I always chuckle a bit when i hear the concept of the internet bust. Venture Capitalists are essentially lemmings that will happily jump off the cliff as long as the others are running just as fast. There are many reasons for this but the primary reason is that most of them come from the financial world, have very limited or no technology adoption understanding, and for some reason just cannot understand what adoption of technology takes, the chasm, the early adopters, etc., nor do they wish to learn.
Venture Capital is not scalable due to their is really only one company that will win with any new NEED, or Market Pain, The Gorilla will win, The Gorilla can start out with two guys in a basement, and displace a 10,000 person company "overnight" (within 2 years).
The problem is that Venture Capitalists tend to pick "Winning Teams" ie experienced or succesful people in their first company. This doesnt work, because the companies technology adoption is often times not dependant on the C-Level Executives, nor do they often bring any value to a company. The Technology itself, great middle management and most often a great technology team usually are the drivers. The C-level guys take the credit but were not responsible for the success, or most times, have any idea of why or why not their company is doing well.
But if you take a look at the only functionalities that were adopted, and made sense initially, there were 10 startup companies fighting for positioning during those exciting years of 1996-2000 when things were really cooking. All we really needed was the followoing:
Microsofts - Explorer - the platform to use the internet - a winner.
AOL - email - a way to access the internet, and use email - a winner. (smart enough to buy a real company before the competition ate their lunch for them, cant say any of the others are that smart, nor will their brands significantly transfer over to any other segment)
Yahoo - News/email - a winner
Google - Search engine who won - google isn't the best search engine, not even close, but everyother site was very crowded on the front page, the crisp one line search was the reason they won, period. I still use metacrawler its better.
ebay - replaced yard sales (early adopters, late adopters, and laggards still attend yard sales)
Real networks - watching video online.
skype - using the phone online.
linkedin - replaced the phone book business pages.
facebook - replaced the phone book white pages/yearbooks/sewing circles, and holiday cards all in one.
So thats about it for replacing fundamental things online, everything else will be in the later adoption cycles.
So far the early adopters choose the above, they will have those markets, and most likely nothing else, people cant use one brand to do fundamentally a seperate task, thats not how were set up, and its always fun to watch these big winners waste their money on attempting to get into a seperate business using the brand, they always fail.
But anyway thats a huge BOOM, not a huge bust. The 20 or so Venture Capitalists who understand technology shifts spend all their money on a dozen companies who are chasing the big win, thats what they are supposed to do, thats how they win, and they expect to most of the time be in the companies who will loose. There is not enough room for thousands of vc, investing in more than a dozen companies attempting to do the same thing. There is always one winner, one secondary winner who will take 10-20% of the market, and 3-4 bottom feeders that are walking dead but covering costs in any market, which if they hit another need they will replace the existing gorilla in that space and so on and so on.
Whenever a Government, or Entire Industry starts investing in startups, 95% of that money will be wasted completely not ever to return, because they have no expertise in identifying what TECHNOLOGY will win, but lots of expertise in picking a TEAM, that seems to always loose.
The good thing is this pattern will never change, most simply do not spend time understanding, or simply cannot understand the technology adoption cycle, so go get them guys, and dont lose hope, there is always one or two areas that are ready to have a technology replaced, but typically not more than one or two per industry.
Till next time. A.D. Bernstein
Venture Capital is not scalable due to their is really only one company that will win with any new NEED, or Market Pain, The Gorilla will win, The Gorilla can start out with two guys in a basement, and displace a 10,000 person company "overnight" (within 2 years).
The problem is that Venture Capitalists tend to pick "Winning Teams" ie experienced or succesful people in their first company. This doesnt work, because the companies technology adoption is often times not dependant on the C-Level Executives, nor do they often bring any value to a company. The Technology itself, great middle management and most often a great technology team usually are the drivers. The C-level guys take the credit but were not responsible for the success, or most times, have any idea of why or why not their company is doing well.
But if you take a look at the only functionalities that were adopted, and made sense initially, there were 10 startup companies fighting for positioning during those exciting years of 1996-2000 when things were really cooking. All we really needed was the followoing:
Microsofts - Explorer - the platform to use the internet - a winner.
AOL - email - a way to access the internet, and use email - a winner. (smart enough to buy a real company before the competition ate their lunch for them, cant say any of the others are that smart, nor will their brands significantly transfer over to any other segment)
Yahoo - News/email - a winner
Google - Search engine who won - google isn't the best search engine, not even close, but everyother site was very crowded on the front page, the crisp one line search was the reason they won, period. I still use metacrawler its better.
ebay - replaced yard sales (early adopters, late adopters, and laggards still attend yard sales)
Real networks - watching video online.
skype - using the phone online.
linkedin - replaced the phone book business pages.
facebook - replaced the phone book white pages/yearbooks/sewing circles, and holiday cards all in one.
So thats about it for replacing fundamental things online, everything else will be in the later adoption cycles.
So far the early adopters choose the above, they will have those markets, and most likely nothing else, people cant use one brand to do fundamentally a seperate task, thats not how were set up, and its always fun to watch these big winners waste their money on attempting to get into a seperate business using the brand, they always fail.
But anyway thats a huge BOOM, not a huge bust. The 20 or so Venture Capitalists who understand technology shifts spend all their money on a dozen companies who are chasing the big win, thats what they are supposed to do, thats how they win, and they expect to most of the time be in the companies who will loose. There is not enough room for thousands of vc, investing in more than a dozen companies attempting to do the same thing. There is always one winner, one secondary winner who will take 10-20% of the market, and 3-4 bottom feeders that are walking dead but covering costs in any market, which if they hit another need they will replace the existing gorilla in that space and so on and so on.
Whenever a Government, or Entire Industry starts investing in startups, 95% of that money will be wasted completely not ever to return, because they have no expertise in identifying what TECHNOLOGY will win, but lots of expertise in picking a TEAM, that seems to always loose.
The good thing is this pattern will never change, most simply do not spend time understanding, or simply cannot understand the technology adoption cycle, so go get them guys, and dont lose hope, there is always one or two areas that are ready to have a technology replaced, but typically not more than one or two per industry.
Till next time. A.D. Bernstein
