May 17, 2008

TiEcon 2008

I'm currently attending TiEcon 2008. TiEcon, the annual conference of the TiE's founding chapter in Silicon Valley, has become the world's largest conference for entrepreneurs. In its 16th edition this year, the conference was attended by over 4,000 attendees. TiE, as an organization, has also grown exponentially, boasting of 49 chapters in 11 countries.

I spoke at a panel this afternoon on the future of social platforms. More on that in a later post.

Between my meetings, I was able to attend a few keynote speeches. The two that I sat through till the end, and hence found interesting were:

Elon Musk, CEO of SpaceX, Chairman of Tesla Motors and SolarCity, co-founder of PayPal

Elon, 37, is an exciting serial entrepreneur. The diversity of his achievements in such a small period of time is truly amazing. Internet, space travel and
clean energy were the three areas that Elon, as a teenager, felt needed special attention. Internet was his first focus. He co-founded PayPal, and sold it to eBay for $1.5B. Elon was the largest shareholder of PayPal at the time of its sale.

His second major venture involves making space rockets. The goal of
SpaceX is to significantly reduce the cost of space travel through re-usable rockets. Its Falcon 9 rocket is currently under development. In a major endorsement of SpaceX, NASA awarded it a $278M contract in 2006 for its International Space station project. Finally, Tesla, Elon's third venture, recently launched its all-electric stylish roadster to rave reviews in Los Angeles. For his TiEcon interview entry, he drove in his Tesla to the stage. Elon feels hybrid vehicles are merely an industry red herring, and the true solution for eliminating dependence on fossil fuel and reducing global warming is going 100% electric.

That is three on three for Elon, an entrepreneur who's not afraid to think big, really big.

Chirs Anderson. Editor-In-Chief, Wired Magazine

Under Chris' tenure, Wired has retained its edge and editorial supremacy amongst all technology magazines in an environment where the print business otherwise has struggled against the onslaught of digital media. He coined the phrase The Long Tail in a Wired article, and later on wrote a seminal book on the same subject - why the future of business is selling less of more.

Chris is at it again. He's writing a book on the economics of free - expanding on his Wired article in the March '08 edition of the magazine. "Free" may mean either $0.00 or too cheap to bother measuring. The concept has existed since early 1900, when Gillette first introduced it - give away free razors (useless by itself), and make money during its lifetime through replaceable blades. Many other industries have since emulated it successfully - subsidized/free cell phones, and earn profit with air-time charged during the life of the plan; subsidized/free media (newspapers, magazines, broadcast television), and make money through advertising.

In today's age of technology, where computer processing power, bandwidth and storage have almost become free, the notion of free has taken a new meaning. Instead of cross subsidizing the free product by charging extra for the companion product, the cost of the product itself is falling sharply to almost zero. Economics 101 says that in a perfectly competitive market, the marginal cost of a product (incremental cost of producing one new unit) equals its market price. What happens when the marginal cost becomes zero? As is the case with the three main factors of production in the digital economy: processing power, bandwidth and storage.

This gives rise to new business models like "freemium" - basic service is free, but there is a charge for the premium service. In an environment of almost zero cost, the 99/1 principal applies to most Web businesses - 99% of total customers opting for the free basic service will be supported by 1% customers who pay for the premium version. With the scale of Web, distributing fixed costs amongst a lot of users makes the 99/1 model work.

Chris highlights two other concepts: the "waste economy" and the "gift economy."

The concept of "waste economy" explores the process to unleash innovation. Chris argues that engineers are brilliant in coming up with revolutionary scientific breakthroughs, but are usually horrible in judging their day-to-day applications by common users. The main goal of engineers should therefore be to drive down the cost of new technologies to a level where it can be "wasted" by entrepreneurs and consumers, who, uninhibited by any cost pressure, will find innovative products and services made possible by the underlying technology.

Lastly, "gift economy" is the engine behind Wikipedia, Craig's List, open source software, etc. Money is not the sole motivator in this economy. Altruism, making a difference, sharing are the human values which have always existed. The "free" global distribution through the Internet and Web 2.0 technologies have now allowed the contribution of a few to benefit thousands and millions of consumers - totally free of cost.

Just to make sure, these trends do not imply that digital businesses cannot make make profit in this age of "free." The product/service may be free to consumers, but some one else in the whole value chain will pay for it. E.g., Google's products (Search, Gmail, etc.) are free to users, but Google still makes a ton of money from advertisers.

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