Personally, I think it's just the start. It's my opinion that we are at the very beginning of another game changing event (like the internet).
Computers are going to become tiny things like the iPhone, and you come home, stick it in your docking station and your desktop pops up.
Apps will have to scale from very tiny screens to massive 30 inch monitors. Things, them are going to be different real soon, like the gospel singers used to sing.
Software will be deployed over the air, just like the iPhone app store.
That's why google has a phone, that's why yahoo is making YUI, that's why google allows everyone use its charts API for free. They are all trying to take control of the API for this new platform. The new world is not just internet based, it's apps built to be completely internet aware and to work with the internet all the time.
Software is changing. It's no longer about writing an FTP client and selling a few thousand copies - when you think of an always on internet, easy distribution, and location awareness, a whole new class of apps will emerge.
It's a big markets, and the business folk can see that.
I think you're right that we're on the cusp of another huge game-changing event, but I think you're wrong about it being the iPhone, or any other cell-phone-like device.
Does anyone remember 1992? There were basically two huge "next big things" that were supposed to revolutionize everything. WebTV, and CD-ROM drives. Both had massive backing from the major players of the day - Microsoft, Apple, the big TV networks, hardware manufacturers.
Instead, it was the WWW that took off, and over the next 10 years, the WWW subsumed both of them. I don't think that was an accident of history. Huge game-changing innovations rarely come from big-company platforms (though they often come from hobbyists who were inspired by big-company research labs). They just have too much entrenched baggage. Instead, they come from small startups and hobby projects that have the flexibility to become what the market is demanding. The web succeeded, in a large part, because Marc Andreesen didn't listen to Tim Berners-Lee and added support for inline images even though it was totally not the way anchors and resources were supposed to work.
I've got two ideas for what that next big disruptive innovation might be. One, as Mitch Kapor suggests, might be virtual worlds. The other is microblogging, a la Twitter. Any other ideas?
I don't see where one can go with microblogging. How does it change anything? It's the end point - the blog is the end of the line. All you can do is change the display format.
But merging cell phones and computer is the start of a new line. Virtual Worlds are the start of a new line also.
Virtual Worlds are coming, but their time is still some years away. What will really kick it off will be the headtracking and motion detection software that are currently getting better and better with software. And combined with the virtual 3d thing (head tracking where 3d is approximated) and constantly cheaper big ass flat screen TVs, there is another big potential there.
The iPhone is not the game changer. It's the things that are right now being inspired by the iPhone. It's the new devices that will come up that will copy the concept but make it even cleaner, even better, even more powerful.
Are you trying to say CD-ROMs did not revolutionise everything? How much would be possible today if we were still using tapes, or swapping 12 floppies to load a 10MB game?
CDs did change computers, but they got old quick, that's all. But they still stayed longer than the internet in its current form has been around.
Remember what the web was in 1992: a way to share textual scientific documents. How does that change anything? All you can do is change the display format. ;-)
And then people discovered you could embed images in these documents. And you could sell stuff by listing the stuff you had for sale and having people send you money. And you could hold auctions with them, once they figured out how to let you update the page automatically. And you could upload pictures of your dog and send them to friends.
And then folks realized that you could include a scripting language on both the client and server, and let computers handle what website operators had been doing. Update webpages through a form. Let people talk to each other on forums without the webmaster getting involved. Automate those online auctions. Display your email. Search for maps and driving directions. Look for the multi-gig files that were previously available on CDs, and download them via BitTorrent.
So, microblogging. Companies are already Twittering product announcements and special promotions to customers. What if the customers could Twitter back with suggestions? What if they could buy it immediately? What if you could Twitter a picture or a song to your followers and they could listen immediately, wherever they were (isn't Pownce doing that?)? What if someone did a bot that monitors Twitter for mentions of your product, then ran some NLP on them and sent you neatly categorized suggestions for improvements? What if someone clustered Twitter users with some clique-detection algorithm and used that to segment markets?
Hot damn, I may've found my next startup idea. Or maybe I should just apply for a job at Twitter. ;-)
I really don't see how this is useful. Maybe I've become one of those guys who doesn't 'get it' anymore, but I think that twitter is not going to be as big as you think. Yes, a form of mini communication will happen, but in the current form, there will very quickly be too much information. We have finite capacities for processing stuff, and twitter is a rabble of information, which just gets wearying after a while.
To me, the people who are really into twitter all seem to be the same demographic, and that's usually bad news for a technology. It's those same people who used to like Usenet and the IRC that are now using twitter.
Twitter is something that intrudes on your life, and having it does not solve any problems, it adds stuff to what you already have.
But I won't protest too much, because it's possible I'm wrong on this one. I'll just wait and see. But frankly, I still don't see how I could somehow get my mum excited about twitter, even if it had all those features you spoke about.
I think that twitter itself may not be that big but attaching twitterlike 'tags' to things may be a very useful feature. Being able to "home" your comments on specific sections of a text seems useful.
My bet is that it will be at least an order of magnitude more than google since a combination of mobile + apps + search/Adwords will have:
1. more information about you (location, etc.),
2. relevant & time based local ad inventory (e.g.: 3 pm you are in a mall near an ice-cream store and hence a free 2nd scoop coupon advertised to your phone)
3. much higher click through rates since it's more actionable and more importantly, useful i.e. ads that even hackers click on
4. In some cases might result in much higher CPM's, and a huge increase in ad volumes even for lower CPM's
So, companies like Loopt are better positioned to take on Google than say Cuil, but hey, what do I really know.
The one piece of the puzzle not solved is how everyone's going to afford this wireless. I'm making decent money, spending 80 dollars on two cell phones worth of coverage, and I'm still wincing about the idea of 30 bucks for a data plan. (Or, more appropriately, 60 dollars a month for two!) It's all well and good this idea about smartphones, but the prices are going to have to come way down before we speak of ubiquitous network computing.
It can't even replace my internet bill because of the cost of multiple people on the plan! Where is the new competitor going to come from in a market this is so difficult to break into due to price and monopoly concerns? Without that competitor, where are the drops in prices coming from?
This is a monopoly like market by definition. We have companies competing for a finite amount of customers (or customers' attention).
If you had five equally popular search engines, they wouldn't really compete prices down anyway. The number of searches (supply) would still be the same & advertisers (demand) would still be the same.
The only reason MSN & Yahoo (not to mention real obscure engines) still earn less per click is a sort of market imperfection: It's complicated & time consuming learning another system & running parallel campaigns. For an extra 5-10%, it isn't worth it for small campaigns.
Monopoly or not, they are not manipulating the market. It manipulates itself.
It's a sign of this guy's inexperience that he treats VCs as if they were all the same. In fact one of the most distinctive things about the VC world is how much variation there is in it. Partners at the top firms are clever and honest and expect to make money mostly from the fund's returns. Whereas the bottom half are basically in the business of generating management fees.
That is true, however I think it's fair to make the point that all Venture Capital firms have the same structural incentive to treat companies (equity) as products, to be traded in a marketplace, and consequently are primarily focused on the net worth (capital gain) return from trading that equity versus the ongoing value-added by the operating business (dividend). I think that's where the 'taste-for-blood' comes from. That fundamental incentive affects how institutional VCs view the founders of a company (less so as partners and more so as employees in a sense). I think that's what this guy is reacting too, rightly or wrongly.
How many technology companies do you know that pay significant dividends? That just tends not to be how tech companies operate. It's not an artifact of VC investment.
Thats true. I think newer (last 15 years) tech company's have been able to not offer dividends and still attract investors (even low capex, software co's that don't necessarily need to reinvest), but the types of investors (venture investors) they attract are naturally then interested in capital gains, and thats only achieved by trading that equity. I could be wrong, but traders tend not to think past the point of their expected holding, and since their only return is on sale of the equity, prefer for that to happen earlier rather than later.
An essay topic I'd find really interesting: A field guide to VC evaluation
Your last essay was rather apt for where we're at right now (just getting into the fundraising waters), but terms like someone reputable are kind of hard to gauge -- especially in the somewhat inbred world of investment when you don't know who's buddies with whom and as such whose opinions are worthwhile. Here a lot of companies seem to be run by serial entrepreneurs, which often seem to be a little too buddied up with investors to side with first-timers when trying to shake out info about what dealing with them is like.
That would be a short essay. You just have to judge whether they're smart and honest. The reason that's hard is not that you need special techniques to do it, but that it's hard to judge someone during a brief meeting when they're also judging you.
We just tell YC founders to ask us, and that probably is the most effective way to judge a VC: ask people who know him.
Also, what's wrong with the question "how do we get to 100 apps?" In the VC's position, I might have asked the same thing. In his position, I'd have been impressed by that question.
In most creative endeavors, quantity leads almost inevitably to quality.
If there is some change in technique, or some application of capital, that would let your company crank out LOTS of apps instead of a few mostly-pretty good apps, then the VC is absolutely right to suggest it. Write so many apps that you can throw away that bottom 50%, and not even notice.
John Lennon and Paul McCartney became expert songwriters by writing an incredible quantity of songs.
There are creative ways to leverage talent. What's stopping all those "mediocre" developers from building apps? I'd bet that at least 1 in 10 of them are better at it than you or they think, or at least, would be with a little practice. How do you take advantage of that?
It's up to you to know how to set up virtuous spirals, not the VC. If you can't do that, then why should they give you money?
That's also the reason you're getting VC money. Because you have something to do with it. If you answer 'I can't grow' (can't find programmers). You are saying: no need for investment. If you say: I don't need VC money and still get it, that's a bubble.
DFJ is often considerd a top firm, but reading the first chapter of Founders at Work (Sabeer Bhatia's experience with DFJ) sure made me feel like they were out to screw Hotmail's founders.
That did sound pretty bad. But I think top VCs are more careful now, because word of any misdeeds spreads so much faster. E.g. I could not imagine a Greylock partner today pulling the kind of trick Philip Greenspun describes them pulling on Ars Digita.
I just read the WSJ story on this, and the venture firms typical investments differed from the Photobucket investment. Photobucket was much smaller than their usual portfolio companies and needed much less money than the venture firm usually gave. I think that's a pretty solid excuse, though it looks bad on the face of it because the return was so good.
And this screwed the founders, how? This article is w.r.t. VC partners robbing their Limited Partners of the investment opportunity. And even at that, as many others have pointed out, it's somewhat deliberately slanderous.
AFAIK the founders were ok, but the folks that put in money into this VC's fund probably got screwed. So, how can you really trust these guys? I am sure buxfer wouldn't raise money from these guys whatever the terms.
The article itself is a bit of a rant/whine (rhine?) but I found the bit of dialogue in the section "The VC mentality" interesting.
To some extent I think the VC might actually be right here. I think some people get too caught up in the idea that there's a tiny minority of "great" programmers who can perform miracles, and everyone else is a mindless drone unworthy of coming anywhere near your code.
I'm not saying that all programmers are equal, but if this guy can't even find _one_ programmer in the whole of Silicon Valley that he thinks is worthy of working on his project (which appears to be an iPhone-based grocery list -- not exactly the most intellectually demanding project in the world) then he might be looking for something that doesn't exist.
I don't think it's unreasonable to say, "We're having trouble finding one great programmer". If a programmer is pretty good at what she does, then odds are she's already got a secure, comfortable, well-paid job. The VC might have suggested that extra money could attract a great programmer, but he didn't.
I think it comes down to Ambrosia versus Microsoft. The author would prefer to produce software the way Ambrosia does. The VC prefers the Microsoft way.
> If a programmer is pretty good at what she does, then odds are she's already got a secure, comfortable, well-paid job.
Especially so if the programmer in question is a Mac/Cocoa programmer. There are few of them around, and chances are they are either working at Apple or doing their own thing.
Bubbles impact more then just VCs and entrepreneurs. Right now, almost noone is IPOing and exits are slim. Why does everyone compare bad VC investments to the dot-com bubble? Do you really think there will be a flood of iPhone app developers going public?
The only impact that will have on the economy is some investors will lose some money, which happens all the time.
In Silicon Valley everyone seems to think that as long as their starting a company, that VC is always an option. But its only appropriate for a certain types of businesses (high growth, exited focused, etc). I'd put the blame as much on the entrepreneurs who can't tell the difference and not the VCs who look for trends to profit off of.
Besides, is it really that hard to stay "indie" developing iPhone apps? I don't see where the need for capital comes in the first place.
You don't really need VC funding to launch most iPhone applications.
The cost of development is so low compared to other types of development. I'm the lone programmer at my startup at the moment. However, I just left a team of 35 programmers trying to ship a PS3 game.
I could see maybe 4-8 programmers top on an iPhone application project. There were 9 programmers on the last Sony PSP project I worked on. VCs don't want to fund that type of development either.
They may fund an app that integrates somewhere in the cloud and also has a web interface. That's a bet that is actually big enough for them to care.
I think John's points also addresses your feeling. He's saying why are you so crazy about just this market. Which conversely means why do you want me so badly when there is a much larger ecosystem of great development going on that you are ignoring
The other part of this, if there really is a bona fide iPhone app bubble, how will Apple react, if at all? To them, it might seem like the Champs-Élysées is getting turned into a giant strip mall. I wonder if they'd pull some kind of sudden "night of the long knives" move.
A bubble usually involves over-optimistic speculation. Are you suggesting that there is an irrational exuberance in iPhone apps? I think there is a bit of a land grab, but people are making real take-it-to-the-bank cash, not just hitting nebulous "soft" performance marks. For of an app Boom than a bubble, imho.
it's no good saying 'people' - the problem is which ones. Plenty of people were driving aorund in nice cars during the last bubble, having 'taken to the bank' investors' cash; but the whole setup was totally unsustainable and the people putting in money weren't getting it out. Is it so different this time around?
Apple's between a rock and a hard place. On the one hand, they probably want to stick with their spiel of having a better experience, on the other hand, removing apps because they are just ugly or stupid would just crush creativity. I think ultimately, openness will win out.
I like the first comment - we deal with it every day:
"Agreed 100%. And oddly enough I’ve been told precisely this by two VCs! Basically:
1. “if you want to make a massive company, get VC money”
2. “if you want to make more money than 1, on similar odds, play the lotto”
3. “if you want to make money, don’t involve VCs”
"
Wow, this brings me back. Nothing makes VCs hotter than a nascent business with traction in a hot sexy space. They'll cool fast when they see the world isn't suddenly going to all get iPhones and leave everything else behind, but they are on it like spider monkeys right now
Haven't RTFA yet, but it seems like any respectable VC would recuse him- or herself from any funding decision in which personal relationships might be involved.
Computers are going to become tiny things like the iPhone, and you come home, stick it in your docking station and your desktop pops up.
Apps will have to scale from very tiny screens to massive 30 inch monitors. Things, them are going to be different real soon, like the gospel singers used to sing.
Software will be deployed over the air, just like the iPhone app store.
That's why google has a phone, that's why yahoo is making YUI, that's why google allows everyone use its charts API for free. They are all trying to take control of the API for this new platform. The new world is not just internet based, it's apps built to be completely internet aware and to work with the internet all the time.
Software is changing. It's no longer about writing an FTP client and selling a few thousand copies - when you think of an always on internet, easy distribution, and location awareness, a whole new class of apps will emerge.
It's a big markets, and the business folk can see that.