Welcome to the Era of Decentralization

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This is an exciting time to be a software entrepreneur and investor.  We’re living in a time when there’s about to be massive disruption in tech infrastructure that will affect almost every industry.  I haven’t felt this level of excitement since the late 90s.

Let’s first take a step back in time.  When most people think back to the late 90s, they think the dot com era was exciting because it put tech entrepreneurship on the map in a big way. Lots of entrepreneurs made a ton of money.  As a high school student growing up in Silicon Valley at the time, my perspective was different.  The 90s were impactful for so many reasons.

1. There was just so much opportunity.

The 90s were about moving just about every piece of software from isolated desktops to online.  This wasn’t an incremental change.  This was a big change.  It was a big change in how software and infrastructure was written.  And it was also a big change in business models.

2. As a result, it was easier for newcomers (such as myself) to break into the industry.

Existing software engineers and tech entrepreneurs needed to retool both their skills as well as their way thinking about how software should be set up and about software business models.  As a student, I didn’t really know anything; in some sense, not having been in the software industry was actually an advantage.  The 90s were about wrapping your head around the shift from working with isolated box software to writing software for connected boxes coupled with changes in business models.  This was not an easy thing to wrap one’s head around. As a student, my mind hadn’t been influenced by the prior desktop software era, and so it was fairly straightforward to jump into the industry and learn.  During this era, anyone who could write basic Javascript and had half a brain could be in business – either for yourself or at someone else’s internet company.  Frankly, no one really knew anything about anything.  It was all uncharted territory.

3. There were many winners and many losers.

Anyone who had been in software forever and who did not retool their skills and way of thinking about software got left behind.  There were also many entrepreneurs who got caught up in the frenzy of starting new internet business ideas that didn’t actually solve problems.  In general, the nature of entrepreneurship means there is a lot of failure, even for “good ideas.”  But this era had many, many terrible ideas.  Because it was such a gold rush, there were a lot of ideas that people pursued just for kicks.  I was not an investor at that time or even in the industry full-time, but I heard about more bad ideas during this era than I do today as an investor.  Because it was a gold rush, lots of people thought they could just come up with some dumb idea and would be able to make lots of money… just because.

Since the late 90s, these three characteristics have largely vanished…until now.  When you think about what happened after the 90s, software business changes have been largely incremental:

  • 80s: Desktop era
  • 90s: WWW era
  • 00s: Cloud / mobile era
  • 10s: Decentralization era

Going from the 90s to the 00s was about using cloud platforms.  No longer did you, as an entrepreneur, need to spend $1m on your own servers that you stored in your office closet to host your web applications.  You could use Amazon Web Services (AWS) to easily scale up (or scale down) your storage needs, and you could get up and running in a day.  Then, SaaS companies built their companies on AWS and offered basic services to other companies for just $x per month.  These SaaS companies got you up and running with useful applications and stored all your data for you so that you, as a business owner, didn’t need to worry.

Going from the 90s to the 00s was just an incremental change.  We still used the same web technologies (more optimized but still the same) and the same way of thinking  (everything done online).  Even the business models were still the same.  (pay $x per month or per year).

During this era, we also went from using the internet on your laptop to on your mobile device when the iPhone came out.  Everyone thought that this was the next big transformative era – after all, writing native apps required new software skills and ways of thinking, and the business models were different.  But, it wasn’t transformative.  Because mobile app distribution has proven to be difficult, legacy companies have largely resorted to focusing on improvements to their native mobile websites as opposed to distributing their native apps.  These mobile sites are based on the same web technologies people have been using forever, and the legacy businesses themselves haven’t had to change their business models as a result of the rise of mobile devices.

Today

But going from the 00s to 10s is and will be a big shift.  Today, we see that business owners and consumers are increasingly concerned with privacy, security, and hacking and with large companies consolidating data and power.  Should we be concerned that Google knows everything about you?  They track what you write to people, what you browse on the internet, and even where you go as you walk around with your Android phone.  Facebook, too, knows so much about you.  In fact, some even suggest that they monitor so much data that they know which startups are up and coming and try to copy them.  B2B companies are also consolidating.  Salesforce and Oracle are both acquiring companies like crazy and will soon know everything about how you run your business on all fronts.

Even if you’re not concerned about the powerful companies who are consolidating your data, there’s also been a rise in concern about whether they can even keep your data safe.  The rise in hacking and data exposure has both consumers and businesses nervous.  It’s clear that many companies are not able to keep your information safe.  Even companies whose job is security are not able to store your information well!

What we’ll see in the next few years is the decentralization of information.  FileCoin, which “launched” a couple of weeks ago, is a great example of this.  You’ll see more of your information distributed across multiple sources.  The premise for FileCoin is that many people in the world have extra bits of storage.  These people will store pieces of your data instead of storing your data all in one place with one service. Then, through a new protocol, you can grab all those bits and pieces of data and reassemble it to make sense.  No single entity will have all your data.  The business model for this storage will also be different.  Instead of paying a subscription fee to one player, you’ll use FileCoin, which is the currency on this platform, to pay a little bit of money to different people storing your data.

But it doesn’t stop there.  I’m seeing new companies crop up for other business services that involve powering an application but storing data needed for that application either in a decentralized way OR in a semi-local way.  For example, today, Marketo stores all of your marketing content – emails, landing page information, customer contacts, etc.  –themselves.  In this new model, tomorrow, they would still power the service, but your data may be decentralized or partly stored on your own servers so that Marketo cannot access and mine your information. Hackers would also not try to break into their systems to get this information.  From a business model perspective, this means you may or may not pay a single subscription to Marketo – you may potentially also end up paying other players through some currency for storing your data or even powering some of Marketo’s functionality.  I predict that almost every piece of business software that has these privacy concerns (or that have customers who have these concerns) will move away from the traditional SaaS model that we’ve come to love to this new decentralized model.

Some say there will be latency concerns in this new model.  Pulling information stored across many sources and re-piecing them together will be a slower process.  Real-time applications, such as website analytics, may not move to this new framework.  The first applications to move to this model will be software that serves customers who are really, really, really concerned about privacy and who have less concern for real-time information.  But over time, I believe that, since most software isn’t truly real-time, with more clever forms of caching, more software will move in this direction.

This is a total mindshift.  The way software is written will be completely changed.  Business models, too, will change.  In fact, how this will all play out is extremely fuzzy in my mind.  But that’s what makes this exciting.  There are so many new possibilities – something will change, but we just don’t know what.  There is so much opportunity, and we’ll see so many entrepreneurs enter the tech industry as a result.

There will be many winners.  But also many losers.  The losers will be the legacy companies who cannot make this jump and will get disrupted by startups who will take the customers who are concerned about privacy.  There are a lot of legacy companies who are obsessed with storing as much data as possible and are stuck in the rut of thinking that data consolidation is the only way to make lots of money.  This is why it may be difficult for some of these legacy companies to change to this new paradigm if a startup comes in.

There will also be many losers in other ways.  I didn’t use the word “blockchain” or “tokens” in this entire blog post, which is largely what will power this new paradigm.  I wanted to focus this post on the reasons why blockchain and tokens are so widely talked about.  But so many tech investors and entrepreneurs today are not thinking about the fundamental problems that blockchain and tokens are solving.  And much like the 90s, I’m now seeing so many ideas involving both blockchain and new tokens just for the sake of using them but not to solve actual problems.

These, of course, are my predictions (and I could be completely wrong!), but I think the Era of Decentralization is here to stay for a while and will have big impact on so many industries.  Comments and thoughts very welcome!

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