Facebook just bought Gowalla . And they’ve announced a New York office.

These events aren’t specifically related, but they illustrate the same principle. Why would Facebook invest in:

  • Gowalla lost the checkin war. As Foursquare’s Engineering lead put it, “Once you’re beating someone by a factor of over 100:1 you move on to other things.”
  • New York is one of the worst hiring markets imaginable for high-tech employers: Finance can compete by offering better pay packages, the massive angel community can offer more independence and equity, the cost of living is higher—and conspicuous consumption in New York tops out far, far higher than in the Valley—plus, Google is competing for the same engineers, and has a massive head start.

But they illustrate the same principle: Facebook has to be the high bidder some kinds of talent (design talent in the case of Gowalla, engineering talent&madsh;especially of the big-data-low-latency sort—in the case of New York). Nobody else can amortize the same effort over more end user-minutes or marginal advertiser-dollars.

For a few companies, consumer web M&A unfolds with the elegance and retrospective obviousness of a mathematical proof. Where could sharp designers end up except at the company that needs them the most? Who would outbid for that real estate, and the people who will work there?

Other industries might work this way, but the consumer web has an intrinsic difference: everything happens in public, and the people who make buying decisions are also early adopters. Mark Zuckerberg could almost certainly poll plenty of people he trusted and ask: “What was Gowalla’s first draft like? Do they learn? How do they figure out novel UI problems?” Exxon might want to hire geologists the way FB hires designers, but Exxon’s CEO can’t as easily ask his buddies about some of the geologists they’ve worked with lately.

This model has some interesting implications for the hiring and M&A environment for consumer web startups: for exceptional teams whose product part of a product stack whose monetization end is an obviously dominant player like Google or Facebook, there will be:

  • Fantastically remunerative jobs: Both big players keep scaling up, which increases the amortization factor.
  • An easy early-stage exit strategy: The Acqui-hire is basically a put option for investors.
  • Access to funding: Between early-employee bankrolls, ex-employee networks, and the acqui-hire put, it’ll be easy for investors to justify high early-stage valuations.

Long story short: tech talent will be relentlessly dragged towards the top 1% of the income distribution.

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  1. [...] week’s Gowalla acquisition illustrated another weird facet of talent acquisitions: the potential conflict that arises when a [...]

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The Strange Math of Scale on the Web