Silicon Valley start-ups begin hitting the brakes

February 20, 2008

VCs urge companies to raise cash now, pass up deals that look too pricey Investors worry a tough economy will slash big companies’ spending on products sold by start-ups and may also damp online ad spending.

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Nielsen: How People Use Web Video

February 15, 2008

In its first significant study of how people consume online video, Nielsen Online has found that women tend to favor network television on the Web, while men are drawn to user-created content.

Women are nearly twice as likely as men to tune into videos on TV networks’ Web sites, according to Nielsen Online’s first public release of its research into online-video viewing habits.

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Online Software: Buzz vs. Business

February 15, 2008

Online software is supposed to make business computing cheaper and easier. But cost and simplicity don’t matter if the software doesn’t do what a company needs it to do. That is currently one of the challenges facing corporate-technology leaders. Even the ones who favor online software often can’t find a product that meets their needs. And ultimately, that is what is most important for businesses.

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Start-Ups Mine Database Field — Nimble Software Helps Make Sense Of Information Tide

November 18, 2007

By Don Clark

Most databases are based on technology that originated 30 years ago. But change is in the air.

A mob of start-ups have been developing variants of the software, which provides the equivalent of filing cabinets for corporate information. Customers say the offerings are generating faster answers to questions that require sifting through huge volumes of business information


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Matchmaking for Investors and Entrepreneurs

November 1, 2007

Here are two things to check out on the funding front, particularly if you aren’t in tech.

First, a tool that could help democratize the funding hunt — Think of it as matchmaking service between entrepreneurs and investors.

IdeaCrossing is open and free to anyone in the U.S. Entrepreneurs build a profile, and the system matches them to like-minded participating investors. Investors can see these profiles (the entrepreneur doesn’t get to right away) and reach out with time or money.

The site is still in beta with about 1,000 users. It needs critical mass to really work, but is a good idea that could help tap pockets of money in more regions.

It’s also getting easier for nontech companies to get on angels’ radar. More are broadening into retail, real estate and consumer products to appease members with nontech backgrounds.

Some groups are very specific. The founder of IdeaCrossing, a Cleveland nonprofit called JumpStart Inc., invests only in companies that bring jobs to northeast Ohio. One group, 12 Angels Investment Group, invests in firms that help prevent or treat addictions. Others, are funding women- or minority-led firms or ones with a social or environmental bent.

If you know of specific angel networks broadening their portfolios, let us know here.


Strategies for Being a Platform Leader

October 29, 2007

By Annabelle Gawer and Michael A. Cusumano

In recent years, many high-tech sectors have become battlegrounds for companies bent on establishing their product as the next industry platform. Whether it’s a smart phone or a videogame console, products that become platforms dominate sales in their niches, give rise to numerous complementary products from third-party developers, and reap enormous profits.

Too many companies, though, wind up losers in platform wars because they were too protective of their technology or intellectual property, or failed to recognize the platform potential of their products. Apple Inc.’s Macintosh computer and Sony Corp.’s Betamax video recorder were excellent products that could have become industry platforms. Apple recently realized that it may miss a major platform opportunity with its iPhone by limiting its use to selected carriers and preventing third-parties from adding new applications. It has decided to reverse the latter policy.

To have platform potential, a product, technology or service must:

  • Perform at least one essential function in a product or combination of products that execute an increasing variety of tasks — the way PCs have become an integral part of Web browsing, gaming, telephony and other activities — or solve an essential technological problem for many players in an industry.
  • Be easy to connect to or build upon, allowing the system to be expanded to new and even unintended uses.

Then a business strategy is required that enables a company to make its technology or service fundamental to an emerging platform and helps the market tip toward that platform. The company must create economic incentives that encourage other firms to develop complementary applications for the platform, and at the same time protect its own ability to profit from its innovations. This balancing act is perhaps the greatest challenge to platform leadership.

Google’s Success

Google Inc. is a prime example of a successful platform builder and leader. First, it solved an essential technical problem: how to find anything in the maze of Web sites, documents and other content online. Second, it distributed its technology to Web-site developers and users, making it easy to connect to and develop upon. It also allowed for different uses, such as combining search with different kinds of information or graphics, like maps and pictures.

Where Google cemented its position as the platform leader for Internet search, though, was with its business plan. In the early years of e-commerce, there was a lot of confusion about how to make money on the Web. Google found a way by linking focused advertising to user searches. Its ad fees also seem low or modest relative to the ads’ effectiveness. In effect, the company revolutionized advertising by redesigning the relationship between advertisers and Internet users. Today, Google’s market value stands at around $145 billion, eight times that of the largest ad agencies.

GM Loses Its Way

For a less-successful attempt at establishing a platform, consider General Motors Corp.’s 1996 introduction of OnStar, a wireless system that gave automobiles new communications capabilities, such as navigation, notification of accidents, engine diagnostics and opening of locked vehicles.

Initially, GM managed to get competing auto makers to adopt OnStar for their vehicles. Gradually, however, those rivals concluded that OnStar’s capabilities, and the information it generated about customer driving habits, were too valuable to let a competitor control. Consequently, these firms decided to build or buy competing systems.

GM failed to position its technology as an essential part of a neutral industry platform, which it might have done by spinning off OnStar as an independent company or building a Chinese wall around the unit, blocking any flow of information between it and GM that could be seen as damaging to OnStar’s clients. While GM failed at the business aspect of creating an industry platform, OnStar remains an attractive service platform for GM customers. OnStar Vice President Nick Pudar says that GM’s commitment has helped the unit rapidly deliver continued innovations for “a wide range of GM vehicles,” and that customers have responded well. “A broad adoption of OnStar throughout the industry would have resulted in slower technology development,” he adds.

The ability to establish a platform is an option for small and large companies alike. Success depends not on size but on a company’s vision, and its ability to create a vibrant ecosystem that works for the leader and its potential partners.

This can be difficult when an industry is undergoing transition and its contours are ill-defined, or when technology is evolving too rapidly. But on the other hand, these are the very conditions when platform strategies can stand out — precisely because they are so badly needed.

Source: Business Insight

Site Linking Global Buyers, China Factories, Plans IPO

October 23, 2007

A few years ago, Jane Ivanov of Indianapolis was pregnant for the first time and frustrated. Amid the array of clothing available to expectant women, there was one thing she couldn’t find: sexy lingerie. Sensing an opportunity, the business-school graduate and her husband pooled $50,000 from their savings and credit-card borrowings to start a maternity-lingerie brand called Eve Alexander. All she needed was the manufacturer.For that, she turned to, then a little-known Chinese Web site that has become a significant gateway for global trade. On the site, which connects small manufacturers in China and elsewhere with potential customers, Ms. Ivanov found a supplier in Hong Kong that could make the bras she wanted.

Now, she spends her days taking care of her two children and her nights fulfilling hundreds of catalog orders and arranging shipments to retailers, including more than 100 maternity boutiques, hospitals and online stores, most recently

For almost a decade, Corp., led by founder Jack Ma, has been positioning itself at the virtual nexus between China’s manufacturing juggernaut and buyers around the world who want its low-cost goods. Charging manufacturers to promote their products and services to customers on its site with English-language listings, it now dominates China’s business-to-business market. World-wide, it is the most visited import/export site, according to Web-site tracker Alibaba is about to take a major new step.

Today, Alibaba Group, its parent company, which is 39%-owned by Yahoo Inc., is expected to officially announce the initial public offering of to Hong Kong retail investors. The IPO is expected to be the biggest ever by a Chinese Internet company, raising as much as $1.3 billion, with trading in Hong Kong set to begin early next month. With a collection of online businesses, Alibaba Group has made headlines as one of the few Chinese Internet companies with a global profile.

Mr. Ma has expanded Alibaba Group to include, an online auction site that has overtaken eBay Inc. as the market-share leader in China, and online payment and software operations. Two recent additions to the group are Alimama, an online marketplace for Web publishers and advertisers, and Koubei, a classifieds site of which Alibaba Group owns 53%. These other operations aren’t part of the IPO.

In 2005, Yahoo paid $1 billion for its stake in Alibaba, and it turned over control of Yahoo’s Chinese operations to Mr. Ma.

Based in the eastern city of Hangzhou, near Shanghai, gets the bulk of its revenue from small and midsize Chinese manufacturers who pay to join the site. The company helps them post listings that include descriptions of their products, contact information and, in some cases, videos showcasing the suppliers’ factories. Buyers also can post their requests for products in the “buying leads” section. Yu Xuehui, owner of heater manufacturer Ningbo Jasun Electrical Appliance Co., says Alibaba helped take his business to a new level. While he had to rely on outside firms to sell his products in the past, and mostly did domestic orders, he now has relationships with clients around the world. “I knew I wanted to export but had nowhere to start,” Mr. Yu says. Since joining the site six years ago, he says his annual revenue has increased by $1.3 million.

According to a copy of the preliminary IPO prospectus reviewed by The Wall Street Journal, Alibaba’s revenue in the year’s first half was 957.72 million yuan ($127.6 million), 61% more than the same period last year. It has about 24.6 million registered users, and, since it began charging for some services a few years ago, has amassed more than 255,000 paying members. Net profit this year is expected to more than triple, to $83 million.

But as Alibaba has expanded, so has its exposure to problems from counterfeiting to product safety. In its preliminary prospectus, Alibaba acknowledges that in providing a way for importers and manufacturers to communicate online, it risks listing tainted products and counterfeits. “We anticipate . . . that certain items listed on our marketplaces infringe third-party [intellectual property] rights or that suppliers list products and services that are substandard or potentially controversial,” it says.

The nonprofit International Anticounterfeiting Coalition says it considers Alibaba to be a platform for counterfeits. One of its members, Rob Holmes, CEO of LLC, a private investigator that specializes in helping brand owners identify violations of intellectual-property rights, says Alibaba is “a major thorn in the side” of his clients. Manufacturers peddling counterfeit products use the “buying leads” section as a way to find customers, Mr. Holmes says.

Another problem: Some suppliers who have legitimate contracts with apparel brands covertly produce unauthorized lots of the products and sell them on Alibaba, Mr. Holmes says. “I would say about a third of the product on Alibaba is gray market, easily,” he says.

The company declined to comment because it is in the quiet period before its IPO. But Alibaba says on its Web site that it regularly cooperates with intellectual-property-rights owners, industry associations and government agencies to fight against violators. ” respects intellectual property rights and we expect our users to do the same,” the statement says. In general, it is the responsibility of Alibaba users, and not the company itself, to comply with intellectual-property-rights laws. According to a Goldman Sachs report, the company takes down nearly 100 listings per month in response to patent and copyright complaints. Goldman is a lead underwriter of the IPO, along with Morgan Stanley.

Alibaba was founded in 1999 by Mr. Ma, a former English teacher from Hangzhou, and the company has grown to more than 6,000 employees.

Thousands of small- and midsize business owners recently came to a gathering called Alifest, an annual bazaar arranged by Alibaba to bring its clients together. Sebastien Breteau, CEO of Asia Inspection, says he lists his services on so that buyers can pay to have their manufacturers inspected for safety and compliance or for quality control.

Meanwhile, Ms. Ivanov is expanding her brand to include other maternity apparel. “Because of Alibaba, housewives can make something of themselves,” she says.

Marketers Explore New Virtual Worlds: Some Create Own As Second Life Site Loses Some Luster

October 23, 2007

Marketers have figured out they need to get their own lives.

A year ago, online virtual world Second Life was being hailed as the next big digital-marketing phenomenon. But it has begun to lose some of its luster. Put off by high costs and uncertain returns, marketers who had rushed to establish a presence in the three-dimensional online computer game are beginning to look elsewhere. Some are trying other virtual worlds with names like Gaia Online, Zwinktopia, Stardoll and Habbo. Others, particularly in the entertainment industry, are creating their own virtual worlds that fans visit via a brand’s Web site.

“This is now a category rather than a single phenomenon . . . . We’ve moved beyond just Second Life,” says Reuben Steiger, chief executive of Millions of Us, a Sausalito, Calif., company that builds campaigns for marketers in virtual worlds. Ad-holding giant Omnicom Group recently took a significant minority stake in Millions of Us, citing expectations that consumers increasingly will tap the Internet via virtual worlds.

Take, for instance, television network CW’s new drama “Gossip Girl,” about prep-school students living in Manhattan’s Upper East Side. To promote the show, CW’s half-owner, Time Warner’s Warner Bros., worked with Millions of Us to build a virtual Upper East Side neighborhood, where users can shop on Madison Avenue or see the school that characters from the show attend. The world, which just recently opened, uses the same underlying technology as Second Life, but visitors enter through the “Gossip Girl” Web site.

The shifting sands of virtual reality show how hard it is for marketers to keep pace with fast-changing consumer habits on the Internet. Second Life, where visitors use special software to create digital alter egos, looked like an ideal world for marketers a year ago. Consumers on the site were paying real dollars in exchange for virtual goods and services. Advertisers had been caught by surprise by the popularity of social-networking Web sites like MySpace and Facebook, and didn’t want to miss out again.

“There is always this pressure of saying we weren’t early enough on MySpace. We weren’t early enough on Facebook . . . . Suddenly there is this herd mentality and people are doing it because they feel like if they are not there they are missing out,” says Marc Schiller, chief executive of digital-marketing shop Electric Artists.

Companies ranging from Coca-Cola and Anheuser-Busch to Kraft Foods and Nissan showed up on Second Life with virtual marketing campaigns. Retailer American Apparel built an outlet selling virtual clothing mimicking the apparel it sells in the real world.

But despite intense media attention, Second Life has failed to draw significant amounts of traffic. The number of U.S. unique visitors to the site who used the software application that’s necessary to interact in the virtual world numbered 235,000 last month, according to comScore Media Metrix, compared with 207,000 in March. In comparison, IAC/InterActive’s Zwinktopia registered 4.4 million unique U.S. visitors last month, while Ganz USA’s Webkinz registered six million unique visitors.

Marketing executives who’ve spent time on Second Life say the need to download special software, and difficulties in getting around in the virtual world, were off-putting. (Some virtual worlds, such as Second Life, require software downloads; others don’t.)

Furthermore, executives said that there wasn’t enough to do in Second Life. “I’m like most people with Second Life. I became a member to check it out and never went back,” says Eric Hirshberg, chief creative officer of Interpublic Group’s Deutsch LA.

Digital-marketing executives say they had a hard time justifying the tens of thousands, or sometimes hundreds of thousands, of dollars needed to build and maintain a campaign in the virtual world when there were few ways to measure return on investment. The result: Some marketers are retreating. American Apparel closed its virtual shop. Other marketers simply abandoned their promotions or stopped putting money into their Second Life installations.

Chris Collins, chief aide to the CEO at Linden Lab, which owns Second Life, says that marketers need to understand the Second Life community in order to create successful campaigns. “A year ago the book on how to market in a virtual world was completely blank,” Mr. Collins says. “What is starting to happen now, is that the first couple chapters of how to market in a virtual world are starting to be put into place.”

Indeed, marketers are continuing to experiment with virtual worlds — but on a wider range of sites. To promote its Summer Slam pay-per-view wrestling event, World Wrestling Entertainment launched its first virtual-world promotion on Gaia Interactive’s Gaia Online, a community site with anime and videogame discussions, among other features. Gaia Online registered 1.3 million unique U.S. visitors last month, according to comScore Media Metrix. Five days before the Summer Slam event, “bad guys” from the WWE showed up and took over the site. During the week, Gaia users “fought off” the bad guys. WWE says it was pleased with the campaign and plans to continue marketing through virtual worlds.

“People have been ignoring the fact that there are 12 other virtual worlds out there that have hundreds of thousands of visitors,” says Jonathan Nelson, special adviser to Omnicom CEO John Wren. “My bet is this stuff is here to stay.”

Source: Wall Street Journal

‘Web 2.0’ Deals Spread Beyond San Francisco

October 19, 2007


Venture-capital investment in so-called Web 2.0 companies, generally ad-supported Web sites in fields like social networking or blogging, is showing signs of maturity, with deals spreading outside the San Francisco Bay Area, according to new data released Monday.

The Bay Area, known for producing some of the most high-profile Internet companies, exploded last year with $413.7 million over 69 rounds of financing, which easily trumped any other region in the U.S. or overseas. However, in the first half of 2007, venture capitalists invested just $90.5 million in 25 rounds there, according to data from Dow Jones VentureOne and Ernst & Young LLP.

Meanwhile, New England topped the Bay Area in dollars with $102 million in the first half, over 10 deals, compared with $62 million and 12 deals in all of 2006.

Overall, the research showed that investors directed $646.2 million into 101 deals world-wide in the first half of the year, a 6% increase in investments over the same period in 2006, amid a rising interest in Web 2.0 in Europe and Israel. U.S. investments were virtually unchanged from the first half of 2006 with 67 deals and $357 million invested.

The data show that $52 million was put to work in 20 European Web 2.0 deals in the first half, roughly double the deals and investments seen in the same period last year. Israeli Web 2.0 companies raised $15 million in five deals in the first half, up from two deals and $5 million invested in all of 2006.

Investment in Web 2.0 start-ups has skyrocketed in the past two years as inexpensive technology has made it easier for people to communicate through the Internet.

“If you’re a venture guy, there are few areas you can look now and find an equally attractive place to put your money,” said Scott Raney, partner at Redpoint Ventures, Menlo Park, Calif. “You can’t beat an investment of $5 million in a company that could get acquired for hundreds of millions.”

Mr. Raney said companies better understand how to monetize the Web and are moving on from building a Web property — like a social network that attracts a particular demographic — to building a Web business that knows how to deliver targeted advertising to that demographic.

Meanwhile, valuations for Web companies continue to rise, a worrisome factor for venture capitalists in a much-hyped market. Mr. Raney said investors are split on whether it is best to invest in an unproven company at a low valuation or invest a large chunk of money at a high valuation in a company that is already gaining traction.

Source: Wall Street Journal


Social Networking for Private Companies

October 19, 2007

If you aren’t a public firm, you’re likely in a financial black hole — with no way compare your results with the competition. You might think a 10% increase in revenue is great, but rivals might be posting 20% growth.

A company called iLumen Inc. aims to lift the veil by creating an online community where private companies can disclose their data anonymously and see how they stack up against others. On Tuesday, iLumen will introduce a social-networking component to its Financial Information Network for participants to get feedback from advisors and peers, as well as information from blogs and surveys.

Three major banks, including Wachovia, have signed on to contribute with the hopes that their advice will lead to new business for them. Businesses that join the network ($40 a month or $395 a year) might get their credit worthiness assessed by banks or a CPA firm might identify tax and accounting issues.

Of course, this service will only be useful if there are enough firms inputting honest data. So far, that only totals about 12,000 — and it’ll take more advisors to make the price tag pay off.

Still, iLumen’s efforts bolster the niche networking opportunities that are flourishing online for small businesses, from LinkedIn, StartupNation, and Prosper to last week’s launch of Bank of America’s small business forum. The trick for firms is picking the right posse.

Readers, What are the best online networking opportunities for private companies?