Tag Archives: internet

Y Combinator: Living the Bubble Dream

Two of the higher profile technology incubator programs – Y Combinator and Tech Stars – recently announced their graduating classes (read about them here and here), and in looking at the companies, I saw, yet again, some reminders of the 1999-like frenzy that the technology industry is currently experiencing.

A few thoughts:

  • Not everything needs to happen online; some things (eg. grocery shopping) satisfy a ton of people in their offline incarnation
  • Lots of things are already online and don’t need a new vendor. Just because you call yourself the Airbnb of vacation rentals doesn’t mean that VRBO, the very successful existing vacation rental website, needs to be “disrupte.”
  • Vertical slicing doesn’t work online. It turns out that the Yelp for contractors is Yelp.

We saw this back in 1999: remember “vertical portals?” Yahoo for gays was PlanetOut, and that didn’t work out too well at all. Vertical slices sound good on paper, but they just don’t work; online it’s just too easy to move from site to site to get what you want. We also saw in 1999 the dot-coming of everything. “We’re going to take your garden online!” Umm, no, you aren’t.

The article about the Y Combinator class even admitted that these companies aren’t world changers, but “perhaps they’ll save a headache or two.” When this is the best that a boosterish tech reporter can come up with, you’ve got problems.

One Reason Startups Fail

Come on, people! At least try to make your apps more than punch lines for blogs like mine. Just days after posting about the shakeout among mediocre consumer technology companies, I see a review of three apps designed to help you split the bill with friends/roommates: Billr, SplitWise and OpnTab. As regular readers know, I think that any company with a name like Billr is destined to fail. When it’s an app that does nothing you can’t do with a calculator (which is built into your phone), then its chances of success are even lower. In addition, despite the savage failure of Blippy, the app that shared with your social graph the details of all your purchases, here we have the launch of Mine, which shares with your social graph the details of all your purchases. Venture-backed technology is at its best when it solves big problems. Three apps that help you divide by seven are not solving problems at all.

Silicon Valley Shakeout: Yes, Many Startups Fail

The press is going crazy here in Silicon Valley with pieces about the coming shakeout in startups. The basic story is that over the past few years, the growth in angel investors led to a lot of mediocre ideas getting seed funding, and now that the froth is off the market, those mediocrities are finding it difficult to raise additional money from venture capitalists.

PandoDaily gives a good summary here. Dan Lyons, a well known tech journalist (and creator of Fake Steve Jobs), has a more savage take here. The following quote kind of summarizes his piece:

For the past few years we’ve had people calling themselves “investors,” who have no experience investing, swanning around the Valley, slinging money at people calling themselves “entrepreneurs” who have never held an actual job, let alone run a company.

My view is that this shouldn’t surprise anyone. The current social/mobile bubble has been obviously following the trajectory of the 1999-2000 dot.com bubble (see my prior posts on this topic here, here, here and here), and any rational observer could see how it was going to end. Just like a decade ago, the promise of quick riches drew hordes of young, aggressive tech wannabes who launched me-too companies, features posing as companies, or simply bad ideas. And just like a decade ago, huge amounts of capital desperate to be put to work meant that bad ideas got funded. But bad ideas become bad companies, and bad companies start to fail, and VCs don’t put more money into failing companies.

Ten years ago, the mantra was “let’s dot.com category X.” Now it’s “let’s take category X social. Or mobile. Or both.” But either way, good ideas with good execution get traction, and bad ideas don’t. PandoDaily looks at the travel space and explores it as a microcosm of everything that’s happening. Bad companies with bad names ( Dopplr, Tripl, Gtrot) are all going away, because they never should have existed.

This is really a standard Silicon Valley cycle; it’s just getting worse. There was once a time when VCs funded one hundred disk drive companies, which also ended poorly. Now it’s that the cycles are stronger and draw more wannabes from further away. More press and more billionaires mean more people coming to enter the lottery. I mean, now we have a reality TV show about good-looking young entrepreneurs (or perhaps I should say “entrepreneurs,” since the folks on that show are exactly the people Dan Lyons savaged). Back in the 1980’s nobody made a reality TV show about 45 year old engineers starting disk drive companies.

Outsourcing Parenting to Technology?

I was at an event the other night featuring a panel of education technology entrepreneurs talking about how their companies teach kids skills beyond the traditional three R’s of the school curriculum. For example, Class Dojo is supposed to use gamification to improve kids’ behavior, with the founder talking about the importance of improving self-control (the famous marshmallow experiment). EverFi teaches kids financial literacy and Mindset Works is meant to change the very mindset, or self-conception, of children.

Then I got home, and saw on TV that Verizon commercial in which a kid’s family can’t be at his French horn recital, but they can watch him via connected devices. It’s a sweet commercial, for sure, and someone sitting on my couch (not me) got a little misty eyed. But it got me thinking that maybe we are outsourcing too much parenting to our technology.

I mean, yes it’s sweet that the kid’s dad uses a tablet camera to watch the recital, but wouldn’t it be better if the dad were actually there? And to the extent that self-control can be taught, shouldn’t parents be teaching it rather than some technology company? Especially since most of these education tech companies are started by entrepreneurs, not educators or child psychologists (except for Mindset Works).

I’m not trying to criticize any of these companies or entrepreneurs, all of whom are doing good work trying to help kids. And I’m not criticizing parents or teachers who use these tools. I’m not even definitively saying that I think using these tools is bad. After all, leveraging technology is something that we all do. When I use Excel instead of green ledger paper, am I outsourcing my financial analysis to Microsoft? No, I’m just using a tool that makes me more efficient. So why does it feel different when it comes to parenting?

Perhaps I am just hopelessly retro, thinking that parents should manage kids themselves, instead of using every tool available. Perhaps it is because I am not (yet!) a parent, so don’t fully appreciate the desire to do everything you possibly can to improve your children’s lives. Or perhaps I fear that parents who outsource teaching their children aren’t using the found time to be with their kids, but on themselves. I can’t rationally pin down why this parenting technology makes me uncomfortable; it just does.

Readers, what are your thoughts?

More Tech Bubble Data

Come on people, you’re making it too easy for me. A social network for people with curly hair?

Yes, It Is A Tech Bubble

We’ve seen lots of talk recently about whether there is another technology bubble going on, with LinkedIn’s super successful IPO, and shares of Facebook, Twitter, et. al. trading on secondary markets at multibillion dollar valuations. I lived through the first dot.com bubble in 1999-2001, and based that experience I am saying right here, categorically and emphatically, that we are definitely in another bubble. I will add some caveats at the end, but listed below are my top reasons for calling this a bubble. Every single thing I list below also happened in 2000, and made rational observers then realize that we were in a bubble. The more things change, the more they stay the same.

A) Insanely high valuations with no reasonable relation to the metrics (revenue, income) of the company (LinkedIn, Groupon)

B) Retail investor hunger for tech stocks. Back in 1999, we were all talking about Joe Kennedy’s famous line: “when you get stock tips from your shoeshine boy, it’s time to sell.” When the public is hungry to invest in a category, it’s a bubble

C) Farcical metrics. In the dot.com era we were supposed to look at eyeballs, not revenues. Now Groupon tells us that we should ignore marketing costs and look at “adjusted consolidated segment operating income

D) The emergence and venture funding of many copycat businesses. How many flash sale or social coupon businesses do people need? And what about Color, which raised $41 million to launch yet another iPhone photo sharing service, and reputedly only shared 5 photos during the iPhone developers conference and had its president leave within months of launch?

E) Especially the emergence and venture funding of narrow vertical copycats. For example, Juice in the City is Groupon for moms, Pawsley is Facebook for dogs, Everloop is Facebook for tweens (who will, by definition, leave as soon as they are old enough to join Facebook), etc. Anyone who lived through the dot.com remembers “vertical portals.” That didn’t work out so well.

F) Society and entertainment figures or kids fresh out of Stanford and Harvard business school as entrepreneurs.  (Juice in the City, Rent the Runway, Ashton Kutcher.)

G) Venture funds you’ve never heard of leading rounds in vertical copycats (Juice in the City funded by HU Investments and Tandem Enterprises)

H) Companies you’ve never heard of buying prime time TV commercials (Peel)

I) Ridiculous and nearly identical company names (Buzzr, Socialzr, Apptizr  etc.)

J) Weekly launching of new “incubators,” in which people, some with limited experience, will mentor new companies in return for some equity (Growlab, Capital Factory). Or one incubator, 500 Startups, that funded two nearly identical companies: StoryTree and Vvall.

K) Putting a tech sheen on non-tech companies so that they can raise money at tech company valuations (The Melt)

L) Features posing as companies. A clever little web widget, even a useful one that gets a lot of users, might not be enough to support a viable company. And starting companies that you know can only succeed by being acquired is a classic bubble move. For example, StumbleUpon, Blippy. Actually, Blippy alone is enough to prove my bubble hypothesis. Only in a bubble could that company have even existed.

Now for the caveats, or counterpoints:

As many have noted, some of these companies, particularly the big ones (LinkedIn, Groupon) are generating real revenues. Back in 2000, revenues were a rare thing. However, I should note that neither LinkedIn nor Groupon are particularly profitable. Neither is Pandora. Twitter still doesn’t really have a revenue model. The random widgets and apps that are raising money? Not so revenuefull.

There are more customers now. With the spread of broadband and smartphones, an online business has a much larger base of potential customers than in 1999. That means that the same capital investment can, theoretically, be spread over a much larger revenue base.

This bubble is focused on consumer-facing internet businesses. Not all tech companies are being lifted by the bubble. Microsoft, Google, Amazon and the ilk at still trading at normal to relatively normal valuations.

The Newspaper of the Future (ie. Now)

The painful decline of the daily city newspaper is well chronicled by now, so much so that there is even an entire website dedicated to watching newspapers die. The causes are myriad (see the footnote below), but they can generally be tied to A) the internet; and B) changing patterns in the consumption of information.

Papers have tried a variety of approaches to counter these trends, with most of these approaches based on changing websites (paid, free, semi-paid!) and cutting costs. Few of these approaches, however, have even touched on content strategy. As regular Thoughtbasket readers know, I firmly believe that content is king.  My thoughts on what city newspapers should do are highly influenced by my reaction to my local news market, San Francisco. SF’s historical daily, The Chronicle is, and always has been, a terrible paper. The Chronicle’s website, SFGate, is even worse than the paper.

My advice is pretty simple: relentless focus on local journalism. Cover city hall, cover local issues, cover local teams. Big parade for Columbus Day? Cover it. District attorney owns a strip club on the side? Cover it. Downtown real estate prices dropping? Cover it. Cut costs by getting rid of all non-local coverage. A city paper doesn’t need any national or world coverage. License a few AP stories to give your readers the big picture basics, but certainly don’t have a Washington bureau. Maybe, if your city is big enough (ie. Chicago, LA and not much else), you have one reporter in DC to cover what your Congressmen do. In the same vein, maybe you have a reporter in your state capital, but purely to cover local issues. Leave broad coverage of the state capital to that city’s paper. If your readers want state, national or world news, they know how to find it: on the internet!

Do people care about local coverage? Absolutely. Think about the old axiom that all politics is local. Because people care a lot more about the pot holes near their homes than they do about Washington DC discussions of foreign aid. In my city, San Francisco, there are not one but TWO new papers that have launched purely to provide deep local coverage. Both are non-profits, it’s true, but they clearly sense a consumer need or they wouldn’t have bothered to raise the money required to launch. And that is in addition to the two local alternative weeklies, one of which has repeatedly (like the two stories summarized here) broken major stories about local politics that the Chronicle has missed. Plus you have AOL’s Patch, which provides hyper-local coverage. Moreover, the old afternoon paper, The Examiner, is still around, although kept alive through some payment deal with the Chronicle. The presence of all these local news sources tells you that people want to read local coverage. The question is why the big legacy local papers, who should own this space, don’t cover it.

Some people say that you can’t make money on local news because good local coverage will eventually cause discomfort to the powerful and wealthy in the community, who will then pull advertising. Certainly a strong local paper will, at some point, have to cause some pain to the city’s power brokers. Since most cities are run by a few wealthy families, a couple of businesses, and real estate interests, everybody knows what the sensitivities are. But it’s exactly those sensitivities – corrupt politicians, incompetent civil servants, venal and debauched businessmen – that readers crave. Readers want to know the truth about the powerful, and as long as a paper speaks that truth, it will have readers. And if a paper has readers, there will always be advertisers ready to pay to reach those readers.

Footnote with more specific causes of newspaper decline:

  • Craigslist
  • The end of the local department store
  • Decreased public acceptance of journalistic “authority”
  • Family dynasties seeking cash instead of a legacy (hello Bancrofts)
  • A generation that prefers screens to paper
  • Lower margins for car dealers