Free the Love Generation
By Walter de Brouwer

From Brussels to the World
December 25, 2005

Today of all days even a cynical mind like mine cannot be unmoved by the Christmas ambiance of collaboration, cooperation, good will and participation that is going on between mankind all over the world, alas for this day only. Our countries in the Old World are captivated by Bob Sinclar’s Love Generation . It seems that a song by a Paris DJ posing as a Jamaican about the US of America gives Europe new hope, or at least something to look forward to. But rejoice: whatever you have been going through in 2005, 2006 will be Christmas all year round on the internet, and what is more, you can be one of the Christmas trees! Believe me this is not irony: I am convinced that 2006 will be in the annals of the internet as the year of “sharing” everything, the year of mass group effort; look at what these companies are doing:

The “sharing” revolution is part of what seems to be the N2 Economy (New Economy second chance) or Web 2.0. Tim O’Reilly wrote a seminal essay September 30th 2005 about what he thought was happening . According to him, the web did not crash, but is entering a second phase (web 2.0). He points out what worked before is replaced now by something that works better: Akamai became bitTorrent; Brittanica online was torpedoed by Wikipedia; mp3.com –although a great name- made room for Napster and now Limewire; personal websites at Geocities have become uncool and the blogosphere happened; page views (Doubleclick) are being supplanted by cost per click (Google Adsense); CMS have become “wikis”, stickiness made way to syndication; and all the desktop vernacular has been translated into webtop lingo.

O’Reilly was most certainly influenced by what had happened two weeks before he wrote the article. Online auction giant eBay had announced that they were buying Voice-over IP darling Skype Technologies for $2.6 billion cash and stock deal. Skype had no serious revenues, just 54 million members in 225 countries and growing by 150,000 users a day. In other words, Ebay paid $48.15 for every user who never paid but merely used (read: tried out) the system. The word was out: data was officially more important than tools. “Users Inside” was going to replace “Intel Inside”. Service automatically gets better the more people use it. It was no wonder that Ebay bought Skype. They already had PayPal, and Ebay’s product is the collective activity of all its users, just as are Skype and PayPal. Ebay buys companies which possess the art of user commitment while Google buys companies who manage the science of user engagement, but both buy companies to syndicate with and to aggregate audiences, just like they aggregate customers. Ebay, Google and Amazon like no other today, have understood the Da Vinci Code of internet success: first reach critical mass via user aggregation and then turn that aggregated data into a system service.

If we look at companies like PayPal, Ebay, Skype, Limewire, Google and Wikipedia it is an interesting exercise to study what they have in common that the others have not.

First of all, and this is probably the most striking characteristic: they started from scratch and violated every business rule that is handed down by corporations as esoteric knowledge to their new captains. These companies did not believe the 10 basic business rules-of-thumb that our corporate world lives by:

1. Le Beaujolais Nouveau est arrivé: The days that software manufacturers came out with new releases or scheduled software upgrades comparable to the “Beaujolais nouveau est arrivé” are definitely over. Software is no longer a static tool burnt into a CD, with a complicated manual attached, boxed and price tagged. Software is a dynamic service, so simple that nobody will have to RTFM (Read the F. Manual). Software will have to be maintained on a daily, even hourly basis (updating indices, filtering out link spam, responding to user queries). The success at automating these processes constitutes added value to user data.

2. Prepare for the worst. The corporate world nowadays protects itself from intruders, secures its intellectual property from violations and is ready for hacker wars. The enemy seems to be the user. The new internet companies on the other hand view the user as a friend. It is a big difference in default status: corporate (enemy) versus N2 (friend).  They operate a dangerous instrument: blind trust. They depart from a constitutional principle that everyone is innocent until proven guilty. They let in the masses and filter out the occasional delinquents. Wikipedia was a radical experiment in trust since it professed not to believe in audited or peer-controlled trust but in the scrutiny of the masses (“with enough eyeballs all bugs are shallow” ). The new rules for companies with thriving business models on the net seem to be counterintuitive: they design for hackability and remixability, make barriers to entry low instead of high and do not bother to protect their IP to the fullest; they rely on the crowds as witnesses. In other words: they prepare for the best. But still today, Wikipedia has its academic enemies who contend that the professional is better than the amateur and they are right. But is one professional better than a 100 amateurs? No.  Are millions of dilettantes better than 3 peer reviewers? Yes. It is unbelievable that we still debate this. So for once and for all: free markets are better than centrally planned markets.

3. Be the Market: Nowadays people think of platform wars where one vendor has a solution for a complete market, but in future with everything connecting to everything else, this vendor will be isolated and its solution will become a problem. Architecture is politics and the politics of 2006 will not be the politics of 2005, there is another rotation in power who wants to go where they cannot go with the help of their users, they want to reach out to the deep web, instill an ethic of cooperation and win-win where the service is the enabling platform. They want to be the market-maker, not the market.

4. Become the Owner: Owning and Proprietary will be politically incorrect words in 2006. Nobody will own anything. We are going for Systems without Owners where users are treated as co-developers who pursue their own selfish interests and build collective value as an automatic byproduct. The companies that will be on the world map in 2006 will be those which will be able to leverage customer self-service.

5. Release Alphas. Releasing final editions takes too long and a focus group is not the world. The old open source mantra will be heralded: release early and release often . We are going for a landscape of perpetual, continuous betas developed in the open with new features slipstreamed in on a monthly, weekly, daily basis.

6. Advertise in the media: most of the marketing that Google and Ebay seem to do consists of saying no. And they are not the only ones. It seems that the greatest internet success stories don’t advertise their products anymore. They are viral and recommendations are propagating directly from user to user. If the products don’t succeed in being viral, they will not succeed at all.

7. Innovate through basic research: in a Cambrian explosion environment, basic research is not necessary, innovation becomes assembly. Just as the PC revolution was the assembly of the typewriter, TV and pick-up and the Blogosphere is nothing more than Usenet plus “http” (web protocol); in 2006 companies will beat the competition by getting better at harnessing and integrating services provided by others. This is called “mashup”. There is even a Mashup Matrix van Programmable Web which registers the web applications that are the product of mashups and where one can spot the future successful gaps in the market which need filling.

8. Quantity counts. Life’s worth is one’s net worth; the value of our society is its GDP. These are the old metrics that do not seem to work anymore. The new metrics of quality are the eyeballs of the world. That is why Vfinance is the most important innovation in the financial world today: their real computation is not based on sales but on the navigation of their users, they monitor the limbic system , the guts with which their users make stock decisions. They tap the “long tail ” of the financial markets. The Long Tail is a potential market and successfully tapping in to that long tail market is often enabled by the distribution and sales channel opportunities the Internet creates. A former Amazon employee described the Long Tail as follows: "We sold more books today that didn't sell at all yesterday than we sold today of all the books that did sell yesterday."

9. Focus, Focus. “Focus” is another politically incorrect word in 2006. There is too much out there to focus on, one has to switch to pattern recognition. Statics are definitely gone, just like still pictures will be replaced by live ones on the web in 2006. Websites will become theme parks: features will be put up to test them out, if users do not adopt them, they will be taken them. If they do, they will be rolled out and the next week everyone will have them.

10. Taxonomy. Taxonomy used to be the standard to reach retail significance; without pre-established standards one could not reach the masses but now that everyone is a crowd, Folksonomy takes over. Folksonomy is social tagging which lets internet users tag content and uses those tags to make search an navigation easier. According to Ken Haase there are two problems with this: scalability (growing the pool of active taggers) and devolution of the tagging vocabularies into the inconsistency of natural languages. He proposes Lost Sox, a MIT MediaLab AI technique halfway between Taxonomy and Folksonomy, that learns about tagging from every tag assigned, which would make tagging easier, smarter and sharing more scalable .

To conclude, what is universal among the winners of today is certainly the fact that they started from scratch and exhibit a level of disrespect towards the business establishment but there seem to be two other even more counterintuitive characteristics .

The Bazaar
Every civilization is allowed to build the kind of heaven it deserves. Ours is most certainly a global bazaar where everyone continually chases the best deal and the best deal is undoubtedly that which costs nothing. The web 2.0 business models that are successful are free of charge, on the house, at no cost, gratis! It seems that our world is trying to play more and more complex non-zero sum games and we seem to get better at it, because more than ever before successful experiments emerge as phenomena. The problem nowadays is that people tend not to believe what will be clear in future: making things free often turns out to generate more money in the end, just as automating work often turns out to generate more jobs. Serving web pages is very, very cheap. If you can make even a fraction of a cent per page view, you can make a profit. And technology for targeting ads continues to improve; I wouldn’t be surprised if ten years from now eBay had been supplanted by freeBay.

The Cathedral
Although it seems that the globally popular community sites have been grown by natural selection, there is increasing evidence of human intervention. There seem to be secret chambers for a secret community of trusted friends who function as administrators and moderators, who bootstrap the system, keep the fire going and feed the engine when it is hungry. They give Darwin a helping hand and are constantly tweaking and twiddling the code. They produce examples for members to follow, write the rules of use and enforce them tenderly; they defuse situations and deal with problem members, sometimes even take away their posting rights, eliminating their account, block their IP address or remove all evidence of their existence. I am convinced that the difference between internet glamour and internet stammer is the presence or absence of these cybrarians patiently building their electronic cathedrals.

Reprinted: Web 2.0 Checklist (To do list: check if your application is web 2.0)

Disclaimer. I have invested interest in www.vfinance.com and www.PajamaNation.com, two companies I mentioned in this analysis.

Walter De Brouwer (1957) studied Philology at the University of Ghent and started his career as an assistant university lecturer. His field of interest has changed over the years from mathematical linguistics to scientific narratology. He obtained his PhD in semiotics at the University of Tilburg and is at the moment a full professor at the International University of Monaco, teaching entrepreneurship (see the entrepreneurship site). Our client left academia to become an entrepreneur in 1989. In 16 years’ time he set up more than 40 companies, was involved in 2 international IPO’s (Stepstone [LSE: sso], Eunet-Qwest [nyse:Q]), stood at the cradle of long-distance carriers in two continents (Eunet, Qwest, Global Crossing), founded an international publishing house taken over by VNU, created IT companies that merged with others (Wegener-Arcade [aex]; Keyware [easdaq:keyw) and ran an ad agency in a very competitive market (taken over by BBDO Amsterdam). In 2003 Walter sold Termeeren, a castle domain outside Brussels from which Pierre Minuit left in 1626 with a cheque to purchase Manhattan Island from the (Manhattes) Indians) to Amazon’s Michael Gleissner. In 2004 our client sold Patentsniffer (a trade secret to increase patent portfolios) to Philips Electronics in Eindhoven.

Up to now Walter has negotiated 5 M&A’s, 7 MBOs, 9 acquisitions, 2 reverse take-overs, 2 LBO’s, 2 bankruptcies, 1 cramdown, 4 IPO’s, 3 asset deals, 3 voluntary liquidations, 2 securitizations, 7 IP transfers, 5 private placements, 9 syndicated investments and the sale of 16 of his companies. In his present portfolio there are 15 active business interests. From the beginning our client has been involved in the European setup of the W3C (the World Wide Web Consortium) and the Internet Society.

Walter invested together with famous captains of industry who later became his mentors and long-term associates: Nicholas Negroponte (MIT MediaLab), Martin Velasco (ex-Telefonica), Luc De Vos (Eunet-Qwest) and the Rowlands & other old money families in the UK. Together with Jonathan Rowland and Martin Velasco he invested in Resourceworks plc (renamed as Latitude) which became a natural resources merchant banking company. In February 2005 the company bought a controlling interest in Latin American Copper plc.  Recently the company went public in London as Latitude Resources.  Latitude Resources plc is an AIM listed [LTR] exploration and entrepreneurial mining finance boutique. The company has five copper-gold projects and one copper-molybdenum project in the highly prospective Chilean Coastal Belt and is specifically exploring for IOCG (Iron Ore Copper Gold) type targets.

With his passion for structured finance (structured products and hybrid securities) Walter was bound to meet Muhammad Yunus (Grameen Bank) and Jacques Attali (Planetfinance), the gurus of microbanking. When that happened, Walter took the leap into microfinance. He designed “Canaan”, a partially-funded three-level CLO synthetic securitization for EU Microfinance Institutes. In the team one finds celebrities such as Vinor Kothari, the renowned thinker (and writer) on securitization and president of the Asian Securitization Forum.  As of now the Belgian government are still considering the haute finance concept but have not come to a conclusion.

Today Walter presides the board of Fork Capital, (an investment vehicle in financial institutions that acquired Phmbank in Brussels and is on an acquisition spree, having just applied for a full banking license); Tashbury Capital, a private equity shop in Reno, Nevada that aggregates investment syndicates and the Belgian family holding Turing Industries nv/sa.  For 2006 he plans to set up an investment banking outfit (“the angry old boys” ) called the Jesse Livermore Investment Corporation or short J.Livermore in respectful memory of the biggest Wall Street Trader of all times. December 29, 2005 our client became a partner in the New-York based investment bank Vfinance. The Group's principal activity is to provide financial services to its customers through its subsidiaries. It conducts activities as a broker-dealer in 49 states and has offices in New York, New Jersey and Florida. The Group operates through three segments: Brokerage and trading, investment banking and consulting and other. Walter will deploy Vfinance in Europe as the investment bank of the high-net worths.

Apart from banking our client has moved back into biology investments and 2005 will be the start of the new portfolio that debuted with a seat on the board of the French Claranor which provides microbiological decontamination for the F&B industry groups Nestlé and Danone. Walter has also pledged money to a new charitable institution which he will launch, the NRG - The NeuroRegenesis Foundation, with Catherine Verfaillie as scientific director, to cure brain damage in children. The Foundation has been able to attract “the magnificent Seven” (BBC), neurosurgeons and doctors eminent in the field of pediatric brain repair and regeneration. For 2006 Walter accepted to be the chairman of the board of the UK-based DNAproducts and has communicated that he plans to set up a new company in genetic disposition called GenScan and a Tokyo-based venture called “47”.

Ironically, after the demise of Starlab, Walter’s expertise in distressed intellectual property became well-known. He became the IP dealmaker for Fortune 500 companies that wanted to buy up naked patents or trade secrets from bankrupted startups. Eventually Walter set up his own Delaware-based Iptology Inc. Walter became a member of the Licensing Executives Society in 2002 (LES); the same year he started working for Philips IPS (Intellectual Property and Standards) as one of their IP dealmakers. Walter issued a couple of new ideas into the IP market that seem to be the crossroads between financial securities and intellectual property: the CPO-collateralized patent obligation, IP derivatives and the vision of a future IP fund, ipglobalone.  

We are privileged to represent a visionary client who evangelizes a new economic ecology that will produce an entrepreneurial race of “job makers” instead of “job takers”. With the help of Dank Pink, the former speech writer of Al Gore, bestselling author of FreeAgentNation (the future of working for yourself), he was able to create the first electronic market place for micropreneurs in Belgium: PajamaNation. After three years of “clinical trials” the company told its shareholders that it was going to be present in 53 countries in 2006 and was going to start looking for a listing before the end of 2008.

Before 2000 Walter had invested in Venture Capital Companies but wrote off those investments in 2004, only keeping a small interest in the listed i-party and Roccia Ventures in New York. Most of the real estate was also divested, only Clemery in France was kept for sentimental reasons. But in 2006 Walter announced a comeback in private equity funds. He is involved in Nettworx, the new London fund on convergence which seeks an IPO on AIM; Walter also announced his interest in a new fund on “oil and gas” together with Jean-Francois Fourt, the Paris financier and founder of Truffle Ventures.

Our client does not fear the fringe, that is why, -be not shocked- you will find him in Who’s who in Gerontology?; a supporter of Stewart Brand’s Longnow foundation of Max Moore’s Extropians and of Eric Drexler’s Foresight Institute of Nanotechnology; a benefactor of Wikipedia, a trustee of the NASA-mentored IFF (Interstellar Flight Foundation, who just obtained aviation community membership); a gold warrior of GATA, the Gold Anti-Trust Alliance, a speaker at the World Spirit Forum in Arosa and a sponsor of Merton College at Oxford University and the Center for Quantum Computation in the early days. Walter was also a member of the programming board of the MIT Medialab during 1996-2001; was in the multidisciplinary team that prepared the 5th Framework at the European Commission and joined Faith Popcorn’s TalentBank in 2002; Forester’s Panel of Experts in 2003.

Walter wrote two semiotic articles on The Analytical Review in Notes & Queries (University of Oxford) as an expert on the later Frankenstein author Mary Wollstonecraft (he traced her back during the French Revolution as Mary Imlay).  He published two academic handbooks, The New Landscape (computational linguistics, Wolters Leuven) and The Biology of Language (University of Tilburg). For more than 15 years Belgian secondary education used two of his lexical booklets (Computer Buzzwords and Cybercrud, ed. Wolters). For the benefit of his students in Monaco he wrote his entrepreneurial (ad)ventures in lighthearted fashion: 101 Things I Wish Somebody Had Told Me. .  In 2004 Walter teamed up with John Engel’s Left Field Ventures to do a movie script on Walter’s book Echelon: Three can keep a Secret, if Two of them are dead. From 1993 to 1998 Walter published the techno-gigazine WAVE which has been on display at the San Francisco Museum of Modern Art.

©Executive Profile Productions, Wednesday, December 28, 2005