Of Tigers and Twitters

Eric Wiesen

I’ve been thinking lately about the tech industry’s occasional tendency to declare a world change prematurely. Originally I was sparked into this thinking by Paul Graham’s article on “How TV Lost”, which took it as a fait accompli that despite the nascence of IPTV, web video and entertainment convergence generally, TV (and its accompanying ecosystem) had already lost, it just didn’t know it. It was a provocative piece and got me thinking.

Whether I agree with the Paul’s conclusion or not (I don’t necessarily, although I agree with much of the underlying logic), it’s what this represents that really got me thinking. We as an industry are quick to see “up and to the right” and extrapolate ad infinitum. In other words, we see a trend with spectacular velocity and we are quick to connect the dots to a massive, game-changing shift. And it sometimes happens, but it usually doesn’t.

I’m reminded of the discourse that emerged after Tiger Woods won the Masters in 1997. Tiger came in as a 21-year-old phenom and utterly blew the field away. I’m not much of a golfer, but they tell me that when you win a major by 12 strokes (largest margin since 1870) and set the course record at a legendary course, it’s pretty good. (Thanks Wikipedia)

But what really struck me was some of the discussion I heard afterwards. “The sport is over” summed up what a lot of people thought after seeing Tiger’s performance. The world of golf had changed and no one else would stand a chance for the next 25 years. Tiger was so far and away superior to everyone else that if you’re going to watch, you mostly just watch to see what he’ll do.

So what actually happened? Tiger is arguably the greatest golfer of all time. He’s second all-time in majors and third in PGA event wins. Youngest ever to win the Grand Slam. Highest-paid athlete in the world last year. Currently ranked #1. Tiger is absolutely, incontrovertibly for real. And yet… he doesn’t win every tournament. He had a few years when he worked on his swing and wasn’t dominant. He got hurt. In other words, he’s a very very gifted, but nonetheless human, golfer. The sport goes on, more popular and arguably better for having such a fantastic athlete, but essentially the same game.

Which brings me to Twitter. Twitter is a little bit like Tiger. It burst onto the scene at SXSW in 2007 and for a while, it was all people could talk about. It faded somewhat and people talked about Facebook or something else for a while, and then around the election last year, Twitter “tipped” and now it’s really become ubiquitous, particularly amongst the media. Companies are wondering what “twitter strategy” they should have. Conferences are being organized about how to best “expose your brand in 140 characters”. People have talked about Twitter threatening Google or Microsoft.

I think Twitter, like Tiger, is for real. I’m active on it and I get a lot of value from it. I think its position as “social radio”, where I can tune in either to contemporaneous thoughts from a group of people I find interesting, or to a particular topic, is powerful. Twitter is a winner.

But that being said, I think we’re essentially doing what people did in 1997 with Tiger. People look at Twitter, extrapolate its buzz and growth into the future, and conclude that our lives will never be the same. I can’t tell you how many people in the last 90 days I’ve heard propose a twitter-centric solution to a problem. To contextualize where I think we are right now, I’d go back a couple of years to the months following the launch of Facebook Platform.

Facebook launched applications to great fanfare. The following week I was at a conference where a successful entrepreneur told the crowd, “If I were starting a company today, I’d build for Facebook first, the web second”. People were racing to see who could say, “Facebook is the social operating system of the web” first. People saw the buzz, the instant engagement, and simply pulled the trend forward ten years into a world where operating systems were gone and we all just booted straight into Facebook and led our online lives in Facebook applications. So far, it hasn’t turned out that way.

As a VC, part of what I try to do is see the world as it will be some day. It’s a tough task, and I think anyone that claims to get it right most of the time isn’t being honest. I don’t know if, in the future, Twitter will replace email, social networks and online advertising. I think it probably doesn’t, but I think it has an important role to play in communications going forward. But generally speaking, I think that if we want to forecast the future as best we can, assuming that what’s hot right now inevitably emerges into a paradigm-shifting change in all of our lives is not the best approach.

Barnacle Companies

From time to time we see a company come in to pitch RRE that pitches us on a business that is fundamentally dependent on another (typically larger) business. An example of this would be Xobni, the (very useful) inbox extension for Microsoft Outlook. But it’s not always a big company (think Summize, the search company recently acquired by Twitter). We sometimes call these companies “barnacles” because of the way these companies latch onto a larger host and add incremental value to users of the host company’s products. This is becoming more and more common as companies either actively promote an application infrastructure built on top of the core platform (Salesforce.com, iPhone App Store, Facebook Platform) or as companies simply open up API access to allow other applications to take advantage of functionality or data.

There are pluses and minuses to these types of businesses, and like everything we see, the ultimate decision of whether or not it’s a business we’ll want to fund comes down to the strength of the people and how big a problem their product purports to solve. But barnacle businesses have some specific characteristics to them that are distinctive.

GOOD: Barnacle companies don’t have to build an ecosystem of interest to support their products.  Xobni, to continue our example (and note that we are not investors in Xobni) doesn’t have to convince millions of users to use Outlook – Microsoft has already done that. They just need to convince existing Outlook users to install their product to enhance productivity. Now that’s not the easiest sell in the world, especially given the IT attitudes present in many large Microsoft environments, but it’s a lot easier than trying to build the ecosystem from scratch.

BAD: The flip side to the above, of course, is the vulnerability barnacle companies have to host companies. When your business is entirely dependent on another company, that company has substantial power over you. That can come in the form of a decision to duplicate your functionality, at which point you rely on any IP you might have or the stickiness of your product, or to modify their product (or API) to block you. If the host company decides to prohibit one of these products from attachment, the startup can find itself adrift at sea.

GOOD: There is no more obvious acquirer for a barnacle company than the host.

BAD: There may be no other acquirer for a barnacle company than the host, so be very careful to establish a good relationship.

In an era where a greater and greater number of ecosystems are being built (Microsoft, Facebook, Salesforce, etc…) it is becoming increasingly feasible to build a business that is a barnacle, but these come with an unusual set of challenges, and require some careful maneuvering, particularly around fundraising and exit.