As the U.S. economy emerges from recession, a new crop of start-ups is blooming. From microblogging to location-based services to green auto technology, social gaming, genetic testing, e-commerce and digital music, a new generation of start-ups is poised to lead the technology world into the next decade.
It's not surprising. Recessions breed innovation. The creative destruction wrought by economic downturns creates the conditions for new ideas to flourish and new firms to hatch. The slowdown of the early 1990s preceded the rapid growth of the first generation of iconic Internet companies -- AOL (AOL), which owns and operates DailyFinance, Netscape, Yahoo (YHOO), Amazon (AMZN), eBay (EBAY) and Google (GOOG) -- until the technology bubble laid waste to the industry, sparing only the hardiest firms.
The recession of the early 2000s set the stage for the emergence of a whole new generation of Web start-ups that have capitalized on exploding Internet growth and the rapid proliferation of broadband. The result: A new term has entered the tech lexicon: social networking. Companies such as MySpace, YouTube and Facebook have grown like wildfire as users realized the Web was more than just a communications and information tool. Web 2.0 was about connecting -- with friends, family and the Internet community at large.
The Next Tech Titan?
DailyFinance looks at 10 companies with the best chance to lead their respective fields and become household names like their pioneering predecessors. Some of these companies are already large and popular, but what makes them all start-ups is either their relative infancy or there as-yet-unrealized revenue potential.
Twitter: By now, microblogging phenom Twitter has become a household name to many, with everyone from A-list celebrities like Kanye West and Justin Bieber to ordinary folks using the service to post 140-word missives for all the world to read. (But many people -- including older folks and those in under-connected areas -- still think the word refers to some kind of bird call.) After Facebook, Twitter is arguably the hottest Internet company on the planet right now, with more than 100 million users worldwide. But unlike Facebook, which has become a relatively mature company with solid and growing revenue, Twitter is still very much in start-up mode as it seeks a formula to make money off its millions of users.
Twitter still has frequent service outages, and only just announced plans to open its first data center in Utah, to handle the millions of tweets posted every hour. As Twitter has grown, it has produced unexpected uses, becoming a key tool for journalists, states and companies to get their message to the public. Twitter hopes its popularity translates to profitability -- and if it does, the company could be worth billions. In the meantime, Twitter has become the go-to source for real-time information and news for millions around the world.
Foursquare: It doesn't get any hipper than Foursquare, the red-hot mobile networking start-up, which has become the belle of the Web ball in recent months. Led by young entrepreneur Dennis Crowley, Foursquare has amassed over 2 million users and is growing at an astonishing rate. The service allows users to "check in" at thousands of restaurants, bars and retailers in dozens of cities worldwide and share tips and experiences.
Once a nifty service that allowed the coastal digerati to navigate their nightlife adventures and keep track of their friends, Foursquare has evolved into a potentially lucrative incentive game. Prolific users earn rewards and discounts for checking into venues frequently -- they can even become "mayor" of a particular establishment. Naturally, businesses of all kinds are eager to learn whom their most loyal customers are and create incentives for them to return with their friends. Foursquare is valued at $100 million, but that figure is sure to grow -- assuming the company doesn't get bought by a Web giant.
Tesla Motors: Tesla Motors is an ambitious -- and controversial -- Silicon Valley-based electric car company with a heady goal: make affordable electric cars available on the mass market. Led by colorful entrepreneur Elon Musk -- who's been in the news nearly as much for his personal life as for his business exploits -- Tesla recently went public, raising nearly $200 million. That's on top of the $465 million taxpayer-funded loan the company was awarded as part of the government's Advanced Technology Vehicle Manufacturing Program. But despite its war chest and ambition, Tesla has only turned a profit in a single month of its history (July 2009).
The company's flagship Tesla Roadster boasts acceleration from 0 to 60 mph in less than 4 seconds, but its $100,000 price-tag has thus far primarily attracted Silicon Valley moguls like Google co-founder Sergey Brin. The company's Model S will be less expensive, but at over $50,000, it's still out of reach for most consumers -- and it will be at least one year until it's available. Tesla scored a coup recently by joining with Toyota to produce electric-powered RAV4 sports-utility vehicles, which could hit the market in 2012. Elon Musk dreams of millions of electric cars on America's roads. He's going to need help, and luck, but his goal seems closer every day.
Zynga: Social game developer Zynga is probably the hottest Silicon Valley start-up you've never heard of. But chances are you -- or your kids -- may have played one of the company's ubiquitous games, like FarmVille or Mafia Wars on the Web or on Facebook. Many tech executives view online social gaming to be the next Internet gold rush. Just three years old, Zynga is valued at $4.5 billion and expects 2011 revenue to reach $1 billion.
The company makes money by selling objects in a make-believe world to players, who can earn virtual currency. Players can buy and sell virtual items and amass credits, which have real-world value. Google has invested at least $100 million in Zynga, hoping to take advantage of the company's growing rift with Facebook, where 60 million people play its games, down from 80 million just a few months ago. Zynga is going to be huge -- the question is the degree to which it remains independent from the Web giants currently courting it. If it can maintain its independence, an initial public offering certainly isn't out of the question.
Tumblr: In the beginning, there was blogging. Now, there is tweeting. Tumblr is an easy-to-use Web publishing platform that seeks to bridge the divide between the blog and the tweet. Inherently social, and with a strong community focus, Tumblr allows users to post and repost multiple forms of content and media like photos and videos. Tightly integrated with Twitter and social networks, Tumblr is quickly becoming the microblogging format of choice for young, tech-savvy Web users -- over 6 million of them have already signed up.
Originally adopted by coastal hipsters, Tumblr has quickly attracted the attention of major media companies. In fact, Newsweek's Tumblr guru recently left the struggling magazine to take a position at. . .Tumblr. Sign of the times, indeed. After raising more than $10 million, Tumblr's valuation is poised to skyrocket as the company's user base takes off and it finds a revenue model that won't alienate hard-core loyalists.
23andMe: While not technically a tech start-up, genetic testing firm 23andMe is included on this list because of its close ties to Google -- and the technological implications of its work to advance health care. Company founder Anne Wojcicki is married to Google co-founder Sergey Brin, and the search giant has invested nearly $7 million in the company, which has quickly garnered a devoted following in Silicon Valley and among technophiles and futurists.
23andMe allows clients to discover information about their own genome and family history. Dubbed the Best Invention of 2008 by Time magazine, the company is at the vanguard of a new crop of biotech firms seeking to fuse technology and medicine to bring personal genomics to the ordinary consumer. As DNA analysis becomes ever-more central to modern health care, the company will be at the forefront of this movement. Are you ready to see your complete genome? It's $500 for a do-it-at-home test, "spit kit" included.
Etsy: The success of online marketplace Etsy is a both feel-good story and a potentially huge money-maker. The site allows its thousands of users to buy and sell unique arts and craft supplies and other products, with an emphasis on vintage and handmade goods. Similar in some respects to eBay's listing-fee and percentage model, Etsy is leading a movement to (re)introduce bartering -- an ancient model of business -- into the world of E-commerce.
Based in Brooklyn, N.Y., and backed by New York's premier venture capital firm, Union Square Ventures, Etsy has raised over $30 million to date and plans to go public, though not until 2011 at the earliest. The site has become an enormous hit, and though revenue growth is only just taking off, the company's prospects are substantial. Etsy also happens to be a great way to support local artists and small business artisans.
Spotify: The battered record industry is littered with the carcasses of digital music start-ups that tried valiantly to challenge the old CD-based business model and failed tragically. (See imeem, acquired by MySpace for the princely sum of $1 million.) Among digital music watchers, no start-up has been more heralded in recent years than Swedish-based Spotify, a Web-based streaming music service that allows users to create playlists, link to other social networking sites and purchase music. By all accounts, the service is one of the best digital music streaming services to date.
There's only one problem: Spotify isn't currently available in the U.S. because of the difficulty of reaching licensing agreements with the major record labels, which have been loath to allow free, independent, ad-supported services to succeed. Should Spotify become available in the U.S., it could be a major hit -- if the labels don't kill it with crushing license fees.
Groupon: If the Internet is built on bright ideas, once-a-day coupon site Groupon shines almost incandescently. The service offers users one coupon per day from a local company at a significant retail discount. Not surprisingly, in the middle of a severe downturn, the service has built a strong following. Groupon's genius is that it offers the discount only if enough people sign up to take advantage of it, thereby ensuring volume for vendors.
The company has almost no overhead: It uses the Web to build economies of scale. Retailers love it because they often see a large increase in business as a result of the discounts. Groupon makes money by taking a 50% cut of the gross sales from each deal. In a sign of the company's potential, it has raised $173 million to give it a valuation of $1.35 billion on expected 2010 revenues of $350 million.
Expensify: When it comes to office paperwork, is there a more annoying task than filling out expense reports? Enter Expensify, a still-very-small start-up that promises "Expense reports that don't suck." If that sounds like an oxymoron, give the service a try, and you'll find an easy to use system that centralizes users' financial actions by tracking expenses, creating statements and reports, facilitating payments, and connecting clients to financial institutions.
Entirely Web-based, Expensify is leading the way toward paperless accounting, saving trees -- and headaches. Amid countless subpar personal finance services, Expensify doesn't suck -- it rocks.
Additional reporting by Nikolay Tsintsadze
Follow Sam Gustin, a senior writer at DailyFinance on Twitter
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