Start-Ups Shying Away from Consumer Internet, Turning More to Supplying Software for Business

Steve Lohr and Erin Griffith reported in today’s New York Times that, “When Rajiv Ayyangar and two other Yahoo alumni explored start-up ideas, they experimented with concepts directed at the public, like a personal finance app. But making money from consumers was too daunting, they concluded, partly because of the tight grip that digital giants like Google and Apple had over distribution.

“So instead, their San Francisco start-up, Tandem, founded last year, made a product for the business market, a virtual office for remote teams.

“‘The bar is a lot higher in consumer, so we went to the enterprise side,’ said Mr. Ayyangar, Tandem’s chief executive.”

The Times article stated that, “He has plenty of company these days. Entrepreneurs, engineers and venture investors are shying away from the consumer internet, and turning more to the seemingly ho-hum realm of supplying software to business, or so-called enterprise technology.

Venture funding for social media start-ups reached a peak of $3.9 billion in 2011. But by 2018 it had fallen to $400 million, according to Pitchbook, which tracks venture deals. Over the same years, venture backing for start-ups supplying software to businesses more than tripled, to $2.8 billion.

“That overall trend — less a sudden surge than a steady migration — is a subject of scrutiny today as federal agencies, states and Congress investigate whether the country’s largest tech companies violate antitrust laws. With Facebook, some of the officials are looking into whether the company bought some emerging competitors to protect its dominant position in the market for social networks.”

Lohr and Griffith added that, “Some start-ups are breathing new life into old categories of business software. Superhuman, an email service founded in 2014, is growing rapidly, offering fast, engaging and personalized service.

“The start-up migrants from the consumer internet are often engineers. Their stories vary, and their motivations are nuanced. But they are all entrepreneurs fully engaged in pursuing opportunity, which they see in the enterprise marketplace, a door far more open than on the consumer side, for whatever reasons.”

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