It wasn’t so much the predictions as the discussion that was most interesting at last night’s annual predictions dinner, organized by the Washington Technology Industry Association. Will Twitter be acquired in 2010, and why? Who will have the dominant cloud computing platform in the next couple of years? What kind of startup are you looking to build or finance, and which areas are you staying away from?

A panel of Seattle-area tech entrepreneurs and investors gamely took the bait and had some lively exchanges over the course of an hour. OK, these guys all know each other, and we’ll take what they say with a grain of salt since it’s a public forum—but here were some of the most interesting points they made. (You can read more comprehensive recaps of the panel on Brier Dudley’s blog at the Seattle Times, and soon on TechFlash by moderator John Cook.)

The panel was split 3 to 2, with the narrow majority guessing Twitter will get bought next year. Andy Sack of seed-stage fund Founder’s Co-op predicted Twitter will make more money than Facebook in 2010 (surprising, given the current disparity in the other direction). Glenn Kelman, the CEO of Redfin, an online real estate firm, said Twitter should charge for search (as it has begun to do in partnerships with Google and Bing). Kelly Smith from Curious Office and the startup Pressplane argued that Twitter could be “absorbed by a big company,” but “it’s going to go nowhere.” By the end of the evening, Sack was predicting that Microsoft would buy Twitter next year.

There was a consensus that 2010 could be a big year for acquisitions. Bill Bryant of Draper Fisher Jurvetson boldly predicted that Amazon will buy Netflix, Blockbuster, and Hulu, while opening brick and mortar “Amazon media stores.” Greg Gottesman from Madrona Venture Group said Cisco might buy EMC (for VMware) and Seattle-based F5 Networks, while Microsoft might buy Research In Motion, the maker of the BlackBerry smartphone. Sack predicted Adobe would pick up Seattle photo-editing startup Picnik. Rupert Murdoch (News Corp.) would buy Seattle’s Cheezburger Network, and someone would buy Redfin.

Looking back on 2009 for a minute, the big deals that were questioned by the panel included Adobe’s acquisition of Omniture (Gottesman said it just didn’t make sense strategically) and …Next Page »

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[Updated 11/16/09 6pm. See below] Microsoft co-founder and renowned technologist Paul Allen has been diagnosed with non-Hodgkin’s lymphoma, a form of cancer, as of early this month, according to an e-mail message sent from Allen’s sister, Jody Allen Patton, to employees of Seattle-based Vulcan and its affiliates this afternoon. The message was sent to Xconomy and other media outlets by a Vulcan spokesperson.

Doctors say Allen has diffuse large B-cell lymphoma, which is a relatively common form of lymphoma, and he has begun chemotherapy, according to the e-mail. The message pointed out that Allen “beat Hodgkin’s a little more than 25 years ago and he is optimistic he can beat this, too.” That form of cancer is different from Allen’s current diagnosis, which is classified as a non-Hodgkin’s lymphoma.

Non-Hodgkin’s lymphoma is an umbrella term for cancers in which white blood cells of the immune system start growing out of control, according to the National Cancer Institute. The disease is the fourth most commonly diagnosed cancer in the U.S. each year, following lung, bladder, and melanoma tumors, according to the American Cancer Society. About 66,000 new cases are expected to be diagnosed this year in the U.S., and about 19,500 people are expected to die from the disease. Diffuse large B-cell lymphoma is the most common subtype of non-Hodgkin’s lymphoma, accounting for 30 percent of all newly diagnosed cases, according to an expert review published by the Lymphoma Research Foundation.

Vulcan spokesman David Postman wouldn’t comment on any specific questions about the stage of Allen’s disease, how early it was detected, whether it is an aggressive or slow-growing form of lymphoma, or where he is getting treatment.

Those questions are key to determining what kind of prognosis Allen has. His form of cancer is generally considered an aggressive, fast-growing lymphoma and requires immediate treatment, according to the Lymphoma Research Foundation’s description, authored by Carol Portlock of Memorial Sloan-Kettering Cancer Center in New York, Julie Vose of the University of Nebraska Medical Center in Omaha, NE, and Bruce Cheson of Georgetown University Hospital in Washington D.C. The first sign is usually when the lymph nodes swell in the neck, armpit, or groin—other symptoms include night sweats, unexplained fevers, and weight loss, according to the summary from Portlock and colleagues.

A common treatment for the disease is a regimen of chemotherapy combined with Roche and Biogen’s targeted antibody drug rituximab (Rituxan), which kills excess B-cells of the immune system. The combination treatment can lead to a cure in a large number of patients. “Even when a cure is not possible, treatment can often keep the disease away for many years,” Portlock wrote.

“Paul is feeling OK and remains upbeat,” the Vulcan message stated. “He continues to work and he has no plans to change his role at Vulcan. His health comes first, though, and we’ll be sure that nothing intrudes on that.”

Here is the Vulcan e-mail in its entirety [added 11/16/09 6pm]:

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To employees of Vulcan and affiliates:

I want to let you know that Paul was recently diagnosed with non-Hodgkin’s lymphoma.

He received the diagnosis early this month and has begun chemotherapy. Doctors say he has diffuse large B-cell lymphoma, a relatively common form of lymphoma.

This is tough news for Paul and the family. But for those who know Paul’s story, you know he beat Hodgkin’s a little more than 25 years ago and he is optimistic he can beat this, too.

Paul is feeling OK and remains upbeat. He continues to work and he has no plans to change his role at Vulcan. His health comes first, though, and we’ll be sure that nothing intrudes on that.

We would ask you to respect Paul’s privacy and not discuss this outside of the office.

If you have any questions, please ask your EC member.

Thank you in advance for what I know will be all your good thoughts for Paul.
Jody

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Kent, WA-based LaserMotive has won $900,000 in a NASA competition to build a small prototype device that one day could help lead to a commercial “space elevator,” a cable that could transport cargo to and from outer space. The news was reported by the New York Times and other outlets. LaserMotive, a laser power-beaming company, is led by Thomas Nugent and Jordin Kare, who both also work with Bellevue, WA-based Intellectual Ventures. The power-beaming project and competition was reported by TechFlash earlier today.

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Search is hot again. Just when you thought Google had it all figured out, the Internet landscape has changed. Microsoft’s Bing has debuted to a generally positive reception, and signaled that the search war is far from over. The rise of Twitter and social media has spawned intense competition in the emerging field of “real-time search.” Advances in semantic understanding of the Web have led to new opportunities in Internet search for startups and big companies alike. Indeed, the world of online information discovery is being transformed dramatically—and much of the action is happening here in Seattle.

So I’m pleased to announce that Xconomy’s next Seattle event, on November 30, will tackle some of the most compelling questions in this exciting field. What are the most disruptive new technologies, interfaces, and business models in Web search? How is the proliferation of social media and smart mobile devices influencing companies’ strategies in information discovery? How should entrepreneurs and investors discern the real problems—and the most promising opportunities—in this industry? What lies beyond the current state of the art in search, and how will the field evolve in the next five to 10 years?

For one evening, we are bringing together some of the world’s experts in search and information discovery—and some of the deepest thinkers in computing, software, and entrepreneurship. This group includes Brian Bershad, Google’s Seattle site director; Harry Shum, Microsoft’s corporate vice president of search product development (Bing); Oren Etzioni, professor of computer science at the University of Washington, the founder of Farecast, and a venture partner at Madrona Venture Group; and Steve Hall, managing director of Vulcan Capital, who has put seed capital to work in a number of intriguing search-related startups, including Evri and Gist.

The moderator of the discussion will be Ed Lazowska, the Bill & Melinda Gates Chair in Computer Science & Engineering at the UW. We will also be adding to the program in the coming weeks with short presentations (“bursts”) from startups working in the search and information discovery space.

This star-studded event will take place on the campus of the University of Washington in Seattle. We’re still finalizing the exact room location, but will keep you updated. I’ll be the emcee, and will be passing around the microphone to elicit a bunch of good questions from the audience, for what we intend to be a highly interactive conversation. We’re looking forward to having a great crowd on Nov. 30.

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Some tech companies seem to be at their best when things are at their worst. Those are the ones you really need to keep an eye on, especially in a recession. Isilon Systems is one of those companies.

The Seattle-based data storage firm (NASDAQ: ISLN) is announcing its third-quarter earnings this afternoon, and it will be interesting to see how well its products are selling across a wide range of industries—everything from movie studios and media companies to financial institutions and biomedical research organizations. I recently sat down with Isilon’s founder and CEO, Sujal Patel, for a wide-ranging interview about the nine-year-old company’s technology and business strategy. It makes for a pretty compelling case study of a tech startup’s growing pains, and how it has bounced back from adversity to become a leading player in a crowded and competitive field.

In case you don’t know all the twists and turns in Isilon’s history, here’s a quick recap. Patel, a former engineer at Seattle-based RealNetworks (NASDAQ: RNWK), co-founded Isilon in January 2001. The basic idea was to provide cheaper and more efficient data storage for companies needing to host or deliver video, music, and other multimedia content that requires a lot of storage space. In his previous role as chief architect of RealNetworks’ media delivery software, Patel had seen many customers struggle to upgrade their storage capabilities. So there was a real problem to solve. But the tech bubble had collapsed, so customers weren’t necessarily in the mood to buy. Patel says he “pretty much timed the worst spot of the decade to start a company.”

What’s more, there were already about 250 venture-funded storage companies out there, Patel says, and about 50 of them sounded just like Isilon. Patel says he built his business plan around solving the specific problem Real’s customers had, and “how that problem would be pervasive across all mid-range to large enterprises over the next decade.” To start with, he set an incredibly narrow customer focus on photo-sharing and streaming media websites, and media companies.

Isilon’s technology approach was to cluster together a large number of storage “bricks”—each one includes disks, memory, processing, and networking—into a single storage unit. It was a novel approach in the field of network-attached storage, which today is a $4 billion industry with big players like NetApp, EMC, and Hewlett-Packard. Isilon’s technology requires solving some very tough software problems, but the payoff is better storage performance that is also cheaper and easier to manage, for companies dealing with huge amounts of unstructured data. “We can build one gigantic network drive, and we can scale it as the customer’s needs change over time,” Patel says.

Venture capitalists were sold. In August 2001, Isilon closed an $8.4 million funding round …Next Page »

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Tech manufacturing exports from Washington state grew for the sixth straight year in 2008, up to $3.5 billion (15th out of 50 states), according to a TechAmerica Foundation report highlighted today by the Washington Technology Industry Association (WTIA). Washington ranked fifth nationwide in consumer electronics exports, which totaled $320 million. The top three tech export destinations for the state were Canada, Taiwan, and the Netherlands. The report did not include software exports.

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The venture capital model is being remade. It must happen from the ground up, via its relationship with entrepreneurs, as Daphne Zohar has previously described here. But it must also happen from the top down, via its relationship with limited partners (the investors in venture funds).

Limited partners in venture capital funds aren’t very happy these days. After a decade of indifferent performance, 10-year returns for venture capital as an asset class are set to turn negative this year when the last of the dot-com exits disappear from the rolls. When that happens, the industry’s main performance peg will no longer hold up the venture capital marketing tent. Limited partners will find it even harder to allocate money to venture capital, and funds will find it more difficult than ever to raise money.

[Editor’s note: This article by San Diego Xconomist Paul Kedrosky continues the thread started last month by Boston Xconomist Daphne Zohar in Venture Model Makeover & Diet Plan---Step One]

Of course, that doesn’t mean that investors should abandon venture capital. There will always be good performance available from skilled investors adept at making early investments in illiquid private companies in emerging growth markets. The venture capital industry is not disappearing, nor is investor interest in the asset class. There is, however, an opportunity for investors to force change on a broken industry— there are specific changes that limited partners should force on partners at venture funds.

One perennial problem at venture funds flows from the compensation system. The standard compensation model for venture capitalists is “2 and 20”: Partners get a management fee of 2% of the assets under management, and then earn 20% (the “carry”) of any investing gains. To understand one reason why that model needs to change, it helps to take a walk through the math. On a $100-million fund, a 2% management fee provides $2 million in annual income for the partners, come good investing or bad. Given a reasonable numbers of partners, associates, administrative personnel, and office expenses, that isn’t anywhere near penury, but it isn’t entirely unreasonable either.

If you scale the fund size up, however, the same cannot be said. A 2% fee on a $500 million venture fund means $10 million in annual fees for the partnership. But you don’t have five times the operating expenses on a $500 million fund that you do on a $100 million fund. Costs go up, but nowhere near that much. What happens to the extra money? It typically turns into higher salaries for the partners, with it being common for senior partners at some of the largest venture funds to receive seven-figure incomes from fees alone. That is, of course, egregious and wrong, enabling partners to become at least moderately wealthy without making a single successful investment. It is a serious misalignment of incentives between limited and general partners.

What is the solution? Rather than shrinking the management fee percentage from 2% to …Next Page »

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Every once in a while, an investment model comes along that turns the innovation community on its head. The venture capital industry, still less than 50 years old, is one example. Now an emerging paradigm called royalty-based financing, applied to early-stage startups, may be another. The approach has its roots in the Boston area, and is starting to generate some serious buzz in the Northwest. If you’re a VC, angel investor, or entrepreneur, it definitely needs to be on your radar.

The concept of royalty-based financing is simple. Instead of buying equity in a young company, an investor agrees to receive a percentage of the company’s monthly revenues—up to a limit of, say, three to five times his or her investment. Instead of waiting five or 10 years for a startup to go public or get acquired, an investor can start seeing returns almost immediately. This approach means investors should be able to fund a much wider range of startups than just those that typically receive venture backing—the ones that have potential to grow huge, fast. The downside is that your returns are capped, so if you do end up backing the next Google or Amazon, you still only get five times your investment back. Meanwhile, for entrepreneurs, it provides startup money without having to give up an ownership stake in the company.

Royalty-based financing is not new, but it’s only been in the past few months that investors around Seattle, including the seed-stage fund Founder’s Co-op, have been openly exploring the model. In New England, a few investment firms are actively using it, led by Lexington, MA-based Royalty Capital Management, Wakefield, MA-based BDC Capital, and Portland, ME-based Rockwater Capital. Harvard Business School professor Clay Christensen (of The Innovator’s Dilemma fame) is a supporter of the model, and views it as disruptive to the venture capital industry.

The idea actually dates back to mining companies getting financed to dig for oil, natural gas, and minerals, and government-funded economic development programs. But it is getting renewed interest from VCs and angel investors who increasingly need returns fast, in a tough climate for exits. Indeed, royalty-based venture financing “has the real potential of becoming a major new sector in the private capital market,” says Arthur Fox, the founder of Royalty Capital Management, who first used the approach with startups in the early 1990s.

Back then, Fox was an advisor to several startups; he’s an MIT alum and was previously an engineer with HP and Westinghouse before co-founding three tech companies of his own. He first tried out the royalty-based idea as a way to get compensated by the companies he was mentoring, instead of taking some stock. He found that this made them more efficient with his time, plus he would get paid every month. So he decided to try out the strategy as an investor. “It changed everything, because the normal criteria in selecting companies as a venture capitalist is a high-growth one,” Fox says. “When you invest in a company, buying stock and equity, you have no way of getting out unless they become significantly large enough to have a liquidity event.” With the new approach, he says, “every month you get a check, and it doesn’t matter if they ever have an IPO, or get bought out.”

Fox’s two previous funds have returned good profits. His biggest win was Andover Advanced Technologies, a multimedia software startup that had no revenues when he originally invested $100,000 in 1993. After two years, Fox had gotten back $125,000 in his cut of the revenues, and he invested in a second round with an angel investor, in which he took some equity. The company (renamed Andover.net) went on to ride the dot-com wave with a successful IPO in 1999, and was acquired for $1 billion by VA Linux Systems in 2000. Fox’s stock ended up being worth $15 million. It’s an example, he says, of how …Next Page »

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For the past three years, Jeff Fagnan of Atlas Venture and Hemant Taneja of General Catalyst Partners have teamed up to hold a charity wine tasting and auction event to raise money for select non-profit groups. This year, the pair tell me, they are going themselves one better—setting up their own organization to more directly advance their cause of promoting entrepreneurship and innovation programs for young people in New England. They’ll do that largely by recruiting help, money, and ideas for spending the money from the technology and innovation community of which they are a part.

The new organization, called TUGG, for Technology Underwriting Greater Good, will be formally launched at the 4th Annual New England Venture Charity Wine Party, which takes place on October 22 at Artists for Humanity in South Boston. Here is Tugg’s mission statement, from its placeholder website (the full site launches October 23), where you can also purchase tickets to this year’s wine event for $150 apiece: “By harnessing the power of the region’s technology ecosystem to source, screen and fund social innovation, TUGG helps young people to realize their full potential through entrepreneurship, education and life experiences. TUGG empowers both the individual and the community to identify important issues and collaborate to solve them.”

Last year’s wine tasting drew more than 250 people and raised $40,000 for Build, a Palo Alto, CA-based non-profit dedicated to helping students start small businesses. Part of what drove Fagnan, Taneja, and Dana Samuels, investor relations director for Atlas and the third Tugg founder, to start their own charity was that Build had intended to open in New England but decided not to, at least for the time being, in part because of the economy. “We feel like New England missed out,” Fagnan says. The trio plan to at least partly fill the void by beating last year’s fundraising by a wide margin. “We raised $40,000 last year, and we’d like to see if we could raise $80,000 this year,” says Fagnan.

Tugg will not be branded as a General Catalyst or Atlas organization. Instead, as indicated in the mission statement, the hope is to involve a host of others in the technology, life sciences, startup, and (especially) venture communities—not just for help in raising money, but in deciding what to fund. “The purpose of this is to be collaborative,” says Samuels.

“We’ve got a really vibrant entrepreneurial community,” and Tugg’s mission is to engage that community in a way that brings both ideas and a sense of ownership in the effort, Taneja adds.

The new organization will not just use its funds for its own programs. Indeed, in some sense, it will act almost as a “fund of funds,” dispersing money directly to various individual programs or initiatives, as well as to other non-profits in the region for them to dispense. “Think of it as almost an open-source charitable foundation,” says Fagnan.

He, Taneja, and Samuels say they hope to fund different innovation initiatives each quarter, supporting anything from a new program for youth entrepreneurship to a trip for inner city students who want to tour Silicon Valley as part of a school project to helping provide materials for a charter school. While entrepreneurship is a big theme they want to promote, Tugg’s activities could involve more general education and life experience programs as well, they say.

It all kicks off at this year’s wine tasting (the wines for the tastings and auction are being donated by producers, distributors, and private individuals). The event will feature five tastings, with two wines vetted at each tasting, says Samuels. One wine will be from the Old World of Spain, Italy, or France, the other from the Americas. In addition, bottles of wine will be raffled off throughout the evening, and the event will also include both a silent auction and a live auction of wines, retail items, or experiences such as special dinners or overnight stays. And after the wine party, “Club Tugg” will open for dancing. “We really want people to think about this as a party,” says Fagnan.

I’ve added Tugg to our list of new 2009 initiatives to help Boston area entrepreneurs.

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The DEMOfall 09 conference, billed as “the launchpad for emerging technology,” kicks off today in San Diego, with company presentations and new product launches officially starting tomorrow morning. The Seattle and Portland, OR, metro areas are well-represented in the mix, with three Seattle-area startups and one Portland company scheduled to present their stuff. That’s all according to VentureBeat, which co-produces the conference.

It’s a big deal in the tech industry, and a great opportunity for a select group of startups. Here’s a little bit about each Northwest company that will take the stage:

—Intelius, based in Bellevue, WA, provides background checks and identity theft protection for consumers and businesses. Back in May, we reported that the company acquired Spock, the Silicon Valley-based people search engine, for an undisclosed amount. Intelius was founded in 2003 and is led by CEO Naveen Jain, the founder of InfoSpace.

—Point of Wealth Systems, based in Portland, OR, has developed a method that allows employees who make their money in cash and tips (waitstaff at restaurants, for example) to deposit their earnings into a secure register for savings, retirement, or investment purposes. Point of Wealth was formed in March 2008 to bring financial services to this new market.

—Symform, based in Seattle, has been honing its cloud data-storage product in beta trials (and a pre-launch version) since the spring. We first profiled the company back in February, and in April, Symform announced it had raised a $1.5 million Series A round from OVP Venture Partners. Its basic idea is to offer cheap, efficient, and secure data storage and backup services to small and medium-sized businesses.

—Enroute, based in Bellevue, WA, is giving a sneak preview of its product—a unified system to help businesses find the most efficient way of shipping packages from A to B. Enroute is one of the finalists from the Zino Society investment forum, which took place last Thursday in Seattle. It is in the running for a $50,000 Zino investment prize, to be announced within the next few weeks.

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[Updated October 5, 2009---see below] Today was a good day for Boston area entrepreneurs, as Polaris Venture Partners announced the opening of a new startup incubation and geek hangout space, Dog Patch Labs Cambridge, which will open next week on Third Street not far from Kendall Square.

Dog Patch Cambridge, which I wrote about earlier today, helps fill a real hole in the Boston innovation landscape. But Polaris it isn’t the only group filling this hole. In fact, the Dog Patch announcement is only the latest in what can be called a mini-explosion of interesting new incubation spaces and programs for entrepreneurs, all of which have sprung up since January, when Y Combinator announced it would no longer spend the summers in Cambridge and would instead stay year round in Mountain View, CA. I’m not saying they all got going because Paul Graham’s famous incubator left town—they definitely didn’t—but Y Combinator’s departure surely influenced some thinking and left a hole that, in the true spirit of innovation, several players likely rushed to fill.

Here’s my chronological tally of new programs, incubators, and investment funds for early-stage entrepreneurs that have opened in and around Boston since Y Combinator announced it was pulling up its Cambridge roots:

—January 2009— Y Combo pulls out.

—February: TechStars announces that it will bring its brand of entrepreneurial boot camp, providing seed funding and mentorship for early-stage technology companies, to Boston. The operation has since set up shop in Central Square in Cambridge, and is having its first Boston investor event tonight.

—April: Mass Medical Angels, a new angel group, forms to invest specifically in life sciences and medical startups.

—April-May: Xconomist Tim Rowe, president of the Cambridge Innovation Center, begins firming up plans for the Venture Café, which according to its Facebook page will be …Next Page »

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The Seattle area is known for its technology giants like Microsoft, Amazon, Boeing, and RealNetworks. It’s also known for its popular tech startups like Zillow, Wetpaint, Pet Holdings (I Can Has Cheezburger), iLike, and Big Fish Games. But there are dozens of other sizable tech companies operating behind the scenes, quietly executing on their vision to change the world. You don’t see these companies mentioned in the media very much. They generally aren’t built on large venture funding rounds, and they tend to be not very flashy. That’s why I call them unsung heroes.

I’m going to point out five of them here. This is not a “Top 5″ list, and it’s not the end of the story—it’s just the beginning. Here are my (admittedly arbitrary) criteria. I looked for privately held companies with tremendous engineering talent and a strong influence on their particular market—proportional to their size and the amount of attention they get. I looked across different tech sectors like Internet, business software, consulting services, gaming, and entertainment. I also looked for companies that have weathered the recession to this point and have kept charging forward. Lastly, I wanted companies that mainstream readers may not have heard about lately.

The problem with a list like this, of course, is that it’s subjective. There are plenty of other companies around town that could be on the list—and I want to hear about those too. But for now, here’s a snapshot of five Seattle-area companies that are quietly delivering the goods:

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Jetstream Software (Kirkland, WA)
Mike Moskowitz, CEO

This 15-year old applications development firm makes software products for big companies and startups alike. Its list of customers includes Microsoft, Intel, IBM, F5 Networks, Captaris, SnapIn Software, HouseValues, and the University of Washington. In fact, if you pick any prominent organization around town, there’s a good chance Jetstream has done work for them. The company has developed tools for Microsoft that shipped with Office and Windows Media Center, for example. And the firm often serves as the entire development team for Web startups, say, that want to create a user interface or product. The 25-person company, largely made up of senior engineers, works on projects across software publishing, …Next Page »

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Think about the technological tools you use most often. For many of us, cell phones and computers rank high up on that list. But these devices are designed with the hearing and sighted in mind, and are constantly evolving, so there are numerous hurdles to clear to make a phone or a computer usable to the blind or deaf.

The University of Washington’s Richard Ladner, along with students in the electrical engineering and computer science departments, is using engineering and computational tools to work on several of these hurdles—and the commercial applications could have far-ranging impact.

“When you think about a person with a disability, such as a blind person, most people think that’s a medical problem,” he said in a recent interview. “Just restoring the human function may be a solvable problem, but probably not for a long time. But maybe there’s another way to get the same thing done, to allow a person to read a book or talk to their family. So thinking non-medically, as an engineer, there are other ways to solve these problems.”

Ladner, who was born to two deaf parents, also believes that technologies developed for the blind and deaf may eventually lead to broader technological advancements—not such a far-fetched idea, as it’s happened before. Mobile GPS was originally developed as an aid for the blind, Ladner said, as was optical character recognition, a technology developed in the 1960s to turn an image of text (such as a photo of a book page) into digital text, which would then be read out loud using speech synthesizers. Now, the same technology is ubiquitous in turning pictures of text into digital text;Google uses it to digitize books.

Ladner used to work on computational theory before shifting to accessible technology in 2002. He and colleague Eve Riskin, professor of electrical engineering, are now trying to take their long-running project on accessibility for the deaf, MobileASL, to the market. This project uses video compression technology to enable signing over video cell phones on low-bandwidth wireless networks (such as those in the U.S.). Currently, deaf people can’t reliably use video cell phones to communicate using sign language, because the videos are too choppy to be intelligible. Ladner and his colleagues are working with UW TechTransfer on commercializing MobileASL.

“We’re trying to get it out and get it in actual use,” he said. “It’s in high demand. I get hundreds of e-mails about it.”

Although designed with the deaf in mind, MobileASL could be used by anyone who wants better quality video phone calls, Ladner said. Bringing it to market is slightly complicated by the fact that …Next Page »

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With just under two weeks to go until Seattle’s first-ever Battle of the Tech Bands, I thought I’d give you a quick preview of the event. It’s all taking place on July 30 at the WTIA Summer Celebration, at the Pyramid Alehouse (registration and ticket info here). The music will start at 6pm, and we’ll stick to a pretty tight schedule.

Five bands will compete for two prizes—Audience Favorite (voted on by you, the attendees) and Most Innovative Band (voted on by the event judges). Each of the five finalists will get a 15-minute set. I’ll follow up next week with a more extensive preview of the bands, but for now you can check out their music on their respective sites:

Afraid of Figs
(representing MorphoTrak and Robert Half Technology)

Between These Lines
(representing Hewlett-Packard)

Indigo Soul
(representing Microsoft and Adobe)

Juda’s Wake
(representing Microsoft)

Lions Ambition
(representing Boeing)

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And last, but not least, we have an honorary sixth entrant that will be there in spirit—that is, unless Paul Allen and Bill Gates decide to drop in for an unannounced set (one can always hope…stranger things have happened. OK, maybe not). It’s the Protingent Man comic, the latest installment of which appears below, courtesy of David J. Locher and Donn Harvey of Protingent Staffing:
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A wise man once told me, “Engineers don’t lie.” So when I wanted to find out the real story behind Bing, Microsoft’s new search engine, I went to Harry Shum. Shum is Microsoft’s vice president of search product development. He runs the engineering team responsible for Bing, among other duties. He was formerly the managing director of Microsoft Research Asia in Beijing, and he’s a Microsoft distinguished engineer. A few weeks ago, he granted a rare in-depth interview about all things Bing. He also spoke publicly about the search effort at this week’s Microsoft Research Faculty Summit in Redmond, WA.

What’s most striking about Bing is how well it has been received so far—especially compared to other recent high-profile Microsoft products (Windows Vista comes to mind). Bing, which was launched in full last month along with a serious marketing effort, has received mostly positive reviews, and has spurred a modest but significant increase in Microsoft’s market share in Web search—8.4 percent in June, up from 8 percent in May, according to comScore.

So a lot has already been written about it, of course. But I wanted to hear from Bing’s head of engineering about the deeper process of building the software, the technology behind it, and the culture of the search group within Microsoft—and, crucially, how its approach is different from other product groups in the company, in terms of the mindset of its engineers. There may be some important lessons in product innovation here.

Shum began with some historical context. Microsoft has been working on its search product for about six years, he said, while Google has been on the case for more than twice as long. Back in the 1990s, top Microsoft researchers like Eric Horvitz and Nathan Myhrvold talked about building a search engine and crawling the whole Web (only tens of millions of pages back then) with just a few dozen machines. But in terms of product development, Microsoft freely admits it came to search late and remains a heavy underdog in the battle for market share. “The competition is here, and we recognize and respect that,” says Shum, who took over the search team in the fall of 2007.

Indeed, Bing is a new opportunity in a long line of Microsoft search engines—MSN Search, Windows Live Search, and Live Search. “We really believe Bing represents a dramatic improvement in search,” Shum says. “It goes beyond a search engine. We claim Bing is a decision engine. It’s a tool to help users make everyday decisions.”

Whether you’re trying to buy a pair of shoes for a particular occasion, or looking up the local weather to decide how to dress, or tracking a package online, Bing tries to figure out your …Next Page »

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Now I know why venture capitalists walk the halls at the University of Washington—you never know who you might run into. My timing was impeccable yesterday as I sat down with Kai Li, the co-founder and chief scientist of Data Domain (NASDAQ: DDUP), the Santa Clara, CA-based data storage company that just got bought by EMC (NYSE: EMC) for $2.1 billion in cash.

Li, who is a computer science professor at Princeton University (he has been visiting the UW for the past year and has some strong Seattle connections), made time for me despite his busy schedule. The deal with EMC has been in the works since June 1, when the Hopkinton, MA-based data storage and management giant launched its bid to acquire Data Domain despite a pending acquisition attempt by rival NetApp (NASDAQ: NTAP) initiated in May. Many twists and turns ensued, culminating in yesterday’s announcement by NetApp that it had taken itself out of the running, clearing the way for EMC’s takeover, at a bid of $33.50 per share.

Data Domain’s story is a compelling one. Li co-founded the company in 2001, together with Brian Biles (currently vice president of product management) and Ben Zhu (former chief research officer), with the idea of developing advanced “deduplication” software to get rid of redundant data before it gets stored, thereby saving companies storage space, time, and money. Li served as chief technology officer and CEO in the early days of the company, but since 2002 has been a consulting chief scientist and director. Over the next few years, Data Domain gained traction in the data backup and disaster recovery market and went public in June 2007, raising more than $110 million in an IPO.

In a wide-ranging interview, Li (left) talked about Data Domain’s technical approach, its market strategy, a little bit about the EMC deal, and the broader future of data storage. Here is an edited account:

Xconomy: So how does the EMC acquisition affect you?

Kai Li: I don’t know yet. EMC has been the leader in storage systems in general. They’re bigger than other players in the storage market, comparing with NetApp, IBM, HP, Dell, and Sun (now part of Oracle). EMC is the premier storage vendor for data centers. We haven’t been communicating with EMC because of the definitive agreement with NetApp, so I haven’t talked to EMC yet.

X: How does the deal affect Data Domain’s operations?

KL: EMC has written a letter to Data Domain employees. They said they’ll keep Data Domain …Next Page »

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Five researchers from the University of Washington and Washington State University, Vancouver, working together with Washington companies, received a total of $376,454 in state funding through Washington Technology Center, according to an announcement today.  The university researchers are working with property data solutions company Data Data in Vancouver; biomaterials firm Healionics in Redmond; pressure instrumentation manufacturer Paine Electronics in East Wenatchee; nanostructure material builder Modumetal in Seattle; and medical simulator developer Simulab, also in Seattle.

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In less than nine months, Xconomy San Diego has emerged as the most-authoritative source for news and information about technology innovation in our sun-splashed region—and beyond. As the third and newest hub in the Xconomy network, we set out from the beginning to describe how and why San Diego is renowned for pioneering advances in the life sciences, wireless, software, IT, and other technologies.

And as the editor of Xconomy San Diego, (which was preceded by the privilege of working for 18 years in the newsroom of the San Diego Union-Tribune), I am particulary proud to say our company has secured a partnership with the Union-Tribune, which operates the biggest and most-popular local news website in this region. As a result, it’s possible you’ll be seeing my byline in the newspaper again. Under our agreement, Xconomy will provide news and feature stories for both SignOnSanDiego.com and print editions of the largest metro daily newspaper in our region.

It may be that good things come in threes. This is the third syndication deal we have struck with a local media giant in our Xconomy network. Our Seattle hub, which celebrated its first-year anniversary on June 16, 2008, announced a similar syndication two months ago with the Seattle Times. That was preceded by a deal with the Seattle Post-Intelligencer, which continues to publish online today as seattlepi.com. To us, each deal represents further validation and recognition of the high-quality news coverage we provide by the most-established and respected professional publications in each region.

Our readership has been climbing, well, exponentially, since Xconomy launched in Boston almost two years ago (the second anniversary is June 27th.) Each month, more than 170,000 unique visitors now come to our websites in Boston, Seattle, and San Diego, as well as the national page featuring the top content from our three cities—and by leveraging our coverage through partnerships with established media providers like the Union-Tribune and SignOnSanDiego.com, we hope to extend our audience even further.

“The San Diego Union-Tribune and SignOnSanDiego remain the largest providers of news and information in the San Diego region,” said Lora Cicalo, the Union-Tribune’s senior editor for news. “Our partnership with Xconomy is a great way to extend that reach to new audiences and provide additional business news focused on technology innovation.”

The San Diego Union-Tribune has long served as the largest and most-prominent news source in the region, with prestigious journalism awards, including the 2006 Pulitzer Prize in National Reporting, that no other local news organization can claim. It also has the biggest online audience, averaging 1.3 million unique visitors a month.

“We are extremely pleased to enter into this partnership with the Union Tribune, one of the country’s leading newspapers with a long tradition of excellence,” said Bob Buderi, Xconomy’s founder and editor in chief. “We think new types of partnerships and alliances between so-called traditional media and new media can strengthen both types or organizations and better serve their entire constituencies.”

I know our readers are inspired, excited, and enthusiastic about our coverage of the innovation economy—I hear from them every day. And I have been excited by the response I’ve received from the community that supports the broad spectrum of technology innovation in San Diego. I hope and expect to expand Xconomy’s reach even further through this alliance with the Union-Tribune and SignOnSanDiego.com. And I want to thank you, our readers, for helping us create—no, invent—this innovation in online news coverage.

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We are incredibly excited about XSITE 2009—The Xconomy Summit on Innovation, Technology, and Entrepreneurship happening next Wednesday at Boston University—and we are especially pumped today because we have just filled the last open speaker slot for the event.

The more than 50 organizations participating in the event, listed below in alphabetical order, come from all corners of the New England innovation ecosystem: universities, startups, large public companies, non-profits, research institutes, life sciences, computing, semiconductors, telecom, medical devices, energy, cleantech, you name it. We are extremely grateful to all the participants, who have jumped in to help make this one of the cornerstone events of New England Innovation Month.

See the agenda for a complete list of speakers and panelists, and check out www.xsite2009.com for all the updates as the event approaches. With just a week to go, and the Saver registration rate set to expire today, it’s a great time to sign up for XSITE, which you can do here. We hope to see you next Wednesday.

XSITE 2009 participating organizations:

Adimab
Alnylam Pharmaceuticals
Atlas Venture
Boston-Power
Boston University
Boston University School of Management’s Institute for Technology Entrepreneurship and Commercialization
CareGroup Health System
Cliniworks
Cloudswitch
Dartmouth University
DEKA Research & Development
EMC
Excel Medical Ventures
Extend Media
EveryZing
FIRST (For Inspiration and Recognition of Science and Technology)
Flagship Ventures
Flybridge Capital Partners
FloDesign Wind Turbine
Founder Collective
General Catalyst Partners
GlaxoSmithKline
GlycoFi
GreatPoint Energy
Harvard Medical School
Highland Capital Partners
IBM
IST Energy
Kepha Partners
Kiva Systems
Massachusetts Institute of Technology
Massachusetts Office of Business Development
Microsoft
NaviNet
New England Venture Capital Association
Partners Healthcare Center for Connected Health
Pulmatrix
Renewable Energy Business Network
Satori
Seventh Sense
SiOnyx
Sirtris Pharmaceuticals
Skyhook Wireless
Solventerra Energy
StyleFeeder
Terrafugia
1366 Technologies
38 Studios
Verenium
Visible Measures
Wakonda Technologies
WiTricity
Xconomy
Zafgen

Plus two unnamed stealth companies

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Any venture firm named after a rodent, especially the world’s biggest rodent (100 pounds), is OK in my book. But I did have to ask co-founder Eric Rosenfeld where the name Capybara Ventures comes from.

Rosenfeld explained that the capybara is a “majestic, noble, inspiring rodent.” It’s also a “category leader,” he added, and “spends most of its time beating the bushes” for food. It’s much like how he and fellow Capybara co-founder Bob Ward beat the bushes of Oregon looking for the next great company to fund.

Earlier this week, I dropped in on Rosenfeld at his office in Portland, OR, for a wide-ranging chat about his investment philosophy, the Portland tech scene, and the state of venture and angel capital in Oregon. Rosenfeld is a managing partner at Capybara Ventures, and is also a co-founder of the Oregon Angel Fund (which has seeded Portland companies like Elemental Technologies and RNA Networks). In April, he and Ward were also named venture partners with DFJ Frontier, a branch of Menlo Park, CA-based Draper Fisher Jurvetson. Let’s just say these guys are connected. They’re also Portland natives who have known each other since sixth grade.

Rosenfeld and Ward started Capybara Ventures in 2004. Since then, the firm has made investments in 10 companies, all early-stage, including RSS software startup Attensa, telecom networking firm Clear Access, and optical tech startup Phoseon. “We look for companies that are at the intersection of what grows well in Oregon, including semiconductors, electronics, Internet software, wireless communication, and where we have experience,” Rosenfeld says. He adds that Capybara’s seven active portfolio companies are doing between $3 million and $11 million in revenue this year, and about half are at cashflow break-even.

Here are a few highlights from our discussion:

Xconomy: Talk about your connections to other venture firms on the West Coast, especially with your recent DFJ Frontier relationship. Do you collaborate much with Seattle-area investors, for instance?

Eric Rosenfeld: We talk to them quite a bit. The ones we’re most close with are Buerk Dale Victor, Voyager Capital, and Madrona Venture Group. We collaborate quite a bit with the angel groups. The DFJ Frontier is a close relationship, but there’s nothing formal yet. They want to be active in Oregon. We have co-invested in one deal with them—Capybara and DFJ led a Series A round in Clear Access in Vancouver, WA. We hope to do more with them. They’ve been wonderful partners. They come up at least once a month, and we try to introduce them to companies they should know. They share their due diligence, we share our due diligence. We have a similar relationship with Walden Capital in the Bay Area.

X: What are your thoughts on the strengths and weaknesses of the Portland innovation scene, as compared to Seattle and Silicon Valley?

ER: When we started Capybara, the semiconductor industry here was more diverse and in better shape. It was Intel plus a whole ecosystem. It’s been a long time since we’ve had a startup really succeed in the semiconductor world. One company we’re involved with is Avnera, which does analog wireless audio chip sets. They’re doing very well, hopefully they’ll be the one that revives people’s confidence locally.

If you step back, Portland’s got an enviable quality of life which draws people from all over. That’s part of the solution. Our research universities are not necessarily world-class, and that’s hurt …Next Page »

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