Dharmesh Shah has a great post up today at OnStartups: The 10 Most Tempting Software Startup Categories. I won’t steal his punchline by quoting all ten here, but the first 5 are:

  • Project Management / Time Tracking / Bug Tracking
  • Community / Discussion Forums
  • Personalized News Aggregation/Filtering
  • Content Management (website, blog)
  • Social Voting and Reviews

These 5 – and the other 5 – are the low hanging fruit, the low barrier to entry app categories that are a easy first grab for the firsttime startup (my first app fit squarely under project management; StartupToDo.com is a variant of #2). People will say these kinds of apps have for the most part been done to death, but paradoxically that these are the only kinds of apps that will reliably sell, so stick with the “tried and true”.
So how do you explain a mint.com? Various VC’s seem to be bitching and moaning that Mint founder, Aaron Patzer cashed out for “only” $170 million when he sold to Intuit (“Don’t “Pull A Patzer” And Other Lessons Learned On Our Trip Down Sand Hill Road“).
Why is this so bad? “Here’s why: with large funds being raised on Sand Hill Road and returns from previous funds underperforming, investors are becoming increasingly desperate for that single homerun investment that returns $1B or greater. Even though Mint.com was a huge success for the founder and team, generating $60 million in equity value per year, many VCs believe they sold too early and left too much potential value on the table.” (props to Rob Hayes at First Round Capital for having a good laugh at this kind of nonsense.)
And how do you explain all those iPhone Apps? One news report puts the number at 189,000.
I think that what the VC Mavens are missing, and why Dharmesh’s list of 10 Tempting Software Startup Categories is good but incomplete, is it’s 2010, not 2005 or 1999 anymore. Three forces made possible by the Internet today means there are literally thousands of Most Tempting Software Startup Categories out there for the taking. Those forces are:

  • The demassification of the more developed societies. Which is a fancy way of saying that markets, categories, conventions, convictions and all the other “mass” things that worked throughout the 1900’s are increasingly irrelevant to more and more people.
  • The changing nature of software: a decade ago, would I have paid an extra $50 bucks when I bought a digital camera that had the option of doing a cat growl so my cats would look at my camera? Of course not, nor would I have found it for sale. Yet I bought exactly that app for my iPhone a month ago – for $1.99. The great secret of the iPhone’s success is not AT&T (which sucks), or Apple’s “specialness”, it’s that my iPhone is a Kindle reader, Mint interface that let’s me set what will record from DirecTV while I’m brewing my premium tea and entering my calories for lunch device. And you iPhone is something entirely different. The Apple iPad is the next generation of whatever you want it to be computers.
  • Digital people have digital problems and need digital solutions. Whether it’s remote support for my cranky copy of WordPress or coping with Twitter, or doing cash flow when I sell nothing tangible, let alone have a “real job”, more and more people live in the Digital World, and care very little and connect with only minimally to the old industrial economy/society. Want to sell me a new toothpaste? It had better be on Alice.com, come with a social network and have an iPhone app. Mass apps – spreadsheets, word processors etc. made sense then. They don’t now.

It’s time for “traditional” VCs and the (now online) trade press to understand they need to get with the times, and it’s a great time for developers to become startups who neither want or need to play by the old rules.

1 Comment

  1. Excellent post. I see that the software is becoming more and more specialised in the modern world, which makes it a lot easier to code and produce, since there are fewer cases to account for.
    Gone are the days of software for everyone.

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