CNN Money has an interesting Q&A with Bill Gross, the serial entrepreneur whose brain birthed startups like NetZero, CitySearch, eToys, and GoTo.com. While the interview questions aren’t particularly hard-hitting, they do encourage Gross to make a few salient statements about what he thinks makes an excellent startup. His first comment is about how his company, Idealab, looked for “disruptive” internet ideas:
… We look for a disruptive opportunity… for a big problem and a way to solve it that no one else was willing to try. I would say we’re going much more after white space… We prefer to look for a big itch that isn’t being scratched.
Finding that so-called “white space” has been, maybe until recently, much easier on the web. Gross implicitly suggests as much when he mentions how margin-obsessed web entrepreneurs tend to be; they quickly find a niche (or “white space”) and produce a site with low overhead, presuming that they’ll be enjoying 90% margins on their service for as long as they live. While web businesses do indeed see those kind of margins, Gross is quick to point out that the real value in a web startup isn’t terrific margins or low overhead, it’s high barriers for competition. Web startups seem to Gross too complacent and satisfied over finding white space to take this into account:
It’s not a matter of how cheap you can start the company. You also need to have a way to stop other people from doing the same thing once they see that your idea is taking off.
The interview goes on to ask him why his incubator, Idealab, has shifted from growing web businesses to growing actual brick-and-mortar startups that produce tangible goods. He says at first that they were merely excited about the web as a medium, but he then asks a telling rhetorical question about a hypothetical web startup:
[Is] there a core intellectual property with which you could differentiate yourself and earn sustainable margins?
The tacit implication, of course, is that Web 2.0, for all its glitz, is running out of truly valuable white space. What’s left, Gross’ question asserts, are a pool of ideas easily replicated and short on true technical innovation (which might create intellectual property.) That would mean that today’s startups are seeing more copy-cats, quicker failures, smaller venture capital commitments and less success. Is this true, or is Gross an anachronism? He’s personally moved on to robotics and solar collection technology — away from “bits” and towards “atoms”. But is he missing the nuance of a new generation of web entrepreneurship?