What's Next in Consumer Startups?

by Andrew Chen, Andreessen Horowitz If you look at consumer adoption curves of major new technologies in the U. S. over the past 100 years, you'll see interesting patterns in both growth and behavior change. Some took longer, some came faster (especially lately, as we reach new heights of software eating the world) -- but one thing is for sure: Technology changes, but people stay the same. Even if in some cases new technology requires people to learn new behaviors, the underlying motivations behind those behaviors are the same... not just across people and places, but across history and time. So what does this mean for the next wave of consumer startups? As new tech platforms -- such as video, mapping APIs, mobile AR, and more -- hit scale, a the next big wave of consumer products and startups are coming into the ecosystem. But finding and nurturing these startups requires a special combination of understanding the fundamental platform shift; underlying consumer motivations/needs; and key growth insights that enable them to breakout from the fray. Whether they're old "growth hacks" reinvented for the modern era -- from reviews to coupons to chain letters to viral sharing -- or new behaviors only now possible in an offline-to-online world (note the inversion!), such as visible offline experiences that drive further growth online -- the more things change, the more they stay the same.

• 0:01Speaker 0

  Hey everyone, I'm Andrew Chen, general partner at Andrews and Horowitz. And today I'm going to talk about what's next in consumer startups. There are a ton of new technologies and new companies right around the corner. I'm super excited to be looking at the market, the ecosystem. And so what I want to do is to walk through some of the ways that I am excited about the new companies that are in the ecosystem. And I want to start all of this by showing you this chart, which is all these technologies that have been released in the United States over the last hundred years. Each of these lines is a new technology, whether that's the stove, the radio, the automobile, and the Y-axis is the percentage of US households that have gotten this technology. And so you'll notice a couple things.

• 0:47Speaker 0

  And I want to start with uh with the telephone as a good example. The telephone, um, which is really built on this consumer motivation to talk to your friends and family. This is something that is this foundational motivation for everybody, right? That's been been around since the dawn of time. And yet it took five decades to get adopted into US households, right? It took such a long time. And so why is that? Well, the reason can be seen in this early Bell Telephone Systems instruction manual, which is that we actually had to teach people how to use a phone. You know, which side of the headset was for your ear and which was for your mouth, and how you held it up to your ears, and that when somebody called you that you should answer hello, right? And so the awesome thing about this is we had to build this consumer behavior from scratch.

• 1:36Speaker 0

  It was um something we had to teach people. And if you were to compare the telephone versus, you know, the the mobile phone, you can see the mobile phone in the last two decades has been adopted incredibly quickly, right? It got started, and all of a sudden, boom, it is, you know, well into 90% of US households. If we were to keep drawing this out, you could have imagined that not only does it end up being so successful in US households, but it goes around the world. There's now billions of people using cell phones because you know the motivation was always there, but the technology builds upon previous technology and it gets adopted, you know, much, much more quickly. And so, you know, and it's not just the cell phone that's been like this. The, you know, TV is like this as well.

• 2:22Speaker 0

  So is the internet. If we were to add Instagram, if we were to add YouTube onto here, you would just see straight lines straight up because of how fast these things get adopted. And so there are a ton of new technologies that are being developed all the time. But even with all of this innovation, biologically, we are still the same humans that we've been from hundreds of thousands of years ago, right? Like I think that's pretty obvious, but you know, when you look at it, we're the same folks that um, you know, painted cave walls because we love art, because we love creativity. We're the same people that um built these massive Greek theaters because we love to be entertained. We're the same people that as soon as the technology allowed, we started to take selfies, right?

• 3:08Speaker 0

  And of course, it turns out we've have always loved scooters. This is actually the US Postal Service uh trying out these gas-powered scooters from 100 years ago. And so, with this backdrop of all of this technology change and yet the same constant threads of consumer motivation, one way to say that is, you know, technology changes, but people stay the same. And so at the intersection of these two things, what we know is that you can release these breakthrough products that have some combination of uh growth insight coupled with a technology shift, coupled with, you know, this sort of fundamental consumer motivation that's out there. And so, you know, in my job in in in venture capital as a startup investor, it's it's up to um folks like ourselves and and entrepreneurs to be able to spot these moments in time.

• 3:56Speaker 0

  What I want to do next is to talk a bit about a couple stories about how this has happened in the past. And so I want to start with 1900, when there were 3,000 automobiles in France. And this was before the Model T, this was at the dawn of the age of of uh automobiles, and um, and all these things were handmade. They broke down all the time, they look like this. And with this new technology, all of a sudden, there were an ecosystem of companies that stood to benefit from increased adoption of all these cars. And one of these companies is the Michelin company. And you can recognize the Michelin man here over on the left. And if you think about this company, Michelin, what's so fascinating about it is that they have actually a really tricky, tough uh go-to-market problem, right?

• 4:42Speaker 0

  In order for them to sell more tires, they need one of two things to happen. Number one, they can get people to drive more, right? They need people to drive a lot more, ideally. Um, they need to need to create more drivers, more reasons to drive, especially these long distances that were more uh, you know, made more sense to drive a car rather than other modes of transportation. And so, how do you solve this tricky uh problem? And they did it in such an ingenious way. They released the Michelin guide. And the Michelin guide presented here, um, the the cover says free for drivers, is ingenious because it gives consumers a reason to drive more, gives them places to go, right? Great restaurants, points of interest. It gets them excited about driving more, obviously, first within a city and then across France, and ultimately the Michelin guide ended up covering, you know, all of Europe and and beyond, right?

• 5:36Speaker 0

  And so it's this really interesting indirect way to solve the problem of customer adoption. You get um more people driving, they buy more cars, they buy more tires, right? And so what ends up happening with this is this is a very clever way to solve the problem. But today we would call it content marketing, right? It's just the same. And the the great part is it still works, right? It worked for Michelin, and I'm gonna give an example for how it's worked um in the modern age with uh with all the advantages that we have. And so if you remember, many of you have used the Google Arts and Culture app, which has a great feature where you take a selfie of yourself and it shows you a classic piece of art that you most resemble. Now, this is great because you know, if you can get people using this and they experience the rest of the app, they get to engage more with Google's products.

• 6:28Speaker 0

  They use these features like 360 videos, mapping, all of these different things that are that are, you know, just great experiences within the Google ecosystem. And so taking the selfie and getting getting a piece of art was really fun, right? And really successful. And so we have um, you know, Kumel from HBO's Silicon Valley, um, who took a picture of of himself and posted on Twitter. And not only did Kumil do this, a lot of people did this. A lot of people shared their photos and created all of this content across the internet. And this was so successful that ultimately the app became the most downloaded free app on both the app store, iOS, and also Google Play for Android. And it was actually bigger than both Messenger and YouTube, right? That is just fantastic.

• 7:13Speaker 0

  And it's very indirect. It got a lot of content out there. People started trying out the app. They use Google more, right? It's this indirect way to get more mobile engagement in in Google's ecosystem. And so it worked for Michelin 100 years ago. It works for Google even today. And so content marketing works. It really is this growth insight that both companies were able to find. The second example I want to use is 1775 when the US Postal Service is founded. And so the cool thing about the postal service, if you think about Snail Mail, is that it is actually a consumer peer-to-peer communications platform that allowed millions of Americans for the first time to be able to mail each other. And so the US Postal Service, of course, was founded by Benjamin Franklin, who transitioned a bunch of people off of the uh British uh mail system that was that was around at the time.

• 8:04Speaker 0

  And so what's great about this is you have this platform, you know, it's it's government sponsored, it's it's really this new way to communicate. And so what happens, right? How do you get adoption? How do consumers end up engaging? And so what's great about these peer-to-peer platforms is that a lot of emergent new behaviors can all of a sudden take place. And one of those emergent behaviors that I think is really fun and really increase the amount of engagement of snail mail is the chain letter, right? And so the chain letter, this is this is one of the earliest ones from the early 1800s, so not much after they they rolled out the postal service in the first place. And it says this it says within three days, you should make five copies of this letter, leaving the top name and address, um, adding your own to the bottom of the list, and then you should attach a dime to this and mail it out to everybody.

• 8:58Speaker 0

  And so the idea is that um once you mail it out, those people will follow the same instructions, you'll get a dime, and then you know, it'll it'll keep happening and over and over again, you'll eventually get, and this is the funny part that this sounds like a good idea. You'll actually get 15,000 pieces of mail, eventually amounting to 1,500 bucks, right? And this is, you know, this is again, this is early 1800s money. So this is actually a lot of money. And so the enterprising individual who came up with this uh sent this out. And of course. It was enormously successful. It just, you know, letting people invite their friends and family is just huge. And then all of a sudden, there were tens of millions of copies of this chain letter. And ultimately, it was so successful that the US Postal Service had to ban chain letters and make them illegal, right?

• 9:48Speaker 0

  But it introduced this new concept to the world, introduced a lot of new people to sending mail, right? And so all of a sudden it really helped the engagement and adoption of postal service. So today what happens is, you know, we call this viral user acquisition because this is something where making it easy to invite your friends and family is this great way to kind of get a product bootstrapped. And of course, you know, it is a regular feature of many, many products. You know, here's Airbnb's uh system where you can now put in your your friends' um, you know, email address and you can um share it with them. But by the way, you can also um it integrates nicely with uh, you know, Facebook Messenger, your Gmail contacts, there's uh tracking in the URL, so you kind of know how these things are propagating and you can track attribution, right?

• 10:38Speaker 0

  There's all these really interesting, nice ways you know, for this to work. And so, you know, viral marketing has worked uh for a long, long time and it works today in the now in the new form of of these referral systems that are part of many products you know out there. So the third and final example I want to use is consumer packaged goods, right? When you look at toothpaste, you look at um, you know, grocery stores, there's a really fun story about toothpaste. And the fun story about toothpaste is that we actually had to convince people, we had to convince all the households out there to even use Toothpaste and to brush their their teeth, right? That's an amazing thing that that is actually a pretty modern invention. And then, you know, number two, the really interesting thing about it is that we actually had to convince all of these mom and pop grocery stores that were out there to carry toothpaste.

• 11:32Speaker 0

  And this is a classic chicken and egg problem, right? If you're a CPG and you have a product, you need it to be stocked in stores so that consumers can access it. However, the stores say, why should we give up our valuable shelf space when um consumers aren't even coming in to even ask for it, right? And so, how do you solve this? And if you can't solve it, you can't get a product on the shelves, you can't get um, you know, consumer packaged goods to work. And so the answer um, which is incredibly inventive is to invent the coupon. And what the coupon basically allowed was for the CPGs to say, look, you know, grocery stores, we are going to go and buy um advertisements in newspapers and magazines, we're gonna mail them out, we're gonna do all these things, and it is going to stimulate demand for toothpaste.

• 12:20Speaker 0

  And then consumers are gonna walk in and they're gonna buy toothpaste and they may buy other things too. We're gonna stimulate demand, we're gonna bring customers to you. And so, because of the the CPGs and their agencies being willing to take on this risk, all of a sudden it unjammed the market and grocery stores started to stock the stock these products, and then off you go, right? And so not only is this something that needed to be solved uh for CPGs and grocery stores, but this is ultimately something that every marketplace company has to solve. This is the bootstrapping kind of cold start chicken and egg problem that every marketplace does to think about. And the modern example of this, of course, is uh is one of our portfolio companies, Instacart, where, you know, today the company has awesome deep relationships with the nation's top grocers.

• 13:10Speaker 0

  But when the company first started, um they built an app, they had an amazing experience, but they didn't have the partnerships yet. And so what they did was they just started aggregating all the demand. They would send shoppers to stores and just buy the goods for the end customers and bring them back and just start, you know, executing the service. And once they had built up enough demand, then they can go to the grocers and say, look, um, let's make this experience much, much better and let's formalize a partnership, right? And so in the same way, 100 years ago, this was solved. This whole bootstrapping problem was solved using coupons. Today it was solved using an awesome mobile experience and um, you know, bringing consumers uh a highly convenient service.

• 13:55Speaker 0

  And so off you go. And so it turns out that there are, you know, there's these three examples, but there are many, many historical examples where you know this has happened. And so it's why one of the easy ways to think about um the intersection of all the things that I'm looking for are ultimately these three things, which is a new platform and new technology that's hitting scale, right? Maybe it's providing a um product experience that maybe is never previously been possible. That's really important. I want it to tap into an existing consumer motivation that has been there, has always been there. And then, you know, for there to be a growth insight that creates the slingshot opportunity to quickly grow the product from a cold start into something, you know, super interesting.

• 14:41Speaker 0

  And so I'm I'm definitely looking for that insight that gets the whole system um going. And so the great news is that there are actually a ton of new platforms that are um at scale or right about to turn the corner. And so I'm gonna talk through a couple of them. There's all of these voice activated Google home, Amazon Echo uh products that that are being built with apps in mind. That's fantastic. There's tens of millions of them that have been sold. It seems like if you buy one, you're gonna have to buy a bunch of them. Um there's smart TVs. This is obviously an amazing, interesting fusion of entertainment and computing in one device. We have platforms like YouTube, which have billions of active users, just amazing, amazing scale. We'll talk more about that in a bit.

• 15:26Speaker 0

  Um, you have wearable devices that that talk to your phone or they're standalone, and there's been hundreds of millions of units there. And not only that, there's these emerging ones right around the corner, some of them hardware, some of them software that are important to mention too. The Nintendo Switch has sold tens of millions of units. You have smart appliances where it's just a natural place to maybe add uh, you know, grocery shopping and add um, you know, media consumption options. You have companies like North that are um continuing to carry the torch on um smart glasses and adding augmented reality and applications to a pair of glasses that just looks completely normal. Um, of course, we're gonna have to completely redesign our in-car experience in the coming years to be less about driving and more about all the things that you'd want to do while you're going from point A to point B.

• 16:19Speaker 0

  And so, with all of this happening, you know, the natural question is, okay, well, what are the best new opportunities that are around today? And so I want to talk through two specific categories of products that I'm really excited about. And the first one is this concept of you know, video native products. And I think we know that you know, you have all this new technology around video that's already big and is getting bigger. And so, one example of that is if you look at look at uh, you know, Gangnam style, our favorite music video from a couple years back and uh a video that was released a year ago called Despacito, here's a graph from the YouTube blog on how fast each of them has grown. Gangnam style took five years to hit three billion views, and Despacito's done it in under a year, just like fantastic.

• 17:07Speaker 0

  In fact, Despacito is now the number one most viewed video on YouTube with um over five and a half billion views, just like really incredible. And so when you when you're talking about platforms that are that big, what that means is that if there are products out there that automatically are generating video whenever users engage, that's just like a really cool, very interesting place to go. No wonder there's a world where there's short form videos that are doing well. There's also um other forms of entertainment that that are closely related to video that are doing great as well. And so one of them, of course, is an esports where you have folks that are playing um games like uh League of Legends and Dota. Um, and when you look at how much penetration there is in these sports, it is incredible.

• 17:55Speaker 0

  League of Legends, you know, had a championship in 2017, and you had over a hundred million concurrent viewers watching it, right? And uh Dota um, you know, has had 15 million. And when you compare that to something like Wimbledon, which is under 10 million live viewers, you can get a sense for the scale of this whole thing. And so one of the startups I'm I'm really excited about, and my friend Steve and Seeky are working on is called uh sandbox VR. It's a location-based VR company, a category that we're keeping close track on. You go with your friends, you put on a bunch of gear, you're immersed into this whole experience where you're suiting zombies and pirates. And of course, you know, well, what is sandbox VR's growth tactic? The nice thing is that what happens is every time you use the product, you're going with a group of friends, it's fun to take photos.

• 18:46Speaker 0

  You generate a video at the end of your experience that then you share to social media. And that means that this type of company is able to grow organically through the viral sharing of videos, as opposed to needing to pay Facebook and Google for their user acquisition. So the second class of products I want to talk about is um, you know, I think we've all known and have heard of online to offline products. Um, this is the opposite. This is offline to online. And, you know, the exciting thing about why this is all of a sudden possible is that we have you know widespread adoption of mapping APIs, we have GPS, we have um, you know, this new age of uh augmented reality on your mobile phone, and you have that all in your pocket and you can walk around. And so what that means is any kind of product that has this highly visible offline experience, and uh, I'll give you a couple examples coming up.

• 19:39Speaker 0

  But these offline experiences, these physical real life experiences that then remind you like, hey, I should go, you know, open up the app that controls all of this, or I should go download the app and try it for the first time. And so this This is a really interesting growth insight. And you can see this with companies like Niantic, who created Pokemon Go, where there's a map, you're walking around, you're capturing Pokemon, and you have events like this where 80,000 people get together to capture Pokemon and you're walking around in real life together, right? And having this experience together. And so this is a this is a big event. There's smaller events, there's just individuals walking around, you know, that, but this is this whole offline physical, real life experience that then creates engagement for the actual app itself.

• 20:28Speaker 0

  I think we also understand, you know, all of us that ride share is exactly the same thing, which is you have this highly social experience. You're often taking ride share to go visit a friend. Sometimes they're in a car with you. And so what that means is all of a sudden, there's all these ways that you might mention or talk about companies like Lyft and Uber. And then you have these pink mustaches that are driving around the city that just remind you, oh, yeah, I should go try this product. And it's the same motivation of getting from point A to point B that makes a company like Lyme really interesting and successful from a growth standpoint as well. You know, the first time you'll see a Lyme is probably you'll see a person on it with a big smile on their face, just you know, going down a street in a city, and it'll be like, wow, that's really fun.

• 21:18Speaker 0

  That looks fun. I should try that. You know, those are two categories that I think are super interesting. There's video native products, there's also offline to online, and I'm tracking those closely with an eye on the rest of the market. Of course, there's many other platforms that I'm I'm intrigued by. You have the Google Suite, many, many small businesses and enterprises are using and really exposes a whole new platform with calendar and email data that's just really exciting. There's Alexa. And also, you know, when you look at products like Twitch, uh, which are kind of a subcategory of video streaming, like that's very interesting. And of course, Minecraft Roblox, these are virtual worlds that sort of bake both a social network and a content platform all into one.

• 22:04Speaker 0

  And so I'm super excited about all these that are coming out. There is a ton going on. And so I am just ultimately looking for these new platforms, new technologies hitting scale that tap into consumer motivations, and they have some kind of a growth insight to get their business kicked off and then ultimately scaled. Technology changes, but people stay the same. My name's Andrew Chen. Thank you very much.