Jeff Lawson pitches me at my local Starbucks in 2008

It is one of the reasons why the company raised a whopping $70 million in new funding from Bessemer Venture Partners and Redpoint Ventures, who co-led the most recent round of financing. The company has so far raised a total of $102.7 million in funding in three rounds. Its early backers include Dave McClure, Chris Sacca, Founders Fund, Manu Kumar, and Union Square Ventures. That is quite something for a company that got turned down by twenty odd investors before the first dollars rolled into the bank account.

My sources tell me the company — while still unprofitable — is growing at break-neck speed and is on track to do $50 million in 2013 revenues.  While it doesn’t have profit margins that are as rich as classic software-as-a-service companies, it still has a gross margin in excess of 45 percent. This scorching growth is one of the reasons why the company is now valued at close to $500 million.

An initial public offering is a distinct possibility, although I also wonder if Amazon will bring Jeff (who in a past life was chief technology officer of StubHub) back home by buying this company. In a nutshell, Twilio is a cloud-based communications platform that allows app developers to add voice and texting capabilities to their applications by including a few lines of code.

We, in Silicon Valley, collectively celebrate the fast and the furious, the pretty and the sexy, the nouveau. Somehow we have lost appreciation for the simple fact that it takes (what seems like a lifetime of) agony, sacrifice and ingenuity to build something of lasting value. And that is the reason I wanted to tell the story of Jeff is because he has done what very few founders get to achieve — to build what it seems is a business that has stayed true to its roots and succeeded by helping others succeed.

The Telecom Disruptor

I was introduced to Lawson by McClure, who had been helping me in the early days of GigaOM and started jumping up and down, insisting I meet Jeff. So, I did. And as Jeff sat next to me in my favorite Starbucks, giving me the pitch, I couldn’t help but think to myself: Twilio looks like a dozen odd startups, that were providing voice APIs and betting on telecom minutes arbitrage.

As someone who had been following voice-over-the-internet and telecom for over a decade, I knew it was a sucker’s game and it would take a lot more than just founder-bluster to build a real business. I guess that skepticism is a natural byproduct of watching an industry chase pennies.

Apparently, I wasn’t alone: Lawson met a total of twenty angels and VCs and they all were not keen on his company. He didn’t care and just launched the product right after the 2008 financial crisis had hit. Of course, what I had missed was that this was a non-telecom guy who was  fed up with the telecom industry’s practices.

In his previous life, he had wanted to find a simple way to add communications into his businesses’ work flow much like he would add code to his software. Instead he was left dealing with expensive contracts and massive gear, which he didn’t need. He and his two co-founders (Evan Cooke and John Wolthuis), essentially set-out to replace that archaic architecture. They saw what Amazon was doing with its cloud platform, and they wanted to do the same for communication. ”The company started to meet our own needs,” said Lawson, a 35-year-old quirky and charming engineer from Michigan.

Hackathons Rule

Photo of Jeff Lawson at a company event, courtesy of Twilio via Flickr

Despite strong competition from more entrenched companies, Twilio kept plugging along. They stayed hyper-focused on developers. Quite a few of my friends were playing around with Twilio and built very basic apps on it. Others hacked together personal messaging systems. Some wanted to make voice-to-blog plugins. Twilio, it seemed, had found its people. We stayed in touch and we often wrote about this tiny company that kept beating the odds.

Our stories dovetailed again when they moved into the first GigaOM office on Pier 38, just after we moved out. That office had a lot of good karma (if not enough heat). It wasn’t until they offered an easy way to integrate SMS into their apps that their star zoomed.

Jeff jokes that while Amazon didn’t really have to work at finding their customers, Twilio had to seek out its potential customers. Enter, Hackathons!  ”The art of creating software and building new things was starting to get celebrated at these hackathons,” Lawson said. Twilio embraced the hackathons with gusto and became an active participant — where there was a hackathon, there was Twilio. I remember seeing Danielle Morrill, one of the early Twilio employees pretty much at every hackathon I attended — carrying the proverbial company flag.

My colleague Stacey Higginbotham wrote a prescient piece and observed:

…future isn’t voice, but apps that provide the context for the best means for communication. It may be voice, it may be video or it may be text, but Lawson (while not committing to anything beyond expressing interest in video) expects Twilio to be there on the back end enabling developers to offer communication with a minimum of fuss.

Over a period of time, Twilio turned their voice-inside-apps service into a platform and the apps based on that platform started to grow big, some almost overnight. One of them, GroupMe was acquired by Skype for $85 million. Another similar app, Beluga was snapped up by Facebook. Just as Amazon Web Services (AWS) was making it dead simple for startups to get started, Twilio was making it easy to add communications capabilities.

The success of GroupMe was the aspirational story that helped cement Twilio’s story into the app ecosystem. I guess, when you look back, the rise of iPhone app economy was the best thing that happened to Twilio, which saw a big boom in the number of developers using its messaging and voice platform. ”I see API replacing the dial tone,” says Lawson, who is convinced that the future of communications is through application interfaces.

In a blog post announcing the funding, one of Twilio’s new investors, Scott Raney, wrote:

Twilio is also a part of a broader trend towards services and APIs catering directly to developers.  More and more, developers are making critical decisions regarding the nature of the products they are building. Like Redpoint’s earlier investments in Heroku and Stripe, Twilio is at the forefront of this movement.

Since the heady days of Beluga and GroupMe, others have embraced Twilio and started to build their businesses based on Twilio’s services. I recently came across a company called SendHub, that has built a brian-dead simple phone and messaging system that marries two crucial trends — “bring your own device” and “distributed workforces.”

The premise behind this Silicon Valley company is pretty simple: if there are no desk-phones and employees are spread across the country, how can a PBX system invented for monolithic mid-20th century organizations be useful, regardless of the fact it uses voice-over-the-internet for transporting technologies? How can we think just about voice as a communication tool, when we are texting more, sharing files, doing conference and constantly tapping into the CRM systems. It reminded me of Google Voice, except reinvented for today’s needs.

In the past a similar company would have spent its entire first few years trying to build the network underpinning its business (think Google Voice & RingCentral), but these guys signed up for Twilio (and Amazon) and focused all there resources on building the new communication experience. It has allowed the company to start bringing in hundreds of thousands of dollars in sales.

Culture Defines Customer Experience

Photo courtesy of Twilio, via Flickr.

When I asked Lawson what has made his company work, he pointed to his company’s nine core values and how they add up to creating the best experience – whether it is for customers or for the employees. “Experience is how something makes you feel,” he said. “When you see a U2 concert, that is an experience and has a lasting impression.”Lawson is pretty convinced that Twilio’s model of customer acquisition and keeping them around works, mostly because they are hell bent on creating an awesome experience.

“Telecom services are worse than enterprise software,” he said. The industry wants to conduct a transaction before you as a customer taste any success. “We want you to succeed and then willingly conduct a transaction,” he added. “A transaction before success is stupid.” It is one of the reasons why they only have four-percent annual churn in their customer base.

“This is what creates the long term customer and that is what makes our model work.” In order to create that experience, Twilio has done a few unusual things. For instance, the company expects every employee (even non-technical ones) to create an app based on Twilio and also handle customer service for a few days. “It is because we want everyone to have empathy with our customers’ problems,” Lawson said.

The Evolution of the CEO

A company’s culture is set by its leader and that is why I find Jeff quite fascinating. A brilliant engineer, he has found a way to overcome the challenges of being an engineer-founder. When I asked him what has made him work, Lawson said his attitude has been: to adapt and reinvent. “I think you learn that what worked for past nine months when you were only 10 people doesn’t work when you are 30 people, so you adapt and learn [a] new way,” he said.

To illustrate the point I want to tell the story of the company’s mascot – an Owl. During its early days, the company fell in love with a Reddit meme about drawing an Owl. You draw a circle and figure rest of it out! That is how Lawson sees the company — there are no instructions. Just start, figure the rest of it out, learn and improve. And that is how he sees his job as the CEO.

Today Twilio is 160 people. By the end of the year it will be 200 people, but by then, Lawson said that he will have changed once again as a CEO and have learned to do things differently. “There is a new playbook every 6-to-9 months,” he said. “You just need to know what are non-negotiable values.”

“We are not telecom people and we don’t want to be those guys,” Lawson said. “We are hackers and [are] for the hackers.” That’s non-negotiable.

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The deal would increase Salesforce’s revenue by $120 million to $125 million in the financial year 2014. Revenue for the company’s full fiscal year 2014 is projected to be in the range of $3.955 to $4.0 billion, an increase of 30 percent to 31 percent year-over-year. The non-GAAP earnings per share will drop to about 16 cents a share for the year. Diluted non-GAAP EPS is expected to be in the range of $0.31 to $0.33. The board of directors of both companies have approved the transaction. The transaction is expected to close late in salesforce.com’s fiscal second quarter, ending July 31, 2013.

Make no mistake — this is one expensive deal. In 2012, Exact Target had revenues of $292.3 million (up 41 percent from 2011) and a net loss of $21 million (down from $35 million in 2011.) Exact Target expects to bring in $370.0 million to $374.0 million during 2013 and lose between $20-to-$22 million.

An Expensive Makeover

Salesforce’s makeover is getting more expensive. It paid about $142 million for Jigsaw in April, 2010. Salesforce paid $212 million for Heroku later that year and shelled out $326 million for Radian6 in 2011 only to open its wallet to spend another $689 million for Buddy Media last year.

But this one is the big whopper and actually the one that makes the most sense for Salesforce, especially from the perspective of goosing up its revenues. However, this shouldn’t come as a surprise mostly because the company had promised to make more “marketing cloud” oriented acquisitions. Of course, raising over a billion in debt last quarter was even more of a hint of things to come.

“The CMO is expected to spend more on technology than the CIO by 2017,” said Marc Benioff, chairman and CEO, salesforce.com. “The addition of ExactTarget makes Salesforce the starting place for every company and puts salesforce.com in the pole position to capture this opportunity.”

Net:Work 2010: Marc Benioff – CEO, salesforce.com

Exact Target, to put it crudely, is an email-based marketing platform, one whose usage has been on an upswing as consumer brands have turned to the internet for the marketing efforts. ExactTarget has big-name customers including folks like Coca-Cola. It also adds more structure to Salesforce’s ambiguous sounding marketing cloud.

On paper, all of CEO Benioff’s moves make sense. Cloud infrastructure is the future of software. Social is a core and vital need for companies and marketing is becoming crucial and strategic necessity in our increasingly distraction-infested world. Bringing it all together with mobile — another area of focus for Salesforce — makes perfect sense. It is a good strategy to take especially as some of the older (software) guard starts to slip. Exact Target brings in enough muscle into the company to go toe-to-toe with Oracle which acquired RightNow, Eloqua and Vitrue.

Will it work?

The question is whether Salesforce actually make all these disparate pieces start to work together and make a gourmet dish called profits from all these ingredients. Many on Wall Street are skeptical, though some of it is because of Benioff’s bombastic “I am always right” style.

The doubters have a reason: the marketing cloud, which until recently was only Radian6 and Buddy Media, only was about 3 percent of company’s revenue — around $100 million. The other businesses, such as Data.com — which consists of the 2010 Jigsaw acquisition – are said to bring in about a $100 million. It isn’t clear how much (or how little) the company makes from Heroku and then there is Work.com, its new business that is an amalgamation of Rypple, Choicepass and other assets. Those are rounding errors for a company that is going to bring in $4 billion this year.

That said, for now, Benioff has enough to standup in front of the world and promise what a friend of mine calls “future bliss.”

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I was reminded of that feeling this morning when I ended up having coffee with Ravi Vora and Lauryn Meyers, twenty-something creatives from Los Angeles. These two travel around the country, combining their work and love of photography and sharing it with thousands via Instagram. I am one of those thousands who have been spell-bound by the ethereal beauty of their Instagrams.

Vora told me that he grew up in Michigan wanting to be a geneticist but when he scratched his creative itch, he ended up at a digital ad agency, doing creative things, including taking photos for Nike and making films. Meyers told me about her life as an army brat and her Los Angeles plans that involve wardrobe design. I had never met them till this morning, but I felt like I knew them already anyway — that I’d traveled with them over the holidays and had shared the antics of their cat. In fact, we talked as if we had known each other for a long time.

Some Instagram friends with whom I went out for a photo walk.

Square-shaped dream weavers

And this isn’t the first time I met someone on Instagram and then started spending time with them in the real world, already somewhat aware of snippets of their life. I have gone on photo walks with Instagram friends. I have attended “Instameets.” Vora decided that Instagram’s communal aspect was so strong that he ended up making a short film, the Instagram Generation, exploring this phenomenon. He wrote on his blog:

Through this tiny picture-sharing app, people have met up, become friends, started dating, flown across the world to meet each other, and gone on adventures they would have never imagined they’d add to their bucket list. Not to mention the inspiration they’ve found through following new people. From photography techniques, to jumps, to locations around the globe, there are no bounds to the creative ideas and unique ways that we share them. Well, besides that little square.

That video actually sums up Instagram perfectly. Instagram is one of those rare social phenomenons that marries the online and the offline and in the process, creates a unique community. It perhaps is one of those rare services that has not lost is charm over time. Twitter is a must in my line of work — it runs in the background much like news radio and CNBC. Facebook, on the other hand, has turned into a chore, mostly because of the expectations and information creep.

Delighted

Instagram, however, is just pure, unadulterated delight. It still sits on the first screen of my iPhone, much like Twitter.  It is a chance to get lost in the moments and beauty of someone else. Instagram, which recently sped past the 100 million monthly active users milestone, is reality television, where thousands of realities (and un-realities) are folding across the world. [Of course, the kids use it differently.]

While Facebook has bigger numbers, it also lacks the warmth and the loving feeling of a truly social experience. The last time we experienced such a powerful community, it was on Flickr, the online photo-service that is now owned by Yahoo and has suffered from apathy under various Yahoo regimes. In the New York Times, David Pogue reviewed Flickr and focused on the vast storage space that comes with the new and improved (questionable) service.”Flickr. Good writing, wrong focus” is how I would put it. Mike Monteiro, a rabble rouser extraordinare and a design guru, put it best when he tweeted:

David @Pogue’s take on the new @Flickr makes sense if you think of Flickr as a place photographers store photos, rather than a community.—
Mike Monteiro (@Mike_FTW) June 02, 2013

Even though it is has new overlords, Instagram still has that loving feeling a year after it was acquired. It has nothing to do with the founders, though they are important to keeping the spirit alive. Flickr survived on the power of its community long after the founders left. Instagram, too, is going to keep growing, as long as Facebook doesn’t start meddling with the formula too much.

Any day now, we can expect the demands of Wall Street to persuade Facebook to start making money off Instagram. But for now, it seems those square photos have the power to be dreamweavers.

Also, another fine documentary on Instagram from director Paul Tellefsen. It is brilliant, to say the least.

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Sometimes, Hollywood screenwriters create scripts filled with inside jokes that only people in Hollywood could appreciate. Sometimes, New York media writers write about other New York media writers. And sometimes, tech entrepreneurs in San Francisco and Silicon Valley to the south create companies best appreciated by other people who live and breathe technology.

It is hard to argue with Nick, when his testimony includes $6 million in funding for an app called Twist, which essentially allows you to alert people that you are running late for a meeting and shows your position on a map. His testimony also includes Blackjet, an affordable private jet solution. These are services solving what could be labeled Silicon Valley’s first world problems. The rest of the article has supporting arguments from experts such as my former Red Herring editor Jason Pontin, who now is the head honcho of MIT’s Technology Review.

From where I stand, this is less about an echo chamber and more about a lack of perspective. Twist seemed like an interesting idea at its genesis, except is no more than a mere feature for Google Now. The fact is that when you live in an industry town like San Francisco, you start to see things with a narrower perspective that eventually makes you oblivious to the big picture. And that is true not just of the startups but also those who back them. Like everyone else, I suffer from this lack of perspective, and often have to travel in places outside the Valley to reccaliberate my lens. I said as much in this musing yesterday about San Francisco’s alpha adoption culture.

Adding a video from our friend Sean Gourley, where in he talks about the challenges in a way only he can.

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While the news of 400G didn’t excite me as much, the distance over which they could send the data impressed me, as it had implications that go beyond the oohs-and-aahs of raw speed. And what more, if this breakthrough can be commercialized — say in five to 10 years (considering companies like JDS Uniphase would have to make components) — we could see a big improvement in not only our long-haul networks, giving them more oomph and making them more efficient, but it could also have a profound impact on our cloud future.

We certainly have come a long way

Back in 1995, I remember the excitement around Ciena’s DWDM system. That same year, Nortel, the Canadian giant that at the time ruled the optical landscape, came out with a 10 Gbps offering. And then the bubble burst. Things slowed a little and we kept waiting for the long promised 40 Gbps technologies. In 2006, we saw the 40 Gbps speeds come to market, and by 2008 it was getting traction. In 2009, 100 Gbps gear came to market from Ciena.

To recap, here is the timeline of progress with optical networking technologies

• 1990: The first commercial 2.5G optical system was deployed.
• 1995: The first 10G optical system was introduced.
• 2006: The first 40G solution was introduced to the market.
• 2008: The first coherent 40G solution for plug-and-play, four-fold increase of traffic was introduced
• 2009: And, the first operational 100G solution was introduced.

400G and beyond

Since then, the attention has focused on the 400G systems. A lot has to do with marketing, but as my friend Andrew Schmitt, research analyst at Infonetics, points out: Anytime we have a 4x improvement in networking gear, things get interesting.

And so there’s no surprise why that is where all the attention is focused. In 2012 we saw a new software-programmable approach to network that upped the speeds to 400 Gbps. British Telecom and Ciena recently showed off an experimental 800 Gbps network. Alcatel-Lucent and Telefonica have been working on their own high-capacity network experiments as well.

The latest development at Alcatel-Lucent Bell Labs is yet another example of continuous progress in the optical fiber technologies, especially over long distances. This improvement is one of the reasons we have seen an explosion in the bandwidth on the long-haul networks. According to Telegeography, a market research firm, the world saw an addition of 54 Tbps of capacity last year alone.

The irony of optics

But after my initial excitement had worn off, I was left asking myself the question: How much should we care about these breakthroughs? I mean it is not that we are bandwidth limited on these backhaul networks. We are doing really well in terms of transmission rates and have steadily boosted our ability to send signals over long distances. Sure, most optical networks in operation are either at 10 Gbps or 40 Gbps, but we are only a couple years from getting 100 Gbps everywhere. What is most amazing is that this 40x improvement on optical networks has resulted in sharp declines in bandwidth prices on the networks that connect data centers, office buildings, cities and countries.

A good proxy for the long haul and metro networking business is Cogent Communications, which operates one of the biggest networks on the Internet. The company claims that about 18 percent of the Internet traffic runs over Cogent’s pipes and that it has 28 percent of the market by bits and 12 percent of the market in terms of dollars.

At a Merrill Lynch conference, Cogent Communication CEO David Schaeffer pointed out that the “average price per megabit in the market has fallen at a rate of about 40% per year for a dozen years” even as the number of players has gone from 200 to 12. The prices on Cogent’s network during “period has fallen from $10 a megabit to the most recent quarter at $3.05 a megabit.”

He is not alone. Here is a little chart from 2012 about IP Transit prices that tells the story of falling prices.

Schaeffer estimates that the core internet transit business is about 400 petabytes a day of bandwidth and is “purchased at the core of the internet out of the 650 data centers is a $1.5 billion addressable market and it’s been flat at that level for a dozen years.”

I am guessing David won’t be struggling for business in coming years. The state of connectedness is going to create much stronger demand for a much beefier cloud-based infrastructure. And as everything in the world is digitized through sensors and embedded compute devices, we are going to see an explosion in ambient data that would travel between machines. These machines that sit in data centers will need big fat pipes.

We are in the early innings here but the idea of distributed processing and storage over these big fat pipes is something that should provide an exciting prospect for companies with big fiber pipes. Infonetics’ Schmitt argued that as optical bandwidth at the non-consumer level starts to become even more plentiful and prices start to stumble, we can start to learn to waste it. Instead of networks that use routers to shuttle data, we could start to build point-to-point connections, which are certainly more useful when doing high-level distributed computing.

The financial industry has already shown us the way — many hedge funds use special low-latency networks to process data and stay competitive. I wouldn’t be surprised if that becomes standard practice with all major businesses.

Last mile conundrum

Maybe I am being child-like in my thinking, but when I see the long-haul networks, I see technology and the free market trying to figure things out and in the end bringing bandwidth online at an unprecedented scale. And sure we are all benefiting from the dumb, crooked and complete craziness that went on during the boom that led to overbuilding of fiber networks, but it has been more than a decade and the dark fiber is being put to good use. (Just ask Google!)

In comparison to the long-haul and intra-city networks, the world of last-mile connections has moved at a somewhat glacial speed. Here in the U.S., while we have seen rapid improvements in speeds (from a 1 Mbps connection at the turn of the century to about 25 Mbps (average) from cable and phone companies,) they are not as astounding. A lot of that is due to the lack of competition in our access networks — controlled primarily by oligopolies such as AT&T, Verizon and Comcast.

Across the world things are different. The Chinese are starting afresh. The Japanese and the Koreans went for the fiber early and Europeans have the advantage of the short loops, which allows them to milk the copper and make 100 Mbps connections a reality. The European competitive landscape is such that fiber to the home is becoming less of a rarity.

But let’s just face it, when it comes to the U.S., the last mile is less about the technology and more about politics and lack of competition. Whenever there is competition — Chattanooga (TN), Kansas City (KS), Austin (TX) and Vermont — things start to change. Speeds go up. Service improves and incumbents are hustling for business. Unfortunately those pockets of competition are way too rare.

In the U.S., we have never had real competition — the 1996 Telecommunication Act was a mirage and faulty from the outset. It never allowed anyone with a real chance to compete and disrupt. Thankfully, it is a distant memory, and a reminder of how Washington really works (by not working.) And that’s our broadband future — held hostage by a political and regulatory system that is in bed with those it is supposed to regulate.

That sense of disillusionment, however isn’t going to stop me from getting excited about the new optical breakthroughs. Who knows…!

P.S.: My colleague Stacey Higginbotham wrote about the need for different thinking from ISPs. Hope you get a chance to read it.

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Maybe, I thought to myself, HTC was going to make a comeback. I mean, these were the guys who jumpstarted the Android smartphone ecosystem in partnership with Google and T-Mobile USA. These were the guys who innovated fast and even came up with their own skin for Android. They pushed the design and speed envelope. They had edgy marketing. They were the first movers and their early sales were red-hot.

And yet, when they spent $300 million on headphones maker Beats by Dre, it became obvious that this company was going to run into some stormy weather. Of course, it was an idea that didn’t go down well with many of its fans and its investors — HTC eventually sold back half its stake.

This (relatively) tiny Taiwanese company was going to get squeezed by cheaper Android phones on one end and Samsung on the other. In fact, as far back as 2010 we have argued that the real smartphone battle was going to be between Apple and Samsung. And when it comes to hardware, nothing really has changed. It is Apple vs Samsung.

According to Strategy Analytics, Samsung now accounts for about 95 percent of the total operating profits of the global Android business. During the first quarter of 2013, Samsung had an operating profit of $5.1 billion, while LG made $100 million and all other vendors (HTC, ZTE, Huawei, Sony and no-name brands) collectively made $100 million in operating (not net) profit.

It is hardly surprising to see that HTC is in trouble. A report in The Verge suggested that HTC’s chief product officer, Kouji Kodera, has left the company. The report also implied that other senior executives are leaving the company. The most recent high-profile bet — the HTC First, which was launched in partnership with Facebook — has been a flop and one wonders if the company really has the wherewithal, both intellectual and financial, to undertake such experiments.

I am not sure if people remember, but Motorola was another company that found itself on a Sysephian quest and eventually found a $12 billion bailout from Google. The trouble with the smaller Android players is that despite all the talk about a PC-like ecosystem of sourcing components and using others to assemble their products, it is fundamentally not true.

Apple has used all the billions in the bank to lock up supplies for processors, memory chips, radios, displays and other such components at favorable prices. It has worked out long term manufacturing arrangements with the likes of Foxconn. It has its own retail outlets. While most of us try and focus on Apple’s hardware and software integration, we forget that it is software, hardware and supply chain integration that allows the company to sell 37.5 million phones in the most recent quarter. It allows the company to make phones that meet the needs of different carriers.

Samsung too is an integration beast. It owns memory chip plants. It makes its own processors. It makes displays and it owns the factories. It has the unique ability to churn out new products faster than anyone else in the consumer electronics business and thus overwhelm the market with dozens of models. Just look at the many flavors on its latest Samsung S4 device and you start to see that this is a game only for big boys.

The only other company with Apple and Samsung-like manufacturing oomph was Nokia. I say was, because they are losing a grip on the phone business. However, their supply chain and manufacturing was legendary. It still is. I have yet to see a badly made Nokia smartphone — I just see smartphones with an OS that makes no sense. I bet if they entered the market with their own flavor of Android — something we suggested in 2010 — they would instantly become number three in the smartphone market, behind Samsung and Apple.

Sadly, smaller players like HTC can’t compete with the manufacturing and marketing capabilities of Samsung. The HTC One, which is an awesome looking device, was hit by manufacturing issues earlier this year. So it needs to rethink its strategies. HTC needs to become comfortable with the idea of being a one or two product company, and hope that it can keep comping up with winning products every single time. Even that is a long shot. The marketing budgets of Samsung and Apple are enough to finance some small nations.

HTC’s story is all too familiar to those who have studied the first mover phenomenon. A story in Economist points out that innovators captured seven percent of their market over time. THey point to various examples like White Castle who invented the idea of fast food burger joint but McDonalds is the big daddy now. Apple and Samsung are going through some of that as well. The lesson here for everyone — even tiny startups — is as Scott Anthony once perfectly said (and I paraphrase him): no one remembers who was leading the race midway through, and everyone remembers who finished first. And in order to finish first, a lot has to go right.

So where do companies like HTC go? And sad as it might be, perhaps nowhere. I am going to do my bit to give them some support — I will buy that HTC One, just because it is actually a great little device. It truly is.

5-year HTC stock chart, source: Yahoo Finance

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Nikola Tesla. Photo courtesy of Wikipedia

Last night I tweeted a link to this video, about the legendary scientist Nikola Tesla pitching Silicon Valley venture capitalists, and commented that the truth is sometimes funnier that comedy. And I was surprised by the sheer number of people who agreed with that sentiment. I went to sleep thinking about that reaction, and also thinking about it in the context of the decline of long-term thinking in our society.

If Tesla (I assume you know who he is) did indeed walk into a VC meeting, he wouldn’t get the attention or the money for his idea because it wouldn’t fit the time-scale of what venture-capital investments have become. Having followed the business of technology for a long time, I have seen that time-scale get shorter and shorter. I guess it’s the price to be paid for the excesses of the internet bubble of the 1990s.

The Bubble After Effects

During that time the business changed from funding innovation to funding concepts and eventually to projects. The fallout of the internet bubble was that venture-capital firms shifted focus. This shifting time-frame is one of the main reasons we are seeing fewer and fewer investments in hardcore technologies and more of the dollars being shifted to the softer aspects of technology.

Yes, bloggers like me like to harp on the fact that many investors are infected by short-termism. But let’s not forget that some of these folks have taken big risks, and sometimes have failed big, too.

Cleantech has ruined many reputations and resulted in billion dollar loses. Yes, there are a couple rare big bet successes that will come out of cleantech, like Tesla Motors and Nest, but the overall trend has been losses.

Now many of the investors that aggressively backed cleantech are trying to find a more cautious approach to cleantech that more closely aligns with the traditional short VC time frame. Kleiner Perkins Caufield & Beyers, which lead the charge on cleantech investments only to be left wounded, has recently changed tack in many ways, and in particular to go after social so it can get back into the quick returns on its investments.

That’s the trend that all investors, in some respects are, moving toward. They’re all looking for the next Facebook or the next Twitter, but no one wants to look for the next Juniper or the next Intel or even the next ARM. I am not saying Facebook and Twitter are not great companies and have not scaled dramatically and impacted the world. What I am pointing to is the fact that Silicon Valley funds fewer and fewer silicon companies.

Why are we assuming that we are all done with developing new kinds of chips for uses that we are not even imagining yet? Are we done inventing the routing technologies of the future?

It’s hard to invest in the future

Think of it this way: Had Vinod Khosla not backed Pradeep Sindhu to work on Juniper, we would all be living in Cisco’s vision of the internet future and using its hardware, which it would have made and sold at its own pace and at its own prices. Today, if you need to build a big company like that, you need to have deep pockets. Luckily Andy Bechtolsteim has those and that is why Arista Networks exists and is proving to be a major disrupter.

The point is not to just rant, but to note that there is a lot more innovation to be done. All of today’s stars — from Dropbox to SnapChat to every little hot company that pops up — is built on those basic building blocks, and we have to continue to make better, cheaper and beefier building blocks.

Yes, I understand that there is a chill around chip stocks, and Wall Street investors are showing more interest in pokes than petabyte speeds. I don’t necessarily think that this kind of rational thinking is bad for the investors, but when it comes to fundamental innovation, it points to a a real challenge ahead. And forget what Wall Street thinks, isn’t venture capital really risk capital? Risk, unfortunately, is a four-letter word around these parts these days.

Failure is an option

Elon Musk in front of the frunk

Forget chip startups, does anyone think that the Sand Hill Road firmament could have funded Amazon Web Services, a disruptive economic force, if they had a chance? Probably not. How about the iPhone? The same story. If you look at those two examples, and add Google’s self-driving car, Google Glass and what companies like Tesla are doing, you understand that patience is a virtue. Unfortunately, patience is in short supply in the Valley these days.

I wrote this on the first anniversary of Steve Jobs’ death, and I want to resurface it:

A dear friend put it best when he said that Jobs allowed himself the freedom to dream big and most of us need to learn from him and supersize our dreams. While that is true of everyone, the Silicon Valley of 2012 needs to pay heed. Silicon Valley of quick flips, petty jealousies and rampant short-termism needs to remind itself of a greater purpose than a public offering. Change is more than a headline. It takes patience. It is more profound. And it is thinking about more than just us.

Maybe this video is a reminder to all of us that while we might be living in great times, the future is still to be invented.

More about the video: The video is in support of a Kickstarter campaign that hopes to collect enough money to build a statue of Nikola Tesla. While to many Tesla might be a car, in reality Tesla was a scientist who worked on difficult things. As an aside, we at GigaOM are fortunate that our New York offices are in the Radio Wave Building, the very building where Nikola Tesla lived.

Updated on May 29 at 12 noon: A new Nikola Tesla in Silicon Valley video has emerged. Here it is for your pleasure.

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