Austin Myths: Internet Innovators

 

Everyone knows Austin is a tech town. Computer jobs drive a good chunk of our economy, and geekery abounds in hackerspaces and the coffee shops. So here's a surprising question: can you think of one Internet service or Internet software product made in Austin that you use?

Flickr? That's Vancouver. Facebook? Silicon Valley by way of Boston. Google? Twitter? In fact, the only Austin-made site in the top U.S. Top 100 is Indeed.com.

The biggest Internet news around here  of late has been a Foursquare also-ran being sold for parts; a vacation home rental company going public; and sale of a company that helps organize your email. Yawning yet?

BarcelonaCore_XeF_backsideTruth is, our Internet scene has been crippled by two forces that prevented it from being a true player. First, our tech history is rooted in hardware and chip manufacturers instead of consumer products and experiences, think Dell and AMD. Second, Austin’s business culture is steeped in “B-to-B” or Business-to-Business models, where businesses sell to each other instead of the general public, think SolarWinds, who manage storage for the FAA . B-to-B isn’t exactly a loser on the Net, but it doesn’t build big winners either.

 

Why do we need a vibrant Internet sector if we have good jobs in chips and other tech? 

Only Internet companies that reach end users can grow exponentially to become the Next Really Big Thing. Hardware and Business-to-Business models must rely on static sales and can't tap into the network effect. You need the network effect to create a game-changer like Google or Facebook.  

Think of it this way: if you create a Craigslist or a Wikipedia or a Facebook and everybody starts to use it and tell their friends, it connects to still more people in other locations. You have created a self-perpetuating engine that grows itself. Pat yourself on the back, or better yet have someone do it for you.

Whereas hardware grows in step with sales of computer devices and even when growth is strong profits can become leaner as profit margin shrinks. In the overly competitive hardware market, only Apple has been able to excel (see Apple Makes 75% of Mobile Phone Profits with only 9 Percent of the Phones).

The biggest driver of new tech businesses in town is Austin Ventures, our local VC firm. One look at their portfolio page shows what a B-to-B city this is.

Not that Austin didn't try to jump on the Internet. In the Web 1.0 days of the late 1990s, a flurry of latecomer Internet companies tried and failed to survive. Garden.com, DrKoop.com, Living.com - oh the memories!

Unlike the eBays and Amazons, none of these Austin companies had a viable revenue model. Then when Web 2.0 came along roughly in year 2000, with companies like Flickr and Wikipedia leading the charge, Austin’s Internet companies were more likely to be selling off their furniture to Tops Office Supplies than innovating on something new.

Double Double Toil and Trouble...Austin Has the Right Ingredients for Success
The good news is that Austin has a lot going for it that could make it a petri dish for the kinds of businesses that change our world. This is a city full of techies, an entrepreneurial spirit and, unlike Silicon Valley, LA and New York, a relatively low cost of living.

Admittedly, there are some great Internet services being built in Austin.  Indeed.com, the most visited jobs site, is partially based here and is a great product, but these are few and far between.  We're also strong in other areas: mobile apps and gaming being the two biggest. But our tech culture will need to change to become an Internet innovator.

Are there other cool Internet companies in town that I’m missing? What do you think about Austin's future in tech? Let us know in the comments.

 

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