Top 10 Security Companies

Posted on October 15, 2007 by Simeon Simeonov

A friend once told me that when the media puts you on a pedestal it is because they want to swing at you with a baseball bat. So it is slightly bittersweet to see Veracode on NetworkWorld‘s list of top 10 IT security companies to watch. (I guess the Veracode blog is too modest to link to this but I’m not beyond promoting my companies.) NW’s team know how to pick them: most of the companies that made last year’s list are doing pretty well.

I’m excited about the traction that Veracode is getting in the market because the company’s mission is one that ultimately benefits everyone in the software space. By consistently quantifying application security risk, Veracode makes it possible for enterprises to develop and implement policies that take into account the impact of poor software development practices and software vulnerabilities. The coolest thing about Veracode’s trusted third party application security services is that they apply equally well to internally developed software as well as software developed by third parties such as ISVs. I have said before that security will become a competitive advantage and that benefits larger software vendors that have the resources to invest in improving application security. My hope is that easy-to-use, pay-as-you-go services such as those provided by Veracode may even the playing field and help smaller ISVs compete more effectively.

In general, the new top 10 list shows an innovation trend that is moving away from pure network security towards application & data security, whether on the move or at rest. Example companies: NetWitness, Palo Alto Networks, Provilla, Sentrigo and Veracode.

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Nokia & Navteq: Vertical Integration or Diversification?

Posted on October 2, 2007 by Simeon Simeonov

Mapping is the killer mobile app. Whether you have location-based services (LBS) or not, the chances are that you are using mobile mapping software on your smartphone and starting to take it for granted that it will just be there for you when you need it. So it is no surprise that there has been some interesting M&A activity in this space.

Ever since TomTom (biggest maker of navigation systems) offered $2.5B for TeleAtlas, it was expected that the larger Navteq will also end up finding a new home. What was perhaps unexpected that the top bidder, to the tune of more than $8B, is Nokia.

Navteq and TeleAtlas are the top providers of street-level information, which is the key to enabling mapping and navigation applications. These are businesses where the barriers to entry are quite high–getting the initial set of street-level data requires a ton of data crunching & surveying. From that perspective, the two companies’ core value proposition is well-protected.

TeleAtlas is the main supplier to TomTom, so this is a classic vertical integration move. Unit volumes for TomTom devices are growing very quickly and margins should improve with the acquisition.

The Nokia move is perhaps more interesting. While being slammed for not getting consumer experience & design, Nokia phones increasingly pack a lot of power and strong links to the Internet. It is no secret that the company is trying to move to more of a software services model. So is the Navteq acquisition more of a vertical integration play or a diversification move along the lines of this strategy?

With the two big street mapping players now part of larger and even slower-moving companies, there may be an opportunity to disrupt this market in the next five years. The key question is one of bootstrap costs to get to a critical mass of good-enough data. I expect the solution will include three aspects:

  • User-generated content. See OpenStreetMap, for example.
  • New Location Mashing Technologies (LMTs–I’m inventing a new term here because I don’t know what to call these). I see these coming in two forms: (1) from the world of unstructured information to the world of latitudes and longitudes, e.g., MetaCarta, and (2) between more traditional geolocation databases, which some in notoriously many different formats.
  • Business models that use Navteq and TeleAtlas data (perhaps via their consumer rendition of Google Maps, etc.) as a crutch to fall back to when the data isn’t good enough.

At Polaris Venture Partners we have been very interested in this space and would enjoy talking with entrepreneurs who want to think creatively opportunities to build big businesses here.

Posted in Mobile, startups | Tagged , , , , , , | 2 Comments

Amazon Web Services Talk: Beyond Bootstrapping

Posted on October 1, 2007 by Simeon Simeonov

The AWS event last Wed went very well. Thanks to everyone in the audience for coming and talking geek on such a gorgeous day in NYC.

Worth noting:

  • S3 is really getting some load–peaking at 27,000 requests/second.
  • The VM marketplace is cool on EC2 is a great way to market virtual appliances.
  • The flexible payments API is a godsend for people building cool new e-commerce experiences.

A number of people asked for a copy of my presentation. Here it is.

Posted in amazon web services, startups, VC, Venture Capital | Tagged , , , , | Leave a comment

Adobe MAX 2007

Posted on October 1, 2007 by Simeon Simeonov

It’s a warm gray day in Chicago and the Adobe MAX 2007 keynote is kicking off with a bunch of examples of very engaging Rich Internet Application (RIA) experiences. The core positioning is that creating truly engaging experiences requires Adobe technologies. That feels a little fragile in the sense that it is difficult to compete on ideas–there are many examples of great experiences created using competing technologies. I hope the platform value prop will go a level deeper.

max

Worth noting:

  • Moviestar. Launched in August, an update to the Flash player that supports H.264 all the way to 1080p. Looks cool and is a necessary response to Silverlight. Let’s keep in mind that the online video revolution, e.g., YouTube, was driven by the updated video codecs in the Flash player (before that it was impossible to easily experience decent video online). So HD support in the Flash player is a very big deal. More broadband, please.
  • AIR. The Adobe Integrated Runtime is nearing v1.0. Lots of companies are experimenting with great apps: from a cool Twitter client to eBay giving you a better way to make sense of the huge number of items available on the site to Frog Design doing an app for Disney travel agents to my own Allurent redefining the way retailers can engage their customers through personal catalogs. Behind the cool stuff lies the bigger strategic play–AIR is Adobe’s move for independence from both the browser and the OS, an attempt to cement the company as a platform player.
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Amazon Web Services Event in New York

Posted on September 26, 2007 by Simeon Simeonov

I’m polishing my presentation for the AWS event in NYC today. Polaris Venture Partners is the exclusive sponsor because we believe that what Amazon is doing is good for startups. AWS lowers the cost of experimentation online, which helps more ideas come to life and get feedback from the market.

The event is from 2-7pm at The Great Hall, Cooper Union, 7 East Seventh Street. Attendance is free and there will be good food + cocktails. Stop by if you can. The agenda is as follows:

2:00 – 2:30     Opening Statements/Andy Jassy, Senior Vice President, AWS
2:30 – 3:00     Overview of AWS/Mike Culver
3:00 – 4:00     Presentations from startups using AWS
4:00 – 4:15     Break
4:15 – 5:00     “Beyond Bootstrapping”  (conversation led by me)
5:00 – 7:00     Cocktail Reception

You can still sign up at www.regonline.com/startupny or for more information, go to http://aws.amazon.com/startupny

Posted in amazon web services, Digital Media | Tagged , , | 6 Comments

Google Addressing the "Facebook issue"

Posted on September 23, 2007 by Simeon Simeonov

I’ve been slammed with two financings but this news merits taking time on a Sunday night to blog… Ever since word got out that Brad Fitzpatrick (previously chief architect at Six Apart) had joined Google people had a pretty clear idea what Brad’s thoughts on the social graph meant–Google was going to get into the identity & relationship federation game.

There are an increasing number of new “social applications” as well as traditional application which either require the “social graph” or that could provide better value to users by utilizing information in the social graph. What I mean by “social graph” is a the global mapping of everybody and how they’re related, as Wikipedia describes and I talk about in more detail later. Unfortunately, there doesn’t exist a single social graph (or even multiple which interoperate) that’s comprehensive and decentralized. Rather, there exists hundreds of disperse social graphs, most of dubious quality and many of them walled gardens.

Currently if you’re a new site that needs the social graph (e.g. dopplr.com) to provide one fun & useful feature (e.g. where are your friends traveling and when?), then you face a much bigger problem then just implementing your main feature. You also have to have usernames, passwords (or hopefully you use OpenID instead), a way to invite friends, add/remove friends, and the list goes on. So generally you have to ask for email addresses too, requiring you to send out address verification emails, etc. Then lost username/password emails. etc, etc. If I had to declare the problem statement succinctly, it’d be: People are getting sick of registering and re-declaring their friends on every site., but also: Developing “Social Applications” is too much work.

The real question was when Google was going to move and how hard they were going to push. According to TechCrunch, who’s gotten some folks to ignore the NDAs they’ve signed with Google, the date is November 5 and the push will be significant under the perceived threat from the traction (imagined and real) that the Facebook platform is getting.

Note that this is a much bigger play than federating social networks. This is about federating the broad notion of social identities, including the rich meta-data, e.g., social relationships across many channels (FB, MySpace, email, IM, Twitter, etc.), that goes with them.

This reminds me of a conversation I had with a partner of mine years ago when we were looking at Friendster. We both realized that social networks were really applications built on top of a simple social software foundation with three key pieces:

  • Identity
  • Meta-data
  • Policy

In general, this is a good thing for startups who don’t want to reinvent the wheel. It is another emerging platform and a big new piece in the social infrastructure puzzle. It is also a great Google response to Facebook’s secret plan (since Google doesn’t have a huge + successful social application to protect it can be more open + monetize in other ways). Last but not least, Google’s approach, on the surface, promises more freedom and independence for those building on top of Google as opposed to Facebook.

Still there are two big issues to think about:

  • Building a business on top of somebody’s SaaS/Web services platform carries a lot more risk than building a business on top of a traditional installed product, e.g., Window or MS Office. What will be Google’s service agreement? What promises will they make to a budding ecosystem? Will they keep them?
  • This type of massive federation project can only be pulled off by a major power and only one that is trusted by both consumers and other vendors. The privacy implications are significant. In a world where some people are questioning the reality of Google’s “do no harm” pledge, some resistance is inevitable. Beyond that, I wonder how easy it will be to come up with simple policy management of privacy & data sharing in this environment.

Facebook’s weakness in this case is its strength–the core Facebook social application is the main traffic generator for all applications built on the FB platform. Discovery and traffic generation are in many cases more important than purely technical leverage. It is not clear how Google will attempt to address this issue to drive adoption of its social platform APIs. I hope the answer goes well beyond SEO/SEM.

Posted in Facebook, Google, SaaS, startups, Web 2.0 | Tagged , , , , , , , | Leave a comment

Making Money on MySpace

Posted on August 28, 2007 by Simeon Simeonov

It’s always been possible to make money on MySpace if you didn’t pay much attention to the terms of service. The site has never consistently enforced its ban on commerce. That’s partly due to technical reasons–from a content filtering standpoint, the problem is much worse than detecting whether something is spam or not–and partly due to the shear size of the MySpace community. On the other hand, there have been many cases of MySpace blocking third parties or even removing commercial content from profiles. This prompted me to blog a while back that MySpace doesn’t want you to make money.

Clearly, MySpace has the right to shut them down, given their terms of service agreements. The more interesting question is the stance that the company will take in the long run with respect to the openness of their pages. Much of their success was built upon the user experience third party plug-ins/widgets provided. Now that they are big, perhaps they think they don’t need the help anymore? That would be a short-sighted stance. The Web is a big and varied place. Walled properties don’t have a history of doing well.

Well, it seems that the tide is changing under pressure for FIM to make lots more money. MySpace has been working on improved ad targeting. They have been working on an API for nearly a year, while many others are already publishing ways to access MySpace programmatically (here, here, here). And now, LA Times reports that MySpace is contemplating lifting the ban on commerce.

“We don’t want users’ pages to start looking like NASCAR,” MySpace Chief Executive Chris DeWolfe said.
But behind the scenes, the issue is being hotly discussed as DeWolfe and his team of top executives at the biggest property within News Corp.’s Beverly Hills-based Fox Interactive Media grapple with the imperative of squeezing more money out of MySpace. MySpace doesn’t want to encourage the likes of Dolce, Billard and Tequila. But its ban on commerce is difficult to enforce. If the policing efforts fail, shouldn’t it at least try to make money from the online sales it makes possible for others by taking some sort of a cut?

This is all great news for consumers, brands and, most definitely, startups looking to leverage the power of the major SNs. It will certainly be challenging for MySpace. They operate under a very different set of constraints than Facebook, for example. They’d have to figure out a way to do this so as to not jeopardize revenues from large advertisers. On the flip side, MySpace has an opportunity to deliver highly differentiated value because it’s community’s vibe is unique. All in all, the indications of a possible change in direction are refreshing.

Posted in Advertising, Digital Media, Facebook, MySpace, Social Commerce, startups, Web 2.0 | Tagged , , , , , , , , , | 4 Comments

Social Commerce Goes Mainstream: an Industry Insider’s Take on the Kaboodle Acquisition

Posted on August 11, 2007 by Simeon Simeonov

Social commerce is one of the three pillars of E-Commerce 2.0:

  • Richer user experiences (e-commerce becomes engaging)
  • Accelerating disaggregation (e-commerce happens everywhere)
  • Social commerce (e-commerce leverages emotional/social forces)

It has also been the one people have been most skeptical about… For a venerable media company such as Hearst to go after Kaboodle IMO is an opening shot for the race to begin in earnest. I thought that event required smart commentary. I don’t live in the trenches so I’m not well-suited to provide it. Some of my companies, for example, Allurent, are doing innovative work in the social commerce space but it’s all in stealth right now. So I asked my friend Gordon Gould, CEO of ThisNext whether he’d do a guest post. He agreed and so you are in for a treat as he is on the bleeding edge. Caveat lector: Gordon is an entrepreneur so this is not an unbiased post.

The two key take-always for me are (a) the importance of serendipity in product discovery (more on my take here and here) and (b) the duality of social merchandising (as media in addition to e-commerce).

Sim invited me to guest blog about Hearst’s recent acquisition of Kaboodle for an estimated $40 million. So who am I and why did Sim ask me to post? Well, I am guessing that since I am the CEO of ThisNext, the leader in social shopping, Sim thought I might have some moderately useful or interesting things to say which only you, dear reader, can judge for yourself. (Shameless self promotion: check out our global shopping activity map which Wired said was the “most fun kind of global window shopping you can engage in without a personal jet and an entourage.”)

In any event, before I get into the details of my POV on the Hearst deal, let’s set the stage and define a few terms first.

Social shopping refers to a class of sites and services that aim to capture and structure word-of-mouth around product recommendations and reviews. Other companies in the space besides ThisNext include Kaboodle, Stylehive, Crowdstorm, Wists, and a handful of smaller players. Many of these social shopping sites are heavily fashion focused and apparently plan to make money on CPA/affiliate and CPC deals and some are selling directly as etailers. The larger players are also working on partnerships and/or display ad deals.

The social dynamic that ThisNext et al leverage is people’s propensity to recommend products to, and take product advice from, friends. Social product recommendations benefit shoppers in two ways:

  1. Social recommendations help people discover great products they may never have known about.
    • Offline, discovery represents about 70% of retail shopping decisions where consumers don’t know what they are going to buy until they encounter it in the store.
    • Current ecommerce models are search-driven and do not facilitate much happy serendipity the way a great “experience store” or advice from a friend can and thus leave a LOT of potential sales on the table.
  2. Social recommendations validate and enable lifestyle and emotionally-driven shopping which is how most products are bought in the real world.
    • I know the idea of emotional- or lifestyle-driven shopping is not a sentiment many middle-aged, master-of-the-universe type men think they can relate to, but I ask them to consider really what drove them to purchase that sports car, expensive watch, or ultra-fancy/teched-out roadbike component. Most certainly, they rarely, if ever, “need” to drive at 150mph, to broadcast emergency distress beacons while adrift at sea post-plane crash, or reduce the aerodynamic drag on their bikes by buying $1500 carbon fiber wheels. More likely, the “need” arose because of a social, emotional, or tribal need to fit in with or dominate a desirable group or lifestyle.
    • SEM and traditional ecommerce do a lousy job of communicating high-impact emotional, social, or lifestyle product marketing & merchandising messages because they offer a dry, boring, task-oriented, and solitary experiences. Most brands rely on emotional punch to make their case.

Social shopping (which really should be called social merchandising) ties both of these behaviors together into a neat, mutually reinforcing cycle where people discover great stuff and in turn recommend it to friends in exchange for the social capital earned by being a maven and for doing your friends the favor of bringing them into the know. By unlocking this virtuous circle, social shopping/merchandising is poised to help bring the missing 70% of shopping behaviors online and facilitate further migration of erstwhile TV brand marketing budgets online into social media.

So why should you care?

Consider for a minute how gargantuan the social shopping/merchandising market opportunity is: the current US retail market (excluding home and automotive) is around $4+ TRILLION/year and is supported by $150+ billion in advertising, the bulk of which still goes to TV for immersive, emotionally impactful ads. Capturing the proverbial 1% of that total market would represent over $40 billion/year in transactions which is huge!

So, clearly, whomever figures out how to get paid to unlock socially-driven product discovery and merchandising is going to make an astounding amount of money and have a huge impact on net culture.

Which brings me back to the Hearst/Kaboodle deal.

Let me first say congrats to Team Kaboodle, you were a worthy competitor and I hope you all made some good money. And thank you, thank you, thank you for validating the space by selling to a brand-marketer-savvy old media giant.
That said, I don’t think this was a great deal for Kaboodle and probably was a great deal for Hearst. I have no idea why Kaboodle sold early and left so much on the table. Maybe internal politics, maybe they did not see the big picture, maybe they were tired and wanted out. Who knows. Kaboodle’s sale for 1/1000th of 1% of the addressable market will, I think, come to look like an inverse/road-not-taken version of Google’s early decision not to sell to Excite, instead choosing to go it alone to obvious success. Hearst, on the other hand, now has a toolset that they might be able to turn into a cash cow, their culture permitting (though gridlock and stasis would not surprise me).

Whatever the case, Kaboodle is now a captive feature-set for Hearst. In the press release about the deal, Hearst talks about Kaboodle becoming the “MySpace” of social shopping, presumably by leveraging off of the distribution provided by other Hearst properties. I am guessing the heavy breathing strategy sessions preceding the deal probably focused a lot on Cosmo, Lifetime, and O Magazine.

I am way skeptical of Kaboodle being able to grow into a large, stand-alone “MySpace”-sized brand while inside Hearst. Even the biggest, most innovative companies on the net (i.e. Google, Yahoo, ebay, Amazon) cannot effectively build substantial properties that range far from their core. Hearst is not known for being anywhere near as innovative or flexible as say Google so I think it is highly unlikely that they will be the exception to the general rule that innovation happens best outside of large companies. And having worked with old-school magazine editors, I wish Kaboodle luck in persuading them that the readers are as smart as they are and hope for Manish et al that their deal is not heavily earn-out dependent. Culture wars are not only for red/blue states….

More broadly, this deal points to the potential market for social shopping/merchandising as a form of social media, not commerce per se. I say this because I believe a media-oriented approach provides the flexibility to pursue a community-driven model that can build engagement while capturing value from brand marketing budgets and does not immediately force people into a sales funnel. Sure, commerce lead gen is going to be a HUGE part of the biz, but I say leave the commerce plumbing to others and focus on capturing hearts/minds/attention which is where the long-term value is.

My own view and the strategy we are pursuing at ThisNext centers on the belief that we are pioneering a new category of media called social merchandising. That means providing a branded product recommendation layer to the social web. Nobody has done this before and we are executing and intend to dominate this area. Our vision benefits shoppers by helping them spend their hard-earned cash on products they will love, benefits mavens by amplifying their voices to an appreciative audience, and benefits marketers & retailers by helping their customers discover them. Winning means being as big as ebay. That’s the size of this opportunity.

Posted in Digital Media, Social Commerce, startups, Web 2.0 | Tagged , , , , , , | 6 Comments

Facebook’s Secret Plan

Posted on July 20, 2007 by Simeon Simeonov

I’ve figured out Facebook’s secret plan and I love it. Everyone gets everything for nothing.

The everyone is truly everyone since Facebook is no longer about highschool and college kids. Most of the friend invites I get these days are from 30+ professionals busily expanding their network of… what exactly? Well, since the network is of everybody then is also must be the network of everything. What can’t you do on Facebook these days with the thousands of apps running on F8? As Scoble and Jeremiah point out, all your data can show up on Facebook. You can have your blog & Flickr photos and you can widgetize to death. What started as fun & entertainment only now is getting an increasingly meaningful utility component. Which brings us to the most important part–the nothing, which in this context means for little or no additional effort. That’s the brilliant part.

Facebook helps people be lazy. Don’t have time to update your profile? No problem. A friend who has some spare moments will post something on your wall. Sharing photo albums is no fun? No problem. Use one of ten (as of today) Flickr apps inside Facebook and your friends can see your pics. Need help with dating? Sit back and relax. Software can help. Since the early days of the Wall, Facebook has done many things (both big and small) right in terms of helping users extract maximum reward with minimum effort. “It’s ‘cos Mark went to Harvard,” points out an MIT friend of mine.

There are two key pillars to Facebook being successful in pulling this off over time. They need to shove all the content people care about inside Facebook. They also need to have many applications people care about run inside Facebook. The Facebook platform has been the answer. It’s simple, powerful and extensible social infrastructure that lets third parties leverage the content and activity of Facebook users. Through Web services, it allows all Net-accessible content to be co-opted via new applications into Facebook.

Which leaves an important piece out of the equation. People tend to have a lot of valuable content on their desktops and, hence, they tend to spend a lot of time doing things outside the browser, including spending valuable time uploading/downloading content from the desktop to/from the Net. Since this doesn’t agree with an everyone gets everything for nothing strategy, something had to be done.

In that light, the Parakey acquisition makes a ton of sense. Facebook not only gets media-loveable guru technologists and another story to feed the hype machine, they actually get some great technology. Parakey will allow desktop content to easily move into Facebook where it can become accessible to millions of users and thousands of applications. Further, Parakey will allow Facebook (and third party) content to come down to the desktop.

Much of the content consumers care about and many of the applications they care about will move smoothly between the browser and the desktop with Facebook in the middle of it all. If that doesn’t convince you of the company’s far-reaching aspirations, consider the fact that other industry biggies have recently gone big after the desktop.

Will Facebook become the next Microsoft, the next AOL or Google, or Visual Basic? I think the answer is none of the above. They want to be a new type of platform company where data and code are mashed up with people. We haven’t seen one of those yet. As Facebook touches more and more of people’s lives, more questions will come up. Hopefully, these will get resolved quickly so that a thriving ecosystem spawns on top of F8 + Parakey.

Posted in Digital Media, Facebook, startups, Web 2.0 | Tagged , , , , , , , | 7 Comments

The Law of Social Networks and Virtual Worlds

Posted on July 14, 2007 by Simeon Simeonov

I am very interested in the emerging social infrastructure (Facebook, Ning, …) and virtual world (Second Life, …) platforms because I expect to see more and more startups leveraging these not just for viral distribution but at the core of their businesses. The success of Slide and RockYou on the Facebook platform is an example of what’s possible.

Following a great panel on ecosystems & platforms at iMeme, I had a series of conversations with some of the panelists and their investors regarding the terms of service & legal enforcement within the platform ecosystems. (If you are wondering why the law comes into play here, remember Lawrence Lessig’s Code Is Law.) Several goals emerged from the conversations (the companies are all working to make things better):

  • First, ecosystems need clarity with respect to terms of service and legal matters. Without clarity decision making becomes complicated and it is harder to make investments on the platform.
  • Second, ecosystems need consistency with respect to the process by which terms of service and legal frameworks will evolve. Building a business usually requires investments of time and capital over years and hence the ability to make reasonable predictions about the future operating environment is important.
  • Third, but by no means least, emerging ecosystems need simplicity. Simplicity lowers the cost of entry and encourages innovation.

I wonder how many startups fully evaluate the inherent risk in building on top of Web service platforms that are not under their control? In the old days of software, if a vendor changed the rules, at least you had a perpetual license to the software + the bits. With Web services the situation is far less clear. How long will the APIs be available? How will they evolve over time and what’re the terms of backward compatibility & support?

While social networking platforms can reasonably have one set of terms of service and one legal framework, things can get a lot more complicated in virtual worlds. What happens in Second Life and in the real world when a virtual bank operated by a Russian crime syndicate and built on an island run by a good guy from Hong Kong takes your Linden dollars for which you paid on the LindeX with your Amex + promptly goes bankrupt? How will the laws of the Second Life mainland vs. islands evolve? Will there be multiple sets of rules, e.g., global, regional, local? How will the islands fit in or not? The potential diversity is wonderful on one side but also can be an impediment to the growth of large worldwide businesses. How a balance evolves will be interesting to watch.

More people are focusing on these issue. Some links:

Posted in startups, VC, Venture Capital, virtual worlds | Tagged , , , , , , | 1 Comment