I was talking with Yosi Glick of stealthy Israeli startup Nebo this morning and he made the following point:
Content discovery and content delivery are very different businesses
Thinking about that I realised that most of the successful internet businesses are about discovery or delivery, but not both. In fact most of them are in discovery.
- Successful discovery businesses include Google, Ebay, YouTube, Last.FM and many others
- On the delivery side Akamai and Amazon (initially at least) spring to mind
Thinking about internet companies that have been about both discovery and delivery from the beginning I can only think of Skype that has been successful.
Companies like Yahoo! and Amazon both operate mixed models now, but that can be a tough thing to do. Yahoo! genuinely combines proprietary content with a search experience and the difficulties they are having with that model are well documented. Amazon have approached things a little differently in that they offer delivery of their own stock and discovery for the goods from third party retailers on their platform. This formula has been successful for them and that is probably in part because they haven’t gone very far down the discovery route.
I take two things away from this. Firstly a reminder that focus helps tremendously at all levels, and secondly that the discovery side of the equation is a much easier place to build businesses. Successful discovery businesses grow extremely quickly, are capital efficient and have delivered exceptional returns to shareholders. The delivery businesses require much more cash and have been harder work. From the perspective of a partner in a fund that would invest a maximum of £20-30m in any one company these points hold doubly true.
(I should point out at this point that our investment in Packet Exchange was able to break this rule because they acquired telecoms and hardware assets at incredibly low prices after the tech bubble burst.)