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The Future of Platforms & Markets

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Like every year, end of May is the moment when the fabulous and awaited Internet Trends report from Mary Meeker of KPCB gets published. I’ve tried to give a look at this amazing piece of work with a platform perspective: what do the internet trends we’re seeing mean for the future of platform thinking? That was my original question.

This year issue of Meeker’s peek into the state of the internet is characterized by a strongly quantitative analysis: less trends are spotted — most of them are actually recurring ones, such as the key importance of experiences for brand success or the penetration of voice and AI — and more numbers are provided to testify an evident truth.

We’re (almost) all connected.

Indeed, new smartphones sales don’t grow much anymore YoY, while global internet users are growing steadily at 10% rate: this basically means we’re buying less phones in the west (mostly due to Moore’s law slowing down and making new phone buying less frequent) while a bit of growth is still happening in connecting countries such as India or the African continent.

Giant tech companies are set to dominate the Internet of the present-future

In an internet where everyone is connected with anyone else and where we’re getting to the upper limit of attention time available (with screen time approaching 6 hours a day in the US), efficiency in connecting people with products and services is key.

Thanks to their data-centric nature and to the huge network effects that allow them to train machines and algorithms with an insane amount of data, Google and Facebook now dominate — and are on track to monopolize — global advertising, ensuring all of us can easily get connected with the right (?) product and services.

Amazon is continuously growing its footprint to the extent of, eventually, putting out of business, this year, the largest number of retailers in history. We’re finally noticing that retail as we know it (disconnected from the overall — digitally powered — buying experience) is cursed.

Giant tech companies are therefore dominating the business landscape, and the most interesting aspect perhaps is that they are continuously growing their feature base. Here’s the point: huge tech giants have something that other companies don’t have, they’ve network effects (and enormous user bases), and the agility to test and prototype new ideas rapidly.

While a traditional giant company may have the first, it’s likely failing on the latter; while a nimble tech innovation company may have the latter will always have to bounce back to GAFA to be able to leverage on their network effects to distribute and test new ideas to wider markets.

Facebook now encompasses all the aspects of our socially-connected life, Amazon now sells directly under its brands — or child brands — things such as baby wipes, batteries, or bed linen.

Tech innovations such as AI, machine learning and conversational interfaces (all on the rise) will provide GAFA with even more potential to create seemingly personal relationships with customers, increasing their potential to deal with long tails with highly customized services and self-customization tools to let customers make the tweaks that they couldn’t anticipate.

God only knows what will happen when the penetration of IoT and connected devices will really cross the chasm: everything wants to be connected, and when it’s connected, it will be owned by the GAFA.

Soon machines will be able to fake human relationships

We now have an internet made of enormous platform-infrastructures, connecting entities in their huge ecosystems, providing them with the possibility to find each other precisely, and to trade value to an extent we never experienced before.

What’s left?

A few days ago, my good friend and italian digital icon Fabio Lalli, blurted on Facebook that with giants like Facebook now encompassing everything social and spurring new features continuously (at least test-validating them), it’s really hard for entrepreneurs today to think of something new and valuable, and be able to overcome the bullying of the GAFA bringing it to the market.

Similar reflections could probably be made for e-commerce entrants confronting with and Amazon, or business automation innovators facing the market domination of Salesforce, or similar giants.

So what’s left for us to invent in this internet?

The effect of the penetration of the GAFA, in parallel with the everlasting effort of existing incumbents to componentize and digitalize their business through APIs  is leaving modern entrepreneurs with an interesting set of tools to leverage on:

  • the possibility to connect part of existing industrial business processes, through APIs, in more complex value creation models
  • the possibility to easily reach customers thanks to the efficiency of advertising and GAFA distribution
  • the possibility to leverage on abundant open code base and Everything as a Service

Despite “vertical” transaction-based marketplaces such as Airbnb and the likes have demonstrated that a clearly designed strategy and mission can achieve global growth and impact, I’m skeptical there’s still a lot of room for entrepreneurs to come up with a simple idea that can disrupt these transactional markets.

This may be hard, first because most of those simple markets are now already crowded with exceptional brands, and, furthermore, because it will be easy for GAFA and the likes — including these huge global transactional marketplaces like Airbnb — to jump into an adjacent market by enabling “just another” transaction type among their networks (think of Facebook Marketplace feature or the recent move of Airbnb into travel experiences).

It didn’t take much to Airbnb to move from beds and houses to experiences.

If just 4 percent of Facebook’s 1.7 billion global users turn to Marketplace to buy and sell used cars, Facebook would pass reigning giant Craigslist, as well as Autotrader, Cars.com and eBay Motors.

All these considerations make me think that the upcoming one is really the age of the so-called market-networks. As you may know, the term market-network, was coined by James Currier, efficiently describing something that (in his own words):

  • “Use SaaS workflow software to focus action around longer-term projects, not just a quick transaction”
  • “Promote the service provider as a differentiated individual, helping to build long-term relationships”

Market networks essentially rethink, facilitate and transform all the complex business processes and social workflows that will never be interesting to GAFA (due to the high fragmentation and niche nature of the opportunity) radically improving the overall experience of users and — often — professionals involved.

Early examples of market-networks include the famous houzz.com, Angelist, honeybook as mentioned by James in his seminal blogpost, but also growing brands like lendinvest or opendesk.

GAFA vs Market Networks impact growth model

Differently from GAFA and the likes, that substantially grow their impact by trying to climb the value chain with feature pullulation, still being attached to the idea to be attractive to anyone, market networks start by providing high value to a restricted group of users (more in general to a niche market) and then grow their impact by trying to grow their ecosystem’s size, oftentimes creating multi-national branches.

We can reasonably expect the market networks of the future to be able to leverage more on integrating utilities, telco, retail and other traditional industries through APIs and smart contracts, growing their potential and the value generated for participants.

A bit of foresight — The Infinite Tail

The evolution of the internet infrastructure is pushing the concept of the long tail as we know it even further. We could argue we’re evolving into what could be called an “infinite tail”.

Having everyone connected to anyone else in a shared space of trade, and having enabling technologies at hand to leverage on almost infinite “resources as a service” — increasingly also in the “real” world thanks to API integrations and smart contracts — is going to annihilate the cost of organizing trade among uncoordinated entities.

We can expect then, to evolve into an age where ever-larger global, social and technological infrastructures — soon to be decentralized thanks to technologies like the blockchain — will power small markets in what we could call, indeed, an internet of markets.

In these small markets— be it a small consulting company working with ten key customers, a digitally enabled artisan carefully creating products for her small fanbase or, a music artist living off local shows and special vinyl record sales — reputation will be the key enabler of this infinite tail economy and players will thrive on strong ties and long term relationships, exactly the context that market networks should be set to address, most likely with a decentralized approach (empowering myriads of different small networks) that doesn’t necessarily need network effects to exist and thrive.

reputation will be the key enabler of this “infinite tail” economy made of strong ties and long term relationships, empowering myriads of small networks

Now seemingly alienating technologies like AR or VR will end up helping us bring presence to remoteness, tearing down the last barriers to a world of thriving, relational, infinite small markets. At that moment in time the evolution towards a real global market age will be completed and we’ll be out of the Taylor bathtub forever.

Platforms of the future may be different in shape and strategy but we can be reasonably sure that they will still need to be designed around the idea that relationships play a central role in modern business.

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About the Author

This article was written by Simone Cicero of PlatformDesignToolKit

Entrepreneurship

Building Yelp: A History Lesson

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In the fall of 2004, Jeremy Stoppelman caught the flu.

He had just arrived in San Francisco that summer, so he jumped online in hopes of finding a recommendation for a doctor. Instead, all Stoppelman found were bare bones directories and useless information.

But this gave him an idea. He and Russel Simmons were in San Francisco working for a business incubator called MRL Ventures, searching for “the next big thing” on the internet. He met with Simmons over lunch.

The two were in the office of their boss, Max Levchin, pitching their new concept before dinnertime. They didn’t have a PowerPoint presentation or a specific revenue plan; just a sense that they could make something that would appeal to lots of people.

Early photo of Simmons (left) and Stoppelman (right).

Levchin hesitated. “I wasn’t sure if it would work. But the guys were really enthusiastic about it. And in my experience, when you have smart people who work well together, it’s foolish not to invest.”

Maybe he was feeling lucky because it was his 29th birthday, or maybe it was those tens of millions laying around from his recent exit from PayPal, but Levchin agreed. He invested $1 million in the half-baked idea and Stoppelman and Simmons got to work.

Yelp 1.0

So what were they building? The two founders realized from Stoppelman’s doctor experience that the best way to find a business was through word of mouth. But word of mouth hadn’t moved to the web yet. The question they were asking was, “How do we bring those in-person recommendations online?”

They thought the answer was email and that’s exactly what the earliest version of Yelp was. On the website Simmons put together, users could email their friends asking for recommendations on specific locations or types of places. Responses were logged on a communal site for everyone to see.

Their first review came in on October 12, 2004. Katherine W. gave Truly Mediterranean four stars and a simple, but convincing:

“dirt cheap, good falafels.”

Despite that promising review, their idea was a flop. It attracted few users beyond the founders’ friends and family and failed to impress the venture capital investors whom Stoppelman pitched at the end of 2004.

“We got the doors slammed in our face over and over again,” Stoppelman said. Things were starting to fizzle right before their eyes.

The Epiphany

Undeterred, the founders searched for a way to improve their product. One day, they noticed something.

The site had a link, buried somewhere in the footer, that you could click if you wanted to submit a review without being asked. While poring over their analytics, they realized that people were not only finding that link, they were beginning to use it — often.

They watched as users submitted unsolicited reviews more and more. It got even bigger than the email-requested reviews. People would write 5, 10, or 15 reviews in one sitting.

They knew they had stumbled upon something big. So in February 2005, the duo launched a brand new site, this time focused entirely on unsolicited reviews. Yelp 2.0 saw an immediate rise in traffic. It was a hit.

The Foundation

A 2005 version of yelp.com

To kick-start the process of building a platform for this new review system, they purchased a database of over 20 million business locations. This database was old and inaccurate, but it created the framework for what Yelp called “claimed business locations”.

The empty business pages functioned as an open invitation for people to submit reviews. It motivated people to, at the very least, write a few words about the business. In fact, many of the early reviews were just that: “this place is great”, or “this place sucked.” But as time passed, reviewers started to take the platform more seriously and write longer, deeper reviews. The framework paid off in dividends later.

Also, they didn’t subordinate the user’s contributions to professional reviews, as on Citysearch, or to directory information, like yellow-pages sites. Instead, Yelp motivated people to share reviews through praise and attention , something no one else was doing. Those social networking features were what made them stand out.

Getting Social

Now that they had the right direction, they needed to grow their user base. Without the cash for a national rollout, Stoppelman decided to first focus on making Yelp famous locally.

With the help of a buzz-marketing guru he hired on a whim, Stoppelman decided to select a few dozen people — the most active reviewers on the site — and throw them an open-bar party. As a joke, he called the group the Yelp Elite Squad.

A Yelp Elite event

Levchin thought the idea was crazy: “I was like, ‘Holy crap, we’re nowhere near profitability; this is ridiculous,’ “. But 100 people showed up to the first party, and traffic to the site began to increase. Since the parties were reserved for prolific reviewers, they gave casual users a reason to use the site more and nonusers a reason to join.

By June 2005, Yelp had 12,000 reviewers, most of them in the Bay Area. In November, Stoppelman went back to the VCs and bagged $5 million from Bessemer Venture Partners. He used the money to throw more parties and hire party planners — Yelp called them “community managers” — in New York, Chicago, and Boston. Community managers and the Yelp Elite Squad still exist today.

Stickers

The number of reviewers on the site grew to 100,000 by 2006. Stoppelman also raised several million more in venture capital. By summer 2006, Yelp had one million monthly visitors and they were slowly adding more cities.

Now that user counts were growing, they focused on their next problem: they needed to get merchants to play a much deeper role. A growing user base of reviewers was wonderful, but the other side of the coin was the businesses themselves. Not to mention they were Yelp’s only source of revenue.

They decided to begin an aggressive drive to get merchants to claim business listings, populate them (e.g. menus, hours, website, etc), and motivate their own customers to review their experiences on Yelp.

The Yelp sticker

One of the ways they did this was by using a sticker. It was a genius move.

Most businesses were already familiar with Zagat and Mobile stickers and the impact they had on awareness. But Yelp was more aggressive with it and even handed out extra marketing materials. This had a remarkable effect on the review count. Organic review counts shot up and more businesses got on board.

Yelp stickers became almost ubiquitous at famous restaurants in the Bay Area and continue to serve the company today. They stand as a daily reminder of Yelp to the potential reviewer, the potential visitor, and the merchant.

Yelp’s Legacy

Stoppelman, Simmons, and the rest of the Yelp team were persistent, humble enough to pivot, and savvy enough to see the real problems they faced and to use creative methods to overcome them.

Yelp continued to grow. The service kept adding cities and eventually went international. They launched a successful mobile app. Stoppelman gathered tens of millions in venture capital and then took it IPO. As of this writing, the company has a market cap of almost $3.7 billion.

They’ve made a few mistakes along the way, and some say they’re in the middle of a process of disruption. But Yelp — the original king of place reviews — spawned a score of apps and startups and changed the way consumers view their relationship with businesses.

For that, they get…

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About the Author
This article was written by Jordan Bowman of  jrdnbwmn.com.
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Experience

5 Important Reasons Not to Raise Capital for Your Startup

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I recently had dinner with co-founders of a startup who’d just raised quite a bit of money for their company, a deal which incidentally I’d passed on. The meal was fantastic: fresh salmon from the bay, washed down with a particularly good New Zealand pinot noir, while watching the sun go down over the water. Really you’d expect my mood to have been chipper… but it wasn’t.

The evening was spent with the founders congratulating themselves for raising money. I’m not being a killjoy but it felt like the end of the line, not the beginning. It felt like all the preparation had been done, all the work completed, all the sweat, tears and marriage breakups had already been had, and now finally they’d succeeded. Except of course that wasn’t the case. This was the beginning not the end.

All they’d done was raise some money. Money which, though it may be needed to fulfill their goals, stands as a liability. Now, I’m all for celebrating success but this attitude really worries me and here’s why.

VC culture has come to equate raising capital with success, where each successive round of financing successfully completed is denoted as success,but you know what, VC culture is wrong.

Success is success and raising money is raising money. Let’s not confuse the two.

Raising money amounts to taking someone’s hard-earned capital. Capital which has been acquired by sweat, savings, maybe even theft but it’s someone else’s nevertheless. That, folks, is a liability no matter which way you spin it!

Realise that even if the capital never came with strings such as board seats, preferred equity, liquidation preferences or any host of other typical “strings”, realise that capital ALWAYS comes with strings which I’ll get to shortly.

So in the event that you’re an entrepreneur, emboldened by the fact that most anyone in Silicon Valley today sporting a hoodie, some pimples, and professing to work out of his grandmother’s garage, can get funded and at eye-watering valuations, let me give you 5 reasons why raising money may be a bad idea for your business:

1. Lack of Focus

Multi tasking is rarely a great strategy for any business. If you doubt me, try rubbing your belly and patting your head.

37signals built one of the most successful businesses in their niche by remaining extremely focused on just one product. My point is that it’s next to impossible to be running around raising capital, while remaining focused on building your fledgling business.

Unless you’re sitting in Silicon Valley which stands as a distinct anomaly to the rest of the world, let me assure that raising money will likely take you far longer than you ever thought, will come with more distractions than you’ve even thought, and the progress in your business will suffer.

2. ROI Can Be Poor

Time has a cost. The time spent raising money can often be time poorly spent.

I little while ago I was pitched by a company which had developed a minimum viable product, cheap to produce, easily shipped and which when sold, netted a $10,000 profit. The founders were, however, trying to raise $250,000 and had been on a road show for 3 months already!

Consider that by focusing on building, marketing and selling that very product they needed only 25 products sold to reach their $250,000 they had spent the last 3 months raising. The sheer insanity of what they were doing forever precluded any investment.

3. It Can Be Expensive

Further to the above, as an entrepreneur you might consider paying brokers to raise you capital. While this is an option realise that in any financing round up to Series A, it’s not uncommon to have to pay up to 15% of capital raised, and sometimes even include some warrants, preferred stock or options.

In short, it’s expensive money. Really expensive.

4. Capital Comes with Strings

You should expect that incoming investors may want board seats and input in your company. Do you want that? Does the capital you’re looking for come with the kind of strings you are comfortable with?

You can take money from all sorts of sources.

  • Family and friends will invest because they like you, or maybe they hate you and want you to go away. Or they feel guilty and can’t bare the thought of the next thanksgiving dinner where they’re the only family member who haven’t backed your idea and aunt Marge will make a stink about it. These are psychological strings. Are you OK with them?
  • Angels will invest if they believe you’ve got a good chance at success and often, if they feel they can, add some personal expertise. These guys are not stupid though, and will likely structure deal terms including ratchets, liquidation preferences and so forth. Strings may be that the input by the angel(s) is not something you want. These guys can be of immense value but make sure interests and personalities are aligned otherwise you risk a lot of strife.
  • And venture capital comes with a set of different strings. This particular avenue of financing deserves an article in itself and I’ll write about it next week.

5. Too Much Capital Can Actually Be a Bad Thing

I’ve seen good ideas go to the wind when founders raise too much money. Money can certainly make people do daft things and I’ve learned that as well.

The fancy office space suddenly becomes “necessary”. Scrappy goes out the window in favour of “professional”.

You want to know what is really professional? A company that manages its cash flows, is scrappy as hell, is intensely, manically focused on building awesome value, and realises that when markets turn, as they always do, it’s the strong that survive and thrive. And the strong are always scrappy.

Make sure the money is aligned with your outcomes. Understand who you’re dealing with and what the motivations are. Most of all, don’t just follow the herd because the herd is rarely right.

If, after reading this, you’re not scared away and believe that your company has world changing potential, is less than $10M pre-money valuation and “needs to exist” then feel free to contact me. I’ll be happy to look at your pitch. I’ll almost certainly say no and be kind about it but maybe, just maybe that doesn’t take place.

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About the Author

This article was written by Chris of of capitalistexploits.at.

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