Chinese Companies Are Flocking to SXSW to Strike Gold. In Fact, It's an Overrated Conference.

The root cause is that Silicon Valley has grown less creative.

The annual South By Southwest (SXSW) carnival wrapped up on Sunday.

After playing the festival, the well-known American rapper A$AP Ferg gave his verdict: "SXSW is really weak now."

This was SXSW's 31st year. The carnival, held in Austin, Texas, began as an independent music festival and added film and interactive programs in 1994. Every March, more than a hundred thousand people travel to Austin from around the world for ten packed days of a thousand-plus music performances, new tech apps, and film premieres. Ferg, who has 660,000 followers on Twitter and real pull, has gone five years running.

He isn't the only one who feels that way. Google search trends also show interest in the festival falling off.

The New York Times, which has covered the event for years, ran mostly Associated Press and Reuters wire copy this year rather than stories by its own reporters — it didn't even bother changing the "SXSW2016" tag to the current year. The few original pieces it did run no longer mentioned what used to be a core part of SXSW: new apps.

Unlike other music or film festivals that draw big crowds, SXSW made its name by setting off Twitter and Foursquare. The first was the prototype for Weibo; the second pioneered mobile services built on location data.

For years after that, SXSW was the launchpad of choice for Silicon Valley companies rolling out cutting-edge apps. The festival even ran its own startup incubator for a while.

Look at TechCrunch, the tech news site that has followed SXSW closely, and there is simply far less tech news coming out of the festival now. It published 8 related articles this year. In 2013 it published 98.

Look at what was on display this year and you can feel how little of it is new. This year's themes were the ones you can find at any trade show: artificial intelligence, smart cities, smart healthcare, autonomous driving. As if there weren't already enough empty IBM ads on those subjects.

Other big-company products looked like branding exercises too. Sony brought an air-guitar wristband; Google brought the smart jacket it made with Levi's.

Amazon did bring a delivery drone, but it just sat on the stand for people to look at — and no one can say how many years away actual deliveries are. NHK, finding 4K TVs no longer enough, showed the same 8K sets you see at any home-appliance expo.

About the only new thing at SXSW this year was that Chinese companies came as a group to exhibit — Zhihu, Baofeng Mojing, the smartwatch maker Mobvoi, and the bike-share companies Mobike and ofo all did brand promotion there.

SXSW clearly no longer stands for the cutting edge the way it once did.

But is that because its influence has faded — or has it been overrated for far too long as fertile ground for the tech companies of the future?

SXSW Came to Be Seen as Fertile Ground for Future Tech Because of a Handful of Companies

The most remarkable story to come out of SXSW is Twitter's.

The company was still called Odeo then. This unlucky startup had built a podcasting product only to find that Apple's iTunes had landed on the same idea. Sure they could not compete with Apple, the team decided to pivot, and one of the ideas that came out of it was a microblogging product called Twitter — a way to update your status by text message. The product was only a few months old and was used mainly by the team and the people around them. Unsure what to make of it, the Twitter team decided to bring it to SXSW to see how users would react.

They spent $11,000 putting two 60-inch screens in a corridor every attendee had to walk through, showing everyone's posts in real time: which concert was worth seeing, which bar was good, what the people at SXSW were up to.

Twitter took off completely.

Within ten days, daily tweets went from 2,000 to 60,000. Only after it blew up at SXSW did Twitter's founding team get serious about setting up a company and refining the product. That is how we got Twitter, its Chinese imitator Fanfou, today's Weibo, and countless other copycats.

The other SXSW service most people remember is Foursquare. Two years after Twitter caught fire, Foursquare came to SXSW in 2009 with a feature that was fairly innovative at the time: checking in by location.

Foursquare didn't really "do" anything. It just let users tell the world they had been somewhere — a three-Michelin-star restaurant, the office where they worked, or a square in downtown Beijing.

It was a product made for showing off at a carnival, and it caught fire at SXSW. In January 2010, Foursquare opened sign-ups to users everywhere; by March it had 500,000 users, and after that it added roughly 100,000 a week and spread fast.

Foursquare still has not found a workable way to make money, and its users passed their peak excitement long ago. But its attempt to combine merchant information with location data was copied widely. Open Dianping today and you can still see its shadow.

It is hard to argue, though, that SXSW is what made Twitter and Foursquare. When Twitter caught fire, the iPhone had just come out, and browsing the web on a phone suddenly looked far less painful. When Foursquare launched, the iPhone and Android app stores had been live for only a few months.

Those were Silicon Valley's best years after the PC — countless new ideas took shape around a smartphone that stayed with users 24 hours a day. Never before had programmers' code been so closely bound to everyone's daily life.

Most Companies That Come to SXSW Are Not the Next Twitter

In 2007, just as Twitter was picking up tens of thousands of new users at SXSW, this photo of Austin police making an arrest went around the tech press covering the festival.

The man being arrested had a backpack stuffed with red Zune posters. Microsoft had hired him.

A few months earlier, Microsoft had released the Zune MP3 player to hit back at Apple's iPod, which had arrived five years before. Microsoft never skimps on advertising, but this time it skipped the gold sponsorship and sent people to paste ads up around the streets instead, riding SXSW's buzz. Hence the photo above.

Over six years Zune put out six generations of hardware, and not one was a hit — not from the iPod's rise all the way to the point where smartphones swallowed the whole MP3 player market.

Plenty of people today still think of Twitter when they think of SXSW. Hardly anyone remembers that arrested Microsoft marketer.

Big-company products turning up to ride SXSW's buzz, the way the Zune did, have been the norm at the festival for a long time.

In 2009, Dell brought its high-end Adamo laptop line to SXSW. Apple's Mac line was still being reworked then, and the hugely successful new MacBook Air was a year away. Dell's machine was a rare ultra-thin, ultra-light laptop, and for a while it drew plenty of coverage.

Even Pepsi, which has nothing obvious to do with tech, came to launch a call for projects on "making society better through internet technology," offering money to promising mobile-internet startups.

In the years that followed, the big companies that came to SXSW included Google with its me-too social and check-in products, Motorola with the Xoom tablet it built to challenge the iPad, and Ask.com, the Q&A site hunting for new users after Quora took off.

Small companies did no better.

Most of them played the imitator. The clearest pattern: after Foursquare blew up in 2009, location check-in companies suddenly sprang up everywhere. In 2010 and 2011 alone, TechCrunch covered no fewer than ten of them — Loopt, which focused on checking in at offline events; Fourwhere, which added maps to check-ins; Heytell, a location-based chat tool that might be America's answer to Momo; even an app called Untappd that recorded where you had drunk a beer.

Every one of these companies' imagination came down to Foursquare plus X. Two years later, as user activity dropped fast, Foursquare itself struggled to raise money, and a whole crop of followers went down with it.

Almost none of them are still alive.

Of the 20 companies TechCrunch covered at SXSW in 2012, apart from the portable-battery maker Mophie, only the online car-rental service Getaround and the social video service AirTime are still operating — and both are struggling in their fields.

New companies TechCrunch covered at SXSW in 2012

app.net

A paid version of Twitter | Shut down

PollRoll

Ask.com with mobile and social features added | Shut down

Kismet

See where everyone is going, by location | Shut down

Highlight

Location-based spotting of interesting people | Shut down

Stamped

Location-based shop recommendations on a map | Shut down

Public Media

A media incubator | Shut down

Tracky

A social collaboration app | Shut down

Glancee

Location-based discovery of people nearby | Shut down, acquired by Facebook

INTRO

A location-based LinkedIn | Shut down

Getaround

Online car rental | Operating

Sonar

Location-based discovery of people nearby | Shut down

HackPad

Real-time wiki | Shut down, acquired by Dropbox

BandPage

Custom pages for musicians | Shut down, acquired by YouTube

TxtRoo

Reviews for people without smartphones | Shut down

Turntable.fm

Social music service | Shut down

Currency Cloud

Currency exchange platform | Shut down

Thumb

Mobile Q&A community | Shut down

Mophie

Portable batteries | Operating

Jelli

Online music service | Became a marketing company

AirTime

Social video service | Operating

The only one you could loosely call a success was a hardware company. As for that year's biggest highlight — the company literally named Highlight, treated at the time as the direction of the future — its website no longer opens.

But the Illusion Had Taken Hold, and Even SXSW's Organizers Saw Themselves as Fertile Ground for Innovation

In 2008, Airbnb's two founders, Brian Chesky and Joe Gebbia, had just graduated from design school and had just come up with the idea of letting people rent out their rooms to strangers.

Chesky wanted to try his luck at SXSW — it drew more than a hundred thousand young people interested in new products and new cultural phenomena.

SXSW 2008 was two months away, and the two founders had no money and could not code, so they talked a programmer named Blecharczyk into building them a bare-bones site called Airbed & Breakfast. To line up hosts, Chesky emailed landlords listed on the classifieds site Craigslist, inviting them to use his service.

After weeks of work, most of what Chesky sent out went unanswered. At SXSW in March 2008, Airbnb booked out a grand total of two rooms, and one of those he booked himself. There was no sign whatsoever that the business was about to take off.

But Chesky still went with one of his hosts to watch an interview with the startup idol Mark Zuckerberg. Zuckerberg was 23 that year. Facebook was not yet what it is today: used by 1.8 billion people a day, taking in $26 billion a year in ad revenue, the fifth-largest public company in the world.

In 2008, Facebook was four years old and still did not know how to make money, but it was already not to be taken lightly. It had more than a hundred million active users, had passed its biggest rival MySpace, and had turned down an investment from Microsoft and a rich buyout offer from Yahoo.

The hour-long conversation turned very dramatic. Sarah Lacy, a journalist who had covered startups for years, kept interrupting Zuckerberg. The composed executive of a few years later — the one who goes out in nothing but a gray T-shirt, gives away his money with a manifesto, and carries himself like a man running for president — was then still a scrappy young founder, and he fired back several times, to cheers from the room.

It was a few days after that talk that Chesky met Michael Seibel, already a known entrepreneur, who would later become CEO of Y Combinator, the largest tech incubator in the United States. Two years on, it was YC's first check that carried Airbnb through its hardest stretch. Recalling the meeting, Chesky said that when he heard Seibel offer to help Airbnb find angel investors, for a moment he thought he meant actual angels with wings.

Airbnb is now valued at $31 billion, more than Hilton, its fellow travel-business giant. Every year it gives Austin's hosts a dedicated page for renting out their spare rooms, covering a shortfall of more than 20,000 hotel beds in the city.

Throwing different kinds of people together is probably the greater value SXSW offers. The entrepreneur Lane Becker has missed only one SXSW since 1997. He thinks the festival's biggest draw for tech founders is exactly that it has everything: "When you throw people with all these different backgrounds, interests, and expectations together — and some of them have probably had too much to drink — something genuinely interesting is bound to happen, and that is often how culture happens."

But the illusion Twitter created misled a lot of people, including SXSW's own organizers. In 2009 SXSW, which started as a music festival, took up the work of a tech incubator. One organization went to the trouble of shipping 39 British startups across the Atlantic to pitch at SXSW's Interactive track.

Later, a team built an app specifically to track the new apps launching at SXSW, called Appshowcase — any developer at SXSW could submit a product and get a slot to show it off. The service no longer works.

Now Chinese Companies Have Come for the Gilding

The explosive growth that smartphones and the mobile internet brought Silicon Valley has run its course, for now. Artificial intelligence and self-driving cars have not produced results yet.

As for the early successes, it is hard to say whether SXSW made Twitter or Twitter made SXSW.

Once SXSW's tech products and apps could no longer hold outside attention, a batch of Chinese companies arrived.

Among them were Zhihu and Baofeng Mojing, both already mature, plus newer startups: the smartwatch maker Mobvoi, the drone company Hover Camera, Philm, and the bike-share company Mobike.

But they brought nothing new.

Zhihu's Zhou Yuan once again talked up the potential of making money from knowledge and told his founding story in English. Mobike and ofo shipped their shared bikes to Austin. NIO unveiled a concept car there that, beyond the autonomous driving and AI assistant every tech company now has to have, was not especially remarkable. Rather than setting off a new trend, these Chinese startups' "we were here" appearances look like they carry more PR value than anything else.

In 2010, Color Labs, a star team with no product at all, raised $41 million. Its backers included Sequoia Capital, Silicon Valley's highest-returning venture firm.

Shortly after SXSW 2011 ended, their app, Color, launched. It let you share photos with the people around you based on your location. No sign-up and no fixed friends list: as long as you and the people nearby had Color open at the same time, you could see each other's photos and even the comments they got.

Color's idea was too complicated to really catch on. The whole app shut down in 2012.

After Color flopped, someone asked on the Q&A site Quora: "Is Color doomed because they did not launch at SXSW?"

That question and all the companies swarming here for the gilding share the same problem: they are kidding themselves.

Cover image from the SXSW website