What the @Facebook @Oculus acquisition tells me about the future


Both the Internet and my own circle of friends have debated this issue to death (so price. much social.) And as Fred Wilson puts it, 

It isn’t clear if the next thing is virtual reality, the internet of things, drones, machine learning, or something else. Larry doesn’t know. Zuck doesn’t know. I don’t know. But the race is on to figure it out. 

What we can expect, however, is increased VC interest in companies that could potentially bring us a new future. This is true for companies who are both competitive and complimentary to products by Nest or Oculus. Competitive companies stand to gain from these acquisitions because VC’s know that it’s rarely a one-horse race. Complimentary companies stand to gain even more as many tech incumbents have already signaled that this is where the future is going. 

I’m bullish on VR, and FB/Oculus’ upcoming challenges will prove whether the Oculus Rift is more of a Segway or an iPhone. The best step that the iPhone took was to create an ecosystem that was both open and controlled – any third party could build on top of the iPhone, but the quality of the apps were held to a high bar.

There are startups that are already building technologies that would be a great fit for the Oculus Rift. Thalmic Labs, based in Canada, has created the Myo armband for accurate and granular gesture control. Nymi and InteraXon are two bio-sensing startups – they measure heartbeat and brain activity, respectively, to control a connected device. And the quantified fitness space continues to grow with startups like Push and Hexoskin.

As I look at the new crop of hardware startups that will help create the next platform, it’s easy to see two things:

  1. As Chris Dixon said, the next big thing will start out looking like a toy
  2. Many of these next-generation hardware startups are based in Canada, where cost of living is cheaper, recruiting is less competitive, and the government has been supportive of startups by offering R&D tax incentives and offering a start-up visa

From where I stand, the future is both fun (toy!) and friendly (Canada!). I, for one, cannot wait. 

Unbundling @Facebook: what the Whatsapp acquisition tells us about Facebook’s mobile strategy


When the HTC First was released in early 2013, critics scoffed at the idea of a so-called “Facebook Phone”. It didn’t help that the product appeared half-baked – and many considered it to be Facebook’s first flop. AT&T quietly dropped the phone from its offerings mere months after launch. 

Today’s announcement of Facebook’s $19B acquisition of Whatsapp reveals that Facebook hasn’t given up on taking over our phones – but taking a much more hacker-like approach. It went from a standalone, all-encompassing app to a network of apps, including Instagram, Messenger, Paper, and now Whatsapp. That’s not including other mobile assets that Facebook attempted to buy (Snapchat, Waze, etc.) On Messenger, one of the coolest, least-known features is the Talking Heads. It allows you to include a contact on your Android home screen, to quickly launch a conversation with him/her. 

The platform wars are over – iOS and Android have emerged as the winners. But true to its hacker DNA, Facebook still wants to take over the mobile experience, one product/feature/use case at a time.

For me as an investor, the much more interesting question is, what’s next?

  • Storage: The idea of storing files/messages/photos/etc. is central to the phone experience. Facebook acquired the now defunct Drop.io team in late 2010 as most likely an acq-hire. I think they’re still looking for this functionality – maybe Dropbox or Hightail?
  • Location: Gowalla and Hot Potato were two other acq-hires, but Facebook places never took off and they were outbid for Waze. Perhaps Foursquare, Factual, Yelp, or PlaceIQ? This one I’m unsure about, since I don’t have visibility into how robust the Facebook Places data set is.
  • Music / Video: Google has Youtube, and Apple has iTunes. Consuming media is a highly social experience, so will Facebook want a content distribution platform as well? Hulu, Soundcloud, Rdio, and Oyster come to mind. 
  • Commerce: The shopping experience on mobile is incredibly compelling and we already know how CTR and conversion rates can be higher than those on the desktop. There are a few startups powering commerce on Facebook’s native platform, such as Soldsie and Chirpify. Short of purchasing another asset like Pinterest, I’m curious to see how Facebook will proceed in this vertical.
  • Calendar / Events: When I think about what products I use the  most, Google Calendar is a top contender. Facebook Events haven’t integrated with my calendar app very well – and there’s definitely an opportunity to better discover events, a la Eventbrite  
  • What else do you use your phone for?

10% of Facebook’s market cap is a lot to pay for an acquisition (of only 32 engineers!) But when I start thinking about paying 10% for a messaging platform that is so core to our mobile experience – it starts looking like a steal.

Sure, “Facebook Now Owns Over 25% Of Total Time Spent On Mobile Apps”

According to new data from comScore, Facebook leapfrogged Google Maps in October 2012 to become the most popular smartphone app in the U.S (as measured by monthly unique visitors).

But when that’s done on an Android OS, isn’t Google the ultimate winner?

Sure, “Facebook Now Owns Over 25% Of Total Time Spent On Mobile Apps”

Facebook + Instagram: blog posts galore!

I was going to write a post on how the $1 billion price tag on Instagram actually makes sense given the context of the acquisition, until I realized that the entire blogsphere and its mom has already written something to that extent. As such, I’ve gathered a couple of posts that I found most interesting during the Facetagram aftermath:

  • Andy Baio of Wired magazine did a precedent transactions analysis, breaking the acquisition down to unit economics such as cost per user and price per employee. (Thanks to Albert Wenger of USV for the find, and for providing more nuanced analysis of what those numbers mean.)
  • Charlie O’Donnell of Brooklyn Bridge Ventures brings his perspective on the relative price tag, mobile strategy, and how Facebook may be running a little scared. 
  • Christopher Zinzli at the WSJ gave us a slew of numbers to consider. I’ll add another one to the mix: $35 million (the price for Yahoo’s acquisition of Flickr in 2005).
  • Patrick Neeman of Jobvite brings up some negative side-effects of the acquisition for today’s fundraising environment. I do agree that this will only serve to fuel the “we’re not concerned about revenue right now” mindset of fresh entrepreneurs. Instagram’s success story is the exception, not a new rule.

And to wrap this all up, Lauren Leto of Texts From Last Night and Bnter posted a bombastic road map of what-could-have-been for Instagram if they hadn’t sold. 

End of an Era

New York Magazine recently published a feature on the state of New York’s finance industry, somberly titled The End of Wall Street As They Knew It. Much of the article focused on how new regulations, such as Dodd-Frank and Durbin, have dramatically changed how investment banks can continue to operate. 

At the boom’s peak, banks like Lehman and Bear Stearns levered up 30, even 40, to 1. Under the new rules, banks would only be able to borrow $12 for every dollar they spend. In Europe, the rules are even stricter: British regulators have indicated that banks may have to hold as much as 20% on their books.

Inevitably, these stricter conditions will put pressure on the bottom line: 

[Y]ou’d see that these are institutions that need to build up capital and that they’re becoming lower-margin businesses. So that means it will be hard, nearly impossible, to sustain their size and compensation structure.

Belt tightening isn’t only restricted to investment banks – it also extends to the rest of the finance world. 

We used to rely on the public making dumb investing decisions, but with the public leaving the market, it’s just hedge funds trading against hedge funds. At the end of the day, it’s a zero-sum game. […] Over 1,000 funds have closed in the past year and a half.

And all of this shouldn’t really come as a surprise; in the world of hedging and financial vehicles, real value is rarely created for Main Street or the greater economy. Finance was always meant to be the means to an end, to fund other projects and enable economic growth, and never as an end in and of itself. 

So, what comes next?

To a certain extent, Wall Street will never die. Bank executives are always clever enough to adapt to this new, albeit more difficult environment. The Managing Directors of Wall Street will still retain their “masters of the universe” title, with their years of expertise with public transactions and the breadth of their rolodexes. 

Sadly, those who will hurt the most from these changes are the new entrants who have never even tasted the glory of Wall Street. Recruitment stats are a trailing indicator as analysts and associates still flock to Wall Street with hope for high bonuses and a stepping stone to even more competitive positions in hedge funds and private equity. These mis-perceived incentives, along with the changing landscape of the finance world, further commoditize young talent and reinforce the hierarchical nature of the workplace.

Before the crash, when compensation slid, the banks risked seeing their top talent run for the doors to rival firms or hedge funds. Now, with a glut of hedge funds and an industrywide belt-tightening, bank chiefs are calling their star traders’ bluffs. “If you’re really unhappy, just leave,” Morgan Stanley CEO James Gorman bluntly told Bloomberg TV a few days after his bank announced its meager bonus numbers.

So, where should they go? 

While there isn’t a clear-cut answer, the article does offer a glimmer of hope for those disenchanted with Wall Street. A hedge-fund executive said, 

If you’re a smart Ph.D. from MIT, you’d never go to Wall Street now. You’d go to Silicon Valley. There’s at least a prospect for a huge gain. You’d have the potential to be the next Mark Zuckerberg. It looks like he has a lot more fun.

This piece of advice isn’t anything we haven’t already heard. Columbia professor Chris Wiggins, co-founder of HackNY, has been trying to keep students offthe Street” since early 2010. Today’s tech startups are indeed enticing for bankers – it has the same face-paced environment and cut-throat sense of competition. Several NYC tech startups, such as Yipit and Savored, were founded by bankers who left their day job before it became the sexy thing to do.

What troubles me about that quote, however, is not the advice, but the way it’s positioned. "Go to Silicon Valley, because there’s a prospect for huge gains.“ Not, "Go to Silicon Valley, because you can build and create real value.” Or even, “Go to Silicon Valley, because Tech is a huge economic driver.” The advice given here has none of the qualities that made Silicon Valley the beast it is today. Instead, the focus remains on greed and personal gain, simply shifted from one geography to another. Ultimately, going to the Valley with the same Street mentally won’t get ex-financiers very far. As Mark Zuckerberg simply stated in the Facebook S-1,

we don’t build services to make money; we make money to build better services.

So, start building. 

Facebook S-1 Round-up

I hope that everyone’s recovered a little from last week’s Facebook S-1 tizzy. I thought about writing a blog post about the filing, but realized that everyone and their mom has already done that for us. As John Battelle said, 

Not since Google’s 2004 filing have so many journalists sped-read one document at the same time, eager to glean any possible insight unique to their particular point of view or publication and rush to post it before anyone else.

Instead, here’s a collection of the posts I enjoyed the most: 

  • First things first, you should download the PDF version of the S-1 to read along.
  • If you aren’t a reader, then this Bloomberg video is probably a good enough to get the highlights of the Facebook filing. 
  • To get just the quick and dirty, check out Ben Parr’s top 10 interesting stats.  
  • Lee Hover, VC at NextView Ventures, took a closer look at the finances and discussed the quarter-over-quarter variance in revenue. 
  • Bill Gurrey, VC at Benchmark Capital, put together an insightful analysis of Facebook’s robust business and why it should be part of the 10x Revenue club.

Any other resources I may have missed? 

A Photographer’s Ball Pit

To show how the Internet is causing us to “drown in pictures”, artist Erik Kessels created an installation featuring prints of every single photograph uploaded to Flickr within a 24-hour period.

Interesting that the artist chose to source from Flickr instead of a website like Facebook, which may actually serve more photos per day and where data filtering is arguably even more necessary. 

A Photographer’s Ball Pit