When is it “too early” for a new product?

In Only Ten Years Too Early, Fred Wilson recounts his VC investment in a “cheap internet appliance”:

The idea was that we could build a large user base and make money through advertising, marketing, and e-commerce. It was 1999 of course.

We invested something like $10mm in the business and built a team of talented engineers and business people and launched a device which we partnered with Virgin Entertainment to take to market. This is what the device looked like:

Needless to say, this was not a successful investment. The device worked but it had a number of fatal flaws outlined in this PC World review from 2000.

While this looks like a case of massive wishful thinking taking over sensible viability assessment, we can’t really be sure why the venture failed without inter-related facts and the benefit of hindsight. Fred’s conclusion? “Beware of ‘way too early’.” This does sound like good advice, except perhaps when coming from a VC, especially when contrasted to Peter Drucker’s dictum, “The best way to predict the future is to create it.”

When is it “too early”?

As is the nature of investing, a VC’s job is to bet on the future. VCs and their portfolio companies can either chase the coattails of a trend (usually beyond their control) or, a la Drucker, try to actively shape the future by creating the necessary ingredients if/when necessary:

• Google – We explored how Google created GOOG-411, a free automated directory service, to harvest phoneme data to improve their speech recognition algorithms so that YouTube videos can be indexed (and thus searched and monetized) through speech-to-text conversion. (This will be likely used in the upcoming Google Voice as well.)

• Apple – When Apple wanted to redefine what a cellphone is, it didn’t phone in yet another clunky “smartphone” with an Apple logo on it. For over a decade, the incumbents in that industry were satisfied with existing form factors, UIs, features, carrier relationships, revenue models and infinite small-minded product differentiations. Unlike Nokia or Microsoft, Apple didn’t say, “There are too many industry restrictions and technical hurdles for us to redefine this category. It’s way too early.”

Apple didn’t leave anything to time or fate. In hardware, software and services, it actively created a space for the iPhone to succeed. Where it was needed, it poured in R&D dollars, invented new things and collected hundreds of patents; gained new expertise in radio technology; bought a company specialized in multi-touch; converted a desktop OS into mobile one; created new global distribution channels; negotiated a ground-breaking arrangement with the largest carrier; and so on. In other words, instead of creating, hoping and predicting that the iPhone would somehow become a killer product, it made sure that all the supporting elements were in place to make sure that it would.

• Sun – When Java was first introduced, perhaps the biggest gripe against it was its relative slowness compared to established languages like C++. A lot of people were ready to write off JVM. Sun, it turns out correctly, bet that Moore’s law and software optimization would catch up to bring Java performance up to par, and productivity gains from a better language would outweigh the initial performance concerns. CPUs got much faster and Sun managed to further speed up Java performance. For many years now, Java performance on the server has ceased to be an issue.

• Cloud computing – Perhaps the most “hyped” growth domain today is all the ways in which we can connect our desktops and mobile devices to servers and services in the cloud. Now, any conventional IT executive or a VC in need of an 18-month exit strategy can find excuses to not fund cloud computing projects and products: security, data portability, management, reliability, performance, etc.

For example, it would be easy to claim “too early” by noticing that average consumer upload speeds last year in America via common cable/DSL conduits was only 435 Kbps, much too slow for various entertainment and medical applications, among others. This gets even worse for enterprise computing where terabyte-size datasets need to be routinely uploaded to the cloud for tracking and analysis.

Is it “too early” then to positively consider Nirvanix, Bycast, Mozy, Cleversafe, ParaScale, Dropbox and numerous other mostly consumer oriented companies for cloud storage? How about Amazon, Microsoft and Google offerings that go from simple storage into cloud-based applications and transactions? Should the column-based data warehouse company Vertica not offer an analytic DB for the cloud, because it’s “too early” to transmit gigabytes of data over a typical corporate T-1 connection?

Further, should Nvidia stop its GPU platform because major OS vendors don’t (yet) support it? Should Apple delay its GrandCentral or OpenCL initiatives because the hardware side of the equation isn’t sufficiently complete, pervasive or economic? Examples abound.

Chase or lead?

A decade ago PointCast became a canonical example of a product that was “too early” because we didn’t have pervasive broadband for a push service (though the company would have been a success if it didn’t refuse the $450M buyout offer from News Corp). Since then Apple and Google, among others, have taught us how to create the necessary conditions for their products to succeed by compressing time through strategic invention.

If VCs want to become indispensable to the companies they advise, perhaps they ought to remember that it’s “too early” only if you fail.

14 thoughts on “When is it “too early” for a new product?

  1. Dear Kontra, and avid fellow readers

    This UK folding plug needs a patent, and regulatory approval. Hopefully the designer has started on these, otherwise the video disclosure is “too early”.

  2. I think a device is “too early” if you cannot achieve a decent experience while using the device for the purpose for which it was intended. I think investment in an “internet appliance” before the widespread proliferation of broadband was just money looking for a pit.

    I recall putting up with dial-up speeds if I had to, like for on-line banking and such, but it was certainly not something I engaged in for fun. I believe many like myself had become accustomed to high-speed internet while working on their jobs, and therefore would not have had much patience for dial-up on an internet appliance, especially if it were slowed to an even more leisurely crawl with ads.

    In addition, very few besides Google and network television have appeared to be able to turn “free with ads” into a viable business model, and certainly no one on the hardware side.

    I would say that the netbook is close to the evolutionary track of IA’s. But high-speed access is more the rule than the exception today, and no one is trying to give them away in exchange for looking at ads.

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  4. From the time Chester Carlson invented xerography in 1938; his first patent was awarded in 1942. But it took until 1960 to introduce the first xerography-based copier, and probably a couple more years to show a profit. Xerography didn’t sit on a shelf for those 22 years – Carlson and many others did huge amounts of work to make it practical. (The story is told in “Fumbling the Future”, a book more specifically about how Xerox failed to capitalize on PARC’s work on personal computing.)

    “Too early” isn’t really a statement about time. It’s a statement about investment – of money, of research, of development, of market education. Products that are “too early” are either ideas for which the technology doesn’t quite exist yet – e.g., the Apple Newton – or for which the technology exists but the market demand hasn’t appeared, but appears later – for which I have no specific example I can think of. (Note that many products remain “too early” forever: The market demand *never* appears.)

    Apple could not have introduced the iPhone a year earlier than they did – it would have been too heavy, too slow, not bright enough; the digital network it needed would have been too limited. Apple could see the technological trends, and was willing and able to spend significant resources developing, discarding, re-developing, fine-tuning – and waiting for the necessary technological elements – as well as business elements, like a network provider willing to work with them on appropriate terms – to become available. It’s hard to imagine a startup doing that – funding for startups is just not that patient.

    Software-only products require much less capital investment, and because of its nature, it’s unusual to see commercial software that outruns the current technology base. But software can easily appear before the market is ready for it, and failure to invest sufficiently in market education, re-tuning as tastes and technology inevitably change, and just plain hanging around have killed many such products.

    Of course, many “too early” products aren’t, really. The developers look back and see only the positives, not the stuff they did that really didn’t work well and would have doomed the product no matter what. They also re-interpret what they did in light of later work. Maybe one aspect of their work matches what later became a success – but was it really what they were selling? Was Pointcast ahead of its time because the world wasn’t ready for RSS and Atom feeds? Or would Pointcast have failed no matter what in the face of open, easy-to-adopt standards that lead to thousands of free “information channels”?

    • Hi Jerry,

      Apple could not have introduced the iPhone a year earlier than they did

      Mine is an argument against the notion that ground breaking products come about only because all the relevant ingredients have been developed to a point where a company just has to assemble them into a whole. If it has to actually develop new technologies, infrastructure, marketplaces, services, behavioral modifications, etc., well then it’s “too early”.

      With the original iPod Apple sold not (just) an MP3 player but convenience: “1,000 songs in your pocket.” That, of course, would not have been possible without the ground breaking Toshiba disk drive, which wasn’t available a year prior. What if Apple did in fact know about the possibility of such a drive and, say, funded and accelerated its development a year earlier?

      What if, for example, video conferencing is currently “too early” on mobile devices? Not enough bandwidth? Awkward eye contact/parallax issues? Too taxing for the CPU and battery? New compression algos needed? Yes, Apple could wait a couple of years, until it becomes not “too early” which is pretty much what every other player will do in this space. Or or Apple could, for instance, convince AT&T to improve the network, invent video capture through device screen, develop a new add-on chip to facilitate better video processing, battery conservation, compression, etc. IOW, instead of predicting the future, it would create the necessary ingredients to make it happen.

      It’s hard to imagine a startup doing that – funding for startups is just not that patient.

      I agree. That’s something the VC community has to grapple with, as I pointed out above. The “10X returns quickly” approach may not be tenable going forward. Look what the “30X leverage now” approach gave us in derivatives gambling. :-)

      it’s unusual to see commercial software that outruns the current technology base.

      That’s not quite right. 3D rendering, special FX, video post-processing, CAD, speech synthesis are just a few examples of commercial software perennially in desperate need of better hardware support. And BTW, hardware can easily appear before there’s sufficient software support as well. Easy example is multithreaded processing for multi-core CPUs.

      Maybe one aspect of their work matches what later became a success – but was it really what they were selling?

      Exactly. This is why I pointed out Fred invested in both the Internet appliance and Twitter. Sometimes one realizes that it’s not about the device but perhaps about the service or, conversely, the service isn’t sufficient and a properly attuned device is the optimum. It’s all in framing the business proposition correctly.

  5. It’s never too early for the future. However, like biological evolution, technological evolution is bound to have its winners and losers. A new genetic expression may only become a survival advantage when it meets the suitable environment. So the same “new” feature may be invented again and again until the major environmental change cause the old to be extinct and the “new” to thrive.

    Timing is key. Some companies get there through luck and ruthless tactics; some through persistence and perseverance; some through pure engineering and calculation; a few through genius and vision.

    People often describe Apple as aiming for where the hockey pock will be, instead of chasing after it like everybody else. I think a better analogy would be that Apple and Google (and Amazon to some extent) are actively trying to change the actual playing field so the pock will go where they want it to go. By the very use of iPhone and Google Docs and EC2, people are helping them push for the future to come sooner than the rest of the market thought it may take. Whereas a VC typically only evaluates a company’s product, a visionary company looks to alter the environment to foster its innovation, and concurrently apply its innovation to create an even more suitable environment.

    • Very well put.

      The issue here is the time-frame and the returns-ratio VCs normally pursue. Not too many VCs will consider, say, a min 5-year window or invest in necessary infrastructure to ensure that a product actually succeeds. I’m not sure if they’d have the expertise to do that, let alone the patience.

  6. Cloud computing is definitely the future of computing, Just few years back we were struggling with cable modems where an antivirus update was a big headache, leave aside the options of downloading some stuff, but in last few years technology has taken a big leap and the smart companies always invest in Future. That is where the future lies :)

  7. I work with a Defence contractor as a consultant, just to survive this recession. I had this idea. Why couldn’t you integrate the iPhone with a counter battery radar? When the bad guys fired their mortars in Baghdad, the counter battery radar would send the co-ordinates to the iPhone maps application. Then the soldiers on patrol would get an instant fix on the position to hunt down. I mentioned this to my Manager. His response? Talk to Product Management!

  8. Early or late may be the wrong question.

    The critical question is whether there is a market for your product for which someone will pay (or watch ads, etc), or whether you are in a bubble talking to yourself. Or worse yet, not listening to obvious comments in your market research.

    This can be difficult when there is a disruptive technology, but even in these instances one has to be vigilant in not hearing what you want to hear.

    • Certainly. There was an Internet appliance craze at the time. Some people thought they could get around the difficulty of building general purpose PCs by limiting their functionality to bypass Wintel and Apple. IOW, the value proposition was to simply offer less, not better. In contrast for example, the original iPhone did offer less (in sheer features) but it was unquestionably better.

  9. I think “cheap (ugly) internet appliance” was why that thing failed. Plus the whole internet appliance category seems doomed.

    The time was right for the iPhone in terms of hardware and network developments, but what really matters is that Apple could take their time and do a phone right since other phones were so bad. There was a huge hole in the market for “AWESOME” that Apple filled beautifully.

    • You see the irony here, right? It was possible to built a large-scale system to bring news to individuals, greatly circulate personal and business communications, tie it to mobile devices and so on all with available technology at the time, even on dial-up. It wasn’t an appliance. It wasn’t even hardware. It could have been called “twitter” in all its 140-char lightweight glory. The irony lies in the fact that a decade later Fred Wilson invested in twitter.

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