The Irony of Bubble 2.0

A few days ago, a good friend sent me an email with  a link to David Hornick's piece on Built to be Bought in Bubble 2.0 and asked if I had seen it.  I replied defensively: "Yes.  I hope you don't think I'm this dumb."  In retrospect, the reply deserved a lot more.  If you read the comments to David's post, they add a lot to my gut reaction.  To paraphrase them:

*There are quite a few feature companies.
*Feature companies are big gambles.
*Talk of web 2.0 is limited to a pretty small group.
*An acquisition is a legitimate exit strategy.
*Getting bought out isn't so bad.
*If you're even thinking about it, build on an existing platform and market space.
*Bubble 2.0 talk is boring.
*Sh*t happens.
*There is a larger, interesting trend at work around the web.
*VCs are the ones who are feeling the pressure.
*Rem tene, verba sequentur (I didn't really follow this guy but I kind of got the sense that I agreed with him - I think the next bullet point actually sums it up).
*It takes serendipity, not luck.

Silicon Beat says Riya is built to be bought.  By its own description on its home page, Riya automatically tags people in photos.  Is there any online photo product manager in the world who hasn't put this on a roadmap only to be told "Whoaaa.... slow down there partner" by the engineers?  Moreover, despite Riya's bold mission statement (We will be successful when we can find every digital photo in the world), we know at least one company who eats that kind of thing, accompanied by a team of quality engineers, as a side order at breakfast.  On the other hand, Munjal Shah has written that Riya has just finished the "process" of Series B and Peter Rip is talking about founder buyouts in lieu of acquisitions (likely unrelated, and a great piece in its own right, but too hard to resist making the inference).   Riya makes for a great bubble 2.0 case study then.

First, Munjal Shah seems to me to be the type of person who wants to build and is capable of building a great company.  When I first started blogging, I looked for blogs of other founders/CEOs to follow and he is one of the first I came across and instantly liked.  I believe Munjal totally understands that while every company must sell differentiated features (and he's got a fine one), that is not enough to justify a long term standalone existence.   Second, Riya's focused technology in a defined market is precisely what would make it an attractive acqusition target.  I don't think we have seen many examples of companies being acquired by any of the big players where there is no technology or other meaningful innovation. 

More importantly, I also think that if you look at how any of the big companies got to their own position of dominance, it was precisely because of highly focused innovation.  Just as Russell Beattie does, we  all tend to wonder where the next great company will come from, but I am willing to bet that it is a company we already know, that has a highly committed founder/leader and is quite narrowly focused in a big market.  Great companies in the making are almost always happy to stay highly focused on getting one thing really right, which allows them to accelerate innovation in even greater ways later.  That's where the genius of the serendipity comment above comes in.

I get tired of bubble 2.0 talk because it is mostly anecdotal, example free and certainly lacking statistics - perhaps more aptly it could be called a blogger bubble.  While I do find that a lot of venture capital folks are feeling pressure to invest, it does seem that it is much easier this time around to pick the weak companies from the strong, and the weak are really not getting much attention from any community - user, investor or potential acquirer.   In other words, it does seem to take a real company to be successful by any measure in bubble 2.0. 

 

Comments

[Munjal Shah]

Dorrian thanks. I believe that tech is the key to creating an initial advantage, network effects are the key to creating a sustainable advantage, mass markets are the key to huge revenues, and frugality is the key to creating a profitable business. We are trying to build this ... one brick at a time.

[Oliver Starr "stitch"]

Dorrian,

Just swung back by your blog for a look and caught the tail of the 2.0 Bubble post. Interesting stuff indeed.

Here's a thought: as you know, I'm an Executive in Residence at Angel Strategies, more well known due to the reputation of John Garcia, Managing Principal ( http://www.angelstrategies.com/as/jgarcia2.html )than for any other reason. In listening to John talk to entrepreneurs about exit strategy, which he does at some point during the first meeting he has when exploring a potential investment, he usually says something about identifying companies likely to look at the entrepreneurial venture as an acquisition candidate. Or as he puts it "when you can find a company who's CEO doesn't sleep at night unless he knows your company is OK, you've found an acquirer."

Now I'm not about to disagree that the valuation and sudden flipping of a number of Web 2.0 companies isn't indicative of a bubble, but I think the idea that building a company with the intention that it be acquired rather than stand alone for IPO isn't foolhardy by any means, and in fact, for the entrepreneur, it's one of the only ways left to hit a home run.

Particularly if you are an incredible engineer or programmer, but have little desire, and perhaps also lack the skills to operate a public concern, well, you could go to work for Google, or Yahoo or Micosoft and get paid a reasonable salary to create exactly the same program, only now, you don't own it, your employer does, and it is integrated into the collective genome of that company (which resells it as part of another package and profits on it in so doing).

Maybe you get a pat on the back. Maybe a bonus. Maybe you get your name in the applcation's credits like folks at Adobe...but I doubt you get a couple of million dollars for it.

When seen in that perspective building something that you know has exceptional value when integrated into another company's product offering is simply being smart.

Let's face it; from an engineering perspective it might be the same job, but from a paycheck perspective with a risk/reward ratio that is accordingly balanced, the same performance by the same person has two entirely different valuations; with the entrepreneurial road being far less certain but far more lucrative when success is found.

That's not a bubble, it's simply a good economic decision for someone sure of their abilities, and a bet I would take (and have taken), every single time the opportunity to do so has arisen.

Oliver Starr "stitch"
http://www.mobile-weblog.com