Who are the big players innovating in Indoor Location and Positioning? What technologies are attracting the most attention? How will Indoor Location evolve? In my previous post I covered the different technical approaches to Indoor Location, how they work, and some of the market uses for it. In this post I will cover some of the leading large players and their technical approaches. In an upcoming post I will cover many startups that are innovating faster than the big companies.
Who are the big players? Indoor Location will be a huge market, bigger than Maps or GPS. Many big companies have been researching this technology for years. Some already have products in the market. Here is a quick look at some of the players and where they fit in the technology stack.
Chip Sets - Mobile chip manufacturers are consolidating the wifi, NFC (Near Field Communications), Bluetooth, cellular, and GPS radios needed to calculate indoor location, as well as sensors like accelerometers, gyros, altimeters, compass, and magnetometers into the chip sets. Leaders in this space include; Broadcom, Qualcomm, InvenSense, STMicroelectonics and CSR. These chip sets provide the x,y coordinates, signal strength, direction, and other sensor data that Operating Systems and Applications can use to calculate precise location reference points.
Mobile Operating Systems - Mobile Operating Systems are also incorporating Indoor Location services that application developers can access via APIs. The big players in this space include Apple, Google, and Microsoft. Apple is late to market with Maps and even further behind with Indoor Location which is one reason why they recently acquired WifiSlam, an indoor location startup. Expect Apple to make significant progress in this area through internal development and acquisitions.
Google's Android OS powers many Smartphones which already include Google Maps. Google has provided indoor maps for over 10,000 buildings including office buildings, airports, shopping malls, and other public buildings for a long time. Google has also piloted Indoor Positioning using Wifi signal triangulation. Do a Google Maps search for Westfield Mall San Francisco. Watch what happens as you zoom in to the location...an Indoor Map of the mall identifies the individual stores, and even where the hand bags are located within a store.
Microsoft's Bing Maps has over 3,000 indoor maps of airports, shopping malls, and public buildings.
Handset Manufacturers - The large Smartphone handset manufacturers are incorporating the location chip sets and Mobile Operating Systems into their phones. They are also adding their own software and services for location. All the major players are doing research and development on Indoor Location. These include Motorola, Nokia, Samsung, and Sony Ericsson.
Motorola already has Indoor Location Manager, and recently announced TRX Indoor Location System. Motorola has been researching indoor location for many years and has a significant patent portfolio that covers wifi signals, Bluetooth technology, Inertial Navigation using sensors, and even using signals from indoor lighting.
Nokia has its own indoor location technology called HAIP (High Accuracy Indoor Positioning) based on BlueTooth Low Energy beacons (BLE). Nokia also started the In-Location Alliance which is an industry trade group focused on Indoor Location. Nokia demoed their indoor location technology at Mobile World Congress 2012. Here is a YouTube video of that demo.
Samsung is part of the In-Location Alliance and one of the largest Smartphone manufacturers. Samsung has also done significant research on indoor location technologies including; wifi signals, other radio signals, Bluetooth technology, Inertial Navigation using sensors, and signals from indoor lighting. In the past Samsung has relied on Operating System services for indoor location, but in the future could choose to commercialize some of its research.
Sony Ericsson has done research on indoor location and has a couple demonstration projects called SemcMap and Indoor Finder. Sony Ericsson is one of the few companies to experiment with GPS signal retransmitting indoors. The idea is to mount roof top antennas to receive GPS signals and retransmit them inside the building which gets around the "line of sight" limitations of GPS. Sony Ericsson has also done research on Rake Receivers which is basically an array of radio receivers deployed across a building that minimizes the effect of signal fading.
Cisco has a product called Mobility Service Engine which is built into some of their wireless network equipment. Here the network device analyzes signal strengths of Smartphones and wireless devices to determine their position and location. This is the reverse of most solutions where the Smartphone measures the signals and determines location. Cisco has also done extensive reserach on indoor postioning using all the usual technologies and methods described above. These include wifi signal strength, wifi fingerprints, map constraints, inertial sensors, and otehrs.
Aruba Networks uses location data as part of its network security. For example they measure how many times a specific phone or device has connected to the network in the past, how long they stayed connected, where they connected, and then maps that data to corporate roles and permissions for that device.
This post covered the big companies working on indoor location from a technology stack perspective. My next post will cover startups that are innovating in indoor location at the application level for consumer markets like games, social, shopping, advertising, and other areas.
Disclosures: I work for Google in Developer Relations. Google is very active in Android, Maps, and Indoor Location. I don't have direct knowledge of their plans and wouldn't reveal them even if I did. But, sometimes bias can creep in, so take that into consideration when reading this.
I was an early investor in WifiSlam, an indoor location startup, that was acquired by Apple. I no longer have any financial interest in WifiSlam, but that experience could also bias my opinion.
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Indoor Location and Positioning will be huge! Apple recently acquired WifiSlam for its indoor mapping and positioning technology. Why? Because we spend most of our time indoors, working, shopping, eating, at the mall, at the office, on campus, etc. Google already has Indoor Maps for many airports and shopping malls. The race is on. The explosion of Smartphones with built in sensors, accelerometer, gyro, wifi radios, and camera make indoor positioning possible.
GPS and Maps are great, but they only work outdoors and with clear line of sight to the sky. GPS was developed by the US military for battlefield location, and navigation for planes and ships. It uses 24 satellites orbiting 12,600 miles above the earth. Your GPS unit searches for 3 or 4 satellites to "lock" your position. Your GPS receiver "knows" the location of the satellites, because that information is included in satellite transmissions. It measures the time it takes for the signal from each satellite to reach your device, calculates the distance from each, then triangulates your position...and updates it every second in real time. GPS is still remarkable decades after it was developed.
You may have noticed that your Smartphone mapping system is much faster at findng your initial position than your car GPS. Why? Because your car GPS relies soley on GPS satellite signals. In heavily forested areas, or congested cities with tall buildings, it can take a long time to get a "GPS lock" on 3 or 4 satellites because the "line of sight" is blocked. Your Smartphone mapping system augments the GPS with cellular tower signals and known Wifi hotspot locations. These signals are available where GPS is hard to get. Your Smartphone searches for all types of signals, calculates which is most accurate, and provides your location on a map much faster than a regular car GPS. Smartphone GPS is truly amazing! But, Indoor Location is even more amazing. Now lets explore how it can be used, and understand how it works.
Why will indoor location be big? Because indoors is where we spend money, meet friends, and where business happens. How can indoor location be used?
Navigation – Navigating inside large shopping malls, museums, airports, office buildings, college campuses, manufacturing plants, conference and convention venues
Location sharing for Social or family apps – Sharing your location with family and friends at large, crowded locations, or meeting up after individual activities
Shopping list routing – Find specific aisle locations within stores for every item on your shopping list. Enter a search term to find location of any product.
Offers/Coupons – Receive discount coupons and offers for products and services you care about located in close proximity.
Games – Many mobile games could incorporate indoor location. Games like MyTown, Life is Crime, Tap City, Monopoly, and strategy games like Tower defense, Risk, Coalition Games, and other strategy games.
Advertising by location – Targeted advertising based on precise location, time, and interests.
Manufacturing/Inventory/Asset tracking – Track movements of machinery, expensive inventory, assets, robots, vehicles, etc.
Workforce location – Real time location of personnel like doctors, supervisors, technicians, team members. No more public intercom announcements asking Dr. Smith to call the Emergency Room.
Defense/Intelligence – Tracking team members and assets on missions, in the dark, or in crowded locations.
Fire and Police - First Responder team tracking in crowded or dark locations.
How does Indoor Location technology work? Your Smartphone contains many sensors and radio receivers that can pick up all kinds of signals. Indoor location technologies use some or all of these to calculate indoor position. There are many different technical approaches to indoor positioning, and there is no clear winner yet. Until one technology achieves ubiquity it is likely that application developers will need to support multiple approaches and use whatever is available in a particular location. Here is a brief overview of each technology.
Wifi Triangulation – Wifi Triangulation measures signal loss or strength from multiple wifi hotspots to triangulate position. It is not necessary to connect to these wifi hotspots, only to measure the signal strength. Your phone displays signal strength in terms of 3 or 4 bars, but inside it is actually measuring signal strength very precisely. These services have a database of known wifi hotspots, and adds new hotspots as they are discovered by users. Android makes the wifi signal API available to developers so they can build location application. Apple iOS does not, so iPhone developers need to rely on other sensors and technology.
GPS/Cellular/Wifi Triangulation – Uses inputs from GPS/Cellular/Wifi, when available, to determine position. This is important for smooth transition from outdoor to indoor positioning. Algorithims assign confidence rankings to all signals to determine which signal to use, and how to continually refine position.
Wifi Fingerprinting – Smartphones turn on wifi for a few seconds to get a Wifi Fingerprint and associate it with a Check-In location. Compares the current Wifi Fingerprint to a known database of Fingerprint/Location pairs. Often used in conjunction with Check-in services like Google Places or FourSquare. This allows a more accurate location within a building. For example, checking into a place like Westfield Mall has many different Wifi Fingerprints depending on where you are in the Mall. If your Wifi Fingerprint is not found in its database it will ask you to enter a new specific location.
Dedicated Beacons - Cheap, low power, radio beacons located at known positions within a building. The only purpose of the beacons is to transmit a unique signal that can be received by your Smartphone. Uses the same location triangulation methods as wifi, but can be more accurate due to their specific location and purpose. These radio beacons can transmit proprietary signals or standard Bluetooth 4.0 Low Energy aka BLE.
Bluetooth Sensors - Many electronic devices contain Bluetooth, including every smartphone. These Bluetooth sensors can read signals from dedicated beacons, or dynamically create a mesh network of Bluetooth signals that constantly corrects and refines relative position and location.
Tracking Sensors from known positions - Most smartphones contain multiple sensors including a compass, gyroscope, accelerometer, altimeter, and barometer. These sensors can measure your direction, turns, speed, and height above sea level to create a three dimensional view of your location. Starting with a known position from other methods such as GPS, cellular, or wifi which work outside, the smartphone sensors can be used to track your position inside a building.
Magnetic sensors - Magnetic sensors can pick up the Earth’s natural magnetic forces to determine lat/long position similar to the way a compass works, but two dimensional, and much more accurate.
LED Lights - lights in the ceiling can be programmed to pulse in milli-seconds, so fast the human eye can’t detect the pulse. But, your smartphone camera can detect the pulses and distinguish between different lights and triangulate your position. The LED lights each have a unique pulse fingerprint. They can be used with standard light fixtures and remain in fixed positions within the building, making it easy to calculate location.
Cameras - A ceiling or wall mounted camera within a building can cover up to 100 square meters. The camera on your smartphone can automatically take many snapshot photos per second. Object recognition software uses pattern matching to compare those smartphone snapshots to the wall-mounted camera to determine precise location.
In my next post I will present a fairly complete list of startups and companies that are providing indoor location services and which technologies they use. I believe there will be lots of winners in this space using a variety of different technologies, and focusing on many different vertical market segments.
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Most companies leave a lot of money on the table when they IPO. They price at $12 to $15 per share at the IPO and trade up to $20 - $25 on the first day, and up to $30 to $40 over the next few months. Investors are happy. The press is writing positive stories. Everyone is happy. But, the company left all that money on the table, the difference between the $12 IPO price and the $25 first day close. This can mean hundreds of millions of dollars for the company.
Facebook optimized the value of the IPO to the company by pricing high, and brought in billions of dollars in cash. Facebook stock closed at $38 per share on the first day, and most of that cash went to Facebook. Great result for Facebook. They worked hard to find the share price where they could sell all the IPO shares at the highest possible price, and generate the most cash for the company.
But, by doing so they disrupted the age old IPO process. Now investors are paying the price. Investors who bought the IPO shares thinking they would immediately go up 20% to 50% were sadly mistaken. In fact they have gone down 50%. The press is writing negative stories about how Facebook is declining, user growth is slowing, they don't have a good mobile strategy, and that monetization is awful. Facebook hasn't changed their strategy in the past few months...but public perception has changed.
The original VC investors in Facebook, and employees who hold stock option grants are "locked up" and normally can't sell their shares until 6 months after the IPO. Normally there would be a Secondary Offering where they could sell their shares in an orderly fashion to institutional investors. This is why they call the first selling of stock the IPO (Initial Public Offering) and the second selling of stock "The Secondary Offering".
Facebook also changed up this process by letting some investors sell some stock at the IPO, and letting other early investors and employees sell their stock after 2 months, or 3 months, or some other time period they stipulated. By doing so they kind of messed up the idea of a Secondary Offering because stock was dribbling out...actually, exploding out, in chunks over the first 6 months and beyond.
The Secondary Offering is normally supposed to be done about 6 months after the IPO, in a very positive environment for the company. Because there are a limited number of shares sold at the IPO there is more demand for the stock than there is supply. This creates a hot competitive environment for the stock and the price goes steadily upward. Perfect time for a Secondary Offering of the "locked up" shares from early VC investors and employees.
Facebook essentially can't do a Secondary Offering now because the stock price has dropped so far, so fast, that institutional investors are worried. They just heard the Facebook IPO story a few months ago, and now everything looks bleak. The press is writing negative stories. Bad timing.
Facebook stock is currently trading at around $19, and has declined to about half of its opening day IPO price of $38. The price could decline even further with the hundreds of millions of shares coming off "lock up" flooding the market over the next several months. Normally this is done in an organized Secondary Offering to institutional investors. Instead, in the current situation, it will be totally disorganized with shares coming out at odd times, and dumped on the market for retail investors and brave mutual fund managers. The flow of shares and price can't be controlled by the IPO investment bankers the way they would with a Secondary Offering.
So, Facebook did a great job maximizing the value of the IPO cash proceeds, but totally botched the normal process for an orderly Secondary Offering. Facebook did great. Investors are getting killed. Proceed with caution. With most IPOs you are probably better to wait until the dust settles, most of the locked up shares are on the market, and the company has reported a few more quarters of financial results. The stock market will stabilize around an agreeable price. This is true of most IPOs and appears to be true with Facebook too.
Long term I think Facebook has a very bright future. Short term it is unpredictable and potentially dangerous for investors.
Disclosure: I own no Facebook shares, and my day job is with Google. I am NOT a financial advisor and am NOT giving financial advice here. This is just my opinion, and is worth what you paid for it...nothing.
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Bill Gross has started over 75 companies and invested in many more. Thirty five of his companies have been acquired and 8 have gone the IPO route. Some of those companies include; Goto.com, Overture, CitySearch, NetZero, Tickets.com, CarsDirect.com, Shopping.com, eToys, Compete, Picasa (acquired by Google), InsiderPages, WeddingChannel.com, eSolar, Duron Energy, dotTV, Desktop Factory, Evolution Robotics, and UberMedia.
Bill started IdeaLabs in 1996, long before the idea of startup incubators was popular. You have to know Bill to understand why IdeaLabs was necessary. Bill has so many ideas, in so many different market segments, he couldn't possibly do them all himself. So, he started a lab, hired all the support people necessary to build companies, and hired entrepreneurs to build out his ideas.
Bill has started 75 companies, and wants to start more. The limiting factor? Not money. The limiting factor is finding entrepreneurs who want to join the team and build companies.
Check out this interview with Bill Gross on my recent trip to IdeaLabs.
IdeaLabs is located in Pasadena, California in a 45,000 s.f. building. There are 12 companies in the building now, and 25 companies in the IdeaLab portfolio. They include compaines in software, hardware, energy, advertising, ecommerce, robotics, and more.
IdeaLab Infrastructure - Everything you need to start and build a company; Engineering, Designers, HR, Recruiters, Finance, Legal, PR, office admin, photo/video services, etc. If more than one company needs it...they buy it or staff it. Everything is done in house. They even have a machine shop to create custom hardware parts.
IdeaLab Model - Start with an idea that is vetted by Bill Gross and his team of company builders. Prototype and test the idea using IdeaLab staff engineers. Conduct user tests. If everything looks good fund the idea with up to $250K. Assign a CEO from the lab, or recruit one from outside. Hire the founding team to build the MVP and get a beta version to market. At this point IdeaLabs may bring in VC investors, or they may decide to fund it themselves.
IdeaLab synergy - At any given time there are 10 to 15 companies incubating at IdeaLabs. They range in size from 5 people to 50 people. When any company reaches 100 people they need to move out on their own. There are no competing companies in the portfolio so founders easily share information, advice, introductions, and help out on short term needs. Like other incubators, they bring in industry experts and successful founders for talks.
Want to help start a company? - You could come up with an idea yourself, recruit a team, pay for it out of your own pocket, build an MVP prototype, and then try to raise money from investors. It is a tough process, even for those that have done it before. Or, you could join Bill Gross at IdeaLabs as a founder and help build a new company. The financial rewards are significant, and the risks are much lower. Not for everyone, but a great opportunity for the right person. Contact Bill Gross at IdeaLabs to find out more.
Nokia (NOK) stock price is dropping to historic lows with a current market cap of just $9.3 Billion. Nokia has revenues of over $38B, $6B in cash, 30,000 patents, and a great brand. Investors and sharks are circling. Microsoft (MSFT) isn't one of them. Why not? Three reasons; they don't want to, they don't need to, the FTC & EU regulators wouldn't let them...even if they wanted to. Techmeme thinks Microsoft might be getting into the hardware business, but not phones. Lets explore these three points.
They don't want to - Microsoft has strong DNA as a partner driven company. The success of Windows was driven by thousands of hardware manufacturers and tens of thousands of software companies supporting Windows in their products. For more than 30 years this has been the business model. They view Windows Phone 7 just like Windows on the PC...an operating system platform for any hardware device. They just work with manufacturers and the money pours in. They don't want to mess with the model.
It has been a great model, but it doesn't always work. Microsoft has always been the opposite of Apple (APPL). Microsoft makes software available to all manufacturers, while Apple is a closed system. For most of the past 30 years Microsoft had the better model. Not anymore. Apple has proven that a beautifully integrated (closed) system can be very attractive. Apple has DNA too. Apple products have always been integrated hardware and software. It has worked well for the Mac, iPod, iPhone, and iPad. Hmmm...maybe Apple will buy Nokia. Makes more sense than Microsoft, but I digress.
Microsoft made one exception to the model I can think of, the Xbox. And that was only because they couldn't convince the game box makers to play nice with them, and because they didn't have any partners in this space. Microsoft spent billions developing the Xbox hardware platform just so they could sell their game software. Eventually, the bet paid off. And, in the future it could be a huge home computing platform if they could shake their legacy DNA. Not likely. Microsoft might enter the Tablet space. This would mark a change in strategy, and create huge channel conflict with partners.
Smartphones are a huge market, and the future of personal computing. Microsoft is trying to use their Windows PC distribution model for Smartphones. It isn't working. Manufacturers who once used Windows Mobile have grown tired of the slow pace of innovation at Microsoft and high OEM prices. Many are now using Android. Microsoft responded by making a deal with Nokia, paying them billions of dollars for "marketing" and engineering transition costs. To date that isn't working very well either.
Microsoft doesn't need to buy Nokia - Microsoft already gets everything they want from Nokia without buying them. Microsoft wanted distribution from a big brand Smartphone manufacturer. The idea was that other manufacturers would follow after Nokia blazed the trail with Windows Phone 7 and grabbed market share. Nokia was one of the few big manufacturers that hadn't committed to another OS. It was a reasonable strategy for both companies. It hasn't worked out yet, but it still might. The Xbox strategy didn't work in the first year either. These things take years and billions of dollars to execute. Microsoft has plenty of time and money. Nokia doesn't.
The FTC and EU wouldn't let them - Almost any big acquisition by Microsoft, or any of the big players, will attract an FTC, EU, and even China review. We live in a world where government regulators decide, not the two willing companies. That is a subject for another day, but suffice it to say that government regulators would probably not allow Microsoft to acquire Nokia based on some theory of "competition" being lessened and consumers being harmed.
Nokia could still turn things around. Microsoft could pump in more money to help them out. Nokia can sell off assets and patents for billions of dollars. Nokia already announced they will lay off 10,000 employees as part of a restructuring. It will get worse before it gets better. But, the Nokia brand and asset is too strong to just totally disappear. Nokia can emerge from the restructuring as a smaller stronger company, or end up being acquired by a bigger stronger company...but not likely Microsoft.
Disclosure - I worked for Microsoft for 5 years. I don't speak for them. I now work for another large tech company. I don't speak for them either. These are my own personal uninformed thoughts...and probably wrong.
About Last Night, the social network for nightlife, launched today at Techcrunch Disrupt, and is available for download on the AppStore. Its about the party last night, the concert last night, your date last night, or any event last night. It is an iPhone app that is photo centric and location based. It is similar in design to Path, but the sharing model is more like Twitter, and the posts are totally focused on nightlife.
About Last Night posts are headlined with the location where the photo was taken. The person who created the post is listed below the photo. All posts from all users are visible in the main stream, but you can get different views (Following, Locations, Nearby) to tailor the stream to just what you are interested in.
Whats happening anywhere? Lets say I'm from Boston but visiting New York for the weekend. I want to find the best night spots in New York, or know what is happening at Columbia University. About Last Night has a "Nearby" view that uses your GPS location to show all the posts from night spots near you. You could also be "Following" Columbia University to see all the posts from Columbia. You can follow people or locations. I'm sure college students and the nightlife crowd are going to love these features.
Whats hot? About Last Night also has a voting system where users give a "thumbs up" to parties and places they like. As a post gets more thumbs up votes it earns a bronze medal, a silver medal, up to a gold medal. This is an easy way to find the best parties and night spots near you.
Deals - Bars and night spots can also post special offers and discounts, or post bands playing or new menu items. Users can vote up posts they like, and share the deals with their friends via Facebook, Twitter, or email.
Private Feed - Your little black book on your phone. About Last Night posts are public just like Twitter posts. But, you can flip a switch and make a post private, just for you. Lets say you see a very attractive person at a party and want to remember them. Just snap a picture, add a note, and set it to private. The app automatically puts a time stamp on it, and adds the location where the photo was taken. This could be useful when you can't quite remember the details the next morning...or next week. This could also be useful at a conference or large party. Lots of people give you their business cards but you can't remember them the next day. Just snap a picture and post it to your Private Feed.
Disclosure - My sons, Derek Dodge (25) and Darren Dodge (21) are the founders of About Last Night. I am a proud father, so my bias may show through in this post. Check out the app for yourself. You candownload it from the iPhone Appstore. They assure me an Android version is coming soon :-)
I could build Instagram in a week. How many times have you heard someone say "I could build [insert hot startup name here] in a week"? I hear it all the time. But, I have yet to see one of these delusional wizards actually do it. They are obviously too busy inventing the next big thing. They fail to realize that building a successful consumer web or mobile product takes more than great technology. A lot more.
Success looks easy from a distance. Technology seems simple if the design is great. Attracting great founders and early employees just means rounding up some of your friends. Raising money is always easy, right? Getting great press stories just takes a few emails. Attracting influential users just sort of happens. Viral growth is a simple formula. Solving a problem that millions of people care about is just luck. Going public or getting acquired is automatic. There are hundreds of critical decisions along the way. None of them are easy.
From a technical point of view there isn't much difference between Instagram, Path, Oink, Hipster, or a bunch of other companies that all do essentially the same things. Mobile, social, photo apps that include comments and some type of friend/follow model. Why is one worth $1B and another shut down with no value? It isn't about the technology or how long it took to build.
First Mover Advantage is real. The first product on the market has a big advantage...if the product actually works. People get used to the product, get to like the user experience, and develop a user community culture. Users invite their friends and the viral growth cycle starts. Once the user community starts to grow virally they are not likely to switch to another product...even if it is better. A competing product with a few new features, or something that is faster or cheaper, isn't likely to steal away many users.
Design and user experience matters, especially with consumer products. Timing and luck play a big part in success. Technology can be replicated, timing and luck can't.
Facebook definitely has the engineering talents to build a mobile product with features similar to Instagram. But it wouldn't be Instagram. It would be an obscure feature buried somewhere inside the Facebook app that would only work within Facebook. Instagram is magical because it does one thing really well. It stands alone, and is quick and easy to use. It isn't bogged down with the overhead of a much larger app or service. Instagram photos can be shared across lots of different social services. If Facebook engineers designed a mobile photo sharing app would it work like this? No.
Mobile is the future, and photos are core to Facebook. Instagram does both better than Facebook. Being the leader in two growing trends is critical to Facebook. That is why Instagram is worth more than $1B to Facebook.
Google Video is another example. Google already had a video hosting/sharing service called Google Video...but it wasn't YouTube. Even though the features were similar, the user experience, and more importantly, the user community, were very different. The technical features could be replicated, the brand and user community could not.
Web video, and search for that video, is a huge trend. YouTube was the clear leader. Whoever owned YouTube would instantly become the leader. That was worth $1.6B to Google...even though they already had comparable features in Google Video.
Next time some wizard tells you they could build XYZ hot startup in a week, just smile and say "You probably could build the features...but you couldn't build the user community or the company. That is where the value is."
Facebook announced that it acquired Instagram for $1 Billion. The company is less than two years old, has no revenue, and about a dozen employees. Remember, acquisitions are about what the acquirer can do with the company in the future, not some multiple of revenues or profits today. Why is Instagram worth $1B?
Facebook acquired Instagram for about $30 per user, or $1B. ($30/user X 33M users = $1B) Facebook is valued at about $100 per user or $80B ($100/user X 800M users = $80B). Other popular social apps are valued around $20 to $50 per user. The monetization models need to work out about the same to justify the valuations.
If Facebook was worth $80B last week, is it worth $81B now with the addition of Instagram? Yes. Here is why. The number one thing people do on Facebook is share photos. Photos are going mobile in a big way. Instagram is the clear leader in mobile photos. Instagram added 1M users in the first day of availability on Android. Facebook needs a growth engine to show investors after they go public. Instagram is that growth engine, and it is worth much more than $1B to Facebook and its investors.
Web2.0 to Mobile - Everything is going mobile. Path, Instagram, FourSquare, are totally mobile, and don't care about the web. This could mark the turning point for another sea change; Web 2.0 to Mobile. Facebook has a horrible mobile app and needs to upgrade its mobile services. Path is the most elegantly designed mobile app, with an awesome user experience. Instagram is the best mobile photo app. FourSquare is the leader in mobile location data. All of them are critical to any company that wants to dominate the mobile paradigm shift.
Is Instagram worth $1B to Microsoft or Twitter? Probably not. Microsoft couldn't monetize the users and growth in the same way that Facebook can. Microsoft isn't focused on social or mobile photos. Twitter could realize a ton of value from Instagram, but $1B? Probably not. Twitter will still get lots of users and traffic from Instagram. They don't need to own it.
The value of a company is different for different potential acquirers. If Facebook can monetize its users in a way that justifies $100/user, than paying $30 per user for an acquisition is a great deal. For other potential acquirers maybe not. It depends on their monetization model, and what they plan to do with the acquisition in the future. This is why Instagram is worth $1B to Facebook, and why AOL patents are worth $1B to Microsoft. They both acquired good value for what they want to accomplish.
Company names and product names can be a very expensive and time consuming process. It shouldn't be because company names and URLs don't matter. One of the first things you do when starting a company is come up with a name. Most times the name you come up with is already taken for the .com URL. Much angst and frustration follows. Don't sweat it. Be more creative in your name selection process. Lets look at some very successful companies and their names.
Cisco is the most successful networking company in the world. Is Cisco a word? Does it have anything to do with network gear? No. Cisco is the last few letters in San FranCISCO. The founders are from the San Francisco bay area and thought Cisco was a short and memorable name that was easy to spell. They use the Golden Gate Bridge as their logo because that goes along nicely with the name. Neither the name or logo has anything to do with network communication gear. But, their branding and marketing made the name Cisco synonomous with networks.
Zappos is the most successful online retailer of shoes. Is Zappos a word? Does it convey any meaning about online shoes? No. Zappos is a mis-spelled derivation of the Spanish word zapatos, which means shoes. Zappos was a great name because it had no pre-existing meaning in consumers minds. No one had the trademark or domain name for Zappos, so it was easy and cheap to obtain. Tony Hsieh made Zappos stand for quality products and outstanding customer service.
Shoes.com vs Zappos.com - Should the Zappos founders have named their company Shoes.com? Would that have made a big difference in their success? I doubt it. Amazon acquired Zappos for over $1.2 billion. Shoes.com is part of a 130 year old shoe company. Which one do you think sells more shoes? Which company created more enterprise value? Regardless of the answers...the name had absolutely nothing to do with it. The branding, marketing, and customer service had everything to do with it.
Amazon.com and Apple are counter examples. Amazon had a pre-existing meaning that had absolutely nothing to do with online retailing of books. There is nothing about the word Apple that says computers, phones, or music players. In fact, the words Amazon and Apple meant something completely different before those two companies took the words as their names decades ago. Today such common words would not be available as names anyway.
Jeff Bezos chose the name Amazon because it represented something big. When Amazon started online web stores were virtually unknown. There were very few web sites, so they probably got the domain name pretty cheap. When Bezos started Amazon it was only focused on selling books online. Should he have chosen Books.com instead? No. The name probably wasn't available, and it would have limited his reach to just books. It would be tough to branch out into movies, music, clothes, and a million other things if the company name was Books.com. BTW, I just checked and Books.com resolves to BarnesandNoble.com. They probably acquired the name for big bucks at some point, but don't even use it as their company name...because it isn't really a brand name.
Google, Yahoo, Napster, AltaVista, Zynga, and hundreds more company names meant absolutely nothing to anyone before they started using them. Of course there is a story behind how they came up with the name. But, the name itself meant nothing to the public or potential users of the service.
Google is easy to remember, easy to spell, and just 6 letters short. All good things for a name. Google is actually a mis-spelling of the mathematical term googol which is a 1 followed by 100 zeros. Does the meaning of the word googol have anything to do with search? Does the general public know what the term means? No. Google is a great name because it is short, easy to remember, and easy to spell. The Google logo with its primary colors (blue, red, yellow, green) is memorable and playful. Everything about Google incorporates the playful primary colors. That is how branding works.
Napster was Shawn Fanning's nickname. He got the name because his hair was very curly and nappy. He played basketball a lot and the other players would make fun of his nappy hair and call him nappy, or The Napster. That is where the name for Napster came from. Again, the name is short, easy to remember, and easy to spell. The name is not a word that meant anything. The Napster logo of the kitty with headphones became one of the most well known names and logos in the world. That is good branding and marketing.
Zynga was the name of Mark Pincus's dog. Zynga of course is the largest social gaming company worth several billion dollars. Another friend, Shervin Pishevar, named his company Social Gaming Network or SGN. The name accurately describes what the company does, but which company was more successful? Did the name matter? Nope.
There are many other examples. The key is to be open and creative when coming up with a company or product name. Don't worry about the name meaning something. In fact, in most cases you want the company name to NOT mean something. You make it mean something later with good branding and marketing.
Great logos are important, and part of the branding program. The company name and logo are how the general public remembers your company. The Napster kitty is a great example. Today with the explosion of mobile apps, a tiny little icon represents your company on the mobile screen. The tiny blue box with a stylized T is instantly recognizable as the Twitter logo. A different shade of blue with a stylized F is obviously Facebook. The red box with the stylized P is the logo for Path. Choosing a color and an icon is just as important as the company name and logo. They all must work together in the branding.
Company names should follow a few basic rules;
- Memorable - the name should be easy to remember, and not confused with anything else.
- Easy to spell - removing vowels or doubling letters is not usually a good idea
- Short - Try to keep it to 10 letters or less.
- Non generic - calendar management is way too generic
OK, so think outside the box when coming up with your company name. Choose a logo and icon that is distinctive. Don't pay crazy amounts of money for a domain name. Make your name mean something with good branding and marketing. Always dispaly the company name and colors together with the logo or icon. Once the connection is made in the consumers mind they will work together or alone.
Some founders agonize over the name of their company and pay big bucks to purchase the domain name. Save yourself lots of time and money because it doesn't matter. At least not the way you might think it matters.
The best names start without any meaning at all. Brand names become recognizable because we make them mean something. Two startups I worked with provide good examples; AltaVista and Napster. These words had no real meaning before we started using them, but became some of the most memorable and recognizable names and logos of that time.
Google, Yahoo, Zappos, and Cisco are further examples of words that didn't mean anything until they made them mean something. That is a good thing because you don't want to confuse the marketplace with a common, well known name that already has a meaning. It is really hard to overcome preconceived meanings.
You also don't want to confuse the search engines, or rank poorly for your own name. Lets say you have a cool new startup focusing on fixing the problems of multiple calendar management. You are convinced Calendar Management is the best name for your company, but you discover that someone already owns the domain name www.CalendarManagement.com Undeterred, you offer $100,000 for the domain name. But, the owner wants more...they want 2% equity in your company too. Don't laugh...I have seen this happen many times. Don't fall for this.
Here is the problem. Do a search for Calendar Management. I got about 1.2M results. Every company that is doing anything remotely close to calendars or management has loaded their web pages with key words and applied SEO magic to rank highly for those words. The advertisers have also bid up those keywords to very high prices in order to get their ads in front of anyone searching for those terms. So, how do you think your new little startup is going rank against this kind of competition?
Company names should follow a few basic rules;
- Memorable - the name should be easy to remember, and not confused with anything else.
- Easy to spell - removing vowels or doubling letters is not a good idea
- Short - Try to keep it to 10 letters or less.
- Non generic - calendar management is way too generic
A great logo is really important. In this age of cell phone apps, a tiny logo is the face of your app and company. The association of the logo to your name and to the product is what great marketing is all about. Spend quality time on designing your logo.
Pick a unique name that doesn't mean anything, is memorable, easy to spell, and short as possible. Then design a great logo to go with your name. Don't overpay for domain names. Once a user visits your site one time the browser cache remembers the name and will auto-complete it after the first few letters...or teh user will bookmark it. So, in the end...the URL doesn't really matter.
And, BTW, CalendarManagement.com is held by a domain name squatter just waiting for some sucker to come along and offer big bucks for it. Domain name squatters are down there with patent trolls in my book. They add no value and take money from suckers. Don't be one.
The mobile social location space is heating up. EchoEcho will unveil a new version at SXSW that will find your friends indoors, where GPS doesn't work. Imagine being at the Austin Convention Center with 10,000 people. You know your friends are in the building somewhere but you can't find them. EchoEcho plots your friends on an indoor floor plan map, in real time, so you can find them with pinpoint accuracy, within 2 meters. None of the other location apps can do this. A Stanford startup, WifiSlam provides the indoor location maps to EchoEcho. Both companies have been building this functionality in stealth mode. This weekend at SXSW in Austin people will be able to use it for the first time.
EchoEcho uses GPS signals outdoors to locate your friends anywhere in the world. Lots of apps can do that. But, EchoEcho goes further by plotting your friends on a street map, then showing what building they are in. If that building has been mapped by WifiSlam then EchoEcho takes you inside the building and plots your friend on a floor plan so you know exactly where they are. Think of being in a shopping mall, or on a college campus, or at an airport or theme park. You could find your friends or family members anywhere, any time.
Privacy is an issue with some of the mobile social location apps. Do you really want random friends of friends, people you don't really know, to be notified that you are in the area? Do you really want to be notified that a person who "Liked" The Simpsons on Facebook is near you? Seriously? EchoEcho users individually opt-in to being visible to specific friends. And, you can easily decide when you want to be visible, and when you don't. Privacy matters.
The problem is not finding more random people who might have clicked on a Facebook Like button that you also clicked on. You already get inundated by too many notifications, messages, spam, and random people. The real problem is how do I find my real friends among the sea of humanity. That is what EchoEcho does, with privacy in mind.
Dead batteries in Austin. Don't be surprised to hear users of the other popular mobile location apps complain of dead phone batteries. The way they use GPS and ping their servers will drain your battery within hours. EchoEcho thought of that too. They have engineered some clever ways to get the location data without draining your battery.
Disclosure: I am an investor in both EchoEcho and WifiSlam.
Today I saw an advertisement in my Twitter stream. Not something that was ReTweeted by a friend, but an ad that looked like a Tweet, inserted in my stream. Not off to the side in a sponsored area, but right in my main stream. Facebook does this too, but usually off to the side in a "sponsored" area. This is a new type of advertising, and it could change everything.
I have heard rumblings about Twitter experimenting with new ad formats and "promoted tweets" but this is the first time I have actually seen it in my stream. The screen shot above shows both a "promoted tweet" in the left side bar, and a regular looking Tweet in my main stream with a little "promoted" label where I expected to see a "retweeted by xyz". There is nothing wrong with this, I was just surprised by it. Have any of you seen this in your Twitter streams?
Twitter works with companies interested in advertising on Twitter by creating an ad that looks like a normal Tweet. Its not clear how Twitter decides which advertisement to insert in your stream, now they target, how often they insert it, or how they measure success and get paid for success. Twitter knows a lot about you, your location, who you follow, etc, so they can do some pretty effective targeting. The real social multiplier comes when users ReTweet these ads to their followers. Then is switches from a social targeted ad to a word of mouth social ad from your friends. This could be big!
I checked Facebook to see how they do ads which they call "sponsored stories". These have been around for a long time. They usually show up off on the right side bar and are easily ignored. They attract attention by posting little photos of your friends next to them with text that says "Steve Schlafman likes Naked Apartments". I'm not making this up...really...look at the screen shot below. Be careful what you "Like" on Facebook...you never know where it might show up.
Word of mouth advertising has always been most effective. Social networks like Facebook and Twitter enable taking "word of mouth" to a whole new level. This is just the very early stages of what promises to be a revolution in advertising.
Failure is not an option...it is a requirement...to future success. Failure gets a bad rap. It is actually an important element of success. When I speak at conferences around the world I say "In America we don't use the word failure...we call it experience". You learn far more from failure than you do from success. And those lessons from failure are what prepares you for future success.
Angry Birds became an overnight success...after 51 failures. Thats right, Rovio produced 51 other games before hitting it big with Angry Birds. Can you name any of the 51 games Rovio produced before Angry Birds? I doubt it. No one remembers failures. And that is a good thing. It means your reputation is not irreparably harmed by failures.
Guitar Hero, the music game, was another overnight success that took 10 years to materialize. Harmonix produced nine other games before hitting it big with Guitar Hero. All the previous failures were required to get to the huge success.
WD40 is a popular lubricant with hundreds of uses. Do you know why it is called WD40? Because the first 39 formulations didn't work. The 40th one did and they called it WD40. The WD stands for Water Displacement.
Now I bet you can guess how Formula 409 got its name. Thats right, the first 408 formulations didn't work. In fact, lots of very successful products were the result of previous failures.
Post-It Notes are the result of a failed experiment by engineers at 3M to develop a new adhesive. It would stick to some surfaces but could be easily peeled off, or fall off with too much force. It was considered a failure until the 3M engineers thought of different possible uses. Super Glue was another product success born from a failed experiment.
Odeo was a startup focused on building a new podcasting product. They weren't having much success. One of the engineers was playing around with a side project to publish short messages to a small audience. That project became Twitter.
Can you think of other product success that came after initial failure? Or startup companies that succeeded after their first ideas failed? If so, leave a comment on the far right side of this blog.
The economy is all about confidence. Fear = lack of confidence. Greed = supreme confidence. Individuals feel confident when the stock market and housing prices are up. When individuals feel confident they spend money, and even borrow money, to buy more stuff. Consumer confidence drives the economy. When consumers spend, business do well, stock prices go up, consumers feel more confidence and spend more. Virtuous cycle.
When confidence is down consumers "de-leverage" reduce borrowing, reduce spending, which hurts business, and starts the death spiral. The Fed can lower interest rates to ZERO, but businesses will not borrow or expand because they aren't confident. Conversely, when confidence is high, businesses will borrow no matter what the interest rates (or tax rates) are.
Government can't control the economy anymore. In the old days the Fed could raise interest rates to slow down inflation, or lower interest rates to speed up the economy. It doesn't work anymore because our economy is now global, and interconnected with other global economies. Money and wealth can move globally in seconds with the click of a mouse.
Congress could raise tax rates or lower them to incentivize the economy. They could give special tax incentives (R&D tax credit, solar tax credit, jobs credit) to make certain things happen. It doesn't work anymore. Business got wise to the constantly changing rules and has decided not to play anymore.
Today it is the housing market and the stock market that drives the economy. When housing prices and stock prices are up, people and businesses feel confident...and they spend money...which drives the economy and jobs growth.
When housing and stocks are down people and businesses get nervous, consumers don't spend, businesses don't hire, and everyone gets very conservative. Economic death spiral (Fear) ensues. When this happens lowering interest rates won't help. Raising or lowering tax rates won't help. Political speeches won't help. There are no quick fixes. Economic cycles take time to adjust.
Remember one thing; fear is temporary, greed is permanent. Greed always wins out over fear. Fear = lack of confidence, and is temporary. Greed = supreme confidence. People don't want to miss out on new opportunities or fantastic buys. The economy will come back strong in spite of government policies...not because of them.
TechCrunch Disrupt has 30 companies on stage and 200 more in the Startup Alley. Here are the 7 finalists picked by judges. And here is a good review by Jeremiah Owyang. So, what looks interesting and what are the trends?
Easier to start a company, harder to build a business - It has never been easier or cheaper to start a company. Venture capital is plentiful and Angel investors are more active than ever. Ycombinator pumps out over 150 companies a year. TechStars launches another 100 or so. 500Startups is getting close to helping 500 or more. But, many of these "companies" are small apps that are more like a "feature" not a product, and certainly not a viable stand alone company.
Building a business - Most startups fail, that is a fact of life. The difference is that in the past it cost so much to start a company that fewer were actually started. Then, because it was so expensive, these startups would either live or die (run out of cash) within 12 to 24 months. Today, web startups can start for less than $50K, and stay up and running for peanuts.
Rising above the crowd - It is easier to start a company, but harder to rise above the crowd, attract an audience, and build a viable business. Social networks help build viral growth. Buying keyword advertising helps get your message to a very targeted audience. Influential bloggers and Twitter titans can help attract a lot of attention. The old school PR approach doesn't work as well unless you engage the super plugged in mavens.
Me too - I have seen 20 or 30 Groupon clones, deal aggregators, mobile deals by location, social network deals, etc. Sorry, but that game is over. Every product segment tends to have a gorilla, chimp, and monkey that dominate most of the market. Everyone else fights for the crumbs.
Another meme is "I'm the AirBnB for ...", meaning we provide a market to rent out your personal car, apartment, boat, office space, etc. on a short term basis. Social networks and web based marketplaces make it possible to sell or rent anything.
Cream rises to the top - One well known VC told me he was so tired and overwhelmed by all these startups. He was having trouble calibrating and sorting them all out. I told him this is an important part of the process, and in my view, actually makes it easier for the really great ideas or entrepreneurs to stand out. The secret to success in the VC business is to spend a little time with a lot of companies, and a lot of time with a few companies. The trick is to quickly figure out which are the few companies to focus on. After seeing so many companies and pitches the good ones actually stand out pretty quickly.
How to stand out - My last post was "How to pitch your company to investors, customers, and employees". Take a few minutes to read this post and learn why the "elevator pitch" is so important, and how to determine if someone is really interested.
Do your research - A conference like Techcrunch Disrupt, DEMO, or Launch lets you see over 100 companies in a couple hours. You can get a very good look at trends, possible competitors, features you might want to add to your product, or potential partners. When pitching a VC you must know the competitive landscape. If you don't know about an emerging competitor you look clueless. There is no better place than a conference to quickly do your market research and see all the players in one place.
I am a big fan of conferences, but I work them. I don't just sit in the audience and listen. I spend my time trying to see every company, talking to people back stage, and asking lots of questions. You can learn a lot in a very concentrated investment of time. The parties are pretty good too :-)
Mike Arrington announced yesterday at Techcrunch Disrupt that he is leaving Techcrunch and AOL. Mike thanked everyone for their support and quickly moved to put the focus back on startups and the conference. Class act. Mike has done more for the startup community than anyone else. Loic Le Meur wrote a great post about the real Mike Arrington today. Here is mine.
Mike helped me when I was laid off from Microsoft. I will never forget it. Mike was the first person to call me after I was laid off. He called as a friend, not as a reporter looking for a story. But, he did write a story, and it changed everything for me. That call from Mike meant the world to me. Thank you Mike. Mike has a huge heart, great sense of humor, and is intensely loyal. Mike changed the tech world, and I think he will change the VC world too. Think back 6 or 7 years ago, before Techcrunch, before Facebook, before Zynga. It was a very different world...kind of boring. Techcrunch brought focus and attention to startups, and made it interesting again.
Mike worked 20 hours a day, 7 days a week, to build Techcrunch. He loved his work and it showed. Mike attracted a talented team of writers and expanded far beyond just a blog. A few years ago he started Techcrunch TV to cover more startups and do more in depth, personal interviews.
Mike started TC40 with Jason Calacanis to give a bigger better platform for startups to launch their companies. They wanted to make it FREE for startups to present, and keep the focus totally on new startups. Mike went on to form Techcrunch Disrupt, a new conference with interviews of great entrepreneurs, VCs, and tech execs, and of course, lots of startups. Mike took TC Disrupt to New York and helped revitalize the NYC startup market. This year there will be a TC Disrupt in Beijing. The world wants more Techcrunch. It helps energize the startup community, and it puts the spotlight on entrepreneurs.
Techcrunch will not be the same without Mike Arrington. I hope he continues to write a blog to share his insights, humor, and curiosity. Mike should be very proud of what he created at Techcrunch, and the team he built. Techcrunch will live on as his legacy. One of his legacies.
The Venture Capital community should brace themselves for disruption. Mike Arrington will change the VC world too, and that is probably a good thing.
Thank you Mike, and good luck to you!
I see about 400 startup pitches every year. This week at Techcrunch Disrupt and DEMO conference there will be over 200 companies pitching on stage and in the demo area. The good ones stand out immediately.
How can you get noticed? Don't expect to tell the whole story, just enough to get them curious and wanting to know more. You need several different pitches. The demo pit / exhibit area pitch is 1 minute. The on stage pitch to the audience is 6 minutes. The investor meeting pitch is about 30 minutes.
Don't waste time with people who aren't interested. At a conference like Techcrunch Disrupt or DEMO you will see hundreds and hundreds of people. The goal should be to connect with five people who can help you. Be clear about what you need; customers, investors, partners, introductions, or maybe new employees. Focus most of your time on the people who can hep you the most. Don't spend time on people who aren't interested, or can't help you get what you need.
How do investors decide who they want to engage with at a conference? They look for ideas that align with their investment thesis. The secret to success in the VC business is to spend a little time with a lot of companies, and a LOT of time with a few companies. They want a quick overview of everything to make sure they don't miss anything and to see macro trends. But, they only want to spend a lot of time with a few companies that align with their investment thesis. So, if you are in a demo area with hundreds of people walking by, don't waste time with someone who isn't really interested. The one person you really need to see might walk by because you are too busy with someone else who isn't interested. Be available when the right person comes along.
How do I know if they are interested? They self select. They nod their head as you are talking. They ask a question. If you don't see any of this, or just a blank stare...move on. If the name of your company doesn't describe what you do, then make sure you have a great tag-line or "bumper sticker quote" that does. As people stroll down the aisles of an exhibit area they are looking for key words that capture their attention.
Who is your Customer? - The first question I ask a startup is "who is your customer?" or "who pays you money?". This helps me understand where the company is positioned in the ecosystem or "value chain". You would think this would be intuitively obvious...but it isn't. Many companies use the same buzz words and technologies so they all start to sound the same. They aren't. Knowing who your potential customer is helps me understand if I am a potential customer, or if my customers might need your product to build a complete solution.
What Problem do you solve? Start with the problem you are solving or the need you are filling. A real life story about a person who needs or wants your product helps the investor understand the problem or need in personal terms, and agree that it is an interesting problem that needs fixing. Too many entrepreneurs start by talking about their solution and whiz bang technology. How they do it, versus what problem they solve. If the investor is not interested in the problem…there is no way they will be interested in your solution. Once they are nodding their head in agreement about the problem, then move on to the solution. If they don't nod in agreement cut it off right there. Don't waste your time, or theirs.
What is your Solution? – Explain why your solution solves the problem, and why it is better than other solutions. We do X for Y, or we are the X (well known product) for the Y market. For example, "we are Twitter for the enterprise market". Or, we do "enterprise level security for mobile handsets". Once they understand what problem you solve, they might listen to why your solution is better. It might be cheaper, faster, smaller, easier, more enjoyable, or whatever. Don’t waste time explaining the technology, or flowcharting the process or value chain. Just explain why your solution solves the problem better than anything else.
Who is the Competition? – If there is no competition there probably isn’t a market. Naming competitors help the investor understand the problem, existing solutions, and potential size of the market. Even if you think you are inventing a new market, the problem has been there a long time. People have figured out some way to solve it. That is your competition. Acknowledge that there are existing ways to partially solve the problem, and companies that have part of the solution. Then explain why yours is better. Investors will be very nervous if there is no competition.
What is your Business Model? - Who will pay? Is your solution a vitamin or a painkiller? Vitamins are nice to have, painkillers are a must have. There are some problems that no one will pay to solve. There are other problems where the one getting the benefit is not the party that pays the money. Sometimes there are multiple players in a value chain. Be very clear about where you are in the value chain, who will pay for your solution, and how much they will pay.
The Team – What experience do you and your team have starting companies or specific experience in this market segment? Are there any well known advisors or financial backers helping you? Do you have connections to people who can help you get your first customers? This is important because in the end it is all about the team. The best ideas will fail if there isn't a team with domain experience that can execute. For example, I could have a great idea about making the best Whoopie Pie you ever tasted. But, I don't have any experience in running a bakery, or getting wholesale distribution, or Consumer Packaged Goods, so I would most likely fail to execute on the idea.
The Close – We are solving a big problem, in a growing market, with a model that works, and a team that can execute. We need X dollars to reach Y milestone. We need investor partners to help us achieve this success. Show passion and confidence. Ask them to join the crusade. This is going to be The Next Big Thing.
Spend one minute on the problem, three minutes on the solution and demo, and 30 seconds each on the competition, model, team, and close. That is 6 minutes. Practice it 20 or 30 times.
Every founder and early employee should be able to do the elevator pitch. The pitch is critically important to the success of your company. Every potential new hire needs to buy into the story just like investors do. Customers need to buy into the story too, before they purchase your product or service. This is important. Get it right and life will be much easier. Get it wrong…and you will get a NO in 5 minutes or less.
Yahoo was once the biggest and most valuable web company in the world. AOL was a dominant company too. MySpace was the clear leader in social networks. Dinosaurs once ruled the world too. They didn't die because they were big and slow. They died because they couldn't adapt to change.
How can clear leaders crumble to directionless losers in just a few years? Poor management decisions, trying to do everything, over-extending, and forgetting their core values. Can Yahoo be turned around? Yes, but it is unlikely to happen because they can't bring themselves to adapt and make the necessary changes.
The Biggest Loser - The TV show "The Biggest Loser" is about grossly overweight people completely changing their lives with diet and exercise to get back to healthy, happy people. It looks impossible. These people feel like they have tried everything to lose weight, and have just given up, or maybe convinced themselves it isn't that bad. The truth is they can do it, but not on their own. They need a coach to control every aspect of their lives, totally change their daily routines, and get them back on track. Once they do this the results are absolutely amazing.
Back to basics - Both Yahoo and AOL need to get back to basics, and focus on what is working. Some of those things that worked in the past might not work now because the competitive landscape has changed. They need to laser focus on the things that are working, and cut everything else. Literally, cut everything that is not core to their success, or not profitable.
Admitting mistakes - The concept is simple, but hard to execute. People don't like to admit that they made mistakes. They don't like to admit that they can't fix something that isn't working. They rationalize that things really aren't that bad. They always believe that given some more time everything will work out. Sorry, but it won't. This is why new management is usually required to make the tough decisions. The old management made the decisions that led to the failure and they can't admit that, and change course. Just like The Biggest Loser, they need a coach to come in and change everything. They need a plan that can work.
Complacency rules - The biggest barrier to change is complacency. We rationalize that things aren't that bad. In the case of Yahoo they have over $6 Billion in revenue and over $1 Billion in net income. Their market cap is over $16 Billion. What's wrong with that? Nothing if you are satisfied with being average. Stockholders and employees expect more.
Grand plans - Great visions, innovation, and grand plans can not be built on an unstable foundation. Sometimes you need to cut back to your core before you can resume growth. Sort of like a shrub or tree that has grown tall and spindlely, with a bunch of bare spots. You need to cut it back to the base in order to get abundant growth. So, there will be a time for grand plans and technical innovation, but for now they need to focus on strengthening the core business.
Unfortunately, this isn't TV. Just changing the CEO will not solve the problem. They need to clean house, eliminate whole divisions, cancel products, double down on the things that are working, and clearly spell out a road map to success. They will lose some employees in the process who don't agree with the direction. Pundits will complain that they have lost their vision, ruined the culture, and made reckless cuts. What they fail to realize is that the current situation isn't working, and is never going to work. They can die a long and slow death clinging to the status quo, or they can make drastic changes and pivot like a start-up would, to chart a new course.
Who could turn Yahoo around? Kara Swisher has some safe good choices. My choice would be Mark Cuban. Mark was the founder of Broadcast.com, which he sold to Yahoo many years ago. Mark understands the media business, and he understands technology. The new leader for Yahoo must be an expert in both. Terry Semel knew media, and Carol Bartz knew technology, but neither of them could master both. It is not easy.
Who would acquire Yahoo? Microsoft is not coming to the rescue. They are not likely to again offer billions of dollars to acquire the company. They already got what they wanted (search business) without buying the company.
What is likely to happen? Yahoo will probably name a new CEO with a well known name, or prior history at Yahoo. The new CEO will make incremental changes, trim here and there, and announce a new product direction. None of it will work...soon enough. Unless the economy turns around and ad spending increases dramatically...things won't improve much. Expect more of the same.
Techcrunch is living a very public drama on what can happen when you are acquired. Things change, people leave, competition reacts, and customers make choices. Sometimes these changes are great. Android was acquired by Google and changed dramatically...for the better. But, sadly, most acquisitions don't play out as expected.
Founders matter. Founders are the heart and soul of a company. The identity, vision, and culture of the company is inextricably linked to the founders. Mike Arrington is Techcrunch, and Techcrunch is Mike Arrington. This is true of most startup founders. Take the founders out of the equation and most startups will fail.
But startups grow and change. Great people join the company, and new leaders emerge. New products and services are introduced. New markets are opened up. Revenues grow, headcounts grow, loyal customers attract new customers, and momentum propels the startup to new heights.
The liquidity event - Acquisition or IPO is the financial reward every startup is working towards. Most don't make it, but those that do reap tremendous financial rewards. But, there is usually a cost...or trade-off. Things are not the way they used to be. You have new bosses, new objectives, and new rules. The culture is inevitably different.
The transition - It is critically important to the success of a merger/acquisition that the founders stay on for a few years, hopefully a lot more. Most acquisition failures can be tied directly to the founders leaving too soon. There are usually great financial incentives for the founders and key employees to stay. But many times the money just isn't enough to keep them. The founders already have more money than they ever thought they would have. The thought of adding more wealth doesn't compensate for the feelings of lost control, lost excitement, and sheer terror/thrill of running a startup.
Who stays / who goes - After a couple years most employees of acquired companies get comfortable with their new jobs, new managers, and maybe even new challenges. Sometimes they get to play on a bigger stage at the parent company. Sometimes the acquired company is far more successful than they ever could have been as a stand alone startup. This success exhilarates them. They stay with the company and grow to new heights. This is what every acquirer hopes will happen.
Successful acquisitions start with the founders - Android is an excellent example of an acquisition done right by Google. Android is far more successful today than it ever would have been as a stand alone company. Andy Rubin has stayed on and led the Android team. Rich Miner, another Android founder, is now a partner at Google Ventures. Google did a great job with the YouTube acquisition too. The founders stayed on for a long time, and the transition to new management went very well.
Then there is Dodgeball, an acquisition by Google that didn't work out. Dennis Crowley, the founder of Dodgeball left Google to start FourSquare. More recently, Google acquired Slide. Max Levchin, the founder, is leaving about a year after the acquisition. In both cases the founders left relatively quickly, and the acquisitions could be considered failures. So, even when you know what you are doing, and even with the best of intentions...acquisitions can fail.
When the founders leave too soon after the acquisition...problems are more likely. Mike Arrington has built a great team at Techcrunch. MG Siegler, Paul Carr, Erick Schonfeld, Sarah Lacy, Heather Harde, Alexia Tsotsis, Leena Rao, and many more are very strong personalities, great writers, and have their own loyal following.
Techcrunch will be fine, but it will never be the same without Mike Arrington. He is one of a kind. That is true of many startup founders. Take them out of the equation too soon...and there is no company left. Startup founders and corporate acquirers should think long and hard about how to deal with this before making the merger decision.
Technology is all about productivity. Getting more things done, faster, cheaper, with fewer people. This has been called the "Jobless Recovery". Here is why. Companies have spent billions of dollars on technology to gain productivity improvements, and it has worked. The bad news, for some workers, is that it has worked so well that some of those old jobs are never coming back. And, the new jobs that are created by technology may not be a good match for displaced workers. Take a careful look at this jobs chart.
Note how recessions (job losses) are becoming deeper and lasting longer. This chart measures job losses from the peak employment month. We are now 4 years into a job recession, and it is deeper and longer than any other recession in history. In fact, the last four recessions have been deeper and longer than others in previous decades. Why is that?
Travel agents, stock brokers, and record stores - Technology, specifically the Internet, has disintermediated and disrupted entire industries. When was the last time you used a travel agent? Doesn't everyone book their own flights and hotels online? Do you use a stock broker to buy stocks? I haven't used a stock broker in over 20 years. When was the last time you went to a store to buy music? Does anyone have a secretary anymore? When was the last time you went into a bank and talked to an actual person? Doesn't everyone use ATMs and bank online? All of these jobs have been severely disrupted and reduced by the Internet. Those jobs, and many more like them, are never coming back.
Preparing for the future - The new economy and new jobs all have a technology component. Auto mechanics today use more computers and electronics than college professors of 30 years ago. Manufacturing jobs today require knowledge of computerized inventory systems, production planning systems, test environments, digital scanning, RFID tags, and loads of other technologies. High schools need to teach kids how to use computers and information technology. There are very few "low skilled" jobs in this country. The technology bar has been raised significantly, and some are failing to reach it. Others are unaware that it even exists.
Health Care and Education - Health care and education are two of the largest sectors of any economy anywhere in the world. More people work in health care and education, and more money is spent on it, than almost anything else. Yet, these two sectors are probably the least efficient and productive. Technology has not been applied here in the same way it has in other major industries.
Labor unions dominate both sectors. Labor unions are all about preserving the status quo. They "protect jobs" by demanding "work rules" that effectively block technology improvements and productivity...because these improvements would reduce the need for some workers. Look at any job sector that is dominated by labor unions and you will see a lack of technology and productivity.
Who is right? - Politicians and government bureauocrats pontificate about jobs, but have no clue what creates jobs, or more importantly, what kills jobs. Unions talk about protecting jobs, but fail to realize how their work rules kill jobs. Perhaps they are right. Maybe protecting existing jobs and limiting productivity is the right way to go.
My view is that technology makes the world a better place. It makes things faster, cheaper, more productive, and opens limitless new opportunities. Technology facilitates creative destruction, destroying something old to create something new. It is that transition from old to new that we need to better manage. Our education system needs to prepare students for the new reality. Those old jobs are never coming back.