Fred Wilson is writing about Free-vs-Pay services.

My main comment is that there are cases where the dominant company has a for-pay service. Amazon's web services platform, Dropbox and Rackspace virtual servers are the ones I depend on the most.

What they have in common is that these systems provide a low-level function in which the user creates their own service. They are platforms, even though Dropbox has a fairly high-level entrypoint. I have been coming up with new applications for it constantly. They're not hard to implement, but they take your mind through some wonderful little twists. I use it mostly for server management, but like everyone else we use it in our family to share photos and we're converting the family scrapbooks slowly so they're in a Dropbox folder structure. It's low-level, but until this service came along there was no neat way to do it. And of course we pay for it, happily.

People who think Amazon and Rackspace are just for developers are wrong. EC2 for Poets is something any user who mastered MS-DOS could handle. It could be even easier with customization. I tell people that running a server is almost exactly as complicated as running a laptop. Slight differences like one goes in your knapsack and the other one is always on and always connected. But the software is identical to the software that runs laptops. People are surprised when I say that, but it's true.

Services must be for-pay when this kind of flexibility is required. I don't have any doubt that a for-pay version of Twitter would work, in the same model as Dropbox. I've often felt that Amazon should have a simple notification service that does everything that Twitter does and nothing more. Huge explosion of innovation would come from that, because there are so many developers who eat Amazon APIs for breakfast. I happen to be one of them.

I've gotten so much value from the Route 53 API, for example. It's made it possible for me to do things I only dreamt of before.

Twitter, on the other hand, inspired similar dreams, with an uneasy feeling because I was concerned they would do more or less what they ended up doing. Squeezing out a commercial platform and killing off the parts that I loved. I end up with something useful, the Twitter user interface, with none of the geek love. What if instead of hiring a marketing guy to run it they had hired an architect with a sweeping megalomaniac vision. Some truly great stuff would have happened. That opportunity still exists.

But for me to buy into a for-pay Twitter-like service, I would have to know the company pretty well. I don't have absolute faith in Amazon, Rackspace or Dropbox, I've had issues with two of the companies (Amazon and Dropbox) in the last couple of years. Non-trivial ones. But net-net I go ahead and build on their services. And I like the deal. I can't believe how little I pay for them, but I'm glad I do pay.

BTW, I'm not pointing to Fred's piece because I don't want to be in the chorus for his piece on Techmeme. I'd like to get equal billing. (Update: it didn't work, they put me in the chorus anyway. And of course they didn't link to my piece about User/VCs which imho is much more to the point than free-vs-pay. The issue is how we fund development in tech. We're only getting a slice of it supported by investment, so of course, that's the part that works.)

 7/15/2012; 5:27:40 PM.

One of the unwritten rules of tech blogging is that you don't write about VCs. Or if you absolutely must, if it's unavoidable, it's always in glowing terms. I suppose the reason is that in the back of writers' minds is that someday you're going to want funding, or one of them is going to tap you on the shoulder, but none of that is going to happen if I'm critical. Or if you even mention them.

VCs like to operate in the background. But there's no reason they should, because they're centrally important to the way technology evolves. VCs are the reason that the equivalent of a hit movie in tech is a startup, and not a software product or web service. Our whole industry is oriented around that idea, and it's poison. The individual VCs may not know that it's poison, but that doesn't change the fact that it is.

I've been watching them as closely as I've been watching the BigCo's over my many years in the software business. I've had something like friendships with the leading VCs. They've often invested in my ideas, but never in companies that I started.

Up until 2004 I thought it was because they didn't understand the ideas when they were fresh. But then they did a couple of rounds of investments, first in RSS startups and then in podcasting startups, that convinced me that it's personal. They don't mind trying to make money from my work, but they don't want to bet on me personally. Okay, so why should I be careful with their feelings? No reason to.

Another reason to write about VCs is that the Republican Party is about to nominate one for President. As I watch the way Romney talks, and the way he approaches problems, it's so eerily like the VCs I know. So clubby and shallow, so mercenary, so without shame or passion. He's been told that it's important to at least fake passion, but you can see right through it.

So I'm going to start breaking the rule in the title of this piece. I'm going to talk about VCs as if they were product managers at companies like Google and Microsoft. I think in many ways that's exactly what they are. But they can't generate horribly confusing technical standards to keep their competitors at bay. Instead they feed off open development work, like the stuff I've been doing for twenty-plus years.

There have been some recent innovations in VC that have worked well, and that I think are good trends. The leading VC in this generation is without a doubt Fred Wilson of Union Square Ventures. His innovation is that unlike previous generations of VCs, he uses the products he invests in. That seems to come first. If Fred uses your software and it works for him, that seems to have a lot to do with whether he invests or not. That's an improvement because previous generations didn't use the product, and their decisions were one level more abstract. At least Fred's companies create products that are usable, because he has a good eye for that. So resources are allocated, properly, to products that may make users lives better in some ways, and further the art of making usable software.

But that isn't good enough, because his products are predatory. They feed off open development work, destroy the value of its open-ness, and put little or nothing back. So those of us who are on the side of shoveling open innovation into the network, are constantly trying to keep up with the destruction of Fred's companies. And we're always falling behind.

And that's bad for the Internet, for sure, but it's also keeping the growth down for the funds that these user-VCs manage. Eventually the well is dry, there are no more seeds to eat, use whatever analogy you like. The growth stops and we go through a completely unnecessary contraction in tech. The VCs lick their wounds, but it doesn't hurt too much, because during the boom they pocketed billions. But like the American workers who Romney's tactics cost their jobs and pensions, young tech contributors are out of work. The boom-bust cycle is very hard on the workers in tech.

Eventually the generation that Fred Wilson leads will fall behind, as did the one led by John Doerr at Kleiner-Perkins. What they will be replaced with is one that is not only aware of the usability of products, but also has a sense for the flow of open technologies to fuel the ecosystem. These VCs will make side investments in technologies that are not intended to produce an IPO or acquisition, rather are intended to produce a new layer of technology that a whole generation of startups can feed off. At the same time, some percentage of each fund will be plowed into programs designed to generate the next layer after that.

The VCs will tell you that it's not their business to fund innovation for the sake of innovation. That's as short-sighted as saying that an oil company wouldn't invest in exploration or research into new extraction methods. Or if you got good service at a restaurant you wouldn't leave a 15 percent tip. Of course you don't have to do either. But if you don't do some exploration or leave decent tips, you'll be out of business one day, or get hot coffee spilled in your lap.

I've always felt that as long as Moore's Law is operating, and it shows no sign of letting up, that we aren't doing our jobs if the tech industry isn't tracking its growth in a linear fashion. The boom-bust cycle is a product of the lack of vision of the VCs. Or our over-reliance on VCs to lead the investment decisions of the tech industry.

 7/15/2012; 11:55:57 AM.