Martin Varsavsky On The Sharing Economy

Starting half a dozen companies before the age of 40 has taught Martin Varsavsky, one of Spain's highest-profile entrepreneurs, some valuable lessons. Among them: it's fun and profitable to challenge monopolies. So it is no surprise that Varsavsky, who made a name for himself by disrupting the telecoms industry, would end up helping to pioneer the sharing economy, a new approach to ownership which is challenging traditional players in a variety of sectors.

A political refugee from Argentina, Varsavsky moved to the U.S. when he was 16. After earning graduate degrees at Columbia University, he tried his hand at real estate, bought a hotel and started a medical products firm. Then he switched to telecommunications, founding Viatel, a pioneer in call-back services, and began exploiting loopholes in EU regulations to challenge the continent's dominant phone companies.

Varsavsky left Viatel to start Jazztel, a telecommunications and Internet company aimed at the Spanish and Portuguese markets which today has a valuation of $1.4 billion. After his early attempt to found a cloud computing company called Einstein.net failed (he lost about $50 million of his own money), Varsavsky turned his attention to launching a Madrid-based service called Fon that would allow people around the globe to share their Wifi connections. The company attracted investment from Google, Atomico and Sequoia and has grown to eight million hotspots worldwide.

These days Varsavsky, who taught at Columbia University in NYC during the Fall and Spring semesters, is helping to spearhead Fon’s efforts to enter the U.S. market. He is also an active angel investor: he met David Karp when the Tumblr founder was just 19 and was one of the first to back the start-up, which was just sold to Yahoo for $1.1 billion.

Varsavsky recently gave  Informilo Editor-in-Chief Jennifer L. Schenker a preview of the remarks he plans to make about the sharing economy during Le Web London 2013.

 

Q: There is a strong desire among people to share and collaborate in order to make the most out of resources but sharing economy start-ups like Uber and Airbnb are starting to run into the same type of backlash from traditional players that Napster experienced when it took on the music industry. What does this say about the future of collaborative consumption?

A: The sharing economy sounds great but it gets you into trouble. Sharing is beautiful but when you start sharing things you think you own you find out you don't. The lease on your apartment might not allow you to host paying guests. When you buy music the contract might say the music is just for you or that you can’t share it with friends on a peer-to-peer basis. But then with a lot of other things, like a printed book, you can loan to as many friends as you want. These are the fundamental questions about the sharing economy: What do you own? Can you share what you own? When can you share?

Q: The uncertainty surrounding the answers to these questions is why many predicted that Fon, the Wifi sharing service you launched eight years ago, would fail — but the company managed to win over the telcos and is thriving (see the story on page 7). How did you do it?

A: It was wrongly perceived that we were going to run into legal trouble, well, not so wrongly. In those days when you were sold Internet connection you were told you could not share it. I went on a global tour to see telco heads. I told them, "yes, we are about sharing Wifi but this can be beneficial for the telcos because we can give you revenue and lower your churn because if you offer your customers the ability to share and roam the world for free they will be less likely to leave." BT was the first to end up modifying its terms and conditions to allow Fon. We thought we would be more liked by the fixed operators and disliked by mobile operators because at that point some people saw Wifi as competition to the mobile operators but then it turned out with the introduction of the iPhone that mobile operators ran into capacity constraints, so we keep teaming up with mobile operators to allow their customers to use Wifi for high bandwidth-consuming services like video and rely on all the mobile technologies when they move around. So many carriers want to work with us.

Q: Are there some lessons there?

A: I know most of the sharing economy players — like Uber, Airbnb and some others — run into legal problems all the time. If you think about YouTube in the early days it was about finding content that you liked or thought was funny or newsworthy and posting it and sharing it with other people. Then Viacom, Fox and News Corp. came along and said this is not a fair use of our content. Google responded that it was not posting all of the content, just a little bit, and that was making people excited and driving traffic to the sites of the content owners. So the debate is really when is sharing value enhancing and when is it value destroying?

Q: What advice do you have for sharing economy companies?

A: I think the key for all these companies is to understand who their allies are. In the case of Airbnb hotel owners are against it but the service will have everyone else on their side. I rent out the apartment that I own in Paris on Airbnb because we almost never go there. It is rented all the time and it has been great. It gives us a new use for the apartment and when I rent for just four or five days I get more money than I used to get. This sets up a situation of apartment owners versus hotel owners. When you launch a new business you need to know whether your allies are powerful and whether they are ready to stand by you. If you create more value than you destroy than you can rally the political power to come with you.

Q: Have you invested in any sharing economy companies?

A: I invested in the first round of 23andme, a company that allow people to discover and share genetic information, I invested in the first round of Tumblr, which is about sharing content, in busuu, a peer-to-peer service for learning languages which was started by one of my former students, and Menéame, which is the Reddit of Spain.

Q: You started companies in the U.S., then moved to Europe and launched start-ups here. Are you more bullish about the U.S. or Europe?

A: I lived in New York City for 18 years. Since I left in 1995 it has moved from being a financial, advertising and fashion center to also being a technology center.

In the future I’ll be going to New York City more but we keep hiring in Spain. It is not one or the other. Europe is good for engineering and America for financing and business development. You have to work smartly in both and leverage both sides of the Atlantic.