A Venture Capitalist’s View of LBx

By Cole Van Nice
Partner
New York, NY
Chart Venture Partners
www.chartventure.com


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Big change is coming to the GIS/Geospatial industry. Walk through the crowded halls of any of the GIS, GeoWeb, or Gov 2.0 conferences around the country right now and you will see it. There is a groundswell of innovation occurring, and the traditional GIS/Geospatial establishment is caught in a whirlwind of new technology, new entrants, and fresh thinking that is creating the most disruptive and exciting time in the industry in the last 20 years. Fasten your seat belts; the pace of this change is about to accelerate, and the “creative destruction” that will transpire over the next five years will likely reshape an entire industry.

At Chart Venture Partners, this is exactly the type of market dynamic in which we seek to invest. It doesn’t take much to see the writing on the wall. Only five years ago, the GIS industry was the province of a small group of vendors selling proprietary software and data services, largely walled off from the Internet, and enjoying a virtual lock on the market. Utilization of GIS technology was a one-way street, with small numbers of GIS professionals producing all of the information for dissemination. Expensive and complex software, restrictive licensing, and inaccessible data silos prevented any broad-scale utilization or data sharing, and terms like neogeography, slippy maps, open standards, and social software weren’t yet part of the geo-vernacular.

Then, all of a sudden, with the launch of Google Earth in 2005, a paradigm shift began. Google started to unlock the GIS market with a new, web-centric approach to geospatial technologies and applications, and the $5 billion GIS/Geospatial industry started to fuse with the mainstream Web. Previously discrete technologies like GIS, GPS, Earth imaging, location-based services, and navigation systems now had the beginnings of a platform upon which to interconnect freely and start talking to each other, and geodata, broadly defined, saw the beginnings of a path to standardization.

The growth of Google Earth, of course, has been nothing short of explosive. As of this summer, there were over 500 million downloads of Google Earth, 500 million KML documents online, and over 250,000 websites hosting KML content. Those are staggering numbers. It is no wonder that talented young entrepreneurs are now streaming into the field, offering new ideas on how to make GIS more accessible, easier to use, and easier to implement, as well as taking geospatial capabilities in creative new directions. The rapid advancement of browser capabilities, HTML 5, open APIs, and mobile platforms is adding further fuel to the innovation. Make no mistake about it, the entrepreneurial garages are abuzz, and companies like FortiusOne, Cloudmade, WeoGeo, Layar, and Public Earth are in the process of turning the industry onto its head.

To be fair, these new technology platforms cannot yet match the high-end professional GIS systems in either features or quality. In many of the niche applications, they don’t even come close. But they are lowering the cost of entry to the GIS/Geospatial market in a profound way. They are opening new markets, enhancing existing GIS and commercial business intelligence capabilities, and having a significant impact on the way government, enterprises, and individuals can discover, create, visualize, analyze, collaborate around, and manage knowledge.

The technologies and economies of scale that emerge will eventually enable these new companies to match, and then surpass, the functionality and ROI of many of the legacy GIS platforms. But most importantly, these start-ups are leading the transformation of GIS being a technology for the few into a technology for the many. In doing so, some of these young companies will likely venture into complete whitespace, where markets will be created rather than fought over, and where the rules of the game are still waiting to be set.

Of course, there is no crystal ball. Exactly how the market will evolve over the next five years is not yet clear, other than that there will be resistance to change in many areas of the GIS/Geospatial market. As Henry Ford once famously said, “If I’d asked my customers what they wanted, they would have asked for a faster horse.” Indeed, these start-up teams are offering capabilities that are fundamentally new; thus, they will need to make connections that aren’t obvious, evaluating their technology and thinking critically about who will be the right customers to match up with it.


“The GIS/Geospatial industry started to fuse with the mainstream Web. Previously discrete technologies like GIS, GPS, Earth imaging, location-based services, and navigation systems now had the beginnings of a platform upon which to interconnect freely and start talking to each other, and geodata, broadly defined, saw the beginnings of a path to standardization.”


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Once this is achieved and the fastest path to revenue is clarified in each market segment (e.g. consumer mobile, LBS, analytics, etc.), the venture capital firms will enter the mix more aggressively, and the natural selection process will begin. In each segment, there will be several talented start-ups funded by skilled venture capitalists doing nearly the same product development for the same market window. Most of these start-ups will be located in the Silicon Valley, a few will be located in Boston, and the rest will be located in the mid-Atlantic, Austin, Colorado, or even Europe.

Two or three companies in each segment will be winners, as defined by the favorable evolution of industry standards, a channel partnership deal, and a handful of marquee customers. The leading company will be worth a lot of money. Most of the rest of the companies will march forward, some spending tens of millions and reinventing themselves in the process. Meanwhile, the competition from the incumbent players will be fierce as they strive to adapt and protect themselves from the creative destruction that will occur. Some of these incumbents will succeed anew and continue to lead; others will see erosion of market share.

However, before any of this potential can be fully realized, there are fundamental questions yet to be answered and problems yet to be solved. For example, how will the industry develop the necessary “middle ground” in geoweb standards between the simple (GeoRSS, KML) and the complex (GML, Shapefiles) in order to ensure that the geospatial market can fully interconnect with and leverage the World Wide Web? Who will tomorrow’s users be, and what will they be trying to achieve with all of these new capabilities? How will the industry break through the institutional and bureaucratic barriers to unlocking data from many of the silos in which it currently resides, and thus allow for the full benefits of data federation to be realized? What does all this mean for mobile applications, in the context of a robust, real-time, linked, and open Web? These are big questions, but if you browse the industry conferences, blogs, or twitter streams, you will see these questions, as well as a multitude of proposed answers, being intensely debated by thought leaders from around the world, and answers starting to take shape.

At Chart Venture Partners, we also believe that all of this innovation in GIS/Geospatial technology could not come at a more opportune time. With a growing deluge of 30 billion Web pages, the growth of crowd-sourced data and interactive web sites, and the exponential growth of GPS-enabled mobile devices (265 million GPS-enabled phones), satellites, sensors, and instruments, the world is experiencing an unprecedented surge of data, both structured and unstructured.

Too much data is coming too fast, and people are losing the ability to recognize what is relevant. The GIS/Geospatial technology sector will contribute meaningfully to addressing this broader problem of data glut not only by adding geospatial context to data, but also by enabling better insight through intuitive map and location-based services, visualizations, and analytics. Looking forward to 2010, we believe there is a window for entrepreneurial groups of interdisciplinary experts and investors to take the initiative in bringing to the market the next generation of geospatial solutions, and based on what we’ve seen so far, we expect this neogeography community to have a lot of fun doing it.