Futuristic Play by Andrew Chen

Why BitTorrent Inc. is no sure bet!

I'm going write about something near and dear to my heart: BitTorrent.

Many of you guys may have been reading about the company, recently, since they are rumored to be raising a huge venture capital round: BitTorrent Raises $25 million, Bram Cohen is History.

So first off, the technology and the adoption of the protocol are amazing. Just read the Wikipedia page for the staggering numbers. 55% of upstream traffic, 35% of all traffic on the Internet, etc. It's all heady stuff. I've also chatted with Bram Cohen a couple times, and had dinner with him when he lived in Seattle, and he's a smart guy and I wish him the best of luck. But since the positive rah-rah side of the equation is covered, let me explain some of the hurdles I see for the company, based on first-hand experience.

A quick history
My friends and I love BitTorrent. In fact, we loved it so much that as a side project in late 2004, Will Portnoy and I wrote a BitTorrent search engine called TowerSeek. We did a little research paper about it and released it to the world, under the name Monkey Methods Research Group. It was on Slashdot at some point, along with MIT Tech Review, G4 TV, a couple hundred blogs, etc., which totally crashed our servers - that was fun :) We thought that BitTorrent had already proven its value as a product, and ultimately, we could try to "bring it mainsteam" by building a search engine (which aggregated all the fragmented content), as well as creating a BitTorrent client in an Internet Explorer toolbar. That way, you could use this toolbar to search, download, and open files.

We learned a lot from this experience, which I'll share below. Ultimately, we decided to focus on the creation of long-tail content, rather than facilitating mainstream stuff, which we saw as a difficult business model.

So after that, we started a media marketplace where people could go and publish stuff using BitTorrent. It was definitely an interesting experience, because after a couple months of tinkering and talking to filmmaker types, we released the site as one of the first BitTorrent-powered products targeting a non-techie audience. And it flopped. As we iterated on the product, YouTube came out, and it was game over :) We stopped working on BitTorrent-related services after that because we had learned our lesson(s), which I'll recount below.

For consumers:

"I want it now!"
People care about instant gratification. At the end of the day, you'll have more people watching a fast-loading movie in a small screen than you'll have people who download the client, then wait an hour or two for the file to download. When we asked people how long they'd want to wait for a download, they'd say "5 minutes at most" even though they don't understand the quality jump you're talking about with BitTorrent

"This feels like spyware"
BitTorrent requires you to download a separate client, which is a tall order for non-techies in the world of spyware. It's just too much work. Whenever we had usability tests that got to a download page, most of our participants would stop. It was too much of a barrier.

"Where are the files? Why isn't my movie playing? etc."
And of course, one huge killer in the BitTorrent world is the amount of fragmentation you're talking about. I think it's very smart of BitTorrent Inc. to start a destination site, because that's what consumers want. They want to go to one place, not download the client at one site and find the content at 5 others. Nevermind the problem of codecs (DivX versus H.263 or MP3 versus AAC), which make it so that you can wait hours for a video and then have the frustration of not having the right codec - and don't expect your average user to know about VLC. So it's also smart BitTorrent, Inc. is standardizing around Windows Media codecs and DRM.

There are a couple other issues, but this is why Flash is such a great platform for video sharing. You probably already have it on your computer, and you can walk to YouTube and be guaranteed to instantly load and play any video of your choice. Instant gratification without a client download needed, and you just need a site like YouTube to solve the media fragmentation problem.

For content producers, you have your own set of concerns:

Mainstream media has big demands
If you're working with a studio, of course they have some big demands. First of all, they have all the leverage since they are sitting on the content and you are just another "pipe" to them. So the deals won't be in your favor, and will be experimental at best. DRM is a must, of course, as is playing nice by not disrupting them in all the ways you could be, which means you'll end up in a more traditional model. I have to say that still, I'm very impressed with BitTorrent Inc's ability to sign big studio deals, which I would have expected to take a longer time and more money. Obviously the guys over there are returning their calls quickly :)

That said, one could speculate that part of the reason why the studios would like for BitTorrent to have a LITTLE traction, but not give them full-rein, is that it makes the company much easier to control.

For mainstream media, you are a commodity bandwidth provider
As I mentioned above, mainstream media has big pockets. Obviously Apple just pays a bunch of money for iTunes to function through Akamai, and I'm sure it's getting cheaper by GB/transferred every day. So ultimately, when it comes to distributing films for Warner Bros, BitTorrent ends up competing with Akamai and the other network infrastructure people, without the differentiation that one of those pure-plays can develop. It's akin to developing compression software when hard drive capacities are getting cheaper every second, or developing CPU overclocking when you have Moore's Law. It's a cool thing to do, but ultimately, it's a losing battle since bandwidth is a commodity that's getting cheaper all the time. So the value proposition is much weaker.

Perhaps in BitTorrent Inc.'s case, they actually are able to position the "community" as a huge group that builds on the bandwidth value proposition. Even if that's true, as many people have pointed out, it might be misleading since not that many people actually go to BitTorrent.com to download stuff.

Long-tail content is better, but they care about audience much more than quality
We talked to a lot of indie filmmaker types, and they all thought that our media marketplace idea was really cool - so we got good feedback there. Ultimately though, we realized they thought it was cool not because of BitTorrent, but because it gave them their first way to distribute film outside of film festivals. So they care more about eyeballs, not about the quality of the technology. Even though YouTube video quality sucks, they don't care because they just want the audience, and if they could publish their content at higher quality, but have a smaller audience, that's much less interesting. Getting them on board will be cost intensive, since they are very fragmented, but an easier pitch.

As an aside, I actually believe there's an interesting market in the indie filmmaker community that is still ripe for the taking. YouTube is a good first step, but filmmakers have a ton of problems they need solved, from recruiting actors and staff, managing the projects, timelines, and media, as well as the publishing/evangelizing end. If someone's able to make a consolidated set of tools for this group, it's probably an important (and strategic) profession to unite. I'll be waiting to see someone crack this market :)

Conclusion
So net/net, I still love the technology and use it constantly, but there are some major hurdles in trying to commercialize it for the mass market. All of the above lessons were pondered and learned over 9 painful months of tinkering and trying to make something work, and we ran into some problems. Perhaps some company will be able to overcome them.

That said, more than a year after we quit working on BitTorrent-related services, I'd still say that all the above problems still hold. Don't believe me? Just grab a random smart, but not tech-savvy person, and watch them in silence as they try to get BitTorrent working. They will quit 4 or 5 times during the process because it'll be too hard. Then set someone else loose on YouTube and you'll see the difference.

Splitting equity between partners

Interesting discussion here: Equity-Split Results: When Do Teams Split Equally?.

Oftentimes, the easiest way to tell how "green" an entrepreneur is comes from their understanding (specifically, lack thereof) on startup equity. I think it comes from the fact that equity is not really a meaningful part of most peoples' comp in any company other than the rapidly growing startup kind. So you often see conversations (and arguments) about the issues above.

So it may be obvious, but anyone who's joining a startup should be very careful about what % they are getting, especially if they are joining early enough that they are taking equivalent risk with the founders.

My favorite experience tinkering on side projects has been to have 2 or 3 founders at most, all of them technical enough to prototype and code, but one focused mainly on business-y stuff (logistics, organizing, legal, etc.) and the others focused mostly on development. The worst dynamic, in my opinion, is when you have a pure business guy and a developer (or two) and the business guy spends all his time making projections and/or bossing around the developers with crazy visions :) It's best if everyone works on the product and no one person has a monopoly on the vision or the customers, at the very beginning of a company.

Either way, I've generally thought to split equity equally when everyone is taking about the same risk, particularly before the company has made any money. After all, joining a month or two later is not necessarily a big deal if the person who's joining is worth it and deserves co-founder status. Otherwise, a couple percentage points here or there can create animosity that ultimately interferes with the success of the startup (which is hard enough as it is).

Simplicity and choices for users

I've been following a pretty interesting discussion that's been happening about the new Start menu on Windows Vista. You can see it below. See anything weird?

Well, Joel comments: Choices = Headaches.

Then, hilariously, one of the guys who worked on Windows at Microsoft (and now is at Google) comments on how it ended up this way.

And of course, finally, this is how the Mac OS X shutdown process ended up happening, from an Apple guy.

It reminds me of a discussion in Designing Interactions about the "Zen of Palm" and how important it is to make things easy for the user based on what they want, rather than a big menu of items. Here's an anecdote:

If you think about the way your desk is organized, you have some things on your desk, and some things in your drawers. Why is that? The things on top of your desk are there because you want to access them very frequently. Imagine if you had your mouse, or your phone, or something that you access very frequently, and you put it in your drawer. Every time you wanted to use it, you’d have to pull it out of your drawer. It might be only one more step, and it might be only one second, but it would really drive you crazy over the course of a day.

Think about your stapler and staple remover. My stapler is on top of my desk, and my staple remover is in my drawer. The reason is that I staple papers more frequently than I unstaple them. You can argue that architecturally speaking the stapler and staple remover are equivalent and therefore should be in the same place. If you look at it intuitively and ask what you do more frequently, some of these decisions just naturally bubble up to the top. It all depends on understanding your customers, but not on a very complex level. It is not rocket science to suggest that you would be more likely to enter a new phone number than to delete one.

Anyway, I'm sure the start menu ended up the way it was, described as "the lowest common denominator" because it presented all the possible options, "logically," rather than needing to make choices about what a user really would want.

Just switched to Camino...

A friend just pointed out something that should have been blindingly obvious: Firefox is slow, and if you use the same engine with native Mac libraries, things are much faster. So if you use a Macbook, download Camino.

There are a couple things I miss, here and there, but overall it's great. I miss the spellcheck squiggle that's in Firefox 2.0, as well as - to move between tabs, and also the support for multiple homepages.

The funny part, of course, is that I'm complaining about slow Firefox is when there are worse browsers out there.

Federated Media's business model

Valleywag notes: Federated Media client losses.

For folks that don't know, Federated Media is an ad repping firm. If you are a publisher, you can give your inventory to FM and they will sell ads against it. This is different than an ad network because they are transparent that they are selling your ads on your site. An ad network will often stick you into a blind category, like "Tech" or "Automotive" or something similarly broad. Also, rather than paying you a CPM and arbitraging the ads, instead the ad repping firms take 20% (or whatever) right off the top as commissions. Think of them as an alternative to hiring a bunch of ad sales people.

The great part about the FM business model is that they can focus exclusively on higher-quality sites. Rather than working with all the remnant inventory sites that lack focus and have editorially-problematic content, instead they can focus on sites that have branding potential, and thus, deliver higher CPMs. So you'll see them delivering CPMs in the $5 to $20 range rather than under $1.

The bad part is two-fold: 1) Channel conflict and 2) High/low CPM squeeze

Channel conflict is created once the publisher gets too big. Basically, once the site is successful, then ad agencies will start approaching the site, and the site will want to hire a direct sales team. Of course, this creates competition if an advertiser can buy ads from two different places. So usually what happens is that if the ad sales can be brought in-house, they often are.

The high/low squeeze comes from the fact that ad repping firms can work with sites that are high-quality, but not TOO high-quality. And of course, they can't work with low-quality sites where automated approaches dominate. In that case, there are just plenty of sites that aren't high-quality enough, brand-wise, to justify a human (rather than automated) sales team. This is the purview of the remnant ad networks.

Anyway, those are the pluses and minuses. If I have time later on, perhaps I'll write something about where FM could extend their business model to get around these issues.

Product versus Experience

Fun little analysis at Information Arbitrage: Joe, that little coffee shop: Starbucks Beware.

As many people are aware, "product design" and "product management" and "product marketing" are all becoming obsolete. The reason is that EXPERIENCES are starting to dominate the conversations that once was about products.

Take software, for example. If you thought of the actual bits and bytes as your product, then you might focus on making sure the right features were in place, that the technology was reliable, and all those other good things. That's great, and that's served the industry well for decades.

The problem is that people don't CARE about your product. They just care about their problems. So when you think about the bits and bytes as your product, in fact you should be a lot more worried. The EXPERIENCE cycle for the customer starts, in fact, before they are a customer. They might include things like:

• The first time they hear about your company/product
• When they here an opinion from a trusted source
• If they go into a store selling your product and look around
• When they see the packaging
• Or if your product is a website, when they see a blogger link to it
• Then, when they use your product, what happens
• After they try your product out, what they say to their friends
• How you charge them for the product, and how that interaction goes
• If they have problems, how that gets handled by your company
• What the product allows them to accomplish, and how that feels
• How people interact with your customer after the product gets used
• After they use your product for a while, and think they need a new one
• ... and the cycle goes on

Either way, this customer experience is obviously a lot more important than the product, which might really traditionally encompass one or two lines of the cycle described above.

So the coffee story is a good one, which really reminds tech guys like me, who obsess over things like "product differentiation" and feature checkboxes that there are many industries - particular CPGs - where everything is a commodity and people buy based on things other than features. Instead, focus on what the customer wants, and maybe that'll mean less features (but hopefully the "right" features).

Another great example, other than coffee, is Chinese restaurants. Whenever I go to Chinese restaurants, I inevitably talk about the same thing. Most restaurants run by Chinese immigrants tend to be in a race to the bottom, when it comes to pricing. Then you go to a restaurant like PF Chang's. The one here in Bellevue has a hour-plus wait anytime of the week, and they charge more and the food is mediocre. But it works because it has a great experience (other than the wait), where the location is convenient, the decor is very upscale, they hire servers that resemble the customers, and that gives them the ability to price higher than any normal restaurant. Again, it's not about the food, it's about the experience.

Autmated models versus human experts

Check out this interesting discussion here: The Perfect and the Good. It's a discussion by Malcolm Gladwell on using automated predictive models to calculate what kinds of revenues a movie might generate, just based on factors like the actors, the director, the genre, etc., all coded up as a mathematical equation. After he wrote about this topic, a bunch of people pointed out all the flaws involved. Pretty interesting.

Malcolm Gladwell's response, which you can read in the link above, is that predictive models are often better on average than humans, but usually not better than the best human. Very true.

It reminded me of a pretty cool paper published at Legg Mason on the nature of expertise titled, Are you an Expert? I highly encourage you to read it.

Within the paper, they had this great diagram. Simply put, humans are better at computers at different things, depending on the problem domain:

Flash will dominate the media-sharing web

Funny to see someone else notice a growing trend: The Coming Flash Desktop. Since YouTube came out, it's been pretty amazing to see the usage of Flash grow and dominate media sharing on the web.

I remember that back in the day, Google Video required you to actually download a program that would need to run on your computer. And you had a bunch of sites like Break.com (formerly Big-Boys) and Putfile using embedded Windows Media Player controls. But now, pretty much everyone has switched to Flash.

A close friend, Will Portnoy and I lamented the fact that we couldn't buy Macromedia separate from Adobe and cash in on this trend. We noticed this because we too, stupidly, were trying to commercialize another technology and make it more mass-market friendly: BitTorrent. Anyway, we eventually learned that being on 95% of the desktops and bringing instant gratification was just a one-two punch that's very hard to overcome with any technology.

The question is, what's next for Flash? If you imagine that the folks at Adobe are not asleep at the wheel, they could do a lot of interesting things that would make their company very interesting.

Here are some of the random options:

• Building a P2P protocol into the architecture (obsoleting quite a few companies)
• Making it easy to "register" your media into a central media directory, which they could control and syndicate
• Building search or other functions into the media framework, or providing services to unite all the Long-Tail content
• Making it easier to embed Flash and use it in rich applications beyond websites
• etc...

Either way, it would not be particularly hard for Adobe to get their hands on a ton of content, based sheerly on the fact people are building applications on their proprietary framework.

I figure that Adobe probably has a couple years to do this before a bunch of people freak out and decide to collaborate and use an open standard :)

Cargo cult science

Ever heart the term cargo cult science? Richard Feynman made a famous speech about it. Basically the idea is that science is not merely the numbers and analysis and jargon, but really hinges on a philosophy on scientific investigation. One should be very honest and try to find the truth, not argue some point at the expense of honest scientific dialog. I've often seen the term used when describing the science that accompanies court cases, or political discussion :(

Anyway, the term come from the "cargo cults" of the Pacific islands, where natives would set up fake airplane runways and radio towers in an effort to get a Jesus-like figure, John Frum, to send cargo planes. This stemmed from their understanding that they were behind (without cargo) because of a lack of magic or ability to conjure it, rather than because of technology/knowledge/whatever. Anyway, here's a good overview of the phenomenon: The last cargo cult.

Happy thanksgiving!

For your entertainment as you eat turkey, please read this cute story: Wikipedia Brown and the Case of the Captured Koala.