Earlier this year, Jay Rosen posted a provocative piece Audience Atomization Overcome: Why the Internet Weakens the Authority of the Press about the effect that bloggers are having on political debate in the US. His premise is historically, political reporting fell into 3 neat categories, but the democratization of discourse is changing the rules. Here's the 3 categories:
1. The sphere of political debate- Mainstream arguments where 'reasonable' people can disagree, such as 'more guns vs less butter'
2. The sphere of consensus- Where we all agree, like Madoff should have a rather large roommate' whose mom lost money in a stock scam.
3. The sphere of deviance- Also known as the fringe element. Where Ronald Regan, Menachem Begin were, and where the press seems to be judging Jerusalem's Mayor Barkat.
The post set me to thinking about the effect of atomization for investing in the technology arena. It seems as if most real disruptive innovations, and the chance to really change things, begin in the sphere of deviance. It is where thinkers, and doers who buck convention, either are ignored, or are labeled whacko's. The nay sayers can be present industry luminaries such as Ken Olsen, the founder of DEC, derisively preaching at a 1977 convention of the World Future Society (such an apt place to be wedded to the past) "there is no reason for any individual to have a computer in his home" or initial press reviews of the first generation iPod.
In the VC world you can be relegated to the sphere of deviance not only by a technology bias, but also the by dint of faint praise 'interesting technology that may be used by millions, but where's the business model?'
When a company attracts its millions of users/customers, its sphere naturally shifts from Deviance towards Debate. Conversations, which began with 'if' shift to 'how' along the lines of 'how can they ever justify their valuation, or support 50mm users?' Today, we are having the same debate over Twitter. The company, a spin off of Odeo (whose VC Charles River sold their interest in a recap) is explosively growing because they do one little thing so gosh darn well that its passionate ecosystem is making huge collective investments to bring it to so many new places. In fact, the fast moving nature of the ecosystem makes it more difficult to declare the business model.
It's within the sphere of consensus to marvel at the breakout being done with such great economies of scale, where it does not take many employees, or infrastructure to build huge shareholder equity. Of course, like many other comparative young vendors, they are subject to the laws of physics, where any ecosystem abhors a competitive vacuum.
It's yet unclear if they will fully capitalize on their success and jump to the sphere of consensus. Nonetheless, I am confident that many VC's will highlight companies such as Twitter, Facebook and Skype to show the great potential for outsized returns by doing 'simple' things really well, and having confidence in supporting a few special 'deviants'.