We recently sent out our first update to investors in Tandem’s second fund. Though you don’t see these Fund-to-LP communications very often in the outside world (we’ve never shared ours before), I figured this material was worth including here.
It was somewhat inspired by this 1990 NYT article about Bill Gates’ plan for world domination:
With its Windows 3.0 software selling an estimated 30,000 copies a week, Microsoft had larger revenues in the last quarter than Computer Associates, which has been the nation’s largest software company…. Now Mr. Gates wants more. And at the Comdex/Fall trade show that opens Monday in Las Vegas, Nev., he promises to begin what he calls “a crusade” on behalf of a new way of using computers. Instantly Accessible Data.
Software engineers at Microsoft, whose headquarters is tucked here in the forests east of Seattle, call the concept “information at your fingertips.” Simply put, their idea is that all the data typically needed in business, school or any endeavor should be instantly accessible from a desktop personal computer.
The next 10 years will make the 1990’s look tame. Now the update…
Tandem II September Update
Since launching Tandem II in May, we’ve made some important decisions on where to focus our early stage investments and how to structure them. We’re still applying our unique brand of Muscle Capital, but have decided to do so with a particular focus on mobile industry startups. We are now Silicon Valley’s only mobile industry incubator and, as such, have made our first several new company investments, all in the last few weeks.
Billions of Taps
We believe that smartphones and tablets will bring billions of new users into the world of continuous computing and create a massive opportunity for business creation.
In 1990, when Computer Associates was the largest software company, Microsoft came up with a bold new plan – to deliver information at the click of a mouse. Bill Gates’ vision played out well and drove innovation for years to come.
Today, over 20 years later, we’re at the forefront of another computing revolution. Apple is the largest company on the planet because it makes entertainment and commerce (in addition to information) so easy to access. Everything we want to see, play and buy is now just a tap or a swipe away.
This fundamental shift from the “Click Internet” to the “Touch Internet” changes creates a massive opportunity. The Click Internet brought Google, Yahoo, eBay and Amazon in the 90‘s and companies like LinkedIn, Twitter, Facebook and Zynga more recently. In this decade of the Touch Internet, an entirely new set of household brands will emerge as the leaders who drive how we consume information, purchase products and services, and entertain ourselves.
Billions of Customers
The Touch Internet belongs to billions of people like us – “users.” The largest companies of the past, on the other hand, sold to just thousands of corporate “buyers.” Buyers decide what users should use, and they looked for completeness. They want the most features from the fewest vendors at the cheapest price. The vendors with the best sales forces won the war, capturing the largest shares of the largest wallets. We saw Cisco, IBM, Oracle and HP rise to the top while innovative mid-sized software companies failed to stay independent.
Now, however, Apple is not just the most valuable tech company in the world, but the most valuable company period. Their customer is the individual user. Millions and soon billions of people buy directly from them. It’s not the solution with the most features but rather the cleanest, simplest product that wins. It no longer matters how large your sales force is; users just care about how easy and fun your product is.
The Touch Internet will belong to the companies that can sell directly and efficiently to the user. Social Networks and mobile app stores have created an open and democratic environment, allowing millions of consumers to vote on the best products immediately with their fingers and wallets. Word of mouth is powerful and favors small, nimble teams that iterate fast and learn from their users.
[remainder of update omitted for confidentiality reasons]