Thursday, March 24, 2005

Are all VCs this soft-headed?

My major exposure to venture capitalists was in NY during the tech boom. Silicon Alley, as it was called then, was fun and stupid. I was not impressed by any VC I met there and I sort of assumed all the really good ones were out on the West Coast. I have no idea how fair this assessment is, and I certainly don't beleive that New York has a monopoly on softheaded VCs, but this post makes me wonder:
Anyway, "We" companies are built by and for a community of users. Everything (including profits) flows from this core value of serving the users. We companies and their profitability are incredibly sustainable.

"They" companies are traditional companies that seek to optimize profitability at the expense of everything else. These businsses are not sustainable and they tend to overreach and ultimately end up in a long and steady decline.

Microsoft is the poster child for a "they" company.

Craigs List is the poster child for a "we" company.

Apple used to be a "we" company. I love Apple as I've blogged about many times. I still do. But Apple is not a "we" company any more.

Apple survived the WinTel dominance in the PC business by becoming a "we" company. It focused on its base of devoted users and gave them better and better products. It created a community of users who are incredibly passionate about the company's products. It became the anti-Microsoft. And it has benefited greatly from that market position in recent years.
Are we living on the same planet? Look, I am a big Mac fan (currently own 2 macs, 3 iPods, 1 airport express, 1 airport hub) but I am also clear eyed enough not to confuse my own love of Macs for the crazy potted history outlined above.

Look, Apple's marketshare has been on the deline for years, and the current excitement around the iPod has not changed this. It survived by establishing a locked-in base of users and charging them full-whack from hardware that continued to slide further and further behind the price/performance offered by Intel. As Apple became more expensive and less relevant the only people who remained with the platform were the fanatics. You can call this "developing a devoted customer base" but I call it "driving away the sane".

Apple is certainly the anti-Microsoft, but I don't see this having much impact in the market. Apple's share price has done very well in recent years, but this is driven entirely by profits from the iPod, and I don't see how the iPod's popularity has anything to do with Microsoft hatred. (Even though I don't much like the Beast of Redmond myself).

I personally would not take any business or investment advice from someone who sees Microsoft's astounding growth and profit generation as "a long and steady decline" while Apple's reduction to a niche player on the verge of death who hit a home run with a fantastic mp3 player, as a company with "profitability [that is] incredibly sustainable."


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