I have been following the stream of news and blog posts on the current financial crisis. Om Malik has just written a good one here. I wasn’t sure if I should be writing about it since I am not a financial expert (I spend and save money on a futile scale ). Like everyone I am busy with this financial crisis, both privately and within my responsibilities at my startup company. One thing that strikes me is that the “keeping up appearances” act of many people seems to be blown away by panic and uncertainty.

These are difficult times, no doubt about it. People are going to get hit hard by this crisis. And that’s a terrible thing. But in difficult times there seems very little leadership. Silicon Valley startups and the ecology that surrounds it lives with certain air of self confidence bordering to arrogance. If you are in that game you need to be a bit arrogant, self assured, and acting like you’ve been there and done that before. It’s an attitude that gets you everywhere in good times. It’s an attitude any CEO or investor expects and lives up to him or herself. It gives everyone the comfortable feeling of control.

But things have changed radically. And the panic and desperateness we see now isn’t just a result of financial loss. It’s even more the result of the feeling of loss of control. Those that felt they were on top of the world are painfully realising that there never was control. The attitude and feeling may have been there, but in this crisis we find that control was only fictional, and even that is gone. And it scares everyone.

In times like this we need real leadership. People that understand the complexity and dangers of this crisis but at the same time try to make the best of it. It’s not the end of the world, although it will definitely be the end of many startups and big companies. Leaders know what to do and lead the way for us. They do not panic, but simply deal with the situation. In these times leaders can be found easily and I would advice angels, investors and CEO’s to closely monitor both colleagues and management of the companies they invest in. This is the time were you will find if someone just had a great appearance or is actually a leader. Leaders will start making the right moves, cut down costs, work with a lean and mean organisation and most of all remain customer driven. They will only invest in things that create value for their users and they will not pursue things that are just great ideas. They will help others to find their way back into the game and deal with it. Ron Conway seems to be one, Howard Lindzon, Tim O’Reilly, they have been there before and they deal with it. There are many more to be found out there.

This is the time where “keeping up appearances”  isn’t good enough anymore. This is the time where the men are separated from the boys. We are going trough some really uncertain times. But if you realise you enver really had control in the first place then things aren’t all that different. Sure money and investments are a major issue now. But at the same time great leaders already take care of their burn rates and focus on the stuff that matters. They don’t have the attitude, they live it.  And they will be the first to get through this crisis and find the way back up to success.

I hope we will get through this and bend this around to a way up again. But one thing is for sure. We are learning a few tough lessons now we would never have learned during good times. I suggest we stop this panic and deal with it.

Facebook announces that they have just integrated Microsoft Live Search into Facebook. Undoubtedly to generate some cash revenues next to the advertisement business they are in.

Am I the only one that finds that they get scarier every day. Facebook not only builds walls that ensure it’s nearly impossible to get out of, but now they also track and trace me while I am searching the web? With Google at least the search results are anonymous and adding to some greater good and benefit of the user while leading to revenues for Google. With Facebook I am not anonymous while I’m searching. Facebook gets into my profile, my friends, my interactions and now search. And it is all for the user of course as they note in the announcement:

Along with your search results, you may also begin to see ads for products, services or other things that are relevant to your query.

It obviously won’t take long before Facebook starts messing with your search actions to provide you and your Facebook friends a “better”  experience within Facebook, as Leah Pearlman from Facebook notes when she finishes her exciting announcement:

Leah is searching on Facebook for a good place to eat tonight with her friends.

I’m sorry, but the giving you a better user experience just doesn’t cut it for me. Facebook provides interesting social networking features but their advertisement based business model puts them on the Big Brother side, not on my side as a user. They are digging in way too deep into my social interactions for me to feel safe when I use the service.

What scares me most is that most users either don’t care or don’t understand the possible implications of this. If there was any country or government in the world that would keep track of it’s citizens the way Facebook is doing we would be talking cold war and dictatorship. But on the web it seems to be OK that someone holds private information on more than 100Mln users (that’s a big country), their relationships, their interactions and search.

Ignorance is bliss they say. I say we’re all a bunch of morons that we allow this to happen. By giving companies like Facebook access to such large amounts of private data we are opening the doors for a privacy nightmare. And that door can’t be closed anymore. Facebook doesn’t forget.

There is some talk this morning on the possibility of on-line advertisement collapsing due to the current financial crisis. Svetlana Gladkova notes that when looking back at the Great Depression advertisement spent remained healthy and asks herself if we are sure there is going to be an advertisement collapse.

Mathew Ingram writes a good post on it too. He notes that the web advertisement business was one of the few in the ad sector that has show growth this year.

Are ad-dependent businesses going to sail through the economic turmoil without a care? Hardly. But an online-advertising apocalypse doesn’t seem terribly likely either. If anything, it seems as though traditional media should be the one feeling twitchy at this point. The competition could be intensifying.

In my opinion the on-line advertisement spent has been misused as unhealthy sponsoring of crappy web 2.0 startups. Anyone with a “web 2.0″-ish idea has taken the easy route to success. Use the FREE advertisement based business model to grow the business and try to get advertisement dollars to hide the fact that no one was really waiting for that service in the first place.

The “old-school” media and advertisement companies ended up paying for this mess. They didn’t really understand web 2.0 but were effectively talked into a state of depression by entrepreneurs, investors and the success of Google. Old school media doesn’t work, you need to be on-line to make it happen. As a result billions of advertisement money has been invested to create the largest on-line billboard money can buy. Which is weird as “old-school” companies should have realised that if billboards don’t work in old-fashioned media channels such as tv or newspaper, it’s hardly going to perform any better on-line.

If anything, this current crisis will lead to a shakeout of unhealthy web 2.0 businesses. There is nothing wrong with spending advertisement money on-line. But just like in real life, a business will only be healthy if it provides user value. You can spend all the advertisement dollars you want to sponsor web companies or advertisement networks. But if the service sucks, then your money simply lengthens the road to an inevitable crash. And the FREE advertisement based business model doesn’t focus on user value, it focuses on network value.

I think there may be some good coming from this mess. In my opinion we will see less attraction to the FREE advertisement based business model. Entrepreneurs, investors, media and advertisement companies. Everyone will be asking questions about the value that is being created. And that is a healthy thing. As a result we will get more focus on business models that monetize user value. It’s the cleanest and best possible business model. And it will benefit the one that it should be about, the user.

Fred Wilson just wrote a post called Free versus Paid. In it he says:

It’s much better, in my opinion, to go with the freemium model, give a version of the service away for free to all comers, get a lot of users, get good market feedback, then develop a premium version of the product/service for sale to enterprise customers. If your free version is popular with a lot of users, your customer base is the target for the upsell and you might be able to live without an expensive sales force initially. And, of course, keep your costs really low until you start to get revenues.

In summary, freemium is far from dead, in fact it may be the business model de rigueur.

Fred’s look on Freemium works in the consumer market too.

In my opinion FREE work best when it is not mixed with advertisement, especially if you are in the social media or social networking business. FREE is just a cleverly concealed trap. It doesn’t focus on user value. It focuses on having a large user base and ensuring the value is monetized on size. It’s an indirect business model that by default makes it hard for the service provider to provide real user value to the user. It might give a service provider distribution because the service is free. But the advantage of distribution is diminished by the lack of revenues and the negative impact advertisements have on the user experience.

“Hey, you get a free service so you’ll have to put up with advertisement” somehow doesn’t feel right as a business model. And if you do the math then you will find that few companies make lots of money in on-line advertisement. Google takes more than 75% because they alone have a free ads based model that actually provides the user direct value. MySpace and Facebook take a few % and the rest is spread as leftovers for the thousands of companies running the same business model.

I prefer a business model where the user gets value, and you monetize on that value. It’s the cleanest and best business model there is. Ask yourself this. Would you prefer a few hundred thousand enthusiastic customers that pay for the value that they receive, or would you prefer millions of users that get a free service, aren’t really getting the value they deserve and end up with advertisement too because you need to make a living? Investors and entrepreneurs wanting to rule the world or become a “new”  Google or Facebook, will use the second model. anyone else should focus on the first.

I feel Freemium has a good chance of revenue creation. It focuses on user value, creating a community of enthusiastic users, and eventually adds more value to that community by delivering paid premium services. It is not the easy road to success. It may not easily scale to millions of users or “sound” good to investors. But maybe times are changing now. Maybe investors and entrepreneurs will step away from the default and start experimenting with new business models.

Right now the basic business model is to grow as fast as you can (focus on size and provide the service for free), advertise to give “old media” the feeling that something important is happening out there. Finally get some “old school” media company to pay way too much money to take over the company, which then allows them to find out that earning advertisement revenues is something very few companies are able to get right. It’s a lose-lose scenario. The user loses because the focus of the business model is on growth instead of user value, and the sucker that ends up paying for it loses because it will never generate enough revenues.

The Free Ads based business model has another problem. As if focuses on growth it doesn’t answer the most important question technology needs to answer for any user: “what does it do for me”? I call that the First Use experience. It’s dead simple to understand, but incredibly difficult to get right.

First use is about creating the best possible user experience when you deploy your service for the first time amongst your target users. First use is about answering the question,”Is a user willing to put in the effort to learn about this new technology and incorporate it in his current habits”?  The answer in any case is that willingness is related to either solving a problem or creating another type of value for the user. If this isn’t obvious from the start, then the user is not committed to put in the effort of integrating this technology into his life.

A startup that uses a business model that focuses entirely on monetization of user value needs to address the First Use question. It might not get it right immediately, but through interaction with its user community it will get there in the end. I hope that the FREE advertisement based business model is slowly replaced by business models that focus on user value. Freemium is just one way of doing that. But it will help us build a User-Centric web.

The web has unleashed unlimited amounts of information to us. There is more information than we can possibly consume so the question is always how to find the most valuable information. If you look at this from a business or advertisement point of view instead of a consumer view then the value of information is not the issue. Instead the scarcity is attention. Kevin Kelly wrote a good post on this and summarizes the new rule for this new economy:

Where ever attention flows, money will follow.

In the attention economy it is all about attention. Getting a user/consumer to pay attention to you, your product, service or advertisement is very difficult.

There are several ways to draw the attention of a user. You could provide valuable service or information. That might get attention, but competition is fierce. You can take a shortcut and instead work on your findability. Google Juice, Self-linking, SEO strategy to get your site higher ranked than others can draw attention. You can engage with users, become part of social communities, build up trust, reputation or whuffie.

No matter what you do, it seems everyone else is doing it too. The web has brought us democracy. Anyone can do what anyone else can do. You don’t need to be an expert or professional. The web brings you all the tools to start. It’s what makes professional blogging so hard. There is competition from thousands of other blogs, professional or amateur.

I guess that is what the attention economy is about. The only thing left that is scarce in this mad world, is attention. While thinking in terms of attention can bring us a lot of good, it also comes with a downside. The biggest downside in my opinion is that  we seem to be quickly moving into an era where attention is captured in one-liners.

The obvious examples are the “Breaking news” blog posts where nothing breaking is happening, just PR orchestration. Or the X Kills Y type of blog post. Google BlogSearch will Kill TechMeme. No substance but a lot of sound there. Or how about the most popular post on my blog? The title is “5 reasons why Facebook sucks”. There is substance there, but the title is short, contains a list, and combines the words Facebook and sucks. Success guaranteed. The posts that I’m really proud of, the ones I put passion get a fraction of the attention.

More dangerous forms? The “Steve Jobs heart attack scoop”. Unverified, but good enough to make Apple stock drop 10 points. The Sarah Palin controversy. For some she’s the biggest moron, for others the savior of the country. My view on it is that she sure uses a lot of one-liners in her interviews. As shown really well in this compilation video.

Actually the whole presidential campaigns have turned from visions into one-liners. The media nor the country seems to want vision, that doesn’t sell well. But everyone is looking for catchy sound bytes to get attention. It seems $700Bln of financial problems is managed by soundbites. Hard decisions don’t sell. A politician can easily get away from this mess by saying that we need to protect the American people, without really addressing the root cause of this financial crisis.

It’s the rat race for attention that makes soundbites more important than substance. Media need soundbites to get the attention of the consumer. And it seems all we care about is to listen to soundbites. The complexity of everything is reduced to a one-liner.

I hate it. We haven’t become any dumber than we used to be? If anything, we can and should be better informed in this information age. Are we really that busy that we can’t find any time anymore to digest anything? Somehow I doubt that. It seems that interaction has become more important than what you’re interacting about. Form over substance. If the habits of the early adopters are at al predicting what we are heading for then it will only get worse. There isn’t time to read a long blog post anymore, because everyone is so busy aggregating content and having “discussions”  over it. No need to fully understand the issue at hand, just read a TechCrunch headline and you are fully informed of today’s reality. Breaking news is reduced to 140 character Tweets. The shorter the better.

Don’t get me wrong, I love the era we live in. Exciting things happen, new technologies break to the masses, there are crazy things happening in ths world. But in the midst of this hasty world, we can still take time and pay attention to the whole story. No one is forcing us to think one-liners. in the end we are responsible ourselves for this simplistic and sensational behavior. It would be good if we would stop paying attention to sound bytes and start looking for substance again.

Wouldn’t it be great if Obama and McCain would actually be forced to talk substance? Or would you rather let a one-liner decide who gets the most powerful job in the world? Look what the previous 8 years have brought us. A man with limited substance was able to set the world on fire, ignore any problems in his home country and end up with one of the biggest financial crisis in the history.

I’ll take substance over the ability to speak in sound bytes.

Trust is a difficult subject. How do we trust someone? It’s pretty difficult in real life. We tend to trust people we know well or people that are trusted by people that we know well. We gain trust by interacting with people, by seeing consequent behavior. Reputation is an important factor too. Without realizing we use body language and all kinds of senses to build trust.

Online this is even harder. We miss most senses and can only rely on electronic interactions and referrals. The interesting thing is that unlike in real life trust has been made quantifiable on the web. It’s called Google Juice. With their PageRank algoritm Google has defined a defacto standard for trust. The underlying assumption is that if a lot of people refer (link) to a site it probably contains important stuff and can therefore be trusted.

While PageRank has brought us a lot of great things and helped us to find things we need quickly, it also comes with downsides (as with any algorithm). It can be tricked, optimized, tailored to fit your needs. That is probably why there are so many ranking systems on the web. We have Google, Technorati, TechMeme, all kinds of leaderboards, there is a ranking for anything we can think of. The main motivation for having these ranking systems is measure trust. If you’re high ranked you can be trusted.

Linking has become the main currency on the web. By linking to external sites you provide them with a trust referral. It’s an important process as it immediately affects PageRank. It is also a system that breaks down easily, especially if you in some way or another monetize your site. That is why all of the big blogs seldomly link to external sites. TechChrunch, CNET, they all love to link to themselves. The motive is pure financial, and has nothing to do with content, trust, or any other factor.

I think Mathew Ingram nails it when he says:

When I come across a site — whether it’s Ars Technica, or CNET, or the New York Times — and most of the links are internal, I instinctively don’t trust what I’m reading. Maybe that’s just me, but I think excessive internal linking is almost worse than no links at all. At least having no links at all could be a result of plain old ignorance; linking only to yourself means you know full well that links are valuable, and you know how to do it, but you either can’t be bothered to look for other material or you want the Google juice all for yourself. It’s fundamentally anti-Web. We already have lots of places that don’t link — they’re called the mainstream media.

The big blogs have become exactly that what they loath about traditional media. They may have started as open and trustworthy initiatives, but with the monetization that is taking place now it has become crucial to their survival to act as old fashioned media corporations.

It’s a bit ironic that Mathew, who also happens to be a journalist, needs to point this out to us. Mathew is someone that always links to others, which is why I trust and respect him. Tim O’Reilly started this discussion a while back when he wrote:

When this trend spreads (and I say “when”, not “if”), this will be a tax on the utility of the web that must be counterbalanced by the utility of the intervening pages. If they are really good, with lots of useful, curated data that you wouldn’t easily find elsewhere, this may be an acceptable tax. In fact, they may even be beneficial, and a real way to increase the value of the site to its readers. If they are purely designed to capture additional clicks, they will be a degradation of the web’s fundamental currency, much like the black hat search engine pages that construct link farms out of search engine results.

I have a lot of respect for Tim too, but it’s a bit ironic that the O’Reilly blog tends to link internally too. They use a tagging system below every post that leads to O’Reilly articles only. It’s just a variation of the same theme. It seems that as soon as a blog becomes monetized or written by more than one author linking to the outside world is under pressure.

And with all the aggregators popping up the social media community is searching for trust again. We think of new algorithms (trust filters), people ranking systems, we rank content, people, anything to get a grip on trust.

Personally I think it’s best to use common sense. If you interact or follow people you will soon enough develop a feeling about their skills and value for you. It will help you to build trust. This is important in a world where anyone can act like an expert and publish anything boldy without the restraints traditional media have (they have a news redaction, editors, policies). As I said in a discussion on this very topic at Friendfeed:

On FF or anywhere else on-line it is hard to decide to trust the ‘expertise’ of someone making bold statements. I for one would warn you not to assume everything I write is correct. It is, and remains to be, my personal view of the world

Maybe the linking economy went bust when we started treating it as an economy.

Hugh Hutch Carpenter writes a good post that provides some extra explanation of Tim O’Reilly’s definition of web 2.0. Tim’s definition is:

Web 2.0 is the business revolution in the computer industry caused by the move to the internet as platform, and an attempt to understand the rules for success on that new platform. Chief among those rules is this: Build applications that harness network effects to get better the more people use them.

Tim is a really smart guy. I think it is a really compact and distinctive definition. I also believe that it describes perfectly what businesses or companies can be called web 2.0, and what shouldn’t be called web 2.0.

It made me realise once more that I am not so fond of web 2.0. And this definition points out exacly why I do not like web 2.0 very much. The problem with web 2.0, given it’s definition, is that it is a business or even application driven movement. It talks about applications that improve because people use them. It explains that by having a view that the Internet is a platform, and embracing network effects on that platform, will eventually lead to success.

That sounds great doesn’t it? It could be me, but in my opinion web 2.0 turns things inside out. There is only talk about platforms, business, application and success. It’s a definition created by the very industry that has build it. It accurately describes a movement that has changed the web considerably since version 1.0. But this movement did not address the most important issue at hand. Where did the user go in this? How does the user really benefit from web 2.0?

Web 2.0 has brought the user obviously many advantages. Just take a look at some of the successes Hutch and Tim pointed out. Google, Youtube, Wikipedia, Amazon. All services that have become better and better  because they embraced the network effect of the Internet platform.

I would argue that given the fact that the user and his value are not part of that web 2.0 definition (and it doesn’t really matter that practice created this definition) too much attention is spent on embracing network effects. It has the undesirable effect that the network is more important than the user. And that is precisely why I do not like many aspects of web 2.0.

Web 2.0 in essence is something we, the users, have made possible. Businesses embraced that vision, but the only reason Google is the best search service in the world is because of the Internet population producing content and linking to content. Same thing holds for YouTube or Amazon for that matter.

And we get value in return, as I said. But this vision has provided us 2 problems I feel are not addressed very well by that very same movement:

1. The value of the network is much more important than the value for it’s individual users
2. The value of the data in that network is much more important than the value of personal data

The biggest side effect of these problems is that it is nearly impossible now to build and be successful truly User-Centric services. I’ll point out just one flaw and you can figure out the rest (or read earlier posts I wrote on that ).

The power of web 2.0 prevents us to build adequate privacy services for the user. It is impossible for a user to be in control of his own data as the whole idea behind web 2.0 is that data is the new currency on the web. Data needs to flow freely, but more importantly, web 2.0 services can only be successful if they can hog data from all users. We benefit from this, but most haven’t got a clue to the possible dangers. And it frustrates me that there is NO WAY for me to decide what data can be added to the stream and what data should remain mine. I have no control whatsoever on that. And honestly, it scares me that so few people worry about that.

We embrace web 2.0 as if it is the golden pot at the end of the rainbow. I would argue we need a User-Centric definition instead. Actually, we need User-Centric thinking, developing, and business succcesses that in the end will let us create a definition for a User-Centric web, just as Tim was able to write down that definition of web 2.0 after the movement was started.

Don’t just take my word for it, here’s what Doc Searl and Joe Andrieu have to say about it. I pointe this out in an earlier post called “In  User-Centric Web I get to control my data”:

I like Doc Searls take on this. He calls the developments to open up social networks using FriendConnect and the likes not really open. Instead a federation is created. A federation that lets the user travel around a bit, but he still doesn’t own anything. He isn’t in control of his own data. In other words, a federation isn’t a User Centric Web. Doc Searl points me to this excellent post by Joe Andrieu. Read his post, its really good. A quote that says it all from Joe is:

When we put the user at the center, and make them the point of integration, the entire system becomes simpler, more robust, more scalable, and more useful.

Yesterday Robert Scoble pointed out in a Friendfeed discussion that he wanted to know the difference between someone like myself and Tim O’Reilly:

> abacab actually this is a major problem with social networks. I call it the “friend divide.” If you joined FriendFeed and don’t know the difference between Alexander and, say, Tim O’Reilly, wouldn’t you be at a disadvantage to those who DO know the difference? I think so. And to say there’s no difference is just plain wrong. Attacking people who know the difference and are willing to point it out is also wrong - Robert Scoble

By no means I would be able to compare myself to someone with the experience of Tim O’Reilly. I’m a newby, an unknown in the web 2.0 industry. But I do hope that I can be part of a new era in web evolution. An era that embraces the power of the Internet as a platform. That embraces the power of the network. But also an era that puts the user first in that definition. We might want to call that web 3.0 (it’s catchy isn’t it), although that term has been reserved for yet another platform (sematic web). I prefer to call it the User-Centric web. And if we can get that going, we can also write a definition for it

I read a post by Robert Scoble just now that made me laugh out loud. He observes that the discussions over at Friendfeed regarding the financial crisis lack depth and knowledge.

In the past 18 hours I’ve read literally thousands of posts and have done almost nothing but hang out on FriendFeed. I’ve seen a LOT of idiocy. And these are supposedly from the smarter, more educated people around. People who I’ve had a beer or two with and who I count as friends and fellow Americans.

[stuff deleted]

The downside of this new media world is that you’ll hear a lot of opinions. Which one is right? I’m not always right. In fact, I’m often wrong. But I’ve counted on YOU, the audience, to help me correct that when I’m off in the deep end. Now, though, I’ve seen so much idiocy that I’m not even sure of my audience anymore. That’s how deep our loss of confidence in each other has come.

It made me laugh a bit for 2 reasons. First, Robert is a passionate Friendfeed user and goes through major ups and downs regarding the value of the service.

Secondly he complains about the idiocy within the discussions on Friendfeed and the loss of confidence in his audience there. For some reason Robert assumes there are experts hanging out on Friendfeed that are engaging in thorough, deep discussions.

This assumption is wrong of course. Friendfeed is a cool hangout place for smart people that much is true. It is a specific type of person that hangs around on Friendfeed. Mostly early adopters of web technology. Regardless of the ’smartness’ of the people that hang out there Friendfeed lacks any support for in-depth discussions.

At best Friendfeed is a bar where we can hang out and ventilate our opinions. Which is fine of course, but hardly in-depth. Besides that, a discussion that possibly involves hundreds of people rarely leads to insight. There is no time to explore, people have to make bold statements in order to hijack the discussion.

Friendfeed provides us the stage for our one minute of glory. Engaging with other cool friendfeed users. It’s a bit like an idols competition. If you engage everywhere and say bold things you might get noted by the crowd and earn the Friendfeed coolness factor.

Does that make Friendfeed useless? Off course not. It can eb a lot of fun. You can meet great people and hang out. But that is exactly what it is. A hang out place for the tech elite. No more and no less. Steven Hodson calls it a silly little corner of the Internet:

Even the idea that a Nobel Laureate of Economics or a discoverer of the Human Genome are going to be found sitting around there computers chumming it up on FriendFeed ot Twitter is ridiculous. Like really, give your head a shake if you believe that. Supposing though that for some incredible reason you did find someone like Stephen Hawking on your friends list do you even thing you would be able to comprehend what the hell they were talking about. Not likely.

So Robert, here’s a suggestion for you. Forget even thinking that places like FriendFeed or Twitter are anything more than really cool places to get together with friends and chew the fat. You know .. just like the old newsgroups or web forums. You want the experts - you’re going to have to go find them where they live because they’re too damn busy to find any value in our silly little corner of the Internet.

You want to have a fun but overall useless conversation hang out on Friendfeed. Nothing wrong with that btw, I love doing that every once in a while. You want in-depth expertise call Steven Hawkins.

The past week I’ve been in Silicon Valley to meet a lot of people and to launch a new service. I talked to people working at the big companies there, but also with guys that were literally starting a new business out of a garage (haven’t we heard that before ). The contrast could not have been bigger.

In the big companies the usual pattern appears. A recession is about to hit, revenues are dropping and the pressure on shareholder value is increasing fast. Shareholder value has quickly become the best excuse for companies to stop thinking ahead and stick their heads into the sand. Shareholders must be complete idiots if their short term value is maximized to a level that it endangers the long term sustainability of the company.  And yet we see this pattern recurring time after time. In order to maximize shareholder value companies stop innovation, cut down costs, maximize revenues and become financially driven organizations.

Managing finance becomes the most important asset. Excessive rewarding plans for top managers govern the direction of the company, and the devastating effect of that is something we can now see with the current financial crisis. Companies that once generated revenue and were able to innovate at the same time turn into a efficiency maximizing process killing off anything remotely creative as that negatively influences the short term bottom line. So we can prepare for lay offs and forget about exiting new stuff coming out of those companies for quite a while. Needless to say that in any business this is usually devastating in the long run.

With the exit of innovation comes the exodus of those that could start change. Don’t get me wrong on this. I think financials are important for a company. But they should be seen as a byproduct. Run the company with passion for your customers and in most cases revenues are generated as a side effect.  Rolf Skyberg has written an excellent post on a similar theme, called “Leadership doesn’t mean optimizing ROI”. Read the article, it’s excellent. Here is an excerpt.

Choosing projects based on projected ROI is a dangerously simplistic way of running your business.
If you take a look at the actual acronym: “ROI” return on investment, it seems like a perfectly logical way of directing your business activity. After all, who wouldn’t want to invest in the things that bring them the greatest returns?

The unfortunate simplification in action is that “return” is generally taken to mean revenue or cashflow, which is but one of the important aspects of running a business.

The problem here is that while revenue can be easily counted, recorded, multiplied and divided; other intangible dimensions cannot be. How do you quantify “trust”? How do you measure “excitement”?

What would an ROI of 20% on trust actually mean? Because the intangibles cannot easily be typed into Excel, they can’t be utilized on pivot charts, or factored into equations.

And because MBA’s live and die by Excel, anything you can’t count, doesn’t count.

A few miles away the world seems quite different. In Palo Alto the air is filled with creativity and entrepreneurship. Talented people get together, think out new ideas and start new companies on the fly. With or without funding, in small offices, homes or even garages. These people think and breath opportunity. They are passionate about an idea, and nothing is holding them back. Not even a recession in the makings. For them raising funding is a side effect for the fact that they are building a business.

If you think about it, Palo Alto seems in some ways a bit like Florence around 1500. Florence was a meeting place for the most talented people known. Michelangelo, Leonardo da Vinci, Machiavelli, Dante, Donatello, the list goes on and on. They were all there at one time or another, challenging each other, taking science, art, poetry,  and culture to an unprecedented level. Surrounding them were rich families, the Medici being the most important, that accelerated this cultural process by financing it, gaining both power and respect.

I don’t know if the Silicon valley of today contains the same brilliant people as Florence did then, time will have to tell.  The environment can trigger great things. But there may be differences too. Where the cultural revolution of Florence had huge impact on the world, it remains to be seen if the Valley can pull of something similar. And it seems to me that passion in Silicon valley is sometimes traded for shares, option plans and new gigs. I heard of several startups having to deal with experienced developers leaving at critical stages for something else. Experience is hard to find and those that have it can get a job anywhere. It results in less attachment and less passion in my opinion.

Why is it that when companies start they are full of entrepreneurial spirit, but when they reach their success it becomes “corporate” and quickly loses its entrepreneurial nature? At some point shareholder value becomes more important than passion. That’s when the company changes from a leader into a follower. At that time managers become more important than employees. Thousands of management books are written about how to get big companies more innovative and flexible. It really isn’t that hard. Make sure there are more passionate people on board than managers and you will do just fine. When that balance is disturbed shareholder value takes over and the financial manager seizes the company. Passion is replaced by predictability.

With the current financial crisis in the USA reaching a new high it will likely have effect on both large companies and small entrepreneurs. There will be less money to invest, less risks to be taken. But I think Howard Lindzon is right when he says:

Unlike Jason who started a bad business (Mahalo.ugh) at the top and now is scared and panicking to his e-mail list, use this recession to build the business of your dreams off the panicked and overleveraged. Don’t feel guilty. Don’t go to the mall and piss your money away. Buy a laptop, tune in to some great VC’s and stock market blogs, roll up your sleeves and take your best shot.

If you are thinking of building a new startup, be sure that you do it with passion. It will be the difference between a good and a great company.

Update: there is an interestin discussion going on at Techmeme now, kicked off by Erik Schonfeld and picked up by Rafe Needleman.

[Disclaimer: I am responsible for the new Glubble for Families release, so this post is related to my work at Glubble. If you want to follow what is happening over at Glubble I suggest you take a look at our glubble blog here.]

After months of hard work the Glubble team has released the new Glubble for Families. We’re really excited about this. Glubble for Families has gotten a total redesign and comes with a ton of new features. We have worked with our user community to make Glubble an on-line experience for the whole family. The Glubble web site has gotten a total revamp and is looking great too.

If you want to know what Glubble for Families is about, we have created a short video for you that explains it all.

We are getting great feedback from our users already and the press has picked up on it too. There are great posts already over at Mashable, ReadWriteWeb, VentureBeat, CNET, ParentTalkToday.com and more. Very exiting.

The past few months have provided me more challenges, experiences and learnings than ever. Building a service for families and children, making sure they do not have to worry about the (complex) technologies, getting the communication and the usability right, a business model that is truly user-value based.

I think I will be writing some more about those experiences later. For those of you that have followed me on my blog you will find that many of the things I find important in web services have gotten a place in Glubble for Families.

For now I’ll leave you with a special tribute the Glubble team has made for Ian Hayward. Ian has been the driving force behind Glubble and it was him that once started the journey that got us here today. Glubble for Families is now used in 125 countries around the world!