Absurd pitches (pull out the Hayek and Polanyi lesson)

by on April 17, 2013 at 7:37 am in Science, Web/Tech | Permalink

  • Facebook - the world needs yet another Myspace or Friendster except several years late. We’ll only open it up to a few thousand overworked, anti-social, Ivy Leaguers. Everyone else will then join since Harvard students are so cool.
  • Dropbox - we are going to build a file sharing and syncing solution when the market has a dozen of them that no one uses, supported by big companies like Microsoft. It will only do one thing well, and you’ll have to move all of your content to use it.
  • Amazon - we’ll sell books online, even though users are still scared to use credit cards on the web. Their shipping costs will eat up any money they save. They’ll do it for the convenience, even though they have to wait a week for the book.
  • Virgin Atlantic - airlines are cool. Let’s start one. How hard could it be? We’ll differentiate with a funny safety video and by not being a**holes.
  • Mint - give us all of your bank, brokerage, and credit card information. We’ll give it back to you with nice fonts. To make you feel richer, we’ll make them green.
  • Palantir - we’ll build arcane analytics software, put the company in California, hire a bunch of new college grad engineers, many of them immigrants, hire no sales reps, and close giant deals with D.C.-based defense and intelligence agencies!
  • Craigslist - it will be ugly. It will be free. Except for the hookers.
  • iOS - a brand new operating system that doesn’t run a single one of the millions of applications that have been developed for Mac OS, Windows, or Linux. Only Apple can build apps for it. It won’t have cut and paste.
  • Google - we are building the world’s 20th search engine at a time when most of the others have been abandoned as being commoditized money losers. We’ll strip out all of the ad-supported news and portal features so you won’t be distracted from using the free search stuff.
  • Github - software engineers will pay monthly fees for the rest of their lives in order to create free software out of other free software!
  • PayPal - people will use their insecure AOL and Yahoo email addresses to pay each other real money, backed by a non-bank with a cute name run by 20-somethings.
  • Paperless Post - we are like Evite, except you pay us. All of your friends will know that you are an idiot.
  • Instagram - filters! That’s right, we got filters!
  • LinkedIn - how about a professional social network, aimed at busy 30- and 40-somethings. They will use it once every 5 years when they go job searching.
  • Tesla - instead of just building batteries and selling them to Detroit, we are going to build our own cars from scratch plus own the distribution network. During a recession and a cleantech backlash.
  • SpaceX - if NASA can do it, so can we! It ain’t rocket science.
  • Firefox - we are going to build a better web browser, even though 90% of the world’s computers already have a free one built in. One guy will do most of the work.
  • Twitter - it is like email, SMS, or RSS. Except it does a lot less. It will be used mostly by geeks at first, followed by Britney Spears and Charlie Sheen.

That is all from Quora, hat tip goes to James Crabtree.

William April 17, 2013 at 8:08 am

Marginal Revolution University: It’s like Khan academy, but the hosts are aut… er “neurodiverse” and quasi-anarchist.

/hopefully within the bounds of taste.

r April 17, 2013 at 8:38 am

What is the Hayek/Polanyi lesson?

ShardPhoenix April 17, 2013 at 8:49 am

Presumably that if these companies had to have been approved by some bureaucratic government agency, they would have been rejected – whereas in the free market they can sort themselves out.

libert April 17, 2013 at 12:23 pm

Except that some of them were actually supported by the government (e.g., Google & Tesla).

bluto April 17, 2013 at 2:45 pm

Palantir was one of the CIA’s venture fund’s recipients.

Thomas Sewell April 18, 2013 at 6:23 pm

And to be fair, re: Tesla: “Tesla Motors (TSLA) investors worry if the company will survive quarter to quarter based on Tesla’s financials”.

Not exactly a ringing endorsement of success from the first news hit on Google (http://seekingalpha.com/article/1300141-supercharging-tesla)..

The real answer is that there were dozens of other similar companies with similar descriptions you could give, but most of these succeeded because of factors that are impossible to predict by a government agency.

Dave T April 17, 2013 at 8:50 am

Palantir? Never heard of them, but given how flush with money defense contractors have been for the past decade, I’m not sure how absurd selling them anything is. What an odd choice for this list.

Ray Lopez April 17, 2013 at 9:02 am

Brilliant list!

http://en.wikipedia.org/wiki/Palantir_Technologies (“Palantir was founded in 2004 by Peter Thiel, Alex Karp,[3] Joe Lonsdale,[4] Stephen Cohen, and Nathan Gettings. Early investments came in the form of $2 million from the CIA’s venture arm In-Q-Tel and $30 million from Thiel and his firm, The Founders Fund.[5][6][7][8] Alex Karp is Palantir’s CEO.[9] Palantir’s name comes from the “seeing stones” in the Lord of the Rings”) – 499 employees so it’s not small.

Bski April 17, 2013 at 5:14 pm

Why the hell does the CIA have a venture arm?

Shouldn’t they be using their funds to gather intelligence?

afl April 17, 2013 at 10:16 pm

upvote

Frederic Mari April 18, 2013 at 8:57 am

If they were any good at gathering intelligence, you’d hope they’d be able to deal on insider information and make the US gvt rich?

Hmmm… somewhere in that sentence, there’s a catch… :)

Alex Godofsky April 17, 2013 at 9:08 am

Nothing about your Palantir writeup sounds absurd.

Andrew' April 17, 2013 at 9:12 am

The name, Palantir.

maguro April 17, 2013 at 9:37 am

Yeah, defense contractors never have weird sounding names.

Andrew' April 17, 2013 at 9:46 am

So, because they are always absurd, they are never absurd? As in, “let’s name it after an evil, all-seeing spy device that sends the information back to our version of satan at a time when everyone is sensitized to governmental illegal monitoring.” That’s the pitch. So what are you saying?

maguro April 17, 2013 at 10:03 am

Just saying it is not absurd in the sense of “what a crazy-sounding idea”, which is the theme of the article. If you know anything about defense contracting it doesn’t sound crazy.

Andrew' April 17, 2013 at 11:14 am

Right, that it’s no crazier than the FUBAR SNAFU that it always is. Hell, why not make their logo the Eye of Sauron!?

Norman Pfyster April 17, 2013 at 5:51 pm

They aren’t inherently evil. They were originally gifts of the elves from Aman to the Elendili to permit coordinated action across vast distances. Like videophones.

charlie April 17, 2013 at 9:48 am

To be honest, that was the facebook pitch, it worked, and it shows the power of signalling.

Slocum April 17, 2013 at 11:21 am

Facebook won out not because of the Ivy League connection but because of an own goal by MySpace. It was arguably the same dynamic that made successes of late-comers Google and Craiglist. Those three won because they offered simple, clean, mostly ad-free interfaces…for years. Their competitors failed because of ‘premature monetization’.

j r April 17, 2013 at 12:16 pm

Was it the monetization that killed MySpace or the ability of people to trick out their pages with all sorts of absurd bells and whistles?

Ricardo April 17, 2013 at 12:38 pm

I never took MySpace seriously because it seemed to be full of pictures of teenagers. I only took Facebook seriously because I was curious about what had happened to friends from high school. (Now that I’ve caught up with them, I rarely visit the site.)

brian April 17, 2013 at 3:44 pm

This was my motivation to join and start using facebook; except then, I became hooked and addicted, and it has wasted more time from my life than it has probably given back in life-utils, but this is probably true of every other actual user of facebook!

Grumbles April 17, 2013 at 11:19 pm

Craigslist, originally, was not a company. It was a listserv operated by Craig Newmark that was just random, mostly Bay Area dot.com 1.0, types, selling random crap, giving away cats and looking for dates – think something closer to a community bulletin board. There were lots of similar experiments at the time, but CL managed to hit the Schelling point. It only became a company when it became so popular that it cost too much to host. Not sure exactly when Craig started it, but I was a subscriber back in, I think, ’94-’95.

Andrew' April 17, 2013 at 9:49 am

“The plan also included slides, allegedly authored by HBGary CEO Aaron Barr, which suggested “[spreading] disinformation” and “disrupting” Glenn Greenwald’s support for WikiLeaks.”

Serious, informed, or funny. Maybe one or two. Not none, folks.

Ed April 17, 2013 at 10:03 am

Of the eighteen companies on the list, I have used five of them. But I have never heard of nine of them before, so the fact that I have only used five may only show how out of the loop I am.

The five I have actually used are:

Google: The plain vanilla search engine with no distractions was the whole attraction (which they are losing). I don’t see how this pitch is absurd. For what its worth, I’ve been using their email since last year when my hotmail account crashed and died after Microsoft took over the service.

Amazon: I’ve used them to order stuff when I’ve been deployed to remote military bases (I’m a reservist), and really the only other option was to do without. And I’ve used other online retailers in the same situation. This doesn’t indicate that Amazon is absurd, just that online retailing is probably overused, it really should be a niche industry catering to when you can’t just walk down to the store and buy something. Amazon has been doing well on the metrics of selection, cost, and reliability of delivery. Of course, the success of online retailing may mean in the futre that just walking down to the store and buy something won’t be an option. And most Americans didn’t walk to the store pre-Amazon, which may be an underlooked factor it its success.

Firefox: I installed this mainly after hearing about how much better the browser was than IE or Safari. I think its slightly better, it has its own bugs. I use it mainly as a backup browser,s sometimes I will use two browsers to access the same site at the same time because there are cases where only one of the browsers will crash. I don’t see why a new browser that is significantly more reliable than the existing browsers is a bad business idea.

Linked In: I have a profile mainly because other people I know have profiles and have urged me to set up profiles. I may have had a facebook account at one time for the same reason, I really can’t remember.

Paypal: I try to avoid using it, but sometimes I’ve purchased something online where its the only payment option.

I get the attempts at humor, but many of these concepts are not that absurb sounding, and some of the ones that do sound absurd really are absurd. Google and Amazon are mostly good companies. There are also times when you have to participate in the free market but its not your choice.

Keith April 17, 2013 at 11:58 am

Interesting comments.
If you designed websites, you would see how much better Firefox is compared to the others. Firefox plays by the rules, and displays a page correctly every time. The others are more likely to make up their own rules and display pages incorrectly.

Chris April 17, 2013 at 2:33 pm

It does however also obsolete older html formats, so get used to maintaining your websites for ever just to please Firefox users.

Brian April 19, 2013 at 3:49 am

Chris, please give an example of an HTML element that Firefox once supported and then ceased to.

scott cunningham April 17, 2013 at 10:13 am

Craigslist charges for job postings and housing/rental postings, fyi. It only began charging for erotic services through extensive pressure from state attorney generals to do so, and now no longer has that section at all. FWIW.

Anthony April 18, 2013 at 10:12 am

“It will be ugly. It will be free, except to Bay Area employers and those notorious spendthrifts, New York landlords.”

Is that really that much more realistic a pitch?

scott cunningham April 17, 2013 at 10:14 am

BTW, shouldn’t Linux be on here somewhere? We’re going to make an operating system that’s free and that is built by a bunch of people just adding to it in their spare time.

Dan Weber April 17, 2013 at 11:01 am

There was no real plan to make a business out of it. At the least, I don’t think Linus mortgaged his house or anything to support it. It grew organically and there wasn’t a giant leap of faith required by anyone.

prior_approval April 17, 2013 at 11:34 am

Well, there was the massive investment by IBM, mainly through Suse, back in the late 90s.

mobile April 17, 2013 at 4:30 pm

Red Hat: let’s sell software packages that people can already download for free. They can also download it for free from us.

To April 19, 2013 at 2:43 pm

Just like Google or Facebook, their visible output and their main commercial product are two different things.

Hazel Meade April 17, 2013 at 10:20 am

Some things only seem crazy at first glance. We’re still looking at an industry that is evolving rapidly. So new things that look ugly (Craigslist) still have a chance to break in. And stuff that works basically the same way as other things (Dropbox) might have some simple user-friendly interface that makes everyone adopt it quickly.

I bet that someone invents a better version of craigslist in the next 10 years. It’s go so many issues with scammers and dealers advertising on it. Nevermind the hookers. Someone just needs to think up one neat feature to add that makes it more usable than craigslist.

Brock April 17, 2013 at 10:31 am

And Elon Musk founded three of them.

bluto April 17, 2013 at 10:42 am

Firefox is just Netscape Navigator after a few name changes. In 1998 when it was clear IE was going to eliminate the market for paid browsers, the owners (AOL?) gave away the source code. Like most of the code base gifts it took quite a while to get something aligned with the contributors goals, but there was always enough hate in the valley for MS to ensure that it kept getting built.

derek April 17, 2013 at 10:57 am

Not sure of the timing, but shortly afterwards a few german guys decided to write a browser engine, released it as khtml, was used in the KDE browser, then picked up by apple, becoming Safari, who put back their contributions. The thing was bundled as Webkit, which is used in the Android and Chrome browsers.

Does anyone use Microsoft browsers anymore? For a long time anyone who had security problems was told to not use IE.

zbicyclist April 17, 2013 at 12:38 pm

Some companies (my own, for example) require MSIE for “security reasons”. MSIE 8, in fact Try not to laugh.

joshua April 17, 2013 at 1:36 pm

> Does anyone use Microsoft browsers anymore?

Inertia has blessed them with a market share that remains in the neighborhood of 50% (depending on your source).

wiki April 17, 2013 at 10:54 am

I understand that when Xerox was being formed there was a lot of objection to the copier on the grounds that it was an expensive and inefficient substitute for carbon paper. Of course, the mistake then was that demand for copies was based on the sender’s needs. Users of the new Xerox machines soon found that it was document recipients who wanted extra copies made. But that wasn’t obvious to many at the time.

Andrew' April 17, 2013 at 11:17 am

What about my one for college: “People will move into apartments that only we provide and then pay us about $100,000 because we own all the food, parking, and administrative services.” Or sports “we’ll get 90 thousand people to all show up at the same place and same time, despite the fact that 90 thousand people are trying to get there.”

NPW April 17, 2013 at 11:32 am

■Amazon – we’ll sell books online, even though users are still scared to use credit cards on the web. Their shipping costs will eat up any money they save. They’ll do it for the convenience, even though they have to wait a week for the book.

And people who aren’t scared will make us billions. And we will make enough green to give free shipping. And even without free shipping Amazon is typically cheaper …..

■Virgin Atlantic – airlines are cool. Let’s start one. How hard could it be? We’ll differentiate with a funny safety video and by not being a**holes.

Not dealing with a**holes attracts a significant customer base.

■Google – we are building the world’s 20th search engine at a time when most of the others have been abandoned as being commoditized money losers. We’ll strip out all of the ad-supported news and portal features so you won’t be distracted from using the free search stuff.

And we will sell the information gathered from the users who like our better mousetrap and make billions……

■Github – software engineers will pay monthly fees for the rest of their lives in order to create free software out of other free software!

Free is not necessarily evil…I realize this is economics site, but really? People will pay for organization, digital or otherwise. People will pay for a location to meet like-minded people. People will pay a token fee to keep the rift-raft out. No new bus model here.

■LinkedIn – how about a professional social network, aimed at busy 30- and 40-somethings. They will use it once every 5 years when they go job searching.

And the recruiters use it every day which means I don’t have to job hunt the same way. I just send out a mass email saying that my status moved from listening to actively searching. To everyone but my boss.

■Tesla – instead of just building batteries and selling them to Detroit, we are going to build our own cars from scratch plus own the distribution network. During a recession and a cleantech backlash.

Pretty sure Telsa started before the cleantech backlash/recession. And the “just building batteries and selling them to Detroit” has already not worked.

■SpaceX – if NASA can do it, so can we! It ain’t rocket science.

Rocket science isn’t has hard as it used to be. And contractors have been doing most of the heavy lifting for many gov entities for decades. This is just acknowledging the functional reality.

This list would be funny if half a lazy thought didn’t torpedo it. These are bad bus models if only half the idea is presented.

eddie April 17, 2013 at 12:07 pm

The list is also funny if you have a sense of humor.

gwern April 17, 2013 at 1:10 pm

/scratches off daily todo item: ‘witness breathtakingly audacious example of hindsight bias’

And here I thought I was going to have to go read some Bitcoin articles or something.

bluto April 17, 2013 at 2:42 pm

Amazon’s lifetime earnings are just shy of two billion, so technically they haven’t yet made “billions”.

Michael Wolfe April 17, 2013 at 5:48 pm

Hi, this is Mike. I wrote the original post.

It is easy to look at these companies now that several years has gone by and say you would have known they would work. You’ve seen them execute, and you’ve seen the results.

But I maintain that 99% of us, if we were presented with a business plan that pitched these businesses, would have thought they were nonsense. You can argue that you would have known they would work, and if so you should become a venture capitalist – you’d be a billionaire and the best VC to ever walk the earth.

The point of the post is that the very things that make great companies are deeply unintuitive – after all, if they were obvious, we all would have been doing them.

Norman Pfyster April 17, 2013 at 6:12 pm

I would agree with the commentor, though, that you didn’t really present Google’s business plan. You presented their predecessor’s plans that had failed. Google’s business plan was to leverage a vastly superior tool into a vast source of data mining that companies with real money would pay for. Access to the tool was made as simple and unobtrusive as possible because the because the business operation took place after the tool use.

mulp April 17, 2013 at 8:37 pm

That wasn’t google’s plan either. Google’s plan was to keep outsiders from messing with them while they tried to beat Altavista, and then when outsiders destroyed Altavista to cash in and cash out, google’s plan became figuring out how to make money and keep out Wall Street and the bankers from destroying google. They spent about five years figuring that out. With help from a man who had experience with Wall Street meddling and destroying businesses.

gwern April 25, 2013 at 10:50 pm

Indeed. Norman should go read any history of Google, like _In the Plex_. Google didn’t have any genuine business plan for years and their ultimate golden strategy of ads owed a lot to outsiders.

Brandon Berg April 18, 2013 at 1:35 am

Seriously? You’re fisking a joke?

MG April 17, 2013 at 11:49 am

I think there is a correlation between the apparent “absurdity” of business model of these after an era’s paragons of success and TC’s assessment of how “stagnating” that era is/was. If so, Hayek is even more relevant today than in the 30′s.

Phillip Garland April 17, 2013 at 12:17 pm

For some of these (GitHub, Google, Mozilla) their competitors (SourceForge, Altavista, Internet Explorer) were awful- their markets were ripe for disruption, but the products weren’t initially developed as money-making ventures.

GitHub is built on Free/Open Source software (git) that Linus Torvalds originally wrote for his own use in managing Linux development. GitHub has a nice interface, but it wouldn’t exist without git (or another Free/Open Source distributed version control system).

Google started out as Brin and Page’s research as as Stanford grad students, so again, there was no initial business plan (AFAIK).

Mozilla started out b/c Netscape got stuck developing their web browser and couldn’t compete with Microsoft’s business practices, so they dumped their code on the internet as an Open Source project. IIRC, It took a few years to get significant market share, and I believe a few years more before the Mozilla organization had much revenue.

zbicyclist April 17, 2013 at 12:44 pm

In many cases, there is no business plan, or the initial business plan bears little relationship to the successful version of the company after evolution.

Maybe the key thing to ask is whether the company is good/lucky enough to modify the business plan to push what works and abandon what doesn’t.

Alex April 17, 2013 at 12:22 pm

Wouldn’t be complete without quora:

“We’re going to make a yahoo answers clone, except everyone will have to use facebook to comment so we don’t have to worry about being in control of our platform and we’ll make it extra compelling by spamming your inbox and adding the voting features that made digg & slashdot such a huge success.”

marcelo April 17, 2013 at 1:20 pm

thanks friend for your input

Stoneflake April 17, 2013 at 1:23 pm

Bloody brilliant.
Someone should distill this in a single maxim (“the Craiglist paradox” etc.) and make integral to Microeconomics 101

Edward Pierce April 17, 2013 at 2:13 pm

nit: GitHub is free for any open repository. They only charge for private repos.

Dennis During April 17, 2013 at 5:24 pm

It is dead easy to make fun of almost any business idea or to seriously see the negatives in any business idea. A great deal of diversity in funding sources is essential to overcome the negativity. There’s still a lot risk that the funding sources all take each other into the same worldview, so the true effective diversity is less than the apparent diversity.

TallDave April 17, 2013 at 9:58 pm

Very amusing, thanks for sharing.

Anthony April 18, 2013 at 11:28 am

Trader Joes: Let’s open a grocery store aimed at health- and quality-conscious yuppies, with a *really* limited selection, and all the produce wrapped in plastic.

Costco: Let’s open a grocery store where people can only get oversized packages in a dingy warehouse environment with no customer service and long checkout lines.

BruceJ April 18, 2013 at 1:22 pm

SpaceX came about precisely BECAUSE NASA announced they were getting out of the commercial launch business.

Also, the subsequent demise of the Space Shuttle with no American replacment on tap was a rather large thing in favor of SpaceX succeeding.

(I notice you didn’t mention the five or six OTHER companies started to become commercial launch providers who aren’t here anymore. Guess that wouldn’t be so pithy.)

Firefox is the descendent of Netscape, remember the early Web Wars? Netscape PREDATED IE!!!

Amazon hemorrhaged cash for years before becoming profitable. The REASON it could do that was because everyone and their brother-in-law saw the potential, so investors stuck with it.

While this list is amusing, it’s tortured and absurd in it’s composition, and all made of straw, besides. NONE of these companies were pitched like this even at the time, and it’s a cherrypicked list, so I doubt it actually illustrates anything but Cowen’s attempts at humor.

BruceJ April 18, 2013 at 1:25 pm

Also, Tesla and SpaceX were founded by the guy who got ginormously wealthy by selling PayPal to Ebay, and you never EVER used your ‘insecure Yahoo or AOL email address’ to send people money.

I’ve been using PayPal since it began; at the time there simply was NO way of sending ‘cash’ via email, or later to use my credot card to pay another private individual for goods or services.

There’s a REASON Elon Musk is wealthier than Croesus.

mulp April 18, 2013 at 5:16 pm

While the list is amusing, what it fails to get into is the amount of capital these businesses needed to have to even have a hope of going to the next level.

Most needed perhaps $10 million, then going to a $100 million.

But a few started at multiples of a hundred million just to get to the point of bringing in a billion or more in capital to make the first milestone that brings even a shred of credibility.

Tesla required $187 million in capital to build and deliver its first 147 cars, with Elon Musk putting in about $40 million in capital plus his daily supervision of development and production for the five years that took, not to mention being the key person raising capital.

Tesla entered equity partnerships with multiple automakers and got a Bush era DOE loan to refurb the abandoned NUMI plant for another $600 million before IPOing to raise $225 million in capital. A half billion in capital, a half billion in loans over the past decade and so far the profit is an accounting phantom.

And the business model involves fighting 50 States over government regulation which would be the most disruptive thing to hit vehicle sales in a century – selling cars over the Internet, a nut that even GM couldn’t crack in its best days.

Then we have SpaceX which took a capital investment of $200 million in private equity, half of which is from Elon Musk personally, and another $800 million coming in mostly government “progress payments” on $4 billion in contracts booked in its first decade of operation.

And PayPal’s business model was “let me take the profit I got selling my last Internet company and buy market share out from under eBay’s payment system in the hope I can panic them into giving me lots of cash so I can fund my rocket and super cool sports car companies”

The examples listed for startups do indicate why the US economy has stagnated.

No one tried to start a company that would put several flat panel displays in everyone’s home that was range from the size of the front of a TV all the way to the size of a bay window, and make every TV in existence in the US a liability homeowners would be required to pay to have sent to Asia.

No one tried to start a company that would similarly seek to replace every personal computer in the world by 2010 by storing everyone’s data someplace they can’t possibly find if they tried.

Both of these ideas was debated as part of government policy in the 90s while the tech industry and the Atari Democrats were exerting maximum effect. In the former case, the Asian governments did make replacing every TV with a computer flat panel display national industrial policy. And in the latter case, several existing corporations sort of backed their way into cloud services because they needed to deploy their huge capital resources that were otherwise sitting idle. Wall Street, with access to trillions in capital, “more wisely invested” in real estate derivatives ponzi schemes. Investing a billion in a startup with massive capital needs was deemed too risky, compared to pump and dump asset churn.

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