VentureBlog

Unique Technology Still Matters to Start-ups

A short time ago I had breakfast with my friend Abigail Johnson. Abigail has worked with numerous August Capital portfolio companies. She is a great strategic thinker who brings to the job of public relations a broad market view that can be invaluable. At breakfast she was telling me about the results of a survey she had performed concerning the importance of pure technology in startups today. The discussion struck me as something that would be of interest to VentureBlog readers, so I asked her to share her thoughts on the survey. Here is what she had to say:

Early last fall, I started wondering if unique technology is still an important asset for start-up companies. From my perch as a long-time strategic communications and public relations advisor to VC-funded start-up companies, I had been seeing some uneasy signs in recent years that the winds had shifted.

First, my VC friends and contacts €" right here in the Silicon Valley €" have reported that many of their peers have largely become conspicuously gun shy, and had been for some time been expressing preferences for "incrementalism" rather than "innovation" in new deals. Second, the characteristics of our own "deal flow" had changed dramatically.

Since the late €˜80s, literally hundreds of high-energy, technology-focused entrepreneurial teams have been sent our way by their VCs, in search of a defensible position of leadership. In their pitches to us, it's always been the technology that drove their passions and was often the source of the company's most defensible and substantial differentiation and competitive edge. But lately, "it's the consumer, stupid" has taken over. The technology €" when it exists €" seems to be like Dirty Uncle Saul €" something you don't talk about in public, and certainly not as your raison d'être as a start-up.

Finally, there was my perception €" and in my business, perceptions (even if wrong) are important €" that the companies getting the best valuations were of late "consumer facing". Chris Shipley in her keynote at DemoFall cited her firm's research that IT departments are increasingly being forced to accommodate their infrastructures to technical decisions already made by individuals acting in their own interests. I took this to be further reinforcement that a company's story €" the one that had to resonate with the VCs and ultimately the press and influencers €" had to rest on low risk and mass appeal, and that these new biases, in turn drove the businesses (and business plans) that were getting funded, and that ultimately made it to our doorstep.

Was it possible that here, in the Silicon Valley, technology didn't matter any more for start-ups? Was the era of unique technology as "the" crucial asset for start-up success now over? We decided to find out.

We contacted about 75 key venture capitalists, entrepreneurs, press and analysts and asked them €" with a short survey €" what they thought. We got an extremely high response rate; it turned out that almost everybody was interested in the topic, and in sharing their opinion. A number of people commented that the question was provocative to them because no one else seemed to be asking it.

And, as it turned out, nearly everyone was still interested €" very much so €" in technology as a crucial asset to start-ups. You can look at the data yourself €" a summary report can be found here. But let me give you the bottom line: 91% of the respondents believed that unique technology is "usually" to "always" crucial to the success of start-ups. We asked a half-dozen additional questions, trying to ferret out why they thought it was important (for competitive positioning, for higher valuations, etc. etc.) and the report will also tell you that. But that 91% was a surprise, given the vibes I was feeling, and to me, the results were quite pleasing.

I was pleased because we have always felt that unique, cutting-edge technology is a defining characteristic of those companies that truly and dramatically improve our lives in some way, and that such companies usually have the makings of the best, most successful, and most interesting start-ups. Certainly other factors matter €" a lot. But technology is at the heart of a start-up company's leadership. I was also pleased to see €" and to be able in turn to share with entrepreneurs and those that make up their ecosystem €" that creating new ideas and unique approaches €" often from the ground up €" continues to matter €" very much.

A few other things fell out of our survey, including one interesting and noteworthy dichotomy. But that's a story for another post.

The Long Tail and Content Creation

In my recent post about Long Tail economics, I wrote about the value of aggregating and/or filtering Long Tail content. There's no question that there will be a lot of money flowing to successful content aggregators and filterers. But by focusing on the Long Tail content that already exists on the web, I missed a hugely valuable category of Long Tail companies -- content creation tools.

While a big part of the Long Tail story is the vast, widely disseminated nature of content on the web today, the other piece of the story is the incredible ease of content creation. Not only is it easier to distribute content via the web, it is easier to produce it in the first place. What once took thousands of dollars worth of equipment and huge numbers of hours to create, can now be produced on an inexpensive computer in a fraction of the time.

The power of simple and cheap content creation tools is that they democratize the content business. They empower the average Internet user to become a content creator and publisher rather than merely a consumer of professionally created music, video, etc. I am a huge believer in the value of user created content. The massive growth of content on the web has been fueled by tools that ease the process of content creation and dissemination. In fact, while I rarely write about my investments on VentureBlog, I think that two such investments strongly reflect my belief in user generated content.

I am an investor in Six Apart, the makers of TypePad, LiveJournal and Movable Type. Each of these blogging platforms vastly eases the process of content creation and dissemination. It is hardly worth beating the well-flogged blogging drum but suffice it to say that the amount of content (not to mention the breadth of that content) created on Six Apart's blogging platforms continues to grow at a staggering rate.

I have also recently invested in a company called VideoEgg that enables drag and drop video publishing. In some ways, VideoEgg does for video what Six Apart does for the written word -- it eases the process of video creation and dissemination. Innovative companies will continue to make publishing to and from the web increasingly simple and accessible to the public at large. User generated publication will include text, pictures, audio, video, perhaps some day holographs, who knows. And the companies that are the most successful at facilitating the creation and dissemination of that content will reap significant economic rewards (not to mention positioning them to better aggregate and filter Long Tail content as well).

So while there is big money to be made filtering and aggregating the burgeoning Long Tail content on the web, it is worth also keeping an eye on the content creation and dissemination tools that are fueling that content explosion. User generated content is an important driver of the Long Tail and the tools that enable that creation will be increasingly valuable.

CES: One Inch Better

I've just gotten back from the Consumer Electronics Show in Las Vegas. Las Vegas is a zoo when there aren't an extra 180,00 people running around. But during CES it is an absolute mess. Just getting to and from your hotel is a challenge of epic proportions. It doesn't even help to rent the bright yellow stretch Hummer. It will just get stuck in traffic (although it will be a little slice of heaven -- twinkling stars on the roof and all -- on your way to dinner).

This year's CES was bigger than ever. But it would be hard to argue that it was better. In fact, to the extent that anything on display at CES was better than last year, it was only marginally so.

Case in point -- flat screen televisions. You could not turn in any direction at CES this year without seeing the "latest greatest" flat screen television. Toshiba and Canon were touting their SED TV (Surface-Conducting Electron-Emitter Display). Sharp was showing its Mega-Contrast LCD (1,000,000:1 Contrast). Every company had its own spin on the perfect viewing experience. But the reality of television innovation can be summed up by the battle of the gigantic plasma screens. Last year Samsung proudly displayed the "worlds largest" plasma TV. It came in at one hundred and two inches. The Guinness Book honors this year, however, went to Panasonic which was displaying a . . . yes, you guessed it . . . one hundred and THREE inch plasma. (It made about as much difference as Nigel Tufnel's amplifier going to 11.)

Since size didn't matter, the TV manufacturers were left to "innovate" in more creative ways. While I frankly can't imagine the real world uses of the technology in the near term, both LG.Philips and Toshiba were displaying 3D LCDs. They used optical tricks that resulted in different viewing experiences for both eyes, thus creating the illusion of three dimensions without the need for any goofy glasses out of the cereal box. The LG.Philips TV created that illusion by inserting a visual "parallax" barrier between the viewer and the pixels. The barrier blocked different pixels for each eye, thus producing a three dimmensional effect (if you stood in the right place!). The advantage of that process was that it could be turned on and off, thus making the LG.Philips a switchable 2D/3D LCD.

Equally useful was the the Sharp "Two Way Viewing Angle LCD." This panel used the same affect as those plastic kids trading cards that look like Clark Kent from one angle and Superman from another. If you stood on one side of the Sharp display you would see one picture but if you shifted over a few feet you'd see another. And if you stood right in the middle you'd see a little bit of Clark Kent, a little bit of Superman, and get a headache. Sharp was touting it as a great in-car display because it could present different visuals to the driver (maps) and the passenger (Seinfeld). Of course both the driver and the passenger will get neck aches looking sideways at the screen.

All in all, CES has become too big for its own good and if the excitement of next year's show is a 104" plasma or a 4-way viewing LCD, I suspect a bunch of us will stay home in the new year rather than rush off to Las Vegas.