Thoughts on the Seattle Startup Scene

Here’s a  few *cough* thoughts I’ve had on startups, sparked by posts on Geekwire, and originally posted as comments there.

Why Seattle needs to create the next Zynga or Facebook

But Facebook & Zynga are opening offices in Seattle. Maybe we’re the South Bay’s sweatshop in the same time zone?

I’ve seen other people complain that Seattle is full of me-too clones. I haven’t seen that really except Zillow/Redfin/Estately which are all local (with Trulia being the Bay’s contender that’s doing pretty good by working with Realtors instead of against them.) But maybe it’s my lack of exposure to the phenomenon.

Now we’ve got an article calling for just that.

There will be a next Facebook, unless Facebook succeed in subsuming the internet where AOL failed. But it won’t be a Facebook clone. Just like Facebook started out as a hot-or-not clone/dorm directory, not a MySpace clone.

Zynga has a billion dollars but nothing but a bunch of Farmville clone acquisitions to show for it. They’ll need to do something with that money to matter. Not to say that they can’t. By scaling the way they have, they’ve got an infrastructure to compete. And that’s there similarity to Facebook. And Google. And Amazon. And YouTube & Twitter & etc.

It looks like it turns out that the really important lesson a company needs to learn is how to massively scale. That’s what investors are rewarding anyway. Of course, there’s the chicken and egg issue that unless you develop a phenomenally successful app, you’ll never learn how to scale.

But it’s the scalability that’s being rewarded, even if it’s being rewarded for the wrong reasons (i.e., investors think you can develop another mega-hit) but it’s irrelevant, because once you have the money, if you’ve got the scale, you can buy the up and coming hits.

It’s the Microsoft strategy, the Oracle strategy, the Google strategy, and the Zynga strategy. It’s companies that have figured out how to scale that are given the money to buy. They’re acting as a gateway for Venture capital, which in part explains both the high valuations, and the new acquisition-targeted exit strategy.

There are two local companies that come to mind that have found a way to scale in a smaller er… scale. Big Fish Games & Cheezburger Networks. Contrary to popular perceptions, they’re not Casual Gaming and Joke Site companies. They’re a subscription based download company and a advertising delivery company. And they’re experts in their field, and they know how to scale.

That’s why Cheezburger is sucking up all the local venture money. Because VCs have decided they know how to pick winners (in fact, Ben Huh is an advertising guy who bought LOLCats to sell ads.) I’d expect Cheezburger to expand from delivering media, to delivering ads on other people’s media. And that puts them in direct competition with Google.

Big Fish Games has had a hard time figuring out micropayments and social networks. Their Farmville name-shift FaunaSphere crashed and burned in part because of this (and in part because it was a weird game that no one was into, even though it had a lot more polish and gameplay than Farmville.) While there may still be a place for downloadable (& flash) subscription games, their foray was crushed between Blizzard and Zynga. (Midrange MMORGs seems to be a difficult segment — whatever happened to Evony, etc?)

Still, there are areas that I’d look for clones, though really more like giant killers. Craigslist and Ebay are ripe for beanstalks (as are Netflix and Paypal.) And I’d even venture to say Amazon could go on this list. But they’re all (except Netflix) sticky networks that have even more crowd advantage than Facebook.

Find an area that doesn’t have a clear market leader like surprisingly even at this date, shopping carts. Or find a market that can be split into services & data, like real estate (or another that I’m interested in, job search.) Or create a market with a new idea.

Personally, I’d rather create a new market, but that’s a lot harder.

RE: Andy Sack on startups, TechStars and the promise of Seattle’s tech scene

I think a big problem is that the “money” in Seattle is in a few big (particularly one) potential competitors to startups. That’s not the case in NY or SF (plus, they have two word city names that are more easily abbreviated.)

Microsoft has it’s own startup incubation environment that, like the company, is a culture unto itself. And we’ve seen great companies come out of that: Expedia, Zillow, etc.

Then you have the ex-Microsofties which are another group, usually experience people with options or bootstrapping from their day job. Picnik comes to mind as a good example.

And then there’s everyone else. Real & Amazon are big early internet success stories which have their own spin offs, but like Microsoft they’re liable to look at new startups as competitors.

McCaw started Clear(Wire), Paul Allen has Vulcan, there’s Madrona, and then we’ve got some satellite offices from the Bay. Other than that, there’s not a lot of money in the area.

Unlike New York, where there’s a lot of finance & media money that can be spent on ventures that are not seen as competitive, or the Bay Area which not only has Sand Hill Row but a more diversified economy.

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