Consumer startups are dead. Long live consumer startups.

Eric Feng
13 min readJul 22, 2018

“It is a dark time for the Rebellion”

— The Empire Strikes Back

Ten years ago this month on July 10, 2008, Apple first unveiled the App Store and kicked off one of the greatest periods of product innovation, entrepreneurial achievement, and disruption of the establishment we’ve ever seen, namely the Consumer Rebellion. Like what the Internet Rebellion had done 10 years before, the Consumer Rebellion would spawn startups that evolved from tiny companies into titans of industry, all fueled by the introduction of a new computing platform: the smartphone. In 2008 there were 237 million smartphone users. 5 years later that number would grow more than 6 times to 1.4 billion. And today there are almost 3 billion smartphone users. To provide some context as to how impressive that growth is, the smartphone is arguably the fastest spreading technology in the history of all technology.

Who was a member of the Rebellion? In 2009, Pinterest, WhatsApp, and Uber all launched. In 2010, Instagram and Xiaomi. In 2011, Snapchat. And in 2012, Toutiao. These are some of the most iconic consumer companies around, that touch more than a billion mobile users every day and have become fundamental parts of our society, all founded in consecutive years between 2009 and 2012. Truly once-in-a-generation, outsized consumer businesses, that made eleven figure valuations seem routine, were somehow being started every single year for four years straight. This was as hot of a streak as you can possibly have.

The Consumer Rebellion was in full force. It was unstoppable. Until 2013 at least.

The Golden Age

To illustrate the timeline of the Consumer Rebellion, let’s look at data courtesy of the good people at Crunchbase. I’ve queried all consumer unicorns (consumer startups that have achieved a lofty billion dollar valuation) since 2005 and plotted them by their founding date.

As expected, there’s a steep spike starting in 2009, exactly when the mobile app economy began with the App Store launch and subsequent founding of consumer giants like Airbnb and Instagram. But curiously, there’s a similar steep decline in 2013 forming a nice bell curve. This golden age of consumer startups emerged from 2009 to 2012 and then declined afterwards.

But maybe the picture is simply incomplete. Companies take time to develop right? For example, a great consumer startup founded in 2018 will take several years to mature and grow in value so obviously there will be fewer consumer unicorns this year simply because of the time horizon we’re looking at. Yes, there’s definite truth to that point. When evaluated in the fullness of time, there will absolutely be more than zero consumer unicorns from this current 2018 vintage.

But that doesn’t explain the decline in 2013 and 2014. Those companies have now had 4 or 5 years to develop, which is a long enough period to allow for the winners to have separated themselves by now. In other words, the unicorns of the 2013 and 2104 vintages of consumer companies should have matured already, and the number of consumer unicorns won’t change substantially even if we wait several more years.

To illustrate that point, let’s look at the same chart but add in enterprise unicorns.

The rate of hit enterprise startups has been quite consistent, which makes this Golden Age for consumer startups — the Consumer Rebellion — even more apparent. But the most interesting thing is what happened in 2013 and 2014. As the number of consumer unicorns declined steeply, the number of enterprise unicorns held up. In other words, enough time has passed for hit enterprise startups from 2013 and 2014 to break out, making those vintages mature. Yes, it’s probably too early to tell how companies founded between 2015 and 2018 will ultimately perform and we’ll see more unicorns emerge from those vintages in the fullness of time. But it’s not too early to draw conclusions for companies founded in 2013 and 2014, both enterprise and consumer.

And the conclusion I’m drawing is that the odds of success for the Rebellion got a lot worse starting in 2013.

The Empire Strikes Back

Although the past 5 years has certainly produced some great consumer startups, it has not kept up with the record pace of the hot streak from 2009 to 2012 that was the Consumer Rebellion. Again, many of the best consumer startups in the history of consumer startups were founded in that remarkable four year span. Think Uber, Pinterest, and Snapchat and that leads to the question of where is the next Uber, the next Pinterest, and the next Snapchat?

What happened to the Consumer Rebellion? Did the underlying consumer behavior around the growth of smartphone usage change? The answer there is absolutely not. Mobile usage is stronger than ever with more than 1.5 billion new smartphone users added since 2013. But the primary beneficiary of that consumer demand in mobile has changed. The startups of the Rebellion benefited tremendously from 2009 to 2012. But from 2013 on, the spoils of smartphone growth went to an entirely different group: the Empire.

The Empire are the market leaders of consumer tech, the establishment, the once underdog David’s who are now the dominant Goliath’s. This includes the original Rebellion pioneers like Uber, Pinterest, and Snapchat that have now graduated from promising startups to bonafide industry giants. But no one embodies the Empire more than the vaunted FAANG: Facebook, Apple, Amazon, Netflix, and Google.

In 2008 when the App Store first launched, not a single member of FAANG was among the Top 30 most valuable companies in the world by market capitalization. Fast forward ten years, that group of five has collectively increased in value by approximately 3 trillion dollars such that all but one of those companies (Netflix) is now ranked among the Top 10 most valuable companies in the world. And that laggard (Netflix), happens to be the fastest growing amongst all of FAANG, having increased its market cap by 100 times since 2008.

But more interesting is when you look at when that rocket ship growth happened. 80% of the value of FAANG was generated after 2013. Here’s a chart that illustrates this:

The growth before 2013 was impressive, but the growth after 2013 has been absolutely explosive. And in the above chart, I had to even leave out Netflix because when you add in their growth since 2013, the slope is so steep that it makes the other companies look nearly flat!

Also consider that in the past five years, Snapchat has grown 20,000% in value, Toutiao 10,000%, Uber 2,000%, and Pinterest and Xiaomi 600%. And Instagram’s estimated $100 billion valuation estimate makes it one of the most successful corporate acquisitions ever with an astounding 10,000% valuation gain. So it’s not just FAANG. For the startups who were able to break out before 2013, the last five years has widened their lead. Whereas 2009 to 2012 created new market leaders, 2013 to 2018 reinforced established market leaders.

Network effects, distribution, and talent oh my!

The Rebellion has stalled and the Empire has absolutely dominated the post App Store world. Why? What contributing factors led to the Empire striking back so thunderously?

It starts first and foremost with the network effects that the Empire has that translated so well to the smartphone. The world has seen dominant consumer companies before — from Walmart to Disney to Nike to AOL — but never consumer companies that had this ability to connect all their mobile users together for the benefit of the entire ecosystem. More Snapchat users leads to better content shared and choices for people to instantly communicate with (direct network effect). More Apple iPhone users leads to better network infrastructure like 4G that improves the mobile experience (indirect network effect). More Uber drivers leads to cheaper and faster rides for passengers (two sided network effect). And so forth. The Empire grows stronger with every like, share, click, ride, pin, post, watch, buy, publish, and subscribe.

Next, every consumer company obviously needs consumers to be successful, and the Empire has unparalleled distribution advantages. Facebook and Google’s distribution power is obvious and it’s no coincidence that those two companies have 11 products between them that each have more than 1 billion monthly active users. But Netflix and Amazon also have tremendous distribution advantages. Netflix retains their subscribers better than anyone in the business — less than 1% cancel each month, which is about 5 times better than other video subscription services. That allows them to spend more for each subscriber (about $100) than other services because subscribers will stick around longer to payback that marketing expense. Amazon has launched 100 private label brands and grown them quickly because they can redirect shopping traffic towards their own products. For example, Amazon’s private label isn’t just the preferred option when purchasing batteries through Alexa; it’s the only option. So perhaps not as obvious as Facebook and Google, Netflix and Amazon’s distribution powers are just as potent.

Finally, it takes world class product and engineering talent to build great consumer products and the Empire has amassed one of the largest and most talented army of builders in the world. Amazon is the single largest spender in the entire country on research and development at $22.6 billion dollars last year. Apple, Google, and Facebook aren’t far behind as all three rank in the Top 10. And not only is the Empire army the biggest on the field, they are also given unique insights and capabilities that no one else has. For example, Apple iOS application engineers can utilize features of the platform (known as private APIs) that other mobile developers are not allowed to use in their apps.

A network effect to engage your users, AND preferred distribution channels to grow, AND the best resources to build products? Oh my! It’s no wonder why the Empire has captured so much smartphone value and created a dark time for the Rebellion.

Consumer startups are dead. Long live consumer startups.

As a consumer startup investor, it’s humbling how hard it is to determine what are the right consumer companies to invest in and then go earn the privilege of working with those talented entrepreneurs. Most of the investment decisions we make end up being wrong. But when the decision is right, that right can be a really big success. In fact, investors depend on that right decision being outsized to make up for all the wrong decisions we inevitably make along the way. That’s just the nature of our business — it’s hits driven — which is why I take particular interest in understanding if there’s something limiting the creation of hit consumer companies. Is the Consumer Rebellion over? Has the Empire put an end to the next wave of breakout consumer startups being founded?

One word: no.

The Empire’s advantages — network effects, preferred distribution channels, and talent resources — are incredibly formidable, but not insurmountable. Let’s try and overcome them one at a time.

Network Effects

The network effects of the Empire are arguably their most frightening advantage. The value provided by network effects grows exponentially. And at the scale of the Empire companies, the user benefits are so tremendous that it’s incredibly hard to build an alternative that delivers enough value to be competitive.

So what’s the solution? Simply avoid competing.

Mobile users are so savvy and product fluent these days that they are comfortable using multiple services simultaneously. The average mobile user:

Again, that’s the average user (not just the advanced users) who is regularly switching between multiple services instead of staying on a single service, even in the categories that the Empire dominates. So to gain traction in a consumer category, a disruptive startup does not have to defeat and displace an incumbent defended by a network effects moat. As Sun Tzu once said, “On contentious ground, attack not”. A startup can avoid the direct battle and exist alongside the incumbent because users have proven capable and willing of adopting multiple services.


The App Store Top Free Apps list is a barometer for consumer startup success. Every great consumer company since 2008 has appeared on this list so it is closely watched by investors, entrepreneurs, operators, the Rebellion, and the Empire alike. In the beginning, the Top Free Apps list was dynamic, constantly changing with promising contenders for the attention of users. But again, something changed in 2013.

Below, I’ve looked at one day (July 1st) for each year since 2013 and plotted how many new, non-gaming apps made it into the Top 100 and Top 500 apps in the United States. I defined “new” as being launched within the past 2 years, and I excluded gaming apps because rankings fluctuate so heavily for gaming apps that appearing on the list is not a consistent indicator of success.

The trend is clear. On July 1, 2013, there were 171 promising new apps ranked on the Top 500 and 29 that broke through into the Top 100. So while the popular apps were mostly incumbents, new startups occupied 30% of the top spots so there was still competition to be an icon on a user’s phone. But on July 1, 2018, those numbers had dwindled to 55 in the Top 500 and only 4 that cracked the Top 100 list. Now startups are fighting for only 5% of the top spots as the Top Free Apps list is dominated by incumbents. Facebook (4 apps), Google (6 apps), and Amazon (4 apps) EACH have as many apps in the Top 100 list as all the new startups combined.

While the percentage of new apps in the App Store most popular lists is low, the key is that it’s not zero. Every day, a small number of new apps still continue to fight the good fight for consumer attention, and even occasionally win. Here are a few apps that launched in the past 3 years that hit number one in the App Store for at least one day:

  • Sarahah
  • TBH
  • FaceApp
  • Hooked
  • Face Swap Live

These companies didn’t just reach number one in a specific category. They hit number one overall, the single most popular app in this entire country, more popular for that moment than the mighty Facebook, Instagram, Snapchat, and YouTube. Over that time frame, there were dozens more consumer apps that made it into the Top 10, capturing the attention of millions of people.

5% may be a small percentage, but again it’s not zero and even more important that 5% rate has held constant for apps in the Top 100 list over the past 4 years. While the door isn’t open as wide as it was before, it’s still open and holding open. Consumer startups still have a chance. For entrepreneurs, a chance is all that we ask for. And in a Rebellion, a chance is sometimes all that’s needed.


If you go to LinkedIn and search for people with “product” or “engineer” in their job title at any of the FAANG companies, you’ll get about 100,000 results back. That’s a very intimidating number. And the actual number is surely higher than that, and there far more companies in the Empire besides FAANG who all have armies of builders of their own.

Back when I worked at Microsoft, resourcing was both a sign of success and an indicator of success. Your project wasn’t important unless you had a hundred engineers working on it, and it wasn’t going well unless you were getting even more headcount each year. But a wonderful thing is happening with product development: technology is making creating technology easier and cheaper. The Internet got rid of long development, testing, and maintenance cycles that came with dealing in physical media. Cloud and virtualization got rid of having to purchase and operate server hardware. Service based architecture and open source got rid of having to build every part of your product from scratch because you could efficiently leverage the work of others.

Because of the rapidly decreasing time, resources, and costs involved, everyone has a chance to build great products, both the Rebellion and the Empire alike. Technology is no longer a numbers game, and it’s more accessible than ever before, which blunts the resource advantage of the Empire. Take for example Intermedia Labs, the talented team behind the hit app HQ Trivia. In less than one year, they released 3 high quality apps (Hype, Bounce, and HQ Trivia) all funded by a single round of venture funding with an engineering team less than 10 people. Not to be outdone, the folks at Joya Communication released 6 different apps (Cleo Video, FlipLip, Any Video, Evercam, Joya Video, Video Gems) in 3 years before landing on their 7th, the hit app Marco Polo. And that was also on on a single round of funding with a similar small team.

To paraphrase the The Six Million Dollar Man, companies of all shapes and sizes, startups and incumbents alike, have access to the technology. We can rebuild the Consumer Rebellion.

The Return of the Consumer Rebellion

No one ever said entrepreneurship is easy. Startup success is hard to achieve, and consumer startup success is more challenging than ever given the dominant positions of the current crop of market leaders. The world of industry has never seen incumbents before with this much talent, scale, profitability, and ambition, driven to heights previously unimaginable by powerful network effects. What chance does any new company have against such a daunting opponent?

Yet looking back through history, IBM was the pinnacle of a technology success until Microsoft, which was the pinnacle of a technology success until Google, which was the pinnacle of technology success until Facebook, and so on. Less than a decade ago, we witnessed one of the greatest hot streaks ever for consumer startups, the Consumer Rebellion. An entire crop of amazing companies grew from humble beginnings to world changing forces not that long ago. Now there are reasons to believe it can happen again, from consumers adopting multiple services, to apps still becoming breakout hits overnight, to technology becoming more accessible to builders of all shapes and sizes.

So was the Consumer Rebellion from 2009 to 2012 the last hope for consumer startup success?



Eric Feng

Current: Co-founder of @cymbalxyz, Co-founder of @GoldHouseCo Ventures. Past: @Meta (via Packagd), GP at @KleinerPerkins, and CTO of @Hulu and @Flipboard.