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Tim O’Reilly: Don’t capture value, create it

(the youtube podcast with Tim O’Reilly)

If you are in the tech/software industry, you certainly know Tim O’Reilly and the company he founded, O’Reilly Media.
Tim is not only a very influential technologist, but also an equally influential thinker and “philosopher” of the internet.

You can watch or listen to the whole podcast/videocast above, but I wanted to provide you with a summary of the highlights of our conversation.

1:00: How Tim O’Reilly met Frank Herbert, the author of Dune (one of my favorite books!), and ended up writing two books about him.

6:26: “mentor” figures that guide you in your career, and some more memories about Frank Herbert. Frank Herbert wanted to sue George Lucas for Star Wars for copying too much from Dune, and Tim talked him out of it.

8:53: “our goal should be to create more value than what we capture”. Larry Wall (creator of the Perl programming language) compared to Bill Gates. We measure “value captured” easily, but the “value created” matters just as much, if not more, like Tim Berners-Lee did by giving away the World Wide Web.

11:55: Tim’s open letter to Jeff Bezos on the “one click button” and against Jeff’s intention to patent it. (Tim eventually convinced Jeff to abandon the idea).

12:50: I recall when I met Tim O’Reilly inn 2007 at the first and only UbuntuLive conference; he was extremely gracious and helpful with me and I didn’t forget.

15:50: Larry Wall (author of Perl) was hired as an O’Reilly fellow, and Perl 6 became a “performing art project” according to Lincoln Stein. Tim wonders whether his good intentions ultimately caused Perl to lose ground to other languages such as Python.

19:40: How Tim started O’Reilly media, and originally he thought of it as a lifestyle business. He started looking for the “gaps”, e.g. “everybody needs technical documentation”.
In 1984–1985 there was a big downturn, and they decided to turn documentation into technical books, as opposed to the original “consultancy” model of writing technical manuals for large companies.
Things took off in 1988–1989, with the book about X-Windows system programming.

26:27: Tim’s experience of Open Source predated and was separate from the whole “Free Software movement”. Berkeley Unix in late 70s and early 80s was still under proprietary license, but there was a huge spirit of collaboration back then.

28:14: “The maximization of value creation”, still in reference to the earlier discussion on Bill Gates and Larry Wall. We need a business model for Open Source, but we’re also building on top of open source projects and we need to take their views into account.
An example is the Sendmail book. Through Six authors, every one of them bounced off because it was so gnarly. Finally, Bryan Costales wrote the right material, and Eric Hammond was so overwhelmed by the questions and comments that he decided to write a new version of Sendmail to address these concerns!
“What’s the strategy that maximizes value creation?”

33:32: Tim speaks about the “conference business”. After Sun Microsystems started Java One, Tim realized that there were no conference for Perl, and decided to start one about itand then about other languages, which eventually became a business in itself for O’Reilly Media, but originated as a service for the community.

35:37: Pearson had an internal group called “The O’Reilly killers”, and Tim invited Pearson to join them in the e-books business for technical books.

36:44: What was the hardest moment at O’Reilly? The dot-com burst, and the layoffs. A quarter of his staff had to be cut, but as a consequence they managed to remove many “free riders” from the company. The layoffs were so hard that it took Tim a few years to get back to his contagious idealism about the web and open source.

42:06: Tim started investing more frequently in startups in 2004–2005, after the popularization of the “Web 2.0” term. Tim thinks of himself as a mediocre investor, because his investment philosophy (the “cookie monster” philosophy) is idealism. He wants to invest in something he wants to exist. (good investments have been Fast.ly and Aplana).

47:25: Open source companies and their future. Their business model is unclear now. AWS vs Elastic, MongoDB vs AWS (DocumentDB); large cloud providers have a clear way to monetize open source by providing the infrastructure; a software company has a harder time defending against the cloud titans. In Tim’s view, you have to “recognize reality”: an open source company was not really the right model to monetize open source; the right model is to deliver services based on an open source project (first example is with the company Network Solutions). Many open source companies took the “proprietary” approach by simply renaming their offering into a “subsciption service”.

52:52: A lot of early stage companies are trying to come up with a new open source approach to a specific problem. My (Simone’s) feeling is that many are struggling to find the right business model, but also how the landscape is changing. How would Tim describe the software landscape in 2025? The whole point of Web 2.0 is that data is the lock-in, Internet is the platform, software is somewhere down that stack. Look at where the value should be created, and right now there’s a huge amount of value in taking the open source approach in other fields, such as biotech.

58:43: he never liked the world of aggressive valuation of companies and startups, particularly in Silicon Valley. In his words, it’s kind of a scam, some people got very rich by creating very little value, and you can tell when you talk to an entrepreneur when the first thing they mention is their fundraising, not their users. Most of it is value capture, not value creation. Particularly open source should be going towards problems that have to be solved.

1:03:13: “What The Future?”, where Tim shares what he thinks about his book, after 3 years of being published. Tim wishes that he had divided it into three books, and feels that he tried to do too much at once.
The book is mainly an argument about what the economy and our policy makers can learn from technology, and in relation to AI (Artificial Intelligence). He thinks that we already built a “paperclip maximizer” or “Straberry field maximizer” as Elon Musk puts it, and it’s our financial system. The book shares Tim’s worries that companies are now too much focused on profit maximization, and less about creating value.
It might have started with the desire to reach full employment after World War II, to now the obsession with maximizing shareholder value (and the Google Panda).

1:10:50: the debate on GPT-3, and more importantly of the upcoming GPT-4 in 2021, and how this can be directed to good deeds as opposed to profit maximization. Back to the book, there are many unsolved problems, including how we respond to the climate crisis. We need all the help we can get to build technology to help our global system manage these crisis, and the transitions. Tim is not too worried in the “macro” sense, but rather that we do the wrong things so long that we forget what was right (e.g. propping the stock market).

1:14:23: Money is a fiction to enable collaboration and collective action, but we shouldn’t believe that we don’t have enough to get around. We could reduce our working hours, people are happier when they work less. “Make people work less for more money”, if not for the rogue optimization function of maximizing profits for companies. We could rebuild our cities, our infrastructure, etc. Our “global” system is not optimized to do this, it is instead optimized around profits.

1:18:42: Money and price signal is the invisible hand, but Facebook and Google use many other signals instead of that. These companies are running invisible hands, and they are the size of many large industrial nations. We might need to have a deep rethink of how we run our global economy. It’s going to be painful.

I hope you enjoyed the summary, and feel free to watch the whole episode.
Tim, thanks again for spending time with me!
Ubuntu!

Disclosures

While the author of this publication is an Operating Partner with Cota Capital Management, LLC (“Cota Capital”), the views expressed are those of the author alone, and do not necessarily reflect the views of Cota Capital or any of its affiliates. Certain information presented herein has been provided by, or obtained from, third party sources. The author strives to be accurate, but neither the author nor Cota Capital guarantees the accuracy or completeness of any information.

You should not construe any of the information in this publication as investment advice. Cota Capital and the author are not acting as investment advisers or otherwise making any recommendation to invest in any security. Under no circumstances should this publication be construed as an offer soliciting the purchase or sale of any security or interest in any pooled investment vehicle managed by Cota Capiital. This publication is not directed to any investors or potential investors, and does not constitute an offer to sell — or a solicitation of an offer to buy — any securities, and may not be used or relied upon in evaluating the merits of any investment.

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