To Beta or Not to Beta

Alarm:clock is a daily news site that evaluates privately-held technology startups in the areas of hardware, software, the Internet, and wireless communications. One industry overview and one company profile by alarm:clock’s editors come to Technologyreview.com every Wednesday by special arrangement.

To Beta or Not to Beta
While many startups still operate in “stealth” mode, a growing number instead bring out public “beta” versions of their software.

There are two schools of thought about how to launch and promote a software startup – and they seem to be growing farther and farther apart.

One camp opts for a long “stealth mode” period. Such companies typically operate under a name different from the one they intend to use on launch, and their websites often indicate little more than “coming soon.” 

The other approach is taken by companies that roll out their software in “beta” form as soon as it’s working. Google is the trendsetter here – its web-based Gmail service, for instance, is still in beta mode 19 months after its launch.

Recently, we checked out three examples of the stealth-mode school in action.

Zillow, a Seattle-based startup founded by former Expedia CEO Rich Barton, poked its head up to announce that it had raised an unspecified amount of funding. Other than that, we only know that Zillow will target the For-Sale-By-Owner (“fisbo”) segment of the real estate market. “We aren’t revealing specific details about our service just yet,” states the company on its website.

Nearby, Centeris emerged from a full year in stealth mode. Operating under the science fiction-derived name Narnia, the company had hired 30 people, raised $5 million, built a product for managing Linux servers within Windows networks, and worked with 20 customers, including IBM and Novell.

Meanwhile, the press has made a big to-do over the debut of P.A. Semi, a fabless semiconductor company, after two years of working under the cover of darkness. The company’s founder and CEO is Dan Dobberpuhl, who was the lead designer of the DEC Alpha series of microprocessors and the highly power-efficient StrongARM microprocessor. P.A. Semi also has power consumption in its cross-hairs. And its stealth maneuver was likely intended to ward off the prying eyes of Intel and other would-be competitors.

These three stealth companies competing in e-commerce, enterprise software, and semiconductors, respectively, have little in common. But the stealth strategy works well for all of them because they operate in competitive fields. If anything, they are late to the game, so they need to keep their take on the market a secret. And publicity that comes to such startups in stealth mode is generally the extra gravy.

The public “beta” strategy is also still alive and well, though. A recent example is Flock, a Palo Alto, CA-based startup that launched a developers’ beta version of its “social” Web browser on October 21, and announced plans to release a consumers’ beta version in December.

This strategy makes a lot of sense for Flock because it wants to build relationships with other companies and movements, to integrate with social bookmarking companies like del.icio.us as well as with podcasting and RSS services. And the best way to do that is to show what it has under the hood and see who’s impressed.

Although Flock is private and venture-backed, its public beta process gave it the flavor of an open-software project with contributions from disparate individuals and companies. This will help the company gain a foothold against monolithic competitors, notably, Microsoft Internet Explorer.

Alarm:clock is a daily news site that evaluates privately-held technology startups in the areas of hardware, software, the Internet, and wireless communications. One industry overview and one company profile by alarm:clock’s editors come to Technologyreview.com every Wednesday by special arrangement.

Paying the Piper
A startup bets it can get students to pay for music downloads.

Company: Cdigix
HQ: Englewood, CO (moving to Seattle, WA)
Founded: 2002

Management: Last week, the company announced the appointment of Larry Jacobson as CEO. From 2001 to 2004, Jacobson served as president of RealNetworks, and prior to that held senior positions at Ticketmaster Corporation and FOX, including the role of president of FOX Television Network. Jacobson steps in for Brett Goldberg, Cdigix’s 28-year-old founder, who will remain as executive vice president.

Investors: The company recently raised $10 million in a round led by Meritage Private Equity Funds and Novak Biddle Venture Partners. Iron Gate Capital also participated.

Business Model: Cdigix offers a technology platform to universities that allows students to legally download music and video content. The company’s offerings are broken into four areas: Ctrax for music, Cflix for video on demand, Clabs for educational media, and Cvillage for social networking. Universities usually pay a flat fee to Cdigix or students may be charged a modest subscription fee for access to Cdigix’s catalogue of content. Universities are willing to bear these costs primarily because they want to discourage the use of illegal file-sharing services. The company boasts over 30 customers, including the University of Michigan, Purdue University, Duke, and the University of Maryland.

Competitors: Napster, Ruckus Networks

Dirt: Cdigix’s ability to attract “grown-ups” like Larry Jacobson suggests that the current outlook for the company is reasonably bright. Given the emergence and popularity of college-focused networking sites such as thefacebook.com – and the need for universities to stem the flow of illegal downloads across their networks – we are not entirely surprised that Cdigix enticed a seasoned executive like Jacobson to take the company to the next level.

Cdigix is also benefiting from the fact that the legal actions taken by organizations such as the RIAA against brazen individual file-sharers have managed to scare some students straight. The company’s challenge will be to diversify and expand its revenue streams and avoid excessive reliance on university bean-counters. We like the fact that Cdigix is already able to charge students directly for some of its offerings.