The Silicon Valley VC Disease

Yesterday at the Mobile Web Wars event (here’s video of that), held right before the TechCrunch party, David Hornik, partner at August Capital (he’s the host of the TechCrunch party) told the audience that he would not invest in pure iPhone apps because the iPhone had too small a market share and that anyone who wanted to get big in the mobile space should go after all phones, not just the iPhone, which, while it’s hot with early-adopter types and is seeing people waiting in lines to buy around the world, hasn’t yet made a dent in, say, Nokia’s market share of cell phones overall.

Let’s call this the Silicon Valley VC Disease. This disease has been going on for a long time. Seagate’s CEO Bill Watkins told me a few months ago that Seagate almost didn’t get started because they couldn’t get funding from VCs who didn’t see a potential market for hard drives. UPDATE: See the comments below where I learned that August Capital is one of those who funded Seagate.

It’s a corrosive disease, too, and is why we get tons of stupid Facebook apps and tons of easy-to-make and likely-to-go-viral iPhone apps. Quick: explain why we don’t yet have a really brilliant travel app or even a single political app for the iPhone, despite lots of interest in those topics (especially in this political year). Not to mention many brilliant apps like Evernote (my favorite app so far)?

What is the disease? That you must make bucketloads of money (or at least have a shot at doing that) in the first two years of business.

If you have a plan to make just a reasonable amount of money, or if it will take decades to make a big amount of money, don’t come to Silicon Valley.

Walmart would NEVER have gotten funded by Sand Hill Road. It took decades to make bucketloads of money. That kind of business plan would never fit in here.

Why? We have the Silicon Valley VC disease.

I imagine that if we went back in time to 1977. Imagine a small group of geeks wanted to get funding to build apps for the Apple II. It didn’t have much market share yet. But imagine those developers wanted to build just Apple II apps. Would they have gotten funded? Probably not. And types like David Hornick would have told them “you gotta build apps for mainframes and DEC’s, because that’s where the market is, not in that Apple II toy.”

So, is Hornik wrong? No, he’s exactly right. The much bigger market is with regular-old-single-chip-cell phones. You know the type. They are the kinds of phones that make phone calls and maybe do SMS texting. If they have a Web browser it’s a small tiny black and white one that can only look at WAP-style text-centric sites, not the full-blown Web that the iPhone has.

But while Hornik is right, he also has the Silicon Valley Disease. He forgets that the small, seemingly unimportant platform today that gets early adopters excited will become the large, dominant platform of tomorrow. It might take 10 years, though, which is too long for VCs to care about. How long did it take Visicalc to happen on the Apple II? Or Aldus Pagemaker to happen on the Mac? A few years at minimum. iPhone is only one year old.

But already we’re seeing the writing on the wall. If you can get past your Silicon Valley VC Disease.

First, our society’s most valuable audiences are getting iPhones. Last week when I was in Los Angeles, both of the famous architects I interviewed already had 3G iPhones.

Those two guys are HUGELY valuable for advertisers. They are representative. They aren’t the only ones.

But even better than the demographics that the iPhone is getting is the usage patterns.

See, I have two Nokia phones and a Microsoft Windows Mobile phone too. They all suck for using the Web. Fine for email and for texting, but really suck for using the Web.

Go see Google’s Vic Gundotra (he’s Vice President and runs a bunch of the teams that build things for mobile phones). He told me that usage on the iPhone is “off the scale” when compared to other phones.

Simply translated: people who have non-iPhone phones simply aren’t using them for anything other than email. This is easily verified. Sit next to a Blackberry user and watch what they do. I do that all the time. All you see them doing is email and light Web use. Now sit next to an iPhone user and watch what they do. Much more heavily used on photos, maps, Web, and video.

An iPhone user is easier to reach and is easier to get to try new things. Plus, the iPhone app store makes it very easy for an app to be tried out and loaded.

But back to the Silicon Valley VC disease. It’s the same disease that Microsoft execs have. Or, really, most big company execs, or worse yet, our government workers, have truth be told.

They won’t adopt anything until “it’s safe” and until there’s a HUGE business reason to do it. It’s why huge parts of our government are still run on paper. Why there isn’t a database anywhere of all of our elected officials in the United States. Why Microsoft didn’t compete with Google until too late. Why General Motors won’t build great all-electric cars until after Tesla or Toyota beats them to the punch. Etc. Etc.

Luckily the Silicon Valley VC Disease is having less and less effect lately.

You can startup a company with very little cash, because you can build it on cloud-based services like Amazon’s S3, which let you get started and show the world you’re getting adoption even before you go for VC money.

And, luckily, not every VC has the Silicon Valley VC Disease. Lots invest in stupid, small, weird, ideas for platforms that only have a percent or two of market share. Go see Jeff Clavier, for instance. He’s been doing that a lot lately. I met him in the office of Tapulous last week, which makes iPhone apps.

Why shouldn’t you listen to Hornik and others who have Silicon Valley VC disease?

  1. It’s easier to start a company on new platforms. Why? Because the big money probably hasn’t moved in yet, or at least they haven’t become established.
  2. People who buy new things are FAR EASIER to convince to buy other new things than people who have had the same stuff for years.
  3. It’s easier to build a brand on a new technology than it is to do that on an older, more established one (hey, everyone has a radio in their cars, but you don’t see VC’s funding new radio stations, do you? Why is that?)
  4. The best, most transactional and monetizeable audiences are those that pick up new things. Think about it, would you rather have a customer like Dan Meis, one of the world’s best architects or someone like my dad who still uses the same TV that he bought from me in the mid-1980s?  My dad is a nice guy and very smart, but he’s a horrible customer to have and is going to be very expensive to get to adopt something new.
  5. It’s a lot cheaper to get adoption when influencers (read bloggers and journalists and Twitterers and FriendFeeders) are talking about you. What are they talking about right now? iPhone apps. Look at Summize, the search engine Twitter just bought. What’s one of the trending topics on the home page? iPhone. Get over it. They ain’t talking about Nokia or Microsoft.

Anyway, I just find it interesting when VCs start telling people not to support a platform when there’s lines around the world waiting to buy that platform. If everyone listened to that sentiment we’d never see any innovation in the world.

So, who is working to prove Hornik wrong? Drop me a line.

Oh, and David’s a nice guy and throws great parties. Thanks David for letting me in last night and for giving me something interesting to blog about today. 🙂

UPDATE: As usual lately a much more interesting conversation about this post is happening over on FriendFeed.

Ray Ozzie delivers with Live Mesh

Microsoft’s fans are delivered to the promised land.

For three years now I’ve wondered “what is Ray Ozzie up to?” And with this announcement you see just why he’s Microsoft’s CTO. Yeah, there are about 100 smart people working on Microsoft’s new “Live Mesh” which was turned on tonight, but this is Ray’s coming out party, as much as anything.

It also gives key insights into how Microsoft is going to keep Windows relevant and keep us all from sliding into a Web that doesn’t rely much on the underlying operating system. Will Microsoft succeed in that? Well, they better otherwise we’re all very close to washing Microsoft out of our hair: forever.

It’s very hard to explain it all in a few words. It took 1.5 hours this morning for them to peel off the covers and show me all of Mesh’s feed goodness and start to explain what’s coming. What Mesh is today is mostly some end user functionality that looks like Plaxo Pulse done right, but if you stop right there and either get excited or dismiss it, you’ll miss the point entirely.

Yes, the synchronization features that most of you will notice when you start up the Live Mesh are pretty cool. Unfortunately they aren’t even close to being finished. Mac support? Coming in the future. Nokia support? Unclear. iPhone support? Ask Steve Jobs (translation: will be very limited due to Apple’s complete control of that platform). Firefox support? Yes! Linux support? What’s that?

When you start up the Mesh you get a desktop and you can build a new folder and you can drag stuff into that folder and share it. Simple enough. Then you can add a piece of software to each of your machines (XP or Vista right now only, Mac later this year) and that folder will be automatically synced.

But if you stop right there you’ll say “isn’t that like FolderShare?” Yes, it is.

Keep looking.

There’s a Window that has news generated by the sync system. Hmm, this looks vaguely familiar. Sorta like Facebook’s news feed. With a dash of Twitter thrown in. Funny that they showed me a prototype of how Twitter and Facebook items could be shoved in there. Oh!

Let’s keep looking.

There’s a way to wrap up Web sites into a sandbox’ed app and take them offline. Oh, cool.

So, what’s doing this? MOE!

The “Mesh Operating Environment.”

What does it have? An HTTP server (aka a Web server). That lets the Mesh run stuff that’s offline.

And MOE also has handlers for many wire formats including ATOM, JSON, FeedSync, RSS, WB-XML, and POX.

Now wait a second. This thing understands feeds underneath its covers! And it’s not just one way RSS the way, say, Google Reader treats RSS. It’s a new two-way system that both receives Atom (default) or RSS feeds from other MOE’s as well as sends them out to other MOEs.

And, everything has a URI so you can subscribe to everything in the system with, say, Google Reader. Hmmm. I wonder what Dave Winer will think about this system.

We haven’t even gotten into the developer SDK. They spent about an hour showing me how to build new kinds of syncable apps on top of the Mesh in a variety of tools.

Now you’re just getting a taste of how Microsoft is going to use the Mesh to stay relevant. It is bringing its developers onto the Internet in an interesting new way.

Is this ready for mom and dad to run? I’d wait, this needs some major testing and hashing out. But developers should absolutely take a look at this.

Several Microsofties pointed out that this is only a small portion of the Mesh strategy that’ll be revealed in October at Microsoft’s Professional Developer Conference.

TechCrunch’s initial post is now up
, and that Microsoft will have several videos on its Channel 9 Website. UPDATE: Here’s the first with Ray Ozzie. Keep tuned to Twitter all night, cause we’ll discuss this in depth 140 characters at a time.

UPDATE: I didn’t even mention the identity system, er, social network underneath this.

UPDATE2: Mary Jo Foley has “10 things you need to know about Mesh.”

UPDATE3: It’s already on TechMeme, with tons of other info linked off of there.

UPDATE4: it’s fun to watch the news flow. Here’s a search for Microsoft Mesh on FriendFeed. Here’s one on TweetScan, which shows every Twitter message that mentions Microsoft Mesh. Here’s Google Blog Search, which shows all blogs that mention Microsoft Mesh.

UPDATE5:, another Microsoft video site, has a video demo that’s similar to the one I got today.

UPDATE6: the Mesh team has its own blog.

Jeff Sandquist already got things underway on Twitter.

I’m sure we’ll do some Qik videos tonight too to show off some of why I say this demonstrates Microsoft has a compelling Internet platform and strategy now.