We were recently asked to give a brief history of the early days of tech in New York. Given the speed of tech, it’s not all that easy to condense even a relatively short cycle into a brief presentation, especially considering internet time: a lot happened quickly, and all at once.
It did, however, strike us that many of the ideas that have made for successful – and not so successful – Silicon Valley companies today were first developed in New York in those early days. We had social networks – Six Degrees, theglobe.com, iVillage – two of which were acquired, while the third (theglobe.com) not only went public, but posted the largest first day gain of any IPO in history up to that date – then crashed spectacularly when the dot com bubble burst. What also struck us was the on-demand economy. We did have that back then, too, so nothing new and again, what man cannot remember he is doomed to repeat.
In the days of Web 1.0, there was a company called kozmo.com, an on-demand delivery service that promised free one-hour delivery of “videos, games, dvds, music, magazines, books, food, et al, and they would even deliver a pack of chewing gum at 2 am, if there was a call for it – literally. They raised money and lots of it: $250 million, according to Wikipedia, and they burned through lots of it as well: According to documents filed with the Securities and Exchange Commission, in 1999 the company had revenue of $3.5 million, with a resulting net loss of $26.3 million. They, too, spectacularly dot bombed.
Kozmo had many high-profile investors, as do the latter-day on demand companies. Then again, as Sunil Rajaraman points out in Quartz in reference to the latter-day on-demand economy (The on-demand economy is a bubble—and it’s about to burst), “VC money does not make your company invincible, and you can only finance growth through venture money for so long—even Uber and Lyft are burning through a ton of cash.” But there were lessons learned from some of the early social networks: become an acquisition target, in the case of NBCUniversal’s purchase of iVillage, the value being in the verticals they had built, or come up with a business model, as later social network Facebook did, in the case of Facebook ads, although they are having a bit of a problem these days with fake accounts, et al (USA TODAY asks FBI to probe rise in fake Facebook followers; Facebook told advertisers it can identify teens feeling ‘insecure’ and ‘worthless’; San Bernardino victims’ families sue Twitter, Facebook, Google, and those are three separate articles/problems, all within the span of a week, and that was just this past week).
The on demand economy is a different beast. “Consumers of on-demand products feel no inherent loyalty to a specific brand, especially when the outcome of the service is objective (such as ordering food from the same restaurant) and similarly priced… How many times have you flipped back and forth between Uber and Lyft to find cheaper rates? If you have a single bad experience with one service, you’ll likely switch to another—there’s no shortage of them for you to try out, after all, and there are always new ones cropping up with cheap sign-up offers,” explains the Quartz piece. Moreover, from what we’ve seen then and now, the economics don’t work.
“We are already seeing a lot of on-demand companies die, and many of the successes are bleeding money to stay afloat and are in dire need of another VC cash injection to keep them running,” the Quartz piece noted.
So why do VCs stay in? They’re playing a long game, betting on winner takes all – and lest we forget, robots and drones may be a game changer here. But that’s a waiting game: Check ignition and may God’s love be with you. Time will tell.
It may be easier for these companies to launch in SV, as investors out there are more willing to take a risk.
There has long been a Silicon Valley v New York rivalry/comparison and we’ve always found it to be patently absurd. We’ve all seen those articles about how New York will never be Silicon Valley (New York’s unrealistic dream of rivaling Silicon Valley should end with Etsy’s troubles), and why would it it want to be? Part of the problem is the name itself – Silicon Alley. There is a tech community in NY that does identify with that imprimatur – it’s a name we have personally always detested. Silicon Valley needed an identity for the technology companies that sprung from where there were formerly vineyards and flatland. Now it has one – Silicon Valley – which perfectly defines the area and what it truly is: a one-trick pony. Tech. Period.
New York has always had an identity, and a powerful one. As well as multiple industries, such as finance, fashion, advertising, communications, news, food – the list goes on. The New York tech space’s healthy enterprise and fintech verticals and the companies that they produce are often overlooked by the tech press, as they’re not as sexy – or as generally recognized in the zeitgeist as are, say, an Instagram or an Oculus. New York investors may indeed be more risk averse than their west coast counterparts, but many of them were around in the early days, building their companies or investing, and they remember the demise of various verticals from the first time around – the on demand economy being one of the more notable ones: been there, done that, tossed out the tee shirt, and evidently, someone found it. Many lost their shirts in the past and again, evidently, someone found them – and believed that it would bring them better luck.
Peloton founder John Foley offered up his reasons Why New York’s tech sector will surpass Silicon Valley’s, suggesting that in the next business revolution, NYC’s advantages will win out. “The business revolution of the next several decades… will be about transforming large industries that no longer meet their customers’ demands into something more efficient and personal. That can happen only where those industries are. So although Silicon Valley dominated the first wave of technology disruption, the advantage has shifted to New York, with its vastly greater diversity of businesses.”
Of course, you can’t really defy the laws of physics. As SV learned the especially hard way in the dot bomb/crash, what goes up fast, tends to come down hard.
Alan Kay said that the best way to predict the future is to invent it, which does encapsulate the Silicon Valley mindset: get the product out there and worry about the economics later. We’re the best and the brightest. Someone will figure it out. Or not, which more often seems to be the case. History – and learning from the triumphs and mistakes of the past – cannot and should never be disregarded or dismissed. Bill Gates is often attributed with having said that most people overestimate what they can do in one year and underestimate what they can do in 10 years. And therein lies the true difference in thinking and approach between Silicon Valley and New York. Silicon Valley celebrates moving fast and breaking things, but as always, slow and steady – and knowing where the landmines are – is what wins the race. Onward and forward.