Sunday, November 23, 2008

Are some entrepreneurships meant to be fragile?

The disclaimers first. I am (still) an unadulterated geek at heart who knows absolutely nothing about business. Yes, corporate environments have modified my thinking: I look at effort vs. value these days much more than I would like to, especially when there's a beautiful and elegant solution at hand. Still, I am clueless when it comes to many of the questions which arise when one starts a business. That's in part, why this post is in the first place.

Startups on the internet. It surely surprises me still that Google could amass a fortune and be so valued just by making revenue out of advertisements. I am then told that I have no idea about the scale of reach the Internet provides. Point noted. I then find that the new businesses do nothing to monetize, while accruing losses. Isn't that something so fundamentally wrong? I am then told that this should happen much later in the process, when you have a sizeable user base to talk home about. But what still baffles me is how some of these startups are so very dependent on some lack of a feature out there in the internet. Don't they think about what happens when that feature finally appears out of the blue, one fine day? They obviously do, just that it doesn't strike me.

Take for example, Splicd. This service tried to improve Youtube by allowing the capability to share parts of a video as a link. Neat and much needed. Till the day when youtube got it for themselves, with surely much lesser effort. Where does this business go then? Or for that matter, the more recent Surf Canyon, which tried to 'improve' Google search results by trying to monitor what you end up clicking ultimately, and 'promote' them. Won't Google's newly launched 'SearchWiki' sound the death knell to them?

In general, there are so many of these services which try piggybacking on an existing phenomenon by implementing a feature they don't provide, and try making a business out of it. Twitter, especially, is the root for many of them. If they fail, it's the end of them. If they succeed, it sounds likely to me that the parent business would end up implementing them, and that would be much more integrated than this. Sounds like a no-win situation? Or is it just my lack of business acumen and training showing?

9 comments:

  1. I'm as clueless as you are, but there is one thing that is often said and that I've observed: Most startups which improve an existing service or provide a related new service are hoping to get acquired by a larger company. One example now that you mention twitter is, Twhirl which got acquired by Seesmic sometime back.

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  2. Splicd was made for personal necessity. I know because I made it.

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  3. @sravan That's one very common reason I do come across.. Have heard quotes like it's one of the sureshot ways of getting recruited by Google: Get a great startup :D

    @anon It's a great service you have there :) Would have been better if you had chosen to reveal yourself.. :)

    @bulbing-lady Oh really.. I really need to talk to you about why you chose to make the poor thing so dodgy :P

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  4. Hello Ramkumar - First, thank you for the mention! We hope that you're appreciating our application and we always encourage feedback.

    SearchWiki is an interesting development that is, as it turns out, complimentary with Surf Canyon. I'd describe SearchWiki as real-time *explicit* personalization while Surf Canyon is real-time *implicit* personalization. The former enables user to manually manipulate results while the latter uses implicit signals to automatically manipulate results.

    As to the larger question of defensibility, every innovative technology faces challenges. That being said, I think we have the advantage of something that is not only unique but difficult to implement. For decades, the science of information retrieval has been based on keyword inputs producing rankings as output. Our real-time implicit personalization technology uses behavior signals for inputs and produces re-rankings for outputs. The difference is far from trivial.

    There will be more to follow on http://blog.surfcanyon.com. Thanks!

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  5. I agree with your opinion in general, but this threat of a 'big guy' hitting on the same 'idea' and swatting out all the little guys is _always_ present. Consider Bloglines. It was absolutely perfect for me, but when Google Reader came up, I had to move because all my friends were sharing stuff on it.

    I can't even count the number of companies that seem to piggyback on Google. I think a less noble aim than Sravan suggested is to seem favorable to VCs, and get hold of as much money as possible. Such money is the best anyone can hope for: it's a trivial amount for a VC, and if you make a convincing enough case, you're through.

    I'm eagerly looking forward to what giant will be born of this recession. Take _any_ recession ever, and you'll see that after the dust settled, there are a small bunch of companies that come up that will go on to rule.

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  6. Hey... you are not clueless at all. I have felt this dilemma and have now pushed them to a matter of philosophy.

    If you take what people call as the value of Google, it is the share price * number of shares. (Market Cap) Only a miniscule part of this value is what they already make. The rest of it is a reflection of the market's expectation of their future earning. People expect that this would become a valuable company in the future and there is a high demand for the shares.This raises the price.

    But at the end of the day it is a bet and there is a subjective interpretation of opportunity.

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  7. In the previous case, I would not buy the share until they show more monetizable products. Others do.

    As for companies that burn cash, personally I am also not comfortable with that idea. Obviously, any business takes time to break even, but once you make freebies a habit, how do you wean customers off? They will be willing to make this transition only if the product really really provides a tangible benefit a la Skype.

    My two pence :)

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  8. @mark Thanks for visiting my blog. Yes, I do use your extension and find it quite useful :) Hope you do make it big in the search industry business..

    @kvm We are all looking for the recession to end in the first place!

    @venkat Hmm.. We already had a housing bubble burst like this...

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