The venture capital scene is cyclical by nature. Successful investment is, of course, principally dependent on backing the right products, but as most good venture capitalists would affirm, back those products at the wrong stage in the cycle and you are heading for downfall.
Theoretically, the innovation cycle spans 14 years. There are roughly 14 years between each of the great information- related inventions – the mainframe, the PC, the internet, and then the iPhone.
The idea of a cycle is comforting for many, as it brings the concept of security. I cannot tell you what the next invention, 14 years from now, that I should invest in will be. But what I can tell you is that now is the right time to invest in digital platform-based applications.
It is a promising time in cycle theory. Why? Because the digital age is very much still on the up. Recently we have seen a wealth of platforms catapult to success – Facebook, YouTube, the iPhone (all of which I consider platforms in this context).
For the first time, small companies have the opportunity to reach people they could never have reached before, by developing applications for use on one of these platforms. In the digital age, the phrase "time to market" has taken on a different meaning.
The marketing element itself, for example, has changed. Traditional marketing has made way for word of mouth and community-based marketing, with intimate knowledge of the relevant consumer audience crucial to the ultimate success of the new product.
Take the games industry. Creating the next great game used to involve a long list of steps – companies had to get a licence from Sony, Nintendo or Microsoft before investing millions to produce it. Marketing and selling the game then required a huge retail distribution network.
The process, from conception to market, was time consuming and required an astronomical amount of investment. Now games developers can upload their creation to Facebook or the iPhone as an application.
Forget the licence applications to blue chips, the high marketing costs, the resellers. Today’s digital platforms are easy – anyone can use them. And with increasing frequency, application developers are using them – there are now 134,000 applications for iPhone and over 77,000 for Facebook.
Time to market has shrunk dramatically thanks to the ease with which start-ups can now reach their audience. Costs are low, test markets are available to give fast and expert feedback on what works.
Even blue chip companies are starting to outsource their research and development to start-ups in an effort to reduce capital outlay and get to market more quickly. Larger companies are looking for ways to pick up new technology without having to get through the hurdles of developing it themselves.
Customer expectations are changing. Formerly, when new products hit the market, consumers expected them to be perfect. Families invested in televisions that stayed in the living room for decades. Now, we expect to see various upgrades on established products. We are on the umpteenth version of the iPod. The beauty of digital platformbased applications is that they do not rely on being able to build a physical product. They are adaptable, and if the first version is not well received, a new version can easily be developed.
The information age is at its prime. With more than 400 million Facebook users and 200 million YouTube downloads, there has never been such a large audience. If a start-up company has a good enough offering, it can leverage this easy market access provided by these platforms to test and adapt its offerings, enabling it to bring out a hit quickly. We have seen the popularity that digital platformbased applications can reach in examples such as Farmville (Facebook) and Foursquare.
At the European Tech Tour Association, a not-for-profit organisation designed to match the best emerging technology companies Europe has to offer with investors, we have seen vast amounts of change in the technologies presented over the past four years but the digital platform is the investment for the future.