a16z Podcast - a16z Podcast: Where is the Technology That "Matters?" Right Here

Episode Date: March 21, 2014

There is a recurring theme that the tech industry is busy cranking out fluffy social apps rather than hardcore technology. Not the case, say Chris Dixon, Benedict Evans and Balaji Srinivasan. Not only are tech entrepreneurs going after the deficiencies in healthcare, transportation, finance, energy - you name it - with new approaches riding on top of sophisticated technologies, what looks like fluff today often wields some serious influence tomorrow.

Hi, this is Chris Dixon. This is the A16Z podcast. Today I'm with Benedict Evans and Bologi Shrnavasen. Guys, let's talk about the, there's sort of this recurring idea that in the press, for example, that everyone in Silicon Valley is doing, spending time on trivial things, photo sharing and, you know, funny little apps and not working on serious things. So, Bology, what do you think? about this. Yeah, so, I mean, I don't think that's the case. I think to some extent there's a catch-22 where if you, certainly there are people who are working on social games, they're

working on, you know, social networking, things like that. And I would argue that some of those things are going to be more important down the line. For example, gaming led to 3D graphics and it's leading to Oculus. Social networking has led to other services, for example, like Lyft that are built on top of it that are much less, you know, trivial than poking. But even taking those and saying they're maybe more important than people think, Twitter started as breakfast status updates, and now it's used for revolutions and breaking news. So even given that those things are actually not as trivial as people think, the other aspect, the other side of the coin is, while those are things are easy to start, there are applications in genomics and, you know, drones and Bitcoin and 3D

printing and things like that that do run into regulatory challenges. And so, you know, some of the reason that people see these things that are perceived as fluff, that, you know, get big fast is that it is non-trivial to build a business in the other area. So there's, I think, regulatory barriers there as well. I would argue that a lot of this is also the media, just sort of what's, you know, it's much, it's a function of the way media covers Silicon Valley. So it's, you know, if you look at, for example, so we, as our firm, we were investors in Instagram, we were also investors in NYSERA, both those companies sold around the same point for, or actually Nysera sold for more, I think it was 1.4 billion Instagram, depending on Facebook stock price of $7002 billion.

But if you go and do a Google News search, there were literally 100 to one articles about Instagram versus Nyser. Now, Instagram's an amazing company. They deserve the coverage. But the point is no one, the press doesn't really want to talk about software-defined networking. And so, which is understandable. Like, people don't want to read that as fine. But don't then extrapolate from media coverage. That's actually what's going on in Silicon Valley.

So, for example, 70% of all venture capital goes into enterprise companies, which, more than half of which are infrastructure. So it's very hard to argue just when you have the raw data that 30 to 40% of investment is an infrastructure that we aren't doing infrastructure. Yeah, I mean, I think you have to split out what is easy for a journalist to write about and what is going to sell newspapers, what's going to sit well to a general audience. Talking about consumer products is a lot easier than talking about B2B products. B2B products tend to be in the business page,

and consumer products tend to be in the news pages. And talking about 22-year-olds who sell their product for a gazillion dollars, kind of needs to be on the front page because that's newsworthy. So, but there's kind of a disproportionate. Yeah, exactly. It's the second order articles I object to, not the first order, right? The second order that then extrapolate from that and say, that's all that's happening, wait a second.

Yeah, I think that's the thing that, you know, if you are not immersed in, you know, the kind of, hardcore technology or the hardcore computer science or the infrastructure building that's getting done. You can't see it. Now, you can see the... But you've seen it, like just being here, for example. Yeah, exactly. 70% of the time we're talking about fixing health care, fixing finance, fixing, you know, better semiconductors, better data centers. This is what most people are doing here. Yeah, I think that's true. But if you're trying to write, it's easy to write about phenomena and to try and construct phenomena. And, you

know, there's no question that compared to, you know, 10 years ago, there were a lot of people creating companies with silly names that did things that didn't appear to be terribly important. And that masked a lot of the interesting stuff. Today, there's a lot of 22-year-olds creating companies that get lots of users and get interesting, you know, sexy valuations that appear to be doing stuff that isn't very interesting or isn't very exciting.

And so you can write about that. The fact that there's a lot more 30-year-olds, or indeed 22-year-olds, creating companies like Box or creating, you know, Nasara, all these other, you know, more profound, more fundamental businesses, just doesn't get covered. So I think, you know, in a sense, every industry hates the press. You know, every industry thinks the press doesn't write about us the way it should write about us, and they focus on the trivial stuff, and they focus on the stuff that sells newspapers, and, you know, it's always true.

I would offer one other thing, which is basically, like, it is certainly true that, you know, they call it the media because it mediates our interpretation of reality. It's like a shimmery mirror, and here's reality on one side, and then here's what you read, and then there's this intermediating force. But in the defense of the media, one thing that is true is that consumer applications are tangible and used by hundreds of millions of people. And so there is a, you know, what people are familiar with, what they perceive as technology is that which they can touch and feel and actually use on a daily basis, the iPads and iPhones and g-mails and drop boxes and twitters and things of that nature. So thus, what they see is usually consumery and fluffy.

Once in a while, there will be something like... By the way, but my point, I'm not objecting to the media covering it that way. What I'm objecting to is the second-order articles, which then assume because that's what the media coverage is, that that's actually what's happening. Right. So my counter-argument as to why I think that is going to change pretty soon is kind of threefold. First is, a lot of those things that were thought of as fluffy are actually suddenly becoming very impactful. For example, even as like 12 months ago, even 18 months ago, people were calling Bitcoin an imaginary currency for crazy people on the Internet.

And now Goldman Sachs is saying it can save people 200. billion dollars. So that's an enormous U-turn in like 12 months. So number one, these things that people think are fluffy are actually becoming real. Number two is there's a lot more physically tangible things like self-driving cars or delivery drones where whatever else you can say about them, you cannot say they are like trivial advances or that they will not be, you know, earth-shattering. And number three, I think which is the least appreciate aspect of this is we are, you know, when we talk about consumer products, I think a distinction which I notice in some of the discussions I've had with people on Twitter is the consumer

producer distinction is going away. That is to say, that was a very 20th century model where you had a big business and would sell things and there'd be consumers who'd be passively consuming it. But now you've got a developer who is neither really a producer nor a consumer. They're building something for themselves, right? And as software eats a world and hitting keys on the keyboard is a way to generate things of value for yourself, then people, you know, many more millions of people start to appreciate those quote enterprise products as they would use them to build things for themselves, right? So that will never be the majority of people, but it'll be a larger and fraction of people. And I think that will also change the conversation over time.

Yeah, I mean, you could turn that the other way around and say that, you know, part of what you're seeing is that kind of the froth and triviality of popular culture that used to be, you know, songs or pranks or movies or fashions is also now being manifested in dating apps or photo sharing apps or kinds of, you know, silly random things. You know, you know, people in their early 20s quite often do things that are unsirious. And if they're coders, they're doing code that's kind of un-serious. Right. Yeah, good point.

I think also, like, in regards to sort of producer-consumer distinction collapsing, I think, you know, one thing that I realized the other day is there's almost no Hollywood movies that I can think of, at least, that are educational movies that is meant to train you to level you up to add a skill for you, right? And there are some TV kinds of things. Well, they would, wait, wait, way, educational, I guess, in that narrow sense. In that narrow sense. movie makers would argue they're, you know, educating your emotional stuff. Yeah, exactly. They're telling a fable or something like that, right?

But the reason I bring up that specific point is, I think, so one model for media, which people do complain about, is sort of the page-view-driven model, which is based on an attention economy, and, you know, it's a headline, and if it leads, it, that kind of thing, and you're basically monetizing on just pure volume. It's a Huffington Post model, the page-view model. But there's another model, which is not monetizing a very large mass, but it's monetizing those people who actually really need to understand

and comprehend the article. Right. This is a production versus a consumption model. And so here, for example, you could imagine a site, which is not initially about news. It wasn't about the newest thing always, but it was, for example, a site that, say, maintained an up-to-date thing, sort of like a Wikipedia, but better maintained on, say, 3D printing. It had all the companies there, and so I'm almost like an investment research report. And your goal in viewing this was to make an investment decision to join a company, to download some programs, to start something, to build something, right? And in reading the second one, you did not care about the headline, because reading the headline alone was not enough to do something. So the real question is, what are people looking at this media with intent to do? We have a different perspective on it because we have intent to do something, namely make an investment or start a company. People who are just consuming the media to be entertained do not have that incentive to actually understand it more deeply.

So I'd say that the latter kind of media, kind of media where you consume it with intent to reproduce or intend to perform or intend to produce, I think is going to be more important, and it's a different monetization model for media as well. I would also add that I think just my experience is, that more and more entrepreneurs are doing, the trend is actually quite the opposite of the media's impression, which is I think we've entered into a period of significant gravitas in the technology world in the sense that, like, you know, we just announced our investment in Alt School, for example,

which is, you know, an attempt to rethink K through 12 education. You have, you know, Tesla reinventing the car, SpaceX, all the Elon Musk stuff, Uber and Lyft and transportation, Airbnb, and hospitality. Like sort of you go through every major segment of the economy, and you now have, for the first time, Silicon Valley-style companies trying to rethink how the traditional industries have worked. We're seeing, as you know, Bologi, you're doing a lot of it for us, a ton of interesting stuff in health care.

Yeah. I think we have a bunch of investments we've made that we haven't announced yet, but that people will see soon. We've made whatever, 10 investments in health care recently or something. And some very, very serious stuff with, you know, like experienced scientists trying to solve a big problem. So I feel like it's the opposite trend is true. Yeah.

I think there's also like a gear change that's happening in technology now where we, you know, social networks and games and the kind of fun stuff will always be there. But we do have a gear change where it is moving into drones and Bitcoin and genomics and 3D printing and, you know, all the stuff that is very important. I think another thing is that I think Benedict can probably comment on this. just like, you know, by installing all these mobile computers around the world, right? Mobile massively increased the size of the software industry, like sort of horizontally in terms of the number of terminals.

And now we're increasing in a different direction, which is sort of the number of verticals that we're going into, right? So the size of what software is going to disrupt is just increased tremendously over the last, you know, five years ago. Yeah, I think that's right. I mean, you quote, you gave a, and made a reference to Newton earlier, and, you know, the famous Newton quote is that if I've seen far, it's by a staff. standing on the shoulders of the giants.

Yes. And a lot of what we're seeing now is the benefit of the last 10 or 15 years of hard work that, you know, a 22-year-old now can go out and build a startup and get millions of users with very little money very quickly, which was impossible 15 years ago. You see WhatsApp get to, WhatsApp was sending the same volume of messages as I'll send in the global SMS system. And they were doing that with what, two dozen engineers. Yeah, 55 people and like, I don't know how many engineers, but probably that.

Yeah, half of those were engineers. and they'd raised, you know, they got halfway there on like $6 million. Yeah. And so, and you see that in health case, you see it, and all of the kind of things that we're talking about is the ability to create really significant and profound businesses on the top of platforms that have been built and achievements that have been created over the last 10 or 15 years.

And part of that is around things like open source software. It's around the collapse in the cost of data centers, which is what makes Twitter and Facebook possible, among other things. part of it is the explosion in mobile devices so there are as it might be 1.5 billion PCs on earth now maybe more maybe less it kind of depends on whose guesses you believe

and half of those are corporate and lockdown and half of those are consumer and immobile and kind of stay at home and a shed and we will go to three to three and a half billion smartphones on us and those are mobile and personal and taken everywhere and now you see Android wear that just came out yesterday

yeah exactly and so and so you have proliferation with, and indeed, kind of innovation within that. So, you know, one of the puzzles in mobile is, although the sort of the Android-Apple platform war is over and they both won, nothing's actually settled in terms of what happens on top of those devices or what other devices there might be. There's still kind of massive change in innovation going on top of that. But all of that comes in the context of this enormous scale. So, you know, a 22-year-old can create a cool dating app and get 10 million users and benchmark it

for himself. I mean, you know, this is the most extreme example. this is probably Imger, you know, where they got, they got, God knows how many hundreds of millions of users with one person. Right. And $7. And $7. Right.

And, you know, you see that with WhatsApp. You see it with all of the people who are now taking the whole, all of the arm and all of the chipsets that have been created for the smartphone business, and that's now enabling the drain industry and enabling a whole bunch of other interesting types of hardware. So it's like we went to the satellite companies we're seeing. They're all reconfigured self. Exactly.

So it's like there was a nuclear winter of, after the last crash. And then for the last 10 years, people have been building and slogging away and creating platforms and creating lots of hardcore technology. It's the opposite of technical debt. It's sort of technical savings, and we've built up so much of it over the last 10 years.

And now you're getting this kind of flowering of new things that can be built on that, and you see that in really trivial things, but you also see it in, you know, Tesla and $100 satellites. Yeah, I think one way of thinking about that is, like, you know, no one is going to, say, buy a computer just to use Twitter. But once they bought the computer, there's an incremental zero cost of experimenting the Twitter and so on, right? So like installing that platform, there has to be that

killer app for it, like for a mobile phone. It's texting and it's visual voicemail. It's all the things that the iPhone push people over that threshold. But then after that, it's just this deployment point where you can build a billion dollar companies on top of that install base. So I think a very interesting strategic question just, you know, from an investment standpoint is what kinds of platforms are there that are like that? Like what kinds of platforms cure such a pain point that then once we get people in it, then we can deploy lots more stuff on that. I think one of the things is probably going to be Bitcoin, like getting lots of people Bitcoin wallets, because you can deploy all kinds of software on top of that once they have Bitcoin wallets.