Will Facebook (Fiasco) Bring Back Sheen on Other Tech Startups?

To begin with, I am not a disgruntled Facebook investor, several of whom are suing the company, Nasdaq and Morgan Stanley.

Ever since the historic opening on Nasdaq last Friday, the brutal analysis of  Facebook’s fall from grace is relentless and writers are tearing apart its management of (social) media strategy, with an opinion piece in Wall Street Journal even calling it The IPO From Hell. Reuters’ Felix Salmon in this piece writes an incisive account of why and how things went horribly wrong.

Quants and analysts aside, even academics have chipped in to say how the $100 billion valuation is hard to defend.

Amidst this high-voltage drama, Steve Blank, who teaches entrepreneurship at Stanford and Berkeley (and is now taking his course to other universities on government invitation), wrote Why Facebook is Killing Silicon Valley. He also found some quick rebuttals in articles like social networking has not supplanted real innovation.

Tomes have been written and more will be written about Facebook in the coming weeks and months. But I want to make a simple point here: Facebook has unleashed a social culture that cherishes the virtual world, but we live in the real world and have real issues to grapple with. What Facebook and other internet companies, e-commerce in particular, valuations have done is raise the expectation of investors and entrepreneurs to such unrealistic levels that most other advanced science and technology based ventures look pale in comparison as they don’t offer easy and quicker exit routes.

Make no mistake; there’s no denying the importance or game changing abilities of software that some of these internet companies are trying to develop. Mark Andreessen (founder of Netscape and now an investor in Facebook, Twitter, Zynga, Groupon, Foursquare, etc) wrote a provocative,  rather an over-optimistic, essay in WSJ last year, Why Software Is Eating the World.

Software will creatively destruct many industries — and the hard realities of hardware companies like HP, Dell, Cisco, Nokia, etc ain’t helping — but we still need products and devices other than software. A cursory look at the start-up ecosystem in India, and we are struck by similarities to Silicon Valley in business ideas, approach and investor behaviour. (A handful of start-ups that look beyond software, say in nanotechnology or life sciences, have an uphill task in finding money and mentorship; some have even fled to places like Singapore or Malaysia where the investment climate is more conducive.)

We need new medicines (which is the most regulated industry in the world as opposed to software which is the least regulated); advance materials; clean water; new sources of energy; better quality seeds; new ways of cleaning environment (from carbon capture to pollutants detection), sustainable fertilizers, pesticides; cost-effective, point-of-care diagnostic devices; better educational content and delivery mechanisms…the list is endless. Agreed, a lot of it is the responsibility of the state. To be fair, at least to some extent, governments everywhere are trying to address this. But without the industry, investors, markets partnership, and loads of entrepreneurial energy, the government effort to prop innovation in these areas is somewhat like a bunch of blind men trying to describe an elephant.

In the West, the quest for the Next Big Thing, or at least the debate for the next wave of innovation has begun. For a region like Silicon Valley that has innovated for over 100 years –  from vacuum tubes to integrated circuits to social media – a few decades of indulgence in the social networking or consumer-led businesses won’t do much harm. There are enough smart people with enough money in the Valley to bring  course correction.

The question is can India afford to parachute into the so-called tech-bubble wave without solving its real world problems in any meaningful way?

 

3 comments to “Will Facebook (Fiasco) Bring Back Sheen on Other Tech Startups?”

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  1. Akshat Rathi says: -#1

    I would be interested in hearing about these Indian software start-ups and non-software start-ups. Links please. 🙂

    • Seema Singh says: -#2

      Akshat, I didn’t get your query: which software cos are you referring to? The clones of SV?
      And the non-IT ones? The ones that have fled or are struggling?
      Send me a mail and I will respond with some names.

  2. What if we let Facebook popularity determine our political candidates or start-up valuations? This is going crazy. The Indian bubble will also burst. Where have all the old-style evaluation of free customers in free markets gone?

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