Supported by Greenhaven Road Capital, finding value off the beaten path.
This September 2018 episode of the a16z podcast between Chris Dixon and Fred Wilson was full of interestingness. Let’s get to it.
What are you building? Bad Blood tells the story of Theranos’s fall and the many causes.
Another misstep was their software approach to a chemistry problem. Software and psychology are more pliable than physics or chemistry. Businesses get in trouble when they garble this difference.
“My view is that software has so many more degrees of freedom, has so much more plasticity, ability to adapt, to evolve,” Dixon said, “Maybe unlike the car or the TV, the core itself will also dramatically change and not just the apps around it.”
Rory Sutherland makes the point (5:00) that trains don’t need to be that much faster if they’re that much more enjoyable.
What is native? This is a BIG trend.¹ Another framing is, ‘What’s the killer app?’ Dixon said, “Every new computing platform has new capabilities and, generally, startups will exploit the new capabilities and the incumbents may or may not successfully port over to the new platform.”
New companies (disruptors) tend to adapt and adopt first. They discover customer’s latent needs that feature X is now less important than feature Y even though products with X are objectively better than products with Y. Clayton Christensen said, “Understanding the job is the critical unit of analysis.” It’s realizing customers want quarter-inch holes, not quarter-inch bits.
Peak back to 1994, said Dixon.
Back then, “‘Going online’ was this thing you did for ten minutes…The internet wasn’t a real thing until you had broadband.” Wilson agreed, noting that YouTube’s success was thanks to “Broadband (80%) and also social sharing…The embeddable YouTube player was genius.”
We used to listen to the radio while we waited for a dial-up connection. Now we connect to listen to the instant radio.
Broadband plus mobile allowed for podcasts, two-factor identification, and blogs.
AI and Crypto will allow for err, well, we don’t know yet. “We’ve not had our iPhone moment for crypto yet,” said Wilson. Dixon’s partner Ben Horowitz said, “When asked ‘What’s the killer app?’ No one ever gets it right.” Andrew Ng is curious about the killer app too.
Both think that some things will change and some things will not. Domains and the internet will not. Both collect domain names. “It’s like owning a piece of the internet, it’s like owning real estate on Grand Central Park,” said Dixon. Wilson added he’d “never sell one.”
Domains are valuable (to these two) because they’re unique. “We never had the ability to make a digital good non-replicable,” Wilson said, “and I think that’s held back a lot of the business models around digital goods.” But that’s changing.
“Selling a single song has become a not a great business model so musicians go where the scarcity is, off-line, to shows and merchandising,” said Dixon. Wilson added, “Imagine if there was some way of releasing art that felt more like mining bitcoin. The artist’s move might be to loosen scarcity, not tighten scarcity. What if a song only had 20 million plays?”
Neither forecasts on a future but both agree with finding the native solutions. Wilson said, “When we first started invested in the internet in 1994, 1995, we were basically investing in things that existed offline that were getting moved onto the internet; online newspapers, online stores. That’s not the move. You need to find the native thing that needs to happen.”
Netflix, said Michael Smith, succeeded because they’re a techno-entertainment company. “The advantage Netflix got was from using its data was to do something that no traditional broadcast network could replicate. Netflix’s advantage didn’t come from knowing how many fans of Kevin Spacey were in the audience. Netflix’s advantage came from knowing exactly who they were as individuals and promote content to them directly based on their individual preferences.”
Alex Moazed points this out too. “Rather than merely squeezing a little more efficiency out of an existing business, these companies operate on a completely different model that truly capitalizes on the Internet’s potential.”
A few other quotes.
Collaborative intelligence will take our jobs. “But the way jobs are actually taken is a much subtler thing. With these software applications you just don’t need as many people, it’s much subtler. It’s not a one to one transition, it’s more and more incremental software makes everyone more efficient.” Dixon
Availability tendency. “It’s always harder to envision the new jobs that will be created rather than the old jobs which have been destroyed.” Dixon
SAAS investments. The duo talks about the advantages of SAAS, Dixon said, “The great thing about SAAS is that once you have customers and they like you, it’s like an annuity.” That was a theme to our podcast on Moats and Allocators:
Thanks for reading.
1/ By BIG TREND I mean one that I just started noticing, so it could just be my availability bias.