12 Big Questions for Seattle Tech in 2012
I don’t want to read too much into the arbitrary turn of the calendar, but it seems like we’re in the middle of a pretty interesting moment for Seattle’s technology scene.
One of our mega-companies may be on the wane, while the other appears to be headed for much bigger things. The startup scene is growing and gaining the connective tissue it needs to expand in the years ahead. And Silicon Valley companies big and small continue flocking north to grab high-tech talent, seriously diversifying the gene pool.
At the same time, this region hasn’t escaped national questions about the vitality of early stage fundraising and the market for new public companies—not to mention the generally stagnant economy and need for more higher education. To get a jump on the year ahead, we’ve put together this list of a dozen questions to keep your eye on. In no particular order:
How healthy is the VC sector?
Recent numbers for venture capital firms nationally were not very encouraging: The amount of money raised by VCs was low, and limited partners showed a preference for investing mostly with the biggest-name funds, according to reports from analysts and industry groups.
Here in the Seattle area, we saw Polaris Venture Partners close up its branch and head for Silicon Valley. On the positive side, Voyager Capital filed paperwork for a new fund that could be worth up to $125 million. Another notable trend was the volume of investments for Bellevue’s Ignition Partners in the cloud computing sector, particularly in the Bay Area—attributable in large part to the addition of Frank Artale, who brought his connections to the firm.
Some big acquisitions, or even a big IPO or two, would certainly cure a lot of the uncertainty for the VC sector overall. If that doesn’t happen, keep an eye out for firms fading away or having difficulty shaking the trees for new money.
Where will our big companies go for acquisitions?
Microsoft took the cake in 2011 with its $8.5 billion mega-buyout of Skype, helped along by a desire to keep some of its considerable offshore money out of Uncle Sam’s hands. Beyond that, there were a few smaller deals—Austin, TX-based game studio Twisted Pixel, San Mateo, CA video technology company VideoSurf, and enterprise software partner Prodiance, based in Pleasanton, CA. Will Redmond make more big buys in 2012 with its almost unfathomably big cash horde of $57 billion? Despite its protestations otherwise, there’s plenty of speculation that Microsoft might need to actually grab phone hardware partner Nokia to really make a dent in the mobile market.
Amazon wasn’t as prolific, with only Europe’s Lovefilm listed on its official acquisition roster this year. Amazon has typically made a handful of acquisitions a year in the recent past, but it was focused quite powerfully on ramping up the hardware side of the business this year with the Kindle Fire. That, of course, helps buttress reports that Amazon may be interested in HP’s Palm assets.
And of course, both companies have been rumored to be looking into buying Research in Motion, the struggling maker of BlackBerry smartphones.
Will we get more angels?
One of the most frustrating things for tech entrepreneurs in the Seattle area is the impression that a ton of tech-created wealth is sitting on the sidelines of the startup scene. The continued vitality of the TechStars program, big-company veterans jumping into early stage companies, and further efforts to develop the seedbed for angel investors will all help.
As we see more out-of-towners move north to poach talent, we are seeing some very interestingwatch connections take hold in the startup community. While technology and infrastructure keeps getting cheaper, the Seattle area probably needs to keep working to cultivate a larger group of early stage investors who can take advantage of this increasingly rich network of people and ideas.
What happens to T-Mobile?
The spectacular flameout of the $39 billion AT&T takeover might have brought some sighs of relief to folks working at Bellevue’s T-Mobile. But any calm was probably short-lived, since parent company Deutsche Telekom doesn’t want the company long-term.
So what happens to the No. 4 U.S. carrier? It looks like the near term could see a bit of refocusing on the core business—boosted by the spectrum assets reaped from AT&T’s breakup penalty—while waiting for new partners or acquirers to get their offers ready. It’s probably a good enough bet that another carrier won’t be making the buy, since Verizon would run into the same antitrust problems that doomed AT&T, and Sprint has a completely different technology stack—not to mention its own problems. Look for an interesting bid by TV providers, who have been trying to get their hands on the mobile phone market for some time.
When will we see another tech IPO?
This past year’s big IPO victory was Zillow (NASDAQ: Z) finally going public. But it’s hardly a new company, in startup terms, and it had been a long time since a truly home-grown company had hit the stock markets before then.
The IPO market has been seen as up and down through the rest of 2011. If it gets a little more solid in 2012, we’ve got at least three companies that are pretty close to getting their own ticker symbol: Traffic-data provider Inrix, semiconductor laser maker nLight Photonics, and RFID maker Impinj, which filed its preliminary paperwork this summer but hasn’t done much with it since then.
Which small company the next big (or even medium) thing?
Game developer PopCap’s purchase for up to $1.3 billion by Electronic Arts and mobile software startup Swype’s $100 million buyout by Nuance were among the biggest acquisitions in the region in 2011, with a collection of smaller deals including mobile service provider Dashwire’s acquisition by HTC.
Which early stage companies will make headlines in 2012? There are some intriguing candidates like Lockerz, the well-financed, trend-hopping social shopping and content network for teens; Decide, the comparison-shopping service backed by some pretty serious science; and Wavii, a stealthy search startup that is trying to organize and sift online content in new ways.
The company you might hear the most about, however, is Zulily, the “flash sales” outlet for moms-and-kids merchandise that has been growing at a crazy pace. The company is beating the bushes for new hires, financed by a new infusion of $43 million in venture capital.
How big is Zulily? It’s just a rumor, but from a pretty well-connected source: In this talk at a Lean Startup meetup in November, Google’s Dan Shapiro (who sold Sparkbuy earlier in the year) asked the crowd about Zulily’s current annual sales pace.
“Ballpark, anybody know what they’re doing? Just a ballpark estimate, revenue run-rate. $200 million? Last I heard, it was $700 [million],” Shapiro said, to whistles from the crowd. “So, there’s some zeros in there.”
Does Amazon own Seattle’s tech future?
Admittedly, this is not based on anything like hard financials. But if there’s one Seattle-area technology company that is currently the envy of the rest of the industry, I’d say it’s clearly Amazon.com.
Redmond has an amazingly smart group of people—and tons of them. But even the most die-hard Microsofties will tell you mind-numbing tales of bureaucratic triangulation that do not bode well for the company’s ability to deal with the huge transformations coming for its bedrock enterprise software business.
Microsoft has one bona fide consumer winner on its hands in the Xbox, a promising and much-praised platform in the new Windows Phone, and the go-to search underdog in Bing.
But that pales in comparison to the things that Amazon has pulled off in the past few years. Here’s just two examples: Commoditizing cloud computing with Amazon Web Services and mounting the first real challenge to Apple with the Kindle family of mobile consumer entertainment devices and connected services.
Sure, nobody really uses the Mechanical Turk or A9 search. And there’s nothing like watching Microsoft wake up to a challenge and sneak up from behind. But after Steve Jobs died, how many people started turning to Steve Ballmer as the next guru of the tech world? None. Jeff Bezos, on the other hand, is now the tech CEO everyone loves to worship.
At the risk of over-relying on anecdotal evidence, I’ll mention this scene: When Zynga CEO Mark Pincus came up to Seattle earlier this year to open the game-maker’s branch office, he went around the room and thanked Neil Roseman and several other former Amazonians who Zynga had hired. Then, he went into a long story about how Zynga wanted to be innovative and revolutionize game-play, the same way Amazon had revolutionized retail.
I don’t think Microsoft was mentioned once—not even as an aside, not even with Microsofties in the room as possible job candidates. Would that have happened five or 10 years ago? I doubt it.
Does Silicon Valley’s talent crunch keep driving companies up here for poaching engineers?
If you had to pick one big theme for the technology industry in Seattle this year, it would probably be the continued march of California-based companies to the rainy Northwest to establish branch offices. Google made a relatively early entry into the market, but has been joined more recently by Facebook, Zynga, Salesforce, and Jawbone. Startups with Seattle ties are even getting into the game, with examples like cloud computing company Nebula.
That puts a lot of pressure on our homegrown companies, which are the main targets of Silicon Valley talent raiders. But it’s also having a beneficial effect of bringing more diverse company cultures to the region (not to mention some more money that can be injected into the area through acquisitions).
It’s easy to imagine a few years down the road, when some of those folks working on big stuff at Google or Facebook or Zynga are looking for a new gig or thinking of starting their own company. Now, instead of having just one big enterprise’s DNA in their system, they might have two or three, including some of the hottest companies in the country—not to mention connections.
There’s no way that can’t benefit the region. But it relies to some degree on an overheated market for talent in Silicon Valley staying too hot. It’ll be interesting to see which of those Silicon Valley interlopers are still here at the end of 2012.
Can our education system keep up?
The Great Recession has technically been over for a while now, but the stagnant economy continues to hurt the ability of governments to do the things that are truly needed to provide for a vibrant society. Topping that list is education, and in a region that does not have a large private or purely technical university to lean on, the University of Washington is the Seattle area’s only real academic source of next-generation computer science and engineering talent.
Washington’s over-reliance on sales taxes, however, means that the economy needs to make a hard turn in the upward direction before the state is able to put significant dollars back into the higher education system, not to mention the difficulty of making sure it gets spent on the highest-demand programs like computer science. The answer for paying the bills at UW has been ever-higher tuition, and probably very soon variable tuition rates for people taking on the higher-paying and high-demand majors.
There’s a real push and pull here in the business community too, by the way. For every startup or mid-sized company that just needs more bodies to tackle their work, there’s a big-name tech company that doesn’t think the UW should dilute its brand by just churning out more people. How the UW’s new president and provost handle this question will be a key thing to watch in 2012.
Will more big-company veterans hit the streets with their own startups?
California companies poaching talent isn’t the only brain-drain worry for Microsoft and Amazon. It’s the lure of the startup scene, where people who’ve toiled away in a major company for years and have some money to sustain themselves decide that it’s finally time to take the plunge.
I don’t have a great handle on how significant the flow of talent away from the big two is at this point, compared to other times in history. But with examples like former Windows Phone manager Charlie Kindel and former Microsoft technical fellow Gary William Flake among the latest class of prominent Redmond veterans taking the leap, it’s a good bet that there could be some interesting new companies and ideas bubbling up from big-company refugees in the coming year.
Can Windows Phone and Bing make strides?
The newest version of Windows Phone is probably one of the best-reviewed software products of this past year—even people who love to hate Microsoft were pretty much in love with the operating system, which was described as the first truly innovative challenger since Apple’s iOS took over the market.
Bing continued its uphill climb against search dominator Google, taking ever-more significant slices of the market if you count the fact that it powers aging portal Yahoo’s technology. As a side benefit, Bing continues to be the search technology of choice for other tech companies who are more afraid of Google.
But can they finish the job and become true competitors? Microsoft is losing gobs of money on Bing, and at the same time seeing Google’s Chrome eat into Internet Explorer’s browser market (not to mention Google Docs and Gmail). Windows Phone, while lovely and intuitive, has a long way to go if it hopes to catch up to iPhone and Android in terms of devices and developers.
Will Clearwire complete its turnaround and build an LTE network?
Maybe the most terrifyingly thrilling company to watch in public this year was Clearwire, the Bellevue-based wireless network provider. It entered 2011 having just lost founder Craig McCaw, the godfather of wireless in this region, and heads into 2012 with a new clutch of cash to finance its transition into a new type of network, one based on Long-Term Evolution (LTE) technology.
But that doesn’t mean the company can start relaxing. Its relationship with majority shareholder Sprint has been a taxing one, and the rest of its existing financial backers weren’t exactly reaching for their pocketbooks when Clearwire needed cash.
Clearwire made an early bet on WiMax technology for its fourth-generation network, and bet wrong. Now it has to catch up to the rest of the industry’s move to LTE, and do it with a reluctant major partner that has plenty of its own problems. But with wireless spectrum so scarce and necessary, Clearwire may have the rock-bottom asset it needs to hold things together.
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