“E=mc2 is one line of code” was my knee jerk reaction to Fred Wilson’s That’s only ten lines of code. Of course Fred was talking about market defensibility, not code.
VCs need to know that you can keep competitors from eating your lunch. They want moats.
Old ways to build a moat:
- Patents, trade secrets.
- Obsessive trademark and branding protection. Sue everyone and let God sort ‘em out.
- Vendor lock-in via proprietary formats and hardware.
- Scale: Get huge first, prevent new entrants. Be a bully.
- The more bloated and opaque your technology is, the better. It keeps out new players.
- Tightly controlled distribution channels and partnerships. Example: Windows+Intel+Dell.
- It’s nice to be loved, but better to be feared, even by your customers.
Forget moats, build bridges:
- Be as open as possible. Give away excellent tools to help people build on your platform. Bonus points if it’s open source.
- Let people use your brand and participate in its meaning. Let a million TwitterFons bloom.
- Interoperability is king. Build APIs and use open standards.
- You still want to get huge, but you’re not doing it to be a bully. You’re doing it so everyone knows that you are A) where the action is and B) a safe choice over the long haul.
- Your technology could be cloned in a weekend. You don’t care because your value comes from customers’ trust and participation.
- Open distribution: you don’t care whether customers use your service via your website, an RSS reader, or a 3rd party iPhone app.
- It’s better to be loved. Customers should love you so much that they A) tell friends how great you are, B) don’t even want to hear about your competitors, and C) trust you not to dick them over.
What’s exciting about the new “love based” defensibility is that it’s actually more powerful. Customers chafe when you lock them in with proprietary formats, so they’ll jump ship when your competitor builds something better. Meanwhile, look at Twitter: it was having such severe downtime that even passionate Twitter users flirted with other microblogs. In the end however, everyone stuck with Twitter, not because Twitter has great technology, but because Twitter is where everyone had already built their social capital.
Moats and city walls were built in dark, fearful times to keep the gold and peasants in. We don’t build cities that way anymore; maybe soon we won’t build businesses that way.