Tag Archives: Google

Alibaba vs Google & Amazon

Having felt like I was reading about a new investment every month from Alibaba, it got me thinking about how rapidly they are expanding their reach outside of China. While many have written about this recent frenzy, I had not seen anything comparing Alibaba’s investing activities in the US to that of Google and/or Amazon in China.  As the digital platforms move towards true global competition, I got curious about the data.

Thanks to the folks at CB Insights, I looked at the data of investments made in the US by Alibaba and in China by Google and Amazon as far back as the data went.


By number of deals, Alibaba has a substantial lead, but by investment value (shown below), the difference becomes staggering.

The data is fairly stark.  If you look at the individual deals, Alibaba is investing in all the areas you would expect — mobile, gaming, ecommerce — and even some you would not, expanding their sphere of knowledge and influence as they chart their inevitable global push.  For Google and Amazon, is the difference deliberate and due to different strategic choices or is it because China remains a more difficult and protected environment to enter and invest?  If it’s the latter, does that put the leading US platforms at a structural disadvantage competing in the global stage? We are entering a new era of the digital Game of Thrones and this will be interesting to watch play out.

Some notes on the data:

1) Investment dollars reflects total round size, as a reasonable proxy for invested dollars, as well as acquisitions. Some deals did not have any announced round size and are included at $0.

2) This is solely focused on investments and does not include capital associated with local operations in country.

Thanks to my colleague David Rogg for assistance pulling this post together.

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Facebook Credits: A Paypal in Training?

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I’ve been reading curiously about the new beta Facebook Credits platform.  Most coverage tends to focus on the unique elements of allowing users to vote economically for better content.  Give a good content producer some credits, and perhaps that will incent them to produce more.  Think Digg with economic value.  I think the launch of Credits again reflects the brilliance of Facebook and I for one see a much bigger play at hand.

Facebook understands very well the amount of money flowing into virtual goods, both from their own virtual goods, as well as the money machine created by their gaming partners like Zynga, SGN, and the like (who buy large chunks of advertising to feed their virtual goods money machine).  Enabling users to generate credits that work across games and applications would be of huge value, and allows Facebook to generate different and ultimately more economics from the platform developers.  In addition, Facebook now represents over 1 in 4 US pageviews.  Their user base is over 200 million.  They have HUGE scale, which allows them to have the credibility to pull off a payment play.  Users would inherently trust the FB platform over fragmented app creators.  This creates the perfect recipe for a Paypal alternative, and has inherent distribution that a Google Checkout or Amazon may not.

So why not just come out with the grand plan?  Well, the launch of a payment platform is non-trivial.  There are hundreds of ways it can go wrong; PayPal has spent years and huge sums of money learning lessons on how to deal with fraud.  Amazon, Google Checkout and others are all working through their own issues.  It also deals with one of the most sensitive items for people (ie, their money).  On a social platform like Facebook, the last thing you want to do is to alienate users.  Facebook cannot turn on a major transactional system that would be the immediate target of phishing, fraud, and rip offs without understanding the issues thoroughly.  The initial Credits approach lets them dip a little toe into the water, quietly and under the radar, and rapidly gain feedback/experience without exposing themselves to major financial or reputational damage.  With that knowledge, they can slowly train their way into the Paypal market.

I have a lot of respect for what Facebook has built.  And per my prior post, I think they are going to spread their tentacles broadly.  Facebook controls the social graph, Facebook Connect controls identity, Facebook “Communications” will come, and Facebook Payments on the roadmap…. Stay tuned, and note the date and time of publication, but that’s my highly speculative, uncorroborated and unsolicted vision for their future.

[Update 11/26/09 – looks like things may be happening behind the scenes .  This seems much more like a transactional fee, but I’d bet once it works internal to Facebook, it’ll show up externally as a third party service but with a more paypal competitive pricing model.]

[Update 1/12/2010:  News flow indicating this is likely.]

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Here Comes Android

Certain things are all about timing.  My situation with my smartphone is one of them.  I have grown incredibly frustrated with AT&T’s service on the iPhone, to the point where I am close to a breaking point.  3-4 drops on a stationary 30 minute call with full bars?  As much as I love the iPhone with all its applications, there are definitely a few things I would change about how it handles email support.  I can’t help but think back to the simple but reliable days of my Verizon Blackberry (putting aside of course my VC requirement to have an iPhone).  I am vulnerable, I am questioning, I am searching for how this gets better.  Timing could not be better for some solution to this, as so far, the only answer has been to hope the iPhone continues to innovate and launches on Verizon in 18 months.  As those doubts have come creeping in, I see the promising “iDon’t”, “Droid Does” ads from Verizon, causing me to pause and think.  And I don’t think I’m the only one.

Android itself comes at an impeccable time.  The entire industry is in pain, with the exception of Apple, who is now suffering from the woes of its partner’s network.  The industry is crying out for a viable third party, open solution.  Windows Mobile is currently getting terrible reviews, Linux on the mobile has had fleeting momentum, and Android is benefitting from the major halo surrounding Google.  Motorola is staking the next generation of its franchise around the device.  Verizon’s strong network and user reputation is using Droid as their play against the iPhone until Apple comes to the table with more reasonable terms.  New specific function devices are proliferating, with the launch of e-readers, tablets, slim phones, smartphones, TV/movie devices, etc, all requiring a system to manage resources.  And a whole community of developers is inspired to make Android successful – in and outside of cell phones.

My belief is that Android will become a lasting, successful platform in the mobile device space.  I also believe the ecosystem around it – including an open store, applications, games – all will follow.  Apple has the clear lead, but with no other player having the critical mass to build an alternative (other than Microsoft who seems to losing momentum), Android becomes a real galvanizing alternative.  Whatever the outcome, I hope it leads to reliability and choice for consumers!

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Winning at Search: The Algorithm or The Infrastructure?

We are on the eve of Google announcing their search results for their 3Q.  Google has become a major force in discovery and advertising by virtue of their ability to surface the closest result relevant to a user across the broadest set of queries on the Internet.   Dozens of start-ups and certainly a few large players have tried to de-throne Google’s supremacy, but few have been successful.  The switching costs are zero, yet Google’s market share has only gone up.  Narrowing the domain has helped, and by limiting topical areas to things like shopping or health, companies have created market share distributions more favorable than in broad search; however, an end user is not going to use or remember 100 different search engines optimized for 100 different topics.  In fact, as it has in Health or in Local, Google has picked off verticals one by one to super-optimize.  This all got me thinking about how a start-up could ever beat Google at the broad game of search.

Search is decomposed into a few different elements.  The first is a “spider” – a virtual bot that scours the web, parses web pages, and builds a representation of the web; the second is an algorithm that takes those spliced pieces and decides what pages are more important than others given a set of constraints or inputs; the third is a massive index that takes all this analysis and stores it so that at “query time”, an engine can quickly take the digested knowledge and weights, and return a result. 

It’s my view that algorithms are not people or resource intensive.  A few guys thinking very hard can come up with simple, revolutionary ideas as Sergey Brin and Larry Page did.  Sure, Google has an incredible number of variables and residual terms that help refine its algorithm, but at the end of the day, it’s very rare that math is invented or discovered.   In fact, I’d wager a “better algorithm” already exists somewhere in academic labs throughout the country.   If it can be written or built by few, it is within the realm of startup possibility today. 

I tend to believe the biggest challenge for a start-up remains circumventing the need to re-create Google’s infrastructure against an algorithm.  Google spends over $2.8bln in CAPEX a year.  They spend significantly more in CAPEX than they do on search algorithm specific R&D.  I have heard estimates that maintenance and improvement of Google’s algorithms can be satisfied by a few hundred engineers, a small number relative to the 5,800 headcount in R&D.  Google’s CAPEX purchases machines that process huge streams of information, run calculations, and store all that data into massive repositories.  In fact, it is estimated that a normal Google search query involves anywhere from 700 to 1000 servers!  Their compute farms grows as the web grows.

To fundamentally change the playing field, a breakthrough is needed on the indexing and spidering schema.  An index can’t require anywhere near the amount of storage that Google currently has on its disks; the spider must more efficiently parse pages to go into that index.  Perhaps the spider performs distributed analysis while out in the web rather than in a central location; maybe the index is broken up or organized in a completely novel way.  Without breaking Google’s CAPEX curve, a startup would be hard pressed to go as broad and yet be more relevant than Google with the head start in investment that Google already has. 

I fully acknowledge the first objection to the above:  Microsoft has all the resources in the world, and has not been able to replicate Google’s effectiveness.  I cannot claim to know how Microsoft’s money has been spent, but my hunch is that Microsoft has tried to catch up by using variants of the same approach as Google.  The problem with that is Microsoft started significantly behind, and playing by the same rules will continue to leave them behind.  Cashback is an interesting attempt to buy traffic, but startups don’t have that option.  I would also concede that the more Google feeds its algorithm with data it gets by increased usage of the engine, the more disadvantaged any new approach would be.

All that being said, my current bias is that for a start-up, we need massive innovations in spidering and indexing (or the concepts they represent) to defeat the Google machine, not better algorithms.  The few that have started with a better algorithm have always had to constrain their bounds as a result of running into the wall of how much money they spend on capital equipment.  I am fascinated by the discussion and would love any feedback to the above.  I’d also enjoy reading about anything going on in academia that shows promise.  And if you’d like my views on particular sub-segments within search (vertical, social, etc), feel free to ping me…

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