Inside his San Mateo office, Mahi de Silva is picking which lucky 40 daters, pulled from a field of nearly 5 million international young romance seekers, will have their faces on one another’s Facebook, MySpace and cell phones today.
The chosen “flirters” pay $1 for a leg up in advertising themselves to millions of prospective daters through the home page of de Silva’s immensely popular social networking application, Flirtable.
De Silva’s primary competitor, Match.com, rakes in more than $310 million per year, and his startup company, Frengo, has raised $8 million total. But his ability to attract 4 million Flirtable users in four months only seems peculiar until he reveals a secret weapon that young people are addicted to and, more importantly, one he says Match.com has ignored: the cell phone.
Flirtable — which connects everyone with a Facebook, Myspace or any other social-networking account through their cell phone for dating purposes — is now Facebook’s No. 1 mobile application. It circumvents Match.com’s stronghold on the dating market by offering romance services on a pace the social-networking generation craves, which de Silva says gives him a leg up on his monstrous competition.
“It’s always great for a small team to have sort of like a David and Goliath battle,” de Silva said.
The strategy was no mistake. Hundreds of Peninsula entrepreneurs are cleverly maneuvering around conglomerates by picking smaller, newer and relatively untapped markets in which they argue larger companies such as Match.com, Google and Oracle have yet to completely capitalize.
Diaz Nesamoney has used the same strategy to raise $10.7 million in financing this summer, attacking Google in a spot the entrepreneur believed the corporation was vulnerable.
Nesamoney’s startup, San Mateo-based Jivox, gives companies free access to a program that creates custom online advertisements. Jivox then charges for the ad placement after matching the company with a suitable Web site.
Then there is Scott Yara, who dared take on $22 billion-per-year Oracle in the database industry by creating software he said is different from traditional “data warehouses.”
“These are new database problems that people are trying to solve, so we end up servicing a new market,” said Yara, co-founder of San Mateo-based Greenplum, as he walked around New York City on a business trip. “You have to really focus on competing and adding value in the areas that you think you can be best in the world at.”
The niche market has paid off for Yara, too. His clients include Sun Microsystems, E!, Fox Interactive and Frontier Airlines, and he has raised $50 million.
Frengo, Jivox and Greenplum are perhaps increasingly becoming the exception to the rule, however. Preliminary findings from an ongoing San Mateo County Economic Development Association study on startups indicate that, although San Mateo County is more lucrative than most regions, the economy has been a major concern for Peninsula entrepreneurs, said Dan Cruey, CEO of the association.
“A lot of these guys, when they’re in the startup mode, they’re called nonprofits,” Cruey said. “They struggle just to keep the doors open.”
Nesamoney said he knows personally of a few companies that have failed in the past couple of years in part because of the economy. Ultimately, he said it is the consumers who suffer because fewer entrepreneurs are willing to risk putting all or any of their money into a new venture that could turn into the next YouTube or Facebook.
It is unclear whether these startups are on the radar screens of the corporations. Google officials said they would not comment on Jivox and Oracle did not respond to requests for comment.
Analysts said the corporations would adapt by the time a startup is big enough to seriously challenge it, although tech industry competition is unique because its boundaries for services are seemingly infinite.
“This is a sign that the market is big enough to sustain both the big companies and people playing in niche markets around them,” said Steve Levy, director of the Center for the Continuing Study of the California Economy. “Not everybody succeeds but … there certainly is room for newcomers if they find room for products and services that work for people.”
Silicon Valley to ‘SaaS Alley’
The dot-com bubble may have burst long ago, but the Peninsula has a new surge of tech companies specializing in a new, expanding, untapped market — and it even has its own insider name.
The San Mateo business community is dubbing the area near the intersection of U.S. Highway 101 and state Route 92 as “SaaS Alley.” SaaS, tech speak for companies that specialize in the “software as a service” business model, are taking advantage of the same sort of strategy Google used in part to ascend to the peak of the tech world.
SaaS companies make money by creating and selling services, not necessarily products. As a result, SaaS companies typically cater to other businesses rather than individual customers.
“There’s a whole cadre of these young companies right there,” said Rich Moore, a business communications professional who sits on the San Mateo Area Chamber of Commerce board and specializes in local startup companies. “It’s by far the fastest-growing part of the software industry.”
Perhaps the fuel for the SaaS Alley movement is Emergence Capital Partners, located right in the alley. It has invested in such SaaS companies in the alley as Genius Inc., SuccessFactors and nQuire, which has since been purchased by a company later acquired by Oracle, according to Emergence.
Cities learn to communicate with startups
When one of the most successful startup companies in Bay Area history took its name recognition, employees and tax base elsewhere, business leaders in San Mateo knew something needed to be done.
YouTube started in a small office above a pizza parlor in downtown San Mateo. It grew to an international force, and San Mateo was unable to stop it from moving to San Bruno.
Now the city and its business groups make calls to its startup businesses regularly, and Mayor Carole Groom and others stop by their offices for assistance, said Linda Asbury, CEO of the San Mateo Area Chamber of Commerce.
“It really is about that phone call; how’s it going, what can we do for you,” Asbury said.
It just may be working.
“We’ve got a number of local [clients] now thanks to the city helping us out,” said Diaz Nesamoney, CEO of San Mateo startup Jivox, who added that his company would try to stay in the city if it expands.
San Carlos lost a YouTube-like startup just this month when Tesla Motors announced it will be moving its headquarters to San Jose. Their city has also formed an “economic partnership” between business groups, city officials and local CEOs to determine what the city can do to retain its businesses, said San Carlos Chamber of Commerce CEO Sheryl Pomerenk.
“It’s good for our economy and there’s some prestige with having a company like Tesla in San Carlos,” Pomerenk said.
Notable startup companies in San Mateo County
The Peninsula is sprouting important young businesses such as these:
APT, Burlingame: Develops drugs for underserved populations
LS9, South San Francisco: Creates renewable fuel from bacteria excrement
Silver Spring, Redwood City: Makes energy-efficient utility meters
Maatiam Foster City: Works with retailers to donate proceeds to nonprofits
RockYou, Redwood City: Creates widgets and apps for the social Web
GameStrata, San Mateo: Provides social networking for gamers
Greenbox, San Bruno: Allows homeowners to track utility usage
Qualys, Redwood Shores: Provides IT security products and services