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Five startup predictions for 2012

There's a glut of startups--and also plenty of reasons for optimism going into the new year.

I'll be blunt: sit at my desk for a week and it's hard not to conclude that there's a startup glut.

The e-mail pitches begin blending together: Company fill-in-the-blank has a new twist on daily deals. Social startup XYZ let's you keep track of all your social activity--really! Wait. You've got to try this messaging app. And on it goes, a blizzard of pitches from companies that will likely soon vanish.

And yet, every year plenty of amazing innovations and breakthrough companies emerge, and 2012 will be no different. Often the most compelling startup is the one nobody sees coming. I bet, for instance, that another seemingly frivolous company (think Twitter) will blast through all the noise in 2012 and reshape the way a lot of people live (and thus threaten the status quo). That just happens. People are surprised, and then they're not.

What lies ahead is, of course, anyone's guess. So...

A whole lot of companies will close up (and no one will notice)
The bubble debate rages on in Silicon Valley, particularly because some very young companies are landing lofty valuations. Most of the investors I talk to say there's no way around a squeeze. There are a swelling number of startup incubators (approaching a hundred, according to Y Combinator) and angel investors cutting $10,000 or $30,000 checks to help software engineers go out on their own. Eventually those startups need more money, and that pool--the Series A--is limited.

The small startups won't come to a halt: So long as Google, Facebook, and others higher on the food chain are snapping up companies, angels will keep making bets. But they'll get more cautious because the exit opportunities shrink. And plenty of the me-too plays and those with little traction will give up. Few will notice because they don't have much reach--financially or in terms of impact on the public. My back-of-the-envelop calculation puts the total amount of angel funding between $500 million and $700 million--the size of one or two beefy VC funds.

Siri in action CNET/Paul Sloan

Another startup gold rush, courtesy of Apple
Apple will open up Siri, its sassy voice-controlled virtual assistant, to third-party developers, something my colleague, Josh Lowensohn, predicts as well. Already, clever tinkerers have found clever ways to use Siri to control thermostats and TVs. Apple has only to look to the success of the iPhone and iPad app market to see the potential, and such a move would also help Apple in its fight with Android, since developers want to work on the latest, coolest thing.

"From a developer's standpoint, it's pure gold--virgin territory," said venture capitalist Gary Morgenthaler, who was first to invest in Siri when it was a startup. "And one of the glories of this is all of the things we won't expect."

This is a fun one to think about. Thousands of apps--from productivity apps to apps for e-commerce and travel--would become far more useful if speech enabled. And imagine the new possibilities: Games that you can talk to. Apps that develop personalities. They could teach kids, who could ask them questions. And so on.

This will likely start in 2012, but build out will take time. Nifty though she is, Siri still has too many limitations.

Is that a phone in your pocket, or...
Actually, that soon won't matter. Look at what payment startup Square did this year with its Card Case app. You can walk into a place you frequent--a coffee shop, say--and, without even pulling the phone out of your pocket, the person at the counter knows you're there and is ready to prepare your latte. No plastic. No cash. You take your drink, and then you get a text asking if you want to add a tip to the bill.

Futuristic uses of the phone will continue to emerge around payments, physical shopping, and transportation (think Uber, the taxi alternative), thanks to the use of GPS and the cloud, and to the reality that we're all carrying around sensors.

Data, data, everywhere
"Big data" was a big term in 2011 and, as fuzzy as it sounds, it represents a monstrous opportunity for companies beyond the likes of Google, Facebook, Amazon, and LinkedIn. Anyone using an app-loaded smartphone is generating data that can be mined and made useful.

One data-crunching newbie is Decide, a powerful shopping tool that analyzes prices of consumer tech products and tells you whether to wait to make your purchase. We'll see more examples like this in 2012, plus an onslaught of startups that work behind the scenes to help businesses do more with data.

Marc Andreessen predicts an "education revolution" Seth Rosenblatt/CNET

The venture firm Greylock Partners recently brought on a "data scientist in residence," and in November, Accel Partners carved out $100 million to create a Big Data Fund.

"A lot of this has yet to be defined," said Pin Li, who's the key partner investing the money. He's right, and that's why this will be an exciting area to watch.

The great unbundling continues
That's the phrase one investor I know uses to describe the way software is tearing apart entire industries--what venture capitalist Marc Andreessen refers to as software eating the world.

One institution that's in software's crosshairs: Education. The education system has strong walls, and software won't rip it apart the way, say, Amazon tore down bookstores, but amazing startups--some with clear business models, others not--are emerging. Startup ShowMe has created a vibrant community of people sketching lessons on their iPads, and Edmodo, which just scored funding from LinkedIn founder Reid Hoffman, is finding creative ways to connect teachers and students.

Andreessen, whose firm invested in a startup called Kno that's bringing textbooks to the iPad, told me eventually he expects an "education revolution powered by smartphones" in which anyone anywhere will be able to get an Ivy League education via a phone for free. Just look at the expanding OpenCourseWare movement at M.I.Tas evidence of the possibilities, he said.

That's a big prediction, and one Andreessen expects to take three to five years to happen. Along the way, however, a slew of startups will do well reshaping how people the world over learn.