Marc Andreessen on Why He Passed on Facebook, Twitter vs. Bing and the Companies He Wishes He’d Backed


Marc Andreessen stopped by our offices last week to discuss his new fund, and I took the opportunity to throw out some off-topic questions about Twitter (he’s an angel investor), LinkedIn (ditto) and Facebook (he’s on the board):

How does Facebook CEO Mark Zuckerberg remind you of your younger self and how is he different?

The big difference is he really wants to be the CEO and has tremendously applied himself to doing that. I actually think he’s not that similar to me from that standpoint. He’s doing a really good job of running company and really wants to. That’s a big difference. Similarities? I don’t know. Young? [Laughs]. Young and hard working. He’s the real deal. He wants to buckle down. He wants to build a great company. He doesn’t want to sell it.

You seem to be a firm believer in the “if-we-can-scale-this-thing, the money will come” model. You’ve said as much about Facebook and Ning and Qik. But that doesn’t always work. It costs startups like Pandora a lot of money every time they attract a new user. As an investor, how do you know when going big — at all costs — is the right approach?

Numer one, the details really, really matter. The cost structure really matters. When people get in trouble with this sort of thing, it’s usually for one of two reasons: Either the market wasn’t going to be that large—in which case deferring revenue to get to the market wasn’t worthwhile—or the costs are just too high.

Here’s how I think about the economics of Twitter, for example. The economics of Twitter are that they’ve spent about $15 million [of the $40 million they’ve raised]. They have created already a global brand name. Ben [Horowitz] likes to point out that the Bing ad campaign [by Microsoft] is $300 million of advertising. Would you rather own the Bing brand or the Twitter brand?

Two, they have a user base of about 30 million users now, growing very fast. And, three, they have that growth rate, so they have all the future acquisition.

But even just looking at the current user base, they’ve spent maybe 50 cents per acquired user. Total. For everything. All development, all marketing, everything. And so on the revenue side, you say: ‘Suppose they want to monetize that? Can they get 50 cents per user per year in terms of ads?’ Yeah, probably they could do that. So to go get that $15 million back seems really easy, and it seems like there’s a lot more upside beyond that.

That’s a case where you say, ‘OK, having done that, what do we now know?’ It seems to be mainstreaming. It seems like the total addressable market is somewhere between 100 million users and a billion users, or maybe more. It seems like the right thing to do, with those economics, to raise some more money, which they’ve done, and go get the rest of those users. Once they have the users, then monetization obviously becomes very easy. If you have any monetization mechanism, then it’s just a large scale, so you just turn it on.

Earlier this year, you said on Charlie Rose that if you can get 50 to 100 or 150 million users, then everyone is going to end up using it. How did you decide that was the tipping point?

I made it up. [Laughs.] I pulled it out of my butt. However, there’s a point at which it’s not just nerds, speaking as a nerd. Whatever it is. It’s not just Silicon Valley people, it’s not just people in urban areas, it’s not just people in California. There comes a point where you can go to Topeka [Kansas] or Poughkeepsie [New York] or Lubbock [Texas] and you can run into people—and they’re normal people—and they use something. And when that happens, that’s a really big deal. That’s something that has clearly traveled culturally and societally very broadly. And it’s clearly something important. You get the occasional fad, but actual products that propagate like that don’t happen very often, so when they do, it’s a sign that you’re really onto something and if you keeping pushing it you can probably make it much larger.

I’m sure this is the least of any investor’s concerns, but is there point of over-saturation and a way to mitigate that danger? MySpace seems to be tipping in the other direction.

MySpace has a different issue in my view. Their issue is that they fell behind on product innovation, specifically versus Facebook. They had their network effect. It was growing. It was getting very large. [But] Facebook has, I think, out-executed them on product. Facebook is increasingly taking the network effect away from them. I think they’re aware of this, which is one of the reasons why they hired Owen [Van Natta as CEO]. They’re going to try to come back at it and counter it.

You look at the two companies. MySpace does a lot of things really well. But, that said, they’re owned by a major media company, they have focused tremendously on monetization for the past two years, and they just don’t have the product innovation engine that Facebook does. Facebook is completely focused on product innovation. I think it’s a case study of how that happens. You could argue that MySpace focused too quickly on monetization. You could argue that you just saw the consequence of switching focus like that before you’ve taken the whole market.

Were you an angel investor in Facebook?

No, I wasn’t.

Did you have an opportunity invest in Facebook as an angel?

Damn, she asked the question. [Laughs.] Let’s put it this way, I’ve known them from the beginning. I probably could have if I had tried hard, but I didn’t.

Because?

Because I didn’t. [Smiles.]

Because of your investment in LinkedIn?

No. It’s always an affirmative decision. You have to actually step forward and actually go after it. And things just really happen fast, and Facebook was happening at a super high rate of speed and things just didn’t click.

But you have shares as a director.

Yes, as a director.

Is there another company that you now think, ‘Damn it, I wish I had invested in that?’

The one that I tried to invest in but couldn’t get into was [social network aggregator] FriendFeed. They’re too rich. They’re former Google guys. They basically did it themselves. They have too much money.

FriendFeed is viewed by some as a competitor to Twitter. Did you invest in the idea of Twitter or did you invest in Odeo? [Reader background: Twitter cofounder Evan Williams first cofounded Odeo in 2004, a company that let PC users find and subscribe to podcasts; in early 2006, Williams also began testing a new company, Twitter, out of an effort to make Odeo accessible over cell phones. Once Twitter evolved into what it’s become, the two concepts had little to do with each other.]

Twitter, not Odeo. I knew of Odeo, but I didn’t actually know Evan back then. When Twitter first got started, I emailed him and that’s how we first met. I saw Twitter when the product first launched, back when they were in the middle of the transition, so they hadn’t yet shut down Odeo and they hadn’t yet raised money for Twitter.

Because [Odeo backer] Charles River Ventures had accepted its money back, for which I’m sure they’re kicking themselves now.

Was it Mayfield? Or CRV? That’s one of the great stories, because Evan made up the difference. My understanding is he made up the difference out of his own pocket and gave it back to [investors] whole. That’s a great guy. That’s a classic story and I think that’s representative of a pattern you’re seeing these days.

You can read the full transcript of the Andreessen Q&A at Venture Capital Journal.

And here’s what Andreessen has to say on his blog.

(Photos by Lawrence Aragon)