31 Comments

Summary:

[qi:111] So those rumors about the iPhone SDK delay were right after all: it won’t be until June 2008 till you get to put new apps on your iPhones. But that’s enough time for John Doerr & the venture firm he leads, Kleiner Perkins Caufield & […]

[qi:111] So those rumors about the iPhone SDK delay were right after all: it won’t be until June 2008 till you get to put new apps on your iPhones. But that’s enough time for John Doerr & the venture firm he leads, Kleiner Perkins Caufield & Byers to set up a $100 million iFund. (Does anyone know about the performance of KPCB’s Java Fund?) Is KPCB compensating and desperately trying to get ahead of what it thinks is a hot trend? After all they failed to board the Web 2.0 train and of course missing out on Facebook.

“A revolutionary new platform is a rare and prized opportunity for entrepreneurs, and that’s exactly what Apple has created with iPhone and iPod touch,” said John Doerr, Partner at Kleiner Perkins Caufield & Byers. “We think several significant new companies will emerge as this new platform evolves, and the iFund will empower them to realize their full potential.”

The hot selling iPhone — over 5 million units sold so far — on paper it seems like a good idea that they want to invest in companies and developers that are going to create apps for iPhone and iPod Touch platform. I am not convinced that that an iFund is necessarily a good idea. Why do I say that?

First of all, Apple will need to sell a lot more than 10 million phones it projected in first 12-months. And even if it exceeds expectations, there are many challenges that make the iFund a high risk proposition. A question that instantly comes to mind is: why isn’t Apple putting its own vast cash reserves to work and encouraging app development. Say what you may, Google didn’t need a third party fund to get attention for its Android platform. Now lets look at the kind of companies iFund will invest in.

The iFund is agnostic to stage and size of investment (from seed stage to established products with revenue), but targets companies with long-term standalone potential. Focus areas include location-based services, social networking, mCommerce (including advertising and payments), communication, and entertainment.

Much of the iPhone-iPod Touch platform activity is going to involve apps cooked up by individual developers, small operations that won’t need to funding to grow their business. If Apple’s event reports are to be believed then it seems like the development of these apps is going to be fairly easy, smooth and inexpensive, making it easy for one-to-two developer teams to unleash their creativity.

In exchange for 30% of their application revenues, Apple is going to provide hosting, perhaps some promotion, and other sundry services. The free apps will be offered up for free, or so it seems from various reports that we have heard. Not that there is any chance they can sell outside of the AppStore, since iPhone will continue to remain a close commerce platform. (The iPhone platform is actually more draconian than the iTunes Store where Apple added DRM to keep competition out but consumers had a choice to rip the CDs and playback their own MP3 files.)

In other words any start-up or developer will have its destiny controlled by Apple. As shown by Microsoft, Facebook or Apple itself, a successful App (or an iPod accessory) can be replicated and introduced by the platform owner. I am just trying to understand how a big standalone company will emerge when Apple is going to be gatekeeper.

There are some who have thrown caution to the winds, proclaiming that iPhone and iPod Touch are going to be this humongous sellers and will crush everything over next two decades. Pour souls with little understanding of mobile ecosystem. Does anyone believe that rest of the mobile industry and yes that includes the carriers is going to curl up and get ready for a beat down by Apple.

Carriers are going to want a piece of the action from this application business or Apple will find itself facing some tough times. Unlike the showdown with the record labels, the carriers know their spectrum makes them king, especially in the US. From that perspective, it seems iFund is fraught with risk. But then betting on trends is always a risky.

… it’s particularly touching to be here today with the supreme commander of the rebels, Steve Jobs …Steve started the whole personal computer industry — when he left Apple it went downhill fast. He return and resurrected Apple, and even ran Pixar — please join me in a salute for the World’s Greatest Entrepreneur, Steve Jobs. John Doerr speaking at iPhone SDK event via Macworld

  1. “There are some who have thrown caution to the winds, proclaiming that iPhone and iPod Touch are going to be this humongous sellers and will crush everything over next two decades. Pour souls with little understanding of mobile ecosystem.”

    Not to mention how there are some serious deficiencies for such a device…no stereo bluetooth (especially for the iPod Touch!), no true GPS, and limited capacity and battery life. These things will improve over time, but even the best apps can’t overcome hardware limitations. The iPhone is popular, and that alone can sustain it for some time. But it’s far from the best mobile device and something better will inevitably come along within a year or two. Maybe it’ll be one of the Android phones :)

    Share
  2. … a fool and his investment money are soon parted!

    Share
  3. [quote]Carriers are going to want a piece of the action from this application business or Apple will find itself facing some tough times. Unlike the showdown with the record labels, the carriers know their spectrum makes them king, especially in the US.[/quote]

    Of course the carriers would like to see a piece of the action, but how realistic would that be? My ISP would love to have a piece of google’s income, doesn’t mean they’ll get it though..

    Share
  4. If Apple is blowing everyone out of the water with data/internet usage with current smaller market share, aren’t the carriers going to be even happier with more data usage? And they aren’t going to have much of an argument with apps that don’t require their networks at all (the digital level is probably the cleverest, silliest, yet useful app I’ve seen… and no data network needed).

    Agree the fund is largely useless. Games, small niche apps, and apps from established devs won’t need VC. It’s difficult to conceive of something that will be a real stunner, requiring investment. Maybe integrating the location features, but it’s not very precise… Who knows.

    Share
  5. Its a brave step I must admit. iFund would surely encurage developers to build creative apps for iPhone.

    worth watching.
    srini
    http://codingweb.blogspot.com

    Share
  6. Michael Smith Friday, March 7, 2008

    Om, I think you hit the nail on the head by bringing up the Java Fund. Which as far as I can recall was a complete flop. So this is KPCB trying to create some hype and ride a wave for something that probably does not need a fund to begin with.

    Let’s say it does though – does one really believe KPCB will be savvy enough to pick the right companies? Their history with the Java Fund points to some pretty weak picks and a lot of misses. I remember they passed on Weblogic stating that Java on the server was not the way forward.

    Clearly there will be money made on the iPhone ecosystem but I don’t have the confidence that KPCB will be a big part of it.

    Share
  7. Carnelefeller Friday, March 7, 2008

    “it’s far from the best mobile device and something better will inevitably come along…” This argument is so similar to the arguments about the iPod so long ago. All one needs to do to predict this future is search iPod + no FM tuner.

    As for OM’s point about spectrum being king and how the mobile ecosystem works, etc…To me the question is not Apple versus the Carriers but Carriers versus Content. Your view on this question will determine who has the upper hand in what will be an epic tug of war. In my view if Apple continues to execute the way they do…and I might add continue to reinvent the way they operate (think Jobs stepping aside in the presentation as long as he did was an apt metaphor) they will continue to dominate and dictate terms regardless of who owns the spectrum.

    Share
  8. This is totally a marketing ploy by both Apple and KPCB. That will never get the attention nor every come close to full investment.

    I do mobile apps and there’s one fundamental problem with the iPhone now and for the next few years: there aren’t enough of them out there to make for compelling numbers of potential users. Getting 1, 5, or even 10% of iPhones and then selling a $19.99 app or something for $4.99 mth ain’t a lot of cash. I can’t wait until the b-plans for this start rolling in. “You too can reach a $6mm run rate 4 years out”.

    Share
  9. Martin Ankor Friday, March 7, 2008

    [quote]Not to mention how there are some serious deficiencies for such a device…no stereo bluetooth (especially for the iPod Touch!), no true GPS, and limited capacity and battery life.[/quote]

    Yeah, the stupid iPhone doesn’t even have a floppy drive!!!

    Share
  10. Here’s an article from 2005 that provides some details about the performance of KPCB’s Java Fund: http://www.siliconbeat.com/entries/2005/07/20/correcting_the_record_java_fund_not_a_flop.html

    Share

Comments have been disabled for this post