Chris and I are not tech gurus. I feel like I have a solid understanding of technology, but I’m not going to build the next Facebook any time soon.
The likes of Warren Buffet and Peter Lynch are famous for telling investors to buy what they know, and avoid areas where they have no hope of understanding the underlying technology.
However, for us that’s leaving a lot of potential upside on the table, which as speculators is just not acceptable. We do have to minimise our risks though, so how do we do that?
One way is to surround ourselves with people waaaaaay smarter than we are…
Guys like Jeff Bone, who I recently interviewed in my post, The Technology Entrepreneur. Jeff knows tech, he lives and breathes it, and has been for a long time. If I want to assess a new technology or analyse a trend that I might want to invest in, you can bet I’m calling Jeff to get his opinion.
Another guy that I’ve come to admire and respect is Dan Faiman. Dan created a start up focused on monetising the music industry, which Chris and I helped seed recently.
Dan’s not a one-trick pony. Techies like Jeff and Dan live for the excitement that creating something from nothing brings them. Both also get a rush from adding value to the world and leaving things just a bit better than they were before they started.
I spoke to Dan about his background, the mobile app space and a few of the niches he thinks have the most potential to be the “next big thing.”
Mark: Dan, you’re one of those young gun techie types – crazy smart, a bit Bohemian, seemingly unconcerned about the financial rewards and more about the technology and how to make people’s lives a bit easier. I’ve met quite a few guys like you, they do it for the love of it, which is where I think their success comes from, by the way. When did you first start “tinkering” around with the Internet and technology in general?
Dan: I think at a young age I could understand technology easier than my peers. Getting from point A to point B, whether on a computer or an electronic toy, I could see the process and conclusion before I’d even start.
I was always an entrepreneur at heart. As a kid I remember looking for jobs that I could make a dollar, while staying within bicycle range of my house. Whether it was shoveling snow for my parent’s friends, or helping them around the house with little jobs.
For example, I recall being in the third grade when the personal computer was in its infancy. I could type faster than most of the kids, so I’d transcribe their hand written essay in exchange for a quarter (which is what it would cost me for a toasted almond ice cream bar at lunch time). It wasn’t cheating, it was just transcription!
So, at a young age I realized that if I wanted something, like a video game or a toy, that it was my responsibility to earn the money to buy it. My parents weren’t always going to buy it for me, and birthdays were too far and few between. Connecting the dots, I knew that if I had enough money to purchase the item, my parents couldn’t disapprove.
Mark: So you were an early adopter, getting into technology quite young?
Dan: I was fortunate enough to own an Apple IIgs as a kid, and my folks were generous enough to support my habit by purchasing every “upgrade” as it came out; 286, 386, Pentium… etc.
So I had my Apple IIgs, and on a floppy disc a very basic word processing program, along with Wizardry which my brother enjoyed. It had the 5 1/4 “slot. We would tether two drives together and make copies on the fly, we were way ahead of our time (laughs).
Meanwhile a friend of mine had a commodore 64, so I started to learn my way around a DOS prompt pretty well. I was 5 at the time, and if I wanted to play Ghostbusters when the babysitter was over I had to memorize the commands. The mouse functionality was interesting, but I wanted to play games or just learn more about the computer instead, so I would stay within a DOS terminal.
Mark: Not bad for a five year old!
Dan: (Laughs) Flash forward a few years, my dad brought home a computer catalogue from work. The choices were either Dell, Gateway, or Quantex, we went with the latter.
It gave us a lot of trouble, but looking back it was a blessing in disguise. The machine came pre-loaded with Windows 95 but the errors would sometimes require us to “refresh” or overwrite the operating system due to DirectX issues, video card drivers, or something of that nature. I was so used to a DOS prompt by now that it was like a second language. Extracting files or going through directories was easy, so I could usually repair the system on the hardware or software side myself.
This was great because as the computer software evolved, so did my skills. If I didn’t fix it the machine would go down to the local store for repair, and my family wouldn’t have a computer for a few days or weeks… even worse, I didn’t have my video games!
Mark: Ahhh, the horror!
Dan: Hey, for a little kid that was big time.
Then came the Internet… One day my father came home with one of the very first modems; I think it was 1800 baud. I remember thinking that the whole world was now available to me. With the modem I had access to information, data, and even more people I could interact with outside of school and my circle of friends.
Mark: Sounds like your parents fostered your growth and curiosity. What was your first experience with the Internet per se?
Dan: Yes, I was very fortunate to have understanding parents who provided me the resources to allow my tech fascination to grow, and who could tolerate that constant, squeaky modem noise (laughs). Looking back they were very patient, only having a single phone line in the house.
Once I realized that the BBS was available, and connecting a computer directly via the modem to another one would allow them to “talk,” it became incredibly interesting to me. If my friend had a computer I made sure we were connected. It was the modern version of the soup cans with the string between them.
When Prodigy, CompuServe, and AOL came around we were ahead of the curve. I had already understood the Internet well enough to know that these systems basically just added a GUI (graphical user interface) wrapper to what I was previously doing.
I enjoyed seeing what type of world was out there. I could wander aimlessly and unescorted, because no one understood what the Internet actually was, at least not enough to ask questions or restrain me.
It was a place to roam with no supervision, you could get into trouble. As with all things there was a dark underbelly that you didn’t want to stray to far into, but I like to push things to their limits, and then once it’s hit, try to see how much further I can go.
Some people like to experiment with drugs, a rock band, or dirt bikes when their kids. I was more interested to see what the Internet was really capable of doing, opening all sorts of doors, Pandora’s box if you will, then figuring out how to close it.
That was a rush for me, and those experiences are what allows me to understand the boundaries of technology today. As pat as this sounds, the financial reward is enticing, but the ability to create and disrupt for the greater good are what truly motivates me.
Mark: I like that statement, “disrupt for the greater good.” We’ll let you tell us more about how you’re doing that.
Your focus is on the mobile app space, so is that where you think the low hanging fruit is right now?
Dan: Yes, I think the mobile app space is still in its infancy and has immense potential. You’re essentially bringing this huge, complicated universe known as “Cyberspace,” which still frightens many people, down to a handheld device and giving people the ability to interact and transact in a myriad of ways.
Essentially these handheld devices are just phones, something everyone is at least familiar with, so it really shouldn’t be that scary. Apps are just pieces of software that make those phones perform functions that to some seem almost magical.
I think the reason that Apple has been so successful is because they make complicated technology approachable and easy to understand for the average person. I mean how many of us have seen 3 year olds playing with an iPod or iPhone, almost like they had one in a previous life or something (laughs).
Mark: You know that’s interesting. A new friend of mine recently shared something called the “hundredth monkey effect” with me. I’d remembered learning about it way back when, but it was interesting to apply it to technology adoption.
The “effect” postulates that a learned behaviour spreads instantaneously from one group of monkeys to all related monkeys once a critical number is reached. It’s the instantaneous, paranormal spreading of a concept or an ability to the entire population once a certain number (100) of that population has been exposed to the new idea or learned the new ability.
Dan: Yeah, that’s a great potential explanation for the phenomenon.
Mark: So, applying it to technology we could say that kids understand how to use technology because at this point a generation previous to them had already been almost ubiquitously exposed to it.
Dan: Look, there’s a reason why Apple stock is trading as high as it is, and the company is sitting on more cash than most countries (and zero debt), continuing to acquire more and more of the market share. In fact, more than at any time in the past 30 years! Their stuff is just easier to use, more fun and more practical.
Simplicity is the key. People become overwhelmed easily. if you could simply make something that’s normally 2 clicks just 1 click, you’ll probably increase your customer base by 10x. Those guys mastered that, flawlessly.
So the mobile app space takes all of this into account and gives the consumer information in the palm of their hand. Whether it’s for business, research, or pleasure, these devices have endless possibilities, along with a massive install base due to hugely successful marketing campaigns by the cellular carriers.
I believe that putting the focus on the mobile space allows a company to provide a resource to people who wouldn’t normally feel it is a necessity.
I’m a culprit myself. Up until 4 months ago, when the iPhone came to Sprint, I felt that my Blackberry was all I ever needed. “I’m in business, why do I need YouTube, Words with Friends, or an app that makes me Fat with a click of a button?” However, now that I have it I don’t know how I survived without it.
The app space gives you immediate access to a world where people still think they don’t need (or want) constant connectivity… until they do! I’ve seen that mantra blasted out of the water again and again as more and more people realize how diverse the apps have become, and what they can really do from a practical standpoint with their iPhones and Androids.
I believe you’ll see large websites; Google, Facebook, and e-Commerce platforms turn to mobile even more aggressively than we’re currently witnessing. We’ve only just started to dip our toe into this space. The mobile era that we’re in is somewhat of a test and proving ground.
You can easily create and fill a void, gain user interest and become a successful company overnight. Besides web, no other space allows that to happen. In 2 days I could develop an application, have it in the Apple or Android Marketplace and receive user feedback and possible revenue with little to no overhead.
I believe with the access to the install base that these mobile operating systems provide a developer, the ease of creation, if you understand the language, and the ability to push a few ideas out and see what sticks is absolutely the “low hanging fruit.” No other vertical in the world that I know of allows you to have an idea and product to market in a 24-hour period.
Mark: VC’s seem to be writing checks for anything and everything mobile, especially hyper-local apps, where you connect buyers/sellers locally with one another. What’s that all about?
Dan: At this point we’re all pretty familiar with the Craigslist’s of the world. We grew up with the classified ads on paper, and now they’re just delivered electronically. Seller meet buyer.
Zaarly.com is probably the best-known example of hyper-local right now. They raised something like $14M from the likes of Kleiner Perkins and Sands Capital Ventures, and added Meg Whitman from eBay to their board. So these guys are attracting a lot of high-caliber attention. Hyper-local is going to be hot.
Hyper-localized apps take into consideration the idea of I want it, I need it, and it has to be NOW. For example, say I want an Xbox. Maybe I don’t want to pay top dollar for it and I could get by on an older model. I’d be willing to pay $100 right now if someone locally was selling one I could get immediately.
VCs look at these scenarios as an opportunity to say there are nickels and dimes to be made per transaction by hooking up buyers and sellers and facilitating a quick sale. A lot of transactions, will add up to big dollars – and there’s a market for everything.
Look around your house, almost everything has a buy or sell dollar amount. Ebay proved this to the world in a big way. The barrier to entry is low in hyper-local marketing. You figure most households have something they can (and want to) sell.
Mark: I’ve often thought that Craigslist has to be one of the most valuable Internet businesses around. However, they don’t monetise it (yet). Obviously you have to monetise this stuff at some point, so how does a company like Zaarly make money?
Dan: A consumer would pay a nominal transaction fee. Our society is hyper-active in and of itself. Our patience is about 1/10 of a second and then we’re on to the next task. Hyper-local apps take this into consideration and capture the customer when they’re at their most vulnerable. Desire meets instant gratification.
Not many businesses in the world can deliver that impulse sale. Supermarket and convenience stores make a lot of money utilizing the principle of impulse buying. Lots of little sales add up.
You’re also dealing with a space that doesn’t fluctuate with economic turmoil, in fact it will likely thrive during a recession. People always need extra money. Maybe they over-extended themselves the year before financially, or they made an impulse buy and now their wife wants the drum set out of the house.
Hyper-local apps that cut out the middle man and let you deal on a one-to-one basis will always be hot. The idea isn’t new, but with the low barrier to entry technology has created, coupled with large transaction turnaround make it a very compelling space to be in. The one who will come out on top is the one who becomes synonymous with the space the way Craigslist did.
Mark: So what’s the real difference between hyper-local sites, and Craigslist for example?
Dan: Hyper-local to me is the difference between choosing a region, a city, or town on Craigslist, and on a mobile app locating the buyer/seller using a map (likely Google) to drill down to a neighborhood block. Is the person within walking distance to my house? Cool, if so, I’ll do the transaction.
The buyer can make the decision to buy from that seller based on their location. It’s just one more barrier removed from making the transaction happen. Companies creating these apps look to take a slice of these small, hopefully numerous, transactions.
Mark again… We’ll talk more with Dan tomorrow. We’re just getting started.
“Civilization advances by extending the number of important operations which we can perform without thinking of them.” – Alfred North Whitehead