Does Instabase have the perfect market position?

Let’s talk about Instabase. On the surface, it’s just a document management platform. Hardly riveting stuff. But, when you dig a bit deeper, they just might be a perfect example of how to build a defensible strategic position. And a highly lucrative business. 

So.

The Problem (and solution?)

Imagine: You have a virtual stack of PDF’s. Pages of irrelevant nothing, and then the data you actually need. Buried in some chart, surrounded by jargon. What do you do? And what if these documents aren’t just a one-off for an unlucky intern.

This is the challenge of dealing with “complex data”. And providing an easy solution to that problem has made Instabase not just a success, but a unicorn.

Data: It’s what’s businesses crave

There’s a myriad of complex data sources that businesses simply cannot do without. From passport scans to insurance forms. And everything in between.

The Instabase platform gives businesses an easy way to access that data, through an AI infrastructure that operates without human review (and the high operating costs headcount implies).

AXA Insurance and Standard Chartered are both customers, while the likes of Greylock and Andreessen Horowitz are on the cap table.

But what makes this business so compelling isn’t the technology, or even the platform itself. It’s the fantastic competitive position that Instabase has built for itself:

• The company is meeting a critical business need. They’ve also found a niche in a very sticky part of the value chain.

• If you’re an insurance company, an auditing firm, or any other company that relies on complex data to run your business, you will be more than willing to pay for a third-party tool that allows you to streamline the data entry process.

• And once that tool (Instabase) becomes a part of how you do business. It’s very hard (if not impossible) to go back to the old way of doing things.

Stockholm Syndrome… as a Business Model

So…Instabase has found itself captive customers. But these captives aren’t caffeine-addicted twenty-somethings hooked on a mocha frappuccino just the way they like it (I only mock the struggle because I know it well).

No.

Instabase doesn’t have ordinary consumers as customers, it has multibillion dollar businesses which have instantiated its product as a key part of their fundamental value proposition. That is a HUGE win.

You’re the CEO of an insurance company using Instabase’s products. If you want out, either you’re going to have to:

• grow headcount ($$$)

• or find some way to build or buy a similar competency

Good luck doing either of those quickly. For Instabase, the result is stable, recurring contracts, in high dollar amounts.

Rich customers and a product with high switching costs = Goldmine.

A SaaS-y Aside

There’s a reason everyone loves SaaS businesses. I’ll talk another day about how SaaS-mania has created weird incentives in the entrepreneurship ecosystem.

Crowding out real innovation (technology, product, social media, everything) in exchange for an endless hunt to build and sell a dashboard to every industry that used to get by on spreadsheets and operational structure.

But that being said, there’s a difference between “SaaS for SaaS sake”, and building a genuinely useful product that creates value, sits at a key operational intersection, and is difficult to reproduce. 

AI and Defensibility

Although, how about that question of “reproducibility”?. I’ll admit now that I haven’t actually used Instabase. If that means you close out this tab and go back to stalking coworkers on LinkedIn. Oh well.

Sadly I can’t afford a price point that’s a “$1,000,000 one time payment” and subsequent charges based on document volume. If you want to help me get there. Feel free to donate. As for their free demo, my instinct says the Instabase sales team hasn’t gotten where they are by spending time on people with the job description of “Interested Blogger” at the company “Not Relevant”. But anyway.

I bring up my (complete) ignorance of the platform only to note it’s hard to know just how unique Instabase’s product offering really is.

From their Youtube Channel, and information on the site, the platform looks adept and intuitive at processing large numbers of documents and pulling out actionable information. But with $177M in funding, we could expect they’d have a functional product.

Back in 2015 when the company was founded by MIT PhD student Anant Bhardwaj, finding practical applications for AI was cutting-edge stuff.

Now, a swarm of generative bots (ChatGPT, Bard, “Sydney”) have brought Hal 9000 into the current day. And it’s not just text. From Dall-E to Nightcafe, there are countless “AI interns” a founder can use to bridge the gap between words, images, and human intention. Captcha be damned.

This crush of AI products is important. In 2023 it might not take an MIT moonshot to bootstrap a compelling OCR tool into a competitive enterprise product. A potential rival might be able to cobble together an “MVP Pepsi” to Instabase’s Coke with relative ease.

Then the challenge is just building (and selling) something businesses can integrate into their ops stream.

The Verdict

However, Instabase isn’t doomed just because the reality of entry exists. They have a strong lead and competitive position. But they should be wary. Careful not to get greedy on pricing. And consistent about delivering upgrades and support that keeps customers happy, and difficult to poach. 

If they continue to innovate in their niche, serve their customers well, and deliver real value at a cost effective price-point: the future looks like it's only up and to the right. If Instabase were raising a bridge round, I would invest. Although if I had that kind of money, I probably wouldn’t be writing this. So why don’t we just say, if Instabase was publicly traded, I would buy. 

As long as they don’t start offering free trials to random business bloggers ;)

Until next time. This has been,

The Weekly One Pager

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