Union Square Ventures hosted an event called Hacking Education that sparked conversations far beyond the day of the event, and did so in a way where we gave up control of the conversation and allowed it to spread. Steven Johnson recently wrote his thoughts about how Twitter will change the way we live, and within that article explained the process by which we shared our small event with anyone who was interested, and explained its impact:

Injecting Twitter into that conversation fundamentally changed the rules of engagement. It added a second layer of discussion and brought a wider audience into what would have been a private exchange. And it gave the event an afterlife on the Web. Yes, it was built entirely out of 140-character messages, but the sum total of those tweets added up to something truly substantive, like a suspension bridge made of pebbles.

I wanted to take the time to explain exactly how that was done and some of the thinking around it.

Leading up to the event we debated internally about what to project up on the screen. Albert was going to curate the conversation throughout the day and had a few visual references and videos that he wanted to show, but a question remained of what to put up the rest of the time. The day before the event we settled on a Twitter search stream hoping that our audience would contribute to this "back channel". Not everyone is willing to jump into a conversation, especially in front of a large group - and this provided an easy way to react, agree or even disagree with someone simply by sending a message for all to see.

Early in the morning we put up a message explaining that any update using the hash tag "#hackedu" would appear on screen.

The first few tweets trickled in, mostly recapping great points, or synthesizing great thoughts for the outside world to see. Soon questions and retorts began to appear on screen, but none broke the flow of conversation. As Stephen alluded to in his article, many folks from outside the room were following, answering back, and participating in the room as their messages were being seen by all participants.

Below is example of how it looked

From our Hacking Education photoset

To get this accomplished we setup a laptop connected to a projector and broadcast the standard search.twitter.com page with one slight adjustment. The standard search page does not update in real time and rather then clicking "refresh" every few minutes we needed to find a real time solution. Thankfully, someone had already created this solution in the form of a greasemonkey Firefox script. After loading up the page, confirming the auto-refresh was in place, we simply began sending the hash tag #hackedu into the system and the rest is now online forever.

Steps to setup real time Twitter conversations to your event:

1. Agree on a hash tag to use for the duration of the event (in our case #hackedu was short, descriptive, and easy to remember)
2. Have a laptop with an Internet connection projecting onto a wall or screen
3. Use Firefox and install the add-on called greasemonkey
4. Once greasemonkey is installed grab the Twitter search auto refresh script (or something similar)

You can continue to see and even join the conversation today simply by searching for #hackedu

Many of you are familiar with dust up between Chris Anderson and Malcolm Gladwell that was touched off by Malcolm's review of Chris's new book, Free: The Future of Radical Price. [UPDATE: Free is no longer free. The link to Chris's book has been retired. You can find Chris's book on Amazon.]

Anderson's book points out that the cost of providing web services is declining as a result of open source software, commodity hardware, and cheap bandwidth. Gladwell agrees with the trend but notes that it is very expensive for YouTube to host video. Gladwell and Anderson also traded visions of the future of the media business, with Anderson arguing that content was becoming commoditized and Gladwell holding up the Wall Street Journal's paid web subscription as an example of paid for premium content. Ultimately the debate veered into a discussion of the economics of abundance, pitting overly enthusiastic cyber utopians against cynical and perhaps self interested, defenders of current media business models.

The debate was entertaining but not very satisfying. Malcolm's examples were too narrow and not compelling. The WSJ gets away with a subscription, for the moment, because their users bill it to their corporate credit card. YouTube has real costs because of its enormous scale, and the structure of the pharmaceutical industry has little to do with purely digital products on the web. Chris, on the other hand, drifts too easily into an imagined world of abundance where economics (for lack of scarcity) will no longer be able to describe human behavior. I agree with Chris that the economics of the web are fundamentally different, but I agree with Malcolm that the basic laws of economics still apply. I understand why Chris and others are attracted to a "new" economics of abundance. Material abundance does change what we value, but it does not eliminate scarcity. Malcolm, Chris, Seth, and Fred all made good points in this debate. Many others weighed in. Much of this conversation is captured here in the Squidoo lense devoted to the topic.

My frustration with the debate about Free is that it seems like a last ditch effort to fit the internet economy into the familiar framework of the industrial economy. That isn't going to work. Free is not a pricing strategy, a marketing strategy, or the inevitable consequence of a market with low variable costs. It's a symptom of a much more fundamental economic shift. Until we agree on what resources are scarce and have a framework for how they will be allocated in the future we are not just talking past each other, we are talking about the wrong things.

Fortunately, a bunch of smart people have been thinking about scarcity in an information economy for a long time. Herbert Simon, the Nobel winning economist and psychologist, first wrote about it in 1971.

...in an information-rich world, the wealth of information means a dearth of something else: a scarcity of whatever it is that information consumes. What information consumes is rather obvious: it consumes the attention of its recipients.

Since then Michael Goldhaber and Rishab Gosh have debated the nature of the attention economy. John Hagel summarized the arguments here. These insights into the economy of attention offer a powerfully explanatory perspective in the debate about Free and explain why Free will be the dominant media model of the near future.

In a world where facts are readily available, from multiple sources, basic information will be commoditized. But the explosion of sources will create a real burden for the consumers of information. Raw information will become not just a commodity, it will be a nuisance. In that world, consumers will value scarce, relevant insight over abundant facts. Computer scientists have been working for years on algorithmic ways of mining text for insight with only modest success. It turns out that people still out perform computers at this task. Web services like Google, LastFM, and Facebook, succeed because they do a good job of harnessing the explicit or implicit input of users to sift through an overwhelming supply of information to deliver relevant insight. Google uses in-bound links to filter search results. LastFM uses other people with similar tastes to recommend music. Facebook filters information by the strength of relationships. So the users of these services are not just consumers, they are a necessary participant in the creation of the service. Since all these services require a large base of users for their filtering techniques work, you could just as easily ask why the services are not paying their producers. Debating whether to charge these same producers make little sense.

Both sides of the debate about Free do not seem to acknowledge how fundamentally different the relationship between suppliers and consumers is on the web. Services are not offered for free at all. There is an exchange of value between users, the creators of the raw material - data, content, and meta-data, and the network where that data is converted into insight. This exchange is still governed by the basic laws of economics but the currency is not dollars, it's attention. The network that takes attention and converts it into insight is also quite different than a traditional firm. The services they provide are more like those we expect from a government than a company. Craigslist, Facebook, and Twitter all provide (or try to provide) a robust stable reliable infrastructure (hosting, bandwidth), security, safety, and dispute resolution. In all three cases, the product users create and consume emerges organically from this environment.

In a world where the scarce resource is some combination of time, attention, relevance and insight, those commodities become the medium of exchange in a parallel economy alongside traditional currencies, debating what a traditional firm charges for something they produce and distribute to customers who have no role in the product's creation sheds very little light on what is going on today.

The much more interesting conversation is about the appropriate economic model for a social network that depends on the contributions of its participants and increases in value as more people use it. One possibility is that the economic models of these networks will look more like Craigslist than Yahoo. Recent estimates peg Craigslist's revenue at more than $100,000,000. Not much compared to Yahoo's billions, but Craigslist still employs only 28 people. Even allowing for substantial bandwidth, and server costs, it is still hard to imagine how their costs are more than $5,000,000. Since Craigslist collapsed a multibillion dollar classified advertising business into a fabulously profitable $100,000,000 business, perhaps we should be talking about the potential deflationary impact of more "zero billion dollar" businesses. As the radical efficiencies of the web seep into more sectors of the economy, and participants in social networks exchange attention instead of dollars, will governments at all levels need to make do with less tax revenue? That's a scary thought in an era of high deficits unless traditional governments can learn from the efficent governance systems of social networks and provide more for less.

We are fascinated by the disruption underway in mobile applications. Carriers seem to have lost their role as gatekeepers for applications as smartphone sales are rapidly ramping and "app stores" or direct downloads are the new distribution models. This is exciting as it opens up a whole new arena for startups to compete in. Here is some of our early thinking about this with the goal of getting a discussion going.

The challenge for startups (and investors!) has been identifying opportunities that are "native" to the new platforms. By "native" we mean opportunities that simply did not exist previously and cannot exist without the phone. For instance, we would not consider delivering breaking news to a mobile a native opportunity, as a startup rarely has a better chance of being "CNN for mobile" than CNN does.

Native opportunities are the ones that make use of unique capabilities of mobile platforms. Here is a starter list of such capabilities:

* Location. To be precise this should really say "high resolution and continuous location" because computers too have location, but IP geo-lookup is a lot coarser grained, less reliable and most importantly not available when the user is not at their computer.

* Proximity. This could simply be thought of as location, but it is likely to be so important that it deserves its own mention. Knowing the location of a user makes it possible to determine not just where that user is in relation to stores, landmarks, etc. but also to other users.

* Touch. Not all smartphones have touch screens (most Blackberries don't), but touch is an important and (almost) unique capability.

* Audio input. This may not seem like a big one, but the fact that all phones have it (hard to be a phone otherwise) makes it unique. Building a desktop app or web app that relies on audio input is a bit more challenging.

* Video input. Sure you can attach a camera to a PC (and most Macs have one built-in), but that camera is never where the user needs it, except for video chat. Also you can take an image with your regular camera and import it into the computer but that adds at least three steps which will result in a huge drop-off rate and prevent any immediacy. So having video input that is always and conveniently available is a unique capability.

Something that is noticeably absent from the list of unique capabilities is (data) connectivity. This is new for phones, but it has always existed on the web, so it is unlikely to provide an opening for startups. For instance, wanting to be a streaming music service for mobile won't easily give a startup a leg up on existing streaming services.

Each of these unique capabilities, taken individually, is not novel. For example, Palm devices brought touch to consumers in the 90s and location has been available on standalone GPS devices for decades. But the convergence of all of these features on a single device with access to an internet connection will allow new behaviors and applications to emerge that were not previously possible on any other platform. The potential emergence of new behaviors is likely to be as important -- if not more so -- than these technical capabilities themselves. After all, there were no large changes in technology that allowed Facebook to take off; rather it was a social shift in personal information sharing.

We don't know which native applications will emerge as ones that combine these unique capabilities and new behaviors into true breakout services, but here are some categories that we find interesting along with some of the challenges that they face:

* Location-based social networking, such as Loopt, Brightkite and foursquare. The big question in this category is whether these new networks will gain enough scale that they can compete effectively with the mobile offerings of existing social networks, or if the mobile networks differentiation in value proposition will be insufficient to overcome the current gap in scale.

* Gaming, such as Rolando and FieldRunners. As evidenced by reviewing the Top 25 apps at any given time, gaming has been one of the killer categories for the iphone. However, games played on mobile phones that don't leverage the unique capabilities are likely to be quickly dominated by the large existing publishers. For example, currently 7 of the top 25 best-selling paid games are major publisher releases. There would seem, however, to be an opening for a new type of gaming experience, such as mainstream versions of Alternate Reality Games (which using the phones might become "Augmented Reality Games").

* Shopping applications will likely be interesting and there has already been an early exit with SnapTell being acquired by Amazon. Most US-based mobile shopping applications simply supplement the real-world shopping experience with more information (barcode scan sending you to Google, BBB, Consumer Watch info, price comparison, etc...). This behavior contrasts with Asian markets where actual commerce/checkout via mobile is far more prevalent. We're interested in seeing if the unique capabilities of smartphones will accelerate mobile shopping all the way through checkout on the phone.

* Healthcare, such as Epocrates for practitioners and LoseIt for consumers. Healthcare practitioners and consumers are two key target audiences for mobile applications and their needs vary greatly. The practitioners are generally a lower scale and higher ARPU market whereas the consumers are a higher scale and lower ARPU market.

One notable absence from this set of categories is navigation. While this will clearly be an important category, we expect companies that have established the technology necessary to deliver navigation on previous custom devices to dominate on the phones as well. For example, the iPhone SDK license agreement disallows "real time route guidance" applications. There was speculation that this restriction was put in place because Apple wanted a major navigation company to tackle this problem first, and, subsequently, TomTom produced a great implementation at WWDC.

There is a good chance that the truly breakthrough application category is not on this list. It will be obvious in hindsight but a lot harder to anticipate. If you are working on a native application, please tell us about it.

At Union Square Ventures, we seldom invest in a company before it launches publicly. The exception is when we have the opportunity to back an experienced entrepreneur with a strong team and a strong product vision. That is exactly what happened with Tracked.com. So we now find ourselves in the unusual position of announcing the public launch of an investment we made some time ago.

A year ago, Mike Yavonditte, a web veteran based in New York who had worked at Ziff-Davis, Juno, Alta Vista and Interactive Corporation, and who had most recently gone wire to wire as the CEO of Quigo, began assembling a team to build a new kind of financial information service. We were impressed by how many of the people he had worked with at Quigo were either investors in the company or employees. That wasn't the case with one of his key hires, Bert Solivan from FoxNews, but he came on board after working with Mike as one of Quigo's largest customers.

Mike also brought a fresh perspective to financial information services; one that we believe could be the foundation for a fundamentally different user experience. Tracked.com has all of the usual data sources and features that you would expect from a financial information service, but they have acquired a number of sources that no one else is currently presenting, sources that allow them to provide unique insights into private as well as public companies. They deliver that rich data set through an interface that can be highly customized and adapts to the users behavior on the site. This idea, which Mike brought with him from the ad optimization world, was one of the things we found most intriguing about Tracked.com's product vision.

Just as you would expect from an ad optimization system, everything on the site is instrumented, but instead of using a user's behavior on the site to serve ads, Tracked.com uses it to continually improve the relevance of the content it presents.

Perhaps the most innovative thing Tracked.com has done is to introduce a social media layer to a financial services site. Tracked.com is more than just an information service. The service is designed to allow you to share insights within the service, publicly or within a private group and will soon allow you to link out to all of the popular social media sites and embed charts and other content.

These are still early days. Tracked.com is still presenting only a small fraction of the data they have licensed on the site. They expect to rapidly evolve the interface and the social features as users interact with the service. But based on our experience over the last few weeks, it is already an incredibly useful service. Check it out and let us know what you think.

We recently wrote about our search for native mobile applications, which we defined as applications that simply were not possible previously (as opposed to making something that already exists online accessible via mobile). We have also long been interested in gameplay (Zynga and Heyzap) and in local information (outside.in). We were therefore thrilled to find an opportunity that combines all three and are pleased to announce our investment in Foursquare.

Foursquare allows you to "check in" at a venue (via the iphone app, the mobile site, or SMS). Your check in is broadcast to your friends, which is a great way to let them know where you are. For most people, a conscious act of sharing is a lot less worrisome than an ongoing broadcast of location. By checking in, you also participate in various levels of game play. First, there are badges to unlock which provide a fun and unexpected reward for different types of behavior (like staying out late!). Second, foursquare rewards loyalty to a venue and if you really go somewhere a lot you may become the "mayor" of that location. In other words, checking in is both useful (signal) and fun (badges, mayorships).

Foursquare in turn uses check-ins to generate interesting local information. Some of it is explicit, such as the "shouts" that people can add to a check-in or the tips that they can leave for friends. A lot of it is implicit based on patterns of check-ins. Foursquare is already making some of that information available through an API with some first applications already built, such as SocialGreat. It is still early days, but as more people check in, Foursquare will generate more information, which in turn can be used to make future check ins more valuable.

There are many additional goodies coming soon, such as a native app for the Blackberry. We look forward to working with the foursquare team -- Dennis Crowley, Naveen Selvadurai and Harry Heymann -- when we are not busy fighting for the Mayorship of Whichcraft!

Union Square Ventures is an early stage venture capital fund located in New York City. We focus on web services. We look to back passionate, experienced entrepreneurs who are focused on creating highly scalable services and significant value propositions for their end users.

The below posts frame our investment thesis and explain what we look for.

Online casual games are a large and rapidly growing form of entertainment. According to Comscore over 85 million people play casual games every month in the US alone and minutes spent playing grew a staggering 42% from 2008 to 2009.

Casual games originated as downloadable PC games. Based mostly on free trials with payment for full play, the industry grew to over $1 billion (published numbers vary widely and some estimates are significantly higher). The move to online has come with a fairly pronounced decline in the price for downloadable games. One of the reasons for this price decline of downloadable games is that simple online casual games are easier to develop than downloadable games. The low threshold for creating a playable game is also reflected by the incredible fragmentation of the market: with over 20,000 online casual games, the average number of games produced by an individual developer is around 3.

One might argue that this fragmentation has not been an issue for people looking to play casual games, as there are many portal sites, such as Miniclip and Big Fish Games, which aggregate thousands of games. But for someone to go to a portal site requires a conscious decision to play games. Yet many online casual games can be played in increments of only a few minutes, which means that "impulse play" is possible. Impulse playing occurs when someone comes across a game in an unexpected place and decides to try it out. For instance, games might appear in a sidebar next to content or someone might end a blog post by including a game.

Deeper integration with content would also provide an opportunity for "habitual play." This is what happens today with newspaper puzzles like Sudoku and KenKen. Readers read whatever they are interested in and then turn to the puzzle as a habit (some of course turn to the puzzle first). Similar habitual behavior exists for the funnies. Puzzles and funnies serve an important function of providing a kind of comic relief / distraction from the generally mostly bad news. Online, casual games can serve a similar function.

To make these modes of gameplay more widely accessible requires making it super easy for publishers to add games to their existing content. We are excited to be backing a team out of Y-combinator doing just that. Jude Gomila and Immad Akhund launched Heyzap in January 2009 and are working hard to let all kinds of publishers -- from individual bloggers to large sites -- add games as readily and with as much control over content as videos. Heyzap already offers plugins for Wordpress and Blogger, several different size widgets, RSS feeds of games and an API for programmatic control, all of which let publishers with just a few clicks select games that best match their audience or personal interests. Many more features are on the way.

We look forward to discovering new games in unexpected places and enjoying our favorites with our daily dose of tech news.

It has been two months since we hosted a great group of academics, entrepreneurs, educators, and administrators at our Union Square Sessions Event, Hacking Education. Fred posted his initial thoughts immediately after the event and in a great example of peer production, Alex Krupp curated the Twitter stream that captured the thoughts of folks inside and outside of the event.

I finally found some quality time to spend with the transcript that is now online, and thought I would try to expand on Fred's initial thoughts and develop a couple of the key themes that came out of the conversation. Before diving in, however, I'd like to make a pitch for the transcript. It is not perfect (imagine trying to record 40 high powered people all talking at once), but it is readable and full of lots of insights. I would encourage anyone who is interested in the impact of technology on education to plow through it. I have tried to pull some of the highlights here, but there is no way that even this overlong post can do justice an energizing and enlightening afternoon.

There was broad consensus that the internet is enabling substantial changes in the way we learn and teach. It has always been possible to learn outside of a school setting. The ubiquitous connectivity and very low cost of content production and distribution seems to enable the unbundling of key components of education.

Dissagregation - David Wiley broke education into these components, 1) content provisioning, 2) research - conducted, archived, and disseminated, 3) help provided to a student with a question on the content, 4) a social life, and 5) issuing credentials.

Historically all of these components were bundled together in the experience of on-site education in a K-12 or University context. Already today, it is possible for a student to get many of these services outside the walls of a traditional educational institution. One of my favorite illustrations of all of this is a story recounted by Mimi Ito in her report - Living and Learning with New Media (pdf link)

In her study of anime music video (AMV) creators (Anime Fans), Mizuko Ito interviewed Gepetto, an 18-year-old Brazilian fan. He was first introduced to AMVs through a local friend and started messing around creating AMVs on his own. As his skills developed, however, he sought out the online community of AMV creators on animemusicvideos.org to sharpen his skills. Although he managed to interest a few of his local friends in AMV making, none of them took to it to the extent that he did. He relies heavily on the networked community of editors as sources of knowledge and expertise and as models to aspire to. In his local community, he is now known as a video expert by both his peers and adults. After seeing his AMV work, one of his high-school teachers asked him to teach a video workshop to younger students. He jokes that "even though I know nothing," to his local community "I am the Greater God of video edit¬ing." In other words, his engagement with the online interest group helped develop his identity and competence as a video editor well beyond what is typical in his local community.

In theory, Gepetto could have learned video editing in school. In practice his school was not equipped to teach it. He found content, help, a social life, and even credentialing (as others linked to his work) on www.animemusicvideos.org.

Rob Kalin kicked the discussion on the separation of learning and credentialing into high gear with this story.

I graduated high school with a D minus average. ...My guidance counselor said "drop out of high school, you'll have an easier time getting into college if you just get a GED." I [decided] to graduate with this D minus and see what it does for me. I didn't get into any accredited school . I got into a diploma program in an art school in Boston, and it was near MIT. ... I used the art school to make a fake ID to go to MIT. Someone said [college is] expensive. I said no, it's free, you just won't get credit for it.

Today, no one is going to ask Rob for his college transcript. His credentials are the companies he has created. Not every student can be so cavalier about the lack of a diploma, but the web is having an interesting impact on the value of credentials. In an earlier era, it was very difficult to evaluate a student's work directly, so a grade from an accredited institution served as a proxy. Now, if an employer wants to hire a video editor, Geppeto's work is on the web readily accessible. Students in the future will be as likely to be evaluated on their portfolio of work, as they are on their grades. That's lucky for Geppeto because, as his story makes clear, there is no way his school was capable of evaluating his work.

Fred pushed the conversation about disaggregation to another level when he suggested that in the future, he'd like to see students be able to opt in or out of a school on a class by class basis.

When I think about where we are going to be in 50 years, I think we are going to have a marketplace model for education where the student is in control of their education and they determine who is going to educate them, when, where, and how... I'd like my kids to be able to avail themselves of the quality classes and teachers they have in their physical space but then opt out of those [classes] that aren't good and go get that knowledge somewhere else.

A byproduct of the disaggregation of education will be to weaken the authority of schools, but the bigger challenge may be to align their cost structures and business models to remain competitive in a hyper connected world.

Bing Gordon dropped a bombshell just before lunch when he proposed that we should work to drive the marginal cost of education to zero.

From an economic point of view, I would say the goal... is to figure out how to get education down to a marginal cost of zero. Somebody mentioned Oxford. I think the marginal cost for a student at Oxford is probably $250,000; at a U.S. university it's probably $90,000. That's what it costs per student. That's not what they charge. Public school, I think, they are trying to do it for $6-8000 per student. So, what if we had to get it to zero? We've seen technologies that get the marginal cost [of services] to zero, plus bandwidth.

This is not as crazy as it sounds. Knowledge is, as the economists say, a non-rival good. If I eat an apple, you cannot also eat that same apple; but if I learn something, there is no reason you cannot also learn that thing. Information goods lend themselves to being created, distributed and consumed on the web. It is not so different from music, or classified advertising, or news.

For Shai Reshef the idea of reducing the cost of education isn't just theoretical. He described University of the People this way.

It is a non-profit, tuition free, online university...students are not going to pay for courses or tuition. However, they pay admission and they pay for exams that they take after each course... The idea is open admission to everyone.

...We use open source and open courseware... basically everything that is available for free... there are not going to be any teachers in the classroom. Students are going to teach each other...

... [the discussions are] asynchronous... because of the time differences and there is not going to be any video... it's very, very simple [so] that anyone around the world can get it.

... we teach only two courses, business and information technology... these are the most needed degrees to get a job.

It's not for everyone. You need to know English, you need to have a computer... our assumption [is that the students will be from] the upper end of the lower class or the lower end of the middle class... its people who almost made it... who could have been at the university but missed their chance.

So by targeting a very specific audience, delivering only two courses, using open courseware and open source technology, asking students to teach other on a very simple platform, Shai hopes to be able to deliver a limited, but valuable education to an important segment of the global population for free. He will ask them to pay only for testing (accreditation).

Shai is not dropping the marginal cost of education to zero. But he has figured out how to deliver two courses at a marginal cost of pretty close to zero. His costs (and the price to students) is in accreditation. The marginal cost of Gepetto's self directed "course" in video editing was also zero plus bandwidth. He did not pay for accreditation. The only "credit" he got was the approval of his peers on the web site and the recognition of his teachers back at school.

I had a lunch conversation with David Wiley (it's not in the transcript) about whether or not it would ever be possible to reduce the cost of accreditation to zero. I was stuck on the problem of grading papers. I understood how a computer could grade a math exam, but how could you grade an essay on Aristotle. The best I could imagine was that underpaid, but still costly, teaching assistants grade the student's essays. David said, "oh that's easy". You agree with the students on a set of criteria for how the essays are going to be graded and then have each student read a few essays. The readers critique can then also be read by a couple of students and the students final grade is based on how well they wrote and how well they critiqued according to a jury of their peers. By having every essay and every critique reviewed by multiple people, you eliminate the outliers and arrive at a fair grade. So at least in theory, it is possible to peer produce the critique something of as abstract as an essay on Aristotle.

The possibility that education can be unbundled, and that, as an information good, it may be possible to radically reduce the cost of providing at least some types of education could have important social consequences. We spent a good portion of the afternoon talking about some of those issues and some creative ways to use technology to address the issues that technology is creating.

As the web becomes more central to learning, bridging the digital divide becomes more critical. The webs resources are only available to someone with a computer. That sounds simple but as Danielle Allen points out, it's not.

A small anecdote on the issue of technology in schools to underscore the fact that any conversation on education needs to take a whole bunch of other factors into account, which are pretty absent from our conversation. I've served on the board of the University of Chicago Charter School for a number of years. We had to quit handing out laptops because kids were getting attacked. First, we tried school buses so they did not have to walk home, but that wasn't enough, and it's super expensive. So, it wasn't a sustainable program, just because of various social factors.

The difference between those who have computers and those who do not is important but there was also a lot of conversation about those who do not have the cultural background that would lead them to take advantage of the learning opportunities on the web.

dana boyd reminded us that "technology does not determine practice"

Just shoving broadband into a group of kids, just giving them an iPhone, we can think of a gazillion designs that are valuable ... but, if you don't have a culture embedded in it, [it] becomes just another toy you can text your friends with... I've become so infinitely frustrated with... "let's just dump a bunch of laptops into a population and see what they do with it"... That doesn't work... We've watched students rip out the batteries and use them for everything else under the sun.... I don't think we can just think about the technology.... We have to think about it in a broader system.

Even if you solve the real world problems Danielle cites, and embed the technology into a framework that enables meaningful learning, students will still fall into two groups, those that were lucky enough to have been raised in a cultural context that values learning and those that who were not. The story of Gepetto suggests that someone with access to a computer and a desire to learn can learn a lot on the web. What about that portion of the student population that is not self motivated? How can we reach them?

Jon Bischke reminded us of the William Butler Yeats quote "Education is not the filling of a pail, but the lighting of a fire". Several people suggested that this is the role of a great teacher. Steven Johnson described how he learned a passion for baseball and suggested that game mechanics may be one way to light a fire when a great teacher is un available or unaffordable.

When I think about the skills that... I got when I was a young kid that are still valuable, I think back to when I was 10 or 11 when I spent thousands of hours playing baseball games and designing better baseball games. I got a huge amount out of that in terms of the math involved in creating the whole statistical model of how baseball works and stats, and a lot of collateral learning experience... But the most important thing about that was, I learned how to be obsessed with things... I got obsessed with these things and I had a series of stages in my life where I got obsesses with something else. And I just immersed myself to learn as much as I could. And it's that mechanism I used again and again and again in my professional life. So how do you teach kids to be obsessed with things?

I think one of the advantages we have with technology and particularly with games is that they have a built in structure, almost to a fault, as most parents would say. They have an addictive quality where people will just immerse themselves and become obsessed with them...When you look at the games that most of these kids are playing, the amount of information that they have to accumulate and master to perform well in these games is massive compared to the amount of information they are willing to learn at school... there is something in this kind of platform. Without anyone telling them to do it, they are going out, learning all this information, and becoming really skilled at it.

Katie Salen has spent the last two years trying to tackle all of these problems at once. She has created a New York City public school that will open in the fall that is based on the idea of game based learning.

We wanted to open a public school because we are really interested in the equity and access question.

Like Dana, Katie understands the importance of context and culture.

In order to actually have transformative change, you needed to work at a systemic level. So the idea was to design a school from the ground up. All aspects of the school, the curriculum, the professional development program, student recruitment, the kinds of technology and communications platforms in the school, the leadership model - all of that is built around a pedagogy, which is the way we think kids learn best.

And it's based on game dynamics.

In a lot of our work we found that kids that have struggled in traditional schools do really well with some of the work we have been doing around game-based learning.

As encouraging as Katie's story is, there was also some real concern about the future of education. Fred put it this way:

the problem is that the whole economics of that physical space breaks down as [students] opt out [of parts of traditional campus based education]. Maybe this is just what we're going through in other industries... that they get crushed by the organizing efficiencies of the Internet. But I don't know how to get across that chasm

Fred is suggesting that the education industry may soon face the same challenges that currently confront the music industry and the newspaper industry. Like those industries, education can be peer produced, delivered as bits, and curated by a community. Like the music and newspaper industries, the cost structures embedded in the education industry's current business models may be very difficult to support in the face of competition from hyper-efficient, web native businesses.

Unlike the music and newspaper businesses, education plays several roles in current society.

Diana Rhoten pointed out that:

School is a safe place for a lot of kids. It's not only the single parent argument. But, it's also that school represents the eight hours of your day when you are actually warm and have food. Not every kid can opt out of that.

Katie Salen picked up on that:

In the early part of the [last] century there was this configuration between home, church, and school. And it was understood that kids learned in those three different places and it was really clear what was learned in those three places. And over time.... all of it got stuck back in the school.

The day was characterized by this conflict between the technologists and entrepreneurs who were driven by the conviction that we can use what Tim O'Reilly calls the "magic powers" of the web to drive down the cost of learning and increase access to knowledge. This optimistic view was tempered by the concern that education is not music and that the existing structure of education delivers a lot more that knowledge. If the transition from the current high touch, but high cost, learning environment to an efficient peer produced learning network is as abrupt and brutal as the transition we are witnessing in the music and newspaper industry, the social consequences are likely to be a lot more severe.

Early in the day Bob Kerrey's reminded us that education is not like other industries, that it has always, at least in the U.S., always been tied up in our notions of citizenship, and that the collective decisions we make about education have always been politicized.

It is worth remembering that the history of the common school in the United States is a history of people attempting to pass state laws mandating education at an early age, mandating the creation of public schools. And up until the 1920s, when there began to be the a rise of the nativist movement, as a result of the enactment of the openly racist Immigration Act of 1924 and the creation of the American Legion, that resulted in the rapid expansion of public schools in the United States of America for the purpose of teaching citizenship. That's why the Pledge of Allegiance is mandated in all schools. If one of your 11-year-olds is found out on the streets of Atlanta this afternoon, they can be arrested and found in the juvenile justice system for violating their -- as an offender of their status. They're required, for approximately a thousand hours a year in all 50 states, to be in schools. So, that's the context.

Secondly, you've got to sort of imagine yourself -- I have a 7-year-old in the largest public school district in the country, the New York public school system. If you're trying to have an impact on PS41 where he goes to school, to put it mildly, that's a hell of a challenge. Just to try to have an impact upon the arrival of air-conditioners in June, let alone the curriculum and the budget and other sorts of things. So, I think you have to separate the conversation between the effort to improve the public schools and the effort to improve the non-public school environment. These are two completely different things.

And finally, you have to get used to the idea that you have to bring an argument inside the context -- you haven't been in a room full of parents. There are 2 million parents in the New York public school system that might, I should say, have a slightly different attitude about what they want the New York public school system to accomplish than I do. And these board meetings can be raucous, dispiriting and at times counterproductive. You find yourself saying, Gee, I don't want to do that anymore. You can find yourself fighting the battle to get curriculum imposed and brought to the schools and it's exactly what you wanted and, two years later, the board of election occurs and the people you supported get turned out.

So in the end, the technologist's enthusiasm for radically reinventing education was tempered by an increased awareness of the broader social role that our educational institutions play and a greater appreciation for the political will needed to bring the full benefits of the web to public schools. The academics and educators heard about a number of interesting experiments that use peer production, game dynamics, super distribution, and the ubiquitous connectivity of the web to create meaningful demonstrations of what can be done. The challenge for all of us it to find ways to exploit technology to reduce the cost and increase the accessibility of education; build political support for the structural changes needed to make this a reality in public schools and architect a transition from the current industrial model of education to a network based model while minimizing social dislocation.

Fred wrote a post earlier this week advocating for more "open spectrum". Fred argues in his post that freeing up more open spectrum will have a much larger impact than spending $7.2B in stimulus money to run wires to rural constituents. He also references our friend Tom Evslin who has been thinking and writing about telecom policy for 30 years. I'd like to flesh out the argument here and at the risk of coming off as a total fanboy, link to a couple of Tom's other posts here and here on the subject of spectrum policy.

The first question to ask about spectrum policy is "are we using spectrum efficiently today?" The answer is no. Google makes this argument in their May 21, 2007 letter to the FCC asking for a clarification of the service rules governing the 700MHz band.

"the vast majority of viable spectrum in this country simply goes unused, or else is grossly underutilized. Our nation typically uses only about five percent of one of our most precious resources."

This study done with the National Science Foundation (warning 20meg download) supports the first part of Google's contention. It chronicles spectrum usage in New York City during the Republican National Convention. It shows that in the largest city in the country at what should theoretically be one of its busiest moments, we use a tiny fraction of the available spectrum.

So we only use a small portion of the available spectrum under the current policies. The second question is "could the spectrum in use today be used more efficiently?" The answer there is yes.

In there letter to the FCC Google goes on to say...

"even that minimal use is inefficient compared to what is technically possible today."

I have been working in and around telecom for a long time and I am slightly embarrassed to admit that I did not understand how obvious our underutilization of spectrum is until a few weeks ago when I was rummaging around in some of Tom's old posts.

Over simplifying slightly, the current allocation of spectrum is a lot like circuit switching. Open spectrum operates more like packet switching which is phenomenally more efficient at the cost of some complexity.

When I make a phone call to my dad in Florida over a circuit switched network, I tie up a continuous electrical circuit from New York to Vero Beach. When I send him an email, that note is chopped up in to packets and put out on the net intermingled with lots of other packets.

Circuit switching is simple but very extravagant in its use of resources. Packet switching is more chaotic. It has to deal with the possibility that two packets will arrive at the same place and the same time. But it is much more efficient. This is, by the way, why in times of crisis, when there is a huge surge in demand such as right after the attacks on 9/11, the phone networks don't work but email gets through.

Before you all jump down my throat, I know this analogy is an oversimplification. Telcos use packet switching in the backbone to multiplex lots of phone calls over fewer circuits, so one could argue that the profit motive of the Telcos naturally leads to an efficient use of circuits. An argument could also be made that the cellular carriers are using a related technique to get many conversations into the same spectrum by deploying lots of towers broadcasting at low power and switching users from cell to cell as they travel. But we should not be surprised if the increase in the efficiency of licensed spectrum is less than we, as consumers, would like.

Anytime a vendor is granted a monopoly by the government, we should expect that vendor to manage their monopoly to maximize profits. When we license spectrum to mobile carriers, or TV networks, we are granting (or selling) them a monopoly over the management and use of a shared social resource. It is like giving the major oil companies an exclusive license to all of the oil in the US and expecting them to aggressively invest to increase the efficiency of extraction to drive down the price of gas at the pumps. The much more likely commercial reaction would be to extract slowly and manage the availability of the resource to keep the price and their profits high.

So, I for one am convinced that we do not use spectrum efficiently. Only a small portion of this important resource is in active use at any one time, and even when it is in use, most applications tie up a lot more spectrum than they need. I suspect that an analysis of currently available unlicensed spectrum would show that those frequencies are used more efficiently than most licensed spectrum. I have not seen research on this so if anyone can point me to some, I'd be grateful. But, efficiency may not even be the most important reason to open up more spectrum. As a society we benefit from technical innovation, and the pace of that innovation is much greater in unlicensed spectrum. This chart that I also found on Tom's blog comes from a comment submitted to the FCC proposing more unlicensed operation in the TV broadcast bands (white space) by a coalition of consumer advocates, wireless operators, and media watchdogs.

It is based on a very simple publicly available data set - the number of devices approved by the FCC for operation in licensed vs unlicensed spectrum. This does not speak directly to the value to consumers of all these devices, but if you assume the market works and that developers only invest in devices that they believe will ultimately get bought by consumers, it should be a pretty good proxy, and it tells a very important story.

It is a story that also seems to be playing out in other markets. When Apple introduced the iPhone, it had enough market clout to get AT&T; to allow it to create a market for applications that AT&T; would not control. The iPhone app store now has over 28,000 applications. I suspect that that is an order of magnitude more than have ever been approved by carriers. Again, I would love to see research that supported or refuted this point. The number of applications in the iPhone applications store is broadly available, can anyone point me to research on the total number of applications approved by wireless carriers to run "on deck" on their platforms? A cynic might argue that most iPhone apps are toys, but the number of applications downloads suggests that consumers like them and even the toys point the way to really valuable innovation like hundreds of different ways of using the accelerometer, or using the headset jack as an I/O channel.

I have heard a couple of reasonable arguments against increasing the amount of open spectrum. The first is that the government needs to grant a limited monopoly in spectrum in order to create an incentive for an operator to invest in the network that will operate in that spectrum. I am not an economist but I do know the cost of network infrastructure is coming down fast, and I suspect that it may already be low enough that network operators can create business plans that are attractive to private capital. More intriguing is the possibility that networks could be built in open spectrum as a series of interconnected networks like the Internet. This would radically reduce the capital requirements for any single network node, and likely lead to the creation of very efficient network back bones just as we have seen happen with the Internet.

A more subtle version of this argument is that a government granted monopoly creates the profits that fund the research and development spending needed to increase the efficiency of spectrum use. Advocates of licensed spectrum will likely point to the absolute size of their investment in R&D; and argue that they will not be able to do that unless they have a monopoly that generates the profits needed to support that R&D.; The problem with that argument is that there is no evidence that that R&D; is creating real consumer benefit, and there is at least anecdotal evidence (I spent my early career poking around Bell Laboratories) that large, over-funded, research groups are an inefficient way to get innovation to market.

The second concern I have heard about opening up more unlicensed spectrum is that it invites the government into an important sector of the economy which they are very likely to screw up. I completely agree that we do not want the government to be involved in the day to day administration of this hugely important social resource. But enlightened spectrum policy can be the best kind of government regulation.The government seed funded ARPANET and in the process created the standards that enabled the creation of the Internet. I don't know if anyone has tried to measure the return on the government's initial investment in the Internet (again I'd love to see this analysis), but I suspect it may be the single most effective economic development program ever created. We have a rare opportunity to replicate that success with enlightened spectrum policy. If the FCC chooses to open up more spectrum and creates the right framework for managing competition for that scarce resource, and the Defense Department, or the National Science Foundation funds a few experimental networks to operate in that spectrum, I believe that we will see an explosion of innovation that rivals the impact of the Web.

Unfortunately, as Fred pointed out in his post, that is not where we are headed today. The $7.2B the administration has committed to broadband infrastructure appears to be headed for shovel ready projects by established telecom carriers to deploy outdated and inefficient technology that will perpetuate their market dominance and dampen innovation. This is the wrong kind of government intervention into the market. It is not that it is not well intentioned, and I am not qualified to talk about it's effectiveness as a stimulus, but it will not have nearly the lasting impact that it could have if it were targeted at disruptive innovation in open spectrum. Why? Because access to those dollars will be a highly politicized process that will result in the firms with the most access getting the most dollars. Those firms tend to be the incumbent telcos and cable companies who have an obligation to their shareholders to maximize their profits by defending their duopoly. They have no interest in more open spectrum that would create an incentive for private capital to finance wireless alternatives to the wires that they now control to the home.

If the administration were to create more open spectrum, they would be creating a vibrant market. They would actually be taking the politics out of the management of communications. It may be tough in these times to walk away from potential revenue from the auction of spectrum, but the administration can have a much more profound and lasting impact on the quality of life of all Americans by opening up spectrum than they every could by putting stimulus dollars in the hands of the incumbent duopoly.

Today we put on an event called Hacking Education which is about the intersection of education and technology.

Thanks to all those who came out to the event today and to those who participated on the web.

If you are interested in finding out more about what was discussed today please see the following search #hackedu on Twitter.

If you intend to blog about or post about today's event please tag your content with the #hackedu tag so that we can find and aggregate the contributions.

This post will be updated soon with photo's from the event as well as a full transcript and audio file of the entire day.

There is an old and perhaps slightly shopworn saying in the venture business that you back the jockey and not the horse. But in markets undergoing dramatic transformation, where there is a real advantage to being quick on your feet, it is as true as ever. Dave Morgan, who founded Real Media and then TACODA, is one of the best "jockeys" we've worked with. Dave has a demonstrated ability to identify great market opportunities,attract world class talent, and build valuable businesses.

With his new venture Simulmedia, Dave is bringing the analytic and targeting techniques that he had pioneered on the internet to the world of linear television. Linear television is an enormous and (surprisingly) still growing business, but it is facing real challenges. Programming choices have exploded on television and audiences are increasingly spending time elsewhere, especially on the web. The developers and distributors of television programing spend enormous amounts of money to attract audiences to their shows. Today, much of that investment is wasted.

The insight that became the foundation for Simulmedia is that the Television industry is increasingly aware of the power of targeted promotions and that the aggregate, anonymous data needed to enable television programmers to target their promotions was now available.

We look forward to working again with Dave and his team and expect to have more to say about Simulmedia as they bring their services to the market in the next few months.

There is a great post up on the Pinch Media blog that links to a presentation they did for an IPhone user's group here in New York.

Pinch Media provides analytics for several hundred applications in the iPhone app store. Between them, those applications have over 30,000,000 downloads. In aggregate a really interesting picture is starting to emerge of the app store ecosystem.

If you have any interest in the iPhone applications, as a developer, an advertiser, or an investor, this is a must read.

This is hardly news since it leaked almost a month ago. Today our portfolio company Twitter announced that it has raised $35mm from two west coast venture capital firms, Benchmark and IVP. Union Square Ventures will also invest to maintain our ownership position, as will Spark Capital and several other investors.

Biz has the news on the Twitter blog.

There's not much else to say other than I am thrilled that Twitter will be working with Todd Chafee and his partners at IVP and Peter Fenton and his partners at Benchmark. The list of investors in Twitter just keeps getting better and better.

I'd also like to address one question I've read in a lot of comment threads regarding the recent twitter financing rumors - why raise money now?. Twitter has a very small team and has a fairly small burn rate given the scale of the service it operates and its growth rate. The money Twitter raised last year would have and could have kept the company operating for quite a while.

But there's a saying that I heard early on in my tenure in the venture business that still rings true.

That's what Twitter did. I think it's a smart move and I am particularly pleased that we've added two very smart and seasoned venture capital firms to the mix. Well done team Twitter.

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David Swensen, the guy who manages Yale University's $19 billion endowment was asked the other night by Charlie Rose if there was anything he learned in school that informed his investment strategy today. David replied that he learned to argue from first principles. This struck me first as a great endorsement of the value of a liberal arts education, but it also seems to me to be a great foundation for an investment strategy.

We are often asked if our strategy is to invest in specific markets, like media, or financial services, or specific technologies, like video, or wireless, or if we confine ourselves to one style or stage of investing, or if we invest only in consumer facing businesses. If you looked at our portfolio you could conclude that we invest in early stage, consumer facing, web services, in the media market. I am sure we are guilty of furthering this misconception by using this description of our firm as a short hand when we introduce ourselves. But it would not be true to say that our investment strategy is to invest in one stage, one type of business, one technology and one market. That would not answer the question - why do we invest in these things? It would not be arguing from first principles.

So why do we invest this way? We believe the web is fundamentally transformative (have we said this before). The global economy is defined by scarcity in resources, production, and distribution. On the web, the raw material is data. It is often shaped (produced) by volunteers, and it costs almost nothing to replicate and distribute the resulting product. This is profoundly different than the current industrial economy. Our investment strategy is to arbitrage the difference between the capabilities of the new medium and readiness of the existing economic and social structures to exploit those capabilities.

Looked at that way, our apparent focus on early stage, consumer facing, web services in media markets makes a lot of sense. We invest at an early stage because many of the most important new business created on the web are phenomenally capital efficient, and we are concerned that the best businesses may have too much pricing power once they are well established and it may be difficult to invest at attractive prices. That said, we have invested in later stage businesses, which we believe will transform markets, and will continue to do so.

The apparent bias for consumer facing services has everything to do with the pace of adoption. In enterprise markets, there are usually gatekeepers who have a vested interest in the current market structure. The best internet based businesses radically restructure markets. Where would Craigslist be today, if it had chosen to market classified advertising services to the newspaper industry. Would we invest in an enterprise focused business? Absolutely - but only if they exploited the "magic powers" of the web to restructure an important market and had a way to circumvent the gatekeepers to get their service to market. Will it happen? Yes. Has it happened yet? Not often.

Is our apparent focus on web services a technology specialization, like semiconductors, or internet video? No. We invest in services that engage users. We are often approached by companies with a technology that serves pages faster, or that enables video to be streamed to cell phones over current networks, or some other incremental improvement. We think it is critical for a web services start up to have in house technologists. We believe that technological innovation is often the key to attracting users early on. But we do not invest in the technology itself, because we believe technology differentiation is increasingly difficult to sustain. The technologists we do back are seldom doing basic electrical engineering. More often, they are user experience gurus and/or quants who can derive useful insights out of the flood of data that is a byproduct of users interacting with their service.

That brings us to media. Many people think of us as media investors. We're not. But it should be no surprise that we have made a lot of investments in and around media. It makes perfect sense that information markets will be the first to be disrupted by the web, but media is not the only market where services can be delivered as bits over the web. Banking, education, healthcare, and government will also be fundamentally changed. Media has fallen first because it is consumer facing and there are fewer gatekeepers to slow the adoption of a more efficient delivery model.

So yes, today we are investing in early stage, consumer facing, web services, in the media market, but tomorrow we could be investing in a later stage, enterprise oriented, platform, in the healthcare market and it would be entirely consistent with our investment strategy

As anybody who has looked into dieting or just improving their nutrition knows, there is a lot of conflicting advice on the impact of fats and carbohydrates on your body. But no matter what you ultimately conclude, you are now in the good position that you can select your food accordingly. This has become possible because in the US (and many other countries), food is labeled with fairly detailed nutritional information, even meals at restaurants.

The same, however, is not yet true for making product purchasing choices based on environmental impact. While some eco or green labels have started to emerge (e.g., EnergyStar in the US), we generally don't have the information available that would allow us to act on whatever our environmental convictions may be. There are many dimensions to the possible environmental impact of a product, such as whether the materials it is made from have been or can be recycled. Another important aspect that a lot of people care about are the emissions that a product caused during its manufacturing process and will cause during its operation. That turns out to be a much harder measurement problem to solve than the materials problem.

Consider a new computer. When the computer runs, it consumes electricity. The emissions caused by operating the computer therefore depend not just on how much you use it but also where your electricity comes from. Then there are the emissions that were caused by getting the computer shipped to you. That introduces more difficulty. How far did the computer travel? Was it shipped by truck the entire way or part of the way by air? What kind of truck was it? What type of airplane? But if you crack open the computer, then it really gets tricky. Every part that goes into the computer has its own emissions history. It too was manufactured and then transported to get to the place that assembles the computer. Determining emissions is thus a massive undertaking of connecting activities with their emission factors (which may well vary even for the same activity depending where or when it is carried out).

It is at this point that most people just give up and declare this problem as intractable. The team at AMEE, instead saw an opportunity for a lightweight web service. AMEE is a database in the cloud that allows tracking of activities and applying emission factors data to the tracked activities. It was built from day one to support other applications and web sites which gather the activity data from consumers and businesses. For consumers, that includes carbon calculators, e.g. Google UK's Carbon Footprint Project, but also services such as DOPPLR which uses AMEE to automatically calculate emissions for any trip it tracks. For businesses, existing systems that can plug into AMEE include accounting and supply chain applications.

The beauty of the AMEE approach is that instead of trying to solve the entire measurement problem in one go, AMEE starts with a known level of detail even if at that level of detail only estimated emissions factors are available. For instance, AMEE might have an estimate of the energy embedded in computer based on weight and materials. AMEE might also have an estimate of the laptop's power consumption based on average usage. And so on. As more and more systems connect to AMEE and provide data, those initial estimates can be refined and triangulated.

As Tim O'Reilly has described in his "Web Meets World" theme, we are on a path to increasingly instrument the world. Every time a new measurement system comes online, whether it is smart meters in homes, or cars that talk to the network, the data can be fed into AMEE allowing for a gradual transition from estimated emissions to detailed actual measurement of emissions. AMEE has made the deliberate choice to focus only on acting as a backend database and web service so as to not compete with any of the systems and companies that could provide inputs for AMEE and thus help improve the quality of AMEE's data asset.

All of this information will in turn let consumers and businesses make purchasing and production decisions that take environmental impact into account. We firmly believe that making more information available will ultimately result in better decisions and that the Web is the perfect mechanism for empowering people to do so. We are therefore excited to be investing in AMEE together with O'Reilly AlphaTech Ventures and TAG and look forward to working with Gavin Starks and the AMEE team.

One of the big "aha moments" for me in the past couple years came when I hooked up a Mac Mini to a large display in our family room in the spring of 2007. Slowly but surely, our family started using the Mac Mini instead of the cable set-top box and the DVD player. My son watches YouTube videos on the Mac Mini, my daughter downloads tv shows and movies from iTunes and watches them on the Mac Mini. The Gotham Gal and I watch SNL on sunday morning on Hulu (that's Tina Fey on SNL being delivered into our family room via Hulu in the picture on the right). We also listen to music on iTunes and via streaming services like last.fm, Hype Machine, and, of course, fredwilson.fm on the Mac Mini. And when we are not actively engaged with it, the Mac Mini goes into screen saver mode and runs family photos that are sitting on a file server in our basement.

Not only are we watching less cable, we are watching less DVDs. We can get full length movies via Netflix, Hulu, and bittorrent on the Mac Mini. Many think that streaming video is not ready for "prime time" on a big screen in a family room but I can tell you definitively that is not true. We usually opt for streaming over file-based video due to the convenience, and the quality is fine.

All of this happens because the Mac Mini has a great HDMI interface, because it's small, compact, and doesn't make noise, and because the browser is increasingly becoming the interface to high quality audio and video services.

But there are some issues with using a Mac Mini in this way. First, the Mac Mini's Front Row interface isn't so great. We end up using the browser for most of our activities on the Mac Mini. And you need a wireless keyboard to interact with the web browser. That's OK, but not ideal for a family room/living room experience. And the browser interface doesn't have a simple integration point for all of the various video services we use.

We could use an Apple TV or a Media Center PC instead of an Mac Mini. But both Apple TV and Media Center are closed services, and you can't get to every piece of content you want to access with them. The open environment of a personal computer and a broswer is superior to both. I've always thought there was room for the "Firefox of media center software." The best candidate to be the Mozilla of this analogy is the powerful open-source XBMC project that has gathered quite a following among geeks since it started in 2002. So when I heard about a company called Boxee that was developing a commercial version of XBMC, I got excited.

I first met the founders of Boxee over a year ago. At the time they were considering building a hardware device to run the XBMC/Boxee software. I really liked what they were doing, but the idea of investing in hardware for the family room/living room scared me. I gave them a bunch of feedback and wished them well. Like most entrepreneurs, they didn't take no for an answer. And I've met with them on and off ever since. The big moment came this spring when I got boxee running on our Mac Mini on our family room. For the first time, we had a single interface built for a family room remote into all of our video, music, and photo libraries and web services. My daughter saw it and said "genius." That's a big compliment coming from her. But even so, I wasn't sold. Just because our family liked it doesn't mean there's a market for it. So I told Avner no once more.

In late September, Avner emailed me and told me that over 10,000 people had downloaded boxee for the Mac already and that someone in the open source community had built an Apple TV version. That was the market validation we were looking for. So we decided to get involved. Today Boxee is announcing that it has raised its first venture capital round co-led by Union Square Ventures and Spark Capital. I will be joining Boxee's board and will be joined by my good friend Bijan Sabet, a veteran of the "web TV" sector who spent time at both Web TV and Moxi Digital.

I believe Boxee will be the "Firefox of media center software". It's simple to download and install, it's available on Mac, Linux, and Apple TV. It will soon be available on Windows. And over 100,000 users have signed up to use it, and over 50,000 people are now registered users. And that's for a service that's still in a closed alpha. All you have to do is look at the Twitter talk about boxee to see how excited and engaged the user base is. If you'd like to give it a try, signup here. I'll end with a video showing what I'm talking about. I hope you join me on Boxee soon. Please let me know if you'd like an invite and I'll send you one. I'll need your email address to do so.

Reputation is critical to most businesses, but on the Internet reputation takes on an even more important role. When you do business with a person or a company that you cannot see and you don't know, you really need some data about their reputation. Some of the most successful businesses on the Internet are built on reputation.

eBay, for example, maintains a rating for each and every user in their marketplace that is updated to reflect their reputation in real time. User reputation ratings in eBay are crucial for creating an accountable, safe, and reliable community of buyers and sellers. Google's page rank algorithm, that is the heart of their search engine, effectively measures the reputation of each and every page on the Internet and returns search results sorted by those pages that have the best reputations for a given keyword.

We are constantly looking for investment opportunities in other Internet businesses that are built on reputation and several months ago, we closed an investment in a Company that we know well and have been working with for quite a while already.

That company is called Return Path and they are the leading provider of email sender reputation data, deliverability, and whitelisting through a service called Sender Score. The Sender Score database tracks email senders (using the sending domain and IP address of the mail server that each and every commercial mailer uses to send their email). Return Path captures a host of data points about that sender through relationships with various points in the email flow from sender to receiver. Examples of the kind of data they collect are frequency of mailing, mail volumes, complaints, bounces, and unsubscribe request compliance. In all, Return Path captures about 60 different types of data on over 100 million email senders, being sent to them by over 30 sources representing almost 100 million email users, in real time.

As the name implies, each commercial email sender is given a Sender Score that is dynamic and always changing to reflect the current reputation of that sender. Return Path publishes these Sender Scores to the public at senderscore.org. If you are curious about the reputation of an email sender that regularly sends you mail, you can find it at senderscore.org by looking them up either by domain or by IP address.

Return Path has built a large business over the past five years servicing the commercial email marketplace with various products that all rely to some extent on email reputation. For example, Return Path's Sender Score Monitor product is a dashboard service that commercial email senders use to monitor their delivery rates at different ISPs and filters as well as test their emails before campaigns go out to help prevent problems. Monitor uses Sender Score reputation data to explain to commercial mailers why they have delivery problems so they can fix them. Return Path's Sender Score Manager product is a full service version of Monitor that includes expert professional services to provide email senders additional help in managing deliverability and ISP relationships. Return Path's Sender Score Certified is the industry's largest whitelist service that allows mailers with very high Sender Scores (ie reputations) to be assured of getting through spam filters at over 1 billion mailboxes worldwide, from Hotmail to Yahoo, to major corporate filters. In all, Return Path has about a half dozen services - including a number of products and services for ISPs and commercial email filters - and is regularly rolling out new ones.

I've known Return Path since 1999 when my prior firm, Flatiron Partners, invested in the company in its first venture round. I've been on the board of Return Path since 2001 and have watched Return Path build its reputation based email deliverability business into the market-leading provider. Return Path recently made the determination to divest itself of its other semi-related lines of business to focus exclusively on the email deliverability and reputation business. They also acquired Habeas, their largest competitor in the deliverability business. In the process of doing these transactions, an opportunity presented itself to bring a new investor into the company, and Union Square Ventures was very pleased to be asked to be that new investor. You can read CEO Matt Blumberg's blog post about the transformation of the business here.

Those that follow our investment activity closely will notice that this is a "later stage" investment, something that we are not known for doing. Brad mentioned in the post announcing our new fund that we would selectively look for late stage investments that operate in markets we know well and find attractive. This is the second such investment and certainly not the last.

We are very happy to be an investor in Return Path, joining Flatiron Partners and our good friends Sutter Hill and Mobius. And we are thrilled to be able to back a terrific management team led by Matt, Jack Sinclair, and George Bilbrey. We look forward to creating the next big reputation based business on the Internet.

I had a beer recently with Dave McClure of 500 Hats. As is always the case when I get together with Dave, we had a long, rambling and enjoyable conversation about how the Web is changing the way businesses get built.

At some point, I said that the vector of innovation has changed. It used to be that innovation started with NASA, flowed to the military, then to the enterprise, and finally to the consumer. Today, it is the reverse. All of the most interesting stuff is being built first for consumers and is tricking back to the enterprise. I suggested that one reason this is happening is that the success of a web service is more often determined by its social engineering than its electrical engineering.

Dave immediately said he’d give me three months to blog that before he did. I thought that was generous even for me who doesn’t blog easily or often. But just to be sure I make the deadline, here is the post.

The basic insight that the flow of innovation has reversed has been out there as a meme for a while. Fred wrote about it and referenced Esther Dyson’s Release 1.0 article. I took a shot at why it was happening; I focused on changes in the way services are built and their complexity. The conversation that Dave and I had was more about how critical the user interface is in consumer facing web services and how that might influence the flow of innovation.

We have marveled more than once on this blog about the remarkable efficiency of Craigslist. That service is essentially a very lightweight governance system that manages an enormous collection of users who contribute all of the content and much of the oversight that makes the service work. It is because Craig and Jim focus on managing the efforts of their users instead of doing the work of those users that Craigslist is so phenomenally efficient. Many of the most interesting web services are like Craigslist, at their core, lightweight governance systems. Facebook and Twitter come to mind.

Even services that do more than mediate communications among their users often depend on users contributing data through their engagement with the service before they can provide value back to those users. Wesabe can only help users understand their spending and suggest ways to do more with less because users share their spending data with the service. Del.icio.us depends on users tagging the Web in order to be able to help users discover sites, services and memes on the web. Last.fm only works because users share their listening behavior with the service.

In the old days, electrical engineers focused on getting computers to work not on getting people to engage with the systems built on top of those computers. The folks that built enterprise software were vaguely aware that their systems had to be accessible to the humans that used them but they had a huge advantage. The people who used them did so as part of their job, they were trained to use them and fired if they could not figure them out.

Today, no one tells you to use Facebook. There are no employer sponsored training sessions on the use of del.icio.us. The burden is on the designer of the system to meet a need, entertain, or inform their users. They also have to seduce those users, hiding complexity, revealing one layer at time, always enticing, never intimidating, until the user one day finds they are intimately familiar with power and the pleasures of the service.

Designing a system that does that is not an electrical engineering problem. It is a social engineering problem. The best social engineers are working today on consumer facing web services. They understand that there is enormous potential leverage in those services. The creators of these services recognize that services like theirs will ultimately disrupt the economics of many, if not most, parts of the global economy in much the same way that Craigslist collapsed the multi-billion dollar classified industry into a fabulously profitable multi-million dollar web service.

So that, it seems to me, is one more reason the flow of innovation has reversed.

We encourage our portfolio companies to make sure they take time out from the operational demands of their business to think about the bigger strategic picture. We do the same for USV and a couple of weeks ago took a day off to discuss how we think the web itself is changing, how the web is changing industries and society, and as a result how opportunities for startups are changing. One of the best ways we have found to think about change is to identify those principles that appear to drive the change and that themselves can provide a bit of a constant. In other words to understand what’s changing, you need to understand what is staying the same.

To that end we first looked at the characteristics of opportunities that we had set out as far back as 2004: technology leverage, disruption of markets, no gatekeepers, capital efficiency, data asset/network effect defensibility. We believe that all of these still apply and they are all still things that we look for in opportunities. But these also point to important changes. It used to be that mobile was a walled garden environment with the carriers as gatekeepers. Apple’s AppStore and the response to this by other device manufacturers has forced the carriers to reevaluate their role as strict gatekeepers and give more choice to consumers and more opportunity to developers. If Google's Android succeeds it will take that shift toward developers a big step further (in Android the phone applications, such as the dialer, are completely accessible and can even be replaced).

To us, this appears to be one of the great constants of the web. It is taking power away from existing large institutions and pushing it out to smaller entities and often all the way to individuals. In the process it is building up new institutions (such as Google), but the net result appears to be a distinct shift of “power to the people.” We see this at work in many of our existing investments: Etsy’s marketplace for handmade goods lets artists connect directly with buyers; Covestor enables investors to share their track records and discover each other; Wesabe puts folks in control of their finances; Tumblr facilitates sharing oneself; BugLabs lets anyone create a custom network-connected device. In each case, individuals are empowered in ways that simply were not possible prior to the web.

We believe that the same shift will become increasingly important in other areas of life that have longer standing and slower changing institutions. Take education, for example. For hundreds of years education has essentially been organized around schools and universities. To date, this has even been largely true in distance/online education (e.g., University of Phoenix). It may be difficult for us to conceive of alternatives because we are so used to the existing structures, but these are in no small part based on historical difficulties in disseminating information. Books at one point were super expensive and even the Sorbonne (the oldest still operating university) had only a few hundred in their library. With book digitization proceeding at a rapid pace and most new research publications available electronically, having a library will soon no longer be a reason to have a university. Lectures could historically only be heard at the time and place of the lecture. Now we can watch a video recording of a lecture over the web. A tutor had to be in the same place to look at the work of a student and provide feedback. All of this is of course slightly overstating the restrictions on the flow of information, as there were correspondence based courses even in the age of snail mail, but they accounted for a vanishing fraction of education. In recent years, however, we have seen a significant upswing in home schooling. While other social factors are at work, a key enabler for homeschooling has been the web. With access to course materials, ability to watch lectures and even tutor at a distance, we believe that we are only at the ning of the web’s impact on the fundamental structure of education. We expect much of that change to be away from the existing educational institutions and towards empowering individuals and newly-formed groups.

The environment is another area where the web can enable the kind of structural change that shifts power to individuals. Again much of this is due to the vastly reduced cost of moving information around and acting on it. For instance, the cost of producing electricity depends a lot on the load in the system and on the availability of various sources (e.g. if the wind is blowing). Prior to the web it was difficult, albeit not impossible, to disseminate a fluctuating electricity price to households and give them the ability to act on it. The web makes this almost trivial and can thus enable individuals to adjust their demand. With the web it is even possible for individuals to do this when they are not at home (this being an almost literal example of “power to the people”!). Similarly, it used to be difficult to gather and analyze all the data necessary to understand the environmental impact of a particular activity. The web allows for this to happen in a seamless manner. You book a flight online, the reservation site can query a database and tell you about the carbon footprint. The same could happen for any online purchase. Imagine going to Amazon and comparing two products and seeing not just their price and features, but also their lifecycle environmental impact in an easily comparable fashion.

The shift away from existing institutions in education, the environment and other areas up for change will not be brought about magically by the web alone, but by companies that use the web to create the right kind of platform. We believe that these represent tremendous startup opportunities over years to come and look forward to meeting with entrepreneurs and teams working to give "power to the people."

Several months ago I ventured into the spooky economics of information with a post that suggested that data had an increasing marginal utility. A number of folks like Albert, who know a whole lot more about economics than I do, argue that it was not exactly an increasing marginal utility, but they acknowledged that there was something weird going on. Relying again on my naiveté, I thought I’d try another post on the weird economics of information. It is almost certain to be wrong. Hopefully it will be wrong in an interesting and useful way.

I started thinking about this particular problem when I noticed that, at least anecdotally, there was a correlation between how open entrepreneurs were with us and their ultimate success. Simply put the entrepreneurs who are aggressively open in describing their plans seem to do better than the ones who are cagey. There is absolutely no data underneath this observation. It is just my sense after meeting hundreds of entrepreneurs over 15 years as a VC. If it is true, it could be for lots of reasons. The more experienced an entrepreneur, the more likely they are to understand that ideas are rarely unique, but the ability to assemble a team and execute against that idea is rare. Perhaps they are just more confident, and it is confidence that is correlated with success. But recently, I have started to think that there might be something more going on.

Many of the better entrepreneurs we know engage anyone they come across about their ideas. On the surface, this seems kind of dumb. Every time you describe your plans, you are providing a blueprint for a competitor. So, why do they do it? My hypothesis is they do it because their experience has taught them that, on average, every time they describe their ideas, they learn more than they reveal, no matter how much they reveal. And, as a result, they are able to concentrate insight in a way that creates a defensible advantage for them.

Start with the assumption that, in most conversations, the entrepreneur comes into the conversation knowing more about the idea that the person they are talking to? They bring a context, a world view, a mental framework to the conversation that has been shaped by all of the work they have already done and all of the conversations they have already had. The person on the other side of the conversation may bring insights from other disciplines or fresh perspective, but they are unlikely to fully appreciate the importance of their contribution to the core idea. Perhaps when it comes to insight the rich do get richer.

But entrepreneurs don’t just have one conversation, they have hundreds. The more open they are in each of those conversations, the more the person on the other side is likely to engage. They may unconsciously see it is a fair trade, the entrepreneur’s ideas for theirs. The more detailed the conversation the more places for a counterparty to interact. The more they understand about the entrepreneur's plans, the more likely they are to come across other insights from other conversations that would be valuable to the entrepreneur and the more likely they are to pass them along. So an entrepreneur who is aggressively open with his or her ideas builds a very effective network that aggregates data, information, and insights that are immediately relevant to those ideas.

This brings us back to the weird economics of information. Would it be possible to model this mathematically? The image in my head is of network nodes arrayed in a series of concentric circles radiating out from the entrepreneur in the middle. The nodes on the inner circle are people who understand the opportunity and/or the necessary technology best. Nodes on each subsequent circle know the problem less well. As data and information pass from the edge to the middle, it is refined by the experience and/or knowledge of the nodes (people) on the inner circles, so that the ratio between raw data and useful insight moves more and more in favor of insight as you move from the outside in. In this model, the network becomes a very efficient idea refinery and the entrepreneur who is at the center the ultimate synthesizer of the idea. These networks would be very fluid. Different entrepreneurs pursuing different ideas could include many of the same nodes but they would be at the center of a different network defined by their ideas. The network around the original entrepreneur would also morph as the idea evolved.

All of this suggests that an entrepreneur should be open with everyone, and that they will get the most value out of being open with the people who are most knowledgeable about the particular problem they are trying to solve. The people most knowledgeable about a problem are also the ones best positioned to compete with the entrepreneur, so the entrepreneur has more to gain and more to lose by being open with these people. From one perspective, the risks and rewards of being open are perfectly balanced. Every insight comes at the cost of another potential competitor, but that calculus leaves out the whole problem of execution. If an entrepreneur is incrementally more prepared to execute on an idea that the person they are sharing it with, they should still gain even if they engage in an open (and equal) exchange with a potential competitor.

There is, of course, and embedded assumption here. The entrepreneur must be working in a market like the web that is rapidly evolving, where defensibility is based more on an organization’s ability to anticipate and adapt to change, than it is on its ability to defend a proprietary advantage. It makes a lot more sense for Peter to be open about what he is trying to do with Bug Labs, than for the folks at Coke to publish their secret formula. But in the markets we invest in, there seems to be a real advantage to being open. The best entrepreneurs in those markets cultivate huge networks of knowledgeable people and engage them actively to refine their ideas. The companies they build seem to share this characteristic, opening themselves by publishing source code and APIs: betting that they can thrive in an open ecosystem by being able to absorb, process, and capitalize on relevant information better than their competitors.