Michael Robertson on Gizmo5, and How the World Has Changed for Internet Startups

12/1/09Follow @bvbigelow

Just a few weeks ago, Michael Robertson sold his Web-based phone service venture, Gizmo5, to Google for a reported $30 million. So he was in a good mood when we sat down yesterday to talk about what might be next for San Diego’s patriarch of Internet startups.

“One of my goals for the year was to sell my company so I could work less,” he says. He remains involved with a couple of local startups (more on that below), but also talks about easing off “working six and seven days a week and for big hours.”

At the outset, however, Robertson says he’s constrained by multiple confidentiality agreements with Google, so he’s prohibited from saying much about the Gizmo5 deal or about Google’s plans to integrate Gizmo5′s VoIP (Voice over Internet Protocol) technology with its emerging Google Voice phone service.

Robertson says in many ways he’s more proud of Gizmo5 for what they managed to accomplish than of MP3.com, which became an icon of the dot-com revolution and was one of San Diego’s biggest IPOs at the time it went public in July 1999. Two years later, Robertson still owned roughly 27 percent of MP3.com when the French media conglomerate Vivendi paid $372 million to acquire the company.

“If you’re one of the big guys like eBay, Facebook, or MP3.com, you get that network effect going,” Robertson explains. “Business is very easy. But if you’re an also-ran, you have to be more strategic. If you’re not that leader, it’s a totally different business dynamic. You have to source the business opportunities, chase the partners, and work for every deal.”

Gizmo5 had only about 6 million subscribers at the time of Google’s acquisition. That contrasts dramatically with Skype, which has more than 405 million registered users and currently ranks as the largest VoIP provider. That seems likely to change, however, once Google absorbs Gizmo5—which will enable Google to provide phone service directly to Internet users without going through a telephone service provider like AT&T or Verizon. When combined with the sheer scale of Google’s operations and with Google Voice, the application that allows users to have a single phone number that connects to a variety of features, including conference calls, phone call recording, and text messaging, the implications could be ominous for both Skype and the telecoms that provide phone service.

As Robertson told me last year, “The public switched telephone networks are crashing into PC-Internet technology, and the Internet is going to win because it’s better, cheaper, faster and easier.”

It is a little-known fact that Robertson had been working for years as a help desk technician at the San Diego Supercomputer Center (and writing a local advice column about Apple computers) when he founded MP3.com with Greg Flores in 1997. Even when he was answering trouble calls, though, Robertson impressed some scientists at the supercomputer center with his entrepreneurial zeal. I remember one of them telling me that Robertson was working simultaneously on several related Internet-based businesses, but he and Flores decided to focus exclusively on MP3.com after seeing a phenomenal surge in traffic to the progenitor music website.

After selling MP3.com, Robertson founded a handful of other Internet startups, including SIPphone (the predecessor to Gizmo5), MP3tunes, and Linspire, a startup offering a Linux-based operating system that was intended to compete against Microsoft Windows. (Robertson at first provocatively called his OS startup Lindows, which provoked Microsoft to sue for infringing their Windows trademark.) New York-based Xandros acquired Linspire last year for an undisclosed amount in a deal that was fiercely and publicly criticized by former Linspire CEO Kevin Carmony for running roughshod over Linspire’s minority shareholders.

Robertson continues to manage San Diego-based MP3tunes, which he founded in 2005 to enable users to store their personal music collections in the cloud. He also believes strongly that crowd-sourcing information provides a crucial advantage to online media and data services providers, which is one of the chief reasons he helped start the website Dealipedia in early 2008. (Among the more interesting features of the website is a section on “Who Made the Money.”)

In our wide-ranging conversation over coffee and soda, Robertson offered a number of interesting observations:

—He views Internet gambling as inevitable, and as one of the coming hot sectors for Internet startups. He says Internet video remains a hot segment, along with “real-time information searching, sorting, and displaying, with lots more stuff moving information into the cloud.”

—But Robertson says the odds are against many Internet companies, especially if they aren’t industry leaders or hold some crucial advantage. “The world has changed, and if you’re competing directly against Microsoft or Google, it’s going to be tough, tough sledding.”

—Robertson is particularly pessimistic about the prospects for online music providers like Oakland, CA-based Pandora, and San Diego-based Slacker, which has raised close to $70 million in venture capital since its debut in 2007. “Selling music is like selling gravel; it’s a commodity,” Robertson says. “What happens when you have five snow cone vendors all lined up on the beach, selling snow cones? They’re competing and their profit margins basically go to zero. These poor guys like Slacker and Pandora have no way of making money. It’s not a matter of a poorly executed technology or business plan. It’s just not a good plan.”

—San Diego remains a great place for startups “because you have all this great talent here,” especially among the graduates of UC San Diego. As for the evaporation of San Diego’s hometown venture capital firms, Robertson says, “I don’t think it matters where the capital is.” Robertson says he turned to Sequoia Capital of Menlo Park, CA, which led the initial venture investment in MP3.com, after he was spurned in San Diego. “I went to [the San Diego VCs] with a $10 million valuation and they said no, and I got funded 45 days later at a $40 million valuation.”

On the other hand, that was during the go-go Internet boom of the late 1990s. Today Michael Robertson is the first to concede that it’s harder to create a profitable, long-term, sustainable Internet business. That’s part of the reason why he takes so much pride in Gizmo5.

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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  • http://asawa.com JB

    It seems to me what he’s saying is the market has matured to the point you must have a ‘fit’ company. This is a good thing.

    I personally would not underestimate the telco’s. That’s been a graveyard for many, many, many, many firms. The entrepreneurship and then there’s business. Should be interesting to see what google does, but history is not with them.