Silicon Valley gets its groove back

Written by Rick Spence

What’s hot? Digital content and business software. What’s not? Telecom hardware and dot-coms.

With tech markets booming and venture capital flowing again in the U.S., two VCs from Silicon Valley and a tech pioneer from the Massachusetts Institute of Technology met recently in Boston to debate high-tech trends and figure out where the smart money is placing its bets now.

Guy Kawasaki, CEO of Garage Technology Ventures in Palo Alto, Calif., and former chief evangelist at Apple Computer, said the future lies in digital content. “The free ride is over for free content” on the Internet, he said. His early-stage VC firm is investing in companies that have innovative models for selling content online (, for instance, sells quality photos for $1 apiece) or offer more efficient paid-content distribution systems (such as

“It’s sort of e-commerce,” added Kawasaki, “but e-commerce is a bad word right now.”

Ann Winblad, a co-founding partner of Hummer Winblad Venture Partners in San Francisco, sees similar opportunities for entrepreneurs developing better systems for managing all that digital content. “We always hope that entrepreneurs will show up in a sector that’s ugly and challenging,” she said. “There are a lot of opportunities for startups here.”

Bob Metcalfe, a general partner at Polaris Venture Partners in Waltham, Mass., noted one more related opportunity: storing these burgeoning gigabytes of digital content. “Will all information now be stored forever?” he asked. If so, he says, VCs should be looking at companies that will benefit from that trend.

Metcalfe, who invented the Ethernet while working for Xerox in 1973, also suggested that there are new opportunities in hardware, especially phone systems and new high-frequency communications systems (above 50GHz), given the overall shortage of spectrum in our increasingly wireless world.

But Kawasaki and Winblad seemed less convinced. “Circuit-based telephony will become IP (Internet protocol)-based,” said Winblad. “It’s all software.” She noted that her VC firm has always specialized in software because hardware companies have a hard time matching software’s gross margins of 80%.

Metcalfe pressed on, touting the potential of nanotechnology and faster, more powerful computer hardware. Winblad’s response: “Eventually all these solutions become software anyway, so we’ll sit back and wait.”

Winblad was keen on business application software, saying that new opportunities for on-demand software solutions are opening all the time, and incumbent firms in the industry can’t keep up.

In addition, Winblad and Kawasaki both saw potential in new forms of digitally-based entertainment. Wireless text messaging, for instance, offers lots of applications for entrepreneurs and marketers. “Text messaging isn’t really information. It’s entertainment.”

Winblad says the digital photography boom also offers opportunity in terms of cheaper paper, inks and distribution systems for consumers. “Printing pictures at home is still too expensive,” she said.

Kawasaki, however, pointed out that industry trends can always be trumped by a single brilliant idea. “Forget the numbers,” he said. “The main trends are all but irrelevant. You’re trying to raise your $1 million, $2 million, $3 million, and all that matters is you get your money. Build your company and go for it.”

© 2004 Rick Spence

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