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The
Mind of Howard Rhiengold
part 1
page 3 of 3
AM: Could you tell us about your Electric Minds
experience?
HR: In the Summer and Fall of 1994, I helped create
HotWired and served as its first Executive Editor. I quit a couple
weeks after it launched, in late 1994. What I had in mind had elements
of a magazine (editorial filtering, creative design, regular, high-quality,
"content"), but was much more like a community (many to
many, unfiltered, audience-created content). I spent most of 1995
having great fun updating my web page every day. I did all the writing,
editing, design, illustrations, html. I talked friends of mine in
America, Europe and Japan into writing for free. In late 1995, I
got it it into my head that I should expand what I was having such
fun doing. When I sat down to figure out how to pay my writers and
editors, hire a "real" designer, license a webconferencing
system, it looked like it would cost tens of thousands per month,
and take us three or four months to launch.
Lesson number one was that everything in a startup that depends
on cutting-edge technology takes longer and costs more than originally
estimated, even when you take lesson number one into account.
Deciding to pay people reasonably well (but by no means extravagantly)
for editorial content, art and design, technical services, led me
to need more money than I had. That's when I made what I now clearly
see to be my most fundamental error. I got caught up in the intoxication
of venture-capital financing, which was in a particular state of
mania in late 1995. I connected with a business partner I didn't
know, but who knew how to go about securing financing and putting
together a company -- my second fundamental error. I failed to listen
to my own nagging doubts and made a bad choice in partners.
I take responsibility for making the decions that led to both the
success and the failure of Electric Minds. We made a lot of bad
decisions. Probably not many more than average for startups. But
the decision to go for venture capital made all the other decision
moot. So my new partner introduced me to a fellow from Softbank
Ventures, for whom a million dollars was a relatively small investment.
Softbank was an early investor in Yahoo, had bought Comdex and Ziff-Davis
outright. I told the guy from Softbank that if we could figure out
how to combine community and publishing, then the other companies
in the Softbank investment portfolio could leverage that knowledge
profitably. I believed, and still do, that it is possible to grow
healthy, sustained online discussions around Yahoo, Comdex, and
Ziff-Davis. Electric Minds was supposed to be an experiment. And
the million dollars I was asking for was just a down payment on
a several-year relationship. At that point, any business plan for
an Internet business was a conjecture, and thinking about how virtual
communities could make business was in the realm of science-fiction.
We agreed that the first step was to build an exemplary product
that would demonstrate the cultural viability of combining editorial
content and virtual community. We agreed that it would take at least
three years to become profitable.
Both Softbank and I realized that we were gambling that within three
years Electric Minds could attract sufficient traffic to make significant
advertising revenues.
We were funded in March, 1996, and launched in November. In December,
Time magazine named us one of the ten best websites of 1996. By
July, we were out of business. Softbank, which had been expanding
its investment funds to billions of dollars in size, mostly through
Asian-based investors, stopped expanding. And when something that
big stops expanding, it's a big loss. They were making millions
of dollars a day just moving their electronic liquidity around world
markets. Moving electronic liquidity around world markets is really
the only game in town. All other industries and enterprises are
tickets to that game. When Softbank's bubble stopped growing, they
started thinking like venture capitalists again. It is my belief
that the person who sponsored us for Softbank was thinking properly
about the way to research the future of the medium, but wasn't thinking
properly as a venture capitalist.
Venture capitalists want ten times their investment, and they would
prefer to get it in three to five years. Good venture capitalists
bring their connections and experience to the table, and actively
help the founders build a business. In many business plans, including
ours, a specific schedule of financial milestones is established.
In many venture capital investment contracts, there are "claw-back"
provisions -- what an evocative term! -- that empower the investor
to take more control of the company every time a milestone is missed.
When Softbank took a cold look at their investments, and started
weeding out the ones that were less likely to achieve a ten times
return on investment, they withdrew their verbal promises -- which
had not yet gone to written contract -- of bridge financing. We
had revenues -- IBM had contracted Electric Minds as the exclusive
provider of virtual community services when they conducted the Kasparov
versus Deep Blue II chess match. Although we had not started out
with the intention of providing virtual community building services
for other commercial enterprises, the need to ramp up revenues made
it an attractive idea, and one that was not outside our original
mission to encourage virtual communities on the web.
When someone has two million dollars invested, in hopes of expanding
it to twenty million, they tend to push hard in the direction of
attractive revenue sources. I knew clearly what I wanted to accomplish
when I started -- launch a sustainable and high cultural enterprise
on the Web, to show how content and community could work together
to create a new hybrid medium, and to encourage the growth of many-to-many
communication on the Web. But the gravitational attraction of a
$20 million goal can draw the enterprise away from the course the
founder originally envisioned. In order to continue paying for what
many reviewers had acknowledged as high quality content and conversations,
Electric Minds was on its way to growing from 14 employes to 30,
with most of our revenues derived from contract work building virtual
communities for others. Jerry Yang at Yahoo was enthused about us,
and gave us permission to create an experiment in web-form-based
community building. We were in discussions with Ziff-Davis, IBM,
and Softbank Expos.
When we ran out of operating capital and dissolved the business,
I found myself not only relieved, but happy that I wouldn't be spending
my time doing what I had promised to do for Ziff, IBM, and Softbank
Expos. The Yahoo project still seemed like it could have been fun.
But I never set out to create a virtual community-building agency
and didn't want to spend my time running one. I never set out to
make tens of millions of dollars -- which probably contributed to
our failure to thrive.
When I had the time to think about where I had gone wrong, it seemed
clear to me, and still does, that if I had simply added inexpensive
conferencing software and continued doing my amateur editing and
design, I could have grown something less fancy but more sustainable,
if not in financial terms. Venture capital, I concluded, might be
a good way to ramp up a Netscape or a Yahoo or create a market for
a kind of technology product that never existed before. But it isn't
a healthy way to grow a social enterprise. It doesn't take too many
people to sustain a small online community. Of course, many great
conversations take place via mailing lists. But conferencing (BBS,
message-board, newsgroup) media have their own unique capabilities;
they are also a little more expensive to run than a list.
When we created the River, the
idea was to create a cooperative corporation that would enable the
people who made the conversation to also own and control the business
that made the conversation possible. A couple hundred people each
contributed a couple hundred dollars, agreed to pay $15 a month,
and that turned out to be sufficient to buy a Pentium box and software
licenses, and make a colocation deal with an Internet service provider.
Technical and accounting services are voluntary. It works pretty
well.
I have returned to spending my time the way I most enjoyed before
my two years as an entrepreneur. I update my web
site regularly and communicate directly with my audience. I'm
adding inexpensive webconferencing software in a week or two, and
I'm creating a small community to discuss the things that interest
me -- technology, the future, media, social change. It's a hobby
-- I carry the costs. It makes me much happier to run it.
Setting up the River as a coop had its problems. Running a coop,
particularly among Americans, can result in perpetual and not altogether
pleasant shareholders meetings. There's a lot of blah-blah-blah
in making decisions democratically. People get angry and leave.
But a sufficient number remained so that the River has survived
for three years. The legal structure that enabled them to organize
was a California cooperative corporation. The legal restrictions
on cooperative corporations vary from country to country, state
to state.
Increasingly, webconferencing software is becoming more and more
capable, and as several excellent products compete with each other,
the prices are dropping. It's not very expensive to add many-to-many
communications with a web-based interface to any web site. David
Wooley maintains a list of the various webconferencing
products.
Now, just so I don't forget to look at the bigger picture, I definitely
acknowledge that there are legitimate questions to pursue about
whether spending time typing messages to strangers via computers
is a healthy way for people and civilizations to spend their time.
There is the perpetual and also legitimate debate about whether
it debases the word "community" -- and what is the word
supposed to mean these days, anyway? -- to use it to describe online
conversations. All I can say is that many people might end up much
happier by starting out to grow a small, unprofitable, sustainable
web-based cultural enterprise, than to invite the pressure-toward-hypergrowth
that accompanies venture capital financing.
DR: I definitely see smaller private communities
as the real future of extracting knowledge from the sea of information.
Actually the sea is also a cesspool -a garbage dump along the information
highway. It seems as though the more that information becomes available
-the more we all need each other to sift through it for the gold
nuggets. In a closely-knit and well-run virtual community, I feel
like I have my back covered. I feel like I'd drown out there on
my own.
Howard, what is the best possible future and use of virtual communities
you can envision? Do you see many smaller virtual collectives adding
to the quality of life of the members? Can VC's actually help make
the world smaller by giving us a common ground on which to share
and communicate with others -regardless of geographical location?
Is this really a small world after all?
HR: I hope that the art of civil discourse will
spread from places like Brainstorms. Access to the raw tools for
many to many communication is not sufficient. You need to know how
to use them. We would all be better off if the flamers, lamers,
and spammers who destroyed so much of Usenet and many other virtual
communities would sit in front of their keyboards.
Read
Part Two
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