Video Of The Week: NY Enterprise Tech Meetup Talk
Earlier this week I attended and spoke at the NY Enterprise Tech Meetup. My talk was based on the Networks and Enterprises post I wrote this past August. The "talk" portion is about 20 minutes, and the Q&A portion lasts another 40 minutes. Here it is:
“ankle biters” – i like that.
Plan on them if you are successful
Ankle biter may be the best position to be in. VCs look for businesses with traction to help ensure the investment will be a success. Entrepreneurs may want to use that same approach by following in other’s foot steps. In fact, that’s a much used approach. The issue is, that’s more looked at as a business person than an entrepreneur. But, it is well know that having only a 10% difference in a product or service can be considered innovative.
Network effects thesis strikes again!Every time I hear you articulate the “large networks of engaged users” thesis, I learn something new.I didn’t know about its ‘via negativa’ nemesis of not wanting to invest in traditional software (which can be commoditized).I think the “V” in USV stands for Verylargenetworksofengagedusers.
Verylargenetworksofengagedusers – a German translation?
“There is very little value in software … because it’s commoditized.”This is very true and a difficult lesson / concept for first time entrepreneurs. It can be extremely emotional.
Like the original post, this talk was EPIC. Not only learned a lot, but left me with a lot to chew on.What I took away is that the key to network efforts is getting users to contribute “data” to the network to create something better for the user that is also defensible for the platform owner.In consumer, it was about getting users to share “data” that they didn’t know they wanted to share. Facebook (posts, photos, etc.); 4Sq (location); Twitter (micro-thoughts)In enterprise, it is complicated by the dominant default assumption, that “data” should stay within the four walls of the enterprise.Finding ways to overcome that can yield so much market surplus, because it is in many ways, such a self-evidently wrong assumption.I have been thinking about it as the converse of Coase — while the creation of the firm solved inefficiencies associated with transaction costs, it created inefficiencies related to “data” flow across enterprises. Networks in enterprise are the way to correct some of those inefficiencies.
yes. my partner Brad thinks a lot like you do.
That’s a high compliment!
That’s why the opportunity lies not just within the enterprise, but between enterprises. (e.g. WorkMarket is between enterprises really)I think for the first time in history, it’s easier to connect data and people between enterprises than inside of one. The internal silos are much more stringent than the external ones because the Internet and its various services liberate users (who are employees) from doing whatever they want.
Absolutely! The Internet gives employees so much more freedom within the enterprise to take a more productive detour around the road laid out by the CIO, often involving connecting outside the enterprise.
Good point.But then for these ‘networks’ to be defensible and useful they need to have consumer scale to them.You can push value and possibility beyond the barriers of the enterprise but once you do, the quotient for value is scale…and building scale is a huge challenge whatever the value you are brokering.The more vertical you are the more targetable, the more horizontal the more of a crap shoot.
Yep, the inefficiencies could firm could be reduced, I think of it as a “virtual walmart” effect.
the ‘fortress’ model held sway for many centuries, but its apparent strength was also its critical weakness (to siege tactics). the value isn’t to be found inside the enterprise fortress, it’s out there in the open network. everyone resists change.
I love the comment at 45:11 about the prospects of big 5 enterprise companies (CA, IBM, etc) probably asked by one their corp dev people.
The Q&A period was very telling.”People think we’re consumer investors. We’re network investors, whether it’s consumer or enterprise.””If you’re just pulling data from other existing data sets, that’s not network effects.””If I could short the entire big, fat, old, cynical, rip-off artist enterprise software business, I would. Because they can’t and won’t innovate. How the hell is CA still in business? Caveat: it takes forever to rip out those systems.”“Enterprises are not going to be as naive about data as consumers have been. You need clear privacy policies, etc. Facebook was able to take our data, and we didn’t realize it until it was too late. I’m not sure that game could be played in the enterprise. People are smarter in the enterprise.””I’m focused on the defensibility piece, as an investor. In the consumer space, network effects can also work against you. In the enterprise side, can you use network effect to create scale, then use other network effects to create defensability to keep you there. Example Google and Search.”
Great quote pulls. As someone who uses data I thought that the second one was interesting. I’ve used some data products in my political consulting work and none leverage network effects. Even when multiple campaigns use the same software in the same state. I think that is why the Obama campaign had to build their data analytics nearly from scratch.
ooh video by @fredwilson:disqus you know I am going to watch thanks!
Thanks for a thought-provoking talk. My background is in fintech and Reuters in Forex was one of the first network effects businesses that fascinated me. It was a goldmine for decades and so simple – every user contributed some data by trading and paid (a lot) to get the aggregated data back.
And this was how Bloomberg made it big, but with Fixed Income data contributed by the financial institutions that paid him for his terminals.
Fred, What a great use of 20 minutes. What convinced you at the Seed stage that Emodo could pull off a network of engaged users? blackboard’s success? facebook’s success? ease of adoption? freemium model? K12 Lifecycle?
They were getting organic and viral adoption on a modest scale (100k teachers) and we felt it was going to blow up which it did
Great move too to have added the Apps Marketplace and API. Could be the perfect venue for some entry level hackathons fo the software academy.
Fred, do you know how to write software? I just thought that I don’t remember ever seeing anything saying you do or don’t.
I wrote software to put myself through college and grad school and also worked as a software developer for two years in betweenI stopped doing that work in the mid 80s
You left it at the right time. Those were the great days for software development. Now is really exciting too. But these days the “pointy hairs” think they *know* software and they couldn’t be any farther from the truth.
🙂 they’re one of the quiet ones until things get big.
This is awesome to learn/hear about…I have been a big fan of edmodo for awhile now.As part of the tech. committee for my kid’s school, I actually had to recently review the various software options out there on the market and make a recommendation on what we should be using going forward (we are using a system called edline)…I *really* wanted to recommend edmodo, but it fell short on a couple of our school’s specific requirements/situation (so far we are sticking with edline)…However, I was able to get in my own little blurb and pitch for edmodo saying that “while it’s not an ideal solution for our needs right now, Edmodo.com is a system worth keeping an eye on as I believe it’s the direction more and more schools, teachers, and students will continue moving in the future”…which, that and a dollar will get you a cup of coffee…but, hey, it made me feel better to slide it into the official presentation. 😉
Fred – Is there a time when it is too early to express to an investor the “big picture” plan of a network effect play as an early disruptive SaaS entrant?Back story …We are very much like the “fictional” guys with the SaaS energy app that you describe in the beginning – and he have a respectable SaaS business plan to overturn the “fat status quo” – but we also see a longer and game.Eventually when competition hots up, we sort of “pivot” or retreat into network effects – so our “castle” evolves from the eventual crossover sales from the SaaS and the SaaS we use as a digital “moat” to protect the castle (which we probably opensource to help extend the crossover sales). This longer game is exactly because we see your ultimate objection to the vulnerability you describe – in short we agree that the ultimate price destination for the SaaS however deeply vertical we believe it to be is inevitably a big fat Zero.However back to the question – the vision is a long way down over the horizon and as we go to our Seed round – this long game is a complication to our pitch for investors that don’t necessarily understand our market or the network effects that you have so nailed in your presentation.Thansk for your time.
I’m a fan of “it’s never too early to start talking”…it can really help down the road, and I think it never hurts to get on someone’s radar early (especially if you can actually execute on the things you say you are going to execute on).The trick is to set your own expectations properly going in.The earlier you start talking to anyone, the less likely you are going to get any level of actual support from them…so you’ve got to be hyper aware of your status and the reasons behind what you are doing and what you want to talk about. Don’t go in expecting a check, go in expecting to get on the radar…show a plan, explain a vision, and set specific checkpoint goals of when/where you plan to be coming back at (and what you hope to ask for then)….then execute like crazy on that.For you guys specifically…(I watched your launch video/presentation the other day btw — good stuff)…I think you’re at a stage where your talks need to be completely focused on phase one of what you are doing, how you get there, and what you need to help get there…from what I could tell, that is going to fill your next 3-5 years…and so there isn’t much power in pitching what the company can/might/should be beyond that yet…because you’ve got to live and thrive through this next stage first (and I think that’s why people struggle to see the bigger picture for you right now)…so make them understand and believe in your path through this stage first.That’s my unsolicited two cents…from the outside looking in for only a few minutes (so take that for what it’s worth!).
falicon – Really appreciate the input – What you are saying fits my thoughts exactly. In other words – long term “dreams” may be interesting internally – but are not interesting for the horizons in which most investors think.>>your talks need to be completely focused on phase one of what you are doing, how you get there,Yup 100% – but thanks for the input – Its always worth checking assumptions with an objective opinion.
i am a fan of disclosing the whole vision to investors right upfront
fred, this was an outstanding presentation. i laughed a lot at the “CA should no longer be in business” comment 🙂
that was the most tweeted of the night
To help portfolio companies, wouldn’t it be better for every investor to take on only one project and be wholely (24/7) focused on that company? So, if Fred champions a company for USV to invest in. If that investment is made, shouldn’t Fred only take on that one company and spend 24/7 on the success of that company only? Of course USV would have many investments with many “investment champions” but only one champion per investment made.
That’s the definition of unscalable for a VC firm. VCs need to not only diversify their money by investing in many companies, they have to do the same with their time.
But, would it not be better for an investment to have a 24/7 focused person? That would have to be much better for the investment than spreading your efforts.
A “24/7 focused person” is called an employee.Would it be better? Of course it would. It would also be better for the startup if the VC gave all their money to the startup, no questions asked. But that’s foolish and irresponsible. So it’s not as simple as asking what’s best for the company.
Jim, where are you getting your employees? It appears to me most are focused 4/5 not 24/7.
That post is confusing. In other words… If USV takes on an investment shouldn’t USV have a one-for-one investment champion that’s whole purpose is to promote and help just that one investment? That way when a company takes on USV as an investor the company gets a champion inside USV that only champions that one investment and does it 24/7.
they need to take a portfolio approach to generate returns and appropriately manage risk so they cannot be BFF with any one company. by extension they benefit from dumping the losers ASAP and pretending they had nothing to do with them while engaging in PDAs and claiming to be BFF with the winners that will generate positive returns.
I’m not sure the failures are that “sore a thumb” but I know what you’re saying..However, even though I know Fred is a principal, I was just using Fred as an example. USV as a whole does multiple investments at a time to increase returns..The question is would it not be better to have a person for every investment on 24/7 for the success of that business.
we need portfolio diversification to manage risk
So the idea is to leverage the differences between smbs and big businesses in order to create networks of enterprise?
Here are some thoughts in regards to the question why Ariba failed:1. Failure to create a marketplace built around relationships. Click and buy is not an optimal experience for B2B marketplaces. Your vendors are your lifeblood. The systems need to be much more nimble/ responsive/ communicative. If I am a restaurant and my meat vendor does not supply my steaks on time, my customers aren’t getting steak that night. See how that turns out on Yelp. Also If I run out of steak, I need someone that can deliver fast…even if it is unexpected. Trust must be established so businesses can respond to each others changing needs. In business how you handle your relationships, will be a large factor in determining success.2. Timing (10 yrs is a long time as you say). Perception and mindset was different. Companies were scared of getting hacked, sending money online, and wanted to avoid technical failures. Many wanted to keep their information private (pricing, suppliers, etc). The world was much more closed than it is today. (Just think of howclosed the VC industry was 10 yrs ago).3. Business model. This was before freemium was cool. There were a lot of upfront costs that helped discourage any marketplace from getting to critical mass.On a lesser not, user experience was poor as well. Alibaba, who basically dominated the market, just had their 1st UI/UX overhaul in 10yrs lol…Though it provided some good functions and was a peak into the future, B2B marketplaces in the 90s failed on establishing relationship and were not 10x better to warrant the switching costs.
thanks for contributing this answer. very helpful and useful.
Seth, I’m the one who asked the “what can we learn from Ariba” question, so really appreciate your thoughts–thank you!
Great presentation.Every customer contract we do includes data rights. Of course, there has to be something in it for the customer. This is the only way a network effect can work when you’re dealing with essential enterprise data.Thanks for supporting the @NYETM Fred.
What do you guys think about Ariba and their moat? Would appreciate everyone’s thoughts.
Racism, sexism, classism etc. are not acceptable, yet we can easily make credentialist jokes like “MIT statistics PHD”. In fact, it is unacceptable for an institution Not to discriminate based on credentials. Is this a sustainable practice? Are artificially scarce credentials the most efficient way to manage skill distribution? Or should the enterprise of higher education be unbundled? Until it is, does efficiency justify the linguistic conflation of academic credentials with competency? Is my comparison to other forms of discrimination an unfair one? Should the message sent to teenagers with this video be: go to MIT or don’t bother competing with alums in math?
i agree that stereotyping is not helpful. where did i do that in this talk? i’d like to go back and see it so i can work on that.
the joke about bringing someone in to mine your data. i’m not usually this PC but i am with credentialism as it is an overlooked problem.
Terrific talk Fred, one of your best!Do businesses that have network effects usually start with that as a guiding principle or can it be discovered/developed over time?
a bit of both. it is important to be aiming to be a network from the start. but the market may reveal where that is possible over time.
I had the chore of having to do year-end cleaning up of my Salesforce.com Opportunities, and this talk was the *perfect* soundtrack in the background — really enjoyed this talk and channeled it as I typed ideas to my firm’s leadership.I was thinking about what Network Effects apply to my segment of The Enterprise. And in my world, ‘The Enterprise’ is an agency or team who buys media. And there is a range of talent specialization who helps media buying actually happen.And while I don’t want to get into my specific ideas in the comments here, I kept going back to thinking about clusters of users who are *specialized* and *scarce* within the food chain. I am sure the Workmarket guys have great data about who these ‘Scarce Talent Clusters’ are within various segments of industry. I leverage a SCT every day that I visit and use SellerCrowd. AngelList & 99Designs are other examples.If you can create a Network Effect within a Scarce Talent Clusters (SCTs), that strikes me as a Network Effect work creating — thanks for helping me think through that.
Whoah – reference to “typing on a blackberry” at ~ 1:03 ..whaaa? 😉
The Q&A part is great – thanks fred.
Any thoughts on where the next wave of innovation will come in th B2C enterprise customer support space as it is moving from silo incoming voice calls to the web, mobile and social?
Sorry I have been super busy, at the end of the year. The network effect is the result of your salesforce. SAP, Oracle, and CA undersand this the best 🙂