Web's New Field of Dreams Emerges in D.C.
New Internet Companies Piggyback on Popularity of Social Networking

By Zachary A. Goldfarb
Washington Post Staff Writer
Monday, November 5, 2007

The wave of social networking and interactive content companies that has washed over Silicon Valley, promising to upend Internet business models, has reached the Washington area.

A modest community of about a dozen such companies, with names like Mixx, Searchles and Qloud, has emerged in the region in recent months. These start-ups hope to build on the success of YouTube, MySpace, Facebook and other interactive media sites by creating applications that piggyback on -- or replicate -- the goliaths.

It's all part of a frenzy for Web 2.0, a seldom-defined term for Internet products that allow users to generate content and interact with each other on the Internet.

The local efforts face the same challenge as those on the West Coast: how to turn users into dollars. But for now, many of these start-ups claim not to care, putting faith in the idea that if they become popular enough, advertising dollars will follow.

"If you have a large enough audience, you can monetize it," said Chris McGill, founder of the McLean-based social news site Mixx.

The mentality is risky.

"Over the last year or two there's been a bubble. There's been a tremendous amount of investment in Web 2.0," said Phil Bronner, a general partner at Novak Biddle Venture Partners in Bethesda. "As in any new market which receives too much funding, there's going to be a lot of carnage. A lot of companies are not going to be successful."

Novak Biddle has invested in two Web 2.0 companies, each only a few years old, that are now considered the region's pioneers: Silver Spring-based Freewebs and McLean-based Clearspring. Both are makers of mini applications such as slide shows and simple games that sit on Web sites. Each has raised millions in venture capital and their widgets have reached millions of users.

Other newcomers are building their own versions of YouTube or Yahoo, offering new twists on sharing videos, photos and news. Some are hoping to fashion applications for MySpace or Facebook that allow users to share book reviews, music tastes or other interests.

Several factors have fueled the growth of the area's Web 2.0 community. Layoffs at companies such as AOL have unleashed a flood of talent into the area, many of whom have gone on to found or join Internet companies. The sector also has attracted increased attention from venture capitalists and prominent investors such as former AOL chief Steve Case.

Perhaps most important, the emergence of a few successful Web 2.0 companies has spurred others to start up. "You can have lunch with people. You can have events with people, and people can get together and share stuff they've learned in the industry," said Freewebs co-founder Haroon Mokhtarzada.

Qloud, a music sharing company founded by former AOL employees, lives in Freewebs' office and has received money from Case. The company produces a social network plug-in, currently on Facebook, that allows people to upload a list of songs to their profile page. Visitors can browse the list and play the songs on demand, fetched for free by Qloud software.

"That's how they want their music and where they want their music -- inside their social network, which is where they are interacting every day with their friends," said Qloud co-founder Toby Murdock, 33.

Started three months ago, the Qloud application now claims more than 1 million users. The company has grown to seven people in Silver Spring and 18 developers in Romania.

Murdock is betting his service's popularity among teens and people in their 20s will prove an attractive demographic for advertisers. But for now, he says, profits are not a priority.

"We're venture funded and revenue isn't a big deal," Murdock said.

Mixx founder McGill has raised about $1.5 million from Intersouth Partners of Durham, N.C. But even with his background -- a former general manager of Yahoo News, he came to the Washington area to oversee strategy at USA Today -- the investment was not easy to get.

"I got shot down by the best of them," he recalled.

McGill heads an eight-person team on the first floor of a nondescript McLean office building. Whereas Qloud has built an application for Facebook, Mixx is a destination site.

The goal is to combine the Facebook-like social networking with news, allowing users to see a list of the news articles and Web pages that are being read by people in their network. Users can see what a particular person is reading and check out the most popular articles in a Zip code or organization. They can also see the most popular articles by topic.

"This is a human recommendation system on a relevant level," McGill said.

Though companies such as Mixx and Qloud are counting on one day attracting advertising dollars, there's slim evidence the audience-growing strategy that worked for YouTube will be successful for others.

"A lot of people are saying, I'm just going to aggregate a very large audience and make billions of dollars," said Bronner, the venture capitalist. "You've got to really focus on what you're going to do better than anybody else on the Web. That's a very difficult question and most people can't answer that."

But the people who need money to start companies say that cautionary sentiment is holding back the Web 2.0 community.

"Investors are hard to find. It's hard to get to the point where you can get the connection to them," said Ann Bernard, who founded a Springfield company, Why Go Solo, that connects people who meet in an online social network offline. She said she has already lost a developer because she couldn't pay him.

Even companies that receive early investments can face hurdles on the way to the top.

Elias Shams, chief executive of District-based Searchles, which received a $1.2 million investment from entrepreneur Mark Walsh, is convinced his company can do a better job at finding information than Google or Yahoo by adding a human element. Among other services, Searchles allows members within certain social groups to tag search results to make them more pertinent.

Started in September 2006, Searchles hoped to have several hundred thousand users by now. So far it counts only about 70,000. "The growth has been due to the competition. It hasn't been where we were expecting," Shams said.

One small Georgetown company, Hungry Machine, has bucked the Web 2.0 trend and claims to be making a profit. Like Qloud, Hungry Machine makes applications that work with Facebook.

Its applications are among the most popular on the site and include a book recommendation service called Visual Bookshelf in which people review books they've read and post links on their Facebook profiles. It is one of about 15 applications Hungry Machine offers.

"Our core business is social browsing and social shopping," said one of the company's founders, Tim O'Shaughnessy, who formerly worked at Case's Revolution Health. "People are more likely to write reviews of books or write recommendations if their friends are reading them."

The company sells advertising related to its applications and collects a cut when, for instance, a book is sold through Amazon that was linked in a profile. The company also makes applications for others, earning development fees.

"People who do focus on making things a business are going to stick around," O'Shaughnessy said.

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