Posts from Web/Tech

Watch What They Do, Not What They Say

Many of our portfolio companies struggle with the idea of changing something fundamental about their service, such as Twitter’s recent change from stars to hearts. It incites fury from the loyal users who believe they know what is best for the service.

I always encourage our portfolio companies to A/B test a change in a relatively small but representative sample of their users and to watch what users do and don’t spend too much emotional energy on what users say.

Twitter’s switch to hearts has resulted in more engagement with the favorite function. I would bet that Twitter had that data and understood it before deciding to make the change. You can’t make such an important change without first testing it to see what happens.

Loyal users are always going to hate a big change to a service they use every day. I recall the outrage when Facebook rolled out the news feed, which has become the central feature of its product. It was as if they had destroyed the service.

Users’ actions will tell you what they think about a change more than what they write (on your platform and elsewhere).

For what it’s worth, I loved to move to hearts the minute they did it. I feel like I favorite way more now. But Twitter would know. They have the data :)

That Time Of The Year

Last night I got home to watch the World Series and turned on the TV and fired up Twitter. In addition to the Mets Royals, you had the GOP Debate, and fourteen NBA basketball games. Twitter was on fire. I didn’t change the channel once on the TV, choosing to continue my pain from the night before and watch the Mets lose back to back games to the ferocious Kansas City Royals. But my Twitter feed kept me apprised of everything else going on. The Knicks beat the Bucks, the Bulls beat the Nets, KD is back and the Thunder beat the Spurs, and, apparently, Rubio had his coming out party last night in the GOP debate. I’ve always thought the GOP race was eventually going to come Rubio’s way. He’s the best of the bunch even though I prefer Kasich.

This weekend will have the World Series at Citifield, NBA games galore, and the NFL in mid-season form. It’s that time of year when all the major sports are in action. It’s a wonderful time for sports fans and a wonderful time for Twitter too.

I will leave you with this. Twitter does SportsCenter.

Where Is The Value In The Tech Stack?

Yesterday’s discussion was fantastic. Days like that are where the USV community really shines.

David argued that data is the new oil, not software. There’s a lot of validity in that comment.

Kirk pointed out that ISPs are the pipelines of the digital revolution and I liked that.

And TR followed Kirk with this observation:

Oil in all its various forms (software)
Pipeline/delivery (networking/access)
Infrastructure/Drilling Equipment (hardware)

What they were all discussing is the tech stack and where the value is.

A simple version of the tech stack of the information revolution would look something like this:


Applications (software)

Infrastructure (software)



At USV, we have invested mostly in the top three layers, and most actively in layers four and five (Applications and Data), but we are increasingly drawn to Access and Infrastructure (software).

But, as I tried to point out in the Dentist Office Software Story, software alone is a commodity. You need data to provide defensibility and differentiation. And so most of USV’s investments have been companies that combine software and data to provide a solution to the market that we believe is defensible, usually via network effects which are a data driven phenomenon.

So why would we move down the stack to Infrastructure (software) and Access? Well there are data driven network effects in those layers too if you know where to look for them. And, increasingly, we are finding them there and finding them at prices that make a lot more sense to us too.

So, in summary, I agree with David that software alone is not the new oil. But neither is the entire tech stack. That’s why I moved away from the phrase “tech is the new oil” that I used in the comments the day before. I also don’t think data alone is the new oil.

The new oil is going to be found in various places in the tech stack where software and data come together to produce a service that has high operating leverage at scale and is defensible by the network effects that the data provides. That’s a mouthful. Software is the new oil sounds a lot better. But the mouthful is more accurate.

Software Is The New Oil

I was with some friends this weekend and one of them was talking about an investment committee meeting he attended and there was a discussion at that meeting about some of the threats out there in the macro investment landscape. One of them was “vanishing liquidity” and the significant change in net cash flows from the global oil sector. Oil producing regions have gone from being a massive cash generator to a relatively small one in the past few years. Now this could well be a temporary thing as the oil market adjusts to some new realities. This post is not really about oil, even though that word is in the title of this post.

As I pondered that, I thought about oil’s role as the thing that captured the economic surplus of the industrial revolution. You can’t run factories, railroads, trucks, etc without carbon-based products and in particular oil. So oil has been a cash/capital magnet for the wealth that the industrial revolution produced. Those that owned oil producing assets (or better yet, oil producing regions) sat back and collected the economic surplus of the industrial revolution and that has been a path to vast wealth and economic power.

What is that same thing in the information revolution? And where is cash piling up around the world? On tech company balance sheets, of course. Apple has $200bn of cash on its balance sheet and produced $53bn of cash in the six months ending March 2015. Microsoft has $110bn of cash on its balance sheet and produced $30bn of cash in the year ended June 2015. Google/Alphabet has $70bn of cash on its balance sheet and produced $14bn of cash in the six months ended June 2015. Facebook could have $20bn of cash in the next year and could be producing $20bn of cash a year soon. Amazon, the company that “will never make money” surprised Wall Street last week with strong profits and it seems to me that they are going to start producing cash like these other big tech companies now.

It makes sense to me that software is the oil of the information revolution. Companies that control the software infrastructure of the information revolution will sit back and collect the economic surplus of the information revolution and that will be a path to vast wealth and economic power. It has already happened but I think we are just beginning to see the operating leverage of these software based business models. The capex spending necessary to be a software infrastructure provider at scale has shielded the cash producing power of these companies (and many others) and may continue to do that for a time, but I suspect at some point the profits are going to overtake the capex at a rate that the cash will be flowing out of software companies the way that oil flows out of wells.

Full Disclosure: The Gotham Gal and I own a lot of Alphabet stock and also shares in several hundred other software based businesses. We are long software.

Twitter Moments As A Platform

The conversation we had on this blog a couple weeks ago about Twitter becoming a journalistic entity by hiring editors to curate Tweets and create what is now known as Moments was interesting. But it missed something important about Moments that I did not realize at the time. Moments will be a platform for anyone to curate Tweets and publish them as Moments. I figured this out yesterday in this tweet conversation with Madhu who is Twitter’s product manager for Moments.

When anyone can create a Moment and publish it into Twitter’s Moment stream, then we will have something very interesting. A crowdsourced newspaper.

Think about following an event like Twitter’s Flight conference via the Moments interface. It would be way better than all the liveblogging services that I had to rely on yesterday as I wanted to follow what was going on there.

But a curated set of tweets could be used to cover a lot of interesting stories and events. You can see the potential of it in the current Moments stream, but the total number of Moments is small and not that many of them are interesting to me right now. Opening up Moments as a platform will change all of that. I can’t wait until that happens.

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.

Video Of The Week: Kim-Mai Cutler and Sam Altman

This past week YC announced a $700mm Continuity Fund to allow YC to continue to invest in its portfolio companies. YC has become one of the most important investors in the startup sector and it’s leader, Sam Altman, is driving it to do more faster. This interview he did with Kim-Mai Cutler recently reveals a side of Sam that many may not see that often.

Twitter’s Moment

Ben Thompson has penned the bull case for Twitter the product, Twitter the company, and Twitter the stock in a blog post carrying the same title as this post.

Those who have been reading this blog over the past few weeks will know that I share Ben’s views and have articulated similar ideas on this page. It should also be stated that I am long Twitter the stock and subject to whatever emotions, conflicts, and other bad behaviors that generates.

Ben ends with something I have not articulated on this blog before but have felt since the day I sent my first tweet, and that is the notion that there is something special about Twitter:

There’s just something different about Apple, a company that seems so full of contradictions yet one that has continued to lead the industry both financially and in key innovations. I’d argue the same about Twitter: it doesn’t make sense, hasn’t really ever made sense, and perhaps that’s the reason it, and the irreplaceable ideas it contains, are so important.

I realize that I am horribly biased on this topic and that others may not see what I see. But I have always felt that Twitter is a special company, full of conflicts and contradictions, that, maybe because of them, had the potential to deliver something unique, different, and compelling. And I continue to believe that.

Twitter Moments

So the thing I blogged about last week launched yesterday. Twitter is calling it Moments.

I think this is a big deal for first time and casual users of Twitter. It’s an easier way to consume the content in Twitter for people who don’t have the time or inclination to customize Twitter to work for them the way many of us have.

Since the AVC community was fairly negative on this in concept, I’m wondering how all of you are thinking about it now that it is out. Let the conversation commence.

Trying Something New Today

A couple days ago Jay Rosen reached out to me on Twitter asking if he could do a guest post on AVC:

I really don’t like guest posts. I’ve done them, of course, mostly in my MBA Mondays series but also in times of crisis and confusion, like the time I asked JLM to explain TARP to us. So I suggested something else to Jay:

And he delivered on it yesterday:

So here’s how this adaptation of the guest post concept will work.

First, I’d like you all to read Jay’s post. It’s about Twitter building an editorial team and becoming an editorial company.

Now, I will respond here at AVC.


Twitter is a news company. It is where people go to make and break news.

That’s my line, not theirs. But I will gladly give it to them if they will use it. Because that is what Twitter is. It’s not a social network like Facebook. It’s not photo sharing app like Instagram. It’s not a messaging app like Kik. It is not a video sharing app like YouTube. It has elements of all of those things because people use Twitter in different ways. But at its core, Twitter is a news product. It reminds me more of The New York Times than Facebook and I use it more like The New York Times than Facebook. In fact, I use Twitter more than the New York Times for what I used to use the New York Times for.

But the issue with Twitter is that in order to get value out of it like I get value out of it you need to customize it. The reason I get value out of it is that I have configured Twitter to work for me. I have curated a list of just under 1000 people I follow. I like dozens of tweets a day which tells Twitter a lot about me. I reply to tweets which further tells Twitter about me. And then Twitter can recommend “who to follow” and “what I missed”. These products are fantastic and deliver for me bigtime every single day.

But imagine a new user who Twitter knows nothing about. How the hell are they going to get value out of Twitter? Or imagine the casual user who does not want to figure out who to follow and doesn’t want to engage in order to tell Twitter more about them. How the hell are they going to get value out of Twitter? The answer is Twitter the company is going to curate Twitter the news product for folks like that. And they are going to do that by hiring editors to curate various streams. This effort is called Project Lightning and that is what Jay was posting about.

So first and foremost, I am a huge fan of Twitter the company making Twitter the news product better for folks who are not power users of it. This is long overdue and badly needed. Not just for Twitter the company or Twitter the stock. It is badly needed for Twitter the product. Twitter is a network. The more people who are on it, the better it is for everyone who uses it. So addressing the new user and casual user segment of the market is something Twitter absolutely needs to do. And in full disclosure, I own a lot of Twitter the stock and I am “conflicted” in what I write here. Which is why you should pay more attention, not less, to this post.

Now on to Jay’s meta question. What editorial voice will Twitter assume? Who is the soul of Twitter’s editorial pulpit? We all know Rupert Murdoch detests Bill de Blasio so when we read negative stories about the Mayor in the NY Post, we expect it. We all know The New York Times is a “liberal rag” so when they decry Trump’s tax plan as regressive, we know where they are coming from. But where will we expect Twitter’s curation products to be coming from?

I hope Twitter doesn’t try to be “fair and balanced” also known as boring. I hope they have an agenda or ideally multiple agendas and I hope they are transparent about them. I loved Dick Costolo’s line that “Twitter is the free speech wing of the free speech party.” I hope they keep that stance. But does that conflict with bad people using Twitter to do bad things? Yes, of course it does. How will they walk that fine line? Telling us how they plan to do that would be a good first step. They can evolve it over time, but please tell us how they are thinking about it right now.

I also love Jay’s point about Jack’s obsession with raw and real-time news, like police scanners, which provided the formative idea for Twitter. I would love to see Twitter do a channel for that kind of stuff. The more real-time the better. A news product should be obsessed with the news and the more obsessive the better.

I also like Jay’s point that “it will be easy to argue with the choices Twitter makes in curating the news.” And argue they will. That’s what Twitter’s user do, right in the product. So Twitter ought to amplify that in some way or multiple ways. Having a voice, an agenda, and an attitude doesn’t mean silencing the naysayers about those things. The media outlets that amplify the naysayers seem to do better, not worse, on the Internet.

In summary, I am very bullish on a curated Twitter. I will use it and I am sure that hundreds of millions of others will too. But Jay is right that how Twitter the company curates Twitter the product will be important. It must have a voice, an agenda, an attitude, and a soul. There are many experienced people in the world of journalism who know how to deliver that. But of course, it all starts at the top. Which is why I hope they keep the team that is in place there right now. It is a good one and it is the right one.