My basic observation was that the modern tech industry is about 70 years old. It was started when there were like 5 computers. Over the last 70 years we figured out how to pack super computer technology that used to cost $25 million into a $500 product that we all have. There was this 70 year journey to get everyone a computer and onto the internet. So what is next? [Here is the link to Marc’s 2011 essay Why Software Is Eating The World. It serves as the basis for this podcast.]
After the financial crisis, there was a prevailing mood of pessimism about the economy and the technology industry. My view was the exact opposite. Not only are we not done, we are just beginning.
Everybody is connected to the internet and [as a byproduct of that] connected to an entire universe of services, information, and communications. To me, that is just the beginning. So now [think about] what can we do on top of that?
[In my essay]I had 3 claims. The first claim: Any product or service —in any field that can become a software product— will become a software product.
The next claim is: Any company that is any of these markets in which this process is happening has to become a software company.
Claim 3: As a consequence of claim 1 and 2, in the long run, in every market, the best software company will win.
This [claim 3] is tricky because software is different. Software is a different kind of product to develop than most people are used to. The culture of a software company is different. The kind of people you need to hire to build software are different.
There are 500 self-driving startups within 50 miles of here. What those founders would tell you is that 90% of the value of cars [within a few years] will be software. Those cars will be electric. They won’t have all the internal combustion components that these car companies have spent 100 years optimizing.
When we started the firm 10 years ago I would never imagine we’d be investing in new car companies. The car industry was an entrepreneurial industry in like 1890. There were hundreds of new American car companies in the early 1900s and then they shrunk to basically 3.
A lot of VCs like us did not invest in Spotify because there was this 15-year history that all the other attempts to do what Spotify was doing had failed. But the time had actually come.
There are entire companies called API companies that build software building blocks that you plug together. It is this constant process of everybody building on everybody else’s creativity. The result is everything rises.
We started to see a new kind of founder. This hybrid type. For example: A PhD in biology that has been programming computers since they were young. We didn’t know quite what to make of these.
A lot of the best companies in Silicon Valley are founded by people who have one or two significant failures before they founded the winner.
Big companies are going to do the obvious ideas. We are doing the non-obvious stuff. The controversial stuff. The stuff that is not proven. There is a risk with each and everything we do. But when it works it can get really big.
People can’t visualize new products on their own. You have to paint a picture. The picture has to be vivid.
A lot of companies have a problem that I call too hungry to eat. You have a great product, your customers really want it but you are charging very little money for it. Usually these are naive founders who don’t quite understand business. They think if they charge less they will sell more. But they charge less and that is why they sell less. The reason is they don’t charge enough for the product — they aren’t getting enough revenue back into the company. They aren’t getting enough calories [dollars] into the company. They just get stuck. In a lot of cases, the right answer is to raise prices. It’s weird.
Learn from founders who came before you. Every week I read a biography of a founder and tell you what I learned on Founders podcast.
