Is more dangerous to dance with this guy or to sit out?
In Tim O’Reilly’s latest post, he says, “But perhaps most threatening of all are the natural monopolies created by Web 2.0 network effects.”
He is referencing the social web and its proclivity to spawn systems that are designed to increase in the value offered to each user as more users join the network – as more value is available more users will join…ending, of course, in a monopoly where everyone uses one system in a single, massive network. His fear arises from the prediction that the major players, Facebook, Google, Apple, must continue the push to own customers and the result will be a silo structured web – one where these large systems do not offer interoperability.
I think Tim’s fear is misplaced because of the power of the consumer and the ability for the consumer to drive innovation when they cannot find what they are looking for in the market. The bar is higher when large networks deliver experiences we can love, but when they don’t, innovation will occur and consumers will migrate.
The web 2.0 monopolies have allowed the smaller players to touch the consumer and to own elements of the consumer experience in ways the classic monopolies in the past did not. It is true that,
“we’ve grown used to a world with one dominant search engine, one dominant online encyclopedia, one dominant online retailer, one dominant auction site, one dominant online classified site, and we’ve been readying ourselves for one dominant social network.” (I would say we are there on the social network dominance as well…)
As an investor and entrepreneur I view these business as infrastructure, not monopolies. There is tremendous opportunity to deliver new services on top of these platforms and to extend the consumer experience by listening and responding as only a start-up can.
The platforms have allowed the small service providers to own the consumer relationship and to deeply integrate into the user experience of the platform itself. We see this in auto updates to the major networks and the emerging dominance of the open API as two way street — both pushing “big data” out and pulling “small data” in. In many ways through this inclusion big businesses are increasingly dependent on the entrepreneurs to deliver the magic that builds customer loyalty, to deliver what consumers love through innovation. Owning the customer is the fastest path to accruing enterprise value and somewhere in the ecosystems of each of these platforms, the seed of the next big business that will dominate the world is growing.
As Chris Brogan said at web 2.0 expo in NYC today, “Gate jumping and making new paths is where the opportunities are.” If you are working on either side of this equation or about to jump a fence and strike out on a new path, let me know how you think about this issue in the comments.
#1 by jonsteinberg on November 17, 2009 - 1:52 pm
Phin – I agree with you. There are a few dominant players but never before have the switching costs been lower than in the digital realm. The Internet has freed up more “lock-in,” i.e. OS no longer matters, than it has created.
For every Facebook or Google, there are tons of Myspaces and Friendsters…
#2 by phineasb on November 17, 2009 - 2:01 pm
Jon-
I also think this means the few dominant players have to run faster to stay ahead (or buy faster/sooner)
Phin
#3 by Spencer Fry on November 17, 2009 - 4:33 pm
I'll never ever build a business on top of someone else's platform. I don't like not being in complete control of my company's outcome. I don't want to wake up one morning and find Apple or Google switching off/changing something that affects my business. How could you ever sleep at night?
In that sense, it makes me nervous that these dominate players are taking over the Web. I'm all for open APIs — we even hope to have one with Carbonmade — but relying on another company is just asking for it (Facebook Connect for logging in? Hell no.). I really don't like the idea of these companies having such control. It's like telco's all over again.
#4 by phineasb on November 18, 2009 - 5:53 am
Spencer- thanks for laying out your perspective on this as someone who is making these calls each day for your business. I guess I see a time where it will be like the telcos but I don't think we will suffer the period of control that proceeds the “dumbpipe” stage. The hot points in the social web will be at the edges — the large services that support the interactions must pull this content in to remain relevant.
There are basic things on the web, like identity, that I feel ok with Fb owning so long as it means I can more easily create a unified experience across the services I choose to use and so long as my identity on Fb is updated with my actions/accomplishments as a user of these services.
Would you say it is easier for a small guy to leverage the power of the social graph via Fb or for Fb to make a change that screws a small guy?
#5 by Spencer Fry on November 18, 2009 - 8:23 am
Hmm. I would only recommend using something like Facebook or Twitter Connect for a website that has no intention of taking its users' billing information. I have no problem recommending those services for something like that, but if you have any intention in charging for your service (or building the NEXT big thing), I think there's a serious issue with doing it through Facebook Connect accounts or anything else under someone else's control.
The reason I have such scorn for this teleco like approach these large startups are taking is that I ran a company from 2002-2007 that I sold — it's still around today — where we licensed our core technology from a one person startup. The technology was amazing, but the longevity of our business solely relied on him updating and continuing to support the technology. If it failed, we failed. And for 5 years I went to sleep every day with anxiety that tomorrow he'd shut his company down and my business would be kaput. How can you ever sleep soundly at night knowing that Facebook or some other company will switch how they do things?
If you read the agreements that you sign, you basically are given no recourse if they change something. Look at app development for the iPhone. There's a reason why major developers (Joe Hewitt, etc.) are going ape sh*t over Apple's app store policy. They're quitting development because just can't handle having to bend at will to someone else. I think any true entrepreneur out there won't stand by and rely on someone else's technology to get them through.
Anyway, sorry for the rambling. We can go into more of this in person, but I feel strongly that any kind of tie in or major teleco like infrastructure that these big companies create only hurts the Web and doesn't help it. It's cool if you want to do a little side project on top of their infrastructure, but not if you're trying to build a game changer.
#6 by phineasb on November 18, 2009 - 8:29 am
Thanks Spencer. I had similar dependency worries in my console game start-up but had to live within the ecosystem that existed and focus on leveraging it better than the next guy. Ultimately it was non-market forces that brought us down.
Look forward to talking more in person.
Phin Barnes
Principal, First Round Capital
215-327-0849
#7 by Spencer Fry on November 18, 2009 - 8:32 am
Was the console game start-up a Web based thing? I think this is mostly a concern for the Web. I think it's almost as big as important as the net neutrality issue.
#8 by phineasb on November 18, 2009 - 8:39 am
Console manufacturers took an apple iPhone app approval approach–and could decline a product at any point. Worse than web as the dev. Cycles were $MM and once you had gold disk there were no updates. On the web you can iterate or evolve out of dependency as long as you own the consumer relationship.
Phin Barnes
Principal, First Round Capital
215-327-0849
#9 by phineasb on November 18, 2009 - 12:53 pm
Spencer- thanks for laying out your perspective on this as someone who is making these calls each day for your business. I guess I see a time where it will be like the telcos but I don't think we will suffer the period of control that proceeds the “dumbpipe” stage. The hot points in the social web will be at the edges — the large services that support the interactions must pull this content in to remain relevant.
There are basic things on the web, like identity, that I feel ok with Fb owning so long as it means I can more easily create a unified experience across the services I choose to use and so long as my identity on Fb is updated with my actions/accomplishments as a user of these services.
Would you say it is easier for a small guy to leverage the power of the social graph via Fb or for Fb to make a change that screws a small guy?
#10 by Spencer Fry on November 18, 2009 - 3:23 pm
Hmm. I would only recommend using something like Facebook or Twitter Connect for a website that has no intention of taking its users' billing information. I have no problem recommending those services for something like that, but if you have any intention in charging for your service (or building the NEXT big thing), I think there's a serious issue with doing it through Facebook Connect accounts or anything else under someone else's control.
The reason I have such scorn for this teleco like approach these large startups are taking is that I ran a company from 2002-2007 that I sold — it's still around today — where we licensed our core technology from a one person startup. The technology was amazing, but the longevity of our business solely relied on him updating and continuing to support the technology. If it failed, we failed. And for 5 years I went to sleep every day with anxiety that tomorrow he'd shut his company down and my business would be kaput. How can you ever sleep soundly at night knowing that Facebook or some other company will switch how they do things?
If you read the agreements that you sign, you basically are given no recourse if they change something. Look at app development for the iPhone. There's a reason why major developers (Joe Hewitt, etc.) are going ape sh*t over Apple's app store policy. They're quitting development because just can't handle having to bend at will to someone else. I think any true entrepreneur out there won't stand by and rely on someone else's technology to get them through.
Anyway, sorry for the rambling. We can go into more of this in person, but I feel strongly that any kind of tie in or major teleco like infrastructure that these big companies create only hurts the Web and doesn't help it. It's cool if you want to do a little side project on top of their infrastructure, but not if you're trying to build a game changer.
#11 by phineasb on November 18, 2009 - 3:29 pm
Thanks Spencer. I had similar dependency worries in my console game start-up but had to live within the ecosystem that existed and focus on leveraging it better than the next guy. Ultimately it was non-market forces that brought us down.
Look forward to talking more in person.
Phin Barnes
Principal, First Round Capital
215-327-0849
#12 by Spencer Fry on November 18, 2009 - 3:32 pm
Was the console game start-up a Web based thing? I think this is mostly a concern for the Web. I think it's almost as big as important as the net neutrality issue.
#13 by phineasb on November 18, 2009 - 3:39 pm
Console manufacturers took an apple iPhone app approval approach–and could decline a product at any point. Worse than web as the dev. Cycles were $MM and once you had gold disk there were no updates. On the web you can iterate or evolve out of dependency as long as you own the consumer relationship.
Phin Barnes
Principal, First Round Capital
215-327-0849