Get a bunch of prominent Boston-area founders and CEOs in a room together, and ask them provocative questions. It’s a tried and true recipe for a good discussion, and that’s exactly what we got at the end of the day on Friday at MassTLC’s 2011 unConference at Hynes Convention Center in Boston. The topic was “the secrets of scaling,” and it was a fitting end to a fun and productive day.

This was the Mass Technology Leadership Council’s fourth annual innovation conference, and the event has really solidified in its “unconference” format, in which hundreds of tech entrepreneurs, investors, execs, and other business leaders meet and create organic sessions to discuss whatever is on people’s minds. Most people are there for the networking and private meetings, but that didn’t stop a few lively sessions from breaking out.

The secrets of scaling session—focused on how startups get big—was organized by journalist Scott Kirsner and was more conference-y than unconference-y, as it was planned ahead of time and had the feel of a big panel. Here are some takeaways from that (before I get to some broader highlights later).

Each of the companies on the panel could be considered a Boston success story: Constant Contact, Gemvara, iRobot, Kayak, LogMeIn, Wayfair (fka CSN Stores), Zipcar. (See photo above by Jeff Bussgang, who noted that you can distinguish the pre-IPO companies from the public companies by who’s wearing jeans.) The idea was to tap into this collective braintrust and draw out some key lessons.

Paul English of travel site Kayak said he routinely asks people, who’s the smartest person you ever met? And then he goes out and tries to hire them. He relayed the story of recruiting Giorgos Zacharia, Kayak’s chief scientist, a process that took several years but was well worth it. “It was transformational,” English said. He also talked about Kayak’s expensive acquisition of rival SideStep back in 2007. Kayak fired all of SideStep’s engineers and created a duplicate version of its site. Lesson: hire and fire ruthlessly.

Niraj Shah from Wayfair talked about his e-retail company’s bootstrapped growth, starting in 2002. Once his team figured out how to make money from niche online stores, it faced lots of competitors and had to decide whether to raise money or stay the course. It chose the latter (until this year, when it did raise a big round). “We just launched new categories as fast as we could, built out selection in each category as fast as we could,” Shah said. “We let the growth compound on itself.” The key was “not letting early successes keep us from letting that compound,” he says. Lesson: stick to your knitting.

Michael Simon from LogMeIn, the remote access and IT management firm, started with the idea of being a lifestyle business, not a public company (it now has 450 employees, about 200 in Massachusetts). The key moment in LogMeIn’s growth was when it “started giving away stuff,” he said. This was before “freemium” was a popular model. The company’s revenues started very small but grew exponentially. “If you have an exponential growth curve, the absolute number doesn’t matter,” Simon says. “You’ll get there.” Lesson: start small and get traction.

Matt Lauzon from Gemvara, the online custom jeweler, represented the younger generation of entrepreneurs on the panel. Although it’s still fairly early for Gemvara (which started as Paragon Lake in 2006), the company seems to be on an impressive growth trajectory. “We didn’t want to … Next Page »

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[Updated at 4 pm Pacific] Real-estate website operator Zillow (NASDAQ: Z), which went public in late July, reached profitability in the second quarter on revenues of $15.8 million, more than double the sales of a year earlier. The Seattle company’s net income for the quarter was $1.6 million. A year earlier, it had lost $2 million.

As has been the case for the past few years, revenue growth was driven by ”marketplace” revenues, which include subscription fees for real estate agents and advertising sold to mortgage lenders, along with charges for lenders to participate in the company’s Mortgage Marketplace.

That revenue stream reached $9.7 million in the second quarter, up from $2.6 million a year earlier. Display advertising, meanwhile, still grew—but nowhere near as rapidly, reaching $6.1 million for the quarter, up from $4.7 million in the same period during 2010.

Zillow said average monthly unique visitors to its website nearly doubled for the quarter, to 20.8 million. All the publicity around the company’s IPO certainly helped drive eyeballs.

[Update] Here are some key takeaways from the conference call with analysts:

—Zillow is going to spend some money this year to beef up technology, ramp up sales, and grow the staff. The company cleared nearly $80 million from the July IPO after underwriting fees, and had $16.2 million in cash on its balance sheet and no debt at the end of the second quarter on June 30. Now at around 265 employees, Zillow is moving to a new headquarters this month and is hiring for about 40 positions.

—Zillow didn’t break out a net-income guidance figure for the third quarter and rest of this year, but gave an outlook for overall revenues and its adjusted EBITDA earnings. The company expects $16-$17 million in revenues in the third quarter, with non-GAAP earnings of around $8 million. For the year, Zillow is looking at revenues of between $59-$61 million, with non-GAAP earnings in the range of $8-$10 million. Both of those revenue figures would be around double the performance from a year earlier.

—Agents signed up for Zillow’s Premier Agent program are spending more on their accounts, helping overall revenue from that segment grow faster than the pace of new agents signing up. CEO Spencer Rascoff said that means overall “marketplace” revenues are a better measurement, cautioning analysts not to lean too heavily on the number of new agents as a performance indicator. The agent program is the biggest slice of those marketplace revenues, which also include sales from its relatively new mortgage-shopping site.

—There are about 13,400 agents signed up to the premier program, a fraction of the 1 million nationwide that Zillow estimates are active in the real estate business. Zillow also estimates that the nation’s real estate agents spend about $6 billion annually on marketing, leaving a huge source of revenue to attack. “We have less than a 1 percent share of their advertising budgets right now,” Rascoff said. “We think we’re dramatically under-penetrated, relative to our traffic and our importance in the industry.”

—There’s been some improvement in the sluggish housing market following the historic collapse of a few years ago, and it’s not ready to rebound just yet, according to Zillow’s data. While some markets, such as Washington, D.C. and Pittsburgh have improved, “Zillow’s data says that we haven’t bottomed yet, and we don’t think we’re going to bottom until 2012,” Rascoff said.

“We’re certainly closer to the end of the housing recession than the beginning, but we’re not through it yet. However … we’ve managed to grow quite nicely through this recession,” he said. “I think, actually, the housing downturn has accelerated the migration of advertising budgets for real estate advertisers from offline to online, and Zillow’s clearly been a beneficiary of that acceleration.”

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It’s not every day I get to dine with the CEO of a public company worth $5 billion. Last month I sat down with Andy Ory, founder and chief exec at Bedford, MA-based Acme Packet (NASDAQ: APKT), for an in-depth chat about his company’s strategy and outlook in the area of networking technology.

The setting was The Friendly Toast in Cambridge, MA. Ory has a soft spot in his heart for the Kendall Square area—back in the late ‘80s, he worked at Boston Technology, the voice-mail pioneer whose office was next to where Friendly Toast sits today. (If you ever get a chance, ask him about the story of using the local pay phone for product testing.)

Over a BLT and huevos rancheros (if I recall correctly), we talked about everything from Ory’s startup lessons to big-company concerns and business regulations, from Microsoft’s acquisition of Skype to how Acme Packet is like Cisco back in 1993. (Ory is speaking tonight at a Boston-area event with Founder Collective’s Eric Paley; he will talk about Acme Packet’s story and his broader experiences in building companies.)

Ory is a leading light in the tech entrepreneurship scene. Before founding Acme Packet in 2000, he cut his teeth at Boston Technology and then founded Priority Call Management, which sold to LHS Group for over $160 million in 1999. Over the past decade, he and his team have built Acme Packet into a leader in session border control—technology that helps telecom network operators and big companies manage voice-over-IP (VoIP) and other communications and services over the Internet in an efficient and secure manner.

Yet things have not always been rosy for Acme Packet, which went public in 2006 and now has roughly 700 employees (about 450 in Bedford). The company’s stock fell below $4 in late 2008, before rebounding and rising strongly in the past year and a half, to around $70 in recent months. I wanted to hear about that dramatic comeback too.

Ory didn’t disappoint as either a lunch companion or an interview subject. It helps that he is a charmer and a natural-born storyteller. Consider how he explains where Acme Packet sits today:

“Imagine you were visiting a company back in 1993 called Cisco Network Systems. ‘What do you guys do?’ We make a router. You might say, ‘what’s a router?’ It’s a piece of hardware and software. The reason is enterprises are converting their infrastructure to IP [Internet protocol] because of e-mail. If enterprise A wants to send e-mail to enterprise B, they need a router between them. Well, you might say, ‘what percentage of enterprises are going to do e-mail?’ And they’d say, every single one on the planet. ‘And how many e-mail messages fill up a router?’ To figure out how many routers you’re going to sell. What was really interesting is, when you connect all these networks together, a network effect ensues. Of course I couldn’t say to you, Amazon, Yahoo, Google, Napster—I wish I could have,” Ory says.

“Now let’s fast forward 18 years and you’re visiting my company,” he says. “We make a session border controller. Enterprises and service providers are converting their service infrastructure to IP so they can do voice over IP. When they want to make a VoIP call from one enterprise to another, they need a session border controller to connect those two enterprises. So you’d say, ‘what percentage of enterprises and service providers are going to do VoIP?’ And of course my answer is, every single one. … Next Page »

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Please excuse this bout of drive-by journalism, but it’s been a very busy couple of weeks for events and news in Xconomy-land. One very impressive local event was the Boston Biotech Business Development Conference on Tuesday (part of the greater Boston Biotech Conference series). The Mandarin Oriental Hotel in Back Bay was full of biotech’s heavy hitters every which way I turned.

I was able to catch a few sessions that focused on the trials and tribulations of large biotech companies, life science venture capitalists, and private startups.

One part I missed, regrettably, was an afternoon chat with veteran investor Peter Brooke of Advent International and Keith Lockhart, the conductor of the Boston Pops, moderated by biotech entrepreneur and venture capitalist Christoph Westphal (see photo above, courtesy of Lacy Roosevelt from Weber Shandwick—you can click on it to see a larger version). Anyone who answers the question “Is the venture capital model broken?” with “There are so many stupid questions,” as Brooke did at another event last week, is OK in my book.

Here are some tidbits from what I saw, heard, and gathered after the fact:

—John Maraganore from Alnylam Pharmaceuticals (NASDAQ: ALNY) quipped that he had a hard time finding his “large biotech” panel (he was moderating) “because it was hard to find a large biotech.”

—Biotechies have a love-hate relationship with Big Pharma—and a hate-hate relationship with the FDA. Matt Emmens from Vertex (NASDAQ: VRTX) noted that he’s hired 600 people in two and a half years, and many have come from pharma. “It’s a good talent pool,” he said. In terms of pharma competing with biotech companies, Richard Pops of Alkermes (NASDAQ: ALKS) said Big Pharma can’t move as quickly to work directly with academic researchers, the way biotechs can. The panel unanimously groused about the challenges of gaining FDA approval for drugs, but they also had some “Stockholm syndrome” sympathy for regulators trying to operate within FDA’s “Byzantine structure.”

—Drug developers can face the dilemma of “turning the corner too early” with new treatments, said Steve Holtzman of Biogen Idec (NASDAQ: BIIB). While these treatments produce short-term praise, patient benefits, and revenue, investors continue to evaluate public-company success on longer-term earnings. So, these companies might encounter difficulty in sustaining profitability.

—More on the evolving relationship between pharma and biotech: Pharma is looking for more external business development opportunities, not wanting to go hostile. Biotech continues to be the first wave of innovation, but it’s struggling to stay small as it becomes big, Emmens said. That is, smaller companies on the verge of going commercial have to either grow into Big Pharma’s shoes, or try to maintain their success through their current collaborative culture and environment.

—Biotech VCs think there’s a new tech bubble, but they don’t agree on its impact. Vaughn Kailian from MPM Capital argued that biotech got spillover from the last bubble and “it was dumb money.” But that was built on lots of companies, versus today’s bubble that’s built on just a few (Facebook, Groupon, Zynga), so he worries about “the dam breaking” and sweeping everything away. Atlas Venture’s J.F. Formela countered that this time, the tech companies have “massive revenues,” so the “bubble has a different shape.” The panel seemed to agree that biotech capital is scarce, and that’s when VCs can get the best returns. (On the other hand, smart observers also realize that no one really knows anything—Venrock’s Bryan Roberts said “companies that succeed end up working on things other than what we invested in.”)

—From the Brooke-Lockhart discussion (with an assist from Weber Shandwick): There is a connection between biotech and the arts, in that opportunity comes out of diversity. It is a tough time for biotech, and it’s always a tough time for the arts; however, it is a great time to look at new ways to deliver products.

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Seattle-area tech giants Amazon.com and Microsoft reported their earnings for the first three months of 2010 today, and each touted significant increases in profits compared with the same period a year ago. Microsoft (NASDAQ: MSFT) reported a quarterly profit of $4.01 billion, an increase of 35 percent over the first three months of 2009, thanks in part to sales of its Windows 7 operating system. Meanwhile, Amazon (NASDAQ: AMZN) posted a quarterly profit of $299 million, a 68 percent increase over its first quarter of 2009, and said the Kindle e-book reader was its top-selling product. Both companies’ shares fell by a few percentage points after their earnings reports.

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Seattle-based Cray, the supercomputer company, announced today it has been awarded a multi-year, $20 million contract with the Foundation for Space Technology, Applications and Science in Brazil. Under the terms of the contract, the company will deliver a Cray XT6 supercomputer to Brazil’s National Institute for Space Research, to perform weather forecasts and climate studies; the computer will go into production later this year. Cray (NASDAQ: CRAY) has won a series of large government contracts, both foreign and domestic, in the past year. Last July, Cray CEO Peter Ungaro gave me a detailed overview of the company’s strategy, shortly before it posted a surprise profit for the second quarter of 2009.

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Sometimes a question that sounds naïve at first can lead to a revealing answer. So here goes: What is it about Amazon’s corporate culture that seems to foster creativity and innovation, while Microsoft gets ripped constantly for failing to innovate? Are there simple principles at work inside Amazon that might explain the difference?

I choose to compare these companies for a basic, if unscientific, reason: they’re the two biggest publicly-traded tech firms in town. And just as Microsoft (NASDAQ: MSFT) helped define a generation of entrepreneurs and technologists in Seattle—and around the world—many would argue that Amazon (NASDAQ: AMZN) will help define what comes next.

OK, so comparing these two tech giants is like discussing apples and oranges. They have vastly different customers, business models, and technologies. And one is a lot bigger and older than the other. We’re talking about a 35-year-old Microsoft that is more than triple the size of 16-year-old Amazon, after all.

But people forget how much Microsoft has grown in just the past decade. The Redmond, WA, firm more than doubled in size from 2000 to 2009, going from about 40,000 to 90,000 employees worldwide. In that period, its revenues increased by a factor of 2.5 (from $23 billion to $58 billion), while profits also climbed, albeit at a slower rate (from $9.4 billion to $14.6 billion). By comparison, Amazon had just over 24,000 employees at the end of 2009, when it made about $900 million in year-end profits (on $24.5 billion in revenues). So Amazon’s size and revenues are more comparable to Microsoft’s in 2000, though its profit margins are much lower. My point is that Amazon today looks a lot like Microsoft did a decade ago on some important measures of business success.

So for now, let’s focus our questions more carefully. How has Amazon managed to remain nimble even as it has grown to 24,000 employees? After starting with a simple website that sold books online, it now offers a huge diversity of products, from books and other physical goods to an e-commerce platform, cloud computing services, Kindle e-books and readers, and now, mobile applications. What deeper lessons can startups and big companies, including Microsoft, take away from its story?

Amazon is a hard company to get to know. For better or worse, its executives rarely talk to the press, and they almost never comment publicly on business strategy or competitors. (The company declined to comment for this story.) So instead I’ve been talking with former Amazon employees, as well as outside tech observers, to get a better feel for the culture and strategy there. And to get some insights straight from the horse’s mouth—from founder and CEO Jeff Bezos—I had to dig around a bit more (see further below).

Without a doubt, Amazon’s culture comes from the top. From the beginning, Bezos did things a little differently. Former Amazon executives say the CEO liked to hire people fresh out of … Next Page »

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Ding, ding. What’s that sound? It’s Isilon Systems ringing the NASDAQ market closing bell at 4 pm ET this afternoon.

The Seattle data storage company (NASDAQ: ISLN) is celebrating its first quarterly profit in its nine-year history. I caught up with CEO and founder Sujal Patel by phone from New York this morning after the company’s earnings call.

Isilon’s revenue for the fourth quarter of 2009 was $37.5 million, up 23 percent from $30.5 million in the previous quarter and up 18 percent from $31.8 million in the fourth quarter of 2008. That translated into a small quarterly profit of $140,000, as compared with a net loss of $4.9 million in the third quarter of 2009. The company’s revenue for all of 2009 was $123.9 million, up 8 percent from $114.4 million in 2008.

“It is a small profit, but it’s an important milestone for the company,” Patel says. “It provides validation for the business model.” That model includes an increasingly successful global channel strategy that targets sales in the $500,000 to $1 million range, he says.

The foundation for Isilon’s comeback was laid in the past two years, as I detailed in October. The company, which had come crashing back to earth after a high-flying IPO in late 2006, had a bit of a restart the following year, when Patel was renamed CEO. (He had previously been chief executive for Isilon’s first three years). Patel led the charge to reinvest in R&D, established a more cost-effective product distribution strategy, and brought in a more experienced senior management team.

But its technology has always been the company’s main advantage. Isilon’s network-attached storage system helps companies deal with huge amounts of unstructured data in a relatively cheap and easy way. (It also has products in virtualization, archiving, and cluster computing.) The company’s big customers include Sony, XM Radio, LexisNexis, Facebook, MySpace, Kodak, Adobe, and major movie studios and TV networks. But Isilon has also expanded a lot from its original focus on media and entertainment companies. Patel says in the last quarter, media made up only 32 percent of its business, while other sectors like online services (11 percent), government (10 percent), and biomedical research (16 percent) have become quite significant.

I asked whether we should expect to see Isilon go for higher profits this year. “This will be a growth year for us, and we will expand our operating margin,” Patel says. “We are a growth company, and we may make a tradeoff for further profitability and go for further growth.”

He says the big challenge for Isilon is that “there are far more opportunities out there” than it can successfully reach for. “We’re focused on building a scalable go-to-market strategy and a scalable partner model,” he says. He adds that he feels “very confident” in the company’s level of innovation, product roadmap, customer strategy, and especially its culture of customer focus and drive.

Now Isilon is looking to settle into its role as one of the few successful mid-size public companies in the Seattle tech community. It currently has about 360 employees and is actively hiring, with “a lot of jobs open,” Patel says.

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It’s been a busy week around here for the big tech companies. At Xconomy, we don’t usually report on things like product releases from Microsoft or sales figures from Amazon—our main focus is on new ideas, models, and companies—but readers need to understand where the big players are heading so they can see the gaps and opportunities for new businesses. So, for each of these pieces of mainstream tech news, I’ll tell you why savvy innovators and business leaders should care.

—Google (NASDAQ: GOOG) demonstrated its Web-based Chrome operating system for the first time in public yesterday. It won’t be available for another year, but the tech community is scrambling to understand all the implications. (Google’s Seattle engineers have contributed technology to the Chrome Web browser, helping to boost security—one potential advantage of a cloud-based operating system).

Sure, a fully cloud-based OS is a direct threat to Microsoft’s business model and the ecosystem of companies that support Windows. But more than that, it could reshape the landscape of online advertising by providing a new platform for launching ads on mobile devices, video channels (YouTube), and Internet TV. Perhaps the only thing that can slow down Google’s dominance on the Web is the federal government. In other words, this could get ugly.

—Microsoft (NASDAQ: MSFT) has teamed up with LinkedIn to provide info about your business contacts within Outlook e-mail. It’s all part of Microsoft’s Outlook Social Connector, an add-in that feeds you data from your social networks. Integrating e-mail with social networks and search is a fast-growing area, with startups like Gist in Seattle (backed by Paul Allen and Foundry Group) helping lead the way. Gist’s CEO T.A. McCann told TechFlash that he’s known about Microsoft’s effort for a while and doesn’t see it as a direct challenge. Gist’s offering is more advanced, he said, and it includes features like integrating with Salesforce.com and the iPhone. But startups and investors beware: if you’re in this crowded space, you better have a product that cuts through the noise and has a way to attract customers fast.

—RealNetworks (NASDAQ: RNWK) is in discussions with Viacom’s MTV Networks to sell off at least some of its stake in the Rhapsody music service, as first reported by PaidContent. In a regulatory filing, prompted by a tender offer to issue new stock, Real said it is in talks to reorganize the management structure and/or corporate governance of the division, which might mean giving up its majority ownership stake (51 percent) in Rhapsody. Back in September, digital-media guru Bill Baxter (now at Seattle-based Cozi) wrote in Xconomy about Rhapsody’s fierce competition with Pandora, iTunes, and piracy. Message to startups: the world of digital music services is probably not where you want to be.

—Amazon (NASDAQ: AMZN) has been busy ramping up operations ahead of the holiday shopping season. Its billion-dollar acquisition of Zappos is helping it expand into shoes and apparel, and its Kindle sales look poised to take off, especially now that Barnes & Noble’s competing e-book reader, the Nook, has sold out until January. Amazon has really become the business and technology model to follow in online retail and product search. While there is still room for e-commerce startups to compete in various niches, they would be wise to study how Amazon built its brand and customer relationships before branching out to the wider world of retail.

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Well, we can’t all be Amazon. While the Seattle-based e-commerce giant (NASDAQ: AMZN) raked in a $199 million profit for the third quarter of 2009—a 68 percent increase in net income over the same period last year—Microsoft (NASDAQ: MSFT) posted an 18 percent decline in its profits (still $3.57 billion, better than analysts expected).

But beyond these giants of the global tech scene, Seattle has some mid-market public tech companies that we’ve been paying closer attention to lately. That’s because they provide a much more complete picture of what’s going on in the public markets, as well as the mood across different industries like digital media, data storage, and high-performance computing.

Of these local bellwethers, two companies announced modest quarterly profits this week, and two others posted losses but are on the long-term comeback trail. It’s clearly still tough times out there, but here are the highlights:

—RealNetworks (NASDAQ: RNWK), the Seattle digital media and entertainment company, managed to post a surprising profit of $1.5 million for the third quarter of 2009, its first profitable quarter since the first three months of 2008. That’s despite posting quarterly revenue of $140.3 million, a decrease of 8 percent from $152 million in the same period last year (when the company posted a net loss of $4.5 million). RealNetworks reduced its operating costs and formed partnerships with Facebook and Apple over the past few months.

—Cray (NASDAQ: CRAY), the Seattle-based supercomputing company, reported a net loss of $2.1 million for the third quarter. But its revenue was $58.6 million, a 7 percent increase over the same period in 2008. In the second quarter of this year, Cray posted a surprise profit of $3.4 million on the strength of large government contracts and a broader customer base.

—InfoSpace (NASDAQ: INSP), the meta-search company based in Bellevue, WA, posted a profit for the second straight quarter (following three consecutive quarterly losses). Its net income for the third quarter was $1.8 million, based on revenue of $54.4 million, an increase of 38 percent over its revenue from the same period a year ago.

—Isilon Systems (NASDAQ: ISLN), the Seattle-based data storage firm, reported a net loss of $4.9 million for the quarter. The company’s quarterly revenue was $30.5 million, up 1 percent over the same period a year ago, but its net loss increased from $3.7 million in the previous quarter this year. I wrote about nine-year-old Isilon’s efforts to bounce back from some tough times in a profile last week.

On October’s last trading day, the stock market plunged. As Scott E. Marcouiller, a senior equity market strategist at Wells Fargo Advisors in St. Louis, told the New York Times today, “The market is focusing on the glass is half empty…We just needed to let some of the air out of the balloon.”

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

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

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

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

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

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

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Online reputation management is hot these days. Today, Seattle-based Marchex, the online advertising and search company, is announcing a new thrust in its strategy for connecting local consumers with restaurants, florists, and other businesses. The firm is releasing software that helps small, local businesses monitor and understand what people are saying about them and their competitors—and make sure information about the businesses online is accurate.

Marchex (NASDAQ: MCHX) says the product is the first of its kind, but the news fits into a broader trend of Seattle-area companies offering reputation management and “Web sentiment” software. The idea is to sell software tools that automatically collect what people are saying about brands and products in blogs, articles, and social media like Twitter, and then summarize the positive and negative feedback so businesses can quickly respond to customers. Visible Technologies, Appature, and Evri are some of the other Seattle companies working in the space.

“This is a really important product if you think of the next generation of performance advertising,” says Peter Christothoulou, the chief operating officer and a founding executive of Marchex. “It’s about not just acquiring new partners, but communicating with them.” Christothoulou adds that the new effort acts like the “front of the funnel” in Marchex’s strategy for helping businesses find new customers and maintain relationships with them.

While other offerings provide insights into how a company name or brand is represented online, Marchex is focusing specifically on the local aspect of small businesses, says Matthew Berk, the company’s executive vice president of product engineering. In addition to monitoring the sentiment of local customers, that means making sure a restaurant’s phone number and address are listed correctly in various places online, and that the special features of a Petco store in one neighborhood, say, are differentiated from those of other Petco stores at different locations.

But connecting these local stores with feedback from social media and other sources is the main advance here. “Businesses know things are being said about them online,” adds Ryan Fritzky, a senior product manager at Marchex. “It’s an important first step to provide them with a service where intelligence is brought to them in one place.”

Marchex isn’t selling the product directly to small businesses. Rather, it is going through its big partners like AT&T, Comcast, the Cobalt Group, and Yellowbook.com, who will in turn resell the software to local businesses for a monthly fee.

Strategically, it sounds like reputation management could be an important new revenue stream for Marchex, which reported a 44 percent drop in revenues in the second quarter of this year ($21.1 million) compared to the same period in 2008 ($37.4 million). “This is the first of many forward-looking products we’re delivering to the [small and medium-size business] channel. It can be significant for us over time,” Christothoulou says.

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How do you go about summarizing a company’s culture in one word? I haven’t a clue, but whenever I ask CEOs, they always come up with something interesting—and often surprising. In the past couple of months, I’ve been asking top executives at Northwest tech startups to talk about their company culture and why it’s unique. So far, none has refused to play the “one word” game.

I’ve received a fascinating array of responses that speak to the companies’ management styles, the kinds of talent they’re looking for, and their overall strategy—what they think sets them apart from their competition. From Bellevue, WA-based Apptio’s “paranoid” to Seattle-based Picnik’s “easy,” you can see a lot of a company’s mindset through the keyhole of just one word. And last month, Bob did a comparison of Boston vs. Seattle one-word cultures—and found that the New England startups were a little more New-Agey in their responses than companies here in the Northwest. (No idea what this means, but it’s always fun to go up against the East Coast.) And Bruce followed that up by checking in with five San Diego firms.

Now I’m extending the exercise to Seattle’s public tech companies. I wondered whether their responses would show any glaring differences from the startups—more conventional, say, or boring. After checking with a few of them (each has been around for six years or longer), my scientific answer is “not really.”

Our initial short list of public companies spans the fields of supercomputing, data storage, and online advertising. Be warned, Mr. Ballmer, Mr. Bezos, and Mr. Glaser—I’m coming for you too.

Cray (NASDAQ: CRAY)
CEO: Peter Ungaro
Culture: “Next”
Comments: Ungaro says, “Never satisfied with the status quo, our employees are committed to providing our customers with the next-generation of Cray supercomputers. Collectively as a company, our passion is setting new boundaries of what supercomputers are capable of and providing those resources to the world’s researchers and engineers.” He adds, “We celebrate achievements and acknowledge milestones, but we are focused on what’s next and what we all have to do to get there.”

Isilon Systems (NASDAQ: ISLN)
CEO: Sujal Patel
Culture: “Driven”
Comments: Patel says, “We have been through a million different things that show how driven we are. We survived…we grew, we built, we went public, we ran into some nasty roadblocks, we recovered from that.” He adds, “We only get through that stuff because we are driven as an organization—and that’s not about me, it’s about the people in this building.”

Marchex (NASDAQ: MCHX)
COO: Peter Christothoulou
Culture: “Innovative”
Comments: Christothoulou says, “Being innovative is at the core of everything we do; from delivering the most innovative products and technology, to hiring and employing innovative, collaborative people to provide our customers with the best experience possible.”

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Heading into the holiday weekend, I wanted to highlight a few interesting recent blog posts from around town. They cut across the topics of venture capital, IPOs, and small business owners.

—OVP Venture Partners, based in Kirkland, WA, has a new blog as of this summer. In a recent post, managing director Gerry Langeler talks about what goes on in the room after entrepreneurs make a pitch at a partner meeting. One of the most tragic things the VCs can say is, “Right team, wrong idea.” Langeler’s advice: “If you have pulled together that once-in-a-lifetime team, please work hard to make sure the business you are chasing is worthy of the talent.”

—Christian Chabot of Seattle’s Tableau Software wrote a post this week entitled “Yesterday’s Most Successful Companies Wouldn’t IPO Today.” That pretty much says it all, but Chabot backs it up with data from a large sample of technology companies. He argues that today’s minimum standard for taking a tech company public—roughly, profitability and $100 million in annual sales—means (if applied to previous cases, adjusted for inflation) today’s most successful public companies wouldn’t have been able to do an IPO in their first 10 years. Chabot’s says his analysis points to “grim tidings for early stage venture capital.”

—Hillel Cooperman of Seattle’s Jackson Fish Market ran a great Web comic from XKCD poking fun at adult responsibilities (“I don’t know what you just said because I was thinking about Batman”). Cooperman has also been posting videos of talks from the Small and Special conference from earlier this summer—inspirational stories from people running small, financially successful businesses. The most recent video is of Nisha Kelen from Fleurish, a Seattle-based floral design shop.

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In the past week, companies have been releasing their financial results for the second quarter. There’s a mix of good and bad news from Seattle’s public tech companies weathering the economic storm, with surprisingly positive news from some quarters.

—Bellevue, WA-based metasearch developer InfoSpace announced its revenue was $43.8 million for the quarter, up 14 percent from the same period last year. InfoSpace (NASDAQ: INSP) now has $208.3 million in cash and securities. This was better than analysts had expected from InfoSpace, which has undergone some significant growth recently, including a new charity search website Xconomy previously wrote about.

—Good news was also reported by Seattle-based supercomputer manufacturer Cray (NASDAQ: CRAY), which turned a profit with $62.7 million in revenue last quarter, up 34 percent from the same period last year. Cray’s success has a lot to do with recent, lucrative contracts the company has landed. Xconomy recently profiled Cray here.

—Things were less positive for Seattle-based digital media company RealNetworks (NASDAQ: RNWK), which reported $135.7 million in second-quarter revenue, an 11 percent decrease from last year. For this quarter, RealNetworks had a net loss of $188.3 million. The company said it hopes to show some improvement for the second half of the year.

—Online diamond retailer Blue Nile (NASDAQ: NILE) also reported a slight decrease in revenue. The Seattle-based company posted net sales of $69.9 million, a decrease of 5.2 percent from the same period last year, although sales are continuing to increase slightly from year-to-year for the company.

—Slightly more cheerful news was posted by embedded device software developer Bsquare (NASDAQ: BSQR). The Bellevue, WA-based company earned $16.1 million in revenue, up 5 percent from the second quarter of 2008. The company announced last month it will start working with Coca-Cola to create the Coca-Cola Freestyle software-driven fountain dispenser.

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