That says it all. Really, that's how YC works - fail fast and cheap, profit from the survivors. Great for VCs, not so much for the cannon fodder.
"We have reserves."
There's a reason why the US tech industry is orders of magnitude larger than the rest of the world, access to capital. Go try to grow a startup in Europe with its risk averse investors, and see how far you get.
You'll start to see this effect even more in the biotech space, where up front access to capital is crucial in developing and testing products/medicines that must go through expensive FDA approval.
Up until about 2000, when you went to a Silicon Valley VC, you had to have a patent and a working prototype. Using that model, the VC industry as a whole was very profitable from the 1970s to the end of the century. In the 2000s, the VC industry became a net lose. Buying market share until everybody else goes broke is not a net win for investors.
Startups really should have this written on a tin: "We're are experiments to our investors. Our product is an experiment to us. We do not care about you, or helping you, and we will not change the world; our regular marketing copy is just straight-faced lie. The entire stack, from us up to investors' investors, are all running experiments on how to make money fastest."
Now, I'm (somewhat) fine with this. Let experimenters do experimenting. I just hate that the whole ecosystem is consistently lying to regular people.
Though it would be a stretch to say they don't care nor help the users. Of course they need to keep the users hooked/get new users onboard to "grow" and get the investments. And focusing on marketing is not very reasonable since you can say the same about basically every marketing material.
Still, I guess the point is that the customers of such startups must always be prepared of the possibility of the company suddenly shutting down one day and the product ceasing to exist. That's true.
Does it? Competition and survivorship have long been accepted as the premise of capitalism. What I find more disturbing is that we've been told competition will be to the benefit of the consumer, and this focus on network effects means that companies are looking for a way to stay on top WITHOUT the virtue of providing the best benefit.
This leads to Comcast-like situations, with customers that hate their provider but want the product and have no real options. Or Facebook, where people can join get disgusted and join an alternative...that can't provide the desired service because the desired service requires that everyone else be there.
Maybe I’m speculating wildly here but it feels like the main thing that made LinkedIn successful was that it was a first mover in the business social network space that used every dark pattern and email notification they could conceive of at a time when users were less cautious about their privacy. Now they have their moat and defend it with every trick they have. Their social auth API provides watermarked profile pics and they drop attributes without any notice.
If that’s the way you want to do it, I guess that’s your choice. But the professional social networking space could seriously use a breath of fresh air.
There is something more than that, and good execution is crucial, and it is good to know on what worked well, and what didn't work out for both the current winners and past losers.
I think Reid has good things to say about what worked for them back than, and take it like that.
There is no rulebook on startups, as all of them have different patterns, but reading on what worked 2003-2010 (pre-mobile times), is not going to hurt anyone.
Dismissing the success as just being merely 'dark patterns' + timing, seems a bit short sighted.
I worry that many won't read it because it's so long.
Now I need to go look up everything else Tim O'Reilly has written. He is a wise man. I of course know who he is -- mainly through books and conferences I suppose -- but I didn't know about his other experience in business.
It's interesting that in the early days of the web he started a Yahoo-like company before Yahoo and sold it to AOL, and a Windows web server company that competed with Netscape.
They are very difficult to fight against monopolies because when they have user commitment, the need for the product is filled entirely by one company. In addition, it is very difficult to make the user change, it's part of a habbit.
I might be wrong there. Just a though I had, but interesting to discuss. Is it really possible to avoid monopoly with these products?
In telecom, it was typical, due to regulation, that you'd have different parts of the business that couldn't interact at all. I wasn't permitted to talk to people with certain badges because of their business unit. You could easily do this with the advertising business for each of these large companies, or split it off entirely, and force that ad exchange to work with their competitors, for instance. You could regulate the news feed so that the pipe was a lot dumber and configurable, so that the company would no longer be allowed to experiment on human psyches.
There are tons of options that don't result in breaking facebook into 12 facebooks. Pulling the advertising out, and regulating advertising in general, is the best solution I've been able to spitball though.
Uber, Lyft, and some smaller competitors already exist yet people don't need all the apps; they just choose one and it works fine. Likewise with search engines: some people use Google, some use Bing, some use DDG. It's suboptimal but monopolies are suboptimal in different ways.
The problem with network effects was solved in the 1980s breakup of AT&T where the telcos all federated with each other. Federated protocols like SMTP and XMPP existed before Facebook and Twitter; rather than a historical accident they made a decision to pursue lock-in.
To me, the problem comes when you provide a service. The service market seems much more difficult to diversify than the product market. When the need is well filled by one company, it is difficult to keep competition alive. It is obviously not binary. It depends on the service.
For instance, for the product side; Nike, Adidas, etc. are constantly trying to improve and change their products to keep up with the complex shoe market even if they are pretty colossal companies. Because the user need for a new shoe pair is coming on a really short scale and the competition is fierce.
I'm not seeing the same kind of competition with services. When you use a service that fills the need, you don't change in general. Or at least, people change on a very long scale. Some times, it even takes a cultural shift to change habits.
On the google vs bing example: Well, ok some uses bing, but in majority because microsoft makes it easy to do so on their systems ;-). There exists some very good alternatives, like duckduckgo, but it represents a minority.
> Most monopolies or duopolies develop over time, and have been considered dangerous to competitive markets; now they are sought after from the start and are the holy grail for investors.
It's not now that they're sought, it's always been that way. Because that's literally the way a business wins this game. That's the holy grail, literally the driver behind competitiveness - the desire to monopolize a market, so that you can comfortably do whatever you want, and earn whatever money you need. That's the very carrot society uses to create entrepreneurs - the name of the game, from society's POV, is to get people working towards monopoly, creating value at low prices in the process, and once the winner is about to emerge, to pull the rug out from under them. The game is a lie, winners can not be allowed. That's the market way to prosperity.
The only thing that's changed is that some people are now not afraid to publicly say they're seeking monopoly. But they've always been seeking that.
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RE your comment, I sort-of agree. I strongly agree with the observation that I explicitly do not want to have 4-5 taxi apps on my phone, and my life would be much happier if I could just use one. Similarly, I'd prefer to have just one app for public transit, just one app for maps/navigation, and preferably integrate all three categories into single super-app, whose sole purpose is to help me get from point A to point B as quickly as possible. But that's more of an UX issue.
And it wouldn't have to be one app. Just one per user. In a perfect world, all those services - mapping, taxis, public transport - would be available through open APIs, and you could use free or commercial super-apps interchangeably. Services would be serving you, proxied by your super-app, instead of serving you on a plate to their investors. Alas, most companies seem hell-bent on capturing all the value they produce - they have this kind of greed that ruins things. I know that market pressure sort-of forces this to happen, but I wish there was a way to correct this.
It's not like most people choose multiple providers because they care about health of the competition. From customer's point of view, competition is noise.
But maybe change contexts—would you call Coca Cola a monopoly? Certainly Pepsi gives them a good run for their money, even if they aren't as large technically speaking (I have no idea).
I mean, people will always have their preferences. I'm not sure if that makes for a monopoly on its own.
How much that preference is formed by the company's inherent pursuit of a monopoly, well...
I'm not sure if it's that different from other contexts, or if it is.
They no longer compete in some countries like Malaysia, where one of them has just withdrawn from the market.
I thought the end of the article had some of the most interesting content. Amazing how many companies IPO without being profitable!
Normally I wouldn't post a comment just to say that but the amount of true insight ORiley provides is impressive.
Understating of the web, of SV of business, of growth of IPOs and well reasoned analysis and predictions of what's coming next in funding.
It is long and absolutely worth the read.
IMO, the world is better off with a good mix of long shot bets to build large scale businesses and also many people being very happy to run solo or small businesses providing services or selling products on a small scale.
I am sometimes critical of Google, FB, Microsoft, and Amazon - sometimes they deserve criticism - but except for FB all of these companies also enrich my life and I am happy they are in business.
I am also happy personally to have been a consultant, very well paid wage slave for large companies, and have a small business as an author and sometimes selling niche AI software products. I never got very rich, but I have usually just worked 25 to 32 hours a week, with several times in my life taking many years of mostly leisure time.
There are many ways to be successful in life - choose wisely!
The immediate effect of gaining massive capital is tremendous. Outcompeting for both workers as well as getting to market sooner is an obvious benefit. The ability to lobby in government against potential roadblocks of whatever it is that you're doing is another. Just from the word itself, capitalism is rigged for those with capital.
Further down the line though, you are now beholden to this immediate level of investment, and as this article shows, this is where problems arise.
Well yeah, it's fundamental because that's the definition! So it's not a problem. Capitalism works as designed.
i'm not sure that in general incumbents catching up leads to increased competition, i think it leads instead to the incumbents protecting their position and using it to stop the innovation and the resulting threat of disruption.
In case of Uber it wasn't about incumbents per.se., it was about regulators. The blitzkrieg allowed to crush regulators and thus increase competition by adding "ridesharing" into the mix.
Similar thing of using your huge weight to crush a chokehold on the industry happened when Jobs took control over phone apps away from the telecom companies.
This article adds to that notion.
> their enormous valuations are based on the premise that if a company grows big enough and fast enough, profits will eventually follow.
The Second Industrial Revolution (1870-1914) was much like today. You had extremely rapid growth of new industries fueled by widespread availability of capital; a pervasive bubble economy punctuated by massive stock market panics & depressions; rapid development of new technologies; widespread fraud & corruption; a feeling that the common man was missing out on these developments (hence the term "The Gilded Age", a reference to it being shiny on the surface but dull & black inside); a widespread populist movement; political discontent; and globalization. And these technologies proceeded in overlapping waves: ironclads were replaced by steel ships; steel made steam engines possible; steam paddleboats replaced sailing clipper ships; propellers replaced paddles; steam turbines replaced triple-expansion engines; oil replaced coal in boilers. It was not uncommon for a ship to become obsolete before she entered service in the early 1900s.
The effect of the mass availability of capital during this time period (other than in destabilizing society) was to dramatically increase the rate of adoption of these new technologies. Without the massive capital influx into railroads, it's doubtful that there'd be enough of a market to drive widespread adoption of the Bessemer process, which made steel cheap enough to use in ships & skyscrapers. Without the mass capital investment in shipping, it's doubtful that there'd be an impetus to develop & perfect the steam turbine or switch from coal to oil as a fuel. Without demand first from the kerosene lighting industry and then from the shipping industry, it's doubtful that there would be gasoline (then a waste byproduct of petroleum refining) to fuel the automobile industry.
Similarly, O'Reilly's looking at Uber and Lyft at this snapshot in time and lamenting that their market power is preventing new ridesharing companies from entering. But the point is not to perfect ridesharing; it's to replace it. Uber and Lyft are arguably already obsolete, with Waymo in active testing in Arizona and California, and will be replaced shortly by self-driving cars. It's doubtful that self-driving cars are the endgame either; I suspect that we'll see intermodal transportation pods that move people & cargo through and between cities automatically.
The point of massive capital investment is to get us to the future faster. It'll be wrenching and cause massive societal dislocation - the first industrial revolution gave us wars of nationalism for the US/Italy/Germany, and the second gave us 2 world wars, the fall of centuries-old dynasties, Communist revolutions, and eventually the Holocaust. But we don't really have a choice.
This looks different at different scales. On an individual level, it's being passed over for promotion because the blowhard in the next cube has this great idea for how to apply deep learning, or losing out on a job to the college kid who's up-to-date in Solidity and React while you still work in VB.NET and SQL Server. On a company level, it's going bankrupt because some new startup offers critical new features at 1/10th the price. On a societal level, it's being conquered by other societies that have adopted the new technologies at the cost of the social turmoil and then choose to inflict it upon you. Each attempt to stop the turmoil by fiat just escalates it up a level: if you declare you're never laying people off, your company goes bankrupt, while if you declare that nobody is allowed to innovate your society collapses. (Either from within, where your people look at the technologies other societies enjoy and say "We want that", or from outside, where an invading army lands on your shores and kills you all.)
Americans are particularly blind to this dynamic on the societal level because we're usually the ones inflicting it upon others. "Manifest destiny" was all about inflicting progress upon the Native Americans who didn't want it, while the Cold War & fight against Communism was about a richer, more powerful empire inflicting the way of life that made us richer & more powerful at the expense of social stability on stagnant, poorer, but in-theory more egalitarian and stable societies.
I don't think "we don't really have a choice" is true. Societies DO learn from their mistakes, albeit slowly. "Culture" exists for a reason -- it's how groups of people change their behavior.
For example, I think the memory of World War II absolutely did make decision makers behave differently. Nobody wants total war again -- they know how bad it is. We learned from our mistakes. (This doesn't stop stronger countries from picking on weak ones, but that's not total war.)
As an aside, I do think there is a form of "group selection" that happens in nature. Societies that are unable to collectively change their behavior -- learning big lessons on long time scales -- don't survive. "Sapiens" is largely about these "mass delusions" and I think he's onto something (although many would argue its unscientific, and many have argued against group selection as a mechanism of evolution).
In the past we had mass delusion to start religious wars, but that same mechanism can perhaps be used to put value on measured growth rather than winner-take-all outcomes.
