Musings of a VC in NYC

Some Thoughts On Online Privacy

There are signs that Washington is gearing up to do something big in the area of online privacy. The FTC put out a report earlier this week and the White House called for a "privacy bill of rights" last month. Both have asked Congress to act on this issue.

I thought I'd lay out some basic thoughts and principles on the data we create, share, and curate on the open Internet.

1 - Our clickstreams, search history, likes, tweets, photos, and so on and so forth is our data and we should have the ability to control it, delete it, and limit how it is used. That seems like a basic right that should be available to everyone who uses the Internet.

2 - Those who do not want to be tracked should have the ability to opt-out of being tracked. The Do Not Track industry self regulation effort (in browsers, ad networks, etc) is long overdue and I hope we see real usable tools soon. The FTC expects these tools by year end. I hope they are right.

3 - Tracking and profiling provides real value to me and many users on the Internet. I like using Amazon and getting recommendations based on my purchase history. I like using Twitter and getting recommendations for who to follow. I like using Foursquare Explore and getting recommendations for places to go to based on my checkin history and my friends' checkin history. We should not do anything to limit the ability to offer these valuable personalization services on the web and mobile Internet.

4 - There are significant Internet revenue streams based on profiling and tracking. Much of the online advertising business is built on these approaches. And an increasing amount of commerce revenue is based on recommendations and personalization. We should be careful not to undercut the economic underpinning of the Internet in our attempts to regulate online privacy.

5 - Transparency can play a big role. Our portfolio company Duck Duck Go provides a very clear and crisp privacy policy for its search engine. Internet users who do not want their searches tracked and sold have come to Duck Duck Go in droves. We should encourage web and mobile services to lead with their privacy practices and let users vote with their feet. This is an opportunity for new web services who can use privacy as a basis for competition as Duck Duck Go does.

6 - There is a big difference between collecting data and using it within a web or mobile service and collecting data and selling it to third party services. I understand that the data Foursquare has on me will be used by Foursquare to make better recommendations and to target offers and specials to me. That makes sense and my decision to use Foursquare and continue to use it is an implicit license for them to do that. But I cannot use that same implicit license when the data on my activities is collected and sold to third parties.

7 - With the advent of open APIs, much of this data is not actually being sold, but it is moving freely around the web via the plumbing of the Internet. This is an area we should be particularly careful not to crimp. Open APIs are at the center of the permissionless innovation movemement and are responsible for many of the new services that are being built.

I do not have a specific set of recommendations for our elected officials on this issue. But I do agree that codifying best practices and policing the truly bad actors is a good idea. The Can Spam Act of 2003 is a good example of how industry self regulation codified in legislation was a net positive for everyone. That bill took a lot of work by the industry trade groups to get right and there were versions of Can Spam that would have be highly problematic for the industry. I suspect that will be the case with online privacy legislation too.

So everyone working in the Internet industry should make their voices heard in Washington on this issue. If you have a business that will be impacted by online privacy legislation, figure out how to engage in the debate/discussion. And the staffers in Washington who are working on this effort should reach out to the Internet industry (and not just Google and Facebook) to get a front lines view of the issues. If you don't know how to do that, you can contact me via the contact link at the bottom of this blog.

Related articles

• FTC Calls for "Privacy by Design" (allthingsd.com)
• FTC Privacy Framework Pushes For Regulation of Data Brokers (yro.slashdot.org)
• FTC online privacy report lays out new standards (sfgate.com)
• New federal Internet privacy standards introduced (mercurynews.com)
• FTC calls for laws to protect consumer privacy on Internet (usatoday.com)

The Free Internet Act

The Reddit community has posted a proposed piece of legislation they call The Free Internet Act on Google Docs. I've just taken a look at it and will need to think about all of these provisions a bit before I have an opinion about whether this is a sensible proposal or not.

But regardless of whether anything comes of this, I want to make a larger point about transparency in government.

A number of NY tech community people met with a US Senator in the USV event space a few weeks ago to give our views on tech issues coming down the pike. At one point in that meeting, the Senator's staff talked to us about the cybersecurity bill, which at that time had not been released. We asked how long it had been in the works. The answer was quite a while. We asked how long would be available for comment once it came out. The answer was about a month. None of this was this Senator's doing. We were just being informed about what was going on and how we should engage in the process. We were encouraged to read the bill and give our elected officials our opinions on it. And we are doing that. You should do the same. The bill is linked to earlier on in this paragraph.

But as we were having this conversation, my partner Albert asked why bills aren't drafted in public. He suggested an approach that is almost identical to the one that the Reddit community has taken with the Free Internet Act. And the Senator's staff said that such radical transparency wasn't likely to develop in Washington any time soon. 

When an important piece of legislation is drafted in secrecy, such that Senators and their staff members don't even know what is going to be in it, and then is put out for voting on a very fast track, people are going to be suspicious. And suspicious citizens don't make for a healthy democracy.

If nothing else comes of this Reddit process, I'd at least hope that we show Washington the power of an open debate, commenting, and editing process. For that reason alone, I'm going to put some real energy into The Free Internet Act. I hope you do too.

Related articles

• The Anti-SOPA Act? (huffingtonpost.com)
• Upvote This: Reddit Users Are Writing a Law to Protect the Internet (mashable.com)
• Reddit Writes A Law (techdirt.com)

Americans Elect

Yesterday my partner Albert and I sat down with the people behind Americans Elect. For those that don't know, Americans Elect is an online third party movement. In their words, "Pick A President, Not A Party."

Here's how it works (in short):

They are going to get on the ballot in all 50 states this fall. They've already gotten on the ballot in many of the states.

They have created a website where anyone can choose to run and where candidates can be drafted. Here's the current roster of candidates.

Over the summer, they will conduct an online convention and a single candidate will be nominated to run on their ticket.

That's basically it.

There are a number of cool things about the online service they have built. You answer questions about issues and they build an online profile of you. Then they match you with candidates that share your views. If you want to try that out, go sign up and you will be taken through the questions in a few minutes. It's fun to see where you end up even if you have no intention of voting for a third party candidate.

I'm sure a lot of people think this is a nutty idea. But I don't. So many people bitch and moan that they don't like our current system. Yet the do nothing to change it. The people behind Americans Elect have done something about it. That's progress.

The 15% Tax Rate

So we learned last week that the Republican front runner Mitt Romney pays an effective Federal tax rate of about 15%. And guess what? So do the Gotham Gal and I.

That's because the vast majority of Mitt Romney's income comes from capital gains on investments and the same is true of my family's income.

There is a difference between Romney's capital gains and mine. I suspect that his capital gains are mainly real gains on investments he made with his own money. Mine are mostly capital gains our firm has made with other people's money. This is the carried interest capital gains discussion. I've been loud and clear that I don't agree with the current policy on carried interest taxation and I hope that the law is changed on carried interest. It will cost our family a lot of money in increased taxes but it is the right thing to do.

But there is a bigger issue here and that is whether it is good policy for someone of Mitt Romney's or my wealth to pay a lower tax rate than the average hard working american citizen. The theory in taxing capital gains at a lower rate than ordinary income is that the wealth that was invested that produced the capital gains has already been taxed once when it was earned. And it is also believed that a lower tax rate on risky investments vs safe investments (like bank deposits) provides an incentive to make those kinds of investments. I've long been a fan of these arguments and have supported the idea of a lower capital gains tax rate.

But I am bothered by the unfairness of the situation. When I get a big distribution from our funds, I always ask my accountants how much of the distribution I should set aside for federal, state, and local taxes. The answer is usually something like 28% (the difference between 28% and 15% is the state and local taxes). And then I often think of my two brothers who probably pay 40-50% of their income each year in federal, state, and local taxes. It just seems so unfair.

And so lately I've been more and more attracted to the idea of a flat tax where everyone pays the same tax rate on income above a minimum amount. In this model, we would eliminate all tax deductions; for mortgages, charitable giving, for medical expenses, etc. There would be no difference in tax rates for ordinary income vs other forms of income (ie capital gains).

If we did that maybe everyone could pay a 15% tax rate like Mitt Romney and our family does. We would have a fair tax system.

I've heard a number of arguments over the years against a flat tax. One is that a flat tax is regressive meaning that it penalizes lower income earners by taxing them at the same rate as higher earners. But I think we are all coming to realize that the current system may be even more regressive since most wealthy people find ways to pay lower tax rates.

Another argument against the flat tax is that eliminating deductions will cause massive disruption in markets and society. There will no longer be an incentive to own a home vs renting one. There will no longer be an incentive to make charitable deductions. The list goes on and on because our current tax system is chock full of such incentives. I think it would be good long term policy to eliminate all of these incentives and just let the markets work without tax incentives but clearly deductions would need to be phased out over a long time period to reduce the severity of the shocks that eliminating deductions would create.

The President's "Bipartisan Commision On Deficit Reduction" made a lot of noise over a flat tax. And many of the current Republican presidential candidates are in favor of a flat tax. It seems like we may have reached a point in our political discussion where we can seriously consider a flat tax. I would be excited to see that happen.

A Post PIPA Post

On my way from a breakfast meeting to the office yesterday I got a phone call on my cell phone with a 202 area code on it. I picked up the call and on the other end of the line was someone in Congress who I've known for a decade or more. He told me that the Senate Majority Leader Harry Reid was going to pull the PIPA bill in about thirty minutes. He also told me that the technology/Internet community had done a great job fighting the SOPA and PIPA bills and that the fight was over for now. I thanked him for the call and then I told him that we need to find a different way to address the online piracy problem because otherwise the technology community was in for a game of whack a mole with the content industry every year or two with our elected officials getting caught in the middle. He agreed.

I'm not in the mood to celebrate in the wake of the news that SOPA and PIPA are dead. Because the online piracy issue is still very much on the table and the content industry is not going to just walk away from the it. And as I've said in most every post on this issue, I am sympathetic to their concerns.

I think what Anonymous did in the wake of the Megaupload shutdown is deplorable and I am not a fan of vigilantes and mob rule. In stark contrast,  I am extremely proud of the online demonstrations we all participated in over the past month to change the mood in Washington over the two bills. We showed that the Internet can be a medium for "peaceful demonstration" and we do not need and should not resort to stunts like Anonymous pulled this week.

I'd like to make a couple points about this whole SOPA/PIPA fight and then go on to where we go from here.

First, the Internet community's opposition to these two bills was never coordinated by a central organization. When my partner Albert first raised the alarm bells on what was then called COICA back in September 2010, we could not find anyone other than a few policy wonks who had this on their list of issues. Our industry does not have an MPAA or an RIAA. For the past 15 months we have been working with various individuals, a few companies, and a few advocacy groups to fight these bills. We found each other over the Internet, coordinated efforts (or not) over the Internet, and used the Internet to protect the Internet. The opposition was chaotic, distributed, diverse, uncoordinated and extremely effective in the end. Just like the Internet.

Second, these two bills were drafted by the MPAA and the RIAA and walked into Washington without an iota of conversation with the technology industry. I can't tell you how many Senators and Representatives have told me that they were told by the MPAA and the RIAA that the technology industry was on board and that these issues would not impact the Internet and tech community adversely. This is no way for one industry to propose that Congress regulate another industry. I think it is absurd that one industry would have the arrogance to think it is appropriate to ask Congress to regulate another industry for them. And yet that is what went down on these bills.

So where do we go from here? I think we should come up with an entirely new framework to think about online piracy. The PIPA/SOPA framework was litgation heavy and very invasive. It was "we are going to do this to you." It's not surprising the tech industry didn't like it one bit.

We need a new framework that is based on a shared set of goals and objectives. The tech industry will benefit if the content industry makes more money online. And though they seem not to believe it, the content industry can make a lot more money online. So we should be able to get alignment around that issue. We can help each other. The tech industry has already helped the content industy many many times. On that topic, I love this Nat Torkington rant:

All I can think is: we gave you the Internet. We gave you the Web. We gave you MP3 and MP4. We gave you e-commerce, micropayments, PayPal, Netflix, iTunes, Amazon, the iPad, the iPhone, the laptop, 3G, wifi--hell, you can even get online while you're on an AIRPLANE. 

So I've been busy over the past few days thinking about a framework that is based on a partnership between the content and technology industries. I have a bunch of ideas on this and I've heard a number of good ideas from others in the past few days as well. I have no doubt that a group of leaders from the tech community would be happy to sit down with the content industry and come up with an entirely new way to think about and address online piracy. But before that happens, the content industry, as represented by the MPAA and the RIAA, needs to understand that a litigation heavy invasive approach will not fly and they need to forget about that framework and come ready to come up with an entirely new one. I hope they can do that.

I Want AVC To Go Dark On The 18th

A number of popular websites will go dark this coming wednesday in protest of the SOPA and PIPA bills. Apparently Reddit, Minecraft, Craigslist and possibly Wikipedia will go dark. I want to join them.

I don't control my blog's web server. Typepad controls it. But I control my domain, AVC.com. I'm guessing the right thing to do is redirect where AVC.com goes on the 18th. But where should I redirect it to?

If you have good ideas, please share them in the comments.

And I'd encourage everyone who has a blog do to do the same.

And I'd encourage Twitter, Facebook, Google, YouTube, Vimeo, eBay, Amazon, Etsy, Tumblr, WordPress and Typepad to go dark too. I know most of these services won't do it. They need to be respectful of their users' needs. But it would sure make a strong statement about the importance of the Internet and the danger of messing with it.

#blackoutsopa

i'm into titling blog posts with hashtags these days.

yesterday, i grabbed a quick look at twitter in between a packed day of meetings and saw a tweet from someone that looked like this

Join me & change your profile picture to protest SOPA: BlackoutSOPA.org #BlackoutSOPA

— Fred Wilson (@fredwilson) January 9, 2012

it took me about a nanosecond to click on that link and add a stop sopa banner to my twitter avatar. this is something i've wanted and expected for a month or more. now i've got it. slowly my twitter feed is filling up with avatars with the stop sopa banner on them.

my dream is all of twitter fills up with this banner. then maybe the politicians in washington will realize that the people don't want their lousy idea of a piracy bill.

please join me in making this political statement.

2012: The Year That Movements Go Mainstream?

I returned from ten days of skiing with my family last night. I'm on mountain time and plan to stay there until the new year. Staying up late and sleeping late seems to be a good way to bring in the New Year. But even so, my version of sleeping late is getting up at 8am. My family's version of sleeping late is getting up at noon. That leaves a fair bit of time to read and think.

And so that's what I did this morning. And here is what I am reading and thinking about:

1) Ron Paul is likely to win the Iowa Republican Caucus. Newt Gingrich says "I think Ron Paul's views are totally outside the mainstream of virtually every decent American." Maybe Paul's win in Iowa is the moment when Paul's ideas and the Tea Party movement go mainstream.

2) Occupy's organizers are building their own social network. The idea of a distributed social net that is not controlled by any company or institution has been around for a while. Identica and Diaspora have not taken off. Can a movement make it happen? I think it has a better chance because networks need people in them.

3) Reddit's users want to target a Senator after their successful attack on GoDaddy. The Reddit community can marshall a lot of activity when they want to. Last year's Rally To Restore Sanity was largely catalyzed by the Reddit community. If they do go after a Senator with that kind of intensity, it will have an impact.

4) Wired says that 2011 was the year that IP trumped Civil Liberties. It sure feels that way to me. Beware the backlash.

5) Twitter reports a Massachusetts DA's subpeona to its users. The money quote from that post: "Never declare war on the young," said Harvey Silverglate, a noted civil libertarian, told the Boston Herald in reference to the less-than-tech-savvy wording of the subpoena. "They'll outlast you. They'll outthink you. They'll outdo you... That may be the lesson the DA's office is about to learn."

Back in the spring of this year I told the folks at Techcrunch Disrupt that I thought the next big thing was "cultural revolution" fomented by the fact that roughly a billion people all over the world are connected directly to each other. I'm still not entirely sure how to invest in this megatrend, but it sure feels like it is upon us.

SOPA/PIPA Update

Thanks to everyone in this community who has reached out to their elected officials on the SOPA/PIPA issue. It is hard to tell whether we are making a difference or not. But at least there are signs that Congress is recognizing that this issue is not as simple as the MPAA and RIAA have been making it out to be.

Yesterday Congressman Darrell Issa, who along with Zoe Lofgren, has been leading the opposition to SOPA in the House, tweeted out:

#SOPA UPDATE: markup scheduled for tomorrow AM has been POSTPONED "due to House schedule" #stopSOPA #OPEN #dontbreaktheinternet

— Darrell Issa (@DarrellIssa) December 20, 2011

This is an indication that Rep Lamar Smith, who is the lead sponsor of SOPA is having a bit more difficulty ramming this bill through the Judiciary Committee than he thought. Maybe the letter from leading Internet inventors and engineers that came out last week caused everyone to hit the pause button (it should). Maybe your calls and letters are starting to have an effect (they should). Or maybe they just wanted to go home for the holidays.

But when the House and Senate come back in January, the SOPA and PIPA bills will be back on the agenda. We need to keep up the fight, we need to explain that this is very bad legislation, and we need to help Congress understand the Internet a little bit better so they don't fall prey to silly ideas like the ones in these bills. I'm committed to all of this. I hope you all are too.

I'll end with a link to a post written by Prof Laurence Tribe, who teaches Constitutional Law at Harvard Law School, in which he asserts that SOPA violates our constitutional right to free speech.

Freedom Of Speech

I've censored the following, in protest of a bill that gives any corporation and the US government the power to censor the internet--a bill that could pass THIS WEEK. To see the uncensored text, and to stop internet censorship, visit: http://americancensorship.org/posts/10183/uncensor

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