Interesting Post from Andrew Chen on Seattle's Startup Scene

Andrew Chen, a Seattle native (more or less) who pulled up stakes for the Bay Area a few years ago, has a thought-provoking post up today on why he chose to move. His thesis is that Seattle is culturally focused on retail + SEO (e.g, Amazon, Expedia), while the Bay Area is more oriented to social + viral ideas (e.g., Facebook, Twitter). In his view, the latter category is the "world changing" one, and he wanted to be in the center of that action.

It's hard to argue his basic point: that Silicon Valley has been (and continues to be) a richer source of web innovation than Seattle. But I wonder whether - in the long run - his view of (for example) Twitter as more "world changing" than Amazon will hold up.

More importantly, I think his argument points toward a more powerful - and changeable - aspect of the Seattle startup culture. Investment capital is a major input in the startup equation - many of the most successful angel and VC investors in Seattle made their biggest money on Amazon and Starbucks, and investors tend to look for patterns of success that are repeatable. It's not surprising to see local money flowing toward the same kind of deals that delivered wins in the past.

Here's a hypothesis that builds on Andrew's assertion but takes it in a slightly different direction. If we want Seattle to be the kind of town that fosters a broader variety of software innovation, what kind of investment culture do we need to create? How can we attract entrepreneurs and investors to the Seattle startup community that are willing to pursue + finance different types of risk, based on different patterns of startup success.

We've been working on some projects at Founders' Co-op that we think will move the needle on this question, in close collaboration with other folks in Seattle and elsewhere. Stay tuned...

Carrier-free cellphone coming in early 2010?

In March of this year I speculated that - between Google Voice and Android - the era of the carrier-free cellphone might be upon us. Many of my mobile-savvy friends scoffed - the existing model was too entrenched, they argued, and the carriers would fight like hell to delay their transition from value-added service provider to dumb pipe.

It's not yet confirmed news, but a steady drumbeat of speculation now points to a carrier-free cellphone being in market by the first quarter of 2010. The long-rumored "Google Phone" is now believed to be a VOIP-only Android device, with carriers bidding to be the data provider at $20 a month.

This could turn out to be just another case of overblown speculation, but I'm betting not - and despite my early prediction even I'm surprised at how fast the wish is coming true.

Seth Godin on Royalty Based Finance

As regular readers know, Andy and I have been messing around with a new approach to early-stage tech investing called royalty based finance. It's still early days, but we're very excited about the idea because it represents an entirely new "third way" of supporting the growth of young companies vs. the traditional equity-centric angel or VC path.

As we circulate the idea with both investors and entrepreneurs we've been hearing significant excitement about the approach on both sides of the table. So I was surprised and pleased this morning to find Seth Godin - a thinker and blogger I respect a lot - promoting a similar idea. His blog post is titled 'Debt, equity and a third thing that might work better' and his conclusion gets it just right:

"My general bias for entrepreneurs starting out is to bootstrap their business, because raising money is so hard and so distracting. But if you've set out to do something that needs cash you can't raise any other way, this is worth exploring. Tell a story to an investor that wants to hear it, and create a cash-flow scenario that makes the investment worth it for both of you."

We have some good stuff in the works on this topic - stay tuned.

Spam-bashing on Twitter - A True Story

Earlier this week, AppStoreHQ released Hottest Apps on Twitter, a ranking of iPhone apps based on the volume and quality of tweets about each app (if you're curious, you can read more about the ranking methodology here). The project was a fun one for several reasons, but the biggest eye-opener was the sheer volume of "app spam" - tweets auto-generated by iPhone apps - when stacked up against actual user-generated tweets. We haven't run a formal analysis, but a back-of-the-envelope estimate is that spam tweets are running 10-to-1 against actual user-generated ones.

Since the goal of AppStoreHQ's service is to accurately reflect the aggregate sentiment of Twitter users about iPhone apps, the spam issue is more than an annoyance - it has the potential to grossly skew the results in favor of the worst "app spam" offenders. You can see this effect in action right now if you visit the results: the current leader is Chorus, an app for sharing iPhone app purchases with friends. By design, Chorus auto-generates a tweet for every new install, and for each new iPhone app that a user downloads to their phone. This may be a smart short-term marketing win for the app, but my bet is that users (and their friends) will tire pretty quickly of the tactic.

The good news is that these bots aren't very well-designed - the spammy tweets fail the Turing test almost immediately by revealing their pattern after two or three iterations. This makes it relatively easy (if an annoying waste of engineering cycles) to exclude spam tweets from our process. But it's a troubling indication of where Twitter is headed as a platform. They've made it so easy to script tweet generation that it's almost inevitable that the ratio of machine- to human-generated tweets will tilt rapidly in the machine direction. And even though the machines will get better at concealing themselves, the signal-to-noise ratio on Twitter (not so hot already) is certain to get a lot worse.