Tech has been a notoriously complex business because of the Timer phenomenon. New opportunities open up, get attacked, problems get solved, companies get built, and market windows close. There is a Timer on most of the tech opportunities, because once a market window closes, and a market leader or two are established, the Timer goes off in that market. No more opportunity, no more investment, no more interest from VCs …
Going forward, however, the Timer phenomenon is going to be less of an issue because many of the tech businesses of the future will not be based on “problem solving”, but rather, on “emotional appeal”. Anyone who has ever been in Retail or Restaurants, knows, that success depends hugely on positioning, branding and user-experience. Consumers have low switching costs, are willing to try new brands, and new stores, cafes, restaurants get born every day.
The Internet will be no different. Today’s preferred Internet store may be RedEnvelope in shopping for gifts, but tomorrow there will be 50 to 500 other choices, each with their own appeal and merchandise uniqueness.
Same with Content. Movies get made every year. Books get published every year. Indeed, it is a “hits” business. Internet Content will be no different. Money will be lost and made. Hollywood’s film industry and New York’s Publishing Industry – both have much to learn from and teach the Silicon Valley investors on how to evaluate “hits” deals.
Another emerging “fad” business is social networking. Kids, Teens, Adults – all go to clubs. MySpace is a Club. It’s hot today. Tomorrow it may or may not be. And just because I go to one club does not mean I won’t go to fifteen others that I find attractive for different reasons. Again, no Timer. Clubs open all the time. Clubs also close all the time.
In summary, as the Silicon Valley venture business matures and gets increasingly into these “No Timer” businesses, how to evaluate an investment is changing fundamentally.
Remember that question all VCs used to ask once upon a time: “Is this a must have or a nice to have?” “Is this a pain-killer or a vitamin?”
Well, iPod was neither a must-have nor a pain-killer, until the oozing sex-appeal injected into the brand by Apple made it so.