Brian Balfour: evaluation

Transcript context

…Yeah, and I'll give some examples of this, but let me explain the four steps of the cycle first and then we'll go through a bunch of examples of all those individual steps. The four steps are essentially, one is I call a Step Zero. It's the conditions of the market have been met. Step One is about a moat, Step Two is about a platform opening, and Step Three is about the platform closing for control and monetization. Let me briefly explain each one. Step Zero is about the competitive market being met, the conditions being met, and there's a few part piece of this. One is that typically what happens is that there is consensus that there is going to be this new huge category. Think social, think mobile, like all those types of things. In this case, these AI like chat platforms, like a ChatGPT or a clock. There's consensus about that, but there's no clear winner yet. We typically have somewhere between five to seven major players really battling it out and they're all looking for what is the edge? What is the thing that is going to help me win? Because all of these dynamics, in all the history, they either end up in monopolies or duopolies, and so the stakes are really large and so the competition is fierce. That's Step Zero. I think we could all agree that we are in that mode right now. We've got OpenAI battling with Claude, battling with Gemini, and Google with whatever Meta comes out with their new team, so on and so forth. There's huge amounts of capital, there's consensus, all the types. They are in a fierce composition. That's Step Zero. Step One is then these players, somebody essentially identifies whatever the moat is, the thing that is going to help build them defensibility and help them hit escape velocity and become that monopoly or duopoly in that single category. Once they figure out what that moat is, then they need to press the advantage. They need to figure out how to gather that moat as fast as humanly possible. It tends to be that you can't do that by yourself, so you need the help of an ecosystem in order to gather more of that moat. That typically comes down to third-party content creators or app developers and other businesses. So they all establish a third-party platform that has some incentives built in, and usually the value exchange is, hey, you develop on top of my platform, you add more use cases, more engagement, all of these things to my platform, and in exchange, I'm going to give you something in return. Usually that thing that's in exchange is, I'm going to give you some new form of distribution for your application and for your business. But what essentially happens over time is that we go into Step Three, which is the closing period, which is at some point, all of these companies end up starting to lock down the platform. This tends to happen for reasons of monetization and growth. They either competitively don't want somebody to use their own platform to disrupt themselves. s end up starting to lock down the platform. This tends to happen for reasons of monetization and growth. They either competitively don't want somebody to use their own platform to disrupt themselves. We saw that in the early Twitter days with things like Vine and Periscope, shutting those things down unceremoniously, or they need to find ways to monetize at a deeper and deeper level because all these companies, they have to grow. Google's the classic example here of just more and more real estate has either been taken up by either ads or their own first-party applications. That's the key is they close it down by doing by one of a few things. They either shut it down entirely, two, they develop their own first-party applications to absorb the highest use cases, or three, they artificially depress the organic distribution that they gave you in the step prior to push you towards paid mechanisms in order to monetize. I think we should go through multiple examples here, but that's the core essence of the four steps. I'll pause there. Awesome. So it's essentially figure out what's going to make, create defensibility long-term with your moat, bring everyone in, "Hey, everyone, welcome to Facebook," everyone joins Facebook and then, okay, and all the developers build on Facebook to bring in more people on Facebook and then they're like, "Okay, now you got to pay. There's a toll," but you love this so much and you're so hooked to all your friends that you're here, you may as well stick around.…

Stored transcript either side of the excerpt. The highlighted words are the published quote; the surrounding text is unedited source, never generated.