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Online Evolution

Starting an Internet company with the potential to reshape how we use the Web has never been cheaper.
October 27, 2010

In 2004 a cabal of programmers in the World Wide Web Consortium (W3C) grew frustrated by the slow pace of innovation in Web standards. They splintered off from the standards body to forge specifications for making Web pages interactive without proprietary browser plug-ins. Three busy years later, their leaders–Ian Hickson of Google and Dave Hyatt of Apple–prevailed on the W3C to recognize their work as the fifth official version of HyperText Markup Language (HTML5).

Updating an arcane technical standard doesn’t ordinarily disrupt global industry. But in this case users, Web developers, and investors are eagerly anticipating websites with true drag-and-drop interfaces, video and audio playback, document editing, game play, and more.

The applications that follow such a leap in Web functionality will shape the future of television, music, commerce, business collaboration, gaming, and who knows what else (see “The Web Is Reborn”). As HTML5 elements are woven into the fabric of the Web, expect creative developers to stitch them together in ways that wreak havoc on the market share of existing companies. HTML5 will make it easier and cheaper than ever for entrepreneurs to commercialize innovative Web services and make them accessible from every computer, phone, and television.

The expected economic windfall reflects a broader trend that my colleagues and I have brazenly dubbed ­Bessemer’s Law. In 1995–at the dawn of the commercial Web–it cost about $20 million to develop, test, secure, and scale an e-commerce application. The time and money required to launch a scalable, secure commercial Web service has since dropped by half every two years, thanks to new technologies like Java, Apache, Adobe Flash, AJAX, XML, Amazon cloud servers, and soon HTML5. Today, $150,000 is a sufficient engineering budget to launch an online startup. This opens the door for entrepreneurs, but it challenges them later, when they need to attract people, capital, and customers in a market crowded with startups.

Bessemer’s Law also challenges established venture capital firms like ours. Tempted by the favorable economics of bulkier funds, VCs have been writing larger checks to later-stage companies. But cheaper online startups promise the highest returns to seed-stage investors–the so-called Super Angels. They fund the $100,000 needed to develop an HTML5 Web service that, if successful, will raise its next round from a large VC firm at a 1,000 percent premium. Consequently, we have constrained the size of our venture fund so we can continue to focus time and capital on seed-stage startups.

It will take another year or two to negotiate the details of the HTML5 standard. Meanwhile, engineers at Adobe, Microsoft, MIT’s Media Lab, and elsewhere are already rendering it obsolete through their work on multitouch interfaces, location awareness, reality augmentation, and other new Web technologies. As ­Bessemer’s Law marches toward another decade, it’s hard to fathom the cascading impact on our businesses and our lives.

David Cowan of Bessemer Venture Partners has invested in consumer Internet startups Blue Nile, Hotjobs, LinkedIn, Playdom, and Zoosk.


Shrinking Nuclear

Compact nuclear power plants may be a lifeline for a struggling industry.

By Jasmina Vujic

Nuclear power can play a significant role in meeting the world’s environmental and energy challenges if sustainability issues are resolved. China, for example, is constructing more than 20 reactors and plans further growth. There and in other countries, the nuclear industry is being revitalized, along with regulatory development and research on the long-term sustainability of the nuclear fuel cycle.

In the United States, however, the field has been sorely neglected for more than 30 years (see “Giant Holes in the Ground”). Construction of new nuclear power plants has ground to a halt, while support for research and for training the next generation of nuclear engineers has suffered.

In recent years, the Obama administration has effectively eliminated the Yucca Mountain repository for spent nuclear fuel, which had been approved by the previous administration. But on the positive side, it has awarded $8.3 billion in loan guarantees for constructing nuclear plants and formed a blue-ribbon commission to find new ways of dealing with spent waste.

Perhaps most important, it has moved to support the development of small modular reactors that generate less than 300 megawatts, around a quarter the output of U.S. plants under construction today. Those reactors could address some of the nuclear industry’s biggest challenges: waste, safety, security and nonproliferation, and the capital cost of construction.

Small modular reactors require less initial capital investment than conventional ones and can have simpler, safer designs. Their modules can be built in factories (unlike the components of a traditional plant, which must be built on site) and can be deployed rapidly. Designs being developed at Berkeley eliminate the need for pumps and pipes. They could run for 20 years on their initial fuel, thus generating minimal waste.

Two U.S. firms, NuScale and Babcock & Wilcox, have already submitted designs to the Nuclear Regulatory Commission. That’s attracted venture capital and opened new financing opportunities that would have been unimaginable 10 years ago. A recent meeting on small modular reactors at Berkeley saw the presentation of designs from the United States, Korea, Japan, France, and Russia.

Those designs are still being refined and are not close to being built. Eventually, however, these reactors could be small enough to be transportable, and they could be installed in isolated locations unsuited to traditional plants or dedicated to specific tasks like water desalination, district heating, or hydrogen production. They have the potential to change the face of nuclear energy.

Jasmina Vujic is a professor at the University of California, Berkeley, and codirector of the Berkeley Nuclear Research Center.

Net Neutrality

Fair Connections

Outcry over the Google-Verizon “pact” on wireless broadband overshadows valid debate.

By Michael Powell

The net neutrality debate has the feel of a religious war: the reactions to Google and Verizon’s proposal to exempt wireless connections from laws requiring carriers to relay all data with equal priority were just a few decibels lower than the reaction to building an Islamic center near Ground Zero. Amid such evangelical furor, it is tough to find pragmatic solutions that reflect the legitimate points on each side. This is why we have a Federal Communications Commission to handle complex questions like this one instead of putting them to a public referendum.

Both sides can see that wireless networks will take a starring role in the Internet’s future (see Briefing: Mobile Communications). So it is crucial to get the policy balance right.

For the wireless carriers, the first concern is network congestion. Spectrum is a limited resource, and networks must rely on the government to make more of it available. But that means taking some from broadcasters and government users–a long, difficult process.

Meanwhile, demand has reached staggering levels with the advent of open networks and app stores. Carriers are finding it more complicated to manage their networks, and they risk alienating customers through dropped calls and ineffective applications. Verizon, which markets its service on the quality of its network, is understandably hesitant to see regulation that limits its flexibility to manage traffic.

The industry’s second concern is economics. Analysts predict that there will be more mobile Internet users than desktop users within five years, which might look like a boon for carriers. But data minutes yield much lower revenue than voice minutes do, creating a revenue shortfall as voice use declines. Wireless businesses are concerned that net neutrality rules may prematurely bar the new business models needed to address that shift.

Proponents of wireless net neutrality have legitimate concerns as well. If wireless networks become the central Internet platform, exempting them from the rules could make protections for wired broadband less meaningful. Entrepreneurs working on new wireless applications worry about maintaining access to consumers. Broadband providers without wireless businesses worry about having to follow rules that competitors with such services can dodge.

The truth is that wireless does have unique challenges, but regulations can be written so as to accommodate them. Legitimate technical concerns, not screaming zealots, must guide the FCC.

Michael Powell is cochairman of Broadband for America and was chairman of the FCC From 2001 to 2005.

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