From time immemorial, one of the most sacred shibboleths of Silicon Valley has been that to launch a startup, you need to be a product, not a feature.
Generations of VCs and entrepreneurs has agreed on this point. But I’m wondering if today’s Web 2.0 world has fundamentally changed the equation.
Let’s start with why you need to be product, as opposed to a feature. When it cost $3 million to develop and launch a product, simply adding a cool feature could never generate enough revenue to justify the investment. Moreover, the proverbial danger was that if all you had was a feature, the product manufacturer would eventually develop its own version and turf out out of the market.
Today, two important things have changed: One, it costs a hell of a lot less to build products or features. And two, in the loosely coupled world of the Web, it’s unclear that product makers have much of an advantage when it comes to turfing out incumbent features.
When you can build a cool new widget in your spare time, let the blogosphere do your evangelism for you, and then sell for a couple of million, suddenly being a feature doesn’t seem so bad.
I don’t know how much it cost to develop and operate AddThis, but I suspect it’s less than the cost of a Prius if you don’t count labor. Sure, this is a feature that someone like 6Apart or WordPress or Google should be able to add practically overnight. But once it’s in, why would a blogger switch? As a result, I’m just waiting for the inevitable buyout news to appear in TechCrunch or VentureBeat.
Interesting. Perhaps we’re seeing the emergence of a new (old) business model for start-ups — doing product R&D for large companies. Why should Google/Yahoo/etc devote organizational resources to innovation when by opening themselves up a little, they create the opportunity for “opensource” R&D — people will build features and aggregate users without being constrained by the need to monetize it, because they are betting on getting picke up for a few million (pocket change) by the big boys who can add it to their overall product portfolio.
That is a GREAT way to characterize innovation today. But there are companies that go beyond it that are harnessing the power of the web. But because it’s so affordable to feature it, lots are choosing that.
MJ:
I agree that the model works well for the Googles and Yahoos of the world. Paying a couple of million for some top engineers and a popular feature is cheap in comparison to trying to develop them all yourself.
Tim:
Would love more examples. Feel free to post.
I guess this is why, as a “pure techie”, I disagree that web plays are “tech” businesses. They aren’t any more technologically innovative than restaurants that innovate on menu choices.
This may seem a pedantic point, but it’s important in planning; primary technology development requires far more expensive technologists and a more rigorous IP strategy than “on the margins” web innovations that are applications of mature technology.
I wrote about this on my blog.
Foo,
I totally agree that these feature plays are not hard-core technology. And it’s certainly the case that to do hard-core innovation in things like semiconductors or high-performance software, you need to dedicate resources.
The feature creators are a lot like lower-tier soccer teams in Europe, who develop players, then sell them to the majors for cash.
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