Why are tech firms buying out smaller start-ups?

Consolidation in the technology space. It’s happening. Much has been said, heard and analysed when it comes to the recent Whatsapp acquisition by Facebook. Valuations were being tossed around and here’s an interesting graphic on whether it was worth $19 billion to start with.┬áThat being said, i’m looking at bigger forces at play in the technology space. As textbook economics will tell you, consolidation is a phase that kicks in mature markets when the big players begin to swallow the smaller and more active ones up.

Acquisitions have been happening for quite sometime now. But some of the interesting one’s in recent times have been Google buying Motorola and then selling it off to Lenovo. Microsoft buying out Nokia and they did give in to market pressures by releasing an Android phone just yesterday at the Mobile World Congress’14. Microsoft also bought Skype nearly a year back and killed its own messenger. Software firms have been increasingly snapping up hardware companies. It’s clearly about building capabilities to have more integrated software and hardware. Apple has been doing this for decades with a very closely knit user interface that has been winning customers over for years. Pretty much like them, the other companies are also trying to tightly integrate services to have the customers locked in for longer period of time. Look at Google, that is trying to foray in to nearly every possible nook of our life as it builds its inventory for the internet of things. You’re using maps, gmail, search and docs for starters. As any marketeer will tell you, its always cheaper to retain customers than to go out and acquire new ones.

Here’s a drill-down of what i think about the entire consolidation bit:

1. Customer stickiness: Companies want customers to buy a product and integrate it so tightly that they are unable to breakout.

2. Eat the competition: As start-ups have more breathing room and flexibility for innovation, let them build great products as the big cats will swallow them up to eventually kill the competition if any.

3. M&A industry: Who else is laughing all the way to the bank? Consulting firms. In fact software acquisitions made up nearly half of the deal value in this space as per PwC.

4. Increasing usage: Big tech players are always looking for means to increase usage and as Metcalf’s law says, the value of any network lies in the number of connected users on it. Hence you see why software services have been aggressively merging or finding new ways of driving usage for their platforms.

5. Start-ups don’t always need an IPO: It’s increasingly difficult for a small company to go public and put itself under the scanner. Investors and analysts will slice and dice not only excel spreadsheets but also any single move that key people make. By cashing out and selling themselves to a larger firm, they can avoid all the pain. All of this when they might have not even achieved the vision they started out with.

6. Hide failures better: The chances of a start-up making it big are rather slim. In fact, the odds seem to be against them. Once they have generated enough buzz and got a fancy valuation. The small fish can then afford to dissolve in the system and chances are if they were going to fail, little would anyone get to know about it.

With all of this in place, we can only hope for better products and services. While some of these partnerships may have benefited the firms, what remains to be seen is how innovative they can really get. For now, the entire space has become a playground for many small firms to pitch their products and see how quickly they can go to market or gain more funding. At the end, the customer stands to benefit the most from this!

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*Image source: Flickr (labelled for reuse)

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The New Digital Age : Book Review

The New Digital Age. The title promises precisely what the book delivers. I mean, what else would one expect when two big names unite to share their views and perspective on what digital holds for the world in the future? Eric Schmidt has been at the helm of the ever innovative Google and Jared Cohen who is a Rhodes Scholar and the director of Google Ideas. Cohen also makes it to the Time’s 100 most influential people in the world list this year. Being an avid non-fiction reader, there are many times i’m let down by some books when they really don’t get me as much information i’m hoping to seek. But this book had me glued. I mean, we google stuff so often and hear a lot about the changes that keep coming up in Android / Google Products. However, this book is more of an exploration of the information explosion that has happened over the past few years. Data is clearly the glue that will be binding a lot more than plain business or social media.
The book starts off with an introduction to our future selves. This part talk about education being the base for innovation and opportunity. We are already seeing this take to full force with children using tablets in schools which are aided by an army of apps that are simplifying classes for the masses. It goes on to talk about a better quality of life enabled with the high level of customisation that can be done using smartphones these days and how this will be pathbreaking in health care support. This is followed by the future of identity, citizenship and reporting which covers authenticity of profiles, the level of social uprising triggered via social media, government surveillance etc. We have already seen how several people and corporations handle their online image (reputation). I particularly found the idea of insuring one’s online identity against theft, hacking, fraud etc. I believe the time for this has almost come to try out and agree that online identity will be the new currency. They also go on to highlight the consequences of VOIP and P2P networks that can exchange data more privately (VPN). The AADHAAR program back home has also been cited to indicate the magnanimity of the UID initiative by our ruling government. I believe we know of quite a few scams in the recent times for this as well.
In the future of states, they have covered a variety of countries in the levels of censorship that are being dictated. Starting from China’s blocking of Facebook, Tumblr, Twitter to Turkey’s blocking of Youtube for 2 years over a debacle for taking down videos that were derogatory to the nation’s founder. Political & cultural censorship is taken up by South Korea, Malaysia and Germany which i think is a far more effective model.
We have all heard of the Arab Spring. The duo talk about how in riots, the internet lent a way for females to express themselves without being hurt. Also when the government blacked out the internet to avoid the spreading, the setting up of @Jan25voices handle helped in letting the world know about what was happening, albeit without any policy influence. They talk about a model where successful leaders will be able to address the concerns of both virtual and physical constituencies. I reckon this is happening as we speak in the Indian context where there are twitter armies for Modi (BJP) and Rahul Gandhi (Congress) battling it out in the trends and mentions everyday. 
Terrorism is another key issue that is detailed in this book. Activists, local networks, simple start up kits for them to propagate the hate would be enough. This will be a big issue for technology firms in terms of screening content due to the sheer volume of uploads per second across the web. Since most sites work on users reporting abuse / flagging content as abusive, the process will take time for them to actually block stuff. In the future of conflict, combat and intervention they address how a single post / photo/ tweet can be the beginning of something bigger on the lines of a revolution. A scary part talks about the “human flesh search engines” in China which basically means that there are scores of people whose objective is to search and track down the individual posting specific content that could be offensive. They go on to mention combat using robots and the dilemma of machines making an error during a highly targeted mission.
Lastly in the future of reconstruction they talk about how telecom in Somalia is so cheap that people actually drop international calls to call relatives back! In terms of community service, the HAITI campaign is mentioned where “text to donate” helped Red Cross to raise USD $5 million for relief campaigns. An interesting part talks of how crowd-sourcing will enable the culture of accountability. This is the most optimistic part where they go on to hope that creativity and bandwidth will be key drivers of innovation. All in all, i feel that even if you’re not working in digital this book is a great read to know what the frontier of technology looks like.
*image source credit: standard.co.uk

Why should you ‘Check-In’ on Foursquare?

Chances are, that you’ve heard of Foursquare: the location based social networking platform. Almost every social media junkie you’ve met is right now, at this very moment checking in to his/her favorite spot. I like the fact that on social, you’ve got platforms that are specific to the purpose. While i may not want to share my coordinates with everyone in my Facebook friends list, Foursquare let’s me share it with a select few.

However, there is much more to Foursquare than just being another platform to engage bleary eyed students, tech – enthusiasts or common people. Recently it raised funds through debt financing to further propel its growth plans. While all of this may show that there is value to be garnered, I have some points to ponder:

1. ROI : Yes, its the ‘word’ for anyone in social media. Foursquare in its 4 years of existence has received $110 Million in financing. Out of these venture capitalists have powered up to $70 Million. But, if you look back at the total revenue for last year, Foursquare made just $2 Million!

2. Valuation: It’s paramount to check for decent valuations and projections/forecasts for the firm you wish to invest in. According to estimates, Foursquare was valued at $600 Million. This just baffles me.

3. Growth Life-cycle: Typically any platform such as this goes through the following stages:

  • Introduction: Pitch/Launch at a influential event. The way Twitter did back in ’07, Foursquare was launched in SXSW ’09
  • Steep Growth: Backed by early adopters and influential base, there is an exponential growth that is seen
  • Monetization: Logically, the next step where you begin to reap monetary benefits out of the base you have acquired
  • Quick Exit: If there is any hint/indication of the platform not growing further, the plug is pulled out quick enough for a painless exit.

From these stages, we can see that Foursquare has crossed step 2 in a sluggish way. They are still trying to crack monetization. The main playing field they have is 50 Million data points, through which they can get marketers to put ads and target users based on their location. I guess by using this as an API they should be able to reap some benefits. Currently the total user base is estimated at 30 Million (actual active users are unknown)

4. Funding Options: Now the reason why they had to go for Debt Financing? From my basic finance course back at the B-School, entities typically tend to go for equity/VC funding. The risk of paying back is much less, plus the valuations on sheet look good. Debt is the route taken up when all other modes fade. So, does this indicate at a lower valuation or estimates being revised downwards?

5. Gamification Vs Review App: The gamification part comprises of earning points everytime you check – in. If you’re a mayor, flash around your coin and earn goodies at your favorite restaurant. Else you’re engaged by earning badges. However, Foursquare wants you to leave tips which serve a tiny reviews for the place you’re at. Be it a tourist spot, restaurant, bus stop or the daily commute train station, you can simply leave your tip to guide others around. I don’t think Foursquare should take up this route as there are several other popular apps that serve the purpose. Its important to differentiate their offering here.

So my personal take? I think Foursquare is here to stay if they crack the monetization bit. It’s also crucial that they don’t take that objective to the hilt like Facebook. While its lovingly designed in NY and SF, it will take a lot more to get the love from users all across the world!

Facebook’s Home Window?

So the much hyped “Facebook Home” event took place yesterday. This was a finality of sorts to the rumored Facebook Phone that had created quite a buzz off late. While, there was nothing on the hardware front, Facebook has come up with a software that should be able to further refine the user experience.

It was quite intriguing to have made the assumption that there would be a new phone. That’s cause Facebook is software centric and it wouldn’t make much business sense to compete on hardware with a much evolved and highly competitive market scenario. Hence, they made the correct logical choice of sticking to software. What exactly does this mean for us?

Since the update is to be rolled out on a select few Android OS phones, the experience is going to be reserved for a limited number of handsets. On the OS front, Facebook has everything to gain. The home screen will be more people centric, building around what is most relevant to the user. In the midst of the brouhaha, smaller apps are bound to get pushed in to a corner. While this could prove to be good for people who need a limited number of options, the more app crazy user such as me would find it cumbersome to keep going in to layers to use apps.

To an extent, this is pretty similar to the tile interface that windows phone have. This is a big debate, as to whether Facebook just stole Microsofts idea. Afterall they do have a huge base of nearly 700 million users that serve as a potential playground to roll this out to.

I wonder if this would actually be path breaking or is this another cog in the Facebook machine to justify that there are shreds of innovation that are in progress. After all, its backed by investors who would want to see some tangible development. While its still unclear as to how advertising would sit within the entire interface, there would surely be means to drive revenue. Going by the way the Windows OS was bluntly ignored, it would be interesting to see how Facebook Home pans out in terms of adoption levels.

2 Billion Disruptive Minutes on Skype!

Skype today announced that people around the world spend nearly 2 Billion minutes a day on it. The scale of the time spent here is baffling. To back this up, they have put up an interesting infographic that also specifies how equivalent time could have been spent.
Time spent? Well in the form of 33 million hours of laughter (you’ve got to be high on sugar), 1.3 million days of collaboration (yes, people do talk business) and 3,805 years of sharing smiles. I think that was a neat break down of how anyone across the globe could have spent 2 billion minutes on practically anything. 
What’s remarkable here is that Skype is present across all platforms for different phones, laptops and desktop. Ensuring that one can be connected to anyone across the globe having a Skype account, this was considered to be disruptive. Disruptive technologies by definition as per Paap & Katz – 2004 is where a technology innovation can have a significant impact on products that are based in a technology market. This technology breakthrough came through the integration of VOIP and P2P technologies. While the supplier market those days was dominated by Cable, Voice Carriers and VOIP, no one had brought together 2 different tech aspects the way Skype did.
In recent times, there have been several other apps that have come up to fulfill the same purpose. Some of the popular ones are Viber and the iPhone only Facetime. However, not everyone will have an iPhone in case of Facetime and people may not want to switch over from Skype. Additionally the recent integration of MSN Messenger has also integrated the huge base of users that would have been instrumental in driving usage statistics.
All in all, this is an impressive feat and going by the good quality and at a bare to bones rate (if you don’t have an account / fixed phone calling), I’m sure this numbers will surge upwards. It would be interesting to see how Skype would continue to provide an experience most of us live by in keeping in touch with loved ones!