As we wind down the first month of 2012, I thought I’d take the pulse of some of the bigger technology companies around town. In addition to tracking startups and entrepreneurship, this is an important measure of the health and well-being of the Boston tech community.

So here’s a list of 10 well-known public companies, their stock price (as of Friday’s close), most recent financials, and other tidbits. Not comprehensive, of course. But of these firms, you might be surprised whose stock is the highest right now.

Most of these companies will announce their end-of-year financials in the next two weeks…

Akamai (NASDAQ: AKAM)
Stock price: $32.01
2011 stats: Q3 profit of $63M on $282M in revenue; coming off $1B+ revenue in 2010.
Recent news: The company has acquired rival Cotendo and is positioning itself as a platform for businesses to reach customers via Web, mobile, and cloud.
Big question: Why doesn’t Akamai own the cloud (like Amazon)?

Carbonite (NASDAQ: CARB)
Stock price: $10.30
2011 stats: Q3 revenue of $15.9M (net loss of $7.4M); will announce full-year stats on Feb. 9.
Recent news: Coming off its IPO in August, Carbonite is adjusting to life as a public company.
Big question: Is online backup a big enough growth market?

Constant Contact (NASDAQ: CTCT)
Stock price: $25.11
2011 stats: Q3 revenue of $54.3M ($5.4M profit); full-year stats coming Feb. 2.
Recent news: Constant Contact is moving into mobile/social rewards programs with its acquisitions of CardStar and Bantam Networks.
Big question: Can it make a full transition from e-mail to broader online marketing?

EMC (NYSE: EMC)
Stock price: $25.83
2011 stats: Full-year revenue of $20B ($3.4B profit), showing record growth.
Recent news: CEO and chairman Joe Tucci isn’t stepping down this year as planned. (Pat Gelsinger is rumored to be his successor.)
Big question: What is the ultimate future of EMC? In storage, big data, and cloud computing, as EMC goes, so will Massachusetts.

iRobot (NASDAQ: IRBT)
Stock price: $32.88
2011 stats: Q3 revenue of $120.4M ($14.1M profit)
Recent news: iRobot laid off 8 percent of its staff in October but continues to grow.
Big question: Will consumer robotics ever really take off?

LogMeIn (NASDAQ: LOGM)
Stock price: $41.51
2011 stats: Q3 revenues of $31M ($4.4M profit); full-year stats coming Feb. 15.
Recent news: LogMeIn has been expanding to new devices, markets, and geographies.
Big question: Is this still a lifestyle business?

Monster.com (NYSE: MWW)
Stock price: $7.35
2011 stats: $46M profit on roughly $1B revenue, compared to a $9M loss in 2010.
Recent news: Monster Worldwide had layoffs and is restructuring as it continues to expand globally and move into social/mobile technologies.
Big question: Is there a better job site out there?

Nuance (NASDAQ: NUAN)
Stock price: $27.91
2011 stats: Q3 revenue of $400M, and $1.4B revenue for the fiscal year ($38.2M profit).
Recent news: Nuance acquired rival Vlingo in mobile speech recognition; mobile/consumer and healthcare continue to be its biggest markets.
Big question: Can it compete with the big boys (Apple, Google)?

TripAdvisor (NASDAQ: TRIP)
Stock price: $31.24
2011 stats: $3B+ market cap. Year-end stats coming Feb. 8. (2010 revenue of $486M.)
Recent news: After spinning out of Expedia last month, TripAdvisor is New England’s biggest consumer Web company.
Big question: Will it outcompete Google and others in travel search and content?

Zipcar (NASDAQ: ZIP)
Stock price: $16.14
2011 stats: Small profit in Q3 on $68M revenue. Full-year revenue expected to be 240M+ with net loss in $10M range (tune in Feb. 14).
Recent news: Coming off its IPO last spring, Zipcar has been expanding carefully in Europe and on U.S. college campuses.
Big question: Can it reduce costs enough to make a real profit?

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It’s a question as old as human nature. You’ve heard the stories, you know all the famous examples. Steve Jobs, Larry Ellison, Michael Eisner, the list goes on. All difficult characters with strong personalities—and hugely successful companies.

So, in today’s ultra-competitive tech and business world, does a CEO have to be an asshole to be successful?

First of all, let’s get our terminology straight. There’s no hard and fast definition of the term, but you know it when you see it. Bullying or backstabbing behavior towards subordinates or partners? Check. Public humiliation of employees? Sure thing. Tantrums, abrasive language, egomania, and other unprofessional displays? Yep. (See a related Xconomy story about bad bosses.) But more subtly, there’s stuff like not returning messages, passing people off to underlings, talking way too much, and saying different things to different people. And more generally, not caring what other people think. Which, of course, can also be a very good thing.

Some months ago, a group of prominent Boston-area tech CEOs discussed this question of “assholicism”—rhymes with Catholicism—at their regular meet-up. Some may have felt they should be tougher leaders or negotiators. Some wanted to pick up management tips and strategies. Others were reflective about their own styles that have served them well. So…is it necessary to be a jerk? Apparently the discussion took all day (and even came up in multiple meetings).

The upshot: Yes, a CEO has to be somewhat of a jerk to succeed. At least, it can be helpful—but there were plenty of caveats.

“It was concluded on some level that this was the case,” says Dave Balter, the CEO of BzzAgent (owned by Tesco’s Dunnhumby), who was part of the group. “But there was a huge amount of debate and not everyone agreed.”

One of those dissenters would be Brian Halligan, CEO of HubSpot, the fast-growing marketing tech firm. Reached by e-mail, Halligan said that being a jerk “used to work” for leaders, but that “it is not acceptable today.”

His main reasons—neither of which I would call deeply fundamental to human psychology or the nature of leadership—are that “smart GenY-ers don’t put up with that stuff,” and that corporate information flow and reputations have become more transparent, so CEOs can’t get away with bad behavior anymore. It “used to be that information was centralized at the asshole,” he writes.

I also pinged Brad Feld, the tech entrepreneur-investor, while he was in town. He was unequivocal that good leaders don’t have to be jerks. “Some of the sweetest people in the world are super successful CEOs,” he says.

So perhaps there are deeper trends at work here. … Next Page »

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War really is going out of style.

At least that’s what Joshua Goldstein, professor emeritus of international relations at American University, and Steven Pinker, a psychology professor at Harvard wrote in a New York Times op-ed piece last month.

Throughout the editorial, Goldstein and Pinker dissect the meaning of “war” today, its various categorizations, and the reasoning behind their sentiment that war has become passé. Among other rationales, the piece cites a lack of monetary gain as a key contributor, as the financial cost of war overshadows any acceptable gain:

“For centuries, wars reallocated huge territories, as empires were agglomerated or dismantled and states wiped off the map. But since shortly after World War II, virtually no borders have changed by force, and no member of the United Nations has disappeared through conquest.”

But is war really going out of style, or is the way it’s fought being changed?

As I wrote in a recent Threat Geek post, war is being redefined, not replaced. The battle for land in previous times has now translated into a fight over intellectual property, with nation states attempting to steal from each other using advanced, targeted cyber attacks. It’s not that war is passé, it’s that the landscape has changed. Land is no longer the primary motivator in global conflict, as the value of intellectual property has become, in many ways, priceless—just think of what China would pay for Pfizer’s next groundbreaking drug before it hits the open market.

Instead of bullets on battlefields, wars are being fought with keyboards over networks at a fraction of the price.

And it makes sense, doesn’t it? Why risk billions of dollars engaging in combat with a nation when you could steal their most valuable assets with the click of a mouse? Why thrust your country into global negative light, when you could be a faceless enemy attacking from thousands of miles away?

The perception that the United States has not been attacked by a foreign government since Pearl Harbor is false. Thousands of times each day, nation states like China and Russia are engaging in cyber warfare, trying to deploy advanced persistent threats (APTs) over American networks to gain access to our most crucial information. The United States has always been upfront in flexing its military muscle as a deterrent against potential threats, but when it comes to our capabilities in a cyber war, we have been secretive.

Maybe that’s about to change.

Recently, four-star General James Cartwright (a retired vice chairman of the Joint Chiefs of Staff) went on record as saying the United States needs to be more upfront about its cyber capabilities.

“You can’t have something that’s a secret be a deterrent. Because if you don’t know it’s there, it doesn’t scare you,” said General Cartwright.

It’s hard to argue with his logic of letting the world know of our offensive capabilities or employing a strong defense as a way to defeat cyber attacks. If a country is going to take a shot at U.S. interests, they are going to get hit back. Hard.

This is where Fidelis Security Systems and several other security companies can help to deal with these types of advanced persistent threats on a daily basis. In a way, network security companies are becoming the defense contractors of the future. What Raytheon and Lockheed-Martin were to the aerospace industry throughout the 1980s, has now been transferred to our shoulders. We can’t win the war for you, but we can equip you with the best weapons to help fight in the cyber war.

General Cartwright estimated that it could probably take hackers two to five years before they had access to disable a large percentage of the banking industry or the U.S. electrical grid. Even a smaller attack could undermine confidence in financial markets. It would appear to me that these threats are cyberspace’s version of the Cuban missile crisis.

Doesn’t sound like war is going anywhere, does it?

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There’s been very little change in top-level internet domains (like .com, .org, .us, etc.) for a long time. But a number of years ago I started thinking about the possibility of having a new .data top-level domain (TLD). And starting this week, there’ll finally be a period when it’s possible to apply to create such a thing.

It’s not at all clear what’s going to happen with new TLDs—or how people will end up feeling about them. Presumably there’ll be TLDs for places and communities and professions and categories of goods and events. A .data TLD would be a slightly different kind of thing. But along with some other interested parties, I’ve been exploring the possibility of creating such a thing.

With Wolfram|Alpha and Mathematica—as well as our annual Data Summit—we’ve been deeply involved with the worldwide data community, and coordinating the creation of a .data TLD would be an extension of that activity.

But what would be the point? For me, it’s about highlighting the exposure of data on the internet—and providing added impetus for organizations to expose data in a way that can efficiently be found and accessed.

In building Wolfram|Alpha, we’ve absorbed an immense amount of data, across a huge number of domains. But—perhaps surprisingly—almost none of it has come in any direct way from the visible internet. Instead, it’s mostly from a complicated patchwork of data files and feeds and database dumps.

But wouldn’t it be nice if there was some standard way to get access to whatever structured data any organization wants to expose?

Right now there are conventions for websites about exposing sitemaps that tell web crawlers how to navigate the sites. And there are plenty of loose conventions about how websites are organized. But there’s really nothing about structured data.

Now of course today’s web is primarily aimed at two audiences: human readers and search engine crawlers. But with Wolfram|Alpha and the idea of computational knowledge, it’s become clear that there’s another important audience: automated systems that can compute things.

There are product catalogs, store information, event calendars, regulatory filings, inventory data, historical reference material, contact information—lots of things that can be very usefully computed from. But even if these things are somewhere on an organization’s website, there’s no standard way to find them, let alone standard structured formats for them.

My concept for the .data domain is to use it to create the “data web”—in a sense a parallel construct to the ordinary web, but oriented toward structured data intended for computational use. The notion is that alongside a website like wolfram.com, there’d be wolfram.data.

If a human went to wolfram.data, there’d be a structured summary of what data the organization behind it wanted to expose. And if a computational system went there, it’d find just what it needs to ingest the data, and begin computing with it.

Needless to say, as we’ve learned over and over again in building Wolfram|Alpha, getting the underlying data is just the beginning of the story. The real work usually starts when one wants to compute from it—so that one can answer specific questions, generate specific reports, and so on.

For example, in our recent work on making the Best Buy product catalog computable, the original data (which came to us as a database dump) was perfectly easy to read. The real work came in the whole rest of the pipeline that was involved in making that data computable.

But the first step is to get the underlying data. And my concept for the .data domain is to provide a uniform mechanism—accessible to any organization, of any size—for exposing the underlying data.

Now of course one could just start a convention that organizations should have a “/datamap.xml” file (or somesuch) in the root of their web domains, just like a sitemap—rather than having a whole separate .data site. But I think introducing a new .data top-level domain would give much more prominence to the creation of the data web—and would provide the kind of momentum that’d be needed to get good, widespread, standards for the various kinds of data.

What is the relation of all this to the semantic web? The central notion of the semantic web is to introduce markup for human-readable web pages that makes them easier for computers to understand and process. And there’s some overlap here with the concept of the data web. But the bulk of the data web is about providing a place for large lumps of structured data that no human would ever directly want to deal with.

A decade ago I suggested to early search engine pioneers that they could get to the deep web by defining standards for how to expose data from databases. For a while there was enthusiasm about exposing “web services”, and now there are all manner of APIs made available by different organizations.

It’s been interesting for me in the past few years to be involved in the emergence of the modern data community. And from what I have seen, I think we’re now just reaching a critical point, where a wide range of organizations are ready to engage in delivering large-scale structured data in standardized forms. So it is a convenient coincidence that this is happening just when it becomes possible to create a .data top-level domain.

We’re certainly not sure what all the issues about a .data TLD will be, and we’re actively seeking input and partners in this effort. But I think there’s a potentially important opportunity, so I’m trying to do what I can to provide leadership, and further help to accelerate the birth of the data web.

[This post also appears on Stephen Wolfram's blog---Eds.]

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A lot has happened in the technology world in the past year. So let’s take a minute to reflect on the defining moments of 2011 and where we stand now, as a local tech community with increasingly global impact.

This is by no means comprehensive, or even a summary of the most important stories of the year. It’s just a select few of the biggest highlights and lowlights, organized in spaghetti western fashion (cliché alert).

The Good: Oracle Buys Endeca

Some might argue this wasn’t necessarily “good” for the local tech scene, but Oracle’s $1B+ purchase of Cambridge, MA-based Endeca, the enterprise search and business intelligence firm, was one of the biggest deals of the year, and was kept under wraps pretty well. It will be interesting to watch whether Endeca’s technology and talent give Oracle a leg up in its competition with IBM, SAP, Microsoft, and Google. Endeca, which started in 1999, stands as a testament to the notion that billion-dollar tech companies can be built—and are being built—in Massachusetts. (See Acme Packet, Progress Software, Wayfair, and others on their way.)

Honorable mention: Carbonite, TripAdvisor, and Zipcar each went public with successful IPOs in 2011. That’s three more publicly traded tech companies in Boston that seem to be thriving in a tough market. Who will join them in 2012?

The Bad: RSA Gets Hacked

No one would argue this isn’t bad—and not just for local companies. In March, RSA Security reported a data breach involving its authentication products, which are widely used by big companies and government agencies. The Bedford, MA-based division of data storage giant EMC said it had … Next Page »

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[Editor’s note: As a New Year's exercise, we asked a select group of Xconomists to answer this question: “What’s the craziest idea out there that just might succeed?” ]

After nearly twenty years of failed attempts, I’m still a believer in the potential transformative power of the “crazy idea” of alternative Internet payment systems, particularly micropayment engines and alternate currencies.

Payment systems are simply mechanisms to streamline and calibrate the exchange of value. It’s easier to assess the relative worth of cloth from India and tobacco from America if you can translate both into standardized European coinage. Modern payment systems also provide simplicity and security through the use of trusted third-party settlement agents such as banks and credit card associations. But none of these mechanisms are built into our DNA, and there’s no reason to think that today’s systems are the final word.

In fact, the Internet brings with it the potential for so many innovative payment mechanisms as to threaten chaos. This chaotic prospect, combined with the inherent conservatism of payment system users and the understandable desire of payment providers to protect their turf, has so far doomed nearly every new payment system enabled by the Internet. The few exceptions—most notably PayPal—have survived in large part through a strong alliance with the existing players in credit cards and banking. PayPal is (like First Virtual before it) largely a security-conscious overlay on the existing credit card and banking systems.

That kind of limited innovation is more than enough for the powers that be—the large financial players who are more interested in maintaining their near-monopolies than in enabling new kinds of economic activity. Not surprisingly, however, the interests of the banks and card associations are not necessarily in sync with those of the rest of us.

From Digicash to Cybercash to BitCoin, there have been plenty of demonstrations of the technical feasability of alternative Internet payment mechanisms. And in the physical world, alternative currencies such as Ithaca Hours have hinted at the potential for a community to revitalize itself by taking control of its own money supply. In times of economic hardship like today, the poor and unemployed have traditionally reverted to barter to exchange goods in the absence of currency, but those transactions have been limited by geography and personal circles of trust. With Internet-based alternative currencies, however, … Next Page »

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‘Tis the season to reflect on the past year and take a look at some of Xconomy Boston’s top stories.

As usual, these aren’t necessarily the highest-traffic stories (though in some cases they are). They are stories that exemplify what we are trying to deliver to our readers every day—narratives about the people, companies, and ideas that are shaping the future of technology, life sciences, and cleantech in our region, and across the country.

It was very hard to pick just 20 stories, like I usually do. I guess that’s a good thing. So I fudged it and actually picked slightly more—a dozen tech stories, and a dozen life sciences and cleantech stories.

In any case, our editor’s picks for 2011 span the fields of software, mobile, Internet, security, health IT, biotech, life sciences, energy, and hardware/materials.

They range in topic from people stories (Adriana Jenkins, Steve Jobs) to company strategies (Acme Packet, Vertex) to trends and analysis (big data, biotech risks); from universities (Harvard accelerator) to startups (MedicalRecords, Harvest Power) to big companies (IBM, Pfizer, Biogen Idec); from Q&As (Rob Day, Jim Baum) to company profiles (EnVivo, MC10) to news features (testing the nation’s first car collision-avoidance system); and from big community projects (Entrepreneur Walk of Fame) to cheeky area clusters (top 10 “boring” tech companies).

Here they are in their full glory, our top 20-ish stories of the year, sorted by sector:

Top 12 Tech Stories

Adriana Jenkins, Boston Biotech PR Maven, Dies from Breast Cancer at 41

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Stephen Wolfram is not one to be summed up in a few pithy quotes. Well, too bad.

Here is his life in a nutshell:

“I grew up in England and went to all sorts of good schools that I thought were completely irrelevant.”

“By the time I was 20 years old, I was a physics faculty member at Caltech, and I was building a big software system that was a forerunner of Mathematica.”

“Along the way, I learned a lot about what not to do in starting a company.”

“For about a decade I was almost a complete recluse, running the company from a distance, and spending every night working on basic science.”

“I don’t really have a boss. I just do what I want to do. The trick is not to have a private company that gets too weird and too pathological.”

That was a sampling of what the distinguished and controversial Wolfram had to say at our Xconomy Forum in Boston last week, called “6×6: Six Cities, Six Big Tech Ideas.” For those who don’t know, he is the founder and CEO of Wolfram Research, the creator of Mathematica and Wolfram Alpha, and the author of A New Kind of Science. He is also a recently minted Xconomist.

Wolfram, 52, set the table for the theme of our event, which involved some of the biggest ideas in technology and business from entrepreneurs and executives around the country. As only he could, the physics and software guru reflected on his 30 years in the tech industry and his contrarian approach to running big projects and building companies.

A few things really stood out to me in his talk. One was the importance of making mistakes early in his career. While at Caltech in the early ‘80s, Wolfram got into a “grisly early-IP-meets-university” battle over his software tools, he said.

“I ended up deciding I had to start a company around the software system I’d built, and of course I was just a physics kid. I didn’t know anything about starting companies,” he said. “I made lots of mistakes, like not running the company myself, hiring a CEO who was twice my age, and so on. The company quickly started doing things that I thought were silly and boring. In the end, after many trials and tribulations, it did in fact survive and finally went public and was gobbled up by bigger fishes.” (You can read more about his first startup, Computer Mathematics, which was venture-backed and later merged with Inference, here.)

Another thing Wolfram figured out early on was that university work was not for him. After spending time at Caltech and the Institute for Advanced Study in Princeton, NJ, he started a research center at the University of Illinois at Urbana-Champaign to study complex systems and complexity theory. “My plan A was to get lots of other people to help work” on the implications and applications of his findings, he said. “It was OK, but it was really slow. I got kind of frustrated and needed a plan B,” he said. “My plan B was to build … Next Page »

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I read the book and found it quite enjoyable.

And with all due respect to Eric Ries and all of the VCs out there chasing lean startups, I recognized one simple truth. I still like my startups Phat.

A phat startup aims to solve a very big, very difficult problem that will transform an industry. They typically take many millions, or even tens of millions and 1-3 years to get the first product out the door. They are big ambitious bets on deep technology and market transitions that are difficult to predict. They require invention and problem solving and risk, yes risk. They are a venture in the true sense of the word.

But my goal is not to dismiss the good ideas in the Lean Startup bible. There are many, but some simply don’t apply.

For example, in Phat startups, the challenge is not whether customers will want it (or whether you need to pivot or iterate or some other euphemism). The challenge is whether it can be built in the first place—will it work at all? Will it perform to spec? Will it scale? Will it be reliable? Can it be manufactured? Will it hit the price point?

Very frequently, the last question is whether customers will buy it. I know this sounds “unconventional” and decidedly old-school, but in many of these cases, if you CAN build it, they WILL come.

Why? Because phat startups often address problems that simply can’t be solved any other way, and customers are in dire need of solutions—from cancer treatments to robots for bomb disposal to switches capable of handing exponential growth in mobile data.

And that’s why, once the product is proven, phat startups have been many of our region’s, and our country’s fastest growing and biggest winners. All of these were $1B market cap companies:

*These are my estimates based on VentureSource.

And there’s a new generation of New England companies following in their footsteps:

Demandware (on-demand e-commerce), QD Vision (display color enhancement), 24M (grid storage), 1366 (direct solar wafer), Plexxi (10 GB networks), Affirmed (4G Mobile), Actifio (secondary storage), Qualtre (smartphone components), Xtalic (electronic components), Akiban (scale out databases).

But a key question comes to mind: Are phat startups riskier than lean startups? It depends how you measure risk.

One of the great virtues of lean startups is that they … Next Page »

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His last name means “forest” in Norwegian. Which is appropriate, because this guy sees the forest for the trees.

David Skok of Matrix Partners is one of the most talked-about venture capitalists in town, among young entrepreneurs and experienced ones alike. He is best known for his investments in JBoss, the open source middleware company (acquired by Red Hat for $420 million in 2006); AppIQ, the network and storage management firm (bought by HP in 2005); Diligent Technologies, a data protection company (bought by IBM in 2008); and CloudSwitch, a cloud infrastructure startup (acquired by Verizon this year). He currently serves on the boards of tech companies such as HubSpot, CloudBees, Digium, Enservio, and Solidworks.

Critics say he hasn’t had a big exit in a while. Supporters say he has a real knack for building companies and getting them acquired for good prices—and that what he touches often turns to gold.

Whatever you think of him, Skok has carved out a reputation as a hard-working investor with both technical expertise in business software and a deep understanding of sales and marketing from a customer’s perspective. For the past decade, he has been a general partner with Matrix. But when I sat down with him recently, I was more interested to hear about his previous life as an entrepreneur and five-time CEO, and how that shaped who he is today—both the decisions he makes as a VC, and the kind of mentorship he provides to startups.

It’s not quite Batman Begins or Casino Royale, but here is the David Skok origin story—and its lessons—in three parts.

Act I: A New Hope (Software)

The story opens in Johannesburg, South Africa, where Skok was born to an English mother and Norwegian father. His parents didn’t want him to grow up with apartheid, so they sent him to school in England, where he lived from age 8 to 20, in London. From there he went to college at University of Sussex, where he was part of the first class of graduates in England to be awarded computer science degrees. That was 1976.

His father made him come back and join the blue-collar family business, which involved machining equipment. He went to apprentice training school and survived his first week when all the tough guys tried to haze him. By the end of the course, he knew how to use a new tool for machining parts that followed a program stored on punched paper tape. The problem was, if there was a tiny error in the tape, the part would be ruined and “you’d have a huge wreck on your hands,” he says.

So Skok wrote a piece of software to get around this. “If you designed the part on the computer, you’d be able to do the machining without worrying about the geometry,” he says. That led him to start his first company, Skok Systems, which became a computer-aided design (CAD) firm.

“I’m accidentally an entrepreneur,” Skok says. “I didn’t plan to be an entrepreneur, I didn’t have any training in it, I didn’t have any mentors to turn to to teach me how to be an entrepreneur. I’m trying to figure out all the sales and marketing stuff that’s going on.”

The company went through a few shifts, but the pivotal moment happened in … Next Page »

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[Editor's note: Cross-posted from The Economist, 11/2/11]

New York Mayor-entrepreneur Michael Bloomberg, not known for shyness, recently proclaimed New York City as America’s new entrepreneurship capital, roaring past Boston in venture capital and soon to leave Silicon Valley in the dust as the “go to” destination for entrepreneurs. Indeed, the world media are awash with proposals to kick start entrepreneurship as a strategy for economic revival, with support for venture finance at the heart of many programs. Yet the title of Harvard’s Josh Lerner’s recent book, “Boulevard of Broken Dreams,” is no coincidence, because proclamations are one thing, actual success is quite another.

Fortunately, there is a lot of experience around the world about what works and what doesn’t. Here are some practical principles that the Babson Entrepreneurship Ecosystem Project have been identifying and developing for public leaders who have, correctly in my opinion, identified entrepreneurship as an essential plank in economic policy.

1. Be clear that the objective is to foster an entrepreneurial finance ecosystem, not to directly provide capital to entrepreneurs. Over time, a healthy entrepreneurship ecosystem makes available capital to ventures that deserve it, while denying it to ventures that do not. This does not mean that governments need to revert to selecting the deserving. This idea has regained currency recently, but we learn time and again (Solyndra anyone?) that it does not work. It does mean that the availability of capital, and other resources, needs to be part of a natural process in which the ecosystem elements—in this case, deal flow and capital—continually evolve and adjust to each other, a concept that is consistent with Smith’s “invisible hand.” But the concept goes further by suggesting that enlightened and skillful leadership can play a critical role in encouraging the evolution of a self-sustaining ecosystem, but leaders have to understand how and when to get in, and how and when to get out.

2. Stimulate financing, but stay off of ventures’ balance sheets. Presence of government and government-owned entities as direct debt or equity holders of ventures should be a red flag. The only reason government should be on a venture’s balance sheet is in the rare case when it is absolutely necessary to entice private, profit-oriented entities to get involved as the natural selector of investment targets, and in those cases, government should have a clear plan to get out. Governments can, as have Israel, Finland and some other countries, provide smart, off-balance sheet funding in the form of repayable grants, matching grants and so forth. But presence on ventures’ balance sheets ultimately leads to a conflict of interest between governments’ social priorities and obligations, and the need to provide a positive return to invested capital. Overall, there is evidence that a moderate amount of this kind of financing can be beneficial, but as it gets to be too great, the benefits rapidly turn into liabilities.

3. Make sunset clauses for financial support programs the rule, not the exception. Permanent, or evergreen programs of government-supported venture capital, loan guarantees, startup grants, angel tax credits and so on, risk becoming white elephants and/or political assets, not economic ones, and in the process risk squandering public funds. Sunset clauses, or “sell-by dates,” help focus policy-implementation programs on (a) achieving results, and (b) creating self-sustainability by building capacity and mutually reinforcing systems (for example, by showing private sector players that they can actually make profits.)

4. “Pulse” incentives to foster discovery. An implication of sunset clauses, in general, is that if providers and consumers of risky capital can “discover” that it is profitable to engage, then they will accelerate self-interested behavior when the “visible hand” is removed. Seeing if providers and consumers of entrepreneurial capital “discover” the correct pricing mechanisms to allow them to engage in a profit-seeking transaction is one test as to whether the problem is really a market failure or not, and is not just … Next Page »

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It’s getting tiring to hear that the United States can’t. Can’t innovate anymore. Can’t create jobs. But if you look around Massachusetts I think you’ll come to the conclusion that if anyone can, it’s probably people under 30 (plus or minus).

I’m sitting in an old mill building in Holyoke. There are almost 100,000 students centered up and down the Connecticut River Valley. There’s a conference going on called Idea Mill on entrepreneurship and innovation. Brendan Ciecko, Ben Einstein, and his friends who created this event believe they can catalyze a reinvention of this place. They’re under 30. They probably can.

On October 24 MassChallenge, the globally encompassing, Massachusetts-centric $1 million startup competition and accelerator will have its final event. If you look around the room that night you’ll see hundreds of young entrepreneurs who believe they can do a startup in Massachusetts and create jobs and innovation.

My organization, the National Collegiate Inventors and Innovators Alliance, is thrilled that three of the MassChallenge finalists are ventures started with our grants.

Therapeutic Systems is working to shift the daily experience of people with autism with its sophisticated but discrete pressure vest that provides a “hug-like” sensation to the wearer. Brian Mullen believes he can not only make a cash positive business but get through the medical reimbursement process as a young entrepreneur and manufacture the product in Massachusetts. He’s under 30. He probably can.

SmarterShade is developing a product to electronically darken a window with the flip of a switch. Will McLeod has never moved an innovative product from prototype to manufacturing to product. But he’s under 30. He probably can.

Finally, Sanergy thinks they can transform the sanitation system in extremely poor neighborhoods in Kenya and throughout the world. They’ve got one of their pay toilets in operation. In a week or so they’ll have 10 times that. By early next year hopefully 10 times that. Can David Auerbach and his young team create a profitable global business based on people paying a few cents per use? They probably can.

Those of us who can no longer even fake that we’re young have increasingly despaired for the trajectory of this country in recent years. Who’s going to create the jobs and the Next Big Thing? Show up at an event like Idea Mill or MassChallenge and you’ll quickly run into the people who can.

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[Updated 10/14/11. See below] And then there were 26. Startup teams competing for $1 million in cash prizes, that is. Welcome to the final stage of MassChallenge 2011.

MassChallenge, for anyone who doesn’t know, is a Boston-based startup accelerator program now in its second year. It may very well be the world’s largest incubator of its kind. The nonprofit program and business competition kicked off in May with an announcement of the 125 finalist teams (out of 700-plus entrants). After a three-month mentorship program, it is now down to 26 teams who are giving their final pitches this week. The whole competition culminates in an awards ceremony on October 24.

The goal of MassChallenge is to spur Boston-area innovation by attracting entrepreneurs and connecting them with peers, mentors, funding, and other resources. It’s one of several big efforts to rally the local startup community and make it more competitive as an innovation hub. “We are on the verge of a renaissance,” MassChallenge CEO John Harthorne told me earlier this year.

If this year’s crop of finalists is any indication, the program has become more effective at engaging founders, connecting them with mentors, structuring their mentorship, and generally managing and communicating the logistics of such a huge (and hugely ambitious) program. Startup founders I talked to in recent weeks said the program was “really well organized” and that there was “nice camaraderie” amongst the teams. That seems to have helped them with the difficult work of early-stage company building.

“Technically I’m pretty strong, but I’ve never run a startup before,” says Bruce Robie, the founder and CEO of ARO Medical, one of the final 26 teams, based in North Andover, MA. ARO has developed an implantable device to help stabilize the spine of back-surgery patients.

Robie credits MassChallenge with improving his pitching skills and introducing him to key advisors. “Working with our mentors was a really positive thing,” he says, and “each brought a different perspective”—whether it was how to talk with potential partners or how to brand the product. “I’m an engineer by training, so my ability to name stuff is not going to set the world on fire,” he says.

Roy Rodenstein, the co-founder of Cambridge, MA-based SocMetrics, another finalist, says, “I’ve been very impressed this year. Last year was pretty good, but it was the first year. It’s progressing well as far as the level of support.” Rodenstein, who served as a mentor in the 2010 program, adds that “the quality of companies is up a bit,” similar to the recent trend for other incubators like Y Combinator and TechStars.

Several other finalist teams say the program helped provide the foundation and … Next Page »

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“We’re not social media investors,” says Scott Maxwell. And I like him already.

Maxwell is the founder of OpenView Venture Partners. The Boston-based VC firm is different from a lot of its peers in that it doesn’t typically invest in early-stage startups or late-stage growth companies. Instead it specializes in something in between, what it calls “expansion stage” deals: OpenView’s sweet spot is investing $5-15 million in tech companies that are making $2-20 million in annual sales and are wanting to get to $100 million in revenue, he says.

As Maxwell suggests, OpenView’s sector focus is less on social technologies, and more on the less flashy but highly lucrative fields of business software, cloud computing, and software as a service. The firm does look at consumer technologies, he says, but so far it has invested only in business-to-business companies. “You can invest in aspirin, vitamins, or endorphins,” Maxwell says. “A lot of [social media] is investing in endorphins. We’re much better at aspirin.”

OpenView has been around since 2006 and focuses on companies that are building their customer base in North America. The firm grew out of Maxwell’s experience at Insight Venture Partners, which he joined in 2000. Long before that, he was an MIT PhD in mechanical engineering and an MIT Sloan School MBA. He spent the ‘80s doing technology development at a couple of California startups, and the ‘90s working in financial services.

As he explains with his VC hat on, the expansion stage is the “best risk-return investment. It’s a really good point to invest. The expertise you need is unique compared to early stage or later growth stage.” The great majority of companies OpenView invests in are already “successful, chugging along, and growing nicely,” he says. (It’s still a bit early to talk about the payoff though—more on that below.)

Back in the summer, I talked with Maxwell (see photo, left) in depth about OpenView’s approach to investing in and supporting mid-stage tech companies—a stage that seems sorely lacking in capital, given the glut of seed- and early-stage investments being made out there. We also talked about broader trends in cloud computing, mobile software, and the Boston-area technology ecosystem. I wanted to relay some highlights here that have stayed with me.

But first, let’s address the b-word. When we spoke, in early August, there was a lot of talk about a new tech bubble, especially around early-stage companies. Maxwell was prescient in his response to my query. “I haven’t take a bubble bath in a long time,” he said. “There are lots of [kinds of] formations of bubbles. Sometimes they get bigger and slowly dissipate, or they get really big and pop. I think bubbles pop when everyone is all-in. When all the money is in, it has to come out.”

Maxwell contrasted the market dynamics with the original dot-com bubble. “By the time we got to ’99-2000, everyone who was going to be all-in was all-in,” he said. “My sense is we’re not there yet. We’re in an inflated state, but for me it feels tempered.”

With that in mind, Maxwell said, OpenView’s “philosophy is to keep building the … Next Page »

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Is there anything worse than a Silicon Valley VC coming to Boston to poach talent from the startup ecosystem?

OK, that’s not really what Greg McAdoo is about. The Sequoia Capital partner was in town last weekend, in part for the Startup Bootcamp event at MIT (and related meetups), which featured talks by a number of founders backed by Sequoia, including Drew Houston of Dropbox (an MIT alum), Paul English from Kayak, and Nathan Blecharczyk of Airbnb.

McAdoo is a busy guy, serving on the boards of Airbnb, Bump Technologies, Clustrix, Greplin, Loopt, Achates Power, and other firms. He has been with Menlo Park, CA-based Sequoia since 2000 and is involved with the Y Combinator seed-stage startup program. He was also involved with Sequoia’s investment in Isilon Systems, now part of EMC, the whole story of which we know well.

We met for coffee on Saturday, and I got a download of McAdoo’s thoughts about the startup ecosystem and what he was hearing from local entrepreneurs—ideas on everything from smartphone security for enterprise to the prospects of nuclear fusion for energy production. I also took notes on his advice to entrepreneurs (which I found particularly insightful), and some important trends in consumer-tech and cleantech startups in Boston, New York, San Francisco, and beyond.

While Sequoia isn’t about to open an East Coast office, McAdoo says, there is certainly enough going on—think raw talent, ambitious entrepreneurs, and a few company investments—to draw its partners out here regularly.

Here are some highlights from our chat:

Xconomy: People talk about the consumer tech ecosystem, or lack thereof, in Boston and other cities vs. Silicon Valley. But you’re telling me there’s a bigger trend going on than whether or not we have enough role models here.

Greg McAdoo: There are a host of applications that appeal to folks that live in dense urban centers. The big shift is towards a startup community in urban centers. That, by the way, affects the San Francisco Bay Area every bit as much as the New York metropolitan area or the Chicago area. Whereas the suburbs of the Bay Area have a very well established startup community, I think everybody’s on equal footing to some degree in that major urban centers don’t really have that startup community. They used to many years ago.

If you wanted to get a consumer Internet startup off the ground in 1995 or ’96, you needed to have fabulous product sensibilities and a wonderful front end engineering and design team. But if you were building anything at scale you also had to have some hardcore technologists in the back end and be able to rack and stack servers. Fast forward to 2011, and much of that back end expertise is provided by service providers—cloud guys like Rackspace or Amazon. Also some of the hardcore back-end technology is open source software now. So you don’t have to worry about being in SoHo in New York and trying … Next Page »

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Between the FutureM conference, Web Innovators Group, Mobile Monday, the Entrepreneur Walk of Fame, and the MIT tech festival t=0, there wasn’t a lot of time for Boston techies to breathe last week.

To keep you up to date, here are some high-level takeaways from FutureM, the sprawling MITX event that was really 50-plus separate events, focused on the future of marketing—and with a lot of Boston-area companies represented. This is just a small sample of what I saw and heard from a few panels and gatherings:

1. Ad tech sucks. For consumers, that is. Lots of startups and big companies are trying to make it suck less. That was the message from Sim Simeonov, the entrepreneur and angel investor behind Shopximity, a young Boston-area startup that’s trying to improve consumers’ shopping experience using display ads.

2. The frontiers of mobile marketing are automation, engagement, and transparency. Automating the marketing process is key in a world of near-unlimited Web content and cheap ad prices. So is getting (and keeping) people’s attention. “The trend we’re going to see is around making it more clear why [a consumer] would want to explore an ad,” said Lars Albright, a veteran of m-Qube, Quattro Wireless, and Apple. (His new startup is called Session M.) It remains to be seen whether a billion-dollar business can emerge from this sector, however. Albright would bet on Apple’s iAd network reaching $1B, while Paul McNulty of IBM’s enterprise marketing division (he’s from Unica) said, “I don’t know if [a marketing automation company] is the horse I’d bet on as the next EMC.” (I took that to mean because there are lots of different companies with complementary strengths, it’s hard to imagine one big category winner.)

3. “California is a one-night stand, while Massachusetts is a long-term relationship.” That was Senator Karen Spilka (D-Mass.) summarizing the views of a panel of entrepreneurs and investors on building companies in the Bay State versus Silicon Valley. “We’re still number one in education,” she said. “And number two in [venture capital] as a small state is pretty good.” (Alas, non-compete laws are also part of the long-term relationship here. Interestingly, Brian Shin of Visible Measures noted that his thinking on non-competes has changed, presumably from positive to negative: it sounds like he originally thought they would be helpful in retaining a core group of top employees in the state.)

4. Diversity in tech is a challenge and an opportunity. Investor Eric Paley of Founder Collective noted that young entrepreneurs in New York and Silicon Valley “can rattle off names of success stories.” Whereas in Boston, people don’t hear much about companies like EnerNOC, Acme Packet, EqualLogic, and Unica, “because we’re so distributed” across different sectors, he said. “It’s the diversity and the modesty.” Case in point: On the panel, Paley asked Brian Shin if he knew of Unica, the marketing tech firm that would be bought by IBM for $480 million last year, back when Shin was starting Visible Measures in 2005. “I didn’t know any company,” Shin said. On the other hand, he said that “because there is diversity, you can find [a mentor] who’s done something big in almost anything you want to do.”

5. Connecting students with startups, perhaps with VC or government support, is key to the state’s tech future. It’s a well-known issue: top kids go to school in Boston and then leave for the West Coast or New York to join hot startups, or they become business consultants. “We should be insanely aggressive about internships,” Paley said, for undergrads, grad students, and MBAs alike. That means championing broad efforts to get young people who are interested in entrepreneurship (there seem to be more and more lately) to work at local companies for the summer. That echoes something Jon Pierce told me a few months ago: “Working at a startup is the best education you can have as an entrepreneur.”

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If the ads on the websites and in the apps you frequent disappeared tomorrow, would you miss them? Can you think of any specific sites or apps, other than search, where introducing ads improved user experience?

I happened upon these questions a few days ago while preparing the opening remarks for a FutureM event my startup, Shopximity, organized here in Boston. I was surprised I couldn’t think of any examples. I asked my co-workers. I asked friends who were website publishers, mobile app developers, and adtech execs. They could not think of any examples either. Then it hit me: display ads are not just content. Display ads are bad content.

This year in the U.S. advertisers will spend $24 billion on display ads. Two hundred advertising intermediaries, which control hundreds of thousands of servers and manage petabytes of data, will deliver 5 trillion mostly irrelevant ads that will reduce the user experience of 215 million people on average 16 billion times per day. Never has so much computing power been applied with such disastrous effects. It’s time we do something about it.

Most ads don’t deliver value, which is why six in 10 people surveyed by AdWeek actively ignore them. Average click-through rates (CTRs) have dropped in half from the small 0.2% in 2007 to the dismal 0.09% recently, as reported by DoubleClick. Some choose not to see ads altogether: AdBlock has more than 20 million active users. To deal with this, rather than improving user experience, the display advertising industry is waging a war against consumers. In the words of Seth Godin, “Advertisers distract users; users ignore advertisers. Advertisers distract better; users ignore better.”

More intrusive ad formats and more sophisticated targeting risk alienating users and further eroding their trust. The poor user experience of display advertising is an externality that ultimately hurts publishers and advertisers. They, and not the invisible ad intermediaries, have the relationship with users and to them accrues the good will and wrath of users also. I shudder to think how much worse user experience could get when the display ad industry reaches the $50 billion mark in 2-3 years. The vicious cycle has to end. We have to stop talking about display advertising being relevant and valuable and actually make it so or stop doing it.

Dozens of startups, Shopximity included, have taken on this challenge and are re-thinking display advertising using better ad formats, effective yet respectful targeting, and cooperative ways to engage users. In fact, not a single company presenting at the Mobile Marketing Frontiers event I am leading on Wednesday morning is doing traditional display advertising. The event will be a great chance to see what’s next in marketing. The same is true of many other FutureM events, which is why I’m so excited about this week. If you haven’t registered for FutureM, now is the time to do it. (The discount code “Shopximity” will save you 20%.)

For the display advertising players, the message is simple. You are at a Darwinian moment. You have forgotten that the user is ultimately in control. It is simply not OK to operate in a manner that is net-negative to user experience. Own up to your responsibility and figure out how to deliver valuable and contextually relevant ads. Hurry, because the startup across the street is a year ahead of you.

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Another Boston-area software startup has been snapped up by a West Coast power. Sunnyvale, CA-based TeleNav (NASDAQ: TNAV), a location-based services firm, said today it has completed an acquisition of Boston-based Goby, a local and travel search startup that has recently focused on mobile apps. Terms of the deal weren’t given. (The news was buried on the Friday before Labor Day, which makes people wonder how good an outcome it is.)

“The team here will continue, and we will be adding more people,” says Mark Watkins, Goby’s co-founder and CEO. Ten employees of Goby are joining TeleNav and staying in Boston, he says. Watkins, a veteran of Parametric Technology and Endeca, will have a new title at TeleNav: general manager of entertainment content.

Watkins didn’t comment on how good a deal it is for Goby and its investors. (The company raised $7.5 million from investors including Kepha Partners and Flybridge Capital Partners.) He stressed that the acquisition is “a good fit” and that the two companies have “complementary applications and audiences.” He also said his team will continue to support the Goby apps (for iPhone and Android devices), which help consumers discover events and activities near them.

Meanwhile, TeleNav is known for its GPS-based navigation applications that compete with Garmin and TomTom; the firm’s mobile apps have about 24 million subscribers. Watkins’s team will be working on new projects for TeleNav, but the companies aren’t saying much about that yet. We can surmise that it will be about generating and organizing location-based content on mobile devices, though.

Goby started in 2008 as an activity search engine with “deep Web” technology. Watkins told me back in May that the startup was pursuing a couple of revenue models based on advertising, and was looking to raise more money later this year. Whatever the terms of the TeleNav acquisition, they must have outweighed the prospect of raising more venture money to acquire more customers.

“The biggest challenge for us has always been, how do we get to scale? We’re coming up on a million downloads, but the mission is how to get to tens of millions,” Watkins says. “It’s a real challenge to reach a massive scale of audience, to build any type of consumer business.”

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The world of mobile software applications has evolved so rapidly in the past couple of years, it will make your head spin. One guy whose head isn’t spinning, though, is mobile-app veteran Greg Raiz. In fact, he is probably doing the spinning for everyone else.

Raiz is the founder and CEO of (aptly named) Raizlabs, a Brookline, MA-based mobile development shop that started in 2003. The company is known for developing mobile apps and doing consulting and design work for a lot of startups and big companies, especially in the Boston area—RunKeeper (FitnessKeeper), Intuit, Rue La La, and Sermo, just to name a few.

Earlier this month, Raizlabs rolled out its first software-as-a-service offering, called AppBlade. (The name is meant to connote a Swiss army knife.) The suite of tools helps developers distribute their apps to customers and helps them keep the apps secure and updated after crashes, as well as providing insights into how people are using the apps, among other things, Raiz says. The project grew out of “gaps in the workflow” at Raizlabs, he says. The goal over the next six to 12 months is to transform it from a host of app-development tools into a “robust platform,” Raiz says.

“It’s a startup within a startup,” he adds. “We’ve been incubating this idea for the past year.”

The idea, as I see it, is that every company and its brother wants to have a mobile presence. But developing a good business app is just the beginning—getting the app into the hands of a company (and its customers) requires making connections in a half-dozen places, and that can be very challenging for developers. So Raizlabs wants AppBlade to be a hub for all things mobile development. “We’re trying to centralize the experience,” Raiz says.

To that end, the firm is looking to solidify its partnerships with many businesses, some of which are working to extend the software service further into areas like app testing, analytics, financial reporting, and advertising metrics.

In recent years Raizlabs has been doubling in size every 12 to 15 months, Raiz says. Right now it has 14 full-time employees. The company overlaps a bit with Boston-based Apperian and a number of other firms looking to provide a unified software platform for creating, deploying, and managing enterprise mobile apps.

I asked Raiz, a former Microsoft program manager, for some broader trends he’s observed over the past year, and how that bodes for the future. “Companies you would not think of as mobile, or having a mobile app, have taken a much stronger position,” he says. “We’ve seen mobile going into the mainstream of business.” (He cited some New England firms with a national presence like Kayak, TripAdvisor, Monster.com, and Fidelity.com.)

What’s more, he says, “mobile sales professionals are replacing laptops with the iPad as a key sales tool.” So companies are getting custom applications built for tablets, he says. And emerging in the next year or so, will be “synergy between mobile and Web,” he says. As Raiz puts it, the first generation of mobile apps were useful on their own, but the second generation will “tie into Web services” and push data back and forth between platforms. (This echoes some recent analysis from wireless guru Tom Huseby on how “mobile is going towards the Internet,” instead of vice versa.)

Raiz, like most observers, is also interested to see how the Google-Motorola merger plays out. “We’re seeing a clash of the titans where companies that were very large in mobile, like Nokia and RIM, are getting displaced by Android and Apple and other companies like HP,” he says. Companies are “making their move and figuring out how to position themselves.”

Bringing it all back to what AppBlade can do, Raiz says: “It’s the right beginning of a story of how we understood the mobile ecosystem. We are able to build tools to help other people build applications.”

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OK, I had to ask: Did Ellen Rubin tell Amazon’s Jeff Bezos to piss off?

“No comment,” says Rubin, with a laugh.

We were talking about her startup, Burlington, MA-based CloudSwitch, getting bought by Verizon (NYSE: VZ) yesterday for an undisclosed sum—and being integrated into the New York City telecom giant’s Terremark division. It turns out CloudSwitch had received other acquisition offers earlier this year, Rubin says. Since the startup had developed its software, which bridges corporate computing systems and outside cloud services, to work with both Amazon and Terremark’s clouds, I had to wonder if Amazon (which also has a competing offering) might be a jilted suitor.

Without naming names, Rubin, the co-founder and vice president of products for CloudSwitch, says other potential acquirers would have folded her startup into a technology group, or turned CloudSwitch into a feature, or made it work only for proprietary clouds. Instead, the startup’s software will continue to support Amazon and other clouds in an open arrangement. “The opportunity with Verizon was just different,” Rubin says. “The companies that have bigger global reach are the [telecommunications] service providers.”

CloudSwitch’s entire 30-person team is joining Verizon’s Terremark IT services subsidiary, a 2,500-person organization with offices and data centers stretching from Florida, Texas, and California to Brazil, England, and Turkey. The Burlington office will remain intact and will probably expand, the companies say. Verizon isn’t saying anything specific yet about new hires or headcount, but it clearly values CloudSwitch for its software expertise and leadership, and views the firm as a beachhead for software talent in Boston.

“The goal is to grow this and make this a hub,” says Chris Gesell, Terremark’s chief innovation and strategy officer. “Terremark is a growth engine for Verizon.” Gesell says that from his perspective, CloudSwitch has the “simplest to use, most mature, and most elegant” technology out there among many competitors.

Yet the deal would have been unlikely until recently. In January, Verizon acquired Terremark for $1.4 billion, signaling its big move into cloud-based services. As Rubin and others put it, Verizon is not just a phone company anymore—now it’s trying hard to be about software and services for businesses.

But did CloudSwitch sell too early? After all, this is a three-year-old startup with only … Next Page »

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