Oculus

I’ve seen a handful of technology demos in my life that made me feel like I was glimpsing into the future. The best ones were: the Apple II, the Macintosh, Netscape, Google, the iPhone, and – most recently – the Oculus Rift.

Virtual reality has long been a staple of science fiction. In real life, however, attempts to create virtual reality have consistently disappointed. Oculus was founded on the contrarian belief that the right people at the right time could finally deliver on the science fiction promise. Hardware components had become sufficiently powerful and inexpensive, and the pioneering engineers who invented 3D gaming were eager to explore a new frontier.

Last year, my partner Gil Shafir and I spent time studying Oculus and virtual reality technology more generally. The more we learned, the more we became convinced that virtual reality would become central to the next great wave of computing. We were therefore thrilled when we got the chance to invest in Oculus later on.

Today, Facebook announced that they are acquiring Oculus. Facebook’s support will dramatically accelerate the development of the virtual reality ecosystem. While we are sad to no longer be working with Oculus, we are very happy to see virtual reality receive the support it deserves.

I can’t say enough about the Oculus team. Palmer, Brendan, John, Nate, and the rest of the team are true technology visionaries. They’ve assembled an incredible group of creative technologists from diverse fields. It was awesome tagging along for the ride, and I can’t wait to see what they do at Facebook.

“We leverage the billions of dollars spent on the consumer mobile phone business”

NYTimes has an excellent profile of Planet Labs, a startup that makes low-cost satellites:

These satellites are powered by batteries normally found in a laptop, with semiconductors similar to those in a smartphone. “Nothing here was prequalified to be in space,” Mr. Marshall said. “We bought most of our parts online.”

Planet Labs will not disclose its manufacturing costs, but potential customers who have seen the products think the satellites are approximately 95 percent cheaper than most satellites, a figure Mr. Marshall would neither confirm nor dispute. “We leverage the billions of dollars spent on the consumer mobile phone business” for most of the company’s parts, he said.

Chris Anderson calls this “the peace dividend of the smartphone war.” Across a wide range of sectors, startups are now tackling problems that previously required billions of dollars from governments or multinational corporations.

“There’s just a tremendous amount of craftsmanship in between a great idea and a great product”

Steve Jobs in 1995:

There’s just a tremendous amount of craftsmanship in between a great idea and a great product. And as you evolve that great idea, it changes and grows. It never comes out like it starts because you learn a lot more as you get into the subtleties of it. And you also find there are tremendous tradeoffs that you have to make. There are just certain things you can’t make electrons do. There are certain things you can’t make plastic do. Or glass do. Or factories do. Or robots do.

Designing a product is keeping five thousand things in your brain and fitting them all together in new and different ways to get what you want. And every day you discover something new that is a new problem or a new opportunity to fit these things together a little differently.

This is why almost all successful startups have founders who understand business, design, and technology. Product development is the process of navigating a maze - not three separate mazes, but a single maze that intersects all these functions. The people navigating the maze need the full authority of the company behind them.

Full stack startups

Many of today’s most exciting startups were tried before in a different form.

Suppose you develop a new technology that is valuable to some industry. The old approach was to sell or license your technology to the existing companies in that industry. The new approach is to build a complete, end-to-end product or service that bypasses existing companies.

Prominent examples of this “full stack” approach include Tesla, Warby Parker, Uber, Harry’s, Nest, Buzzfeed, and Netflix. Most of these companies had “partial stack” antecedents that either failed or ended up being relatively small businesses. The problems with the partial stack approach include:

  • Bad product experience. Nest is great because of deep, Apple-like integration between software, hardware, design, services, etc, something they couldn’t have achieved licensing to Honeywell etc.
  • Cultural resistance to new technologies. The media industry is notoriously slow to adopt new technologies, so Buzzfeed and Netflix are (mostly) bypassing them.
  • Unfavorable economics. Your slice of the stack might be quite valuable but without control of the end customer it’s very hard to get paid accordingly.

The full stack approach lets you bypass industry incumbents, completely control the customer experience, and capture a greater portion of the economic benefits you provide.

The challenge with the full stack approach is you need to get good at many different things: software, hardware, design, consumer marketing, supply chain management, sales, partnerships, regulation, etc. The good news is that if you can pull this off, it is very hard for competitors to replicate so many interlocking pieces.

My guess is we are still at the very beginning of the full stack movement. Many large industries remain relatively untouched by the information technology revolution. That will likely change now that startups have figured out the right approach.

Stored Hashcash

One of the greatest inventions in the history of computer security is Hashcash. Internet blights like spam and denial-of-service attacks are what economists call “tragedy of the commons” problems. They exploit the fact that it’s free to send email and make web requests. At zero cost, you can have a profitable business even at extremely low success rates.

One way to fix these problems is to impose tariffs that hurt bad actors without hurting good actors. For example, you could impose “postage fees” on every email and web request. Unfortunately, in practice, this is impossible, because you’d have to set up billing relationships between every computer that wants to communicate.

The brilliant idea behind Hashcash is to replace a monetary postage fee with a computational postage fee. In order to send an email, the sender first has to solve a math problem. Legitimate activities suffer an indiscernible delay, but illegitimate activities that require massive volume are hobbled.

Hashcash is a great idea, but cumbersome in practice. For example, the cost imposed on senders varies widely depending on the performance of their email servers. It also hinders legitimate bulk emails like clubs and retailers sending updates to their mailing lists.

The offline analogy to Hashcash is a postal system where senders are required to perform some work every time they want to send something. If you’re a lawyer, you need to practice some law before you send mail. If you’re a doctor, you need to cure something before you send mail. Etc. This of course would be a preposterous postal system.

Adam Smith called money “stored labor“. You do your work and then store your labor as money, which you can later exchange for labor stored by other people. Storing labor in the form of money turns out to be a very flexible system for trading labor, and far superior to the barter system of performing work whenever your counterparty performs work.

So Adam Smith’s version of Hashcash is a system where you get credits for doing computation. You store your computational credits and spend them at your leisure. If you want to send an email, you can spend a little stored Hashcash. If I send you an email and you reply, we’re even. If you send out a billion spam emails, it costs you a lot and undermines your spammy business model. 

There are other important problems that stored Hashcash could solve. Denial-of-service attacks are spam attacks except they happen on HTTP instead of SMTP and the payoff is ransom instead of spam offers. Computer scientists have long believed that pricing schemes could dramatically reduce network congestion. Like every large-scale distributed system, the Internet benefits when scarce resources are efficiently allocated.

It seems plausible that if a system like stored Hashcash were developed, some people would prefer to purchase stored Hashcash directly instead of generating it themselves. A market for stored Hashcash would emerge, with the value being some function of the supply and demand of scarce Internet resources.

So here’s my question: suppose someone invented a way to store Hashcash. It could dramatically reduce spam and denial-of-service attacks, and more efficiently allocate network bandwidth and other Internet resources. How valuable would stored Hashcash be?