Analysis, Cool companies, Ooga Labs

Networks and Marketplaces

Marketplace image

Over the last 13 years, Stan and I have found ourselves drawn to focus on businesses that have network effects.  It started intuitively, then became explicit in 2003. Since then, we’ve started or advised over 25 companies whose core business was either 1) building a network of people who wanted to communicate, or 2) a network of buyers and sellers who wanted to transact.  Some of these companies have both.

There are others who have admitted a similar affection for these businesses, including David Sze and Reid Hoffman of Greylock, Fred Wilson of Union Square, Bill Gurley and Matt Cohler of Benchmark, Jeremy Levine of Bessemer.  And no wonder.  If you look at the biggest tech returns of the last 15 years, many of them were either marketplaces or networks, and if you consider companies that became worth more than $10B, nearly all of them fall in this category.  We’ve done a detailed analysis of this ourselves, and recently, James Slavet, also of Greylock, published similar findings.

So why isn’t everyone focused on these?  Increasingly, they are, of course.  But the fact remains, they’re f**king hard to pull off.  There’s a lot of art/luck in them, and that’s hard to predict and thus hard to invest in.  Over the years, we’ve watched/stumbled into/invented many tactics to manufacture a two sided network, to A/B test your way to virility, to foster liquidity and tipping points, to buy your network inexpensively, to iterate until you find the right subject matter or value proposition, build the right retention and feedback loops, etc.  These lessons can be applied today to increase the chance of successfully creating a functioning marketplace or network, or both.

The first step is even realizing you are attempting to develop a business that fits in this cohort of companies, and that there are now lessons to learn from prior successes.

Cool companies

Scripted — The Writing Marketplace

Scripted Logo

The Ooga portfolio grew this week.  Scripted, a mediated marketplace for writing and photos, helping companies produce and publish digital content to support their content marketing efforts.

Sunil Rajaraman and Ryan Buckley are the Co-Founders.  We were introduced to them by two different friends in the same week, and when we met them, we fell for them.  Great guys, working on a shoestring budget, real clients, a growing market.   I see lots of fun ahead.

Cool companies, Ooga Labs

Medpedia preview site is now live


Tonight, Ooga Labs announced The Medpedia Project!

Press release here

TechCrunch here

Los Angeles Times here

This project has been in development for two years, and the site will launch officially by the end of the year.  It is truly an honor and a privilege to be collaborating with such amazing, supportive, and thoughtful people from the medical world on this.  See the list of them here.  Their vision and ethusiasm are a gift.

Medpedia is a collaborative project in the extreme, so please shoot us any thoughts you have and we’ll try to get them in before the launch of the live site.


Analysis, Cool companies

Kevin Rose — Silicon Valley’s first Tom Cruise?

Here’s more indication that the consumer Internet is moving closer to the Hollywood operational model. In Hollywood, movies are often popular because of a star power like Tom Cruise. The movie doesn’t have to be good, but if Tom is in it, it will make money. In tech, things have traditionally been different: your product has to make sense and work. Value is created, not just through popularity, but by first-mover advantage, or technical excellence, or discovery of a new business model… typically something substantial.

Certainly there are a few serial winners in Silicon Valley like Steve Jobs, or Mike Cassidy (directhit, xfire) or Peter Thiel (paypal, facebook), but each time they’ve succeeded, they’ve done it from scratch, producing great products and great teams that battled their way to the top. They were never Tom Cruise. Their involvement didn’t guarantee success. In fact, most of the time, when you see people say “He’s done it before, so he can do it again this time, I’m puttin’ money in!” … it typically doesn’t work out. The tech market is unforgiving.

But Kevin Rose, with Pownce at 700 on Alexa in the U.S., may be revealing himself as Silicon Valley’s first Tom Cruise, where if he’s involved with something, it gets high adoption, which creates value, as long as it’s a network effect business. Is “Executive Producer: Kevin Rose” (ala Speilberg) far off?

Analysis, Cool companies

Facebook F8, a big mistake?

Given the glowing reviews F8 is getting, can we pause for a minute and consider that F8 was a pretty big mistake for Facebook? They say that smart people don’t make small mistakes, they make big ones. Consider that Facebook was going to win anyway, so they could have held off for another 12-18 months before they “platformed” their company. They weren’t facing much tough competition, they had a lock on the flexible clean interface, they were simultaneously growing their new user base and deepening the number of connections per user. By opening up, they have taken on a number of risks they didn’t have before:

1) Their site could MySpace-ize pretty quickly, get chaotic and ugly and loose its interface advantage

2) Worse yet, the UI could get so confusing with so random apps being thrown at you and the feed getting too long that users wouldn’t adjust their settings to reduce the chaos, rather they’d just get overwhelmed and stop using Facebook

3) What Facebook IS to people (their brand) could get confused, and it would be picked apart by a swarm of competitors like LinkedIn, MySpace, Yelp and the 10’s of new vertical social networks. Maybe even some clean college networks would spring up to siphon off users.

4) Maybe this would give too much value to their partners, and the resultant energy would dissipate into the wider net rather than accrue to Facebook like it would if they just build the key apps themselves

All are still possible downsides for Facebook, but in the end, after considering these issues, it’s still a very strong move. First, it is energizing and exciting to their young staff, who are working longer hours than any other startup in the Valley. That alone could be worth it. Second, sure they could have waited another 12 months, but this leaves their any competition flat-footed. Third, there is a magic and a power to the distributed mind, in the collective efforts of 10,000’s of smart people. We saw it with Microsoft and you can see it at SecondLife. Now, of course API’s are not nearly as hard as Win32, so Facebook’s defensibility isn’t necessarily the same as Microsoft’s, and I expect other big social networks to get in the platform business over the next 10 months, but by then, Facebook will be well ahead and be down the learning curve on managing this business.

I think they were right to trust their instincts and fall backwards off the stage into the crowd. For instance, already, several of the applications being built by some of the 30,000 platform developers address my four concerns above. Magic and power. Facebook may not have all the answers, but they’re betting 100,000 smart people do, and that’s not a bad bet. My props to the team at Facebook. They are showing themselves the class of the competition, and they are accelerating the evolution of the social Net dramatically by letting 1000’s social application ideas be tested quickly and easily. Everyone in the social Net, including Ooga Labs, now gets to accelerate their thinking.

As a side note, people have asked what Facebook is worth now. I think of it rather like Schroedinger’s cat where the actual state of the cat cannot be known. This is true for Facebook’s valuation because there is no transaction to be had, so the valuation is indeterminate. Given that the management team knows they will create $X billions of value over the next 12 months, and given that they haven’t done it yet, no one can step up and pay something close to what they know they will be worth. And most likely, even if there were such an offer, it would cause the management team’s belief in their prospects to increase. Perhaps justifiably. And since the company isn’t ready to go public (and shouldn’t!), there is not deal to be done, either by a corporate buyer or the public to establish the state of the cat.

Oh, one more thing, small companies to sell to Facebook in the next 6-9 months will do well. RockYou?

Analysis, Cool companies

Twitter, a great investment for someone

Twitter has tapped a new pleasure center in the human brain at the intersection of cell phones and the Web.  That’s a big deal, I think.  Instant Messaging was an interface that tapped a new pleasure center in the human brain when all the computers got connected.  Social networking was an interface that tapped a new pleasure center in the human brain when digital photography hit.  Now it’s happening again, perhaps.  Twitter is first with the application, growing fast, and they NAILED the name, which can be a brand and a verb.  Investors get in if you can.