Venture Capital vs Community Capital by Nick Grossman
Great read! Interesting analysis of a presentation during the Paris OuiShareFest about the power of technology and dynamics. Specifically, it’s another interesting way to look at the platforms of technology in a way of (typically) venture/finance backed firms (such as Microsoft and Facebook) and community backed protocols/technology/firms (such as Bitcoin, the HTTP standard, and Android—though not exactly community backed it’s an open system vs iOS’ closed system which would be in this case “venture backed”).
It seems that in Grossman’s analysis of the community type ventures, their primary motive is to disrupt the incumbent industry. Using Microsoft as an example, he mentions that they’ve survived two waves of community disruption: the OS and Office productivity suite. Well known competition includes Open Office, which as the name implies is “open” software available to the community. The community version attempted to disrupt Microsoft’s stranglehold on the productivity suite via it’s open capabilities but in the end Microsoft overcame the obstacle. While I agree that community backed ventures are commonly disruptive, I believe they have great potential to create something bigger.
Thinking about how credit cards make the bulk of their profits, they charge fees (both monthly and per transaction) to businesses when their card is swiped. One of the reasons why American Express (Amex) is not available to use everywhere is because they charge a higher per transaction fee, which they counter by offering better customer service. There are now TONS of competitors trying to break into this space by eliminating credit card margins, charging smaller or even no transaction fees to the consumer or business (such as Square). I assume some are open standards, available to use anywhere by anyone, but in the end success in this area will come down to two factors relating to volume: number of users (consumers using the platform) and number of transactions made. Software is free, the ability for software firms to scale is virtually unlimited (mainly constrained by data servers), so I imagine there is still HUGE potential for open platforms to disrupt the way most businesses interact with their customers and business “partners” (such as credit card providers)
By offering the “open” platform, community backed ventures in the industry of credit cards can grow the number of transactions (since nobody likes paying fees) but are severely limited by the number of users. It makes me wonder, if the open platforms are free (or significantly cheaper) and only limited by marketing (getting people to actually use it), what value does the large corporation give? The answer, I’m guessing, is service.
Which leads me to my final point: When community backed ventures can be an essentially free, more disruptive, version of an existing product, companies can profit by offering services. The United States is a service based economy, and the cycle between actual product (community backed) vs service (venture backed) can be a clearly paved path to mutual success.