Nick Bilton points to the lack of revenue at startups as signs of a bubble.
Now, I’m not going to say that things don’t look a little bubbleicious right now, with $1b valuations and acquisitions of tiny startups with no revenue.
But to some degree Bilton is channeling Eduardo Saverin, who famously pushed for early revenue at Facebook, clashed with Zuckerberg, and got squeezed out with a mere $2 billion or so for his trouble.
Another example is YouTube. By all accounts, it’s doing pretty well for Google now, with more intrusive pre-roll video ads and popups during videos. Google also gets strategic benefits, good placement on iPhones, a better seat at the table for its so far not very successful TV products.
If YouTube had started off with those annoying ads, would it have seen off the competition? (Not to mention pushing for traffic through less than totally legit non-user-generated content and relatively modest anti-piracy measures)
A lot of digital startups are in winner-take-all markets. The conventional wisdom is, push for revenue if it helps you deliver a better product, through revenue relationships that also bring content, users, and lock out competitors.
If the market doesn’t value revenue, but values users and the aura of hypergrowth and the next big thing, and it can be fatal to allow space for imitators and competitors, entrepreneurs are being strategic and rational to push for growth at all costs.
It’s a perfectly valid strategy to build an innovative product that may be a proverbially two-legged horse that doesn’t stand on its own, seize a dominant position, and sell to one of the massively cash-generating platform companies, Google, Apple, Facebook, Amazon, Microsoft, that need to maintain their position.
If you’re lucky, that’s how Facebook and Amazon became platform companies. Where would Facebook be today if Zuck had pushed for revenue and organic growth, instead of charging for growth and dominance at all costs?
And that hothouse atmosphere is why the US startup ecosystem is dynamic, and beats competitors around the world flat.