I've been listening to Acquired's latest podcast episode on Microsoft. It'll be a multi-part series and the first part covers the inception to the Windows 95 era: https://overcast.fm/+_ztx-Hwf8
At the risk of sounding like a Baggy, I can't help but draw similarities with Audinate.
In the episode, Microsoft was described as the Visa to Apple's Amex. The trade off here is perhaps having a slightly inferior experience when compared to a vertically integrated solution, but being able to grow much faster by leveraging the capabilities of partners. Visa and Mastercard, by being an open network, were able to leverage the distribution and balance sheets of banks to scale and build up a payment network faster. Microsoft wasn't bogged own by having to build hardware but instead rode the back of IBM and IBM-compatible PCs. Bill Gates once said that a thriving ecosystem is one where you're generating more revenue for those around you, than you are taking yourself. And this is what Microsoft did in the 80s/90s. Microsoft enabled a whole ecosystem that made its partners very rich and successful - Dell, Compaq, Gateway, Intuit, Adobe, etc.
There are similarities here with ProAV and Audinate. The vast majority of revenues are going to manufactures of amps, speakers, mics, mixers, and now cameras, video encoders/decoders. But Audinate is sitting in the middle, making them all interoperable and helping the hardware manufacturers fight the Amexes and Apples of the industry (Creston and Extron) and shift more units.
Microsoft's big break came in 1981 with the launch of the IBM PC. IBM didn't have an operating system, and commissioned Microsoft - who at the time was supplying IBM with some programming languages - to solve for this. Microsoft acquired QDOS (quick and dirty operating system) which was repurposed into MS DOS. DOS spawned a whole industry of IBM clone machines and desktop software developers, Microsoft became more powerful than IBM, and the rest was history.
Audinate's big break came in 2009 and 2012, when Yamaha first became a customer and later took an investment in the company and became more active in its promotion. Unlikely the Microsoft and IBM, Yamaha was well aware of the interoperable story (where IBM was blindsided), took an equity stake in the company and continues as a partner/investor today. At the time of the IPO, Yamaha was 22% of revenues and this is now down to 6% as of the FY23 results.
I find these success stories facilitating. My personal takeaways:
- True ecosystem plays are rare. It's hard to think of companies, with a diverse set of partners, and creating immense value for all of them.
- In the network-effect game, companies that can leverage the distribution, capital, know-how of its partners can build up networks the fastest and win. Visa leveraged banks, Microsoft with IBM clone manufacturers and Audinate with ProAV OEMs/ODMs.
- A company's break out moment can come through the anointment by an dominant industry player. It was IBM for Microsoft and Yamaha for Audinate. Steve Balmer called it "ride the bear". "You just had to try to stay on the bear's back and the bear would twist and turn and try to buck you and throw you, but darn, we were going to ride the bear because the bear was the biggest, the most important you just had to be with the bear, otherwise you would be under the bear in the computer industry, and IBM was the bear, and we were going to ride the back of the bear."
Anyone know of any companies sitting in the middle of fledgling ecosystems and "riding the bear" right now?