A meme did the rounds last week variously titled “How To Fix Venture Capital”, “Why There Aren’t More Googles” and “Where are the $Billion Startups?”. Basically Umair Haque started it by suggesting that the reason there aren’t more big companies like Google is because startups get bought before they can make it that big. Paul Graham argued against this, suggesting that the real reason is that VCs won’t invest in small startups. Don Dodge argued that the real issue is a lack of truly disruptive business ideas. So it got me thinking what would a billion dollar startup look like anyway?

I thought a good place to start would be to think about what it is that makes Microsoft and Google the colossal giants that they are. There are other really large technology companies of course but few as big or as significant as these two. Why for example are very successful companies like Facebook, LinkedIn, Skype, Yahoo, even Apple not quite as big as Google or Microsoft.

This gets even more interesting when you compare Google and Microsoft and find that whilst there may well be several similarities between them, there pare robably just as many, if not more differences between them. I won’t dwell on this particularly but on the one hand Google’s primary source of revenue – search – is a free, consumer-focused, web based product that has a single and simple touch point for users. On the other hand, Microsoft’s cash cows – Windows and Office – are not free, are primarily business-focused, have to be installed and are made up of several sub-products that each have multiple user interfaces.

Three important similarities however between these giants are that:

1. They each solve real problems for their users – Microsoft products are primarily for getting work/stuff done in the office and for many at home also. Google is for getting information from the web.
2. They each cornered or arguably offer the best product for their domain and platform and therefore dominate it – Microsoft Windows and Office for the PC and Google Search for the web.
3. They each provide an ecosystem that enables people to make money by serving the needs of others, i.e. Google for advertisers and publishers and Microsoft for businesses and skilled employees/contractors who use and write applications on Windows.

It is instructive to note that Facebook and MySpace also possess the last two traits above, being the leading social networking sites and having created platforms that enable application developers to make money. The problems with these two companies are that neither is completely dominant; social networking though quite big, is nowhere near as big a market as search or PC OS and office applications; and their ecosystems just aren’t as strong as Microsoft’s and Google’s. And of course they don’t have trait #1 above – at least not yet. Instead they are mostly used by the majority of their users for fun and entertainment.

Given where the tech industry is right now, I would argue that the Microsoft is dying and that the Google way is probably the better basis for the next $billion company. So in my opinion, the next big thing needs to be:

1. Consumer (rather than enterprise) facing
2. Like Google, provide information for free and make money from advertising
3. Provide a source of revenue not just for the startup but third-party skilled individuals/companies
4. Have its use be solitary in nature, i.e. not require users to network with other users in order to use it.

Since the above is more or less a description of Google, perhaps looking for the next Google is a lost cause – but wait what about the mobile space? Google may have dominated the web but I think mobile is still up for grabs. More on that in a future post.