« swipe left for tags/categories
swipe right to go back »
Let’s start out by saying that I’m a big fan of both Uber and Lyft. I’m indirectly an investor in both companies as I’m an investor in three VC funds that are investors Uber and one VC fund that is an investor in Lyft. I have no idea how much actual equity I have in either company, but based on current valuations the dollar value of my indirect ownership is non-trivial. And Foundry Group came close to investing in Zimride (the predecessor to Lyft) but we ended up withdrawing from what we thought was an inappropriately high priced round, which, in hindsight, was clearly a miss on our part.
Regardless of my support and enthusiasm for these two companies, I’m bummed at the mud they are slinging at each other. I get that this is an intensely competitive market. I get that the stakes are huge. I get that all the reporting I’m reading is second hand and might be fiction. But the ad hominem attacks are escalating rapidly and the behavior they are surfacing isn’t pretty.
Techcrunch summarized this pretty well yesterday, after multiple articles from a variety of places including the NY Times and WSJ. The headline sets the tone: Uber Strikes Back, Claiming Lyft Drivers And Employees Canceled Nearly 13,000 Rides. The NYT article is Accusations Fly Between Uber and Lyft and the WSJ article is Uber and Lyft Rivalry Turns Nasty in War of Words.
I have no idea what, if any of what is being said is true. The tactic being asserted that is most disturbing is this one:
Accused Lyft behavior: “Lyft employees, drivers and one of its founders ordered 12,900 trips on Uber’s app and then canceled them with the goal of slowing down drivers who would otherwise be picking up actual, paying passengers.”
Accused Uber behavior: “177 Uber employees have requested and quickly canceled more than 5,000 rides from Lyft drivers over the past 10 months, Lyft said, in an effort to frustrate Lyft’s customers and drivers.”
As a customer, this sucks. If I was a driver for either service, this sucks. I think this ultimately backfires against each company equally.
Guys – both of you are trying to disrupt a massive market dominated by incumbents and government regulation. I’m sure these incumbents are now laughing their asses off at y’all are acting like petulant children, as they wait patiently for you to chew up capital, value, partners, customers, while generating additional scrutiny from the government forces in the incumbents’ pockets trying to slow you down.
I get that you believe price is a weapon – how you use it for you and your investors to decide. But by messing with each other’s service, especially in a way that negatively impacts your two key constituents, consumers and drivers, you are opening yourself up to a ridiculous amount of scrutiny and quickly playing a no-win, zero-sum game. There is no need at all for this given the massive size of the market opportunity before you.
One, or both of you, should rise above the fray. Keep on competing aggressively. But recognize that you are radically disrupting a market desperately in need of disruption and doing it beautifully. Don’t shit all over it, and yourself in the process.
I expect most of you know the fable of the scorpion and the frog, but if you don’t, it goes like this (quoted from Wikipedia):
“A scorpion asks a frog to carry him over a river. The frog is afraid of being stung during the trip, but the scorpion argues that if it stung the frog, both would sink and the scorpion would drown. The frog agrees and begins carrying the scorpion, but midway across the river the scorpion does indeed sting the frog, dooming them both. When asked why, the scorpion points out that this is its nature. The fable is used to illustrate the position that no change can be made in the behaviour of the fundamentally vicious.”
Over the weekend, there was some commentary on AWS in fight of its life as customers like Dropbox ponder hybrid clouds and Google pricing. Amazon turned in slightly declining quarter-over-quarter revenue on AWS, although significant year-over-year quarterly growth, as explained in Sign of stress or just business as usual? AWS sales are off slightly.
“Could Amazon Web Services be feeling the heat from new public cloud competitors? Maybe. Maybe not. Second quarter net sales of AWS — or at least the category in which it is embedded– were off about 3 percent sequentially to $1.168 billion from $1.204 billion for the first quarter. But they were up 38 percent from $844 million for the second quarter last year. In the first quarter, growth in this category year over year was 60 percent. So make of that what you will.”
Could Amazon’s nature be catching up with it, or is it just operating in a more competitive market? A set of emails went around from some of the CEOs of our companies talking about this followed by a broader discussion on our Foundry Group EXEC email list. It contained, among other comments:
- AWS is not the low price provider.
- AWS is not the best product at anything – most of their features are mediocre knock offs of other products.
- AWS is unbelievably lousy at support.
- Once you are at $200k / month of spend, it’s cheaper and much more effective to build your own infrastructure.
While we are in the middle of a massive secular shift from owned data centers to outsourced data centers and hardware, anyone who remembers the emergence of outsourced data centers, shared web hosting, dedicated web hosting, co-location, and application service providers will recognize many of the dynamics going on. Predictably in the tech industry, what’s old is new again as all the infrastructure players roll out their public clouds and all the scaled companies start exploring ways to move off of AWS (and other cloud services) into much more cost effective configurations.
Let’s pick apart the four points above a little bit.
1. AWS is not the low price provider. When AWS came out, it was amazing, partly because you didn’t need to buy any hardware to get going, partly because it had a very fine grade variable pricing approach, and mostly because these two things added up to an extremely low cost for a startup relative to all other options. This is no longer the case as AWS, Microsoft, and Google bash each other over the head on pricing, with Microsoft and Google willing to charge extremely low prices to gain market share. And, more importantly, see point #4 below in a moment. Being low priced is in Amazon’s nature so this will be intensely challenging to them.
2. AWS is not the best product at anything – most of their features are mediocre knock offs of other products. We’ve watched as AWS has aggressively talked to every company we know doing things in the cloud infrastructure and application stack, and then rather than partner eventually roll out low-end versions of competitive products. We used to think of Amazon as a potential acquirer for these companies, or at least a powerful strategic partner. Now we know they are just using the bait of “we want to work more closely with you” as market and product intelligence. Ultimately, when they come out with what they view of as a feature, it’s a low-end, mediocre, and limited version of what these companies do. So, they commoditize elements of the low end of the market, but don’t impact anything that actually scales. In addition, they always end up competing on every front possible, hence the chatter about Dropbox moving away from AWS since AWS has now come out with a competitive product. It appears that it’s just not in Amazon’s nature to collaborate with others.
3. AWS is unbelievably lousy at support. While they’ve gotten better at paid support, including their premium offerings, these support contracts are expensive. Approaches to get around support issues and/or lower long term prices like reserved instances are stop gaps and often a negative benefit for a fast growing company. I’ve had several conversations over the years with friends at Amazon about this and I’ve given up. Support is just not in Amazon’s nature (as anyone who has ever tried to figure out why a package didn’t show up when expected) and when a company running production systems on AWS is having mission critical issues that are linked to AWS, it’s just painful. At low volumes, it doesn’t matter, but at high scale, it matters a huge amount.
4. Once you are at $200k / month of spend, it’s cheaper and much more effective to build your own infrastructure. I’ve now seen this over and over and over again. Once a company hits $200k / month of spend on AWS, the discussion starts about building out your own infrastructure on bare metal in a data center. This ultimately is a cost of capital discussion and I’ve found massive cost of capital leverage to move away from AWS onto bare metal. When you fully load the costs at scale, I’ve seen gross margin moves of over 20 points (or 2000 basis points – say from 65% to 85%). It’s just nuts when you factor in the extremely low cost of capital for hardware today against a fully loaded cost model at scale. Sure, the price declines from point #1 will impact this, but the operational effectiveness, especially given #3, is remarkable.
There are a number of things Amazon, and AWS, could do to address this if they wanted to. While not easy, I think they could do a massive turnaround on #2 and #3, which combined with intelligent pricing and better account management for the companies in #4, could result in meaningful change.
I love Amazon and think they have had amazing impact on our world. Whenever I’ve given them blunt feedback like this, I’ve always intended it to be constructive. I’m doubt it matters at all to their long term strategy whether they agree with, or even listen to, me. But given the chatter over the weekend, it felt like it was time to say this in the hope that it generated a conversation somewhere.
But I worry some of the things they need to be doing to maintain their dominance is just not in their nature. In a lot of ways, it’s suddenly a good time to be Microsoft or Google in the cloud computing wars.
Our portfolio company JumpCloud is running a survey to dig deeper into the professional lives of IT folks and their move to DevOps. If you are open to sharing your thoughts and experiences, please take their survey. It’s only about five minutes long and they are sharing all of the raw data (anonymized, of course). The survey ends at the end of June.
The IT sector is undergoing some interesting transformations as a result of the cloud, DevOps, and mobile. I’m interested to see what the data tells us.
If you happen to have at least 100 servers, JumpCloud is looking to pick your brain about how you manage them. If you are open to it, let me know and I’ll connect you with them – I’m sure that they will make it worth your time (and I appreciate the help)!
As a bonus, JumpCloud is raffling off a Fitbit Flex (another one of our portfolio companies), an Amazon Fire TV, and Samsung Gear Neo 2 Smartwatch if you complete the survey. Please take a few minutes and help us get some interesting data on how the IT sectors works.
Yesterday I read Kara Swisher’s post What Does the Recent Tech Stock Downturn Mean? The Truth Is Nobody Knows. It’s great. Go read it – I’ll wait for you.
In the last two weeks there’s been a flurry of articles about the implications of a 25% decline in the public market value of a bunch of Internet stocks. They range from “the sky is falling” to “the IPO market window is closing” to “there will be more stupid television shows about Silicon Valley” (I prefer Game of Thrones and 24, thank you very much.)
As many of the Cylons from BSG are fond of saying, “All this has happened before, and all of it will happen again.”
I remember a moment in time in 1997. We were in the middle of fundraising for Softbank Venture Capital (which became Mobius Venture Capital.) It was the first VC fund I’d helped raise. We probably had about $150m committed and were running around trying to get to $300m for what we had positioned as a dedicated Internet VC fund. I can’t remember the month, but I think it was in the summer, that all the public Internet stocks dropped a bunch (probably 25%). Suddenly every meeting we had turned cold with all of our potential LPs either asking how we were going to make money on the Internet or asserting that there was no way that we’d make money on the Internet. A few months later the public markets for Internet stocks turned around and we closed a $330 million fund which ended up doing extremely well.
In 1999 we filed an S-1 to take Sage Networks public. I was a co-founder and co-chairman. We were planning to go public in the early spring, but in February we acquired a company called Interliant which doubled our side. We had to grind through a refiling of our S-1 which cost us a month. We finally hit the road with the intention of going public by the end of April. Our underwriters (Merrill Lynch) told us not to worry that the SEC hadn’t cleared our filing yet – they always did it a few days before you went public. I spent three weeks on a road show with our president and CFO building the book. Day after day passed and we didn’t hear from the SEC. Two days before we were supposed to price, the book was 10x oversubscribed and our $9 – $11 price looked like it could move up meaningfully. They day we were supposed to price we still hadn’t heard from the SEC. “Don’t worry” said the banker at Merrill Lynch, “We’ll get it done.” The next day, when we were supposed to be trading, a fax came through from the SEC. It was 20 pages long and had about a month’s worth of work to pull together on the F-pages of the filing (we had acquired 20 companies.) That night we all drank a lot of scotch – we knew the IPO wasn’t going to happen that week and we’d just wasted a road show. I remember being completely numb the next day as I flew home from NY to Boulder, not completely understanding how we had just blown the IPO.
A few weeks later Internet stocks started to fall. I vaguely recall that eBay was one of the bellwethers at the time and I think it had a big drop. Suddenly the IPO market window closed. No one was interested in Internet stocks, let alone one that was being tortured by the SEC for accounting disclosure on a bunch of acquisitions of tiny companies.
At the end of June I went to Italy for a week vacation with my wife Amy and my parents. We did a walking trip which I remember being wonderful – 10 miles a day finished off with lots of food and wine in a beautiful Italian countryside. No phones, no email. Until Thursday, when I got a call at the villa we were staying at from one of my board members who said “you have to come home right now.” I responded with “I’m flying home Sunday and will be back on Monday.” He said, “No – now – the road show starts again Monday and you have to be at the printer on Saturday to sign off on the filing.”
I scrambled to find a flight home from the middle of Italy, got to NY by Saturday mid-day, re-started the road show on Monday, and we were public by the end of the week. We went out at $10 and traded up to $15. When I checked the market indexes, they were basically the same as they were two months earlier before things dropped.
Lots of folks are going to pontificate about what is going on in the public markets. Most have an agenda or a vested interest.
If you are an entrepreneur, ignore the pontification and go build your business. Pay attention to the dynamics in the macro, since they will impact you, but don’t get caught up in. Don’t create a narrative to justify something that is going on. Focus on the reality – your reality – and do your best operating in the context in which you can’t control.
All this has happened before, and all of it will happen again.
Irony alert: A lot of this post will be incomprehensible. That’s part of the point.
I get asked to tweet out stuff multiple times a day. These requests generally fit in one of three categories:
- 1. Something a company I’m an investor in wants me to tweet.
- 2. Something a smart, respected person wants me to tweet.
- 3. Something a random person, usually an entrepreneur, who is well intentioned but unknown to me wants me to tweet.
Unless I know something about #3 or are intrigued by the email, I almost never do anything with #3 (other than send a polite email reply that I’m not going to do anything because I don’t know the person.) With #1 and #2, I usually try to do something. When it’s in the form of “here’s a link to a tweet to RT” that’s super easy (and most desirable).
There must have been a social media online course somewhere that told people “email all people you know with big twitter followings and ask them to tweet something out for you. Send them examples for them to tweet, including a link to your product, site, or whatever you are promoting.”
Ok – that’s cool. I’m game to play as long as I think the content is interesting. But the social media online course (or consultant) forgot to explain that starting a tweet with an @ does a very significant thing. Specifically, it scopes the audience to be the logical AND clause of the two sets of twitter followers. Yeah, I know – that’s not English, but that’s part of my point.
Yesterday, someone asked me to tweet out something that said “@ericries has a blah blah blah about http://linktomything.com that’s a powerful explanation”. Now, Eric has a lot of followers. And I do also. But by doing the tweet this way, the only people who would have seen this are the people who follow Eric AND follow me. Not OR. Not +. AND.
Here’s the fun part of the story. When I sent a short email to the very smart person who was asking me to tweet this out that he shouldn’t start a tweet like this since it would be the AND clause of my followers and Eric’s followers, he jokingly responded with “that’s great – that should cover the whole world.” He interpreted my comment not as a “logical AND” but a grammatical AND. And there’s a big difference between the two.
As web apps go completely mainstream, I see this more and more. Minor syntatical things that make sense to nerds like me (e.g. putting an @reply at the beginning of a tweet cause the result set to be the AND clause of followers for you and followers for the @reply) make no sense to normal humans, or marketing people, or academics, or – well – most everyone other than computer scientists, engineers, or logicians.
The punch line, other than don’t use @ at the beginning of a broadcast tweet if you want to get to the widest audience, is that as software people, we have to keep working as hard as we can to make this stuff just work for everyone else. The machines are coming – let’s make sure we do the best possible job with their interface which we still can influence it.