Sin, Secret, Series A

  • Peter Thiel
  • Paul Graham
  • Reid Hoffman
  • Before its acquisition, YouTube went through a few iterations — dating site, user-generated content site, viral video platform — before settling on its position as the best place in the world to stream copyrighted content in ten-minute chunks. (It’s a totally different business these days, of course.) Every site that allows users to upload content has to decide how much piracy to tolerate: too much, and you get sued into oblivion; none, and you lose market share. Everyone settles on just the right amount: enough to grow their way into a legitimate business that can settle lawsuits and crack down once its market share is insurmountable.
  • Snapchat was for sexting. The target demographic, the PR, the marketing — everything they did was about saying-it-without-saying-it. Now it’s for ephemeral communications; as countless people have learned, instant messages are a verbal medium that produces searchable text. When you IM, everyone’s wearing a wire. The Snapchat PR pirouette relied on the fact that when an uncool person says “Is this just a sex thing,” it makes them look even more uncool, and uncool people are (painfully) aware of this. So Snapchat could silently backtrack on its unique selling proposition as it got more mainstream.
  • The whole pitch of reddit was that it was a news aggregator free from editorial judgment, which makes it extra ironic that it started out as the owners just talking to themselves. The future of media was supposed to be news without editors, but in 2005 that meant editors disguising themselves as readers. But this was absolutely necessary. The brutal math of network effects is that while they’re strong once they get going, they’re hard to get going. Metcalfe’s Law overstates things by assuming that every node of a network is equally valuable, and the actual math is that the value of the network is proportionate to n*log(n). The first few users are the most valuable. Which means that founders can create a lot of value if they work full-time being several of n.[1]
  • When it started, Bitcoin was meant as an alternative to central banking and the traditional financial system. Libertarians really dislike central banking, but they really, really like drugs, so Bitcoin only kicked into high gear once users could exchange it for lab-grade alternative pharmaceuticals. Back in 2011 and 2012, prices were quite seasonal: low in the winter and spring, and higher coming into summer, then lower after Burning Man. Eventually, Bitcoin settled into being more of a high-variance, zero-carry store of value, sort of a Swiss Franc minus Switzerland. It was always clear that Bitcoin had to make this transition at some point, but it was never obvious how close we were until Ross Ulbricht got arrested and Bitcoin only temporarily crashed.
A CEO poses next to his growth marketing strategy (left: six months after founding; right: month before IPO)

The Other Exceptions

Education and Healthcare: Big Lies

  1. The pace of advances has slowed down dramatically in the last two generations, possibly because we’ve plucked the low-hanging fruit and possible because regulatory caution makes breakthroughs both riskier and more time-consuming.
  2. There is almost no limit to how much healthcare people are willing to consume on the margin, and as countries get richer, their marginal propensity to spend on healthcare rises. In fact, this arguably explains that the US is not an outlier in terms of healthcare spending, just an outlier in terms of consumption.

Sins and Lies, not Liars and Sinners




I write about technology (more logos than techne) and economics. Newsletter:

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Byrne Hobart

Byrne Hobart

I write about technology (more logos than techne) and economics. Newsletter:

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