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.
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.
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
Founders will have undoubtedly heard this confusing, frustrating phrase: “I’d love to invest, so long as there’s a lead investor.” Oh boy. I have been there, on the receiving end. It sucks. The knee-jerk reaction is to wonder why, oh why is this person so afraid to invest in my startup — Do they not believe in me? Are they too chicken-shit to say “no”? Are they only interested in social proof? Now, having spent time on the investing side, I have a new perspective on this. I have, myself, been thrust into the position of uttering those dreaded words — “yes, I’d love to be along for this ride — so long as there’s a lead.” I knew as I soon as I said it, this was happening. How did it come to be, going from loathing a phrase to using it earnestly, sincerely? I’ll explain.
I invest very small amounts of money. That money is mostly not my money. The model I promised my LPs is that I’d be one of the last checks in a round given the level of small-ball I’m playing. In some deals, there is significant product risk or go-to-market risk. And, in evaluating those risks, someone in my role has to think about the danger of a sunk investment cost. The specific fear in this case is your money goes into a black hole and the company won’t be funded fully or without a strong lead who is invested with the right incentives. In those cases, unless there’s a miracle, the investment may vanish. In some deals, I assess the risk and feel comfortable taking it. In others, I don’t have that same secure feeling, even though I may love the founder, the product, the vision, and so forth.
Stepping away from me and my example, these few experiences have opened my eyes to why countless other founders hear this frustrating phrase, over and over again. The common mantra you read on Twitter or Hacker News is that leads don’t matter, that founders just need money and they’ll figure everything out. The problem with this is that most startups are destined (percentage-wise) to flail and fail. A strong lead in a deal, even if small, has enough incentive to guide the team to good milestones (especially first-time founders) and/or to pick up the phone and make a critical BD deal or acquisition happen. Here, the lead acts, in part, as an insurance policy to protect the founders’ initial equity stake.
In the heat of the moment and the mind-numbing back-and-forth of a fundraise, this crap can make any founder go crazy. That’s why I’m writing this — I know it’s a hard process, especially when trying to attract the right people to the deal, so hopefully this post shines a light on some of the dynamics that may be at play behind the scenes, and so that founders don’t take it personally when they get an arm’s-length offer. The search for the strong lead may be elusive, and some founders will succeed without ever finding one, but in the majority of cases, the founder-lead relationship is critical to instill confidence around everyone else (investors, key first hires, potential BD partners) around the table.
There’s also an emotional, hard-to-explain, chemistry-based interaction at play. There are a number of strong investors who lead deals, whether it’s seed, Series A or beyond. When those types of people lean into a deal, part of their calculus is assessing their compatibility with the founder(s). There are countless occasions where an investor wants to participate in the company as an investor but doesn’t want to be the lead, and this can be difficult for founders to understand because they’re “all-in” for their business and the investor who doesn’t lead is at arm’s-length. I’m sure I’ll face this dynamic head-on later in life. That’s why I’m taking lots of shorter, practice-swings, because I believe in order to be strong, decisive, and act like a lead, one needs to see a high-throughput of people and opportunities, and through that flow of people and deals, when special opportunities come by, and there isn’t a split-second for hesitation available, I want to be ready for it. Right now, I am the furthest thing from ready. Leading an investment is a great skill, and one that has been incorrectly minimized in today’s alleged popular wisdom.
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.
Lots of chatter, of course, about Medium today and it’s first and very large round of institutional funding. As someone who writes online, uses Quora often, has dabbled with Medium (and love the product), I thought I’d jot down some brief thoughts about why this product can grow into a big company and potentially remain independent and go public:
To date, Medium content has been written by individuals, but expect it to expand to all kinds of brands. All sorts of brands, from media to CPG and beyond, want to put ads in front of consumers, of course. They currently do this on Facebook or Twitter or Yahoo or Flipboard. In those cases, they often don’t control how the content looks nor how it’s delivered to the end viewer. As this shift continues to happen, Medium is positioned to take bigger slices of this ad spend, especially as other properties stop growing and/or lose attention.
Medium poised to explode on mobile devices. So far, Medium has grown on the web, the old-fashioned way. It’s so easy to use the software and write — I hate the phrase “beautiful experience” for consumer software, but even I’ll admit, on Medium, it is — that when it expands to phones and tablets, people will use it to create more content. The lack of a keyboard presents a big hurdle to writing on a mobile device, but Medium’s design could help assuage this.
More about discovery, less about a destination. When Quora started to grow, it achieved that rare feat — it was a destination you just went to. Medium, while offering some recommendations for related content and hooks to go back to the site, has largely used other social networks (Facebook, Twitter) to power discovery of its content. The result is that consumers stumble upon Medium links more easily and, if presented with the next right piece of content, or collections, that user will stay around and enjoy the experience for longer. We should expect the ability to subscribe to people, brands, and collections, as well.
Leveraging other social networks as “smart” distribution pipes. Despite the success and scale of Facebook and Twitter, there aren’t many other properties which have gotten enormous on top of these graphs. Airbnb has, and Instagram has, among a few others. Medium has that chance given Ev William’s presence and the way the site is designed to share content into social networks, especially Twitter. (Incidentally, Jelly has a similar structure for routing questions through these pipes.)
“It’s the team, stupid!” Very few people like Ev Williams around, and going for #3 in the arena he knows best is a VC’s dream. A no-brainer. And, from what I’ve heard of friends who have directly worked with Ev (I have never met him), they all say he’s one of the best people in tech, period. They love him. This type of loyalty is infectious, and in turn greases the wheels for recruiting top talent and brokering game-changing partnerships that can change the arc of a product.
WordPress is a target, and mobile is a frontier. I love WordPress. This blog is built on WordPress. And, much of the web is, too. It’s got a big private valuation and has empowered many people to create, share, and earn. That said, it’s woefully behind on mobile, on easier-to-use interfaces, and overall responsiveness. They own a big piece of the market, and a team led by Ev can snack around the edges before going after the old land (on the web) and expand into new territories as the world shifts to phones and tablets.
For these reasons, Medium has the chance to go big, the chance to capture the old magazines, consumer writing, and new types of media on phones and tablets that tie into social networks. It has the chance to be an independent, public company, and stand on its own.
No doubt in my mind that @ev has another billion-dollar++ hit on his hands with @Medium.
I’d love to meet more people thinking about the intersection of large enterprise and mobile. Everything I’ve seen to date doesn’t meet the requirements below. This is not to say I have the right formula, but it will take a special product and person to crack this code.
Every Sunday for this column, I write on something related to mobile. To date, it’s mostly been about consumer-facing apps, device sensors, user interfaces, tactics like push notifications, and a range of other topics. However, I have yet to dig into mobile for more business-facing, enterprise-oriented users and considerations. That’s partly because I do not work at a large company nor too closely with others. Yet recently, in some of my conversations, the topic of mobile apps for enterprise environments has resurfaced. In 2013, I also moderated a panel at a mobile event organized by Emergence Capital, a venture capital firm which focuses on SaaS and created this chart on different type of enterprise apps. While much has been written on the topic, I wanted to write this post with few or no assumptions, from first-principles, and share my thought process about what founders and investors could look for in these kinds of mobile products. Mostly, however, I’d like to learn from you all about what it will take to win in these environments, so please comment or tweet or reach out to me with your thoughts.
Devices: I’ve heard every angle here. At some large companies, employees can bring their own devices to work. The company will support what the employee wants. But, this becomes more difficult as the number of devices increases quickly, device turnover happens faster, and newer devices hitting the market (especially non-iOS) fragment the ecosystem. One founder remarked to me he believes we’ll see a shift from BYOD to CYOD, or “Choose Your Own Device,” where the employer pre-selects a controlled group of devices from which employees can choose. These conditions will certainly be different at each company, depending on what policies they adopt.
Security Compliance: Even prior to NSA revelations, enterprise security is obviously a big deal. This may be why, for instance, larger companies could move to a CYOD world. Companies are concerned about client-side and cloud-based data security, and this is likely heightened today with the latest batch of handsets allowing different forms of filesharing which don’t require traditional data sources to power them. On the employee-side, I’d imagine many may opt to keep their own personal phones active and thereby carry two phones, partly to keep a separation from work and life outside work, and partly because they are concerned about privacy.
Enterprise-focused vs crossover apps: This is the debate around whether the enterprise needs specific app solutions, or whether it’s more likely consumer-focused apps (or one’s that draw from consumer-level principles) are more likely to win. I don’t know what the answer is here, and it seems like there isn’t just one path to success. Products like Box are designed for enterprise-level customers, products like Yammer draw on consumer-level design principles, and products like Mailbox, as just one example, could help its parent Dropbox spread its own suite of apps through the employee ranks at larger companies. Beyond this, we may also “Bring Your Own Apps” in enterprise settings, as well.
And, here’s the important one for me…
Distribution, viral bottom-up, or top-down command? This is the one I wrestle with when I see new teams forming and building new products. I don’t know what the best approach is. The way the world is moving, it would seem, at first, logical to assume workers will start to use consumer-level apps and some will “cross-over” into their work, igniting the spark needed to make it grow among colleagues. This is how apps today get huge and become breakout level. Yet, in a company-setting, there may be a case for employers mandating workers use specific apps, and use them daily. That could force everyone in a company not just download and install a specific required app, but to set notifications, allow location tracking, and use the app multiple times a day.
Today, the top-rated and grossing “business” apps are mostly from legacy providers (like Adobe), apps built on top of enterprise giants (like Salesforce), a few new entrants (like Square), and a slew of small-business related tools, such as scanner apps, and so forth. Perhaps one of my next columns will focus on apps for small businesses, but for now, I’d like to hear your opinions on what enterprise-level apps are doing well, where the opportunities are, what the security concerns will be, and who will be driving distribution. It’s certainly a huge opportunity, and with mobile distribution posing a real challenge to tens of thousands mobile developers, the conditions inside large companies could present attractive opportunities.