Startable - Healy Jones’ & Prasad Thammineni’s Blog

I’m happy to announce (a bit belatedly) that Pixily is now called OfficeDrop. Changing the company’s name was a pretty big deal, but it has gone smoothly. There is much more to it that just finding a domain that we could purchase and redirecting URLs. The biggest thing for us was getting feedback from customers and getting their buy in on the new name concept. So far so good!

I hope to post on our journey to find a new name soon, but have been so darn busy that I haven’t had a chance!

The smartphone market just got really interesting with the launch of Google’s Nexus phone. Compete just released a great research report on smartphone users’ mobile purchasing behavior. Some of the findings I found interesting:

• iPhone and Android users are more likely to consider making expensive purchases from their phone
• 36% of users check the price of an item they see in a store to find out if it is a good deal - I know I do this!!

Nielsen has a great blog post on smartphones, Droid and mobile applications. Some of the most interesting points they make are:

• Over the next several months at least six new smartphone devices (like Droid) will be released - these devices are going to have large screens, keyboards and a wide array of applications.
• More smart phones are accessing web pages vs. “dumb” phones as of Q3 2009.
• 24% of cell phone sales in Q3 2009 were smartphones; Nielson expects this to jump to 40% in Q4.
• In 2011 50% of all phone sales will be smartphones
• In 2011 120 million mobile users will be on the internet, and 90 million will be watching video on their phone.

It is clear that we are finally reaching that critical tipping point in terms of mobile internet usage. (I guess we were already there, but now even a slow person like me can see it clearly.) But I believe that phones ARE the internet/computer for many people these days, and that there continues to be opportunity developing services, apps and sites specifically designed for these users. The evidence I’ve seen recently speaks to this point; in particular several of the Techstars mobile companies have really had amazing adoption.

Is Droid, for that matter any of these other new smartphones, going to really take on the iPhone and emerge as a real alternative smartphone platform? I understand that iPhone has a real lead in apps, but I don’t think the market is won yet (although I am a pretty happy iPhone user.) Blackberry shouldn’t be forgotten about either, since their market share is surprisingly large and I think grew to 19% of smartphones recently due to their new phones positive receptions. My gut is that at least BB and iPhone are going to continue to gain share real market share. I have no idea how Droid will do, but if it got 10+% market share over the next year or so I wouldn’t be shocked. And I think it might be good for the overall market if 3 competing smartphone platforms all had real volume.

I’m sure everyone now knows that Google bought Admob this Monday for $750 million. This highlights a pretty important topic - beyond the fact that buyers appear to be re-emerging in the technology world. It shows that companies with real traction in quickly growing markets are valuable. I’ve read rumors that Admob had revenues between $50 and $75 million; not too bad for a couple year old company. And real proof that the service and market are real. Large technology players are willing to pay up to establish early dominance in newly forming markets that are strategic to their core mission. It’s not about just the technology - it’s about getting traction. Congrats to Omar Hamoui, the company’s founder who was at Wharton during the first year of my MBA.

Crowd Science has a pretty cool post on research they have done into Twitter usage. One of the most interesting stats I saw was that 41% of Twitter users prefer to contact their friends via social media rather than telephone. As I consider how I interact with a large percentage of my friends, I’d probably agree with that for many of my contacts! Of course, given the mobile nature of Twitter and the increasingly mobile access points for other social media, I sure hope that the cell phone providers are thinking this through and building their networks to support the massive amount of data traffic/the shift to data that is coming…

However, my favorite finding from the study was that 22% of users had at some point posted something via social media that they later regretted.

Vikram Kumar, the CTO of Pixily, recently took a couple of days off and went to the Cape with his wife and two four year olds. Vik is a new buff, always reading news articles and commenting on happening all over the world. But he realized a funny thing on this vacation when he went to buy a newspaper out of a vending machine with his kids on this trip - he never reads physical newspapers anymore. His kids had never seen a real-life newspaper and were totally enthralled by the “big book.” They loved the fact that dad disappeared behind it when he read it over his morning coffee. In fact, they kept requesting over and over that they go buy another one to play with!

How funny is it that someone who reads more news articles than anyone I know never actually reads paper? Newspapers were definitely part of my childhood, but I guess that’s not true for kids anymore!

1. First of all I’d like to congratulate oneForty of TechStars Boston for closing on a seed funding round. There are some other interesting companies in the TechStars Boston program and I’m hopeful that they too will be successful in finding funding to continue to grow their businesses.
2. Secondly, congratulations are in order for the team over at CloudSwitch for closing on a second round of financing recently. Commonwealth Capital has invested capital into the business, shortly after the company closed on an investment from my former employer, Atlas Venture, and Matrix Partners. There is a simple reason as to why this company was able to raise capital so efficiently in such a difficult funding environment. A well-respected founding team led  by Ellen Rubin was joined by John McEleney, an experienced Boston-area CEO. As I’ve blogged about before, team matters when raising venture capital. (I know, I’m pretty much linking to Innovation Economy today. I guess Scott Kirsner is just writing about interesting stuff today!)
3. Microsoft is going to sell Razorfish, according to the Financial Times. Pretty interesting stuff. Razorfish is the “creative” arm of aQuantive… Other online ad technology companies have proven that they don’t need a real ad agency arm to do well in the space (such as Google). So does creative matter for online advertising? Well, beyond the basic idea that more interesting display ads are more likely to get clicked, yes, I think it does. Here’s why: social media is growing in importance in online marketing. I’m not talking about targeted ad campaigns run through Facebook’s ad service, but instead the need to engage customers with interesting messages through Twitter, fan pages on Facebook, via engaging iPhone apps, and in other one-to-many social media services. I think it’s pretty clear that customers are getting really good at cutting out the clutter, but are getting pretty into fun “messages as a game” or “messages as entertainment” type marketing programs. I do not believe that simple mathematical formulas can create solid engagement in these areas yet.
4. Finally, the thing I’ve been thinking about for a while: “The Top 100 Networked Venture Capitalists.” I actually think the title to this Techcrunch article is a bit off, it should be the top networked venture capital firms, but anyways… a while ago some academics parsed venture capital returns by how many other co-investors a particular venture firm invested along side of:

They looked at historic venture returns and found that “better-networked VC firms experience significantly better fund performance,”

But who cares about venture capitalists’ returns. What the entrepreneur needs to think about is which venture capital funds are going to help his/her startup the most. The list presented on Techcrunch is a pretty good indicator of the funds that adopt an aggressive investment syndication approach. As I’ve mentioned several times in the past, syndication is a very good idea. If you are an entrepreneur and you are looking for a list of venture capital firms that you should try to network into, this list isn’t a bad place to start. These are the VCs who have the relationships you will need to find additional capital to support the growth of your company. Your fund raise doesn’t stop after the Series A, and these funds are the best at helping their portfolio companies find their next round of financing.

Matt Greitzer of Razorfish posted a thought-provoking piece on the evolution of the ad agency business last Friday over at MediaPost. In his post, Matt talks a lot about how the ad business was wed to a business model of creative + ad buying, and attempted to add value by its ability to make better (i.e. cheaper via volume-type discounts) ad purchases for their client… and then marked up the ad buys by 15%.

Obviously this model is challenged by online ad networks, where anyone, regardless of their volume, can purchase the same online ad unit at auction for the prevailing price. As Matt says:

In an auction-based environment like search, or the budding ad exchange field, buying clout is meaningless. Creative is still important, but what’s even more important is campaign optimization and segmentation, the effective use of which enables the creation of highly qualified audiences independent of the media on which those audiences are found. The media themselves are now interchangeable (feel free to debate me on this last point). Optimization and segmentation require people and technology, and the relentless downward push on agency commissions causes the agencies themselves to under-invest in both.

This got me thinking. Under-investment in technology may end up killing a number of ad agencies, but the forces that cause this sort of under-investment make a lot of sense when put into the context of the agencies’ business models. They can only charge a certain percentage above the end media buy. Their customers have decent visibility into the markup that any give agency is charging. And there are numerous other providers who could claim to offer a similar other service (in other words, it is a very competitive space.) Where is the ability to charge the customer more for a technology purchase? Or, who within the agency has the power to cut the margin on a particular piece of business to buy technology? I’d imagine that there would need to be a solid mandate from the top…

When technology innovation fails to come from within an industry it is sometimes thrust upon an industry from outside. The Google example is over used to the point of being a cliche, but it is true that the company has really challenged the way advertising works. I’ve very excited to see where the next wave of change in the advertising world comes from. I’m not convinced it will be from the agencies…

The SaaS business model is becoming an increasingly important part of the New England technology landscape. It makes a lot of sense that New England technology companies would lean towards the Software as a Service model, since this area has historically been a strong enterprise software innovation center and SaaS is the new way to sell enterprise software. I’m starting a list of some of the SaaS companies HQ’d in New England, with a particular emphasis on ones serving the small and medium businesses market.

I’m sure I’ve left off quite a few - please email me or post comments below so I can try to get a better running list!!

acquia - Acquia is a commercial open source software company providing products, services, and technical support for the open source Drupal social publishing system. They should soon be releasing “Drupal Gardens,” a software-as-a-service version of Drupal that speeds the design and deployment of Drupal social publishing sites for new, non-technical users including small business owners and web designers. The company is funded by Northbridge and Sigma.

Cloudswitch - Some amazing technologists and executives have come together to help enterprises fully capture the power of cloud computing. (Disclaimer, my former employer Atlas Venture is an investor.) The exact business model hasn’t yet been publicly announced but it has the potential to be big…

Constant Contact - THE email marketing company, CTCT is one of the New England’s better known public software companies. CTCT increased revenues in Q1 2009 to $28.1 million, up 55% from Q1 the year before. Gail Goodman, the CEO, has been a local leader in promoting software innovation by offering her experiences and advice to a number of the up-and-coming younger companies.

Carbonite - Seriel entrepreneur David Friend’s online backup company launched in 2006 and has now backed up over 2.5 billion files. The company is a marketing machine. Carbonite is based in Boston and was originally backed by local angel group CommonAngels.

Gomez - A Lexington based company focused on providing SaaS solutions that help companies develop, manage and test their web sites before and after deployment. Customers include Best Buy, Starwood and Wacovia.

Grasshopper - The company formerly known as GotVMail has served over 70,000 SMB customers, providing voice and voicemail services - all without having raised venture capital. People in Boston need to talk about this company more. Read the rest of this entry »

Has your startup failed before? I don’t mean the exact company that you just founded, but the business idea that you are attacking. It’s not necessarily a bad thing to try to take on a problem that has already gotten the best of other entrepreneurs. Difficult problems can be the most rewarding and can offer great opportunities. But when I was a venture capitalist hearing one of these pitches, it was very frustrating when the founders didn’t realize that there have been other, failed companies in the same space.

If you are pitching something to VCs that has failed before, you need to be able to talk intelligently about what caused the previous failures and how your startup is different. Venture capitalists will want to know that you are aware of the risks in your space and that you are taking intelligent steps to overcome them. Not knowing about other startups that have failed is fine if you are starting a company on your own (I guess), but if you are approaching funding sources you better know if there have been big-time venture funded failures with a business plan similar to yours.

I was always a bit surprised when I knew more about companies that had failed in a space than an entrepreneur trying to pitch me. That really shouldn’t happen. You’d be surprised at how many entrepreneurs present business plans to venture capitalists that have flamed out spectacularly and don’t know it. A little internet research can go a long way, as can some networking in a space before putting together a business plan and starting the fund raising process.

A venture capitalist’s natural response, when hearing about a startup in a space where a number of other venture backed businesses have met an early demise, is to assume that there is something wrong with the particular industry. “It must be a bad market,” goes the typical thinking. Read the rest of this entry »