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Commerce in the Time of Social September 29, 2011

Posted by Bipul Sinha in business models, Consumer internet, social media, social networks, Uncategorized.
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The fabric that underlies the social Internet is essentially a new web where people are the nodes, connected through a social graph. This ubiquitous people to people connection with real identities has significant implications for commerce and how we transact in the real world. The reduction in information asymmetry in the marketplace and the ability to mobilize people, through the social graph messaging and data, have the potential to unleash peer to peer commerce in a way we have never seen before.

The Rediscovery of Direct Selling Businesses

Everyone has heard stories of Tupperware parties where a group of people gathered in someone’s home for product demonstration, buying and socializing. The social media is giving a new boost to this old business model by enabling the entrepreneurial hosts to invite friends and friends of friends, and gather offline to socialize and transact, using online tools such as Facebook and Twitter. The online and offline recommendation, feedback and validation

reduce the social approval anxiety and the friction in the buying decision. The social graph-enabled direct selling business model is especially interesting for highly demonstrable products such as handbags, jewelries, shoes, home accessories, etc. These products tend to be discretionary and highly correlated with emotions, impulsive buying and discovery orientation. The innovators in this space would foster entrepreneurship by enabling individuals to participate in the value creation and get the rewards.

The Overcapacity Marketplaces

The social Internet is enabling new kinds of peer to peer marketplaces where people can transact on overcapacity. The overcapacity can be in their belongings or skills. Since the articles involved in transactions tend  to be

personal in nature, the social graph acts as a lubricant to reduce the friction and cost of transaction. The living space sharing marketplaces such as Airbnb, personal car sharing marketplaces such as RelayRides, meals marketplaces from local chefs such as Gobble, etc. are some of the examples of the overcapacity marketplaces. In each of these, participants are leveraging overcapacity, be it in their homes, cars or skills utilization to create value. These marketplaces empower individuals to run their own business models and make profits accordingly. We will witness the rise of the overcapacity marketplaces as the peer to peer commerce takes off on the back of the social Internet. The unleashing of entrepreneurial imagination and the resulting innovations would help usher in an era of collaborative consumption.

Democratization of Entrepreneurship July 23, 2011

Posted by Bipul Sinha in startups.
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The first decade of the new century witnessed a fundamental change in the nature of the technology entrepreneurship. The dramatic reduction in the cost of starting a technology business combined with readily available risk capital has created a near perfect market for anyone with an idea and some risk tolerance to become an entrepreneur. This democratization of entrepreneurship has profound implications not only for the venture capital industry but also for the economic growth and prosperity.

The maturity of the Internet as a platform and the growth of open source projects have given rise to infrastructure-as-a-service providers that allow companies to almost completely eliminate the upfront capital expenditure and pay based on usage of the infrastructure. The entrepreneurs are leveraging the outsourced infrastructure along with Internet based low cost distribution to test and refine business models. The so called “Super Angels” who are a new class of risk capital providers have emerged to support such early stage Internet business model experimentation. In most cases the outcomes of such experiments are determined with less than $1M in invested capital. The successful models then go ahead and raise substantial venture capital to scale the business. What is the most interesting is, unlike the previous generation of technology entrepreneurs who were building infrastructure components of the so called technology stack, this new generation of entrepreneurs don’t need deep domain experience to start web based businesses as vast majority of the new companies are business model innovations with some technology pieces layered in. Further fueling this phenomenon is plenty of early exit opportunities for these companies even if the business model turns out to be not very scalable.

The democratization of entrepreneurship is net positive for the Silicon Valley ecosystem. The reduced barrier to entry and cost of failure have encouraged hordes of new college grads and corporate professionals to start companies. The traditional venture capital market is more efficient than ever because only somewhat proven ideas get further funding to scale the business. The venture firm brand name is not the most significant determinant of deal access especially in early stages due to serendipity factor in the identification of teams and business models. The market is much more of a level playing field for all.

Some people argue that easy access to capital and plenty of early technology/talent exit opportunities would create a culture of “fast flippers” where entrepreneurs would avoid long and hard slog of building large, standalone businesses that made Silicon Valley. Surely, there are well funded startups that look more like lifestyle businesses with no real potential to scale. However, we are early in this cycle and I believe market forces would eventually bring equilibrium.

I am more excited than ever about the pace of innovation and the resulting economic growth and prosperity. The unleashing of communication revolution combined with ubiquitous computing is creating level playing fields for consumer and entrepreneurs alike around the globe. We are indeed living through an age of acceleration where erstwhile temporal distances are getting squeezed. I will write more about it in the future.