Startup Companies On the Move
Paul is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Six interesting start-ups for 2012 have been offered for our benefit, but you and I know that there are literally hundreds or perhaps thousands of apps out there that are just emerging. Obviously, none of them are listed in the major indices yet, but that may change with time provided they become game changers. I will discuss only five of these new start-ups, but before I do so, here are two pointers.
First up: What is a start-up? In simple terms, it is a company that has just entered the first stage of its business life. In order to start, it needs a lot of capital and these new companies usually go out of their way to canvass for financial support. Funding is provided by individuals or businesses whom we can call the “entrepreneurial founders” of the new start-up businesses. After convincing the founders of the potential viability of their venture, the start-up company next attempts to justify funding by developing a product or service for which they believe there is a demand. If it succeeds, the funding is justified, but if not, funding stops and they lose out. Start-ups usually need funding throughout the initial stages to ensure success otherwise they are not sustainable.
Second: This area of doubt raises an important question: What should be our confidence level for start-ups? Well, the dot.com craze of the 1900s can provide us with an answer. This was the time when internet start-ups began to pop up everywhere, but because of unbridled optimism, major oversights in business plans, including the expected sustainable flow of revenue which was critical for the initial research stages that never materialize. The result was that most of the start-ups went bust leaving only a handful of successful companies like Amazon.com and eBay being two of the main survivors. Who knows, perhaps one or two of the five start-ups mentioned below may become the next survivor of a social media bubble burst and turn into a big or big operators. Here they are:
The company brand is known and acknowledged by its growing army of fans as being an online marketplace for offline classes. In May, a month after launching its operations, more that 100 users posted classed on the site which included everything from crocheted jewellery, or strategies for investing a first $10,000.
Approximately eight months later, thousands of teachers have used Skillshare to teach more than 15,000 hours of classes. A few of the teachers have even quit their jobs, so that they can teach full-time classes with Skillshare.
Courses offered by Skillshare include; nutrition, systems, mind mapping, blogging and branding, Wordpress usage, PR, social media and human sexuality.
Initially, the company’s classes were clustered at different locations of New York city but it now has thriving communities in San Francisco, Chicago, Boston and elsewhere in the country. The company has already set up a site interface so as to include more than 70 U.S. and International cities in its program. At present, there are no, or only a few classes offered in most of them, but the company anticipates that by the end of 2012 a lot more classes will be conducted in all of them.
Typical complaints against apps include that of a number of them doing exactly the same thing and that, in any case, only a few of them do the particular task well. They can, however, be extremely useful in facilitating certain services for the benefit of clients. One such area is the use of mobile phones for making payments or withdrawals into and from bank accounts and both Google and a new start-up company called SCVNGR are hot on the trail.
Google was first past the post in its creation of the Google Wallet, a mobile payment system that allows its users to store debit cards, credit cards, loyalty cards, and gift cards among other things, and also redeems sales promotions on their mobile phone. The system uses near field communication (NFC) to "make secure payments fast and convenient by simply tapping the phone on any PayPass-enabled terminal at checkout." The app was released on September 19, 2011.
Google demonstrated the app at a press conference on May 26, 2011 and the app was released on September 19, 2011. The processing of Master Cards is not an obstacle and Visa has joined hands with Google by offering its Visa payWave system so Google can process Visa cards as well. Google plans to introduce further measures to attract other card users into the system, making the move a very interesting development to monitor. Another app builder vying for a system niche is SCVNGR which has created the LevelUp app. The app gives any merchant the ability to run a loyalty program that works similarly to the Starbucks App which allows users to pay using a code displayed on their phone. A point reward system is used to attract more users to the app site.
LevelUp users are enabled to link any credit or debit card to their LevelUp accounts just as Starbucks links a gift card to its app. Once activated, the LevelUp generates a unique QR code at the register that can be scanned with a merchant app for making the payment. Users of LevelUp are given a reward for their first use of the app, and free credit every time they spend money in order to use the app thereafter. It looks like a race between Google Wallet and LevelUp in the app arena, but there is more to come!
While on the subjects of money transferring apps, here is another contender which may provide strong competition for the previous two apps we have just covered. Dwolla is its name and its emergence is opportunistic for its founders and clients alike in that it has arrived just in time to join the race. There is a change in direction however as Dwolla is focusing its attention on social media sites such as Twitter, Facebook, SMS and other virtual channels. Less than a year after its launch, the company has processed $1 million per day. It looks like the shady notion attached to money transfers using the internet will soon come to an end. That is good news for clients and bad news to spammers!
Here is how it works at Dwolla. Its 70,000 users now make payments through Twitter, Facebook, SMS and other virtual channels by connecting their bank accounts to their Dwolla accounts. The app service combines with social networks in alerting payment recipients that there is money waiting for them in their own Dwolla accounts that can be transferred to their bank accounts. Payments of up to $10 are free and anything larger costs $0.25 — an amount which is cheaper than paying a credit card fee and users are sure to swamp the service. That’s not all. In December, the company launched a new feature called Instant that lets users make immediate payments of up to $500 in credit while waiting for bank transfers from their accounts. This makes the payment process a convenient instant transaction.
Eventbrite is a ticketing platform, meaning that it is an app for selling tickets to the public. It is an oddity in our list of start-ups to watch in 2012 because it has been around for five years. There are however certain salient points which should draw our attention:
The app is experiencing a growth streak, noticeably in its achievement of having sold 11 million tickets last year and selling about 21 million this year, a colossal performance by any count.
It has been noticed by event organizers of big events: it processed tickets for the Black Eyed Peas concert staged in New York City’s Central Park this summer plus 458,000 other events which represents twice the number of events the app handled last year.
Its reputation is gradually being recognised and appreciated internationally. In October, Evenbrite opened an office in London and launched a similar version of its platform in Ireland and Canada as recently as December of last year.
It can also sell tickets offline thereby increasing its sales potential to clients. For this, it uses a new iPad app which enables organizers of events to sell tickets through Eventbrite at the door.
The app is poised to go public very soon, being set to IPO as early as 2012 according to its CEO Kevin Hartz who cautions that the company needs to maintain a high performance rating in order to go public.
This company has a brave streak to it having turned the learning of Java Script, which frightens a lot of people, into a game. It has shown the same daring streak with its handling of code training. During an amazing 72 hours after launching this summer, Codecademy signed up 200,000 people for coding lessons. A New Years resolution class it organized and named Code Year on 1 January, signed up 97,000 people in less than 48 hours to receive emails with weekly coding lessons. A further 170,000 people had signed up for the class, by the end of the week, including of all people, the Mayor.
What is interesting about Codecademy’s ability to attract adherents is that it has done so despite the somewhat limited nature of its product. Lessons focus mainly on Java Script and it doesn’t have a clear plan for conducting its lessons. More surprising is that Codecademy is expected to expand its field to other coding languages in 2012, and if it does, it will also expand its user base potential. The introduction of Code Year has attracted thousands of students who will simultaneously work on specific lessons. This will present an avenue to add social features to the platform or to create curriculum for additional lessons.
Several common denominators are clearly evident for all the start-up companies discussed
All the companies:
are worthy of our attention
have services that are in demand
show a high degree of innovation and purpose
show dynamism, and energetic direction
have been very successful over the short term
five have the potential to grow and expand in the future.
But which one to look out for?
Three distinct app service types present themselves; two money transfer apps, a ticket sale app and two training apps. What next? The process of elimination is in order here.
Though a commendable innovation, the ticket app company Evenbrite, ultimately depends on the number of events that take place and the number of people who attend these events. Basing one’s thinking on the assumption that only a few people will attend events all the time and that most will attend some of the time with the rest staying at home, the company offers a limited field for investing. The same goes for the teaching apps. It is difficult to conceptualize that exceptionally large numbers will converge on Skillshare and Codecademy to attend their offered courses.
For investing in services, we should be looking a long period of time, a service that can be provided during that period, a service that is very much in demand and very high if not astronomical. In my opinion, the money transfer apps appear to fit the description but there are three in the running; the Google app, Google Wallet, LevelUp and Dwolla and I tend to gravitate to all three, I will need to be a little bit more discerning if I want to invest.
My choice is based on purely practical financial reasons, not on brand, popularity, numbers, and so on. I would invest in Google Wallet and carefully monitor the other two for sustainability. My reasoning in doing so are:
Google has been there for a long time,
it is a strong company
it will be able to fund the growth and expansion of its service app
like the others, there is a high demand for its service
So there you have it and its over to you to make your choice.
I am not yet an active inestor but hope to become one soon.