Q: So what’s a full stack startup? You’ve mentioned that it’s a new, important trend, and a pattern of startups we’ve been seeing over the past couple of years.
Chris Dixon: The old approach startups took was to sell or license their new technology to incumbents. The new, “full stack” approach is to build a complete, end-to-end product or service that bypasses incumbents and other competitors.
A good example from big companies is Apple versus Microsoft. For years, Microsoft just built pieces of the stack — the OS, apps — and relied on partners to build semiconductors, cases, assembly, do retail etc. Apple does everything: they design their own chips, their own phone hardware, their own OS, their own apps, the packaging, the retail experience etc. Apple reminded the world that you could create a really magical experience if you did many things well at once.
Q: For example?
Dixon: I think a good example is ride-sharing, like with Lyft and Uber.
Before these companies were started, there were multiple startups that tried to build software that would make the taxi and limo industry more efficient. Then they went out and knocked on the door of taxi companies and pitched them on their software.
For a variety of reasons, it didn’t work. Taxi companies weren’t thinking about software as a competitive advantage. They didn’t have the appropriate cost structures or anyone to even evaluate the software.
So when technology startups tried to inject technology and software into that industry, it didn’t take.
Companies like Lyft and Uber said: “You know what? Instead of trying to sell software as an add-on, we’re going just going build the whole service using our modern software.” They asked: What would this industry look like if it were rebuilt from scratch using technology we have today?
Once they brought this technology-infused product to market, consumers and drivers loved it. It’s basically taking over, and those companies were started just a few years ago.
Q: What are the advantages of building the end-to-end experience yourself?
Dixon: Well for one thing, as I mentioned earlier, the full-stack approach lets startups bypass incumbents and overcome cultural resistance to new tech.
Another advantage is that full-stack startups can capture a greater portion of the economic benefits they provide. Before, the product and services they provided might have been quite valuable, but with no relationship with the end customer, it was hard to get paid accordingly or to collect the right data back to improve their products.
Finally, for end users, full stack startups deliver a much better experience, because they have complete control. It’s the difference between buying a beautiful, pristine Apple product versus a crappy Frankenstein PC cobbled together from dozens of vendors.
Q: Okay, so isn’t all this the same as being “vertically integrated”?
Dixon: I don’t think full-stack startups are vertically integrated in the classic sense. This isn’t an oil company buying a supplier; it’s a tech company building the complete experience and wrapping “non tech” functions around the tech to go after existing companies. In my opinion, “vertically integrated” is an overloaded phrase at this point and therefore not very useful.
But I kind of regret calling it “full stack”, to be honest. It was just a metaphor, it was meant to be kind of a whimsical allusion to the programming phrase. “End to end” might be a good name. Another existing phrase that fits the concept is Bill Davidow’s “whole product”.
Q: Besides the examples you shared already, what are some other examples of full-stack startups?
Dixon: Altschool, Buzzfeed, Harry’s, Nest, Tesla, Warby Parker.
Q: So what’s going to happen next?
Dixon: I think we’ll start to see many more industries that have mostly resisted technology finally stop resisting now that startups have figured out the right approach to take here.
The big, obvious industries include: education, healthcare, food, transportation, and financial services. All the areas of the economy where prices have outpaced inflation due to lack of technology.
Q. What are the main challenges for full stack startups?
Dixon: Full stack founders care about every aspect of their product/service, so they need to get good at many different things besides software — hardware, design, consumer marketing, supply chain management, sales, partnerships, regulation, etc. It takes a special kind of founder to do this.
The good news is if they pull it off, it will be extremely hard for competitors to replicate all those interlocking pieces. There will be some very big companies created using the full-stack approach.
— drawn from the original post by Chris Dixon (with thanks to the commenters for their questions), podcast, and other interviews. [See also: this tweetstorm from Balaji S. Srinivasan for additional thoughts on the trend.]
The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation.
This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments and certain publicly traded cryptocurrencies/ digital assets for which the issuer has not provided permission for a16z to disclose publicly) is available at https://a16z.com/investments/.
Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see https://a16z.com/disclosures for additional important information.