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Friday, October 31, 2008
New media experts talk social networking in New England
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Flash Slideshow: Mass High Tech All-Stars Thought Leadership Roundtable
Earlier this month, Mass High Tech brought together new media experts — many of whom were former All-Stars — for an All-Star Thought Leadership Roundtable on Social Media Networking. Moderated by Pat Mitchell, a partner at Cooley Godward Kronish LLP, the panel included Neil Sequeira, general partner at General Catalyst; Chris Dyl, CTO of online game developer Turbine Inc.; Dan Bruns, executive vice president of services at Mzinga Inc.; and Steve Meretzky, senior designer for Blue Fang Games Inc.
Pat: In the spring of 2004, two local college students met with New England-based venture capital funds with a plan to build a social network that targeted college students. After these firms said, “Thanks but no thanks,” they took their idea to the West Coast. They raised financing and they started a company some of you may know called Facebook. Is this an isolated event? Is this something that our West Coast venture capitalists are simply better at — identifying and supporting social media companies? Is it a cliché or are venture capitalists on the West Coast more tolerant of risk than they are on the East Coast?
Neal: It is definitely a cliché that the West Coast firms have the ability to sniff out and make aggressive bets in certain areas of the market that the East Coast is not willing to do. However, I think that what has happened over the last 10 to 15 years in the East Coast venture capital community is the willingness to be a little more agile and be more flexible with entrepreneurs who are playing to the strengths of this community. This community has some of the best educational institutions and great programs like Y Combinator that help spur innovation. I think there are ways that that has changed. Our firm, for instance, gives anyone who wants it free space to work — something that guys on the West Coast have been doing for many years. It seems like a simple thing to do but giving someone free hatch space without having to actually make a commitment to investment is something that helps ingrain you and get you more comfortable with a firm or with entrepreneurs.
This is one of the greatest communities to build companies today, not just because there is a wonderful base of engineering talent who grow and build businesses, but the reality is we do have a series of successes coming out of the Northeast. It’s not Google and it’s not Facebook today but there are amazing companies who are going to become stalwarts for our community. Although historically we have been a little less agile, I think it is changing and there a lot of firms that are trying to change the way we innovate.
Pat: Chris and Steve, to follow up on that, developing games is a very capital intensive process. Can a game developer have a chance of starting a company, growing a company without the benefit of guys like Neal?
Chris: Wow, these days it’s hard. Just the quality of games and the amount of content and the technology, everything that you have to put into them is 10 times what it used to be just in terms of cost and the number of engineers you need, artists, designers and everything else. There is a certain quality bar you have to hit these days in terms of photo-realism and things like that. Some of the high production quality games — I can’t imagine doing that without the backing of some kind of venture capital infusion.
Steve: Blue Fang is definitely an exception to the rule. The Zoo Tycoon series was a big hit and has produced a big royalty stream that has allowed Blue Fang to grow without having to get any funding. But most people acknowledge that developer-publisher model is pretty broken.
Pat: When you work in those sorts of publisher molds do you sacrifice a lot of your creative independence?
Steve: Sure, the publisher certainly has the final word in that respect, and hopefully it’s a collaborative process. But if push comes to shove the publisher is the one who is paying for it and they have the final say.
Chris: We use a lot licensed IPs ourselves and there are a lot of restrictions on creativity. Look at games like Lord of the Rings — the particular art style (for which) we must conform to a pallet of colors, etc. They are not terrible limitations because it is such a rich IP, but there are still limitations nonetheless on what type of creativity we can do. There is definitely some innovation coming out of a handful of companies but a lot of companies just do the same game over and over again knowing that players will keep coming back. If you look at some of the most successful games coming out of Boston, one of the companies, Harmonix, actually based in Cambridge, they were just bought out by MTV. They have a game called Guitar Hero and a game called Rock Band. They basically make the same game every time but, you know what, it keeps selling and this is by far one of the biggest games in Boston.
Pat: Dan, as part of the process when companies raise money, one of the things Neal will ask is exactly how you would monetize this. From using social networking applications for enterprises. Take me through the monetization and how that works.
Dan: From our perspective we sell an enterprise a social media platform and professional services that help our customers meet their business goals. So, our business model is fairly simple. It’s a software as a service model with professional services laying on top, and we sell to very large enterprises. Primarily to two buyers: a marketing buyer that is aiming to interact with and engage their customers or build their brand. We sell to large companies that are looking to engage their employees with knowledge sharing, and formal and informal learning. The monetization really is in using the social networking and communities to further business goals and really look for places where there is a real ROI.
Pat: Neal, I know big Fortune 500 media companies have put a lot of money into early-stage new media companies. Have we in New England been able to sort of tap into this purse?
Neal: It is a huge strength in this area and of the seven boards that I sit on, four have been follow-on investments led by major media companies, whether it be Time Warner, Fox or CBS. The reason is one of geography — we have an advantage. We can get to New York very easily. I am there probably every week and those relationships are quite easy to build in a lot of respects.
Pat: In the area of social networking you go back to the West Coast and there’s Myspace, Facebook and Bebo and these companies that innovated over the course of five, six years. There are hundreds of product development people that came out of those companies. Do we have something similar here?
Dan: Yes, and I would say it is a slightly different twist on that. What you are saying is true. There are tons of people that have done really innovative things in the consumer market for social networking out on the West Coast, but here on the East Coast we also have a rich heritage of enterprise software. This is where Lotus Notes came from. We’ve been able to find product development, creative talent that has come out of Intranets.com/WebEx. But more interestingly some of the best talent we have found has come out of places like IDC and Forrester where they have really been studying and understand what enterprises are looking for, what enterprise business problems are, and what can work. Our market is very happy to see things like Facebook and Myspace and others lead and create some consumer demand, and the internal and enterprise demand follows that.
Pat: Focusing now on technical talent, as we’ve been hearing for years there is a shortage of good engineers in this area. Steve and Chris, where are you finding your engineers?
Chris: I actually do think, particularly for the gaming industry, it is very hard to find good talent here. I can hire from schools. That’s great, but then I have to train them up on actual game development and some of the best practices. Fortunately, there are some pretty good game development programs in schools like WPI and UMass Dartmouth that actually offer game degrees with basically computer science design and so on, that we can start to take advantage of. One of our biggest challenges, we are embarking on trying to bring our platform from PC over to the console for Xbox 360 and Playstation 3, and these developers, there are just very few of them here. They are hard to get. We just opened up a San Francisco office in fact to attract this type of talent.
Steve: In terms of finding people, it’s a little bit all of the above. We’ve had pretty good success hiring right out of local programs. We’ve definitely found some people locally but we’ve had to import some people. It is always tough getting people to move here, especially if you are trying to hire during the winter but on the other hand, particularly because a lot of the people who are trying to relocate are coming from the Bay area it’s actually the one area they can have a decrease in their cost of living if they come here.
Pat: Dan, where do you guys do your development work?
Dan: We have development work here in Massachusetts and just outside of Harrisburg, Pa. In both places it has been difficult for us to find senior engineering talent. That continues to be one of our challenges.
Pat: We’ll now move to senior executive talent. Neal, it seems like in this area that there are relatively few experienced senior executives to run media companies. What do we do with that?
Neal: I think that in this area in particular, there are excellent executives. A lot of them came out of businesses in the IT field, the storage space and enterprise software. One thing we found is people want to make transitions. They want to make transitions in their career. They want to do different things with their lives. They may be very successful in their 40s and 50s and want to do something that really takes advantage of the web today and takes advantage of online new media. One example of that is Jeff Taylor who is the founder of Monster.com and Monster was one of the first classified sites on the web so he was really involved in the inception and growth of that business. When Jeff was ready to start his new company 12 years later, it was definitely a different company. It was in a social media space trying to leverage online, trying to leverage the growth in which he saw as a visionary of building a new business in this area and we consistently see that. We see Jeremy Allaire, who started Brightcove. Jeremy came out of the app server space. It is an enterprise software business, and he took it public. Jeremy’s an exceptional entrepreneur. When Jeremy was ready to make a transition to his new job, it was to start Brightcove. It was a media play, a media business and very different but that’s the motivation people have to take advantage of their experience and leverage it into new fields. Actually I think that is where this area is exceptionally well positioned.
Pat: Neal, what’s happening in New York with venture capital? Do you expect now that all the world’s investment banks have blown up that some of that talent will move into the start up space and we’ll see more start ups coming out of New York?
Neal: New York has been interesting because over the last five years I would say there have been some really interesting businesses coming out of New York with a dearth of venture capital when you compare it to Boston or San Francisco. New York, I think, is going to be a really compelling place to start businesses. I think it will continue to be a fruitful area more now than ever, and most of that capital if you think of guys like Spark (Capital) does come from Boston, because for true early stage venture, there (are fewer) firms there than there are here. Given the competitive market, given what is happening in the world today, I think people do want to start new businesses and they are willing to take risks.
Pat: Dan, you were a Mass High Tech All-Star in 1996. A lot has happened in the last 12 years. Just looking forward to think, Boston in 2020, where will we be and where do you think as an area our greatest challenges are to retain our preeminence in the technology space?
Dan: I wish I knew the answer to that. There certainly have been ups and downs. I think the things that I see that are strengths here continue to be the young talent coming out of the schools. It’s a great place to start a company. A lot of the East Coast-West Coast tension underlying the theme here is that a lot of the companies that get built up here get sold to companies based on the West Coast. But you are also seeing a sway back where West Coast-based companies are really opening up significant operations here. Talent will come out of there. Not only is there globalization, but there’s a lot more mobility of talent, people moving back and forth from place to place and we’re building virtual organizations as well. So, I think Massachusetts will still be a great place to start and build a company.
Steve: If I look ahead at the game space, a big change is going to be the increasing prevalence of distributed teams. When I started in the games industry, if you were part of the distributed team you really had two ways to communicate which were the phone and getting on a plane. As you know, there are more and more ways to easily facilitate communication between people. I think it is going to become more common to see teams working on a game that aren’t co-located, and I think that will work to Boston’s advantage rather than having to move someone here.
Chris: We’re starting to do that a lot ourselves. I have people in random places who are just really good talent. I have a guy working out of his home near Chicago. I have a guy in Colorado. We have some people in San Francisco. We really are just taking advantage of that idea of just teleprescence and virtual communication, and trying to find clever ways to making that work. Because one of the bigger challenges is trying to manage an organization that is geographically disbursed. Some of the best games are made by very small teams over a long period of time, all working together very collaboratively.
Pat: Neal, Boston in 2020?
Neal: The best exit story of venture capital (last year) was a storage company in New Hampshire, and the reality is we have great people and great talent in enterprise software companies. Luckily we are building up in new media now, and I think in 10 years from now we’ll have a great base of games, media, social media companies, and we’ll have continued strength in areas we’ve always had great strength (such as) enterprise software, storage and hardware.
Audience: Do you think we have enough communities here where entrepreneurs can come and get mentorship or maybe too many that aren’t directed the way we should be directing them?
Neal: It’s probably the latter. We have groups in communities who get together to talk about certain areas or try to find mentorship. It’s probably just not directed well enough today. A lot of the early-stage and startup-stage companies go out west or to other areas where they do get funding. There is a numbers game right? There is five times more venture capital there. We’re second in total capital to be deployed but, like we mentioned, free hatch space, taking time with entrepreneurs locally, that’s the only way we think we will ever grow this community to be more agile and more interesting to entrepreneurs.
Audience: I was recently at a broadband video event with about 150 people, and it was shocking to see that many people in the Boston area focus on consumer video. I think that it is alive, but we don’t have enough targeted events. Are any of you seeing Google sucking talent out? I have personally experienced that with my company fairly recently and we just couldn’t compete against with what Google was putting on the table.
Neal: Google’s growth in Cambridge specifically and the amount of space they are taking, we have absolutely seen them impact our businesses.
Chris: It’s a lifestyle choice. Some people like the lifestyle of Google. That’s what it has become to some certain extent. We haven’t had a problem ourselves specifically.
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