Doing well by doing good: the column

I wrote a good while ago about the economics of doing well by doing good on the internet and when I received a curious email from someone with whom I was conducting a correspondence I decided to write the column below. I’ve just tried to find it on Google, and it seems I didn’t hoist it up here. So here, many months after its initial publication, it is:

Paul Graham is one of Silicon Valley’s more interesting entrepreneurs. With a BA in philosophy, a PhD in computer science and two qualifications in painting, he co-founded Viaweb in the mid 1990s which gave him the wealth to co-found the incubator Y Combinator. Y Combinator contributes around $14,000 of seed funding to purchase around 6 per cent of the startups it incubates but the real value it adds is in the environment, mentoring and contacts it provides young would be entrepreneurs. Y Combinator alumni include Scribd, reddit, Airbnb and Dropbox.

Graham also writes eagerly awaited essays sharing with his internet audience what he tells his startups. One essay’s central message was conveyed in its title “Be Good”.

Graham thinks internet startups shouldn’t worry too much about making money. That’s not because it’s unimportant, but because this puts the cart before the horse. The first commandment is ”make something people want.” And once you’ve done that, the internet connects you to so many others that the chances are you can turn what people want to good financial account.

Google’s peculiar slogan “don’t be evil” acquires a new significance in this context. It was founded at Stanford University to build something great from Larry Page’s insight that the links on websites provided the information from which one could judge the relative importance of websites. One year into its life, Google looked like a do-gooding not-for-profit. Its founders weren’t having a bar of cluttering up their pristine white search text box with paying advertisements. That would ruin users experience and degrade users’ confidence in the integrity of Google’s search results.

When ads finally came, they were separated from Google’s main results, protecting user experience and the integrity of the company. Then Google did us another service – their auction system for placing ads not only maximised their own revenue but maximised the usefulness of ads to users. (Wasn’t usefulness to users supposed to be the point of advertising all along?)

Like elevators helped people navigate skyscrapers, Google made the riches of the internet navigable. By my back of the envelope calculation that service generates over a trillion dollars of value each year. So it’s not surprising Google can divert forty odd billion dollars its own way. Facebook was similar and Twitter has taken years to figure out if it can make money. All were following the Paul Graham formula – doing something so great, creating vast value at least some of which could be ‘monetised’ – as they say in the valley.

And lots of the people I admire do the same thing. They might do it in small ways – putting people in touch with one another to help make worthwhile things happen – even when it’s not in their duty statement. If that sounds like something anyone would do, that’s not been my experience. If they hear a good idea, lots of people nod approval, but, unless doing more is part of their day job, they leave it there.

A few months ago an email arrived from someone I’d previously e-mailed because I’d read his blog posts and thought he’d be interested in something or other. Some rapport had built up through various email exchanges and he sent me his new book in the mail. I loaned it to a prominent friend and introduced her to him by email. After thanking me, he concluded that he hoped I didn’t mind him asking a personal question:

You seem to make many introductions, connecting people, etc. I know many people who do this kind of thing, but it’s usually either on behalf of people who they know well, or in a fairly obviously self-interested way. It’s rather less often that I find people making connections in ways that seem more simply for the common good. Why do you do it?

It took me aback, but I told him that I did it for the fun of it, because I liked to make connections and perhaps help something good happen. But thinking about it, the urge to communicate with those who might be like-minded doesn’t just power my actions here, but powers Facebook, Twitter, blogs and Wikipedia. So am I really so unusual?

But of course it costs me next to nothing – just a few keystrokes here and there. So I’m already way ahead – in reciprocated links, in introductions and acquaintances I mightn’t otherwise have. Some of whom become friends. And that’s before I count the opportunities it’s given me to invest and participate in startups which are following Dr Graham’s formula of doing well by doing good. Will it make me rich? That depends how you mean. I’m having fun and making friends. Will I make lots of money? Too early to tell. But so far so good, and whatever happens the world will be a little better for my having tried.

Published as “The Hidden Benefits of Venture Capitalism” in the SMH and the Age.

This entry was posted in Democracy, Economics and public policy, Education, Ethics, Innovation, Intellectual Property, IT and Internet, Political theory. Bookmark the permalink.

2 Responses to Doing well by doing good: the column

  1. Chris Lloyd says:

    “By my back of the envelope calculation ..Google search engine… generates over a trillion dollars of value each year.” Not disagreeing with the figure, but what was the calculation based on?

  2. Nicholas Gruen says:

    Thanks Chris, I can’t recall. I know I came upon such a BOTE model that guessed between 1% and 4% of GDP which seemed possible to me. The figure I’ve quoted is a bit under 0.5% of GDP. Hal Varian has tried a more orthodox measure using time values and various other methods and from memory gets under a trillion, but most of the professionally respectable measures are underestimates.

    Also, by “Google search” I really mean “search”. If we had to make do with Bing we wouldn’t lose much in the standard measures. But then we’d not have Google X which is doing amazing things.

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