Uber versus AmazonFresh

Potentially like with Uber, with Amazon, it’s “something else” that provides the economics to enable same-day delivery.  In Amazon’s case, it’s groceries.  From Fast Company:

AmazonFresh is actually a Trojan horse, a service designed for a much greater purpose. “It was articulated [in the initial, internal pitch to Bezos] that this would work with the broader rollout of same-day delivery,” says Tom Furphy, a former Amazon executive who launched Fresh in 2007 and ran it until 2009. Creating a same-day delivery service poses tremendous logistical and economic hurdles. It’s the so-called last-mile problem–you can ship trucks’ worth of packages from a warehouse easily enough, but getting an individual package to wind its way through a single neighborhood and arrive at a single consumer’s door isn’t easy. The volume of freight and frequency of delivery must outweigh the costs of fuel and time, or else this last mile is wildly expensive. You can’t hire a battalion of Des unless they earn their keep. So by expanding grocery delivery, Amazon hopes to transform monthly customers to weekly–or even thrice-weekly–customers. And that, in turn, will produce the kind of order volume that makes same-day delivery worth investing in. “Think of the synergy between Prime, same-day delivery, and Fresh,” says Furphy. “When all of those things start working in concert, it can be a very beautiful thing.”

 

 

Is Google’s Last Mile Plan Uber?

Weird and fascinating.  Recall Google needs a last mile solution to combat Amazon.  This is TechCrunch:

According to one source, the deal was brought in by Google Ventures Partner Kevin Rose and led by Google Ventures co-founder David Drummond. Despite it being a later-stage investment, it was not a Google Capital deal, mainly because of the heavy Google Ventures involvement in sourcing and negotiating, we hear. The $258 million is an 86 percent chunk of Google Ventures’ $300 million dollar a year fund, and it’s unclear whether the firm will continue to make such sizable investments.

As both Google Ventures and Google Capital come out of Google’s balance sheet, this is purely a matter of semantics, and logo. We’ve also confirmed, like Swisher reported, that a meeting with Google CEO Larry Page sealed the deal — wherein Page outlined how Google’s resources could bolster Uber co-founder Travis Kalanick‘s grand plan to offer everything via iPhone.

Losing Possession

What holds the current cable system and its uninterrupted inflation together is sports rights.  Something like this actually happening would irreversibly jolt the system and transform it into something new, by finally allowing people to cut the cord to bundled packages:

And it is. Today, according to sources, Google CEO Larry Page, along with YouTube content boss Robert Kyncl, met with a delegation from the NFL led by commissioner Roger Goodell. And the Sunday Ticket package was among the topics of discussion, according to people familiar with the meeting.

A Google rep declined to comment, and I’m still waiting to hear back from an NFL rep.

An informal chat is a very long way from a deal, so there’s no need to invest too much in the conversation quite yet. And I’m told that Goodell and other NFL executives are meeting with multiple Silicon Valley companies on this trip, which is one they make annually.

That said, Google plus the NFL is an intriguing concept. Google could certainly afford the rights, which currently cost DirecTV $1 billion a year.

 

 

The MarketPlace Creation Story

At its best, a marketplace has something self-sustaining and life-like to it, with buyers and sellers coming together and re-generating themselves.  In another great essay by Paul Graham, he explains that even those marketplaces that are most life-like today had a creation story that involved a manual breath of life to overcome a highly fragile situation at birth.

Manual:

One of the most common types of advice we give at Y Combinator is to do things that don’t scale. A lot of would-be founders believe that startups either take off or don’t. You build something, make it available, and if you’ve made a better mousetrap, people beat a path to your door as promised. Or they don’t, in which case the market must not exist.

Actually startups take off because the founders make them take off. There may be a handful that just grew by themselves, but usually it takes some sort of push to get them going. A good metaphor would be the cranks that car engines had before they got electric starters. Once the engine was going, it would keep going, but there was a separate and laborious process to get it going.The most common unscalable thing founders have to do at the start is to recruit users manually. Nearly all startups have to. You can’t wait for users to come to you. You have to go out and get them.You’ll be doing different things when you’re acquiring users a thousand at a time, and growth has to slow down eventually. But if the market exists you can usually start by recruiting users manually and then gradually switch to less manual methods.Airbnb is a classic example of this technique. Marketplaces are so hard to get rolling that you should expect to take heroic measures at first…

Fragile:

That initial fragility was not a unique feature of Airbnb. Almost all startups are fragile initially. And that’s one of the biggest things inexperienced founders and investors (and reporters and know-it-alls on forums) get wrong about them. They unconsciously judge larval startups by the standards of established ones. They’re like someone looking at a newborn baby and concluding “there’s no way this tiny creature could ever accomplish anything.”

It’s harmless if reporters and know-it-alls dismiss your startup. They always get things wrong. It’s even ok if investors dismiss your startup; they’ll change their minds when they see growth. The big danger is that you’ll dismiss your startup yourself. I’ve seen it happen. I often have to encourage founders who don’t see the full potential of what they’re building. Even Bill Gates made that mistake. He returned to Harvard for the fall semester after starting Microsoft. He didn’t stay long, but he wouldn’t have returned at all if he’d realized Microsoft was going to be even a fraction of the size it turned out to be.

Freelance Tagging

Netflix has a team of 40 freelancers who tag incoming TV shows and movies, so it’s a manual process but variable cost.  From the Wired article re: Netflix:

We have more than 40 people hand-tagging TV shows and movies for us. These are typically freelancers who do this to supplement their income. All of our analysts are TV and film buffs, and many have some experience working in the entertainment industry. They obviously have personal tastes, but their job as an analyst is to be objective, and we train them to work that way.

What You Are Really Watching

Sometimes the customer is right and sometimes she isn’t.

In designing search algorithms, it is important to determine when a stated preference is real or just aspirational.  Take Netflix’s experience, revealed in an interview with their algorithm gurus:

Why do I see so many three- or even two-star movies in my recommendations?

Gomez-Uribe: People rate movies like Schindler’s List high, as opposed to one of the silly comedies I watch, like Hot Tub Time Machine. If you give users recommendations that are all four- or five-star videos, that doesn’t mean they’ll actually want to watch that video on a Wednesday night after a long day at work. Viewing behavior is the most important data we have.

Amatriain: We know that many of the ratings are aspirational rather than reflecting your daily activity.

Gomez-Uribe: A lot of people tell us they often watch foreign movies or documentaries. But in practice, that doesn’t happen very much.

It’s important in getting a stated preference to know whether someone is telling you what they want or what they think they are expected to want.

Know The Game

Paul Graham is the best long-form writer out there on startup stuff, period.  It’s also the case that YCombinator has funded hundreds of startups.   Consequently, when Paul Graham writes about funding, it’s worth reading.

His recent essay should have been called “You gotta know the game to win the game.”

1) The game is not to de-risk the project.

Investors are looking for startups that will be very successful. But that test is not as simple as it sounds. In startups, as in a lot of other domains, the distribution of outcomes follows a power law, but in startups the curve is startlingly steep. The big successes are so big they dwarf the rest. And since there are only a handful each year (the conventional wisdom is 15), investors treat “big success” as if it were binary. Most are interested in you if you seem like you have a chance, however small, of being one of the 15 big successes, and otherwise not.

2) Rejections from many/most investors means little, and it is certainly not losing.

Experienced investors are well aware that the best ideas are also the scariest. They all know about the VCs who rejected Google. If instead of seeming evasive and ashamed about having been turned down (and thereby implicitly agreeing with the verdict) you talk candidly about what scared investors about you, you’ll seem more confident, which they like, and you’ll probably also do a better job of presenting that aspect of your startup. At the very least, that worry will now be out in the open instead of being a gotcha left to be discovered by the investors you’re currently talking to, who will be proud of and thus attached to their discovery. [11]

This strategy will work best with the best investors, who are both hard to bluff and who already believe most other investors are conventional-minded drones doomed always to miss the big outliers. Raising money is not like applying to college, where you can assume that if you can get into MIT, you can also get into Foobar State. Because the best investors are much smarter than the rest, and the best startup ideas look initially like bad ideas, it’s not uncommon for a startup to be rejected by all the VCs except the best ones. That’s what happened to Dropbox. Y Combinator started in Boston, and for the first 3 years we ran alternating batches in Boston and Silicon Valley. Because Boston investors were so few and so timid, we used to ship Boston batches out for a second Demo Day in Silicon Valley. Dropbox was part of a Boston batch, which means all those Boston investors got the first look at Dropbox, and none of them closed the deal. Yet another backup and syncing thing, they all thought. A couple weeks later, Dropbox raised a series A round from Sequoia. [12]

Offline SEO

I am not sure if this is sui generis, if it’s even accurate, but this discussion in the Economist does raise an interesting question:

Britain’s brick-burdened retailers may be heartened, though, by the example of Dixons Retail, owner of Britain’s biggest electronics and computer retailers, Currys and PC World, and of similar chains in other countries. Between 15% and 20% of sales at Dixons are online, depending on the season, and the proportion is rising. But Dixons thinks the advantages which online-only merchants get by doing away with shops and sales staff are undercut by the need to pay more than high-street shops do to acquire customers (largely by paying Google for clicks on adverts) and to spend a lot on shipping. So instead of doing away with shops and sales staff, Dixons is trying to get more out of them.

Maybe the value in offline retail is to get consumers to your online site, without having to pay for expensive Google Adwords or other online acquisition techniques.

Another reason why Amazon is so well-positioned in the US.  It has a much lower consumer acquisition cost than competing retailers because so many customers (30%) start their online product searches there.  See here.

The Next Willie Mays Is Not Playing Baseball

That is what matters.

As military historians know, better than looking at current victories in judging the future course of a war is looking at re-supply lines and logistics.  This was the lesson the British Empire learned in the Revolutionary War, as early victories could not be sustained as supplies and personnel could not be replenished across the ocean.

On the day that we expect the  once potential “greatest player ever” to be suspended a season and a half to a lifetime, the baseball grey hair might want to consider that lesson.  The quintupling of revenues in less than two decades and the recent sale price of the LA Dodgers should not give false comfort.  More important is what is happening “down the supply line.”  The numbers to pay attention to — as a dad of a young told me — are that Little League participation is down by over a third, and leagues are struggling to fill teams.

Do Ideas Matter?

Chris Dixon writes today of a metaphor that helps us get beyond the untruth that ideas do not matter in startup innovation.

Ideas are more than the Eureka moment — they are working out that initial Eureka moment through the idea maze:

In other words: a good idea means a bird’s eye view of the idea maze, understanding all the
permutations of the idea and the branching of the decision tree, gaming things out to the end
of each scenario. Anyone can point out the entrance to the maze, but few can think through
all the branches. If you can verbally and then graphically diagram a complex decision tree
with many alternatives, explaining why your particular plan to navigate the maze is superior
to the ten past companies that fell into pits and twenty current competitors lost in the maze,
you’ll have gone a long way towards proving that you actually have a good idea that others
did not and do not have. This is where the historical perspective and market research is key;
a strong new plan for navigating the idea maze usually requires an obsession with the market,
a unique insight from deep thought that others did not see, a hidden door.

That is from the work of Balaji Srinivasan.  Ideas are process rather than point in time.  Chris’s post talks about using analogy, history, academic thought, and direct experience to work one through the idea maze.  Complement this process by wrestling with Elon Musk’s notion that identifying too closely with history, analogy, and current thinking kills creative thought.