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What Comes Next: Finding Signals From The Startup Noise

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STARTUP

Now is a great time to be an internet entrepreneur. While much of the global economy sputters, tech companies post growth numbers other industries haven't seen in years. Their success hasn't gone unnoticed, and the pace of tech-company creation has quickened.

There's more than me-tooism going on. It is, for example, easier to start a tech company than ever before - it's easier to access startup capital, procure basic infrastructure and tools at lower prices, find and cultivate mentors, and join an accelerator program.

Accelerator programs that focus on early-stage technology companies have grabbed headlines recently. The programs are designed to be crash courses in starting a technology company and bringing a product to market. They often last three intense months, ending with a structured pitch to a roomful of investors. The most famous program is Y Combinator, based in Silicon Valley, but there are other programs around the world, including Techstars, 500 Startups, DreamIt, Excelerate, and Seedcamp.

Over the past few months, I've seen over 160 companies come through eight different accelerator programs. It's a skewed group, but it captures the zeitgeist of a certain segment of the tech industry - and, I think, looking at these companies is one of the best ways to get a sense for which opportunities compel internet entrepreneurs today. Here's a look at some of what these entrepreneurs are thinking about - and where we all might be headed:

Software is developing its own component industry
Last year, John Maeda predicted technology would become a cottage industry by 2020 "with bespoke applications made by many, rather than today's industrialized, Microsoft-esque mass production and distribution model." I doubt we've seen the last billion-dollar software company; tech companies will continue to ride the economics of software, and larger companies will use strong network effects and scale to drive consolidation. However, we'll likely see fewer companies that need to build - and fewer companies that will build - every piece of their technology themselves.

Component sourcing has already begun to revolutionize the software industry. Take a look at Amazon's or Rackspace's cloud hosting services, which have lowered the price and complexity of hosting software, or the success of "outsourced" tools like Google Analytics, Twilio's voice and text messaging infrastructure, or Urban Airship's iOS notifications.

Entrepreneurs in this summer's accelerator programs sliced off pieces of what it takes to build and run a web or mobile application and offered those slices as services. "I built this piece of technology three times at three different companies. I built it a fourth time, and that's the service my company offers," a Y Combinator CEO pitched.

Developers are the target customer for 30% of the companies I saw. Consider Parse, which provides a backend to a mobile app, and MongoHQ, which hosts instances of the open-source MongoDB. While LaunchRock offers user acquisition tools, TightDB provides a database customized for big data. ReportGrid provides website analytics, while CoderBuddy helps developers create and host websites on Google's App Engine, and Creative Brain Studios allows game developers to deploy one game on several devices and operating systems.

Using components to build larger systems doesn't require building monotonous systems. Consider the iPhone, made of component parts sourced from Chinese megafactories but designed in California. There's something beautiful and unique about the iPhone that no other handset manufacturer has been able to match - even the ones that source parts from the same megafactories.

Similar to physical-product designers, when software developers start with components, they can concentrate on the core problem they're solving and will create better products in less time. It's exciting.

Work is shifting toward a peer-to-peer model
The first two decades of the modern internet broke industries built on distribution monopolies (e.g. music, news) and facilitated coordination between the consumer and the provider without the need for a middleman (e.g. hotels, car rentals.) The same will happen for a large fraction of our work, especially in cases where the work is standardized or employers "distribute" their workers to pools of customers.

One reason to create firms is the coordination and signaling problems of situations with imperfect information and transaction costs. As technology increases information flows and decreases transaction costs, individuals can leave their old employers and strike out on their own. Their livelihoods will still depend on providing valuable services in exchange for fees, but they'll do so as freelancers - and on their own, they'll capture more of the value generated by their work.

Just as blogs allowed talented writers to build audiences without being affiliated with large media organizations, and as Twitter and Tumblr allowed news- and tastemakers to succeed outside of established news or media properties, new web services will allow individuals to engage with customers without needing to work for a firm.

These free agents, disaggregated and newly empowered, can promote and sustain themselves with new tools: Opez caters to service professionals, like bartenders and hairdressers, and allows them to build followings independent of their employers, while Vayable and SideTour provide marketing and transaction-processing for neighborhood tour guides. Hiptic helps graphic designers promote their work, while Zerply helps creative professionals do the same, and InterviewStreet lets programmers show off their skills.

As technology creates new free agents, it's also changing the notion of "work" to be less time- and location-specific. This is especially true of work that can be done easily at a distance. Workers who can't differentiate themselves using their reputation will be commoditized. This summer, web services were launched that allow you to order up a proofreader (Kibin), blogger (Contently), tutor (LearnBop), language partner (Verbling), car ride (Ridejoy), science researcher (Science Exchange), cooking instructor (Culture Kitchen), mystery shopper (SpotCheck), or transcriptionist (Mobile Works) from your browser. The Mechanical Turkification of work has begun.

Between identified, liberated individuals and the nameless, faceless drones of Mechanical Turk lies identity: does it matter who performs the task at hand? If the worker's background, skills, or experience matter, there's likely to be higher variance in demand for a particular person's services, and free agents will be sought after and chosen by reputation on services built for those purposes. Less-skilled people are likely better suited for tasks for which identity doesn't matter, and other marketplaces that don't include a concept of reputation will provide access to a global pool of workers.

What's really next
Looking at activity across accelerator programs, it's not clear which "one thing" will be next. This season's 160 "accelerated" companies, nevermind other tech companies created outside of incubators, each seek to solve different problems and should be understood individually. (Making tricky, admittedly, sweeping essays like this one.)

Yet broader shifts like the componentization of some software development and a shift from employed workers to independent agents have begun to emerge; other shifts will become more apparent with time. These, plus the overall pace of tech-company creation, give me faith we haven't seen anything yet.

The article originally appeared on Union Square Ventures' blog. Help protect Internet Innovation.

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