Winner Takes Most
The history of the Internet and mobile is that in many categories the winner takes most of the market:
- Search – Google
- ecommerce – Amazon
- Social – Facebook
- Ridesharing – Uber
We can go on and on with making a list like that and I have left off many many markets, but I think this short list I made at least gets the point across.
The reasons are many, but at the core are network effects and the fact that the more users and data a service has, the more value it can create for its customers and users.
We strongly believe in network effects at USV and look for them as the primary form of defensibility in the investments we make. We don’t always get things right and we certainly don’t always end up investing in the company that wins the market. But we understand how these things work and invest with the mindset that winning a market can result in a very large return on investment.
Lately, we’ve been wondering if there is an end to this pattern on the Internet and mobile. We think it is possible that an open data platform, in which users ultimately control their data and the networks they choose to participate in, could be the thing that undoes this pattern of winner takes most. The blockchain is the closest thing to emerge that looks something like that. But the blockchain hasn’t (yet?) shown that it can produce something important like Google’s search or Facebook’s social graph and until it does, we are just waiting.
This is an issue for society to ponder. As I have spent time in Europe this past month, it’s easy to see that the search engine they use here is Google, the social graph they use is Facebook, and so on and so forth. If the US produces the networks that win most of the market, that’s an issue for the rest of the world. The Chinese have dealt with that issue by protecting their market. The rest of the world (mostly) has not.
Will that always be the case? Will the countries with the most sophisticated tech startup communities end up winning the global economic race as we transition from an analog to a digital world in which the winners take most of the market?
It’s unclear to me how all of this plays out, but it’s been on our minds at USV and we are talking a lot about it. So I figured I’d talk a bit about it here too.