In these waning days of 2007 thoughts predictably turn to the coming year and the trends that will both foster new investment in emerging sectors and put out to pasture long-simmering “next-big-things” that will not come to pass. If the cocktail chatter along the venture holiday party circuit has been any indication, opinions are particularly varied this year.
Amusingly, year-end prognostications among venture capitalists are fast becoming as commonplace (and weighty) as that of bejewelled psychics on the morning talk shows with all their attendant influence and profundity. That said, I do find myself increasingly spending time rummaging through the cupboards of specific areas of technology that I find especially intriguing and compelling. Therefore, in the same familiar vein of unfiltered, stream-of-consciousness ramblings that generally describes this column; I offer my own technology predictions and trends to watch for in the coming year.
1. The consumer internet revival lives on — with caveats. Depending on how you bookend it, the consumer internet resurgence is arguably entering its fifth year. That said, the boomlet in this revived sector seems disinclined to yield its momentum to the more ‘traditional’ sectors of IT venture investment in the coming year. Much of this stamina has to do with the convergence of specific factors including, but not limited to: (i) increased user comfort and confidence in transacting, connecting and collaborating online; (ii) heightened security protections for financial transactions and clearer paths of recourse; (iii) richer user experiences brought about by more robust applications and the ubiquity of (relatively) cheap broadband access and bandwidth; (iv) greater capital efficiency in launching consumer internet companies in the presence of cheaper infrastructure brought about, ironically enough, by the over-investment and over-capacity of the last consumer internet boom (and bust); and, (v) the maturity of the GYM contingent (Google-Yahoo-Microsoft) and their continued appetite for applications, features and functionality that continues to provide viable exit paths for young consumer internet companies in the absence of a robust IPO window.
So much for the good news. The cautionary tale here — writ large by several high-profile examples in the social networking space, in particular — is that the consumer internet ecosystem is especially susceptible to what we inelegantly term the ‘hot new club’ problem. True customer loyalty in the ecosystem is extremely hard to build and even harder to retain. New entrants offering ‘cooler’ features, or just a more hip sensibility, can easily poach an established company’s entire user base in weeks. Hence, the newer, hotter, hipper club problem. This exists, in part, because the intellectually beautiful notion of network effects is almost never in evidence in the real world. Try though they might, few consumer internet companies have been able to demonstrate that they can foster true network effects in the eBay sense of the word. As such, the notion of ‘locking in’ users has proven to be folly.
So, in that sense, in the consumer internet ecosystem you truly live by the sword and die by the sword. Those beloved low entry barriers and modest investments that allowed many entrepreneurs to build and launch their consumer internet companies later become their accursed Achilles heels as new entrants jump in en masse as soon as those companies demonstrate that a viable market exists for their solutions.
Several high-profile social networking companies learned these lessons first hand. Although many of those same companies remain active and, with luck and perseverance, could well turn out to be the home runs that they were almost pre-ordained to become, the lesson here for consumer internet companies and those who invest in the sector is that this is an unusually tricky landscape to navigate. Successful marquee investors, experienced management teams, impressive mindshare, and first-mover advantages are no insulation from early stumbles and near-death experiences. With some indulgence it can be argued that early social networking applications were a form of disruptive technology in the Clayton Christensen sense of the word whereby the particular features and functionality that would ultimately resonate most with users were essentially unknowable at that time. As such, without the benefit of reliable historical reference, management teams underestimated the value and impact of now ubiquitous features and add-ons such as blogging, pix, message boards, and the like on early social networking platforms. Follow-on competitors, however, correctly predicted the importance of those features and functionality and effectively leapfrogged past early entrants.
2. The return of the entrepreneur. In technology markets, the pendulum tends to overcompensate when it reverses the direction of its swing. The late ’90s tech bubble, and a pliant media, almost single-handedly created the image of swashbuckling 20-something founders and their teams of young lieutenants building billion dollar (too often, largely on paper) technology juggernauts. The reality was quite different, but the image created by early successes such as theglobe.com and Netscape became both cemented in the minds of many and a sustaining image of that heady time for most. With the subsequent market correction came calls for the proverbial ‘adult supervision’ and ‘gray hairs’ that was to bring steady, measured hands to right the ships run aground by the hubris and inexperience of young founders. While few can argue against the wisdom of bringing in experienced managers for the right company at the right time (and for the right reasons), founders bring something to the culture and fabric of an early stage company that no professional manager, regardless of pedigree, can bring.
Much has been written about how many of the great, sustaining technology companies are still largely run by their founders or early executives (Microsoft, Apple, Oracle, etc) or how founders have been brought back to right the ship and reinvigorate the rank and file when things went awry (Yahoo, Dell) that it scarcely bears examination here. The management adage that ‘one can teach skills, but one cannot teach character’ is axiomatic. Taking some license with that well-worn phrase, I would add that one can hire execution, but one cannot hire vision. It is vision, I would argue, that is the underpinning of all truly great companies. It is vision that helps navigate a company through great strategic challenges and setbacks; and, it is vision that stirs the spirits of employees and persuades them to make great sacrifices in the pursuit of grand, though often elusive, goals.
I sense greater emphasis among my fellow investors on the importance of strong founding teams again. Correspondingly, I also sense a diminished belief in the notion of being able to engineer a turnaround at a floundering company by stacking the team with experienced outside managers. This equates with greater scrutiny being placed on the entrepreneurial team with an eye to seeing them take the company a great deal farther in its evolution than might have been anticipated even a year ago. So, while experienced managers — especially those who have taken a company through an M&A exit or an IPO process — will always be in demand, 2008 will be a good time for solid, impressive entrepreneurial teams to found great companies and find willing investors to partner with. The image of the ubiquitous 23-year-old internet company CEO circa 1999 may be fit for the dustbin of recent history, but the passion, vision and resilience of great founders — regardless of age — is more important now than ever.
3. The intersection of Location-Based Services, travel and tourism begins to live up to the hype. For several years now, I have sat through at least a couple pitches a month where an entrepreneurial team waxed poetic about what the application of GPS technology would mean to a whole host of consumer services and applications. In some instances there wasn’t a figurative dry eye in the house given the compelling case that can be made for how our lives would be transformed by the delivery of real-time, location-based information mashed up with a host of content and features.
Where things typically came off the rails was around how to navigate the Byzantine complexity of the wireless carrier/device manufacturer competitive landscape and how to develop an architecture that would run on numerous, incompatible devices and still deliver a high quality, consistent user experience. The frontage roads and byways of Calif. Hwy 101 and Massachusetts Route 128 are littered with the carcasses of companies that thought they had these problems licked. That said, significant advances are now being made in this area and 2008 looks to be the year when the long-held promise of robust services operating at the nexus of GPS, travel and real-time information will become a reality.
The “GPS-meets-content” mashup is a broad brush, but we are most excited about developments at the intersection of GPS and travel content whereby travelers will be able to access travel guidebook-level content delivered to their GPS-enabled devices while touring a given area, anywhere in the world. These “guided tours” will be able to be delivered on foot, in a car, or in virtually any other format. The vision is a bold and compelling one, which we have written about before on this site. The concept is to permit users to create their own tours by setting conditions for what their interests are. The tour content creation and delivery engine — which is a vast database of short audio clips with GPS waypoints embedded in them — will deliver the content that is to be heard all along the chosen route.
Beyond the initial interest one can expect from travelers looking to get off the tour bus and take greater control of their travel experience by being able to create their own tours and enjoying them at their own pace, there will be vast user-generated-content implications as well. Users will be encouraged to create their own custom tours, upload them, and share them with others.
4. Steeper and Deeper: Search goes vertical, horizontal and perpetual. The search ecosystem will continue to remain an intriguing area for investment in 2008, with exciting new companies offering up novel ways to slice and dice search results with greater speed and relevancy. Regardless of what search result “satisfaction” index one cares to consult, the level of user satisfaction with typical search results at most of the leading search engines has been dropping. In response, “vertical search” engines that offer narrowly focused search results on a given area continue to gain traction. We expect to see a continued growth of vertical search engines as well as companies offering more robust vertical platform solutions where people sharing a common affinity or need can collaborate, share opinions and, of course, conduct targeted searches.
Moreover, we expect to see a new crop of exciting companies in the coming year offering “perpetual” search solutions — either in a standalone way or in the context of other offerings. The basic premise is to eliminate the tedium of having to check and re-check online rental listings, auto sales classifieds, etc by being able to post what is being sought just once — i.e., 2003, Blue/Tan, BMW, 325i, Automatic, etc, — and have the search engine deliver updates until a match is found. Auto classifieds and real estate listings are obvious, but the solution will also be applicable for any kind of data where a user would like regular, near-real time, automatic updates when new information is posted on the web — company information and announcements, sports team results, events and tickets, etc. Companies to watch: Cartango (autos), SimplyHired (jobs), Trulia (real estate).
Finally, 2008 will see the continued emergence of companies that offer click-by-click search optimization whereby search results are re-populated based upon user inputs — i.e. clicks – to deliver greater relevancy, make better recommendations, and cut the typical search result clutter. As an example, a user seeking information on Dolphins by entering “Dolphins” as a search query will typically get thousands of search results. However, once the user clicks on a result indicating she is interested in Dolphins, the mammal, all references to search results concerning, say, the Miami Dolphins, the NFL football team, will be removed and only search results having to do with the mammal will remain. Additional clicks bring narrower results, and so on and so forth until a manageable set of highly relevant search results remain. Companies to watch: StumbleUpon, Surf Canyon, Collarity, Mahalo.
5. Social networks get serious…or struggle for relevancy. Forgive the facile analogy, but a common criticism of social networking services among those who have been persuaded to join one is they have become akin to the boring cocktail party where everyone is standing around and nothing interesting or worthwhile is really going on. The host was successful enough in getting everyone to attend but little thought or planning went into how to entertain (and retain) the party’s guests. In the real world, we are finding growing numbers of people of all socio-economic backgrounds creating user accounts at social networking services but admitting to rarely visiting and, thus, getting very little value out of the relationship. One can argue that this is a “user problem”: those darn users have simply not understood how to leverage the features of the social networking platforms to which they belong. That may very well be, to a point, but we prefer to abide by the adage that the customer is always right. Thus, if this is becoming a common criticism (and it is) then the companies are failing here, not the users, and the companies must find ways to add value to the social networking experience lest their users desert them en masse.
Echoing some of the points made in Trend #1 above, one might say this is just another version of the ‘hot new club’ problem, but it goes deeper than that. We are perceiving a sense of social networking fatigue now. Consumers are loathe to join yet another social network given how little they have derived from social networking to date. As such, the ecosystem as a whole is risking damage to their collective reputations unless more robust solutions are offered and better customer service is delivered to help users get value from their relationships with social networking applications.
One response which we are seeing in greater frequency is simply to go deep. Vertical social networks are becoming commonplace – social networks for doctors, teachers, even those thinking about attending grad school, etc — in an attempt to deliver more relevant information for those in a given field. We expect to see these vertical solutions expand in 2008. No one wants to join another social networking application. As such, we also expect to see a great deal of M&A in this space for 2008. This will be driven by the ‘more mature’ social networking applications with millions of registered users but increased customer desertions appealing to newer companies with powerful features and functionality but low user registrations due to the reluctance of consumers to join yet another social network.