By Zachary A. Goldfarb
Washington Post Staff Writer
Monday, December 31, 2007; D01

The rise of social networks such as Facebook and wireless gadgets such as the iPhone has set off a small stampede of companies hoping to build on or replicate their success. Many are counting on advertising to pay the bills.

But will it work?

That's one of the big questions for 2008, local technology gurus say. Advertisers want results.

"Everyone thinks they're going to support their business with the advertising model," said Phil Bronner, a venture capitalist at Bethesda's Novak Biddle. "What people don't know about is how effective those things are."

So far, the best known local players have been busy building their platforms in anticipation that advertising dollars will follow.

Silver Spring-based Freewebs and McLean-based Clearspring, both makers of the little applications that sit on top of Web sites, are among the farthest along in the local Web 2.0 space. They're followed by a few smaller companies with experienced management, such as McLean's Mixx, a social news site founded by the former general manager of Yahoo News, and Columbia's CollectiveX, a site where people can create social networks.

"The challenge now is figuring out what companies are going to be the next Junipers or AOLs or whatever gets sold for $100 million," said April Young, a Comerica Bank investment banker who works on many of the local technology deals. Next year promises to be a landmark one for mobile. To many, the iPhone became the first handheld device to make Web browsing bearable. With the release of Google's Android open mobile platform and the major wireless carriers opening their networks, 2008 has the potential to transform the mobile landscape.

"For us, it's like adding jet fuel," said Jon Jackson, chief executive of Mobile Posse, a Tysons Corner company that is rolling out programs to send banner ads to cellphones. This month, the company announced it had secured $10 million in venture capital, one of the biggest venture plays in the area in 2007.

Companies such as District-based Distributive Networks, which sends text ads to cellphones, and big players such as AOL, are trying to get users to turn to their cellphones for content.

"It's going to be much easier to get really compelling content to the device," said Kevin Conroy, executive vice president for products at AOL. Then again, "There are limits to monetization," he said.

That's particularly true when it comes to video on the phone: Users are apt to hate "pre-rolls" -- short videos that play before the main content -- on a mobile device.

"It's incumbent on us to create new kinds of ad units that actually allow us to deliver an advertiser's message," he said, such as a scrolling ticker that plays during the video.

Many local venture capitalists, still mindful of the dot-com bust, are skeptical. In a recent survey by the Mid-Atlantic Venture Association, 54 percent of the investors questioned said deals are "slightly to considerably overvalued."

John Burton, co-founder and managing general partner of Updata, a Reston venture capital firm, said that's especially true for companies selling wireless services.

"The ads will be delivered through some mobile network owned by the Sprints, by the AT&Ts and the Verizons of the world, and local and smaller ones," he said. "They are notoriously expensive to market to. Embedding yourself in one of those networks is a massive undertaking."

Others point out that a recession is becoming more possible in 2008, and the ripple effects could undermine the advertising model of many Internet start-ups trying to gain ground as big national advertisers scale down their budgets.

Overall, the new year ushers in a local technology industry in flux.

The Bloomberg-Washington Post technology index shows a 1.9 percent gain for the sector this year, compared with a 16.9 percent gain for the S&P Technology Sector.

Four months ago, AOL and Sprint dominated the Dulles corridor -- wounded, for sure, because of internal squabbles and customers leaving to competitors -- but still giants in their respective industries and arguably the best-known tech companies in the region.

In September, AOL announced that it would move its headquarters to New York as it transforms itself into an online advertising company.

And two weeks ago, Sprint's new chief executive, Dan Hesse, said he is considering moving Sprint to the Kansas City area. He lives there, and most of the company's workers remain there from before it merged with Reston-based Nextel in 2005.