Earlier today, I caught up with an old friend and we were talking about the current state global affairs, and all the political change sweeping through different parts of the world. Driving into work, my mind started to wander about all of these movements, and then I started to think about companies — specifically, startups — that were in fact bigger than just a company, but were actually movements. So, I blasted out a few tweets about startups that, to me, seemed like they were movements. As I learned quickly, the word “movements” means different things to different people, and passionately so. (Scroll to the bottom for a custom timeline of my tweets and some select replies.)
While I have my own opinion of what constitutes a startup movement, upon reflection, I don’t think it’s my place to define what one is for everyone else. That’s because movements exist in the mind of the beholder. Some movements are outside of technology companies and startups. Some people truly believe their fledgling idea is creating a movement, and I am certainly not the one to say “No, it is not.” Who knows? What’s clear, though, is that a movement — as a word — describes something we don’t discuss often enough as it relates to startups. For example, it’s one thing to say that Coinbase is growing — it’s entirely another thing to assert that Coinbase is helping lead a movement, a movement that’s bigger than its own company, a movement that is creating other companies with real revenues and drawing in the curiosity and time of some of the most creative computer scientists in the world. What’s nice about a movement is that it doesn’t need much to grow. It doesn’t need to be hacked that much, because it has its own mass, its own density, its own vector, all of which create a kinetic energy that attracts the right people to its mission and makes things better for a greater number of people.
Coinbase (and other companies) are part of a movement because they enable transactions that were once not easily executed and because the helps provide financial services to the once-underbanked. Kickstarter is a movement because it created a platform that allowed everyday people to transform into investors of other peoples’ projects to help make ideas turn into reality. Etsy is a movement because it created a platform for people who make things to earn a living in a vibrant marketplace and reach more customers. Airbnb and Couchsurfing are movements because people need extra income, people want to travel differently and make new friends, and consumers want more choice in their styles of travel. Facebook is a movement that started by connecting people 1:1; then Twitter became a movement connecting 1:many; and then Snapchat became a movement by people rejection the notion of having their images appear on Facebook and Twitter and other parts of the web. Oculus Rift is a movement, attracting some of the best talent in gaming and computer vision to bring the next level of virtual reality not just to gaming, but potentially other applications. Shapeways and MakerBot are movements that draw in mechanical engineers and designers to create hardware, software, and materials for people — like those on Etsy and Kickstarter — to create their own things. Companies like Tesla and SpaceX are movements because they’re ushering in new modes of transport never seen before, modes that could only occur through private innovation, and ones that will attract scientists and engineers and designers who may have been stuck in universities and other government agencies. Wealthfront feels like it could be a movement as the next generation of middle to high net worth individuals choose to trust their personal finances to an algorithm over humans. AngelList has already kickstarted a movement toward the democratization of investing in startups, and many “crowd” based companies have leveraged the power of groups to finance projects in nontraditional ways. There are also movements within enterprise or developer environments, such as Heroku, Docker, Vagrant, and GitHub, among others.
I could go on and on. Startup movements are rare. We all recognize the names above today. But, perhaps we didn’t in the early days. Yet now, very little can stop them. They have their own momentum. ‘What will be the next great movements in the startup world”? It’s a great question, and I don’t know the answer.
I’m probably going to keep writing about the ripples from the Whatsapp deal. Lots going on here…
It’s no secret that many entrepreneurs and investors are seduced by the specter of network effects. Walk around any young company fine-tuning their product to fit their market or any early-stage investment committee meeting, and inevitably, network effects will be discussed. “How do we tweak the product to ignite a network effect?” “They’ve built a great product, but can it find a network effect to grow?” On the web, the right answers to these questions have created enduring global companies and handsomely lined many pockets. On mobile, we all knew — intuitively— that this would be the case, but perhaps we didn’t have a good sense of where the floor would be or how high the ceiling could rise. Now, as “The WhatsApp Effect” takes root, the picture is beginning to get clearer, and the result will impact early-stage tech entrepreneurship moving forward.
There are different kinds of network effects, but as it pertains to mobile software, this specific network effect is not just about how services improve as more people join — it’s also about the speed with which mobile software can proliferate and spread, with minimal friction, through various networks. Speed is critical, because quite often, these races can end in winner-take-all outcomes, and the minimization of friction is critical because it not only increases speed, but potentially reduces capital requirements to get there. When it comes to early-stage mobile products and the competitive environment to fund them (to a point), these elements are not only critical — they’re seductive. Mobile valuations will continue to rise, technical and design talent will continue to shift over to the mobile platform, more and more apps will build native messaging backbones into their products, and the competition for a mobile user’s attention and credit card will get even more intense.
This is “The WhatsApp Effect.”
We all now see the heights to which mobile software values can reach, with hits like Instagram, Angry Birds (and more recently, Flappy Birds), Uber, and now WhatsApp, and now more and more people worldwide are going to attack these categories and emergent opportunities in mobile gaming, transportation, payments, m-commerce, and much more. The opportunity here is so big, it’s like a “Voltron of Network Effects,” where mobile devices, mobile platforms, social graphs, address books, and applications themselves form a system where the whole is greater than the sum of the parts. It’s not always classy to admit, but the price of the WhatsApp deal matters greatly. Yes, the $19b number is better analyzed as what this particular product was worth to its acquirer, not the broader market, but like a fancy piece of real estate, market price is ultimately what the highest bidder is willing to pay. it doesn’t have to “make sense” to the rest of us.
In a global economy where capital is concentrated among a few, and where a good portion of that capital seeks high-growth opportunities, we can expect more and more activity now that investors of all stripes — from early-stage tech investors all the way to retail investors — see the allure of mobile software and the quick, stratospheric returns it can generate. And, as it becomes harder to identify who the winners in mobile will be, and as those winners require less capital to begin and maintain operations, the competition to invest in potential breakouts and winners will only intensify. We’ve already seen a bit of this with Snapchat going from venture capital to hedge funds in the span of a calendar year. The creator of Flappy Birds could’ve raked in a huge bounty and only paid a toll to device-makers for the access to the user network — he had no need for private investment. This is just the beginning.
Dating all the way back to the original telephone all the way up to influential global companies like Microsoft, Google, Facebook, LinkedIn, and Twitter, among others, the dream of network effects is to create value for users by adding more users to the service. These products often empower users to send and receive packets of information, in various forms, from something as complex to private payment keys to as simple as a text message inside WhatsApp. Eventually, networks can grow so large as to confer lock-in, where the software traps the user into its experience and creates a barrier to entry for competitors. This is the dream for mobile app makers, too, to harness the combination of these massive network effects and have their software spread faster than has ever been possible.
However, we should remain cautious, too — the recent $19b representation of what mobile network effects can generate will intensify interest in the category, but mobile discovery and distribution still present serious hurdles, and while the number of mobile users coming online will continue to rise, these users’ hours per day will not increase. I don’t mean to imply there won’t be terrific opportunities for SaaS products or other infrastructure or enterprise IT products and services, but when it comes to reaching consumers en masse and looping them into a network effect product, the market has confirmed what we’veknown all along — that we are all building and investing into a platform that can reach heights we may have never seen before. That, to me, is “The WhatsApp Effect,” and there’s no turning back now.
Earlier in February, pro podcaster Michael Wolf had me on his show, NextMarket. He just posted it yesterday, and it’s fun to listen back on our conversation — though it turns out that I say the word “right” a lot ;-( …I need some feedback from you all so that I can improve. Specifically in the discussion, we talk about the following topics: A breakdown of mobile app categories; Apps which run in the background (Refresh, Highlight), or which tie to offline services (Instacart, DoorDash); Stories around Bitcoins (Coinbase) and my investments in Bitcoin (Gyft, Vauram Labs, Gliph); Thoughts on podcasting and our product plans at Swell; New trends in hardware investing including crowdfunding and institutional capital (Coin, Tindie, Grand Street); Trends in investing, including AngelList, microfunds, seed funds, etc. Take a listen in the car on Swell (click here) or below via Soundcloud.
I waited to post this here, as I wrote this a few weeks back. It generated a lot of hate tweets. I don’t know why, but tell me what you think. I didn’t engage in any comments because I’ve learned it’s impossible to discuss this in a civil manner, even if stating my opinions.
A year ago, I wrote a post titled “Silicon Valley Slowly Awakens To Android.” Recently, I purchased a Nexus 5 as we develop and begin the early tests of Swell for Android, and I wanted to share some of my initial user experiences carrying phones on both mobile platforms. What I want to focus on in this post are the elements of the Android experience I enjoyed and the elements of the iOS experience that I missed — what I don’t want to focus on is the “Android is better” or “Android sucks” debate. Now, with that disclaimer out of the way…The last time I really spent time on Android was in the Spring of 2011. That was a frustrating experience for me. Now with a brand new Nexus, it’s a new world.
Here’s what I like about having a Nexus 5 so far: The larger screen is enjoyable for reading Pocket and watching YouTube videos. Notifications are easier to digest. The integration of Google Services makes things significantly easier. I found it easier to multitask and switch apps on Android. Having Google Now just up and running is obviously nice. I have SwiftKey but haven’t fiddled enough with it yet. My personal favorites so far are products which can only be built on Android: Cover and Aviate. Cover, as many of you already know, is a lockscreen app which leverages sensor data from the handset and predicts which apps users may want at specific times. It’s surprisingly good at presenting me with the app I want to use at a given time. One of the great attributes of Cover is it reduces the time to get into an app and the cognitive load of sorting through apps. While our phones are cluttered with apps we rarely use, Cover intelligently elevates the apps we engage with most-often. As Cover spreads, it will reward apps with organic daily active engagement. Aviate is similarly elegant, a new homescreen interface with tons of cool options. (I’m also excited to try Ingress, Agent, Cogi, and any other apps you could recommend.)
Now, here’s what I missed not using iPhone all the time: The slightly-smaller form factor for typing. The retina screen, of course. The responsiveness of the touchscreen glass. There are many apps (especially from startups) that just won’t be on Android for a while, as it’s more efficient for small companies to build new products and experiences going iOS-first. I also like that there’s no “back button” on iOS — that was a confusing element for me on Android, as I don’t think of going back to a previous screen on mobile (seems more like a browser), though I can see how some may like this.
I’ve been carrying two phones for the last few weeks, largely for work but I’m enjoying experimenting with the new device and operating system. Recently, I started to think — what would it take for me or other iPhone users actually switch, to actually give away or sell my iPhone and just carry around this Nexus 5. Here’s what I came up with: Some will bolt for Android out of curiosity for something new, some will prefer cheaper and/or more flexible data plans, some will find all the apps they need on Android, some will want a bigger screen, or the ease of Google’s integrated services, or and so on.
However, what will get people moving en masse? That’s a trickier question to answer, and it’s also not clear that’s in Google’s best interest.
As killer apps like Google Now improve, these type of native anticipatory services may be enough to bring iOS users into Android. Or, since Android provides developers with more root access and data collection capabilities, app makers may create an entirely new mobile experience that’s both not possible on iOS and also vital to users. (That said, with hardware advancements like M7 and TouchID in iOS, the same could be said of Apple’s mobile platform — and, therefore, what we’re more likely to see is increasing divergence in the type of mobile experiences between Android and iOS.) Now, assume Google Glass becomes a consumer-level success – that entire phone-to-glass experience could end up being better powered by an Android, though Google can continue to write great iOS software and expand their reach across platforms, even if the functionality is limited or not as well-integrated within iOS. On Twitter last night, @robustus suggested Android’s killer app opportunity may be Bitcoin wallets after Apple’s moves to block some Bitcoin apps, though wallets could be open to more attacks. It’s a provocative thought, no doubt, and one that we shouldn’t dismiss. Or, maybe this isn’t about one platform versus another, but more about two platforms peacefully coexisting and preserving choice and competition for the benefit of consumers. Let’s hope that’s the case.
It’s rare for one of my weekly columns to go viral, but this one did. Would love to hear your reactions…
Silicon Valley and the tech world at large are filled with a variety of conventions. These conventions are now created, captured, and shared ad nauseam disguised as blog posts, tweets with links, and countless message boards. The benefit of such a canon is we all have access to a rich repository of knowledge — the cost, however, is we all, perhaps unwittingly, are exposed to the same suite of playbooks, which contain the same conventions, which could, if we’re not paying close attention, and especially when amplified in an echo chamber, trick us into believing a certain reality which, in turn, script our actions and lives down a path of predictability, or worse, mediocrity.
Like many of you, the entire story around WhatsApp’s acquisition this week has captivated my attention. It might be easy to quickly dismiss this whole event as an extreme outlier (which it is). Of course, this is a big outlier event, but that doesn’t mean it shouldn’t be examined. The reality is that this week’s news was like Haley’s Comet, a once-in-a-lifetime event where everyone who works in and around startups stopped what they were doing, went outside, and looked up at the sky to catch a glimpse of something they’d only read about online. In situations such as these, my mind scans back over all the “lessons” or conventional wisdom that swirls around the atmosphere, and the story of WhatsApp does call on us to examine and challenge (yet again) some of those conventions:
“Yahoo! doesn’t have talent.” For a variety of reasons, Yahoo! gets beaten up by the press and in social media. The company has problems and is working through them, but as a result, employees and alumni have kind of been a soft target. The two WhatsApp founders worked at Yahoo! They built a native mobile product at scale, across many mobile platforms, and assembled a team to build a complex, global telephony system.
“Companies like Facebook have the best talent.” One of the WhatsApp founders applied for a job at Facebook and was rejected. I’ve seen countless startups get star-eyed trying to recruit “so-and-so” from a big name company, but all that glitters isn’t always gold.
“The center of gravity for consumer products has moved north from the Valley to San Francisco.” Well, that’s largely true, but WhatsApp remained headquartered deep in Silicon Valley. They didn’t even have an office sign. Hidden from the city’s bright lights, the company didn’t seek out PR coverage or any of the other trappings in today’s startup lifestyle culture.
“The best founders are relatively young.” The WhatsApp founders were in their mid to late thirties.
“Mobile products should be delightful, beautiful.” I often shudder when I hear this refrain. Of course, apps should look nice, but at minimum, they should work to solve some problem or provide some service or entertainment. WhatsApp simply worked for people. It didn’t have fancy features. It solved a problem at scale, building products for the following platforms: iOS, Android, Blackberry, Windows Phone 7, Nokia, S40, Symbian S60, and others.
“Be mobile-first, build for iOS and Android.” The Whatsapp team took on the challenge of building products for all sorts of phones, many of which readers of this blog wouldn’t ever touch, even those running J2ME on older Nokia and Samsung handsets.
“Personal branding is important.” The WhatsApp founders did not have any personal brand. I would guess if 1,000 tech insiders were polled, less than 5% could’ve named the founders or anyone at the company.
“Preserve your startup’s equity.” In my opinion, many early-stage founders over-value the equity in their startups. Yes, a lot of sweat, blood, and tears go into starting even the smallest outfit, but an environment so competitive for products and so fragmented for talent, what was once conventional in terms of equity for early or key hires may now be outdated. Given this, I respect Zuckerberg’s aggressiveness to give up a really large chunk of Facebook to partner with WhatsApp, and to add one of WhatsApp’s founders to his Board of Directors. Instead of hoarding this equity, Zuckerberg realizes he must partner for the battles ahead.
“Don’t worry about making money, just grow big.” WhatsApp did both. Depending on what platform a user downloaded the app on, WhatsApp would charge them about $1 or, at times it was free — they also charged a $1/year subscription fee after the first year. WhatsApp was expensive to run, so it wasn’t breaking the bank in revenue, but they at least had cash flows, and one might conclude from this that such inflows helped them pace their operations and not get enamored, enveloped, and distracted by the pomp and circumstance of a modern-day fundraising process.
There are more conventions that were broken here. How about the fact that WhatsApp was a tiny company compared to their footprint, at only about 50 employees, mostly split between engineering and support? Or, how one of the Valley’s most successful venture firms — Sequoia — was quietly the major outside investor across a few funding rounds at the company, electing to not use their networks and celebrity to announce such deals or trumpet the company’s growth trajectories? Or, speaking of venture, how this particular VC firm missed the first wave of social networks, invested a large sum in the debacle known as Color, and then, in about three years’ time, turned their investment in WhatsApp into one of the great IRRs in the history of venture capital?
There are countless angles to examine, but the meta-point of this exercise is to use this rare, brilliant event to briefly hit the “pause” button and reexamine if we ourselves or our products or our companies are following a conventional path, one we’ve been told, or exposed to, or read somewhere.
I’m not suggesting we throw out all the rules and engage in chaos. But, it is a good time to reexamine them. Do we take these conventional biases into our work, into our lives? Do these conventions inform our recruiting strategies, our paths for monetization and/or growth, how we think about product design? It’s easy to start to believe something once you’ve heard it enough, or if it shows up in your Twitter feed often. It has to be true! Or, perhaps not…perhaps WhatsApp became a mega-outlier because it either consciously bucked or unwittingly ignored so many of the popular conventions we hear of today.
Most likely, everything that’s interesting about Facebook’s acquisition of Whatsapp today has been said (or tweeted), but here’s how I analyze the significance of the deal, particularly on a personal level:
From Zuckerberg’s perspective:
What a bold move, giving up 10% of his company and a board seat. He is sacrificing today for the chance to be stronger tomorrow. It’s like an athlete who changes a part of their technique, knowing they’ll experience a reduction in performance in the short-term, but believe it will benefit in the long-run. I also like Zuck’s pitch — keep the app independent, let it grow, and entice the new team with the lure of scale, of teaming up to continue to distribute social products to users around the world.
So many early-stage founders overvalue the equity in their startups. This is reflected, in part, by how easy it is in today’s environment to raise funds but how hard it is to build a team. Given that context, Zuckerberg’s move is extremely bold, to assign such a value on his target and to concede that value for the long-term. Even many founders who have paltry user numbers for products wouldn’t make such a move.
Idealism aside, Facebook’s stock price is soaring now, and I think it will hit $200bn market cap this year, if not more. It’s a good time to convert some of that goodwill into buying powerful assets. By giving up mostly stock, a decent chunk of cash, and then some restricted stock units, Zuck ensures he doesn’t break the bank for the acquisition, ensures the team will be around for a while, and effectively sells company stock at a high in order to lure in a big fish.
Whatsapp’s signature success isn’t really scale — though their scale is impressive. The signature success is mobile engagement. There are three important “-ments” in mobile: Installment (you have to get on the phone), Engagement (you have to get users to open and use the app), and Attachment (users who use the app many times in a day). Whatsapp is one of the few apps that had all three in spades.
From a product perspective, Facebook cares most about pictures (Instagram) and messaging (Messenger). With Instagram, they have access to your mobile photo rolls, and now with Whatsapp, they can leverage your phone’s address book and your networks from other email addresses.
From the Whatsapp founders’ perspective:
(Their rationale seems pretty obvious! I still get can’t over how one founder was on food stamps at one time, and the tweets of rejection from the other. Too good to be true.)
From the perspective of current Facebook employees:
When Instagram was acquired, there was some chatter about then-current employees being miffed that this small team of 13 people would come into Facebook pre-IPO. What now? All of a sudden, 10% of the company is now implicitly a reflection of this new acquisition, the incoming employees are likely going to be filthy rich, and own a good chunk of Facebook stock. Could this precipitate people at Facebook who are maybe disgruntled as a result to leave the social network? Does an acquisition this big affect company culture and knitting?
From Wall Street’s perspective:
We’ll see in a few hours how the street likes the deal. I think they will because Facebook is stockpiling arms for the mobile race with Parse, Onavo, and Instagram, and now they add one of the crown jewels of the mobile app world. My belief is that this will give them a bump and push them closer to their $200bn target for this year I’ve been anticipating.
Unlike many other technology executives, Zuckerberg is listening to the street when it comes to mobile. Their mobile app installment solution is crushing it, and they haven’t even gotten into engagement ads for apps already on our phone.
The investor’s perspective:
In venture, firms want home runs. The bigger funds want a grand slam. For Sequoia, this deal was like hitting two grand slams in one inning.
Speaking of Sequoia, many people don’t realize, but the firm is huge and extremely sophisticated — they have a full-team hedge fund, and now through this transaction, they are a large owner in Facebook, a company they were never able to invest in as a private company, but a company that is on pace to grow 4x as a public company, and the more liquid environment of a public tech hedge fund, could pay off yet again for the Sand Hill firm.
I can confirm that many big time hedge funds wanted to pump money into Whatsapp over the last 18 months. The company rebuffed all of those overtures.
Everyone knows Whatsapp is a big deal, but I’d doubt informed people knew (1) just how much it could be valued at and (2) who the founders are. In reading through their stories and tweets, I’m in awe of their quiet resolve. The tone of their tweets and personal stories are a delight to read in these heady times.
Network effects on the web are incredible (LinkedIn, eBay, etc.). Network effects on mobile platforms are insane!
People will naturally now ask about Line, Kakao, Path, and WeChat, etc because they’re all in the same category. I don’t know the details for each one, but there is decent speculation that some of these apps have grown in ways that are very different than Whatsapp’s path despite their engagement — that is, there are lots of institutions funding the customer acquisition numbers and those users potentially are not organic and therefore some may not be fully engaged, if opening the app at as much as Whatsapp, though some certainly are.
Lots of speculation about Snapchat, now that one big bidder may be off the table. Will Google or another player scoop them up (and that will compared and benchmarked endlessly to this deal), or will they try to monetize their app, or will a conglomerate like Tencent go after them?
Speaking of Tencent, which owns WeChat, which dominates China and other markets — it’s known that Whatsapp had a strong foothold in India, a market Facebook cares about and cannot access through the web as easily. What about China? That’s a much tougher nut to crack.
What will happen to the user experience inside Whatsapp? For now, I’m guessing nothing will change, but then again, eventually Instagram on the web was connected to our Facebook pages. We’ll have to wait and see if Facebook integrates Whatsapp back into their core systems, and if so, how and when.
Bloggers will love this story for weeks. It’s extremely rich in many ways. And, it will sink in, over months, just how huge and unusual this deal is, like Haley’s comet, perhaps.
To me, this deal is all about one thing: Mobile Engagement. A small handful of apps truly have engagement, and Mark Zuckerberg found the app with the most and put a ring on it.
I wrote this in January 2013 — now will revisit the topic shortly, a year later, but worth reading how long ago a year seems…
When the iPhone launched in 2007, Jobs proclaimed when it came to phones, Apple was likely, at that time, five years ahead of the competition. Well, those five years are up, and all of a sudden, as if on cue, many of the Valley’s smartest technology minds and observers have begun to slowly split up their attention between their primary mobile devices (iPhones) and the most recent Samsung lines of Android phones. How will the growth of Android affect the priorities of developers, which mobile platforms they chose to launch on, and the monetization formula for hardware (with Samsung’s ability to capture value) and software (apps) in a state of flux?
There’s so much great analysis out there as to “Why?” and “How?” Android is gaining steam, so I won’t regurgitate all of that here. Either way you slice it, the typically iPhone-centric and iPhone-obsessed Valley is starting to pay more attention to the new Samsung Androids, everything from the tactile design to app performance and all things in between, include Android’s growth rate and projections. This isn’t to imply Android is on even par with iOS, but being “good enough” may be all that it needs given Google’s strategy so far.
To date, most mobile “app-first” successes have been born on the iPhone, the most notable including the likes of new media darlings Instagram, new marketplaces such as Uber, and apps with freemium business models such as Angry Birds. All of these apps were launched a few years ago and enjoyed tremendous growth as the iPhone improved with each new version. Then, at a point when these apps felt the core product was solidified (and after raising serious venture capital), the companies applied resources to build for Android and dramatically increase their engagement (and revenues) with an audience hungry for apps they were excluded from enjoying. During this evolution, Apple squeezed the lion’s share of hardware profits from this industry, and also helped iOS developers earn billions of dollars in their app store marketplace.
Now in 2013, people are starting to imagine the next five years of mobile, and it’s clear Google will have many things going for it. The number of Android handsets will be huge. Developers will be enamored by the size of the potential audience. Android is more “open” and may encourage a different style of app innovation that’s gated off from iOS. Of course, all is not rosy: It’s yet unknown how much money Android users will spend on apps and through app-actions, Android developers will need to make hard choices about developing for so many different types and sizes of devices in Android, and users may determine they want more consistent experiences across devices rather than ones that are skewed by Android. On top of this are the mega-unknowns, such as “What will Samsung do?” and “What to make of Google’s integration of Motorola?” and “How many Android devices run the latest OS updates?” Fun, indeed.
Finally, we must follow the money.
On devices, Apple continues to squeeze out almost every available inch of profit. This certainly won’t last forever, as reflected by recent corrections to Apple’s stock price to start 2013, though I suspect their stock will snap back to high levels soon given the company’s iPhone-based revenues alone (not including any other products or services) eclipses the total annual revenues of other major tech companies. Samsung will surely take more hardware profits as a percentage than they have to date, but we will have to wait and see just how much. When it comes to native services, Google is in a good position to monetize all types of search, either through their phone browser, voice control, maps, or anticipatory systems. I’ve heard Google knows a thing or two about how to monetize search.
And, what about the money around and within third-party apps? Historically, most of the profits here have been routed through iOS, with the parent taking a nice 30% cut. There’s no doubt we’re going to start to see Android-first apps being built at faster rates, increasing the percentage likelihood that an Android-first app goes mainstream. The device fragmentation will be a huge burden for individuals and smaller companies (though I’m starting to see super-innovative solutions around apps and operating systems, which I’ll touch on in another post), but larger companies with resources and growth (and investment) may be in a better position to apply resources to Android to capture the growth curves in adoption.
While it remains to be seen how dramatic this shift in devices may be — it’s way too early to tell, and I’m personally not giving up my iPhone until they pry it from my cold, dead hands — there’s no question the scale of Android, even with all the old devices and outdated software updates, will be at a scale. And, while it remains to be seen just how consistent an Android user’s willingness to run transactions within apps is, application developers, such as those creating new mobile-to-offline marketplaces, will likely be able to not only begin Android-first, but also extract revenues and profits once reserved for iOS.
Jobs was right (if not conservative) about his “five years ahead” statement in 2007, though my bias is iOS is still miles ahead of Android today. But, no doubt Android is growing in numbers and performing well on Samsung. I wonder what he would predict about the next five years if he were alive today. I’ve tried to lay out an analytical view of what could happen as audiences grow and simultaneously shift, but the Apple loved by Silicon Valley and Wall Street alike is probably looking for something entirely new, something we don’t even know about yet. Will it arrive from Cupertino? Google is flush with cash, operating at tremendous scale with room to grow, showing no signs of slowing down, and even the most iPhone-loyal folks around the Valley are starting to take notice and envision a future many of them couldn’t see five years ago.
It’s an annual tradition around technology startups and investing to bash MBAs. I don’t have a strong opinion on the matter because, as I’ll share below, I likely took the worst educational path given the choices I had. That said, expecting any non-technical people (MBA or not) to create new technologies and bring them to market is like expecting a father to be able to be impregnated and give birth to a child. The implication behind this criticism is that the venture capital market has a preference for investing in technical founders and fundamental technology.
Now, I didn’t go to business school, but I used to work for one, have taken many classes at one, and used to develop educational materials for four of them, as well. My wife has also worked directly for two business schools for the last eight years, so I know little something about the environments, the culture, the curriculum. While there’s much truth to the critique that non-technical MBAs seeking a business education as a path to entrepreneurship may not find acceptance easily in today’s culture of technology, it’s also not entirely certain that the next decades of disruptive company formation will necessarily require the type of technical skills espoused by the investors who either critique or defend the value of an MBA. Snapchat, for instance, is successful more because of its creators’ product vision and mobile software literacy versus the deep technical acumen many investors may covet. As technology becomes more pervasive and fully-steeped into mainstream culture, some of the exhaust of this engine will result in, as Andy Weissman artfully explains, “new stacks” for the development of new startups. If Andy is right, the founder archetype is going to get a lot flatter, well beyond entering in a silly debate about whether MBAs make good founders or not. (Please make sure to read Andy’s post, click here. It’s very good and provocative.)
What this debate triggered for me was the chance to reflect upon my own educational path. It’s a path that I’ve been privileged to go down (and one I never take for granted), yet I’d be lying if I said that it was a defensible choice to ignore certain subjects once I got to college. In high school, I had such a heavy dose of math and sciences that I quietly rebeled by focusing on the social sciences (broadly) in college and graduate school. I was privileged to finish up with calculus and physics requirements in high school (I also took a year of “computer aided design” if you can believe it!), and aside from chemistry (which I failed), the classes where I struggled the most — English, History, Political Science, Economics — is what I turned my focus to.
It wasn’t a conscious choice, but it happened. It’s now history. And, looking back on it, now given the world we live in, my choices weren’t wise. The best argument I’ve come across for an education that includes understanding even the basics of computer science is that those are not “technical” skills, but rather it’s about “literacy,” just like being able to read is important and how it’s important to be able to understand personal financial documents. That said, and not without plenty of struggle, I have somewhat managed to zig and zag my way around the technology startup world, though I wonder sometimes if I’m running on borrowed time. All of the noise in the chatter forced me to reflect on what I actually did study, and how a few teachers and classes made a truly deep impression on me, an impression that I carry with me every day, that seeps into my writing (blogs and Twitter), and helps inform how I interact with new people that I meet with, work with, invest with, and want to work with in the future. To come up with this list, which is intentionally short, I tried to think very deeply about what classes I still draw upon for guidance today, which lectures that still carry on in me today. Here’s what I distilled, five classes that I think about daily — I’ve also included some links to the corresponding syllabus, where available:
The Economic Strategies Of Nations, Bruce Scott
I’d heard about Scott’s class from many classmates who were taking healthy doses of macroeconomics classes. Scott’s thesis was to examine the economic strategies of nations with different political economies by looking at their macroeconomic balance sheets as if they were corporations. The key point he tried to drive home was to look at the percentage share of total gross domestic production of a country that goes to wages. As we went around the world, from democracies to autocratic regimes to quasi-states, it became clear that capitalism was the overarching system of political governance. What made this class even more special is the first lecture began in January 2008. Scott repeatedly criticized the U.S. economy at the time (he kept wondering why there was $45 trillion unaccounted for) and the political structure of the country which forced candidates to go to extremes in primaries where only certain people voted and how the Supreme Court was turning into a legislative arm of government. Most of what he predicted during these lectures actually came true, so I have to give him a lot of credit for reshaping my macroeconomic view of the world. One fun caveat — Scott had a small curmudgeonly streak, and the week before spring break, he randomly stopped his lecture and barked up to the folks in the back row of class and encouraged them to not only think about “Plan B” when they were drinking their martinis over the holiday, but also “Plan C” because Wall Street was likely to collapse. I remember everyone laughing, but he was exactly right. Even in his old age, he was sharp as a tack and would playfully rag on students. My wife worked at HBS and when he put two and two together that we were married, he slapped me across the back (in front of her) and said, “Nice job, kid!”
Industrial Structure and Strategy, F.M. Scherer
I didn’t know what to think of this class before entering, but I’d heard Scherer was a quirky guy. It was a pretty standard class. We had one textbook, and he wrote it. The book was classified into key national industries, and it was his syllabus for the class. Each class, for three hours, we were expected to have read the corresponding chapter, along with some recent articles about the specific corporations in said industry, and Scherer would then dissect the various technology and business strategies used by the market leaders. After a few disjointed classes, the themes started to come together, and patterns between seemingly unrelated industries started to take shape. This has helped me glean a better understanding of what larger players do within an industry, to better understand their core motivations, what may drive their long-term strategies, and how this may impact startups.
Public Narrative, Marshall Ganz
Ganz is a famous political organizer (with Cesar Chavez, and most recently, helping Barack Obama in his runup to 2008) known for his mastery of the “public narrative.” This means, being public, telling your story. It was one of the most popular classes at school, year in and year out. It did attract many people who perhaps one day wanted to hold some type of elected or appointed public office, but there were people like me, too, who were curious about storytelling, organization, narrative techniques. As part of the class, each person had to deliver three videotaped live “narratives’ to their peers and get feedback in real time and later through video. It was brutal, not only to hear yourself speak, but also to come to understand how others interpreted your words, your body language, your tone, or what was expected of you, how to use elements of surprise, and other techniques. Taking this class definitely broke me down but then, through speaking often in public, gave me the confidence to not only be more open, but to get over any fears of sharing my thoughts with others, either through the written word or in real life, in person. I never got to know Marshall that well, or as well as I would’ve liked to, and that was my mistake, but I still got a lot out of his class.
The Works Of Primo Levi, Ralph Williams
Williams was one of the most popular, visible professors on campus in Ann Arbor. He was famous for teaching lectures on The Classics and Civilization, on The Bible and World Religions, and A Survey of Shakespeare. He was a true intellectual polymath, fluent in over 15 languages and much more. His knowledge was encyclopedic, and he was a gifted orator. I took the latter in my first year on campus. I could barely keep up. What I learned from Williams oratory style is that he outlined his lectures on the board in what he called “rubrics.” I had to look up that word, “a set of instructions at the beginning of a book, or a test, etc.” It took me years to figure out why that was key. In reading tons and tons of text, he wanted his students to strip away the noise and pull out key themes, and he wrote them on the board, underlined them, and lectured around them so precisely, many of them I can still recall by memory. So, when senior year came around, I wanted to make sure I took his seminar on The Works of Primo Levi. Given the demand for his course, a seminar in which we had the read (slowly) all of Levi’s books, Williams kept the class at the standard 4-credit pace but only offered it as 1-credit. To be in the class, you implicitly had to take on the work of what would be a normal class, with attendance and discussion, with writing due weekly, scored by him, but only get a quarter of the credit. It’s a difficult topic to just casually discuss, but in my opinion, Levi is a genius. For those who don’t know, he was an Italian chemist (and Jewish) and he was sent to Auschwitz. Because of his technical prowess, he was kept alive by the Nazis and tortured in a different way. His written work was his attempt to share his story and try to comprehend the arc of his life, what he saw, and what he lived through. In his books, with Williams rubrics burned into my brain, it turned into a course into the deep, meticulous study of interpersonal relationships. I didn’t realize it at the time, as a 22-year old, but now as I get older and recall the lessons from the books and lectures, I try to take conversations with people to heart, to listen more, to not judge too quickly. (My #1 book by Levi is The Periodic Table, one of the most original pieces of writing I’ve ever read.)
Mind, Brain, and Spirituality, Richard Mann
I took Dr. Mann’s class in 1995, my last semester of college. You had to write him a letter about why you wanted to be in his class. It was competitive. I can’t remember what I said to convince him, but I’m sure it wasn’t original or totally honest. The truth was, I’d heard great things about him and just wanted to be in the class. At a big school like Michigan, with all its red tape, you had to find out where the good stuff was and then jam into situations you wanted to be in. Mann relented and accepted me into his class, Psych 401, a seminar with no desks, no syllabus, no structure, no rules. You didn’t have to show up. You gave yourself your own grade. Each week, you had to write something about yourself on a broad topic and share it with Dr. Mann, or a classmate, or no one. It was up to you. The guiding principle in the class, though we didn’t realize it at the time, was to put yourself on a path of self-realization. Mann’s style in reading our work wasn’t to critique, but he’d just highlight some text and write a question mark, as if to say, “That’s interesting. What did you mean by that? Please, tell me more.” Mann himself has a curious background. He is one of the foremost academic leaders in psychology and was part of all the experiments done at Harvard with the Merry Pranksters and the like. He also suffered some personal tragedy, left his profession, lived in India for years, and returned back home to Ann Arbor to teach and begin anew. I spent a lot of time with Mann and my classmates. Tne nature of the conversations in and around that class were totally different than what I’ve ever experienced. Now, years later, the key lesson from that class was to always be alert about what could be causing me — or people around me — to struggle and learning the intellectual and tactical tools to work through those challenges without ignoring them, probably fueled by the fact that Mann set up his class to have no rules or administration — it was entirely self-directed, and now years later, the gift of being self-directed is helping me survive and enabling me to work with who I want on what I want to.
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I stopped fiddling with computer programs after age 17. I didn’t take a science class since finishing physics before high school graduation. I didn’t understand how learning these languages was more about literacy than it was about “taking an interest in a subject.” But, I also believe that people will continue to add real, long-term value at sale to society by taking different educational paths and cobbling together different experiences. The links in Andy’s post above shows the beginnings of those seeds. I entered graduate school thinking I’d work on macroeconomic-related work in India, but then I decided I just wanted to move back to California even though I had no idea what to do. I’m sure many people enter MBA programs with the desire to start a company, and many have — and quite successfully. And, they will continue to, because even if someone isn’t deeply technical, or if they don’t an MBA, it often comes down to an individual’s human desire, their drive to do something — anything — despite what one investor may say. Technology alone isn’t a prerequisite for creating sustained value or disrupting an incumbent situation. In some situations, initial branding and marketing matter a great deal, or the development of a new business model creates an opportunity to build something new. In these cases, advancements in underlying technologies may or may not driving these opportunities, but the value may often be captured by the creative person who stitches together the disparate pieces, who grabs different off-the-shelf stacks and positions them in a way no one else has thought of, who motivates people around them to innovate, who attracts talent and inspires them to stay, who knows how to bring new things to new markets. For me, that is the deepest insight of this whole recurring debate.
A few weeks ago, I was invited to moderate a VC funding panel around contextual mobile apps and the overall fundraising environment for mobile apps, at large. Joining me on the panel were investors who all have operational experience and quite a lot of experience touching various parts of mobile products: Gilad Novik from Horizon, Josh Elman from Greylock, Charles Hudson from SoftTech, and Bubba Murarka from DFJ. If you are building and/or investing in mobile apps, you should watch this entire video, as the panelists go into great tactical and technical detail about the current state of funding mobile products and what types of traction, behaviors, and founders they’re looking for. The video is above, and I tried to take some brief/rushed notes below. Thanks again to my friend Roi and his colleagues at Everything.me for inviting me to participate.
Context-based mobile applications and wearables:Pairing devices with sensors using BTLE, built up proprietary databases of sensor data; Data collection and aggregation isn’t enough, needs intelligence on action; Google Now is the standard for seamless context.
Platform-specifics: Android platform provides far more context to developers, will drive innovation; Fingerprint, M7 so much to explore on iOS — great but different opportunities on this platform
Gilad – disruptive, data guzzlers, B2c, good/deep tech
Josh – can it be a daily habit, old type the URL, or fits on homescreen, push app for something meaningful in your lives, core of virality is word of mouth – will people tell other people over lunch, a simple message,
Charles – expansive founder vision, multi-platform, multi-interaction world, wants to know about top 10% of users for engagement, doesn’t see a mobile app crunch — locked up engineers locked up in great companies, and when they trickle out, they’ll pair up, and will be attractive to him.
Bubba – mobile still early in a way, communications (high daily use), content (compare creators vs consumers), looks for depth of mobile development team, testing infrastructure, how to handle different platforms, bar will get higher for high-end teams, the SDK Crunch is coming, will consolidate into a few larger companies
If you observe the intersection of mobile and investing today, you may have noticed a new trend among mobile startups to extend their beta periods. I’ll explain why I think this is happening. One, mobile is clearly a huge, huge secular platform shift with new gatekeepers and high-growth. And, more growth is coming. This causes an influx of capital and excitement into the category. For teams with relevant skills and a decent enough concept, getting seed/angel money to start fiddling with a prototype is quite easy. There’s more than enough capital to go around for these smaller rounds, and you’ll see VCs increasingly in the game. However, two, despite the excitement around how “big” mobile is, today mobile distribution (for a variety of reasons) remains extremely hard. The larger funds have mostly decided, for now, to quickly identify potential winners and chase them rather than betting on what could breakout. It’s a rational move when considering an example like Snapchat and the company’s financing trajectory, for instance.
So, between one and two, there’s a bit of room, and savvy mobile founders with the right talent and networks are using the space to their advantage, but not without risk.
Here, the founders build, test, and release their app (after seed funding) into a tight alpha group. Consider alpha testers to be very close friends of the company, the type of friends who would not share secrets but give pointed product feedback to the founders. When kinks are ironed out in the product, and if the founders feel good about it, they are faced with a curious choice: Option (A), put the product into a slightly wider but still small beta and quickly put the app into the general market but be subject to scrutiny on metrics; or Option (B) use their network of connected product advisors, investors, bloggers, and insiders to release a wider beta where a controlled group will use and hopefully talk about the app — so much so it triggers pre-emptive financing discussions, as investors don’t want to miss out on a great app right at the point of inflection. In Option (A), the risk is that mobile distribution is so hard, the likelihood of a major pivot or M&A or worse looms large. In Option (B), the risk is the insiders won’t take to the product or that the perception (signaling) that other investors don’t like the app enough to create a market for the investment. Over the past year, I’ve seen more of Option (B) being played by experienced, connected mobile founders in the Valley and NYC. It’s not an approach many people can execute on or pull off successfully, but the extended beta period, in effect, acts as a controlled environment to have a more sane fundraising campaign that can focus on a broader vision besides apps that sit in our pocket and isn’t beaten down by the lopsided metrics in the mobile app stores. To clarify, I’m not suggesting mobile founders employ A vs B, but just sharing what I’ve seen playing in the game.