If you are a hacker, and you own a startup company, you are likely to have have heard of a snazzy little outfit called Y-Combinator. YC was founded by technoprenuer and essayist Paul Graham in 2005, and it operates out of Mountain View, California. It is a startup incubator. Twice, every year, it selects 40 tiny startup companies to live in the Bay area, close to the YC headquarters. For the next three months these startups will run their businesses out of this small location, attend weekly dinners hosted by YC, and listen to select speakers that YC invites to talk on various tech/business/startup topics.

These startups do not complain, because it is from Y-Combinator that they get their seed money. More importantly, it is from YC that they get their business education.

But let’s face the truth: life sucks when you’re a startup. Your primary need in the first stage of a startup life-cycle is money – and just enough of it to survive. If we look at this from an economic perspective, we would say that the balance of power lies on the side of the investor, particularly in investor-startup relationships. You are at their mercy. You pace nervously outside VC offices. Your worst fear is to fumble your Keynote presentation in front of a bread-faced panel of execs and you pray hourly that they agree to invest in you. 

Strange, then, that Paul Graham and Y-Combinator think otherwise. YC only offers $5000 per founder for the three month period, though they do provide many other intangible benefits (like contacts, and protection, and legal advice) for the young founders they take under their wing. And what do they get in return? The answer may surprise you: 2-10% (usually 6) of  a startup’s stock. Which isn’t much. In fact, that’s a little like getting paid feathers for a day’s work at the chicken farm, because 6 out 10 of those startups die silent deaths in the years that follow. But the people at YC thinks it’s a good trade:

Why are we so flexible? Not (just) because we’re nice people. We realize that, as it gets cheaper to start a company, the balance of power is shifting from investors to hackers. We think the way of the future is simply to offer hackers the best possible deal.

The truth about starting companies today is that things have changed. The Internet, for reasons best explained in another article, is driving startup costs down. It takes far less to implement an idea than it used to be, 4-5 years ago, and with that comes a couple of implications that Graham himself explains in an essay on his site. But this is common knowledge: most of you do know this, especially if you’ve been following even a small amount of businesses online. It is the rule, not the exception, and the same factors that are now driving costs down for these startups enabled a small company in the summer of 1995 to take on the big boys of the publishing industry, and win – turning its financial-analyst-founder rich in the process. That company, along with its founder Jeff Bezos, was Amazon.com.

The Amazon Blog-Publishing Service

Novelr reader Jan Oda alerted me recently to the outcry against Amazon for its Kindle blog-publishing service.^[1] Most of those critics were themselves writers, or publishers, or book industry watchers who had enough foresight (or nerdery – and I mean this in a good way) to read the Amazon vendor terms and conditions. And they didn’t like what they saw. 

In summary, the main arguments against the Kindle blog-publishing service are that

• The terms and conditions allow Amazon a ‘nonexclusive, irrevocable, worldwide right and license to distribute Publications as described in this Agreement’.
• Bloggers only get 30% of the revenue.
• Amazon sucks, for multiple reasons (i.e.: they’re big, they’re evil, they’ve got a nasty history, #amazonfail)

These arguments, and their writers (see: Eoin Purcell’s spot-on coverage) highlight a major problem with the initiative: Amazon seems to have forgotten how the power distribution falls in today’s digital economy. If even startup companies – traditionally at the shallow end of the bargaining pool – are finding themselves with more breathing room around deal makers … then independent writers, and musicians, and poets who do not even face the cost issues that startups do are at the opposite end of that spectrum … in the deep. The power to decide and dictate the terms of a business relationship fall heavily to them. Bloggers don’t need Amazon; conversely: Amazon, too, need not offer blog content. They can simply limit the Kindle’s marketplace to distraught publishers, where they have the power to set and decide who gets paid what, and how. They’re much like Apple and the iTunes store in that context, with but one big difference.

Waiting for a User Complaint

It’s funny that I’ve yet to see any complaint coming from a Kindle reader, amid all the commentary and noise you get from writers and publishers circa post-service-release. Where, I wonder, are the user complaints, or the unhappy tweets? Amazon’s got a stupid idea – I’m never going to read a blog through my Kindle! … we don’t see any of those now, do we? The complaints we do see today are primarily from the writers because these are the customers – or at least the potential customers – most affected by Amazon’s offering. I doubt many Kindle users would register and purchase blog-subscriptions, when they can get it for free, from, say their web browser. Amazon may have been aiming to increase Kindle usefulness, but by and large the Kindle is not a multimedia device – it’s an ebook reader, and any attempt on Amazon’s end to increase cross-medium usefulness is akin to adding extra fins to an already quick goldfish. This is the difference between the Kindle and the iPod: the iPod has a gigantic userbase loyal to the iTunes store; the Kindle does not. Their monopoly is built around the fact that they’re the largest online retailer for books, a fact that can change at the drop of a hat should another clever, competitive hardware/software company enter the market.

The crux of this issue is that this should not matter, or at least, not yet. The Kindle is hardly an alternate reading platform to the Internet, not when it comes to blogs. More importantly, the ebook market as we know it today is far too fractured for the Kindle to make any huge impact on the way blog fiction is consumed (if at all). The Kindle, is, after all, not even offered in the UK. Whatver screw-ups Amazon make with regard to the Kindle are just going to hinder them as the ebook market explodes around us; what remains to be seen is whether or not Amazon can remember the very principles that brought it to where it stands today. Will they remember the law of the Internet, the law of falling costs and the implications that result from these factors?

Y-Combinator remembers. This year they’re celebrating the recession by expanding their intake to 60 startups, as opposed to the usual 40. Paul Graham has his head screwed on right, and it shows in Y-Combinator and the results they’ve been delivering for the past 4, 5 years. Amazon was once a startup, taking on the world. The question here is: will they remember? I sure hope they will.

^1.To recap, this service allows bloggers – or in our case, blookers – to publish their content directly to the Kindle platform, in the shape of a blog subscription. ↩