I love seeing tweets about Uber’s surge pricing around the holidays. Here’s a post I wrote about it back in January 2012, right after New Year’s….will keep happening.
I woke up this morning to tweets from Uber customers nationwide who felt taken for a ride, literally and figuratively, after requesting an Uber on one of the busiest nights of the year. Despite the fact the company said as such on their blog and communication channels, riders were apparently not expecting the surcharges to be so exponentially high, ranging between three to over six times the normal fares.
In exchange for providing cars on demand, Uber used its system to find equilibrium within a market where demand outstripped supply, especially a few hours before and midnight. (I’m not a frequent Uber customer, but I used them three times over my recent holiday trip, and each time was flawless; I’ll continue to use the service when I need to.)
Uber’s hangover this morning is more of a harbinger for consumers in general, especially when it comes to goods and services delivered online. Uber’s “surcharges” last night were a classic example of dynamic pricing, or adjusting the price of something relative to the demand and supply, down to the minute or second. The more data a provider has on these inputs, the more likely they are to leverage that data to extract more value from providing equilibrium between supply and demand. Most every consumer is aware of this through searching for and buying airline tickets online, where fares seem to change magically, even mid-search.
Over the past few years, dynamic pricing provided value to consumers, for example, through daily deals. Companies providing these deals help vendors manage inventory and excess supply, using the power of discounting to gin up demand. Starting now, consumers should also prepare to experience the underbelly of this phenomenon, a world where prices for goods and services that are in demand, either in quantity or at a certain time, aren’t the same price for each of us.
Online, dynamic pricing is gaining momentum. eBay auctions and Priceline hidden bids are the overt expression of this. More subtly, items in my Amazon shopping cart went up a bit each day as the holidays approached. Imagine the intricate data companies like Grouponand Living Social have as it relates to how quickly a hot deal “sold out.” All that data could be used just as the airlines have for years, and potentially with even more economic precision. Tickets to Broadway musicals are being sold this way. The National Hockey League is doingit. Companies such as TellApart and HotelTonight, for instance, are already doing this kind ofstuff, and upstarts like Black Locus and Predictive Edge are also in the hunt.
In the not-so-distant future, consumers may see more routine goods and services readjust to dynamic pricing. Want a dinner reservation at a specific time at a choice restaurant? Want to book a room on Airbnb in Austin during SXSW, right now? Want to see The Dark Knight Rises opening night, on IMAX? Or, simply, do you want an Uber right away at 8pm every Saturday night, when demand peaks? It’s becoming increasingly apparent that for items with spiked demand around specific times are all susceptible to these kind of extractive calculations.
This reality is the other side of the daily deal market, one not driven by discounts and demand, but rather premiums for things that are scarce. Which brings it all neatly back to Uber. Some riders last night wanted the combination of a guaranteed ride at a time of their choosing, but also at a price that they deemed “reasonable.” Unfortunately, since everyone else also wanted rides around 10pm and 2am last night, the demand so far outstripped the supply that what seem to be gross surcharges were actually automatically generated to make sure a consumer’s willingness to pay matched the good offered. You can’t have your Uber on New Year’s Eve and eat it, too, folks — unless you’re willing to pay up. Brenden Mulligan analyzed the communication breakdown and makes a reasoned, design-inspired case that Uber’s in-app notification of surcharges should have been cleaner, more direct and easier to read.
Uber will no doubt try to make sure this doesn’t happen again (the tweets are not pretty), and people nationwide will continue to use the service, though will now be more careful. Uber still has a strong brand with a loyal following and a strong team. However, this is also a wakeup call for consumers, those who use Uber and in general. As devices and ecosystems enable us to share more and more data about our location and what we truly want at any given time, time-based pricing is simply a natural extension of this grand bargain and is coming to a theater near you. Happy New Year!
This post may sound too Grinchy, at this joyous time of year, but if I have my investment hat on, one thing I worry about are startups aimed at the holiday season and specifically those that build and sell “tech toys” to kids. I feel horrible writing this, especially as a new father, but these types of ventures scare me while they should be inspiring me. When it came to these mobile “connected toys,” I became no fun at all. And, I know a whole new set of connected toys have been recently funded, which all seem incredible — startups like Ubooly, Tiggly, Tangible Play, Play-i, Anki, and many more — and all created by top-notch teams. (I had incorrectly written ToyTalk here, but was pointed out it is a software-only system. Apologies.)
A few disclaimers: (1) I’m probably going to be proven wrong; (2) some of the teams in the space I’ve gotten to know are A++ teams, so some of the best people are tackling this; and (3) it’s easy to be skeptical of a category or market because most endeavors fail, though I wouldn’t be surprised if someone or something broke through. In other words, in this case truly, I will be happy to have been proven wrong. Briefly, here’s what flies through my head when I think about the real challenge of “connected toys” today:
Where will parents hear about these toys?
Where will parents physically buy these toys?
Is the back of the Apple Store the best place for this?
How long will it take for the toys to get delivered if ordered online?
Are these one-time purchases or hits, or is a razor + razorblade model possible?
How will parents be able to distinguish between sets of connected toys?
Will it be easy for parents (or kids) to set up (beyond assembly)?
Would a startup have a better chance of creating brand awareness and distributing related hardware by building (gaming) software first? (See: Angry Birds)
Will the cost of hardware production make for unsavory early-stage financing requirements?
Do kids actually want these, or do parents want their kids to have these?
Can anything compete with MMOGs like Minecraft or iPhones, iPods, or Kindles?
Will future generations want material things or will they prefer experiences?
If the underlying technology is a platform play, who will design the showcase games?
Should kids even have “connected toys”?
This may be a post I regret in the future — who would write something anti-toy!? — but it is what I truly feel today. There is a deep desire among many (myself included) to individually support such endeavors (especially when kickstarted by passionate, exceptional people focused on using toys as educational tools) through crowd-funding or similar mechanisms, but the thought of getting institutionally committed strikes me as risky. Of course, no risk, no reward, right? Yet, these “connected toys” pose a combination of classic startup problems — the platform versus killer app problem, the (continual) cost of manufacturing hardware problem, the physical product distribution platform, and a more fundamental “are these the toys kids want?” problem.
All of this makes me conflicted. I’m reticent to invest, yet I want everyone to succeed. Every year, there are a few toy “hits” (usually just normal toys) and that’s a fun game to play, but I wonder if what ends up striking a chord with kids are things that most adults couldn’t conceive of to begin with. Adults do make the purchasing decisions for younger kids, but at a certain point, kids start to ask for what they want — or seek it out — rather than taking what is sold. Ultimately, this is just something that’s been on my mind and I wanted to share my thought-process and solicit your reactions and feedback. I’m probably missing something big here. Please tell me what that is.
Lately, again, I’ve been thinking a lot about “risk.” Earlier this summer, I wrote a post here about the life of Ayrton Senna. I’m really proud of that post. You can read it here. In the Valley, stories of “risk” grow into legend. Yet as technology becomes more mainstream, and as the Valley and its companies seem to be the only parts of the global economy that are actually experiencing real growth, the line between startup risk and lifestyle gets blurred. I started thinking about this again because I tend to help move a lot of friends and ex-colleagues in and out of jobs. It’s something I enjoy doing, and as a result of many of these instances, I have come to better understand the hopes — and the fears — of what drives people here to do what they do.
One of the striking observations — and perhaps this is naive of me — is realizing the delta between the type of risk actors here “say” they are willing to take versus the actual risk they end up taking. In a nutshell, that delta is huge, much bigger than I would have expected it to be. And, it got me thinking about a more fundamental question: “Why is it that makes others afraid to take on real risk in startups?”
This question lingered in my head all week. Here are the answers I could come up with (so far):
Fear of not having money. You know the common concerns — student loans, maintaining a certain lifestyle, wanting to life in the city and not have to move to Oakland to start something new or commute down to the Valley to rent cheaper office space. Startups can turn into a lifestyle, a choice not to enter into traditional corporate structures. The risk folks often do not want to take involve the fear of going into debt, or not having reliable cash flow, or simply not being able to live in a nice place or part of town. Yet, for every 100 folks who fear this, there is someone who quits their stable job, moves out of the city to a not-so-great part of Oakland, grows a beard, and starts a company by living with his cofounders, and tries to build a prototype with his savings before thinking about more elaborate plans.
Fear of finding out you may not be that good. Taking on a professional risk always carries the (likely) possibility that one will fail. Usually, these outcomes are binary. In the Valley, the “acquisition” is an example of a failure that is respected by the community, either because others do the math and justify it on those means, or because starting out to begin with is hard enough. No one wants to find out that they can’t do something. In that way, the Valley can be a brutal place. Most things most people do are somewhat interchangeable when you step back and think about it.
A fear of leading (credit: Tom Eisenmann, see below).A founder must set direction in the fog, make tough hiring/firing calls, rally the troops after a setback, etc. Not everyone is wired up to do this, and folks who know their limitations may instinctively and appropriately avoid the founder role. Fear of leading is, I think, different than your fear of failure. Great leaders are often afraid of failing. And it’s different than fear of having your judgments called into question by friends/family/former coworkers, which relates to reputational risks.
Fear of being perceived in a different light. This comes down to professional reputation. There are many folks who have tried to start company after company and failed, yet they likely could have spent time inside a bigger technology company and made big contributions. We all have free will, so those choices should be applauded but also put in perspective. People may say nice things about these folks on Twitter or in public, but in back channels, the crowd feels a mix of emotions — part respect, part concern, part empathy, part confusion. It is a complicated thing. What if someone is a late bloomer? No one truly knows. So, what stops some from taking on a deeper risk is this fear of being perceived differently, which leads into my final point…
Fear of having one’s judgment called into question. So much of what seems to drive reputation and success here are the choices people make in their careers. Work at the right companies, go to the right schools, have the right friends — in a way, some of it is reminiscent of parts of the east coast (where I grew up), just with different inputs. The fear in this regard is nuanced. The fear is about having others you respect wonder about your judgment. You may never hear about this, but the chatter may exist. And, it has longer-term career repercussions. Now, I think the Valley is a more dynamic, malleable, forgiving place than others, but I do hear how many different people talk about the same repeat founders chasing that elusive goal. Maybe it’s a startup that has been a “startup” for too long. Maybe it’s a founder starting his third company and not being able to get the flywheel going — again — because at some point, if and when this person stops, they may not be able to re-assimilate. Of course, they may not want to anyway, but this fear of having your judgment called into question strikes me as a deep motivator, or rather, blocker in taking on risk.
I should be clear and re-state that I don’t think everyone needs to be heroic and take outsized risks. Everyone has their own unique risk profile. What I do think is important is to always remind each other that there are people who — for whatever reason — undertake great professional risk, the kind of risk that may help them go broke or into debt, the kind of risk which may raise doubts about them in our minds, or the kind of risk that makes other wonder about their fitness. I hold those people in deep respect. I may not be able to help them or may not like the products their startups produce, or may not want to work directly with them, but I do think it’s important to stop every now and then and appreciate the risk some are willing to (repeatedly) take.
Over the course of 2013, if you work in technology (and startups) and live in the Bay Area, you probably noticed a few things. The traffic is getting considerably worse. Public transportation (when it’s working) is more crowded. New buildings and rents are going up. The profits at large, Valley-based technology companies are rising. In fact, if you look around the world, it’s high tech and the Bay Area that are providing the only real source of growth in international markets — hence the flood of all new types of capital engulfing the Bay Area.
Along with it, as I’m sure you’ve noticed, is what appears to be a never-ending stream of socio-commentary about how the Bay Area is out of touch, how this is a bubble, how Silicon Valley is the new Wall Street, and so on and so on. I’m not here to argue the merits of these positions, but the angst behind them is very real. On a national level, scores of jobs are not coming back, and many people are unemployed, underwater, in debt, and broken down. On a hyper-local level, the Bay Area is also undergoing massive change, but of a different variety: gentrification, new construction, congestion, rising rents, poor housing turnover, and the list goes on.
There are real problems on a national level, and unfortunately, I don’t know how to solve them — I’ll try to write more on this later in the year. I need to really think about it. But, in terms of the Bay Area, I have identified three (3) huge risks that I believe must be addressed so that the ecosystem can continue to thrive as it has for over 50 years. I’ll be brief here in my prescriptions, since analysis can often just lead to paralysis, but I will also be clear — I believe all three of these issues *must* be addressed and the likely driver for them will be the fortunate titans of the technology industry:
Increased Affordable Housing: The region has plenty of land, but zoning restrictions and other laws make it harder to build new habitations. A large portion of these need to be allocated for affordable housing. I will rest my case by the fact that both Google and Facebook have purchased private property near their campuses with a goal of converting that land into housing units for employees. People are going to continue to rush here because there are so few opportunities elsewhere. I have heard stories of Starbucks baristas who commute over three hours a day to work in the city in order to keep their healthcare.
Unified Public Transit: The ass-backwardness of Caltrain not smoothly interoperating with BART and SF Muni stifles urban agglomeration and puts extra strain on the region and will come back to bite it in the rear, big time. Once affordable housing is increased, how will all these people get around? Not by the current system, that much is true. It’s time the powers in the state come together and expand and unify the systems, increase capacity, and modernize with a heavy hand. Yes, it will inconvenience some people, but the status quo will just eat away at all the gains the region has made.
Increased Arterial Roadways: Improved public transit will relieve some pressure on the system, but the choke points getting in and out of the main city are too narrow to keep up with the demand. They need to be widened. People in Marin should be able to get to the Valley without stopping at lights in the city. People in the East Bay should be able to get to SFO without being choked into two lanes as they meander through the Civic Center.
Three things. If policymakers and the wealthy focused on this, many things would follow. I know there are many, many other problems — and they are real: Prop 13, decline in social services, losing our coastal parks, etc. I don’t mean to diminish them. But, let’s focus on a few from which many things will get better. Three things only. Now, who is going to do this? That’s the billion-dollar question. It will take a just a very small group of people, some tech luminaries who have done well and want to give back, paired with some savvy policy hands who can make sure these visions become a reality. I sincerely hope it happens.
I wrote this post in February 2013, and it generated *tons* of private emails and messages (which is unusual for my TC columns). That is a sign of a contentious, confusing deal and a product that can both excite and confuse people. Now, as 2013 nears an end, and as SnapChat continues on its high-trajectory, it’s fun to go back and read this — clearly the breakout company of 2013.
Yesterday, it was confirmed —SnapChat raised a big round of funding. By now, everyone also knows that SnapChat is a new communication medium, a phenomena reflecting a desire for ephemerality, and the fastest-growing consumer app out there today. As I was drafting this post last night, Saturday Night Live’s Seth Meyers mentioned the service during the shows “Weekend Update” news segment.
We do not know how large SnapChat will become. So, just for fun, let’s assume SnapChat continues to grow and actually turns out to be “the next big thing,” in the same manner that Instagram and Pinterest ascended over the past few years. If this happens, there are fascinating facts about SnapChat that challenge many widely-held assumptions within the tech startup community:
The SnapChat founders did not drop out of college — well, sort of. [Update, I just learned that one founder did graduate from college, and the other left campus on a leave of absence right before graduation, three credits shy of getting his diploma. This bullet point turned out to be the most discussed from the post, so I wanted to correct this here.] In an age where college dropouts who leave to start companies are romanticized, when the business model of higher education is under attack, and where incentives exist for some of the brightest to forgo university altogether, SnapChat was created while its founders were in college, and they graduated.
SnapChat may have started in the Valley, but it grew as a product in Los Angeles.In the past few years, the locus of consumer startup activity in the Valley has shifted north to San Francisco, and New York City has its own vibrant scene. Both cities enjoy healthy levels of tech media hype. There’s a natural rivalry now between the two coastal cities, but SnapChat gained traction as it was headquartered in an entirely different location with its own startup DNA. SnapChat probably could’ve been built anywhere, and that itself if is noteworthy.
SnapChat grew on the back of SMS, Apple’s iOS, and eventually Android – not Facebook or Twitter. For the pat few years, it seems nearly everyone assumes logging into new services through existing social graphs creates better consumer experiences. By contrast, as Steve Cheney sharply noted, SnapChat subverts these existing networks because its user base doesn’t want the content itself to show up on the web, which in turn, as Fred Wilson pointed out, makes Facebook’s move to revive Poke as an answer quite comical..
SnapChat is built around digital pictures. Yes, this is another photo-sharing startup with the added twist that its “key photo filter” is a feature that erases photos and notifies users when someone has taken a screenshot of the image. It is indeed early innings in the digital picture game. It now may be Instagram, Pinterest, and SnapChat — and I expect we’ll continue to see more new products and services in the category for years to come.
SnapChat is built for consumers. “Consumer is dead!” “It’s a shift toward enterprise!” and growing during a time when most of the Valley is trending toward more traditional B2B models. Of course, founders continue to build for consumers and investors continue to make their bets, but this is a meme I’ve heard now for a good six to nine months, from everyone in the ecosystem — including VC firm LPs who cannot yet reconcile the disconnect between private consumer tech valuations and what the public markets are able to stomach.
The VC firm which won the deal is one of the most quiet firms on Sand Hill. This is less central to the story of SnapChat, the company, but it is worth noting. Over the past few years, as Leslie Hitchcock wrote, it’s been fashionable for VC firms to market their offerings to the tech community as a way to reach the next SnapChat founder. And, it makes a great deal of sense for firms to do this given how nicely (and cheaply) good content scales. Despite this trend, Benchmark Capital recently moved in the opposite direction and pulled down its website a few months ago, instead simply simply its single-page website to a curated Twitter stream of its portfolio companies.
SnapChat may have been initially viewed as a “toy,” reminiscent of Chris Dixon’s famous post on this topic. What may have initially seemed like a gimmick could likely be, as Dustin Curtis artfully opined, a new communication medium all together. Again, I have no clue if SnapChat will be a runaway hit like Instagram. I have never even used the app or service. But the facts around the company’s founders, its location, and its offerings provide a provocative challenge to many widely-held assumptions about what ingredients are required for consumer technology success. SnapChat shows it can be done within the confines of college, done outside of the Valley or NYC, done without Facebook or Twitter, and done by leveraging the most important sensor (camera) on the most important devices (phones). And, if SnapChat can continue to grow and become the next Instagram-like sensation, it would have done so as many other breakouts have — by being improbable, by being initially dismissed, and by overcoming many or all of the assumptions many of us hold inside and believe to be conventional wisdom.
Today, NYC-based Union Square Ventures unveiled their new community site under “Beta” at beta.usv.com. Now, while I talk to these guys often, I had no idea today was the day they’d lift the curtains. And, over the past few months, I have talked to folks at USV about how to reinvent systems and how important original content is to connect with like-minded people. Anyway, I was excited to see what they cooked up (and I like it so far), so here are my brief thoughts on it:
This is very “USV’ – I’m not sure another firm could’ve pulled this off. Firms all have content strategies now, but trying to be a destination is a whole other game. Sequoia is building “Grove” and a16z may be able to reinvent the technology news category. There’s First Round Capital with First Round Review, their Harvard Business Review, which is just really high quality. USV’s core strengths here are Fred’s daily blog (plus at least 100 comments per day), Albert’s daily blog (usually around 30+ comments a day, and underrated in my opinion), and occasionally when Andy writes (wish he’d write more!). USV can now combine this reach with the power held in Disqus from their readers and invert the model, asking the audience to suggest what’s important. Yes, it’s very much like what PG did with Hacker News, and there’s no reason that model cannot be verticalized with a more venture or market-based mindset.
Takes Pressure Off Of AVC.com – Fred is his own media powerhouse. This is important to USV in many ways, but I’d sense Fred also doesn’t like it because it takes focus away from the team. While everyone will likely blog on their own sites, people in their community (like me) can now go into their site and directly interact with others via Disqus or other oAuth systems. So, the mindshare goes slightly from the individual back to the firm, which is a nice, subtle touch.
Android-Only, For Now – As I’m an unabashed Android-hater, I love that these guys only released an Android app. Brilliant!
“Pin to USV” Interaction – With a Chrome bookmarklet, folks in the community can now easily pin articles they’ve seen online that are interesting and pump them back into USV.com. The hope is that the community will bubble up the most interesting things, though it could be noisy, too. Let’s see. At least folks will have an audience.
Testing Ideas Outside Of The Hallway – Say the firm is exploring a thesis or idea. Now, without tipping their hand or focusing on an individual blog, they can place articles into the forum or comment and explore those ideas outside the hallways of their offices. That is pretty cool if it works.
Moderation Is Key – I’d imagine this place will be moderated from Day 1, as being on the USV site cannot afford trolling or other types of unsavory participation. If moderated well, I think people will come here more and more, because there aren’t many places that exist like this in technology circles, even though there are plenty of forums, etc.
Transition Planning – Say one day some of the folks at USV aren’t there. Who knows when…but, the point is that individual brands and their audiences may not move, so doing Beta as a discussion forum helps unify the community under the USV brand and makes it easier for a new partner to step in at a point in the future, as I’d assume that new partner blogs and would be the type of person to interact online in such a manner, though they may not have their own audience or brand. This is important for firms to consider in leadership transitions because so much of the intellectual and brand capital can be tied up in individuals.
When Sarver announced he’s joining Redpoint earlier this week, it reminded me just how vibrant the ex-Twitter network is. Last year, March 2012, I wrote this piece below in TechCrunch about how Twitter was poised to spawn the next great “tech mafia.” Sure, nothing will compare to PayPal, but now perhaps ex-Twitter endeavors could be at least on par with or even surpass the FB mafia. Maybe. Who knows? It’s just a fun parlor game, but now that Twitter is marching toward its IPO, many of the seeds planted could bloom in very interesting (and potentially orthogonal) directions.
Originally written in March 2012: In middle school, my teacher assigned a book by Mario Puzo called “The Godfather.” Yes, it was pretty epic. From that work of art, mass audiences were introduced to Don Corleone and eventually its derivatives; Goodfellas, Bugsy, Capone, Casino, Heat, The Departed, and scores of other pieces that romanticized the notion of organized crime across the globe, a world of big bosses, willing soldiers, and internal codes of helping out each other, from family to family.
One reason I believe the Valley is so enamored with these types of groups is because individual stars emerge from an organization that go on to become more influential and powerful. And so, in the world of the web, the term “mafia” has also caught on, albeit in a much more positive way. This has all been written about before. The premiere group is the “PayPal Mafia,” which lumped together incredible minds to form one of the world’s most important companies and whose alumni are now founders and/or financiers of some of the most disruptive new technology companies today. The other important mafia hails from Facebook (which Sarah Lacy has chronicled brilliantly), where early employees have gone on to found Quora, Asana, Path, and Cloudera, among others, and who have also quietly provided angel funding to some of the most interesting new startups (and perhaps even acting as limited partners in other investment funds). Facebook liquidity approaches for many more employees, which will only deepen its impact.
Which leads me to speculate where the next mafia could emerge from: Twitter.
It’s a bit early, but Twitter has the makings for the next “family.” At the moment, Facebook is in a significantly stronger financial position and set to go public this year. Twitter’s future is less certain, but as a loyal and heavy user for three years, I am extremely bullish on Twitter and believe it’s currently undervalued economically today despite the kinks it needs to iron out. That’s an argument for another post, but for now, I believe Twitter alumni have a terrific chance to form the next Valley mafia. We are at the early stages of this, but as the first few flocks of early employees and the founders start to move on, they are already spreading their post-Twitter wings and are in a position to exert a good deal of influence, both financially as well as in the formation of new businesses.
And of course, there are Twitter’s three founders, and early employee Jason Goldman. Obviously Jack Dorsey is still at Twitter but also leading Square, as well as being an early investor in ultra hot startups like Kickstarter, Instagram, Flipboard, and Foursquare. The other two founders, Biz Stone and Evan Williams, have returned to the lab that created Twitter — Obvious Corp — and brought with them product extraordinaire Jason Goldman as a third founder. The group has been somewhat vague so far about its ambitions to date, but we now have an early peek at a potential strategy, as the group is closely tied to Lerer Ventures and has invested in Caterina Fake’s Pinwheel, incubated Lift, and most recently Branch (formerly know as Roundtable).
Along with their product knowledge, wealth, and broadcast influence through creating Twitter, we may start to see these early Twitter stars begin to flex their muscles as an entirely new mafia in fascinating ways. Though it remains to be seen if Twitter will generate the type of wealth that PayPal and Facebook will, the early alums are a good indication of the diversity of talent within Twitter HQ today. Simply living through the fires that the company has survived will toughen present and future alums for bigger risks, and their intimate knowledge of Twitter strengths and blind spots could help them and others chart more precise courses as the ecosystem grows and widens. Only time will tell if Twitter will join the ranks of PayPal’s and Facebook’s mafias, but if the recent past is any indication, there’s a great chance we’ll be using the term “Twitter Mafia” more regularly.
Earlier in September 2013, I wrote a post about the three most significant venture deals for 2013. I was motivated to write it after AngelList finally announced. I was frankly surprised at how often it was read — my posts here aren’t too widely read. The danger in a post like that is that you leave people out (and their deals), but I still stand by the fact that transportation, mobile communications, and the venture industry are going through massive changes, and that companies like Uber, SnapChat, and AngelList make for significant investments in the sense they best represent the changes we see before us. That is not to say, however, that they will be successful. Time will tell…
In this vein, I’ve also been trying to think — What are the sectors where founders and investors got irrationally excited about in 2013, and what are the key themes driving them? Well, I’ve finally answered that question, so here are my thoughts, and yes, I essentially think 2013 is over for new ideas — sorry about that! (I do give honorable mention to “Internet of Things” and anything touching the enterprise stack, mobile or wearables, or the cloud, but those are all mega-secular trends, as they were important in and prior to 2012.)
One, Bitcoins. The allure of an encrypted currency masterminded by an anonymous monikered Japanese hacker is just too bright to ignore. There are just so many fascinating kernels within a Bitcoin, be it the elegance of the math involved in its derivation, the anonymity it affords users through cross-border transactions, the volatility in pricing and limits on the numbers of coins in circulation, the fact that coins must be mined using hidden keys, or the timing of its rise coinciding with a propped-up global economy where the only growing sector is in technology. As a result, investors started placing their Bitcoin bets, a Bitcoin-focused fund was launched, people started buying Bitcoins themselves (I just bought some right now), and it became the talk of Twitter. In researching Bitcoin-related companies for investments, I found three kinds — one, where you can exchange Bitcoins for currency (like Coinbase, OpenCoin, and BitPay), two, where you can trade Bitcoins indirectly for cash-equivalent tender (where I invested), and three, the infrastructure (storage, security, etc.) of the underlying network protocol which drives Bitcoin. Ultimately, what’s most interesting about Bitcoin to me is how the up-and-coming generations are more and more distrusting of institutions, including financial ones, and after the banks helped put us into a mess leading up to 2008 and now are reaping the rewards of being too big to fail, the times scream for another currency abstracted away from the state where people can freely store and exchange funds without the fear of insider trading and adverse risk.
My posts from 2013 on Bitcoin are: (1) The Theatricality & Deception Of Bitcoin [link]; (2) How Five Real Economists Think About Bitcoin [link]; (3) Fred Wilson Thesis On Bitcoin [link]; and (4) *Special mention, this panel included a talk by @Naval on Bitcoin which is my favorite [link]
Two, Drones. Earlier this year, I was listening to Swell in the car and came across a random podcasts talking about the drone industry. Somewhere in the discussion, an expert (who was legit, I remember) said that once drones hit the commercial market, the drone industr will mature over a decade to about an $80bn+ market. Um….Holy shit! That is why investors get so excited about the hardware potential, the corresponding software, and all the business use cases that come with automation like this. Imagine drones surveying crops, traversing mountains, and other types of data collection and surveillance. I would love to learn more about the sensors inside drones (much like phones) as well as the camera technology and software that’s possible with these machines, and how well (or not well) these devices will track with how smartphones evolved.
I don’t have any posts on drones from this year — my bad. But, if you know anyone working on these spaces, please let me know: Drone camera hardware; Drone camera software; Drone operating systems (like Airware); Other physical sensors inside drones, such as weather, location, Bluetooth LE etc.; and Deployment mechanisms on the drones
Three, Bridging Online “Taps” With Offline Logistics. Depending on what city you live in, chances are you’ve now been trained to tap your phone and get a specific service, like a black car, or a car with a pink mustache, a person to bring you a burrito, or your groceries, or someone to clean your car, clean your apartment, or clean your laundry, or ship your boxes, and so forth. Every week, a new service seems to launch that aggregates and organizes freelance labor (those with excess time) to help those who have money but not time. While one may wonder about the unit economics and margins of these businesses across the board, Uber and Lyft are leading the charge here making real revenues and addressing huge markets. A number of companies in these spaces are doing well, such as Postmates and Instacart, and there are some unsavory reasons as to why. I have invested in a few companies in this space, such as Instacart, Gyft, and a few soon-to-be-announced. I’ve also written about a part of the trend here, Recruiting The New Labor Force.
I do want end by sharing one important, sobering note on the last point, as to why these “bridging” companies are able to do so well so quickly…yes, mobile is part of the story, which quickly aggregates demand, and yes, the entrepreneurs are incredible, for sure…But…
The bad news is that the American economy has undergone a massive, massive structural change. The Economist reported that 95% of the economic recovery since the 2008 crisis has gone to 1% of the population. There is a big skills gap between technical jobs and those out of work and their vocational ability. People are stuck in their homes, many of which are either under water, or they don’t want to move and realize gains because the next purchase could put them in the hole based on rising prices. So, people are either out of work (and freelancing), or cannot move, and sometimes, both. “Those jobs aren’t coming back” sums up the situation.
What does this all mean? It means that a large part of the economy is unwittingly engaging in a massive race to the bottom. For instance, you can earn over $30/hour as an Uber driver in the Bay Area. That is outstanding and providing real work opportunities. People who were laid off or can’t find regular work can be Postmates during the day, Lyft drivers at night, and get their laundry taken care of for them by Prim. This race to the bottom has many, many implications. Someone who is unemployed will then have advantages based on their location (“I can be a Prim laundry person in San Francisco, but not San Diego”), or by their automobile (“I can be an UberX driver with my Prius, but I’d need a suitable black car to drive regular Uber”), or by their preference on work time (“I can work as a Postmate every night, when demand is highest”) and so forth. All of these companies are taking advantage of these structural changes to the economy at large and the labor economy specifically.
Now, how long will this last? Studies show more and more people are preferring a freelance style over working at one job from 9-5 daily, but these jobs pay hourly, often without benefits. Rents in cities are going through the roof. Student loan debts are reaching the point where they’re about 2% of what the mortgage crisis booked, and it’s growing. These jobs aren’t also creating more transferrable skills for those who work them, which reduces any economic agglomeration effects in the long-term. One way to think about this in real terms is the private transport market in a city like San Francisco. Now, I want to be clear and say that I’m a happy user of both Uber, UberX, and Lyft — all great companies. San Francisco is undergoing a big economic transformation, but while more and more wealth moves from paper to liquid over the next 24 months, the city’s management is already so bloated that there’s little room or political will to improve the city’s poor public transit infrastructure. But, when you have a segment of the population with smartphones and more money than time, and you pair them with people who can hop in a car and supplement their income, you have a new marketplace forming that solves a big problem in the immediate-term but also fundamentally changes the interactions between city residents. In a place like New York, most everyone rides the subway at least somewhere — in San Francisco, the person on the bottom floor of your Mission townhouse could be your Lyft driver when you go out to that startup party in SOMA.
I could go on and on about why this is so important for online-to-offline startups to think about, but you get the idea. What it does mean, in the near-term, is that labor is readily available, and if it can be trained, organized, and delivered in a way that saves other consumers time, there is a potential business to be made. There are swaths of people who need jobs yesterday, and new companies like the ones I’ve listed help create a temporary, soft cushion at what would otherwise be a very rocky bottom of the economy.
Ten years ago today (Sept 23 on the east coast), Fred Wilson wrote his first blog post on AVC.com. I hadn’t heard of Fred Wilson or AVC until 2009. I was part of a founding team of a life sciences startup in Boston, and a friend forwarded me a post of his from AVC on Facebook. I remember reading it more and more, over time, throughout 2009. I wasn’t sure if I was going to make it back west. I was hoping to leave the east coast, but didn’t know how or when that would happen. Right around the time I started following AVC (on Facebook!, though I was using Twitter a lot), someone introduced me to Chris Dixon. He said I have to meet him. Sure, ok. I went to NYC and met him, but didn’t really know who he was or have much context. He was very approachable, replied to emails. Fred then started referring to Chris’ posts a lot, so I started reading them, and as I was moving back to California and totally unsure of what to do, so I started writing on a blog. I set up an account on Posterous. I think my first posts were a review of the first iPad and my thoughts on the movie, Inception.
Here’s Fred’s first post (not edited):
I am a VC. Have been for 17 years. I help people start and build technology companies. I do it in NYC, which isn’t the easiest place to build technology companies, but its getting better. I love my work. I also am a husband and a father of 3 kids. I do that in NYC too. And it isn’t the easiest place to raise a family either. But it’s getting better too. I love my family more than my work. I also love music, art, yoga, biking, skiing, and golf. That’s a lot of interests for a guy who works 60 hours a week and loves his family. But i manage to make it work. I used to love politics. But now its all about money. I don’t love politics anymore. I used to read three papers a day. Now i barely read one. Somedays i don’t read the paper at all. I read the internet. I rarely read anything in the paper that i didn’t read on the internet first. I never read important news in the paper that i didn’t read on the internet first. I read blogs a lot. And i think they are great. So i am starting a blog. I have no idea if i’ll write a lot in my blog or rarely. I hope its a lot, because i have a lot to say. But we’ll see about that.
Pretty cool to read that today, 10 years on. In commemoration of this, I asked Fred if he wanted to do a Q&A about the milestone, but in his typical fashion, he wasn’t sure it was a good idea. I let it go. He’s probably right, though I’d be remiss if I didn’t write this post. As it is, his writing has been greatly helpful to me and part of the inspiration why I continue to write so much about a field I’m new to. There’s no way I could do it every day, but it’s great fun to just type and hit “publish” and then see what happens, to have random people to connect to, to make new friends through Twitter and Disqus. It may seem from afar that this is all a plan to “market content” or do what everyone else is doing — maybe, but for me, the real motivation is to learn. I’m playing catch-up. Writing helps me get up to speed, even if I’m still behind everyone else. Writing forces me to boil down my thoughts to their essence. It forces me to think of a reason why someone else — maybe you — would stop to read, and then, how to build trust, over time. I’m hoping to write more myself. But, there’s a lot of great stuff out there. Maybe too much. That’s a good challenge.
The book I’ve heard most in Valley chatter this year is “Give And Take” by Adam Grant. Many of you reading this will likely have already read the book (or listened on audio tape), or at least have heard of the book. If you haven’t read it, please do. I think it’s an important book and framework to have. Briefly, in the context of entrepreneurship and being in the Valley, here are my takeaways:
No matter how hard you’ve tried, we’ve all exhibited tendencies of a taker, matcher, and giver. We are hard-wired to react in certain ways and in certain situations. It’s OK, I think — we are human. But, this book makes it important to understand “why” we react the way we do, and more importantly, how others may perceive those actions.
Be comfortable with the fact that sometimes takers will dupe you. My friend Charles had a great line about this. He is very much a giver. He said, paraphrasing, “I’ve come to terms with the fact that some people will just take, and that I’ll be taken advantage of.” That really helped me get over some of my grudges.
Perception matters as much as your intention. I pride myself as a giver and would hope many feel this way. Yet, I had a good friend point out to me that some may view me from afar as a matcher. That really rattled me, though I can see how this may happen. There’s nothing wrong with being a matcher so long as everyone knows it, but I think people grow suspicious of others who try to position themselves as a giver but act like a matcher.
Takers present a framework for uncomfortable interactions. Charles, again, had a great line. Have you ever had an unpleasant work interaction and tried to classify it, but couldn’t? In many cases, those can be derived from a taker mentality. This book gave me a framework by which to organize those experiences and better understand its roots.
Giving is a strategy, not how folks are hard-wired. Some givers are truly wired this way, but many are also making a cognizant choice to be a giver. There’s nothing wrong with this. Giving as a strategy is a great practice.
It’s hard not to bucket people after reading this book. The framework is so simple and powerful, it’s very hard to unlearn it. Now, when I have deeper interactions with people, I’m constantly thinking — are they a taker, matcher, or giver. I will admit this is not a healthy thing to have on your mind, but perhaps that speaks to the power of this book.