A few days ago I received an article on my twitter timeline entitled “33 Silicon Valley Investors Are Starting To Freak Out About The Tech Bubble They Helped Create“, which reminded me that I’ve been meaning to share one of the conclusions that David Hernández Tosca (Director General of Aqualogy Solutions) and I voiced, but never got round to writing, as a result of our discovery & learning expedition to San Francisco and the surrounding area last July. As an innovation professional from the water sphere, I was very interested in seeing how these processes are developed in the cradle of innovation: Silicon Valley.
I recommend readers to evaluate on their own the article mentioned in the last paragraph. With this post, I am beginning a series of articles with the intention of describing the type of start-ups and grown-ups that we had the opportunity to meet with a certain level of detail and which, although representative and very illustrative, is by no means exhaustive.
Gamification, social innovation, freemium, apps (applications) and the Internet of Things (IoT) are terms which constantly crop up in the great majority of presentations by entrepreneurs, CFOs and CEOs. Indeed, there are initiatives in other spheres, such as those hosted by ImagineH2O in which the development of applications is not at all the focus. Stanford is a worldwide leading technological development centre, but the ebullient activity of investment funds is closely related to the software industry, following in the footsteps of Google, SalesForce, Facebook, Dropbox, Whatsapp, Twitter, Waze and a very long list of successful business initiatives, some of them outside Silicon Valley, by the way.
I have organized the conclusions in accordance with the degree of definition of the business model under which the different start-ups and grown-ups operate, dividing them into three groups: defined business model, searching for new business model and, finally, searching for business model.
In addition to this summary I have added what I understand to be the key factors in venture capital decision-making when it comes to determining where to invest their resources.
1. A defined business model (freemium): Apps and games
With the launch of the App Store on 10 July 2008 and the creation of Candy Crush on 12 April 2012, a new industry arose centred on the development of apps and games. This industry’s business model involves obtaining a high number of users (millions), offering the software free and subsequently offering these users exclusive complements or a series of premium services in order to transform them into clients. In addition, access to millions of users converts these applications into unbeatable noticeboards on which to advertise whatever suits their interests. The rate of growth of the users and their absolute number makes the difference between success and failure in the monetization of the software. All entrepreneurs want the hours of effort spent on the development of their idea to be rewarded, attracting investors to materialize in dollars the lines of code created.
The focus of attention is on those operations which assign millions to developments which do not charge anything, but which do have many hundreds of thousands or even millions of users.
I can’t help but mention Chartboost, a different business model based on the same industry. This company has created a game development engine/platform for mobile devices, allowing developers to create advertisements and exchange traffic. In short, the clients of this type of company are game developers with which it acts as an intermediary in exchange for the promotion of their games in other games which are already widely disseminated in the cloud.
It is therefore a very interesting model with as much future as the current assessment parameters of the games industry for mobile devices.