Theme: Digital Life

by Ryan McIntyre

As part of our ongoing discussion of the investment themes we focus on at Foundry Group, it is time to discuss digital life. Certainly anyone who is reading this blog post is living a digital life, and among the partners at Foundry Group, we are all gadget-lovers, early adopters of software and online services, part-time IT support staff for our own home networks, and digital media creators, curators and consumers.

Our digital life theme evolved from our own experiences as early-adopter creators and users of digital media, as well as from time spent over the years evaluating dozens of investment opportunities that we categorized as digital home, digital living room or convergence companies. After sifting through the landscape of these digital home companies for several years, we came away with only one investment: Sling Media, makers of the Slingbox.

In fact, we began calling digital home an “anti-theme”, because it seemed to serve more as a filter for companies we knew we wouldn’t invest in, rather than ones we would. Our investment in Sling happened precisely because Sling was quite unique and unlike any of the other digital home companies we looked at over the years. After a great outcome with our Sling Media investment, we decided it was time to take what we learned and refine our thinking behind the digital home theme and recast and refine it into the theme we now call digital life.

So what it is different about what we are calling digital life vs. what we used to call digital home? Some of it is simply a matter of timing – when we first started looking at this area in the 2000/2001 time frame, PVRs were a relatively new concept, home network deployment and broadband penetration were just starting to accelerate and the iPod was only beginning to take over the digital music world, while the cost of processors and storage needed be halved several more times by the (thus far) relentless work of Moore’s Law.

Since then, we’ve seen a massive increase in computing power, huge growth in storage capacity (with estimates that the average household will use nearly four terabytes of space by 2010), deep penetration of broadband, a proliferation of devices capable of playing back digital media and a huge increase in the speeds of wireless LANs. So convergence is finally (sort of) here. All media and all devices have gone digital. Users want access anywhere, anytime. But managing the explosion of media assets, networks and devices remains difficult. Software and services that just work and make our lives easier in this realm are needed to help the average user cope.

Back in the day, there was also a tendency for digital home companies to either attempt to sell gadgets and set-top-boxes or provide a software layer to power said gadgets and STBs. However, both approaches met with challenges: either low-margins from attempting to sell hardware at a consumer price point or tremendously long sales cycles and shallow revenue ramps as a result of trying to sell software to the incumbents who provide devices in the home like Scientific Atlanta, Motorola, DirecTV, Sony, Phillips, D&M, etc — none of whom has a clue when it comes to delivering a good user experience via tight software/device integration. A third approach was to increase the lifetime value of a user by tying a device to a subscription service or revenues from ongoing purchases of content to feed the device (think TiVo and iPod).

When we invested in Sling, we had been looking at companies that fell into the above three basic buckets for several years. Sling had a refreshing approach – sell a gadget and make nice margins, without charging ongoing service fees — a good thing from our point of view since we think the consumer suffers from subscription fatigue. And Sling’s pioneering concept of place-shifting was an elegantly backwards way at looking at looking at the problem: instead of trying to get content off the PC and onto the living room TV and stereo, Sling decided to do the reverse and focus on getting the living room entertainment center onto the PC and smartphone, regardless of the user’s location.

Breaking into the living room continues to be a challenge even for the behemoths. Microsoft has had relatively little luck in this area with their Media Center PC, though clearly the horse they are riding into the living room now is the Xbox, with the folks at Sony and Nintendo also playing here with their respective consoles. Even Apple, the king of digital media devices, has only dipped their toe in the water with the Apple TV, which is clearly a first-gen (and tentative) step into the dangerous waters of the living room.

Our experience with Sling provided us with some guideposts as we refined our thinking around digital life: focusing exclusively on the living room as the center of the digital home was going to be extremely difficult for most startups given the power of the incumbents who control the devices that live there. And it is no picnic for the incumbents either, as mentioned previously.

Another big observation from our work with Sling is that the user experience has to be great from the moment the box is opened: unpacking the product, setting it up, installing the software and day-to-day use has to be brain-dead simple and a pleasure to use, or the thing won’t enjoy widespread adoption. And with the current state of the art in home networking technology, this is very difficult for any vendor to achieve.

Furthermore, in most cases, trying to build a device is a tough road to hoe for a startup, for the reasons mentioned previously. So within this somewhat broad definition of digital life, what are the kinds of things we are interested in at Foundry Group?

In general, we will be intrigued by software and services (and occasionally, but not very often, devices) which work well with the existing entertainment infrastructure in the home and which help a user cope with managing the complexity behind their growing mountain of digital media and menagerie of devices. These solutions should work wherever a user may be and allow them to consume, create and share the media which comprise their digital lives. Finally, these products must be extremely well designed and brain-dead simple to use. The usability bar for digital life products is very high — they should work automagically and be easy for technophobes to embrace, or their adoption will be permanently impaired.

In the Foundry Group portfolio, Memeo is currently the standards-bearer of the digital life theme. We’ve explained in detail in a previous post why we are excited about our investment in Memeo, but put briefly, Memeo deals with the rapidly-growing mountain of digital content each of us must manage by providing content-aware and multi-device capable continuous backup, data synchronization and sharing. These simple but powerful tools might have previously been considered professional grade or enterprise-class solutions, but just like terabyte NAS or real-time encoding and streaming of HD video, they are making their way downstream into the consumer market.

So if you’re building a company focused on improving our digital life, please let us know, we’d enjoy hearing from you. We love playing with new toys and thinking about what the next important company in this ecosystem might be. Worst case scenario, you’ll get some product feedback and perhaps a few new users.