Facing Competition through Innovation

But one of the things that is actually a central thing about entrepreneurship is thinking about competition. Ideally, you have no competition. I actually prefer to invest in things and to do things where there in fact, isn't anybody who is really truly competition, because it gives you the freedom, if you're right about your two or three maybe one hypotheses, to make the thing go to expand and take the territory and set up your like, this is my market before competition starts. Now, second best is slothful, decadent, stupid competition. Right? And the flip side of the banking regulation, which was a bare nastiness for us to get through, is banks, if you can compete with them without being a bank, are great to compete against. Because banks, by definition, are slothful and very slow and terrible competitors. Now, part of that is because of the structure of how they work. So one of the things that we almost did during PayPal is part of the reason we merged with a company called X.com is we thought, oh, okay, actually being a bank might be a good business model. Let's go become a bank. And so we started down that road, and then we realized, what does new product launch at banking institutions look like? Well, basically, it works like this. You propose your new product to the regulators, and you give them 12 months to digest it before you start building it and launching it. 12 months. Think about Internet time, right? 12 months is a complete product cycle where the whole world changes on the Internet in a year. Banks are great to compete against because by definition, the way that they all operate is for them to launch a product. They got to go talk to these people called regulators, who do not care about upside. They care about risk only. They care about FDIC insurance. They're great to compete against. So when you're looking at where to innovate, innovating either against no competitors that's good, or against bad competitors. Right? That's almost as good. Not quite, but almost. Now, if you're going up against an aggressive, smart competitor who is already in the market, you've either got to be really sure about what you're doing or kind of foolhardy or don't really care if it all blows up. So I am an investor in Friendster. Oh, yes. The question is, Friendster was a first mover. MySpace came soon after. But after the great granddaddy in the category is MySpace rather than Friendster, what happened? Usually first mover has enough advantage that if you can close the door behind you, you have a successful thing. Good interpretation. Okay. Basically, it was Friendster's game To lose Friendster through a variety of internal conflicts and internal politicking couldn't coherently agree on a strategy or solve its problems, which had serious scaling problems. One of the principles on the web is there's a really direct measurement between the time that of speed that your page loads and your customer happiness and your customer willingness to go somewhere else. So actually, like for example, I'll give you an example that Marissa Meyer talked about at Google. They tested doing 30 answers rather than 10 and they went, wow, people hate this. They don't click on links and it doesn't work. Let's go back to 10. And then what they did is they tested 10 and 30 with the same time of page load and they liked them both. It was time of page load. Friendster was getting up to peak times when it wasn't down up to page load times of minutes. Minutes. And it says how strong that first mover advantage was that it kept growing and people kept using it, despite the fact that when you came in during a peak time load, Page go get a cup of coffee, come back, right? And so one of the sad things is if Friendster had been able to both deal with its technical problems and then start addressing markets, there wouldn't have been room, I don't think, in my view, for MySpace, even Facebook, which I'm also invested in and so forth, because they would have been able to take that first mover advantage and do it. And part of that, it's a lesson in startups. I think one of the reasons I wasn't privy to the internal politicking discussions, but I think the problem is everyone had a different idea and they were trying to do it all at once. And one of the things you do in startup is you're always taking risks. You do this now, then that and then that, and then you just do them right. And you know, sometimes you guess wrong and you're dead. Happens.