Why There Aren't More Googles (2008)

by allenleein • 6 years ago

175 160 6 years ago

adamsmith2• 6 years ago

I've tried to explain this to VC firms. Instead of making one $2 million investment, make five $400k investments. Would that mean sitting on too many boards? Don't sit on their boards. Would that mean too much due diligence? Do less. If you're investing at a tenth the valuation, you only have to be a tenth as sure.

This turned out to be absolutely right, and the < $2M checks have ballooned in volume. They are invested by firms that do not take board seats and do comparatively less due diligence.

That said with the benefit of more hindsight I think the reason there are no more Googles is that FAANG has a stronghold on the largest technology markets.

chrisco255• 6 years ago

Well, yes, but do they have that stronghold on the future of technology markets? I'm less convinced of that.

adamsmith2• 6 years ago

Super interesting question. I don't know.

I suspect they will dominate all the largest technology markets for the long run, unless the government intervenes. I might be wrong.

They may not dominate the future of "technology markets", though, if the sum of the long tail dominates. Right now FAANG is 42% of the NASDAQ Composite 100.

praptak• 6 years ago

They filled the feasible niches for "internet-based monopoly". The next Google will have to find another way to get big.

andrewjl• 6 years ago

I don't think they do, at least in the long term. In the short and medium term its arguable either way. We're still at the very beginning of the era of truly distributed computing and what it tends to do when it spreads is replace centralized entities with protocols.

If this sounds like a very played out line of thinking, that's because we're now in the trough of disappointment of the hype cycle. You can't expect any fundamental new tech to live up to its hype only a few decades after invention. Also not all the pieces needed have been invented yet.

benlivengood• 6 years ago

That said with the benefit of more hindsight I think the reason there are no more Googles is that FAANG has a stronghold on the largest technology markets.

And the FAANGs are willing to pay very large amounts of cash to acquire promising startups.

EDIT: Also why is it that the majority of the large tech companies are essentially marketplaces? Is there really that much friction in traditional markets (physical goods, movies, books, ads[!], apps) to fund their spectacular rise?

laurent92• 6 years ago

Isn’t it Paul Graham who also wrote a blogpost saying “How to make a trillion dollars? Build a platform.” ?

PakG1• 6 years ago

I would say yes. Ronald Coase did some excellent work to explain how transaction costs get in the way of optimizing economic activity among and within firms. Traditional marketplaces would clearly have higher transaction costs than these newer marketplaces. Search costs are much higher, coordination costs are much higher, and data analysis is much harder. Tech has a huge advantage in making all three of these things much lower and thereby making transaction costs much lower. Heck, just by not accepting cash, I bet they make transaction costs significantly lower than the traditional marketplaces. Heck, just by not having to operate point-of-sale card swiping devices, I bet they significantly lower the transaction costs too.

He won a Nobel Prize if that matters. I think his two seminal works, “The Nature of the Firm” and “The Problem of Social Cost” do really well to explain why tech is winning so much compared to traditional marketplaces. Especially “The Problem of Social Cost”, which explains how externalization of transaction costs creates advantageous and unfair effects.

lotsofpulp4• 6 years ago

Also why is it that the majority of the large tech companies are essentially marketplaces?

They may earn money from a marketplace, but the reason is not because they have a marketplace. They earn money because one they did or do something that others can't or were too late to, such as creating hardware and software people want, creating and operating online services people want (Maps, Cloud Services), infrastructure for retail, or a network where everyone is and can provide some level of proof for identity or credibility.

TeMPOraL2• 6 years ago

Because in a tech gold rush, nobody wants to dig out gold, or even sell shovels - everyone wants to get rich by renting shop space to shovel sellers.

ffrr212• 6 years ago

And the FAANGs are willing to pay very large amounts of cash to acquire promising startups.

But I think FAANGs also drain the talent pool for startups by paying very high salaries (& partially equity) to employees such that startups have a hard time to competing on this level. At least it feels it's getting worse than, say, few years ago.

adventured• 6 years ago

Also why is it that the majority of the large tech companies are essentially marketplaces?

They're not.

Non marketplaces: Apple, Microsoft, Huawei, SAP, TSMC, ARM, Intel, Samsung, SK, Cisco, Nvidia, AMD, IBM, Texas Instruments, Salesforce, Oracle, ASML, NXP, Netflix, Zoom, Dell, VMWare, Adobe, Applied Materials, Broadcom, Micron, Qualcomm, Intuit, Foxconn, Snapchat, Ant Financial, PayPal, Square, Stripe, Fiserv, Ericsson, Tesla, SpaceX, Activision, Electronic Arts, Nintendo, Sony, Twitter, Lenovo, HP, HP Enterprise, Lam Research, ZTE, Xiaomi, Western Digital, Seagate, Workday, ServiceNow, Veeva, Analog Devices, Canon, Spotify, Datadog, Cloudflare, Akamai, CrowdStrike, Elastic, DocuSign, Okta, Palo Alto Networks, Atlassian, Twilio, Fortinet, MongoDB, plus a hundred other companies.

Mixed marketplace conglomerates: Google, Facebook, Tencent, Baidu, ByteDance.

Marketplaces: Amazon, Alibaba, eBay, Etsy, Shopify, Craigslist, MercadoLibre, Uber, Lyft, Didi, Pinterest, Booking, Upwork, Fiverr, Redfin, Zillow, Expedia, Trip.com, Yelp, TripAdvisor, Groupon, and a few other small players.

It's not close at all, marketplaces are the modest minority of large tech companies, both in terms of market value and particularly when it comes to sales (giants like Sony, Dell and HP have relatively smaller market values and massive sales and large numbers of employees).

PaulHoule• 6 years ago

I think supermarkets are well run because they are highly competitive and you go every week so if you see it as a prisoner's dilemma where they "fulfill the brand promise" or "don't fulfill the brand promise" they get punished then they don't fulfill it so they have a reason to fulfill it.

Thus Amazon is going to have a really tough time in that sector, but other parts of the retail sector tend to have you come into the door infrequently enough or are in uncompetitive markets so that they don't get punished for failing.

It's too common for people to blame the victim here, or say that people are asking too much but that's just plain wrong.

Some examples:

* That time I went to K-Mart to buy three numerals for my mailbox but they didn't have the "2" in stock.

* That time my wife bought a bra at Target that had a nice print but had a completely nonsensical design that wouldn't be comfortable on anyone

* Buying clothes at Target can be really hit or miss. I bought a shirt there once that was great but so often I find things that don't really fit, are poorly constructed, I can't stand the style.

* Same with shoes at WalMart. At best you might go there and find a $20 shoe that is similar to an $100 shoe from Brooks, not quite as good, but certainly not five times worse. Sometimes they only have crap

* Inevitably in the early spring I still need cold weather equipment such as electric space heaters (sometimes desperately, as in to keep animals alive) but Home Depot, Agway and all of those other stores quit stocking it.

* Small storeowners decide they won't get any customers in their last hour so they go home early; so they've decided that the customers that do come will go to a big box store next time

* Years ago Staples used to stock only junk brands for cordless phones and similar things (e.g. vtech); today Amazon pushes no-name products from Chinese suppliers which are occasionally excellent but often junk

A common factor in those failures is that the stores don't get feedback. K-Mart never knew they lost the sale of a "4" and "7" because they didn't get "2". The small storekeeper doesn't realize that "nobody will come in" is a self-fulfilling prophecy, etc.

People also discount the idea that "the customer is always right" to normalize bad behaviors such as not stocking space heaters when you need one right now for your chicken house -- somehow it is my fault for needing heat at the end of the cold season instead of the beginning.

eismcc• 6 years ago

They also have a stronghold on a lot of the talent that would make the next big thing.

mtgx• 6 years ago

As in they buy them out. There should be a more laws preventing this from happening for large corporations.

We now see that Google Search is turning more and more to AI. Perhaps if Google didn't buy DeepMind, but some other smaller competitor did, they could've turned that into an advantage against Google.

Either way, it was a loss for the market for DeepMind to be bought by Google instead of forcing Google to come-up with its internal competitor.

Companies with billions in profit should be "incentivized" to use that money to create their own competitors against threats - not buy them all out (often just to kill them). I think we can all argue that large companies buying out small competitors is a net negative for the economy at large.

baxtr• 6 years ago

This seems to be in stark contrast to some of Peter Thiel’s theses. Would love to know if someone can clarify that.

He argues since returns are distributed by a power law, more due diligence and fewer invests make more sense for VCs.

CuriouslyC• 6 years ago

The truth is that regardless of how well put together a firm is, break-out success is a crap shoot. A VC strategy that maximizes potential revenue (by heavy due diligence) is almost always going to end up with lower actual revenue than a VC strategy that attempts to maximize actual revenue, by having a larger, diversified basket. If the terms of the initial funding give the VC first crack/options for later rounds, all the better.

ricksunny• 6 years ago

Which firms filled the $400-$500k gap Paul Graham outlined the niche for? Not asking for a friend.

ekanes• 6 years ago

I would expect it's the category known as "micro-VC".

VikingCoder• 6 years ago

Gee this sounds like the argument against managed funds, in favor of index funds.

ineedasername5• 6 years ago

Yes, thought I think the smaller $ amounts have also been helped along by reduced startup costs. Heck, a startup can literally get $100,000 of AWS credit for free. In manufacturing terms that's like getting the factory for free, you just have to configure the assembly line to build your specific product. So $400,000 will go a lot further these days than it would have 20 years ago.

jbay808• 6 years ago

20 years ago, you'd be competing with much smaller salaries from the big tech companies, which would make recruiting much easier. If you meet some smart people in college, you could more easily convince each other to try building something together, especially if they're averse to corporate 9-5 culture. Whereas now it's pretty likely that they'll have their eyes on FAANG jobs.

sebmellen2• 6 years ago

This article shows its age with the quote:

The median startup coming out of Y Combinator wants to raise $250-500k.

I think raising comparatively small amounts stokes a kind of vigour you can't get when sitting on a few million in cash. I wonder how this dynamic has shifted the outcome of Y Combinator alumni companies. Perhaps we would have more Googles if this trend of raising less had persisted.

Money breeding laziness is also what killed ICOs. Naive teams with revolutionary ideas (which may have changed the world in startup form) raised tens of millions of dollars. This money removed the need for groundedness and scrappiness in the development process. As a result, a lot of value and time was squandered on tech that hasn't panned out.

entee2• 6 years ago

I think it really depends. Money in the right hands can be amazing because you can aggressively pursue an idea that takes a lot more money to get off the ground. This requires a clear idea of what matters to the business. If you don’t have that idea, money can allow you to pivot and tune your product quickly and hire the very best.

The downside is the temptation to do everything, to not make decisions. Money enables you to do that too with disastrous results.

In short, money is great. Not having a clear, disciplined strategy is the problem.

sebmellen2• 6 years ago

I'm not sure I agree with that.

Of course there are many moonshot projects where money is of vital importance. But for most things, the market is the best signalling mechanism available. Having little money forces you to be very attuned to the signals of the market, giving you an advantage over those who might insulate themselves from that feedback mechanism with a buffer of money.

It's hard to keep yourself attuned enough while also having money in reserve, though perhaps it is possible to have enough discipline to do so.

mahemm• 6 years ago

Money breeding laziness ... killed ICOs

ICOs were killed by Solidity and the Ethereum ecosystem more generally being insufficiently expressive to create anything of value other than pyramid schemes (insofar as those have value).

ZiiS• 6 years ago

Be good to stick the (2008) in the title, even if many here recognise the link.

oh_sigh• 6 years ago

A modern-day "Why There Aren't More (Or Fewer) $1.2T Companies" might be a good article too.

rStar• 6 years ago

Why There Aren't More Googles? flippant, sarcastic response: because google.

actual response: I whole heartedly agree. when a founder/initial investor team turns down even a (mildly though truly) lucrative offer, it’s because they very strongly believe that they would be selling themselves short. if they turn down an (extremely) lucrative offer, even more so. Most people get into the game for money, ego, admiration and power. So, if someone is turning down any of these, it’s either because they are a ‘true believer,’ in which case, bet on them, or it’s because they imminently expect all or most of the others, in which case, bet, the f, on them.

bertr4nd2• 6 years ago

Something I don’t understand in this article is the “People won’t understand your ideas if they’re any good.” Like, the idea behind Google is, “Let’s make another search engine, but make it really good.” That’s not a crazy idea, is it? Was the problem that VCs thought existing engines were good enough and that Google’s wouldn’t be enough better to be worthwhile?

bryanrasmussen2• 6 years ago

That's not really an idea though, that's a goal, the idea is the description of how you will reach your goal, which in Google's case was PageRank.

bertr4nd2• 6 years ago

I was being glib in the description but it’s not like PageRank is a crazy idea either, is it?

The reason I’m prodding at this is because there are different ways in which someone can fail to understand the value of an idea. The value proposition for Google doesn’t seem far-fetched at all, but I could believe that investors simply didn’t believe PageRank was a good enough idea to displace then market leaders.

erik• 6 years ago

In the late 90's starting a new search engine would have seemed crazy to many. It was a competitive market, there were major incumbents, profit potential seemed low, and it wasn't obvious that search could be significantly improved upon.

Traster• 6 years ago

It's kind of funny isn't it- starting a search engine in a really competitive market is crazy! Yet actually, I think that's a hell of a lot more enticing than starting a search engine today, where there's no competitive market, there's just Google.

bsder• 6 years ago

The crazy idea was using commodity servers and set your infrastructure up so that you can just let them die and keep going.

AltaVista, for example, ran on a couple of pretty beefy Alpha servers at the time.

tangjurine• 6 years ago

Could you explain more? I'd love to hear about this

johbjo2• 6 years ago

The crazy idea behind Google was that they had no feasible plan for monetization.

There was an early and obvious insight that fast and simple search would win, but ads at the time were gif banners and flash animation.

They tried adwords, and it worked.

yuhong• 6 years ago

AdWords dates back to 2000-2001. At the time they IPOed in 2004 they had 90%+ of revenue coming from advertising. They didn't adopt cookie based tracking (DoubleClick) until the 2007-2008 recession: https://en.wikipedia.org/wiki/Draft:Effects_of_the_2007-2008...

spc476• 6 years ago

At the time that Google entered the market, there were at least 16 other search engines in existence [1] and all Google did was search. They had the smallest front page of any of the search engines at the time. It was very refreshing, and Page Rank turned out to be incredible at returning results but the "making money" thing was still very unclear at the time.

I seem to recall they wanted to sell out to Yahoo for $10 million (1999? 2000?), but apparently, that was too much for Yahoo's liking.

[1] I only know this because I still have the bookmarks from the time on my machine. Back in 1996, I wrote a metasearch engine that queried 16 other search engines (http://www.conman.org/people/spc/refs/search/search.hp1.html).

mkl• 6 years ago

1998, and $1 million: https://finance.yahoo.com/news/remember-yahoo-turned-down-1-...

Four years later Google turned down a $3 billion offer from Yahoo, asking for 5.

the-dude• 6 years ago

At the time, people were thinking in terms of portals and in my recollection, it was clear to anyone how to extract money from those ( ads ).

boltefnovor2• 6 years ago

I often think about how YouTube was the bargain of the century.

YouTube would be one if the biggest companies ever if it had remained independent.

bruceb• 6 years ago

Problem with them was the massive about of money they were burning on servers and being sued by RIAA (Music companies) and MPAA (Film companies) among others. They needed a big infusion of capital.

Instagram on the other hand could have remained independent and succeeded.

prox• 6 years ago

I think instagram is one of the (few) companies that could eventually have eclipsed Facebook really.

tehlike2• 6 years ago

I feel similar for android.

boltefnovor2• 6 years ago

Android needed google to grow, YouTube didn’t.

GlitchMr• 6 years ago

I don't think YouTube would have been one of the biggest companies if it remained independent.

The problem is that YouTube is still not profitable, and also without a support from a big company like Google they would be sued into oblivion by MPAA and RIAA.

roenxi• 6 years ago

From the evidence I've seen so far, startups that turn down acquisition offers usually end up doing better.

I bet causality is reversed from what he is hinting at. Startups that can see a pathway to becoming insanely valuable are more likely to turn down offers. Startups that see no path and that are, effectively, putting on a brave face do not turn down a profitable escape route.

By that dynamic alone, you'd expect startups turning down offers to be a very strong signal of success. How many idiots are there with the wherewithal to run a company but then try and turn down money in the face of going bankrupt?

three_seagrass• 6 years ago

This feels like survivor bias.

Why aren't there more revolutionary startups? Well, it's because they sold out and some no longer exist.

Why aren't there less revolutionary startups? Well, it's because they didn't sell out and some went on to became tech giants.

dang• 6 years ago

Discussed at the time: https://news.ycombinator.com/item?id=163552

stareatgoats• 6 years ago

Earlier discussion (2008): https://news.ycombinator.com/item?id=163552

randomsearch2• 6 years ago

Speculative comment: if the product is advertising, then Google and Facebook have cornered that market and it looks like search and personal social network advertising could be natural monopolies. So there won’t be more Google’s, because there are already two and that’s what the market can support.

If that’s true the only way to generate Google-like companies (in terms of innovation) is to find a different business model, which means both founders and investors have to be more open minded, more patient, and more brave. That’s your first problem.

Probably the best alternative I can see is to charge individuals very small subscriptions for valuable products, but to make it at scale. Say you have 100m users and charge < 1 dollar each per month or even per year, and then you keep building new products using the great team that built the first one. Why hasn’t this happened? See above.

sampsonitify• 6 years ago

What about China? There is a western heliocentricity to so many comments.

randomsearch2• 6 years ago

What do you mean re: China?

graycat2• 6 years ago

Yup: When I was looking for VC funding, lots of VC Web sites claimed to like innovation. Eventually I concluded much the same as in Phil's essay.

The nutshell description I formulated was the VCs want a startup with a product/service easy enough for any grandmother to understand, traction growing up and to the right, in a huge market, with five founders, with all credit cards maxed out, with at least four of the spouses pregnant, about to go under, and desperate.

For one step more, they are looking in the rear view mirror and want to bet on patterns.

For one more, they want to fund the company to go to "the next level", i.e., the big go to market effort.

The VCs in effect believe that any startup that is successful will, on the way to being a big success, say, worth 1+ billion, at some point nearly necessarily be desperate for some venture funding: Then that's where the VCs want to write a check and get on the BoD.

Even if the VCs are willing to do seed funding, they believe that for each level more VC cash will be essential. Then they hope to be the best positioned to make the series A round with the up and to the right and go to market effort.

Here is where I see the VCs failing:

First, the patterns they are looking for are too rare to be promising. Instead, for the future, the main pillar of the success will be something new, powerful, and valuable for a large market. For this, it will be necessary for VCs to work effective with things that are new, powerful, and valuable. This is not always easy. Relatively few VCs are able to do that. Even if they are able, the limited partners of the VCs won't like that.

Second, there really is a good pattern with fantastic evidence from the past. It is just that the VCs don't see this pattern.

Third, let's look at this pattern with its fantastic evidence. At first, we will just use some examples and then later will explain with much more substance and meaning.

(a) In WWII, the US had big need for some better weapons. The usual VC approach would have the US go to the designers of the 16" battleship guns and ask for 18" or 20". Well, the US was smart enough not to do that. Instead, Szilard, Teller, Wigner, Einstein, Fermi, etc. led the US to the A-bomb that ended the war in the Pacific in about a week.

(b) Teller saw that fusion had promise of much more yield and in a few years had Castle-Bravo with 15 megatons of yield.

(c) The WWII aircraft engines went from 9 cylinders in one row to four rows of 7 cylinders per row and extreme efforts with supercharging, intercooling, magnesium, huge propellers with tips moving close to the speed of sound, etc. But a few people in each of Germany, England, and the US saw the promise of gas turbines, and we got some fantastic jet engines. Four of these on an airplane quickly put the Atlantic passenger steamships out of business!

(d) A few people saw that reproducing the marks on a sheet of paper would be a big advance in office work and ... we got Xerox with nearly a license to print money.

(e) Ike wanted to see what the Soviets were doing. So, Kelly Johnson at Lockheed put some long, narrow wings on an existing jet airplane and gave Ike the U-2. When a U-2 got shot down, soon Kelly showed up with an armload of engineering drawings talking about titanium and a special engine that Pratt and Whitney had (a turbo jet up to about Mach 2.5 and then a ram jet to Mach 3.2 or so). Kelly got his check, and the US CIA got their SR-71 -- speed 3.2 Mach, altitude 80,000+ feet, range on one load of fuel ~2000 miles, and never shot down.

(f) Word whacking was a pain, really expensive. The IBM correcting Selectrics were only a little better. But an early microprocessor, a simple operating system, some simple word whacking software, a floppy disk, and some simple printers quickly eradicated the typewriters. We got Intel, Apple, Microsoft, and more.

The examples (a) -- (f) are only a few of the dozens we could list from military projects, biomedical projects, various tools, various services, etc.

So, for each of (a) -- (f), at the beginning, the project had to be evaluated. The rear view mirror as VCs apply it would not help. Instead, the need was to work effectively with ideas that were new, powerful, and valuable.

Fourth, let's look at some "substance" supporting the patterns illustrated by examples (a) -- (f). What is needed is a way to evaluate ideas that promise to be new, powerful, and valuable for a large market.

Okay, one more example: GPS. If the USAF charged a penny for each commercial use, they'd soon own the world and everything in it???? Well, they'd have a lot. Uh, at one time I was working at the JHU/APL lab in the group that did the first version of GPS, for the US Navy, especially for the missile firing submarines. I heard the stories. The project was first on the back of an envelope. With not much more in ideas, it got funded and the rest is history.

So how was the evaluation done? Sure, first some physics. Next some math. Next some engineering. Money allocated. Work done. Rockets launched. All done.

So, here it is: The foundation of the pattern for the evaluation to confirm new, correct, and significant was some science and math that could be checked. That's the pattern: The crucial core of the project is an idea based on some science, math, and engineering on paper that can be checked. That's the pattern.

In the more advanced countries, there are plenty of people who can generate such ideas, do the science, math, and engineering (e.g., the LHC) and plenty of people who can check the work with high accuracy. E.g., there are problem sponsors at the US NSF, NIH, DARPA, ONR, etc. that can do the checking or manage the checking done by others. Research university Ph.D. committees do such evaluations around the world daily.

Surprise. Please sit down for this: US technology VCs just will not, Not, NOT, no matter what, not even under promise of $trillions, not with water torture, not with anything, do or manage such evaluations. Feet locked four feet deep in reinforced concrete, they won't do it.

Results: First, from all I can see, the most promising path to the future is new ideas, presented just on paper, as science, math, and/or engineering, that are powerful and valuable for big parts of our economy and that can be evaluated accurately. Did I mention "just on paper"?

That's what the JHU/APL did for the first version of GPS -- on paper. That's what Kelly Johnson (there's a picture) brought to the CIA for the SR-71 -- an armload of engineering drawings. On and on.

The B-29 is what carried the A-bombs that ended the war in the Pacific. That plane cost ballpark as much to develop as the bombs! A joke about VCs is that they would say "You build it, drop the first bomb, and we will fund the gasoline for the flight of the second bomb."

For entrepreneurs, paper and pencils are cheap! Can buy a lot of computing for $2000. A lot of Internet bandwidth is cheap. So, do the math, etc., write the software, build a server, plug it into the Internet, go live, get users, run ads, make money. To me that's the most promising path to success. But VCs will have nothing to do with it.

For the VCs waiting to fund the big go to market effort, in the past a lot of companies that were successful grew just from retained earnings and never took equity funding. Now with cheap paper and pencils, computing, the Internet, etc., that path seems relatively promising now.

nwatson• 6 years ago

The damage from nuclear bombs in Japan was marginal or on par compared to the damage from massive firebombing in a typical Japanese city in 1945. The effects of atomic bombs on Pacific Theatre outcome in WW2 is overrated.

graycat2• 6 years ago

You are correct about the fire bombing. But the "effects" of the atomic bombs were fantastic -- ended the war in about a week when the fire bombing didn't.

So, what happened? One answer is that the atomic bombs were dramatic enough to shift the balance of political power in Japan.

Yes, generally it is believed that just before the atomic bombs, Japan was defeated, knew they were defeated, were out of oil with no chance of getting more, short of food, etc. and were interested in negotiations to end the war. It appears that then the US insisted on something really simple, definite, final, humiliating, etc. -- "unconditional surrender". In the end Japan did get to keep their emperor which was good for the US since it meant that the US occupation of Japan was easier -- just work with the emperor instead of civil war in the streets.

Drama or not, the atomic bomb was darned scary -- one bomb, one airplane, one city, and the fire bombing was not nearly that powerful, that is, required lots of airplanes.

I don't know how many bombs the US had ready then, but Japan could fear that the US could destroy a city a day, including Tokyo.

But this is a bit off the subject: If you don't like the atomic physics, math for the critical mass calculation, the shaped charges, etc., then pick GPS, radar, penicillin, the SR-71, and the transistor as examples of where wildly successful projects were based on science, math, and engineering, proposed just on paper, and could be and were accurately evaluated and funded just from the paper.

And whatever Japan's response was to the atomic bombs, the bombs do illustrate one of my points -- they were evaluated, justified, and funded just from paper and worked as predicted.

Also notice that the US has lots of long range missiles with warheads based on nuclear fission and fusion but not based on the firebombs.

johbjo2• 6 years ago

No. The reason there are few FANGS is that they are platform businesses, and the value of their services is proportional (or more?) to the size of their user bases.

This means winner-takes-all. There were others, but they did not grow users as fast, so they lost.

Another thing to point out is that while search and ads is Google's revenue, with chrome, gmail, android, etc they are achieving a form of lock-in. If anyone else "owned" these surfaces, replacing their search box would be much easier.

The spread risk investment strategy is also correct, since the value of any platform market is low before the winner emerges. After the winner emerges, the value of that platform is the value of the entire market.

MaxBarraclough• 6 years ago

they are platform businesses, and the value of their services is proportional (or more?) to the size of their user bases.

I don't have much to add here, but this is known as a network effect. https://en.wikipedia.org/wiki/Network_effect

agustif• 6 years ago

nfx.com is a great source of different thesis on well, network effects in tech. They're also a VC

dalbasal4• 6 years ago

There literally are more FAANGs than there were in 2008, when he wrote this.

Even Google itself was much smaller than it is now. A google's in a 2008 sense would not qualify as a new FAANG in 2020 terms.

spirographer• 6 years ago

Companies fill ecological niches. When new technologies emerge there is room for a new apex species/(company), and a few smaller wannabes. There just isn't unlimited room for large companies to emerge, and that is the principal reason why there aren't more googles and facebooks around. In the end it has very little to do with VCs and entrepreneurs, except for the ones who happen to be in the right place at the right time to take an as yet non obvious idea and turn it into something huge.

strikelaserclaw• 6 years ago

I think this is probably the closest to the truth.

unnouinceput• 6 years ago

Except there is another. It's called Chinese Google also know as Alibaba. And with EU regulations coming up I suspect another one will rise in Europe as well in next decade. Just give it time, Splinternet will happen and then each country will have its own Google.

ChuckNorris892• 6 years ago

And with EU regulations coming up I suspect another one will rise in Europe as well in next decade.

lol, what?! Just because Europe loves to regulate itself to death so that the useless politicians can justify their salaries doesn't mean that will produce successful software companies. That's not how innovation works.

Just look at Russia, who despite having less wealth than the EU, has managed to produce its own Google in the form of Yandex. The EU has no Google of its own.

If we could have made our own Google we would have done it already, without regulations. But we can't. I mean, we could do it if we would put our minds and money to it just like we did with Concorde or Airbus but we're too cheap and ignorant to do it when we could just use and work for the OG Google from across the pond.

Increasing regulation in tech will only benefit the huge and bloated big consultancy corps and no way help with innovation.

multinational• 6 years ago

Google has 80-90% of the market share. In practical terms, they control if your website gets visitors or not.

If you throw Yandex in the ring, then Europe has several search engines

Qwant, a French search engine Mojeek, a search engine in the UK YaCy, p2p search

Koreans seem fond of Naveer. Chinese use Baidu

free_rms• 6 years ago

It's not so much "regulation vs non-regulation". Yandex is all intertwined with the government, and the Chinese giants have benefitted from a lot of government protection.

It's about political will. Like you say, Concorde, Airbus, or other government-sponsored and national-security-driven projects have succeeded. China and Russia saw their web properties the same way, while Europe has opted to not do that in the consumer web space, so the default is everyone just uses Google and FB.

ufmace• 6 years ago

I'm inclined to think that in order for another search engine to thrive, there needs to be a segregated market created by a different language. The kind that creates a culture gap that can't be bridged easily.

Ex - Google dominates the English-language web primarily. Most Europeans, esp Western Europeans, while they may have their own languages, speak enough English that they can get good results from Google, enough better than any local competitor that they can't get a foothold easily. Thus, they tend to use Google, enough to help Google get pretty good results in their own language too. Russian, though, has a ton of native speakers who speak no English. It makes more sense for them to gravitate towards a search engine where Russian is a first-class citizen, for searching the Russian web. All of the energy from the Russian-sphere thus tends to go to that engine, and Google's presence gets neglected and gets worse. Ditto Chinese, etc.

Zhyl• 6 years ago

In related news, DuckDuckGo has gone up ~10m DAU in the last month (~12.5%) and has gone up ~30m average DAU since January (~60%). [0]

[0] https://ddg.gg/traffic

BlueTemplar5• 6 years ago

DDG doesn't have its own search engine though.

dredmorbius• 6 years ago

Quibble: it has crawlers, though for small and specialised search, mostly Instant Answers IIUC.

https://help.duckduckgo.com/duckduckgo-help-pages/results/du...

Its primary SERPs are baased on Bing and Yandex.

(I'm a heavy long-term DDG user myself.)

ant6n• 6 years ago

Whenever Google only give me garbage results, duck duck go does as well. Apparently You cannot discover information on websites with a search engine these days, unless it’s news Or Wikipedia entries.

unishark• 6 years ago

Apparently You cannot discover information on websites with a search engine these days, unless it’s news Or Wikipedia entries.

Certainly not if it's any search term that can be "monetized" with an automated scraping script. Web search seems like an extremely adversarial problem with people constantly hacking your search algorithm instantly as you change it. One would hope that the benefit a giant firm can provide is the amount of R&D they could afford to devote to countering this. But perhaps when they're paying for ads they don't seem so adversarial to google.

Bodhisattya• 6 years ago

Here is my reverse ask: Why should there be? Isn't being an extremely highly valued company with a near monopolistic grip on the search and ads market, an outlier? Also, I am just not sold on the idea that undervaluation is holding startups back. Money guys did undervalue Google, but betting that Google will "go google" is a rather outrageous bet by most standards.

BlueTemplar5• 6 years ago

Using a different definition of Google than TFA :

We have discussed recently a huge issue preventing new Google-like web crawling competitors from emerging :

If you're not GAFAM(-like), and so aren't whitelisted, then anti-spam/DDoS filters like Cloudflare will simply prevent your crawler from working !

easytiger• 6 years ago

I've been working on a project that involves executing web crawling on a responsible scale but this has concerned me when I ramp to wider/regular fetching how will it be received by the web distribution mafia.

I recall last time i set up my own mail server that it was very hard to do it in such a manner that emails from it were not automatically listed as spam

finnthehuman• 6 years ago

web distribution mafia [...] set up my own mail server

One of the tragedies of the tech powerhouses is that their decision making that effects the rest of us is often thinly-veiled power tripping that they've convinced themselves is for the good of everyone. When in reality, they just haven't delivered good enough software to eliminate the problem entirely.

It's like a large scale version of a bad corporate computer security team. They can't quite design all the inconveniences out of their "solutions." Which is normally fine (after all what software and/or human-managed process is perfect the first time?), but out of a refusal to admit to their limitations they've convinced themselves that bureaucratic interactions with them to get day-to-day work done are necessary and important features of the design.

There are genuinely technical challenges with no good technical solution, so political ones are employed. But sometimes you start getting too many middle managers that think the answer to every problem that requires systems thinking is just more self-assured tough-talking or "we could make more money by NOT fixing this." And then suddenly all the nice properties of the system slowly start disappearing or have conditional access gates.

wslh• 6 years ago

Are in some way robots.txt and those Cloudflare measures anticompetitive and/or against net neutrality?

chris_f• 6 years ago

Are in some way robots.txt and those Cloudflare measures anticompetitive?

Article by Matt Wells from Gigablast on Cloudflare. Gigablast has one of the largest independent search indexes.

https://www.gigablast.com/blog.html

jonplackett2• 6 years ago

Isn't it also that Google/FB/Apple just buy all the startups that could conceivably threaten them.

Even the ones where the founders did hold out for a lot of money they just buy them anyway. Like WhatsApp (they got about $22 billion in the end!)

grishka• 6 years ago

Now, I have no idea how this actually works, but everyone seems to be implying that startups don't have a say in whether they at all want to be acquired, regardless of the price. I don't understand why are there no companies that refuse any acquisition offers because they want to retain their independence.

jonplackett2• 6 years ago

I think there must be some degree of fear - for example Snapchat refused Facebook and now Facebook has copied every single thing Snapchat has done.

But it also must be pretty tempting when someone dangles millions (or billions) of dollars in front of you. You could easily just sell, and then go whatever you want with the rest of your life, do whatever good you intended to do elsewhere.

Or maybe you believe the hype and think you could fulfil your mission better with the might of a tech giant behind you.

rexreed3• 6 years ago

Tip for acquirers: when a startup turns you down, consider raising your offer, because there's a good chance the outrageous price they want will later seem a bargain.

There's no evidence that this is the case.

Indeed, after founders are acquired their fierce competitive spirit and drive often starts to dissolve once the founders have gotten their exit and the teams run into the inevitable corporate realities that exist when teams are merged / integrated into a new culture.

Simply "offering more" does not address the reason why there aren't more Googles.

The hard truth is that technology incumbents fiercely defend their space making it very hard for new entrants to compete. Strong entrants either get acquired, and merged into the Borg, or are sidelined as the incumbents defend their turf sometimes through enhancements to the product / feature set, but often through somewhat anti-competitive actions that bar entry from new entrants.

While I would like to think the world is a meritocracy ("let the best product win"), the truth is far from that. And I think a lot of this piece from 2008 rests on half-truths and wishful thinking.

JohnJamesRambo• 6 years ago

I know lots of founders will read this, please for the good of humanity stop being acquired. I know the money is so alluring, but how much is your soul worth and will that money make you happy? The future of humanity depends on tech people making tiny principled stands like this over and over. Don’t believe the lies spewing out from the acquiring company. Nothing will ever be the same again and your product will be either killed or mutated into something hideous. Read the WhatsApp and Oculus and Nest stories over and over again.

rexreed3• 6 years ago

While I totally agree with this comment, especially from experience knowing that the reality of an acquisition is far from the rosy picture promised to everyone, the truth is that founders and especially investors are motivated by the exit.

Some founders start their companies to be flipped. Some start with the intention of going for the long-game but find the reality of competing in the market exhausting and emotionally draining. Some realize that they won't be able to capture the market share they want. Other times internal strife or conflicts with investors get in the way.

There are many motivations for acquisition and the realities of the difficulties of startups make any good offer very appealing. It's very hard to resist.

minikites3• 6 years ago

I know the money is so alluring

It's the only motivation. Why do you think wealthy and high income people fight so hard against repaying the society that educated them and provided the infrastructure to allow their business to flourish?

dkersten2• 6 years ago

The risk of a startup being acquired has also prevented me from buying startup's products, both personally and for my employers, because chances are the "great news, we got acquired" is anything but great news for the actual customers. That announcement is usually the sign to start looking for alternatives.

goatherders3• 6 years ago

"...will that money make you happy?"

Yes. Very. More than you can imagine. Trading good work for great sums of money isn't selling your soul. No one is under a moral obligation to build something that benefits the future of humanity. Furthermore, the vast majority of startups (including the 3 mentioned) were arguably never going to be humanity-changing businesses regardless.

If this is a conversation worth having at least reference bio-science and space exploration startups that actually have a chance to change the world.

alexashka• 6 years ago

The future of humanity depends on tech people making tiny principled stands like this over and over.

No it doesn't.

disgruntledphd2• 6 years ago

What about Instagram?

Acquired at 10mn users, not really used by anyone except SF hipsters.

Now a massive juggernaut and the same size (in MAU) as Facebook was when they acquired it.

verdverm• 6 years ago

There are other stories like PayPal and the numerous new companies that came after. I'm much more in favor of having Tesla and SpaceX than not

thelean12• 6 years ago

I know the money is so alluring, but how much is your soul worth and will that money make you happy?

I really don't understand this attitude. If someone offers me enough money so that I never have to work again, you expect me not to take it?

I'll sell any company if I could get $4 million after tax and never have to work again. Every single time I'll take that offer. I guess that's how much my "soul" is worth. And yes, that will make me happy!

elevenoh• 6 years ago

The future of humanity depends on tech people making tiny principled stands like this over and over.

Well put. And the reward? You + family/friends look back on your work with deep fondness & respect if you choose principles > acquisition $.

socmedia99• 6 years ago

Half-truths and wishful thinking are the fuel of VC and speculative economics

Paul Graham is one in 7 billion who stands out among billions of lesser educated.

He’s not a savant. His biggest success is early mover in a tech enabled society.

That’s not visionary, that’s following the social meme and being there at the right time.

Visionary in contemporary society means coming up with the next big thing itself; unifying scientific theories. Not seeing half-truths of reality in cherry picked stat bubbles of finance. There’s been no prediction of relevance just repeated habit

Billionaires are nothing more than gamblers who are propped up by monopolized politics.

minikites3• 6 years ago

Billionaires are nothing more than gamblers who are propped up by monopolized politics.

But if the success of a billionaire isn't entirely related to their singular genius and effort, what does that mean for me and my chances of success? It's uncomfortable to think about that so instead I'll pretend it really is only about their singular genius and effort and that means I can get there too some day. :)

disown• 6 years ago

Billionaires are nothing more than gamblers who are propped up by monopolized politics.

Also monopolized capital. Lots of people understood the prospects of the "internet" market. The question is who has access to capital and political protection.

Amazon could have been shut down when the dotcom bubble burst like so many other companies. How were they able to maintain funding/capital for nearly 20 years without making a profit? Amazon could have been shut down in the 90s if they were forced to collect taxes. How were they able to ward off paying taxes for so long? Why was amazon afford such capital/political shelter?

It's a matter of markets and who gets a share of the markets. Historically, it was people with connections. The right school, right family, right race, right nationality, etc. Now I'd say who has connections to capital though school, family, race, nationality, etc plays a role.

dalbasal4• 6 years ago

It makes a lot more sense from a 2008 perspective. Google IPOed in 2004 for 2-3% of its current market cap. The tech monopoly dynamic wasn't where it is now.

Also, he turned out to be right. Acquisition prices (eg fb acquisition of whatsapp, IG, etc) went up. Investors made a lot more small bets. A lot of "new Googles" got made. That may be played out already, but this is 12 years later.

jonny_eh• 6 years ago

A lot of "new Googles" got made.

Such as?

znpy• 6 years ago

> Tip for acquirers: when a startup turns you down, consider raising your offer, because there's a good chance the outrageous price they want will later seem a bargain.
Simply "offering more" does not address the reason why there aren't more Googles.

You must put that advice in context...

The context here is that PG's job is to be the first investor in a company.

Advising potential acquirers to raise the offer can only grow his personal return.

It makes perfect sense for PG to encourage potential acquirers to throw more money at startups.

yumraj• 6 years ago

I agree and logically it makes no sense, since what is the limit?

Theoretically everyone will sell at some point and the above argument can be made in each and every case.

Let's say Yahoo had offered Google $1B, and Google declined, Yahoo ups its offer to $2B, Google still declined.. this can go on forever till we reach Yahoo's maximum capacity to pay and if Google still declines with: it's not enough - the above argument would still hold.

Thus, IMHO, the above argument has no merit. While price is certainly a very important factor, there are always other underlying issues as to why some sell and others don't.

Jugurtha• 6 years ago

Tip for acquirers: when a startup turns you down, consider raising your offer, because there's a good chance the outrageous price they want will later seem a bargain.

Well, this is obvious in hindsight. The same logic applies saying "Tip for YC: when you turn down a startup, consider letting them in, because there's a good chance startup will later become a unicorn".

This is not a strawman argument because is there really a "good chance" when you consider the odds of startups and the value distribution.

meagher• 6 years ago

If you want a better formatted way to read (or print) this, I created a CSS proxy server https://pg-essays.now.sh/googles.html

dalbasal4• 6 years ago

A 2020 version of this might be "why there aren't more Teslas."

Elon's might be a rare cat, but he's probably not one in eight billion. At this point, changing the world with a new FB or Google is more about dislodging monopolies then it is about innovation. Meanwhile, a promising startup in this space would find it quite easy to get big/late stage funding because of acquisitions.

A "tesla" will have a hard time getting funded for precisely the reasons laid out by paul.

The difference though, is that manufacturing is actually capital intensive. Google & Facebook needed investors to cover rent and salaries for a few years. Making lots of bets isn't as viable. You do actually need to make good bets.

Meanwhile, in the google/fb space it is now more true that acquisitions and monopoly dynamics are a major hindrance to "more googles." Investors certainly aren't shy to make these investments. Investments in Teslas are depressed by conservativism and ability to pick winners.

0xquad• 6 years ago

A 2020 version of this might be "why there aren't more Teslas." It's interesting how many electric car companies are active in China, most of which westerners haven't heard of. (Check for example the video of the "Chengdu Motor Show" by FullyChargedShow on YT.) Relevant to the topic at hand, it seems that the "More Googles" are more likely to be arising in China, mostly outside my reality bubble. Some helped by market segregation enforced by the current political situation. That's orthogonal to the overall topic, but not irrelevant.

mac01021• 6 years ago

I don't have any visibility into the VC world. But I wonder if they've moved at all in the direction PG was recommending since 2008.

kuharich• 6 years ago

Past comments: http://news.ycombinator.com/item?id=163552

modi15• 6 years ago

Tip for acquirers: when a startup turns you down, consider raising your offer, because there's a good chance the outrageous price they want will later seem a bargain.

This isnt accurate at all. Google/Facebook turned down the offers because at the time the offers came, they were 'feeling' good about their business. This feeling changes over time and had google not chanced on the business model of selling ads next to search results, they would have probably regretted not selling earliers.

No one at Google/Facebook knew that the companies would be as big as they became and most startups who say to an acquisition face failure exactly like the 99% of other startups, sooner or later.

cryptica• 6 years ago

This is an excellent article.

The thing is that not only do VCs not fund startups which compete with big corporations, they don't even fund non-competing startups nowadays. They literally only fund startups whose only goal is to artificially launder revenue to corporations. For example, the startups load themselves up with debt and then they waste it all on Google or Facebook ads. Then they get acqui-hired just before they go bust so that the founders keep their mouths shut. Then the corporation shuts down the startup's product...

They never cared about the startup or its product.

11thEarlOfMar• 6 years ago

The low cost of starting a startup means the average good bet is a riskier one, but most existing VC firms still operate as if they were investing in hardware startups in 1985.

This has become more and more true over time, in particular as industrial-grade open source platforms, both software and hardware, have made super-scalable operations nearly free to implement. It is still difficult for me to grasp the magnitude of the fact that I can build a web-based service and make it immediately available to 5 billion other humans.

ivanstame• 6 years ago

Because {insert big tech firm like google} buys them out.

Why There Aren't More Googles (2008)

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