Fred Wilson: What else is hard to copy?

Editor's note: This article is famous VC Fred Wilson, in this paper he proposed the commercialization of software is unstoppable, so investment in such companies must pay attention to "defensive". He used a dental clinic software story to illustrate how to do this, and his partner Albert later revised a better outcome for the story. See here for other articles.

As an entrepreneur, he was bored by the lengthy waiting experience at a dentist's office and judged that the management of the dental clinic was terrible. So he designed and developed a comprehensive dentist management system to market. The software is expensive, with 25000 dollars a year for each clinic, but it is still popular with clinics, as dentists realise that the cost savings are significant after deploying the system. And Dentasoft Company also rapidly developed into an annual sales of 100 million U.S. dollars of enterprises, and then listed, the valuation is up to 1 billion U.S. dollars.

Two young entrepreneurs who have just graduated from college have come to YC. They are recommending to PG (Paul Graham) Their low-cost version of Dentasoft, which is based on a procurement of modern software development and its own mobile app, where dentists can remotely administer clinics on the golf course. PG liked the idea and agreed to let them join YC. Soon the two companies dent.io the product to the market at a price of 5000 dollars a year. Dentists liked the new entrants and began to renew their products. As a result of competition pressure, the income drops, dentasoft this quarter earnings forecast. Then Dentasoft's share price blew. Meanwhile, Dent.io began to get growth from Sequoia and recruited a CEO from Workday.

At this time, suddenly appeared an open source community, began to develop open source version of the dentist software. The open source project is named Dentops. The project, led by Nitrousoxide, a former dentists ' career-changing social blogger and software developer, has put the entire dental industry on its own agenda. Dentops's managed version, Denthub, is very popular in a leading-sense dental clinic, as these clinics no longer want to be subject to companies like Dentasoft and Dent.io.

Dentasoft was forced to file for bankruptcy protection to restructure $100 million trillion in debt financing 1 years after the IPO. Dent.io's board fired its CEO and begged the founder to return to control the struggling company. As a subversive of the dental profession, Nitrousoxide became the cover of Wired magazine.

This fictional story is used to illustrate the fact that the software itself is a commodity. Nothing can stop anyone from copying its function and then doing it better, cheaper and faster. This is the reality that Brad and I started to define the investment theme for USV in 2003. We saw the arrival of the cloud, but did not want to invest in the cloud of commercial software. Because we focus on "defensive". What is defensive? User circles, transactions, or data within the software. We feel that if entrepreneurs are able to incorporate some of the non-commercial things beyond their capabilities and features into their software, their software will be more defensive. This gives us a look at social media, Delicious, Tumblr and Twitter. And markets like Etsy, Lending Club and Kickstarter. There are enterprises-oriented networks, such as Workmarket, C2fo and Siftscience. But we are not implementing our investment strategy perfectly. Missed a lot of good networks. And we have invested in some companies that are not in the net. Even so, our investment theme is fulfilling our commitment, and we are sticking to this investment strategy as much as we can.

Here's the end of the Albert version:

A young dentist, named Hoff Reidman, decided to start his own business and form his own dental network. Because he had been in CMU before he went to dental school, he used his technical skills to develop a website called dentistry.com in Ruby. Hoff came up with a product blueprint that allows patients to deposit their files in dentistry.com to keep their own records, make appointments, and track dental health. It also has a mobile app that allows patients to remind them to clean their teeth two times a day. Because dentistry.com is free for anyone to use (including dentists and patients), it is monetization through transactions between primary advertising, dentists and patients, and between patients and oral health products providers. Dentistry.com developed into a 1 billion-dollar revenue company, which was finally listed at a market value of 7.5 billion dollars. The company has been favored by Wall Street analysts for its market power and defensive network effect.