Charles Hudson's Weblog

Consumer security has been a historically hard category to monetize. I’d argue that desktop anti-virus software market in the 1990s and 2000s was really the heyday of consumer willingness to invest in security software. As the world moved to the cloud and as consumers got more savvy about clicking on unknown links and the typical virus propagation mechanisms, that market has kind of stagnated. I think most consumers today are far more worried about credit card or identity theft or having a cloud based service hacked than they are about a downloadable virus. And it feels like most of the criminal hacking has moved on as well, with many publicized breaches at big retailers. There are some pockets of consumer security that have found audiences, such as lightweight VPNs for wi-fi access, but none of those have built franchises like what we saw in anti-virus.

It’s very easy to be deeply skeptical of consumer security as a category. It’s a well worn trope that consumers are unwilling to trade convenience for security and pay for security solutions in general. I think the combination of the omnipresent smartphones and extensions in iOS8, which mirrors how Android extensions work, could lead to a re-emergence in the consumer security market. I think there have been a few key supporting developments in the broader ecosystem that could make this a good time to be in the consumer-facing security business.

Desktop and web-based password managers work well and make security relatively easy.

Products like LastPass, 1Password, PasswordBox, and Dashlane make managing strong, secure passwords relatively easy. While they have long worked well on the desktop and with browser-based applications, they haven’t really shined on mobile apps. I think extensions on both iOS8 and Android are already making it easier for these programs to interface with applications. When these services can interface with apps and other browsers (like Chrome on iOS), it will make having good passwords a more seamless experience for consumers. When you combine the TouchID API with a strong password manager, having good passwords that are easy to access on mobile could be a reality in the coming months.

More major services are pushing out two-factor authentication.

Two-factor authentication is a pretty straightforward way to improve security in a primary password world. This is where the mobile phone is a big deal. We finally have a ubiquitous, connected second factor to use. Companies such as Authy and Google (via the Google Authenticator) are making it easier to support two-factor authentication. And some of the most important applications that consumers use, including Dropbox and the suite of Google services (Gmail, Docs, etc) have rolled out two-factor authentication as an option for consumers who care about security.

For the first time in a long time, I think the opportunities in consumer security are interesting again.

As always, comments are open if you want to share your thoughts. You can also send me your thoughts on Twitter @chudson

Earlier today I took my first ride on Lyft Line, Lyft’s brand new twist on ridesharing. The concept is simple – you as the rider get a discount on your fare in exchange for being willing to share your trip with another person heading in the same direction. My early experiences with Lyft Line have been good. I waited about a minute or so longer for the system to find a match when I first initiated my ride request (the face carousel was a nice way to pass the time) as they were looking to match me with another rider. And I like the idea that I won’t be delayed in transit as the goal is to only pick up passengers who are ready to go in a minute or less. There are certainly circumstances where I’m willing to trade some time and solitude for a reduced fare. I had moved a lot of my ride activity toward Uber in the past few months and I think Lyft Line will get me back in the habit of using Lyft more often.

Urban transportation continues to be one of my favorite themes. It’s worth noting that Lyft is not the only company experimenting with this service. One of their main competitors, Uber, is planning to launch something similar. And there are startups like Hitch whose whole service is based on this premise. I wanted to share some of my thoughts on ridepooling and what I think it will mean for transportation in cities.

I take a pretty varied set of services to get around town here in San Francisco. I own a car, but I try to avoid driving it as parking is expensive and parking tickets are even more expensive. Most days I take some combination of walking, ridesharing, BART, MUNI, and a bicycle to get around. In most cases, I tend to choose my mode of transportation based on some rough tradeoff between price and speed. Walking or taking a bike is obviously very cheap and taking an Uber or Lyft is more expensive than public transportation. I mix and match based on my schedule and need for speed.

Price Competition in Ridesharing

While ridesharing here in the US is still a young industry, we’ve already seen a lot of innovation around access and price. Aside from a simple, relentless focus on reducing the price of an individual ride, Uber and Lyft have both done interesting things in terms of pricing and segmentation. Uber, in particular, has done a very nice job of segmenting its service into different tiers (Uber, UberX, UberSUV, etc) that offer different experiences for different prices. I think it’s a very good real-world example of price discrimination in action. Regardless of how consumers have received the concept of demand-based surge pricing, that too has had an impact on how consumers use these services. I suspect that ridepooling will also impact the market by creating yet another product with a different price and experience combination and will grow the overall ridesharing pie.

I think the way in which Lyft Line is marketed to consumers is very smart. The service promise to me, as a consumer, is that I get a lower fare by being willing to pick up another passenger along the way. If we pick up someone else along the way it will be quick. In the best case (and I experienced this already), you get the benefit of the Lyft Line fare and don’t end up picking up another passenger – you get the benefit of a lower fare without the interruption of an additional stop. I suspect this will change if and when ridepooling becomes more common, but for now it’s a nice perk. And it means that I, as the rider, don’t bear the financial risk of a higher fare because the service couldn’t find a matched rider. And from a marketplace design and development standpoint, it’s a great way to convince consumers like me to “gamble” on Lyft Line and try it out with the possibility that I get the benefit of the lower fare without an extra stop. For the service to work in the long term, there needs to be enough route matching to provide benefits to Lyft and the drivers who drive for them. Time will tell if there’s enough demand to make that happen.

Lyft Line and Ride Length

Overall, I think that I’ll end up using Lyft Line in two ways that I don’t currently use Lyft or Uber today. With the fare differential and focus on making the process of picking up additional passengers efficient, I think I’d actually start to think about taking a Lyft or Uber to work every day. It typically costs me about $8 each way to take an Uber or Lyft by myself to the office, which is significantly more than BART or MUNI. But if I can get a meaningful discount on that fare by being willing to pick up another passenger, I think Lyft rides will displace some of the trips where I would otherwise use MUNI or BART to get to my office.

The other thing that I think Lyft Line unlocks for me are longer cross-town rides. I don’t particularly like taking an Uber or Lyft across town by myself. Honestly, it feels extravagant and expensive. But the idea of shaving some money off of my fare by agreeing to pick up another passenger on what is already a relatively long (by SF standards) ride seems like a small inconvenience. And I would imagine that a longer ride would open up more opportunities for route matching along the way.

Differences between Uber and Lyft Brands

The last thing that Lyft Line has made me think about is how Uber and Lyft will compete in this market. As a consumer, I think the two services have marketed themselves in really different ways and have cultivated really different brand images. And I have friends and people in my network who use one service exclusively and have no interest in the other. I’m very curious to see how each service develops a ridepooling service that’s consistent with its own brand.

I think it’s interesting to see that Uber is going to pilot with Google. The one really interesting thing about working with a company (Google in this case) is that I think ridepooling where everyone is going to the same place is an interesting and unique value proposition. I think that’s decidedly different from just heading in the same direction.

At any rate, I’m glad to see more innovation here and I’ll be curious to see how this plays out. As always, the comments field is open and you can also share your thoughts with me on Twitter @chudson.

In the past few months I’ve met, read about, or been introduced to a number of companies that are working on solutions to make parking in cities a much easier experience for consumers. Most of these services are focusing on the SF and NYC markets, both of which are know for limited street parking, high prices for garages and lots, and a propensity for the local authorities to write parking tickets. Some of the more interesting companies in this space include Zirx, SpotHero, ValetAnywhere, Caarbon, Luxe, and others. I think they are all working on an interesting problem and I wanted to share my thoughts on the space.

I posted the tweet below and got a lot of good feedback from some of my followers:

getting close to writing a blog post on my thoughts on valet parking startups – have seen about 5 of them this quarter.

— Charles Hudson (@chudson) August 1, 2014

One of my favorite replies came from Josh at Freestyle and I wanted to give him credit:

@chudson I get there is a need for commuters but shrinking TAMs always scare me #blockbuster

— Josh Felser (@Joshmedia) August 1, 2014

Having met with a few companies in this space and having thought about the problem, I get why these companies are attacking this problem. If you drive, parking is a pain in many cases. Making parking less painful is a noble goal. And I think the growth of on-demand services like Lyft, Uber, Postmates and others has changed how consumers think about both transportation and logistics. After thinking about this problem for a bit, I believe the following to be true:

The real competition for these valet services is not really existing valet and parking options. I think it’s really a potential secular move away from driving and parking as the primary way people move about in cities. Increased urbanization plus innovation across the transportation stack (ridesharing group transportation alternatives, and public transportation extenstions) are putting pressure on driving.

With that context, I wanted to explore a few other ideas I have around the valet parking space:

Waiting for a Ride vs. Waiting for a Valet

The basic service parallel between valet parking and ridesharing services such as Uber and Lyft is obvious. All are on-demand services around transportation. Having tried out some of the valet parking services, I was struck by the differences between waiting for a ride and waiting for a valet. Waiting for a ride to show up is easy. I can usually find a way to entertain myself while I wait for my Uber or Lyft to show up. Waiting for a valet to show up to take my car is different. I’m behind the wheel. And in many cases I’m getting a valet because I don’t know where to park and I have somewhere I need to be. I found myself feeling more impatient, rightly or wrongly, when waiting for someone to come grab my car than I did waiting for a ride to show up.

Logistical Complexity of Moving Valets and Cars

One of the more interesting things is the logistical challenge that these models create. In the case of ridesharing, you have a stationary passenger and the target vehicle moves to wherever said passenger is. The passenger and driver then move together to the route endpoint and then separate. There is no need for the same car that dropped me off at my endpoint to be the same car that picks me up on the next leg of my journey. For these valet services, there are humans in the loop. There needs to be a model for moving valets from dropoffs and pickups as consumers request

The opportunity for good and bad “Surge Parking”

If you’ve ever looked for parking when there is a sporting event, concert, or other large mass of people in one place, it’s not uncommon to see parking prices increase drastically. As a consumer, I have two choices in these scenarios. I can park my car farther away from the venue for a cheaper rate and walk or I can pay a premium to have my vehicle as close to the venue as possible. But why does this linkage need to exist? I do think there’s an opportunity for these services to give consumer-friendly surge pricing that will be cheaper than those lots near major venues because the cars can be stored a ways away and returned when the event is over. On the flipside, I can imagine that these services will have some issues with surge pricing if everyone wants his or her car on Friday afternoon at 5 PM and the supply of valets is limited.

Why Non-Consumption is the Real Competition

I think the most existential threat to these valet parking services is the reduction of intra-city car commuting. I’ve been trying to think of a way to organize my thoughts around how I get around San Francisco. In thinking about it, I basically have two dimensions I consider when I’m getting ready to take a trip:

This model doesn’t take into account other important considerations, such as the total distance to cover, the time of day, where I am heading next, and whether I need a vehicle to carry stuff or store stuff. However, this is my starting point. If I have time to plan my trip to a known location, I have the luxury of weighing cost and convenience. When coming to the office, I can drive, take Uber, use MUNI or BART, or walk. If I had a job that required me to drive into town most days, I think I’d probably just reserve a garage near the office – it would lead to a predictable, guaranteed spot close to the office every day. Or I might also just find an alternative way to get to work that didn’t require me to own a car.

The one area where I do think the valet services have a real opportunity is the case where I am making an unplanned trip that is going to happen by car and where there is some risk that I won’t find parking easily. That could be due to the fact that I don’t know the parking situation in the destination very well or because I know it well and know that it’s hard to find parking in that part of town.

With all of the new transportation options available in cities these days, the number of instances where I have to drive to get from point A to point B or where I choose to drive continues to decline. And I wonder what that means for these services as they grow.

As always, thanks for reading. Feel free to leave a comment below or share your thoughts on Twitter @chudson.

As a VC, I take the majority of my meetings without seeing a presentation or “deck” in advance. And when I do get slides, I tend not to study them closely in advance. I’ve never explained why and wanted to do so.

I had an interaction recently with an entrepreneur where I think I both hurt said entrepreneur’s feelings and was perceived as lazy because I hadn’t read the deck in detail in advance. About two years ago I made a conscious decision not to read or require decks prior to meeting. To be clear, I rarely ask for a deck as a condition of taking a meeting. Nonetheless, I get them sent to me prior to meetings. Keep in mind that at SoftTech we invest primarily in seed stage companies – we are investing in the team and the opportunity, not just what’s in the presentation. The following thoughts might be less relevant for people presenting to later stage firms.

False Positives vs False Negatives

In my job as a venture investor, there are two risks when it comes to deciding which meetings to take. There is the risk of false negatives, which I define as declining meetings you should in fact take. The alternative, false positives, are meetings that you feel like you want to take but end up being less valuable or interesting than you anticipated going into the meeting.

I will get into more detail later, but I find that reading decks in advance creates more false negatives than it saves false positives. Let’s think about why VCs ask for decks in advance.

By and large, I think the reason to ask for a deck in advance is to figure out whether a given company makes sense for our firm. My default orientation is to meet with people, particularly at the seed stage. So why would I say no?

• Portfolio company conflict – If, after learning a bit about the company, I have the sense that there’s a conflict with an existing portfolio company I’ll just ask. It’s simple to point out that we have a investment in a related company and ask the entrepreneur if he or she sees a conflict.
• Poorly conceived idea – I find that a simple paragraph gives me enough context to figure out whether the basic market opportunity and company idea sounds interesting. If the paragraph is well-written and compelling, I find the deck tends to be so as well. When I struggle to get the big idea from the intro paragraph, I’ll usually just sent a follow-up email to ask more. Still beats looking at slides.
• Disagreement about the market opportunity – Sometimes I just see the market and market opportunity differently than the entrepreneur. I find this only comes from meeting people and hearing their story live.

In most cases, I’ve found that I can assess the questions above without a deck. A simple paragraph describing the idea will generally suffice to get the point across.

Downsides of Reading Decks in Advance

I’ll jump right into what I think of as the downsides of reading decks in advance. I know that I, in particular, am vulnerable to the things below. Others may have different thoughts.

• Decks do not communicate personal connection and energy – I find that even the most well-crafted deck or presentation does not tell me anything about how I’ll feel when the entrepreneur or team comes in to present. I value the opportunity to get a sense for the energy and personality of the team when they present live.
• With a deck, all questions are asked and answered – The best thing about a live presentation is that I get to ask questions in real-time. If I have a question, I can get the team’s feedback on the issue before I have time to reach my own conclusion. One of the hard things about decks is that every question I have in reading a deck either goes unanswered or I have to answer it myself. And I know that I bring that baggage and set of questions into pitch meetings with me.
• Not all of the secret sauce is in a deck – I’ve met many entrepreneurs who rightly fear that their decks will be shared. So they do not put all of the “secret” sauce of their ideas in the deck. Generally speaking, that information comes out in a pitch meeting but is not always included in the deck. It’s unfair to penalize people who hold that info back out of an abundance of caution.
• Some people are good at describing and poor at deck creation – Simply put, some people have great businesses and have lots of compelling reasons why they will succeed but are not good at VC presentations. This is not surprising – presenting to investors is very different from closing customers or growing your business.

I am sensitive to wasting people’s time, but I’ve learned that I do a better job paying attention to pitches and giving people a fair shake when I come in unbiased.

As always, I love to get feedback on blog posts. Comments are open below and you can also reach out to me on Twitter @chudson.

I’ve been thinking about LinkedIn quite a bit lately. I think LinkedIn is really interesting because in many ways I think it is one of the most durable and hard to disrupt companies that sit at the intersection of SaaS and social networking. I’ve also been meeting a ton of companies that I think are looking to compete with LinkedIn by attacking them on a feature-by-feature basis as opposed to a full frontal assault. There are some interesting and emerging things I’m seeing on this front and I wanted to write down some of my thoughts on the subject.

LinkedIn as a Three-Legged Stool

I think LinkedIn is a company that has three facets to its model that all work together in a very complementary fashion:

• LinkedIn is a directory – LinkedIn is a directory that allows professionals to create profiles with lots of information about their past work history and professional interests.
• LinkedIn is a social network – LinkedIn uses social networking features to show how people are interconnected in a professional context. You can call it the business graph or the professional graph.
• LinkedIn is an enterprise software company – LinkedIn makes a lot of money from selling services to companies that want to use its platform for business development or recruiting.

All three parts of that business work together. Encouraging professionals to create profiles fills out the directory. The social connections give context to how professionals are interconnected. This data plus the context allows LinkedIn to offer recruiters and business development professionals access to their platform for a fee. I think this chart gives a sense for just how much leverage they get from the 3 legs of their stool. Recruiting Solutions continue to drive the bulk of the revenue the company sees.

The Challenge in Competing with LinkedIn

LinkedIn really is a juggernaut of a company in the world of technology. If you’re not convinced, I’d encourage you to check out the 10-Q and see how well they are doing. In thinking about how to compete with LinkedIn, there are a few things that I believe make it particularly challenging – I’ll outline them below:

You Won’t Disrupt LinkedIn by Better Design – The Craigslist Analogy

It’s very easy to criticize LinkedIn’s design. It isn’t the most beautiful site on the planet. It’s not the most modern design. But it is very functional. People largely know how to use LinkedIn. Search works reasonably well. The site is also very, very SEO friendly, which helps greatly in terms of organic traffic. It does not feel like the way to compete with them is to build a more beautiful version of the experience – LinkedIn wins on utility, not design.

People Are Unlikely to Actively Recreate the LinkedIn Graph Manually

I think it’s highly unlikely that the majority of people will go and recreate a professional profile from scratch for a new service if it requires manual data entry. It’s one thing to create a new social profile on a consumer social network. Those usually only require a simple photo and a little bit of information to get started (if that). Creating and maintaining a professional profile is a lot of work. Unless the benefit of creating this new profile on a new service is clear, I think it will be hard to activate professionals and recreate that same graph that LinkedIn has built.

LinkedIn is Unlikely to Allow a Competitor to Build Itself on the Back of its API

Perhaps most importantly, I think LinkedIn understands the power of the profiles they’ve collected and that the fastest way to competing with them is to get your hands on that profile and relationship data via their API. I think it’s totally fair and smart of LinkedIn to be fairly conservative as to whom they allow to access their API and how they allow them to use it. I don’t see them intentionally enabling a competitor by allowing folks looking to disrupt them to use their own API to do so.

Hard to Imagine an Asymmetric Version of LinkedIn

When Twitter started to emerge as an alternative to Facebook, it seemed natural to me that the two services would head in different directions. Facebook, like LinkedIn, is largely about symmetric “friends” and not asymmetric “followers”. It is very hard for me to envision what an asymmetric LinkedIn would look like. What would it mean to follow a professional contact? Part of the value of LinkedIn is that symmetric friendships validate that both parties have agreed that they know each other.

The Case for Unbundling LinkedIn is Not Obvious to Me

One of the most common themes in the conversation around platforms is this theme of unbundling. For those of you with a general interest in unbundling and apps, I think there are two really good posts out there on the general theme of service unbundling, including this one by Benedict Evans at a16z and this one by Tom Tunguz at Redpoint.

I’ve been trying to wrap my head around what it would mean to unbundle LinkedIn and whether it would in fact be a good, useful thing for the company to do. It’s worth thinking through which pieces of itself LinkedIn could effectively unbundle, what it would mean for consumers, and what it would mean for their business model. My initial thoughts are that unbundling makes less for LinkedIn, regardless of whether it works in practice, than it does for someone like Facebook.

A simple search of the app store already shows that LinkedIn is experimenting with some form of unbundling, with separate standalone apps for a number of functions including Job Search, Pulse, Contacts, and Recruiter. I think the case for LinkedIn is very different than the case for Facebook:

Facebook is a platform that relies on ongoing consumer engagement to power its ad-supported business model. Any new entrant, such as Instagram, WhatsApp, or Snapchat, that competes for or siphons off end-user attention represents a real threat to that model. The decision to unbundle apps like Slingshot, Poke, Camera (remember that one), or Messenger makes sense in the context of retaining access to customer attention. LinkedIn is quite different. LinkedIn is a platform company that needs relatively accurate data and comprehensive coverage to power its enterprise model. So long as LinkedIn continues to have access to relatively accurate profile and relationship data, the core of their business model should continue to work well. The argument for LinkedIn to unbundle its core functions around network intelligence, contact management, and recruiting seems weaker.

The Opportunity to Compete with LinkedIn

Despite the sizable moat that LinkedIn has built around its business, there are some clever ways that companies can compete with them to build professional graphs and value-added services. A few things worth keeping in mind if you want to compete with LinkedIn:

• LinkedIn does not have a monopoly on professional network data – While LinkedIn has a potential monopoly on its own network or platform data, it does not have a monopoly on all social networking data. Increasingly, I find out about people’s professional lives on Twitter, Facebook, AngelList and other channels. That data can be leveraged to construct professional graphs and network relationship data.
• Contact info and basic graph data is available via app permissions and mail and calendar info – While LinkedIn does have a great store of contact info and past interaction data, that data can be gleaned from mobile address books, calendars, and email inboxes.
• Mobile favors quick, simple applications and interactions – LinkedIn is still one big monolithic application. Doing anything that’s simple or quick still means you need to open the core application and navigate to your desired function or section of the app. Mobile tends to make monolithic applications vulnerable to competition from single-purpose applications.
• Ability to combine professional and personal data to improve profile “freshness” – If I could identify one weakness in LinkedIn’s model, it’s that they don’t prioritize or even need the freshest profile or relationship data in order to make their model work. LinkedIn’s business model will work just fine so long as they have reasonably fresh profile information on their users. There is an opportunity to focus on the type of applications where data freshness is more valuable and useful.

When I look at the latest crop of applications that are focused on professional networking, including Refresh (I wrote about them here), Accompani, and RelateIQ, I think a lot of them are pursuing smart strategies around how to compete with LinkedIn without poking the bear. I’m very interested to see how these companies evolve and develop in the shadow of a giant.

LinkedIn is a very good company with a very good business. Trying to take LinkedIn head-on seems foolish to me. Whatever will compete with LinkedIn will have to chip away at the monolith by exploiting opportunities that seems small today but are likely to become valuable over time.

As always, comments are open. Feel free to leave your thoughts below or connect with me on Twitter @chudson.

I’ve been spending a lot of time thinking about how deep-linking is going to play out. For those who are not familiar, deep-linking is a technology that allows app-to-app communication to function very similarly to the way that web pages work. In the same way that a hyperlink to a website need not drop you off on the front page of that website, deep links hold the promise of allowing app developers and advertisers to deliver users directly to specific sections or portions of a mobile app, provided that the consumer has that app already installed. If deep-lining takes hold, long gone will be the days of clicking on a link to an app and either being delivered to the front page of that application or to a subpar mobile web application experience. That would be a significant improvement over the current state of affairs for consumers, advertisers, and developers.

There have been a number of somewhat recent announcements, including Facebook’s AppLinks announcement at f8 and the large round that URX raised from respected VC firm Accel. There is clearly a lot of attention being paid to this space.

Given how fundamentally powerful the concept of deep linking is, I can imagine a number of ways that deep linking could play out on in the market. My fundamental question about the space is whether a singe company or constellation of companies can control the technology or whether it will become an Internet standard. I can imagine three scenarios for how the market plays out in the short term:

1. Universal web standard service wins out – In terms of ecosystem simplicity, this would be my preferred solution. Some universal, well-understood and widely adopted convention and infrastructure for how web apps talk to each other regardless of the underlying OS would make life much easier for all parties involved. There would be no need to worry about whether the target user was on an iPhone, Android device, or desktop computer. Imagine a world in which you had to rewrite webpages to make them link properly for Google, DuckDuckGo, Bing, and every other web search engine. That would be a nightmare – thankfully we have standard conventions for the web. I would love to see this happen for mobile, particularly for those companies whose strategies are rooted in cross-platform development.

2. OS-specific solutions from Apple and Google – This seems to me to be the worst of all worlds and the most likely thing to happen. I don’t see any compelling reason for Google and Apple to collaborate on a common way to make this work in the short term. I would expect that each would focus on what works best for its respective app ecosystem. The set of companies that should have the most vested interest in a common set of protocols is the Pinterest / Twitter / Facebook crowd – large applications with meaningful audiences that span both platforms and who have larger platform ambitions. Having a common framework would make it much easier for developers utilizing their respective platforms to support deep links with less friction.

3. 3rd party solutions carry the day – There is a handful of companies, including URX, a number of ad networks, Facebook, Twitter, and others who have their own agendas for building deep linking solutions that are not deeply tied to any specific OS and advance their own specific interests. The potential benefits to developers are a) those solutions can be cross-platform and b) they are likely to work today as opposed to standardization deliberations which can drag on and c) they could be a useful abstraction layer as the OS and app store specific solutions morph and change over time.

My sense is that the third party solutions will have an opportunity to establish themselves before the OS-specific deep linking frameworks really take hold. And if you are an iOS or Android specific application, the need to support cross-platform frameworks is greatly diminsihed.

As always, comments are open below or you can send me your thoughts on Twitter @chudson.

Mobile ads, particularly app install and direct response ads, have become a big business for Facebook and are likely to become a big business for Twitter very soon. Much of the focus has been on the app install business and how large that line of business can become. While I think the app install market will be huge for both companies, I think there are some things that Twitter can do more easily than Facebook when it comes to the broad direct response category on mobile.

My First Experience Clicking on a Twitter Ad

I had my first interaction with a Twitter direct response ad about a week ago. It was a really clean experience. It was an ad for an upcoming General Assembly class. I clicked on the link and it took me immediately to a landing page where Twitter offered to pass my email address to the brand so they could follow up. I clicked yes and a few minutes later I got a ping back from GA telling me more about the class and offering me a way to sign up for the class. It was a really clean experience – almost no friction and the loop was closed on email, where it’s easy for me to manage the next steps.

As soon as I went through that experience, I wondered whether I would have been willing to go through the same flow on Facebook. I don’t think I would have felt comfortable doing that on Facebook. Over time, my relationship with Facebook has been one where the platform, app developers, and advertisers seem to aggressively want my contact info and personal details for ends that are unclear to me. In a lot of ways, that feeling (which is hard to describe in concrete ways), is why I have scaled back some of my Facebook usage in favor of Twitter.

Over time, I have become very comfortable sharing my interests with Twitter both explicitly by choosing to follow certain brands and people and implicitly by what I retweet and what I click. Twitter has all of that data around what gets my attention. And, to date, Twitter has made me feel good about continuing to share and create that data on their platform as they have not aggressively used it for marketing purposes.

The Difference Between Social Relationships and Interests

Facebook has clearly done a great job in driving mobile install ads. They know a lot about which apps I use on their platform, which Facebook Connect enabled sites and services I use, what content I share and like, and with whom I chat. That is a lot of data about my social interests. And that, combined with a platform with insanely high daily engagement, provides a really robust opportunity for advertisers to target me based on my social relationships and activities. This will continue to be a big business for Facebook so long as they continue to maintain high daily usage, regardless of whether I’m actively or passively sharing my interests with them. The reach they offer advertisers on mobile is and will remain a huge draw.

I have a feeling that Twitter’s strength in mobile direct response will not be as much around the social connections that I have with my followers and those who I follow. I think it will be much more around using Twitter’s data around my interests and (most importantly) my current interests to show me offers that are relevant to me. I think these interest-based ads will attract a different kind of advertiser looking for a different kind of interaction beyond app installs. It could be for advertisers looking to grow email lists by getting new subscribers, call-to-action offers to buy stuff, the opportunity to sign up for an in-person event, and lots of other things beyond driving app store installs.

Feel free to leave a comment below or send me your thoughts on Twitter @chudson.

Lately I’ve seen a resurgence of the conversation around disrupting Craigslist and other marketplaces. One of the better new ones to this meme is Fabrice Grinda’s post. Earlier contributions to the overall idea of unbundling or disrupting Craigslist from Josh Hannah’s on Quora and Andrew Parker on his own blog are also very much worth reading. In the four years since I’ve been following this thread, I’d say that Craigslist is still fairly resilient, albeit with stepped-up competition in some of its core offerings around housing, gigs, and electronics.

I meet with a lot of vertical marketplace companies in my role at SoftTech and have even invested in a few. One of the more common memes in the Craigslist disruptor pitch is that Craigslist’s UI is dated and ugly. After hearing that comment for what felt like the nth time, I felt the need to tweet the following:

Say what you will about the Craigslist UI and design. It still rocks when you want to sell stuff in SF. #liquidityrules

— Charles Hudson (@chudson) April 4, 2014

I think it’s easy to bash Craigslist for what it isn’t. It isn’t particularly beautiful in terms of modern design concepts. It isn’t “social” in the sense of deep integrations with social services for distribution or identity. It doesn’t have integrated payments or strong trust and safety. In thinking about what Craigslist doesn’t do well, it’s also worth revisiting that it does well.

What Craigslist Still Does Well

I have bought and sold a lot of things on Craigslist here in San Francisco. Two things about Craigslist still make it my go-to site for most things I’m looking to buy or sell:

• Craiglist is a very liquid market for buying and selling things in most major metro areas – Transactional liquidity is the real measure for whether a marketplace works. If buyers find sellers and sellers find buyers quickly, the marketplace is healthy. By almost any measure, Craigslist is the most liquid place to sell things.
• Local fulfillment and immediate payment on delivery – Unlike other places like eBay, selling things on Craigslist usually involves the buyer meeting your somewhere and taking possession of the item while also paying right away. No holds or escrows on the money, no trips to the post office or FedEx. Settlement happens quickly.

What I Dislike About Craigslist Transactions – What’s “Broken”

• Cash transactions can be sketchy – Because most Craigslist buyers and sellers are unknown to each other, cash is the obvious medium of choice for settling transactions. Depending on the sum of money involved, settling in cash might not be safe or desirable.
• Management and marketing of leads and communication with prospective buyers – If you’ve posted a popular item on Craigslist, there is some overhead associated with responding to people who write back with questions, want to get a lower price, plan to come by and don’t show up and the like.
• Onsite haggling – In almost all cases I’ve experienced, every Craigslist transaction involves some bit of face-to-face haggling at the last minute. The buyer usually wants some discount or comes up with some other clever reason why the price that was quoted was too high.
• Post-sales arbitration – If something you bought has an issue after you’ve bought it, there are no returns, there is no dispute resolution. There is no real trust and safety promise – once you bought it, you bought it.
• Sellers have little help in price discovery- Trying to figure out the right price for an item your are selling can be a challenge. There are some categories, namely electronics, where there are secondary markets that can help with pricing on popular items. But for lots of other categories, it can be hard to determine the market clearing price for an item on Craigslist.

What Vertical Marketplaces Can Offer Consumers

I recently had one of those “ah ha” moments about what vertical marketplaces can do to actually provide a good end-user experience. I recently started selling things on FOBO, which is a mobile-first marketplace for selling electronics here in San Francisco. I’ve sold a few items and it has been a good experience. A few things about the experience stood out to me as good ways that vertical marketplaces can compete with Craigslist. I thought I’d list out a few of the things that I’ve seen in some of the more successful vertical marketplaces and what it means for finding a wedge to be a better experience than Craigslist.

• Artificial or real liquidity – The starting point for competing with any established marketplace is the ability to provide comparable liquidity for buyers and sellers. That liquidity can either be real (as in there is a large pool of buyers and sellers) or somewhat artificial, with some guarantee that transactions will clear by having the marketplace take inventory or some other mechanism.
• Price discovery – In both product and service marketplaces, figuring out what to charge can be a challenge. Vertical marketplaces can help sellers and buyers by either setting prices, providing 3rd party data on prices (particularly useful in electronics), or providing community-wide pricing information on recent transactions (which usually takes the form of suggested pricing).
• Settlement and Escrow – For smaller transactions, I don’t mind settling in cash. There comes a point, though, at which the idea of walking around with a large amount of cash to buy an item from a stranger isn’t the safest thing to do. So long as there is a trusted 3rd party that verifies that the buyer has funds, whether cash or credit, the need to settle in cash on the spot goes away.
• Trust and Safety – Last but not least, it’s nice to have a service that has some platform-level trust and safety programs. That can include every thing from dispute resolution to reputation systems to refunds.

In the last four years, Craigslist certainly hasn’t gone away, but I am seeing more vertical marketplaces make inroads. If you have thoughts on this, feel free to leave a comment below or send me your thoughts on Twitter @chudson.

Sometimes I find new investment themes proactively by trying to think about the world and where I see technology heading. In other cases, I realize that I’ve become interested in a theme by looking back at the companies I’ve met and find fascinating. I recently took a look back at a lot of the companies that I found really interesting, regardless of whether I invested or not, and tried to group them. It turns out that there is a large cluster in one theme – city living. While San Francisco is not as dense as New York or Tokyo, it does have sufficient density to unlock some really interesting businesses that maybe wouldn’t work as well in a more sparsely-populated area.

I think part of my interest in companies that make living in cities more interesting, convenient, or pleasant stems from my recent full-time move to San Francisco. Living and working in SF has given me a different view on what convenience means after living in Mountain View and Palo Alto for 14+ years. I can broadly lump my investment in things that make urban living better into a few large clusters:

• Transportation – In addition to the obvious breakouts such as Uber and Lyft, there are lots of other people tinkering at how both intra-city and inter-city transportation can be improved. This includes everything from companies that are doing interesting work in mass transit to those who are innovating on ride sharing. I’d put companies like Leap Transit, Corral, Ridepal, Scoot Networks, and others in this category.
• Logistics, Storage and Delivery – One area that I really appreciate as a city dweller is the investment in making logistics and delivery much easier. This is everything from making it easier to get on-demand delivery from services such as Postmates (disclosure: I am an investor) to services such as MakeSpace and Boxbee that make it easier to get access to storage for items that don’t fit in smaller apartments or living spaces. And then there is an emerging category of services such as Luna and Doorman that enable consumers to receive packages at night when they are actually at home.
• Food – There is no shortage of companies that are looking to build services that will deliver food to you, whether that food comes from a restaurant or is made in a commercial kitchen on behalf of a given service. This includes everything from Munchery to Sprig to SpoonRocket to many other emerging providers and established providers like GrubHub and Caviar.

I think I like companies in this category for three reasons. One, they can achieve meaningful scale by focusing energy and attention on a relatively small number of major metros that offer dense concentration of potential customers. Second, the secrets to what make these businesses successful is often non-obvious and rooted in the things you learn from operating a service at scale. This gives you a real edge in terms of defensibility when it comes to competing with new entrants. Last, a good number of these businesses either have strong network effects or are likely to lead to winner-take-all outcomes given the economies of scale you get from being a market leader. I’ll probably write more about that last point in another post.

If you’re working on a business that makes living in cities or urban areas more pleasant or interesting, I’d love to chat with you. Feel free to leave a comment below or send me your thoughts on Twitter @chudson.

This is a quick full blog post that is a follow up to a question I posted on Quora. One thing I’ve been thinking about is whether the battle between Spotify, Deezer, Rdio, Beats Music, and the various other competitors from Google, Amazon, and others will result in a winner-take-all scenario. I have a few basic thoughts on the space and am curious to hear what others think – I’m including my basic views on the space below:

• All properly-capitalized providers have access to the same basic catalog of music content – From what I’ve seen, most, if not all, on-demand music companies can negotiate or simply license access to the same catalogs of music content on roughly equal terms.
• While UI / UX is a differentiator, most UI / UX and design innovations can and will be copied by competitors – While companies can innovate around and within design and UI, anything innovative and interesting will be copied by a competitor and hence cannot be a long-term differentiator or advantage for any well-capitalized company in the space.
• Consumers care about price and no provider will get a sufficiently differentiated pricing agreement such that they can differentiate in terms of end price to the consumer – Ultimately, consumers do have a fixed budget for what they will spend on music and the price of unlimited or limited on-demand music offerings has a firm ceiling in terms of what consumers will pay. And given the nature of licensing terms and catalog access, no company will be able to get preferential licensing and access terms for any reason other than scale and usage. There is no “club deal” to be done by any provider on the long term. This does not mean that some companies cannot afford to lose money in the short term to secure market share, but I do not see a model for a long-term price advantage for a single provider.
• Eventually, the winner will be the company that can spend the most on customer acquisition and afford to wait out the content owners (labels) until their rivals wither – If no single player can get preferential economics when multiple players exist and all players have access to the same underlying content catalog, the winning company will be the one that can advertise the most and acquire the largest consumer base. I don’t believe most consumers, particularly those with budget constraints, will subscribe to multiple services. In the end, most consumers will subscribe to one service and one service only.

When I add all of this up, it seems to argue to me that there will be one major winner in on-demand music streaming. The one wildcard in this space is companies like Google and Amazon for whom on-demand music streaming can be marketed as a loss-leader. Given Google’s interest in both the Google Play ecosystem and Android and Amazon’s larger ambitions in boosting both Prime and its own content ecosystem around the Kindle and other content, both of those companies could make the decision that subsidizing on-demand music as part of a larger offering makes sense. I’m not sure that’s a good idea, but I believe it is possible and potentially aligned with their larger strategies.

I am by no means a music expert but interested in the space. And I feel that Internet radio is fundamentally different given the licensing rules and nature of the experience. The one thing I do think that is potentially interesting is seeing some of these streaming providers becoming effectively “labels” in that they have preferential licensing and distribution terms for breakout content.

Feel free to leave a comment below or send me your thoughts on Twitter (@chudson) or Quora.