WWJMD? Some Corporate VC Advice for David Drummond
Today, noted VC Fred Wilson chimed in on Google's venture capital aspirations. Fred is a Google investor and points out some of the major disconnects between corporate and entrepreneurial venturing. I'd encourage you to read his post in its entirety, he raises some important points. But as David Drummond and William Maris sort out the pros and cons of corporate VC, I thought I'd share a few observations.
First, I should point out that I'm not a venture capitalist. But I had a short but meteoric career at the nation's largest cable TV company in their fledgling VC group, and I think I had a good opportunity to see what was and wasn't successful.
Perhaps some history would be in order.
Cable operator Tele-Communications Inc. created Liberty Media in 1991 and hired Peter Barton to whip things into shape after his successful stint at Cable Value Network. Liberty's entrepreneurial culture flourished in the entertainment mecca that was Cheyenne WY, far away from the parent company. This set the tone, as each investment kept its management and corporate culture intact. Over the next few years, Liberty Media helped a lot of today's cable channels got started, thanks in part to its recurring revenue model: for every cable subscriber, the network would get anywhere from a penny to a quarter, every month.
Strong, predictable cash flow covered up a multitude of sins, and early cable networks gained access to the resources they needed to grow. For example, ESPN soon stopped airing ping pong and tractor pulls and landed lucrative contracts with the NFL, NBA, MLB and college football. It got to the point that the major leagues today depend on television revenues for their livelihood, something I've blogged about here. (I should note that Peter left the year after I left TCI, and passed away entirely too early in 2002 at the tender age of 51.)
Now, Dr. John Malone and Peter understood pop culture intersected with technology. TV networks, like Microsoft, understand that the key to their profitability is the ability to obsolete their own products. That might may have been one reason why they invested in a slightly eccentric billboard executive's vision of a 24-hour news network.
If you buy into that premise, it means that future web service development may look more like television programming, where a TV network might manage production risk by investing in 10 pilots and only committing to making 2 of them into a series. For example, a few weeks back we had reports that eBay's growth had stalled, growing only 8 percent from the year-ago quarter, a steep decline compared with its robust double-digit growth in previous quarters. Consumers have become price sensitive and the auction model has failed to find the same traction as fixed price. I believe eBay will become increasingly irrelevant because it continues to hold onto a transient business model and has failed to identify the logical successor to its auction product.
Once, Google leapfrogged Yahoo! by combining a great technology vision with pop culture - people loved Google's clean interface more than Yahoo's cluttered interface. But history has a habit of repeating itself, and as Microsoft and IBM can tell you, nothing lasts forever.
Google might want to get into VC, if only to place strategic bets on emerging utility computing concepts that have a shot at obsoleting its search utility model.