Stealing Signs - Issue 35
Layering Network Effects, What Mojang & Minecraft Taught Microsoft About Acquisitions, The Unbundling of Google, & Solving Online Events
Worth Reading
Layering Network Effects
Sameer Singh, Investor & Author at Breadcrumb.vc
It is also worth noting that these two approaches — adding new types of network participants and creating new types of connections between existing network participants — can be combined. Poshmark is a perfect example of this. Poshmark began its journey as a social, C2C commerce app that allowed users to buy and sell their clothes. At a very basic level, it was a marketplace that connected buyers and sellers, and allowed all users to “switch sides”. In addition to this, it also added a social layer by allowing users to communicate and follow each other on a social feed. In other words, it connected all users on an interaction network.
Sameer gives us two approaches to layering network effects on top of existing business models:
Add new types of network participants
Slack added 3rd party integrations (new network participant) on top of the core product to make it a better productivity and collaboration tool
Shopify shafted from eCommerce tool to platform by opening up a 3rd party app store, allowing 3rd party developers (new network participant) to build apps for Shopify customers
Create new types of connections between existing network participants
Carta stetted as a two sided SaaS-enabled network connecting startups and shareholders. They plan to add the ability for shareholders to connect with one another (new type of connection) to buy and sell shares, providing liquidity to shareholders. In other words they added a p2p network between shareholders
AngelList originally connected investors and founders, then launched the syndicate feature which created a marketplace for founders and shareholders to transact (new type of connection), or, in other words, raise funds.
Network effects infused into business models previously devoid of them can unlock new revenue streams, new customers and users, and new interactions between existing users. Layering network effects will become an area of focus for all companies over time, specifically approach #2, as the importance of communities increase. Creating new, p2p interactions, or user communities, will help companies create stickiness in their products and services, and unlock exponential growth for seemingly non-viral products.
We can see the impact of user communities on growth and retention from the creator economy, which is built on the community driven-business model. In the creator economy, creators first build a following and then create a product or service to monetize their following, converting their followers to customers. Creators in this economy often have networks effects waiting for their products because they’re built around the community, not the business model. The addition of one new member to the community increases the value of the community, which in turn increases the value of the product.
While the creator economy begins with the community and builds a revenue model around it, companies that don’t yet have user communities can layer them on to existing business models to seed network effects. We can see the potential value of this approach in the consumerization of enterprise software. These products rely on bottom-up growth to succeed, which means they need passionate users to promote the product to their managers and executives. User communities can simulate this phenomenon, bringing about the same passionate users which increase product adoption.
Further, user communities can also strengthen a product or service’s value proposition for the users themselves — why just use a product when you can engage with other like-minded users of the product, too?
The looming rise of user communities in software reminds me of Alex Danco’s recent piece, Craft is Culture, in which he compares the connectivity provided by message boards in the 90’s to emerging trends driven by the new ‘remote & digital’ normal:
The second important lesson from the 90s was the importance of message boards. As the whole world got connected, craft practitioners found one another on forums and message boards, and obsession flourished. The free software community, which got off the ground as the internet was born, started coming together around bigger and bigger projects, eventually building Linux…
Another essential part of our jobs, which I bet will be made explicit before too long, is knowing where the highest-quality pockets of craft practitioners are. "I know you from this message board; you're someone who cares a lot about our craft" will beat any resume line or work credential. Forums will unbundle LinkedIn, for any job where craft matters.
The comparison of message boards in the 90’s to user communities in the 2020’s is an easy one. The most interesting, and potentially powerful, similarity is identifying where high-quality practitioners reside — company-specific user communities are a very logical home for them. Imagine a Figma-created user community where designers chat and share editing information, stories, and tips. Where might I find the top designers in the world? Probably the Figma user community. Especially as Figma grows and more designers adopt the tool. It’s not far-fetched to suggest this could quickly unbundle LinkedIn the design vertical.
How Minecraft & Mojang Taught Xbox How to Buy Studios
Christopher Dring, ReedPop & GamesIndustry.biz
"With Psychonauts 2, we could see the end of our budget coming up, and so we had cut a lot of stuff," Schafer explains. "We had cut our boss fights. Now we are able to put those back in, and we're like 'we think people would have noticed if we didn't have those boss fights'. Being able to complete the game in the way that it was meant to be was very important.
"I'm looking forward to doing things for the right reasons. When you only have a certain amount of time and money, you might jump into a part of the game that you're not ready to jump into, or start working on art before you're ready with design. But now I look forward to this era where we are doing everything for what is right for the game."
Who knew? Microsoft’s 2014 acquisition of Mojang, the developers of Minecraft, laid the groundwork for future game studio acquisitions in that they established a “minimal integration approach. This approach was so successful with Mojang that they made it the standard acquisition strategy not just for game studios, but all Microsoft acquisitions including LinkedIn (2016) and Github (2018).
For game studio acquisitions, Microsoft calls the minimal integration approach “unplugged studios” — they ensure the acquired studios maintained their creative freedom and spirit, and often let them operate independently as if they were still an indie developer. Not only did this result in tremendous game development success, but also tremendous success for Microsoft more broadly. It’s a great example of the optimal acquisition outcome — value creation for both the acquirer and the acquired:
Value for Studios:
Financial Support: No longer worried about payroll and flexibility to increase budget when needed
Creative Independence: freedom to build games as indie developers without corporate influence + freedom from the constraint of dealing with publishers. As indie developers, studios acquire funding from game publishers to develop games and often must comply with publisher demands during game development. As a part of Microsoft, developers don’t have to worry about this relationship — Microsoft handles publisher deals so developers can focus on building world class games.
Value for Microsoft:
Adopt the best of Indie Culture: Microsoft learns how to operate in small teams in resource-constrained environments, which is atypical in a large organization
Benefit from Studio Value Creation: Game developers create create games which Microsoft includes in their Xbox Game Pass subscription, which increases the value of said subscription, increasing revenues and accelerating customer acquisition for Microsoft.
I sketched out what Microsoft’s Studio Acquisition Loop might look like below:
Google’s Empire is Being Unbundled
Mario Gabriele, Charge Ventures
In recent weeks, I wrote about the phenomenon of corporations-as-nations, meta-states with equivalent (or superior) power to traditional sovereignties. Chief among these apparats is Alphabet, parent company of Google. In some respects, it is the definitivemeta-state, both guide and destination, boasting a dominion that stretches across the web, embedding itself into nearly every online visit.
And it is being unbundled.
Over the past few years, credible insurgents have risen to prominence on the premise of taking a functionality offered by the conglomerate and improving upon it. In some instances, the improvement is one of usability. Often, it is one of privacy, replacing an ad-driven model with a subscription. That trend appears to be accelerating.
Google is being unbundled. This is a thorough breakdown of how exactly this is happening and the potential, even looming, re-bundling of upstarts attacking each of Google’s core products and services.
Google search is the least likely to be successfully unbundled in my opinion — unbundling a 91% market share seems like an insurmountable challenge, but one could argue this is the very reason it’s ripe for unbundling. One way this could happen is via verticalized search engines. The travel space comes to mind here as Expedia, Kayak, and Airbnb are essentially search engines for travel accommodations, but they’re really more of a booking service than search engine. That said, transaction functionality is a natural business model progression for a verticalized search engine. Since Google differentiates on volume and convenience, verticalized search engines could differentiate on context and community:
Context: this begins with curation. Let’s use the baseball industry as an example. The Baseball Search Engine would aggregate all of the baseball products, services, events, and news. The curation of baseball specific search results creates a much more efficient search experience than searching on Google or Amazon for baseball equipment or services. It'd also be in the best interest of The Baseball Search Engine to link relevant search results: searching for a travel baseball team to try out for? The Baseball Search Engine returns results for the top teams in the areas, user reviews of the team, scores from their recent games, top players on each team and colleges they've committed to, MLB draft selections from each team, product listings for the top bats and gloves used by top players on these teams, etc. In some ways the innovation here is an improved user experience.
Community: Imagine the ability to search within a specific industry and connect with like-minded individuals in the industry searching for similar things. I’ll take network effects for 1,000.
Collaboration tools is the service next least likely to be unbundled. Despite the swell in competitors (Notion, Airtable, etc.), I think Google is very strong here. The key competitive advantage is that Google has a unified product offering in GSuite. While collaboration across GDocs, GSlides, GSheets is effective today, they’re not entirely interoperable. As these products, and additional products, become more interoperable, the Google Suite becomes exponentially more valuable. This is the same advantage Microsoft Teams has over Slack. Teams has seen tremendous growth in recent months and is a high stickiness product because, as Ben Thompson pointed out, the power of unification and interoperability is an extremely durable moat, even in the face of a well-funded competitor with a world class product like Slack.
Solving Online Events
Benedict Evans, Independent Analyst & Former Partner at Andreessen Horowitz
..it’s often struck me that networking events are pretty inefficient and random. If you’re going to spend an hour or two in a room with 50 or 500 people, then you could take that as a purely social occasion and enjoy yourself. But if your purpose is to have professionally useful conversations, then what proportion of the people in the room can you talk to in an hour and how likely is it that they’ll be the right ones? Who’s there? I sometimes suggest it would be helpful if we all wore banners, as in the image at the top, so that you could look across the room and see who to talk to.
Benedict offers the best description of in person events I’ve heard — “A physical event is a bundle of different kinds of interaction, but it’s also a bundle of people at a certain place at a certain date.” This bundle, as Benedict notes, is difficult to replicate online, even lost entirely, in large part due to the inability to replicate the randomness involved in participant interaction at physical events. How does one replicate randomness online? Is it possible? How does one have “professionally useful” conversations with someone in a Zoom conference with 500 other strangers?
A few ideas on how to replicate randomness and enable professionally useful conversations in online events…
Roadtrip: Music as the bedrock of the platform is key. The background music prevents awkward silences and even encourages pauses in the conversation, which allows users to hang out in rooms for extended periods. The ability to pop in and out of different rooms + the long dwell time in rooms could replicate some of the randomness at in-person events.
Software Company User Communities: The Figma user community example in my analysis of Sameer’s article on layering network effects above is a good example here. If all of the best designers interact with one another in Figma’s user community, it’s possible they’ll bump into each other in various message channels and threads. The conditions for randomness are more similar to in-person events than current online events because this user community has context and direction. Users know that other users in the community are designers and the directive of the community is to discuss design, best practices, tips, and ideas, or “professionally useful conversations” as Benedict calls them.
One may argue large online events also have context and direction, but there’s no guarantee that participants are like-minded or even in the same industry or profession. Further, a key difference of user communities is that they’re ongoing rather than ephemeral. On top of the industry and profession context, users have the context of prior conversations and the evolution of the product as mechanisms of engagement. Online conferences last for a very short period of time and lack the historical and product context user communities can offer.
<stuff> Weekly
LOL Weekly: Bohemian Rhapsody w/ Baseball Names
lololol
Funding Weekly: Waldo
If you’re an app developer, you currently have two possibilities. You can keep a bunch of smartphones and run your current build on these devices to see if there’s anything wrong, but it takes a ton of time. Or you can develop testing scripts that validate the core features of your app — but that requires additional development and creates a whole new set of headaches when you need to update your scripts.
Waldo wants to lower the barrier to entry and let smaller mobile development teams take advantage of automated functional and UI testing. It is part of a bigger trend of “no code” startups — no technical skills required.
Waldo raised $6.5M from First Round Capital, Matrix Partners, and angel investors. I’ve dealt with the “keep a bunch of smartphones” to test mobile apps and it’s no fun. The ability to run tests in an app directly that accounts for all potential use cases (device and operating system variances) plus the “no-code” nature of the solution is quite impressive. UAT team here I come…
Baseball Weekly: Kiwoom Heroes HR Celebration
More of this in the MLB, please (click image below or title above to watch video)
Art Weekly: Pre-Race Strategy at Hungaroring
In honor of the return of Formula 1 racing, here’s an awesome behind the scenes photo of what appears to be a pre-race strategy session at Hungaroring, the circuit for the Hungarian Gran Prix held in Mogyoród, Hungary.
