What Hasn’t Changed: The Internet Keeps Getting Bigger(500hats.com)
500hats.com
What Hasn’t Changed: The Internet Keeps Getting Bigger
http://500hats.com/what-hasnt-changed
11 comments
thanks, that's a good summary of our approach.
however, we will also invest in a few stories without clear path to revenue if growth is strong. but admittedly this isn't our favorite strategy. we certainly prefer strong business model over none, even with a small base of customers.
however, we will also invest in a few stories without clear path to revenue if growth is strong. but admittedly this isn't our favorite strategy. we certainly prefer strong business model over none, even with a small base of customers.
Thanks for the addendum! I'm aware of that corollary but it's harder to explain as a coherent thesis. Paul always made it very clear to me that "there are starving startups in India than more traction than you" and "10mm users is the new 1mm users" so I've never been clear where that line was for you guys. As such, I usually leave it out of my explanations of my understanding of the 500 thesis.
Fred Wilson's specialty is with larger consumer/enterprise investments (http://www.usv.com/investments/) vs Dave McClure's speciality is in smaller investments and also international.
According to Dave, it seems like there's so slowing of momentum for growth with the smaller (base hits) he sees both domestically and internationally. And I appreciate his blog post that champions the consumer web.
But I wonder with Fred's observations if people might need to be a bit more wise with consumer internet plays if raising funds might be more difficult than previously. I also wonder when you combine both Fred and Dave's observations that maybe you see an opportunity for bootstrapped ventures to start out a lot smaller, maybe even w/o outside funds.
According to Dave, it seems like there's so slowing of momentum for growth with the smaller (base hits) he sees both domestically and internationally. And I appreciate his blog post that champions the consumer web.
But I wonder with Fred's observations if people might need to be a bit more wise with consumer internet plays if raising funds might be more difficult than previously. I also wonder when you combine both Fred and Dave's observations that maybe you see an opportunity for bootstrapped ventures to start out a lot smaller, maybe even w/o outside funds.
I think the lesson is to focus on consumer & small biz opportunities with clear path to revenue.
if you don't have clear path to revenue, then you better have tremendous traction.
if you don't have clear path to revenue, then you better have tremendous traction.
I think what both Dave and Fred echoed is something that that everyone here came to a realization few years ago (the time for startups without any revenue model is over).
But that said, there is nothing stopping the next Instagram or the next Pinterest from becoming really successful. Both these sites (I am sure I can think of more) broke out during the very same period VC's kept claiming they are not going to fund startups without any revenue model or whose model is based on ads (or ads related).
So personally, I don't think what Fred said (or Dave) is anything to be sweating about. Just keep pushing products out, that is what I think.
But that said, there is nothing stopping the next Instagram or the next Pinterest from becoming really successful. Both these sites (I am sure I can think of more) broke out during the very same period VC's kept claiming they are not going to fund startups without any revenue model or whose model is based on ads (or ads related).
So personally, I don't think what Fred said (or Dave) is anything to be sweating about. Just keep pushing products out, that is what I think.
The viewpoint of an investor is by nature skewed by their portfolio and those that they interact with. Those are all parties that have already somehow 'made it'.
The dark horses don't drop in frequency but as the size of the market increases your chances of interacting with one as an investor during the time when they are still small enough that you could get a relatively large slice of the pie for a good price are decreasing.
That's one of the genius elements in YC, they have made a focal point for such companies at the time when investment is at its cheapest. All it takes is one or two successes for this strategy to pay off wildly.
The dark horses don't drop in frequency but as the size of the market increases your chances of interacting with one as an investor during the time when they are still small enough that you could get a relatively large slice of the pie for a good price are decreasing.
That's one of the genius elements in YC, they have made a focal point for such companies at the time when investment is at its cheapest. All it takes is one or two successes for this strategy to pay off wildly.
Perhaps I am mistaken however no one is calling anything dead, they are simply switching strategies. In my opinion B2B wins hands down when the product could be used equally by businesses and consumers at a minimum.
When I started VisiDraft a year and a half ago, my strategy was B2B because my clientele would be using the product for work. I could as easily have structured my plan to have a consumer facing application but based on what I encountered it was a no brainer.
Microsoft, Apple, HP, IBM all of these name makers started as B2B companies. Why? Several reasons. You only have to sell to a few people, making your traction and revenues immediately positive. In addition, it allows a much more intimate feedback loop for iterations when you actually work hand in hand with another business designing solutions for them. you are basically getting another partner with domain expertise - you don't get that with B2C. It allows you to grow without losing a huge chunk of your business - in my experience most companies don't want anything to do with owning a chunk of a start up.
I am quite confident that no one is saying that B2C is over, and in fact a good number of software developments don't fit into a B2B model. Where there is equal ability to face consumers or other businesses, I will always opt to the business.
The last thing I will say is: Businesses around the world are sitting on +2T in cash right now. VC's aren't anywhere close to that and they rely on consumers to go buy things, which is looking pretty flat currently at least in the US. Go where the money is.
When I started VisiDraft a year and a half ago, my strategy was B2B because my clientele would be using the product for work. I could as easily have structured my plan to have a consumer facing application but based on what I encountered it was a no brainer.
Microsoft, Apple, HP, IBM all of these name makers started as B2B companies. Why? Several reasons. You only have to sell to a few people, making your traction and revenues immediately positive. In addition, it allows a much more intimate feedback loop for iterations when you actually work hand in hand with another business designing solutions for them. you are basically getting another partner with domain expertise - you don't get that with B2C. It allows you to grow without losing a huge chunk of your business - in my experience most companies don't want anything to do with owning a chunk of a start up.
I am quite confident that no one is saying that B2C is over, and in fact a good number of software developments don't fit into a B2B model. Where there is equal ability to face consumers or other businesses, I will always opt to the business.
The last thing I will say is: Businesses around the world are sitting on +2T in cash right now. VC's aren't anywhere close to that and they rely on consumers to go buy things, which is looking pretty flat currently at least in the US. Go where the money is.
both areas have tons of opportunity.
however, there is plenty of growth in consumer spending and particularly in online ecommerce all over the world. while I won't disagree corporations are also sitting on lots of cash, it's certainly not the case that consumer online spending is flat, even in the US (& absolutely not around the world).
however, there is plenty of growth in consumer spending and particularly in online ecommerce all over the world. while I won't disagree corporations are also sitting on lots of cash, it's certainly not the case that consumer online spending is flat, even in the US (& absolutely not around the world).
Apple definitely didn't start as a B2B company. They sold computers to individuals, and if businesses happened to buy, that was fine too. Apple had some limited success in the educational market in the 1980s, but PCs dominated the business market (and still do.)
"The number of recent internet services that have grown from nothing to hundreds of millions of users is frankly rather astonishing – Pinterest, Instagram, Groupon, Zynga"
Ok.. and... who else? I wouldn't call a few handful or even 20-30 astonishing.
"Almost every possible internet distribution channel has MORE users than ever before – whether it be search, social, mobile, video, local, SMS, email, chat, etc."
And every channel has also been saturated with tons of competition. Search = millions of pages indexed everyday, and tons of old brands ranking before you. Social? Good luck getting your new content noticed when you have 0 followers.
"it’s certainly MUCH cheaper & faster to build product than ever before"
Cheaper and faster? When you have to build multiple products for iPhone, Android, Windows, and for: search, social, mobile, video, local, SMS, email, chat...
"that just means less competition for those of us ready to really dig in and invest at scale in all the millions of new “small” businesses that will emerge and dominate the globe in coming years."
It's not small vs. big. It's enterprise vs consumer internet. There are tons of small enterprise companies out there.
Ok.. and... who else? I wouldn't call a few handful or even 20-30 astonishing.
"Almost every possible internet distribution channel has MORE users than ever before – whether it be search, social, mobile, video, local, SMS, email, chat, etc."
And every channel has also been saturated with tons of competition. Search = millions of pages indexed everyday, and tons of old brands ranking before you. Social? Good luck getting your new content noticed when you have 0 followers.
"it’s certainly MUCH cheaper & faster to build product than ever before"
Cheaper and faster? When you have to build multiple products for iPhone, Android, Windows, and for: search, social, mobile, video, local, SMS, email, chat...
"that just means less competition for those of us ready to really dig in and invest at scale in all the millions of new “small” businesses that will emerge and dominate the globe in coming years."
It's not small vs. big. It's enterprise vs consumer internet. There are tons of small enterprise companies out there.
The enterprise market wil be a tougher nut to crack for startups for simple reasons :
1- Inelasticity of demand : Just look at windows, Word,...etc many companies "waste" hundred of millions of $ in software that's loathed by their employees, yet they still force feed it in the name of standardization. The users don't get to vote on the products they use unlike their consumer mkt counterparts (with their wallets or attention.) so change is very very slow.
2- procurement process lack of transparency : Yup, it's still an old boys club out there & the company that gets a signature on the dotted line is not always the one with the best products. Relationships & brand name matter enormously, esp if you're a clueless CIO who's climbed to the top mostly on your corporate politicking talents.
I stil think that the best way to approach the enterprise market is to have an acqhire exit in mind. grow big enough to attract the attention of IBM, Oracle & Microsoft. (Yammer stands as a recent example, but IBM made dozens of acquisitions in the 100~500 Mil $ range.)
1- Inelasticity of demand : Just look at windows, Word,...etc many companies "waste" hundred of millions of $ in software that's loathed by their employees, yet they still force feed it in the name of standardization. The users don't get to vote on the products they use unlike their consumer mkt counterparts (with their wallets or attention.) so change is very very slow.
2- procurement process lack of transparency : Yup, it's still an old boys club out there & the company that gets a signature on the dotted line is not always the one with the best products. Relationships & brand name matter enormously, esp if you're a clueless CIO who's climbed to the top mostly on your corporate politicking talents.
I stil think that the best way to approach the enterprise market is to have an acqhire exit in mind. grow big enough to attract the attention of IBM, Oracle & Microsoft. (Yammer stands as a recent example, but IBM made dozens of acquisitions in the 100~500 Mil $ range.)
while there are recent examples of large-scale adoption of enterprise solutions (Yammer, Box), most enterprise sw requires well-trained expensive people to do direct sales. this is certainly doable with the right people, but they are not in limitless supply. scaling enterprise sales is usually people-bound, and hard. this is often the limiting factor in scaling enterprise business, and requires experienced and well-financed teams.
Framed through Naval's vision of individuals as micro-enterprises, Dave and Fred's perspectives line up pretty nicely together. The line between consumer and enterprise is blurring in more ways than one.
for the record i think Dave is absolutely right it's easier than ever to build a consumer audience (albeit at times a niche to pivot). at the same time, i think Fred's point is focused on the fundraising prospects for each type of business, and in this i think he's right: the "powers that be" (aka the later stage investors who, as Dave rightly points out, sometimes don't know whose tail they're chasing) are demanding enterprise deals right now. in response to Dave's point on the difficulty of scaling sales in enterprise, two trends are making that easier: a) BigCo interest in startups from every angle is very high and b) individual interest by traditional "enterprise types" (mba's, executives, etc) to get in on the startup pie is increasing as well. not necessarily a good thing on the macro level, but paired with a killer product it can make scaling more straightforward.
Pinterest, Instagram, Groupon, Zynga, and "in some cases billions of revenue"? Unless I'm looking in the wrong places, that is a factual error.
While getting hundreds of millions of users is great, it's not quite the same as getting to profitability. If you're using Zynga and Groupon as success stories, your business model might very well consist of, "looking for the next big fad and hoping to find a way to monetize before it fizzles".
While getting hundreds of millions of users is great, it's not quite the same as getting to profitability. If you're using Zynga and Groupon as success stories, your business model might very well consist of, "looking for the next big fad and hoping to find a way to monetize before it fizzles".
"some" in this case was Groupon & Zynga, not Pinterest or Instagram. while perhaps not the best cases of getting to sustainable profitability, nevertheless both Groupon & Zynga did phenomenally well in customer acquisition and revenue... what they have failed at is long-term retention.
regardless, the argument Fred seemed to be making was that distribution and customer acquisition is getting "harder"... this is not the case.
regardless, the argument Fred seemed to be making was that distribution and customer acquisition is getting "harder"... this is not the case.
both Groupon & Zynga did phenomenally well in customer acquisition and revenue... what they have failed at is long-term retention.
So, in other words, a great pump and dump scheme?
You make it sound as if their business models should have changed at some point in order to achieve both. Do you believe this is genuinely possible?
So, in other words, a great pump and dump scheme?
You make it sound as if their business models should have changed at some point in order to achieve both. Do you believe this is genuinely possible?
If the number of people on the internet isn't growing (and it has pretty much plateaued in the US, at least), and there are more competitors, then yes, I would say consumer is "getting harder." Good ideas will always buck the trend, of course, but I think there is going to be some consolidation in this space.
check the stats for both time online & online spend -- I'm sure both are still growing; even in the US. then add in the # of young / old people on smart phones and tablets that weren't online 3-5 years ago, and you could say that even raw # users in US is also growing.
Which, let's be honest, all worked out very well for the early investors.
If it's "REALLY EASY" and "cheaper & faster" to build an internet or mobile business that can potentially gain millions of users, this begs the question, is this valuable?
Every app or service which attains a million users reduces the impact and worth of attaining a million users on the next app or service.
Where is the value today?
Every app or service which attains a million users reduces the impact and worth of attaining a million users on the next app or service.
Where is the value today?
> it’s taken for granted you can pay online and have goods delivered to your door. While this isn’t the case yet in many big markets in Asia
Just nitpicking here but I found this comment a bit strange. eCommerce is HUGE at least in China. Taobao for example generated 3 billions US$ in sales in 24 hours recently.
Just nitpicking here but I found this comment a bit strange. eCommerce is HUGE at least in China. Taobao for example generated 3 billions US$ in sales in 24 hours recently.
Everything is huge in China. That doesn't mean that most chineese can order something online and receive it at their door.
(I don't know if they can. But your comment is a non-sequitour.)
(I don't know if they can. But your comment is a non-sequitour.)
I agree with Dave's conclusion, but my rational is different: the trend towards enterprise is precisely what will open up the consumer space. It's the same force that has left enterprise relatively uncrowded in recent years.
Not sure how seriously I'd take anything said by a guy who invested in 9gag.
500 Startups and YC's investments in 9gag were puzzling to me until Paul explained their plan and their traction to me. They're compelling. Don't blame the founders for the actions of the community, largely in the past: 9gag has a future.
Reddit was bought before it reached the heights it currently inhabits, but 9gag has a chance as a pre-exit company to inhabit a similar space for a different demo internationally as well as move into some pretty interesting verticals.
Reddit was bought before it reached the heights it currently inhabits, but 9gag has a chance as a pre-exit company to inhabit a similar space for a different demo internationally as well as move into some pretty interesting verticals.
Dismissing any viewpoint out of hand based on one small investment out of hundreds seems like a poor way of gaining wisdom...
YCombinator invested in 9gag as well. That has absolutely no bearing on Paul Graham's insight into the current investment climate.
I didn't know that. This significantly alters my opinion of YC.
Why? I know that 9gag is not the most serious business out there, but don't you think it could be a viable and sustainable business?
I think it's because 9gag is the site that redditors like to mock.
I'm not sure I blame them.
https://9gag.com/gag/5553078
https://9gag.com/gag/5920690
I'm not sure I blame them.
https://9gag.com/gag/5553078
https://9gag.com/gag/5920690
you guys feel free to mock 9GAG, 500, & YC.
9GAG has grown to tens of millions of users and billions of page views per month in less than 2 years. the company was generating single-digit millions with a team of less than 10 people.
in short, it's a great business that has tremendous scale, and you haters can all go put a sock in it.
9GAG has grown to tens of millions of users and billions of page views per month in less than 2 years. the company was generating single-digit millions with a team of less than 10 people.
in short, it's a great business that has tremendous scale, and you haters can all go put a sock in it.
That was my point, it might not have the best content on the internet,but it clearly has a huge user base, and a very active one. I don't get why it wouldn't be a good investment decision.
Actually, I don't doubt that you have good reasons for investing in 9gag. I'm just not the target audience for the content. (And consequently think it's a bit crude.)
I'd originally posted (in response to sbierwagen) that 9gag receiving investments 'significantly altered my opinion of 9gag'. But then deleted it because the obvious interpretation wasn't my intended one. I figured the monetization scenario for 9gag might look good if PG +others are investing.
I'd originally posted (in response to sbierwagen) that 9gag receiving investments 'significantly altered my opinion of 9gag'. But then deleted it because the obvious interpretation wasn't my intended one. I figured the monetization scenario for 9gag might look good if PG +others are investing.
Why is it a great business? Because it has users and almost no barrier to entry? How sustainable is that?
Why does it alter your opinion of YC?
I hang out with artists a lot, and they hate 9gag, mostly because it is a business based on wholescale theft of intellectual property.
Just like Youtube, of course, but Youtube actually shares ad revenue with creators, while "publishing" your work on 9gag is manifestly insane.
Just like Youtube, of course, but Youtube actually shares ad revenue with creators, while "publishing" your work on 9gag is manifestly insane.
Full-scale
Whole-sale
Pick one and only one.
Whole-sale
Pick one and only one.
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THEN he believes in doubling down when the signs of that "next leveling" emerge.
I feel like there's a lot of misunderstanding of 500 Startups on HN so I wanted to try to get that out of the way. In my opinion there is room for 500 and YC to both grow without getting in each other's way, perhaps actually helping each other on the few companies they agree strongly on.