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[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 :)

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

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  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..

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  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.

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  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

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  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.

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  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.

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  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”.

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  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!!!

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  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

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  11. bb writes: “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.”

    Um, well….5 million iPhones, times 5% times $19.99 times 70%…

    5,000,000 x .05=250,000 x 19.99 =4,997,500 x .70=3,498,250.

    $3,498,250. Three Million, four hundred ninety eight thousand, two hundred and fifty. Dollars.

    In what way is that not a lot of cash??

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  12. The carriers are about to be cut out of the loop. Apple will somehow become their OWN carrier. They will either buy up some frequencies, go wiMaX or something. Bank on it for them to use that cashpile to make this happen.

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  13. To the question of whether the iPhone needs the iFund, well, no. Probably not. But the iPhone wants the iFund, just like I wanted–but didn’t need–my iPhone. The only real question goes to the investors in the fund… do you need your money? You must not, because its hard to see how you will get much of a return on this investment.

    Several people talk about how the iPhone isn’t even the best mobile phone out there, or that Google’s Android will surpass it in a year or two. Do you honestly think that this is the end of the product development lifecycle? They already dropped the price, increased the memory, rolled out 4 software updates, released the SDK, and admitted that the 3G version will launch this year. All in less than a year since it hit the market. You don’t think that this kind of evolution will continue? Remember how the first iPod was derided because it was big and lacked an FM tuner, among other limitations. Then trace the evolution of the entire product line, for which the frequency of new releases increased over time. The iPhone and Mobile OS X platform is likely to follow a similar path. Android may be very good, if it can avoid the pitfalls of having to work with some many different devices. But iPhone is very good, and it works today.

    Hopefully Apple’s SDK and toolset for the iPhone will follow a path similar to that for their desktop tools and applications, which have become more open over time.

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  14. dogsandsuds Friday, March 7, 2008

    Maybe this will work?

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  15. [...] not going to be writing any useful social clients for the iPhone. Oh, and this makes the Kleiner Perkins iFund look even more of a joke than their Java fund a decade [...]

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  16. Hey Om,

    As to the question of whether iPhone needs the iFund, that is debate-able but I think that from Jobs and company perspective, what they are trying to show is that ‘we get it.’

    Understanding big customers like enterprises matters. Cultivating and growing a developer ecosystem matters. And providing enough chum to garner VC interest matters.

    I would net this one out as Microsoft playbook meets Cisco playbook tuned for the ‘just add water’ sensibility of the internet age.

    Now, when you say, “…any start-up or developer will have its destiny controlled by Apple…I am just trying to understand how a big standalone company will emerge when Apple is going to be gatekeeper,” this belies just how many big companies emerged from the Microsoft ecosystem.

    The devil is in the details but I am more optimist than skeptic. Along those lines, I just posted:

    Mobile reasons for optimism:
    http://thenetworkgarden.com/weblog/2008/03/mobile-reasons.html

    It’s an attempt to connect the dots between the customer-developer-enterprise-investor-Apple big picture.

    Check it out if interested.

    Cheers,

    Mark

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  17. there is a quote at the end of Om’s post, about Steve Jobs. It seems to be there out of context; their is no attribution. It just says “MacWorld” at the end. Just wondering who that’s from? (Did Door say that at the Apple event?)

    re: the KP “iFund”, I’m puzzled how venture capital scale investments will be made in iPhone software application developers. Unless they decide to make seed level investments of $250-500k. Those companies aren’t that resource intensive, but more importantly they aren’t going to “grow up” into $200M+ revenue operations. Wish Door would have explained exactly what he is thinking. But it’s great to see something that will stimulate some true Apple-style innovation in the mobile computing market! I just hope the iFund isn’t iHype:)

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  18. [...] Does iPhone Need The iFund? – GigaOM I like Om’s realism in this post. He’s correct they will have to sell a lot more phone! Thus my tongue in cheek 100 million number the other day. I’m less certain about the carriers and apps. The Carriers need to do a better job of thinking through WiFi. (tags: iphone ifund gigaom wifi) SHARETHIS.addEntry({ title: “links for 2008-03-09″, url: “http://www.henshall.com/stuart/2008/03/09/links-for-2008-03-09/” }); [...]

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  19. Does anyone knw who the investors in the iFund are?

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  20. [...] development departments is now being replaced by venture capital. A fund to foster Facebook apps, the iFund to jump start the iPhone app revolution or the rumored $150 million fund to give Blackberry apps a [...]

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  21. [...] development departments is now being replaced by venture capital. A fund to foster Facebook apps, the iFund to jump start the iPhone app revolution or the rumored $150 million fund to give Blackberry apps a [...]

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  22. [...] by big carriers on their captive hardware/software offerings, especially those designed for the already popular iPhone. With a big crowd overall and packed rooms at Android-specific discussions, the Google I/O [...]

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  23. [...] the Facebook platform, this year the new new thing are iPhone application makers. In addition to the $100 million, iFund floated by Kleiner Perkins Caufield & Byers, other VCs are getting in on the [...]

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  24. Pavle Shirkov Wednesday, June 11, 2008

    “Missed out on Facebook”?

    Don’t forget Facebook doesn’t make any money. %99.9 percent of this web 2.0 stuff is hyped garbage. Successful businesses solve a problem – they don’t wildly guess what the market might want….that’s what fad chasing twitter heads do.

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  25. [...] read about the 100 million dollar fund(iFund) for iPhone applications companies, Gene Munster’s predictions of $1.2 billion [...]

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  26. [...] and said the names of three more would be revealed sometime between September and November. Given that the iFund was only announced back in March, I am surprised by the number of startups they’re investing [...]

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  27. [...] in Series A financing from the iFund of Kleiner Perkins Caufield & Byers. (Om wrote about KPCB’s $100 million app funding initiative last year.) The funding comes a month after Ngmoco, another iPhone game startup, launched with [...]

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  28. [...] iPad and other tablets. The New York City-based AppFund doesn’t have quite the resume of the Kleiner Perkins-backed and Apple-supported iFund, but it’s jumping in at a time when tablets are top of mind. The [...]

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  29. [...] touch — as it’s already spent its allocated $100 million in the two years since the fund was first formed. The announcement comes on the eve of Apple’s iPad launch, the SDK for which, in light of [...]

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  30. [...] In the heady days of the iPhone’s advent, Kleiner Perkins announced a $100 million fund to focus on investing in its wake. Just two years later, Kleiner Perkins has [...]

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  31. [...] and AOL in the past is looking to bring on board a technically savvy partner who will help bolster the iFund, a fund devoted to the Apple iPhone ecosystem. KPCB doubled the size of the iFund in 2010. [...]

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