Build on protocols (not necessarily blockchains)

Posted by on May 16th, 2018

Investing in fat protocols is all the rage in the startup world today. Still, investing in protocols is nothing new. Web 2.0 startups came to life thanks to the Web open & standard (šŸ™) protocolĀ  (HTTP, HTML, CSS, AJAX). Before that, many networking companies bet their existence on the TCP/IP stack, when others put their bets on private non-standard networking protocols that ended up in the trash bin of computer history.

Human decisions are driven by transaction costs. Understanding an outlier or a non-consensual idea or protocol takes a toll on our energy reserves, and we are made for energy preservation. Over time, many new ideas flourish and appear to win the race, however, in the long run, people tend to consolidate on protocols that lower the barrier of communication. The power of these protocols are all around us and extend way beyond bits & bytes.

Humanity has been consolidating over a few protocols over the centuries. Think about how many religions, languages and political systems gave their place to the ones we know today. Some of the first global protocols areĀ šŸ› Latin (language),Ā āœ Christianity (moral system) and šŸ„‡Gold (store of value) to being replaced byĀ šŸ‡¬šŸ‡§ English,Ā šŸ’» Internet, andĀ ā‚æ Bitcoin, in my naive opinion. Other widely used protocols are the standard gauge railway,Ā the 220V electricity networkĀ or the RCS messaging system.

The world of business is no stranger when it comes to consolidation. Businesses more than anything else are averse to high transaction costs, uncertainty, and tribal knowledge. This is the foundation on which Open Source came to dominate the modern enterprise. Wide collaboration, vendor lock-in avoidance and permissionless innovation are just some of the core benefits of open source systems as protocols for information processing.

But it’s not only the code that makes a protocol. Actually, we should look way back on the primitives of a new language/protocol or process. How is a protocol formed? At a minimum, a set of various stakeholders agree that there is a problem and try to build a common vocabulary to define the problem and its proposed solution. Various neutral organizations are set up to manage the complexity of reaching consensus on widely supported proposals that will become the new protocol. Most probably you have heard of W3C, the Apache Foundation, the Linux Foundation, the Cloud Native Foundation, etc.

At Marathon Venture Capital we believe that there lie immense opportunities for innovation and value creation. When competing organizationsĀ agree upon a definition of a problem, then there are two things you should take for granted: the problem is huge and a solution/product is badly needed.

In the enterprise space, a lot of companies have been built on top of open standards and protocols such as the Web, OAuth, OpenID, ANSI SQL, several Apache projects like Hadoop, Kafka, and Lucene. The amount of innovation that sprouted in such places is astonishing. Below I will highlight some of the incubating protocols and specs that I am really interested in and I believe have greatĀ potential. We will need startups to implement them, offer enterprise versions and ride the flywheel as the market adopts the new standards.

  • Apache OpenWisk, a serverless platform that was started by IBM.
  • OpenEventsĀ is a specification for a common, vendor-neutral format for event data.
  • OpenTracing describes vendor-neutral APIs and instrumentation for distributed tracing.
  • OpenCensus is aĀ single distribution of libraries for metrics and distributed tracing with minimal overhead that allows you to export data to multiple backends.
  • Open Container Initiative is a lightweight, open governance structure (project), formed under the auspices of the Linux Foundation, for the express purpose of creating open industry standards around container formats and runtime. Containers won’t be a one size fits all and prime example is balena (a container engine for IoT) by resin.io.
  • IPLD creates specs for the content-addressed, authenticated, immutable data structures.
  • W3C WebAuthnĀ defines an API enabling the creation and use of strong, attested, scoped, public key-based credentials by web applications, for the purpose of strongly authenticating users. Let’s kill the passwords already.
  • W3C InterledgerĀ is an open suite of protocols for connecting ledgers of all types: from digital wallets and national payment systems to blockchains and beyond.

It’s safe to say that not all of these protocols are going to succeed. Still, riding a wave, i.e. a protocol with fast adoption like OpenTracing is a meaningful bet for your startup. For example, developers are talking about observability in their cloud-native applications and monitoring is built into the new applications versus the existing quo of relying on proprietary solutions offered by vendors like New Relic and Appdynamics. Since the market is shifting to a standard protocol your newly created application monitoring startup should embrace it. Replicating the playbook of the existing vendors is like selling steam engines when factories started installing electricity wires.

If you are starting up today, spend some time exploring existing and incubating protocols or open source projects. Look for growth signals and put your efforts behind something larger than you. Hopefully, you will be riding the right wave as the industry is shifting and converging over the new gospel.


Also published on Medium.

We help ambitious founders build world-class companies

Ā© 2017 Marathon Venture Capital