Thursday, August 10, 2006

How one venture capitalist looks at business models

A Venture Captalist points to Union Square Venture’s post on data defensibility:

We do not expect IT enabled services businesses to have strong patent positions that would prevent anyone from entering a market. Instead, we look for defensibility in data.

We would argue that the network effect that makes it difficult to compete with Craigslist or eBay is based on a proprietary data asset. People go to these sites because they have lots of listings. This is a data asset. But it is not their only data asset. The systems for controlling reputation and spam at eBay and Craigslist are also built on a valuable data asset. As these systems accumulate data over time, they increase the value of the service and make it more difficult for newer services to deliver an equivalent experience.

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