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The Hyperconnectivity and Hyper-Growth Spiral for Startup Success

The promise of startups, especially venture backed ones, is predicated on fast growth.  Even with that touchstone, relative to prior decades or even prior years, the growth trajectory of today's startups is in the warp speed territory.  According to an analysis by the Wall Street Journal earlier this year, the fastest growing startups are achieving revenue growth and even profitability much faster than leading startups of yester years.  While the companies mentioned in the analysis have continued to advance, and some have even gone public or are about to go public since the review was published in February, some of the noted points are worth highlighting here:

"... Groupon's revenue in 2010 rose more than 22 times to $760 million in its second full year since its daily deals site launched, up from $33 million in 2009. Zynga, the maker of online social games like FarmVille, scored revenue of $850 million in its third full year in 2010, more than triple the year before, and Facebook's revenue rocketed to as high as $2 billion in 2010, its sixth full year.

Their ridiculous revenue growth rates actually rival those of the four largest Internet companies-Google, eBay, Yahoo and Amazon.com-early on. Taking a look at the line graph below, Groupon and Zynga's charted growth is steeper than San Francisco's famous Filbert Street. Over the longer haul, Facebook's sales fall short of the two Internet kings, Google and Amazon, but top those of eBay and Yahoo, in their first six years.

revenue_growth.png

The Wall Street Journal coverage further compares the profitability of current startups with earlier ones:

" Not only is revenue exploding, but profits are, too. Through the first nine months of 2010, Facebook made $355 million, meaning it likely scored a profit well over $400 million, if not $500 million, for the year. Google's net income in 2003, its sixth year, was $399 million. Zynga's profit was also about $400 million in 2010, only its third full year"

The causal factors behind such hyper-growth are equally interesting, and relevant to most startups.  We expect these factors to continue reinforcing this trend going forward.

The cost and resources required to launch an online startup are at a significantly lower threshold than ever before.  Other factors stimulating hyper-growth for startups include a high penetration of broadband networks, smart phones, tablets and other connected devices; consumers coming of age that have grown up with the Internet; migration of businesses (and business models) to online channels, and revenue opportunities for such businesses through advertising, subscriptions, virtual goods, and other business models.  We have seen how quickly some of these leading startups have had to become well-oiled, mature operations.

The bar continues to rise, and new startups entering the market have a much higher threshold of performance required to be successful, particularly in the crowded, and some would argue, noisy media and entertainment space. 

It can even be argued that startups need to deliver better experiences than established companies.  This is because a sub-optimal experience due to poor network conditions or delivery of a startup's web site is more likely to result in users abandoning such sites more than established ones, as users still need to be convinced of the offering and experience offered by the start ups.

Most of these new features and services are based on dynamic content and rich media that the Internet was not designed for.  Increasingly, we're finding that startups need our advanced features of dynamic content delivery, security, and commerce regardless of their market penetration and size of user base.

As a company, Akamai is committed to advancing the hyperconnected world.  When it comes to startups, this hyperconnectivity is inseparable from the hyper-growth that they need to prepare for.  The recent launch of our site dedicated to startups is intended to be the definitive resource for startups looking to bridge the hyper-growth and hyperconnectivity equation. Check in periodically as we continue to add resources and best practices that are important to startups.

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