Startups: Getting back to first principles

It's become so easy and inexpensive to launch a software or Internet-based startup that the current "leading edge" of thought is that startups should "fail fast" (make mistakes early) and then "pivot" (adopt a different strategy, or even develop a different product or service) until they land on a viable market opportunity. We've lost sight of some fundamental first principles that startup teams should think about before they write a line of code. These are first principles in the vein of "The Art of War"--how likely are you to survive engagements with customers and competitors.

For example, direct, head-on competition with entrenched competitors is likely to result in failure. If you're building a new search engine, you're likely to fail (see Cuil and endless other companies) unless you've got a parent company that makes more money than it knows what to do with (see Bing.) The best outcome in this case is that you'll develop some unique and interesting technology, and larger competitors will find it cheaper and easier to buy it from you than to build it themselves.

If you're planning to go after much bigger competitors, misdirect them and keep your mouth shut about your true intentions until you're too big to kill. Netscape was growing incredibly rapidly as a browser company, but Microsoft was largely ignoring it. However, as soon as Netscape announced that it was positioning its browser for running applications on any operating system, Microsoft saw it as an existential threat and did everything it could to destroy the company. Since Netscape still had tiny revenues, Microsoft could "cut off its air supply" by giving its browser and Internet servers away. Had Netscape kept quiet about its intention to turn its browsers into an application platform until it was big enough to withstand attacks from Microsoft, it would have survived. (AOL, which acquired Netscape, has abandoned all use of Netscape's brand name and products, and moved out of the last of Netscape's buildings in Silicon Valley in late August.)

Google learned from Netscape's demise and kept quiet about its long-term plans. It was a search engine, and search was at best a minor part of Microsoft's business. It generated advertising revenues, but Microsoft made its money through selling software, so that wasn't perceived as a threat, either. The first iteration of Google Apps was seen as a joke by Microsoft and dismissed. Google hired Andy Rubin, the founder of Danger (the developer of Sidekick mobile phones, which was subsequently acquired by Microsoft) and adopted the funky smartphone operating system (Android) that he had been working on. Again, it was under the radar and not worth Microsoft's time. By the time Microsoft fully realized how many of its businesses were under attack, Google was too big for Microsoft to kill.

If you're going into any market dominated by "old media" companies, position what you're doing as a way for them to retain market share and/or make more money, and make sure that they agree--otherwise, they'll kill you. Napster completely disrupted the business models of the big record companies, and they sued Napster out of existence, but not before they were crippled by music sharing. Apple stepped in and offered the record companies a way to make money from the growth in usage of digital media players. The record companies bought in, which ultimately resulted in Apple becoming the world's largest seller of music, and made the record companies dependent on Apple for their survival.

If your business depends on information or support from entrenched companies, you're going to have an uphill battle. Steve Huffman, one of the founders of Reddit, set off to create an airline ticket comparison service, Hipmunk, that makes it easy to find the lowest fares. This, however, threatens the airlines, which see it as decreasing their potential profits. So, Hipmunk has struggled to get access to the flight and pricing information that it needs for its service. The company has launched, but its most likely exit strategy (if it survives) is to be acquired by a search engine or a larger travel service.

When startups take on entrenched competitors, they almost always roll out the David and Goliath story. The reason that story has so much resonance is that the little guy beat the big guy, when in the real world, the big guy almost always wins. The lesson for startups is to avoid taking on the big guys until you're big enough to fight them as an equal.

Kin's dead, Sidekick's dead, and what does Microsoft have to show for them?

Yesterday, Microsoft announced that it killed its Kin mobile phone line, just two months after it was launched. The Kin won't be rolled out to Europe, and production has been halted on the two models sold in the U.S. Verizon will continue to sell existing inventory until it runs out. Today, T-Mobile announced that it's discontinuing sales of the Sidekick LX and Sidekick 2008, both of which were designed by Microsoft's Danger subsidiary and were precursors to the Kin. T-Mobile is apparently reserving the Sidekick trademark to use for future models, but they won't be compatible with the older models and won't use Microsoft's technology.

Microsoft's decision to kill the Kin was a smart one--the phones were out of sync with the current market. The two Kin models looked like smartphones but weren't--users couldn't add applications. Their original prices were close to smartphones, but without the functionality. To make matters worse, Verizon made buyers sign up for two years of a $30/month data service, the same price that they would have paid for a smartphone. The result was that sales were far below expectations.

Microsoft had originally planned to base the Kin phones on the Danger operating system, then spent 18 months moving them to a Windows CE-based platform. During the 18 months that it took for Microsoft to move from Danger to Windows CE, the smartphone market exploded, thanks to the iPhone and Android. Customer expectations were completely reshaped, and what was acceptable in late 2008 was no longer acceptable in 2010.

Similarly, T-Mobile's decision to kill the Danger-based Sidekick phones makes sense. It was clear that Microsoft was discontinuing any further effort to develop the Danger platform, and the current Sidekicks were getting very old, so it was time for them to abandon Danger and move to another platform.

The question is: Why did Microsoft take the Kin phones to market at all? The company had already announced its Windows Phone 7 platform, and when the Kin phones were launched, Microsoft made it clear that they couldn't be upgraded to Windows Phone 7. I'm sure that Microsoft had to make major financial commitments to Sharp, the manufacturer of the phones, both in NRE costs and in committing to volumes of product for inventory. Microsoft undoubtedly knew what Verizon's service pricing plan was, and should have known how unattractive it would be. It knew the market trends favoring smartphones. As good a decision as killing Kin was, it would have been a far better decision not to launch it in the first place.

And what about Danger? Microsoft spent $500 million purchasing the company in 2008, and now has abandoned both its software and hardware platforms. Microsoft says that some of the social networking concepts from the Kin will be implemented in Windows Phone 7, but it seems like very little return on a big investment.

Microsoft is gearing up for its launch of Windows Phone 7 this Fall, but its mobile operation appears to be in disarray. With Apple and Google piling success on top of success and RIM holding its own, there's virtually no room for Microsoft to make a mistake. They have to do everything right with Windows Phone 7 that they did wrong with Kin to have any chance of success.

Sidekick data lost, Danger may be dead

According to this report from CNet, T-Mobile Sidekick users have been unable to access their data, such as calendars, address books, etc. starting more than a week ago. The Sidekick stores most of its users' personal data on servers, rather than on the device itself. Danger, the company that created the Sidekick and operated the servers, was purchased by Microsoft for $500 million last year. Now, according to multiple sources, T-Mobile and Microsoft have notified Sidekick users that the data have most likely been permanently lost; there is a slim but highly unlikely chance that they can be recovered.

T-Mobile has apparently suspended online (and, one presumes, in-store) sales of Sidekicks, and it's hard to believe that they would put them back on sale, or convince customers that the Sidekicks will be any more reliable in the future than they are now. To the contrary, T-Mobile and Microsoft are probably facing a massive recall and expense as customers turn in their Sidekicks for other phones.

This could turn into an unexpected windfall for Google and the Android platform if customers decide to replace their Sidekicks with Android-compatible phones. (In an ironic twist, Andy Rubin, the father of Android, was one of Danger's founders.) Microsoft might try to steer Sidekick customers to Windows Mobile phones, but since Microsoft was responsible for the failure, it's unlikely that they're going to be able to force anyone to go with a Windows phone.

The handwriting has been on the wall for the Sidekick for some time; it's a dead platform. Key members of the Danger team have left Microsoft, and most of the others are now working on the ever-increasingly less secret "Pink" project. However, the platform still had an active base of users and supporters, at least until today.

If T-Mobile and Microsoft don't announce a replacement program soon, expect to see class action lawsuits filed across the country. (Even with a recall, the lawsuits may get filed anyway due to the loss of personal data.) In any event, the Sidekick platform is dead, and the future reliability of any Microsoft-run cloud-based service is in question.

UPDATE 15 October 2009: According to TechCrunch, it now appears that Microsoft has been able to recover most of the lost Sidekick user data, and will begin restoring the information "soon" (the next status update is scheduled for Saturday, so it may be several days or more before users get their data back.)

Related articles by Zemanta

• T-Mobile: All Your Sidekick Data Has Been Lost Forever (mashable.com)
• T-Mobile: we probably lost all your Sidekick data (engadget.com)

I'm now following cameraphones...

Mobile World Congress,GSM,Nokia,Samsung,Sony Ericsson,Microsoft,Danger,Android,Google,T-Mobile,Sharp,Motorola,Apple,iPhone

Given the content of my previous post, I've decided to start following developments in camera phones. (Yes, I know, it's about time.) This is a good time to start, as the Mobile World Congress, covering everything to do with GSM, started today in Barcelona. So far, the state-of-the-art seems to be 5 Megapixel phones, new versions of which were announced by Nokia (the N96 and 6220 Classic), Samsung (the G810) and Sony Ericsson (the G900 and C902.) (Note that I'm not including launches of phones with 3MP cameras; if I did, the list would include three new models from LG.)

You may have also heard that Microsoft purchased Danger, the company that created the Sidekick phone for T-Mobile and other operators. (Danger's co-founder now works for Google and manages the Android mobile phone operating system project.) Danger farms out manufacturing to companies such as Sharp and Motorola, but this acquisition firmly puts Microsoft in the handset, not just the operating system, business. However, Danger has a miniscule share of the overall smartphone market, so it remains to be seen if Microsoft will actually market its own phones (and go head-to-head with Apple's iPhone) or use Danger to create reference designs that it will then license to other companies.