An Itsy Bitsy Note on The Scale Mirage in Product Factories.
Yoick wrote a great riff on the Product Factory supply chain re : ObviousCorp and Charles River QuickStart that I wanted to delve deeper into. I'm wondering whether these centralised ideas attached to funding and resources can result in the "investee" company become commodified and losing the chance to have a unique value, culture, and business model. My question is do these models help create a hit or do they in fact hinder ?
In some of the cases it's watered down venture investing : Less money and time per investment, but more deals. (means VC partners can almost too easily solve the problem that web 2 funding deals are too small) Where it gets different to normal VC is if The Parallel Entrepreneur ala Bill Gross/Evhead comes up with the idea/opportunity, and then recruits a (can u call them an) Entrepreneur. Who is closer to a Project Manager with the title (i guess) Chief Executive Officer thankyou very much. I wonder how the Founder Title will work. ("Im the - penultimate - founder but I didnt come up with the idea.")
Griffin Mill: I was just thinking what an interesting concept it is to eliminate the writer from the artistic process. If we could just get rid of these actors and directors, maybe we've got something here.
Odeo and Twitter for example, while in different segments - podcasting vs group sms - still display similar ethos (same founders and management team), interface and free business models with some goog ads. While this product portfolio doesnt suit VC investors looking to build specific portfolios, it makes obvious sense to obvious; A portfolio of kewl web apps that may have value together or as single entities. With Odeo playing the 2.0 role of Pyra, and Twitter being Blogger.
Now lets compare google, ebay, yahoo and amazon as a way of understanding what it takes to be successful (im hoping this post will come together rather than go further away) - All are survivors and winners of the last 5-10 years of the internet; One sells search ads to small business, the other facilitates auctions for consumers, and then you have a diversified online media company with an etailer.
My point is that picking the next Amazon, Ebay, Google etc - involves betting on different disruptive business models. Sure alot of business models are based on advertising, and shared hosting is shared hosting. But the best companies seem to do things, all things differently. The cults of Amazon and Google for example are scientific orientated but still different enough in their operation : One runs physical logistics and fulfillment centres : The other has dark fiber it may use one day for the Super Web O/S :) They are different enough that if their DNA was shared, would have the same adult been born ?
So If I've got a 2.2 product factory, there seems to be a skew towards freemium-esque, LAMP run, widget'y playz that get Crunch'd then see if they can turn the initial bump into a run. Then they go for funding, expansion and move from baby to teenager. To me, they may skew too close to the mean if I could bet on it, and not be disruptive enough. The proof will be in the pudding I guess. There may be enough bets that enough succeed. "Please God, just One More YouTube" is a lulu T-shirt waiting to be made for the parallel inclined.
So sure there is going to be lots of reddit like plays when $100k is optimised into a sale to an old media company. And this could mean that Obvious and Quick build alot of these consumer widget businesses that use the same hosting and google ads.
But my hope would be that doesn't mean that the true innovation, disruption and NEW idea, wil be able to leverage all this shared infrastructure. (will recruited staff be to obvious or to the investee co's in reality ? will the cultures diverge ? to use an australian example at moment kkr will aim to unbundle the 15 years of coles myer centralisation rather than vice versa - ok i wont use anymore offline regional retail examples :)
I was in a meeting the other day with a business partner/client, and they asked how much hyperlocal advertising was there really on the Internet, esp in the land of oz. Outside some of the directories businesses and Goog/Yhoo Local etc - which are still small too - I said he was probably right, it is still fairly small. Doesn't mean it isn't a great opportunity - waiting for disruption : Hyperlocal advertising online not just taking a stream of google ads.
Anyway, so what point am I making here ? Even I know I'm not making much sense : but I think incubators of yore, and product factories of now, risk overestimating the benefits of scale efficiencies, esp if the trade-off is a slightly commodified offering. It's the intangibles of hit making really. The great films come from a confluence of people, events and capital. Outside the box. Hard to bottle. Not shrinkable.
As Jeff Jarvis said the other day, when a newspaper starts outsourcing certain of its sections that are commodities, and in the example it was the business section being outsourced, it's a case of how much of a newspaper does a publisher have to do itself.
Similarly, product factories change the life cycle of a new company as rather than being a bootstrapped startup that needs funding : Instead you have a parallel entrepreneur, with another good idea that invests her money in a project team and shares some resources.
Hopefully the business will be able to craft it's own identity, unless of course the real plan is a more portfolio/keiretsu orientated (eg IAC or Intermix/Myspace originally : 5-20 sites which become a network) : Use the same adserver and google group ad agreement. Bang you are on your way. (As Jason Calacanis says you need a couple million page impressions/users to justify your own salesperson so thats one benefit of scale)
From the perspective of the parallel entrepreneur doing multiple businesses (that are at different stages) it makes total sense to justify - (heck what alpha male doesnt want to be a parallel entrepreneur :) - esp if you have already made your first $20m, which they say is the hardest :) From a fund perspective it also means that they can invest the same total amount of money in a sector (at an earlier stage) and then hope the total amount of deals is manageable and that there are some scale efficiencies.
But there will be alot of roadkill. However when compared to internal product development at GEMAYA it may still end up being alot more efficient or at least complentary. That is of course if stock prices keep increasing that make small acquisitions of the survivors easy to make. I think the ObviousCorps may end up being more like a WebLogsInc with Odeo its Engadget, or was that Twitter :| but whether new hits can be consistently made, every1 will be watching.
In some of the cases it's watered down venture investing : Less money and time per investment, but more deals. (means VC partners can almost too easily solve the problem that web 2 funding deals are too small) Where it gets different to normal VC is if The Parallel Entrepreneur ala Bill Gross/Evhead comes up with the idea/opportunity, and then recruits a (can u call them an) Entrepreneur. Who is closer to a Project Manager with the title (i guess) Chief Executive Officer thankyou very much. I wonder how the Founder Title will work. ("Im the - penultimate - founder but I didnt come up with the idea.")
Griffin Mill: I was just thinking what an interesting concept it is to eliminate the writer from the artistic process. If we could just get rid of these actors and directors, maybe we've got something here.
Odeo and Twitter for example, while in different segments - podcasting vs group sms - still display similar ethos (same founders and management team), interface and free business models with some goog ads. While this product portfolio doesnt suit VC investors looking to build specific portfolios, it makes obvious sense to obvious; A portfolio of kewl web apps that may have value together or as single entities. With Odeo playing the 2.0 role of Pyra, and Twitter being Blogger.
Now lets compare google, ebay, yahoo and amazon as a way of understanding what it takes to be successful (im hoping this post will come together rather than go further away) - All are survivors and winners of the last 5-10 years of the internet; One sells search ads to small business, the other facilitates auctions for consumers, and then you have a diversified online media company with an etailer.
My point is that picking the next Amazon, Ebay, Google etc - involves betting on different disruptive business models. Sure alot of business models are based on advertising, and shared hosting is shared hosting. But the best companies seem to do things, all things differently. The cults of Amazon and Google for example are scientific orientated but still different enough in their operation : One runs physical logistics and fulfillment centres : The other has dark fiber it may use one day for the Super Web O/S :) They are different enough that if their DNA was shared, would have the same adult been born ?
So If I've got a 2.2 product factory, there seems to be a skew towards freemium-esque, LAMP run, widget'y playz that get Crunch'd then see if they can turn the initial bump into a run. Then they go for funding, expansion and move from baby to teenager. To me, they may skew too close to the mean if I could bet on it, and not be disruptive enough. The proof will be in the pudding I guess. There may be enough bets that enough succeed. "Please God, just One More YouTube" is a lulu T-shirt waiting to be made for the parallel inclined.
So sure there is going to be lots of reddit like plays when $100k is optimised into a sale to an old media company. And this could mean that Obvious and Quick build alot of these consumer widget businesses that use the same hosting and google ads.
But my hope would be that doesn't mean that the true innovation, disruption and NEW idea, wil be able to leverage all this shared infrastructure. (will recruited staff be to obvious or to the investee co's in reality ? will the cultures diverge ? to use an australian example at moment kkr will aim to unbundle the 15 years of coles myer centralisation rather than vice versa - ok i wont use anymore offline regional retail examples :)
I was in a meeting the other day with a business partner/client, and they asked how much hyperlocal advertising was there really on the Internet, esp in the land of oz. Outside some of the directories businesses and Goog/Yhoo Local etc - which are still small too - I said he was probably right, it is still fairly small. Doesn't mean it isn't a great opportunity - waiting for disruption : Hyperlocal advertising online not just taking a stream of google ads.
Anyway, so what point am I making here ? Even I know I'm not making much sense : but I think incubators of yore, and product factories of now, risk overestimating the benefits of scale efficiencies, esp if the trade-off is a slightly commodified offering. It's the intangibles of hit making really. The great films come from a confluence of people, events and capital. Outside the box. Hard to bottle. Not shrinkable.
As Jeff Jarvis said the other day, when a newspaper starts outsourcing certain of its sections that are commodities, and in the example it was the business section being outsourced, it's a case of how much of a newspaper does a publisher have to do itself.
Similarly, product factories change the life cycle of a new company as rather than being a bootstrapped startup that needs funding : Instead you have a parallel entrepreneur, with another good idea that invests her money in a project team and shares some resources.
Hopefully the business will be able to craft it's own identity, unless of course the real plan is a more portfolio/keiretsu orientated (eg IAC or Intermix/Myspace originally : 5-20 sites which become a network) : Use the same adserver and google group ad agreement. Bang you are on your way. (As Jason Calacanis says you need a couple million page impressions/users to justify your own salesperson so thats one benefit of scale)
From the perspective of the parallel entrepreneur doing multiple businesses (that are at different stages) it makes total sense to justify - (heck what alpha male doesnt want to be a parallel entrepreneur :) - esp if you have already made your first $20m, which they say is the hardest :) From a fund perspective it also means that they can invest the same total amount of money in a sector (at an earlier stage) and then hope the total amount of deals is manageable and that there are some scale efficiencies.
But there will be alot of roadkill. However when compared to internal product development at GEMAYA it may still end up being alot more efficient or at least complentary. That is of course if stock prices keep increasing that make small acquisitions of the survivors easy to make. I think the ObviousCorps may end up being more like a WebLogsInc with Odeo its Engadget, or was that Twitter :| but whether new hits can be consistently made, every1 will be watching.
posted by redbarren at 7:30 PM
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