2, 4, 6, 8, Now It's Time to Incubate


Give a cheer for the incubators that are trying to bring new life to the interactive business. Now, let's turn to the next wave of incubation that will be needed for the broadband segment.

Sure, Excite@Home and Road Runner are supporting clusters of original material that can be funneled into their own services. But the real payoff will come with the encouragement of new resources that take on a larger, industrywide presence.

America Online nurtured (maybe even conceived) the interactive-incubator concept with its "Greenhouse" project in the mid-1990s. Through collaborative efforts and strategic investment, content such as "The Motley Fool" emerged that was not only valuable to AOL as a proprietary investment-advisory authority, but that has expanded into a Web business plus book, radio and TV opportunities.

Incubators-and the latest breed, which sometimes call themselves "accelerators," or "generators"-are a specialized kind of Internet-centric venture capitalists. By bringing an array of related start-ups under the same canopy, there's hope for intermingling and a sharing of resources and skills that will lead to healthier prospects for all of the ventures. CGMI and idealab! have spawned successful projects in this way.

In the Web world, there are even incubators for incubators, such as Knowledge-Cube, InQbiz and Incubator-Incubator.com, as Red Herring recently reported. Their objectives are to give local and regional organizations the skills to find and support new ventures.

Incubating new ideas-a specialty of the Internet economy-may be beyond the TV industry's mind-set. This is not about cloning a hit TV show or spinning off a program or a network. Incubators are supposed to breed entirely new ideas.

Broadband will need this kind of encouragement and cradling-not just for content, but also for new tools and resources that can be used throughout the broadband business.

Scientific-Atlanta's "Cutting Edge" investments in middleware ventures, plus a variety of Motorola activities, acknowledge the importance of such forward thinking (albeit often self-serving) approaches to the business. But this funding and support appears to be very much a la carte, with no integrated objectives.

Aside from the financial rewards (i.e., owning a piece of successfully incubated projects), this approach gives underwriters a stake that might otherwise elude them.

Although cable moguls may believe their broadband brands will ultimately dominate the market, it is increasingly clear that digital subscriber line, and maybe even some form of satellite or broadcast datacasting, will take a sizable share of the market. Properly incubated services will be accessible across multiple platforms, thus rewarding supporters no matter where the services appear.

That may be too competitive for cable-centric broadband ventures, but it reflects the reality of tomorrow's market.

The Internet's incubator/accelerator/generator environment is certainly dynamic and very much a work in progress. It is even confronting regulatory review as Internet billionaires reinvest their money into start-ups.

For example, Yahoo! has funded so many start-ups in its incubator that the Securities and Exchange Commission is sniffing around to see if Yahoo! itself has become an investment firm.

Yahoo!'s stakes have been so significant-and the success rate of its start-ups (plus its acquisitions) has been so great-that the company is approaching the SEC's 40 percent threshold: That is, nearly 40 percent of its assets are in securities of other firms.

Interest in incubators is popping up at all levels. For example, Hewlett-Packard will put $2 million into New Media Venture Partners, an incubator seeking to develop the next generation of start-ups. H-P will also offer up to $15 million in debt financing to fund and incubate e-commerce start-ups.

Lycos is creating "Lycos-Labs," an incubator that will support 12 start-ups per year focusing on Internet technology, content, commerce and community. LycosLabs will supplement the work of Lycos Ventures, a $70 million venture-capital arm formed last summer in collaboration with Paul Allen's Vulcan Ventures.

Andersen Consulting is taking its "Protégé" accelerator global. It will set up 17 launch centers around the world for companies that have secured funding, but that need facilities and technical support.

The Protégécompanies will get guidance, plus other support, as needed, from a temporary marketing vice president to connections with software developers. Andersen expects to receive as much as $1.2 billion in equity in these companies over the next three years.

Another launching pad - albeit on a more specialized scale-is being cooked up by Rearden Steel Digital Development Studio, headed by WebTV cofounder Steve Perlman. The firm's interests range from video games and movie development to digital sculpture, animation and motion studies.

Rearden Steel will offer its embryos 3-D graphics and Internet-content production facilities, as well as a studio for digital-audio and high-definition TV production.

These incubators hope to become breeding grounds for entirely new kinds of content and services. Broadband backers that aren't involved in such conceptions will find themselves having to adopt someone else's good ideas-and paying the price.

I-Way Patrol columnist Gary Arlen will percolate, perambulate, cogitate, inoculate or meditate about new ideas-from the sidelines.