RealTime IT News

iPhone Triggers 'App Economy'

PALO ALTO, Calif. -- Are the days of the big software firm numbered? No one expects Microsoft, Oracle or SAP to go away anytime soon, but the idea that a hot startup might someday reach such levels seems increasingly doubtful according to an early investor in Google.

"We're seeing the emergence of the app economy," said Ram Shriram, managing partner of Sherpalo and founding board member of Google (NASDAQ: GOOG). "The big companies aren't hiring, but you see people from [various universities) starting little companies, making the top ten list on the iPhone App Store. "I think we're going to see lots of little companies that will perhaps be successful with ten or 15 employees. This is wonderful."

He also said the phenomenal success of the iPhone App Store and other online store fronts are a better business model for startups because getting revenue by charging for applications is a better, more sustainable business model than relying on ads. Shriram spoke at a panel here at Stanford as part of the Silicom Summit.

Shriram also uttered what many may consider heresy for a Silicon Valley venture capitalist. He said this new class of mobile software startups are generating profitable revenue streams, but warned "if you aim to build big you will fail."

He also noted user-generated content and social media is probably the fastest growth area on the Internet, but doesn't have the same sustainable revenue potential of online apps. Shriram said video's popularity continues to grow, but venture capitalists are reluctant to invest because that increase in popularity means higher costs.

Other panelists noted Google has yet to turn a profit on its $1.65 billion purchase of YouTube in 2006. "Once the business model does get figured out, everyone will benefit," said Shriram.

TV Versus the Internet

Tom Rogers, CEO of Tivo, said "control and choice" are big themes in what consumers want and that the Internet and mobile platforms are way ahead of television in that regard. Of course he was quick to note that systems like Tivo's digital video recorder (DVR) helped pioneer the "time-shifting" features that gives consumers a greater level of control than standard TV or a VCR offers.

He warned that traditional business models of distribution are breaking down with the ability to get any music, video or other forms of digital content whenever you want it. "The issue we play with is delivery of that future world," said Rogers, adding that if broadcast and cable execs don't adapt more quickly, they will face the same problems newspapers have of losing consumers and a sustainable business model.

Where the Internet offers analytics and detailed information on what ads are being viewed and acted on, Rogers bemoaned the fact that "television lacks the ability to tell an advertiser what they are getting for their investment."

He said Tivo amasses a billion pieces of data a day on what its users are viewing or skipping and sells that information to advertisers and the networks. But Rogers said more could be done to make advertising more interactive and relevant. "It requires an urgency we're just not seeing on the part of the incumbents," he said.