Scott Rafer on Dalton's letter: "Learning the wrong lesson"
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Re: Scott Rafer on Dalton's letter: "Learning the wrong lesson"
#2"The lesson instead is: build something whose very nature makes it a cannibalistic cash flow hit for a BigCo so that their shareholders resist competing, but which their users love."
Can anyone explain more what he means by that? How can something that is a cash flow hit for a BigCo not be a cash flow hit for anyone else?
Re: Scott Rafer on Dalton's letter: "Learning the wrong lesson"
#3"The lesson instead is: build something whose very nature makes it a cannibalistic cash flow hit for a BigCo so that their shareholders resist competing, but which their users love." Can anyone explain more what he means by that? How can something that is a cash flow hit for a BigCo not be a cash flow hit for anyone else?
I think it means to build something that the shareholders wouldn't want to expend internal resources to duplicate, but it's hard to tell for sure.
Re: Scott Rafer on Dalton's letter: "Learning the wrong lesson"
#4"The lesson instead is: build something whose very nature makes it a cannibalistic cash flow hit for a BigCo so that their shareholders resist competing, but which their users love." Can anyone explain more what he means by that? How can something that is a cash flow hit for a BigCo not be a cash flow hit for anyone else?
I think it means to build something that the shareholders wouldn't want to expend internal resources to duplicate, but it's hard to tell for sure.
I think he's going further than that and saying, build something that shareholders wouldn't allow because it will eat into the existing revenue sources.
Re: Scott Rafer on Dalton's letter: "Learning the wrong lesson"
#5"The lesson instead is: build something whose very nature makes it a cannibalistic cash flow hit for a BigCo so that their shareholders resist competing, but which their users love." Can anyone explain more what he means by that? How can something that is a cash flow hit for a BigCo not be a cash flow hit for anyone else?
An example: Rapportive was a browser plugin that put social information (from FB, LinkedIn, Twitter, etc.) directly in your Gmail.
This was great from a user perspective (puts a picture with an email so you recognize that this is 'Bill' who you met at the hackerspace even though his email is cypherdog26@crytomesh.org).
However it was NOT so great for Gmail:
1. Rapportive overwrote the section of gmail where they display ads.
2. It further entrenched Google's social competitors.
There is no way that Google was going to launch a set of Rapportive equivalent features in Gmail. However, Rapportive was beloved by users and exited to LinkedIn.
Re: Scott Rafer on Dalton's letter: "Learning the wrong lesson"
#6Earlier quoted context omitted.
I think it means to build something that the shareholders wouldn't want to expend internal resources to duplicate, but it's hard to tell for sure.
I think he's going further than that and saying, build something that shareholders wouldn't allow because it will eat into the existing revenue sources.
Exactly. Normal cannibalization. New businesses are built all the time by giving away what the incumbent charges for. Skype's an easy one. They don't charge all for normal calls, only for certain premiums. Innovator's Dilemma, etc., etc.
If @daltonc's app.net doesn't massively undercut FB's App Center revenue plan (or overwhelm it's distribution plan) somehow, what's the point?
Re: Scott Rafer on Dalton's letter: "Learning the wrong lesson"
#7Earlier quoted context omitted.
I think he's going further than that and saying, build something that shareholders wouldn't allow because it will eat into the existing revenue sources.
Exactly. Normal cannibalization. New businesses are built all the time by giving away what the incumbent charges for. Skype's an easy one. They don't charge all for normal calls, only for certain premiums. Innovator's Dilemma, etc., etc. If @daltonc's app.net doesn't massively undercut FB's App Center revenue plan (or overwhelm it's distribution plan) somehow, what's the point?
I think the point is that Twitter can't afford to remove ads or broaden their terms of use. The idea seems to be that a for-pay Twitter with broad terms of use and no ads could become a valuable development platform. The gamble is, how valuable and will people pay.
I think your cannibalization concept is brilliant, but I don't think app.net is completely vulnerable to it. Caldwell's made it clear that he's not trying to find success of Twitter and FB's magnitude, that sustainable profitability is more important for this venture than unbounded growth and huge winnings, and he's not trying to steal Twitter's customers, whatever that would mean. But unless Twitter becomes wildly profitable I don't see them giving away ad-free unrestricted API access just to eliminate a small gadfly.
I think your concept has a lot of merit, but I'm not sure it applies in this case.
Re: Scott Rafer on Dalton's letter: "Learning the wrong lesson"
#8"The lesson instead is: build something whose very nature makes it a cannibalistic cash flow hit for a BigCo so that their shareholders resist competing, but which their users love." Can anyone explain more what he means by that? How can something that is a cash flow hit for a BigCo not be a cash flow hit for anyone else?
It means build something that big companies have thought about or maybe even could build, but have not built because they're afraid they'll lose money in doing so.
Facebook and Instagram was a perfect example. Facebook has money, time, and resources to build an Instagram competitor. But they didn't, because they still don't know how to monetize their mobile traffic (which should answer the question, "Why is Facebook's mobile app so awful?") They tried last minute to build Facebook camera, and when that had no traction because Instagram had already captured that market they had to cut their losses and buy it. My guess is Instagram realized that Facebook was basically forced to buy them and made them pay for it ($1B).
So I work on a startup in the news/journalism industry. If we're to follow the argument (which I believe is spot on), our goal is to build something that the New York Times or Washington Post wouldn't dare build, because it would destroy the revenue from their newspaper sales (yes, we have to compete against the likes of the Huffington Post too, but it's easier to illustrate it against the background of business models that haven't changed since the 1950's).
What Steve Jobs always preached was true - if you're not willing to cannibalize yourself, someone else will cannibalize you. As a startup, one strategy is to find those companies not willing to cannibalize themselves and help them out a little bit. But in doing so you run a risk; if you don't generate traction quickly enough and they see that it's inevitable, they'll just build it on their own and leave you hanging out to dry.
Re: Scott Rafer on Dalton's letter: "Learning the wrong lesson"
#9Earlier quoted context omitted.
Exactly. Normal cannibalization. New businesses are built all the time by giving away what the incumbent charges for. Skype's an easy one. They don't charge all for normal calls, only for certain premiums. Innovator's Dilemma, etc., etc. If @daltonc's app.net doesn't massively undercut FB's App Center revenue plan (or overwhelm it's distribution plan) somehow, what's the point?
I think the point is that Twitter can't afford to remove ads or broaden their terms of use. The idea seems to be that a for-pay Twitter with broad terms of use and no ads could become a valuable development platform. The gamble is, how valuable and will people pay. I think your cannibalization concept is brilliant, but I don't think app.net is completely vulnerable to it. Caldwell's made it clear that he's not trying…
I'm applying it differently, and to the business before his pivot. I'm talking about his conversation with Facebook and his accusation that Facebook was underhanded. He didn't do a proper job of disrupting FB's economics, distribution, or organizational limitations, so he's got no grounds to complain that they 'bullied' him. That should have been his expectation.
Re: Scott Rafer on Dalton's letter: "Learning the wrong lesson"
#10Earlier quoted context omitted.
I think the point is that Twitter can't afford to remove ads or broaden their terms of use. The idea seems to be that a for-pay Twitter with broad terms of use and no ads could become a valuable development platform. The gamble is, how valuable and will people pay. I think your cannibalization concept is brilliant, but I don't think app.net is completely vulnerable to it. Caldwell's made it clear that he's not trying…
I'm applying it differently, and to the business before his pivot. I'm talking about his conversation with Facebook and his accusation that Facebook was underhanded. He didn't do a proper job of disrupting FB's economics, distribution, or organizational limitations, so he's got no grounds to complain that they 'bullied' him. That should have been his expectation.
D'oh! :)