Last week, my column discussed how on-demand mobile services — Tap Your Phone, Get Stuff — are ripe for venture capital investment. In the seven days that have passed, more startups in this category have been handsomely funded by some of the best investors in the world. And, to cap off the week, the leader in this category, Uber, announced UberRUSH, its local courier service. After years of savvy, brilliant PR campaigns to deliver ice cream via old-school ice cream trucks, Christmas trees, kittens and cupcakes, and most recently, the ability for Silicon Valley entrepreneurs to hail a black car and directly pitch some of the partners at Google Ventures for possible investment, Uber has finally signaled (publicly) that it’s a company that its ambitions are much broader than just transportation. For a mobile company on a roll like Uber, it is a captivating move, yet also raises critical questions related to other on-demand startups, their specific business and operational models, and ultimately, how consumers may behave in the future.
There is huge potential locked inside the “Uber” brand. Just like Google wants us to visit its home page, enter a term, and then leave, Uber wants people around the world to open its app, tap a few buttons, and then leave the app, get in a car, and go on with life. While the Bay Area, New York, and other select cities around the country host a slew of mobile on-demand service startups, Uber is the one mobile consumer brand which has painstakingly carved out great geographical penetration. On top of this, Uber’s daily active use case means people are using the times multiple times per week, if not per day, meaning they could leverage that consumer attention for other offerings. With RUSH, smartly, they elected for a more business-focused solution, extending their expertise into a naturally adjacent use case which occurs in every city worldwide and is often, like cabs, run by smaller companies with outdated networks.
Let us see how RUSH evolves. It will take time. And while I wouldn’t bet against Uber on anything, there may some underestimation of just how hard this kind of horizontal expansion can be. While we can certainly envision opening the Uber mobile app in five years and seeing a menu of choices beyond cars, making those additional services a reality is excruciating work and could take years to form. Lucky for Uber, it has time, money, and the brand to make it happen.
In the meantime, the introduction of RUSH raises large questions. It’s too early to what will happen and know what the answers will be, so in the meantime, we can debate what path other local service models powered by mobile may do to keep things competitive. Here are the three big questions triggered by Uber’s expansion into RUSH:
First, from the perspective of business and operations, should various mobile on-demand services remain verticalized and standalone, or does it make more sense to consolidate? It might be seductive to assume, in the name of efficiency, that it will make the most sense to consolidate these mobile on-demand services, but the reality is that each of the growing services — for grocery, for deliveries, and so forth — run on different business and operational models.
Second, are all mobile on-demand services created equally? After Uber, what do the gross margins of other mobile on-demand services look like, and given those other offerings, how does one think about ranking the opportunity ahead of each one? RUSH makes a great deal of sense to me because it already happens ad-hoc in every city and extends Uber’s offering to a clear business use case, but it’s unclear what they’d offer next.
And, third, perhaps the most critical question: Will the consumer masses prefer to have all of these types of services under one umbrella, or would consumers prefer more choice within verticals? All the strategy whiteboarding in the world won’t be able to predict the answer to this question, and that, combined with the ripe funding environment for such businesses, is a very good thing for consumers, for those looking for jobs, and the entrepreneurs who may just uncover the next great mobile on-demand service.
Like many of you, I read every blog written by Chris Dixon and Fred Wilson. In the last 24 hours, they’ve both written posts which nicely summarize the problem in investing in consumer mobile apps, and also discuss the implications associated with them. Given my interest in mobile (both in work and investing), I wanted to unpack their arguments a bit, and also suggest a slightly modified definition of *what* is in a downturn mode in mobile.
Chris Dixon, implications are serious for investors. [post] Dixon asserts “new mobile incumbents” will have outsized power, making distribution — which is already hard — even harder for upstarts, that the mobile gatekeepers show little incentive to loosen their grip, and it could even result in blocking new frontiers like Bitcoin-related apps. To take it a step further, Fred Wilson dubs it “The Mobile Downturn.” [post]
From an investment perspective, it’s important to keep in mind that these statements are very valid in the context of venture capital and returns. What I’ve observed in mobile technology is that “mobile” can mean different things to different people, and it’s important to define the terms up front so as to limit any confusion. Dixon and Wilson are likely referring to consumer mobile applications in their critiques, which are valid — even most of the larger funds have elected to sit back and wait to see what breaks out on consumer mobile and they paying up to invest into growth versus trying to predict what will be the signal in a noisy app market. I have been trying to write here and on my Sunday column that for consumer mobile, it’s usually one of four categories that has a chance to win — games, apps leveraging the camera, network effect products, and online-offline services.
So, I think Wilson is right about a “downturn” in early-stage consumer mobile apps. The scale possible (as exemplified by Whatsapp) is real, yet achieving that scale or anything close to it — which is a requirement of institutional venture capital — is getting harder for all the reasons Dixon rightly pointed out. The end result in the market is that there are lots of mobile startups that end up as acqui-hires or small cap exits and then a few in the billion-dollar+ plus range, and some out of orbit. The grass can be so green on the other side that people (and investors) have flooded the market with both money and apps — a trend Facebook (and soon Twitter) is capitalizing on all the way to the bank.
All this said, there are, of course, many other areas of mobile that aren’t effected in this way. Think of middleware companies which help mobile developers optimize integration processes, or development cycles, or streamline SDKs. Or, think of items that can extend from the phone (usually through hardware) that may become a new wave, though requires a lot of money to compete in. Down to the hardware level, just think about how much innovation Apple is cramming into their next generation of iPhones with M7, TouchID, and Beacons…we are literally in the first inning of this specific game around these new sensors.
The business model of venture capital is to time investments ahead of the market such that at least one (or hopefully more than one) deliver the outsized return to create that grand slam and/or to return the fund with high performance. In this context, a “downturn” in consumer mobile could be perceived as something where some investors view the space as “mature” in the sense that breakout opportunities are potentially constricted. In those instances, as he writes, venture capital will seek higher beta outcomes, especially in places that don’t have gatekeepers like Google and Apple. However, this is not to say that mobile on the whole is in a “downturn” — it’s just the consumer application side, specifically those apps which are not in one of those four categories listed above. Of course, consumer mobile apps get a LOT of attention, so maybe this is the beginning of the correction the market needs in order to improve its vision about both the possibilities and the challenges ahead. While Apple and Google control so much of this right now, things could change in the future (I don’t know how), and distribution channels for consumer apps may open up again.
This morning, Cover (maker of an intelligent cover screen for Android phones) was acquired by Twitter. Terms weren’t disclosed. Earlier in 2014, Yahoo acquired Aviate, an intelligent home screen for Android phones — again, terms weren’t disclosed. All of this after Facebook launched “Home,” an ambitious idea which may have been a bit ahead of its time. With Android, the customizability of the mobile canvas has attracted the interest of a range of creative developers and larger technology companies, each one trying to figure out what novel hook they can leverage inside Android, one of the world’s most important technology platforms.
A company like Facebook is such an outlier, they can conceive of a product like “Home” and noodle on it for years. They have the distribution power and financial might to muscle their way onto phones, if they so choose. For a company like Yahoo!, which hasn’t been shy about using a mix of stock and cash to acquire mobile talent, a pick-up of Aviate gives them exposure to one of the next platform frontiers — yet, while they don’t own the distribution channel, they could theoretically drive lots of existing Yahoo! Mail users to Aviate. Let’s see.
With Cover, Twitter has purchased a great team and interesting asset. I’ve been using Cover for a few months now — what I love about it is that it harnesses implicit signals from how you use your phone to create a profile that intelligently presents with the user with a choice of 4-5 apps that you are likely to use at any given time. So, instead of having to swipe open your iPhone, unlock it, and then hunt and peck to get inside an app (or opening the phone via a push notification), Cover empowers the user to slide right into the app of choice. It’s quick, and it rewards true engagement of an app — not just deadpool downloads. If people open their phones about 150x per day, that’s actually meaningful seconds being saved. But, Cover doesn’t control their destiny entirely. They’d need to find distribution on Android, and we all know how hard mobile distribution is. So, now with Twitter, perhaps they can get distribution on Android somewhat similar to how Vine achieved lift-off enjoying Twitter’s distribution might.
All in all, while Android is a fun, malleable sandbox to play in, all of a sudden it’s in the news again. The myth of Android first — which is, of course, very true for early-stage technology startups. Or, how much power the two mobile platform gatekeepers truly wield — despite all the innovation possible on Android, an app like Cover, no matter how slick or innovative, isn’t likely to grow on its own, but rather be subsumed into a larger company which has its own channel. These are the realities of the bi-polar (in a geopolitical sense) mobile world we live in today — governed by two great powers, each with their own strengths and weaknesses, who make it easy for the next photosharing sensation to scale the charts, yet also make it quite difficult for users to discover the apps they may love. I don’t think that is intentional, by any means, but given how much we look at our phones, and given the growth of Android, and given Cover’s novel, simple, elegant solution, it’s telling that it’s best home now is another technology company. I think it’s a smart pickup, but everyone in mobile should be aware.
Earlier this week, Steve Schlafman, an investor with RRE in New York City, created this imageabout all the various startups that offer consumers the ability to order goods and services directly from their phones. These startups — Uber is the prime example — turn our phones into remote controls. I call it, “tap your phone, get stuff.” And if we look at the list, we see many startups that have not only raised decent early-stage rounds of financing, but some of them are quite big. I’m writing this week’s column for people who want to build mobile businesses.
Right now, this seems to be the best category to start building in mobile today. I’ll explain why below. Briefly, it’s hard to breakout with a game, and less likely to be funded early. Photosharing and location-based apps need something special out of the gate to get funded, but then require explosive growth — I can already think of one seeded photosharing app that raised about $2 million from Valley angels, launched after a private beta, and is most certainly in a deadpool right now. Messaging apps or other apps with network effects (like marketplaces) could use a jolt, and I think we’ll see more rolling out soon, but those require time to build liquidity, especially across two mobile platforms. And, then, we have this category — “tap your phone, get stuff.” Out of the box, it just works.
Investors are voting with their dollars. Look at the image above. How many names you not only recognize, but how many of these apps you use. Investors want to fund these apps!
Investors are really only following consumer demand. Consumers want to be able to order stuff from their phone, quickly. They’ll often pay a premium (in-app) to do so.
The consumer-facing products for this class of apps doesn’t take as long to build. Apps in these categories are often more straight-forward. I do not mean to suggest this is all easy, but beyond a few screens and settings, consumers often don’t need more than that.
The consumer doesn’t need to spend much cognitive energy on these apps. Once a startup presents a service to the consumer, grabs their payment and credit card information, and accepts the promise of the user, most of the work to fulfill that service is done without the consumer knowing or seeing anything. Yes, I know you can see Ubers and Lyfts driving around on your phone, but most often, consumers leave the app in which they initiated the transaction and are kept up-to-date through a mix of text messages and/or push notifications.
Software here is mostly a back-of-the-house operation in these apps. On the backend, the best startups in this category build different forms of software to manage these logistics and keep things efficient. This usually includes systems that route requests to those who will fulfill them, crossing the web to mobile and back again.
Speaking of fulfilling requests, those are usually completed by humans enabled by software. Right now, with the bottom-third (or so) of the labor force in a mix of freelance, hourly, or contract employment (if employed at all), startups are competing for labor at a fierce rate. In the Bay Area, where many of these services start, it’s not unusual for companies in this category to have more consumer demand than they can handle, all constrained by the fact that they can’t hire enough drivers, enough skilled workers, and so forth. With mobile, thankfully, workers can work when they choose, and startups can access labor at the edge of the network, often at will.
These mobile apps often control the financial transaction. Businesses in this category that can use mobile to find equilibrium in the market for specific goods and services can be rewarded with decent margins, and if there’s enough market activity, those margins can add up quickly and snowball — just ask Uber and Lyft.
And, voila, there you have a mobile-first business. Now, I don’t mean to trivialize that each step of the process is easy, but given the conditions in mobile right now, these are the businesses that are working earlier in their life cycle, these are the businesses that consumers understand, want, and talk about with their friends, and these are the businesses that investors have figured out fast enough to open their checkbooks if they see things working in real life.
Yes, serious long-term questions persist. Will only a few special startups figure out how to optimize their local models and expand them geographically, like Uber masterfully has? Will all these swiss army knife services consolidate into a single brand eventually? With fewer barriers to entry, will competition fragment services geographically, stifle expansion, and ultimately reduce the size of the pie? In the face of such competition, what will keep consumers (and employees) loyal? But, in the long-term, we’re either all dead — or your mobile company will be. Either way, when it comes to mobile-first, and given the funding climate, I can’t think of a better category to launch in. As you see on Schalfman’s chart, many categories are crowded, so if you venture down this path, make sure to present a different kind of solution or different market. I know it seems crowded, but I’m convinced other non-obvious opportunities exist. If you see them, please do get in touch.
If you’re reading this, you know I tweet often…a lot. I’m approaching 60,000 tweets, after opening my twitter account in mid-2008. Despite the noise I create, twitter has been critically important for me to shape and test my ideas, to share my ideas with others, and to meet other people across networks interested in technology, startups, and investing. Recently, I found that I made a list — I know what you’re thinking, “Lists are silly.” They usually are, but this one seemed different. It was created by a startup called PeerIndex. They picked about 75,000 accounts in the space of technology, startups, and venture capital, and then monitored how all 75K accounts shared content and interacted with each other in order to find which accounts drove the most attention and influence. [Click here to see the full PeerIndex list and methodology.]
The list is below, and while I did come up on the list, I thought it was a better exercise to show how the top accounts stack up in terms of number of tweets and number of followers — note, the study did not take into account the number of followers a person has, so that anyone can move up (or down) on the list over time.
For me, that was the insight, that despite the noise I create on twitter, it is an important medium to participate in — it is through twitter that someone like me, with very limited experience, was able to learn, interact, and be a small part of the conversation with some of the most-respected minds in technology and investing on the medium that commands everyone’s attention today.
And, as someone who loves language and words, I wanted to list out the Top 10 accounts and briefly unpack the style in which each person uses this medium to their advantage. Naturally, nearly everyone on here is a current investor, analyst, writer (some all of the above), as most operators wouldn’t have the time to do this — Levie being the exception. As you’ll see, the styles are very different — of course, this isn’t a list of real “influence,” it’s only looking within twitter so it’s imperfect but fun nonetheless:
Aaron Levie (~2,700 tweets, 94,000 followers)
Levie has won twitter through humor, mixing the timeliness of pop culture news with a smart brand of nerd swagger. His tweets are so funny and/or insightful that they’re retweeted and favorited at a high rate each time. He focuses on broadcasting, using interesting images, and doesn’t engage in @replies or conversations.
Marc Andreessen (~12,000 tweets in less than 4 months, 96,000 followers)
Out of nowhere this year, Andreessen decided it was time to tweet. And, wow, he’s extremely active and engaged. He also replies to many and favorites tweets all the time, each time firing a signal to the creator as if to say “Marc Andreessen is listening.” He’s almost branded his signature “1/…, 2/….” tweetstorms (which are mini blog posts), and naturally, everyone pays attention to him because of his extremely high influence based on outstanding career contributions (Netscape, a16z, etc.).
Hunter Walk (~20,000 tweets, 61,000 followers)
Walk smartly mixes links to his site and firm (which contains his original content) with fast-paced, news-driven @replies with nearly everyone in the community. As Levie uses humor to cut through the noise, Walk uses transparency.
David McClure (~49,000 tweets, 207,000 followers)
McClure is high-volume, with brash tone, and lots of conversation. Oftentimes, it can feel as if he’s sharing his inner-most thoughts, fuck-ups, controversies, and all highs and lows with everyone. He’s also cultivated a truly global audience through his global firm, 500 Startups, which helps him have a broader network (geographically speaking), which help him spread his ideas. You could say McClure wears his heart on his tweets.
Benedict Evans (45,000 tweets, 31,000 followers)
Evans is a long–time mobile thinker, consultant, strategist. He’s expert at thinking about the mobile technology landscape, so good that he was discovered by Andy Weissman, and investor at USV in NYC. In turn, Fred Wilson wrote about Evans regularly, and Evans grew his tech readership, and has now been hired by a16z. Evans uses twitter to think out loud, as if he’s forming his next blog post in his head, a deeply analytical feed which engages selectively.
Om Malik (~37,000 tweets, 1.38M followers)
Malik is the experienced, old-school journalist, gumshoe, reporter, and now investor, a long-time tweeter with a big audience, the former head of an influential blog and series of conferences around the world. His feed is mainly about curation, about using his experience to signal what is actually important in a noisy world.
Paul Graham (~1,400 tweets, 161,000 followers)
Perhaps one of the truly most influential people in the space, online and everywhere else. Anything PG tweets or links to is analyzed. He has generated a movement and uses twitter to curate a few things, share notes about companies in YC that are doing well, or use his influence to share thoughts about the ecosystem, especially through his blog.
Brad Feld (~25,400 tweets, 168,000 followers)
Feld is an OG entrepreneur and investor, and is very active on twitter, sharing links to his ideas, books, blogs, and more. He’s built up an engaged audience online, but also offline through his evangelism of the power of offline community building, which in turn translates into more attention online.
Fred Wilson (10,300 tweets, 327,000 followers)
Again, OG investor and tweeter, one of the original investors in twitter and a board member there. Like Paul Graham, a must read for everyone in the industry, though he doesn’t tweet often, choosing instead to link to his posts daily — and less of a broadcaster.
I don’t know why, but two unrelated ideas/themes have been on my mind…no title to this post, because I can’t think of a good one…
The first is about “entrepreneurial journeys.” I know, that is a cheesy term. Believe me, I cringe writing it. Anyway, semantics aside, this term came up in an interesting conversation I had with a close friend. We were discussing how we both haven’t seen a close mutual friend recently. This friend is building his own company, his first time in a founding/CEO role. The conversation ended with something like this: “Well, Semil, I guess he’s on an entrepreneurial journey.” I don’t know why, but that phrase has stuck in my head. It’s slightly different than saying “he’s building a company,” or “he’s really busy,” or “entrepreneurship is all-consuming.” As I’ve been thinking on this, it struck me that everyone in and around technology startups are on journeys of different speeds, directions, and arcs. Even though so many of the people we know best who are all crammed living in proximity to each other can actually drift apart because the trajectory of the journeys each person can be very different. It’s like a diaspora, of sorts, excepts the physical distances traveled aren’t great — but in the mind, those distances can feel vast.
Now, next, unrelated…
The second thing that’s been on my mind is about the word “empathy,” particularly in the context of what I hear (and read) founders discuss they want in their investors. Disclaimer, I’m no expert here and have limited experience. Caveat out of the way, it seems most people equate empathy with having been a founder/CEO of a startup before. Unfortunately, I’m not sure that’s true in practice. In the dictionary (Merriam-Webster), “empathy” is defined as the feeling that one can “understand and share another person’s experiences and emotions.” The ability to share understanding is important, but longer-term investments seem more like business partnership, and the good ones seem to be more driven by an honest alignment of interests among both parties versus whether one side is empathetic or not. Empathy may help in the sales process of investing, when an investor courts a founder. And if empathy is important (to a point, right?), it can be gained in different ways in and around startups. Some investors with deep operating experience (but no founding experience) can breed their own style of empathy; some investors without any real experience whatsoever can build empathy as they continue to invest; some people pick up empathy by doing something hard and getting their butts kicked, repeatedly, and surviving; and some investors who have been founders even more than once may not be empathetic as investors. On a different plane, empathy can also be gleaned from trying, difficult experiences.
And while empathy may work up to a certain stage or maturation of a company, after a while it may diminish in utility — think, for instance, of entrepreneurs who have shepherded their company through a Series A round only to be stuck without Series B offers — at that point, “empathy” doesn’t really creep into those conversations. Of course, people are human about those discussions, and some of those discussions can be hard, but empathy only goes so far. Empathy is something folks to should ideally show to everyone — not just investors in a sales process with founders, or founders managing their key employees. Empathy is cheap to deploy. It’s quite cost-effective. What isn’t cheap is a partnership where parties’ interests are aligned. Sometimes that means difficult conversations. Sometimes empathy may take a back seat to the truth — even a harsher truth the investor may need to hear from a founder. Anyway, I know everyone talks about “empathy” and I know it’s generally important on an interpersonal level (way beyond startups), but it has lately struck me as an abstract word people think they want or need, perhaps distorting reality — a reality we all need — as a cost.
Some people are not going to like this post, but it’s on my mind and I have to write it. Don’t worry, it will be short. Let me state up front that I have many friends at a16z, I’ve interviewed for a few positions there, and they’re a small early investor in the company that I work for, Swell. With that out of the way, I’ve been thinking about a16z’s model and performance of late. Now, I know they engage in lots of PR (smartly, I may add), but I wanted to peel back those PR layers and look at some of the fundamentals in their model. Keep in mind that this summer, a16z will mark its 5th birthday. Here are seven (7) bets the firm made as a matter of strategy, and how those bets may set them up for true success and reinvention of the venture category:
Bet #1 – The Rising Tide Of Technology: The initial thesis of the firm was that, following the 2008 recession, technology was approaching a mainstream inflection point with strong fundamentals and without the trappings of what occurred during the Dot-com bubble. The public markets for tech have roared back and show little sign of stopping. There’s a new floor.
Bet #2 – Technology Valuations, As A Result, Should Be Adjusted: The rising tide of technology would therefore render early-stage valuations of private companies to be readjusted to this new reality. If a firm has conviction about a startup investment, paying over the market price is OK because of Bet #1.
Bet #3 – GPs Must Be Startup CEOs To Sell Executive-to-Executive: GPs sell the a16z vision and brand, as well as the services underneath, which creates a clear bar for LPs and future GPs in the fund, which in turn leads to Bet #4…
Bet #4 – Agency Model Of Services In Venture: In order for GPs to focus on courting new investments, they’d build a services network underneath to (1) serve companies they’ve invested in and also (2) to help build up the firm itself.
Bet #5 – Over The Air Marketing From Day 1: Almost from its origin, the firm rooted PR and a strong, bold new media presence as central to its strategy, going over-the-air with a mix of marketing messages that communicated the new model, the brand, and so forth.
Bet #6 – Building An Engineering Recruiting Graph: Technology companies win by building the best products in the best markets. While the firm can evaluate markets from a distance, in order for those products to exist, the best builders must build them — hence, the firm invested in and built two types of databases for engineers (college, experienced) and use double-opt-in techniques to pair interested engineers with their companies. They’re creating a long-term relationship with engineers, not just companies. (As a commenter pointed out, the firm also does this for design talent, which is also critically important at the early-stages of product-building.)
Bet #7 – Seed To Learn The Market, Shift To Fast-Follow Series B To Capitalize: The firm began investing at all stages, but eventually (recently) moved to a focus on later-stage deals, what I’d call “Fast Follower” after A rounds. This is what Greylock perfected in the mid-late 2000′s, and now a16z in pumping even more money into those winners who emerge from the A rounds and make it over the Series B Crunch. This fits their strategy as they have a big fund and need to deliver big returns. Oculus to Facebook after four months and a $75m check epitomizes this approach, and they played it masterfully.
Again, there’s a ton of PR and noise around a16z’s activities (it’s a full-court press), and this activity generates adoration (as we see on Twitter and in the press in general) as well as jealousy (as we see on Secret). As someone who is interested in investing and venture capital, I’m taking a more historical evaluation of what they’ve done in five years and wanted to present this as my own personal observations of the bets they made and how they’re on a track to be right on all of them. I have no skin in their game, I just wanted to look back on the bets they made and reflect on how prescient (and disruptive) those moves have been and may be as 2014-15 unfolds. I know some people will not like this post, but I think the facts are the facts. Yes, there’s a long way to go, but their early bets are proving to have been pointed in the right direction.
Some brief thoughts (while traveling) on what is yet another fascinating move by Mark Zuckerberg and Facebook, including some open questions, the potential ripples across venture capital, and some fun wordplay with optics — I couldn’t resist ;-)
The rising tide of all tech markets (public and private) is affording Facebook a strong tailwind which makes strategic M&A possible. Public tech stocks and hyper-growth, late-stage, private tech companies are the hottest equity items on the markets right now. Whenever this topic surfaces in conversation where a participant is skeptical, I usually pose the question: “Where else would you put the money right now?” The implication is that there aren’t other good places at the moment. Anyway…Facebook’s own acuity is not in question, steadily seeing its market cap creep up and flirt with $200bn. With this acquisition, Zuckerberg calculated that spending 1.3-1.5% of Facebook for Oculus VR is good business, especially at a time when the market values his stock at a premium. (Note the deal is 80% stock-based, so Facebook spends little cash and instead spends equity, which right now may be slightly overvalued by market — about $2.24bn total.)
Instagram was the near-sighted threat; Oculus is part of the far-sighted, astigmatic vision. As Zuckerberg pointed out in his note about this acquisition, he feels his team has corrected its vision with respect to mobile, so he’s scouring the field for possible platforms which integrate with Facebook’s mission — to make the world more open and connected. Of the new platforms emerging, such as Bitcoin (the protocol), drones (also, incidentally, benefiting from the dividends of the smartphone wars), crowdfunding, wearable technologies, 3-D printers, Internet of Things, and so forth, part of Zuckerberg’s job is to monitor these and strike when he sees a fit. The consumer-level experiences of Oculus VR could be part of the next era of gaming. If one thinks of Carmack as Facebook’s Tony Fadell, and if one considers Facebook’s offerings to be about killing time, leisure activity, and social, bringing the feel of a game to the Facebook experience is a bold vision of extending the platform — such as this.
With Oculus VR, Facebook not only acquires the company, the team, the brand, and the IP, but they also bring in “their Nest” of software and hardware makers into the company. I wrote a longer piece breaking down the Nest acquisition, which you can read here. Part of that discussion focuses on the broad, horizontal nature of what that particular team could do for Google. Larry Page didn’t wire $1bn to Tony Fadell’s bank account to have him making other connected home devices — he wants Fadell to marshal his troops to build brand new hardware for Google, across a number of categories. If we extend this to Facebook and Oculus VR, Zuckerberg now has a world-class integrated software and hardware team at his disposal to complement with his cutting-edge web and cloud technologies talent. The talent inside Oculus VR alone would perhaps make up over a quarter of the deal’s final value. (A side note, it’s becoming hard to imagine a hardware company remaining independent given how much money the current tech giants have. Distribution is hard, and getting to a point like Apple with true vertical integration between hardware and software requires a unique founder, decades of pain, lots of financing (and dilution), and much more. Oculus VR, as one of the most promising integrated companies to emerge recently, is part of this trend. Investors, beware! It takes a lot of green to make this stuff stay out of the red.)
Marc Andreessen, the co-creator of Netscape and the VC firm which bears his name (which invested $75m into Oculus VR about four months ago), is also very close to Zuckerberg as one of the original angel investors in Facebook and a current board member. I have never met Andreessen, but based on watching many of his interviews on YouTube, enjoying his endless Twitter stream, and the bold thesis of his firm (which has correctly predicted many things — I’ll write on this aspect soon), he strikes me as a true intellectual polymath — not just conversant or convincing on a range of complex topics, but one of the earliest people to connect the dots of high technology at the highest of levels. Given his access to and rapport with someone like Zuckerberg, it’s not difficult to imagine the two of them discussing the future of technology platforms over the course of the years. Part of Zuckerberg’s job is to constantly be aware of what could be “next,” and who better to share ideas with than someone like Andreessen? His firm, a16z, has recently made huge bets across a range of industries which could present platform-esque characteristics — the software layer for drones, the software for three-dimensional printing, the software for transferring value across the Bitcoin protocol, and so forth. In Oculus, they likely envisioned yet another emergent computer science platform which could rewrite how people communicated with the Internet. No doubt Zuckerberg pays attention to what his board member pays attention to, and Zuckerberg can conduct his own brand of due diligence like none other in technology. [On the venture side, (a) early firms in Oculus should be noted for their early conviction and will be rewarded with a likely 20x return in about 20 months or so; (b) for a16z, their $75m investment in December 2013, just four months ago, presents them with a staggering IRR and highlights Andreessen himself as the modern standard for venture capital today -- there are many ways to win in venture, but he's effectively leveraging his relationships, his technical know-how, his robust team at the firm, and his capital like no other in the business.]
Open Questions:As with any deal of this magnitude and orthogonality, big questions loom…
Why didn’t other, more logical acquirers get into the mix? It would be common sense to think that companies like Sony (with Playstation), Microsoft (with Xbox and Kinect), Google (just because), and Apple (immersive experiences) would be interested in a team and technology like Oculus VR. We don’t know the details yet, but it’s safe to assume all players took a hard look, and that a few were involved. In such a scenario, one could assume the team had some leverage and perhaps even chose Facebook over the other suitors (for reasons we don’t entirely know just yet, though the founders may have calculated Facebook’s platform gives them the best chance to distribute their technology at scale).
How will the Oculus “community” respond in the long-term? Check out the top comments on the blog post by Oculus VR on the announcement — not pretty. Time will tell if this was fueled by hurt feelings at an emotional time in the moment, or whether over time, this refracts into what could be perceived as the poisoning of the well. Put another way, the non-myopic view could be the loss of trust with the Oculus community, which would drive the development on top of the platform. While a Kickstarter campaign does not bound a company to a path of independence, part of the belief and adoration driving platform developers and fans may have been the dream of seeing Oculus VR come into the market as an independent company, a place where the next Carmack’s would paint the next great immerse gaming canvases. In such a world, Facebook could’ve been one game of many others — maybe there could be a Snapchat VR game! — instead of Facebook owning the platform and its future direction.
Been thinking about smartwatches, tech on our wrists, and wearables in general. I’ll be writing more on this weekly until I get tired of it ;-)
Ask three different smart, knowledgeable people in tech about their views on smartwatches, and you’re bound to receive at least four plausible opinions on the matter. As someone hilariously snarked on Twitter, “even a broken smartwatch opinion will be write twice a day.” Jokes aside, I’ve been getting more excited about smartwatches with the news dribbling out over the past few months and speculation rising. As Google and potentially Apple join the popular Pebble, along with companies like Jawbone, FitBit (which already claim wrist real estate), Runkeeper, and others, the looming, high-level question for consumers may not just be platform-specific apps and functionality, but the effects (and potential handcuffs) of mobile platform and ecosystem lock-in.
Here’s how think about the choices consumers may face, assuming they want technology on their wrists — which, depending who you talk to, isn’t a foregone conclusion. “If” Apple does eventually develop a device for the wrist, we’d expect it to run on iOS, to seamlessly set up and pair with the iPhone, and to interoperate with other iOS systems and some suite of apps. Based on Google’s initial tip of the hand regarding “Android Wear,” they may view the wrist as a new interaction frontier to extend the power of its anticipatory computing service, Google Now. For those who would rather not feel locked in by a mobile platform, a range of existing and new platforms will be on the market in different shapes and forms.
Despite all the speculation about what could adorn our wrists – and it is fun to speculate – there’s just no way to know what the big players will do, how good these new experiences will be (out of the gate), and whether even early adopters and fanatics will buy these new devices at the same pace at which we’ve been accustomed to buying cell phones. (I won’t try to reconstruct the countless posts on the matter here, though for reference, I’d encourage people to read Mark Gurman’s excellent post on Healthbook (for iOS, which should be noted, isn’t about a watch), The Verge’s piece on Android Wear (by Dante D’Orazio) and Benedict Evans’ great piece analyzing both experiences. Instead, I’ll try to run through what choices consumers may make based on the evidence today, though its based on hearsay and not matters of fact, yet.)
In such an unknown world, having vibrant third-party platforms is not only healthy, it may also be what consumers want to escape the handcuffs of any mobile platform lock-in. In this scenario, outfits such as Jawbone, Fitbit, Runkeeper, and others may have enough institutional expertise (and focus and passion!) to make this transition and/or morph into new interfaces with the advent of new motion sensors. And then, there’s Pebble, the already-popular independent smartwatch-maker, headquartered right in Silicon Valley, composed of a team which has built and shipped newer versions of its watches to rabid fans. On Pebble, which already has partnerships with other third-party apps, users interact on their phones through a Pebble app that helps setup and control the watch. This allows users the option to switch mobile platforms and keep their smartwatch, with less of a lock-in effect. Whether mobile platforms will slap users on the wrist with their lock-in techniques, no one knows — but what is certain is that those in the market for smartwatches and/or sensor-based wearables (or even connected jewelry) won’t handcuffed nor left without plenty of choice. And that is a very exciting thing.
These are my recipes for building breakout mobile apps. I’d love to meet people building products with these categories in mind…
Every Sunday, I try to write something about mobile that’s relevant today or tomorrow. This week, I thought it would be fun to briefly look back in time. When it comes to mobile (and this doesn’t include gaming), the apps that have proven to breakout either harness the phone’s most important sensor (the camera), tap into a network effect (mobile messaging), or use mobile to aggregate consumer demand, which is then fulfilled offline (services). The opportunity for new startups is very large, perhaps a once-in-a-lifetime window, which results in challenging, fierce competition and apps littered in deadpool folders across our phones. The good news is that you’ve all been focusing on the right areas — below, I’ll repost a few (potentially embarrassing) snippets from my older columns I’ve written about these categories specifically, which will remind us just how many apps are vying for our attention, how the eventual winners were right in the mix, and how enduring these categories will be in the future.
Let’s start with everyone’s favorite, photo-sharing apps: Despite the chorus of people who reflexively decry photo-sharing apps, this is just the beginning. Photo-sharing is the consumer interaction that people get tired of because of all the apps doing this, but this misses the larger point — that the camera has always been and will continue to be the most important sensor on the phone. (Yes, GPS is important, too, and will grow into itself over time.) In December 2012, right around the time the world starting hearing about Snapchat, I wrote a column titled “It’s Early Innings For Digital Pictures,” with the following opening:
In the few years I’ve been in Silicon Valley, if someone asked me to sum up — in one word — what defined and dominated consumer technology applications during that time, I’d have no choice but to answer: “Photos.” Now, it’s easy for others to sit back and roll their eyes at the thought of it. “Why not solve big problems?” an aggravated chorus might wail. Looking back over this time period, the big events touching on digital pictures gained outsized attention: The launch of iPhone 4, with its incredible camera; the meteoric rise and acquisition of Instagram; the technical achievement unlocked by Lytro; the influence of the Pinterest design on nearly every e-commerce site; our narcissistic addiction to Timehop or delight in depositing checks through our bank’s mobile app; today’s fascination with exploding pictures, courtesy of Snapchat; and on the horizon, one of the most anticipated interface advancements: Google Glass.
Next up, apps that leverage classic network effects: To say that the ease of mobile distribution (for the right apps) at this moment in time is attractive would be a huge understatement. In the same manner venerable companies were built on the network effects of the web, we’re beginning to see what these effects look like on mobile. No analysis is needed, because after some major acquisitions, we all know these network effects are immense. Three years ago this week, my column for the week was titled “Mobile Messaging March Madness,” largely written as such because I was trying out two to three new messaging apps per week and couldn’t keep up. Yet, despite all the noise of that competition, it turned out everyone listed was working on the right problem — it’s just that everyone can’t win. I ended the column with this closing, which if read today, may (unintentionally) shed light on some of Facebook’s thinking:
Mobile and group messaging is attractive to investors, entrepreneurs, and users alike. If designed well, they could leverage network effects to amplify participation and enable the application of proven revenue models. This is a new class of social company, built entirely with mobility in mind from Day One. They are designed within a post-PC/laptop mindset. These companies will begin by drafting behind the lead cars in the social networking race. The most recent entrant into this red ocean — Color Labs — may have just made the waters a bit more red. We oftentimes take for granted that all of the established social networks will persist over time and satisfy most of our needs. Some realize building seamless, easy-to-use systems will create significant value for larger players because they weren’t originally built with mobility in mind. And some will perhaps break through and create their own lasting social experience.
And finally, we have the apps which aggregate consumer demand on mobile devices, but fulfill that demand through offline services: The shining example here is, of course, Uber, which has demonstrated people worldwide expect to download mobile software, sign up quickly, tap a few buttons to place an order, which then arrives within a reasonable time. The model works so well it has spawned scores of new companies who will deliver your groceries, send you deliveries, pre-order items for you, and much more. Yet, the devil in these details is that local service models take real work to scale geographically. About a year ago, I wrote a column called “Lessons We Can Draw From Cherry,” the car-washing service which I used and liked, but ultimately folded. I closed that post with the following:
It’s easy to mock Cherry as a small idea, but I give them credit — and hey, they could still do something new and interesting. They went out, delivered a service, and while there were some hiccups, their shutdown creates a learning opportunity for the ecosystem which is especially timely given the companies I’ve mentioned above, and the venture capital (and time) needed to make these things spread offline with real margins. In the past few months, I’ve grown concerned that these offline, non-technical, and operational elements aren’t taken into humble consideration or waved off as being “easy” to execute on. Too many people think to themselves, “Hey, we’ll do what Uber did, no problem. Well, what Uber did and is doing is really, really hard, and they still have a long way to go. It’s also important to recognize that Uber is mostly a marketplace and doesn’t handle labor as much as some of the other companies. Managing and training labor is time-consuming and expensive, and can negatively impact all three dimensions listed above. When Uber was raising their early venture and growth rounds, some investors still passed on the deal because while they liked the transaction volume and offline scaling proof points, some questioned the robustness of margins. To each his/her own. That said, if Uber had such a tough time and fought through it, I’d imagine everyone else in this broad category will go through as much pain or more in order to get a peek to the promised land in the horizon. Yes, it’s a fight worth fighting for, but as we see with a company like Cherry, which probably had enough cash to keep going for a bit longer, there should be no illusions in how hard it will be to get there.
So, what’s the point of all this reflection regarding consumer mobile apps today?
My interpretation is that these are all good reminders for all of us who play in the mobile ecosystem — founders, operators, investors, and reporters — that when it comes to breakout mobile-first companies, the breakout categories are quite clear and any entrant should expect fierce competition. That said, there are lessons to learn from what previous companies have done right as well as those who didn’t quite make it. And, many of those lessons have a longer shelf-life than we may like to admit. We live in a world with two relevant mobile operating systems built by companies with lots of influence, power, and cash. We live in a world where we expect everything to be mobile tomorrow, yet only a few categories produce these breakouts today. We live in a world where we expect new mobile software to be pretty, with slick designs, yet some of the biggest apps appear to have very simple user interfaces. We live in a world where we expect mobile software to scale effortlessly with a few clicks and some well-timed PR hits, but to bring an Uber-like model to other locations requires dirt-under-the-fingernail tactics that are mostly executed offline. Every now and then, I like to make sure we all look at the forest and the trees, because we could potentially already be using the next big thing, or have used some version of it before.