“The most interesting tech companies aren’t trying to sell software to other companies,”Andreessen Horowitz partner Chris Dixon blogged August 10 (cdixon.org). “They are trying to reshape industries from top to bottom.”
Dixon was announcing his Silicon Valley VC firm’s $50 million investment in BuzzFeed, the New York-based entertainment and news site founded in 2006. While Andreessen’s investment set the media world buzzing, its rationale should intrigue innovation managers wherever they may work.
Acknowledging Andreessen’s conviction that BuzzFeed could become a “pre-eminent media company,” Dixon explained the firm sees BuzzFeed as “a prime example of what we call a full stack startup.” In Dixon’s world that’s Tesla, Warby Parker, Uber, and others that instead of taking the “old approach” of selling or licensing their technology “build a complete, end-to-end product or service that bypasses existing companies.”
Next Big Toy
Such firms are invariably dismissed as toys, Dixon wrote in his Jan. 3, 2010 blog post, titled “The next Big Thing will start out looking like a toy.” Dixon attributed that insight to Clay Christensen’s theory of disruptive technology explaining why users so often dismiss new technologies, which — at first — underwhelm potential customers.
Dixon elaborated in his March 15, 2014 blog post, “Full stack startups”: This approach “lets you bypass industry incumbents, completely control the customer experience, and capture a greater portion of the economic benefits you provide.
“The challenge with the full stack approach is you need to get good at many different things: software, hardware, design, consumer marketing, supply chain management, sales, partnerships, regulation, etc. The good news is that if you can pull this off, it is very hard for competitors to replicate so many interlocking pieces.
“My guess is we are still at the very beginning of the full stack movement. Many large industries remain relatively untouched by the information technology revolution. That will likely change now that startups have figured out the right approach.”
Dixon and his VC colleagues call the most interesting companies today the new conglomerates—disrupters “trying to reshape industries from top to bottom.” Readers commenting on his blogs seemed generally to agree:
• “The deployment phase for the internet is just getting started” (Bill McColl).
• “With some good luck [BuzzFeed] might just be a perfect new example for the 50th anniversary edition of Innovator’s Dilemma (Alex Danco).
• “So what do I think will be big in the next 10 years? Startups focusing on non-toy solutions for Big Data, Intelligence & Government, Publishing and New Device Optimized User Interfaces” (Christopher).
• Steven Davidoff Solomon, University of California law professor, was more cautious : “But perhaps the new conglomerates are no better than the old ones. That’s a question consumers and investors — as well as the companies themselves — may want to ask” (The New York Times DealBook column, Aug.5, 2014).