SaaS Interviews with CEOs, Startups, Founders
1164 Want Your Own Alexa, Without Amazon Influence? Mycroft Raises $8m For Opensource Voice Stack
01 Oct 2018
Chapter 1: What is Mycroft AI and its significance in the voice assistant market?
Mycroft.ai launched in 2015 on a crowdfunding and then switched over to Indiegogo, did very, very well. Today focused on, again, the voice space, but he's not attacking it from, say, a hardware perspective necessarily.
Short-term, yes, but long-term, it's really about this open-source tech stack that allows really anyone that sees Google or Amazon or these guys as a competitor, they can plug in in a very unbiased, open-source way and still get a lot of that value. This is the Top Entrepreneurs Podcast, where founders share how they started their companies and got filthy rich or crash and burn.
Each episode features revenue numbers, customer counts, and other insider information that creates business news headlines. We went from a couple hundred thousand dollars to 2.7 million. I had no money when I started the company. It was $160 million, which is the size of many IPOs. We're a bit strapped. We have like 22,000 customers.
Chapter 2: How did Joshua Montgomery transition from building fiber networks to voice technology?
With over 5 million downloads in a very short amount of time, major outlets like Inc. are calling us the fastest growing business show on iTunes. I'm your host, Nathan Latka, and here's today's episode. Hello, everyone. My guest today is Josh Montgomery. He's the founder and CEO of Mycroft, the privacy-focused open-source voice assistant.
Josh has more than 15 years of entrepreneurial experience to bring to Mycroft. He previously built one of the few gigabit fiber networks from scratch in the United States. Josh, are you ready to take us to the top? Yeah, I'm really excited.
Chapter 3: What is the importance of open-source technology for voice assistants?
Which community did you build this fiber network in? Lawrence, Kansas, adjacent to the University of Kansas and right next door to Google Fiber. Easier or more difficult than you thought? It's a very, very challenging thing to build, especially in light of how weighted the market is towards incumbents. Yeah. And now let's transfer this into what you're currently working on.
How does this relate to Mycroft? Sure. So a few years ago, we realized that we had the freedom to do whatever we wanted to do with our time. And we decided to spend our time sharing our experience with other entrepreneurs. So we opened up an entrepreneurship center that included co-working, a makerspace and a data center.
And we wanted to put Jarvis from Iron Man or the Star Trek computer in the space. At the time, Echo didn't exist. Google Assistant didn't exist. Siri was locked up on the iPhone. And so we set out to build an open technology that allowed us to replicate that experience. Now, when you say open, I mean, literally open source code?
Yes, everything in the entire technology stack is open end to end, including sometime early next year, the entire backend. which will allow people at big companies or at an individual residence to deploy a whole voice assistant. So it's open source.
Chapter 4: How has Mycroft AI monetized its products and services?
Are you making money from this? Have you found a way to monetize? Oh, yeah. We've been selling smart speakers since before Google made it cool. And we continue to sell that product as well as providing speakers. licensed backend infrastructure for big corporate players.
I was going to say, sorry, before you move forward, if you break down those two revenue streams, the physical software versus the backend licensing, is it 50-50 or is one way bigger? Today, it's the consumer product is bigger. We're very, very early in our development process. If you look at what Amazon built, they spent nearly four years, made three acquisitions and spent $150 million in
before their Super Bowl ad in 2016. We're still somewhere. You're talking about for Alexa. Yeah, for Alexa. Yeah. And so we focus very heavily on makers and hackers and developers. We actively discourage general consumers from adopting our technology today. That'll change next year. But right now we're really happy with the 22,000 developers and hackers and makers that are using our product.
So I want to talk more about, again, how you've built this ecosystem around the concept.
Chapter 5: What challenges did Mycroft face during its crowdfunding campaigns?
But first, put this on a timeline for me. So when did it launch? So we launched our Kickstarter in September of 2015. I joined Techstars that winter in Kansas City, went on into a small angel round, 350,000 in 2016. Then we joined 500 Startups and took a strategic from Jaguar Land Rover in early 2017, raised a $2 million seed, which closed in January of this year.
And we're now in the final stages of closing a Series A, which will let us take it to the next level. Okay, so including the A, you're about to close. How much total capital in the company? If you include the A, it's going to be about $8.5 million with five of that coming here in the next few months. Okay, got it. Very good. So $8.5 million. Sorry, I didn't catch the date.
You launched in, you said 2015? Yeah, 2015. We did the Kickstarter. Nothing but a prayer and a dream. I think one of the big things that entrepreneurs miss when they're launching products, and I think it's the biggest waste in the entrepreneur ecosystem, is to determine whether or not anybody wants your product.
And so we we started with a Kickstarter with nothing but a video to see if people wanted a smart speaker, because there were a lot of very experienced venture capital folks and other entrepreneurs out there who said nobody's ever going to want this smart speaker thing like it listens in the corner. That's a niche market.
Chapter 6: How does Mycroft differentiate itself from competitors like Amazon and Google?
And of course, that doesn't turn out to be the case. It turns out it's the fastest growing segment of the fastest growing market in history. Now, 2,245 folks backed you in that campaign and you raised, I think, about $394,000. Did you deliver everything that people pre-ordered? That was our first campaign was 127,000, a smaller number of backers, 1,120 backers.
We ran a second campaign earlier this year, and that's actually at I think about 490,000. We took it over to Indiegogo. We plan on delivering those products in December of this year, and as it stands now, we're on schedule. That's great.
So when you look at the consumer side of this, and obviously your cost structure on a physical product, the margins are going to be lower than obviously a licensed back-end pure software play. Remind me again, do you have these larger enterprise brands spending more on the back-end licensing or more on buying 100 of these units to spread through their offices? It's more the backend licensing.
So the idea is to allow people to bring a custom voice assistant to any product line. So in Jaguar Land Rover's case, the discussions have centered around the vehicle. In other companies' cases, it's around smart speakers or apps. The piece where we bring value is when they want to deploy at scale. You could look at our business model like we give away free beer. If you want a glass, it's free.
If you want a cake, we charge you. Interesting.
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Chapter 7: What are the future plans for Mycroft and its community?
On the licensing model, help me get my mind around that model. What's the average customer pay per month for that? Our cost structure is structured around $1,500 a month for a license. That'll serve about 5,000 users. And so that can scale with a number of licenses that an enterprise needs.
We've been working with a couple of companies on that, but we don't have any significant sales to report there yet. Most of our revenue so far has come from the maker hacker community that we've been targeting. The physical stuff. Yeah, the physical stuff. So how do you... If someone's listening right now, they're thinking, OK, he's got a niche market and kind of the hacker community.
Those hackers are like anti-job. Very rarely are you going to find them in corporate development at Jaguar, right? Or these big enterprise folks you're selling on a licensing model. I mean, aren't these two like very different things? And why not just go all in on one? Actually, it turns out, well, because an open source community first needs community. But it turns out that there's a lot of
big companies out there that want to make use of the open source software stack and dedicate resources to it. So, for example, we found full-time employees at Cisco Systems that are spending their entire day working on the Mycroft stack so that they can bring that technology into the parent company.
Chapter 8: How can developers and users participate in Mycroft's growth?
And that's really how the bigger open source communities thrive is with full-time developers who are paid by whatever company
xyz corporation to develop the technology going forward so that person and that in cisco will will commit new code and grow the the open source thing as well not just hackers in their basement fooling around with the hardware from the indiegogo campaign oh absolutely and then they bring it to their manager and then you know the manager looks at it and says okay well if we're going to deploy this into production we need you know support and licensing and other things and that's really what drives the sales
I mean, if you think about it this way, you know, voice is such a big thing and all of these companies need to get it. And, you know, their choices today are either pass all of your data and all of your consumer information to Google or Amazon, who may be a competitor 10 minutes from now. Or you have this open source solution that you can bring in-house and customize.
and not have to build the entire thing yourself. Yeah. What I'm trying to figure out is your growth model. So like we recently, it's because you have a, you, I've only interviewed maybe five people that have, um, at scale, the hardware component, which is usually subsidized with a physical, with a, with a licensed software product on the backend. So this is purple wifi comes to mind.
Eero comes to mind. They're about to break a hundred million bucks there. They raised over a hundred million bucks. Uh, Not to say raising is obviously the key to success, but I'm trying to understand how your hardware model subsidizes and subsidizes and helps grow the licensing model.
And what I'm hearing you say is the physical objects are almost like an incentive to developers to contribute more lines of code to the open stack, which makes the license more valuable. Yeah. And then also our hardware is open. So big corporates that want to deploy a smart speaker can take our hardware and produce it in volume and ship it without having to design their own hardware.
So the PCB that's inside there can be wrapped in new plastics and put under their brand or shipped in their stores. So let's keep going down the Cisco model if we can. I don't understand what you just said. So give me an example. And again, if you can use Cisco, what would they do? Let's say they keep going with you. What would they use? What's a product they would ship that's built on you?
So let's skip Cisco and go to a retailer, somebody who might compete head-to-head with Amazon. So Amazon's strategy is very clearly to take the speaker, move it into the kitchen, and make it possible for you to buy products without ever getting a screen.
Standing in your kitchen and saying, I need a dozen eggs, a gallon of milk, and a cup of butter, and then having that show up from a local Amazon distribution plant in less than an hour. So by the time you're done cooking the recipe, your groceries are at the door, or by the time you're done doing food prep. Well, that's a really significant challenge to other retailers in the space.
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