With the rapid pace of events on the web and the information revolution sparked by the Internet, it’s very easy for the technology industry to think it’s unique: constantly breaking new ground and doing things that nobody has ever done before.
But there are other sorts of business that have already undergone some of the same radical shifts, and have just as great a stake in the future.
Take healthcare, for instance.
We often think of it as a huge, lumbering beast, but in truth, medicine has undergone a series of revolutions in the past 200 years that are at least equal to those we see in technology and information.
The first stirrings of modern chemistry and biology were only just beginning in the 19th century, but by 1967, Christiaan Barnard started transplanting hearts. Similarly, it was only in the 1950s Watson and Crick discovered DNA. Less than 50 years later, the first draft of the human genome was produced. If that’s not rapid, world-shattering change, then what is?
Pharma has also faced other challenges the web industry is only now starting to realize. Products are slow to make, and drugs can take years to design, test and manufacture. Accordingly, R&D spending in pharmaceuticals is very high overall; according to the European Union (PDF), five of the world’s top 10 companies by R&D spend are in drugs or biotechnology (among traditional technology companies, only Microsoft, Nokia and Samsung feature in the list). And it’s a far greater proportion of total turnover (Pfizer spends around one seventh of revenues on research, Apple spends around one dollar on R&D for every 13 it brings in).
And where the planet’s electronics giants spend billions attempting to end piracy and patent infringement, pharmaceutical companies are rapidly adjusting to the fact that they only get 12 years before patent protection ends and other companies can introduce generic drugs. Imagine a situation where Windows 98 was already old enough to be forcibly open-sourced, and you get the idea of how disruptive that might be.
So, what does the pharmaceutical industry have to teach us?
First, be careful. Your property and ideas won’t be yours for long.
Second, while new discoveries are important, revolutions can be reliably predicted, most of the time. From the outside, Barnard’s transplants were a radical shift in surgery. From inside the profession, it was the next obvious step after previous organ transplants.
Third, the way money is being spent will inevitably change. It’s already happening: an issue addressed by the latest VC bulletin from Go4Venture, a London-based advisory group for European entrepreneurs and investors (you can sign up here). Their latest dispatch outlines the state of deal-making in Europe (more of them, but less valuable, as reflected in figures we wrote about last month), and they also point out Europe’s technology financing system is undergoing a significant shift:
[there is a] major structural change in European venture capital financing where corporates will play a more prominent role going forward. Corporates are facing a lasting ex-growth market environment (courtesy of debt-laden Western economies) and realise that internal R&D is rather expensive and just cannot cover the whole front of innovation.
For corporates, investing in start-ups has the added advantage of encouraging a more entrepreneurial culture inside and creating a stream of acquisition opportunities.
Pharma has been there before, in an early move precipitated by proprietary drugs coming off patent, and we are now seeing the pharma model spreading to other IP-driven sectors.
Spending more of the R&D budget on other companies doesn’t just mean acquisition, of course — although the startup world is very familiar with the process and it’s clearly the most common option. Just yesterday, Google spent $60 million making the slightly odd move to buy British price comparison website BeatThatQuote. It could also mean more early investment in small companies, like the $100,000 Microsoft is putting into Moscow-based anti-piracy startup Pirate Pay.
But what it does mean is, ultimately, the growth in the number of deals we’re seeing is going to get faster, and there will be more opportunities for innovative startups and smart entrepreneurs. Twinned with the aggressive, high valuation investing strategy of a company like Russia’s Digital Sky Technologies, it seems more likely than not we’ll see things explode, in Europe and elsewhere, over the next year or two.
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Spotify, the red hot online music service has gone past the one million subscriber mark — making it one of the more successful online music start-ups in the business. The company has raised $113 million and is said to be getting a fresh slug of money — $100 million or so — and is valued at over a billion dollars. The company is likely to make that news announcement tonight. Spotify users have put together 200 million playlists so far.
Daniel Ek, a founder and the chief executive officer of Spotify says that getting past the one million paying subscriber mark in two years is a testimonial to the power ofits freemium model. The ratio of paying to subscribers to active free subscribers of Spotify’s music service is about 15 percent. Spotify is trying to find its way into the US market.
In a blog post, Ek noted:
‘It seems like only yesterday we were hatching ideas for a new music service in a tiny office-cum-apartment with a broken coffee machine, and the party we threw having reached one million users almost two years ago today was one to remember. So it’s with a sense of real pride and excitement that we can announce a new milestone today, having welcomed our millionth paying subscriber to the service.
In November 2010, it was reported that Spotify had about 650,000 paying subscribers. Using back of the envelope calculations, it seemed that Spotify brought in around $135 million in revenues in 2010.
The rough estimates I had used showed that the company was adding about 42,000 paying subscribers every month. It seems new monthly subscriber growth has almost tripled. In three months since, the company seems to have added over 350,000 subscribers.
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