VC will increasingly become the model by which unique platforms monetize their service
- A16Z, Netflix, Alphabet, Amazon, Facebook, Google
Have already utilized this method to varying extents and successes. For all intents and purposes, A16Z is a media firm that monetizes by VC. They are arguably the greatest, recent, venture capital firm in the world. The other 5 utilize this method to found and create products and services which they know are needed due to the extensive data they generate and get access to.
These 5 are monopolies of the internet whose disruption will only come from their own arrogance, negligence or ignorance. They have established such dominance, they serve such an overwhelming number of people in the world, that the innovator’s dilemma has been diluted to negligible proportions.
In effect, it no longer applies.
If you think Gmail and Prime are simply extensions of their service platforms you are being naive. What they are, is horizontal expansion into natural areas where users will be willing to convert from alternative suppliers. That is not something monopolies of the past were able to achieve this easily. That is the difference and the reason why VC as a method of monetization will increasingly proliferate globally. It makes too much sense not to.
The monetization comes from having a unique opportunity to win these users trust in the vertical in which they are market leaders, which gains them access and influence on the users’ preferences for their other products and services.
Focussed attention is the worlds most scarce, expensive resource
Companies who can drive this toward startup businesses have an opportunity to directly impact which companies will be successful. Those who already hold a monopoly of attention on the internet are unique places to acquire those users when they decide they want to cannibalize other companies market share.
While it also significantly reduces the risk in the above companies choosing to support companies in the first place. Their ability to reach such focussed audiences ensures the investments they do make are almost never wasted. Of course, they can still fail when they bring a product to market that doesn’t get any traction but their likelihood of doing so is smaller than traditional institutional investors by several orders of magnitude. These companies don’t need every startup they invest in to become unicorns. They simply need them to contribute to the growth of revenue for the parent company in order to return more value to the existing shareholders!
It’s why the mantra of many startup founders is that there is little they can do about life, death, taxes and [Google, Facebook, Amazon, Apple, Netflix]. It’s why the chosen few who these companies choose to attempt to acquire invariably choose to. ‘If you don’t we will spin up a competitor and crush you’ is a fairly convincing argument.
Capital is no longer the most important thing
For the most part VC money is injected directly into growth, this gives you that without even needing to raise the capital. Sure money pays staff, but scale enables you to pursue business models that are literally impossible without it.
It’s why Uber will likely win the food delivery space.
They are already in the heart and minds of the people who use the service, it’s a small step to trusting them to deliver your meal on time. Far harder for an upstart with no track record to do it.
The internet has been awesome. The problem is that it has lead to the centralized world which monopolies dominate leading to less value and exploitation. The freemium model we are all slaves to means it’s increasingly impossible for other companies to compete.
It is not a level playing field because the incumbents dominate the infrastructure and can provide it at a far lower cost than anyone else possibly could. The big 5 have become utilities we pay for with our data which gives them even more power, influence, and control over us.