“We claim to be part of the American dream and of a system based on merit and opportunity and talent,” Mr. Marx says. “Yet if at the top places, two-thirds of the students come from the top quartile and only 5 percent come from the bottom quartile, then we are actually part of the problem of the growing economic divide rather than part of the solution.”

There’s a lot of evidence that suggests that the admissions policies of the top universities tend to perpetuate the notion of rich getting richer. This post isn’t meant to argue for or against that point. Rather it’s to argue another point which is that when you look at this issue the larger concern here shouldn’t be that people from lower-income families aren’t able to receive as good of an education as people from higher-income families. That’s of course very important but the critical factor is that people from lower-income families aren’t able to gain access to the same networks that higher-income families have access to.

One of the articles that has been influential in my thinking here was Malcolm Gladwell’s 1999 article in The New Yorker entitled “Six Degrees of Lois Weisberg“. I’ll let you read the whole thing but suffice to say it’s the story of an unlikely “super connector” named Lois Weisberg and includes this very pertinent passage:

If the world really is held together by people like Lois Weisberg, in other words, how poor you are can be defined quite simply as how far you have to go to get to someone like her. Wendy Willrich and Helen Doria and all the countless other people in Lois’s circle needed to make only one phone call. They are well-off. The dropout wouldn’t even know where to start. That’s why he’s poor. Poverty is not deprivation. It is isolation.

Poverty is not deprivation. It is isolation. When the high school senior from the inner city doesn’t get into Harvard or Yale, she’s being isolated from the networks that could allow to reach the highest rungs of society. In all fairness, many people from impoverished communities have been able to access these networks in recent decades and it has lead to some of the greatest success stories of our time. Michelle Obama. Sonia Sotomayor. Even a story like Lloyd Blankfein’s (Goldman Sachs CEO/Chairman) is largely one of accessing networks (through a full ride to Harvard) that would have been normally inaccessible to a son of a Postal Service worker.

As Gladwell states in his article:

Minority-admissions programs work not because they give black students access to the same superior educational resources as white students, or access to the same rich cultural environment as white students, or any other formal or grandiose vision of engineered equality. They work by giving black students access to the same white students as white students — by allowing them to make acquaintances outside their own social world and so shortening the chain lengths between them and the best jobs.

We live in an age where with a solid Internet connection and someone to guide you through the process of self-education (admittedly something many people don’t have) you can learn just about anything. Certainly enough to qualify for some of society’s highest-paid positions. But unfortunately that’s not enough. Because despite the fact that it’s easier than ever to learn the things that will qualify you for a well-paid position in the world, it’s not easier (perhaps even harder) to gain access to the networks that will let you achieve your full potential.

Waiting for Superman paints a very compelling picture about the dire situation in our inner-city schools. And the point that it might not be that schools reflect their surroundings but rather that surroundings may reflect their schools is well worth pondering. But it’s often overlooked that the most tragic part of children from the inner-city not gaining access to elite schools probably isn’t the fact that they might be losing out on access to a world-class education. Rather, it’s that for most that was their best shot at gaining access to an elite network.

So can we change this? I think we can. It starts with recognizing the problem for what it is and doing what we can to teach kids from impoverished backgrounds not just how to read and write but how to become upwardly mobile in their networking. That might sound strange but it’s not like there aren’t role models for how to do this. Guys like Russell Simmons or Jay-Z. How do we instill in our less privileged youth an attitude and aptitude for rising up the ranks and meeting the people they need to meet Lois Weisberg-style, regardless of what university they happen to get into?

Sounds like a hell of an idea for a world-changing non-profit. If you know of anyone doing anything like this I’d love to talk to them.

Let’s examine this by thinking about what the goals of the traditional education companies are. For starters, school is about learning right? Yet at the same time anyone with a web connection and a Khan Academy “subscription” knows that much of the learning you can do nowadays is fairly free and largely ubiquitous. It’s truly the modern equivalent of “dropping 150 grand on an education you could have gotten for a dollar fifty in late charges at the public library” (P.S. I heard Khan rocked the house at TED last week. Can’t tell you how proud I was to hear that!). School is still a necessity, especially for younger children but the older we get, with certain exceptions, the less “necessary” it is to be in school in order to learn.

Schools also provide socialization. They don’t have a monopoly on this of course but I’d say that a huge benefit of attending a school like Stanford or Harvard is that you’re building a great network of friends. And that’s just a true of a student from an impoverished community who finds their way to a state school and is suddenly associating with the children of much wealthier parents than she had. In fact, some would go so far as to say this is the major driver of value in education. To the extent that people stay surrounded by people of their socioeconomic strata they will, more often than not, remain in that strata. Give them the opportunity to jump ahead and be surrounded by people from a higher strata and you give them a chance to move themselves to that join that strata. Exactly the kind of stuff Gladwell wrote about back in 1999.

But schools need not define networks now and my thesis is that increasingly they don’t. You can join a network (a very powerful one) by getting admitted to YCombinator. Have a little more money? Get an invite to TED. Peter Thiel is doing his best to build an anti-school network with his “Stop Out of School” thing. These are all networks you can join that really have nothing to do with school (although where you went to school may of course play a role in which of these networks you can join).

But networks also provide something else extremely powerful. They provide an external signal. Sam is “good enough” to get into Stanford. Tina is “good enough” to be invited to TED. Schools historically have had almost a near-monopoly on signaling. After all, how the heck were you supposed to know who the smart people were in the 70s other than by what school they went to? But today does it really matter whether someone went to Stanford or to YCombinator? For my doctor, um, yes… But for a business guy or software engineer? I’m not sure that the signal sent by Stanford and the one sent by YC are all that differentiated.

But here’s the challenge, the learning, networking and signaling benefits that organizations like YCombinator and TED provide aren’t all that scalable. YC admits a relatively small handful of startups each year. TED’s invitees number just north of a thousand. How do you account for the other 6.9 billion people on the planet? That’s where the post-education companies come in. The companies I’ve been talking to are pursuing scalable ways to provide one or more of these benefits to the masses.

Some of these guys you already know. Certainly Khan Academy is a great example of someone providing learning to the masses without being a “school”. Quora and Stack Overflow are two more. Are those education companies? I don’t know and I don’t know that it matters. They’re providing some of the same benefits as education companies do. Learning for sure and increasingly Quora, Stack Overflow and others are going to be playing a major role in the signaling game (if you don’t believe me check out Careers 2.0 for an example of the massive disruption in its earliest stage).

And obviously the reputation graph companies have the potential to play a huge role in signaling. As I’ve written about before here, higher education is a trillion dollar industry globally where, depending on which economist you ask, anywhere from a significant amount to the vast majority of the value is creating by the signaling effect of the education. It’s not the only value driver of course (many professions absolutely require the training that traditional education provides them) but it’s a vastly underrated portion of where value is created in education. Simply put, companies building the reputation graph have an opportunity to be a vastly more efficient form of signaling to the market.

I’m really excited about the emerging landscape for these post-education companies. I’ve seen a number which are pre-launch or too early to shine too much of a spotlight on at this point. But I’ve seen enough to feel convinced that the landscape is going to change pretty dramatically in the coming years.

Looking forward to the comments and if you know of other companies that fall into this post-education bucket, I’d love to hear about them.

Higher education is on the brink of massive disruption right now. The “cost” of learning has never been less expensive as the Web is flooded with amazing content, tutorials, discussion boards and more. At the same time the cost of credentials (i.e. degrees) is sky-high (out-state tuition alone at a UC school is now $35,000/year…that’s for a public school!) and rising at a rate of 8% per year. The disconnect between these two feels quite unsustainable. So what could be the disruptive factor in this space? In my opinion, the combination of a learning graph and a reputation graph could massive disrupt higher education as we know it.

First, let’s define a learning graph. I think I first came across the term on Kirsten Winkler’s blog. In my mind, a learning graph is the roadmap of all of the things we’ve ever learned. But more than simply a “check the boxes” listing of all the concepts we’ve studied and mastered, it’s a dynamic and fluid measure that includes the rate at which we learned specific things, when we learned them and how much difficulty we encountered along the way. The usable end product of the learning graph would be a dashboard where anyone could abstract the data to end up with clean and concise view of what a person knew and their relative level of mastery.

Sound like Sci-fi? There are a host of people working on building on the learning graph right now. Early pioneers in the space included companies like DreamBox Learning. Recent entrants into the space include Grockit, Knewton and TenMarks (if you have the time, this 7-minute video from Knewton gives a pretty good sense of what the learning graph could look like). Each of these companies is trying to build a platform that will allow students to receive a personalized learning experience that is tracked over time.

Fast forward a bit and you can imagine a university looking at a student’s Grockit or Knewton dashboard when trying to decide whether to admit them to their school. Fast forward a bit more and you can imagine a company looking at a prospective employee’s dashboard to determine whether or not to hire someone. It’s a bit out there but I think it demonstrates the power of the learning graph. In a conversation today with my good friend Ranjit Mathoda he mentioned that if he was trying to figure out how smart someone was one of the first things he would do is find that person’s account on Quora. Indeed, sites like Quora, Stack Overflow, Namesake and others could end up playing major roles in the learning graph.

So why is a learning graph so important and potentially disruptive? I think a major reason is that it could eventually replace assessment. After all, if you’re tracking everything a person is learning the notion of stopping to test them on a particular piece of knowledge seems less important. In fact, it seems like the only real reason we need to test is to track how much a person has learned. The learning graph threatens to put an end to testing and assessment as we know it.

And why that’s disruptive is that educational institutions derive much of their power (and hence, their ability to charge large sums of money) from their ability to assess. Pop quizzes, mid-terms, final exams…it is these things that make school today what it is. But what would the world look like without discrete testing and assessment? Well, my feeling is that in such a world it might matter less where you went to school. Or even whether you went to school at all…

But wait, before we get too far ahead it’s important to realize some potential failings of the learning graph. It can’t measure everything. It does an especially poor job of assessing the “soft skills”. Is someone a good communicator? Are they creative? Do they work well within a team? The learning graph doesn’t tell us much here. I might be able to see from someone’s Quora account that they know a lot about entrepreneurship. Would I want to start a company with them? Not necessarily.

Education, especially at the post-secondary level provides a strong filtering and sorting mechanism for society. There’s a reason why some companies will only hire Ivy League graduates. And it’s a big part of why the top schools have incredible pricing power. But what if you could develop an alternative signaling mechanism that rivaled or even eclipsed what schools currently do? I think that’s precisely what the reputation graph could become. It’s still way early but I could see the reputation graph ultimately playing a very important role in decision-making about people.

Neither the learning graph nor the reputation graph alone could disrupt higher education. However when you put both together things start to get really interesting. The learning graph gives someone great insight into what you’ve learned throughout your time in school. In fact, it probably does a better job than GPA or any of the other rudimentary measures we use today. The reputation graph helps to dramatically strengthen the sorting and filtering piece of the puzzle. It gives us insight into who is the smartest, the most creative, strong communicators, best team players and so forth. Put those two things together and you start to question whether degrees are even important. At a minimum, we can envision a world in which the power of the degree is dramatically weakened.

Just to be clear, a built-out learning graph + reputation graph scenario is many, many years away. But I think it’s interesting to start to talk about what that might look like. To follow the companies who are potentially building the learning graph and those that are playing a role in the building of the reputation graph. And of course this is an over-simplification of matters. Schools serve many other roles (not the least of which is providing a social network for each of its students) and it would be foolish to argue that they’ll be going away anytime soon.

Instead what I see rising up are alternative ways to prove to the marketplace that you’re competent and credible. Historically, universities have had an almost monopolistic grip on that (especially for younger people). I think we’re moving into a world with much more diverse mechanisms for determining who truly is a rock star. And I think that’s actually a very good thing.

Honestly.com – I really love the potential of Honestly. The big challenge is avoiding both the “all good reviews” challenge (which LinkedIn Endorsements suffer from) and the “race to the bottom” slams that have hurt some anonymous review sites. Honestly is on a good path with “anonymity tied to identity” which is the right approach I think.

Mixtent – Mixtent, and a similar site called CubeDuel, ask you to compare people within your social graph (both of these sites use LinkedIn’s APIs). This is smart as it avoids asking the user to do a lot of work (e.g., write a review or even rate a person). Think of these companies kind of like “Facemash for business” (will make sense if you’ve seen The Social Network). (Update: Interesting thread on CubeDuel on Hacker News. Someone else mentioned the “Facemash for the office” angle.)

Klout – Klout is a business that I think will be huge. Obviously others do as well as well as these guys just closed a monster funding round. One major difference between Klout and the three companies listed above is that it is relying on already existing data to determine influence. However, it seems like it’s not too big of a leap for Klout to get access to proprietary data in the future. Another business in the same vein as Klout is PeerIndex.

Quora – Quora is another business that will likely be gigantic someday and it could potentially play a big role in the building of the reputation graph. There’s already a voting system in place for quality responses and they also have the beginnings of topic-specific leaderboards. Another company along the lines of Quora in this area is Namesake which is also focusing on conversations between experts and no doubt will end up building some portion of the reputation graph.

There are a whole host of other companies who could move into the reputation graph space. LinkedIn and Facebook are the most obvious candidates. They have incredible data already about individuals and what people think of the people around them. But it’s still a very small percentage of the data that’s out there. I think it will take a lot to pull this data out of peoples’ heads. As several of the commenters on the previous post mentioned, there are a host of challenges including the ability of people to game the system and a questionable incentive structure.

It’ll be a fascinating space to watch unfold and I’m looking forward to seeing how people address these challenges. And again, if you know of other companies that are actively building the reputation graph, please list them in the comments.

In our everyday lives we make an extraordinary number of decisions about people. These range from who to hire for a specific job to who to let into a certain college. Billions of dollars are spent daily on making decisions about people and the costs of poor decisions are tremendous. And yet, the “science” through which we make these decisions is far from perfect. College admissions committees use GPA, SAT scores, applications and a whole host of other data to try to do the best job possible and yet everyone who attended a university can names scores of people who shouldn’t have been there. And anyone who has spent anytime inside a large company can think of numerous example of colleagues who have no business being in the organization. These situations arise from vastly imperfect data about the people who we are making decisions about.

Now let’s turn to another example: Senior “Superlatives” in High School. These were those questionnaires you probably filled out at some point during your Senior year that asked you to name the Class Clown, Best Dressed, etc. There is one in particular that fascinates: Most Likely to Succeed. I’ve never seen a study done but my guess is that if you took the average lifetime earnings of someone voted Most Likely to Succeed and compared this average to the lifetime earnings of their classmates you’d find the earning of the person voted Most Likely to Succeed to be dramatically higher (perhaps an order of magnitude higher) than the average of their classmates. What does this tell us? That even way back in high school we knew a lot about the people around us.

And that’s what’s at the heart of this opportunity, the fact that we have an insane amount of data in our heads about the people around us. When Quora launched, one of the things that Charlie and Adam said was this:

The way we think about this is there’s actually a lot of information that’s still in people’s heads that’s not on the internet. And when you think about it you would say that probably 90% of the information that people have is still in their heads, not on the internet.

I’d offer that’s it’s actually much higher than this. In fact it’s something I blogged about here and here a couple of years ago. And when it comes to Reputation Graph data (again, what we know about the people around us), it’s actually a much lower % of information that’s online. Certainly well less than 1% of what we know.

So here’s why I think this is important. Just as Google and others were able to make our ability to access information dramatically easier and open all sorts of opportunities for people, I feel like the companies that build the reputation graph will have an amazing opportunity to make the process of making decisions about people (again, something each of us do every single day) incredibly more efficient. Better fits for jobs, schools…heck, even who you date or pal around with on the weekends could make peoples’ lives dramatically better.

This is probably a long ways off. Or maybe not. If you’re working on the reputation graph I’d love to hear from you.

Pissed because people are selling education out of one side of their month and doing everything short of stealing money out of the other side of it. I’ve spent a lot of time over the last year studying the inner workings of education and it’s amazing how shady many of the companies who operate in it appear to be. Sure, most people know about diploma mills. But that’s just the tip of the iceberg. From artificially raising tuition to the student loan cap to schools doing whatever they can to scoop up stimulus/taxpayer dollars, it’s some pretty gnarly stuff. So I think it’s time we did something about it.

When it comes to education, it’s time to start taking the power back.

Too many of us have been sold a bill of goods that just doesn’t cut it. We’ve paid too much for degrees that aren’t worth enough. We’ve taken on an insane amount of debt that we’ll spend years (decades?) paying back. And the thing is…it doesn’t need to be this way. There *are* alternatives. And I’m not talking about crappy, “get what you pay for” alternatives. I’m talking about ways to gain a world-class education for a fraction of the cost that marketing-driven educational machines are trying to shove down our throats.

The guy who really got me thinking about is Josh Kaufman over at PersonalMBA.com. Josh is brilliant and part of his brilliance has been to promote the scandalous notion (I joke, but only partially) that a world class education doesn’t have to cost an insane amount of money. He’s been doing so for years at PMBA and more recently wrote a must-read article “Hacking Higher Education, Part 1: How to Obtain an Accredited Undergraduate Degree in 1 Year for $4,000” (follow-up articles here and here, all must-reads). While I’m not convinced that Josh’s recipe for getting a degree in 1 year is the right thing for most people I think what it speaks to is the larger opportunity to save significant money while pursuing your degree. And more importantly, to take the power back.

Hey Mr. University, want to raise my tuition 32 percent this year?! That’s fine. See this whole CLEP thingie over here?? I’m just going to do that and you can keep your little ol’ tuition hikes!

Students (and parents of students!) sick of paying insane prices for tuition need to start demanding alternatives. And we’re not talking ultra-low-quality alternatives. We’re talking about the opportunity to get a high quality education at a lower prices. Every year your mobile phone gets better and the price gets cheaper. Why shouldn’t your education? Instead, it’s quite the opposite. Every year it gets about 8% more expensive and at least according to many, every year it gets a bit worse (check out Kent Pitman who makes this case way better than I could).

We started offering online CLEP courses at eduFire to give people an opportunity to take the power back. Learn from some of the most engaging and brightest instructors but save 80-90% of the cost of taking the same number of credits at The University of Phoenix. And we’re not the only ones helping people to take the power back. Look at people like Chegg, BookRenter and Flat World Knowledge who are helping students take the power back when it comes to textbooks. Check out sites like AcademicEarth, Peer2Peer University and University of the People are helping people who simply want to learn without money standing in the way to take the power back.

I’m all for education period. But I’m more for education when the number one goal is helping the student succeed. Optimizing profits at the expense of students? Not cool. Playing tricks on students to force them into unnecessarily buying new editions of textbooks? Lame-o. As Umair Haque would say, these are classic cases of thin value creation.

The era of playing games with our education is over. Pink Floyd woke up a generation of kids and young adults with their rallying cry “Teacher, leave them kids alone.”

Our generation needs a new rallying cry around education.

Perhaps that one should be “Take the Power Back“.

(I’ll be back with Part 2 of this in a little bit. Excited to hear your thoughts in the comments.)

So two experiences this week plus this Fred Wilson blog post got me thinking that content publishers are looking in the entirely wrong place for their business model. They are looking at the content.

But what if that’s the wrong approach entirely?

What if the thing you can charge for is the filter?

Let me relay my two experiences this week and then I’ll circle back to wrap things up.

Experience #1: Hacker News. IMHO, Hacker News is one of the best, if not the best, news/article filter out there. OK, maybe not for everyone but if you remove the coding and start-up articles (the focus of the community) what remains is a super-interesting collection of smart writing and interesting thinking. Kind of like what I thought Digg would ultimately become but hasn’t really (cute pictures and funny videos have largely overrun the homepage).

However, here’s my beef with Hacker News. I want to do more with it. I want to be able to see the most popular Hacker News articles of all time (the “Best” link which is buried two links in off of “Lists” in the footer is sort of this but only for the last 2 weeks). I want to see the most popular stories of all time. I also want to be able to see articles filtered in different ways (e.g., only startup, everything except “news” sites like TechCrunch, CNN, etc.). I want to be able to search in ways that I can’t unless I do some sophisticated stuff in Google.

I get it. HN isn’t set up for this. That’s fine. It’s an amazing resource the way it is. But would I pay $5/month or $50/year for a “power user” version of Hacker News. You bet.

Experience #2: Delicious. I’m learning to do more and more with Delicious these days but I’ll admit it, it’s not a user-friendly process. For instance, let’s say I want to be able to find all articles that are tagged “subscription” and “revenue” sorted by most bookmarked. Here’s the best process I was able to find this week:

Step #1: Install Greasemonkey and then install the Sort Visible Links Greasemonkey script in Firefox.

Step #2: Search by multiple tags in Delicious. This isn’t super difficult (Here’s the query: http://delicious.com/tag/subscription+revenue).

Step #3: Sort the results based off of the number of bookmarks using Sort Visible Links.

However, what happens when I have, say, 2,500 results? Well then I have to set Delicious to show 100 links per page (the max) and then I have to page through 25 pages of results and do a sort on every page. That = Royal. Pain. In. The. Ass. Did this for one query this week and it probably took me two hours to go through what I should have been able to do in about 10 minutes. That sucks.

Would I pay delicious a bit of money to make this stuff easier? I would. Absolutely.

So the big question is whether I am just a strange edge case? I realize that I probably am. But guess what…so were the people trying to upload video to the Web and show it to everybody in 2003 before YouTube came along. Once YouTube made it easy for people to upload and share video that space exploded.

What we have right now, to steal Clay Shirky’s words is not information overload. It’s filter failure. We have an increasing amount of info, links, etc. being thrown at us through stuff like Facebook, Twitter, Digg, etc. and fairly crappy ways to get to what’s most important. And here’s where the publishers have an amazing opportunity to help us.

Build robust filters.

They have ridiculous amounts of data on what peoples’ preferences are. They have internal metrics out of the whazoo. They have the potential to help us get to the best and most relevant content. And what have they done? Largely outsourced the process of building content filters to Digg, Reddit, delicious, Hacker News and other folks.

I love those guys. But the problem is that delicious knows a heck of a lot less a specific piece of content than the content owner does. New York Times could do an insanely good job of giving me personalization and robust filtering. And I’d be willing to pay for that. Instead, they do an inane job of this. And therefore I don’t pay them. And I filter their ads. At least 5% of Internet users (FF users) do the same thing and I wouldn’t be surprised if 50% or more of Internet users do that within 3 years. (Camino is my half-time browser and it sports a freaking checkbox that blocks all web ads.)

So here’s the deal. Very few people will pay for your content (and increasingly fewer). And while more people will view your ads that number will fall over time as will CPMs likely. So how do you make money? By creating services that people will pay for (like next-gen filtering and personalization) and that don’t subtract value in any way (unlike pay walls which subtract huge amounts of value). These services will produce revenue that drops completely to the bottom line which is dramatically different from advertising sales which often have gross margins of less than 50% once the cost of selling the ads is factored in *and* detracts from the user experience.

OK, bonus round. Don’t even build the filters in-house. Do the Netflix Prize thing and outsource the building of the filters and recommendations to smart, hungry (and often young) hackers. Turn over your data to them (anonymously of course) and let them build the engines that can help you reinvent your industry.

Sound risky? Damn right. But what do you really have to lose? Doing this adds money directly to your bottom line if people pay money for premium services and at a minimum makes your service a better user experience if they don’t pay. It allows you to understand better why people read and watch what they do and as we become an increasingly information-saturated society it allows you to skate to where the puck is going vs. skating to the where the puck is.

Humor us content producers. Start the revolution this time rather than being a victim of it.

Umair uses the example of the food industry and I think it’s an appropriate one. The food industry (let’s say fast food for the purposes of this analogy) certainly does provide some benefits to society. Calories. Enjoyment of eating meals with friends/family. Convenience and time savings associated with not having to cook. However, the modern fast food industry also imposes a slew of costs on society. Huge environmental costs. Significant contributions to our obesity epidemic (this video will blow your mind).

But here’s the interesting part, the vast majority of those external costs are not borne out by the fast food companies making money off selling their food to consumers. McDonald’s doesn’t pick up the cost of the heart attacks its food helps to cause. Burger King doesn’t have to pay anywhere near the true costs of those flame-broiled Whoppers. So they are able to artificially create value by charging a lower price and making higher profits than they would if they had to pay the true costs that their products are imposing on society.

Fast food is hardly the only example of this. Other forms of inauthentic value creation can be seen in every nook and cranny of society. Anywhere there is an option to take true costs of a product and externalize them you get inauthentic value creation. Anytime you see government subsidies increasing a company’s profits, whether this be a corn farmer in Iowa or an investment banker in Manhattan, you get inauthentic value creation.

So lest I end this blog post on a depressing note, let me talk about an area where we are, recession and all, seeing a tremendous amount of authentic value creation: Tech entrepreneurship. Now as a tech entrepreneur I’m admittedly biased but let me offer up a few data points here:

#1 – Watched this excellent TED Talk by Juan Enriquez (embedded below) a couple of days ago and he quoted an amazing statistic:

“Venture-backed start-up companies are 0.02% of US GDP investment and are about 17% of output.”

Wow. That’s a mind-blowing statistic. We’re spending such a small amount of money on funding new technology and yet receiving enormous payback (think Google, Apple, YouTube, Amazon, eBay, etc.).

#2 – Look at the example of YCombinator, a program that I think is, on a pound-for-pound basis, the most innovative thing going on the planet. In the last few years, with a relatively small amount of money, YCombinator has produced a host of high-value services like Dropbox, Loopt, Scribd and Xobni. Check out this recent Motley Fool article “Ignore YCombinator at Your Own Risk” for some more on just how much they’ve done with so little.

#3 – The other side of the authentic value equation of course is cost and here’s where tech really shines. Unlike industries like energy (at least traditional energy), food and health care, it’s difficult to see in tech where significant costs to society get externalized. This isn’t to say it doesn’t happen but rather than the costs are so small relative to the benefits that technology is affording us that it’s hard not to argue that when costs are factored into the equation, technological innovation doesn’t represent, by far, the most significant authentic value creation on the planet.

The thing about authentic value creation is that it doesn’t get recognized immediately. Which is why YCombinator doesn’t have many multi-millionaire alumni rounding around despite the fact that Wall Street ignoramuses continue to pull down fat paychecks and bonuses. But I’m an optimist and I believe that eventually what you do catches up to you. It’s starting to happen. The playing field is starting to level and tech is playing a big role in making that happen faster than most people realize. Let’s hope it continues and intensifies as the meme of authentic value creation spreads to more people. I’ll let Umair take it from here…

Umair Haque Q & A from BRITE ‘09 conference from BRITE Conference on Vimeo.

The Pirate Bay guys were criminally prosecuted for….violating (largely obsolete) copyright. Almost no one in finance has been held even civilly liable for vastly more economically damaging actions.

I followed up with a comment along the lines of the fact that the content owner industry (i.e. the MPAA and RIAA) is throwing tons of money trying to solve a problem that fundamentally can’t be solved (witness Kazaa and Napster and how effective shutting down those services was at stemming file sharing). However, at least in the case of music (and soon in the case of TV and movies) the power is shifting away from the record labels and towards bands and fans.

So my question is, when will that happen in finance?

For years the power has been cloistered in the hands of a few small number of organizations at the top (e.g., Goldman Sachs, J.P. Morgan, etc.). The recent financial crisis didn’t knock those organizations out of power. In fact, it did the opposite. It strengthened their power base. Witness this:

The loss of competitors including Lehman Brothers Holdings Inc. and Bear Stearns Cos. meant Goldman Sachs attracted more trading business, said Huntington’s Sorrentino.

“A lot has to do with the fact that they really narrowed the playing field,” he said. “All that business has to be flowing through to someone.”

So perhaps we’re doomed to live in the world where a few banks at the top reap insane profits while everyone else suffers. But I don’t think that necessarily needs to be the case. I think it’s possibly for some sharp entrepreneurs to come in and do something radically disruptive Napster/Kazaa/Pirate Bay-style. In other words, help shift the power from a small number of people (record labels in the music example, banks in the finance example) to a large number of people (fans and bands in the music example, individual investors and small businesses in the financial example).

Prosper was one company that I believed was taking a shot at this. Until the SEC in their infinite wisdom decided to shut them down (by the way, it’s good to know that while Madoff and Stanford were off doing their things the SEC was spending a ton of time shutting down one of the only truly innovative companies in the finance space). Hopefully there will be others. The opportunities are immense. But of course so are the challenges. I’m really excited to see what courageous entrepreneurs will step up to start the companies that will be the Last.fm’s, Pandoras and Hype Machines of the finance space and what courageous investors will back them. This is something the world desperately needs.

A month or so ago I lost the hard drive on my old MacBook Pro. Most of my data was backed up but I wasn’t 100% current and I lost a small amount of data. One of the things that I lost was my download of Feed The Animals. Girl Talk has chosen to go the “pay what you want” route and back when I downloaded I think I paid $5 or $10 for the album.

Today I wanted to listen to the album. Had Feed The Animals been a typical DRM-infested, iTunes download I would have had to ante up again for it. What I probably would have done is just moved along and listened to something else instead. After, who wants to pay for the same album twice?

But because “pay as you want” existed I downloaded it again off the Girl Talk website. And now I am happily listening to Play Your Part (free stream on Lala here). And I’m blogging about Girl Talk. And I’ll Twitter the blog post. And the odds that I’ll go see Girl Talk next time they’re in town just went up.

Why am I telling you this? Because it’s a perfect example of evidence for The Grand Unified Theory On The Economics Of Free (one of the best blog posts in the last five years). Make it easy for people to consume your abundant goods (digital downloads) and what you’ll find is that people will consume more of your scarce goods (concert tickets). What’s it worth to Girl Talk that I blog about them or Twitter about them? Probably not a ton but in the aggregate a lot of people talking about them adds up. And had they not made it easy for me to re-download their album there’s a blog and Twitter endorsement from me they weren’t likely to get today.

So give some thought to your abundant goods today and how you can make them more accessible. For everyone that’s different and a “pay what you want” model isn’t for everyone. It’s just one example of a lot of strategies that can be used to make it easier for people to consume and share stuff in a way that doesn’t set you back anything at an individual level.

And for goodness sake, go download Feed the Animals already!