Rumors are that on Monday, Microsoft will announce the $2.5Bn acquisition of Mojang, the maker of Minecraft. This is a big, big deal and was sort of overshadowed by all the Apple news and tech media events last week. Let’s quickly unpack why this move is in and of itself a big deal, as well as a potential harbinger of what to expect from Microsoft in the near future:
First, some light but required background reading. I would guess many of you reading this either know Minecraft well or have at least heard of it. Either way, I’d strongly recommend reading this essay on Minecraft by Robin Sloan, it is just excellent [click here]. Additionally, a short post by John Lilly, who knows a thing or two about how folks interact with the web, summarizes some of the challenges and opportunities in this move.l
Second, let’s hope it remains independent as long as possible. In more and more M&A, absorbed companies are sometimes remaining independent a bit longer. Of course, those companies now have parents and eventually integrate in some way. With Minecraft, such a treasure of creativity and organic use, let us hope Microsoft views this first as an investment and empowers Mojang to keep doing what it’s doing.
Third, Minecraft is a kaleidoscopic network. By now, we all know about many of the users building servers, and how folks across the web and mobile are addicted to creating and playing in Minecraft worlds. What we all know a little less about is how those networks fracture a bit into folks who post and watch videos the game (like Twitch), folks who chat with others in vertical networks like Amino.
Fourth, I wonder why Facebook wouldn’t win this deal or compete for it. Maybe they did and felt the price was too high? I don’t know, but Minecraft is both a social network (like Facebook) and a playground for future developers (which Facebook values greatly). With Facebook stock soaring (it could hit $300Bn market cap by the time we have our next president in office), it would seem to be a good time for Zuck to absorb Mojang and be highest bidder.
Fifth, an amazing time for game absorption at The Big Five tech co’s. Twitch is now part of Amazon, Oculus is now at Facebook, and soon Minecraft will be a part of Microsoft. What will Apple and Google do, if anything at all? (Nintendo???)
And sixth, the big takeaway — get ready for Microsoft to get acquisitive. Many signals point to a new Microsoft that’s on the block, blessed with a new CEO, a new mandate, hoards of cash, forthcoming layoffs, and the appetite to acquire more and more small teams in the Bay Area along many fault lines (mobile, infrastructure, and new platforms), and potentially some bigger M&A coming down the pike. VCs are hoping for this, too, as having another big acquirer stalking portfolios is never a bad thing. I believe Nadella has a big mandate and we can therefore expect him to make some big moves.
Let’s start with the bad news first: Twitter, no matter what you do to it, will no longer ever be a hyper-growth product. That time has passed. Yes, I know public investors expect this of you, and I know that’s what all other social network companies strive for, but it won’t happen. Twitter has hit a local maxima, and that’s nothing to be ashamed of — in fact, Twitter’s mainstream success to this point is quite incredible for such a geeky, complicated, niche product. But now, messing with the feed, degrading the design, and all those other copycat changes will not solve this core growth problem.
But, this is only bad news because Twitter is responding to the wants of the outside world. It is listening to others instead of itself. For success, all the answers are inside. Instead, Twitter should double-down on what does work and chart its own path.
This is the good news: Twitter’s hyper-addicted daily active users comprise of some of the most valuable minds and wallets on the planet today. Instead of trying to degrade their experience in favor of growth (which is, in my opinion, not attainable), why not turn that huge, active, valuable base of Twitter addicts into money? Right now, millions of smart Twitter users take actions on feeds like RTs and favorites — why not “Buy” or “Share” to other channels? Why not show me ads that are product endorsements from credible Twitter users? Why not open the API to developers again and have them experiment with new ways to monetize and grow? Why not make Tweetstorms part of the product and get more journalists and bloggers to write on the platform instead of linking (as we know clicks are down for many)?
I write this open letter out of concern and love. For over two years, I have used Twitter without touching native products. Twitter is the service I use the most, and I never go to www.twitter.com or use Twitter for iPhone. I understand I’m a power user, so this doesn’t apply to all, but I do believe it gives me the platform to share my views on the likelihood of success of Twitter in its current form. Twitter, you are now public, embedded into the fabric of society, both complex and simple at the same time. Now is the time to ignore the outsiders, and look within; now is the time to harvest your loyal user base to take the product to the next level. I’m happy to help any way I can.
Streaming media is the future, right? Broadcast is dead, right? Well, streaming dominates many forms today, and I don’t see that trend stopping. Streaming has many benefits. We don’t have to download media to a client. We can just search, select, and ingest. For audio, the data rates are quite cheap. By streaming from a server to a distributed base offers many benefits — the ability to leverage networks, personalize content to a recipient, and so forth.
Yet, there’s something I miss deeply about broadcast media. I haven’t had Cable TV anymore. Netflix and YouTube (and Twitter, as a filter) empower me to watch what I want, when I want. When Swell was around, I consumed media (streamed) at the tune of about 25 hours per week. No more traditional, terrestrial radio.
In theory, it all sounds great and more efficient, but I noticed something was missing: The feeling of being connected to my local surroundings. When I have local sports on TV or the radio in the background, moving around the house, I feel like I live in the Bay Area. I noticed this when I travel back to NYC for family events, I always leave the car radio on 880 AM, which if you know, is the same local news nonstop. It makes me feel connected to the area for a brief moment of time. Now, I realize that other personalized tools have come in to help us feel more connected, such as Twitter and Facebook, which can surface information in real time, but this doesn’t work in the car, and when at home, there’s no ambient service which can do this in the background.
So, with Twitter, I do feel more connected to the people that are relevant to me, and while I like that decentralized approach on many levels, there’s something about the non-personalized, centralized signature of old-style broadcast media as it pertains to location. It helps me connect to my physical surroundings, and I know that many people around me are also tuning in at the same time. I’d be curious if you ever felt the same?
Welcome to the 11th Sunday Conversation — on a Monday. While I want to name these videos “Sunday Conversation,” I came up against an opponent — the NFL ;-) Anyway, since I do these only once in a while now, I’ll likely just post them at different times. I hope you understand. In Round 4 with Keith, we revisit Bitcoin (again), we talk about the rest of the Khosla team, YC’s latest Demo Day, the motivation founders need, chatter about parking startups, and much more. Note that full audio of the conversation is at the bottom, via SoundCloud. Also, Keith and I will likely do one more (maybe in November?) and then starting in 2015, we will have a new guest for the year. That person is TBD, but the short list is awesome. Keith is a tough act to follow, no doubt. ♦
Part I, Revisiting Bitcoin And Stellar (7:23). I give Keith an opportunity (again) to revisit his statements on Bitcoin both as a currency and as a protocol, and he discusses a few investments in the space, primarily leveraging the block chain. He also discusses the relationship between Stripe and Stellar, which is worth watching.
Part II, Identifying Potentially Great Founders (8:28). Rabois goes in-depth about what intangibles he looks for in founders. This is notable because Keith is one of the few investors who will just invest in a team before any product. In this chat, he talks about how to leverage asymmetric information about people, how picking founders can be a bit like scouting athletes, and why it’s important to have a differentiated model in investing.
Part III, The Rest Of Khosla Ventures (3:28). It dawned on me that aside from Keith and a few conversations with Vinod, I didn’t really know about the rest of KV. Keith gives a brief overview, describing the firm as “irreverant, broad,” and talks about the portfolio in alternative energy, sustainability, and food/ag tech.
Part IV, “Peak Sports” Or Bubble? (6:15). Rabois explains why real-time sports dominates at aggregating consumer audiences and changing behavior given the passion (or addiction) society places on sports.
Part V, Thoughts On Y Combinator (2:51). Rabois shares his views on the latest YC Demo Day. (I had written earlier that YC is kind of a like a growing startup.)
Part VI, (Over) Optimizing In Fundraising (2:16). We discuss the pros and cons of split caps in seed rounds, and why changes in the macro environment don’t matter with respect to startups and early-stage investing.
Part VII, Parking Startups Frenzy (3:04). I’m obsessed with this lately. It’s a thing people hate, it’s expensive and inefficient, destructive. We look into why it’s happening now.
A special thanks to the team at Scaffold Labs for sponsoring the Sunday Conversation series on Haywire. Scaffold Labs is a boutique technology advisory firm based in Silicon Valley which designs and builds scientific and predictable talent acquisition programs that helps technology startups hire great people. Scaffold Labs has previously partnered with companies such as Cloudera, Appirio, and Nimble Storage, among others. For more information, please visit www.scaffoldlabs.com
Here’s a brief thought that’s come up in conversation quite a bit this week, about where consumer attention is:
In venture capital, the one of the biggest categories is consumer, because consumer-facing products and services at scale present the greatest possible market. This is, in part, what drives valuations for early-stage hot consumer deals up — the upside always has huge potential. On the web, consumer products and services could grow and scale based on the network effects of the open web itself.
But, today, we live in a different world — a mobile world. All consumer attention is on mobile, but on mobile, growth and scale are confined to a few “growth pipes” which present their own issues. For instance, gaming is an expensive category to compete in, photo and location apps are usually chased by investors after the fact, messaging apps create network effects but those options have largely been set and regionalized, and then there’s the hottest category out there today –> mobile on-demand services.
I’ve written about mobile on-demand services often here. We all get the picture. In a world where mobile scale is near impossible, better to aggregate consumer demand on the phone, but fulfill that demand through offline logistical prowess. Hence, we have Uber, Instacart, and many others. But, consumer web products could scale with much less friction. In the world of mobile on-demand services, there is significant friction — expanding geographically, hiring and training reliable labor, and so much more. As the coefficient of friction rises, so does the risk. This dissuades some investors from jumping into the space, but it also highlights the importance (or advantage) of having investors with real operational experience in geographical expansion, logistics, delivery models, and more.
There is an inherent friction to this new consumer mobile opportunity. With mobile growth elusive, entrepreneurs have shifted to transactional businesses, and with each transaction comes friction. This is both a challenge and opportunity — a challenge to those founders and investors who are concerned about friction (which is a real concern in venture investments) and an opportunity for those who can identify the categories (and the people behind them) who can overcome any coefficient of friction.
A few brief nuggets of interest re: today’s outlier outcome, which is Amazon’s nearly $1bn all cash acquisition of Twitch:
Seven Years Post-YC: Justin.tv (the original) company went through Y Combinator in 2007 and then made a hard pivot. You know, a 7-year over night success. (This is also the largest acquisition of a YC company to date.)
Concentrated, Risky Bets @ Series A: Alsop Louie invested close to $8m to help Justin and his team handle video server and storage costs, and because there was electricity in the house that they were building it. He had to visit the company’s office to find that out, he told me over lunch last year. It was a concentrated, highly risky bet — exactly what a proper Series A should look like.
Gaming = Media = Attention: The act of playing games, and the act of watching games, are media. Building Minecraft servers are the new legos. This is just the beginning of this wave.
Low-Key Founders: I’ve come in contact with various Twitch founders here and there, and they were all very quiet in their own way. Limited social media presence, quite reserved in the settings I saw them. Maybe their minds were on something else ;-)
Amazon’s Motives: Amazon paid an all cash sum amounting to a seriously non-trivial percentage of their total cash on hand (especially relative to what Google may have wanted to pay). In this light, we could view Twitch as a gaming portal, a streaming base for other media, and/or even a social network. They probably also had all sorts of inside data on how Twitch was scaling their cloud services. Let the theories fly around! Either way, we have to believe there is something deep in this for Amazon, perhaps across all three areas, which made this deal vital.
I am 37. To date, I have been very fortunate not to personally encounter too much tragedy in my life, family, friends. Lately, on Facebook and a bit on Twitter, I have seen people publicly share bits of their bad news. It is hard to read. On a tweet, I’ll open the replies to see how people respond to their IRL friends or Internet friends; on Facebook, I’ll occasionally open up the comment threads to see what people are saying. The phrase I see the most is: “So sorry for your loss.”
I am compelled to write this post because in two instances, I saw this phrase so many times, it stuck with me. Everyone says the same thing, more or less. What can one really say in such a sad situation? Yet, I felt as if something is missing. I know there are some sites and apps out there that anticipated this social media need, but I haven’t seen any in the wild at work. I recall 1000memories was acquired by Ancestry.com, which makes sense.
So, the question I pose is – are we left to just tweets and short comments on Facebook that mostly say “so sorry for your loss”? Is that all the grieving want? Does it make them feel good? Is there anything more we can really say or do? Facebook is just 10 years old and I don’t see it going away anytime soon. There’s tons of debate and rules around what happens to a user’s data when they pass away, but what about an online memorial? Will people be able to attend an Irish Wake of an old friend via virtual reality?
“So sorry for your loss” seems too easy, too short, often devoid of meaning. There must be something better out there, or to be built, something that can be collaborative and last forever. I’d love to hear your opinion about this, to the extent you can share or feel like sharing.
Of all the places in the world where Uber really gets under the skin of others, London takes the cake. Why it does so warrants more examination. In London, cabbies are required to master the old city’s streets, all the nooks and crannies, if you will. It can take years (and lots of pounds and sterling) to obtain this knowledge.
In fact, that’s what London cabbies call it: “The Knowledge.”
Now, that knowledge is under attack. Cabbies were tested so as to have maps and turn-by-turn navigation capabilities in their brains. Each cabbie, in turn, had to do the hard work of writing this information to each of their “disks.” While the streets are static, the navigation is dynamic. Then, companies like Google (and others) started bringing maps online, followed by directory services (search) and turn-by-turn directions (navigation). But, up to a point, the convergence of those technologies only disrupted the old external GPS providers like Garmin, TomTom, and so forth.
Mobile, of course, changes everything. Mobile now places “The Knowledge” in everyone’s hands, and by proxy, in everyone’s brains. You can see why London cabbies are worried. I heard one on the radio this past weekend. He doesn’t like Uber. He feels that it’s unfair that his knowledge is now obsolete, or at least commoditized. He feels part of being a cab driver is maintaining a character of person that is higher, though I’m sure cuddly behavior exhibited by cabbies varies on a case-by-case basis. In a matter of 15 years, Google mapped the world, and Apple put those maps in the hands of everyone, complete with static street knowledge and powered by the most dynamic, real-time system consumers have ever enjoyed.
The result is what we see on the news and on the streets of London. Up to a point, human knowledge created a moat for some to earn a steady living. But along the way, machines maps combined with cloud computing on handheld devices created a mechanism to democratize and distribute (in real time) the knowledge that had been trapped inside the heads of a few select London cabbies.
It’s not just cabbies in London who hold “The Knowledge.” Many people in other jobs believe they worked hard to accumulate “The Knowledge” in their own fields, but many of them, too, will experience something akin to what these London cabbies are feeling. Think of mobile developers who have been grinding out cycles of Obj-C only now to have to learn Swift to write apps again. Think of those who report and analyze the tech and startup landscape for a living now having to compete with forums and blogs maintained by those who are in practicing their craft in the arena. Think of the venture capitalists who were trained in their craft for decades and over funds to manage large sums of money, only now to see upstarts leveraging platforms like AngelList and resources like Mattermark to invest smaller amounts earlier into startups.
What was once difficult (and costly) to obtain is now more likely to be commoditized, provided for free, and distributed at the touch of a fingertip or even before we know we need it. It happened to these cabbies in less than a decade. Keyhole (which became Google Maps) was founded in 2001 and acquired in 2004. And, it will happen to many others in different fields. This specific case was only really fueled by machine learning, cloud computing, and mobile networks. What happens when vehicles drive themselves? What about the block chain applied to supply chain management? What about the economic effects of 3-D printing on today’s manufacturing industry? Questions like these are never-ending, and, unfortunately, the answers are going to piss off a whole lot of people.
I know what you’re thinking — “C’mon! More sky-high valuations?” My short answer: “Yep.” The rate of appreciation of hyper-growth, late-stage private valuations is hard to keep up with. Already in the past few weeks, private companies like Airbnb, Dropbox, and Uber have broken through the $10Bn club. Wow. What shall we expect next? Well, if you’re a market bull, then set your sights on Pinterest, which — depending on how you calculate these things — could be currently undervalued, and by quite a bit. Many people believe that the combination of DAUs, strong engagement, and locking in nearly 90% female users (who often control control purchasing decisions) makes for a powerful company.
Insider Round. The first bit of evidence we have that Pinterest is currently undervalued (depending on your POV) is the most recent $5Bn investment led by SV Angel. This was not a normal deal for this fund, which leads me to believe it was partly motivated by helping the company get cash quickly, helping cash out some earlier employees (perhaps – recall that Pinterest’s cap table is quite messy from all the early battering the company received). In such a deal, a firm like SV can enjoy the carry on making the deal happen, but if this was a real priced investment by the next Wellington, the price would likely have been higher. The metrics are just insane.
Global Referral Traffic. On slide #44 of the 2014 Mary Meeker presentation, it notes that Facebook refers about 20% of global web traffic ($170Bn market cap) while Twitter is about 1% ($18Bn market cap). Pinterest is about 7% and growing quite nicely. But, that’s just the web…
What About Mobile? The WSJ reported a few months ago that over 90% of Pinterest’s traffic comes through mobile — either by users hitting mobile browsers or through their native app? In an era where mobile distribution is choked except for a apps in very specific categories, Pinterest will easily have enough of an installed web user base to bring them into the mobile and tablet world. Thinking ahead — I’ve wondered if Pinterest could somehow negotiate mobile OS integration (like Facebook and Twitter have), but outsourcing photo storage and retrieval (like Dropbox) may be too strategic for the OS to budge on.
Global Distribution. Many consumer and social sites to date took a while to internationalize because of language considerations. Pinterest doesn’t have that exact scaling problem, as photographs are a language understood by all. Like other photo-based services which have exploded recently, this consideration cannot be discounted. It speeds up the time it would take to grow and that speed gets factored into a higher price if and when the next financing occurs.
Vertical Validation. Houzz, a sort of vertical Pinterest focused on people who want to catalog and design their home interiors (and more) was recently valued at over $2Bn. In terms of commerce and closing the loop on lead-gen and transactions, Houzz is an example of what Pinterest “could” do at scale. The “could” is a consideration, however — and a serious one at that.
So, let’s discuss the “could” part — clearly we all believe Pinterest has the ability to do something big, but will they? If people continue to swarm to Pinterest and then find items they buy elsewhere, at a certain point, Pinterest will need to be a part of that transaction — less of an affiliate and more of a broker. The good thing for Pinterest is that people keep coming back, over and over again, to do the same thing. The tricky part is that Pinterest is now a big ship, adding more employees, and carrying the weight of expectations that have been thrust upon them. Will Pinterest build channels to close this loop in time? Will others products that take a vertical approach (like Houzz) start building interest-based communities around images and capture that commerce before Pinterest can? Many unknowns, to be sure, and the company is not enjoying a rate of free cash flows like Uber or Dropbox or Airbnb — but, the metrics are out of this world, and in a world where private capital seeks name brands and growth, parking more money inside Pinterest at even at $10Bn valuation right now may not be an entirely crazy idea.
A blog post about Tweetstorms. How cute! Tweetstorms are definitely a thing. @pmarca has popularized them, and now it’s fascinating to see how many people on any given day will mimic the technique. A step further, many folks on Twitter or on the tech blogs are peeved by it and have called for it to stop and/or for Twitter to adjust the product so these missives don’t clog other peoples’ networks.
My stance is: There are no rules on Twitter, and tweetstorms are just fine by me. I can always unfollow anyone. That’s my two cents.
But today, I was curious as to why so many other people are adopting the nomenclature. Sure, there’s some mimicry going on, and I’m all for people expressing their thoughts in public — and if the Twitter interface and audience encourages more people to do that, then that’s fine by me. Beyond mimicry, though, I’ve got a hunch that something lurks deeper in the mind of the person creating said tweets, just as they’re about to type “1/….” — it is the concern, or even fear, that they will not be heard.
Going unheard can be an unsettling feeling. “Is there anybody out there?” “Ground Control to Major Tom.” I don’t have data to back up this claim, but I have noticed (anecdotally) that many people who share links in my feed don’t see too much interaction on those tweets. We don’t really know how many click through if links are present. Yes, we could all use trackable links (and many do), but I think there’s a reason Twitter hasn’t exposed these stats for the user — the results might be depressing to the content creator.
I will admit, I see some tweetstorms from others that are quite good, and I realize that I likely wouldn’t have read a blog post if the creator had laid out his/her thoughts in the “old school” method. For those who use Twitter, attention is so focused on the stream, that expecting someone to click through (usually, out of context) is a big ask relative to all the other content flowing in the stream that’s brand new and shinier.
Hence, tweetstorms. Those with thoughts who engage in this tactic may be calling their followers’ bluffs to unfollow them, but maybe they’d like to have their thoughts heard and don’t mind the few people who elect to unsubscribe. (Yes, I know you can “mute” people on Twitter, but I don’t think this will stop tweetstorms from entering your feed, regardless of author.)
Perhaps this is another subtle cut to the web. For me, I publish a niche blog on the web and rely on email and social networks to have that content reach its intended audience. Most often, people don’t click on my links, which isn’t a big deal to me — but maybe I’d think differently if I felt as if I wasn’t being heard. And, if more and more people start blogging this way (which would be great for Twitter, I believe), people will have visit blogs less and less. This seems to be the space Medium is trying to jam into, and they already have decent traffic harvesting signals and matching content via Twitter. Given the environment, those who publish from the web for their livelihood or business should be on warning that traffic is increasingly under control of the big social and interest networks online, and getting people to click out of those may actually get even tougher — and even then, Google and Facebook can easily tweak their algorithms to cause great changes for other publishers.
This fear of not being unheard may start with individuals on Twitter and work its way all the way up to some of the most venerable media brands. Therefore, we should expect more and more tweetstorms, where we can just unsubscribe from the author (if we so choose) and we should expect that the bar to clicking on a link and actually reading someone’s thoughts will go even higher. And, just like the old days, the best content will be king.