Three is enough.

Startups with teams of four or more don’t tend to succeed,Y Combinator partner Paul Graham said this morning at TechCrunch’s Social Currency CrunchUp.

Any more than three founders shows a lack of confidence.

“It’s like they weren’t really sure their idea would work, so they got all their friends to come along with them,” said Graham, also a noted essayist and 2008 Time Magazine top 25 most influential people on the web.

“It’s like how college freshmen always go around in clumps. By they time you’re ready to graduate,those clumps don’t look right,” Graham said.

“Two or three-person teams are optimal,” Graham said.

Carrying on the triad theme, Paul was part of a panel with fellow investor Ron Conway, moderated by Techcrunch’s Michael Arrington.

Conway thinks that entrepreneurship is still misunderstood in the Valley.

“The idea that a Google comes only once every 10 years is wrong,” Conway said, noting that today’s VCs and entrepreneurs are smarter in the past.

“During the bubble, 77 percent of entrepreneurs failed,” Conway said. “Now it’s 40 percent.”

While Valley entrepreneurs are traditionally young, the average age is around 26. Conway says that his favorite kind of entrepreneur is the 18-year-old kid.

“I love when we invest in a company run by an 18 year old, because it will be incredible,” Conway said. “Anything is possible in their minds. They’re the best entrepreneurs.”

Conway gives an example one company he has invested in: Facebook.

“Every six months when I talk to Mark Zuckerberg, it’s like I’m talking to a different person,” Conway said. “He’s growing algorithmically as an entrepreneur.”

Conway and Graham also talked about some weaknesses they’re seeing in today’s crop of entrepreneurs.

“I’ve noticed that entrepreneurs aren’t as decisive as they should be,” Conway said. “Right now I’m on a decisiveness kick.”

“Entrepreneurs need to be tough,” Graham said. “It doesn’t matter what their idea is, as long as they’re tough.”

“You don’t want middle-of-the-road corporate drones,” Graham said. “You want people who are manic. Mania is good.”

Netflix began as an online video rental service with rotating DVDs that came in the mail, but has become more profitable due to its success as an on-demand movie and TV show streaming service. Several sources were agog as the numbers were released - Netflix is spending large amounts on licensing content from copyright holders, but is still successful at maintaining a large profit. As tech blog WWWery reports, in the second quarter of 2009 “Netflix spent $9 million to get licenses for films and television shows for its online movie and video streaming service” and $66 million Q2 this year. Additionally, “over the last 6 months Netflix had paid $116 for streaming content, as to $31 million spent for the same last year.”

Thought of as responsible for making brick-and-mortar movie rental houses such as Blockbuster obsolete, Netflix could be doing the same for cable television and pay-per-view. According to TMCnet.com, Netflix’s concentration on story-driven material could appeal to a certain category of consumer that does not care about the news, sports and other content that cable networks are heavily laden with.

This sort of material, focusing on newly released films and back episodes of TV shows, is demanding a higher premium from the company. CNET discussed today how Netflix does not even have to raise subscription fees to keep up with these price hikes. Fewer DVDs in postal circulation takes care of some of the cost, as does a higher subscriber base. But a large part is the substantial dropping in bandwidth prices even as Netflix demands more of it to keep up with the increasing numbers of PCs, game consoles and set-top boxes that are receiving the video streams.

Subscribers who watched at over fifteen minutes of streaming content in the second quarter grew 61 percent, up from 37 percent in the 2009 Q2. “From June 2009 to the same month this year, Netflix added nearly 5 million subscribers, a 42 percent increase. By the end of this year, the company says it could possess as many as 18.5 million subscribers.” CNET predicts next year Netflix’s subscriber numbers will equal Comcast’s at twenty million.

The US Copyright Office ruled this week that “jailbreaking” smartphones is legal in some cases. The term jailbreaking became known for altering mobile phone operating systems in order to install unauthorized applications, primarily after the first iPhone and its App Store were released. This decision will cause some re-writing of the Digital Millennium Copyright Act to be altered.

As CNN’s Money Blog explains, “jailbreaking iPhones in order to download apps that are unavailable in Apple’s App Store had been a legal gray area: Apple technically had the right to request a $2,500 government fine for damages every time a user violated the law that bans ‘circumvention of technological measures’ controlling access to copyrighted works — in this case, the iPhone’s iOS software.”

Apple never requested a fine, but did take measures to ensure that its right to do so remained preserved. The Cupertino-based company filed an objection to the now-approved decision last year. Jailbroken iPhones may still be subject to other company measures - owners of the device lose their warranty after going through the process.

The decision also included legalizing altering mobile phones so that owners can switch between wireless plan providers. Essential use exemption can only apply to the owner of the device, not to another company, service or organization.

Opposition to digital copyright legislation has considered this development a significant improvement in how legal institutions interpret the DMCA and employ Fair Use. According to CNET on Thursday, fair use violates literal copyright law, but in practice has “limited negative impact on the rights infringed.” This argument is founded on the tiny proportion of code altered in the case of the iPhone, an interesting legal basis. This form of fair use is referred to as “essential use,” and can only be applied to the actual owner of the device, not extended to third parties who may extend their services.

Virtual reality pioneer Jaron Lanier started his Summit at Stanford keynote with something you never hear at a conference here in the Valley.

“Don’t tweet this, don’t blog,” Lanier said to lead off his keynote. “Just listen to what I say and think about what you hear; don’t just be a relay node. “

Lanier is one of the pioneers of virtual reality – in fact, it was he who coined the term. He was the main face of the cyberpunk era. As this was the time before the majority of people owned personal computers, Lanier’s televised demos of 3D environments controlled by a glove was the convergence of technology and the unknown that Arthur C. Clark labeled “indistinguishable from magic.”

3D environments are now common, and haptic devices are hitting the mainstream, so much of what Lanier was describing 20 years ago – things that seemed perhaps possible, but improbable — is still just coming into fruition. The Peregrine glove is a direct descendent of the glove Lanier famously used in the 80’s to manipulate objects in his virtual environments.

But he’s not particularly impressed with where technology has gone, as the title of his keynote – like the title of his manifesto – You Are Not a Gadget, might lead you to guess.

“If someone had said to me 30 years ago that one day everything we were working for would lead to a new encyclopedia and a UNIX update . . . it’s like Groundhog’s Day,” Lanier said, arguing that contemporary internet culture is not leading to freedom, but its opposite.

“We think that we’re more decentralized, but we’re not,” Lanier said. “This is an age of increased centralization. The ethic of this openness thing is that the internet is just a giant copying machine. If content is more free between people who are getting poorer and poorer while advertising is profiting off it, it’s really not free.”

During the last year, during which Time Magazine named him one of the 100 most influential people, Lanier has become known for critiquing a priori Web 2.0 ideas like the wisdom of the crowd.

”The wisdom of the crowd works for setting markets and elections. It’s good for setting prices, but if you ask a crowd to invent something, to do something creative, you’re going to come up with mediocrity,” Lanier said. “John Lennon or Bob Dylan wouldn’t succeed on American Idol.” A statement a Frank Zappa fan might not agree with, but at least be sympathetic to.

Yes, Lanier tends to side with older (re: classical 1960’s counterculture) ideas, for example the need of authority to dictate taste. If the wisdom of the crowd promotes mediocrity, it also pushes back the gatekeepers who have always defined culture, making innovative art and thought much easier to create and distribute, even if it never goes viral.

And he forgets that Lennon and Dylan were also mediocre.

But no matter what, Lanier’s suggestion that the audience understand information before retransmitting it, and his argument that transparency must be free of ideology, are examples of the heady discussion Lanier prompted — the commonsensical become heady in these days when marketing determines the Good and individuals internalize advertising concepts into psyche, transmuting themselves into brands.

“People wonder what Steve Jobs did when he was in India,” Lanier said. “I don’t think he went to study with a guru — I think he studied how to become one, to learn how to get people to pay you a lot of money to tell them what to believe.”

This month’s Harvard Business Review reports findings that companies are overcompensating when it comes to customer service. According to research, the article proposes that while customers will go to some length to punish poor service, customers will not be loyal to a brand solely due to fantastic service.

This trend plays out especially in phone-based and self-service interactions - the largest channels of customer service for most larger companies. In these situations, customers care more about how brands deliver on their basic promises than on how the experience is when customers are using these channels. Because many companies fail to recognize this, the report says, they end up wasting a lot of time and money on investing in unnecessary frills rather than on focusing on ease of use, dependability and similar core customer expectations.

The HBR report’s authors discovered findings that they believe should affect every company’s customer service strategy: “First, delighting customers doesn’t build loyalty; reducing their effort—the work they must do to get their problem solved—does. Second, acting deliberately on this insight can help improve customer service, reduce customer service costs, and decrease customer churn.”

In real life, this plays out when customers wait in line at an ATM despite there being available bank tellers inside, in one example given in their blog. Most customers do not want to interact when they can just do it themselves.

When you live in Silicon Valley, there is one thing that you forget after a while: users here are on the cutting edge of innovation.

Massive check-ins on Foursquare, Twitter updates, Yelp stickers on every restaurant door, geeky events that attract thousands of people . . . it’s a long list of signs showing how people here have jumped into innovation. As a result, living in Silicon Valley is at the same time enlightening and blinding.

Start-ups are proposing new services and products meant for improving other start-ups’ products. (See: the vast Twitter 3rd-party ecosystem.)

Because Internet evangelization doesn’t seemed to be the priority of start-ups – it’s not their job, true – the Silicon Valley ecosystem appears to be a huge innovation marketplace massively dedicated to hyping geeky users.

Yesterday’s Forrester study about location-based services shows that only 4 percent of online American adults have ever used a location-based app on their phone, and less than 1 percent are using them more than once per week. Within this 1 percent of users, 80 percent are male and 70 percent are aged 19-35.

More people are active on microblogging sites than using location-based apps: one-fifth of U.S. Internet users are now on Twitter. They are mostly between 18 and 44 years old, are already using social networks (Facebook, MySpace). As for all social media, a very small number of users is creating the content for the vast majority of the others (10% of users are tweeting for the 90% others).

If there is one thing that marketers and entrepreneurs should never forget, it’s to always weigh the very large majority of Internet users that are staying at a simple level of utilization. Facebook is the first social media tool to be used so massively and it doesn’t mean that everybody is ready to plunge into the web tornado.

One of the panels at this morning’s Summit At Stanford 2010 was “Mobile Monetization - Billions for the Taking.” Speakers were Sunil Verma from Mobclix (ad exchange system on mobile), Anderson Thees from Apontador (LBS leader in Brazil) and Bill Diotte from BroadHop (“air traffic controller for networks”).

Here are our takeaways from the session…

First postulate: it’s a good time to enter the mobile industry because there are a lot of changes in the ecosystem, and, consequently, opportunities. The carriers and service providers lost the first smartphone battle, as Apple and Google are playing by their own rules on their platforms. The good thing is that carriers need to monetize their assets and need partners to optimize them: smart startups are welcome. Also, there is a gap between mobile app and carrier that a startup can fit into: better integration means better user experience, and so, better monetization.

On the developer side, little money is needed to build an app and deliver it to the world: innovation will soon follow as more and more developers are able to launch their apps. Developers need to think about cross-platform development (Blackberry is still number one in the U.S. smartphone segment) as the incremental cost is affordable and can bring nice surprises.

The mobile world is discovering more and more revenue-stream possibilities: freemium and virtual goods, for example. Furthermore, transaction costs are becoming lower (still high though; think about the 30% on the App Store), and micro transactions are now possible. Still, the utility base per use model is missing — it is not yet technically possible because of the network infrastructure.

Anderson Thees from Apontador gave a quick international overview: Average Revenue Per User (ARPU) erosion is huge in emerging countries, but the cost for acquiring customers is still high, so free apps and content is very important for a service provider to attract new users.

Regarding Brazil: mobile data there is still very expensive, so paying for mobile apps is not common — you have to provide a real added value. Anderson noted that Apple’s model is a closed garden, but it’s an alternative to something that is not working in Brazil. As soon as emerging countries have relevant 3G/4G networks, the competition will intensify regarding international competition, both from and to developed countries.

There are two types of augmented reality, explained Matt Grob, Sr. VP of Engineering and Head of Corporate Research and Development at Qualcomm, this morning at the Summit at Stanford.

The most common form of augmented reality is compass-based AR. It’s pretty effective, but subject to errors. For example, the compass can be off in its measurements. While a phone’s compass makes augmented reality applications possible, there are fundamental limitations with this model.

The better model is vision-based AR. To give an example of what Qualcomm is working on, Grob showed a video of a Rock ‘Em-Sock ‘Em Robots app developed in partnership with Mattel.

Vision-based augmented reality uses a smartphone’s camera as sensor. “Vision is the key enabler,” Grob said. “You start with real-world view with virtual content on top. This enables a more immersive experience.”

“We’re seeing the transition from looking at things on your phone to with phone,” Grob said. “Your phone is portal to magical world where there’s incredible stuff.”

There are several parts to the process. First, scanning with camera and determining an object’s natural features, and determining patterns. After that, comparing with database of known images; if the image matches, then using computing vision techniques to match the object’s XYZ coordinates.

After this, the application renders graphical overlays, with computations at 30X second. The tool needs to be low-power and needs to be offered at reasonable cost.

“We’re looking at making this scale,” Grob said. “This is very important. We want this to work at very large scale.”

“The trend is towards an architecture that is so flexible so you can support all the modes you have to support,” Grob said.

Eric Gressier-Soudan, computer science professor and researcher at the Conservatoire National des Arts et Metiers (CNAM) in Paris, discusses the relationship between philosophy and computer science.

Sure, Foursquare’s slow growth continues, but it no longer has the momentum that it did six months ago. It was replaced briefly by Chatroulette as thing of the moment, and the last few months have been driven mainly by Apple’s PR machine.

Even last week’s Geo-Loco 2010 was rather subdued, with much less LBS theory and future thought flying around than a few months back at Where 2.0. More of a focus on brand studies this time around. It’s telling that the biggest story coming out of the event was Fred Wilson’s faux-controversial “Apple is evil” remarks.

The truth is that only 4 percent of U.S. adults use location-based services, according to Forrester. For the amount of attention location-based services get in the tech world, 84 percent of U.S. online adults are not even familiar with such applications.

Only 1 percent use location-based applications more than once a week.

This data in mind, Forrester believes that this sector is not yet ready for marketers.

“Location-based social networks (LBSNs), such as foursquare and Brightkite, offer interactive marketers the promise of right-time, right-place marketing by connecting people and nearby points of sale with geotargeted media,” writes Forrester analyst Melissa Parish.

Right now, the audience is primarily male (80 percent), 19-35 (70 percent), college educated or higher (70 percent) and consider themselves influencers (38 percent).

“The market is quite nascent, with only a few million consumers using geolocation apps monthly. Marketers need to know what audiences can be reached with these services, which companies — if any — are ready for prime time, and whether LBSNs align with business objectives,” Parish writes.

“Forrester recommends that bold, male-targeted marketers start testing but that most marketers should wait until they can get a bigger bang for their buck, when adoption rates increase and established players emerge from the fray,” Parrish writes.