Benjamin Nye has an eye for the Benjamins. That’s not quite a palindrome, but it does sum up Nye’s track record as a tech investor.

Nye, a managing director with Bain Capital Ventures (see photo, right), has had a string of strong exits—including Network Intelligence (bought by EMC in 2006), SolarWinds (IPO in 2009), and LinkedIn (IPO this year). The latest deal came in the past week, when Waltham, MA-based DynaTrace was snapped up by Compuware (NASDAQ: CPWR), the Detroit software firm.

The technical details of what DynaTrace developed (see below) might not be as important as these numbers: $256 million in cash for the acquisition (on about $22 million total invested by BCV and Bay Partners), translating into a 7.2X return on BCV’s investment, Nye says.

Here’s how it all went down. First, let’s rewind to 2006. Nye had heard from a former CEO of a company he was looking to buy that DynaTrace, an interesting year-old startup, was being run by the “smartest guy” he knew. The only problem was the startup was in Austria, so Nye took the entrepreneur call with what he calls “high skepticism.” By the end of the call, however, he was intrigued: DynaTrace had solved a problem that Nye had run up against at his old company, Precise Software. Namely it had a way to help businesses’ IT departments figure out why their software applications (consumer-facing websites, for example) were running slowly, and what to do about it.

“The way he’s doing it versus the industry standard is the difference between causation and correlation,” Nye says. While other companies could make educated guesses based on time stamps and which parts of the code were calling other parts, DynaTrace could pinpoint exactly “which part in the chain was causing an app to run slowly,” he says—which is tough to do in the midst of Internet-scale traffic and disparate pieces of code running in different programming languages.

Nye led Bain Capital Ventures’ $5 million Series A investment in DynaTrace and helped move the company to the Boston area in early 2007, hiring a U.S. team. The company started signing up big customers in banking, e-commerce, and retail, and its revenues more than doubled each year, reaching $26 million (and being cash-flow positive) over the past 12 months.

So why sell to Compuware now? DynaTrace didn’t need to, Nye says, adding that there was … Next Page »

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Han Solo was once frozen in “carbonite.” Now Boston’s namesake tech company is emerging from a different kind of deep freeze.

When we last spoke this winter, David Friend said his online data backup firm, Carbonite, was in the late stages of filing for an IPO. The man is true to his word.

Boston-based Carbonite has indeed filed its S-1 registration statement with the SEC and is officially planning to go public as of today. According to the form, the proposed maximum offering is $100 million, but that doesn’t mean much right now. The company isn’t saying yet how many shares it will offer, or the price range for the offering, but if all goes well, its stock will trade on the Nasdaq under the ticker symbol CARB.

The tech IPO market appears to be thawing in New England after a nearly two-year freeze. In recent months, Connecticut-based travel firm Kayak has filed to go public, and Cambridge, MA-based Zipcar held its initial public offering last month. (Meanwhile, e-mail software firm SMTP took a much less conventional route to its IPO a couple weeks ago.)

But back to Carbonite. The company, led by Friend the CEO, has raised more than $67 million in venture capital to date. It first rolled out its data-backup service for consumers in 2006, and more recently has increased its focus on business customers, who Friend said account for between one-third and one-half of Carbonite’s total revenue. Its main competitor over the years has been Mozy (now part of Hopkinton, MA-based EMC). As of January, Carbonite had about 160 employees in Boston, plus some 200 additional full-time equivalents.

More recently, as of April 30, Carbonite had more than 1 million subscribers (both consumers and business users) in more than 100 countries, according to its SEC filing. The company says it has backed up more than 100 billion files since 2005, restoring 7 billion-plus that might have been lost forever. It currently backs up more than 200 million files a day worldwide.

Carbonite is not yet profitable, but its business is growing. The company had revenues of $38.6 million in 2010 (up from $19.1 million in 2009), and $12.8 million in the first three months of 2011. It incurred a net loss of $25.8 million last year, and $5.3 million in the first quarter of this year. The company says the losses are primarily because of large investments in advertising to acquire customers.

A few other strategic nuggets from the SEC filing: Beyond the U.S., Carbonite plans to roll out a data-backup product for businesses in China over the next year. And it plans to start marketing in Europe in 2012. Another big potential growth area is backing up smartphones and tablet computers. The risks to Carbonite’s business, according to the form, include not bringing in enough new customers, not retaining customers, not gaining widespread adoption on mobile devices and with business users, and data security issues.

If the IPO goes through, a number of investors and company execs stand to gain from it. Menlo Ventures, led by managing director Pravin Vazirani, is the lead investor and owns 31.7 percent of the company. Performance Direct Investments owns 5.8 percent, Crosslink Venture Partners owns 5.7 percent, and First Plaza Group Trust is next in line with 5.4 percent. Among executive officers, CEO David Friend and chief architect Jeff Flowers are tops with 9.7 percent and 8.3 percent of the stock, respectively.

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It wouldn’t be Monday in Boston without a slew of startup financings. On Patriots’ Day, no less—no curbside trash pickup, but plenty of new money to go around in the fields of mobile, travel, and cleantech.

—Waltham, MA-based GMZ Energy, a developer of thermoelectric materials and products, has raised $7 million in equity financing out of a $13 million offering, according to an SEC filing. Investors in the round weren’t disclosed, but the company’s website says it is supported by Kleiner Perkins Caufield & Byers and strategic corporate investors. GMZ (not to be confused with DMZ or TMZ) was founded in 2006 based on materials science research at MIT and Boston College. The company is focusing on applications in refrigeration, air conditioning, and converting heat (from waste or solar) to electricity.

—Cambridge, MA-based mobile startup Localytics announced today it has closed a new financing round led by existing investors Launchpad Venture Group and New York Angels, with new investor Hub Angels also participating. TechCrunch reported the size of the deal to be $2.5 million. Localytics, whose software helps mobile developers track usage of their apps across different devices, raised $700,000 in seed money about a year ago.

—Woburn, MA, and London-based SilverRail Technologies, an online travel search-and-ticketing startup focused on the European railway market, has raised $5 million in equity financing, according to an SEC filing last week. Investors in the new round weren’t disclosed, though Charles Lax, James White, Cheryl Rosner (from Expedia and BuyWithMe), and Brad Gerstner (from NLG, Orbitz, and Room 77) are listed as directors on the form. Founder and CEO Aaron Gowell told me recently that the company has moved most of its executive operations to the U.K., but its development team is still in the Boston area. SilverRail raised a $9 million Series A round last summer from investors including Sutter Hill Ventures, GrandBanks Capital, PAR Capital, and Brook Ventures.

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Index Ventures, a European life sciences and technology venture investing firm with offices in Geneva, London, and Jersey, plans to open a Bay Area office, according to a blog post today by London-based partner Mike Volpi, who will head the new outpost together with partner Danny Rimer. About a third of Index Venture’s 173 portfolio companies are in the United States. “We feel we can do a better job of supporting the entrepreneurs we work with both in Europe and the US by having a permanent presence in the Bay Area,” Volpi writes, adding that he and Rimer will be “quite happy to reduce the quantity of 11pm phone calls to California from London.” There’s no word yet on exactly where the firm’s Silicon Valley office will be located, or when it will open.

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A little less than two years ago I made the decision to enroll at MIT Sloan for an MBA. Shortly after getting to the campus, I made the decision to look at careers in the energy sector. Despite being armed with a technical degree and spending some time in the energy sector prior to enrolling at Sloan, I was green—no pun intended. A sequence of lucky associations and learning experiences exposed me to different aspects of the energy sector.

After 16 months and an MBA degree, I can safely say that it was a great learning experience trying to understand the business side of innovation in the energy sector. While it is unfair to characterize a sector into generic “boxes” to better understand it, I have attempted to do so regardless. I’ve read multiple documents and have heard investors and entrepreneurs talk about the risks involved in new ventures. I am not going to repeat them here. Instead I want to write about three crucial factors that one needs to appreciate when starting or investing in a new venture in energy: policy, people, and scale.

Policy

Everyone in the energy sector knows this: regulation and policy drive the adoption of a majority of energy technologies/services in the world today. Feed-in tariffs in Germany and the rest of Western Europe were (and are) responsible for the rise of solar and wind energy. Product and investment tax credits drove wind and solar manufacturing and installation, biomass, as well as geothermal project development in the U.S. in the last three years. Numerous states in the U.S. have extended multiple tax credits for energy-efficient appliances, homes, and offices.

China, India, and Japan have also joined the party and have aggressively included regulations to favor the adoption of new energy technologies. A day does not go by these days without a politician/activist/industrialist calling for the adoption of a renewable energy standard (RES) in the U.S.—some of the European nations have already either approved an RES or are in the process of approving one.

So what does this mean for you and me? Well, if you are thinking of starting a new venture or want a job in investing, you should keep in mind that success to a large extent currently depends on policy and regulations helping you out. Or if you don’t want to depend on regulations, try to work or invest in a business that does not use them as a crutch—there are a few of these if you look hard.

People

Quite a few intelligent people have already written about how the energy “renaissance” of the 21st century is very different from that of the Internet/high-tech boom of the 1990s. I will spare you the side-by-side comparisons here, but it is safe to say they are indeed sufficiently different. One important distinction is the background of the founders. You did not need an advanced degree, or to spend hours in a research lab, to come up with the business idea for Facebook, PayPal, eBay, or Amazon.com (Google is an exception). A majority of innovation in energy that will be successfully commercialized will originate … Next Page »

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It’s about time someone cracked the online travel search-and-ticketing market for trains. Hotels and airlines are pretty crowded sectors, especially in the U.S., but railway systems might hold some promise—at least abroad.

Enter SilverRail Technologies, a young company based in the Boston and London areas. Founded a year ago by CEO Aaron Gowell, formerly of National Leisure Group and a founding member of General Catalyst Partners, SilverRail has raised $9 million in Series A funding from investors including Sutter Hill Ventures, GrandBanks Capital, PAR Capital, and Brook Ventures. The news was first reported by the Boston Business Journal and then by Tnooz. (General Catalyst, which has expertise and investments in a number of travel companies, apparently did not invest in SilverRail.) The startup did not respond to my request for comment last month.

According to Tnooz, SilverRail “works with railways as a technology partner and provides access to any travel seller through a single connection.” The company has recently rolled out a beta version of a consumer rail-ticketing site, Quno.com, in the U.K.

Meanwhile, the BBJ report states that SilverRail “has come out of stealth mode, announcing its plans to be the ITA Software of rail travel.” However, a source close to Cambridge, MA-based ITA Software told me he doesn’t think anything ITA works on “is relevant to this.” (At the beginning of July, ITA announced it is getting bought by Google for $700 million, so perhaps the company is just a handy reference point.)

Others I’ve talked to in the online travel industry wondered whether a big market for rail travel would ever really develop in the U.S. But one senior travel analyst thinks SilverRail is on the right track—and it’s all about the international market first.

“SilverRail has a bright future,” said Henry Harteveldt of Forrester Research, in an e-mail message. “Long-distance rail in Europe is about to be deregulated, meaning that there will be even greater competition. European rail companies will need to become more creative and aggressive in how and what they sell to consumers. The rail companies will also need to examine how they sell to and through traditional travel agencies, which are stronger in Europe than the U.S. If the rail lines decide they want to reduce their reliance on [Global Distribution System] companies, like Amadeus, that may create a new opportunity for SilverRail.”

It sounds like tapping the U.S. railway market will be more difficult, but could still be doable. “Though it won’t happen for several years, there will be more high-speed rail service in the U.S.,” Harteveldt said. “As that happens along with airlines reducing short-haul flights, inevitably higher gas prices, and increased focus by travelers of the environmental impact of the trips they take, rail will benefit. If SilverRail has viable solutions for Amtrak and other U.S. rail operators, they stand to benefit.” He added that “Asia represents another market that SilverRail may be able to serve,” citing China, Japan, and India specifically.

So what are the company’s prospects at this early juncture? “SilverRail certainly has an adequate amount of money, and their top execs are extremely solid business people,” Harteveldt said. “Everything is pointed in the right direction, at least for now.”

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After spending some time last week at the launch of Mass Challenge, I wanted to share a few thoughts on recent experiences with the local innovation community, for two reasons: First, I hope they might spur further collaboration between UK Trade & Investment and the Boston tech community given some recent successes. And second, given our shared objectives in this space, I hope you might find them to be of interest as well.

As you may be aware, my principal job at UK Trade & Investment is to serve as the official consultant for New England-based technology and financial services companies who are looking to establish or expand their companies’ presence in the UK. I also spend time helping UK companies learn about business opportunities in the US.

A few weeks ago I helped organize and host a delegation of young, startup UK companies to Boston focused on mobile technologies. This delegation was a key component of Mass Mobile Month. Our team spent a few months preparing, and we enlisted the help of a number of local organizations like Mobile Monday Boston, Xconomy, the Ad Club, and MITX to arrange events and meetings. In the end it was a huge success. The UK companies saw significant business potential, and at least four companies have expressed direct interest in establishing a Boston office to build off of the opportunities that they identified.

This success was due in no small part to the openness of the innovation community in Boston. From top to bottom, from entrepreneur to investor, from industry organization to media outlet, Boston opened its arms to these UK companies and wanted to show off all that the local area had to offer.

Some of the highlights included an all access tour of the new MIT Media Lab space from Steve Whittaker (British Telecom’s University Liason). We had a lunch-and-learn with Rich Miner (Managing Partner, Google Ventures). Mobile Monday Boston and Kate Imbach (VP Marketing, Skyhook Wireless) organized the most amazing UK vs US company demo night with 300 people in attendance. And Brian Halligan (CEO, Hubspot) and his team gave us a great presentation on “inbound marketing,” a phrase which he coined.

The whole team at Xconomy helped us shape the content of the visit, arrange meetings, and host a successful and fun CEO dinner focused on the mobile sector. Tim Rowe and the Cambridge Innovation Center introduced the UK companies to the best startup space in town, and Dave Weber at MIT helped the UK companies post internship opportunities on the MIT jobs board.

UKTI and the companies who were a part of the delegation look forward to following up on the contacts made and the business which was discussed. We hope to continue the dialogue and to reciprocate by doing everything we can to support Boston-based companies with interest in the UK and Europe. London and other UK cities are ready to return the favor.

As local trade organizations and initiatives like Massachusetts It’s All Here look to capture and expand on all of the strengths of the local innovation and business community, they won’t have to try hard to find champions for this city. They just might be surprised that their biggest champions are in places like London, Newcastle, and Cambridge UK. The praises of Boston’s technology prowess and creativity will be sung by the fortunate companies who saw it in action. The MassChallenge startup competition, which has made itself open to companies from around the world, is another great example of the openness and forward thinking going on in Boston. You can expect to see a great contingent of UK startups applying for the competition.

Thanks to all who helped make that program what it was. If anyone is interested in a trip to the UK to drop in on a few of the UK’s leading centers of technology innovation, just let me know.

For more information on the delegation and the companies who attended, check out this link.

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Smilebox is turning into an intriguing story of a young company grappling with the challenges of expanding to new markets and geographies. The Redmond, WA-based company just raised $2 million from its existing investors, as we reported yesterday, and the money is being used to fuel its expansion to Europe, starting with the U.K., Germany, and France.

I spoke with CEO and founder Andrew Wright this morning about his company’s plans, and how it’s doing in a tough environment for consumer tech companies. He confirmed that the $2 million is a follow-on to Smilebox’s $7 million Series B round from December 2007. And that the money was raised to expand to the European market. The new effort is being headed by Yannis Dosios, a marketing executive and four-year veteran of Smilebox. Dosios is now based in Athens, Greece (his home country).

Smilebox is a photo services company that helps consumers do things like share pictures and videos across social media and blogs, manage and print photos through retail chains, and create greeting cards and DVDs using their personal digital media. The key to all of this is that Smilebox provides about 1,000 original templates for designing scrapbooks, photo albums, and so forth. The company says 10 million customers have installed Smilebox. (The software is a hybrid between an application that sits on your hard drive like iTunes or Windows Media Player, and a pure Web service like Google search, though Wright says it’s mostly the latter.)

“We have a personalized content platform,” says Wright, who previously worked at RealNetworks and Microsoft. Smilebox’s ideas and products apply globally, he says. But on a regional level, it has to market them properly and develop content that relates to local consumers stylistically and culturally. That means understanding U.K. holidays as compared to the U.S. or Germany, for example, and designing localized templates around that.

Of course, Smilebox faces big challenges in getting established in Europe, especially as a small company. It will take time to understand each country’s culture, educate the market on what Smilebox provides, and build relationships with local partners. “I’m a content network. It’s like launching a broadcast TV channel. The good news is it’s hard to do, so if you do it, you build barriers to entry,” Wright says. “It’s not easy for other people to duplicate what we’ve done.”

Nevertheless, the company faces competition from the likes of Shutterfly, Snapfish, Hallmark, and Photobucket. (And it has some similarities with startups like Animoto and Picnik, but those are focused on professional slide shows and photo editing, respectively.) But so far, so good. Wright says Smilebox was cash flow positive for the fourth quarter of last year, and that its revenues were “up well over 100 percent” for 2009 compared with the previous year.

Smilebox was founded in 2005 and has raised a total of $16 million from Frazier Technology Ventures, Bessemer Venture Partners, and angel investors including Rob Glaser, Paul Thelen, and Richard Wolpert. Last summer, the company acquired Preclick, which was based in New Jersey and the Seattle area, to tap into what Wright calls “high demand” for printing pictures at retailers like Wal-Mart and Sam’s Club. Smilebox now has just over 50 employees and is looking to hire eight to 10 new staff in Europe by the end of this year, Wright says.

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Atlas Venture, an early stage venture investing firm with offices in Waltham, MA, and London, announced today that it will consolidate its operations, downsize its UK office, and bring almost all of its active investment professionals together under one roof in the Boston area.

That roof likely won’t be Atlas’s current office 890 Winter Street in Waltham, says Jeff Fagnan, a partner at the firm. So it’s conceivable that Atlas will join the minor migration of venture firms from the distant suburbs to Cambridge and Boston proper—areas often seen as the emerging center of gravity for the region’s software, Internet, and life sciences startups. Greylock Partners moved its regional office to Harvard Square last year and Bessemer Venture Partners is reported to be considering a similar move.

But Fagnan says the firm hasn’t chosen a spot yet. “We’re evaluating a few different locations right now,” Fagnan said by phone from the Waltham office. “Some are out this way and some are back that way.”

Wherever the firm goes, he adds, it would be mistake to read too much into the choice. “I definitely look at office space as tactical rather than strategic; I find it interesting that the whole venture firm office space thing is considered so newsworthy right now,” Fagnan says. “If any firm in New England has stuck to its knitting, it’s us. We are doing all seed and Series A investments and we’re committed to early stage investing. That’s not going to change, whether we’re in Cambridge, Massachusetts, or Cambridge, England.”

The decision to consolidate personnel in the Boston area is also tactical rather than strategic, Fagnan says. “We operate best when we’re around one table and we can collaborate and challenge one another and look each other in the eye,” he says. “We are going to continue to execute on European deal flow, but we feel like we can continue to do that out of an office in Boston. It’s a lot easier these days to do the best deals today regardless of geography. We’ve proven that with the West Coast, and London is actually an easier flight from Boston. We don’t see it changing our strategy.”

Atlas partner Fred Destin will relocate from the London office to Boston, the firm said in today’s announcement. Graham O’Keefe and Regina Hoddits, partners in the London office, have “transitioned to venture partner roles,” the firm said. Christopher Spray will remain as the firm’s ranking partner in London.

As it comes together in a new location and continues to invest money from its $283 million eight fund, which closed about a year ago, it’s also likely that the Atlas team will grow, Fagnan says. “We’re hiring a new general partner on the technology side, and the life sciences team is also likely to add somebody. So you’re going to see an aggressive team with a fresh pool of capital.”

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Things are really heating up for Visible Technologies. The Bellevue, WA-based maker of software to help companies monitor social media and manage their online reputations announced today it has raised a Series C funding round worth $22 million. The round was led by a new investor—Investor Growth Capital (IGC), the growth-stage venture arm of Investor AB. Existing investors Ignition Partners, Centurion Holdings, In-Q-Tel, and WPP also participated.

“This funding allows us to accelerate our growth path to continue meeting the demands of global customers and help them drive real business results through successful online consumer engagement,” said Visible CEO Dan Vetras in a statement. “We chose IGC as our partners to lead the round for their market expertise, track record in creating sector-leading companies and ability to help us expand in markets outside North America, especially in Europe.”

Visible Technologies was founded back in 2003, and its cutting-edge technology finds positive and negative content about a brand online, for example, and uses keyword placement, optimization, and linking techniques to make the positive entries pop up higher in search-engine results. In the past year, the company has raised smaller amounts of equity and debt financing—it had raised a total of $23.5 million as of October 2009. Its customers include Microsoft, Autodesk, and Xerox.

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Seattle-based Swype, a maker of text-input software for touch screens, has raised $5.6 million in Series B equity financing from new investors Samsung Ventures and Nokia Growth Partners, and returning investor Benaroya Capital. The funding should help Swype expand its technology to more mobile phones around the world, and eventually explore other types of devices as well.

This is one of the larger second-round tech deals we’ve seen in Seattle lately, and it is encouraging news for Swype. The company raised $1.3 million back in April, and just this month released its first product, on the Samsung Omnia II smartphone. The significance of the new funding, which the company hopes is the last round it will need, is that Swype now has two of the world’s largest mobile phone manufacturers supporting its technology—and could be poised for mass-market adoption.

Sort of like with “The Matrix,” nobody can tell you what Swype is—you have to try it for yourself to fully appreciate it. So I recently visited the company’s office in Seattle’s Fremont neighborhood to play around with its mobile interface. The basic idea is that instead of using your thumbs, or touch-typing like on a full-size keyboard, you drag your finger from letter to letter, picking it up between words, and the software figures out lightning-fast what you’re typing, on a word-by-word basis (even if you’re a little sloppy). It’s based on the relative likelihood of words—you’re more likely to type “this” than “thus,” for instance—and the program adapts to how often you actually type each word.

Swype’s chief operating officer, Aaron Sheedy, says that if you show Swype to anyone under 25, they immediately pick up the phone and start working it with one hand. Me, not so much. I could almost feel my neurons rewiring as I struggled to connect one letter to the next; one way to describe it is that I’m not used to typing serially, I do it more in parallel. But Sheedy says most new users get up to “high-level productivity speeds” of typing 30 words per minute or more within just a few days.

Sheedy says that the new funds will be used to advance the company’s “deployment of software in the market—more languages, more operating systems, more devices. So Swype can really be a global input mechanism for touch screens,” with the primary focus being on mobile phones first. That’s before it branches out into things like GPS units, tablet computers, TVs, and video game … Next Page »

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Google, Yahoo, Facebook, MySpace. Those companies’ products spread over the Internet like a virus. But why hasn’t there been a runaway hit like those in the mobile software world? Why does it take so much longer to build value, and a strong customer base, in mobile companies than in certain Internet startups?

Dan Shapiro had some entertaining thoughts on this yesterday, as he spoke to the Mobile Northwest 2009 crowd in Seattle. Shapiro is the co-founder and CEO of Ontela, a Seattle-based mobile imaging startup, and he’s a veteran of RealNetworks and Microsoft. I won’t do justice to his presentation, but here’s the gist.

Hotmail was one of the first examples of viral marketing. By appending the message, “Get your free e-mail at hotmail.com” (or some such) to the bottom of each e-mail, Hotmail helped pioneer a new method of promotion that was “basically free, highly measurable, and ridiculously effective,” Shapiro said. Its number of new subscribers jumped from hundreds to tens of thousands per day.

Maybe there’s something about the viral distribution model that doesn’t fly in the mobile world, Shapiro thought. In epidemiology, he pointed out, researchers use a parameter called the basic reproduction number to gauge whether a viral outbreak will spread or die out. The corresponding number in the Internet world tells you how many people a given user will “infect,” on average: Shapiro gave some estimates for Facebook (6), Gmail (5), MySpace (4), and Twitter (1.5). He argued that Twitter hasn’t been spreading virally; it has used more conventional marketing through word of mouth and the press.

“Heterogeneity in the target population is the best protection to keep you from being infected by viruses,” he said. That means some people have different levels of resistance, different behaviors, different types of contacts, and so forth, so not everyone will get infected by, say, the latest flu bug.

And that same kind of variety that makes individuals different is exactly why mobile isn’t viral, he argued. He cited some survey stats to explain how fragmented this market really is: There are roughly 500 different types of handsets, about 30 per carrier; about two-thirds of people (65 percent) don’t have a data plan; three out of four people (75 percent) are on a different carrier from you; almost that many (70 percent) don’t have a smartphone. And despite all the attention it gets, 98 percent of mobile users don’t have an iPhone. (iPhone apps are definitely not spreading virally, Shapiro said. He also argued that Tegic’s T9 predictive texting did not spread virally; it was pushed out by carriers and handset manufacturers in a dedicated partnership.)

“We will not see the Facebook, Gmail, or Yahoo of mobile until this changes,” Shapiro said. He added that he’s not advocating one standard mobile platform; he’s just saying how it is right now.

So his advice for mobile entrepreneurs and investors was:

—Be skeptical of anyone peddling viral marketing in mobile.

—Build a business model that doesn’t require big adoption.

—Pick a market segment that’s homogeneous. (Examples: BlackBerry corporate users, Silicon Valley techies.)

—Use ubiquitous technologies like WAP (Wireless Application Protocol) and SMS texting.

—Wait… (“Things are getting better,” he said.)

Afterward, Shapiro said he thinks “Europe holds the future of the U.S.” Over there, wireless carriers have influence, but only about half of consumers get their services directly from carriers, versus about 90 percent in the U.S. “I think you’ll see the carrier role diminish,” he said, when it comes to mobile software.

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[Corrected and updated, 10/28/09, 12:40 p.m.; see page 4.] Back in 2002, it must have sounded like a good idea for Orange, a fast-growing European wireless provider known more for the simplicity of its services than for their sophistication, to open an R&D center in Boston, where it could hire a troop of brainy engineers, consultants, and startup entrepreneurs to come up with ideas for new high-tech services that would continue to fuel its growth.

In practice, though, an array of barriers meant that Orange Labs—which settled near MIT in Cambridge, MA, and became home to what one former employee calls “the most talented, most passionate group of people I’ve ever worked with”—never really fulfilled its potential. Eventually, it lost the pull it needed within Orange and its parent company, France Telecom, to keep growing. And after a seven-year run, the lab will close its doors tomorrow.

France Telecom’s decision to shutter Orange Labs Cambridge is ostensibly part of a corporate consolidation effort—there’s another Orange laboratory in South San Francisco, and in tough economic times it’s hard to argue that any European company needs two U.S. research centers.

But several former Orange Labs members tell Xconomy that the Cambridge facility’s demise was so long in the making that it could perhaps have been predicted from the start. It was rooted, these sources say, both in cultural differences between the lab’s American engineers and their British and French overseers, and in textbook organizational frictions and rivalries that prevented most Orange Labs initiatives from maturing into products that could be deployed to actual Orange customers. Just as important, the former employees say, Orange’s San Francisco lab developed far stronger political connections to the France Telecom leadership, making it obvious which of the two labs was more likely to survive any cost-cutting round.

Orange Labs' facility on Second Street in Kendall Square, Cambridge, MA

But while Orange Labs Cambridge may not have fulfilled its creators’ hopes, it will leave a lasting footprint on the Boston technology scene. Developers at the lab prototyped services such as push-to-talk, mobile photo sharing, localized search, and app-like “widgets” long before any of these technologies became standard on mobile phones. The lab provided a home, at its height, to about 60 brilliant hardware and software engineers, including many graduates of MIT and other local universities. And it acted as a springboard for entrepreneurs who have gone on to play other important roles in the mobile industry—the most prominent being Orange Labs’ founder and first director, Rich Miner, who later co-founded mobile software startup Android, helped transform the Android operating system into an industry standard before and after the company was acquired by Google, and now runs Google Ventures.

Still, there’s a sense that the lab could have accomplished much more. “If I were to summarize the ultimate legacy that the lab had for Orange and France Telecom, I would say ‘missed opportunity,’” says Iliya Rybchin, who was a program manager at Orange Lab from 2002 to 2004 and is now overseeing digital development projects at publisher McGraw-Hill. “The fact that [France Telecom] wasn’t willing or capable of tapping into that talent pool, with that amazing level of innovation and insight and passion, is frankly unfortunate, because the kinds of things that we were producing in the lab really had the potential to be transformative in the industry.”

Officials at France Telecom have not responded to Xconomy’s requests for comment on the shutdown, nor has Orange Labs CEO Frank Bowman.

The story of Orange Labs starts with Orange itself, formed in 1994 by a consortium of British and French companies. Industry insiders describe the early Orange as a scrappy, innovation-focused, startup-style company that … Next Page »

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[Updated 12:25pm, 10/20/09. See correction below] Seattle-based Azaleos is announcing today it is releasing new software and services to help companies manage Microsoft Office Communications Server, which is a software platform for instant messaging, Internet telephony, and video conferencing over the Web. It’s a strong move for Azaleos that expands its product line beyond management services for e-mail and collaborative software, and into managing “unified communications”—all forms of company communication run by a single system.

Azaleos is best known for the services it provides to help companies manage their Microsoft Exchange e-mail servers and Microsoft SharePoint collaborative networks.

Last spring, Azaleos established itself in the realm of SharePoint server management. The company also merged with North Carolina-based M3 Technology Group, doubling its size and solidifying its position in e-mail and other communications management. Azaleos now has about 125 employees, and is backed by Ignition Partners, Frontier Capital, and Second Avenue Partners.

“Anybody who follows the IT industry sees the promise of the concept of unified communications, integrating real-time and non real-time,” says Scott Gode, vice president of product management and marketing for Azaleos. “It’s important for Azaleos to get in early.”

These days, companies typically implement instant messaging first, Gode says, and then follow up with conferencing and Internet telephony for their employees. [An earlier version of this article mixed up the order of these services. We regret the error---Eds.] Azaleos provides extensive consulting to help companies deal with the complexities of running and monitoring these features using Microsoft’s Office Communications Server. (Microsoft is a leader in the space, though it competes with Cisco and others.) Azaleos breaks even on its consulting service and looks to make its profits on the management service, Gode says. This is different from big companies like Accenture or IBM, which tend to make more on consulting fees.

So who’s the target customer for Azaleos? “The sweet spot in general for our business is a 500 to 5,000-seat company,” Gode says. “They’ll assume a little more risk [in moving from telephony to IP telephony].” He adds that companies typically can save 30 to 50 percent of the cost of running communication systems by using Azaleos.

Gode says the company has also been “pushing aggressively into Europe.” In late August, Azaleos opened a new office in London that employs five people. He says the company is now selling to more companies based in Europe, such as Mediq, a Dutch pharmaceutical firm.

Lastly, I asked Gode where Azaleos is in terms of its cash flow. From his response, it sounds like the company is still in a growth and expansion mode, rather than hunkering down and getting profitable. “We’re flirting with profitability, and I mean that in a good way,” he says. “Business is good.”

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I can’t do justice to a comprehensive review of yesterday’s FiReGlobal (West Coast) conference at the Four Seasons Hotel in Seattle. Instead, I’ll just give a few of my key takeaways. The all-day event, organized by Strategic News Service, focused on how to solve some of the most pressing problems in technology, business, and society—in areas as diverse as broadband access, entrepreneurship, education, sustainability and the environment, political discourse, human health, and mobile devices.

The sweeping conference had the tagline, “Global technology driving local solutions.” Interesting, as that’s sort of the reverse of Xconomy’s mantra, which is reporting about local stories with global impact. But I think they’re two sides of the same innovation coin.

So, in “ESPN plays of the day” style, here’s my top 10 list from the conference (if only I had the video to go with it):

10. Setting up entrepreneurial zones. A panel led by Ty Carlson of Microsoft proposed denoting special “R&D zones” from Oregon to British Columbia geared toward supporting startups in fields like renewable energy, sustainable farming, and biotech. The idea would be to offer tax credits and other incentives to create a more entrepreneurial culture in the Northwest, especially in rural areas.

9. What government should and shouldn’t do. Investor and entrepreneur Martin Tobias of Seattle-based Kashless said, “Startups and investors can’t make a 10-year bet when you have a two-year tax credit.” Those conditions freeze out small companies, especially in costly ventures like energy. So government should create open markets and set minimum market sizes for new technologies, Tobias said. But it shouldn’t pick the technology winners themselves.

8. Northwest tech startups do the Olympics. Tom Guthrie, CEO of Seattle-based Twisted Pair Solutions, said his company has helped numerous agencies on the Olympic Peninsula inter-operate their radios—a key problem in disaster response and other scenarios. Twisted Pair, which is backed by Ignition Partners and other investors, is also working on a laser system to deliver broadband signals. Meanwhile, Paul Manson, CEO of Vancouver, BC-based Sea Breeze, talked about his company’s project to build a high-voltage, direct-current undersea cable between Victoria, BC, and Port Angeles, WA. This would be a fast, controllable power transmission component of a smart grid; it should be under construction by mid-2010, he said.

7. The world according to Dell. In a chat with Mark Anderson of Strategic News Service, Michael Dell said he is excited about China and the rest of Asia as fast-growing economies. He anticipates a U.S. recovery from the recession, but says, “I don’t think you’ll see an immediate snap-back.” And he likes South America as an emerging market (Dell does sales of more than $1 billion in Brazil alone). But Europe, not so much—he sees a lot of uncertainty in the workforce there.

6. Get ready for Dell smartphones. “Mobility is absolutely the theme,” Dell said. He was talking about the relative importance of desktop computers, laptops, netbooks, and mobile devices to … Next Page »

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Seattle-based Decho announced today it has formed a strategic partnership with Vodafone, a British mobile network operator, to develop cloud-based data backup services for personal computers. Financial terms of the deal were not released. The new products for European markets will be built using Mozy, the online backup service operated by Decho, which is a subsidiary of Hopkinton, MA-based EMC (NYSE: EMC).

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Seattle-based Big Fish Games announced today it is setting up European headquarters in Cork, Ireland, and expects to create as many as 100 positions there over the next three years. The new office will focus on multilingual customer support, game testing, and product localization. Big Fish is a leading developer and distributor of casual games.

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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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Atlas Venture of Waltham, MA, has taken the lead in a €10 million venture round for Inspirational Stores, the Paris-based online marketing firm said today. Inspirational Stores creates and manages e-commerce sites for luxury European consumer brands such as Laduree, Delvaux and Caviar Kaspia. Existing investor OTC Asset Management also participated in the round.

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When corporate R&D rains, it pours. On the heels of Intel Research Seattle’s annual open house, an even bigger tech giant across Lake Washington is stirring up some serious action across the pond. Microsoft announced today it is opening a European Search Technology Center, with three main offices in the Paris, London, and Munich areas. Its goal is “to tap into local expertise and fuel local innovation with job opportunities that will help reinvent the European consumer online and search experience,” according to a Microsoft statement. The center will be headed up by general manager Jordi Ribas, who hails from the Microsoft Connected TV business group.

The European effort is being viewed as another way to compete with Google and other search engines in the battle for Internet advertising revenues, according to the New York Times, which quotes Microsoft CEO Steve Ballmer as saying, “Investing in anything at this time can be a tough sell…But when economic times are tough, we have to keep our faith in the promise that technology holds to transform the future.” Ballmer did not say how much Microsoft is investing in the new search center, but did confirm it will employ several hundred workers.

In a statement, Ballmer said, “To compete in a global, innovation-driven economy, we need to draw on the world’s smartest, most creative minds. Increasingly, we are finding the talent we need here in Europe.” Ballmer called the new search center “an important step forward in our long-term strategy to invest in local development of search technology in Europe. We believe search is still in its infancy. Developers at the Search Technology Centre will play a key role in helping us redefine search as they create new search products and services for consumers and advertisers here in Europe and around the world.”

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