Addressing the Hoboken Tech Meetup group Monday night, Albert Wenger of Union Square Ventures (USV) provided the 150 attendees with a treatise on what works and why on the internet. Union Square Ventures only invests in companies that operate on the internet and,while that premise sounds simple, he told us that he and his colleagues at USV spend a lot of time thinking about what is different about the internet and what works and doesn’t. His comments to the group were interspersed with specific cases and he called on the example of the newspaper industry initially to expand on his first point by reflecting on the example of Craigslist and a company named AdOne. He noted, that while many investors made some money from AdOne, the company ultimately disappeared because it merely transferred an old legacy model to the web. Not so, in the case of Craigslist, which is a company that ‘broke the model’ and (as we know) provided a marketplace and network based on free provision of content (classifieds).
As Wenger stated, “Craig Newmark didn’t necessarily know what the impact of his business would be, but what he did know was that what he was doing was not dependent on anyone or any other business. He didn’t need to ask permission and he didn’t need to license information, he could just do it. Maybe by luck he backed into the ‘native model of the internet,’ which is largely exemplified by free services.” This ‘native model’ concept became a theme of Wenger’s comments for the rest of the presentation, and he stressed that USV tries to council entrepreneurs to make sure that their proposed business model represents (as he says) “what the internet wants to do.” Sometimes this isn't obvious as in the case of job listing sites like Monster.com and Hotjobs.com
As a subset of the classified market, both these companies made their investors rich and continue to be real businesses in that they have considerable revenues and profits. USV is an investor in Indeed.com, which is also a job listing service but ‘net native’ in contrast. Wenger expanded by suggesting that the problem is no longer getting your job listed (where the listee pays for the listing), now the problem is having the job found. Indeed.com provides aggregated lists of jobs available but, in a similar manner to Google, the company also matches jobs with key words and provides a better service to users in the process. This is how people use the internet: In a vertical search environment, key words can be bought to draw attention to position listing. This model, Wenger suggests, is much closer to a ‘net native business model’ which ‘doesn’t fight the web’ and where users are not asked to pay for something they can easily get for free elsewhere.
The partners at USV try to get entrepreneurs to think about how their business models ‘allow them to swim with the internet’ and build businesses that enable them to charge for services that add value, rather than charge for features as an auto dealer might by adding or deleting new car features to compute a price. Market leadership becomes a function of which company can build the best network. He also suggested that LinkedIN doesn’t have a great feature set, but has built such a dominant network that they will be very difficult to displace in the near future. The interconnectedness of all the participants on LinkedIN is the glue, and therefore, the value that holds the site together.
Sites like LinkedIN have developed business models that leverage the benefits of being part of the network and, thus, set a price for something that will have immediate and/or obvious value for the user. This is where – especially in the business-to-business segment - USV sees real opportunities. Coincidentally, at the meeting, several of the companies that presented (Sonar SquidJob BeanSprout) earlier in the evening are building their revenue models around the development of coherent, organized networks and not attempting to charge for access or services that are free elsewhere.
The catch phrase ‘net native business model’ is a great way to capture the concepts around some of the most successful internet start-ups: Think Twitter and 4Square, both of which are USV companies. Thinking in the terms Wenger suggests provides a framework for close examination of any new business idea and might save some good ideas from failure or lead to radically different approaches to a business idea.
In the question period, Albert was asked why it has been so hard to find networks in education and government and his response was both observant and depressing at the same time. He said,
“Selling to existing institutions is difficult because institutions generally select from companies that are good at selling. Because it is the administrators that are making the decisions based on processes and procedures. Companies which have great products or services, which would be appealing more to teachers and students, don’t have access. That’s how you end up with companies like Blackboard, which is a large, publicly traded company, very embedded but an awful product. But we are encouraged in that we are seeing some companies with innovation catering to products and service and these are getting adopted. Putting products into the market that are free and one we have invested in is Edmodo a network-based product that allows students and teachers in k-12 to work together”.
My impression of the Blackboard comment had more to do with what was possible in a net native world than a simple of-the-cuff denunciation of the Blackboard platform. With respect to government, he sees the same ‘broken procurement’ process based more on the process and mechanics of selling rather than on the benefits of particular products.
Naturally, I found these last comments very interesting based on my bias and experience in publishing and I would hasten to guess that government and education have been areas that USV have or continue to look at for opportunities. What would the completely disruptive “net native business model’ look like for education? Any ideas out there?