Software Is Eating Marc Andreesen

Marc Andreesen (MA) famously said “software is eating the world.” Great quote. Apparently, though, as software gobbles up the world, it’s taken a few bites out of Marc’s sanity.

At least, that’s what I conclude based on a interview with Marc regarding his plans–no, make that delusions–about disrupting financial services.

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MA: “We have a chance to rebuild the system. Financial transactions are just numbers; it’s just information. You shouldn’t need 100,000 people and prime Manhattan real estate and giant data centers full of mainframe computers from the 1970s to give you the ability to do an online payment.”

My take: Actually you do. At least when it comes to the “giant data centers” part (not that the people who work on that prime Manhattan real estate actually share those digs with mainframe computers). Marc is right: Financial transactions are just numbers. But it’s just for that reason that giant data centers are needed: To process the transactions, detect fraud, analyze trends to identify marketing and trading opportunities, etc. That stuff doesn’t happen by itself. It actually takes people to code and program those capabilities and make decisions what to do. Hence, the 100k people.

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MA: “To me, it’s all about unbundling the banks. There are regulatory arbitrage opportunities every step of the way. If the regulators are going to regulate banks, then you’ll have nonbank entities that spring up to do the things that banks can’t do. Bank regulation tends to backfire, and of late that means consumer lending is getting unbundled.”

My take: Back in 2000, while working for another analyst firm, I wrote a report called Atomizing Financial Services. The premise of the report was that trends in technology would lead financial institutions to become smaller, more focused organizations. Let me pass the joint over to you.

Banks aren’t going to be unbundled. The opposite is happening–and will continue to happen. Startups like Simple gain traction, and get acquired by a megabank.

Subscribe TodayMarc is correct that if regulators regulate banks, non-bank entities will spring up. But in the area of consumer lending, non-bank entities tend to focus more on doing things the banks won’t do–not things they can’t do. Banks choose to not lend to high-risk borrowers. P2P lending sites like Lending Club have certainly seen large numbers of loans (oops, I mean “investments”) pass through their platforms, but in the scheme of things, these loans are a miniscule part of the overall system.

There is no “unbundling” in consumer lending happening–there is some nibbling at the edges, but that’s not unbundling.

Regarding the comment about regulations, as often as regulatory efforts create opportunities for non-banks, they solidify the position of existing banks. Marc is right that bank regulation tends to backfire, but that’s attributable, in large part, to the political motivations of the regulators.

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MA: ‘‘But think about the scenario of a loan officer talking to a prospective client. To software people, that looks like voodoo. The idea that you can sit across the table from somebody and get a read on their character is just nonsense. ‘Lots of industries are changing in a similar way. There’s been a qualitative approach, and now, there’s a quantitative approach. Everybody who grew up in the qualitative approach hates the quantitative approach and considers it a giant threat.” “

My take: Can’t sit across the table from somebody and get a read on their character? Really? That’s probably exactly what Marc and his partners do when hearing investment pitches from entrepreneurs.

Funny, over the past few years, what I’ve heard from people in the industry is that lending decisions are too automated, and that the human element needs to be a bigger part of the process. But, apparently, Marc knows better than nearly everyone in the industry, so I guess we should expect him to come out with the new FICO score any day now.

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MA: “There is a growing idea in Silicon Valley that there are sources of data on consumer behavior we can use to predict creditworthiness. These will be completely different than the traditional approach to credit ratings, which are tremendously imprecise and ‘laggy.’ PayPal can do a real-time credit score in milliseconds, based on your purchase history — and it turns out that’s a better source of information than the stuff used to generate your FICO score.”

My take: Marc is right–there are sources of data on consumer behavior that can be used to predict creditworthiness. But, first of all, this isn’t new news–there are numerous startups already doing this. Second–what those startups have learned–is that new approaches have to be validated and calibrated, and, just as importantly, adopted by the institutions (bank and non-bank) who do the lending.

The bigger point here is that this is more about evolution in the industry than revolution.

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MA: ‘‘Bitcoin is like technology that’s arrived from Mars, and so regulators don’t know what to do with it. That’s a good thing. What a lot of financial technology entrepreneurs will tell you is that if you’re going to innovate in financial services, you want to do something so new and so different that the existing regulatory system doesn’t know how to react to you. That is your window of opportunity.”

My take: This is where I conclude that Marc has gone off the deep end. It’s a “good thing” that regulators don’t know what to do with it? Regulators–the ones in the US, that is–in their zeal to create a more perfect financial system have created so many negative unintended consequences, that you have to wonder if the number of people who would have suffered from no regulation is smaller than the number that have been disadvantaged from the regulations that were supposed to protect them.

The “window of opportunity” in financial services innovation is adding value to the system–not finding holes in the regulatory environment.

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Bottom line: One of the lessons I learned working at Forrester was “no ad hominem”–meaning no personal attacks. I’ve clearly crossed that line by insinuating that software has eaten Marc Andreesen’s sanity. Of course, if he hadn’t made his software-related comment, the title of this post would be different, and far less offensive.

But I’m guessing (assuming) that Marc is a big boy, and can handle some disagreements regarding his comments, and I’m hoping that the people who actually read this will not see this as too offensive.

Ron ShevlinRon Shevlin is Director of Research at . Check out more of his ideas and research on Cornerstone's And don't forget to follow him on Twitter at

This article was originally published on October 7, 2014. All content © 2018 by The Financial Brand and may not be reproduced by any means without permission.

Comments

  1. decisionscience says:

    Ron, Ron, Ron (insert emoticon for ‘shaking head from side to side’ here)….

    What is it that they say about those that refuse to learn from history…?

    Where do you get your oil changed? (—— the oil in your CAR, silly)

    2013 figures from Krex report that 27% of all oil changes were performed by quick-change franchises and 23% by new car dealerships (a third of which were obligatory to meet requirements of product warranty).

    Does it make sense that oil changes have become stand-alone? From the consumer standpoint it would certainly seem so – I mean, they are cheaper, right? So then here’s the surprising news – people that get their oil changed at quick-lubes spend almost TWICE what people spend at dealerships ($38 vs $20, same study).

    In retrospect it starts to look like car dealers should have tried a little harder to keep the oil change business they pretty much gave away because it appeared to be a mature, commoditized, low margin business (— which in THEIR hands it was).

    Adam Smith’s invisible hand theory says that complex organizational constructs made of functions that were bound together by factors rendered obsolete will release those functions to other constructs which can make more productive use of them. As car engines became more reliable, features like oil pressure gauges and the perceived need for an ‘expert’ to assess and advise on the condition of the engine and auxiliary components during routine maintenance became redundant (e.g. obsolete) and were, in the minds of consumers, ‘released’ to find a new (and better) home. And while ‘better’ can mean better price, which can create a niche, like Southwest Air, price can provide a foothold for other types of ‘better’ which can lead to a rate of defections in excess of what a heavily-overhead-laden incumbent industry (example would be newspapers) cannot withstand, and the firms therein become iliquid. At that point they generally converge (as did the newspapers and as Microsoft and Nokia have) thinking that scale MUST still be an effective defense – just to find out that the advantages of scale in the age of digitization is minimal. And at that point they pretty much go under.

    Does ANY of this sound familiar to you?

    Finally, I understand your opinion that banks are ‘different’ by virtue of legislation and regulation and all of that and thus exempt from Adam Smith’s (in this case, evil and) invisible hand. I would invite you to Google “deregulation” to get an idea of the manner and the speed with which that can change (and with slightly more effort, the degree to which those that inhabited those industries felt similarly about their comparative (in)vulnerability to consumer-instantiated change).

    I could go on (you know that), but I suspect there’s no need. This isn’t about Andreesen (or at least it shouldn’t be). Your time in the barrel has arrived and if by any remote chance you can see past the mirage of saving grace by the hands of regulation I think you’ll find ALL kinds of areas where factors which previously bound your disparate services together have become obsolete. There are already too many examples of what happens when you ignore these signs. Get back to providing oil changes that people can and will feel justified paying twice the price that they’d pay a commodity player and at least you’ll have made a start.

    Good luck – and godspeed.

  2. Re. ‘‘But think about the scenario of a loan officer talking to a prospective client.”, the VC industry will get disrupted earlier by not-having-to-sit-across-the-table-to-make-a-judgment platforms like Kickstarter and IndieGoGo than the banking industry, by P2P lending portals. After all, it should be easier for algorithms to “fail fast” and get “3 out of 10 investments right” à la VC industry than deliver reliability in the lending industry where even 10% delinquent outstandings can put the lender out of business.

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