicare’s bundled payments in 2015, expansion of the ACO program, stage 3 of meaningful use, the employer mandate, and the Cadillac Tax in 2018. Furthermore, the longstanding opportunities to attack negative labor productivity across the sector, a payment system that even Rube-Goldberg could not have imagined, and IT systems designed in the 1980s, all present tremendous opportunity for entrepreneurs.

At the same time, the adoption of narrower provider networks among consumers on public and private exchanges, availability of information to enable shopping by patients, and greater cost sharing, will make the commercial market more competitive. As this happens, large employers and commercially insured individuals will soon realize that they are the high margin customers for healthcare providers and suppliers. The days of unmanaged spending to hospitals and doctors and uncertainty around value for money will be over. All of the approaches used by employers to manage non-healthcare spending categories will be ripe for translation by entrepreneurs to healthcare.

Venrock has a long history in this space that began in the late 1990’s with companies like athenahealth, which is a $5 billion company today. In the following decade, we invested in RelayHealth, Vocera and Castlight Health, among others. Today we have the pleasure of working with some amazing entrepreneurs who want to make healthcare better. These companies are helping give everyone “insider” access to top specialists in the country (Grand Rounds), giving consumers mobile access to excellent doctors to resolve everyday issues (Doctor on Demand), and our newest investment (Aledade) is helping physicians transition to the ACO model so they can spend more time with their patients delivering better outcomes at lower cost.

But there’s so much more to do. We want to partner with the next generation of Todd Parks’, Jonathan Bushs’, and Gio Collelas’ to make companies that, at first, may seem crazy and a few years later seem common sensical. As this happens, many more billion-dollar successes will be created and value will be delivered to all of us through better healthcare sooner.


Venrock 7

My partners and I are thrilled to continue collaborating with fantastic entrepreneurs to help build enduring, iconic and meaningful companies. Last week, we completed the fundraising of Venrock 7, a $450M fund focused on disruptive early-stage tech and multi-stage healthcare companies. For many VCs, the process of raising a new fund brings a helpful opportunity for self-reflection — a chance to take stock of the world, the disruptive technical forces likely to bring change and a candid assessment of one’s abilities to thrive in this environment. While we are always observing the world around us and making adjustments to our areas of focus and investment strategies, every four years or so, we too go through a rigorous process of prophesy and self-evaluation. Like an entrepreneur presenting their company to a VC, we pressure test our strategy with LPs during the process of raising a new fund. We came away with some exciting observations about both ourselves and the world. I am pleased our LPs share our view of our abilities and have entrusted us with the resources necessary to help build some great companies.

At Venrock, preeminent among all of our abilities is a belief in the importance of a performance-oriented and supportive culture — internally and with our entrepreneurs. We believe we will not excel as a partnership if we do not truly admire and respect each other. We are good at listening not just to the entrepreneurs with whom we meet, but to each other, distilling each other’s wisdom and foresight. And we work hard to preserve this culture internally. Each day, I feel my partners are behind me 100% and are rooting for my success, as am I for theirs. Equally important, however, is a focus on performance. We are in this business to make money for our LPs, and that can only be accomplished by investing in great companies and participating in their upside. In my almost six years at Venrock, I have never been more excited by the team surrounding me, our expertise, our intuition, but mostly our deep mutual respect and support for each other.

Areas of Excitement

There are plenty of important trends to discuss in tech. Here are just a few areas that really excite me:

New York

shutterstock_114734815New York continues its ascent and importance to the tech ecosystem. As a firm that has been in New York for decades, we have now made a deeper and even more meaningful commitment to investing in early-stage New York City tech companies. We are doubling down in New York with a larger team and have invested in some of the largest and most important tech companies here. Appnexus, Dstillery, Smartling, Dataminr and a few others not yet announced represent what we hope to find in our investments — hungry, passionate, and brilliant entrepreneurs bent on creating enduring and very large companies, sometimes creating new industries themselves. As a firm, we are confident some of the greatest tech companies of the coming decades will be founded in New York City and we hope to find them and invest in them early.

AdTech -> Marketing Cloud

funnelTraditional adtech is evolving into the SaaS marketing cloud. We continue to focus on the highest-value layers of the adtech and marketing services stack as consumer attention continues its migration away from traditional to online media. Ad-supported business models continue to dominate the internet, are performance-based and offer brands better control and measurement of their ad dollars. Our unwavering belief in the long-term primacy of ROI-driven advertising leads us to seek out the most innovative and best-performing ad products and the technologies underlying them, especially as ad formats and consumer media platforms change from desktop web to social mobile stream to app to OTT video and beyond. We focus on the emergence of best-in-class tools for marketers to help them take control of the entire marketing funnel, from prospecting to conversion to long-term customer relationship management.


opengraphThe emergence of the blockchain may be one of the most promising technical innovations of the last five years. We see the highly inefficient and expensive legacy payment and money transfer mechanisms being pressured by the far lower-cost methods made possible by blockchain-driven solutions. We are excited by innovations in addition to Bitcoin that can be built atop the blockchain, especially contracts, IP transfer solutions, voting solutions, ticketing, identity, and eventually distributed computing.


shutterstock_129089885Readers of this blog know of my passion for the disruption of legacy media companies. I am particularly excited by the changes underway to the video ecosystem. The emergence of mobile as both a video creation and consumption device is sucking attention away from the traditional TV screen but also democratizing the creation of engaging video. I believe changes in the traditional TV value chain are well underway and I look forward to finding more companies catalyzing these changes.

And More

We continue to explore the intersections of technology with education, financial services, branded commerce, enterprise software and, of course, healthcare and healthcare IT. As always, we believe in the power of entrepreneurship to bring progress, efficiency and new capabilities to markets and are thrilled to have fresh resources to invest in great entrepreneurs embarking on exciting journeys.



Venrock 7: Looking Back & Forward

Last week, we completed the fundraising for Venrock 7, a $450 million pool of capital to deploy as we partner with some terrific entrepreneurs to build great technology and healthcare companies. The establishment of a new fund feels like one part cause for proud announcement and 99 parts assumption of a decade or more of responsibility to relentlessly strive for excellence for our two crucial constituencies – the founders, entrepreneurs and teams in whom we invest and the limited partners who have invested in us.

Venrock got started, depending upon how you look at it, either 76 or 45 years ago.  In 1938, Laurance Rockefeller started doing what we would today call venture investing when he provided the initial capital for both Eastern Airlines and McDonnell Aircraft.  Laurance continued making a new investment or two each year for the next 30 years, at which time the financial construct of venture investment vehicles led to the creation of some of the iconic early venture firms, Venrock among them. “Fund” numbers in this case are a bit misleading in terms of history as, in addition to 30 years of Laurance’s checkbook, Venrock 1, whose portfolio included companies like Apple and Gilead Sciences, was an evergreen fund for the Rockefeller family that invested in new companies over a 30 year period, rather than the 3 – 4 year new investment period that is typical today.

While our core mission and values – to generate great returns by partnering with world-class talents to build businesses that change the way we live – have remained remarkably consistent, most everything else has changed over time.  The areas of compelling investment, the depth of partnership and involvement with entrepreneurs and the competitive dynamics of the ecosystem are nearly unrecognizably altered.  With each of these Darwinian “opportunities” to evolve (and the terrific legacy of Laurance Rockefeller and the early Venrock partners as the standard to which we aspire), we reinvented the Venrock culture and investment team over the last 10 years.  Change and continuous improvement will absolutely be an ongoing effort, but today we are a cohesive, “do the right thing” focused team intensely committed to our partner entrepreneurs and LP’s.

We’ve enjoyed some recent success, though certainly not as much as we hope to create in the future. We have been an investor in eight companies with $1B+ exits over the past five years and, in 2014, have had five IPOs and five M&As, including Castlight Health and Nest. The current portfolio holds promise across a variety of industry sectors – AppNexus, Ariosa Diagnostics, CloudFlare, Dollar Shave Club, Grand Rounds, and Intarcia to jinx only a few.

Going forward we are really excited about what’s happening at the intersection of healthcare and technology, as the opportunity to dramatically remake our healthcare system attracts a quality and breadth of entrepreneurial talent that is truly staggering.  We have doubled down in New York to take advantage of the increasing opportunities in the very fertile, growing New York startup ecosystem. We also see data-driven solutions bringing true value across a spectrum of use cases as massive amounts of data are finally corralled and synthesized to produce real insights and ROI. And we are always trying to keep an eye on what’s around the next corner, experimenting and exploring to latch onto the next interesting area for innovation and growth.

I like our odds, but building companies is hard work. We will catch some breaks and will definitely lose some.  We will make mistakes and do our best to minimize their repercussions – that’s a lot more productive than trying to avoid them all together.  But most of all we will devote ourselves to partnering with really passionate, visionary entrepreneurs and serve them in any way we can to give them an unfair advantage on their road to success.



Without Aereo, How Will Traditional TV Be Disrupted?

After yesterday’s Supreme Court Decision
against Aereo, will traditional TV be disrupted?

The First Phase of Disruption Already Started
There has been a major shift away from appointment TV to on-demand viewing, beginning with the DVR, followed by Netflix, and now partially fulfilled by hundreds of OTT on-demand apps, from HBOGO to Crunchyroll. The cable networks, of course, only make their programming available OTT if you authenticate with your cable log-in, preserving MVPD economics. So the only part of the TV ecosystem feeling pressure from this trend is commercial advertising, since, with a few exceptions, the majority of on-demand viewing is commercial free. But this shift to on-demand insures that our kids fully expect all video programming to be portable and on-demand.

Will there be a cheaper cable bundle?
With the end of Aereo, it is unlikely we will see bundled economics of cable TV programming disrupted by a tech company outsider. The only way to offer traditional TV programming over the internet will be to license it from its creators or distributors. Those content owners set rates in such a way as to preserve traditional cable bundle economics. Sure, Apple, Google or Amazon could become an MVPD, but they would be unlikely to offer a cheaper or smaller bundle.

There is real pressure on the bundle, however. Remember, cable TV is really a bundle of bundles. If an MVPD wants ESPN, they must also license and pay for ESPN2, ESPN3, ESPNNews, etc. These mini bundles force MVPDs to pay for more channels than they may otherwise want and in turn must charge consumers more. But they have little choice. Even if you wanted to assemble a smaller, less-expensive bundle of programming, it is made nearly impossible by the imposition of these mini-bundles. And the costs of these mini bundles have been rising, which has led Comcast to buy NBC, Comcast to buy Time-Warner Cable, and now AT&T to buy DirecTV, all as attempts to create leverage against rising mini-bundle costs. This upward price pressure is creating a real problem, since the number of cable subs is now falling in this country. Rising rates, falling subs.

It is unlikely tech companies will be able to meaningfully change these core economics. For this reason, I believe the core disruptive force acting on traditional TV is coming from outside of the TV ecosystem. It is coming in the form of alternate programming being consumed largely by the youngest demographics. I’m talking about YouTube, Twitch.TV and many smaller video companies stealing kids’ time away from the tube.

The Second Phase
YouTube, for many years, was scoffed at by the traditional TV content owners as lacking in quality. But my eleven year old today watches 90% of his video programming on YouTube. CaptainSparkles and Crazy Russian Hacker are true celebrities to him, as big as Kevin Spacey is to me. With more than 6 billion hours of video watched each month, YouTube today reaches more people than any cable network and, even among adults 18-34, they are bigger than any cable network. Their growth rate continues unabated and in short order, YouTube may one day be bigger than all of traditional TV. By buying Twitch, they cement themselves as the overwhelming largest platform for video game content, one of the two most popular content types among kids. And newer entrants like Livestream and YouNow are building engaged audiences with long tail programming.

This view that TV’s competition comes from the bottom is not a new one. (Hunter Walk and I discussed this in this post.) What is new is the widespread shift to mobile devices. As smartphones hit scale, we carry with us both a video creation and consumption device at all times. The real-time web collides with the mobile video web and a new genre of video programming emerges, somewhere between broadcast and messaging. These new personal video formats will steal even more video viewership away from TV, particularly among youth. So if younger kids grow up consuming video away from TV, and TV’s response is continued rising prices of bigger channel bundles, something has to break.

Image credit: Denys Prykhodov /


Cloud networking beyond SDN and NFV

New innovations in networking are being triggered because of at least four broad-based macro trends:

  1. Cloud: Growth of business-critical applications in the cloud (SaaS, PaaS, IaaS)
  2. Mobility: More branch offices and mobile workers using a variety of devices
  3. Security: IT administrators losing visibility and policy control over their networks
  4. Speed: Employee reliance on faster access to apps with lower latency and higher bandwidth

Before we dive into these issues, let’s first agree on some basic terminology:

  • Cloud networking is a new way to market distributed enterprise networks. It delivers enterprise-class network capabilities around the globe via a highly resilient, multi-tenant application that requires no capital investment in networking equipment. Unlike traditional hardware-based legacy solutions, cloud networking is extremely simple to implement, enabling businesses to deploy remote locations in minutes and operate their distributed networks via a cloud-based service, while maintaining centralized control and network visibility. These services are subscription-based.
  • Software-defined networking (SDN) separates the network’s control (brains) and forwarding (muscle) planes, creating one of the most disruptive technologies to hit networking in decades. SDN originated with researchers in campus networks such as UC Berkeley and Stanford with their approach to open standards like OpenFlow. SDN gained further momentum with commercial adoption in cloud data centers such as Google.
  • Network functions Virtualization (NFV) offers a new way to design, deploy and manage networking services. NFV decouples the network functions, such as network address translation (NAT), firewalling, intrusion detection, domain name service (DNS), caching, etc., from proprietary hardware appliances, so they can run in software. NFV’s origins trace to a consortium of service providers.

Lately, SDN and NFV have generated tremendous buzz in the networking industry. However, if you ask customers how much they have budgeted for SDN or NFV, you will generally be greeted with a puzzled look. I believe the “hype cycle” around both SDN and NFV has been driven mostly by vendors and less so by customers. Don’t get me wrong; I believe in several of the key benefits promised by SDN and NFV, such as:

  • Abstraction between the control-plane and the data-plane
  • Faster delivery of new features in the network through the use of virtualized services
  • Leveraging low-cost, commodity hardware with more open, programmable software

Still, there are major gaps between “marketecture” diagrams often describing SDN/NFV potential capabilities and real solutions that solve specific problems for customers. When I talk to Enterprise customers about what areas of their IT budgets they are growing, the most common answers I get across all verticals and organizational sizes are: (1) cloud services (2) cyber security, and (3) mobile applications. Further, when I ask that same IT audience what areas of their budget they are shrinking to make room for growth, the common areas include: (a) legacy software with low usage and (b) maintenance contracts on big-iron hardware. Customers vote with their wallets and their wallets are telling us where they see the biggest IT opportunities to save money, protect their company data, and increase overall productivity.

The most innovative customers, the ones who have considerable experience with cloud services, have highlighted one of their biggest frustrations with legacy networking choices: the sheer number of hardware-based appliances required to add new capabilities to their networks. Customers are frustrated with the stacks of branch office gear they are asked to purchase, configure and maintain from legacy/incumbent vendors like Cisco, Juniper, Riverbed, and BlueCoat just to get a fast, reliable and secure network. For example, here is a list of commonly purchased branch office networking appliances (initial capex):

  • Branch router: $1k-$5k USD
  • Branch firewall/VPN: $1k-$10k USD
  • Branch web proxy: $1k-$10k USD
  • Branch WAN optimization: $2k-$25k USD

The combination of the capex and opex in the branch drives the TCO for these solutions well above where customers can sustain. Unfortunately, avoiding these costly appliance purchases has not left good alternatives. In any distributed Enterprise with multiple branch offices, IT admins typically have two primary options for their network designs:

Options 1: Full private back-haul
Disadvantages of this option include:

  • High capex and opex with multiple networking appliances and expensive private WAN links (complex, costly)
  • Inefficient and often congested network path to maintain visibility and policy control by hair-pinning all traffic back to corporate HQ (poor performance)

diagram legendoption 1 full back haul

Option 2: Private vs. Internet split
Disadvantages of this option include:

  • IT loses visibility and policy control in the branch for Internet/cloud destined traffic (poor security)
  • Unpredictable Internet performance and reliability for cloud-hosted applications (poor reliability)
  • Different systems for HQ/datacenter vs SaaS/Internet cloud applications (higher opex, complexity, costly)

diagram legendoption 2 split traffic

A new option:
New cloud networking services are coming to market soon that will give businesses a third option better suited to the macro trends mentioned earlier of: cloud, mobility, security, and speed. This upcoming third option overcomes the disadvantages of the first two options while delivering several important benefits, such as:

  • Delivers Enterprise networking services (virtualized) from the cloud
  • Transforms consumer-grade broadband into business-grade reliable WAN connectivity
  • Simplifies the network and increases visibility and policy control for IT administrators
  • Improves application performance for both SaaS and DC-hosted apps
  • Reduces overall costs by eliminating hardware and private WAN expenses

Venrock, NEA and The Fabric have led the investment of $21M USD into VeloCloud, which is pioneering this third option called Cloud-delivered WAN to help mid-range Enterprises that need a new approach to their data center-to-branch office connectivity.

We encourage you to stay tuned for more details regarding what VeloCloud has built, early customer reactions, and how you can try it for your environment.


More to come…

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How to become a venture capitalist

Since I joined the ranks of venture capital investors, the most common question I seem to get from my friends and colleagues is, “How did you become a venture capitalist?” I think it’s because the path and even the role seems opaque to so many. For others, mostly those working at technology startups, venture capital can seem like a dream job.

Before I attempt to answer the question, I’d like to point out that the glamour of many jobs often appears greater from the outside than the inside. Despite the potentially misleading title of this blog, please don’t assume you’ll come away knowing how to become a venture capitalist. Truth be told, I didn’t actively pursue going into venture capital, and I doubt there is any one clear path to becoming a venture capitalist. From my observations:

  • Some come from being an entrepreneur.
  • Some come from being a business executive.
  • Some come from being in finance or investment banking.
  • Some come from academia or even inherited wealth.

Instead of trying to map a path into venture capital, I think it’s better to map a path to your own dream job. When someone comes to me for career advice, I like to share with them some of the tools that helped me navigate the forest of choices available to pursue. Here’s a career Venn diagram that I put together based on some work posted by two guys named Simon Kemp and Bud Caddell.

career venn diagram

This graphic (created on Canva) is a simple yet handy way to think about the three key areas to consider when evaluating a professional opportunity.

Everyone does something pretty well, ranging from above-average to world-class. Evaluating your strengths should begin with a retrospective view of the work you’ve done in the past. I generally encourage folks to seek out mentors, advisors, and peers that you work closely with to get their perspective on your strengths. A variety of tools such as 360 reviews, personality evaluations, and some analysis of how you spend your time can help you gain insight into your strengths. The exercise of self-assessment can be an uncomfortable one that most people would rather avoid. Don’t feel bad about the discomfort; just power through and seek the truth. No one is ever dealt a perfect hand in the game of life, but you have to know the cards you’re holding to play the game as well as you can.

This is likely the most straightforward area of evaluation, but it does require some introspection. And while our passions can change over time, there are some things in our lives that endure and hold our interests. It’s important to think over the horizon of time and identify the areas that will most likely keep you coming back for more. A good litmus test is your hobbies. If you can somehow incorporate those underlying components of your favorite hobbies/interests into your professional endeavors, you will likely have more passion for the work that you do. And work will feel less like a four-letter-word.

Most people want to make a lot of money in the work they do. But not all jobs have the same pay range, for a variety of reasons. So yes, it’s important to rank the financial components (salary, bonus, equity) to tap into your motivation. However, the non-financial rewards (autonomy, mission, career path) that motivate you to do your best work are often overlooked. Try to think about when you did your best work and the environmental elements (supportive boss, team culture, ongoing training) that helped you do your best.

My path into venture capital:
I was recruited twice into venture capital investing. The first time was several years ago, but I did not pursue the opportunity then because the VC industry seemed opaque, intimidating, and difficult to understand. I understood that a VC’s role was to invest in companies, sit on boards, and have the shared responsibility of hiring, supporting, and sometimes replacing the CEO. However, I had heard some horror stories of big egos, politics, and the high percentage of arrogant yet capable people working in venture capital.

That said, many top tier firms, such as NEA and Sequoia Capital, had established an admirable approach of consistently putting their portfolio companies ahead of their own firms. I had first-hand experience with this positive behavior, as well as the significant benefits that high-quality VC board members could make in the early days of a startup, particularly around strategy, positioning, and talent recruiting.

This leads to my story with Venrock. I had never worked for a Venrock portfolio company but I knew that Venrock was one of the highest ranked VC firms, particularly with IPO exits. Venrock was recruiting for a new investor to help lead the charge on infrastructure, security, and cloud-centric technology investing and looked at a variety of candidates. My background matched several of the key criteria they were seeking: technical background, moved up the ranks from programmer to executive, operating experience at large technology leaders and fast-growing startups, and relevant infrastructure knowledge in networking, security, virtualization, and storage. Venrock had built an impressive franchise in this area of technology infrastructure particularly with Partner Emeritus Ray Rothrock, who recently retired from the firm.

Like NEA and Sequoia, Venrock has a strong reputation for supporting its entrepreneurs and portfolio companies. When I started to ask around about Venrock, it became clear that they had earned high marks over multiple decades for being value-adding board members to their CEOs and founders and overwhelmingly patient to their startups. That investing philosophy could be attributed to the Rockefeller family roots where the emphasis was on “not being afraid to give up the good to go for the great” and “every right implies a responsibility; every opportunity, an obligation; every possession, a duty.” Further, both Brian Ascher and Bryan Roberts, who led the charge in recruiting me to Venrock, stressed that there were two key tenets to the working culture of Venrock:

  1. Intelligent application of hard work & hustle
  2. Don’t be an a–hole

These cultural tenets might sound like motherhood and apple pie. However, they have meaningful application in daily conduct. The culture here is a key differentiator in evaluating and investing in quality startups, while supporting and helping entrepreneurs. I chose Venrock because its values and culture align with my approach to doing business. Venrock offers me a platform to leverage my strengths and experiences, rewards me for successful investments, and allows me to continue to work with entrepreneurs that have a similar enthusiasm for building the future.

Final thoughts:
I believe the best way to seek our own versions of success has to start with an introspective search for what strengths we possess inside, what brings us joy and fulfillment, and what forms of reward motivate us to do our best work. Try to strip away the expectations of society, friends, and family, because the collection of our choices and actions define us as individuals. It’s important to think across stretches of time and to dig deep inside to discover what makes us tick and hopefully content.

This approach might not lead you to a role in venture capital investing. In fact, it might lead to a role that’s the opposite of what VCs represent. Yet the rewards of finding work that maximizes our strengths and engages our passions sounds far better to me.

The post How to become a venture capitalist appeared first on Doug Dooley.


Taking the Other Side in the Amazon/Hachette Debate

This post is likely to be unpopular.

In April of 2012, I wrote “Why Should eBooks Cost $15” in response to the news that the Justice Department was suing Apple over price collusion with the book publishers. In it, I discussed eBook pricing…

Readers of this blog are familiar with my many discussions on digital good pricing and price elasticity. There’s “Weighing In On the Amazon/Macmillan Pricing Debate” where I detail that the market can tell you your optimal (i.e., highest profit producing) price for digital goods. Each incremental digital good has no additional cost. The marginal cost of distributing it is zero. So you really want to maximize total profit by finding the price that produces the most number of copies sold. In these markets, you make a mistake when you set your price by looking at your legacy costs (which were designed for a physical goods market in pre-digital times). Digital markets produce much lower profit per item, since digital markets tend to have lower prices for goods. (See “As Big Media Goes Digital, Markets Shrink“.) In all the discussions about why book publishers demand that eBooks should be $15 and not $10, they say it is because they cannot afford to sell books at $10. That is, they cannot cover their legacy cost models on that number. Right. Which is why you must rebuild your cost structure for a digital goods industry with far lower prices. You start by paying your top execs much less than millions of dollars a year. Then you move your offices out of fancy midtown office buildings. Why should eBooks cost $15? Amazon is far more of an expert on optimal book pricing. They have far more data than publishers, since they experiment with pricing hundreds of thousands of times a day across millions of titles. Amazon can tell you the exact price for a title that will produce the most number of copies sold. Amazon is pretty sure that number is closer to $10 than to $15. Yes, they want to sell more Kindles. And they believe that lower eBook prices mean more eBooks sold which means more demand for Kindle. The negative coverage of Amazon is centered on them selling eBooks below cost in order to reach the $10 price point. But that is a function of publishers setting the cost higher than $10. If the profit-maximizing price for an eBook is $10, then publishers must adapt to set a wholesale price lower than that, even if it means your legacy cost structure doesn’t allow it. And that’s the rub.

Now, more than two years later, we find ourselves having the same discussion. The Amazon/Hachette dispute (most of the journalists covering it have been sympathetic with Hachette) is largely over the retail price Amazon believes it should charge for eBooks. Hachette wants this price higher, Amazon wants it lower. Hachette seems to want to try to keep eBooks priced about the same as physical books. But why should it? eBooks have no marginal costs, and consumers therefore expect the pricing to be lower. Amazon agrees.

While the hardball tactics Amazon has used to force Hachette to lower prices have, somewhat uncharacteristically, inconvenienced Amazon’s customers, I believe their larger point is the right one. Many legacy industries who’s models were built in the analog world have trouble adapting to the lower prices of digital markets. (See the music industry.) Amazon’s pricing data likely shows they will sell more eBooks at lower prices. They want Hachette to price eBooks lower. In this new world, more copies can be sold, for lower retail prices, but with no physical costs. The profit might well be close to the same amount, or it may even be less per unit. But adapting to the increased competition for consumers’ attention/spend and the inevitable price erosion of digital goods compared to their physical peers requires prices to fall. Amazon is attempting to force the publishers’ hands.

Most of the emotion around this debate has centered on the effects of Amazon’s tactics on authors. I understand how a dominant retailer can hurt sales by temporarily refusing to stock titles or make them hard to buy. But the long term effects of Amazon fighting for lower eBook prices is likely to make the eBook industry healthier in the long-term. For that, authors should be supportive.


A Debate about the Future of NY Tech

HotTopics recently hosted an interesting debate moderated by Jeff Glueck about the future of the NY tech scene that I participated in along with Kevin Ryan, Dennis Crowley, Jessica Lawrence, Alfred Lin and Bob Goodman.

Here are the highlights. Some of the big questions we hit were:

-How is the NY technology ecosystem different than Silicon Valley?
-What are NY’s key strengths and challenges?
-Where does NY tech go from here?
-Does NY favor startups that focus on making money over big-swing platforms that defer their focus on revenue?
-In this inning of information technology, what kinds of industries are disrupted by insiders vs. outsiders?

I wish we had had more time to discuss this last question, as it is a very interesting one worth a debate or series of blog posts in its own right.


A Discussion With Some of New York’s Most Successful Repeat Entrepreneurs

Some of the most helpful advice in building startups comes from entrepreneurs who have been there and done that successfully multiple times. To try to find and highlight the best advice of this kind, we recently hosted a panel discussion with a group of New York’s top repeat entrepreneurs, including:

-Kevin Ryan: cofounder and Chairman of the Gilt Groupe, MongoDB, Business Insider, Zola
-Brian O’Kelley: founder and CEO of AppNexus, CTO of Right Media
-Fabrice Grinda: founder/cofounder of OLX, Zingy and Aucland

Together these entrepreneurs founded or cofounded 14 companies that are worth over $6.3 billion and currently employ over 3,000 people, which is a pretty astonishing statistic. They have also made over 150 angel investments in 10 continents across almost every technology sector.

It was a great discussion with a lot of wisdom on the subject of what matters most in building a successful company and key mistakes to avoid. We also had a chance to share some thoughts on the future of the New York technology scene.


The FCC Decides to Eviscerate the Neutral Internet

Like many in the tech community, I was both shocked and dismayed at the FCC’s sudden about face on the basic principles of net neutrality.

“The principle that all Internet content should be treated equally as it flows through cables and pipes to consumers looks all but dead.” – The New York Times

FCC, in a Shift, Backs Fast Lanes for Web Traffic

If the FCC’s proposed rule-making goes forward, this will be the beginning of the end of the open and non-discriminated internet. This proposal so obviously favors large companies with deep pockets at the expense of new entrants and startups. An internet where all content is treated equally and routed without preference has served to create a culture of massive innovation and has witnessed trillions of dollars of wealth creation and millions of new jobs. Allowing giants to buy preferred access to end users will automatically diminish the quality of service of non-payers. On the internet, we know speed and responsiveness are necessary to deliver high-quality user experiences and to delight customers. This proposal would make it far more difficult for non-payers to deliver those types of experiences so essential for success. The FCC should immediately re-write their proposed rule-making and eliminate any notion of favorable treatment to any content or payer.