Beware the Monoculture: The risks of focusing on San Francisco and New York

I just finished reading a good analysis of the market opportunity for valet parking startups, written by Charles Hudson. He writes that the real competition for these startups may be public transit, Uber, Lyft and ridesharing services. In San Francisco, where he's based, he notes that these services have cut down on the use of cars, and therefore, the need for parking. However, it was while reading his post that I realized that San Francisco is primarily representative of San Francisco, and that extrapolating from the San Francisco market could get startup founders, as well as investors and analysts, in trouble.

San Francisco has been a parking nightmare for decades--at least from the time that I moved to the Bay Area in 1983. It's hard to find commercial parking, and it's expensive when you do find it. On-street residential parking is a nightmare. On the other hand, despite the many complaints about the Muni bus system, San Francisco has a very good public transit system, with busses, subways, streetcars, cable cars and trains. It was an early Zipcar market, and it's also the home of both Uber and Lyft. The availability of so many transit options grew out of the natural limitations imposed by San Francisco's geography and the concentration of startup talent.

You don't have to go very far to find a counterexample to San Francisco. Los Angeles is much bigger and more spread out than San Francisco, even though its downtown is smaller than San Francisco's. Los Angeles's public transit options range from poor to nonexistent. Cars are essential for getting around Los Angeles--its geography shapes the market for transit options just as surely as San Francisco's does, but in a different direction.

That illustrates a problem that many startups are faced with: There's demand for them in the area where they were founded, but demand tapers off dramatically when they move into different markets. For example, meal delivery services have flourished in both San Francisco and New York. Even though New York is much bigger than San Francisco, both cities have highly concentrated populations and multiple transit options. Both cities also have a proportionally large population of high-income earners, who can afford to pay for convenience. However, conditions are very different in, say, Omaha, Denver and Dallas. That limits the growth potential for those delivery services--they may do very well on the coasts, but find limited viable markets in the rest of the U.S.

There are many other services that you can think of that take advantage of the population concentration, transit options and high-income populations of San Francisco and New York, but that may not play as well in other places. There are also services that target other unique market characteristics--for example, a dating service that targets techies might be very successful in New York and San Francisco but less so in Pittsburgh or Cleveland, which have much smaller young techie populations.

You might say "We did lots of customer development and found that there's high demand for our service." That may well be true, but where did you talk to potential customers? If you only talked to them in your home city, you've probably got a biased sample. It's important to talk to people in multiple cities with different underlying conditions. Only then can you begin to understand where your service will and won't work. That, in turn, will help you to more accurately gauge your Total Available Market, and you'll be able to launch in the markets where your business is most likely to be successful. In short, successful customer development requires that you not only get out of your building to talk to customers, but that you get out of your home city as well.

Signs of the iPadcalypse: $70 discount on iPad 2s at Meijer

Parts are flying off the iPad rumor mill. According to All Things D, the iPad 3, or 2S, or HD, will be announced by Apple at an event in San Francisco the first week of March. However, for all the sources that ATD said that it had for the story, it's still a rumor. Yesterday, however, I got another possible confirmation. While shopping at a Meijer store outside Chicago, I learned that the store is selling iPad 2s for $70 off. iPads are rarely discounted unless they're refurbished, so a significant discount at retail suggests that Meijer is trying to sell off excess inventory ahead of a new product announcement.

Meijer might not have any solid information, and may simply be doing this to keep from being stuck with inventory in case Apple discontinues the iPad 2. However, it does suggest that there's a new iPad coming from Apple soon.

A Big January Coming from CES, Google and Apple

Image via CrunchBase

January 2010 is going to be a big month for new product announcements. First up is Google, which has scheduled a major announcement for next Tuesday (January 5th) on the Googleplex campus, most likely to showcase the Nexus One mobile phone in partnership with T-Mobile. As I speculated earlier, leaked details indicate that there will be only one rate plan available for the phone if you get it from T-Mobile, but it's not a bad one: Unlimited voice and data for under $80 US a month. The phone will be subsidized if you get it from T-Mobile; the price will be $180. The price of the unlocked phone from Google will be $530; I thought that Google would at least partially subsidize the price of the phone and offset it with advertising revenues, but I was wrong.

Image via Wikipedia

The Consumer Electronics Show (CES) opens in Las Vegas next Thursday, January 7th. There's not a lot of pre-show buzz about new products, but here's what I expect to see:

• Several new eBook readers (both hardware and software). In software, the biggest noise is likely to come from Kurzweil and Baker & Taylor's blio--eBook reader software designed to maintain "page fidelity" rather than make eBooks readable on devices with tiny screens. There will undoubtedly be several hardware eBook reader announcements, including some with two-page displays and full color.
  
• More Internet set-top boxes like the Roku. This might be where Comcast first shows the Roku-like set-top box that it's been working on to support its Xfinity service, and Video Business Magazine
  Image via CrunchBase
  
  accidentally broke an embargo yesterday on a new set-top box called Popbox. Also expect to see lots more Internet-enabled Blu-Ray players supporting Netflix, Amazon On Demand, YouTube and other services. Internet connectivity will be the thing that drives sales of Blu-Ray players, not Blu-Ray itself.
• More companies will jump into the "dead-simple" camcorder space pioneered by Cisco's Flip. Samsung recently shipped its first model, and I expect to see Panasonic make an announcement as well. Expect to see more models with image stabilization, more control over image quality and better sound, as well as WiFi and geolocation. The challenge will be to make camcorders that are more sophisticated but still inexpensive, small and simple to use.
• There will undoubtedly be more waves of HDTVs, including someone pushing the "world's biggest" model. There will be more OLED models on the floor, still at stratospheric prices, but with larger screen sizes that are more practical for everyday use.
  
• Expect more add-ons for the iPhone and iPod touch to increase their functionality, and possibly, the first wave of similar add-ons for the Motorola Droid. Hardware add-ons for Android phones will be much more difficult to monetize because there's no standard form-factor or dock interface, but some companies will jump into the market.

Apple's announcement at Yerba Buena Center in San Francisco on January 26th is probably the most-anticipated event of all, because the expectation is that Apple will announce a tablet computer. The rumor mill has been going wild with this one, but I wouldn't be surprised to see Apple announce a dramatically expanded iTunes Store along with the tablet with a big selection of eBooks, magazines and newspapers to go along with the music, video and movies already on sale.

Pricing will be a huge issue. If Apple announces a tablet for around $1,000, as has been rumored, its market is going to be very limited. I think that they have to keep the price for the tablet to $500 or less, and they may have to get there by striking an exclusivity deal with a mobile operator such as Verizon or AT&T to subsidize the cost of the tablet in return for a two-year service contract.

In any event, this is going to be a very busy January.

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• Jobs to unveil Apple tablet next month, ex-Google exec says (macworld.com)