Rocket ships and tractors

"Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery" - Mr Micawber

“If you're offered a seat on a rocket ship, don't ask what seat” - Eric Schmidt

In the early years of Facebook, a common criticism we heard over and over was that this company and many like it had little or even no revenue and were burning huge amounts of cash, even years after launching, and so they would clearly never make any real money. By extension, they couldn’t possibly be worth the valuations they were attracting. It’s worth remembering now that people said this not because they turned out to be wrong (people are wrong about tech all the time, on both the positive and negative sides) but because their premise was wrong. This was a misunderstanding of the nature of a consumer internet company with network effects and very little marginal cost. 

For such businesses, knowing how, exactly, you’re going to make money might not be the most important thing to focus on. If you are acquiring tens or hundreds of millions of users with a new kind of service, and they are attributing value and attention to you, and the users, attention and value have network effects and hence probably winner-takes-all effects, and if they come with little or no marginal cost, then the revenue can and probably should come later. It is probably more important to focus on building (Read more...)