Tech Predictions for 2009

As we gear up for 2009, there remains many questions about the economy and the growth curve of the technology industry. As a team, we have come up with predictions for 2009. Ray Capece, Venture Files editor for Technosailor.com and I make our predictions.

As always, these are predictions. Last year, we were dangerously accurate with our predictions and would like to think that we have a good understanding of the business and technology marketplace in 2009.

Ray’s Predictions

  1. By now, all VC firms have had the ‘triage’ partners meeting — where they decide, whether existing portfolio companies will 1) receive additional funding, because they’re generating revenue and have the prospect of getting cash-flow positive; 2) be shut down (and recapture any remaining cash); and 3) receive no additional funding, but be left to their own devices (to get funding however they might on their own). In 2000, there were a good many in category #2, since dot.com rounds were in the $10s of millions; now, with social-networking investments averaging around $1M, there will be little cash if any to recover. But I predict there will be many in category #3 (also known as ‘the walking dead,’ since they’re burning their cash, no matter how slowly, till it’s gone.)
  2. Online advertising revenues in 2009 will continue to fall, as inventory outpaces demand. I *don’t* see the $$ flowing from other media to online offsetting this downward trend.
  3. Consumers have discretionary (albeit small) $$$ to spend. In times of bleak economy, they seek distractions (gaming and feel-good entertainment), and will happily pay $0.99 for iFart. The hope for developers in the social networking space will potentially lie with commerce in real and virtual goods. Facebook and the others need to make this extremely easy for third parties, and it will most certainly happen in 2009. (Yes, despite what others are saying about FB’s party line.)
  4. Consolidation always picks up in down times . . . good, small apps facing a difficult fund-raising environment reset their valuations lower, and robust companies with solid funding swoop in to pick up the team and technology on the cheap. It began in the fourth quarter with Pownce and others, will continue throughout 2009.
  5. As an extension to this prediction — we’ll see more Intellectual Property for sale on eBay.
  6. Apple will continue to grow its mobile share as others fumble about. Watch for new BlackBerry Curve to become the defacto standard for ‘button lovers.’

Aaron’s Take: While I agree with most of Ray’s predictions, I’m more bullish on early round VC. Even though we won’t see as much investment as we have, I believe it will still happen and companies that have already been funded will probably continue to receive investment funds, even if on down valuations, as long as they are somewhat viable. The reason is that most funds are long-haul investments of about 10 years.

Aaron’s Predictions

  1. Consolidations will occur en masse this year. Small companies with angel funding or Series A funding will be lumped into bigger conglomerates as the acquisition threshold is low.
  2. Brightkite will be acquired by Facebook, as poignantly pointed out by a commenter over at Read Write Web.
  3. The second Google Android-powered G2 phone will be released to T-Mobile in Q1. As the first one was a proof of concept that had little impact, the second iteration will be an essential release to prove the Android platform. No other carriers will take the platform until the concept is proven, but T-Mobile is already there and will be the victim for the second release.
  4. Twitter will *not* be acquired, but an advertising/partnership business model will emerge in Q2.
  5. Apple will release 3 new products this year. That is it. Their growth will continue upward but will see a decline over growth patterns of previous years.
  6. Net Neutrality will take a massive hit in 2009 with governments and companies looking to defend themselves in a down economy. The result will be regulations that will allow the big telecoms survive. Too big to Fail. Unless it’s the general public.
  7. No clear winner in the “single identity” space. OpenID fades, fbConnect gets fleshed out and adopted by many while Google Friend Connect makes significant inroads with others. An emerging war akin to Bluray vs. HD-DVD emerges between Facebook and Google with the internet world divided evenly among the two. Blogs and social networks will tend toward Facebook while bigger sites and services, possibly including newspaper walled gardens, trending toward Google.

Ray’s Take: Aaron’s crystal ball looks pretty good to me . . . except that, like Jonah in the whale’s belly, Twitter will be devoured.

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The Dickensian 2008: A Look Back

This year might be the strangest year ever. It roared in with news of Robert Scoble having his Facebook account suspended for utilizing scripts to sync data between Plaxo and Facebook in violation of Facebook’s Terms of Service. Of course, the year ends with Facebook opening up fbConnect in a way to share that same data with anyone who so chose.

We started 2008 with CNETs Caroline McCarthy reporting that MySpace voters preferred Barack Obama on the left and Ron Paul on the right. As we know now at the end of 2008, there was one group of netroots voters that managed to be successfully heard and we now have a new President-elect. On the other side, the GOP demonstrated their complete ineptitude tapping into the grassroots by marginalizing the candidate that would have fired up their internet base. At least at the end of 2008, there are some pockets of common sense on the right, but those pockets will likely not be heard or heeded.

In the first half of 2008, ridiculous acquisitions, funding rounds and business plays flourished. An example was when job search site, Monster.com acquired San Francisco-based Affinity Labs for $61M. On contrast, companies receiving funding or valuations at the end of 2008, are doing so on devalued terms while other companies are laying off workers and cutting back contract costs in an effort to extend their runways as far as they can into the second half of 2009 or beyond.

In every way, 2008 ends in a Dickensian way, highlighting two sides of a very different coin and leaving investors and entrepreneurs with a scared and tentative look in their eyes.

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We made our annual predictions early in the year, and wanted to review those predictions for those keeping track at home.

Macworld/Apple

We said: Since Macworld is right around the corner I don’t think we will see any real new products but rather a grow what they have to meet their projections. This means upgraded iPod Touches, iPhone 2.0, iPhone SDK, upgraded Apple TV, patches to Leopard, improved Cinema Displays and upgraded Macs/Macbooks. The only thing I could see would be integration of their multi-touch technology on laptops (like the rumored sub-notebook).

What actually happened: Apple announced Time Capsule, an iPhone SDK for developing Apps for the iPhone (now available through the iTunes App Store for the iPod Touch and the iPhone 3G), iTunes movie rentals, Apple TV 2, and the now famous Macbook Air.

Accuracy: We accurately projected the iPhone SDK, Upgraded Apple TV, and the Macbook Air with multi-touch. Later in the year, we would see the iPhone 3G, improved cinema displays and the release of the new Macbook/Macbook Pro lines. We consider 100% accuracy here in 2008 with a 50% accuracy for Macworld 2008.

Microsoft

We Said: Let’s face it, Vista blows. It’s slow, doesn’t have any real innovation under the hood and takes more horsepower to run. I predict they will continue forcing it down people’s throats and in revolt people will continue to order machines with XP. On the other side of the coin, the Xbox is rocking and I predict they will announce an integrated Windows Media Center/IPTV version with HD-DVD to compete with the Playstation 3. They have a real opportunity to own the living room since Apple TV has flopped.

What actually happened: Some manufacturers, including Dell, decided that based on actual customer demand and trends (wiping pre-loaded Vista systems and installing Windows XP), computers could be shipped with XP instead. In addition, the Xbox did receive a much-needed face lift (called Xbox Experience) that we talked about here, though it did not go as far as we expected. We did not predict the emergence of Apple TV/Xbox Experience/TiVo challenger Vudu at the beginning of the year.

Accuracy: We consider our predictions to be mostly inline with actual results, but we missed or misjudged several things along the way. We claim a 60% accuracy rating here.

Web 2.0

We Said: Ok, hype over. Game over. Most “Web 2.0″ companies will go into the dust bin of history because their marketing strategy or ideas just didn’t pan out. Also, as more companies adopt these technologies into their “œEnterprise 2.0″³ strategy there will be less of a rush to create another social network or AJAX-ified web site unless it has real value. Side note – kill the term Enterprise 2.0. The enterprise hasn’t changed, the apps have just gotten easier to develop.

What actually happened: We feel that this was an overly-generalized prediction. It could have been more specifically Enterprise 2.0, as opposed to Web 2.0. That said, there was an actual push and adoption into the Enterprise space. Most notable of all Enterprise 2.0 companies was Yammer which is build as a standalone Twitter for Enterprise. Yammer won the top award at Techcrunch50.

Accuracy: Though there certainly has been more focus in recent months on utility over “bling” (Ajaxified sites, as we put it), we don’t necessarily believe that corporate Web 2.0 has advanced far beyond “Corporate blogging”, but with Yammer like companies popping up, we’ll claim a 40% accuracy rating.

Twitter

We Said: Twitter will get bought – it is a cool tool but not a lot money to made behind it. It needs to be part of a bigger whole. They also need better infrastructure because they crash whenever there is a big tech conference. CES will be a big test for them.

What actually happened: Twitter did not get bought, and in fact, took a third round of funding. It may have been their failures of June/July that prevented an acquisition, and there certainly were rumors of a Facebook acquisition of Twitter recently. The company seems to have turned a corner on reliability, and have a business model in mind, even if it hasn’t been outlined. In addition, Twitter development continues to proceed with a release of an all new Twitter API in 2009.

Accuracy: 0% – hands down, we were wrong. The company continues to confound even the experts.

Pownce

We said: Pownce will die – Twitter won this battle. Game over.

What actually happened: Pownce died.

Accuracy: 100%. ‘Nuff said.

Digg

We said: Digg will get bought – After rumors of a sale for the last 18 months, they finally get bought by a media behemoth. Sale price? $300 million.

What actually happened: While Digg did not actually get bought, they are bleeding money as reported by TechCrunch this weekend. According to the TechCrunch, the Microsoft search deal which was supposed to bring in over $100M over three years is clearly not doing that at all.

Accuracy: We want to take some credit for seeing the dark side of Digg, but clearly cannot based on our actual predictions. 0%.

Yahoo

We Said: Yahoo will continue to struggle and have massive layoffs – Yahoo didn’t change much with their executive restructuring and they have really sucked at integrating their products. They are going to get hit with lower stock prices and will have to cut the fat out.

What actually happened: What didn’t happen, might be the more accurate question. We had the Microsoft-Yahoo deal that was on, then off, then on, then off. The forced resignation, by all accounts, of CEO Jerry Yang, the hostile board takeover (“hostile” in the loose sense, not the SEC sense) by Carl Icahn, and the devaluation of Yahoo stock to approximately half of what it opened the year.

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As for the predicted Yahoo layoffs… Well, it’s such a bloodbath that sites like this exist to track the chaos.

Accuracy: Can we score a 110%?

HD-DVD vs Bluray

We said: HD-DVD and BluRay will not have a winner, still – This year is just going to continue the fight with hybrid drives getting cheaper so by 2009 the choice will be irrelevant.

What actually happened: Bluray won.

Accuracy: 0%

Google and Wall Street

We Said: Google’s honeymoon with Wall Street will end – With the acquisition of DoubleClick there is more of a chance for Google to fail. Along with it trying to change to many sectors, Healthcare and Energy to name a few, it will need to shore up its core competencies before people start to trash it and the stock will be worth half what it is today.

What actually happened: Everyones honeymoon with Wall Street ended with the collapse of the economy. Google has lost over 60% of it’s value, falling from a Jan 2 open of $685/share to the current trading number of $298/share.

Accuracy: We will claim 75% accuracy on this. We can’t claim 100% because the reason for the value loss is not similar. It’s just the nature of the market at this time.

Facebook

We Said: They are a necessary evil right now and their beacon debacle will need to be fixed in order for them to go IPO. They will be the new IPO darling as analysts are ready to trash Google.

What actually happened: Facebook did not IPO in 2008, though they had a significant investment from Microsoft at a highly questionable valuation of $15B. Experts like Kara Swisher don’t expect an IPO until 2010. I might add that with the economy the way it is, pre-collapse predictions of 2010 might still be ambitious. I personally doubt Facebook will ever IPO.

Accuracy: 0%

Bringing 2008 In for a Landing

It’s always tricky to really predict a year in advance. With the economy and turbulence in the various sectors and markets, 2009 will be highly tricky to predict. Predict we will do, early in the new year, though so stick around.

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Creative Ideas for Capital

stupomitron helmet2.jpgA great side-effect of entrepreneurs’ optimism in tough times is creativity. At our OpenCoffeeDC last week, discussions got lively when talk turned to bootstrapping — not just self-funding, but all sorts of alternatives for producing live-giving capital and conserving what you do have. Time to put on your thinking caps.

Have you gone through the check list of capital sources? Here are several (offroad from the traditional angel and VC route) that popped up in our discussions, plus a few others.

1. Sales! Duh. Number one will always be revenue. It was just February when Wired magazine chief editor Chris Anderson dubbed this the era of ‘Free.’ (Yeah. A lot of good that’s doing us now.) But don’t blame him — he’s just the messenger. Consumer expectations have been set at $0.00 by big dogs like Google, Craigslist, and Yahoo, leaving everyone to figure out creative ways of making money in the new ecosystem. Wired elaborated with a wiki for Making Money Around Free Content that provides some novel notions for doing so. It’s even been suggested (heaven forfend!) that Facebook start charging — something, anyway, for a premium services (the freemium model) of some sort. Careful thought needs to be given to just what it is that paying customers get, above the non-paying. Look into currently working models (Flickr vs. FlickrPro, Mozy free online backups vs. MozyUnlimited and MozyPro, etc.)

2. Corporate Investment Corporate customers and prospective partners can be turned into investors. In pre-Web 2.0 era, it happened all the time — usually to ensure that the product or service would prevail, the corporation made an investment. The terms were often good, with one twist: if the startup were to fail, the corporate investor got rights to IP. So it was interesting to see Martha Stewart Omnimedia lead a $2.85M investment in Evite-clone Pingg. We’ll probably see many more of these in the coming months.

3. Consulting/Contracting Doing work for hire can be extremely morale-robbing for a startup that had its heart set on making a living with a new web application — but many startups have turned pragmatic. The duality approach is simply more conservative . . . but when external funding is in a state of flux (like now), it may be key to survival. What makes it hard is the emotional and cultural schizophrenia (maintaining a solid reputation in contracting, vs. the live-or-die passion for a product and the customers who count on it are two different head sets), but some organizations appear to be making it work (Intridea, SetConsulting), while other have made the full-scale transition from services to products (37 Signals).

4. CIT GAP Fund Not to be overlooked, Virginia’s Center for Innovative Technology (CIT) provides (through its GAP program) loans of up to $100k in the form of an interest-bearing promissory note that converts to preferred stock in a forthcoming round of fundraising. It’s a great, low-pain process that helped mobile-gaming platform Mpowerplayer and a dozen other Virginia-based startups. (Disclosure: I’m a shareholder in Mpowerplayer.)

5. Venture Loans Used to be, firms abounded that provided venture lending — growth capital and equipment financing to startups that had already secured equity investment from top-tier VCs. It was still a But these firms — which were a notch less risk-averse than banks, and usually in solid association with VCs (they only made loans to startups that already boasted top-tier VC investors). But a few entrepreneurs have recently mentioned offers of ‘loans from VCs’ as a recent funding alternative. The exact nature of these isn’t clear — did they mean convertibles, which pop up whenever valuations get shaken up (like now)? But one thing to keep in mind: promissory notes and loans of any kind need to be repaid, even if the business fails. Moreover, they often have covenants that allow them to be called ahead of schedule. And finally, you may be asked to personally guarantee them. (Did you really want to lose your house?). I say, steer clear of them.

6. Bank Financing Banks, wha? Not often on entrepreneurs’ radar, but if you’ve got any stream of revenue underway, financing receivables can be a relatively straightforward process for smoothing cash flow. In fact, whether you have receivables or not, or venture-capital funding or not, banking relationships should be struck up sooner rather than later. Credit lines can buffer slow-paying customers — this economy is certain to increase receivables aging — but everything you’ve heard about credit lines tightening is true. Even established businesses are seeing them dry up.

7. Factoring At one of my service companies, we relied on factoring to keep cash flowing. (Truth be told, we would have missed several payrolls without it.) Factoring firms — which purchase your invoices and collect on them, advance you some portion (up to 90%) of the invoice, depending on the caliber of the customer, and charge a fee (usually 1% – 3%) — can pull revenue that might normally arrive in 30 to 60 days ARO into a week or less. And, unlike banks, the only due diligence is verification of product acceptance; I bet they’re seeing a pick up in activity lately. Of course, you have to be comfortable with you customers knowing that you’re resorting to factoring (not exactly a sign of stability) . . . so better pick only those you have a close relationship with.

8. SBIRs Not too likely a candidate for social-networking startups, but a wide range of technology companies have taken advantage of Small Business Innovation Research (SBIR)and other grants. The Small Business Administration (SBA) Office of Technology administers the SBIR program, as well as the Small Business Technology Transfer (STTR) program. All told, 11 federal departments participate in the SBIR program and five departments participate in the STTR program, together awarding more than $2B annually to small high-tech businesses. Unfortunately, these things take time . . . sometimes more than a year.


Last bits of advice:

- Hoard cash — but don’t tie it up; in other words, even if you’ve raised capital, acquire PCs on credit (don’t lease them, if the lease lines need to be secured). And never secure borrowings with cash.

- Barter when you can — services of any sort.

- Co-habitate — during the last downturn, we opened up our oversized space to another company. If you’re looking for space, post on Craigslist and message boards to co-habitate — you may be surprised at the response.

- Crowdsource design work (logos, literature) you may need. Consider GeniusRocket, or Crowdspring, which Frank Gruber recently used to update his logo. Or do the logo your own damn self, until you can afford a professional.

- Pay with stock/stock options, rather than cash. Or a mix of the two. Worth a shot.

- Negotiate everything.

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