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Paul Graham wrote an essay years ago in which he described the moment when he realized that most of the dot-com companies in the late 90's were selling their ad

Paul Graham wrote an essay years ago in which he described the moment when he realized that most of the dot-com companies in the late 90's were selling their ads mostly to other dot-com companies, who were buying their ads in turn. It looked like growing revenue for everyone, but once it came time to show a profit, all of it came crashing down...

hef19898 4y ago
The lesson drawn, and a good one as an investor, was the YC advice that start-ups should build stuff for other start-ups.
- jgalt212 4y ago
  It worked like a charm for AWS.
  - justinator 4y ago
    In what world is AWS a startup?
    - lazide 4y ago
      When AWS was starting?
      - Nowado 4y ago
        You mean when they separated internal infrastructure of the largest ecommerce in the world to the point when it was possible to sell it in commodified pieces to other businesses?
        vasco 4y ago
        That is not what happened and is a fake myth origin story. AWS was started from scratch with a small team in south africa. The best description of all the myths and the real thing I've heard is here: https://www.acquired.fm/episodes/amazon-web-services https://www.acquired.fm/episodes/amazon-web-services It sounds good to perpetuate the "but Amazon.com had extra capacity they could sell" but it's not true.
        remram 4y ago
        Unfortunately if the only source is this 3 hour podcast, you are going to have trouble convincing anyone.
        Nowado 4y ago
        There are sources, I didn't go through them yet, but they are there. It's pages of unorganized links, but it's something.
      - smachiz 4y ago
        I mean... a little disingenuous. AMZN was a $10-20B publicly traded company at that time. When is it a startup vs a product offering of an established company?
      - drsnow 4y ago
        I think it's a bit unfair to characterize every company that is "starting" as a "startup", particularly when the "startup" in question is/was backed by one of the largest companies on the planet. I don't think people think of such companies' endeavors as startups, even when they are starting.
    - sillysaurusx 4y ago
      There is an exact answer to your question, and it has nothing to do with the size of the company: a startup is a company designed to grow fast. Everything we associate with the success of a startup is a byproduct of growth. With that definition, AWS is a startup. So was the iPhone. Both invented their respective markets, and had to grow quickly to do it. If either of them had needed to raise money from VCs, smart VCs would’ve invested. But they didn’t need to raise capital, since they were already a successful company.
    - rossdavidh 4y ago
      The shovel-seller isn't necessarily also a prospector. They do, however, make a lot of money off of prospectors, whether any gold gets ultimately found or not. But, when the gold rush is over, the shovel-seller may have to do big layoffs.
- loeg 4y ago
  Sell shovels in a gold rush?
  - hef19898 4y ago
    Which is a solid plan. Unless, of course, you buy the shovels with futures on potential gold finds and expect the resulting shovel rush to go on forever.
  - deleted 4y ago
    [deleted]
hintymad 4y ago
But aren't startups doing the same thing as PG said nowadays? That is, portfolio companies use each other's products to boost their revenue and user base.
- timkam 4y ago
  Still, in B2B you typically want to show you have some megacorp logos (in particular due to larger deal size and up-sell potential), are attractive to different industries, et cetera. So this may be a known issue, but it's also considered when assessing startups.
- jonny_eh 4y ago
  SpaceX just bought a bunch of ads on Twitter. https://www.cnbc.com/2022/11/14/spacex-just-bought-a-big-ad-campaign-on-twitter-for-starlink.html https://www.cnbc.com/2022/11/14/spacex-just-bought-a-big-ad-...
  - belval 4y ago
    > According to internal documents viewed by CNBC, SpaceX has spent more than $160,000 on the Twitter ad campaign for Starlink in Australia and Spain so far. Your definition for "a bunch" is a bit questionable, but good on you for posting the source.
    - freejazz 4y ago
      All this without your own definition of a "bunch"!
      - belval 4y ago
        You got me. I wonder if we did a poll, how much money is "a bunch of money" and how much money is "a bunch of money on ads" for people. I think if it had been $500k or $1M I would've called it a bunch, but $160k seems low.
        4y ago
pewter_wiz 4y ago
physicsguy 4y ago
I do think of this a bit when I see startups being the main customers of other startup’s products. For e.g. I’ve never in my career at big orgs and small orgs alike had authority to just go and purchase $50/dev/month on productivity tooling for my teams, so I’ve never quite worked out who is paying for these
mcintyre1994 4y ago
Ad-supported mobile games seem to work like this too, all their ads are for other free ad-supported mobile games. Also I downloaded a QR code scanning app and every time I tried to scan a QR code it showed me an ad for another QR code scanning app lol.
- fvdessen 4y ago
  That's because the easiest to get new customers for a mobile game are the ones who play similar games but not yet this one. The customers then play the game and buy more in-game currency than was paid for the ads.
- gloryjulio 4y ago
  The whales foot the final bills though. Unlike the vc's money which goes through economical cycles, there will always be suckers for those gacha gambling games
  - conviencefee999 4y ago
    Those whales are something else. That's all I'm going to say.
    - robswc 4y ago
      I will _never_ understand sinking money into a mobile game like that. Blows my mind. Couldn't even be worth the effort.
      - HWR_14 4y ago
        There are two types of whales. Those who plow an objectively large but relatively (to them) small sum into the game are fine. Those who fell victim to psychological programming to feed every dollar in are not.
        conviencefee999 4y ago
deleted 4y ago
[deleted]
hammock 4y ago
The housing market was the same way in 2008… in fact the entire global financial system is built that way. It’s what they mean when they say there are $60 trillion (or whatever) in derivatives out there, a long chain of the same assets rehypothecated over and over. It works though, mostly
- kodah 4y ago
  I somewhat disagree with this on the surface. 2008 was a byproduct of banks holding ratings companies (Moody's and Standard and Poor's) hostage. The banks gave completely fraudulent ratings to loans, the ratings companies falsified ratings on packages, and eventually the house of cards came tumbling down when enough people tried to pull their money out. There is a way to rate and classify derivatives appropriately, you just can't hold the ratings people hostage. I don't think there's a way to do that with crypto.
  - highwaylights 4y ago
    This. The banks weren’t to blame for 2008 any more than were the hoardes of FOMO buyers - in that they were both pretty culpable but neither of them were the real problem. Lax regulation of the rating agencies was the real smoking gun. I’m not even sure it was ever addressed given all the banker witch hunts that ensued, and will next time too. Dave Chappelle was on Saturday Night Live this past week and did a bit in the monologue about why we can’t have good regulations. Worth checking out: https://m.youtube.com/watch?v=_m-gO0HSCYk https://m.youtube.com/watch?v=_m-gO0HSCYk (Starts at 8:50)
    - fortran77 4y ago
      A lot of those "FOMO Buyers" lied on their mortgage applications and suffered no repercussions. In fact, many of them ended up doing quite well despite crying "Boo Hoo! I lost my house." The spent their HELOC and never had to pay it back, they took the "first time homebuyers tax credit", and many of them lived in the house they "bought" for a year or two without paying any mortgage payment until the bank finally took it back. They never paid income tax on any forgiven debt, and they never paid income tax on the imputed income from living in a nice house for a couple of years rent-free until the bank finally was able to take possession of it.
dreamcompiler 4y ago
IOW reference counting cannot detect circular garbage.
forgingahead 4y ago
This is a rich observation, since (anecdotally) it seems like all the initial customers/traction for YC companies is from other YC companies. Nothing wrong at all, it's good to bootstrap an initial customer base and get some user-feedback, but until the chasm is crossed to "real" customers, one could argue that this is the same case nowadays. So the dotcom time was no better nor worse than right now in terms of startup viability.

hef19898 4y ago

The lesson drawn, and a good one as an investor, was the YC advice that start-ups should build stuff for other start-ups.

jgalt212 4y ago
It worked like a charm for AWS.
- justinator 4y ago
  In what world is AWS a startup?
  - lazide 4y ago
    When AWS was starting?
    - Nowado 4y ago
      You mean when they separated internal infrastructure of the largest ecommerce in the world to the point when it was possible to sell it in commodified pieces to other businesses?
      - vasco 4y ago
        That is not what happened and is a fake myth origin story. AWS was started from scratch with a small team in south africa. The best description of all the myths and the real thing I've heard is here: https://www.acquired.fm/episodes/amazon-web-services https://www.acquired.fm/episodes/amazon-web-services It sounds good to perpetuate the "but Amazon.com had extra capacity they could sell" but it's not true.
        remram 4y ago
        Unfortunately if the only source is this 3 hour podcast, you are going to have trouble convincing anyone.
        Nowado 4y ago
        There are sources, I didn't go through them yet, but they are there. It's pages of unorganized links, but it's something.
    - smachiz 4y ago
      I mean... a little disingenuous. AMZN was a $10-20B publicly traded company at that time. When is it a startup vs a product offering of an established company?
    - drsnow 4y ago
      I think it's a bit unfair to characterize every company that is "starting" as a "startup", particularly when the "startup" in question is/was backed by one of the largest companies on the planet. I don't think people think of such companies' endeavors as startups, even when they are starting.
  - sillysaurusx 4y ago
    There is an exact answer to your question, and it has nothing to do with the size of the company: a startup is a company designed to grow fast. Everything we associate with the success of a startup is a byproduct of growth. With that definition, AWS is a startup. So was the iPhone. Both invented their respective markets, and had to grow quickly to do it. If either of them had needed to raise money from VCs, smart VCs would’ve invested. But they didn’t need to raise capital, since they were already a successful company.
  - rossdavidh 4y ago
    The shovel-seller isn't necessarily also a prospector. They do, however, make a lot of money off of prospectors, whether any gold gets ultimately found or not. But, when the gold rush is over, the shovel-seller may have to do big layoffs.
loeg 4y ago
Sell shovels in a gold rush?
- hef19898 4y ago
  Which is a solid plan. Unless, of course, you buy the shovels with futures on potential gold finds and expect the resulting shovel rush to go on forever.
- deleted 4y ago
  [deleted]

hintymad 4y ago

But aren't startups doing the same thing as PG said nowadays? That is, portfolio companies use each other's products to boost their revenue and user base.

timkam 4y ago
Still, in B2B you typically want to show you have some megacorp logos (in particular due to larger deal size and up-sell potential), are attractive to different industries, et cetera. So this may be a known issue, but it's also considered when assessing startups.
jonny_eh 4y ago
SpaceX just bought a bunch of ads on Twitter. https://www.cnbc.com/2022/11/14/spacex-just-bought-a-big-ad-campaign-on-twitter-for-starlink.html https://www.cnbc.com/2022/11/14/spacex-just-bought-a-big-ad-...
- belval 4y ago
  > According to internal documents viewed by CNBC, SpaceX has spent more than $160,000 on the Twitter ad campaign for Starlink in Australia and Spain so far. Your definition for "a bunch" is a bit questionable, but good on you for posting the source.
  - freejazz 4y ago
    All this without your own definition of a "bunch"!
    - belval 4y ago
      You got me. I wonder if we did a poll, how much money is "a bunch of money" and how much money is "a bunch of money on ads" for people. I think if it had been $500k or $1M I would've called it a bunch, but $160k seems low.
      - 4y ago

pewter_wiz 4y ago

physicsguy 4y ago

I do think of this a bit when I see startups being the main customers of other startup’s products. For e.g. I’ve never in my career at big orgs and small orgs alike had authority to just go and purchase $50/dev/month on productivity tooling for my teams, so I’ve never quite worked out who is paying for these

mcintyre1994 4y ago

Ad-supported mobile games seem to work like this too, all their ads are for other free ad-supported mobile games. Also I downloaded a QR code scanning app and every time I tried to scan a QR code it showed me an ad for another QR code scanning app lol.

fvdessen 4y ago
That's because the easiest to get new customers for a mobile game are the ones who play similar games but not yet this one. The customers then play the game and buy more in-game currency than was paid for the ads.
gloryjulio 4y ago
The whales foot the final bills though. Unlike the vc's money which goes through economical cycles, there will always be suckers for those gacha gambling games
- conviencefee999 4y ago
  Those whales are something else. That's all I'm going to say.
  - robswc 4y ago
    I will _never_ understand sinking money into a mobile game like that. Blows my mind. Couldn't even be worth the effort.
    - HWR_14 4y ago
      There are two types of whales. Those who plow an objectively large but relatively (to them) small sum into the game are fine. Those who fell victim to psychological programming to feed every dollar in are not.
      - conviencefee999 4y ago

deleted 4y ago

[deleted]

hammock 4y ago

The housing market was the same way in 2008… in fact the entire global financial system is built that way. It’s what they mean when they say there are $60 trillion (or whatever) in derivatives out there, a long chain of the same assets rehypothecated over and over. It works though, mostly

kodah 4y ago
I somewhat disagree with this on the surface. 2008 was a byproduct of banks holding ratings companies (Moody's and Standard and Poor's) hostage. The banks gave completely fraudulent ratings to loans, the ratings companies falsified ratings on packages, and eventually the house of cards came tumbling down when enough people tried to pull their money out. There is a way to rate and classify derivatives appropriately, you just can't hold the ratings people hostage. I don't think there's a way to do that with crypto.
- highwaylights 4y ago
  This. The banks weren’t to blame for 2008 any more than were the hoardes of FOMO buyers - in that they were both pretty culpable but neither of them were the real problem. Lax regulation of the rating agencies was the real smoking gun. I’m not even sure it was ever addressed given all the banker witch hunts that ensued, and will next time too. Dave Chappelle was on Saturday Night Live this past week and did a bit in the monologue about why we can’t have good regulations. Worth checking out: https://m.youtube.com/watch?v=_m-gO0HSCYk https://m.youtube.com/watch?v=_m-gO0HSCYk (Starts at 8:50)
  - fortran77 4y ago
    A lot of those "FOMO Buyers" lied on their mortgage applications and suffered no repercussions. In fact, many of them ended up doing quite well despite crying "Boo Hoo! I lost my house." The spent their HELOC and never had to pay it back, they took the "first time homebuyers tax credit", and many of them lived in the house they "bought" for a year or two without paying any mortgage payment until the bank finally took it back. They never paid income tax on any forgiven debt, and they never paid income tax on the imputed income from living in a nice house for a couple of years rent-free until the bank finally was able to take possession of it.

dreamcompiler 4y ago

IOW reference counting cannot detect circular garbage.

forgingahead 4y ago

This is a rich observation, since (anecdotally) it seems like all the initial customers/traction for YC companies is from other YC companies. Nothing wrong at all, it's good to bootstrap an initial customer base and get some user-feedback, but until the chasm is crossed to "real" customers, one could argue that this is the same case nowadays. So the dotcom time was no better nor worse than right now in terms of startup viability.