This is another article written last year for a paper published here in Canada. The article is still timely. Skype is everywhere, Google has launched even more stuff and these rules, I think, still apply.
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Ecosystem Investing 101
On the late night real estate infomercials, you will hear lots of talk about OPM or other people’s money when it comes to making those millions of dollars by investing in real estate. Apart from curing the occasional insomnia, precious little comes out of these shows.
One aspect, however, is valid and that’s proper use of leverage. Translated to my day job as a venture capitalist, I’ve been looking at companies that are attempting to leverage a growing ecosystem of particular service or product.
There are several advantages to this type of investment.
First, I can get a good idea of the market potential and growth opportunities along with feedback on existing products and services. This helps me in the due diligence process as well as ensuring that the portfolio company has a steady track to target features and growth.
There are a number of obvious ecosystems that one can target, each with varying degrees of opportunity. As your thinking of new investment ideas and new businesses, think about these ecosystems and the opportunities they offer up. Besides the obvious, the Windows Platform and Java, there are a number of others that are worth thinking about.
eBay
The granddaddy of Smurfs, Beanie Babies, and just about everything else, eBay represents a multi-million dollar opportunity for businesses that support the eBay ecosystem. Software companies are creating successful businesses by offering users of eBay auction tools in the area of logistics, pricing analytics, shipping calculators, and other important tools for businesses of all sizes wishing to use eBay as a store front. As eBay’s worldwide revenue numbers continue to grow along with the user base, the tools/add-on market continues to be an excellent opportunity.
Make no mistake, Google is driving to become your desktop with the hope of keeping you in a Google influenced world. Virtually, ever ‘beta’ product as well as the shipping Google offerings, have developer opportunities to build products around them. A good example is: p-zoom (www.zoomstation.com). This handy add-on is designed to scrub the thousand results of a Google search into useful categories and sub-categories, making the results easier to digest and easier to find what you are looking for. If you look at the new Picasa digital photography tool, you will see the new opportunities for adding value and services surrounding this new offering. Google and the resulting ecosystem being created offers tremendous opportunities for the entrepreneur and investment community alike.
Skype
If you haven’t cranked up skype (www.skype.com) yet, stop reading this and go do it. The best way to truly see the power of this product is download it, get to a wireless hotspot with your laptop and connect to someone in Perth,Australia. Then conference in somebody in an internet café located in Rome. That’s Rome, Italy not Rome, New York.
The sound quality is amazingly good and, with a good microphone/headset combination, it is approaching local phone call quality. The phenomenon called Voice over IP (VoIP) will, no doubt cause a great many investment dollars to be pour into various aspects of the technology and potential services. Probably, the most successful investments are likely to be services that ride on top of various installed bases of users. In the case of Skype, as I type this, there are over 600,000 active users signed in with approximately 24 million downloads of the software. Skype has a developer program so I suspect it’s only a matter of time before applications, special services, and the like start to be released.
There are many other platform plays, large scale applications (i.e. SAP) that all have, to varying degrees, ecosystems around them. The key to a successful business and potential investment, is to study that ecosystem’s growth potential, customer base, and willingness to share data that allows their success and yours to be a mutually beneficial relationship.
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