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Original author: 
Eric Johnson

Oculus VR's Palmer Luckey, left, and Nate Mitchell, right. At center, AllThingsD's Lauren Goode tries out the Oculus Rift at CES 2013.

Oculus VR’s Palmer Luckey, left, and Nate Mitchell, right. At center, AllThingsD’s Lauren Goode tries out the Oculus Rift at CES 2013.

There were plenty of great onstage interviews at D11 last week, but — as attendees doubtless know — the conversations that happen offstage are often just as engaging. Such was the case on the last day of the conference, when Oculus VR co-founders Palmer Luckey and Nate Mitchell drove up from their office in Irvine, Calif., for lunch and an hour-long chat.

Oculus is a 30-person startup focused on just one thing: Virtual-reality videogames, by way of a wearable headset that plugs into gamers’ PCs. Its much-anticipated VR headset, the Oculus Rift, was funded on Kickstarter last year to the tune of $2.4 million, and an early version is now in the hands of thousands of game developers. A consumer version is on the way — though the company has yet to announce a release date.

At conferences like this year’s GDC, Luckey has publicly acknowledged that the first versions of the headset won’t be perfect, because developers are still learning what game mechanics work (or don’t) in VR. In this wide-ranging Q&A, Luckey and Mitchell told AllThingsD about that learning process, the Rift’s limitations, its ballpark price point, what they want from developers, messing with coworkers wearing the Rift, and how it stacks up to other next-gen technology like the Xbox Kinect and Google Glass.

For easier reading, we’ve split the chat into two parts. Part One is below. And here’s Part Two.

(Before we begin, a sad note: This interview took place last Thursday, one day before Oculus VR’s lead engineer and fellow co-founder Andrew Reisse was struck and killed as a bystander during a high-speed car chase. The company memorialized Reisse as a “brilliant computer graphics engineer” on its blog on Saturday).

AT1T7403-X2Asa Mathat / D: All Things Digital

AllThingsD: How do you control people’s high expectations for the Rift? At GDC, Palmer called virtual reality the “holy grail of gaming,” but was quick to clarify that the first version you release won’t completely fulfill that promise.

Palmer Luckey: The developer kit, especially, but yeah, even the first consumer Rift has a long way to go. People who research it tend to have good expectations, but there’s two other sets: You have people who think that VR tech is already super-advanced, that it’s like “The Matrix” already, and that we just happen to be cheaper. And then you have people who think that it’s completely broken and hopeless. The best way is to get them to look inside of a Rift, and usually they’re like, “Oh, I get it. It’s not the Matrix, but it’s also not terribly broken.”

Who’s the audience for the Rift? Who’s going to really appreciate it?

EQ7G8237-X2Luckey: I don’t think it’s just hardcore gamers. At GDC, Valve talked about how players who were very skilled at Team Fortress 2 felt like the Rift lowered their skill level. I play a ton of TF2: You’re jumping off things and spinning around and then instantly snapping back, constantly whipping back and forth as you walk along. But what they found with people who didn’t play games as much, who weren’t TF2 players — they reported that it increased their perceived skills. I think the Rift can open up the possibility, for a lot of games that have been “hardcore games,” for normal people to play them. They have the right muscle memory built up. Every day, they look around and they move their head to look around. It’s not a huge leap to do that inside of a video game when you have the proper tools.

Nate Mitchell: It also totally depends upon the content. We’ve already seen some people do Minecraft mods (unofficial modifications to the original game to support the Oculus Rift). We have the families in the office, they bring in their kids, and you’ve got 10 kids playing Minecraft in our conference room on the Rift, on the same server. That shows you that there is this huge audience of all sorts of people.

Luckey: In fact, we’ve done that some in the office, too. [laughs] It’s not just for the kids.

Mitchell: Right now, the audience is game developers, and the content is super-key to the whole user experience. Having content that appeals to those types of people, that’s what we want.

Do you need a killer app?

Mitchell: Definitely. We could use a couple killer apps. Ideally, we’d have a game for the niche market. You’d have Call of Duty 9 over here, and something like Minecraft over here, and a wide swath of games in between.

But what about a killer app that’s exclusively for the Rift? A lot of Wii owners only played Wii Sports. Do you need something like that to distinguish the game play?

Mitchell: I won’t say that we need it, but I will say that we want it. That’s something we are trying to figure out. Is it something someone else is going to develop? We’ve discussed — does it make sense to do something ourselves internally? We’re not sure yet. Right now, the focus has been, “Let’s build the tools, and help the developers get there.”

Luckey: It doesn’t make sense for our first focus to be to hire a bunch of game developers to sit and try and figure out what works best in VR, when there’s literally thousands of other people that are willing to figure it out for themselves. They want the privilege of being the first to work in this space.

OculusRift

How does the Rift fit in with other new gaming hardware coming out, like the Xbox One and PlayStation 4?

Luckey: Right now, it’s just for PC games, because that’s the open platform. Mobile support’s also possible, but that’s just more of a technical problem — phones are not powerful enough to provide a good VR experience right now. There’s no technical reason that the Rift can’t work on consoles. It has standard input/outputs, it wouldn’t be a lot of work. It’s just a matter of console manufacturers deciding to license it as a peripheral. They’re the gatekeepers.

Have you talked to them about that?

Luckey: We can’t say.

Mitchell: I think when you look at this upcoming console generation, we are this black sheep, doing something completely different, but we like that. We’re aiming for what we consider to be next-generation gaming. Xbox and PlayStation, they’re doing awesome stuff. And we’re big fans. That said, the Rift is going to be something entirely different.

Luckey: And we’re focusing specifically on gaming. We’re not trying to make a multi-platform home media hub for the family.

How much is the consumer version of the Rift going to cost?

Luckey: The current developer kits are $300. We don’t know what the consumer version’s going to cost — it could be more, could be less. But we’re looking to stay in that same ballpark. We’re not going to be charging $800 or something. We have to be affordable. If you’re not affordable, you may as well not exist for a huge segment of the market.

I guess you would know, since you have the world’s largest private collection of VR headsets.

Mitchell: [laughs]

Luckey: I’m one of the few people where it’s different. I would spend whatever it was. Gamers are not known to be the most affluent population of people. If something’s even $600, it doesn’t matter how good it is, how great of an experience it is — if they just can’t afford it, then it really might as well not exist. We’re going for the mainstream, but time will tell what the market is.

Mitchell: A big part of it’s going to be the content. If it’s only Call of Duty 9, it’s only going to be the niche hardcore gamers. If we can get other stuff on there, which I think we’re already making exciting progress on, I think it’s going to be a lot broader. The three tenets for us are immersion, wearability and affordability. If we can nail those three things, that’s the killer combination that makes it a consumer VR device.

Luckey: The other thing is, it’s possible to make better hardware if you sell it at that lower price point. When you can sell thousands of something, or tens or hundreds or millions of something, you can afford to put better components into it than if you were only making a hundred of these things for $10,000 each. There are people who’ve said, “You should sell a version with better specs for $1,000,” but it’d be better to sell it for $200 and sell more of them.

What are the limitations of the Rift right now, beyond needing to be wired into a PC?

Mitchell: We don’t have positional tracking right now.

Luckey: [That means] you can’t track movement through space, you can only track rotation.

Mitchell: That’s a big one, something we’d love to solve for the consumer version. The only other “limitation,” I’d say right now — well, there’s things we want to improve, like weight. The more comfortable it is, the more immersive it is. So, there’s that. There’s resolution. We want to bring the resolution up for the consumer version.

IMG_4587And, for the foreseeable future, will players still need to use a handheld console-like controller?

Luckey: We don’t know yet.

Mitchell: Human-computer interaction and user input, especially for VR, is something that we’re constantly researching and evaluating.

Luckey: The reason we’re using gamepads (now) is that everyone knows how to use it, so we don’t need to teach a new [control] device while we’re demoing. But we do know that a keyboard, mouse or gamepad isn’t the best possible VR gaming interface.

Mitchell: It’s another abstraction. We’d love to — well, we’re exploring the possibilities.

Luckey: [waving hand] Use your imagination. [he and Mitchell both laugh]

Mitchell: Microsoft, with the new Kinect, is doing some really interesting stuff. Leap Motion is doing incredible stuff. This tech is out there. It’s a matter of packaging it just right for virtual reality, so that we’re putting players totally inside the game. We always joke, you want to look down in the game and go, ‘Yes, I’m Batman!’ And then you pull out your lightsaber or whatever it is — I know, I’m destroying canon here –

Luckey: — I, I’ll just leave that.

Mitchell: [laughs]

Luckey: One of the things I talked about at GDC is that other game consoles, it’s very abstract. You’re controlling something on a screen, using a controller that’s nothing like how you interact in real life. If you hand a person who doesn’t game a 360 controller, it’s like, “Here’s a 16-button, dual analog controller. Use it!” It’s very difficult for someone to pick it up.

And that was the brilliance of the Wiimote, right? If you want to bowl, here’s the controller, just move it like you’re bowling.

Luckey: Even then, it was an abstraction. But it’s clear you want a control interface so that people feel they’re inside the game. It’s clear that you want to take it to the level where they’re not just looking around in the game, but they’re interacting in the same way that they would interact with real life. On Kinect, no matter how great the tracking is, you’re still controlling something on a screen. You don’t feel like you’re inside of the game if you’re looking at a screen in your living room. It’s never going to feel good until you can feel like you’re actually that person.

In Part Two of this Q&A, Luckey and Mitchell discuss Google Glass, motion sickness, messing with coworkers, and their long-term plans for the company.

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Original author: 
Arik Hesseldahl

cloud1Here’s a name I haven’t heard in a while: Anso Labs.

This was the cloud computing startup that originated at NASA, where the original ideas for OpenStack, the open source cloud computing platform, was born. Anso Labs was acquired by Rackspace a little more than two years ago.

It was a small team. But now a lot of the people who ran Anso Labs are back with a new outfit, still devoted to cloud computing, and still devoted to OpenStack. It’s called Nebula. And it builds a turnkey computer that will turn an ordinary rack of servers into a cloud-ready system, running — you guessed it — OpenStack.

Based in Mountain View, Calif., Nebula claims to have an answer for any company that has ever wanted to build its own private cloud system and not rely on outside vendors like Amazon or Hewlett-Packard or Rackspace to run it for them.

It’s called the Nebula One. And the setup is pretty simple, said Nebula CEO and founder Chris Kemp said: Plug the servers into the Nebula One, then you “turn it on and it boots up cloud.” All of the provisioning and management that a service provider would normally charge you for has been created on a hardware device. There are no services to buy, no consultants to pay to set it up. “Turn on the power switch, and an hour later you have a petascale cloud running on your premise,” Kemp told me.

The Nebula One sits at the top of a rack of servers; on its back are 48 Ethernet ports. It runs an operating system called Cosmos that grabs all the memory and storage and CPU capacity from every server in the rack and makes them part of the cloud. It doesn’t matter who made them — Dell, Hewlett-Packard or IBM.

Kemp named two customers: Genentech and Xerox’s research lab, PARC. There are more customer names coming, he says, and it already boasts investments from Kleiner Perkins, Highland Capital and Comcast Ventures. Nebula is also the only startup company that is a platinum member of the OpenStack Foundation. Others include IBM, HP, Rackspace, RedHat and AT&T.

If OpenStack becomes as easy to deploy as Kemp says it can be, a lot of companies — those that can afford to have their own data centers, anyway — are going to have their own clouds. And that is sort of the point.

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Original author: 
Kara Swisher

url

Earlier today, Yahoo said it had acquired the trendy and decidedly stylish news reading app Summly, along with its telegenic and very young entrepreneur Nick D’Aloisio.

Yahoo said it plans to close down the actual app and use the algorithmic summation technology that the 17-year-old D’Aloisio built with a small team of five, along with a major assist from Silicon Valley research institute SRI International, throughout its products.

While Yahoo did not disclose the price, several sources told me that the company paid $30 million — 90 percent in cash and 10 percent in stock — to buy the London-based Apple smartphone app.

And despite its elegant delivery, that’s a very high price, especially since Summly has been downloaded slightly less than one million times since launch — after a quick start amid much publicity over its founder — with about 90 million “summaries” read. Of course, like many such apps, it also had no monetization plan as yet.

What Yahoo is getting, though, is perhaps more valuable — the ability to put the fresh-faced D’Aloisio front and center of its noisy efforts to make consumers see Yahoo as a mobile-first company. That has been the goal of CEO Marissa Mayer, who has bought up a range of small mobile startups since she took over nine months ago and who has talked about the need for Yahoo to focus on the mobile arena above all.

Mayer met with D’Aloisio, said sources, although the deal was struck by voluble M&A head Jackie Reses.

Said one person close to the deal, about the founder: “Nick will be a great person to put in front of the media and consumers with Mayer to make Yahoo seem like it is a place that loves both entrepreneurs and mobile experiences, which in turn will presumably attract others like him.”

Having met the young man in question, who was in San Francisco in the fall on a fundraising trip, I can see the appeal. He’s both well-spoken and adorkable, as well as very adept at charming cranky media types like me by radiating with the kinetic energy of someone born in the mobile world (you can see that in full force in the video below with actor and Summly investor Stephen Fry).

Still, D’Aloisio is very young and presumably has a lot of other entrepreneurial goals and that’s why he agreed as part of the deal to only officially stay 18 months at Yahoo, multiple sources told me. In many cases, startup founders strike such short-term employment deals with big companies, agreeing to stay for a certain determined time period.

He will also remain in England, where he lives with his parents, said sources. In addition, only two of Summly’s employees will go to Yahoo with D’Aloisio.

That’s $10 million each, along with a nifty app Yahoo will not be using as is (too bad, as it would up the hip and fun factor of Yahoo’s apps by a factor of a gazillion if it were maintained).

“It works out on a lot of levels,” said another person close to the situation. “Nick is a founder that will make Mayer and Yahoo look cutting edge.”

Cue the parade of PR profiles of the young genius made millionaire, helping Yahoo become relevant again.

I have an email for comment into the always friendly D’Aloisio. But I don’t expect a reply, since he has apparently been specifically instructed by the martinets of Yahoo PR not to talk to me any longer — well, for 18 months at least! (Don’t worry, Nick, I don’t blame you and will still listen to whatever you are pitching next, since you are so dang compelling and I enjoyed using Summly!)

Until then, here’s the faboo Summly video, with the best chairs ever:

Summly Launch from Summly on Vimeo.

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Original author: 
Liz Gannes

Google has warned that it will shut down its Google Reader news aggregator July 1. Many people (myself very much included) are mourning a beloved and useful product, but the company cited declining usage.

funeral

Shutterstock/Yuri Arcurs

Under CEO Larry Page, Google has made a practice of “spring cleaning” throughout all the seasons so it can narrow its focus. Reader was just a another bullet point on the latest closure list.

But the shutdown wasn’t just a matter of company culture and bigger priorities, sources said. Google is also trying to better orient itself so that it stops getting into trouble with repeated missteps around compliance issues, particularly privacy.

That means every team needs to have people dedicated to dealing with these compliance and privacy issues — lawyers, policy experts, etc. Google didn’t even have a product manager or full-time engineer responsible for Reader when it was killed, so the company didn’t want to add in the additional infrastructure and staff, the sources said.

But at the same time, Google Reader was too deeply integrated into Google Apps to spin it off and sell it, like the company did last year with its SketchUp 3-D modeling software.

The context for this concern about compliance is Google’s repeated public failures on privacy due to lack of oversight and coordination. It’s pretty clear why Page is trying to run a tighter ship.

Regulators have had ample reasons to go after the company. Google recently paid $7 million to settle with U.S. attorneys general over its years-long international Street View Wi-Fi incident, while agreeing to more closely police its employees. And last summer the company paid $22.5 million for breaking the terms of its U.S. Federal Trade Commission agreement over informing users accurately about privacy practices when it used a trick to install ad cookies for users of Apple’s Web browser Safari.

In the Wi-Spy case, after repeatedly downplaying the incident, Google ultimately disclosed that an engineer had devised the drive-by plan to collect user data from unsecured Wi-Fi networks, and had easily passed it through rubber-stamp approval processes.

In the Safari bypass case, Google said it was just trying to check whether users were logged into Google+, and any resulting tracking was inadvertent and no personal information was collected. Ultimately, what the company was held accountable for was having an out-of-date help page — an even more basic slip-up.

While it might not be obvious how Google Reader could be compromised by similar lapses — perhaps policies could fall out of date, or user RSS subscription lists could be exposed — the point is that Google wasn’t willing to commit to ensuring that it was well-run.

So how many users would Google Reader need to make it a valuable enough product to be worthy of investment and a real team?

A petition to save Reader on Change.org has nearly 150,000 signatures. That’s clearly not enough.

Google wouldn’t disclose how many users the product had, but Flipboard CEO Mike McCue told me yesterday that two million people have connected their Google Reader accounts to the Flipboard visual news apps. So you have to imagine it’s probably an order of magnitude larger than two million.

(By the way, many people involved with the product agree that it wasn’t just tech news fanatics who loved the service, but politics junkies and mommy bloggers and anyone who likes to mainline fresh content from their preferred outlets.)

Nick Baum, one of the original Reader product managers who’s no longer at Google, noted that in the early days of the product there were “several millions” of weekly active users.

In a conversation this weekend, Baum said, ”My sense is, if it’s a consumer product at Google that’s not making money, unless it’s going to get to 100 million users it’s not worth doing.”

But Baum left the team in 2007 — before the rise of Twitter — and he notes Google never put the resources in to do things like help new Google Reader users find feeds to follow and parse the most interesting content from high-volume outlets.

The irony, Baum said, is that if Google Reader were out seeking venture funding in Silicon Valley with its high-value audience, it most likely would have gotten it. “As a startup they would have been perfectly viable,” he said. Not to mention, startups don’t have to worry about compliance issues.

“Someday someone will do something in this space that will work,”  Baum said. “And maybe then Google will buy them.”

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That crazy leap that Felix Baumgartner made was astonishing.

And if you’re interested in the future of Web video, YouTube’s ability to serve up eight million livestreams at the same time is a really big deal, too.

As I noted yesterday, that number blows away YouTube’s previous peak of 500,000 concurrent streams, which it hit this summer during the Olympics, as well as last year during the royal wedding of Prince William and Kate Middleton.

So it doesn’t take much imagination to envision YouTube doing this kind of stuff, at this scale, on a regular basis. Which would mean the Web finally has a chance to rival TV when it comes to serving up live events with huge audiences — one of TV’s last remaining advantages over the Internet.

That won’t happen anytime soon, though. Death-defying jumps from outer space aside, there are only a few live events that millions of people want to watch at the same time. Basically, a handful of award shows like the Oscars, and big-time sports.

Even if YouTube wanted to pay up to get its hands on that programming, it’s going to have to wait, because the TV guys have the rights locked up for a long time. The next set of NFL deals, for instance, won’t be available for a decade.

But YouTube is still going to be an important platform for live stuff. It’s just that you probably won’t see most of it, unless you’re in a very particular niche.

Here’s some of the stuff YouTube has streamed live in the last year or so:

  • A concert from Psy, the “Gangnam style” guy
  • A concert from AKB48, a Japanese girl group
  • A bunch of EDM shows (that’s “DJs playing music for big crowds,” for the rest of us)
  • A concert by Jay-Z at the new Barclays Center in Brooklyn
  • A World of Warcraft launch event, which featured gamers playing Mists of Pandaria around the world
  • A bunch of solar and lunar eclipses

None of these shows drew more than a couple-hundred-thousand concurrent viewers, which would make them the equivalent of a poorly rated cable TV show.

And that makes sense: Since the Internet has trained us to watch anything we want, whenever we want to, why do we have to watch when everyone else does? (A semi-secret about the live video streaming that news sites like the New York Times, The Wall Street Journal* and the Huffington Post do, for instance: Almost all the viewing comes after the fact, via on-demand clips.)

On the other hand, as YouTube proved conclusively yesterday, it can now mount this stuff without breaking a sweat. Now it’s basically a plug-and-play option for any grown-up company that wants to do business with Google. And YouTube is going to make it increasingly available to the rest of us, too.

That’s the result of a year of around-the-clock work by a couple-dozen YouTube engineers, to prep the video site for the Olympics in July.

YouTube software engineering director Jason Gaedtke,who oversaw that effort, says the livestreams the company put out during the Olympics were seven times better than the standard video-on-demand stuff YouTube puts out everyday. His team is now applying the lessons it learned from that effort, and using it to upgrade YouTube’s video more broadly.

So, yes. If someone else wants to grab the world’s attention by breaking the sound barrier aided only by gravity, you’ll be able to watch it alongside a global audience of millions.

But the future of live video on YouTube is probably going to look like something else: You and several thousand other people, watching something most of the world doesn’t care about.

And that can be thrilling in its own way.

*The Journal is owned by News Corp., which also owns this Web site.

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Gabe Newell, the co-founder and managing director of Valve, the videogame development and online distribution company, made a rare appearance last night at Casual Connect, an annual videogame conference in Seattle.

Newell, who spent 13 years at Microsoft working on Windows, is not well-known outside of the videogame industry, but the company he has built in Bellevue, Wash., cannot be overlooked.

Valve is not only a game developer, producing megahits like Portal 2, it owns and operates Steam, which is the largest consumer-focused digital games distribution platform in the industry. By some measures, it may be valued at $3 billion.

Last night, at a dinner sponsored by Covert & Co., Google Ventures and Perkins Coie, Newell unveiled some of his most quirky and secretive projects in an interview onstage with Ed Fries, former VP of game publishing at Microsoft.

Newell, who has a desk on wheels so he can quickly roll over to his favorite projects within the company, struggled at times to put into words how he sees the industry shaking out as companies like Microsoft and Apple move toward closed ecosystems. At one point, he even lamented that his presentation skills aren’t up to speed because Valve isn’t a public company.

Here are excerpts from the conversation that took place in a packed and noisy room with an under-powered speaker system:

On the future of videogame distribution

“Everything we are doing is not going to matter in the future. … We think about knitting together a platform for productivity, which sounds kind of weird, but what we are interested in is bringing together a platform where people’s actions create value for other people when they play. That’s the reason we hired an economist.

“We think the future is very different [from] successes we’ve had in the past. When you are playing a game, you are trying to think about creating value for other players, so the line between content player and creator is really fuzzy. We have a kid in Kansas making $150,000 a year making [virtual] hats. But that’s just a starting point.

“That causes us to have conversations with Adobe, and we say the next version of Photoshop should look like a free-to-play game, and they say, ‘We have absolutely no idea what you are talking about, but it sounds really bad.’ And, then we say, ‘No, no, no. We think you are going to increase the value being created to your users, and you will create a market for their goods on a worldwide basis.’ But that takes a longer sell.

“This isn’t about videogames; it’s about thinking about goods and services in a digital world.”

On closed versus open platforms

“In order for innovation to happen, a bunch of things that aren’t happening on closed platforms need to occur. Valve wouldn’t exist today without the PC, or Epic, or Zynga, or Google. They all wouldn’t have existed without the openness of the platform. There’s a strong tempation to close the platform, because they look at what they can accomplish when they limit the competitors’ access to the platform, and they say ‘That’s really exciting.’”

“We are looking at the platform and saying, ‘We’ve been a free rider, and we’ve been able to benefit from everything that went into PCs and the Internet, and we have to continue to figure out how there will be open platforms.’”

On Valve’s interest in Linux

“The big problem that is holding back Linux is games. People don’t realize how critical games are in driving consumer purchasing behavior.

“We want to make it as easy as possible for the 2,500 games on Steam to run on Linux as well. It’s a hedging strategy. I think Windows 8 is a catastrophe for everyone in the PC space. I think we’ll lose some of the top-tier PC/OEMs, who will exit the market. I think margins will be destroyed for a bunch of people. If that’s true, then it will be good to have alternatives to hedge against that eventuality.

On the evolution of touch

“We think touch is short-term. The mouse and keyboard were stable for 25 years, but I think touch will be stable for 10 years. Post-touch will be stable for a really long time, longer than 25 years.

“Post touch, depending on how sci-fi you want to get, is a couple of different technologies combined together. The two problems are input and output. I haven’t had to do any presentations on this because I’m not a public company, so I don’t have any pretty slides.

“There’s some crazy speculative stuff. This is super nerdy, and you can tease us years from now, but as it turns out, your tongue is one of the best mechanical systems to your brain, but it’s disconcerting to have the person sitting next you go blah, blah, blah, blah.

“I don’t think tongue input will happen, but I do think we will have bands on our wrists, and you’ll be doing something with your hands, which are really expressive.”

On wearable computers

“I can go into the room and put on the $70,000 system we’ve built, and I look around the room with the software they’ve written, and they can overlay information on objects regardless of what my head or eyes are doing. Your eyes are troublesome buggers.”

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How can we make sense of it all?
A few weeks ago, I had dinner with Saumil and Sailesh, co-founders of LocBox.* Instagram had just been acquired by Facebook and there was speculation (later confirmed) about a big up round financing of Path. The recent large financing of Pinterest was still in the air, and the ongoing parlor game of when Facebook would go public and at what price was still being played. A couple of months prior, Zynga had acquired OMGPOP.

Sailesh wondered aloud, “How much time do we have for any of these?” “How many of them can coexist?” and “Do we really need them?” My answers were, respectively: “A lot.” “Many of them.” and “No, but we want them.” That dinner discussion prompted some observations that I am outlining here, and I invite you to share your own observations in the comments below.

In a nutshell, the Internet has evolved from being a need-driven utility medium with only a handful of winners to a discovery-driven entertainment medium with room for multiple winners. The necessary and sufficient conditions for this evolution are now in place — broadband, real names and tablets are the three horsemen of this New New Web. As consumers, entrepreneurs and investors, we should get used to the fact that the online economy is increasingly blurring with the offline economy, and in the limit, that distinction will disappear. As a result, just as in the real world, the Web of entertainment will be much bigger than the Web of utility.

A Theory of Human Motivation
One framework for understanding the consumer Internet is Maslow’s Hierarchy of Needs, which Abraham Maslow put forward as a way of explaining human behavior at large. The core premise is that once our basic needs of food, shelter, safety and belonging are satisfied, we tend to focus on things that are related to creativity, entertainment, education and self-improvement. A key aspect of this framework is that it’s sequential: Unless the basic needs are met, one cannot focus on other things. As an example, a study in 2011 showed that humans who are hungry will spend more on food and less on non-food items compared to those who are not hungry. Using this framework, we can see how consumer adoption of the Web has evolved over the last 20 years, and why all of the ingredients are only now in place for consumers to use the Web for what Maslow called “self-actualization” — a pursuit of one’s full potential, driven by desire, not by necessity.

1992-2012: Web of Need
Between the AOL IPO in 1992 and the Facebook IPO last month, the Internet has largely been in the business of satisfying basic consumer needs. In 1995, the year Netscape went public and made the internet accessible to the masses, I was a young product manager for a consumer Internet company called Global Village Communication. We were a newly minted public company and our hottest product was a “high speed” fax/modem with a speed of 33.6 kbps. Back then, using the Internet as a consumer or making a living off it as a business was rather difficult, and sometimes simply frustrating. In the subsequent years the basic needs of access, browser, email, search and identity were solved by companies such as AOL, Comcast, Netscape, Yahoo, Google, LinkedIn and Facebook.

2012-?: Web of Want
Today, the billion users on Facebook have reached the apex of Maslow’s hierarchy on the web. All of our basic needs have been satisfied. Now we are in pursuit of self-actualization. It is no surprise that on the Web, we are now open to playing games (Zynga, Angry Birds), watching video (YouTube, Hulu), listening to music (Pandora, Spotify), expressing our creativity (Instagram, Twitter, Draw Something), window shopping (Pinterest, Gojee*) and pursuing education (Khan Academy, Empowered*).

The Web Is Becoming Like TV
How do we make sense out of a Web where multiple providers coexist, serving groups of people who share a similar desire? Turns out we already have a very good model for understanding how this can work: Television. Specifically, cable television. The Web is becoming like TV, with hundreds of networks or “channels” that are programmed to serve content to an audience with similar desires and demographics. Pinterest, ShoeDazzle, Joyous and Alt12* programmed for young, affluent women; Machinima, Kixeye and Kabam programmed for mostly male gamers; Gojee* for food enthusiasts; Triposo* for travellers; GAINFitness* for fitness fans and so on.

In this new new Web, an important ingredient to success is a clear understanding of the identity of your users to ensure that you are programming to that user’s interests. The good news is that unlike TV, the Web has a feedback loop. Everything can be measured and as a result the path from concept to success can be more capital efficient by measuring what type of programming is working every step of the way — it’s unlikely that the new new Web will ever produce a Waterworld.

Why Now? Broadband, Real Names & Tablets
As my partner Doug Pepper recently wrote, a key question when evaluating a new opportunity is to ask “Why Now?” Certainly, companies like AOL, Yahoo and Myspace have tried before to program the Web to cater to interests of specific audiences. What’s different now? Three things: Broadband, real names and tablets.

The impact of broadband is obvious; we don’t need or want anything on a slow Web. With broadband penetration at 26 percent in industrialized countries and 3G penetration at about 15 percent of the world’s population, we are just reaching critical mass of nearly 1B users on the fast Web.

Real names are more interesting. In 1993, the New Yorker ran the now famous cartoon; “On the Internet, nobody knows you’re a dog.” This succinctly captured the state of the anonymous Web at the time. Reid Hoffman and Mark Zuckerberg changed that forever. Do we find Q&A on Quora to be more credible than Yahoo! Answers, celebrity profiles on Twitter more engaging than Myspace and pins on Pinterest more relevant than recommendations on early AOL chatrooms? I certainly do, and that is largely because Quora, Twitter and Pinterest take advantage of real names. Real names are blurring the distinction between online and offline behavior.

Finally, the tablet, the last necessary and sufficient piece that fuels the “Web of want.” The PC is perfect for the “Web of need” — when we need something, we can search for it, since we know what we are looking for. Searching is a “lean-forward” experience, typing into our PC, either at work or at the home office. The Web over the last decade has been optimized for this lean-forward search experience — everything from SEO to Web site design to keyword shortcuts in popular browsers makes that efficient. However, smartphones and tablets allow us to move to a “lean-back” experience, flipping through screens using our fingers, often in our living rooms and bedrooms, on the train or at the coffee shop. Tablets make discovery easy and fun, just like flipping channels on TV at leisure. These discoveries prompt us to want things we didn’t think we needed.

Early Signs
This thesis is easy to postulate, but is there any evidence that users are looking to the Web as anything more than a productivity platform? As has been reported, mobile devices now make up 20 percent of all U.S. Web traffic, and this usage peaks in the evening hours, presumably when people are away from their office. Analysis from Flurry* shows that cumulative time spent on mobile apps is closing in on TV. We certainly don’t seem to be using the Web only when we need something.

Economy of Need Versus Want
The economy of Want is different from the economy of Need. We humans tend to spend a lot more time and money on things we want compared to things we need. For example, Americans spend more than five hours a day on leisure and sports (including TV), compared to about three hours spent on eating, drinking and managing household activities. Another difference is that when it comes to satisfying our needs, we tend to settle on one provider and give that one all of our business. Think about how many companies provide us with electricity, water, milk, broadband access, search, email and identity. The Need economy is a winner-take-all market, with one or two companies dominating each need. However, when it comes to providing for our wants, we are open to being served by multiple providers. Think about how many different providers are behind the TV channels we watch, restaurants we visit, destinations we travel to and movies we watch. The Want economy can support multiple winners, each with a sizeable business. Instagram, Path, Pinterest, ShoeDazzle, BeachMint, Angry Birds, CityVille, Kixeye, Kabam, Machinima and Maker Studios can all coexist.

Investing in the Web of Want
The chart below shows that over a long term (including a global recession) an index of luxury stocks (companies such as LVMH, Burberry, BMW, Porsche, Nordstrom) outperforms an index of utility stocks (companies such as Con Edison and Pacific Gas & Electric that offer services we all need). The same applies to an index of media stocks (companies such as CBS, Comcast, News Corp., Time Warner, Viacom) which outperforms both the utilities and the broader stock market. Of course, higher returns come with higher volatility — Nordstrom’s beta is 1.6 and CBS’ beta is 2.2, compared to 0.29 for PG&E. It is this volatility that has cast investing in the Want business as a career-ending move in Silicon Valley for the past 20-plus years. As the Web evolves from serving our needs to satisfying our wants and, in turn, becomes a much larger economy, sitting on the sidelines of the Web of Want may not be an option.

Let’s Not Kill Hollywood
With a billion users looking for self-actualization and with the widespread adoption of broadband, real names and tablets, the Web is poised to become the medium for creativity, education, entertainment, fashion and the pursuit of happiness. As the offline world shows, large, profitable companies can be built that cater to these desires. Entrepreneurs and investors looking to succeed in the new new Web can learn quite a few lessons from our friends in the luxury and entertainment businesses, which have been managing profitable “want” businesses for decades. The fusion of computer science, design, data, low friction and the massive scale of the Internet can result in something that is better than what either Silicon Valley or Hollywood can do alone. It is no wonder that the team that came to this conclusion before anyone else is now managing the most valuable company in the world.

Epilogue
When we go see a movie or splurge on a resort vacation, we don’t stop using electricity, brushing our teeth or checking our email. The Web of Want is not a replacement for the Web of Need, it is an addition. Many of the Internet companies that satisfied our needs in the last 20 or more years of the Web are here to stay. In fact, they will become more entrenched and stable, with low beta, just like the utilities in the offline world. Microsoft has a beta of exactly 1.0 — it is no more volatile than the overall stock market. And for those longing for the days of “real computer science” on the Web, do not despair. Just keep an eye on Rocket Science and Google X Labs — there is plenty of hard-core engineering ahead.

Disclosures: * indicates an InterWest portfolio company. Google Finance was used for all of the stock charts and beta references.

Keval Desai is a Partner at InterWest, where he focuses on investments in early-stage companies that cater to the needs and wants of consumers. He started his career in Silicon Valley in 1991 as a software engineer. He has been a mentor and investor in AngelPad since inception. You can follow him @kevaldesai.

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Sundar Pichai

In advance of the release of Google Drive, I sat down yesterday with Google SVP of Chrome and Apps Sundar Pichai and Google Drive product head Scott Johnston. I asked them to elaborate on how Google Drive emerged from within Google, how the product compares to the competition, and where they see it evolving.

What’s ironic is that Pichai was the guy who helped kill a previous product called Google Drive, or GDrive, as detailed in Steven Levy’s “In the Plex”:

Google was about to launch a project it had been developing for more than a year, a free cloud-based storage service called GDrive. But Sundar had concluded that it was an artifact of the style of computing that Google was about to usher out the door. He went to Bradley Horowitz, the executive in charge of the project, and said, “I don’t think we need GDrive anymore.” Horowitz asked why not. “Files are so 1990,” said Pichai. “I don’t think we need files anymore.”

Pichai is still not a fan of files — in fact, his criticism of Dropbox and others is that they’re all about file management –  but he’s come around on “having data available in context.” Here’s an edited transcript of our chat from yesterday:

Liz Gannes: With Google Drive, you’re straddling distinctions between personal and organizational use, and personal storage versus sharing. As a user of Google Docs, Dropbox and others, I often get confused across that juncture about who can see things. How do you design for that?

Sundar Pichai: We strongly believe in the consumerization of the enterprise, and that’s the pillar of all our Google Apps strategy. At work and at home, we try to bring the same set of products. There’s some work in bridging the shift, but examples like the iPad bridge it pretty well. We have good controls in place — an admin can control when you’re using Drive within a company — but it’s an area we can do a lot more in.

Who can see what’s in my Google Drive folder?

Scott Johnston: This is a big shift, in that, really, the Google Drive folder is yours. Only things go in there that you create or that you move there explicitly. There’s a new “shared with me” view, and then you can move them into your Drive if you want. So it’s really this space that you control.

Do you see people using their Google Drive as their backup for everything?

Pichai: It’s a good question. I’m probably not the best representative use case, but the first time I got my access, I put my family pictures there, for safety and peace of mind. I don’t think that problem is well-solved today, so having a very safe, secure place to store, which is cost-affordable, I think is a good opportunity. We also really want people to have data anytime, anywhere.

So — yes?

Pichai: Yes, it’s a long way of saying yes.

What’s the team that created this project? I know Google Drive had been “killed” internally before, but what about this group?

Scott Johnston

Johnston: I came onboard Google in 2006 when we were acquired at JotSpot, and joined the Docs team. On that team, as we got better and better at collaboration on different file types, we started seeing them more and more in our everyday life; for planning a birthday party or, internally, our designers were constantly sharing mocks. And it was this idea of getting out of the way of the user so they don’t have to think about where their stuff is, and they can just do what they’re trying to do. It was a natural evolution of Docs. This is just more touchpoints to access your data.

Is there continuity with previous Google Drive products?

Pichai: What Scott’s talking about, Google Drive as an evolution of Docs, is one thing. Early on, we had a project called Google Drive that was completely different.

What was different?

Pichai: There was a very traditional file system approach, a long time ago, having nothing to do with Google Docs. It was pre-mobile, pre-tablet, with deep integration into My Documents and Windows, et cetera. So it was very different.

Why is this a good product now?

Pichai: Today, when I look at different solutions out there, those are still in the old metaphor of “here are files that you want, manage them.” This is about you living your life online — planning a wedding, buying a house — and having your data available in that context. I think it’s a big pivot, and that’s what excites me and makes it a good product. It’s in the natural flow.

I wouldn’t underestimate the fact that you can use it not just with Google but with third-party applications over time will be a big differentiator. And third is, deep search is very powerful. There is a lot of deep computer science in there, the fact that you can comment on any file type, that there’s full-text indexing with optical character recognition, all that happens magically with our infrastructure.

Johnston: There’s also being able to offer up to 16 terabytes of storage per user.

It’s kind of unusual for you to ask consumers to pay for Google products, right?

Pichai: Today, people are paying for Gmail and Picasa storage. For power users, it is popular. We’ve kind of made it very hard for you to do, but [Google Drive] is very easy. When you do upgrade here, your Gmail automatically goes up to 25 gigs. Over time, given how much Google Apps are the center of many users’ life, and you want to store safely and securely, I think it’s a good model and it’s a pretty good deal.

I know you’ve been working on Google Drive, in various iterations, for a long time. Why are you releasing it now, especially if some key parts are not done?

Pichai: We wanted all of this to be done — iOS, Gmail, etc. We picked a schedule and, like, 18 things made the train, and two got left out, but they will get added in after. The fact that Gmail got delayed and G+ made it, I wouldn’t have known a month ago.

Is this like the Chrome browser, where you guys promised a Mac version was coming soon, and then it took a couple years?

Pichai: Sorry about that. We dramatically underestimated what it would take to do Chrome on the Mac. IOS is a very different story. It works today. IOS is 98 percent done, and it will be here soon.

No matter what you say or launch, the takeaway is going to be, “Google launches Dropbox competitor.” What do you make of the competitive landscape?

Pichai: I think if we wanted to do it, we would have approached it very differently. We’ve gone to great lengths to built it around an online application experience. We want this to be about creating and collaborating — and your data is there for you. I think others have taken a file/data approach, and saying you have [access to] that everywhere. It’s nuanced, but I think it’s very different.

And for an active Google user, the integration we provide is very valuable. [As for Dropbox,]  I think the work they’ve done is great. This is a secular shift in terms of how people are living in the cloud, and I think it’s good to have innovation in the space.

Are we going to see TV ads for this?

Pichai: Not that I know of.

Johnston: The Super Bowl’s a long time from now.

Pichai: If the Niners make it.

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For years, some people who wanted to store files on remote servers in the cloud have been emailing the files to their Gmail accounts, or uploading them to Google’s lightly used Google Docs online productivity suite, even if they had no intention of editing them there.

Now, Google is formally jumping into the cloud-based file storage and syncing business, offering a service called Google Drive, which will compete with products like Dropbox and others by offering lower prices and different features. It works on multiple operating systems, browsers and mobile devices, including those of Google’s competitors Apple and Microsoft. There are apps for Windows, Mac and mobile devices that automatically sync files with Google Drive.

[ See post to watch video ]

I’ve been testing Google Drive, which launches today, and I like it. It subsumes the editing and file-creation features of Google Docs, and replaces Google Docs (though any documents you have stored there carry over). In my tests — on a Mac, a Lenovo PC, a new iPad and the latest Samsung Android tablet — Google Drive worked quickly and well, and most of its features operated as promised. At launch, it’s available for Windows PCs, Macs and Android devices. The version for the iPhone and iPad is planned for release soon.

Google Drive, which can be found at drive.google.com, offers users 5 gigabytes of free storage, compared with 2 gigabytes free for the popular Dropbox, and equal to the free offering from another cloud storage and syncing service I like, SugarSync. That’s enough for thousands of typical documents, photos and songs.

Prices for additional storage drastically undercut Dropbox and SugarSync. For instance, 100 GB on Google Drive costs $4.99 a month. By contrast, 100 GB costs $14.99 monthly on SugarSync and $19.99 on Dropbox. Google Drive will offer huge capacities, in tiers, all the way up to 16 terabytes. (A terabyte is roughly 1,000 gigabytes.) And if you buy extra storage for Google Drive, your Gmail quota rises to 25 GB.

But one of Google’s biggest rivals isn’t standing still. Microsoft is expanding both the features and capacity of its little-known SkyDrive cloud storage service as well. That product started out as a free, fixed-capacity (25 gigabytes) online locker mostly for users of the stripped-down, cloud-based version of Microsoft Office, though it also has been available as an app for Windows Phone smartphones and for iPhones. It’s giving away even more free storage than Google — 7 GB, though that is a cut from what it used to offer free. It also is charging less than Google. For instance, you can add 100 gigabytes for $50 a year. And users of the old version get to keep their 25-gigabyte free allotment. I wasn’t able to test this new version of SkyDrive for this column. It also is offering syncing apps for Windows and Mac.

Google Drive is meant as an evolution of Google Docs. While you could previously upload a file to Google Docs using your Web browser, for Google Drive, the company is providing free apps for Mac and Windows that, like Dropbox, do this for you. They create special folders that sync with your cloud-based repository and with the Web version of the product. So, you can drag a file into these local folders on your computer and that file will be uploaded to your cloud account and will rapidly appear in the Web version of Google Drive, in the Google Drive folders on your other computers, and in the Google Drive apps on Android, iPhone and iPad devices. These local apps also sync any changes to the files you make.

One big difference between Dropbox and Google Drive is you can edit or create files in the latter, rather than merely storing or viewing them. This is because Google Drive includes the rudimentary word processor, spreadsheet, presentation and other apps that make up Google Docs.

But there is a catch. If your stored document is in a Microsoft Office format, you can only view it. To edit it, you have to click a command to convert the file to Google’s own formats, or choose a setting that converts Microsoft Office files when uploaded. But this latter feature only works when uploading from the website.

Google Drive also is missing some features of SugarSync I like. The latter doesn’t require you to place files in a special folder; it syncs the folders you already use on your PC and Mac. Also, unlike SugarSync, Google Drive doesn’t let you email files directly into your cloud locker.

Google Drive allows you to share files and folders, and collaborate with others. You can also email files as attachments. People with whom you share files can be allowed different rights: To view, comment, or edit them. You can also keep the files private.

Because Google has run into hot water over keeping users’ information private, some people may be reluctant to trust their files to Google Drive. But the company insists that, while it does process and store your files, no human can see them and, at least today, the files aren’t used to target advertising at users. The company notes no file can be placed in Google Drive unless the user wants it there.

The service does a very good job of searching files, even finding words inside PDF or scanned documents. The company claims it can find images when you type in words describing them, like “bridge” or “mountain”—even if those words don’t appear in the image’s file name. But I found this mostly worked with photos of famous places or people Google has collected via its Google Goggles product. Google Drive failed to find images with generic file names on almost all of my own pictures, even when they included things like mountains or other common objects.

Google Drive did a good job in my tests with videos. It converts nearly every common video format into a format it can play, right inside its website. This process can take some time. While Google Drive can store music, it can’t play it directly via its website.

Google’s new service also works with third-party document creation and editing apps that are built to work with it. I used one, called Balsamiq Mockups, to create a quick wire-frame diagram.

I can recommend Google Drive to consumers looking for cloud-based storage, with the added bonus of integrated editing, at lower prices. But the new Microsoft SkyDrive also seems worth a try.

Email Walt at mossberg@wsj.com.

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