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Archives for February 2016

When Free is Not Really Free

admin · February 11, 2016 · 1 Comment

The Free Basics program which has become a topic of intense debate thanks to the tweetstorms by Marc Andreessen — is a stroke of genius. The program is called free, it sounds like free, and it is “free”.
Yet, it is not truly free — for it comes with many restrictions that limit the usefulness of the service, the freedom of people using it and lacks fairness of equal access to content and app providers.
While nobody in their right mind refuses “free”, as Marc pointed out in his tweets, the FCC of India (called TRAI) rightly decided against the Internet.org Free Basics program.
After all, what does free even mean?

Free:

1. adverb: not under the control or in the power of another; able to act or be done as one wishes.

2. adjective: without cost or payment.

The Free Basics program is the latter kind of free while we all want and demand the first kind too.

The Ma Bell Free Internet

Imagine a 1990’s program called “Ma Bell Internet for Poor and Parsimonious People” — a program that seeks to help millions of Americans who crave access to the internet with “free internet”.
Except the so called “free internet” will have rules that essentially limit which parts of the internet you can visit and for how long.
You are free to go about this free internet as long as you visit the following 1763 websites, using only these 2 browsers and refrain from other parts of the internet unless you want to pay for them above and beyond.
How many people in America want to have this second-class internet? In fact, we have fought tooth and nail in this country over the last 20 years to keep the internet from turning into any single company’s “information superhighway” or any single company’s walled garden AOL.

Andreessen, Netscape and Facebook

Marc Andreessen, who as Facebook board member, supports the Free Basics program vehemently fought against the monopoly of Microsoft — and their decision to bundle Internet Explorer for Free. This Wired article on Netscape vs Microsoft explains this in detail.

Among other moves, Microsoft’s browser would be improved, made faster, and offered online for free.

The lesson we all learned from the attempts by the big companies to dominate the internet by using their market power and offering “free” is that we need to beware of the free.

The Power of Default

What Microsoft was trying to achieve in late ’90s was the ability to default our browser choice to Internet Explorer and make it difficult, if not impossible, for an average person to switch to Netscape.
We also know that Apple Maps on iOS is dominating ever since it replaced Google Maps as default.
In fact, the value of being default option is billions of dollars. Google paid over $1B to Apple to be the default search engine choice in Apple’s iOS devices.
In other words, a ‘free internet program’ that pre-selects a set of apps for the average new millions of users in India could potentially alter who wins in India — and is therefore worth billions of dollars.

Final Words

While I disagree with the “Free Basics” program of Facebook, I do think that its possible that Mark Zuckerberg and his team were genuinely trying to help millions of people go online.
I grew up in a socialist India which was backwards by most standards, and therefore, just like my online friend Marc Andreessen, I want to see private companies solve big problems enabled by a free & fair capitalist system. While he may be on the other side of this debate and have made some questionably worded tweets — I believe Marc is coming from a place of intellectual honesty and nothing but respect and admiration for India and its people.
We are all fortunate to live in a world where billionaires and thought leaders like Zuckerberg and Andreessen not only engage with the challenges at a global level but they do so on Facebook and Twitter where we can all express opinions, outrage and then come together to find ways to achieve our stated common goal — let’s get the next billion people online faster.

The Strong Shall Inherit the Nasdaq

admin · February 3, 2016 · Leave a Comment

I wrote this post on Feb 3, 2016 — and like clockwork two years later, its timely again. The Dow Jones and Nasdaq are tanking and people are out with stories of imminent end.

The Future is Still Amazing

This too shall pass

The unicorn, the billion dollar startup, is finally dead. The same columnists and magazines that turned every startup funding or launch story into a unicorn event are now busy proclaiming its decimation.

I have seen this movie before and I am here to tell you that reports of unicorn death and extinction are greatly exaggerated.

Unicorns Are Not Dead, Winter Is Here

Companies that have real usage and unit costs that support eventual profitability are going to be just fine. The huge decline in oil prices has brought down equity values, both public and private. This means companies ranging from Netflix to Apple are being valued up to 30 percent less and the S&P and Nasdaq are both down double digits.

Observers who are focusing narrowly on newly IPO-ed companies like Fitbit and the pre-IPO valuations of startups are often coming up with explanations in isolation.

The house of unicorns is not cold; winter is upon us. The biggest reason why Netflix and ServiceNow are down has nothing to do with their performance, or the performance of their B2C and SaaS sectors.

The winter of low oil prices means that the biggest investors like sovereign wealth funds of oil rich nations are under pressure to sell, or at least stop buying. That combined with losses incurred in energy by hedge funds and investors means there is high aversion to taking risk. All of that and slowly rising Fed rates have combined to create a perfect winter storm for equities.

The Strong Hibernate, The Weak Die

The winter is not without consequences. In the last few years, many investors who missed out on genuinely amazing future billion dollar businesses like Uber and AirBnB went into FOMO mode (fear of missing out). They started investing in B2C startups that looked ‘as bad as Uber and AirBnB’ when those companies were founded. The thinking was often that many businesses that look bad at first glance can become huge winners.

Well, we ended up investing in startups that were bad businesses not just at first glance but also after any number of years. Losses at scale just scaled the losses — it didn’t change the economics.

These startups that never really had a shot in my view are now getting trimmed back. Some like Homejoy have had to shut down while others like food delivery startups are fighting for survival.

The Strong Shall Inherit The Nasdaq

In the real recession of 2008, I learned a huge lesson. The mortgage and banking crisis pushed almost all assets down to unbelievable prices. You could buy Netflix, Amazon, LinkedIn for the fraction of today’s prices. At that time, these companies were somewhat genuinely impacted by weakening consumer demand which hurt due to layoffs.

But today, we live in a near utopian economy, at least here in the United States which contributes majority of earnings for many of these tech companies. The unemployment rate is lower than ever in last 10 years, demand is healthy, and everyone has more money than a year ago thanks to tanking gas prices.

In two years, the strongest tech companies — public and private — with real, growing usage and sound unit economics will be huge.

The strong shall inherit the Nasdaq. Invest wisely.

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