For the quarter ending this past June, we compared the findings of three research firms that reported on the money invested in Q2:

• July 21, MoneyTree (PricewaterhouseCoopers, with data from the National Venture Capital Association and Thomson Reuters): $3.7 billion, with 612 deals,
• July 18, VentureSource (DowJones): $5.27 billion, with 595 deals,
• July 14, ChubbyBrain (a New York City-based startup partnering with ReadWriteWeb): $5.329 billion, with 613 deals.

VentureSource and ChubbyBrain seem to agree on the top line number. But MoneyTree's number is what most people report, and that is about $1.5 billion different.

As the old saying goes, "A billion here, a billion there. Sooner or later it adds up."

Disclosure: Our VC Funding Report

ReadWriteWeb has an interest in this. We sell a report for $299 that has details on the 240 deals done this quarter in the Internet, mobile, and SaaS space (not clean tech or bio tech), and this is powered by data from ChubbyBrain. So we are biased. But it also means that we are engaged and have been looking at this fairly deeply.

Who Cares?

We also think that accuracy matters, and we are trying to figure whom accuracy matters to. We see three main types of participants in the industry:

1. VCs. They need accurate data for their own fund-raising. They have to be able to benchmark their own funds relative to the broader market.
2. Entrepreneurs. Data on what funding deals are being made, and why, helps them figure out how much to raise, when, and from which VC.
3. The startup "community." This is a catch-all for everyone else, who tend to align to either VCs or entrepreneurs. Journalists, the non-aligned fourth estate, want reliable data to key off interesting stories.

Why does this matter? The startup community matters to the health of the overall economy. As the National Venture Capital Association (NVCA, the trade association of VCs) likes to point out:

"Originally, venture-backed companies have created companies that accounted for 10.4 million jobs and over $2.3 trillion in revenue (based on 2006 data)."

So a headline like "VC Investments Falling Off Cliff in the US" really impacts a lot of people. That is the kind of headline that most journalists/bloggers wrote in April 2009, based on data reported by those trusted sources.

We wrote a really boring headline:

"VC Investment in Internet Deals Did Not Fall Off a Cliff."

That's a lousy headline for generating page views. It's a story about "the dog that did not bark."

The point is that headlines drive business behavior to wild excesses on both the down-cycle bust and the up-cycle boom.

Just good reliable data would help.

Innovation Is Global, But It Keys Off US Data

At ReadWriteWeb, we love to track innovation from far-flung corners of the world, and we see the globalization of innovation as a critical trend.

So we want to be able to report on financing trends for early-stage Web technology startups across Europe and Asia, in addition to the US. And we expect any research process to be able to scale to that challenge.

But the reality today is that, globally, entrepreneurs and VCs key off US data. If they were to key off bad data, that would matter to everyone.

Why This Matters

Driving with one's eyes in the rear-view mirror is dangerous. We take action based on what authoritative sources tell us is happening today, and we base our assumptions on what that means will happen next and plan accordingly.

In reality, these sources tell us what has happened in the past, and they may not even tell us that accurately.

When we at ReadWriteWeb look at the macro picture, we favor a contrarian view simply because the reality we see today is often not what the headlines trumpet. When the markets were in the late stage of a boom, we were sounding the warning signals.

When the markets were melting, we began to see surprising signs of life in the early-stage Web technology world we live in.

Whether you are an entrepreneur or an investor, knowing what the crowd is thinking -- and what the headlines are trumpeting -- is valuable. Even more valuable are the underlying facts and trends that may be missing from those headlines. In the disconnect between the two often lies a lot of opportunity.

We hope to ignite a debate that leads to greater accuracy and transparency of these numbers.

Steve Jurvetson, one of the best-known technology investors in the world, has posted an updated version of Kurzweil's visualization of the history of exponential growth in computing. In his thought provoking discussion of the phenomenon, Jurvetson calls this "the most important chart in technology business."

"What Moore observed in the belly of the early IC [integrated circuit] industry was a derivative metric," Jurvetson writes, "a refracted signal, from the bigger trend, the trend that begs various philosophical questions and predicts mind-bending futures."

What will be the next big leap in computing technology? From a hardware perspective I won't even venture to guess, but it sure is exciting to think about what those technologies will enable. Many things we'd love to see done today remain too processor intensive, from advanced Augmented Reality implementations to broader real time services and machine learning. Ultimately, we can only make clumsy guesses about the killer apps of an exponentially more powerful computing platform - that's the point.

When calculations per second increase exponentially, fundamentally new things become possible. It's one of those fascinating quantitative changes that cross the threshold of creating qualitative change.

For every frontier explored there is baggage brought from home, of course. About this chart, Union Square Ventures associate Andrew Parker asks "how much does a newer medium pull from an older medium in terms of design paradigms?" (That makes us want to cry for the poor limping US Patent Office, now facing layoffs of all things!)

Mind bending is right. What does this chart, that Jurvetson calls the most important in the technology business, bring to your mind - innovation loving readers of ReadWriteWeb?

You're not alone. And maybe they're right in thinking we have our priorities out of whack... but in the great scheme of things, there are worse things to lose your sense of proportion over than innovation, new possibilities and sheer fun.

More Noise to Signal

As avid users of FriendFeed will tell you, Facebook's implementation of FriendFeed's features are nothing but a pale imitation of the real thing. Still, there's a growing concern among the service's fans about its sustainability. Although FriendFeed's founders believe they can still innovate to profitability, we're no longer sure that's true.

FriendFeed is a web application that's very much like Facebook's News Feed, except that it incorporates far more services. Where Facebook lets you import content to your News Feed from a dozen social web services that range from YouTube to Flickr, FriendFeed offers nearly sixty..including Facebook status updates. That's not the only difference, either. In FriendFeed, commenting on and "liking" items causes them to "bubble up" to the top - that is, it brings popular content up to the top of the page. FriendFeed's "FOAF" (friend-of-a-friend) feature also integrates posts from your friends' friends into your activity stream which can expose you to more interesting people who you might want to follow.

Although on the surface, FriendFeed might appear to be just a more robust version of the Facebook News Feed - a News Feed on steroids - the differences between the two go far beyond a list of features. Where Facebook users track their real-life friends' activities, FriendFeeders tend to track news and topics they're interested in. Most have probably never even met half the people they're subscribed to - they just like what they have to say and the things they share.

Wait...Doesn't FriendFeed Need to Make Money?

What FriendFeed delivers is something that's more than just the sum of its parts. It doesn't have one single killer feature that defines it. It is simply a mashup of pure innovation. So what if Facebook rips off bits and pieces of FriendFeed's better qualities? Why shouldn't mainstream users enjoy this too? For what's innovation's worth if it doesn't spread?

Ah, but therein lies the root of all FriendFeed's problems. The innovation of the social "like," of aggregating your web activity and letting others comment on it - all of this, all of FriendFeed's innovation, is spreading off-site. It's becoming popularized on Facebook, where a good portion of the social network's users have never heard of FriendFeed and (possibly) never will.

That doesn't bother FriendFeed, though. Says co-founder Bret Taylor:

"The ability to comment on and like entries has always been popular on FriendFeed, so it is not surprising to see it appear in other places. We have always been focused on building a unique, but open sharing and communications product, and we think that it's great when users are able to share things in more places. While there will always be some overlap in functionality between FriendFeed and large social networks, we believe there is a lot of room for FriendFeed to grow. The problems of sharing and communication are large, and we don't think they will be solved by a single product or company."

While that's true to a point - we certainly don't think Facebook will solve all our communication problems either - there is a valid concern that if FriendFeed can't cross over into the mainstream, they may not make it, especially given our current economy. Businesses still need to make money...and for web startups to make money they need users. Yes, more users than web celeb Robert Scoble and his 25,000 followers. Unless FriendFeed can prove to us that they can, without a doubt, monetize the long tail of technology early adopters, then they need to grow their user base. Can they do this? How? These remain unanswered questions as of now.

FriendFeed's Real Value

But don't get us wrong, FriendFeed's financial success (or lack thereof) is only one way to measure its real value. Obviously it's the one that investors and business owners care about. If that describes you - if you only care about the bottom line and all the nickels and dimes - then seeing FriendFeed's features swallowed up by the social giant that is Facebook may be worrisome.

However, if you measure success not by money alone but by pure, unadulterated excitement, the feeling that you've witnessed the birth of something new -something different - then it doesn't matter how many features Facebook steals for their own. All that matters is that innovation happened. It happened on FriendFeed. And you liked it.

ReadWriteWeb will be reporting from the 15th Stanford Accel Symposium on February 25th. Hosted by Accel (the VC firm that funded Facebook, Etsy, and dozens of other companies we write about here) and Media X at Stanford, the event boasts some big name speakers, such as the CEOs of eBay and WPP.

Who Will Speak?

The keynote talks will be delivered by:

• John Donahoe, CEO, eBay Inc.
• Sir Martin Sorrell, Chairman and CEO, WPP

The speakers and panelists include:

• Jeremy Allaire, CEO and Founder, Brightcove, Inc.
• Adam Bain, President of Audience Network, Fox
• Jim Bankoff, CEO, SB Nation
• Matthew Barzun, National Finance Team for Barack Obama and former Chief Strategy Officer, CNET Networks, Inc
• John Battelle, Chairman and CEO, Federated Media
• Rob Bearden, former President, Jboss; President, Springsource
• Dave Berman, President of Worldwide Sales and Service, WebEx
• Tim Cadogan, CEO, OpenX
• Duke Chung, CEO, Parature
• Scott Dietzen, SVP of Communications and Products, Yahoo!
• Curt Hecht, President, Vivaki Nerve Center
• Chris Hughes, Facebook, and Architect of Obama's Digital Campaign Strategies
• Bob Muglia, President Server and Tools Business, Microsoft Corp.
• Raghu Ramakrishnan, Chief Scientist for Audience and Research Fellow at Yahoo, Inc.
• Mark Read, Strategy Director, WPP
• Mike Schroepfer, VP Engineering, Facebook
• Quincy Smith, CEO, CBS Interactive
• David Thompspn, CEO, Genius Inc., former CMO, WebEx
• Jayshree Ullal, President and CEO, Arista Networks
• Zack Urlocker, VP of Products, Sun Microsystems
• Maynard Webb, CEO, LiveOps; former COO, eBay, Inc.
• Jeff Weiner, President, LinkedIn; former EIR, Accel Partners

What Will They Talk About?

Here are just some of the topics these big names will cover:

1. The Obama Administration's Impact on Innovation Sectors
2. Digital Media Advertiser and Technology Priorities in a Downsizing World
3. Trends in Data Center Infrastructure and Cloud Computing
4. Will the Recession Strengthen Open Source or Destroy Profitability?
5. SaaS Crossing the Chasm: Are We There Yet?

What Questions Would You Ask if You Were There?

Tell us in the comments. We will select the best questions and ask them at the conference and then report on the answers. Please be specific: ask a question that relates to one of the above topics; if you want, choose which panelist you would like us to direct your question to.

But Twitter won't survive if it doesn't find a great revenue model. This matters to all of us.

If Twitter fails to find a revenue model and hits the deadpool, it will have a chilling effect on innovation. That matters to all of us in the innovation economy. Sure, you could live without Twitter, but what about the funding chances for that brilliant idea of yours?

No Rush But It Has To Be Right

Twitter has top tier VC backing and enough cash to wait till they have scale and the right revenue model. But when they launch it has to be just right. In this climate, Twitter would probably not recover from a Beacon like fiasco. Nor can Twitter do well with a smorgasboard of revenue models, where none really moves the needle and all irritate users just a bit. It has to be one absolutely compelling model that enables Twitter revenue to scale the same way their usage scales.

Adwords Is The Gold Standard, But This Is Tougher

Adwords is the monetization gold standard. The fact that Google did not invent it is irrelevant. But how many new revenue models like this have we seen in the last 10 (or even 100) years? That's right. This is tough to get right.

But Twitter's challenge is even tougher. Google was not creating an entirely new type of service. It was Yet Another Search Engine, just a better one. They could just use/improve a revenue model developed at a different search engine. Twitter has created an entirely new type of medium, which is what makes it so exciting. So there is no obvious place to borrow a revenue model from.

This requires serious creativity. Yes the words "revenue" and "creativity" were just used in the same sentence, welcome to the new world!

Why Did Adwords Work? Two Acid Tests

These are the two things that Twitter's Magic Revenue Model has to achieve that Adwords did so brilliantly:

1. Do not irritate/interrupt the user and even occasionally add value to the user.

2. Provide a value proposition that is so compelling that even conservative buyers give it a try.

Show That The Wisdom Of Experts Works

My horoscope today told me to "pick a controversial topic and ask someone smart what they think about it." Well, I am taking that to extreme and asking lots of smart people what they think.

Wisdom of crowds is "so last cycle". Wisdom of experts is what really works. That is what we have here on ReadWriteWeb, lots of really smart innovation experts. Give us your one best idea for a Twitter Revenue Model and show us how it meets the 2 acid tests defined above.

reCAPTCHA combines traditional OCR with an approach similar to Amazon's Mechanical Turk. Every text is analyzed by two different OCR programs and whenever those two program disagree on a word, it is marked as 'suspicious.' Those suspicious words are then fed into reCAPTCHA, which creates a CAPTCHA with both the suspicious word and a known control word. Once a certain number of users have solved the suspicious word with the same result, it becomes a control word itself.

Overall, reCAPTCHA achieves an accuracy of 99.1%, which is on par with the accuracy achieved by having two humans type the text and then verify the results.

While it is mostly a proof of concept right now, reCAPTCHA's developers calculate that the system can be used to transcribe the equivalent of 160 books a day.

The most fascinating aspect of this idea is that it turns mental energy, which would otherwise be wasted, into something useful. Other projects like fold.it, which turns protein folding into a game, or Google's Image Labeler take a similar approach, but the user has to actively decide to play a game. reCAPTCHA, on the other hand, turns a chore into a useful project.

Dot Coms 2.0? Say it Ain't So...

Maybe we are all just fooling ourselves. When the Internet bubble started to burst in March 2000, most people were saying "that's them crazy Dot Coms, not us". Gradually, it was all of us who were in any way associated with technology.

After 18 months, in the summer of 2002, everybody had capitulated. You could buy shares of Rational Corp (the leading supplier of software tools after Microsoft, bought by IBM) for a valuation of $1 billion when they had $1 billion in the bank and $1 billion in revenues (oh, yes, and a couple of bad quarters which made it obvious that nobody would buy software ever again). You could walk into a VC with a patented machine to turn mud into gold and be greeted with a sceptical "but what if gold falls in value?". You could prove that your $50k software would have $500k savings to a company within 6 months and the response was still "we will get back to you". The technology nuclear winter was very, very cold.

So maybe it is coming again in the technology business. No more funding, no more deals, no more parties. Maybe the hangover is coming.

Innovation Economy Still Thriving

But it does not look that way from what I am seeing. VCs are saying that their companies are doing well (and not all are hyping their portfolio). It also coincides with what I am seeing from companies that I know well. Companies are either growing revenues or getting more funding or doing both. I have interviewed two founders at the Web 2.0 Expo in New York that have broken into profitability. Even if VCs run for the hills they will be fine. These upstarts are taking business from higher cost alternatives.

I have also heard first hand of big deals from large companies awarded to small, young ventures. And I have seen large enterprises that are working on large social media rollouts.

This is not good for big tech companies. But it does look good for small, low cost, agile upstarts. The smart companies have worked out how to reduce risk for clients. What's the risk of implementing Basecamp or Zoho?

I call this the "innovation economy" and that is a tad worrying. It sounds like "New Economy" and we all know where that ended up. I did not want to say the "technology industry" as huge parts of the tech industry now simply follow economic cycles. The fortunes of Microsoft, Oracle, Dell, HP, IBM, Cisco tend to rise and fall in line with global GDP. Bigco is not the heart of the innovation economy.

Shift in Power to Smallcos

It is more likely to do with a fundamental secular shift in power from large business to small business. The Internet and Coase's law would be the theoretical underpinning for that. Something dramatic may have quietly happened, making the playing field not just level for start-ups vs incumbents, but tilted in their favor. It might have something to do with the tools that enable you to run a global business with all virtual operations and almost no infrastructure cost. You can simply scale faster and cheaper than your incumbents.

Conclusion

The market mayhem this week has been unprecedented, far worse than even my worst imaginings and I was thinking it was going to be bad. So this is bad. It will spill over into everything. Many parts of the Web 2.0 industry will be in trouble, specifically those with dependency on consumer advertising or financial services.

But the gritty entrepreneurs are building value and getting profitable and have better opportunities than ever before to get their case heard. VCs who keep their nerve will do enormously well, just as they did from deals done in the 2002/2003 era.

What do you think? Is it tough times for all? Or tough times for the slow and good times for the fast?

Image credit: Thomas Hawk

That's a part of what's going on, economics. This is an information economy, after all, and user data is clearly one of the most important currencies in circulation.

The Importance of Privacy

Facebook holds a growing amount of user data and tries to hold on to it tightly in the name of user privacy. Founding CEO Mark Zuckerberg told us in an interview at SXSW that he agrees with the principals of data portability but believes that Facebook has to solve a number of problems about privacy as its contribution to the data portability discussion. At the time many people were skeptical of Zuckerberg's claim (some still are) - but nothing illustrated the validity of his argument better than Scoblegate.

High profile blogger Robert Scoble teamed up with spamtastic startup Plaxo to scrape the emails from his contacts' profiles in Facebook, turn them from protected images into machine readable text with OCR technology and then export them outside of Facebook. Facebook shut Scoble's account down for a couple of days and a huge brouhaha erupted. Some said that Scoble had every right to the email of his contacts and others said they only gave him a right to see their contact info in Facebook and not to export it elsewhere.

Can users have access to data about their past activities and their social connections without violating the privacy of the people they are connected to? That is the question and no solution has been found yet. There needs to be though and it ought to be a solution that's standards-based and thus reproducible everywhere.

Protection of user privacy is a precondition to meaningful data portability, but vendor control over data is a stopgap measure at most - no more than a short term solution. In the long run, there needs to be a way for users to designate some of their data as being not for export or use outside of its original context. The data that is made available for public sharing should be accessible through a standards-based system of authentication, so any new vendor can show up and make use of it.

Long Term Interests

In the long term, it's in everyone's best interests for data to be as portable as possible. For users, data portability means that we can invest time and resources into new platforms on the web without the fear that the work we create will be locked in to that network or otherwise lost to us. It also offers the possibility that we can take our compiled work in one place and let another service process that data to create new kinds of value for our benefit. For example, being able to export our reading history from one service would enable other services to immediately recommend new experiences they can offer based on our tastes elsewhere. The music website Idiomag, for example, can look at our public history on Last.fm and build from that history a customized music "magazine" about artists we would likely enjoy. That's just one kind of service that could be enabled for users by data portability.

Most importantly for the purposes of this post, vendors too have an interest in data portability. Allowing your users to port their data elsewhere means that you'll be able to import their data from other platforms enabling export as well. When your users take their history with you to another site, they will be able to make faster, better friends and content connections in that new place, which should lead to their having a better developed social network to bring back to your site.

If you can add value to user data, and thus help grow the aggregate information economy, then there should be far more information for you to monetize (advertise against) than you could keep within your grasp alone. Add value, let it go and focus on offering a compelling enough user experience that users will bring their data back to you, freshly grown from their experiences in other environments. Everybody wins.

Google search has huge value not because it owns anything but because it touches everything. The value it ads by enabling discoverability lets the web at large grow, meaning that there's more web for Google to advertise on. Google Friend Connect, on the other hand, keeps users' social and activity data on Google servers - barring the participating websites from gaining read/write access to that data. What a huge loss for everyone!

Recall the economic theory of comparative advantage. International development thinker and all around Renaissance man Jed Sundwall says the old "I'm better at making wine, you're better at making cheese, let's trade" logic could well apply to social web data portability as well. Facebook, for example, has a great video mail system. It doesn't do microblogging well at all. Allowing a user to bring their video mail from Facebook with them to Twitter and their Twitter history with them to Facebook would only make both services stronger. Blogger and economist in a previous life Bob Uva says it's a matter of enabling "greater efficiency by all points of production." There's no need for one service to reinvent the wheel or spend resources building data extraction technology if there is standards based data portability. Likewise, users wouldn't have to start anew building their social networks and personal profile/history in every new service they join. What that increased efficiency means is more innovation, both in terms of service features and personal creativity.

Data Neutrality

Perhaps what we need is not just data portability but data neutrality, a paradigm emphasizing that only users can control where their data passes from one location to another. Just like supporters of net neutrality argue, allowing vendors to limit passage of data allows them to stifle upstart competitors and hurts the whole web's need for continuous innovation.

Good Faith

Privacy is really important in order for data portability to be real. Working to assure that privacy is important, but we also need to see vendors making consistent progress towards a user-centric economy of open data. That means that building iframes and widgets to send the social around the web is just a short term solution. More important news for long term progress would be vendors accepting inbound OpenID, offering oAuth APIs for passing user data along from site to site, marking up user data with semantic and microformat code to make that data machine readable elsewhere, enabling easy behavioral data export and perhaps most importantly building the machinery that will process portable data as the world moves in that direction.

Everyone says they support data portability but it's most exciting to see vendors who are developing methods of deriving value for users and for themselves from the free passage of data that ought to be the defining characteristic of the web, once user control and privacy are workably solved. We want it, you want it, we're all going to get more value out of it if service providers offer a place to put our data and make some magic with it.

As Chris Saad, founder of the Data Portability Working Group said today, data portability is the new web and vendor apps are like the browsers that allow you to view and remix that data. That's where the innovation that will fuel the future growth of the information economy will come from. Users have to have a reasonable expectation that they will be safe, secure and in control of their own data assets - and then it's a competition to see which vendors can add the most value to the free flow of data. In just a few short years, vendors should win the hearts of users by providing superior service - not in any part by locking in data. Let's have heated debates about who's innovating the fastest using the secure, free flow of user data - not about whether that needs to happen at all.

Horse race photo by Ian Ransley. Special thanks to the friends who helped me with this post on Twitter, UStream, the telephone and a wiki - we used each of those media to put this together and it was a lot of fun.

a) Are we about to enter into a recession, and if so does that mean an end to the current 'web 2.0' era of innovation in web technology?;
b) Why aren't we (meaning startups) tackling the "big, hard problems" with web technologies?

The "big, hard problems" quote is taken from Tim O'Reilly's keynote speech at the Expo. In it O'Reilly passionately urged us to "not follow the headlines" and the hot things, but go after "big, hard problems".

Sarah Perez followed up earlier today with a post entitled Wanted: 5 Startups To Change the World, in which she commented on Umair Haque's open challenge to Silicon Valley: find a problem to fix that will change the world for the better and he will help you do it.

This is all very inspiring, and we at ReadWriteWeb have made a conscious effort over the years to focus on meaningful web technologies. OK, we blog about Twitter, Facebook, FriendFeed and other time-wasting, info-overloading consumer apps a lot. But we also blog about health 2.0, semantic web, non-profits, 'real world' apps such as financial web apps, and so on. We like to think we cover the whole spectrum.

But it seems like the big, hard apps may become more of a focus over the next year or two. If you've been following Bernard Lunn's long but insightful 3-part series on the new Web era, which culminated tonight with Dancing With Gorillas, you'll have noted that Bernard's key point is that making revenue will become more important. Up till now, argues Bernard, the M&A market has mopped up a number of web 2.0 plays that had little revenue (think del.icio.us and last.fm). But in the new Web era, success will come from startups that provide a "spark of innovation that will solve problems for millions of people in the real world, helping people in Main Street to make a living." That's where the revenue will be.

To hammer home this point, let me quote something from Bernard's second post in his series, The Emerging Main Street Web. Channeling Clay Shirky, Bernard wrote:

"The basic tools of Web 2.0, such as forums, blogs, Skype, SMS, RSS and social networking have now passed the early adopter phase and crossed into the mainstream. Ordinary people are using social media to change their world."

I couldn't agree more - what's exciting about this new, coming, era of the Web is that we'll have the opportunity to use web 2.0 technologies to improve the daily lives of real people. And, as Tim O'Reilly urged, to solve some truly big problems such as the environment, health and changing government structure.

I think this new era of the Web will be very exciting. Innovation won't stop, because we've hardly started solving the real problems. But Bernard is right that integrating all the Web pieces from web 2.0 (including using open web standards) will be a key driver to this new innovation.

Image: ReadWriteCulture-FangMix1 by MikeBlogs

If its business analysis you're looking for, go read Paul Kedrosky. Here at ReadWriteWeb we focus more on the cultural impact of innovation in technology. On that front, I think this acquisition could be very good news.

Yahoo! is great at content and online innovation, though. That's what Microsoft needs right now. Google is posing a threat to Microsoft not just because it is winning in advertising, where Microsoft is a relative beginner, but because Google is shifting the software world to online.

Microsoft is serious about innovation, they just haven't been doing much of it in house for awhile. The Live.com work and the Microsoft acquisitions in the health space indicate to me the company really is trying to do more than just catch up in search and advertising.

I think that this acquisition is going to mean a whole lot more energy put behind services like Flickr and Del.icio.us and innovative content sites like Yahoo! Sports and Finance. All of that will be good for Microsoft and it will be good for those of us who find those sites and services inspiring.

It's hard to know what the impact of layoffs will be, or if the Death Star culture of Microsoft will quash a lot of the Yahoo! spirit, but it's going to be a huge company and I'm hoping we will see some very cool things come out of it.

"We find that innovation confidence starts dropping after people reach 40," Levie told the New York Times.

The NYT's Steve Lohr also noted that there is no correlation between innovation confidence and consumer confidence, suggesting that countries in which people are open to new ideas and technology are not necessarily on firm financial footing.

The Times' Bits blog quotes Daniel Rasmus of Microsoft, who is on the IIIP board, talking about how important the survey's Innovation Confidence Index will be for developed nations as they try to identify emerging markets and ward off competitive threats. That's probably a valid point, but it is too bad that the survey only included 12 countries. Distinctly absent from the list are any African or Pacific nations, and the only South American country included was Brazil. The IIIP index really focused on consumer innovation confidence in Western and Middle Eastern nations.

It is interesting that the IIIP came to the conclusion that Asian nations showed "enthusiasm" for innovation, when the only East Asian nations represented in the survey were China and India (granted, those two countries comprise of a good chunk of Asia's population).

Among the 5 finalists, there is 1 Semantic App, 2 Visual Search Engines, a 3D mapping service, and an Internet video streaming product. Tell us who you think should be the winner in the comments.

Twine is a new Wikipedia-like knowledge management app from Radar Networks. It's currently in a private beta (RWW authors are expecting their invites next week). In our review of a Twine demo from October last year, we noted that it has aspects of social networking, wikis, blogging, knowledge management systems - but its defining feature is that it's built with Semantic Web technologies. Founder Nova Spivack told us that Twine aims to bring a usable and scalable interface to the long-promised dream of the Semantic Web.

Alex Iskold made mention of Twine in his post Semantic Web: What Is The Killer App? this week. He noted that "personal knowledge management is an important problem". However he warned that even though knowing the semantics of knowledge is an important differentiator for Twine, it will need to prove itself: "at the very least Twine has to beat del.icio.us bookmarks and ideally needs to do for personal knowledge management what Highrise is doing for CRM."

Like

Like is a visual shopping search engine that was named on AltSearchEngine's Top 100 Alternative Search Engines of the Year. Like is an offshoot of Riya, the visual search engine. As we noted at the end of 2006, Riya was the first to introduce advanced face recognition technologies in image search and Like is an attempt to commercialize that. Like is similar to Pixsta, which we profiled last year.

According to their About page, Like.com utilizes their "Likeness Technology" to create a digital signature that describes the content of a photo, which they say "enables a more accurate search for similar looking items and products." Currently the following products are featured on the site: clothing, handbags, jewelry, shoes, and watches. Users can purchase items they find via Like, through merchants such as Nordstrom and Amazon.

Viewdle

Viewdle is another visual search engine, but in this case for video. It presented at the Techcrunch40 event in September last year, at which time Emre Sokullu wrote that Viewdle uses a facial recognition algorithm to search for people within videos. The main problem, noted Emre, is that people need to be in their database to be covered, and so far they only index celebrities. Viewdle has deals with Reuters and others. One question at the TC40 event was how Viewdle plans to scale when their database enlarges to many people - the company's answer was "contextual analysis," which will allow them to recognize faces in their environment.

Earthmine

Earthmine launched at DEMOfall 07. In our coverage, Josh Catone explained that Earthmine is creating a competitor to Google's Street View maps. Rather than using video, Earthmine will use "laser range-finding and still photography", which will result in perspective-correct photos that are more detailed and complete. Earthmine claims they can capture entire towns in just weeks using their camera set up, and they plan to extrapolate 3D data from the photos. It also looks like they plan to tag real-world objects within 3D panoramas to give their "geospatial inventories" context.

Marshall Kirkpatrick commented at the time that it's "nothing but 'wow' - not truly useful."

Move Networks

Move Networks is a publishing system that includes end-to-end services for encoding, streaming, editing, and monetizing your video broadcast. As last100 noted recently, 3 major US TV networks use Move Networks to power their Internet streaming services: ABC, FOX, and The CW. As last100 editor Steve O'Hear commented: "[The Move Networks player] is not based on Flash, it’s a proprietary format that uses a QVT file to send little packets across the web, to provide a non-buffering experience for end users that scales based on their connection speed."

Which of the above 5 do you think is most worthy of the title 'Best Technology Innovation / Achievement'? Voting has now closed, but at the end of next week we'll find out which startup won.

1. A large domestic market
2. Access to intellectual capital
3. Reliable, low cost telecommunications
4. A culture that rewards innovation and risk taking
5. A well developed venture capital industry

Against these 5 Aces, India had only one good card, which was low cost labor. It is interesting to revisit these 5 Aces ten years later in 2007 (well, 2008 now!) and see what it means for the state of innovation in India. In short, India is looking a lot better:

However, despite all these advantages and despite thousands of developers in India creating value for Western companies, where is India’s killer app? Where is the Microsoft or Google from India? Or being slightly less ambitious where is the Salesforce.com or YouTube from India?

Why does this matter for India? Look at the market cap of Google ($218 billion) vs Infosys ($24 billion). This is not bubble valuation. Both have similar and reasonably valued PEG (Price Earnings Growth ratio, the only rational way I know to compare two valuations) with INFY at 0.81 and GOOG at 1.30. Google has over 9x the value and is about 15 years younger.

When you read the Google story, you won’t see anything created in a Stanford dorm room that could not have been created in an IIT dorm room. What is really wild is that the barriers have come down even further since Google came to market.

The fundamental issue in India is the risk/reward equation. It is simply too easy for a young developer in India to get paid a lot by an outsourcing firm; then enjoy being headhunted every year for more money. Those of us old enough to see a cycle or two, can see the parallels between Silicon Valley 1999 and Bangalore 2007, when just being able to spell the words of a popular programming language on a Resume meant fame and fortune. It is possible that when this comes back to some reality the motivation to innovate will come to young Indian developers (yes young; breakthrough technical innovation tends to come from people under 30).

This has been the story for some time but it is changing fast right now and we maybe reaching a tipping point related to innovation in India. Three factors are rapidly narrowing the labor cost arbitrage – weaker dollar, rampant salary inflation in India and new technology that significantly reduces the amount of code that needs to be written.

At the same time, VCs are looking entrepreneurs in the eye and telling them that capital is not a constraint but that you had better find a way to get sustainable advantage and scalability that is not tied to linear growth in headcount.

Innovation is happening today in India. You won’t see a lot of it as yet as the interesting ventures are still fairly small and below the radar. But it is happening.

Today’s successful (meaning currently lucrative) innovation in India tends to be at the process and business level. These companies use technology extensively, they are technology driven and enabled, but the technology innovation is more incremental than disruptive and still uses lower cost labor as a core advantage. There are four interesting types of new ventures in India:

1. Leveraged services models. This is where most “next generation BPO” is headed and most niche software services vendors now innovate around a proprietary framework of some kind. These ventures use proprietary technology and other innovation to do transformational change for clients rather than simple offshoring of existing processes. They are being created by teams with deep domain expertise that use India for execution, as opposed to Indian services firms that look for markets that need lots of people. This is “the industrialization of office work”, wringing lots of little process efficiencies through reengineering. It is similar to what Japan did with “Kaizen” continuous improvement to manufacturing in the 1960’s. It is less glamorous than radical, disruptive innovation but it can be hugely effective, creating great value for both client and vendor.
2. Direct to consumer phone and online services. This is very new. These services use new technology, but the real innovation is in process, training and branding. It is a dramatic departure from the old services model that relied on selling through large Western firms. Three examples are GetFriday, iYogi and TutorVista. Direct to consumer services have been enabled by the Internet, specifically Google search engine marketing which is a phenomenally cost effective way for a start-up (that has the right proposition and knows how to properly leverage SEM) to reach global markets. Indian direct to consumer services fill a nice gap left by US ventures that assume that an entirely self-service online strategy will meet the need; this maybe true in some markets and demographics but there are many markets and demographics where a person on the end of the phone is still needed for at least some of the service.
3. Concept arbitrage/localization. This is popular with VCs as they globalize as the deal is simple to understand. For example, when eBay was first getting traction in the USA they were years away from looking at foreign markets, so there was plenty of time in many markets to copy the basic idea and add in a few twists to appeal to local tastes. When the originator has won in the USA they use IPO cash/equity to buy up the local players, which is a good result for all. There is less easy money in these deals now as Web 2.0 start-ups either need less localization, or they figure out those issues upfront, leaving less time for a local clone to get traction. This requires more innovation to build features that really make a difference in India and other Asian countries that could later enable a global rollout. One area for innovation is wireless as America is so far behind Asia in wireless. Most of these won’t get much visibility in the West as that is not a target. One success, riding the booming jobs market, is Naukri (India’s answer to Monster).
4. Cheap clone/selling to bottom of pyramid. Clones dramatically under-price Western products based on lower cost R&D and volume. There have been attempts to do this in software, but open source has taken the bottom out of this game in most segments. With excellent execution there is sometimes room for a “better faster cheaper” fast follower play if the software is delivered as a service and does not require corporate approval to get traction. Zoho is a good example of great execution on a crowded field. The much more interesting play is for real world products that need to be substantially cheaper for the Indian market. Pre the 1991 liberalization of the Indian economy this was derided by economists as “import substitution”, flying in the face of free trade economics. However now it has a new lease of life as “selling to the base of the pyramid”, delivering products to the 4 billion people who are not currently in the consumer market. Generic pharmaceuticals are already a success story. Another example might be a Fetal Heart Monitor, the most basic bit of medical equipment. If a robust product was offered at half the price or less of Western products more rural clinics in India could buy it; would this also later find a market in the West? The standout for me is Novatium, who are really making the sub $100 laptop a reality without any subsidies. Don’t expect to see them in the West any time soon, their market in India is plenty big enough!

Many people would not see these as innovation. They are not seen as classic “killer apps” and disruptive innovation along the lines of eBay or Google. In this view, truly great innovation should be totally independent of the cheap labor advantage or market localization.

There is no reason this type of innovation cannot come from India but also no reason that it should; the innovation spark is totally location independent today. This could come out of an IIT dorm room, or indeed any room anywhere in the world.

India needs to find work for a massive labor force that grows every year. So the Western ideal of a huge business with minimal employees is not the ideal for India. The great Indian success stories will probably still leverage the talent for organizing large numbers of people toward a common goal.

In trying to come up with a top 3 list of great entrepreneurial ventures, I found it easy to come up with two that are very much real world:

• Jet Airways. If you think it is impossible to build a truly great airline that is a pleasure to travel in whether it is Coach or Business, fly Jet. Doing that in India where infrastructure is weak is a phenomenal achievement.
• Bharti Mobile. They rewrote the rules on growth by outsourcing everything non-core and became possibly the best Private Equity return ever.

I also find it easy to think of old, large companies that are innovating like crazy – Reliance, ICICI and Tata Motors come to mind; break dancing elephants, wow!

The achievement of the SWITCH (Satyam, Wipro, Infosys, TCS, HCL) is not to be denied; great value creation for investors, clients and employees.

The best shot at a software product breakthrough looks like Zoho. (On a strict definition maybe they should be excluded as their head office is in America but I think that is nit-picking). They could give Microsoft and Google a run for their money in the web office space. The new and highly controversial Live Documents may not strike one as technology innovation but it is certainly a big ballsy move.

The one that will make the biggest difference in my opinion is Novatium; they really bring the web to millions of the poor and without any subsidy.

Conclusion, wow what a lot of change in 10 years! The momentum looks set to make the next 10 years even more dramatic.

What really great innovation have you seen from India? What do you expect to see in the future?

Image of Innovation Center of Infosys in Bangalore, by ianus via Flickr

Talis is a bit different than most web 2.0 startups we hear about. It is a 40 year-old technology company with a significant presence in the UK - nearly a quarter of British academic and public libraries make use of its software. Although the Web is a prominent feature of the organization, their primary focus is on data management.

Following web 2.0 trends, Talis has made an open technology platform that encourages collaboration and the use of large stores of Semantic data. They espouse the principle of the perpetual Beta, stating that: "Notions such as 'finished' or 'complete' have little meaning in this context." They even have a glassy, 2.0-style logo.

But, there is something different about the Talis ethos. From its faintly philosophical blog and an academic approach to 'evangelism', you get the sense that the folks behind Talis really understand the semantics they preach. Talis' idea of marketing is to promote the semantic web itself, rather than just trumping its own brand. They host podcasts with eminent figures in the blogosphere, and discuss with confidence the bleeding edge of Semantic Web technology.

The Talis Platform

Did I mention platform? Although there are many applications on the Talis website, its main focus is on the semantic platform it has built. The Talis platform is a field from which its various applications (and developers using the Talis Community Licence) can work their semantic magic. The Platform allows unstructured data to be quickly sorted and stored, making it especially useful to libraries and companies. Its Semantic elements are used in conjunction with data mining and fast search technology, meaning that after data is sorted and stored, it can be quickly and efficiently retrieved. In an interesting twist, the Talis Platform is not intended to disrupt the WWW, but to work with the nodal structure of the web - allowing systems already in use to access new forms of semantic data through their APIs and applications.

Basically, data in the Platform is stored in aptly-named structures called 'stores', which allow data to be accessed using metadata (machine readable descriptors utilizing RDF). This data can then be accessed and linked from the Web, allowing easy access to self-managed data stores, while still enabling the RDF Semantic components to sort and examine the data. Linked in with the semantic filtering and data-management is a strong control of data and their interrelations. Any element of the data can be matched and controlled, allowing access to relevant data rather than just returning simple search results. An example Talis gives for this is in a retail context: a product can be found in multiple stores; but using relevant retrieval, data can be returned for a specific store.

The upshot of the platform in combination with the Talis Community License is that semantic mashups can be created. One such, a Firefox plugin (image right) allows you to see which libraries across the UK hold a copy of the book you happen to be looking for on Amazon.

Alongside the semantic parsing and data management of the stores, Talis is constantly working on new ways to analyze the data. The Platform is constantly learning new techniques and can make inferences from user behavior and automatically discover relationships, thus bringing ever-richer results for data applications.

Talis Applications

Talis' own applications are wrapped up in the LMS (Library Management Suite) and some complementary products designed for academic, public, and specialist libraries. A quick Google search for "Talis Library" will return prominent British institutions making use of various elements of the Talis LMS or using Talis Platform technology alongside their pre-existing management software. Although there are many products listed on the Talis site (full list here), to an outsider it is difficult to distinguish them all.

Each Talis application seems to offer a particular perspective on library management. "Alto" is the integrated library management system which seems to support everything a library could need, including the management of business data and cataloguing. Talis also offers "Prism", which is an OPAC (Online Public Access Catalog) that allows online access to a library's stock. They also have a messaging and a mobile product (called Talis Message and Talis Mobile respectively) which make library information easy to access. Many of the applications on the Talis platform are either Mashups or bespoke creations for a specified library's needs. A good example is Project Cenote (image below), which is an aesthetically pleasing interface for catalogues of books in stores, libraries and any other holdings.

Not being a librarian, I found it hard to make distinctions between some of the systems. For example: the main application, the LMS (Library Management Suite) includes Alto, which seems like a library management system in itself. It is very clear however that to Talis, libraries have multiple needs and so the company is determined to supply a product for every eventuality. Many of Talis' apps allow a library to put their content online in a user-friendly and easily-accessed format.

One interesting example of this is the  @ Your Library Wales interface. This is a portal being built by a third party developer using the Talis Platform and Web Services. It allows Welsh libraries to share their content while also providing other rich internet experiences, like travel information and library finders. Their landing page (see below) hosts content and links to the BBC, as well as links to other service-oriented applications.

Talis Evangelism

As mentioned above, the Talis evangelism team seems to promote the  Semantic Web as a notion; and it supports SW ideas and furthering of related technology. The company holds hour-long talks with figures from the vanguard of semantic development, and host several blogs as a discussion platform. Although obviously Talis-focused, these 'Talks with Talis' and the blogs don't simply spout marketing-speak. They are asking and answering questions about the furthering of Semantic Web - and they explore other unrelated tech to find possible relationships.

For me, the most interesting facet of Talis as an organization can be found in their Nodalities blog. Here, aspects of the Semantic web are presented, analyzed, and opened up for discussion regardless of where they are based. The lead article on 14th December was an announcement and discussion of the Amazon.com product S3 (Simple Storage Service). The quality of discussion on these blogs is phenomenal, and it is very refreshing to see a take on marketing which works this way. Dr Miller, who also hosts the "Talks with Talis", offers an academic perspective on the Semantic web, and tends to approach his posts in an almost lecture-like style. Topics within the library sector are covered under a separate blog - Panlibus - which also includes interviews with representatives in information architecture and data management.

One distinct downside to this approach, despite the benefits of being professional and evoking a sense of confidence in their field, is that the casual reader will find nothing which says exactly what Talis does. The discussions are in-depth and appear to be thorough, but it is not easy to find overview material - and if it does exist it often raises more questions than answers.

Conclusion: So, What is Talis?

Talis seems to be exactly what they say: an innovation company. They promote collaboration and work from a perspective of facilitation. Their main products are focused on library management, and this stems from their semantic technologies and data mining software. Their long heritage is blended with a leading energy and an understanding of the most current technologies across their sector. They even cover other companies innovations in their news.

Will you see the Talis name everywhere like you might a Semantic Web startup? I don't think so. But, if you've visited your local library, or logged into a campus ISS catalogue (at least in the UK), the chances are that you've come across Talis' innovations quietly enabling your search and research.