Last week Jeff Nolan wrote a post entitled Incrementalism and “The New New Thing” where he bemoans the lack of true innovation and the state of venture capital generally. He is talking about Silicon Valley, but what he writes applies equally over here in Europe.
He correctly observes that a lot of money is still flowing into startups, and that too many of them only offer incremental improvements on what already exists. He is on the money with the belief that incremental innovation is rarely a sufficient foundation for a big new business. In his own words:
As I survey the landscape of consumer- and business- focused software and service providers I am struck by how much incrementalism there is at the moment. Something like Twitter is ground breaking in terms of breakout adoption, but what about the other 10,000 startups? There are few bold “aha” ideas, lot’s of social “-this or -that”, and mostly a bunch of companies hoping to draft on the perceived success of a few gorillas. Will we suffer through yet another “Year of the Mobile Web” or “Year of the Semantic Web”?
He then goes on to draw a couple of conclusions I don’t share. First:
What is coming to a close is the notion that all online services need to be free and paid for with advertising; there are too many startups that are dependent on a business model that has yet to prove itself for tech companies.
I agree that there are many web businesses with advertising models that will fail, and probably more of them than we had when semiconductors or enterprise software were the big investment themes, but that is because barriers to entry are really low. It costs next to nothing to get a web business started and it is getting cheaper by the day.
So the higher than normal number of startups doesn’t cause me to fret about the health of the ecosystem. Nor would I say we are reaching the end of the line for ‘ad-supported’ as a business model. Online advertising is still growing at double digit rates, and whilst innovation in that market is required I think it will continue to thrive, and the best web businesses will succeed on the back of it. (Although I also expect that innovation in business models will become more important as the trend towards free accelerates.)
What’s frightening is the inability to answer the basic question “What’s next?” The Valley thrives on “The New New Thing” (possibly one of the most poignantly titled books ever) and with every turn of a generation, there is an awkward moment where we’re just figuring out where we’ve been but have yet to see
where we are going… Right now is that moment.
Knowing what is coming next is always a difficult business, but I am more sanguine than Jeff on this point. When I read the paragraph above I asked myself what it was that excited me at the moment and the answers all had the common theme of entertainment. Regular readers of this blog will know I am into virtual worlds, social games, music and online TV. All of these areas are about delivering new or enhanced forms of entertainment via the web.
That is the path I think we are headed down at the moment, and we are still nearer the start than the end.