Mark Suster of Los Angeles’ GRP Partners is known for his unique insights on the tech and digital media worlds, having famously had success on “both sides of the table” as a repeat entrepreneur turned investor over nearly two decades in the industry. And he hit headlines several times this past week, with his viewpoints on acqui-hires (he says they’re often very bad) and founders stepping down from the CEO role such as what happened with GRP portfolio startup Awe.sm (he says sometimes, it’s the best thing that can happen.)

So when we heard that Suster was in San Francisco for a couple of days, we asked him to come by TechCrunch TV to talk a bit more at length about all that’s been going on. And while he warned us that he was a bit tired due to a late night visiting with industry folks here in the Bay Area the evening before we met, he was just as engaging as ever, talking about the topics mentioned above as well as the latest hot stuff coming out of the Southern California tech scene.

Check it all out in the video embedded above.

Editor’s note: Richard Bennett is a Senior Fellow with the Information Technology and Innovation Foundation and co-author of ITIF’s 2013 report, “The Whole Picture: Where America’s Broadband Networks Really Stand.” Follow him on Twitter @iPolicy.

We’ve all heard the story: America’s broadband networks are second-rate. We pay exorbitant prices for shoddy service because broadband providers print money and hold innovation in a death grip. While America languishes, our competitors in Europe and Asia are racing ahead to a user-generated content utopia. The only way forward is a government takeover, or, failing that, a massive dose of regulation.

So go a number of recent treatises such as Susan Crawford’s “Captive Audience”; works by like-minded Internet aficionados Tim Wu, Lawrence Lessig, and Yochai Benkler; reports by public interest advocacy groups Free Press, Public Knowledge, and the Open Technology Institute; as well as numerous tech bloggers.

The only problem with this story is that it’s almost completely untrue.

Granted, as recently as the late aughts, the story was plausible: In those dark days, our rankings in terms of both broadband subscription growth and speeds were falling. Increased demand for data capacity and a technology lull combined to push our average Internet connection speed down to 22nd in the world at the end of 2009, according to Akamai’s measurement of “Average Connection Speed.” Since then, the speeds of such shared connections have nearly doubled from 3.9Mbps to 7.2 Mbps, raising the U.S. to eighth place.

U.S. Average Connection Speed per Akamai

Akamai’s Average Connection Speed measures individual TCP streams over IP addresses that are often shared — and doesn’t sum simultaneous streams — so it’s more a measure of usage than of network capacity, however. To see the capacity of the underlying broadband network, it’s best to look at Akamai’s “Average Peak Connection Speed” metric.

The distinction between these two metrics flummoxed Ars Technica’s Cyrus Farivar, who maintains that the shared-connection measurement is the more meaningful indication of “user experience.” Farivar is clearly wrong about that, and Akamai’s “Average Peak Connection Speed” is the better indicator of network improvement.

The Average Peak measurement shows performance in the U.S. tripling over the past five years, up to 31.5Mbps in Q4 2012. We don’t know where the U.S. ranked on this scale before mid-2010, but it’s currently 13th. The tripling of network capacity combined with a doubling of “shared speed” says that networks are getting faster, as the U.S. is simultaneously using them more heavily

Average Peak Connection Speed per Akamai

America’s broadband speeds are improving for two reasons: first, broadband providers have installed newer technologies, such as Verizon FiOS, DOCSIS 3 cable modems, and AT&T U-verse that are four or more times faster than the technologies they replaced; and second, users have begun to demonstrate a preference for higher-speed broadband by opting into higher-speed upgrades. Some upgrades are costly and others are not; Comcast recently doubled the speeds of most of their Bay Area broadband plans for free.

While our networks are improving, we’re retaining low prices for entry-level broadband plans first noticed by the Berkman Center’s “Next Generation Connectivity” report: the U.S. is currently second in the price of broadband for entry-level users. The nation is also third in network-based competition, second in the fiber-optic installation rate, first in the adoption of next-generation LTE, ahead of Europe in broadband adoption, and doing quite well in Internet-based services.

While U.S. cable TV companies still lead telcos in new broadband subscriptions, fiber-based telco broadband is gaining subscribers at a faster rate than cable. U.S. broadband providers are profitable, but much less so than Europe’s or Korea’s, where applications like YouTube must pay ISPs for access to residential customers. Significantly, we’ve gained ground on competitors despite an enormous disadvantage stemming from America’s very low urban population densities, which make U.S. broadband networks much more expensive to build and maintain than those in most nations.

Amazingly, the European Commission’s top telecom regulator, Vice President Neelie Kroes, tells a story much like the tales of woe we hear from American broadband critics, but with the roles reversed: Kroes laments Europe’s declining standing relative to the U. S., where “high-speed networks now pass more than 80 percent of homes; a figure that quadrupled in three years.” To facilitate private investment in networks, Europe has developed a “Ten Step Plan” for a single, cross-border market for broadband that mimics our interstate, facilities-based broadband market.

But these facts are glossed over by the critics of U.S. broadband policy in large part because they directly contradict their neo-populist narrative of rapacious, profit-hungry broadband monopolists gouging consumers. The long tradition of American populism distrusts private provision of “essential” services and refuses to believe that competition can ever be brought to bear on infrastructure markets. Crawford in particular relies too heavily on a strained analogy with electricity, a genuine natural monopoly that is as different from the competing information networks we have in the broadband space as any network can possibly be: Can you get electric service over the air?

Critics also come up short on research, generally refusing to consult updated primary sources in favor of blog posts and news articles from inside the echo chamber that simply reinforce the traditional narrative. “Confirmation bias” is rampant in broadband criticism.

Broadband advocates would do better to focus their efforts on real problems, such as our dismally low level of interest in the Internet, the primary reason non-subscribers give for refusing to go online. Ideally, these efforts would be combined with initiatives to increase computer ownership among the poor — the second reason so few Americans use the Internet. The world’s high-subscription nations, such as Korea and Singapore, aren’t the price leaders for entry-level Internet services as we are, but they’ve led successful outreach efforts to spread computer ownership, digital literacy, and Internet awareness across their entire populations.

Getting all of America online is a goal that all Americans can support regardless of party creed or ideological doctrine. If we can make as much progress with online participation as we’ve made with speed, Europe will have a second Internet crisis on its hands.

If you write about Tumblr as a business, you are required to note that Tumblr has a lot of porn.

How much porn? You’ll have to make something up, because the only people who know much porn the blogging service hosts work at the blogging service, and they don’t offer up a number.

But let’s stipulate, for argument’s sake, that there is indeed a lot of porn on Tumblr — in fact, the company’s terms of service make a point of saying it’s ok with “not suitable for work” stuff.

Which means there are a lot of pages on Tumblr that advertisers won’t go near. Like “Girls in Yoga Pants“, where the image at the top of this post came from (yes, that’s a tame one).

So why isn’t that an issue for Yahoo, which is very close to spending $1.1 billion on the company?

Here it’s important to pay attention to the way Tumblr actually works — or more precisely, the two ways it works.

Tumblr offers tools to make simple blog pages, which anyone with a Web browser can see. So you don’t have to sign up for Tumblr to check out We Want Porn, but Comscore will count you as one of the service’s 117 million monthly users.

Tumblr’s core users, though, log in to the service, and subscribe to different Tumblogs, which they view on a “dashboard” – the equivalent of Twitter and Facebook’s newsfeeds.

Not coincidentally, these are also the only people that Tumblr is showing ads to, either via “radar” ads that promote tumblr pages alongside users’ dashboards, or “spotlight” ads that promote Tumblr pages in a directory of suggested acounts.

To spell that out: Tumblr’s advertisers don’t have to worry about their stuff showing up on blogs like We Want Porn. At worst, it’s possible that they’ll end up advertising to a user whose dashboard includes posts from We Want Porn. But in general, they ought to be pretty well insulated from that stuff.

By the same token, if Yahoo wanted to, it could end up scrubbing Tumblr of porn, and losing a lot of users and views — but it probably wouldn’t lose much in the way of monetizable users. Unless it turns out that the majority of Tumblr’s core users have signed on exclusively to use porn.

So: Problem? Sure. But it doesn’t look like a costly one.

Editor’s note: Keith Teare is the founder of just.me and a partner at Archimedes Labs. He is also the co-founder of TechCrunch. Follow him on Twitter @kteare.

Because of Google I/O, this was a momentous week for those of us who are watching the rapid transition that is taking place from desktop computing to mobile, and particularly for those focused on mobile-social as I am because of my job at just.me. Here is my take on what we just witnessed.

Standalone Hangouts. Google announced at its I/O event that Hangouts was to be launched as a separate app from Google Plus, taking personal conversations out from the G+ app and putting them into their own space.

Facebook Home problems. AT&T was reported to have decided to discontinue distribution of the HTC First – the Facebook Home Android phone – due to lack of sales. This comes on the back of publicity pointing to a large number of one-star reviews for the software on the Google Play store.

What is at stake?

There are many common themes and questions that underpin the launch and evolution of Hangouts as a separate app and previously led to the decision to launch the Facebook Home product. These products represent two very similar answers to a common question. The primary question is who will users look to to enable their social communications needs on mobile devices?

To set the context for an analysis let’s acknowledge the elephant in the room that is partially driving these decisions.

Mobile Messaging is rapidly becoming the primary way users engage socially on mobile. Figures released this week imply more than 41 billion messages a day are now being delivered via various “Over the Top”  (OTT) messaging apps.

Phones were created as social tools. Smartphones are especially good at being social, integrating text, voice, video and images in an endless number of apps that can serve a user’s needs, and all without the need for a web-based social network.

Users are able to communicate with anybody in their address book anywhere in the world with almost any content mix at any time. This has been compelling to users and has driven the growth of apps like iMessage, WhatsApp, LINE, WeChat, KakaoTalk and some other smaller competitors. Almost 750 million users out of a smartphone population of 1.2 billion are already using these apps.

If you are Google, Facebook or almost any other major provider of social communications platforms originally developed for the web, this move to mobile messaging represents a considerable challenge.

Similar challenges exist from media-sharing apps. As users flock to Vine, Snapchat and, previously, Instagram, the social platforms are challenged to continue to be the primary provider of these services to the growing army of smartphone users.

The other core feature of Facebook and Google+, publishing to an audience for all or many to see, are increasingly becoming activities only a few engage in on mobile — and certainly less often than was the case on the web.

What Is A Platform Provider To Do?

If we look out a few years there is really only one product approach available.

That is to build single apps that embrace and extend the current features of the messaging market leaders — hoping to win users over from WhatsApp, LINE, KakaoTalk and WeChat — while also integrating the features of media sharing, private memory collection and publishing into single unified experiences.

Google and Facebook both seem to be pursuing this approach.

Breaking out Hangouts and going after the messaging audience with enhanced features makes sense. But Google also showed Google Now and Voice Search as possible points of integration for all of its mobile-social features. It’s early days here, but Android clearly wants to find a point of integration for all the users’ needs.

Facebook, with Home, revealed its integrated approach, while under the hood it has Messenger, Camera, Pages and the full Facebook app. Poor as Home’s reception has been, Facebook will certainly continue to deepen and refine its integration efforts and its attempt to be the primary UI a user needs on a smartphone.

Vulnerabilities And Strengths Of Mobile-First Companies

WhatsApp and its clones can be thought of as mobile-first companies. Their apps sit on top of the smartphone, particularly the mobile address book, and just help a user chat to their friends, family or colleagues.  Their success is their simplicity and the singular purpose they have addressed.

Insofar as they are vulnerable, it is due to being very narrowly focused on brief “in the moment” conversations in the form of a chat or instant messaging UI. They have added the ability to include media in those conversations, and some voice-calling abilities. But their goal is really momentary interactions with individuals or groups. Their requirement to have both sides of the conversation install the app is another liability.

Human beings have broader needs that are currently served by other single-use apps. Evernote for private memories, email for longer more enduring interactions, social networks like Facebook, Google+ and Twitter for public statements of all kinds and Path or Instagram for photo sharing. This is a little like the era of Windows before Outlook when apps tended to do only one thing and users used many apps.

Can Web Companies Beat Mobile-First Companies?

These recent moves by Facebook and Google represent early moves by the web-era companies to react to the successes of the mobile-first messengers. They certainly do not represent end points in any way, impressive as they are. And there is plenty of time for the mobile messaging apps to respond by offering a broader range of social features. 

There are already clues to the future – provided by users. The continuing use of email on mobile (trillions of messages in 2013) indicates that  users are not entirely catered for by the chat-centric conversational UI. The growth of Vine and Snapchat (single-feature based as they are) indicate not all media-sharing needs are catered for by these apps. There is a lot still to play for.

If we look five years out, it is likely that the iOS and Android core will support a far more integrated set of messaging tools that cater for many of the needs we use single-use apps for today.

Message saving for private use, shared messaging to individuals or groups, media sharing, video and voice messaging (both synchronous and asynchronous), Timelines to look back and recall what we did in the past. These will all be features of the operating system.

As mobile moves from its Windows 3.1 — single-use apps — era to its more integrated future, apps that used to stand alone will have their features sucked into the operating system. Google and Apple have an advantage here of course as they own the operating system.

The Future Is Being Fought Over Now

In that sense the current product focus – decisions about what features to separate into single apps, and how to integrate those into a unified UI all represent the first moves in defining who wins.

Facebook has Messenger, Camera, Pages and its primary app with Home as an integration point.

Google has Talk, Contacts, Mail, Plus, Hangouts perhaps with Now as a point of integration.

Apple is a little behind but has iMessage, FaceTime, Photostream, Mail and Contacts. iOS itself may be the point of integration.

WhatsApp, LINE, KakaoTalk, WeChat and the others will need to move beyond the chat-centric user interface into a broader set of asynchronous messaging features, and a new set of social features, probably with Timeline support, in order to stay ahead of the curve.

The End Of Social Networks And The Start Of A New Era?

The ground has been set for a fascinating next few years as the web-based social platforms seek to own mobile-social messaging and the mobile messaging apps seek to extend into more fully integrated social features.

As of this moment the mobile-first apps have the lead measured by number of users and levels of engagement. To keep it they will need to continue to innovate.

The human race is already social, and the smartphone has everything needed to enable them to act on their social needs. As the growth of OTT messaging and media sharing shows, a user’s social needs are being met with no need for a social network.

In this mobile-social world the only question is, whose software will we all use to enable human social activities? That is what this week was all about.

We’ve all by now heard about how Yahoo is trying to get some “cool” with a supposed $1 billion purchase of hip blogging platform Tumblr, but it may be a moot point if Tumblr’s users fail to stick around post-sale.

Microsoft and Facebook may be trying to make a move ahead of Yahoo, Tumblr may be inching ever closer to running out of cash, and (despite that) may not be afraid to play a little hardball. But here’s something you’re not hearing much about: Tumblr’s users are almost universally unhappy with the news that the site might get sold to Yahoo. And they may let their fingers do the talking, and the walking.

Do a search on Tumblr for “yahoo” and you get a stream of distress, interspersed with the occasional bit of helpless resignation, and some calls for activism. The voices of reluctant acceptance (usually because of the aforementioned cash situation) or anything like positivity are few and far between. No outright enthusiasm.

(Daddy!) See for yourself.

It’s a problem that extends to some of Tumblr’s oldest users.

“If Tumblr goes to Yahoo, I will seriously consider moving my personal blog to Medium, if that’s possible,” Alexia, co-editor over here at TC, told me. She’s had a blog on Tumblr since June 2009, and, while not part of that coveted 18-24 age bracket, is a significant representative of that other cadre of important users: digital influencers. “I don’t know exactly why, but my Tumblr is a part of my identity. And for whatever reason, I don’t want to identify with Yahoo.”

Some have tried to start a petition, with a goal of 5 million signatures although others are cynical about whether this will actually have any effect.

User attrition is not something to be dismissed, especially when it appears to be underpinned by wider usage trends on the site.

When I wrote a post in January about what might come next for Tumblr as a business (it focused on how it could make money; not how it might need to get sold because it doesn’t), I noted that in the prior month, December 2012, it had 167 million visitors and nearly 18 billion pageviews worldwide (Quantcast figures). The trend over the last six months are down, however: in the U.S. page views are down 21% to 5.3 billion, and uniques down 5% to 76 million. Worldwide the picture is better but still not growing: pageviews are down by 4%; uniques are down by 3%.

Not a sinking ship, but not a zippy little speedboat, either. Yahoo’s MySpace, indeed.

Image via Tumblr

Britain's reluctance to pursue multinationals risks turning us into another Italy

On the edge of Rugeley stands Amazon's largest distribution centre in Britain. Life for the workers who trudge around the 800,000 sq ft warehouse is not as bad as it was for the men who once worked in the pits of the Staffordshire coalfield, but that is not saying much. They must carry satnavs, which direct their movements round the stacks and flash warnings from managers to stop dawdling or chatting with colleagues. Britain being the way it is, they have no job security.

Trade unionists call the Amazon shed a "slave camp". But whatever arguments they have with Amazon's management, one point should be beyond dispute – Rugeley is in Britain. British customers send Amazon their money. British workers package their goods and send them off in vans along roads built and maintained by the British taxpayer. If workers steal – and before they can go home or visit the canteen, they must walk through airport-style security scanners to prove they have not – Amazon will call on the taxpayer-funded police to arrest them and the taxpayer-funded criminal justice system to prosecute them. Admittedly, Amazon's buyers who supply the stock are based in Slough rather than Rugeley. But the last time I looked Slough was in Britain too.

Amazon.co.uk is a UK company. It has to be. An online retailer cannot relocate offshore. It needs local distribution centres to service local markets, otherwise the costs of moving its stock would be ruinously expensive.

Yet Amazon pays just £3.2m tax on sales of £4.2bn because the Revenue allows it to get away with arguing that it should be taxed in Luxembourg. The same lack of connection between corporate tax status and commercial reality applies to Starbucks, Google, Vodafone, Goldman Sachs and every other company the British state allows to dodge tax.

The traditional defence that companies just take advantage of legal loopholes and you would "do the same in their position" falls apart in a country where the tax regime defies the evidence of our eyes. Leaving all other considerations aside, you will never be "in their position".

If you want to understand any society, look at its tax system. If one man or a clique can tax at will, you can conclude the society is a dictatorship or oligarchy. If you have reasonably progressive and universal taxes, you can assume it is a modern democracy. Britain has elements of democratic taxation. The same rules on occasion apply to everyone. But other parts of the system resemble the ancien régime of pre-revolutionary France. Only in our case the privileged estates the government exempts from taxation are the corporations rather than the aristocracy and the church.

For a generation, politicians have extended exemptions by selling Britain as a country where big businesses would be lightly taxed. When I put it like this, I make the policy sound too cool and rational. The process was far more emotional than that. Tycoons enchanted politicians. They convinced them that their interest and the national interest were as one. So deep was the ideological capture of the top of the British state that corporations have not on the whole had to corrupt ministers.

No one has accused Gordon Brown of taking bribes, to quote the most egregious example. But in his abject period as chancellor, Brown ensured that his friends in private equity were taxed at a lower rate than their cleaners. One might have thought that the crash of 2008 would have discredited the notion that all will be well if we let capitalism run riot. Not a bit of it. George Osborne invites multinationals to advise him on how to tax multinationals. At their behest, he allows companies to move money to tax havens and then deducts the costs of their shady transactions from their British tax liabilities. The result of two decades of special treatment for vested interests can be summarised in one statistic. Between 1999 and 2011, British companies' profits increased by 58% but revenues from corporation tax increased by just 5%.

To understand the scale of the avoidance, it is not enough to look at the permissive laws, however. Richard Brooks's The Great Tax Robbery is close to being this year's indispensable book because, as a former tax inspector turned Private Eye journalist, he has the material to show how the wealthy are exempt from what few laws apply to them.

"Dear Saddam," ran a spoof letter doing the rounds of the Revenue in the run-up to the Iraq war, "we are trialling a new weapons inspection regime modelled on the Inland Revenue's approach to large corporate taxation. All you have to do is tell us you don't have any and we'll go away."

One inspector said in his bitter farewell speech that he once thought that the Revenue's advertising slogan "tax doesn't have to be taxing" was a bad pun. "Now I realise that for big business it meant what was said on the tin."

British politicians and a series of negligent and doltish managers ordered the Revenue to back away from big business. In his justifiably notorious speech to the Confederation of British Industry in 2005, everyone remembers Gordon Brown promising "light-touch" regulation for a financial services industry that was already careering towards bankruptcy. We forget that he went on to say that he would apply a light touch to "the administration of tax" for big business as well.

The Revenue itself promises corporations that, rather than doing its job and collecting monies owed, it will follow a "customer-focused supportive and enabling approach". Or as Dave Hartnett, the former permanent secretary for tax, who cut sweetheart deals with Vodafone and Goldman Sachs, explained it in 2010, Britain had a "non-confrontational" approach.

I have written before that the willingness of New Labour, the Tories and the Revenue's senior managers to pursue the working and middle classes while exempting powerful corporations would turn the British into Italians. We would start to believe that tax evasion was respectable. We would view a state that hit the ordinary man and woman while sparing big business as immoral and illegitimate. That moment is drawing closer. The old complaint that there is one law for the rich and another for the rest does not do justice to the debasement of public authority in Britain. When it comes to tax, too often there is no law for the rich whatsoever.

• Amazon.com
• Tax and spending
• Google
• Goldman Sachs
• Starbucks
• Vodafone

Amazon has come in for plenty of stick for paying so little tax in the UK. But its actions display such impish wit that it's hard not to revel in the majesty of a terrible thing well done

There's something fishy about Google's motto, "Don't be evil." I'm not saying it's controversial but it makes you think, "Why bring that up? Why have you suddenly put the subject of being evil on the agenda?" It's suspicious in the same way as Ukip constantly pointing out how racist they're not – which my colleague Charlie Brooker said on 10 O'Clock Live was, "rather like someone who's just moved in next door saying, 'Hi, I'm Geoff, your non-dogging neighbour.'"

But we mustn't assume that the maxim was an attempt by executives to draw a line under some diabolical brainstorm, in which the internet giant pulled itself back from the brink of green-lighting a scheme to grind our bones to make its bread. It could just as easily have come out of a discussion of the possibility of doing good. "Always do good", "Try to do some good" or "Be good" might have been previous drafts of the motto before they concluded that goodness was as impractical as malevolence was distasteful and decided on "Don't be evil" as more realistic in a modern business environment. "Settling for one notch below altruism" is all the slogan really means.

Still, I suppose we should be grateful for small mercies. And there's no earthly reason why Google should do any good to anyone but itself – which is presumably why it pays so little tax. Although that's not how Matt Brittin, Google's head of sales in northern Europe, explained the situation to the House of Commons public accounts committee on Thursday. "No one in the UK can execute transactions," he said. He wasn't bemoaning a lack of competence in British workers but proudly talking MPs through a tax dodge. Even though there are sales staff in Britain, "No money changes hands." Nudge nudge, wink wink. Since the vast majority of Google's £3.2bn of UK sales are routed through Ireland, the company paid only £6m of corporation tax. I'm not saying that's necessarily evil, but it's certainly not good.

Amazon, in contrast, has never ruled out evil as part of its business plan, aspiring only to "Work hard. Have fun. Make history." It sounds like an Apprentice contestant's Twitter profile. Last week it emerged that, despite £4.2bn of UK sales, the company paid only £2.4m in corporation tax in 2012. In the same year it received £2.5m in government grants. Which makes it a net benefits scrounger. And, in terms of sheer rapacious acquisitive nerve, I'd say that has made a little bit of history.

Is there any point in my being angry about this? Everyone else already is. It feels like the interesting thing would be to come out in favour of it. After all, as the company's spokesman proudly announced: "Amazon pays all applicable taxes in every jurisdiction that it operates within." So maybe it's fine. Better than that, maybe it's crazy and interesting. It's a challenging artwork, but instead of oil paint or wood or clay or the excrement of the artist, it's constructed out of pure injustice. A huge, malevolent sculpture of unfairness, ground-breaking and thought-provoking, reminding us of the iniquities of the natural world – a corporate metaphor for the worms that will one day eat all of our corpses.

Like any really important work of art, it's bound to upset a few people. Just as Banksy causes collateral damage to the neatness of walls, so Amazon's masterpiece is a defacement of the public purse. But it's not just some hooligan's tag, like Google's artless Irish scam. This shows an impish wit and a dark insight. What elevates Amazon's activity is the fact that it applied for government grants. The elegance of that corporate choice is like the ambiguity of the Mona Lisa's smile, the ruthlessness of Mike Tyson's punch and the adaptability of the malaria virus combined. There is no point in criticising anyone or anything that can do that. They can only be admired or destroyed.

The more you think about it, the more brilliant it is. At first glance, the deftness of securing government funding, which was intended to sustain and encourage marginal businesses, is rather pleasing. The thought of the thousands of small enterprises that could have been nourished and helped to survive by the cash Amazon has swallowed in one tax-cancelling mouthful is challenging and absorbing. It's the monster that's made a myriad food parcels into its canapé.

But it gets even better. If, for a second, you make the mistake of thinking that giving Amazon handouts might nevertheless help the UK – by incentivising the company to create jobs in Britain even if, for tax purposes, it exists only in Luxembourg – then think again. Because Amazon is the great job-killer. For every job it creates, more than one is destroyed on the high street. It's the great annihilator of work and yet it's receiving a job-creation government subsidy. It doesn't just absorb money that would be better spent creating employment elsewhere, it deploys it to decimate the chances of that employment.

I understand that the changes in work and business patterns being caused by the internet are inevitable and irreversible. To try to stop them would be railing against the tide. Still, it's amazing that Amazon, in an act of dazzling contempt, has persuaded the treasury actually to pump water into the rising sea.

I don't really think that these problems can be fixed. It's the role of politicians to say that something must be done – with a sense of purpose if in power, and outrage if in opposition. But their jobs are too tenuous and short-lived, the international tax system too complex and the corporations too tenacious to stop this sort of thing happening. Loopholes will crop up by accident and, where they don't, the intense and remorseless lobbying of the already astronomically wealthy will ensure that more are created.

We can work ourselves up in impotent fury or – and this is a calmer way to live – just sit back and enjoy the majesty of a terrible thing done well. Amazon's tax and grant arrangements are the beautiful ivory candlestick revealed by the silhouettes of British taxpayers' incredulous faces. The politicians and public provide the backdrop of incompetence and rage in front of which huge companies can display their work of corporate perfection. As the mushroom cloud showed us decades ago, evil can be beautiful.

• Amazon.com
• Tax avoidance
• E-commerce
• Tax and spending
• HMRC

A post-apocalyptic Moscow metro system is a great setting for some serious gunplay

The original Metro 2033 was a sleeper hit, earning praise for its sharp blend of tense, post-apocalyptic terror and superb action long after its release. No surprise though, as the Metro games are far deeper than even hardened players might expect from a first-person shooter.

Based on the novels of Russian author Dmitry Glukhovsky, Metro: Last Light follows Artyom, a young man trying to survive in the ruins of Moscow's subway system, a network serving as humanity's refuge after a nuclear war.

The world Glukhovsky created is presented in fine form here, visually through a claustrophobic web of crumbling tunnels and a ruined surface populated by mutated abominations, and narratively with a story that examines fascism and communism, prejudice and the pursuit of power.

As a result, the gameplay almost becomes a slave to the story but despite this, Last Light is a delight. The survival horror and FPS elements complement each other as well here as they did in the original, with the urge to blast every flickering shadow tempered only by the scarcity of resources.

A superb effort, written and presented with a skill that proves games can be both as complex and rewarding as any other art form.

• Shoot 'em ups
• Games

This Japanese 2D fighting game sequel is very different from its predecessor but just as impressive

Persona 4 Arena's brand of 2D fighting is, at first glance, a far cry from its brilliant RPG forebear. Once players spend time with this intricately balanced and beautifully animated beat-'em-up though, they will discover it is every bit as deep and involving as its predecessor.

Arena sees lead Yu Narukami drawn into another mystery in the parallel Midnight Channel world. This time, it involves being forced to fight his friends while finding out exactly why. The battle system is remarkably complex, demanding mastery of blocks, attack breaks, counters and more, plus awareness of power and health gauges. While far from entry-level, Arena will appeal greatly to fans of the original Persona 4 and lovers of top-tier Japanese fighting games.

• Games

New venture Librii is seeking to set up self-sustaining libraries with internet access in poor and isolated communities

A decade ago, Brewster Kahle, philanthropist and founder of the Internet Archive, created the first digital bookmobile: a complete printing press in the back of a car. With a power source, satellite internet connection, printer and binder, the vehicle and its descendants subsequently printed thousands of public-domain books where they were needed most, such as in rural areas without internet connection, including schools and refugee camps across Africa.

In 2003, it was estimated that less than 1% of Africa's population had access to the internet. Since then, that figure has grown to just 15%. Private companies have been laying high-speed cables along the coasts, but it's slow to make progress inland: even where access is available, it is often low speed and unconnected to the facilities on the ground needed to make the most of it, particularly for education. (The vast majority of people in Africa who do access the internet do so via mobile phone.)

Now, with an initial funding of $50,000 from Kickstarter, library startup Librii is building its first "eHub" prototype: a shipping container filled with computers, printers and training materials, connected to a simple, low-cost study centre, which will let visitors access information, print books and other materials and, crucially, contribute back to the project and the web at large. Once the prototype is complete and tested, a partnership with the University of Ghana and Librarians Without Borders is intended to start shipping the embryonic libraries to Africa, following the frontiers of fibreoptic cable as they push into the continent. While Librii is an NGO, the libraries will be fully self-supporting after the first year, seeking local sponsorship and generating their own income. Recognising that local knowledge, architecture, infrastructure and education are all vital components in the project is what makes Librii's approach an exciting one.

• Libraries
• Ghana
• Internet
• Computing
• Computer science and IT
• Africa
• Broadband
• Mobile phones
• Kickstarter

Reading on mobile? See the trailer here

In the sixth film in this profitable sex, speed and demolition franchise, Dwayne Johnson (formerly known as "the Rock") as an Interpol officer uses moral blackmail and promises of amnesties to lure a crowd of freewheeling, fast-driving international criminals from their romantic lairs in sunny climes to defeat a renegade SAS man who has accumulated top-secret military equipment to hold the world to ransom. This is an excuse for mayhem on a spectacular scale mostly in Britain and Spain as a band of petrolheads led by the appropriately named Vin Diesel use mechanical torsion to defeat malevolent extortion.

The endless chases, stunts and fights are as spectacular and preposterous as the occasional verbal exchanges are sentimental and childish. An illegal road race through the night streets of London's West End is particularly brilliantly staged. "The Rock" forces the Metropolitan Police's security to release restricted documents merely by squeezing a top cop's hand to pulp, thus applying enhanced interrogation to the special relationship. The end credits promise that Jason Statham will be joining the team in the next episode.

• Action and adventure
• Thriller
• Crime
• Motoring

The fifth instalment of the series brings path-building puzzles galore, if you can stand the fiddly bits

Nintendo has created something of a stealth franchise with the Mario vs Donkey Kong series – this is, almost unbelievably, the fifth entry. Minis on the Move shifts attention away from puzzle-platforming to the path-building brainteaser.

Essentially an inverted tower-defence game, clearing each stage means guiding toy versions of Mario and friends past such perils as spike pits and wandering enemies. Early levels are deceptively simple until a steady trickle of new gameplay mechanics, including rotating squares and sliding panels, increase difficulty considerably.

Persistence will mostly win out, though fiddly and unresponsive tile-swapping sections will test the patience of even the most devoted Mario fans. A charming, largely enjoyable puzzler, well suited to the portable form.

• Puzzle games
• Games

Anger over the financial affairs of multinationals such as Google, Amazon and Starbucks is gathering momentum in Westminster. Now the UK is poised to lead the debate about international tax reform at next month's G8 summit

Huge orange and green cranes hover over a vast building site at King's Cross, London. Over the next three years, 2.4 acres of this site will be transformed into a million square feet of an 11-storey headquarters for the internet giant Google, no doubt chock-a-block with colourful Big Brother-house-style sofas and surreal chill-out zones that mark out its other 70 offices in 40 countries.

The property deal is estimated to have cost around £1bn and was heralded by the site's development consortium as the "most significant property transaction of recent years".

"This is a big investment by Google, we're committing further to the UK where computing and the web were invented. It's good news for Google, for London and for the UK," said Matt Brittin, vice-president for northern and central Europe, when the purchase was announced in January.

Like Amazon, Google is seeing increasing success in the UK where one in every $10 of sales is now generated. Yet both firms claim they are merely touching down on UK soil, without a "permanent establishment" and therefore are not paying tax on profits from billions of pounds worth of sales made here.

On Wednesday, Google won the advertiser of the year trophy at the 54th annual Clio Awards – the Oscars for advertising professionals. Accepting the award in New York, Robert Wong, chief creative officer of Google Creative Lab, said: "At the highest order, our job is to remind the world what it is they love about Google."

That popularity has hit a serious snag. The next day the company was branded "evil" by Margaret Hodge, chair of the public accounts committee, while this weekend Ed Miliband called it "irresponsible". "If everyone approached their tax affairs as some of these companies have approached theirs we wouldn't have a health service, we wouldn't have an education system," he said.

Along with Amazon and, before that, Starbucks, Topshop, Boots, Vodafone, Goldman Sachs and Greene King, Google is the latest to have become the target of grassroots hostility towards their aggressive tax avoidance policies. The actions of these corporations are not illegal, nor underhand, but especially when we're all supposed to be in austerity together, jarring horribly with public opinion.

Something "doesn't smell right", as the Guardian's editorial said this weekend, after it ran an account of the extent of Amazon's dealings in the UK, far wider than what its tax lawyers are implying.

The debate is now raging over whether these companies are the happy beneficiaries of a tax system knitted with loopholes, or the malicious purveyors of smoke-and-mirror accounting. HM Revenue and Customs claims the former – public opinion is rolling towards the latter. Lin Homer, chief executive of HMRC, claimed the public don't understand. Asked why she was not taking a tougher line with internet giants, she told the public accounts committee: "We see, but understand more fully, some of the information that might seem to the general public to be surprising."

But campaigners say tax collectors and leading politicians have been caught out; too engrossed in austerity plans, they are scrabbling to keep up with people who point out that there are other ways to balance the books.

"Without a doubt, they are behind the curve," said Richard Murphy, a chartered accountant, economist and founder of Tax Justice Network. "They have all been caught by surprise because this has come from civil society, a campaign that has been going on for almost a decade but has only been picked up by politicians after the banking crisis when they suddenly realised they were desperately short of cash."

He said HMRC had been ducking tax avoidance completely. He said it had powers to tackle any suspect tax returns of foreign-based companies. "If the breach is blatant, then they can act. What we haven't got is politicians who will stand up to this. It's a critical point. If the state will not stand up for its right to tax big corporations then we are in deep trouble."

UK Uncut began campaigning on the issue in 2010 and it was its legal challenge that revealed how HMRC waived a £20m bill for Goldman Sachs, as well as a £6bn bill to Vodafone. Journalists, tax experts and campaigners have been investigating and exposing the tax scams being perpetrated by big businesses for far longer – pointing out glaring loopholes in Britain's tax system.

When Matt Brittin of Google told the public accounts committee in November 2012 that Google did not have a sales presence in the UK, it was the news agency Reuters that quickly uncovered evidence to the contrary, resulting in Brittin being recalled in front of the committee on Thursday, where his company's behaviour was described as "devious, calculated and, in my view, unethical" by Margaret Hodge.

"You are a company that says you 'do no evil'. And I think that you do do evil," said Hodge, referring to Google's motto, "Don't be evil".

Amazon may also be recalled, after numerous whistleblowers from among its employees approached journalists to contest official accounts of its trading practices within Britain.

For the moment the government's line is that this is a global problem that cannot be solved unilaterally. On Monday, Google's executive chairman, Eric Schmidt, will meet David Cameron, a meeting No 10 insists is not about tax, but to do with Schmidt's role on the prime minister's business advisory group.

Labour leader Ed Miliband, who is due to give a speech to Google employees on Wednesday, has backed a "country by country" international scheme on tax declaration but says that he is concerned that no firm proposals have so far been put forward for the G8. "You have to have much greater transparency. Tax offices have to know country by country how much profit people are making, how much tax they are paying. Unless you know that you won't get to the bottom of what is happening. You have to deal with tax avoidance schemes. You have to deal with tax havens.

"We are saying there has to be a big, big push on this. It has to be done internationally and if it is not done internationally, Britain should act on its own."

All eyes will be on what, if anything, can be agreed at next month's G8 meeting in Scotland, where, as host of the event, David Cameron has pledged to put tax avoidance at the top of the agenda as he insists it is an issue for international co-operation rather than unilateral action.

And it would not be just the wealthy who would be watching the progress of the talks, said Melanie Ward, head of advocacy at ActionAid UK.

"At the G20 summit in 2009, Gordon Brown led the beginnings of a global crackdown on tax havens and, for the first time, put an emphasis on helping poor countries to deal with the losses to tax havens that cost them three times as much as they receive in aid each year. But in the intervening years, tax dodging died away as a big UK issue," she said.

"It's shot back up the agenda with rising public anger over the antics of Starbucks, Google, Amazon and reports of sweetheart deals between the government and Goldman Sachs. The UK should close tax loopholes, but the truth is that the UK is responsible for one in five of the world's tax havens in the form of many of the crown dependencies and overseas territories. These tax havens are a leech, sucking resources from the UK and poor countries alike, so action needs to start with pulling them into line.

"Ultimately, this is a global problem and the solutions are global. That's why David Cameron must lead the G8 to deliver an unprecedented assault on tax dodging when it meets next month. This means calling time on tax havens and ensuring that poor countries are at the heart of any new deal to share tax information between countries.

"There is a serious risk that a deal will be agreed between rich countries and tax havens that would leave poor countries out in the cold. This would be entirely unacceptable. Tax dodging is hurting ordinary people, wherever in the world they live."

Richard Murphy said the moral case for international action had already been won. "We now just have to beat off the accountants and businesses who oppose democratic accountability to the state to get it," he said.

• Tax avoidance
• Tax and spending
• Google
• Corporate governance
• Amazon.com
• Starbucks

Google executive chairman says company accounts comply with international law

Google executive chairman Eric Schmidt has defended his company's financial affairs after a Commons committee branded the internet giant devious and unethical for sheltering its multibillion-pound profits from UK taxes.

Writing in the Observer, Schmidt said his company's accounts were complicated but complied with international taxation treaties that allowed it to pay most of its tax in the United States.

Schmidt said that he understood why Google's apparent sidestepping on UK taxation had generated controversy and called for a reform of international tax law.

"At a time when families are having to tighten their belts and funding for vital public services is under pressure, corporate taxation is rightly a hot topic," Schmidt wrote. "And as a company that has always aspired to do the right thing, we understand why Google is at the centre of that debate."

His remarks follow Google's mauling at the hands of the Commons Public Accounts Committee on Thursday. Members reacted in disbelief after it emerged that they paid just £3.4m of tax on £3.2bn of sales taken from UK customers last year as their sales were technically "closed" in low-tax Ireland.

Schmidt insisted that corporation tax should be paid on a company's profits rather than its revenues and said because his was a multinational corporation whose engineers were chiefly based in the United States, Google's taxes should be channelled there. This, he said, obeyed rules laid out by politicians.

"We pay more taxes in the US than in any other country – around $2bn in corporate income taxes to the US government in 2012," he wrote. "It's the same for UK-based technology or pharmaceutical companies, which pay the majority of their corporation tax in the UK, as that is where most of the activity that generates their profits takes place."

Schmidt said that the debate over international taxation showed it could benefit from reform. He added that because Google was able to generated large revenues, it was also able to plough money back into the UK economy.

"While profit has become something of a dirty word, it's important to remember that many corporations reinvest their profits in research and product development, which in turn tends to lead to job creation, further economic growth and, ultimately, more tax. For example, Google has just announced plans to invest more than £1bn in new offices in London's King's Cross. It's been estimated that this investment will generate some £80m a year in new employment taxes and £50m in stamp duty. This is in addition to the significant amounts we already pay in UK tax through corporate, local and employment taxes."

Schmidt's comments came as Ed Miliband, the Labour leader, said he believed some multinationals, including Google were not fulfilling their social responsibilites.

Miliband told the Observer: "Now, what is the politicians' responsibility: change the law. But it is also to talk about the kind of society we want to create and what the responsibilities of a company like Google are.

"I don't think they are living up to their responsibilities at the moment and I will be very clear about that on Wednesday.

"It is part of a culture of irresponsibility. If everyone approached their tax affairs as some of these companies have approached their tax affairs we wouldn't have a health service, we wouldn't have an education system."

• Google
• Eric Schmidt
• Tax and spending
• Tax avoidance

Editor’s note: Tadhg Kelly is a veteran game designer, creator of leading game design blog What Games Are and creative director of Jawfish Games. You can follow him on Twitter here.

One of the memories that sticks with me most about the launch of the Xbox 360 was a silly analogy about inhaling. I can’t remember who said it, but the general idea was that it had a concave body to convey breathing in, perhaps a precursor to exclaiming joy. It was as daft as it sounds, but for a while there the 360 was indeed a breath of fresh air.

Xbox 360 had a lot going for it, from online connectivity to a much simpler architecture that developers preferred over the PlayStation 3. In its first few years it maintained the position of being a very games-focused console. Xbox 360 was the home of indie games, for example, and digital distribution. It widely popularized the notion of achievements.

But three, maybe four, years ago Microsoft started to push bigger ideas. It left a lot of the gamer-ish stuff behind and redesigned the console’s dashboard toward a media focus. Over a series of updates, Xbox slowly went Metro, became about Netflix, avatars and Kinect. Most of these innovations didn’t stick so well, and the cost they incurred was significant. Xbox 360 went from being a clear proposition to a complex and all-over-the-place machine.

Many Kinects were sold, but few people actually used them for long. Many channels of TV content were brought into the fold, but finding room for them essentially killed its indie games market and lost a lot of credibility with that group. Ultimately, the successes of these divergences were generally mute. (18 billion hours of video sounds like a big deal until you break it down per unit over a year.)

This is the problem with long hardware cycles (Xbox 360 is 8 years old). Lacking annualized releases of better technology (for some reason the console industry still believes it has to carry on this way), the platform story grows old after a couple of years, leading to the urge to accessorize. Often in so doing it loses itself in the ensuing cruft, and then needs a big reset. All of which leads up to Tuesday’s news: the big event in Redmond to unveil the next Xbox. And boy does the company need it to go well.

Perception-wise, Microsoft has had a bad couple of years. Windows Phone may have won a number of plaudits for its looks, but nobody really went for it. Windows 8 sold a ton of copies, but most users sort of hate it. Surface had a glitzy launch, but people are still buying iPads. That leaves Xbox as Microsoft’s one remaining big consumer push. This one has to go right, or lots of talking heads will start to ask if there’s any market that Microsoft can get right any more.

The reason the company has had a lot of these issues, I think, is that it’s bad at listening. Microsoft consistently gets lost in grand visions, visions that only it can afford to develop, and produces super-complicated propositions that nobody loves. All those years spend trying to convince the public about Windows Live services. All that time spent trying to bring us around to using Bing. All that wasted effort trying to unify user interfaces with Metro (which at its heart is just a bit broken, as has been said over and over) and who really cares? Grand visions that lose the plot are Microsoft’s forte.

Yet, gaming folks are pretty excited about the next Xbox. Will it feature new horsepower? Guaranteed. Will it have Kinect baked into the box itself? Probably, but they don’t care. Will it require an Internet connection? Maybe, and they’re not sure what they think about that. Will it have lots of content partnerships? Undoubtedly. Will it copy Sony’s idea of a Share button on the joypad? Perhaps. Will there be a Halo game on it? You know it.

Will it actually be anything fundamentally different, though? It doesn’t sound like it, but that may not be a bad thing. There is often an assumption in tech blog circles that the audience wants permanent revolution, but often it doesn’t. Often it just wants the thing that it knows works, and if that thing gets that job right then it’s happy. The console gaming audience generally doesn’t want consoles to do anything fundamentally different. It tends to embrace features that are additive to its core desires, like online multiplayer or achievements, but all it wants are big TV games with joypads and mad graphics. Everything else is optional.

There are maybe 150 million console gamers around the world, judging by platform sales over the last few generations, and they love their expensive splashy videogames. They’ve never particularly cared for the frilly extras, like avatars, but that doesn’t stop them buying in. They like that their consoles have ESPN on them, but those are not crucial purchase decisions. They’re not convergence customers in the way that some PowerPoint deck in the depths of Redmond probably drew a few years ago to justify unified interfaces, but again they don’t mind as long as it’s not going to get in the way of playing Dishonored. For those people, the next Xbox is exciting because of the prospect of an even more-lavish Call of Duty and an even more-next-generation Skyrim. All they really want is a box that they believe can deliver that experience.

The risk for Microsoft is if it screws that message up.

When videogame platforms live too long, their platform holder often loses sight of its core competency. When the PlayStation 2 was over it had explored so many areas of the market that it was impossible to convey all of them in one coherent story. Sony tried, with the PlayStation 3, but the result was so confused that developers only really heard “it’s over-complicated” while consumers heard “it’s $599 for Ridge Racer.” This is a business built on razors-and-blades thinking.

A similar thing is happening to Nintendo with the Wii U. The Wii was a wonderfully simple device with a couple of very smart accessories (like the Wii Fit) and a raft of dumb ones. By the time the Wii U came around Nintendo seemed to have lost its sense of focus that drove Wii, instead releasing a very confusing machine. Now it’s paying the price.

The biggest risk for the next Xbox is if Microsoft departs so far from its core audience that the audience feels turned off. If the company comes out only talking about transmedia, television tie-ins, movies on demand, instant messaging, Internet Explorer, phone syncing, emailing from your couch, holographic avatars, Spotify subscriptions, Twitter integration, Facebook integration and party gaming then I fear for Xbox’s survival. The gamers will ask “Yes, but, where’s the games Steve?”

At its heart, the next Xbox needs to simply be about the games the games the games. Will Microsoft actually listen this time?

Quantum mechanics research could hold the key to a new generation of super-fast computers

Our imagination is stretched to the utmost," wrote Richard Feynman, the greatest physicist of his day, "not, as in fiction, to imagine things which are not really there, but just to comprehend those things that are there." Which is another way of saying that physics is weird. And particle physics – or quantum mechanics, to give it its posh title – is weird to the power of n, where n is a very large integer.

Consider some of the things that particle physicists believe. They accept without batting an eyelid, for example, that one particular subatomic particle, the neutrino, can pass right through the Earth without stopping. They believe that a subatomic particle can be in two different states at the same time. And that two particles can be "entangled" in such a way that they can co-ordinate their properties regardless of the distance in space and time that separates them (an idea that even Einstein found "spooky"). And that whenever we look at subatomic particles they are altered by the act of inspection so that, in a sense, we can never see them as they are.

For a long time, the world looked upon quantum physicists with a kind of bemused affection. Sure, they might be wacky, but boy, were they smart! And western governments stumped up large quantities of dosh to enable them to build the experimental kit they needed for their investigations. A huge underground doughnut was excavated in the suburbs of Geneva, for example, and filled with unconscionable amounts of heavy machinery in the hope that it would enable the quark-hunters to find the Higgs boson, or at any rate its shadowy tracks.

All of this was in furtherance of the purest of pure science – curiosity-driven research. The idea that this stuff might have any practical application seemed, well, preposterous to most of us. But here and there, there were people who thought otherwise (among them, as it happens, Richard Feynman). In particular, these visionaries wondered about the potential of harnessing the strange properties of subatomic particles for computational purposes. After all, if a particle can be in two different states at the same time (in contrast to a humdrum digital bit, which can only be a one or a zero), then maybe we could use that for speeded-up computing. And so on.

Thus was born the idea of the "quantum computer". At its heart is the idea of a quantum bit or qubit. The bits that conventional computers use are implemented by transistors that can either be on (1) or off (0). Qubits, in contrast, can be both on and off at the same time, which implies that they could be used to carry out two or more calculations simultaneously. In principle, therefore, quantum computers should run much faster than conventional, silicon-based ones, at least in calculations where parallel processing is helpful.

For as long as I have been paying attention to this stuff, the academic literature has been full of arguments about quantum computing. Some people thought that while it might be possible in theory, in practice it would prove impracticable. But while these disputes raged, a Canadian company called D-Wave – whose backers include Amazon boss Jeff Bezos and the "investment arm" of the CIA (I am not making this up) – was quietly getting on with building and marketing a quantum computer. In 2011, D-Wave sold its first machine – a 128-qubit computer – to military contractor Lockheed Martin. And last week it was announced that D-Wave had sold a more powerful machine to a consortium led by Google and Nasa and a number of leading US universities.

What's interesting about this is not so much its confirmation that the technology may indeed be a practical proposition, though that's significant in itself. More important is that it signals the possibility that we might be heading for a major step change in processing power. In one experiment, for example, it was found that the D-Wave machine was 3,600 times faster than a conventional computer in certain kinds of applications. Given that the increases in processing power enabled by Moore's law (which applies only to silicon and says that computing power doubles roughly every two years) are already causing us to revise our assumptions about what computers can and cannot do, we may have some more revisions to do. All of which goes to prove the truth of the adage: pure research is just research that hasn't yet been applied.

• Particle physics
• Computing
• Physics
• Internet

The idea of a VC having its own news aggregator was a bit outlandish in 2007. But Y Combinator was in an unusual position in those days anyway. Startup accelerators had been a highly visible part of the dot-com crash, and Silicon Valley was still skeptical of the concept nearly a decade later. So YC set out to be something different — a community of hackers building companies on their own terms.

Hacker News was initially built by YC co-founder Paul Graham as a demonstration of Arc, a new programming language he’d been working on. He quickly realized that it could help bring together the companies he was supporting and the rest of the folks who wanted in. With 1.6 million page views and 200,000 unique visitors on a given weekday, it’s now a key part of the venture firm’s success.

But the site quickly took off, as former Redditors flocked to it to talk about tech and startups (the site was then known as Startup News).

Having a big audience isn’t really the goal. In comparison, Hacker News’ inspiration and the first big YC exit, Reddit has seen as much as 4.4 million page views in a given day.

A Community For Ex-Redditors

As Graham explains, as the site started seeing traction immediately, he realized this wasn’t just a way to test Arc. He wanted to make Hacker News a place to recreate the way Reddit felt in the good old days, when most of its community was made up of hackers. As Reddit drew more traffic, the hacker focus of the site evolved. The community’s user base became diluted as it grew, and Hacker News was a new home for some of the early Reddit hackers.

Graham writes in February of 2007:

Reddit used to have a good concentration of startup-related links, but that was because so many of Reddit’s initial users were connected in some way to Y Combinator. Now that Reddit is so much more popular, the top links tend to be images, or videos, or political news.

Another goal of Hacker News, says Graham, was to be a place where founders could share ideas and communicate. In the spirit of Y Combinator’s own incubator, Hacker News was focused on being a community for entrepreneurs and founders in the tech community: a place where they could freely post and where Y Combinator could also get to know potential founders and leaders in the tech world.

“From the beginning we had a real community, and some of the core group of refugees from Reddit are still prominent on Hacker News today,” Graham explains. Part of what attracted many to Hacker News was its simplicity and voting system. The product’s UI, design and color scheme have remained relatively constant over the past six years.

Thomas Ptacek, one of the site’s first users, explains that he was a Flashdot user and then a Reddit user, and flocked to Hacker News (at the time Startup News) because it was more relevant to the technology and startup community. He found Hacker News to be a refreshing change from past forums where the quality of commenting was declining.

Here’s how Hacker News works: Users submit links to stories, and stories are ranked according to a voting system, similar to Reddit. The difference between Hacker News and Reddit, however, is the voting system. While you can vote stories up, you cannot vote stories down (but you can flag stories). According to Graham, 100 upvotes will get a story to the top of the front page of the site. You can only downvote a comment if you have enough “karma” on the site, which is another compelling element of Hacker News. The Karma factor is determined by the number of upvotes on a user’s submission and comments minus the number of downvotes.

In terms of the design, Graham says he wanted Hacker News to look like your list of processes in a terminal window. The look and feel of the site was aimed at hackers themselves who are familiar with tabular data.

Graham will occasionally add new features, some of which are on the backend of the site. For example, as comments get more deeply nested and heated in terms of exchange, the reply link takes longer to appear. There is a purposeful drag implemented on this, says Graham, because deeply nested discussions are rarely interesting.

Another subtle feature addition: a flame-war detector. Graham has been consistently deploying and updating proprietary software that determines whether there is a flame war, where people argue heatedly. When these flame wars take place (which Graham says can often get ugly and personal), the story in which the commenting is taking place is moved further down the page.

Graham has also created sophisticated spam-detection software, which was just updated with new code six months ago. With the update, Graham says that it’s rare for spam to last on the site for more than 10 minutes. If a user does spam the site or engages in personally vicious behaviors, they run the risk of being banned. But in an interesting twist, called “hellbanning,” the user may not actually know they are banned.

On the backend, Hacker News runs on one core, and Graham calls this a “remarkable feat of scaling.”

In terms of human moderation, Graham himself has been spending three to four hours per day simply moderating the site. And that’s in addition to all of his duties running Y Combinator. While a number of other YC alums have moderating abilities, Graham has been the main human element of the site. “It was becoming my life,” he says. Around six months ago, Graham brought on someone else, who he chose not to name, to moderate the site. He says the individual is affiliated with Y Combinator and is a “prudent and thoughtful guy,” and has been doing a great job ever since.

Hacker News has a strong affiliation with Y Combinator, as well. Graham explains that founders usually all create a Hacker News account when they apply, and that user name is the founder’s identity at Y Combinator. Hacker News also features a jobs page that shows any jobs available at Y Combinator companies. He adds that this jobs portal is very useful for Y Combinator, as the majority of the site’s audience is made up of programmers and engineers.

There is also an internal page that is only visible to YC founders that has a list of recent stories about YC startups. And if you are a YC founder, your username will show up in orange to other YC founders to enable these entrepreneurs to recognize and meet each other.

Graham says that Hacker News gets a lot of complaints that it has a bias toward featuring stories about Y Combinator startups, but he says there is no such bias. Instead, the culture at the incubator is to use Hacker News, and with more than 1,000 YC alumni who have graduated from the incubator, many of these founders are still active on the news site and post links to their fellow founders’ launches and news.

“It was a small intellectual village and now it is a giant city.”

Growth has its downside. What keeps Graham up at night is worrying about the dilution of quality of the Hacker News. He explains that the site was community of insiders in the hacker world, and it has gradually been getting diluted. “That is what I spend all my time thinking about,” he says.

He worries that Hacker News will become what he calls “an old crumbling building.”

“The community has been in a perpetual but slow decline because the site is growing,” he says.

Ptacek agrees that the value of Hacker News has changed a bit. “I don’t get a community feel as much, whereas in the beginning it was a small group of people who all know each other,” he says. “It’s less likely now to see the same people from thread to thread.”

One of Graham’s biggest pain points is the “schoolyard quarrels” he finds on the site on a daily basis, and wishes “users would stop misbehaving.” He cites the example of users organizing voting rings to purposefully vote up stories, which caused Graham to develop additional software to detect this. He adds that more users are trolling under newly created accounts, and are deliberately starting flame wars on the site.

“I wish I could get people to stop posting comments that are stupid or mean,” he says. “It takes only one or two negative comments and a discussion turns into a flame war.”

Graham adds that he gets a lot of vitriol from users personally with accusations of bias or censoring. He clarifies that he, and the other human editor, rarely take links down unless they are dupes. Even with tabloid or gossip stories that surface, Graham will not take them down. Users with high karma points tend to flag these stories, he adds, and they can then be taken down.

“Hacker News makes me sad a lot,” says Graham. “I wish the community would behave the way they did when it was a little village.”

Users are noticing Graham’s frustrations. Ptacek says that he observes that Graham is careful not to tell people what to say or think, but it’s clear that he wants people to treat each other better and he gets more sad over time.

Could This Be A Business?

While Graham is open about not wanting to be the next Reddit, it’s hard to ignore the fact that Hacker News could be a business. Reddit is reportedly raising cash at a $400 million valuation. While Hacker News has a fraction of the traffic that Reddit does, the smaller site could actually have an impressive valuation as a business without any funding or employees.

Graham himself uses the site as his primary source of news. He’s even found Y Combinator companies through Hacker News. A user in the community posted a link to Watsi, a non-profit that allows people in dire need of medical care to raise money for procedures and health care. He noticed Watsi the second time it was posted on Hacker News and thought it was an amazing idea. He cold-called the founders and convinced them to be the first ever YC-backed nonprofit. And Graham recently took a first board seat at Watsi, his first board position ever.

But Graham is adamant that Hacker News is not a business and would not become a business. There are no ads on the site, and he has no interest in making money from ads. He admits that through the jobs page he indirectly makes money, as he is an investor in Y Combinator companies and will inevitably profit if the company’s hires help the business. Nor would not be interested in selling the site.

While it’s clear that Graham has his frustrations with the community, when he talks about the site’s defining moments, he sounds like he is speaking about his own child. One of his most distinct memories about the site is the day following Steve Jobs’ death, when every story on the front page was about the Apple founder.

“Users did it collectively as a tribute, and I found this a really remarkable way to show the power of a community. I thought this is really a living, breathing thing. It was like a bunch of birds flying through the sky forming themselves as an S.”

“There are really good reasons to engage with Hacker News,” says Ptacek. “There is no better place to stay engaged with the hacker community…At the end of day it is a message board. Having a place where you can reach and talk to groups of people is an important concept.”

As for the future of Hacker News, it’s clear that Graham is focused on maintaining quality and making sure that the community treats each other with respect and kindness. “I hope that most Hacker News readers know that I am doing this for their sake,” he says.

It’s that time of the week for CrunchWeek, the show where a few of us writers chat up the most interesting stories from the past seven days.

Ryan Lawler, Drew Olanoff (clad in his Google Glass), and I discussed all things Google I/O, including Larry Page’s keynote, Google+’s new photo features, and the latest Google Glass apps and more. We also chatted about Square’s new hardware, Stand, which is a $299 card swiper and stand for iPad registers.

Tune in above for more!