San Diego’s MadCap Software may stand as an exemplar in showing how a small American technology company can compete against rivals that take advantage of low-cost development offshore.

The startup, founded in 2005, specializes in developing authoring software that is used by technical writers and others to create owners’ manuals, user guides and other types of technical documentation. MadCap announced late yesterday the release of new versions of its mainstay Flare software for print and online publications, and Blaze, its alternative to Adobe FrameMaker.

The updated versions of both products support DITA, the Darwin Information Typing Architecture, which MadCap’s Mike Hamilton says is significant because the companies that have adopted the DITA standard tend to be Fortune 500 companies. “This opens up a whole new world to us in terms of gaining entry to enterprise-level customers,” Hamilton says.

The privately held company says it has more than 4,000 customers, and boasts that Microsoft Health Solutions Group, for example, is using Flare to streamline publishing for the just-released version of its Amalga Unified Intelligence System. The results were encouraging enough for Microsoft to allow MadCap to use the Redmond, WA, giant as a promotional case study on MadCap’s website—and to extend Flare across its entire Health Solutions Group. As Hamilton puts it, the introduction of Flare 5.0 and Blaze 2.0 also moves MadCap away from competing directly against Adobe and its RoboHelp software—and therein lies the lesson of MadCap’s origins.

Hamilton and MadCap CEO Anthony Olivier were both at San Diego-based eHelp, which originally developed the RoboHelp software, when San Francisco-based Macromedia acquired the little company for $69.3 million in 2003. Olivier had been eHelp’s CEO, and had stayed on as business manager following the Macromedia buyout. But Olivier says what Macromedia really wanted was RoboDemo, a Flash-based program used to create software simulations (which is now known as Adobe Captivate). Macromedia soon began to lay off members of the RoboHelp development team in San Diego and moved the work offshore, first to the Philippines and later to India.

Adobe, which acquired Macromedia for $3.4 billion in late 2005, was even more indifferent about RoboHelp and the rest of the eHelp product line. Adobe moved more software development work from San Diego to India, and according to Olivier, the products languished.

Seeing an opportunity to create a more versatile sourcing tool, core members of eHelp’s development team, including Hamilton and Olivier, founded MadCap in 2005 with less than $1 million in funding from angel investors who were former software industry executives. “We wanted the VC help without the VC strings attached,” says Olivier. Although eHelp had originated in 1990 as a bootstrapped business, Olivier says venture investors who invested …Next Page »

Comments | Reprints | Share:        

Over the last couple of years, we have been witnessing a resurgence of the “Internet as the new computing platform” idea. I say resurgence because that was the premise of the late 90’s “Internet Bubble.” Given that history, it would be a mistake to use the same term, of course. Instead, we’ve coined a new one— “cloud computing.” New term aside, the core premise of providing applications & services over the Internet remains at the heart of this resurgence. The Internet Bubble has taught our industry to be more circumspect. Furthermore, with 10+ years of multiple successful Internet services under its belt, the industry is that much more mature. Amazon, Google, Hotmail, Yahoo, and SalesForce.com are all great proof points of this maturity.

Yet, as I observe this resurgence, I see the hype is rebuilding and we might be getting carried away again. History is a great place to look for patterns to help predict patterns in the future. Here are some I see.

Fallacy of paradigm shifts

Mainframes to PCs, and now PCs to the Cloud. I’ve noticed that when there is a paradigm shift, a set of people take on the task of re-implementing existing applications in the new paradigm. Somehow, a mindset develops that “paradigm shift” means it is an opportunity to replace the incumbent solutions by re-implementing them in the new paradigm and suddenly the world will move over. I believe that it is a waste of time & energy to re-implement applications that work well in the existing paradigm. ROI for making the shift rarely exists for the majority of the market. It is important to internalize that computing is a tool for most organizations and individuals, not a way of life (like it is for some of us) so they won’t make the change unless there is a very good reason to do so.

Historically, when computing shifted from mainframes to PCs, some believed that mainframes would go away and even tried to rewrite key mainframe applications on PCs. Mainframes remain and continue to be a very healthy business. Most batch/transaction processing applications that worked extremely well on these systems continue to do so. What popularized the PCs was killer applications such as spreadsheets, word processing, etc. that made computing tools much more accessible to businesses and individuals at large, and significantly increased efficiency and productivity compared to using paper and typewriters.

The same is going to be true as we make the shift from PCs to the cloud. PCs aren’t going away—in fact, they are at the heart of popularizing the Internet and fueling the adoption of this new computing paradigm. So PC applications such as Microsoft Office and Adobe PhotoShop that harness the power of local computing capacity, storage, and huge existing user bases aren’t going to be easily replaced, if at all. In fact, I believe that such efforts will see very limited success. I encourage entrepreneurs and innovators …Next Page »

Comments (4) | Reprints | Share:        

The economy is forcing companies of all sizes to do more with less. The big winners are increasingly the small businesses and specialized sole proprietors. On one hand, they provide the “just in time” component services no longer staffed at the downsized firms, and on the other, they are adept at operating with lean resources and contracting for component services themselves.

This atomization of business is more than a reaction to the current economy. It’s a function of the nature of work today, and of the growing availability of technologies that will soon transform this approach to business-as-usual.

In the U.S. we are increasingly a knowledge worker economy, which lends itself perfectly to digitized deliverables. The ability to provide results electronically (vs. manual labor on the factory floor) greatly benefits small businesses and individual contractors, as geographical location and infrastructure are no longer barriers. More and more opportunities will be available to productive workers to serve countless niches.

The supply side is coming via the fracturing of integrated companies into specialty service firms and contractors. With the pay-for-performance contract, results become the job cost of the contractor. Companies can now hire highly specialized experts, spec out the results they want and pay only when the contractor achieves those results.

As an example, our small company Smartsheet outsources Graphics Production, Press Calendar Monitoring, Case Studies, Website Development, Website QA , Accounting, Video Production, Copy Review, and some Product Testing to different people who work an average of 1 – 4 days per month for our company. In addition, we use crowdsourcing (high volume on-demand outsourced data gathering) for prospect profile information, e-mail addresses, list building, and website keyword surveys, to name a few.

The main barrier to this volume of atomization has traditionally been the “productivity tax” on the coordinator who manages all the players working outside the company. The information overload becomes intense with too many e-mails, spreadsheets, and overhead material with so many separate contributors. The logistics and technological challenges often outweighed the gains. But new online tools are changing all that.

New technologies are making it very easy for delivered work to be traded online. These tools are also departing from the forced project management structure and process that has been the impediment to successful work management technology adoption for the past 20 years. They have been the equivalent of being required to understand how stock and bond trading worked in order to use eTrade.

Collaborative work management tools will be tightly integrated with online work marketplaces (LivePerson, eLance, RentaCoder) as well as crowdsourcing technologies (Amazon Mechanical Turk, Smartsourcing). Think of these solutions as part of a global switchboard that connects real and virtual teams on an as-needed basis in order to accomplish specific work. They will be as universally accessible as Gmail, and available to all. And the important components—the tasks, milestones and deadlines, as well as the team members who own specific responsibilities—will always be clearly visible to whoever owns the end results.

As the overhead costs of internal employees continue to rise from regulated increases in health care, payroll, and other taxes, looking outside the company walls will become more and more appealing. Integrated work collaboration tools enable every business to be a services provider and every business to be a services requestor.

My advice to everyone is to be very good at what you enjoy doing, and be prepared to shop it to the highest bidders around the world. Businesses will pay 3 – 4 times the rate of an internal employee for the same work delivered in a quarter the time with higher quality and less management. In fact, it will become table stakes to stay competitive.

Comments (3) | Reprints | Share:        

Almost by definition, anyone who gets to the point of submitting an online help request to a software or services company is frustrated, possibly even angry. Responding to a flood of help requests constructively takes calmness and strength—and that’s what Zendesk, a help desk management outsourcing company, tries to supply to its own customers, including big names like Twitter, MSNBC, and Rackspace.

The provider of Web 2.0-style help request tracking software announced today that it has collected on some of that good karma, raising an unspecified amount of Series A venture funding from Charles River Ventures of Waltham, MA. The startup, originally founded in Copenhagen, Denmark in 2007, also announced it has opened its U.S. headquarters near South Station in Boston.

Many of Zendesk’s 1,000-plus customers are themselves Web 2.0 or software-as-a-service companies such as JungleDisk, SlideRocket, Viddler, CakeMail, and WebExpenses.They have all gravitated to Zendesk’s Web-based system for managing help requests because it’s based on Web standards and is therefore easy to integrate with their own services. They may also like the company’s reasonable prices, which range from $19 to $475 per month (depending on how many support agents will be using the software) and are considerably cheaper than competing help-desk software such as BMC’s Remedy. Then there’s the matter of convenience—help tickets created by Zendesk users can be accessed and managed remotely from any Web browser.

Zendesk “has provided us with a platform that works really well for remote teams like ours,” David Abrahams, chief software architect at Sydney, Australia-based Web application design company KMS Systems, says in a testimonial on Zendesk’s website. “Zendesk provides the perfect central point, so we all know what our customers need, who from our team is looking after them and the history of previous communications in case we need to pick up where someone left off.”

Zendesk supplies customers with “help portals”—branded to look like part of their own sites, but actually operated from Zendesk’s own servers—where users can browse troubleshooting FAQs, submit support requests, and check on existing requests. And that’s about it. The company’s interface is employs a clean, no-frills design that reminds me of programs built by 37signals, the Chicago Web software firm known for its “less is more” philosophy.

“Beautifully simple. That is all you need to know about Zendesk,” says Zendesk co-founder and CEO Mikkel Asger Svane in an announcement today about the Series A funding. “This financing will help us build on our success and bring good help desk karma to any organization seeking enlightenment.” (As its name suggests, the company takes the Buddhist theme pretty seriously; among its innovations is an online “Buddha Machine Wall” consisting of 21 simulated FM3 Buddha Machine players, each programmed to play a different loop of droning New Age music.)

Of course, all is not bliss is the land of technical support. Here at Xconomy, we spent quite a bit of time using Zendesk’s system back in February, and March, and April, as we attempted to get Twitter—probably Zendesk’s highest-profile customer—to evict a squatter who was using the “Xconomy” name. We’ve written about the gory details here and here so I won’t repeat them. Suffice it to say that a help-desk support system is only as effective as the people administering it.

When I learned about the financing, I felt compelled to share my Twitter story with Zendesk. Svane replied as follows: “As you can imagine, Twitter Support may very well be one of the world’s largest online support organizations right now, providing support to millions of free users. While we cannot control individual response times, the nice thing about Zendesk is its ability to scale to support that tremendous task. But we also know it’s a colossal support process that won’t be nailed from one day to the other.”

Comments | Reprints | Share:        

San Diego serial entrepreneur John Dobak got the best quip off right out of the starting gate yesterday when Biocom, the local life sciences trade association, held a panel discussion on the “virtual company” as a new model business model for startups. Dobak, a featured speaker who was late for the breakfast meeting, told the crowd, “We have three kids under the age of 8 at home, and my wife went virtual on me this week. So we outsourced and my babysitter didn’t meet my timeline.”

Such pitfalls of outsourcing seemed to be a common theme as Dobak and three other biotech CEOS talked about the pros and cons of operating “virtually” with only a small staff overseeing the development of new drugs and biomedical technologies. With the economy still languishing and venture deals few and far between, the concept is compelling and the panel discussion attracted drew well over 100 people to the event.

The CEOs who participated all represented San Diego biotech startups at different points along the continuum of business development. Lithera, a two year-old startup headed by Dobak with backing from Domain Associates and Alta Partners, represented the earliest stage venture. At the other end of the spectrum is Ambrx, which was founded in 2003 to develop new amino acid building blocks for new types of protein drugs.

Jeff Stein, a Sofinnova Ventures partner who also serves as chief executive at Trius Therapeutics, told the audience he represents a counterpoint to the case for creating a virtual biotech company. Stein emphasized that Trius has gained key insights by conducting its own research and drug development internally. “There are incredible synergies at a full-fledged company that makes things happen so much faster,” Stein said.

Nevertheless, Stein conceded, “A lot of VCs are looking very hard now—and they have been for a while—at the virtual model. It’s very attractive to get an asset that’s at a later stage with a minimal staff around it, and with the downsizing in Big Pharma, there are some incredible CROs (Contract Research Organizations) available.”

Among the recommendations and warnings the panel provided:

—Maintaining close control over a contract research organization “is absolutely critical,” said Charles Theuer, CEO of Tracon Pharma. He emphasized the importance of selecting a CRO “really carefully.” …Next Page »

Comments (2) | Reprints | Share:        

Issaquah, WA-based Digini announced it has merged with Shanghai, China-based Vyk Games to form a new company called Blade Games. The new firm will provide game development software and outsourcing services to game makers. Financial terms weren’t disclosed. Blade Games will be headquartered in Bellevue, WA, and headed by Digini CEO Tony Garcia.

Comments | Reprints | Share:        

It was a relatively light week for deals in the Northwest, with modest activity in business software, Internet, and biotech.

—PivotLink, a software firm specializing in business intelligence with offices in Bellevue, WA, and San Francisco, CA, closed a $10 million Series C round led by StarVest Partners. Other investors included Trident Capital and Emergence Capital Partners. PivotLink was called SeaTab Software until January 2008.

—Seattle-based Ontela, a mobile-imaging startup, closed an undisclosed amount of new funding from Eastven Venture Partners. Ontela has also signed deals with four of the top five handset makers to pre-install its photo-management software on mobile phones.

—Beaverton, OR-based Infinity Softworks raised an undisclosed amount of financing from undisclosed investors. The company makes software for doing calculations and creating reports on the iPhone, BlackBerry, and other mobile devices.

—Luke reported that Helix BioMedix (OTCBB: HXBM), a Bothell, WA-based developer of peptide molecules, raised $3.2 million through debt that can convert into shares of stock plus warrants to buy its stock. The company’s peptides are used in skin care and other cosmetic products.

—Bothell, WA-based MDRNA, a developer of RNA interference drugs, agreed to license some of its technology for a one-time, non-refundable execution fee from Roche, the Swiss drug giant. The deal is non-exclusive to Roche, as Luke reported, and the financial terms were not disclosed.

—Seattle-area startup Frugal Mechanic, an online search engine for auto parts, closed a round of seed funding from Seattle-based Founder’s Co-op, a peer-to-peer investment fund. The exact amount was not disclosed, but is between $250,000 and $500,000. Frugal co-founder Eric Peters told me the story behind the company and how it got funded in a difficult climate.

—Smartsheet, a Bellevue, WA-based firm that makes work-management software for businesses, formed a partnership with Amazon to deliver outsourcing services to mass consumers. The new offering is powered by Amazon Mechanical Turk’s 100,000 virtual workers, and rates for outsourced tasks run between $0.01 and $5.

—In a snapshot of Seattle-area tech startups, four companies formed significant new partnerships, though no financial terms were disclosed. Bellevue-based Apptio, an IT optimization firm, made deals to work with Amazon Web Services, Skytap, VMware, and Citrix. Seattle-based Earth Class Mail licensed its online postal-mail delivery software to Swiss Post. Seattle-based Evri is providing its content recommendation widgets to the Washington Post for online news stories. And Seattle’s Redfin announced new partnerships with more than a dozen real estate brokers around the country, representing a shift in the company’s business strategy.

Comments | Reprints | Share:        

Bellevue, WA-based Smartsheet, a project-management software firm, announced it has formed a partnership with Amazon to deliver outsourcing services to the masses. The new release, called Smartsourcing, is powered by the 100,000 virtual workers in Amazon Mechanical Turk. Each outsourced task, such as finding a list of articles, e-mail addresses, or experts on a topic, costs between $0.01 and $5.

Comments | Reprints | Share:        

Bellevue, WA-based Smartsheet has raised $1.25 million in Series B funding, says co-founder and executive chairman Brent Frei, on his blog. Investors included Madrona Venture Group and Frei himself. Smartsheet makes software that companies use to manage team-based projects and track outsourced tasks, as an alternative to Excel spreadsheets, e-mail folders, and the like.

Frei, on his blog, says he’s putting his money “where I know the team, product and plan are stable and growing.” He continues, “Our modest $1.25M B round should take us to profitability in 2010 and beyond. Plus, there’s no better time to double down on yourself than when the tailwinds are out of everyone’s sail and you have strong rowers.”

He touts his company’s capital efficiency, quality product, and strong customer base. “I’m looking forward to this year, even amidst the challenges due to a struggling economy,” he writes. “It’s a good bet to invest my own money in an extremely affordable, well-designed online service that will likely be the tool of choice for those downsized businesses trying to eek more productivity from fewer staff. It’s a great bet to invest in this team.”

Two months ago, Frei told me that Smartsheet aims to help workers collaborate better in multiple locations, and to become the “Google of team-task management.” So far, so good. According to Frei, the company (which he started in 2005) has registered more than 65,000 users in more than 30 countries.

Comments | Reprints | Share:        

Peter Pallai has an unusual take on outsourcing. In his view, it might be the way to bring some stability to the volatile world of biotechnology.

Pallai, a Hungarian-born medicinal chemist, is carrying out this vision through a contract-chemistry shop in San Diego called BioBlocks. Pallai started this outfit in 2002 after spending more than 20 years at drug companies, including Woburn, MA-based ArQule (NASDAQ: ARQL). In those jobs, he saw firsthand that after a biological discovery is made, say, of a promising new target for cancer, then the long, hard slog begins. Chemists need to work to “optimize” a drug that hits the target precisely, and tightly, without causing harmful side effects—a process that can take years and millions of dollars.

Approximately one out of 5,000 compounds pass an initial screen, hit the designated biological target, and end up making it to clinical trials. So Pallai’s pitch is simple. He and his team are good at one thing-chemical synthesis of new drug candidates to hit those targets. By outsourcing this piece of the puzzle to his team of chemists, about 25 of whom work in Budapest, Hungary, biotech companies can get the work done fast and well, he says. It makes sense professionally for his chemists as well, because they can get steady work, rather than hitch their wagons to one of hundreds of biotechs that dream of becoming the next Genentech, but are more likely to end up flaming out in a few years.

“This is a treacherous path to travel,” Pallai said when I visited his office a few weeks ago. “Companies have to ask themselves if these are things they really know well how to do. We can make them more efficient, and spend their intellectual effort on other things.”

BioBlocks claims it can shorten the process from a biological “hit” to the identification of a “lead” drug candidate to inhibit it. Running through the databases, the patent literature, finding the right reagents and ingredients is the chemists’ forte, he says. It’s a critical skill that biotech companies often lack.

So why do this work in Hungary? First, Pallai has connections there and speaks the language. But second, he says Hungary has an ample supply of talented chemists with experience at companies like Sanofi-Aventis. And, of course, the wages …Next Page »

Comments (3) | Reprints | Share:        

Seattle-based Movaya and PressOK Entertainment announced today they are joining forces to develop mobile games. Financial terms and impact of the deal were not disclosed. PressOK was formed by the merger of mobile-gaming companies Reaxion and Mobliss in September. Reaxion’s development teams are in Russia and Belarus, while Movaya’s team is in China.

Comments (1) | Reprints | Share:        

On Friday, there was a really good talk by the noted tech entrepreneur and investor T.A. McCann at a Northwest Entrepreneur Network breakfast in Bellevue, WA. The topic was how to get a startup off the ground: he called it “0-25 mph.” What with the economy these days, advice from someone like McCann seems more valuable than ever. For those who may have missed the talk, here are a few highlights and a link to McCann’s slides.

McCann is a former Microsoftie who has experience at Polaris Venture Partners and Vulcan Capital. He has been involved with a number of tech startups, most recently Evri and Gist, the latter of which he currently leads as founder and CEO. I thought McCann’s comments in his blog about the talk were particularly telling about his approach to entrepreneurship. “I always learn something when I do these kinds of events, both about what I have done right/wrong in the past and how I can be better in the future,” he writes.

At the bottom of his talk slides—which covered everything from strategy and operations to fundraising and hiring—McCann listed “lessons learned.” A few points stood out to me:

—Know your own space, pick customers you want to embrace, and make sure they pay.

—Strategy should not be complicated.

—A team’s value is 5 parts passion, 2 parts brains, and 1 part experience.

—Outsource routine tasks, hire for thought leadership.

—Deliver status updates every two weeks to your investors/board/advisors.

McCann closed with the following five-point summary for entrepreneurs. Points #2 and #5 are really key, I think:

—If it were easy, everyone would do it.

—Love your customers more than your idea.

—Use the right tools, timing, and discipline.

—Know where to spend and save.

—If you were rich, would you still be doing it?

Comments (1) | Reprints | Share:        

I’m attracted to the market opportunity within large, established markets. These markets already have huge spend, they have established dominant players with an inertia resistant to major change, most of the innovative talent and money is off in new market spaces, and innovation within these spaces tends to be evolutionary in nature and follow predictable paths.

Identifying a large market that can serve as an appropriate target is often as simple as listening for the drumbeat of consistent comments like:

— “Wouldn’t it be cool if…”
— “I wish there was a…”
— “Why doesn’t somebody invent a…”

The revolutionary innovation that occurs in many of these markets is often serendipitous. That means someone isn’t looking to solve the end problem, but something they did is applicable to it. See, for example, Viagra or Post-Its.

More often than not, however, the real revolutionary innovation is in line with the evolutionary. Therefore, pick a really big market and do something revolutionary within the natural evolution of the space.

So the key question becomes: what is it that successful inventors do to be revolutionarily successful within an evolution?

The current modern wonder of revolution within evolution is the Apple iPhone. Apple’s formula for innovation in mature markets is the gold standard. How do they do this? My assessment is that they follow two simple principles:

—Design for how people work.

—Consolidate and reduce core concepts to a ridiculous minimum; a core concept is anything the customer has to learn or understand in order to successfully use your product.

Mobile phones, e-mail on Blackberries and Treos, MP3 music players—all of these existed separately and with ever-expanding feature sets. The race toward consolidation had been going on for some time; but it carried with it the complex, rich feature sets of each independent device.

Apple, with its special magic, stuck with the less-is-more approach and let’s make the …Next Page »

Comments | Reprints | Share:        

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

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

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

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

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

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

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

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

Comments | Reprints | Share:        

One largely non-technical issue I feel strongly about is President-elect Obama’s misguided pronouncements on outsourcing.

I think America needs to create new high-quality jobs and not resort to public policy to cling to jobs that can and will get done elsewhere. Preserving “old fashioned” jobs sounds quaint and romantic but would trap people in jobs that are no longer viable and delays the creative rethinking and reinvention of businesses. As President, Obama must lead Americans down the path of innovation and teach them how to overcome the hurdles that come up.

On a more technical note, I am delighted that Obama has championed genomic personalized medicine. I hope he will enlarge support for new research initiatives and IT infrastructure investments so we can do a better job of anticipating diseases, lowering the cost of drug discovery and extending the productive lives of our citizens.

Genetic information could become the basis for new forms of discrimination and get in the way of personalized medicine. I was delighted to learn in this context that President-elect Obama supported the Genetic Information Nondiscrimination Act of 2008. I hope he uses the power of the Presidency to advance our study and practice of personalized medicine and helps America become the world leader in this domain.

Comments | Reprints | Share:        

There’s no such thing as a flawless software application: the only question is how many bugs its developers had time to catch and fix before release, and how many will be discovered by customers. And with software being written today for so many different platforms and operating systems, from servers to desktops to mobile devices to Web browsers, it’s becoming harder and harder for software companies’ in-house testers to try out their creations in every context where businesspeople or consumers are likely to encounter them.

That’s why more software makers are outsourcing all or part of their quality assurance (QA) process to specialized testing firms in places like India and China. And it’s why a new Boston firm called uTest thinks it can make it big by building a global community of thousands of freelance QA testers, available to test software at a moment’s notice in any environment where a program is likely to run.

Need to see whether your new Web service works on the Safari browser for Mac users in Germany? No problem—uTest, which has been serving a couple of dozen pilot customers since April and opened its doors for general business yesterday—has testers there who can try it out. In fact, the company has assembled a network of more than 8,000 testers worldwide—some 10 percent of the world’s entire population of professional software QA testers, according to uTest CEO and co-founder Doron Reuveni.

“QA is a big business,” says Reuveni. “Applications today need to operate in complicated combinations of platforms and networks, and hiring a staff and building an infrastructure for doing software testing internally is not always cost effective. The fact that we have access to such a large community of professional testers has allowed us to take that big business and provide it on demand.”

An “on-demand” approach gets around several of the inefficiencies built into the traditional software testing business, in Reuveni’s view. For one thing, most QA outsourcing deals require a long-term contract. But by doling out bug-finding work through uTests’s software-as-a-service platform, software makers only have to pay testers when they’re actually working toward a new release.

And QA often suffers from its own lack of QA: software companies usually have to pay up on their outsourcing contracts whether or not they’re getting back a lot of high-quality, actionable bug reports. But on uTest’s platform, clients accept or reject each report manually, and are only charged for those they accept. “We like our customers to pay solely for performance,” says Reuveni.

Reuveni and co-founder Roy Solomon started uTest last year to prove that this new, more flexible model could save software companies money and time. They’ve collected $2.2 million in venture funding from the Massachusetts Technology Development Corporation and Connecticut-based Mesco Ltd., a private financial advisory boutique that previously funded Greenfield Online, an online community of paid citizen panelists who provide feedback on consumer products. And they recruited their own community of QA testers by putting the word out through Facebook, LinkedIn, and key blogs frequented by QA professionals.

Testers who put in a couple of hours of work each day can make $250 to $300 a week, Reuveni says. UTest makes money by taking a slice of its clients’ per-bug payments. The percentage kept by uTest—like the per-bug fees themselves—varies according to the number of testers assigned to each software release, the type of application being tested, and other factors.

You might think that the pay-per-bug model would give some uTest clients a way to find out about important problems and then evade paying for the bug reports simply by rejecting them. But during uTest’s pilot period over the last few months, the model has worked well, with a very low percentage of reports being …Next Page »

Comments (2) | Reprints | Share:        

Yesterday Amazon announced it has created a Web interface that makes its “Mechanical Turk” service easier for businesses to use. Until now, companies needed software coding expertise to set up and manage the service, whereby anonymous Web users can sign up to perform small tasks for small payments. In Boston, Wade recently wrote about one company that uses the service, Needham, MA-based Mobicious, to screen photos submitted to its SnapMyLife mobile phone application.

Launched in late 2005, Amazon Mechanical Turk aggregates so-called “human intelligence tasks” that are hard for computers but easy for people, like recognizing objects in photos, judging whether a photo is offensive, or identifying actors in DVDs. The name comes from the 18th-century chess-playing machine called The Turk: it plays on the fact that the “machine” was actually an elaborate hoax operated by a person inside.

It’s a pretty interesting idea, and now a much broader range of companies can potentially use it. ZDNet has a nice piece explaining what business users can do with it, and showing the new interface that attempts to take the service “beyond the geek chic crowd.”

Comments | Reprints | Share:        

Being the leader of the pride, it seems, doesn’t guarantee you a nice meal everyday. Waltham, MA-based Lionbridge Technologies (NASDAQ: LIOX) may be the world’s largest provider of localization services, helping hundreds of other companies from Microsoft to Merrill Lynch to Pfizer go global by translating their websites, product manuals, software programs, and drug warnings into other languages. But it sure isn’t getting rich doing it: On May 6 the company reported a net loss of $4.4 million for the first quarter—its third straight quarterly loss—and last Friday Lionbridge stock dipped to $2.37 per share, its lowest point in more than five years, and down 61 percent compared to a year ago.

That’s lower than even the most pessimistic analysts were predicting at the beginning of 2008. As the financial website 24/7 Wall Street put it in a catty post recently, “It looks like the lion’s roar is a meow, at best.”

It’s a frustrating reversal for a company whose CEO, Rory Cowan, was being lionized (that’s the last cat pun, I promise) just three years ago for putting together a $180 million deal to buy one of its main competitors, the Global Solutions unit of New York-based Bowne & Company. That acquisition vaulted Lionbridge into the ranks of Boston’s 60 largest companies. And it’s a puzzling state of affairs, given that the company’s revenues are large and growing—a record $117 million in the first quarter, up more than 8 percent from a year earlier. But no matter how high the company’s revenues go, its expenses seem to go higher.

One answer to the puzzle seems to be that Lionbridge’s expansion has put it at the mercy of the same twin forces—technology and globalization—that drive demand for its services.

Analysts who follow localization services—a $12 billion industry in 2007—point out that translation is still a labor-intensive process, and that Lionbridge’s strategy of employing hundreds of managers, engineers, and translators in expensive regions like Europe may be backfiring with the weakness of the U.S. dollar against the Euro and many other currencies.

And while Lionbridge has made a significant investment in technology—especially on work-flow automation and memory systems that save labor by identifying material that’s already been translated—it hasn’t really profited from that spending. “What has happened is that the benefits of the efficiency gain that Lionbridge has been able to produce through the use of technology have been handed right to the client” in the form of prices that have stayed flat despite global inflation, says Ben Sargent, content globalization strategist at Common Sense Advisory, a localization market research firm in Lowell, MA.

It wasn’t supposed to be this way. Lionbridge, founded in 1996, has spent hundreds of millions of dollars on acquisitions and other growth strategies, and has the client list (Bayer, Cisco, DuPont, GE, Google, IBM, Merck, Merrill Lynch, Microsoft, Morgan Stanley, Nokia, Pfizer, Sony, and Wal-Mart are a few of the big names) and revenues ($452 million in 2007) to show for it. With 4,600 employees in 45 offices around the world and a network of 25,000 freelance translators skilled in more than 200 languages, the company is three times the size of …Next Page »

Comments (11) | Reprints | Share:        

There’s endless debate about how to encourage more innovation inside technology companies. But in Waltham, MA, there’s a startup that says, in effect, don’t bother: innovation can be outsourced to a global community of freelancers.

InnoCentive was set up by Eli Lilly in 2001 as an experimental way to farm out some of the giant drugmaker’s biggest product development challenges by posting them on the Web and inviting people around the world to submit competing solutions, with a substantial monetary prize as the reward for the winner. Two years ago, Lilly spun out the company as an independent venture, and it has since diversified beyond the life sciences to a range of disciplines, such as computer science and cleantech. And today, the organization announced that it’s raised a new pile of venture money—$6.5 million altogether, which it will use to upgrade its platform and expand its network of “solvers,” people who submit solutions in hopes of winning awards that range from $10,000 to $1 million.

It works like this: Companies (called “seekers”) work with InnoCentive to craft a well-defined challenge and pick a dollar amount for the award. InnoCentive then alerts its network of solvers, and those who choose to engage in a particular challenge are given access to online project rooms containing proprietary details about the seeker’s project. At the end of the challenge period, the seeker evaluates the solutions and chooses one as the winner; InnoCentive then helps transfer the rights to the solution from the solver to the seeker’s organization.

It isn’t “crowdsourcing” in the typical Web 2.0 sense of throwing open a problem and soliciting thoughts and contributions from thousands of random Internet surfers. It would be more accurate to describe InnoCentive’s platform as a mechanism for soliciting RFPs (requests for proposals) from a much broader cross-section of experts than any company could reach through the traditional business consulting process. Companies like Procter & Gamble use Innocentive’s system to find new product ideas faster than they might on their own, and the model has even inspired imitators such as Ohio-based Planet Eureka, which launched last month.

The problems posted at InnoCentive range from grand challenges (one seeker is offering $1 million for a biomarker that can track the progress of amyotrophic lateral sclerosis, or Lou Gehrig’s Disease) to utterly practical, small-scale problems (the Rockefeller Foundation offered $20,000 for a design for a solar-powered wireless router for use in developing countries). To date, solvers have collected over $3 million in awards, according to InnoCentive.

The lead funder in the funding round, InnoCentive’s second, was Spencer Trask Ventures, a New York-based investment network that includes scores of high-net-worth individuals. Lilly also contributed to the round. On Monday I had a phone conversation with InnoCentive CEO Dwayne Spradlin about how the organization plans to use the funds—and about the effectiveness of the prize-based innovation model in general.

Xconomy: It would be great if you could talk a bit about InnoCentive’s current direction, how that has changed over the past few years, and how you plan to use the new cash infusion.

Dwayne Spradlin: The company has been around for about seven years. We were founded under Eli Lilly and spun out as a standalone company a few years ago by Spencer Trask. As you point out, the company is a fair bit different today from a few years ago. The last several years were really about proving the concept—that is, that open innovation could drive remarkable outcomes for organizations that are innovation-hungry and that need better, faster, cheaper product development and time to market.

Now it’s ready for prime time. In the past six months, we’ve added challenge categories including business and entrepreneurship, engineering and design, physical sciences, and mathematics and computer sciences. We’ve increased the number of tools we offer—we used to focus on deep research-type tools but now we also offer “ideation” tools that help large numbers of people brainstorm very quickly, and electronic RFPs so that clients can find business partners very quickly, and help managing intellectual property rights. So we’ve gone beyond the proof-of-concept stage to the stage of getting InnoCentive into the hands of as many organizations as possible. We and the investors in InnoCentive believe this is the time to expand.

The $6.5 million is earmarked for expansion in three areas: First, our sales and marketing footprint, really getting feet into the street to evangelize the product. Second, expanding our solver community, which is 140,000 strong, but we have about 5 billion …Next Page »

Comments (3) | Reprints | Share:        

BJ’s Wholesale Club (NYSE: BJ), the Natick, MA-based chain of 177 warehouse club stores across 16 eastern states, has hired Neeedham, MA-based tech support outsourcing provider HiWired to manage a new website and call center that will help members of BJ’s with their computer glitches, HiWired announced today. Called TechCare, the service costs $45 to $155 per incident and can be accessed by phone or over a broadband Internet connection (allowing technicians to diagnose problems remotely). We last wrote about HiWired when it collected $9 million in Series B funding in January.

Comments | Reprints | Share: