Why Marc Andreessen is Long on Bitcoin and Short on Apple Pay

Apple Pay is the next big thing that’s “freaking out” financial services companies right now, but, in the long term, bitcoin will prove to be the real innovation, Marc Andreessen has said.

Andreessen was participating in a fireside chat with Bloomberg West anchor and Studio 1.0 host Emily Chang yesterday in San Francisco on the final day of Salesforce's annual cloud computing conference, Dreamforce 2014.

This week marks 20 years since Andreessen created Netscape Navigator. He now sits at the helm of venture capital firm Andreessen Horowitz.

With the Netscape anniversary in mind, Andreessen told Chang that he anticipates more change in the payments space in the next five years than there has been in the previous 20, and that there would be two major drivers of that change: Apple Pay and bitcoin.

“What we say from our [Andreessen Horowitz’s] standpoint is that, in the long run, bitcoin is by far the most innovative and radical thing,” he said, adding:

“It’s the thing that will actually have a big impact over 20 years, but Apple Pay is the thing that’s going to have a big impact in the next three years. And the combination of those two is going to cause enormous change.”

The chicken-and-egg problem

Apple CEO Tim Cook introduced ApplePay last month, describing it as an “entirely new payments solution". Andreessen, however, diplomatically asserted that it is anything but that:

“[Apply Pay] is innovative, but in a way [it's] very consistent with the status quo. If anything, its big selling point is it doesn't require massive structural change.”

He went on to describe the dilemma that exists in today’s payments industry, maintaining that there is a network effects problem in that no one will use a new payments system until both the merchant and consumer sides of the industry embrace it fully.

“You have to get through the chicken-and-egg problem to get to the other side of universal adoption. Apple Pay is very cleverly calibrated to skip right through that […] It sort of plugs right into the existing system.”

Bitcoin is different. It’s the exact inverse of Apple Pay, according to Andreessen, but because of the same chicken-and-egg scenario, larger transaction volumes could be a long way off:

"Bitcoin is truly radical, Cryptocurrency, more broadly, is a truly radical, truly revolutionary, fundamental breakthrough in computer science, completely different way to do transaction processing, potentially a replacement for a very large amount of the status quo, but has the big chicken-and-egg challenge.”

Betting on bitcoin

Venture capital isn’t a batting-average business, Andreessen went on, but rather a "slugging-percentage" business. He remains open to the prospect that bitcoin may or may not work. For every 10 bets he takes on startups, he assumes he’ll lose five – a typically venture capitalist approach to take.

“It’s not a question of how often you’re right,” he said. “It’s a question of when you’re right – how right are you?”

Andreessen added:

“I would put bitcoin squarely in that kind of bet. I’m completely enthusiastic to take that – that’s a classic venture capital risk to take. People who understand that risk should feel very good about taking it.”

Andreessen Horowitz, he estimated, has invested almost $50m in bitcoin companies to date – including Coinbase and TradeBlock – and is actively searching for more bitcoin-focused opportunities.

Rounding off the talk, Andreessen declared his confidence in the concept of cryptocurrency and the likelihood that it would become “vitally important”.

He concluded:

“I think it will be in the form of bitcoin, but, even if it’s not bitcoin, it will be something else. Even if it’s not this year, it will be five years or 10 years. It will happen, and it will be a very big deal. From that standpoint I both do care what happens in the short term, since we have to live in the short term, but I also have tremendous faith in what’s going to happen in the long run.”