Xerox (NYSE: XRX), the document-management giant headquartered in Norwalk, CT, said today that it will buy Affiliated Computer Services (NYSE: ACS), a Dallas, TX-based business process outsourcing firm, for $6.4 billion in cash and stock. The acquisition will turn Xerox—like IBM or Dell—into a hybrid technology and services firm; ACS has 74,000 employees focusing on IT support, human resources, finance, and customer support for clients in government, healthcare, and other industries.

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I spent nine years working for a Customer Relationship Management software provider called Onyx Software. Our CRM systems were (at the time) largely implemented and run on-site at our customers’ locations. I ran the Professional Services team for the Americas—we were responsible for aligning business strategy with our software implementations, conducting business modeling, installing and customizing our software, performing training, and supporting our product.

Today I run Deneki Outdoors, a company that owns and operates fly fishing lodges in Alaska, British Columbia, the Bahamas, and Chile. We’ve got six year-round employees spread across those locations, and 40 folks who work for us seasonally.

What in the world could you learn at an enterprise software company that also applies to a fly fishing lodge business? Here are three big lessons.

—As a small business in 2009, you probably don’t need to own a single server.

Just a few years ago, running sophisticated business systems like CRM, financials, document management, and heck, even e-mail and calendaring, meant buying enterprise software packages, installing them on servers that you own and maintain, and paying a person or a team of people to keep things running smoothly. In 2009, the vast majority of small business functions can be supported by hosted applications that are simple, cheap, and close to zero maintenance.

Our business runs on Google Apps, Salesforce.com, and hosted Quickbooks. Other modern productivity tools like Skype help too, but our ability to run our core business functions on hosted platforms leads to a huge savings for us in terms of time and money. We don’t own a single server. We’ve never had to perform an upgrade. Customization is a piece of cake. Our “core systems” have been down for all of about three hours in the past five years combined.

If you run a small business, let the SaaS [software as a service] folks do the dirty work …Next Page »

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Marcelo Calbucci, the founder of Sampa and Seattle 2.0, announced today his team has launched TweepML, a service and format for Twitter users to share lists of other users quickly and efficiently. The service makes it easier to follow multiple Twitter users at once (at a given company, say), instead of having to find them individually. A number of startups have agreed to support the TweepML format, including Gist, OneRiot, and Gnip.

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Verizon Wireless announced today it has successfully tested its fourth-generation wireless network in Boston and Seattle, by making “data calls” involving streaming video, Web browsing, and file uploads and downloads from mobile devices. Verizon’s technology, called Long Term Evolution, is supposed to be much faster than existing 3G wireless networks, and competes with Clearwire’s WiMax system, which has already launched in four cities (including Portland, OR). Boston and Seattle will be the first cities to deploy Verizon’s 4G service.

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Earth Class Mail, a Seattle-based company that delivers physical mail digitally announced today that it is working with Kansas City, MO-based Perfect Output to create a combined document and mail-processing service. Financial details were not released. Earth Class Mail, which creates digital forms of paper letters and mail for businesses, will provide key technology for Perfect Output’s document-management service.  According to the release, Earth Class Mail’s system saves companies 75 percent on document storage and retrieval costs.

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Times are still tough out there—and maybe getting tougher—despite faint rumblings of an economic recovery on the horizon. In the past two weeks, young startups and big public companies alike have shed workers in layoffs big and small. Here’s a quick recap of the bloodletting in the Northwest.

—Vidoop, a Portland, OR-based maker of online security and authentication software, laid off an unspecified number of staff members this week, according to its blog. The company cited “the current economic climate and its impact on our target market” and a longer sales cycle as reasons for the cuts. In November, Vidoop reportedly laid off nine of its 37 workers. The company moved to Portland from Oklahoma last September.

—Seattle-based TeachStreet, an online community site that connects students and teachers in six metro areas around the U.S., laid off four staff members on Monday. The move, which was first reported by TechFlash, was made to give the startup a longer runway. Dave Schappell, TeachStreet’s founder and CEO, confirmed the news but declined to say how many staff are left in Seattle. (Last August, the startup had about 10 people in its headquarters.)

“These were not performance-related layoffs,” Schappell said. “The world changed since we raised the first round.” Speaking of which, TeachStreet is expected to announce the close of a new funding round in the next week or so.

—Finnish mobile-phone giant Nokia (NYSE: NOK) is closing its office in Kirkland, WA, as part of a strategic shift to streamline investments in its services business. The number of local employees affected has not been disclosed, but Nokia said about 450 staff will be affected globally. The Kirkland office was built around former startup Twango’s mobile-media technology for sharing photos and videos online. Nokia bought Twango for an undisclosed sum in 2007.

—Kirkland, WA-based Pathway Medical Technologies slashed 39 positions (19 percent of its workforce) early last week, as Luke first reported. The move was made because the company didn’t raise as much as it hoped in its most recent venture financing round in March—Pathway brought in just $42.3 million out of the $55 million it was shooting for. Pathway makes a medical device that clears out blockages in leg arteries, but sales in the U.S. have fallen short of projections so far.

—Microsoft (NASDAQ: MSFT), the Redmond, WA-based anchor of the tech community, implemented last week the second round of job cuts it originally announced back in January. About 1,200 workers in Washington state are losing their jobs, and there has been speculation that further staff cuts could be made if the company’s sales figures don’t improve in the coming months.

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Intel and Clearwire are announcing the launch of WiMax, a next-generation wireless broadband service, today in Portland, OR. It will provide high-speed Internet access to laptops and mobile devices across Portland, which is the second U.S. city to deploy the service (after Baltimore, MD). Last month, Clearwire received a $3.2 billion investment from Comcast, Intel, Time Warner Cable, Google, and Bright House Networks.

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Today’s news that Bellevue, WA-based software firm Bsquare (NASDAQ: BSQR) is buying Minneapolis, MN-based TestQuest for $2.2 million has sparked some lively discussion. Bsquare founder and former CEO Bill Baxter, who left the company in 2004, wrote in to say “the investment is not a huge thing for the company” and that “they might benefit marginally,” as long as “they can contain the costs.”

Brian Crowley, Bsquare’s president and chief executive since 2003, has a different take, and called me to make sure he got his point across. “I’m really pretty excited about the deal,” he says.

Some quick background: Bsquare’s strategy since the 1990s was to grow its software services and products together, says Crowley. It peaked with $63 million in revenue in 2001, but that declined to $37 million the following year. “My mandate from the board was ‘Hey, let’s turn this thing around,’” Crowley says. “Let’s do what we do best, which is services, and offer our own products along with it. That’s been our mission for five years since I’ve been CEO.” Last year, Bsquare generated just under $60 million in revenue, with $2.8 million in net income. Through the first nine months of this year, it has reported $48.6 million in revenue and $2.6 million in net income.

Bsquare’s broad strategic goal, as Crowley outlines it, is to bring its products and services to bear on smart devices and help businesses take products to market faster with better quality. “The issue is the increasing complexity of these devices,” he says, meaning getting software to work across different platforms and operating systems, for instance. “We’ve been growing our services practices.”

So what TestQuest brings to the table is “a full, automated test framework,” says Crowley. “You can connect to any kind of device using any kind of operating system. You can verify that the experience the user is having is what you intended. It’s a great fit for Bsquare.”

More specifically, he points to three reasons why the acquisition is a big deal for his company:

1. It could potentially double product sales. Most of Bsquare’s revenues come from the resell of third-party software, Crowley says. Its smallest revenue line is products. Last year it sold about $4.2 million of products. TestQuest also did $4.2 million in sales of its own products, which could be a significant addition to Bsquare’s top-line sales, and bottom line profit.

2. Geographic expansion. “We’re heavily focused in North America,” says Crowley, adding that it’s where 95 percent of Bsquare’s current business is. (Bsquare also sells in Taiwan and Japan.) But TestQuest has “really good, established people and relationships” with customers in China, Korea, Japan, and Europe, he says.

3. Big new customers. “We’ve been super-strong at selling services to OEMs [original equipment manufacturers]. But TestQuest sells to wireless carriers,” Crowley says, including Verizon and Virgin Mobile. Other prominent customers are the U.S. Postal Service and FedEx (for testing field automation applications on devices).

Crowley says the acquisition brings Bsquare’s total workforce to just under 300 people (22 TestQuest workers are joining). “Combining our own capability with TestQuest, it’s a really nice solution for enterprises who want to test devices. Strategically, it’s really important.”

And finally, on the issue of the cost of maintaining the Minnesota office, Crowley says, “We’re pretty low overhead. It’s not a big deal having remote offices.”

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This morning, there was news about Bellevue, WA-based Bsquare buying the assets of TestQuest, a Minneapolis, MN-based mobile software firm, for $2.2 million. It made me think about the strategy behind the deal, and whether it signifies a shift in Bsquare’s business.

So I pinged Bill Baxter, who founded Bsquare as CEO in 1994 and took it public in 1999. Baxter, who left the company in 2004, is now chief technology officer of Seattle-based Cozi (and an Xconomist). He sent me the following insights about the direction of Bsquare (NASDAQ: BSQR) and the significance of today’s deal, in an e-mail:

“The original plan for taking the company public was to focus on increasing the IP portfolio to increase the value per engagement with OEMs [original equipment manufacturers]. We invested heavily in that strategy during the downturn and developed a number of valuable assets. Those assets were to be deployed with our services which included design, development and testing of embedded devices (mobile phones, set-top boxes, etc.). We developed a product called CEValidator which was used to assist us in performing QA [quality assurance] services and then we’d license that product to OEMs at the end of the service engagement, along with other IP.

Having said all that, my departure from the company in 2004 reflected a fundamental change away from that strategy to focus more on the core service business. BSQUARE cut investment in IP and the bulk of revenue shifted towards a service business.

The acquisition of TestQuest (discussions about which started before my departure) is reflective of a continuing focus on delivering testing services. TestQuest offers two things:

1. New technology to automate testing of mobile devices.

2. An existing customer base.

Overall, the investment is not a huge thing for the company. They now have a new office to manage with little or no critical mass. But it was cheap and offers them some benefit. I don’t see how they can sustain the site in Minneapolis. But I do see how they might benefit marginally. It will not change the business in such a way that would make them a more attractive public company. But it should be accretive to the business if they can contain the costs.”

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Bellevue, WA-based Bsquare (NASDAQ: BSQR) announced today it has acquired the assets of TestQuest, a mobile test automation and management company based in Minneapolis, MN. The purchase price is about $2.2 million. The acquisition helps Bsquare, which makes software for smart devices, add new customers in the U.S., Asia, and Europe.

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Collaborative work management—it’s not the sexiest topic, but it’s a big business. Seattle-area entrepreneur Brent Frei estimates that his newest startup, Smartsheet, is the “301st company in the space.” The basic idea is to make software that companies can use to manage team-based projects and keep track of things like workflow, file storage, discussion threads, alerts, and to-do lists. Most companies still use Excel spreadsheets, e-mail folders, and other similar programs to do task-tracking, which can be tedious and inflexible.

Today, Bellevue, WA-based Smartsheet is launching a new tool for small businesses—brokers, consultants, recruiters, and the like—to manage their own teams and services online. But the deeper story of the company goes back a ways, and it holds lessons for other companies in this economic climate in which streamlining management could be the key to survival. “Nobody has created the Google for team-task management,” Frei says. “Someone will figure this out, and when they do…that will really pull a lot of the power away from big corporations and put it in the hands of the productive people in the world.”

In 2005, Frei co-founded Smartsheet with exactly this aim. And he knew a little something about business software and team management. The former Dartmouth College defensive lineman was the founder of Onyx Software, a customer relationship management firm that was bought by M2M Holdings for $92 million in 2006. He did a two-year stint in policy and licensing at Bellevue-based Intellectual Ventures before turning his full attention to Smartsheet last year. The startup has raised more than $4 million from Madrona Venture Group and other investors.

Frei sees the landscape of team management shifting—and that’s where the opportunity lies. “In the work environment, we’ve had outsourcing. The big typical things like research, call centers, or legal language,” he says. “But it’ll happen more and more when two things come to fruition. One, the ability to market your services, like Amazon’s Mechanical Turk. And two, the management once it’s done.” Managing outsourced projects with far-flung teams, he explains, is the “holy grail…People haven’t been able to do it.”

That would include Smartsheet. In 2006, the company launched its first product, but it didn’t catch on. “We collected a ton of data, did lots of user testing,” Frei says. “We learned a bunch of our core concepts were absolutely right, but our product was too hard to use. So we threw it all out the door and spent last year rebuilding the product entirely. Now it’s available with one-third as many features.”

Smartsheet relaunched its software last month, and it targets everyone from marketing managers in Fortune 500 companies to product managers and recruiting managers, to CEOs of 10-person startups. Frei says his company paid particular attention to the structure of people’s work, the order in which teams perform their tasks, and who communicates with whom. Also crucial is that customers who use Smartsheet’s software can work with clients and partners who haven’t adopted it. “We turn what used to be a spreadsheet into a super-collaborative tool,” says Frei.

Frei says Smartsheet has several patents pending around its technology. The company, which has 11 employees, is not profitable yet. Frei’s official title is executive chairman, “which means I work for free here every day,” he says. Looking ahead, word of mouth among small business consultants and gurus in particular areas like virtual assistants and trade-show management will go a long way towards making Smartsheet profitable, he says.

Lastly, I asked Frei about the broader advantages of outsourcing in the current climate—and how that could help Smartsheet. “For businesses, it turns out to be better because they get a better product faster, with no overhead of management,” he says, adding that that’s where Smartsheet’s software comes in. “It’s a good opportunity for small businesses to start out. Companies that are downsizing are going to need specialty services, and will end up outsourcing. There’s high probability that capital investment will contract, so a lot of businesses will look to lessen their fixed costs over the next 12 months. That means primarily people. The potential silver lining is that a lot of those companies will still need specialty services, so super-productive people will have an opportunity to start a business and make more money as a specialty service.”

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Seattle-based Delve Networks, a video management and media platform company, has launched a video-sharing site called TroopTube for U.S. military personnel and their families. Delve partnered with Texas-based Marion, Montgomery to deliver the service as part of Military OneSource, which is run by the Department of Defense.

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Seattle-based HyperQuality, a provider of software and services to improve call centers and customer experience, has secured about $7.6 million of a $12.1 million Series C financing round, according to PE Hub, which cites a regulatory filing. HyperQuality, founded in 2003, has previously raised some $17 million from the likes of Ignition Partners and Miramar Venture Partners.

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GrapeCity, an international software company with U.S. headquarters in Kirkland, WA, announced it has acquired Columbus, OH-based Data Dynamics. Financial terms were not disclosed, but the transition will begin in January 2009. GrapeCity is based in Japan and partners with Microsoft to build software tools and services for businesses.

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Bill McAleer and Enrique Godreau remind me of an old couple. They’ve been through the ups and downs together. They’ve raised three children (OK, venture funds) in the past 10 years. They even sometimes finish each other’s sentences. And together they’ve built Voyager Capital into one of the most forward-looking venture firms in town.

First, some vital stats. Voyager Capital, based in downtown Seattle, has some $370 million under management. It raised its funds in 1998, 2000, and 2007. It does primarily early-stage deals across three main tech sectors: software and services, wireless, and digital media (including e-commerce, advertising, and marketing). It has a satellite office in Menlo Park, CA, and just opened a branch in Portland, OR, last month. Earlier this month, Voyager led an $8 million Series B investment in Los Gatos, CA-based Nusym, which makes software for verifying electronic designs.

I had a chance to sit down with McAleer and Godreau last week to talk about Voyager’s strategy and how it fits in with important trends in the tech industry. They discussed some of their portfolio companies, but they also expounded on the broader theme of “connected computing” (sometimes called ubiquitous computing) and how the Seattle area is uniquely positioned as a tech-business center. They also touched on the effects of the current financial crisis on investment strategy, and how they view the broader future of venture capital.

When McAleer and Godreau co-founded Voyager Capital in Seattle back in 1997, the tech world was a different place. Microsoft still ruled in software. The Web was just taking off, and Google didn’t exist yet. Amazon.com was just two years old. McAleer had come from Seattle-based Aldus (inventor of PageMaker) with a background in multimedia, and had his own firm for three years working with early-stage companies. Godreau had come from Gartner Group and Adobe by way of Xerox PARC; he was an early backer of Seattle-based aQuantive, which had a big IPO in 2000 and was bought by Microsoft for $6 billion last year. “We thought this region would take off as a tech region,” says McAleer.

But there were a number of challenges. “When we first started, it was how to get really senior talent into the city,” says McAleer. “That’s changed a lot. But back in 1997, there were still only a couple of opportunities they could go off to if their startup failed. The cost to build is somewhat less here [than Silicon Valley], so there’s a cost advantage. The other challenge is to attract really top-notch sales and marketing talent. It’s still thin in terms of really qualified marketing people. On the plus side, with the connected computing trend, consumers are leading rather than businesses.”

I’m a technical guy by training, so I wanted to hear more about this trend, and where the Seattle area fits in. McAleer explains connected computing as the “next stage of computing”—the next step in its evolution from mainframes, desktops, and PCs to the Web, Web 2.0, and smart mobile devices. As I see it, the proliferation of smartphones, social networking, and increased connectivity is changing the way people live, and is leading to all kinds of new applications for consumers and businesses. “We’re going through another sea shift in technology,” McAleer says.

He continues, “The unique thing about Seattle is with the software, wireless, and digital media base… eventually we’ll be connecting at all times. Seattle is really well-positioned for the blend of all three… Most other tech areas don’t have the richness in anchor tenants and available talent. When we started investing, you’d see teams from one company. Now you see teams that are from a mix of companies. And around all that has grown up a capital infrastructure, supported by a strong university.”

“This geography happens to have a lot of skills,” says Godreau. “With Linux in Portland, Nintendo and Xbox designed here, network and wireless companies here, and prominent retailers like Nordstrom, Costco, Starbucks. What happens when you combine those elements? You get the computing of the future. That distinguishes us from the Valley, …Next Page »

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Seattle-based RescueTime, a maker of Web-based time management software, has announced it has closed a Series A round led by True Ventures. Several angels also participated, including Tim Ferriss, Mike Koss, Chris Sacca, and Mike Seckler. RescueTime, which got seed funding from Y Combinator, lets you monitor the amount of time you spend on various websites and applications.

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Max Ciccotosto has entrepreneurship in his blood. A native of Italy, his parents ran a business in the old country. While in college at the University of Bologna, Ciccotosto ran a “junior enterprise” company (the system no longer exists in Italy) that handled networking and IT for small companies. He came to Seattle in 1999 to do his master’s in electrical engineering at the University of Washington. Microsoft offered him a job the day after he graduated, to work in the Microsoft Exchange Server division, which develops messaging and collaborative software products.

After six and a half years at Microsoft, the last three in mobile technologies, Ciccotosto decided to go back to his entrepreneurial roots. His eureka moment happened at a Barnes & Noble. He was browsing a book and thought, “This looks good, but can I get it cheaper? And is it the right book [on the topic]?” He realized this sort of thing happens frequently—he calls it “transient wishes,” when you see or hear about something interesting but don’t close the deal then and there, and end up forgetting about it. (I won’t let that happen with Ciccotosto’s recommendation for best Italian food in town, Pian Pianino.) He thought, why not set up a service that keeps track of things you like and might want to buy, and make it social, so your friends and family can be part of it and see what’s on other people’s wish lists?

That’s the idea behind Wishpot, a Seattle-based startup founded by Ciccotosto and fellow Microsoftie Alexis Campailla. Their social-shopping service is coming out of beta in the next few weeks, and is currently available as a browser plug-in and a Facebook application. They already have many thousands of users, says Ciccotosto. Yesterday, I stopped by the new Wishpot digs near Pioneer Square (they moved this summer from Lower Queen Anne) to get more of the company’s story from him.

In terms of getting off the ground, Ciccotosto recalls a pivotal lunch meeting with Seattle-based Alliance of Angels in 2006. Although Wishpot didn’t get capital then, he says, they got “fundamentally solid feedback” and after that their pitch was “20 times better.” “We were two guys from Microsoft, nobody knew us, so they weren’t going to throw money at us,” says Ciccotosto. By early 2007, the startup had a prototype, and in March 2007, they were able to secure seed money from angels. They followed that up earlier this year with a $1 million round led by Monster Venture Partners, with Curious Office Partners and the Italian “startup designer” H-Farm also participating (more on the latter soon).

Ciccotosto showed me a demo of the latest Wishpot features and how it works. The service helps you “discover, save, and share the stuff you want” in an easier way, he says. Going to Nordstrom’s website and browsing some fashionable suits, a Wishpot window pops up, stores a particular suit in his wish list, and allows him to set up an alert when the price drops by a certain amount, or when another store has it for cheaper. But the most popular applications so far, he says, are baby and wedding-gift registries. The business model is based on transactions—Wishpot has relationships with vendors (like Nordstrom) so that when users buy items, Wishpot gets paid.

Wishpot competes with Amazon’s product wish lists—which Ciccotosto points out are not social or interactive—and a slew of startups (mostly from the San Francisco Bay Area) like Kaboodle, StyleHive, and ThisNext. Time will tell which comes out on top, but Wishpot is now up to seven employees and is gearing up for marketing promotions, a full product launch, and international expansion. “With the holiday season coming, we want to make sure we have the right content and the right product in place,” says Ciccotosto.

“I love working on products, that’s my thing,” he says. “Once you’re an engineer, it’s hard not to go back and build things.”

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Why isn’t there free Wi-Fi everywhere? I ask this as I sit in an Espresso Vivace in Seattle, typing away and enjoying free wireless (and a truly terrific latte—easily an 8.5 on the Huang scale). Being new to the city and still in the process of setting up connectivity, I’m acutely aware of any and all hotspots I find.

It seems large-scale municipal Wi-Fi hasn’t fared well lately. Until recently, EarthLink operated networks in Philadelphia, San Francisco, and New Orleans, but it was taking huge losses and had to shut them down. (Turns out the systems were too expensive to install and maintain.)

So I was very interested to hear about the free public Wi-Fi service that switched on yesterday in a ceremony in Harvard Square, one of my old haunts. I always wondered why Cambridge didn’t have its own network—you can sometimes get onto local university networks, but it can be a pain. It just shouldn’t be that hard.

The story of the Harvard project goes back to August 2006. Denise Jillson, executive director of the Harvard Square Business Association (HSBA), says she was walking through Harvard Yard when she bumped into Cambridge city councillor Henrietta Davis, who chairs the council’s cable TV, telecom, and public utilities committee. Davis mentioned that the city was interested in providing Wi-Fi access, primarily for children and families. “There had been some appropriation of money for this project, and I thought, boy, I want to get a piece of that action,” says Jillson.

Easier said than done. A year went by while Jillson worked with the city on the technology and legal ramifications. Meanwhile the technology kept changing, and the city and the association eventually came to the decision that public money would be better spent on Internet access for people living in affordable housing.

So Jillson began looking for an outside engineering company that would help set up a reasonably priced network. Mesh networks tend to be cheaper to build and operate than traditional Wi-Fi networks—instead of costing more than $1,000 per node, mesh-network routers can cost only a few hundred dollars each.

Enter Meraki, an MIT spinoff based in Mountain View, CA, which is backed in part by Google …Next Page »

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