🐵 Monkey Do

Once an edge becomes visible the alpha erodes.

In October 2000, the restaurant booking app OpenTable closed a Series C funding round for thirty-six million dollars. It was led by Benchmark’s Bill Gurley. This model, the marketplace model is great, especially as transaction costs fall and businesses insert themselves between buyers (eaters) and sellers (restaurants). However, even then, everyone knew.

Albert Wenger at Union Square Ventures also likes the marketplace models but noted that after some successful investments, “Lots of people caught up with us and started talking about network effects and then we started talking about finding network effects in less obvious places.”

OpenTable kept their edge through luck. They were like a pioneer who crossed the mountain pass just before the first snow, in this case, the dot-com crash funding freeze. The easy way for everyone else was effectively blocked. VC Jeff Jordan said, "If OpenTable was started today I don't think they'd be as successful because of the emulation that happens."

Monkey see, monkey do.

This happened in sports too. Years ago Daryl Morey talked about thinking different, now he’s more likely to go on a podcast and complain about how similar things are. In the WSJ piece with Luhnow Morey said:

Actually, more info can be worse for us. The only time information is really an edge is if you either have more or you’re using it better. I do think we generally use it better, but not for sure. Having it when no one else has it is a bigger edge. I think it was better to have worse data that only we had than better data everyone had.

As sports data became more available, Morey’s edge eroded. As venture capital returns became more available, the marketplace model advantage was eroded (from the VC perspective at least). As information becomes more available, marketplaces become more competitive and that erodes edges.

We’ll finish this techno-heavy theme with parting advice from a proud non-VC, David Heinemeier Hansson:

“The companies that I look to that are doing well rarely get any PR at all. Most companies that run like us are smart, they duck, they don't talk about how much money they make. They don't want to attract any attention."

Tomorrow we’ll think about how to keep an edge.