One of the predictions I made about the effects that the recession/depression will have on the IT spending was that it would separate the wheat from the chaff in the startup space, validating those companies that provide real value and impaling those that are built on hope and coolness-factor. In an incredibly tough economic environment like the one we’re currently in, companies that don’t actually provide value quickly go to zero. Deflationary credit collapses have a nasty habit of popping bubbles of any and every kind, technology bubbles included.
Even Google is not invulnerable. They have exactly one business
that makes money–online advertising. The amount of money this
business makes is DIRECTLY related to the amount of money companies
have to spend on advertising. When credit evaporates, so do
advertising budgets, and so do Google’s profits. If you own Google
stock you’re painfully aware that it has been a train wreck recently. Traffic keeps growing while earnings keep shrinking.
And you don’t find out how bad the business is until earnings are
released. The only thing you can watch in real-time is the anecdotal
evidence: grumpy founders, chopped benefits, and key employees leaving. Ignore the signs at your own peril. Hopefully the term "The Next Google" goes the way of Jaiku in the near future.
Sergey Solyanik puts the problem nicely, after having recently exited Google for Microsoft:
Google software business is divided between producing the "eye candy" -
web properties that are designed to amuse and attract people – and the
infrastructure required to support them.
That’s
the rub. People will pay to be amused, but I don’t see anyone *I* know
forgoing a movie or dining out in favor of looking at their house from
a satellite.
However, one of the great things about the free market is that
startups that actually DO add value still have no problems monetizing
themselves, even during financial disasters like we’re experiencing
right now. Two recent examples spring immediately to mind, Jott and
Balsamiq.
Jott is a company which provides voice recognition capabilities. I wrote a detailed review of Jott a
while back. The nicest thing about Jott is that it provides an
extensible architecture so that you can plug it into other online
services, turning your voice into a generic data input device. They
recently announced that they’re going to start charging users for service after recently coming out of beta,
and I for one will gladly pay for it. They save me time and money, and
I have no problem paying to support this useful service. Especially
when they remove the omnipresent "beta" label and support it as paid
software. From conversations I’ve had with other Jott users they feel
the same way.
Balsamiq is an Adobe Air
application for mocking up user interfaces. This was the domain of
Visio and Photoshop for the longest time, and only recently have I seen
applications built specifically for this purpose. It seems like a
small thing, but if you do any sort of software brainstorming
whatsoever it was either a pencil, paper, and scanner, or Visio.
Balsamiq saw the opportunity in this niche and addressed it directly,
building an incredibly useful piece of software that people have no
problem shelling out $79 for. And while it’s still young and a little
buggy, I love the software have added it to my stable of regularly-used
software. It’s a great example of adding value, even when the value
being added isn’t flashy or exciting.
These are just two recent examples that spring to mind of companies
adding real value and thriving in an economically challenging
environment. I’ve heard that Balsamiq is doing great financially, and
all the indications I’ve seen say that Jott will succeed in making a
lot of money as well. And I couldn’t be happier, companies that add
value deserve to be compensated for it. Companies that don’t add value
deserve to be financially spanked for making stupid plans. (This goes
for GM and Ford too, by the way–tax payer bailout my ass! You fail to
gauge the market correctly and you deserve what you have coming.)
To be honest, I’m happy to see this shakeout happening. While eye
candy is fun and can be nice when layered on top of real functionality,
it is NOT a raison d’être.
