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Comment by omd | Hacker News Reader

Investors are frustrated that they can't replicate the success of Silicon Valley here in Europe, but our governments aren't the ones to blame. The environment here is different because the people want it that way. It's a different culture with different priorities and different goals.

Just as Hollywood could only have become what it is in the US because it fits the (West Coast) American mentality, so too could a Facebook or Twitter or Instagram only come out of the American way of doing business. I don't see anything wrong with that and I've been able to do business here for almost 20 years. The trick is to not treat the environment here as something it's not and has no intention to become.

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>a Facebook or Twitter or Instagram only come out of the American way of doing business.

I find this statement hard to believe. There are many successful companies from other countries. What about F/T/I is different, and could only have come from the US?

All three of these companies are built on a foundation of a bunch of users frantically sharing lots of content with each other, as fast as possible, for free; the result is something that may or may not actually have any value at all, despite insanely high valuations from investments and acquisitions.

In a way, the question of whether these companies are even "successful" at all is actually an important one to consider: they aren't terribly profitable (or are even operating at a loss) and, like many other Web 2.0 companies, are being held up by a promise that "with this many users, we will make money".

Yet, even when you reach the size of these companies--Facebook and Twitter are both larger than the entire possible network connected market in 1998 when these dreams were so horribly vivid--you still are in a horrible position of "ok, but how do we make money? we were told there was money :(".

Now, I'm not from Europe, but I get the impression talking with some people I know from there (who may just be biased or romanticizing) that this sort of insanity simply doesn't play as well in that market: that people think through their monetary decisions a little longer, and are less likely to be tricked.

Meanwhile, people in Europe really do seem to care more about information retention issues, and have passed numerous laws (sometimes ones that people consider quite over-the-top) that indicate a mindset in opposition to this "share everything about you as fast as possible so it can be monetized" concept.

So, if you are wording your statement or in any way reacting to this premise from a "how dare you insult other countries like that" mentality, you might should attempt to recast the position as "what about these other countries makes them better than us and less likely to waste their time building these things?".

(The same argument applies to the other example: many people consider the ideals that lead to Hollywood to be founded on a combination of narcism and rent-seeking; a ton of people go there and spend their lives in pursuit of something that will never work out for them, slowly violating more and more of their personal morals and boundaries in the hope of getting a little closer to their dream.)

> "we were told there was money :("

People invest in services like Twitter knowing that there is a chance that they might not be monetizable, but believing that if they turn out to be, then the payoff will be enormous. So the expectation value of the return is still high.

Let's say I give you a box and tell you that inside is a social media company. You know that the achievable revenue per user could be anywhere from, what, a penny a month to a dollar a month -- two orders of magnitude of variability. You know that the achievable audience could be anywhere from, say, 10 thousand users to 1 billion users -- five orders of magnitude.

So if you want to determine how much you would pay for the contents of the box, you should try to learn about the potential audience rather than the potential revenue per user, because the former completely dominates the latter in the expected value computation.

Put another way -- how much would you pay to flip a coin where heads you get a billion dollars, and tails you get nothing? If you're allowed to purchase more than one coin flip, and the coin flips aren't too correlated, and you have access to efficient capital markets, probably close to half a billion dollars, am I right? :)

This is only true if you actually believe the expected payouts from these eyeball-based businesses could possibly be very high: many people do not, and the example companies we have to examine have not disproved this: unless you are actively in the position where people are trying to use your service to find things (Google), you apparently don't make money; maybe it is possible, but no one has figured out how to do it yet, and there was honestly not much reason to believe there would be beforehand. Now, maybe that analysis is wrong, and maybe there is tons of money to be made in these companies, or maybe they just need to be twice more as large as they are and it will work: that could totally be the case, and is then indicative of a set of morals and overall value mindset to chase that dream as opposed to another.

>People invest in services like Twitter knowing that there is a chance that they might not be monetizable, but believing that if they turn out to be, then the payoff will be enormous. So the expectation value of the return is still high.

Yes, this Casino capitalism, we don't like it much.

Yes, this Casino capitalism, we don't like it much.

...and by failing to recognize that all human activity worth doing carries risk, you have invented "bunker capitalism".

>Now, I'm not from Europe, but I get the impression talking with some people I know from there (who may just be biased or romanticizing) that this sort of insanity simply doesn't play as well in that market: that people think through their monetary decisions a little longer, and are less likely to be tricked.

I am from Europe and I have no idea.

>Meanwhile, people in Europe really do seem to care more about information retention issues, and have passed numerous laws (sometimes ones that people consider quite over-the-top) that indicate a mindset in opposition to this "share everything about you as fast as possible so it can be monetized" concept.

Ok, valid point.

>So, if you are wording your statement or in any way reacting to this premise from a "how dare you insult other countries like that" mentality.

It was more a statement of sincere disbelief. We have quite a lot of IT companies in my country, including social networks (that obviously did not go global).

>what about these other countries makes them better than us and less likely to waste their time building these things?

If I understood the situation correctly, the builders cashed out quite nicely.

> If I understood the situation correctly, the builders cashed out quite nicely.

That is a very fair point. However, it is not always clear that the investors all did, and certainly not in the case of Facebook once it went public: a lot of people think that these companies are very well positioned to make tons of real revenue thanks to their large userbase (and, to be clear, I am not saying that they are "wrong": only that opinions differ, and there is some reason to believe that these opinions specifically differ in a general European mindset).

Europeans are very skeptical about backing businesses without a clear and short path to monetization, something that businesses like twitter or facebook did not have until very late. Maybe it's due to our history (lots of revolutions, lots of people going broke from one day to the next, etc) but people over here are much more conservative when evaluating potential investments.

Also, the whole data-mining / reselling business, which is "the backer of last resort" for most "free" startups in the States, is probably less developed over here (and is subject to fairly strict regulation).

It doesn't really have to be a short path. Sometimes things like highways and similar are intended to be profitable, but the up-front investments is so high, that the break-even point is far in the future. Sometimes the investments are clearly non-profitable monetarily -- like, say, regional public transportation.

The point is that the investment either has to be profitable within a predictable future, and then it's a business, or it must be significantly beneficial to the society as a whole, and then it's a state matter. I don't think this is universally recognized in EU (I think the OP confuses Europe with EU), of course, nor do I think nobody in US thinks that way, but general attitudes towards the statement that started this paragraph seem to differ.

The effect is that if you apply for e.g. any of the EU innovation funds, you actually have to come up with a business plan that states what are you doing, how is it similar to others, how and when are you going to ultimately turn profit. It's reasonable for VC to do the same.

>What about F/T/I is different, and could only have come from the US?

While we might use them (nearly) as much as Americans, we don't really believe in the utility of such businesses.

And we don't like to invest in hazy-ass ideas like those.

Now, something like Skype, is another thing altogether.

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