Winning the “Gorilla Game” in Blockchain
UDC Story — Insights from UDC 2018
August 9, 1995. Netscape is listed on the NASDAQ. That’s a web browser company that doesn’t today. The offering price was $14, and the first trade started at $28, exactly twice that. At one time during the day, the price soared to $75. No one knew at the time, but this was the opening act of the dotcom bubble.
Netscape founder Marc Andreessen became a billionaire at the age of 24, earning comparisons to Bill Gates. Time magazine featured Andreessen on the cover for their February 19th issue the following year. It had him sitting on a throne, smiling arrogantly. The title of the article was “The Golden Geeks.”
◇ Do you know Netscape? Then you might be old
The Internet was first developed in 1960 for the military, not spreading to the mainstream until the establishment of the TCP/IP protocol. The World Wide Web (WWW) was born in 1991, developed by Tim Berners-Lee. At the time, it lacked the intuitive appearance of today, and the Internet was an exclusive property used by a small minority.
While attending the University of Illinois, Andreessen was employed as a part-time programmer for $12 an hour by the National Center for Supercomputing Applications (NCSA), a research laboratory within the school. There, he was able to use the World Wide Web, aka the Internet. It was an eye-opening experience, and he felt that more people would be able to use the Internet if graphics such as images and icons were added to the text-only browsers.
Three months later, he developed the ‘Mosaic’ web browser with his colleague Eric Bina. It was similar to the Internet of today, and Internet users increased by 342,000% during 1993 alone, the year Mosaic became available. In his article submitted to InfoWorld magazine in 1995, American electrical engineer Robert Metcalfe noted that “With the first-generation web, a few people realized that the web was better than the ‘Gopher protocol’ because of the URL, HTTP, and HTML developed by Tim Berners-Lee. With the second-generation web, a few million people began to think that the web was better than sex because of Mosaic, developed by Marc Andreessen and Eric Bina.”
Once the NCSA claimed that the program was school’s property as it was developed while he was a student, Andreessen left after graduation, rejecting the offer of a full-time job. He went to Silicon Valley and met Jim Clark, a professor at Stanford University. Having recognized Mosaic’s potential, Clark invested his life savings of $4.4 million to establish Netscape Communications. This new company created ‘Netscape Navigator,’ which took on the role of navigator during the early days of the Internet.
After its launch in October 1994, the market was reorganized around the Navigator. Mosaic, having reached a 90% share of the web browser market at its peak, was soon destroyed by its creator, Andreessen. Due to its immense popularity, Navigator became synonymous with the Internet, and Netscape triumphantly debuted on NASDAQ in 1995 despite not having made a cent of revenue.
◇ Finding the gorilla amongst the monkeys
The Gorilla Game, written by American venture specialist Geoffrey A. Moore and other authors, was published in 1998 during the height of the dotcom bubble. It introduced the principles and techniques of making money by investing in advanced technology stocks.
The investment strategy is simple: In tech-centric exchanges like the KOSDAQ and NASDAQ, there is one baby gorilla and numerous baby monkeys. It’s difficult to differentiate between the gorillas and the monkeys, but if you recognize the gorilla one step ahead of everyone else, you can make an enormous profit. A gorilla is a company that has ‘discontinuous innovation’ technology, meaning it has something that has never existed before, rather than technology that will gradually improve.
The Gorilla Game is comprised of 5 steps.
First, find a tech market that is entering a rapid growth phase.
Second, put all candidates that could be gorillas into a basket.
Third, if a definite gorilla appears, focus the whole basket on that gorilla.
Fourth, stay with gorilla long-term without wavering regardless of market circumstances.
Fifth, sell the gorilla immediately if an alternative technology and/or product appears.
At the end of the 90’s, the Internet was a definitely a tech market that was entering a rapid growth phase, or a gorilla habitat. Discontinuous innovation technology was anticipated for the web browser category, and Netscape was definitely the gorilla.
Soon, Microsoft jumped into the market. Bill Gates viewed the Internet as “the most important development since the introduction of the PC by IBM in 1981”
On December 7, 1995, Microsoft held a strategy workshop with the press in attendance. It was held on the exact date of the 54th anniversary of the Japanese air force attack on Pearl Harbor. Gates gave a speech detailing the change in Microsoft’s role and his views regarding the Internet. He announced that Microsoft was going to jump into the web browser market full-on and, despite being a latecomer, transform the browser market by using its OS market share as a weapon.
After his speech, Netscape stock prices fell by 17%, and they never curved upwards again. Losing ground in the browser war, Andreessen eventually sold Netscape to AOL in 1999 for $4.2 billion.
If Netscape had not existed, browsers such as Explorer, Chrome, and Firefox would not have been developed so easily. Netscape became the foundation for the popularization of the Internet. It was definitely a gorilla, but it lost its competitiveness when an alternative product appeared. From an investment viewpoint, the fifth stage strategy of the Gorilla Game should have been used on the day Bill Gates announced his Internet strategy. Those investors who stopped at the fourth stage, believing Netscape was still the gorilla, lost the game.
Still, having sold the company before it was too late and holding a lot of cash, Andreessen went on to start his next venture with Ben Horowitz and Tim Howards. In 2000, they established ‘LoudCloud,’ a company that provides cloud services. In 2002, the company was renamed as Opsware and developed IT solutions such as automated data center management solutions. In 2007, the company was sold to Hewlett Packard for $1.6 billion.
After selling Opsware, Andreessen founded the venture capital ‘Andreessen Horowitz.’ Venture companies that received investments from his VC include Facebook, Foursquare, Github, Pinterest, and Twitter. Perhaps due to his personal experience in raising a gorilla, Andreessen has shown exceptional ability in identifying the gorilla amongst the monkeys. Just 46 years old as of 2018, he has become a Silicon Valley living legend.
◇ Who is the blockchain gorilla?
Some view blockchain and cryptocurrency as nothing more than a ‘convoluted and elegant scam’ but many certainly view it as a discontinuous innovation technology. Dunamu & Partners CEO Ryan Lee definitely belongs in the latter category, as he made clear during his presentation at UDC 2018.
“Similar to the Internet, blockchain is a promising technology with huge potential. Looking at the growth shown by major Internet services like Google, Amazon, and Yahoo, blockchain protocols are expected to show similar value increases. The goal of Dunamu & Partners is to identify projects that have comparable growth potential and execute investments to help them grow.”
Lee views social and sharing services, as well as payment, asset tokenization, and games as the four industries that are likely to produce gorillas in the blockchain habitat.
Social and sharing services are platform businesses, meaning stakeholder participation must increase for them to succeed. However, for existing centralized services, stakeholders are not considered at all. For a platform business to succeed, incentives must be provided to stakeholders to entice them into active participation. It would be similar to offering incentives to Facebook user for writing posts and contributing to the growth of the Facebook ecosystem.
At the protocol stage, blockchain-based projects are more attractive when compared to existing projects that don’t have incentives. This is one reason why Dunamu & Partners invested in TTC Protocol, a decentralized incentive-based social network protocol. Still, investments are not made in companies that are in the service (or application) stage, because providing incentives is not enough to shift users from global platforms like Facebook.
The payment field tends to require financial licenses. Even though existing businesses are lacking, it is fundamentally difficult for a new player to enter the market unless the existing business structure changes. Of course, the financial industry is notorious for its slow acceptance of change. One major goal of using blockchain is to remove the unnecessary middlemen. Dunamu & Partners is an investor in the stable coin project Terra, which aims to lower credit card transaction fees by more than 50%. However, the company is cautious in investments regarding projects that provide actual payment services similar to credit card companies. This is because the bar to compete with licensed institutions is incredibly high due to strict regulations.
Asset tokenization falls under security tokens. Stocks are devices that have securitized the cash flow generated by companies. It is inefficient to insist on using an exchange system made several hundred years ago, and it’s highly questionable whether a system where just one person must have ownership of a real estate property and the ownership can only be recognized by going through the registration office is indeed the most efficient compared to tokenized assets utilizing blockchain technology. Of course, it will take time for universal regulations to be put in place, but Dunamu & Partners is taking the long-term view and investing in the blockchain-based wallet service provider RootOne at the protocol stage and blockchain-based investment bank platform Finhaven at the service stage.
As for games, the field offers all the best strengths of blockchain technology combined with key aspects of social and sharing services, payment functionality, and asset tokenization elements. For investors, blockchain projects certainly offer the highest potential for success. With this in mind, Dunamu & Partners have invested in Kodebox at the protocol stage, as well as Nabu Studio, Dalcomsoft, and Memory at the service stage.
- “Blockchain Technology Outlook from Investor’s Point of View” by Dunamu & Partners CEO Ryan Lee
*This post is a translated excerpt from Proof of Report UDC 2018 written by Ran Ko, CCO of Join:D, a blockchain media affiliated with JoongAng Daily.