Stuff That Matters: Non-profit to For-profit

I'm planning to publish a series of "Stuff that Matters" posts over the next couple of months, each exploring a particular industry or opportunity in detail, including such areas as education, health care, open government, energy, disaster response, security, manufacturing, supply chain management, and many more. But before I do that, I wanted my next posts, after the Work on Stuff that Matters: First Principles piece I wrote a couple of weeks ago, to share a couple of stories that illustrate the economic impact of work on stuff that matters.

When they hear the idealism of "stuff that matters", many people immediately think of non-profits. This is not entirely inappropriate. The heart of my message is that work on stuff that matters is a great hedge in down times: even if there isn't a huge monetary payoff, you've done something that needs doing. And it's certainly true that non-profit enterprises are often a good way to tackle hard problems that the marketplace doesn't seem to be addressing.

But I want to make clear that I'm not just talking about charity work. I'm talking about the creation of real economic value. There are huge opportunities for entrepreneurs in solving hard problems, and in so doing creating new markets that can be exploited not just by themselves but by those that follow in their footsteps.

Online Financial Statements for Public Companies

The first story I want to tell is an unusual high tech success story. It is the story of an entrepreneur who created a huge market and set the stage for a big part of the modern financial world, via a non-profit project that he eventually donated to the U.S. government!

It was 1993. The world was just waking up to the commercial potential of the internet, but it was still largely a market of enthusiasts, people who were putting information online for the love of it.

Carl Malamud had a big idea: we, the people of the United States, were paying for a lot of great data to be collected, but we had very bad access to it. In fact, the government was providing the data to "value added resellers" who charged a pretty penny for public access. As Carl himself tells the story:

In the summer of 1993, I was helping my friends at Sun Microsystems give a demonstration of the Internet to the Subcommittee on Telecommunications and Finance of the U.S. House of Representatives....

After the demonstration, Chairman Edward J. Markey, came up to me and wondered if I could look into something that was bugging him. His subcommittee had responsibility not only for the telecommunications industry, but also for oversight of the Securities and Exchange Commission. A bunch of Nader's Raiders had been sending in petitions to the subcommittee asking why the SEC filings weren't available on the Internet. The initial reaction from the SEC was that the reason the data wasn't on the Internet was that it was technically impossible, and that even if the data were available the only people interested in SEC fillings were Wall Street Fatcats and they didn't really need subsidized access to data they were willing to pay for.

If something is technically impossible, I get interested. I looked at the EDGAR system and decided it was worth taking a crack at it. Our first cut at the problem was to try and work with the SEC. Chairman Markey's Chief of Staff asked the SEC to come in and discuss the idea of giving us the data and letting us put together an Internet site. There was a bit of pushback, to say the least.

The problem was the 70's era data processing system that the SEC had put in place in the late 80's. The deal was that EDGAR was way too rough for consumers to digest. It needed, to speak the MIS lingo of the time, “value-add.” Who would add value? Well, the SEC had cut a contract with a data wholesaler who would add value. The wholesaler, in turn, would sell to information retailers who would add even more value. Then, the information would be sold on the retail information market to the Wall Street crowd who had an interest in the data. Obviously, if we gave away all this information on the Internet, it would subvert our entire Free Enterprise System.

In that meeting with the SEC and the Chairman's staff, my favorite moment was when we got to the question of why in the world people would want to see EDGAR data. I maintained that the Internet was full of lots of people—students, journalists, senior citizen investors—who were dying for access to this data. The SEC felt that only a few people would want to see EDGAR documents, and besides the Internet (or “the ARPANET” as they kept referring to it) “didn't have the right kind of people.”

Now, this was a cheap shot, and I understood that what they meant was “there weren't a lot of people, just a few researchers,” but I couldn't resist.

“The right kind of people?” I said, rising up in my chair. “I think the American people are the right kind of people.”

So much for the idea of working cooperatively.

Carl got a donation of hardware from Sun, a small grant from the National Science Foundation, bought a dump of the SEC data, and together with a couple of other visionary hackers, built a free Edgar online service that went online in January 1994, starting first with ftp access, and eventually creating a web front end.

Carl and his compatriots ran the service for 18 months, garnering 50,000 daily visitors (a big number in those early days!), proving the point that there was public demand. But, Carl continues:

Our goal, however, wasn't to be in the database business. Our goal was to have the SEC serve their own data on the Internet. After we built up our user base, I decided it was time to force the issue. That's when the fireworks began. When users visited our EDGAR system in August 1995, they got an interesting message:

This Service Will Terminate in 60 Days:
Click Here For More Information

Click here they did! One of the lessons I've learned from building Internet services is that when people get something for free, they want their money's worth.

Just by coincidence, the SEC had scheduled an EDGAR Technology Conference for August 14, 1995. We weren't invited, natch, but felt that it was a public meeting and it might be fun to attend. The purpose of the conference was to look at the question of filing EDGAR documents, not necessarily the question of disseminating EDGAR documents, but I suspected that our announcement on the Internet EDGAR service might skew the agenda.

I have to say that my faith in government was restored after this. The commissioners of the SEC had clearly not been aware of the issue, but there is nothing like pieces in the Wall Street Journal and 15,000 messages to the Chairman to raise the profile of an issue. We were called in to meet the commissioners and the Chief of Staff to explain what it would take to run an EDGAR service. The new head of MIS at the SEC, Mike Bartell, turned out to be a real live wire and he volunteered to have the SEC run the service.

After a bit of checking with the congressional oversight committees, the SEC said they were ready to go. We loaded a couple of computers in the back of a station wagon and drove down to SEC headquarters and set them up a system. On October 1, the day we had said we would terminate our service, the SEC was fully operational.

1. Non-profit activity can raise the floor, enabling new kinds of commercial activity. By proving the demand for public access to financial filings, Carl's project contributed to the world we take for granted today, where sites like finance.yahoo.com and finance.google.com provide to the general public information that was once only available (at high price) to a small population of Wall Street insiders. I'm not saying that without Carl, E*trade and its ilk would never have sprung up, but there's a reasonable chance that his work made possible more than one entrepreneurial fortune.

   For even more graphic examples, consider the internet itself, and open source software, neither of which began with the profit motive, yet created huge commercial ecosystems. Look carefully at the world of non-profits, and you'll see a shopping list of opportunities for entrepreneurs to build on. I'm particularly excited about opportunities in health care, disaster relief, and energy, all of which are ripe for transformation by new technology.

2. There's a huge opportunity for hackers (read: people with good computer skills) to help along the ambitious agenda of the current administration to create a more open, responsive government. (I'll address some of the most interesting current projects in a later post specifically on the government opportunity.)

3. A small number of very technical people can often accomplish tasks that large, existing players consider too difficult, or prohibitively expensive. I'll be returning to this topic in future posts.

Taking a Venture Capital Approach to Scientific Research

The second story is a report on a meeting I had a couple of weeks ago with Andy Rachleff, a former partner at Benchmark Capital, who has been working on the idea of how to inject more entrepreneurial energy into cancer research, and Lorraine Egan, the director of the Damon Runyon Cancer Research Foundation, who has become his partner in disruption.

Here's a recent NBC video in which Andy and Lorraine explain what they are up to:

Lorraine also sent me some notes after our meeting, which she has given me permission to reproduce. She asks why we aren’t making more progress in the war on cancer, and answers:

There are a lot of reasons, but the one Damon Runyon is focusing on is the failure to invest in the high risk/high reward ideas of early career investigators. The thinking behind the Damon Runyon-Rachleff Innovation Award is that young people are the most likely to have bold, transformative ideas and the passion and drive to pursue them. They need “venture capital,” but they are not getting it. In fact, they are encouraged to think small.

The scientific community, it turns out, is risk averse and conservative. The National Institutes of Health, with a current budget of $29 billion, funds incremental research rather than new ideas. In fact, only .5% of its budget is specifically committed to new ideas. The culture of biomedical research has evolved into one where researchers focus on singles rather than home runs; where “elegant science” that can be published in journals is the key to success, rather than development of ways to actually prevent, diagnose or cure disease. Additionally, the NIH strongly favors senior scientists. The average age for scientists receiving their first independent grant from the NIH is now a startling 42 for PhDs and 43 for MDs or MD/PhDs. That flies in the face of what we’ve learned about youth and innovation from the information technology revolution.

Now, here's the point that's relevant to this post. If any of these folks make real breakthroughs, there will be a big payoff. Much as is the case with traditional venture capital, investing in breakthrough research may lead nowhere, but the successes can pay for an awful lot of failures.

Where We Need Breakthroughs

I'll be writing followup posts on each of these areas, but I thought I'd outline just a few of the high-potential areas where tackling big problems (problems perhaps now mainly tackled by governments and non-profits) will lead to enormous payoffs:

• Health care. Most developed countries have an aging population. If health care costs aren't to go through the roof, we need real breakthroughs in reducing the costs of health care - health care delivery, diagnostic procedures, and overhead. There may be some systemic reforms that could reduce costs, but how about breakthroughs in actual technology? (I hope to write soon about a fascinating meeting I had with one entrepreneur who is working on a new diagnostic approach that could replace a $25,000 procedure with one costing 20% as much.) Meanwhile, developing countries will soon be consuming much more health care. If it's as badly managed and expensive as ours, ouch! And in third-world countries, unmet health needs are a huge drag on the potential of those countries' peoples to participate in the world economy.

• Energy. New forms of renewable energy, energy-efficient materials, smart devices that use energy more efficiently (think hyper-miling for your house, office, and factory, not to mention a smart grid, are all going to be fertile ground for new fortunes to be made by people doing work that matters.

• Reinventing Regulation and Risk Rating. With the intellectual bankruptcy of ratings agencies like Moody's and Standard & Poors, there's a crying need for new tools for financial transparency. What can we learn from reputation systems on the net, from anti-spam efforts, and other kinds of automated detection of malfeasance and breakdown?

• Education. Our educational system needs to be reinvented. Why are we still using 19th century methods in the 21st century? When will we take the best practices of self-starters and apply them to general education? When will we take the opportunity of networking to build educational communities of interest and peer learning? How can we take better advantage of the net's ability to deliver information at lower cost and to customize learning paths?

Privatizing Success, Socializing Failure: FAIL

I decided to turn the "Twitter quote of the day" series into real posts, rather than simple "retweets." There is so much great stuff on twitter, but some links stand out. Someone posts a short bit from something they've read or thought. I retweet a lot to share the best of what I find, and pass on stuff not just on twitter but also through my network of email correspondents and other sources. Sometimes there are great finds that don't lend themselves well to 140 characters. So with today's piece.

@monstro: "privatize success (by chalking it up to individuals) & socialize failure (by blaming it on large systemic problems)."

This quote is from a great critique of the economic discussion at Davos by Daniel Gross on Slate.

More from the same piece:

For centuries, historians have debated whether history is propelled by Great Men (and Women), human forces of nature who bend events and systems to their will, or by vast impersonal forces (communism, capitalism, globalization) that render even the most powerful of us a mere reed basket floating in a massive river. There's no session on the subject at the World Economic Forum in Davos. But at least with regard to finance and business, the consensus seems to be clear: Success is the work of Great Men and Great Women, while failure can be pinned on the system....

At a CNBC event yesterday, groups of 10 to 12 people sat at tables and mooted three questions: Which policy assumption failed? Which regulatory failure proved to be the largest systemic shock? And which market failure proved most damaging? The answers were obvious: poor regulation of the shadow banking system, mispricing of risk, the failure of models. But there was very little talk about the people who helped design and justify the systems, the mispricing, and the models. At one point, someone in the crowd stood up and said: "It's intriguing nobody is to blame. In other industries, there are consequences if you make toxic products that hurt people. Policy makers need to make it clear that there are serious consequences for that type of behavior." Big applause! And yet aside from the odd mention of Alan Greenspan and an oblique reference to Robert Rubin, the former treasury secretary who became a senior executive at Citigroup, there was little talk of individual players who had responsibility.

Twitter Quote of the Day: 29 Jan 2009

@gnat: a city is a schematic for a computer of citizens. library=memory. industry=cpu. sewage=waste heat. traffic lights=clock ticks. discuss.

Twitter Quote of the Day: 28 January 2009

@gandhi_bot: "There are people in the world so hungry, that God cannot appear to them except in the form of bread."

Twitter Quote of the Day: 26 January 2009

@GregorMacdonald: Emily Dickinson on economists falling to Keynes: "...as Freezing persons recollect the Snow. First-Chill-then Stupor- then the letting go."

Free The Facts: Critical Issue, Killer Presentation

Dave Gray's Free The Facts presentation is a must-read, must-share for anyone who cares about either science or open access.

It's also a masterpiece of presentation economy, and a fantastic demonstration of how to make a text-heavy presentation into something magical. Reminiscent of the work of Michael Wesch. (It's also a fascinating demonstration of the convergence of YouTube, Flickr, and Slideshare as communication and teaching tools, and a foretaste of the generational change that the New York Times hinted at a few weeks ago.

Competition in the eBook Market

There's been a lot of buzz on forward-looking publisher mailing lists in the past few days about Robert Darnton's piece in the New York Review of Books, Google and the Future of Books. When it hit techmeme today, I thought it might be appropriate to share more broadly the comments I made on the Reading 2.0 list (links added, minor edits):

Darnton's piece is eloquent, insightful...and wrong. I loved his history of the idea of reading as a driver for the enlightenment and the dream of America, his evident love for the mission of the librarian, and his worried disdain for profiteers who limit that mission, but on the subject of the Google Book Search settlement stifling competition, he can't be paying attention to the fact that the electronic book marketplace is finally taking off!

There has never been more competition either in electronic books, or for books, in the broader electronic "republic of letters."

It is true, perhaps, in the narrow sense, that no other party will be able to do a mass digitization project on the scale of Google's - but that was already true. The barrier has always been the willingness to spend a lot of money for little return; the settlement doesn't change that.

Meanwhile, the settlement provides absolutely no barrier to publishers providing their own digital copies, and this is in fact happening. At O'Reilly, we are selling digital copies of all our books through subscription services like Safari Books Online (which also includes thousands of books from other publishers), as direct downloads from our web site in pdf, mobi, and epub formats, and through emerging ebook channels like Amazon's Kindle, Stanza, and the iPhone app store.

Safari is now O'Reilly's #2 channel, behind only Amazon. Meanwhile, in its first month of sales, our IPhone: The Missing Manual, released as a standalone iPhone app (really, a bundle with Stanza) reached sales levels that would have made it the #1 computer book, beating all print computer books reported by Bookscan in that same period.)

In short, there's a strong economic motive for publishers to release digital editions of their books, and to treat Google Books as only one possible channel. If the revenues generated by GBS (via services enabled by the settlement) are significant, new titles will be released to that channel by publishers. But there's no reason why publishers will release their titles through GBS in despite of other possible channels. Google will have to prove its value, just like any other reseller.

Frankly, I'd be far more worried about Darnton's wished-for utopia, in which the government had funded the equivalent, mandating that all publishers participate. That might well have nipped the competitive ebook landscape in the bud.

As it is, we see lots of different competing approaches to bootstrapping this market. I'd say it's opening up very nicely!

Meanwhile, the republic of letters, and the republic of ideas, has moved beyond books in substantial ways, into dialogs such as we have here, into blogs, onto web sites and other information services. It's alive and well! By the time I'm done, I imagine that my email correspondence and online writings would fill fifty volumes, just as did the physical letter writings of Franklin, Jefferson, Rousseau and Voltaire that Darnton rhapsodizes. If only my writings (and those of hundreds of millions of others) were so worth preserving!

Summary of principles and recommendations (hyperlinks take you back to the section of the document that discusses them)

• P0: The settlement should be approved
  • R0: Approve the settlement.
• P1: The Registry poses an antitrust problem
  • R1: Put library and reader representatives on the Registry’s board.
  • R2: Require the Registry to sign an antitrust consent decree.
  • R3: Give future authors and publishers the same deal as current ones.
• P2 If it didn’t already, Google poses an antitrust problem
  • R4: Strike the most-favored-nations clause.
  • R5: Allow Google’s competitors to offer the same services the settlement allows Google to offer, with the same obligations.
  • R6: Authorize the Registry to negotiate on copyright owners’ behalf with Google’s competitors.
• P3: Enforce reasonable consumer-protection standards
  • R7: Prohibit Google from price discriminating in individual book sales.
  • R8: Insert strict guarantees of reader privacy.
  • R9: Protect readers from being asked to waive their rights as a condition of access.
• P4: Make the public goods generated by the project truly public
  • R10: Require that Google’s database of in-print/out-of-print information be made public.
  • R11: Require that the Registry’s database of copyright owner information be made public.
  • R12: Require the use of standard APIs, open data formats, and (for metadata) unrestricted access.
• P5: Require accountability and transparency
  • R13: Require that Google inform the public when it excludes a book for editorial reasons.
  • R14: Tighten up the definition of “non-editorial reasons” for excluding a book.
  • R15: Allow any institution ready, willing, and able to participate in scanning books to do so.

I stand by my assertion that Google Book Search is good for publishers, authors, and the reading public. While the settlement does give Google what seems to be unprecedented power over the market for out-of-print but not out-of-copyright books, I'm not sure that market matters all that much to publishers, and it matters a LOT to the public. And in any event:

1. If there is significant value to be derived from these "under copyright but out of print" books, GBS will bring that value to the surface, and will then get those works on the radar of those who own those rights (if those rightsholders still exist.) Those parties can then start to exploit those rights through other available channels.

2. If there is no rights-holder to be found, we're no worse off than we were before, since there was no way of recognizing that economic value anyway. So the GBS settlement is worse, say, than just reducing the length of copyright, or requiring regular re-registration to keep books in copyright, letting those that are orphaned go more quickly into the public domain, but it's not worse than the situation before the settlement, in which no one but google was spending the money to digitize these works anyway.

Quote of the Day from Twitter: 25 January 2009

@JoeTrippi: "Our founders loved capitalism but they believed to their core that capitalism had to serve the democracy and not the other way around."

Inauguration Moments and Links

Like many people around the world, I was stirred by the inauguration of President Obama. Listening to his speech, I wanted to share a couple of the bits that stood out for me, as well as a few related links that caught my eye during the day. I already shared most of these links via twitter but thought they deserved a blog post as well.

1. As you might guess, I loved Obama's inauguration speech calling to America to step up to big challenges:

   In reaffirming the greatness of our nation, we understand that greatness is never a given. It must be earned. Our journey has never been one of shortcuts or settling for less. It has not been the path for the faint-hearted — for those who prefer leisure over work, or seek only the pleasures of riches and fame. Rather, it has been the risk-takers, the doers, the makers of things — some celebrated but more often men and women obscure in their labor, who have carried us up the long, rugged path towards prosperity and freedom....

   Now, there are some who question the scale of our ambitions — who suggest that our system cannot tolerate too many big plans. Their memories are short. For they have forgotten what this country has already done; what free men and women can achieve when imagination is joined to common purpose, and necessity to courage....

   What is required of us now is a new era of responsibility — a recognition, on the part of every American, that we have duties to ourselves, our nation, and the world, duties that we do not grudgingly accept but rather seize gladly, firm in the knowledge that there is nothing so satisfying to the spirit, so defining of our character, than giving our all to a difficult task.

   Amen! As you know, I do believe we face great challenges, and must rise to them. How fabulous to have a President who acknowledges the joy of what is hard! Leadership begins with vision, hope and a sense of possibility. People follow because they believe in that vision. This is a man who makes me want to sign on the dotted line!

2. I loved the promise on the new whitehouse.gov to "publish all non-emergency legislation to the website for five days, and allow the public to review and comment before the President signs it." I also love the fact that all of the public comment on whitehouse.gov is licensed under Creative Commons licensing. (As Carl Malamud pointed out, the government-contributed material is already in the public domain - a good reminder!)

   

3. In a lighter vein, I loved the San Francisco prank that replaced Bush Street signs with Obama Street. Amazing bit of coordination to get as many of the street signs relabeled as they did before the police stopped them.

4. I also got a kick out of Jennifer Pahlka's tweet: "I'm taking obama's mention of "makers of things" as a coded endorsement for MAKE"

5. CNN's partnership with Microsoft to build a Photosynth model of the Inauguration out of user-contributed photographs is an amazing demonstration of the power of Photosynth and the future of collective visualization. What's so cool is that the demo keeps getting better as more photos are added. (Silverlight install required, but worth it. And yes, Silverlight, AKA moonlight, works on Linux.)

6. The other great image of the inauguration came to me via Doc Searls on twitter: the ManyEyes visualization of the word tree for the Inauguration speech, showing phrases rooted in the words "we will":

   

   (Also try searching just on the word "we," as well as "we are".) A cool visualization tool helping to see the key ideas of a wonderful speech!

7. Update: A wonderful photo, via Dave Winer: Sasha gives her dad the thumbs up! (Not reprinted here, because it's "all rights reserved," but do follow the link and take a look!)

8. Update 2: Another wonderful photo, from Popular Science, shows a satellite view of the Inauguration. Amazing how like an antheap Washington looks.

change.gov Becomes whitehouse.gov

In all the excitement of the inauguration today, I wanted to call out one amazing success story. Today, change.gov became WhiteHouse.gov. For those of us in tech, this is an amazing affirmation. Not only did the Web 2.0 principles of user-engagement, viral outreach, rapid development, and real-time intelligence help Obama to win the presidency, he's bringing the same principles and the same team to manage his outreach during his time in office.

This is an amazing moment for anyone involved with Web 2.0. There's a long road ahead, but it's clear that many of the lessons that were learned first on the consumer internet are now being applied to much harder, more serious problems.

Congratulations also to the team at Blue State Digital, who built both sites (along, no doubt, with many people on the transition team.) (BTW, for more information, see the Radar interview with Blue State co-founder and CTO Jascha Franklin-Hodge.) Big Oops. Don't know why I said this, as Jascha explicitly told me last month that they hadn't worked on the site. He confirmed this just now in email, saying " We've long said that our focus as a business is not going to be government work, but we expect the incoming White House New Media team to continue the tradition of innovation that marked the campaign and the transition." Brain fart. Thanks to commenter Arnie, who reminded me of this fact.

One of the things that excites me the most is the way that the new administration is reaching out to small companies rather than to the normal behemoths who bid on government contracts. Among other things, in an environment where we all need to do more with less, it's fabulous to see how the latest web technology can be deployed by small teams. I think that there will be many opportunities in the coming year for technologists to make a difference in helping our new administration achieve its ambitious goals.

My favorite bit from today's announcement on WhiteHouse.gov:

President Obama started his career as a community organizer on the South Side of Chicago, where he saw firsthand what people can do when they come together for a common cause. Citizen participation will be a priority for the Administration, and the internet will play an important role in that. One significant addition to WhiteHouse.gov reflects a campaign promise from the President: we will publish all non-emergency legislation to the website for five days, and allow the public to review and comment before the President signs it.

There are going to be some real challenges for the administration in digesting and responding to those comments. But what a change!

Recent Posts

• Pascal's Wager and Climate Change on January 19, 2009
• Work on Stuff that Matters: First Principles on January 11, 2009
• The Biggest Ponzi Scheme of Them All on January 6, 2009
• O'Reilly Media on Twitter on December 29, 2008
• Thinking About Wendell Berry's "In Distrust of Movements" on December 28, 2008
• Google, WalMart, and MyBarackObama.com: The Power of the Real Time Enterprise on December 27, 2008
• Waking Up from the 'Nightmare on Tech Street' on December 22, 2008
• Hard Work and Practice in Programming on December 20, 2008
• Register's Googlewashing Story Overblown on December 14, 2008
• O'Reilly AlphaTech Ventures Invests in Amee on December 12, 2008