Venture Capital

Venture Capital and Augmented Reality

Yesterday, Marshall Kilpatrick asked, in readwriteweb.com, “Why aren’t VCs backing Augmented Reality?” He made some interesting observations and I would like to add to those here, with my own comments and thoughts.

First, I’m going to comment a bit on the early stage of the industry and then we get to have some fun and take a look at some of the typical responses I have encountered in my own efforts talking to venture capitalists. Keep in mind that I haven’t done a formal “roadshow”, and I have not engaged in a comprehensive “call everyone you can find” campaign either.

The augmented reality industry is in its infancy, and it is going to need the support, resources, and infrastructure of venture capital to grow into a mature, world-changing industry. I feel like most technology venture capitalists still haven’t heard about augmented reality (you would think that these guys would be watching industry news, twitter, and blogs like hawks looking for new opportunities, wouldn’t you?), or they have already formed an opinion based on stuff that is a year or more old, or that they simply don’t understand the tecnology and the potential of AR. Ok, no problem. We can fix that.

If you are a venture capitalist and are reading this, Please please please, email me or any one else that is active and vocal in this sector and start asking questions. Even if you aren’t interested in AR now, or think that we are all lunatics, call us anyway. I promise you that in a few years you will be kicking yourself if you don’t start learning about this now. Being informed will help you make good investment decisions later on.

Most ventures in the AR space are also extremely young and are either still at the “friends and family” stage, or getting into the “angel” stage. This means, we are too early for VCs. However, startups should be establishing contacts and relationships with VCs NOW, not later, and they should be investing some time to get them up to speed and educated on the technology and the industry. Oh, one quick note…I went back and reread the venturebeat article that broke the story about Layar getting funded. It doesnt say they were funded by venture capitalists, it says “overrun by investors, with 35 offers to date.” That means it is likely mostly angel investors or investor groups and maybe one or more venture capitalists. I suspect, given the amount listed, and that there was still some room, it is primarily angel funding.

Expect to see more announcements of various AR startups clearing the $1M mark (mostly angel sources) and probably one of us will nail a $5M+ deal by June.

I have left Total Immersion (1999) and Metaio (2003) mostly out of the conversation because they have been around for a long time, and certainly aren’t startups. They are established, have been making revenues for a long time, and are generally not focused on the consumer market (although it appears that Metaio is shifting their focus here). It wouldn’t surprise me to learn that one or both has received venture funding in the past, and I expect that they will in the future, but the point of this blog post is the AR startups and the activities (or lack thereof) from the venture capital community.

Anyway, AR tech still has a lot of missing pieces and a few problems that have yet to be solved, but I think these should be characterized as excellent opportunities for a new startup in the sector. And sure, there is plenty of risk, but again, this is an opportunity. I’d venture to say that nearly every AR startup that manages to actually do or build something is going to be a prime acquisition candidate fairly soon once the really big companies start making their move (Microsoft, Google, etc.).

The industry might still be too early for venture capitalists to get into, but the industry is primed to explode any time. I firmly believe that we are getting very close to the same place the internet was right before the explosive growth the world wide web experienced. The startups today in the AR space have the potential to be the next Apple, Microsoft, Google, Yahoo, AOL, EBay, Amazon, etc.

You know what would be really useful, is having a group of ambitious and forward looking venture capitalists allocating high risk funds and seeding smart startups with a couple hundred k as matching funds for whatever they can raise from angels. Even $100k or $200k would go a long way, and any ecent entrepreneur can leverage the promise of matching funds to excite the angel community and get some traction. Hell, why isn’t there any stimulus money allocated for seeding technology companies anyway? How many jobs did cash for clunkers create? Think about a $3B injection into high-tech startups… Look at what we did with the Internet. Techpreneurs know how to create a lot of jobs, fast, and high paying ones to boot. Not only that, but we can innovate faster and better than the large corporations that are slow and heavy with bureaucracy. You want better methods to get into space? More efficient and clean transportation? Alternative energy sources? Ways to completely revolutionize media, education, medicine, training, and entertainment? Support the high-tech startup community.

Anyway, I didn’t mean to get off track there. I’m just annoyed at seeing a lot of ideas go up in smoke because of the lack of resources to get anywhere. Back to augmented reality…

The world is changing, and augmented reality has the inherent potential to have an effect on nearly every aspect of our daily lives and the way we communicate with each other, consume media and content, and understand the world around us. Some people think this is all still a dream or wishful thinking, but I’m telling you, the puzzle pieces are there, the various tidbits of different technologies are out there, and we just need to bring it all together. We can do this, and we can do it now.

Don’t give up the fight if you are a startup struggling to get to the next milestone or in desperation for a little funding. Your time is coming and you will be part of a revolution in technology, media, and culture. Hang in there. The tidal wave is coming and you are all getting positioned to ride it. Sure there are going to be a few thousand companies doing something or other with or in AR in five or ten years, but for those of us doing it now, we are the pioneers. Many researchers, scientists, and innovators have gone before us and laid the groundwork, or created the base technologies, and now it is our job to take the baton and run the next leg of the race, which is commercializing the technology and making it useful, practical and pretty damn awesome. The future is ours to make, but we can’t do it alone. The VC community needs to step up and help us with funding, as well as provide other intangibles (experience, insight, etc.) and help us grow a whole new industry.

So, let’s do this. Yes, we are “too early” for them in many regards, but we are also “just right” in other areas that they are beginning to wake up to. Focus on angel funding, but be building those VC relationships and contacts now. Help them understand the potential of the technology and the business models that are likely the ways we are going to monetize this. Cultivate now, reap later.

Good luck.

While some of my comments next may seem critical, they absolutely are and meant to be. However, this is not representative of the whole VC sector. There are a lot of stellar and fantastic venture capitalists out there, that not only bring resources to a company, but also a lot of insight, wisdom, experience, and relationships.

And now, for your amusement and edification:

The top 12 things I’ve heard from VCs when pitching augmented reality in 2008 and 2009.

1) “I’m sorry, we don’t do games”

You would be amazed at how many times I have heard this. The second you say “3D”, “Social”, or “virtual” anything, you get pigeonholed as a game, and no one does games anymore. This even happened to me once after I explicitely stated we were focused on technology and building a platform, not content or specific applications.

2) “You are too early for us”

This is to be expected. The usual method is: your money, your friends and family’s money, angel money, and then venture funding. In the AR sector right now, with very few exceptions (like Total Immersion and Metaio) everyone is generally very young as a company, and only experiencing any real market traction within the last six to nine months (or less). However, the thing that just kills me, are VCs that have “seed stage” or “early stage” plastered all over their website, or that like to brag about deals in the past where some young valley entrepreneurs had an idea on a napkin and they funded them on the spot. Every last one of these that I have talked to have effectively said they are only doing “first round” deals, and only if another VC is leading the round building a syndicate. Seriously guys, put that on your website so I don’t waste time calling you.

3) “Keep us posted”

Anyone who has been through the VC process will tell you that these guys are loathe to say no. They don’t want to say no and miss out on a huge opportunity later. Entrepreneurs want a quick and decisive yes or no. We don’t have the time or energy to jump through hoops to amuse you (I’ve met a few people that enjoyed playing the role of a VC without any real intention of investing), and the longer you string us along, the harder it is for us to build a company. If you aren’t interested, tell me right off, and then tell me why. Then give me the chance to come back later and revisit the opportunity with you. But don’t give me a lukewarm “maybe, keep us posted” answer. That is useless to both of us.

 

4) “We are definitely interested in this area, please keep us in mind after you find a lead VC”

 

Uh, ok. You are interested in the opportunity, but not really, at least unless someone else is interested in it already. Tell me why we should come back and invite you to the party? Thats usually how I feel about this answer, however there are exceptions. Some institutional funds simply do not lead funding deals, and the reasons are legitimate and vary. In some cases, especially with smaller funds, they don’t have the domain expertise or enough staffing to conduct comprehensive due diligence on your startup, or the new industry. This is especially difficult in the case of augmented reality where the industry is barely newborn and there are no benchmarks, metrics, or other data to look at to evaluate a deal, opportunity, or even the industry itself. Any VC putting money in right now has got to have a clear understanding of at least similar sectors (mobile, virtual, social, etc.) and have a forward looking ambition to give birth to an industry (making zillions in the process).

 

5) “What if Google does it first?” (or some other large company)

I really, really, really hate this question. If Google was going to do it, they would have done so already. Since they haven’t, it is a good opportunity for us, because you can bet that at some point they will do it, and gobble up anyone and everything that is competitive or can add to their overall market strategy. I should also point out that Google is not an AR company, just like it isn’t a concrete company. If it wanted to, sure, it could dominate both. Seriously, think about how much money Google could make if it made a move in the concrete industry. I bet they would make a fortune on construction in China alone.

6) “I haven’t read the business plan you sent me, can you just tell me over the phone?”

I’ve heard it all. Too busy, lots of deals, overbooked with meetings, calling from the golf course, ADD, etc. etc. So let me get this straight. You are making decisions worth millions of dollars, with other people’s money, and you don’t have time to read a business plan or sit in a meeting for longer than 15 minutes. If a startup is just making widgets that are already made by someone else and easily recognizable, this is not a problem. However, with a new technology and a new industry, this is really hard to explain to people in the span of a few minutes. I’ve seen people “get it” in five minutes after seeing a youtube video or two, and others take a good hour before the proverbial light bulb goes off. So much about augmented reality is new and there arent many good frames of reference or context for it. I had one guy argue with me for a good half an hour that AR absolutely could NOT be done without expensive and large laser projecters installed everywhere.

So, note to startups. Invest some money into getting a short 45 second video made that visually explains your elevator pitch, what makes you different, what your target market is, and a conceptual piece showing it all working. That’s about all you are going to get before you are expected to condense a 30 page business plan into ten minutes on the phone.

7) “We would love for you to fly out here and present to us”

Ok, so startups generally are starving for cash, and VCs (who have all the money) want you to fly out to their offices on your dime for the pitch. Ok, fine, I’ll take the risk on this IF I’ve got a clear indication that the VC is really interested, and there is a better than even chance of walking away with a term sheet. However in the past, I’ve been naieve and got suckered. What is even worse, is when you get there, the meeting starts late, not everyone that was supposed to be there is there, then you are rushed through your presentation, you don’t get to finish, they ask some inane questions that show they really have no clue what you are talking about (and no, they still haven’t read the business plan), and then its time to go, we will call you, keep in touch. Oh, also, you are too early for us to do a deal and we only do deals with local startups.

The last time this happened to me, it was at one of the larger VC funds on the west coast and I totally felt violated and robbed after the fact. The whole experience left a very bad taste in my mouth.

This is almost as bad as angel groups charging entrepreneurs money for the opportunity to pitch them. Yeah. No kidding. See what Jason Calacanis has to say about THAT. I agree with him by the way.

8) “How is this different from Second Life?”

Yeah. I’ve heard that more than once. Without getting into a long rant about how Second Life is so “1996”, still, or that it is not innovative, a game, or the greatest thing to happen on the Internet (with all due respect for advancing the cause of virtual worlds), this one really gets my panties in a bunch. I can’t even begin to explain where this question comes from, other than mentioning that the next statement I usually get is “we don’t do games”.

9) “We only invest in companies that are local to our offices”

This is why the US is lagging other countries in innovation and technical advancement. Welcome to the global economy guys. You are missing out on phenemonal deals in other regions all over the US in nearly every major population center. People still look at me funny when I tell them I am in Raleigh. If you haven’t heard of the Research Triangle Park in North Carolina, you are missing out. IBM, Red Hat, Epic, Glaxo-Wellcome, Red Storm/Ubisoft, Cisco, Duke, NC State, UNC, Wake Forest, SAS, the list goes on and on. You know there are almost FORTY game developers and publishers here? Or that Cary (SE Raleigh) used to have the highest concentration of PhDs per capita in the United States? With some aggressive venture capital movement, RTP could easily become another silicon valley (cheaper, and with prettier trees to boot). Of course, there are other cities with the right ingredients that just need venture infrastructure to kickstart it. There are hundreds of thousands of jobs that could be created in short order if we shifted capital from pooling in the west coast tar pits to other areas.

Anyway, investing locally is a nice idea, but if you feel like a startup has to be so close to a VC for the convenience of monitoring and watching over their shoulders, do you really want to invest in them?

10) “Why can’t you just hire some college students and fund development for yourself? Its easy building a company with under $50k”

Welcome to the “Gen-Y, create a widget in the basement generation”. I don’t care how little money it took to build the first versions of digg.com, twitter.com, or facebook. Good for them. Sure, you can make an iphone app or some other widget on a shoestring and start making money in no time, but if thats the case, why are those guys taking down massive venture deals? What about the other opportunities to build real technology, infrastructure, or innovation of immense value? How many things that could have solved big problems or created a better standard of living for the world have been lost because of lack of resources?

Also, I’m broke. I’ve invested insane amounts of time, energy, and limited resources. I don’t have a trust fund, I haven’t cashed out on an IPO, and no one has given me any stimulus money. Not all entrepreneurs have gobs of cash in the bank to work for free for a year and pay a staff either. Also, you just can’t build some things with under $50k.

11) “How are you going to convert websites into augmented reality?”

Well, we aren’t. If anyone tells you they are, then tell them to have a nice day and move on. The whole point to AR is that is is contextual, locative, and relevant…otherwise, its just a graphical gimmick that adds your webcam video to something 3D without adding any real value. Converting websites is the absolute wrong way to think about it. Rather, think about how you can leverage data on websites for the world around you.

12) And my favorite:

“We are only interested in deals that are close to us, for facebook, running on the iphone, with integrated twitter, already generating revenues, previously funded by founders/angels, has offices with at least 10 people, is willing to change your business model to focus on a different market niche, and we want to put in a new CEO to “take the company to the next level”. Oh, and you have to take these terms, its what everyone else is doing right now”

Yeah. This sounds funny, and over exaggerated, but this is more common than you can imagine. Sure, I’m paraphrasing, and I’m combining several experiences into one here, but the basic point of view and thought behind this one is pretty spot on. Ok, maybe I’m crazy and the outlier in terms of the average experience. If thats the case, then I hope you had a good chuckle. If not, then feel free to comment here with some anecdotal experiences of your own (even if you aren’t an AR startup).

What do you think?

OBEY. FUND US. INVEST IN NEOGENCE. DO IT NOW.

APPLE MUST OPEN VIDEO API. OBEY.

Otherwise Rowdy Roddy Piper will beat you up!

 

Thinking outside of the box is not enough...

…you need to reinvent the box. Bigger, better, faster, stronger.

I talk a lot about massively multiplayer online games, virtual worlds, augmented reality, simulations, social networking, social media, and a variety of related topics, but a lot of what I have to say (or at least what I am thinking about) goes beyond that. This post, for example, is readily targeted at companies in those areas, but also at those working in technology and communications in general. Two years ago, I wrote about the lack of flying cars (we were promised!) and the seeming death of the American creative and innovative spirit.

As Alan Kay said: “The best way to predict the future is to invent it. Really smart people with reasonable funding can do just about anything that doesn’t violate too many of Newton’s Laws!”

The problem, as I see it, is that we have forgotten about inventing the future. If you take a look at the last year or two of venture funding announcements (particularly in the sectors I mentioned) there is a lot of “me too” ventures getting funding. It is almost as if we keep seeing the dealflow centered around what is hot or popular, which in turn floods the market with a lot of very similar products. How many social networks can you name? What about MMORPGs? Casual game companies? Which of them are really innovating or trying to push the envelop? How many of them are nearly identical in features and functionality? How many of them lack any discernable business model other than “get traffic, get acquired”?

Are the “really smart” people finding funding, or is it a matter of doing what someone else is already doing and just knowing the right people? I’m beginning to wonder. A lot of interesting ideas keep coming across my radar, but they all seem to have difficulty finding any funding at all. At the same time, the number of “what are they thinking” venture deals keep getting announced.

There are a lot of opportunities out there to change the world and make billions at the same time, but I feel like the visionaries and luminaries are hiding or have simply given up. Did the great dot com bubble burst hurt American innovation more than we realize?

I have had my fair share of ideas, most of which seemed to be too “ahead of their time”. It is incredibly frustrating to me to see an idea I couldn’t get funded 5 or 10 years ago (and in some cases, as recently as 3) suddenly find west coast funding and market excitement. Even worse when it seems that the new venture is doing things in a way that feels backwards to me. That’s the best way to describe it I guess…backwards. Why are they doing x THIS way, when it would be so much better and powerful THAT way? 

I’m not about to give up though. As Nikola Tesla said: “The present is theirs; the future, for which I have really worked, is mine.” That sounds pretty arrogant I guess, but it resonates with me. Other people in various industries are reigning supreme now, but they are failing to look ahead to the future, and invention is more like “the same thing the other guys are doing, but slightly different”. Throughout my whole career I have tried looking ahead, anticipating the flow of trends and technology, and generating ideas, concepts, and innovations to catalyze, evolve, and revolutionize. They can have the present, but the future is mine.

It can be yours too…but you have to think outside of the box (reinvent it!) and be creative. Don’t hyperfocus on your own area of expertise…talk to others in related fields. Look at the big picture and shuffle the puzzle pieces around. Sometimes we talk about ideas in fiction that have been unreachable for a long time and we act like they still are, but there is a lot of technology out there NOW that simply needs to be put together in a different way to make those dreams a reality.

The future is coming…but only if you invent it, and do it now. Otherwise, we will waste another decade or two toying around with old ideas and old technology. Is it really any wonder that we haven’t returned to the moon or landed on mars yet? That we are still reliant on fossil fuels? It doesn’t have to be this way. Everything can, and will, change…but we need innovators, inventors, dreamers, visionaries, and of course venture capitalists that yearn to change the world instead of playing “keep up with the Jonses”.

Don’t accept mediocrity.

 

Back from San Francisco

I’m back from the conference at San Francisco! It was totally worth the time and resources to go out there. We made a lot of solid connections to the west coast venture capital crowd, as well as some other companies that are worth talking to in the future for strategic relationships.

While the overall conference was awesome, I must confess that a few things surprised or disappointed me. For starters, there weren’t very many presenters that were exciting and only a handful qualified as “interesting”. I’ve said before that I think that, as a country, we have lost our taste for innovation. More than a few of the presenters felt like the same types of companies getting funding during the dot com boom. By that I mean I said “huh?” more than a few times…weak business models, “innovative” concepts that were half-baked, and “new” ideas that were simply a rehash or a “me too” version of something else. At the end of each day there was a panel of venture capitalists that talked about what they had seen during the day and what they thought. More than a few of these guys said they saw some interesting things, but not much that was exciting or felt like a home run. Sure, many of the presenters had companies or ideas that can and probably will be profitable, but nothing mind-blowing.

We did get a fair amount of attention and more than a little interest, but it will remain to be seen how many people really want to take things to the next step beyond “interest”. All that aside, I can’t stress enough that we met some great people and some seriously smart individuals.

One of the highlights for me was getting the chance to meet Travis and Adam face to face for the first time. I still find it amazing how much you can do and accomplish online these days without meeting people face to face. Ten years ago people would think it was impossible to work from home and be productive or even manage teams remotely, but today, we have people in several states and a few countries and we get stuff done just fine. It actually works to our advantage in many aspects.

You know, one of the things we heard repeatedly was that funds are only interested in technology plays…content seemed to be a bad word. Sure, content is king, but there is a perception that content is way too risky. Technology is good, platforms are good, but content is an automatic “business plan goes to trash can”. The same people that would say this would also say they would invest in another Habbo Hotel or Club Penguin in a second…but aren’t these content plays? Can you really define these as social platforms and ignore the obvious content? What if people hated penguins? Wasn’t that a possible risk factor in the early days of development? How does this different from the content of a MMORPG? Maybe hindsight is 20/20…how many of these “content = bad” venture funds would say they wish they would have invested in Blizzard for World of Warcraft, knowing now how successful it was?

I have two more complaints before I sign off…

The first was a comment that a senior level exec from EA said (I may have misheard, but the look of shock on several other people at the table I was sitting at makes me think I didn’t). He said (and I am paraphrasing here because my memory sucks) something like “online games and distribution is nothing more than a rounding error as far as EA is concerned”. Yeah. I did a double take too. He was asked by a moderator (or was it from the audience?) what EA thought about online distribution methods and the future of the market. While I generally think that EA survives and makes money simply by luck, brute force, and momentum, I am one of the people that thinks that the EA house of cards is due to fall over pretty soon. I’m still shocked they had the nerve to blow $800M to acquire Bioware and Pandemic and then turn around and lay off people with the excuse that they need to cut back on expenses…well duh, you just added close to 800 people to payroll. How long before they destroy those studios too?

The second was the interview with Curt Schilling from 38 Studios. I’m still amazed he was invited to a recent harvard panel thingy with other “MMORPG veterens” (he is most definitely not a veteren). Most of the questions he was asked were totally softball questions and relatively useless. Total waste of time. I mean, I’ve knocked 38 Studios before, but after the interview I felt like Curt was a really nice guy with a total passion for online games. I’ll give him some kudos and respect for that…I would work with him given the chance. However, the whole thing felt like a total ass-kissing episode where Curt and 38 Studios was getting a lot of attention and credibility because of who Curt is (and to a lesser degree because McFarlane and Salvatore are involved). Neither of the three have any real background in MMORPGs beyond playing them. Sure, Curt is a great baseball player and he has leveraged that for some exposure in the game industry (never as a developer or designer, more like a brand). Todd McFarlane is a brilliant artist (I’ll fight anyone that says he didn’t do the best spider man artwork EVER), and of course Salvatore is extremely well known for his fantasy writing. Ok, so what? Good storylines and concept art does not make a great MMORPG. Maybe they will get lucky with the rest of the people they have brought on to the team to make the game…I’ll have to reserve judgement until I actually see something.

But why are they out raising funds? All three of the founders are pretty damn wealthy (I’d be stunned if they weren’t). I suspect that they hired too many people at a premium rate too soon and their burn rate is probably shocking. Maybe it is time to use other people’s money. Anyway, I digress. The bulk of Curt’s responses to the questions usually came back to “I have a passion for games and I have a great team”. I think the conference would have been better served with any of a half a dozen other MMORPG CEO’s out there that could talk about the industry, innovation, technology, business models, global markets, trends, or whatever. Sure it was nice hearing from someone famous like Curt Schilling, but this was a consumer technology innovations conference loaded with VC’s. While the interview didn’t do much to hurt the industry or people like us out raising funds, it didn’t do us any favors.

So, summary! The conference was great, and I would totally do it again next year. To the organizers I would say if you are going to have any emphasis on online games, social networking, virtual worlds, and simulations, do some homework and find some companies/presenters/speakers that have something valuable to add beyond “I love games and we have a great team!”. 

Dow Jones Consumer Technology Innovations Conference

I’m flying to San Francisco on Monday to attend the Technology Innovations conference. Naturally, I will be networking like crazy and getting the word out about what we are doing at Neogence. Our funding deal with the Pakistani venture fund seems to have gone up in smoke with all of the problems and instability other there, so we have been scrambling around trying to reorganize and find alternative funding sources.

So we have been in the early stages of reaching out to several venture funds, making new connections, getting several introductions, and so forth. This is not an easy process by any means, and quite a bit more difficult because we are “on the wrong coast”. I know some others think that this “east cost/west coast” thing is a bunch of nonsense, but I have definitely encountered it on multiple occasions, and not just with this venture. I might blog more about this later.

We have a killer team in place (with experience on most of the leading MMORPGs, as well as virtual worlds and simulations), great content, perfect market positioning, several amazing partnerships and strategic alliances, and some incredible technology that no one else has. We have figured out how to break away from the closed loop, linear, and static grind-fest that most games are. Our worlds are living…they will evolve, adapt, and grow based on user actions (or inaction). It is pretty damn sweet.

So I think it is just a matter of time before we are back on track and the funding gets sorted out. In the meantime, we continue to do what we can with a small core team and I will spend some of my time working on several other projects that are quite interesting on their own, and actually dovetail into what we are doing. Expect to see more strategic partnerships and relationships emerging for us over the next six months.  If all goes as planned, we should be launching a tech demo (and probably a light demo of the first game world) by mid-late summer.

I need to figure out what I’m going to do for business cards at this conference. I was going to get some printed at Kinkos this afternoon but they refused to print on the card stock I provided. Really stupid. I got mad and walked out. Why the hell won’t they print on user provided stock? They totally lost money. 

 

"If this is such a good idea...

Why aren’t the big companies doing it?”

This is, perhaps, one of the most frustrating questions that I have been asked by investors, venture capital funds, and colleagues/mentors kind enough to take some time to look at my business plans over the last decade and a half.

The mentality behind this question assumes that big companies are naturally successful, smart, and have both the will and the resources to continually push for bigger, better, faster. If the “big boys” aren’t doing something, than it probably isn’t worth doing…because of course, you have to assume that they already thought about your idea and have discarded it as unworthy.

Ok, this sounds like it makes sense, but it is a very weak assumption. Big companies are naturally slower than smaller ones, and usually bogged down in bureaucracy, policy, or conflicting interests. More often than not, it is simply easier (and cheaper) for a big company to sit back and wait for someone smaller to do something new and innovative, and then acquire them.

In the game industry, most of the “big companies” are either publishers that made a lot of money with a particular business model (put games in boxes on retail shelves) or they are other large media conglomerates that have bought into the industry through large publisher acquisitions. In both cases, these companies are very successful in their own rights, but are out of their depth when it comes to innovation or different business models. MMORPGs for example are still “new and mysterious” and not quite understood.

EA, arguably one of the most successful game publishers ever, has a horrible and dismal record with online games. They destroyed Origin after acquiring them and nearly destroyed Ultima Online as well. They have a long history of acquiring companies and then dismantling them. I’m not going to get into how they treat their employees or the terrible corporate culture they cultivate, and I’m not going to make a long list of all of the massive amounts of money wasted on funding projects and then canceling them at the last minute (remember battletech online?).

EA’s latest foray into MMORPGs (again) is through their acquisition of Mythic and Warhammer Online. Shortly after they acquired Mythic, they put the team to work on updating the graphics for Ultima Online and give it a facelift. WTF? I still don’t understand why you would divert a team working on a large project like Warhammer to spend time on a completely different game. This is just one example of the odd and backwards things that EA tends to do.

So why isn’t EA making multiple MMORPGs? Why is Sony picking up a lot of half-dead MMORPGs (cough, Vanguard, cough) and aggregating them instead of trying to innovate and push the industry forward? There are other companies, but I think I’m making my point.

The big companies “aren’t” doing X or Y because it simply hasn’t occured to them, or they are too focused on other things than hunting out every new opportunity. Or they are just sitting on the sidelines waiting to make an acquisition play. That is why our ideas are great and why the big companies aren’t doing the same thing.

Big does not equal smart or all-knowing.

Big is risk averse and will continue to do the same thing day after day because it is safe.

Small is where innovation and creativity occurs. Invest in small things, sell out to big things.

I’m not sure I feel like making a list of small ideas that challenged industry goliaths and found success. Anyone familiar with capitalism and industry in America can figure that out on their own. Just look at all of our inventors and scientists, or companies that revolutionized entire industries with a simple idea or process.

The next time you are looking at investing in a small team of people with an idea, don’t ask them “why aren’t the big guys doing this”, instead ask how they will execute and take their idea to market to knock the big guys off their horses, or at least make themselves a hot acquisition target.