As transaction costs go down (in general), it makes less sense for us as a society to have production/value creation organized in larger organizations (firms, companies, etc) - instead in a bunch of independent smaller groups.
Companies only exist to minimize transaction costs.
Companies only exist to minimize transaction costs.
I think this is a bit of an overstatement. Another purpose of companies is to provide the benefits of a command economy (e.g., the ability of a great leader to jump from a local to global maxima) with less of the dangers of a command economy (great leader robs/kills you, poor planning screws everyone over).
E.g., central planning in the food supply can work reasonably well, but this is hardly guaranteed. Market discipline gives us the benefits of McDonald's 5 year plan, but a McBankruptcy rather than Soviet Union style food shortages if the 5 year plan fails.
That is a bizarre argument though, you are saying that capitalism works fine so long as companies are run as soviet states? The Soviet Union showed basically no benefits to the command economy... And the great leaders of large businesses look rather more like command economy leaders than products of a free market.
I think you need a better argument than that that large corporations are here to stay, not a passing fad due to factors like transaction costs... There have been few great leaders running large corporates, although not none, and many people just enriching themselves for doing little.
That is a bizarre argument though, you are saying that capitalism works fine so long as companies are run as soviet states?
No, I'm saying that embedding command economies (structured as companies) in a capitalist economy allows us to gain the benefits of a well run command economy while mitigating their harms.
Yeah thats what I meant. First prove there is such a thing as a well run command economy then, and then that the company system will generate such a thing...
The Soviet economy was in practice run as if it was one huge company, with each industry being one division of the company, all the revenue flowing up to HQ then being allocated in budgets for each division, targets for each set, and so on.
This is "efficient" as it reduces friction - but when HQ makes mistakes in budgets or targets, the entire economy fails, whereas in the West, the failure is isolated to one company, and over the long term, that redundancy is massively more productive. In fact in the West, the assets of the failing company would most likely be bought by a rival, and no productive capacity would be lost. In the Soviet system, you might end up with a million tractors but no crops to harvest!
The command economy argument is a subset of the transaction cost argument. Lots of people have long-term plans, and some of those plans involve extensive cooperation from third parties. Companies are a smart abstraction for coordinating this behavior, but that's not all they do.
Thanks for sharing this...although while reading this I also chanced upon "The Wealth of Networks: How Social Production Transforms Markets and Freedom"...which explains why I find working with random people on github more enjoyable and productive than with people from my organization.
Each day, I thank god for all these useful idiots in SV. They're madly running a rat race to build the next social widget. Throwing off useful technology I can use to serve the vast wasteland ignored by them.
In that case "useful idiots" is a bit harsh (and not accurate from my reading of [1]).
The creation of this much open source software is a true public good. The people producing it (both at small companies and big ones) may be working away at misguided projects, but it's wonderful that as a byproduct they're producing software useable by everyone. In the future, it may be obvious that the open-source side-effects of this SV generation were more value-creating than the businesses created directly.
Thinking in the most simplistic form possible - how about engineers just doing what makes them the most happy? Forget about whether we could provide more value at an established company. Maybe building our own products is our passion. That alone will drive more value than doing something we're not passionate about. Just a thought.
Whether early stage startups are overvalued is a different topic to be discussed.
Good. No one has the right to having employees. If you want employees, you pay what it takes to attract them. Parker is trying to manipulate the market here to get prices down to what he wants to be paying.
Yeah I was going to respond with a point based on economics, but I think you have me here. The point I was responding to was about value for the engineer. If the engineer creates a lot of value from working for themselves, it would just take that many more dollars to pull them away from it. (This has applied to me as well.)
At Startup School, the Sequoia guy showed a bunch of slides which had two main points highlighted:
- Companies like Microsoft, Google, Yahoo, LinkedIn raised very modest amounts of funding and has multi-billion dollar IPOs
- Cost of creating a company (and associated technology) is down over 90% from what it was back when a lot of these companies were started.
Given these two, it's amazing to see VCs pouring in millions into startups that have nowhere near the valuation they invest at. Color is the most famous example, but there are tons of other startups raising $2-5M at pretty ridiculous valuations. If you consider that in light what Sean Parker says, regardless of his vested interest in engineering talent going to companies he's backed, it feel like what he's saying makes sense. Companies are ridiculously over funded, and VCs are doing a disservice to their investors as well as to their portfolio companies by giving more money than they need.
Valuations are set by the current value of the company and the projected outcome. Lower costs to launch and iterate actually increase the likelihood of success, as well as mean that net margins can be higher than if you had to invest in significant infrastructure. The fact that you don't need very much money and will be able to try all kinds of things on a shoestring budget is exactly why valuations are so high. Since VCs still want the traditional 20-40% of companies, they give them more money than they need out of their own desire to take a big stake - not because the valuation is out of whack.
Said another way, the less a company needs your money, the more you have to pay to get in.
>Companies are ridiculously over funded, and VCs are doing a disservice to their investors as well as to their portfolio companies by giving more money than they need.
No they're not. They're following the market. If they were doing a disservice to their investors, do you think the investors would just sit back and lose millions?
The proof is in the pudding. If they're making more ROI, on average, in investments made in the last 2-3 years then clearly things are fine. If they're not making as much, on average, as they did 10 years ago, then there is inflation/bubble/etc. Sadly, it'll takes a few more years to do such analysis.
You have a pretty low opinion of people who've managed to make large sums of money. If they're as stupid as you think, maybe that money would be better utilized by people who aren't?
>Cost of creating a company (and associated technology) is down over 90% from what it was back when a lot of these companies were started.
The costs in terms of equipment and developer talent may be smaller than they were in the mid-late 90s, but the market is much more crowded now. I don't know that those savings aren't offset by the required marketing and PR efforts necessary to differentiate your company from all of its other "social web 2.0 tweet-a-riffic" competitors.
My theory is that 500 2 person companies have a worse chance at making a real splash than if the 100 best ideas from that group had 10 good people working on them. That's part of what he's saying - it's harder now for good startups to grow when everyone wants to and is incentivized to make their own web startup.
The other part he's saying is that people can have a larger marginal impact on the world working at a place like Facebook than they could in their own startup. For the median case, this is true.
> My theory is that 500 2 person companies have a worse chance at making a real splash than if the 100 best ideas from that group had 10 good people working on them.
I wonder if there is an opportunity for matchmaker investors to scoop up like-minded startups and consolidate early companies to build those 100 10-person winners.
I often think that if I had $500M, I could buy 4 companies whose assets and teams combined with ours would create a company with massive potential, huge remarketing opportunities and defensibility that the companies alone do not have. There is definitely an opportunity to do this in theory. The issue is the problems that arise when you merge 5 companies with different cultures, strong-headed leaders and passions for solving problems that the new company may not find as much value in addressing.
That's an interesting idea. It might be fairly expensive to scoop them up, though, since they could reasonably expect to get a good amount of funding for their own idea.
The funding environment has changed quite a lot since then. YC didn't even exist when FB started.
And FB would clearly be in that 100, given the massive growth it had. For every potential FB, there are lots of borderline useless apps that get funding, and wouldn't have when FB was first funded. Those people could have instead been working on FB.
He's not complaining that startups are getting funding, he's saying that the overavailability of funding is acting as a repulsive force, keeping engineers from grouping up.
Whether that's a bad thing on the balance, I'm not sure, but it's not an unmitigated good.
That is exactly right. I would actually be very surprised if he believed what he was saying considering everything he has seen and been involved with. To say things will consolidate and stop as they are is extremely short sighted for one so experienced in these matters.
Yes, he's right, but let's put this in context. There are probably a lot of talented engineers who are doing startups now who shouldn't be. The problem is how do we know who is going to be a good entrepreneur and who is not? We don't. The only way we know is by doing it, which is what a lot of talent is doing. I think many startup founders are a bit grounded in reality and know that they face real possibilities of failure. Just as long as they keep this in mind and don't become obsessed with caviar dreams, then I see no harm done. Being an entrepreneur is one way for an engineer to develop non-technical skillsets and learn something about himself in the process.
Let's not forget that this entrepreneurial activity is forcing the big guys (Google, FB, etc) to be more innovative than they would otherwise be - either to attract talent or to compete with startups.
I was at an event in NYC several months back where a mid-stage VC said the same thing (blanking on his name) but specifically regarding the NYC community. It was an angle I hadn't thought about and initially had the same negative reaction to as someone in the midst of an early stage company.
For later round investors it's undoubtedly in their interest to encourage these engineers to join larger firms rather than being on their own. In NYC it's especially competitive given the competition between more mature companies, early stage startups and the money wielding finance industry. The combination could lead to a 'glass ceiling' of sorts for larger companies because of the inability to attract talent; that is, until some of the smaller companies fail and these individual engineers likely end up at a larger spot.
It mirrors the consolidation of an industry. It just takes longer than some investors (like Parker) would prefer, which is the inspiration for statements like this.
Or the market price of talent goes up : The value being created by engineers is recognized by the financial institutions, so why shouldn't tech companies pay up too?
[ And I'm thinking Facebook before people get on my case about financial companies creating value in the real world... ]
What Sean left out was -- overfunded for whom? He implied it, but didn't say it: the bigger dogs in the fight (Facebook/Twitter/Google) have to compete for talent like everyone else.
The overfunding is mostly a problem for those larger tech companies, not the little guys.
I suspect he means that investors are overvaluing small startups (relative to their chances of becoming successful). The consequence he worries about is that having too much funding available makes the opportunity too appealing to the best engineers, making it harder for ventures that will succeed to keep/attract talent.
His arguments seem a big reach, though. Lots of investment means opportunity recognition, and there are a finite number of engineers, so supply/demand takes it course.
He's arguing against capitalism, and not making a very good one at that. While trying to sell this as an industry-wide issue, I suspect his real concerns are more immediate -- for his own ventures.
He's not arguing against capitalism. He's saying that the market is currently overvaluing certain kinds of businesses, causing resources to be misallocated. That's it.
You may be right that he is either wrong or making his argument for self-serving reasons. Or he might be right.
So I wonder if Sean Parker actually believes this, or if he is just frustrated by a lack of engineers available for his larger backed companies. Either way he doesn't look great making comments like this.
Running a small but ambitious company forces a serious, motivated founder to think about every business function. I don't see any meaningful downside for the founders who choose to spend some time on this task, and I see a lot of upside.
Parker's complaints strike me as absurd. If he really believes they can have more impact at FaceBook, he should find a way to create special purpose vehicles within FB that allow founders to get equity in the work of a small team, rather than just getting .00005% of the sum of FaceBook.
I think what happens is the price of an engineer has gone up. Engineer starts a start-up, big company buys start-up at a million per Engineer - Everybody happy.
He paints a picture of “Google pretending to be Switzerland, but doing back deals with everyone, and Apple being left alone to build the Deathstar.”Guess where that will leave most startups.
Nice analogy. Time to move to Dantooine and work on my X-wing startup.
Dude, are you sure you want to do that? I've got this buddy that's got this crazy thing going on on some gas giant. They're way past angel stage, they've got catered meals every day, a band practice room, a fooz ball table, and a carbonite freezing chamber.
It is better to be the head of a mouse than the tail of a lion.
All good things in life comes from collaboration with others as much as individual contributions, but there is nothing that says that collaboration has to be imposed by a external force, like with a company. The world has ruled before with open collaboration like science, and what we call "open source", "open hardware" today.
BTW, if I could do anything to destroy the vision that all the world is going to be controlled by oligopoly juggernauts and bureaucracies, I will, including creating new companies or helping young people to renew the landscape, as facebook or Google did(when companies success in a free market, next they want to destroy it).
If you think an engineer or product designer is better incentivized to do their own thing and you want to hire them away to BigCorp, you need to change your compensation offerings.
"The problem in his view is that many of the talented engineers and product designers who are now starting their own companies could have a bigger impact at places like Facebook..."
- says Sean Parker, the guy who owns between 2 and 7% of Facebook. Well yes, of course.
Pretty sure it's not a coincidence that Mark Zuckerberg emphasized a related message at Startup School ("don't start a company unless you're really, really passionate about it"). Facebook, like every other tech company in the valley, is having trouble hiring enough engineers, and this is a campaign to make would-be founders think twice.
I think they're very different messages. Sean Parker's message comes off as more self-serving - saying don't start a company because it's not as good for the world as joining one that can effect change to a greater degree. Zuckerberg's comment was about not starting a company for the sake of it, the same message PG had and a very good one. Start a company because they're the most efficient vehicle to solve a problem you care about. Don't fabricate some problem that doesn't exist because you want to start a company.
I don't think he is completely wrong but I think this is just another (higher-end) instance of the age-old tradition of companies saying it is too difficult to find engineers while being unwilling to pay fair value for said engineers.
To be clear, I know that Facebook does pay quite well by industry standards (offset somewhat by the bay area cost of living) for top talent, but if this situation is causing them an issue then what they are paying (or offering in general -- money isn't always the only thing) still isn't enough.
There's a certain type of personality (very prevalent in the valley) who won't work for a big company like facebook, twitter, or google for any amount of money. I would imagine these types of people make up the majority of the YC class.
Maybe they'll get bought via a talent acquisition but as soon as their golden handcuffs are off, they are out doing their own thing again. The reason they allow themselves to get bought via talent acquisition is to be able to easily raise money in the future.
I think Sean Parker is reacting to these types of people. I think the misconception is that the increased funding sources is what is driving these people. I would suggest that they were always there, but 5 years ago they were just living poor and working their ass off to build a startup (usually unsuccessfully).
I do believe I'm part of this group. There's no amount of money that would compel me to take a corporate job. Sometimes money isn't what matters.
You claim that this class of people won't work for a "big company" for "any amount of money," yet in the next breath you admit that they will work for those companies in the context of a "talent acquisition."
What is a "talent acquisition" if not an alternate mode of compensation to persuade individuals to "take a corporate job" who previously considered themselves above such positions? Yeah, it sounds more impressive to tell people "we got bought by X" instead of "I took a job with X," but either way they've "gone corporate." You're still dealing with the same endless HR meetings, PHBs, "culture," etc, as all the other "drones."
Yes, a good number of such "acquisition hires" leave after earn-out is complete, typically two to four years. This is actually a fairly lengthy of time for any high-value employee to hold any position in the valley these days, startup or not.
Exiting a company as soon as you can after a talent acquisition to go on and become an entrepreneur again is very very very common. Most recently I can think of Arrington, Levchin, Nguyen.
I would even guess that the majority of founders who are acquired by Google, Yahoo etc. leave in the first 12 months.
It is either to get the first run on the board, or to give a startup that would otherwise fail a graceful exit - but these people are entrepreneurs and do not fit into large companies.
Sean Parker should be asking what is Facebook doing to attract these types of people, not bitch about these people not wanting to join and blaming free-market funding, of all things.
> I would even guess that the majority of founders who are acquired by Google, Yahoo etc. leave in the first 12 months.
That is absolutely not the case.
You often don't even hear about most Google acquisitions, or you don't know what they were even working on until they get released as Google Egg Timer or something. And even after vesting a lot of acquired employees still stick around. Some of them have families by then.
Yahoo tries hard to make them quit in disgust, but even they hang on to founders longer than that.
That is still ignoring the fact that these individuals were in fact willing to take a corporate job, when their price was met. Maybe that price included the ego boost that comes with being part of an acquisition ("they really wanted me!"), or the "pedigree" that one plans to parlay into future opportunities.
Regarding the latter point, it seems that "key players" at "prominent companies" don't have too much trouble getting funding for startups when they move on, regardless of whether they were "talent acquisitions" or not.
Speaking from experience, when my previous employer got acquired by a megacorp, nobody was saying "I really don't want to work for megacorp, but maybe I will have an easier time getting funding later." No. It all came down to dollars and cents in the here and now, and the only people who turned down the earn-out offers (less than 10%) were those who had better options available.
I'm part of this group too. It's less about money and more about freedom to me. The freedom to work on what I choose and the near complete control I get over my own destiny.
No matter how good it is at a company like Facebook or Google, there will always be a point where they make you realize they have control over you. Whether it's working on a project you hate, ridiculous corporate policies, or having to kiss the ass of your manager. I've done it all for the past 15 years at a few different companies and I finally just got sick of it.
This is a much bigger problem than many people realize; Ryan Avent discusses it in his ebook The Gated City (http://www.amazon.com/Gated-City-Kindle-Single-ebook/dp/B005...) and on this Econtalk podcast: http://www.econtalk.org/archives/2011/10/avent_on_cities.htm... . Basically, housing costs in Silicon Valley are eating up all the salary increases tech companies are offering. Avent describes how, in the 1990s when the unemployment rate in the Valley was effectively zero and lots of people who'd read "Learn HTML in 24 Hours" were getting jobs, people still weren't flocking to the area because the cost of housing is so high.
Anyone who wants to address extremely high tech salaries needs to be very interested in housing and urban policy.
Uh, I dunno. I lived in the Bay Area (Santa Clara & San Jose, specifically.. far from the city but still enjoyably commutable by rail) for a couple years. I then moved to Indiana and took a 65% pay cut. The bay is expensive, but it's not THAT expensive. As long as you live within your means and understand that 80k in the bay area is not the same as 80k in Indiana (where I live now) you can have a very nice lifestyle.
Housing "eating up all the salary" is hyperbole, plain and simple, unless you're talking about the segment of people who make 100k+ but are still living paycheck to paycheck because they live outside their means.
As someone who just moved from Portland OR to the Bay Area in order to take a "corporate" engineering job in SF (and got a >40% raise in the process) I can say with confidence that the cost of living here, even outside the city (specifically Berkeley for me) is easily 2.5x what is was back in PDX, even with a 60 minute commute and meals comped at the office.
It's not just housing (which costs easily 2x what it does in or near any 2nd-tier tech city) - transportation, food, and mundane but pleasant things like pints of microbrew and movie tickets are way more expensive, too.
Cost of living 2.5x??? Berkeley is not, iirc, exactly the nexus of affordable living. I don't know; maybe I just have cheaper tastes? I agree that rents can be MUCH more expensive; I'd probably pay between 1200 and 1500 for the apartment I live in now (2-2.5x what I currently pay). But I just never felt like it was that dramatic for me.
Hm. See, I don't think paying twice as much for a place to sleep is that big of a deal for a younger Engineer. I mean, if you are a young single person, so you pay a grand for a studio rather than $500 in some flyover state. or $600 for a room rather than $300. Not really a big deal when your salary starts at $80K/year.
As you get older and want to buy a house and have a family? Eh, during the bubble, it was a problem. Five hundred grand for a 1bdroom condo? crazy. But these days? rents might be high, but you can get a small 3bdroom house for $300-$350K in a very safe area. By that point in your life, an Engineer's salary is going to be at least 1/3rd of that, which seems like a pretty reasonable ratio of salary to house.
I mean, yeah, if you can take a 20% paycut to live in a flyover state where you can get something giant and nice for $100K, that might look like a good deal on the face of it, but the thing is, here in the valley? there is a multitude of employers to choose from. If you are in idaho and your employer shuts down or you want to quit? likely you are going to have to move. There's a huge advantage to the employee of having many potential employers within easy commute distance.
so yeah; personally? I don't think it's a big deal for Engineers.
it was just barely on the Santa Clara side of Lawrence expressway (but not very far so) there's a highschool right there (willcox high? yeah. the place was about a block north of that.) go a few blocks further north (or, rather, a few blocks towards 101) and you get to the Lawrence caltrain station, which isn't a nice area, but isn't scary (I once lived in an apartment across the street from the Lawrence caltrain.) It was an older place, of course, and looked very suburban. I think it was closer to $350 than $300 but I'm certain it wasn't above $350 (We didn't look at anything that had an asking price higher than $350)
It wasn't big; just under a thousand squarefeet, if I remember right, not counting the garage or the shed. 3bdr, 2 bathrooms; one of the bathrooms was an un-permitted conversion of a closet. (oh man. so many houses in this area have been badly converted to hold more people than was originally intended.)
The roof was in fairly okay shape; it seemed structurally pretty good. It badly needed new carpet, appliances and paint inside and out.
When was last time you looked? Things are bad right now, I mean, if you are trying to sell; I looked at rather a large number of houses over a period of a few months (we stopped looking, oh, two or three months ago) nearly all the properties we looked at were either short-sales or bank owned. Most of the places we looked at? last sold for close to 2x the current asking price.
But yeah, there seemed to be plenty of livable stuff in the Sunnyvale area for under $350K, and it gets cheaper as you get closer to San Jose.
This wasn't the cheapest thing we looked at, but most of the cheaper single family homes had more significant problems like a roof that should have been replaced five years ago.
There was a very small 2 bedroom house on America over near arques and central expressway in sunnyvale. Well under $250 if I remember right, but it needed way more work than I wanted to put in. (incidentally, it also had a poorly-done bathroom addition; this one opening to outside. at least it was enclosed.)
I could go on for hours about all the poorly-done bathroom additions we saw. At one house, someone just took a toilet and plumbed it in to the corner of their enclosed back patio. They also had a completely free-standing shower insert plumbed in to the same area.
but yeah; in that price range you see a lot of stuff that needs a whole lot of work, but you will also find a few places that are livable with new carpets.
You seem to be adopting the point of view that whatever pay is required to attract an engineer is the right pay. But what about when that pay eclipses the engineer's marginal value-add to the company? I think it not unreasonable to speak up if you feel there is a short-sighted market force overvaluing a resource.
Imagine you are a farmer, and the value of grain falls below the cost to produce it. Do you accept what The Market has decided, and continue growing grain for a loss?
No. You realize the market no longer values your product enough to pay for it, so you drop it and move to something else. When enough farmers do that the price will come up again.
If a software company can't get enough value out of software developers to make it worthwhile then either they need to find a way to charge more or maybe the market doesn't see the need for them to exist.
Whatever pay is required to attract engineers is the right price. The only question is; is your idea good enough to still be profitable given the price floor?
It's happening already. Salesforce is buying up a bunch of different online b2b tools. Google is trying Google+, integrated Google Voice. Skype and MS. Facebook places.
Games are growing on social networks instead of standalone flash game sites. Techcrunch is bought by AOL.
So what? New ones also spring up and sometimes the new ones are big enough to eat the old ones. From what I can see, the market is in a continuous state of expand->consolidate->repeat.
How exactly does he expect the internet to consolidate like the PC industry? How can the internet consolidate?
He said the internet industry would consolidate like the PC industry did. We can see that happening already, with the trend of big companies like Google, Facebook, and Microsoft acquiring smaller companies to fill voids in their product offerings, talent pool, etc. Google is the definite poster child for consolidation, having bought YouTube, DoubleClick, GrandCentral, etc.
Simple. Everyone standardizes on the same OS (Linux, or maybe Windows if you want .Net or MSSQL) and the same infrastructure (EC2 or equivalent). Then you run your apps on there.
Facebook and Twitter are becoming infrastructure too (or at least, their login systems are), but not necessarily profitable ones. Sure, they'll tell the advertisers that I'm a left-handed avocado farmer in New Orleans, but it will be the content providers who'll know when I'm looking for a book of funny kitten jokes
What I'm wondering is, how do more and smaller startups equate to eventual consolidation? His preference seems to be that engineers would elect to become agents or enablers of consolidation by joining the very companies that have the scale to consolidate a market.
His two points don't seem to have any intersection that I can see.
"What I'm wondering is, how do more and smaller startups equate to eventual consolidation?"
It doesn't, if anything it slows down any eventuality of it. He's saying it does to try and scare talent on the fence and talent that has already gone the startup route by saying its a misguided and futile effot.
Ask yourself this, if this big companies werent hurting because of these loses, would they waste time making the comments in the first place? Its cheaper to try scare tactics then to offer them more money.
His complaint that more engineers won't go to work for larger tech companies instead of either working for smaller startups or starting their own company is rather hypocritical. A cursory read of his wikipedia page shows that he has never joined a large tech company.
Having trouble hiring talented people seems to be a pretty good problem to have. The logic is flawed - from a guy who stuck his middle-finger at various large companies while working at the helm of Napster.
I think the new economy (eventually, hopefully) will be many small companies with a handful of people (read: democracy) calling their own shots, more creative freedom and an interconnectivity with other small companies that spits in the face of fear-based competitive angst and eventually creates a real revolution that more of us are proud of rather than this disgusting idea that we all should work for the Umbrella Corporation.
His comment about "go work at Facebook" is just talking his book.
However, he is right about that the internet will consolidate as it matures. However, we should not forget as soon as consolidation happens in a certain industry the very next thing what happen is disruption.
So yes PC industry is consolidated, but whoever got of the PC train and jump on iPhone/iPad/Android did good.
I think a point that got missed in the discussion: The reason that this situation is occurring is that money is flowing into the sector at a fair clip.
Make hay when the sun shines. It will start raining in the future, and there might not be a lot of warning.
talented engineers and product designers who are now starting their own companies could have a bigger impact at places like Facebook.... then ....Whoever wins the revolution builds a bureaucracy.” And what will end up happening is the big powers will control the tech industry
In others, many talented developers are better off going to work for FB or GGL and help them get quicker to a position of total control.
1. Social psychology shows us that, smaller, more focused groups perform better and have superior productivity to larger groups, which tend to become disorganized and derailed. (http://sgr.sagepub.com/content/40/2/247.abstract) Startups tend to have fewer employees (this is universal), and, even in hugely successful companies like Google, work is divided into highly productive nuclei of coordinated, amicable teams. This is a trend that repeats in very successful companies, and when startups pick up and start gaining more employees, though they decentralize, the "small team > big force" mentality remains.
2. If you outsource all the miscellaneous things a company needs to do to get a product out, you find that a) each of those outsourced functions is done on a much more quality level than if the company tried to do it all on its own, b) the company doing the outsourcing can focus more on its principal product. This actually spreads the wealth and improved productivity for every company involved. (http://www.industryweek.com/articles/breaking_the_rules__whe...)
I could see why Sean Parker would be a bit concerned, but, really, I think the explosion of new startups is fantastic for the overall quality of products.
"The problem in his view is that many of the talented engineers
and product designers who are now starting their own companies
could have a bigger impact at places like Facebook, and they in
turn will have a hard time attracting the best talent because
those people can get funded to start their own projects as well."
Obviously I just read TC's article and didn't see what Parker said, but what's notably missing from that statement is any discussion about what is best, or highest expected value, for the engineer or designer. It's obviously better for Facebook/Google/Yahoo/et al if great engineers and designers have to work for them because they can't get funding. It's not obvious this leads to better outcomes for the people in question. It kind of feels like Parker is talking his book.
There's a rich tradition of self-interested complaint in this industry. This reminds me of Fred Wilson's complaining about startup lawyer fees[1], Aaron Greenspan's complaining about the Money Transmission Act[2], and pg's Patent Pledge[3].
Not that people shouldn't speak for the causes of their choosing, but you do lose some rhetorical impact if you only do so once you have a horse in the race.
At least in my case (I'm Aaron) I don't think that a fair comparison at all.
Sean Parker is concerned that not enough talented people work at a company he has a stake in. That's fair, but only that company can benefit if his concern is alleviated (at the cost of others).
I'm concerned that an entire industry of companies has been quashed by anti-competitive laws, not just in California, but nationwide, raising prices for merchants and consumers across the country due to monopolistic business tactics that have been well-documented. It's affected my company, as well as about ten I've gotten e-mails from and probably a hundred that never started up in the first place or don't want to admit that they're caught up in it, too. Therefore it seems a bit broader than my own self-interest. And you can call me selfish, but I don't see any other self-interested parties stepping up to the plate on this one.
The counterpoint to the horse-in-the-race argument is that there is absolutely no way I would have known anything about money transmission laws unless I had a horse in the race. Some of these topics are pretty esoteric and I think that it's good when specialists speak up about them.
As many have mentioned this is just whining from a guy who has a vested interested in a big company spending lots on payroll and acq-hires.
The flip-side this creates a better market for younger or less-experienced engineers who are looking to learn and grow. This group of people will never be able to get a job with Facebook, but can certainly join a company who is willing to grow with them.
Exactly. I'm not in a position to comment on the amount of funding in the early-stage startup world, but this particular comment by Parker reads like another executive whining that engineers are too independent.
Not just the independence aspect, but the hubris with which he complains about the most brilliant minds choosing to not work on, well, a social network site.
It's 2011; we are traversing inflection points of development in solar energy, nanotechnology, bioinformatics, and seeing the early, dramatic fruits of stem cell research, and Parker is bitching that the best of the best aren't keen on improving software that shares drunk photos and your latest opinion of Kim Kardashian's divorce?
I don't get comparing inventions to a company. Facebook is NOT all of social networking; the world would get on fine without Facebook. There's nothing important you can't do on Facebook that you (fundamentally) couldn't already do through email. That said, Facebook was the first social site to manage relationships well and scale well. But, as they say, "let's not start sucking each others dicks quite yet."
That's a fair goal, and I believe the answer breaks down like this:
You can work for a big company that serves billions of people, claiming that you are making an impact on the world, while in reality doing nothing.
On the other hand you can start your own company, perhaps only directly impacting a few hundred people, and still accomplish the goal of maximizing your change on the world (as that was your ceiling).
Parker is arguing that in many cases, the engineer can actually have a bigger impact at the bigger company (e.g. because it leverages economies of scale and having lots of startups fragmentizes the talent pool).
It's a self-serving argument. A bigger overall impact is more likely when there are tons and tons of smaller companies out there trying ideas (i.e. the chance of one of them hitting the next big thing). If all these engineers just go work at Facebook instead, Parker will feel the biggest impact in his stock value. Individual engineers might do better at FB than they would have failing at their own company, but on the whole the economy lost whatever some of them would have made.
I'm not saying that I believe Parker's argument. I brought it up because the GP was considering the consequences of what would happen if Parker's argument were true. The GP, assuming Parker's argument were true, seemed to think that the conclusion was in the engineers' best interests.
What I'm saying is that, if you believe Parker's argument, it isn't necessarily against an engineer's best interests.
I think he's right, for the most part. It's also interesting that a lot of these startups end up with "successful" exits where their technology isn't used at all (ie talent acquisition for FB/Goog, etc). I don't know if there should be a correction for that, but I sometimes feel that it leads to people building for the sake of building until they get acquired.
Interestingly, we (http://feefighters.com) had 2 of our 4 interns leave us in the past week because they got accepted to YC (2 different projects). I guess we should feel good because we're picking smart people who want to work for us, but we'd rather have them with us!
Even if the product isn't used on many occasions, the best aspects of it and the teachings from running it often are. I think the aquihires allow experimentation that would be hard to achieve within the acquiring company.
The aspect I dislike is when startups say that they are in for the long haul then sell a few months later. Makes it hard to trust a startup that the investment in time you spend to get up and running on their product will be worth it.
What he is basically trying to say is that your chances of achieving "success" or "making an impact" is better if you work for Mark Zuckerberg than try to become (someone like)Mark Zuckerberg.
Wow what a narrow definition of success!For example by working for facebook how can I get every child in third world countries to get a decent education?How can I get every woman in rural india to break free from male dominance?
Parker suggests that one reason it will end badly is
because the Internet industry will ultimately consolidate
just like the PC industry did in the 1980s and 1990s.
Why? Why does the future have to be like the past? As rich and well connected Sean Parker is, he cannot predict the future. Coincidently given his stature it makes him probably the least qualified to predict what will ultimately happen in the computing industry.
There is no reason the computing industry cannot be more flat than it has in the past. I believe it is highly likely the industry will continue to fragment. Android, IOS, Windows7, BBX... there will be more platforms in the future, not less. More diversification, not less. The game has changed forever, as it should.
People tend to forget the big got big in those days partly because of control over distribution channels. It was incredibly difficult for a small software company to break into large amounts of sales if they didn't have both retail and enterprise reach.
I wouldn't be surprised to see a smaller set of niche hardware companies pop up going against that trend, and I certainly see the state of software at the moment fragmenting further, not consolidating more. While Facebook and Google theoretically are dominating the distribution channels again, in reality those channels can be leveraged by smaller players easily. As if every boxed windows copy in 1995 had an empty slot where you could put your own company at low cost.
Absolutely. The web and now HTML5 completely obliterate the old school mentality that you need to have conventional sales channels, and ancient business models to suceed. Any of these "big wigs" that think Apple and Google will dominate forever will be proven wrong.
The issue with fragmentation that ultimately leads to consolidation is the cost incurred by companies and developers to support all of these platforms.
I can't tell you how much it pains me as an android user to see an app only available for the iPhone. As a developer, it's magnitudes worse to have to send messages to my users saying "we'll be getting to an [x] platform app soon!" when realistically it just stunts our growth to develop the same thing 3 times.
I can't wait for the end of this native app nonsense.
Don't forget that the end of fragmentation can be the end of innovation. It's 2011 and browser standards don't support taking a photo. There's tons of other things that standards don't support and there will be more. And if or when browsers are the only platform, fragmentation will come there. It's already happening, Chrome supports native code, IE will not support the same format.
I was coming strictly from the standpoint of time being the scarcest factor and thus the most important; I completely agree with you on the intellectual satisfaction of developing native apps :)
That's what everyone says in a bubble: "History won't repeat itself this time!" Unfortunately, while industries and companies change and evolve, human nature (specifically fear, greed, and hype) doesn't change. The wise learn from history while the rest keep repeating the mistakes from 15-20 years before.
Did the Internet repeat the same cycle as the Industrial Age? Did cell phone uptake follow the same patterns as rotary phones?
The idea that history repeats itself is, itself, dated. Technology changes things in ways people cannot really predict. The only thing you can reliably predict is what is expensive to do today will be cheap tomorrow. What these many small startups will collectively build on top of cheap "cloud services" and "mobile devices" will change the world.
It is pedantic to assume that history will repeat itself no matter what in every possible industry!...Things are not always just as simple to be explained in terms of periodic cycles.
And it's not pedantic to assume that history won't repeat itself simply because you're blinded by euphoria and hype? I'm not saying that history always repeats itself, but the human nature that causes boom and bust cycles doesn't change.
What happens when all the developers with extremely low debt loads are snapped up by the Big firms to start-ups attempting to acquire tech co-founders and dev talent?
It is not that anyone is over funded, its that those with low debt loads and dev talent is in fact a finite amount and when its gone from the market prices adjust upwards..
A good read: http://en.wikipedia.org/wiki/Theory_of_the_firm
As transaction costs go down (in general), it makes less sense for us as a society to have production/value creation organized in larger organizations (firms, companies, etc) - instead in a bunch of independent smaller groups.
Companies only exist to minimize transaction costs.