Playfair Capital

Editors note: this was supposed to posted weeks ago, you could have gotten through the entire first season of Games of Thrones* between the time this was supposed to go up and now. For this, Nathan and I are sorry. The only solace I have is that it reminds me of last summer when I absentmindedly walked into a meeting room that contained a frustrated David Cohen (He came to stay at our London co-working space Warner Yard during the first TechStars London cohort and we have missed him since) stating ‘I just need to finish this entry’. This strikes me as a common theme in our hyper connected world, the need, and then the lack of resolve/time to post the thing you wanted to discuss. I might write about that…eventually.For now and without further delay I present to you this wonderful post about SXSW expertly written by my favourite partner in VC crime @nathanbenaich and part of our series, I went so you don’t have to

OK, I know what some of you might be thinking. No, this post won’t be another re-cap post about what you missed by not attending this year’s edition of SXSW, the now famed tech-music-film festival in Austin, Texas. Instead I’d like to reflect on a talk about the one of the largest opportunities in the global software economy: platforms and APIs. Of the several fireside chats with founders (Sophia Amoruso of Nasty Gal) and investors (Mark Cuban, Ben Horowitz), SXSW Accelerator pitches (congrats to our very own OP3Nvoice!), and mega sessions with Edward Snowden and Julian Assange, one session stood out for me. Entitled “A Global Economy Driven by Platforms and APIs”, this conversation featured industry heavyweights Werner Vogels, longtime CTO of Amazon, and Khris Loux, co-founder and CEO of Echo.

At Playfair Capital, we’re long connected software and big data, having backed the likes of DueDil, BirdBack, OP3Nvoice, and Good.Co. These companies, amongst many others, are using or building APIs to enable developers to source/share data directly from existing web services or their own, with the goal of facilitating and empowering new products and services without needing to reinvent the wheel. More than 11,000 APIs exist today, demonstrating significant interest from new and incumbent businesses to share their previously siloed data to power other products and services. In doing so, new business models are being created whereby companies compartmentalise their internally facing tools, package these a standalone platforms, and build access pipes for the public via APIs. This approach, successfully championed by several large players including Amazon, was the focus of the discussion.

I buy the thesis that companies building platforms that form nodes within large networks will thrive in the long-run within the software economy. Indeed, what’s most appealing to me is software that facilitates the procurement of products/services/information in one’s personal life (Uber, Amazon, StreetHub) or renders professional workflow more efficient (Dropbox, Salesforce, Yammer, DueDil), and these are more often than not integrated within larger software ecosystems.

What’s always been key for the innovator is to understand competitive advantage, i.e. the ‘core’ components of your business that render its product or service indispensable to clients. While this unique selling proposition differentiates your offering from others vying for market share, it’s important to abstract from the innovator’s dilemma of weighting your focus too much on the requirements of your present day clients vs the longer term. And here’s where Werner’s punch line comes to life: “create a business around things that you know how to do really well, even though you’re powering your competitors”. To do so, you need to “expose the core competencies of what you do [to] help others become extremely successful”. Thus, while you may be operating in a market where both you and your competitors are sourcing data from the same locations (be it e-commerce inventory or private company information) to build a differentiated product, there is a significant opportunity for you to break away from the pack to offer a platform-as-a-service to your competitors. Working with your competitors-turned-clients can accelerate product improvement by providing each player with higher fidelity data and scale than could be achieve individually. Indeed, Amazon realized that building the world’s largest catalogue of books (and now much more) was an incredibly lofty goal to achieve on its own. Instead, the company opted to open up its platform to 3rd party retailers who could populate the former with their own inventory and sell to a much wider audience than before. Together, Amazon and its partners achieved coverage of the world’s book catalogue at an exponentially quicker pace with economic incentive for all parties. Not a pitch goes by these days that doesn’t fail to mention the building of an API as a key product milestone or business model. I’m excited to follow this space and encourage founders building businesses with this ethos in mind to reach out to us!

Written by @nathanbenaich and snubbed and ignored by @victoriadomalik

*haven’t actually seen this program but am told it is nice.