The Web 2.0 conference (hosted by O'Reilly Media and MediaLive International) closed with an interview of Pierre Omidyar by John Battelle. Since the discussion was primarily an exploration of the goings-on at Omidyar Network, I'm posting the Cliff Notes version here.
N.B. These are paraphrased, "as told to" excerpts, NOT quotes. Still, you'll get a flavor for how Pierre talks about his vision for Omidyar Network. Though the best quote I've heard in a while did come up during this interview....John Batelle talking about buzz, and saying "I am the face of hoo-ha."
John Batelle: Why did you step back from active management of eBay?
Pierre Omidyar: eBay wasn't about building a big business; I did it as a hobby, and because it was interesting. I later wanted someone who shared my values to come in and set the company's direction. I also wanted to take some of the eBay learnings and apply them to other sectors.
JB: What did you learn after eBay?
PO: I tried to make the world a better place the traditional way, through a foundation. I then had the epiphany that in order to have an impact in the world, why should I only do that in the nonprofit sector, and ignore the business and public policy sectors? After 10 years, eBay has 150 million customers; 150 million people have learned through eBay that they can trust a complete stranger. The idea is that a business could have this very social impact - people learned in this case that they could have higher levels of trust. I see what Omidyar Network does as different from the typical VC business; Omidyar Network is more about fostering individual self-empowerment. We are putting tools in people's hands, giving people access to a level playing field, developing places for sharing interests - all of these things at eBay gave people an opportunity for economic self-empowerment that was unprecedented.
JB: Tell us about the fund.
PO: Omidyar Network is a mission-based investment fund of $400M. It's all my money. We're treating it like a new VC fund, and deploying that over the next 5 years. We're looking for businesses that can only be successful if they have a social impact. The new part as VCs is the realization that business can be a force for good. Giving more power to individuals is a fundamentally good thing. This goes back to Adam Smith, and how he looked at economies. I was struck by his analysis, and the notion that given the right environment, the pursuit of self-interest (again, rooted in the notion that people are basically good) leads to an increase in general welfare. If you look at the profit that has been generated in an economic system, you typically see an increase in general welfare. The caveat is that you do need to help foster the right environment.
We look for three things that are critical to the right environment: a level playing field, open access or fosterage of interaction that drives connection over shared interests, and participants with ownership, or 'skin in the game.' When we look at the business, we want to see if profitability is linked to this impact. We've been doing this for about a year and a half.
JB: How much rigor goes into placing money?
PO: It's pretty rigorous. Compared to traditional VC, we do see as many deals, but we have a tighter screen overall because it has to be a mission fit. This naturally limits the raw number of investment opportunities. We are not just looking for return - we are also looking to create a social impact - so we have to really examine that the business model leads to that social impact. There's lots of work in the social sector on measuring social return. The financial success of the business is evidence of social success, if the business model is right.
JB: Are we heading to another bubble? Lots of bootstrapped companies are going into the same niches.
PO: Technology has advanced such that barriers to creativity are lowered; you need less capital to do things. This naturally means more competitors, because the barrier to entry is lower. This is fundamentally good; the more people trying to compete, the better off the end result will be.
JB: Can you place all of the money?
PO: Because of the tight fit between mission and social impact, it's a challenge to place all of the money that we want to.
JB: Google is starting to look like Microsoft, cutting off opportunities for startups because they add a feature.
PO: Any company helping to build infrastructure has to be careful; you want to foster innovation. eBay has an API program, and there are over 20,000 developers that use it. 45% of marketplace listings come from the API program. This fosters innovation outside of the company's walls. We always more people outside who are innovating, so we need to keep improving the quality of the tools that we give them.
JB: Are you pleased with how eBay is doing?
PO: I would invest in them today. People have been connecting around shared interests no matter what differences they have; discovering commonality is a result that you could never have done intentionally. If you had tried via a nonprofit, it would have been impossible.
There were also a number of very good questions posed by the audience.
AUDIENCE MEMBER: Will you invest in competing organizations creating the same social good?
PO: I personally have less of a concern that the one we invested in wins, or that we can only invest in one for the space.
AUD: For-profit good requires securitization around small businesses, or other asset classes that don't exist. Are you creating these? They seem to be needed to create exchanges of value.
PO: In order for pursuit of self-interest to improve society, there has to be competition. The public sector and the government have a responsibility to foster the right environment. e.g., anyone can buy water rights. We want to help government understand its role better, and act as an intelligent investor and not distort markets.
AUD: How does social good scale?
PO: Nonprofit organizations primarily focus on their own social good rather than ROI - they tend to have more difficulty scaling than for-profit businesses. That's why I have chosen to emphasize finding businesses that only have profits with social impact. Then, get people who can maximize the profits and set them loose. That's what I did at eBay; let the professional managers get in there, and as they build the business, they are making the world a better place.
AUD: What can be done about disaster relief?
PO: We haven't looked at disaster preparedness directly. I'm personally concerned about general preparedness, but it's difficult when hit with a major disaster to respond, no matter how prepared or unprepared we are. At Omidyar Network we aren't looking at it directly.
AUD: How does FM Publishing jive with social impact?
PO: As a good investor, I let management speak! Web 2.0 is about putting tools in people's hands and letting them express themselves. We can easily accept that connecting people together is good.
AUD: There's a whole ecology of community forming around open source platforms. How can we support these ecologies?
PO: This idea speaks directly to Adam Smith's beliefs. The topic is exciting; I'm a big fan of markets and competition. I want to focus on creating the right kind of environments that have open, transparent access; skin in the game; etc. This will lead to great results.
Tags: christine herron spacejockeys technology society omidyar network Web 2.0 best practices
