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VC Cliche of the Week
So far, all of the cliches I've blogged in my weekly post on the subject have been taken from others.
Today, I am going with one that was hatched in the offices of Flatiron Partners in late 1996. Jerry and I were sitting around talking about something and we came up with:
What's the analog analog?
Brad credits Jerry with coining this term and that may well be the case, I don't recall. But we loved it from the minute it came out of whomever's mouth and we used it all the time at Flatiron. Before we'd invest in something, we wanted to understand what the same business looked like in the offline world. We would then use that analog to map out what the new business was likely to look like in the online world.
For the next three years, we steadfastly avoided ecommerce companies. For the analog analog for an ecommerce company was a retailer. And we all know that retailing is a tough low-margin business with little differentiation. And so we felt that ecommerce was going to play out the same way on the web. We were right for the most part. Then came mid 1999 to mid 2000, when we started ignoring our own rules, and we did some ecommerce and proved that we were right about it in the first place.
We saw TheStreet.com as The Wall Street Journal, we saw ITXC as MCI, we saw Comscore as IRI, and so on and so on. For the most part it worked.
But you know what? If you stick with this approach to investing you miss some really interesting stuff. There was no analog analog for Geocities and that was our biggest winner on a multiple of dollars invested. There is no analog analog for Yahoo! and Google either. And what about eBay?
We still talk about the analog analog. It's a useful construct when there is an analog analog. But it feels very Web 1.0 to me and its not the primary thing we worry about in a deal anymore.
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Posted March 9, 2005 in Venture Capital and TechnologyComments
Could it be that in the case of Geocities, Google, and Ebay (I'll try Yahoo seperately) the "analog analog" is not something that you can easily invest in - but also hence the value of those firms?
- i.e. for Geocities the analog analog might be personal update letters, small club newsletters - small, local, self-publishing. Not something you can invest in but something clearly inefficient
- for Google at least initially (the various directions they are going now complicate it) the analog analog might be a combination of reference libraries, yellow pages, bibliographic collections etc - all much less efficient and actually places where electronic search databases were used for a long time - but were specialized and topic specific
- for ebay - the garage sale, swap meet, and to use a metaphor from here in Chicago "Maxwell Street Market" (historic street market in Chicago where everything and anything was/is sold). Around the world the various markets/bazaars where peddlers sell anything you can think of (and then some). Not easy to invest in in the analog world, but also very real and large (and even with a touch of grey market that can be a problem with Ebay as well)
Yahoo! in its original incarnation as a directory was even more like the yellow pages than Google. As Yahoo! evolved into a new media company with many other properties, perhaps it could be seen as taking on other analog analogs.
What do you think?
Shannon
Posted by: Shannon Clark | Mar 9, 2005 9:53:33 AM
i agree the "analog analog" for eBay is a really, really big flea market (lots of buyers and sellers, lots of merchandise) -- but the key to it is that most of the stands are run by people who have been going to the same location for years (merchants with high feedback ratings), and also that the costs are low to buy a table (relatively low listing fees), but you share profits with the "house" if you close a sale (higher share of closing fees).
and by the way, the "analog analog" for PayPal is having a buyer representative go to the flea market (remote purchase) and pay with a cashier's check (immediate cash upon sale), then take ~3-5% off the sale amount for speeding up the transaction (payment processing fees to merchant). however, the buyer rep will only conduct the sale for trustworthy buyer & sellers (creditscoring / fraud prevention).
- dmc
Posted by: Dave McClure | Mar 9, 2005 5:32:16 PM
Analog analog. I dunno. I say more cowbell!
Posted by: Steve Shu | Mar 9, 2005 5:51:56 PM
The idea of analog analog is a good one. I am just starting up etov.com and will give that some thought and get back to you. Off the top of my head, I would say it is the equivalent of an open mike on a street corner, but I will work on that, thanks for the idea.
fgg
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