Silicon Valley is one of the most dynamic engines of capitalism the world has ever seen.
For decades, technology providers focused on creating cutting-edge hardware and software designed to optimize efficiency, productivity, and data-based knowledge for large corporations. But today, many technology innovators are also working hard to level the playing field by providing individual consumers with technology platforms, online information, and decision-making support.
This move to empower individuals is not a result of the Occupy Wall Street movement; nor does it signify conflict between producer and consumer classes. Indeed, it validates Adam Smith’s theory that competitive economic individualism (which critics called “capitalism”) yields positive benefits for society, chiefly through promoting innovation and cutting costs for consumers.
Yet it also represents an acknowledgement on the part of the technology industry that increased transparency and trust, better service, and improved efficiency for consumers are essential for long-term Internet growth and general economic prosperity. This is especially important at a time when citizens are so skeptical about big business and government institutions in general, and it’s particularly topical in the wake of the financial crisis of 2008 and the recent Edward Snowden episode.
The full scope and span of the emerging “People’s Web” becomes evident when you look at some of the start-ups and growth companies that are currently flourishing and being funded. These entities can be clustered into four main groups: Transparency Enforcers; Industry Watchdogs; Cartel Busters; and Enterprise Liberators.
The groups represent four trends in the technology sector that are related, mutually reinforcing, and worth understanding as an investor. At Blumberg Capital, we have recognized and embraced these trends as a way of identifying disruptive innovations that can build large new businesses and yield outstanding investment returns.
Many investors have acknowledged the benefits of the SaaS model vs. the traditional enterprise sales model, but we think it is also worthwhile to highlight companies that are bypassing historic distributors and bottlenecks in order to reach individuals directly via social, mobile or freemium platforms. It’s worthwhile, as well, to focus on companies that are using crowdsourcing, big data aggregation, API feeds, sensor networks and algorithmic engines to deliver new and improved services—a combination that was unfeasible only a few years ago.
The rise of the individual as technology consumer and beneficiary is all the more important as emerging economies around the world boost hundreds of millions of people into the middle class. These upwardly mobile individuals are powerful, because they’re eager to pursue their economic choices across the global marketplace.
Now that I’ve laid out a basic investing thesis and rationale, let’s look at some examples and illustrations that will add dimension to my views.
Transparency Enforcers
Each company in this group helps protect people by making sure that they’re dealing in an authentic and transparent digital environment. Examples in this category include Quora, which brings transparency and credibility to online Q&A forums by adding social profiles, and TRUSTe, which certifies Web sites regarding data privacy policies and compliance.
In a related segment, e-commerce merchants increasingly seek consumer feedback, because customers trust other customers. That said, there is a growing problem with fake online customer reviews. With a view to solving this problem, Blumberg Capital invested in YotPo, which automatically solicits and verifies reviews from customers (with transparent social profiles), ranks them by credibility, and shares them across search engines and social networks. Another of our investments in in this category is Trulioo, which improves transparency and protects consumers by authenticating real users and denying fraudsters in real time by validating social profile information.
Industry Watchdogs
This group helps protect people by shining a light on hidden cost structures, opaque business practices, or arcane processes. Familiar brands in this segment include traditional not-for-profit organizations such as the Council of Better Business Bureaus and Consumer Reports. More recently, technology companies are harnessing crowdsourcing and comparison analysis to reduce information asymmetry between seller and buyer. For instance, FeeX, an early-stage company in our portfolio that calls itself “The Robin Hood of Fees,” aggregates and analyzes objective, crowdsourced data to reveal
