Some thoughts on mobile

- People tend to lump smartphones and tablets together as “mobile”. This can be misleading. Ask people who run internet companies and they’ll tell you that user behavior on tablets is far more similar to user behavior on desktops/laptops than it is to user behavior on smartphones. That said, the software on smartphones and tablets is similar, as are the discovery mechanisms (mostly app stores) and monetization techniques.

- Microsoft is running ads making fun of the iPad for being a “consumption” device. Here’s what Steve Jobs had to say back in 2010 about creation (“productivity”) on the iPad:

We are just scratching the surface on the kinds of apps for the iPad…I think there are lots of kinds of content that can be created on the iPad. When I am going to write that 35-page analyst report, I am going to want my Bluetooth keyboard. That’s 1 percent of the time. The software will get more powerful. I think your vision would have to be pretty short to think these can’t grow into machines that can do more things, like editing video, graphic arts, productivity. You can imagine all of these content creation possibilities on these kind of things. Time takes care of lots of these things.

If you go back and look at the history of productivity apps you’ll see that each major user interface shift led to new classes of productivity apps. Back in the 70s and 80s, when computers had text-based interfaces, word processor applications like Wordperfect and spreadsheet applications like Lotus 1-2-3 were invented. In the 80s and 90s, when graphical interfaces became popular, presentation apps like Powerpoint and photo editing apps like Photoshop were invented. If the historical pattern repeats, productivity apps that are “native” to the tablet will be invented.

- App stores have had a few important effects: 1) They take 30% of revenue, which scares away most big companies (e.g. Microsoft) and also startups/venture capitalists. Not many businesses can survive an immediate 30% haircut. 2) They’ve led consumers to expect very low prices for software. It’s hard to imagine charging $30 let alone hundreds of dollars for software through app stores (although some mega-hit games do get near these levels with in-app purchases). This is why many big software vendors are scared. 3) The discovery mechanisms (e.g. top download charts) tend to have a rich-get-richer effect, making it very hard for software to grow from niches, as they often did in the past. Just as in the movie industry, the trend is toward creating blockbusters that appeal to everyone. The emergence of new app discovery mechanisms (e.g. FB & Twitter) might alleviate this problem.

- The best entrepreneurs understand these dynamics and have been exploring “attach” business models, which basically means charging for something outside of the app store, like offline products/services (e.g. Square, Uber), online services (e.g. Spotify, Dropbox), and sometimes even hardware. Most of the companies that have succeeded (= generate real revenues/profits) on mobile were either desktop incumbents (e.g. eBay, Amazon, Facebook) or have attach business models.

- Fans of Apple and Google have been arguing lately about which company is winning mobile. Apple has more profits, but Android has more users. But what really matters is when and if developers switch over to developing for Android first, or even Android only. For now, iOS users tend to monetize much better than Android users, more than making up for the smaller user base. The switch to Android first hasn’t happened yet, but at least based on conversations I’ve had with entrepreneurs, it seems likely to happen in the next year or two.

- Mobile has had a big effect on b2b software. People want to use their personal iOS/Android devices at work, and many people now have computers with them all the time who didn’t before. This has created opportunities for 1) traditional b2b software that is mobile friendly, 2) companies that support mobile devices for businesses (e.g. mobile security, compliance etc), 3) brand new categories of software for users who previously used pencil and paper for various business tasks.

Airware: An operating system for drones

I’m excited to announce that Andreessen Horowitz, along with Google Ventures, is investing $10.7M in Airware, a startup that makes operating systems for flying robots, popularly known as drones.

Drones were first developed by the military. But as component prices drop and software becomes more sophisticated, drones are starting to be used in non-military applications.

One application is precision farming, which aims to decrease costs, increase yields, and reduce the environmental impact of farming. Farming accounts for about 70% of global water usage. Most experts think this is unsustainable. Using drones, farmers can inexpensively survey crops to better allocate water and fertilizer. Studies show this can raise food yields over 25% while decreasing water usage by 40%.

Other large markets are mapping, infrastructure inspection (e.g. pipelines and power lines), and civil applications (police, firefighters, and first responders). We expect many other uses to emerge over time. One of Airware’s early customers is a Kenyan wildlife conservancy that’s buying drones to prevent Rhino poaching.

Airware makes operating systems for low-cost, non-military drones. It’s a combination of hardware and software that’s designed to be customized by customers and third-party developers. Other companies make the actual drone body (the “airframe”), which can come in many forms such as helicopters, quadcopters, and fixed-wing airplanes.

The founder of Airware, Jonathan Downey, spent most of his life studying aviation and engineering. Like his parents and grandfather, he is a licensed, instrument-rated pilot. He studied computer science and electrical engineering at MIT, where he represented the university in drone-building competitions. He then built drones at Boeing, but left when he realized he could make low-cost drones on his own.

As investors, we try to back brilliant founders pursuing audacious ideas. Robotics has long been a field that overpromised and underdelivered. We think drones are the most likely way to rectify that, and Jonathan is the person to make it happen.

Hardware startups

For a long time, entrepreneurs and investors shied away from hardware. This seems to be changing. As Paul Graham says, there are many reasons for this:

Hardware does well on crowdfunding sites. The spread of tablets makes it possible to build new things controlled by and even incorporating them. Electric motors have improved. Wireless connectivity of various types can now be taken for granted. It’s getting more straightforward to get things manufactured. Arduinos, 3D printing, laser cutters, and more accessible CNC milling are making hardware easier to prototype. Retailers are less of a bottleneck as customers increasingly buy online.

Another important factor is what Chris Anderson calls “the peace dividend of the smartphone war”:

All the components in a smartphone — the sensors, the GPS, the camera, the ARM core processors, the wireless, the memory, the battery — all that stuff, which is being driven by the incredible economies of scale and innovation machines at Apple, Google, and others, is available for a few dollars. They were essentially “unobtainium” 10 years ago. This is stuff that used to be military industrial technology; you can buy it at RadioShack now.

It also doesn’t hurt that the most valuable company in the world (Apple) and some of the most exciting startups (e.g., Nest, Jawbone, Leap Motion) make hardware.

If you are thinking of doing a hardware startup, here are a few things to keep in mind:

- Manufacturing. Many hardware startups stumble when they try to go from prototype to large-scale manufacturing. There is no AWS-equivalent for hardware. To get manufacturing right, entrepreneurs often end up living in China for months and even years. The difficulty of manufacturing is one reason that hardware entrepreneurs tend to have more work experience than software entrepreneurs.

- Defensibility. Hardware companies generally have economies of scale but hardware products generally don’t have network effects. This means that as soon as you prove the market, you’ll face competition from lower cost manufacturers. The best startups complement hardware with software and services that have network or platform effects. Think of hardware as bringing the revenue and software/services as bringing the margin.

- Planning. The build-test-iterate model that is popular in software startups doesn’t translate well to hardware startups. Proper planning is essential because mistakes can be unrecoverable. For example, you might create a design that fails environmental tests but only discover this years later when you are about to go to market. (See all those symbols on the back of your phone? Those are regulatory certifications).

- B2C vs B2B. Consumer hardware tends to get more attention, but B2B hardware has a number of advantages. You’ll have fewer startup competitors, because entrepreneurs who have both hardware and business domain expertise are rare. You’ll also have fewer incumbent competitors, because B2B hardware usually requires local sales and service teams, making it harder for foreign competitors to copy you. Finally, manufacturing can be done locally because higher price points mean you can be less sensitive to labor costs.

Shapeways: Manufacturing in the Cloud

The Internet dramatically reduced the costs of a number of creative activities. For example, publishing written work used to require a large upfront investment. As a result, publishing was controlled by corporations who acted as creative arbiters. The Internet enabled writers to bypass those corporations, leading to an explosion of creativity and innovation.

Creative activities that involve physical things have mostly resisted this trend. Let’s say you are an entrepreneur who has designed a new line of jewelry. You need to find a factory, commit to a large batch size, and make a significant upfront investment. It is a risky and expensive endeavor.

Shapeways is a startup headquartered in NYC that eliminates the fixed costs of manufacturing. Making use of breakthrough advances in 3D printing, Shapeways manufactures objects in a variety of materials – including metals, ceramics, and plastics – with no upfront costs or minimum batch size. The results are indistinguishable from – and sometimes superior to – objects manufactured using traditional techniques.

Here’s a short video that shows the revolutionary potential of 3D printing:

Today, I’m excited to announce that Andreessen Horowitz is leading a $30M investment in Shapeways along with our friends at Union Square Ventures, Index Ventures, and Lux Capital. We believe that technology is at its best when it enables human creativity. The Internet unlocked the world of bits. 3D printing is unlocking the world of atoms.

Technology predictions

For those of us in the prediction business, it’s sometimes useful to go back and read past predictions to try to discern patterns in what they got right and wrong.

Back in the early 90s, a lot of people thought the Internet was overhyped. Here’s one example from Newsweek:

Do our computer pundits lack all common sense? The truth in no online database will replace your daily newspaper, no CD-ROM can take the place of a competent teacher and no computer network will change the way government works…. What the Internet hucksters won’t tell you is tht the Internet is one big ocean of unedited data, without any pretense of completeness. Lacking editors, reviewers or critics, the Internet has become a wasteland of unfiltered data.

Today, it’s easy to find people expressing similar skepticism about emerging technologies like the Internet of things, robotics, 3D printing, Bitcoin, etc.

What the skeptics overlook is that platforms that are open to third-party developers have the following characteristic: it’s hard to think of important use cases before they are built, and hard to find examples where important use cases weren’t developed after they were built.

Just look at the founding years of top websites. Google: 1998. Wikipedia: 2001. YouTube: 2005. Twitter: 2006. No wonder it was so hard to imagine these services early on. It took years to imagine them even after the Internet had gone mainstream.