
What Has Changed - hboon
http://www.avc.com/a_vc/2012/11/what-has-changed.html
======
aresant
I think the missing #4 "What's Changed" in this article is that the consumer
web is NOT monetizing as quickly as expected.

If you look at Fred's UVC portfolio for "Consumer Web" I would hazard that
their three largest are Twitter, Tumblr, & FourSquare.

Each of these companies is currently making massive pushes to "monetize" their
consumer web bases:

For example: FourSquare is only @ $2m/yr & hires first VP of Revenue (1),
Tumblr hires new head of global ad sales & Fred Wilson defends rev model (2),
Twitter infuriates developers, pushes new ad units (3)

That story is playing out all over the consumer web right now, including at
Facebook.

Pulling from a GigaOM article "Wilson thinks sites should follow Twitter’s
lead and ensure ad content is the form of an atomic unit that mimics the
native content – a tweet on Twitter, a video on YouTube and so on."

Each of the portfolio companies he's involved in are embracing that model.

But as an observer it seems that while the inclusion of "atomic" ad units is
certainly a good solution, they're not going to fetch anywhere close to the
price of Google's search inventory - eg the Holy Grail of monetization - so
there's got to be less excitement as VCs watch these #s unfold.

(1) [http://www.businessinsider.com/foursquares-revenues-
valuatio...](http://www.businessinsider.com/foursquares-revenues-
valuation-2012-11#ixzz2DGGgPFgT)

(2) [http://gigaom.com/2012/11/07/is-tumblr-the-new-geocities-
vc-...](http://gigaom.com/2012/11/07/is-tumblr-the-new-geocities-vc-fred-
wilson-says-no-points-to-ads/)

(3)
[http://www.telegraph.co.uk/technology/twitter/9481987/Twitte...](http://www.telegraph.co.uk/technology/twitter/9481987/Twitter-
seizes-more-control-over-tweets-in-advertising-push.html)

~~~
fredwilson
i think you are right that the social web will not monetize as well as search.

btw - foursquare's VP Revenue hire was its first, not a new one.

~~~
qeorge
Of course not - with search ads the consumers and the advertisers interests
are aligned. The ads add value.

With social the ads are always a distraction. At best its serendipitous.

Its the difference between selling vegetables at a farmers market vs a
roadside stand. No matter how pretty the stand it will never beat the market
full of customers who came there to buy.

~~~
Strshps1MoreTim
Not sure about that. A social network can collect a huge amount of information
about a user and in the future with better algorithms offer very valuable ads.
Helping the user to keep up with fashion, tech, etc.

To keep your analogy, Facebook to Google may be like TV advertisement to a
local market.

~~~
rhizome
read up on the datawarehouse trend 10 yrs ago, you have to remain a viable
company in order to take advantage of that stuff. turns out it's expensive and
time-consuming to create value from generally-unstructured historical data
even if you have an identity (or even just a demographic) attached to it.

~~~
Strshps1MoreTim
Facebook has money and time. Plus a few hundred of the very best engineers in
the valley, that joined pre-IPO.

~~~
rhizome
These are engineering problems that are capital-h Hard, well beyond the level
of graph theory they're using now.

~~~
Strshps1MoreTim
You can take any complex web site or app and say it has functions beyond some
math theory. But just hacking around is often enough for a good enough
solution.

~~~
rhizome
Why do you think FB, Amazon, or whoever don't have better
recommendation/targeting algorithms than they have now if the solution was
"just hacking around enough?" Not enough "enough?"

------
fatbird
_We are thesis driven to the core. We believe in what we believe in, for good
or bad. And that is large networks of engaged users that have the power to
disrupt big markets._

This seems like a trivial true-ism, and utterly useless as a strategic guide,
yet he cites it as their core thesis.

I read the whole thing, and I'm still not sure he said anything concrete.
There were lots of bits that seemed concrete [1], but on pausing and thinking
about it for a moment, they all seemed to be of the variety "There's more blue
than red, but don't forget there's some green there too."

ETA: I don't intend to crap on the linked article; I'm sincerely struggling
with my intuition that there's very little light for all the heat in VC
pronouncements. During my startup experience I continually heard sage bon mots
like "it's a move-fast environment." Okay, how fast? Are there move-slow
environments?

[1] Cletus' post above does a good job singling out statements that appear
concrete but are either literally non-sensical, or just trivial a=a
observations.

~~~
fredwilson
we think it is very useful as a strategic guide.

if you think of etsy, twitter, lending club, workmarket, pollenware, and
kickstarter, you might struggle to understand why they all fit our investment
thesis

it is because they are all networks that are large and growing and disrupt big
markets (twitter - news, etsy - sale of artisinal goods, kickstarter - the
studio model in entertainment, lending club - consumer lending, pollenware -
working capital finance, workmarket - contingent labor)

~~~
fatbird
I see how those examples fit the model of a community of engaged users that
disrupts an existing business model built on a larger but much more passive
community of users. What I have trouble seeing is the contrasting model where
a startup is trying to build a user community that isn't highly engaged, or
isn't trying to disrupt a big market. Would you mind giving an example or two
of someone you rejected along those lines, or does your strategic guide cut
differently than I'm expecting?

~~~
fredwilson
the vast majority of the opportunities we pass on are a community that isn't
large enough or engaged enough. i don't want to name names because that would
be uncool to those entrepreneurs and companies. there are examples of
businesses we see that are trying to serve the existing status quo and those
are also not that interesting to us

~~~
fatbird
I understand about not naming names, but your explanation makes sense. Thanks.

------
Animus7
If I were to blndly guess at an underlying phenomenon, it would be what I've
come to call "app pollution" for lack of a better term.

More and more money is being thrown at an ever increasing amount of new apps,
and many of which operate on huge losses as long as user numbers remain high.
From the other side, entrenched players (twitter, facebook, youtube, big
media) are scrambling for ever more aggressive ways to jam themselves into
people's lives to hopefully extract revenue and meet the growth shareholders
demand.

All of this is being pushed onto a market that has a limited attention span
for all of this crap being thrown at them (and a lot of it is pure crap). The
result is less and less consumer loyalty, dwindling revenues for everyone,
increasing disillusionment on the part of investors, and ever more ridiculous
expectations on the part of users: "$1.49 for an app I use every day and that
cost at least $50K to develop? I dunno, feels like a premium price."

It's different from the first bubble in that there _is_ actually a lot of non-
immaginary value flying around this time, and eveyone is readily embracing the
internet and related tech. But there's also more and more crap. There's just
too much pollution on the web and in every app store, and it's starting to
smell.

Strangely enough, I think there might be a startup idea somewhere in there.

~~~
rhizome
There is an entire historical tranche of business oriented toward
commodification, which I believe is what we're seeing applied to internet
functionality as a whole. All kinds of services with nothing much behind them,
to the point that business models are being based upon not much more than a
Rails gem and force of personality.

------
mark_l_watson
Small comment on cost of developing simultaneously for iOS, Android, and the
web: it still seems to me that for the majority content rich sites that HTML5
universal platform web apps are the way to go.

I don't like to install a lot of apps on my Android phone and iPad so I may
not accurately reflect the market at large.

~~~
chimeracoder
I agree - single-purpose applications are only necessary if you want to take
advantage of functionality _beyond_ what a typical browser provides... which
is a very small fraction of apps on the market. News publications tend to be
the worst with this - if all I want to do is read your content, I'd rather
just visit your mobile site, especially if you put all your resources into
iOS/Android/etc. solely behind designing a good site.

Sometimes, it seems like we're back in the 90s, developing for three different
platforms (browsers) simultaneously... except we've regressed even more,
because even _less_ code is shared between the platforms (and now the server
logic may even need to be tweaked to support all clients).

The more things change, the more things stay the same....

~~~
rhizome
It's a sad sign of overselling in the web-development industry when every
podunk newspaper wants me to install some discrete app for their site, usually
covering the page with a modal popup, which causes me to hit the back button
and not visit their site at all.

------
MatthewPhillips
Wish he had touched on the rate at which consumer-oriented startups are
failing. My perception is that the success rate is going down, and we only
have huge success stories (Pinterest, Kickstarter) and failures. I'm counting
acquihires as failures because we just don't know. But my perception might be
wrong. We do know that only a tiny minority of apps are making any money in
the App Store, and the move from the web to phones must mean there are fewer
successful web startups as well.

~~~
jpdoctor
> _I'm counting acquihires as failures because we just don't know._

I'd add: During tech bubble v1, the acquihire deals stopped as the many
failures put significant amounts of talent on the market. For example:
Salaries for IC designers quickly rationalized.

~~~
fredwilson
that would be a wonderful thing if it were to happen

------
cletus
For me this post read like it was skirting around the issue. I have an
enormous amount of respect for Fred Wilson but you have to remember that when
a VC writes something, it's not only what they think; they're doing it for a
reason.

Take Chris Dixon's post [1] as an example. He's now a VC. He wants to diminish
the stigma around talent acquisitions. Why? Because that's how VCs get paid in
the vast majority of cases. Those big wins when a company goes public are
pretty rare. Big acquisitions? Also relatively rare. Most are 1x-5x "bailouts"
I would guess.

Paul Graham's most recent essay [2] was excellent but remember this site
exists as a funnel for YC finding teams and companies to invest in.

So, to address Fred's points:

> 1) the consumer web has matured

This is a strange argument. It wasn't mature 2 years ago? 3? Twitter and
Pinterest (which he mentions) did get a "standing start".

> 2) the consumer is moving from desktop/web to mobile/app

The trend in recent years has been for startup costs to be going down. $50,000
can buy you a lot of Web development and hosting these days. Labour costs
(engineers) are probably going up. Everything else is _much_ cheaper.

Mobile seems to buck this trend. I imagine the cost of developing a Web site
plus apps for Android and iOS is significantly more expensive. Well it must be
by definition because you still need the Web site (in most cases). It's partly
why people will target one platform first (typically iOS).

> 3) the momentum/late stage investors have moved from consumer to enterprise

This is a symptom and it seems to be the elephant in the room that Fred isn't
mentioning: the consumer Web space is crowded.

To draw from PG's essay, enterprise has both the "schlep" and "unsexy" factors
going for it and it's an area that, depending your market, can be hard to
penetrate but also far easier to get paying customers. It's hard to extract
money from consumers except for three things: games, advertising and, to a
certain extent, hardware.

I've thought for at least 2-3 years that if I were to start a startup it'd be
somewhere in enterprise space. The fact that VC funding is, according to Fred,
going there too just confirms that.

> But it is a tougher time for early stage consumer internet companies than I
> have seen since the 2001-2004 time frame.

This to me was the strangest point of all. 2001-2004 were on the whole
terrible. But it's still way cheaper now making bootstrapping just that much
more viable than it ever was 10 years ago.

To me this is just more evidence that we're _not_ in a bubble because the VC
"market" is acting quite rationally. For every Instagram there are a hundred
failures and many more acqui-bailouts. Yet many people--too many people
(IMHO)--are working on shit that just doesn't matter ("it's a social
network... for cats!" as the cliche goes) in a very crowded space and most are
going to be disappointed.

What I believe Fred is doing here is signalling that he (and by extension USV)
are interested in non-consumer startups. They don't want to come out and say
"we're not interested in consumer startups" as that'll put them at a
disadvantage when it comes to funding hot startups/teams.

I agree: enterprise and even infrastructure (particularly cloud-related
infrastructure) seem to have stronger opportunities than consumer web (IMHO).

[1]: <http://news.ycombinator.com/item?id=4825418>

[2]: <http://news.ycombinator.com/item?id=4806852>

~~~
tptacek
_He's now a VC. He wants to diminish the stigma around talent acquisitions.
Why? Because that's how VCs get paid in the vast majority of cases._

I am having trouble seeing how this could even mathematically be true. Even
given how much easier talent acquisitions are to do, most of the companies in
a portfolio won't even get that far. The majority still fail outright. Many
talent acquisitions don't even recoup dollars invested; how could they
possibly pay for the losers?

~~~
AlexMuir
I'd be interested to see numbers. But I feel like the numbers used to be
roughly 50% of investments were wipe-outs. 40% brought back the 1-2x returns,
and 10% delivered a 5x. Ie. 1 in 10 investments was responsible for the
profits. Now with talent acquisitions there is a safety margin for the 50%
which previously returned nothing.

So if those numbers still hold true then the bulk of a VC's portfolio (by
investments, not dollars) is boosted by the availability of talent
acquisitions.

~~~
tptacek
Here's an earlier 'pg post which doesn't really rebut either of us, but does
suggest that earlier VC don't like talent acquisitions:

<http://news.ycombinator.com/item?id=3548359>

~~~
DanielRibeiro
Also, Dan Shapiro did some of the math on his "VC Insanity, explained"[1].

On a side note, Fred Wilson has responded to this thread below[2,3,4,5].

[1] [http://www.danshapiro.com/blog/2010/08/vc-insanity-
economics...](http://www.danshapiro.com/blog/2010/08/vc-insanity-economics/)

[2] <http://news.ycombinator.com/item?id=4828933>

[3] <http://news.ycombinator.com/item?id=4828936>

[4] <http://news.ycombinator.com/item?id=4828943>

[5] <http://news.ycombinator.com/item?id=4829128>

------
itsprofitbaron
I agree with this post to some extent however, I still believe that there is a
lot of space on the "web" especially in the likes of ecommerce, education,
small/medium enterprises, advertising & of course International which has
opportunities in all of those sectors as well as others.

However, looking at USV's latest investments[1], posts as well as Fred's posts
especially this one, it is appears they prefer enterprise startups[2] BUT they
are still interested in consumer startups as long as they have a transactional
or high intent ad business model.

[1] Pollenware, DuoLingo, DuckDuckGo, Dwolla, Funding Circle etc

[2] <http://www.usv.com/2012/08/networks-and-the-enterprise.php>

------
trotsky
It all sounds pretty defensible and true, but it mostly just boils down to
facebook being underwater. venture partners are herd animals, tried and true.

------
ohashi
It's interesting to see someone claim the costs of starting up are rising.
That's a monumental shift in the trend of the last 10(?) years.

~~~
cargo8
Yes, but the reasons are somewhat different. If anything, startup costs have
gone down with technology costs and as access to technology increases. The
problem now is that with the great saturation of these consumer web startups,
and the "startup-gold-rush" mentality of everyone trying to start a company,
the "bar" has been set much higher for an acceptable product. It's no longer
good enough to have an app that works, it must work, and be beautiful, and be
cross-platform, and use the cloud, and have social integration, and ...

~~~
Silhouette
_It's no longer good enough to have an app that works, it must work, and be
beautiful, and be cross-platform, and use the cloud, and have social
integration, and ..._

Or maybe (he writes, donning his HN-proof flamesuit) having genuinely
innovative ideas actually does matter.

There are plenty of people around here who keep saying it's the execution that
counts, launch with a MVP because you need data so you can pivot, what matters
is having a great team, and all that. I'm sure there is some element of truth
in all of those things, but most of the "businesses" based on that philosophy
seem to build something obvious that a thousand other people thought of and
any 15 year old geek could do in a weekend, and then act all surprised when
they don't become the next Facebook.

If these are the kinds of people who are approaching VCs with a view to
serious funding, it's hardly surprising that most of the ones that don't have
literally the best execution in a market with hundreds or thousands of
plausible competitors will fail.

To me, it seems crazy today to even try going after mass-market, low-level
consumer services. There's far more money in B2B unless you really make it to
the top in B2C, which you are extremely unlikely to do even with a fantastic
offering. And if you are happy to settle for a business that is merely very
lucrative rather than the next Facebook/Google, you can do very well in B2C
with a good idea in just about any specialised field, where the market is not
every consumer in the world but the people in the market really want what
you're offering because it genuinely benefits them in some way that nothing
else did before.

[Edit: I see Fred is posting here, so I'll mention that it would be
interesting to know how many of the companies VCs take on tend to be in that
latter category these days. Is specialist B2C just too small for VC-style
deals to make sense most of the time?]

~~~
dhimes
_There are plenty of people around here who keep saying it's the execution
that counts, launch with a MVP because you need data so you can pivot, what
matters is having a great team, and all that._

I've been calling bullshit on the "execution is everything" meme for a while
now, but I hadn't thought of it as maybe a _cause_ of increasing difficulty in
the startup ecosystem. That is an interesting hypothesis.

~~~
acgourley
The problem is you can stuff any meaning you want into the word "execution" -
designers can stuff in beautiful design, programmers can stuff in cross
platform deployment, etc. It should probably mean, "relentlessly finding
market fit"

~~~
Silhouette
_[Execution] should probably mean, "relentlessly finding market fit"_

The trouble is, that doesn't really say much either. "Finding market fit"
essentially means producing something good enough that people will pay for it,
so arguing that execution is all that matters for success with that definition
is a circular argument.

On the other hand, if we contrast "execution" with "idea", as is often the
case in HN discussions where the "ideas have little value" argument is made,
we're effectively comparing having a good idea that we can make money from
with having an arbitrarily bad idea and assuming that it can be incrementally
adapted (<ahem> pivoted) into a good idea that we can make money from. I
simply don't accept the premise that you can start from anywhere you like and
always wind up making money as effectively as someone who started from any
other point.

~~~
acgourley
> I simply don't accept the premise that you can start from anywhere you like

Is anyone saying that? I believe it's a strawman. What people say is "ideas
are worthless" which is quotable hyperbole used to club stubborn NDA wielding
entrepreneurs over the head. What people mean is: ideas are effectively
worthless because until you start executing you don't have a good way to know
if the idea is good or not.

So yes, starting point matters. Unfortunately, until you start to execute, you
only have the an extremely hazy understanding if your starting point was good.
Sure you can weed out absolute loser ideas, and you can get an idea of the
risk profile of the venture, but not much more.

~~~
Silhouette
_Is anyone saying that? I believe it's a strawman. What people say is "ideas
are worthless" which is quotable hyperbole used to club stubborn NDA wielding
entrepreneurs over the head._

That is surely how it started, but I'm not sure everyone on the start-up scene
today got the memo.

 _Unfortunately, until you start to execute, you only have the an extremely
hazy understanding if your starting point was good._

I still respectfully disagree. Some of the most successful small businesses
I'm familiar with started out with a disruptive idea in a specialised market
that was so far beyond what was available at the time that there was never
really any doubt that it would be viable and a successful company would
result, the only question was how successful.

The common factors in each case were founders with a shared interest
in/understanding of some specific field, often an existing support network in
that field, a solid combination of general technical and non-technical skills,
and most importantly, going where no other team with those combined strengths
had been before. If you stop trying to appeal to the entire planet and start
looking into niche areas (which does not necessarily imply tiny markets, just
smaller than "everyone"), it's amazing how many opportunities there are to
apply modern technology to do things qualitatively or at least order-of-
magnitude quantitatively better, and how many real problems you can solve for
businesses and private individuals alike.

Many of those businesses are also counterexamples to the popular wisdom that
if you have no competitors in a market then that's a bad sign because there
isn't really a market there. Sometimes you really are just that much better
than everyone else, because if your market isn't full of geeks who build their
own hardware or write software just for fun, even applying quite basic (by
geek standards) skills can put you far beyond old school, manual ways of doing
things.

~~~
acgourley
So I concede your point, but I think those are also smaller and smaller
markets. In an efficient world those obvious-at-the-start ideas are only
unsolved AND obvious because they perceived value of solving them is low. Not
so low they are not worth doing, but low enough they won't support a rapid
growth and investment seeking startup.

~~~
Silhouette
_I think those are also smaller and smaller markets. [...] Not so low they are
not worth doing, but low enough they won't support a rapid growth and
investment seeking startup._

I think we agree on the basic situation, just perhaps have a different idea of
the scale.

To me, having a business that has merely millions of potential paying
customers, but where those customers have a particular interest in what you're
offering and there is relatively little competition because you really are
doing something new, is worth more by any metric I care about than having a
business with billions of potential paying customers who have no particular
interest in what you're offering and dozens of competitors offering something
similar. About the only metric where this doesn't come out on top in B2C world
is "probability of hitting it out of the park", which is of interest to VCs
and serial entrepreneurs playing the long game, but possibly not so relevant
if you're just trying to start a successful business for yourself.

Your comment about "in an efficient world" is interesting, because I think
this is where the received wisdom breaks down: the real world is nowhere close
to an idealised efficient economy. Many people have the skills to use modern
technology effectively, but a lot of them are working for someone else in some
large business, and the overheads of that large business make many of these
smaller projects commercially unappealing. The "correct" economic response for
the people with the skills to take advantage of the market that would pay for
them is for those people to break away and set up their own small, efficient
businesses that can then make a very tidy profit by genuinely helping a lot of
people who are below the radar of big business.

Of course, that requires skills other than technical ones, and an awareness of
the possibilities, and a willingness to take a risk with your income when
perhaps you have a mortgage to pay and a family to support, and all of those
things influence what actually happens. But that is why there really are still
a lot of very lucrative (by individual/small business standards) opportunities
out there for those who are willing and able to make that jump.

------
wilfra
"there is a large pool of money in the venture capital asset class that is
opportunistic, momentum driven, and thesis agnostic. this pool is driven
largely by the public markets."

Mixed in all of the fluff is the real answer, though worded vaguely. What this
means is that Zynga, Facebook and Groupon tanking in the stock market is the
reason. That is What Has Changed.

------
enko
This article could basically be retitled "Clueless VC belatedly realises all
these companies without business models will probably not make any money after
all".

I mean seriously. This is what's wrong with capitalism, where undeserved
windfall gains are the norm. Companies we invest in have to show they are able
to make money! Wow, how revolutionary.

~~~
DenisM
Your post is inflammatory. Compare it to other posts in this thread, and you
will see that you're detracting from the conversation, not adding to it.

~~~
enko
Thanks for pulling me up on that. You are right. I think I had something to
add, but the way I chose to do it was not constructive.

I'm still learning and I really appreciate guidance like this.

