I've interviewed tech blogger Steve Cheney before in Forbes, but - about a year ago - he became SVP of Business and Operations for Estimote.
Estimote is an NYC-based start-up that produces beacons and software to allow for the next wave of local commerce.
I had a chance to catch up with him recently to discuss Estimote and the tech landscape in general.
Q: Tell us about Estimote as a company. When did it get founded and how did you get involved?
Thanks for having me, Eric. I will try to frame Estimote’s story and how I joined in relation to startup growth and how mobile is evolving. Estimote just turned 2 years old, and I joined the two original founders on the heels of Y Combinator, when iBeacon launched to the world alongside iOS 7.
That was late summer 2013 when iBeacon was going crazy. Often in life, you can’t see around the corner to what’s next, you just put yourself in a position for good things to happen and you find it. It was a little bit like that when I met Jakub Krzych, Estimote’s CEO, through Betaworks. At the time iBeacon was new and the market was all white space, but I already understood almost everything there was to know about the tech stack, and I immediately knew I could help them build a real company.
Those first few months after iOS7 were insane. I was literally shipping beacons around the world from my apartment in Chinatown in NYC even before I officially joined. I used to use the term ‘Eskimo’ as a sort of codename with some of my close friends, since that’s how people heard it sometimes if you said it quickly. We were selling so many developer kits that every few days a stockpile of huge boxes would arrive from our factory in Europe full of them. Then the next day FedEx would come pick up hundreds of developer kits that I registered in the cloud and labeled. My doormen thought I was involved in an underground trade or something. The whole experience, drafting off the Apple narrative and working out of my apartment hand shipping boxes was endearing and magical and sort of the way you imagine a startup to be.
Q: There are many Payments companies like Square and PayPal trying to be a merchant’s interface to the customer – and now Apple Pay – as well as companies from the outside – like Yelp or Groupon – trying to bring people in to a shop. Where does Estimote fit in to all these other players and the merchants?
PayPal was yesterday’s winner in payments. The proponents of PayPal becoming independent believe the company has legs left. Time will tell. Overall the payments landscape is still evolving rapidly, particularly on mobile. Patrick Collision the Founder of Stripe made the comment recently that the market for payments is in its infancy. This is a fact. E-commerce is 2% of commerce, and Amazon is just 1% of global commerce. This is absolutely tiny. The room for growth in e-commerce is staggering, and the line between what we do online will blur more and more into what we do in the physical world.
We think of beacons as the midpoint between your smartphone and the physical world. Beacons give you context at the top of the buying funnel before purchase intent, and they assign the intent you made online to a physical space, like a coffee shop, or to an object, like the chair you buy at IKEA. They finally make it so the Yelp app knows you entered the coffee shop you just searched for, or tell Uber that 3 passengers just walked into the car, not just the person who called the car. All of this is about attributing intent and closing attribution, and it’s the holy grail for merchants.
The end goal for the consumer is not about the transaction itself, it’s about getting to the transaction simply. And consumers need help with discovery. What people forget is that although we’re walking around with these incredible computers, they have no idea about our surroundings. Beacons are like GPS on steroids, they work indoors, and unlike GPS, they work in close range in the background. So beacons are less about actual payments and more about verifying that you are a trusted entity as you navigate through the physical world. We think about it that way—you are already logged into your device, now you are logged in to the physical world.
None of this should require swiping your phone at an NFC terminal. It should work in the background because you’ve already put your payment credentials into iTunes, and then into an app you’ve downloaded and registered via a fingerprint. With Apple Pay, Apple leapt 3 years ahead of Google in payments. But Apple Pay only solves the last part of the purchase funnel. The user still needs help with interaction and discovery. This is where iBeacon comes in.
Q: What’s special about Apple entering the Payments market? Who wins and who loses by how they are entering?
I wouldn’t say that Apple entered payments in the traditional sense. Stripe is powering Apple Pay, and Apple is focused where they are strong, on the device level integration and user experience.
You are going to see Apple enable loyalty and it’s going to be driven by iBeacon and there will be a sort of tokenized loyalty scheme, in the sense that it can’t be faked or spoofed. iBeacon will enable merchants to know that a consumer was there, or took some action, or interacted with the red shoes on aisle 7. We can’t do this alone of course, so we try to work with market leaders like TellApart to also integrate with customer data that stores already collect.
All of this is a massive value for retailers and they will see Apple as their friend. They sort of don’t now. That was the whole MCX m-commerce fiasco where Walmart and other companies banned Apple Pay. But what if Apple makes it easy for retailers to understand that consumers have entered their store or are shopping in the baby section? Retailers will love this. It will be modular for developers and merchant friendly. And because the stack is open, everyone will be able to adopt it. 2015 is going to be an enormous year for iBeacon—every retailer we talk to wants to put beacons in store next year.
Q: Tell us about your Platform. You’ve put a big emphasis on your API and your Dev Community. Why?
We think a lot about the levels of abstraction above iBeacon. How can we make it drop dead simple to build consumer value. This is how a developer thinks. This is also how Stripe started to win every e-commerce site that needed to take payments online. They started with developers, and basically set out to do everything that would make it easier for the developer to choose Stripe. Want to integrate payments into your an e-commerce site in an afternoon with a few lines of code? No problem.
Our approach is similar. We’ve been focused on making iBeacon development simple and we’ve built a massive network of developers building on Estimote. iBeacon is pretty simple to get started with, but honestly still way too complex for both developers building apps and venues deploying beacons.
I can’t tell you how many hundreds of developers I’ve talked to who have told me they heard about us from their friends. You have to cultivate that asset. For us, our 30,000+ network of developers is as valuable as gold. At the end of the day people can copy your technology or strategy, but they can’t copy your community or network. They have to build it. We’re sort of following the Y Combinator playbook in that regard. We really admire companies like Stripe and Parse that built developer-facing communities. Twilio, a company that helps developers add VoIP / telephony to their apps is another great example. They have a ’30 second hello world’ mantra. In other words can a developer send a message or make a phone ring 30 seconds after dropping in Twilio code.
It’s this developer who creates the prototype and walks over to his boss, the CMO or CIO and demos the application he just built, who has the leverage. He influences which platforms get chosen. This is the bottoms up approach. And we measure ourselves against it religiously.
Q: So the market for your beacons and stickers is solely for retail or perhaps others?
Retail comes top of mind around beacons, but it’s half or less of the market that we see. We see applications built in automotive, transportation, healthcare, food service, the smart workplace and at home. Industrial applications are also huge. What beacons really do is allow the last part of the edge of the network – the last 100 feet really – to become smart. But instead of being like a network that routes data packets, they route context: presence, location, motion, arrival etc.
If you attach one of our new Stickers to your dog for example, you can tell how much she’s been active, the range of temperature and the times of day she’s slept or left the house. This may or may not – depending on the end user – feel like a gimmicky application. But you could imagine a sticker attached to a warehouse crate on a construction site or to a million dollar X-Ray machine in a hospital for asset tracking purposes. Would it be valuable to understand the location and context of that object in relation to its environment? Yes, wildly.
The applications are limitless and killer applications will span industries way beyond retail. The thing people forget is that new technologies can allow step function changes to industries. Take taxis. No one expected taxis as an industry to radically change overnight. It was mature. The industry had been doing things the same way for 60 years. Boring. Then – overnight – Uber changed everything. It wasn't a gradual change; it was a step function change. Enabled by GPS and the ubiquity of smartphones. The LA Times just did a piece that some people in LA aren’t buying cars, and property values in certain areas are changing because people are adjusting where they want to live because they can get go from work to home to a bar in 5 minutes without driving or parking. So companies like Uber and Lyft are changing society’s behavior, and have impacted much more than the taxi industry.
Beacons will be similar, they will enable step function changes to existing industries, overnight. Just like GPS enabled. So this is the way we think about killer apps. Let’s enable smart developers to change entire industries. We're not focused on new ad units or pushing coupons. In this way we’re purists and our philosophy is a little bit like Apple’s. If you provide consumer value, you can grow a massive business. We think beacons will reshape entire industries in this step function manner, and we’re focused on building the platform and the mechanics to make the killer apps easier to build. Remember the feeling you first had when you left an Uber without paying? The experience was so amazing it felt a little bit like cheating. Beacon networks will enable those types of magical consumer experiences across other industries.
Q: Can you describe some of the tech behind Estimote? Do your beacons and stickers basically become the size of a small piece of Scotch tape in a few years?
Our Stickers are already super small but yes they will become tiny. One of the reasons I enjoy working in hardware again is reflecting back to when I was an electrical engineer and working in the chip and networking industry. I feel like I’ve seen Moore’s Law in slow motion. We recently talked to ARM and our chip supplier Nordic Semiconductor about their roadmap and it’s mind-blowing how far Moore’s Law will push integrated chips with Bluetooth radios. Today’s tiny beacon has just as much compute power as a pocket computer from last decade. Think about that. it’s yesterday’s computer, but it costs dollars and you can barely see the chip on the board. Tomorrow these chips will be invisible and cost cents.
Because our beacons are a hardware product, they personify Estimote as a hardware company. But most people misconstrue what producing hardware means. At the end of the day, taking off the shelf components and fabricating a PCB is simple. You don’t need a ton of people for that. It’s the software to make it work at scale that is super complicated. We can program a beacon to do whatever we want, from mesh networking, to encrypting packets, to almost anything. We just push new software from the cloud. This is the software that people don’t see when you produce beautiful hardware, they don’t see the embedded engineers and back end folks and mobile engineers required to get it all working. We actually have over 7 full time iOS and Android engineers at Estimote now, and we don’t even produce a consumer app. iBeacon is 90% a software challenge.
I had a funny realization of all this recently when I met a hardware engineer who designed the iPod Nano at Apple. He was effectively the only hardware engineer on the Nano project. I couldn’t believe this. One of the most successful consumer products in history. Designed by one hardware engineer. How many software people and designers at Apple surrounded him on producing the Nano? Dozens or even hundreds I bet when you count services like iTunes.
Q: Will Apple come into this market and compete against you? Why not?
Apple cares about one thing, which has led them to become the most profitable and admired company in the world: the consumer experience. Tim Cook talks about how every Apple product, when put together, can fit on one table. We don’t believe that Apple wants to produce beacons of all the form factors required for different markets and fit them on that table. As iBeacon develops more, and Apple talks about it more, we’re going to see them bring it more into the narrative. Why? Because like Apple Pay it will help them sell devices. But whether they produce a beacon doesn’t matter a whole lot to us, because we’re focused on software and services to make it all work. Apple created a wave with iBeacon, and we’re creating the software tools to help developers surf the wave. The hardware will become invisibly small and be distributed in things like light bulbs, but to make all this work at scale will require a rich software stack. This is what we’re building.
Q: You’ve been with Estimote for about a year now and you were at GroupMe before that. What are some of the challenges you’ve dealt with in scaling up a hot new start-up? What are some things others should watch out for?
Building and scaling a company is super challenging, possibly more challenging than building a product. Once you have product-market fit and are growing, things get chaotic. We’ve grown the company from 7 people last summer to over 50 now. That kind of growth requires you to rapidly evolve how you approach functional aspects of building the company, from product management to operations.
But these are good problems to have. A former boss of mine used to always say ‘people don’t have very many gears in reverse’. The essence of which is that not growing – or going backwards – is catastrophic in a startup. So by that nature when you see new problems all the time you sort of know you are on to something.
Y Combinator tells us to sort of wait for things to become a pain point before throwing people at a problem. We take this approach. When we grew to 40 people without dedicated project managers, we could see bottlenecks arising. But we let it hurt a little before we hired and structurally changed how the company was organized. We’ll face many more challenges when we grow from 50 to 100 people.
The hard part in startups is that a lot of what you do is stage dependent. Today’s problems are different than tomorrow’s. So as a founder you need to level up all the time. Keith Rabois gave a genius lecture last month at Y Combinator’s Startup School at Stanford on how to operate a startup. This is the kind of stuff that is out there. You can hack your way because you can tie into all this institutionalized knowledge. One thing I personally try to do is surround myself with advisors and friends who are ex operators. We’re lucky to have some awesome ones and Y-Combinator is really helpful here. The challenge is always how to apply the learnings.
Q: We’ve missed your blogging voice since you joined Estimote. Any observations about Apple’s new iPhones and Apple Watch a couple months after the 9/9 launch event?
Thanks for the kind words. I love writing. New blog thoughts spin up in my head regularly and I hope to write more. It’s a surreal experience to click submit and share something and see people respond to your ideas.
Regarding Apple, I wrote a post a month back that talked about the future of Apple and Google. I think what people don’t realize is how far ahead Apple is with integrated hardware and overall user experience. Android OEMs are struggling, Samsung now included. Everything Apple sells at this point is better than the competition—Mac, iPhone and iPad. It was very easy to be bullish on the company last year, and I think I tweeted how undervalued Apple was near the low in early 2013. The stock has doubled since then. Think about that for a second. The world’s biggest company doubled in market cap in a little over a year. Of course the flipside is it’s going to be hard for Apple to come up with a new defining product category. We’ll see on the Apple Watch. I am bullish.
There’s this phrase in tech called ‘permissionless innovation’ which I love, whereby you don’t need explicit permission from others to build something of value and innovate. I think this fits where technology is going today. Think of it this way: Bitcoin – as a platform – doesn’t need any one or two people’s permission in order to move forward, not the fed, not foreign governments, no one. Hackers can go to github and upload code. Entrepreneurs can go invent new ways of moving money around.
iBeacon is a lot like this too. Developers go and build apps and Apple doesn’t even know until they show up in the App Store. In fact people take our developer kits and software and build remarkable apps, and we don’t even know until they scale. This is magical. They don’t need our permission to innovate. Regardless of where Apple goes next, this whole permissionless innovation era we live in guarantees that technology will move forward at an unprecedented pace. The next few years are going to be incredibly exciting.
