Startups and Innovation..

I just read about Facebook's acquisition of Hot Potato . The company was founded last year, took in $1 million investment. Facebook paid $10million cash for the company.



Over the past 5 years, the speed at which things are evolving is mind boggling

• Facebook has 500 million users and it was just beginning 5 years ago,
• Twitter wasn't around 4 years ago,
• The entire super mobile experience with its rapid growth largely happened in the past 3 years,
  
• Cloud computing, You Tube, Social games, Kindle, IPads, ....

The list could go on.. Even with a big recession, technology is evolving so rapidly.

It's not that more investor money is going to startups in the past 5 years than before . It's not that startups are going public and making a ton of money than they were before.

It's because it's a lot cheaper to experiment now than it was 10 years ago. Like Hot Potato, you can start a company with less than 200k these days, and run it for a year with less than a million dollars. Isn't that amazing!

Failure rate is probably higher than it was 15 years ago but it does not matter because it does not cost much to fail. You can test critical hypothesis cheaply and this leads to a lot more trying.

Is Google really the next Microsoft?

There are bunch of recent articles predicting that Google is the next Microsoft - Unlike 2005 when this was used in a positive way, these articles are negative about Google.

While its an attention grabbing title, I think these articles are focusing on the wrong reason - They all say Google has competitors in search ( Bing? come on seriously?) and that it is a one trick pony and has not been able to build a business in something other than search.

Search is only a means to an end and that end is Advertising dollars for Google. It's a given that Google needs to find alternate revenue streams (other than advertising) and they are definitely trying. But there is a real threat even to their core advertising business. While a competitor could get advertising dollars by building a better search engine - I believe there is different risk for Google in its advertising business.

Today's market:

• Offline media spend/year - its ~150billion. Online is less than 40billion.
• Most of offline spend is in brand building, Online is mostly direct response ( e.g. SEM)

We can make 2 hypothesis -

1. Online and Mobile Advertising spend is going to grow significantly.
2. Brand building will be the large share of the spend.

Today most of our marketing spend even in Livemocha's case is ~direct response (SEM) - partly because we are looking for the most cost effective ways to get users but also because the channels/mediums to build brands online is not there yet. SEM just does not give the kind of content and medium to build a brand - you need more video, interactions, feedbacks etc. Google has a couple of properties that are well suited for brand building e.g. Youtube but they have not leveraged it well enough. Android is still in early stages.

Facebook is quickly becoming the best positioned company to take advantage of the shift to brand building spend online. For e.g P&G which spends ~10B offline is spending enormous money on their facebook integrations and is very bullish about facebook. For its part facebook is building better tools for Brand Advertisers.

This is a big risk for Google - If online marketing tomorrow is $100 Billion - ( with $60 Billion in brand building ) - facebook could end up capturing most of it and that's a real problem for Google.

Apple IPhone 4 antenna issue

What's the best way for Apple to deal with the antenna issue?

Apple has announced a press conference tomorrow morning to talk about iPhone 4. It's a painful issue for Apple to deal with no doubt, and their best shot in this situation is to say

• We screwed up
• We have fixed it
• All of you who bought iPhone4's that were affected get a free replacement or $100 off

At least that says - even though its not as big an issue, we care about our user's experience deeply.

Google should buy Pandora

Pandora - Internet Radio service is one of the most popular apps on the IPhone, Android and Blackberry platforms.

(source: chart of the day)

Google and Apple are in what many are comparing to the PC wars between Apple and Microsoft. On the PC prior to 1995, the key advantages that Microsoft had was open model ( which meant many manufacturers could use its OS, prices were lower, more apps were developed for it) and the killer app on the PC was word processing and Word worked better on Windows.

If you look at the top apps on smart phones today - it looks like the killer apps are:

1. Communication, social interactions (email, facebook...)
2. Music, Video( in fact if you add ipod and pandora usage, it might be #2).

On #1 - Apple does not have any advantage - in fact gmail is better on android.

On #2 - Apple has a big advantage. ITunes.

There is no way Google is not working on a music service - they tried to acquire Lala which Apple bought.

Buying Pandora will give them good ammunition in the mobile war

• Pandora has an amazingly huge/loyal user base. The service is profitable and could do $100 million this year. Revenue comes from advertisements, subscriptions and payments from Apple and Amazon.
• They also have a lot of data on people music tastes and thumbs up/down data. ( They had over 500 million thumb feedback data in 2007. Its likely in billions range now).
  

They have to deal with some legal issues, but it gives Google a great service, to add to whatever service they are already building. The challenge is that if Pandora is already making $100mm and profitable, it won't be an inexpensive acquisition.