All Platforms Need a Killer App – Cryptokitties is the one for blockchain

I’ve always loved investing in companies that can become platforms but not investing in platforms. What does that mean? Well, to be succinct, it’s quite hard to sell a platform. You need to show users/customers how your platform can solve problems. Every platform needs a killer app to demonstrate the power of the platform – show don’t tell. Going back to webmethods, it was how DHL used WIDL (precursor to XML) to embed tracking information in other websites. For twilio, it’s first big opportunity was becoming the SMS provider for Uber. For the blockchain, it’s bitcoin and for ethereum and smart contracts, it’s Cryptokitties. Yes, cryptokitties.

It’s taking over the ethereum blockchain and despite all of the ideas for enterprise smart contracts and tracking assets on the blockchain, cryptokitties is the first killer app (outside of the currencies) showing end users how they can create unique assets on the blockchain and create, share, track, trade and sell digital goods. To date, estimates have transaction volume of over $10mm and individual kitties selling for over $100k. Yes, those numbers sound insane but my point is that decentralized apps like this open the world to the power of the ethereum blockchain.

According to the crytokittie site:

CryptoKitties is one of the world’s first games to be built on blockchain technology—the same breakthrough that makes things like Bitcoin and Ethereum possible. Bitcoin and ether are cryptocurrencies but CryptoKitties are cryptocollectibles. You can buy, sell, or trade your CryptoKitty like it was a traditional collectible, secure in the knowledge that blockchain will track ownership securely.

To get onboarded, we need to start with a Metamask.io plugin to connect our browser to the ethereum blockchain and the world of distributed apps. It’s pretty simple and once you get up and running, you need to add some Ethereum to your account via Coinbase or direct transfer. Once you have Ether in your account, you can buy a kittie and enter the world of blockchain without even knowing it.

So despite all of our discussion on putting car titles, real estate titles, and other unique assets on the blockchain, cryptokitties, a fun and addictive game, is the one application showing how powerful the blockchain can be for asset tracking and ownership. And it’s not so far a leap to think about what other enterprise digital assets can be similarly put on the blockchain.

Blurring lines in enterprise SaaS; the race to own customer data

I’ve written before about the competitive nature of SaaS and the amount of entrants in every category.

Lately after every conversation, I feel like the world is being divided into two camps and there is a massive battle going on in terms of who is going to own them and how. To oversimplify, I’ll call it pre-customer and post-customer domination. And there are companies looking to blur both of those categories as well.

It’s pretty hard to create a new system of record these days as Salesforce, Marketo, Gainsight and the like are building tighter lock-in around their products. That’s not to say it can’t be done as those companies have larger fish to fry, mainly huge enterprise customers and $1mm + deals. Opportunities abound in the SME (small, medium enterprise), and we’ve seeded a number of founders going after that space.

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Why I love and fear AWS

The AWS launch of Amazon Connect (see techcrunch article) got me thinking about the current state of play in SaaS. Amazon Connect is a call center in a box, the same tech it uses in-house for their current platform. With that release, companies like Talkdesk and others have much to fear. While I see partnerships with companies like zendesk, salesforce and freshdesk to integrate voice with chat and email, I also firmly believe that it is just a matter of time before AWS continues to extend outward and deploy their own chat/email customer support system to go after their partners. Trust me, it will happen.

I fully acknowledge and love AWS for the opportunity to fund so many amazing founders who are fully leveraging the power of the cloud platform and services. What I also greatly fear is that Amazon and AWS have proven that they are amazing at taking markets that become hyper competitive and just blowing them up overnight with the lowest cost and good enough offering. AWS has also proven that it will continue to move upstream in the stack from the pure infrastructure layer to the application layer.

Here are a few examples:

  1. Amazon Quicksight (launched 10/15) –  fast, easy to use business analytics at 1/10 the cost of traditional BI Solutions
  2. Amazon Chime (launched 2/17) – frustration-free online meetings with exceptional audio and video quality – companies like gotomeeting (Citrix) made a smart move selling to LogMeIn
  3. Amazon Workdocs (1/15) – fully managed, secure enterprise storage and sharing service, users can comment on files, share, etc – box, dropbox watch out

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Thoughts from Mulesoft and AppDynamics IPO Filings

I finally had a chance to take a quick read of the respective S1 filings for AppDynamics and Mulesoft. While the growth for each company is quite amazing, two thoughts jumped out at me.

As we move to a cloud-only world with instant-on capabilities and low friction in onboarding customers, why does professional services revenue keep increasing year over year for these enterprise cloud businesses. Secondly, as the world continues to move to the cloud, why does on-prem software exist any more?

Looking at both S1 filings, it’s clear that AppDynamics and Mulesoft have caught on to what Salesforce already knows – if you want to be a massive business you also need to sell professional services. As these tech companies get larger and larger, their target customer also increases in size as these vendors look to move from 6 to 7 figure deals. In order to support continued ARR growth upstream, some of the best companies successfully use professional services as a weapon and make implementation, support and training part of the sale. See Jeff Leventhal’s post (boldstart venture partner and Workrails cofounder/CEO) on why services continue to matter for cloud vendors.

Same goes for why on-prem. In both S1s, we can see Mulesoft and AppDynamics discussing the need for multiple delivery models as many larger customers have regulatory and compliance needs, esp. in banking, insurance, and health care. On-premise and hybrid cloud deployments are not going away despite the continued adoption of the cloud. There is a whole world of what being enterprise ready from a product perspective looks like, and how SaaS companies can use new technology like Docker to have the best of both worlds, SaaS and on-prem without multiple code bases. If interested, take a look at EnterpriseReady.io curated by Replicated (full disclosure: boldstart is an investor).

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Building AI on CXOTalk cutting through AI hype, "applied AI" to enterprise

I had a great time participating on CXOTalk by Michael Krigsman with boldstart portfolio co founders, Sean Chou from Catalytic and Keith Brisson from Init.ai

When you get down to it, AI is going to be huge in the enterprise but you need to make sure to focus on solving real business problems. Watch to learn more on our discussion about “applied AI.”


Here are some nuggets of wisdom:

Companies are removing #data silos. This will enhance usage of applied #AI

@keithbrisson @edsim  on #CxOTalk

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Apps sell infrastructure

Pivotal just announced it did over $270mm of revenue in 2016 from Cloud Foundry helping large companies with digital transformation. That’s some nice growth from the $115mm the year earlier.

The initial Pivotal Cloud Foundry sales pitch was that it gave big companies a way to build new applications that run in a public cloud (rented space on Amazon (AMZN, +0.47%) Web Services, Google (GOOG, +0.34%) Cloud Platform or Microsoft (MSFT, +0.62%) Azure) or private cloud (flexible infrastructure that runs in a company’s own data center.

The need for faster, better software deployment resonated with older companies facing competition from smaller, newer rivals that already use cloud computing. You could argue, for example, that Hilton (HLT, +0.05%) and Hyatt (H, -0.47%) hotels should worry more about Airbnb (AIRBNB) than about each other.

This is yet another sign how large companies are embracing cloud technologies and microservices to be more agile. At the end of the day, it’s not about buying Cloud Foundry because of infrastructure savings, its the ability to quickly and scalably deploy new applications quicker to meet business needs. That’s the bet Pivotal made many years ago, and it’s paying off.

Remember if you are selling infrastructure – stop, sell apps to the heads of business who have a huge sense of urgency to get things done. Most of them also have pretty sizable budgets as well. The byproduct of all of this is saving money but that is not what moves the needle.

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Thoughts from RSA and the Climate for Security Startups The year ahead in security tech and VC

Just getting back from a few days at RSA. We kicked it off Sunday night with a boldstart founders and execs dinner where we talked about what’s next in cybersecurity with some of our portfolio companies like security scorecard, bigid, snyk, stealth co and many friends from the industry representing strategic partners and IT buyers. After a couple more days of straight security talk with lots of new vendors, VCs, strategics and CISOs, I wanted to share a few observations. Many of these are not earth shattering but important to cover nonetheless.

  1. There are way too many cyber security startups. A record $3b went into these companies in 2016 and $2.5b in 2015. Many startups are features or products and not businesses. Each category and mini category used to only have a few vendors and now you can expect up to 10. Lots will struggle and go out of business and industry consolidation is ahead.
  2. That being said, cyber security budgets keep increasing! Banks like JP Morgan spent $500mm on security and yet they are still not secure. While many large cos will still buy from best of breed startup vendors, the landscape is changing as Palo Alto Networks and Symantec keep incorporating new tech and provide an integrated seamless stack.
  3. Which leads me to my next point. One CISO of a large bank told me that his team met with over 300 vendors last year. Large companies can’t possibly integrate all of these disparate technologies and the more you have, the more false positives you have.
  4. Rise of Nation State attacks – more sophisticated and deadly – many are targeting the largest financial institutions.

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Enterprise Collaboration Wars Lessons for SaaS startups

It’s going to be fun to watch the enterprise collaboration wars and how each company is approaching the market! In my mind it is a microcosm of many battles being played out with startups versus incumbents. Do large enterprises go for “best of breed” providers or the “one throat to choke” model? How does the bottom-up model work versus the traditional top-down enterprise sales model? As for collaboration, here is a view of some of the players:

  1. Slack – bottom up, adding enterprise features, but not on-prem yet, many early adopter enterprises but can they bridge gap to more traditional
  2. Microsoft – Teams, product not as fleshed out but starting with bases of thousands of enterprise clients due to enterprise company licenses, does that mean adoption?
  3. Box/Dropbox – coming at it from a technically commodity base layer of file sharing and storage, trying to add stickiness on top with Paper by Dropbox and Notes from Box
  4. Google – has Gsuite for Google Cloud – do they add a collaboration layer or do they just buy someone else?
  5. Salesforce – has Quip, do they keep adding layers on top?

and many others…

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Developer love vs revenue Going from Seed to Series A

Great blog post by CockroachDB on open source business models and their plans to make money:

If you’re serious about building a company around open source software, you must walk a narrow path: introduce paid features too soon, and risk curtailing adoption. Introduce paid features too late, and risk encouraging economic free riders. Stray too far in either direction, and your efforts will ultimately continue only as unpaid open source contributions.

I would say same goes for any developer-focused company whether OSS or some other hybrid free/premium model. It is truly an art form when it comes to striking that steady balance between developer and community love versus generating revenue and potentially alienating those who supported you.

This is also an important question as it relates to fundraising for dev-focused startups. Introduce your pricing page too soon and that is the metric that Series A investors will track religiously. Bet the farm on developer love and metrics only and you may never get enough traction to get to that next round.

From what I have seen in our portfolio, goal #1 is always to build an amazing community, focus on developer love and track the metrics and tweak. Without the developers, you have no customers.

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Thoughts on SaaS in 2017

When we started boldstart in 2010, a core thesis of ours was to invest in next-gen SaaS which we called SaaS 2.0 at the time and best highlighted in our end of 2015 review:

SaaS 2.0, reinventing for the mobile first workforce will continue to remain robust. We also see older school SaaS companies being rebuilt with more flexible back-end technologies like microservices and reimagined with a more responsive and beautiful UI.

While we continue to be excited about opportunities in SaaS startups, it is clear that the game has changed substantially since 2010. Despite the amazing productivity gains from open source, AWS, microservices and other new technologies, we have seen the time to launch extending and the cost of getting a minimally viable product (MVP) out the door increasing. So why is this the case?

  1. Most SaaS categories have multiple players and to build a transformative SaaS app means the bar to what a “minimally viable product” is much higher than it was 5 years ago. In other words, a MVP of 5–6 core features may now need 8–10 core. This takes more time, money, and resources. Founders need to make tough decisions on what their definition of feature parity is and what that one unique product angle will be to rise above the noise (more to come in a follow up post).
  2. The competition for talent has and continues to be fierce so as tech costs go down, human capital costs continue to increase.
  3. Cost of getting message to market has increased due to the noise from the many competitors in a particular space.

So what can a founder and investor do in this changing world?

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