Interestingly, Mark Pincus, who was Nguyen's co-founder in two of the 'pump-and-dump' schemes listed in the article (Freeloader and Support.com)[1], seems to be on an eerily similar path with Zynga.[2]<p>--<p>[1] <a href="http://en.wikipedia.org/wiki/Mark_Pincus" rel="nofollow">http://en.wikipedia.org/wiki/Mark_Pincus</a><p>[2] <a href="http://www.forbes.com/sites/nathanvardi/2012/10/05/zynga-keeps-crashing-but-mark-pincus-is-having-a-great-year/" rel="nofollow">http://www.forbes.com/sites/nathanvardi/2012/10/05/zynga-kee...</a>
This is diplomatic and charitable. When I see a repeat pattern of GroupOn and Zynga type companies I see someone who knows how to pump and dump. It's not quite fraud but it's getting close, given how loose these sorts of people typically play the truth.
I'm surprised no one's mentioned Twitter.<p>They are one of the most successful internet things and yet they still don't seem to have any really solid way to monetize that. They are now part of culture but are they revenue positive?<p>The things they are doing lately don't make sense until you take that into account:<p>Restricting 3rd party apps and APIs? Seems to be driving users away... Except that if all your users are costing you money, then less users is in fact good.<p>And the only money making thing they seem to have is "paid tweets" that you are forced to see (aka ads) and so yeah, obviously they don't want 3rd party apps and APIs that could filter that one weak still mostly crappy source of money. So if they loose some freeloading users, why would they care.<p>So yeah. Why has no one else mentioned Twitter in this discussion as the grand-daddy-king of unsustainable companies?
Why does this idea exist that every company needs to be sustainable? Is it not the natural way of markets that 1) an opportunity is identified, 2) exploited for profit, until 3) competition drives profitability away?<p>So long as capital stays productive, from a societal point of view it shouldn't matter whether it stays in one company for 20 years or moves from company to company every three.
What I am about to type is not an excuse for some of these companies, but rather an observation about all companies.<p>Sustainability is relative. Very few companies "last forever", so the real questions are... What is an acceptable pattern of growth and what is driving the shorter lives of these companies?
I think this is actually related to a larger (sea) change currently occuring in Internet culture: a transition to mass media; like TV, the music industry and Hollywood before it.<p>The internet was very different a few years ago - a source for information and creativity, but easy access and growing acceptance (no doubt related to the rise of mobile platforms), have changed all this.<p>Some startups today are just like pop acts or Hollywood productions: 1 out of 10 makes a killing, the others fail spectacularly. That's the mass media (gambling) busines, not a "bubble".
Finally someone is talking about this! I've always felt that the "new" tech companies bring very little value to consumers and are thus not profitable long term (but of course the early investors and founders already made their money) The incentives of many VCs and "angels" are at opposite ends with sustainability, consumer value and long term success.
Unfortunately it seems like a lot of the time people are building companies for exits, rather than long term products. There's exceptions of course, but how much of that is now the expectation that to get the funding to do something you've got to be aiming for $xm dollars at exit.<p>I've got no problems with people exiting like that, but it makes me wonder where all the pressure to sell up and move on comes from.
Pump and dump works very well in tech unfortunately. Few VCs apply Buffetesque expectations of company durability to their investments, and (morals aside) objectively they don't need to. Alot of it is about selling to a greater idiot - either the hoi polloi on the stock exchange after an IPO, or an acquirer with rose-colored glasses if that's too much of a stretch.
There's really only one underlying truth here: snake oil salesmen have been around since the day commerce began. The internet just broadened their methods and customer base.
But Nguyen understands the arithmetic of Silicon Valley, and anyway he isn't one to reflect. "I never get emotional," says Nguyen, who hasn't spoken to his parents in six years. "I can have the biggest argument with someone, and five minutes later, I won't even remember that it happened." He's not even particularly attached to his name. In third grade, he had a crush on a classmate whose mother asked him his name. "I go, 'Vu.' She goes, 'Bill,' and I go, 'Aha!' And all my friends have called me Bill since then," recalls Nguyen. "My whole point was, I don't care what people call me. It's like, whatever's easier for people, I'm totally cool with it." He adds, "There is no Vietnamese person in the history of the world born with the name Bill. It's a total facade."<p>...This guy's a psychopath.
We are still in the verrrrry early days of the internet. Yes, now in 2012. There will be bigger online companies/assets/entities than there are today. Just wait & see. Every new industry has its "pitchmen", and an anxious horde of "brilliant investors" who chase the supposed money(see: suckers) like a gold rush. History has way too many examples. Nguyen charmed the greedy masses, and everyone enjoyed their rôle. Only time highlights the mistakes by the start-up, the VC, and the eventual buyer. Tuesday morning QB-ing at it's best. In Silicon Valley, there will still be Nguyen adVoCates lining up for the next company . . . Black & White?
It does seem like a smart buyer would take into account the difficulties Bill Nguyen has had handing over companies to new owners and keeping them healthy. It's not necessarily malice, but something is going wrong. If a smart buyer sees it, then a smart investor is going to anticipate this, and perhaps be more cautious investing.<p>But we do not see this behavior, and hence the mild outrage of this post.<p>We gnash our teeth and tear our hair because of the irrationality of buyers and investors, because if only they were rational they'd invest in <i>my</i> idea, not his! :)
It seems to me that there is nothing inherently wrong with these talented pitch men, people that get everyone excited about some venture even if there is no clear path to long term growth.<p>If you could marry these people with others who have a proven track record of creating sustainable businesses maybe you would have some unstoppable force?<p>But then again, maybe in order to pump and dump, you have to make certain decisions that are bad for building a company and good for raising funds.
People might not remember this but Amazon was lambasted as an unsustainable company for many many years. People also said that Facebook would never make money.
This is a great piece. As a business matter, its a "brilliant" arbitrage. Annuity != Perpetuity. If you can buy low (A) and sell High (P) you will do great. And its a lot easier to build an (A) than a (P) type biz. Lack of visibility (due to tech disruption) and short-attention-span (due to tech disruption) combine to make this a potentially evergreen business opportunity, especially for the unethical.
When Margo Georgiadis joined and then soon left GroupOn before the IPO, that said a lot. I'd imagine she had a hefty equity path lined up that she walked away from, so she must not have been pleased with what she saw. Unfortunately the markets tend to be pretty irrational so I didn't attempt it but we all could've made some extra $$$ shorting GRPN stock.
I wonder what people who strike it rich on vaporware tell their children when asked what they did to make money?<p>I mean what does Mark Cuban tell his kids? "I built this website and it was shut down, but I'm bloody rich anyways, so..."<p>I mean I personally would feel like a horrible role model to the children after that. Does this sort of information turn your children into thinking the end justifies the means?
The takeaway from this is that VC-istan has turned into a celebrity economy.<p>The most relevant trait of a celebrity economy is the importance of visibility (and the vicious politics surrounding who gets to be visible). If everyone (most relevantly, the investor community) knows you're a 5.5, that's better than being a 10 that no one has ever heard of.<p>This has been my observation. I've met plenty of very successful founders (people that the HN crowd would have heard of) who are just not very impressive.<p>It also gets under my skin when VCs say, "we don't invest in ideas, we invest in people". To which I say, "then most of you should be fired, because you suck at that." Honestly, VCs are a lot better at picking ideas. Sure, a lot of these "social" apps are lame, but VCs actually do an excellent job of choosing what <i>ideas</i> to fund, given the constraints they face and their objective function (variance-agnostic expectancy maximization, 1-10 year payoffs). That they do well. On the other hand, they seem to be doing a lousy job of picking people (and at that, I would do a better job than 90+ percent of them).