That Was Then and This Is Now

Having just heard the story of Abeona’s downfall I can’t help but recall Charles Kettering’s famous quote, “I believe business will come back when we get some products that people want to buy.”  Kettering, the inventor of the electric car-starter, founder of Delco and head of GM’s research labs to 1947 after he sold Delco to GM in 1916, was one of the leading technologists in the early half of the twentieth century.

Abeona’s story is not unlike many others in the market.  Founded in December, 1999 and funded with $12M from  Kleiner Perkins and Sequoia, Abeona built a Web site transaction accelerator to increase, in their words, transaction speeds from 8 seconds to 3 seconds.  We first visited them six months ago and listened while they showed us their “dramatically reduced cost and space” ROI story and their “radical new class of infrastructure.”  (Our response was that the cost and space reduction are weak value propositions and ROI provides an economic view of a purchase but, since every networking company is making a similar ROI claim, rarely translates to a strong value proposition.)   They had the Tolly Group produce a set of charts showing their speed advantage over vanilla Linux servers (in our opinion, these results might have been factually correct but meaningless since the comparison didn’t reflect real world system design).  With its $12M financing Abeona brought to market a $50,000 solution for a problem which few customers in 2002 have. 

As many of you know, when I hear an Internet Acceleration company promote ROI as its leading value proposition, I get impatient, to put it mildly.  The way I figure it, startups spending millions of dollars developing a new product need to start off their value proposition by saying something like: “customers have shown us that they have a problem which, when we solve it, will significantly improve their business to the point where their corporate valuation grows.”   Technology is a vehicle for corporate transformation – networking startups need to show how their products can increase their customers’ stock prices.

Now you could look at this and say Abeona was in the wrong place at the wrong time.  In 1999, building a large Web site was often a precondition to claiming some sort of Internet presence which often meant a sharp increase in a customer’s valuation in a short period of time.  Given that a large Web site was table stakes and the faster you could build it the sooner you could capitalize on higher corporate valuation, it made perfect economic sense for a company to spend millions in a few months to bring a site online.  In that environment, spending $50,000 on a function like transaction acceleration might have made sense for several hundred sites.  But that was then and this is now.  Today, Web sites aren’t as closely tied to enterprise valuations.  As Kettering implied, the way out of this recession is to make products that people want to buy.”