R&D changes once you have real customers, for one; second, you don't seem to be looking at deals with a strong technology R&D component. I'm guessing you're looking more at models than at bits.

There's a compoany down the road here that has one of those founders that will never take venture capital because it's evil, and he's doing ground-breaking, incredibly stuff with broadcast at the chip level. The R&D there is run by an ex Silicon Graphics researcher, who recruited a compression algorithm developer outof the Valley who dropped out of high school in Sweden 10 years ago to join some chip startup. Now that's real R&D.

The difference with what you're seeing is that it's not about bits, it's about text. Moving text, displaying text, organizing text, storing text. Blogs--text. MySpace--text (pics are string locations, uploaded by some generic upload object that already does the heavy lifting). Delicious--a lot of text. Context adds the value.

Oh, and btw, we've got a real bits (and text) hybrid web platform--best of the desktop, merged with the best of web services, and applied to real markets. R&D is still alive and well!

Posted by Charlie Crystle , February 15, 2006 07:41 PM

R&D has moved offshore, no? We have made USA business so efficient, few companies Board's and CFOs and CEOs can justify hard technology R&D spending. But in India, Russia, Vietnam, China et. al. hard R&D is like what the WPA was to the USA in the 1930s, massive government underwritten investment in technology and infrastructure to yank an entire society up by its bootstraps.

Posted by Steve , February 15, 2006 09:29 PM

Technical R&D is alive and well. What has changed is the focus of many of startups. Example: The current wave is very much Web 2.0 - keep it simple, release today (and again tonight, perpetual beta). Contrast this with work on the the Semantic Web - a much longer term proposition, lots of technical R&D before there can be any sensible product offering (but once there is, it will have capabilities way beyond any of the current crop). Both approaches have their place. But it would be dangerous to mistake relatively short-term fluctuations in attention by a limited community for the long-term demise of the importance of technical research.

Posted by Herwig , February 16, 2006 05:26 AM

Brad,

Reflecting on your point, I think a comment to your post about R&D moving up the stack from the core to the application layer is yine; yes and no. I suspect that Union Square, due to its focus, completed transactions and location near such an incredibly talented pool of application oriented individuals are particularly interested in 'Web 2.0' companies. As a result, entrepreneurs starting socially oriented firms are enouraged to stop on by and chat while core technology entreprenuers would not necessarily think of U.S. as the VC of choice for them. The combination of your successful branding and focus, may result in a biased sample that logicallys lead to your conclusion.

In other geographies, for example, Israel, I am not sure the trend you see is as widely observed.

Posted by charlie , February 16, 2006 11:19 AM

This is a timely post.

I feel that R&D is on the rise, and, it's exactly focused as you say - more on the "social" side than the technical side. The "technical side" has jumped SO far ahead that now it's time to focus on the "how do we use this." This is what's going to keep our society productive.

On top of that, it has been my personal belief that this is one of the major reasons why the economy is doing so well; why it is so resilient. People keep saying * this * is going to kill the economy, * that * is going to kill the economy." Yet, the economy keeps on chugging along.

Tom Peters recently blogged about this and provided us with some of the evidence: http://www.tompeters.com/entries.php?note=008568.php

These are some neat times we are living in!

-- Jeffrey W. Cox
www.FixYourToDoList.com
www.FixYourToDoList.com/blog

Posted by Jeffrey W. Cox , February 16, 2006 12:01 PM

I think things are evolving and the vanguard position of noticing the rise in the value of contextual work will be a winner (while the pendulum swings this way).

Tim O'Reilly is quoted here from last Sept. saying 'Data is the New Intel Inside' and he quotes Hal Varian as saying 'SQL is the new HTML'

http://www.oreillynet.com/pub/a/oreilly/tim/news/2005/09/30/what-is-web-20.html?page=3

3. Data is the Next Intel Inside
Every significant internet application to date has been backed by a specialized database: Google's web crawl, Yahoo!'s directory (and web crawl), Amazon's database of products, eBay's database of products and sellers, MapQuest's map databases, Napster's distributed song database. As Hal Varian remarked in a personal conversation last year, "SQL is the new HTML." Database management is a core competency of Web 2.0 companies, so much so that we have sometimes referred to these applications as "infoware" rather than merely software.

It's apt to quote Hal Varian too - a famous economist - because the cost side of developing businesses is changing. That does change things. Your imitable Fred Wilson started a thread in January about that many track back quotes carried forward. Here: http://avc.blogs.com/a_vc/2006/01/dont_be_an_atm.html

Providing context is the current green field exposed by the success of the scientific R&D of the past.

- Lloyd Fassett

Posted by Lloyd Fassett , February 16, 2006 02:28 PM

I think the 'selection bias' note is very important to consider - I do not know enough about Union Sq. as a VC firm but has it, in past, funded 'hard-core' technologically-innovative research? If so, then this would (weakly) address the bias issue. (there are, of course, other factors to control - like change in the firm's reputation, change in the geographic location where tech-R&D is done...etc).

the other thought is that if i take this argument to its natural conclusion, this does not bode well for the US economy. I know we have been promised the 'new economy' and yet technological progress is what drives productivity. It is not yet a better way to find a website on the internet or have more bells and whistles on your AJAX-powered web-based office package. It is the progress made in building cheaper, more powerful and more efficient IT devices that can then be utilized in the US sectors that have not, so far, put them to use - construction and medical are two good (but not exhaustive) examples. To pre-empt a criticism - this argument need not be high-tech focused - in fact in the non-high tech sector the 'traditional' form of R&D is probably much more prevalent over the 'social R&D'

Posted by Daniel Popov , February 16, 2006 06:54 PM

I think it's just you - in the sense that you need to put your observations in their appropriate context. As far as I can tell, from an outsider's perspective, you're not trying to cure cancer or invent a hydrogen-power vehicle. You elaborated specifically within Information Technology, but the quick money right now is in companies who stand a chance to be acquired by Google or Yahoo.

Money attracts people and more money.

There is "traditional" R&D taking place all over the world, arguably like some have suggested, more so outside the U.S.

I think maybe you meant to say that R&D is changing specifically in IT environments, and that may be true to an extent - but I would argue there that you're in the money business - so you see stuff that makes money.

Either way, it's important to step outside your world - we have lots of important challenges to solved through R&D in medicine, energy and conservation. We don't really need another cool way to look at pictures online - but hey, there's money in it right now.

Posted by Mike , February 16, 2006 08:02 PM

Delicious is more popular than Furl because it works better. Furl's a PITA.

Beyond that, aren't we also seeing the USER get to the point where, out of sheer frustration with his corporate IT function, decides to get the services he/she wants by other means? Some tactics will work, others will simply shift the frustration.

SaaS is making inroads, but the microservices, browser-based, suggest to the USER that he/she can find simple services that are easy to use, functionally useful and the IT department can't get in the way.

R & D directed towards the user experience just recognises the fact that as far as the USER is concerned, the UI is the system.

Posted by Tony Meurer , February 17, 2006 01:22 AM

Brad, although I agree that the user experience is paramount and has finally started to get the attention it deserves, I have to disagree with some of your assertions regarding software R&D:

Assertion 1: "The most difficult problem is no longer a software engineering problem; it is a social engineering problem."

The fundamental assumption underlying that assertion is that all of the difficult problems in software systems have been "solved" with existing technology and now it is just a matter of incrementally innovating to address user concerns. I think it is fair to say that the computer science/software engineering research community might disagree with you on that one. I am sure that Joshua from Del.icio.us could back that up based on his undergraduate experience at Carnegie Mellon. I think we should be careful not to get that attitude expressed by Charles H. Duell, Commissioner of the U.S. Patent Office in 1899, when he stated, “Everything that can be invented has been invented.”

Assertion 2: "Very few entrepreneurs seem to highlight technical aspects of their software innovation any more. They assume that if they get the social engineering right, they can build it."

Most quality software engineers in today's world of open source and open APIs, will assert that they can build anything given the right amount of resources and requirements. The reality is that simply has not been the case. There are just certain technical challenges which are difficult to solve. Self-healing systems, multi-agents systems, and the Semantic Web areas are riddled with difficult challenges that a great deal of research dollars have been directed to address.

I hope you do not take this as an attack, as I enjoy your blog and think you have some great things to say. That being said, however, I think that you have made some sweeping generalizations without citing sufficient statistical data to back them up. If we are going to speak in generalities, I would guess that I your comments are colored by the fact that you have focused much of your recent attention on investing in simple web-based services. Accordingly, the "sample" that you leveraged to formulate your analysis is subject to bias.

Last point: the prettiest girl at the dance right now is Google. Let's not forget that those guys worked for nearly two years to perfect their search engine and that much of the technology this engine leveraged was based upon several years of "long run" research conducted at Stanford, Carnegie Mellon, and MIT in the search space. I do not think the folks that conducted the "basic" research that was the foundation for Google would say that the problems they solved were trivial.

Posted by Hooman Radfar , February 17, 2006 04:33 PM

this is a brilliant post and I couldn't agree more. Business 2.0 did a cover story on this phenom last year called "the 5th wave," but you've added a lot of insight in terms of how it plays out. as i've often said, web2.0 isn't a business model in and of itself, it's a tool to build stronger relationships in the value chain - that's where the disruptive opportunities lie (vis a vis your "why we invested in feedburner" post).

my consulting firm does a lot of social engineering in the product development work we do with large media clients. we realized a few years back, that the problem with most big companies isn't with strategy, it's with execution. applying design principles to how people work, how they interact with customers, how customers interact with each other, how business decisions are made, etc., is what leads to real innovations in the underlying business models; not top-down strategic analysis.

one more thought ... in terms of capital investment, R&D in the form of social engineering is certainly a lot easier to fund and recoup. If i were a VC, that's what I'd be funding. However, as an entrepreneur, I wouldn't be looking for VC funding for the exact same reason.

Posted by scott hirsch , February 17, 2006 05:31 PM

Interesting post. First, as many have pointed out, seems like it's applicable mostly to consumer Internet type companies, and certainly not to hardware companies like chips, energy, etc., or to really hard software problems like video analytics, compression, etc. Second, I think this is what's underlying what many bemoan as the lack of defensible differentiation in Web 2.0 types of businesses. In the past, R&D was focused on technology, and high priests of technology were required to make breakthroughs. Even though there are many smart people, only a few of them have trained themselves with the arcane knowledge required for technical R&D. Now, with R&D in the Web 2.0 companies more and more focused on social engineering and how to improve business models, many more smart people can participate, which is why more competition can arise and entry barriers are lower.

Posted by Francis Ho , February 18, 2006 04:59 PM