The Village View

Wednesday, January 25, 2006

Would you invest in the next RSS Reader? I wouldn't

I had an interesting discussion today about RSS readers. Some believe that RSS is a “gamechanger” and are thrilled at the number of different RSS readers available.

While I like RSS, I’m less optimistic about the market for the reader applications. Here are my thoughts:

From an investment point of view I think the market is over-saturated with “me-too” companies providing yet another RSS reader. My best count is that there are at least 16 RSS readers out there and it seems like new ones are launching every week. I don’t get this; do we really need 16 different of RSS readers? Is there really a market for that many?
If I were a VC I’d steer clear of this market, with the possible exception of one of the “big boys” like Newsgator (FeedDemon is not bad) who may be a short-medium term acquisition target Note: take this with a grain of salt as I was recently told that I would make a “shitty” VC.

In a few years you’re going to have 1 or 2 major players in this market and maybe a few niche providers. The niche providers will address the needs of the “long tail” and be nice life-style companies bringing in $10-20M consistently; certainly not of interest to a venture investor.
Look at the browser market, to which I see parallels. Currently, Internet Explorer has 83% market share, followed by Firefox with 13% and Netscape with 2%. Why do 83% of internet users use IE? Two reasons: 1) Microsoft’s distribution power (read bundling with Windows) and 2) it’s good enough for what the vast majority of people want to do with the internet. Is Firefox better, more secure, more flexible? Most likely, but who cares? If I’m Joe Internet User in Wichita Falls, I can pay my bills online, check out the newspapers, watch an ESPN.com video and, of course, access my Yahoo or Gmail accounts with very little problem.

How does this pertain to RSS readers?
1) I’m sure I don’t understand all the complexities of RSS and the reader apps, but it doesn’t look that hard. Pretty straight forward, kinda like the browser. Furthermore, while all readers have slightly different functionality, at the end of the day, they need to get you posts from the feeds you subscribe to when they’re updated. I just don’t see that much “must-have” innovation left to do.
2) Microsoft is about to enter the RSS game; Outlook 12 will have the capability.( So I open Outlook to check my email and I can get all my RSS feeds. Why would I open a 3rd party RSS reader when all I have to do is open a folder in an app I already have open and know how to use (ie Outlook)? Now I now that not everybody uses Outlook and that some users will want functionality not provided by Micrsoft RSS Reader, but I think that in the long run, 80% of the blog readers are going to be happy with the functionality that Outlook has for RSS feeds. (Functionality is likely to increase in future releases as well) A similiarly large number are going to balk at learning a new app. Does that mean that Joe VC in the Valley will be happy or Lauri the power Open Source developer in Tallinn content? No, but these guys are the long tail.

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