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Hi, I’m Brad Feld, a managing director at the Foundry Group who lives in Boulder, Colorado. I invest in software and Internet companies around the US, run marathons and read a lot.

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Amazon’s Scorpion Problem

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I expect most of you know the fable of the scorpion and the frog, but if you don’t, it goes like this (quoted from Wikipedia):

“A scorpion asks a frog to carry him over a river. The frog is afraid of being stung during the trip, but the scorpion argues that if it stung the frog, both would sink and the scorpion would drown. The frog agrees and begins carrying the scorpion, but midway across the river the scorpion does indeed sting the frog, dooming them both. When asked why, the scorpion points out that this is its nature. The fable is used to illustrate the position that no change can be made in the behaviour of the fundamentally vicious.”

Over the weekend, there was some commentary on AWS in fight of its life as customers like Dropbox ponder hybrid clouds and Google pricing. Amazon turned in slightly declining quarter-over-quarter revenue on AWS, although significant year-over-year quarterly growth, as explained in Sign of stress or just business as usual? AWS sales are off slightly.

“Could Amazon Web Services be feeling the heat from new public cloud competitors? Maybe. Maybe not. Second quarter net sales of AWS — or at least the category in which it is embedded– were off about 3 percent sequentially to $1.168 billion from $1.204 billion for the first quarter. But they were up 38 percent from $844 million for the second quarter last year. In the first quarter, growth in this category year over year was 60 percent. So make of that what you will.”

Could Amazon’s nature be catching up with it, or is it just operating in a more competitive market? A set of emails went around from some of the CEOs of our companies talking about this followed by a broader discussion on our Foundry Group EXEC email list. It contained, among other comments:

  1. AWS is not the low price provider.
  2. AWS is not the best product at anything – most of their features are mediocre knock offs of other products.
  3. AWS is unbelievably lousy at support.
  4. Once you are at $200k / month of spend, it’s cheaper and much more effective to build your own infrastructure.

While we are in the middle of a massive secular shift from owned data centers to outsourced data centers and hardware, anyone who remembers the emergence of outsourced data centers, shared web hosting, dedicated web hosting, co-location, and application service providers will recognize many of the dynamics going on. Predictably in the tech industry, what’s old is new again as all the infrastructure players roll out their public clouds and all the scaled companies start exploring ways to move off of AWS (and other cloud services) into much more cost effective configurations.

Let’s pick apart the four points above a little bit.

1. AWS is not the low price provider. When AWS came out, it was amazing, partly because you didn’t need to buy any hardware to get going, partly because it had a very fine grade variable pricing approach, and mostly because these two things added up to an extremely low cost for a startup relative to all other options. This is no longer the case as AWS, Microsoft, and Google bash each other over the head on pricing, with Microsoft and Google willing to charge extremely low prices to gain market share. And, more importantly, see point #4 below in a moment. Being low priced is in Amazon’s nature so this will be intensely challenging to them.

2. AWS is not the best product at anything – most of their features are mediocre knock offs of other products. We’ve watched as AWS has aggressively talked to every company we know doing things in the cloud infrastructure and application stack, and then rather than partner eventually roll out low-end versions of competitive products. We used to think of Amazon as a potential acquirer for these companies, or at least a powerful strategic partner. Now we know they are just using the bait of “we want to work more closely with you” as market and product intelligence. Ultimately, when they come out with what they view of as a feature, it’s a low-end, mediocre, and limited version of what these companies do. So, they commoditize elements of the low end of the market, but don’t impact anything that actually scales. In addition, they always end up competing on every front possible, hence the chatter about Dropbox moving away from AWS since AWS has now come out with a competitive product. It appears that it’s just not in Amazon’s nature to collaborate with others.

3. AWS is unbelievably lousy at support. While they’ve gotten better at paid support, including their premium offerings, these support contracts are expensive. Approaches to get around support issues and/or lower long term prices like reserved instances are stop gaps and often a negative benefit for a fast growing company. I’ve had several conversations over the years with friends at Amazon about this and I’ve given up. Support is just not in Amazon’s nature (as anyone who has ever tried to figure out why a package didn’t show up when expected) and when a company running production systems on AWS is having mission critical issues that are linked to AWS, it’s just painful. At low volumes, it doesn’t matter, but at high scale, it matters a huge amount.

4. Once you are at $200k / month of spend, it’s cheaper and much more effective to build your own infrastructure. I’ve now seen this over and over and over again. Once a company hits $200k / month of spend on AWS, the discussion starts about building out your own infrastructure on bare metal in a data center. This ultimately is a cost of capital discussion and I’ve found massive cost of capital leverage to move away from AWS onto bare metal. When you fully load the costs at scale, I’ve seen gross margin moves of over 20 points (or 2000 basis points – say from 65% to 85%). It’s just nuts when you factor in the extremely low cost of capital for hardware today against a fully loaded cost model at scale. Sure, the price declines from point #1 will impact this, but the operational effectiveness, especially given #3, is remarkable.

There are a number of things Amazon, and AWS, could do to address this if they wanted to. While not easy, I think they could do a massive turnaround on #2 and #3, which combined with intelligent pricing and better account management for the companies in #4, could result in meaningful change.

I love Amazon and think they have had amazing impact on our world. Whenever I’ve given them blunt feedback like this, I’ve always intended it to be constructive. I’m doubt it matters at all to their long term strategy whether they agree with, or even listen to, me. But given the chatter over the weekend, it felt like it was time to say this in the hope that it generated a conversation somewhere.

But I worry some of the things they need to be doing to maintain their dominance is just not in their nature. In a lot of ways, it’s suddenly a good time to be Microsoft or Google in the cloud computing wars.

Help – I’m in Email Group Hell

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Lately, I’ve been struggling to figure out the best way to have expanding email groups. I’ve tried all the obvious stuff and nothing is satisfying to me.

Historically, I’ve just used Google Groups. That’s great for things like the Foundry Group CEO list, where we control the list, but then we have to host it at a @foundrygroup.com domain.

For the Colorado CEO Jobs list, we were using Yahoo Groups for a while. Even with the new upgrade last year I find the UX to be terrible so I recently moved it over the Google+. Now I’m hearing complaints about not getting the emails which usually results from notifications being turned off, but you wouldn’t know that unless you were paying attention. And, if you don’t have a Google+ account, you can’t be on the list.

I tried Facebook Groups for another group – it had zero engagement.

What do you use? Any suggestions for me getting out of hell?

The Future of Transportation

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William Hertling is one of my favorite science fiction writers. If you are in the tech industry and haven’t read his books Avogadro CorpA.I. Apocalypse, and The Last Firewall, I encourage you to go get them now on your Kindle and get after it. You’ll thank me later. In the mean time, following are William’s thoughts on the future of transportation for you to chew on this Sunday morning.

There’s always been a sweet spot in my heart for flying cars. I’m a child of the 1970s, who was routinely promised flying cars in the future, and wrote school essays about what life would be like in the year 2000. Flying cars are a trope of science fiction, always promised, but never delivered in real life. In fact, at first glance, they seem no closer to reality now than they did back then.

But maybe they’re not so far away. Let’s look at some trends in transportation.

Electric Cars

Hybrids vehicles, with their combination of both gas and battery power, represent 3% of the cars on the road today, up from zero just ten years ago. Fully electric cars like the Nissan Leaf and Tesla are mere curiosities, representing only 0.1% of all cars purchased in the U.S.

It might seem like a slow start, but electric cars will soon form the majority of all vehicles. Here’s why:

Except for early adopters of technology and diehard environmental customers, most people aren’t buying a fuel type, they’re buying transportation. They may want speed or economical transportation or family-friendly minivans, but how the vehicle is powered isn’t their main concern.

Examples like the Tesla have shown that electric vehicles perform on par with gas-powered cars. What limits their adoption then? Two factors: cost and range (and charging infrastructure, to a lesser extent, but that will be remedied when there is more demand).

The Nissan Leaf battery pack alone costs about $18,000 (though government incentives bring down the overall vehicle cost to the customer). When comparable gas-powered cars are about $20,000, the high cost of the battery pack alone is a huge barrier to widespread adoption, whether the cost passed on to the customer or the government, or hidden by the manufacturer.

Ramez Naam, author of The Infinite Resource: The Power of Ideas on a Finite Planet, recently explained that lithium-ion batteries have a fifteen year history of exponential price reduction. Between 1991 and 2005, the capacity that could be bought with $100 went up by a factor of 11. The trend continues through to the present day.

This exponential reduction in battery cost and improvement in battery technology, more than anything else, will affect both the cost and range of electric cars. By 2025, that Nissan Leaf battery pack will cost less than $1,800, making the cost of the electric motor plus battery pack less than the price of a comparable gasoline motor. Assuming even modest increases in storage capacity, the electric vehicle will rank better on initial cost, range, performance, and ongoing maintenance and fuel costs.

With both lower cost and better performance, electric vehicles will likely overtake gasoline-powered ones by about 2025.

Autonomous Cars

Even ten years ago, most of us couldn’t imagine a self-driving car. When the first DARPA Grand Challenge, a competition to build an autonomous car to complete a 150-mile route, was held in 2004, the concept seemed audacious and it was. Of the fifteen competitors, not a single one could complete the course. The farthest distance traveled was 7.3 miles.

The following year, twenty-two of twenty-three entrants in the 2005 Challenge surpassed the 7.3 mile record of the previous year, and five vehicles completed the entire course. Sebastian Thrun, director of the Stanford Artificial Intelligence Laboratory, led the Stanford University team to win the competition.

Sebastian Thrun went on to head Google’s autonomous car project, which first received press coverage in 2010 and continues to captivate our imagination. Yet despite Google’s technology proof point, and the development work now being done by many vehicle manufacturers, most people still imagine self-driving vehicles to be a long way off.

But Google has essentially shown that self-driving cars are already here: their vehicles have been accident-free for half a million miles whereas human drivers would have had an average of two accidents in the same miles driven.

The real barrier to adoption is cost. In 2010, the cost of Google’s self-driving technology was $150,000, of which $70,000 was just the lidar (a highly accurate laser-based radar). German supplier Ibeo, which manufactures vehicular lidar systems, claims it could mass-produce them as soon as next year for about $250 per vehicle. Computational processing is likely another large component of the overall price, and it has a long history of exponential cost reduction.

If costs come down, are there other barriers?

Some concerns in the media include:

  • Legislation. Will self driving cars be legal? Nevada, Florida, and California have already legalized them, suggesting this may be less of an issue than anticipated.
  • Litigation. Who will take the risks and pay up if and when there is an autonomous vehicle fatality?
  • Fear & Control. Some humans will fear self-driving cars while others will insist on their own manual control of their vehicle.

However, these oppositions aren’t unbreakable laws of physics. They are resistance to change, and they are subject to the forces advocating for autonomous vehicles, such as:

  • Fewer accidents reduce overall risk and liability, which will cause insurance companies to favor self-driving cars.
  • A reduction in the number of people killed in motor vehicle accidents (currently 3,200 people are killed every single day) makes a compelling social benefit.
  • Greater convenience and the recapture of drive time will lead to strong consumer demand.
  • As a feature differentiator, manufacturers will be eager to sell a profitable new option.
  • Reduction in drunk driving and increased alcohol consumption will make alcohol companies and restaurants strong supporters.
  • More efficient use of roads will save governments money in reduced infrastructure costs.

Simply put, the money is with the forces for autonomous vehicles. Insurance companies, liquor companies, vehicle manufacturers, customers, and governments will all want the benefits of self-driving cars.

There’s been talk about halfway solutions: semi-autonomous vehicles that are hands off but require an attentive driver, or need a human to handle certain situations. It’s both cheaper and easier to build an assistive solution than to have full autonomy, which is why we’re starting to see them show up in luxury cars like the Mercedes S-class, which has a driver assistance package (just $7,300 over the starting $92,900 price!) that can help maintain your lane position, distance from drivers ahead of you, and avoid blind-spot accidents.

But the driver is still in control and responsible.

In some ways, this semi-autonomy may be the worst of all worlds. It could encourage drivers to pay less attention to the road even though the vehicle isn’t really up to the task of taking control. As it stands, drivers don’t get much practice with emergency situations. So when emergencies do occur, our reflexes are slow or wrong. How much worse would the average emergency response handling be if drivers got even less practice, and were only called into action when they were either not ready or in a situation so bad that the AI couldn’t handle it? Under these circumstances, it’s unlikely that a human driver would respond in a correct, timely manner. If even airlines pilots fall asleep when the autopilot is on, how likely is it that regular drivers will be attentive?

So when will it happen?

One rule of thumb I learned upon entering the technology industry was that it takes seven years, on average, for new technology to go from laboratory proofs to sellable product. I’m not sure where that rule comes from, but by that measure, we should see the first self driving cars on sale in 2017.

From a cost perspective, we’ve already seen that lidar is likely to drop from $70,000 to $250. We don’t know the breakdown of Google’s other costs, but it could decrease by a factor of ten in ten years (pure computing technology falls faster – about 50x in ten years, more mechanical things slower). That would drop the total price under $10,000 by 2020, a reasonable luxury car option.

By 2030, another ten years out, the price will fall under $1,000, at which point the autonomous option will cost probably less than the annual savings in insurance.

In sum, we already see some limited assistive capabilities now, and should see partial self-driving capabilities around 2017, available as expensive options, with full autonomous capability around 2020, still at a significant cost. By 2030 or slightly earlier, all vehicles should be fully autonomous.

Dude, Where’s my Flying Car?

Now we get to the long-promised but not-yet-realized flying car.

The barrier to flying cars is not in the design or building of a viable airframe. We’ve built small flying vehicles for a while now. A quick Google search shows their amusing variety. We have manned quadcoptershover bikes, and lots of flying car-like things.

No, the real problem is that piloting is hard. Less than one third of one percent of Americans are pilots. A pilot’s license costs $5,000 to $10,000 and requires months or years of time and study. (Even if a pilot could fly a car in an urban environment, it’s not likely to be an enjoyable experience: think about the difference between a drive on a two-lane country road versus commuting in an urban grid. One is pleasure and the other utility.)

So it’s really the piloting barrier we need to overcome to see flying cars.

That will happen when autopilots, not humans, have achieved the necessary level of sophistication. Companies like Chris Anderson’s 3D Robotics have built, along with the open source community, the ArduPilot, a sub-$500 autopilot for unmanned drones. The ready availability of these consumer-grade autopilots suggests that navigation in open air by software is no more challenging (and may be less so) than navigating ground-level streets.

There will be substantial legislative barriers and not as many forces pushing for flying cars, but we should see at least see concept vehicles, prototypes, and recreational models (possibly outside the U.S.) in the late 2020s, just following the mass-market production of fully autonomous cars.

What about cost? An entry-level plane like the Cessna Skycatcher is a mere $149,000, a price point that’s lower than that of forty currently available automobile models. While entry-level helicopters are twice as expensive as comparable fixed-wing aircraft, quadcopters significantly simplify the design and add fault tolerance at a lower cost than single-rotor copters.

If the legislative barriers can be overcome, flying cars might not be as common a sight as a Ford or Toyota, but they could be more common than a Lamborghini or Aston Martin.

Trains & Hyperloops

I love the train ride between Portland and Seattle, and I’ve taken it dozens of times, including just riding up and back in a single day. Trains are relaxing and roomy, and their inherent energy efficiency appeals to my inner environmentalist.

On the other hand, they also have shortcomings. They’re locked into a track that is sometimes blocked by other trains, leading to unpredictable arrival times, and they go according to timetables that aren’t always convenient.

Elon Musk’s hyperloop may reduce new infrastructure cost, boost speeds, and reduce the timetable problem while maintaining energy efficiency, but I think the hyperloop is a stop-gap measure. That’s because we’ll soon reach an era of cheap electricity.

Photovoltaic cost per watt continues to drop (from $12 per watt in 1998 to $5 per watt in 2013, 14% annually over the long term) at the same time that we’re seeing new innovations in grid-scale energy storage. Ray Kurzweil and others predict that we’ll meet 100% of electrical needs with solar power by 2028. So while efficiency of passenger miles traveled is a key element to sustainable transportation right now, it may be less important in the future, when we have abundant and inexpensive green power.

Green power reduces the energy efficiency advantage of trains and the hyperloop. Of course, the other major benefit of mass transit is freeing the passenger from the tedium of driving, but self-driving vehicles accomplish that just as well.

Transportation Singularity: 2030

In sum, we have several key trends converging on the late 2020s: fully electric fleets, cheap electricity, autonomous vehicles, and flying cars.

Transportation will look very different by 2030. We’re likely to have many autonomous, personal-use vehicles. Since car sharing services are even more useful when the cars drive themselves to you, we may have much less personal ownership of the vehicles. Airline travel is likely to change as well, as self-piloting fast personal vehicles will compete for shorter trips, while the reduction in fuel costs may change the value structure for airlines.

And yes, we’ll finally have our flying cars.

About the Author

William Hertling is the author of Avogadro CorpA.I. Apocalypse, and The Last Firewall, science fiction novels exploring the role of artificial intelligence and social networks in the near future. Follow him on twitter at @hertling, or visit his blog at www.williamhertling.com to learn more about his writing.

A Month of Android Instead of iOS

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I’m going to spend January using an Android phone and tablet instead of my iPhone and iPad. My Nexus 5 and Nexus 7 are charged up and ready to go – all I need is a SIM card.

I’ve been an iPhone user since I ditched my HTC Dash running some version of Windows Mobile 6 oh so many years ago. I’ve struggled with battery life, broken screens, water damage, and this insatiable urge to upgrade to the latest iPhone the day it comes out. When I travel overseas, I’ve gone completely off the rails trying to figure out how to get a SIM that works even in an unlocked iPhone 4. But, overall the iPhone has been good to me and the companies I invest in.

But recently I’ve been sad. I didn’t like iOS 7 when it came out and I’m still not loving it. I felt bummed out by the latest iPhone release which seems to have – well – nothing really new except some fingerprint thing and different colors. And as more and more of my world is Google-related, I find the iOS apps fine, but lacking.

I asked Fred Wilson which Android phone I should get. Fred’s been an unapologetic Android fan from the beginning because he hates the closedness of Apple. He told me “Nexus 7″ so I bought it without looking. When it arrived, I realized I now had a really big phone since the Nexus 7 is actually a tablet. I just assumed it was better than the Nexus 5 (how’s that for not paying attention.) So I went online and got a Nexus 5 also.

That inspired me to run the January Android experiment. I use an iPad Mini for some stuff at home, although my favorite device to read on lately has been the Kindle Fire HD. But I’m going to see if I can consolidate all my activity to the Nexus 5 and Nexus 7 for January.

The one big miss was a SIM card. I ordered one with the Nexus 7 and then didn’t get one for the Nexus 5, as I assumed I’d just use the one that came with the Nexus 7 for the Nexus 5 (since the Nexus 7 would always be on WiFi). When the Nexus 7 arrived, the SIM and the wireless charging pad weren’t in the box. I’ve tried to figure out how to tell Google they blew the shipping on this (since I ordered it directly from Google Play) but there doesn’t seem to be any way to do that. So I ordered another wireless charging pad and I’ll swing by one of those old fashioned phone stores tomorrow and pick up a SIM.

In the mean time, if you are an Android fan, I’m all ears for any suggestions, tips, and tricks that you have for my month of Android.

Hangout On Air With Me and David Cohen on Wed 11/13/13

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David Cohen (Techstars Founder) and I are doing a Google Hangout On Air that is open to anyone on 11/13/13 (what a prime day for something like this). It’s part of a Google Enterprise series on Colorado pioneers driving the local economy and culture. We’ll be talking about Techstars, Colorado, tech, and anything else that comes up.

This came out of a series of interviews with Google recently where we explained why Foundry Group takes venture capital to the cloud with Google Apps and how Techstars assists tomorrow’s entrepreneurs with help from Google Apps.

Come join us! Register here if you want to hangout.

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