I think you bring up a great point about the relative importance of quality, price, and convenience for coffee customers. I’m sure there is a segment of Starbucks customers (myself included) who would jump ship and choose Stumptown if the two stores were side by side. But they aren’t always side by side, and the location analysis certainly seems to be effectively putting Starbucks stores right in front of me, wherever I go. However, I think Starbucks’ real success comes from making strong, interrelated decisions that affect quality, price, and convenience simultaneously. Because they’ve made it easier for me to buy stuff through the loyalty card, they’ve also made it easier to track my preferences and price sensitivities, and they know where I make most of my purchases. Doing all of those things at once is tougher for a small competitor to pull off.
Very interesting space and company. I’m curious how much of their advantage comes in the form of well-engineered growing environments vs. data analysis expertise. If it is the former, I can see them running into the scale issues and long breakeven timelines you outline in your post. If it’s the latter, I could see them tweaking their model to help other growers optimize using data (through revenue sharing, etc.). I guess both are heavily interrelated, especially since they probably need to use very specific sensor technologies.
Great post, and very cool company. I’m particularly interested in the points you make about Palantir not drawing conclusions itself based on the data it crunches for its clients. On the one hand, this makes perfect sense. Why take on the additional risk associated with the actions companies take after they see their data in a new light? On the other hand, it’s possible that Palantir is missing out on the potential upside of the decisions it’s helping companies make. If a company saves $1B from a decision made using a Palantir tool, should Palantir be satisfied with the flat fee they charged in the beginning? I suppose if Palantir can continue to grow (as Vlad points out), then taking fees rather than a share of cost savings, etc. may be totally satisfactory and keep the risk in the right place. But maybe Palantir can develop deeper expertise in particular disciplines/industries, and snag a bigger chunk of the pie.
Very cool post. One of my favorite examples of these petitions occurs annually in Texas. Every year, a contingent of dissatisfied citizens from around the state puts together a petition (always meeting the minimum number of signers) requesting that Texas secede from the United States. Citizens from Austin, a city known for being uncharacteristically liberal as compared to the rest of the state, routinely put together their own petition. Theirs requests that Austin remain a part of the country should Texas secede. Because of the laws, these petitions have to be considered by the White House. Amusing, but definitely not a great use of resources.
Very cool idea and interesting questions. Tapcoins seem like a great, if temporary, means to get around the regulatory limitations. However, I can’t imagine that it will help capture the big upside cases, since $1M in gift cards seems like a relatively unappealing prize. I also feel like one of the traits of successful musicians is an undying optimism–a belief that it will work out, that the big payoffs are on the horizon. This also makes it hard to believe that they will give up a significant chunk of the upside. But there is no question that early backing is hugely valuable, so I wonder if there is room for backers to continue to receive non-financial credit for their support.
To me this brings up interesting questions about when crowdsourcing is most useful. When faced with the decision whether or not to crowdsource, it seems worthwhile to consider who will benefit from the results of the campaign, and in what way. As you mention, crowdsourcing product design can bring to the surface hidden insights about utility. This means that individuals in the crowd have an incentive to suggest features that they actually need. This incentive is aligned with the company’s incentive, since more valuable features for users will increase their willingness to pay and boost profits. “Co-opting” features, while it could conceivably overrepresent a niche set of needs, illustrates a set of valuable needs nevertheless.
This illustrates why crowdsourced naming can go terribly wrong. People in the crowds have an incentive to generate a name that is “Co-opting” a name, therefore, will more often reflect incentives that aren’t aligned with the company’s goals (i.e. humor, self-promotion, etc.). Not as helpful for the company.
Very interesting post and food for thought.
The Groupon story brings up an interesting question about different kinds of stickiness. On the one hand, customers were increasingly drawn to Groupon itself as a source for new deals, making the platform relatively sticky. The indirect network effects were strong, because each new company that made offers on Groupon would make it more attractive for a user. And users loved getting to try new stuff. On the other hand, while some of the products of companies listing deals on Groupon were sticky, customers were trying them through a platform that highlighted variety and newness. My guess is that many customers (myself included) never thought about Groupon as a way to discover new things that they would keep consuming. Rather, it was a place to find good one-off deals. By virtue of fulfilling the fickle, deal-seeking, consumer’s dreams, Groupon made its b2b clients less sticky than they would be on their own. Cue the reverse network effects. Very interesting post.
Very cool example. I wonder what a potential competitor to CME would have to accomplish in terms of volume/number of traders in order to tip the scales away from CME. It seems like there has to be a certain amount of liquidity in a competing exchange before it becomes attractive to traders, and obviously the same clearing services would need to be offered on the new exchange. Also curious, for those who have more experience trading on these platforms, what are the measures of quality that could prove to be sources of differentiation across platforms?
Very interesting example of both direct and indirect network effects. It’s interesting to me to think about who the parties are that will be most motivated to accelerate the adoption of bitcoin. Totally makes sense that some of the first adopters were criminals seeking to avoid using traditional, regulated financial services. I wonder whether or not there will be a large contingent of merchants or software developers that will see greater revenues or bigger cost benefits from the quick, cheap transactions that are possible using blockchain. If such a group doesn’t emerge, it’s hard to imagine that bitcoin will become widespread enough to supplant traditional payments, which still work very well. In other words, there seems like there will be a huge amount of multi-homing across currencies, unless one particular industry shifts entirely over to bitcoin.
Really like the market/offering/value creation thoughts here.
Another piece of Snapchat’s operating model that often goes unnoticed is the dramatically reduced server/tech costs that the company enjoys as a result of its ephemeral offering. Rather than storing billions of photos and videos and messages (like Facebook does), Snapchat can just store metadata (high level, small size data bits about users). This means they need fewer servers to facilitate the same amount of interaction and serve the same size user base. This lowers the hurdle to reach profitability (if and when they make substantial revenues).
Still, they have to avoid falling into the trap that Baker S. outlines above, wherein ephemeral messaging happens everywhere and Snapchat’s loses share of its users’ eyeballs. Having low costs doesn’t solve the problem of having no revenues.
I definitely agree that Craigslist has been a powerful force in the disintermediation of the rental market, and am also happy that more transparency and fairer prices are on the way. Brokers may be losing, but I’m not sure that Craigslist will be the ultimate winner.
Brokers are probably feeling some pain as they lose customers who used to pay for the listing service. However, I would argue that listing is only one small portion of the value that brokers currently create. In addition to the “filtering” that you mention in the post, brokers also go through the hassle of showing the owner’s apartment to a big number of potential renters. This takes time and effort. They also perform services like background checks and deposits collections. Craigslist doesn’t replace those functions, but is simply an open forum. That’s why it effectively takes over the bottom parts of the renting value chain. But because Craigslist isn’t specialized in the rental market, it’s unlikely that the platform will keep pushing brokers out.
Craigslist also doesn’t capture any of the value it creates for renters. (In fact, Craigslist has also become a channel for those very same brokers to publicize their inventory to a huge number of prospective renters). There’s no commission or listing fee charged to the brokers or owners who are seeking renters. However, Craigstlist has paved the way for companies like Zillow, who do monetize their userbase, and who are capturing value from the rental market, to change the broker industry. If I were to pick an ultimate winner (aside from renters like us who won’t get as ripped off), I’d pick Zillow and other specialized, for-profit digital real estate platforms.
Great post and interesting market.
Super cool product and interesting big-picture tech questions. Anything that eliminates email is a winner in my book.
It seems relatively clear to me that Quip (and other mobile-first enterprise productivity suites like Slack) create value by allowing people to do work where and how they’d like to. A question that arises for me, however, is whether or not Quip significantly changes the way that value is captured in the space. I wonder whether this type of tool points toward a new business model (aside from the freemium subscription models that currently dominate productivity software), allowing quip to capture more of the value that gets created.
Will Quip be able to monetize in creative new ways? Will people/companies be willing to pay more for premium features with Quip? What barriers to entry can Quip construct behind them as they make inroads into more companies and industries?
It seems like the flexibility that Quip will need in its products (i.e. allowing users to stay in the printed page form, exporting to traditional file formats, etc) will leave the door open for other competition. Perhaps they have enough of a lead in the space that switching costs will increase for their enterprise customers as they continue to produce content in Quip’s formats. But that remains to be seen.