Lessons from Trutap: Part two – Do we need a Zopa like funding model for the Mobile data industry?

Much has been said of my post about Trutap (Why Trutap was decimated and what can we learn from it ..) . The reaction reminds me somewhat of the song Hotel California – in the sense that people see what they want to see in the lyrics of that song – (You can check out any time you like – but you can never leave! – can apply to a relationship, a long winded project, materialism or other things which stretch on with no end in sight ..).

So too, with this post.

The Java programmers latch on to Java, Trutap talks of market conditions etc etc.

However, it is nice to see that many people agree with at least some aspects of the post. Thanks for all feedback. Thanks also to many private emails on this post expressing support/viewpoints

The main objective of the post was to talk of VC funding – especially in relation to social mobile applications

If we took a step back – maybe we could take a different approach which does more for fostering grassroots entrepreneurship in our sector.

Perhaps the recession will lead us to question many of the existing financial models – and VC funding could be one of them ..

As you can guess by now, I don’t equate VC funding to entrepreneurship. In the sense that – many good entrepreneurs are never funded and conversely, many who the VCs fund, are funded for the wrong reasons.

Let us not forget that the sacrosanct market models we take for granted today are only about 10 years old.

Indeed VC funding existed well before that – but the model was different

In the Pre-Web era – ideally, you developed a product for a client. At that point, the product was working, it had a customer who paid for it. The VC investment went towards productising a bespoke system which already had a real customer(making money)

This is good.

However, the dot com changed all that

You did not need a customer. All you needed was a proverbial land grab of many people. For this you needed lots of (VC) money.

The people(we cannot call them ‘customers’ since they don’t pay), got something for free. In spite of drawbacks, this model DID produce some companies who gained large audiences – a portion of which they subsequently monetised.

Now we come to mobile

The problem arises in applying the ‘Web VC’ model( for the lack of a better word) with its limitations, to mobile.

The Web at least is homogenous, globally standardised and open.

Which means that potentially you have a chance to succeed with that land grab depending on when you entered that sector on the Web and how much money you(more to the point – your investors ..) had. In other words, potentially VC money could translate into an audience which in turn could perhaps translate into cash at some time in the future.

But that does not happen with mobile due to the nature of the industry structure itself. More so, when your business has a community/social component which needs viral growth to make it viable in the first place.

In other words, there are very few areas where we see network effects/viral effects in the mobile industry , which the ‘Web’ land grab so critically relied on. And although I used the example of the Mobile Web – and I have always been ‘pro’ the Web, we all know that even with the mobile web, there are some severe limitations to getting global traction and network effects.

The mistaken belief is: throwing money into an ecosystem like mobile WILL get viral effects.

This is not to say that a mobile business model does not exist since it is possible to make money even on niche audiences – but it is not a model which is attractive to the existing investment mindset

So, is there hope?

I think – yes.

Which means I am optimistic about the industry as a whole and here’s why.

In general, the costs of product development have decreased(open source software, better hosting deals, outsourcing /offshoring etc) have reduced the cost of product development.

On the other hand, various appstores(most notably Apple and Android) have meant that application discovery and monetization are possible

So, consider two entrepreneurs – lets call them John Galt :) and Sally Chen.

John and Sally have great ideas. However, they have MORE than one ideas(they are not ‘focussed’ a cardinal sin from a VC perspective!).

Their mental map is more like a compass then a set of directions to a destination.

Their pitch is as follows:

We have 5 ideas

We want to work on ALL five simultaneously

Because we have no f-ing clue WHICH one will work

We think two will be so-so, two will bomb(but we will stop them when we know that as soon as possible) and ONE will be a spectacular hit.

But we don’t know which is which …

One may ask, why does John and Sally need funding in the first place?

Because they may need to be ‘focussed’ on five ideas initially FULL TIME

With managing niche audiences, appstores, lower product development costs etc etc – one would expect that if John and Sally are good, they will start making money quickly. They will live frugally and thereby will be asking for a smaller amount of money.

All this will mitigate the risk and at the same time add real value

Qs is: How can this be funded?

I think maybe we need a peer to peer industry financing model like Zopa? Any other suggestions welcome!

In any case, this will fund real grassroots entrepreneurs.

It also means that the VC model will work with companies based on real systems (which need VC funding for productization of a system that has a proven aka paid customer) – but for social mobile applications we probably need a different approach.

None of what I have said in either of the posts is particularly new or radical and I do believe that the future is bright .. and here is why ..

This is the way to go and why there will be loads of money and great mobile entrepreneurs in the near future MIT students build mobile applications in 13 weeks

Comments

  1. John and Sally have 5 ideas? That sounds like our pitch!
    We do iPhone apps (and Android) and want to build niche mobile social networks…
    Anyone interested in funding us ;-)