Brian Balfour: belief

Transcript context

…Amazing. Okay, so yeah, a few examples would be great. Yeah. You just hit on the first one. This is the first one that I always think about because this is where I learned about this cycle very early in my career. One of my first companies was during the Facebook platform boom, social gaming, all of those applications, and I lived the full cycle in a very short period. I lived the glory days and just the absolute horror days, and it was very painful, but this is exactly what happened. Let's go through the four steps. Step Zero. Facebook was in a brutal battle with MySpace, Friendster and a few others. People forget this. People forget that there was actually a bunch of competitors at that time, and in fact those competitors were bigger than Facebook. They had more users back in 2007 when Facebook launched their third-party platform. But one of the key things is that Facebook was very early to the insight about the direct network effects in that there's going to create real lock-in that the more friends, the more of the global network that was on there, the more that it was just going to feed and hit this escape velocity. At the time they launched their platform, I think they were maybe one-fourth, one-fifth the size of something like MySpace or even Friendster, Orkut, these are some of the names at that time, but they opened up their third-party platform. What was the value exchange? They went to third-party developers and they said, "Okay, we've created this canvas," they used to call it the canvas, and they were like, "You can put anything in the canvas that you want: an app, a game, whatever. You can monetize in any way you want. We just want this sidebar real estate on the ads. That's what we're really interested in." There was this mad gold rush on that Facebook. Oh, sorry, the other part of that was, "Not only will you put it there, we're going to give you access to all of these notification channels and feed to get distribution for your application." That was the other piece of it. You had this mad rush of developers coming in and you had this huge social application, social gaming boom. People just grew incredibly virally very fast, but eventually, essentially what happened over time is they kept peeling back that value exchange. They first were like, "Ah, actually those dollars that you're making inside that canvas area, well, we want a percentage of that." So they changed that. And then they figured out their ad systems and then they started peeling back. They started suppressing access to all of the organic channels that they had. Eventually, they went all the way towards absorbing the highest use case into their own first-party platform, things like first-party applications, things like events, photos, all those types of things, and basically shut down the platform for dead. ng the highest use case into their own first-party platform, things like first-party applications, things like events, photos, all those types of things, and basically shut down the platform for dead. These companies that have basically built on top of this platform, the other thing is by the time they started closing all those things down, all those competitors that we talked about, they were so far ahead at that point because they had built off the back of all these developers coming, adding use cases, bringing more users onto the platform, identifying that moat. They were so far ahead, it didn't matter. It didn't matter what the other folks did at that point, and that's what really gives you confidence to start closing down. But there's so many other examples of this if we go through it.…

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