New ideas keep tech investments alive is an article by CBS MarketWatch about new technologies that are up-and-coming. In it, they hilight Friendster and Tribe.net as two different ways to network people for activities.

Innovation in the city
Commentary: New ideas keep tech investments alive

By Bambi Francisco, CBS.MarketWatch.com
Last Update: 12:05 AM ET Aug. 12, 2003

SAN FRANCISCO (CBS.MW) – A recent article in New York magazine titled “Sex in the City” reminded me of the perceived contrast in values between the East Coast and the West Coast.

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For instance, in Los Angeles, “the body may be sufficient as personal statement,” the article reads. By contrast, in Manhattan it’s writing a literary sensation or selling a series to a cable channel that makes a person complete, according to the writers.

For denizens of the Bay Area and Silicon Valley, who by the way went unmentioned in the piece, I’d say the premium is on innovating and changing consumer and business behavior.

Indeed, innovation is alive and well in Silicon Valley despite the return of gloom and doom in the tech and Internet sectors during these dog days of August. EBay (EBAY: news, chart, profile) sits precariously above $100. Yahoo (YHOO: news, chart, profile), Amazon.com (AMZN: news, chart, profile) and InterActiveCorp (IACI: news, chart, profile) are fighting to stay above $30 and $40 and $34, respectively.

Here are some companies that not only reflect the trends in technology, but also the bootstrap mindset of the times.

Xoom: Online money transfers

Making payments via e-mail has become an alternative to checks and credit cards. EBay, which brokers many of these money exchanges between its buyers and sellers on its marketplace, recorded nearly $100 million in broker fees in the second quarter.

But another opportunity on the horizon is the money-transfer business.

It’s estimated that the total dollar volume of immigrant remittances worldwide was $138 billion in 2002, according to Kevin Hartz, founder of Xoom, which is a fledgling online money-transfer agent based in San Francisco. The revenue opportunity for Xoom would be about 5 to 7 percent of that amount, said Hartz.

At the moment, Western Union dominates the money-transfer business with roughly 14 percent of the marketplace. The rest of the market is fragmented, giving Xoom the opportunity to compete as it partners with the smaller players in other countries. Two-year-old Xoom, which launched in the Dominican Republic in October 2002, is offering transaction rates of 5 to 7 percent, far less than the 15 to 20 percent that Western Union charges in some countries, said Hartz. Currently, there are about 180,000 Western Unions around the world, but that is far less than the millions of computer users with access to the Web. Hartz said the company plans to spend more than the current $10,000 a month as it expands. He anticipates raising more money in the first quarter, on top of the funds he’s already raised including $250,000 of his own money, $100,000 from angel investors and $500,000 from Peter Thiel, founder of PayPal, which was sold to EBay last year.

Restricted Stock Systems

Stepped-up regulation has nearly doubled the cost of being a public company, in some cases. But with reform comes opportunity. Restricted Stock Systems is well positioned to satisfy the needs of increased corporate governance and disclosure requirements at financial service firms and public companies.

There is roughly $2 trillion of restricted stock in the market place, and, about 5 percent to 10 percent, or $100 billion to $200 billion in restricted-stock transactions, according to Greg Besner, the founder and CEO of RSS. The Sarbanes-Oxley bill of 2002 requires insiders, like officers and directors, or those who own more than 10 percent of a company’s stock to report changes in ownership electronically within 48 hours of each transaction.

Before the act, insiders could file by snail mail. RSS’s technology reduces the processing and filing time and costs. Additionally, Microsoft’s (MSFT: news, chart, profile) recent announcement that it will issue employees restricted stock shares instead of options gives RSS another opportunity. RSS helps brokerages process restricted stock from cradle to grave.

In June, Besner was named Ernst & Young Entrepreneur of the Year for emerging growth companies based in New Jersey. His company has raised $3.75 million over three years from Beehive Ventures, Gamma Investors and about 20 angel investors. The company had spent about $2 million a year in expenses, but last quarter, it reached cash-flow positive, and it expects to be profitable for the full year 2003.

Friendster: Online dating

Matchmaking was the fastest-growing service that people paid for on the Web in 2002, according to a joint ComScore and Online Publishing Assoc. study.

Of the $1.3 billion spent for content and services online, $302 million went towards online dating services like InterActiveCorp’s Match.com or Yahoo Personals. That number is expected to grow to half a billion this year. No doubt, the Internet is changing the way people are connecting. And, some relatively new sites, like Sunnyvale, Calif. Friendster, are adding nuances to this matchmaking phenomenon.

The difference between Friendster and Match is that the former is based on a network effect. Unlike the anonymous online dating sites, a person can only meet someone who is a friend of a friend. Some view it this way: Match is like going to a bar whereas Friendster is like going to a cocktail party. But what happens when matchmaking is successful? What’s the lifetime value of such a customer? Says Jonathan Abrams, Friendster founder: “Friendster is not just for singles or for dating. We think that people can use Friendster throughout the various cycles of their life. Those who are single and then enter a relationship may also become single again in the future.”

Friendster raised a small amount of funds this year, mostly from angel investors, and it’s still in beta after launching the service for public use in March. Friendster is a tiny, tiny company only been in the public since March, but it’s now a top 200 Web site built on a shoestring. There is moderate advertising. The primary revenue stream will be a subscription.

Tribe.net: Networking, localizing search

Similar to Friendster, Tribe.net, which recently raised $800,000, is also creating a service that enables people to leverage their network of friends to find future significant others. But Tribe.net is also setting up a social network to build a critical mass of people that would use Tribe.net to meet their local needs, like a job, a home and all the related items.

The trend that Tribe.net is embracing is the localization of search, which is pretty much in the conceptual stages but has been talked about by all the major search companies like Overture (OVER: news, chart, profile). InterActiveCorp CEO Barry Diller also plans to use Citysearch, the company’s local city guide on the Web as the platform on which to build a local paid-search business. Currently, nationwide sites dominate the amount of searches people conduct on the Web. Merchants advertise with the search companies, like Overture, Google, LookSmart (LOOK: news, chart, profile) or FindWhat.com (FWHT: news, chart, profile) and others to be listed under certain keywords that people search for. Some think habits will change and more people will shift towards local sites to do their searches. For instance, many people in the Bay Area use Craigslist.com rather than newspapers to find apartments to rent or houses to buy. Tribe.net is hoping to displace these papers that survive on classified advertising. To do that, Tribe.net has aligned itself with a couple of publishing partners, WashingtonPost.com and Knight Ridder Digital, which have both invested in the company. Knight Ridder Digital owns Realcities.com, which is trying to become the online component of each city paper.

Wabi: Wireless and consumer trend

Wabi, a maker of wireless consumer products, hopes to replicate the success of the pet rock, or Ferby, or Teddy Ruxpin – still one of the most successful toys ever with 5 million sold in its lifetime.

Wabi’s first product is a talking Teddy Bear. Nothing novel there you say? Well, the difference is that you can personalize messages that the Teddy Bear can relay to children, or, umm, those who are children at heart.

In the belly of the bear is essentially the same technology that would be in a wireless handset. The bear is set to retail for between $59 and $69, and will be available in September in stores ranging from FAO Schwartz to ToysRUs.

Wabi founder and CEO Mark Bradlee was also involved in the development of Teddy Ruxpin. He said the company has raised $3.7 million since taking in its first investment of $500,000 from individual investors, including the founders of CostCo and PowerBar.

Wabi is producing as many as 600,000 bears for the holiday season. At $40 per-bear wholesale price, Wabi could generate some $30 million in the quarter. But it won’t be profitable unless it can sell calling cards for a certain amount of phone calls at $10 a piece. Gross margins could be as high as 60 percent. In keeping with the bootstrapped mindset of the times, Bradlee says that Wabi has spent $2.5 million since inception. It’s currently being courted by a number of venture capitalists for its latest round.

Spike TV’s MarketWatch

Speaking of new ideas, watch CBS.MarketWatch updates on the new Spike TV cable channel with myself and colleague Trish Regan. Check out the Spike TV site.

You can get free e-mail delivery of Bambi Francisco’s Net Stocks daily and Net Sense weekly. Sign up here for Bambi Francisco’s Net Stocks and Net Sense newsletters at MarketWatch.com. See previous Net Sense: The ‘Real’ battle is in legal downloads and Ten red flags in this bull mania.
Bambi Francisco is Internet editor of CBS.MarketWatch.com, based in San Francisco.