1Mby1M Virtual Accelerator Investor Forum: With Dave Hornik of August Capital (Part 4)

Dave Hornik: In the venture-backed world, there have been very few apps that have turned into big interesting things. There are big games that have gotten very large. Those are tricky businesses because while I’m currently still obsessed with Candy Crush, eventually you get tired of the game and stop playing. I am actually am maniacal about never paying a cent to Candy Crush. I’m just going to play through the free level.

It’s a tough business model. Instagram is a different story. They created a social network and a bunch of engagement around that. Same thing with WhatsApp and Snapchat. These are experiences that are uniquely mobile that give you control and create huge networks of people. Those are businesses that have the capacity to be venture-scale businesses. The rest of these things are really tough to make into big businesses.

To your point about Uberification of everything, I think that everything will be Uberified. I do think that in the end services-on-demand are really valuable. This capacity to use unused or underutilized resources all around is valuable. I think we’re going to have an interesting challenge as people who are the service providers in this economy try and make a living and are increasingly squeezed by technology and the technology providers.

When you were making $18 an hour or $25 an hour driving for Uber and suddenly it’s $10 an hour, it’s not a good business. We need to find this shared space where companies can enable individuals to provide services at a fair price but give them a fair living so that they want to provide those services. Then the economics has to work.

One of my favorite new startup in San Francisco is a company called LUX valet. You drive in the city. You pull up the app on your phone and someone shows up where you stop and takes your car and parks it for you. When you’re done with whatever you’re doing, you say, “Bring me my car back to here.” They drive your car to you and give it to you. Right now, they’re charging $5 an hour for parking. It’s less than you’re paying locally. It’s a great deal.

The only question is, “Is it a business?” I’ll use it for sure, but can you afford to hire people to come get my car, drive it off to some site where it’s cheaper to park, bring it back to me cost effectively enough that you make money on my $15 while paying salary. That’s true of everything. Are there real businesses? Are the individuals providing the service going to get paid enough to care and is there enough margin that you can actually build a business.

Sramana Mitra: There’s a great article in the Atlantic about what really makes Uberification of all these different services possible. It’s a good analysis. The author says it’s not technology because the technology is not rocket science. It’s that huge number of poor people that are available to deliver services at a very cheap rate. Then it goes on to say that this was available in Mumbai many, many years ago.

Dave Hornik: That’s an interesting question. Is it bad news because it’s creating this services economy of cheap labor being underpaid or is it creating sufficient efficiencies that we can all get services we want from people who are going to get well-paid for doing it because the efficiency is created. Suddenly, it makes sense to drive around in your car and act like a taxi. I do think technology matters.

One of the things that cloud services have figured out is because it goes to the web, the providers of the end product could be anywhere in the world. We have doctors and technicians reading MRIs in India. We have accountants who are doing work for you in other places around the world because they are confident professionals in other places that are paid less to do the same services.

Is that a good thing for the world economy? Are we able to bring up the standard of living for technicians in Mumbai or are we just pushing down the price of everything and driving the value of everything to the point where no one makes a good living anymore.

Sramana Mitra: This is the classic globalization debate. Things are great for this in the Philippines providing those accounting services but things are not great for the people in America who used to provide those services at a completely different price point. There is wage compression going on in America and wage inflation going on in India. This is the reality of today. That is economics. You can’t fight it.

Dave Hornik: That’s true.

This segment is part 4 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Dave Hornik of August Capital
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