Revolution or Evolution – Did Apple give us a post-mobile future this week?

tl;dr Context for WWDC – the big tech players want to own your user experience and the evolution of the browser.

Heading into WWDC this week I’m eager to hear Apple’s vision for the future of mobile.  We’ve come a long way since the advent of the smartphone which moved us beyond the web page, browser, mouse and keyboard. The iPhone opened up an entirely new technology and business model but it has reached a saturation point. Benedict Evans and Mary Meeker highlight this slowing growth. The industry needs to evolve. Smartphones are on a replacement curve, not an adoption curve.

This has enormous implications for the big tech players and the startups we invest in. Discovery and engagement on mobile is harder than ever. Distribution and retention is tough. People don’t engage with new apps. The average user downloads zero apps per month. SurveyMonkey uses their panel data to Continue reading “Revolution or Evolution – Did Apple give us a post-mobile future this week?”

Revolution or Evolution – Did Apple give us a post-mobile future this week?


This post is by Correlated Causation from Correlated Causation

tl;dr Context for WWDC – the big tech players want to own your user experience and the evolution of the browser.

Heading into WWDC this week I’m eager to hear Apple’s vision for the future of mobile.  We’ve come a long way since the advent of the smartphone which moved us beyond the web page, browser, mouse and keyboard. The iPhone opened up an entirely new technology and business model but it has reached a saturation point. Benedict Evans and Mary Meeker highlight this slowing growth. The industry needs to evolve. Smartphones are on a replacement curve, not an adoption curve.

This has enormous implications for the big tech players and the startups we invest in. Discovery and engagement on mobile is harder than ever. Distribution and retention is tough. People don’t engage with new apps. The average user downloads zero apps per month. SurveyMonkey uses their panel data to demonstrate the difficulties of building a business on mobile.

To solve this broken model, Apple and Google are both moving interaction and context technologies down the stack into the operating system itself. This allows the platforms to hold on to the value of mobile innovation, having learned hard lessons from desktop web mistakes of the past where Netscape and Internet Explorer couldn’t keep their users. Simultaneously, Google and Facebook are moving interaction into messengers — in essence behaving as Google did when it captured much of the value in the desktop web. Apple has made initial steps into third-party services within an app interface with updates to Messages, Maps and more.

OS Evolution: What’s next

Discovery

Outside of the App Store, the major platforms (iOS and Android) haven’t innovated on the engagement and distribution model so we’re seeing services come up with alternatives. Ahead of WWDC, Apple pre-announced app store ads which felt inevitable, as Google rolled this functionality out last year. It remains to be seen how viable the paid channel will perform for broader app distribution. Will this eat into Facebook’s mobile app install revenue, which continues to gain share from Google?

Apple has opened Siri to third-parties. This will be a new channel where apps can be invisible. The OS can broker information to a internet service that can then act on a user’s behalf. Services like Viv and Vurb1, aspire to be an independent discovery solution.

Engagement

Both the Apple and Google platforms have a framework for deep linking into apps. This enables interactions that more closely resemble the desktop browser, but we’re only at the early stages of exploring what deep linking technology can really do. There is still a massive opportunity in bringing context and information from the smartphone into the consumer services realm (see Button1).

Rich notifications and 3D Touch widget for apps allow users to interact with services without opening an app at all. Two years ago, we saw Apple open up to third-party keyboards to interact with services within other apps. These keyboards, like Android launchers and the notification screen, represent a valuable strategic position that lets developers have a relationship with a user effectively at the OS level, across other apps.

Apps themselves are fundamentally changing. At Google IO, streaming apps were announced bringing us a step closer to a web of apps that lets us search and move between apps as easily as on the web. This could lower barriers to adoption and be good news for app developers.

App Evolution:

The modern browser will actually be within the killer application for the smartphone, messaging. While WeChat demonstrates one way this might unfold (Connie Chan has a great writeup), we are beginning to see messengers in the west move beyond just lightweight text communication. Facebook’s Messenger platform opened up for agents / chatbots and will continue to develop toward more generic UIs (think of it like a browser). Core Facebook is embracing media distribution and building an incredible video product attempting to capture distribution and consumption of all media.

In a page from Facebook, Apple is allowing third-party developers to have direct interaction with users in Messages. This will be a strong platform and might allow for direct service discovery and interaction in a native and frictionless way.

Snapchat’s path is one of the most interesting. From minimizing communication friction with disappearing photos, Snapchat has evolved into content distribution and consumption platform. From Stories to Discover, Snapchat went from personal media communication to mass media consumption and discovery. With the most recent app update, Discover, Snapchat is poised to become the hub for content and communication.

Platform Evolution:

Further fanning the growth of mobile, hardware components are dramatically cheaper due to economies of scale in the smartphone supply chain. Amazon’s Echo success is in part driven by these cost curves. Connected hardware represents a novel platform for internet services. Whether it be Echo, Google Home or others, service discovery and engagement is taking new form with voice interface in broader context.

Takeaway:

If I was back to my days developing and distributing mobile apps while reading these tea leaves, I’d be focused on creating the best possible service irrespective of context. An app is just one distribution channel, as is the mobile web. Novel channels are being developed and could be key for fast moving startups looking to disrupt the status quo. May the best mobile platforms win.

  1. Redpoint investment 2

Revolution or Evolution – Did Apple give us a post-mobile future this week?


This post is by Correlated Causation from Correlated Causation

tl;dr Context for WWDC – the big tech players want to own your user experience and the evolution of the browser.

Heading into WWDC this week I’m eager to hear Apple’s vision for the future of mobile.  We’ve come a long way since the advent of the smartphone which moved us beyond the web page, browser, mouse and keyboard. The iPhone opened up an entirely new technology and business model but it has reached a saturation point. Benedict Evans and Mary Meeker highlight this slowing growth. The industry needs to evolve. Smartphones are on a replacement curve, not an adoption curve.

This has enormous implications for the big tech players and the startups we invest in. Discovery and engagement on mobile is harder than ever. Distribution and retention is tough. People don’t engage with new apps. The average user downloads zero apps per month. SurveyMonkey uses their panel data to demonstrate the difficulties of building a business on mobile.

To solve this broken model, Apple and Google are both moving interaction and context technologies down the stack into the operating system itself. This allows the platforms to hold on to the value of mobile innovation, having learned hard lessons from desktop web mistakes of the past where Netscape and Internet Explorer couldn’t keep their users. Simultaneously, Google and Facebook are moving interaction into messengers — in essence behaving as Google did when it captured much of the value in the desktop web. Apple has made initial steps into third-party services within an app interface with updates to Messages, Maps and more.

OS Evolution: What’s next

Discovery

Outside of the App Store, the major platforms (iOS and Android) haven’t innovated on the engagement and distribution model so we’re seeing services come up with alternatives. Ahead of WWDC, Apple pre-announced app store ads which felt inevitable, as Google rolled this functionality out last year. It remains to be seen how viable the paid channel will perform for broader app distribution. Will this eat into Facebook’s mobile app install revenue, which continues to gain share from Google?

Apple has opened Siri to third-parties. This will be a new channel where apps can be invisible. The OS can broker information to a internet service that can then act on a user’s behalf. Services like Viv and Vurb1, aspire to be an independent discovery solution.

Engagement

Both the Apple and Google platforms have a framework for deep linking into apps. This enables interactions that more closely resemble the desktop browser, but we’re only at the early stages of exploring what deep linking technology can really do. There is still a massive opportunity in bringing context and information from the smartphone into the consumer services realm (see Button1).

Rich notifications and 3D Touch widget for apps allow users to interact with services without opening an app at all. Two years ago, we saw Apple open up to third-party keyboards to interact with services within other apps. These keyboards, like Android launchers and the notification screen, represent a valuable strategic position that lets developers have a relationship with a user effectively at the OS level, across other apps.

Apps themselves are fundamentally changing. At Google IO, streaming apps were announced bringing us a step closer to a web of apps that lets us search and move between apps as easily as on the web. This could lower barriers to adoption and be good news for app developers.

App Evolution:

The modern browser will actually be within the killer application for the smartphone, messaging. While WeChat demonstrates one way this might unfold (Connie Chan has a great writeup), we are beginning to see messengers in the west move beyond just lightweight text communication. Facebook’s Messenger platform opened up for agents / chatbots and will continue to develop toward more generic UIs (think of it like a browser). Core Facebook is embracing media distribution and building an incredible video product attempting to capture distribution and consumption of all media.

In a page from Facebook, Apple is allowing third-party developers to have direct interaction with users in Messages. This will be a strong platform and might allow for direct service discovery and interaction in a native and frictionless way.

Snapchat’s path is one of the most interesting. From minimizing communication friction with disappearing photos, Snapchat has evolved into content distribution and consumption platform. From Stories to Discover, Snapchat went from personal media communication to mass media consumption and discovery. With the most recent app update, Discover, Snapchat is poised to become the hub for content and communication.

Platform Evolution:

Further fanning the growth of mobile, hardware components are dramatically cheaper due to economies of scale in the smartphone supply chain. Amazon’s Echo success is in part driven by these cost curves. Connected hardware represents a novel platform for internet services. Whether it be Echo, Google Home or others, service discovery and engagement is taking new form with voice interface in broader context.

Takeaway:

If I was back to my days developing and distributing mobile apps while reading these tea leaves, I’d be focused on creating the best possible service irrespective of context. An app is just one distribution channel, as is the mobile web. Novel channels are being developed and could be key for fast moving startups looking to disrupt the status quo. May the best mobile platforms win.

  1. Redpoint investment 2

Gboard — Google’s brilliant strategy to leapfrog Apple, Facebook and iOS messengers

Google’s new iOS keyboard seeks to own the key mobile use case — messaging.

gboard

Last week, Google launched the Gboard to stellar reviews. It’s a 3rd party iOS keyboard that allows for searching and sharing in context on the phone. It’s a brilliant strategy for ensuring that Google is central for information discovery. It has the potential to be more strategic than the default search deals Google has previously struck with iOS Spotlight and Safari. To top it off, after nearly a week of playing with it, I love it.

It’s a strong keyboard and has a slew of delightful features like emoji autocorrect [search pizza], predictive searches [text want to get a drink tonight], and of course the core search and share card metaphors.

Up until now, first class keyboards that have done well on Android have had a hard time replacing the primary keyboard on iOS. It’s not an easy Continue reading “Gboard — Google’s brilliant strategy to leapfrog Apple, Facebook and iOS messengers”

Gboard — Google’s brilliant strategy to leapfrog Apple, Facebook and iOS messengers


This post is by Correlated Causation from Correlated Causation

Google’s new iOS keyboard seeks to own the key mobile use case — messaging.

gboard

Last week, Google launched the Gboard to stellar reviews. It’s a 3rd party iOS keyboard that allows for searching and sharing in context on the phone. It’s a brilliant strategy for ensuring that Google is central for information discovery. It has the potential to be more strategic than the default search deals Google has previously struck with iOS Spotlight and Safari. To top it off, after nearly a week of playing with it, I love it.

It’s a strong keyboard and has a slew of delightful features like emoji autocorrect [search pizza], predictive searches [text want to get a drink tonight], and of course the core search and share card metaphors.

Up until now, first class keyboards that have done well on Android have had a hard time replacing the primary keyboard on iOS. It’s not an easy task for users (install keyboard, grant permissions, remove the primary iOS keyboard …) and is likely not a sound strategy for a business. Apple controls the keys to the kingdom. 

We’ve seen success with Emoji, Gif Keyboard, Bitmoji and other media specific keyboards with dedicated use cases. While replacing the primary keyboard on iOS will prove challenging, Google has made a strong effort, stitching together best in class from a number of domains (in some cases partnering as with Riffsy / Gif Keyboard, a Redpoint port co).

Jonathan Libov shrewdly noticed that Apple enable split-screen multitasking on iOS with the inclusion of 3rd party keyboards in iOS8 nearly 2 years ago. If they can achieve sustained engagement and broad distribution for Gboard, or as I suspect bundle the keyboard into the primary search utility app, Google will insert itself above the OS and directly own the mobile user. For that matter, Google will also be on top of iMessage, Whatsapp, Kik, Facebook Messenger …

The killer application on desktop is the browser. Recall that much of Google’s initial distribution was from syndication deals first Yahoo and AOL, later Firefox and Safari. The closest analogy to keyboards is actually browser toolbars. They were 3rd party extensions that provided deeper functionality and experience than the core browser and were instrumental in cementing Google’s distribution and success on the desktop.

The killer application on the phone is communication and more specifically messaging. Google has now inserted itself above social graphs and can facilitate information discovery and sharing. Gboard is a utility that adds value in app contexts.

In attempt to look for second order effects, novel use cases enabled by mobile, I’ve hypothesized about the the killer company to own the mobile equivalent of a user’s home page. The keyboard may be that persistent utility. It’s why we invested in Riffsy, makers of the Gif Keyboard. A mobile first media network is primarily about sharing emotion in context. Enter the Gif Keyboard.

Information discovery may be about sharing in context. Google’s made a strong case for why they can own information discovery here.

Gboard — Google’s brilliant strategy to leapfrog Apple, Facebook and iOS messengers


This post is by Correlated Causation from Correlated Causation

Google’s new iOS keyboard seeks to own the key mobile use case — messaging.

gboard

Last week, Google launched the Gboard to stellar reviews. It’s a 3rd party iOS keyboard that allows for searching and sharing in context on the phone. It’s a brilliant strategy for ensuring that Google is central for information discovery. It has the potential to be more strategic than the default search deals Google has previously struck with iOS Spotlight and Safari. To top it off, after nearly a week of playing with it, I love it.

It’s a strong keyboard and has a slew of delightful features like emoji autocorrect [search pizza], predictive searches [text want to get a drink tonight], and of course the core search and share card metaphors.

Up until now, first class keyboards that have done well on Android have had a hard time replacing the primary keyboard on iOS. It’s not an easy task for users (install keyboard, grant permissions, remove the primary iOS keyboard …) and is likely not a sound strategy for a business. Apple controls the keys to the kingdom. 

We’ve seen success with Emoji, Gif Keyboard, Bitmoji and other media specific keyboards with dedicated use cases. While replacing the primary keyboard on iOS will prove challenging, Google has made a strong effort, stitching together best in class from a number of domains (in some cases partnering as with Riffsy / Gif Keyboard, a Redpoint port co).

Jonathan Libov shrewdly noticed that Apple enable split-screen multitasking on iOS with the inclusion of 3rd party keyboards in iOS8 nearly 2 years ago. If they can achieve sustained engagement and broad distribution for Gboard, or as I suspect bundle the keyboard into the primary search utility app, Google will insert itself above the OS and directly own the mobile user. For that matter, Google will also be on top of iMessage, Whatsapp, Kik, Facebook Messenger …

The killer application on desktop is the browser. Recall that much of Google’s initial distribution was from syndication deals first Yahoo and AOL, later Firefox and Safari. The closest analogy to keyboards is actually browser toolbars. They were 3rd party extensions that provided deeper functionality and experience than the core browser and were instrumental in cementing Google’s distribution and success on the desktop.

The killer application on the phone is communication and more specifically messaging. Google has now inserted itself above social graphs and can facilitate information discovery and sharing. Gboard is a utility that adds value in app contexts.

In attempt to look for second order effects, novel use cases enabled by mobile, I’ve hypothesized about the the killer company to own the mobile equivalent of a user’s home page. The keyboard may be that persistent utility. It’s why we invested in Riffsy, makers of the Gif Keyboard. A mobile first media network is primarily about sharing emotion in context. Enter the Gif Keyboard.

Information discovery may be about sharing in context. Google’s made a strong case for why they can own information discovery here.

Gboard — Google’s brilliant strategy to leapfrog Apple, Facebook and iOS messengers


This post is by Correlated Causation from Correlated Causation

Google’s new iOS keyboard seeks to own the key mobile use case — messaging.

gboard

Last week, Google launched the Gboard to stellar reviews. It’s a 3rd party iOS keyboard that allows for searching and sharing in context on the phone. It’s a brilliant strategy for ensuring that Google is central for information discovery. It has the potential to be more strategic than the default search deals Google has previously struck with iOS Spotlight and Safari. To top it off, after nearly a week of playing with it, I love it.

It’s a strong keyboard and has a slew of delightful features like emoji autocorrect [search pizza], predictive searches [text want to get a drink tonight], and of course the core search and share card metaphors.

Up until now, first class keyboards that have done well on Android have had a hard time replacing the primary keyboard on iOS. It’s not an easy task for users (install keyboard, grant permissions, remove the primary iOS keyboard …) and is likely not a sound strategy for a business. Apple controls the keys to the kingdom. 

We’ve seen success with Emoji, Gif Keyboard, Bitmoji and other media specific keyboards with dedicated use cases. While replacing the primary keyboard on iOS will prove challenging, Google has made a strong effort, stitching together best in class from a number of domains (in some cases partnering as with Riffsy / Gif Keyboard, a Redpoint port co).

Jonathan Libov shrewdly noticed that Apple enable split-screen multitasking on iOS with the inclusion of 3rd party keyboards in iOS8 nearly 2 years ago. If they can achieve sustained engagement and broad distribution for Gboard, or as I suspect bundle the keyboard into the primary search utility app, Google will insert itself above the OS and directly own the mobile user. For that matter, Google will also be on top of iMessage, Whatsapp, Kik, Facebook Messenger …

The killer application on desktop is the browser. Recall that much of Google’s initial distribution was from syndication deals first Yahoo and AOL, later Firefox and Safari. The closest analogy to keyboards is actually browser toolbars. They were 3rd party extensions that provided deeper functionality and experience than the core browser and were instrumental in cementing Google’s distribution and success on the desktop.

The killer application on the phone is communication and more specifically messaging. Google has now inserted itself above social graphs and can facilitate information discovery and sharing. Gboard is a utility that adds value in app contexts.

In attempt to look for second order effects, novel use cases enabled by mobile, I’ve hypothesized about the the killer company to own the mobile equivalent of a user’s home page. The keyboard may be that persistent utility. It’s why we invested in Riffsy, makers of the Gif Keyboard. A mobile first media network is primarily about sharing emotion in context. Enter the Gif Keyboard.

Information discovery may be about sharing in context. Google’s made a strong case for why they can own information discovery here.

Seed Startups – Business Model Experiments

tl;dr Seed startups are business model experiments and should apply the scientific method.

In 2011, my co-founder and I set out to build PrimaTable. Our vision was to bring yield management to local businesses. Our belief was that mobile technology had the potential to unlock local inventory, providing value to both consumers and small businesses. Revenue management techniques, previously seen in travel and ads, would now be possible. While PrimaTable didn’t become a stand alone business, it was a successful seed. We rapidly tested our assumptions for the business and market. We iterated through a series of products and models.

There were a handful of testable hypotheses wrapped up into our vision. Our seed round was used to test these hypotheses, mitigating risk, as fast as possible. As a startup, we sought rapid growth and were predicated on the belief that smartphones represented a market dislocation that newly enabled Continue reading “Seed Startups – Business Model Experiments”

Seed Startups – Business Model Experiments

tl;dr Seed startups are business model experiments and should apply the scientific method.

In 2011, my co-founder and I set out to build PrimaTable. Our vision was to bring yield management to local businesses. Our belief was that mobile technology had the potential to unlock local inventory, providing value to both consumers and small businesses. Revenue management techniques, previously seen in travel and ads, would now be possible. While PrimaTable didn’t become a stand alone business, it was a successful seed. We rapidly tested our assumptions for the business and market. We iterated through a series of products and models.

There were a handful of testable hypotheses wrapped up into our vision. Our seed round was used to test these hypotheses, mitigating risk, as fast as possible. As a startup, we sought rapid growth and were predicated on the belief that smartphones represented a market dislocation that newly enabled Continue reading “Seed Startups – Business Model Experiments”

Seed Startups – Business Model Experiments


This post is by Correlated Causation from Correlated Causation

tl;dr Seed startups are business model experiments and should apply the scientific method.

In 2011, my co-founder and I set out to build PrimaTable. Our vision was to bring yield management to local businesses. Our belief was that mobile technology had the potential to unlock local inventory, providing value to both consumers and small businesses. Revenue management techniques, previously seen in travel and ads, would now be possible. While PrimaTable didn’t become a stand alone business, it was a successful seed. We rapidly tested our assumptions for the business and market. We iterated through a series of products and models.

There were a handful of testable hypotheses wrapped up into our vision. Our seed round was used to test these hypotheses, mitigating risk, as fast as possible. As a startup, we sought rapid growth and were predicated on the belief that smartphones represented a market dislocation that newly enabled SMB merchant acquisition to be cost effective.

A startups is a business model experiment. As a recovering engineer / data scientist, experiment has a specific meaning. Wikipedia has the definition as “an orderly procedure carried out with the goal of verifying, refuting, or establishing the validity of a hypothesis.” A seed stage startup, is a means for testing the viability of a business model.

At a seed stage startup, there are a plethora of risks that should be understood. By investing time and or money, both founders and investors should explicitly recognize the testable risks and seek to validate or refute as fast as possible. This maximizes value creation.

A minimal viable product is in essence applying the scientific method to the process of product development. As a former product guy, the product is important, but is ultimately slave to the model. There are many minimal or even maximal viable products that aren’t venture scale companies. By applying the scientific method to a business model, the sum total of the product, market, go to market, a startup can be determined to be viable.

With the benefit of seeing many more companies from the other side of the table at Redpoint, most startups have only a few principal risks. It is a worthwhile exercise to build a business model (that will be wrong) to make sure the points of leverage are determined. For a social product, it might be the K factor. For a marketplace, it might be cost of acquisition of supply (or demand). Some risks aren’t testable until you achieve scale, and ultimately require belief. But more often, startups can test the linchpin risk very quickly. Mitigating that risk will create value.

Naturally, most experiments will fail, but the mentality should be to assume success and viability and test as fast as possible. The opportunity cost of time is the biggest danger in a rapidly changing field.

The Booking.com Marketplace Playbook

tl;dr Marketplaces extract value when they generate demand. The Booking.com low rake plus bidded auction model is the playbook modern marketplaces should follow.

Background

People know Booking.com as a behemoth in the travel industry but it wasn’t always the case. Priceline’s purchase of Booking.com in 2005 looks brilliant with Booking.com driving > 2/3 of PCLN’s revenue and accounting for a large portion of their $60B market cap.

Booking.com path to success is a fascinating story (see How Booking.com Conquered the World). It was started in 1996 with a revolutionary new agency model as an OTA. The agency model is much lower friction vs the previous standard merchant model driving Expedia and Travelocity’s success. Booking.com lowered the reserve rake from 25-30% to 12% and innovated on a more favorable cash flow for suppliers. This low friction model allowed Booking.com to acquire nearly Continue reading “The Booking.com Marketplace Playbook”

The Booking.com Marketplace Playbook

tl;dr Marketplaces extract value when they generate demand. The Booking.com low rake plus bidded auction model is the playbook modern marketplaces should follow.

Background

People know Booking.com as a behemoth in the travel industry but it wasn’t always the case. Priceline’s purchase of Booking.com in 2005 looks brilliant with Booking.com driving > 2/3 of PCLN’s revenue and accounting for a large portion of their $60B market cap.

Booking.com path to success is a fascinating story (see How Booking.com Conquered the World). It was started in 1996 with a revolutionary new agency model as an OTA. The agency model is much lower friction vs the previous standard merchant model driving Expedia and Travelocity’s success. Booking.com lowered the reserve rake from 25-30% to 12% and innovated on a more favorable cash flow for suppliers. This low friction model allowed Booking.com to acquire nearly Continue reading “The Booking.com Marketplace Playbook”

The Booking.com Marketplace Playbook


This post is by Correlated Causation from Correlated Causation

tl;dr Marketplaces extract value when they generate demand. The Booking.com low rake plus bidded auction model is the playbook modern marketplaces should follow.

Background

People know Booking.com as a behemoth in the travel industry but it wasn’t always the case. Priceline’s purchase of Booking.com in 2005 looks brilliant with Booking.com driving > 2/3 of PCLN’s revenue and accounting for a large portion of their $60B market cap.

Booking.com path to success is a fascinating story (see How Booking.com Conquered the World). It was started in 1996 with a revolutionary new agency model as an OTA. The agency model is much lower friction vs the previous standard merchant model driving Expedia and Travelocity’s success. Booking.com lowered the reserve rake from 25-30% to 12% and innovated on a more favorable cash flow for suppliers. This low friction model allowed Booking.com to acquire nearly every small hotel in Europe as there was no reason for a hotel not to join. This resulted in comprehensive selection for consumers and aligned incentives with hoteliers.

The difficulty with a high rake model is that you introduce a selection bias. Good suppliers that can sell well independently don’t need to participate in the market and cannibalize organic sales. This bias results in a poor consumer experience with only bad suppliers. You can see this effect in markets like Groupon, where participation is a signal for supplier quality in itself.

Auction

After achieving supplier ubiquity, Booking.com introduced a bidded marketplace where hoteliers bid on margin competing for placement (and production). There are a number of variants for these auctions for example Google AdWord’s modified GSP or the efficient VCG that aligns incentives. The theory should be to rank based on expected value created where the rank is inversely correlated with likelihood of conversion.

The auction works to maximize platform revenue and both supplier and user value. Suppliers are efficiently allocated bookings based on implied value based on bidding a greater margin. Suppliers that are of high quality and more likely to book will be ranked highly and accessible to consumers. Booking is evidence of consumer utility.

Model

By starting with a low rake, the marketplace can reach ubiquitous supplier adoption. An auction format then allows for market-drive pricing allowing suppliers that value an incremental booking to bid their utility. The increase in margin isn’t ascribed to unfair platform behavior but rather competition with other subscribers. The incentives are aligned between the marketplace and suppliers and allows for the marketplace to capture the value they create with their demand generation.

Examples

Looking at Etsy’s successful public offering or OpenTable’s acquisition, we see successful examples of very low rake marketplaces with revenue growth coming from demand generation products.

The Booking.com Marketplace Playbook


This post is by Correlated Causation from Correlated Causation

tl;dr Marketplaces extract value when they generate demand. The Booking.com low rake plus bidded auction model is the playbook modern marketplaces should follow.

Background

People know Booking.com as a behemoth in the travel industry but it wasn’t always the case. Priceline’s purchase of Booking.com in 2005 looks brilliant with Booking.com driving > 2/3 of PCLN’s revenue and accounting for a large portion of their $60B market cap.

Booking.com path to success is a fascinating story (see How Booking.com Conquered the World). It was started in 1996 with a revolutionary new agency model as an OTA. The agency model is much lower friction vs the previous standard merchant model driving Expedia and Travelocity’s success. Booking.com lowered the reserve rake from 25-30% to 12% and innovated on a more favorable cash flow for suppliers. This low friction model allowed Booking.com to acquire nearly every small hotel in Europe as there was no reason for a hotel not to join. This resulted in comprehensive selection for consumers and aligned incentives with hoteliers.

The difficulty with a high rake model is that you introduce a selection bias. Good suppliers that can sell well independently don’t need to participate in the market and cannibalize organic sales. This bias results in a poor consumer experience with only bad suppliers. You can see this effect in markets like Groupon, where participation is a signal for supplier quality in itself.

Auction

After achieving supplier ubiquity, Booking.com introduced a bidded marketplace where hoteliers bid on margin competing for placement (and production). There are a number of variants for these auctions for example Google AdWord’s modified GSP or the efficient VCG that aligns incentives. The theory should be to rank based on expected value created where the rank is inversely correlated with likelihood of conversion.

The auction works to maximize platform revenue and both supplier and user value. Suppliers are efficiently allocated bookings based on implied value based on bidding a greater margin. Suppliers that are of high quality and more likely to book will be ranked highly and accessible to consumers. Booking is evidence of consumer utility.

Model

By starting with a low rake, the marketplace can reach ubiquitous supplier adoption. An auction format then allows for market-drive pricing allowing suppliers that value an incremental booking to bid their utility. The increase in margin isn’t ascribed to unfair platform behavior but rather competition with other subscribers. The incentives are aligned between the marketplace and suppliers and allows for the marketplace to capture the value they create with their demand generation.

Examples

Looking at Etsy’s successful public offering or OpenTable’s acquisition, we see successful examples of very low rake marketplaces with revenue growth coming from demand generation products.

The Booking.com Marketplace Playbook


This post is by Correlated Causation from Correlated Causation

tl;dr Marketplaces extract value when they generate demand. The Booking.com low rake plus bidded auction model is the playbook modern marketplaces should follow.

Background

People know Booking.com as a behemoth in the travel industry but it wasn’t always the case. Priceline’s purchase of Booking.com in 2005 looks brilliant with Booking.com driving > 2/3 of PCLN’s revenue and accounting for a large portion of their $60B market cap.

Booking.com path to success is a fascinating story (see How Booking.com Conquered the World). It was started in 1996 with a revolutionary new agency model as an OTA. The agency model is much lower friction vs the previous standard merchant model driving Expedia and Travelocity’s success. Booking.com lowered the reserve rake from 25-30% to 12% and innovated on a more favorable cash flow for suppliers. This low friction model allowed Booking.com to acquire nearly every small hotel in Europe as there was no reason for a hotel not to join. This resulted in comprehensive selection for consumers and aligned incentives with hoteliers.

The difficulty with a high rake model is that you introduce a selection bias. Good suppliers that can sell well independently don’t need to participate in the market and cannibalize organic sales. This bias results in a poor consumer experience with only bad suppliers. You can see this effect in markets like Groupon, where participation is a signal for supplier quality in itself.

Auction

After achieving supplier ubiquity, Booking.com introduced a bidded marketplace where hoteliers bid on margin competing for placement (and production). There are a number of variants for these auctions for example Google AdWord’s modified GSP or the efficient VCG that aligns incentives. The theory should be to rank based on expected value created where the rank is inversely correlated with likelihood of conversion.

The auction works to maximize platform revenue and both supplier and user value. Suppliers are efficiently allocated bookings based on implied value based on bidding a greater margin. Suppliers that are of high quality and more likely to book will be ranked highly and accessible to consumers. Booking is evidence of consumer utility.

Model

By starting with a low rake, the marketplace can reach ubiquitous supplier adoption. An auction format then allows for market-drive pricing allowing suppliers that value an incremental booking to bid their utility. The increase in margin isn’t ascribed to unfair platform behavior but rather competition with other subscribers. The incentives are aligned between the marketplace and suppliers and allows for the marketplace to capture the value they create with their demand generation.

Examples

Looking at Etsy’s successful public offering or OpenTable’s acquisition, we see successful examples of very low rake marketplaces with revenue growth coming from demand generation products.

Dream On-Demand Marketplace

Here is an example presentation for an on demand marketplace.

Prior to the presentation introduce the founders. You want to build ethos with the audience. Highlight relevant experience to build credibility.

The goal of the pitch is draw an investor in further. You want to establish a large problem that your team is uniquely suited to fix.

  1. Intro

    This is the highest level what does your company do.

  2. Problem

    What is the problem and why does it exist?

  3. Solution

    What is your value proposition – how do you solve this problem faster, cheaper, better. Show is better than tell. Demo!

  4. Market

    How big is this problem? Is this market well suited to a new marketplace? Convey an overwhelming sense of your knowledge of the intricacies of your market.

  5. Unit Economics

    The business model. A marketplace lives and dies on this slide.

  6. Traction

    Show progress and momentum. Up and to the Continue reading “Dream On-Demand Marketplace”

Dream On-Demand Marketplace

Here is an example presentation for an on demand marketplace.

Prior to the presentation introduce the founders. You want to build ethos with the audience. Highlight relevant experience to build credibility.

The goal of the pitch is draw an investor in further. You want to establish a large problem that your team is uniquely suited to fix.

  1. Intro

    This is the highest level what does your company do.

  2. Problem

    What is the problem and why does it exist?

  3. Solution

    What is your value proposition – how do you solve this problem faster, cheaper, better. Show is better than tell. Demo!

  4. Market

    How big is this problem? Is this market well suited to a new marketplace? Convey an overwhelming sense of your knowledge of the intricacies of your market.

  5. Unit Economics

    The business model. A marketplace lives and dies on this slide.

  6. Traction

    Show progress and momentum. Up and to the Continue reading “Dream On-Demand Marketplace”

Dream On-Demand Marketplace

Here is an example presentation for an on demand marketplace.

Prior to the presentation introduce the founders. You want to build ethos with the audience. Highlight relevant experience to build credibility.

The goal of the pitch is draw an investor in further. You want to establish a large problem that your team is uniquely suited to fix.

  1. Intro

    This is the highest level what does your company do.

  2. Problem

    What is the problem and why does it exist?

  3. Solution

    What is your value proposition – how do you solve this problem faster, cheaper, better. Show is better than tell. Demo!

  4. Market

    How big is this problem? Is this market well suited to a new marketplace? Convey an overwhelming sense of your knowledge of the intricacies of your market.

  5. Unit Economics

    The business model. A marketplace lives and dies on this slide.

  6. Traction

    Show progress and momentum. Up and to the right!

  7. Go To Market

    You’ve established this is a big market and a real problem but how scalable is your solution?

  8. Competition

    Competition can validate a market. Demonstrate your unique value proposition.

  9. Team

    Highlight founders’ background and experience. Why are you uniquely suited to succeed here?

  10. Ask

    Summarize existing financing and investors, how much you are looking for and what will you accomplish with this capital.

  11. Appendix.

    The best pitches anticipate questions that an investor leaning in might have. The two I always care about are:

    1. Greater detail on the product and tech
    2. Customer cohort data

Code and Data

Here is a R script for simulating a simple marketplace and generating these graphs.

Dream On-Demand Marketplace


This post is by Correlated Causation from Correlated Causation

Here is an example presentation for an on demand marketplace.

Prior to the presentation introduce the founders. You want to build ethos with the audience. Highlight relevant experience to build credibility.

The goal of the pitch is draw an investor in further. You want to establish a large problem that your team is uniquely suited to fix.

  1. Intro

    This is the highest level what does your company do.

  2. Problem

    What is the problem and why does it exist?

  3. Solution

    What is your value proposition – how do you solve this problem faster, cheaper, better. Show is better than tell. Demo!

  4. Market

    How big is this problem? Is this market well suited to a new marketplace? Convey an overwhelming sense of your knowledge of the intricacies of your market.

  5. Unit Economics

    The business model. A marketplace lives and dies on this slide.

  6. Traction

    Show progress and momentum. Up and to the right!

  7. Go To Market

    You’ve established this is a big market and a real problem but how scalable is your solution?

  8. Competition

    Competition can validate a market. Demonstrate your unique value proposition.

  9. Team

    Highlight founders’ background and experience. Why are you uniquely suited to succeed here?

  10. Ask

    Summarize existing financing and investors, how much you are looking for and what will you accomplish with this capital.

  11. Appendix.

    The best pitches anticipate questions that an investor leaning in might have. The two I always care about are:

    1. Greater detail on the product and tech
    2. Customer cohort data

Code and Data

Here is a R script for simulating a simple marketplace and generating these graphs.

Startup Risk and Valuation

tl;dr Startup risk allows for the potential for reward. Valuation only increases on mitigation of risk.

“Out of clutter, find simplicity. From discord, find harmony. In the middle of difficulty lies opportunity.”

Albert Einstein

Startup are valued based on the overall market opportunity discounted by the risk associated with achieving a successful outcome. Therefore, valuation increases as the market increases or as risk is mitigated.

Successful companies level up. The team, product, business and process improve. The common successful venture backed path can look like a series of risks that are mitigated.

Stages:

  1. Seed – product market fit
  2. Series A – build team and business
  3. Series B – scale the business
  4. Series C – profitability
  5. IPO – liquidity

These phases are made up of a variety of risks that vary across companies and markets.

Let’s take a look at risks that exist, examples where the risk determined an outcome and the questions VCs ask.

Risks:

  • Execution / team riskGoogle Video vs. YouTube – the incumbent with the benefit of vastly superior resources fell to better execution. Is this team uniquely able to execute on the opportunity?
  • Technology riskOnLive. ultimately failed due to the inability to create a desktop visualization technology with low enough latency. Can the right product be built?
  • Business model riskWebVan in 1999, Exec recently. At scale, will the unit economics support the proposed business?
  • Financing riskEverpix and Canvas. How much capital is required to get to a positive outcome? Will this be a category that can easily find follow on capital?
  • Market timing riskFriendster vs. Facebook. Too early and too late is just as bad as being wrong. Why now?
  • Market adoption riskPlancast. Will the market resonate with the product? Will the company suffer from a lack of product market fit, startup competition, or strong incumbents?
  • Market size riskMochi Media. Is the market large enough to sustain growth and have a material impact on the fund?
  • Scalability riskSonar. Growth is the only thing that matters. For enterprise is there a repeatable sales process, for consumer are there distribution channels with sufficient volume to create a big business?
  • Legal riskAereo and Outbox. Are there IP, copyright, or other legal risks that have a material impact on the business?

Fund Raising on Risk Mitigation:

I’ve often had friends ask when to raise their first round of financing. The answer depends on the level of risk associated with the project. In many cases, former engineers and product managers with strong track records of building and shipping successful products do not need to build a MVP to generate investment interest. For Continue reading “Startup Risk and Valuation”