The GAAF Ecosystem

When we started Open Market in 1994, the Internet was pretty much the Wild West. Everyone was figuring out what it “meant”, and it was a time when a 2-person company could have the on-line presence of IBM (and often did).

Now, fast-forward 15 years.  We have an Internet ecosystem dominated by the “Gang of Four”:  Google, Apple, Amazon, and Facebook.  Combined, these “gorilla” companies have a $750 billion market cap, employ over 100,000 people, and extract most Internet revenues and profits.  And increasingly, this group is controlling the devices we use to get on-line.

It’s not the Wild West anymore, and the new “GAAF” ecosystem has added new constraints around building Internet companies:

  • There’s a tax.  It’s overt (e.g. 30%) or indirect (e.g. ad dollars, hosting fees, API fees, etc)
  • There’s the threat of copying.  The gorillas use the ecosystem to source new features and products.  See what Apple copied into iOS 5.
  • There’s an upper-bound on success.   If you get too big, the gorillas change the rules (e.g. Facebook with Zynga).
The last constraint, in particular, has really strained venture capital investments.   Venture capital depends on large exits for generating returns.  If you take out those home runs (or bound them), the returns aren’t so great.
I still think there are good opportunities within the GAAF ecosystem, but I think they’re limited.  If you’re hunting “big disruption”, look elsewhere.